ACIT, CHENNAI V. M/s B.R.Petrochem Pvt. Ltd., CHENNAI

ITA 28/CHNY/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8030 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-10-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 07-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S VENUGOPALAN
• Keywords: Unexplained cash credit; Bogus Share capital; Share purchase agreement; Reason to believe; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A, CHENNAI BEFORE SHRI U.B.S. BEDI, J.M. & SHRI ABRAHAM P. GEO RGE, A.M. I.TA. NOS.27 AND 28/MDS/2009 ASSESSMENT YEARS: 2002-03 AND 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II, CHENNAI. VS. M/S. B.R. PETROCHEM PVT. LTD., NO.4, 42 ND STREET, 6 TH AVENUE, ASHOK NAGAR, CHENNAI 600 083. [PAN:AABCB2960N] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB ASSESSEE BY : SHRI S. VENUGOPALAN O R D E R PER U.B.S. BEDI, J.M. THESE TWO APPEALS OF THE DEPARTMENT ARE DIRECTED A GAINST THE CONSOLIDATED ORDER PASSED BY THE LD. CIT(A) III, CH ENNAI DATED 24.09.2008 RELEVANT TO THE ASSESSMENT YEARS 2002-03 AND 03-04 RESPECTIVELY WHEREBY THE DEPARTMENT HAS CHALLENGED THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITION MADE UNDER SECTION 68 OF THE INCOME TAX ACT TOWARDS UNEXPLAINED SHARE CAPITAL FOR BOTH YEARS. 2. AS COMMON POINTS ARE INVOLVED IN BOTH THESE APP EALS AND BOTH WERE HEARD TOGETHER, ARISE OUT OF CONSOLIDATED ORDER, TH EREFORE BEING DISPOSED OF BY THIS SINGLE ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE COMPANY WAS INCORPORATED IN MARCH, 2000 STARTED ITS BUSINESS ACTIVITIES IN JULY, 2000 AND FIRST FINANCI AL YEAR FOR THE COMPANY IS PRACTICALLY FINANCIAL YEAR 2000-01 CORRESPONDING TO ASSESSMENT YEAR 2001-02. THE ASSESSEE COMPANY IS ENGAGED IN IMPORT AND SALE OF PETROLEUM PRODUCTS. ITA NO ITA NO ITA NO ITA NOS SS S. .. .27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER HAS NOTED THAT THE ASSESSEE COMPANY HAS RECEIVED SHARE APPLIC ATION MONIES IN THE ASSESSMENT YEARS 2001-02, 2002-03 AND 2003-04 FROM DIFFERENT PERSONS. THE LIST OF PERSONS FROM WHOM THE SHARE APPLICATION MONIES W ERE RECEIVED IN THESE 3 ASSESSMENT YEARS HAS ALSO BEEN FURNISHED BEFORE THE ASSESSING OFFICER FOR ALL THE THREE ASSESSMENT YEARS. THE AMOUNTS RECEIVED AS SHARE APPLICATION MONEY HAS BEEN ADDED TO THE RETURNED INCOME OF THE ASSESS EE AS UNEXPLAINED CASH CREDIT UNDER SECTION 68. 3.1 THE ASSESSING OFFICER HAS ADDED AN AMOUNT OF ` .22,50,000/- AND ` .20 LAKHS FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 RESPECTIVELY AGAINST WHICH THE ASSESSEE PREFERRED APPEALS AND THE LD. CIT(A) D ELETED THE ADDITIONS BY STATING THAT THE ISSUE IS FULLY COVERED BY THE HON BLE HIGH COURTS DECISION AS CITED AND WHILE REFERRING TO VARIOUS OTHER DECISION S OF DIFFERENT HONBLE HIGH COURTS AND DIFFERENT BENCHES OF THE TRIBUNAL INCLUD ING CIT(A)S DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 ON IDENTICAL POINT, APPEALS WERE ALLOWED. . 4. AGAINST SUCH ORDER OF THE LD. CIT(A), THE DEPAR TMENT HAS CAME UP IN APPEAL AND IT WAS STRONGLY PLEADED THAT IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2001-02, THE ITAT HAS DECIDED THE I SSUE IN FAVOUR OF THE REVENUE IN ITS ORDER IN I.T.A. NO. 2597/MDS/05 DATE D 27.04.2007(COPY OF WHICH WAS FILED) AND THE LD. CIT(A) HAS FAILED TO NOTE TH IS DECISION, WHEN SUCH DECISION WAS ALREADY THERE AND DECIDED THE APPEALS IN FAVOUR OF THE ASSESSEE. SINCE BINDING DECISION IN THE CASE OF THE ASSESSEE BY SAM E BENCH ON SAME POINTS FOR ITA NO ITA NO ITA NO ITA NOS SS S. .. .27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 3 THE ASSESSMENT YEAR 2001-02 IS ALREADY THERE, THERE FORE, THE ORDER OF THE LD. CIT(A) IS LIABLE TO BE REVERSED AND ASSESSING OFFIC ERS ORDER REQUIRES TO BE RESTORED. IT WAS THUS PRAYED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ALREADY FILED CONFIRMATION LETTERS, EVIDENCE FOR ALLOTMENT OF SHARES, ETC. THE GENUINENESS OF THE CREDITS, EXISTENCE OF THE PERSONS, ETC. MORE OVER, THE ASSESSING OFFICER HIMSELF HAS MADE SOME ENQUIRIES AND HAS FOUND ALL T HE SHAREHOLDERS DID EXIST AT THE ADDRESSES PROVIDED BY THE ASSESSEE AND ALSO FIL ED CONFIRMATION LETTER. OTHERWISE ALSO, ONCE THE CREDITWORTHINESS OF THE PE RSONS IS PROVED, IT CANNOT BE ASSESSED AS INCOME OF THE ASSESSEE. AS THE PERSONS HAVE ALREADY CONFIRMED THE TRANSACTION, NECESSARY SHARE CERTIFICATES WERE ISSU ED AND LOT OF FAVOURABLE DECISIONS ARE ALREADY THERE SO RELYING UPON THE DEC ISIONS IN THE CASE OF CIT V. VALUE CAPITAL SERVICES P. LTD. 307 ITR 334(DELHI), CIT V. RAMNEET SINGH 306 ITR 267 (P&H), CIT V. S.D. INVESTMENT AND TRADING C OMPANY 306 ITR 31 (BOM), CIT V. REAL TIME MARKETING P. LTD. 306 ITR 35 (DELH I), SMT. SARASWATI DEVI GEHLOT V. ITO 304 ITR (AT) 354 (JODHPUR), CIT V. A KJ GRANITES P. LTD. 301 ITR 298 (RAJ), CIT V. DIVINE LEASING AND FINANCE LTD. G ENERAL EXPORTS AND CREDITS LTD. LOVELY EXPORTS P. LTD. 299 ITR 268 (DELHI), AC IT V. VENKATESHWAR ISPAT P. LTD. 319 ITR 393 (CHHATTISGARH), CIT V. GLOCOM IMPE X PVT. LTD. 299 ITR 39 (DELHI), A ONE HOUSING COMPLEX LTD. V. ITO 299 ITR( AT) 327 (DELHI), IT WAS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. ITA NO ITA NO ITA NO ITA NOS SS S. .. .27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 4 6. IN ORDER TO COUNTER THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, THE LD. DR SUBMITTED THAT RELIANCE PLACED BY THE LD . AR IS NOT PROPER ON THESE CASES, AS FACTS ARE DISTINGUISHABLE AS COMPARED TO THE FACTS IN THE PRESENT CASE BECAUSE NO CONFIRMATION COULD BE GOT EFFECTED. THE LD. CIT(A) IN THIS CASE HAS WRITTEN IN HIS ORDER AT LAST PAGE THAT WHILE FOLLOW ING JURISDICTIONAL HIGH COURTS DECISION AS ALSO ORDER OF THE CIT(A) VIII IN ASSESS EES OWN CASE IN IDENTICAL POINT FOR THE ASSESSMENT YEAR 2001-02, HE DELETED THE ADD ITION MADE BY THE ASSESSING OFFICER. WHEREAS, IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2001-02 SIMILAR TYPE OF ADDITION HAS BEEN CONFIRMED BY THE TRIBUNAL WHILE REVERSING LD. CIT(A)S ORDER ON 27.04.2007, SO THE ORDER OF THE L D. CIT(A) IS NOT CORRECT AND IN ALL FAIRNESS, THE MATTER SHOULD BE SET ASIDE ON THE FILE OF THE LD. CIT(A) TO RE- DECIDE THE APPEALS AFRESH AND TO THIS PLEA OF THE L D. DR, THE LD. COUNSEL FOR THE ASSESSEE DID NOT OBJECT AND AGREED THAT THE MATTER SHOULD GO TO THE FILE OF THE LD. CIT(A). 7. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MA TERIAL ON RECORD AND FIND THAT THE LD. CIT(A) WHILE DELETING THE ADDITIONS MA DE UNDER SECTION 68 ON ACCOUNT OF SHARE APPLICATION MONEY HAS OPINED AT LAST PAGE OF HIS ORDER AS UNDER: IN FACT, I FIND THAT THE ISSUE IS FULLY COVERE D BY THE HIGH COURTS ORDER AS DISCUSSED ABOVE. HENCE, FOLLOWING THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT AND ALSO THE ORDER OF THE CIT(A)-VIII IN APPELLANTS OWN CASE ON IDENTICAL PO INT IN A.Y. 2001- 02, I DELETE THE ADDITION MADE BY THE ASSESSING OFF ICER U/S 68 IN BOTH THE YEARS. 7.1 AS PER CHENNAI A BENCH DECISION IN I.T.A. NO. 2597/M/2005 FOR THE ASSESSMENT YEAR 2001-02 DATED 27.04.2007, WE FIND T HAT THE ORDER OF THE LD. ITA NO ITA NO ITA NO ITA NOS SS S. .. .27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 5 CIT(A) HAS BEEN REVERSED BY THE TRIBUNAL BY DRAWING THE CONCLUSION AT PARA 7 OF THE ORDER, WHICH READS AS UNDER: 7. AFTER GOING THROUGH THE ABOVE CASE LAWS AND AN ALYZING THE FACTS, IN THE LIGHT OF THE ABOVE JUDGMENT, THE ASSE SSMENT OF UNEXPLAINED SHARE CAPITAL OF THE COMPANY, ALL THE C OURTS HELD THAT THIS IS A QUESTION OF FACT. IT WOULD BE QUITE UNREASONAB LE TO HOLD THAT THE TAX AUTHORITIES ARE PRECLUDED FROM GOING INTO THE Q UESTION OF GENUINENESS OF THE SHARE HOLDINGS. IN SOME JUDGMENT THERE ARE CERTAIN OBSERVATIONS THAT IN THE CASE OF A COMPANY, THE SHA RE CAPITAL CANNOT BE SEEN AS A REPRESENTING INCOME THAT MAY BE ASSESS ED IN THE HANDS OF THE COMPANY ITSELF, SUCH OBSERVATION HAVE BEEN MADE AS A MATTER OF APPRECIATION OF EVIDENCE AND NOT AS A PROPOSITION O F LAW. BECAUSE IN THE ULTIMATE ANALYSIS OF THE COURTS ONLY HELD THAT WHAT THE TRIBUNAL DECIDED IS A QUESTION OF FACT AND NOT QUESTION OF L AW ARISES. IT IS THEREFORE CLEAR, THAT IN EVERY CASE, WHERE DISPUTE ARISES ABOUT THE GENUINENESS OF THE SHARE CAPITAL IT WOULD BE NECESS ARY TO EXAMINE THE FACTS AND CIRCUMSTANCES OF EACH CASE WHETHER THE DI SPUTE IS CONFINED TO THE FINANCIAL CAPACITY OF THE SHARE APPLICANTS O R THERE IS MATERIAL/EVIDENCE TO CALL IN QUESTION THE GENUINENE SS OF ISSUANCE OF THE SHARE CAPITAL ITSELF. IN CASE WHERE THE FACTS A ND CIRCUMSTANCES ARE JUSTIFIED, THE FINDINGS THAT WHAT HAS BEEN CREDITED AS SHARE CAPITAL OF THE COMPANY IS ACTUALLY NOT SO, THE PROVISIONS OF S EC.68 CLEARLY PERMIT THE INCOME TAX AUTHORITY TO MAKE ENQUIRIES AND IF N ECESSARY TO ASSESS THE SAME AS REPRESENTING INCOME OF THE COMPANY. THE QUESTION ARISES THAT WHETHER THE APPARENT CAN BE CONSIDERED AS REAL . AS LAID DOWN BY THE HONBLE SUPREME COURT, THE APPARENT MUST BE CON SIDERED THE REAL UNIT IS SHOWN THAT THERE IS REASON TO BELIEVE THAT THE APPARENT IS NOT REAL AND THE TAXING AUTHORITIES ENTITLED TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY AND THE MATTE R HAS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILIT Y (SUMATI DAYAL V. CIT), HONBLE APEX COURT [241 ITR 801]. IN THE PRES ENT CASE THE SURROUNDING CIRCUMSTANCES DISCUSSED ABOVE IN THE PR EVIOUS PARAGRAPHS LEADS TO ONE CONCLUSION THAT THE SHARE A PPLICATION MONEY IS IN RESPECT OF PERSONS CLAIMED BY THE ASSESSEE AR E NOT GENUINE. AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE CASE, WE ARE OF THE OPINION THAT THE SHARE APPLICATION MONEY SHOWN BY THE ASSESSEE IS NOT REAL, AND ONLY A MADE BELIEVE STORY. HENCE, THE ASSESSING OFFICER IS JUSTIFIED IN TREATING THIS AS UNEXPLAINED CREDIT S OF THE ASSESSEE. HENCE, WE REVERSE THE ORDER OF CIT(A) AND RESTORE T HE ORDER OF THE ASSESSING OFFICER. ITA NO ITA NO ITA NO ITA NOS SS S. .. .27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 27 & 28/MDS/09 6 7.2 SINCE THIS VITAL ASPECT HAS BEEN OVERLOOKED BY THE LD. CIT(A), THEREFORE, IN THE INTEREST OF JUSTICE AND TO HAVE FAIR PLAY IN TH E MATTER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER ON HIS FILE W ITH THE DIRECTION TO RE-DECIDE THE APPEALS AFRESH AND WHILE DOING SO, HE SHOULD CONSID ER ALL RELEVANT UP-TO-DATE CASE LAW AND DECISION OF ITAT IN ASSESSEES OWN CAS E FOR THE ASSESSMENT YEAR 2001-02 AFTER GIVING DUE OPPORTUNITY TO THE ASSESSE E AS WELL AS THE ASSESSING OFFICER. WE HOLD AND DIRECT ACCORDINGLY. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED SOON AFTER THE CONCLUSION OF HEAR ING ON 28.10.2010. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI, DATED, THE 28.10.2010. VM/- COPY TO : APPELLANT/RESPONDENT/CIT(A)- /CIT, /DR