Agson Global Pvt. Ltd Vs ACIT (ITAT Delhi)
Conclusion: Since assessee had sufficient documentary evidences before AO to prove that money routed from assessee itself which came back to assessee in the form of share capital/premium and AO neither made any further enquiry on the documentary evidences filed by assessee nor verify the trail of the source of funds received by assessee through various entities thus, assessee had been able to prove that it had received genuine amounts which was routed through various companies. Thus, there was no justification to make any addition under section 68. Also, there was no justification to make the addition under section 69C regarding bogus purchases as AO could not disallow purchases from a party as bogus while treating sales to same party as genuine.
Held: In the instant case, Ao held that amount received by assessee-company in form of share capital/premium represented the amounts given to various parties/entities in the form of loans/bogus sales/purchases and it had nothing but assessee company’s own money which was routed back to assessee’s own money routed back to assessee company in the form of share capital/premium. AO therefore, noted that the amount that assessee had resorted to circuitous and sham transaction with these entities, therefore, addition of the above amount was made as unexplained credit under section 68. It was held assessee had sufficient documentary evidences before AO to prove that money routed from assessee itself which came back to assessee in the form of share capital/premium, therefore, assessee proved identity of the Investors, their creditworthiness and genuineness of the transaction in the matter. Photocopies of blank share transfer forms, blank signed receipts etc necessary for transfer of shares found with assessee were not admissible as evidence u/s 61 of Evidence Act and not incriminating in nature. AO however neither make any further enquiry on the documentary evidences filed by assessee nor verify the trail of the source of funds received by assessee through various entities. AO thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Companies and assessee company despite the fact that in the deviation report AO expressed doubts in making addition into the matter. It might also be noted here that no cash had been reported to have been deposited in the accounts of assessee, the Investor Companies and other related parties. Considering the totality of the facts and circumstances of the case and material on record, assessee had been able to prove that it had received genuine amounts which was routed through various companies. Therefore, there was no justification to make any addition under section 68. Further, there was no evidence on record that assessee paid any amount on account of commission for arranging any transaction because it was a genuine transaction between the parties. Therefore, there was no justification to make the addition under section 69C. Also, AO had incorrectly disallowed 25% of the purchases from the alleged bogus parties without finding any evidence and ignoring the sales paid by them to assessee. Further, CIT (A) applied the provisions of section 145 (3) by rejecting the books of accounts of assessee partially, without even looking at the books of accounts was also incorrect. Therefore, addition made by AO on account of bogus purchases deserved to be deleted for concluded assessment as well as pending assessments.
FULL TEXT OF THE ITAT JUDGEMENT
1. These are the 12 cross appeals filed by the assessee and the learned Assessing Officer involving similar issue in case of one assessee for all 6-assessment years. Both the parties argued them together raising similar arguments on these issues for concluded assessment and abated assessment. Therefore, these all appeals are disposed of by this common order.
2. The parties agreed that AY 2012-13 is a lead Assessment Year and facts relating thereto were adverted by them. It was stated that identical additions were made in the hands of the assessee company for AY 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18. In case of AY 2017-18 there is also a separate addition other then the identical addition as mentioned in Ay 2012-13 , which would be dealt with by both the parties independent and separate manner as the facts and circumstances leading to that additions were different. For ascertaining the status of each of the assessment, it is important to note that on 21/3/2017 there was a search on this group including the assessee company.
3. Therefore, we cull out brief facts of the case which shows that assessee is a company [Appellant] who originally filed its return of income u/s 139 (1) of The Income Tax Act, 1961 (hereinafter referred to as The Act) on 31/10/2013 declaring income of INR 60285750/–. Assessment u/s 143 (3) of the act was made on 24/3/2015 at the assessed income of INR 245285750/-, wherein an addition of INR 185,000,000 was made because of unexplained share capital and share premium.
4. On appeal before the learned CIT – A, per order dated 31/3/2016, the above addition was deleted. Against this, ld AO did not prefer further appeal. So, assessment for assessment year 2012 – 13 was concluded.
5. Status of other assessment years is as under:-
a) AY 2013-14 assessment u/s 143 (3) is completed as per order dated 31/3/2016 wherein the returned income of the assessee of INR 7 2289816/– was accepted.
b) AY 2014 – 15, assessment u/s 143 (3) of the income tax act was passed on 28/12/2016 accepting the returned income of the assessee at INR 1 31641113/–.
c) For assessment year 2015 – 16 assessee filed its return of income on 30/3/2017 declaring income of INR 1 58775950/– which is pending on the date of search on 21/3/2017.
d) For assessment year 2016 – 17 assessee filed its return of income on 29/12/2017 declaring income of INR 3 55009894/–, which was pending on the date of search on 21/3/2017.
e) For assessment year 2017 – 18 the return of income was filed by the assessee on 29/12/2017 declaring an income of INR 6 81855980/–
which was pending for assessment as on the date of search on 21/3/2017.
6. A search and seizure operation was carried out on 21/3/2017. For AY 2012-13, Notice u/s 153A of the act was issued on 6/8/2018. Assessee filed return of income, which was originally filed, on 28/8/2018. AO noted that assessment year 2011 – 12 was already settled before the income tax settlement commission (ITSC) order dated 11/3/2016. The assessment u/s 153A was carried out and it was found that assessee has issued share capital at different premium from different assesses on different dates and therefore assessee was asked to prove identity and creditworthiness of these companies. The learned assessing officer found that these companies do not have much operation but have a robust balance sheet. The companies have paid heavy premium per share and there is no rational for paying such a high premium. In the subsequent years after investment in the assessee company, the operations in most of the companies have reduced further. These companies have common directors. The companies are operated by Kolkata based operator. Further, during the course of search blank sign share transfer forms, blank signed power of attorney and other documents necessary for transfer of shares were found and seized. These documents related to the companies from which the assessee is claimed to received share capital and share premium. Thus, the AO noted that the entire transaction is a sham transaction. Mr. Apresh Garg, MD of appellant, was confronted issue of share capital in his statement u/s 132 (4) of the act. In response to question number 22 in statement dated 22/3/2017, he stated that the amounts so received, as share capital is nothing but the assessee’s own money that was routed back to the assessee company in the form of share capital. He submitted that assessee has paid through cheque to the depositors, who in turn made deposit of the above sum as share capital with the assessee company. The learned AO further noted that books of all these entities are maintained at the office of the assessee company, however, those books of accounts were not found. During the course of assessment proceedings, assessee was specifically asked to file the details of share capital and premium along with supporting evidences. On 14/11/2018, Assessee furnished chart showing name, address, correspondence address, share capital, share premium, total amount received from shareholders, confirmation, bank statement, ITR, . On verification of bank of these parties it was evident that it is own funds of the assessee, which has been routed through these parties by cheques, have been reintroduced in books of accounts of assessee as share capital. The assessee further contested that issue of share capital has already been decided in the completed assessment u/s 143 (3) of the act on 24/3/2015, wherein the addition made by the learned assessing officer out of the total addition has been deleted by the learned CIT – A, No appeal has been preferred before higher forum. It was therefore stated that, in absence of any incriminating documents/evidences found during the course of search, in the concluded assessment for assessment year 2012-13, 13-14 and 1415, no addition could be made.
7. Further, assessee also submitted that all these cash credits have been duly verified during the original assessment proceedings, only addition was made to the extent of INR 185,000,000, which is deleted by the learned CIT Appeal, against which no appeal has been preferred before the higher forum, therefore, assessee has completely proved identity and creditworthiness of the depositors, source of the money invested in the assessee company, which is the assessee itself, genuineness of the transaction is also proved.
8. In view of this, no addition could have been made in the hands of the assessee, even in case of abated assessments.
9. The learned assessing officer rejected the contention of the assessee and held that most of the shareholders have meager returned income, investors to not have any substantial business activities, absence of substantial fixed assets, absence of strong financials, and absence of date in the documents found during the course of search such as blank share transfer forms etc. Shows that it is a sham transaction. Thus, the learned AO made an addition of INR 4 81987000/– as unaccounted income of the assessee which has been introduced into the books in the form of share capital and share premium. The AO further made an addition of INR 9639750/– being 2% of the amount of share capital as commission to obtain share capital. Thus, total addition of Rs 491626740/– was made.
10. The second addition was with respect to the sum of INR 149,200,000/-received during the year from M/s Mahalaxmi Traders, whose financials are obtained and it was found that it does not have financial worth to introduce the sum. The depositor was examined who denied the investment. Such addition was made u/s 68 of the act. In addition, of above, 2 percent on the above sum as commission was also added. Thus, total addition of INR 175814034/– was made.
11. During the course of search, Managing director of the assessee company, Mr. Apresh Garg, in his statement recorded u/s 132 (4) on 22/3/2017, has admitted that it resorted to bogus sale/purchase transactions. The learned AO noted that assessee has undertaken these bogus sale and purchase transaction with these entities to inflate its expenses and suppress taxable income. Such suppression of income has been brought back in the form of share capital. He further noted that assessee has purchased in shell almonds from one company at an average purchase price of 4414 KG whereas the sale price to the same entity was 04/04/2004 KG on average and thus the loss of Rs. one per KG. Thus, the AO noted that Assessee Company is involved in bogus sales and purchases. There was also a shortage of stock by nearly INR 450 crore is against the stock recorded in it is of accounts. Thus 25% of the total purchase price from these parties were added to the total income of the assessee amounting to INR 353,24,93,127/–.
12. Thus, the total income of the assessee was assessed at INR 1 610849810/–
against the returned income of INR 60285750/– per order dated 30/12/2018 passed u/s 153A read with section 143 (3) of the income tax act, 1961 passed by the assistant Commissioner of income tax, central circle – 28, New Delhi (the learned AO).
13. Assessee, aggrieved with the order of the learned assessing officer preferred an appeal before The Commissioner of Income Tax (Appeals) – 29, New Delhi. He passed an order dated 25/4/2019.
14. On the issue of absence of any incriminating material found during the course of search, thus, no addition can be made in case of concluded assessments, he confirmed the addition with respect to share capital holding that statement of the director of the company has been recorded based on the good and cogent material and such statement recorded constitutes incriminating material within the meaning of section 153A of the act. He mainly referred to the seizure of photocopies of few blank share transfer deeds relating to the part of the share capital issued to outsider as well as the statement recorded u/s 132 (4) of the managing director of the appellant company as incriminating material. Thus, he held that the decision of the learned assessing officer passed u/s 153A of the act is not in conflict with the judgment of the honourable Delhi High Court including that of Kabul Chawla and others. He further confirmed the addition with respect to the share capital u/s 68 of the act. He also confirmed the addition because of commission paid allegedly for the above share capital.
15. With respect to the addition because of bogus purchases, he directed the learned assessing officer to submit a remand report giving the periodical gross profit ratio of the assessee as well as the cash deposit in the bank accounts. Based on the gross profit ratio, he held that the appellant had sale/purchase of the similar quantity but instead of showing transactions with the real entities, the transactions were shown in the name of the species entities created by the appellant itself, which were not real but artificial to suppress the profit. He further noted that the entities are also showing the purchases and the sales to and from the appellant of such purchases and sales, which are bogus. Therefore, he noted that the assessing officer was not justified in disallowing 25% of the purchases since it is not a case where only purchases are in doubt and assessee has recorded fictitious sales and purchases to cover up the profits of actual sale and purchases. Therefore he held that in such a situation, in the interest of natural justice, it would be reasonable that the trading results to the extent of sale and purchase from the fictitious entities are rejected u/s 145 (3) of the act and the gross profit on the same is estimated. Accordingly gross profit shown by the assessee from its books for different years/periods was recorded and for assessment year 2012 – 13 where the gross profit shown by the assessee was 16.20% from the other parties, he applied that rate on the sales with the alleged bogus parties and restricted the addition to the extent of INR 54,43,23,729/–.
16. Therefore, the learned AO as well as assessee both are aggrieved with the order of the learned CIT – A, are in appeal before us.
17. Similarly for AY 20-13-14 to 2017-18 following addition were made by the ld AO in assessment u/s 153A rws 143(3)of the Act for all these years:-
18. On appeal before the ld CIT (A) by the assessee , addition u/s 68 on account of share capital were confirmed and addition on account of bogus purchases was restricted to the extent of the appropriate profit rate on such purchases as per finding in AY 2012-13
