Income Tax Appellate Tribunal - Chennai
Shantananda Steels Pvt. Ltd., Chennai vs Ito Ward 6(2), Chennai on 8 November, 2019
आयकर अपील य अ धकरण, 'सी' यायपीठ, चे नई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH: CHENNAI
ी जॉज माथन, या यक सद य एवं
ी र#मत कोचर, लेखा सद य के सम'
BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND
SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
Stay Petition No.302/Chny/2019
(In ITA No.3080/Chny/2019)
नधारण वष /Assessment Year: 2011-12
Shantananda Steels Private v. The Income Tax Officer ,
Limited Corporate Ward 6(2)
403, Thiruvottiyur High Road Chennai.
Thiiruvottiyur, Chennai-600119
[PAN: AAACS5070K]
(अपीलाथ)/Appellant) (*+यथ)/Respondent)
अपीलाथ) क, ओर से/ Appellant by : Mr.B.Ramakrishnan, FCA
*+यथ) क, ओर से /Respondent by : Mr. A.R.V.Sreenivasan, JCIT
सुनवाई क, तार ख/Date of Hearing : 08.11.2019
घोषणा क, तार ख /Date of : 08.11.2019
Pronouncement
आदे श / O R D E R
PER RAMIT KOCHAR, ACCOUNTANT MEMBER:
The assessee has filed this Stay Petition bearing number 302/Chny/2019 arising out of appeal in ITA No.3080/Chny/2019 for Assessment Year (ay) 2011-12 seeking stay of demand of disputed tax and interest amount aggregating to Rs.2,24,83,719/- as reflected in Stay Petition filed with Income Tax Appellate Tribunal, Chennai Benches, Chennai.
SP No.302/Chny/2019
(in ITA No.3080/Chny/2019) :- 2 -:
2. The back ground of the assessee's case is that the assessee is trader in steel. The return of income originally filed by assessee with Revenue on 29.09.2011 declaring income of ` 66,170/- was processed by learned Assessing Officer u/s 143(1) of the Income-tax Act,1961 on 24.01.2012 accepting returned income. The learned Assessing Officer received letter No. F.No.1307/Kolkatta/14-15 dated 06.02.2015 from JDIT)Inv.)(Hq) O/o DGIT(Inv.), Chennai forwarding a list of paper/shell companies , dummy directors and entry operators of Kolkatta , who were providing accommodation entries. The AO observed that the assessee has received share capital from nine entry operators of Kolkatta which are mentioned in the aforesaid list, to the tune of Rs. 3.50 crores. The AO also observed that while framing assessment for ay: 2012-13 in the case of the assessee, that all the aforesaid shareholders transferred share application amount by RTGS on the same date viz. 18.05.2010. It was observed by AO that all these entities have meager income. The enquiries were made by AO with these nine entities u/s 133(6) of the 1961 Act , wherein it was found that one person namely Mr. Kedar Nath Dutta has received envelops containing notices issued u/s 133(6) to all these entities based in Kolkatta, except in the case of one entity Arulaga Roche A.C.A.Finance Limited. The said company M/s. Arulaga Roche A.C.A.Finance Limited never replied to the notice issued by AO u/s 133(6) of the 1961 Act The AO further observed that replies to notices u/s 133(6) were posted on the same date by these entities on 14.03.2015 from GPO, Kolkatta-700001. The addressee of all these companies as mentioned in envelope was stated to SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 3 -:
be same. The handwriting on the envelops were also of the same person. This led AO to observe that these entities are operated by one person. The AO also observed from bank statements filed by these entities that in case of all these investing companies, before making investment in assessee company there were immediate credits entries of the similar amount out of which investment in shares of the assessee company were made. This led learned Assessing Officer to reopen concluded assessment u/s 147 of the 1961 Act by issuance of notice dated 09.06.2017 u/s 148 of the 1961 Act to the assessee for impugned ay 2011-12, as in the opinion of the AO income of the assessee chargeable to income-tax has escaped assessment. No assessment was originally framed by Revenue for impugned ay : 2011-12 u/s 143(2) of the 1961 Act . It is further observed by authorities below that the assessee has never paid any dividends as in the view of Revenue , when the assessee is not able to generate sufficient profits , then how investors at Kolkatta having meager incomes could have invested huge amount of Rs. 3.50 crores and that too at share premium of Rs. 900 per share as against face value of Rs. 100 per share. It is further observed by authorities below that assessee is a closely held private company and investments in such closely held companies can only be made by promoters, family members , relatives or known persons and it was not known that how these Kolkatta entry operators have made such a huge investments in share capital and share premium of assessee company. No proper reply was forthcoming from assessee, which led authorities to conclude that it is the assessee who has introduced its own SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 4 -:
unaccounted money in the garb/form of share capital and share premium to the tune of Rs 3.50 crores into the assessee company from these accommodation entry providers based in Kolkatta , which led to additions been made in the hands of the assessee by invoking provisions of Section 68 of the 1961 Act. The AO passed assessment order dated 24.12.2018 u/s 147 read with Section 143(3) of the 1961 Act , which was upheld by learned CIT(A) vide appellate order dated 20.09.2019. Thus, both the authorities below have concurrently decided the issue against the assessee. Now the assessee has filed an appeal before the Income-Tax Appellate Tribunal , Chennai in ITA No.3080/Chny/2019 for ay: 2011-12 .
