The ITO, Ward-1(3), Surat V. M/s. Kailper Credit & Mercantile Pvt.Ltd., Surat

ITA 2547/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6808 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Bogus Share capital
• Section: 271(1)(c); 143(3); 133(6); 69; 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI MUKUL KR. SHRAWAT JM AND D.C.AGRAWAL, AM INCOME-TAX OFFICER, WARD 1(3), SURAT. VS. M/S KAILPER CREDIT & MERCANTILE (P) LTD., 5006 TRADE HOUSE, RING ROAD, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R. K. DHANESTA, DR RESPONDENT BY:- WRITTEN SUBMISSION O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AND THE CRO SS OBJECTION FILED BY THE ASSESSEE IN RESPONSE TO THE APPEAL FIL ED BY THE REVENUE. 2. THE REVENUE HAS RAISED FOLLOWING GROUND IN ITS A PPEAL :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-I, SURAT HAS ERRED IN DELETING THE PENAL TY U/S 271(1)(C) OF THE ACT LEVIED BY AO OF RS.27,80,312/- . 3. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ABOUT THE LEVY OF PENALTY WHICH WAS CANCELLED BY LD. CIT(A). IN THE ASSESSMEN T ORDER PASSED U/S 143(3) ON 29.11.2006 AN ADDITION OF RS.87,71,000/- WAS MADE. THIS CONSISTED OF AN ADDITION OF RS.77,50,000/- MADE U/S 68 ON ACCOUNT OF UNEXPLAINED SHARE CAPITAL INTRODUCED. THE MATTER TR AVELLED TO THE TRIBUNAL ITA NO.2547/AHD/2009 ALONG WITH CO NO.211/AHD/2009 ASST. YEAR 2004-05 ITA NO.2547 & CO. 211/AHD/2009 ASST. YEAR 2004-05 2 WHICH VIDE ITS ORDER IN ITA NO.155/AHD/2008 ASST. Y EAR 2004-05 DELETED THE ADDITION BY OBSERVING AS UNDER :- 8. WE FIND ONE MORE FACT FROM THE CASE RECO RDS THAT THE ASSESSEE HAS RECEIVED THE SHARE APPLICATION MONEY ONLY IN SEPTEMBER AND OCTOBER, 2003, WHEREAS THE DDIT IS BASED O N ENQUIRIES MADE BEFORE AUGUST, 2003. THIS MEANS THAT THE ASSES SING OFFICER HAS MADE THIS ADDITION JUST ON THE BASIS OF CONJECTURES AN D SURMISES AND WITHOUT ANY BASIS. THE ASSESSEE HAS CARRIED US THROUGH THE DOCUMENTARY EVIDENCES FILED IN ASSESSEES PAPER BOOK AND SHOWED US THAT IN THE CASE OF DINA NATH LUHURIWALA SPINNING MILLS (P) LTD. WAS ASSESSED BY THE DCIT (INV) CIRCLE-25(1), NEW DELHI U/S 143(3) O F THE ACT VIDE ORDER DATED 30.12.1998 AND THE COPY OF THE ASSESSM ENT ORDER IS ENCLOSED IN THE PAPER BOOK. HE ALSO SHOWED THE ASSES SMENT ORDER IN THE CASE OF SWETU STONE (P) LTD., WHICH WAS A SSESSED BY THE DCIT UNDER SECTION 143(3) OF THE ACT, VIDE ORDER D ATED 23.3.1999. IT MEANS THAT ALL THE PARTIES ARE ON THE RECORDS OF THE INCOME-TAX DEPARTMENT. WE FURTHER FIND THAT THE NOTICES ISSUE D U/S 133(6) OF THE ACT TO THE SHARE APPLICANTS, WHICH WERE RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARK NO SUCH PARTY EXISTS, IT IS NOW FOUND THAT THE ASSESSEE AFTER THIS WAS CONFRONTED, SUBMITTED T O PROVE THE IDENTITIES AND EXISTENCE OF THESE COMPANIES AT THE GIVEN ADDRESSES. TO THAT EFFECT, THE ASSESSING OFFICER HIMSELF HAS NOT ED THIS IN PARA 3.2 OF HIS ASSESSMENT ORDER, PARTICULARLY IN CLAUSE (V) AS UNDER :- (V) IN SUPPORT OF ITS CONTENTION, THE ASSESSEE HAS FURNISHED EVIDENCES LIKE CERTIFICATE OF INCORPORATION, COPY OF SHARE APPLICATION FORM, COPY OF BOARD RESOLUTION AND AFFIDAVITS ETC. CLAIMED TO BE SIGNED BY THE DIRECTORS OF THESE ENTITIES, CONFIRMING INVESTMENT IN THE ASSESSEE COMPANY. THESE DOCU MENTS AT THE MOST CAN PROVE THE IDENTITY OF A COMPANY ONLY. WE FIND THAT THE ASSESSING OFFICER HIMSELF HA S ADMITTED THAT THE IDENTITY OF THESE SHARE APPLICANTS IS PROVED AND THIS IS SUFFICIENT FOR THE ASSESSEE TO DISCHARGE HIS INITIAL ONUS. ALL THESE ENTITIES ARE INCORPORATED WITH THE R.O.C. AND THEIR COMPLETE RE CORDS WITH LATEST ADDRESSES ARE WITH THE OFFICE OF R.O.C. THEY ARE COMPANIES. THEY HAVE BEEN ALLOTTED PAN AND ASSESSED BY THE INCOME- TAX DEPARTMENT ITSELF. HENCE, MERELY BECAUSE THE NOTICES SENT TO THE M WERE RETURNED BACK, IT CANNOT BE SAID THAT THEY ARE BOGUS AND THE SUMS REC EIVED BY THE ASSESSEE FROM THEM IS BOGUS. ASSESSEE HAS DISCHARGED ITS ONUS BY LEADING EVIDENCES. IN VIEW OF THE ABOVE, WE FIND THAT THE ASSESSEE FILED ALL THE DOCUMENTS TO PROVE THAT THE AMOUNT RECEIVED BY IT WERE IN THE NATURE OF SHARE CAPITAL AND IT WAS PROVED IN THE FO RM OF SHARE APPLICATION ITA NO.2547 & CO. 211/AHD/2009 ASST. YEAR 2004-05 3 ITSELF, THE RESOLUTION OF THE INVESTING COMPAN IES ALONG WITH ITS MEMORANDUM OF ASSOCIATION AND BALANCE SHEET AND PA N ETC. THE ASSESSEE ALSO FILED A COPY OF FORM NO.18, WHICH WA S FILED WITH THE REGISTRAR OF COMPANIES, WHICH IS A FORM OF INTIM ATION OF REGISTRAR OFFICE OF THE COMPANY, WHICH CONTAINS RESIDENT IAL ADDRESSES OF THE DIRECTORS. IN OUR VIEW AND ALSO THE RATIO LAID DOWN BY HON. JURISDICTIONAL HIGH COURT AND HON. APEX COURT IN THE CASE LAWS CIT ED BEFORE US, THE ASSESSING OFFICER WAS REQUIRED TO CONDUCT INQUIR IES EITHER AT THE REGISTRAR OFFICE OR EVEN AT THE RESIDENTIAL ADDRESS ES OF THE DIRECTORS. THE ASSESSING OFFICER MAINLY RELIED UPON THE REPORT OF INVESTIGATION WING AT DELHI MUCH BEFORE THE SHARE MONEY RECEIVED BY THE A SSESSEE COMPANY, BUT DID NOT CONDUCT ANY INDEPENDENT INQUIRY. ON THE OTHER HAND, THE ASSESSEE HAS PROVED THE IDENTITY OF SHARE APPL ICANTS AND OTHER DOCUMENTS TO SUPPORT THAT THE AMOUNT WAS RECE IVED ONLY IN THE NATURE OF SHARE CAPITAL. IN SUCH CIRCUMSTANCES , THE AMOUNT CANNOT BE ADDED IN THE HANDS OF THE ASSESSEE AS UNEXPLAINED C ASH CREDIT U/S 68 OF THE ACT. NOW WE WILL CONSIDER THE RELEVANT OBSERV ATIONS OF THE HON. SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD. REPORTED IN (2008) 6 DTR (SUPREME COURT) 308 (216 CT R 195) WHEREIN THE APEX COURT OBSERVED AS UNDER :- 2 CAN THE AMOUNT OF SHARE MONEY BE REGARDE D AS UNDISCLOSED INCOME UNDER SECTION 68 OF IT ACT, 1961 ? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MON EY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAME ARE GIVEN TO THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCE ED TO RE-OPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FI ND NO INFIRMITY WITH THE IMPUGNED JUDGEMENT. INTERPRETING THE ABOVE OBSERVATIONS OF THE HON. SUP REME COURT, THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF MIDAS GOLDEN DISTILLERIES (P) LTD. VS. CIT REPORTED IN (2009) 25 DTR (CHENNAI )(TRIB) 337 HAS HELD AS UNDER :- 40. SITTING WITHIN THE JURISDICTION OF HON. JURIS DICTION HIGH COURT, WE HAVE NECESSARILY TO FOLLOW THE INTERPRETATION MADE B Y IT OF SUCH ORDERS IN SLP. IN VIEW OF THIS AND FINDING THAT THE ORDER DISMISSING THE SLP IN CIT VS. LOVELY EXPORTS (P) LTD. (SUPRA) IS A SPEAKING ORDER, THE SAID ORDER WOULD BIND THIS TRIBUNAL AS A LAW DECLARED BY THE HON. APEX COURT UNDER ART 14 1 OF THE CONSTRUCTION. ESPECTFULLY FOLLOWING THE GROUNDS RAISED IN APPEAL STAND ALLOW ED. ON THE BASIS OF DECISION OF CHENNAI TRIBUNAL, IT IS HELD THAT OBSERVATIONS OF HON. SUPREME COURT IN THE CASE O F LOVELY EXPORT (P) LTD. ARE BINDING UPON THE TRIBUNAL AS A LAW DECLARE D. ITA NO.2547 & CO. 211/AHD/2009 ASST. YEAR 2004-05 4 9. WE FURTHER DRAWN STRENGTH FROM THE CASE L AW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE SHRI R. K. MALPAN I OF JURISDICTIONAL HIGH COURT IN THE CASE OF DCIT VS. ROHINI BUILDERS (2002) 256 ITR 360 (GUJ), WHEREIN THE HONBLE HIGH COURT HAS CONFIRM ED THE FINDINGS OF THE TRIBUNAL BY HOLDING AS UNDER :- FURTHER WE MAY POINT OUT THAT SECTION 68 UND ER WHICH THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER READS AS UNDER :- 68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO E XPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT IN THE OPINION OF THE ASSESSING OFFICER SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIO US YEAR. THE PHRASEOLOGY OF SECTION 68 IS CLEAR. THE LEGISLA TURE HAS LAID DOWN THAT IN THE ABSENCE OF A SATISFACTORY EXPLANATION, THE UNEXPL AINED CASH CREDIT MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. IN THIS CASE THE LEGISLATIVE MANDATE IS NOT IN TERMS OF TH E WORDS SHALL BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THE SUPREME COURT WHILE INTERPRETING SIMILAR PHRASEOLOGY USE D IN SECTION 69 HAS HELD THAT IN CREATING THE LEGAL FICTION THE PHRASEOLOGY EMP LOYS THE WORD MAY AND NOT SHALL. THUS THE UNSATISFACTORINESS OF THE EXPLA NATION DOES NOT AND NEED NOT AUTOMATICALLY RESULT IN DEEMING THE AMOUNT CREDIT ED IN THE BOOKS AS THE INCOME OF THE ASSESSEE AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. SMT. P.K. NOORJAHAN (1999) 237 ITR 570. THUS TAKING INTO CONSIDERATION THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, AND, IN PARTICULAR, THE FACT, THAT THE ASSES SING OFFICER HAS NOT DISALLOWED THE INTEREST CLAIMED/PAID IN RELATION TO THESE CR EDITS IN THE ASSESSMENT YEAR UNDER CONSIDERATION OR EVEN IN THE SUBSEQUENT YEARS , AND TAX DEDUCTED AT SOURCE HAS BEEN DEDUCTED OUT OF THE INTEREST PAID/CREDITE D TO THE CREDITORS, WE ARE OF THE OPINION THAT THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN MAKING THE ADDITION OF RS.12,85,000 WHICH IS DIRECTED TO BE DELETED. 10. IN VIEW OF THE FACTS OF THIS CASE, THE L EGAL POSITION AS ENUMERATED BY THE HON. APEX COURT AND HON. JURISDIC TIONAL HIGH COURT IN THE CASE LAWS CITED ABOVE, WE ARE OF THE VIEW TH AT THE SHARE APPLICATION MONEY CANNOT BE TREATED AS UNDISCLOSED IN THE GIVEN FACTS OF THE CASE AND ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE REVERSED. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. THE AO HAD LEVIED THE PENALTY U/S 271(1)(C) HOLDING THAT ASSESSEE HAD CONCEALED THE PARTICULARS OF INCOME IN RESPECT OF S UM OF RS.77,50,000/-. HE HAD ALSO LEVIED PENALTY IN RESPECT OF ANOTHER SU M OF RS.21,000/- WHICH WAS CONFIRMED BY LD. CIT(A). ITA NO.2547 & CO. 211/AHD/2009 ASST. YEAR 2004-05 5 4. WHILE DISPOSING OF THE PENALTY ORDER OF AO DATED 20.3.2009 LD. CIT(A) VIDE HIS ORDER DATED 14.7.2009 CANCELLED THE PENALTY HOLDING THAT PENALTY CANNOT BE LEVIED ON THE ADDITION IN RESPECT OF SHARE CAPITAL IN VIEW OF THE DECISION OF HON. SUPREME COURT IN THE C ASE OF LOVELY EXPORTS (P) LTD. 216 CTR 195. 5. NO ONE APPEARED ON BEHALF OF THE ASSESSEE EXCEPT FILING WRITTEN SUBMISSIONS. 6. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIA L ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR SUSTAINING THE LEVY OF PENALTY, ONCE ADDITION IN RESPECT OF PENALTY LEVIED HAS BEEN DELETED BY THE TRIBUNAL. THE PROPOSITION THAT NO PENALTY UNDER SEC TION 271(1)(C) CAN BE LEVIED IF QUANTUM IN RESPECT OF WHICH LEVY OF PENAL TY IS PROPOSED IS DELETED, HAS BEEN HELD BY SEVERAL AUTHORITIES SUCH AS ADDL. CIT VS. BADRI PRASAD KASHI PRASAD (1993) 200 ITR 206 (ALL), PRABH AT OIL TRADERS VS. ITO (1996) 218 ITR (AT) 39 ITAT (AHD), CITY DRY FIS H CO. VS. CIT (1999) 238 ITR 63 (A.P.), CIT VS. MD. BUX SAUKAT AL I (2004) 265 ITR 326 (RAJ) AND CIT VS. SHISHPAL (2002) 255 ITR 187 ( RAJ). IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF LD. CI T(A) IN CANCELING THE PENALTY ORDER. THE APPEAL FILED BY TH E REVENUE IS DISMISSED. 7. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED T HE FOLLOWING GROUND:- (1) THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE PEN ALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF UNSECURED LOANS OF RS.21,000/- ADDED U/S 68 OF THE ACT. ITA NO.2547 & CO. 211/AHD/2009 ASST. YEAR 2004-05 6 8. THE CROSS OBJECTION IS IN RESPECT OF SUSTAINING OF PENALTY IN RESPECT OF UNSECURED LOAN OF RS.21,000/- THE ADDITION IN RE SPECT OF WHICH WAS CONFIRMED. 9. THE LD. CIT(A) HAS MENTIONED THAT ASSESSEE HAS N OT GIVEN ANY EVIDENCE AT ALL IN SUPPORT OF THIS SUM. FROM THIS H E INFERRED THAT ASSESSEE HAS INTRODUCED HIS OWN CASH AND THEREBY CLEARLY FUR NISHED INACCURATE PARTICULARS OF INCOME BY INTRODUCING HIS OWN MONEY WHICH HE COULD NOT EXPLAINED. 10. IT APPEARS THAT THIS HAS NOT BEEN CHALLENGED AS THERE IS NO REFERENCE OF THIS ADDITION IN THE ORDER OF THE TRIBUNAL IN IT A NO.155/AHD/2008 PRONOUNCED ON 31.5.2010. EVEN IN THE WRITTEN SUBMIS SIONS AGAINST SUSTAINING PENALTY IN RESPECT OF THIS SUM THE ASSES SEE HAS ONLY SUBMITTED THAT THE C.O. IS NOT BEING PRESSED. ACCORDINGLY, TH E CO IS DISMISSED AS NOT PRESSED. 11. IN THE RESULT, THE APPEAL OF REVENUE AND THE CR OSS OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 21/4/11. SD/- SD/- (MUKUL KR. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 21/4/11. MAHATA/- ITA NO.2547 & CO. 211/AHD/2009 ASST. YEAR 2004-05 7 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 19/4/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 20/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..