M/S BUDHIYA MARKETING PVT. LTD.,KOLKATA vs. ACIT, CC-XXX, KOLKATA, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 4. The grounds of appeal taken by the assessee in the lead case in ITA No.270/Kol/2015, are as follows: “1. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in dismissing the Ground Nos.1 & 2 of the appellant assessee company’s appeal challenging the jurisdiction, legality and validity of (i) the arbitrary action taken against the appellant company u/s 132(1) of the I.T Act without issue and service of any search warrant on it (ii) seizure and recovery of the appellant's money lying in Axis Bank, Lake Town Branch, Kolkata (A/c No. 5906) on 11.02.2010 and (iii) the subsequent order of search assessment passed by the A.O u/s 143(3)/153A of the Act on 30.12.2011 without going into and analyzing the facts and merit of the case.

2. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in dismissing the Ground Nos.1 & 2 of the appellant's appeal without considering the basic facts and the legal provisions that (i) no search warrant u/s132(1) was issued in the name of and served on the appellant company for searching its premises and the bank a/c (ii) no prohibitory order u/s 132(3) in respect of the appellant's aforesaid bank a/c was issued and served on the appellant (iii) seizure of the said bank a/c on 11.02.2010, immediate realization of the entire money lying in that a/c and the Panchanamadt. 11.02.2010 were all made by the Department without requiring or calling for any legal presence and signature of the appellant. The non-observance of the basic formalities resulted in an invalid search which made all subsequent actions of the A.O invalid. The impugned order of assessment uls 143(3) / 153A of the Act dt. 30.12.2011, being void ab initio, is liable to be quashed / cancelled.

3. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in dismissing the Ground Nos. 3 & 4 of the appellant's appeal and confirming the addition of Rs.1,20,000/- made u/s 68 of the Act in the unlawful and invalid assessment u/s 143(3)/153A dt.30.12.2011 on a/c of share application money received during the year from parties on a totally vague and unsubstantiated ground that the appellant company was providing accommodation entries to different parties / beneficiaries completely disregarding & rejecting all the relevant materials and evidences explaining the identity & creditworthiness of the share applicants as well as the source and genuineness of the investments made by them duly furnished by the appellant.

4. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in dismissing the Ground Nos. 3 & 4 of the appellant's appeal and confirming the said addition of Rs.1,20,000/- without taking into consideration the facts that similar type of additions made in the search assessments u/s 143(3)/153A dt. 30.12.2011 for the A.Ys 2005-06 & 2006-07 have been fully deleted by the Ld. CIT(A), Central - III, Kolkata, vide his consolidated order Nos. 150 & 151 dt. 24.07.2012.

5. For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds before or at the time of hearing.”

5. Although, in this appeal, the assessee has raised a multiple grounds of appeal but at the time of hearing, the main grievance of the assessee has Page | 2 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 been confined to the issue that addition made by the Assessing Officer u/s 68 on account of cash credit at Rs.1,20,000/- treating the share application money as bogus because identity & creditworthiness of the share applicants as well as the source and genuineness of the investments made by the applicants were not established by the assessee. Ground No.1 and 2 were not pressed by the assessee.

6. The brief facts qua the issue are that a Survey u/s.133A was conducted at two premises of Shri Santosh Kumar Shah, located at 9/12, Lal Bazar Street, Block-E, 2nd Floor, Kolkata-1 and 1A, Grant Lane, 2nd Floor, Kolkata on 14/12/2009, later the said survey operation was converted into search operation u/s 132(1) of the Income Tax Act 1961. In the course of survey operation u/s.133A of the I.T. Act, 1961, at 1A, Grant Lane, 2nd Floor, Kolkata Cash amount of Rs.40.50 lakhs and various papers/documents were found which pointed to a number of bank accounts being used to provide accommodation entries to a number of persons /firms and companies. It was further revealed during the course of survey/search that unaccounted cashis received from prospective beneficiaries and same was deposited in some Bank accounts maintained by these entry operators. After various circular transactions, cheques are issued to the beneficiary. Such entry operators charge a commission for providing such accommodation entries to real beneficiaries. For such 'business' these entry operators maintain innumerable Bank accounts and various paper companies are also maintained by them. In view of the above, action u/s.132(1) ofthe I.T. Act, 1961 was taken against the assessee, M/s Budhiya Marketing Private Ltd., on 11/02/2010 in the account number 191010200005906 Axis Bank, Lake town Branch and cash of Rs.13,87,13,704.13 lying in, was seized. The return of income was filed by the assessee on 05.10.2010 declaring total income of Rs.4,140/- only. The assessee’s Page | 3 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 case was selected for scrutiny u/s 143(2) and the Assessing Officer has completed the assessment by making addition on account of share application/share premium at Rs.1,20,000/-. The Assessing Officer also made the addition on account of deferred revenue expenses at Rs.18,000/-. During the assessment proceedings, the AO asked the assessee to explain as to why year wise increase in the share capital and year wise share application money should not be treated as bogus and be added as unexplained investment to the income of the assessee. In response to that, the assessee submitted that the show cause notice issued by AO was very much vague, irrelevant and having baseless allegations with regard to transactions entered by the assessee company and also does not provide any legal and factual justification for making addition of entire share capital raised during the block period. That the search/survey carried on Sri Santosh Kumar Shah has got no connection whatsoever with the assessee company and AO has not allowed to cross-examine him with regard to any statement made by him in relation to the assessee company. There were no documents/evidence found in possession of assessee company or any of its directors during the course of survey/seizure. No deposit of any unaccounted cash in any of assessee`s bank accounts. Assessee has never charged or received any commission in whatsoever manner for providing any kind of accommodation entries and also it has not received any kind of direct or indirect benefit out of it. The assessee company is not a paper company, it is a registered company having NBFC certificate and a regular assessee of the Income tax, duly and correctly filing its income tax returns from time to time, which were also scrutinized by assessing officer. Regarding money lying in the current account of the company at Axis bank, Lake Town branch, the same were recorded in the books of account and assessee and provided with all reasonable evidences as to the source of such Page | 4 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 amount. The assessee also explained to AO with regard to year wise increase in the share capital and year wise share application money stating the full details in respect of year wise increase in share capital and share application money along with all supporting documentary evidences including Balance Sheet, Bank Statement, confirmation letters with PAN details of share applicants before AO from time to time. The share applicants to the assessee company were corporate bodies and the share application and subscription money have been received by account payee cheques only. All share applicants were genuine, properly identifiable persons having well established credit worthiness and are asssssed to Income-Tax, whose PAN have also been furnished before AO. Based on the above facts the assessee submitted before the AO that the share application money received by the assessee company for raising its share capital should not be treated as bogus and cannot legally be treated as unexplained investments. Ignoring the submissions of the assessee, the Assessing Officer made the addition and held that Sri Santosh Kumar Shah and his employee/relative, who have been sitting on the boards of several companies, have admitted that various companies are merely a paper companies. Cash has been deposited in the accounts of various individuals and cheques have been issued against it. Such cheques have been rotated through several companies, floated for such purpose only. During the assessment proceedings, the AO also pointed out that Sri Santosh Kumar Shah has admitted to business of entry operation and has filed a petition before Hon'ble Settlement Commission, Kolkata. He has disclosed commission income @0.55% from such transactions. His source of such funds remains unexplained. The subsequent transactions through such cash, though via banking channels, cannot be held as fair or explained. lt cannot be considered genuine, if circulated through a number of banks accounts opened with the help of unverified document.Sri Santosh Kumar Shah admitted to running a business of creating companies with artificial shareholdings. Based on the above findings, the AO made the addition of Rs. 1,20,000/- on account of share capital. Page | 5 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 7. Aggrieved by the addition made by the Assessing Officer, the assessee filed an appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing Officer. The CIT(A) observed that during the course of search/survey cash Rs.40.50 lakhs and various papers and documents were found which revealed that a number of bank accounts being used to provide accommodation entries to a number of persons/firms and companies. Consequent to the search operation in the case of Shri Santosh Kumar Shah who was indulged in the activity of providing the accommodation entries, the search operation u/s 132 of the Act was conducted in the bank account of the assessee company on 11.02.2010 having Account Number 191010200005906 with Axis Bank, Lake Town Branch, Kolkata. The assessee has contested the action of the Assessing Officer making addition of Rs.1,20,000/- u/s 68 of the Act on account of share application money accepted by the assessee company in the year under consideration. The facts of the case are that in the course of survey/search operation in the case of Shri Santosh Kumar Shah, it was gathered that he was indulged in the activity of providing accommodation entries to various beneficiaries after accepting cash from them. Therefore, substantial amount of cash was found from his premises at the time of search operation. In his statement, Shri Santosh Kumar Shah admitted that he had provided accommodation entries to various parties and charged commission from them. It was found by the AO that in the year under consideration the assessee company had also received share capital of Rs. 1,20,000/- in the similar fashion. It was also observed by AO that in the course of post search enquiries in the case of Shri Santosh Kumar Shah, the statement of Shri Vinod Kumar Shah, Director of the assessee company was recorded by the ADIT(Inv.), Unit-II(6), Kolkata on 10.02.2010. In his statement it was stated by Shri Vinod Kumar Shah that he is the relative of Shri Santosh Kumar Shah and he was Page | 6 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 the director of M/s Budhiya Marketing Pvt. Ltd. i.e. the assessee company till the year 2007. It was stated by him that M/s Budhiya Marketing Pvt. Ltd. was engaged in the activity of providing accommodation entries. For that the company was charging commission. It was also stated by Shri Vinod Kumar that he used to sign cheques/documents in the capacity of the director of Budhiya Marketing on the instruction of Shri Santosh Kumar Shah and that he was the only a dummy director of the company. He stated that since presently he was not the director of Budhiya Marketing Pvt. Ltd, therefore he was unable to explain the source of cash deposited in its bank account with Axis Bank, Lake Town Branch Kolkata. However, the said company is engaged in the business of providing accommodation entries. Since, the assessee company was also indulged in the activity of providing accommodation entries and in the year under consideration it had also increased its share capital by Rs.1,20,000/-. However, the contention of the assessee company was not accepted by the AO in view of the specific statements of Shri Santosh Kumar Shah who floated the assessee company and Shri Vinod Kumar Shah who was the erstwhile dummy director of the assessee company. Under the circumstances, the AO added sum of Rs.1,20,000/- to the income of the assessee treating the increase in share capital as not genuine. During the course of appellate proceedings, the assessee reiterated the submission made before the AO. The assessee contended before the CIT(A) that the Assessing Officer was not justified in making the addition of Rs.1,20,000/- on account of share application money as in the course of assessment proceedings the assessee submitted complete details of share application money including copy of share applications, copies of relevant bank statements of share applicants, copy of PAN card of share applicants, copy of their I.T. Returns and balance sheet. The assessee also stated that the AO had issued notices u/s 133(6) of the Page | 7 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 Act to all the persons who had subscribed to the appellant's share capital and nothing adverse was found by him. Though, in the assessment order, the AO has not mentioned this fact. It was contended by the assessee that the entire share capital received by the assessee by account payee cheques from the corporate entities and full particulars thereof were before the AO to prove the identity and creditworthiness of the share applicants as well as the genuineness of the transactions. But CIT(A) ignored the submissions of the assessee, as mentioned above, and held that the AO was justified in making the addition of Rs.1,20,000/- on account of share allocation money. The CIT(A) observed that in the course of search and post search enquiries Shri Santosh Kumar Shah had given a specific statement that the appellant company was floated by him and the directors of the company were acting on his instructions. He also stated that the assessee company was engaged in the activity of providing accommodation entries to various beneficiaries. Shri Santosh Kumar Shah also declared commission income in his hands earned by him by providing accommodation entries. He did not retract his statement given in the course of search. Further, similar statement was also given by Shri Vinod Kumar Shah, the erstwhile dummy director of the appellant company. He stated that the appellant company was providing accommodation entries and that the bank account in Axis Bank, Lake Town Branch was opened by him and at that time he was one of the signatory of the bank account. In view of above facts, the CIT(A) confirmed the addition made by the AO at Rs.1,20,000/-. 8.Not being satisfied with the addition by the ld. CIT(A), the assessee is in appeal before us. The ld. Counsel for the assessee submitted before us that the assessee submitted complete details of share application money including copy of share Page | 8 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 applications, copies of relevant bank statements of share applicants, copy of PAN card of share applicants, copy of their I.T. Returns and balance sheet. The ld counsel stated that the AO had issued notices u/s 133(6) of the Act to all the persons who had subscribed to the assessee's share capital and nothing adverse was found by him. Though, in the assessment order, the AO has not mentioned this fact. During the assessment proceedings, it was contended by the assessee that the entire share capital received by the assessee by account payee cheques from the corporate entities and full particulars thereof were before the AO to prove the identity and creditworthiness of the share applicants as well as the genuineness of the transactions. The ld Counsel stated that under the provisions of the I.T. Act, the assessee is not required to prove the source of source. The AO has made the addition on the basis of statement of Shri Santosh Kumar Shah but he did not allow the assessee an opportunity of cross examination. The ld Counsel submitted that Shri Santosh Kumar Shah was never either a shareholder or a director of the companies who contributed towards share capital and share premium of Assessee Company and hence his deposition can have no evidentiary value for making any addition in the hands of assessee company on account of introduction of share capital. The assessee relied upon various judicial decisions in support of his claim. The ld. Counsel also submitted that assessee`s case under consideration is squarely covered by the order of Hon’ble ITAT, Kolkata in assessee’s own case in ITA Nos.1545 & 1546/Kol/2012 Assessment Years 2005- 06 & 2006-07, dated 10th July, 2015, wherein Hon’ble Tribunal Kolkata held that since no incriminating material was found during the course of the search relating to the share capital and the share premium, therefore, no addition can be made while making an assessment under section 153A of the Income Tax Act. The Hon`ble Tribunal held that the Assessing Officer was not correct in law in making Page | 9 M/s Budhiya Marketing (P) Ltd. & 270/Kol/2015 Assessment Year: 2004-05 & 2007-08 the addition in the assessment made under section 153A read with section 143(3) when no incriminating material was found during the course of the search in respect of the addition made by him.