Income Tax Appellate Tribunal - Hyderabad
M/S. Cauvery Iron & Steel (India) Ltd.,, ... vs Acit, Central Circle-1(2),, Hyderabad 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. 914/HYD/2014
Assessment Year: 2009-10
M/s. Cauvery Iron & Steel Asst. Commissioner of
(India) Ltd., Vs Income Tax,
SECUNDERABAD Circle-1(2),
[PAN: AABCC3576F] HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri P. Murali Mohan Rao, AR
For Revenue : Shri K. Srinivas Reddy, DR
Date of Hearing : 15-06-2018
Date of Pronouncement : 05-07-2018
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-II, Hyderabad, dated 26-02-2014, on the issue of addition of share application money/share capital of Rs. 39,37,06,000/- made by the Assessing Officer (AO) and confirmed by the Ld.CIT(A).
2. The main issue in this case was that assessee has brought in an investment of Rs.39,37,06,000/- from various :- 2 -:
I.T.A. No. 914/Hyd/2014 companies as share capital. The AO considered this investment as unexplained for the reasons mentioned below:
(a) On verification of copies of share applicants it was noticed that same signature is appearing in many companies in the capacity of Director or Authorised Signatory and the handwriting of share applicants looks alike in most of the occasions.
(b) Letters were issued to the share applicants seeking the following details:
i. Mode of payment, details of allotment of shares by Cauvery Iron & Steels (India) Ltd., ii. Income tax particulars of A.Y. 2009-10 iii. Ledger extracts of Cauvery Iron & Steels in the books of share applicants.
(c) Letters were issued to 22 share applicants and the response is as under:
(i) Confirmed the investment - 5 cases. They are :
1. Glozon Alloys & Castings Pvt. Ltd., New Delhi
2. Mahak Textile Pvt. Ltd., New Delhi
3. Afflatus Software Pvt. Ltd., New Delhi
4. Sperm Tracom Pvt. Ltd., Kolkata
5. Jamuna Machine Tools & Manufacturing Company P. Ltd., Hyderabad.
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(ii) Letters returned with the remarks unknown / not known - 7 cases. They are:
1. Dost International Ltd. 1510/11, Shiv Ashram, SP Mukharji Marg, Delhi-6.
2. Rishikesh Properties Pvt. Ltd. 18/19, Eriappan St., Sowkarpet, Chennai.
3. Rupe Promoters Pvt. Ltd., 18/19, Eriappan St., Sowkarpet, Chennai.
4. Rupa Merchants Pvt. Ltd. 302, 3rd floor, Vardhaman North Ex-plaza, netajee Subhash Place, Pitampura, New Delhi - 6.
5. CEE AAR Decors Pvt. Ltd., 1510/11, Shiv Ashram, SP Mukharji Marg, Delhi-6.
6. ANG Finvest Pvt. Ltd., 1510/11, Shiv Ashram, SP Mukharji Marg, Delhi-6.
7. Sharadaraj Tradefin Ltd. Road No.109, Kolkata - 69.
(iii) Notice unserved / no reply received - 10 cases. They are:
1. Ma Santhoshi International Ltd., Kolkata
2. Limitex Investments Ltd., Kolkata
3. Blueprint Securities Ltd., Kolkata
4. Konark Commerce & Industries Ltd., Kolkata
5. Impex Services Ltd., Kolkata
6. Kuber Handicrafts Pvt. Ltd., New Delhi
7. Pearl Handicrafts Pvt. Ltd., New Delhi
8. Amar Shree Industries Ltd., Kolkata :- 4 -:
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9. Julania Finance Pvt. Ltd., New Delhi
10. Goodluck Industries Ltd., Kolkata
(d) That the company failed to produce the above parties for examination.
(e) That the shares of Rs.10/- were allotted at a premium of Rs.490/- per share without any valid justification for the premium.
(f) Total shares issued by the company were 7,99,400 to all the parties. Out of which 26,000 shares were allotted to Jamuna Machine Tools & Manufacturing Company P. Ltd., which is a sister concern of the assessee and this sister concern had not yet started the production but raised huge share capital without properly explaining the sources. This sister concern has issued share of Rs. 10/- each totaling to 26,010 shares at a premium of Rs. 4,990/- to various investors.
(g) The Assessing officer clearly informed the assessee that in case of any difficulty to produce the investors for examination at Hyderabad, he would like to visit the places of the investors and requested the assessee to confirm such proposal. However, the assessee replied that they have already asked their investors to appear before the AO and have not received any confirmation from the investors.
(h) Enquiries with the Axis Bank, Ranigunj branch, Secunderabad, through which share application money was received revealed that the money had not directly :- 5 -:
I.T.A. No. 914/Hyd/2014 come from the investors but was routed through series of other accounts. Further, similar investments were made in the case of Jamuna Machine Tools & Manufacturing Company P.Ltd. (100% subsidiary of the appellant) which is the major investor in the appellant company. Here also it was found that the money had not come in the account of Jamuna Machine Tools & Manufacturing Company P.Ltd. directly from the investors and it was routed through series of accounts.
(i) Since the investors were not produced for examination, the enquiries were conducted by Income-tax Investigation officials located at Mumbai, Kolkata, New Delhi and Chennai. All of them have reported that the companies do not exist at the given address and reported that these are only paper companies.
(j) That with reference to investment made by sister concern M/s. Jamuna Machine Tools & Manufacturing Company P.Ltd. vital details of share applicants and the reasons for fixing the premium at Rs.4,990/- were not submitted.
(k) That Mr. Ashok Kumar Gupta, Managing Director of the company admitted that the share application money was received through an agent - Mr. K.C. Malu, CA, who is currently not in India, but his address, contact number and PAN No. were not given. Mr. Ashok Kumar Gupta clearly admitted that he did not know any of the investor companies and their directors. He further admitted that the process of raising funds in the case of Jamuna :- 6 -:
I.T.A. No. 914/Hyd/2014 Machine Tools & Manufacturing Company P. Ltd., was also the same, the funds were raised through an agent.
(l) Based on the above enquiries, the Assessing Officer informed his conclusions to assessee as under:
"A. The companies which you claim as your investors are companies with dubious distinction in participating in suspicious and manipulative transactions.
B. The said investor companies exist only on paper to accommodate entries for the purpose of manipulation of funds.
C. These companies do not either exist at the given address or do not have any records / documents to prove the existence of these companies at the given address.
D. The address furnished either in the return of income / letter heads are dubious / incorrect with an intention better known to themselves / yourselves.
E. These companies, strangely invest substantial sums of money to take shares at a high premium without knowing anything about the companies in which sums are invested.
F. These companies have strangely invested substantial amounts in companies with no history of dividend payment and apparent returns on investments.
G. None of these companies have the necessary wherewithal to invest substantial sums."
2.1. After rejecting assessee submissions, AO held that the identity, genuineness and creditworthiness of investors was not proved and on the other hand information on record and the enquiries conducted by the department reveal that the investors are not existing and bogus, therefore, the entire :- 7 -:
I.T.A. No. 914/Hyd/2014 share application money was treated as unexplained investment.
3. Before the Ld.CIT(A), assessee submitted that :
(a) That 6 parties have submitted the required details called for by the AO directly to the department and 16 parties have confirmed the investments and submitted the details to AO through assessee;
(b) That all of them arc income-tax assessees, have PAN Nos. they have filed income-tax returns, copy of bank statement, confirmation letters, copy of audited accounts were submitted.
(c) That it tried its level best to produce investors before the AO but the same could not materialize as the investors are not under its control.
(d) That the department should have conducted enquiries with reference to sources in the hands of investors.
(e) Reliance is placed on the following decisions:
(i) CIT Vs. Lovely Exports (P) Ltd (2009) [319 ITR 0005] (SC)
(ii) CIT Vs. Oasis Hospitalities (P) Ltd. (2011) [333 ITR 011] (Del)
(iii) CIT Vs. STL Extrusion (P) Ltd. (2011) [333 ITR 269] (Madhya Pradesh)
(iv) Aquatech International Ltd. Vs. ITO (2008) [119 TTJ 0140] (Delhi - Trib) :- 8 -:
I.T.A. No. 914/Hyd/2014
(v) Asst.CIT Vs. Venkateshwar Ispat (P) Ltd. (2010) (II) ITCL 0355 (Chattisgarh - HC)
(vi) Hindustan Inks & Resins Ltd Vs. Dy.CIT (2011) [60 DTR 0018 (Guj.HC)
4. Ld.CIT(A) vide para 5 of the order has considered that none of the investors are existing at the addresses given, issuance of PAN (Permanent Account Number) does not prove the physical existence of a person unlike that of a Passport, almost all companies do not have any activity at all and majority of the companies have shown NIL income or nominal income and further enquiries conducted with assessee's bank account indicated that the amounts are routed through several accounts. Relying on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Titan Securities Ltd., (2013) [84 CCH 184] / [357 ITR 184] (Delhi) and the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd., [216 CTR 195] (SC) / [319 ITR 0005] (SC) which was distinguished in the above case, Ld.CIT(A) held that investors are not existing and they are mere entities on paper. It was further held 'as the entire evidence is so glaring and apparent that these appellants own unaccounted money which has come accounted, further the identity, genuineness and creditworthiness of investors did not prove'. Therefore, as discussed in the order the addition made by the AO of Rs. 39,37,06,000/- was sustained.
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5. Assessee has raised various grounds (13) on the above issue. Assessee has placed paper books, evidencing the details furnished before the authorities regarding confirmations and creditworthiness of the investor companies and both the parties have filed detailed written submissions in the course of hearing.
6. It was the submission of the Ld. Counsel that assessee-company had received money towards share capital and shares are already allotted. Following the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd., [216 CTR 195] (SC), the department is free to proceed to reopen the individual assessments of investor companies in accordance with law but the addition cannot be made in the hands of assessee. Ld. Counsel also placed reliance on the decision of the Hon'ble AP High Court in the case of CIT Vs. Lanco Industries Ltd., [242 ITR 357] (AP), wherein it was held that if the any of shareholders failed to explain the means of investment that should have been treated as 'unexplained income' in their hands and cannot be taxed in the hands of assessee. Ld. Counsel also placed reliance on the amendment to Section 68 w.e.f. 01-04-2013 to submit that explanation about nature and source of such sum was introduced only w.e.f. 01-04-2013 and so the same is not applicable for the year under consideration i.e., AY. 2009-10. It was further submitted that the investment in share capital is not pre-arranged transaction and the addition was made based on inaccurate evidences. It was submitted that many of the :- 10 -:
I.T.A. No. 914/Hyd/2014 assessees have responded to the AO's enquiry and hence, they cannot be treated as non-existing/bogus. It was further submitted that AO caused enquiries at Chennai, whereas all the investor companies belong to Delhi or Kolkata. The enquiries caused at Kolkata have not been confronted to assessee and so the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Sunita Dhadda in SLP (Civil) Diary No. 9432/2018 will apply and the presumption u/s. 292C against assessee is not available.
6.1. It was further submitted that all the companies have submitted their confirmation letters, copies of income tax returns and financial statements so as to prove the investment made in assessee-company and the investor companies also got their books audited and are regularly filed returns of income. Ld. Counsel further submitted that none of these companies have been deleted from the list of the companies recently, which proves that they are genuine companies. It was further submitted that assessee-company has received an amount of Rs. 39,97,00,000/ towards share capital, whereas AO made an addition of Rs. 39,17,06,000/-, thereby accepting part of the share capital and share premium received. It further shows that AO has not examined the issue properly. With reference to the share premium received, Ld. Counsel relied on the Co-ordinate Bench decision in the case of M/s. Hariom Concast & Steel Pvt. Ltd., Vs. ITO in ITA No. 1775/Hyd/2014 for the proposition that amount of premium cannot be doubted when share capital was accepted. It was :- 11 -:
I.T.A. No. 914/Hyd/2014 further contended that AO is trying to enquire the source of source to treat the transactions as bogus, which is unsustainable against the law. Since assessee had filed the details of investors, their PAN numbers, ITRs and confirmations along with financials, the same has to be accepted as genuine unless and otherwise proved to be wrong. It was submitted that since assessee discharged the onus, the creditworthiness of the companies invested should be accepted.
7. In reply, it was the contention of the Ld.DR that assessee's sister concern, Jamuna Machine Tools & Manufacturing Company P. Ltd., (JMTMPL) was allotted 26,600 shares and the balance was allotted to 21 companies which are based in Kolkata and New Delhi. It was submitted that the sister concern itself raised the amount by issuing further share capital in the same financial year at Rs. 5,000/- per share which involved premium of Rs. 4,990/-. As there was premium received. AO made enquiries and found that only six persons have replied to the letters issued u/s. 133(6) of the Act and in seven cases, the notices are returned unserved, the balance nine cases, no replies were received even though notices were served. In view of that, AO has issued letter on 12-12-2011 to assessee-company, requesting to produce various details and documentary evidence in support of the investments made and assessee was granted time from 16-12-2011 to 22-12-2011. Summons were issued to the Managing Director on 12-12-2011 and statement was :- 12 -:
I.T.A. No. 914/Hyd/2014 recorded on 16-12-2011. It was admitted that assessee- company has furnished details of investments made by the balance six companies which have not responded to the enquiries u/s. 133(6). In the course of statement recorded, the Managing Director was asked to furnish evidences that was received directly from the companies concerned and requested to produce the parties concerned for examination. Ld.DR later referred to the enquiries with the bank i.e., Axis Bank, Ranigunj to submit that investments were not directly made but routed through various other accounts or layers so as to frustrate the investigation. It was further submitted that enquiries were conducted through investigation wing at Kolkata and Chennai regarding genuineness of the companies concerned. It was further submitted that as per the investigation report received, it was found that the companies actually involved in providing accommodation entries based in Kolkata and other places. Further summons were issued and a statement was recorded on 30-12-2011 informing about the investigation conducted by the department. Ld.DR further stated that the Managing Director has taken a 'U' turn with regard to mode of procurement of funds from the investors and stated that one Mr. K.C. Mali, CA had arranged the funds rather than in his own. Since assessee-company failed to furnish the requisite details in order to prove the identity of the alleged investor to establish their creditworthiness and the genuineness of the transactions, AO invoked the provisions of Section 68 and taxed the entire amount of increase in share capital and share premium account as income of assessee.
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I.T.A. No. 914/Hyd/2014 Ld.DR relied on the judicial principles laid down by the Hon'ble Apex Court in the case of Sumati Dayal Vs. CIT [80 taxman 89] (SC) and CIT Vs. Sophia Finance Ltd., [205 ITR 98] (Delhi).
7.1. Ld.DR further submitted that the surrounding circumstances considered by the AO are :
i. Receipt of share premium of Rs. 490/- per share without any justification which is not commensurate with the net worth of the company or profit earning ability of the company, as evidenced by the financial statements; ii. It is identified that most of the alleged shareholders/companies are located in the same address in Delhi or Kolkata;
iii. In most of the cases, they have common directors; iv. In most of the cases, there are common auditors who have audited the accounts;
v. Return of income has been filed from same location i.e. using the same system/computers;
vi. Companies located in Kolkata had filed returns of income from Delhi;
vii. Chartered Accountants based in Kolkata have signed accounts of Delhi based companies;
viii. Share applications are stereo-typed with same wording, same typesetting and same amount of premium without any discrimination;
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I.T.A. No. 914/Hyd/2014 ix. As seen from the balance sheet of the alleged shareholders / companies, no business activities / income generating activities are reflected and most of the accounts are shown in the balance sheet by way of increase / decrease in capital / advances etc. Most of the alleged shareholders / companies are loss making or disclosed meagre profits which are not in commensurate with the huge amount of investment made in the assessee's company. Source of investment in the hands of the alleged shareholders / companies in most of the cases is by way of their existing sale of investments or raising capital by way of huge amount of share premium or share application money;
x. with regard to financial transactions in all the cases, no surplus funds are found in the bank accounts as source of investment made in assessee's company; xi. In all the cases, funds were deposited in the bank accounts by way of transfer from other companies on the same day of transfer of funds to assessee-company towards share capital or share premium that is to say 'back to back' transactions. The alleged investment was made by way of layering of bank transactions without direct investment.
7.2. It was further submitted that assessee-company has not declared any dividend till the date of passing the order of the CIT(A) and sister concern, JMTMPL made back to back :- 15 -:
I.T.A. No. 914/Hyd/2014 investment and funds were received from Delhi based companies. Ld.DR placed reliance on the following decisions:
i. CIT Vs. Durga Prasad More [82 ITR 540] (SC) ii. Sumati Dayal Vs. CIT [80 Taxman 89] (SC) iii. N. Tarika Property Invest (P) Ltd., Vs. CIT [51 taxmann.com 387] (SC) iv. CIT Vs. Sophia Finance Ltd., [205 ITR 98] (Delhi) v. CIT Vs. Nova Promoters & Finlease (P) Ltd., [18 taxmann.com 217] (Delhi) vi. CIT Vs. Titan Securities Ltd., [32 taxmann.com 306] (Delhi) vii. CIT Vs. N.R. Portfolio (P) Ltd., [42 taxmann.com 339](Dehi) viii. Co-ordinate Bench decision of ITAT in the case of M/s.
Royal Rich Developers Pvt. Vs. DCIT - ITA Nos. 1835 & 1836/Mum/2014.
8. In reply, Ld. Counsel for assessee submitted that the share capital cannot be enquired in the hands of assessee- company once the shares were allotted and confirmations were furnished by assessee. Further non-declaration of dividend cannot be a reason for computing the transaction as declaration of dividend will depend on the incomes earned by the company. It was submitted that none of the companies have either sold the shares or transferred the shares and they are still holding the share capital in assessee-company.
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9. We have considered the rival contentions and perused the documents placed on record. Both the parties have placed paper books. It is surprising to note that Revenue has placed the paper book, containing pages 1 to 20, out of which pages 15 to 20 the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Titan Securities Ltd., [32 taxmann.com 306] (Delhi) was placed. Thus, pages 1 to 14 are only relevant documents on facts, the index of which is as under:
PAPER BOOK S.No. Details Page Nos 1 Copy of the sworn statement dt. 16/12/2011 of 1 to 4 Ashok Kumar Gupta, Managing Director of M/s. Cauvery Iron & Steel India Ltd., Hyderabad 2 Copy of the sworn statement dt. 20/12/2011 of 5 to 7 Ashok Kumar Gupta, Managing Director of M/s. Cauvery Iron & Steel India Ltd., Hyderabad 3 Copy of ITR-V for the AYs. 2008-09, 2009-10 & 8 to 11 2011-12 in the case of M/s. Jamuna Machine Tools Manufacturing Company P Ltd., Hyderabad 4 Copy of enquiry report in respect of Kolkata 12 to 13 based companies received from DDIT (Inv.), Unit
-IV(5), Kolkata 5 Copy of enquiry report in respect of shareholders 14 from Chennai received from DIT(Inv.), Chennai 9.1. As can be seen from the above, there are two statements recorded ( pages 1-7) from Managing Director in the month of December, 2011 which does not throw any light against assessee-company [since it is given by the Managing Director himself]. The copy of the ITR placed (in pgs. 8 to 11) :- 17 -:
I.T.A. No. 914/Hyd/2014 indicates the IT returns of JMTMPL, which is a separate entity and assessed at Hyderabad.
9.2. Coming to Item No. 4 (pages 12-13), this was the enquiry report in respect of Kolkata based companies, received from DDIT(Inv.) Unit- IV(5), Kolkata. The report was as under:
Sub: Enquiry report in respect of various Kolkata based companies relating to M/s. Cauvery Iron & Steel India Ltd. - matter reg.
Ref: Your letter F.No. CIT-I-/Hyd./Inv./Misc/2010-11 dated 22.12.2011 Kindly refer to the above.
Enquiry in respect of the shareholders of M/s. Cauveri Iron & Steel India Ltd, was carried out by deputing inspectors attached with this office. On perusal of Inspector's report submitted to this office in respect of identity and genuineness of shareholders of M/s. Cauveri Iron & Steel India Ltd., it has been observed that all the shareholders are non-existing at their addresses and appear to be paper companies.
In view of the above facts and circumstances, the identity and creditworthiness of the shareholders could not be examined at this end. The modus operandi adopted by this company is simple - they do not do any business and involved in providing accommodation entries. This is the trend in Kolkata. Such paper companies are managed and operated by some entry operators through dummy Directors in lieu of small amount of commission. The assessee willing to make the accommodation entry has to give cash to receive a cheque along with a small amount of commission.
The above report along with Annexure-I is submitted for your kind perusal and necessary action at your end.
Yours faithfully, XXXXXXXXX :- 18 -:
I.T.A. No. 914/Hyd/2014 9.3. As can be seen from the above report, a reference from the CIT, Hyderabad to the Investigation Unit was dated 22-12-2011 and the report from DDIT was dated 26-12-2011.
It is not understandable what enquiries have been caused in the four days i.e., from the date of letter of CIT and the reply by the DDIT, leave alone the detailed enquiries caused by the above unit. The modus operandi adopted is explained in the letter, but there is no such enquiry report or any details /evidence enclosed to the report in support of such modus operandi. Pg. No. 13 is enclosure to the report which lists the companies which are supposed to be non-existing :
Sl. Name of the company Address Remarks No.
1) Sperm Tracom Pvt. Ltd., 32A, Brindaban Basak Not existed Lane, 1st Floor, Kolkata
2) Ma Santoshi 10A, Hospital Street, Not existed International Ltd., Kolkata-700 072
3) Shardarji Tradefin Ltd 1, Croocked Lane, Not existed Room No. 109, Kolkata-
69 4) Limtex Investment Ltd., 16, Ganesh Chandra Not existed Avenue, 7th Floor, Kolkata-700 013. 5) Blueprint Securities Ltd., 1, Croocked Lane, Not existed Room No. 109, Kolkata- 69. 6) Konark Commerce & 10A, Hospital Street, Not existed Industries Ltd., Kolkata-700 027. 7) Impex Services Ltd., 10, Raja Santosh Road, Not existed Kolkata-700 027. 8) Amar Shree Industries 13, Bonfield Lane, 6th Not existed Ltd., Floor, Kolkata-700 001. 9) Goodluck Industries Ltd., 13, Bonfield Lane, 6th Not existed Floor, Kolkata-700 001.
Even though the companies are stated to be non-existing, AO in the assessment order itself has accepted that Sperm Tracom :- 19 -:
I.T.A. No. 914/Hyd/2014 Pvt. Ltd., Kolkata has directly responded to the 133(6) letters sent in November, 2011. How a company which received and responded to a postal communication from the AO could become non-existent, when ITI made enquiries immediately after a month, is not explained.
9.4. Coming to the report of DIT (Inv.), Chennai,( page
14) which both AO/CIT(A) as well as the DR relied was as under:
"2. It is verified from the record that though the addresses of the two companies are in Chennai, on verification it is found that the companies are assessed with ITO, Ward XV(4), Delhi. From the record of the Directorate, it is seen that no information regarding the above two companies is available".
It is so transpired that two companies, Rupa Promotes Pvt. Ltd., and Rishikesh Properties Pvt. Ltd., though based in Delhi were given Chennai address by assessee and therefore, enquiries were conducted with Investigation Unit at Chennai. But as seen from the report of the DIT, Chennai, these two companies are assessed with ITO, Ward-XV(4), Delhi. How these companies have become non-existent, when the internal investigation revealed that they are assessed with ITO, Ward- XV(4), Delhi was also not explained.
9.5. Another aspect stated in Assessment order and also by the Ld. CIT(A) is about so called enquiry with Axis Bank, Secunderabad which it seems 'revealed layering of transaction so as to frustrate the enquiry by the department'. None of the details have been placed on record. If the AO has :- 20 -:
I.T.A. No. 914/Hyd/2014 made such enquiries with Axis Bank, Secunderabad so as to state that the investments are layered through many such companies, no such enquiry report or details have been placed on record. It is to be noted that the appeal has been filed as early as 2014 and cases have been heard over a period of four years but still the Revenue never thought it fit to file the necessary enquiry report on record, so that this can be confronted to assessee. In fact, it was one of the contentions of assessee that enquires caused behind the back of assessee have not been confronted to assessee at all and so the same cannot be relied upon.
9.6. Analysing the paper book placed on record, it reveals that the enquiry by DIT, Investigation, Chennai confirms that two companies are assessed at Delhi. There is no evidence of modus operandi stated by the DDIT in the report and no such supporting evidence has been furnished. One company M/s Sperm Tracom Pvt. Ltd., Kolkata has responded directly to AO as mentioned in the assessment order, but this company was also reported as non-existing company, throwing doubt about the veracity of the report itself. It is to be mentioned here that no enquiry has been caused at New Delhi.
Thus, rejection of companies from New Delhi out-rightly cannot be accepted. Thus, the so called evidence by revenue is incomplete and does not justify the conclusions drawn by the AO/ CIT(A) when assessee has furnished whatever evidence it could collect in support of the cash credits. The enquiry report from DIT, Chennai proves that the companies are existing, :- 21 -:
I.T.A. No. 914/Hyd/2014 even though AO and CIT(A) shows that companies are paper entities and not genuine. Therefore, reliance on the so called statements of AO and CIT(A) about the modus operandi and introduction of assessee's money in the form of share capital cannot be accepted on the face of it.
10. Coming to the investments made by various companies in the assessee-company, it is to be noted that AO has added amount of Rs. 13 Crores which was invested by sister concern M/s Jamuna Machine Tools & Manufacturing Company P.Ltd. ( JMTMPL) in Hyderabad and also assessed at Hyderabad. AO started the enquiry only on the basis of the high premium received by that company from its shareholders, which in turn was invested in assessee-company. Since JMTMPL is an existing company at Hyderabad and assessed at Hyderabad, on which there is no dispute, the company cannot be treated as 'non-genuine'. On the share capital received by JMTMPL, it is for the AO to enquire in the assessment of that company, but the investment by the company in the assessee- company cannot be considered as unexplained. Since the company is in existence and has confirmed the investment in assessee-company towards share capital, the amount of Rs. 13 Crores cannot be brought to tax in assessee's hands. Further, AO cannot enquire the source of source in the hands of assessee-company, when JMTMPL has confirmed its investment. Thus, the investment of Rs. 13 Cores by the sister concern at Hyderabad cannot be considered as 'unexplained cash credit' in the hands of assessee-company by any means.
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11. These are the companies from Delhi which have invested.
S.No. Company Name Investment
amount (Rs)
1 Rupa Merchants Pvt. Ltd., 50,00,000
2 Rishikesh Properties Pvt. Ltd., 25,00,000
3 Mahak Textiles Pvt. Ltd., 1,40,00,000
4 Pearl Handcrafts Pvt. Ltd., 50,00,000
5 Kuber Handicrafts Pvt. Ltd., 50,00,000
6 Julania Finance Pvt. Ltd., 1,25,00,000
7 Glozon Alloys & Casting Pvt. Ltd., 1,60,00,00
8 Dost International Ltd., 50,00,000
9 Cee Aar Decors Pvt. Ltd., 25,00,000
10 ANG Finvest Pvt. Ltd., 50,00,000
11 Afflatus Software Pvt. Ltd., 1,00,00,000
Total 8,25,00,000
11.1. Out of these, M/s. Glozon Alloys & Casting Pvt. Ltd., Mahak Textiles Pvt. Ltd., and Afflatus Software Pvt. Ltd., have confirmed to the AO directly about their investment when enquired u/s. 133(6). In addition, the investigation report of DIT, Chennai indicates that Rupa Promoters Pvt. Ltd., and Rishikesh Properties Pvt. Ltd., were also assessed in Delhi. Thus these five companies cannot be considered as bogus. No investigation was conducted at New Delhi and there is no evidence against assessee worth mentioning as far as the investment by the Delhi companies are concerned. Since assessee has furnished the evidence available with it in support of the contentions, which have not been controverted, we have no hesitation in holding that these companies cannot be categorised as non-genuine. The investments to that extent from the above companies cannot be brought to tax as 'unexplained cash credits' in the hands of assessee.
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12. Coming to the balance of investment from Kolkata companies, the name of the company and amounts invested are as under:
S.No. Company Name Investment
amount (Rs)
1 Sperm Tracom Pvt. Ltd., 10,62,00,000
2 Good Luck Industries Pvt. Ltd., 1,00,00,000
3 Amar Shree Industries Ltd., 85,00,000
4 Impex Services Ltd., 1,00,00,000
5 Blue Print Securities Ltd., 1,00,00,000
6 Konark Commerce & Industries Ltd 1,00,00,000
7 Limtex Investments Ltd., 1,00,00,000
8 Maasantoshi International Ltd., 1,00,00,000
9 Shardaraj Tradefin Ltd., 1,00,00,000
Total 18,47,00,000
12.1. Out of these, as already stated, M/s. Sperm Tracom Pvt. Ltd., has directly confirmed to the AO in response to notice u/s. 133(6). Therefore, the investment to that extent of Rs. 10.62 Crores made by that company cannot be considered as bogus just because the DDIT without any evidence, reports that the company is non-existing. The ITRs placed on record from the above company and the annual reports which are audited do indicate that company is an existing company. Therefore, the addition of Rs. 10,62,00,000/- made in the name of the above company as bogus does not survive.
12.2. That leaves us with the balance companies, whose investment was at Rs. 7,85,00,000/-. With reference to these companies, there is no evidence to support the allegation that these companies are bogus. The evidences placed on record by :- 24 -:
I.T.A. No. 914/Hyd/2014 assessee do indicate that they are filing returns and has shown the investments in assessee-company in their balance sheets. If a company do not have any activity of income, but invested moneys in the assessee-company, the source of the same has to be examined in that company. What action has been taken by the respective AOs in assessing the amounts in the respective company's hands has not been placed on record. Since money has come through the banks and assessee has discharged its onus about the existence of the company and as pointed out by the Ld. Counsel, none of these companies have been deleted from the list of companies and are holding the investments in assessee's company as such and as the share capital has been allotted, we cannot uphold the revenue contention that these companies are bogus. As already stated above, no evidence of the so called modus operandi has been placed on record. Additions cannot be made on presumptions and assumptions. There should be some evidence to support the contentions raised. Since the Revenue has not placed anything on record worth considering to hold that these companies are bogus, just because AO mentions the so called modus operandi which in turn was followed by the CIT(A) in the order, the same cannot be accepted, unless the flow of funds have been confronted to assessee or at least brought to the notice of ITAT being a final fact finding authority. In the absence of any evidence to the contrary, the contentions of assessee cannot be rejected. In our opinion, the Revenue has failed to establish that it is assessee's money which has been routed through various companies.
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I.T.A. No. 914/Hyd/2014
13. It may not be out of place to mention that Revenue has placed some statements recorded from one person supposed to have been the key person establishing various companies and routed various funds i.e., of one Mr. Manohar Lal Nagalia from whom statements have been recorded in the years 2008 and 2014. But those statements have been placed in the appeal for AY. 2013-14 which have been considered there. No such evidence has been placed for AY. 2009-10. Even otherwise also that evidence no way support Revenue contentions. It is to be noted that FY. 2008-09 was boom year in the Indian economy and many companies have issued shares with premium (one example is that of M/s Reliance Petroleum Ltd., which has come out with largest public issue with premium). Generally, shareholders respond to the background of the promoters, projects and its viability. Just because high share premium was received by assessee, it cannot be considered that the entire share capital is bogus. Be that as it may, since AO or the CIT(A) failed to link the investments by the shareholders to assessee's Managing Director or to the company, the statement made by the CIT(A) that this is the assessee-company's money cannot be accepted. Assessee-company has commenced its operations in the previous year and has no worthwhile revenue in either of the years to consider that the company has earned unaccounted money. Judicial principles established by the Hon'ble Supreme Court in the case of CIT Vs. P.K. Noorjahan [237 ITR 570] will apply to the facts of the case. Since Revenue failed to place any evidence to support its contentions and as assessee discharged :- 26 -:
I.T.A. No. 914/Hyd/2014 its onus, for the reasons stated above, we find that none of the amounts can be brought to tax as assessee's unaccounted income in the form of 'unexplained cash credits'. Following the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd., (supra), the department could have enquired the amounts and the sources thereon in the hands of the respective shareholders. In view of this, we have no hesitation to delete the entire addition made by the AO. Grounds raised by assessee are allowed.
14. In the result, the appeal of assessee is allowed.
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. 914/Hyd/2014
Copy to :
1. M/s. Cauvery Iron & Steel (India) Ltd., Secunderabad. C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
2. The Asst. Commissioner of Income Tax, Circle-1(2), Hyderabad.
3. CIT(Appeals)-II, Hyderabad.
4. CIT-1, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.