The DCIT, Central Circle-1(3), Ahmedabad V. Ganesh Plantations Ltd., Ahmedabad

ITSSA 339/AHD/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4808 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 07-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAI PRATAP SINGH
• Keywords: Share purchase agreement; Wrong claim; Rule 8D; Set aside
• Section: 131; 132; 139; 143(3); 153A; 14A; 133(6); 13; 22; 153C

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘C’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD (Conducted Through Virtual Court) ] ] BEFORE S/SHRI PRAMOD M. JAGTAP, VICE-PRESIDENT AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER IT(SS)A No.339/Ahd/2018 With Cross Objection No.147/Ahd/2019 Assessment Year : 2010-11 DCIT, Cent.Cir.1(3) Ahmedabad. Vs Ganesh Plantation Ltd. Ganesh Corporate House 100 Feet Hebatpur-Thaltej Road Nr.Sola Bridge Off. S.G.Highway, Ahmedabad. PAN : AAACG 7004 R अपीलाथ / (Appellant) यथ / (Respondent) Revenue by : Shri Ajai Pratap Singh, CIT-DR Assessee by : Ms.Nupur Shah, AR स ु नवाई क तार ख/Date o f Hearin g : 28/0 2/2022 घोषणा क तार ख /Date of Prono uncement: 08/04/2022 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the Revenue against order dated 27.12.2018 passed by the Ld.Commissioner of Income-tax (Appeals)- 11, Ahmedabad [for short “Ld.CIT(A)] in appeal No.CIT(A)-11/CC- 1(3)/Abd/120-A/2017-18 relating to the assessment year 2010-11. Upon receipt of notice on the Revenue’s appeal, the assessee has also filed cross objection bearing No.147/Ahd/2019. Therefore, we proceed to dispose of the appeal and the CO together by this consolidated order. IT(SS)A No.339/Ahd/2018 with CO 2 2. The Revenue has raised following grounds in the appeal: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in not appreciating the provisions of Section 153A of the IT. Act, 1961 which required the total income to be brought under tax without any restrictions. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in holding that such assessment or re- assessment u/s.153A of the IT. Act, 1961 is to be restricted only to the incriminating material found during the search. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of loss of Rs.9,50,00,000/- made by the AO. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of loss of Rs.9,50,00,000/- without appreciating the several findings of the AO which – show that the transaction was an accommodation entry. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.9,28,414/- made by the AO u/s.14A of the Act. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 7. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 3. Brief facts as emerging from the relevant assessment order is that assessee is a company engaged in trading of shares and securities. A search action under section 132 of the Act was carried out at the premises of Surat Group on 18.12.2013. As a result of the search, certain books of accounts/documents/ digital evidences alleged to be belonging to the assessee company were seized. Consequently, assessment proceedings under section 143(3) read with section 153C of the Act was initiated and notice under section 153C of the Act was issued and served upon the assessee on 30.11.2015 . In response to the notice, the assessee filed his return of income on 14.12.2015 showing total loss of Rs.(-)24,69,136/-. In the assessment proceedings, the ld.AO observed that during the financial year 2007-08, the assessee had purchased 11,00,000 IT(SS)A No.339/Ahd/2018 with CO 3 shares of Suraj Ltd. at Rs.100/- per share aggregating to Rs.11,00,00,000/-. Thereafter, on 24.3.2009 (F.Y.2008-09) assessee had sold 1,00,000 shares at Rs.5/- per shares totaling to Rs.5,00,000/- to Suraj Impex Pvt. Ltd and claimed a loss of Rs.95,00,000/- in this transaction. Again the assessee company sold 10,00,000 shares at Rs.5/- totaling to Rs.50,00,000/- to the same Suraj Impex P.Ltd. on 23.4.2009 i.e. one month after the first deal and claimed further loss of Rs.9,50,00,000 for F.Y.2009-10. In both the cases, Suraj Impex P.Ltd. made payment to the assessee- company only 23.01.2010 and 27.1.2010 by way of two cheques and after almost ten months of conclusion of the transaction. The ld.AO doubted these share transactions, and based on the seized documents found during the course of search, the ld.AO issued show cause notice to the assessee to explain mainly on the point that shares of Suraj Ltd. were purchased without any valuation, and thereafter the same were sold at a pittance i.e. by incurring huge loss without any valid reason. It was explained by the assessee that the assessee-company had purchased the shares of Suraj Ltd., after examining financial position of the company; favourable market information about likely public issue by the company at higher premium. It further explained that as per the provisions of Income Tax Act, there was no requirement of valuation of shares of private limited company. It further explained that investment in shares was made by the company from the funds received from Ganesh Housing Corporation Ltd. The ledger accounts of Suraj