DAYAL COTSPIN LIMITED,AKOLA vs. ACIT, AKOLA CIRCLE, AKOLA

Date of Hearing – 26/11/2024 Date of Order – 12/12/2024

O R D E R PER K.M. ROY, A.M.

This appeal by the assessee is against the impugned order dated 04/01/2024, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2012–13.

2. The assessee has raised following grounds:– “1. Notice issued u/s 148 of I.T. Act 1961 is illegal, invalid and bad in law and thus consequent assessment framed there upon is liable to be cancelled.

2. Notice issued u/s 148 of I.T. Act 1961 is bad in law in view of same having been issued on mere change of opinion and in absence of any tangible material on record to derive satisfaction of escapement of income.

3. No notice u/s 148 of I.T. Act 1961 could be issued on the basis of seized material found in search action u/s 132(1) of I.T. Act 1961 on the premises of Amarpali group in October 2012.

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4. The learned CIT(A) erred in upholding the validity of notice u/s 148 of I.T. Act 1961 and dismissing the grounds challenging the validity of notice u/s 148 in the case of assessee.

5. The addition made by A.O. at Rs.180 lacs u/s 68 of I.T. Act 1961 in respect to share capital contribution is unjustified, unwarranted and bad in law.

6. The learned A.O. erred in making addition at Rs.180 lacs u/s 68 of I.T. Act 1961 on account of share capital at the hands of assessee. 7. The learned A.O. ought to have accepted the issue of share capital as shown in books of account and accepted in regular assessment framed u/s 143(3) of I.T. Act 1961. No addition ought to have made of same u/s 68 of I.T. Act 1961. 8. The learned CIT(A) erred in upholding the addition u/s 68 of I.T. Act 1961 by A.O. and thereby dismissing the ground of appeal

of assessee.

9. The learned CIT(A) erred in not granting personal hearing as prayed in written submission at pra 8 uploaded on 21/10/2023. Order passed by CIT(A) is in violation of principles of natural justice and is not in accordance with law.

10. The assessee denies liability to pay interest u/s 234A, 234B and 234C of I.T. Act 1961. Without prejudice, levy of interest under section 234A, 234B and 234C of I.T. Act 1961 is unjustified, unwarranted and excessive. Any other ground that shall be prayed at the time of hearing.” 11.

3. Facts in Brief:- In this case, the assessee, for the year under consideration, filed its return of income on 29/09/2012, which was accepted by the Assessing Officer during the regular assessment framed under section 143(3) of the Income Tax Act, 1961 ("the Act"). During the year, share capital of Assessee–Company was subscribed by four corporate shareholders to the tune of ` 180 lakh. The issue of share capital was examined by the Assessing Officer by issue of notice u/s 142(1) of the Act during the regular assessment framed under section 143(3) of Act. All corporate shareholders were assessed to income tax and transactions of subscription of share capital were through proper banking channel. Regular assessment was framed under 3 Dayal Cotspin Ltd. section 143(3) of the Act, on 23/03/2015, by accepting share capital contribution and income as shown in return of income. Notice under section 148 of the Act has been issued on 29/03/2017, and share capital issued was re-examined by the Assessing Officer in the light of information received from Investigation Wing of the Department. The assessment has been framed under section 143(3) r/w section 147 of the Act 1961 by the Asstt. Commissioner of Income Tax, Akola Circle, Akola, vide order dated 26/12/2017. The Assessing Officer made addition of ` 265.50 lakh in the assessment framed under section 143 r/w section 147 of the Act and the same was reduced to ` 180 lakh by passing a rectification order under section 154 of the Act on 28/12/2017. The relief prayed in the grounds of appeal was, therefore, made at ` 180 lakh being addition finally made after passing rectification order under section 154 of the Act.

4. In grounds no.1 to 4, the assessee has challenged the validity of notice issued under section 148 of the Act.

“2. The reason recorded for issue of notice u/s 148 of the Income Tax Act, 1961 for the A.Y. 2012-13 is given below:- “Reasons recorded for issuance of notice u/s 148 The assessee has filed the return of income for A Y 2012-13 on 28.09.2012 declaring total income of Rs.52,08,020/-. The order u/s 143(3) was passed on 23.03.2015 and the total income was assessed at Rs.52,08,020/-

4 Dayal Cotspin Ltd.

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Relevant extract of the Statement of the assessee i.e. Shri Shirish C. Shah dated 13.04.2013. “Q. In your reply to Q. No.4 you have stated that you are engaged in the business of providing accommodation entries to various clients/beneficiaries against cash received from them through various modes such as subscription to share capital at high premium, booking bogus expenditures extending funds by way of loans and advances, raising capital through Long Term Capital Gain (LTCG). Please explain in detail all such modes employed by you for providing accommodation entries. Ans. Sir, The modes employed by me for providing accommodation entries against commission are as under: 1. Subscription to share capital at premium:- Sir, in such cases shares of the companies of clients/beneficiaries are subscribed at high premium by the companies floated/managed/controlled by me against the cash received from such clients/beneficiaries. The funds received from such clients/beneficiaries are rotated through various companies controlled/floated/managed by me (termed as “Chakri Ghumana‟ in our parlances) and ultimately introduced in the client‟s/beneficiary companies. Such types of accommodation entries are referred by us as one time entry (OT). It is called as one time entry because the client has no liability to pay it back. Sir, primarily cash is generally collected from „Angadiyas‟ (cash courier) of the clients/brokers by our agent who provides RTGS into our companies through entities managed by him. These funds are then rotated in the web of my companies generally into the listed companies, managed by me and from there accounts cheques are issued to the clients/beneficiaries from whom cash has been received. This payment of funds into the beneficiary companies is recorded as investment in the books of the listed company and the beneficiary company shows at as receipt of share capital/premium or share application money in its books of accounts. Relevant extract of answer to Q. No.18 of the Statement of the assessee i.e. Shri Shirish C Shah dated 13.01.2014 Ans: Sir I have rightly said in my statement dated 11.06.2013 that these funds paid into Jhaveri Trading & Investment Private Limited are one time accommodation entries against receipt of cash. Sir, One Time accommodation entries are of two types in one case first shares are subscribed by my companies at premium against receipt of cash, in other case already issued shares are shown to have been purchase against payment of funds. In both cases the investments are not genuine but, are only used to give the transactions a color of investment. Infact, these are squaring off transactions wherein the liability to square off the books of accounts of the recipient for the funds received from my companies does not arise in future. In both the cases he share transfer forms duly filled by my company to whom the shares have been allotted or sold are filled in and given to the client from whom cash is received. In this case as already explained by me in earlier answer the cash was received by me from the promoter or the main persons the shares of whose company were purchased and the RTGS was made to Jhaveri Trading & Investment Private Limited as per the instructions of the promoters or key persons of these companies.

“Validity of notice issued u/s 148 of I.T. Act 1961.

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A) In the case of assessee regular assessment was framed u/s 143(3) on 23/03/2015 accepting income as declared. Share capital contribution received was accepted after due verification. i) Notice u/s 142(1)Seeking details of share capital (P- 166 – 167) (Vol. – I] ii) Details of share capital submitted (P- 168 – 170) [Vol. – I] iii) Assessment order (P- 171 – 173) [Vol. – I] B) Reasons recorded are at page 6 to 9 of order of CIT(A). Perusal of reasons recorded indicates that search action was carried out at the premises of Amarpali group in October 2012 and on Shri Shirish Chandrakant Shah on 13/04/2013. On the basis of statement of Shri Shirish Shah it has been concluded that assessee is one of the beneficiary of bogus accommodation entries. It has been further concluded that share capital contribution of M/s Alpha Graphic India Ltd. and M/s ACIL Cotton Industries Ltd. at Rs.50 lacs and Rs.30 lacs respectively needs thorough investigation in reassessment proceedings. Notice u/s 148 is issued on 29/03/2017. C) Statement of Shri Shirish Shah is general statement and is not in respect to transaction of assessee company. It was not recorded for verification of capital contribution of assessee company. It appars that same was recorded for Jhaveri Trading & Investment Pvt. Ltd. (P- 8) CIT(A) order. It does not contain date or year of transaction of assessee company. No valid belief is recorded for escapement of income. Reliance on Lakhmani Mewaldas reported at 103 ITR 437(SC). (P- 21 to 31) (30( [Vol. – II] D) Reasons recorded are mere change of opinion. No new tangible material has comes on record. Notice issued u/s 148 is not in accordance with law. Reliance on Kelvinator of India Ltd. reported at 320 ITR 561(SC). (P- 1 to 5) (2) [Vol. – II] E) Reasons recorded indicate that notice u/s 148 has been issued on the basis of mere receipt of information received in respect to search at the premises of Shri Shirish Shah through Intra Departmental Authorities. Reasons recorded does not indicate that A.O. has made any independent enquiry before concluding that assessee is in receipt of accommodation entries by way of share capital contribution. Reasons recorded does not indicate date, year or name of person to whom any cash is given as alleged for obtaining accommodation entry. Reasons recorded does not indicate any evidence on the basis of which it is concluded that corporate entities contributing share capital are of Shri Shirish Shah. It does not refer to any enquiry made by JAO. It is settled proposition of law that notice u/s 148 cannot be issued on the basis of mere receipt of information and in the absence of any tangible material/evidence on record. Reliance on:

8 Dayal Cotspin Ltd. i) [2019] 104 taxmann.com 216 (Bom.) South Yarra Holdings vs. ITO (P- 42 - 45) (45) [Vol. – II] ii) [2017] 395 ITR 0677 (Delhi) PCIT vs. Meenakshi Overseas Pvt. Ltd. (P- 46 - 58) (53 to 58) [Vol. – II] iii) (2020) 422 ITR 0337 (Bom.) CIT vs. Shodiman Investments Pvt. Ltd. (P- 13 – 20) (20) [Vol. – II] F) In the case of assessee it is evident from reasons recorded that information received is pursuance to search action u/s 132(1) of I.T. Act 1961. No valid notice u/s 148 could be issued in the case of assessee pursuance to information received and found in the course of search. Notice issued u/s 148 is not in accordance with law. Reliance on: i) (2024) 161 taxmann.com 255 (Raj.) Shyam Sunder Khandelwal vs. ACIT (P- 250 – 256) (254, 255) [Vol. – II] ii) Hon‟ble High Court of Karnataka at Bengaluru order in of 2020 in the case of M/s. VSL Mining Company Pvt. Ltd. vide order dated 20/09/2024 (P- 257 – 270) (268 – 270) [Vol. – II] iii) ITAT, „B‟ Bench, Bangalore in the case of M/s Ickon Projects in vide order dated 26/10/2023. (P- 74 – 81) (79, 80) [Vol. – II] iv) ITAT, „E‟ Bench, Delhi in the case of Narendra Kumar in ITA No.1218/Del/2019 vide order dated 19/07/2023. (P- 82 – 89) (85, 86) [Vol. – II] G) Share capital contribution in respect to M/s Alpha Graphic India Ltd. and M/s ACIL Cotton Industries Ltd. has been noted in reasons recorded to require thorough investigation in reassessment proceedings. It is settled proposition of law that reasons recorded for verification of transaction are not in accordance with law. H) Reasons recorded does not indicate any date, year of transaction and link of assessee with statement of Shri Shirish Shah and thus it is no valid reasons for issue of notice u/s 148 in the case of assessee. I) It is settled proposition of law that reasons to suspect is not sufficient to issue notice u/s 148 of I.T. Act 1961. i) [1981] 130 ITR 0001 (SC) Ganga Saran & Sons Pvt. Ltd. Vs. ITO” (P- 32 – 41) [Vol. – II]

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“Addition of Rs.180 lacs u/s 68 of I.T. Act 1961. A) Assessee has placed on record confirmation. Financial statements, acknowledgement of Income Tax Return and bank statement of corporate share holders. Assessee has placed reasonable evidence on record to discharge its onus to explain the contribution of share capital. Transaction of receipt of share capital is through proper banking channel. Financial statement of corporate share holders indicates substantial creditworthiness to contribute share capital. B) CIT(A) has reproduced the written submission at pages 22 to 27 partly. The complete submission as made before CIT(A) is at of CIT(A) has recorded no justification/reasons for not accepting the submission of assessee. Rejection of explanation of assessee by CIT(A) is unjustified and not in accordance with law. C) A.O. has made the addition primarily on the basis of statement of Shri Shirish Shah. The aforesaid person was examined by Income Tax Authorities in the case of Chain House International Pvt. Ltd. Attention of CIT(A) was invited to facts of Shri Shirish Shah as noted in judgment of Hon‟ble High Court of Madhya Pradesh dated 07/08/2018. It has been concluded by Hon‟ble High Court that addition made on the basis of statement of Shri Shirish Shah is unjustified and unsustainable. Attention was invited to observation in the judgement of Hon‟ble High Court at para 14 to 19, 26, 52 & 53 to submit that there is nothing adverse from the statement of Shri Shirish Shah to make addition in respect to share capital/loan in the aforesaid case SLP filed by Revenue in respect to decision of Hon‟ble High Court of Madhya Pradesh has been dismissed by Apex Court vide judgment dated 18/02/2019. (P- 90) [Vol. – II] D) In the case of M/s. Esspal International Pvt. Ltd. share capital contribution was added u/s 68 based on statement of Shri Satish Shah. Addition made is deleted in appellate proceedings. Reliance on: i) in the case of M/s. Esspal International Pvt. Ltd. vide order dated 03/01/2024. (P- 213 – 242) (231 to 235) [Vol. – II] ii) Appeal of revenue dismissed by Hon‟ble Rajasthan High Court in in the case of M/s. Esspal International Pvt. Ltd.

10 Dayal Cotspin Ltd. vide judgement dated 03/09/2024. (P- 243- 249) (248) [Vol. II] E) Perusal of details of corporate shareholders (P- 32, 57, 93 & 152) (Vol. - I] does not indicate that Shri Shirish Shah is director or subscriber of the aforesaid company. Allegation of A.O. in the assessment order as aforesaid company is under the control of Shri Shirish Shah is not borne out of any legal evidence on record. Allegation made not based on any evidence on record does deserves no credence. Addition made in the case of assessee is thus unjustified and unsustainable. F) No cross examination was offered/allowed of Shri Shirish Shah before making addition at the hands of assessee. Assessee had made specific request before A.O. Evidence collected behind the back of assessee and not stood to the test of cross examination cannot be used to make addition at the hands of assessee. Reliance on: i) [2015] 281 CTR 0241 (SC) Andaman Timber Industries vs. CCE ii) (2010) 327 ITR 0290 (Guj) Heirs and Lrs of Late Laxmanbhai S Patel vs CIT (P- 59 – 73) (72) [Vol. – II] G) Reliance on: i) Hon‟ble High Court of Judicature at Bombay order in of 2014 in the case of M/s. Gagandeep Infrastructure Pvt. Ltd. vide order dated 20/03/2017 (P- 171 – 177) [Vol. – II] ii) (2008) 6 DTR 0308 (SC) CIT vs. Lovely Exports (P) Ltd. (P- 178 – 179) [Vol. – II] iii) Hon‟ble High Court of Bombay at Goa order in Tax Appeal No.16 of 2012 in the case of Goa Sponge And Power Ltd. vide order dated 13/02/2012. (P- 180 – 181) [Vol. – II] iv) (1999) 237 ITR 0570 (SC) CIT vs. Smt. P.K. Noorjahan (P- 182 – 185) [Vol. – II] v) (2002) 256 ITR 0360 (Guj.) DCIT vs. Rohini Builders (P- 186 – 187) [Vol. – II] vi) (2007) 291 ITR 0278 (SC) CIT vs. P. Mohanakala & Ors. (P- 188 – 197) [Vol. – II] vii) (1986) 159 ITR 0078 CIT vs. Orissa Corporation (P) Ltd. (P- 197 – 203) [Vol. – II]

11 Dayal Cotspin Ltd. viii) (2013) 358 ITR 0295 (SC) CIT vs. Excel Industries Ltd. (P- 204 – 212) [Vol. II]

12 Dayal Cotspin Ltd. capital issued had accepted the share capital contribution in the assessment framed under section 143(3) of the Act on 23/03/2015, by accepting income as shown in the return of income.

13 Dayal Cotspin Ltd. indicate that belief of escapement of income is primarily based on statement of Shri Shirish Shah, during search conducted at his premises.

“a) M/s. ACIL Cotton Industries Limited Audited Financial Statement P- 32 – 53 [Vol. – I] Share Application Form P- 54 [Vol. – I] Extract of Bank Account P- 55 [Vol. – I] Acknowledgement of ITR P- 56 [Vol. – I] b) M/s. Alpha Graphics India Ltd. Audited Financial Statement P- 57 – 85 [Vol. – I] Confirmation of company affirming share capital contribution P- 86 [Vol. – I] Share Application Form P- 87 – 88 [Vol. – I] Extract of Bank Account P- 89 – 90 [Vol. – I] Acknowledgement of ITR P- 91 [Vol. – I] c) M/s. Secundrabad Health Care Ltd. Audited Financial Statement P- 92 –147 [Vol.– I] Confirmation of company affirming share capital contribution P-148 [Vol. – I] Share Application Form P-149 – 150 [Vol. – I] Extract of Bank Account P-151 [Vol. – I] d) M/s. Prabhav Industries Limited Company/LLP Master data P- 152 [Vol. – I] Confirmation of company affirming share capital contribution P-153 [Vol. – I] Share Application Form P-154 – 155 [Vol .– I]

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Extract of Bank Account P- 156 [Vol.– I] Acknowledgement of ITR P- 157 [Vol. – I]”

15 Dayal Cotspin Ltd. entities. Identity, creditworthiness and genuineness of share capital contribution is established and there remains no justification to make any addition under section 68 of Act at ` 180 lakh as made by Assessing Officer.

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17 Dayal Cotspin Ltd. was not acceded to by Assessing Officer before making the addition (P- 179 of Paper Book) [Vol.–I]. The addition made is not in accordance with law considering the judgment of Hon’ble Supreme Court in Andaman Timber Industries v/s CCE, [2015] 281 CTR 241 (SC) and the Hon’ble Gujarat High Court in Heirs and L.Rs of Late Laxmanbhai S. Patel, [2010] 327 ITR 290 (Guj.). Respectfully following the same, addition made in assessee’s case at ` 180 lakh is held to be unjustified and unsustainable.

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167 to 170). Share capital contribution received was examined and regular assessment was completed accepting receipt of share capital contribution. No new tangible material has come on record subsequent to passing of order passed under section 143(3) of the Act. Reasons recorded merely indicate that information was received as regard to statement given by Shri Shirish Shah in the course of search conducted at his premises. The aforesaid statement given by Shri Shirish Shah, during the course of search at his premises was general statement and was not in respect to transaction of assessee. No date of transaction, as made by the assessee is noted/observed in the reasons recorded and linked-up with the statement of Shri Shirish Shah. Nowhere in the reasons recorded, it has been noted that Shri Shirish Shah, has made any adverse observation with regard to transaction of receipt of share capital by the assessee. Information found in search is sought to be utilized for issuance of notice under section 148 of the Act, and it is not in accordance with law. The Assessing Officer has not indicated any reason as to how corporate entities contributing share capital received by assessee company are linked to Shri Shirish Shah. Ratio laid down in the following case laws fully supports the case of the assessee:– i) (2010) 320 ITR 561(SC). Kelvinator of India Ltd. ii) [2019] 104 taxmann.com 216 (Bom.) South Yarra Holdings vs. ITO iii) [2017] 395 ITR 0677 (Delhi) PCIT vs. Meenakshi Overseas Pvt. Ltd. iv) (2020) 422 ITR 0337 (Bom.) CIT vs. Shodiman Investments Pvt. Ltd. v) (2024) 161 taxmann.com 255 (Raj.)

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Shyam Sunder Khandelwal vs. ACIT vi) Hon‟ble High Court of Karnataka at Bengaluru order in of 2020 in the case of M/s. VSL Mining Company Pvt. Ltd. vide order dated 20/09/2024 vii) ITAT, „B‟ Bench, Bangalore in the case of M/s Ickon Projects in vide order dated 26/10/2023. viii) ITAT, „E‟ Bench, Delhi in the case of Narendra Kumar in ITA No.1218/Del/2019 vide order dated 19/07/2023. ix) [1981] 130 ITR 0001 (SC) Ganga Saran & Sons Pvt. Ltd. Vs. ITO”