Section 68 of the Act : Where investor company was a public company listed with BSE – and having sufficient earnings and reserves to justify investment in share capital of assessee-company – prove the identity of the Investor, its creditworthiness and genuineness of the transaction – such share capital/premium from investor company could not be added to income of assessee under section 68.
The information 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 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 147of the act.
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.”
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. 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 act. 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.
The assessee filed appeal before ITAT
The ITAT held that the Tribunal of Indoor considered the identical issue of receipt of share capital/ premium from M/s. Prraneta Industries Ltd., (Investor Company) and examined the issue in detail by Indore Bench in the case of M/s. Bharat Securities (P) Ltd [ITA.No.598/Del./2017]., in which Departmental Appeal have been dismissed and the Order of the Tribunal has been confirmed by Hon’ble Madhya Pradesh High Court and ultimately the Hon’ble Supreme Court dismissed the SLP of the Revenue [ [2020] 113 taxmann.com 32 (SC)]. Therefore, the issue being identical could not justify the confirmation of the additions on merits. Since the identical issue have been examined by various Benches of the Tribunal on identical facts and addition on merit have been deleted which is also confirmed by the Hon’ble Madhya Pradesh High Court and by the Hon’ble Supreme Court, therefore, in our view the issue is covered in favour of the assessee by the aforesaid decisions.
The Tribunal also note that it is an undisputed fact that assessee produced documentary evidences before the A.O. to establish that assessee has received genuine share capital/premium from the Investor Company. The documentary evidences have not been doubted by the authorities below. The Investor Company has declared income of Rs.173.55 Lacs in assessment year under appeal and has sufficient funds to make investment in assessee company. It is a Public Limited Company and listed with BSE. Therefore, the assessee-company has been able to prove the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter. Therefore, there were no justification for the authorities below to make or confirm the addition against the assessee under section 68 of the act
Further, the Tribunal relied the Hon’ble Delhi High Court in the case of Divine Leasing & Finance Ltd., 299 ITR 268 (Del.) held that “no adverse inference to be drawn if the shareholders failed to respond to the notice issued by the A.O.” It may be noted here that in the case of M/s. Bharat Securities (P) Ltd., the Indore Bench of the Tribunal has considered the fact that the Director of the Investor Company and others were examined in which they have 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.
In view of the above, tribunal set aside the Orders of the authorities below and delete addition of Rs.45,90,000/-.
Reference order of ITAT Delhi: Ancon Chemplast (P.) Ltd. v. Income Tax Officer, Ward-2(4), New Delhi
[ I.T No. 3562 /Del/2019, date of order: 30/04/2021, Del Tribunal]
Contribution by Ravindra Pooajary ,Tax Advocate and Managing Partner Santosh Poojari at Bhatia and Poojari Chartered Accountants.
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