Harmony Yarns Pvt.Ltd., Surat V. The CIT-I, Surat

ITA 1323/AHD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94489 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA UPMANYU
• Assessee Lawyers: RASESH SHAH
• Keywords: Bogus Share capital; Depreciation; Income from undisclosed sources; Search and seizure; Opportunity of being heard; Accommodation entries; Reason to believe
• Section: 143(3); 142(1); 133(6); 147; 68; 148; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI ANIL CHATURVEDI , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER HARMONY YARNS PVT. LTD, 2157, RAGHUKUL TEXTILE MARKET, RING ROAD, SURAT PAN: AAACH5895F (APPELLANT) VS COMMISSIONER OF INCOME TAX - 1, SURAT (RESPONDENT) REVENUE BY : S MT. VASUNDHARA UPMANYU , SR. D . R. ASSESSEE BY: S H RI RASESH SHAH , A.R. DATE OF HEARING : 16 - 09 - 2 015 DATE OF PRONOUNCEMENT : 30 - 09 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2005 - 06 , AR ISES FROM ORDER OF THE CIT - I, SURAT DATED 24 - 03 - 2014 IN PROCEEDINGS UNDER SECTION 263 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 1323 / A HD/20 14 A SSESSMENT YEAR 200 5 - 06 I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 2 2. FACTS OF THE CASE ARE IN A NARROW COMPASS. THE ASSESSEE - COMPANY IS E NGAGED IN TEXTILE BUSINESS. IT FILED ITS RETURN ON 20 - 09 - 2005 SHOWING NIL INCOME. THE SAME WAS PROCESSED. THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 28 - 12 - 2007 INTER ALIA DISALLOWING DEPRECIATION CLAIM TO THE TUNE OF RS. 85,005/ - AND ADDED WORK IN PROGRESS ON REASONABLE BASIS OF RS 73,766/ - . THE ASSESSEE DOES NOT SEEM TO HAVE FILED ANY APPEAL. THEREAFTER, THE ASSESSING OFFICER FORMED REASONS TO BE LIEVE THAT ITS INCOME LIABLE TO BE ASSESSED HAD ESCAPED ASSESSMENT. HE ISSUED SECTION 148 NOT ICE DATED 29 - 03 - 2011 AS UNDER: - REASONS RECORDED, FOR REOPENING THE ASSESSMENT: THE RETURN OF INCOME WAS FILED ON 20.09.2005 DECLARING THE INCOME OF RS. NIL/. ORDER U/S!43(3) OF THE ACT WAS COMPLETED ON 28 .12.2007 MAKING AN ADDITION OF R S.85,005/ - ON ACC OUNT OF EXCESS DEPRECIATION AND RS.73,766/ - ON ACCOUNT OF VALUATION OF WORK IN PROGRESS. A SEARCH AND SEIZURE ACTION U/S. 132 OF THE INCOME TAX ACT WAS CONDUCTED IN CASE OF M/S. MAHASAGAR SECURITIES PRIVATE LI MITED BY INVESTIGATION WING OF IN COME - TAX DEPA RTMENT, MUMBAI, ON 25 - 11 - 2009. THE SEARCH WAS CONDUCTED ON THE BASIS OF INFORMATION RECEIVED IN AN FIU ALERT FROM NEW DELHI REGARDING SUSPICIOUS TRANSACTIONS TAKING PLACE IN THE BANK ACCOUNTS OF THIS COMPANY AND ITS RELATED COMPANIES. THE DIRECTORS OF THES E COMPANIES WERE ONE MUK ESH M.CHOKSI AND JAYESH K - SAMPAT. DURING THE COURSE OF THE SEARCH IT WAS REVEALED THAT THE MAHASAGAR SECURITIES PRIVATE LIMITED AND ITS RELATED GROUP OF 34 ODD COMPANIES (THE PROMINENT ONES BEING ALLIANCE INTERMEDIARIES & NETWORK PR IVATE LIMITED, M/S. MIHIR AGENCIES PRIVATE LIMITED, M/S. GOLDS TAR FINVEST PRIVATE LIMITED ETC. ALL RUN BY MUKESH CHOKSI) WERE ENGAGED IN FRAUDULENT BILTING AC TIVITIES AND IN THE BUSINESS OF PROVIDING BOGUS SPECULATION PROFIT/LOSS, SHORT TERM/LONG TERM CAPI TAL GAIN/LOSS, SHARE APPLICATION MONEY, COMMODITIES PROFIT/LOSS ON COMMODITY TRADING (THROUGH MCX) AND HAD BEEN CONTINUING THIS BUSINESS FOR MANY YEARS. I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 3 IN THE LIST OF CLIENTS WHO HAVE TAKEN ACCOMMODATION ENTRIES FROM THESE COMPANIES, THE NAME OF THI S ASS ESSEE I.E. HARMONY YARN PVT. LTD. IS ALSO APPEARING. DURING THE COURSE THE PROCEEDINGS THE STATEMENT OF SHRI MUKESH CHOKSI, MAIN PERSON BEHIND THIS SCAM, WAS ALSO RECORDED ON 25 - 11 - 2009. IN HIS STATEMENT RECORDED ON OATH HE HAS ADMITTED THAT THESE T RANSACT IONS ARE BOGUS. FROM THE DETAILS SUBMITTED BY THE INVESTIGATION WING IT IS SEEN THAT THE ASSESSEE HAS OBTAINED THE SHARES AP PLICATION MONEY OF RS. 11,00,000/ - FROM MIHIR AGENCY PVT. LTD. ONE OF COMPANY RUN BY MUKESH CHOKSHI, DURING THE FINANCIAL YE AR 200 4 - 05 (A.Y. 2005 - 06). IN VIEW OF THIS NEW FEET, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT THE APPROVAL OF THE CJT - I, SURAT IS THEREFORE SOUGHT FOR ISSUE OF NOTICE UNDER THE PROVISIONS OF SECTION 151(2) OF THE ACT. 3. THE ASSESSEE REITERATED ITS ORIGINAL RETURN FILED IN ITS LETTER DATED 27 - 11 - 2007. T HE ASSESSING OFFICER TOOK UP RE - ASSESSMENT AND ISSUED NOTICES U/S. 143(2) OF THE ACT DATED 16 - 05 - 2011 AND THE ONE U/S. 142(1 ) DATED 25 - 05 - 2011 SEEKING SOURCE AND SUPPORTIVE EVIDENCE OF SHARE APPLICATION MONEY AND SHARE PREMIUM RECEIVED FROM VARIOUS ENTITIES AND CREDITED IN THE RESPECTIVE ACCOUNTS. THE ASSESSEE FILED ITS REPLY DATED 08 - 06 - 2011 PLACING ON RECORD FORM NO. 2 QUA A LLOTMENT OF SHARES, COMPLETE DETAILS OF SHARES ALLOTTED DURING THE YEAR ALONG WITH PREMIUM RECEIVED AND ACKNOWLEDGMENT MEMORANDUM, BALANCE SHEET AND RELEVANT BANK STATEMENT S . THE ASSESSING OFFICER FRAMED RE ASSESSMENT ON 29 - 08 - 2011 ADDING A SUM OF RS. 26 L ACS I.E. RS. 11 LACS OF SHARE APPLICATION MONEY IN CASE OF M/S. MIHIR AGENCY PVT. LTD AND RS. 15 LACS RELATING TO M/S. BUNIAD I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 4 CHEMCIAL PVT. LTD AS BOGUS AND UNRELIABLE. HE INVOKED SECTION 68 OF T HE ACT AND ADDED GROSS SUMS OF RS. 26 LACS AS UNEXPLAINED C ASH CREDIT S . THE ASSESSEE PREFERRED APPEAL ON 12 - 09 - 2011. THE CIT(A) DISMISSED IT ON 26 - 06 - 2012. THE ASSESSEE SUBMITS THAT ITS APPEAL AGAINST THE CIT(A) S ORDER IS PENDING BEFORE THE TRIBUNAL. 4 . IT IS TO BE SEEN POST FACTO CIT(A) S ORDER, THE CIT FORMED AN OPINION THAT ABOVE STATED REASSESSMENT FRAMED IN ASSESSEE S CASE WAS ERRONEOUS CAUSING PREJUDICE TO THE INTEREST OF REVENUE AS UNDER: - 1. PLEASE REFER TO THE ASSESSMENT ORDER FOR A.Y. 2005 - 06 PASSED U/S. 143 (3) R.W.S. 147 OF THE IT ACT DATED 29 .08.2011 BY THE ITO, WARD - L(2), SURAT. IN THIS CASE, THE ASSESSMENT WAS REOPENED ON THE BASIS O F INFORMATION THAT THE ASSESSEE WAS A BENEFICIARY OF FRAUDULENT TI LLING ENTRY TO THE TUNE OF RS. 11 LAKH FROM M/S. MA HASAG AR SECURITIES PVT. LTD. AND ITS GROUP C OMPA NIES RUN BY SHRI MUKESH M. CHOKSI, DIRECTOR OF THE COMPANIES. DURING THE COUR SE OF RE - ASSESSMENT PROCEEDINGS, THE A.O. HAD FOUND , ANOTHER COMPANY ALSO INDULGING IN - BILLING ENTRY AND TOTAL ADDITION OF RS. 26 LAKH WERE MADE AS UNDER: 1) MIHI R AGENCY P VT. LTD. RS. 11,00,000/ - 2) BUNIYAD CHEMICALS PVT. LTD. RS. 15,00,000/ - ----------------------- TOTAL RS. 26,00,000/ - ---------------------- 2. HOWEVER, FROM THE EXAMINATION OF RE CORDS IT IS FOUND THAT NO PROPE R VERIFICATION AP PEARS TO HAVE BEEN MADE IN RESPECT OF 1 1 OTHER, PARTIES FROM WHOM THE ASSESSEE COMPANY H AD OBTAIN ED SHARE APPLICATION MONEY AND SHARE PREMIUM TO THE TUNE OF RS.5 6 LAKH AS GIVEN HEREUNDER: SR. NO. DATE OF ALLOTMENT NAME OF PARTY AMOUNT OF S HARES AMOUNT OF I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 5 PREMIUM 1 28.02.2005 M/S. VENUS DEALING PVT. LTD. 10,00,000 2 28.02.2005 M/S. KASHMIKAL MERCANTILE PVT. LTD. 5,00,000 3 28.02.2005 M/S. CALRION MERCHANTS PVT. LTD. 5,00,000 4 28.02.2005 M/S. SATI TRAXIM PVT. LTD 5,00, 000 5 15.03.2005 M/S. AKKAL PAPER MILLS PVT. LTD. 60,000 2,40,000 6 15.03.2005 M/S. FELICITY FINANCE &. LEASING PVT. LTD, 60,000 2,40,000 7 15.03.2005 M/S. J.M.D. MERCANTILES PVT. LTD. 1,00,000 4,00,000 8 15.03.2005 M/S. S UNFLOWER VINIMAY PVT. LTD 1,00,000 4,00,000 9 15.03.2005 M/S. HITESHWARI MARKETING PVT. LTD. 1,00,000 4,00,000 10 15.03.2005 M/S. SUGAM COMMERCIAL PVT. LTD 1,00,000 4,00,000 11 15.03.2005 M/S. BHAGYA LAXMI MERCANTILE PVT. LTD. 1,00,000 4,00,000 3,1,20,000 24,80,00 0 3. ON GOING THROUGH THE RECORDS, IT IS FOUND THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE NATURE, AND SOURCE OF CREDIT RECORDED IN ITS BOOKS OF ACCOUNTS IN RESPECT OF THESE 11 PARTIES. 4. IT IS FURTHER FOU ND CH AT THE ASSESSEE HAD MADE HI - SEAS PURCHASES OF RS. 9,38,955/ - AND SALES OF RS. 9,56,081/ - . NO DETAILS ARE CALLED FOR AND NO VERIFICATION AP PEARS TO HAVE BEEN CARRIED PUT ON - THIS ISSUE. I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 6 5. FURTHER, NO VERIFICATION APPEARS, TO HAVE BEEN MADE IN RESPECT OF PURCHASE AND SALE OF VEGETABLES AND AGRICUL TURAL PRODUCTS OF RS. 41,62,437/ - AND RS . 73,51,474/ - , RESPECTIVELY. 6. THEREFORE THE ORDER UNDER REFERENCE APPEARS TO BE ERRONEOUS AND THEREFORE, PREJUDICIAL TO THE INTEREST OF REVENUE WIT HIN T HE MEANING OF SECTION 263 OF THE I.T. ACT, 1961. 7. YOU ARE : THEREFORE REQUESTED TO SHOW CAUSE, WHY THE ASSESSMENT FRAMED BY THE ITO, WD - 1(2), SURAT DATED 29.08.2011 SHOULD NOT BE REVISED U/S. 263 OF T HE I.T. ACT. FOR THIS PURPOSE, HE ARING, IN YOUR CASE IS F IXED ON 1 9 - .02.2014 AT 12.30 P.M. IF IN CASE, YOU DO NOT WISH TO AVAIL THE OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH YOUR AUTHORIZED REPRESENTATIVE, YOU MAY, IF SO, DESIRED, MAKE YOU SUBMISSIO N IN WRITING, ON OR BEFORE THE DAT E OF HEARING, WHICH WIL L BE DULY TAKEN NOTE OF BEFORE PASSING ANY ORDER. 5 . THE ASSESSEE FILED ITS REPLY PLEAD ING THEREIN THAT THE ASSESSING OFFICER HAD MADE ALL VERIFICATIONS BEFORE FRAMING REASSESSMENT SOUGHT TO BE REVISE D IN PROCEEDINGS U/S. 263 OF TH E ACT. THE CIT HAS DECLINED THE SAME IN THE ORDER UNDER CHALLENGE READING AS FOLLOWS: 5. THE CONTENTION OF THE ASSESSEE IS THAT COMPLETE DETAILS WITH RESPECT TO ALL THE SHARE APPLICANTS WERE S UBMITTED EVEN IN RE - ASSESSMENT PROCEEDINGS AND WERE VERIFIED BY THE A.O. FOR THIS THE ASSESSEE RELIED ON THE ORDER OF THE A.O, AND STATED THAT SINCE ALL THE REQUIRED DETAILS, WERE SUBMITTED AND ACCEPTED BY THE A.O, ONUS IN RESPECT OF EVERY SHARE APPLICANT WITH REGARD TO THE GENUINENESS AND CREDITWORTHINESS HAD BEEN DISCHARGED. 5.1 IT WOULD BE PERTINENT TO - MENTION THE FACT LEADING 1 TO RE - ASSESSMENT PROCEEDINGS AND THE ADDITIONS. A SEARCH AND SEIZURE ACTION U/S.132 OF THE ACT WAS CONDUCTED IN THE CASE OF M/S. MAHASAGAR SE CURITIES PVT. LTD., BY THE INVESTIGATION WING OF MUMBAI ON 25.11.2009. THE SEARCH WAS CONDUCTED ON THE BASIS OF INFORMATION RECEIVED IN AN FIU ALERT FROM NEW DELHI REGARDI NG SUSPICIOUS TRANSACTIONS TAKING PL ACE, IN THE BANK AC COUNTS OF THIS COMPANY AND ITS RELA TED COMPANIES. THE DIRECTORS OF THESE COM PANIES WERE ONE MUKESH M CHOKSI A ND JAYESH K SAMPAT. I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 7 DURING THE COURSE OF SEARCH IT WAS REVEALED THAT M/S. MAHASAGAR SECURITIES PVT. LTD. AND ITS RELAT ED GROUP OF 34 ODD COMPANIES WER E ENGAGED IN THE BUSINESS OF FRAUDULENT BILLING ACTIVITIES AND PROVIDING BOGUS SPECULATION PROFIT/LOSS, SHORT TERM/LONG TERM CAPITAL GAIN/LOSS, SHARE APPLICATION MONEY, PROFIT/LOSS ON COMMODITY TRADING WHICH ACTIVITIES HAD BEEN CONTINUING, FOR MANY YEARS. IN TIE STATEMENT R ECORDED ON OATH ON 25.11.2009, SHRI MUKE SH M CHOKSI HAD ADMITTED THESE TRANSACTIONS TO BE BOGUS. THE NAME OF THE ASSESSEE I.E. M/S. HARMONY YARN PVT. LTD WAS APPEARING IN THE LIST OF PARTIES WHO HAVE TAKEN AC COMMODATION ENTRIES FROM THESE COMPANIES. 5.2 ON GOI NG THROUGH THE - A SSESSMENT ORDER, IT IS NOTICED THAT THE AO MADE ADDITIONS OF RS.26,00,000/ - U/S. 68 OF THE ; ACT BY TREATING ONLY THE SHARE APPLICATION MONEY RECEIVED FROM T HE FOLLOWING COMPANIES OF SHRI MUKESH M CHOKSI TO BE NOT G GENUINE - 1) MIHIR AGENCY PVT. LTD. RS. 11,00,000/ - 2) BUNIYAD CHEMICALS PVT. LTD. RS. 15,00,000/ - ----------------------- TOTAL RS. 26,00,000/ - --------------------- 5.3. HOWEV ER, IN THE SAME ACCO UNTING YEA R, THE ASSESSEE HAS SHOWN TO HAVE RECEIVED SHARE APPLICATION MONEY FROM THE FOLLOWING PARTIES ALSO: - SR. NO. DATE OF ALLOTMENT NAME OF PARTY AMOUNT OF SHARES AMOUNT OF PREMIUM 1. 28.02.05 M/S. VENUS DEALING PVT. LTD. 10,00,000 2. 28.02.05 M/S. KASHMIKAL MERCANTILE. PV T. LTD. 5,00,000 3. 28.02. 05 M/S. CLARION MERCHANTS PVT. LTD. 5,00,000 4. 28.02.05 M/S. SATITRAXIM PVT. LTD. 5,00,000 I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 8 5. 15.03.05 M/S. AKKAL PAPER M ILLS PVT. LTD. 60,000 2,40,000/ - 6. 15.03.05 M/ S. FELICITY FINANCE & LEASING PVT. LTD. 60,000 2,40,000 7. 15.03.05 M/S. J.M.D. MERCANTILES PVT. LTD. 1,00,000 4,00,000 8. 15.03.05 M/S. SUNFLOWER VINIMAY PVT. LTD. 1 , 00,000 4, 00,000 9. 15.03.05 M/S. HITESHWARI MARKETING PVT. LTD. 1,00,000 4,00,000 10. 15.03.05 M/S. SUGAM COMMERCIAL PVT. LTD. 1,00,000 4, 00, 000 11. 15.03.05 M/S. BHAGYA LAXMI MERCANTILE PVT. LTD. 1,00,000 4,00,000 31,20,000 24,80,000 5.4 THE AO HAD MADE ADDITION OF RS.26,00,000/ - ON THE GROUND THAT THE ASSESSEE HAD FAILED, TO ESTABLISH NATURE AND SOURCE OF CREDIT RECORDED IN ITS BOOKS OF ACCOUNT IN RESPECT OF M/S. MIHIR AGENCY PVT. LTD. AND M/S BUNIYAD CHEMICALS PVT. LTD. IN THE FORM OF SHARE .APPLICATION MONEY AND SHARE PREMIUM. HOWEVER, WHILE FINALIZING THE ASSESSMENT ORDER, THE AO HAS NOT VERIFIED THE GENUINENESS OF SHARE APPLICATION/SHARE PREMIUM AND THE CREDITWORTHI NESS OF THE A BOVE MENTIONED 11 PARTIES/SHARE APPLICANTS IN THE LIGH T OF THE HEW EVIDENCE THAT THE ASSESSEE WAS TAKING BOGUS SHARE CAPITAL ENTRIES FROM VARIOUS CONCERNS. 5.5. FURTHER, ON GOING THROUGH THE DETAILS FILED BY THE ASSESSEE THE FOLLOWING FACTS EMERGE, WHICH THE A.O SHOULD HAVE INVESTIGATED' IN I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 9 THE LIGHT OF FRESH EVIDENCES THAT THE SHARE CAPITAL ENTRIES WERE NOT GENUINE BUT THE AO DID NOT INDEPENDENTLY VERIFY THE SAME. SR. NO. NAME OF PARTY AMOUNT REMARKS 1 M/S. VENUS DEALING PVT. LTD RS. 10,00,00,0/ - THE COMPANY HAS FILED ITS RETURN SHOWING INCOME OF RS.28,440/ - ONLY. THE SHARES OF THE COMPANY IS TAKEN BY ONE S. DAS AND MRINAL CHAKRABORTY BY 100 SHARES EACH. THE COMPANY HAS SHOWN INTEREST INCOME ONLY AND SOURCES OF FUND AS SHARE CAPITAL AND LOANS. 