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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI G. PAVAN KUMAR
आदेश / O R D E R
SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
These are appeals filed by the assessee directed against an order dated 31.03.2015 of the ld. Commissioner of Income Tax (Appeals)-14, Chennai, for the impugned assessment years.
ITA Nos.1245 & 1246/2015 :- 2 -:
2. Additions which are assailed by the assessee for both years were made under section 68 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’). Apart from assailing merits of the additions, assessee has also raised grounds in which it pleads denial of natural justice, and issues relating to limitation and jurisdiction for assessment year 2009-2010. For assessment year 2010-2011 assessee has also raised a ground assailing disallowance of interest paid on Inter Corporate Deposits.
Ld. Counsel for the assessee submitted that the additions 3. under section 68 of the Act were �25 Crores for assessment year 2009-2010 and �175 Crores for assessment year 2010-2011, aggregating to �200 Crores. As per the ld. Authorised Representative these amounts were received by the assessee from one M/s. Cineyug Media & Entertainment Private Limited. Submission was that �25 Crores received during previous year relevant to assessment year 2009-2010 was share application money pursuant to an agreement entered by the assessee on 19.12.2008 with M/s. Cineyug Media & Entertainment Private Limited. According to ld. Authorised Representative copy of this agreement called ‘’Share subscription and share holders agreement’’ was found by the Department during a search conducted in the premises of M/s. Cineyug Media &
ITA Nos.1245 & 1246/2015 :- 3 -:
Entertainment Private Limited on 26.11.2009. As per ld. Authorised Representative lower authorities had doubted the genuineness of the agreement for extraneous reasons. Relying on a copy of the agreement placed at page 4 to 25 of paper book (volume III), ld. Authorised Representative submitted that copy of the agreement having been found during the course of search, conclusion of the lower authorities that it was a made-up document was unfounded. As per ld. Authorised Representative subsequent receipt of �175 Crores which happened in previous year relevant to assessment year 2010-2011 from the very same concern were Inter Corporate Deposits (ICD in short). Contention of the ld. Authorised Representative was that these ICDs were based on agreements dated 06.04.2009 for �25 Crores, 15.7.2009 for �100 Crores and 7.8.2009 for �50 Crores. Further, contention of the ld. Authorised Representative was that the lower authorities had erroneously relied on a charge sheet filed by the Central Bureau of Investigation (CBI) in relation to 2G spectrum case for disbelieving the credits. As per ld. Authorised Representative neither the assessee nor its directors had received any illegal gratification. Ld. Authorised Representative submitted that assessee had received the amounts from M/s. Cineyug Media & Entertainment Private Limited based on agreements and that too through cheques and Demand Drafts. Contention of the ld. Authorised Representative
ITA Nos.1245 & 1246/2015 :- 4 -: was that Shri. Raja, Former Telecom Minister, was interrogated in connection with 2G spectrum case on 23.12.2010 and all the impugned transactions happened prior to that. Ld. Authorised Representative submitted that fund flow furnished by the assessee was analyzed by the ld. Assessing Officer and ld. Assessing Officer himself had found that the sum of � 200 Crores was given by M/s. Cineyug Media & Entertainment Private Limited to the assessee. As per the ld. Authorised Representative, it was an undisputed fact that M/s.
Cineyug Media & Entertainment Private Limited had in turn received such amount from one M/s. Kusegaon Fruits & Vegetables P. Ltd. Contention of the ld. Authorised Representative was that ld. Assessing Officer had clearly found the source for M/s. Kusegaon Fruits & Vegetables P. Ltd. to be receipts from M/s. Dynamix Realty and DB Realty Private Ltd. Fund flow of the assessee clearly depicted trail of money from Dynamix Realty to Kusegaon Fruits & Vegetables P. Ltd and from them to M/s. Cineyug Media & Entertainment Private Limited and then to the assessee. Ld. Authorised Representative submitted that CBI charge sheet relied on by the lower authorities for fastening a tax liability on the assessee for a genuine transaction had itself mentioned the amount to have come from one M/s. Swan Telecom P.
Ltd to Dynamix Realty. As per ld. Authorised Representative even if CBI charge sheet was presumed to be correct, and the amounts
ITA Nos.1245 & 1246/2015 :- 5 -: received by M/s. Swan Telecom P. Ltd from M/s. Etisalat Mauritius Limited and Genex Exim Ventures P. Ltd, were considered part of illegal gratification for issuing UAS Licences, assessee was no way connected with this. Further, as per ld. Authorised Representative onus on the assessee was only to show the source of the credit, genuineness of the transaction and credit worthiness of the giver. Ld. Authorised Representative submitted that in the assessments done on M/s. Kusegaon Fruites & Vegetables P. Ltd and M/s. Cineyug Media & Entertainment Private Limited there were no additions for any credits received from Dynamix Reality. According to him, assessee had fully discharged its onus to prove the credits shown as share application money for assessment year 2009-2010 and Inter Corporate Deposits for assessment year 2010-2011.
Continuing his submissions, ld. Authorised Representative 4. stated that the aggregate sum �200 Crores received by the assessee was utilized by it for liquidating high cost loans of �118 Crores earlier raised from Indian Bank and for acquiring rights for more than 100 films for a sum of �82 Crores. Ld. Authorised Representative also relied on a valuation report given by M/s. Grand Thornton which as
per ld. Authorised Representative was entrusted with the task of valuing the assessee company so that number of shares that were to
ITA Nos.1245 & 1246/2015 :- 6 -: be issued to M/s. Cineyug Media & Entertainment Private Limited could be determined. According to ld. Authorised Representative, the ld. Assessing Officer had placed extensive reliance on CBI charge sheet which consisted of unproved allegations. As per ld. Authorised Representative show cause notice wherein ld. Assessing Officer proposed to use various documents like the CBI charge sheet was issued on 11.03.2013 and received by the assessee on 13.03.2013.
Reply as per ld. Authorised Representative was given by the assessee on 22.03.2013 and the assessment order was completed in a hurried manner on 28.03.2013. As per ld. Authorised Representative assessee was not given a fair chance to explain its stand. Further, as per ld. Authorised Representative ld. Commissioner of Income Tax (Appeals) had extensively relied on the report of Enforcement Directorate which came after the completion of assessment. Ld. Authorised Representative submitted that ld. Assessing Officer had never examined the signatories of M/s. Cineyug Media & Entertainment Private Limited who had signed the share agreement and the Inter Corporate Deposits agreements. They had disbelieved these agreements without examining any authorized person of M/s. Cineyug Media & Entertainment Private Limited. As per ld. Authorised Representative assessee having proved the identity of the creditor, its credit worthiness and genuineness of the transaction, the addition
ITA Nos.1245 & 1246/2015 :- 7 -: made purely on surmise had to be deleted. Further as per ld. Authorised Representative simple commercial transactions were took as unexplained credits. Submission of the ld. Authorised Representative was that even if the original amounts received from M/s. Dynamix Reality or any parties related to them were tainted due to illegality, assessee could not be put to peril.
Strongly objecting to the lifting of corporate veil by the ld. Commissioner of Income Tax (Appeals), ld. Authorised Representative submitted that assessee was not a sham organization. It was running a TV Channel. Similarly according to him, M/s. Cineyug Media & Entertainment Private Limited was a company formed in 1983 and both the companies had no common directors nor any common shareholders. Lifting of corporate veil as per ld. Authorised Representative could be done only where promoters or shareholders of the company was using the company as a smoke screen for evading tax.
Per contra, ld. Departmental Representative submitted that 6.
an independent appraisal of the facts was done by the ld. Assessing Officer before making the additions u/s.68 of the Act. As per ld. Departmental Representative ld. Assessing Officer had issued a detailed questionnaire to the assessee as early as 04.09.2012. The ITA Nos.1245 & 1246/2015 :- 8 -: sum of �25 Crores though shown by the assessee in its books as share application money formed a part of the sundry creditors in its Balance Sheet as on 31.03.2009. According to him, assessee had not passed any board resolution for accepting Inter Corporate Deposits of 175 Crores from M/s. Cineyug Media & Entertainment Private Limited.
Assessee had converted the share application money also to Inter Corporate Deposits during the year ending 31.03.2010. As per ld. Departmental Representative assessee could not demonstrate the credit worthiness of M/s. Cineyug Media & Entertainment Private Limited. Relying on the assessment orders of M/s. Cineyug Media & Entertainment Private Limited, for assessment years 2009-2010 and 2010-2011 placed at paper book (Vol III) of the assessee page 101 to 181, ld. Departmental Representative submitted that the said company had no money in its bank account when Demand Drafts were issued to the assessee. Submission of the ld. Departmental Representative was that such Demand Drafts were issued by the bank in collusion with the Directors of DB realty group of companies.
Apart from absence of credit worthiness as per ld. Departmental Representative genuineness of the transaction itself was also not demonstrated. Assessee could never produce original of the agreement dated 19.12.2008 which was relied in support of the share application money of 25 Crores received during the previous year relevant to ITA Nos.1245 & 1246/2015 :- 9 -: assessment year 2009-2010. As per ld. Departmental Representative resolution for increasing authorized share capital of the assessee was passed only on 13.7.2009 well after the agreement dated 19.12.2008.
Even the Inter Corporate Deposits agreements found at the time of search of M/s. Cineyug Media & Entertainment Private Limited was unsigned. Resolutions authorizing acceptance of Inter Corporate Deposits was passed after receipt of such deposits. Further as per ld. Departmental Representative assessee was a closely held private company and for any issue of share capital, an option should have been first given to existing share holders. Thus, according to ld. Departmental Representative documents relied by the assessee in support of its credit were not genuine. Though assessee stated that the amounts were repaid in subsequent years, such repayments itself was through dubious means. Ld. Departmental Representative submitted that assessee had used Calcutta companies engaged in round tripping of funds for funding the repayments.
7. In so far as contention of the assessee that it was not given a proper opportunity, ld. Departmental Representative submitted that charge report of CBI was well within the knowledge of the assessee since one of its Directors namely Shir. Sharad Kumar was an accused. Similarly, according to him, Smt. K. Kanimozhi who was a ITA Nos.1245 & 1246/2015 :- 10 -:
major shareholder was also an accused. With regard to the report of Enforcement Directorate, ld. Departmental Representative submitted that assessee itself was an accused and thus it could not say that it was not having access to such report. Coming to the aspect of CAG report, ld. Departmental Representative submitted that no reliance was placed by the lower authorities on such report. According to him, orders of the lower authorities had to be sustained.
We have considered the rival contentions and perused the orders of the authorities below. As already mentioned by us, assessee has, apart from assailing merits of the additions made u/s.68 of the Act, also raised grounds with regard to denial of natural justice for both the years. For assessment year 2009-2010 assessee has also raised grounds on limitation and jurisdiction aspects also. Contention of the assessee is that the addition of �25 Crores disbelieving the receipt of share application money from M/s. Cineyug Media & Entertainment Private Limited during the previous year relevant to assessment year 2009-2010 and addition of �175 Crores disbelieving the receipt of Inter Corporate Deposits from the very same concern during the previous year relevant to assessment year 2010-2010 were made despite valid documents being produced in support. As per the assessee liability u/s. 68 of the Act was fastened on it based on an ITA Nos.1245 & 1246/2015 :- 11 -:
investigation report of CBI and a report of the Enforcement Directorate (ED) which were never before it. No doubt, as mentioned by the ld. Departmental Representative assessee or atleast one of its Directors were accused both in such reports and therefore it cannot say that these reports and records were never seen by them.
However, for ascertaining whether assessee was given a fair chance to represent its case before the Assessing Officer, it is necessary to have a look at the gist of correspondence between the assessee and ld. Assessing Officer, during the course of assessment proceeding which has been placed by the assessee in its at Paper book Volume I.
Notice u/s.142(1) of the Act was issued to the assessee on 24.08.2011 for which assessee filed a reply dated 13.09.2010 seeking time thereupon. Ld. Assessing Officer vide his letter dated 19.09.2011 posted the case for hearing on 26.09.2011. Assessee had filed a letter dated 23.09.2011 giving the information called for by the ld. Assessing Officer in the notice u/s.142(1) of the Act. This included nature of its business, copy of its annual report, copy of the bank account statements, details of fixed assets, details of subsidiary companies, details of Directors and other related information. Nothing specific was asked by the ld. Assessing Officer on the credit received from M/s. Cineyug Media & Entertainment Private Limited. Assessee
ITA Nos.1245 & 1246/2015 :- 12 -: had also filed a letter dated 06.10.2011 wherein the following particulars were furnished.
‘’As requested by you at the time of hearing our case on 26.09.2011, we are furnishing the following further particulars:
1. 1. Movie Agreement Copies are enclosed.
2. Addition to fixed assets - Bill Copies are enclosed 3. Sundry Creditors - Nature of transaction and evidence for amount received from Cineyug Films Pvt Ltd is enclosed.
4. Indian Bank - Loan Sanction Letter Copy is enclosed 5. A Note on deletion to Fixed Assets is enclosed 6. Proof of Salary and Wages is enclosed.
7. Nature of transaction of Trade Advances is enclosed.
8. A Note on Amortization of Films Rights is enclosed 9. Note on writing off of Programme Production expenses is enclosed 10. Foreign Inward Remittances - Agreement Copies are enclosed 11. Agreement copies for Telecast Expenses are enclosed 12. A Note on Interest Capitalization is enclosed’’.
It is obvious from the above reply that at least till 06.10.2011 nothing with regard to the credit from M/s. Cineyug Media & Entertainment Private Limited was enquired by the ld. Assessing Officer. The first question regarding � 25 crores received as share application money came from the ld. Assessing Officer through his letter dated 31.10.2011. What was required by him in the said letter is reproduced here under:-
‘’In connection with the assessment proceedings, you are requested to furnish the following details / evidences in respect of the share application money received at Rs.25 Crores from M/s. Cineyug Media Entertanment Private Limited, Mumbai. 1. What is the Authorised Share capital of the assessee.
ITA Nos.1245 & 1246/2015 :- 13 -:
What is the subscribed and paid up capital of the assessee 3. Is the share application money falling within the limits of authorised share capital 4. Please produce the ROC Forms for allotment of share, if any 5. Whether there is any ROC Form for increase in Share Capital, if any 6. Copy of the Balance sheet of the share applicant, if any available with you 7. Resolution for receipt of share application money and the copy of share application Forms submitted by the applicant company and the mode of receipt’’. Assessee had given a reply to the said letter on 04.11.2011 which inter alia stated as under:-
‘’The Authorised share capital of the company is ₹1.5 crores as on date i.e. 1,50,00,000 shares @ Rs.10 each.
2. The Subscribed and Paid up share capital of the company is Rs.10,01,00,000/- i.e 1,00,10,000 shares of Rs.10 each.
3 Share application money received from M/s Cineyug Media & Entertainment Private Limited including the share premium is within the limits of authorised capital. The company's value as per the valuation of an outside agency is ₹1I029 crores. Hence the value per share is Rs.1028 i.e. Rs.10 share with a premium of Rs.1018/- . Hence 243191 shares of Rs.10 each with premium of Rs.1018/- will be about RS.25 crores. Existing shares of 1,00,10,000 +2,43,191 shares is within the authorised capital of the company. At that time value was not finalised. Please see separate note attached.
Since shares were not allotted for Rs.25 crores ROC forms are not filed.
5. ROC forms for increase in Authorised Capital is enclosed for your reference.
ITA Nos.1245 & 1246/2015 :- 14 -:
6. Balance sheet of the share applicant is not available .
7. Resolution for receipt of share application money is enclosed for your reference. Since our company as well as the applicant company are private limited companies letter . 8. A Note on the transaction with Cineyug is enclosed for your reference. 9. Also please find enclosed valuation report given by M/s. Grant Thornton.’’ On 29.11.2011, ld. Assessing Officer required assessee to furnish details for the funding of � 25 Crores and �175 Crores received during the impugned previous years and this was also duly replied by the assessee through a detailed letter dated 01.12.2011. Assessee in the said letter mentioned that the share application money of �25 Crores was returned by it since M/s. Cineyug Media & Entertainment Private Limited had not agreed to the valuation for the assessee company made by the M/s. Grand Thornton. Viz-a-viz �175 Crores received during previous year 2010-2011, assessee had explained why the deposits were taken and for what purpose it was used. Regular assessment proceedings for the assessment year 2009-2010 was abated pursuant to search conducted on M/s. Cineyug Media & Entertainment Private Limited on 26.11.2009 when proceedings under section 153C of the Act was initiated on the assessee. On 04.09.2012 a fresh notice issued u/s.142(1) of the Act was issued to the assessee for which assessee filed a detailed reply on 15.10.2012. Thereafter on ITA Nos.1245 & 1246/2015 :- 15 -:
28.12.2012, ld. Assessing Officer required assessee to furnish the following details.
‘’Further, to the submissions made by you on various dates with connection with the assessment for the AY 2009-10, you are required to produce the following details. Bank Reconciliation Statement for Rs. 3 crores appearing against additional share capital along with details of source. Reconciliation of cash credit and term loan with the figures in the Balance Sheet Details of Intangible assets acquired and claim of depreciation thereof; Please reconcile the figures and also explain the nature and basis of claim-. Details of movie rights acquired during the year - movie-wise with cost. Details of Loans and advances - trade advances 14.5 crores along with supporting documents.
Confirmation for secured and unsecured loan long with with source
Details of filing of Form 52A; if any, movie-wise
The above details should reach the undersigned on or before 15.01.2013. No further adjournment shall be granted and in case of failure, assessment proceedings will be finalized as per material available on record as per law’’.
The above query was replied by the assessee through a letter dated 14.02.2013.
The first letter in which search operation done by the CBI was referred by the ld. Assessing Officer was issued to the assessee
ITA Nos.1245 & 1246/2015 :- 16 -: on 21.02.2013 and the questions raised by the Assessing Officer in the said letter are reproduced hereunder:-
1.‘’Furnish the original of Share application form duly signed in and given to you by M/sCineyug Media & Entertainment P Ltd for allotment of shares in M/s. Kalaignar TV Pvt . Ltd. In case the original form is not available, you shall state as to why the originals are not available. 2.If the originals are available, then you may state why the same were not found during the search operations-by CBI. If a copy of the share subscription is available with you, then furnish the same along with a note as to how .and why the same should be treated as the true copy of the originals. 3.Furnish the original copies of the letters/forms of the promoters relinquishing their rights for not subscribing to the additional shares of the Company or authorising the Board of Directors to allow private placements as available on or after 1 st September 2008.
4.If you claim that in the Extra-ordinary General Body meeting held on 6.07.2007 the shareholders have approved the private placement of shares, then substantiate your claim in respect of the following:- i Your company had in middle of 2008 had allotted shares to the Shareholders on the same proportion of their original share capital and further as per your Board minutes at that point of time, there was no other application pending for allotment of shares received from any third parties . Then explain how the decision of the promoters, if any, dated 6.7.2007 was still valid after allotment of fresh shares to the promoters. Was any fresh approval taken? ii. Did you pledge the shares of the Company to M/s. Cineyug Media & Entertainment Pvt Ltd for the purported funds received from them? If so, furnish a copy of the pledge? Ill. Further, explain how the Company can pledge its own equity? The equity was with the promoters only and whether any express consent from each of the ITA Nos.1245 & 1246/2015 :- 17 -: promoters were taken for pledging the equity? Furnish relevant evidence in this regard.
5. Furnish copies of all the resolutions passed in the Company and also copies of the agenda and minutes of the General Body Meeting and Extra-ordinary General Body meeting held during the period from June 2007 to March, 2012.
Why is there no mention about this General Body meeting supposedly held on 6.7.2007 in the subsequent Board's minutes?
Why there is no mention about the General Body meeting supposedly held on 31st July 2008 in the subsequent Board's minutes? 8. Furnish a chronology of events starting from the approval of the Shareholders for private placement of shares to repayment of purported loans from M/s. Ciheyug Media & Entertainment P Ltd. Also furnish relevant evidence adjacent to each event. The evidences may be given in a separate annexure duly serialised. If a document was already given to this office, then the relevant reference number may be given.
As the above information and the documents should be readily available on your record, you are requested to furnish the same urgently and preferably by 25.02.2013’’.
Ld. Assessing Officer gave only four days to the assessee for giving a reply to the above. Assessee did give a reply dated 25.02.2013 which interalia stated as under:- ‘’Sub: Income tax AY 2008-09,2009-10 & 2010-11 Ref: Your letters dt 1.2.2013 and 21.02.2013 The company has been asked to furnish various details for the above asst year vide your above letter dt 21.02.2013. We have been asked to furnish the details, preferably by 25.02.2013.
ITA Nos.1245 & 1246/2015 :- 18 -:
In addition to this the company has been asked to furnish various other details for the same asst years by 26.02.2013. We wish to state that the company has been filing all the details whenever asked for from September 2011 onwards. Voluminous bundles of annexures were also submitted. Number of details asked for by you have already been submitted. As we have to go through the books and the details submitted once again, it takes time to give the reply. We are furnishing the reply for the asst year 2008- 09 with regard to your letter dt 1.2.2013. With regard to the asst years 2009-10 and 2010-11, we request you to kindly give us a couple .of days time. Similarly for your letter dated 21.02.2013 we request you to give us some more time to furnish the reply’’.
Finally on 11.03.2013, ld. Assessing Officer issued a detailed letter to the assessee where he referred to various proceedings in connection with CBI Investigation in what is known as 2G spectrum case.
Assessee had given a reply to the said letter dated 22.03.2013. Thus even we presume that assessee was having with it the investigation report filed by the CBI, the time given to it for making a reply to various queries raised by the ld. Assessing Officer, running into nineteen pages was very limited. Assessment was completed on 28.03.2013. It is also an admitted position that ld. Commissioner of Income Tax (Appeals) had relied on a report of the Enforcement Directorate. None of the lower authorities had examined any of the officials of M/s. Cineyug Media & Entertainment Private Limited and the ITA Nos.1245 & 1246/2015 :- 19 -: signatories to the share application agreement dated 19.12.2008 and Inter Corporate Deposits agreement dated 06.04.2009, 15.07.2009 and 07.08.2009. Though one of the contentions of the Revenue is that M/s. Cineyug Media & Entertainment Private Limited when it gave the money to the assessee, had no funds with it, the Bank statements of M/s. Cineyug Media & Entertainment Private Limited was never examined by the ld. Assessing Officer, despite assessee’s claim that it had received the money through cheques/ Demand Drafts. Ld. Assessing Officer had relied on the assessment done on M/s. Cineyug Media & Entertainment Private Limited for coming to a conclusion that they had no sufficient funds for giving the the credits of the assessee.
No doubt an assessee can always say that it need not prove source of the source. But this cannot be so extrapolated to mean that source can be a farce. Onus is always on the assessee to show the genuineness of the transactions and Assessing Officer can always go into the trail of the transactions for rejecting or accepting the claim of genuineness. Considering all the above aspects, we are of the opinion that question whether money received by the assessee during the impugned assessment years could be considered as unexplained cash credits require a fresh look by the ld. Assessing Officer. Assessee has to be given sufficient opportunity to explain its case and shall make a ITA Nos.1245 & 1246/2015 :- 20 -:
reply to each of the point taken by the Assessing Officer from the investigation report of CBI and report of Enforcement Directorate.
Assessing Officer shall thereafter proceed in accordance with law. We therefore set aside the orders of the authorities below and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law for both the years. Since the matter is remitted back, question regarding jurisdiction and limitation are kept open for adjudication at a later stage if found necessary.
In the result, the appeals of the assessee for both the years are allowed for statistical purpose.
Order pronounced on Friday, the 23rd day of December, 2016, at Chennai.