NISHOTTAM TRADERS P. LTD, MUMBAI V. ITO 9(2)(3), MUMBAI

ITA 6874/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1051 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: VK SABHARWAL
• Keywords: Unexplained cash credit; Accommodation entries; Reassessment proceedings
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 6874/MUM/2014 : (A.Y : 2010-11) M/S. NISHOTTAM TRADERS PVT. LTD., 39,362/170, ANANT NIWAS, NARSHI NATHA STREET, BHAT BAZAR, MUMBAI 400 009 (APPELLANT) PAN : AACCN7655D VS. ITO-9(2)(3), MUMBAI (RESPONDENT) APPELLANT BY : SHRI V.K. SABHARWAL RESPONDENT BY : SHRI N.P. SINGH (CIT-DR) DATE OF HEARING : 10/04/2017 DATE OF PRONOUNCEMENT : 05/05/2017 O R D E R PER G.S. PANNU, AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-20, MUMBAI DATED 10.7.2014, PER TAINING TO THE ASSESSMENT YEAR 2010-11, WHICH IN TURN HAS ARISEN F ROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 25.3.2013 UND ER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, THE APPELLANT HAS RAISED TWO GRO UNDS IN ITS MEMO OF APPEAL; FIRSTLY, WITH REGARD TO AN ADDITION OF R S.14,04,57,500/- CONFIRMED BY THE CIT(A) U/S 56(1) OF THE ACT; AND, SECONDLY, WITH RESPECT 2 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. TO AN ADDITION OF RS.73,97,500/- CONFIRMED BY THE C IT(A) U/S 68 OF THE ACT. NOTABLY, THE AFORESAID AMOUNTS REFLECTED THE AMOUNTS OF SHARE PREMIUM AND THE CORRESPONDING EQUITY SHARE CAPITAL RESPECTIVELY, RECEIVED DURING THE YEAR UNDER CONSIDERATION. HOWE VER, SUBSEQUENTLY VIDE COMMUNICATION DATED 9.11.2016, APPELLANT HAS A LSO RAISED ADDITIONAL GROUNDS WHICH READ AS UNDER :- A) THAT THE ORDER PASSED U/S 143(3) OF THE INCOME TA X ACT, 1961 ON 25/03/2013 BY THE ASSESSING OFFICER BECOMES ERRONEOUS AS NOT TENABLE BECAUSE OF MERGING WITH THE SUBSEQUENT ORDER PASSED U/ S 143(3) R.W.S. 153C OF THE INCOME TAX ACT, 1961 ON 04/03/2016 WHERE BY MODUS- OPERANDI OF THE APPELLANT COMPANY WAS FINALLY DECID ED AS MERELY TOOL IN THE HANDS OF SH. SHIRISH C. SHAH IN WHOSE CASE A LL THE ADDITIONS WERE MADE, AS SUCH THE INCOME OF THE APPELLANT COMPANY W AS COMPUTED AT NIL. B) THAT THE LD. AO AS WELL AS THE LD. CIT(A) HAS GRO SSLY ERRED IN LAW IN NOT LIFTING THE CORPORATE VEIL THOUGH THE IMPORTANCE OF T HE SAME HAS BEEN SETTLED BY THE HON'BLE SC IN THE CASE OF AZADI BACH AO. C) THAT THE LD. AO AS WELL AS THE LD. CIT(A) HAS ERRE D IN LAW IN NOT APPLYING THE PRINCIPLE OF SUBSTANCE OVER FORM WHILE ADJUDICATING THE APPEAL. 3. IN THE ABOVE BACKGROUND, THE RIVAL COUNSELS HAVE BEEN HEARD AND THE RELEVANT MATERIAL PERUSED. INSOFAR AS THE ADDI TIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS CONCERNED, THE SAM E IS PRIMARILY EMANATING FROM AN ASSESSMENT SUBSEQUENTLY FINALISE D BY THE ASSESSING OFFICER ON 04/03/2016 U/S 143(3) R.W.S. 153C OF THE ACT FOR THE INSTANT ASSESSMENT YEAR. ACCORDING TO THE APPELLANT, IN TH E ASSESSMENT SO MADE SUBSEQUENTLY, THE AMOUNT OF SHARE CAPITAL AND SHARE PREMIUM 3 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. HAVE NOT BEEN ADDED AND, ON THE CONTRARY, IT HAS BE EN HELD THAT THE REAL INCOME FROM SUCH TRANSACTIONS IS ASSESSABLE IN THE HANDS OF ONE SHRI SHIRISH C. SHAH AND NOT THE ASSESSEE-COMPANY. ON T HE BASIS OF THE AFORESAID STAND OF THE ASSESSING OFFICER TAKEN IN A SUBSEQUENT ASSESSMENT FOR THE VERY SAME ASSESSMENT YEAR, THE L EARNED REPRESENTATIVE HAS POINTED OUT THAT THE INSTANT ADD ITION BECOMES UNTENABLE. INSOFAR AS THE ADMISSION OF SUCH AN ADD ITIONAL GROUND IS CONCERNED, THE SAME HAS BEEN JUSTIFIED ON THE GROUN D THAT IT INVOLVES APPRECIATION OF A LEGAL POINT AND AS THE RELEVANT FACTS ARE AVAILABLE, THE SAME DESERVES TO BE ADMITTED IN VIEW OF THE JUDGMEN T OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD., 229 ITR 383 (SC) . ON THIS ASPECT, THE LD. CIT-DR HAS NOT OPPOSED T HE PLEA FOR ADMISSION OF ADDITIONAL GROUNDS. 4. IN OUR CONSIDERED OPINION, INSOFAR AS THE ADMISS IBILITY OF THE AFORESAID ADDITIONAL GROUNDS IS CONCERNED, SAME DES ERVE TO BE ADMITTED AS IT IS QUITE RELEVANT TO DECIDE THE CORR ECT TAX LIABILITY OF THE ASSESSEE-COMPANY, ESPECIALLY CONSIDERING THE FACT T HAT THE PLEA IS BASED ON A SUBSEQUENT STAND TAKEN BY THE ASSESSING OFFICE R IN THE COURSE OF ASSESSMENT COMPLETED U/S 153C OF THE ACT IN THE HAN DS OF THE ASSESSEE- COMPANY FOR THE INSTANT ASSESSMENT YEAR ITSELF. IN THE ABOVE BACKGROUND, THE RIVAL COUNSELS WERE HEARD ON THE ME RITS OF THE SAID ADDITIONAL GROUNDS. 5. IN ORDER TO APPRECIATE THE PRELIMINARY PLEA RAIS ED BY THE ASSESSEE, THE FOLLOWING DISCUSSION IS RELEVANT. TH E APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPAN IES ACT, 1956 4 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. AND DURING THE YEAR UNDER CONSIDERATION IT ISSUED 7 39250 EQUITY SHARES OF RS.10/- EACH AT A PREMIUM OF RS.190/- PER SHARE TO VARIOUS ENTITIES ENUMERATED IN PARA 4.1 OF THE ASSESSMENT ORDER, THE REBY RAISING EQUITY SHARE CAPITAL OF RS.73,92,500/- AND SHARE PREMIUM O F RS. 14,04,57,500/-. IN THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTED THAT NO BUSINESS ACTIVITY HAS BEEN UN DERTAKEN BY THE ASSESSEE-COMPANY IN THE PAST AND NOR DURING THE YEA R UNDER CONSIDERATION. THE ASSESSING OFFICER ALSO CARRIED OUT A VERIFICATION EXERCISE WITH REGARD TO THE AMOUNTS RECEIVED AS EQU ITY SHARE CAPITAL AND SHARE PREMIUM. ON THE BASIS OF THE VERIFICATIO N EXERCISE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT AB LE TO JUSTIFY THE CHARGING OF SHARE PREMIUM OF RS.190/- PER SHARE AND ADDED THE AMOUNT OF SHARE PREMIUM OF RS.14,04,57,500/- AS INCOME U/S 56(1) OF THE ACT. THE ASSESSING OFFICER ALSO CONCLUDED THAT SO FAR AS THE AMOUNT RECEIVED IN THE SHAPE OF EQUITY SHARE CAPITAL FROM VARIOUS PARTIES AMOUNTING TO RS.73,92,500/- IS CONCERNED, THE SAME WERE UNEXPLAI NED CREDITS WITHIN THE MEANING OF SEC. 68 OF THE ACT. BOTH THE ADDITI ONS HAVE ALSO BEEN AFFIRMED BY THE CIT(A). 6. IN THIS BACKGROUND, THE LEARNED REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT THERE WAS A SEARCH ACTION U/S 132( 1) OF THE ACT AT THE PREMISES OF ONE SHRI SHIRISH C. SHAH IN CONSEQUENCE OF WHICH PROCEEDINGS U/S 153C OF THE ACT WERE INITIATED IN T HE HANDS OF THE ASSESSEE. CONSEQUENTLY, THE ASSESSMENT FOR THE ASS ESSMENT YEAR 2010- 11 HAS BEEN COMPLETED BY THE ASSESSING OFFICER U/S 153C R.W.S. 143(3) OF THE ACT DATED 4.3.2016 WHEREIN IT HAS BEEN NOTED THAT THE SEARCH AND THE STATEMENTS GIVEN BY SHRI SHIRISH C. SHAH DURING THE SEARCH REVEAL 5 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. THAT HE WAS ENGAGED IN PROVIDING ACCOMMODATION ENTR IES TO VARIOUS PEOPLE THROUGH THE ENTITIES WHICH WERE DIRECTLY OR INDIRECTLY ASSOCIATED OR CONTROLLED BY HIM. FOR THE SAID REASON, THE ASS ESSING OFFICER HELD THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE-C OMPANY WERE AT THE INSTANCE OF SHRI SHIRISH C. SHAH AND, THEREFORE, TH E REAL INCOME OF SUCH TRANSACTIONS IS TO BE ASSESSED IN THE HANDS OF SHRI SHIRISH C. SHAH, AND ACCORDINGLY THE TOTAL INCOME OF ASSESSEE-COMPANY HA S BEEN ASSESSED AT NIL. IN THIS BACKGROUND, THE PLEA SET-UP BY THE ASS ESSEE IS THAT THE IMPUGNED ASSESSMENT BECOMES ERRONEOUS BECAUSE IN TH E IMPUGNED PROCEEDINGS, THE ASSESSING OFFICER HAS MADE THE ADD ITIONS ON ACCOUNT OF SHARE CAPITAL AND SHARE PREMIUM AS UNEXPLAINED CREDITS U/S 68 OF THE ACT AND AS INCOME U/S 56(1) OF THE ACT RESPECTI VELY TREATING SUCH TRANSACTION TO BE BELONGING TO THE ASSESSEE. FURTH ER, SUPPORTING HIS PLEA BASED ON THE ASSESSMENT MADE BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 153C OF THE ACT, THE LEARNED REPRESENTATIVE POINTED OUT THAT IN A SIMILAR SITUATION, THE HON'BLE DELHI HIGH COURT IN THE CASE OF VIJAY CONDUCTORS INDIA PVT. LTD., 2015-TIOL-2337-HC-DEL-I T UPHELD THE DECISION OF THE TRIBUNAL THAT IN SUCH CASES ADDITIO NS CAN BE MADE ONLY IN THE HANDS OF THE BENEFICIARIES AND NOT THE CONDUIT ENTITIES. THE LEARNED REPRESENTATIVE EXPLAINED THAT KEEPING THE FINDINGS OF THE ASSESSING OFFICER MADE IN THE ORDER PASSED U/S 143(3) R.W.S. 153C OF THE ACT IN MIND, IT IS QUITE CLEAR THAT THE ASSESSEE-COMPANY W AS ONLY USED AS A CONDUIT BY SHRI SHIRISH C. SHAH TO PROVIDE ACCOMMOD ATION ENTRIES TO ULTIMATE BENEFICIARIES AND, THEREFORE, SUCH INCOME COULD NOT BE ASSESSED IN THE HANDS OF THE ASSESSEE-COMPANY. 6 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. 7. ON THIS ASPECT, THE LD. CIT-DR HAS REFERRED TO T HE FINDINGS OF THE CIT(A) TO JUSTIFY THE ADDITION U/S 68 OF THE ACT. ACCORDING TO HIM, THE ENTITIES WHICH HAVE CONTRIBUTED TOWARDS THE SHARE C APITAL HAVE NOT JUSTIFIED THE INVESTMENTS OR THE GENUINENESS OF THE TRANSACTION AND, THEREFORE, THE ADDITIONS HAVE BEEN RIGHTLY SUSTAINE D BY THE CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. OSTENSIBLY, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EX PLANATION FURNISHED BY THE ASSESSEE WITH REGARD TO THE EQUITY SHARE CAP ITAL AND SHARE PREMIUM RECEIVED BY THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION. INSOFAR AS THE MERITS OF SUCH A FIN DING IS CONCERNED, THE SAME IS NOT THE SUBJECT MATTER OF THE PRELIMINARY A RGUMENT WHICH IS SET-UP BY THE ASSESSEE BASED ON THE SUBSEQUENT ASSE SSMENT MADE U/S 143(3) R.W.S. 153C OF THE ACT DATED 4.3.2016. THE POINT RAISED IS AS TO WHETHER ANY ADDITION WITH RESPECT TO THE IMPUGNED TRANSACTION IS MAINTAINABLE IN THE HANDS OF THE ASSESSEE-COMPANY , CONSIDERING THE SUBSEQUENT ASSESSMENT ORDER DATED 04/03/2016(SUPRA) . NOTABLY, A SEARCH ACTION TOOK PLACE ON ONE SHRI SHIRISH C. SHA H, WHICH REVEALED THAT THE ASSESSEE-COMPANY WAS USED AS A CONDUIT BY THE SAID PERSON TO PROVIDE ACCOMMODATION ENTRIES TO VARIOUS BENEFICIAR IES. IN THE ASSESSMENT FINALISED FOR THE INSTANT ASSESSMENT YEA R U/S 153C R.W.S. 143(3) OF THE ACT DATED 4.3.2016, THE ASSESSING OFF ICER ALLUDES TO THE SAID SITUATION AND CONCLUDES THAT THE REAL INCOME F ROM SUCH TRANSACTIONS IS ASSESSABLE IN THE HANDS OF SHRI SHI RISH C. SHAH, AND NOT THE ASSESSEE-COMPANY. IN FACT, IN THE ASSESSMENT OR DER DATED 04/03/2016(SUPRA), THE ASSESSING OFFICER NOTES THAT DURING THE CORUSE OF SEARCH ON SHRI SHIRISH C. SHAH BOOKS OF ACCOUNT OF THE ASSESSEE 7 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. COMPANY WERE SEIZED FROM THE COMPUTER OF SHRI SHIRI SH C. SHAH, AND HE CONCLUDED THAT THE ASSESSEE COMPANY WAS DIRECTLY OR INDIRECTLY CONTROLLED BY SHRI SHIRISH C. SHAH. THE MOOT QUESTION IS AS TO WHAT IS THE IMPLICATION OF SUCH FINDINGS OF THE ASSESSING OFFICER QUA THE EARLIER ASSESSMENT MADE BY HIM U/S 143(3) OF THE ACT, WHICH IS PRESENTLY IN APPEAL BEFORE US ? THE TRANSACTIONS OF RECEIPT OF SHARE CAPITAL AND SHARE PREMIUM WERE SCRUTINIZED BY THE ASSESSING OFF ICER IN THE IMPUGNED ASSESSMENT AND HE WAS NOT SATISFIED WITH T HE NATURE AND SOURCE OF THE AMOUNTS SO RECEIVED, AND THEREFORE, THE RESPECTIVE AMOUNTS WERE ADDED EITHER AS UNEXPLAINED CREDIT U/S 68 OF THE ACT OR AS INCOME FROM OTHER SOURCES U/S 56(1) OF THE ACT. SO HOWEVER, IN THE ASSESSMENT FINALISED FOR THE VERY SAME ASSESSMENT Y EAR, CONSEQUENT TO THE SEARCH ON SHRI SHIRISH C. SHAH, THE ASSESSING O FFICER HAS CONCLUDED THAT THE REAL BENEFICIARY OF THE TRANSACTIONS IS NO T THE ASSESSEE, SINCE IT WAS MERELY A CONDUIT WHEREAS THE REAL BENEFICIARY O F THE INCOME FROM SUCH TRANSACTIONS WAS SHRI SHIRISH C. SHAH. 9. IT IS QUITE CLEAR THAT SO FAR AS THE IMPUGNED AS SESSMENT IS CONCERNED, IT DOES NOT ABATE IN TERMS OF THE SECOND PROVISO TO SEC. 153A(1) OF THE ACT, WHEN THE ASSESSING OFFICER INVO KED SEC. 153C OF THE ACT. THUS, THE IMPUGNED ASSESSMENT MADE U/S 143(3) OF THE ACT STANDS EVEN WHEN THE ASSESSING OFFICER HAS MADE A SUBSEQUE NT ASSESSMENT U/S 153C R.W.S. 143(3) OF THE ACT DATED 4.3.2016. SO HOWEVER, THE MOOT POINT IS AS TO WHETHER ON THE SAME POINT CONTRADICT ORY FINDINGS OF THE ASSESSING OFFICER CAN SURVIVE IN THE TWO ASSESSMENT S? FIRSTLY, IN THE INSTANT ASSESSMENT MADE U/S 143(3) OF THE ACT, THE ASSESSING OFFICER HAS TREATED THE IMPUGNED AMOUNTS AS ASSESSABLE IN T HE HANDS OF THE 8 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. ASSESSEE-COMPANY, WHEREAS IN THE SUBSEQUENT ASSESSM ENT MADE U/S 153C R.W.S. 143(3) OF THE ACT, HE HAS HELD THAT ASS ESSEE-COMPANY IS A MERE CONDUIT AND THE REAL INCOME FROM THE TRANSACT IONS IS ASSESSABLE IN THE HANDS OF SHRI SHIRISH C. SHAH, AND NOT THE A SSESSEE-COMPANY. THOUGH THE TWO ASSESSMENTS ARE INDEPENDENT IN THE E YES OF LAW, YET IN OUR CONSIDERED OPINION, IT WOULD BE INCONGRUENT THA T THE TWO ASSESSMENTS CONCURRENTLY SURVIVE WITH CONTRADICTORY FINDINGS BY THE ASSESSING OFFICER. UNDER THESE CIRCUMSTANCES, WE D EEM IT FIT AND PROPER TO SET-ASIDE THE IMPUGNED ASSESSMENT AND DIR ECT THE ASSESSING OFFICER TO RE-VISIT THE CONTROVERSY AFRESH KEEPING IN MIND HIS STAND IN THE SUBSEQUENT ASSESSMENT FINALISED U/S 153C R.W.S. 143(3) OF THE ACT FOR THE INSTANT ASSESSMENT YEAR. THUS, WITHOUT GOI NG INTO ANY OF THE OTHER GROUNDS RAISED BY THE ASSESSEE BEFORE US, WE SET-ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO RE-DE TERMINE THE ASSESSMENT IN THIS CASE AFRESH AND AS PER LAW,CONS ISTENT WITH HIS FINDINGS IN THE REASSESSMENT PROCEEDINGS FINALIS ED U/S 153C R.W.S. 143(3) OF THE ACT. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH MAY, 2017. SD/- SD/- (PAWAN SINGH) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : MAY, 2017 * SSL * 9 ITA NO. 6874/MUM/2014 M/S. NISHOTTAM TRADERS PVT. LTD. COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, B BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI