A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. M/S SAKSHI GRUH NIRMAN PVT. LTD., NAGPUR

Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition made on protective basis 0f Rs. 5,00,87,750/- being shore application money and share premium? 7 2 Whether on the facts and in the circumstances of the cuse and in law, the Ld. CIT(AJ wos justified in deleting the addition of Rs. 5,00,87,750/- without apprecialing the facts and evidences brought 0n the record by the 2 50/NAG/Z016 SAKSHI GRuH NIRMAN wns not that share application money and share premium A0 to prove genuine? Whether on the facts' and in the circumstances of the case and in law, 3 the Ld CIT(A} was justified in deleting; the addition of Rs: 5,00,87,750/- incriminating diaries according to which cash ignoring the evidence found in to Mumbai through hawal- operations which waS received was transferred 2 back as share capita and premium?" involved in this appeal relates to the addition #n 2 The only issue and share premiun; The brief facts of the account of share application moncy search and seizure action u/s 132 of the Income Tax case are that there has been on 19/07/2011, During the course of the Act in the office of Bhangdiya Group were found and seized: From the seized search, several incriminating documents Officer that item number 66 of Annexure material; it was noted by the Assessing B-1 belong to the assessee's company: Accordingly B and item 3 Annexurc Tax Act dated 06/05/2013 was issued and the notice u/s, 153c) of the Income to the notice, the assessee objected the served on the assessee in response and requested to drop the proceedings "/s. 153(c) to which validity of the notice Thc assessee therefore; submitted that the the Assessing Officer did not agree: 139(1} be treated as the return filed u/s. 153(c} The assessing return filed u/s. the basis of the seized material noticed that the assessee Bhangdiya Officer on has transferred the cash and brought itback to the group company: Officer noted following companies invested in the 3. The Assessing of Assesse Company which in his view were shell companies: share capital 150,00,00O 1 Alka Diamond Industries Ltd 87 , ,500 2 Prabhu Yadav 150,00,00Q_ 3 Rangoli Commcrce (P)Lta 1,50,00,@Qo 4 Urjgeta Commerce P)Ltd 1,50,00,0QQ 5_ Vanguard Jewels (PLLtd 8#6 3 SO/NAG/2016 SAKSHI GRUH NIRMAN On this basis, the Assessing Officer observed that cash balance generated by inflating sub-contractur expenses were routed through investor companies to be infused in group companies aS share application money 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 Officet, over 30 crores have been laundered through bank account of shell 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 transfet funds RTGS of various amount in various bank account operated and controlled through various persons, The amount ha5 been 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 Bhangdiya's Group af Companies after being laundered through severtl_ clearings The Bhangdiya Group has laundered in the case of the assessee theii unaccounted money as share application money including share premium of Rs: 5 Crores 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 Anncxure B The Assessing Officer therefore, added Rs; 5 Crores on protective basis in the hands of the assessee companies treating the same is bogus When the matter went before the CITCA) the CITCA) deleted the said addition by observing as under: P "9.0 have carefully considered the submissions of the AR of the appellant; the order of the AO and the material on record 9.1 During the relevant financial year under consideration, the appellant company has received share capital to the tune of Rs: 5.00 crores S0/NAG}2016 SAKSHI Gruh NIRMAN from 5 corporate share holders The AR has contended that the Id, AO has made the detailed enquiry in respect to share application money received from various companies who have contributed towards share capital of appellate company: The appellant in the course 0f 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 amaunts 0f investment have been received through banking channel The AR has placed on record the details of Assessing Officers af the investor corporate entities which arg ossessed 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 of the appellant has relied on the decision of Hon'ble Apex Court in the case of Lovely Exports Pvt Ltd. reported in 216 CTR 195 (SC): 93 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 cuse %f 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 onus cast on it The onus therefore is shifted on the revenue to prove the transactions otherwise 45 not hona-fide: As regards to the issue of invoking the provisions of section 68 of the Act by the AO, the appellant has relied on the following decisions: " APPe ELl4 { 818 5 5O/NAG/ 2016 SAKSHI GRUH NIRMAN CIT VS Mfs Creative World Appeal (L} No. 2182 0f 2009 (High Court of Bombay} Telefilms Ltd CIT vs. Value Capitol Services (P) ji} 307 [TR 334 Ltd: Honble Bombay High Court judgment vide order dated 13.02,2012 in tii) the case 0f CIT vS Goa Songe & Power Ltd The AR of the appellant has contended that the Id. AO has not 9.4 evidence on record to show that for contribution of share brought any money has flown form Coffers of appellant company: The AR further capital that assessment u/s 143{3) TWS 153C of the Act has been contended appellant company has been computed completed wherein the income of the by the ld AO @S per the books of account in respect of its business activities and no defect whatsoever has been found in the books of account of the which has been accepted lt is @ fact emanated from the records appellant account ofthe appellant have not been rejected by the AO. that the books of 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 be made, carries Substantial force The AR of the appellant in this cannot regard has relied on the decision of Hon"ble Delhi High Court in the case of Value Capital Services Pvt: Ltd reported in 307 ITR 334 (Del} Thus CIT VS; pleads that appellant hus proved the identity, credit worthiness and the AR genuineness of the transaction: m 05 emanated from records that the AR %f the 9.5 It Is Q fact appellant during the course of assessment proceedings has filed the details of including the share application forms; share application money; confirmations from the respective companies with their complete names and addresses and PANs Board Resolutions; bank statements and Income-tax returns It is thus not disputed that the 05 campanies which have made 6 50/NAG/2016 SAKSHI GRUH NIRMAN investments with the appellant company in the farm 0f share capital are assessed to tox and have filed their returns 0f income for the relevantyear: It is also undisputed that the share application money in question has been received through the @ccount payee cheques by the appellant company: Thus So far as 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 0f investor cumpanies has inferred and arrived at the conclusion that the share application money invested in the appellant company i5 nothing but appellant companys own unaccounted money introduced under the guise of investment by the 05 companies; which are allegedly used as route to bring back such unaccounted money: 9.6 The contention 0f the AR of the appellant is that the 05 companies who have invested with the 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 Ic is thus not a case that the appellant has not filed any explanation or details QS 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 of 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 7rELL? 1 0 J0 9.7 It is seen from the records that the Id. AO has drawn the inference that the share opplication money fnd the share premium introduced with the appellant company by the investor companies is bogus 21 7 50/NAG/2016 SAKSHI GRUH NIRHAN without bringing any adverse material on record The Ld. AO thus without examination 0f the investments made by these 05 companies had arrived at the conclusion that the entire share capital of Rs 5.00 crores by the 05 companies is under the garb of bringing back the unaccounted money 0f the appellant company It; however; is & fact as emanated from the records that the Ld. AO has refrained from giving any finding in respect of these 05 investor companies und formed the general belief based on the seized material relating to the cash withdrawals from sub-contractors bank accotnts Therefore, the ratio laid down in the case of Honble Apex Court in Orissa Corporation Pvt Ltd vs CIT 159 ITR 78 (SC) is applicable to the facts of the appellant company in aS much Gs that in the case of the 'appellant company the Ld. AO, apartfrom issuing notice u/s 133(6} did not pursue the matter further: 9.8 The AO has observed that before investing the funds with the appellant company. all the 05 investor companies have received the money in cash through several loyers 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 a single instance which could show that the appellant company has deposited the cash in the bank accounts Of investor companies with & motive ta 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 to be infused in the group companies Qs share application money: The AO has further mentioned in para no. 10 that the Bhangdiya group has transferred its unaccounted fund to Mumbai through Hawala mediators which amount is alleged to have been invested with the appellant company through the 05 investors However, no 8 S0 NAG/2016 SAKSHI GRUH NIRMAN such evidence of cash transfer in the name 0f investor companies is brought on record. 9.9 It is 4 fact that the AO has caused the inquiries u/s 133(6} of the Act in respect of investor 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 heen obtained from which anything udverse can be held as regard to contribution of 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 4s regards to deposits in the account of third parties and the onu5 of 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 0f CIT Vs Lovely Exports Pvt Ltd. (2008), 216 CTR 195 is applicable to the facts of the present appellant; wherein the Apex Court has held as under: "Can the amount of share money be regarded &s undisclosed income under $ 68 of T: Act; 19617 We find no merit in this Special Leave Petltlon for the simple reason that if the share application money is received by the assessee company 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 infirmity with the impugned judgment 9.10 The AR of the appellant has vehemently argued that the so called clinching evidence gathered pursuant to the inquiries conducted by the department has not been discussed in the assessment arder; The AR 8S4 9 S0/NAG/2016 SAKSHI GRUH MIRMAN further agitated that the Ld AO hasnot supplied any material as evidence in the course ofhearings to show that the assessee has deposited its own money in the various assessment order; The AR further contends that no incriminating material has been found during the investigation by the DDIT (Inv} and the AO which can show that appellanl has used its own money for introduction 0f share copital in the name of third campany 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 of CIT Vs Gujarat Heavy Chemicals Ltd. (256 ITR 795) has affirmed the decision of Gujrat High Court and has held that; "CIT(A} and the Tribunal havlng found no justification for the addition of the amount tnvestment of made in the shares of the assessee-company by another company as 25 per cent shares of the assessee were held by One group and all the companies, Indian as well as forelgn; which had advanced money to the assessee towards subscription %f shares had links with the said group matter Involves question %f appreciation %f evidence; application under s. 256(2} rightly rejected; We have read the order of the High Court and heard learned counsel for the appellant We are satisfied that upon the facts no interference with the order of the High Court is called for: The civil appeals are dismissed. 2) Further in the case of CIT Vs; Lovely Exports (P} Ltd (216 CTR 195}, The Supreme Court of India has made it an established aw that "if the share application money is received by the ossessee company from ulleged bogus shareholders; whose names are given to the A0, then the Department is free to proceed to reopen their individual assessments in accordance with Iaw, but it cannot be regarded as undisclosed income of the assessee company 10 50/NAG/2016 SAKSHI GRUH NIRMAN 3) In the case of CIT Vs: Orissa Corporation Pvt Ltd (159 ITR 78), The Supreme Court of India has held that; "The assessee had given the names and addresses of the alleged creditors It was in the knowledge of the Revenue that the said creditors were income-tax assessees Their index humber was in the file of the Revenue The Revenue; apartfrom issuing notices under &. 131 at the instance of the assessee, did not pursue the matter further: The Revenue did not examine the source of income %f the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed loans: There was no effort made to pursue the so-called alleged creditors In those circumstances; the assessee could not do any further: In the premises, if the Tribunal come to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such @ conclusion was unreasonable 0r perverse or based Dh no evidence. Jf the conclusion is based on some evidence 0n which a conclusion could be arrived at no question of law o$ such arises It cannot; therefore; be said that any question of law arose in these cases The High Court was, therefore; right in refusing to refer the questions sought for: 4} The Supreme Court in the case of CIT Vs Stellar Investment Ltd (251 ITR 263) has held that "the decision of the tribunal was won on the facts s0 that no interference was called for:" It WOF 2 further held that "Could it be assumed that the decision endorses the view that unexplained Share Capital could never be treated a5 the income of the company and that section 68 which places the responsibility on the assessee to prove the nature and sources of credit has no application in respect 0f paid-up share capital and share application money:' 0 5) The Calcutta High Court in case of Hindustan Tea Co Ltd Vs. CIT (263 [TR 289) has held that "the assessee has disclosed all the particulars available with it along with the names & addresses of each subscriber: In such & case; the assessee could not have been expected to establish the genuineness of amount and the amount could not be treated the income of the company without any material to suggest any Iink between the subscribed amount and the company. The AO is not justified in treating this as assessee'$ Income especially where particulars were given in the application and since the amounts were received by cheque Qoon 854 11_ 50(NAG/Z016 SAKSHI GRUH NIRMAN Pvt; Ide Delhi High Court in the case of CIT Vs Iliac _ Ltd. (287 ITR 135), after Investment Antarctica Investment review of decision in CIT Vs: Finance Ltd (205 P98 Ltd 8262 ITR 493) and Cit Vs: Sophia ITR 98)}, held that "where capable of identifying the subscriber the assessee is their creditworthiness and also place evidence of by their submitted the bank stutements and nothing also She cottedtye EJoliowa tloa: , more could be expected of assessable aS that such amount 0f share capital to be more to justify additioo pary there should be something such addition In this regard, the GS share capital stands on q amount received than any other borrowing different footing to some extent 7) ITAT Chennai Bench in the case of Midas = (P) Ltd, Vs. CIT (25 DT 337} has held Golden Distilleries that bought on record complete identity "assessee company their addresses and %f Shareholders by provlding confirmation