Dy. Commissioner of Income Tax, Central Cir.-2, Surat V. Somani Overseas Pvt. Ltd., Surat

ITSSA 39/SRT/2021

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The case involves Somani Overseas Pvt. Ltd., which was part of a search action under Section 132 of the Income Tax Act, 1961, conducted on 19.02.2016. Following the search, the Assessing Officer issued a notice under Section 153A and subsequently made an addition of Rs. 7.30 crores to the assessee's income, treating it as unexplained cash credit under Section 68. This was based on the financial data showing substantial share application money and share premium received from Kolkata-based companies. The CIT(A) later deleted this addition, finding no incriminating material to support it, a decision which the revenue appealed against in the Tribunal. The Tribunal upheld the CIT(A)'s decision, emphasizing the absence of incriminating material and the non-abated status of the assessment for the relevant assessment year.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302043 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 21-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-12-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2021
• Other Referred Cases: Pr.CIT Vs Saumya Construction Pvt. Ltd., CIT Vs Ramesh Bhai Jivraj Bhai Desai, CIT Vs Kurele Paper Mills (P) Ltd., All Cargo Global Logistics Ltd. & others Vs. DCIT, CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd., CIT Vs Kabul Chawla, DCIT Vs Rohini Builders, CIT Vs Ranchhod V Nakhava
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Share purchase agreement
• Section: 68; 132; 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER IT(SS)A No. 39/Srt/2021 (Assessment Year: 2009-10) (Physical hearing) D.C.I.T., Central Circle-2, Surat. Vs. Somani Overseas Pvt. Ltd., 703, Trividh Chambers, Opp. Fire Brigade, Ring Road, Surat. PAN No. AAECS 2257 A Appellant/ assessee Respondent/ revenue Department represented by Shri Ashok B Koli, (CIT-DR) Assessee represented by Shri Rasesh Shah, CA Date of hearing 28/12/2022 Date of pronouncement 22/02/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-4, Surat (in short, the ld. CIT(A) dated 06/05/2021 for the Assessment year (AY) 2009-10. The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.7,30,00,000/- made on account of unaccounted cash credit u/s 68 of the Income Tax Act without appreciating the fact that the assessee had failed to prove the Identity, creditworthiness& genuineness of the Kolkata based investor companies from whom share capital were received. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 7,30,00,000/- made on account of unaccounted cash credit u/s 68 of the Income Tax Act without appreciating the fact that such accommodation entry in form of Share Capital was arranged by the assessee from the Kolkata based entry IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 2 providing companies, which was accepted by the directors of the entry providing companies before the Investigation Wing. 3. On the facts and in the circumstances of the cases and in law, the Ld.CIT(A) has erred in not appreciating the fact that incriminating data in the form of computer back-ups were found and seized during the course of search and the Assessing Officer has made a detailed analysis of the same and also correlated the same with the additions made in the assessment order. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that any addition made during the course of assessment proceedings U/S.153A has to be confined to the incriminating material found during the course of search u/s. 132(1) of the Act, even though, there is no such stipulation in sec.153A of the Act. 5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that sec.153A requires a notice to be issued requiring the assessee to furnish his return of income in respect of each assessment year falling within six assessment years and to assess or re- assess the total income of those six assessment years, and that the scheme of assessment or re-assessment of the total income of a person searched will be brought to naught if no addition is allowed to be made for those six assessment years in the absence of any seized incriminating material. 6. It is, therefore, prayed that the order the Ld. CIT(A)-4, Surat may be set aside and that of the AO may be restored to the above extent. 7. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.” 2. Brief facts of the case are that a search action under Section 132 of the Income Tax Act, 1961 (in short, the Act) was carried out on 19.02.2016 on Sumit Group of Industries, the assessee is part of such group thus the assessee was also covered in the search. Consequent upon search action, notice under Section 153A of the Act was issued on 30/12/2016. In response to notice under Section 153A, the assessee filed its return of income for the A.Y. 2009-10 on 12/05/2016 declaring loss of Rs. 54,974/-. During the assessment, the Assessing Officer noted that on IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 3 verification of financial data of assessee company, it was noted that the assessee has received huge share premium/share application money and allotted share to Kolkata based company. The Assessing Officer noted that the assessee has received share application money and share premium of Rs. 7.30 crores from nine investor companies. The Assessing officer recorded the modus operandi of investment by share subscriber company and recorded that the investor company has no relationship either business or otherwise, no scientific basis of valuation of shares which justified about such investment, there was no negotiation between the assessee and investor. None of the investor company have funds to make such investment. None of the Director of Investor companies are traceable and are Kolkata based entity. The invertor has invested Rs. 7.30 crores share at face value of Rs. 10/- each at a premium of Rs. 90 per share. On the basis of such observation, the assessing officer issued show cause notice as to why such investment should not be treated as unaccounted money in the form of bogus share premium and added under Section 68 of the Act. The assessee filed its reply. Alongiwth reply, the assessee, to prove the identity filed confirmation and complete addresses, evidence of active status on Registrar of Company (ROC) website and copy of order of scrutiny assessment completed by the respective Assessing Officer. To prove the creditworthiness, the assessee furnished copy of bank IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 4 statement of shareholders, copy of return of income. To prove the genuineness of investment, the assessee furnished copy of annual account of investor, book value of shares of assessee as on 31/03/2013 at Rs. 107.91 and the premium was taken only at Rs. 90 per share as per prescribed method under Rule 11UA. The assessee also stated that the decision was taken by the management after discussion with the Board of Directors. The assessee also furnished ledger copy of share capital account and share premium amount, copy of share application form and share certificates were also furnished. The Assessing Officer not accepted the explanation furnished by the assessee. The Assessing Officer after referring the decision of various courts and Tribunals held that a detailed investigation was carried out by investigation wing about the entry provider of Kolkata based companies and the result thereof was disclosed to the assessee. The assessee failed to pass the test prescribed under Section 68 of the Act, to prove the identity and creditworthiness of shareholders and genuineness of transactions and that the assessee company has brought back its own unaccounted money into its books of account in the guise of share capital through Kolkata based companies. The Assessing Officer treated the entire share capital of Rs. 7.30 crores as unexplained cash credit under Section 68 and added to the income of assessee in the assessment order passed under Section 143(3) r.w.s. 153A of the Act dated 30/12/2016. IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 5 3. Aggrieved by the additions, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed its detailed written submissions as recorded in para 4 of order of ld. CIT(A). In the written submissions, the assessee stated that the assessee is in the business of trading of textile goods, filed its return of income for A.Y. 2009-10 on 30/09/2009 declaring Nil income. Search action under Section 132 of the Act was carried out on the premises of assessee on 19/02/2015. Notice under Section 153A of the Act was served upon the assessee on 30/12/2015. In response to such notice, the assessee filed return of income on 12/05/2016. The assessee further explained that during the period under consideration, the assessee received share application and share premium money of Rs. 7.30 crores. The Assessing Officer issued show cause notice as to why such amount should not be added to the total income by invoking provisions of Section 68 of the Act. The assessee vide his reply dated 23/12/2016, submitted detailed reply with necessary evidence to prove the identity, creditworthiness and genuineness of transactions. The Assessing Officer rejected the submission of assessee and made addition under Section 68 of the Act in the final assessment order dated 30/12/2016. The assessee further stated that the regular return of income was filed on 30/09/2019. No assessment was pending on the date of search under Section 132 on 19/02/2015. Further in the course of search action, no incriminating IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 6 documents whatsoever found related to share application money received and share allotted by the assessee. The Assessing officer has not pointed out any incriminating material on this addition in whole of the assessment order. The Assessing officer made enquiry in the assessment which was already completed. The scope of assessment proceedings under Section 153A of the Act is restricted only to make assessment of income which are based on incriminating material found during the course of search. In other words, the Assessing Officer has no jurisdiction to make assessment of income which is not based on material found in the course of search where the assessment of relevant assessment year has already been concluded prior to date of search and such assessment does not abate. The provisions of Section 153A does not empower the Assessing officer to assess or reassess the total of income of this assessment year immediately preceeding the assessment/relevant to the previous year in which search was conducted. Thus, the Assessing Officer was not justified in making addition in the assessment order under Section 143(3) r.w.s. 153A of the Act. To support such submission, the assessee relied upon the decision of Hon’ble Jurisdictional High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj), CIT Vs Ramesh Bhai Jivraj Bhai Desai (2021) 271 Taxman 154 (Guj), Hon’ble Delhi High IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 7 Court in CIT Vs Kurele Paper Mills (P) Ltd. 380 ITR 571 and various other decisions of different Benches of the Tribunals. 4. On merit, the assessee submitted hat they have discharged their onus in providing the details of identity, creditworthiness and genuineness of transactions. The Assessing Officer has not investigated in the matter and made addition by taking a view that the Kolkata Investigation Wing and the statement of entry provider about jamakharchi companies. No such report was provided to the assessee nor such statement of such entry provider was given to the assessee. The Assessing Officer relied on such investigation report of third party and without conducting any independent enquiry on the evidences furnished by the assessee. No such addition could be made in absence of inquiry. Once the assessee discharged its onus, the onus shifted on the assessing officer. To support its submissions, the assessee also relied on certain case laws. 5. The ld. CIT(A) after considering the assessment order, submissions of assessee and the decisions of various High Courts including decision of Hon’ble Jurisdictional High Court, noted that the assessee has raised specific/additional grounds of appeal that no incriminating material was found at the premises of assessee during the search action on 19/02/2015. On the date of search, no assessment proceeding was pending for A.Y. 2009-10, which got abated as per provisions of Section 153A and in absence of any incriminating material, no addition can be IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 8 made in the assessment order under Section 153A of the Act. After referring the decision of Hon’ble Jurisdictional High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (supra), the ld. CIT noted that it is an undisputed fact that the assessee filed regular return of income on 30/09/2009 for the year under consideration and on the date of search on 19/02/2015, no assessment proceedings in this assessment year was pending, which got abated. In the assessment order, there is no reference about any documentary evidence found or any oral evidence in the form of statement of any one which was made basis for the addition by the Assessing Officer. Thus, the case of assessee is squarely covered by the decision of the Hon’ble Jurisdictional High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (supra) wherein it was held that the addition made in the assessment order passed under Section 153A cannot be sustained, if the additions are not based on any incriminating material found during the course of search. The case of assessee is also covered by the decision of Hon’ble Delhi High Court in CIT Vs Kabul Chawla (2016) 380 ITR 573 (Delhi) and decision of Bombay Tribunal in All Cargo Global Logistics Ltd. & others Vs. DCIT (2012) 74 DTR (SB) 89 (Mum). 6. The ld. CIT(A) ultimately held that as no assessment proceeding was pending on the date of search and the addition is made without finding any incriminating material during the course of search, thus the IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 9 additions are not legally sustainable and deleted the entire addition. Once the ld. CIT(A) deleted the addition, thus, no finding on the merit was given and the same was treated as academic. Further aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before this Tribunal. 7. We have heard the submissions of learned Commissioner of Income Tax-Departmental Representative (ld. CIT-DR) for the revenue and the learned Authorised Representative (ld. AR) of the assessee. The ld. CIT- DR for the revenue submits that the assessee company has received share capital of Rs. 7.30 crores from Kolkata based company. Kolkata based company made investment in 7,30,000 equity shares having face value of Rs. 10 each at a premium of Rs. 90 per share. Such share was transferred by the Kolkata based companies to Sitaram Prints Pvt. Ltd., National Ploy Yarn Pvt. Ltd., Sumeet Menthol Pvt. Ltd. and Extreme Health Care Pvt. Ltd. which are group companies of Sumeet Industries Ltd. at a rate of Rs. 2/- per share. During the assessment, the assessee failed to provide identity, creditworthiness and genuineness of transactions. The ld. CIT(A) deleted the addition by holding that no incriminating material with regard to share subscription by investor company, was found during the course of search. The language of Section 153A is clear and unambiguous and there is no such restriction for making addition on the jurisdiction of Assessing officer in making IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 10 assessment for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted. The ld. CIT(A) allowed the relief to the assessee on the basis of decision of Hon’ble Gujarat High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (supra) which is subject matter of appeal before the Hon’ble Supreme Court. The ld CIT-DR for the revenue prayed for setting aside the order of ld CIT(A) and for restoring the order of assessing officer. 8. On the other hand, the ld. AR of the assessee submits that during the assessment, the assessee provided complete details of investor companies to prove the identity, creditworthiness and genuineness of transactions. The Assessing Officer instead of making any independent enquiry or bringing any adverse material on record, relied upon the information of third party and made addition. The ld. AR of the assessee submits that before the ld. CIT(A), the assessee raised specific ground/additional grounds of appeal that on the date of search on 19/02/2015 on Sumeet Industries group and on assessee, no assessment for A.Y. 2009-10 was pending. No incriminating material with regard to share capital either in the form of documentary evidence or any oral evidence or otherwise was found during the said search. It is an admitted fact that on the date of search, the assessment for A.Y. 2009-10 was not pending, thus, it was a case of unabated assessment. IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 11 The ld. AR for the assessee submits that it is settled legal position under law that no addition in the unabated assessment can be made, if no incriminating material was found during the course of search. The ld. CIT(A) after considering the case record and the submission of assessee, directed the Assessing Officer to furnish his remand report/comment on or before 20/04/2021. The ld. CIT(A) specifically noted that no response was made by the Assessing Officer till passing of the order, therefore, the additional ground of appeal was admitted and on considering the material available on record that no incriminating material was found during the course of search action with regard to share premium in the course of search. The ld. CIT(A) by following the decision of Hon’ble Jurisdictional High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (supra) deleted the entire addition. The ld. AR of the assessee submits that the grounds of appeal raised by the revenue are squarely covered by the decision of Hon’ble Gujarat High Court, Bombay High Court in CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. 58 taxmann.com 78 (Bom). 9. The ld. AR further submits that even on merit, the assessee has discharged its onus in providing complete address of share applicant, their creditworthy and genuineness of transaction and the Assessing Officer has not discharged his onus in disproving such evidences. In absence of any material against the evidence furnished by assessee, no IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 12 addition can be made. To support such submission, the ld. AR of the assessee relied upon the decision in DCIT Vs Rohini Builders 256 ITR 360 (Guj) and CIT Vs Ranchhod V Nakhava 21 taxmann.com 159 (Guj). The ld AR for the assessee prayed for dismissal of appeal filed by revenue. 10. We have considered the submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied upon by the ld. AR of the assessee as well as referred by the ld. CIT(A) in the impugned order. We find that the Assessing Officer during the assessment proceedings, made addition of Rs. 7.30 crores on the basis of financial data of assessee and its group. On the information in the financial data, the Assessing Officer issued show cause notice to the assessee for making proposed addition under Section 68. The assessee filed its reply, inter alia, contending therein that they have furnished confirmation, name and address of investors, to prove creditworthy filed their assessment order passed by the Assessing Officer on Investor companies. To prove the genuineness of investment, the assessee filed their financial statement/annual account showing their net worth. The share application was received through banking channel. To prove the genuineness, the assessee furnished copy of resolution, ledger copy of share capital account and share premium account with Board’s IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 13 resolution. To prove the communication, the assessee furnished copy of share application form. The Assessing Officer has not discussed anything about the documentary evidences furnished by the assessee. The Assessing Officer on the basis of report of Investigation Wing about the entry provider, made addition under Section 68 of Rs. 7.30 crores. 11. We find that before the ld. CIT(A), the assessee made detailed written submissions on merit of the case as well as on legal issues. On legal issues, the assessee contended that the addition of share capital is not based on incriminating material found during the course of search on 19/02/2015. It was specifically contended that on 19/02/2015, assessment for A.Y. 2009-10 was not pending, thus it was a case of non-abated assessment. On the submission of assessee, the ld. CIT(A) directed the Assessing Officer to furnish his comment/remand report, no remand report or objection was filed by the Assessing Officer. The ld. CIT(A) after considering the material available on record, held that on the date of search action, no assessment for A.Y. 2009-10 was pending. The Assessing Officer nowhere in the assessment order, recorded that any incriminating evidence either in the form of documentary evidence or any oral evidence was found on the basis of which, the Assessing Officer made addition. The ld. CIT(A) held that the case of assessee is squarely covered by the decision of Hon’ble Jurisdictional High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (supra). IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 14 12. We find that the Hon’ble Jurisdictional High Court in Pr.CIT Vs Saumya Construction Pvt. Ltd. (supra) held that if no incriminating material is found during the search, no addition can be made on the basis of material collected after search. The Hon’ble Bombay High Court in CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) also held that no addition can be made in respect of assessment which have become final if no incriminating material is found during the search. Similar view was taken by Hon’ble Delhi High Court in Kabul Chawla (supra) that no addition was sustainable as no incriminating material consisting such addition were found during the course of search and further no assessment for such years were pending on the date of search. In view of aforesaid factual and legal discussion, we do not find any infirmity or illegality in the order passed by the ld. CIT(A) which we affirm. Considering the fact that we have affirmed the order of ld. CIT(A) on legal issue, therefore, adjudication on merit has become academic. In the result, all the grounds of appeal from 1 to 7 are dismissed. 13. In the result, this appeal of revenue is dismissed. Order pronounced in the open court on 22 nd February, 2023. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 22/02/2023 *Ranjan IT(SS)A 39/Srt/2021 DCIT Vs Somani Overseas P Ltd. 15 Copy to: 1. Assessee 2. Revenue 3. CIT(A) 4. CIT 5. DR 6. Guard File By order Sr. Private Secretary, ITAT, Surat