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

1 1 55 NAG}2016 MITZ INFRAPROJECT IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P.K. BANSAL, VICE PRESIDENT AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA No. 55/NAG/2016 (ASSESSMENT YEAR 2011-12) ACIT CENTRAL CIR 2(1}, 3RD FLOOR, ROOM NO. 312, AAYAKAR BHAWAN, TELANGKHED} ROAD, NAGPUR 440 001. 3darWf (Appellant) Vs MITZ INFRAPROJECT PVT, LTD 905 B WING, LOKMAT BHAVAN, WARDHA ROAD, NAGPUR 440012 PAN: AAGCM3047A 9ueff (Respondent} Appellant by Respondent by ShriA R Nigawe (DR) Shri KP Dewani (AR) Date of Hearing_ Date of Pronouncement 1906.2017 2906.2017 321 QRDER PERPK BANSAL KE: This appeal has been filed by the Revenue against the order of the CITCA) dated 28.01.2016 by taking the following effective grounds of appeal: #1. Whether an the facts and in the circumstances of the case and in Jaw; the Ld. CIT(A} was right in deleting the addition made on protective basis of Rs: 8,00,00,000/- being share application money and share premium? 2. Whether 0n the facts and in the circumstances Of the case and in law, the Ld CITIA) was justified in deleting the addition of Rs 8,00,00,000/- without appreciating the facts and evidences brought on the record by the 24 2 55/NAG/2016 MITZ INFRAPROJECT AO to prove that share application money and share premium wu5 not genuine? 3 Whether on the facts and in the circumstances of the case and in law; the Ld. CITIA} waS justified in deleting; the addition of Rs; 8,00,00,000/- ignoring the evidence found in incriminating diaries according to which cash wa5 transferred to Mumbai thraugh hawala operations which was received bock @S share capita and premium?" 2 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 ofthe Income Tax Act in the office of Bhangdiya Group 0 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 0fF Annexure B-1 belong to the assessee's company. Accordingly the notice 4/s. 153(C) of the Income Tax Act dated 06/05/2013 was issued and served on the assessee, In response to the notice, the asscssee objected the validity of the notice and requested to drop the proceedings u/s. 153(C) to which the Assessing Officer did not agree: The assessee therefore, submitted that the return filed u/s. 139(1) be treated as the return filed u/s, 153(C); The assessing Officer on the basis of the seized material noticed that the assessee Bhangdiya has transferred the 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- "do- ~do- ~do- -do- Alka Diamond Industries Ltd Happy Collection Suitings Javda India hnpex Ltd Rangoli Couierce Pvt Ltd Sanguine Media Ltd Scenderabad HealthcareLtd Rs Lo o@QQ Rs. 50,00,000_ Rs1,00,Q0,0Q0 Rs:-1,Q0,0O,0Q0 RsLQoou0OO Rs.1,Q040,Q00 87/ 3 55/NAG/2016 MITZ INFRAPROJECT do- do- Urja Commerce Pvt_Ltd: Shri Ganesh Spinners Utd; Rs L,0C,0O,@QO_ Rs 1,50,Q0,QQO 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 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 Officer, 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 transfer funds / RTGS of various amount in various bank account operated and controlled through various persons The amount has been nsferred one bank account to another after 3 4 layers of bank transaction On Isame day and the amount appears a8 share application and share premium Bhangdiya'$ 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 8 Crores through shell cornpanies and the sources of the said investment was from the cash balance available with the Bhangdiya'5 Group as reflected on the receipts side of the diaries item number 1 to 65 of Annexure B The Assessing Officer therefore, added RsBCrores On protective basis in the hands of the assessee companies treating the same is bogus When the matter went before the CIT(A); the CIT{A) deleted the said addition by observing as under: "9.0 have carefully considered the submissions of the AR of the appellant the order of the AO and the material on record 3 55/NAG/2016 MITZ INFRAPROJECT 9,1 During the relevant financial year under consideration, the appellant company has received share capital to the tune of Rs &.00 crores from 8 corporate share holders The AR has contended that the Id, AQ has made the detailed enquiry in respect to shure application money received from various companies who have contributed towards share capital 0f appellate company: The appellant in the course of assessment proceedings has submitted canfirmations fram 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 of investment have been received through banking chunnel The AR has placed on record the details of Assessing Officers of the investor corporate entities which are assessed at Mumbai The AR has also filed the financial statements 0f 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 f Shri Mitesh Bhangdiya, the AR has contended that the same does not relate tD the appellate company therefore; no @dverse inference can be drawn 9.2 The AR of the appellant hos relied on the decision of Hon'ble Apex Court in the case 0f 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 Qf Lovely Exports Pvt Ltd. is applicable to the facts of the case of the appellant The AR further submitted that the oppellant 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 873 5 S5/NAG/2016 MITZ INFRAPROJECT as not bona-fide: As regards to the issue of invoking the provisions of section 68 of the Actby the AO, the appellant has relied on the following decisions: Appeal (L} No. 2182 of 2009 (High Court of Bombay} 307 [TR 334 CIt VS M/s: Creative World Telefilms Ltd, CIT vs: Value Capital Services [P} Ltd. Jon'ble Bombay High Court judgment Vide order dated 13.02.2012 in the case %f ClT vs Goa Songe & Power Ltd ii) ij) 9.4 The AR of the appellant has contended that the ld. AO has not brought any evidence on record to show that for contribution of share capital money has flown form Coffers ofappellant company The AR further contended that assessment ufs.14303} rws 153C of the Act has been compieted 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 ond no defect whatsoever has been found in the books of account of the p eLLAT appellant which has been accepted t It is & fact emanated from the records Niat the books of account of the appellant have not been rejected by the AO. Jius the contention raised by the AR that In the absence of any evidence to Om ne effect that money has flown from coffers of assessee; the addition u/s. 68 cannat 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 has proved the identity, credit warthiness and genuineness Of the transaction 9,5 It is a fact as emanated from records that the AR of the appellant during the course of assessment proceedings hos filed the details of share application money; including the share application forms, confirmations from the respective companies with their complete names and 6 SS/NAG/2016 MITZ INFRAPROJECT addresses and PANs; Board Resolutions bank statements and Income-tax returns It is thus not disputed that the 08 companies which have made investments with the appellant company in the form of share capital are assessed to tax and have filed their returns of income for the relevantyear: It is also undisputed that the share application money in question has been received through the account 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 banking the channels The AO, however after conducting certain inquiries in respect of investor companies; has inferred and arrived at the conclusion that the share application money invested ih the appellant company is nothing Ete but appellant companys own unaccounted money _ introduced under guise of investment by the 08 companies; which are allegedly used as te to bring back such unaccounted money: Jm 9.6 The contention of the AR of the appellant is that the 08 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 ofincome lt 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 PANs the 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 375 7 55/NAG/2016 MITZ INFRAPROJECT 9.7 It is seen fror the records that the Id, AO has drawn the inference that the share application money and the share premium introduced with the appellant company by the investor companies is bogus without bringing any adverse material on record The Ld. AO thus without examination of the investments made by these 08 companies had arrived at the conclusion that the entire share capital of Rs 8.00 crores by the 08 companies is under the gorb of bringing back the unaccounted money of the appellant company It, however; is @ fact a5 emanated from the records that the Ld AO has refrained from giving any finding in respect of these 08 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 Hon"ble 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 as thatin the case ofthe appellant rompany the Ld AO, apartfrom issuing notice u/s 133/6}, did not pursue the atter further: PEL 9.8 The AO has observed that before investing the funds with the appellant company; all the 08 investor companies have received the money in cash through several layers; which according to the AO, i5 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 ta such observation contending thatthe 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 to bring back are same in the form of share capital The AO hos drawn the inference that cash balance generated by sub-contractor expenses were routed through investor companies to be infused in the group companies a5 share application maney The AO has further mentioned in para no. 11 that the Bhangdiya group has transferred its unaccounted fund Om 5S/NAG/2016 MITZ INFRAPROJECT to Mumbai through Hawalu mediators which amount is alleged to have been invested with the appellant company through the 05 investors: However; no such evidence %f cash transfer in the name of investor companies is