DCIT Vs Leena Power Tech Engineers Pvt Ltd (ITAT Mumbai)
1. By way of this appeal, the Assessing Officer has challenged correctness of the order dated 29th November 2019, passed by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), for the assessment year 2011-12.
2. Grievance of the appellant, as set out in the memorandum of appeal, is as follows:
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing the addition of share application money received during the year under consideration, amounting to Rs 8,13,29,600 under section 68 of the Act, as per grounds contained in the assessment order, or otherwise”.
Facts of the case:
3. Briefly stated, the relevant material facts are like this. The assessee before us is a private limited company stated to be engaged in the business as ‘investment company’ in column 10, page 1, of the impugned assessment order. Its assessment under section 143(3) was completed on 27th February 2014 at Rs 4,64,80,490. On 28th March 2018, however, the assessment was reopened on the basis of certain information flowing in from the investigation wing. The information so received indicated that the assessee has received monies, in the form of share application money, from an entity by the name of Rohini Vyapar Pvt Ltd but that money, though subjected to routing through several layers, ultimately has its source in of huge cash deposits in one of the branches of ICICI Bank. It was found that high value cash deposits, just below Rs 10,00,000, were regularly deposited in 19 different bank accounts maintained with ICICI Bank. This is what was referred to as ‘Layer 1’ accounts, and the amount so deposited in cash, in ICIC Bank alone, aggregated to Rs 241.50 crores. There were certain addition bank accounts also where cash was deposited regularly, and those amounts also ultimately found their way to these accounts. These accounts were closed within a very short span of time after making high value cash transactions, and the amounts therein, were transferred to other bank accounts through RTGS/TRF to the accounts of Maxworth Vinimay Pvt Ltd (Karnataka Bank) , Zedco Corporation, Jagdamba Enterprises and Janki Trading Co (Central Bank of India) Srijan Vyapaar Pvt Ltd and Scope Vyapar Pvt Ltd (Axis Bank), Mani Shankar Tradecom Ltd (Union Bank of India), and Scope Vyapar Pvt Ltd (ICICI Bank). It was then found that the amounts deposited in Central Bank of India, in three different accounts named above, were then transferred to, in Central Bank of India itself, nine other entities (namely Smart Investments, Dreamline Investments, Rupa Stock Dealers, Arihant Stocks, Goodluck Holdings, Bahirav Securities, Saha Traders, BMG Securities, and Topline Securities). These accounts are treated as Layer A1 accounts. On a perusal of bank statements of Layer A1 companies it was found that part of the monies received were rotated in the Layer A1 accounts itself, and rest amounts were transferred to ten other bank accounts, all the accounts once again in the Central Bank of India itself, in the name of 10 different entities- namely Campus Impex Pvt Ltd, Zed Dealcomm Pvt Ltd, Manorath Commercial Pvt Ltd, Force Agency Pvt Ltd, Goodluck Holdings, Rupa Stock, Unicorn Management Pvt Ltd, Nexcare Agency, Amco Agents and Advent Dealcom Pvt Ltd-collectively referred to as Layer A2 accounts). The aggregate of the amounts in these 10 entities came to Rs 326.86 crores. The funds so credited into Layer A2 accounts were transferred to the bank accounts of beneficiaries of this money laundering racket, or to some other bank accounts (collectively referred to as Layer A3 or B3 accounts). Apart from transfers to four beneficiaries, these transfers included Anudeep Consultants Pvt Ltd, Trincass Vyapar Pvt Ltd, Rohini Vyapaar Pvt Ltd, Punsini Agents Pvt Ltd, Manorath Commercial Pvt Ltd, Ramnik Commercial Pvt Ltd, and Ashok Kumar Kayan. When bank accounts of these Layer A3/B3 companies were examined further, it was found that these amounts were finally credited to the accounts of Layer A 4 or B4 companies- all of which were ultimate beneficiaries, and one of these beneficiary, at item no. 8 of that list, is the assessee before us. What was thus deposited in cash in an ICICI Bank branch, or found its way through the said ICICI Bank branch, ultimately found its way, though through at least four layering covering its tracks, to the assessee company. It was in this backdrop that the assessment was reopened and the assessee was asked to “prove identity, capacity and genuineness (of its share application money) even if confirmations are filed and the persons are assessed to tax”. The Assessing Officer also issued notice under section 133(6) to Rohini Vyapar Pvt Ltd. The assessee was then asked as to why the amounts so received from Rohini Vyapar Pvt Ltd not be brought to tax, in his hands, under section 68 of the Act. In reply, the assessee made elaborate submissions, and submitted, inter alia, as follows:
1. As per the show cause notice dated 14.12.2018, your goodselves had stated share application money from Rohini Vyapar Private Limited to the tune of Rs. 3,78,29,600/-by issuing 378296 share at Rs. 100 per share (Pace Value Rs. 10 and Rs. 90 as Securities Premium) During the search action conducted at the investigation wing Kolkata it is found that several beneficiaries brought back unaccounted money in their books of accounts through bank account of inexistence entity and Shell Company. Wherein is found that the company has received alleged funds amount of Rs7,90,03,000/ through shell company. After analyzed the data of shell companies it has been revealed that large Value of cash has been introduced in the books of beneficiaries account as share application money or unsecured loan.
2. First of all we would like to inform your goodselves that assessee is engaged in the business of electrification projects, undertaking development of power supply infrastructure with various government entities. The assessee has filed its return of income for AY 2011-12 on 29/09/2011 declaring total income of Rs. 4,64, 18,810/-. A questionnaire dated 30/09/ 2O13 was issued the assessee by the AO seeking details and documents as a part of the assessment proceedings. One such detail sought was with respect to
4) Please furnish details of Share premium received during the year a Rs. 7.58 Crores, please name and address of subscribers, premium charged and justify the premium charged vis-a-vis the book value of the company.
5) Please furnish details of increase in paid up capital, their sources and subscribers source may also be furnished with complete evidence.
The assessee replied to the questionnaire on 20/11/2013 and submitted the details of subscribers of the share capital and share premium alongwith bank statement. Further on 28/01/2014 the assessee submitted details of justification of share premium, share valuation by cash flow method, ledger confirmation from subscribers.
Further notice u/s 133(6) was issued on 16/12/2013, to the subscribers of share capital and share premium at their respective registered addresses. The notices were duly served and reply was duly submitted on 07/01/2014 alongwith details transaction with Assessee Company, ledger account, Return of income, Audited Balance sheet, designation of their assessing officers.
The assessment order however did not contain any discussion in respect of the share application money. It thus appeared that the AO accepted the information furnished by the assessee and raised no further doubt of queries in respect of the same.
3. Your goodselves in the reasons for reopening has stated that information has been received from credible sources that “Large value cash was deposited into the several bank accounts maintained with ICICI bank followed by immediate transfer to other bank account. Your goodselves has provided the details of cash deposited into various layers i.e. Layer- 1 account, Layer – II Account, Layer A 1 account, Layer A2 account, Layer A3 account, Layer B3 account and Layer B4 account containing details of 66 entitles/ companies i.e Name of Company, Bank
Account No., Nane of bank, Cash Deposited and remarks. After providing the said details your goodselves has made general statement that all the intermediate companies are shell companies and concluded that money received by them is nothing but unexplained cash credit. Our good selves not demonstrated that how cash deposited by Layer-1 are related to the assessee company.
4. Further we would like to inform your goodselves that there was no failure on the part of the assessee to disclose fully and truly all material facts during the assessment proceedings. The assessee had candidly disclosed the name of all two companies, the share amount received from them and also the share premium amount received. The fact that the assessee was specifically served with a questionnaire seeking these details and that the same were submitted to the AO clearly points to the satisfaction of the AO during the course of assessment proceedings. The assessee did not merely Submitted details of said two companies but also submitted relevant documents including ledger confirmation. Further details were requisition by issuing notice u/s 133(6), which were duly complied with both the Subscriber companies are assessed to tax and hence, t was quiet easy for your goodselves to cross verify if the need was felt.
5. The order under section 143(3) of the act having been passed in the assessee’s case for the relevant AY and the notice under section 147 having been issued after the expiry of four years from the end the relevant AY, the first proviso to Section 147 is squarely attracted. The power under section 147 have to be exercised after a period of four years only if there was failure to disclose fully and truly all material facts and formation by the assessee. Your goodselves has merely related upon the information received from an investigation carried out by DDIT (Inv) Unit, Kolkata. The reasons to believe per se do not refer to any investigation report of DDIT (Inv) and even such a report existed, a copy thereof was not furnished to the assessee
6. The assessment proceedings, especially those under Section 143(3) of the Act, have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis is well settled that a mere conjecture or surmise is no sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment in this case, the reason failed to mention what facts or information report that transaction is not genuine, by itself, is insufficient to reopen the assessment, unless your goodselves had further information that these companies were in-genuine after making further inquiries into the matter. It is clear that your goodselves did not make any inquiry or investigation. No effort has been made establish the connection between the investigation. No effort has been made to establish the connection between the investigation report and assessee company. The crucial link between the information available with your goodselves and formation of believe is absent.
