A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. M/S MITCON INFRAPROJECT PVT. LTD., MUMBAI

The only issue involved in this appeal relates to the addition on account of share application money and share premium: The brief facts of the case are that there has been search and seizure action u/s. 132 of the Income Tax Act in the office of Bhangdiya Group on 19/07/2011 During the course of the search; several incriminating documents were found and seize From the seized material; it was noted by the Assessing Officer that item number 66 of Annexure B and item 3 Annexure B-1 belong to the assessee s company: Accordingly the notice u/s 153C of the Income Tax Act dated 06/05/2013 was issued and served on the assessee. In response to the notice; the assessee objected the validity of the notice and requestcd to drop the proceedings u/s. 153C to which the Assessing Officer did not agrec; The assessee therefore; submitted that the return filcd u/s 139[1) be treated a5 the return filed u/s 153C The assessing Officer on the basis of the seized material noticed that the assessee Bhangdiya has transferred thc cash and brought it back to the group company. 3 The Assessing Officer noted following companies invested in the share capital of Assesse Company which in his view were shell companies: 2010-11 ~do- GTIL Alka Diamond Industries Ltd Rs40,00,0QQ Rs 60,00,000_ 3 48/NAG/2016 LOKSHAHI PUBLICATION On this basis, the Assessing Officer observed that cash balance generated by inflating sub-contractor expenses were routed through investor companies to be infused in group companies as share application Inoney as per the seized diaries of Annexure B-1 to B-65. 4 The Assessing Officer, observed that Shri Mitesh G. Bhangdiya are directly involved in the capacity of Directors or shareholders of Bhangdiya Groups of Companies. According to the Assessing Officer, over 30 crores have been laundered through bank account of shehl companies The Assessing Officer ultimately concluded that the Bhangdiya Group has transferred its unaccounted fund to Mumbai through Hawala by mediator who has subsequently brought through cash transfer funds RTGS ofvarious amount in various bank account and controlled through various persons: The amount has been operated transferred one bank account to another after 3 4 layers of bank transaction on the same day and the amount appears a5 share application and share premium into Bhangdiyas Group of Companies after being laundered through several clearings The Bhangdiya Group has laundered in the case of the assessee their unaccounted money as share application money including share premium of Rs LCrores through shell companies and the sources of the said investment was from the cash balance available with the Bhangdiya's Group as reflected on the receipts side of the diaries item number 1 to 65 of Anexure B The Assessing Officer therefore, added Rs 1 Crores on protective basis in the hands of the companics treating the same is bogus When the matter went before assessee the GIT(AJ, the CIT(A) deleted the said addition by observing as under: "9.0 7 have carefully considered the submissions of the AR of the appellant the order of the AO and the material on record 4 9.1 During the relevant financial year under consideration, the appellant company has received share capital to the tune of Rs 1.00 crores 48/NAG/2016 LOKSHAHI PUBLICATIQN from 2 corporate share holders: The AR has contended that the Id. AO has made the detailed enquiry in respect to share application money received from vurious companies who have contributed towards share capital of appellate company The appellant in the course of assessment proceedings has submitted confirmations from investor corporate share holders in respect of the share capital subscribed by them The appellant contends that the investment made by such corporate share holders was duly reflected in the regular books of account and the amounts %f investment have been received through banking channel The AR has placed un record the details of Assessing Officers f the investor corporate entities which are assessed at Mumbai The AR has also filed the financial statements of the corporate share holders including the PAN and ROC details Thus the AR contends that the identity of the share holders is fully established As regards to the seized material found in the case of Shri Mitesh Bhangdiya, the AR has contended that the same does not relate to the appellate company, therefore no adverse inference can be drawn 9.2 The AR 0f the appellant has relted on the decision of Hon'ble Apex Court in the case f Lovely Exports Pvt Ltd. reported in 216 CTR 195 (SC}; 9.3 The corporate share holders are assessed to Income-tax and have Submitted their income-tax returns with the Income-tax Department Therefore; according to the AR, the ratio laid down by the Hon'ble Apex Court in the case of Lovely Exports Pvt Ltd. is applicable to the facts of the case of the appellant The AR further submitted that the appellant by furnishing the PAN and ROC details has discharged the anus cast on it The onus therefore is shifted on the revenue to prove the transactions atherwise as not bona-fide As regurds to the issue of invoking the provisions of section 68 of the Act by the AO, the appellant has relied on the following decisions: 333 5 48/NAG/2016 LOKSHAHI PUBLICATION 1 Appeal (L] Nu. 218Z 0f 2009 {High Court of Bombay) 307 [TR 334 CIT VS Ms, Creative World Telefilms Ltd. CIT vs. Value Capital Services (P) Ltd: Hon'ble Bombay High Court judgment vide order dated 13.02.2012 in the case 0f CIT vs Goa Songe & Power Ltd ii iii) 9.4 The AR of the appellant has contended that the Id. AO has nat brought any evidence On record to