brought on record; 9.9 It is a fact that the A0 has caused the Inquiries ufs 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 been obtained from which anything adverse can be held &s regard to contribution of share capital Thus the argument of the appellant that once the appellant has furnished the names and addresses and PANs 0f investors including their Income-tax records the appellant is not concerned aS regards to deposits in the account of third parties and the onus of the appellant stands duly discharged carries much substance on the ficts 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 to the facts of the present appellant wherein the Apex Court has held as under: APP 61f 4 4 3 J "Can the amount of share money be regarded as undisclosed income under $ 68 of LT: Act 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are glven to the AO, then the department is free to proceed to reopen their individual assessments-In accordance with Iaw Hence; we find no infirmity with the impugned judgment 877 9 55/NAG}3016 MITZ INFRAPROJECT 9.10 The AR of the appellant has vehemently argued that the 50 called clinching evidence gathered pursuant to the inquiries conducted by the department has not been discussed in the assessment order: The AR further agitated that the Ld. AO has not supplied any material as evidence in the course of hearings 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 appellant hos used its own money for introduction of share capital in the name 0f 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 thefollowing judicial decisians: "1) The Supreme Court in the case of CIT Vs Gujarat Heavy Chemlcals Ltd: (256 ITR 795) has affirmed the decislon 0f Gujrat High Court and has held that "CITIA}) and the Tribunal having found no justlfication for the addltion of the amount of investment made in the shares of the assessee-company by another company aS 25 per cent shares 0f the assessee were held by ane group and all the companles; Indian as well as foretgn which had advanced money to the assessee towards subscription of shares had links with the said group matter involves question 0f appreciation of evidence; application under $. 256(2) rightly rejected; We have read the order of the High Court and heard learned counsel for the appellant We are satlsfied 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 tt an established law that "f the share application money is recelved 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 QNi IQ 55/NAG/2016 MITZ INFRAPROJECT with Iaw, but it cannot be regarded aS undisclosed Income of the assessee company 3) In the case of CIT Vs Orissa Corporation Pvt Ltd (159 ITR 78), The Supreme Court of India has held thal 'The assessee had given the names and addresses of the alleged creditors It was un the knowledge of the Revenue that the said creditors were income-tax assessees Their ndex number was In the file of the Revenue. The Revenue, apart from 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 Of 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 mot do any further: In the premises, if the Tribunal Came 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 or based on or perverse no evidence If the conclusion is based on some evidence on whlch G conclusion could be arrived at no question of law as such arises: It cannot; therefore; be suid that question of Iaw any arose in these cases, The High Court WaS; therefore; right in refusing to refer the questions sought for: 41 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 On the facts so that no interference was called for;" It was further held that "Could It be assumed that the decision endorses the view that unexplained Share Capltal could never be treated Gs the income % 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 of paid-up share capital and share application money 5) The Calcutta High Court in case of Hindustan Tea Ca Ltd Vs: CIT (263 ITR 289) has held that "the assessee has disclosed all the particulars available with it along with the names & addresses %f each subscriber: In such 4 case, the aSsessee could not have been expected to establish the genuineness 0f amount and the amount could not be treated the income 0f the company 74 11 55/NAG/2016 MITZ INFRAPROJECT without ary material to suggest any link between the subscrlbed amount and the company The AO is not justified in treating this Gs assessee's income especially where particulars the upplication and since the were given in amounts were received by cheque 6) The Delhi High Court in the case of CIT Vs: Iliac Investment Pvt Ltd (287 ITR 135}, after review 0f decision In CIT Vs: Antarctica Investment Pvt Ltd (262 ITR 493) and Cit Vs Finance Ltd. (205 Sophia ITR 98), held that "where the assessee capable of identifving the subscriber and also is their creditworthiness place evidence of by their bank statements and also shecitted the confirnations nothing more could be expected G the company It follows that such amount of share assessable as that of the capital to be company there should be something more to justify Such addition In this regard the amount 0S share capital stands on received 0 different footlng than any other borrowing to some extent 7) ITNI Chennai Bench in the case of Midas Golden Distilleries (P) Ltd: Vs; CIT (25 DT 337) has held that 'assessee bought on record complete identity 0f Shareholders company their addresses and confirmation by provlding to the effect that they have rentiibuted to the share capital of the assessee Moneys received through banking were channels: AlI the applicants regularly assessed to tax and assessment are each of them particulars relating to were made available to the assessing authority: Mereisaubiective opinion %f the AO that the source 0f mnoneyowith the shareholders or their creditworthiness i5 not established is not sufficient to treat the share capital as deemed Even If the applicant income ufs 68, companies are to be treated aS bogus share holders; Revenute is free t0 re-apen their individuas and bring to assessments tax such unexplained hands. Addition money in their respective in the assessee's hand is liable to be deleted 8) Further the Nagpur Bench %f ITAT in the case of ACIT Cir-? Vs. Kasana Foods Pvt Ltd (61 8 62 / Nag/ 2007) vide 0 joint order dated 24h July 2009 has held thal "The _ the assessee is Identical facts 0f the case of to the facts in case of Orissa Carporatlon (P} Ltd (Supra) Tin this case the assessee has furnished all the particulars of share applicant including its Pan: from The AQ Issulng notice apart u/s; 133{6) did not further: pursue the Therefore the matter notice issued to returned the share applicant unserved cannot be the criteriq to treat the share 12 55/NAG/2016 MITZ INFRAPROJECT application 0S unexplained cash credit in the honds of the assessee; The copies of all the above judgments are enclosed herewith as 'Annexure 10" 1o.0 In the light of the above facts; it is evident that the appellant has placed sufficient legal evidence on recard to demonstrate the identify, creditworthiness and genuineness Qf 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 addition made by the AQ is directed to be deleted PeLl 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 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 delcted. Under these facts, the assessee did not file any appeal or the Cross Objections 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 ofthe 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 Juoon) 881 13 55/NAG/2016 MITZ INFRAPROJECT Bench in the case of Mansi Commodities Ltd. In LT.A Nos. 146 to 148/Nag/2014 in which the Tribunal vide order dated 19/12/2016 held that satisfaction for issuance of notice W/s 153C is to be recorded by the Assessing Officer of the person searched and in the absence thereof the notice issued u/s. 153C is had in law and consequent assessment framed is bad in law.

Learned D.R, on the other hand, vehemently relied on the order of the CIT(A) 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 CITCA) dismiss same, Even np submissions were made For which our attention was drawn towards page nO. 25 para 12 of the order of CTCA) Even otherwise on merit the assessee contended that the diary seized during the course of search eontains the name of the assessee from whom the cash has been received noted in tle 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 us 153C and consequently cancellation of the assessment Framed thereupon; We have gone through Rule 27 of the [TAT 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 CIT(A) 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 CIT(A) 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 14 56/NAG/2016 MITZ INFRAPROJECT 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 dismissed by the CITLA): Therefore, in our opinion; the assessee complied with the condition 35 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 grvund. 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 to the amendment made by the Finance Act; 2015 with effect from 01/06/2015 states as under: ? €LL "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 oe 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 the Assessing Officer Over tD having_ jurisdiction over Such other person; This section has subsequently becn amended by Finance Act, 2015 with effect from 01/06/2015, The amended section reads a5 under; "153C Notwithstanding anything contained in section 139,section 147,section 148, section 149, section 151 and section 153, where Assessing Officer is satisfied that - the 3 833 15 55/NAG/2016 MITZ INFRAPROJECT {a) Any money, bullion; jewellery or other voluable article or thing; seized or requisitioned, belongs to; Or {b) Any books 0f account or documents; seized Or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person Other than the person referred to In section 1534, then the books 0f account or documents Or assets, seized or requisitianed 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 a8 under: "Section 153C of the Act relates to assessment of incame 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, jewellety or other valuable article or thing or books of account pr documents seized or requisitioned belong to any person other than the person referred to in Section 1534, then the books of account Or documents or assets seized Qr 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 0f" such other person in accordance witk the provisions of section 1534 Disputes have arisen, a5 to the interpretation of the words "belongs to in respect 0f a document aS for instance when a given document seized from 0 person is G copy 0f the original document Accordingly, it is proposed to amend the aforesaid section to provide that notwithstanding anything cuntained in section 139, section 147, section 148, section 149, section 151 and section 153, where the 16 55/NAG/2016 MITZ INFRAPROJECT Assessing Officer is satisfied that any money, bullion; jewellery Or other valuable article or thing belongs to, or any books of account documents seized Or r requisitioned pertain to, or any information contained therein, relates to, any person; ather thon the person referred ta in section 153A 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 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 as under: ELL "

Assessment of income ofa person other than the person in whose case search has been initiated or books of account other documents assets have been requisitioned 39.1 Section 153C of the Income-tax Act relates to assessment of income %f 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 1536, before amendment made by the Act; provided that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 section and 153 0f the Income-tax Act; where the Assessing Officer is satisfied that any money; bullion, jewellery ar other valuable article Or thing or books of account or documents seized Qr belong requisitioned to any person; Other than the person referred to in section 1534 of the Income-tax Act; then the books 0f account or documents or assets seized or requisitioned shall be handed over to the _ Officer having jorisdiction over 5uch atherapdcda vand? ke Asessing Officer shall proceed against each such other person and issue notice Jm 17 55/NAG/2016 MITZ INFRAPROJECT and assess Or reassess income of such other person in accordance with the provisions ofsectian 153A 39.2 Disputes have arisen QS to the interpretation pf the words "belong to in respect of @ document aS for instance when 4 given document seized from & person is a COpy of the original document Accordingly, section 153C has been amended So os to provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and sectian 153 0f the Income- tax Act; where the Assessing Officer is satisfied that any money, bullion; jewellery or other valuable article or thing belongs to, or any books %f 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 1534 0f the Income-tax Act then the books of account or documents or agsets 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 such other person in accordance with the provisions ofsection 1534, PE 39,3 Applicability: This amendment has taken effect from the Ist day of June; 2015, 73 In view of this, it is apparent that the amended section 153C are not retrospective and are applicable with effect from 01/06/2015 ad 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 153Chas 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 will not apply: As per the provision of section 153C,a5 was in existence during the impugned period, the condition precedent for issuing notice M/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 Dr 3 4 18 SS/NAG/2016 MITZ INFRAPROJECT document seized or requisitioned which belong to such person where documents in question recovered during search proceedings did not belong to the assessee, though there wzs a reference to the assessee therein; isSue of notice to the assessee U/s 153C, in our opinion, cannot be held to be valid, Hon'ble Delhi High Court in the case of Pcpsi Foods Pvt Ltd, VS_ ACIT 52 Taxmancon 220 (Del) we noted has also categorically held that before < notice u/s 153C can be issued, the Assessing Officer i5 required to arrive: at 3 conclusive satisfaction that the document belongs a person cther than the searched person Unless unti] it is established that the documents seized did belong to the searched person; the provision of section 153C did not get attracted. This is not disputed that the notice in the case Df 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-l to B-65 were faund and seized These diaries PEpeteng to the Bhangdiya Croup not to the assessee: Even though the name of the assesgee is mentioned in the diary that does not mean that the diary belong to 3 theassessee lt may be said that the diary contains the information regarding the assessee. In our opinion, even the amended provision supports the case of the assessee. The Legisiation has amended section 153C with effect From 01/06/2015 and widened the scope u/s 153C by substituting in place 0f word 'belongs or belong' to word 'pertain Or 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 4S 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 ta 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 887 19 55/NAG/ 2016 MITZ INFRAPROJECT Hon'ble Bom) bay High Court in the case of Bharti Vidyapeeth in ITA Na. 923 of 2012 vide its order dated 11/09/2014. This fact also finds support as the Revenue has made the addition in the hands of the assessee in each of the assessment year only on protective basis which proves that the Revenue was also not satisfied with the incriminating material in fact belong to the assessee; On this basis we set aside the order of CIT(A) and hold that the notice issued 4s 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. 8,00,00,000/- which were added by the AO on protective basis being the share application money and share premium We have heard the rival submissions 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 AO while Ld, AR relied on the order of the CIT(A) and reiterated the submissions made before the CIT(A) He also relied on the following cases: 1} (2008) 216 CTR 0195 (SC} CIT vs. Lovely Exports (P) Ltd PPEL (2008) 307 ITR 0334 (Delhi) CIT vs: Value Capital Services (P) Ltd Hon"ble Bombay High Court arder in ITA (L) No: 2182 of 2009 in the case 0f Mfs: Creative World iii) Telefilms Ltd; (Earlier known 45 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 Of Goa Sponge and Power Ltd vide order dated 13/02/2012 20 S5 NAG/2016 MITZ INFRAPROJECT Hon'ble High Court of Bombay in ITA No 1613 of VI 2014 in the case of M/s Gagandeep Infrastructure Pvt Ltd. vide order dated 20/03/2017 (2014} 368 ITR 0001 {Bom, vi) Vodafone Indig Services Pvt Ltd vs. ACIT Hon'ble Haryana High Court in {TA No. 386 of vil) 2010 (0 & M} in the case Of M/s KC Pipes Pvt Ltd, vide order dated 02/08/2016. Hon ble Bombay Hiyh 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 gone through We noted the Said addition has been made by the A0 on protective basis treating the following companies individual to be the shell company investor in the assessee company in rcspect of amount of the share application money as enumerated here under: 2010-11 Alka Diamond ndustrics Ltd Rs1,00.00,0oO ~do- Happy Collection Suitings_ RsSO,QG.QCO ~do- Javda India Impex Ltd Rs 1,00,oO,ooo "do- Rangoli Commerce Pvt: Ltd Rs 1,Q0.00,00O/ -do- Sanguine Media Ltd Rs 1,000,0O -do- Scenderabad Healthcare Ltd RsL00,0000/ -do- Urja Commerce Pvt_Ltd Rs L,QO,0O,QQO/ ~do- Shri Ganesh Spinners Ltd Rs1,50,08Q00/ 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: Thc AQ therefore; added the said amount of Rs. 8,00,00,000 /- in the hands of the assessee on protective basis holding the share application money including the share premium to be bogus 3 2m 384 21 55/NAG/2016 MITZ INFRAPROJECT The CIT(A) tleleted the said addition, The Ld. DR before 45 even though vchcmently rclied on the order of the AQ 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 0f the decision of Honhle Supreme Court in the case of Daulatram Rawatmal 87 [TR 349(SC} that onus is on the person who alleges that apparent is not rea} The CIT(A} in this case noted that the assessee had submitted complete details, the copy of which were also Filed before 45, being conlirmation from shareholders, financial statement; bank statetent copy of Permanent Account Number and details of Income-Tax Return to substantiate the contribution of share capital; [t is not denied that the amount was received through proper banking channel and all the 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 thc Income-tax Act; Section 68 a5 was in inexistence during the impugned assessment year lays down as under: Where any sum is found credited in the books 0f {n assessee maintained for any previous year; and the assessee offers mot explanation about the nature and source thereof 0r the explanation offered by him is nok; in the opinion of the Assessing Officer; satisfactory, the sum SO credited may be charged to income-tax aS the income of the assessee of that previousyear: 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 ofthe assessee maintained for the previous year; (b} The assessee offers no explanation about the nature and source of such credit or the explanation offered by the assessee is not in the opinion of the AO satisfactory: 22 55/NAG/2016 MITZ INFRAPROJECT 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. 8,00,00,000 /- credited in the books of 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 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 40 while rejecting the explanation of the assessee did not bring any evidence on record except relying ~ste seized diary that the money was sent by the assessee to the mediatcr at umN 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 of the money sent by the Bhangdiya Group to Mumbai. lt 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 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 Graup from the Group Companies by making the withdrawal from their bank account as well as cash receivcd from sub-contractors by making withdrawal by the sub-contractors from their bank account It 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; All these Group Companies as wcll as sub-contractors were assessed t0 [ncome-tax Therefore, the source of the money shown as received in the diaries were out of the receipts 27q1 23 55/NAG/2016 MITZ INFRAPROJECT of the partics which have duly been disclosed by them while filing their [ncome- Return and has been assessed to tux while making their respective tilx assessment by the AO. Section 68 did not, in our opinion; empower the AO to and explanation given by the assessee Whether the reject each every explanation is satisfactory or not depends on facts of each case If the assessee all the evidences proving the identity, creditworthiness and has submitted genuineness of the transactions, the explanation given by the assessee cannot be be not satisfactory The identity of each of the party who has regarded to 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 the details being confirmation from shareholders, their Financial submitted statements, bank statements to substantiate that they have contributed to the share capita} The share capitals have been received by the assessee company through banking channels There had been search and seizure in the case of the hangdiya Group but no clinching evidence showing linkage of the parties who contributed towards the share capital was [ound 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 of the trading receipt of those concerns Bhangdiya Group and cannot be regarded to be the undisclosed income of the assessee; therefore; the money utilized out of that amount can also to be utilized of unaccounted money of the assessee No not be regarded businessman will convert its tax paid money intc unaccounted money and then accounted The assessee company has received the convert into money, capital proves the genuineness of transaction: The contribution into the share AO in the course of the asscssment 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 produced any evidence in this regard which may prove that the share capital not 24 SS/NAG/ 2016 MITZ INFRAPROJECT contribution recelved by the assessee company was not genuine. Since the assessee, in Qur opinion; has dischargedl his onus of proving identity, creditworthiness and genuineness of the transaction the explanation given by the assessee cannot be regarded to be non satisfactory. 12 In Qur opinion, the A0 just i the absence of any evidence being found was the view that the money has flown from the coffer of the assessee We have gone thraugh the decision in the case of ClT vs. Value Capital Services P Ltd. 307 ITR 334 (Del}: We noted in this case the Honble Delhi High Court has categorically held that the additional burden was on the department to show even if the shareholders did not have the Means to make the investmnent [nvestment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee; Itis not deiied 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 flled 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, a 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 assessee have the Permanent Account Number: If the A0 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 [TR 78 (SC); 40 addition can be made in the hands 0f the assessce, 393 25 55/NAG/2016 MITZ INFRAPROJECT 13. The CIT(A) in our opinion has passed a detailed and explicit order iIliar cunsidering the submission of the assessee which has been reiterated Inlire 4S as well as the order of the AO and given the finding of the facts The GIT(A) has also dealt with thc various case laws which; in our opinion, support the case ofthe assessee; 14. This is not a fit case which warrants our interference: We accordingly confirm the order cf the CIT(A) and dismiss the ground taken by the Revenue 15, In the result thc appeal file by the Revenue stand dismissed, Order pronounced in the open court on 29,06.2017 { (AMARJIT SINGH) JUDICIAL MEMBER (PK BANSAL} VICE PRESIDENT Nagpur Date; 29th June, 2017 R. Dhoke. P.S Copy tox 1) The Appellant; 2) The Respondent; 3} The CIT(A}; 4) The CI , Nagpur City Concerned; 5) The DR, ITAT; Nagpur; 6) Suard File By Order {Dy-/Astt A 52 MMaj STD #ira #arreT; Incont Tax Appollaete Trlbunol TY 7aria / Mappur Banch