ITO-6(1)-3, MUMBAI v. M/S. AMAR TUBES P LTD., MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI. BEFORE SHRI R.V. EASWAR SENIOR VICE-PRESIDENT AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER. I.T.A. NO. 6 591/MUM/2008. ASSESSMENT YEAR : 2005-06. THE INCOME-TAX OFFICER M/ S AMAR TUBES P. LTD. 6(1)-3 MUMBAI. VS. 515 NAV VYAPAR BHAVAN PAN 49 P.D. MELLOW ROAD MASJID BUNDER (E) MUMBAI 400009. PAN : AAACA6007G APPELLANT RESPONDENT APPELLANT BY : SHRI DAYA SHANKER. RESPONDENT BY : SHRI DHARMESH SHAH. O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-VI MUMBAI DATED 27-08-20 08 FOR ASSESSMENT YEAR 2005-06. 2. FACTS IN BRIEF : THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF ERW PIPES AND TUBES. THE ADDITION THAT ARISES FOR OUR C ONSIDERATION IS U/S 68 ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO PRO VE THE GENUINENESS OF SHARE CAPITAL MONEY RECEIVED BY IT. THE FACTS ARE B ROUGHT OUT AT PARA 2.1 OF THE CIT (APPEALS) ORDER WHICH ARE EXTRACTED BEL OW FOR READY REFERENCE : 2 2.1 IN THE ASSESSMENT ORDER THE A.O. HAS NOTED TH AT THE ASSESSEE HAS INTRODUCED SHARE CAPITAL IN THE NAME OF VARIOUS PARTIES TO THE EXTENT OF RS.6.01 CRORES. THE A.O. VERIFIED THE INV ESTMENT BY ISSUE OF NOTICE U/S 1.33(6). LETTERS TO THE FOLLOWING PAR TIES WERE RETURNED BACK :- (1) DWARKESH FINANCE LIMITED. (2) JAY KAY DEE INDUSTRIES. (3) TAPAS PHARMA CHEM LTD. (4) EMARLD SYSTEMS ENGG. LTD. HOWEVER THE ASSESSEE FURNISHED CONFIRMATION FROM T HE ABOVE MENTIONED PARTIES. HOWEVER THE A.O. NOTED THAT THE INVESTMENTS ARE NOT REFLECTED IN THEIR BALANCE SHEET. HE FURTHE R NOTED THAT SOME OF THE PARTIES HAVE NOT THEIR BALANCE SHEET. HE FUR THER NOTED THAT SOME OF THE PARTIES HAVE NOT REFLECTED THE INVESTME NT IN THEIR BALANCE SHEET AND FROM COPIES OF BANK STATEMENT NO BRANCH ADDRESS WAS GIVEN. HE REQUESTED THE ASSESSEE COMPANY TO FUR NISH THE ADDRESSES OF THE BANKS AND XEROX COPIES OF THE CHEQ UES RECEIVED BY THE ASSESSEE FROM THE SHARE APPLICANT. HE ALSO V ERIFIED THE INVESTMENT FROM THE ASSESSING OFFICERS WITH WHOM TH ESE PARTIES ARE ASSESSED TO. SINCE NO CONFIRMATION WAS RECEIVED FRO M THE RESPECTIVE A.O. HE HAS CONSIDERED THESE INVESTMENT S AS NOT GENUINE AND ADDED A SUM OF RS.2 62 00 000/- U/S. 68 TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED CASH CREDIT A PPEARING IN FOLLOWING NAMES : S.NO. PARTY NAME TO WHOM SHARES WERE ALLOTTED NO. OF SHARES ALLOTTED AMOUNT IN (RS.) 1. INVESCO FISCAL SERVICES 15 000 15 00 000 2. AXON INFOTECH LTD. 15 000 15 00 000 3. DWARKESH FINANCE LTD. 35 000 35 00 000 4. BARAKHA INDUSTRIES LTD. 12 000 12 00 000 5. SPRING FIELD INTERNATIONAL 15 000 15 00 000 6. UTSAV PHARMACEUTICALS LTD. 45 000 45 00 000 7. CREATIVE WORLD TELEFILMS LTD. 25 000 25 00 000 8. JAY KAY DEE INDUSTRIES 25 000 25 00 000 9. AVANI BIOTECH LTD. 25 000 25 00 000 10. EMRAID SYSTEMS ENGG. LTD. 25 000 25 00 000 3 11. TAPAS PHARMACHEM LTD. 25 000 25 00 000 TOTAL 2 62 000 2 62 00 000 3. THE FIRST APPELLATE AUTHORITY CONSIDERED THE SU BMISSIONS OF THE ASSESSEE THAT IT FURNISHED CONFIRMATION FROM AL L THE INVESTORS INCLUDING PERMANENT ACCOUNT NOS. AS WELL AS THE COPY OF THE A CKNOWLEDGEMENT OF RETURN OF INCOME PHOTO COPY OF APPLICATION FORM IN WHICH ALL THE DETAILS REGARDING BANK BRANCH CHEQUE NO. DRAFT NO. ETC. ARE PROVIDED. HE FOUND THAT THE AO HAS NOT DISPUTED THE IDENTITY OF THE SH ARE HOLDERS. HE DELETED THE ADDITION. AGGRIEVED THE REVENUE IS IN APPEAL O N THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2.63 CRORES MADE BY THE A.O. U/S 68 OF THE I.T. ACT EVEN THOUGH THE ASSESSEE COULD NOT DIS CHARGE THE ONUS WHICH LAY UPON IT REGARDING PROVING THE IDENTITY AN D CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS OF TRANSACTIONS. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT IN RESPECT OF SEVERAL CREDITORS LETTERS SENT BY THE A.O. AT THE ADDRESSE D FURNISHED BY THE ASSESSEE WERE RETURNED UNSERVED BY THE POSTAL AUTHO RITIES WITH THE REMARKS LEFT AND THE ASSESSEE COULD NOT FURNISH N EW ADDRESSES OF SUCH CREDITORS. 3. THE LD. CIT(A) HAS ERRED IN ADMITTING ADDITIONAL EV IDENCE IN VIOLATION OF RULE 46A OF THE I.T. RULES BY ACCEPTIN G THE COPIES OF SHARE APPLICATION FORMS WHICH WERE NOT FURNISHED BE FORE THE A.O. DURING ASSESSMENT PROCEEDINGS. 4. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. THE LEARNED DR. MR. DAYA SHANKER SUBMITTED THAT THE CIT(APPEALS) HAS ADMITTED COPIES OF SHARE APPLICATI ON FORMS AS ADDITIONAL EVIDENCE AND HE OBJECTED TO THE SAME. HE FILED SUBMISSIONS STATING THAT THE AO HAS MADE EXHAUSTIVE EFFORTS BY WAY OF CALLING FOR INFORMATION FROM PARTIES FROM WHOM THE ASSESSEE CLA IMED TO HAVE 4 RECEIVED SHARE APPLICATION MONEY AND ALSO BY WAY OF MAKING ENQUIRIES U/S 133(6) OF THE ACT AND LATER CAME TO A CONCLUSIO N THAT THE INTRODUCTION OF SHARE CAPITAL BY VARIOUS PARTIES IS NOT GENUINE AND MADE AN ADDITION U/S 68. HE RELIED ON THE ORDER OF THE AO AND ALSO SUBMI TTED THAT THE CIT(APPEALS) SHOULD HAVE CALLED FOR THE REMAND REPO RT WHEN HE HAS ACCEPTED FRESH EVIDENCE IN THE FORM OF COPIES OF S HARE APPLICATION MONEY DURING THE APPELLATE PROCEEDINGS. 5. THE LEARNED COUNSEL FOR THE ASSESSEE MR. DHARME SH SHAH ON THE OTHER HAND FILED A PAPER BOOK RUNNING INTO 317 PAGES AND SUBMITTED THAT THE ASSESSEE HAD FILED EXTENSIVE DETAILS BEFOR E THE AO DISCLOSING THE IDENTITY OF THE INVESTORS IN SHARES GENUINENESS OF THE TRANSACTIONS AS WELL AS THE CAPACITY OF THE INVESTORS IN SHARES. HE SUBM ITTED THAT THE DETAILS SUCH AS PERMANENT ACCOUNT NOS. BANK STATEMENTS S HARE APPLICATION FORMS ALLOTMENT LETTERS BALANCE SHEET COPIES AS W ELL AS COPIES OF DETAILS OF RETURNS OF INCOME WERE FILED BY VARIOUS INVESTOR S AND DESPITE THESE EVIDENCES THE AO MADE AN ADDITION U/S 68. HE RELIED ON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS CONTENTION THAT ONCE TH E IDENTITY OF THE SHARE HOLDERS IS PROVED NO ADDITION CAN BE MADE U/S 68 I N THE CASE OF SHARE CAPITAL : 1. CIT VS. LOVELY EXPORT P. LTD. 216 CTR 195 (S.C.) 2. CIT VS.STELLAR INVESTMENT LTD. 192 ITR 287. (DEL.) 3. CIT VS. VALUE CAPITAL SERVICES P. LTD. 307 ITR 334 (DEL.) 6. RIVAL CONTENTIONS HEARD. 7. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND ON A PERUSAL OF THE PAPERS ON RECORDS AND THE ORDERS OF THE AUTHORITIES AS WELL AS THE CASE LAWS CITED WE HOLD AS FOLLOWS. 5 8. THE FIRST APPELLATE AUTHORITY AT PARA 2.3 PAGE 3 HELD AS FOLLOWS : 2.3 I HAVE DULY CONSIDERED THE SUBMISSION OF THE A.R. AND I FIND THAT THE AO HAS MADE ADDITION IN RESPECT OF INVESTMENT MADE BY THE RESPECTIVE PARTIES WITHOUT CONSIDERING THE C ONFIRMATIONS FILED BY THE ASSESSEE. THE A.R. WAS ABLE TO SHOW TH E GENUINENESS OF THE PARTIES IDENTITY OF THE PARTY IS PROVED BY FILING THE PHOTOCOPY OF THE APPLICATION FORM WHICH CONTAINS TH E DETAILS OF BANK BRANCH AND CHEQUE/DRAFT NUMBER THROUGH WHICH T HE PAYMENT HAS BEEN MADE TO THE APPELLANT COMPANY. AS SUCH IT CANNOT BE SAID THAT THE INVESTMENT ARE UNEXPLAINED U/S 68. IF THE A.O. WITH WHOM THESE PARTIES ARE ASSESSED TO HAVE NOT REPLIED THE N THE APPELLANT COMPANY SHOULD NOT BE PUNISHED. IF THE SHARE APPLIC ANTS HAVE NOT SHOWN THE INVESTMENT IN THEIR BALANCE SHEET THEN TH E ACTION SHOULD BE TAKEN AGAINST THE SHARE APPLICANT AND NOT AGAINS T THE APPELLANT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADD ITION MADE BY THE A.O. IS REQUIRED TO BE DELETED. THE A.O . IS DIRECTED TO DELETE THIS ADDITION. THIS GROUND OF APPEAL IS ALLO WED. 9. ALL THESE PARTIES EXCEPT TWO IDENTITIES ARE PUB LIC LIMITED COMPANIES. THEY ARE EXISTING INCOME-TAX ASSESSEES A ND THEIR PERMANENT ACCOUNT NOS. HAVE BEEN FURNISHED BY THE APPELLANT. THE LIST OF EVIDENCES FURNISHED IN ALL THE CASES ARE DISCLOSED IN THE CHA RT GIVEN BELOW : SR. NO. NAME OF THE PARTY AMOUNT EVIDENCES ON RECORD. 1 INVESCO FISCAL SERVICES LTD. 15 00 000 *LETTER DATED 27.12.2007 FILED BY INVESTOR. * BANK STATEMENT * SHARE APPLICATION FORMS * BOARD RESOLUTION * ALLOTMENT LETTER * BALANCE SHEET FOR A.Y.05-06. * RETURN OF INCOME FOR A.Y. 05-06. 6 2 AXON INFOTECH LTD. 50 00 000 * SHARE APPLICATION FORMS * BOARD RESOLUTION * ALLOTMENT LETTER * BALANCE SHEET FOR A.Y. 05-06. * RETURN OF INCOME FOR A.Y. 05-06 3 DWARKESH FINANCE LTD. 35 00 000 * SHARE APPLICATI ON FORMS * BOARD RESOLUTION * ALLOTMENT LETTER * CONFIRMATION LETTER. * BALANCE SHEET FOR A.Y. 05-06. * RETURN OF INCOME FOR A.Y. 05-06 4 BARKHA INDUSTRIES LTD. 12 00 000 * SHARE APPLICAT ION FORMS * BOARD RESOLUTION * ALLOTMENT LETTER * CONFIRMATION LETTER. * BALANCE SHEET FOR A.Y. 05-06. 5 SPRING FIELD INTERNATIONAL 15 00 000 * SHARE APPL ICATION FORMS * BOARD RESOLUTION * ALLOTMENT LETTER * CONFIRMATION LETTER. * BALANCE SHEET FOR A.Y. 05-06. 6. USTAV PHARMACEUTICAL LTD. 45 00 000 * SHARE APPL ICATION FORMS * CONFIRMATION LETTER * ALLOTMENT LETTER * BALANCE SHEET FOR A.Y. 05-06 * RETURN OF INCOME FOR A.Y. 05-06 * BANK STATEMENT. 7. CREATIVE WORLD TELEFILMS LTD. 25 00 000 * LETTER DATED 28.12.2007 FILED BY INVESTOR. * SHARE APPLICATION FORMS * CONFIRMATION LETTER * BALANCE SHEET FOR A.Y. 05-06 7 * RETURN OF INCOME FOR A.Y. 05-06 * BANK STATEMENT. 8 JAY KAY DEE INDUSTRIES LTD. 25 00 000 * LETTER DATED 28.12.2007 FILED BY INVESTOR * SHARE APPLICATION FORMS * CONFIRMATION LETTER * BALANCE SHEET FOR A.Y. 05-06 * RETURN OF INCOME FOR A.Y. 05-06 * BANK STATEMENT. 9. AVANI BIOTECK 25 00 000 * LETTER DATED 24.12.200 7 FILED BY INVESTOR * SHARE APPLICATION FORMS * CONFIRMATION LETTER * BALANCE SHEET FOR A.Y. 05-06 * RETURN OF INCOME FOR A.Y. 05-06 * BANK STATEMENT. 10. EMERAID SYSTEM ENGG. LTD. 25 00 000 * LETTER DATED 25.12.2007 FILED BY INVESTOR * SHARE APPLICATION FORMS * CONFIRMATION LETTER * BALANCE SHEET FOR A.Y. 05-06 * RETURN OF INCOME FOR A.Y. 05-06 * BANK STATEMENT. 11. TAPAS PHARMACEUTICAL LTD. 25 00 000 * LETTER DATED 28.12.2007 FILED BY INVESTOR * SHARE APPLICATION FORMS * CONFIRMATION LETTER * BALANCE SHEET FOR A.Y. 05-06 * RETURN OF INCOME FOR A.Y. 05-06 * BANK STATEMENT. THE AO HAS NOT DOUBTED THE IDENTITY OF THESE SHARE HOLDERS. 8 10. COMING TO THE CLAIM OF THE REVENUE THAT THE CI T(APPEALS) HAD ADMITTED ADDITIONAL EVIDENCE WE FIND FROM THE ORDER OF THE FIRST APPELLATE AUTHORITY THAT THERE IS NO SUCH ADMISSION OF ADDITIONAL EVIDENCE. THE FIRST APPELLATE AUTHORITY HAS RECORDED THAT COP Y OF THE APPLICATION FORM HAS BEEN HANDED OVER TO THE AO BY THE ASSESSEE . THUS THE QUESTION OF VIOLATION OF RULE 46A DOES NOT ARISE. 11. THE HONBLE SUPREME COURT IN THE CASE OF CIT V S. LOVELY EXPORT P. LTD. (SUPRA) HELD THAT IF THE SHARE APPL ICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHARE H OLDERS WHOSE NAMES ARE GIVEN TO THE AO THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE. IN THE CASE OF CIT VS. STELLAR INVESTMENT LTD. (SUPRA) THE HONBLE DELHI HIGH COURT HAS HELD THAT EVEN IF IT IS ASSUMED THAT SUBSCRIBERS TO THE INCREASED SHARE CAPITAL ARE NOT GENUINE UNDER NO CIRCUMSTANCES COULD THE A MOUNT OF SHARE CAPITAL BE REGARDED AS UNDISCLOSED INCOME OF THE COMPANY. R ESPECTFULLY FOLLOWING THESE DECISIONS AND APPLYING THE SAME TO THE FACTS OF THE CASE WE UPHOLD THE FINDINGS OF THE FIRST APPELLANT AND D ISMISS THIS APPEAL OF THE REVENUE. 12. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE-PRESIDENT. ACCOUNTANT MEMBER. MUMBAI DATED : 30 TH APRIL 2010. WAKODE 9 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.