Income Tax Appellate Tribunal - Mumbai
Ito Wd 1(3), Thane vs Kandarp Financial Services P.Ltd, ... on 16 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "H", MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND
SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
ITA No.7058/M/2012
Assessment Year: 2006-07
Income Tax Officer, M/s. Kandarp Financial
Ward 1(3), Services Pvt. Ltd.,
Ashar I.T. Park, 1, Gautam Niwas,
6th Floor, B-Wing, Opp. Shahu Municipal
Vs.
Room No.10, Market,
Wagle Estate, Nr. Naupada Police
Thane Station,
M.G. Road, Thane West.
PAN: AABCK 1729L
(Appellant) (Respondent)
Present for:
Assessee by : Shri Chetan A. Karia, A.R.
Revenue by : Shri M.C. Omi Ningshen, D.R.
Date of Hearing : 27.02.2018
Date of Pronouncement : 16.04.2018
ORDER
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 12.07.2012 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2006-07.
2. The following grounds raised by the Revenue:
"1. On the facts and in the circumstances of the case and in law, the Hon'ble ClT(A) has erred in deleting the addition of Rs.50,00,00/- u/s 68 of the IT Act, being disallowance of unexplained cash credit.2 ITA No.7058/M/2012
M/s. Kandarp Financial Services Pvt. Ltd.
2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in holding that the transaction of the sale - p ur c ha s e o f s h ar e s o f M /s S h ar d a Co r n p r o P v t. L t d a n d M Is Silvershine Impex India Pvt. Ltd between the assessee company and Shri. Giriraj Vijayavargia is a genuine transaction of sale of shares as against the stand of the Assessing Officer who holds the view that the said sale of shares is a sham transaction and entries made in the bo oks of acco unt of the assessee com pa ny and the t wo gro up sister companies, transfer of shares , registration of shares, board of directors resolution, etc are colourable arrangements designed to camouflage the sham transaction as genuine.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the true nature of the transaction a nd the s ubs ta nce of th e ca se a nd in b el ie v i ng t he fra ud ule nt arrangements made by the assessee to show the transaction as genuine.
4. T he a pp el la nt cra ves lea ve to ad d, amend a l te r or d el e te an y grounds of appeal."
3. The only effective issue in the various grounds of appeal by the revenue is against the deletion of addition by the Ld. CIT(A) as made by the AO under section 68 being the unexplained cash credit. Ground Nos.2 & 3 are in support of ground No.1 and are being dealt with accordingly.
4. The brief facts are that assessee filed return on 27.06.06 declaring income of Rs.3,79,387/- which was processed under section 143(1) of the Act. The case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 dated 02.07.10. The assessee is engaged in the business of trading in shares, stocks, scripts of Indian Companies and was also rendering consultancy services in the allied fields. During the year, the total turnover of the assessee was Rs.62.46 lakhs and the net profit was to the tune of Rs.6.74 lakhs. During the year, the assessee has sold the preference shares of its two group concerns viz. M/s.
3 ITA No.7058/M/2012M/s. Kandarp Financial Services Pvt. Ltd.
Sharda Cornpro Pvt. Ltd. and M/s. Silvershine Impex India Pvt. Ltd. to Shri Giriraj Vijayvargia of face value of Rs.10 of each at a premium of Rs.500/-. The AO doubted the transaction on the ground that the total turnover of the company was 62.42 lakhs with net profit of Rs. 6.74 Lacs only so howcome the issue of preference shares on such high premium equal to approximately 50 times of the face value of the share was fixed. Following a search action u/s 132 of the Act on Shri Giriraj Vijayvargia on 26.04.07 who is a member of called 'Ankur Group' and during the course of search it was found that Shri Giriraj Vijayvargia has given entries in the form of gifts and share application money to various entities which he admitted in the sworn statement under section 132(4) of the Act admitting that he was not having any source for gifts or share application money but the beneficiaries paid him the cash and he after deducting his commission ranging from 2% to 3% issued cheques and as per the statement of Shri Giriraj Vijayvargia the assessee was one of the beneficiaries of the said entities. Finally, the AO, after considering the contentions of the assessee, made the addition of Rs.50 lakhs under section 68 of the Act on the ground that Shri Giriraj Vijayvargia has denied making such investments and directors of the company could not explain the valuation of the shares and how the share transfer forms were dated 20.10.05 and 04.10.05 and the payment was received on 25/26.11.05. The assessment was framed vide order dated 22.12.11 under section 143(3) read with section 147 of the Act. In the appellate proceedings the Ld. CIT(A) 4 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
allowed the appeal of the assessee after considering the various submissions and contentions of the assessee by observing and holding as under:
4.2. I have gone through the assessment order passed by the AO and the written submissions made by the AR of the appellant and there is merit in the above arguments of the appellant.