Ltd. and Ganesh Housing Corporation Ltd. substantiate this fund transaction for making the impugned share transactions. To explain the genuineness the assessee has also furnished copy of share application form, copy of PAN card of Suraj Ltd., copy of Form 2 filed with ROC by Suraj Ltd and copy of share certificate issued by the Suraj Ltd. Statement of Shri Shekhar G. Patel recorded under IT(SS)A No.339/Ahd/2018 with CO 4 section 131 of the Act on 25.3.2014 clearly establish the case of the assessee that transaction of purchase and sale of shares of Suraj Ltd. was genuine. So far as issue of variance in the date of sale and purchase of shares in the books of the assessee-company and Suraj Impex P.Ltd. was concerned the same was due to omission on the part of the accounting staff. It further pleaded that when the management of the assessee-company came to know that Suraj Ltd. was not going to be listed in the market, in order to minimize the loss, the assesse-company immediately sold the shares at negotiated price, which was a business decision. It was also submitted that similar claim for the Asst.Year2009-10 was allowed by the department, and therefore, there is no reason to doubt the claim made by the assessee in the present year. 4. However, the ld.AO was not satisfied with the explanation of the assessee. He examined the financial performance of the investee company for last three years i.e. financial years, 2006-07, 2007-08 and 2008-09 and observed that the loss on account of sale of shares of Suraj Ltd. was artificially created; that auditors of the company has stated that bills of purchase and sales were not adequately supported; balances of sundry debtors, creditors and loans & advances were yet to be confirmed; there were various irregularities in the books of Suraj Impex Ld., and Suraj Ltd., and did not reflect true picture; these companies are group concerns; that the alleged share transaction was without payment of STT; that there was no valid reason for the share price to drop from Rs.100 to 5/-; that the statements of Shri Shekhar G. Patel director of the assessee-company and Shri Ashok T. Shah, director of Suraj Ltd., were contradictory to each other; that the auditors of Ganesh Plantations Ltd, have not verified the authenticity of the investments; and the whole affairs are just a tool to hood-wink the IT(SS)A No.339/Ahd/2018 with CO 5 authorities. He further observed that there was no reasons attributed by the assessee as to why it has made huge investment, and the entire sale transactions was genuine and bona fide; that it was surprising that when the investee company i.e. Suraj Ltd. has reported loss of Rs.66,99,106/- in the immediately preceding financial year i.e. FY 2006-07, how a prudent business entity could make investment at Rs.100/- per share, and immediately thereafter, sold the shares at huge loss of Rs.95/- per share. The entire exercise carried out by the assessee was simply a devise to introduce unaccounted money as a new capital to Suraj Ltd. in the form of accommodation. Accordingly, the ld.AO rejected the claim of the assessee and disallowed the impugned loss of Rs.9,50,00,000/- on account of sale of shares. He also made disallowance under section 14A of Rs.9,28,414/-. 5. Aggrieved assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) the assessee has made detailed submissions which were reproduced by the CIT(A) from page nos.2 to 19 of the order. The ld.CIT(A) considered the submissions and also relied upon various cases including the decision of jurisdictional High Court in the case of Pr.CIT Vs. Saumya Construction P.Ltd., 387 ITR 528. These case laws relied upon by the ld.CIT(A) are listed in page no.20 to 22 of the order. Based on these decisions, he ld.CIT(A) held that there was no mention of any incriminating material belonging to the appellant was mentioned in the assessment order. Therefore, in absence of any incriminating material found and seized during the course of search proceedings in the case of Suraj Group against the appellant company and in the absence of any statement of directors of Suraj Group and/or related person of Suraj Group against the assessee-company, the addition made by the AO in the assessment order under section 143(3) r.w.s 153C of the Act was not justified IT(SS)A No.339/Ahd/2018 with CO 6 and the same was deleted. The ld.CIT(A) also deleted disallowance under section 14A of the Act of Rs.9,28,414/-. Dissatisfied by the action of the CIT(A), Revenue is now before the Tribunal. 6. Before us, the ld.DR supported the order of the Assessing Officer. He further submitted that the material seized during the course of search revealed that the facts of the alleged purchase of shares of Suraj Ltd., at very high price, and immediately thereafter sold the same at a very low price to Suraj Impex Ltd., are cooked up stories in order to introduce unaccounted money to the capital of sister concern, and to defraud the revenue authorities in the form of accommodation entry. The whole façade created by the assessee showed the real purpose of introducing the unaccounted money in the capital of sister/related companies. The AO has made detailed examination of the papers/ material collected during the course of search, which clearly belonged to the assessee, therefore, what is apparent is not real from the face of material. The AO has in possession all positive material which would establish that the alleged purchase and sale of shares of Suraj Ltd., is nothing but a fraud to introduce unaccounted money in the capital of the sister concerns, and thereby evading legitimate tax liability. 7. On the other hand, the ld.counsel for the assessee while reiterating the submissions made before the Revenue authorities below, further submitted that in the assessment framed under section 143(3) r.w.s.153C of the Act the AO has not brought any cogent material or independent clinching evidences to establish the allegation of bogus claim of loss on sale of shares of M/s.Suraj Ltd. for an amount of Rs.9.50 crores. Similar claim of the assessee in the Asstt.Year 2009-10, the ld.CIT(A)-2, Ahmedabad has allowed the claim of the assessee by holding that in the absence of any incriminating material being found and seized in the search case of IT(SS)A No.339/Ahd/2018 with CO 7 Suraj Group, and in the absence of any statement by the directors of the investee company, the claim of the assessee could not be rejected. This decision of the ld.CIT(A) was upheld by the ITAT in ITA No.472/Ahd/2016 vide order dated 11.12.2020. He has placed on record copy of this decision of the Tribunal on record. It is further submitted that search was conducted in case of Suraj Group on 18.12.2013 and no incriminating material belonging to the assessee-company was found and seized during the course of search proceedings at Suraj Group; that the impugned satisfaction note of the AO itself states that the proceedings have been initiated on the basis of documents which pertains to the company. Thus, a condition precedent for issuing notice under section 153C itself not fulfilled by the AO. As regards, addition on merit also, the ld.CIT(A) has rightly appreciated the factum of case of the assessee and allowed the claim of the assessee. Therefore, the order of ld.CIT(A) does not require any interference, and the appeal of the Revenue should be dismissed. 8. In the present case on hand, the issue before is us about the merit of disallowances made by the Assessing Officer in an assessment framed under section 143(3) r.w.s 153C of the Act. We find that the AO on the basis of these seized papers, made certain disallowance, which according to the assessee is without appreciating the facts of the case and submissions made before him even when no evidence of incriminating material was found and seized related to the assessee from the possession of the searched person. In appeal, the ld.CIT(A) found that the disallowance made by the AO could not be justified in the absence of incriminating and cogent material belonged to the assessee. He accordingly deleted all the disallowances on merit and allowed appeal of the assessee. IT(SS)A No.339/Ahd/2018 with CO 8 9. We have given our thoughtful consideration and perused the documents, records and Paper Books filed by the assessee. Let us deal with the issue ground wise as under: 10. Ground Nos.1 & 2 deals with the validity of 153C proceedings: 11. For the assessment year 2010-11 the assessee filed its original return of income under Section 139 of the Income Tax Act on 15-10-2010 admitting a loss of Rs.26,77,219/-. This Return was processed under section 143 [1] of the act, accepting the loss return filed by the assessee. Search action under section 132 was taken place in Suraj group of companies on 18-12-2013 where in books of accounts, documents, digital evidences belong to the assessee company were found in the format of Excel sheets. It is thereafter notice under section 153C was issued on 30- 11-2015 to the assessee. In response thereto the assessee filed a return of income on 14-12-2015 declaring the loss of Rs.24,69,136 and requested the Assessing Officer to provide copy of the Satisfaction Note recorded by him. The assessee also objected before the assessing officer that the initiation of the proceedings u/s.153C itself is bad in law in the absence of any incriminating material, during the course of search in the third-party premises and the very transactions of sale of shares were been declared by the assessee in the original return filed by it. The department do not have any incriminating material relating to a new transaction other than what was declared by the assessee in the original return and in response to the notice u/s.153C filed a loss return on the sale of shares. Therefore the initiation of the proceedings under section 153C itself is bad in law. 12. The ld.CIT(A) followed judgment of jurisdictional High Court in the case of Pr.CIT Vs. Saumya Constructions P.Ltd., reported in387 ITR 528 wherein it was held that – “.....It is an admitted position that no incriminating material was found during the course of search. However, it is on the basis of same material collected by the AO much subsequent to the search, that the impugned additions came to be made. IT(SS)A No.339/Ahd/2018 with CO 9 19..........Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court in the case of Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year. 20. For the foregoing reasons, it is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to a question of law, much less, a substantial question of law, warranting interference. The appeal, therefore, fails and is, accordingly, dismissed.” 13. Following the above ratio laid down by the jurisdictional High Court in the present case, there is no new material available to the department or found during the course of search proceedings, but in pursuance to the 153-Noice, the assessee declared the same income from sales and purchase of shares in the return filed under section 153C. Thus, it is crystal clear that there is no seized material found by the department, and no information was there in the assessment order passed by the AO. Following the ratio of jurisdictional High Court, we have no hesitation in dismissing ground nos.1 and 2. 14. Ground Nos.3 and 4 : These two grounds related to deletion of disallowance of loss of Rs.9,50,00,000/- on account of sale of shares. Addition made therein was deleted by the CIT(A), following the earlier Asst.Year 2009-10. In the Revenue’s appeal before this Tribunal in ITA No.472/Ahd/2016 dated 11.12.2020 for the A.Y.2009-10, Coordinate Bench of the Tribunal held as follows: IT(SS)A No.339/Ahd/2018 with CO 10 “17. We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the assessee has claimed to have incurred losses on the purchase and sales of shares of certain private Ltd and limited companies amounting to Rs.10,81,15,500.00 which was disallowed by the AO for various reasons elaborated in the preceding paragraph. 17.1. One of the allegation of the AO was that the assessee has not furnished necessary details justifying the genuineness of the impugned loss. However, on perusal of the details filed by the assessee, particularly placed on pages 335 to 337 of the paper book we note the following details: "(ii) The assessee company is providing herewith the following documentary evidences in respect of purchase and sale of shares:- (A) We are submitting herewith following details for the shares of Winter Fresh Food Pvt Ltd. (a) Confirmation of the parties from whom shares of Winter Fresh Food Pvt. Ltd. purchased along with Xerox copies of transfer form as per Exhibit- (b) Confirmation of the parties to whom the shares of Winter Fresh Food Pvt. Ltd. sold as per Exhibit-Ill. (B) We are attaching herewith the following documents for the sale of shares of Securities Analysis (India) Pvt. Ltd.: (a) Application for equity shares by the assessee company to Securities Analysis (India) Pvt. Ltd. along with Board Resolution as per Exhibit-IV. (b) Xerox copy of Share Certificate as per Exhibit-V. (c) Form no.2 filed by Securities Analysis (India) Pvt. Ltd. for the allotment of shares to the assessee company as per Exhibit-VI. (d) PAN Card of Securities Analysis (India) Pvt. Ltd. as per Exhibit-VII. (e) Share transfer form along with sale note for sale of shares to Shree Ganesh Fintrade Ltd. as per Exhibit-VIII. (C) We are attaching herewith the following documents for TPL Finance Ltd. (a) Confirmation regarding sale of shares of TPL Finance Ltd. along with share transfer form as per Exhibit-IX. (D) We are attaching herewith the following documents for Suraj Ltd. (a). Application form for allotment of equity shares as per Exhibit-X. (b). PAN Card of Suraj Ltd. as per Exhibit-XI. IT(SS)A No.339/Ahd/2018 with CO 11 (c). Form No.2 for allotment of shares to the company along with Xerox copy of share certificate as per Exhibit-XII. (d) Sale note for sale of shares of Suraj Ltd. as per Exhibit-XIII. (E) We are attaching herewith the following documents for Khandelwal Infrastructure Pvt. Ltd. (a) Application form for making shares as per Exhibit-XIV. (b) Confirmation for sale of shares of Khandelwal Infrastructure Pvt. Ltd. with transfer form as per Exhibit-XV. (iii) The assesses company is submitting herewith the copy of bank statement of Tamilnadu Mercantile Co.Op.Bank Ltd. and HDFC Bank as per Exhibit - XVI. The assessee company is also attaching herewith the copy of bank book of the aforesaid banks as per Exhibit- VXII. (iv) The assessee company has to contend that it has incurred the genuine business loss on sale of shares and the same is required to be allowed in toto." 17.2. Admittedly, the primary onus to prove the correctness of the transaction is on the assessee as it has the special knowledge of the circumstances and privy to the facts of the case. Hence, the assessee has to satisfy the AO about the correctness of the impugned loss. After going through the details filed by the assessee as discussed above, we find that the assessee has discharged its onus to justify the loss claimed by it on the purchase and sale of the shares. Thus the onus shifts on the AO to disprove the contention of the assessee by collecting contrary evidence. But The AO has not brought any contrary evidence against the assessee to prove that the loss claimed by it was not a genuine loss. In other words no contrary evidence was collected or confronted by the AO against the contention of the assessee. Thus it can be inferred that the burden of proof has been discharged by the assessee. 17.3. A situation also arises that there was no compliance by certain parties against the notice issued by the AO under section 133(6) of the Act. But question is that whether the assessee can be blamed for non-response of the notice issued by the AO under section 133(6) of the Act. The answer stands against the Revenue and in favour of the assessee. It is because the assessee is not under any obligation to enforce the parties to response to the notice issued by the AO under section 133(6) of the Act. In fact the AO has been authorized to exercise its power granted under the statute i.e. under section 133 (6) of the Act and if the other party does not cooperate then the AO has power to levy the penalty on such party under section 272A of the Act. But the assessee under no circumstance can be penalized on account of non-response of the notice issued under section 133(6) of the Act to the parties. In holding so we draw the support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Rohini Builders reported in 127 Taxman 523, where the head note reads as under: IT(SS)A No.339/Ahd/2018 with CO 12 " Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine - Held, yes **** ***** ***** 17.10. It is an undisputed fact that all the parties with whom the assessee carried out such transaction were identifiable and there was also a consideration among such parties. Admittedly, the price of the shares in market is not always based on the company's financial position, profit/growth rather its value/price is determined on the demand and supply of the script/shares and various other factors such as elaborated below: a. the field in which the company is operating b. the competition that the companies facing c. the difficulty for making the entry in the particular field d. the background of the promoters e. the economic boom f. Govt. policy g. budget proposals h. future plans i. development chances j. existing growth in sales k. high capital l. reserve m. Positive net worth and no borrowings so on and so forth. 17.11. There are various companies incurring huge losses but price of their shares in market are high. Similarly there are various companies having high book value but trading at a very low price. Accordingly, we are of the view that the high profit/taxable income cannot be a criteria to decide the price of the share/script. Thus any unusual price rise/ fall in the shares of the company cannot be a basis to draw an inference that capital loss generated by the assessee is bogus in nature. Thus after considering the above facts, we are of the opinion that AO is not correct in challenging the loss declared by the assessee on the purchase and sale of shares.” 15. Respectfully following the above decision in assessee’s own case, we have no hesitation in following the same for the Asst.Year 2010-11 also and delete the addition made by the AO. 16. Ground No.5: This ground relates to deletion of disallowance of Rs.9,28,414/- made by the AO under section 14A of the Act. During the Asst.Year 2010-11, the assessee itself investment and earned dividend income of Rs.12,500/-. The assessee himself made disallowance of Rs.2,08,083/- under section 14A read with Rule 8D. However, the AO re-worked out calculation under Rule 8D at IT(SS)A No.339/Ahd/2018 with CO 13 Rs.11,36,497/- after adjustment of Rs.2,08,083 and disallowed Rs.9,28,414/-. The ld.CIT(A) in his finding held that there is no incriminating material found against the assessee-company and relying on judgment of jurisdictional High Court in the case of Saumya Construction P.Ltd. (supra) deleted entire addition. It is an admitted fact that the assessee itself has made a of disallowance at Rs.2,2,08,083/- towards expenses incurred in earning exempt income. Further more, the assessee has received only dividend of Rs.12,500/-, by making such investment. There are number of judicial decisions on this behalf which say that disallowance u/s.14A should not exceed dividend income. However, the assessee having made disallowance of Rs.2,08,083/- no further disallowance is warranted, accordingly, ground raised by the Revenue is hereby rejected. 17. Ground Nos.6 and 7 are general in nature, which does not require separate adjudication. 18. Now coming to cross objection filed by the assessee is concerned, we note that the same is in support of the order of the ld.CIT(A), and as such the assessee has no specific grievance in view of our having dismissed the appeal of the Revenue on merit. Hence, the CO of the assessee is dismissed as infructuous. 19. In the result, both appeal of the Revenue and CO of the assessee are dismissed. Order pronounced in the Court on 8 th April, 2022 at Ahmedabad. Sd/- Sd/- (PRAMOD M. JAGTAP) VICE-PRESIDENT (T.R. SENTHIL KUMAR) JUDICIAL MEMBER Ahmedabad, dated 8/04/2022 vk*