ITO, Ward - 11(2), Kolkata, Kolkata V. M/S. Sungrowth Share & Stocks Ltd., Kolkata

ITA 82/KOL/2010

• Counselvise Citation: 8223514 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 13-01-2010
• Court: TRIBUNAL
• Department Lawyers: L S NEGI
• Assessee Lawyers: A K TULSIYAN
• Keywords: Reopening of assessment; Unexplained cash credit; Question of law; Onus to prove
• Section: 68

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH B, KOLKATA () BEFORE . .. . . .. . , , , , , SHRI B.R.MITTAL, JUDICIAL MEMBER. /AND . .. .!' !'!' !'. .. . , #$ SHRI C.D.RAO, ACCOUNTANT MEMBER %& %& %& %& ' ' ' ' / ITA NO . 82 /KOL/2010 () *+/ ASSESSMENT YEAR : 2005-06 (-. / APPELLANT ) I.T.O., WARD-11(2), KOLKATA - ( - - VERSUS - . (01-./ RESPONDENT ) M/S.SUNGROWTH SHARE & STOCKS LTD., KOLKATA (PAN: AAECS 3913 P) -. 2 3 #/ FOR THE APPELLANT: SHRI L.S.NEGI, CIT.DR 01-. 2 3 #/ FOR THE RESPONDENT: SHRI A.K.TULSIYAN #4 / ORDER ( (( ( . .. .!' !'!' !'. .. . ) )) ), , , , #$ PER SHRI C.D.RAO, AM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 16.09.2009 OF THE CIT(A)-XII, KOLKATA PERTAINING TO A.YR. 2005-06. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES, LD. CIT (APPEALS) OUGHT TO HAVE UPHELD THE ASSESSMENT ORDER AS THE TRANSACTION ENTE RED INTO BY THE ASSESSEE WAS A SCHEME FOR LAUNDERING BLACK MONEY INTO WHITE MONE Y AND THE LD.CIT(APPEALS) OUGHT TO HAVE HELD THAT IN SUCH CIR CUMSTANCES, THE ASSESSING OFFICER IS ENTITLED TO PIERCE THE CORPORATE VEIL. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE AO W HILE DOING THE SCRUTINY ASSESSMENT OBSERVED THAT THE ASSESSEE COMPANY HAS RECEIVED SHA RE APPLICATION FROM FOUR PARTIES NAMELY :- (I) M/S. EAST METALIKS LTD. (II) M/S. BHAGWATI MANAGEMENT LTD. (III) M/S. MAHAVIR ADVISORY LTD. AND (IV) M/S. BHAGIRATH MANAGEMENT LTD. 2 ON ENQUIRY HE OBSERVED THAT THE ASSESSEE WAS HAVIN G ITS ACCOUNT NO.848116 WITH ABN AMRO BANK IN WHICH WHOLE OF THE SHARE PREMIUM W AS RECEIVED DURING THE YEAR. ON VERIFICATION IT WAS SEEN THAT BEFORE RECEIPT OF THE SHARE PREMIUM IN THE ASSESSEES ACCOUNT THE AMOUNTS WERE ROUTED THROUGH NUMBER OF A CCOUNTS BY WAY OF TRANSFER ENTRIES IN THE ACCOUNTS MAINTAINED IN THE SAME BANK AND AT THE ORIGIN POINT, IN TWO INSTANCES, IT WAS FOUND THAT CASH OF RS.8,00,000/- AND RS.7,30,000/- WERE DEPOSITED BEFORE TRANSFERRING THE SAME FORM THE ACCOUNT NO.97 7163 IN THE NAME OF SHAKTI TRADING CO. AND THE ACCOUNT NO.977160 IN THE NAME O F MAA KALI BUILDERS ON 12.08.2004 RESPECTIVELY. ON BOTH THE OCCASIONS CIRC LE STARTED FROM THE ACCOUNT OF THE CONCERNS NAMELY SHAKTI TRADING CO.. AND MAA KALI BU ILDERS AND IT TRANSFERRED TO M/S. P.T.CONSTRUCITON (ACCOUNT NO.899711) ON 12.08.2004 THEREAFTER TRANSFERRED TO M/S. PRIOYARANJAN SALE PVT. LTD. (ACCOUNT NO.899711) ON 12.08.2004 AND THEREAFTER TRANSFERRED TO M/S.B.L. VERMA TRADING CO. (ACCOUNT NO.1003811) ON 12.08.2004 THEREAFTER TRANSFERRED TO M/S. KAMALDEEP VYAPAR PVT . LTD. (ACCOUNT NO.899725) ON 12.08.2004 THEN TRANSFERRED TO M/S. MAHAVIR ADVISOR Y LTD. (ACCOUNT NO.852623) ON 12.08.2004 THEN IT FINALLY TRANSFERRED TO M/S. SUNG ROWTH SHARE & STOCKS LTD. ON 13.08.2004 WHO IS THE ACTUAL BENEFICIARY. BESIDES, IN ALL OTHER TRANSACTIONS IT WAS SEEN THAT CIRCLE OF TRANSFER ENTRIES ENDED ON SOME PARTI CULAR ACCOUNT WHERE THE SAME AMOUNT WHICH WAS TRANSFERRED ONWARD TO M/S. SUNGROWTH SHAR E & STOCKS WERE RECEIVED IN THE FORM OF INSTRUMENTS THROUGH CLEARING. ON PHYSICAL V ERIFICATION ALSO SHRI MALAKAR COULD NOT TRACE OUT ANY OF SUCH COMPANIES AT THEIR GIVEN ADDRESSES PROCURED FROM THE BANK FROM WHERE TRANSFER ENTRIES WERE ROUTED THROUG H AND FINALLY RECEIVED IN THE ACCOUNT OF THE ASSESSEE COMPANYS ACCOUNT. 3.1. THE AO FURTHER CONDUCTED THE ENQUIRIES THROUGH INSPECTOR AND FINALLY CONCLUDED THAT THE EXISTENCE OF THE SHARE APPLICANT COMPANIES AND OTHER UNKNOWN COMPANIES ARE ONLY IN PAPER. ACCORDINGLY, THEIR CRE DITWORTHINESS TO INVEST SUCH HUGE MONEY IN ASSESSEE COMPANY REMAINS UNESTABLISHED AND UNVERIFIED. THEREFORE, IT IS CONCLUDED THAT THE ENTIRE SHARE CAPITAL AND PREMIUM AMOUNT ARE THE UNDISCLOSED MONEY OF THE ASSESSEE COMPANY INVESTED IN THE GARB OF SHARE CAPITAL. HENCE THE ENTIRE AMOUNT OF RS.18,39,52,000/- IS CONSIDERED AS ASSESS EES UNDISCLOSED CASH CREDIT U/S 68 OF THE IT ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3 3.2. ON APPEAL THE LD. CIT(A) HAS DELETED THE SAME AFTER TAKING INTO CONSIDERATION VARIOUS SUBMISSIONS OF THE ASSESSEE MAINLY RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS M/S. LOVELY EXP ORTS PVT. LTD. 216 CTR 195. AS SEEN FROM THE FACTS OF THE CASE, I AM OF THE VI EW THAT THE APPELLANT HAS FURNISHED ALL THE RELEVANT DETAILS IN RESPECT OF CR EDITS RELATED TO SHARE CAPITAL/PREMIUM CONTRIBUTION. THUS IT DISCHARGED IT S ONUS. NOW THE BURDEN OF PROOF SHIFTED TO A.O TO PROVE CONTRARY. AS PER SECT ION 68, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAIN ED FOR ANY PREVIOUS YEAR AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NA TURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINI ON OF ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDIT MAY BE CHARGED TO I NCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR IN THE PRESENT CASE THE APPELLANT OFFERED AN EXPLANATION ALONG WITH NECESSARY DOCUMENTARY EVIDEN CES. THEREBY THE ONUS NOW SHIFTED ON TO THE A.O TO DISPROVE SUCH EXPLANAT ION BY BRINGING IN MATERIAL EVIDENCE ON RECORD. THE A.O MADE ENQUIRIES WITH REG ARD TO FOUR SHARE APPLICANT COMPANIES AND CAME TO A CONCLUSION THAT T HESE ARE MERE NAME LENDERS. THE A.O ALSO ANALYSED THE FUND FLOW THROUG H BANKING CHANNELS AND CONCLUDED THAT THE COMPANIES INVOLVED ARE MERELY U SED AS CONDUITS TO TRANSFER THE APPELLANTS OWN MONEY IN THE FORM OF SHARE CAPI TAL CONTRIBUTION. BUT, THE A.O FAILED TO ESTABLISH A VERY VITAL LLNK I.E. FLOW OF FUNDS FROM APPELLANT COMPANY TO THE SHARE APPLICANT COMPANIES. IN THE A BSENCE OF SUCH A LINK OR NEXUS, IT IS NOT CORRECT TO CONCLUDE THAT THE SAID SHARE CAPITAL ACTUALLY BELONGED TO, OR WERE OWNED BY THE APPELLANT. AS SUCH TREATIN G SUCH SHARE CAPITOL AS INCOME DERIVED BY THE APPELLANT FROM UNDISCLOSED SO URCES IS NOT CORRECT. EVEN OTHERWISE, THERE ARE JUDICIAL RULINGS INCLUDIN G SUPREME COURT DECISIONS THAT AMOUNTS RECEIVED TOWARDS SHARE CAPITAL ARE TOT ALLY OUTSIDE THE SCOPE OF ASSESSMENT U/S. 68, EVEN IF THEY ARE UNPROVED, ON T HE GROUND THAT THEY CANNOT BE TREATED AS CASH CREDIT FALLING WITHIN THE PURVIE W OF SECTION 68. FOLLOWING THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN CIT VS. STELLAR INVESTMENT LTD (2001) 251 ITR 263. THE SUPREME COURT CONFIRMED THE DECISION OF STELLER INVESTMENT LTD. CASE DECIDED BY THE DELHI HIGH COUR T REPORTED IN 192 ITR 287. IN THE SAID CASE THE DELHI HIGH COURT WHILE DECIDIN G THE CASE (SUPRA) HAS HELD EVEN IF IT BE ASSUMED THAT THE SUBSCRIBERS TO THE I NCREASED SHARE CAPITAL WERE NOT GENUINE, UNDER NO CIRCUMSTANCES, CAN THE AMOUNT OF SUCH CAPITAL BE REGARDED AS UNDISCLOSED INCOME OF ASSESSEE-COMPANY. IF CERTAIN SHAREHOLDERS WERE BOGUS AND MONEY WAS PROVIDED BY SOME OTHER PER SONS, REOPENING OF ASSESSMENT OF SUCH PERSONS WOULD BE SENSIBLE TRIBUN AL, THEREFORE, WAS JUSTIFIED IN SETTING ASIDE REVISIONAL ORDER AND NO QUESTION O F LAW ARISES. FURTHER THE FULL BENCH OF DELHI HIGH COURT IN THE CASE OF CIT VS SOF IA FINANCE LTD . (1994) 205 ITR 98 HELD THAT IF THE IDENTITY OF THE SHAREHOLDER IS PROVED THAN, POSSIBLY NO FURTHER ENQUIRY NEED TO BE MADE AND NO ADDITION CAN BE MADE IN THE HANDS OF THE COMPANY. THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. ELECTROROLYCHEM LTD. (2007) 294 661 HAS ADOPTED THE ABOVE VIEW. IN THE CASE OF JAVA SECURITIES LTD VS. CIT (2008) 166 TAXMAN 7, THE HONBLE ALLAHABAD HIGH COURT HELD THAT NO ADDITION U/S 68 CAN BE MADE IN RESPECT OF INVESTMENT 4 MADE BY DIFFERENT PERSONS IN THE SHARE CAPITAL OF A COMPANY, LIMITED BY SHARES WHETHER PUBLIC OR PRIVATE. IN THE CASE OF SHREE BAR KHA SYNTHETICS LTD VS ACIT (2006) 155 TAXMAN289 (RAJ.), IT IS HELD WHERE THE MATTER CONCERNS MONEY RECEIPTS BY WAY OF SHARE APPLICATION FROM INV ESTORS THROUGH BANKING CHANNEL, THE ASSESSEE HAS TO PROVE THE EXISTENCE OF THE PERSON IN WHOSE NAME THE SHARE APPLICATION IS RECEIVED. ONCE THE EXISTEN CE OF THE INVESTOR IS PROVED, IT IS NOT FURTHER THE BURDEN OF THE ASSESSEE TO PROVE WHETHER THAT PERSON ITSELF HAS INVESTED THE SAID MONEY OR SOME OTHER PERSON HAS MA DE IN VESTMENT IN THE NAME OF THAT PERSON. THE BURDEN THEN SHIFTS ON TO T HE REVENUE TO ESTABLISH THAT SUCH INVESTMENT HAS COME FROM THE ASSESSEE COMPANY ITSELF. ONCE THE RECEIPT OF THE CONFIRMATION LETTER FROM THE CREDITOR IS PRO VED AND THE IDENTITY AND THE EXISTENCE OF THE INVESTOR HAVE NOT BEEN DISPUTED, N O ADDITION ON ACCOUNT OF SHARE APPLICATION MONEY IN THE NAME OF SUCH INVESTO R CAN BE MADE IN THE ASSESSEES HANDS. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. LOVELY EXPORTS PVT. LTD. (2008) 216 CTR 195 HELD THAT IF THE SHARE APPLICAT ION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLE GED BOGUS SHARE HOLDERS, WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THE DEPARTMENT COULD PROCEED TO OPEN THEIR INDIVIDUAL ASSESSMENTS BUT IT COULD N OT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY. 4. AT THE TIME OF HEARING BEFORE US, THE LD. DR AP PEARING ON BEHALF OF THE REVENUE HAS REITERATED THE FINDINGS MADE BY THE AO IN THE ASSES SMENT ORDER AND FURTHER CONTENDED THAT SINCE THE AO HAS BROUGHT THE FACTS THAT THE AS SESSEE COMPANY HAS ROTATED THE AMOUNT WHICH WAS INITIALLY DEPOSITED IN ABN AMRO BANK ON 1 2.08.2004. THEREFORE, IN THIS CASE THE RELIANCE PLACED BY THE LD. CIT(A) IS NOT APPLIC ABLE TO THE PRESENT FACTS OF THE CASE. THEREFORE, HE REQUESTED TO SET ASIDE THE ORDERS OF THE LD. CIT(A) AND RESTORE THE ORDER OF THE A.O. 5. ON THE OTHER HAND, THE LD. AR APPEARING ON BEHA LF OF THE ASSESSEE HAS CONTENDED THAT IN THE SIMILAR FACTS OF THE CASE WHEREIN THE T RIBUNAL HAS DISMISSED THE REVENUES APPEAL IN ITA NO.2119/KOL/2009. ON APPEAL THE JURIS DICTIONAL HIGH COURT HAS CONFIRMED THE ORDERS OF THIS TRIBUNAL AND FILED THE COPY OF T HE JURISDICTIONAL HIGH COURTS DECISION. HE FURTHER BY REFERRING TO PAGE NOS. 18 AND 19 OF T HE PAPER BOOK WHEREIN THE DETAILS OF THE SHARE APPLICANTS HAVE BEEN MENTIONED, SUBMITTED THA T THE CONTENTION OF THE A.O. THAT INITIAL DEPOSIT MADE ON 12.08.2004 IS FACTUALLY IN CORRECT SINCE MOST OF THE SHARE APPLICANTS HAVE MADE PAYMENTS PRIOR TO 12.08.2004. HE FURTHER CONTENDED THAT THE AO COULD NOT TREAT THE SHARE APPLICANTS AS BOGUS SINCE IN THE SUBSEQUENT YEARS THE HONBLE HIGH COURT HAS CONFIRMED THE AMALGAMATION OF THESE COMPANIES BY AMALGAMATION ORDER DATED 15.02.2005/22.06.2005 WHICH WAS PLACED AT PAG ES 91-123 OF THE PAPER BOOK. 5 THEREFORE, HE CONTENDED THAT THE FACTS NARRATED BY THE AO IN REJECTING THE ASSESSEES CONTENTION IS FACTUALLY INCORRECT. THEREFORE, HE RE QUESTED TO UPHELD THE ORDER OF THE LD. CIT(A). 6. HAVING HEARD THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, IT IS OBSERVED THAT THE ASSESS EE COMPANY HAS RECEIVED THE SHARE APPLICATION MONEY MUCH PRIOR TO 12.08.2004 WHICH IS APPARENT FROM PAGE NOS. 18 AND 19 OF THE PAPER BOOK. OUT OF THE TOTAL AMOUNT OF RS.1 8.39 CRORES AN AMOUNT OF RS.50 LAKHS WAS RECEIVED ON 12.08.2004, RS.100 LAKHS WAS RECEIV ED ON 13.08.2004, RS.53,000/- WAS RECEIVED ON 07.09.2004 AND RS.7,25,000/- WAS RECEIV ED ON 20.09.2004. IT IS FURTHER OBSERVED THAT FROM THE AMALGAMATION ORDER DATED 22. 06.2005 WHICH WAS PLACED AT PAGES 91-107 THE FOLLOWING COMPANIES NAMELY M/S. BHAGIRAT H MANAGEMENT LTD., M/S. BHAGWATI MANAGEMENT LTD. & M/S. EAST METALIC LTD. A RE AMALGAMATED WITH M/S. DEEVEE COMMERCIAL LTD. W.E.F. 01.02.2005. SIMILARLY AS PER AMALGAMATION ORDER DATED 15.2.2005 WHICH WAS PLACED AT PAGE NO.123 M/S. MAHABIR ADVISO RY LIMITED WAS AMALGAMATED WITH M/S. DANTA VYAPAR KENDRA LTD. W.E.F. 01.04.2004. TH E OBSERVATIONS MADE BY THE AO WHILE FRAMING THE ASSESSMENT IS NOT TENABLE. 6.1. AS REGARDING APPLICABILITY OF THE CASE OF LOVE LY EXPORTS (P) LTD. IN THE SIMILAR SET OF FACTS WHEN THE TRIBUNAL HAS DISMISSED THE REVENU ES APPEAL THE OBSERVATIONS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS ROS EBERRY MERCANTILE (P) LTD. ARE AS UNDER :- IT APPEARS FROM THE RECORD THAT IN THE ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDER ATION HAD BROUGHT RS.4,00,000/- AND RS.20,00,000/- TOWARDS SHARE CAPI TAL AND SHARE PREMIUM RESPECTIVELY AMOUNTING TO RS.24,00,000/- FROM FOUR SHAREHOLDERS BEING PRIVATE LIMITED COMPANIES. THE ASSESSING OFFICER ON HIS PAR T CALLED FOR THE DETAILS FROM THE ASSESSEE AND ALSO FROM THE SHARE APPLICANTS AND ANA LYSED THE FACTS AND ULTIMATELY OBSERVED CERTAIN ABNORMAL FEATURES, WHICH WERE MENT IONED IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER, THEREFORE, CONCLUDED THAT NATURE AND SOURCE OF SUCH MONEY WAS QUESTIONABLE AND EVIDENCE PRODUCED WAS UN SATISFACTORY. CONSEQUENTLY, THE ASSESSING OFFICER INVOKED THE PROVISIONS UNDER SECTION 68/69 OF THE INCOME TAX ACT AND MADE ADDITION OF RS.24,00,000/-. ON APPEAL THE LEARNED CIT(A) BY FOLLOWING THE DECI SION OF THE SUPREME COURT IN THE CASE OF CIT VS. M/S. LOVELY EXPORTS PV T. LTD. REPORTED IN (2008) 216 CTR 195 ALLOWED THE APPEAL BY HOLDING THAT SHARE CA PITAL/PREMIUM OF RS.24,00,000/- RECEIVED FROM THE INVESTORS WAS NOT LIABLE TO BE TREATED UNDER SECTION 68 AS UNEXPLAINED CREDITS AND IT SHOULD NOT BE TAXED IN THE HANDS OF THE APPELLANT COMPANY. 6 AS INDICATED EARLIER, THE TRIBUNAL BELOW DISMISSED THE APPEAL FILED BY THE REVENUE. AFTER HEARING THE LEARNED COUNSEL FOR THE APPELLAN T AND AFTER GOING THROUGH THE DECISION OF THE SUPREME COURT IN THE CASE OF CI T VS. M/S. LOVELY EXPORTS PVT. LTD. [SUPRA], WE ARE AT ONE WITH THE TRIBUNAL BELOW THAT THE POINT INVOLVED IN THIS APPEAL IS COVERED BY THE SAID SUPREME COURT DECISIO N IN FAVOUR OF THE ASSESSEE AND THUS, NO SUBSTANTIAL QUESTION OF LAW IS INVOLVE D IN THIS APPEAL. THE APPEAL IS DEVOID OF ANY SUBSTANCE AND IS DISMISSED. 6.2. KEEPING IN VIEW OF THE PRESENT FACTS OF THE CA SE AND THE JURISDICTIONAL HIGH COURTS DECISION WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A) TO BE INTERFERED WITH. THEREFORE, WE CONFIRM THE SAME AND DISMISS THE REVE NUES APPEAL. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 10.06.2011. SD/- SD/- . .. . . .. . , , , , B.R.MITTAL, JUDICIAL MEMBER . .. .!' !'!' !'. .. . , ,, , #$ #$ #$ #$ , C.D.RAO, ACCOUNTANT MEMBER. ( (( ('$ '$ '$ '$) )) ) DATE: 10.06.2011. #4 2 0& 5#&*6- COPY OF THE ORDER FORWARDED TO: 1. M/S.SUNGROWTH SHARE & STOCKS LTD., 14, N.S.ROAD,. 2 ND FLOOR, KOLKATA- 700001. 2 THE I.T.O., WARD-11(2), KOLKATA 3. THE CIT, 4. THE CIT(A)-XII, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA 1& 0/ TRUE COPY, #4(;/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)