ITO, WARD-9(1), KOLKATA, Kolkata V. M/S. Malinath Tradecon Pvt. Ltd., Kolkata

ITA 1876/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0654 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Keywords: Search and seizure; Accommodation entries
• Section: 143(3); 133A; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI J.SUDHAKAR REDDY, AM & HONB LE SHRI S.S. VISWANETHRA RAVI, JM ] I.T.A NO. 1876/KOL/2014 ASSESSMENT YEAR : 2010- 11 I.T.O. WARD-9(1), KOLKATA -VS- M /S MALINATH TRADECON PVT. LTD. [PAN: AAECM 1557 F] (APPELLANT) (RESPOND ENT) FOR THE APPELLANT : SHRI SAURABH KUMA R, ADDL. CIT (DR) FOR THE RESPONDENT : NONE DATE OF HEARING : 01.11.2017 DATE OF PRONOUNCEMENT : 26.12.2017 ORDER J.SUDHAKAR REDDY, AM THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CENTRAL-I, KOL KATA [ IN SHORT THE LD CITA] DATED 21.07.2014 AGAINST THE ORDER PASSED BY THE D CIT, CC-VIII, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT) DATED 20.03.2013 FOR THE ASSESSMENT YEAR 2010-11. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE ISSUANCE OF NOTICE BY RPAD. EARLIER ALSO, NOTICES WERE ISSUED BY RPAD AS WELL A S THROUGH THE DEPARTMENT. THERE IS NO RESPONSE FROM THE ASSESSEE. UNDER THE CIRCUMS TANCES, WE DISPOSE OF THIS CASE EX PARTE QUA THE ASSESSEE ON MERITS AFTER HEARING THE LD. DR. 3. THE ASSESSEE IS A COMPANY AND FILED ITS RETURN O F INCOME ELECTRONICALLY ON 27.09.2010 DECLARING NIL INCOME. THE RETURN WAS PRO CESSED U/S 143(1) OF THE ACT. LATER SURVEY OPERATION WAS CONDUCTED U/S 133A OF TH E ACT IN THE BUSINESS PREMISES OF 2 I.T.A. NO. 1876/KOL/2014 M/S MALINATH TRADECON PVT. LTD. ASSESSMENT YEAR: 2010-11 THE ASSESSEE, IN CONNECTION WITH THE SEARCH OPERATI ON U/S 132(1) AND SURVEY OPERATION U/S 133A OF THE ACT AT THE VARIOUS PREMISES OF SHRI SAGAR MAL NAHATA, A QUALIFIED CHARTERED ACCOUNTANT AND PROPRIETOR OF THE CONCERN M/S S.M. NAHATA & CO. AS A CONSEQUENCE TO THE SEARCH AND SEIZURE OPERATION IN BHUSAN GROUP (CHANDIGARH SEGMENT) OF CASES. NOTICE GIVEN U/S 143(2) OF THE ACT WAS ISSUED. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. THE LD. AO FRO M PARA 8 TO PARA 10.3 OF THE ORDER HELD AS UNDER: 8. AFTER CONSIDERING THE ABOVE MENTIONED FACTS, IT IS ESTABLISHED THAT MR. LOKNATH SEN IS EARNING HIS INCOME AS SALARY FROM ANY OTHER COMP ANY (I.E. M/ S SINCERE MULTICOMMUNITY PVT. LTD.) AND NOT AS A DIRECTORS' S ALARY FROM THE COMPANIES IN WHICH HE IS ONE OF THE DIRECTORS. THE DIRECTORS ARE ONLY THE BENAMI DIRECTORS OF ALL THE ALLEGED COMPANIES CREATED ONLY TO PROVIDE ACCOM MODATION ENTRIES. WHILE GOING THROUGH THE BALANCE SHEET OF THE COMPANIES IT IS SE EN THAT THE TOTAL OF SHARE CAPITALS OF COMPANIES UNDER CONSIDERATION FIGURES TO RS.106. 53 CRORES. AS THE COMPANIES ARE CLOSELY HELD COMPANIES, IT IS QUITE NATURAL THAT TH E DIRECTORS SHOULD HAVE PLENTY OF MOVABLE AND IMMOVABLE ASSETS AS WELL AS HUGE INCOME BUT THE INCOME OF THE DIRECTOR IS VERY MEAGRE. HE IS NOT AT ALL RICH PERSON AND DO ESN'T LIVE IN A PRINCELY WAY. THOUGH BEING COMMON DIRECTOR IN AS MANY AS NINE COM PANIES GIVEN ABOVE, THE INCOME OF THE DIRECTOR IS NOT AT ALL COMMENSURATE W ITH THE FINANCIAL POSITION OF THE COMPANIES. HE IS THE POOR FELLOW AND HIS NAME IS US ED BY HIS MASTER. 8.1 THE DIRECTOR IS UNAWARE OF THE OWNER OF THE BUS INESS PREMISES AND HE DOES NOT EVEN KNOW WHERE THE PREMISES ARE SITUATED. THE DIRE CTOR OF ANY COMPANY IS SUPPOSED TO BE WELL AWARE OF THE ACTIVITIES AND BUSINESSES O F THE COMPANY. IT IS SURPRISING THAT BEING ONE OF THE DIRECTORS HE WAS UNABLE TO THROW A NY LIGHT ON THE MOST BASIC ACTIVITIES, AS FAR AS THESE COMPANIES ARE CONCERNED . IT IS CONSTRUED ON THE ABOVE FACTS HE IS MERELY AN EMPLOYEE AND HAS NOTHING TO DO WITH THE FUNCTIONS AS ASSIGNED TO THE POST OF DIRECTOR AND ACTS LIKE A PUPPET AS INSTRUCT ED BY SOME PAL DA, GHOSH DA OR BOSE DA. 8.2 THE STATEMENT GIVEN BY MR. LOKNATH SEN AS DISCU SSED AT LENGTH ABOVE IS SELF- SPEAKING THAT HE DOES NOT HAVE ANY INDEPENDENT INDU LGEMENT AND ACTIVITIES AS DIRECTOR IN THE ABOVE COMPANIES AS WELL AS HE IS IN COMPETENT ENOUGH TO UNDERSTAND ANY OF THE DOCUMENTS OF THE COMPANIES. HE IS SIMPLY A SCAPEGOAT MANAGED TO SIGN ON BEHALF OF THE COMPANIES TO FLOURISH FAKE INVESTMENT S AS SHARE APPLICATION / SHARE CAPITAL IN THE GUISE OF LEGAL ENTITIES. HE HAS NO C ONTROL OVER THE COMPANIES AND NO INVOLVEMENT IN THE EVERYDAY AFFAIRS. 9. THE ABOVE ENLISTED NINE COMPANIES HAVE BEEN ENGA GED IN PROVIDING ACCOMMODATION ENTRIES TO THE FOUR COMPANIES NAMELY M/S VISION STEEL PVT. LTD., M/S MARSH STEEL PVT. LTD., M/S JASMINE STEEL PVT. LTD. & M/S DIYAJYOTI STEEL PVT. LTD. INCLUDING ALL INVESTMENTS AS SHOWN IN THEIR RESPECT IVE BALANCE SHEETS. 3 I.T.A. NO. 1876/KOL/2014 M/S MALINATH TRADECON PVT. LTD. ASSESSMENT YEAR: 2010-11 9.1 COMPANY-WISE DETAILS OF ACCOMMODATION ENTRIES P ROVIDED TO THE FOUR GROUP COMPANIES OF M/S BHUSHAN POWER & STEEL LTD. DURING THE F.Y. 2007- 08, 2008-09 & 2009-10 ARE SUMMARIZED AS BELOW: 9.2 AS DISCUSSED IN DETAIL ABOVE, IT IS CLEARLY EST ABLISHED THAT THE ACCOMMODATION ENTRIES HAVE BEEN PROVIDED TO THE FOUR COMPANIES OF BHUSHAN GROUP, NAMELY M/S VISION STEEL PVT. LTD., M/S MARSH STEEL PVT. LTD., M/S JASMINE STEEL PVT. LTD. & M/S DIYAJYOTI STEEL PVT. LTD. THROUGH COMPANIES INCLUDI NG THE COMPANY UNDER CONSIDERATION. M/S. R. S. COALFIELD PVT. LTD. (PAVA PURIPRABHU TRADECON PVT. LTD.) ALONG WITH OTHER COMPANIES AS LISTED ABOVE ARE IN T HE BUSINESS OF NOTHING BUT PROVIDING ACCOMMODATION ENTRIES THROUGH THE MODE OF INTER CORPORATE BOGUS DEPOSITS/ SHARE CAPITAL FROM SOME