show that for contribution of share capital, money has fluwn form Coffers of appellant company The AR further contended that assessment ufs: 14303) KwS 153C of the Act has been completed wherein the income Of the appellant company has been computed by the Id. AO as per the books of account in respect of its business activities and no defect whatsoever has been found in the bouks of account of the appellant which has been accepted: It is @ fact entanated from the records that the books Of account of the appellant have not beent rejected by the AQ APPe E LLat, Thus the contention raised by the AR that in the absence of any evidence to the effect that money has flown from coffers of assessee, the addition u/s 68 4 1 Kannot be made; carries substantial force The AR of the appellant in this regard has relied on the decision of Hon'ble Delhi High Court in the case of CIT vs, Value Capital Services Pvt Ltd. reported in 307 ITR 334 (Del:} Thus the AR pleads that appellant hus proved the identity, credit worthiness and genuineness 0f the transaction 9,5 It is 0 fact as emanated from records that che AR of the appellant during the course Of assessment proceedings has filed the details of share application money, including the share application forms; confirmations from the respective companies with their complete names and addresses and PANs, Board Resolutions, bank statements and Incame-tax returns It is thus not disputed that the 02 companies which have made 6 48/NAG/2016 LOKSHAHI PUBLICATION investments with the appellant company in the form of share capital are ossessed to tax and have filed their returns ofincome for the relevantyear It is also undisputed that the sharg application money in question has been received through the account payee cheques by the appellant company: Thus, $o far Gs the investor companies are concerned the transactions of investment have been effected by aCCOunt payee cheques through the banking channels The AO, however, after conducting certain inquiries in respect of investor companies; has inferred and arrived at the canclusion that the share application money invested in the appellant company is nothing but appellant companys Own unaccounted money introduced under the guise of investment by the 08 companies; which are allegedly used a9 route to bring back such unaccounted money: 9.6 The contention of the AR of the appellant i5 that the 02 companies who have invested with the 7 appellant company are limited companies; which are registered under the Companies Act 1956 Therefore, locating the companies is not an impossible task; more particularly, when such companies are registered with the Registrar of Companies and have regularly filed their returns of income It is thus not & case that the appellant has not filed any explanation or details aS regards to the companies which have invested with the appellant company: In fact; the AR has provided the details of Income-tax records and registration of companies including the PANs. The Ld AO had all the details aS to the AOs of the investor companies; inspite 0f such details being available with AO nothing adverse has been brought on record that such companies in connivance has facilitated the appellant company to devise such colourful transactions 9.7 It is seen from the records that the Id. AO has drawn the inference that the share application money and the shure premium introduced with the appellant company by the investor companies is bogus APPEL 1 Jro26 335 7 48/NAG/2016 LOKSHAHI PUBLICATION without bringing any adverse material on record The Ld. AO thus without examination Of the investments made by these 02 companles had arrived at the conclusion that the entire share capital of Rs. 1.00 crores by the 02 companies is under the garb of bringing back the unaccounted money of the appellant campany It however, is @ fact as emanated from the records that the Ld AO has refrained from giving any finding in respect of these 02 investor companies and formed the general belief based on the seized material relating to the Cash withdrawals from sub-contractors bank accounts Therefore; the ratio laid down in the case of Honble Apex Court in Orissa Corporation Pvt Ltd: vs CIT 159 ITR 78 (SC) fs applicable to the facts 0f the appellant company in aS much aS that in the case of the appellant company the Ld. AO, apartfrom issuing natice u/s 133(6}, did not pursue the matter further: 9.8 The AO hos observed that before investing the funds with the appellant company, all the 02 investor companies have received the money in cash through several layers, which according to the AO, is the cash available with the 'appellant utilised for the purpose of introduction of_ bogus capital with the appellant company through such investor companies The AR of the appellant has objected to such observation contending that the AO has not brought Out 4 single instance which could show that the appellant company has deposited the cash in the bank accounts 0f investor companies with & motive to bring back are same in the form of share capital The AO has drawn the inference that cash balance generated by sub-contractor expenses were routed through investor companies t0 be infused in the group companies GS share application money. The AO has further mentioned in para no 7 that the Bhangdiya group has transferred its unaccounted fund ta Mumbai through Hawala mediators which amount is alleged to have been invested with the appellant company through the 05 investors However, no 8 48{NAG/2016 LOKSHAHI PUBLICATION such evidence of cash transfer in the name of investor companies is brought on record 9.9 It is 0 fact that the AO has caused the inquiries u/s 133{6} of the Act in respect of inveslor