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Income Tax Appellate Tribunal, NAGPUR
Before: SHRI INTURI RAMA RAO & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 29-12-2017 passed by the Commissioner of Income Tax (Appeals)-3, Nagpur [‘CIT(A)’] for assessment year 2011-12.
We find no representation on behalf of the assessee nor any application filed seeking adjournment. Thus, the assessee called absent and set ex-parte. Therefore, we proceed to dispose off the appeal by hearing the ld. DR and perusing the material available on record.
Ground Nos. 1 to 5 raised by the assessee amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in confirming the addition made by the AO on account of unexplained cash credits under share capital, share premium and sundry creditors etc. in reassessment proceedings u/s. 147 of the Act.
We note that the AO found the assessee increased a share capital, received share premium and sundry creditors which is evident from para 3 of the assessment order. The AO asked the assessee to give details of share capital, share premium and sundry creditors in order to justify the identity, creditworthiness and genuineness of the investors. The AO reproduced such details in page 3 of the assessment order. On an examination of the such details in order to verify the veracity of assessee’s claim of receipt of the share capital, notices u/s. 133(6) of the Act were issued to the subscribers of share capital to the seven parties mentioned in para 3 of the assessment order. According to the AO none was appeared on the given date nor filed any submissions. Again another notice was issued requiring compliance from the said parties and in response to such notice, the assessee filed address of the investor companies, copies of financial reports, return for A.Y. 2011-12, board resolution, share application, bank statement etc. The AO raised a doubt with regard to above details when all the notices u/s. 133(6) of the Act returned back un- served with a remark “addressee cannot be located, not know, insufficient address”. A show cause notice was issued to the assessee requesting to explain as to why the share capital along with premium introduced during the year and creditors standings in the names of these companies should not be brought to tax as unexplained cash credit u/s. 68 of the Act in view of failure to produce the said subscribers in the assessment proceedings. The assessee filed reply placing reliance on the details filed in respect of the said investors reiterating being cogent evidence to justify the source of share capital as well as identity, genuineness and creditworthiness of the shareholders. Thereafter, the assessee produced Shri Piyush Marodia said to be Director of three investor companies and the AO recorded his statement u/s. 131 of the Act. The AO discussed the issue taking into account report of Investigation Wing of Kolkata held the investor companies as paper companies and investments made as share capital is not reliable. Accordingly, the AO added an amount of Rs.157,05,05,500/- and Rs.89,00,74,500/- on account of unexplained cash credits to the total income of the assessee. The CIT(A) confirmed the same. According to the CIT(A) genuineness of the investment not been proved by the investor company and burden cast upon the assessee in proving the genuineness of the investment which was not fully discharged. The relevant portion of the CIT(A) regarding unexplained cash credit on account of share capital and premium and unexplained cash credit on account of sundry creditors is reproduced hereunder for ready reference : “4.1 Ground Nos. 1 & 2 : The appellant has raised legal grounds and has challenged the reopening proceedings and the assessment order. The Counsel of the appellant contented that the reopening has been made on the basis of borrowed satisfaction and no enquiry was made by the AO himself. He vehemently pleaded that the notice u/s 148 cannot be issued merely on the basis of intimation received from DIT (Inv.), Kolkata. According to the appellant, the reasons for reopening are vague and not raised on any tangible material. There was no reason provided by the AO for delay in providing the statement of Shri Anand Sharma to the appellant on which the AO has based his decision.
4.1.1 I have considered the arguments of the appellant and find that the AO had definite information from the DIT (Inv.), Kolkata according to which the appellant company was beneficiary of the accommodation entries. The AO accordingly had' a valid ground for reopening of assessment and issue notice u/s 148. There is no infirmity in the action of the AO. Accordingly Ground Nos. 1 and 2 are dismissed. 4.2 Ground Nos. 3 & 5 : The appellant has challenged the action of the AO in making addition of Rs.1,57,05,05,500/- on account of unexplained cash credit u/s 168 of the LT. Act. The AO in this case received intimation from the DIT (Inv.), Kolkata according to which the appellant company was beneficiary of accommodation entries. The AO examined various documents and explanations furnished in the assessment proceedings. The appellant has received share capital alongwith share premium. Although there was no dispute about the various documents filed by the appellant in the assessment proceedings, 'the AO is of the opinion that the activity of the company and the financial position does not justify the share premium received by the company. Further, it is held that the appellant could not adduce the evidence of positive nature to show that the subscribers had advanced genuine funds. It was found by the AO that the investor companies received equivalent amount of funds which were invested at the same time when these companies were required to invest with the appellant. According to the AO the funds received does not [appear to have been received in normal course and does not pass the test of human probabilities. Although the Directors of the investor company were produced in the assessment proceedings, the AO has pointed out various infirmities in the information provided by the Directors as well as their ignorance about the affairs of their own company in which they are Directors. The AO held that the appellant has failed to establish the genuineness and credit-worthiness of the transactions of share capital and accordingly made addition as unexplained cash credit u/s 68 of the LT. Act, 1961. 4.2.1 The appellant filed written submission alongwith various documents. It was pleaded before me that the appellant has discharged its onus to establish the identity, genuineness and credit worthiness of the applicant to the share capital. The appellant submitted that it had filed various documents to establish the identity of the' investors like bank account, income tax return and registration under Companies Act. The genuineness of the transaction is established on the basis of statement of the director of investor company and the documents filed like share application, return/documents filed with MCA, Audited Financial Statement, Board Resolution, confirmation from the investors and the bank accounts of the investor company. He further emphasized that the appellant has also provided the details of source of source of the funds received by the company. As regards credit worthiness, he contended that the credit- worthiness can be gauged from the Audited Financial Statements as investor companies have sufficient reserves and surplus. He drew attention to the statement of directors of such companies and contended that the director has confirmed the transaction and has also provided the reason for investment in the appellant company. As regards the statement of Anand Sharma, it was contended before me that the compelling circumstances under which statement was given by Anand Sharma is not known since the proper opportunity to cross examine was not afforded. Accordingly, the Assessing Officer disregarded the financial position of the appellant company and the group in which the investment was made. Although the company has carried out the activity of investment as well as activity of offering services to the group companies, transportation activity and trading activity, the Assessing Officer's allegation is contrary to facts available on record and is factually incorrect. My attention was also drawn to the ledger account of various parties to prove 'that the source of source of funds received by the company is ultimately from the group companies itself. There is no transaction of cash/unaccounted company as alleged by the AO. The learned Counsel vehemently submitted that the onus has been properly discharged by the appellant, as regards the identity, genuineness and credit- worthiness of the impugned transactions. 4.2.2 I have gone through the assessment order, the grounds of appeal and submission made by the appellant. I am in agreement with the AO that the transactions apparently may appear to be real but in the instant case, considering the other facts does not appears to be so. Mere submission of the documents does not explain the cash credit to the extent to establish the credit-worthiness and genuineness. The AO has noted from the Bank Statements of investor company' that the funds received by the investor company from different entities were immediately transferred to the impugned investor company which is not merely a coincidence. It seems to be an arranged affair which does not pass the test of human probabilities. I find that the Directors of the investor company could not answer and provide the information required by the AO in the statement recorded in the assessment proceedings. The infirmities in the statement of the Directors of the investor company have been noted at Page 9 and 10 of the assessment order. The AO found that the Directors of such company did not remember their addresses, the date of incorporation, who are the original promoters etc. Though the Directors of the company claimed association with the appellant company but the same could not be established on record. The basis for investing such a huge amount was also not substantiated by any sound reasoning. The Director of the investor company informed that most of the funds have come as unsecured loan but the finding of the AO is that the investment has been made out of the share application money and premium received by them. Any prudent investor will not deploy the total funds available with them in a single company that too by paying huge premium. This seems to be unusual. The Director of the investor company though promised to provide the documents which were asked by theAO for further examination, but had failed to provide the same. 4.2.3 The Hon'ble Supreme Court while examining the Issue of test of human probability in the case of Sumati Dayal vs CIT 1995 AIR 2109, 1995 SCC Supl. (2) 453 has noted that "having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. I am of the considered opinion that even in this case the investment in share capital/ share premium/unsecured loan seems to be an arranged affair which does not pass the test of human probabilities. 4.4.4 During the course of assessment proceedings, the AO noted that the appellant had received share application money, share premium and unsecured loans from 7. Kolkata based companies : Sr. No. Name & Address
1. Dhirendra Merchants Pvt. Ltd. 12. HO Chi-Min, Sarani 2nd Floor, Kolkata-700071 2. Saraswati Commodities Pvt. Ltd. 2B Grand Lane, Kolkata-700012
3 Survodaya Vanijya Pvt. Ltd. 3/3, Brindavan Dutta Lane, Bandhaghat, Kolkata 4 Eastern Dealcomm Pvt. Ltd. 52 Weston Street, Kolkata-700012 5 Jay Aar Commercial Pvt. Ltd. 2nd Floor, Room No. 25, 10A, Hospital Street, Kolkata- 700072 6 Mangaldeep Sales Pvt. Ltd. 7 Mansi Commodities Pvt. Ltd.
4.2.5 In order to a certain veracity of the appellant's claim of receipt of share capital, the AO sent notices u/ s 133(6) to all the 7 concerns. Further these notices were returned unserved with the remarks "that the addresses cannot be located'. Accordingly I find that the AO was: not left with no other option but to ask the appellant to produce certain details which was asked for by the AO vide letter dated 30/08/2016. The AQ also confronted the appellant that the investigation by DIT(Inv.), Kolkata had revealed that the investor companies were only paper comparues providing nlyaccommodation entries. Subsequent to this, the appellant produced, Shri Piyush Marodia, the director of investor companies.' The AO asked Shri Piyush Marodia to produce certain documents to establish creditworthiness and genuineness of transactions of investment of share capital as well as unsecured loans. These details are mentioned on page no. 10 of the assessment order. Shri Piyush Marodia agreed to produce these details on 20/12/2016, however the same was not produced by him. In absence of these details, the AO was not left with no other option but to consider the investment of share capital, share premium and sundry creditors to be non genuine and added the same to the income of the appellant u/s 68 of the I.T. Act. The suspicion of the AO got further credence in light of statement of Shri Anand Sharma which was given before the Investigation Wing, Kolkata and a copy of which was given to the appellant on 05/12/2016. 4.2.6 Thus, from the facts of the case, it is apparent that the AO tried to verify the genuineness of investment made by certain companies in share capital/share premium/sundry creditors of the appellant company. The AO issued notices u/s 133(6) which were returned unserved. Subsequently, without service of these notices the appellant produced the director of investor company. Thus the director of the investor company was produced by the appellant himself. Once the AO asked for certain documents and Shri Piyush Marodia agreed to provide these documents by 20/12/2016, then it was the responsibility of the appellant to see that the documents were delivered before the AO. More so as the notices sent by the AO to the investor companies had come back unserved by the postal authorities. Further I find that no such details were also filed before the under signed during the course of appellate proceedings. The appellant's Counsel during the course of appellate proceedings was again asked to produce the same details so that necessary verification with regard to share capital/share premium/ sundry creditors could be made while adjudicating this appeal. The same has not been filed by the appellant. The appellant has submitted that adequate evidence has already been furnished by the appellant during the course of assessment as well as the appellate proceedings to \conclusively prove the genuineness of investment made in the appellant company in share capital/share premium/sundry creditors. Now I find that the details asked for by the O from Shri Piyush Marodia were neither filed during the course of assessment proceedings nor during the course of appellate proceedings. I also find that the notices sent by the AO u/s 133(6) to verify the genuineness of share capital investors have come back unserved for want of proper postal address. Accordingly, in light of these facts, I am of the considered opinion that the genuineness of investment made in the appellant company is not proved as the appellant has not been able to conclusively prove creditworthiness and genuineness of transaction, by providing the relevant evidence asked for during the course of assessment and appellate proceedings. 4.2.7 I am also of the view that considering the fact that the notices sent by the AO u/s 133(6) had returned back unserved and that Shri Piyush Marodia or the appellant did not file the details asked for by the AO during the course of assessment proceedings to verify the genuineness of investment, therefore, it appears that the initial burden cast upon the appellant with regard to proving the genuineness of investment was not fully discharged by the ppellant. I am also in agreement with the various judicial pronouncements relied upon by the AO on page 12 and 13 of the assessment order appellant has filed the confirmation letter and the confirmation of the ledger account on the impugned sundry creditors and has discharged the onus which rest upon the appellant. 4.3.2 I have gone through the assessment order; the grounds of appeal and submission made by the appellant. I find that the impugned three sundry creditors which are mentioned at para 16 of the assessment order are the same who are also subscriber to the share capital and share premium. Although the classification of the outstanding amount payable of the impugned three parties has been done under the' head "Sundry Creditors "in the audited financial statements yet I 'find that the AO has correctly held it to be loan transaction. While deciding Ground No.3 of the appeal, I have lready held that the appellant has failed to prove the genuineness and credit-worthiness of the impugned three parties. The facts are similar therefore the addition of Rs.89,00,74,500/- is also confirmed. Accordingly, the Ground No.4 is dismissed.”
5. In the light of the above, we find no evidence whatsoever filed before this Tribunal supporting the grounds raised by the assessee challenging the action of CIT(A). We find the AO proceeded on report of Investigation Wing of Kolkata and sought details from the assessee as well as by issuing notice u/s. 133(6) of the Act to the investor companies, however, no evidence were filed before the AO nor the Directors of the said companies appeared for confirmation. The CIT(A) also discussed the same in the impugned order which is evident from paras 4.2.6 and 4.2.7 of the impugned order. Therefore, we find no infirmity in the order of CIT(A) and we agree with the reasons recorded by the CIT(A) in confirming the order of AO in making addition on account of unexplained cash credits and sundry creditors. Thus, grounds raised by the assessee fails and are dismissed.
In the result, the appeal of assessee is dismissed.
Order pronounced in the open court on 30th October, 2023.