NCML INDUSTRIES LTD., NEW DELHI V. ACIT, CC- 5, NEW DELHI

ITA 7820/DEL/2018

AI Insights

The case involves NCML Industries Ltd., which appealed against the order of the CIT(A)-XXV, New Delhi, concerning the assessment year 2013-14. The primary issues revolved around the validity of the notice under section 143(2), the additions made under section 68 concerning share capital, and various other additions related to undisclosed sales and purchases. The Tribunal examined the procedural and substantive aspects of the assessment, including the non-appearance of the assessee in multiple hearings and the reliance on materials and submissions available on record. The Tribunal dismissed the appeal, affirming the additions made by the Assessing Officer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121723 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 04-07-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2018
• Other Referred Cases: Rick Lunsford Trade & Investment Ltd Vs CIT, Navodaya Castle Pvt Ltd Vs CIT, Pawankumar M Sanghvi vs ITO, CIT Vs Navodaya Castle Pvt Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Fair market value; Accommodation entries
• Section: 68; 56; 132; 40A(3); 153A; 133(6); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”, NEW DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER Dr. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA No.7820/Del/2018 Assessment Year: 2013-14 NCML Industries Ltd., 1818, Naya Bazar, New Delhi – 110 006. PAN: AAACN4248A Vs ACIT, Central Circle-5, New Delhi. (Appellant) (Respondent) Assessee by : None Revenue by : Shri H. K. Choudhary, CIT-DR Date of Hearing : 05.07.2023 Date of Pronouncement : 18.09.2023 ORDER PER Dr. B. R. R. KUMAR, AM: The present appeal has been filed by the assessee against the order of ld. CIT(A)-XXV, New Delhi dated 19.09.2018. 2. Following grounds have been filed by the assessee in this appeal: “1. That the Id. CIT(A) has erred in not quashing the impugned assessment order , which was passed by the Id. A.O. on the strength of notice u/s 143(2) issued by him on 05.01.2016, thereby not appreciating that the notice u/s 143(2) could had been issued within six months from the end of the financial year in which ITR was filed and thus the notice u/s 143(2) issued on 05.01.2016 was barred by limitation. ITA No.7820/Del/2018 2 2. That the Id. CIT(A) has erred in not deleting the addition of Rs.25,74,49,980/- made by the A.O. u/s 68. (A) For the first time on 28.03.2016 the ld A.O. had (i) informed the assessee that the notices issued by him u/s 133(6) to the share applicants/share holders were returned unserved; and (ii) asked the assessee to produce the share applicants /share holders on 30.03.2016, and passed the assessment order on 31.03.2016. (B) The assessee had may clearly established that even the books value of its each share was Rs. 90.74 and as such charging of premium of Rs. 80/- per share was justified and thus, sec 56(2)(viib) has no applicability in its case. However, the Id. CIT(A) had arbitrarily held that share premium charged @ Rs. 80/- per share is to be brought to tax. 3. That the Id. CIT(A) has erred in not deleting the addition of Rs.12,85,050/-, which was made by the A.O. on the ground that the purchase bills were not found attached with its letter, thereby ignoring the fact that such purchases were made by the assessee from Alia International, who had raised five invoices bearing nos. 114, 115, 116, 117 & 118 while charging VAT. 4. That the Id CIT(A) has erred in not deleting the addition of Rs.72,62,930/-, which was made by the Id. A.O. by applying G.P. Rate of 7.45% on alleged undisclosed sales. 5. That the ld CIT(A) has erred in not deleting the addition of Rs.2,63,991/-, which was made by the Id. A.O. by applying G.P. Rate of 2 % on alleged undisclosed sales of Bi-Products. 6. That the ld CIT(A) has erred in not deleting the addition of Rs.68,58,638/-, which was made by the Id. A.O. by applying G.P. Rate of 7.1% on alleged undisclosed sales. 7. That the ld CIT(A) has erred in not deleting the addition of Rs.10,68,025/-, which was made by the Id. A.O. by applying G.P. Rate of 7.1% on alleged undisclosed sales to C.P. Ent. Agra. 8. That the ld CIT(A) has erred in not deleting the addition of Rs.38,83,341/-, which was made by the Id. A.O. without raising any query relating to this issue. 9. That the ld CIT(A) has erred in not deleting the addition of Rs.21,25,381/-, which was made by the Id. A.O. u/s 40A(3) . In any case the addition/disallowance u/s 40A(3) made by the Id. A.O. and confirmed by the Id. CIT(A) at Rs.21,25,381/- is unjustified.” ITA No.7820/Del/2018 3 3. The appeal has been filed by the assessee on 07.12.2018 and the hearings have been held on 22.12.2021, 14.03.2022, 01.06.2022, 06.09.2022, 19.10.2022, 16.01.2023, 19.04.2023, 28.06.2023, 04.07.2023 and 05.07.2023. On these dates, nobody on behalf of the assessee attended the hearings nor adjournments letter have been filed. The notices have been duly served to the assessee. Hence, it was decided to adjudicate the case based on the materials available on record. 4. We have gone through the Assessment Order passed by DCIT, Central Cirecle-5 in detail. We have also gone through the order of the ld. CIT(A) consisting of 67 pages and perused the facts, the submissions of the assessee, the judgments referred, and the reasoning of the ld. CIT(A) while confirming the addition. 5. The facts of the case are under: “1. The assessee is a company, which was incorporated on 26.09.1996. filing its returns of income year after year and its Assessing Officer was ACIT, Circle-13(1), New Delhi. 2. The assessee had filed its ITR declaring total income of Rs. 64,24,50,130/- on 30.04.2014. 3. There had been a search & seizure operation at the business premises of the assessee on 30.09.2013. 4. The case of the assessee was centralized in Central Circle-5, New Delhi, as per order dt. 03.12.2015 passed by the Id. Pr. CIT-06 New Delhi. 5. The DCIT, Central Circle-05, New Delhi had issued notice u/s 153A on 09.12.2015. 6. The Id. A.O. had commenced the assessment proceedings in the month of Jan 2016. ITA No.7820/Del/2018 4 7. During the course of assessment proceedings, the assessee had furnished the details, documents & explanation with regard to the share capital of the assessee. 8. Vide order sheet entry dt. 28.03.2016, the A.O. had asked the assessee to prove the identity & capacity of the persons from whom it had received money towards share capital / share premium and also to produce all such persons before him at Delhi on 30.03.2016. 9. At the same point of time, the A.O. had informed the assessee that the notices issued u/s 133(6) to such persons have returned unserved. 10. Vide letter dt. 30.03.2016, the assessee had stated to the A.O. that (i) it had already discharged its onus w.r.t. share capital / share premium; (ii) the time of 2 days allowed for producing the desired parties for examination was short; and (iii) requested to supply the complete details of the persons to whom notices u/s 133(6) were dispatched and returned unserved. 11. The A.O. had concluded the assessment proceedings on 30.03.2016 and thereafter had passed the assessment order u/s 153A/143(3) on 31.03.2016, on an income of Rs. Rs. 1,05,30,51,828/-, as under:- Income as declared 642450130 Add: Addition u/s 68 on account of Share Capital 257449980 Add: Bogus purchase of husk 1547489 Add: Bogus purchase 1285050 Add: G.P. @ 7.45% on undisclosed sales of Rs. 9,74,89,000/- 7262930 Add: G.P. @ 7.45% on undisclosed sales of Rs. 1,72,42,53,328/- 128456873 Add: G.P. @ 2% on undisclosed sales of Bi-Products 263991 of Rs. 1,31,99,573/- Add: G.P. @ 7.1% on undisclosed sales of Rs. 6858638 Add: Undisclosed purchases 3883341 Add: G.P. @ 7.1% on undisclosed sales of Rs. 1068025 ITA No.7820/Del/2018 5 Add: Disallowance u/s 40A(3) 2125381 Add: Unaccounted Cash Payment 400000 Total Income 1053051828 6. On going through the details, the ld. CIT(A) adjudicated on the issues is as under: “i. In this case, action u/s 132 was undertaken at the business premises of the appellant and related premises including residential premises of the promoter directors of the assessee company. The Assessing Officer made addition of Rs. 25,74,49,980/- u/s 68 on account of share capital subscribed by two companies which were (1) Genuis Distributors Pvt. Ltd. & (2) Chamundaji Sales Pvt. Ltd. (n para 5.1 of the assessment order). The appellant furnished confirmations from both these companies alongwith supporting documents. The Assessing Officer issued notices u/s 133(6) to these share applicants, which were returned unserved. In para 5.2 of the assessment order, the Assessing Officer mentioned that during detailed post-search inquiry w.r.t. these parties, it was found that these companies were paper companies operated by entry operators for providing accommodation entries to the assessee as well as other beneficiaries. In para 5.4 of the assessment order, the Assessing Officer mentioned that a document was retrieved from the hard disk named A-9 found & seized and from the Nehru Nagar of the assessee contained certain details of the parties investing in share capital. This document showed the share holding pattern of the assessee as on 31.03.2010 and most of the companies mentioned therein were found non-existing on inquiry. Thus, the seized document has incriminating nature w.r.t. share capital. The Assessing Officer further mentioned that another document indicating arrangement of share capital in the form of Page 10 of Annexure A-6 found & seized during the course of search from 108, 109, 110 Vardhman City-2 Plaza, Asfa Ali Road. Delhi, which is a sheet under the heading ‘From 01/01/2012’, under which there was mention of amount against some names / headings. On the same page, there was also a mention of Rs. 3 crores against which ‘Expenses Share Capital’ was written, which indicates that funds are being diverted to introduce share capital in the books of the group companies. The Assessing Officer scanned the Page 10 of Annexure A-6 below para ITA No.7820/Del/2018 6 5.4 of the assessment order. The Assessing Officer made out a case that Rs. 3 Crores corresponds with the rate of commission (1% -2% on such accommodation entries amounting to Rs.160 Cr. Approximately in this group in various years. In para 5.6 of the assessment order, the AO dealt with the assessee’s request for supply of statement of Anand Sharma and opportunity to cross examine Anand Sharma, by mentioning that it was only one of the corroborative evidence to establish that these companies were appear companies and also that Cross examination of Mr. Anand Sharma is not of much relevance here. The Assessing Officer pointed out certain mismatches in the confirmations of Jagprem Vyapar Limited and Sundaram Distributors Pvt. Ltd. I have found that the Assessing Officer had not made out a case that appellant had received money from Jagprem Vyapar Limited and Sundaram Distributors Pvt. Ltd. during F.Y. 2012-13. The AO mentioned about discrete field inquiries conducted during pre search verifications. The Assessing Officer reproduced few selected questions and answers out of the recorded statement of Sh. Anand Sharma. I have noted that in answer to Q-10, Anand Sharma stated “On the behest of one Mr. R.K. Arora from Delhi I provided this accommodation entry. I received cash from the above person through our local operators on behalf of NCML Group from various dates from the end of 2011 onwards”. ii. In Ground No. 1, the appellant challenged the assessment order on the ground that notice u/s 143(2) was not issued by the Assessing Officer within 6 months from the end of the financial year in which return was filed. In this case, it is seen that the AO issued notice u/s 153A on 09.12.2015 and issued notice u/s 143(2) on 05.01.2016. Hence this Ground is dismissed on the facts. M/s NCML Industries Ltd. iii. This is in respect of addition on account of share capital subscription of Rs.25,74,49,980/-. As far as the merits of the case are concerned, I have gone through the assessment order passed by and A.O. and verified the material placed on paper book and was part of the assessment records also. The appellant has submitted that the information sought u/s 133 (6) was furnished. It is required to refer to here the section 68 as amended effective from AY 2013-14 onwards. The ITA No.7820/Del/2018 7 section confers enhanced onus on the investing entity in the assessee by virtue of the proviso. This reads as under: “Cash credits. 68. Where any sum is found credited in the hooks of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:” The appellant has neither produced the investors nor arranged to provide the requisite information and documents directly from it as such failed to substantiate its contention. The onus to prove its contentions has not been discharged by the assessee appellant. Concept of Onus is dynamic no doubt, but the assessee is required to first discharge the onus cast upon by way of information in possession of the department based on the material that creates prima facie basis for the AO to arrive at his conclusions. The assessee has presented a whole series of jurisprudence without substantively discharging its onus. Such onus does not shift back by the mere act of the assessee in plainly denying the imputations without really offering corroborative data or any substantive contentions to establish its case to rebut the imputation. The appellant fails on this count as the primary onus is yet ITA No.7820/Del/2018 8 not discharged. The jurisprudence referred below goes against the facts of the appellant: Rick Lunsford Trade & Investment Ltd Vs CIT Supreme Court 2017 2016-TIOL-207-SC-IT Navodaya Castle Pvt Ltd Vs CIT Supreme Court 2017 2015-TIOL-314-SC-IT Pawankumar M Sanghvi vs ITO Affirming the judgment of Hon’ble Gujarat High Court. Supreme Court 2018 10250/2018 CIT Vs Navodaya Castle Pvt Ltd. Delhi High Court 2017 [2014] 367ITR 306 (Del) In view of the facts of the case in light of the amended section 68 (enhancing the appellant onus) as also the cases referred above, the appellant has no case against the addition made by the AO u/s 68 in respect of the funds infused via share capital. Further, I find no substantive basis to accept the contentions of the assessee. The addition in this regard is has to be confirmed as the available jurisprudence is clearly distinguishable on the facts of the case. Accordingly the addition of Rs. 25,74,49,980/- made by A.O. u/s 68 of the Act [as applicable for AY 2-13-14 onwards] is sustained. iiia. There is another aspect to such transactions with effect from AY 2013-14 onwards. In this regard, it is also pertinent to refer to section 56 (2) vii b, which reads as under: "56. (I) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub- section (I), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely:— (viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the ITA No.7820/Del/2018 9 aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received— (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf Explanation.—For the purposes of this clause,— (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of 94[Explanation] to clause (23FB) of section 10;]’’ [ emphasis supplied]” The share premium charged by the appellant clearly falls within the scope of this section in absence of assessee furnishing a reliable and robust basis of valuation of such equity. The relevant rule in this regard is rule 11UA (1) cb. The assessee is in clear mischief of the same, hence the premium charged by the assessee is to be subjected to the provisions of section 56 (2) viib read with rule 11UA (1) cb. It is bounden on the assessee to furnish reliable valuation determining such share premium as in its case for the A.Y. 2013-14, from a qualified valuer. The assessee has not done the same, nor has any submission filed before me in this regard excepting stating that the premium was based on the value of the reserves. The share premium so charged for this year falls in clear mischief of the provisions of law as discussed above. The same premia charged @ 80/- are, therefore, to be brought to tax. As the addition in case of the assessee has been upheld for this period, the addition here above will get subsumed in the quantum added by the AO ITA No.7820/Del/2018 10 u/s 68. However, in case of any alterations in income computations later on, the provisions as discussed above shall get invoked. The AO is directed to make a note of the same in the file also. This ground is dismissed and the addition on account of share capital and premium is also upheld. .................... v. In Ground No. 5, the appellant challenged the addition of Rs. 12,85,050/- made by the Assessing Officer on account of bogus purchases. Ld. A.R. of the appellant explained that a sheet was found during the survey operation carried out at the office of CA Manoj Jain wherein in respect of 11 items, “bill not available” was written. The ld. A.R. of the appellant clarified that 5 items related to purchases while remaining six items related to sales. The ld. A.R. of the appellant further explained that all the five purchases covering amount of Rs. 12,85,050/- were made from Alita International on different dates during the period 16.02.2013 to 26.02.2013 vide bill nos. 114 to 118. The seller party charged VAT on these sales made to the assessee. I have noted that the only point raised by the Assessing Officer was that though in its letter, the appellant stated that it is enclosing copies of such bills but the same were not enclosed. This addition is sustained on the facts. Hence this Ground is decided against the appellant. vi. In Ground No. 6, 8, 9 and 11 the appellant challenged the addition made by the Assessing Officer on account of G.P. on undisclosed sales, on the ground that without rejecting the books of account, such additions could not be made. It is seen that on the facts of the case, that the Assessing Officer was justified in making such additions. Hence these Grounds are dismissed. ............................... viii In Ground No. 10, the appellant challenged the addition of Rs. 38,83,341/- made by the Assessing Officer on account of probable purchases for making sales of Rs. 9,66,00,529/- by applying the stock turnover ratio of 4.02%. Though Ld AR pointed out that during the course of assessment proceedings, the Assessing Officer did not raise any query relating to this issue, yet the appellant could have chosen to ITA No.7820/Del/2018 11 counter the action of the AO by making reasoned submissions. The appellant has not taken any such action. This addition of Rs. 38,83,341/- is hence confirmed. Hence this Ground is dismissed. ix In Ground No. 12, the appellant challenged the disallowance of Rs. 21,25,: by the Assessing Officer u/s 40A(3). The Ld. A.R. of the appellant stjj Assessing Officer had picked up the entire figure of cash payments and made disallowance u/s 40A(3). The Ld. A.R. of the appellant stated out that the Assessing Officer had picked up the entire figure of cash payment of Rs.21,25,381/- and made disallowance u/s 40A(3). The ld. AR of the appellant pointed out that Rs. 2,80,470/- represented amount paid on account of labour charges through agent, Rs. 77,150/- represented amount paid by way of Inam to laborers / employees and Rs. 2,44,470/- represented amount paid by way of imprest. There is no basis to accede to the submissions of Ld AR. The contentions have been considered and I don’t find any force in the same. Hence this Ground is dismissed.” 7. In the absence of any evidences available before us contrary to the ratio of the ld. CIT(A), we decline to interfere with the order of the ld. CIT(A). 8. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 18.09.2023. Sd/- Sd/- (C. M. Garg) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 18/09/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR