ACIT CC, Aurangabad V. M/s Rishi Steels & Alloys P Ltd, Jalna

ITA 890/PUN/2007

• Counselvise Citation: 89024514 RSA 2007
• Duration Of Justice: 3 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 21-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHETAN KARIA
• Assessee Lawyers: HARESHWAR SHARMA
• Keywords: Unexplained cash credit
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER SR. ITA NO. ASSTT.YEAR APPELLANT V/S. RESPONDENT 1. 1562/PN/08 1999-00 ACIT, CENT. CIR, AURANGABAD M/S.RHISHI STEELS & ALLOYS PVT. LTD., JALNA 2. 1563/PN/08 2000-01 -DO- -DO- 3. 1564/PN/08 2001-02 -DO- -DO- 4. 1565/PN/08 2002-03 -DO- -DO- 5. 1566/PN/08 2003-04 -DO- -DO- 6. 1567/PN/08 2005-06 -DO- -DO- 7. 890/PN/08 2004-05 -DO- -DO- APPELLANT BY : SHRI CHETAN KARIA RESPONDENT BY : SHRI HARESHWAR SHARMA ORDER PER I.C. SUDHIR JM IN ALL THESE APPEALS, THE REVENUE HAS QUESTIONNED FIRST APPELLATE ORDER ON THE GROUND THAT THE LD CIT(A) HAS ERRED IN DIRECTI NG TO DELETE THE FOLLOWING ADDITION : 1. MADE ON ACCOUNT OF CLAIMED EXCESS BURING LOSS. 2. OF RS. 80 LAKHS MADE ON ACCOUNT OF RAISED SHARE CAP ITAL 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, MATERI AL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. ITA NO. 890/PN/2007 (A.Y. 2004-05) GROUND NO. 1 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPANY ENGAGED IN MANUFACTURING OF IRON AND STEEL WAS SUBJECTED TO SEARCH OPERATIO N. DURING THE ASSESSMENT PROCEEDINGS, THE A.O IN PARA NO. 4.5 OF THE ASSESSM ENT ORDER OBSERVED THAT THE ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 2 SUPPRESSED PRODUCTION AS ESTIMATED BY HIM WAS SOLD OUT OF BOOKS. THE ASSESSEE COMPANY USES M.S. SCRAPS, PIG IRON AND SPONGE IRON FOR THE PURPOSES OF MANUFACTURING OF IRON AND STEEL. THE ASSESSEE HAD CLAIMED BURING LOSS TO WHICH, A.O. DID NOT AGREE AND UNIFORMLY ESTIMATED THE BURI NG LOSS AT 4.1% FOR THE ENTIRE BLOCK PERIOD OF 7 YEARS. THE SAME WAS QUESTIONNED BEFORE THE LD CIT(A) ON THE BASIS OF SEVERAL CONTENTIONS. ACCEPTING THE SAME , THE LD CIT(A) HAS DELETED THE ADDITION MADE ON ACCOUNT OF BURNING LOSS WITH HIS CONCLUSIVE OBSERVATIONS THAT A.O HAS NOT BEEN ABLE TO SUBSTANTIATE HIS CASE AND HE H AS ALSO FAILED TO CLARIFY THE STAND AS TO HOW BURNING LOSS CAN REMAIN STATIC AT 4.1% IN ALL THE A.YS. INVOLVED. 4. BEFORE US, LD. D.R. HAS BASICALLY PLACED RELIANC E ON THE ASSESSMENT ORDER. HE SUBMITTED THAT THE A.O HAS GIVEN DETAILS AS TO THE BURNING LOSS IN THE FORM OF CHART IN THE ASSESSMENT ORDER. A PERUSAL OF DETAILS WOUL D INDICATE THAT BURNING LOSS VARIED FROM 4.32% TO 7.25%. THE A.O HELD THAT BURNING LOS S SHOWN IN THE ACCOUNTS IS EXCESSIVE AND HE ESTIMATED THE REASONABLE BURNING L OSS OF 4.,1% OF THE TOTAL CONSUMPTION OF RAW MATERIAL AND DETERMINED THE EXC ESS BURNING LOSS. THE VALUE OF SAID EXCESS BURNING LOSS ESTIMATED WAS ADDED IN TH E INCOME OF THE ASSESSEE. THE LD. D.R. SUBMITTED THAT FOR ARRIVING AT THE APPLICA TION OF BURNING LOSS AT 4.1%, THE A.O HAS APPLIED THE RESULT IN THE COMPARABLE CASE O F M/S. JALNA SIDDHIVINAYAK. THE LD. D.R. SUBMITTED THAT THE EXCESS BURNING LOSS WAS CLAIMED WITH INTENTION TO SUPPRESS THE PRODUCTION OF FINISHED GOODS TO THAT E XTENT TO SELL THE SAME OUT OF THE BOOKS. LD CIT(A), THUS, WAS NOT JUSTIFIED IN DELETI NG THE ADDITION MADE ON THIS ACCOUNT WITHOUT ASSIGNING PROPER REASON. 