contributed to the effect that t0 the share capital of the they have received through assessee banking Moneys channels; were regularly assessed AlI the opplicants to tax and assessment are each of them particulars were made relating available to the to Mere subjective assessing authority. the opinion @f the AO that the source o shureholders or their creditworthinegs money with not sufficient to treat the share is not established is Even if the applicant capital as deemed income u/s 68, holders; companies are to be treated aS Revenue is Free to re-open their indivicuas bogus share and bring to tax such assessments hands Addition in the srexplained money in their respective assessee s hand is liable to be deleted; 8) Further; the Nagpur Bench of ITAT in the Vs Kasana Foods Pvt Ltd. {61 case 0f ACIT Cir-2 order dated 244 & 62 / July 2009 has held Nag/ 2007) vide & joint that "The the assessee is identical to the facts 0f the case of (P) Ltd. (Supra) Tin this facts in case %f Orissa Corporation case the assessee particulars of share has furnished all the from soCice Aplica33 including issuing u/s: 133(6} its Pan The AO apart further: did Therefore, not pursue the the notice issued to matter returned unserved cannot the share applicant application be the criterla QS unexplained to treat the share cash assessee - credit in the hands of the m The copies 0f all the above 10" judgments are enclosed herewith aS 'Annexure 12 50(NAG/2016 SAKSHI GRUH NIRMAN 10.0 In the light of the above facts, it is evident has that the appellant placed sufficient legal evidence on record to demonstrate the identify. creditworthiness and genuineness of contribution of share capital EL Thus 4 there remains no scope for making addition for the same The claim of the E appellant for contribution of capital [s acceptable therefore, the protective addition made by the AO is directed to be deleted - S, At the outset, the assessee referred under Rule 27 to the application made by him of the ITAT Rules, 1963 challenging the validity of the notices issued M/s 153C of the Act as there was no incriminating material belonging to the assessee found in the course of scarch, It was stated that he assessments in the case of the assessee were framed 4/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 appea] or the Cross Objections taking the ground as regards to the validity the notice U/s 153C of the Act of It waS contcnded 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 that in the case of the It was submitted assessee nO satisfaction of the Assessing Officer of person searched is recorded before the issue of notice u/s 153C. In absence of recording of the satisfaction by the non Assessing Officer of the person searched, the consequent assessment framed is bad in law and the notice bad in law. issued u/s 153C is Reliance was placed in this regard on the decision of ITAT Bench in the case of Mansi Commodities Ltd. Nagpur In I,T.A Nos 146 to in which the Tribunal vide order 148/Nag/2014 dated 19/12/2016 held that satisfaction for issuance of notice u/s 153C Is to be recorded by the Assessing Officer of the 13 SQ/NAG/2016 SAKSHI Gru NIRMAN person searched and in the absence thereol 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 laken ground No 1 and 2 about the validity of the (ssuance of notice W/s. 153€ bclore the CIT (4} but the CITCA) dismiss same. Even no submissions were made for which our attention was drawn towards page no. 25 para 1Z of the order of CIT(A) Even otherwise 0n 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 cf 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 of the 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(A) he may support the conclusion of the CITIA) by taking any ground which has been decided against him From 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 CITA) and also validity of consequent assessment framed thereupon: 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 facl remains that the ground taken by thc assessee about the validity of the notice u/s 153C and also the validity of the consequent assessment framed thereupon stands dismissed by the 855 14 50/NAG/2016 SAKSHI GRUH NIRMAN CIT(A); Therefore, in our Opinion, the assessec complied wilhl the condition a5 stipulated under Rute 27 of the ITAT Rules and the asscssee can always raise this ground in view ol 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 0n merit on this ground. We have gone through the provisions of section 153C and noted that this section prior to the amendment made by the Finance Act; 2015 with effect from 01/06/2015 states as under: "Notwithstanding unything 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 &r thing; or books of account Or documents; seized or requisitioned belongs or belong to & person other than the person referred toj in section 153A, then the books of account or dacuments or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person:' 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, bullion, jewellery or other valuuble article or thing; seized or requisitioned, belongs to; Or JMi 858 15 S0/NAGI2016 SAKSHI GRUH NIRMAN [b} Any books of account or documents, seized OT requisitioned pertains 0r pertain to, or any information contained therein, relates to, a person other than the person referred to in section 1534, then the books of accountor documents or assets, seized or requisitioned shall be handled over to the Assessing Officer having Jurisdiction over such other 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 and section 153, where the Assessing Officer is satisfied that any money, bullion jewellery Or other valuable article or thing ar books of account or documents seized or requisitioned belong to any person; Dther than the person referred to in section 1534, then the books of account or documents Or assets Seized Qr requisitioned shall be handed over tq the Assessing Ofjficer 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 @f section 153A Disputes have arisen dS 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 1S1 and section 153, where the Assessing Officer is satisfied that any money, bullion jewellery or other valuable article or thing belongs t0, or any books of account or 16 50/NAG/2016 SAKSHI GRUH NIRMAN documents seized Or requisitioned pertain to, Or any information contained therein; relates Lo, any person; other than the person referred to in section 1534, then lhe books of account or documents or assets Seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other persan and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income @f 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 provision of Finance Act; 2015 were discussed: The explainatory note in the circular relating to the amended provision of section 153C read a5 under:

Assessment of income of a person other than the person in whose APPEE_ case search has been initiated or books of uccount other documents 1 or assets have been requisitioned, 2 39.1 Section 153C of the Income-tax Act relates to assessment of income of any person other than the person in whose case search has been conducted or requisition has been made The provisions 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 Officer is satisfied that any money; bullion; jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to any person Other than the person referred to in section 1534 of the Income-tax Act then the books of account or documents or assets seized r 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 Qnd assess or reassess income of such other person in accardance with the provisions of section 153A 862 17 50/NAG/2016 SAKSHI GRUH NIRMAN 39.2 Disputes have arisen 05 to the interpretation of the words "belong to in respect of & document as for instance when 0 given document seized from a person is & COpy of the original document Accordingly, Section 153C has been amended so QS to provide that notwithstanding unything contained in section 139, section 147, section 148, section 149, section 151 and section 153 0f the Income- tax Act; where the Assessing Officer is satisfied that any money, bullion; jewellery or ather valuable article or thing belongs to, or any books of account or documents seized or requfsitioned pertain to, or any information contained therein, relates to, any persun other than the person referred to in section 1534 of the Income-tax Act 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 notice and assess or reassess income 0f Such other person in accordance with the provisions ofsection 1534, 39.3 Applicability: This amendment haS taken effect from the lst day 0f June, 2015. 73 [n 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 as 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 0 19/07/2011 therefore; the amended pravision of section 153C will not apply: As per the provision of section 153C,a5 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 tu such person where documents in question recovered during search proceedings did not belong to the assessee, 18 S0{NAG/2016 SAKSHI GRUH NIRMAN though there was 3 refcrence to the assessee therein, issue of notice to the assessee u/s 153C,in our opinion, cannot be held to bc valid Hon'ble Delhi High Court in the case of 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: Unless until it is established that the documents seized did belong to the searched person; the provision af section 153C did not get attracted, This is not disputed that the notice in the case 0f the assessee u/s 153C has been issued in consequence of search & seizure actipn taken u/s 132 in the Bhangdiya Group from whom premises diaries marked B-1 to R-65 were found and seized. These diaries belang to the Bhangdiya Group not to the assessee Even though the name of the RPEL_ essee is mentioned in the diary that does not mean that the diary belong to the; Fsessee lt may be said that the diary contains the information regarding the Ssee_ In Dur 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 0r pertain to or any information contained therein' . Now under the amended provision; even if the 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 found therefore; the notice issued u/s 153C, in our opinion, cannot be regarded to be valid one Same view has been taken by Hon'ble Bombay High Court in the case of Bharti Vidyapceth in ITA No. 923 of 2012 vide its order dated 11/09/2014_ This fact also finds support as the 862 19 S0/NAG/2016 SAKSHI GRUK NIRMAN Revenue has made the addition in the hands of the assessee in each of the asscssment year anly on protective basis which proves that the Revenue was also nol satisfied with the incriminating material in fact belong to the assessee. On this basis we set aside the order of CITIA) and hold that the notice issued u/s 153C is not valid and in consequence thereupon; 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 5,00,87,750/- which were added by the AO on protective basis being the share application money and share premium We have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below: The Ld. DR before US relied on the order of the A0 while Ld. AR relied on the order of the CITIA) and reiterated the submissions made before the CITCA) He also relied on the following cases: 1} (2008} 216 CTR 0195 (SC} CIT vS Lovely Exporcs {P) Ltd. ii) (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 case 0f Mfs Creative World iii) Telefilms Ltd. (Earlier known 05 Link International Services Pvc 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 Spange and Power Ltd, vide order dated 13/02/2012. 20 SOfNAG/2016 SARSHI GRUH NIRMAN Hon"ble High Court of Bombay in ITA No 1613 of v} 2014 in the case 0f' M/s Gagandeep Infrastruclure Pvt Ltd vide order dated 20/03/2017 (2014) 368 ITR 0001 (Bom: ) vi) Vodafone India Services Pvt Ltd: vs. ACIT Hon'ble Haryana High Court in ITA No, 386 of vii} 2010 (0 & M) in the Cuse %f MJs KC Pipes Pvt Ltd. vide order dated 02/08/2016 Hon ble Bombay 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 us which we have gane through: We noted the said addition has been made by the A0 on protective basis treating the following companies individual to be the sheli company investor in the assessee company in respect of amount of the share application money a5 enumerated here under: 1_ 2 3 4 5 Alka Diamond Jndustries Ltd Prabhu Yadav Rongoli Commerce (PlLtd Urjeeta Commerce {P) Ltd Vanquard Jewels (P) Ltd 1,50,.00,000 87,500 1,50,00,.000 150,00,000 LS000000 9 The AO was of the view 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 account 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 funds The AQ thereforc, added the said amount of Rs. 5,00,87,750/- in the hands of the assessee 0m1 protective basis JAZ Bek 21 50/NaG/2016 SAKSHI GRUH NIRMAN hokeling the share application money including the share Thc premium to be CIT(A} deleted bogus: the said addition: The Ld. DR before u5 even thongh 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 money including the share premium received by the assessee is bogus. This is a settled law in view of the decision of Honble Supreme Court in the case of Daulatram Rawatmal 87 ITR 349(SC]} that onus is on the person who alleges not real, that apparent is The CIT(A) in this case noted that the assessee had submitted complete details, the copy of which were also filed before LIS; 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 is not denied that the amount was received banking through channel and all the proper corporate shareholders and are assessed to tax These evidences prove that the assessee, in Our opinion, has discharged the onus which lies on him 4/s. 68 of the Income-tax Act, Section 68 as was in inexistence during the impugned assessment year lays down as under: Where any Sum is found credited in the books of an asessee maintained for any previous year, and the assessee offers not explanation about the nature and source thereof or the explanation offered by him is not; in the opinion of the Assessing Officer; satisfactory, the sum $0 credited may be charged to income-tax aS the income of the assessee of that previous_ Jear: 10, From the reading of the said section, it is apparent that for making addition 4/s 68 the following conditions must be satisfied. (a) Sum must be found credited in the books of the assessee maintained for the previous year; (b} The assessee offers no explanation about the hature and source of Such credit Or the explanation offered by the assessee is not in the opinion ofthe AO satisfactory: 22 50/NAG/2016 SAKSHI GRUH NIRMAN 11. If both the conditions are satisiied the AO is empowered to charge sum S0 credited found in lhe books of the assessee to Income-tax and treat the same a8 the income of the assessce of that previnus year In this case, we noted the AQ found aforesaid Sum} 0f Rs 5,00,87,750/- credited In the books cf the assessee; The assessee has submitted the explanation; explaining the nature and source of such credit The AO did not accept the explanation of the assessee merely on the basis of the assumption that the cash found recorded in the diary seized during the course 0f 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 AQ while rejecting the explanation of thc assessee did not bring any cvidence on record except relying on the seized diary that the money was sent by the assessee to the mediator at Minbai for obtaining the share application money through Hawala: No particular evidence or the material what to talk of the corroborative evidence was; bfought 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 of the money sent by the Bhangdiya Group to Mumbai, Et is not denied that there had been search in the case of Bhangdiya Group on dated 19.07.2011 and during the course of the search, diaries being item number 1 to 63 Annexure B- 1 were found which according to the AO contain the details of the receipt and the payment The money s0 received represents the cash received by the Bhangdiya Group from the Group Companies by making the withdrawal from their bank account &s well as cash received from sub-contractors by making withdrawal by the sub-contractors from their bank account It is not denied that Bhangdiya Groups Company as well 2s the sub-contractor from whose bank account the cash has been withdrawl 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 acCOuIt, All these Group Companies as well as sub-contractors were assessed to Income-tax Therefore; 766 23 SO{NAG;2016 SAKSHI GRUH NIRMAN the source of the money shown as received in lhe diaries were out of the receipts uf the parties which have duly been disclosed by them while filing their [ncome- tax Return and has been assessed to tax while making their respective assessment by the AO Section 68 did not; in our opinion; cmpower the AQ to reject each and every explanation given by the assessee, Whether thze explanation is satistactory or nol depends on facts of each case; If the assessee has submitted all the evidences proving the identity, creditworthiness and genuineness of the transactions; the explanation given by the assessee cannot be regarded to be hot 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 to 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 substantiatc that they have contributed to the share capital, The share capitals have been received by the assessee company through banking channels, There had been search and seizure in the case of the ApPEL hangdiya Group but no clinching evidence showing linkage 0f the parties who 3 contributed towards the share capital was found or brought on record except 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, since the receipt found recorded in the diary comes out ofthe trading receipt of those concerns Bhangdiya Group and cannot be regarded to be the undisclosed income ofthe assessee, therefore, the money utilized out ofthat amount can also not be regarded to be utilized of unaccounted money of the assessee. No businessman will convert its tax paid money into unaccounted money and then convert into accounted money. The assessee company has received the contribution into the share capital proves the genuineness of transaction: The AO 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) No adverse evidence obtained in such enquiry was brought on record Even Ld, DR has also 24 50/NAG/2O16 SAKSHI GRUH MIRMAN nol produced any evidencc in this regard which may prove lhat the share capital contribution receivcd by the assessee company was not genuine. Since the @ssessee, in our Qpinion, has discharged his onus Qf proving identity, creditworthiness and gcnuinencss of thc transaction, the explanation given by the assessee cannot be regarded to be nun satisfactory: 12_ In our opinion, the AO just in the absence of any evidence being found was the view thal 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 Honble Delhi High Court has EiAfategorically held that the additional burden was 0n the department to show Gveh if the shareholders did not have the means to make the investment Juvestment made by them actually emanated from the coffers of the assessee $0 as to enable it to be treated as the undisciosed income of the assessee: It is not denied that the company wha 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 rcturns 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, a man of ordinary prudence would have fifed, We did not find any adverse inference being brought on record by the AO which may prave that these companies in connivance has facilitated the assessee companies to devise colourful transactions. We finr force in the submission of the Ld. AR that since all the companies who have contributed towards the share capital of the assessee are regular assessee have the Permanent Account Number If the AO has not pursued the matter apart from issuing the notice u/s: 133(6), in view of the decision of Hon'ble Supreme Court in the case of Odissa Corporation Pvt: Ltd: Vs CIT; 159 ITR 78 (SC) no addition can be made in the hands of the assessee_ 868 25 50/NAG/Z016 SAKSHI GRUH NIRMAN 13_ The CIT(A) in our opinion has passed a detailed and explicit order "ler considering the submission of the assessee which has been reiterated bcfure Us as well as the order 0f the AO and given the finding of the facts The CIT(A) has also dealt with the various case laws which; in our opinion, support the case of the assessee 14, This is not a fit case which warrants dur interference; We accardingly confirm the order of the CIT(A) and dismiss the ground taken by the Revenue 15, In the resukt the appeal file by the Revenue stand dismissed Ordet pronounced in the open court on 29.06.2017 [- ) Omi (AMARJIT SINGH) JUDICIAL MEMBER Nagpur Date: Z9th June, 2017 R Dhoke, P.S, Copy tox 1) The Appellant; 2] The Respondent; 3) The CIT(A); 4) The CIT, Nagpur City Concerned; 5} The DR, ITAT , Nagpur; 6) Guard File (PK BANSAL) VICE PRESIDENT By Order (DyyLAstti Registrar} Aaklenejetrar `xt(r #TTR &irha sfatvul, Incone Tux Appallute Tribunel TTITY #urda / Medpur EAnCI