D.C.I.T. CENTRAL CRICLE,, RAIPUR vs. M/S R.R.ENERGY LTD.,, RAIGARH(C.G)

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE:SHRI N.S.SAINI, AM &SHRI PAVAN KUMAR GADALE, JM ITA Nos.225 to 231/RPR/2014 (Assessment Years :2006-2007 to 2012-2013) DCIT, Central Circle, vs R.R.Energy Ltd. Central Revenue Building, N.H.No.22, Village Civil Lines, Garhumariya, Raipur-492001 Jharsuguda Road, Raigharh(CG) PAN No. : AACCR 8829 B (Appellant) .. tsednepseR AND Cross Objection Nos.02 to 08/RPR/2015 (Arising out of ITA Nos.225 to 231/RPR/2014) (Assessment Years :2006-2007 to 2012-2013) R.R.Energy Ltd. vs DCIT, Central Circle, N.H.No.22, Village Central Revenue Garhumariya, Building, Civil Lines, Jharsuguda Road, Raipur-492001 Raigharh(CG) PAN No. : AACCR 8829 B (Appellant) .. tsednepseR Revenue by : Shri P.K.Mishra, CITDR Assessee by : Shri G.S.Agrawal, AR Date of Hearing : 15/01/2018 Date of Pronouncement 18/01/2018 आदेश / O R D E R Per Shri N.S.Saini, AM: These are the appeals filed by the Revenue against the common order of the CIT(A), Raipur, dated 24.07.2014 for the assessment years 2006-2007 to 2012-2013. The assessee has filed cross objections. 2. Ground Nos.1 and 2 in appeals of Revenue for the assessment years 2006-07 and 2007-08 are directed against the order CIT(A) in deleting the additions of Rs.12,71,00,000/- and Rs.6,51,50,000/- made by

2 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 the AO on account of share application/capital received as unexplained cash credits u/s.68 of the Income Tax Act, 1961. 3. Brief facts relating to the above grounds are that during the course of Search and seizure proceedings the search team searched for documents in the form of statutory records of this Company like Minutes of meeting Register, Share-holders register, Counter-foils of issued share- certificates etc. which are required to be maintained at the registered office of the company. However, no such documents were found. The persons present in the house also could not provide satisfactory explanation in this regard in their statements on oath. Further, the duly filled-in share application forms, supposed to be received from the share- applicants along with the share-application money were not found to be present at the registered office of the company or even at other premises of the group. The AO noted that during the course of assessment proceedings, in order to verify the identity, credit worthiness and genuineness of the transactions related to share application money, notices u/s 133(6) dated 06.11.2013 were issued to the following share applicants :- Name Shreevar Overseas Nandan Merchantiles Pvt. Ltd. Kamroop Vinimay Pvt. Adishwar Nirman P. Ltd. Mansarovar Dealers P. Ltd. Daha Engg. & Credit Pvt. Ltd. Display Commercial Pvt. Ltd. Shreevar Overseas

3 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015

Feeder Tie Up P. Ltd. Ganpati Vencom Pvt. Ltd Kamroop Viminay P. Ltd. Kshatriya Commodities Pvt. Ltd, Mansarovar Dealors P. Ltd. Mateshwari Mercantile Pvt. Ltd. Mysol Engineering Pvt. Ltd. Sanket Sales Pvt. Ltd. In case of following share applicants, the notices were returned unserved. Name Shreevar Overseas Nandan Merchantiles Pvt. Ltd. Kamroop Vinimay Pvt. Adishwar Nirman P. Ltd. Mansarovar Dealors P. Ltd. Daha Engg. & Credit Pvt. Ltd. Display Commercial Pvt. Ltd. Feeder Tie Up P. Ltd. Ganpati Vencom Pvt. Ltd. Kamroop Vinimay P. Ltd. Kshatriya Commodities Pvt. Ltd. Mansarovar Dealers P. Ltd. Mateshwari Mercantiles Pvt. Ltd. Mysol Engineering Pvt. Ltd. Sanket Sales Pvt. Ltd. On perusal of Balance Sheet of the share-holders of the assesses company, the AO found that these do not possess the credit worthiness to invest the amounts shown in their names. In fact, the inflow of share- application money into the books of assessee company has to be seen in the perspective of money-laundering through Share-capital route in which unaccounted money available with the promoters/directors/family members and their associates is routed back into the books of accounts in the garb of share-application money through extensive money-laundering process without payment of due Taxes, the evidence of which have been found during the search and seizure action. The inflow of funds in the

