Income Tax Appellate Tribunal - Mumbai
Glb Finvest P.Ltd ( Formelry Known As ... vs Assessee on 31 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE SHRI VIJAY PAL RAO,
RAO, JUDICIAL MEMBER AND
SHRI D. KARUNAKARA RAO,
RAO, ACCOUNTANT MEMBER
ITA NO.1159, 1160 & 1161/Mum/2013
Assessment year: -2003-04
GLB Finvest Pvt. Ltd. Vs.` Asst. Commissioner of
(Formerly known as Ginni Income Tax
Finvest P. Ltd.) Central Circle 20,
504, Nain Kripa, 118/122, Kazi Aayakar Bhavan,
Sayex Street, M.K. Road,
Mumbai - 400003. Mumbai - 400 020.
PAN:- AAACR2763E
Appellant Respondent
Assessee By Shri Hari S. Raheja
Revenue By Shri. R. N. D'souza
Date of hearing
17.12.2014
Date of pronouncement
31 .12.2014
ORDER
Per Vijay Pal Rao, JM
These three appeals by the assessee are directed against three separate orders of CIT(A) in the case of three assessee's who were subsequently amalgamated to one namely GLB Finvest Ltd. for A.Y. 2003-04. The facts and issues involved in all these appeals of the amalgamated assesses are identical, therefore, for the sake of convenience, these three appeals were heard together and are being disposed off by this single composite order. Identical grounds have been raised in all the appeals, therefore we reproduce the grounds in the appeal in ITA no. 1160/Mum/2013 are as under:-
GLB Finvest Pvt. Ltd.
"1. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in passing the ex-parte order without providing reasonable opportunity of being heard.
2. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in not quashing the order passed by the Ld. A.O despite the fact that the Ld. AO issued notice u/s 148 seeking to reopen the assessment uls 147 on a non existent entity and consequent assessment order so passed in the name of non existent entity is illegal, bad in law or otherwise void for the want of jurisdiction.
3. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the AO's action of reopening the assessment which is illegal, bad in law or otherwise void for the want of jurisdiction.
4. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the A.O's action of reopening the assessment which is barred by limitation.
5. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the A.O's action of assessing the income of the appellant at Rs. 19,57,600/- in the assessment framed u/s 143(3) r.w.s. 147 as against returned income of Rs. 87602/-.
6. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the A.O's action of making addition of Rs. 18,70,000/- on account of alleged unexplained share application money by invoking provisions of section 68 of the Income Tax Act, 1961.
7. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the A.O.'s action in holding that all the share applications are bogus on the basis of the statement of Shri Giriraj Vijayvargiya who or his family members had not invested any amount during the previous year relevant to the A.Y. 2003-04.
2. At the time of hearing the Ld. Authorized Representative of the assessee has stated that the assessee does not want to press ground nos. 1 and 2 of these appeals and the same may be dismissed as not pressed.
3. Ld. DR raised no objection if the ground no. 1 and 2 of these appeals are dismissed as not pressed.
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4. Accordingly, we dismiss ground nos. 1 and 2 of these appeals which is common in all appeals as being not pressed.
5. Ground no. 3 is regarding validity of reopening of assessment.
6. The original return filed by the assessee was processed u/s 143(1). Subsequently, the Assessing Officer reopened the assessment by issuing notice u/s 148 on 30.03.2010 on the reason that search action u/s 132 of the Act took place in the case of Shri Giriraj Vijayvargiya on 26.04.2007, who is a member of group called Ankur Group. During the course of search, it was found that Shri Giriraj Vijayvargiya has given accommodating entries in the form of gifts, loans and share application money. In the assessment proceedings, of Shri Giriraj Vijayvargiya, it was found that he had given accommodating entries to 45 persons. It was also seen that various concerns controlled by Shri Vikas Berlia have introduced unaccounted money in the form of shares allocated to Shri Giriraj Vijayvargiya and his family members. Accordingly, the Assessing Officer has formed the belief that the premium received by these companies which are the group concern of Shri Vikas Berlia are involved in introducing unaccounted money in the form of bogus capital share and consequently, the income assessable to tax has escaped assessment. The re-assessments were completed in all the three cases, wherein, the additions on account of share premium and share application money was made u/s 68 of the Income Tax Act.
7. The assessee challenged the action of Assessing Officer before CIT(A) but could not succeed.
8. Before us, the Ld. Authorized Representative of the assessee has submitted that the assessment was reopened based on the statement of Shri Giriraj Vijayvargiya admitting giving accommodating entries in the form of gifts, loans
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and share application money. The Assessing Officer has reproduced the reasons recorded in the assessment order itself, wherein, the accommodating entries given by Shri Giriraj Vijayvargiya in the companies controlled by Shri Vikas Berlia was also mentioned. The Ld. Authorized Representative has pointed out that non of these companies which are mentioned by the Assessing Officer in the reasons recorded are the share holders of the assessee. He has further contended that even in the statement of Shri Giriraj Vijayvargiya, there is no allegation of any accommodating entries in the form of share application money to these three companies. Thus the Ld. Authorized Representative has submitted that the Assessing Officer has reopened the assessment on the basis of conjecture and surmises and only on assumptions without any tangible material or information that the assesses have received any application money from Shri Giriraj Vijayvargiya or from the Group companies of Shri Vikas Berlia. He has further submitted that even during the assessment proceedings, the Assessing Officer issued notice u/s 133(6) to the share applicants of the assessee's who have confirmed the transaction of share application money and allotment of share. Therefore, in the absence of any material or fact indicating any link between the share application money and Shri Giriraj Vijayvargiya the reopening is not valid. He has contended that the conditions prescribed u/s 147 are not fulfilled because the Assessing Officer was not having any material or information on the basis of which it could be inferred that the income assessable to tax particularly the share application money has escaped assessment on account of unaccounted money of the assessee was introduced in the system. It is further contended that the reopening is after four years from the end of the assessment year, hence in the absence of any allegation that the assessee failed to disclose all the material facts fully and truly necessary for assessment, the reopening is not permissible. In support of his contention he has relied upon the judgment of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. ( 320 ITR 561). He has also relied upon the following decisions:
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(i) Prashant S. Joshi Vs. ITO 324 ITR 154 (Bom)
(ii) ITO Vs. Lakhani Mewal Das 103 ITR 437 (SC)
(iii) Hindustan Dorr Oliver Ltd. Vs. DCIT 305 ITR 282 (Bom)
(iv) Sarthak Securities Co. P. Ltd. Vs. ITO 329 ITR 110.
9 The above judgments were also relied upon by the assessee before CIT(A).
10. On the other hand, the Ld. DR has submitted that there was a new information came to the possession of the Assessing Officer regarding the introduction of fresh capital through the mode of bogus share allotment as a result of search action u/s 132 in the case of Shri Giriraj Vijayvargiya. In his statement Shri Giriraj Vijayvargiya has admitted that he was giving accommodating entries including share application to the group concerns controlled by Shri Vikas Berlia. These three companies are also Group companies of controlled by Shri Vikas Berilia, therefore, the Assessing Officer was having the reason to believe that the share application received by these companies are sham transactions through accommodation entries received from Shri Giriraj Vijayvargiya. He has further contended that at the stage of reopening the Assessing Officer is not required to go into the deep of merits of the issue but what is required is the reason to believe that the income assessable to tax has escaped assessment. He has relied upon the orders of authorities below.
11. We have considered the rival submissions and relevant material on record. The Assessing Officer has reopened the assessment in respect of these three cases on the reason that the share application received by the assessee is not a genuine transaction but is on account of accommodation entries received by paying the cash being unaccounted money of the assessee. The reasons recorded by the Assessing Officer as reproduced in the assessment order are as under:-
"on the 8th of september 2010. The reasons as recorded and given to the assessee are as under:-
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Search action u/s 132 of the Act took place in the case of Shri GirirajVijayvargiya on 26.4.2007. Shri Giriraj Vijayvargiya is a member of Group called Ankur Group. During the course of search, it was found that Shri Giriraj Vijayvargiyahas give accommodation entries in the form of gifts, loans and share application money. In the sworn statement u/s 132(4), Shri Giriraj has admitted that he is not having any source of gifts, loans or share application money and the beneficiaries paid him cash for the equivalent amount in cheque and a commission of 2-3.5%. Shri. Giriraj has disclosed the commission income.
In the return filed u/s 153A, Shri Giriraj has disclosed the commission income.
2. During the course of assessment proceedings in the case of Shri. Giriraj, it was found that from F.Y. 1999-2000 to 2005-06 he had given accommodation entries totaling to Rs.
4,70,65,000/- to 45 persons vide 119 entries. During the search itself, Shri Giriraj has stated that in all these transactions the actual amounts were paid by the recipients of these entries in cash along with 2-3.5% as commission. It is also found that Shri. Giriraj is not having any means of gift/loan these amounts. During the assessment proceedings, all the recipients of these entries were summoned u/s 131. Bank accounts of Shri. Giriraj and his family members were verified and it was found that before making these entries cash was deposited in their accounts. It is also seen that other than these deposits, these accounts were having only negligible amounts.
2.1. Most of the persons who appeared in response to the summons have agreed that these gifts/loan entries are bogus. In view of the same, 20' assessees who have received entries for Rs. 1.06 crores in 47 entries have paid additional taxes/revised returns for A. Y. 's 2002-03 to 2005-06.
2.2. Two assessee's who are companies have paid additional taxes disclosing an amount of Rs.59 Lakhs which they introduced as bogus share application money in the name of Shri. Giriraj and his family members.
3. Berlia Plastochem Pvt. Ltd is a family concern of Shri Vikas Berlia who is the main person of the group. The directors of assessee company for the year under consideration is Smt. Pooja Berlia and Smt. Varsha Berlia, Smt. Pooja Barlia is the sister of Shri Vikas Barlia and Smt. Varsa Barlia wife of Shri Vikas Berlia. The main company of the group is M/s Major Metals Ltd. It is seen that various concerns controlled by Shri Vikas Berlia have introduced unaccounted money in the form of shares allotted to Shri. Giriraj and his family members. Details of accommodation entry given by Shri. Giriraj and his family members in the form of share capital to the concerns controlled by Shri. Vikas Berlia are as under:
Sl. Name of person Total amount of Financial year
No. entries given of entries.
1. Shri Giriraj Vijayvargiya 2,00,00,000 2005-06
2. Jeth mal Vijayvargiya 5,00,000 2004-05
3. Santosh Vijayvargiya 5,00,000 2004-05
4. Giriraj HUF 5,00,000 2004-05
5. Rekha Vijayvargiya 5,00,000 2004-05
6. Surendra Vijayvargiya 5,00,000 2004-05
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GLB Finvest Pvt. Ltd.
7. Premlata Vijayvargiya 5,00,000 2004-05
Total 2,30,00,000
M/s. Sweet Marketing (I) Pvt. Ltd.
M/s. Berlin Securities Pvt. Ltd.
Sr Name of Person Total Amount of entries Financial of entries
No. given
1 Smt. Premlata Rs.2,20,000/- 2003-04
Vijayvargiya
Sr Name of Person Total Amount of Financial of
No. entries given entries
1 Smt. Premlata Rs.4,00,000/- 2001-02
Vijayvargiya
Total Rs.4,00,000/-
Total Rs.2,20,000/-
M/s. Beri Finvest Pvt. Ltd.
Sr Name of Person Total Amount of entries Financial of entries
No. given
1 Smt. Sonal Rs.2,20,000/- 2003-04
Vijayvargiya
Total Rs.2,20,000/-
During the course of assessment proceedings in the' case of Shri Giriraj, statement of Shri Vikas Berlia, Director of M/s Major Metals Ltd was recorded u/s 131 of the Act. This statement was confronted to Shri Giriraj. Shri Giriraj in his statement u/s . 131 has reiterated that the above transaction of introduction of share capital by M/s Major Metals Ltd was not genuine and it was only cheque issued by him/his family members (on his behalf) in lieu of cash and commission of 2-3.5%. The statements of above family members of Shri Giriraj were also recorded u/s 131 and they have stated Giriraj Vijayavargia has used their bank accounts for giving entries. They have also stated that they have signed the share application forms and other papers/documents to them by Shri Giriraj without going through the same in view of their relationship with and good faith and trust on Shri. Giriraj.
During the course of assessment proceedings in the case of Shri Giriraj, statement of Shri Vikas Berlia was recorded u/s 131 and detailed questions were asked regarding introduction of share capital by M/s Major Metals Ltd as it is the main concern of the group. From the
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statement of Shri Vikas Berlia and Shri Giriraj and other facts and circumstances of the case, it was found that Mr Vikas Berlia was not able to give any satisfactory reason as to why Shri Giriraj and his family would subscribe to the shares of his company. He has not been able to give any satisfactory answer as to why anybody would buy shares of a closely held a limited Company at a premium of Rs. 990/-? In this case the company issued shares having face value of Rs. 10/- for Rs. 1000/-. No basis for valuation of the shares was given by Mr Vikas BerIia. No proof of delivery of share certificates to Shri Giriraj or his family members has been given. The company never declared any dividends over the past several years. Then why would any prudent businessman would invest in any such Private Limited Company and that too at a hefty premium of 100 times the face value? One probable reason a person could invest in a company for a high premium is when he has an intention to join the business actively. But in the case of Shri. Giriraj he never attended any AGM also! Also no proof of any invitation being sent to him for attending the AGM could be produced by Mr Vikas Berlia. The minutes of the board meeting authorizing the issue of shares Shri. Giriraj and his family members was never produced If the transactions were genuine then Mr Vikas Berlia was expected to co-operate with the department and explain the queries raised. On the contrary, after appearing once, Mr Vikas Berlia chose not to comply with the summons. In his statement U/S 131 on oath, Mr Vikas Berlia stated that in connection with the introduction of the share capital, Mr. Giriraj was introduced to him by Mr J.P. Agarwal which was denied by Shri.Giriraj in his statement U/S 131. Also he stated that Mr. Giriraj was well known to his late father. This was again denied by Shri Giriraj in his statement u/s 1312. Also he stated that Mr. Giriraj was well known to his late father. This was again denied by Shri Giriraj.
6. M/s Major Metals Ltd is not a listed company and never declared any dividends. It was showing only nominal profit in its Profit and Loss account but they were introducing huge amounts as share application money which the claim to have received for issuing shares at a substantial premiums. The following chart shows year-wise capital, profit, amount introduced in the form of share application money/share premium, earning per share (EPS), and premium for shares allotted during the year.
F.Y. Capital Profit Amount EPS Premium
introduced (Earning per share
as share per
application Share)
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GLB Finvest Pvt. Ltd.
money/prem
ium
2002-03 88,58,500 6,06,438 1,91,84,500 0.68 490
2003-04 90,96,500 16,74,566 6,62,000 1.84 490
T
2004-05 99,56,500 13,78,653, 4,91,40,000 1.38 990
h
2005-06 99,56,500 25,12,765 2,44,00,000 2.52 990
i
2006-07 1,09,78,50 1,16,47,700 10,11,78,000 10.60 990
s 0
shows that no real investor will invest money in this non-dividend paying non listed company at such ka high premium.
7. The above facts clearly establish that the said transaction is actually bogus. The action of 20 persons who paid additional taxes/filed revised returns also showed that all these entries are not real gifts/loans and only accommodation entries or bogus share application amounts.
8. The above discussion clearly explains the modus operandi of the group which is largely controlled by Shri Vikas Berlia. The group companies are' involved in introducing the unaccounted money in the form of bogus share capital at huge premiums. M/s Ginni Finvest Pvt Ltd is also a group concern of Vikas Berlia and it is seen that it was showing only nominal profits in its Profit and Loss account but they were introducing huge amounts as share application- money which they claimed to have received for issuing shares at substantial premiums. It is not a listed company and has never declared any dividends. On the basis of the above discussion, I have reason to believe that M/s Ginni Finvest Private Ltd has also introduced unaccounted money in its books in the form of share application money, share capital and share premium during assessment year 2003-04.
9. From the perusal of the Balance Sheet of M/s Ginni Finvest Pvt. Ltd as at 31.03.2002 and 31.03.2003 it is observed that the paid-up capital from equity shares has increased from Rs. 43,06,000/-as on 31.03.2002 to Rs. 44,76,000/- as on 31.03.2003. Also the share premium has increased from &.1,80,60,000/- as on 31.03.2002 to Rs. 1,97,60,000/- as on 31.03.2003. From the above discussion, the modus operandi of the assessee is clear. The assessee has adopted the modus operandi of introducing the unaccounted income in its books in the form of bogus share application/share capital. Therefore, I had reasons to believe that the assessee's paid-up capital and share capital in financial year 2002-03 was also bogus. In view of this I have reason to believe that income of Rs. 18,70,000/- being increase in share capital and share premium during the year, has escaped assessment in the case of M/s Ginni Finvest Pvt. Ltd for A. Y. 2003-04 'as per the provisions of section 147 of the Act. On verification of records for A. Y. 2003- . 04.is seen that the case was not
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scrutinized u/s 143(3) in that year. Hence, notice u/ 148 is issueds after obtaining prior approval of the Addl CIT(A), Central Range 4, Mumbai"
12. These reasons are nothing but the summary of statement of Shri Giriraj Vijayvargiya during the search as well as the assessment proceedings of Shri Giriraj. It is manifest from these reasons recorded by the Assessing Officer that four concerns are mentioned which are controlled by Shri Vikas Berlia in which the allegation of giving accommodation entries in the shape of share application money was made by Shri Giriraj in his statement . It is pertinent to note that these three concerns(assessee before us) are not part of the beneficiaries of the accommodation entries as per the allegation made in the statement of Shri Giriraj. Further even those four concerns who have allegedly received the accommodation entries in the form of share application money are not the share applicants of these assessee's before us. Therefore, as far as, share application money received by the assessee the same is neither came from Shri Giriraj or from any related party or person or even from the other group concern of Shri Vikas Berlia. The share application were received by the assessee from following concerns:-
1. M/s Shresth Leasing and Finance Ltd.
2. Watson Software Ltd.
3. Upbeat Trading Pvt. Ltd..
13. There is no allegation of the Assessing Officer that the share applicants of the assessee have any connection with Shri Giriraj Vijayvargiya or with Shri Vikas Berlia.
Once these share applicant companies are unrelated/ independent parties and have no connection either with Shri Giriraj or with Shri Vikas Berlia then there was nothing came to the possession of the Assessing Officer to believe that the share application money received by the assessee is bogus transaction and consequently the income assessable to tax has escaped assessment. From the reasons recorded by the Assessing Officer, there is no indication about the relation between the share application money and the bogus accommodation entries given by Shri Giriraj. Therefore, the assessments were reopened by the AO merely on the basis of assumptions without having any tangible material or information on the basis of which it could be believed that transaction of share 10 | P a g e GLB Finvest Pvt. Ltd.
application money was as bogus transaction. In the case of CIT Vs. Kelvinator of India Ltd. (supra), the Hon'ble Supreme Court while confirming the judgment of full bench decision of Hon'ble Delhi High Court has held that the reason must have a link with the formation of belief and there must be a tangible material to come to the conclusion that there is escapement of income from assessment. Similarly, in the case of Prashant S. Joshi (supra), the Hon'ble High Court has held in para 20 as under:-
"18. For all these reasons, it is evident that there was absolutely no basis for the first respondent to form a belief that any income chargeable to tax has escaped assessment within the meaning of the substantive provisions of section
147. Explanation (2) to section 147 creates a deeming fiction of cases where income chargeable to tax has escaped assessment. Clause (b) deals with a situation "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return." For the purpose of clause (b) to Explanation (2), the Assessing Officer must notice that the assessee has understated his income or has claimed excessive loss, deduction, allowance or relief in the return. The taking of such notice must be consistent with the provisions of the applicable law. The act of taking notice cannot be at the arbitrary whim or caprice of the Assessing Officer and must be based on a reasonable foundation. The sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua nonfor a valid exercise of power. In the present case, having regard to the law laid down by the Supreme Court it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment. The reasons which have been recorded could never have led a prudent person to form an opinion that income had escaped assessment within the meaning of section 147. In these circumstances, the petition shall have to be allowed by setting aside the notice under section 148."
14. Thus it is clear that though the sufficiency of evidence or material for forming the belief is not open to scrutiny but the existence of belief is must for a valid exercise of power. If it is impossible for any prudent person to form a belief on the basis of material or evidence that the income chargeable to tax has escaped assessment and reason which have been recorded would not lead to a prudent person to form an opinion that the income has escaped assessment within the meaning of section 147 then the action of the Assessing Officer in reopening the assessment u/s 147/148 is contrary to the powers permitted under the said provisions of Act. In the case in hand, the reasons recorded by 11 | P a g e GLB Finvest Pvt. Ltd.
the Assessing Officer do not indicate even a remote nexus between the application money received by the assessee with the alleged accommodation entries provided by Shri Giriraj Vijayvargiya or the alleged beneficiary of the accommodation entries. Accordingly, in the facts and circumstances of the case, we hold that the reopening in these cases are not valid and consequently the same is quashed.
15. Since the re-assessment is quashed being found invalid, therefore, the other grounds raised in these appeals become infructuous.
16. In the result appeals of the assessee are allowed.
Order pronounced in the open court on this 31st day of December 2014.
Sd/- Sd/-
(D. Karunakara Rao)
Rao) (Vijay Pal Rao)
(Accountant Member ) (Judicial Member)
Member)
Mumbai dated 31-12-2014
SKS Sr. P.S,
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "E" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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