Rajasthan High Court - Jodhpur
C.I.T.Central,Jaipur vs M/S Supertech Diamond Tools Pvt.Ltd on 12 December, 2013
Author: Dinesh Maheshwari
Bench: Dinesh Maheshwari
D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur
Vs.
M/s Supertech Diamond Tools Pvt. Ltd.
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34
D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax-Central, Jaipur
Vs.
M/s Supertech Diamond Tools Pvt. Ltd.
..
Date of Order :: 12th December 2013.
HON'BLE MR. JUSTICE DINESH MAHESHWARI
HON'BLE MR. JUSTICE V.K. MATHUR
Mr. K.K. Bissa, for the appellant.
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BY THE COURT:
By way of this appeal under Section 260A of the Income Tax Act, 1961 ('the Act'), the Revenue seeks to question the order dated 19.01.2012 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ('ITAT') in ITA No.211/Jodh/ 2009 for the Assessment Year 2004-05 whereby, the ITAT has affirmed the order dated 09.02.2009 passed by the Commissioner of Income Tax (Appeals), Central, Jaipur ['CIT(A)'] partly allowing the appeal preferred by the assessee and deleting the additions made by the Assessing Officer ('AO') in the assessment order dated 28.12.2007 to the tune of Rs. 79,80,000/- on account of unexplained share capital contribution and Rs. 19,950/- on account of unexplained expenditure on commission for getting accommodation entries.
Put in brief, the relevant background aspects of the matter are as follows : The respondent Company is engaged in manufacturing of the segments used in the marble sawing. The D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 2 // Company came into existence on 16.06.2003. Thus, the previous year related with the Assessment Year 2004-05 had been the first year of the business of the assessee Company. In the original return filed on 01.11.2004 under Section 139 of the Act, the assessee Company declared a loss of Rs.3,88,740/- . It appears that search and seizure operation under Section 132 of the Act were carried out on 23.01.2006 at the business premises of the assessee alongwith the residential as well as other business premises of Choudhary Group of Cases; and pursuant thereto, notices under Section 153A were issued. In the return filed on 06.12.2006 in response to the notice under Section 153A, the assessee Company declared a loss of Rs.3,38,740/-
On the return so filed, the assessment was completed on 28.12.2007 at the total income of Rs. 76,61,210/- wherein, the Assessing Officer proceeded to make an addition of Rs. 79,80,000/- on account of share capital and share premium alleged to have been received from five Delhi based companies. Another amount of Rs. 19,950/- was also added as being the commission paid for arranging entries for share capital and share premium. In this regard, the AO relied upon the statements made by the persons related with the said Delhi based companies, including one Shri Pradeep Kumar Jindal. The AO observed that though they had confirmed about the companies having purchased the shares of the assessee Company and such companies being assessed to tax but it was admitted in their statements that they were engaged in the business of sale D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 3 // and purchase of shares and providing accommodation entries in lieu of commission. The AO concluded that the assessee had routed its undisclosed funds through the banking channels of the accommodation entry providers and hence proceeded to make the addition.
Aggrieved against the assessment order dated 28.12.2007, the respondent assessee filed an appeal which was partly allowed by the CIT(A) in the order dated 09.02.2009. It is noticed that the CIT(A) considered the matter in thorough detail and even discussed the matter with the learned Assessing Officer threadbare. The CIT(A) found that the statement made by a third party at the back of assessee could not have been utilized against the assessee without providing an opportunity of cross-examination, which was not afforded by the AO. The CIT (A) also found that the AO could not bring any material to disapprove the genuineness of confirmations and affidavits; and following the decision of the Hon'ble Supreme Court in the case of CIT Lovely Exports Pvt. Ltd. (2008) 6 DJR SC 308, found the additions unsustainable; and proceeded to delete the same. The CIT(A), inter alia, observed and held as under: -
"However, the assessee filed confirmations along with the affidavit of the directors of the 5 purchasing companies who had confirmed that they have purchased the regular share and premium shares total at Rs.79,80,000/- from the assessee company and made the payment through account payee draft. It is also fact that the ld. A.O. made direct independent inquiry from the directors of the purchaser company by issuing a letter u/s 133(6) of the I.T. Act 1961. The ld. A.O. Sh. V.K. Chakarvarty was heard and the case was discussed with him. On perusal of letter u/s 133(6) I find that no confirmations or comment was asked from the directors of the purchaser company about their statement in the search and seizure operation in their case. The ld. A.O's only reason for rejecting the confirmations and affidavits filed by aforesaid directors of the purchaser companies was that the directors did D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 4 // not retracted their statement in such confirmations or affidavits. The ld. A/R's contention is that the directors of the purchaser companies have fully replied against the ld. A.O's letter u/s 133(6). There is no question to retract against anything which is not mentioned in the letter u/s 133(6). Therefore, the rejection of confirmations and affidavits filed by the directors of the purchasing companies was not justified and the various case laws relied by him is still applicable in this case and binding on the department. Moreover the ld. A/R also submits that the statement made by third party on the back of the assessee can not be utilized against him without giving him opportunity of confrontation or cross examination of such persons making such statement. This opportunity was not provided by the ld. A.O. Under such circumstances the addition on account of receipt of money for regular and premium sales of shares can not be sustained. Considering the facts and circumstances of the case, particularly that the ld. A.O could not bring any material to disprove the genuineness of the confirmations and affidavits and following the case laws mentioned supra, particularly the recent decision of Supreme Court in the case of CIT V/s Lovely Exports Pvt. Ltd (2008) 6 DJR SC 308 and other decisions of jurisdictional High Court and Jurisdictional ITAT, I hold that addition of Rs.79,80,000/- on account of receipt for sales of regular shares and premium shares of the company as unexplained share capital is not justified and the same is deleted. The A.O. is directed to take necessary action against the purchaser companies for such investment in purchase of shares.
Consequently the A.O's addition on account of commission payment for such transaction to the purchaser companies at a rate of 0.25% amounting to Rs 19,950/- also can not sustain and the same is deleted."
Aggrieved by the order dated 09.02.2009 so passed by the CIT(A), the Revenue preferred an appeal before the ITAT. The ITAT dismissed the Revenue's appeal by the impugned order dated 19.01.2012 finding no justification for the additions towards the share capital, share premium and alleged commission in the hands of the assessee Company. The ITAT has, inter alia, held and observed as under:-
"We have gone through written submissions of Ld. CIT D/R and also gone through various case laws relied upon and found that there is no evidence that assessee had paid any commission and has refunded the amount received under the grab of share application money. Various case laws relied upon by ld. D/R are in respect of cash credits added under section 68. After considering the submissions and various case laws, it is seen that the submission of ld. CIT D/R is not D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 5 // helpful to the case of revenue. The Hon'ble Supreme Court in case of Lovely Exports Pvt. Ltd. had clearly held that even if the shareholders are bogus in that case no addition can be made in the hands of the company but AO can reopen the cases of shareholders. The contention of ld. CIT D/R that in case of Lovely Exports Pvt. Ltd. only bogus share application was found but the investors were genuine. However, in the present case even there are no genuine investors as all the companies are fabricated just to provide accommodation entries only as admitted by one of the Directors i.e. Shri Pradeep Jindal. Whether those companies were fictitious or bogus, the moot question here is that whether the assessee company had received share application money or not. It is seen that share capital was received through account payee cheques along with premium amount totaling to Rs.79,80,000/- from five private limited companies i.e. M/s. Sanraj Associates Pvt Ltd., M/s. Fortress Impex Pvt. Ltd., M/s. Sumit Overseas Pvt. Ltd., M/s. Pushpanjali Caps Pvt. Ltd. and M/s. B.P. Builtech Pvt. Ltd. all these companies are situated at Delhi. All these companies are assessed to tax and they are registered under the Companies Act. Return of allotment of shares in prescribed form no.2 to the Registrar of Companies was also filed before Assessing Officer as well as before ld. CIT (A). It is further seen that the addition is based on alleged statement of Shri Pradeep Jindal recorded under section 131 behind the back of the assessee on 15.4.2004. The assessee was not even afforded any opportunity of cross examination nor Shri Pradeep Jindal was examined in the course of assessment proceedings in case of assessee nor he was examined in presence of assessee company nor he was confronted with the documents of contemporary period showing investment in shares made by those five companies through regular banking channel. Therefore, in our view, the inference drawn by Assessing Officer was not correct. Even and otherwise, the issue is squarely covered by the decision of Hon'ble Supreme Court in case of M/s. Lovely Exports Pvt. Ltd., 6 DTR 308 wherein it has been held that-
"If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
Similar view has been expressed by Hon'ble Delhi High Court in case of Divine Leasing and Finance Ltd., 299 ITR 268 (Del). The Hon'ble Rajasthan High Court has taken similar view in case of Shree Barkha Synthetics Ltd, 1982 CTR 175 and again reported in 197 CTR 432. Earlier, the Hon'ble Delhi High Court in case of Steller Investment Ltd., 192 ITR 287 has taken similar view and this decision of Hon'ble Delhi High Court has been affirmed by Hon'ble Supreme Court in 251 ITR 263 wherein it is held that-
"It is evident that even if it be assumed that the subscribers to the increase share capital were not genuine, nevertheless, under no circumstances can the amount of share capital D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 6 // be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names the shares had been issued and money may have been provided by some other persons. If the assessment of the persons who were alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital could be assessed in the hands of the company itself."
The findings in these cases are squarely applicable on the facts of the present case and we noted that ld. CIT (A) has already taken a recourse for taking action against the respective shareholders as the Assessing Officer was directed to take necessary action against the purchaser company for such investment in purchase of shares.
10. We have also considered the contention of ld. D/R that the share application money which remained unproved can be added under section 68. We would like to observe here that there is a difference between cash creditor and shareholder. In case of cash creditor, the cash creditor has right to demand the money back from the assessee. However, in case of shareholder, there is no liability of the company to refund the amount as the shares can be sold in the market. Therefore, in case of cash creditor, heavy onus lies on the assessee to prove whether cash creditor was genuine or not. However, in case of shareholder, it is held by various High Courts and Hon'ble Supreme Court that if shareholders are not genuine, then in that case no addition can be made in the hands of the company but the case can be reopened of the shareholders for enquiring about their source of buying the shares in the company. 10.1. The contention of ld. CIT D/R that cash was deposited in the account of the respective five companies before issuing cheque to the assessee company for allotting the shares. Therefore, there is every likelihood that cash deposited in the account of those companies was belonging to assessee company for issuing cheque under the garb of issuing shares. In our view, this contention is without any evidence and if the cash deposited in the account of those companies then onus lies on those companies to prove that from which source the cash has been deposited in their account. Therefore, the AO should examine the case of those five companies instead of making addition in the hands of the assessee company. The ld. CIT (A) has already directed, as stated above, to take action against the respective shareholders and, therefore, in our view, the ld. CIT(A) was justified in allowing the issue in favour of the assessee. Accordingly, without going into detail further, we are of the considered view that ld. CIT (A) was justified in allowing the claim of the assessee as the issue is squarely covered by the decision of Hon'ble Jurisdictional High Court as well as by the decisions of Hon'ble Supreme Court mentioned above. Accordingly, we confirm the findings of ld. CIT (A) on this issue.
12. In the result, appeal of the department is dismissed."
D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 7 // Seeking to question the order so passed by the ITAT, it is submitted that the approach of the ITAT has been from an altogether wrong angle where it has failed to consider that the companies in whose names investments were shown, had no explainable source of the funds for investment in the assessee company; and the source of the funds was the cash deposits. It is submitted that all the referred companies were being managed by Shri Pradeep Jindal, who was engaged in the business of providing accommodation entries to various companies in lieu of commission; and who had admitted the facts in his statements recorded under Section 131 of the Act. It is also submitted that in the given status of record and the statement of the persons related with the assessee company, the additions made by the AO had been justified and there was no reason for the CIT(A) in deleting the same.
Having given thoughtful consideration to the submissions made and having perused the material on the record, we are unable to find any reason to consider interference; and are clearly of the opinion that no substantial question of law is involved in this appeal.
The reference to the statements made by some of the persons related with the said investing companies is of no effect because such statements could not have been utilized against the assessee Company when the assessee company had not been afforded an opportunity of confronting and cross-examining the persons concerned. There does not appear anything D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 8 // occurring in the statements of the persons relating with the assessee Company so as to provide a basis for the findings recorded by the AO.
In any case, the points as sought to be raised by the appellant in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. As regards the referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard at the hands of assessee-company.
Ultimately, the question as to whether the source of invest- ment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of Commissioner of In- come Tax Vs. Orissa Corporation (P) Ltd.: (1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:-
"13. In this case, the assessee had given the names and ad- dresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Rev- enue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged credi- tors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the socalled alleged creditors. In those circumstances, the assessee could not do any thing further. In the premises, if the Tribunal came to the conclusion that the assessee has dis- charged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 9 // no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises."
In CIT Vs. Shree Barkha Synthetics Ltd.: 182 CTR (Raj.) 175, in a similar nature matter, this Court observed that the Tri- bunal having found that the companies from which the share ap- plication money had been received by the assessee-company were genuinely existing and the identity of the individual in- vestors were also established and they had confirmed the fact of making investment, the finding that assessee had discharged ini- tial burden and addition under Section 68 could not be sustained, was essentially a finding of fact. This Court said,-
"19. A perusal of the aforesaid finding goes to show that deletion has been made on appreciation of evidence, which was on record Finding that there was existence of investors and their confirma- tion has been obtained, were found to be satisfactory. All these conclusions are conclusions of fact based on material on record and, therefore, cannot be said to be perverse so as to give rise to question of law, which may be required to be considered in this appeal under s.260A of the IT Act."
The ratio of the decisions aforesaid directly applies to the present case too. Herein, as noticed, the appellate authorities have returned the findings of fact in favour of the assessee after due appreciation of the evidence on record, on relevant consider- ations, and on sound reasonings. These findings have neither been shown suffering from any perversity nor appear absurd nor are of such nature that cannot be reached at all.
Needless to reiterate the law laid down by the Courts consistently that the department is free to proceed in relation to the individual investor in accordance with law but the amount of D.B. INCOME TAX APPEAL NO. 74/2012.
Commissioner of Income Tax, Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd.
// 10 // increased share capital cannot be assessed at the hands of the assessee Company itself.
In the result, the appeal fails and is, therefore, dismissed. (V.K. MATHUR), J. (DINESH MAHESHWARI), J. /Mohan/