D. J. Stock Broking Private Limited, Ahmedabad V. The Income tax Officer, Ward-1(1)(4), Ahmedabad

ITA 1570/AHD/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3919 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 16-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus Share capital; Corroborative evidences; Accommodation entries; Tax effect
• Section: 147; 131; 68; 271(1)(c); 234B; 14A; 133(6); 205; 208

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member D. J. Stock Broking Pvt. Ltd ., A/2, Rameshwar Co - op Housin g Society Ltd. Shahib augh , Ah medabad PAN: AACC D7429B (Appellant) Vs ITO, Ward-1(1)(4), Ah med abad (Resp ondent) Asses see b y : Shri P. D. Shah, A. R. Revenue by : Shri Atul Pandey , S r. D. R. Date of hearing : 01-06 -2 022 Date of pronouncement : 24-06 -2 022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-1, Ahmedabad in Appeal no. CIT(A)-1/ITO Wd. 1(4)/10272/2017-18 vide order dated 27/08/2019 passed for the assessment year 2011-12. ITA No. 1570/Ahd/2019 Assessment Year 2011-12 I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 2 2. The assessee has taken the following grounds of appeal:- Grounds of Appeal Tax effect relating to each Ground of appeal (With Surcharge etc) 1. That the learned CIT (A) has erred in law and facts by not quashing the reassessment proceeding and the order passed and therefore the ld.AO should be directed to accept returned Income. General 2 That the learned CIT(A) has erred in law and facts by confirming the addition of Rs.1,59,53,000/- of Share Capital Money under section 68 of the Act and therefore the ld.AO should be directed to delete the said addition, while computing total income. Rs. 52,99,188/- 4 That the learned CIT(A) has erred in law and facts by confirming the disallowance of Rs. 25,184/- under section 14A of the I.T Act and therefore the ld. Assessing Officer is to be to delete the said disallowance, while computing the total income. Rs. 7,782/- 3. That correct total income and income tax there on is to be computed and interest 234B and 234C of the Act to be recomputed as per Law. That proper credit of the prepaid taxes is to be given. No effect 4. That your appellant craves a leave to add, alter or amend any grounds at the No effect I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 3 time of hearing. Total tax effect (see note below) Rs.53,06,970/- 3. At the outset, the counsel for the assessee submitted that he would not be pressing ground number 3 in relation to disallowance u/s 14A of the Act. Accordingly ground number 3 of the assessee’s appeal is being dismissed as not pressed. Ground number 2: addition of share application money of 1,59,53,000/- 4. The brief facts of the case are that the assessee filed return of income for 22-09-2011 declaring total loss of 6,64,347/- for assessment year 2011-12. The AO noted that during the course of assessment proceedings for assessment year 2012-13, it was found that the assessee accepted share application money to the tune of 3,87,72,000/-. As the assessee failed to prove the creditworthiness and genuineness of the transaction, the AO made addition of the said amount under section 68 of the income tax act, 1961 (Act). In first appeal, Ld. CIT(Appeals) confirmed addition to the extent of 2,29,28,000/- and deleted addition to the extent of 1,59,53,000/ - for the reason that the said share application money was not received during the assessment year 2012-13, but the same pertained to assessment year 2011- 12. The Ld. CIT(Appeals) in the appeal for assessment year 2012-13 held that same was outstanding balance and therefore, the said balance cannot be I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 4 added as current income i.e. assessment year 2012-13 under section 68 of the Act. The AO for the impugned year under consideration noted that share application money amounting to 1,59,53,000/-which pertained to assessment 2011-12 pertains to Maars software International Ltd. ( 1,35,70,000/-) and Shri Anil Jain ( 23,83,000/ -). The AO noted that the assessee company during the course of assessment proceedings for assessment year 2012-13 could not establish the creditworthiness and genuineness of the transactions in respect of the above to concerns. Accordingly, the AO initiated reassessment proceedings under section 147 of the Act for assessment 2011-12. During the course of assessment proceedings, the AO held that the genuineness of the transaction i.e. share application money and the creditworthiness of the parties is not established. Further, AO held that no person would subscribe to the share capital of the assessee company which has been showing losses in the return of income without having any financial worthiness in its books. Accordingly, the AO added the sum of 1,59,53,000/- received from the aforesaid two parties to the income of the assessee as unexplained share application money under section 68 of the Act for the assessment year 2011-12. While making addition, the AO observed as under: “2.6 A careful study of the affairs of the assessee company and its worthiness and the affairs of the so-called share applicants and its worthiness, it appears that the assessee company, which has been showing losses in the return of income without having any financial worthiness in its books has in connivance with the so-called share applicants have arranged accommodation entries by paying commission to convert the assessee's unexplained money in the form of share application money, by simply filling up the share application form and transferring money from the applicants' account and once I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 5 the money is got through the banking channel, the assessee show it as share application money in the balance sheet and capitalize it and forget everything. The share applicants on the other hand operate a number of fictitious companies/ firms and channelize the cash received from the companies where share application is applied for. Such is the modus operandi adopted by majority of the parties having unaccounted money, to make it "white". Otherwise, no prudent businessman will take such a risk for making huge investment that too in a company where business and financial worth is dwindling due to constant losses and also has no authorized capital as per the balance sheet as on 31.03.2011. It is therefore, astonished to note that how a limited company without authorized capital can issue shares worth crores of rupees. 2.7 The assessee's claim that the funds were recovered by it in their bank account from those parties through proper banking channel, so there should not be : any doubt regarding receipt of the funds and genuineness of the transactions, mere proof of identity of creditor or that transaction was by cheque, is not sufficient as held by Hon'ble High Courts reported in the following cases: i) Mangilal Jain Vs. ITO (Mad.) 315 ITR 105 ii) CIT Vs. Preusion Finance P. Ltd. (Cal.) 208 ITR 465 iii) CIT Vs. United Commercial & Industrial Co. (P) Ltd., Cal. 187 ITR 596 and iv) KCN Chandrasekhar Vs. ACIT (ITAT Bang.) 66 TTJ 355. v) CIT Vs. Sophia Finance Ltd. (Del.FB) 205 ITR 98 vi) CIT Vs. Nivedan Vanijya Niyojan Ltd. (Cal.) 263 ITR 623. vii) CIT Vs. Rathi Finlease Ltd. (MP) 215 CTR 429. viii) Dingra Global Credence P. Ltd. Vs. ITO (ITAT) Del. ix) Agarwal Coal Corporation (P) Ltd. Vs. Addl.CIT (ITAT, Indore) 135 ITD 270. In view of the above facts and circumstances of the case, judicial pronouncements and also the facts as elaborately discussed in the assessment order and appellate order in the case of the assessee on similar issues, the credit of Rs.1,59,53,000/- appearing in the I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 6 balance sheet in the form of share application money received is taxed as assessee's income u/s.68 of the Act and added to the total income. Penalty proceedings u/s. 271(1)(c) of the Act are initiated for furnishing inaccurate particulars of income.” 5. In appeal, Ld. CIT(Appeals) confirmed additions with the following observations: “4.3. The AO has made the addition of share application money of Rs.1,35,70,000/- from M/s. Maars software International Ltd. and Rs.23,83,000/-from Anil Jain u/s. 68 of the Act. The AO has made the addition of share application money in respect of above two persons and M/s. Sky High Financial Services Pvt. Ltd: in A.Y. 2012-13 u/s 68 of the Act also the CIT(A) has upheld the addition u/s. 68 of the Act of share application money received during the year relevant to A.Y. 2012-13 from the above persons. The AO in the para 2.4 and 2.5 of the Assessment order has discussed that Anil Jain did not have capacity to advance such huge share application money as his income was only Rs.2,14,484/- and the share application money from M/s. Maars Software International Ltd. was not genuine. The AO has also issued notice u/s. 133(6) of the Act to M/s. Maars Software International Ltd. which, was not complied with. The appellant has not made any submission during the appellant proceeding despite being provided as many as four opportunities. The CIT(A) in the A. Y. 2012-13 has also upheld the share application money received from above two persons. I agree with the finding of the AO and accordingly the addition made by AO u/s. 68 of the act is confirmed. The ground of appeal is dismissed.” 6. The assessee is in appeal before us against the aforesaid additions on account of bogus share application money. At the outset, the counsel for the assessee submitted that the issue has now been decided in favour of the assessee by the Ahmedabad ITAT in the assessee’s own case for assessment year 2012-13, which was the basis for the re-opening the assessment for I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 7 assessment year 2011-12 under section 147 of the Act. The counsel for the assessee submitted that since the Ahmedabad ITAT for assessment year 2012-13 and in which year the same parties from whom share application money was received in the impugned assessment year 2011-12, has decided in favour of the assessee, the matter is now covered in favour of the assessee. The assessee has placed a copy of the ITAT decision for our perusal. In response, the Ld. DR submitted that the assessee has failed to prove the genuineness of the transaction and also failed to prove the creditworthiness of the parties investing in the share capital of the assessee company. He relied on the observations made in the CIT(A) order. 7. We have heard the rival contentions and perused the material on record. We note that the Ahmedabad ITAT in the assessee’s own case for assessment year 2012-13, and in respect of the share application money received from the same parties i.e. M/s Mars Software International Ltd. and Mr. Anil Jain, has deleted the additions made in respect of the share application money, with the following observations: “18. The stand of the AO is that, complete bank statement was not submitted in the case of Ski High Financial Services Ltd. Similarly, with regard to Maars Softwares all details were submitted, but copy of bank statement reflecting this transaction has not been submitted. With regard to Shri Anil Kumar copy of acknowledgment of return, and bank statements were submitted, but he has shown only income of Rs.1,84,617/-. Thus, according to him, their credit-worthiness is doubtful. To our mind, these are not evidence based on which he can draw such inference. As per section 68 of the Act, identity of the share applicants has been demonstrated by the assessee. All the applicants have responded to the questionnaire of the ld.AO, and submitted details. The AO thereafter did not conduct further inquiry. It is I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 8 pertinent to note that out of total addition of Rs.2,28,19,000/-, Rs.70,00,000/- representing qua M/s. Maars Software International, and Rs.48,19,000/- qua Anilkumar Champalal Jain. A perusal of the remand report would indicate that as far as Maars Software International Ltd. is concerned, the AO has observed that this company has made a payment of Rs.2,05,70,000/-. Out of that, Rs.70.00 lakhs was paid by M/s.Anil Enterprise, which is a proprietorship concern of Shri Anilkumar Champalal Jain. Shri Anilkumar has filed confirmation in respect of payment of Rs.70 lakhs on behalf of Maars Software, and thereafter submitted that for this amount, shares were not allotted, but money was returned during the accounting year 2012-13. Now, the ld. counsel submitted that this Anilkumar is brother of one of the directors, though this fact was not unearthed by the AO in his remand report. The AO nowhere discussed about the genuineness of the balance payment of Maars software i.e. Rs.2,05,70,000/- minus Rs.70,00,000/-. It might have been received in earlier years, and could be part of the total payment considered by the AO. It suggests that he has not conducted any inquiry about both these concerns. When the assessee has been alleging that Rs.70.00 lakhs received during this period from Maars Software has been returned to the contributor i.e. Anil Enterprises, who had paid it on behalf of the Maars Software, he simply doubted it, the AO should have conducted more inquiries. 19. As far as payment received from Ski High Financial Services is concerned, though according to the AO, the assessee did not file copy of return, and complete bank statement, but assessee has disclosed PAN of this concern. In the paper book, the assessee has filed copy of the return also, under a certificate that it is not sure, whether this copy was filed before the AO or not, but it has been alleged that this document has been obtained from the Income Tax Department. Grievance of the AO is that this concern has shown a meager income, and did not submit complete bank statement. The bank statement submitted by the assessee is for a limited period showing transaction received by it. The document was submitted by the assessee in order to demonstrate that it has received money through account payee cheques. PAN details were submitted in order to demonstrate that this assessee is assessable to tax, and it proves its identity. That concern, responded to the notice received under section 133(6) of the Act. The I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 9 AO, thereafter did not conduct any inquiry. We deem it appropriate to mention that investigation wing of the department is able to unearth details of various accommodation entry providers mainly Kolkatta based companies, but the AO nowhere observed that these concerns were ever engaged in providing accommodation entries, and this fact came to notice of the Department through its investigation wing. Thus, if he has any doubt, he should have called for further information from the share applicants. He should have asked the assessee to produce directors of share applicant companies or Shri Anil Kumar who is brother of one of the directors. The AO could have issued summons under section 131 of the Income Tax Act. But instead of conducting any inquiry, he just draw certain inference for disbelieving the documents produced by the assessee or received by him in response to his notice under section 133(6) of the Act. It is also pertinent to observe that quantum of income mentioned in the return of income cannot be criteria to judge credit-worthiness of share applicants. In the case of M/s. Ami Industries (India) P. Ltd.(supra), Hon’ble Bombay High Court has also considered this aspect. In that case also, existence of share applicants was not in doubt. Only doubt raised by the AO was that they have declared very meager income in their returns of income. Therefore, he doubted their credit-worthiness. This conclusion did not meet approval of the ld. CIT(A), ITAT or the Hon’ble High Court. Therefore, in view of the above discussion, we are of the view that since the AO failed to conduct inquiry even on the second remand report called for by the ld.CIT(A), his conclusion are without any supporting evidence. In view of the above discussion, we allow this ground of appeal, and delete the impugned addition.” 7.1 In our considered view, we note that the assessment for impugned assessment year 2011-12 was re-opened on the basis that during the course of assessment proceedings for assessment in 2012-13, it was found that the assessee company received share application money from M/s Mars Software International Ltd. and Mr. Anil Jain to the tune of 3,87,72,000/-. The “reasons to believe” for assessment year 2011-12 specifically mentioned I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 10 that the basis for the opening the case under section 147 of the Act is that during the course of assessment proceedings for assessment year 2012-13, it was found that the assessee accepted the share application money to the tune of 3,87,72,000/- in respect of which additions under section 68 of the Act were made. The first appellate authority in the appeal for assessment year 2012-13 deleted the addition to the tune of 1,59,53,000/-for the reason that the said share application money pertained to the earlier year and hence could not be added in assessment year 2012-13. It was for this reason, reassessment proceedings were initiated for the impugned assessment year 2011-12 to tax the aforesaid share application money in the hands of the assessee, which could not be taxed in assessment year 2012-13 since it did not pertain to that year. However, since Ahmedabad ITAT in the assessee’s own case and in respect of the share application money received from the same parties (as in the impugned assessment year 2011-12) has deleted the addition under section 68 which formed the basis for reopening of assessment for the assessment year 2011-12, respectfully following the above ITAT decision the assessee’s own case for assessment year 2012-13, we hereby delete addition in respect of share application money under section 68 of the Act. In the result, ground number 1 of the assessee’s appeal is allowed. 8. In the result, ground number 1 of the assessee’s appeal is allowed. 9. The other Grounds of Appeal are general and do not require any specific adjudication. I.T.A No. 1570/Ahd/2019 A.Y. 2011-12 Page No. D.J. Stock Broking Pvt. Ltd. vs. ITO 11 10. In the result, the assessee’s appeal is partly allowed. Order pronounced in the open court on 24-06-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 24/06/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद