Aagam Shares and Commodities Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 368/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1166 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA; P D SHAH A RS
• Keywords: Bogus Share capital; Corroborative evidences; Agreed addition; Right to appeal
• Section: 143(3); 131; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.368/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) AAGAM SHARES AND COMMODITIES P LTD. MEHTA LODHA & CO. CHARTERED ACCOUNTANTS 105, SAKAR-I, ASHRAM ROAD AHMEDABAD-380 009 / VS. THE DCIT CIRCLE-1 AHMEDABAD $ ./ ./ PAN/GIR NO. : AABCK 4493 P ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) $'* / APPELLANT BY : SHRI S.N. DIVATIA & SHRI P.D. SHAH, A.RS ()$'+* / RESPONDENT BY : SHRI SANJAY KUMAR, SR.DR ,+ / DATE OF HEARING 24/06/2016 -./+ / DATE OF PRONOUNCEMENT 07/07/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABAD DATED 30/12/2010 FOR THE ASSESSMENT YEAR 2007-08. ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 2 - 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- 2.1. ASSESSEE IS A COMPANY WHOSE NAME WAS CHANGED FROM KGMS FINANCIAL SERVICES P LTD. TO AAGAM SHARES AND COMMO DITIES WITH EFFECT FROM 14.9.2007 AFTER GETTING THE NECESSARY PERMISSI ON FROM REGISTRAR OF COMPANIES. THE COMPANY IS STATED TO BE ENGAGED IN THE BUSINESS OF DEALING IN STOCK MARKET AND PURCHASE AND SALE OF SH ARES. IT FILED ITS RETURN OF INCOME FOR AY 2007-08 ON 30.10.2007 DECLARING TO TAL INCOME OF RS.24,60,420/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE ORDER DATED 29.10.2009 AND THE TOTAL INCOME WAS DETERMINED AT RS. 69,69,045/-. AG GRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT (A) WHO VIDE ORDER DATED 30.12.2010 (IN APPEAL NO.CIT(A)-VI/DCIT.CIR-1 /271/09-10) DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS. 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND F ACTS BY CONFIRMING THE ADDITION OF RS.45,00,000/- OF SHARE CAPITAL UND ER SECTION 68 AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO DELE TE THE SAID ADDITION WHILE COMPUTING THE TOTAL INCOME. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND F ACTS BY CONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.8 ,625/- AND THEREFORE ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 3 - THE LEARNED AO SHOULD BE DIRECTED TO DELETE THE SAI D ADDITION WHILE COMPUTING THE TOTAL INCOME. 2.2. BEFORE US AT THE OUTSET, THE LD AR SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND NO.2 ON ACCOUNT OF SMALLNESS OF AMOUNT . IN VIEW OF THE AFORESAID SUBMISSION, GROUND NO. 2 IS DISMISSED AS NOT PRESSED. 2.3. GROUND NO.1 IS WITH RESPECT TO ADDITION U/S .68 OF THE ACT. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AN D ON PERUSING THE BALANCE SHEET, ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAD RECEIVED FRESH CAPITAL OF RS.45 LACS AGAINST THE AL LOTMENT OF 45000 EQUITY SHARES HAVING FACE VALUE OF RS.10 EACH AT A PREMIUM OF RS 90 PER SHARE, THE DETAILS OF WHICH ARE TABULATED AT PAGE 2 OF THE ASSESSMENT ORDER. AO FURTHER NOTICED THAT DURING THE YEAR, THE SHARES OF THE ASSESSEE COMPANY WERE PURCHASED BY THE PRESENT DIRECTORS FROM THE ER STWHILE DIRECTORS AT THE RATE OF RS.7/- PER SHARE I.E. AT A DISCOUNT OF RS.3/- PER SHARE AND THAT SHORTLY THEREAFTER THE SHARES WERE ALLOTTED BY THE INCOMING DIRECTORS TO THE 4 NEW SHAREHOLDERS AT A PREMIUM OF RS.90/- PER SHARE AND THAT NO VALUATION EXERCISE WAS DONE BEFORE ALLOTTING THE SH ARES AT A PREMIUM OF RS.90/- PER SHARE. AO THEREAFTER GOT HELD INQUIRIES CONDUCTED U/S.131 OF THE ACT AT THE PREMISES OF DHANVIDYA IMPEX P LTD., DHANVIDHYA MULTISALES P LTD. AND PRABHAVI INVESTMENTS P LTD. A ND DURING THE COURSE OF INQUIRY STATEMENT OF SHRI RUPANG SHAH, THE DIREC TOR OF THE AFORESAID THREE COMPANIES WERE RECORDED U/S 131 OF THE ACT. I N THE STATEMENT, SHRI ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 4 - RUPANG SHAH INTER ALIA SUBMITTED THAT HE HAD ENTERED INTO A ARRANGEMENT FOR PURCHASE AND SALE OF SHARES WITH THE DIRECTORS OF THE ASSESSEE AND AS PER THE ARRANGEMENT, THE AFORESAID THREE COMPANIES HAD INVESTED AGGREGATE AMOUNT OF RS 35 LACS THROUGH CHEQUE FOR T HE PURCHASE OF SHARES AND THE AMOUNT PAID FOR PURCHASE OF SHARES W AS RECEIVED BACK BY HIM IN CASH. HE FURTHER SUBMITTED THAT AS PER THE A RRANGEMENT THE SHARES WHICH WERE PURCHASED BY THE THREE COMPANIES, WERE S OLD BACK TO THE PRESENT DIRECTORS OF THE ASSESSEE AT RS.5/- PER SHA RE AND THAT THE SALE AMOUNT WHICH WAS RECEIVED BY HIM WAS RETURNED IN CA SH TO SHRI JIGNESH SHAH AND SHRI CHETAN SHAH, THE DIRECTORS OF THE ASS ESSEE. AO CONDUCTED SIMULTANEOUS INQUIRY AT THE PREMISES OF PRABHAVI I NVESTMENT P LTD. WHEREIN THE STATEMENT OF PANKAJ SHAH, ITS DIRECTOR WAS RECORDED U/S 131 OF THE ACT, WHEREIN HE DENIED HAVING ANY KNOWLEDGE OF THE AFFAIRS OF THE COMPANY. AO NOTED THAT THE STATEMENT OF SHRI RUPAN G SHAH WAS BROUGHT TO THE NOTICE OF CHETAN SHAH, THE DIRECTOR OF THE A SSESSEE. AO NOTED THAT CHETAN SHAH SUBMITTED THAT THE SHARE CAPITAL INTROD UCED WAS GENUINE BUT ACCORDING TO AO, NO SUPPORTING EVIDENCE TO PROVE TH E GENUINENESS OF THE TRANSACTION WAS PLACED BEFORE AO. HE ALSO NOTED THA T THE ASSESSEE VIDE LETTER DATED 17.9.2009 OFFERED THE WHOLE AMOUNT OF CAPITAL INTRODUCED AS INCOME FOR TAX. AO THEREFORE CONSIDERED THE AMOUNT OF RS.45 LACS INTRODUCED AS SHARE CAPITAL TO BE NON GENUINE AND A CCORDINGLY MADE ADDITION OF RS.45 LACS U/S 68 OF THE ACT. AGGRIEVE D BY THE ORDER OF ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 5 - AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO C ONFIRMED THE ORDER OF AO AND DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING AS UNDER: 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASS ESSMENT ORDER AND APPELLANTS SUBMISSION. APPELLANT TOOK BOGUS SHARE CAPITAL TO THE EXTENT OF RS.45 LAKHS DURING THE YEAR FROM VARIOUS COMPANIES AS MENTIONED IN ASSESSMENT ORDER. ALL THESE COMPANIES WHO WERE MADE SHAREHOLDERS ARE MANAGED BY TWO PERSONS. STATEMENT S OF THESE PERSONS WERE RECORDED BY THE ASSESSING OFFICER WHO CATEGORI CALLY STATED THAT THE SAID CAPITAL PROVIDED BY THEM WAS NOT GENUINE. IT WAS AGAINST CASH PROVIDED BY THE APPELLANT AND AS SUCH NOT A GENUINE CREDIT. WHEN THESE STATEMENTS WERE CONFRONTED TWO THE APPELLANT, APPEL LANT SUBMITTED A LETTER IN WRITING IN WHICH THE BOGUS SHARE CAPITAL WAS OFFERED FOR TAX. IN VIEW OF ACCEPTANCE BY THE SHAREHOLDERS AS WELL AS A PPELLANT THAT SHARE CAPITAL IS BOGUS, THE CREDIT IN THE NAME OF SHARE C APITAL INTRODUCED BY THE APPELLANT TO THE EXTENT OF RS.45 LAKHS IS DEEME D INCOME UNDER SECTION 68 OF INCOME TAX ACT. 3.1. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 4. BEFORE US, LD AR REITERATED THE SUBMISSIONS MAD E BEFORE AO AND CIT(A) AND FURTHER SUBMITTED THAT THE DIRECTOR, SHR I CHETAN SHAH HAD NOT ACCEPTED THE BOGUS SHARE APPLICATION MONEY AND THAT ANY ADMISSION AGAINST THE LAW BY THE ASSESSEE IS NOT BINDING AND CANNOT BE ENFORCED UNDER LAW. HE FURTHER SUBMITTED THAT THE OFFER MADE WAS SUBJECT TO CONDITION THAT NO PENALTY U/S 271(1)(C) OF THE ACT SHALL BE LEVIED BUT SINCE AO HAS LEVIED THE PENALTY, NO ADDITION COULD HAVE B EEN MADE ON THE ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 6 - BASIS OF OFFER. HE FURTHER SUBMITTED THAT CIT(A) AL SO DID NOT ADJUDICATE ON MERITS AND WHILE UPHOLDING THE ADDITION HAS SIMP LY HELD THAT SINCE THE ASSESSEE HAD ACCEPTED THE CAPITAL AS BOGUS, ASSESSE E HAD NO LEGAL RIGHT TO APPEAL AGAINST THE AGREED ADDITION. HE FURTHER PLAC ED RELIANCE ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BAMBINO INVESTMENT & TRADING CO LTD. VS DCIT (2004) 2 SOT 585 (MUM) AND THE DECISION IN THE CASE OF CIT VS. M. PYNGROPE REPORTED IN 200 ITR 106 (GAU). AS AN ALTERNATE SUBMISSION, HE SUBMITTED THAT THE MATTER BE REMITTED BACK TO CIT(A) TO DECIDE THE ISSUE ON MERITS. LD DR ON THE OTHER HAND POINTED TO THE VARIOUS FINDINGS AND OBSERVATIONS OF AO AND SUP PORTED THE ORDER OF LOWER AUTHORITIES. HE ALSO PLACED RELIANCE ON THE D ECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS NIPUN BUILDERS & DEVELO PERS P LTD. REPORTED IN (2013) 30 TAXMANN.COM 292 (DEL). HE FURTHER SUBM ITTED THAT THE ASSESSEE HAS NEITHER TAKEN A GROUND BEFORE CIT(A) N OR BEFORE HONBLE TRIBUNAL THAT NO ADDITION COULD BE MADE SIMPLY ON T HE BASIS OF OFFER MADE BY THE DIRECTOR OF THE COMPANY. HE THUS SUPPOR TED THE ORDER OF LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPE CT TO ADDITION OF CAPITAL INTRODUCED U/S 68 OF THE ACT. WE FIND THAT AO IN TH E ASSESSMENT ORDER HAS NOTED THAT DURING THE YEAR, I.E. IN THE MONTH OF JA NUARY 2006, THE NEW GROUP OF DIRECTORS HAD PURCHASED THE SHARES OF THE ASSESSEE-COMPANY AT ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 7 - RS.7/- PER SHARE MEANING THAT THE SHARES WERE PURCH ASED AT A DISCOUNT OF RS.3/- PER SHARE AND THAT IN THE MONTH OF MARCH 200 7 THE ASSESSEE HAD ISSUED THE SHARES AT A PREMIUM OF RS.90/- PER SHARE AND THAT NO VALUATION EXERCISE WAS UNDERTAKEN BY THE ASSESSEE TO DETERMIN E THE BOOK VALUE OR NET WORTH OF THE SHARES. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE ASSESSEE. BEFORE US, IT IS ASSESSEES CONTENTION TH AT THE AMOUNT OF RECEIPT OF SHARE CAPITAL WAS OFFERED TO TAX TO BUY PEACE AN D AVOID LITIGATION AND IT WAS OFFERED TO TAX WITH A CONDITION THAT NO PENALTY WOULD BE LEVIED ON SUCH ADDITION AND FURTHER NO ADDITION COULD BE MADE ON THE BASIS OF OFFER GIVEN BY THE ASSESSEE AS THE TAX IS ON THE INCOME O F THE ASSESSEE AND THAT A PERSON CANNOT BE TAXED ON THE BASIS OF CONCESSION GIVEN BY THE ASSESSEE AND FOR THIS PROPOSITION RELIANCE WAS PLACED ON THE DECISION OF TRIBUNAL IN THE CASE OF BAMBINO INVESTMENT & TRADING CO LTD . VS. DCIT (SUPRA). WE FIND THAT THE RATIO OF THE DECISION RELIED UPO N BY LD.AR IS NOT APPLICABLE TO THE PRESENT FACTS BECAUSE THE TRIBUNA L IN THAT CASE HAS HELD THAT ASSESSEE HAS RIGHT TO APPEAL WHEN CONCESSION I S GIVEN UNDER MISTAKEN IMPRESSION OF TRUE LEGAL POSITION BUT IT CANNOT BE EQUATED TO A CONCESSION AS REGARDS FACTS. IN THE PRESENT CASE, IT IS NOT TH E CASE THAT THE CONCESSION WAS ABOUT TRUE LEGAL POSITION OF LAW AND NOT OF FAC TS. WE FURTHER FIND THAT CIT(A) WHILE UPHOLDING THE ADDITION HAS NOTED THAT THE DIRECTOR OF THE APPLICANT SHAREHOLDER HAD ADMITTED THE SHARE APPLIC ATION MADE BY THEM TO BE NON GENUINE AND IT IS NOT THE CASE OF THE ASSESS EE THAT THE STATEMENT WAS RECORDED AT THE BACK OF THE ASSESSEE AND WAS NO T MADE AVAILABLE TO ITA NO.368/AHD/ 2011 AAGAM SHARES & COMMODITIES P.LTD. VS. DCIT ASST.YEAR 2007-08 - 8 - THE ASSESSEE. ON THE CONTRARY, AO HAS NOTED THAT TH E AFTER THE STATEMENT OF THE DIRECTOR OF THE APPLICANT WAS MADE AVAILABLE TO THE DIRECTOR OF THE ASSESSEE, THE DIRECTOR OF THE ASSESSEE OFFERED THE AMOUNT OF SHARE CAPITAL AS ITS INCOME. CONSIDERING THE TOTALITY OF THE FACT S, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, NO INTERFERENCE TO THE ORDER O F LD.CIT(A)IS CALLED FOR. THUS, THE GROUND OF ASSESSEE IS DISMISSED. 6. IN THE RESULT THE APPEAL OF ASSESSEE IS DISMIS SED. THIS ORDER PRONOUNCED IN OPEN COURT ON 07/07/2016 SD/- SD/- .. () () ( R.P. TOLANI ) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 07/ 07 /2016 3..,.../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-VI, AHMEDABAD 5. 89:(56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=, / GUARD FILE. / BY ORDER, )8( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD