ITO, WARD-9(1), KOLKATA, KOLKATA vs. M/S. MALINATH TRADECON PVT. LTD., KOLKATA

None appeared on behalf of the assessee despite issuance of notice by RPAD. Earlier also, notices were issued by RPAD as well as through the Department. There is no response from the assessee. Under the circumstances, we dispose of this case ex parte qua the assessee on merits after hearing the Ld. DR.

The assessee is a company and filed its return of income electronically on 27.09.2010 declaring NIL income. The return was processed u/s 143(1) of the Act. Later survey operation was conducted u/s 133A of the Act in the business premises of 2 M/s Malinath Tradecon Pvt. Ltd. Assessment Year: 2010-11 the assessee, in connection with the search operation u/s 132(1) and survey operation u/s 133A of the Act at the various premises of Shri Sagar Mal Nahata, a qualified chartered accountant and proprietor of the concern M/s S.M. Nahata & Co. as a consequence to the search and seizure operation in Bhusan Group (Chandigarh segment) of cases. Notice given u/s 143(2) of the Act was issued. The assessment was completed u/s 143(3) of the Act. The Ld. AO from Para 8 to Para 10.3 of the order held as under:

After considering the above mentioned facts, it is established that Mr. Loknath Sen is earning his income as salary from any other company (i.e. M/ s Sincere Multicommunity Pvt. Ltd.) and not as a directors' salary from the companies in which he is one of the directors. The directors are only the Benami Directors of all the alleged companies created only to provide accommodation entries. While going through the balance sheet of the companies it is seen that the total of share capitals of companies under consideration figures to Rs.106.53 Crores. As the companies are closely held companies, it is quite natural that the directors should have plenty of movable and immovable assets as well as huge income but the income of the director is very meagre. He is not at all rich person and doesn't live in a princely way. Though being common director in as many as nine companies given above, the income of the director is not at all commensurate with the financial position of the companies. He is the poor fellow and his name is used by his master. 8.1 The director is unaware of the owner of the business premises and he does not even know where the premises are situated. The director of any company is supposed to be well aware of the activities and businesses of the company. It is surprising that being one of the directors he was unable to throw any light on the most basic activities, as far as these companies are concerned. It is construed on the above facts he is merely an employee and has nothing to do with the functions as assigned to the post of director and acts like a puppet as instructed by some Pal Da, Ghosh Da or Bose Da. 8.2 The statement given by Mr. Loknath Sen as discussed at length above is self- speaking that he does not have any independent indulgement and activities as director in the above companies as well as he is incompetent enough to understand any of the documents of the companies. He is simply a scapegoat managed to sign on behalf of the companies to flourish fake investments as share application / share capital in the guise of legal entities. He has no control over the companies and no involvement in the everyday affairs.

In view of the above, it is seen that the assessee company is a mere name lender paper company and acts as a conduit for receiving the entries and issuing the entries in the form of share applications. This is a fit case for piercing the corporate veil and examining the actual activity. Creation of documentation e.g., purchase & sale bills of shares, passing the cheques through banking channels, obtaining PAN, filing of returns with ROC, maintaining the bank accounts, share application forms, board resolutions, balance sheet, etc. have been framed. However, this documentation has been enacted wholly and exclusively for the purpose of receiving the entries and issuing the entries. The form can't undermine the substance of the transactions. This so called company is nothing but a legal fiction. 10.1 The ultimate beneficiary of-all the alleged transactions made by the above mentioned nine fake companies is M/ s Bhushan Power & Steel Ltd. and the unaccounted monies of M/s Bhushan Power & Steel Ltd. has been routed through all these bogus companies which have been shown as their investments. 10.2 Hon'ble Hight Court in the case of CIT v. Independent Media (P.) Ltd. in [2012] 210 Taxmann 14 (Delhi) has held that it is not incumbent upon the Assessing Officer, on the facts and circumstances of the case, to establish with the help of material on record that the share monies had come or emanated from the assessee's coffers. Section 68 of the Act casts no such burden upon the Assessing Officer. This aspect has been considered more than 50 years back by the Hon'ble Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807. To place such a burden on him, an impossible one at that, would be quite contrary to the judgments of the Hon'ble Supreme Court cited above. 10.3 Therefore, even though corporate entity has been created, this office, after considering all the facts as above, has come to the conclusion that what is apparent is not real and the alleged company does not really exist as there is no base for the transaction shown to have been conducted. Therefore, there is neither any brokerage & commission received, nor any expenses incurred nor any net profit gained. As the alleged company is nothing but a legal fiction, the gross total income, the total income as well as the tax liability is hereby treated as NIL.

Aggrieved, the assessee carried the matter in appeal disputing the finding of the Assessing officer that the assessee company is legal fiction and does not really exist. The Ld. CIT(A) upheld the contention of the assessee and para 14 held as under:

After hearing the Ld. DR, we are of the considered opinion that the Assessing Officer was wrong in not assessing the company which has filed its return of income. Admittedly, the assessee company had taken accommodation entries and has also provided accommodation fees by way of share capital. While so, the Ld.AO was duty bound to examine the applicability of Section 68 of the Act. Instead of the Assessing Officer chose to hold that the assessee did not exist. Such a finding cannot be upheld. The AO has not done his duty of enquiring into the credits and passing an order on merits. There is no finding as to in which company the credit entries have been

The CIT(A) also failed in his duty to use his co-terminus power with that of the AO and examine the applicability of Section 68 to the facts of the assessee’s case. He simply accepted the contention of the assessee that the assessee company exists and did not direct the AO to enquire on merits and given a remand report. In the result, no proper assessment has been done in this case.

In the result, the appeal of the Revenue is allowed for statistical purposes.