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29-11-2019, Sarva Priya Holdings, Section 153A, 132, 68, Tribunal Kolkata

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2 weeks 1 day ago #11606 by amit
Section - 153A, 132, 68, 14A, 139
Order Date - 29-11-2019
Favouring - Assessee
Court - Tribunal Kolkata
Appellant - Sarva Priya Holdings Pvt. Ltd
Respondent - DCIT
Justice - P.M. JAGTAP, VP (KZ) & A.T. VARKEY, JM
Citation - 1119Taxpundit299
Appeal No. - I.T.(SS)A. Nos. 97 & 98/Kol/2018
Asstt. Year - 2010-11 & 2011-12



These two appeals filed by the assessee are directed against two separate orders passed by the Ld. CIT(Appeals) – 21, Kolkata both dated 27th July, 2018 for A.Y. 2010-11 & 2011-12 and since some of the issues raised therein are common, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience.

2. The assessee in the present case is a company which filed its return of income for the year under consideration originally on 01,10.2010 u/s 139 of the Act declaring a total income of Rs. 39,42,030/-. It belongs to Bhalotia Group. The said group is engaged in the business of manufacturing of sponge iron, infrastructure, jewellery and manufacturing and supply of medical furniture & equipment. A search u/s 132 was conducted in the cases belonging to Bhalotia Group including the case of the assessee on 01.12.2015. Pursuant to the search, a notice u/s 153A was issued by the AO in response to which the return of income for the year under consideration was filed by the assessee on 16.02.2017 declaring the same total income of Rs. 39,42,030/- as was declared in the return originally filed u/s 139 of the Act. During the course of search, the bank account of the assessee was found showing receipt of share application money of Rs. 3,15,00,000/- during the year under consideration. In order to verify the genuineness of the said share application money, notices u/s 131 were issued by the AO to the concerned share applicants. The said notices, however, either remained unserved or uncomplied with. The assessee company, therefore, was called upon by the AO to offer its explanation in the matter. In reply, it was submitted by the assessee that the share applicants could not respond to the notices issued u/s 131 because of some inconvenience. It was also submitted by the assessee that all the transactions involving the receipt of share application money were routed through banking channels. In this regard, copies of bank statements of the share applicants were also furnished by the assessee for the verification of the AO. It was also submitted by the assessee that there was no incriminating material found during the course of search which could lead to believe that the transactions of share application money were not genuine.

3. The submissions made by the assessee were not found acceptable by the AO for the following reasons given in the assessment order:

i) Mere filing of documents that transactions were routed through banking channels would not suffice to prove the genuineness of the transactions. A transaction, prima facia, may appear/genuine. But one should have to understand the motive behind such transactions.

ii. The assessee company had no business or income generation activity in the year under consideration as well as the preceding years.

iii. No answer has been given by the assessee to the question why the subscribers have paid money for the equities of a closely held company that had little income generation activity and that too at a premium of Rs. 90/- per share.

iv) The share subscribers have also failed to reply why they had invested in the equities of the assessee company at a high premium of Rs. 90 /- per share.

v. No prudent person would put his money at stake in the equities of a closely held company which had little business activity and from which he would get no return.

vi) In such cases, the agreement about real transactions takes place in secret and direct evidence about such direct transaction / agreement would not be available to the department in normal circumstances.

vii) The result of these transactions are designed in a way that unaccounted money or cash was brought in the books of the assessee company either in the form of equities or unsecured loan through multiple layers.

viii) Every single credit entry in tire bank accounts of the share subscribers is followed by a corresponding debit entry of equivalent amount on the very same day. The assessee has contended that this issue is irrelevant. But this issue is very much relevant. This issue coupled with the fact that all the shareholder companies had meagre income, clearly proves that these companies were merely used as fronts to route unaccounted money of the assessee in the garb of equities through multiple layers.

ix. Mere filing of copies of ITRs / bank statements / accounts of the subscribers would not absolve the assessee from the complicity of introducing unaccounted money in his books in the garb of equities.

x. The assessee was given reasonable and sufficient opportunities to produce all the shareholders, which he failed to do. The assessee had tailed to explain the inconvenience in producing the share applicants for verification of genuineness of transactions and creditworthiness of the applicants

xi. It is true that when transactions are through cheques, it looks like real transactions- But one should look behind the transactions and find out motive behind transactions. Mere receipt of share application money through cheque does not render a transaction genuine.

xii. The assessee has not explained the reasons for non service of letters/summons to the shareholding companies which were despatched at their registered office. It shows that these companies only exist on paper and they have no business activity at all. It raises question mark over the genuineness of the transactions and creditworthiness of the shareholders.

xiii. The assessee was given a reasonable and fair opportunity to produce the shareholders, but he has failed to produce any of them citing inconvenience. The assessee has not explained what inconvenience it would have in producing the share applicants. The assessee has therefore, failed to prove the genuineness of the transaction and creditworthiness of the shareholders.

xiv) The share applicants/ share holders M/s. Stylish Tradelink Pvt. Ltd. and M/s. Sidhu Investment Pvt. Ltd. have been identified as shell companies by the Investigation Wing of the Department.” For the reasons given above, the AO treated the share application money of Rs. 3,15,00,000/- received by the assessee company during the year under consideration as unexplained cash credits and addition to that extent was made by him to the total income of the assessee u/s 68.

4. During the course of assessment proceedings, the AO found that the assessee company during the year under consideration had claimed dividend income of Rs. 17,90,211/- as exempt from tax, but disallowance u/s 14A on account of expenses incurred in relation to the said exempt income was offered by the assessee company only to

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