4.3. It is not the case of the AO that the source of the credit in the books of accounts of the appellant company is not proved. The transaction of the sales of the shares of M/s. Sharda Cornpro Pvt. Ltd. and M/s. Silvershine Impex India Pvt. Ltd. to Shri Giriraj Vijayvargia is a matter of record. The sale and purchase of the shares in question of the above two companies to Shri Giriraj Vijayvargia is a normal sale transaction which is a part of sales for the period and properly accounted for in the books of accounts of the appellant company for the period under consideration. This is an important fact which has been not taken into consideration by the AC. 4.4. There are many other vital factors which the AC has not taken into account while treating the transaction of these sale of shares as sham transaction. It is an admitted fact that the seller of the shares i.e the appellant company, has accepted having sold the shares and the purchaser of the shares Shri Giriraj Vijayvargia has accepted of having made the pay ment o f Rs. 50 lakhs through cheque on 26/11/2005 for purchase of the shares of the above two companies. In the list furnished of the preference share holders of the companies in question, the name of Shri Giriraj Vijayvargia also appears alongwith the other shareholders, and his name is being consistently recorded in the Annual returns that are being filed by these companies with the Registrar of the Companies every year since 2006-07 This is evident from the Form 20B filed by these companies to the Registrar of the Companies and the copy of the same placed on record by the appellant. In my opinion, these vital facts cannot be ignored while taking a decision regarding the genuineness of the transaction. It has been contended by the AR of the appellant that all these details were placed before the AO during the assessment proceedings and the same were ignored by him while passing the assessment order.
4.5. On the other hand the statement of Shri Giriraj Vijayvaigia that he had received money in cash in lieu of the cheque issued, is not substantiated by documentary evidence. The inquiry officer, who has recorded the statement of Shri Giriraj has also not asked for any such evidence which can substantiate his claim of the transaction being only an accommodation entry. The AO during the course of assessment proceedings has also not brought on record any such evidence to prove that the money in cash was handed over to Shri Giriraj Vijayvargia in lieu of issue of cheque of Rs.50 lakhs and further there is no evidence placed on record that the -commission of 2-3% was paid to turn for arranging this transaction. If the AO has to refute any contention of the appellant then 5 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
he has to place some evidence on record and on the basis of such evidence he has to prove his hypothesis of the transaction being the sham or bogus. The A.O. failed to place such an evidence on record and proceed to conclude that the transaction is sham, merely on the basis of the statement of Shri Giriraj, without questioning the authenticity of such a statement. 4.6. On the contrary there is evidence on record that Shri Giriraj Vijayvargia had issued the cheque of Rs. 50 Iakhs for purchase of shares of M/s. Sharda Cornpro Pvt. Ltd. anthMLs.Sihiexshine !rnpex India Pvt. Ltd. and the same was encashed on 28/11/2005 and subsequently 9900 preference shares of M/s. Sharda Cornpro Pvt. Ltd. and 800 shares of M/s. M/s. Silvershine Impex India Pvt. Ltd. were allotted and transferred in the name of Shri Giriraj Vijayvargia. These facts are not only duly recorded by the above companies in their books of accounts but also on record with the Registrar of the Companies in the annual returns filed by the above companies for all the subsequent years since A.Y. 2006-07. In addition to the above, the AR of the appellant has also placed on record copy of the board resolution passed in the Board meeting of the above two companies dated: 04/12/2005 and 20/12/2005 confirming the transfer of the 9900 and 800 shares of the above companies in the name of Shri Giriraj Vijayvargia (placed at pages 35 and 36 of the paperbook). Further, the AR has also placed on record the share transfer certificate forms duly signed by Shri Giriraj Vijayvargia for the transfer of the shares of the above companies (placed at pages 37 to 39 of the paperbook). The money paid by Shri Giriraj Vijayvargia for the purchase of the shares in question amounting to Rs.50 lakhs was credited to the bank account of the appellant company on 28/11/2005 in their bank account no. 3739002100011616 maintained with Punjab National Bank, M.G. Road Branch, Thane (W) (placed at page 41 of the paperbook). With all these evidences placed on record before the AO, the same have not been even discussed by him in the assessment order which, in my opinion, the above evidences are sufficient to prove the sources and the genuineness of the transaction of sale of shares as far as the appellant company is concerned.
4.7. The AO proceeded merely on the basis of the statement of Shri Giriraj Vijayvargia that he had received Rs. 50 Iakhs in cash in lieu of the cheque issued of the same amount and further there is no evidence to prove the same. Mere statement of Shri Giriraj is not enough to prove the sham nature of the said transaction. The statement need to be further taken to logical conclusions by conducting the independent inquiries regarding the source of this money and looking into the bank statement of Shri Giriraj as to whether any cash money was d e p o s i t e d i n h i s bank account or any other account before issue of the cheque in favour of the above companies. The evidence need to be placed on record regarding the channels of cash money from the appellant company to Shri Giriraj and how the same was utilized for the purchase of shares in question. No such investigations have been carried out by the AO. In the absence of any such investigations and placing on record any corroborative evidence to substantiate the statement of Shri Gririaj, it is difficult to accept the conclusions arrived by the AO regarding the sham nature of the transaction. It may be pointed out here that it is 6 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
an established proposition of law that apparent has to be held as real unless proved otherwise and onus squarely lies upon the person who claims otherwise and to bring the evidence on record to prove so. The documentary evidences like recording of the transaction by the above companies in their books of accounts, copy of the board resolution passed in the Board meeting of the above two companies dated:
04/12/2005 and 20/12/2005 confirming the transfer of the 9900 and 800 shares of the above companies in the name of Shri Giriraj Vijayvargia, receipt of money in the account of the appellant company, transfer form duly filled by Shri Giriraj and the copies of the returns filed with the Registrar of the Companies showing Shri Giriraj as preference shareholder in the above companies are irrefutable documentary evidences which cannot be brushed aside summarily without going into the merits of these documents. Before rejecting these documents, the onus lies on the AO to prove, by placing contrary documentary evidences on record, that the evidences placed on record by the appellant are false. In the absence of proving the same to be bogus or false, no contrary view can be taken on these documents on the basis of presumptions and surmises. It is also a matter of record that even as on date, the shares in question are in the name of Shri Giriraj Vijayvargia in the shareholders register as well in the records of the Registrar of the Companies.
4.8. While deciding the issue at hand, the AO simply proceeded to rely on the report of the assessing officer of Mumbai, which was as a result of investigation carried out by the investigation unit in respect of some other parties. The outcome of investigation carried out in the case of some other party and the conclusion drawn, cannot be applied ipso facto to all other cases without carrying out independent investigation relating to the appellant company. Simply relying on above report, the AO has concluded that the transaction of purchase / sale of the shares is bogus or sham, is unfounded presumption. The AO should have carried out detailed investigation to prove his point, which he failed to do. Therefore, the conclusion of the AO regarding the sale / purchase of shares being treated as bogus or sham are not based on any sound reasoning / evidence and without carrying out any worthwhile investigation at his end.
4.9. As far as the argument of the AO that any prudent businessman would not subscribe the shares of the face value of Rs. 10/- of the companies in question at a premium of Rs. 500/- is concerned, the AR of the appellant has argued that the shares are preference shares issued by both the companies during the F.Y.2003-04 after submitting the scheme to the Registrar of Companies. M/s. Sharda Cornpro Pvt.
Ltd. had issued 50,000 and M/s. Silvershine Impex India Pvt. Ltd. had issued 800, at 6% non cumulative redeemable preference shares at a premium of Rs.1000/-, which were redeemable after 18 years but not before 20 years at a face value of Rs. 10/- along with a premium of 7 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
Rs.1000/-. The scheme was so formulated in order to avoid the substantial stamp duty. According to the AR, had the shares been issued at a face value of Rs. 1010/-, instead of Rs.10/- with a premium of Rs.1000/-, the stamp duty would have been payable on Rs.1010/- and not Rs. 10/- as paid by these companies. It is contended by the AR that at the time of redemption of these shares, Shri Giriraj Vijayvargia would receive Rs. 100 Iakhs as against the investment of Rs. 50 lakhs. Such an investment is a profitable venture and a prudent businessman like decision.
4.10. I agree with the above arguments of the AR of the appellant that the above investment was a profitable venture as outlined above. For an investment of Rs. 50 lakhs, Shri Giriraj Vijayvargia would be getting Rs. 100 lakhs at the time of the redemption of the shares which is clearly a profitable venture and a prudent decision as a wise businessman and this disapprove the argument of the AO that this is not a profitable venture and no prudent businessman would buy such shares and no prudent businessman would buy such shares at a hefty premium of Rs.500/-.
4.11. Regarding the contention of the AO that no contract note has beenproduced by the appellant company to prove the transfer of shares, the appellant company has contended that as the deal was a direct deal of the sale of shares with the purchaser and there was no need for the contract note. There is a merit in the above argument of the appellant because if the transaction is through any broker, then the contract note is written. But here, the appellant company itself is in the business of trading of shares and has entered into the transaction in question directly with the purchaser and hence, there was no need for such a contract note and the transaction can be carried out directly between the parties to the transaction.
4.12. In view of the facts and circumstances explained above, in my considered opinion, the action of the AO adding back an amount of Rs. 50 Iakhs to the income of the appellant company u/s. 68 as unexplained investment, is not in order. The transaction of the sale purchase of shares of M/s. Sharda Cornpro Pvt. Ltd. and M/s. Silvershine lmpex India Pvt. Ltd. between the appellant company and Shri Giriraj Vijayvargia is a transaction of sale of shares, which has been properly accounted for in the books of accounts of the appellant for the period under consideration. The evidences placed on record like crediting of the money paid by Shri Giriraj Vijayvargia for the purchase of the shares in question amounting to Rs.50 Iakhs in the bank account of the appellant company on 28/11/2005, transfer of the shares in the name of Shri Giriraj Vijayvargia as per the records of the appellant, records of the Registrar of Companies showing the transfer of shares, board of directors resolution passed in the Board meeting of the above two companies dated: 04/12/2005 and 20/12/2005 confirming the transfer of the 9900 and 800 shares of the companies 8 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
in the name of Shri Giriraj Vijayvargia goes to prove the genuineness of the transaction. The conclusion of the AO treating the transaction as sham is not proved on the basis of any evidence placed on record and therefore such a conclusion drawn is on presumption and therefore cannot be accepted. In view of the same, the addition made amounting to Rs. 50 lakhs u/s. 68 treating the money as unexplained is hereby deleted ."
5. The Ld. D.R. vehemently submitted before us that order passed by the Ld. CIT(A) is fraught with several infirmities and defects. The Ld. D.R. argued that the Ld. CIT(A) has not given his findings as to how the decision based upon the admission of Shri Giriraj Vijayvargia during the search operation under section 132(4) of the Act is not correct in which he has clearly admitted that the assessee is a beneficiary of the sham transactions not investing any money but only after taking cash from the parties including assessee, cheques were issued after deducting commission from 2-3%. The Ld. D.R. contended that there was no justification for issuing preference shares of the face value of Rs.10 at 50 times premium when the health of the companies issuing preference shares was not very sound and the assessee has very meager turnover and profit during the year. The Ld. D.R. finally prayed before the Bench that in view of these facts the order of Ld. CIT(A) should be reversed.
6. The Ld. A.R., on the other hand, argued that this is a genuine transaction which the assessee entered into in F.Y. 2003-04. The assessee purchased 6% redeemable preference shares of two concerns being M/s. Sharda Cornpro Pvt. Ltd. and M/s. Silvershine Impex India Pvt. Ltd. for a total consideration of Rs.54,19,625/- which was duly shown as 9 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
invested in the closing stock in the balance sheet of the assessee. These preference shares were redeemable after 18 years at a premium and the redemption value was one crore. The Ld. A.R. submitted that these shares were issued by said two companies at a premium were merely to save the stamp duty. The Ld. A.R. submitted that these shares were sold to Shri Giriraj Vijayvargia for a consideration of Rs.50 lakhs and the assessee incurred loss in the said transaction. The Ld. Counsel for the assessee vehemently submitted before us that the copies of statement of Shri Giriraj Vijayvargia were not provided to the assessee till date except the extract in the assessment order. There was no opportunity of cross examinations of Shri Giriraj Vijayvargia was ever granted to the assessee by the AO. The Ld. A.R. submitted that even if Shri Giriraj Vijayvargia gave a statement during the course of search in which the name of the assessee was clearly mentioned but that has no legal sanctity if assessee is not given the copy of statement and not allowed cross examination of the said person. As regards the high premium, the Ld. A.R. submitted that the shares were to be deemed at a premium and premium collected was to be repaid to the investor and thus tried to justify the premium in terms of redemption of the said shares. As regards the difference in dates, the Ld. A.R. submitted that the cheque is normally received after all the documents are complete and the gap between the documentation and the issue of cheque is only one month. The Ld. A.R. submitted that Ld. CIT(A) has rightly deleted the addition on the basis of evidences and records 10 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
available. The Ld. A.R. submitted that the statement of Shri Giriraj Vijayvargia would have been an initiating point for the investigation and had the AO carried out the cross examination/independent cross examination of the said person the factual position would have been unearthed. Finally, the Ld. A.R. prayed before the Bench that in view of these facts, particularly the serious lapses in the enquiry made by the AO the order of Ld. CIT(A) is correct and deserved to be upheld.
7. We have heard the rival submissions and perused the material on record. The undisputed facts are that the assessee purchased the preference shares of two concerns namely M/s. Sharda Cornpro Pvt. Ltd. and M/s. Silvershine Impex India Pvt. Ltd. for a consideration of Rs.54,90,625/- which were shown in the balance sheet of the assessee. These shares were redeemable after a period of 18 years at a premium and the redemption value was one crore. The assessee sold these shares to Shri Giriraj Vijayvargia for a consideration of Rs.50 lakhs, thus, incurred loss and duly shown the said transaction in the return of income filed on 27.06.06. Following a search action in the case of Shri Giriraj Vijayvargia , his statement was recorded under section 132(4) of the Act in which he admitted that the assessee was a beneficiary of entries which he has provided by accepting cash from the assessee and issuing cheque without making any reinvestment. The AO on the basis of said statement reopened the case of the assessee and made addition under section 68 of the Act on three points namely;
11 ITA No.7058/M/2012M/s. Kandarp Financial Services Pvt. Ltd.
i) Statement of Shri Giriraj Vijayvargia that he provided accommodation entries
ii) No valid explanation as regards shares issued at a premium and
iii) Time lag of one month between the share transfer form and the issue of cheque It is noteworthy that assessee was not supplied a copy of the statement of Shri Giriraj Vijayvargia nor any cross examination was allowed during the course of assessment proceedings. The assessee has throughout denied allegations of the AO of being beneficiary of accommodation entries given by Shri Giriraj Vijayvargia. After perusing the order of Ld. CIT(A), we find that each and every aspect has been touched upon on which the AO has relied while making the addition. A detailed and comprehensive findings has been given by Ld. CIT(A) as is reproduced as above and finally the Ld. CIT(A) deleted the addition by holding that the conclusion of the AO treating the transaction as sham was not proved on the basis of evidences on record and thus the Ld. CIT(A) narrated the said conclusion as derived on the basis of assumptions and surmises. The Ld. CIT(A) also noted that assessee was not provided a copy of statement nor any cross examination was allowed to the assessee. Under these circumstances, we are of the view that Ld. CIT(A) has taken into account each aspect of the matter of investments in preference shares and sales thereof into account and only after noticing the infirmities and defects in the investigation/enquiry by the AO ,a conclusion was reached by the Ld. CIT(A) in the appellate 12 ITA No.7058/M/2012 M/s. Kandarp Financial Services Pvt. Ltd.
order which is correct and deserved to be upheld. Accordingly, we uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue.
Order pronounced in the open court on 16.04.2018.
Sd/- Sd/-
(C.N. Prasad) (Rajesh Kumar)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 16.04.2018.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.