M/s Talent Alloys Private Limited, Coimbatore V. ACIT, Coimbatore

ITSSA 144/CHNY/2006

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2345 (ITAT-CHENNAI)
• Duration Of Justice: 10 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: misc
• Appeal Filed On: 29-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T R SENTHIL KUMAR SR
• Assessee Lawyers: DR ANITHA SUMANTH
• Keywords: Unexplained investment; Block assessment
• Section: 68; 15

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T (SS) NO. 64/MDS/ 2005 BLOCK ASSESSMENT FROM : 1.4.1985 TO 13.2.1996 (A.Y. 1986-87 TO 199 6-97) M/S. TALENT STEELS INDU STRIES LTD, NO.43, VIVEKANANDA NAGAR, RAM NAGAR, COIMBATORE 641 009 . [PAN AABCT 0944J] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMP CIRCLE I(2) COIMBATORE. ./ I.T (SS) NO. 144/MDS/ 2006 BLOCK AS SESSMENT FROM : 1.4.198 6 TO TO 13.2.1996 (A.Y. 1987 -88 TO 1996-97) M/S. TALENT ALLOYS PRIVATE LIMITED, 36/99, RAJAJI ROAD, RAM NAGAR, COIMBATORE 641 009. [ PAN AABCT 0943R] ( / APPELLANT) VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMP CIRCLE I(2) COIMBATORE ( /RESPONDENT) / APPELLANT BY : DR. ANITHA SUMANTH, ADVOCATE /RESPONDENT BY : SHRI. T.R. SENTHIL KUMAR, SR. STANDING COUNSEL. / DATE OF HEARING : 15-09-2016 / DATE OF PRONOUNCEMENT : 21-09-2016 IT(SS) NO.64/05 &144/06 :- 2 -: / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST THE ORDERS DATED 24.03.2005 & 22.03.2006 OF THE ASS ISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CO IMBATORE FOR BLOCK PERIOD 01.04.1985 TO 13.02.1996 AND 1.04.198 6 TO 13.02.1996; SINCE THE FACTS UNDERLYING BOTH THESE ASSESSMENT FA LL WITHIN THE SAME COMPASS AND SINCE BOTH COMPANIES WERE HAVING ONE O F SHRI. DAMODHARASWAMY, AS DIRECTOR AND ALSO SINCE THE AS SESSMENT WERE THE RESULT OF SEARCH CONDUCTED IN THE GROUP OF CO NCERNS RELATING TO SHRI. DAMODHARASWAMY, BOTH THESE APPEALS ARE DISPOS ED OFF BY A COMMON ORDER. 2. IN BOTH THESE CASES ADDITIONS MADE BY THE LD. ASSES SING OFFICER FOR THE BLOCK ASSESSMENT PERIOD WERE ON SHA RE APPLICATION MONEY AND SHARE CAPITAL MONEY WHICH WERE CONSIDERE D AS INCOME FROM UNEXPLAINED SOURCES. THE MATTER HAD EARLIER C OME BEFORE THIS TRIBUNAL IN ASSESSEES APPEALS IN IT(SS) A NO.71/MD S/1997, DATED 15.9.2003 AND IT(SS)A NO.72/MDS1997, DATED 29.12.20 04. IN THE LATTER APPEAL THE TRIBUNAL HAD CONSIDERED VARIOUS L EGAL ISSUES RAISED BY THE ASSESSEE INCLUDING THE SCOPE OF SEARCH WARRANT ISSUED IN COMMON NAMES AND JURISDICTION TO ASSESS ASSESSEE U/SEC. 15 8BC OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE AC T). THE TRIBUNAL HAD IT(SS) NO.64/05 &144/06 :- 3 -: UPHELD THE VALIDITY OF THE BLOCK ASSESSMENT BUT SET ASIDE IT ON MERITS SINCE IT FOUND THAT REASONABLE OPPORTUNITY WERE NOT GIVEN TO THE ASSESSEES FOR PRESENTING THEIR EXPLANATIONS WITH REGARD TO SOURCES OF SHARE ADVANCE. 3. PURSUANT TO THE ORDER DATED 15.09.2003 AND 29.12.2 004 OF THIS TRIBUNAL, THE MATTER WAS ONCE AGAIN CONSIDERED BY THE LD. ASSESSING OFFICER. 4. IN THE CASE OF M/S. TALENT ALLOYS PRIVATE LIMITED, THE LD. ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE SOURCES OF SHARE CAPITAL AND SHARE CAPITAL ADVANCE AMOUNTING T O I83,00,000/- AND I26,00,000/- RESPECTIVELY. IN THE CASE OF M/S. TALENT STEEL INDUSTRIES (P) LTD, THE LD. ASSESSING OFFICER REQUI RED ASSESSEE TO EXPLAIN THE SOURCES FOR SHARE CAPITAL I1,26,55,000/ -, SHARE CAPITAL ADVANCE OF I18,60,000/- AND LOANS OF I23,85,800/-. DURING THE COURSE OF HEARING BEFORE THE LD. ASSESSING OFFICER SHRI. D AMODHARASWAMY, ITS DIRECTOR APPEARED BEFORE LD. ASSESSING OFFICER ALON GWITH THE LD. AUTHORISED REPRESENTATIVE. THE ASSESSEES WERE REQU IRED TO PRODUCE INVESTORS IN SHARE CAPITAL AND ALSO TO EXPLAIN THE CREDIT WORTHINESS OF THE INVESTORS. THEREAFTER, ASSESSMENT IN THE CASE OF M/S. TALENT ALLOYS PRIVATE LIMITED WAS COMPLETED CONSIDERING I79,09,00 0/- OUT OF THE TOTAL SHARE CAPITAL AND SHARE ADVANCE AS UNEXPLAINE D INVESTMENTS IN IT(SS) NO.64/05 &144/06 :- 4 -: THE HANDS OF THE SAID COMPANY. IN OTHER WORDS, OU T OF THE TOTAL CAPITAL AND SHARE ADVANCE AMOUNT OF I1,09,00,000/-, A SUM OF I29,91,000/- WAS EXCLUDED SINCE SUCH AMOUNT WAS CON SIDERED IN THE ASSESSMENT OF SHRI. DAMODHARASWAMY. VIZ-A-VIZ THE A SSESSEE M/S.TALENT STEELS INDUSTRIES PVT. LTD, SHARE CAPI TAL AND SHARE ADVANCE AGGREGATING TO I1,48,21,000/- WAS CONSIDERED AS UNE XPLAINED INCOME AND ADDED IN ITS HANDS. M/S. TALENT ALLOYS PRIVATE LIMITED HAD PRODUCED BEFORE THE LD. ASSESSING OFFICER SHRI. K. DEVARAJ, SMT. R. THARAGESHWARI, SHRI. A. DURAISWAMY, SMT. TAMIL SELV I, SHRI. A. DHANALAKSHMI, SHRI. M. NANJUKUTTY GOUNDER AND SHRI. N. KUMRASWAMY GOUNDER. ALL THESE PERSONS HAD CONFIRMED HAVING INV ESTED IN SHARES OF THE ASSESSEE COMPANY. FOR INVESTORS NAMED SHRI. N .KRISHNASWAMI, SHRI. N. SUBRAMANIAM, SHRI. S. MAHENDRAN, SHRI. S. PONNUSAMI, SHRI. K. ARUKUTTY, SHRI. A. MURUGASAMI, SHRI. N. NANJUKUTTY GOUNDER, THE LD. ASSESSING OFFICER MADE ENQUIRES USING HIS INSPECTOR . IT SEEMS THESE PERSONS DENIED HAVING MADE INVESTMENTS IN M/S. TALE NT ALLOYS PRIVATE LIMITED. ASSESSEES HAD SUBSEQUENTLY PRODUCED BEFORE THE LD. ASSESSING OFFICER SHRI. P. PONNUSWAMY, SHRI. P. R AVINDRAN, SMT. S. SELVANAYAKI, SHRI. T.P. CHINNASWAMY GOUNDER, SMT. P .D. ANURADHA, SHRI. P. PONNUSWAMY AND SMT. P. GIRIJA. AFFIDAVITS WERE FILED IN RELATION TO SMT. P.D. ANURADHA, SHRI. M. RAMASWAMY, SHRI. K. DEVARAJAN, SHRI. S. MAHENDRAN AND THEN SHRI. N. SUB RAMANIAM. IT(SS) NO.64/05 &144/06 :- 5 -: 5. SO FAR AS ASSESSEE M/S. TALENT STEELS INDUSTRIES L IMITED IS CONCERNED IT PRODUCED SMT. P.D. ANURADHA, SHRI. S. PONNUSAMY, SHRI. S. RANGASAMY, SMT. C. RANGATHAL, SMT. A. RAMATHAL, SHRI. M. PALANISAMY GOUNDER, SMT. VELATHAL, SHRI. A. KUPPUSA MY, SHRI. K. DEVARAJAN, SHRI. S. MAHENDRAN, SHRI. P. MURTHY, SHR I. K.KRISHASAMY, SMT. K. DHAVAMANI, SHRI. S.N. MURUGASAMY, SHRI. R. MANICKAM AND SHRI. N. BALASUBRAMANIAM. IN RESPECT OF OTHER PERSO NS, THE ASSESSEE HAD EITHER SUBMITTED EXPLANATIONS OR CONFIRMATIONS. 6. LD. ASSESSING OFFICER HOWEVER REFUSED TO ACCEPT TH E CLAIMS OF THE ASSESSEE. ACCORDING TO HIM ALL THE PERSONS W HO HAD INVESTED IN THIS COMPANY WERE BENAMI OF SHRI. DAMODHARASWAMY. FURTHER, ACCORDING TO HIM, ASSESSEES COULD NOT SHOW THE CRE DIT WORTHINESS OF THE SHAREHOLDERS. HOWEVER WITH REGARD TO UNSECURED LOANS TAKEN BY M/S. TALENT STEEL INDUSTRIES PRIVATE LIMITED, THE L D. ASSESSING OFFICER ACCEPTED EXPLANATIONS OF THE ASSESSEE THAT SUCH SUN DRY CREDITORS AROSE FROM MANUFACTURING OPERATIONS AND WERE RUNNIN G ACCOUNTS. THE ADDITIONS MADE WERE CONFINED TO SHARE CAPITAL AND S HARE ADVANCE WHICH WERE CONSIDERED AS UNEXPLAINED INCOME. 7. NOW BEFORE US, THE LD. AUTHORISED REPRESENTATIVE S UBMITTED THAT THERE WAS NO SEARCH WARRANT IN THE NAME OF THE COMPANY AND THERE WAS NO UNDISCLOSED INCOME WHICH COULD HAVE TA XED U/S.158BC OF IT(SS) NO.64/05 &144/06 :- 6 -: THE ACT. SO FOR AS THE MERITS OF THE ADDITIONS WER E CONCERNED, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT SIMILAR A DDITIONS FOR SHARE APPLICATION MONEY AND SHARE CAPITAL WERE MADE IN CA SE OF ONE ANOTHER GROUP CONCERN CALLED M/S. TALENT PAPER & BOARD PVT. LTD AND THIS HAD COME UP BEFORE THIS TRIBUNAL IN IT(SS) A.NO.80/MDS/ 2006. AS PER LD. AUTHORISED REPRESENTATIVE THIS TRIBUNAL IN ITS ORDE R DATED 19.12.2007 HAD DELETED THE ADDITION IN THE HANDS OF THE SAID COMPANY. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE PLA CING RELIANCE ON THE JUDGMENT OF APEX COURT IN THE CASE OF N. TARIKA PROPERTY INVESTMENT (P) LIMITED VS. CIT (2014) 51 TAXMANN.COM 387 SUBMITTED THAT WHEN SUBSCRIPTION TO SHARE APPLICATION ITSELF WAS BOGUS THEN ADDITION M ADE U/S.68 OF THE ACT WAS JUSTIFIED. AD LIBITUM REPLY OF THE LD. AUT HORISED REPRESENTATIVE WAS THAT HONBLE APEX COURT IN THE CASE OF CIT VS. LOVELY EXPORTS 216 CTR 195 (SC) HAD HELD THAT THERE COULD NOT BE ANY ADDITION FOR SHARE APPLICATION MONEY IN THE HANDS OF A COMPANY. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, THE ORDE RS OF THE AUTHORITIES BELOW AND JUDICIAL DECISIONS. SO FAR AS THE LEGAL ISSUE RAISED BY THE ASSESSEE IS CONCERNED, WE FIND THAT THE TRIB UNAL HAD UPHELD THE VALIDITY OF THE BLOCK PERIOD AFTER SPECIFICALLY CON SIDERING THE ISSUE RELATING TO SEARCH WARRANT NOT BEING IN THE NAME OF THE ASSESSEE IT(SS) NO.64/05 &144/06 :- 7 -: COMPANY, IN ONE OF THE ASSESSEES NAMELY M/S. TALE NT ALLOYS PRIVATE LIMITED APPEAL IN IT(SS)A NO.72/MDS/1997 DATED 29.1 2.2004. WHILE UPHOLDING THE VALIDITY THE CO-ORDINATE BENCH HAD SETASIDE THE ISSUE FOR CONSIDERING THE MERITS OF THE ADDITIONS. SIMILA RLY IN THE CASE OF THE ASSESSEE M/S. TALENT STEELS INDUSTRIES LTD, THIS TR IBUNAL HAD IN ITS ORDER DATED 15.09.2003 SETASIDE THE ISSUE FOR CONSI DERING THE MERITS. THUS LEGAL ISSUES IN OUR OPINION HAVE REACHED FINA LITY. ACCORDINGLY, GROUNDS 1 TO 4 IN THE CASE OF M/S. TALENT ALLOYS PR IVATE LIMITED AND GROUNDS 3 TO 7 IN THE CASE OF M/S. TALENT STEEL IND USTRIES PVT. LTD ARE DISMISSED. 10. THE ONLY ISSUE THAT REMAIN IS WHETHER THE ADDITION S COULD HAVE BEEN VALIDLY MADE DISBELIEVING THE SOURCE OF SHARE CAPITAL INTRODUCED BY VARIOUS PERSONS AND SHARE APPLICATION MONEY IN ASSESSEES HANDS. 11. AS NOTED BY US, ASSESSEES HAD PRODUCED SUBSTANTIAL NUMBER OF SHARE APPLICANTS WHO HAD AFFIRMED PLACING OF INV ESTMENTS IN THE SHARE CAPITAL OF THE ASSESSEES. A FEW OF THEM OFC OURSE DENIED. HOWEVER, THEIR ADDRESSES WERE CLEARLY KNOWN. THER E IS NO CASE FOR THE REVENUE THAT THE ASSESSEES HAD NOT OBTAINED SHA RE APPLICATIONS FROM THE RESPECTIVE PERSONS. IN THE CASE OF A GROUP CONCERNS CASE NAMELY M/S. TALENT PAPER & BOARDS PRIVATE LIMITED (SUPRA) THIS IT(SS) NO.64/05 &144/06 :- 8 -: TRIBUNAL HAD ON A SIMILAR ISSUE HELD AS UNDER AT P ARA 4 & 5 IN ITS ORDER DATED 19.12.2007. 4. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED TH E RELEVANT RECORDS. THE LEARNED COUNSEL OF THE ASSESS EE PLACED RELIANCE UPON HON'BLE JURISDICTIONAL HIGH CO URT DECISION IN THE CASE OF CIT VS. ELECTRO POLYCHEM LTD. (2007) 294 ITR 661 AND CIT VS. VS. GOBI TEXTILES LIMITED (2007) 294 ITR 663 FOR THE PROPOSITION THAT SHARE CAPITAL MONIES CANNOT BE UNEXPLAINED INVESTMENT OF THE COMPANY. WE FIND THAT HON'BLE JURISDICTIONAL HIGH C OURT IN THE CASES CITED ABOVE HAD REFERRED TO THE DECISION OF THE HON'BLE DELHI HIGH COURT AND HON'BLE APEX COURT IN THE CASE OF CIT VS. STELLAR INVESTMENT LTD. AS UNDER:- IN CIT VS. STELLAR INVESTMENT LTD (1991) 192 ITR 287 (DELHI), WHERE THE INCREASE IN SUBSCRIBED CAPITAL OF THE RESPONDENT- COMPANY ACCEPTED BY THE INCOME TAX OFFICER AND REJECTED BY THE COMMISSIONER ON THE GROUND THAT A DETAILED INVESTIGATION WAS REQUIRED REGARDING THE GENUINENESS OF SUBSCRIBERS TO SHARE CAPITAL, AS THERE WAS A DEVICE OF CONVERTING BLACK MONEY BY ISSUING SHARES, WITH THE HELP OF FORMATION OF AN INVESTMENT, WHICH WAS REVERSED BY THE TRIBUNAL, THE DELHI HIGH COURT HELD THAT EVEN IF IT BE ASSUMED THAT THE SUBSCRIBERS TO THE INCREASED SHARE CAPITAL WERE NOT GENUINE, UNDER NO CIRCUMSTANCES THE AMOUNT OF SHARE CAPITAL COULD BE REGARDED AS UNDISCLOSED INCOME OF THE COMPANY. THE VIEW WAS TAKEN BY THE DELHI HIGH COURT IN CIT V. STELLAR INVESTMENT LTD. (1991) 192 ITR 287 WAS CONFIRMED BY THE APEX COURT AND THE SAME WAS REPORTED IN CIT V. STELLAR INVESTMENT LTD. (2001) 251 ITR 263.' IT(SS) NO.64/05 &144/06 :- 9 -: 5. THE LEARNED COUNSEL OF THE ASSESSEE FURTHER BROUGHT TO OUR NOTICE DECISION OF INCOME TAX APPELL ATE TRIBUNAL, CHANDIGARH BENCH DECISION IN THE CASE OF SUPER THREADING INDIA (P) LTD. VS. ACIT (2005) 001 SOT 01 95 WHEREIN INVOKING THE PROVISIONS OF SECTION 68 ON AC COUNT OF SHARE APPLICATION MONEY OF THE DEPOSITORS WAS TH E ISSUE. THE TRIBUNAL HAD CONCLUDED AS UNDER:- WE FIND THAT THE ISSUE INVOLVED IS SAME AND IDENTICAL AS DECIDED BY THE SUPREME COURT IN THE CASE OF STELLAR INVESTMENT LTD (SUPRA). WE ALSO NOT FIND ANY FORCE IN THE PLEA ADVANCED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RATIO OF THE AFORESAID DECISION IS NOT APPLICABLE IN THE CASE OF A PRIVATE LIMITED COMPANY, IN THE LIGHT OF THE DECISION IN THE CASE OF CIT VS. DOWN TOWN HOSPITAL (P) LTD. (2004) 267 ITR 439 (GAU), WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE PRIVATE LIMITED COMPANY I.E. THE ASSESSEE, FOLLOWING THE DECISION IN THE CASE OF STELLAR INVESTMENT LTD. (SUPRA). WE, THEREFORE, FOLLOWING THE AFORESAID DECISIONS OF THE SUPREME COURT AND THE GAUHATI HIGH COURT DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' ON THE BASIS OF AFORESAID DISCUSSION AND PRECEDENTS , WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE A SSESSEE THAT THE SUM INVOLVED CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY . FURTHER, WE FIND THAT THE JUDGMENT OF APEX COURT I N THE CASE OF LOVELY EXPORTS (SUPRA) ALSO GO IN THE FAVOUR OF THE ASSESSEE. AS FOR THE JUDGMENT OF APEX COURT IN THE CASE OF N. TARIKA PROPERTY INVESTMENT P. LTD (SUPRA) RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE, SAID COMPANY HAD PRODUCED FALSE EVIDENCE WITH REGARD TO SUBSCRIPTION OF SHARE CAPITAL. IT WAS ALSO A DISMISSAL OF SPECIAL L EAVE PETITION SIMPLICITER BY THE HONBLE APEX COURT WITHOUT CONSI DERING THE MERITS. IT(SS) NO.64/05 &144/06 :- 10 -: IN SUCH CIRCUMSTANCES, WE ARE INCLINED TO FOLLOW TH E JUDGMENT OF HONBLE APEX COURT IN THE CASE OF LOVELY EXPORTS (SUPRA ). WE ARE OF THE OPINION THAT THE ADDITIONS MADE IN THE HANDS OF THE ASSESSEE FOR SHARE CAPITAL AND SHARE ADVANCE WERE NOT WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ESPECIALLY SO SINCE ONE OF THE ARGUMENTS TAKEN BY THE LD. DEPARTMENTAL REPRESENTATIVE WAS TH AT INVESTMENTS REPRESENTED MONEY BELONGING TO SHRI. DAMODHARASWAMY . OBVIOUSLY MONEY THEREFORE DID NOT BELONG TO THE ASSESSEE COMP ANIES. WE THEREFORE DELETE THE ADDITIONS MADE BY THE LD. ASSE SSING OFFICER. 12. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 21 ST DAY OF SEPTEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER ! / CHENNAI '# / DATED: 21ST SEPTEMBER, 2016 KV #$%&'(' / COPY TO: 1 . / APPELLANT 3. )* / CIT(A) 5. '+ ,%%-. / DR 2. / RESPONDENT 4. ) / CIT 6. , /01 / GF