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Income Tax Appellate Tribunal, DELHIBENCH ‘G’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the Revenue against the orders of ld. CIT(A)-30, New Delhi dated 24.06.2016. Since, the issue involved in both the appeals are similar, they were heard together and being adjudicated by a common order.
2. The revenue has raised the following grounds of appeal in “1. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in deleting the addition of Rs. 15,78,25,000/- made by AO on account of unexplained cash credit u/s 68 of the IT Act.
2. On the facts & in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the director of the investor companies produced for examination could not explain the credit of Rs15,78,25,000/- in the books of the & 4784/Del/2016 2 Surya Roshni Ltd. investee companies nor could he produce any material evidence to counter the statements recorded on oath of the entry operator involved and the erstwhile directors of investor companies.
3. On the facts & in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the affidavits stated to be furnished by the erstwhile directors of Investor Companies and the entry operator based at Kolkata wherein they retracted their earlier statements recorded on oath during the search and post search proceedings were furnished at the fag end of the assessment proceedings i.e. on 30.03.2015 and that no effort was made by said directors and entry operator to do the same earlier inspite there being ample time and opportunity available for the same.
4. On the facts & in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the entry operator has time and again admitted that he has provided accommodation entries to the willing beneficiaries by charging commission and accepted it as his nature of business in case of many of the companies of the group searched and that the statements given by him on oath on repeated occasions carry more weight than a retraction at the fag end of assessment proceedings i.e. on 30.03.2015.”
3. A search and seizure action u/s 132 took place on 30.10.2012 on Surya Roshni Group. The assessments in the case of Surya Roshni Ltd. were completed u/s 153A. The assessee received share application money from the following entities:
Sahaj Tie-Up Pvt. Ltd. (A.Y. 2010-11) 2. Shirin Commodeal Pvt. Ltd.(A.Y.2010-11 & A.Y.2011-12) 3. S.M. Vyapaar Pvt. Ltd. (A.Y. 2010-11 & 2011-12) 4. Diwakar Marketing Pvt. Ltd. (A.Y. 2011-12) 5. Shreyansh Mercantile Pvt. Ltd. (A.Y. 2011-12) & 4784/Del/2016 3 Surya Roshni Ltd. 4. We have perused the entire Assessment Orders passed for both the years. The reasons given by the AO for making the addition on account of share capital are common.
The AO primarily based on the statements of Sh. Babu Lal Banka (Entry Operator), Sh. Santosh Kumar Shah (Entry Operator) and the Directors of the investor companies Sh. Sanjay Shah (Former Director), Sh. Lalan Kumar Pandey (Former Director), Sh. Suresh Sharma (Current Director), Sh. Kishori Lal Gupta (Former Director), Sh. Vikas Ojha (former Director), Sh. Harish Kumar Sharma (Former Director), Sh. Arun Kumar Acharya (Former Director), Sh. Sanjay Kumar Dugar (Current Director), Sh. Shyam Sunder Sharma (Current Director), Sh. Sanjay Mittal (Current Director) and Sh. Suresh Kumar Daruka (Former Director) held, relying on the enquires and the information gathered by the Inspector, that the entities were not existing at the address mentioned and the assessee did not produce the Directors for examination but only filed all the documentary evidences.
6. Having gone through the entire Assessment Order, we find that the addition has been made solely based on the statements of the individuals and report of the Inspector with regard to absence of company at the addresses mentioned.
7. Aggrieved, the assessee filed appeal before the ld. CIT(A) who deleted the addition made by the AO.
8. Affronted by the order of the ld. CIT(A) deleting the addition, the Revenue filed appeal before the Tribunal. & 4784/Del/2016 4 Surya Roshni Ltd.
9. During the arguments before us, the ld. DR, Sh. H. K. Choudhary vehemently argued relying on the Assessment Order and the report of the investigation.
The ld. DR argued that the documents filed by the assessee did not prove the genuineness of the transactions and creditworthiness of the investors. It was argued that the assessee did not comply to the directions of the Assessing Officer to produce the principle officer of the investor company for examination and such production of the persons was necessary as the evidence gathered at the time of search indicated that the transactions are not genuine. With regard to the company M/s Surya Roshini Ltd., the pleadings of the assessee that the assessee company is a listed company and all the process of raising funds were monitored by the Stock Exchange cannot be accepted. The ld. DR argued that since the funds have been raised by private placement through closely held private companies situated at Kolkata, there is every evidence that the share capital raised was bogus. The ld. DR further relied on the statements of Sh. Sanjay Kumar Dugar, and Sh. Shyam Sunder Sharma who are the present Directors for the subscriber companies who stated that they were not aware of the difference between warrants and shares. The ld. DR argued that the affidavits furnished by the subscriber company at the fag end of the assessment proceedings cannot be given any credence. The ld. DR also argued that the Principal Officer of the assessee company was confronted with regard to the statements given by the old Directors and entry operators wherein they have admitted that the investor companies are & 4784/Del/2016 5 Surya Roshni Ltd. paper companies and accommodation entries were provided after charging a commission.
11. To conclude, the reliance of the revenue was on, • The statement of various Entry Operators such as Sh. Santosh Kumar Shah, Sh. Banka etc. • Statement of Old Directors of Investor companies such as Sh. Sanjay Shah, Sh. Lalan Kumar Pandey, Sh. Kishori Lal Gupta and others in which they have stated that they don't know anything, whatever has been done it has been done by one Sh. Sachet Agarwal. • Statement of New Directors of investor companies. • Bank enquiries of bank account of investor companies made by investigation wing. • Physical verification of address of the companies where investor companies have made investment by investigation wing. • Physical verification of old shareholders of investor companies by investigation wing. • Physical verification of old director's address of investor companies. • Physical verification of old address of investor companies by investigation wing.
12. Rebutting the arguments of the ld. DR, Sh. Rajat Jain, ld. AR relying on the order of the ld. CIT(A) argued that statement of alleged entry operator Shri Santosh Kumar Shah and old directors were retracted by them by filing affidavit dated 30.03.2015. Statement of alleged entry operator Shri Santosh Kumar Shah was recorded u/s 132(4) in the case of his search & 4784/Del/2016 6 Surya Roshni Ltd. on residential premise on same day 30.10.2012 and no opportunity of cross examination has been given to the assessee. It was argued that the addition has been made solely on the basis of said retracted statement and no single evidence/material was found during the course of search which could prove that appellant was engaged in taking accommodation entries in the form of share capital. It was argued that even if the retraction is filed late at the fag end, the assessee has requested for cross examination of alleged entry operator which has not been provided which is violation of principle of natural justice. Even statements were provided first time with the assessment order though request for statement and cross examination was made before AO. It was argued that on perusal of statement of alleged entry operators Shri Santosh Kumar Shah and others it is apparent that they introduced funds in investor companies, if it is assumed that his statement is correct then addition if any can be made in above said companies not in the assessee companies. Further no statement of person named sachet Agarwal was recorded. It was argued that all the documents to prove identity, creditworthiness of investor companies and genuineness of transactions were submitted during the course of assessment proceedings. Further M/s Surya Roshni Limited has also furnished the source of source of investment.
The ld. AR of the assessee has contended that the assessee company has duly discharged its onus u/s 68 of the Act in respect of share application money received / share- capital issued at premium during the course of assessment proceedings. The AR of the assessee company has drawn our & 4784/Del/2016 7 Surya Roshni Ltd. attention to the Paper book filed before us which contains various documentary evidences filed during the course of assessment and appellate proceedings to prove identity and creditworthiness of investor companies and genuineness of transaction of share capital. The list of such documents are as under:
i. Company Master details as per records of Registrar of companies showing CIN and latest particulars of investor companies ii. Photocopy of PAN card / letter iii. Acknowledgement of income tax return and Audited Financial Statements iv. of the investor companies v. Bank statement of the investor companies which duly substantiated the identity and creditworthiness of the investor companies. vi. Copy of Form - 2 filed with ROC showing allotment of shares to new shareholders vii. Approval for listing of issue of equity shares on conversion of warrants under guidelines / regulations of SEBI viii. Duly filled Share Application forms submitted by new shareholders ix. Bank statement of the assessee company x. Audited balance sheet as on 31.03.2011 showing issued, subscribed and paid up capital of the assessee company xi. Share application account / share warrant account as per the books of the assessee company along with relevant & 4784/Del/2016 8 Surya Roshni Ltd. portion of bank statement to substantiate the amount received from the investors companies xii. Consent received from the investors, xiii. Copy of resolution passed by Board of directors and shareholders, xiv. Copy of Minute’s book of extra ordinary general meeting and meeting of directors of the assessee company. xv. Terms & condition of issue of equity warrants and conversion thereof in equity, xvi. Approval received from National Stock Exchange and Bombay Stock Exchange, xvii. Letter from stock exchange of listing of equity shares issued during the year, xviii. Certified copy of pricing of equity shares allotted on conversion of warrants etc. xix. Board resolution passed by Investors companies xx. Minute’s book of Investor companies and the assessee company, xxi. Detail of share allotment maintained by registrar & share transfer agent and xxii. Form 3CD of investor companies, etc.
The ld. AR of the assessee has contended that the sole basis of making addition in the hands of the assessee is retracted statements of alleged entry operators and erstwhile directors of investor companies and failed to bring on record any material / evidences which could prove that the assessee company was engaged in taking accommodation entries in the form of share capital and also no single incriminating evidence / material was found during search and seizure action. In this & 4784/Del/2016 9 Surya Roshni Ltd. regard, the Ld. AR has relied upon the judgment rendered by the Hon’ble Delhi High Court in the case of PCIT vs. Anand Kumar Jain (HUF) in ITA 23/2021 & CM APPL 5385/2021 and drawn our attention to para 7 of page 7 of said judgment which is as under:-
7 …….That statement alone cannot justify the additions made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr. Jindal, Revenue has failed to produce any corroborative material to justify the additions. On the contrary we also note that during the course of the search, in the statement made by the assessee, he denied having known Mr. Jindal. Since there was insufficient material to support the additions, the IT AT deleted the same. This finding of fact, based on evidence calls for no interference, as we cannot re-appreciate evidence while exercising jurisdiction under section 260A of the Act.
15. The background of these arguments, the order of the ld. CIT(A) is perused as to how the observations of the Assessing Officer have been rebutted leading to deletion of the addition. The ld. CIT(A) held that,
1. No document/ incriminating document relating to alleged unexplained share capital were found and seized, which reveals that the appellant has received accommodation entries in the form of share capital/ premium / warrants. Accordingly, the cash credit on account of share capital stands explained and addition made by A.O. u/s 68 of the Act, deserves to be deleted.
The investment in the share capital / premium / warrants, has been made by investor companies, whose & 4784/Del/2016 10 Surya Roshni Ltd. identity and genuineness, has been established, therefore, any addition has to be made u/s 68 on account of investment in share capital in the appellant company, then same has to be made in the case of investor companies, whose identity and genuineness, is proved and they are also assessed to tax.
The bank accounts of the investor companies were closed earlier to the search and therefore, the adverse inference drawn by Assessing Officer in the subsequent period under consideration is not correct.
Present directors of investor companies during the course of assessment proceedings, have confirmed about the investment made in the appellant company during the statement recorded in assessment proceedings.
5. The statements of the erstwhile directors of the investor companies relied upon by the A.O., were stereotyped as the same question and answer were recorded and the same have been retracted in the affidavits filed in the assessment proceedings.
The AO relied on the statements recorded of alleged entry operators and adverse inference drawn in the case of all the investor companies, that these companies used to provide accommodation entries to appellant. However, that the same statement was retracted by filing affidavit in the assessment proceedings. & 4784/Del/2016 11 Surya Roshni Ltd.
The A.O. in the assessment order has emphasized on the modus-operandi used by the entry operators to introduce cash in various small companies operated by them, through layering such cash in various bank accounts. However, even after conducting inquiries on the bank accounts of investor companies, no single entry of substantial cash deposited in bank accounts of investor companies were pointed out by the A.O. in the cash trail annexed with the assessment order.
The enquiry report of ITI of investigation, carried out on the old addresses of the investor companies and drawing a conclusion on the basis of wrong appreciation of fact that there is no infrastructure and manpower, hence these companies are paper or jamakharchi companies, is not correct, as these companies are NBFC which do not require much infrastructure and employees, on account of nature of business activities carried out.
The A.O. made various allegations m the assessment order on the basis of inquiry report received from ITI of investigation, which was not confronted to the appellant during the course of assessment proceedings. However, the report provided to the appellant during appellate proceedings, which have been duly rebutted by the appellant by furnishing details / documents.
10. The enquiry report received from ITI, merely indicated that these company may presumed to be paper or & 4784/Del/2016 12 Surya Roshni Ltd. jamakharchi company, but same is not proved, in absence of any cogent evidence.
Statements of one or more director of all the investor companies were duly recorded by the department. Further, the erstwhile shareholders and directors of the investor companies, who ceased to be shareholder / directors of the appellant company, much prior to date of inquiry and in most of the cases, their addresses were also changed.
Therefore, inquiry conducted after a long gap of 2-3 years at old / incomplete addresses, makes the inquiry report inadequate to allege later on that the investor companies are paper / Jamakharchi Companies only.
13. The adverse inference drawn by the A.O. in all the investor companies, that they are paper / jamakharchi companies, without any cogent evidence is not correct.
14. No inquiry on current existing addresses, were conducted. The investor companies have discharged their onus u/s 68 of the Act, by substantiating the identity, creditworthiness of the purchaser companies and genuineness of the transactions of sale of shares held as stock. Therefore, the appellant has also explained the source of source. Thus, the adverse view taken by the A.O. on the basis of ITI of investigation inquiry report, is not substantiated by any incriminating document, found during search action u/s 132 of the Act or subsequently, in the case of appellant. & 4784/Del/2016 13 Surya Roshni Ltd.
It is also clear that these investor companies are having adequate assessed net share capital/ premium/ warrants of the appellant company and source of investor companies, has been explained from sale of stock of shares.
16. The case of the appellant is assessed u/s 153A, being as searched case and no document /incriminating document was found during action u/s 132 and subsequent proceedings, which corroborate that the appellant has taken accommodation entries from alleged investor companies. The A.O. has also assessed the case of investor companies u/s 147 of the Act and made addition of the investment in share capital/ premium/ warrants of the appellant company, having alleged reason to believe that these investor companies provided accommodation entries, however failed to bring on record any cogent evidence to prove that nexus.
From the above discussion, it is clear that the source of investment made against the share capital/ premium/ warrants, stands explained, as appellant and investor companies, have substantiated the same by furnishing evidences and proved the identity, genuineness of transactions and creditworthiness of investor companies. In view of these facts and circumstances, we are of the considered opinion that provisions of Section 68 of the Act, are not attracted in the case of appellant, as investment by investor companies, is considered as explained. & 4784/Del/2016 14 Surya Roshni Ltd. Therefore, in these facts and circumstances, we decline to interfere with the order of the ld. CIT(A).
In the result, both the appeals of the Revenue are dismissed.
Order Pronounced in the Open Court on 09/05/2023.