Ancon Chemplast P. Ltd. Vs ITO (ITAT Delhi)
Conclusion: Merely because the some Directors did not appear in the case of assessee would not be a ground to have an adverse inference against the assessee, therefore, there was no justification to sustain the addition of Rs.45 lakhs under section 68 and addition of Rs.90,000/- under section 69C.
Held: AO had received information that search and seizure operation was conducted at various premises of Shri Shirish C. Shah who happened to be main persons engaged in providing bogus accommodation entries like long term capital gains, share capital, share premium and loan etc. Shri Shirish C. Shah directly and indirectly controlled more than 200 companies which include some of the public limited companies also. It was seen from the impounded material that assessee company had received Rs.45 lakhs in three transactions. AO noticed that in assessment year under appeal assessee had received Rs.45 lakhs as share capital/share premium from the Investor Companies, therefore, reasons recorded for reopening of the assessment under section 147/148. It was held that in the case of M/s. Bharat Securities (P) Ltd., the Indore Bench of the Tribunal had considered the fact that the Director of the Investor Company and others were examined in which they had confirmed the transaction with the assessees in that case. Therefore, merely because the same Directors did not appear in the case of assessee would not be a ground to have an adverse inference against the assessee. Considering the totality of the facts and circumstances of the case in the light of above decision, There was no justification to sustain the addition of Rs.45 lakhs under section 68 and addition of Rs.90,000/- under section 69C.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-1, New Delhi, Dated 18.03.2019, for the A.Y. 2010-2011, challenging the reopening of the assessment under section 147/148 of the I.T. Act, 1961, addition of Rs.45 lakhs under section 68 of the I.T. Act, 1961 being share capital received from M/s. Prraneta Industries Ltd., and addition of Rs.90,000/- under section 69C of the I.T. Act, 1961 on account of commission.
2. We have heard the Learned Representative of both the parties and perused the material available on record.
3. Briefly the facts of the case are that information in this case was received that search and seizure operation was conducted at various premises of Shri Shirish C. Shah who happened to be main persons engaged in providing bogus accommodation entries like long term capital gains, share capital, share premium and loan etc. Shri Shirish C. Shah directly and indirectly controlled more than 200 companies which include some of the public limited companies also. It was seen from the impounded material that assessee company has received Rs.45 lakhs in three transactions Dated 18.06.2009 from M/s. Prraneta Industries Ltd., through Shri Shirish C. Shah Group. Perusal of the information revealed that M/s. Prraneta Industries Ltd., Now known as Aadhar Venture India Ltd., [Investor Company] is one of the conduit company which is controlled and managed by Shri Shirish C. Shah for the purpose of providing accommodation entries. The statement of Shri Omprakash Khandelwal, Promoter of the Company was recorded where he admitted to provide accommodation entries of the Investor Companies after charging Commission @ 1.8%. The A.O. noticed that in assessment year under appeal the assessee has received Rs.45 lakhs as share capital/share premium from the Investor Companies, therefore, reasons recorded for reopening of the assessment under section 147/148 of the I.T. Act, 1961. The assessee filed letter before A.O. submitting therein that return of income filed originally may be treated as return filed in response to notice under section 148 of the I.T. Act, 1961. The A.O. separately disposed of the objections of the assessee. The A.O. issued statutory notices seeking explanation of assessee with regard to the amount received of Rs.45 lakhs from Investor Company. The assessee attended the proceedings before A.O. and submitted as under :
> “That Prraneta Industries Ltd. (now known as Aadhaar India Ltd) is a public Limited Company and presently listed in Bombay Stock Exchange hence identity of shareholder is established.
> That during the F.Y. 2009-10 Prraneta Industries Ltd has declared income of Rs. 173.55-lacs hence amount received as share-capital is out of tax paid money.
> That shares are issued at fair market value of the company not at huge share premium. Equity shares having face value of Rs.10/- were issued at Rs.50/-which is fair market value as per the audited financial statements of the company.
> That Shri Shirish C. Shah neither Director nor shareholder of Praneta Industries Ltd.”
3.1. The A.O. however did not accept the contention of assessee and found that during the course of search and survey operation statements of Shri Shirish C. Shah, Shri Kumar Raichand Madan, Shri Chandrank Padmasni Kamani, Shri Rajan Kachaliya were recorded who have explained the modus operandi as to how to provide accommodation entries. The A.O. considering the modus operandi of these persons did not accept the explanation of assessee to have received genuine share capital. Therefore, explanation of assessee that return of income of Investor Company of Rs.173.55 lakhs and presently listed in Bombay Stock Exchange [ “BSE”] is no ground to accept the explanation of assessee. The A.O. accordingly issued show cause notice to the assessee seeking explanation of assessee and in the show cause notice reproduced relevant para of statement of Shri Om Prakash Khandewal, Promoter Director of the Investor Company and sought explanation of assessee. The A.O. ultimately did not accept the explanation of assessee because assessee failed to produce the Director of the Investor Company for examination. Therefore, made addition of Rs.45 lakhs under section 68 of the I.T. Act and also made addition of Rs.90,000/- on account of Commission. The assessee challenged the reopening of the assessment as well as addition on merits before the Ld. CIT(A), however, the appeal of assessee has been dismissed.
4. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to PB-2 which is reasons recorded for reopening of the assessment and submitted that reasons are borrowed satisfaction and that A.O. did not apply his mind to the information received from Investigation Wing, therefore, reopening of the assessment is invalid and bad in Law. He has referred to objections filed by assessee to the reopening of the assessment Dated 27.06.2017 [PB-4] in which the assessee has requested the A.O. to provide copy of statement of Shri Shirish C. Shah and Shri Om Prakash Khandelwal, copy of the assessment order of Investor Company, copy of the Bank account of Investor Company and whether action have been taken under section 148 in case of other parties also. Learned Counsel for the Assessee also referred to PB-9 which is the Order of the A.O. Dated 17.07.2017 dismissing the objections filed by assessee against reopening of the assessment in which the A.O. has specifically mentioned that the above documents sought by assessee cannot be supplied to the assessee because the same are confidential in nature. Learned Counsel for the Assessee, therefore, submitted that since all the relevant documents were not supplied to the assessee, therefore, objections of the assessee were not decided properly and right of assessee have been curtailed in filing proper objections before A.O. He has referred to PB-20 in which the assessee filed another objection before A.O. Dated 09.08.2017 against the re-assessment proceedings in which it is clearly clarified that assessee filed copy of ITR of Investor Company along with its audited balance-sheet and Director’s Report, Certificate of Incorporation and proof of trading of shares at BSE. He has referred to PB-49 to 85 which are the documents filed before A.O. in respect of the fact that assessee received genuine share capital/premium which are copy of the confirmation, of ITR, copy of Board Resolution, copy of share application along with Share Application Form, copy of Master Data, Certificate of Incorporation and evidence in respect of listing of shares at BSE of Investor Company along with their ITR and balance-sheet of the Investor. Learned Counsel for the Assessee submitted that letter of Shri Omprakash Khandelwal, Director of the Investor Company retracted from his statement, therefore, there is no case for reopening of the assessment against the assessee.
4.1. He has submitted that ITAT, Indore Bench in the group case of ACIT, Central Circle-18, New Delhi vs., M/s. Bharat Securities (P) Ltd., New Delhi & Others and ACIT, Central Circle-18, New Delhi vs., Chain House International (P.) Ltd., New Delhi decided the group appeals in Departmental appeals in ITA.No.598/Del./2017 etc., vide Order Dated 27.12.2017 in which the Ld. CIT(A) vide Order Dated 07.11.2016 deleted the additions on merits in respect of the same Investor Company M/s. Prraneta Industries Ltd., based on the same information received in search in the cases of Shri Shirish C. Shah etc., and Departmental appeals have been dismissed. Copy of the Order is placed on record. He has submitted that the Ld. CIT(A) accepted the identity of the same Investor, its creditworthiness and genuineness of the transaction in the matter and the ITAT, Indore Bench dismissed the Departmental appeals. He has submitted that the Order of the Indore Bench of ITAT have been confirmed by the Hon’ble Madhya Pradesh High Court by dismissing the Departmental appeal. In the case of PCIT vs., Chain House International Pvt. Ltd., 98 taxmann.com 47 (MP) in which it was held that “once genuineness, creditworthiness and identity of the Investors are established, no addition could be made as cash credit on ground that shares were issued at excessive premium.” He has submitted that the Judgment of the Hon’ble Madhya Pradesh High Court have been confirmed by the Hon’ble Supreme Court by dismissing the SLP of the Department in the matter of PCIT vs., Bharat Securities (P.) Ltd., reported in [2020] 113 taxmann.com 32 (SC). Learned Counsel for the Assessee submitted that the ITAT, Delhi C-Bench in the case of INS Finance & Investment P. Ltd., New Delhi vs., ITO, Ward-12(3), New Delhi in ITA.No.9266/Del./2019 for the A.Y. 2010-2011 considered the identical issue of reopening of the assessment and addition on merit in respect of the same Investor Company M/s. Prraneta Industries Ltd., based on the statement of same persons Shri Shirish C. Shah and Shri Omprakash Khandelwal vide Order Dated 26.10.2020 addition on merit have been deleted. Learned Counsel for the Assessee also relied upon the Order of ITAT, Delhi A-bench, Delhi in the case of ASN Polymers Pvt. Ltd., New Delhi vs., ITO, Ward-1(1), New Delhi in ITA.No.2489/Del./2019 for the A.Y. 2010-2011 in which the Tribunal has quashed the reopening of the assessment vide Order Dated 30.12.2020 on the same facts of taking share capital/premium from M/s. Prraneta Industries Ltd., based on the same statement of Shri Shirish C. Shah and Shri Omprakash Khandelwal. He has, therefore, submitted that the issue of the assessee is covered by these decisions on identical facts. He has submitted that since statements of Shri Shirish C. Shah and Shri Omprakash Khandelwal have not been provided to the assessee and was not subjected to cross-examination on behalf of the assessee, therefore, their statements cannot be read in evidence against the assessee. The A.O. has not brought any material on record to rebut the documentary evidences filed by assessee, therefore, reopening of the assessment as well as addition on merit is wholly unjustified.
5. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that at the time of initiation of re-assessment proceedings, the A.O. should have prima facie some material to form a belief and at that stage the sufficiency or correctness of the material is not required and relied upon Judgments of Hon’ble Supreme Court in the cases of Central Provinces Manganese Ore Co. Ltd., vs., ITO, Nagpur [1991] 191 ITR 662 (SC), Shri Krishna Pvt. Ltd., etc., vs., ITO, Calcutta & Others 221 ITR 538 (SC), Raymond Woolen Mills Ltd., [1999] 236 ITR 34 (SC) and ACIT vs., Rajesh Jhaveri Stock Brokers Pvt. Ltd., [2007] 291 ITR 500 (SC). He has also relied upon the Judgment of Hon’ble Delhi High Court in the case of AGR Investments Ltd., vs., Addl. CIT & Another [2011] 333 ITR 146 (Del.). He has, therefore, submitted that reopening of the assessment is justified in the matter. The Ld. D.R. as regards merits of the addition submitted that Investigation Wing carried-out search action in the case of Shri Shirish C. Shah and found him to be engaged in providing accommodation entries. The A.O. noted that he is the person controlling Investor Company and that Shri Omprakash Khandelwal, Promoter of the Investor Company also made a statement. Therefore, addition was correctly made against the assessee. The A.O. rejected the explanation of assessee because of the findings given by the Investigation Wing. The Ld. D.R. submitted that the statement of Shri Omprakash Khandelwal was confronted to the assessee by referring to part statement in the show cause notice Dated 30.08.2017 and that assessee did not produce Director of the Investor Company, therefore, addition is rightly made by the authorities below. The Ld. D.R. relied upon Judgment of Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd., 13 taxmann.com 48 (SC) in which meager income declared by Investor was considered against the assessee because assessee failed to explain the creditworthiness of the Investor Company. He has also relied upon Judgments of Hon’ble Delhi High Court in the cases of CIT vs., NR Portfolio Private Limited [2014] 42 taxmann.com 338 (Del.), Nova Promoters & Finlease Pvt. Ltd., ITA.No.342 of 2011and NDR Promoters Private Limited ITA.No.49 of 2018. The Ld. D.R, therefore, submitted that authority below rightly confirmed the addition.
5.1. The Ld. D.R. also filed copy of the Order of SEBI Dated 04.09.2017 in the matter of M/s. Kavit Industries Limited in which name of the Investor Company is referred.
6. We have considered the rival submissions and perused the material on record. It is not in dispute that assessee filed confirmation of Investor, its Board resolution, Copy of Share Application along with Form, Copy of Master Data of the Investor Company and its Certificate of Incorporation along with evidence in respect of listing of shares at BSE along with ITR and balance-sheet of the Investor Company. The assessee explained before A.O. that the Investor Company is a Public Limited Company and presently listed in BSE. This fact is not doubted by the A.O. The assessee also submitted before A.O. that the Investor Company has declared income of Rs.173.55 lakhs and hence amount received as share capital would prove the creditworthiness of the Investor. Copy of the acknowledgment of ITR of the Investor Company for the assessment year under appeal is filed at page-64 of the PB which supports the explanation of assessee that the Investor Company has declared income of Rs.1,73,55,274/-. The balance-sheet of the Investor Company also support such fact and PB-71 shows the Investor Company has share capital of Rs.22.57 crores and reserve and surplus of Rs.18.84 crores. Thus, the Investor Company has sufficient funds and income that it had capacity to make investment in assessee-company. The Investor Company is assessed to tax and listed Company and Public Limited Company, therefore, its identity is not in dispute. The assessee has also proved creditworthiness of the Investor Company and that entire transaction has taken place through banking channel, therefore, genuineness of the transaction in the matter is also not in dispute. The assessee also explained before A.O. that Shri Shirish C. Shah is neither Director nor shareholder of the Investor Company. The A.O. has not brought any evidence on record to dispute the above explanation of assessee. The A.O. doubted the explanation of assessee because the search conducted in the case of Shri Shirish C. Shah and some material found during the course of search in his case. The statement of Shri Shirish C. Shah, Shri Omprakash Khandelwal of Investor Company were recorded during the course of search. The assessee has asked to supply copy of their statements for the purpose of rebutting their statements, but, such statements were not supplied by the A.O. stating that they are confidential in nature. Since these statements were recorded at the back of the assessee and have not been supplied to the assessee for filing an objection or to seek for cross-examination of their statements, therefore, such statements cannot be read in evidence against the assessee. We rely upon the Judgments of Hon’ble Supreme Court in the case of Kishanchand Chellaram 125 ITR 713 (SC) and Andaman Timber Industries 281 CTR 214 SC). This was the sole basis for the authorities below to doubt the explanation of assessee, however, the material found during the course of search in the case of above persons have not been confronted to the assessee and their statements were also not supplied to the assessee, therefore, same cannot be the basis to reject the explanation of assessee. The Ld. D.R. referred to the notice issued by the A.O. Dated 30.08.2017 to say that statement of Shri Omprakash Khandelwal was confronted to the assessee. This fact is not correct because the A.O. in his notices has only referred to part of the statement in the notice, but, it is a fact that A.O. never supplied the statements of above two persons recorded during the course of search in their cases to the assessee. Therefore, no statement or material is confronted to assessee for the purpose of raising any objection by assessee or to dispute correctness of their statements and that no cross-examination have been allowed which right of the assessee has been curtailed by the A.O. The A.O. cannot refuse to supply their statements and material to the assessee by considering them confidential in nature. The moment A.O. says that their statements and other material are confidential in nature would mean that A.O. has nothing to confront these material to the assessee for the purpose of assessee’s defence. Therefore, such material shall have to be excluded from consideration.
6.1. We may also note that ITAT Delhi C-Bench, Delhi in the case of INS Finance & Investment P. Ltd., New Delhi vs., ITO, Ward-12(3), New Delhi in ITA.No.9266/Del./2019 for the A.Y. 2010-2011 vide Order Dated 26.10.2020 considered identical issue on identical facts on account of share capital/premium received from M/s. Prraneta Industries Ltd., through Shri Shirish C. Shah based on his statement and statement of Shri Omprakash Khandelwal, confirmed the Orders of the authorities below as regards reopening of the assessment, however, the Tribunal has deleted the entire addition on merits. The Order of the Tribunal in paras 16 to 37 is reproduced as under :
“16. Now coming to the issue of addition of Rs.2,50,00,000/- added u/s. 68 being share capital received during the year from M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.), ld. counsel submitted that M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) is a listed company on Bombay Stock Exchange and as such the identity of the party is not in dispute. It was further argued that there is no adverse material on record in support of allegation of accommodation entry and the assessing officer has considered the addition merely on the basis of so called statement of Director of Shareholder Company Sh. Om Prakash Khandelwal is unreliable as later on he has retracted from his above statement. It was vehemently submitted that assessing officer, despite repeated requests, did not provide the copy of information/material from investigation or statement of the parties on the basis of which adverse inference was drawn. The assessing officer even failed to provide opportunity of cross examination in case he wanted to rely on any such statement.
17. He further submitted that the entire premise of the Assessing Officer is for disbelieving the entire share application money of Rs.2,50,00,000/- is based on statement of Shri Omprakash Khandelwal. However, now the statement was later on retracted and had also come up for consideration before the Co-ordinate Bench of the Tribunal in the case of ACIT vs. M/s. Bharat Securities Pvt. Ltd. and this judgment had come up for consideration in the appeal before the Madhya Pradesh High Court in the case of PCIT vs., Chain House International Pvt. Ltd. [IT Appeal Nos. 110 to 115 of 2018 dated 7th Aug 2018] wherein the credential of the share holder company M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) were found to be genuine by three consecutive authori
ties right from CIT(A), ITAT and Hon’ble High Court. The main thrust of Ld. AR’s argument was that since the very same company has already been scrutinized and examined in great depth by Hon’ble High Court, there remains no doubt over the veracity of share capital of Rs. 2.50 crores received by the appellant company. Our attention was also drawn to observation in High Court’s order regarding retraction of statement by Sh.Om Prakash Khandelwal before CIT(A). It was further submitted that order of Hon’ble High Court was confirmed by Supreme Court as SLP of revenue was dismissed.
18. The Ld. AR also took us to the audited Balance Sheet and Profit & Loss a/c of the shareholder company placed in PB pg 81-91 to establish the creditworthiness in the hands of investor. Reference was also made to judgments of High Courts and coordinate benches in support of the proposition that once the identity, genuineness and creditworthiness of the investor is proved, the provisions of section 68 does not apply.
19. In response to above, the Ld. DR made elaborate submissions and supported the finding recorded by assessing officer and CIT (A). It was argued that Investor Company does not possess creditworthiness to make investment of Rs. 2.50 crores in Assessee Company. It was also submitted that shares of the company has been issued at premium which is unjustified and creates doubt over the genuineness of the transaction. Further, the Ld. CIT DR also countered that there is no requirement for affording opportunity of cross examination of person whose statements are being relied upon since same is secondary material and as such there is no contravention of principles of natural justice. Reference was made decision of Supreme Court in the case of NRA Iron & Steel P. Ltd. 412 ITR 161 (SC) and other revenue favoring decisions of High Courts and ITAT. However, the Ld. DR fairly conceded that issue of share capital relating to very same company was considered by ITAT and MP High Court.
20. We have considered the rival submissions and perused the material available on record. The issue in hand for our consideration is applicability of provisions of section 68 to share capital received by the appellant company from M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.). Before discussing the facts of the case, it is relevant to understand the pre-requisites of section 68 and under what circumstances the provisions is triggered. As per the plain language of section 68, the appellant is obligated to establish the identity, creditworthiness of the party and genuineness of the transaction so as to avoid the rigors of the deeming provision. By ‘identity’ it means that the person/entity must have actual existence which is legally recognized. The word ‘creditworthiness’ in simple terms means the resources to pay money (investment in the present case) i.e. the person/entity should have necessary funds to pay. Now it is not necessary that those funds must be own funds or out of earnings but same could also be in the nature of borrowings. The sum and substance is that there should be explainable means in the hands of the investor. The last ingredient is ‘genuineness’ which apparently means that entire transaction must be real and there should not be any element of collusiveness or sham. Once these pre-requisites of section 68 are satisfied, the can be no case of any addition in the hands of the assessee.
21. When we examine the facts of the present case on the touchstone of pre-requisite of section 68, we find that M/s. Prraneta Industries Ltd. is a listed company and as such there can hardly be any dispute with regard to identity of the party which is subject to stringent of scrutiny by another statutory body SEBI during the listing process. Moreover, the appellant has placed on record the ITR acknowledgment, Certificate of Incorporation issued by MCA, Bank statement and Audited Financial Statements of the party in support of identity which has remained undisputed by both the lower authorities. With regard to creditworthiness, on going through the financial statement of M/s. Prraneta Industries Ltd. we find that the investor company is having sufficient earnings and reserves to justify investment of Rs. 2.50 crores. The party is showing healthy profit before tax of Rs. 1,72,12,447/- and has reserves of over Rs. 18 crores in the balance sheet. Let us now come to third and the most important element which is genuineness of transaction. We note that the assessing officer has primarily relied upon the statement of Sh. Omprakash Khandelwal in reaching the conclusion that M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) is an accommodation entry provider. We also note that assessment order is absolutely silent about any enquiry carried out by the assessing officer with respect to M/s. Prraneta Industries Ltd. and no attempt has been made to independently verify and bring on record material to establish the alleged collusiveness or any connivance between appellant and investor, if any.
22. The entire edifice of the Assessing Officer is the reliance placed by him on the statement of Shri Om Prakash Khandelwal which though assessee has claimed was not provided to the assessee nor any opportunity of cross-examination was offered and the statement of Shri Shirish Shah for which assessee has objected that same has been recorded without opportunity of cross-examination. In so far as Shri Shirish Shah is concerned, he is neither the Director nor the shareholder in the investor company and it is not even in the case of the Assessing Officer that Shri Shirish Shah or Om Prakash Khandelwal has specifically taken the name the assessee. The main charge of the Department is that Shri Om Prakash Khandelwal through his company, M/s. Prrenata Industries has been providing accommodation entries to various persons. This precise issue and allegations had come up for consideration before the coordinate bench of the Tribunal in the case of Bharat Securities Pvt. Ltd., Chain House International and Rohtak Chain Co. Pvt. Ltd. in ITA no. 598, 599, 584, 595 and 597/Del/2017 order dated 27.12.2017. The relevant facts and the observation of the Tribunal in that case for the sake of better appreciation for our case also are reproduced hereunder:
“3. During the course of assessment proceedings, the AO noticed that the assessee has received share application money and share premium amounting to Rs. 30 Crores in A. Y. 2012-13 and Rs. 25 Crores during for assessment year 201314. The details of share application money received during the year under consideration are as under :
