ITO WD 1(3), THANE V. KANDARP FINANCIAL SERVICES P.LTD, THANE

ITA 7058/MUM/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7569 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: CHETAN A KARIA
• Keywords: Unexplained cash credit; Unexplained investment; Gift; Opportunity of cross examination; Accommodation entries; Sham transactions
• Section: 143(3); 147; 148; 132; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.7058/M/2012 ASSESSMENT YEAR: 2006-07 INCOME TAX OFFICER, WARD 1(3), ASHAR I.T. PARK, 6 TH FLOOR, B-WING, ROOM NO.10, WAGLE ESTATE, THANE VS. M/S. KANDARP FINANCIAL SERVICES PVT. LTD., 1, GAUTAM NIWAS, OPP. SHAHU MUNICIPAL MARKET, NR. NAUPADA POLICE STATION, M.G. ROAD, THANE WEST. PAN: AABCK 1729L (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI CHETAN A. KARIA, A.R. REVENUE BY : SHRI M.C. OMI NINGSHEN, D.R. DATE OF HEARING : 27.02.2018 DATE OF PRONOUNCEMENT : 16.04.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 12.07.2012 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2006-07. 2. THE FOLLOWING GROUNDS RAISED BY THE REVENUE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE CLT(A) HAS ERRED IN DELETING THE ADDITION O F RS.50,00,00/- U/S 68 OF THE IT ACT, BEING DISALLOWANCE OF UNEXPLAINED CASH CREDIT. ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE TRANSA CTION OF THE SALE - PURCHASE OF SHARES OF M/S SHARDA CORNPRO PVT. LTD A ND MIS SILVERSHINE IMPEX INDIA PVT. LTD BETWEEN THE ASSESS EE COMPANY AND SHRI. GIRIRAJ VIJAYAVARGIA IS A GENUINE TRANSACTION OF SA LE OF SHARES AS AGAINST THE STAND OF THE ASSESSING OFFICER WHO HOLDS THE VIEW T HAT THE SAID SALE OF SHARES IS A SHAM TRANSACTION AND ENTRIES MADE IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY AND THE TWO GROUP SISTER COMPA NIES, TRANSFER OF SHARES , REGISTRATION OF SHARES, BOARD OF DIRECTORS RESOLUTION, ETC ARE COLOURABLE ARRANGEMENTS DESIGNED TO CAMOUFLAGE THE SHAM TRANSACTION AS GENUINE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN IGNORING THE TRUE NATURE OF THE TRANSACTION AND THE SUBSTANCE OF THE CASE AND IN BELIEVING THE FRAU DULENT ARRANGEMENTS MADE BY THE ASSESSEE TO SHOW THE TRANS ACTION AS GENUINE. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ALTER O R DELETE ANY GROUNDS OF APPEAL. 3. THE ONLY EFFECTIVE ISSUE IN THE VARIOUS GROUNDS OF APPEAL BY THE REVENUE IS AGAINST THE DELETION OF ADDITION BY THE LD. CIT(A) AS MADE BY THE AO UNDER SECTION 68 BEING THE UNEXPLAINED CASH CREDIT. GROUND NOS.2 & 3 ARE IN SU PPORT OF GROUND NO.1 AND ARE BEING DEALT WITH ACCORDINGLY. 4. THE BRIEF FACTS ARE THAT ASSESSEE FILED RETURN O N 27.06.06 DECLARING INCOME OF RS.3,79,387/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 147 OF THE ACT BY ISSUING NO TICE UNDER SECTION 148 DATED 02.07.10. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES, STOCKS, SCRIPTS OF I NDIAN COMPANIES AND WAS ALSO RENDERING CONSULTANCY SERVIC ES IN THE ALLIED FIELDS. DURING THE YEAR, THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.62.46 LAKHS AND THE NET PROFIT WAS TO THE TUNE OF RS.6.74 LAKHS. DURING THE YEAR, THE ASSESS EE HAS SOLD THE PREFERENCE SHARES OF ITS TWO GROUP CONCERNS VIZ . M/S. ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 3 SHARDA CORNPRO PVT. LTD. AND M/S. SILVERSHINE IMPEX I NDIA PVT. LTD. TO SHRI GIRIRAJ VIJAYVARGIA OF FACE VALUE OF RS.10 OF EACH AT A PREMIUM OF RS.500/-. THE AO DOUBTED THE TRANSACTION ON THE GROUND THAT THE TOTAL TURNOVER O F THE COMPANY WAS 62.42 LAKHS WITH NET PROFIT OF RS. 6.74 LACS ONLY SO HOWCOME THE ISSUE OF PREFERENCE SHARES ON SUCH HIGH PREMIUM EQUAL TO APPROXIMATELY 50 TIMES OF THE FACE VALUE OF THE SHARE WAS FIXED. FOLLOWING A SEARCH ACTION U/S 132 OF THE ACT ON SHRI GIRIRAJ VIJAYVARGIA ON 26.04.07 WHO IS A MEMBER OF CALLED ANKUR GROUP AND DURING THE COURSE OF SE ARCH IT WAS FOUND THAT SHRI GIRIRAJ VIJAYVARGIA HAS GIVEN ENTRI ES IN THE FORM OF GIFTS AND SHARE APPLICATION MONEY TO VARIOU S ENTITIES WHICH HE ADMITTED IN THE SWORN STATEMENT UNDER SEC TION 132(4) OF THE ACT ADMITTING THAT HE WAS NOT HAVING ANY SOURCE FOR GIFTS OR SHARE APPLICATION MONEY BUT THE BENEFI CIARIES PAID HIM THE CASH AND HE AFTER DEDUCTING HIS COMMISSION RANGING FROM 2% TO 3% ISSUED CHEQUES AND AS PER THE STATEME NT OF SHRI GIRIRAJ VIJAYVARGIA THE ASSESSEE WAS ONE OF TH E BENEFICIARIES OF THE SAID ENTITIES. FINALLY, THE AO , AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE, MADE TH E ADDITION OF RS.50 LAKHS UNDER SECTION 68 OF THE ACT ON THE GROUND THAT SHRI GIRIRAJ VIJAYVARGIA HAS DENIED MAK ING SUCH INVESTMENTS AND DIRECTORS OF THE COMPANY COULD NOT EXPLAIN THE VALUATION OF THE SHARES AND HOW THE SHARE TRANS FER FORMS WERE DATED 20.10.05 AND 04.10.05 AND THE PAYMENT WA S RECEIVED ON 25/26.11.05. THE ASSESSMENT WAS FRAMED V IDE ORDER DATED 22.12.11 UNDER SECTION 143(3) READ WITH S ECTION 147 OF THE ACT. IN THE APPELLATE PROCEEDINGS THE LD . CIT(A) ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 4 ALLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERIN G THE VARIOUS SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 4.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER PASSE D BY THE AO AND THE WRITTEN SUBMISSIONS MADE BY THE AR OF THE APPELLANT AND THERE IS MERIT IN THE ABOVE ARGUMENTS OF THE APPELLANT. 4.3. IT IS NOT THE CASE OF THE AO THAT THE SOURCE O F THE CREDIT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY IS NOT P ROVED. THE TRANSACTION OF THE SALES OF THE SHARES OF M/S. SHARDA CORNPRO PVT. LTD. AND M/S. SILVERSHINE IMPEX INDIA PVT. LTD. TO SHRI GIRIRAJ VIJAYVARGIA I S A MATTER OF RECORD. THE SALE AND PURCHASE OF THE SHARES IN QUESTION OF THE ABOVE TWO COMPANIES TO SHRI GIRIRAJ VIJAYVARGIA IS A NORMAL SALE TRANSA CTION WHICH IS A PART OF SALES FOR THE PERIOD AND PROPERLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY FOR THE PERIOD UNDER CONSI DERATION. THIS IS AN IMPORTANT FACT WHICH HAS BEEN NOT TAKEN INTO CONSID ERATION BY THE AC. 4.4. THERE ARE MANY OTHER VITAL FACTORS WHICH THE A C HAS NOT TAKEN INTO ACCOUNT WHILE TREATING THE TRANSACTION OF THESE SAL E OF SHARES AS SHAM TRANSACTION. IT IS AN ADMITTED FACT THAT THE SELLER OF THE SHARES I.E THE APPELLANT COMPANY, HAS ACCEPTED HAVING SOLD THE SHA RES AND THE PURCHASER OF THE SHARES SHRI GIRIRAJ VIJAYVARGIA HAS ACCEPTED OF HAVING MADE THE PAYMENT OF RS. 50 LAKHS THROUGH CHEQUE ON 26/11/200 5 FOR PURCHASE OF THE SHARES OF THE ABOVE TWO COMPANIES. IN THE LI ST FURNISHED OF THE PREFERENCE SHARE HOLDERS OF THE COMPANIES IN QUESTI ON, THE NAME OF SHRI GIRIRAJ VIJAYVARGIA ALSO APPEARS ALONGWITH THE OTHER SHAREH OLDERS, AND HIS NAME IS BEING CONSISTENTLY RECORDED IN THE ANNUAL RETURNS THAT AR E BEING FILED BY THESE COMPANIES WITH THE REGISTRAR OF THE COMPANIES EVERY YEAR SINCE 2006-07 THIS IS EVIDENT FROM THE FORM 20B FILED BY THESE CO MPANIES TO THE REGISTRAR OF THE COMPANIES AND THE COPY OF THE SAME PLACED ON RECORD BY THE APPELLANT. IN MY OPINION, THESE VITAL FACTS CANNOT BE IGNORED WHILE TAKING A DECISION REGARDING THE GENUINENESS OF THE TRANSACTI ON. IT HAS BEEN CONTENDED BY THE AR OF THE APPELLANT THAT ALL THESE DETAILS WERE PLACED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS AND THE SAME WERE IGNORED BY HIM WHILE PASSING THE ASSESSMENT ORDER. 4.5. ON THE OTHER HAND THE STATEMENT OF SHRI GIRIRA J VIJAYVAIGIA THAT HE HAD RECEIVED MONEY IN CASH IN LIEU OF THE CHEQUE ISSUED, IS NOT SUBSTANTIATED BY DOCUMENTARY EVIDENCE. THE INQUIRY OFFICER, WHO HAS RECORDED THE STATEMENT OF SHRI GIRIRAJ HAS ALSO NOT ASKED FOR ANY SUCH EVIDENCE WHICH CAN SUBSTANTIATE HIS CLAIM OF THE TRANSACTION BEING ONLY AN ACCOMMODATION ENTRY. THE AO DURING THE COURSE OF AS SESSMENT PROCEEDINGS HAS ALSO NOT BROUGHT ON RECORD ANY SUCH EVIDENCE TO PROVE THAT THE MONEY IN CASH WAS HANDED OVER TO SHRI GIRI RAJ VIJAYVARGIA IN LIEU OF ISSUE OF CHEQUE OF RS.50 LAKHS AND FURTHER THERE IS NO EVIDENCE PLACED ON RECORD THAT THE - COMMISSION OF 2-3% WAS PAID TO TURN FOR ARRANGING T HIS TRANSACTION. IF THE AO HAS TO REFUTE ANY CONTENTION OF THE APPELLANT THEN ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 5 HE HAS TO PLACE SOME EVIDENCE ON RECORD AND ON THE BASIS OF SUCH EVIDENCE HE HAS TO PROVE HIS HYPOTHESIS OF THE TRANSACTION BEIN G THE SHAM OR BOGUS. THE A.O. FAILED TO PLACE SUCH AN EVIDENCE ON RECORD AND PROCEED TO CONCLUDE THAT THE TRANSACTION IS SHAM, MERELY ON THE BASIS OF THE STATEMENT OF SHRI GIRIRAJ, WITHOUT QUESTIONING THE AUTHENTICITY OF SU CH A STATEMENT. 4.6. ON THE CONTRARY THERE IS EVIDENCE ON RECORD TH AT SHRI GIRIRAJ VIJAYVARGIA HAD ISSUED THE CHEQUE OF RS. 50 IAKHS FOR PURCHASE OF SHARES OF M/S. SHARDA CORNPRO PVT. LTD. ANTHMLS.SIHIEXSHINE !RNPEX INDIA PVT. LTD. AND THE SAME WAS ENCASHED ON 28/11/2005 AND SUBSEQUENTLY 9900 PREFER ENCE SHARES OF M/S. SHARDA CORNPRO PVT. LTD. AND 800 SHARES OF M/S. M/S . SILVERSHINE IM P EX INDIA PVT. LTD. WERE ALLOTTED AND TRANSFERRED IN THE NAME OF S HRI GIRIRAJ VIJAYVARGIA. THESE FACTS ARE NOT ONLY DULY RECORDED BY THE ABOVE COMPANIES IN THEIR BOOKS OF ACCOUNTS BUT ALSO ON RECORD WITH THE REGISTRAR O F THE COMPANIES IN THE ANNUAL RETURNS FILED BY THE ABOVE COMPANIES FOR ALL THE SUBSEQUENT YEARS SINCE A.Y. 2006-07. IN ADDITION TO THE ABOVE, THE A R OF THE APPELLANT HAS ALSO PLACED ON RECORD COPY OF THE BOARD RESOLUTION PASSE D IN THE BOARD MEETING OF THE ABOVE TWO COMPANIES DATED: 04/12/2005 AND 20 /12/2005 CONFIRMING THE TRANSFER OF THE 9900 AND 800 SHARES OF THE ABOVE COMPANIES IN THE NAME OF SHRI GIRIRAJ VIJAYVARGIA (PLACED AT PAGES 35 AND 36 OF THE PAPERBOOK). FURTHER, THE AR HAS ALSO PLACED ON RECO RD THE SHARE TRANSFER CERTIFICATE FORMS DULY SIGNED BY SHRI GIRIRAJ VIJAY VARGIA FOR THE TRANSFER OF THE SHARES OF THE ABOVE COMPANIES (PLACED AT PAGES 37 TO 39 OF THE PAPERBOOK). THE MONEY PAID BY SHRI GIRIRAJ VIJAYVARGIA FOR THE PURC HASE OF THE SHARES IN QUESTION AMOUNTING TO RS.50 LAKHS WAS CREDITED TO T HE BANK ACCOUNT OF THE APPELLANT COMPANY ON 28/11/2005 IN THEIR BANK ACCOU NT NO. 3739002100011616 MAINTAINED WITH PUNJAB NATIONAL BA NK, M.G. ROAD BRANCH, THANE (W) (PLACED AT PAGE 41 OF THE PAPERBOOK). WIT H ALL THESE EVIDENCES PLACED ON RECORD BEFORE THE AO, THE SAME HAVE NOT BEEN EVE N DISCUSSED BY HIM IN THE ASSESSMENT ORDER WHICH, IN MY OPINION, THE ABOVE EV IDENCES ARE SUFFICIENT TO PROVE THE SOURCES AND THE GENUINENESS OF THE TRA NSACTION OF SALE OF SHARES AS FAR AS THE APPELLANT COMPANY IS CONCERNED . 4.7. THE AO PROCEEDED MERELY ON THE BASIS OF THE ST ATEMENT OF SHRI GIRIRAJ VIJAYVARGIA THAT HE HAD RECEIVED RS. 50 IAK HS IN CASH IN LIEU OF THE CHEQUE ISSUED OF THE SAME AMOUNT AND FURTHER THERE IS NO EVIDENCE TO PROVE THE SAME. MERE STATEMENT OF SHRI GIRIRAJ IS N OT ENOUGH TO PROVE THE SHAM NATURE OF THE SAID TRANSACTION. THE STATEM ENT NEED TO BE FURTHER TAKEN TO LOGICAL CONCLUSIONS BY CONDUCTING THE INDEPENDENT INQUIRIES REGARDING THE SOURCE OF THIS MONEY AND LO OKING INTO THE BANK STATEMENT OF SHRI GIRIRAJ AS TO WHETHER ANY CASH MO NEY WAS DEPOSITED IN HIS BANK ACCOUNT OR ANY OTHER ACCOUNT BEFORE ISSUE OF T HE CHEQUE IN FAVOUR OF THE ABOVE COMPANIES. THE EVIDENCE NEED TO BE PLACED ON RECORD REGARDING THE CHANNELS OF CASH MONEY FROM TH E APPELLANT COMPANY TO SHRI GIRIRAJ AND HOW THE SAME WAS UTILIZED FOR T HE PURCHASE OF SHARES IN QUESTION. NO SUCH INVESTIGATIONS HAVE BEEN CARRIED OUT BY THE AO. IN THE ABSENCE OF ANY SUCH INVESTIGATIONS AND PLACING ON R ECORD ANY CORROBORATIVE EVIDENCE TO SUBSTANTIATE THE STATEMEN T OF SHRI GRIRIAJ, IT IS DIFFICULT TO ACCEPT THE CONCLUSIONS ARRIVED BY T HE AO REGARDING THE SHAM NATURE OF THE TRANSACTION. IT MAY BE POINTED O UT HERE THAT IT IS ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 6 AN ESTABLISHED PROPOSITION OF LAW THAT APPARENT HAS TO BE HELD AS REAL UNLESS PROVED OTHERWISE AND ONUS SQUARELY LIES UPON THE PERSON WHO CLAIMS OTHERWISE AND TO BRING THE EVIDENCE ON RECOR D TO PROVE SO. THE DOCUMENTARY EVIDENCES LIKE RECORDING OF THE TRANSAC TION BY THE ABOVE COMPANIES IN THEIR BOOKS OF ACCOUNTS, COPY OF THE B OARD RESOLUTION PASSED IN THE BOARD MEETING OF THE ABOVE TWO COMPAN IES DATED: 04/12/2005 AND 20/12/2005 CONFIRMING THE TRANSFER O F THE 9900 AND 800 SHARES OF THE ABOVE COMPANIES IN THE NAME OF SH RI GIRIRAJ VIJAYVARGIA, RECEIPT OF MONEY IN THE ACCOUNT OF THE APPELLANT COMPANY, TRANSFER FORM DULY FILLED BY SHRI GIRIRAJ AND THE C OPIES OF THE RETURNS FILED WITH THE REGISTRAR OF THE COMPANIES SHOWING S HRI GIRIRAJ AS PREFERENCE SHAREHOLDER IN THE ABOVE COMPANIES ARE I RREFUTABLE DOCUMENTARY EVIDENCES WHICH CANNOT BE BRUSHED ASIDE SUMMARILY WITHOUT GOING INTO THE MERITS OF THESE DOCUMENTS. B EFORE REJECTING THESE DOCUMENTS, THE ONUS LIES ON THE AO TO PROVE, BY PLACING CONTRARY DOCUMENTARY EVIDENCES ON RECORD, THAT THE EVIDENCES PLACED ON RECORD BY THE APPELLANT ARE FALSE. IN THE ABSENCE OF PROVI NG THE SAME TO BE BOGUS OR FALSE, NO CONTRARY VIEW CAN BE TAKEN ON TH ESE DOCUMENTS ON THE BASIS OF PRESUMPTIONS AND SURMISES. IT IS ALSO A MATTER OF RECORD THAT EVEN AS ON DATE, THE SHARES IN QUESTION ARE IN THE NAME OF SHRI GIRIRAJ VIJAYVARGIA IN THE SHAREHOLDERS REGISTER AS WELL IN THE RECORDS OF THE REGISTRAR OF THE COMPANIES. 4.8. WHILE DECIDING THE ISSUE AT HAND, THE AO SIMPL Y PROCEEDED TO RELY ON THE REPORT OF THE ASSESSING OFFICER OF MUMBAI, W HICH WAS AS A RESULT OF INVESTIGATION CARRIED OUT BY THE INVESTIGATION U NIT IN RESPECT OF SOME OTHER PARTIES. THE OUTCOME OF INVESTIGATION CA RRIED OUT IN THE CASE OF SOME OTHER PARTY AND THE CONCLUSION DRAWN, CANNOT BE APPLIED IPSO FACTO TO ALL OTHER CASES WITHOUT CARRYING OUT INDEPENDENT INVESTIGATION RELATING TO THE APPELLANT COMPANY. SI MPLY RELYING ON ABOVE REPORT, THE AO HAS CONCLUDED THAT THE TRANSAC TION OF PURCHASE / SALE OF THE SHARES IS BOGUS OR SHAM, IS UNFOUNDED P RESUMPTION. THE AO SHOULD HAVE CARRIED OUT DETAILED INVESTIGATION TO P ROVE HIS POINT, WHICH HE FAILED TO DO. THEREFORE, THE CONCLUSION OF THE AO REGARDING THE SALE / PURCHASE OF SHARES BEING TREATED AS BOGU S OR SHAM ARE NOT BASED ON ANY SOUND REASONING / EVIDENCE AND WITHOUT CARRYING OUT ANY WORTHWHILE INVESTIGATION AT HIS END. 4.9. AS FAR AS THE ARGUMENT OF THE AO THAT ANY PRU DENT BUSINESSMAN WOULD NOT SUBSCRIBE THE SHARES OF THE FACE VALUE OF RS. 10/- OF THE COMPANIES IN QUESTION AT A PREMIUM OF RS. 500/- IS CONCERNED, THE AR OF THE APPELLANT HAS ARGUED THAT THE SHARES ARE PRE FERENCE SHARES ISSUED BY BOTH THE COMPANIES DURING THE F.Y.2003-04 AFTER SUBMITTING THE SCHEME TO THE REGISTRAR OF COMPANIES. M/S. SHAR DA CORNPRO PVT. LTD. HAD ISSUED 50,000 AND M/S. SILVERSHINE IMPEX I NDIA PVT. LTD. HAD ISSUED 800, AT 6% NON CUMULATIVE REDEEMABLE PREFERE NCE SHARES AT A PREMIUM OF RS.1000/-, WHICH WERE REDEEMABLE AFTER 1 8 YEARS BUT NOT BEFORE 20 YEARS AT A FACE VALUE OF RS. 10/- ALONG W ITH A PREMIUM OF ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 7 RS.1000/-. THE SCHEME WAS SO FORMULATED IN ORDER TO AVOID THE SUBSTANTIAL STAMP DUTY. ACCORDING TO THE AR, HAD TH E SHARES BEEN ISSUED AT A FACE VALUE OF RS. 1010/-, INSTEAD OF RS .10/- WITH A PREMIUM OF RS.1000/-, THE STAMP DUTY WOULD HAVE BEEN PAYABL E ON RS.1010/- AND NOT RS. 10/- AS PAID BY THESE COMPANIES. IT IS CONTENDED BY THE AR THAT AT THE TIME OF REDEMPTION OF THESE SHARES, SHR I GIRIRAJ VIJAYVARGIA WOULD RECEIVE RS. 100 IAKHS AS AGAINST THE INVESTME NT OF RS. 50 LAKHS. SUCH AN INVESTMENT IS A PROFITABLE VENTURE AND A PR UDENT BUSINESSMAN LIKE DECISION. 4.10. I AGREE WITH THE ABOVE ARGUMENTS OF THE AR OF THE APPELLANT THAT THE ABOVE INVESTMENT WAS A PROFITABLE VENTURE AS OU TLINED ABOVE. FOR AN INVESTMENT OF RS. 50 LAKHS, SHRI GIRIRAJ VIJAYVA RGIA WOULD BE GETTING RS. 100 LAKHS AT THE TIME OF THE REDEMPTION OF THE SHARES WHICH IS CLEARLY A PROFITABLE VENTURE AND A PRUDENT DECISION AS A WISE BUSINESSMAN AND THIS DISAPPROVE THE ARGUMENT OF THE AO THAT THIS IS NOT A PROFITABLE VENTURE AND NO PRUDENT BUSINESSMAN WOULD BUY SUCH SHARES AND NO PRUDENT BUSINESSMAN WOULD BUY SUCH SH ARES AT A HEFTY PREMIUM OF RS.500/-. 4.11. REGARDING THE CONTENTION OF THE AO THAT NO CO NTRACT NOTE HAS BEENPRODUCED BY THE APPELLANT COMPANY TO PROVE THE TRANSFER OF SHARES, THE APPELLANT COMPANY HAS CONTENDED THAT AS THE DEAL WAS A DIRECT DEAL OF THE SALE OF SHARES WITH THE PURCHASE R AND THERE WAS NO NEED FOR THE CONTRACT NOTE. THERE IS A MERIT IN THE ABOVE ARGUMENT OF THE APPELLANT BECAUSE IF THE TRANSACTION IS THROUGH ANY BROKER, THEN THE CONTRACT NOTE IS WRITTEN. BUT HERE, THE APPELLA NT COMPANY ITSELF IS IN THE BUSINESS OF TRADING OF SHARES AND HAS ENTERE D INTO THE TRANSACTION IN QUESTION DIRECTLY WITH THE PURCHASER AND HENCE, THERE WAS NO NEED FOR SUCH A CONTRACT NOTE AND THE TRANSA CTION CAN BE CARRIED OUT DIRECTLY BETWEEN THE PARTIES TO THE TRA NSACTION. 4.12. IN VIEW OF THE FACTS AND CIRCUMSTANCES EXPLAI NED ABOVE, IN MY CONSIDERED OPINION, THE ACTION OF THE AO ADDING BAC K AN AMOUNT OF RS. 50 IAKHS TO THE INCOME OF THE APPELLANT COMPANY U/S . 68 AS UNEXPLAINED INVESTMENT, IS NOT IN ORDER. THE TRANSA CTION OF THE SALE PURCHASE OF SHARES OF M/S. SHARDA CORNPRO PVT. LTD. AND M/S. SILVERSHINE LMPEX INDIA PVT. LTD. BETWEEN THE APPEL LANT COMPANY AND SHRI GIRIRAJ VIJAYVARGIA IS A TRANSACTION OF SALE O F SHARES, WHICH HAS BEEN PROPERLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT S OF THE APPELLANT FOR THE PERIOD UNDER CONSIDERATION. THE EVIDENCES P LACED ON RECORD LIKE CREDITING OF THE MONEY PAID BY SHRI GIRIRAJ VI JAYVARGIA FOR THE PURCHASE OF THE SHARES IN QUESTION AMOUNTING TO RS. 50 IAKHS IN THE BANK ACCOUNT OF THE APPELLANT COMPANY ON 28/11/2005 , TRANSFER OF THE SHARES IN THE NAME OF SHRI GIRIRAJ VIJAYVARGIA AS P ER THE RECORDS OF THE APPELLANT, RECORDS OF THE REGISTRAR OF COMPANIES SH OWING THE TRANSFER OF SHARES, BOARD OF DIRECTORS RESOLUTION PASSED IN THE BOARD MEETING OF THE ABOVE TWO COMPANIES DATED: 04/12/2005 AND 20/12 /2005 CONFIRMING THE TRANSFER OF THE 9900 AND 800 SHARES OF THE COMPANIES ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 8 IN THE NAME OF SHRI GIRIRAJ VIJAYVARGIA GOES TO PRO VE THE GENUINENESS OF THE TRANSACTION. THE CONCLUSION OF THE AO TREATI NG THE TRANSACTION AS SHAM IS NOT PROVED ON THE BASIS OF ANY EVIDENCE PLACED ON RECORD AND THEREFORE SUCH A CONCLUSION DRAWN IS ON PRESUMP TION AND THEREFORE CANNOT BE ACCEPTED. IN VIEW OF THE SAME, THE ADDITION MADE AMOUNTING TO RS. 50 LAKHS U/S. 68 TREATING THE MONE Y AS UNEXPLAINED IS HEREBY DELETED . 5. THE LD. D.R. VEHEMENTLY SUBMITTED BEFORE US THAT ORDER PASSED BY THE LD. CIT(A) IS FRAUGHT WITH SEVERAL I NFIRMITIES AND DEFECTS. THE LD. D.R. ARGUED THAT THE LD. CIT(A) HAS NOT GIVEN HIS FINDINGS AS TO HOW THE DECISION BASED UPO N THE ADMISSION OF SHRI GIRIRAJ VIJAYVARGIA DURING THE SE ARCH OPERATION UNDER SECTION 132(4) OF THE ACT IS NOT CO RRECT IN WHICH HE HAS CLEARLY ADMITTED THAT THE ASSESSEE IS A BENEFICIARY OF THE SHAM TRANSACTIONS NOT INVESTING ANY MONEY BUT ONLY AFTER TAKING CASH FROM THE PARTIES INCLUD ING ASSESSEE, CHEQUES WERE ISSUED AFTER DEDUCTING COMMISSION FROM 2-3%. THE LD. D.R. CONTENDED THAT THERE WAS NO JUSTIFICATI ON FOR ISSUING PREFERENCE SHARES OF THE FACE VALUE OF RS.1 0 AT 50 TIMES PREMIUM WHEN THE HEALTH OF THE COMPANIES ISS UING PREFERENCE SHARES WAS NOT VERY SOUND AND THE ASSES SEE HAS VERY MEAGER TURNOVER AND PROFIT DURING THE YEAR. THE LD. D.R. FINALLY PRAYED BEFORE THE BENCH THAT IN VIEW OF THE SE FACTS THE ORDER OF LD. CIT(A) SHOULD BE REVERSED. 6. THE LD. A.R., ON THE OTHER HAND, ARGUED THAT THIS I S A GENUINE TRANSACTION WHICH THE ASSESSEE ENTERED INTO IN F.Y. 2003-04. THE ASSESSEE PURCHASED 6% REDEEMABLE PREF ERENCE SHARES OF TWO CONCERNS BEING M/S. SHARDA CORNPRO PV T. LTD. AND M/S. SILVERSHINE IMPEX INDIA PVT. LTD. FOR A TOT AL CONSIDERATION OF RS.54,19,625/- WHICH WAS DULY SHOWN AS ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 9 INVESTED IN THE CLOSING STOCK IN THE BALANCE SHEET OF THE ASSESSEE. THESE PREFERENCE SHARES WERE REDEEMABLE AFTER 18 YEARS AT A PREMIUM AND THE REDEMPTION VALUE WAS ONE CRORE. THE LD. A.R. SUBMITTED THAT THESE SHARES WERE ISSUED B Y SAID TWO COMPANIES AT A PREMIUM WERE MERELY TO SAVE THE STAMP DUTY. THE LD. A.R. SUBMITTED THAT THESE SHARES WERE SOLD TO SHRI GIRIRAJ VIJAYVARGIA FOR A CONSIDERATION OF RS.5 0 LAKHS AND THE ASSESSEE INCURRED LOSS IN THE SAID TRANSACTION. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTED BEFOR E US THAT THE COPIES OF STATEMENT OF SHRI GIRIRAJ VIJAYVARGIA WERE NOT PROVIDED TO THE ASSESSEE TILL DATE EXCEPT THE EXTRA CT IN THE ASSESSMENT ORDER. THERE WAS NO OPPORTUNITY OF CROSS EXAMINATIONS OF SHRI GIRIRAJ VIJAYVARGIA WAS EVER G RANTED TO THE ASSESSEE BY THE AO. THE LD. A.R. SUBMITTED THAT EVEN IF SHRI GIRIRAJ VIJAYVARGIA GAVE A STATEMENT DURING TH E COURSE OF SEARCH IN WHICH THE NAME OF THE ASSESSEE WAS CLEARL Y MENTIONED BUT THAT HAS NO LEGAL SANCTITY IF ASSESSE E IS NOT GIVEN THE COPY OF STATEMENT AND NOT ALLOWED CROSS EXAMINATION OF THE SAID PERSON. AS REGARDS THE HIG H PREMIUM, THE LD. A.R. SUBMITTED THAT THE SHARES WERE TO BE D EEMED AT A PREMIUM AND PREMIUM COLLECTED WAS TO BE REPAID TO T HE INVESTOR AND THUS TRIED TO JUSTIFY THE PREMIUM IN T ERMS OF REDEMPTION OF THE SAID SHARES. AS REGARDS THE DIFFER ENCE IN DATES, THE LD. A.R. SUBMITTED THAT THE CHEQUE IS NORMA LLY RECEIVED AFTER ALL THE DOCUMENTS ARE COMPLETE AND T HE GAP BETWEEN THE DOCUMENTATION AND THE ISSUE OF CHEQUE I S ONLY ONE MONTH. THE LD. A.R. SUBMITTED THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION ON THE BASIS OF EVIDENCES AND RECORDS ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 10 AVAILABLE. THE LD. A.R. SUBMITTED THAT THE STATEMEN T OF SHRI GIRIRAJ VIJAYVARGIA WOULD HAVE BEEN AN INITIATING P OINT FOR THE INVESTIGATION AND HAD THE AO CARRIED OUT THE CROSS EXAMINATION/INDEPENDENT CROSS EXAMINATION OF THE SA ID PERSON THE FACTUAL POSITION WOULD HAVE BEEN UNEARTHED. FI NALLY, THE LD. A.R. PRAYED BEFORE THE BENCH THAT IN VIEW OF THE SE FACTS, PARTICULARLY THE SERIOUS LAPSES IN THE ENQUIRY MADE BY THE AO THE ORDER OF LD. CIT(A) IS CORRECT AND DESERVED TO B E UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE PURCHASED THE PREFERENCE SHARES OF TWO CON CERNS NAMELY M/S. SHARDA CORNPRO PVT. LTD. AND M/S. SILVER SHINE IMPEX INDIA PVT. LTD. FOR A CONSIDERATION OF RS.54,9 0,625/- WHICH WERE SHOWN IN THE BALANCE SHEET OF THE ASSES SEE. THESE SHARES WERE REDEEMABLE AFTER A PERIOD OF 18 Y EARS AT A PREMIUM AND THE REDEMPTION VALUE WAS ONE CRORE. TH E ASSESSEE SOLD THESE SHARES TO SHRI GIRIRAJ VIJAYVAR GIA FOR A CONSIDERATION OF RS.50 LAKHS, THUS, INCURRED LOSS AN D DULY SHOWN THE SAID TRANSACTION IN THE RETURN OF INCOME FILED ON 27.06.06. FOLLOWING A SEARCH ACTION IN THE CASE OF SH RI GIRIRAJ VIJAYVARGIA , HIS STATEMENT WAS RECORDED UNDER SECTI ON 132(4) OF THE ACT IN WHICH HE ADMITTED THAT THE ASSESSEE W AS A BENEFICIARY OF ENTRIES WHICH HE HAS PROVIDED BY ACC EPTING CASH FROM THE ASSESSEE AND ISSUING CHEQUE WITHOUT MAKING ANY REINVESTMENT. THE AO ON THE BASIS OF SAID STATEMEN T REOPENED THE CASE OF THE ASSESSEE AND MADE ADDITION UNDER SECTION 68 OF THE ACT ON THREE POINTS NAMELY; ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 11 I) STATEMENT OF SHRI GIRIRAJ VIJAYVARGIA THAT HE PROVIDED ACCOMMODATION ENTRIES II) NO VALID EXPLANATION AS REGARDS SHARES ISSUE D AT A PREMIUM AND III) TIME LAG OF ONE MONTH BETWEEN THE SHARE TRANS FER FORM AND THE ISSUE OF CHEQUE IT IS NOTEWORTHY THAT ASSESSEE WAS NOT SUPPLIED A COPY OF THE STATEMENT OF SHRI GIRIRAJ VIJAYVARGIA NOR ANY C ROSS EXAMINATION WAS ALLOWED DURING THE COURSE OF ASSESS MENT PROCEEDINGS. THE ASSESSEE HAS THROUGHOUT DENIED AL LEGATIONS OF THE AO OF BEING BENEFICIARY OF ACCOMMODATION ENT RIES GIVEN BY SHRI GIRIRAJ VIJAYVARGIA. AFTER PERUSING THE OR DER OF LD. CIT(A), WE FIND THAT EACH AND EVERY ASPECT HAS BEEN TOUCHED UPON ON WHICH THE AO HAS RELIED WHILE MAKING THE AD DITION. A DETAILED AND COMPREHENSIVE FINDINGS HAS BEEN GIVEN BY LD. CIT(A) AS IS REPRODUCED AS ABOVE AND FINALLY THE LD . CIT(A) DELETED THE ADDITION BY HOLDING THAT THE CONCLUSION OF THE AO TREATING THE TRANSACTION AS SHAM WAS NOT PROVED ON THE BASIS OF EVIDENCES ON RECORD AND THUS THE LD. CIT(A) NARRA TED THE SAID CONCLUSION AS DERIVED ON THE BASIS OF ASSUMPTI ONS AND SURMISES. THE LD. CIT(A) ALSO NOTED THAT ASSESSEE WAS NOT PROVIDED A COPY OF STATEMENT NOR ANY CROSS EXAMINAT ION WAS ALLOWED TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT LD. CIT(A) HAS TAKEN INTO ACCOUNT E ACH ASPECT OF THE MATTER OF INVESTMENTS IN PREFERENCE SHARES AND SALES THEREOF INTO ACCOUNT AND ONLY AFTER NOTICING THE INFIRMITIES AND DEFECTS IN THE INVESTIGATION/ENQUIRY BY THE AO ,A CONCLUSION WAS REACHED BY THE LD. CIT(A) IN THE APP ELLATE ITA NO.7058/M/2012 M/S. KANDARP FINANCIAL SERVICES PVT. LTD. 12 ORDER WHICH IS CORRECT AND DESERVED TO BE UPHELD. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) BY DI SMISSING THE APPEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 16.04.2018. SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 16.04.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.