AI Insights
Rachit Creations Pvt. Ltd. appealed against the order of the Commissioner of Income-tax (Appeals), which confirmed the additions made by the Assessing Officer regarding share application money and share premium received, as well as unexplained expenditure. The Tribunal examined the evidence, including financial statements and compliance with the Vivad Se Vishwas Scheme by the investor company, M/s Shambhu Management Consultancy Pvt. Ltd. The Tribunal noted that similar issues had been resolved in favor of the assessee in a related case, leading to the decision to allow the appeal and delete the additions.
Appeal Details
Counselvise Citation
[2024] 140 COUNSELVISE.COM (IT) 473277 (ITAT-SURAT)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
11 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-11-2024
Appeal Filed By
Assessee
Order Result
Allowed
Next Hearing Date
08-10-2024
Assessment Year
2013-2014
Appeal Filed On
28-11-2023
Judgement Text
" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.811/SRT/2023 Assessment Year: (2013-14) (Physical Hearing) Rachit Creations Pvt. Ltd., 3011, Annapurna Textile Market, Ring Road, Surat-395002 Vs. The ITO, Ward-2(1)(1), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No: AACCR9234J (Appellant) (Respondent) Appellant by Shri Rasesh Shah, CA Respondent by Shri Mukesh Jain, Sr. DR Date of Hearing 08/10/2024 Date of Pronouncement 08/11/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) by Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘Ld. CIT(A)’] dated 31.10.2023 for the assessment year (AY) 2013-14. 2. Grounds of appeal raised by the assessee are as under: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making the addition of Rs.1,43,10,000/- on account of alleged share application money as cash credit us/ 68 of the Act. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making the addition of Rs.1,16,10,000/- on account of violation of Section 78(2) of the Companies Act, 1956. 2 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making the addition of Rs.1,43,100/- u/s 69C of the Act. 4. It is therefore prayed that the above additions made by the Assessing Officer and confirmed by the CIT(A) may please be deleted. 5. Appellant craves leave to add, alter or delete any ground(s) eite4hr before or in the course of hearing of the appeal.” 3. Facts of the case, in brief, are that assessee company is engaged in business of manufacturing and wholesale trading of arts silk cloths. As against the returned income of Rs.20,68,270/- for AY.2013-14, the Assessing Officer (in short, the ‘AO’) determined the total income of Rs.1,65,21,370/-. He has added Rs.1,63,10,000/- on account of share capital of Rs.27,00,000/- and share premium of Rs.1,16,10,000/-. He has also added Rs.1,43,100/- as unexplained expenditure u/s 69C of the Act towards the expenses for accommodation entries of the above sums. During assessment proceedings, AO observed that assessee has received a sum of Rs.27,00,000/- towards share capital and Rs.1,16,10,000/- towards share premium @ Rs.43/- per share totalling to Rs.1,43,10,000/- on the issue of shares to M/s Shambhu Management Consultancy Pvt. Ltd. The assessee had submitted the bank statements, PAN, account confirmation, ITR, ledger account, Certificate of incorporation with registrar of company and Memorandum and Article of association. Subsequently, notice u/s 133(6) was issued on 20.10.2015 calling for confirmation from shareholder. The AO also requested assessee to furnish various details; in response to which, the assessee submitted minutes of 3 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. Board meeting, audited financial statement, Board resolution, duly signed share application form, attendance register of AGM and xerox copy of share certificate. The assessee stated that the premium was Rs.43/- per share as against book value of Rs.52.77/- and fair market value (FMV) of Rs.99.86/- .Thereafter, AO issued summons u/s 131 on director of M/s. Shambhu Management Consultancy Pvt. Ltd., the investor company, who submitted acknowledgement of its return of income, audit report along with balance sheet, assessment order for AY. 2012-13, bank statement along with bank book for A.Y. 2013-14 and share certificate. In the subsequent show cause notice, AO stated that M/s Shambhu Consultancy Pvt. Ltd. was controlled and managed by Shri Manohar Nangaliya through his dummy directors. The AO also observed that during the assessment proceedings in case of M/s. Rachit Industries Pvt. Ltd. (sister concern of the assessee) for A.Y. 2012-13, the AO had visited the address mentioned in bank account of M/s Shambhu Management Consultancy Pvt. Ltd. and found that no such company carries on business at that address. Further, AO also observed that during the assessment proceedings of M/s Rachit Industries Pvt. Ltd. for AY.2012-13 i.e., year before the current assessment year, notice u/s 133(6) issued on M/s Shambhu Management Consultancy Pvt. Ltd. was returned unserved. Later on, on the basis of address provided by assessee, notice u/s 133(6) was again issued without result and assessment was completed in case of M/s Rachit Industries Pvt. Ltd. after making addition of Rs.3,03,00,000/- AO further 4 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. stated that for the year under consideration in case of M/s Shambhu Management Consultancy Pvt. Ltd., the office Inspector visited address provided by assessee and he submitted that the office located at given address was closed. In view of the above facts, the AO asked assessee as to why the impugned receipts of Rs.1,43,10,000/- should not be treated as unexplained cash credit u/s 68 of the Act and added to the total income. In response to the show cause notice, assessee filed its reply vide letter dated 14.03.2016 along with confirmation of the share applicant. In the above reply, assessee submitted that Shri Manohar Nangalia was neither the director nor the authorized person in M/s Shambhu Management Consultancy Pvt. Ltd. and the name of investor company is nowhere mentioned in the statement of Shri Manohar Nangalia. With regards to presence of investor company at address provided, assessee submitted that notice u/s 133(6) was served at the address provided and was duly complied; so it was quite unusual that the Inspector was not able to locate the office address of investor. The assessee also requested for cross examination of parties whose statements were relied upon by AO and to provide copy of Inspector’s report who visited the shareholder's premises. The relevant portion of the reply of the assessee along with the rebuttals of AO is at Para 2.4 (Page 35 to 40) of the assessment order. The AO was not satisfied with the reply of the assessee and hence, he made an addition of Rs.1,43,10,000/- u/s 68 of the Act to the total income of 5 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. the assessee. The AO has elaborately discussed various case laws and provisions of section 68 while making the above addition. 3.1 The AO made further addition of Rs.1,16,10,000/- on the ground that even otherwise the premium of Rs.1,16,10,000/- was taxable as revenue receipt as assessee violated the provision of section 78(2) of Companies Act, 1956 read with decision of Hon'ble Apex Court order in case of Bharat Fire & General Insurance Ltd., (1964) 53 ITR 108 (SC). 3.2 The AO also added Rs.1,43,100/- u/s 69C of the Act towards unexplained expenses on the ground that Shri Arun Nangalia Group was providing bogus entries on payment of commission and M/s Shambhu Management Consultancy Pvt. Ltd. was included in the companies managed by them. Though assessee denied having paid any commission, the AO added 1% of the total receipt of Rs.1,43,10,000/- i.e., Rs.1,43,100/- u/s 69C of the Act to the total income as unexplained expenditure. 3.3 Aggrieved by the order of AO, the assessee filed appeal before CIT(A). The CIT(A) has extracted the relevant portion of the assessment order at page 2 to 5 of the appellate order. He has observed at para 5 that all grounds of appeal are interlinked and hence taken up together for decision. The written submission of the assessee has been reproduced at para 5.2 at pages 6 to 14 of the appellate order. The findings of CIT(A) are at para 5.3 of his order. He did not find merit in the argument of the appellant. He has observed that during the search and seizure operation at the premises of Shri Deepak 6 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. Patwari, Shri Manohar Nangalia and Shri Pankaj Agrawal, it was established that they were providing accommodation entries through a labyrinth of the companies created for this purpose and M/s Shambhu Management Consultancy Pvt. Ltd. is one of such companies. It was admitted as such by these persons in their statements recorded during the search. He further stated that in case of the same entry provider, the Hon’ble Gujarat High Court in case of Puspa Uttamchand Mehta vs. ITO, (2022) 139 taxmann.com 409 (Guj.) held that the AO has validly reopened assessment because there were sufficient materials available on record for AO to form a reasonable belief and there was a live link between material and income chargeable to tax escaping assessment. He also held that the company was not found to be existing at the address given by the assessee. He observed that assessee has only relied on paper evidence like audited accounts and confirmation etc. and such evidence are meticulously fabricated in case of accommodation entries. For this, he relied on the decision in case of NDR Promoters Pvt. Ltd. vs. PCIT, (2019) 109 taxmann.com 53 (SC) and (2019) 102 taxmann.com 182 (Delhi). He also observed that assessee has not been able to establish genuineness of the transaction. The absence of cash deposit does not establish the credibility of the transactions. He also did not find merit in the submission that the entry provider had not taken the name of the investor company in the statement given by him. The CIT(A) further stated that opportunity of cross-examination is not necessary as held by Hon’ble Supreme Court in the case of R. L. Traders 7 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. vs. ITO, (2018) 100 taxmann.com 332 (SC). In view of these facts, he found that the contentions of the assessee on the additions are not tenable and, therefore, he dismissed the appeal of the assessee. 3.4 Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. Ground No.1 pertains to addition of Rs.1,43,10,000/- u/s 68 of the Act. The Learned Authorized Representative (Ld. AR) of the assessee has strongly contested the orders of lower authorities. He has filed paper books containing all written submissions and replies before the CIT(A) and AO. The paper book also includes the order of CIT(A) in case of Rachit Industries Ltd., sister concern of the assessee for AY.2012-13, valuation of share of assessee company as per Rule 11UA of the Income-tax Rules, assessment and appellate orders for AY.2012-13 of the investor company i.e., M/s Shambhu Management Consultancy Pvt. Ltd., audited financial statements of the above company etc. It also includes other documents as mentioned in the facts of the case. During the appellate proceedings, the Ld. AR submitted another compilation where the appeal filed by M/s Rachit Industries Pvt. Ltd., sister concern of the assessee has been allowed and the appeal filed by the revenue on similar issues has been dismissed by ITAT, Surat. He has also filed copy of the order u/s 250 of the Act where the CIT(A) has dismissed the appeal of M/s Shambhu Management Consultancy Pvt. Ltd. of AY.2012-13 on the ground that the above assessee opted for Vivad Se Viswas Scheme, vide declaration dated 25.12.2020. Pursuant thereto, the PCIT-1, Kolkata has certified the full 8 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. and final payment of Rs.1,54,42,388/- as taxes in Form No.5, dated 31.03.2022. The Ld. AR relied on the decision of Hon’ble Bombay High Court in case of Shendra Advisary Services Private Limited vs. DCIT, ITA No.299 & 300 of 2021, dated 09.02.2024 and submitted that breach of provisions of section 78(2) of the Companies Act, 1856 would not turn the share premium amount received into a revenue receipt. He has also relied on the decisions which were put forth before AO and CIT(A) and submitted copies of the decisions in the case of PCIT vs. Heritage Beverages Pvt. Ltd., 166 taxmann.com 217 (Del.), PCIT vs. Esspal International Pvt. Ltd., 166 taxmann.com 722 (Raj.), Earthmetal Electrical Pvt. Ltd. vs. CIT, Civil Appeal No.6181 of 2010 arising out of SLP No.21073 of 2009 (SC), Earthmetal Electircal Pvt. Ltd. vs. ITO, ITA No.590 of 2005 (Bom – HC), Earthmetal Electrical Pvt. Ltd. vs. ITO, ITA No.239/Mum/2005, CIT vs. Lovely Exports Pvt. Ltd., (2008) 216 CTR 195 (SC), CIT vs. Steller Investment, (2001) 251 ITR 263 (SC), CIT vs. Himatsu Bimet Ltd., (2011) 12 taxmann.com 87 (Guj.), Hindustan Inks & Resins Ltd. vs. DCIT, (2011) 60 DTR 18 (Guj.) and M/s Rachit Industries Pvt. Ltd. vs. ITO, ITA No.2980/Ahd/2016. The Ld. AR requested that since all documents to satisfy the three ingredients of section 68 of the Act have been submitted, addition made u/s 68 of the Act may be deleted and appeal of assessee may be allowed. 3.5 On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) strongly relied on the orders of lower authorities. He has filed a paper 9 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. book containing various decisions in favour of revenue on similar issues i.e., PCIT vs. Swati Bajaj, 139 taxmann.com 352 (Cal.), CIT vs. Navodaya Castles (P.) Ltd., 50 taxmann.com 110 (Del.), Navodaya Castles (P.) Ltd. vs. CIT, 56 taxmann.com 18 (SC), Hemil Subhasbhai Shah, ITA No.961/Ahd/2019 (Ahd – Trib.), Suman Poddar vs. ITO, 112 taxmann.com 330 (SC), PCIT vs. NRA Iron & Steel (P.) Ltd., 103 taxmann.com 752 (SC) and NRA Iron & Steel (P.) Ltd. vs. PCIT, 117 taxmann.com 752 (SC). 3.6 We have heard both the parties and perused the materials available on record. We have also deliberated on cases laws relied upon both parties. There is no dispute regarding the fact that the assessee has received Rs.27,00,000/- towards share capital and Rs.1,16,10,000/- towards share premium totalling to Rs.1,43,10,000/- from M/s Shambhu Management Consultancy Pvt. Ltd during the year under consideration. The assessee had submitted PAN, account confirmation, ITR, bank statement, ledger account, certificate of incorporation with ROC, Memorandum and Articles of associations, acknowledgement of ITR, audit report with balance sheets and assessment order for 2012-13 etc. of the investor company during the assessment proceedings. After perusing the same, the AO has not accepted the claim of the assessee that the impugned receipt of share capital and share premium are genuine transactions. He has observed that M/s Shambhu Management Consultancy Pvt. Ltd. was controlled and managed by Shri Manohar Nangalia through his dummy directors. During assessment 10 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. proceedings of M/s Rachit Industries Pvt. Ltd., sister concern of the assessee, for AY.2012-13, the AO of the sister concern visited the address of M/s Shambhu Management Consultancy Pvt. Ltd. and found that it was non- existent. Further, notice issued u/s 133(6) to the above investor company came back unserved. Thereafter, based on the address provided by said Rachit Industries Pvt. Ltd., the Inspector was sent to the office at the address given by the assessee, but it was found closed. Hence, the AO of Rachit Industries Pvt. Ltd. made addition of Rs.3,03,00,000/-. For the same reasons and due to the facts stated above and discussed in the facts of the case AO added both share capital and share premium amounting to Rs.1,43,10,000/-. 3.7 The Ld. AR submitted that the assessee has given whatever is required to discharge the onus cast upon it to escape the mischief of the provisions of section 68 of the Act. He submitted that under similar facts and situation, addition of Rs.3,00,00,000/- was made by the AO in case of Rachit Industries Pvt. Ltd., sister concern of the assessee. The said addition was partly allowed by the CIT(A) who sustained an addition of Rs.92,00,000/- only and deleted the remaining addition of Rs.2,08,00,000/-. Against such order, both revenue and assessee had filed appeal before ITAT. After considering the submissions of both parties, the ITAT dismissed appeal of revenue and allowed the appeal of assessee. Therefore, the entire addition of Rs.3,00,00,000/- was finally deleted. 11 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. 3.8 The Ld. AR further stated that the investor company has opted for the Vivad Se Vishwas Scheme and paid full and final payment of Rs.1,54,44,388/- as taxes. In view of these facts, source of source is also explained. He, therefore, requested to delete the addition. 3.9 The Ld. AR also relied on the decision in case of Shendra Advisory Services Pvt. Ltd. (supra) and submitted that the addition of Rs.1,16,10,000/- made by AO vide para 2.6 of the assessment order for violation of section 78(2) of the Companies Act, 1956 is not liable to be sustained and, therefore, he requested to delete the addition. 3.10 In view of the detailed submissions by both parties, we have again perused the orders of lower authorities and various documents submitted by the parties. We have also carefully gone through various decisions relied upon by the parties. We find that similar addition of Rs.3,00,00,000/- was made in case of Rachit Industries Pvt. Ltd., sister concern of the assessee, for the immediately preceding AY.2012-13. The above company had received Rs.6,00,000/- towards share capital and Rs.2,94,00,000/- towards share premium from various companies from Kolkata including M/s Shambhu Management Consultancy Pvt. Ltd. On verification of return of income of the companies from whom the share capital and share premium were received, it was noticed that none of the companies was carrying out any business activity. During scrutiny proceedings, Rachit Industries Pvt. Ltd. had submitted PAN, return of income, balance sheet, bank statements, ROC details etc. for 12 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. the investor companies. The AO, however, did not accept the contention of the said assessee and added the entire share capital and share premium of Rs.3,00,00,000/-. The CIT(A) had deleted addition of Rs.2,08,00,000/- in respect of four companies including M/s Shambhu Management Consultancy Pvt. Ltd. He had, however, sustained additions in respect of two other companies namely M/s Anagha Commercial Pvt. Ltd. and M/s Jata Shiv Vaniya Pvt. Ltd. amounting to Rs.92,00,000/-. After considering the submissions of the said assessee and revenue, the ITAT, Surat held that the assessee had discharged initial burden by submitting before the AO, the share application form, acknowledgement of return of income, audited financial statements, bank statements, MOA and AOA of the share applicants. The AO was free to proceed to reopen their individual assessments in accordance with law, which he failed to do. Hence, the ITAT deleted the addition of Rs.2,08,00,000/-. Further, based on the factual position as discussed in para 15 of its order, the ITAT deleted the other addition of Rs.92,00,000/-. Since the facts are similar, the addition made by AO is liable to be deleted. 3.11 The issue can also be considered from another angle. The Ld. AR of the assessee has given the audited financial statement of M/s Shambhu Management Consultancy Pvt. Ltd. for AYs.2012-13 & 2013-14. It is seen from the balance sheet that “Non-current Investment” was Rs.4,32,50,000/- as at 31.03.2012 and Rs.4,37,10,000/- as at 31.03.2013. From the break-up of the same at Note 7 of the notes forming part of financial statement, it is seen that 13 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. the said investor company has shown investments of Rs.43,00,000/-, Rs.1,35,00,000/- and Rs.1,43,10,000/- in cases of Rachit Industries Pvt. Ltd., Rachit Fashion Pvt. Ltd. and Rachit Creations Pvt. Ltd. respectively. Therefore, there is no doubt regarding the investments of Rs,1,43,10,000/- made by the aboveinvestor company in the share capital and share premium of the assessee company. During the scrutiny assessment of M/s Shambhu Management Consultancy Pvt. Ltd. for AY.2012-13, fresh application money received along with the premium amounting to Rs.4,76,00,000/- was considered as unexplained and added u/s 68 of the Act. Against the above order, assessee filed appeal before the CIT(A). In the appellate order passed u/s 250 of the Act, the CIT(A) dismissed the appeal for statistical purposes because the appellant had opted for Vivad Se Vishwas Scheme, 2020. The relevant portion of the appellate order is reproduced below for ready reference: “2.0 It is noted that the appellant opted for the Vivad Se Vishwas Scheme vide declaration dated 25/12/2020. Pursuant thereto, the PCIT-1, Kolkata has certified the full and final payment of Rs.1,54,44,388/- as taxes in terms of Form. 5 dated 31/03/2022 and Certificate No.233489350300121. In view of the above, the appeal is treated as infructuous as per clause/section 4(2) of Direct Tax Vivad Se Vishwas Act, 2020.” 3.12 It is clear from the above that the M/s Shambhu Management Consultancy Pvt. Ltd. has paid Rs.1,54,44,388/- as full and final payment of taxes in terms of Form 5 of Direct Tax Vivad se Vishwas Act, 2020. Therefore, it is clear that the amount of investment in the assessee company has been made out of the funds declared by the investor company on which full and 14 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. final payment of tax has been made under VSVA, 2020. The Department has also accepted the declaration made by M/s Shambhu Management Consultancy Pvt. Ltd. Therefore, the source of fund in the hands of the investor company stands explained. Out of the said funds, it has invested in the shares of the assessee company towards share capital and share premium. Therefore, no addition is warranted on this issue. Hence, appellant gets relief from this angle also. 4. In the result, the ground no.1 is allowed. 5. Ground No.2 pertains to addition of Rs.1,16,10,000/- on account of violation of section 78(2) of the Companies Act, 1956. This is discussed at para d at page 49 of the assessment order. The AO has observed that assessee used the money received on premium even on the date of receipt itself and has violated provisions of section 78(2) of the Companies Act, 1956. This itself, even without regard to provisions of section 68 of the Act, makes the amount of premium taxable in the hands of the assessee company. For this, reliance was placed on the decision of Hon’ble Supreme Court in case of Bharat Fire & General Insurance Co. (supra). The CIT(A) has not specifically dealt with this issue in the appellate order and deleted the addition by stating that ground no.2 is already covered in the total addition of Rs.1,43,10,000/-. Since we have deleted addition of share capital and share premium, it would be proper to discuss and decide as to whether separate and independent 15 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. addition of the share premium of Rs.1,16,10,000/- could be made for violation of provisions of section 78(2) of the Companies Act, 1956. 5.1 The Ld. AR has submitted that the decision of Hon’ble Supreme Court in case of Bharat Fire & General Insurance Ltd. vs. CIT (supra) is not applicable to the facts of the present case. He has, on the other hand, relied on the decision of Hon’ble Bombay High Court in case of Shendra Advisory Services Pvt. Ltd. (supra) and requested to delete the addition. 5.2 On the other hand, Ld. Sr. DR supported the order of the lower authorities. 5.3 We have heard rival submissions of both the parties and perused the records. We have also carefully considered the decisions relied upon by both sides. We find that the Hon’ble Bombay High Court in a recent decision dated 09.02.2024 in case of Shendra Advisory Services Pvt. Ltd. (supra) has considered similar issue and decided the issue in favour of assessee. While deciding the issue, it has also considered the decision of Hon’ble Supreme Court in case of Bharat Fire & General Insurance Ltd. (supra) and held as under: “17. The reliance by ITAT on Bharat Fire & General Insurance Ltd. vs. Commissioner of Income Tax is also misplaced in as much as that was a case where the company had declared a dividend out of the capital reserve and the Court was considering how that amount has to be dealt with after coming into force of the Companies Act, 1956.” 5.4 In case of the assessee company, no dividend was declared and hence respectfully following the above decision, it is held that the decision relied 16 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. upon by the AO is not applicable to the facts of the present case. The Hon’ble Bombay High Court further stated that since the Income-tax Act does not stipulate that non-compliance of any provision of other Act would result in turning a capital receipt into revenue receipt, even assuming for sake of argument that the appellant had breached the provisions of Section 78(2) of the Companies Act, 1956, it would not turn the share premium amount received into a revenue receipt. If the assessee violated provisions of Companies Act, 1956, it would be penalized by the provisions of that Act and it would never turn a capital receipt into revenue receipt or vice versa. Respectfully following the ratio of the above case, we find no merit in the addition of Rs.1,16,10,000/- made by the AO. 5.5 In the result, ground no.2 is allowed. 6 Ground No.3 pertains to addition of Rs.1,43,100/- u/s 69C of the Act. Since the assessee had taken accommodation entries of Rs.1,43,10,000/-, AO has added 1% of the said sum as unexplained commission income u/s 69C of the Act, based on statement of Shri Manoharlal Nangalia, as reproduced in para 3 at page 50 of the assessment order. The CIT(A) confirmed the addition because nobody works free from anybody and the entry provider would be received 1% of the entry which is unexplained expenditure u/s 69C of the Act. 6.1 The Ld. AR submitted that the investment by M/s Shambhu Management Consultancy Pvt. Ltd. is a genuine transaction and no commission has been paid to any entry provider. 17 ITA No.811/SRT/2023/AY.2013-14 Rachit Creations Pvt. Ltd. 6.2 On the other hand, Ld. Sr. DR supported the orders of lower authorities. 6.3 We have heard both the parties and perused the record. Since the quantum addition of Rs.1,43,10,000/- has been deleted, the commission of Rs.1,43,100/- being consequential in nature, does not require to be added. The ITAT in case of Rachit Industries Pvt. Ltd. (supra) has deleted similar addition by treating it as consequential. We, therefore, set aside the order of CIT(A) and direct the AO to delete the above addition. Accordingly, ground no.3 is allowed. 6.4 In the result, ground no.3 is allowed. 7. Ground Nos. 4 & 5 are general in nature and do not require adjudication. 8. In the combined result, appeal of the assessee is allowed. Order is pronounced on 08/11/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER सूरत /Surat Ǒदनांक/ Date: 08/11/2024 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Senior Private Secretary, ITAT, Surat "
Other Referred Cases
Puspa Uttamchand Mehta vs. ITO, NDR Promoters Pvt. Ltd. vs. PCIT, R. L. Traders vs. ITO, Shendra Advisary Services Private Limited vs. DCIT, PCIT vs. Heritage Beverages Pvt. Ltd., PCIT vs. Esspal International Pvt. Ltd., Earthmetal Electrical Pvt. Ltd. vs. CIT, Earthmetal Electrical Pvt. Ltd. vs. ITO, CIT vs. Lovely Exports Pvt. Ltd., CIT vs. Steller Investment, CIT vs. Himatsu Bimet Ltd., Hindustan Inks & Resins Ltd. vs. DCIT, M/s Rachit Industries Pvt. Ltd. vs. ITO, PCIT vs. Swati Bajaj, CIT vs. Navodaya Castles (P.) Ltd., Navodaya Castles (P.) Ltd. vs. CIT, Hemil Subhasbhai Shah vs. ITO, Suman Poddar vs. ITO, PCIT vs. NRA Iron & Steel (P.) Ltd., NRA Iron & Steel (P.) Ltd. vs. PCIT
Laws Referred To
Income-tax Act, 1961, Companies Act, 1956
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