DY. C.I.T.,RANGE 7(2), MUMBAI V. M/S. RANK SHIPPING AGENCY PVT.LTD., MUMBAI

ITA 5946/MUM/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9370 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 29-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Unexplained cash credit; Search and seizure; Share purchase agreement; Bad and doubtful debts; Commercial expediency; Onus to prove; Retraction
• Section: 133A; 194C; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI P.M.JAGTAP (ACCOUNTANT MEMBER) ITA NO.5946/MUM/2008 ASSESSMENT YEAR: 2005-06 DY. CIT, RANGE 7(2) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. M/S. RANK SHIPPING AGENCY PVT LTD., 404, DEVKRUPA, 28, RAICHUR STREET, DANABUNDER, MASJIDBUNDER, MUMBAI-400 009 PA NO.AAACR 3925 J (APPELLANT) VS. (RESPONDENT) ITA NO.5805/MUM/2008 ASSESSMENT YEAR: 2005-06 M/S. RANK SHIPPING AGENCY PVT LTD., 404, DEVKRUPA, 28, RAICHUR STREET, DANABUNDER, MASJIDBUNDER, MUMBAI-400 009 PA NO.AAACR 3925 J DY. CIT, RANGE 7(2) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) ASSESSEE BY : SHRI S.C.TIWARI & NATASHA MANGAT REVENUE BY: SMT RUPINDER BRAR DATE OF HEARING: 9.11.2012 DATE OF PRONOUNCEMENT: 21. 11.2012 ORDER PER B.R.MITTAL, JM: THESE CROSS APPEALS ARE FILED BY DEPARTMENT AS WELL AS ASSESSEE FOR ASSESSMENT YEAR 2005-06 AGAINST ORDER DATED 18.7.2008 OF LD CI T(A). 2. GROUNDS TAKEN BY DEPARTMENT ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.18.79 CRORES M ADE BY THE A.O. ON ACCOUNT OF THE FACT THE SAID SUM WAS NOT EXPENDED WHOLLY AND E XCLUSIVELY FOR THE PURPOSES BUSINESS OF THE ASSESSEE IGNORING, INTER-ALIA , THE FOLLOWING :- 2 I) THE ASSESSEE NEVER PRODUCED BEFORE THE A.O. THE DET AILS OF THE SAID AMOUNT, EXCEPT SMALL BILLS, IN SUPPORT OF THE ABOVE AMOUNT CLAIMED TO BE REIMBURSEMENT OF EXPENDITURE ON BEHALF OF THE CLIEN TS. II) FAILED TO PRODUCE THE BOOKS OF ACCOUNTS BEFORE THE A.O. STATING THAT THE SAME WERE VOLUMINOUS WHICH CAN NEVER BE A FACT AS T HE BOOKS OF ACCOUNT CAN NEVER BE VOLUMINOUS IT IS ONLY THE SUPPORTING D ETAILS WHICH CAN RUN INTO VOLUMES. III) THE ASSESSEES CLAIM OF REIMBURSEMENT OF THE SAID A MOUNT FROM ITS CLIENTS NOT CORRECT AS IS APPARENT FROM THE SUMMARY OF THE PAYMENTS GIVEN IN SUB-ITEM 8 OF PARA 6.LOF THE ORDER OF CIT(A)WHEREBY IT IS CLEAR THAT OUT OF THE SAID AMOUNT, AN AMOUNT OF RS.4,70,58,697/- HAS BEEN DEBITED BY THE ASSESSEE TO ITS OWN P A L A/C. IV) IGNORING THE FACT THAT THE PAYMENTS AS LISTED IN SL.NO.1 TO 5 OF SUB-ITEM 8 AS AFORESAID WERE PAYMENTS TO PRIVATE PARTIES EXCEP T THE ELEMENT OF CUSTOMS DUTY UNDER SLNO.1 AND, THEREFORE, THE EXPEN SES WERE LIABLE TO TDS. V) THE ASSESSEES CLAIM THAT IT HAD DEDUCTED TDS OF RS.7,96,68,298/- WAS SUPPORTED BY ANY DETAILS BEFORE THE A.O. OR THE CIT (A). THE CIT(A) RELIED UPON THE PAPER BOOKS SUBMITTED BEFORE HER AND THE D ETAILS CONTAINED THEREIN WERE NEVER MADE AVAILABLE TO THE A.O. FOR S CRUTINY IN VIEW OF THE FACT THAT THE ASSESSEE HAD NOT PRODUCED ANY DETAILS OR THE PRIMARY RECORDS BEFORE THE A.O. WHICH WAS. IN CONTRAVENTION OF THE PROVISIONS OF RULE46A OF THE INCOME-TAX RULES, 1962. VI) WITHOUT PREJUDICE TO THE ABOVE, THE CLAIM OF T HE ASSESSEE THAT THE QUESTION OF DISALLOWANCE OF THE AMOUNT OF RS.18.79 CRORES APPROXIMATELY IN THE CASE OF ASSESSEE DID NOT ARISE AS THE ASSESS EE HAD NOT CLAIMED ANY PART OF THE EXPENSES IN ITS P & L A/C. IS FACTUALLY NOT CORRECT AS THE CIT(A) HERSELF HAS MENTIONED IN SUB-ITEM 8 OF PARA 6.1 THA T OUT OF RS.18.79 CRORES, AN AMOUNT OF RS.4.70 CRORES WERE DEBITED IN THE ASSESSEES P & L A/C. WHICH CONSISTED OF ENTIRE AMOUNT OF TRANSPORT AND OTHER CHARGES OF RS.2.78 CRORES APPROXIMATELY, CONTAINER FREIGHT STA TION EXPENSES OF RS.38.70 LAKHS, CUSTOMS DUTY AND DOCK EXPENSES OF R S.3.41 LAKHS APPROXIMATELY, SHIPPING COMPANIES PAYMENTS OF RS.1. 37 CRORES APPROXIMATELY AND CUSTOMS DUTY AND OTHERS OF RS.13. 12 LAKHS APPROXIMATELY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.18.79 CRORES ON VAGU E, UNSUBSTANTIATED AND INCORRECT CLAIM BY THE ASSESSEE BEFORE THE A.O. AS WELL AS THE CIT(A) AND THE CIT(A) SHOULD HAVE GIVEN A CLEAR CUT FACTUAL FINDIN G THAT IF RS.18.79 CRORES WAS NOT DISALLOWABLE IN ENTIRETY THEN, WHAT WAS THE AMO UNT WHICH WAS DISALLOWABLE ON THE BASIS OF THE SCRUTINY OF THE DETAILS FILED B Y THE ASSESSEE. 3 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.22.28 LAKHS CLAIMED AS BAD DEBT WHICH WAS EXPLAINED TO BE UNREALIZABLE AMOUNT FROM THE CLIENT S REMITTED BY WAY OF DISCOUNT WITHOUT SATISFYING HERSELF AS TO THE MANNER IN WHIC H THE AMOUNT CLAIMED AS BAD DEBT HAD BEEN OFFERED AS INCOME SO AS TO FULFILL TH E REQUIREMENT OF SECTION 36(2) OF THE INCOME-TAX ACT, 1961 AND ALSO WITHOUT EXAMIN ING THE FULL FACTS AND DETAILS IN THIS RESPECT AND SOLELY RELYING ON CERTAIN CASE LAWS WHICH WAS NOT SUFFICIENT IN THE GIVEN CIRCUMSTANCES. 3. GROUNDS OF APPEAL RAISED BY ASSESSEE ARE AS UNDE R: BEING AGGRIEVED BY THE ORDER U/S.250 OF THE INCOME -TAX ACT, 1961 (ACT) DATED 8 JULY, 2008. PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) VII, MUMBAI, YOUR APPELLANT PREFERS THIS APPEAL AMONG OT HERS, ON THE FOLLOWING GROUNDS OF APPEAL, EACH OF WHICH IS INDEPENDENT OF AND WITHOUT PREJUDICE TO, THE OTHERS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LEARNED CIT (A) ERRED IN SUSTAINING THE ADDITION OF RS.72.00.00 0/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SHARE PREMIUM AMOUNT RECEIVED B THE APPELLANT ON ALLOTMENT OF SHARES, HOLDING THE SAME TO BE A NON-G ENUINE TRANSACTION, EVEN THOUGH THERE AS ADEQUATE DOCUMENTARY EVIDENCE ON RE CORD THAT ESTABLISHED BEYOND DOUBT GENUINENESS OF THE TRANSACTION. 2. THE LEARNED CIT(A) ERRED IN SUSTAINING THE ABOVE ADDITION ON THE BASIS OF THE STATEMENT OF THE MANAGING DIRECTOR OF THE APPELLAN T RECORDED DURING THE SURVEY U/S. 133A, WHICH STATEMENT WAS LATER RETRACTED. TH E LEARNED CIT(A) ALSO ERRED IN IGNORING THE UNCONTROVERTED DOCUMENTARY EVIDENCE ON RECORD. 3. THE LEARNED CIT (A) FURTHER ERRED IN SUSTAINING THE ADDITION OF RS.72,00,000/- ON THE BASIS OF THE RETRACTED STATEMENT U/S. 133A E VEN THOUGH ADDITIONAL INCOME OFFERED IN THAT STATEMENT WAS RS.25,00,000 ONLY. 4. THE LEARNED CIT(A) ALSO ERRED IN NOT ALLOWING SE T OFF OF THE ADDITIONAL INCOME OF RS.21,14,761 DECLARED BY THE APPELLANT AGAINST T HE ABOVE ADDITION. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CLEAR ING AND FORWARDING AGENT. RELEVANT FACTS GIVING RISE TO THESE APPEALS ARE THA T ASSESSEE FILED THE RETURN OF INCOME ON 26.10.2005 DECLARING INCOME OF RS.62,41,270. TH ERE WAS A SURVEY OPERATION ON THE ASSESSEE COMPANY ON 23.2.2006. THE ASSESSMENT WAS COMPLETED ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS.20,80,65,550. THE CIT (A) ALLOWED THE APPEAL OF ASSESSEE IN PART. HENCE, THESE APPEALS BY THE DEPARTMENT AS WELL AS ASSESSEE. 4 5. FIRSTLY, WE TAKE UP THE APPEAL OF DEPARTMENT BEI NG I.T.A. NO.5946/M/2008. 6. IN RESPECT OF GROUND NOS.1 & 2 OF APPEAL DISPUTI NG THE DELETION OF ADDITION OF RS.18.79 CRORES, RELEVANT FACTS ARE THAT THERE WAS A SURVEY OPERATION ON 23.2.2006. THE AO HAS STATED THAT ASSESSEE RECEIVED A SUM OF RS.26 .70 CRORES FROM THE CLIENTS BUT HAD CREDITED ONLY RS.RS.7.91 CRORES IN THE PROFIT AND L OSS ACCOUNT. THE BALANCE SUM OF RS.18.79 CRORES HAS BEEN ALLEGED TO HAVE BEEN PAID BY THE ASSESSEE ON BEHALF OF THE CLIENTS. AO HAS STATED THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT SERVICES WERE RENDERED AND NO TDS HAS BEEN DEDUCTED EITHER BY THE ASSESSEE OR BY ITS CLIENTS AS PER PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN VIE W OF ABOVE, AO HAS ADDED A SUM OF RS.18.,79,38,741 TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE LD CIT(A) ARE MENTIONED IN PARA 6 OF THE ORDER OF LD CIT(A) AT PAGES 5-7 AS UNDER: (1) THAT THE APPELLANT ACTS AS CLEARING AND FORWARD ING AGENT TO CLEAR THE IMPORT CONSIGNMENTS. IN THE PROCESS HE HAS TO MAKE VARIOUS PAYMENTS ON BEHALF OF THE CLIENTS SUCH AS SHIPMENT CHARGES, CUSTOMS DUTY, POR T CHARGES, CONTAINER FREIGHT CHARGES, LOADING UNLOADING, TRANSPORTATION ETC. THE APPELLANT COLLECTS THE CHARGES FROM THE CLIENTS AND MAKES THE PAYMENTS TO VARIOUS AUTHORITIES IN CONNECTION WITH CLEARING THE CONSIGNMENT. THE APPELLANT CHARGE S ITS AGENCY FEES FOR RENDERING THE SERVICES TO ITS CLIENTS. (2) THE ASSESSING OFFICER NOTED THAT APPELLANT HAD RECEIVED RS. 18,79,38,741/- FROM ITS CLIENTS TOWARDS SUCH EXPENSES APART FROM A GENCY COMMISSION, WHILE THE AGENCY COMMISSION FORMS PART OF APPELLANT INCOME. V ARIOUS EXPENSES COLLECTED AND PAID ON BEHALF OF THE CLIENT WILL BE REFLECTED IN THE SEPARATE ACCOUNTS MENTIONED IN THE LEDGER ACCOUNT OF EACH CLIENT. 5 (3) DURING THE YEAR, THE APPELLANT HANDLED 2351 JOB S RESULTING IN VOLUMINOUS BUSINESS TRANSACTIONS. ON 24.12.2007, THE ASSESSING OFFICER CALLED FOR VARIOUS DETAILS OF THESE PAYMENTS IN LESS THAN 5 WORKING DA YS. IT WAS HUMANLY IMPOSSIBLE TO COMPUTE THE DETAILS IN SUCH SHORT SPAN OF TIME D UE TO SHEER VOLUME OF TRANSACTIONS. (4)THE APPELLANT HAD NOT CLAIMED THESE EXPENSES AS THEY DID NOT CONSTITUTE THE APPELLANTS EXPENSES. (5) THAT THE BOOKS OF ACCOUNTS ARE MAINTAINED AS PE R THE ACCOUNTING STANDARDS AND THEY ARE AUDITED U/S 44AB. (6) THAT THE APPELLANTS CASE WAS SCRUTINIZED IN TH E PAST AND THE BOOKS OF ACCOUNTS AND THE ACCOUNTING PROCEDURE ADOPTED BY TH E ASSESSEE WAS ACCEPTED BY THE DEPARTMENT FOR EARLIER YEARS. (7) DUE TO SHEER VOLUME OF THE BUSINESS, ONLY THE I NCOME AND EXPENSES OF APPELLANT ARE REFLECTED IN THE BOOKS OF ACCOUNTS AN D THE EXPENSES INCURRED ON BEHALF OF THE CLIENTS ARE MAINTAINED SEPARATELY. SU CH SYSTEM IS ADOPTED BY SOLICITORS, ADVOCATES AS PER THE ACCOUNTING STANDAR DS. (8) THE SUMMARY OF PAYMENTS IS AS UNDER: (9) THAT THE QUESTION OF DISALLOWANCE DOES NOT ARIS E WHEN THE EXPENSES WERE NOT CLAIMED AT ALL. THE ASSESSING OFFICER PROCEEDED FUNDAMENTALLY ON WRONG PRESUMPTION THAT THE APPELLANT CLAIMED THESE EXPENS ES. (10) THE PROVISIONS OF SECTION 40(A)(IA) DO NOT APP LY TO ANY OF THE PAYMENTS LISTED IN THE TABLE ABOVE EXCEPT THE TRANSPORT AND OTHER CHARGES. 6 (11) THE TDS WAS DEDUCTED WHEREVER APPLICABLE. THE DETAILS ARE SUBMITTED IN PAPER BOOK. (12) UNDER THE CUSTOMS ACT, THE LIABILITY TO PAY TH E DUTY IS THAT OF THE IMPORTER AND NOT OF CHA, HENCE THE PAYMENTS MADE CANNOT BE C ONSIDERED AS EXPENSES OF THE CHA. (13) THAT IN THE CASE OF ROLLS ROYCE INDIA VS. ITO (19881 (25 LTD 1361 (DEL) IT WAS HELD THAT THE AMOUNT REIMBURSED AND THE AMOUNT SPENT TOWARDS EXPENDITURE ON BEHALF OF ROLLS ROYCE WERE TO BE EXC LUDED FROM ROLLS ROYCE INDIA LTD. THE APPELLANT CHARGES ITS CLIENTS SEPARATELY F OR THE AGENCY FEE AND THE REIMBURSEMENT OF EXPENSES. THE APPELLANT DOES NOT T REAT THE AMOUNT REIMBURSED BY THE CLIENT AS ITS OWN OPERATIONAL REV ENUE NOR DOES IT TAKE THE CORRESPONDING EXPENSES IN ITS BOOKS OF ACCOUNTS. (14) THAT THE SERVICE TAX DEPT. ISSUED CLARIFICATIO N TO THE EFFECT THAT THE COLLECTIONS MADE FROM THE CLIENTS FOR MEETING VARIO US EXPENSES ARE NOT CONSIDERED FOR THE PURPOSE OF LEVY OF SERVICE- TAX. (15) IN THE CASE OF CIT VS. DUNLOP RUBBER CO. LTD. (142 ITR 493)( CAL) IT WAS HELD THAT REIMBURSEMENT OF EXPENSES WERE NOT INCOME . (16) AS PER CIRCULAR NO. 723, THE FREIGHT AND OTHER CHARGES MADE TO FOREIGN SHIPPING LINES OR THEIR RESIDENT AGENTS ARE COVERED BY SECTION 172(8) AND THE ASSESSEE IS NOT OBLIGED TO DEDUCT TDS. IN ANY CASE, WHEREVER THE TDS PROVISIONS ARE APPLICABLE, THE APPELLANT DEDUCTED THE TDS ON R S. 7,96,68,298/-. 6. LD CIT(A) VIDE PARA 6.2 OF THE IMPUGNED ORDER DE LETED THE SAID ADDITION OF RS.18.79 CRORES AND STATED THAT THE SAID ADDITION I S DEVOID OF ANY MERIT AND CONTRARY TO EVIDENCE ON RECORD. HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING, LD D.R. RELIED ON ORDER OF AO. 8. ON THE OTHER HAND, LD A.R. RELIED ON ORDER OF LD CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE IS ACTING AS CLEARING AND FORWARDING AGENT TO CLEAR THE IMPORT CONSIGNMENT. DURING THE COURSE OF ITS ACTIVITY, AS SESSEE MADE VARIOUS PAYMENTS ON BEHALF OF CLIENTS, SUCH AS SHIPMENT CHARGES, CUSTOM DUTY AND OTHER INCIDENTAL CHARGES, ETC, WHICH ASSESSEE COLLECTED FROM THE CLIENTS. AS SESSEE CHARGED ITS AGENCY FEES FOR RENDERING SERVICES TO ITS CLIENTS. THE AGENCY COMM ISSION IS THE INCOME OF THE ASSESSEE 7 WHICH IS REFLECTED IN PROFIT AND LOSS ACCOUNT AS IN COME AND THE AMOUNTS RECEIVED TOWARDS VARIOUS EXPENSES PAID BY THE ASSESSEE ON BE HALF OF CLIENTS GOT ADJUSTED IN THE CLIENTS ACCOUNTS ON PAYMENTS BEING MADE ON THEIR B EHALF TO VARIOUS PERSONS/AGENCIES, INCLUDING THE GOVERNMENT FOR CUSTOM DUTY. THEREFOR E, THE AMOUNTS PAID FOR THOSE EXPENSES ON BEHALF OF THE CLIENTS DO NOT CONSTITUTE ASSESSEES EXPENDITURE AS THE SAME ARE SPECIFICALLY INCURRED ON BEHALF OF, AND RECOVER ABLE FROM THE CLIENTS. LD A.R. SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS, AO ASKED FOR THE DETAILS FOR SUCH DISBURSEMENTS AND THE APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HE SUBMITTED THAT ASSESSEE MAINTAINS COMPLETE ACCOUNTS FOR THE SAME AS IT IS OBLIGED TO GIVE DETAILS OF SUCH EXPENSES TO ITS CLI ENTS AND MERELY STATED THAT IT WAS HUMANLY IMPOSSIBLE TO COMPILE THE DETAILS THEREOF B EFORE THE ASSESSING OFFICER AS THE VOLUME OF THE TRANSACTION WAS HUGE. HE SUBMITTED T HAT ASSESSEE NEVER CLAIMED THOSE EXPENSES IN ITS PROFIT AND LOSS ACCOUNT BECAUSE THE Y DO NOT CONSTITUTE ASSESSEES EXPENSES AND, THEREFORE, QUESTION OF INVOKING PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT ARISE. LD A.R. ALSO REFERRED THE DECISION OF ITAT DELHI IN THE CASE OF DCIT VS. JAY KAY FREIGHTERS PVT LTD (I.T.A. NO.3407/M/2011) ORDER DATED 1.8.2012, COPY PLACED IN THE COMPILATION OF PAPER BOOK AT PAGE 1-5 AND SPECI FICALLY REFERRED PARA 14 THEREOF, WHICH READS AS UNDER: 14. IT IS NOT IN DISPUTE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF CLEARING AND FORWARDING AGENT. THE GOODS OF ASSE SSEES CLIENT, WHO ARE EXPORTER OR IMPORTER, WERE EXPORTED OR IMPORTED BY THE SHIPPING COMPANIES. THE SHIPPING COMPANIES RAISED BILL FOR V ARIOUS CHARGES AGAINST THE ULTIMATE EXPORTER OR IMPORTER, WHO ARE THE CLIE NT OF THE ASSESSEE. THE AMOUNT MENTIONED IN THE BILL RAISED BY SHIPPING COM PANIES ON ULTIMATE CONSUMER WERE INITIALLY PAID BY THE ASSESSEE, AND T HEREAFTER THE ASSESSEE GOT REIMBURSED THE SAID AMOUNT FROM ITS CLIENT INCL UDING THE CHARGES OF THE ASSESSEE FOR SERVICES RENDERED. WE HAVE PERUSED THE VARIOUS BILLS RAISED BY VARIOUS SHIPPING COMPANIES AND FIND THAT THE SHIPPING COMPANIES RAISED THEIR BILLS ON THE ULTIMATE CUSTOM ER, WHO IS THE EXPORTER OR IMPORTER OF THE GOODS. THE ASSESSEE USED TO RAIS E BILLS UPON EXPORTER 8 OR IMPORTER I.E. ASSESSEES CLIENT, INCLUDING THE C HARGES PAYABLE TO SHIPPING LINES, AND AS WELL THE CHARGES OF THE ASSE SSEE ON ACCOUNT OF VARIOUS SERVICES RENDERED BY IT. IT HAS NOT BEEN DI SPUTED BY THE AO THAT THE BILLS ISSUED BY SHIPPING COMPANIES WERE RAISED IN THE NAME OF CLIENTS, WHOSE GOODS WERE EXPORTED OR IMPORTED, AND THE ASSE SSEE THEREAFTER RAISED THE BILL TO ITS CLIENT SEPARATELY INDICATING CHARGES OF THE ASSESSEE AS WELL AS THE CHARGES PAID BY THE ASSESSEE TO SHIPPIN G COMPANIES ON BEHALF OF ITS CLIENTS. THEREFORE, FROM THE VARIOUS DETAILS FILED BY THE ASSESSEE AND NATURE OF THE ASSESSEES BUSINESS OF CLEARING AND F ORWARDING AGENTS, WE FIND THAT THE ASSESSEE IS NOTHING BUT AN INTERMEDIA RY BETWEEN THE EXPORTERS AND THE SHIPPING LINES. THE ASSESSEE FACI LITATES THE CONTRACT FOR CARRYING GOODS FOR AND ON BEHALF OF ITS CLIENT I.E. EXPORTERS OR IMPORTERS, AND THE PRINCIPLE CONTRACT FOR CARRYING GOODS IS BE TWEEN THE EXPORTER/IMPORTER AND THE SHIPPING LINES. AN IDENTI CAL ISSUE HAS BEEN CONSIDERED BY THE HONBLE HIGH COURT OF DELHI IN TH E CASE OF COMMISSIONER OF INCOME TAX VS. CARGO LINKERS (SUPRA ), WHERE THE HONBLE HIGH COURT WAS IN AGREEMENT WITH THE ORDER PASSED BY THE TRIBUNAL, WHICH MAINLY DECIDED AN ISSUE OF FACT, NA MELY, THE NATURE OF THE CONTRACT BETWEEN THE PARTIES CONCERNED, AND IT WAS FOUND AS A MATTER OF FACT THAT THE CONTRACT WAS ACTUALLY BETWEEN THE EXP ORTER AND THE AIRLINE, AND THE ASSESSEE WAS ONLY AN INTERMEDIARY. IT WAS, THEREFORE, HELD THAT THE ASSESSEE IS NOT A PERSON RESPONSIBLE FOR DEDUCT ION OF TAX AT SOURCE IN TERMS OF SEC. 194C OF THE ACT. RELYING ON THE AFORE SAID DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CAR GO LINKERS (SUPRA) WE HOLD THAT THE PRESENT ASSESSEE, WHO IS CARRYING ON THE BUSINESS OF CLEARING AND FORWARDING AGENTS, IS NOT A PERSON RES PONSIBLE FOR DEDUCTING THE TAX AT SOURCE IN TERMS OF SEC. 194C OF THE ACT IN AS MUCH AS THE ASSESSEE IS ONLY AN INTERMEDIARY BETWEEN THE EXPORT ERS AND THE SHIPPING LINES AND IT MERELY FACILITATES THE CONTRACT FOR CA RRYING THE GOODS. SINCE THE ASSESSEE WAS NOT A PERSON RESPONSIBLE FOR DEDUC TION OF TAX AT SOURCE IN TERMS OF SEC. 194C OF THE ACT, THE QUESTION OF F AILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT M ADE TO SHIPPING LINES FOR AND ON BEHALF OF ITS CLIENT WOULD NOT ARI SE, AND, CONSEQUENTLY, PROVISIONS OF SEC. 40(A)(IA) CANNOT BE INVOKED IN R ESPECT OF THE PAYMENT MADE BY THE ASSESSEE TO SHIPPING LINES FOR AND ON B EHALF OF ASSESSEES CLIENT I.E. ULTIMATE EXPORTER OR IMPORTER. WE, THER EFORE, REVERSE THE ORDER OF AUTHORITIES BELOW AND DELETE THE DISALLOWANCE OF RS.2,04,72,855/- MADE U/S 40(A)(IA) OF THE ACT BY THE AO. 9. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. 9 10. DURING THE COURSE OF HEARING, LD D.R. HAS NOT D ISPUTED THE FACT THAT ASSESSEE RECEIVED THE SAID PAYMENT AGGREGATING TO RS.18,79,3 8,741 ON ACCOUNT OF REIMBURSEMENT OF EXPENSES FROM ITS CLIENTS APART FROM AGENCY COMM ISSION AND THE AGENCY COMMISSION HAS BEEN CONSIDERED AS ASSESSEES INCOME AND THE SA ME IS REFLECTED IN ITS PROFIT AND LOSS ACCOUNT. ASSESSEE HAS ADJUSTED REIMBURSEMENT OF TH E EXPENSES RECEIVED ON BEHALF OF ITS CLIENTS AND, THEREFORE, WE AGREE THAT THE SAME DO NOT CONSTITUTE PART OF ASSESSEES INCOME. WE OBSERVE THAT SIMILAR ISSUE WAS CONSIDER ED BY THE DELHI TRIBUNAL BY ITS ORDER DATED 1.8.2012 IN THE CASE OF JAY KAY FREIGHTERS PV T LTD (SUPRA) AND IT WAS HELD THAT THE AMOUNT MENTIONED IN THE BILL RAISED BY SHIPPING COM PANIES ON ULTIMATE CONSUMER WERE INITIALLY PAID BY THE ASSESSEE AND, THEREAFTER ASSE SSEE GOT REIMBURSED THE SAID AMOUNT FROM ITS CLIENT INCLUDING THE CHARGES OF THE ASSESS EE FOR SERVICE RENDERED. THEREFORE, ASSESSEE WAS NOT A PERSON RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 194C OF THE ACT AND, ACCORDINGLY, PROVISIONS OF SEC TION 40(A)(IA) CANNOT BE INVOKED IN RESPECT OF THE PAYMENTS MADE BY THE ASSESSEE TO SHI PPING LINES FOR AND ON BEHALF OF ASSESSEES CLIENTS. FURTHER, WE ALSO OBSERVE THAT DEPARTMENT HAS NOT DISPUTED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE LD CIT(A) T HAT ASSESSEE RENDERED 2351 JOBS RESULTING IN VOLUMINOUS BUSINESS TRANSACTIONS AND THE AO CALLED FOR VARIOUS DETAILS OF THE PAYMENTS IN LESS THAN 5 WORKING DAYS. WE AGRE E THAT IT IS NOT POSSIBLE FOR COMPUTING THE DETAILS IN A SHORT SPAN OF TIME AND N O ADVERSE INFERENCE COULD BE DRAWN FOR NOT ABLE TO FURNISH THE SAME. CONSIDERING THE FACTS OF THE CASE AND THE REASONS AS GIVEN BY LD CIT(A), MENTIONED HEREINABOVE, WE HOLD THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF LD CIT(A) IN DELETING THE SAID AD DITION OF RS.18,79,38,741 MADE BY THE AO. ACCORDINGLY, GROUND NOS. 1 & 2 TAKEN BY DEPART MENT IS REJECTED. 10 11. IN RESPECT OF GROUND NO.3 OF APPEAL TAKEN BY DE PARTMENT, RELEVANT FACTS ARE THAT ASSESSEE CLAIMED BAD DEBTS WRITTEN OFF OF RS.22,28, 000. AO ASKED THE ASSESSEE TO PRODUCE ALL THE DETAILS OF THE PARTIES AND THE YEAR IN WHICH SUCH DEBT AROSE ALONGWITH EVIDENCE OF SALES MADE TO THESE PARTIES AND ANY COR RESPONDENCES, SUPPORTING DOCUMENTS TO SHOW THAT THE DEBT HAS GONE BAD. AO H AS STATED THAT ASSESSEE COULD NOT PRODUCE THE DETAILS. HE HAS FURTHER STATED THAT TH ERE IS NO JUSTIFICATION FOR WRITING OFF SUCH BAD DEBTS AS THERE IS NO SUCH CORRESPONDENCE T O THE PARTIES TO INDICATE THAT THE DEBT HAS GONE BAD. AO DISALLOWED THE CLAIM OF THE ASSESSEE OF BAD DEBTS AMOUNTING TO RS.22,28,000 (IN THE COMPUTATION OF AO AT PAGE 16 O F ASSESSMENT ORDER, THE FIGURE MENTIONED IS RS.22,20,000, WHICH IS FACTUALLY NOT C ORRECT) STATING THAT THERE IS NO MATERIAL SUPPLIED BY THE ASSESSEE WHICH REVEALS THE IR-RECOVERABILITY OF THE DEBT. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 12. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT TH E AMOUNT OF RS.22,28,774 WAS WRITTEN OFF AS BAD DEBT OUT OF SUNDRY DEBTORS BECAU SE SAME WAS NOT RECOVERABLE. IT WAS SUBMITTED THAT IN ORDER TO MAINTAIN BUSINESS RE LATIONSHIP WITH THE CLIENTS, ASSESSEE HAS WRITTEN OFF SMALL BALANCES OUT OF THEIR ACCOUNT S, WHICH WERE NOT RECOVERABLE. THE AMOUNTS THUS WRITTEN OFF WERE IN SUBSTANCE DISCOUNT ALLOWED TO THEM FOR VARIOUS REASONS E.G. WHERE THE PARTY DISPUTES THE AMOUNT FO R SOME COMMERCIAL REASON ETC. IT WAS SUBMITTED THAT THE TOTAL AMOUNT OF RS.22.28 LAK HS IN RELATION TO THE GROSS OPERATING COLLECTION IS VERY REASONABLE AND CANNOT BE CONSIDE RED HIGH, ESPECIALLY IN A SERVICE ORIENTED BUSINESS WHERE THE CLIENTS CAN RAISE NUMBE R OF GROUNDS TO DISPUTE THE PAYMENTS, LIKE DELAYS, QUALITY OF SERVICE ETC. IT WAS CONTENDED THAT KEEPING IN VIEW OF SMALL SUMS INVOLVED, IT IS ALSO NOT PRACTICAL TO TA KE RECOURSE TO LEGAL REMEDIES, WHICH WOULD CUT OFF THE BUSINESS RELATIONSHIP WITH THOSE PARTIES PERMANENTLY. ASSESSEE ALSO 11 CONTENDED THAT COMMERCIAL EXPEDIENCY WOULD NOT JUST IFY TAKING SUCH AN AGGRESSIVE STAND BUT TO WRITE OFF THE AMOUNT. IT WAS CONTENDE D THAT AO DID NOT APPRECIATE THE PRACTICAL ASPECT OF THE BUSINESS, AND RATHER INSIST ED UPON THE DEMONSTRATIVE PROOF FOR THE QUALITY OF THE DEBTS WRITTEN OFF, WHICH WAS NOT REQUIRED TO BE GIVEN IN THE POST- AMENDMENT REGIME AFTER 1/4/1989. IT WAS CONTENDED THAT ASSESSEE HAD ACTUALLY WRITTEN OFF THE SAID DEBT IN THE BOOKS AND THAT IT IS NO LO NGER REQUIRED TO ESTABLISH TO THE SATISFACTION OF THE AO THAT DEBT HAS ACTUALLY BECOM E BAD. IT WAS FURTHER CONTENDED THAT IF THE AMOUNTS ARE RECOVERED THE SAME CAN BE TAXED UNDER SECTION 41(4) OF THE ACT AND PLACED RELIANCE ON THE DECISION OF ITAT MUMBAI (SB) IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK, 100 ITD 285(MUM)(SB). LD CIT(A ) CONSIDERED THE SUBMISSION OF ASSESSEE AND DELETED THE DISALLOWANCE OF RS.22,28,0 00 MADE BY THE AO. HENCE, THIS APPEAL BY THE DEPARTMENT. 13. LD D.R. RELIED ON THE ORDER OF AO AND SUBMITTED THAT ASSESSEE COULD NOT FURNISH THE DETAILS AND NO EVIDENCES WERE FILED AS TO IN W HICH YEAR THE INCOME ACTUALLY CREDITED BY THE ASSESSEE. 14. LD A.R. MADE HIS SUBMISSIONS ON THE LINES OF SU BMISSIONS MADE BEFORE LD CIT(A). HE SUBMITTED THAT AO DISALLOWED THE CLAIM ON THE GR OUND THAT DETAILS WERE NOT FILED TO DEMONSTRATE BY THE ASSESSEE THAT THOSE DEBTS BECOME IRRECOVERABLE. HE SUBMITTED THAT AFTER THE AMENDMENT IN SECTION 36(1)(VII) R.W.S 36( 2), IT IS SUFFICIENT IF ASSESSEE WRITES OFF BAD DEBTS IN BOOKS OF ACCOUNT TO CLAIM SAME AS BAD DEBTS AND IT IS NOT NECESSARY TO PROVE THAT DEBTS HAVE BECOME BAD. LD A.R. REFERRED THE DECISION OF HONBLE APEX COURT IN THE CASE OF TRF LTD VS CIT (323 ITR 397) AND SUB MITTED THAT AFTER 1.4.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE 12 AND IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 15. WE HAVE CONSIDERED THE SUBMISSIONS OF LD REPRES ENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT AO DISALLOWE D THE CLAIM OF BAD DEBT ON THE GROUND THAT ASSESSEE COULD NOT DEMONSTRATE THAT DEB TS WHICH HAVE BEEN CLAIMED AS BAD DEBTS HAS ACTUALLY BECOME IRRECOVERABLE FROM THE CL IENTS. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT ASSESSEE HAS ACTUALLY WRITTE N OFF THE SAID AMOUNT FROM ITS BOOKS OF ACCOUNT. SIMILAR ISSUE HAS BEEN CONSIDERED BY T HE ITAT MUMBAI (SB) IN THE CASE OF OMAN INTERNATIONAL BANK (SUPRA), WHEREIN, IT WAS HE LD THAT AS PER EXISTING PROVISIONS OF SECTION 36(1)(VII), AFTER AMENDMENT W.E.F. 1.4.1989 , IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE THAT THE AMOUNT WRITTEN OFF AS BAD DEBT IS INDEED BAD FOR THE PURPOSE OF ALLOWANCE UNDER SECTION 36(1)(VII) OF THE ACT. THE APEX COURT IN THE CASE OF TRF (SUPRA) HELD THAT AFTER 1.4.1989, IT IS NOT NECESSARY FOR T HE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE AND IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. CON SIDERING THE ABOVE DECISIONS AND THE FACTS OF THE CASE, WE HOLD THAT LD CIT (A) HAS RIGH TLY DELETED THE DISALLOWANCE OF BAD DEBTS OF RS.22,28,000 AS CLAIMED BY THE ASSESSEE. HENCE, GROUND NO.3 OF APPEAL TAKEN BY DEPARTMENT IS REJECTED. 16. NOW WE TAKE UP APPEAL FILED BY ASSESSEE BEING I.T.A. NO.5805/M/2008 . 17. THE ONLY ISSUE IN THE APPEAL FILED BY ASSESSEE IS AS TO WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD CIT(A) IS JUSTIFIED T O CONFIRM THE ADDITION OF RS.72,00,000/- ON ACCOUNT OF SHARE PREMIUM AMOUNT. 13 18. RELEVANT FACTS ARE THAT ASSESSEE, IN THE ASSESS MENT YEAR UNDER CONSIDERATION, RECEIVED SHARE PREMIUM OF RS.72,00,000 FROM FOLLOW ING FOUR PARTIES ON ALLOTMENT OF 900 EQUITY SHARES OF RS.100/- EACH AT A PREMIUM OF RS.8 ,000/- PER SHARES: SR. NO NAME OF THE COMPANY NO.OF SHARES ALLOTTED FV(RS.)FACE VALUE AT RS.100 PER SHARE SHARE PREMIUM (RS.) 1. JMD TELEFILMS INDS. LTD. 300 30,000 24,00,000 2. WARNER MULTIMEDIA LTD. 200 20,000 16,00,000 3. SHRESTH LEASING & FIN. LTD. 200 20,000 16,00,000 4. TRIO MERCANTILE AND TRADING LTD. 200 20,000 16,00,000 TOTAL: 900 90,000 72,00,000 19. AO HAS STATED THAT DURING THE COURSE OF SURVEY, IT WAS NOTICED THAT THE SHARES WERE ALLOTED IN THE FINANCIAL YEAR 2004-05 BUT NO C ERTIFICATES WERE ISSUED TO THE INVESTORS TILL THE DATE OF SURVEY. FURTHER, THERE WAS NO RESOLUTION PASSED FOR ALLOTMENT OF THOSE SHARES. AO HAS STATED THAT STATEMENT U/S. 133A OF THE DIRECTOR OF THE ASSESSEE COMPANY SHRI GEORGE JOSEPH WAS RECORDED ON 23.2.20 06, WHEREIN, HE ADMITTED THAT THE SHARE PREMIUM ACCOUNT AMOUNTING TO RS.72 LAKHS IS THE UNACCOUNTED MONEY OF THE ASSESSEE, WHICH WAS ROUTED WITH THE HELP OF THE CON CERNS AGAINST WHOSE NAME, THE SHARE PREMIUM IS SHOWN. AO HAS FURTHER STATED THAT DURING THE COURSE OF POST SURVEY ENQUIRIES AND IN RESPONSE TO LETTER DATED 25.4.2006 , ASSESSEE INFORMED VIDE HIS LETTER DATED 6.5.2006 THAT THE STATEMENT RECORDED DURING T HE SURVEY WAS GIVEN UNDER PRESSURE AND THE SHARE PREMIUM ACCOUNT IS GENUINE. HOWEVER, AO DID NOT ACCEPT THE SAID RETRACTION FROM THE STATEMENT AND STATED THAT ASSES SEE RETRACTED THE STATEMENT AFTER 2 AND MONTHS TILL HE RECEIVED THE QUESTIONNAIRE FRO M THE DEPARTMENT. AO HAS FURTHER 14 STATED THAT IT IS HIGHLY UNLIKELY THAT EVEN AFTER P ASSAGE OF MORE THAN ONE YEAR OF RECEIVING THE MONEY SHARES ARE NOT DISPATCHED. FUR THER, ASSESSEE COULD NOT FURNISH ANY CORRESPONDENCES FROM THE PARTIES WHO HAVE INVESTED MONEY IN THE ASSESSEE COMPANY ASKING FOR SHARE CERTIFICATES. FURTHER, ASSESSEE H AS NO BUSINESS RELATIONSHIP WITH THE ABOVE MENTIONED FOUR COMPANIES. ASSESSEE COMPANY H AS ALSO NOT ISSUED ANY DIVIDEND TO THESE COMPANIES FOR THE ENTIRE PERIOD. AO CONSI DERING ABOVE FACTS, CONSIDERED THE SAID SHARE PREMIUM OF RS.72 LAKHS AS UNDISCLOSED IN COME OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). LD CIT(A) CONFIRMED THE ACTION OF AO TO MAKE THE ADDITION OF RS.72 LAKHS TO THE INCOME O F THE ASSESSEE. HENCE, THIS APPEAL BY THE ASSESSEE. 20. AT THE TIME OF HEARING, LD A.R. SUBMITTED THAT AO HAS DISPUTED THE GENUINENESS OF THE ISSUANCE OF SHARES ONLY ON THE BASIS OF STAT EMENT OF SHRI GEORGE JOSEPH, DIRECTOR OF THE ASSESSEE MADE AT THE TIME OF SURVEY THAT THE SHARE PREMIUM AMOUNT IS THE UNACCOUNTED MONEY OF THE ASSESSEE WHICH HAD BEEN RO UTED WITH THE HELP OF THE CONCERNS WHOSE NAMES WERE SHOWN AS ALLOTTEE OF THE SHARES. HE SUBMITTED SHRI GEORGE JOSEPH RETRACTED HIS STATEMENT VIDE LETTER DATED 6. 5.2006, COPY PLACED AT PAGES 27-29 OF PB THAT THE SAID STATEMENT WAS MADE UNDER PRESSU RE AND HENCE STATED THAT THE SHARE TRANSACTIONS WERE GENUINE. LD A.R. SUBMITTED THAT ASSESSEE FILED REQUISITE DETAILS IN RESPECT OF ALL THE FOUR SHARE APPLICANTS VIZ SHA RE APPLICATION FORM DULY SUBMITTED BY THE SAID SHARE APPLICANTS ALONGWITH CERTIFIED COPY OF BOARD RESOLUTION, CONFIRMATION LETTER ISSUED BY THE SHARE APPLICANTS THAT THEY APPLIED FO R EQUITY SHARES OF THE ASSESSEE COMPANY AT A PREMIUM OF RS.8000/- EACH, BANK STATEM ENT OF THE RESPECTIVE SHARE APPLICANTS ALONGWITH DETAILS OF THE CHEQUES EVIDENC ING THAT THE PAYMENT OF SHARE APPLICATION OF MONEY WAS RECEIVED BY ACCOUNT PAYEE CHEQUES. LD A.R. SUBMITTED THAT 15 ALL THE SHARE APPLICANTS ARE ASSESSED TO INCOME TAX AND FILED THE COPY OF THE INCOME TAX RETURNS ALONGWITH THEIR ANNUAL RETURNS AND THE COPY OF THE CERTIFICATE OF INCORPORATION AND THE MEMORANDUM AND ARTICLE OF ASSOCIATION. LD A.R. SUBMITTED THAT THE RELEVANT COPIES AND DETAILS ARE PLACED IN THE PAPER BOOK AT PAGES 30 TO 113 IN RESPECT OF SHARE APPLICANT OF JMD TELEFILMS INDUSTRIES LTD., AT PAGE S 114 TO 175 OF PB IN RESPECT OF SHARE APPLICANT OF WARNER MULTIMEDIA LTD., AT PAGES 176 TO 300 IN RESPECT OF SHARE APPLICANT OF SHRESTH LEASING AND FINANCE LTD., AND AT PAGES 3 01 TO 405 OF SHARE APPLICANT OF TRIO MERCANTILE AND TRADING LIMITED. LD A.R. SUBMITTED THAT ASSESSEE ALSO FILED RETURN OF ALLOTMENT OF SHARES BEFORE THE REGISTRAR OF COMPANI ES AND SUBMITTED THAT COPY OF THE SAID RETURN IS PLACED AT PAGES 407 TO 409 OF PB EVI DENCING THE ALLOTMENT OF 900 EQUITY SHARES OF THE ASSESSEE COMPANY, FILED ON 21.11.2005 . LD A.R. SUBMITTED THAT BOOK VALUE OF THE SHARE AS ON 31.3.2004 OF THE ASSESSEE COMPANY WAS RS.10,305 AND THE ASSESSEE COMPANY DISCOUNTED ITS VALUATION OF ABOUT 20% AND ARRIVED AT THE PREMIUM OF RS.8000 PER SHARE. LD A.R. SUBMITTED THAT ASSESSE E HAS FILED REQUISITE DETAILS BEFORE THE AUTHORITIES BELOW ESTABLISHING IDENTITY OF THE SHARE APPLICANTS AS WELL AS THEIR CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSAC TION BUT THE AO DISBELIEVED THE GENUINENESS OF THE ALLOTMENT OF SHARES MERELY RELYI NG ON THE STATEMENT MADE AT THE TIME OF SURVEY OPERATION AND IGNORING THAT THE STAT EMENT WAS RETRACTED BY THE ASSESSEE VIDE HIS SUBSEQUENT LETTER DATED 6.5.2006. LD A.R. RELYING ON THE DECISION OF ITAT MUMBAI IN THE CASE OF DCIT VS PREMSONS, (I.T.A. NO. 4698/M/2006), COPY PLACED AT PAGES 136 TO 141 OF PB SUBMITTED THAT CBDT CIRCULAR DATED 10.3.2003 WAS CONSIDERED AND THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S.KHADER KHAN SON, 300 ITR 157(MAD) AND DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF PAUL MATHEW & SONS VS CIT , 263 ITR 101(KER) HELD THAT NO 16 ADDITION CAN BE MADE OR SUSTAINED SIMPLY ON THE BAS IS OF STATEMENT RECORDED AT THE TIME OF SURVEY/SEARCH. IT WAS STATED BY THE TRIBUNAL TH AT IN ORDER TO MAKE THE ADDITION ON THE BASIS OF SURRENDER DURING SEARCH OR SURVEY, IT IS SINE QUA NON THAT THERE SHOULD BE SOME OTHER MATERIAL TO CO-RELATE THE UNDISCLOSED IN COME WITH SUCH STATEMENT. LD A.R. SUBMITTED THAT SIMILAR VIEW WAS ALSO TAKEN BY HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UTTMCHAND JAIN IN INCOME TAX APPEAL NO.634 OF 2009 BY ORDER DATED 2 ND JULY, 2009, COPY PLACED AT PAGES 142 TO 152 OF PB. LD A .R. ALSO REFERRED CBDT INSTRUCTION NO.286/2/2003-IT(INV.II), DATED 10.3.2003, COPY PLA CED AT PAGE 135 OF PB, WHEREIN, IT WAS OBSERVED AS UNDER: CONFESSION OF ADDITIONAL INCOME DURING THE COURSE O F SEARCH AND SEIZURE AND SURVEY OPERATION INSTANCES HAVE COME TO THE NOTICE OF THE BOARD WHER E ASSESSEES HAVE CLAIMED THAT THEY HAVE BEEN FORCED TO CONFESS THE UNDISCLOS ED INCOME DURING THE COURSE OF THE SEARCH & SEIZURE AND SURVEY OPERATIONS. SUCH CONFESSIONS, IF NOT BASED UPON CREDIBLE EVIDENCE, ARE LATER RETRACTED BY THE CONCERNED ASSESSEES WHILE FILING RETURNS OF INCOME. IN THESE CIRCUMSTANCES, S UCH CONFESSIONS DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATIONS DO NOT SERVE ANY USEFUL PURPOSE. IT IS, THEREFORE, ADVISED THAT THERE SHOUL D BE FOCUS AND CONCENTRATION ON COLLECTION OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED BEF ORE THE INCOME-TAX DEPARTMENT. SIMILARLY, WHILE RECORDING STATEMENT DURING THE COU RSE OF SEARCH & SEIZURE AND SURVEY OPERATIONS NO ATTEMPT SHOULD BE MADE TO OBTA IN CONFESSION AS TO THE UNDISCLOSED INCOME. ANY ACTION ON THE CONTRARY SHAL L BE VIEWED ADVERSELY. FURTHER, IN RESPECT OF PENDING ASSESSMENT PROCEEDIN GS ALSO, ASSESSING OFFICERS SHOULD RELY UPON THE EVIDENCES/MATERIALS GATHERED D URING THE COURSE OF SEARCH/ SURVEY OPERATIONS OR THEREAFTER WHILE FRAMING THE R ELEVANT ASSESSMENT ORDERS. 21. LD A.R. SUBMITTED THAT ASSESSEE FILED REQUISITE DETAILS TO ESTABLISH THE GENUINENESS OF THE TRANSACTIONS AND, THEREFORE, ASS ESSEE DISCHARGED ITS BURDEN WHICH LAY UPON IT AND HENCE, ADDITION MADE IS NOT JUSTIFI ED. 22. LD A.R. ALSO REFERRED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS LTD., 216 CTR (SC) 195 AND ALSO THE DECISION OF HONBLE APEX COURT IN 17 THE CASE OF CIT VS. STELLER INVESTMENT LTD., 251 IT R 263(SC) AND SUBMITTED THAT IF THE ASSESSEE HAS PROVED IDENTITY OF THE SHARE APPLICANT S AND THE AO CONSIDERED THAT APPLICATION MONEY IS RECEIVED BY THE ASSESSEE FROM BOGUS SHAREHOLDERS WHOSE NAMES ARE GIVEN, AO COULD PROCEED TO MAKE THE ADDITION IN THE HANDS OF THE INDIVIDUAL IN ACCORDANCE WITH LAW IN STEAD OF MAKING THE ASSESSME NT IN THE HANDS OF THE COMPANY WHO HAS ISSUED THE SHARES. LD A.R. SUBMITTED THAT THE ADDITION MADE IS NOT JUSTIFIED AND SAME SHOULD BE DELETED. 23. ON THE OTHER HAND, LD D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. HE REFERRED PARA 7.10 OF THE ORDER OF LD CIT(A) AND SU BMITTED THAT ASSESSEE RECEIVED ALLEGED SHARE APPLICATION MONEY IN FINANCIAL YEAR 2 004-05 AND SURVEY HAD TAKEN PLACE IN FEBRUARY, 2006 AND IT WAS FOUND AT THE TIME OF SURV EY THAT SHARE CERTIFICATES OF THE SHAREHOLDERS WERE LYING WITH THE ASSESSEE COMPANY. THERE WAS NO CORRESPONDENCE BETWEEN THE ASSESSEE AND THOSE SHARE APPLICANTS, WH O APPLIED FOR SHARES. THEREFORE, AO HAS RIGHTLY CONSIDERED IN VIEW OF THE CIRCUMSTAN TIAL EVIDENCE THAT RECEIPT OF SO CALLED SHARE APPLICATION MONEY IS NOT GENUINE. HE SUBMITT ED THAT THE DIRECTOR OF ASSESSEE COMPANY ALSO ACCEPTED IN HIS STATEMENT THAT HE RECE IVED THE MONEY FROM THE SAID SHARE APPLICANTS AND RETURNED THE SHARE PREMIUM IN CASH. HE SUBMITTED THAT THE DECISION IN THE CASE OF LOVELY EXPORTS LTD., 216 CTR (SC) 195 ( SUPRA) RELIED BY LD A.R. IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. LD D.R . SUBMITTED THAT RETRACTION MADE BY THE ASSESSEE HAS RIGHTLY NOT BEEN ACCEPTED BY THE A O. HE SUBMITTED THAT THE ADDITION CONFIRMED BY LD CIT(A) BE SUSTAINED. 18 24. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH CASES RELIED UPON AS ALSO T HE RELEVANT PAGES OF PB REFERRED BY LD A.R. AT THE TIME OF HEARING (SUPRA). 25. WE OBSERVE THAT ASSESSEE COMPANY IN ASSESSMENT YEAR UNDER CONSIDERATION ISSUED 900 EQUITY SHARES OF RS.100 EACH AT A PREMIU M OF RS.8000/- AND RECEIVED THE AMOUNT AGGREGATING TO RS.72,00,000 AS UNDER: SR. NO NAME OF THE COMPANY NO.OF SHARES ALLOTTED FV(RS.)FACE VALUE AT RS.100 PER SHARE SHARE PREMIUM (RS.) 1. JMD TELEFILMS INDS. LTD. 300 30,000 24,00,000 2. WARNER MULTIMEDIA LTD. 200 20,000 16,00,000 3. SHRESTH LEASING & FIN. LTD. 200 20,000 16,00,000 4. TRIO MERCANTILE AND TRADING LTD. 200 20,000 16,00,000 TOTAL: 900 90,000 72,00,000 26. THERE WAS A SURVEY OPERATION ON 23.2.2006 AND T HE STATEMENT OF SHRI GEORGE JOSEPH WAS RECORDED U/S.133A OF THE ACT. IN HIS ST ATEMENT, SHRI GEORGE JOSEPH ADMITTED THAT SHARE PREMIUM ACCOUNT AMOUNTING TO RS .72,00,000 IS THE UNACCOUNTED MONEY OF THE ASSESSEE, WHICH HAD BEEN ROUTED WITH T HE HELP OF THE CONCERNS AGAINST WHOSE NAME SHARE PREMIUM IS SHOWN. HE FURTHER DECLA RED A SUM OF RS.25,00,000 AS UNDISCLOSED INCOME OF THE ASSESSEE. WE OBSERVE THA T AT THE TIME OF ASSESSMENT PROCEEDINGS, ASSESSEE FILED A LETTER DATED 6.5.2006 , COPY PLACED AT PAGES 27-29 OF PB AND STATED THAT SAID STATEMENT WAS MADE BY SHRI GEO RGE JOSEPH, DIRECTOR UNDER PRESSURE WITHOUT KNOWING THE CONSEQUENCE OF THE SAM E. AO DID NOT ACCEPT THE SAID RETRACTION OF STATEMENT OF SHRI GEORGE JOSEPH AND R ELYING ON THE STATEMENT MADE U/S.133A AT THE TIME OF SURVEY, CONSIDERED THE ISSU ANCE OF SHARE CAPITAL AS BOGUS AND 19 NOT GENUINE. NOW THE QUESTION ARISES AS TO WHETHER , ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE RETRACTION OF THE STATEMENT MADE BY S HRI GEORGE JOSEPH IS JUSTIFIED OR NOT. 27. WE OBSERVE THAT ASSESSEE FILED COPIES OF REQUIS ITE DETAILS VIZ; COPY OF SHARE APPLICATION FORM FROM EACH OF THE ABOVE NAMED FOUR APPLICANTS ALONGWITH COPY OF BOARD RESOLUTION, THEIR BANK STATEMENT GIVING PARTICULARS OF CHEQUE NOS. AND THE AMOUNT DEBITED FROM THEIR ACCOUNTS, AS ALSO COPY OF CONFIR MATION LETTERS. ASSESSEE HAS ALSO FILED THE COPY OF THE INCOME TAX RETURN OF EACH OF THE AP PLICANTS EVIDENCING THAT THEY ARE ASSESSED TO TAX ESTABLISHING THEIR IDENTITY. ASSES SEE HAS ALSO FILED COPY OF THE CERTIFICATE OF INCORPORATION AND THE MEMORANDUM AND ARTICLE OF ASSOCIATION IN THE PAPER BOOK. THE ABOVE DOCUMENTS ARE PLACED AT PAGES 30 T O 113 OF PB IN THE CASE OF JMD TELEFILMS INDS. LTD, AT PAGES 114 TO 175 IN THE CAS E OF WARNER MULTIMEDIA LTD., AT PAGES 176 TO 300 IN THE CASE OF SHRESTH LEASING & FIN. LT D AND AT PAGES 301 TO 405 IN THE CASE OF TRIO MERCANTILE AND TRADING LTD. FURTHER, ASSES SEE HAS ALSO FILED COPY OF THE RETURN OF ALLOTMENT OF SHARES FILED BEFORE THE REGISTRAR OF C OMPANIES ON 21.11.2005, COPY PLACED AT PAGES 407-409 EVIDENCING THE ALLOTMENT OF 900 EQ UITY SHARES OF THE COMPANY TO THE ABOVE NAMED APPLICANTS. CONSIDERING ABOVE DOCUMENT S WHICH WERE FILED BY THE ASSESSEE EVEN BEFORE THE AO DURING THE COURSE OF AS SESSMENT PROCEEDINGS AND THE SAID FACTS HAS NOT BEEN DISPUTED BY LD D.R., WE ARE OF T HE CONSIDERED VIEW THAT ASSESSEE HAS ESTABLISHED NOT ONLY THE EXISTENCE OF THE SHARE APP LICANTS BUT ALSO ESTABLISHED THE IDENTITY OF THE APPLICANTS. WE OBSERVE THAT AO HAS ALSO NOT DISPUTED THE EXISTENCE AS WELL AS IDENTITY OF THE SHARE APPLICANTS. WE ALSO OBSERVE THAT AO HAS ALSO NOT DOUBTED THE CREDITWORTHINESS OF THE SHARE APPLICANTS. THE SHARE APPLICATION MONEY HAS BEEN DULY RECORDED IN ASSESSEES BOOKS OF ACCOUNT AND TH E PAYMENT OF SHARES APPLICATION MONEY WAS ALSO RECORDED IN THE ACCOUNTS OF EACH OF THE SHARE APPLICANTS. CONSIDERING 20 THE ABOVE FACTS ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE HAS NOT ONLY PROVED THE IDENTITY OF THE SHARE APPLICANTS BUT ALS O ESTABLISHED THE CREDITWORTHINESS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRA NSACTIONS. 28. NOW THE QUESTION ARISES THAT WHEN ALL THE INGRE DIENTS CONTAINED IN SECTION 68 HAVE BEEN FULFILLED ESTABLISHING THE GENUINENESS OF THE TRANSACTIONS, CAN THE AO TREAT THE SAID SHARE PREMIUM AMOUNT AS UNEXPLAINED U/S.68 OF THE ACT MERELY ON THE BASIS OF STATEMENT MADE BY ONE OF THE DIRECTORS OF ASSESSEE COMPANY U/S.133A OF THE ACT WITHOUT BRINGING ANY EVIDENCE ON RECORD TO THE CONT RARY. 29. WE OBSERVE THAT ASSESSEE VIDE LETTER DATED 6.5. 2006, COPY PLACED AT PAGES 27-29 OF PB THAT THE SAID STATEMENT U/S.133A AT THE TIME OF SURVEY ON 23.2.2006 WAS MADE UNDER PRESSURE BUT THE AO REJECTED THE SAID RETRACT ION AND ALSO IGNORING THE EVIDENCE ON RECORD BUT PROCEEDED TO MAKE THE ADDITION ONLY ON T HE BASIS OF THE SAID STATEMENT WITHOUT BRINGING ANY EVIDENCE ON RECORD TO CONTROVE RT THE EVIDENCE FILED BY THE ASSESSEE. THE CBDT IN ITS INSTRUCTION DATED 10.3.2 003 (SUPRA) STATED THAT CONFESSIONS, IF NOT BASED UPON CREDIBLE EVIDENCE, ARE LATER RETR ACTED BY THE CONCERNED ASSESSEE AND, THEREFORE, SUCH CONFESSION DURING THE COURSE OF SEA RCH AND SEIZURE AND SURVEY OPERATIONS DO NOT SERVE ANY USEFUL PURPOSE. THE CB DIT ALSO ADVISED THAT THERE SHOULD BE FOCUS AND CONCENTRATION ON COLLECTION OF EVIDENC E OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NO T LIKELY TO BE DISCLOSED BEFORE THE INCOME TAX DEPARTMENT. IT WAS ALSO STATED IN THE I NSTRUCTION THAT WHILE RECORDING STATEMENT DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATION, NO ATTEMPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO THE UNDIS CLOSED INCOME. THE ITAT MUMBAI IN THE CASE OF PRESONS (SUPRA) HAS ALSO HELD AFTER CON SIDERING THE DECISIONS OF HONBLE 21 HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S. KHADER KHAN SON (SUPRA) AND THE HONBLE KERALA HIGH COURT IN THE CASE OF PAUL MATHE W & SONS VS CIT (SUPRA) AND ALSO CONSIDERING THE CBDT INSTRUCTION DATED 10.3.2003 (S UPRA) THAT NO ADDITION CAN BE MADE OR SUSTAINED SIMPLY ON THE BASIS OF STATEMENT RECOR DED AT THE TIME OF SURVEY/SEARCH. THEREFORE, THERE SHOULD BE SOME MATERIAL TO CO-RELA TE THE UNDISCLOSED INCOME WITH SUCH STATEMENT. CONSIDERING THE ABOVE DECISIONS AND THE MATERIAL ON RECORD, WE HOLD THAT SAID STATEMENT MADE AT THE TIME OF SURVEY ON 23.2.2 006 CANNOT BE THE SOLE BASIS FOR MAKING THE ADDITION BY TREATING THE ISSUANCE OF SHA RE AT A PREMIUM OF RS.8000 AS BOGUS. 30. NOW COMING TO THE QUESTION AS TO WHETHER THE AS SESSEE HAS DISCHARGED ITS BURDEN WHICH LAY UPON IT TO PROVE THE GENUINENESS O F THE ISSUANCE OF SHARES. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BARKHA SYNTHETI CS LTD VS ACIT(2005) 197 CTR 432(RAJ) HELD THAT THE PRINCIPLE RELATING TO BURDEN OF PROOF CONCERNING ASSESSEE IS THAT WHETHER THE MATTER CONCERNS THE MONEY RECEIPTS BY W AY OF SHARE APPLICATION FROM INVESTORS, THROUGH BANKING CHANNELS, ASSESSEE HAS T O PROVE EXISTENCE OF PERSONS IN WHOSE NAME THE SHARE APPLICATION IS RECEIVED. ONCE THE EXISTENCE OF INVESTOR IS PROVED IT IS NO FURTHER BURDEN ON THE ASSESSEE TO PROVE WH ETHER THAT PERSON ITSELF HAS INVESTED THE SAID MONEY OR SOME PERSONS MADE INVESTMENTS IN THE NAME OF THAT PERSON. THE BURDEN THEN SHIFTS ON REVENUE TO ESTABLISH THAT SUC H INVESTMENT HAS COME FROM ASSESSEE COMPANY ITSELF. THE HONBLE APEX COURT HA S ALSO HELD IN THE CASE OF DAULAT RAM RAWATMUL, 87 ITR 349(SC) THAT ONUS TO PROVE THA T THE APPARENT IS NOT THE REAL IS ON THE PERSON WHO CLAIMS IT TO BE SO. THEREFORE, O NUS IS ON THE DEPARTMENT TO PROVE THAT THE SHARE APPLICATION MONEY SUBSCRIBED TO THE SHARE CAPITAL OF THE ASSESSEE COMPANY BY THE ABOVE NAMED SHARE APPLICANTS IS NOT THE MONEY OF THE SHARE APPLICANTS 22 BUT OF THE ASSESSEE COMPANY, IS ON THE DEPARTMENT. IN THE CASE BEFORE US, THE DEPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECORD T O ESTABLISH THE SAME. WE ARE OF THE CONSIDERED VIEW THAT CONSIDERING EVIDENCE ON RE CORD, AO HAS DOUBTED THE RECEIPT OF SHARE PREMIUM ON SURMISES AND CONJECTURES AND HAS N OT BROUGHT ANY COGENT MATERIAL ON RECORD TO ESTABLISH THAT IT WAS THE ASSESSEES O WN UNACCOUNTED MONEY CAME BACK TO IT BY WAY OF FAKE INTRODUCTION OF SHARE CAPITAL. T HE HONBLE APEX COURT HAS ALSO CONSIDERED SIMILAR ISSUE IN THE CASE OF LOVELY EXPO RTS (SUPRA) AS UNDER: CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDIS CLOSED INCOME UNDER SECTION 68 OF THE I.T.ACT, 1961? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, W HOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO R EOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT. 31. IN THE CASE UNDER CONSIDERATION BEFORE US, AS S TATED ABOVE, ASSESSEE HAS FURNISHED DETAILS OF SHARE APPLICATION WITH PAN NO. AND BANK STATEMENT. FURTHER, SAID SHARE APPLICANTS HAVE ALSO FILED CONFIRMATION LETTE RS PLACED AT PAGE 34 IN THE CASE OF JMD TELEFILMS INDUSTRIES LTD., AT PAGE 117 IN THE C ASE OF WARMER MULTIMEDIA LTD., AT PAGE 179 IN THE CASE OF SHRESTHA LEASING & FINANCE LTD,. AND AT PAGE 302 IN THE CASE OF TRIO MERCANTILE & TRADING LTD. IN THE SAID CONFIRM ATION LETTERS, BANK DETAILS TO MAKE THE PAYMENT TO ASSESSEE COMPANY FOR ALLOTMENT OF SHARES IS ALSO STATED. THE TRANSACTIONS ARE ADMITTEDLY RECORDED IN THE BOOKS OF ACCOUNT BOT H BY THE ASSESSEE COMPANY AS WELL AS AFORESAID SHARE APPLICANTS. THEREFORE, WE ARE O F THE CONSIDERED VIEW THAT NO ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT IS WARRANTED IN THE CASE OF ASSESSEE ON THE GIVEN FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF AO IS CONTRARY TO THE DECISION OF HON BLE APEX COURT IN THE CASE OF LOVELY 23 EXPORTS (SUPRA). ACCORDINGLY, WE DELETE THE ADDITI ON OF RS.72 LAKHS SUSTAINED BY LD CIT(A) BY ALLOWING GROUNDS OF APPEAL TAKEN BY ASSES SEE. 32. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS RE JECTED AND WHEREAS APPEAL FILED BY ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2012 SD/- (P.M.JAGTAP) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 21 ST NOVEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),VII, MUMBA I 4. COMMISSIONER OF INCOME TAX, CITY-VII , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH D MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI