D.C.I.T. CENTRAL CRICLE, RAIPUR vs. M/S R.K. FERRO ALLOYS PVT. LTD, KORBA(CG)

The only issue involved in the appeal of the Revenue for assessment years 2007-08 is directed against the order of CIT(A) in deleting the additions of Rs.36,50,000/- on account of share application/capital received as unexplained cash credits u/s.68 of the income Tax Act, 1961. 3. We have heard rival submissions and perused the orders of lower authorities and materials available on record. The assessee is engaged in the business of manufacturing and trading of Ferro Vanadium. A search & CO Nos.9&10/RPR/15 and seizure operation was conducted in the case of the assessee on 24th and 25th May, 2011. In pursuance to the same, notice u/s.153A of the Act was issued and impugned order of assessments was passed. It is not in dispute that assessment for the assessment year 2007-08 was completed prior to the date of search. In other words, the assessment for this assessment year was not abated.

We find that the above addition made by the AO in the impugned assessment year was not based on any incriminating material found during the course of the search.

The Revenue could not show any incriminating material, which was found during the course of the search on the basis of which above addition could have been made. It is a settled position of law that in an assessment made in pursuance to search in respective assessment year for which assessment proceedings were not abated, addition cannot be made de hors the incriminating materials found during the course of search. We, therefore, do not find any merit in this appeal of the Revenue. Accordingly, the appeal of Revenue for the assessment year 2007-08, is dismissed.

Ground No.1 & 2 in the appeal of the Revenue for assessment years 2012-13 are directed against the order of CIT(A) in deleting the addition of Rs.15,00,000/- on account of share application/capital received as unexplained cash credits u/s.68 of the income Tax Act, 1961. 7. Brief facts relating to the above grounds are that the AO in the assessment order has stated as under :- & CO Nos.9&10/RPR/15 "8.3 The assessee has submitted the documents related to identity, creditworthiness and genuineness of transactions related to share capital received during A.Y. 2012-13. No documents have been filed regarding the share capital received during F. Y. 2007-08. 8.5 Regarding the share application money received from Consolidated Finlease Limited, it is found that the company is merely an investment company, who does not carry out any manufacturing or actual revenue generating activities. Regarding the share application money received from Delhi and Kolkata based investment companies, no details have been filed. The reply of the assessee on the issue of the share capital received from Delhi and Kolkata based investment companies and from Consolidated Finlease Limited, has been considered but not found satisfactory in view of discussions made in succeeding paras. Firstly, the assessee has not been able to explain as to why the companies based at Delhi and Kolkata will invest in the shares of a closely held private limited company whose principle place of business is Korba, Chhattisgarh.

6 The assessee has also not explained as to how these companies contacted the assessee company.

7 Letters u/s 133(6) of the Act were sent to the investor companies of Kolkata and Delhi, on the addresses as provided by the assessee. In none of the cases, the replies were received. Further, the points of consideration are: (i) The identity, genuineness and creditworthiness of the investor companies of Kolkata and Delhi remain unestablished and doubtful. (ii) The entire investment by these companies has been made in unquoted and private company. (iii) The above discussion clearly suggests that these companies are accommodation entry providers only.

8 Section 68 of the Act clearly provides that if the assessee is not able to give satisfactory explanation as to the “nature and source” of a sum found credited in his books, the sum may be treated as the “undisclosed income” of the assessee. In the case under consideration, the assessee has failed to provide satisfactory explanation as to the "nature and source" of a sum found credited in his books. Merely, based on arranged affairs and supporting documents, the identity cannot be said to be established.

9 In view of the above discussion made in above paras, it is clear that the assessee has failed to prove the identity and creditworthiness of the creditors and genuineness of the transactions in respect of the amounts credited in the books of the assessee. It is also established that the amounts claimed by the assessee" received as share application money from various & CO Nos.9&10/RPR/15 companies remains unexplained. Therefore, the same is treated as unexplained cash credit in the hands of the assessee. However, the investments made by the in-house companies and individuals warrants no interference. "

Aggrieved by the order of Assessing Officer, the assessee carried the matter before the CIT(A) and submitted that the AO has made enquiry at his end directly from various share applicant companies, not disclosed to the appellant. It is claimed that it is not known to whom Notices u/s 133(6) were sent by the AO and at what address. It is further argued that the assessee has filed various supportings, concerning all the share applicants, such as copies of Share Application Forms, Certificate of Registration from