Dy.CIT, Agra V. M/s P.N.C. Cold Storage Pvt. Ltd., Agra

ITA 283/AGR/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7074 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-02-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 07-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Accommodation entries
• Section: 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 283/AGRA/2009 ASSTT. YEAR : 2000-01 D.C.I.T. 4(1), VS. M/S. PNC COLD STORAGE PVT. LTD., AGRA. 40, SHAHZADI MANDI, AGRA. (PAN : AACCP 7061 R) (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI VINOD KUMAR, JR. D.R. FOR RESPONDENT : NONE ORDER PER P.K. BANSAL, A.M. : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 27.03.2009 OF CIT(A)- II, AGRA, BY TAKING FOLLOWING EFFECTIVE GROUNDS : 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW & ON F ACTS IN DELETING THE ADDITION OF RS.15,00,000/- MADE BY THE A.O. U/S. 68 IGNORING THE FACTS THAT NO SHARES WERE ALLOTTED IN THE CASE OF M/S. KRISHNA TRADERS AS IS EVIDENT FROM THE FACT THAT COULD NOT PRODUCE THE PHOTOCOPIE S OF SHARES DURING REMAND PROCEEDINGS. 2. THAT THE LEARNED CIT(A) WHILE DELETING THE ADDIT IONS HAS TOTALLY IGNORED THE FINDINGS INCORPORATED IN THE ASSESSMENT ORDER PASSED U/S. 158BD/143(3) OF THE I.T. ACT BY THE AO IN GANGA RAM GROUP OF CASES THAT THE ALLEGED CREDITORS ARE ONLY NAME LENDERS WHO ARR ANGE ACCOMMODATION ENTRIES IN THEIR BOOKS OF ACCOUNT THROUGH THEIR INT ERMEDIARIES / SISTER CONCERN/BUSINESS PARTNERS. 3. THAT THE LEARNED CIT(A) HAS ERRED IN APPLYING TH E RATIO OF THE CASES RELATE TO THE PUBLIC LIMITED COMPANIES TO A C ASE OF PRIVATE COMPANY. 2. THIS APPEAL HAS BEEN FIXED FOR HEARING AND ON 04 .02.2011 WAS ADJOURNED FOR 28.02.2011 AT THE REQUEST OF THE COUNSEL OF THE ASSESSEE WHO H AS DULY NOTED THE DATE, BUT ON THE DATE FIXED 2 NEITHER THE ASSESSEE NOR THE COUNSEL OF ASSESSEE AP PEARED. WE, THEREFORE, DECIDED TO DISPOSE OF THIS APPEAL AFTER HEARING THE LD. DR. 3. THE BRIEF FACTS RELATING TO THE ISSUE INVOLVED I N THIS APPEAL ARE THAT THE ASSESSING OFFICER RECEIVED INFORMATION THAT THE ASSESSEE HAD TAKEN AC COMMODATION ENTRIES OF LOAN OF RS.5,09,500/- FROM M/S. GANGA RAM VINOD KUMAR AND OF RS.10,00,832 /- FROM M/S. KRISHNA TRADERS, WHO ARE THE CONCERNS OF GANGA RAM GROUP FOUND ENGAGED IN AR RANGING ACCOMMODATION ENTRIES IN THEIR BOOKS OF ACCOUNT THROUGH THEIR INTERMEDIARIES OR SI STER CONCERNS. ON THE BASIS OF THIS INFORMATION, NOTICE U/S. 148 WAS ISSUED TO THE ASSESSEE. IN RESP ONSE TO THE NOTICE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT TAKEN ANY LOAN OR LOAN ENTRY F ROM THE AFORESAID TWO FIRMS BUT RECEIVED THE SHARE APPLICATION MONEY AMOUNTING TO RS.5,00,000/- FROM GANGA RAM VINOD KUMAR, 65 NORTH VIJAY NAGAR COLONY, AGRA THROUGH ACCOUNT PAYEE CHEQ UE NO. 521955 DATED 22.02.2000 AND RS.10,00,000/- (RS.5,00,000 + 5,00,000) FROM KRISHN A TRADERS, 65 NORTH VIJAY NAGAR COLONY, AGRA THROUGH ACCOUNT PAYEE CHEQUES NO. 575689 AND 5 75690. CERTIFICATES OF THE AFORESAID FIRMS WERE ALSO SUBMITTED CONFIRMING THAT THEY HAVE GIVEN THE ABOVE AMOUNTS AS SHARE APPLICATION MONEY TO THE ASSESSEE-COMPANY. THE ASSESSING OFFIC ER EXAMINED THE BANK ACCOUNTS OF THE TWO CONCERNS AND FOUND THAT M/S. GANGA RAM VINOD KUMAR HAS RECEIVED RS.5,00,000/- IN HIS ACCOUNT BY CLEARING ON 23.02.2000 BEFORE ADVANCING MONEY TO THE ASSESSEE. HE ALSO NOTICED FROM THE COPY OF ACCOUNT RECEIVED FROM CANARA BANK FOR T HE PERIOD 01.04.1999 TO 31.03.2000 THAT THERE WAS A CREDIT ENTRY DATED 23.02.2000 OF RS.5,0 0,000/- IN THE ACCOUNT OF M/S. GANGA RAM VINOD KUMAR AND THEN THERE WAS A DEBIT ENTRY DATED 25.02.2000 IN RESPECT OF ASSESSEE. SIMILARLY FROM THE BANK ACCOUNT OF M/S. KRISHNA TRADERS, IT W AS NOTICED THAT THERE WAS A CREDIT ENTRY OF RS.10,00,000/- ON 28.03.2000 AND THERE WERE TWO DEB IT ENTRIES OF RS.5,00,000/- EACH ON 29.03.2000 IN RESPECT OF THE ASSESSEE. THEREFORE, K EEPING IN VIEW THE MODUS OPERANDI FOUND 3 DURING INVESTIGATION IN THE CASE OF M/S. GANGA RAM AGARWAL & CO. AND THE NATURE OF ENTRIES FOUND IN THE BANK ACCOUNTS OF ABOVE TWO CONCERNS, T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD TAKEN THE ABOVE LOAN ENTRIES IN LIEU O F PROVIDING ITS OWN CASH WHICH WAS AVAILABLE WITH THE ASSESSEE AND INTRODUCED THROUGH M/S. GANGA RAM VINOD KUMAR AND M/S. KRISHNA TRADERS IN THE GARB OF SHARE APPLICATION MONEY OF R S.15,00,000/-. HE, THEREFORE, ADDED THE SAME U/S. 68 OF THE ACT TO THE TOTAL INCOME OF THE ASSES SEE. 4. IN APPEAL BEFORE THE CIT(A), THE CIT(A) THOUGH C ONFIRMED THE ACTION INITIATED U/S. 148 OF THE ACT, BUT DELETED THE ADDITION MADE U/S. 68 AFT ER CONSIDERING DETAILED ARGUMENTS OF ASSESSEE AND FOLLOWING SEVERAL DECISIONS IN THE CASE OF CIT VS. LOVELY EXPORTS PVT. LTD., 216 CTR (SC) 195, CIT VS. STELLAR INVESTMENT LTD., 251 ITR 263 ( SC), JAYA SECURITIES LTD. VS. CIT, 166 TAXMAN 7 (ALL), CIT VS. B.R. CONSTRUCTIONS, 202 ITR 222 (DEL) AND ORDER OF ITAT AGRA BENCH DATED 06.02.2009 IN THE CASE OF M/S. PNC CONSTRUCTI ON CO. FOR A.Y. 2004-05. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE LEARNED DR ALONGWITH ORDERS OF THE AUTHORITIES BELOW. THE FACTS OF THE CASE, AS ARE AVAILABLE ON RECORD, CLEARLY STATE THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY FROM M/S. GANGA RAM VINOD KUMAR AND M/S. KRISHNA TRADERS AMOUNTING TO RS.5,00,000/- AND RS.1 0,00,000/0- RESPECTIVELY THROUGH CHEQUES. THE ASSESSING OFFICER NOTICED THAT IN THE BANK ACCO UNT OF M/S. KRISHNA TRADERS AND M/S. GANGA RAM VINOD KUMAR, THE MONEY WAS CREDITED AND IMMEDIA TELY, CHEQUES WERE ISSUED TO THE ASSESSEE TOWARDS THE SHARE APPLICATION MONEY. THE A SSESSING OFFICER IN VIEW OF THE MODUS OPERANDI OF GANGA RAM GROUP, MADE THE ADDITION U/S. 68 OF THE INCOME-TAX ACT. THE ASSESSEE DID NOT SUBMIT BEFORE THE ASSESSING OFFICER, AS APP EARS FROM THE ASSESSMENT ORDER, WHETHER THE SHARES WERE ALLOTTED TO THE RESPECTIVE FIRMS, M/S. KRISHNA TRADERS AND M/S. GANGA RAM VINOD KUMAR. IT IS ALSO NOT CLEAR FROM THE ASSESSMENT ORD ER AS TO WHAT IS THE STATUS OF M/S. KRISHNA 4 TRADERS AND M/S. GANGA RAM VINOD KUMAR AND WHETHER THEY ARE INDIVIDUALS OR PRIVATE LIMITED COMPANY. WHEN THE MATTER WENT BEFORE THE CIT(A), TH E CIT(A) DELETED THE ADDITION FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. LOVELY EXPORTS PVT. LTD. (SUPRA) WITHOUT LOOKING INTO THE PROVISIONS OF THE COMPANIE S ACT, WHETHER M/S. KRISHNA TRADERS AND M/S. GANGA RAM VINOD KUMAR CAN BE THE MEMBER OF THE COMPANY OR NOT. SECTION 41 OF THE COMPANIES ACT DEFINES THE MEMBER AS UNDER : 41. DEFINITION OF MEMBER.- (1) THE SUBSCRIBERS O F THE MEMORANDUM OF A COMPANY SHALL BE DEEMED TO HAVE AGREED TO BECOME MEMBERS OF THE COMPANY, AND ON ITS REGISTRATION, SHALL BE ENTERED AS MEMBER S IN ITS REGISTER OF MEMBERS. (2). EVERY OTHER PERSON WHO AGREES TO BECOME A MEMB ER OF A COMPANY AND WHOSE NAME IS ENTERED IN ITS REGISTER OF MEMBERS, S HALL BE A MEMBER OF THE COMPANY. (3). EVER PERSON HOLDING EQUITY SHARE CAPITAL OF CO MPANY AND WHOSE NAME IS ENTERED AS BENEFICIAL OWNER IN THE RECORDS OF THE D EPOSITORY SHALL BE DEEMED TO BE A MEMBER OF THE CONCERNED COMPANY,. 6. IN VIEW OF THE AFORESAID PROVISIONS, M/S. KRISHN A TRADERS AND M/S. GANGA RAM VINOD KUMAR CANNOT BE THE MEMBER OF THE COMPANY UNTIL AND UNLESS THEY ARE PERSONS AND WHOSE NAMES ARE ENTERED IN THE REGISTERS OF THE COMPANY. THE PE RSON CAN ONLY BE A HUMAN BEING OR A INCORPORATED COMPANY UNDER THE COMPANIES ACT. THE P ARTNERSHIP OR AOP OR HUF CANNOT BE REGARDED TO BE THE HUMAN BEING. THEREFORE, THEY CAN NOT BE THE MEMBER OF THE COMPANY. IN THE CASE OF A COMPANY HAVING A SHARE CAPITAL, EACH PERS ON HOLDING THE SHARE WHOSE NAME IS ENTERED INTO THE REGISTER OF THE MEMBERS CAN ONLY BE THE SH ARE HOLDERS. NO DOUBT, A PARTNERSHIP FIRM, HUF OR AOP CAN HOLD THE SHARES IN A COMPANY THROUGH ITS PARTNER, KARTA OR MEMBER. THE JOINT HOLDING OF THE SHARE IS PERMITTED. THE CONSIDERATIO N OF THIS FACT IS ALSO LACKING FROM THE ORDER OF THE CIT(A). THE ONUS IS ON THE ASSESSEE TO PROVE TH E IDENTITY AND THE EXISTENCE OF THE SHARE HOLDER. A PERSON CANNOT BECOME THE SHARE HOLDER UNT IL AND UNLESS THE SHARES ARE ALLOTTED IN HIS NAME. IN CASE, SHARES ARE NOT ALLOTTED, AS THE COPI ES OF SHARE CERTIFICATES WERE NOT FILED BEFORE THE 5 AUTHORITIES BELOW OR BEFORE US, IT CANNOT BE SAID T HAT M/S. KRISHNA TRADERS OR M/S. GANGA RAM VINOD KUMAR HAVE BECOME THE SHARE HOLDERS OF ASSESS EE OR NOT. UNTIL THESE PARTIES BECOME THE SHARE HOLDERS, THE MONEY RECEIVED BY ASSESSEE WILL REMAIN AS A NORMAL CASH CREDIT AND IN OUR OPINION, THE ASSESSEE HAS TO PROVE ALL THE THREE IN GREDIENTS AS LAID DOWN U/S. 68, I.E., IDENTITY, CREDITWORTHINESS OF CREDITORS AND GENUINENESS OF TR ANSACTION. THE OBSERVATION OF THE HONBLE SUPREME COURT WHILE DECIDING THE SPECIAL LEAVE PETI TION IN THE CASE OF CIT VS. LOVELY EXPORTS PVT. LTD. 319 ITR (ST) 5 : 216 CTR 195 CANNOT BE C ONSIDERED TO BE A LAW DECLARED WHICH HAS A BINDING PRECEDENT UNDER ARTICLE 141 OF THE CONSTITU TION OF INDIA. SUCH OBSERVATIONS ARE PURELY ON THE FACTS OF THE RESPECTIVE CASE AND CANNOT BE APPL IED ACROSS THE BOARD EVEN WHEN THE FACTS IN OTHER CASES ARE ALTOGETHER DIFFERENT. THE COURT WHI LE DECIDING THE APPEAL WILL NOT PUT BLINKERS IN ITS SIGHT AND MERELY BELIEVE WHAT IS WRITTEN ON PAP ER, BUT ALSO CONSIDER THE CONCERNING CIRCUMSTANCES AND GROUND REALITY AS OBSERVED BY HON BLE SUPREME COURT IN THE CASE OF CIT VS. DURGA PRASAD MORE, 82 ITR 540 AND SUMATI DAYAL, 214 ITR 801. THIS IS A FACT THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY. THE BASIC STRUCTURE O F THE PRIVATE LIMITED COMPANY IS SUCH THAT A PRIVATE LIMITED COMPANY CANNOT MAKE AN INVITATION F OR ISSUE OF SHARES FOR PUBLIC. THE PRIVATE LIMITED COMPANY IS PROHIBITED FROM MAKING ANY INVIT ATION TO THE PUBLIC TO SUBSCRIBE FOR ANY SHARES IN THE COMPANY. THIS PROVISION IS CONTAINED IN SECTION 3 OF THE COMPANIES ACT, 1956, WHEREBY SUB-CLAUSE (III) OF SUB-SECTION (1) OF SECT ION 3 DEFINES A PRIVATE COMPANY. THE PRIMARY DOCUMENT TO HOLD THAT THE AMOUNT WAS RECEIV ED BY WAY OF SHARE APPLICATION ITSELF IS MISSING, I.E., THE APPLICATION FOR ALLOTMENT OF SHA RES ITSELF. MERE FILING OF THE CONFIRMATION WILL NOT PROVE THE IDENTITY OF THE SHARE APPLICANTS OR T HE GENUINENESS OF THE TRANSACTION UNTIL AND UNLESS THE STATUS OF THE PARTY WHETHER THEY ARE COM PETENT ENOUGH TO BECOME THE SHARE HOLDERS AND MEMBERS OF THE COMPANY IS ON RECORD. IN SUCH CIRCUM STANCES, IN OUR OPINION, THE CIT(A) ERRED IN HOLDING THAT THE ADDITION IS TO BE DELETED. THE CIT (A) HAS NOT EXAMINED THE PROVISIONS OF SECTION 6 41 AND 150 OF THE COMPANIES ACT WHETHER THE PARTI ES FROM WHOME CHEQUES HAVE BEEN RECEIVED BY THE ASSESSEE CAN BE THE SHARE HOLDERS OF THE COM PANY OR NOT, WHETHER SHARES HAVE ACTUALLY BEEN ALLOTTED TO THEM OR NOT, WHETHER THE ASSESSEE HAS DISCHARGED HIS ONUS AS LAID DOWN U/S. 68 OF THE INCOME-TAX ACT. IT WAS INCUMBENT UPON THE CIT(A ), IN OUR OPINION, TO CONDUCT ENQUIRIES FURTHER AND SHOULD HAVE DONE WHAT THE ASSESSING OFF ICER FAILED TO DO. HONBLE SUPREME COURT IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT, 131 ITR 451 (SC) HELD (HEAD NOTES) : IT IS WELL KNOWN THAT AN APPELLATE AUTHORITY HAS T HE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERRORS IN THE PROCEEDINGS U NDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIATE DIRECTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATER AFRESH, UNLESS FORBIDDEN FROM DOING SO BY STATUTE. SINCE, IN OUR OPINION, THE AUTHORITIES BELOW FAILED TO CONDUCT NECESSARY ENQUIRIES IN THIS REGARD WHETHER THE PARTIES FROM WHOM THE MONEY HAS BEEN RE CEIVED WERE ALLOTTED SHARES OR BECAME THE MEMBERS OF THE COMPANY IN ACCORDANCE WITH THE MEMOR ANDUM AND ARTICLE OF ASSOCIATION AND WHETHER THESE PARTIES HAVE BECOME THE SHARE HOLDERS IN VIEW OF THE PROVISIONS OF THE COMPANIES ACT, WE, THEREFORE, REMIT THE MATTER BACK TO THE FI LE OF ASSESSING OFFICER TO EXAMINE THE NATURE OF CREDIT, STATUS OF THE PARTIES FROM WHOM THE ASSESSE E HAS RECEIVED THE MONEY AND WHETHER THE SHARES WERE ALLOTTED TO THEM ALONG WITH ARTICLE OF ASSOCIATION. THE ASSESSEE IS DIRECTED TO PLACE NECESSARY EVIDENCE IN THIS REGARD. 7. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8.4.11 SD/- SD/- (H.S. SIDHU) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8 TH APRIL, 2011 *AKS/- 7 COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE ASSISTANT REGISTRAR TRUE COPY