companies However; whatever material has been gathered pursuant to Such inquiries has not been confronted with the appellant infact perusal of assessment order does not indicate that any adverse material has been obtained from which anything adverse can be held a5 regard to contribution 0f share capital Thus the argument of the appellant that once the appellant has furnished the names and addresses and PANs of investors; including their Income-tax records the appellant is not concerned as regards to deposits in the account of third parties and the onus 0f the appellant stands duly discharged carries much substance on the facts in issue Therefore; the reliance placed by the AR on the decision of the Hon'ble Apex Court in the case of CIT Vs Lovely Exports Pvt Ltd (2008), 216 CTR 195 is applicable t0 the facts of the present appellant; wherein the Apex Court has held as under: "Can the amount of share money be regarded as undisclosed income under $ 68 0f LT: Act; 19617 We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee compony from alleged bogus shareholders; whose names are given to the AO, then the department is free to proceed to reopen their individual assessments In accordance with law Hence; we find no infirmtty with the impugned judgment ELI 9.10 The AR of the appellant has vehemently argued that the SQ called clinching evidence gathered pursuant to the inquiries conducted by the department has not been discussed in the asessment order. The AR 3 3 97 9 AB(NAG/ZQ16 LOKSHAHI PUBLICATIQN further agitated that the Ld. AO has notsupplied any material as evidence in the course of hearings to show that the assessee has depasited its own money in the various assessment order; The AR further contends that no incriminating material has begn found during the investigation by the DDIT (Inv} and the AO which can show that appellant has used its own money for introduction of share capital in the name of third company investors under the garb to convert the black money into white 9.11 In support of his contentions, the AR of the appellant has relied on the following judicial decisions: "1) The Supreme Court in the case o CIT Vs: Gujarat Heavy Chemicals Ltd (256 ITR 795) hus gffirmed the decision 0f Gujrat figh Court and has held that "CITIA) and the Tribunal having found nO justification for the addition of the investment amount made of tn the shares 0f the assessee-= another company aS 25 per cent shares ( thesessesseemwecehebd by Ghe group and all the companies Indian as well aS foreign which had advanced money to the assessee towards subscription %f shares had links with the said group matter involves question 0 appreciation 0f evidence; application under & 256(2) rightly rejected We have read the order o the High Court and heard fearned counsel for the appellant We are satisfied that upon the facts; no interference with the order 0f the High Court is called for: The civil appeals are dismissed 2) Further in the case 0f CIT Vs: Lovely Exports (P} Ltd (216 CTR 195} The Supreme Court of India has made it an established law that "if the share application money is received by the ussessee company from alleged bogus shareholders, whose names are given to the AO, then the Department Is free to proceed to reopen thelr individual assessments in accordance with Iaw butit cannot be regarded aS undisclosed income of the assessee company' Onm 10 48/NAG/ ZQIG LOKSHAHI PUBLICATION 3) In the case 0f CIT Vs. Orlssa 78), The Corporation Pvt; Ltd (159 ITR Supreme Court %f India has held that "The assessee had Siven the names and addresses 0f the alleged creditors the knowledge of the Revenue that It was In the said creditors were Reveneetax asSessees Their index number was (n he tole oj ehe Revenue The Revenue, apart from issuing notices under s2 131 the Instance of the assessee, dld not ut The Revenue pursue the matter further: did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed effort made to loans There was no pursue the SO-called alleged creditors In those circumstances, the assessee could not d0 premises; if any further the In Tribunal the came to the conclusion assessee has that discharged the burden that the lay not be said that on him then it could such @ conclusion was unreasonable Or or based on no evidence; perverse If the conclusion evidence is based on some on which & conclusion could be arrived at no of law 05 such arises, question It cannot therefore; be safd question of law that any arose In these cases The High Court therefore, right in refusing to refer the questions WaS, soughtfor: Et 4) The Supreme Court in the case of CIT Vs. Stellar _ Investment Ltd: (251 ITR 263} has held that "the decision 0f the tribunal was won 0n the facts so that no further held interference was called for: It was that "Could it be assumed that the decision endorses the view that unexplained Share Capital could as the income 0f the never be treated the company and that section 68 which places responsibility on the assessee to prove the nature sources 0f credit has no application in und capital and share respect of paid-up share application money 5} The Calcutta High Court in case of Hindustan Tea Co Vs: CIT (263 ITR 289) has held that "the Ltd the particulars assessee has disclosed all avatlable with it along with the addresses 0f each subscriber: In such hames & 0 not have been case; the assessee could expected to establish the genuineness 0f amount and the amount could not be treated the income without any material to of the company suggest any link between the subscribed amount and the company. The AO i5 not justified in treating Gs assessee'$ Income especially where this the application and since particulars were given in the amounts were received by cheque. Iojh 839 11 48/NAG/2016 LOKSHAHI PUBLICATION 6) The Delhi High Court in the Pvt: Ltd. (287 ITR 135), case of CIT Vs Iliac Investment Antarctica after review of decision in CIT Invzstnent Fvt Ltd (262 ITR 493} andOit Vs Vs: Finance Ltd. (205 ITR 98), held that Sophia capable of identifying the "where the assessee [s their creditworthiness subscriber and also place evidence 0 by submitted the their bank statements and nothing also She cottedllhe /€ ofiowG tioas 5 more could be expected of assessable as that that such amount Of share capital € be more to justify additioonpary there should be sotaething such addition In this regard; the 0S share capital stands on amount received 0 than uny other borrowing' different footing to some extent 7) ITAT Chennai Bench in the case of Midas - (P) Ltd Vs; CIT (25 DT 337) has Golden Distillertes bought on record held that Identity "assessee company their addresses cd dete confirmation %f Shareholders by providing contributed to to the effect that they the share capital of the assessee; have received through banking Moneys channels; were regularly essessed to tax AII the applicants are each of them were and assessment particulars made available ta the relating to Mere assessing subjective opinion of the AO that the authority: the shareholders or their source of money with not sufficient to treat the creditworthiness is not established is Even if the applicant share capital aS deemed income 6/s 685 holders; Revenue reenoanies are t0 be treated as bogus share and bring is free to re-open their individual to tax such assessments hands Addition in the unexplained money in thetr respective assessee's hand is liable to be deleted; 8) Further; the Nagpur Bench of ITAT in the Vs: Kasana Foods Pvt Ltd. case 0f ACIT Cir-2 order dated 24th (61 & 62 / Nag/ 2007) vide & joint July 2009 has held that; "The_ the assessee is identical to the facts 0f the case of (P) Ltd: (Supra} Tin facts in cose % Orissa Corporatlon this case the assessee has furnished particulars of share applicant including al} the from issuing its notice uJs: Pan The AO apart further: 133(6) did Therefore; not the pursue the notice issued matter returned unserved cannot to the share be applicant opplication the criteria 05 unexplained to treat the share cash assessee credit in the hands of the 10" The copies of all the above judgments are enclosed herewith as 'Annexure 12 48NAG/2016 LOKSHAHI PUBLICATION I0.0 In the light 0f the above facts; it is evident that the appellant has placed sufficient legal evidence on record to demonstrate the identify, creditworthiness and genuineness Of contribution of share capital Thus there remains no scope for making addition for the same The claim of the appellant for contribution of capital is acceptable, therefore the protective 13 addition made by the AO is directed t be deleted - 3 # 5. At the outset; the assessee referred to the application made by him under Rule 27 of the ITAT Rules, 1963 challenging the validity of the notices issued u/s 153C of the Act aS there was no incriminating material belonging to the assessee found in the course of search It was stated that he assessments in the case of the assessee were framed u/s. 153C read with section 143(3) of the Act: The assessee before the CIT(A) raised ground No. 1 and 2 and challenged the validity of the notices issued u/s. 153C of the Act: The CIT(A) has dismissed the ground challenging the validity of the notices issued u/s. 153C and decided the appeal of the assessee on merit due to which protective addition made in the hands of the assessee stand deleted, Under these facts, the assessee did not file any appeal or the Cross Qbjections taking the ground as regards to the validity of the notice u/s 153C of the Act; It was contended that there is no incriminating material found and seized for the assessment year belonging to the assessee in the course of the search at the premises of Shri M.G. Bhangdiya It was submitted that in the case of the assessee no satisfaction of the Assessing Officer of the person searched is recorded before issue of notice u/s 153C, In absence of non recording of the satisfaction by the Assessing Officer of the person searched, the consequent assessment framed is bad in law and the notice issued u/s. 153C is bad in law. Reliance was placed in this regard on the decision of ITAT Nagpur Bench in the case of Mansi Commodities Ltd. In LTA Nos: 146 to 148/Nag/2014 in which the 'Tribunal vide order dated 19/12/2016 held that satisfaction for issuance of notice u/s 153C is to be recorded by the Assessing Officer of the 33 13 48/NAG/ Z016 LOKSHAHI PUBLICATION person searched and in the absence thereof the notice issued u/s. 153C is bad in law and consequent assessment framed is bad in law: 6 Learned D.R, on the other hand, vehemently relied on the order of the CITIA) and contended that the assessee has taken ground No 1 and 2 about the validity of the issuance of notice u/s 153C before the CIT (A) but the CIT(A) dismiss same, Even no submissions were made for which our attention was drawn towards page no. 25 para 12 of the order of CIT(A): Even otherwise on merit the assessee contended that the diary seized during the course of search contains the name of the assessee from whom the cash has been received noted in the diary. Therefore, it cannot be said that incriminating material belonging to the assessee was not found, 7 We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below, Coming to the adjudication and admission of ground taken by the assessee about the validity of the notice issued u/s. 153C and consequently cancellation of the assessment framed thereupon, we have gone through Rule 27 ofthe ITAT Rules We noted that the said Rule read as under: 7.1 On the basis of this Rule, it is apparent that even if the assessee has not filed the appeal against the order of CIT(AJ, he may support the conclusion of the CIT(A) by taking any ground which has been decided against him Fron the facts before US, it is apparent that the assessee has taken the ground regarding the validity of the notice issued u/s 153C before the CIT(A) ad also validity of consequent assessment framed therewpon. We noted that CIT(A) under para 12 of its order dismissed the said ground of the assessee during the appellate proceedings Whatever may be the reason, the fact remains that the ground taken by the assessee about the validity of the notice u/s 153C and also the validity of the consequent assessment framed thereupon stands dtsmissed by the 14 48/NAG/3016 LOKSHAHI PUBLICATION CIT(A): Therefore, in our opinion, the assessee complied with the condition as stipulated under Rule 27 of the ITAT Rules and the assessee can always raise this ground in view of Rule 27 before the Tribunal The Tribunal has the power to adjudicate the ground taken under Rule 27. We accordingly admit the said ground: 7.2 Now coming to the submissions made by both the parties on merit on this ground, We have gone through the provisions of section 153C and noted that this section prior ta the amendment made by the Finance Act; 2015 with effect from 01/06/2015 states as under: "Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion; jewellecy _ Qr other valuable article or thing: or books of account or documents; seized or requisitioned, belongs or belong to & person other than the person referred to in section 1534, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person; M This section has subsequently been amended by Finance Act, 2015 with effect from 01/06/2015. The amended section reads as under: "153C Notwithstanding anything contained in Section 139, section 147,section 148, section 149,section 151 and section 153, where the Assessing Officer is satisfied that (a} Any money, hullion; jewellery or other Valuable article or seized or requisitioned, thing belongs to; or 833 15 48/NAG/2016 LOKSHAHI PUBLICATION (b) Any books 0f account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, person other than the person referred to in section 1534, then; the books 0f accountor documents or assets, Seized or requisitioned shall be handled over to the Assessing Officer having jurisdiction uver Such ather person The Finance Bill, 2005 in its memorandum explaining the purpose for which this amendment was made reads as under: "Section 153C of the Act relates to assessment of income of any other person: The existing provisions contained in sub-section (1} of the said section 153C provide that notwithstanding anything contained in section 139, section 147,section 148, section 149, section 151 ud section 153, where the Assessing Officer is satisfied that any money bullion, jewellery Or other valuable article Or thing Or books of ccount or documents seized or requisitioned belong to ony person; {other than the person referred to in section 1534, then the books of account or documents Or assets seized Or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such Other person notice and assess Or reassess income of such other person in accordance with the provisions of section 153A Disputes have arisen aS to the interpretation of the words "belongs to in respect of a document as for instance when a given document seized from a person is & copy of the original document Accordingly, it is proposed to amend the aforesaid section to provide that notwithstanding anything contained in Section 139,section 147, section 148, section 149, Section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion; jewellery Or other valuable article or thing belongs to, or any books of account or 16 48] NAG/2016 LOKSHAHI PUBLICATION documents seized or requisitioned pertain to; or any information contained therein, relates to, any person; other than the person referred to in section 153A, then the books of account r documents or assets seized or requisitioned shall be handed over tu the Assessing Officer having jurisdiction over such other person and thae Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 1534. Subsequently, the CBDT has brought out Circular No. 19 of 2015 dated 27/11/2015 by which explainatory note to the pravision ol Finance Act; 2015 were discussed The explainatory note in the circular relating to the amended provision of section 153C read a5 under: "39 Assessmient of income ofa person Other than the person in whase case Search has been initiated or books of account; Other documents er assets have been requisitioned 39.1 Section 153C of the Income-tax Act relates to assessment of income of any person other than the person in whose case been conducted search has or requisition has been made. The provisians contained in sub-section (1) of the Section 1530, before amendment made by the Act provided that notwithstanding anything contained in section 139, section 147, section 148, section 149, Section 151 and section 153 of the Income-tax Act; where the Assessing satisfied that Officer is any money, bullion jewellery or other valuable article Or thing or books of account Or documents seized belong or requisitioned to any person Other than the person referred to in sectian 153A of the Income-tax Act, then the books of account or documents or assets seized or requisitioned shall be handed Offficer over to the Assessing having jurisdiction aver such Other person and that Assessing Officer shall proceed against each such other person and iSSue and assess notice or reassess income of such other person in accordance with the provisions of section 153A 835 17 49/NAG/2016 LOKSHAHI PUBLICATION 39.2 Disputes have arisen aS to the interpretation 0f the words "belong to in respect of & document as for instance when 0 given document seized from & person is @ Copy of the original document Accordingly, section 153C has been amended s0 a5 to provide that notwithstanding anything contained in Section 139, Section 147, section 148, section 149, section 1S1 and section 153 of the Income- tax Act; where the Assessing Officer is satisfied that ony money, bullion; jewellery or other valuable article or thing belongs to, or any books of account or documents seized or requisitioned pertain to, or any information contained therein, relates to, any person, Other than the person referred to in section 153A of the Income-tax Act; then the books of account or documents ur assets Seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess income of Isuch cther person in accordance with the provisions of section 153A AP P # 8 39.3 Applicability: This amendment has taken effect from the Ist day pfJune, 2015, 7.3 In view of this, it is apparent that the amended section 153C are not retrospective and are applicable with effect from 01/06/2015 and not prior to that In the case of the assessee, Search 35 well as notice u/s 153C has been issued prior to 01/06/2015. Since in the case of the assessee action u/s 153C has been taken by issuing the notice dated 16/07/2013 in consequence of the search carried out on 19/07/2011 therefore, the amended provision of section 153C wil} not apply: As per the provision of section 153C,as was in existence during the impugned period, the condition precedent for issuing notice u/s 153C and assessing Or reassessing the income of 'such other person' is that the money, bullion; jewellery or other valuable article or thing; books of account or document seized or requisitioned which belong to such person where documents in question recovered during search proceedings did not belong to the assessee, 18 48/NAG/ 2016 LOKSHAHI PUBLICATION though there was a reference to the a5sessee therein; Issue of notice to the assessee u/s 153C, in our opinion, cannot be held to be valid Hon'ble Delhi High Cuurt in the case ol Pepsi Foods Pvt Ltd vs_ ACIT 52 Taxman com 220 (Del), we noted has also categorically held that before a notice u/s 153C can be issued, the Assessing Officer is required to arrive at a conclusive satisfaction that the document belongs a person other than the searched person: (Jnless until it is established that the documents seized did belong to the searched persom the provision of section 153C did not get attracted. This is not disputed that the notice in the case of the assessee u/s 153C has been issued in consequence of search Seizure action taken u/s 132 in the Bhangdiya Group from whom premises diaries marked B-] to 8-65 were found and seized, These diaries belong to the Bhangdiya Group not to the assessee Even though the name of the assessee is mentioned in the diary that does not mean that the diary belorg to the assessee. It may be said that the diary contains the information regarding the asgessee: In our opinion; even the amended provision supports the case of the assessee; The Legislation has amended section 153C with effect from 01/06/2015 and widened the scope U/s 153C by substituting in place of word 'belongs or belong' to word 'pertain or pertain to Or any information contained therein'. Now under the amended provision, even if thc material seized does not belong to the assessee but it contains the information relating to the assessee, the proceedings initiated u/s 153C will be valid But this amended provision; as is apparent; is applicable from 01/06/2015. Learned DR before us even though vehemently relied on the order of the Assessing Officer but could not adduce any cogent material or evidence which may prove that the diaries found and seized during the course of search in Bhangdiya Group belong to the assessee Since during the course of search in Bhangdiya Group no material relating to addition made belonging to the assessee was fourd therefore, the notice issued u/s 1536, in our opinion, cannotbe regarded to be valid one Same view has been taken by Hon'ble Bombay High Court in the case of Bharti Vidyapeeth in ITA No. 923 of 2012 vide its order dated 11/09/2014. This fact also finds support as the F 8z7 19 48/NAG/ 2016 LOKSHAHI PUBLICATION Revenue has made the addition in the hands of the assessee in each of the assessment year only on proteetive basis which proves that the Revenue was also not satisfied with the incriminating material in fact belong to the assessee, On lhis basis we set aside the order of CIT(A) and hold that the noticc issued u/s 153C is not valid and in consequence thereupol the assessment made is annulled. Thus, the ground taken by the assessee under Rule 27 is allowed 8_ Coming to the appeal of the Revenue regarding the deletion of the addition of Rs. 1,00,00,000/- which were added by the AO on protective basis being the share application money and share premium We have heard the rival submissions &nd carefully considered the same along with the orders of the tax authorities below. The Ld; DR before LS relied on the order of the AQ while Ld AR relied on the order af the CIT(A) and reiterated the submissions made before the CIT(A) He also relied on the following cases: {2008} 216 CTR 0195 (SC) f} CIT vs. Lovely Exports (P} Ltd i) (2008) 307 ITR 0334 (Delhi} CIT vs Value Capital Services (P) Ltd. Hon'ble Bombay High Court order in ITA (L) No. 2182 of 2009 in the cuse %f M/s Creative World iii) Telefilms Ltd; (Earlier known aS Link International Services Pvt Ltd} vide order dated 12/10/2009. Hon'ble Bombay High Court in Tax Appeal No 16 iv) of 2012 in the case 0f Goa Sponge and Power Ltd vide order dated 13/02/2012, Hon'ble High Court Of Bombay in ITA No 1613 of v} 2014 in the case of M/s Gagandeep Infrastructure Pvt Ltd. vide order dated 20/03/2017. 20 48NAG/2016 LOKSHAHI PVBLICATION [2014) 368 ITR 00O1 (Bom:) vi} Vodafone India Services Pvt Ltd. vs: ACIT Hon'ble Haryuna High Caurt in ITA Nu. 386 of vii) 2010 (0 & M) in the case of M/s KC. Pipes Pvt Ltd vide order dated 02/08/2016. Hon'ble Bombuy High Court in Writ Petition No. 3027 of 2015 in the viii} case of Khubchandani Healthparks Pvt Ltd. vide order dated 10/02/2016. The copies of these case laws were filed before U5 which we have gone through We noted the said addition has been made by the AO on protective basis treating the following companies individual to be the shell company investor in the assessee company in respect of amount of the share application money a5 enumerated here under: 2010-11 ~do- GTIL Alka Diamond Industries Ltd Rs40,00,00 Rs6000,000 9 The AO was of the vicw that Bhangdiya Group has transferred its unaccounted cash at Mumbai through Hawala by the Mediator; who has; thereafter introduced through cash transfer funds RTGS of various amount in various banks accoutt operated and controlled through various persons The assessee company in his view, has also to the extent the share application money was in receipt of sums out of the said (unds, The AO therefore, added the said amount of Rs. 1,00,00,000/- in the hands of the assessee on protective basis holding the share application money including the share premium to be bogus The CIT(A) deleted the said addition The Ld; DR before HS even though vehemently relied On the order of the AO but could not adduce before US any cogent material or evidence which may prove that the share application maney including the share premium received by the assessce is bogus This is a settled 839 71 48{NAG/2016 LOKSHAHI PUBLICATION law in view of the decision 0l' Hon"ble Supreme Court in the Case of Daulatram Rawatmal 87 [TR 349(SC} that onus is on the person who alleges that apparent is not real The CIT(A) in this case noled that the assessee had submitted complete details, the copy of which were also filed before US, being confirmation from shareholders; financial statement bank statement copy of Permanent Account Number and details of Income-Tax Return to substantiate the contribution of share capital It s not denied that the amouni was received through proper banking channel and all the corporate sharcholders and are assessed to tax These evidences prove that the assessee, in our opinion, has discharged the Onus which lies on him U/s 68 of the Income-tax Act; Section 68as was in inexistence during the impugned assessment year lays down as under: Where amy sum is found credited in the book5 of an assessee maintained for any previous year; and the assessee pffers not explanation about the nature and source thereof or the explanation offered by him is not; in the opinion 0f the Assessing Officer, satisfactory the sum $o credited may be charged to income-tax AS the income of the assessee Of that previous year;' 10 From the reading of the said section, it is apparent that for making addition u/s. 68 the following conditions must be satisfied, {a) Sum must be found credited in the books of the assessee maintained for the previcus year; (b) The assessee offers na explanation about the nature and source of such credit or the explanaticn offered by the assessee is not in the opinion of the AQ satisfactory: 11, If both the conditions are satisfied the AO is empowered to charge sum so credited found in the books of the assessee to Income-tax and treat the same as the income of the assessee of that previous year. In this case, we noted the AO found aforesaid sum of Rs: 1,00,00,000/- credited in the books of the assessee. The assessee has submitted the explanation; explaining the nature and QM 22 48/NAG{2016 LOKSHAHI PUBLICATION source Qf such credit. The AO did not accept the explanation of the assessee merely on the basis ef the wssumption that the cash found recorded in the diary seized during the course of search in Bhangdiya Group has been utilized by the said Group for getting the share application money and premium from the various persons in the assessee company. The AO while rejecting the explanation of the assessee did not bring any evidence on record except relying on the seized diary that the money was sent by the assessee to the mediator at Mumbai for obtaining the share application money through Hawala: No particular evidence or the material what to talk of the corroborative evidence was brought on the record while rejecting the explanation of the assessee by the AO that the money brought in by the company as share application money comes out cf the money sent by the Bhangdiya Group to Mumbai It is not denied that AppeL , xthere had been search in the case of Bhangdiya Group on dated 19,07.2011 and ng the course of the search; diaries being item number 1 to 63 Annexure 8. re found which according to the AO contain the details of the receipt and the WOzni ayment: The money s0 received represents the cash received by the Bhangdiya Group from the Group Companies by making the withdrawal from their bank account as well as cash received from sub-contractors by making withdrawal by the sub-contractors from their bank account; lt is not denied that Bhangdiya Groups Company as well as the sub-contractor from whose bank account the cash has been withdrawn and recorded in the diary found and seized comes out of their bank account which were duly disclosed to the Income-tax Department These bank accounts were not undisclosed bank account AII these Group Companies a5 well as sub-contractors were assessed to Income-tax Therefore, the source of the money shown as received in the diaries were out of the receipts of the parties which have duly been disclosed by them while filing their Income- tax Return and has bcen assessed to tax while making their respective assessment by the AO. Section 68 did not in Our opinion; empower the AO to reject each and every explanation given by the assessee, Whether the explanation is satisfaclory or not depends 0n facts of each case: If thc assessee 23 48/NAGI2016 LOKSHAHI PUBLICATION has submitted all the cvidences proving the identity, creditworthiness and genuineness of the transations, the explanation given by the assessee cannot be regarded to be not satisfactory. The identity of each of the party who has contributed the share application money is proved beyond doubt as all of them are assessed t0 tax having the Permanent Account Number The assessee has filed details of their Income-tax Return: Not only this, we noted the assessee has submitted the details being confirmation from shareholders, their financial statements; bank statements to substantiate that they have contributed to the share capital. The share capitals havc been received by the assessee company through banking channels. There had been search and seizure in the case of the Bhangdiya Group but no clinching evidence showing linkage of the parties who has contributed towards the share capital was found or brought on record except to draw an inference from the diary that the money sent to Mumbai has been used for bringing back into the company by way of share capital In our view, Ice the receipt found recorded in the diary comes out of the trading receipt of '#iose concerns Bhangdiya Group and cannot be regarded to be the undisclosed income of the assessee, therefure; the money utilized out 0f that amount can also be regarded to be utilized of unaccounted money of the assessee; No not businessman will convert its tax paid money into unaccounted money and then into accounted money, The assessee company has received the convert contribution into the share capital provcs the genuineness of transaction: The AQ in the course of the assessment proceedings verified the transaction of the contribution of the share capital by issue of the notice U/s 133(6} Nq adverse evidence obtained in such enquiry was brought 0n record Even Ld, DR has also not produced any evidence in this regard which may prove that the share capital contribution received by the assessee company was not genuine: Since the in OuF opinion, has discharged his Qnus of proving identity , assessee creditworthiness and genuineness f the transaction the explanation given by the assessee cannot be regarded to be non satisfactory: 8#| 24 4B{NAG/2016 LOKSHAHI PUBLICATION 12_ In our opinion, the A0 just in the absence of any evidence being found was the view that the money has flown from the coffer of the assessee: We have gone through the decision in the case of CIT vs. Value Capital Services P Ltd: 307 ITR 334 (Del) We noted in this case the Hon"ble Delhi High Court has categorically held that the additional hurden was on the department to show even if the shareholders did not have the Means to make the investment Investment made by them actually emanated from the coffers of the assessee s8 as to enable it to be treated as the undisclosed income of the assessee; It is not denied that the company who has invested in the share capital are limited companies duly registered under the Companies Act therefore, these companies could have been very well located, They are registered with the Registrar of Companies and have regularly filed their returns of Income It is not a case the assessee has not filed any explanation or details as regards to the companies which have contributed into the share capital of the assessee. The assessee has filed all the details which; in our opinion, J man of ordinary prudence would have filed We did not find any adverse inference being brought on record by the AO which may prove that these companies in connivance has facilitated the assessee companies to devise colourful transactions, We find force in the submission of the Ld AR that since all the companies who have contributed towards the share capital ofthe assessee are regular assessce have the Permanent Account Number: [f the AO has not pursued the matter apart from issuing the notice 4/s 133(6}, in view of the decision of Hon"ble Supreme Court in the case of Odissa Corporation Pvt. Ltd; Vs CIT, 159 [TR 78 (SC); no addition can be made in the hands of the assessee 13. The CIT(A) in our opinion has passed 3 detailed and explicit order after considering the submission of the assessee which has been reiterated before uS as well as the order of the AO and given the finding of the facts The CIT(A) has also dealt with tke various case laws which, in our opinion; support the case ofthe assessee: 8*3 25 48/NAG/2016 LOKSHAHI PUBLICATION 14, This is not a fit case which warrants our interference: We accordingly confirm the order ol lhe CIT(A) and dismiss the ground taken by the Revenue: 15. In the result the appeal file by the Revenue stand dismissed Order pronounced in thc open court on 29.06.2017 Sd}- Sd;- (AMARIIT SINGH) JUDICIAL MEMBER (PK BANSAL) VICE PRESIDENT Nagpur Date: 2gth fune; 2017 R; Dhoke, P.S; Copy ` tox 1) The Appellant; 2) The Respondent; 3) The CITCAJ; 4) The CIT, Nagpur City Concerned; 5) The DR, ITAT, Nagpur; 6) Guard File By Order (Dy/Asstk; Registrar) Mere; Net Tedlatent Reglstrar 4TYibz &diaiq afdi incomo Tex Appallate YTTJR Tribunal wnifa Nagpur Banch 4