5. THE LD. A.R., ON THE OTHER HAND, TRIED TO JUSTIF Y THE FIRST APPELLATE ORDER WITH THIS SUBMISSION THAT IT IS COMPREHENSIVE AND REASON ED ONE. THE LD CIT(A) HAS DISCUSSED THE CASES OF BOTH THE PARTIES. HE REITER ATED THE CONTENTIONS RAISED BEFORE THE AUTHORITIES BELOW ON THE ISSUE. ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 3 6. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE A.O HAS BASICALLY DISBELIEVED THE CLAIMED BURNING LOSS ON THE BASIS T HAT THERE WAS VARIATION BETWEEN 4.32 TO 7.25%. THE PERCENTAGE YIELD OF RUNNER RISE R HAS BEEN KEPT AROUND 4% AND THE PRODUCTION OF INGOTS VARIES BETWEEN 89 TO 91%. THE A.O NOTED THAT HE HAS STUDIED LOT OF COMPARATIVE CASES AND UNLESS THE ASS ESSEE ESTABLISH BEYOND DOUBT THAT IT HAD BEEN TAKING DAY TO DAY MANUFACTURED RUN NER-RISER, THE ASSESSEES CONTENTION OF CLAIMING THE BURNING LOSS OF MORE THA T 4% CANNOT BE ACCEPTED. HE HAS NOTED FURTHER THAT THE ASSESSEE HAD FAILED TO P RODUCE THE EVIDENCE AND ESTABLISH THAT THERE WERE EXCEPTIONAL CIRCUMSTANCES TO JUSTIF Y THE EXCESS BURNING LOSS. AS PER HIM, BY MERELY STATING THAT THE RAW MATERIAL WAS OF GOOD QUALITY, THE EXPLANATION REGARDING VARIATION OF BURNING LOSS CANNOT BE ACCEP TED. UNDER THESE CIRCUMSTANCES, THE A.O IGNORING THE CLAIMED BURNING LOSS, ESTIMATED THE SAME AT 4.10% ON THE BASIS THAT IT IS PREVALENT IN THE OTHE R CASES DURING THOSE PERIOD. THE ADDITION ON THIS ACCOUNT HAS ACCORDINGLY BEEN MADE IN THE A.YS. UNDER CONSIDERATION. THE CONTENTION OF THE ASSESSEE AGA INST THE ADDITION REMAINED THAT DURING THE COURSE OF SEARCH, NO INCRIMINATING EVIDE NCE TO SHOW THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE ANY MISTAKE OR OMISSI ON WAS FOUND. THE OBSERVATION OF THE A.O TO THE EFFECT THAT SUPPRESSED PRODUCTION AS ESTIMATED BY HIM HAS BEEN SOLD OUT OF BOOKS IS WITHOUT ANY EVIDENCE ON RECORD AND IS BASED ON MERE SUSPICION, SURMISES AND CONJUNCTURES. THE ASSESSEE PURCHASES RAW MATERIAL FROM VARIOUS STEEL UNITS WHICH IS IN THE FORM OF M.S. SCRAP. THE M.S. SCRAP IS RECEIVED FROM VARIOUS STEEL MANUFACTURING UNITS AND LOCAL PARTIES. THE M.S. SCRAP ON CERTAIN OCCASIONS CONTAINED HIGHER QUANTITY OF DUST, RUST AND VARIOUS MATERIAL WHICH RESULT IN HIGHER BURING LOSS. IT IS FOR THIS REASON THAT BURNING LO SS VARIES IN DIFFERENT A.YS. THE FURTHER CONTENTION OF THE ASSESSEE REMAINED THAT IT USES M.S. SCRAPS, PIG IRON AND SPONGE IRON FOR THE PURPOSE OF MANUFACTURING OF IRO N AND STEEL. THE PRODUCT MIX OF RAW MATERIAL WILL VARY THE PERCENTAGE OF BURNING LO SS IN THE FINISHED PRODUCTS AS PERCENTAGE OF BURNING LOSS IN SPONGE IRON IS HIGHER AS COMPARED TO M.S. SCRAP. IT WAS FURTHER CONTENDED THAT MERE LOW YIELD OF FINISH ED PRODUCTIONS IS NO REASON TO ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 4 REJECT THE BOOKS OF ACCOUNT WHICH ARE REGULARLY MAI NTAINED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE IS A MANUFACTURING UNIT AND MOVEMENT OF GOODS ARE UNDER CONTROL AND SUPERVISION OF EXCISE AUTHORITY. ACCEPTANCE OF EXCISE AUTHORITY IN RESPECT OF QUANTITY OF BURNING LOSS, INCORPORATED IN THE TRANSACTION RECORDED IN THE REGULAR BOOKS OF ACCOUNT SUPPORTS THE CLAIM OF THE ASSESSEE. IT WAS SUBMITTED THAT THE A.O HAS TABULATED THE SUM OF UNITS OF ELECTRIC ITY CONSUMED PER MT FOR VARIOUS YEARS. THE CONSUMPTION OF ELECTRICITY PER TONNE IN TERMS OF UNITS WAS EXPLAINED AS VARYING FOR THE REASONS THAT THE READING ARE NOT TA KEN UNIFORMLY ON A PARTICULAR DATE BY EMPLOYEES