Income Tax Appellate Tribunal - Hyderabad
Dcit, Circle-1(2), Hyderabad, ... vs Cauvery Iron & Steel India Limited, ... on 5 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 972/HYD/2017
Assessment Year: 2013-14
Dy. Commissioner of Cauvery Iron & Steel India
Income Tax, Vs Limited,
Circle-1(2), SECUNDERABAD
HYDERABAD [PAN: AABCC3576F]
(Appellant) (Respondent)
For Revenue : Shri K. Srinivas Reddy, DR
For Assessee : Shri P. Murali Mohan Rao, AR
Date of Hearing : 15-06-2018
Date of Pronouncement : 05-07-2018
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by Revenue against the order of the Commissioner of Income Tax (Appeals)-I, Hyderabad, dated 21-02-2017, on the issue of deletion of share capital of an amount of Rs. 5 Crores considered by AO as unexplained cash credits.
2. Briefly stated, assessee-company filed its return of income declaring loss of Rs. 15.68 Crores under the normal provisions and book profits at Rs. 3.05 Crores u/s. 115JB of the Income Tax Act [Act]. In the course of scrutiny assessment, :- 2 -:
I.T.A. No. 972/Hyd/2017 Assessing Officer (AO) noticed that assessee has received share application money from the following:
Name of the Company Address Amount of
share
application
money (Rs)
Tedium Sales Pvt Ltd 63, Radha Bazar Street, Kolkata- 1,00,00,000
700 001
Royalpet Commodities 23A, NS Road, Kolkata-700 001 2,00,00,000
Pvt Ltd
Time Sound Barter Pvt 5, Clive Row, Kolkata-700 001 1,50,00,000
Ltd.,
Royalpet Traders Pvt Ltd 12/A, NS Road, Kolkata-700 001 50,00,000
Total: 5,00,00,000
2.1. To verify genuineness of the subscribers, AO started enquiry in the month of March, 2016 and referred to DDIT(Inv.), Kolkata on 07-03-2016. Basing on the report of DDIT(Inv.), AO was of the opinion that the companies are not in existence and made an addition of Rs. 5 Crores u/s. 68 of the Act. It was assessee's contention that all the companies were existing companies, filed their returns of income, had PAN numbers and furnished various details in the course of enquiry before the AO. However, AO rejected the same and relied on the report of DDIT and made an addition of Rs. 5 Crores.
3. Assessee has contested the same before the Ld.CIT(A) to submit that share application money was received through banking channels, shares were allotted and those companies were existing companies and reiterated on the evidence furnished before the AO to prove the identity and :- 3 -:
I.T.A. No. 972/Hyd/2017 creditworthiness of the company. Ld.CIT(A) in the order has listed the evidences furnished and extracted the copies of the PAN, ITRs and statements [though not legible], to come to a conclusion that assessee has established the genuineness of the amount. The conclusions by CIT(A) are as under:
"6.1. The Assessing Officer has concluded an addition on the basis of the following points:
a) Creditworthiness of Subscriber Companies has not proved through financials:
Before me, the appellant submitted the subscriber company financials and also details of share application money to show that there is money in their account.
b) Confession of Shri Manohar Lal Nangia:
Before me, confession of Shri Manohar Lal Nangia was not confronted by the appellant.
c) Bank transactions is not fully proved to show it is a genuine transaction:
The Assessing Officer has denounced banking transactions, however, this cannot be proved and cannot be an issue of renounced a transaction is null and void.
6.2. The appellant relied on the Hon'ble ITATs decision in the case of M/s. Komal Agrotech Private Limited Vs. ITO, Ward-2(1), Hyderabad In ITA No. 437/Hyd/2016. The Tribunal took support on the following decisions:
1. CIT Vs. Kamdhenu Steel & Alloys Ltd., (2012) 248 ITR 33
2. CIT Vs. Gangeshwari Metal P. Ltd in ITA No.597/2012 dated 21.01.2013 :- 4 -:
I.T.A. No. 972/Hyd/2017
3. CIT Vs. Fair Finvest Ltd., (2013) 357 ITR 146
4. CIT Vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) The Hon'ble ITAT concluded as under:
"A plain reading of the assessment order demonstrate that the A.O. merely went by the investigation done by· the Officer of D.G.I (Investigation), Mumbai. No enquiries or investigation was carried out. No evidence to controvert the claims of the assessee was brought on record by the A.O. Even the statement of Mr. Praveen Kumar was supplied. Nothing is on record about the result if investigations done by DGIT (Inv.), Mumbai. The papers filed by the assessee do demonstrate, the identity, credit worthiness and genuineness of the transaction. The addition is made merely on surmises and conjectures".