DIFFERENT SET OF COMPANIES HAVING SAME MOTTO BY ROTATION OF HUGE SUMS THROUGH NUMEROUS SELF OWNED A ND SELF MANAGED FICTITIOUS COMPANIES. THE ALLEGED ASSESSEE COMPANY HAS ARRANGE D ITS FUND MOSTLY FROM THE INTRODUCTION OF FAKE SHARE CAPITAL IN ITS RESPECTIV E BALANCE SHEET. THE ASSESSEE COMPANY HAS ISSUED SHARES AT VERY HIGH PREMIUMS THO UGH NEITHER THERE ARE ANY 4 I.T.A. NO. 1876/KOL/2014 M/S MALINATH TRADECON PVT. LTD. ASSESSMENT YEAR: 2010-11 SUBSTANTIAL PROFIT EARNING ACTIVITIES NOR ITS PROFI T MARGIN HAS BEEN SO ATTRACTIVE. NO ACTUAL BUSINESS IS BEING CARRIED OUT BY THE COMPANI ES. IT IS VERY HARD TO BELIEVE HOW SUCH A COMPANY LIKE THIS CAN HAVE SUCH A GOODWILL A ND REPUTATION IN THE ECONOMY TO ATTRACT INVESTMENTS IN SHARES HAVING VALUE OF AS MA NY AS SO TIMES GREATER THAN ITS FACE VALUE ESPECIALLY WHEN IT HAS NO NORMAL BUSINES S ACTIVITIES AND HAVING NO INFRASTRUCTURE OR STAFFS OR EVEN NO BUSINESS PREMIS ES AT ALL. 10. IN VIEW OF THE ABOVE, IT IS SEEN THAT THE ASSES SEE COMPANY IS A MERE NAME LENDER PAPER COMPANY AND ACTS AS A CONDUIT FOR RECEIVING T HE ENTRIES AND ISSUING THE ENTRIES IN THE FORM OF SHARE APPLICATIONS. THIS IS A FIT CA SE FOR PIERCING THE CORPORATE VEIL AND EXAMINING THE ACTUAL ACTIVITY. CREATION OF DOCUMENT ATION E.G., PURCHASE & SALE BILLS OF SHARES, PASSING THE CHEQUES THROUGH BANKING CHAN NELS, OBTAINING PAN, FILING OF RETURNS WITH ROC, MAINTAINING THE BANK ACCOUNTS, SH ARE APPLICATION FORMS, BOARD RESOLUTIONS, BALANCE SHEET, ETC. HAVE BEEN FRAMED. HOWEVER, THIS DOCUMENTATION HAS BEEN ENACTED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF RECEIVING THE ENTRIES AND ISSUING THE ENTRIES. THE FORM CAN'T UNDERMINE THE S UBSTANCE OF THE TRANSACTIONS. THIS SO CALLED COMPANY IS NOTHING BUT A LEGAL FICTION. 10.1 THE ULTIMATE BENEFICIARY OF-ALL THE ALLEGED TR ANSACTIONS MADE BY THE ABOVE MENTIONED NINE FAKE COMPANIES IS M/ S BHUSHAN POWER & STEEL LTD. AND THE UNACCOUNTED MONIES OF M/S BHUSHAN POWER & STEEL LTD . HAS BEEN ROUTED THROUGH ALL THESE BOGUS COMPANIES WHICH HAVE BEEN SHOWN AS THEI R INVESTMENTS. 10.2 HON'BLE HIGHT COURT IN THE CASE OF CIT V. INDE PENDENT MEDIA (P.) LTD. IN [2012] 210 TAXMANN 14 (DELHI) HAS HELD THAT IT IS NOT INCU MBENT UPON THE ASSESSING OFFICER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TO ESTA BLISH WITH THE HELP OF MATERIAL ON RECORD THAT THE SHARE MONIES HAD COME OR EMANATED F ROM THE ASSESSEE'S COFFERS. SECTION 68 OF THE ACT CASTS NO SUCH BURDEN UPON THE ASSESSING OFFICER. THIS ASPECT HAS BEEN CONSIDERED MORE THAN 50 YEARS BACK BY THE HON'BLE SUPREME COURT IN THE CASE OF A. GOVINDARAJULU MUDALIAR V. CIT [1958] 34 ITR 807. TO PLACE SUCH A BURDEN ON HIM, AN IMPOSSIBLE ONE AT THAT, WOULD BE QUITE CONTRARY TO THE JUDGMENTS OF THE HON'BLE SUPREME COURT CITED ABOVE. 10.3 THEREFORE, EVEN THOUGH CORPORATE ENTITY HAS BE EN CREATED, THIS OFFICE, AFTER CONSIDERING ALL THE FACTS AS ABOVE, HAS COME TO THE CONCLUSION THAT WHAT IS APPARENT IS NOT REAL AND THE ALLEGED COMPANY DOES NOT REALLY EXIST AS THERE IS NO BASE FOR THE TRANSACTION SHOWN TO HAVE BEEN CONDUCTED. THEREFORE , THERE IS NEITHER ANY BROKERAGE & COMMISSION RECEIVED, NOR ANY EXPENSES INCURRED NO R ANY NET PROFIT GAINED. AS THE ALLEGED COMPANY IS NOTHING BUT A LEGAL FICTION, THE GROSS TOTAL INCOME, THE TOTAL INCOME AS WELL AS THE TAX LIABILITY IS HEREBY TREAT ED AS NIL. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL DISPUTING THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY IS LEG AL FICTION AND DOES NOT REALLY EXIST. THE LD. CIT(A) UPHELD THE CONTENTION OF THE ASSESSE E AND PARA 14 HELD AS UNDER: 5 I.T.A. NO. 1876/KOL/2014 M/S MALINATH TRADECON PVT. LTD. ASSESSMENT YEAR: 2010-11 14. THAT INFERENCE DRAWN BY THE LD. ASSESSING OFFI CER THAT THE APPELLANT ASSESSEE IS A MERE NAME LENDER PAPER COMPANY AND ACT AS A CONDU IT FOR RECEIVING THE ENTRIES AND ISSUING THE ENTRIES IN THE FORM OF SHARE APPLIC ATIONS ARE BASED ON SURMISES AND WRONG CONCLUSION. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED ON FACTS AS WELL AS IN LAW IN HOLDING THAT TH E ASSESSEE COMPANY AND ITS ASSOCIATES HAD GIVEN ACCOMMODATION ENTRIES OF RS. 1 94.99 CR. TO ULTIMATE BENEFICIARY M/S BHUSHAN POWER & STEEL LTD. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE COMPANY IS AN ENTITY T O PROVIDE ENTRIES TO M/S BHUSAN POWER & STEEL LTD AND THAT ASSESSEE COMPANY IS ONLY A CONDUIT, IGNORING EVIDENCES AS MENTIONED IN THE ASSESSMENT O RDER. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THIS IS A FIT CASE IN WHICH CORPORATE VEIL CAN BE LIFTED TO FIND OUT THE REAL AFFAIRS OF THE ASSESSEE COMPANY. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN GIVING PRECEDENCE TO FORM OVER THE SUBSTAN CE, IGNORING THE EVIDENCE MENTIONED IN THE ASSESSMENT ORDER. 5. THAT DEPARTMENT CRAVES TO ADD, MODIFY OR ALTER T HE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 6. AFTER HEARING THE LD. DR, WE ARE OF THE CONSIDER ED OPINION THAT THE ASSESSING OFFICER WAS WRONG IN NOT ASSESSING THE COMPANY WHIC H HAS FILED ITS RETURN OF INCOME. ADMITTEDLY, THE ASSESSEE COMPANY HAD TAKEN ACCOMMOD ATION ENTRIES AND HAS ALSO PROVIDED ACCOMMODATION FEES BY WAY OF SHARE CAPITAL . WHILE SO, THE LD.AO WAS DUTY BOUND TO EXAMINE THE APPLICABILITY OF SECTION 68 OF THE ACT. INSTEAD OF THE ASSESSING OFFICER CHOSE TO HOLD THAT THE ASSESSEE DID NOT EXI ST. SUCH A FINDING CANNOT BE UPHELD. THE AO HAS NOT DONE HIS DUTY OF ENQUIRING INTO THE CREDITS AND PASSING AN ORDER ON MERITS. THERE IS NO FINDING AS TO IN WHICH COMPANY THE CREDIT ENTRIES HAVE BEEN 6 I.T.A. NO. 1876/KOL/2014 M/S MALINATH TRADECON PVT. LTD. ASSESSMENT YEAR: 2010-11 EXAMINED ON MERITS IN THE CHAIN OF TRANSACTION. NO ASSESSMENT ORDER ON MERITS HAS BEEN PASSED. 7. THE CIT(A) ALSO FAILED IN HIS DUTY TO USE HIS CO -TERMINUS POWER WITH THAT OF THE AO AND EXAMINE THE APPLICABILITY OF SECTION 68 TO THE FACTS OF THE ASSESSEES CASE. HE SIMPLY ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE COMPANY EXISTS AND DID NOT DIRECT THE AO TO ENQUIRE ON MERITS AND GIVE N A REMAND REPORT. IN THE RESULT, NO PROPER ASSESSMENT HAS BEEN DONE IN THIS CASE. 8. THE HONOURABLE DELHI HIGH COURT IN THE CASE OF CIT VERSUS M/S JANSAMPARK ADVERTISING AND MARKETING (P) LTD. IN IT A 525/2014, JUDGEMENT DT. 11 TH MARCH, 2015, AT PARA 42, HELD AS FOLLOWS:- 42. THE AO HERE MAY HAVE FAILED TO DISCHARGE HIS O BLIGATION TO CONDUCT A PROPER INQUIRY TO TAKE THE MATTER TO LOGICAL CONCLU SION. BUT CIT (APPEALS), HAVING NOTICED WANT OF PROPER INQUIRY, COULD NOT HA VE CLOSED THE CHAPTER SIMPLY BY ALLOWING THE APPEAL AND DELETING THE ADDI TIONS MADE. IT WAS ALSO THE OBLIGATION OF THE FIRST APPELLATE AUTHORITY, AS INDEED OF ITAT, TO HAVE ENSURED THAT EFFECTIVE INQUIRY WAS CARRIED OUT, PAR TICULARLY IN THE FACE OF THE ALLEGATIONS OF THE REVENUE THAT THE ACCOUNT STATEME NTS REVEAL A UNIFORM PATTERN OF CASH DEPOSITS OF EQUAL AMOUNTS IN THE RE SPECTIVE ACCOUNTS PRECEDING THE TRANSACTIONS IN QUESTION. THIS NECESSITATED A DETAILED SCRUTINY OF THE MATERIAL SUBMITTED BY THE ASSESSEE IN RESPON SE TO THE NOTICE UNDER SECTION 148 ISSUED BY THE AO, AS ALSO THE MATERIAL SUBMITTED AT THE STAGE OF APPEALS, IF DEEMED PROPER BY WAY OF MAKING OR CAUSI NG TO BE MADE A FURTHER INQUIRY IN EXERCISE OF THE POWER UNDER SECTION 250 (4). THIS APPROACH NOT HAVING BEEN ADOPTED, THE IMPUGNED ORDER OF ITAT, AN D CONSEQUENTLY THAT OF CIT (APPEALS), CANNOT BE APPROVED OR UPHELD. (EMPH ASIS OURS) RESPECTFULLY APPLYING THE PROPOSITION OF LAW LAID D OWN IN THE CASE LAW TO THE FACTS OF THIS CASE, WE ARE DUTY BOUND TO SET ASIDE THIS ASSE SSMENT TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE APPLICABI LITY OF SECTION 68 AS WELL AS OTHER 7 I.T.A. NO. 1876/KOL/2014 M/S MALINATH TRADECON PVT. LTD. ASSESSMENT YEAR: 2010-11 PROVISIONS OF INCOME TAX ACT, 1961 AND COMPLETE THE ASSESSMENT DE NOVO IN ACCORDANCE WITH LAW. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 26.12.2017 SD/- SD/- [S.S.VISWANETHRA RAVI] [ J.SUDHAKA R REDDY ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26.12.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. I.T.O, WARD-4(1), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-69. 2. M/S MALINATH TRADECON PVT. LTD., 27, MULLICK STR EET, KOLKATA-07. 3..C.I.T.(A)- , KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHES