Income Tax Appellate Tribunal - Raipur
M/S. V R Rsources Pvt. Ltd.,, Raipur (Cg) vs Cit,, Raipur (Cg) on 19 April, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
RAIPUR BENCH, RAIPUR
BEFORE SHRI SHAMIM YAHYA, HON'BLE ACCOUNTANT MEMBER &
SHRI PARTHA SARATHI CHAUDHURY, HON'BLE JUDICIAL MEMBER
ITA Nos. 39 & 40/RPR/2014
(Asst. Years : 2008-09 & 2009-10)
M/s. Epic Investwell (P) Ltd., Vs. CIT, Raipur.
Dukanpara, Kharora, Raipur.
PAN No. AABCE 8340 F
(Appellant) (Respondent)
ITA Nos. 41 to 43/RPR/2014
(Asst. Years : 2007-08 to 2009-10)
M/s. Alok Resources Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AAGCA 1319 K
(Appellant) (Respondent)
ITA Nos. 44 to 47/RPR/2014
(Asst. Years : 2005-06 to 2007-08 & 2009-10)
M/s. Param Transport Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AAHFP 5205 B
(Appellant) (Respondent)
ITA Nos. 48 to 51/RPR/2014
(Asst. Years : 2007-08 to 2010-11)
M/s. Kapil Finvest Pvt. Ltd., Vs. CIT, Raipur.
Dukanpara, Kharora, Raipur
PAN No. AADCK 1637 P
(Appellant) (Respondent)
2
ITA Nos. 39-77/RPR/2014
ITA Nos. 52 & 53/RPR/2014
(Asst. Years : 2007-08 & 2009-10)
M/s. Ashish Resources Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AAGCA 1320 G
(Appellant) (Respondent)
ITA Nos. 54 to 56/RPR/2014
(Asst. Years : 2007-08 to 2009-10)
Vs. CIT, Raipur.
M/s. Vimal Resources (P) Ltd.,
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AACCV 4086 G
(Appellant) (Respondent)
ITA Nos. 57 to 60/RPR/2014
(Asst. Years : 2005-06 to 2007-08 & 2009-10)
M/s. Natural Ores (P) Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AABCN 9679 E
(Appellant) (Respondent)
ITA Nos. 61 to 64/RPR/2014
(Asst. Years : 2005-06 to 2007-08 & 2009-10)
M/s. Utsav Coal Supplies Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AABFU 6200 D
(Appellant) (Respondent)
3
ITA Nos. 39-77/RPR/2014
ITA Nos. 65 & 66/RPR/2014
(Asst. Years : 2008-09 & 2009-10)
M/s. Ramesh Tradewing (P) Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AADCR 9433 J
(Appellant) (Respondent)
ITA Nos. 67 & 68/RPR/2014
(Asst. Years : 2008-09 & 2009-10)
M/s. Adept Viniyog Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AAGCA 5363 H
(Appellant) (Respondent)
ITA Nos. 69 to 71/RPR/2014
(Asst. Years : 2007-08 to 2009-10)
M/s. Vishwanath Resources Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AACCV 4058 F
(Appellant) (Respondent)
ITA Nos. 72 to 75/RPR/2014
(Asst. Years : 2005-06, 2007-08 to 2009-10)
M/s. P.C. Mining Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AADCP 3527 D
(Appellant) (Respondent)
ITA Nos. 76 & 77/RPR/2014
4
ITA Nos. 39-77/RPR/2014
(Asst. Years : 2008-09 & 2009-10)
M/s. V.R. Resources Pvt. Ltd., Vs. CIT, Raipur.
M-14, C/o Sunil Kumar Agrawal,
Rajeev Nagar, Raipur.
PAN No. AACCV 6905 G
(Appellant) (Respondent)
Assessee by : Shri S.K.Agarwal, CA.
Department By : Shri Darshan Singh - DR.
Date of hearing : 19/04/2016.
Date of pronouncement : 22 /04/2016.
ORDER
PER BENCH These are the appeals by the thirteen companies filed against the separate orders passed by the ld. CIT, Raipur under sec. 263 of the Income Tax Act, 1961 (hereinafter referred to as "Act"). Since all these appeals are based on identical facts and common grounds of appeal, we are proceeding to dispose them off by this consolidated order for the sake of convenience.
2. Since the facts are identical, we have referred to the facts and figures from M/s. Natural Ores (P) Ltd. Consequent to search and seizure operation u/s 132 of the I.T. Act, 1961 in the Agrawal group of cases, Raipur, several documents were found relating to the assessee company.
Accordingly, a notice u/s 153 C was issued on 29-09-2011 by the Assessing Officer, DCIT-2(1), Raipur, requiring the assessee company to file its return of income for the A Yrs. 2005-06, 2006-07, 2007-08 and 2009-10. In 5 ITA Nos. 39-77/RPR/2014 response, the assessee company filed its return of income for the A Yrs.
2005-06 & 2006-07 on 21.11.2011 declaring total income at Rs. Nil. For the A Yrs. 2007-08 and 2009-10, the assessee filed its return of income on 05-12-2011 declaring total income at Rs. Nil. The case was selected for scrutiny and the Assessing Officer, i.e., the DCIT-2(1), Raipur, passed orders u/s 143(3) r.w.s. 153 C of the I T Act for the A Yrs. 2005-06, 2006- 07, 2007-08 and 2009-10 on 30.12.2011 accepting the assessees total income at Rs. NIL.
3. In this regard, the assessment order passed by the Assessing Officer which is identical in all the cases may be reproduced as under:-
"The assessment proceedings U/s 153C in this case are consequential to the search and seizure action under section 132 of IT. Act, 1961 in the Agrawal group of cases, Raipur. In the said Agrawal group of cases, a search and seizure action conducted on 04/02/2010 in which the office/factory premises of the said M/s. Prime Ispat Limited, the residential premises of its directors and their relatives and other related concerns as well as the residential/office premises of Shri Sunil Kumar Agrawal, Chartered Account of this group were covered. Several documents were found relating to the assessee company and were seized. The documents found and seized included copies of return of income, tax audit report alongwith audited capita; account and balance sheet, bank statement, share application forms & list of share applicants and share certificates pertaining to the assessee company.
2. On being so satisfied on the basis of the documents seized as mentioned above and pertaining to the assessee company, notice U/s 153C was issued to the assessee on 29/09/2011 and served on 29/09/2011 requiring to file the return of its income within 30 days of receipt of the notice. In response to which, the return of income is filed by the assessee in this office on 21/11/2011. In its return the assessee has declared total income of Rs. NIL. The case was selected for scrutiny by issue of notice u/s 143(2) dt. 05/12/2011 and 6 ITA Nos. 39-77/RPR/2014 questionnaire alongwith notice u/s 142(1) were issued upon the assessee on 21/10/2011 and duly served. During the course of assessment proceedings, Shri Sunil Kumar Agrawal, CA and AR of the assessee, attended and filed a written submission giving parawise reply to the questionnaire. The assessee company is incorporated on 13/08/2004 which is evident from the copy of Certificate of Incorporation filed. The assessee company was required to explain the basis of determining his income and furnish information relating to affairs of his business which was done through compliances made during assessment proceedings. Subject to the above the income of the assessee as shown in the return is accepted.
Income assessed Rs. NIL Assessed accordingly. Order passed u/s 143(3) r.w.s. 153A of Income Tax Act, 1961. Give credit to prepaid taxes. Issue demand notice - N.D. This order is passed with prior approval U/s 153D of the Joint Commissioner of Income Tax, Range-2, Raipur vide F.No. JCIT/R-2/RPR/Scrutiny/2011-12/ 454, dated 30/12/2011."
4. Subsequently, the ld. CIT noted that while examining the assessment records/proceedings U/s 263(1) of the Income-tax were initiated as certain aspects of the case were not examined properly by the A.O. while making the assessment. The order passed by the Assessing Officer was found to be erroneous insofar as it was prejudicial to the interest of revenue.
Accordingly, a detailed notice u/s 263 of the I.T.Act as issued to the assessee on 20th Feb, 14 citing the below-mentioned reasons for proposed revision:
"The search and seizure action under section 132 of I.T.Act, 1961 was conducted in the case of Shri B.L. Agrawal group of Raipur and related business concerns which include M/s Prime Ispat Limited, a closely held limited company, as well as the Chartered Accountant of the group, Shri Sunil Kumar Agrawal. During the course of search conducted in the office premises of Shri Sunil Kumar Agrawal, the documents relating to the above mentioned company were found. In order of Hon'ble ITSC, Kolkata in the case of M/s Prime Ispat Limited, it has been observed that --"......Thus, in view of the plethora 7 ITA Nos. 39-77/RPR/2014 of evidence produced before us, we are of the opinion that the whole of investment other than that made through the medium of 13 shell companies etc. cannot be held as bogus. .......The CIT has already pointed out that the investments in the company Prime Ispat Ltd. has been made by petty account holders, whose bank pass books were knowingly/unknowingly found with the C.A. and the investments from them (saving bank accounts) were found into the shell companies from whom the investments further flowed to the applicant No. 1 company M/s Prime Ispat Limited. Thus, as far as investment from shell companies etc. of Rs. 39.08 crores + Rs. 1.40 Crores=Rs. 40.48 Crores is concerned the same cannot be treated as fully explained."
From the order of the Hon'ble Settlement Commission it is therefore clear that you being a Shell Company, the Investment made by you in M/s Prime Ispat cannot be treated as fully explained. Also as per the statement of Shri Sunil Kumar Agrawal, CA recorded during the course of above mentioned search, it was admitted by him that cash deposits were made into the above company belonging to Shri Sunil Kumar Agrawal and his close relatives from the savings bank accounts of several persons. In this case, investors of Kharora and adjoining area in their statement recorded during the post search investigation in the Shri B.L.Agrawal group cases viz. Shri Dev Charan Sahu, Shri Krishna Kumar and others had denied of having any bank account in their names in the Union Bank of India, Main Branch, Raipur. They also expressed ignorance about making investment in any of the 13 shell companies.
On examination of your Income tax records for the above assessment year, I find that the order passed u/s 153C read with section 143(3) on 30.12.2011 of the Income tax Act, 1961 is erroneous in so far as it is prejudicial to the interest of revenue in the following manner:'" .
A Y 2005-06 The assessing officer failed to examine the genuineness and sources of money of Rs.37,00,000/- introduced as fresh credits in the balance sheet of the company. The amount of Rs. 37,00,000/- represents Rs.21,25,000/-
as share capital and 15.75.000/- as share premium. The details of such 8 ITA Nos. 39-77/RPR/2014 credit which the assessing officer failed to examine are given in the ledger account of the assessee company in the Union Bank of India, Main Branch, Pandri, Raipur. A copy of which is enclosed.
A Y 2006-07 The assessing officer failed to examine the genuineness and sources of money of Rs. 12,00,000/- introduced as fresh credits in the form of share application money in the balance sheet of the company. As the Assessing Officer has failed to examine the source and genuineness of the credits appearing in the books of the company, the Assessment order mentioned above is erroneous in so far as it is prejudicial to the Interest of the Revenue.
A Y 2007-08 The assessing officer failed to examine the genuineness and sources of money of Rs.71,50,000/- introduced as fresh credits in the balance sheet of the company. The amount of Rs. 71.50,0007-represents Rs. 3,70,000/-
as share capital Rs. 34,50,000/- as share application money and Rs.33,30,000/- as share premium. The details of such credit which the assessing officer failed to examine are given in the ledger account of the assessee company in the Union Bank of India, Main Branch, Pandri, Raipur.
A copy of which is enclosed.
A Y 2009-10 9 ITA Nos. 39-77/RPR/2014 The assessing officer failed to examine the genuineness and sources of money of Rs. 1,21,92,000/- introduced as fresh credits in the names of the persons appearing in the ledger account of the assessee company in the Union bank of India, Main Branch, Pandri. As the Assessing Officer has failed to examine the source and genuineness of the credits appearing in the books of the company, the Assessment order mentioned above is erroneous in so far as it is prejudicial to the Interest of the Revenue."
5. In response to the notice issued in this regard, the assessee's counsel made elaborate submissions before the ld. CIT. The ld CIT referred to the submissions of the assessee in this regard in his order. The issues raised by the assessee broadly related to the following aspects:-
i) It is not a case of lack of enquiry.
ii) Where two recourses are available with the Assessing Officer.
iii) Directors of these companies are also Directors and relatives of M/s.Prime Ispat Ltd.
iv) The matter of M/s.Prime Ispat Ltd. has also travelled to the Income Tax Settlement Commission.
v) Once the Income Tax Settlement Commission has decided upon the case of M/s.Prime Ispat Ltd., the order under sec. 263 in these cases will amount to double taxation and it will amount to adjudication of matters already decided by the Settlement Commission.
10ITA Nos. 39-77/RPR/2014
vi) No basis for the ld CIT to hold that the money belongs to 13 shell companies.
vii) Detailed enquiries were made by the Investigation Wing in the case of M/s.Prime Ispat Ltd. And there was no mention that any part of share capital belonged to the 13 shell companies.
viii) Contrary view has been taken while issuing notice under sec.
263.
ix) There must be a point of finality in all legal proceedings.
6. Considering the submissions of the assessee in this case, the ld CIT held as under:-
"4. The submissions filed by the assesseee have been carefully examined and are not found to be tenable as is being discussed below:
4.1 In the reply dated 04.03.14, the assessee has relied upon the order passed by the Hon'ble ITSC, Kolkata in the case of M/s Prime Ispat Ltd. A contention has been raised alleging double taxation.
Another contention has been raised that "Considering the above submission and 'finality' of the case of M/s Prime Ispat Ltd. for the issue/ matter which is concerned above, by the Hon'ble ITSC, Kolkata, 'lawful revenue' has also been collected by the Revenue on the above subject matter and if now, the case of the assessee-company is reopened u/s 263 for revision, it will amount to 'double taxation''.
It has been further stated that, once the subject matter of appeal (i.e., unaccounted share application money) has already been considered and decided by the Hon'ble Settlement Commission, revision u/s 263 on the same/very issue/matter is not permissible.
Such contentions are inconsistent with the facts of the case as well as not tenable in law. The total investment in M/s Prime Ispat Ltd. from the thirteen companies was Rs.39.08 crores out of which, the Hon'ble Settlement Commission has held a sum of Rs. 6,82,00,000/- only as 11 ITA Nos. 39-77/RPR/2014 unexplained in the hands of M/s Prime Ispat Ltd.. The details thereof are under:
AY Additions made by the ITSC (Rs.)
2005-06 2,00,00,000
2006-07 2,00,00,000
2007-08 2,00,00,000
2008-09 50,00,000
2009-10 32,00,000
2010-11 -
2011-12 -
Total 6,82,00,000
(addition on account of unexplained
share application money received from
13 companies)
Thus, the finding given by the Hon'ble Settlement Commission is in respect of an amount of Rs. 6.82 Crores only and not the remaining Rs. 32.26 Crores. Thus, the argument of double taxation does not arise at least so far as the balance amount of Rs. 32.26 Crores is concerned.
Further, this finding given by the Hon'ble Settlement Commission is limited to the explanation related to the investment made in Prime Ispat Ltd. only i.e whether the receipt of share application money was found explained in the hands of Prime Ispat Ltd. or not. The Hon'ble Settlement Commission has not given any finding on the genuineness of credits appearing as share application etc. in the thirteen companies including the assessee company. The cases of thirteen companies including the assessee company were not before the Hon'ble Settlement Commission and hence it did not either have any reason or occasion to examine the genuineness of credits appearing as share application etc. in the thirteen companies including the assessee company. In view of the order dt.31-10-2012 of the Hon'ble ITSC, Kolkata. only the case of Prime Lspat Ltd. has attained finality and by no stretch of imagination can it be said that the cases of thirteen companies including the assessee company have attained finality.
Since the cases of thirteen companies including the assessee company were not before the Hon'ble Settlement Commission, it cannot be said that the assessment orders passed in their cases are also covered by appeal/Order of the. Settlement Commission. The assessment order passed in the case of thejnstant assesse has not been the subject matter of appeal before the CIT(A) or any other Authority.
12ITA Nos. 39-77/RPR/2014 Moreover, the addition on account of unexplained cash credit u/s 68 of the I.T.Act is always a specific addition and not an estimated addition. For making such an addition, the Assessing Officer has to specifically identify the credit in the books of account of the assessee which he holds as unexplained. The Hon'ble Settlement Commission has not even specified as to which cash credit in the form of share application money was unexplained and which was the company in whose name such an investment was made. Therefore, the decisions cited by the assessee, being distinguishable on facts, have no applicability in the instant case.
4.2 The assessee, in para 3 of its reply dated 4.3.14, has stated that this is not a case of lack of enquiry. This argument of the assessee is inconsistent with and contrary to the material on record as has been separately discussed in para 5 of this order.
4.3 The assessee, in para 4 of its reply dated 4.3.14, has stated that lawful revenue has already been collected in this case. The claim of the assessee that as a result of the order passed by the Hon'ble ITSC, Kolkata, lawful Revenue has already been collected in this case , is not correct in view of the reasons already discussed in sub para 4.1 above.
The assessee, in para 4 of its reply dated 4.3.14, has further stated that the AO in the instant case, did not make any addition because he had taken a stand that the share capital/application money introduced in the assessee company was unaccounted income of Prime lspat Ltd, Since Prime lspat Ltd had already applied to the Hon'ble ITSC on 30-8- 2011, the jurisdiction of M/s Prime lspat Ltd had gone away from the concerned AO and thus, the AO was helpless to assess the undisclosed income in the hands of M/s.Prime lspat Ltd.
The assessee, in para 5 of its reply dated 4.3.14, has stated that in the instant case two recourses were available with the AO. When the AO takes one of the two views permissible in law and which the Commissioner does not agree with and which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken.by the Assessing Officer is completely unsustainable in law. It has also been stated that after making enquiries, the AO decided by applying his mind, not to tax the 13 shell companies and the petty account holders of Kharora and nearby villages the for the unaccounted money of M/s Prime lspat Ltd.
It needs to be mentioned that the assessee has wrongly claimed that the AO had taken such a decision after making enquiries. Detailed discussion on this issue in para 4.2 above may be referred in this regard which is not being repeated hotelbr the sake of brevity.
13ITA Nos. 39-77/RPR/2014 4.4 As far as the reference to the Appraisal report in para 9 of the reply dated 4£kl4 filed by the assessee is concerned, the same is not relevant because the Appraisal report is neither a statutory documents nor is it binding on the A.O. The observations given in the Appraisal Report represent merely salient features observed during the course of search .proceedings. They are merely in the nature of guidelines and are not exhaustive. It is the duty of the A.O. to take the leads suggested in the Appraisal Report to their logical conclusion. After independently examining complete seized/ impounded material and after providing due opportunities to the assessee to explain the same, the Assessing Officer is required to arrive at his/her own findings.
4.5 A contention has been raised in para 8 & 10 of the reply dated 4.3.14 filed by the assessee that a stance was taken by the AO and the CIT, Raipur by way of his Rule 9 report dt.7-3-2012 and through ■ the Ld CIT(DR) during the proceedings before the Hon'ble ITSC that unaccounted funds of M/s Prime I spat Ltd were introduced in the form of subscription of share capital. The Hon'ble ITSC passed order in favour of revenue considering the above point of the Hon'ble CIT, Raipur. And now, issuing notice u/s 263 for revising the case of the assessee-company will be taking contrary view as against his first view. The assessee has relied on the judgment in the case of Ranka Jewellers v. Addl.CIT (2010) 190 Taxman 265 (Bom).
In this regard, it needs to be clarified that an application before the Hon'ble Settlement Commission was filed by Prime Ispat Ltd. and riot the thirteen companies including the assessee company. The issue before the Hon'ble Settlement Commission was thus limited to the explanation related to the investment made in Prime Ispat Ltd. only, i.e whether the receipt of share | application money was found explained in the hands of Prime Ispat Ltd. or not. The issue of the genuineness of the credits introduced as share application etc in the thirteen companies including the assessee company was not before Hon'ble Settlement Commission. Therefore, the report dated 7-3-2012 of the CIT, Raipur has to be considered in this limited aspect. It does not have any bearing to the instant proceedings u/s 263 of the I.T.Act, 1961.
4.6 As regard the contention raised in para no.ll of the reply dated 4.3.14 filed by the assessee that the CIT had not recorded any finding that the order sought to be revised is erroneous in,so far as it is prejudicial to the'interest of the revenue, it is pertinent to reproduce the concluding part of the show cause notice u/s 263 of the I.T.Act, 1961 dated 20,2.2014 'In view of these facts, the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue. In 14 ITA Nos. 39-77/RPR/2014 thesecircumstances, it is proposed to lake remedial action under section 263 of the IT Act, 1961. You are, therefore, requested to show cause as to why remedial action u/s 263 should not be taken.' It further needs to be mentioned that after affording proper opportunity of being heard to the assessee, after considering the explanation of the assessee on the facts & issues involved in the case, after considering the material on record and considering the correct position of law involved on the issues involved in the case, at the time of passing the order u/s 263 of the I.T.Act, the CIT has to take a final decision as to whether the order sought to be revised is erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, the decisions cited by the assessee, being distinguishable on facts, have no applicability in the instant case.
4.7 A contention has been raised in para no.12 of the reply dated 4.3.14 filed by the assessee that the now the CIT has to consider not only the assessment order of the A.O. but also the order dt. 31-10- 2012 of the Hon'ble ITSC, Kolkata. Reliance has been placed by the assessee on the judgment of the Hon'ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products (1998)231ITR 53(SC).
In this regard, it needs to be mentioned that the order dt.31-10-2012 of the Hon'ble ITSC, Kolkata is being duly considered during these proceedings as is evident from the show cause notice u/s 263 of the I.TAct, 1961 dated 20.2.2014 and is being separately discussed in this order also.
4.8 A contention has been raised in para no. 13 of the reply dated 4.3.14 filed by the assessee that there must be a point of finality in all legal proceedings. The assessee has also claimed that action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. Relied on Parashuram Pottery Works Co. Ltd v. ITO (1977) 106 ITR 1 (SC).
The decision cited by the assessee is distinguishable on facts as it was delivered in the context of reassessment proceedings u/s 147(a) of the I.T. Act beyond four years. In respect of the A.Y.1957-58, the assessment order was once rectified and at another time revised. Despite such Rectification & revision, the mistake in the calculation remained undetected. It was under such circumstances that the said judgment was delivered. Whereas, in the instant case, remedial action 15 ITA Nos. 39-77/RPR/2014 is being proposed/taken for the first time well within the Limitation period provided under the I.T.Act, 1961.
4.9 As regard the contention raised in para 14 of the reply dated 4.3.14 filed by the assessee, the same are not tenable. In the instant case, the A.O has passed the order of assessment accepting the returned income without application of mind. It is a stereo-typed order simply accepting what the assessee had stated in its return. The AO has failed to make enquiries which were called for in the circumstances of the case. Unlike, the Civil Court which is neutral to give decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. In view of the material gathered by the Investigation wing during Search and post search enquiries which clearly suggested that the share application money/ capital/ funds raised by thirteen Companies including the assessee company were not genuine, the A.O could not have remained passive. It was his duty to ascertain the truth of the facts stated in the return particularly when the material on record was such as to provoke inquiry. It was incumbent on the A.O. to make investigation to verify the genuineness of the share application money/ capital/ funds raised by thirteen Companies including the assessee company. But the AO has miserably failed to discharge the duty cast upon him.
4.10 It is pertinent to mention some of the relevant facts of the case which were available before the A.O. and on the basis of which he decided to issue notices u/s 153C of the I.T.Act to the thirteen companies including the assessee company.
In connection with the search &seizure operations at the various premises of Prime Ispat group (Agrawal group), search and seizure action u/s 132(1) of the I.T. Act was also conducted at the office of Shri Sunil Kumar Agrawal, Chartered Accountant of the Agrawal group, located at M-14, Rajeev Nagar whereby 232 bank passbooks of individuals of Kharora and neighboring villages were found. All the passbooks pertain to only two banks namely Union Bank of India, Main Branch Ramsagar Para, Raipur and Union Bank of India, Pandri Branch Raipur. It was also found that the following other Companies are having their registered office either at the office of Shri Sunil Kumar Agrawal i.e. M-14, Rajiv Nagar, Raipur or at Village Kharora. List of such Companies are as under
S. No. Name of Official Address Directors Company 1 V.R. Resources M-14, Rajeev 1 )Ramesh Private Limited Nagar, Raipur Nirmalkar
2)Vimal Kumar Agrawal 2 Ramesh M-14, Rajeev 1) AlokAgfawal 16 ITA Nos. 39-77/RPR/2014 Tradevving Nagaij Raipur 2) Ramesh Private Limited Nirmalkar 3 KapilFinvest DukanPara, 1) KapilAgrawal Private Limited Kharora 2) VimalAgrawal 4 Epic Investwell DukanPara, 1) KapilAgrawal Private Limited Kharora 2) VimalAgrawal 5 Alok Resources M-14, Rajeev 1) AlokAgrawal Private Limited Nagar, Raipur 2) Ramesh Nirmalkar 6 Vimal Resources M-14, Rajeev 1) VimalAgrawal Private Limited Nagar, Raipur 2) SaritaAgrawal 7 Vishwanath M-14, 1) Vishwanath Resources Private Rajeev Nagar, Agrawal Limited Raipur 2) VimalAgrawal 8 Ashish Resources M-14, Rajeev 1) Ashish Agrawal Private Limited Nagar, Raipur 2)Shri Ramesh Nirmalkar 9 Adept Viniyog Dukan Para, 1) Anil Agrawal Private Limited Kharora 2) SunitaAgrawal
3) AlokAgrawal 10 Natural Ores Dukan Para, 1) Private Limited Kharora PremchandAgrawal
2) SaritaAgrawal 11 PC Mining Private Dukan Para, 1) Limited Kharora. PremchandAgrawal
2) ChampadeviAgrawal 12 Param Transport Dukan Para, 1) Private Limited Kharora. PremchandAgrawal
2) VishwanathAgrawal 13 Utsav Coal Dukan Para, 1) SaritaAgrawal Supplier Private Kharora. 2) Limited VishwanathAgrawal A total of Rs. 40.48 Crores in the. benami names of individuals of Village Kharora was introduced as Share-Application money/ share capital in the above thirteen companies.
During the post Search proceedings statements of 101 individuals of Kharora were recorded. Along with the statements recorded on oath all such individuals have furnished notarized affidavit in support of 17 ITA Nos. 39-77/RPR/2014 their sworn statements. During post Search investigation, delayering of bank accounts of 232 individuals of Kharora and nearby villages was made by the DDIT(Inv). During this delayering process many other bank accounts were unearthed. These accounts have been further used to create a web of financial transactions. The accounts holders of these accounts are similar to the holders of bank accounts which were seized during Search operation. The holders of these accounts are also resident of village Kharora. introduced by Chartered accountant Shri Sunil Kumar Agrawal and his relatives and been used for the purpose of introducing Share Capital in various companies.
These 232 individuals discovered during Search proceedings share a number of common characteristics. The post Search investigation further revealed names of 241 other individuals who share common characteristics with the 232 individuals discovered during Search and Seizure proceedings. The common characteristics shared by these 473 persons are as follows:
i. Most of the persons reside in village Kharora or in the proximity. Incidentally, the Chartered Accountant of the group, Shri Sunil Kumar Agrawal, hails from village Kharora. The family members and the villagers share Social relation since a long time. ii All of these persons have their bank accounts in the Union Bank of India, Main Branch, Raipur and at Pandri Branch, Raipur.
iii Their source of income is agriculture, small time vendor, pan- wala, priests, etc. In a nut-shell, all individuals are men of very limited means.
iv According to the PAN database, all have given their office address at C/o Shri Sunil Ku. Agrawal, M-14, Rajiv Nagar, Raipur. They are not aware of any PAN Card issued in their names. Some of them told that they are not having any PAN card in their names. They have signed in good faith in the documents because of their acquaintance with Shri Sunil Kumar Agrawal. Some of them said that Shri Vishwanath Agrawal (relative of Shri Sunil Kumar Agrawal), once came and took photographs of them.
v As per the bank account opening form and KYC details, introducers in most of the account can be categorized to form a group of individuals who are close associate of Chartered Account Shri Sunil Kumar Agrawal. It is seen that single person has introduced many individuals to the bank for opening of their bank accounts.
18
ITA Nos. 39-77/RPR/2014
Number Relation of introducer
of accounts with Shri Sunil Kumar
SI. Name of the introducer in which acted Agrawal
No as introducer. (C.A. of the group)
1 Alok Kumar Agrawal 197 Cousin
2 Vimal Kumar Agrawal 76 Cousin
3 Vinod Kumar Agrawal 31 Uncle
4 PC Mining Private 13 Registered office at office
Limited of Shri Sunil Kumar
Agrawal, Shell / paper
' Company.
vi. Most of the individuals whose statement were recorded during Search and post of investigation have denied and expressed ignorance about any bank accounts maintained by them.
vii. They have stated in the statements that they have not purchased any Shares of any Company.
viii. They stated that they have not heard of any Company such as P.C. Mining Private Limited, Param Transport Private Limited, Ramesh Tradewing Private Limited, KapilFinvest Private Limited, Epic Investwell Private Limited, Vishwanath Resources Private Limited, V.R. Resources Private Limited, Alok Resources Private Limited, etc. ix. Though these persons are alleged to be owner of these bank- accounts, they donot have control over the day to day operation of the bank account. The following discussion further clarifies this contention. It is a fact that bank accounts of these individuals have been found to be operative. These bank accounts show that cash was deposited and transferred from these bank accounts. The fact that money has been circulating in these accounts, coupled with the fact that the persons in whose names Bank accounts are operated have not only denied the existence of Bank account but also of transaction of money, indicates that the alleged owner of bank account was different from the operator and real owner of Bank account. If the fact of discovery of 232 passbooks from tho premises of Chartered Accountant Shri Sunil Kumar Agrawal is further considered, it can be reasonably inferred that the effective control and operation of the Bank accounts remained with Shri Sunil Kumar Agrawal and his associates and the funds were routed in the thirteen companies as share application money/ share capital.19
ITA Nos. 39-77/RPR/2014 All these facts were available with the A.O. It is also observed that shares having a Face value of Rs.10/- per share were allotted at a premium of Rs.90/~ per share to these persons of Kharora village whereas Directors and relatives were allotted share at face value of Rs. 10/-. The business of the assessee had not commenced. It had not started even a single activity mentioned in its Memorandum & AOA. There is no business, no profit and no dividend history of the assessee company. There was no past track record of the assessee company or future prospects which would justify introduction of share capital by innocent villagers of no means, that too at a hefty premium of Rs.90/- per share.
The Hon'ble Delhi High Court in the case of Commissioner of Income- tax v. Nova Promoters and Finlease (P) Ltd. Dated February 15, 2012 reported in [2012] 342 ITR 0169 has held that the finding that the share application monies had come through account payee cheques was, at best, neutral. The question required a thorough examination and not a superficial examination. It further observed that the companies which subscribed to the shares were borne on the file of the Registrar of Companies was again a neutral fact and that these companies were complying with such formalities did not add any credibility or evidentiary value. It held that in any case, it did not ipso facto prove that the transactions were genuine.
Therefore, in view of the fact that fresh credits in the form of share capital/ application money had been introduced in the books of account of the assessee company and the material gathered by the Investigation wing during Search and post search enquiries, which clearly suggested that the share application money/ capita] / funds raised by thirteen Companies including the assessee company were not genuine, the A.C) was duty bound to conduct enquiries but he has not done so. The AO did not even obtain confirmation letters from the persons in whose names investment was allegedly made in these thirteen companies including the assessee company.
In this case the A.O. has completed the assessment without conducting any enquiry into the subscription of the share capital and the large amount of premium collected during the year and/or by relying on the evidences produced before him without conducting independent enquiries into all the subscribers of the share capital. The duty of the A.O. becomes even more onerous especially in view of the fact that the results of enquiries made by the DDIT(Inv) were already available with him. In the instant case, the A.O has passed the order of assessment accepting the returned income without application of mind. It is a stereo-typed order simply accepting what the assessee had stated in its return.20
ITA Nos. 39-77/RPR/2014 The AO has failed to make enquiries which were called for in the circumstances of the case .Unlike the Civil Court which is neutral to give decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts .stated in the return when the circumstances of the case are such as to provoke inquiry. The meaning to be given to the work "erroneous" in section 263 emerges out of this context. The work "erroneous" in that section includes cases where there has been a failure to make the necessary inquiries [Gee Vee Enterprises v. Addl. CIT, (1975) 99 ITR 375, 386 (Del.)l In the instant case, in view of the material gathered by the Investigation wing during Search and post search' enquiries, which clearly suggested that the share application money/capital/,funds raised by thirteen Companies including the assessee company were not genuine, the A.O could not have remained passive. It was his duty to ascertain the truth of the facts stated in the return particularly when the material on record was such as to provoke inquiry! It was incumbent on the A.O. to make investigation to verify the genuineness of the share application money/ capital/ funds raised by thirteen Companies including the assessee company. But the AO has miserably failed to discharge the duty cast upon him. It is incumbent on the Officer to investigate the facts stated in the return, when circumstances would make such an enquiry prudent and the work "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be .. correct [Duggai& Co. v. CIT,(1996) 220 ITR 456,459 (Del)]. Also see, CIT v. Pushpa Devi. (1987) 164 ITR 639 (Pat); CIT v. Smt. Rambha Devi, (1987) 164 ITR 658 (Pat); CITv. BelalNisa, (1988) 171 ITR 643 (Pat); CIT. v. Smt. Kaushalya Devi, (1988) 171 ITR 686 (Pat); CIT v.
BibiKhodaijaKhatoon, (1988) 171 ITR (sh. N.) iii (Pat); CIT v. Smt. Chandrawati Devi, (1988) 171 ITR (Sh.N.) iii (Pat); CIT v. Smt. Devi, (1987 59 CTR (Pat) 3; CIT v. BhagwantKaur, (1987) 63CTR (Pat) 326; CIT v. Pushpa Devi, (1988) 173 ITR 445 (Pat).
Mere failure to make enquiries may make an order erroneous. In order that the Commissioner may consider an order to be "erroneous" for the purposes of section 263, the error of law may not be apparent on the face of the order. The Commissioner may consider an order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries which are called for in the circumstances of the case.
21ITA Nos. 39-77/RPR/2014 Reliance is placed on the judgement of the Honble Supreme Court in the case of Rampyari Devi Saraogi v. CIT, (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT, (1973) 88 ITR 323 (SC).
In the case of Commissioner of Income-tax v .Bhagwati Jewels Ltd., [1993] 201 ITR 461 (DELHI), for the relevant assessment year the respondent assessee company filed a loss return. Thereafter, it availed of the Amnesty Scheme and filed a revised return declaring certain income which included a sum of Rs. 3,43,000 as income from other sources before the ITO. It was stated that said sum had been offered because the Department was asking for confirmations from the various subscribers to the shares which were issued. The ITO accepted the revised return and, without making any addition whatsoever, made the assessment. Thereafter, the Commissioner invoked her jurisdiction under section 263 on the ground that the ITO had accepted the alleged confirmation of various shareholders but had not subjected the said confirmation to independent verification. On appeal, the Tribunal came to the conclusion that the order of the ITO was not prejudicial to the interests of the revenue and the Commissioner had wrongly exercised her jurisdiction. On an application under section 256(2), it was held that the Tribunal had nowhere dealt with the question raised by the Commissioner that there was no independent verification of confirmations allegedly issued by various shareholders. It was, no doubt, true that it was stated in the order of the Tribunal that inquiries were made from the assessee and replies received but what was important, according to the Commissioner was that the ITO should have made independent inquiry and verification especially when the assessee itself had surrendered a large sum of money under the Amnesty Scheme. The Tribunal was thus directed to refer the question to the opinion of the Hon'ble High court.
5. In the Supreme Court case [243 ITR 83,88-89 (SC)], the CIT noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by his was erroneous. It appears that the resolution passed by the Board of the appellant-company was not placed before the ITO. Thus, there was no material to support the claim of the appellant the said amount represented compensation for loss of agricultural income. The ITO accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. Therefore, the Supreme Court was of the opinion that the High Court has rightly-held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified. In view of the 22 ITA Nos. 39-77/RPR/2014 above discussion, it is hereby held that the order passed by the A.O. is erroneous and prejudicial to the interest of revenue and
6. In view of the facts discussed above, I am of the view that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue. The A.O. has not applied his mind. Non-application of mind leads to order passed by the Assessing Officer being erroneous in so far as it is prejudicial to the interest of revenue. In the case reported in [2012] 24 taxmann.com 215 (Gauhati), Commissioner of Income-tax v. Jawahar Bhattacharjee, the Honb'le high court of Gauhati has held "The object of section 263 is to correct an erroneous order prejudicial to the interest of revenue, as the department has no right to file an appeal against the order of the Assessing Officer. While the power is not meant to be substitute for the power of the Assessing Officer to make assessment, the same can certainly be exercised when order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue "
;! In Daga Entrade (P.) Ltd.'s case ((2010) 327 ITR 467), the honb'le Gauhati High Court held that if the order of the Assessing Officer was passed ignoring relevant material, causing prejudice to the interest of the revenue, suo motu revisional jurisdiction could be exercised by the Commissioner hence, the order passed by the A.O. is canceled with the direction that he/she should pass-the assessment order de- novo after conducting independent detailed and "complete enquiries into the credits appearing in the bank accounts, credits introduced in cash, subscription to the share capital and premium introduced during the year under consideration in this case. "Wherever required, the A.O. should trace the source of credit by enquiring into the various layers through which the money has been introduced in this company as share capital and also examine the directors of the companies by issuing summons u/s 131 of the I.T. Act. The A.O. should not confine himself to conducting enquiries into the subscribers to the share capital only on selective basis. The A.O. should pass speaking order after providing reasonable opportunity of being heard to the assessee and verifying the source of credits and rotation of money through various hands so as to ascertain the true nature of transaction which will bring to the fore, the reality of the transactions.
I, accordingly cancel the assessment order passed u/s 143(3) r.w.s. 153C for A.Y.s 2005-06, 2006-07, 2007-08 and 2009-10 with the direction that the Assessing Officer should pass assessment order de- novo after affording reasonable opportunity of being heard, to the assessee."23
ITA Nos. 39-77/RPR/2014
7. Against the above order, the assessee is in appeal before us.
8. We have heard the rival contentions and perused the record of the case. On behalf of the assessee, Shri Sunil Kumar Agarwal, C.A. appeared and on behalf of revenue, Shri Darshan Singh, ld D.R. appeared. At the outset, ld A.R. of the assessee referred to search and seizure action under section 132 of the Act, which was conducted on 4.2.2010 at
i) M/s. Prime Ispat Ltd. (herein after referred to as PIL) Raipur;
ii) Shri Babulal Agrawal, IAS, Raipur;
iii) CA of the group, Shri Sunil Agrawal;
iv) 13 companies including the assessee co. &
v) The villagers
Ld Counsel further referred to assessment proceedings in the case of M/s.
Prime Ispat Ltd. (PIL) and the proceedings before the Income tax Settlement Commission (ITSC) in relation to PIL. The gist of ld counsel's submissions is that the amounts were received from these companies by PIL. Some of the sums have already been taxed in the hands of PIL by the order of ITSC. Hence, ld counsel pleaded that taxing again these sums in the hands of these companies will amount to double taxation. In these circumstances, ld counsel placed reliance on the decision of ITAT Panaji Bench in the case of Dr. William Britto, 56 taxmann.170 (Panaji-Trib) and the decision of Chandigarh Bench in the case of Hill View Infrastructure (P) 24 ITA Nos. 39-77/RPR/2014 Ltd., vs DCIT, (2015) 55 taxmann.com 356 (Chandigarh-Trib) and some other case laws. Ld AR further reiterated the submissions which were made before the ld CIT and which are dealt with by ld CIT in his order under section 263 of the Act. The issues raised by ld counsel for the assessee broadly related to the followings:
i) Ld CIT is taking contrary view as against the view/ opinion taken by the then ld CIT in Rule 9 of the report before ITSS.
ii) This is a case of double taxation as sums have already been added in the hands of PIL.
iii) The AO's order is not erroneous and the AO has applied his mind.
iv) Right persons should be taxed.
v) Two recourses were available before the Assessing Officer and
the Assessing Officer chooses one of them.
vi) The detailed enquiry was made by Investigation Wing.
9. Ld A.R. concluded by reiterating the submission that since the matter has already attained finality before ITSS, Kolkata, in the case of PIL reopening of these cases of these companies under section 263 will tantamount to double taxation and the action taken by ld CIT is contrary to the view taken by the then CIT under Rule 9 report. Ld A.R. requested to quash the order of ld CIT under section 263 of the Act.
10. Per contra, ld D.R. relied upon the order of ld CIT. Ld D.R. submitted that all the points raised by ld A.R. has been duly considered by ld CIT in his order and the same have been duly dealt with. Ld D.R, further 25 ITA Nos. 39-77/RPR/2014 submitted that this is a classic case of money laundering by means of bogus share capital and bogus share premium by 13 shell companies. Ld D.R. submitted that similar issues were considered by ITAT Kolkata in a plethora of cases. In this connection, he relied upon the following decision(s) of Hon'ble Bombay high Court and ITAT, Kolkata Benches:
i) ITA NO.1104/Kol/14 -Subhalaxmi Vanijya Pvt ltd vs CIT and bunch of other appeals order dated 30.7.15
ii) ITA No.1493/Kol/2013 -Bisakha Sales Pvt Ltd vs. CIT, order dated 19.9.2014
iii) ITA No.1607/Kol/2013 - M/s. Brindavan Commodities P:vt Ltd. vs CIT, order dated
24./10.14
iv) Hon'ble Bombay High Court decision in the case of Major Metals Ltd vs Union of India (2012), 19 taxmann. Com 176 (Bom) in writ petition No.397 of 2011 dt.22.2.2012.
11. Regarding to the decisions of ITAT Kolkata, ld D.R. submitted that in all these cases, the issue pertained to generation of bogus capital by shell companies by means of share capital and exorbitant and unjustified share premium.. The returns filed in this regard were accepted by the AO without proper enquiry. In this background, the action of the ld CIT u/s.263 was upheld by the Tribunal in all these orders as above. Ld counsel also referred to Hon'ble Bombay High Court decision in the case of Major Metals Ltd vs Union of India (supra) for the proposition that when huge and unjustified share premium are received, then they can be 26 ITA Nos. 39-77/RPR/2014 undisputedly accepted as undisclosed income in the guise of share premium. Ld counsel extensively quoted from these orders and submitted that the order of ld CIT u/s. 263 be upheld.
12. We have carefully considered the submissions of the parties and perused the record of the case. Before proceeding further, we may gainfully refer to the provisions of section 263 of the I.T.Act, 1961 as under:
263. (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation 1.]--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,--
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include--
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120;
(b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the [Principal Commissioner or] Commissioner under this sub-
27ITA Nos. 39-77/RPR/2014 section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [Explanation 2.--For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,--
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal,[National Tax Tribunal,] the High Court or the Supreme Court. Explanation.--In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
13. As evident from the order of the AO in this case, reproduced above, in para 3 of this order, there was no enquiry whatsoever in this case by the AO on the issue of huge amount of share capital and share premium introduced. There is no whisper by the AO regarding the issue of share capital and share premium. By no stretch of imagination, it can be considered that the AO has examined the issue and formed an opinion.
The case of the assessee in this case is even worse than that of the case dealt with by Kolkata Tribunal, where there was some whisper of share capital in the assessment orders. A plain reading of above said Tribunal's order fully support the order of ld CIT u/s.263 in this case. In this 28 ITA Nos. 39-77/RPR/2014 connection, it may be noted that one of us, i.e. Accountant Member was a party to the order in the case of Brindavan Commodities Pvt Ltd (supra).
In this connection, we may gainfully refer to the followings from the decision of Brindavan Commodities Pvt Ltd. (supra);
13. We have carefully considered the submissions and perused the records. We note that the -assessee has also raised the issue that the ld. CIT failed to examine the records and has failed to derive requisite satisfaction with the pre conditions that the order of AO is erroneous as well as prejudicial to the interest of the Revenue. We find that similar issue was raised in the writ petition before the Jurisdictional High Court in the case of Zigma Commodities Private Limited vs ITO W.P.No.281 of 2014 vide judgement dated 08.05.2014. The ld. DR has submitted that it is an identical issue considered by the Jurisdictional High Court. The issue raised in this appeal may also be considered as covered by the aforesaid order of the Hon'ble High Court. We find that in the above writ petition the Hon'ble High Court had noted that challenge to the notice issued u/s 263 of the Act was basically found on the ground that the Commissioner has not recorded satisfaction relating to the error in the order passed u/s 148 of the said act affecting the interest of the Revenue. After examining the facts of the case which is incidentally similar to the one we are dealing in this case the Hon'ble High Court dismissed the writ petition filed by the petitioner. We may recapitulate concluding portion of the Hon'ble High Court' order :
"The Commissioner received the records prior to the issuance of the show cause notice and opined that the Assessing Officer failed to apply his mind objectively and failed to conduct an inquiry over the subscription of the shares to various subscribers at a high premium. Section 263 of the Act never envisages the separate recording of the satisfaction before issuance of the show cause notice but if it is clearly discernible from the facts narrated in the show cause notice that the order of the Assessing officer appears to be erroneous and a prejudice is caused to the revenue, it would render the said show cause notice legal and valid.
The Commissioner has indicated the same sufficiently in the show cause notice and afforded the opportunity to the petitioner to file reply thereto which, in fact, have been done,. Whether the order can sustain on legal parameters or not, can be tested by a Higher Authority who have been bestowed with the power of appeal. Section 253 of the Act provides a remedy 29 ITA Nos. 39-77/RPR/2014 of appeal against an order passed under section 263 of the by the petitioner."
13.1. We further find that the above judgment of the Hon'ble Jurisdictional High Court in the writ petition was also considered by the divisional bench of the High Court in G.A.No.1911 of 2014 in Zigma Commodities Pvt.Ltd vs ITO vide order dated 19th August, 2014. The Hon'ble High Court had dismissed the petition appeal of the applicant.
13.2. Upon careful consideration of the above we find that there is cogency in the submission of the ld. DR that the above issue is similar to the one being considered by us in this appeal. As already dealt with herein above the Jurisdictional High Court has decided the issue against the assessee. Hence preliminary objections of the assessee against the assumption of jurisdiction by the ld. CIT stand dismissed. Now we examine the facts of the present case.
13.3. We note that the return of income was filed in this case on 31.08.2009. The assessee company had shown no trading activity. Only some routine expenditures were incurred. However, the assessee has issued equity shares of Rs.10/- of Rs.490/- per share. In this way the assessee has raised share capital of Rs.30,90,300/- and share premium of Rs.15,14,24,700/-. The balance sheet of the assessee company did not show any evidence or justification for the receipt of such huge share premium.
13.4. Now subsequent to the filing of this return the assessee sent an undated letter to the AO. The date of receipt by the income tax office was shown in this letter as 17.02.2011. In the said letter the assessee informed the AO that Rs.50,000 contractual fee have not been accounted for in the income. AO took cognizance of this letter and issued notice for reopening u/s 148 on 21.02.2011. In response to this notice again vide undated letter received by ITO on 23.02.2011 the assessee informed that the original return filed on 31.08.2009 may be treated as return in response to notice u/s 148 of the Act. Thus it is noteworthy here that in its earlier letter the assessee has submitted that it had not accounted for contractual fee of Rs.50,000/- receivable during the year 2008-09. However, in the letter in response to the said notice u/s. 148 of the Act the assessee did not disclose the said amount as its income. Thus there is a considerable cogency in the plea of the ld. DR that it 30 ITA Nos. 39-77/RPR/2014 was a deliberate attempt on the part of the assessee to get the account reopened and facade of scrutiny assessment created to cover up the issue of share capital with huge share premium. Now in the notice u/s 142(1) of the Act dated 25.12.2011 the assessee asked the assessee to provide some information and this included share capital and share premium. In response to this notice the assessee submitted the details again by undated letter. Despite receiving information about the name of person from whom assessee has allegedly received unaccounted contractual income AO chose to remain silent on this issue. He goes on to issue notice to share applicants/holders. Out of 21 shareholders the AO issued notices u/s 133(6) of the Act to 9 of the shareholders on 7.3.2011. There is no reference as to how these notices were served. However, tear of acknowledgment slip is there which suggests service by hand. In response to this notice all the replies received were undated. However, as per the receipt by the income tax office mentioned therein the same were received between 11th March to 16th March. After the issuance of notice u/s 133(6) on 7.3.2011 the AO on 14.03.2011 in the order sheet notes that Shri Mahesh Sharma appeared and matter pertaining to payment of ROC fee and section 35D were discussed. On 17.03.2011. AO records that Shri Mahesh Sharma, AR appeared and provided books of accounts which were test checked. It is noteworthy that reopening was resorted for the reason that there is escapement of contractual income. In this regard assessee only submitted the name of a person and amount. This was accepted by the AO without any further enquiry.
13.5. From the above it is evident that after collecting some information the AO did not act any further. There is no whisper in the order sheet as to whether AO made any discussion or enquiry with regard to the share capital and share premium. In order dated 18.03.2011 it was barely two days after the receipt of last reply the AO writes in the assessment order that "notice u/s 133(6) of the Act were issued to the share subscribers on test check basis the replies from their end are verified". In this regard we agree with the ld. DR, the AO has shown undue haste in completing the assessment. He has collected certain information but has not made any verification whatsoever. There is no enquiry regarding the issue as to what prompted the subscribers to pay huge share premium in purchasing the shares of the assessee company having no significant activity. The entire sequence of event show that exercise was done and create a façade of enquiry.
13.6. We find that the ld. DR reliance upon the decision of the Hon'ble Apex Court in the case of Rampriya Devi Saraogi vs 31 ITA Nos. 39-77/RPR/2014 CIT 67 ITR 84 (SC) is germane and supports the case of the Revenue. As in that case there is ample material here to show that ITO has made assessments in undue hurry. In such circumstances action of the ld. CIT(A) u/s 263 is fully justified. This aspect is also to be seen in the light of the background of the facts. In this case a newly started company issues share of Rs.10/- each at a premium of Rs.490/- the assessment is reopened at the instance of the assessee informing that certain commission income have escaped assessment Thereafter assessee does not confirm the escapement of commission income in the return. AO does not dwell on the escapement of commission income as reported by the assessee. AO issues notices and receives undated response of the assessee company. The AO then issues 133(6) notice to 9 share holders by hand. Certain information comes from these companies in undated replies. The replies are not subjected to any enquiry whatsoever, But the AO wrote in the order that replies are verified. It is very clear that leave alone the question of enquiry the entire episode was designed to create a facade of scrutiny assessments justifying the receipt of share premium and share capital.
13.7. From the above discussion it is amply clear that there was no enquiry by the AO and hence the ld. CIT was justified in taking action u/s 263 of the Act. Furthermore the above is also to be viewed in the light of the background of this case as referred by the ld. CIT in his order. The ld. CIT has referred to the common practice being followed particularly in Kolkata where through the entries of share capital and share premium in dummy companies a very large amount is sought to be introduced and laundered by way of these companies.. In these circumstances the issue of share capital and share premium needed an enquiry in the proper sense of the word and not a facade of enquiry.
13.8. In this regard we may also refer to the following observations in the decision of the Coordinate Bench of this Tribunal in the case of Star Griha in ITA No.1244 of 2013 for the assessment year 2008-09 dated 14th August, 2014 "On a specific query from the Bench as to what has led to this sudden spurt in the 263 being initiated in the share application and share applicants of the various companies. It was the reply by the ld. CIT(DR) in the following words :
"Many of these companies are under investigation by the Ministry of Corporate Affairs as well as CBI, Enforcement Directorate & SIT. In case of politically 32 ITA Nos. 39-77/RPR/2014 exposed person, the investigations are at a critical level and therefore the names of the entry operators cannot be divulged at this juncture."
13.9. Furthermore we note that the following observations in the decision of this Tribunal in the case of Bisakha Sales Pvt. Ltd. vs CIT-Kol-II,Kol vide ITA No.1493/Kol/2013 dated 19.09.2014 as under are also to be taken into account :
There is another important aspect which should also be borne in mind in this case. These shares were received after paying huge premium by the allottees.
These were subsequently transferred at face value or even at discount. This means that on transfer of shares the allottee did not receive any premium. This means that huge amount was received and paid as share premium with full knowledge that there will be no recovery or there is no scope of recovery of share premium. This was designed to facilitate the transfer of these companies to other persons on payment of nominal or discounted value of shares. In other words the value embedded in the share premium was meant to be transferred under hand, and prima facie it appears that the transfer took place upon payment of under hand money. This is a classic case of money laundering and the share premium was being received and paid to launder the black money.
13.10. In this regard the following case laws from Hon'ble Apex Court are also relevant. "The Hon'ble Apex Court in the case of CIT vs Durga Prasad More 82 ITR 540 and in the case of Sumati Dayal vs CIT 214 ITR 801 has expounded that revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probability. In these cases the transactions though apparent were held to be not real ones.
In 63 ITR 609 in the case of CIT vs Sri Meenakshi Mills Ltd Hon'ble Apex Court has held that in exceptional circumstances courts are entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal façade 13.11. The case laws relied upon by the ld. Counsel of the assessee are not applicable on the facts of the case. The case laws dealt with the situation where the AO has made some enquiry which in the opinion of the ld. CIT was not adequate. In the present case as has already been found out there was no enquiry whatsoever by the AO rather the entire exercise was to make a perfunctory attempt to give a facade of enquiry. We also do not find any cogent substance in the submission that 33 ITA Nos. 39-77/RPR/2014 prior to the introduction of proviso to section 68 and introduction of section 56(2)(viib) there was no requirement on the AO to enquire the genuineness of amount received as share capital and share premium. The receipt of any amount by whatever name called if the same is not genuine does fall under the ken of section 68."
14. Now we find that in this case, the order of the AO is absolutely silent on the issue of examination of raising of capital by means of bogus share capital and bogus share premium. It is also not the case that any notice of query was raised by the Assessing Officer in the assessment proceedings on this issue. Under the facts & circumstances, it was incumbent upon the AO to examine the issue. This is more so, when we consider it from the fact that all the relevant materials pertaining to search & seizure operation which led to the issuance of notice in these cases were available before the AO. The search & seizure action were conducted also at the office of C.A.S.K.Agarwal, wherein 232 bank passbooks of different individual of Kharora and nearby villagers were found. All the bank passbooks pertain to only two Banks, i.e. Union Bank of India, Main Branch, Raipur and Union Bank of India, Pandri Branch, Raipur. It was also found that all these companies were having registered office either in the office of C.A. S.K.Agarwal or at village Kharora. There were ample materials pointing out towards the fact that an amount of Rs. 48.48 crores in the benami name of individuals of village Kharora introduced as share application money/share capital in the above 13 shell companies have introduced while opening the bank account in the names of these companies, which were related to S.K.,Agarwal, CA. Hence, therefore, it is 34 ITA Nos. 39-77/RPR/2014 abundantly clear that the AO had all the reasons to examine the issue of raising share capital and share premium and he chose not to do the same.
Hence, the assumptions of jurisdiction by CIT u/s.263, in our opinion, are fully in order.
15. The various issues raised by ld counsel for the assessee are not at all relevant to the facts of the case. The plain and simple facts of these cases are that the assessment orders were passed in the case of 13 shell companies pursuant to search and seizure operation where there were ample materials that these companies were shell companies formed to raise bogus share capital and share premium. The AO chose not to make any whisper regarding the capital raised by these companies and he completed the assessment u/s.143(3) of the Act at Nil income returned by these companies. The issues raised in this case by ld counsel before us are the same as were raised before ld CIT. Ld CIT in his order has elaborately dealt with issues raised by ld counsel for the assessee which has been reproduced hereinabove in the earlier part of the order.
16. Ld counsel has relied heavily on the Income Tax Settlement Commission order in the case of PIL. In this regard Section 245-I of I.T.Act 1961 may be referred to which reads as under:
"Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force."35
ITA Nos. 39-77/RPR/2014 The ITSC was in no way concerned with the assessment or any proceedings of the cases of these 13 companies in the present adjudication. As mentioned by ld CIT in his order, even ITSC has never held that the capital raised by these 13 shell companies were proper and justified.
17. We further note that as held by Hon'ble Supreme Court in the case of Commissioner Of Income-Tax vs M/S. Sun Engineering Works (P.) 1992 Supp 1 SCR 732, the lines from a case law should not lifted and used as a ratio dehors the facts of the case. Income Tax Settlement Commission was concerned with the proceedings of PIL, under section 245A (b) of the Act.
The provisions of Chapter XIX-A deal with Settlement of cases relating to the case which are taken up for adjudication by the Settlement Commission. By no stretch of imagination, it can be considered that Settlement Commission was ceased with the issue of raising of bogus share capital and share premium by 13 shell companies. No where the scheme of Act under Chapter XIX-A provide for any estoppel of action relating to the assessees other than case being dealt with by the Settlement Commission.
18. Section 263 of I.T.Act, 1961 which has been reproduced by us in the earlier paragraph provides in Explanation -1(c) that where any order referred to in this sub-section and passed by the Assessing Officer has been the subject matter of any appeal filed before Commissioner, the provisions of section 263 shall apply to such matters as has not been 36 ITA Nos. 39-77/RPR/2014 considered and decided in such appeals. It is not at all the case here that in the case of these 13 assessee companies, the CIT (A)has considered and decided the issue relating to raising of bogus share capital. The entire scheme of section 263 nowhere provides for an estoppel to CIT to assume jurisdiction other than that provided in sub-clause (1)(a)(c) above, hence, we are of the considered opinion that any reference to case of the issue and adjudication of the case of PIL by ITSC is totally irrelevant for the assumption of jurisdiction by ld CIT in the case of these 13 assessee companies.
19. The case laws referred to by ld counsel are totally irrelevant and inapplicable in the facts of the case as those cases were not at all concerned with raising of bogus capital by way of shell companies engaged in money laundering. We fail to understand the issue of double taxation raised by ld counsel. The issue of double taxation can be raised when the assessee is taxed twice i.e. more than once on the same source of income.
In the present case, PIL is a separate company and these 13 companies are totally different entities. It is settled law that the companies are artificial juridical person and they have their own identity. If a chain of shell companies are formed to raise bogus share capital and share premium, then by no stretch of imagination, it can be argued that if the amount is treated as undisclosed income in case of one shell company, then in the case of other shell companies, no action shall be taken and they 37 ITA Nos. 39-77/RPR/2014 should be allowed to go scot free carrying bogus share capital raised to further the agenda of money laundering.
20. By that as it may, the issue in the present appeals relates to raising of bogus share capital by the 13 assessee companies for the purpose of money laundering. As there is no examination whatsoever by the AO, the action of ld CIT u/s.263 of the Act is fully justified. Accordingly, we uphold the order of ld CIT.
21. In the result, appeals of the assessees are dismissed.
Order Pronounced in the open Court on 22 /04/2016.
Sd/- sd/-
(PARTHA SARATHI CHAUDHURY) (SHAMIM YAHYA)
Judicial Member Accountant Member
Dated : 22 n d April, 2016.