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DCIT, Central Circle 13, New Delhi. Vs. M/s. GDA Finvest & Trade Pvt.Ltd., Delhi Rohtak Road, Assam Timber Market, Swarna Park, Mundka, New Delhi.
October, 13th 2014
         IN THE INCOME TAX APPELLATE TRIBUNAL
              (DELHI BENCH `C' : NEW DELHI)

        BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
                            and
         SHRI B.C. MEENA, ACCOUNTANT MEMBER

                       ITA No.3353/Del./2013
                     (Assessment Year : 2005-06)

DCIT, Central Circle 13,      vs.   M/s. GDA Finvest & Trade Pvt.Ltd.,
New Delhi.                          Delhi Rohtak Road,
                                    Assam Timber Market,
                                    Swarna Park, Mundka,
                                    New Delhi.

                                    (PAN : AAACG4200D)

                          CO No.218/Del/2013
                      (in ITA No.3353/Del./2013)
                     (Assessment Year : 2005-06)

M/s. GDA Finvest & Trade Pvt.Ltd., vs.    DCIT, Central Circle 13,
Delhi Rohtak Road,                        New Delhi.
Assam Timber Market,
Swarna Park, Mundka,
New Delhi.

      (PAN : AAACG4200D)

      (Appellant)                               (Respondent)

   Assessee by : Shri Ved Jain, Advocate & Smt. Rano Jain, Advocate
                  Revenue by : Shri Sunil Bajpai, CIT
                                ORDER

PER B.C. MEENA, ACCOUNTANT MEMBER :

      The appeal filed by the Revenue and cross objection filed by the

assessee emanates from the order of the CIT (Appeals)-I, New Delhi

dated 08.03.2013 for the Assessment Year 2005-06.
                                    2               ITA No.3353/Del./2013)
                                                      CO No.218/Del/2013




2.    The revenue in ITA No.3353/Del/2013 has taken the following

grounds of appeal :-

      "1. The order of the Ld. CIT (Appeals) is not correct in
      law and facts.

      2.     On the facts and circumstances of the case the Ld. CIT
      (A) has erred in law in deleting the addition of Rs.9,00,000/-
      made by A.O. on account of unexplained share capital
      received by the assessee company without appreciating the
      act that the creditworthiness of investors and genuineness of
      transaction could not be proved by assessee.

      3.    The appellant craves leave to add, amend any/all the
      grounds of appeal before or during the course of hearing of
      the appeal."

The only effective ground in the revenue's appeal is against deleting the

addition of Rs.9 lacs out of the addition of Rs.30 lacs made by the AO on

account of the share capital received by the company during the year.

3.    The assessee has also filed cross objection and the grounds of cross

objection are as under:-

      "1. On the facts and circumstances of the case, the order
      passed by the learned Commissioner of Income Tax
      (Appeals) [CIT(A)] under Section 153A/143(3) is bad both in
      the eye of law and on facts.

      2.     On the facts and circumstances of the case, the
      proceedings initiated under Section 153A are bad in law as
      no valid search was carried on the assessee.

      3.    On the facts and circumstances of the case, the learned
      CIT(A) has erred both on facts and in law in rejecting the
      contention of assessee that the proceedings initiated under
      Section 153A against the appellant are in violation of the
                             3               ITA No.3353/Del./2013)
                                               CO No.218/Del/2013

statutory conditions and procedure prescribed under the law
and as such the same is bad in law and likely to be quashed.

4.    On the facts and circumstances of the case, the learned
CIT(A) has erred both on facts and in law in rejecting the
contention of assessee that the notice issued under Section
153A by the AO is in violation of the provisions of the Act
and as such the assessment framed in consequence thereof is
bad.

5.    On the facts and circumstances of the case, the learned
CIT(A) has erred both on facts and in law in rejecting the
contention of assessee that the assessment framed under
Section 153A/143(3) being against the statutory provisions of
the Act and the procedure prescribed under the law, is bad
and the same is liable to be quashed.

6(i) On the facts and circumstances of the case, the learned
CIT(A) has erred both on facts and in law in confirming the
various additions by indulging in surmises and conjecture
without any adverse material being found during the course
of the search.

(ii) That the assessment framed is against the spirit of
Section 153A of the Act whereby the reassessment is to be
confined to the additions and disallowances consequent to the
material found during the course of the search and does not
give power to the AO to reappraise the already settled issues
and assessment.

7(i) On the facts and circumstances of the case, the learned
CIT(A) has erred both on facts and in law in confirming the
addition to the extent of Rs.21,00,000/- on account of share
application money.

(ii) That the addition has been confirmed despite the
assessee bringing all material and evidences on record to
prove the identity, genuineness and creditworthiness of the
shareholder.

(iii) That the addition has been confirmed without bringing
any adverse material on record.
                                    4               ITA No.3353/Del./2013)
                                                      CO No.218/Del/2013

      8(i) On the facts and circumstances of the case, the learned
      CIT(A) has erred both on facts and in law in confirming the
      disallowance of an amount of Rs.18,645/- made by AO by
      invoking the provisions of Rule 8D under Section 14A of the
      Act.

      (ii) That the disallowance has been made without there
      being any such expenses being incurred by the assessee.

      (iii) That the above said disallowance has been made
      ignoring the explanation of the assessee that no expenditure
      has been incurred in earning tax free income.

      (iv) That the above disallowance has been confirmed
      despite the fact that Rule 8D is not applicable in the relevant
      assessment year.

      9.     On the facts and circumstances of the case, the learned
      CIT(A) has erred both on facts and in law in confirming the
      disallowance of an amount of Rs.14,382/- on account of
      deferred revenue expenses.

      10. That the respondent craves leave to add, amend or alter
      any of the grounds of appeal."


4.    During the course of the hearing, the ld. AR for the assessee has

not raised and argued on the legal and general grounds of cross objection

nos.1 to 6 and 9 and 10, hence the same are dismissed as not pressed.

5.    Ground no.2 in the Revenue appeal and Ground no.7 of the cross

objection are on the issue of addition of Rs.30 lakh made by the AO and

the relief of Rs.9 lacs was allowed by the CIT(A) and confirmed the

addition of Rs.21 lacs.

6.    The brief facts to the present controversy are that a search and

seizure operation under section 132 of the Income-tax Act, 1961 was
                                    5                 ITA No.3353/Del./2013)
                                                        CO No.218/Del/2013

carried out in the Swastik Pipe Group of Companies on 28th August,

2008, which included the assessee company as well. In the course of the

proceedings initiated under section 153A, the Assessing Officer noted

from the balance sheet that assessee company has received share capital

from the following companies :-

      S. No.     Name of investor                            Amount-Rs.
      1.         A.C. Steels & Holdings Pvt. Ltd.                5,00,000/-
      2.         Grewal Steels & Holdings Pvt. Ltd.             10,00,000/-
      3.         Sumit Credit Co. Pvt. Ltd.                      5,00,000/-
      4.         Prime Vyapar Pvt. Ltd.                          5,00,000/-
      5.         M/s Sofed Comtrde Pvt. Ltd.                     5,00,000/-
                 Total                                          30,00,000/-

7.    The AO further noted that all the investor companies are Kolkata

based companies and he suspected that the share capital received was

accommodation entries. He further noted that the family members of the

directors of the company have purchased these shares later on in the year

2006 at 30% of the value at which these shares were issued.             The

Assessing Officer accordingly carried out the investigation. An inspector

was deputed to find out the whereabouts of these companies. Based on

the report of the inspector, the Assessing Officer held that the share

capital received by the assessee company is not genuine and he

accordingly made the addition of Rs.30 lacs as unexplained credit under

section 68 of the Act.
                                        6              ITA No.3353/Del./2013)
                                                         CO No.218/Del/2013

8.     The Assessing Officer further made an addition of Rs.18,645/-

under section 14A of the Income Tax Act by invoking provisions of Rule

8D.




9.     Aggrieved by the order of the Assessing Officer, the assessee came

in appeal before the CIT(A). The CIT(A) after examining the facts of the

case, upheld the addition of the Assessing Officer about the non-

genuineness of the share capital of the company. However, he was of the

view that the family members of the directors of the assessee company

has purchased these shares after paying 30% of the value of these shares

i.e. Rs.9 lacs and hence the addition should be restricted to Rs.21 lacs and

not Rs.30 lacs as made by the Assessing Officer. Accordingly he gave a

relief of Rs.9 lacs.

10.    Aggrieved by the order of the CIT(A), the Revenue is in appeal and

the assessee has filed cross objection.

11.    It was contended by the Ld. DR, that the CIT(A) was not justified

in giving relief of Rs.9 lacs after holding that entire share capital received

by the assessee company during the year was not genuine. The purchase

of the shares by the family members of the directors of the assessee

company later on cannot be a ground for holding that the money received

initially was genuine to that extent.

12.    As against this, the Ld. AR contended that the Assessing Officer as

well as CIT(A) was not justified in holding that the share capital received
                                      7                ITA No.3353/Del./2013)
                                                         CO No.218/Del/2013

by the assessee company was not genuine. In this regard he submitted

that this share capital has been received in the ordinary course and the

adverse inference drawn by the Assessing Officer is by misinterpreting

the facts of the case.      It was submitted that assessee company has

received a sum of Rs.20 lacs from the following three companies:-

      S. No.      Name of investor                            Amount-Rs.
      1.          A.C. Steels & Holdings Pvt. Ltd.                5,00,000/-
      2.          Grewal Steels & Holdings Pvt. Ltd.             10,00,000/-
      3.          Sumit Credit Co. Pvt. Ltd.                      5,00,000/-
                  Total                                          20,00,000/-



12.1 The adverse inference has been drawn on the basis of the inspector

report quoted by the Assessing Officer on para 4.4 and 4.5 as under:-

      "4.4 The results of these inquiries the Inspector of Income
      Tax was received in this office vide letter dated 24.10.2010.
      The contents of the inquiry report are reproduced below:-

               "As directed by the Asstt. Director of Income Tax
               (Inv.), Unit-III(3), Kolkata, I went to 6, Clive Row on
               22.11.2010 at 4:30 PM. I went to inspect were three
               companies viz. steel & holding Pvt. Ltd., Grewal Steel
               & Holding Pvt. Ltd. Sumit Credit Co. Ltd. exist at
               room No.6/7 4th Floor, Clive Row or not. I did not find
               any name place of the above mentioned companies at
               the very particulars address. At the time of my
               inspection the door of Room No.6/7 on 4th floor of 6
               Clive row was totally closed under lock & key. Only
               one wooden board was showing "AS Grewal& Co.,
               Tax consultant, 6 Clive Row 4th floor, Room No.6/7,
               Kolkata placed above the door."
                                     8                ITA No.3353/Del./2013)
                                                        CO No.218/Del/2013

      4.5 Thus, the registered office of these companies belongs
      to a tax consultant. The facts and evidences mentioned above
      indicate that there were no reasons why an unknown
      company in Kolkata would invest in a Pvt. Ltd. company at
      Delhi such significant amounts. The identity of the creditors
      has not been established fully. In view of the factors
      mentioned above, the creditworthiness of M/s AC Steel &
      Holdings Pvt. Ltd. and the genuineness of the transaction are
      in doubt. In this context reliance is placed on the following
      judgments:-
      ......."


12.2 It was submitted that the above report in fact support the case of

the assessee. It was pointed out that the inspector has noted that there is a

wooden board showing the name "AS Grewal & Co.". The name of the

company from whom share capital has been received included Grewal

Steel & Holdings Pvt. Ltd.      The common surname "Grewal" is not a

coincidence and shows that Grewal Steel & Holdings Pvt. Ltd. is of the

same person whose name "AS Grewal & Co.", the wooden board of

which was there. Further it was pointed out that the inspector has simply

tried to find out the name plate and he did not make any further enquiry

from any neighbors or any other person as is evident from the report

quoted by the Assessing Officer.         Thus it cannot be said that these

companies were not in existence at that place and hence adverse inference

drawn by the Assessing Officer is incorrect.

12.3 It was further submitted that in the case of M/s Prime Vyapar Pvt.

Ltd. the assessee company has received share capital of Rs.5 lakh. The
                                     9               ITA No.3353/Del./2013)
                                                       CO No.218/Del/2013

inspector report in this regard quoted by the Assessing Officer in the

assessment order reads as under:-

      "As directed by the Asstt. Director of Income tax (Inv.) Unit-
      III(3), Kolkata, I had been on 24.11.2010 at 30/1, Mahesh
      Paul Line Santragachi, Howrah to inspect the existence of
      Prime Vyapar Pvt. Ltd. I went to the said address but could
      not find any signboard or letter box of the said company. On
      local enquiry it is revealed that there is no company called
      this name at the address and there is only a residential place
      of the said premise and there was name plate placed outside
      the main entrance of the said premises named as, Buddhadeb
      Das 30/1, Mahesh Paul Lane, Santragachi, Howrah."


12.4 As regards the balance cheque of Rs.5 lakh received from Sofed

Comtrade Pvt. Ltd., there is absolutely no adverse material. There is no

inspector report. The Assessing Officer has simply stated that the

genuineness of the transaction is in doubt as can be seen from the

observation of the Assessing Officer in para 8.1 and 8.2 which read as

under:-

      "8.1 The assessee vide its letter dated 16.11.2010 submitted
      the confirmation alongwith a copy of the income tax return
      acknowledgement and an extract of the bank statement. A
      perusal of the income tax return shows that M/s
      SofedComtrade Pvt. Ltd. has shown a total income of
      Rs.5,150/- only during assessment year 2005-06.

      8.2 In view of the factors mentioned above, the
      creditworthiness of M/s Sofed Comtrade Pvt. Ltd. and the
      genuineness of the transaction are in doubt. In this context, it
      further relevant to note the shares held by M/s Sofed
      Comtrade Pvt. Ltd., were transferred to Smt. Anupama
      Bansal the daughter-in-law of the Director of the assessee
      company Smt. Geeta Devi Aggarwal for a total consideration
                                     10              ITA No.3353/Del./2013)
                                                       CO No.218/Del/2013

      of only Rs.1,50,000/- on 30.06.2006 i.e. at 1/3rd of the cost of
      purchase."


12.5 On the basis of the above submission it was submitted that the

findings given by the Assessing Officer and the CIT(A) that the share

capital received by the assessee is not correct.

12.6 As regards the addition on account of 14A it was submitted that the

assessee company has made an investment of Rs.44,54,119/- out of which

Rs.36,50,000/- within the Group company and in respect of the balance

investment of Rs.8,04,119.50 there is no change in the investment as

compared to the last year. The Assessing Officer was not justified in

invoking provisions of Rule 8D and making this addition in the

assessment year under consideration as Rule 8D is applicable from

assessment year 2008-09 onwards.

13.   We have heard both the parties and considered the material on

record. We have perused the assessment order as well as the CIT(A)

order. On going through the same we notice that the issue is regarding

genuineness of the share capital of Rs.30 lacs received by the assessee

company during the year. Out of this Rs.30 lakh, Rs.20 lakh has been

received from the following three companies:-
                                    11               ITA No.3353/Del./2013)
                                                       CO No.218/Del/2013

      S. No.    Name of investor                              Amount-Rs.

      1.        A.C. Steels & Holdings Pvt. Ltd.              5,00,000/-

      2.        Grewal Steels & Holdings Pvt. Ltd.            10,00,000/-

      3.        Sumit Credit Co. Pvt. Ltd.                    5,00,000/-

                Total                                         20,00,000/-



13.1 The address of these companies was Room No.6/7 on 4th Floor, 6

Clive Road, Kolkata. In this regard the assessee has submitted necessary

details which included copy of the income tax return, balance sheet, bank

statement,   share   application   form,   Certificate   of   Incorporation,

Memorandum & Articles of Association.          Nothing adverse has been

found or commented upon by the Assessing Officer about these

documents submitted by the assessee company. The Assessing Officer's

doubt has arisen merely on the ground that these are Kolkata based

companies, the address of these companies are common. For this he has

carried out enquiry and obtained inspector report which has been quoted

in the assessment order. On the basis of this report, the Assessing Officer

has drawn adverse inference holding that the companies are not in

existence at the place stated. We note that the Assessing Officer is not

correct in drawing such adverse inference on the basis of this report. As

rightly pointed out by the Ld. AR that the inspector has visited this
                                     12              ITA No.3353/Del./2013)
                                                       CO No.218/Del/2013




premises on the evening at 4.30 PM. The inspector has confirmed that

there was an office with a name plate, AS Grewal & Co. The inspector

has further stated that the registered office of these companies belongs to

a tax consultant. On the basis of these findings, the Assessing Officer has

drawn adverse inference and made the addition. We are of the view that

the Assessing Officer is not justified on the basis of this inspector report

to hold that the identity of the shareholder company has not been

established. On the contrary, as rightly pointed out, the common surname

"Grewal" is good enough to indicate that the office of these companies

were at that premises. The inspector did not make any effort to make any

further enquiry about these companies and also Assessing Officer did not

make any effort to carry the investigation further. The sole basis for

making addition about these companies is the inspector report. No doubts

have been raised by the Assessing Officer about the documents filed by

the assessee company. The inspector report as alleged above cannot be a

basis for disbelieving the assessee's version.

13.2 Further in the case of Sofed Comtrade Pvt. Ltd. we note that no

enquiry whatsoever has been done by the AO. The observations made by

him are only raising a doubt without carrying out any investigation.

Surprisingly we note that the AO was having doubt in mind but he never

issued any notice or summon to any of the directors. It is not a case

where any confessional statement has been recorded by any entry
                                     13              ITA No.3353/Del./2013)
                                                       CO No.218/Del/2013

provider of accommodation entry. It is a case of a doubt raised by the

Assessing Officer but such doubt has not been converted into any

evidence or material so as to substantiate the addition. We are of the

view that the additions made by the AO in respect of share capital

received from these four companies are not justified and accordingly the

same is directed to be deleted.

13.3 As regards the fifth company i.e. Prime Vyapar Pvt. Ltd. we note

that the inspector has carried out the enquiry and in this report the

inspector has pointed out that on local enquiry it is revealed that there is

no company called this name at the address and there is only a residential

place at the said premise. The Ld. AR during the course of the hearing

could not rebut this finding of the inspector.

13.4 In view of this specific finding of the inspector which remains un-

rebutted, we are of the view that addition of Rs.5 lacs in respect of the

share capital received from Prime Vyapar Pvt. Ltd. has been rightly been

made by the Assessing Officer and accordingly this addition is

confirmed. Thus the ground no.2 of Revenue appeal and Ground no.7 of

Cross Objection of the assessee is partly allowed.

13.5 The next issue is regarding disallowance of Rs.18,645/- made by

the Assessing Officer invoking the provisions of section 14A read with

Rule 8D.     In this regard we notice that the assessment year under

consideration is 2005-06 and Rule 8D is effective from assessment year
                                  14               ITA No.3353/Del./2013)
                                                     CO No.218/Del/2013

2008-09. Accordingly the Assessing Officer was not justified in invoking

the provisions of Rule 8D for the assessment year under consideration.

We further note that assessee's investment is mainly in group companies.

Considering these facts we delete this addition and this ground no. 8 of

cross objection is allowed.

13.6 With the result appeal of the Revenue and cross objection of the

assessee are partly allowed.

  Order pronounced in open court on this 10th day of October, 2014.

           Sd/-                                   sd/-
        (I.C. SUDHIR)                         (B.C. MEENA)
      JUDICIAL MEMBER                    ACCOUNTANT MEMBER

Dated the 10th day of October, 2014
TS


Copy forwarded to:
     1.Appellant
     2.Respondent
     3.CIT
     4.CIT(A)-I, New Delhi.
     5.CIT(ITAT), New Delhi.                                  AR/ITAT

 
 
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