2 KASHMIKAL MERCANTILE PVT. LTD RS. 5,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING INCOME OF RS.784/ - ONLY. THE SHARES OF THE COMPANY IS TAKEN BY ONE RAMESH KEDIA AND JATAN LAI BHANSALI BY 100 SHARES EACH. NO OTHER DETAILS ARE FILED IN RESPECT, OF THIS PARTY. 3. M/S. CLARION RS. 5,00,000/ - THE COMPANY I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 10 MERCHANTS PVT. LTD HAS FILED ITS RETURN - SHOWING'INCOME OF RS.26,330/ - ONLY. THE SHARES OF THE COMPANY IS TAKEN BY ONE S. DAS AND MRINAL CHAKRABORTY BY 100 SHARES EACH. THE COMPANY HAS SHOWN INTEREST INCOME ONLY AND SOURCES OF FUND AS SHARE CAPITAL AND LOANS. 4 M/S. SATI TRAXIM PVT. LTD RS. 5,00,00/ - THE COMPANY HAS FILED ITS RETURN SHOWING LOSS OF RS. 10,29,605/ - . THE SHARES OF THE COMPANY IS TAKEN BY 3 PARTIES VIZ. RAJKUMAR GOEHKA, GIRDHARILAL PARSARAMPURIA AND JITENDRA KUMAR AGARWAL BY 100 SHARES EACH. 5. M/S. AKKAL PAPER MILLS PVT. LTD. RS.3,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 11 LOSS OF RS.6,72,167/ - . THE SHARES OF THE COMPANY IS TAKEN BY ONE RAGHUBIR PRASAD DUDHWAWALA AND SHANKAR PRASAD DUDHWAWALA BY 10 SHARES EACH. M/S. J.M.D. MERCANTILES PVT. LTD. 6. M/S. FELICITY FINANCE & LEASING PVT. LTD. RS.3,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING LOSS OF RS.2,30,386/ - THE SHARES OF THE COMPANY IS TAKEN BY ONE PRADIP KUMAR KUNDU AND NIKHIL JANA BY 10 SHARES EACH. 7. M/S J.M. D. MERCANTILES PVT. LTD RS.5,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING LOSS OF RS. 6,00,341/ - . THE SHARES OF THE COMPANY IS TAKEN BY ONE CHANDRA PRAKASH SHARMA AND C HANDA SHARMA BY 100 SHARES EACH I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 12 8. M/S. SUNFLOWER VINIMAY PVT. LTD. RS.5,00,000/ - COPY OF FILING THE RETURN IS NOT PROVIDED. THE SHARES OF THE COMPANY IS TAKEN BY ONE SHAKUNTALA CHOUDHARY AND RAKESHKUMAR SINGHANIA BY 10 SHARES EACH. 9. M/S. HITESHWARI MARKETING PVT. LTD. RS.5,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING LOSS OF RS. 9,91,344/ - . THE SHARES OF THE COMPANY IS TAKEN BY ONE MAHESH KEDIA AND MAJIT RATHI BY 100 SHARES EACH 10 M/S. SUGAM COMMERCIAL PVT. LTD RS.5,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING LOSS OF RS.7,43,460/ - . THE SHARES OF THE COMPANY IS TAKEN BY ONE SITARAM GOYAL AND SUBHASH CHANDRA GOYAL BY 100 SHARES EACH. 11 M/S. BHAGYA LAXMI MERCANTILE PVT. RS.5,00,000/ - THE COMPANY HAS FILED ITS RETURN SHOWING I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 13 LTD. LOSS OF RS.6,00,341/ - . THE SHARES OF THE COMPANY IS TAKEN BY ONE RAJESH KUMAR ODAKA AND SHANTI KR. GANERIWAL BY 10 SHARES EACH. 5.6 ON CA REFUL ANALYSIS OF THE ABOVE CHAR T, IT CAN BE SEEN THAT THERE ARE MANY COM MON DIRECTORS IN THE ABOVE MENTIONED SHARE APPLICANT COMPANIES. IT IS APPARENT THAT ALL OF THE ABOVE COMPANIES DID NOT HAVE ENOUGH MONEY OF THEIR OWN TO AP PLY FOR SHARES AT A PREMIUM, TH ESE SHARE APPLICATIONS THEREFORE REQUIRED FURTHER INVESTIGATIONS TO BE CARRIED OUT BY THE A.O., ESPECIALLY IN THE LIGHT OF THE STATEMENT OF ENTRY PROVIDER, SHRI MUKESH CHOKSI, BEFORE DECIDING ON THEIR GENUINENESS. 5.7. M/S PANKAJ ENKA PVT LTD. ASSESSED WITH 'ITO WARD L(4), SURAT HAD ALSO TAKEN ACCOMMODATION ENTRIES, IN THE GARB OF SHARE APPLICATIONS, FROM THE COMPANIES MENTIONED IN PARA 5.5. DURING THE COURS E OF ASSESSMENT PROCEEDINGS OF M/S PANKAJ ENKA PVT LTD, IT WAS NOTICED BY THE A.O THAT M/S PANKAJ ENKA PVT LTD HAD TAKEN SHARE APPLICATION MONEY FROM THE FOLLOWING PARTIES IN ADDITION TO SHARE APPL ICATION MONEY RECEIVED FROM M/S BUNIYAD CHEMICALS PVT . LTD, MUMBAI AN D M/S MIHIR AGENCIES PVT LTD: - SR. NO NAME OF TH E PARTY. AMOUNT 1 M/S. HITESHWARI MARKETING PVT. LTD. KOLKATA 5,00,000 2 M/S. J.M,D.,MERCANTILES PVT. LTD., KOLKATA 5,00,000 3 M/S. SUNFLOWER VINIMAY PVT. LTD. KOLKATA 5,00,000 4 M/S. SUGAM COMMERCIAL PVT. LTD. 5,00,000 I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 14 KOLKATA 5 M/ S EDMOND COMMERCIAL PVT LTD, KOL KATA 5,00,000 6 M/S. BHAGYA LAIMI MERCANTILE PVT. LTD. KOLKATA 5,00,000 IT CAN BE SEEN FROM THE ABOVE TABLE THAT 5 OF THE 6 PARTIES ARE THE S AME PARTIES WHO HAVE SUPPOSEDLY GIVEN SHARE APPL ICATION MONEY TO THE ASSESSEE, I .E. M/S. HARMONY YARN PVT, LTD AND WHOSE NAMES ARE APPEARING IN TABLE GIVEN IN PARAGRAPH 5.5. 5.7.1. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF M/S PANKAJ ENKA PVT LTD, THE IDENTITY, GENUINENESS AND CREDIT WORTHINESS OF THE SHARE APPLICANTS WERE EXAMINED IN DETAIL BY T H E A.O. IT IS, ALS O NOTICED FROM THE ASSESSMENT FOLDER OF M/S PAKAJ' ENKA PVT LTD, THAT T HE; A.O HAS ISSUED NOTICE U/S' 133(6) IN ALL THESE CASE, AND ON VERIFICATION OF THE REPLY SUBMITTED BY THEM IT WAS NOTICED BY THE A.O THAT ALL THE PARTIES HAD GIVEN SIMILAR REPLY, WHICH WERE RECEIVED ON THE SAME DAY AND THAT WAS ALSO AFTER REMINDERS WERE S ENT TO THEM. IT IS INTERESTING TO NOTE THAT THESE PERSONS HAVE DIFFERENT ADDRESSES IN MUMBAI AND KOLKATA BUT HAVE GIVEN SIMILAR STEREO TYPE REPLY AND ALL THE REPLIES HAD BEEN RECEIVED BY THE OFFICE OF THE A.O ON THE SAME DAY. FURTHER, MOST OF THESE PARTIES H AVE NEGATIVE OR NIL INCOME. SOME OF THESE DID NOT HAVE SUFFICIENT CASH AND BANK BALANCE DURING THE CURRENT YEAR AS WELL AS IN THE PRECEDING YEAR. IN VIEW OF THE ABOVE, SHOW CAUSE NOTICE WAS ISSUED BY THE A.O TO M/S PANKAJ ENKA PVT LTD , WHICH IS REPRODUCE D AS UNDER: - 'IN RESPONSE TO NOTICE U/S. 133(6.) THE PARTIES MENTIONED AT SR. NO 1,2,3,4,6,10,12,AND 14 OF ABOVE MENTIONED TABLE HAS SUBMITTED THEIR REPLY. ON VERIFICATION OF THE REPLY SUBMITTED, IT IS NOTICE THAT ALL THE REPLY RECEIVED AFTER REMINDER DA TED 03.04.2012, AND ALSO ALL THE REPLY RECEIVED AT A TIME ON 16:04.2012. ALL THE PARTY HA S GIVEN SAME REPLY. IT IS PERTINENT TO NOTE HERE THAT ALL THE PARTIES SITUATED AT DIFFERENT PLACES IN MUMBAI AND KOLKATTA AND HOW THEY HAVE GIVEN SAME DRAFTED REPLY A ND ALSO ON THE SAME DAY. FURTHER, ALL THE PARTIES I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 15 WHO CL AIMED TO HAVE APPLIED FOR SHARE HAS NEGATIVE INCOME AS PER THEIR RETURN OF INCOME. THEY HAVE NOT PROVED THEIR CR EDITWORTHINESS AND GENUINENESS. 2.10 FURTHER, IN. RESPONSE TO NOTICE U/S . 133(6) DATED 12.03.2012 AND REMINDER DATED 03.04.20 12 FOLLOWING PART IES HAS NOT REPLIED TILL DATE. 1. M/S. EDNUMD COMMERCIAL PVT LTD. 2. M/S. STUDY SALES PVT LTD. 3. M/S DHAVAL MA RKETING PVT LTD. 4. M/S. EMARA LD SYSTEM ENGG. LTD. 2.11 SINCE THE ABOVE MENTIONED PARTIES HAVE NOT GIVEN ANY REPLY IN RESPONSE TO NOTICE U/S. 133 (6) AND REMINDER DATED 03.04.2012 WHI CH ARE ALREADY SERVED UPON THEM. 2.12 ON THIS BASIS, YOU ARE REQUESTED TO GO THROUGH THE LIST AND ARRANGE TO SUPPLY THE INFORMATION AS REQUIRED FROM THESE PARTIE S ALONG WITH THEIR CONFIRMATION(S). IN ABSENCE, P LEASE SHOW - CAUSE AS IF WHY AN ADVERSE VIEW MAY NOT BE TAKEN AND 'NECESSAR Y ACTION AS PER APPLICABLE PROVISIONS OF THE ACT MAY NOT BE TAKEN AND THE AMOUNT OF SHARE APPLICATION IN RESPECT TO ABOVE MENTIONED 12 COMPANIES OF RS. 85,00,000/ - (1,0600,00 - 21,00,00) FOR WHICH NO SATISFACTORILY REPLY AS WELL AS CREDITWORTHINESS, GENUINE NESS AND IDENTITY PROVED BY ALL THE 12 PARTIES SHOULD NOT BE TREATED AS UNACCOUNTED INCOME WITHIN MEANING OF SECTION 68 OF THE I.T. ACT.' 5.7.2. THERE WAS NO REPLY TO THE SHOW CAUSE AND THE SHARE APPLICATION MONEY WAS HELD AS UNEXPLAINED AS TO ITS NAT UR E AND SOURCE AND ADDITION WAS MADE IN THE CASE OF M/S. PANKAJ ENKA PV T. LTD. IS AN ASSOCIATE CONCERN OF THE ASSESSEE, M/S. HARMONY YARN PVT. LTD. 5 OF THE TRANSACTIONS OF SHARE APPLICATION HELD TO BE NON GENUINE IN THE EASE OF M/S PANKAJ ENKA PVT. LTD ARE WITH PERSONS WHO ALSO APPEAR IN THE LI ST OF 41 PERSONS APPLYING FOR SHARES OF M/S. HARMONY YARN PVT. LTD (THE ASSESSEE). 6. IN VIE W OF THE FACTS NARRATED ABOVE AND IN THE LIGHT OF FRESH EVIDENCES, IT WAS THE DUTY OF THE A.O. TO INVESTIGATE THE GENUINE NE SS OF THE SHARE APPLICATION TRANSACTI ONS OF THE ASSESSEE WITH THE 11 PERSONS MENTI ONED SUPRA AND NOT TO ACCEPT THEM ON THE BASIS OF THE DETAILS PROVIDED B Y THE ASSESSEE WHICH WERE SAME AS IN THE ORIGINAL ASSESSMENT. NOT MAKING ANY INDEPENDENT INQUIRY INTO THESE TRANSACTIONS IN TH E LIGHT OF THE FRESH EVIDENCES AND MERELY ACCEPTING THE GENUINENESS OF THE TRANSACTIONS ON THE BASIS OF DETAILS ALREADY I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 16 ON RECORD IN THE ORIGINAL ASSESSMENT, MAKES THE ASSESSMENT ORDER ERRONEOUS IN AS MU CH AS IT IS PREJUDICIAL TO TH E INTEREST OF REVENUE. I T IS WRONG ON THE PART OF THE AS SES SEE TO SAY THAT THE DOCUM ENTS WERE VERIFIED IN RESPECT OF THESE 11 PARTIES AN D ONLY THEN ACCEPTED BY THE AO IN RE - ASSESSMENT PROCEEDINGS. IT IS TRUE THAT THE DETAILS WERE SUBMITTED BY THE ASSESSSE BUT THE A.O DID NOT MAKE ANY INDEPENDENT L Y VERIFICATION TO ESTABLISH THE IDENTITY AND CREDIT WORTHINESS OF THE SHARE APPLICANTS AND THE GENUI NENESS OF THE SHARE TRANSACTION. T HE ASSESSMENT ORDER DATED 29.08.2011 COMPLETED U/S. 143(3) R.W.S. 147 IS THEREFO RE SET ASIDE ON THIS ISSUE WITH A DIRECTION T O THE A.O. TO MAKE FRESH ASSESSMENT AFTER EXAMINING ALL THE RELEVANT FACTS AND AFTER - CARRYIN G OUT NECESSARY ENQUIRIES W.R.T. THE REAL IDENTITY, AND CREDITWORTHINESS OF THE 11 SHARE APPLICANTS AND THE GENUINENESS OF THE SHARE APPLICATION TRANSACTION. T HE A.O. WILL PR OVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE MAKING THE ASSESSMENT. 6 . WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE CASE FILE. RELEVANT FACTS STAND NARRATED IN THE PRE CEDING PARAGRAPHS. THE CIT S SOLE REASON FOR INVOKING SECTION 263 JURISDICTION ALLEGES LACK OF VERIFICATION IN RESPECT OF 11 SHARE AND PREMIUM APPLICANTS TO THE TUNE OF RS. 56 LACS. THIS HAS MADE HIM TO RESTORE THE MATTER BACK TO THE ASSESSING AUTHORITY FOR CARRYING OUT NECESSARY INQU IRIES WITH REFERENCE TO IDENTITY AND CREDITWORTHINESS OF 11 OF THE SE SHARE APPLICANTS AND GENUINENESS OF THE SHARE APPLICATION TRANSACTIONS . WE FIND FROM THE CASE FILE THAT T HE ASSESSING OFFICER ISSUED SECTION 142(1) NOTICE DATED 25 - 05 - 2011 AT PAGE 40 OF THE PAPER BOOK . T HE ASSESSEE PLACED ON RECORD NECESSARY DETAILS. THE CIT HIMSELF ACKNOWLEDGES THE VERY FACT. A PERUSAL OF THE REASSESSMENT FRAMED ON 29 - 08 - 20 11 STATES THESE FACTS . THAT BEING THE CASE THE QUESTION THA T ARISES FOR OUR CONSIDERATION AS TO WHETHER THE PRESENT CASE CAN BE TREATED AS THAT OF NO INQUIRY BY THE ASSESSING O FFICER OR NOT. IN I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 17 VIEW OF TH E ABOVE SAID FACTS AND CIRCUMSTANCES AND SPECIFIC INQUIRY OF THE ASSESSING OFFICER AND EQUALLY ELABORATE ASSES SEE S REPLY, WE HOLD THAT THIS CASE DOES NOT FALL IN THE ABOVE STATED CATEGORY. WE NOTICE FROM THE CASE FILE THAT THE ASSESSEE S DETAILS FORMING PART OF DISCUSSION IN RE ASSESSMENT LED TO ADDITION OF RS . 26 LACS BEING MADE ON ACCOUNT OF BOGUS SHARE APPLICA TION AND PREMIUM. WE OBSERVE IN THESE FACT S THAT THE ASSESSING OFFICER EXAMINED THIS ISSUE AND CONFIRMED THIS ADDITION OF RS. 26 LACS ONLY. THE HON BLE BOMBAY HIGH COURT IN CASE OF CIT VS. GARBIEL INDIA (1993) 71 TAXMAN 585 (BOM) DEALS WITH A SIMILAR SIT UATION WHEREIN THE CIT REVISED AN ASSE SSMENT ON THE GROUND THAT THE SAME DID NOT CONTAIN DISCUSSION IN REGARD TO A DEDUCTION CLAIM WHICH ALLEGING NON APPLICATION OF MIND. THEIR LORDSHIP OBSERVE THAT THE ASSESSING OFFICER HAD MADE INQUIRIES IN VIEW OF ALL NECESSARY EXPLANATION. IT IS HELD THAT THE ASSESSING OFFICER HAD ALLOWED THE C LAIM ON BEING SATISFIED WITH AS SESSEE S VERSION AND THE SAME CANNOT BE HELD ERRONEOUS MERELY BECAUSE THE ASSESSMENT S OUGHT TO BE REVISED DID NOT CONTAIN AN ELABORATE DISCUSSION . THE HON BLE DELHI HIGH COURT IN CASE OF (2010) 189 TAXMAN 436 (DEL) CIT VS. SUNBEAM AUTO LTD HAS ALSO REJECTED REVENUE S ARGUMENTS IN IDENTICAL FACTS AND HOLDS THAT THE ASSESSING O FFICER IN ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DE TAILED REASON S IN RESPECT O F EACH AND EVERY ITEM . THEIR LORDSHIP DRAW A FINE DISTINCTION BETWEEN LACK OF INQUIRY ; AND INADEQUATE INQUIRY AND HOLD THAT IF THERE WAS AN INQUIRY EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE AN OCCASION TO THE COMMISSIONER TO INVOKE JURISDICTION U/S. 263 OF THE ACT. WE REITERATE THE FACTS OF THE INSTANT CASE MAKING IT AM P LY CLEAR THAT THE PRESENT IS I.T.A NO. 1323 /AHD/20 14 A.Y. 2005 - 06 PAGE NO HARMO NY YARNS PVT. LTD VS. CIT 18 NOT A CASE OF LACK OF INQUIRY. THE CIT IS OF THE OPINION THAT NO PROPER VERIFICATION APPEARS TO HAVE BEEN MADE. WE ACCEPT ASSESSEE S ARGUMENTS ACCORD IN GLY AND REJECT THOSE OF THE RE VENUE S THAT THE LD . CIT HAS MERELY DIRECTED THE ASSESSING OFFICER TO MAKE AN ELABORATE INQUIRY . OUR THESE FINDINGS RENDER THE ASSESSEE S ARGUMENTS PROPOUNDING MERGER THEORY IN VIEW OF T HE CIT(A) S ORDER (SUPRA) AND MERITS TO BE ACADEMIC. THE CIT S ORDER UNDER CHALLENGE IS ACCORDINGLY REVERSED. 7 . THIS ASSESSEE S APPEAL IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 30 - 09 - 2015 SD/ - SD/ - ( ANIL CHATURVEDI ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 30 /09 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,