THE ASSISTANT COMMISSIONER OF INCOME-TAX-CENTRAL CIRCLE-2,RAIPUR, RAIPUR (CG) vs. M/S DEVI IRON & POWER PVT LTD., RAIPUR, RAIPUR (CG)

आदेश / ORDER

PER RAVISH SOOD, JM:

1. "On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs.4,07,00,000/- made on account of share application/capital received as unexplained cash credits u/s. 68 of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the case the CIT(A) erred in overlooking the facts that the creditworthiness and the genuineness of the transactions has not been established by the appellant. There are evidence to the contrary produced by the department which establishes that the investors did not have the income earning apparatus and hence did not have creditworthiness.

3. On the facts and in the circumstances of the case the CIT(A) erred in overlooking the investigation of facts and evidences on record to establish suppression of production by the assessee. 4. On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs.6,57,83,016/- made on account of suppression of production based on the lower yield declared by the assessee and hence corresponding unrecorded sale thereof. 5. The CIT (A) has erred in passing the appellate order wherein he has acted in a perverse manner while passing the order which has been made in haste without giving reasonable opportunity to the AO to give his submissions on issues."

4. During the course of the assessment proceedings, it was observed by the A.O that the assessee company had during the year under consideration received share application money and share premium from a Kolkata based investor company as well as an in-house company, as under:

A.Y. Name Amount 2011-12 Antariksh Commerce Pvt. Ltd. 32,00,000/- 2011-12 Escort Finvest Private Limited 37,50,00,000/- The A.O considering the aforesaid facts called upon the assessee to establish the identity, creditworthiness and genuineness of the transaction of receipt of share application money from the aforementioned parties. In reply, the assessee furnished details as were called for by the A.O. The A.O was, however, not inclined to accept the claim of the assessee that it had raised genuine amount of share application money of Rs.32 lacs and Rs.3.75 crore from M/s. Antariksh Commerce Pvt. Ltd. and M/s. Escort Finvest Pvt. Ltd., respectively. It was observed by the A.O that in the course of search and seizure proceedings the search officials had looked for documents in the form of statutory records of the assessee company, viz. minutes of meeting register, shareholders register, counter foils of issued share-certificates etc. which were mandatorily required to be maintained at the registered office of the assessee company but neither of those were found. Also, it was observed by him that the persons who were present at the registered office premises of the assesssee company in their statements that were recorded on oath could not provide satisfactory explanation as regards non-availability of the aforesaid documents/registers. Apart from that, it was observed by the A.O that the duly filled in share application forms which were supposed to be received from the share applicants a/w share application money were also not available at the registered office of the assessee company as well as its other premises. The A.O in order to verify the identity, creditworthiness and genuineness of the assessee’s claim of having received share application money of Rs.32 lacs and Rs.3.75 crore from M/s. Antariksh Commerce Pvt. Ltd. and M/s. Escort Finvest Pvt. Ltd. respectively, issued notices u/s. 133(6) dated 11.12.2013 to the aforesaid investor companies. Notice u/s.133(6) of the Act that was issued to M/s. Antariksh Commerce Pvt. Ltd. was though returned unserved on 03.01.2014 with an endorsement of the postal authority, viz. “door closed”, but thereafter a reply dated 19.03.2014 was received by the A.O from the investor company. As regards the other investor company, viz. M/s. Escort Finvest Pvt. Ltd. the notice u/s.133(6) was duly received and a reply dated 19.03.2014 was received by the A.O from the said investor company. The A.O called upon the assessee to substantiate the identity and creditworthiness of the shareholders as well as the genuineness of the transaction of receipt of share application money from the aforesaid share applicant companies.

F.Y Sponge Iron Installed capacity ( in MT) Actual Production (in MT) 2004-05 30000 3334.00 2005-06 30000 10205.94 2006-07 30000 7161.09 2007-08 30000 11.905.71 2008-09 30000 19211.22

2009-10 90000 35719.11 2010-11 90000 42983.60

(emphasis supplied by us) It was observed by the A.O that now when the assessee company had not even been able to achieve 50% capacity utilization of its installed capacity of 30000 MT, then, it was beyond comprehension as to why it would go for further expansion and increase its capacity to 90000 MT and still not achieve production of even 25% of the enhanced installed capacity. The A.O, thereafter, referred to the quantitative production details of the assessee company, as under:

F.Y. Turnover Turnover Total Total Iron Total Iron Ore Yield% Power (In lacs) (in MT) Production Ore power per unit of consumed (in MT) consumed consumed production per unit of (in MT) (in Kwh) production ( kwh/MT) 2005-06 993.55 9407.955 10205.945 16361.777 1130760 1.603 62.38 110.79 2006-07 1395.91 8111.000 7161.090 12552.437 1464586 1.753 57.05 204.52 2007-08 2233.18 12161.650 11905.710 24618.000 1733240 2.068 48.36 145.58 2008-09 2855.16 19275.940 19211.220 34092.025 2252064 1.775 56.35 117.23 2009-10 5055.75 34627.070 35719.110 59520.02 3026780 1.666 60.01 84.74 2010-11 7610.07 41312.930 42983.600 77831.978 4779000 1.811 55.23 111.18 Total 20143.62 127186.68 224976.24 1486430

(emphasis supplied by us)

The A.O holding a conviction that the quantitative production of sponge iron would be proportionate to the consumption of Iron Ore, thus, inter alia, for the year under consideration worked out the month wise details, as under:

Month Sponge Iron Iron Ore Production ( Consumption Yield % in MT) (in MT) April, 10 4,456.500 7,351.520 0.61 May, 10 4,335.220 7,996.860 0.54 June, 10 4,205.820 6,981.240 0.60 July, 10 816.930 1,415.430 0.58 August, 10 1,950.080 3,396.178 0.57 September,10 1,417.000 2,633.140 0.54 October, 10 2,928.260 5,760.500 0.51 November, 10 3,340.850 6,580.730 0.51 December, 10 4,829.520 9,159.770 0.53 January, 11 3,869.350 7,392.010 0.52 February, 11 5,297.000 9,117.640 0.58 March, 11 5,537.070 10,046.960 0.55 42,983.600 77,831.978 0.55 The A.O observing that no uniform co-relation between the iron ore consumption and sponge iron production could be gathered on the basis of the details as were compiled for the period FY 2006-07 to FY 2010-11, therefore, resorted to year wise/month wise details of consumption of coal and production of sponge iron which, inter alia, for the year under consideration was as under: F.Y. 2010-11 : Month Production Coal ( in MT) Consumption Consumption (in MT) of coal per unit of production April, 10 4,456.500 8,798.210 0.51 May, 10 4,335.220 7,008.670 0.62 June, 10 4,205.820 6,526.400 0.64 July, 10 816.930 1,415.330 0.58 August, 10 1,950.080 3,241.600 0.60 September, 10 1,417.000 2,638.480 0.54 October, 10 2,928.260 6,052.760 0.48 November, 10 3,340.850 6,791.250 0.49 December, 10 4,829.520 8,890.110 0.54 January, 11 3,869.350 7,926.010 0.49 February, 11 5,297.000 8,511.510 0.62 March, 11 5,537.070 9,217.670 0.60 42,983.600 77,018.000 0.56 Once again, it was observed by the A.O that there was no specific co-relation between the coal consumption and sponge iron production. On the basis of his aforesaid deliberations the A.O concluded that there was a vast variation in consumption of iron ore per unit of production and consumption of coal per unit of production. On the basis of aforesaid facts, the A.O culled out the highest and lowest consumption of iron ore and coal per unit of production of sponge iron for the block period, as under:

FY Iron Ore Coal Highest yield Lowest yield Highest coal Lowest coal consumption per unit consumption per unit of production of production Month Yield Month Yield Month Consumption Month Consumption 2006-07 June 0.57 May 0.56 Sep 0.72 Nov 0.70 2007-08 Dec 0.52 Mar 0.39 Jan 0.64 Feb 0.61 2008-09 Apr 0.64 Jan 0.41 Jul 0.64 Nov 0.47 2009-10 Mar 0.62 Aug 0.56 Feb 0.74 Sep 0.53 2010-11 Apr 0.61 May 0.54 Jun 0.64 Oct 0.48 It was, thus, observed by the A.O by way of a common reference to all the years before him that consumption of Iron Ore per unit of production was as high as 64% in April, 2008 and as low as 41% in January, 2009. Similarly the consumption of coal was very high in February 2010 i.e. 0.74 and as low as 0.47 in the month of November, 2009. It was observed by the A.O that yield shown in different years under consideration also varied over the years, as under:

Financial Year Yield of Sponge Iron (in %)

2005-06 62.38 2006-07 57.05 2007-08 48.36 2008-09 56.35 2009-10 60.01 2010-11 55.23 The A.O was of the view that the aforesaid variances suggested that the books of account of the assessee company did not reveal the true and correct picture of its business affairs. Also, the A.O in order to support his conviction that the assessee had suppressed its yield relied on the fact that in the course of search proceedings excess stock of Rs.6,28,24,704/- was found. Considering the aforesaid facts the A.O held the books of account of the assessee as unreliable, and was of the view that the yield of sponge iron could safely be taken as per average yield of 60% that was prevalent in the iron order industry. Accordingly, the A.O by adopting the yield at 60% in the hands of the assessee worked out suppressed yield for the period i.e. FY 2006-07 to F.Y 2011-12, as under:

FY Total Total Iron Ore Yield Production Difference in Average rate of Difference in production consumed (in (%) with yield of production in sponge iron (in Rs.) production (in Rs.) (MT) MT) 60% (in MT) MT 2006-07 7161.09 12552.44 57.05 7531.46 370.37 19493 7219622.41 2007-08 11905.71 24618 48.36 14770.8 2865.09 18757.228 53741146.38 2008-09 19211.22 34092.03 56.35 20155.22 1244 14861.93917 18488252.33 2010-11 42983.6 77831.98 55.23 46699.19 3715.59 17704.59503 65783016.24 2011-12 39275.76 65050.02 60.37 39330.01 (245.75) 21504.00 Nil Total 8195.04 14,52,32,037 ( emphasis supplied by us)

14. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

16. Apropos the aforesaid addition of Rs.6,57,83,016/- (supra) made by the A.O towards suppressed yield of sponge iron by adopting the average yield of sponge iron of 60% as a yardstick, we find that as the said issue is perpetuating in the case of the assessee company over the years i.e. A.Y.2006-07 to A.Y.2009-10, therefore, the same as on date is squarely covered by the order that was passed by the Tribunal while disposing off the appeal’s of the assessee company for the said years in to 265/RPR/2014 dated 21.10.2021. The Tribunal while vacating the impugned addition towards alleged low/suppressed yield of sponge iron that was made in the aforementioned respective years on the basis of an innocuous standard of 60% set up by the A.O, had observed as under:

“20.4 On facts, the broad counters of the multiple contentions of the assessee are that even if it is momentarily assumed that the yield shown by the assessee is less than industrial average, in the absence of any corroborative material, the adverse inference remains unsubstantiated. Even if, it is assumed that production facilities and resources even not utilized optimally or efficiently, this by itself will not entitle the AO to allege unaccounted production by presuming higher yield by some mathematical calculation. With reference to the tabular statement at page nos. 59 to 70 of the paper book in conjunction with first appellate order it was submitted that despite repeated requests, the AO completely failed to point out any suppression of production based on any cogent and incriminating material in his possession against the assessee. The low yield in comparison to the benchmark adopted by the AO could not be the basis to reject the books of accounts under s.145(3) of the Act without bringing any material on record pointing out towards falsehood in the accounts. The search team could not come across any unaccounted sales as recorded in para 9.38 of the first appellate authority. The inventory appearing in the elaborate excise records and excise returns were also found to be matching with the financial records.

21. We note that after taking note of the facts and circumstances of the case objectively, the CIT(A) rightly concluded that the action of the AO in rejecting the books of accounts merely owing to the reason that yield achieved by the assessee is less than standard yield percentage i.e. 60% which has not been achieved even by other assessee engaged in similar line of business. While concluding in favour of the assessee the CIT(A) also observed that the AO has not brought on record the manner in which he worked out the standard yield of 60% of sponge iron. The basis for determining standard yield @ 60% of input was not given despite repeated request by the assessee either. 21.1 We observe that the CIT(A) has capsulated the findings of the AO and reproduced the tabulated statement wherein year-wise yield of finished goods (sponge iron) shown by the assessee were compared with the an innocuous standard of 60% set by the AO. The AO consequently calculated the difference in the actual production vis-à-vis standard production [yield of 60% considered as standard production] and computed the value of difference in actual production versus standard production as unaccounted production/ sales in respective assessment years. We similarly observe that the CIT(A) has also recorded the detailed submissions of the assessee filed in its defense whereby reasons for justification of the actual yield generated by the assessee were given. The CIT(A) also recorded the comparative analysis of the yield of the assessee versus various other companies who are engaged in production of sponge iron and operating in the same field in the state of Chhattisgarh. By this exercise, the assessee has attempted to show that actual production shown by the assessee is either higher than its peers or quite comparable and bracketed in the same range. The standard yield presumed by the AO was thus sought to be demolished on facts. 21.2 Having examined the findings of the AO and the submissions of the assessee in rebuttal, the CIT(A) has made wide ranging observations noted hereunder: (i) The AO has failed to establish the nexus between the mathematical calculations of highest and lowest consumption of power, iron ore (raw material) etc. with yield of 60% adopted by the AO. (ii) The basis for arriving at the standard yield of 60% has not been disclosed despite repeated requests on behalf of the assessee. The CIT(A) himself attempted to work out the average yield in the industry based on data available from the department but failed to arrive at this so called standard figure of 60%.

(iii) Comparison of yield declared by the other assessee engaged in the similar line of business was carried out as tabulated in para 9.4 of the appellate order. On the basis of such comparison, arithmetical mean of yield stands at 53.97% in respect of other parties vis-à-vis 59.40% shown by the assessee. It was also found by the CIT(A) that yield declared by the different parties in the same year is not uniform and every party has declared a different yield. Likewise, there is a wide variation in the yield of one year with another year in other cases as well. Not even a single comparable instance was found declaring yield of 60% adopted by the AO. The yield achieved by the assessee is generally more than average industry yield. (iv) Financial results of the assessee as well as other parties engaged in similar line of business was also compared as discussed in para 9.5 to para 9.8 of the order. On analysis of factual data tabulated in the first appellate order, it was observed that the gross profit & net profit declared by the assessee is stronger than its peers despite marginally lower yield at some instances. It was thus noted by the CIT(A) that the percentage of yield cannot be said to be sole decisive factor while assessing reliability of books of accounts and merely low yield cannot lead to an indefeasible presumption with books of accounts of the assessee are unreliable and true profit earned by the assessee cannot be deduced therefrom. In para 9.9 of its order, the CIT(A) has made reference to the excise records maintained by the assessee and the returns filed with the Central Excise Authority on monthly basis and daily basis. On analysis of such records, it was found to be tallying with the financial records. (v) The CIT(A) also took cognizance of the fact that capacity utilization in an industry depends on number of working days and in the case of assessee where the kiln used for manufacturing of sponge iron need to be shut down periodically, the production operation consequently halts and effect the yield. The CIT(A), thereafter, observed that no infirmity in the details furnished by the assessee has been found by the AO in this regard. (vi) The assessee has brought on record the certificate from registered valuer according to which the average yield of sponge iron unit using iron ore and coal as raw material may vary from 40% to 60% and coal consumption may vary from 1.62 to 2.1mt depending upon fixed carbon in coal. The quantitative CIT(A) observed that the quantity details of consumption of sponge iron and coal were found to be within reasonable range as certified by registered valuer. The CIT(A) also noted that it is impractical to presume uniform quality of coal and iron ore. (vii) The AO has proceeded to estimate higher yield on the basis of mathematical and mechanical calculations. The AO has laid too much emphasis on statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the AO are those which are quite routinely called for even during the regular assessment proceedings under s.143(3) of the Act. The AO has not stated what according to him should have been the average consumption of coal iron ore etc. (viii) The statement of Shri Rishikesh Dixit recorded on 21.06.2011 was taken note of from which it was gathered that the aforesaid Director stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts and excise records. These loose slips are destroyed after it becomes redundant with the passage of time. The CIT(A) further observed that neither in the show cause notice nor in the assessment order, there is any whisper of any such loose papers which bears the figure of production and which the appellant failed to reconcile with the entries in the regular books of accounts and excise records/returns. (ix) The alleged low yield in comparison to benchmark of 60% adopted by the AO is the basis whereof is still in dark and not known, cannot in itself provide a ground to reject the books of accounts without showing any defect in books by tangible evidence. (x) The AO has merely proceeded on the basis of suspicion and conjunctures. It is trite that suspicion howsoever strong cannot take place of proof. (xi) The CIT(A) in para 9.22 onwards analyzed the decision rendered by the co- ordinate bench in similar factual matrix to find that addition on account of low yield as made by the AO is not sustainable in law in the absence of tangible material. 21.3 In conclusion, the CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. 21.4 The CIT(A), in our mind, has analysed the factual matrix threadbare and passed a very speaking order. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We are unable to discern any error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the A.O. We, thus, decline to interfere with the order of the CIT(A) on this score.”

17. We have given a thoughtful consideration, and finding ourselves in agreement with the aforesaid view taken by the Tribunal in the assessee’s own case for the aforementioned preceding years, thus, respectfully follow the same. We, thus, in terms of our aforesaid observations finding no infirmity in the order of the CIT(Appeals) who had rightly vacated the addition of Rs.6,57,83,016/- (supra) made by the A.O towards alleged suppression of yield of sponge iron, uphold the same. The Grounds of appeal Nos. 3 & 4 are dismissed in terms of our aforesaid observations.

18. Apropos the claim of the department that the CIT(Appeals) had disposed off the appeal in haste without giving a reasonable opportunity to the A.O to place on record his submissions, we are unable to persuade ourselves to subscribe to the same. As is discernible from the appellate order, it transpires that a copy of the written submission of the assessee was forwarded to the A.O by the CIT(Appeals). Although the A.O had initially requested for one months time to make necessary compliance, but had thereafter, despite lapse of the time so allowed failed to effect necessary compliance. Apart from that, the A.O vide his letter dated 23.05.2014 had sought exemption from personal appearance in the course of the proceedings before the first appellate authority. Although the A.O was vide letter 30.06.2014 intimated about the refixation of appeal on 07.07.2014, but we find that he had failed to put up an appearance on the said date. Considering the fact that the assessee had not come forth with any fresh facts or evidence i.e. over and above what was brought out in the assessment order, therefore, it was under the aforesaid set of circumstances that the CIT(Appeals) had proceeded with and disposed off the appeal.

20. We shall now deal with the claim of the revenue that the CIT(Appeals) had erred in law and facts of the case in vacating the addition of Rs.4.07 crore (supra) that was made by the A.O by treating the share application money received by the assessee company as unexplained cash credits u/s.68 of the Act. As observed by us hereinabove, the assessee company had received share application money of Rs.4.07 crore (supra), as under:

Sr. No. Particulars Amount 1. Antariksh Commerce Rs.32,00,000/- Pvt. Ltd., 2. Escort Finvest Pvt. Ltd. Rs.3,75,00,000/- Total Rs.4,07,00,000/-

(A). Antariksh Commerce Pvt. Ltd. : Rs.32 lac:

Financial Year : 2010-11 Name of Branch and Cheque No. Cheque Amount No. of the Bank Complete Date (Rs.) Shares address Indusind Kolkata 313314 29.03.2011 32,00,000 32,000 Bank Also, the aforesaid investor company had duly shared with the A.O its income tax credentials viz. PAN details, copies of the income tax return for A.Y.2006-07, 2007- 08, 2011-12 and 2012-13. The investor company, had also filed a/w. its reply its audited financial statements for the year under consideration as well as those for the preceding year. In order to dispel any doubt as regards the source of the investment made with the assessee company, the copy of the bank account of the investor company i.e. CA No.0015-R25089-050 with Indusind Bank, Kolkata was filed with the A.O, Page 112-113 of APB. On a perusal of the said bank account, it transpires that the investment of Rs.32 lacs made by the aforesaid investor company was sourced out of certain amounts received in the said bank account through RTGS. Nothing has been brought on record by the A.O which would prove that the amount of share application money received by the assessee company from the aforesaid investor was either by way of round tripping of its funds; or was a part of a chain of hawala/accommodation entry transaction. Apart from that we find that the aforesaid investor company had vide its reply dated 19.03.2014 enclosed copies of the share application forms in respect of its aforesaid investments. The investor company had further stated in its reply that it had tangible net worth to make the investment in question with the assessee company, and in order fortify its said claim had furnished details as under:

Sr. Tangible Net worth as on Amount (in Rs.) No. 1. 31.03.2006 23,61,62,825/- 2. 31.03.2007 24,31,11,013/- 3. 31.03.2011 24,51,40,563/-

capital and reserves of Rs.23.62 crores. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings and the said company had sufficient means to invest even prior to the period covered under present search proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Antariksh Commerce Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings.”

As observed by the CIT(Appeals), assessment in the case of the aforesaid investor company, viz. Antariksh Commerce Pvt. Ltd. was framed vide order passed by the ITO, Ward-4(3), Kolkata u/ss. 143(3) /147 dated 30.01.2019 for A.Y.2005-06, Page 121 of APB, wherein its share capital and reserves of Rs.23.62 crore was accepted by the A.O. On the basis of the aforesaid facts, we may herein observe that the assessee had on the basis of supporting documentary evidence that were filed in the course of the assessment proceedings discharged the primary onus that was cast upon it as regards proving the identity, creditworthiness and genuineness of the transaction of receipt of share application money of Rs.32 lac from the aforesaid investor company which, as noticed by us hereinabove had not been dislodged by the A.O. Apart from that, we concur with the CIT(Appeals) that now when the investment made by the aforesaid investor company viz. Antariksh Commerce Pvt. Ltd. with M/s. Mahamaya Steel Industries Limited, a group entity of the assessee company, had been accepted by the A.O, therein, there could have been no justification for him to have drawn adverse inferences as regards the identity and creditworthiness of the said investor company in so far the investment made by the latter with the assessee company was concerned. Also, we may herein observe, that though as per the pre-amended Section 68 of the Act, i.e., prior to insertion of the “1st Proviso” vide the Finance Act, 2012 w.e.f. 01.04.2013, the assessee company for the year under consideration i.e. A.Y.2011-12 remained under no statutory obligation to put forth an explanation as regards the source of source of the share application money received by it during the said year, but as can be gathered from a perusal of the bank account of the investor company which reveals that the amounts therein invested were sourced out of the amounts received by it vide transfer/RTGS, the authenticity of which had not been doubted by the A.O, no adverse inferences even on the said count can be drawn in the hands of the assessee company. Apart from that, we are of the considered view that as the investor company on the basis of its confirmations a/w “affidavit” had admitted the investment made with the assessee company, therefore, as per the judgment of the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR (SC) 195, the department in case of any doubt as regards the source of share application money was supposed to have proceeded against the said investor company and could not have drawn any adverse inferences in the case of the assessee company. Our aforesaid conviction is further supported by the judgments of the Hon’ble Jurisdictional High Court in the case of ACIT Vs. Venkateshwar Ispat (P) Ltd. (2009) 319 ITR 393 (Chhattisgarh) and CIT Vs. Abdul Aziz (2012) 251 CTR 58 (Chhattisgarh). On the basis of our aforesaid deliberations, we are of the considered view that now when the assessee had duly discharged the onus that was cast upon it as regards proving the authenticity of the transaction of receipt of share application money from the aforesaid investor company viz. Antariksh Commerce Pvt. Ltd, then the A.O could not have on the basis of surmises and conjectures rejected the said claim and drawn adverse inferences in the hands of the assessee company. Our aforesaid view is found to be fortified by the judgment of the Hon’ble High Court of Delhi in the case of Pr. CIT Vs. Himachal Fibers Ltd. (2018) 98 taxmann. Com 172 (Del.). We, thus, in terms of our aforesaid observations, finding no infirmity in the order of the CIT(Appeals) who had rightly vacated the recharacterization of the share application money of Rs.32 lac received by the assessee company from the aforesaid investor company viz. Antariksh Commerce Pvt. Ltd., uphold his order to the said extent.

(B). Escort Finvest Pvt. Ltd. : Rs.3.75 crore :

Financial Year : 2010-11 Name of Branch and Cheque Cheque Amount (Rs.) No. of the Bank Complete Nos. Date Shares address Indusind Kolkata 313316 29.03.2011 3,75,00,000.00 3,75,000 Bank Branch and 313317 In order to dispel any doubt as regards the source out of which the investment was made, the investor company viz. Escort Finvest Pvt. Ltd. had also filed a copy of its bank account out of which the investment was sourced from i.e. CA No.0515- 621723-060, Page 43-49 of APB. On a perusal of the aforesaid bank statement, it transpires that the aforesaid investments of Rs.3.75 crore (supra) that was made by the investor company was sourced out of certain amounts that were received in the said bank account of the said investor company through RTGS. Nothing has been brought on record by the A.O which would either falsify the veracity of the aforesaid claim of the assessee company ; or prove that the amount of share application money received by the assessee company from the said investor company, viz. Escort Finvest Pvt. Ltd. was by way of round tripping of the funds of the assessee company or was a part of a chain of hawala/accommodation transactions. Apart from that, the aforesaid investor company vide its reply dated 19.03.2014 had also filed with the A.O copies of its audited financial statements for the year under consideration as well as those for the preceding year i.e. A.Y.2005- 06 and the immediately succeeding year i.e. A.Y.2012-13. Further the copies of the share application forms were also placed on record by the aforesaid investor company i.e. Escort Finvest Pvt. Ltd. a/w. its aforesaid reply dated 19.03.2014. Also, it was the claim of the investor company that it had sufficient tangible net worth to invest in the shares of the assessee company, and to the said effect had stated as under:

Sr. Tangible Net worth as on Amount (in Rs.) No. 1. 31.03.2006 50,00,45,425/- 2. 31.03.2007 51,78,13,210/- 3. 31.03.2011 51,77,32,341/- Apart from that, it was claimed by the aforesaid investor company, viz. Escort Finvest Pvt. Ltd. that its return of income for the A.Ys. 2006-07 and 2007-08 were subjected to scrutiny assessments and were duly accepted vide the respective orders passed by the A.O i.e. ITO, Ward-1(4), Kolkata vide its order passed in its case u/s.143(3) of the Act, dated 04.12.2008 and 04.11.2009, respectively. Copies of the aforesaid orders passed u/s.143(3), dated 04.12.2008 and 04.11.2009 were enclosed by the investor company a/w its reply dated 19.03.2014, Page 65-66 of APB. On a perusal of the assessment order of the aforesaid investor company for A.Y.2006-07, Page 64 of APB, it transpires that the A.O, i.e. ITO, Ward-1(4), Kolkata while framing the assessment had verified the increased share capital of Rs.5.64 crore (approx.) and the share premium of Rs.44.38 crore (approx.) that was received by the investor company during the said year and had found the same in order. The Investor company had also vide its reply dated 19.03.2014 filed with the A.O its notarized “affidavit”, wherein it had duly confirmed its aforesaid investment. Further, we find that the investor company viz. Escort Finvest Pvt. Ltd. has categorically stated before the A.O that it may be intimated about further information/document, if any, was required as regards its investment made with the assessee company. Also, it was stated by the investor company in its reply filed with the A.O that if required it was ready and willing to appear before him to depose the aforesaid facts by way of a statement recorded on oath or examination by him.

“5.2 The discharge or otherwise of the onus u/s.68 has been independently evaluated that examined. The appellant has submitted that Escorts Finvest Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Escort Finvest Private Limited for the assessment year 2006-07 and 2007-08. 5.3 It is seen that Escorts Finvest Private Limited was assessed u/s.143(3) and the ITO, Ward-1(4), Kolkata recorded a specific finding that the said company had share capital and share premium reserve of Rs.5,64,50,200/- and Rs.44,37,90,000/- as on 31.3.2006 and that the ITO, Ward-1(4), Kolkata had conducted enquiries with the various shareholders of Escorts Finvest Private Limited by issuing notices u/s 133(6) and verifying their responses. I find that ITO, Ward-1(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Escorts Finvest Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-1(4), Kolkata with regard to said addition to share capital and reserves of Escorts Finvest Private Limited. Apart from the audited, financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or creditworthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant, has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Escorts Finvest Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings.” On a perusal of our aforesaid observations, we are of the considered view that as the assessee company had on the basis of clinching documentary evidence discharged the primary onus that was cast upon it as regards proving the authenticity of its claim of having received genuine amount of share application money of Rs.3.75 crore (supra) from the aforesaid investor company viz. Escort Finvest Pvt. Ltd. (supra), which, as noticed by us hereinabove, had not been dislodged by the A.O by placing on record any material proving to the contrary, therefore, we find no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the recharacterization of the assessee’s duly substantiated claim of receipt of share application money of Rs.3.75 crore (supra) from the aforesaid investor company viz. Escort Finvest Pvt. Ltd. (supra) as an unexplained cash credit u/s.68 of the Act.

CO No.30/RPR/2015 (Arising out of A.Y.2011-12 32. The assessee is before us as a cross-objector on the following grounds:

“1. On the facts and in the circumstances of the case, the Learned A.O is not justified in preferring an appeal against the deletion of addition on account of addition to share capital/application when the matter is well covered by the decision of the jurisdictional High Court and jurisdictional Tribunal, particularly, when the addition was without any material/incriminating document.

2. On the facts and in the circumstances of the case, the Learned A.O is not justified in preferring an appeal against the deletion of addition on account of alleged suppression of production when the matter is well covered by the decision of the jurisdictional High Court and jurisdictional Tribunal, particularly, when the addition was without any material/incriminating document.

3. The respondent craves leave to add, urge, alter or withdraw any ground/ground(s) at the time or before the date of hearing.”

2. On the facts and in the circumstances of the case the CIT(A) erred in overlooking the facts that the creditworthiness and the genuineness of the transactions has not been established by the appellant. There are evidence to the contrary produced by the department which establishes that the investors did not have the income earning apparatus and hence did not have creditworthiness.

3. On the facts and in the circumstances of the case the CIT(A) erred in deleting the addition of Rs.17651940/- made on account of excess stock of finished goods/raw material found during search.

4. On the facts and in the circumstances of the case the CIT(A) erred in overlooking the investigation of facts and evidences on record to establish the excess stock found based on stock inventory prepared by the department.

5. The CIT(A) has erred in passing the appellate order wherein he has stated in a perverse manner while passing the order which has been made in haste without giving reasonable opportunity to the A.O to give his submission on the issue.”

41. Succinctly stated, the assessee company had e-filed its return of income for A.Y.2012-13 on 30.09.2012, declaring an income of Rs.82,44,171/- (which included a disclosure of additional income of Rs.4,39,25,355/- towards excess stock found on the basis of physical verification during the course of search & seizure proceedings conducted u/s.132 of the Act on 21.06.2011). Thereafter, the case of the assessee company was selected for scrutiny assessment and notice u/s.143(2), dated 19.09.2013 was issued to it.

A.Y. Name Amount 2012-13 Antariksh Commerce Pvt. Ltd. Rs.5,00,000/- 2012-13 Escort Finvest Pvt. Ltd. Rs.3,34,40,000/- 2012-13 Calidora Traders Pvt. Ltd. Rs.25,00,000/- Total Rs.3,64,40,000/- As the assessee failed to substantiate the authenticity of its claim of having received genuine share application money from the aforesaid investors companies, therefore, the A.O held the entire amount of Rs.3,64,40,000/- as unexplained cash credit u/s.68 of the Act. Also, the A.O while framing of the assessment observed that the assessee company during the course of search & seizure proceedings conducted on 21.06.2011, was as per the valuation of stock of raw material and finished goods carried out by a Government approved valuer found to be in possession of excess stock of Rs.6,15,77,295/-. As the assessee company in its return of income had itself admitted unexplained investment in stock of Rs.4,39,25,355/- (out of Rs.6,15,77,295/-), therefore, the A.O made an addition of the balance amount of Rs.1,76,51,940/- [ Rs.6,15,77,295/- (-) Rs.4,39,25,355/-] to its returned income. Accordingly, the A.O after making the aforesaid additions, therein, vide his order passed u/s.143(3), dated 27.03.2014 assessed the income of the assessee company at Rs.6,23,36,110/-.

Sr. No. Particulars Amount 1. Antariksh Commerce Pvt. Ltd., Rs. 5,00,000/- 2. Escort Finvest Pvt. Ltd. Rs. 3,34,40,000/- 3. Calidora Traders Pvt. Ltd. Rs. 25,00,000/- Total Rs.3,64,40,000/-

(A). Antariksh Commerce Pvt. Ltd. : Rs.5 lac:

Financial Year : 2011-12 Name of Branch and Cheque No. Cheque Amount No. of the Bank Complete Date (Rs.) Shares address Indusind Kolkata 042738 19.08.2011 5,00,000 5000 Bank Also, the aforesaid investor company had duly shared with the A.O its income tax credentials viz. PAN details, copies of the income tax return for A.Ys. 2006-07, 2007-08, 2011-12 and 2012-13. The investor company had also filed a/w. its reply its audited financial statements for the year under consideration as well as those for the preceding year. In order to dispel any doubt as regards the source of the investment made with the assessee company the copy of the bank account of the investor company i.e. CA No.0015-R25089-050 with Indusind Bank, Kolkata was filed with the A.O, Page 112-113 of APB. On a perusal of the said bank account, it transpires that the investment of Rs.5 lac made by the aforesaid investor company was sourced out of certain amounts received in the said bank account through RTGS/transfer. Nothing has been brought on record by the A.O which would prove that the amount of share application money received by the assessee company from the aforesaid investor was by way of round tripping of its funds; or was a part of a chain of hawala/accommodation entry transactions. Apart from that we find that the aforesaid investor company had vide its reply dated 19.03.2014 enclosed copies of the shares application forms in respect of its aforesaid investments. The investor company had further stated in its reply that it had tangible net worth to make the investment in question with the assessee company, and in order fortify the said claim had furnished details as under:

Sr. No. Tangible Net worth as on Amount (in Rs.) 1. 31.03.2006 23,61,62,825/- 2. 31.03.2007 24,31,11,013/- 3. 31.03.2011 24,51,40,563/- 4. 31.03.2012 24,51,09,501/- Also, we find that it was stated by the aforesaid investor company that in case if required it was ready to appear before him and depose the aforesaid facts by way of a statement recorded on oath.

As observed by the CIT(Appeals), the assessment in the case of the aforesaid investor company was framed by the ITO, Ward-4(3), Kolkata vide his order u/ss. 143(3) /147 dated 30.01.2019 for A.Y.2005-06, Page 121 of APB, wherein its share capital and reserves of Rs.23.62 crore was accepted by the A.O. On the basis of the aforesaid facts, we may herein observe that the assessee had on the basis of supporting documentary evidence that were filed in the course of the assessment proceedings discharged the primary onus that was cast upon it as regards proving the identity, creditworthiness and genuineness of the transaction of receipt of share application money of Rs.5 lac from the aforesaid investor company, which, as noticed by us hereinabove had not been dislodged by the A.O. Apart from that, we concur with the CIT(Appeals) that now when the investment made by the aforesaid investor company viz. Antariksh Commerce Pvt. Ltd. with M/s. Mahamaya Steel Industries Limited, a group entity of the assessee company, had been accepted by the A.O, therein, there could have been no justification for him to have drawn adverse inferences as regards the identity and creditworthiness of the said investor company in so far the investment made by the latter with the assessee company was concerned. Also, we may herein observe that though as per the pre-amended Section 68 of the Act, i.e., prior to insertion of the “1st Proviso” vide the Finance Act, 2012 w.e.f. 01.04.2013, the assessee company for the year under consideration i.e. A.Y.2012-13 remained under no statutory obligation to put forth an explanation as regards the source of source of the share application money received by it during the said year, but as can be gathered from a perusal of the bank account of the investor company which reveals that the amounts therein invested were sourced out of the amounts received by it vide transfer/RTGS, the authenticity of which had not been doubted by the A.O, no adverse inferences even on the said count can be drawn in the hands of the assessee company. Also, we are of the considered view that as the investor company on the basis of its confirmations a/w “affidavit” had admitted the investment made with the assessee company, therefore, as per the judgment of the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR (SC) 195, the department in case of any doubt as regards the source of share application money by the assessee company, was supposed to have proceeded against the said investor company and could not have drawn any adverse inferences in the case of the assessee company. Our aforesaid conviction is further supported by the judgments of the Hon’ble Jurisdictional High Court in the case of ACIT Vs. Venkateshwar Ispat (P) Ltd. (2009) 319 ITR 393 (Chhattisgarh) and CIT Vs. Abdul Aziz (2012) 251 CTR 58 (Chhattisgarh). On the basis of our aforesaid deliberations, we are of the considered view that now when the assessee had duly discharged the onus that was cast upon it as regards proving the authenticity of the transaction of receipt of share application money from the aforesaid investor company viz. Antariksh Commerce Pvt. Ltd, then the A.O could not have on the basis of his surmises and conjectures rejected the said duly substantiated claim and drawn adverse inferences in the hands of the assessee company. Our aforesaid view is found to be fortified by the judgment of the Hon’ble High Court of Delhi in the case of Pr. CIT Vs. Himachal Fibers Ltd. (2018) 98 taxmann. Com 172 (Del.). We, thus, in terms of our aforesaid observations, finding no infirmity in the order of the CIT(Appeals) who had rightly vacated the recharacterization of the share application money of Rs.5 lac received by the assessee company from the aforesaid investor company viz. Antariksh Commerce Pvt. Ltd., uphold his order to the said extent.

(B). Escort Finvest Pvt. Ltd. : Rs.3,34,40,000/-

Financial Year : 2011-12 Name Branch Cheque No. Cheque Date Amount No. of of the and (Rs.) Shares Bank Complet e address IDBI Raipur 313327,313328, 22.07.2011, 3,34,40,000 3,34,400 Bank, Branch 313329,313330, 25.07.2011, Raipur 313331,313332 26.07.2011, and 313333 28.07.2011, 10.08.2011 and 01.09.2011 In order to dispel any doubt as regards the source out of which the investment was made, the investor company viz. Escort Finvest Pvt. Ltd. had also filed a copy of its bank account out of which the investment was sourced from i.e. CA No.0515- 621723-060, Page 43-49 of APB. On a perusal of the aforesaid bank statement, it transpires that the aforesaid investments of Rs.3,34,40,000/- made by the investor company was sourced out of certain amounts that were received in the said bank account through RTGS. Nothing has been brought on record by the A.O which would either falsify the veracity of the aforesaid claim of the assessee company ; or prove that the amount of share application money received by the assessee company from the said investor company, viz. Escort Finvest Pvt. Ltd. was by way of round tripping of the funds of the assessee company or was a part of a chain of hawala/ accommodation transactions. Apart from that, the aforesaid investor company had vide its reply dated 19.03.2014 filed with the A.O a copy of its audited financial statements for the year under consideration as well as those for the preceding year i.e. A.Y.2005-06 and that for the immediately succeeding year i.e. A.Y.2012-13. Further the copies of the share application forms were also placed on record by the aforesaid investor company i.e. Escort Finvest Pvt. Ltd. a/w. its said reply dated 19.03.2014. Also, it was the claim of the said investor company that it had sufficient tangible net worth to invest in the shares of the assessee company, and to the said effect had stated as under:

Sr. Tangible Net worth as on Amount (in Rs.) No. 1. 31.03.2006 50,00,45,425/- 2. 31.03.2007 51,78,13,210/- 3. 31.03.2011 51,77,32,341/- Apart from that, it was claimed by the aforesaid investor company, viz. Escort Finvest Pvt. Ltd. that its return of income for the A.Ys. 2006-07 and 2007-08 were subjected to scrutiny assessments and the same were duly accepted vide the respective orders passed in its case by the A.O i.e. ITO, Ward-1(4), Kolkata u/s.143(3) of the Act, dated 04.12.2008 and 04.11.2009, respectively. Copies of the aforesaid ordesr passed u/s.143(3), dated 04.12.2008 and 04.11.2009 were enclosed by the investor company a/w its reply dated 19.03.2014, Page 65-66 of APB. On a perusal of the assessment order of the aforesaid investor company for A.Y.2006-07, Page 64 of APB, it transpires that the A.O, i.e. ITO, Ward-1(4), Kolkata while framing the assessment had verified the increased share capital of Rs.5.64 crore (approx.) and the share premium of Rs.44.38 crore (approx.) that was received by the said investor company during the said year and had found the same in order. The Investor company had vide its reply dated 19.03.2014 filed with the A.O its notarized “affidavit”, wherein it had duly confirmed its aforesaid investment. Further, we find that the investor company viz. Escort Finvest Pvt. Ltd. has categorically stated before the A.O that it may be intimated about further information/document, if any, was required as regards its investment made with the assessee company. Also, it was stated by the investor company that if required it was ready and willing to appear before him to depose the aforesaid facts by way of a statement recorded on oath or examination by him.

“5.2 The discharge or otherwise of the onus u/s.68 has been independently evaluated that examined. The appellant has submitted that Escorts Finvest Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Escort Finvest Private Limited for the assessment year 2006-07 and 2007-08. 5.3 It is seen that Escorts Finvest Private Limited was assessed u/s.143(3) and the ITO, Ward-1(4), Kolkata recorded a specific finding that the said company had share capital and share premium reserve of Rs.5,64,50,200/- and Rs.44,37,90,000/- as on 31.3.2006 and that the ITO, Ward-1(4), Kolkata had conducted enquiries with the various shareholders of Escorts Finvest Private Limited by issuing notices -u/s 133(6) and verifying their responses. I find that ITO, Ward-1(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Escorts Finvest Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-1(4), Kolkata with regard to said addition to share capital and reserves of Escorts Finvest Private Limited. Apart from the audited, financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or creditworthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant, has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Escorts Finvest Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings.”

On a perusal of our aforesaid observations, we are of the considered view that as the assessee company had on the basis of clinching documentary evidence discharged the primary onus that was cast upon it as regards proving the authenticity of its claim of having received genuine amount of share application money of Rs.3,34,40,000/- (supra) from the aforesaid investor company viz. Escort Finvest Pvt. Ltd. (supra), which, as noticed by us hereinabove, had not been dislodged by the A.O by placing on record any material proving to the contrary, therefore, we find no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the recharacterization of the assessee’s claim of receipt of share application money of Rs.3,34,40,000/-(supra) from the aforesaid investor company viz. Escort Finvest Pvt. Ltd. (supra) as an unexplained cash credit u/s.68 of the Act.

(C). Calidora Traders Pvt. Ltd. : Rs.25, 00,000/-

Name of the Branch and Cheque No. Cheque date Amount (Rs.) No. of shares bank complete address Axis Bank Kolkata RTGS 23.07.2011 25,00,000 25,000 Also, the investor company in order to dispel all doubts as regards the source out of which the aforesaid investment of Rs.25 lacs (supra) towards share application money was made with the assessee company, had therein enclosed the copy of its bank account viz. CA No.870010200000499 with Axis Bank, Kolkata Page 790 of APB. On a perusal of the aforesaid bank account, we find that investment in question was made by the investor company vide RTGS dated 23.07.2011 out of its aforesaid bank account. The investor company viz. Calidora Traders Pvt. Ltd. had also filed with the A.O a copy of its financial statements for the year under consideration and that for the F.Y.2009-10. Also the copies of the share application forms in respect of the aforesaid investment of Rs.25 lacs (supra) were made available on record of the A.O. It was further stated by the investor company that it had substantial tangible net worth to invest in the shares of the assessee company. In order to buttress its aforesaid claim the investor company had furnished the following details:

SR. No. Tangible Net Amount ( IN Rs.) Worth as on 1. 31.03.2010 10,93,63,781/- 2. 31.03.2012 10,93,12,852/- Apart from that, it was claimed by the investor company that the assessment in its case for A.Y.2006-07 was framed by the ITO, Ward-1(1), Kolkata vide his order passed u/s.143(3) dated 18.11.2008, Page 271-272 of APB. Further, the investor company had duly confirmed its investment made with the assessee company during the year under consideration i.e A.Y 2012-13 and had supported the same with a duly notarized affidavit, Page 177-178 of APB. Also, the investor company had expressed its willingness to appear before the A.O in order to depose the aforesaid facts on the basis of a statement recorded under oath or examination by him. Apart from that, it was submitted by the aforesaid share applicant company that in case any further information/document was required in respect of investment made with the assessee company, then, it may be informed about the same.

“5.6. The appellant has submitted that Calidora Traders Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Calidora Traders Private Limited for the assessment year 2006-07. 5.7 It is seen Calidora Traders Private Limited was assessed u/s.143(3) and the ITO, Ward-1(1), Kolkata recorded a specific finding that the said company had share capital and share premium reserve of Rs.45,00,000/- and Rs. 10,51,20,000/- as on 31.3.2006 and that the ITO, Ward-1(1), Kolkata had conducted enquiries with the various shareholders of Callidora Traders Private Limited by issuing notices u/s 133(6) and verifying their responses. I find that ITO, Ward-1(1), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Callidora Traders Private Limited inasmuch as no adverse inference was drawn by ITO, Ward- 1(1), Kolkata with regard to said addition to share capital and reserves of Callidora Traders Private Limited. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Callidora Traders Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings.”

15. As regards the observation of the A.O that during the course of search proceeding the statutory records of the assessee company, viz. minutes of meeting register, shareholders register, counter foils of issued share certificates etc. were not found at the registered office of the assessee company, we find that the CIT(Appeal) had vacated the same on the ground that a perusal of the statements recorded u/s.132(4) of the Act, nowhere revealed that any official of the search team in the course of the said proceedings had visited the registered office of the assessee company. It was further observed by the CIT(Appeals) that the statement of the other persons belonging to the group companies also did not reveal that the assessee company had not maintained any statutory records/registers. It was also noticed by the CIT(Appeals) that the A.O had merely on the basis of an unsubstantiated allegation claimed that the aforesaid statutory records of the assessee company were not found in the course of the search proceedings at the registered office premises of the assessee company. Accordingly, the CIT(Appeals) was of the view that it was not the case of the department that the search team had visited the registered office premises of the assessee company and had specifically queried about the statutory records which latter had failed to produce or had expressed its inability to produce, or had admitted of not having maintained the same. On the contrary it was observed by the CIT(Appeals) that Ms. Jaswinder Kaur Mission, employee of the assessee company had in her statement recorded u/s.132(4) on 21.06.2011 specifically shown the members register, share certificates and counter foils of the assessee company to the search officials. Accordingly, the CIT(Appeals) on the basis of his aforesaid observation had vacated the adverse inferences that were drawn by the A.O on the ground that the assessee had failed to maintain the statutory records at its registered office.

On the basis of our aforesaid observations, we are of the considered view that as observed by the CIT(Appeals), and, rightly so, now when the assessee company had duly discharged the primary onus that was cast upon it as regards proving the authenticity of the transaction of receipt of share application money of Rs.25 lac (supra) from the aforesaid investor company viz. Calidora Traders Pvt. Ltd., therefore, the A.O without dislodging the correctness of the aforesaid claim of the assessee could not have summarily dubbed the same as an unexplained cash credit u/s.68 of the Act. Apart from that, we are of the considered view that as the investor company on the basis of its confirmations a/w “affidavit” had admitted the investment made with the assessee company, therefore, as per the judgment of the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR (SC)195, the department in case of any doubt as regards the source of share application money was supposed to have proceeded against the said investor company and could not have drawn any adverse inferences in the case of the assessee company. Our aforesaid conviction is further supported by the judgments of the Hon’ble Jurisdictional High Court in the case of ACIT Vs. Venkateshwar Ispat (P) Ltd. (2009) 319 ITR 393 (Chhattisgarh) and CIT Vs. Abdul Aziz (2012) 251 CTR 58 (Chhattisgarh). On the basis of our aforesaid deliberations, we are of the considered view that now when the assessee had duly discharged the onus that was cast upon it as regards proving the authenticity of the transaction of receipt of share application money from the aforesaid investor company viz. Calidora Traders Pvt. Ltd, then the A.O could not have on the basis of surmises and conjectures rejected the said claim and drawn adverse inferences in the hands of the assessee company. Our aforesaid view is found to be fortified by the judgment of the Hon’ble High Court of Delhi in the case of Pr. CIT Vs. Himachal Fibers Ltd. (2018) 98 taxmann. Com 172 (Del.). We, thus, in terms of our aforesaid observations, finding no infirmity in the order of the CIT(Appeals) who had rightly vacated the recharacterization of the share application money of Rs.25 lac received by the assessee company from the aforesaid investor company viz. Calidora Traders Pvt. Ltd., uphold his order to the said extent. We, thus, finding no infirmity in the order of the CIT(Appeals) who had correctly vacated the recharacterization of share application money of Rs.25 lacs (supra) received by the assessee company from the aforementioned investor company as an unexplained cash credit u/s.68 of the Act, uphold his order to the said extent. The Grounds of appeal Nos. 1 & 2 are dismissed in terms of our aforesaid observations.

64. We shall now deal with the grievance of the revenue that the CIT(Appeals) had erred in law and facts of the case in vacating the addition of Rs.1,76,51,940/- that was made by the A.O on account of excess stock of finished goods/raw material that were found during the course of search & seizure proceedings conducted u/s.132 of the Act on 21.06.2011.

Stock Item Stock found Stock as per Difference (in Difference ( in during physical Books ( in MT) MT) Rs.) verification by Departmental Registered Valuer (in MT) Coal 21659.01 6271.05 15387.96 3,84,69,900/- Dolomite 321.23 362.77 -41.54 (56,079/-) Iron ore/fines 18442.82 18919.352 -476.532 (11,91,330/-) Sponge Iron 1628.45 501.26 1127.19 2,31,07,395/- Total of excess stock 6,15,77,295/- On being queried about the aforesaid variance in stock, the assessee company had pointed out certain discrepancies in the valuation of stock that was done by the DVO, as under: “(1) We attach herewith copy of Statutory Excise Register and documents maintained in the factory premises during financial year 2011-12. (2) We attach herewith details of position of stock as on 21st of June 2011.

(3) It is respectfully submitted that we have carefully perused the stock valuation done by the DVO in terms of quantity of principal raw material and finished goods lying in our factory premises, vis-a-vis the quantity of stock appearing in our books of accounts and excise records. It is respectfully submitted that the stock valuation done by the DVO contains certain discrepancies, few of which are illustrated below:- (a) The stock valuation / quantification has not been done by the DVO on the basis of physical weighment. (b) The stock valuation has been done by the DVO by applying the mathematical formula for which the DVO has considered certain variables. (c) The DVO has made the valuation by taking certain assumptions including, but not limited to, assumptions regarding "density". it is respectfully submitted that the density of coal depends upon the quality and grade of coal. For instance, the density of coal ranges from 0.833 Metric Tonne per cubic meter to 1.506 MT/Cu.MT. The indicative list of density is reproduced hereinunder:

Sl. Particulars Density No. 1. Coal, Anthracite, solid 1.506 2. Coal, Anthracite, Broken 1.105 3. Coal Bituminous, Solid 1.346 4. Coal, Bituminous, Broken 0.833

Typical Bulk Density of coal:  Anthracite coal :50-58 (Ib/ft3), 800-929 ( kg/m3)  Bituminous coal : 42-57 (Ib/ft3), 673-913 ( kg/m3)  Lignite coal : 40-54 (Ib/ft3), 641-865 (kg/m3) It is respectfully submitted that the DVO has taken the maximum density while making the valuation. It is further submitted that the DVO has taken the density of Anthracite coal of solid state whereas, we are using Bituminous coal of broken state. (d) The DVO has not given any justification behind assumptions taken by the DVO. (e) It is respectfully submitted that the DVO has not given any reason for taking the density at 1.50 MT per Cu. Meter nor did the DVO mention the grade, quality and state of coal found in our premises.”

As is discernible from the record, the assessee had come up with three fold objections to the valuation done by the DVO, viz. (i) that the stock valuation/quantification was not carried out by the DVO on the basis of actual physical weighment; (ii) that the stock valuation was done by the DVO on the basis of a mathematical formula by considering certain variables; and (iii) that the DVO while valuing the coal had considered “Anthracite Coal” of solid state which has a maximum density of 1.506 MT/Cu.Meter, while for the assessee was using “Bituminous Coal” of broken state which had the lowest density of 0.833 MT/Cu. Meter.

Note : 1 As stated above, the DVO has made the valuation by taking the Density of Coal at 1.50 MT/Cu.M. Your honor would appreciate the fact that the correct density of coal used by us is 0.83 MT/Cu.M. It is respectfully submitted that we use broken coal for manufacturing of Sponge Iron and as per the generally accepted norms also, the density of such coal is 0.83 MT/Cu.M. Applying the said density, the quantity of coal works out to 12230.320 MT. In this way, 5959.270 MT was found excessive on physical verification in comparison to the stock appearing in the books of accounts. Your honour would appreciate the fact that the difference in the quantity of stock is merely, owing to the difference in assumptions and mathematical formula applied by the DVO. The quantity reported by the DVO is not based on physical weighment which is prone to change with the change in underlying assumptions and variables. Note : 2 The stock as per books of accounts is more than that found during physical verification. Further, the variation is not material and hence, self explanatory. Note : 3 The stock as per books of accounts is more than that found during physical 3 verification. Further, the variation in terms of percentage is merely 2.51%. It is respectfully submitted that such a trifle variation is unavoidable, particularly keeping in view the size of operation. Even otherwise, the management of the company carries out physical verification of inventory and at that time, such variations are adjusted in the books of accounts. In view of above, the difference is self explanatory and requires no further justification. Note : 4 It is respectfully submitted that the quantification of Sponge Iron done by the DVO is practically not possible due to following reasons:- (1) We have five bunkers and maximum carrying capacity of each bunker is 100 MT. Even assuming that on the day of search operation, all the bunkers were fully loaded, the maximum quantity works out to 500 MT. (2) It is respectfully submitted that the stock of Sponge Iron cannot be kept in open area or godown due to its peculiar nature. It is respectfully submitted that if Sponge Iron is kept in open area outside the bunkers, Sponge Iron will gain moisture from air and it will get reoxidised. Due to this process of reoxidisation, Sponge Iron will get converted into Iron ore again. That's why, Sponge Iron is not kept in open area/godown.

(3) It is respectfully submitted that in the details of stock taking submitted by the DVO, the manager of our company had categorically mentioned that the DVO has included low- mock (waste material) in the valuation of Sponge Iron. In this way, the valuation report of the DVO suffers from an apparent mistake as a result of which the quantity of Sponge Iron has been valued at an excessive figure. Due to said mistake, the quantity of Sponge Iron has been over valued by 886.220 MT. (4) It is further submitted that the DVO has quantified 137.500 MT in the Bunker namely 112 and 160 MT in the old PSB Bunker namely F1, whereas, the maximum capacity of each of the said Bunkers is 100 MT. Even if it is presumed that at the time of search the said two bunkers were fully loaded with 100 MT Sponge Iron, the total stock works out to 200 MT, whereas, the DVO has quantified the same at 297.50 MT It run be seen that there is apparent over valuation of stock lying in the Bunkers by 97.50 MT. Similarly, the DVO has quantified 224 MT of Sponge Iron as lying in new PSB Bunker namely F1, whereas, the maximum capacity of the said Bunker is 125 MT Again there is over valuation to the extent of 99 MT. In this way, the DVO has made the valuation of Sponge iron at an excessive figure and stock is over valued by 1082.700 MT. Upon rectification of said mistakes, quantity of Sponge Iron works out to 545.750 MT. As against 501.260 MT appearing in the books of account and excise records. It can be seen that there is marginal difference of 44.940 MT which is less than 10% of total stock and hence the difference is negligible and self- explanatory taking into consideration the size of operation of the company. (5) We have weigh feeder in place for measurement of inputs going into the manufacturing process. (6) We measure the quantity of production based on logical mathematical formulae detailed below: Dispatch/sale during the day xxxxx Add : closing quantity lying in bunkers xxxxx Less : Opening quantity lying in bunkers (xxxx) Quantity produced xxxxx

(7) Your honour would appreciate the fact that the DVO has not pointed out any discrepancy / shortcomings in the procedure adopted by us for measurement of inputs going to the manufacturing process and finished goods production. In view of above reasons, it is respectfully submitted that the valuation done by the DVO is erroneous and no adverse action can be taken against the company on the basis of such error prone valuation report.

It was the claim of the assessee that as the miniscule variance of 44.470 MT (supra) was less than 10% of the total inventory appearing in its books of accounts, therefore, no adverse inferences on the said count were called for in its hands. The CIT(Appeal) after considering the aforesaid multi-facet contentions of the assesee found favour with the same, observing as under: “13. I have carefully gone through the assessment order and submissions of the appellant. It is seen that the A.O has made the addition of Rs.1,76,51,940/- mainly on account of alleged excess stock of sponge iron worked out on the-basis of Quantity Assessment Report of the Departmental Registered Valuer (DRY) namely Mr. Manish Pilliwar as summarized hereunder:-

Product Stock as Stock as Difference Amount as per Amount of Addition by the per DRV per (in MT) Assessment income A.o (Rs.) (in MT) Books of order (Rs.) surrendered Accounts by the (in MT) appellant (Rs.) Coal 21659.010 6271050 15387.960 3,84,69,900.00 4,39,25,355.00 Sponge 1628.450 501.260 1127.190 2,31,07,395.00 0.00 iron Total 6,15,77,295.00 4,39,25,355.00 1,76,51,940.00

Firstly, it is seen that the A.O himself admitted that the inventory taken by the Valuer at the time of search has certain deficiencies and discrepancies, as a corollary, the Quantity Assessment Report of the DRV is also vitiated and has deficiencies, it is also seen that the sole basis of addition is the Report of the DRV. It is seen that the appellant had made various submissions before the A.O during the course of assessment proceedings in response to the show cause notice cum query letter issued by the A.O. The appellant had requested for allowing opportunity to cross examine the DRV and the opportunity was afforded to the appellant. The appellant was asked to furnish the copy of statements recorded during the course of cross examination of the DRV namely Mr. Manish Pilliwar and the same was furnished by the appellant. I have carefully perused the statements of Mr. Manish Pilliwar. I find that the appellant has raised a very relevant and serious issue regarding eligibility and competence of Mr. Manish Pilliwar who is registered as a valuer for valuation of immovable properties. 13.1 It is seen that in-response to question no.12 of-the statement - recorded on 13.02.2014, the said DRV admitted that he is registered as Valuer for valuation of immovable properties and he possesses qualifications provided in Rule 8A(2) of Wealth Tax Rules 1957. It is also seen that in response to question no.14 of the statement recorded on 13.02.2014 the said DRY has stated that the work of quantity assessment was carried out as per the competence and qualification mentioned in Rule 8A(2)(ii)(B)(b). The DRV did state that he prepared the Quantity Assessment Report as per his qualification mentioned in Rule 8A(2)(ii)(B)(b) of Wealth Tax Rules, 1957 which pertains to Quantity surveying in building construction. Undisputedly, the appellant is not engaged in any construction work. I do find force in the submissions of the appellant that the report of the DRV is vitiated as the DRV applied irrelevant knowledge which has no nexus with the business of the appellant and product under consideration. 13.2 I do find considerable force in the submissions of the appellant that different Sub-rules of Rule 8A of Wealth Tax Rule, 1957 are mutually exclusive and there is no overlapping, therefore, the quantity assessment of movable items such as the sponge iron in the present case, cannot be carried out by the Valuer who is registered as a Valuer for valuation of immovable properties, in other words, a person who is registered as a Valuer for valuation of jewellery cannot be engaged for quantity assessment of movable items other than jewellery, similarly, the DRV engaged namely Shri Manish Pilliwar being valuer for immovable properties could not have been engaged for valuation of movable items such as the items of inventory in the instant case. Hence, in my considered view, the reliance placed by the A.O on the said Quantity Assessment Report of the DRV, despite having accepted the deficiencies in the quantity assessment report, is clearly misplaced and not sustainable. Therefore, the addition made by the A.O solely on the basis of said quantity assessment report also cannot be sustained. Although, the addition made by the A.O is liable to be deleted for the reasons elaborately mentioned above, the submissions of the appellant on merits have also been considered. The precise submission of the appellant with regard to sponge iron is as under:- (a) The DRV had included Low Mack items in the quantity assessment of sponge iron even though the same was pointed out by the appellant company's representative during the course of valuation and as a result of this mistake, the quantity of sponge iron is overvalued by 886,220-MT. (b) The DRV has wrongly taken excess quantity in the bunkers which is even more than the maximum capacity of the Bunkers and due to this mistake, the quantity of sponge iron is overvalued by 196.500 MT. (c) The cumulative effect of aforesaid two submissions is as below: Total difference in sponge iron = (1628.450-501.260) 1127.190 MT Less : Low Mack Included in sponge iron =886.220 MT Excess quantity taken in bunkers =196.500 MT 1082.720 MT Net difference i.e. excess quantity of sponge iron 44.470 MT The appellant has claimed that the net difference of 44.470 MT is quite negligible and less than 10% of total inventory appearing in books and therefore, no addition is warranted in respect of such differential quantity of 44.470 MT. I find that in support of its submission regarding Low Mack i.e. waste items having been included while-quantifying the inventory of sponge iron, the appellant has relied. upon the statement of Shri L. Das, Manager of the appellant company recorded during the proceedings u/s 132. I have carefully perused the statement of Shri L. Das and I do find that in response to question no.7 of the statement, Shri L. Das, in clear terms, had stated that items mentioned in serial no.1,2,3,6 of the rough sheets are waste material i.e. Low Mack and not sponge iron. In my considered view, the submissions of the appellant cannot be said to be an afterthought as the statement was given during the course of search itself and the objection was expressed during the course of search itself and the A.O. has not brought on record any evidence to rebut the statement of the appellant company's representative with reference to any specific finding of the search team based on exercise, if any, carried out by the search team for ascertaining the true facts.

13.3 I also find that Shri Manish Pilliwar, DRV engaged by the investigation wing to carry out the quantity assessment himself accepted that he does not possess any knowledge about iron and steel sector or about the minerals and the same is emanating from the statements given by Shri Manish Pilliwar himself. 13.4 I also find that the appellant has submitted the duly notarized affidavit of Mr. L. Das wherein he has affirmed by way of affidavit that there was mistake in stock taking and the four heaps containing waste material was wrongly taken as pure sponge iron and that this fact was duly brought to the notice by way of statement recorded on 21.06.2011, I find that the said affidavit has remained un-rebutted. 13.5 In view of specific defect and error having been pointed out by the appellant company's representative during the course of quantity assessment itself, in my considered view, as the same has remained un- rebutted on the strength of cogent evidence that those waste materials were in fact sponge iron, the addition cannot be sustained for the differential quantity of 886.200 MT. As regards excess quantity taken by the DRV in the Bunkers, I find that the appellant did submit certificate from the registered valuer regarding capacity of the bunkers. I find that in support of its submission regarding excess quantity taken in bunkers, the appellant has placed on record certificate from the Registered Valuer namely Mr. Sunil Bhandari wherein the capacity of the bunkers has been certified. 13.6 It is also seen that the appellant company's representative namely Mr. L. Das has also affirmed the same by way of an affidavit. As per the certificate of another registered valuer relied upon by the appellant in support of its contention, the following position emerges :- Sl. Identification of the Capacity (in Quantity Excess No. Bunker MT) as per taken by Shri Quantity Registered Manish (MT) Valuer Pilliwar, DRV namely, Mr. (MT) Sunil Bhandari 1. A2 100 137.50 37.500 2. Old PSB Bunker F1 100 160 60.000 3. New PSB Bunker-F1 125 224 99.000

Total 325 521.50 196.50 I find that the A.O has not brought on record any evidence to rebut the Certificate of another registered valuer relied upon by the appellant and also the declaration made by Shri L. Das by way of an affidavit. In view of above, in my considered view, it is incorrect on the part of the A.O. to state that the appellant has not brought on record any evidence in support of its submissions. I am convinced with the submissions of the appellant that sponge iron cannot be kept in open space as the submission of the appellant is getting substantiated from the certificate of registered valuer namely Mr. Sunil Bhandari dated 18.08.2011. 13.7 In view of above, I am convinced that the sponge iron cannot be kept in open space as presumed by the DRY namely Shri Manish Pilliwar. I am convinced with the submissions of the appellant that the DRY has taken the quantity in the Bunkers merely on the basis of presumption and on estimate basis which is not supported by any measurement either of the carrying capacity of the Bunkers or load capacity of the structures. I also find that the A.O. has not rebutted the submission of the appellant that the Bunkers are like closed Bins which are placed above the surface of the land at a height so much so that a truck can go underneath the Bunker for loading of sponge iron directly in the truck from the bunkers and therefore, there is no question of sponge iron to lie anywhere near the bunkers. In view of above, I am convinced that the appellant has been able to substantiate its contention by way of cogent evidences and reasoning, upon correction of aforesaid two mistakes, it is seen that the difference is only 44.470 MT and I am in agreement with the submissions of the appellant that the same is quite negligible and also less than 10% of the total inventory and hence, no addition is warranted for such a negligible difference considering the overall scale of operations of the appellant. Therefore, the addition made by the A.O. solely on the basis of report of the DRV cannot be sustained.”

CO No.31/RPR/2015 (Arising from A.Y.2012-13

ITA No.101/RPR/2017 A.Y.2013-14

2. The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date, the appeal is finally heard for disposal.”

“20.4 On facts, the broad counters of the multiple contentions of the assessee are that even if it is momentarily assumed that the yield shown by the assessee is less than industrial average, in the absence of any corroborative material, the adverse inference remains unsubstantiated. Even if, it is assumed that production facilities and resources even not utilized optimally or efficiently, this by itself will not entitle the AO to allege unaccounted production by presuming higher yield by some mathematical calculation. With reference to the tabular statement at page nos. 59 to 70 of the paper book in conjunction with first appellate order it was submitted that despite repeated requests, the AO completely failed to point out any suppression of production based on any cogent and incriminating material in his possession against the assessee. The low yield in comparison to the benchmark adopted by the AO could not be the basis to reject the books of accounts under s.145(3) of the Act without bringing any material on record pointing out towards falsehood in the accounts. The search team could not come across any unaccounted sales as recorded in para 9.38 of the first appellate authority. The inventory appearing in the elaborate excise records and excise returns were also found to be matching with the financial records.

21. We note that after taking note of the facts and circumstances of the case objectively, the CIT(A) rightly concluded that the action of the AO in rejecting the books of accounts merely owing to the reason that yield achieved by the assessee is less than standard yield percentage i.e. 60% which has not been achieved even by other assessee engaged in similar line of business. While concluding in favour of the assessee the CIT(A) also observed that the AO has not brought on record the manner in which he worked out the standard yield of 60% of sponge iron. The basis for determining standard yield @ 60% of input was not given despite repeated request by the assessee either. 21.1 We observe that the CIT(A) has capsulated the findings of the AO and reproduced the tabulated statement wherein year-wise yield of finished goods (sponge iron) shown by the assessee were compared with the an innocuous standard of 60% set by the AO. The AO consequently calculated the difference in the actual production vis-à-vis standard production [yield of 60% considered as standard production] and computed the value of difference in actual production versus standard production as unaccounted production/ sales in respective assessment years. We similarly observe that the CIT(A) has also recorded the detailed submissions of the assessee filed in its defense whereby reasons for justification of the actual yield generated by the assessee were given. The CIT(A) also recorded the comparative analysis of the yield of the assessee versus various other companies who are engaged in production of sponge iron and operating in the same field in the state of Chhattisgarh. By this exercise, the assessee has attempted to show that actual production shown by the assessee is either higher than its peers or quite comparable and bracketed in the same range. The standard yield presumed by the AO was thus sought to be demolished on facts. 21.2 Having examined the findings of the AO and the submissions of the assessee in rebuttal, the CIT(A) has made wide ranging observations noted hereunder: (i) The AO has failed to establish the nexus between the mathematical calculations of highest and lowest consumption of power, iron ore (raw material) etc. with yield of 60% adopted by the AO. (ii) The basis for arriving at the standard yield of 60% has not been disclosed despite repeated requests on behalf of the assessee. The CIT(A) himself attempted

to work out the average yield in the industry based on data available from the department but failed to arrive at this so called standard figure of 60%. (iii) Comparison of yield declared by the other assessee engaged in the similar line of business was carried out as tabulated in para 9.4 of the appellate order. On the basis of such comparison, arithmetical mean of yield stands at 53.97% in respect of other parties vis-à-vis 59.40% shown by the assessee. It was also found by the CIT(A) that yield declared by the different parties in the same year is not uniform and every party has declared a different yield. Likewise, there is a wide variation in the yield of one year with another year in other cases as well. Not even a single comparable instance was found declaring yield of 60% adopted by the AO. The yield achieved by the assessee is generally more than average industry yield. (iv) Financial results of the assessee as well as other parties engaged in similar line of business was also compared as discussed in para 9.5 to para 9.8 of the order. On analysis of factual data tabulated in the first appellate order, it was observed that the gross profit & net profit declared by the assessee is stronger than its peers despite marginally lower yield at some instances. It was thus noted by the CIT(A) that the percentage of yield cannot be said to be sole decisive factor while assessing reliability of books of accounts and merely low yield cannot lead to an indefeasible presumption with books of accounts of the assessee are unreliable and true profit earned by the assessee cannot be deduced therefrom. In para 9.9 of its order, the CIT(A) has made reference to the excise records maintained by the assessee and the returns filed with the Central Excise Authority on monthly basis and daily basis. On analysis of such records, it was found to be tallying with the financial records. (v) The CIT(A) also took cognizance of the fact that capacity utilization in an industry depends on number of working days and in the case of assessee where the kiln used for manufacturing of sponge iron need to be shut down periodically, the production operation consequently halts and effect the yield. The CIT(A), thereafter, observed that no infirmity in the details furnished by the assessee has been found by the AO in this regard. (vi) The assessee has brought on record the certificate from registered valuer according to which the average yield of sponge iron unit using iron ore and coal as raw material may vary from 40% to 60% and coal consumption may vary from 1.62 to 2.1mt depending upon fixed carbon in coal. The quantitative CIT(A) observed that the quantity details of consumption of sponge iron and coal were found to be within reasonable range as certified by registered valuer. The CIT(A) also noted that it is impractical to presume uniform quality of coal and iron ore. (vii) The AO has proceeded to estimate higher yield on the basis of mathematical and mechanical calculations. The AO has laid too much emphasis on statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the AO are those which are quite routinely called for even during the regular assessment proceedings under s.143(3) of the Act. The AO has not stated what according to him should have been the average consumption of coal iron ore etc. (viii) The statement of Shri Rishikesh Dixit recorded on 21.06.2011 was taken note of from which it was gathered that the aforesaid Director stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts and excise records. These loose slips are destroyed after it becomes redundant with the passage of time. The CIT(A) further observed that neither in the show cause notice nor in the assessment order, there is any whisper of any such loose papers which bears the figure of production and which the appellant failed to reconcile with the entries in the regular books of accounts and excise records/returns. (ix) The alleged low yield in comparison to benchmark of 60% adopted by the AO is the basis whereof is still in dark and not known, cannot in itself provide a ground to reject the books of accounts without showing any defect in books by tangible evidence. (x) The AO has merely proceeded on the basis of suspicion and conjunctures. It is trite that suspicion howsoever strong cannot take place of proof. (xi) The CIT(A) in para 9.22 onwards analyzed the decision rendered by the co- ordinate bench in similar factual matrix to find that addition on account of low yield as made by the AO is not sustainable in law in the absence of tangible material. 21.3 In conclusion, the CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. 21.4 The CIT(A), in our mind, has analysed the factual matrix threadbare and passed a very speaking order. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We are unable to discern any error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the A.O. We, thus, decline to interfere with the order of the CIT(A) on this score.”

No.

1. (to the extent relevant) is dismissed in terms of our aforesaid observations.

83. We shall now deal with the grievance of the revenue that the CIT(Appeal) had erred in vacating the addition of Rs.5,39,20,000/- that was made by the A.O. on account of unexplained share premium u/s.56(2)(viib) of the Act.

84. The genesis of the controversy leading to an addition of Rs.5,39,20,000/- u/s.56(2)(viib) lies in a narrow compass i.e., the dissatisfaction of the A.O as regards issuance by the assessee company of its 1348000 shares of a face value of Rs.10/-each at premium of Rs.40/- each. In sum and substance, the A.O being of the view that the assessee company could not satisfactorily explain the reasonableness of charging of premium of Rs.40/- per share, had thus, made an addition of the entire amount of share premium of Rs.5.39 crore (approx.) u/s.56(2)(viib) of the Act. The observations of the A.O which had formed the basis for making the aforesaid addition are culled out as under: “5. Further, it was found that the assessee company during the year under consideration has received share premium amounting to Rs. 5,39,20,000/- from three of its sister companies. The assessee companies allotted 13,48,000 shares of face value of Rs.10/- each at a premium of Rs. 40/- per share to its three sister companies. During the course of assessment proceedings the assessee was requested to explain the reasonableness of charging premium of Rs.40/- per share. The A.R. of the assessee submitted that the fair market value of the shares of the company valued as per Rule 11U/11UA of the I.T. Rules as on 01/04/2012 was Rs.50.39. However, the explanation submitted by the assessee was not found to be satisfactory.” (iv) Also I have carefully considered the submissions of the assessee relating to addition proposed to be made on account of share premium received of Rs.5,39,20,000/- u/s.56(2)(viib) of the I.T Act. However, the submission of the assessee company substantiated in this regard is not found to be satisfactory for the following reasons: a. The assessee company has determined the Fair Market Value of the share as on 01/04/2012 whereas, the investing companies have invested for acquisition of the shares of the assessee company in the last quarter of the F.Y. under consideration. b. The financial position of the assessee company is not sound to that extent that it could fetch a premium of Rs.40/- in an open market. c. The shares of the assessee company is not listed either on BSE or NSE. d. There are many shares which are available in the open market having better EPS and P/E than the assessee company which could have been acquired by the investor companies. e. The share premium has been paid to the assessee company which all are sister companies of the assessee company. f. It appears that the motive of the investing companies are not to invest in the assessee company rather, the same appears as an internal arrangements for some other motive best known to the assessee company.” “(ii) Share premium receipt: During the year under consideration the assessee company has received share premium of Rs.5,39,20,000/- from three of its sister companies. During the purse of assessment proceedings the assessee company failed to explain the huge. share premium received and also for the reasons discussed in the previous para the submission of e assessee company was not found to be satisfactory. Therefore, the share premium of Rs.5,39,20,000/- received by the assessee company is added to the total income of the assessee u/s.56(2)(viib) of the I.T. Act, 1961. As the assessee has concealed income, penalty proceedings u/s.271(1)(c) of the I.T.Act,1961 are initiated separately.”

85. On appeal, the CIT(Appeals) observed that the “Fair Market Value” (FMV) of the shares of the assessee company was Rs.50.39/- per share. The CIT(Appeals) was of the view that as the shares that were issued by the assessee company at Rs.50/- per share was commensurate with its FMV, therefore, no addition could have been made u/s.56(2)(viib) of the Act. The observations of the CIT(Appeals) on the aforesaid issue are culled out as under: “3.3 Facts being as above the AO added share premium of Rs. 5,39,20,000/- u/s.56(2)(viib). As per this section where the premium received by the company is in excess of value of the share the excess has to be disallowed and added as income of the assessee. In the preset case the assessee has allotted share to some companies which are sister concerns at fair value of Rs.10/- and premium of Rs.40/- whereas the fair market value of the shares was Rs.50.39/- per share. AO did not accept assessee's plea that the action should not be made. He has given following reasons :- i. The assessee company has determined the Fair Market Value of the share as on 01/04/2012 whereas the investing companies have invested for acquisition of the shares of the assessee company in the last quarter of the FY under consideration. ii. The financial position of the assessee company is not sound to that extent that it could fetch a premium of Rs.40/- in an open market. iii. The shares of the assessee company is not listed either on BSE or NSE.

iv. There are many shares which are available in the open market having better EPS and P/E than the assessee company should have been acquired.by-the investor companies. v. The share premium has been paid to the assessee company which all are sister companies of the assessee company. The last available balance sheet of the company was for 31/03/2012 as per which fair market value of assessee's share was Rs.50.39/-. As the consideration does not exceed the fair market value of shares, therefore, on these facts the provisions of Sec.56(2)(vii) are not applicable. Even if attempt is made to capture the excess consideration, the excess would be rupees (50 minus 50.39) i.e. a negative value. Final position of company is reflect by the value of its shares and therefore it is as strong as any other company having fair market value of Rs.50.39/-. Shares of the company are not listed in BSE or NSE that is why provisions of Sec. 56(2)(viib) are applicable provided the consideration exceeded fair market value. Whether the shares have been bought by a sister concern or a third party, if consideration is commensurate with the fair market value which is the net worth of shares, then no adverse inference can be drawn against the assessee. Therefore the addition made by the AO is hereby deleted and assessee's ground is allowed.”

“56. xxxxxxx (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :— Xxxxxxx Xxxxxxx [(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received— (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. "[Provided further that where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (it) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said income in consequence of the misreporting referred to in sub-section (8) and sub-section (9) of section 270A for the said previous year.] Explanation.—For the purposes of this clause,— (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; [(aa) "specified fund" means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alterna-tive Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (ab) "trust" means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;] (b) "venture capital company",

"venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of 75[Explanation] to clause (23FB) of section 10;]”

respectively assigned to them in clause (a), clause (b) and clause (c) of 75[Explanation] to clause (23FB) of section 10;]”

As provided in the aforesaid “Explanation” (supra), the FMV of the shares may be determined in accordance with such method as prescribed in Rule 11UA r.w. Rule 11U of the Income Tax Rules, 1963. On a perusal of the records, it transpires that the assessee company had determined the FMV of the shares based on the “balance sheet” as on 31.03.2012 as per Rule 11UA (2)(a) at Rs.50.29/- per share, as under:

S. Particulars Referred in Amount Amount No. the Rule 11UA(2)(a) (Rs.) as 1. Book value of ‘A’ 1243135139 Assets in the Balance sheet as on 31.03.2012 2. Total book value 1243135139 of liabilities in the Balance Sheet as on 31.3.2012 3. Less : The paid 95445250 up capital in respect of equity shares; 4. Less: Reserves 385487106 and surplus by whatever name called even if the resulting figure is negative, other than those set apart towards depreciation; 5. Book Value of ‘L’ 762202783 762202783 Liabilities in the Balance Sheet as on 31.03.2012 6. Assets Less ‘A-L’ 480932356 Liabilities 7. Number of ‘PE’ 9544525 shares issued as on 31.03.2012 8. Book Value per ‘PV’ A-L/PE 50.39 share (480932356/9544525) 9. Rounded off to 50 As the FMV of the equity shares that were issued by the assessee company at Rs.50/- per share (supra) had been determined by the assessee company as per the method prescribed by the legislature i.e., Rule 11UA(2)(a) at Rs.50.39/- per share, therefore, the provisions of Section 56(2)(viib) of the Act could not have been triggered by the A.O, as the same would come into play only where the consideration received on issuance of shares exceeds the FMV of such shares. Our aforesaid view that an A.O is obligated to compute fair market value of the shares in accordance with the prescribed method is supported by the order of the ITAT, Hyderabad in the case of M/s. Medplus Health Services Pvt. Ltd. Vs. ITO, dated 08.03.2016. Also, a similar view had been taken by the ITAT, “F” Bench, Mumbai in the case of Vodafone M-Pesa Ltd. Vs. DCIT, Circle 8 (3)(2), Mumbai, ITA No.1073/MUM/2019 dated 13.12.2019.

No.

1. (to the extent relevant) is dismissed in terms of our aforesaid observations.