The assessee has come up with this stay petition in SP 302/Chny/2019 seeking stay of outstanding income-tax and interest thereon of Rs. 2,24,83,719/-. When this stay petition was called for hearing, it was brought to our notice by learned counsel for assessee that no amount stood deposited by assessee pursuant to demand raised by authorities and the entire demand of income-tax and interest raised by the AO is still outstanding for payment. Prayers are made to stay the entire outstanding demand of income-tax and interest accrued thereon. The learned counsel for the assessee submitted that assessee is not in a position to pay any outstanding demand of income-tax and interest , as it is heading for liquidation and in any case Revenue now cannot recover any amount as the assessee does not have any resources to pay this huge liability. Thus, in nutshell the learned counsel for the assessee submitted that the assessee is facing severe financial crisis and outstanding demand be SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 5 -:
stayed. The assessee has filed stay petition in which the assessee has made out elaborate arguments for staying the outstanding demand including stating in the stay petition that the assessee furnished complete particulars of these entities as also duly submitted their PAN, bank statements, confirmations , ITR's of these entities , share application forms etc before authorities below and since all these documents/information are submitted before authorities, no additions could have been made by authorities u/s 68 of the 1961 Act. It is also stated in the said stay petition that these entities have duly replied to notices u/s 133(6) of the 1961 Act.The assessee has in its stay petition also relied upon provisions of Section 68 of the 1961 Act and its amendment by Finance Act, 2012 to submit that no additions are warranted in the hands of the assessee. The assessee has also relied upon in the stay petition on large number of cases to contend that no additions at the first place was warranted in the hands of the assessee and hence stay of outstanding demand of tax and interest be granted to the assessee.. The learned DR has objected to the grant of stay of outstanding demand of income-tax and interest accrued thereon to the assessee. We have gone through the stay petition as well orders of authorities below We have observed that Section 68 of the 1961 Act has three ingredients which the assessee has to satisfy for which the onus is on the assessee as the amount stood credited in books of accounts of the assessee. Firstly, identity of creditors; secondly , creditworthiness of creditors and thirdly, genuineness of the transactions. Unless these three ingredients are SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 6 -:
cumulatively satisfied , burden which is casted on the assessee did not get discharged. The assessee is a closely held Private Limited company with small income. The investing entities have subscribed to shares of the assessee of the face value of Rs 100 at premium of Rs. 900 per share. The assessee as per authorities below has not discharged onus as to how come these investing companies have invested huge amount of Rs. 3.50 crores at such a huge valuation. These nine entities based in Kolkatta are themselves having meager income and their relation with the assessee company could not be established as per facts emerging from records. Thus, these are entities unknown to assessee who have invested huge amount in assessee company at huge valuation. This led authorities to hold that creditworthiness of these parties as well genuineness of the transaction could not be proved by assessee. The assessee has no doubt proved identity of these entities but other two limbs are also to be satisfied cumulatively by assessee to come out of clutches of Section 68 of the 1961 Act which is deeming section which creates a deeming fiction. The assessee itself is a private limited closely held company and onus shall be very heavy in such cases. We are of the considered view that Section 68 of the Act creates a legal fiction which cast obligation on the assessee to explain to the satisfaction of the AO about nature and source of credit in case any amount is found credited in the books of the assessee maintained for any previous year. This creates a legal fiction and in case the assessee did not offer explanation to the satisfaction of the AO as to the nature and source of credit of any amount found credited in the books SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 7 -:
of the assessee for any previous year by cumulatively satisfying the AO about the identity and creditworthiness of the creditor and about the genuineness of the transaction, the amount found credited in the books of the assessee shall be treated to be the income of the assessee as unexplained income under legal fiction created by Section 68 of the Act. Section 68 of the Act created a legal fiction which does not require that the Revenue has to show the sources of the income before bringing the amount to tax since the amount is found to be credited in the books of the assessee in case the assessee has not offered explanation to the satisfaction of the AO. Thus, section 68 of the Act cast obligation on the assessee where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of credit thereof or the explanation offered by the assessee is found not satisfactory in the opinion of the AO, the sum so credited may be treated as income and charged to income-tax as income of the assessee of that previous year. The burden/onus is cast on the assessee and the assessee is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s. 68 of the Act as an income. There are companies which are widely held companies in which public are substantially interested which comes out with an initial public offers wherein shares are listed on stock exchanges SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 8 -:
and widely traded, wherein members of public make subscriptions in pursuance to the Prospectus issued by the company. Issue of shares in these cases to general public in India as well abroad are approved, regulated and monitored by various authorities who are engaged in regulating and managing securities market such as Securities and Exchange Board of India(SEBI), Stock Exchanges, Government of India etc.. These members of public who make subscription are widely scattered all over the country or even outside India as any person entitle to apply as per the conditions prescribed in the prospectus can place an application subscribing to the shares of the company by depositing duly filled in application along with application money with the designated authorized recipients of the company stipulated in the prospectus such as bankers, brokers, under-writers, merchant bankers, company offices etc. These shareholders who are member of public are un-known persons to the company issuing shares and the company issuing shares have no control/mechanism to verify their creditworthiness etc. and the burden of proof in such cases is different, but there is another class of companies which are closely held companies in which public are not substantially interested who are mostly family controlled closely held companies and they raise their share capital from their family members, relatives and friends and in these companies since share capital is received from the close knit circles who are mostly known to the company/promoters, the onus as required u/s. 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. The onus SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 9 -:
of widely held company could be discharged on the submissions of all the information contained in the statutory share application documents and on not being satisfied the AO may proceed against the shareholders u/s. 69 of the Act instead of proceeding against the company, but in the closely held companies the share capital are mostly raised from family, close relatives and friends and the assessee is expected to know the share subscribers and the burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s. 68 of the Act as unexplained cash credit. The use of the word „any sum found credited in the books ' in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s. 68 of the Act as an unexplained credit in the hands of the assessee company raising the share capital because the AO is both an investigator and adjudicator. Merely submission of the name and address of the creditor, income tax returns, Balance Sheet/statement of affairs of the creditor and bank statement of SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 10 -:
the creditor is not sufficient as the AO is to be satisfied as to their identity and creditworthiness as well as to the genuineness of the transaction entered into. In this case Revenue has made enquiries with all the nine entities and have come to conclusion that all these entities except one M/s. Arulaga Roche A.C.A. Finance Limited are controlled by one person and have meager incomes. The said Arulaga Roche A.C.A. Finance Limited never responded to notices u/s 133(6) of the 1961 Act. These investing entities are having minimal income and the investments made in assessee are preceded by credit of similar amounts in their bank accounts. Thus, the genuineness of these transactions as well credit worthiness of the creditors is doubted by authorities below, Even before us, no such evidences/material is placed to prove to contrary and rather bald statement is made that assessee is not in a position to pay any amount and it is heading for liquidation. No balance sheet/bank statements/ other evidences to prove precarious financial position of the assessee as on date is filed. The assessee could not made out any prima facie case nor is able to show how balance of convenience is in favour of the assessee. Nor the assessee could prove financial difficulties faced by it with evidences such as Balance Sheet/ Bank statements etc as no evidence whatsoever is filed before us to prove financial difficuties faced by it rather only bald statement is made that assessee is heading for liquidation. Rather recent decision of Hon'ble Supreme Court in the case of PCIT v. NRA Iron and Steel Private Limited reported in (2019) 412 ITR 161(SC) support the stand of Revenue. An application filed by assessee to recall aforesaid SP No.302/Chny/2019 (in ITA No.3080/Chny/2019) :- 11 -:
judgment of Hon'ble Supreme Court in the case of NRA Iron and Steel Private Limited(supra) has been dismissed by Hon'ble Supreme Court in the case of PCIT v. NRA Iron and Steel Private Limited reported in (2019) 110 taxmann.com 491(SC). Thus, in our considered view , no case whatsoever has been made by assessee for stay of demand on all the grounds of Prima-facie case, balance of convenience, irreparable loss and financial difficulties before and hence this stay petition stand dismissed.
We hereby clarify that we have not commented on the merits of the issue in the appeal filed by assessee. This decision is pronounced in open court in the presence of both the parties. We order accordingly.
3. In the result, the Stay Petition No.302/Chny/2019 arising out of ITA No.3080/Chny/2019 for ay: 2011-12 filed by the assessee stands dismissed.
Order pronounced in Open Court on this 08th November , 2019 in Chennai.
Sd/- Sd/-
(जॉज माथन) (र#मत कोचर)
(GEORGE MATHAN) (RAMIT KOCHAR)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
चे नई/Chennai,
1दनांक/Dated: 08th November , 2019.
आदे श क, * त#ल2प अ3े2षत/Copy to:
1. अपीलाथ)/Appellant 4. आयकर आयु4त/CIT
2. *+यथ)/Respondent 5. 2वभागीय * त न ध/DR
3. आयकर आयु4त (अपील)/CIT(A) 6. गाड फाईल/GF