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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI G.S. PANNU & SHRI PAWAN SINGH
The captioned appeal by the assessee is directed against the order of the CIT(A)-20, Mumbai dated 10.7.2014, pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 25.3.2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, the appellant has raised two Grounds in its Memo of appeal; firstly, with regard to an addition of Rs.14,04,57,500/- confirmed by the CIT(A) u/s 56(1) of the Act; and, secondly, with respect
M/s. Nishottam Traders Pvt. Ltd. to an addition of Rs.73,97,500/- confirmed by the CIT(A) u/s 68 of the Act. Notably, the aforesaid amounts reflected the amounts of Share Premium and the corresponding Equity Share Capital respectively, received during the year under consideration. However, subsequently vide communication dated 9.11.2016, appellant has also raised additional Grounds which read as under :- a) That the order passed u/s 143(3) of the Income Tax Act, 1961 on 25/03/2013 by the Assessing Officer becomes erroneous as not tenable because of merging with the subsequent order passed u/s 143(3) r.w.s. 153C of the Income Tax Act, 1961 on 04/03/2016 whereby modus- operandi of the appellant company was finally decided as merely tool in the hands of Sh. Shirish C. Shah in whose case all the additions were made, as such the income of the appellant company was computed at NIL. b) That the Ld. AO as well as the Ld. CIT(A) has grossly erred in law in not lifting the corporate veil though the importance of the same has been settled by the Hon'ble SC in the case of Azadi Bachao. c) That the Ld. AO as well as the Ld. CIT(A) has erred in law in not applying the principle of “Substance over Form while adjudicating the appeal.”
In the above background, the rival counsels have been heard and the relevant material perused. Insofar as the additional Grounds of appeal raised by the assessee is concerned, the same is primarily emanating from an assessment subsequently finalised by the Assessing Officer on 04/03/2016 u/s 143(3) r.w.s. 153C of the Act for the instant assessment year. According to the appellant, in the assessment so made subsequently, the amount of Share Capital and Share Premium
M/s. Nishottam Traders Pvt. Ltd. have not been added and, on the contrary, it has been held that the real income from such transactions is assessable in the hands of one Shri Shirish C. Shah and not the assessee-company. On the basis of the aforesaid stand of the Assessing Officer taken in a subsequent assessment for the very same assessment year, the learned representative has pointed out that the instant addition becomes untenable. Insofar as the admission of such an additional Ground is concerned, the same has been justified on the ground that it involves appreciation of a legal point and as the relevant facts are available, the same deserves to be admitted in view of the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., 229 ITR 383 (SC). On this aspect, the ld. CIT-DR has not opposed the plea for admission of additional Grounds.
In our considered opinion, insofar as the admissibility of the aforesaid additional Grounds is concerned, same deserve to be admitted as it is quite relevant to decide the correct tax liability of the assessee-company, especially considering the fact that the plea is based on a subsequent stand taken by the Assessing Officer in the course of assessment completed u/s 153C of the Act in the hands of the assessee- company for the instant assessment year itself. In the above background, the rival counsels were heard on the merits of the said additional Grounds.
In order to appreciate the preliminary plea raised by the assessee, the following discussion is relevant. The appellant is a company incorporated under the provisions of Companies Act, 1956
M/s. Nishottam Traders Pvt. Ltd. and during the year under consideration it issued 739250 Equity shares of Rs.10/- each at a premium of Rs.190/- per share to various entities enumerated in para 4.1 of the assessment order, thereby raising Equity Share Capital of Rs.73,92,500/- and Share Premium of Rs. 14,04,57,500/-. In the course of assessment proceedings, the Assessing Officer noted that no business activity has been undertaken by the assessee-company in the past and nor during the year under consideration. The Assessing Officer also carried out a verification exercise with regard to the amounts received as Equity Share Capital and Share Premium. On the basis of the verification exercise, the Assessing Officer held that the assessee was not able to justify the charging of Share Premium of Rs.190/- per share and added the amount of Share Premium of Rs.14,04,57,500/- as income u/s 56(1) of the Act. The Assessing Officer also concluded that so far as the amount received in the shape of Equity Share Capital from various parties amounting to Rs.73,92,500/- is concerned, the same were unexplained credits within the meaning of Sec. 68 of the Act. Both the additions have also been affirmed by the CIT(A).
In this background, the learned representative for the assessee pointed out that there was a search action u/s 132(1) of the Act at the premises of one Shri Shirish C. Shah in consequence of which proceedings u/s 153C of the Act were initiated in the hands of the assessee. Consequently, the assessment for the Assessment Year 2010- 11 has been completed by the Assessing Officer u/s 153C r.w.s. 143(3) of the Act dated 4.3.2016 wherein it has been noted that the search and the statements given by Shri Shirish C. Shah during the search reveal
M/s. Nishottam Traders Pvt. Ltd. that he was engaged in providing accommodation entries to various people through the entities which were directly or indirectly associated or controlled by him. For the said reason, the Assessing Officer held that the transactions carried out by the assessee-company were at the instance of Shri Shirish C. Shah and, therefore, the real income of such transactions is to be assessed in the hands of Shri Shirish C. Shah, and accordingly the total income of assessee-company has been assessed at NIL. In this background, the plea set-up by the assessee is that the impugned assessment becomes erroneous because in the impugned proceedings, the Assessing Officer has made the additions on account of Share Capital and Share Premium as unexplained credits u/s 68 of the Act and as income u/s 56(1) of the Act respectively treating such transaction to be belonging to the assessee. Further, supporting his plea based on the assessment made by the Assessing Officer u/s 143(3) r.w.s. 153C of the Act, the learned representative pointed out that in a similar situation, the Hon'ble Delhi High Court in the case of Vijay Conductors India Pvt. Ltd., 2015-TIOL-2337-HC-DEL-IT upheld the decision of the Tribunal that in such cases additions can be made only in the hands of the beneficiaries and not the conduit entities. The learned representative explained that keeping the findings of the Assessing Officer made in the order passed u/s 143(3) r.w.s. 153C of the Act in mind, it is quite clear that the assessee-company was only used as a conduit by Shri Shirish C. Shah to provide accommodation entries to ultimate beneficiaries and, therefore, such income could not be assessed in the hands of the assessee-company.
M/s. Nishottam Traders Pvt. Ltd.
On this aspect, the ld. CIT-DR has referred to the findings of the CIT(A) to justify the addition u/s 68 of the Act. According to him, the entities which have contributed towards the Share Capital have not justified the investments or the genuineness of the transaction and, therefore, the additions have been rightly sustained by the CIT(A).
We have carefully considered the rival submissions. Ostensibly, the Assessing Officer was not satisfied with the explanation furnished by the assessee with regard to the Equity Share Capital and Share Premium received by the assessee-company during the year under consideration. Insofar as the merits of such a finding is concerned, the same is not the subject matter of the preliminary argument which is set-up by the assessee based on the subsequent assessment made u/s 143(3) r.w.s. 153C of the Act dated 4.3.2016. The point raised is as to whether any addition with respect to the impugned transaction is maintainable in the hands of the assessee-company, considering the subsequent assessment order dated 04/03/2016(supra). Notably, a search action took place on one Shri Shirish C. Shah, which revealed that the assessee-company was used as a conduit by the said person to provide accommodation entries to various beneficiaries. In the assessment finalised for the instant assessment year u/s 153C r.w.s. 143(3) of the Act dated 4.3.2016, the Assessing Officer alludes to the said situation and concludes that the real income from such transactions is assessable in the hands of Shri Shirish C. Shah, and not the assessee-company. In fact, in the assessment order dated 04/03/2016(supra), the Assessing Officer notes that during the coruse of search on Shri Shirish C. Shah books of account of the assessee
M/s. Nishottam Traders Pvt. Ltd. company were seized from the computer of Shri Shirish C. Shah, and he concluded that the assessee company was “directly or indirectly controlled by Shri Shirish C. Shah.” The moot question is as to what is the implication of such findings of the Assessing Officer qua the earlier assessment made by him u/s 143(3) of the Act, which is presently in appeal before us ? The transactions of receipt of Share Capital and Share Premium were scrutinized by the Assessing Officer in the impugned assessment and he was not satisfied with the nature and source of the amounts so received, and therefore, the respective amounts were added either as unexplained credit u/s 68 of the Act or as income from other sources u/s 56(1) of the Act. So however, in the assessment finalised for the very same assessment year, consequent to the search on Shri Shirish C. Shah, the Assessing Officer has concluded that the real beneficiary of the transactions is not the assessee, since it was merely a conduit whereas the real beneficiary of the income from such transactions was Shri Shirish C. Shah.
It is quite clear that so far as the impugned assessment is concerned, it does not abate in terms of the second proviso to Sec. 153A(1) of the Act, when the Assessing Officer invoked Sec. 153C of the Act. Thus, the impugned assessment made u/s 143(3) of the Act stands even when the Assessing Officer has made a subsequent assessment u/s 153C r.w.s. 143(3) of the Act dated 4.3.2016. So however, the moot point is as to whether on the same point contradictory findings of the Assessing Officer can survive in the two assessments? Firstly, in the instant assessment made u/s 143(3) of the Act, the Assessing Officer has treated the impugned amounts as assessable in the hands of the M/s. Nishottam Traders Pvt. Ltd.
assessee-company, whereas in the subsequent assessment made u/s 153C r.w.s. 143(3) of the Act, he has held that assessee-company is a mere conduit and the real income from the transactions is assessable in the hands of Shri Shirish C. Shah, and not the assessee-company. Though the two assessments are independent in the eyes of law, yet in our considered opinion, it would be incongruent that the two assessments concurrently survive with contradictory findings by the Assessing Officer. Under these circumstances, we deem it fit and proper to set-aside the impugned assessment and direct the Assessing Officer to re-visit the controversy afresh keeping in mind his stand in the subsequent assessment finalised u/s 153C r.w.s. 143(3) of the Act for the instant assessment year. Thus, without going into any of the other Grounds raised by the assessee before us, we set-aside the order of CIT(A) and direct the Assessing Officer to re-determine the assessment in this case afresh and as per law,consistent with his findings in the reassessment proceedings finalised u/s 153C r.w.s. 143(3) of the Act.