4 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 garb of share-application money by the assesse company was a managed affair in connivance with the shareholder companies of Delhi, Kolkata and Mumbai. The AO further found that duly filled in share- application forms or the counter foils of share-certificates issued to the share-holders were not found either from the registered office or from any other premises in the occupation of the group. 4. The issue of share application money for the AY 2006-07 was examined in light of the decision of the Hon'ble ITAT, Bilaspur Bench, Bilaspur in ITA no. 09/BLPR/2010 (AY 2006-07). The main arguments on which the Tribunal has deleted the additions were (i) no opportunity of hearing was given to the assessee (ii) there was no concrete finding on record to suggest that the assessee had a routed his own money through the share application (iii) the applicants were all registered limited companies and assessed to tax, transactions were routed through banks, copy of resolution of board were also filed, thereby proving the creditworthiness, identify and genuineness of the transaction. The AO also noted these arguments have been tested time and again in the ensuing years at various appellate levels in various cases. The issues are discussed in the following paragraphs and a conclusion drawn that these transactions are covered by section 68. In the light of above discussion, the AO observed that the identity, creditworthiness or genuineness of the transactions is not established by merely showing that the transaction was through banking channels or by account payee instrument. It would be incorrect to state that the onus to prove the genuineness of the

5 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Certificate of incorporation of company, payment by banking channels, etc, cannot in all cases tantamount to satisfactory discharge of onus. It has been elaborately established in the preceding paras that the assessee had failed to discharge its onus in proving the identity, creditworthiness and genuineness of the share applicants and hence the share application money credited in its books is treated as undisclosed income charged to tax u/s 68 of the Act. 5. The AO was not convinced with the submission of the assessee and noted that the legal proposition based on the case laws cited (supra), is clear that the onus lies with the assessee to establish the identity, creditworthiness and genuineness of the cash creditors. The department does not have to establish that the said cash credit was routed through the assessee and ploughed back in its books of accounts. Therefore, the AO held that the assessee had failed to offer satisfactory explanation on the nature and source of the share application money credited in its books book of accounts for the relevant assessment year in question and hence he treated the same as undisclosed income of the assessee u/s 68 of the Act. The further held that the assessee had failed to discharge its onus in proving the identity, creditworthiness and genuineness of the share applicants and the inquiries conducted by this office also cements the findings that the identify and creditworthiness of the creditors were not established due to non-existence of their office or business premises on

6 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 the given address and they were found to have no capacity and purpose to invest by way of share application money in assessee's company. Accordingly the AO disallowed Rs.12,71,00,000/- for the assessment year 2006-07 and Rs.6,51,50,000/- for the assessment year 2007-08 as unexplained cash credit u/s 68 of the Act and added the same to the total income of the assessee. 6. The assessee carried the matter before the CIT(A) and submitted that the issue of share application money received in the above years was subject to enquiry during original assessment proceedings. For A.Y. 2006- 07 & 2007-08 the assessments were completed u/s. 153C of the Act. For both the years, the AO made deep enquiry and after applying his mind he found and rejected share application at Rs. 2,00,00,000/- in A.Y. 2006-07 and Rs. 42,50,000/- in A.Y. 2007-08 out of share application money received at Rs. 13,51,15,000/- in A.Y. 2006-07 and Rs.7,33,55,000/- in A.Y. 2007-08. 7. The assessee further submitted that during operation u/s. 132 of the Act took place in May, 2011, no incriminating documents were found. It was also submitted that the assessee has filed numerous evidences such as Share Application Form, PAN of share applicant, Memorandum & Articles of Association wherever applicable, bank accounts, statements of applicants, final accounts, Certificate of Registration from ROC, details of investment made by the share applicants, etc. Summary of this has been filed for A.Y. 2006-07 at Page No. 63 to 86 and for A.Y. 2007-08 at Page No. 87 to 97 of the paper books. It was further submitted that the AO has

7 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 not applied his mind and rejected the explanation summarily. The learned AR further objected the observation of the AO about keeping of share records by the assessee. It is submitted that it is not correct for the AO to say that. It is submitted that no question was raised to the director namely Shri Rajendra Agrawal about share records. Another Director, Shri Amar Agrawal was not present at the time of search operation. He was at Chennai to negotiate deal with Govt. of Tamil Nadu for sale of power by the assessee company. It was submitted that Shri Vijay Agrawal, who is Manager (Finance & Accounts) of the assessee company was present at the time of search operation. He has categorically replied to the question asked about share records. He has replied that share records have been sent to Raipur in connection with Income Tax proceedings taking place at Raipur. It is submitted that immediately prior to search, Appeal before CIT (Appeals) for A.Y. 2007-08 and preparation for case before ITAT was in progress. The date on Order of CIT (Appeals) for A.Y. 2007-08 is 27/07/2011 and the case before the Hon'ble ITAT for A.Y. 2006-07 was fixed for 17/10/2011. There were voluminous records of share application money received, and therefore, to prepare representation before the Hon'ble CIT (Appeals), Raipur as well as before the Hon'ble ITAT, Bilaspur Bench, the records were sent to Raipur for compilation. Therefore, the assessee submitted that it is not correct to say that the assessee has not kept the share records. It was submitted that share records were produced during assessment proceedings. It was argued

8 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 that these records are compulsorily required to be kept as per the Companies Act. 8. The AR of the assessee further submitted that the AO made enquiries from some share applicants at the back of the assessee and a letter was filed on 04/03/2014 dated 28/02/2014 before the AO that in case of some companies the addresses have changed and in case of some companies the name has also changed which was located by the assessee from the website of MCA. It was also submitted that only because letters are received back undelivered, it does not mean the non- existence of the share applicant companies which are mainly registered companies. It was submitted that the details of various share applicants for A.Y. 2006-07 runs into 2,491 pages and for A.Y. 2007-08 it runs into 1483 pages. It was submitted that the learned AO has not applied his mind and provisions of Sec. 68 of the Act were not applicable as the assessee has discharged the burden of proving identity, credit-worthiness and genuineness of the transactions. 9. The CIT(A) after considering the submissions of assessee deleted the additions of Rs.12,71,00,000/- for the assessment year 2006-07 and Rs.6,51,50,000/- for the assessment year 2007-08 by observing as under:- “10. I have carefully gone through the assessment order and submissions of the appellant. The issue of addition of share application money is in A.Y. 2006-07 & 2007-08 only. The facts are summarized below:

9 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 Particulars A.Y.2006-07(Rs.) A.Y.2007-08(Rs.) Total Share Application- 13,51,15,000/- 7,33,55,000/- Money received Not accepted by the AO in 2,00,00,000/- 42,50,000/- original Assessment Order Relief allowed by ITAT/CIT 2,00,00,000/- 42,50,000/- (A) Addition made by the AO in 12,71,00,000/- 6,51,50,000/- Order U/S 153A The AO accepted share applications received from group companies and directors. I find that the evidences filed by the learned ARs include Share Application Form, Acknowledgement of Income Tax Return, audited final accounts, bank statement from where the amount was withdrawn to invest into appellant company, PAN, Incorporation Certificate issued by the ROC, Memorandum & Articles of Association etc. After considering the above evidences in the original Assessment Order for these two years i.e. A.Y. 2006-07 & 2007-08, the AO made addition of Rs. 2 crores in A.Y. 2006-07. The AO made addition of Rs.42,50,000/- for A.Y. 2007-08. I also find that operation u/s.132 of the Act took place in the case of the appellant company, other group companies, directors and relatives. However, there is no mention in the Assessment Order about any incriminating document found suggesting that the receipt of share application money in the above two years were not genuine or that there is no credit-worthiness of the applicant or the identity of the share applicant is in doubt. In the original assessment, the AO applied his mind and made the addition as above.

10 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 "Mansarovar Dealers Pvt. Ltd." have been mentioned twice by the AO. In case of "Feeder Tie-up Pvt. Ltd." and "Ganpati Vincom Pvt. Ltd." the name as well as address has changed as per the details furnished by the appellant. In the case of other share applicants, only the addresses have changed. It appears that notices were sent to old addresses of the share applicants by the A.O as a result of which the notices remained unserved. In my considered view, mere non-service of notice cannot be a valid ground to make addition u/s 68 without taking cognizance of documentary and circumstantial evidences.

11 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 A.O is not culminating from any specific finding against the appellant that it was a beneficiary of any racket which has been unearthed as a result of search proceedings nor has the A.0 brought on record any other evidence to indicate that the appellant did make undisclosed income and such evidence came on the surface as a result of search proceedings. The A.O has not rebutted the evidences submitted by the appellant to demonstrate that the subscribers had sufficient means to invest in the share application/capital of the appellant company, I have evaluated the creditworthiness of the subscribers with reference to the audited financial statements of the subscribers and found satisfactory. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A.O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant.

12 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 decisions relied upon by the A.0 are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was f in fact received from the appellant and investors merely routed the undisclosed income of the appellant through money laundering process in the form of share application money. On the contrary, the A.O himself has stated in the assessment order that the investors have sent confirmatory letters. In the backdrop of these facts and documentary evidences , in my considered opinion, the identity and creditworthiness of the subscribers has been established and cannot be doubted, it is not justified on the part of the A.O to simply reject the documentary evidences on record and take an adverse view and clothing the case of the appellant with the judicial pronouncements which have been rendered on absolutely different facts and circumstances.

13 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 from drawing presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant's own money which is an essential pre-requisite for making addition in such cases. I am convinced that the case of the appellant is squarely covered by the decisions rendered by the Hon'ble Apex Court in the case of the CIT vs. Lovely Exports (P) Ltd. reported in 216 CTR 195 and the jurisdictional High Court viz. the Chhattisgarh High Court in the case of the ACIT vs. Venkateshwar Ispat (P) Ltd. reported in 319 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis for holding adversity against appellant.

14 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 material was brought on record by the A.O independently of the information received, if any, from the investigation wing of the Income Tax Department to show that the monies represented the appellant's undisclosed income.

15 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 decision in Nova Promoters & Finlease (P) Ltd. (supra) I find that the facts are clearly distinguishable. In fact, in Nova Promoters & Finlease (P) Ltd. (supra) itself the Hon'ble Delhi High Court has observed, in the context of Lovely Exports (P) Ltd. (supra), as under:- "The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and sham holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, -where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", -whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, - where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen -conceived and executed with the connivance or involvement of the assesses excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the asssssee has discharged the burden placed upon him under sec.68 to-prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary."

16 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 21. The case of the appellant also finds support from the following judicial pronouncements:- (a) Commissioner of Income-tax-III v. Namastey Chemicals (P.) Ltd. [2013] 33 taxmann. corn 271 (Gujarat); (b) Commissioner of Income Tax v. Kuber Ploritech Ltd. [2010] 2 DTL ONLINE 136 (DELHI); (c) Commissioner of Income-tax v. Tania Investments (P.) Ltd. IT Appeal No. 15 OF 2009, High Court of Mumbai; (d) Bhav Shakti Steel Mines (P.) Ltd. v. Commissioner of Income-tax [2009] 179 TAXMAN 25 (DELHI); (e) Commissioner of Income-tax v. Samir Bio-Tech (P.) Ltd. [2010] 325 ITR 294 (DELHI) (f) Commissioner of Income-tax-1 v. Micro Melt (P.) Ltd. [2009] 177 TAXMAN 35 (GUJ) (g) Commissioner of Income-tax-V v. Real Time Marketing (P.) Ltd. [2008] 173 TAXMAN 41 (DELHI) (h) Assistant Commissioner of Income-tax v. Mansarovar Urban Co-Operative Bank Ltd. [2009] 124 TTJ 269(LUCKNOW); (i) Commissioner of Income-tax —IV v. Empire Buildtech (P.) Ltd. [2014] 43 taxmann.com 269 (Delhi); (j) Commissioner of Income-tax v. Mulberry Silk International Ltd. [2012] 19 taxmann.com 31 (Kar.); (k) Commissioner of Income-tax-III v. Nilchem Capital Ltd. [2012] 18 tax mann.com 350 (Guj.); (l) Commissioner of Income-tax v. Jay Dee Securities & Finance Ltd. [2013] 32 taxmann.com 91 (Allahabad); (m) Commissioner of Income-tax, Delhi-II v. Kinetic Capital Finance Ltd. [2011] 14 taxmann.com 150 (Delhi); (n) Commissioner' of Income-tax v. VLS Foods (P.) Ltd. [2011] 15 taxmann.com 225 (Delhi); (o) Commissioner of Income-tax v. Ambuja Ginning Pressing and Oil Co. (P.) Ltd. [2011] 15 taxmann.com 273 (Guj.); (p) Commissioner of Income-tax v. Rock Fort Metal & Minerals Ltd, [2011] 198 TAXMAN 497 (Delhi); (q) Commissioner of Income-tax v. Siri Ram Syal Hydro Power (P.) Ltd.[2011] 196 TA,A-.N 441 (Delhi) ; (r) Commissioner of Income-tax v. Orbital Communication (P.) Ltd. [2010] 327 ITR ,F 560 (DELHI); (s) Commissioner of Income-tax-I v. Hirnatsu Bimet Ltd. [2011] 12 taxmann.com 87 (Guj.); (t) Commissioner of Income-tax - I, Jaipur v. A.L. Lalpuria Construction (P.) Ltd. [2013] 32 taxmann.com 384 (Rajasthan); (u) Luminant Investments (P.) Ltd. v. Deputy Commissioner of Income-tax, Central Circle 40, Mumbai [2014] 42 taxmann.com 14 (Mumbai - Trib.); (v) CIT vs. Gangeshwari Metal (P) Ltd. (2013) 214 Taxman 423, Delhi. (w) CIT Vs.Abdul Aziz (2012) 72 DTR 220 (C.G).

17 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 22. I am convinced that the appellant has been able to establish the identity and creditworthiness of the subscribers as also the genuineness of the transactions. In my considered opinion, the ratio of the aforesaid judgements of the Hon'ble Supreme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authority and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. In view of the above and respectfully following the ratio of the binding judgements, the addition of share application/capital money of Rs.12,71,00,000/- in A.Y 2006-07 and Rs.6,51,50,000/- in A.Y 2007-08 as unexplained cash credits under section 68 are uncalled for and hence, deleted. The appellant gets relief of Rs. 12,71,00,000/- in A.Y 2006-07 and Rs.6,51,50,000/- in A.Y 2007-08 23.

18 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 Biomass. The installed plant & machinery can be fired either by burning of rice husk or by burning of coal. Regulations require that the assessee should not utilize more than 15% coal to be categorized as biomass- based producer of electricity. Excess stock of coal at Rs.9 Crores was found at the time of search which was admitted by the assessee. This evidence suggests that the assessee is using coal instead of husk in its power plant. The assessee has been using coal for generation of electricity and utilizing the bogus bills of husk purchase for the purpose of entry in the books of accounts. Enquiries conducted to trace the suppliers of husk during the course of search and seizure proved futile. Moreover a blank bill book printed in the name of an alleged husk supplier was seized from the residence of one of the directors. During the assessment proceedings the assessee was asked to submit a list of suppliers from whom husk was purchased of more than Rs.25 lakhs during a year. Based on the list supplied by the assessee letters were sent out to the various suppliers at the current address as stated by the assessee. A large number of letters were returned unserved with notes like left, not known etc. 12. The AO further observed that the examination of the various facets of the matter shows that there is indeed inflation of purchase of rice husk. The assessee itself has in its submission stated that it had surrendered its biomass status in the period 01.11.2008 to 31.05.2011. But the examination of the accounts show that there has been no letdown in the consumption of rice husk even in this period. Even though several of the

19 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 suppliers have confirmed the account there are several others who have either refused to take the letters or the same could not be served on them as they were not at the given address. The AO also stated that to add to these facts during the search proceedings a blank bill book of M/s Mittal Traders, a supplier of rice husk was found at the residential premises of Shree Amar Agrawal, one of the directors of the company. This further adds credence to the argument that the purchase of rice husk has been inflated by various means by people in the company. In light of these arguments and the facts and circumstances of the case, the AO disallowed an amount of Rs. 10,00,000/- and added the same to the income of the assessee for each of the assessment years from 2006-07 to 2012-13 on account of inflation of purchases of rice husk. 13. The assessee carried the matter before the CIT(A) and submitted that the addition of Rs.10,00,000/- on account of so called bogus purchase of husk made by the AO in each of the years i.e., A.Y. 2006-07 to 2012-13 was without any basis, under presumption & surmises and arbitrary. The AO suspected that the appellant who was enjoying biomass status used to inflate purchase of husk. In regard to Show Cause Notice dated 12/03/2014 issued by the AO and enclosed at Page No. 210 of Paper Book, the assessee submitted that there is no whisper of mind of the AO to make such addition in the above notice and no explanation was called from the assessee. The assessee further explained that the AO mentioned reasons to make the above estimate viz., stock of coal offered at Rs 4.50 crore in each A.Y. 2011-12 & 2012-13, presumption of bogus

20 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 bills for purchase of husk, letter to supplier of husk returned in some cases, blank bill book of M/s Mittal Enterprises found at the residence of one of the director. The assessee further submitted that none of the reason mentioned by the AO supports the addition made by the AO and the AO misunderstood the stock of coal for trading purpose with that of coal for manufacturing. The assessee offered coal valued at Rs.4.50 Crores each in assessment year 2011-12 & 2012-13 as below: Particulars A.Y. 2011-12 A.Y. 2012-13 Total (MT) Rom Coal 8,391.80 MT 19,673.06 MT 28064.86 Reject Coal 16,165.30 MT 4,288.64 MT 20453.93 48518.79 Value (Rs.) 4,50,00,000/- 4,50,00,000/- 9,00,00,000/- With regard to the statement of Shri Rajendra Agrawal on 15th /24th 14. June, 2011 wherein it is stated that the excess stock of Rs. 9 crores of coal pertains to the coal trading business and it was a trading stock. The assessee vehemently submitted that this stock was not related with stock of the coal found at other site in the factory premises weighing 6135.80 MT. It was explained that the trading stock of coal of 48518.79 MT valued at Rs.9 Crores was not got valued from the valuer by the department. The stock of coal for manufacturing purpose weighing 6135.80 MT was only got valued by the Govt. approved valuer, namely Shri Manish Pilliwar. The trading stock was sold subsequently. It was also explained that in idle condition per day consumption of coal is 450 MT. There is no requirement to block funds to the extent of Rs. 9 crores in the stock for manufacturing

21 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 purpose; that stock of coal offered to tax at Rs. 9 Crores has nothing to do with consumption of husk. 15. The assessee further objected the observation of the AO with regard to Biomass status of their power plant. The AO noted that for the major period in last 6 years i.e. from 01/11/2008 to 31/05/2011, no Biomass status was availed by the assessee. In reply to the same, the assessee submitted that it has Biomass status from 13/01/2007 to 31/10/2008 and thereafter from 01/06/2011 to 31/03/2012. Thus Biomass status was availed for 31 ½ months and it was not availed for 31 months and the Biomass status does not play any role to presume bogus purchases of husk in absence of any cogent material. The assessee objected the observation of the AO that assessee introduced bogus bill of purchase of husk to show production of electricity. No supporting for such belief was found during operation u/s 132 by the department or during assessment proceeding. It was explained by the assessee that M/s Mittal Enterprises left a bill book by mistake in the premises of the assessee. None of the pages of the Bill Book were used. It was also explained by the assessee that no adverse presumption can be drawn. The above M/s Mittal Enterprises was assessed to commercial tax vide Tin 22984942328. The assessee further submitted that a compilation of purchases of husk above Rs.25 Lakh in a year at Page No. 102 to 105 of Paper Book for all the years were filed as directed by the AO, giving details of Name of supplier, total purchase from the party, addresses of supplier, TIN, PAN and amount of purchases during the year. It was further submitted by the

22 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 assessee that invoices & supporting of the purchases was produced during assessment proceeding and no discrepancy was found and the accounts are audited. 16. The assessee also filed confirmation from various suppliers placed in Paper Book at Page No. 106 to 182, however, no cognizance is being taken as neither these were filed during assessment proceedings before the AO nor any prayer has been made to admit u/r 46A. The assessee further submitted that compilation produced at Page No. 19 & 20 of the order gives addresses and PAN of the suppliers. From the compilation it appears that some suppliers have confirmed the transactions, in some cases notices were not served and in some cases replies were not received. The assessee supplied the addresses as available on the record. The matter being old one and there may be change in addresses of the suppliers. The assessee has made payment to them for purchase of husk by cheque. The husk was consumed in the plant and power was generated. Hence, the assessee submitted that the addition for all the assessment years under consideration should be deleted. 17. The CIT(A) after considering the submissions of assessee deleted the additions made by the AO by observing as under :- 26. I have carefully gone through the assessment order and submissions of the appellant. It is seen that the AO has made lumpsum addition of Rs. 10 Lakh in each year on account of alleged bogus purchases of husk. It is gathered that one blank bill book of husk supplier was found during search operation at the residence of one of the director. It is also seen that the AO had written letters to suppliers of husk and in most of the cases the

23 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 letters were returned back unserved with notes like left, not found etc. List of such suppliers was incorporated in the assessment order by the AO at Page No. 19 & 20. The AO recorded his finding that several suppliers have confirmed the account and several other either returned the letter or some could not be served as they have not been found in the given addresses. In my considered view, all these facts may well be the basis of suspicion, however, these cannot per se constitute the basis of the addition, though it can very well be a starting point for further investigation. In Latchand Bhagat Ambica Ram vs. CIT-(1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the ''notorious practice" prevailing in trade circles.

24 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 28. In my considered view, availability of blank bill book of M/s. Mittal Enterprises, husk supplier, per se, does not support the contention of the A.O that the purchases have been inflated. Purchases have been made from number of suppliers as indicated at Page No. 19 & 20 of the assessment order. The A.O has not rebutted the submission of the appellant that the payments were made through banking channel. Accounts are audited and quantitative details with day to day production record have been maintained. No discrepancy has been observed in the production and consumption. It is noticed that the biomass status was available for about 50% of entire period of production. Power can be generated by coal fire or husk fire. When there is biomass status as per norms, the coal should not be more than 15%. It is seen that the excess stock of coal at Rs.9 Crores was offered by the appellant as its income and it has been contended that the coal surrendered did not pertain to power generation but was meant for trading purpose and also sold subsequently. I am convinced that the surrender of excess stock of coal of Rs. 9 Crores has no relation to purchase of husk. There is no finding that appellant has used coal in place of husk and obtained bogus bill of husk. No such material has been found during operation u/s 132 which even remotely suggests suppression of purchase of coal. The AO has incorporated production details for A.Y. 2007-08 to 2011-12 in the Assessment Order, which give following results: Assessment Year 2007-08 2008-09 2009-10 2010-11 2011-12 Item Coal consumed (in MT) 405.00 22960.43 23876.00 44629.00 29285.00 ....(a) Husk consumed (in MT) 24142.00 138383 114219.00 85222.00 88275.00 .... (b) Total Raw Material 24547.00 161343.43 138095.00 129851.00 117560.00 Consumed .... (c) (*) Husk Consumption Ratio 98.35% 85.77% 82.71% 65.63% 75.09% (b/c) Power Generated (in 21312.00 117694.53 113860.28 108706 95401.08 Mwh) (d) Consumption in MT for 1.15 1.37 1.21 1.19 1.23 generation of one MWH

25 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 (*) Plant run for 1½ months only. Production started from A.Y. 2007-08.

In my considered view, there does not appear any anomaly in the above trading results.

I am convinced that the addition on account of inflated purchases has been made by the A.O on estimate basis in all years, however, the A.O has not brought on record any evidence support of his contention. The books of accounts with supporting were produced on two occasions before the AO. It was produced for assessment year 2006-07, 2007-08 & 2008-09 during original assessment proceedings before the AO as referred supra and subsequently during present proceedings u/s 153A before the AO. No inflation in purchase was observed by AO during original assessment proceeding. The accounts are audited, there is no adverse remark regarding correctness of accounts in the audit report. The A.O. has also not pointed out any defects in the books of accounts nor has any incriminating document been unearthed during operation u/s 132. If any defect in the system and record exists then the A.O. must record a clear finding as held in CITvs Margadarshi Chit Fund Pvt. Ltd. (1985) 155 ITR 442 (AP). In Yaggina Veera Ragha Vulu and Mavuleti Somaraju & Co. vs CIT 62 ITR 528, it was held that assessee is entitled to know the basis for estimation of Turnover and Gross profit. In Seth Nathuram Murmalai 25 ITR 216 (Nagpur), it has been held that ITO must disclose the basis of computation of order and make his order a speaking order to make higher percentage. The "Estimations must not be arbitrary, vague and fanciful, but must be legal and regular. This was held in Masoor Fertilizers Co. vs CIT 59 ITR 268 Madras. The ITAT Banglore bench in CIT vs Gajanand Traders (2006) 104 TTJ (Bang) 1030 observed that A.O. having not made out a case that the accounts of the assessee are incorrect or incomplete or that the method of accounting followed by it is not an accepted method, book results could not be rejected and addition could not be made on the ground

26 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 that there was a fall in GP rate in the relevant year or that day-to- day stock register was not maintained. For rejection of accounts books, cogent reasons are to have been assigned by A.O. as held in Mahakushal Poultries vs CIT (2013) 21 TTJ 740 (MP). Hon'ble Patna High Court in Md. Umer vs CIT 101 ITR 525 and Hon’ble Guwahati High Court in Alluminium Industries Pvt. Ltd 80 Taxman 184 have held that once the profit could properly deduce from the method of accounting which have been regularly employed that is the end of the matter. The Hon'ble Jabalpur Bench of ITAT in ITO vs Kanha Construction Co. Pvt. Ltd reported in (2014) 23 ITJ 355 held that in absence of finding by the A.O. that profit cannot be deduced from the books of accounts maintained, rejection of books was not justified.

27 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 19. In the present appeals the Revenue has challenged the deletion of addition in assessment year 2006-07, Rs.12,81,57,130/- on account of share application u/s.68 of the Act and Rs.10,00,000/- on account of bogus purchase of husk. 20. In the assessment year 2007-08, Rs.6,61,50,000/- on account of share application money u/s.68 of the Act and Rs.10,00,000/- on account of bogus purchase of husk. 21. In the assessment year 2008-09, Rs.10,00,000/- on account of bogus purchase of husk. 22. We find that the above additions made by the AO in the impugned assessment years were not based on any incriminating material found during the course of the search. 23. The Revenue could not show any incriminating material, which was found during the course of the search on the basis of which above additions could have been made. It is a settled position of law that in an assessment made in pursuance to search in respective assessment years for which assessment proceedings were not abated, additions cannot be made de hors the incriminating materials found during the course of search. We, therefore, do not find any merit in these appeals of the Revenue. Accordingly, the appeals of Revenue for the assessment years 2006-07, 2007-08 and 2008-09 are dismissed. 24. With regard to the addition of Rs.10,00,000/- each made in the assessment years 2009-10, 2010-11, 2011-12 and 2012-13, we find that the DR relied on the order of the AO and submitted that during the course

28 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 of search from the residence of one of the Directors, blank bill book printed in the name of an alleged husk supplier, namely, M/s Mittal Traders was found. Further, during the course of search, the assessee had made disclosure of Rs.9 crores on account of excess stock of coal, based on these, the AO made estimated addition of Rs.10,00,000/- on account of bogus purchases made by the assessee for husk. 25. The AR, on the other hand, supported the order of CIT(A). 26. We find that the CIT(A) has observed that in the assessment order the AO has not brought any incriminating material based on which the addition of Rs.10,00,000/- was made on account of bogus purchase of husk. The CIT(A) has further observed that the AO has not rebutted the submission of the assessee that the payments for purchase of husk were made through banking channels and accounts were audited and quantitative details with day to day production record were maintained. No discrepancy has been observed in the production and consumption. 27. The DR could not bring any positive material on record to controvert the above finding of the CIT(A). 28. The CIT(A) has also observed that the biomass status was available for about 50% of entire period of production. He observed that power can be generated by coal fire or husk fire. The CIT(A) also noted that when there is biomass status, as per norms, the coal should not be more than 15%. He has further observed that the excess stock of coal at Rs.9 Crores was offered by the assessee as its income and it has been contended that the coal surrendered did not pertain to power generation

29 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 but was meant for trading purpose and also sold subsequently. Therefore, he was convinced that the surrender of excess stock of coal of Rs.9 Crores has no relation to purchase of husk. He has further observed that there is no finding that the assessee has used coal in place of husk and obtained bogus bill of husk. No such material has been found during operation u/s 132 of the Act which even remotely suggests suppression of purchase of coal. The CIT(A), therefore, observed that he was convinced that addition on account of inflated purchases has been made by the A.O on estimate basis in all the years without bringing any evidence on record in support of his contention. These findings of CIT(A) has not been rebutted by the Revenue by brining any positive material on record. In absence of the same, we find no good reason to interfere with the findings of the CIT(A), which are confirmed and the grounds of appeal of the Revenue for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 are dismissed. 29. Ground No.6 in appeals for assessment year 2006-07 and 2007-08 is general in nature hence, requires no separate adjudication by us. 30. In the result, appeals of Revenue for all the assessment years under consideration are dismissed. 31. In the cross objections filed by the assessee, in Ground No.1 for assessment year 2006-07 and in ground No.1 for assessment year 2007- 08 and in ground No.1 for assessment year 2008-09, the assessee has challenged the order of CIT(A) in upholding the order of the AO even when on the date of initiation of search proceedings u/s.132 of the Act, no

30 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 assessment or re-assessment proceedings were pending and no incriminating materials were found during the search operation. Therefore, the assessment made by the AO u/s.153A r.w.s.143(3) of the Act was not according to law and deserved to be annulled. 32. While adjudicating the appeals of Revenue, we have confirmed the order of the CIT(A) on the ground that the assessment for the assessment years 2006-07, 2007-08 and 2008-09 had not abated and, therefore, as no material was brought on record by the Revenue to show that the additions were made in an order passed u/s.153A of the Act on the basis of any seized material, the additions made were not sustainable, thus, we allow these grounds of cross objections of the assessee. Accordingly, Ground No.1 in assessment years 2006-07, 2007-08 & 2008-09 of the cross objections filed by the assessee are allowed. 33. In the assessment years 2009-10, 2010-11, 2011-12 and 2012-13, the grounds of cross objections taken by the assessee are in support of the order of the CIT(A). As there is no grievance of the assessee against the order of the CIT(A), the cross objections filed by the assessee for the above assessment years under consideration are infructuous and accordingly dismissed. 34. In the result, cross objections filed by the assessee for assessment years 2006-07, 2007-08 and 2008-09 are allowed and cross objections filed for the assessment years 2009-10, 2010-11, 2011-12 and 2012-13 are dismissed.

31 ITA Nos.225 to 231/RPR/2014 CO Nos.02 to 08/RPR/2015 35. In the result, appeals filed by Revenue for all the assessment years and cross objections filed by the assessee for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 are dismissed, whereas cross objections filed by the assessee for assessment years 2006-07, 2007-08 and 2008- 09 are allowed. Order pronounced in the Court on Thursday, the 18th day of January,2018 at Raipur.

Sd/- Sd/- (PAVAN KUMAR GADALE) (N. S. SAINI) न्याययक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER Raipur; ददन ांक Dated 18/01/2018 प्र.कु.मि/PKM, Senior Private Secretary आदेश की प्रयिलऱपि अग्रेपिि/Copy of the Order forwarded to : 1. अऩीऱ थी / The Appellant- प्रत्यथी / The Respondent- 2. आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. विभ गीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, Raipur / DR, ITAT, Raipur 5. ग र्ड प ईऱ / Guard file. 6. सत्य वऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, (Senior Private Secretary) Income Tax Appellate Tribunal, Raipur