ITO, Wd-5(2), Kolkata, Kolkata V. M/s. Sarvlok Vanijya Pvt. Ltd., Kolkata

ITA 501/KOL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4589 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-07-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHUR Y
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Unexplained cash credit
• Section: 143(3); 80G; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.501/KOL/2017 ( / ASSESSMENT YEAR:2012-13) ITO, WARD-5(2), KOLKATA VS. M/S SARVLOK VANIJYA PVT. LTD. 78, BENTINCK STREET, BLOCK-B, 4 TH FLOOR, KOLKATA-700071 ./ ./PAN/GIR NO.: AAQCS 8249 C (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI ROBIN CHOUDHURY, ADDL. CIT (DR ) RESPONDENT BY : SHRI MIRAJ D. SHAH, A.R. / DATE OF HEARING : 25/07/2019 /DATE OF PRONOUNCEMENT : 28/08/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTA INING TO ASSESSMENT YEAR 2012-13, IS DIRECTED AGAINST THE ORDER PASSED BY TH E COMMISSIONER OF INCOME TAX (APPEAL)-2, KOLKATA, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT) DATED 24/03/2015. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS FOLLOWS: 1. THE LD. CIT(A), KOLKATA ERRED IN LAW AS WELL AS IN FACT BY DELETING THE ADDITION OF RS. 1,29,00,000/- MADE U/S 68 OF THE IN COME TAX ACT. 2. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, ALTER, MODIFY, INCLUDE OR DELETE ANY GROUND OF APPEAL. M/S SARVLOK VANIJYA PVT. LT D. ITA NO.501/KOL/2017 ASSESSMENT YEAR:2012-13 P PP PA AA AG GG GE EE E | || | 2 22 2 3. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE CO-ORDINATE BENCH OF ITAT, KOLKATA IN THE CASE OF M/S ANAND ENTERPRISES LTD. VS ITO IN ITA NO.161 4/KOL/2016 & C.O. NO.56/KOL/2016 FOR A.YR. 2012-13 ORDER DATED 26/09/ 2018 WHEREIN IT WAS HELD AS FOLLOWS: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUTS ET, WE FIND THAT THE ASSESSEE HAD NOT RAISED ANY SHARE CAPITAL BY RECEIPT OF CASH CONSIDERATION IN THE INSTANT CASE. THE SHARES WERE ISSUED FOR CONSIDERATION OTHE R THAN CASH IN LIEU OF ASSESSEE COMPANY MAKING INVESTMENT IN SHARES IN SOME OTHER C OMPANY. EFFECTIVELY, THE ASSESSEE PURCHASED CERTAIN SHARES FROM THE AFORESAI D SIX SHAREHOLDERS AND INSTEAD OF PAYING CASH TO THEM, THE ASSESSEE COMPAN Y ISSUED SHARES IN ITS OWN COMPANY TO THOSE SHAREHOLDERS. HENCE THE ASSESSEE H AD MADE INVESTMENTS IN SHARES OF ANOTHER COMPANY FOR WHICH CONSIDERATION W AS SETTLED THROUGH ISSUANCE OF ITS SHARES TO THOSE SHAREHOLDERS. NOW THE CRUCIA L POINT IS WHETHER THE PROVISIONS OF SECTION 68 COULD BE INVOKED IN THE IN STANT CASE FOR MAKING INVESTMENT TOWARDS SHARE CAPITAL. THERE WAS NO REC EIPT OF ANY SUM AS PROVIDED U/S 68 OF THE ACT IN THE INSTANT CASE. IT WOULD BE PERTINENT HERE TO REFER TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SH RI H.H. RAMA VARMA VS. CIT REPORTED IN 187 ITR 308 (SC) WHEREIN IT WAS HELD TH AT ANY SUM MEANS SUM OF MONEY. WE FIND THAT LD. CIT(A) HAD DELETED THE ADD ITION BY OBSERVING AS UNDER: 6. ON CONSIDERATION OF THE ARS SUBMISSION, ESPECI ALLY THE PORTION REPRODUCED ABOVE, IT IS SEEN THAT SECTION 68 OF I .T. ACT, 1961 DOES NOT APPLY TO CASES OF PURCHASE OF SHARE ASSETS AND ALLO TMENT OF SHARES BY THE APPELLANT WHEN PURCHASE AND ALLOTMENT ARE UNDER A B ARTER SYSTEM. THE AO HAS NOT REFUTED THE APPELLANTS CLAIM THAT SHARES W ERE ALLOTTED IN EXCHANGE FOR ACQUISITION OF SHARES BY THE APPELLANT FROM THE COMPANIES WHICH SURRENDERED SUCH SHARES TO THE APPELLANT. THOUGH AS PER THE AO TO APPLY SECTION 68 TO MAKE THE SAID ADDITION IN THE APPELLA NTS HAND. TRANSACTIONS PURPORTEDLY EXECUTED BY ENTRY OPERATORS INVOLVE MUL TIPLE LAYERS AND OTHER COMPLEXITIES, INTRODUCING DELAYS IN INTRODUCTION OF UNACCOUNTED CASH/MONEY AND MULTIPLE PLAYERS BEING INCORPORATED ENTITIES. MEASURES TAKEN BY THE AO IN THE COURSE OF THE ASSESSMENT PRO CEEDING FALLS MUCH SHORT OF WHAT IS REQUIRED TO BE DONE IN SUCH CASE L AWS, WHICH HAVE EVOLVED ON THIS ISSUE, CALL FOR CONCERTED ACTIONS ON THE PA RT OF THE AO PINPOINTING UTILIZATION OF UNEXPLAINED/UNACCOUNTED/UNTAXED MONE Y AND THE PLAYERS AND THE BENEFICIARIES EFFECTIVELY USING THE WEBLIKE SCHEME TO PLUNDER BLACK MONEY. FOR EXAMPLE INTRODUCTION AND USE OF BLACK MO NEY IN THE PRESENT CASE MAY BE AT A DIFFERENT POINT OF TIME AND IN DIF FERENT HANDS. THE AOS ACTION IN THE PRESENT CASE CANNOT BE UPHELD IN LAW. I, THEREFORE, DELETE THE ADDITIONS AND GROUNDS OF APPEAL NOS. 3 & 4 ARE ALL OWED. 4.1. WE FIND THAT THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SOHANLAL SINGHANIA REPORTED IN 235 ITR 616 (ALL) HA D HELD IN THE CONTEXT OF ALLOWABILITY OF DONATION AS DEDUCTION U/S 80G OF TH E ACT THAT THE EXPRESSION ANY M/S SARVLOK VANIJYA PVT. LT D. ITA NO.501/KOL/2017 ASSESSMENT YEAR:2012-13 P PP PA AA AG GG GE EE E | || | 3 33 3 SUM PAID USED IN THE SAID SECTION DENOTES SUM OF MONEY PAID . HENCE IF CERTAIN SHARES WERE DONATED BY A PERSON, THEN THE SAME WOUL D NOT FALL ELIGIBLE FOR DEDUCTION U/S 80G OF THE ACT. WE ALSO FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF JATIA INVESTMENT COMPANY (CO.) VS. CIT REPORTED IN 206 ITR 718 (CAL) ALSO SUPPORTS THE CASE OF THE ASSESSEE HE REIN, WHEREIN IT WAS HELD AS UNDER: IT IS FINALLY EMPHASISED BY LEARNED COUNSEL FOR TH E ASSESSEE THAT THE ULTIMATE RESULT IS THAT THE FIRM BECOMES A DEBTOR T O GB AND CO. AND THE THREE NON-FINANCIAL COMPANIES OF THE GROUP GOT DISC HARGED. LEARNED COUNSEL ALSO EMPHASISED THAT, AT THE WORST, IT CAN BE SAID THAT THE ASSESSEE- FIRM HAS RECEIVED VALUABLE ASSETS BEING THE SAID SH ARES OF THE EQUIVALENT VALUE OF THE DEBT TAKEN OVER BY IT FROM THE COMPANI ES, I.E., RS. 11.20 LAKHS. THEREFORE, THE QUESTION OF CASH CREDIT DOES NOT COM E IN, THERE BEING NO ACTUAL PASSING OR RECEIPT OF CASH. IN OTHER WORDS, THE TRANSACTIONS ARE MERE BOOK ENTRIES. IT WAS CONTENDED THAT THE FACT T HAT THE ENTRIES PASSED THROUGH THE CASH BOOK COULD NOT DETRACT FROM OR EFF ACE THE ESSENTIAL NATURE OF THE ENTRIES. IT WAS ALSO URGED THAT THE ENTRIES WERE PASSED THROUGH THE CASH BOOK SO THAT THE REPAYMENT OF LOANS BY THE SAI D THREE COMPANIES COULD BE ESTABLISHED BEFORE THE RESERVE BANK OF IND IA. BUT, ACCORDING TO SHRI BAJORIA, THAT DOES NOT MEAN THAT IT AMOUNTS TO AN ARTIFICE EMPLOYED TO DECEIVE ANY AUTHORITIES, BECAUSE THE TRANSACTIONS S HOWING THE AMOUNT AS RECEIVED IN CASH AND PAID AWAY SPONTANEOUSLY AND SI MULTANEOUSLY WERE NOT ACTUAL BUT ONLY NOTIONAL. HE, HOWEVER, STATED T HAT, AS FAR AS THE QUESTION OF SECTION 68 IS CONCERNED, THE NATURE OF THE TRANSACTIONS AND THE ENTRIES CLEARLY SHOW THAT NO CASH, IN FACT, FLOWED. IT WAS FURTHER STRESSED THAT THE TRANSACTIONS ARE ABOVE BOARD. NO OUTSIDER IS INVOLVED. THE ENTRIES WERE MADE IN THE BOOKS OF THE CONCERNS OF THE SAME GROUP. THE SHARES IN QUESTION WERE ALSO OF THE COMPANIES OF THE GROUP. T HERE WAS NO ATTEMPT AT HIDING THE TRANSACTIONS. NOR IS IT THE CASE OF ANY OF THE PARTIES TO THE TRANSACTION THAT THERE WAS ANY PASSING OF CASH. EVE RY PARTY UNEQUIVOCALLY STATED THAT THE TRANSACTIONS WERE CARRIED INTO EFFE CT MERELY BY WAY OF ADJUSTMENTS OF THE SAID LOANS AND THE SHARE TRANSFE RS. SHRI A. C. MOITRA, THE LEARNED ADVOCATE FOR THE REV ENUE, REITERATED THE GROUNDS ON WHICH THE TRIBUNAL HAS AFFIRMED THE ADDI TION OF THE AMOUNT OF RS. 11.20 LAKHS AS UNEXPLAINED CASH CREDIT. HE PART ICULARLY EMPHASISED THAT THE ASSESSEE'S CONTENTION THAT THE ENTRIES ARE ONLY ADJUSTMENT ENTRIES IS NOT ACCEPTABLE, BECAUSE THE ADJUSTMENT ENTRIES A RE NOT MADE THROUGH THE CASH BOOK. IT IS AN ACCEPTED PRINCIPLE OF ACCOUNTIN G THAT BOOK ADJUSTMENTS AND THE ENTRIES IN EFFECTING THEM ARE MADE BY JOURN AL ENTRIES AND NOT CASH ENTRIES. HE URGED THAT THE PURPORTED MOTIVE OF THE ENTRIES BEING THE REDUCTION OF LOANS OF THE THREE LIMITED COMPANIES D OES NOT EXPLAIN THE WHOLE MATTER, BECAUSE THE ENTRIES ARE CASH ENTRIES. THE FACT REMAINS THAT, AT EVERY STAGE, THE PARTIES SHOWED THE PAYMENTS AND RECEIPTS OF CASH EVEN WHEN THERE WAS NO CASH AVAILABLE FOR SUCH ENTRIES. THIS QUITE JUSTIFIES THE ADDITION AS SUSTAINED BY THE TRIBUNAL. WE HAVE PERUSED THE ASSESSMENT ORDER CAREFULLY. WE FIND THAT CASH DID NOT PASS AT ANY STAGE THOUGH ENTRIES WERE MADE IN THE C ASH BOOK SHOWING PAYMENTS AND RECEIPTS ; BUT SINCE THE ENTRIES MADE A COMPLETE ROUND, NO PASSING OF CASH WAS NECESSARY FOR THE PURPOSE OF MA KING THE ENTRIES. THAT M/S SARVLOK VANIJYA PVT. LT D. ITA NO.501/KOL/2017 ASSESSMENT YEAR:2012-13 P PP PA AA AG GG GE EE E | || | 4 44 4 THERE WAS NO PASSING OF CASH IS ALSO ADMITTED BY TH E INCOME- TAX OFFICER HIMSELF. WE HAVE ALREADY EXTRACTED THE OBSERVATION OF THE INCOME-TAX OFFICER IN PARAGRAPH 14 OF HIS ASSESSMENT ORDER. TH E INCOME- TAX OFFICER HAS CLEARLY OPINED THAT ALL THE RESPECTIVE PARTIES DID NOT RECEIVE CASH NOR DID PAY CASH AS NONE HAD ANY CASH FOR THE PURPOSE. THE ONLY POINT IN THE ASSESSMENT ORDER IS THAT THE ENTRIES NOT INVOLVING THE PASSING OF CASH SHOULD NOT HAVE FOUND A PLACE IN THE CASH BOOK, BUT IN THE LEDGER ACCOUNT THROUGH JOURNAL ENTRIES. THERE IS ANOTHER SELF-CONT RADICTION IN THE INCOME- TAX OFFICER'S FINDING THAT, IF THERE WAS NO REAL CA SH ENTRY ON THE CREDIT SIDE OF THE CASH BOOK, BUT MERELY A NOTIONAL OR FICTITIO US CASH ENTRY, AS ADMITTED BY HIM, THERE IS NO REAL CREDIT OF CASH TO ITS CASH BOOK ; THE QUESTION OF INCLUSION OF THE AMOUNT OF THE ENTRY AS UNEXPLAINED CASH CREDIT CANNOT ARISE. ONE OF THE GROUNDS OF THE TRIBUNAL FOR DISBELIEVING THE ASSESSEE'S CASE IS THAT THE ADJUSTMENT ENTRIES WERE MADE BY NOTIONAL C ASH ENTRIES WITH A VIEW TO BRINGING DOWN THE DEBT-AND-CAPITAL RATIO, I.E., THAT WHILE BEING DISCHARGED OF THE DEBT THE SAID COMPANIES ALSO JETT ISONED THEIR ASSETS, I.E., THE SHARES HELD BY THEM OF EQUIVALENT SUM WITHOUT A CHIEVING THE AVOWED PURPOSE. HERE THE TRIBUNAL CERTAINLY MISDIRECTED IT SELF. THE RATIO TO BE REDUCED IS OF THE LOAN IN RELATION TO THE SHARE CAP ITAL AND THE RESERVES. JETTISONING THE SHARES HAD THE DESIRED EFFECT OF RE DUCING THE BORROWED CAPITAL. AGAIN, AS REGARDS THE TRIBUNAL'S REFUSAL TO TAKE NO TICE OF THE DIRECTIONS OF THE RESERVE BANK, IT IS NOT CORRECT FOR THE TRIBUNA L TO HOLD THAT THE SAID DOCUMENT WAS A NEW EVIDENCE IN THE TRUE SENSE OF TH E TERM. THE ASSESSEE HAS BEEN CONSISTENTLY PLEADING BEFORE THE LOWER AUT HORITIES THAT THE ENTRIES HAD TO BE MADE IN ORDER TO BRING THE COMPANIES IN C ONFORMITY WITH THE SAID DIRECTION. MOREOVER, THE DIRECTION OF THE RESE RVE BANK IS A PUBLIC DOCUMENT WITHIN THE MEANING OF SECTION 74 OF THE EV IDENCE ACT, 1872. DOCUMENTS OF A PUBLIC NATURE AND PUBLIC AUTHORITY A RE GENERALLY ADMISSIBLE IN EVIDENCE SUBJECT TO THE MODE OF PROVI NG THEM AS LAID DOWN IN SECTIONS 76 AND 78 OF THE EVIDENCE ACT. IN OUR VIEW, THE EFFECT AND IMPORT OF THE TRANSACTI ONS IS THAT THE ASSESSEE TOOK OVER THE LIABILITY OF THE AFORESAID NON-FINANC IAL COMPANIES TO GB AND CO. IN EXCHANGE FOR THE SHARES AS AFORESAID. IN THE PREMISES, WE ANSWER ALL THE QUESTIONS, IN TH E AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 4.2. IT WOULD BE PERTINENT TO NOTE THAT IN THE INS TANT CASE, THE LD. AO HAD NOT DOUBTED THE INVESTMENT MADE IN SHARES BY THE ASSESS EE COMPANY. THERE IS NO DISPUTE RAISED BY THE LD. AO WITH REGARD TO NUMBER OF SHARES; VALUE THEREON INVESTED BY THE ASSESSEE COMPANY. WE ALSO FIND THAT THE CO-ORDINATE BENCH DECISION OF PUNE TRIBUNAL IN THE CASE OF KANTILAL A ND BROS. VS. ACIT REPORTED IN 52 ITD 412 (PUNE TRIB.) ALSO SUPPORTS THE CASE OF T HE ASSESSEE. 4.3. IN VIEW OF THE AFORESAID OBSERVATIONS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE AFORESAID JUDIC IAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE LD. AO HAD ERRONEOUSL Y INVOKED THE PROVISIONS OF M/S SARVLOK VANIJYA PVT. LT D. ITA NO.501/KOL/2017 ASSESSMENT YEAR:2012-13 P PP PA AA AG GG GE EE E | || | 5 55 5 SECTION 68 OF THE ACT TO THE FACTS OF THE INSTANT C ASE, WHICH, IN OUR CONSIDERED OPINION, ARE NOT AT ALL APPLICABLE HEREIN. THIS IS A SIMPLE CASE OF ACQUIRING SHARES OF CERTAIN COMPANIES FROM CERTAIN SHAREHOLDERS WITH OUT PAYING ANY CASH CONSIDERATION AND INSTEAD THE CONSIDERATION WAS SET TLED THROUGH ISSUANCE OF SHARES TO THE RESPECTIVE PARTIES. MOREOVER, IN THE BALANCE SHEET OF THE ASSESSEE COMPANY IN THE SCHEDULE TO SHARE CAPITAL, IT IS VER Y CLEARLY MENTIONED BY WAY OF NOTE THAT THE FRESH SHARE CAPITAL WAS RAISED DURING THE YEAR FOR CONSIDERATION OTHER THAN CASH. HENCE WE HOLD THAT PROVISION OF SE CTION 68 OF THE ACT ARE NOT APPLICABLE IN THE INSTANT CASE AND ACCORDINGLY THE ENTIRE ADDITION DESERVES TO BE DELETED WHICH HAS RIGHTLY BEEN DONE BY THE LD. CIT( A) WHICH DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE RE VENUE ARE DISMISSED. 4.WE NOTE THAT ASSESSEE COMPANY ALLOTTED 25,800 EQU ITY SHARES TO 3 APPLICANT COMPANIES FOR RS. 1,29,00,000/- IN CONSIDERATION FO R PURCHASE OF EQUITY SHARES HELD BY THESE APPLICANT COMPANIES. PHOTOCOPIES OF T HE AGREEMENTS ENTERED IN THIS REGARD ARE ENCLOSED IN PAPER BOOK. WE NOTE THAT THE SHARES WERE ALLOTTED AGAINST CONSIDERATION FOR PURCHASE OF EQUITY SHARES HELD BY THESE APPLICANT COMPANIES; HENCE IT IS A BARTER SYSTEM THEREFORE, PROVISIONS O F SECTION 68 DOES NOT APPLY. WE NOTE THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF CO-ORDINATE BENCH OF ITAT KOLKATA IN THE CASE OF M/S ANAND ENTERPRI SES LTD. VS ITO IN ITA NO.1614/KOL/2016 & C.O. NO.56/KOL/2016 (SUPRA). THE LD DR FOR THE REVENUE FAILED TO CONTROVERT THE FINDINGS OF THE COORDINATE BENCH (SUPRA) THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE CO-ORDIN ATE BENCH OF ITAT, KOLKATA (SUPRA), WE UPHOLD THE ORDER OF LD. CIT(A) IN DELET ING THE ADDITION OF RS. 1,29,00,000/-. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE COURT ON 28.08.2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 28/08/2019 ( SB, SR.PS ) M/S SARVLOK VANIJYA PVT. LT D. ITA NO.501/KOL/2017 ASSESSMENT YEAR:2012-13 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. ITO, WARD-5(2), KOLKATA 2. M/S SARVLOK VANIJYA PVT. LTD. 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES