ITO, WD-4(1), KOLKATA, KOLKATA vs. M/S THE CALCUTTA JUTE MFG. CO. LTD., KOLKATA

Grounds of appeal raised by the revenue reads as follows :- “That on the facts and in circumstances of the case, the CIT(A) erred in holding that addition of share capital of Rs.35,00,000/- as income of the assessee from undisclosed source, was not warranted, ignoring the fact that the identity, creditworthiness and genuineness of transaction in respect of share subscribers could not be established from whom share capital claimed to have been received by the assessee. “

The Assessee is a company. During the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act) the AO noticed that during the relevant previous year the paid up share capital of the Assessee stood increased by Rs.40,00,000/-. The Assessee gave a list of share subscribers who had subscribed to the increased share capital of Rs.40 lacs. There were 3 subscribers to the share capital who were individuals and family members of the directors of the Assessee. There were also 8 other subscribers who were all limited companies who had subscribed to the share capital of the Assessee to the extent of Rs.35 lakhs. The details of these companies and the amount subscribed by them were as follows : -M/s. The Calcutta Jute Mfg. Co.Ltd. A.Y.2005-06 2

The AO noticed that one Mr.Ajay Singh was a director in two of the aforesaid 8 companies namely M/s. Clarity Mercantile (P)Ltd and M/s. Allworth Commodities (P)Ltd who had invested Rs.3,00,000/- and Rs.4,00,000/- respectively in the share capital of the Assessee. According to the AO Shri Ajay Singh was involved in providing accommodation entries to various companies based at Mumbai. The AO referred to the fact that in a statement recorded u/s 131 of the Income Tax Act, 1961 (Act) on 04.12.2006 Shri Ajay Singh admitted on oath that he got cash equivalent amount before issuing cheques by the two companies M/s. Clarity Mercantile (P)Ltd and M/s. Allworth Commodities (P)Ltd. The AO also referred to the fact that Shri Ajay Singh was called by him and his statements are recorded on 26.12.2007 in the assessment proceedings of the Assessee. In his statement he had admitted that whatever cash was received by him was handed over to one Shri Pramod Sharma, who was an entry operator and who deposited the money by way of cash in the bank account of his proprietory concerns. The AO also referred to the fact that Shri Pramod Sharma made a disclosure to DDIT(Investigation)on 22.11.2005 disclosing that he had deposited a sum of Rs.166.59 crore in various bank accounts of proprietory concerns and made disclosure of income. The AO was therefore of the view that the receipt of share capital from the aforesaid two companies was not satisfactorily explained by the assessee and therefore the receipt of share capital from these two companies had to be treated as unexplained cash credit and added to the total income of the Assessee u/s.68 of the Income Tax Act, 1961 (Act).

The AO also found that in respect of another share subscriber namely M/s. Sugam Distributor Pvt.Ltd one Shri Rajesh Kumar Lath was one of the renowned entry ITA No.689/Kol/2014-M/s. The Calcutta Jute Mfg. Co.Ltd. A.Y.2005-06 3 operator in Kolkata. In the search and seizure operation conducted in his case he had admitted 2% commission income of providing accommodation entries. The AO was of the view that the receipt of share capital from this company was also not satisfactorily explained by the assessee and therefore the receipt of share capital from these two companies had to be treated as unexplained cash credit and added to the total income of the Assessee u/s.68 of the Income Tax Act, 1961 (Act).

In respect of the remaining five companies the AO did not make any reference to any facts but came to the conclusion that receipt of share capital from the other five companies was also not properly explained by the assessee and therefore the receipt of share capital from these two companies had to be treated as unexplained cash credit and added to the total income of the Assessee u/s.68 of the Income Tax Act, 1961 (Act).

For all the above reasons the AO treated the receipt of share capital to the extent of Rs.35,00,000/- from the aforesaid eight companies as unexplained cash credit u/s 68 of the Act and added the same to the total income of the assessee.

Before CIT(A) the first and foremost submission of the assessee was that in respect of five companies who had subscribed to the share capital of the assessee the assessee had furnished confirmation letter from the share evidencing that these companies were assessed to income tax, Copy of the bank statement as well as details of the cheques through each application for shares were made by these companies. It was contended that no adverse material was brought by the AO in respect of five companies and therefore the addition made u/s 68 in respect of the aforesaid five companies cannot be sustained. The CIT(A) agreed with the submissions of the assessee and deleted the addition made in respect of five companies.

So far as the receipt of share application money from M/s. Clarity Mercantile (P)Ltd and M/s. Allworth Commodities (P)Ltd is concerned the assessee again ITA No.689/Kol/2014-M/s. The Calcutta Jute Mfg. Co.Ltd. A.Y.2005-06 4 pointed out that the confirmation letters from these companies along with income tax particulars, bank statements etc. had been furnished by the assessee to the AO. The assessee brought to the notice of CIT(A) that in the deposition recorded by the AO on 26.12.2007 Shri Ajay Singh had not made any reference to the name of the assessee company as a person who had given cash and the Assessee being a beneficiary of any accommodation entries. The assessee therefore contended that the reliance by the AO on the deposition of Shri Ajay Singh dated 26.12.2007 cannot help the case of the revenue. The assessee also contended that the statement of Shri Ajay Singh was never confronted to the assessee by the AO in the course of assessment proceedings. The assessee demanded a right of cross examination of Shri Ajay Singh . Similar submissions were made with regard to Shri Ajay Singh’s statement recorded on 04.12.2006 referred to by the AO in the order of assessment.

On the above submissions of the assessee the CIT(A) called for a remand report from AO and directed the AO to provide opportunity of cross examination of Shri Ajay Singh to the Assessee in the remand proceedings.

In the remand report filed by the AO, the AO informed CIT(A) that Shri Ajay Singh filed an affidavit retracting the statement dated 04.12.2006 as well as the statement dated 26.12.2007. In the remand report it was also said by the AO that in the affidavit of Shri Ajay Singh dated 19.12.2007 he had claimed that his statement recorded on 04.12.2006 was wrong. The AO accordingly reported to the CIT(A) that the statement and affidavit of Shri Ajay Singh were contradictory. It was further reported by the AO that he was not able to say as to whether this statement was used in the assessment of M/s. Allworth Commodities (P)Ltd., of which he was the director.

On a consideration of the above remand report, the CIT(A) was of the view that the statement of Shri Ajay Singh dated 04.12.2006 and 26.12.2007 had been retracted by an affidavit dated 19.12.2007 and therefore cannot be relied upon by the AO ITA No.689/Kol/2014-M/s. The Calcutta Jute Mfg. Co.Ltd. A.Y.2005-06 5 without corroboration. The CIT(A) was also of the view that even otherwise Shri Ajay Singh had not in his statement implicated the assessee nor was any specific question put to Shri Ajay Singh mentioning the name of the assesse as a recipient of any accommodation entry. The CIT(A) was therefore of the view that the statement on which reliance was placed by the AO in the order of assessment was not sufficient to conclude that the receipt of share capital from the aforesaid two companies was not genuine. The CIT(A) was also of the view that in the light of the statements of Shri Ajay Singh and the fact that he had not implicated the name of the assessee in his statement there was no requirement of cross examination of Shri Ajay Singh. For all the above reasons the CIT(A) deleted the addition made in respect of share application money from M/s. Clarity Mercantile (P)Ltd and M/s. Allworth Commodities (P)Ltd.

So far as the receipt of share capital from M/s. Sugam Distributor (P)Ltd. Is concerned the submission of the assessee was that when the confirmation and other relevant evidence were filed by the assessee the AO without finding any defect in these documents, the AO cannot place reliance on the fact that one Shri Rajesh Kumar Lath was the director of the said company and he had offered income on account of commission for providing accommodation entries in a search conducted in his case. It was submitted that the deposition of Shri Rajesh Kumar Lath was not brought on record and as to whether the transaction of receipt of share capital by the assessee was also one such accommodation entry is not brought on record by the AO. The CIT(A) was of the view that there was no material against the assessee brought on record by the AO to suggest that cash was paid by the assessee in lieu of the subscription of M/s. Sugam Distributor (P)Ltd. The CIT(A) held that from the fact that Shri Rajesh Kumar Lath was an entry operator and had surrendered 2% commission for providing accommodation entries cannot be a conclusive proof that subscription received by the assessee from M/s. Sugam Distributor (P)Ltd was also an accommodation entry without corroborating evidence. The addition made in respect of the share applicant M/s. Sugam Distributor (P)Ltd was also deleted by CIT(A). -M/s. The Calcutta Jute Mfg. Co.Ltd. A.Y.2005-06 6

Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.

The ld. DR placed reliance on the order of AO. The ld. Counsel for the assessee filed before us a copy of the remand report of the AO filed before CIT(A), copy of the deposition of Shri Ajay Singh dated 04.12.2006 and 26.12.2007 as well as the retraction affidavit dated 19.12.2007 of Shri Ajay Singh. He relied on the order of CIT(A).

After considering the rival submissions we are of the view that the conclusions drawn by CIT(A) do not call for any interference. As rightly held by CIT(A) there was no adverse material in respect of five companies and M/s. Clarity Mercantile (P)Ltd, M/s. Allworth Commodities (P)Ltd and M/s. Sugam Distributor (P)Ltd. By filing confirmation of the share subscribers and other details, the assessee has established satisfactorily the receipt of share capital from these five companies.

As far as the receipt of share from M/s. Clarity Mercantile (P)Ltd and M/s. Allworth Commodities (P)Ltd is concerned, as rightly held by CIT(A), the only basis of AO to make the addition is the statement of Shri Ajay Singh. The two statements referred to by the AO in the order of assessment did not make specific reference to the assessee. Besides the above the statements were retracted by Shri Ajay Singh. In these circumstances the addition made by the AO was rightly deleted by CIT(A).

As far as the receipt of share capital from M/s. Sugam Distributor (P)Ltd the conclusion drawn by the AO were purely based on the fact that Shri Rajesh Kumar Lath, who was the director of the said company had offered 2% commission income for providing accommodation entries in a search conducted in his case. There is not even a reference to the fact that the assessee was also a beneficiary of accommodation entry provided by M/s. Sugam Distributor (P)Ltd. In these circumstances the CIT(A) -M/s. The Calcutta Jute Mfg. Co.Ltd. A.Y.2005-06 7 was right in concluding that the addition u/s 68 of the Act made by the AO cannot be sustained.

For the reasons given above we find no merits in the appeal by the revenue and the same is dismissed.

In the result the appeal of the revenue is dismissed.