6.3 Similarly in this case also, the Assessing Officer on the basis of the findings of the DDIT, Kolkata disallowed the share application money received from the above said four companies. The appellant has submitted documentary evidence regarding identity. There is no doubt that the parties are existing Income tax assessee's, filing return of income, having PAN identity. Appellant also submitted Bank account copy to show investment worthiness. It only proves that these companies had money to invest. The share applications were made through proper documentation and payment was made through banking channels. On basis of the evidences submitted, there is no doubt regarding the genuineness of share application. If the Assessing officer had to prove otherwise, the Assessing Officer should have gone few steps more to confirm that the statement made by the Director of the Company Shri Manohar Lal Nangia is not true. Mere reliance on the statement recorded cannot be taken as final conclusion. In absence of such analysis, mere reliance of statement will not stand test of appeal.
Following the stand taken by the Hyderabad Tribunal in the case of M/s. Komal Agrotech Private Limited Vs. ITO, Hyderabad in ITA No.437/Hyd/2016 dated 25.11.2016, I allow the appeal. Addition made by the Assessing Officer is dismissed".
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I.T.A. No. 972/Hyd/2017
4. Aggrieved, Revenue has raised the following grounds:
"(i) The learned CIT(Appeals) erred in deleting the addition of Rs 5 crores made by the Assessing Officer u/s 68 of the IT act on account of unexplained share application money holding that there is no doubt regarding the genuineness of share application money and the amounts were received through banking channels.
(ii) The learned CIT(Appeals) ought to have considered that the subscribers who are stated to have subscribed to share application money are only shell companies and these companies are only providing accommodation entries through their bank accounts after receiving cash from beneficiaries including assessee.
(iii) The learned CIT(Appeals) ought to have further appreciated that the entry operator who controlled and managed said Shell companies has admitted on oath before the DDIT(inv.) Kolkata that he was providing accommodation entries through Shell Companies which clearly proves that the undisclosed money of the assessee was introduced as Share Application Money in the name of such Shell Companies and through entry providers.
(iv) The learned CIT(Appeals ) ought to have also appreciated that mere payments through banking channels do not make non-
genuine transactions genuine when the genuineness of the transactions and credit worthiness of the alleged subscribers to share application money introduced during the year was not established by the assessee as the said subscribers are only name lenders.
(v) The Ld.CIT(Appeals) ought to have provided an opportunity to the Assessing Officer as required under Rule 46A of IT Rules before admitting additional evidence in the form of financial statements and bank accounts of alleged subscribers to share application money.
vi) The appellant crabs leave to add, delete, substitute and amend any ground of appeal before and / or at the time of hearing of the appeal.
(vii) For these and other grounds that may be urged before fat the time of hearing of the appeal, it is prayed that the addition of Rs 5 crores made by the Assessing Officer u/s 68 of the Income Tax Act be restored".
:- 6 -:
I.T.A. No. 972/Hyd/2017 4.1. Since the Revenue has raised the grounds of violation of Rule 46A, AO was asked to specify which of the documents have not been furnished before the AO. AO vide letter dt. 28-
05-2018 addressed to CIT-DR has certified that the form of application for equity shares, copy of PAN, copy of the minutes of the meeting and copies of the ITRs were placed before the AO. However, he has given a common finding that there are no financials and bank account statements filed before him.
4.2. In reply, assessee has submitted that assessee has not furnished any bank statements of parties except the bank account of assessee before the AO and all other financials are part of the ITRs which were filed before the AO and confirmations of the amounts received in respect of the parties were also filed before the AO. It was also stated that no additional evidence was filed before Ld. CIT(A). Considering the above, we are of the opinion that there is no violation of Rule 46A and ground No. 5 raised by the Revenue is infructuous.
5. Coming to the addition of Rs. 5 Crores, it was the submission of Ld.DR that AO has enquired through DDIT(Inv.), Kolkata. On the basis of the findings of DDIT(Inv.), Kolkata, he has come to a conclusion that the above companies are bogus. In support of the same, Ld.CIT-DR has placed on record a Paper Book containing 85 pages, out of which, page Nos. 1 to 11 are copy of the assessment order. Page Nos. 12 to 85 are - letters and statements. The Index of which, is as under:
:- 7 -:
I.T.A. No. 972/Hyd/2017 SNo Description Page No. 1 Assessment rder under sec. 143(3) dt. 30.03.2016 1 2 Letter from DDIT (Inv) Unit 1(3) Kolkata dtd. 28.3.2016 12 3 Letter of Assessing Officer to DDIT (Inv) Unit 1(3) Kolkatta 19 dtd. 7.3.2016 4 Letter from the assessee dtd. 5.3.2016 along with enclosures 21 5 Statement of Shri Manohar Lal Nangalia dt. 14.11.2014 58 recorded by the ADIT (Inv) Kolkata u/sec. 131 of the IT Act 6 Summons dt. 14.11.2014 to Sri manohar Lal Nangalia 66 issued by the ADIT (Inv) Unit II(2) Kolkata 7 Statement of Shri Manohar Lal Nangalia recorded under sec. 69 131 of the IT Act on 17.1.2014 8 Statement of Shri Manohar Lal Nangalia recorded under sec. 76 132(4) on 09.04.2008 9 Statement of Shri Manohar Lal Nangalia recorded under sec. 80 132(4) of the IT Act on 15.2.2008 during the search and seizure operation u/s. 132 of the IT Act 10 Statement of Shri Santosh Shah recorded under sec. 131 of 84 the IT Act on 14.2.2008 11 Statement of Shri Manohar Lal Nangalia recorded under sec. 85 131 of the IT Act on 14.2.2008 It was the submission that Shri Monohar Lal Nangalia is in the habit of forming various companies for advancing moneys in share capital for commission and these companies are also part of the same. As the enquiries revealed bogus share capital the same was added as income.
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I.T.A. No. 972/Hyd/2017
6. Ld.AR, however, submitted that none of the information presently filed by the DR were made available by the AO to assessee either during the course of assessment proceedings or during the course of appellate proceedings and hence the same is in the nature of additional evidence, for which there is no separate prayer made by the Revenue. It was further submitted that the statements of Shri Monohar Lal Nangia has no correlation to the investments made by the companies and accordingly, they cannot be relied upon. Ld. Counsel further submitted that assessee-company has received money in the form of share capital and shares were allotted. Therefore, following the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports Pvt. Ltd., 216 CTR 195 (SC) the department can only proceed against the shareholder companies and cannot treat the amount as 'unexplained cash credit' in the hands of assessee. He further relied on the decision of the Hon'ble AP High Court in the case of Lanco Industries Ltd., [242 ITR 357] (AP), that in the absence of a finding that persons to whom the share certificate are issued were in fact the dummies or stooges of the directors of the assessee-company, the same cannot be treated as 'unaccounted income of assessee'. It was submitted that the investment is not a pre-arranged transaction and further neither the enquiries nor the statements of the so called persons were confronted to assessee and no cross examination was provided. Following the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Sunita Dhadda :- 9 -:
I.T.A. No. 972/Hyd/2017 in SLP (Civil) Diary No. 9432/2018, the presumption u/s. 292C against assessee is not available and since principles of natural justice are violated, the secondary evidence cannot be relied upon. It was submitted that the investment was reflected in the books of account of the investors, they had source as reflected in their balance sheets and there is no violation of Rule 46A by the CIT(A).
7. We have considered the rival contentions and perused the evidence placed on record. There is no dispute that assessee has received moneys from the above companies in the course of Financial Year 2012-13 and assessee also allotted shares to the respective parties. The enquiry from the DDIT(Inv.) was initiated on 07-03-2016 and letter from DDIT Unit-1(3), Kolkata was dt. 28-03-2016. The report of the DDIT is as under:
Sub: M/s. Cauvery Iron & Steel India Ltd [PAN: AABCC3576F] - Commission u/s. 131(1)(d) of the IT Act, 1961 - Request for enquiries
- Regarding Ref: DCIT-1(2)/AABCC3576F/2015-16 dated 07.03.2016.
-------------
With reference to your above quoted letter, this office has issued notice u/s. 131 to the following companies as mentioned in your above quoted letter and their directors for their personal appearance. But all the notices returned unserved by the postal authority. The details is as under:
:- 10 -:
I.T.A. No. 972/Hyd/2017 Sl.No. Name of Parties Details of submission 1 M/s. Tedium Sales Pvt. This company is already in the Ltd., database prepared by Directorate of Investigation, Kolkata wherein it has been stated by Shri Ankit Todi, Director of M/s. Tedium Sales Pvt.
Ltd., in his sworn statement dated 14.11.2014 that he is dummy director and M/s. Tedium Sales Pvt.
Ltd., is a paper shell companies engaged in the business of facilitating accommodation entries in form of bogus share capital share premium/unsecured loans etc., which is controlled and managed by known entry operator Shri Manohar Lal Nangalia.
2 M/s. Royalpet Notices returned unserved by postal
Commodities Pvt. Ltd., authority
3 M/s. Time Sound Notices returned unserved by postal
Barter Pvt. Ltd., authority
4 M/s. Royalpet Traders Notices returned unserved by postal
Pvt. Ltd., authority
Thereafter, the enquiries conducted through the ITI in respect of all those notices returned unserved by postal authority revealed all those companies neither exists at their respective present address nor the existence or name of those concerns/entities were known to any person in the local vicinity.
In view of above, prima facie it appears that the above mentioned companies are merely paper shell entities who are unable to prove their creditworthiness. Hence it can be concluded that the formation of the above companies are only for fund rotation and having no other business activities and the modus operandi adopted with the sole motive to give a color of genuineness to otherwise bogus transactions.
:- 11 -:
I.T.A. No. 972/Hyd/2017 If any further inputs related to aforesaid case require, let me know so that necessary action at his end may be taken".
7.1. As can be seen from the above letter, the enquiries conducted through ITI were not part of the report. What the Revenue has placed on record now in the form of paper book are stated to be statements of Shri Monohar Lal Nangalia dt. 15-02-2008, 09-04-2008, 17-01-2014 and 14-11-2014, much before the present enquiry has started. In what connection the enquiries were conducted with Shri Monohar Lal Nangalia is not specified in the report of DDIT. Moreover, the department also placed on record the statements recorded from Shri Monohar Lal Nangalia as early as 09-04-2008 and 14-02-2008 and also statement of Mr. Satish Shah dt. 14-02-
2008. It is to be noted that the companies being enquired have invested in assessee-company in the Financial Year 2012-13 and how the statements of Shri Monohar Lal Nangalia and the so called statement of Shri Satish Shah, dt. 14-02- 2008 are relevant has not been explained either by the AO or by the Ld.CIT-DR. In fact as seen from the assessment order, except relying on the report received from DDIT, there is no further evidence available with AO to hold that such companies are bogus. It is also true that the report from DDIT was received on 28-03-2016 and assessment has been completed on 30-03-2016 and there is no evidence placed on record that assessee was confronted with the above report, even though para 4.5 of the assessment order indicates that :- 12 -:
I.T.A. No. 972/Hyd/2017 assessee was given a final show cause notice. The date on which it was given and the contents of the same were not placed on record in the paper book. It seems that assessee has appeared on 30-03-2016 the date on which assessment has been finalized, explaining all the evidences. Considering that the so called enquiry report is inconclusive and reliance on the so called statements of Shri Monohar Lal Nangalia taken in 2008 and 2014 have not been linked with the present investments of the above five companies, we are unable to rely on the evidence now placed on record by the Revenue in the form of Paper Book, that too without any prayer for admission of additional evidence. Surprisingly, Revenue has raised a ground that Ld. CIT(A) has violated Rule 46A, but when it came to their turn Revenue placed some unconnected statements which are not before AO or confronted to assessee at any point of time, before us to justify the stand of AO. It is also to be noted that this information has not been furnished to assessee either during the assessment proceedings or during the appellate proceedings. Therefore, no reliance can be placed on that. As pointed out by the Ld. Counsel, the provisions of Section 292C does not help the Revenue and the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Sunita Dhadda (supra) will certainly apply to the facts of the case. Since Revenue has failed to place any evidence on record to hold that the companies who invested in assessee company are bogus, we cannot differ from the findings or observations of the CIT(A). Ld CIT(A) relied on the :- 13 -:
I.T.A. No. 972/Hyd/2017 evidence placed on record by Assessee. Consequently, we have no option than to confirm the order of Ld.CIT(A). Grounds of Revenue are rejected.
8. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 5th July, 2018 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated 5th July, 2018
TNMM
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I.T.A. No. 972/Hyd/2017
Copy to :
1. Dy. Commissioner of Income Tax, Circle-1(2), Hyderabad.
2. M/s. Cauvery Iron & Steel India Limited, 60/2, Pan Bazar, Ranigunj, Secunderabad.
3. CIT(Appeals)-I, Hyderabad.
4. Pr.CIT-1, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.