7 Your goodselves had issued notice u/s 133(6) to Rohini Vyapar Private Limited to verify the creditworthiness and genuineness of the Rs. 3,52,29,678/- out of total of Rs. 7,87,29,6781-However your goodselves are not even aware of the second subscribing company i.e. Manbhawan Commercial Private Limited, not mentioned it in ether in the reason for reopening nor in the show cause notice from whom RS. 435,00,000/ is received as share capital and share premium. In the show cause notice you have stated that your goodselves have analyze the data of shell companies, but even does not know from whom such money is received by the assessee company, which shows there is no credible material to have live linkage and directly making addition, which is not accordance with the provisions Income Tax Act.
8. Further we would like to inform your goodselves that notice u/s. 133(6) Was issued to Rohini Vyapar Private Limited to verify the creditworthiness and genuineness is received by it on 18/ 12/2018 and reply n response to the same have been submitted to your goodselves on 19/12/2018. The copy of the same is enclosed herewith vide “ANNEXURE 1”.
9. ROHINI VYAPAR PRIVATE LIMITED
9.1. The subscriber company Rohini Vyapar Private Limited is a private Limited company having business of trading in shares. The pan card of the company is provided which proves the identity of the company. The company during the year under consideration was duly registered with ROC Kolkata having CIN-U51109WB2006PTC111076. Further the ret worth of the company as on 31.03.2010 was Rs. 10,00,18,763/- and as on 31.03.2011 was Rs 10,00,04,092/ which is sufficient to subscribe the shares of assessee company o RS. 3,52,29,678/-. Further the source of the said share application money was from sale of investments held by the company which proves the creditworthiness of the Company.
9.2. The entire Share application money received of RS. 3,52,29,678/- from Rohini Vyapar Private Limited has being received through banking channel and no material was found during the course of assessment proceedings to prove that money came from the coffers of the appellant company. The financial statements of RVPL shows that Share have been subscribed of Assessee Company, which proves the genuineness of the transaction. There was no basis to make any suspicion against the assessee company.
9.3. Further we would like to inform your goodselves that in the case of Rohini Vyapar Private Limited, scrutiny assessment proceedings u/s 143(3) for AY 2007-08 were also carried out by the income tax Officer – Ward 4(1), Kolkata and order was passed 143(3), vide its order dated 05/03/2009, which proves the identity, creditworthiness and genuineness of the company. Also Scrutiny assessment u/s 143(3) for AY 2014-15 and AY 2015-10 were also carried out by Income Tax officer -Ward 15(3)(1) Mumbai vide its order dated 28/12/2016 and 20/12/2017 which also prove the genuineness of the company. The copy of assessment order of AY 2007-08 is enclosed herewith vide ANNEXURE 2 for your kind reference. Further copy of assessment order for AY 201415 and AY 2015-16 is already submitted to your goodselves vide letter dated 17/ 12/2018.
10. MANBHAWAN COMMERCIAL PRIVATE LIMITED:
10.1. The subscriber company Manbhawan Commercial Private Limited is a private Limited company having business of trading in shares. The pan card of the company is provided which proves the identity of the company. The Company during the year under consideration was duly registered with ROC Kolkata having CIN-U51109WB2006PTC111078. Further the net worth of the company as on 31.03.2010 was Rs. 5,20,26,310/- and as on 31.03.2011 was Rs. 5,19,95,522/- which is sufficient to subscribe the shares of assessee company of RS 4,35,00,000/- Further the source of the said share application money was from sale of investments held by the company which proves the Creditworthiness of the Company,
10.2. The entire Share application money received of Rs. 4,35,00,000/- from Manbhawan commercial Private Limited has being received through banking channel and no maternal was found during the course of assessments proceedings to prove that money came from the coffers of the MCPL appellant company. The financial statements of RVPE shows that Share have been subscribed of assessee company, which proves that genuineness of the transaction. There was no basis to make any suspicion against the assessee company
10.3. Further we would like to inform your goodselves that in the case of Manbhawan Commercial Private Limited, scrutiny assessment proceedings u/s 143(3) for AY 2007-08 were also carried out by the Income tax Officer-Ward 4(2), Kolkata and order was passed 143(3) vide its order dated 26/03/2009, which proves the identity, creditworthiness and genuineness of the company.
11. Further we would like to inform your goodselves that earlier n our objection against reopening and row again we are requesting to provide all the incriminating documents /information on which your goodselves shave placed reliance, provide the statements of the persons recorded by the DDIT-Kolkata and also provide the opportunity to Cross verification and physical hearing of the persons which has alleged that the cash deposited by Layer-I companies belong to the assessee company.
12. Further the appellant company place reliance on the following Judgments which are similar to the case of the appellant as follows:-
12.1. The Honorable Delhi High Court in the case of Sabh Infrastructure Ltd Vs. ACIT W.P. (C) No. 1357/2016 order dated 25/09/2017 has provided the detailed guidelines for reopening of assessment u/s. 147 and the department is required to follow the same, however the same is done in our case. The relevant extract of the order is reproduced below:
13. Before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the Revenue under Sections 147 and 148 of the Act and despite numerous Judgments on this issue, the same errors are repeated by the concerned Revenue authorities. In this background, the Court would like the revenue to adhere to the following guidelines in matters of reopening of assessments:
(i) while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the assessce. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided;
(ii) the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof;
(iii) where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons”
4. None of these submissions, however, impressed the Assessing Officer. It was noted that the contention of the assessee to the effect that everything was examined in the original scrutiny assessment proceedings and details of investigations conducted by the investigation wing are not furnished to the assessee. It was noted that the money was routed through a large number of intermediate shell companies but given the limited time and resources available to the Assessing Officer for completing these reassessment proceedings, it is not possible to prove the same but then “the assessee has failed to disclose all true and fair transaction before the AO and it was his primary duty to disclose all transactions truly and fairly”. The Assessing Officer further observed that “the assessee has not made true and full disclosure before the AO at the time of original assessment as the assessee itself states that it has disclosed only the primary facts”. The Assessing Officer further observed that “Hon’ble Bombay High Court, dismissing the writ petition in the case of Om Vinyl Pvt Ltd dated 24.12.2014 has held that ‘A disclosure, even if full, may not be true, i.e. all information may be furnished as are necessary for assessment, yet if this disclosure is not true, it would not satisfy the test of true and full disclosure”. As regards lack of proper investigation for 66 companies, as pointed out by the assessee, the Assessing Officer noted that “the undersigned has only nine months, after the case is reopened, to verify all details and the assessee has not cooperated fully in assessment also”. It was then pointed out that the assessee has submitted his objections to reopening only after the show cause notice was noticed. Nothing, therefore, according to the Assessing Officer, turned on the layering of money not having been proved to the hilt. It was then submitted that just because money is received through banks does not prove its legitimacy. A reference was then made to the structuring of layering operation, as set out in the reasons for reopening the assessment, and judicial precedents in support of the proposition that if identity and creditworthiness of the subscriber companies and genuineness of transactions is not acceptable, the addition under section 68 in respect of share subscriptions can be upheld. A reference was made to the decisions in the cases of CIT Vs Independent Media Pvt Ltd [(2012) 210 Taxman 14], Suman Gupta Vs ITO [(2012) 25 txamnn.com 220 (Agra)], CIT Vs Orissa Corporation Pvt Ltd [(1986) 159 ITR 78 (SC)], CIT Vs Precision Finance Pvt Ltd [(1994) 208 ITR 465 (Cal)], Nemi Chand Kothari Vs CIT [(2003) 264 ITR 254 (Gau)], ITO Vs Diza Holdings Pvt Ltd [ (2002) 255 ITR 573 (Ker)]. A reference was then made to a decision of the Tribunal in the case of Pawankumar M Sanghvi Vs ITO [(2017) 81 taxmann.com 308 (Ahd)] and Collector of Customs Vs D Bhoormull (AIR 1974 SC 859). The Assessing Officer thus proceeded to treat the entire share capital subscription from Rohini Vyapar Pvt Ltd and Manbhawan Commercial Pvt Ltd, aggregating to Rs 8,13,29,600, as unexplained credit under section 68. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The stand of the Assessing Officer was reversed by the learned CIT(A), and, while doing so, learned CIT(A) observed as follows:
5.3 GROUND NO. 2: Addition of unexplained cash credit u/s.68 Rs.8,13,29,600/-.
5.3.1 The appellant has received share capital and share premium from M/S. Rohini Vyapar Pvt. Ltd. and Manbhawan Commercial Pvt. Ltd.
5.2.2 The appellant is engaged in the business of electrification projects, undertaking and development of power supply infrastructure with various government entities. During the year under consideration, the appellant received share application money from Rohini Vyapar Pvt. Ltd. And Manbhawan Commercial Pvt. Ltd. amounting to Rs. 8,13,29,600/-. In the original assessment proceedings u/s.143(3), AO proceeded to make enquiries in order to verify the genuineness of the said share application money received during the year.
5.3.3 Documentary evidences were furnished by the appellant that the identity of the share subscribers are proved as seen from copy of ITR-V, audited financial statements, Pan Card. It is also seen that in the case of both the subscribers viz, Rohini Vyapar Private Limited and Manbhawan Commercial Pvt. Ltd. the assessment has been made u/s 143(3) for assessment year 2007-08. Further in the case of Ronini Vyapar Pvt. Ltd. scrutiny assessment u/s 143(3) has been made for assessment year 2014-15 and AY 2015-16 and no disallowance or addition has been made on account of equity share capital in the assessment orders. The balance sheet for the year ended on 31.03.2012 shows that the following share subscribing companies had sufficient funds as detailed below:
