M/s Net matrix Ltd, Hyderabad V. ACIT, Hyderabad

ITA 386/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59334 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 11-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Additional evidence
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 656/HYD/2010 ASSESSMENT YEAR 2003-04 THE D CIT, CIRCLE 16(1), HYDERABAD VS M/S NET MATRI X LIMITED, HYDERABAD (PAN AABCN 3529 P) APPELLANT RESPONDENT ITA NO. 386/HYD/2010 ASSESSMENT YEAR 2003-04 M/S NET MATRIX LIMITED, HYDERABAD (PAN AABCN 3529 P) VS THE ACIT, CIRCLE 16(1), HYDERABAD APPELLANT RESPONDENT REVENUE BY : SMT. NIVEDITA BISWAS ASSESSEE BY : SHRI A.V. RAGHURAM DATE OF HEARING : 9.1.2012 DATE OF PRONOUNCEMENT : 9.3.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THESE ARE CROSS APPEALS PREFERRED BY THE ASSES SEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED B Y THE CIT(A) V, HYDERABAD DATED 4.2.2010 AND THEY PERTAIN TO TH E ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE IS A REGISTERED COMPANY UNDER THE COMPANIES ACT 1956. FOR THE ASSESSMENT YEAR 2003-0 4, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 1.12 .2003 AND DISCLOSED A LOSS OF RS.1,07,32,671/- . THE CASE WA S SELECTED FOR ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 2 SCRUTINY AND THE ASSESSING OFFICER CONDUCTED INQUIR Y AND PASSED AN ORDER OF ASSESSMENT REVISING THE LOSS AT RS.54,6 7,026/-. THE ASSESSING OFFICER MADE ADDITIONS WITH RESPECT TO CA PITAL CONTRIBUTION BY VARIOUS SHARE HOLDERS. THE DETAILS OF WHICH ARE AS FOLLOWS S.NO. NAME AMOUNT 1. SHRI P. SAMBASIVA RAO RS.5,00,000 2. J.M. MOHAN RAO RS.2,00,000 3. P. USHA RANI RS.5,00,000 4. HEMALATHA RS.1,00,000 5. R.M. PATIL RS.1,50,000 6. T. RAVINDRA REDDY RS.4,69,238 7. K.M.G. SHARMA RS.4,50,000 8. P.V.R. SEKHAR RS.3,50,000 9. K. SRINIVAS RS.3,00,000 10. SUPER STORES RS.3,56,362 3. THE ASSESSING OFFICER ALSO ADDED LOAN CREDITS I N THE NAMES OF FIVE ENTITIES THE AGGREGATE SUM BEING AT RS.18,1 9,045/- AS UNEXPLAINED INCOME AND THE DETAILS OF WHICH ARE AS FOLLOWS: SL.NO. NAME AMOUNT 1. C.S. REDDY RS.2,37,780/- 2. K.S. REDDY RS.2,00,000 3. K.M.G. SHARMA RS.2,52,265 4. MANAS INFOTECH P LTD. RS.12,00,000 ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 3 4. THE ASSESSEE WAS ASKED TO FURNISH THE ADDRESSES OF ALL THE SHARE APPLICANTS AND ALSO UNSECURED CREDITORS. THE ASSESSEE AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, CO NTESTED THE ADDITIONS MADE BY THE ASSESSING OFFICER BEFORE THE CIT(A). THE CIT(A) ACCEPTED ONE CREDIT OF RS.4,58,000/- W.R.T. SHARE APPLICATION MONEY CONTRIBUTED BY SHRI KMG SHARMA. THE CIT(A) ALSO ACCEPTED RS.14,52,265/- TOWARDS THE LOAN CRED ITS. HOWEVER, HE SUSTAINED THE ADDITION OF REMAINING SHA RE APPLICANTS AND ALSO IN RESPECT OF THREE LOAN CREDIT ORS. 5. BEFORE THE CIT(A), THE ASSESSEE HAD FILED ADDIT IONAL EVIDENCE IN THE FORM OF CONFIRMATIONS FROM THE SHAR E APPLICANTS AND LOAN CREDITORS WITH PAN NOS. WHICH WAS NOT GIV EN AT THE TIME OF ASSESSMENT BEFORE THE ASSESSING OFFICER. T HE CIT(A) ACCEPTED THE ADDITIONAL EVIDENCE AND CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSESSING O FFICER SUBMITTED THE REMAND REPORT ON 3.8.2009 AND 7.8.200 9 IN RESPECT OF SOME OF THE CREDITORS. 6. WITH RESPECT TO P. SAMBASIVA RAO AND P. USHA RA NI SHARE APPLICANTS AND CH REDDY AND KS REDDY LOAN CREDITOR S CIT(A) HELD THAT ALTHOUGH IDENTITY OF THESE FOUR CREDITORS HAVE BEEN PARTIALLY ESTABLISHED BUT BASIC INGREDIENTS VIZ., W HEN THE MONEY WAS RECEIVED AND DUE, IN TO WHICH BANK ACCOUNT, WHI CH CHEQUE ETC., WERE NOT AVAILABLE. ACCORDING TO HIM NO DETA ILS OF THE TRANSACTIONS HAD BEEN PROVIDED AND HENCE HE COULD N OT COME TO ANY CONCLUSION ABOUT THE GENUINENESS OF THE TRANSAC TION. WITH RESPECT TO MR. J. MADAN MOHAN RAO, HE EXAMINED THE SIGNATURES ON THE SHARE APPLICATION AND THE CONFIRMATION LETTE R AND CONCLUDED THAT THEY WERE DIFFERENT. HE ALSO SAID T HAT THE TWO ADDRESSES WERE DIFFERENT. WITH RESPECT TO SMT. HEM ALATHA HE CONCLUDED THAT HER INCOME WAS ONLY RS.86,439/- AND ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 4 CONSEQUENTLY WOULD NOT HAVE HAD SOURCES FOR APPLYIN G FOR SHARE TO THE EXTENT OF RS.1 LAKH. WITH RESPECT TO MR. R. M. PATEL, AGAIN THE DIFFERENCE IN SIGNATURE ON THE SHARE APPLICATIO N FORM AND THE CONFIRMATION LETTER WAS MADE AN ISSUE. THE SAME WA S THE CASE WITH MR. T. RAVINDER REDDY. WITH RESPECT TO MR. PV R SHEKAR, WHO IS A DIRECTOR OF THE ASSESSEE COMPANY, THE APPE LLATE AUTHORITY HELD THAT HIS SIGNATURES DIFFERED AND CON FIRMED THE ADDITION. THE SAME WAS THE CASE WITH MR. K. SRINIV AS AND M/S SUPER STORES. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 8. IN THE DEPARTMENTAL APPEAL, THE REVENUE HAS RAI SED THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE H AS DISCHARGED THE ONUS OF PROVING THE GENUINENESS OF S HARE APPLICATION MONEY INVESTED BY SHRI KMG SHARMA. 2. THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE HA S DISCHARGED THE ONUS OF PROVIDING THE GENUINENESS OF UNSECURED LOANS TAKEN FROM KMG SHARMA AND M/S MANAS INFOTECH PVT. LTD. 9. THE CIT(A) HAD OBSERVED THAT ALTHOUGH THE AMOUN TS HAVE BEEN PAID IN CASH SHRI SHARMA HAD BEEN AN EMPLOYEE OF M/S BHAGIRBHA CHEMICAL INDUSTRIES SINCE 1974 AND CURRE NT YEAR DIRECTOR OF THE ASSESSEE COMPANY. FURTHER, THE CIT (A) HELD THAT THE ASSESSEE HAD PROVIDED FULL DETAILS REGARDING TH E SOURCES OF SHRI KMG SHARMA AND HIS EMPLOYMENT RECORD SHOWING V AST YEARS OF EMPLOYMENT SHOWING A POSSIBILITY OF HAVING ACCUMULATED FUNDS. COPIES OF THE IT RETURNS WERE A LSO FILED. 10. THE CIT(A) WAS SATISFIED THAT SHRI KMG SHARMA, HAD CAPACITY TO LEND THE MONEY AND ACCEPTED THE CREDITS STANDING IN THE NAME OF SHRI KMG SHARMA AMOUNTING TO RS.4.50 LA KHS AND ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 5 RS.2,52,265/- AS GENUINE. WE SEE NO INFIRMITY IN T HE ORDERS OF THE CIT(A) AS THE IDENTITY, CREDIT WORTHINESS AND G ENUINENESS OF TRANSACTIONS HAS BEEN ESTABLISHED. HENCE WE CONFIR M THE ORDER OF THE CIT(A) ON THIS ISSUE. 11. THE OTHER ENTITIES, ACCORDING TO THE CIT(A) WH O HAD DISCHARGED ONUS OF PROVING THE GENUINENESS OF UNSEC URED LOANS IS M/S MANAC INFOTECH P LTD.. W.R.T. THIS CREDITOR , THE ASSESSEE HAS PROVIDED FULL DETAILS OF CHEQUES BY WHICH THE A MOUNT OF RS.12 LAKHS WERE PAID. THE ASSESSEE HAD ALSO SUBMI TTED CERTIFIED COPIES OF THE AUDITED BALANCE SHEET OF M/ S MANAC INFOTECH (P) LTD., WELL AS ITS PAN. FROM THE SC HEDULE OF THE BALANCE SHEET, THE CIT(A) OBSERVED M/S NET MATRIX THE ASSESSEE WAS SHOWN A DEBTOR AS ON 31.3.2003. HENCE, HERE AG AIN WE DO NOT FIND ANY INFIRMITY WITH THE ORDERS OF THE CIT(A ) AS THE CIT(A) CONCLUDED FROM THE VIDENCES ON RECORD THAT THE ASS ESSEE HAD ESTABLISHED THE CAPACITY, IDENTITY OF THE CREDITORS AND THE GENUINENESS OF THE TRANSACTIONS. THEREFORE, WE DIS MISS THE REVENUE APPEAL ON THIS ISSUE. 12. HENCE THE REVENUE APPEAL STANDS DISMISSED. 13. THE ASSESSEE APPEAL (ITA NO. 386/HYD/2010ASSES SMENT YEAR 2003-04): 14. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI. A.V . RAGHURAM RELIED ON THE ORDER OF THE SUPREME COURT IN THE CAS E OF CIT VS. LOVELY EXPORTS P LTD. 319 ITR 5 (ST.). THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) OUGHT TO HAV E HELD THAT IN THE CASE OF THE COMPANY, IF THEY HAVE ESTABLISHE D IDENTIFICATION OF THE PERSONS WHO SUBSCRIBED TO SHA RE APPLICATION AND WHERE THE SHARE APPLICANTS AND UNSECURED LOAN C REDITORS ARE INCOME TAX ASSESSEES AND HAVING THE PAN NUMBE RS THE SHARE APPLICATION MONEY COULD NOT HAVE BEEN ADDED A S ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 6 UNEXPLAINED CREDIT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IF THE ASSESSING OFFICER BELIEVED THAT THE CREDITWORTH INESS OF THE SHARE APPLICANT WAS NOT ESTABLISHED, HE SHOULD HAVE MADE THE ADDITION IN THE HANDS OF THE SHARE APPLICANT AND NO T IN THE CASE OF THE APPELLANT COMPANY. 15. HE FURTHER POINTED OUT THAT THE APPELLATE AUTH ORITY HAD NOT SUMMONED ANY APPLICANT/LOAN CREDITORS BY RESORT ING TO SECTION 131 OF THE ACT. THE LEARNED COUNSEL FURTHE R SUBMITTED W.,R.T. SOME OF THE SHARE APPLICANTS, THE ASSESSING OFFICER HIMSELF HAD ACCEPTED THE ADDITIONAL CAPITAL BROUGHT IN BY T HEM IN SUBSEQUENT YEARS AND THE SAME EVIDENCE WAS PLACED B EFORE THE CIT(A) WHO SHOULD HAVE BEEN SATISFIED WITH THE CRED IT WORTHINESS OF THE CREDITORS. THE LEARNED COUNSEL FOR THE ASSE SSEE RELIED ON THE FOLLOWING CASE LAWS: 1. JUDGEMENT OF HONBLE HIGH COURT OF KARNATAKA IN CIT VS. ARUNANANDA TEXTILES (P) LTD. 2. JUDGEMENT OF HONBLE HIGH COURT OF MADHYA PRADES H, INDORE BENCH IN CIT-II, INDORE VS. STL EXTRUSION P LTD. 3. ORDER OF THE ITAT JABALPUR BENCH (THIRD MEMBER) IN DCIT VS. DOLPHINE MARBLES P LTD. 4. ORDER OF THE ITAT JABALPUR BENCH (THIRD MEMBER) IN DCIT VS. DOLPHINE MARBLES P LTD. 5. ORDER OF TRIBUNAL BENCH (3 RD MEMBER) IN DCIT VS. WINSTRAL PETROCHEMICALS P LTD. 6. JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN CIT VS. ROCK FORT METAL & MINERALS LTD. 7. JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN CIT VS. OASIS HOSPITALITIES P LTD. 8. JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN CIT VS. KISHORI LAL CONSTRUCTIONS LTD. ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 7 16. THE REVENUE ON THE OTHER HAND RELIED ON THE OR DER OF THE CIT(A). THE REVENUE ALSO RELIED ON THE ORDER OF TH E TRIBUNAL IN THE CASE OF M/S DHINGRA GLOBAL (P) LTD. VS. ITO WHE REIN IT HAS BEEN HELD AS FOLLOWS: MERE FILING OF UNDATED CONFIRMATION LETTERS/AFFIDA VITS WILL NOT PROVE THE IDENTITY OF THE SHARE APPLICANTS OR T HE GENUINENESS OF THE TRANSACTIO0N. THE OBSERVATION O F THE HONBLE SC WHILE DECIDING THE SPECIAL LEAVE PETITIO N IN THE CASE OF LOVELY EXPORTS P LTD. (2009) 319 ITR (ST.) 5 CANNOT BE CONSIDERED TO BE A LAW DECLARED WHICH HAS A BIND ING PRECEDENT UNDER ARTICLE 141 OF THE CONSTITUTION OF INDIA. SUCH OBSERVATIONS ARE PURELY ON THE FACTS OF THE RE SPECTIVE CASE AND CANNOT BE APPLIED ACROSS THE BOARD EVEN WH EN THE FACTS IN OTHER CASES ARE ALTOGETHER DIFFERENT. THE COURT WHILE DECIDING THE APPEAL WILL NOT PUT BLINKER IN ITS SIG HT AND MERELY BELIEVE WHAT IS WRITTEN ON PAPER BUT ALSO CO NSIDER CONCERNING CIRCUMSTANCES AND GROUND REALITY AS OBSE RVED BY THE HONBLE SC IN THE CASES OF CIT VS. DURGA PRA SAD MORE (1971) 82 ITR 540 AND SUMATI DAYAL (1995) 214 ITR 801. IN THE PRESENT CASE IN SPITE OF ALL THE EFFOR TS WHERE THE ASSESSING OFFICER COULD NOT EVEN LOCATE THE RESPECT IVE SO CALLED APPLICANTS, THE ASSESSEE COULD NOT FILE UNDA TED CONFIRMATIONS AND AFFIDAVITS. THEREFORE, IT IS A C ASE WHERE ALL THE PAPERS ARE MANUFACTURED AT THE INSTANCE OF THE ASSESSEE AND NOT THE REAL TRANSACTION. WE, THEREFO RE, MERELY ON THE BASIS OF SUCH PAPERS CANNOT HOLD THAT THE AMOUNT RECEIVED BY WAY OF SHARE CAPITAL IS EXPLAINE D WITHIN THE MEANING OF SECTION 68 OF THE ACT. THE F ULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF SOPHIA FINAN CE LTD. (1994) 205 ITR 98 HAVE HELD THAT THE PROVISION OF S ECTION 68 SHALL EQUALLY APPLY EVEN IN THE CASE OF AMOUNT STAT ED TO BE ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 8 RECEIVED TOWARDS SHARE CAPITAL. SINCE THE ASSESSEE FAILED TO PROVE EVEN THE BASIC IDENTITY AS ALSO THE CREDIT WORTHINESS AND THE GENUINENESS OF THE TRANSACTION IN THE FORM OF SHARE PREMIUM, THE ADDITION WAS RIGHTLY MADE BY THE ASSES SING OFFICER. 17. WE HAVE GONE THROUGH THE EVIDENCE PRODUCED BY THE ASSESSEE. THE DETAILS ARE ENUMERATED HEREUNDER: S.N. NAME AMOUNT EVIDENCE PRODUCED BY THE AS SESSEE 1 S/S. P. SAMBASIVA RAO 5 LAKHS I) CONFIRMATION LETTER FILED BEFORE THE CIT(A) II) HE IS ONE OF DIRECTORS IN SRI CHAITANYA CHLORIDE P LTD. III) REPAYMENT OF SHARE APPLICATION MONEY THROUGH CHEQUE IS FURNISHED IV) LETTER TO ANDHRA BANK (IDENTITY PARTLY ESTABLISHED CIT(A) ). 2 J.M. MOHAN RAO 2 LAKHS I) CONFIRMATION LETTER FILED BEFORE THE AO 3 P. USHA RANI 5 LAKHS I) FILED CONFIRMATION BEFORE THE CIT(A) II) SHE IS ONE OF DIRECTOR IN SRI CHAITANYA CHLORIDE P LTD. III) REPAYMENT OF SHARE APPLICATION MONEY THROUGH CHEQUE IS FURNISHED 4 S. HEMALATHA 1 LAKH I) FILED CONFIRMATION BEFORE AO II) ROI OF SHARE APPLICATION FILED III) SHARE APPLICATION FORM DULY SIGNED FILED 5 R.M. PATIL 1.5 LAKHS FILED CONFIRMATION BEFORE AO 6 T. RAVINDER REDDY RS.4,69 ,238/ - I) FILED CONFIRMATION BEFORE THE CIT(A) II) NRI AND WAS CO-FOUNDER OF THE COMPANY III) BANK ACCOUNT COPY FURNISHED ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 9 IV) RS.3 LAKHS AMOUNT RECEIVED EXPLAINED THROUGH BANK V) BALANCE AMOUNT OF RS.1,69,238/- WAS INITIALLY GIVEN FOR MEETING EXPENSES 7 P VR SEKHAR 3.5 LAKHS I) FILED CONFIRMATION BEFORE THE CIT(A) II) ROI OF SH. HOLDER FILED III) SHARE APPLICATION FORM FILED 8 K SRINIVAS 3 LAKHS I) FILED CONFIRMATION BEFORE AO II) SHARE APPLICATION FORM FILED 9 SUPER STORES 3,56,362 I) FILED CONFIRMATION BEFORE CIT(A) II) AMOUNT RECEIVED THROUGH CHEQUE III) SHARE APPLICATION FORM FILED IV) ROI OF SHARE HOLDER FOR AST 2003-04 FILED EVIDENCE PRODUCED ON BEHALF OF THE PERSONS EVIDENCE PRODUCED ON BEHALF OF THE PERSONS EVIDENCE PRODUCED ON BEHALF OF THE PERSONS EVIDENCE PRODUCED ON BEHALF OF THE PERSONS - -- - LOANS LOANS LOANS LOANS 1 CS REDDY 2,37,780 I) FILED CONFIRMATION BEFORE THE CIT(A) II) HE IS ONE OF DIRECTORS IN SRI CHAITANYA CHLORIDE P LTD. 2 KS REDDY 2 LAKHS I) FILED CONFIRMATION LETTERS BEFORE CIT(A) II) HE IS ONE OF DIRECTOR IN SRI CHAITANYA CHLORIDE P LTD. ON PERUSAL OF THE EVIDENCES WE FIND THAT CONFIRMATI ON LETTERS AND IN SOME CASES SUPPORTING DOCUMENTS OF INVESTMENT HA S BEEN FILED IN THE PAPER BOOK FROM PAGES 1 TO 66. WE ARE CONVINCED ABOUT THE IDENTITY, CREDIT WORTHINESS AND GENUINENE SS OF THE TRANSACTIONS ONLY IN THE CASE OF SHRI SAMBASIVA RAO , MS. P. USHA RANI AND MS. S. HEMALATHA. IN OTHER CASES, TH E SIGNATURE ON SHARE APPLICATION IS DIFFERENT FROM ASSESSEES S IGNATURE. HENCE WE ARE OF THE OPINION THAT IN SUCH CASES, WER E SIGNATURES ITA NO.386/H/2010 NET MATRIX LIMITED, HYDERABAD 10 DO NOT TALLY GENUINENESS OF TRANSACTIONS IS DOUBTFU L. HENCE, WE CONFIRM THE ORDER OF THE CIT(A) ON THE FOLLOWING AP PLICANTS: 1. SHRI J.M. MOHAN RAO 2. SHRI R.M. PATIL 3. SHRI T. RAVINDRA REDDY 4. SHRI P.V.R. SEKHAR 5. SHRI K. SRINIVAS & 6. M/S SUPER STORES. 18. IN THE RESULT, THE REVENUE APPEAL IN ITA NO.656/HYD/2010 IS DISMISSED AND THAT OF THE ASSESS EES APPEAL IN ITA NO.386/HYD/2010 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON: 9.3.2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 9 TH MARCH, 2012 COPY FORWARDED TO: 1. SHRI R. KANKARIA & UTTAM SINGHI CA, 6-3-1090/C-4, R AJ BHAVAN ROAD, ABOVE ANDHRA BANK, HYDERABAD-82. 2. THE ACIT, CIRCLE 16(1), HYDERABAD 3. THE CIT(A)-V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/ -