A.C.I.T. CENTRAL CIR. 2(1), NAGPUR vs. M/S SAPHIRE STEEL PVT. LTD.,, KOLKATTA (W.B)

These cross appeals by the Revenue and assessee against the common order dated 30-11-2015 passed by the Commissioner of Income Tax (Appeals)-I, Nagpur [‘CIT(A)’] for assessment years 2005-06, 2009-10 and 2010-11.

Upon hearing, we note that the issues raised in appeals and cross objections are similar basing on the same identical facts. Therefore, with the consent of both the parties, we proceed to dispose off above said appeals and cross objections together and to pass a consolidated order for the sake of convenience.

Now, we shall take up the appeal filed by the Revenue in A.Y. 2005-06.

The Revenue raised two grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in deleting the addition made by the AO on account of undisclosed income being share application money and share premium in the facts and circumstances of the case.

The brief facts of the case are that the assessee is a private limited company, engaged in the business of trading of shares and investment. The assessee filed return of income on 24-10-2006 declaring a total loss of Rs.350/- and the said return was processed u/s. 143(1) of the Act. A search and seizure action 132 of the Act was conducted simultaneously in the office premises of Gupta Coal India Ltd. and other premises belonging to Padmesh Gupta Group on 29-07-2009. As it is observed from the assessment order that there was no seizure of cash, valuables and no disclosure u/s. 132(4) of the Act for the year under consideration, but however, it is mentioned several item of books of accounts and incriminating documents were found and seized vide Anneure-B of Item No. 1, Page No. 17 belonging to the assessee. Notice u/s. 153C of the Act dated 11-05-2011 was issued to the assessee requesting to file the return of income within 30 days from the receipt of the said notice, according to the AO, return of income was filed declaring a total income of Rs.16,670/-. Notices u/s. 142(1) and 143(2) of the Act were issued. A contention was raised that notice u/s. 153C of the Act is bad in law, but however, no finding given by the AO in respect of contention of validity of notice u/s. 153C of the Act. The AO proceeded to hold that the assessee had clearly utilized the services of various bogus entities through D.P. Sarda and other brokers to launder its unaccounted moneys in the form of share application money, share premium and accordingly added an amount of Rs.1,10,00,000/- on account of share application and an amount of Rs.9,90,00,000/- on account of share premium. The AO determined the income of the assessee at Rs.11,00,16,670/- as against the returned income of Rs.16,670/- vide its order dated 28-12-2011 u/s. 143(3) r.w.s. 153C of the Act.

The assessee challenged the said order of the AO before the CIT(A) contending that the assessment order is bad under law and wrong on facts, amongst other grounds on merits. The CIT(A) discussed the various contentions raised by the assessee with reference to AO’s order and held the addition made by the AO on the basis of third party transactions of various companies, is not justified. The CIT(A) deleted the additions made by the AO on account of share application and share premium. Aggrieved by the same, the Revenue is before us.

Heard both the parties and perused the material available on record. On perusal of the assessment order dated 28-12-2011, the AO issued notice u/s. 153C of the Act dated 11-05-2011 to the assessee, requesting to file return of income within 30 days with reference to search and seizure operation conducted in the office premises of Gupta Coal India Ltd. on 29- 07-2009. The assessee filed return of income in response to such notice declaring a total income of Rs.16,670/-. According to the AO, seized material vide Annexure-B of Item No. 1, Page No. 17 belong to the assessee company which is incriminating in nature which is evident from para 2 of the assessment order. Further, it was detected that the assessee group and its Director indulged in purchase and sale of coal through accommodation bills. Further, obtaining amounts in the form of unsecured loans by laundering their unaccounted cash through several bank accounts and also obtaining of share application money and share premium in their group companies which is evident from para 7 of the assessment order, wherein, we find the AO referred besides from the seized material it is further seen that the Pademsh Gupta group indulged in several activities. We note that it is not clear from para 7 of the assessment order as to whether the AO’s observation regarding the activities of the assessee or to that of Padmesh Gupta group. Further, we note that in para 7.1 of the assessment order, the AO referred to role played by one Durga Prasad Sarda is very important and observed a search and seizure operation u/s. 132 of the Act was conducted in his case on 15-09-2009. On careful reading of the said paragraph, we note that the search in the case of D.P. Sarda was affected in connection with Sunil Hitech group. The AO opined that the said D.P. Sarda indulged in several money laundering activities by providing bogus bills in the form of sub-contractor bills to Sunil Hitech group of companies and other such companies. The AO referred to seized material at R-5 Item No. B/2 & B/8 which are claiming to be exercise books, various bank accounts which are operated under the direct supervision and control of D.P. Sarda. However, the AO failed to specify whether such incriminating documents seized belong to the assessee or not. Further, he failed to establish any link of transactions done by Shri D.P. Sarda with the assessee in respect of companies/concerns floated by D.P. Sarda with the help of persons of meager means who raised bogus bills as subcontract bills. We find nowhere mention of assessee’s claim in the said paragraph.

Further, the AO discussed another activity of D.P. Sarda of providing accommodation entries to various coal companies including that of the assessee group. In para 7.2 of the assessment order, wherein, we find no mention of assessee’s name. The AO failed to show that there is a transaction of sale and purchase of coal of assessee with the activity of D.P. Sarda of providing accommodation entries of purchase and sale of coal. Further, in para 8 of the assessment order, the AO discussed another activity of money laundering of D.P. Sarda. According to the AO, the cash is introduced in the bank accounts of companies/concerns controlled/floated by D.P. Sarda and the said cash is routed through cheques in one or more bank accounts of the said concerns. The said cash given as unsecured loan to one of the Gupta Group of Companies. The AO’s detailed discussion of the said bank transactions in para 8.2 of the assessment order, wherein, we find no mention of assessee’s name in the said analysis. It is pertinent to note that the above descriptive analysis bank transactions made by the AO on its own, but it is not concerning the seized material. We find no such evidence of cash payment for accommodation entry was found by the assessee to D.P. Sarda or to any of the concerns floated by D.P. Sarda in the course of search action. Further, we note that D.P. Sarda himself has denied having any connection with the transactions mentioned in the chart. Further, the bank accounts mentioned in the said page relating to Federal Bank does not refer to any bank account or transactions relating to the assessee and therefore, we find no relevancy with the said issue in the case of assessee.

The AO discussed the Seized Material No. Annexure A-2, Item No.1, Page No. 51 in para 8.4 of the assessment order. According to the AO that the Gupta group indulged in laundering of their cash so as to bring the same in the form of cheques through 12 entities mentioned therein under Annexure A-2, Item No. 1, Page No. 42 of Seized Material, wherein, we find no mention of assessee’s name in the said entities. Further, under the Critical Entries Programme, details of these entities were given, wherein, we find no name of assessee reflected in Annexure A-2, Item-1, Page No. 51 of Seized Material. We agree with the contention ld. AR that mere analysis of figures with reference to modus operandi of hawala transaction has no relevance in as much as neither it refers to the name of the assessee nor any transaction is co-related to the assessee.

We note that the AO discussed seized material as per Annexure A-2 Item-1/Page No. 31, 32, 33, 44, 45, 49, 51 & 42, from pages 7 to 12 of the assessment order by reproducing the same in the respective pages. On careful examination of the same, we find no mention of assessee in all the alleged seized materials. Regarding money laundering, the AO discussed from pages 15 to 19 of the assessment order, wherein, we note that the AO reproduced loose sheets of Annexure B, Item B/110, wherein, we note that nothing is emanating like the nature of transaction and purpose of transaction and assessee’s name in the said alleged loose sheets. Further, we note that apart from purpose of transaction, we find no date in the said alleged loose sheets relevant to assessment year under consideration. On careful reading of the assessment order, we find no incriminating transaction or documents were referred relating to the assessee and all the transactions made by the AO regarding the alleged seized material was nothing to do with the assessee. It is pertinent to note that the AO himself recorded a finding that Annexure B, Item No. 1, Page No. 17 belongs to the assessee company, but nowhere, the AO discussed the said alleged seized documents in the assessment order. The AO has not spelt out in his analysis with regard to the above seized documents that the said entries or transactions are relating to the assessee. Further, on an examination of the above said seized documents, we find nowhere the name of assessee is existed and the entries mentioned therein are not relevant so far as the assessee is concerned. In the absence of which the addition made by the AO in the hands of assessee basing on the seized documents relating to other parties is not justified and the addition is liable to the deleted.

As already discussed above, the transactions reflected in para 8.10 were not relevant to year under consideration and in any way found related to the assessee. The AO failed to point out the name of assessee in any of the transactions of assessee with the said bank accounts etc. We find the AO discussed the transactions repeatedly in the assessment order. On a careful examination of all the said repeated transactions, we already observed above, that there is no mention of any transactions by the assessee with the alleged paper companies. Further, there is no finding by the AO specifically about the involvement of companies from whom the assessee is alleged to have received the share application money. Therefore, the finding rendered by the AO does not find support from the seized material. We find no basis for the finding given by the AO that the assessee’s own unaccounted money has been introduced where no such evidence of cash deposit is brought on record, therefore, the adverse inference drawn by the AO against the assessee basing on the alleged seized material is not sustainable in eye of law.

Coming to the impugned order, on an examination of the same, we note that the CIT(A) discussed the facts of the case relating to Padmesh Gupta group as well as seized documents found during the search in the case of D.P. Sarda relating to Sunil Hitech group. The CIT(A) opined that nowhere the AO referred seized material relating to the assessee. The CIT(A) was of the opinion, when there is no transaction of assessee reflected in the seized material relating to Padmesh Gupta group, D.P. Sarda and Sunil Hitech group, the addition made by the AO in the hands of assessee in the absence of incriminating document is not justified. Further, in paras 5.3 to 5.6 of the impugned order, the CIT(A) discussed in respect of accommodation entries relating to seized documents of Annexure A-2 and found there was no adverse transactions involving the assessee. In furtherance of the accommodation entries, the CIT(A) examined the finding of AO with reference to Annexure A-2 in detail from para 5.9, 5.10, 5.11 and held that there was no material evidence suggesting the assessee involved in accommodation entries with reference to the alleged loose sheets as found from the premises of the D.P. Sarda, we find no infirmity in the order of CIT(A) as discussed in paras 6, 6.1 and 6.2 of the impugned order, wherein, we already discussed the same by referring to assessment order regarding non-mentioning of nature and purpose of transaction and date.

Further, the other activity as discussed by the AO regarding the money laundering transaction by D.P. Sarda, we note that the CIT(A) examined Annexure B-10 from paras 7 to 7.10, wherein, we find the CIT(A) held the addition made by the AO in the absence of any evidence against the assessee is without any basis. On an examination of the assessment order as referred by the AO relating to Annexure B/110 which was discussed by the CIT(A) in detail, we find no evidence whatsoever brought on record by the AO showing, that the assessee indulged in money laundering transactions with reference to alleged seized documents as found in the premises of the said D.P. Sarda. Therefore, we find no incriminating documents found as a result of search nor was there any evidence brought on record by the AO in support of allegation that unaccounted money belonging to the assessee introduced in the form of share capital and share premium. We find the allegation of the AO, that the assessee utilized the services of D.P. Sarda for the alleged non-genuine share capital is baseless and without any evidence. We find force in the arguments of the ld. AR that the AO not brought any adverse evidence on record regarding the investment was based on the alleged transaction of companies controlled and monitored by D.P. Sarda, in our opinion, as no relevancy to the facts and circumstances of the assessee’s case.

Further, we find the AO failed to show an iota of evidence of assessee’s role with any of the alleged companies established by D.P. Sarda to prove that the assessee company introduced bogus share capital through the said alleged companies. As already discussed the AO referred nowhere in the assessment order the name of the assessee in the alleged seized documents. Further, we find submissions of the assessee which were reproduced by the AO in page 24 of the assessment order, wherein, it is noted that the assessee furnished all the details relating to share application and premium as well as unsecured loans during the assessment proceedings as well as before the Investigation Wing, but however, the AO did not discuss the same, we find nothing was on record, but however, proceeded to make addition in the hands of the assessee on account of share application and share premium. We find the assessee has discharged its onus by furnishing the details of share capital and share premium showing the identity, genuineness and creditworthiness by cogent evidence. Therefore, we find no infirmity in the order of CIT(A) in holding the order of AO is not justified as he failed to bring on record any evidence adverse to the assessee with reference to seized material as discussed in the assessment order. Thus, the ground Nos. (i) and (ii) raised by the Revenue fails and are dismissed.

In the result, the appeal of Revenue is dismissed. & 42/NAG/2016, A.Ys. 2009-10 & 2010-11.

We find that the issues raised in the appeal and the facts in & 42/NAG/2016 are identical to except the variance in amount. Since, the facts in ITA Nos. 41 & 42/NAG/2016 are similar to ITA No. 40/NAG/2016, the findings given by us while deciding the appeal of Revenue in ITA No. 40/NAG/2016 would mutatis mutandis apply to ITA Nos. 41 & 42/NAG/2016, as well. Accordingly, both the appeals of Revenue are allowed.

In the result, all the appeals of Revenue are dismissed.

Now, we shall take up the Cross Objections filed by assessee in CO Nos.01, 02 & 03/NAG/2017 for A.Ys. 2005-06, 2009-10 & 2010-11.

We find that all these cross objections were filed with a delay of 17 days. After hearing both the parties, we condone the said delay.

In view of our decision in dismissing the Revenue’s appeal, the issues raised in Cross Objections become infructuous and the same are dismissed as such.

To sum up, the all the appeals of Revenue, as well as, cross objections filed by the assessee are dismissed.