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TMI Blog2020 (2) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal on the lines of findings recorded by the Hon ble Supreme Court in the case of Lovely Exports [ 2008 (1) TMI 575 - SC ORDER] - We do not concur with the view adopted by the CIT(A) while allowing the appeal of the assessee. No exercise was carried out by the learned CIT(A) to go into the root of the matter and find out the actual business carried out by the assessee and the investing companies and he had also not examined the issues from the prospective of a prudent businessman , i.e. whether the prudent business man would like to invest and buy shares of a paper company having a negative NAV at a premium of 190/- per share or not. CIT(Appeals) has not dealt with any of the findings recorded by the Assessing Officer on merit whereby he had brought on record the financial status of these companies, the working of these companies from the same premises through the key person. The Ld. CIT(Appeals) has not discussed anything with respect to the report of the Inspector and operation of these companies being carried out by Shri Praveen Kumar Jain. We deem it appropriate to remand this matter to the file of Ld. CIT(Appeals) to decide the appeal in accordance with the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Delhi High Court in case of Nova Promoters and Finlease Pvt. Ltd. (ITA No.342 of 2011) are applicable in the facts and circumstances of the case. 5. The Ld. CIT(A)-II, Nashik has erred in holding that the transaction of subscribing share premium at the rate of ₹ 190/- per share is genuine because the transaction is routed through banking channel and the share holding companies have filed the income tax returns. The CIT(A) has not considered the surrounding circumstances of the transaction. 6. The Ld. CIT(A)-II, Nashik has erred by not considering a report received from Investigation Wing, Mumbai which shows that the assessee has obtained accommodation entries from Shri Pramod Jain who has accepted in his statement given during the search conducted u/s. 132 of the I.T. Act that he has given accommodation entries to various beneficiaries. 7. The Ld. CIT(A)-II, Nashik has erred by not giving an opportunity to represent the case by JCIT, Range 2 Nashik on behalf of Department inspite of the request made to represent the cases of Range 2, Nashik for the same. This has violated the principle of natural justice. 8. Under the facts and circumstances of the case, it is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 5000 950000 27 Raghunandan Rajsons Ltd. 190 10000 1900000 28 Traingular Infocam Pvt. Ltd. 190 16250 3087500 29 Rigma Grapahite Investment Pvt. Ltd. Al-Proog Engg. 190 25000 4750000 30 Al-Proog Engg. 190 4250 807500 31 Al-Bright Electrical Pvt. Ltd. 190 50000 9500000 32 Nakshtra Business Pvt. Ltd. 190 27500 5225000 33 Eternity Multitrade Pvt. Ltd. 190 34500 6555000 34 Realgold Trading Co. 190 37500 7125000 35 Hema Trading Co. Pvt. Ltd. 190 25000 4750000 Total 834250 158507500 Total 834250 15,85,07,500 4.1 The Assessing Officer with a view to verify the genuineness, creditworthiness and identity of these 35 entities had issued letter to the assessee on 10th January, 2013 asking the assessee to submit the following seven points: i) Names and Addresses of the shareholders who had purchased shares on premium. ii) Confirmation of these share holders who have purchased shares on premium iii) Copy of income tax returns, copies of balance sheet and statement of bank account of these shareholders which show the above mentioned transactions. iv) The copies of Minute Book, Attendance Register of Annual General Meetings, Dispa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer issued show cause notice to the assessee on 14.02.2013 and in response thereto, the assessee filed detailed reply and the Assessing Officer has considered the reply of the assessee. 4.5 The Assessing Officer had also examined the Auditor who had prepared the valuation report by valuing the share at ₹ 200/- and had also discussed the fallacy and contradiction in the report. The Paragraph 6.1 to which deals with the basis of arriving at the share premium of ₹ 190/- per share is to the following effect in the assessment order: "6.12 The Managing Director, Shri Nitin Wagaskar has submitted that the share premium was decided on the basis of valuation done by the Auditor Shri Mukund Kokil. The statement of Shri Mukund Kokil was recorded u/s.131 on 12.02.2013. He was asked to explain the procedure and the basis for deriving share premium price of ₹ 190/- share. He has also submitted the details of working done by him which reproduced as under: Prathamesh Ceramics Private Limited Projected Earning Value Method Year Projected Profit Before Tax (Rs. in Crores) Nos. of Shares In Crores EPS (Rs.) PE Price as Per PE Rs. 2009-10 23.37 0.62 38.00 4.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the Chartered Accountant has intentionally fabricated the facts to justify their action. Thus, share premium of ₹ 190/- per share is not justifiable on the basis of any fundamentals of the assessee." 4.6 After considering the reply of the assessee and the statement recorded u/s.131 of the Act of the Managing Director and of the Auditor, going through the financial and affairs of the company and report of the Inspector deputed for verifying the existence of the company, the Assessing Officer made addition of ₹ 8,52,50,000/- for the assessment year 2010-11 to the following effect in Para 13 : "13. In view of the pointed listed above, it is established beyond doubt that the object was not to attract genuine investors by pegging the premium at unrealistic level but to bring in large amount of unaccounted funds in the guise of share premium. Thus, the entire share capital, share application and share premium shown in the name of the bogus companies is bogus and unexplained. Therefore, the amount of share capital of ₹ 42,62,500/- and share premium of ₹ 8,09,87,500/- introduced in the current assessment year is treated as unexplained cash credit unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore, the Assessing Officer was not justified in making the addition of the share premium received by the assessee.. 6. Feeling aggrieved by the order of the Ld. CIT(Appeals), the Revenue is in appeal before us on the grounds mentioned herein above. 7. At the very outset, Ld. DR submitted that the decision rendered by the Ld. CIT(Appeals) was required to be set aside as the said decision is contrary to the law laid down by the Hon'ble Supreme Court recently in the matter of Principal Commissioner of Income Tax ( Central)-1 Vs. NRA Iron & Steel Pvt. Ltd., Special Leave to Appeal (C) No.29855/2018 wherein in Para 11 on succinctly held as follows: "11. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en valuation report prepared by the Chartered Accountant was not correct and for that purposes our attention was drawn to finding recorded by the Assessing Officer reproduced herein above. The Ld DR has also submitted that the Assessing Officer had examined the Chartered Accountant who had done the valuation of the share and our attention was drawn to page 287 (cross examination of the Chartered Accountant). On the basis of the cross examination it was submitted that the CA was not able to justify the valuation of the share. He had also relied upon the decision of Hon'ble Delhi High Court in the matter of M/s. RDS Projects Ltd. Vs. ACIT, WPC No. 11274/2019 dated 23.10.2019, Vedanta Limited WPC No. 13036/2019 and NDR Promoters (P.) Ltd. [2019] 109 taxmann.com 53 (SC). 8. Per contra, the Ld. AR of the assessee submitted that the decision of the Hon'ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) was not available before the Ld.CIT(Appeals) and therefore, this decision was not dealt with by the Ld. CIT(Appeals). Further, the Ld. AR had sought to distinguish facts of the said case and the ratio laid down by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of transaction depends on i. Whether AE parties ii. Whether Investor is ANGEL investor or not iii. Quantum of money invested iv. Credit-worthiness of receiver, ..............and so on [Para-9(vi)] h) Year 2012 section referred to (and not amended section thereafter) [Para-8.1] 4. Ratio - Following points emerge from the Honorable apex court ruling a) Crucial reference made to Kate-Khanis case holding that, once Assessee provides details for Identity-Genuineness-creditworthiness, AO must conduct enquiry, as burden passes to him. But, if Assessee fails to discharge his burden, no further burden on Department (Para - 8.2) b) Crucial reference made to ratio of Lovely Export's case wherein, it was held that Department is duty-bound to investigate into credit-worthiness aspect once primary onus is discharged by the assessee (Para-4) c) Crucial observation w.r.t. Kamdhenu's decision for the proposition that, efforts to fasten racket of bogus investment companies go in vein due to lack of steps by revenue [Para-8.4] d) Crucial observation w.r.t. Mohankala's decision for the proposition that an assessee, despite his explanations are not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been filed mentioning 25 such cases. 8.2 On merits it was submitted that the company invested were having robust financial and economic status and for that our attention was drawn to the following chart: Sr. No. Name of Investor Date Source details Source amount (Rs.) Investment in PCPL (Rs.) 1 Matrix Systel Pvt. Ltd. 21/10/2009 Received from Natraj Vinimay Pvt. Ltd. Against sale of investment 62,00,000 17,00,000 21/10/2009 18/01/2010 Received from Grafton Merchant Pvt. Ltd. against sale of investment 50,00,000 35,00,000 18/01/2010 08/02/2010 Received from Sital Mercantile & Credit Pvt. Ltd. against sale of investment 10,00,000 10,00,000 08/02/2010 15/02/2010 Received from Kripasagar Commercial Pvt. Ltd. towards Share Application money 37,00,000 37,00,000 15/02/2010 1,59,00,000 99,00,000 2 Microchip Intotel Pvt. Ltd 19/01/2010 Received from Venkatesh Sales Pvt. Ltd. against sale of investment 25,00,000 19/01/2010 Received from High growth Vintrade Pvt. Ltd. against sale of investment 10,00,000 35,00,000 19/01/2010 02/02/2010 Received from Trimax IT infrastructure & Services Ltd. against sale of investment. 52,55,000 35,00,000 03/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25/03/2010 Received from Grafton Merchant Pvt. Ltd. towards share application money 61,00,000 50,00,000 10. Madhav Vanjiya Pvt. Ltd. 23/09/2009 Received from Manoj Kumar Jaiswal against advance 12,00,000 24/09/2009 38,00,000 24/09/2009 Received from Matrix Systel Pvt. Ltd. against sale of investment. 50,00,000 50,00,000 50,00,000 11 Neha Cassettes Pvt. Ltd. 29/10/2009 Received from Natraj Vinimay Pvt. Ltd. towards share application money 35,00,000 35,00,000 29/10/2009 01/02/2010 Received from Natraj Vinimay Pvt. Ltd. towards share application money 35,00,000 35,00,000 01/02/2010 70,00,000 70,00,000 12 Kumaon Engineering Co. Pvt. Ltd. 05/10/2009 Received from Deccan Vanjiya Pvt. Ltd. against sale of investment. 