OF STATE ELECTRICITY BOARD. THE CONSU MPTION OF ELECTRICITY DEPENDS UPON THE QUALITY OF RAW MATERIAL, MECHANICAL FAILUR E, POWER CUTS ETC., DURING THE PERIOD OF PRODUCTION. IT WAS CONTENDED FURTHER TH AT NOT A SINGLE COMPARABLE CASE HAS BEEN CITED IN THE ENTIRE ASSESSMENT ORDER. NO NE OF THE COMPARATIVE CASES WERE CONFRONTED TO THE ASSESSEE AND THUS SAME HAVE TO BE EXCLUDED FOR THE PURPOSE OF FRAMING ASSESSMENT IN THE CASE OF ASSESSEE. THE LD CIT(A) DISCUSSING THE CASE OF THE A.O AND OBJECTIONS RAISED BY THE ASSESSEE IN DE TAILS HAS PASSED A SPEAKING ORDER WITH HIS FINDING IN PARA NO. 4.1 TO 4.3 OF THE FIRS T APPELLATE ORDER . THE CHARTS SHOWING BURNING LOSS IN EACH YEAR IS AS UNDER : A.Y OPENING STOCK PURCHASES (MT) CONSUMPTION (MT) PRODUCTION INGOTS RUNNER BURNING 1999- 00 804.023 3531 3896 3518.240 (90.28) 182.070 (4.67) 192.852 (4.95) 2000- 01 149 3944.339 3881.625 3531.240 (90.97) 155.960 (4.01) 194.46 (5.01) 2001- 02 230.377 11349.370 10733.500 9796.545 (91 %) 414.700 (4%) 536.675 (5%) 2002- 03 697.247 10809.465 10581.160 9665.775 89.41 %) 413.900 3.91 % 501.546 (4.74 %) 2003- 04 567 11758.955 11582.461 10537.858 (90.98%) 462.485 (3.99%) 582.597 (5.03%) ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 5 2004- 05 754 12027.530 11421.620 10430.190 (91.31 %) 458.455 (4.01 %) 493.413 (4.32) 2005- 06 1360.249 10949.709 10838.588 9628.128 (88.83) 124.790 (3.92%) 785.797 (7.25) THE FURTHER CONTENTION OF THE ASSESSEE BEFORE LD CI T(A) ALSO REMAINED THAT THE CASE OF M/S. JALNA SIDDHIVINAYAK CANNOT BE TREATED AS CO MPARABLE CASE TO ESTIMATE THE BURNING LOSS IN THE CASE OF THE ASSESSEE. THE A.O HAS ESTIMATED BURNING LOSS IN THE CASE OF ASSESSEE FOLLOWING THE RESULT IN THE CASE O FM/S. JALNA SIDDHIVINAYAK. IT WAS SUBMITTED THAT THE A.O. HAS NOT FOUND THAT THE PRO DUCT CONSUMPTION OF RAW MATERIAL BY JALNA SIDDHIVINAYAK IS IDENTICAL TO TH AT IN THE CASE OF THE ASSESSEE. UNLESS ANY MATERIAL OR EVIDENCE ON RECORD TO SHOW THAT MANUFACTURING PROCESS AS WELL AS RATIO OF CONSUMPTION OF DIFFERENT KINDS OF RAW MATERIAL IS IDENTICAL IN THE CASE OF ASSESSEE WITH JALNA SIDDHIVINAYAK, NO COMPARISON OF RATIO OF BURNING LOSS CAN BE MADE. IT WAS SUBMITTED THAT INDUSTRIAL UNIT OF ASS ESSEE WAS SET UP IN 1989 WHEREAS INDUSTRIAL UNIT OF JALNA SIDDHIVINAYAK WAS SET UP IN 1999-2000. THUS INDUSTRIAL MACHINERY OF JALNA SIDDHIVINAYAK IS OF NEW FACILIT Y AND THUS BURNING LOSSES CANNOT BE SIMILAR IN THE TWO INDUSTRIAL UNITS. IT WAS FUR THER SUBMITTED THAT BURNING LOSS AS SHOWN BY THE A.O IN THE CASE OF JALNA SIDDHIVINAYAK IN THE YEAR 2003-04 WAS 5.74% WHICH IS HIGHER THAN THE BURNING LOSS IN THE CASE OF ASSESSEE. THUS, IT IS SUFFICIENT TO DEMONSTRATE THAT BURNING LOSS KEEPS O F FLUCTUATING WITHIN THE VICINITY OF 5% TO 7.5% IN THE CASE OF MANUFACTURING OF STEEL. CONSIDERING ALL THESE MATERIAL CONTENTIONS OF THE ASSESSEE, WHICH HAS NOT BEEN REB UTTED BEFORE US, WE ARE OF THE VIEW THAT LD CIT(A) HAS RIGHTLY DELETED THE ADDITIO N MADE ON ACCOUNT OF THE CLAIMED BURNING LOSS ESPECIALLY WHEN A.O HAS NOT FOUND ANY DEFECT OR MISTAKE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE EXCISE REGISTERS . THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. GROUND NO. 1 IS ACCORDINGLY REJECTED. GROUND NO.2 ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 6 7. THE RELEVANT FACTS ARE THAT AS A RESULT OF SEAR CH AT THE RESIDENTIAL PREMISES OF THE DIRECTOR OF THE COMPANY, SHRI RADHESHYAM RATAN LAL AGRAWAL, ONE FILE INVENTORISED AS ANNEXURE A-1 WAS REFERRED AND SEIZE D. THE FILE CONTAINED DETAILS OF SHARE CAPITAL OF RS. 80 LAKHS RAISED BY ASSESSEE DU RING THE YEARS. DURING THE F.Y. 2003-04, SHARE CAPITAL WAS RAISED FROM 14 CORPORAT E ENTITIES. THE A.O STATED THAT THE DIRECTOR SHRI RADHESHYAM RATANLAL AGRAWAL HAS N EITHER DURING THE COURSE OF STATEMENT RECORDED BY THE SEARCH PARTY, NOR IN SUB SEQUENT PROCEEDINGS, FURNISHED DETAILS ABOUT METHOD ADOPTED BY THE COMPANY IN SE LLING THESE SHARES. THE AO HAS REPRODUCED THE DETAILS OF RETURNED INCOME/COMM ISSION INCOME OF THE ASSESSEE FROM 1999-00 TO 2005-06. THE A.O ALSO OBSERVED THA T SINCE THE ASSESSEE WAS SHOWING LOSS, IT WAS UNBELIEVABLE THAT THE COMPANI ES LOCATED AT KOLKATA AND MUMBAI WILL BE INTERESTED IN SUBSCRIBING THE SHARE CAPITAL OF THE ASSESSEE AND THAT TOO AT A PREMIUM OF RS. 300/- PER SHARE. THE A.O. OBSERVED FURTHER THAT DURING THE COURSE OF POST SEARCH INVESTIGATION AND ASSESSMENT PROCEEDINGS, THE ASSESSEE FAILED TO PRODUCE THE DETAILS AS CALLED FOR. THE A .O WITH THE HELP OF KOLKATA UNIT OF INVESTIGATION WING OF IT DEPTT AND MUMBAI UNIT GATH ERED CERTAIN MATERIAL AND INFORMATION ON ACCOUNT OF WHICH, HE NURTURED SUSP ICIOUS IN HIS MIND THAT THE SAID SHARE CAPITAL WAS ASSESSEES OWN MONEY BROUGHT INTO ITS ACCOUNT IN THE GARB OF SHARE CAPITAL AND MADE ADDITION OF THE SAME U/S. 68 OF THE ACT . AS PER THE A.O, THE ASSESSEE HAS FAILED TO PROVE IDENTITY, GENUINENESS AND CAPACITY OF SHARE HOLDERS WITHIN THE MEANING OF PROVISIONS OF SECTION 68 OF T HE ACT. HE, THEREFORE, PROCEEDED TO ASSESS THE SAME AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT. THE LD CIT(A) HAS, HOWEVER, ACCEPTED THE SUBMISSION OF THE ASSESS EE MADE IN THIS REGARD AND ACCORDINGLY DELETED THE ADDITION. 8. IN SUPPORT OF THE GROUND, THE LD. D.R. HAS BASI CALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. HE SUBMITTED THAT ASSESSMENT YE AR 2004-05 IS THE YEAR WHEREIN THE AUTHORITIES BELOW HAVE PASSED DETAILED ORDER AN D THE SAME HAS BEEN FOLLOWED IN OTHER A.YS. HE SUBMITTED THAT THE A.O. DOUBTED CR EDIT WORTHINESS OF SHARE HOLDERS ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 7 AND BESIDES THERE WAS NO REASON FOR THEM TO PURCHAS E SHARES OF THE ASSESSEE COMPANY RUNNING IN LOSS. HE REFERRED PAGE NOS. 34 5 TO 370 OF THE PAPER BOOK (II) TO SUPPORT HIS SUBMISSION THAT EVEN SHAREHOLDERS O N INVESTIGATION WERE NOT FOUND IN EXISTENCE ON THE GIVEN ADDRESS. HE SUBMITTED THAT SUFFICIENT OPPORTUNITY WAS GRANTED BY THE A.O TO THE ASSESSEE TO DISCHARGE IT S ONUS TO ESTABLISH THE GENUINENESS OF THE CLAIM TO WHICH, THE ASSSESSEE TH OROUGHLY FAILED TO. THE LD. D.R. PLACED RELIANCE ON THE FOLLOWING DECISION : CIT V. PARRY AND CO. LTD, 238 ITR 402 (MAD) 9. THE LD. D.R. ALSO SUBMITTED THAT ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IS REQUIRED TO BE CONSIDERED TO DE CIDE THE ISSUE INVOLVED AND AS PREPONDERENCE OF PROBABILITY IS AGAINST THE ASSESSE E AS TO WHY ONE WILL INVEST IN A COMPANY RUNNING IN LOSS. 10. THE LD. A.R., ON THE OTHER HAND, TRIED TO JUSTI FY THE FIRST APPELLATE ORDER ON THE ISSUE. HE REITERATED THE SUBMISSIONS MADE BEFO RE THE AUTHORITIES BELOW IN THIS REGARD. HE SUBMITTED THAT REASONABLE OPPORTUNITY WAS NOT GRANTED TO THE ASSESSEE BY THE A.O TO ESTABLISH ITS CASE AS IT HAS BEEN DIS CUSSED AT PAGE NO. 36 & 37 OF THE FIRST APPELLATE ORDER IN PARA NO. 1.1. HE SUBMITTE D THAT LD CIT(A) HAS DISCUSSED THE CASE OF THE A.O AND ASSESSEE IN DETAIL AND BEING S ATISFIED WITH THE EXPLANATION OF THE ASSESSEE ADDITION HAS BEEN DELETED. THE ASSESS EE WAS NOT AFFORDED OPPORTUNITY TO CROSS EXAMINE THE PERSONS WHOSE STATEMENTS HAVE BEEN USED BY THE A.O ADVERSELY AGAINST THE ASSESSEE. IN THIS REGARD, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : 1. KISHINCHAND CHELLARAM, 125 ITR 713 (SC) 2. CIT V. ELECTRO POLYCHEM LTD.,294 ITR 661 (MAD. ) 3. ACIT V. VENKATESHWAR ISPAT P. LTD.,319 ITR 393( CHHATTISGARH) ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 8 4. CIT V. VALUE CAPITAL SERVICES P.LTD., 307 ITR 33 4 (DEL) 5. CIT VS. LOVELY EXPORTS (P.) LTD., 2008-(216)-CT R-0195-SC CONSIDERING THE ABOVE SUBMISSIONS, IN VIEW OF ORDER S OF THE AUTHORITIES BELOW AND DECISIONS RELIED UPON BY THE PARTIES, WE COME TO TH E CONCLUSION THAT THE ISSUE INVOLVED IN THE GROUNDS IS AS TO WHETHER ASSESSEE W AS ABLE TO DISCHARGE ITS ONUS IN ESTABLISHING THE IDENTITY OF THE SHAREHOLDER, THEIR CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTIONS TO MEET THE REQUIREMENTS UNDER THE PROVISIONS OF SECTION 68 OF THE I.T. ACT TO JUSTIFY ITS CLAIM OF INVESTMENTS BY THE SHAREHOLDERS. WE HAVE ALSO DISCUSSED THE CASE OF THE A.O HEREINABOVE ABOUT THE ADDITION IN QUESTION MADE BY HIM. AS PER THE A.O, THE ASSESSEE HAS THOROUGHLY F AILED TO ESTABLISH THE IDENTITY AND CREDIT WORTHINESS OF THE SHAREHOLDERS AND GENUINESS OF THE TRANSACTIONS AS REQUIRED U/S. 68 OF THE ACT. HE HAS ACCORDINGLY MADE ADDITI ON OF THE AMOUNT U/S. 68 OF THE ACT. THE LD. CIT(A) HAS DISCUSSED THE ISSUE IN DET AIL NARRATING THE OBJECTIONS RAISED BY THE A.O TO JUSTIFY THE ADDITION MADE BY HIM AND SUBMISSION OF THE ASSESSEE MEETING OUT THOSE OBJECTIONS RAISED BY THE A.O. TH E A.Y. 2004-05 IS THE YEAR WHEREIN DETAILED ORDERES BY THE AUTHORITIES BELOW HAVE BEEN PASSED ON THE ISSUE WHICH HAS BEEN FOLLOWED IN OTHER YEARS. DURING TH E A.Y. 2004-05, 14 CORPORATE ENTITEES HAD INVESTED IN SHARES OF THE COMPANY. DE TAILS OF THE 14 CORPORATE SHAREHOLDERS HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER AT PAGE NO. 6 & 7 . THE CONTENTION OF THE ASSESSEE, ON THE OTHER HAND, REMA INED THAT VARIOUS CORPORATE SHAREHOLDERS OF ASSESSEE COMPANY ARE ALL ASSESSED TO INCOME TAX AND CAPITAL INVESTED BY THEM IN SHARE CAPITAL OF THE ASSESSEE A RE DULY REFLECTED IN BOOKS OF ACCOUNT AS WELL AS AUDITED BALANCE SHEET SUBMITTED BY THEM ALONG WITH RETURN OF INCOME. IT WAS SUBMITTED THAT THE SAME WAS ALSO FU RNISHED BEFORE THE A.O BUT IT WAS REJECTED WITHOUT ASSIGNING THE VALID REASON. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD ALSO SUBMITTED CONFIR MATION FROM ALL THE CORPORATE SHAREHOLDERS THAT THEY HAVE MADE SHARE CAPITAL. TH E ASSESSEE HAD ALSO PREPARED STATEMENT INDICATING PAGE NO. WHEREIN INVESTMENT MA DE WITH ASSESSEE COMPANY ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 9 WAS REFLECTED IN THE BALANCE SHEET OF CORPORATE SH AREHOLDERS AND ITS ACKNOWLEDGMENT OF FILING OF RETURN OF INCOME WAS AL SO INDICATED. IT WAS ALSO CONTENDED THAT DURING THE COURSE OF SEARCH, NO EVID ENCE WAS FOUND TO INDICATE THAT ANY CASH WAS FLOWN FROM THE ASSESSEE COMPANY TO VAR IOUS CORPORATE SHAREHOLDERS OF THE ASSESSEE COMPANY. IT WAS FURTHER CONTENDED THAT THE A.O HAS NOT PROVIDED TO THE ASSESSEE VARIOUS DETAILS WHICH WERE PROVIDE D BY INVESTIGATION WING OF INCOME-TAX AT MUMBAI AND KOLKATTA TO CONFRONT BY TH E SAME. THUS THE EVIDENCE COLLECTED BEHIND THE BACK OF THE ASSESSEE IS NOT RE LIABLE AND CANNOT BE USED AGAINST THE ASSESSEE. THE ASSESSEE ALSO MADE A COMPILATIO ON OF CONFIRMATION, BALANCE SHEET OF VARIOUS CORPORATE SHAREHOLDERS AND INVITED ATTENTION TO SUCH DOCUMENTS TO DEMONSTRATE THAT THE PAID UP CAPITAL AS WELL AS RES ERVATION AND SURPLUS OF SUCH COMPANY IS RUNNING INTO CRORES OF RUPEES AS AGAINS T THE INVESTMENT MADE IN ASSESSEE COMPANY IS ONLY AT AVERAGE OF RS. 5 TO 10 LAKHS. WE FIND THAT THE LD CIT(A) HAS EXAMINED ALL THE SUBMISSIONS OF THE ASSE SSEE MADE BEFORE HIM AS WELL AS BEFORE THE A.O. THE LD CIT(A) HAS INVITED COMME NT OF THE A.O ON THE SUBMISSION OF THE ASSESSEE AND HAS PASSED A DETAILE D ORDER DEALING WITH EACH AND EVERY SHAREHOLDER. HE HAS EXAMINED THEIR CONFIRMAT ION, ACKNOWLEDGMENT OF I.T. RETURNS, BALANCE-SHEET, BANK ACCOUNT STATEMENTS AND TOTAL SHARE CAPITAL, RESERVE AND SURPLUS FURNISHED BY THE ASSESSEE. IT IS EVID ENT FROM PAGE NO. 18 TO 24 OF THE FIRST APPELLATE ORDER. HAVING GONE THROUGH THESE D ETAILS DISCUSSED BY THE LD CIT(A), WE FULLY AGREE WITH HIS FINDING THAT THE ASSESSEE H AS BEEN ABLE TO ESTABLISH CREDIT WORTHINESS OF THE SHAREHOLDERS. LD CIT(A) HAS DEAL T WITH THE ISSUE OF NON-EXISTENT COMPANIES/SHAREHOLDERS UNDER THE HEAD IDENTITY IN PARA NO. 5.7 OF THE ORDER. HE HAS ALSO DISCUSSED THE CREDIT WORTHINESS OF THE SHA REHOLDERS AND GENUINENESS OF THE TRANSACTIONS AS WELL AS ENQUIRY REPORT OF THE DDIT CONCERNED AT KOLKATTA. THE LD CIT(A) HAS ALSO DISCUSSED THE DECISIONS CITED BY TH E PARTIES ESPECIALLY IN THE CASE OF CIT V/S. STELLAR INVESTMENTS, 251 ITR 263 (SC) AND CIT V/S. SOPHIA FINANCE LTD., 205 ITR 98 (DEL) (FB) ETC. WE ALSO NOTE FROM THE F IRST APPELLATE ORDER AT PAGE NO. 26, PARA NO. 3 THAT THE LD CIT(A) HAS CONCLUDED TH AT ALL THE TRANSACTIONS ARE ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 10 THROUGH BANKING CHANNELS, STATEMENTS OF BANK HAVE B EEN OBTAINED BY THE A.O, THE SAID TRANSACTIONS ARE REFLECTED IN THE BANK STATEME NT, NOTHING REMAINS TO BE PROVED. THE A.O HAS NOWHERE DISPUTED THAT SAID BANK ACCOUN TS ARE BENAMI OR IN THE NAME OF NON-EXISTENT PERSONS OR MAINTAINED THROUGH ANY F RAUDULENT ACTIVITIES/MEANS. THE BANK ACCOUNTS ARE TREATED AS GENUINE BY THE A.O, SO ARE THE TRANSACTIONS. THE RELEVANT PARA NO. 5.7 OF THE FIRST APPELLATE ORDER IS BEING REPRODUCED FOR A READY REFERENCE :- 5.7 NOW, I WILL DISCUSS ALL THE OBSERVATIONS / SUS PICION / DOUBTS IN THE MIND OF THE AO THAT HAVE GONE INTO MAKING OF THE IMPUGNE D ADDITION. 1. NON-EXISTENT COMPANIES/SHAREHOLDERS :IDENTITY S .68 THE AO HAS TREATED ALL THE COMPANIES AT KOLKATA AS NON-EXISTENT ON THE BASIS OF A REPORT OF INVESTIGATION WING THAT TH E ENQUIRY LETTERS WERE RETURNED UNSERVED OR AT THE GIVEN ADDRESS NOBODY WA S FOUND AT THE TIME OF SURVEY. I AGREE WITH THE APPELLANTS AR THAT THE C OMPANIES MIGHT HAVE CHANGED THEIR ADDRESSES AND IN THE WAKE OF UNSERVED LETTERS OR SURVEY DONE BY THE DEPARTMENT, NO FURTHER EFFORTS WERE MADE BY THE AO TO ASCERTAIN CORRECT POSITION IN THIS REGARD. I FIND THAT THE AO, EVEN WITHOUT CROSS- VERIFYING THE DOCUMENTS THAT ARE ISSUED BY THE GOV T DEPARTMENTS, I.E. IT DEPRTMENT, REGISTRAR OF COMPANIES, AND BANKS, HAS J UMPED TO THE CONCLUSION THAT THESE ARE NON-EXISTENT COMPANIES. NO ENQUIRY WHATSOEVER WAS MADE EITHER FROM THE RESPECTIVE ASSESSING OFFIC ERS OF THESE COMPANIES OR FROM THE REGISTRAR OF COMPANIES. HOWEVER, I WOU LD LIKE TO POINT OUT THAT INTERESTINGLY AND UNWITTINGLY THE AO HIMSELF HAS CO LLECTED CERTAIN MATERIAL THAT ITSELF GOES TO ESTABLISH THE FACT THAT THESE S HAREHOLDER COMPANIES ARE VERY MUCH IN EXISTENCE. HE HAS COLLECTED THEIR BA NK STATEMENTS WHICH REFLECT TRANSACTIONS OF SUBSTANTIAL AMOUNT AND THE RESPECTI VE COMPANYS SUBSCRIPTION FOR SHARE CAPITAL IN THE APPELLANT-COMPANY APPEARS REALLY MEAGER WHEN EXAMINED IN THE LIGHT OF HUGE TRANSACTIONS CARRIED OUT BY EACH OF THE SHAREHOLDER COMPANY. THE COMPANYS BANK ACCOUNT DET AILS, WHICH WERE COLLECTED BY THE AO INDEPENDENTLY, AND REGULAR AND HUGE TRANSACTION THEREIN, ARE ENOUGH PROOF THAT THE SAID COMPANIES ARE NOT O NLY IN EXISTENCE BUT ALSO VERY MUCH IN THE BUSINESS. THE AO HAS NOWHERE DI SPUTED THE INCOME-TAX RECORD AND ORDERS OF THE IT AUTHORITIES IN RESPECT OF THESE COMPANIES; HE HAS ALSO NOT DISPUTED THE INCORPORATION OF THE COMPANY WITH THE ROC. SO LONG AS ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 11 THESE CERTIFICATES / ASSESSMENT ORDERS / RETURNS OF INCOME, ETC. HOLD THE FIELD AND ARE NOT EVEN CHALLENGED BY THE AO, IT CANNOT BE SAID THAT THE SAID COMPANIES ARE NON-EXISTENT. THUS, I HOLD THAT THE IDENTITY OF ALL THE COMPANIES IS ESTABLISHED BEYOND DOUBT. 2. CREDITWORTHINESS OF SHAREHOLDERS : S. 68 :NO LOG ICAL CONCLUSIONS DRAWN BY THE AO THE AO HAS REFERRED TO THE FACT THAT HUGE CASH WAS DEPOSITED IN THE ACCOUNTS OF M/S KRONZE COM PVT LTD. AND M/S MUKUND MERCHANDISE PVT LTD. HE HAS ANNEXED COPIES OF THEIR RESPECTIVE BANK STAT EMENTS AS ANNEXURE V TO THE ASSESSMENT ORDER. THE AO STATES THAT APPROXIMA TELY RS. 78,00,000/- HAVE BEEN DEPOSITED IN CASH IN THE ACCOUNTS OF THES E TWO COMPANIES IN THE MONTH OF JANUARY AND FEBRUARY 2004 AND SIMULTANEOUS LY CHEQUES ARE ISSUED TO THE KOLKATA COMPANIES SO THAT THESE COMPANIES W OULD SUBSCRIBE TO THE SHARE CAPITAL OF THE APPELLANT COMPANY. CONTRARY T O THE VIEW ADOPTED BY THE AO ON THE BASIS OF THIS PIECE OF INFORMATION, I WOU LD SAY THAT NO ADVERSE INFERENCE CAN BE DRAWN FROM THE SAME AS FAR AS AFFA IRS OF THE APPELLANT- COMPANY ARE CONCERNED. IF PERSON A DEPOSITS CASH IN HIS ACCOUNTS TO ISSUE CHEQUE OF THE SAME AMOUNT TO PERSON B, AND PERSON B OUT OF THE SAID AMOUNT MAKES A SUBSCRIPTION FOR SHARE CAPITAL OF PE RSON C,HOW PERSON C BECOMES ANSWERABLE OR RESPONSIBLE FOR THE TRANSACTI ON THAT TAKES PLACE BETWEEN PERSON A & B. NEEDLESS TO SAY, THE AO ON T HE BASIS OF THIS PIECE OF INFORMATION HAS UNNECESSARILY DRAGGED THE APPELLANT -COMPANY IN THE AFFAIRS OF M/S. KRONZE COM PVT LTD. AND M/S MUKUND MERCHANDISE PVT LTD. ON THE ONE HAND AND THE SAID COMPANIES AT KOLKATA ON THE OTHER HAND. THIS ENTIRE EXERCISE HAS PROVED FRUITLESS AND HAS NOT YIELDED A NY RESULT THAT COULD HAVE ANY BEARING ON THE ASSESSMENT OF THE APPELLANT-COMP ANY. AS REGARDS CREDITWORTHINESS OF THESE 14 COMPANIES AS REFLECTE D THROUGH THEIR BALANCE SHEETS, I HAVE ALREADY HIGHLIGHTED THE AMOUNTS STAN DING IN THEIR ACCOUNTS, RESERVES AND SURPLUS, ASSETS, ETC. THAT IS ENOUGH T O SUBSTANTIATE THEIR CREDITWORTHINESS. THESE FIGURES ARE EXTRACTED FROM AUDITED BALANCE SHEET, CERTIFIED BY A QUALIFIED CA. THE SAME HAS NOT BEEN CONTROVERTED BY THE AO; IN FACT IT HAS BEEN ALTOGETHER IGNORED BY HIM FOR T HE REASON BEST KNOWN TO HIM. WHAT THE AO HAS ATTEMPTED TO DO HERE IS TO E XAMINE SOURCE OF THE SOURCE WHICH IS NOT EVEN PERMITTED AS PER LEGAL POS ITION IN THIS REGARD. IT IS RATHER A CASE WHERE I WOULD SAY THAT THE AO HAS CO MPLETELY FAILED TO EXAMINE CREDITWORTHINESS OF THE SAID SHAREHOLDER CO MPANY, BUT THE SAME STANDS ESTABLISHED ON THE STRENGTH OF THE DOCUMENT S FILED BEFORE US. HE HAS ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 12 DIVERTED HIS ENQUIRY TO THOSE COMPANIES WHICH HAVE NO RELEVANCE HERE AND NO RELATION WITH THE APPELLANT-COMPANY. IT IS NOT THE CASE OF THE AO THAT THE SAID CASH HAS FLOWN FROM THE APPELLANT-COMPANY TO T HE ACCOUNTS OF THE TWO AFOREMENTIONED COMPANIES IN WHOSE ACCOUNTS CASH HAS BEEN DEPOSITED AND THEN FROM THE SAME ACCOUNTS CHEQUES ARE ISSUED TO T HE COMPANIES AT KOLKATA TO MAKE SUBSCRIPTION IN THE APPELLANT-COMPANY. THE ENQUIRY IN THE DIRECTIONS AS CONDUCTED BY THE AO AND ITS OUTCOME HAVE NO ADVE RSE IMPACT ON THE AFFAIRS OF THE APPELLANT-COMPANY. EVEN IN THE SEAR CH NO EVIDENCE OF ANY CASH HAVING BEEN FLOWN FROM ASSESSEE FOR SUBSCRIPTION OF SHARE CAPITAL IS FOUND. THE AOS OBSERVATION WITH REGARD TO CREDITWORTHINES S OF THE 14 COMPANIES NOT HAVING BEEN ESTABLISHED ARE REJECTED. 3. GENUINENESS OF TRANSACTION: S.68 IN FACT, THE AO HAS MORE THAN ESTABLISHED THE GENU INENESS OF TRANSACTIONS, RELATED TO SUBSCRIPTION OF SHARE CAPI TAL BY THESE 14 COMPANIES. ALL ARE THROUGH BANKING CHANEEL, STATEMENTS OF BANK S HAVE BEEN OBTAINED BY THE AO, THE SAID TRANSACTIONS ARE REFLECTED IN THE BANK STATEMENTS. NOTHING REMAINS TO BE PROVED NOW. THE AO HAS NOWHERE DISPUT ED THAT THE BANK ACCOUNTS ARE BENAMI OR IN THE NAME OF NON-EXISTENT PERSONS OR MAINTAINED THROUGH ANY FRAUDULENT ACTIVITIES/MEANS. THE BANK ACCOUNTS ARE TREATED AS GENUINE BY THE AO, SO ARE THE TRANSACTIONS IN MY VI EW. THUS GENUINENESS OF THESE TRANSACTIONS ISALSO ESTABLISHED BEYOND DOUBT. THE ABOVE STATED FINDINGS OF THE FIRST APPELLATE AU THORITY HAVE NOT BEEN REBUTTED BEFORE US NOR THE OTHER FINDING OF THE LD CIT(A) ON THE ISSUE HAS BEEN CONTROVERTED BEFORE US BY THE LD. D.R. UNDER THESE CIRCUMSTANCE S, WE DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER ON THE IS SUE AS THE SAME IS COMPREHENSIVE AND REASONED ONE. THE SAME IS UPHELD. THE GROUN D NO. 2 IS ACCORDINGLY REJECTED. IN VIEW OF THE ABOVE FINDING, THE OBJECTION RAISED BY THE ASSESSEE QUESTIONNING THE ADDITION MADE ON ACCOUNT OF BURNING LOSS AND SHARE CAPITAL IN THE ASSESSMENT ORDER U/S. 153A WITHOUT FINDING INCRIMINATING EVIDENCE NO R SEIZURE IN RELATION TO THE SAID ISSUES HAS BECOME ACADEMIC AND THUS DOES NOT NEED A DJUDICATION. 11. IN RESULT, APPEAL IS DISMISSED. ITA NO 890/PN/07, 1562/PN/.08 ETC., RHISHI STEELS & ALLOYS PVT. LTD.. A.Y. 2003-04 ETC. PAGE OF 13 13 12. IDENTIAL ISSUES HAVE BEEN RAISED IN OTHER APPEA LS IN OTHER A.YS. WE THUS FOLLOWING OUR DECISIONS IN THE APPEAL FOR THE A.Y. 2004-05 UPHOLD THE FIRST APPELLATE ORDER ON THE IDENTICAL ISSUES RAISED IN THE OTHER A .YS. 13. CONSEQUENTLY, ALL THE APPEALS ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON AP RIL, 2011. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 29TH APRIL, 2011 THE ORDER PRONOUNCED IN OPEN COURT ON 29 TH APRIL 2011. SD/- SD/- (D. KARUNAKARA RAO) (I.C. SUDHIR) AM JM US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)- 5. THE D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE