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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R PER Waseem Ahmed, Accountant Member:-
Both appeal by the assessee are directed against the different orders of Commissioner of Income Tax (Appeals)-II, Kolkata of even dated i.e. on 25.09.2014. Assessments were framed by DCIT, Central Circle-XVIII, Kolkata u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 26.03.2014 for assessment years 2009-10 & 2010- 11 respectively. Shri S.K. Tulsiyan, Ld. Advocate appeared on behalf of assessee and Shri Saurav Kumar, Ld. Departmental Representative represented on behalf of Revenue.
ITA No.2154-2155/Kol/2014 A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 2 2. Both the appeals are heard together and are being disposed of by way of consolidate order for the sake of brevity. We first take up the appeal of assessee in relating to A.Y. 09-10.
3. The issue raised in ground number 2 by the assessee in this appeal is that learned CIT-A erred in upholding the order of AO by sustaining the disallowance of Rs. 18 lakh on account of share and application money.
The facts in brief are that the assessee is a private Limited company where a survey operation u/s 133A of the Act was conducted in the business premises of M/s Bubna Properties Private Limited (for short BPPL) and M/s Gokul Leasing & Finance Private Limited (for short GLFPL) dated 03.80.2011. During the course of survey operation statement u/s 131 dated 04.08.2011 of Shri Rajendra Bubna, Managing Director of the BPPL was recorded wherein it was admitted that accommodation entries of Rs. 18 lacs has been provided to the assessee. The relevant extract of the statement is reproduced below:- “Q.5 Do you know the companies named APS Containers Pvt Ltd. and VKD Traders Pvt. Ltd.? Ans. Yes, I know these companies, they are run by Alok Agarwal. Q.6. During the course of Survey U/s 133A of the IT Act in your office you are stated that you have given accommodation entries of Rs.18,00,000/- to APS Containers Pvt. Ltd in the FY 2008-09 and Rs.10,00,000/- in the FY 2009-10 through M/s Bubna Properties Pvt Ltd and Gokul Leasing Pvt. Ltd. and Rs.20,00,000/- to M/s VKD Traders Pvt. Ltd. in the FY 2009-10 at a commission of 2%. Do you confirm this statement now? Ans: Yes, I have given accommodation entries of Rs.28,00,000/- APS Containers Pvt Ltd Rs.110,000/- during the FY 2009-10 through Gukul Leasing & Finance Pvt. Ltd., and Rs.18,00,000/- during FY 2008-09 through Bubna Properties Pvt. Ltd., Moreover, I have given accommodation ent5ries for Rs.20,00,000/- to VKD Trader Pvt.Ltd., through my Company. Gukul Leasing & Finance Pvt. Ltd. Q.7. During the course of Survey you have admitted that you have given cheques to these companies after receiving an equal amount of cash along with commission of Rs.96,000/- do you abide by to this statement? Ans. Yes, I agree that I have done this. -2155/Kol/2014 A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 3 Q.8 Please state who paid you the cash against which you have issued cheques amounting to Rs.48,00,000/- Ans: Shri Alok Agarwal, Director of the above two companies gave me this money through his agent to whom I handed over the cheques. Q. 9. Shri Alok Agarwal, Director of M/ VKD Traders Ltd. and APS Containers Pvt Ltd., is sitting beside you. Please confirm the statement you have given regarding you accommodating entries provided to these companies? Ans. Yes, I reiterated that I have given entries to the above companies after taking equal amount of cash and commission @ 2% of the amount. Q. 10. Mr. Alok Agrawal is hereby given opportunity to cross examine Sri Rajendra Bubna if he so likes. Ans: I do not want to ask him any question.”
The AO also called upon the assessee to explain the above facts of the case who has refuted to have taken such accommodation entries of Rs. 18 Lacs and submitted various documents in support of genuineness of the transactions.
It is also important to note that Shri Rajendra Bubna managing director of BPPL retracted from the statement given at the time of survey vide letter dated 18th March 2014 along with the affidavit duly notarized. However the AO disregarded the contention of the assessee by observing that Shri Rajendra Bubna retracted from the statement after such a long time. Moreover the retracted statement was given after the completion of assessment of BPPL. The AO finally treated the sum of Rs.18 Lacs as undisclosed income and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the addition made by Assessing Officer was solely on the basis of the statement given by Mr. Rajendra Bubna, Director of M/s Bubna Properties Pvt. Ltd. (BPPL for short) which was retracted by him in the course of assessment proceedings. Besides this there was no document found in the course of survey suggesting that the assessee A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 4 has taken accommodation entry from BPPL. The assessee also submitted that the copy of the statement used against it was not made available for the purpose of confrontation. The assessee also submitted that BPPL has subscribed shares of assessee-company for₹ 18 lakh in the year ending as on 31.03.2009 and the net worth of the BPPL i.e. on 31.03.2009 stood for ₹ 1017 lakh. Therefore, it can be inferred that there was sufficient fund available with the BPPL for making such investment in the court. The assessee also submitted that Shri Alok Agarwal, Director of the assessee-company remained silent at the time of recording the statement of Shri Rajendra Bubna u/s 131 of the Act even the allegation was framed by Shri Rajendra Arora against the assessee. It is because he faced such proceedings first time in his life and therefore he could not respond at that relevant time. The assessee also submitted that no statement of Alok Agarwal, Director of assessee-company was recorded during the course of assessment proceedings. The AO has never recorded the statement of Shri Alok Agrawal during the course of assessment proceedings though he had every opportunity to record his statement. However, the Ld. CIT(A) after hearing the assessee and considering the remand report has made the following observation:- i) There was a very direct and specific statement given by Shri Rajendra Bubna stating that he has given accommodation entries to the assessee. ii) At the time of statement recording u/s 131 of the Act Shri Alok Agarwal, Director of assessee-company was also present and a specific opportunity to cross-examine, Shri Rajendra Bubna in connection with the alleged share transactions was given but he failed to avail the same. iii) Two letters filed by Shri Rajendra Bubna, Director of BPPL retracting from its earlier statement has no meaning because it was filed on 18.03.2014 i.e. after more than 2 and half years. Moreover, such retracting statement was filed after the completion of assessment proceedings u/s. 143(3) of the Act in the case of BPPL. The Ld. CIT(A) also observed that the provision of Sec. 68 of the Act do not cast any -2155/Kol/2014 A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 5 obligation on the AO to prove with the help of materials that share application money was bogus transactions. In view of the above, Ld. CIT(A) disregarded the contention of assessee by observing as under:- “7.7 In view of the above facts, I am of the opinion that the AO was justified in making the addition of Rs.18,00,000 u/s 68 of the Act as undisclosed income of the appellant for the year under consideration. The shareholder/share subscriber through its Managing Director had given very specific statement that during the financial year 2008-09 relevant to the assessment year 2009-10 the company M/s Bubna Properties Pvt. Ltd had given an accommodation entry of Rs.18 lakh to the appellant company by receiving the equivalent amount of cash and the commission of Rs.36,000/- from the director of the appellant company Shri Alok Agarwal. The director Shri Alok Agarwal kept his silence when the opportunity to cross examination was allowed to him. He could not rebut the statement given by Shri Rajendra Bubna against the appellant company. Hence, the addition of Rs.18 lakhs made by the AO is confirmed. In support the reliance is placed on the decision in the case of CIT vs. Neva Promoters & Finlease Pvt. Ltd., 342 ITR 169 (Delhi) and CIT vs. Oasis Hospitalities Pvt. Ltd., 333 ITR 119 (Delhi). The ground no. 2, 3, and 4 are dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following ground:- “
2a) That the Ld. CIT(Appeals) erred in having upheld the addition of Rs.18,00,000/- 8u/s 68 of Act being the equity share application money received by the assessee in spite of the fact that during assessment proceedings the assessee was able to prove the identity of the share applicant and the source of the subscription as well as genuineness of the transactions by filing copies of bank statement of the investor reflecting its investment in the shares, declaration affirming the investment and source, income-tax details, statement of audited accounts of the investor reflecting the investment made by it in the investee company. (b) That the Ld. CIT(Appeals) failed to appreciate that during search and survey operation at the premises of the assessee and its group, nothing incriminating was found suggesting investment made by the subscriber M/s Bubna Properties Pvt. Ltd. was actually emanating from the coffers of the assessee and hence total reliance n the alleged statement obtained from Sri Rjendra Bubna, who turned hostile, is misconceived, uncalled for and bad in law. (c) That the Ld. CIT(Appeals) erred in not having considered that the said investor, Sri Rajendra Bubna, during assessment proceedings vide letter dated 18.3.2014 retracted from his earlier statement allegedly obtained from him during survey operation and acted upon for disbelieving the genuine transactions without verifying the genuineness of the evidences produced A.Ys 09-10 & 10
11. M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 6 before the AO whereas the impugned assessment was completed on 26.3.2014. (d) That the Ld. CIT(Appeals)failed to appreciate the situation under which Sri Alok Agarwala for the first time had to face such uncalled for incidence of answering questions thrown by the AO in presence of the investor when the transactions was genuine and duly supported by the audited books of account of the investor and the investee and other related documents.”
6. Ld. AR for the assessee before us filed paper book which is running pages from 1 to 163 and submitted that no defect in the documents in support of share capitals was pointed out by the Authorities Below. The AO has just relied on the statement given by Rajendra Arora which was taken under the coercion. Therefore, same cannot be relied upon. Ld. AR also submitted that the retraction statement was field in the course of assessment proceedings. Thus, no addition on account of share application money is warranted.
On the other hand, Ld. DR submitted that an opportunity was given to assessee for cross-examination wherein the assessee remained silent which proves beyond doubt that the impugned entry was accommodation entry and therefore liable for addition. He heavily relied on the order of Authorities Below.
We have heard the rival contentions of both the parties and perused the materials available on record. The grievance of the assessee is that the AO has made the addition of Rs. 18 lacs on account of bogus share capital merely on the basis of statement furnished by the 3rd party which was subsequently confirmed by the learned CIT(A). Admittedly the survey operations were conducted on the assessee as well as on the BPPL and GLFPL dated 01.08-2011 and 03.08.2011 respectively. At the time of survey operation, a statement u/s 131 of Shri Rajendra Bubna Managing Director of the BPPL was recorded wherein it was admitted the assessee was provided accommodation entry of Rs. 18 lacs in form of share capital. At that relevant time, Shri Alok Agarwal, Director of the assessee company was also present and an opportunity for cross examination was also -2155/Kol/2014 A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 7 provided to him for his rebuttal but he remained silent. Thus the addition was confirmed. 7.1 From the foregoing discussion, it appears that the opportunity for cross examination was provided to the assessee in the instant case. But the due procedure as required under the law has not been adhered. As per the provisions of section 131 of the Act the AO after recording the statement of Shri Rajendra Bubna should have issued the summon u/s 131 of the Act to the assessee for its confrontation. Neither such notice has been issued nor any statement of Shri Rajendra Bubna was provided to the assessee for his rebuttal. The director of the assessee company was under no legal obligation to reply at the time of recording the statement of Shri Rajendra Bubna u/s 131 of the Act. As such, there was no role of the director of the assessee company to be present at the time of recording of statement of Shri Rajendra Bubna. No such notice was issued by the Revenue to the assessee for the appearance at the time of recording of statement of Shri Rajendra Bubna. The allegation of the ld. DR that the due opportunity was provided to the assessee at the time of recording of statement of Shri Rajendra Bubna is not based on the principles of natural justice. It is well settled law that no statement can be used against the assessee without giving the opportunity as per the procedure of law. In this connection we rely in the judgment of Hon'ble Supreme Court in the case of Andaman Timber Industries vs. CCE, CA No. 4228 of 2006 (SC) (2015)127 DTR (SC) 241. In the said case, the Hon'ble Supreme Court held as under:- “Not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the awe. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that -2155/Kol/2014 A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 8 rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.”
We further rely in the judgment of Hon'ble Delhi High Court in the case of CIT vs. Smc. Share Brokers Lt. (2007) 288 ITR 345 (Del) in this case the Hon'ble High Court held as follows:- “We are of the opinion that the Tribunal was right in its view that in the absence of Manoj Aggarwal being made available for cross-examination, despite repeated requests by the assessee, his statement could not be relied upon to his detriment.”
We rely in the judgment of Hon'ble jurisdictional High Court in the case of Bangodaya Cotton Mills Ltd. vs. CIT (2009) 21 DTR 200 (Cal). In the said case the Hon'ble jurisdictional High Court held as under:- “AO having made the impugned addition simply on the basis of some letters seized from a third party in the absence of any corroborative evidence and without issuing summons to the concerned person or making him available for cross-examination, the order passed by the Tribunal upholding the addition is set aside and the matter is remanded back to the AO to consider the matter afresh.”
Again the Hon'ble jurisdictional High Court in the case of Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal) at page 111:- “Cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to meet the case against him. This necessarily also postulates that he should cross- examine the witness hostile to him.”
We again rely on the judgment of Hon'ble Kerala High Court in the case of P.S. Abdul Majeed (1994) 209 ITR 82(Kel) – in the said case the Hon'ble High Court held as under:- “…. He had also prayed for an opportunity to cross-examine the auctioneers. When such a request was made it was incumbent on the officer to afford opportunity to the assessee to cross-examine the authors of those books. The petitioner had been denied the reasonable opportunity which was due in law, A.Ys 09-10 & 10-11 M/s APS Containers Pvt. Ltd. Vs. DCIT,CC-XVIII, Kol. Page 9 in respect to the assessment, and that was sufficient to vitiate the order. The order of reassessment was not valid and was liable to be quashed.”
It is also undisputed fact that the lower authorities have not brought any defect on record in the documents submitted by the assessee to diprove the genuineness of the transactions. Here it is pertinent to note that the CBDT has discouraged to its officers to make the addition on the basis of the statements and without bringing any tangible materials in support of holding the transactions as bogus. The relevant extract of CBDT instructions issued vide F. No. 286/98/2013-IT(Inv.II) dated 18th of December 2014 reads as under:- “Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.
I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Boards has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.
In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely.”