50,00,000 50,00,000 05/10/2009 29/03/2010 Received from Gulistan Vanjiya Pvt. Ltd. against sale of investment. 50,00,000 50,00,000 29/03/2010 1,00,00,000 50,00,000 8.3 The Ld. AR had concluded that the order of the Assessing Officer is required to be upheld as the assessee has discharged the onus as required u/s.68 of the Act. 9. We have heard the rival contentions and perused the material available on record. We find that the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium of ₹ 190/- per share which was discussed by him in Paragraph 6.12 of the assessment order and had also examined the Auditors on oath. 9.4 From perusal of the order of the Assessing Officer and the statement of the Auditor, we are of the opinion that valuation done by the Auditor of the company was not in accordance with law and is contrary to the facts as no business was carried out by the assessee for F.Y.2009-10 and there was loss in F.Y. 2010-11 and further, business activities of the assessee were commenced in the F.Y.2012-13. The basis of projection given by the Chartered Accountant as reproduced herein above (Para 6.12 of the AO's order) should have scientific basis or based industry projection or should be some set of comparables and material available with the Auditor to arrive at the valuation. Nothing has been brought on record by the assessee either before us or before the lower authorities the basis of arriving at the projection by the Auditor. 9.5 The Assessing Officer has mentioned in paras 6.1, 6.1.5, 6.1.2 that the valuation of shares of the company done by the Auditors Shri Mukund Kokil was inappropriate and was not in accordance with facts and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pector. The report of the Inspector is part and parcel of the assessment order. In our opinion, the assessee company has not commenced its business activity at the time of preparation of valuation report by the Auditor and subscription of share by 35 companies, as the clearance for mega project was accorded by the Competent Authority on 18-2-2009. It is preposterous and against the human probability that the third party company would buy shares with such huge share premium of a paper company which has no business background and track record, without looking into the assets, business, model and strong fundamentals of the company. All these aspects have been meticulously examined by the Assessing Officer in the assessment order. Ironically the CIT(A) has glossed over the findings recorded by the Assessing Officer. The Ld. CIT(Appeals) had merely decided the appeal on the lines of findings recorded by the Hon'ble Supreme Court in the case of Lovely Exports. We do not concur with the view adopted by the CIT(A) while allowing the appeal of the assessee. No exercise was carried out by the learned CIT(A) to go into the root of the matter and find out the actual business carried out by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a board of Advocate Shri Jagdish Prasad Purohit was displayed outside the Chamber No.105. There were no office activities. Barring one PC and Printer, no files/folders were kept in the office. Further, when the Inspector asked one staff who work for these companies, he told that he alone manages not only these eight companies but also many companies and at present he is the Director of one company i.e. Kumao Engineering Company Ltd and he is the key person in all these companies. It was further reported that the Shri Praveen Kumar Jain is a person behind all these companies. 9.11 Further, we find that after passing the decision of Hon'ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.), the Hon'ble Delhi High Court relied upon on the said decision in the cases of i) M/s. RDS Project Limited Vs. ACIT WP(C) No.11274/19 dated 23.10.2019 and ii) M/s. Vedanta Limited Vs. ACIT, WP(C) No.13036/2019 dated 20.12.2019. In view of the subsequent decisions by Delhi High Court, in the identical facts, it would be of no use for the Ld. AR to rely upon the findings given by the Co-ordinate Benches by filing chart giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also directed to decide the matter expeditiously with a period of six months after providing reasonable opportunity of hearing to the assessee and also to the Assessing Officer, as the case may be. Needless to say, principles of natural justice should be maintained and opportunity of hearing shall be granted to the assessee by the Ld. CIT(Appeals). 12. In the result, appeal of the Revenue in ITA No.2261/PUN/2014 for assessment year 2010-11 is allowed for statistical purposes. ITA Nos.2260 & 2262/PUN/2014 A.Ys. 2009-10 & 2011-12 13. The grounds and facts in these two appeals are similar to the facts as appeared in ITA No.2261/PUN/2014 for assessment year 2010-11 and therefore, our decision rendered in ITA No.2261/PUN/2014 shall mutatis-mutandis apply in these two appeals also with similar directions as referred in ITA No.2261/PUN/2014. Thus, the issues raised in both these appeals are remitted back to the file of the Ld. CIT(Appeals) for fresh adjudication as per law. 14. In the result, appeals of the Revenue in ITA Nos.2260 & 2262/PUN/2014 for assessment years 2009-10 & 2011-12 are allowed for statistical purposes. 15. In the combined result, all the appeals of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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