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M/s Marvel Tea Estate (I) Ltd., VPO, Uklana, Dist. Hisar-125113 Vs. DCIT, Central Circle Karnal
May, 25th 2015
          IN THE INCOME TAX APPELLATE TRIBUNAL
                DELHI BENCH `E', NEW DELHI
   Before Sh. G. C. Gupta, Vice President And Sh. N. K. Saini, AM
           ITA No. 1324/Del/2013 : Asstt. Year : 2003-04
           ITA No. 1325/Del/2013 : Asstt. Year : 2004-05
           ITA No. 1326/Del/2013 : Asstt. Year : 2005-06
M/s Marvel Tea Estate (I) Ltd.,    Vs DCIT, Central Circle
VPO, Uklana, Dist. Hisar-125113       Karnal
(APPELLANT)                           (RESPONDENT)
PAN No. AACCM6183D
           ITA No. 1327/Del/2013 : Asstt. Year : 2004-05
           ITA No. 1328/Del/2013 : Asstt. Year : 2005-06
M/s Marvel Chemicals (I) Ltd.,     Vs DCIT, Central Circle
(Now Renamed as Marvel Global         Karnal
Ltd.), VPO, Uklana, Dist.
Hisar-125113
(APPELLANT)                            (RESPONDENT)
PAN No. AADCM7626A
           Assessee by : Sh. K. Sampat & V. Raj Kumar, Advs.
           Revenue by : Sh. P. Dam Kanunjna, Sr. DR
Date of Hearing : 24.03.2015      Date of Pronouncement : 22.05.2015

                                  ORDER
Per N. K. Saini, AM:

     These five appeals by the assessee are directed against the
separate common orders each dated 31.01.2013 for the
assessment years 2003-04, 2004-05 & 2005-06 relating to the
assessee M/s Marvel Tea Estate (I) Ltd. and for the assessment
years 2004-05 & 2005-06 relating to M/s Marvel Global (I)
                                   2                  ITA Nos.1324 to 1328/Del/2013
                                        Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

Ltd. passed by the ld. CIT(A), Central, Gurgaon. The issue
involved in all these appeals relate to the penalty u/s 271(1)(c)
of the Income Tax Act, 1961 (hereinafter referred to as the
Act). The facts are similar and the appeals were heard together
to so these are being disposed of by this common order for the
sake of convenience and brevity.

2.   First   we   will   deal    with     the     appeal        in    ITA       No.
1324/Del/2013 for the assessment year 2003-04. The only
effective ground raised in this appeal reads as under:

     " That on the facts and in the circumstances of the
     case and in law, the authorities below erred in
     holding that the Appellant had furnished inaccurate
     particulars of income, thereby imposing penalty u/s
     271(1)(c) of the Act in a sum of Rs. 22,96,875/- "

3.   Facts of the case in brief are that a search and seizure operation
was carried out at the business premises of the assessee on 04.09.2008
and thereafter the assessment proceedings u/s 153A of the Act r.w.s
143(3) of the Act were completed after making an addition of Rs.
62,50,000/- on account of paid up share capital in the assessee company.
The assessee was confronted with the findings of the Investigation Wing
of the Income Tax Department as regards the shareholders who were
found not existing at the given addresses. It was therefore implied that
those entities were made by the group on paper only to introduce its
unaccounted income generated from tea business as bogus share capital.
                                    3                 ITA Nos.1324 to 1328/Del/2013
                                        Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

The assessee on confronting surrendered the amounts involved vide
letter dated 10.05.2010, furnished during the course of assessment
proceedings, enclosing therein a list of the entities. The AO however
proceeded to levy the penalty u/s 271(1)(c) of the Act holding that there
was sufficient material and circumstances which lead to the reasonable
conclusion that the amount of the share capital introduced during the
year represented the assessee's income and there was conscious
concealment on the part of the assessee. The AO also noted that as the
assessee had not preferred appeal against the addition and having paid
all due taxes, it was evident that the onus cast upon the assessee
remained un-discharged. Accordingly, penalty u/s 271(1)(c) of the act
was levied for a sum of Rs. 22,96,875/-.

4.   Being aggrieved the assessee carried the matter to the ld. CIT(A)
and submitted that it had voluntarily surrendered Rs. 62,50,000/- on
account of share capital which was accepted by the AO while passing
the order u/s 153A(1)(b) of the Act and that during the assessment as
well as the penalty proceedings all relevant evidences/explanation were
submitted including the identity proof, PAN, copy of income tax return,
MOA, COI form no. 18 & 32 etc. It was further submitted that to prove
the creditworthiness, the assessee submitted duly sworn and notarized
affidavit from the creditor deposing on oath all those facts as stated in
the confirmation. It was further stated that neither the transactions were
in cash nor did the assessee deposited cash in its bank account for the
                                    4                 ITA Nos.1324 to 1328/Del/2013
                                        Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

equivalent amount just before issuance of bank draft/cheques and that
there was no concealment of income as the surrender had been made on
agreed basis. It was also stated that the surrender and non-filing of
appeal against addition could not be made the basis of imposing the
penalty. The other submissions of the assessee before the ld. CIT(A) as
incorporated in para 5.2 of the impugned order are reproduced verbatim
as under:

    "5.2. It was further submitted as under:

          Further confirmation of all the applicants have submitted
    with other evidences in which they confirmed that they have
    invested in our shares. As well as duly sworn and notarized
    affidavit from the applicant deposing on oath all these facts as
    stated in the confirmation. In the circumstances, all the shares
    applicants were and are identifiable and creditworthy. The
    mere facts the Directors of applicant companies are not
    produced as asked by AO, cannot make the identity of the
    shareholder doubtful. When documentary evidence was placed
    on record to prove the identify of all the shareholders including
    their PAN/GIR numbers and filling of other documentary
    evidence in the form of ration cara etc. which had neither been
    controverted nor disproved by the AO, then no further
    interference, is called for. It is undisputed that all the share
    applicants has confirmed their investment in the share capital
    of the appellant company, had given their PAN, were assessed
    to tax, relied on CIT Vs Makhni and Tyagi (P) Ltd. Reported in
    267 ITR 433 (2001).

          Department has also accepted in assessment order itself
    that "the details regarding introduction of share application
    were given through income tax return and as well as through
                                 5                 ITA Nos.1324 to 1328/Del/2013
                                     Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

 registrar of companies. All the details, regarding share
 application money were also produced during the year.

       Further it is well established in various case decisions
 that the assessing officer cannot make the addition on account
 of unexplained share capital far the following reasons:

i) The applicants concerned were identified.
ii) The applicants confirmed the payment of money to the
      appellant for purchase of shares.
iii) The transactions in question were by cheques/bank
      draft.
iv) The affidavit of the subscribers are filed indicating
      their full address, details of deposits made with the
      appellant and sources where from money was obtained
      to make the deposits. Copies of bank accounts were
      furnished. These affidavits were notarized. There was
      no ground for disbelieving the contents of the affidavits.
v) Subscribers were companies incorporated with the
      Registrar of Companies. Proper inquiries would have
      revealed the true facts of the case. The appellant cannot
      be faulted if there was no limit to rebut.
vi) The shares have been allotted to the shareholders and
      return of allotment has been submitted to the Registrar
      of Companies.
vii) The existence of these companies i.e. deposits of shares
      application money has also been verified from the
      website of department of companies' affairs. The
      existence of the shareholders therefore cannot be
      doubted.
                              6                   ITA Nos.1324 to 1328/Del/2013
                                    Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

 In the assessment order, AO has quoted "assessee also failed
to produce affidavit from the directors proving the source of
capital introduced and also failed to produce the directors of
such companies."




      Where as we have submitted affidavits from the directors
of all companies in which they have confirmed that they have
invested in shares of our companies

     Not only affidavits but confirmations from all the share
applicants are also submitted.

      Further the transactions are related to 6-7 years ago
therefore it would take so much time to reconstitute all the
things. But no sufficient time has been provided to us to
produce directors of the companies and were compelled to take
decision of surrender under hectic conditions.

Here we also want to submit that:
No legal obligation       Observation like non production
on the assessee to        of share applicants/affidavits do
produce director          not support the AO. At the time,
                          we are not in the position to
                          produce directors before AO. If
                          AO want to investigate the
                          existence of companies, they
                          should       have     to     issue
                          notice/summons to the companies'
                          and it is nowhere mentioned in the
                          order          whether         any
                          notice/summons were issued. In
                          this case assessee cannot be held
                          responsible for non production of
                          directors.
    7                 ITA Nos.1324 to 1328/Del/2013
        Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

Further there was no legal
obligation on the assessee to
produce      director    of    other
representative of the applicant
companies before the AO, as held
in the following case:
In the case of CIT vs. Victor
Electronics Ltd. ( supra) ( 2010)
42 DTR (Del) 152, it has been
clearly laid down by the Hon'ble
Delhi High Court that
"There is no obligation on the
assessee to produce director or
representative of the applicant
companies before the AO, and
therefore, failure of assessee to
produce them could not, by itself,
have justified the additions made
by the Assessing Officer, when the
assessee        had       furnished
documents, on the basis of which,
the AO, if he so wanted, could
have     summoned       them     for
verification. Similarly, in the
present case, mere because
directors of share applicants
companies were not found
available at the addresses given
that by itself is not sufficient for
the AO to reject assessee's case
when the assessee has furnished
all documents relating to share
applicants,     such     as    their
permanent account no., details of
Income-        tax     assessment,
                               8                 ITA Nos.1324 to 1328/Del/2013
                                   Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

                           registration of companies under
                           companies act and bank details."
                           Similar circumstances exist in the
                           case of Income Tax Officer, ward
                           11(3), New Delhi. Vs. M/s
                           Francotyp Postalia India Pvt.
                           Ltd., ITA No. 671/Del/2010
                           assessment year 2006-07 where
                           decision of the CIT(A) is uphold
                           by INCOME TAX APPELLATE
                           TRIBUNAL, DELHI BENCH `B'
                           NEW DELHI in deleting the
                           addition of Rs. 31,80,000/- on
                           account of share application
                           money received by the assessee.

In order to prove that all the share applicants exist, we submit
following:
  · All the companies are incorporated in ROC.
  · All the applicants have PAN No. and also filling
     income tax return.
  · We has furnished permanent account number and copy
     of Income tax returns of all the share applicants and the
     same has not been found to be false or untrue by the
     AO.
  · All the applicants are assessed by Income tax
     department for which assessment orders are issued by
     income tax authorities. Whether this is not the sufficient
     evidence of existence of these applicants. The AO did
     not make any verification in this regard either form the
     internal record of the department or from the concerned
     bank. If he so wanted, he could have called for the IT
                               9                 ITA Nos.1324 to 1328/Del/2013
                                   Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

   returns of the share applicants to ascertain whether the
   investment made in our company was reflected in their
   balance sheets or not.
 · In case of corporate applicants balance sheets are
   audited by chartered accountants.
 · Also holding bank account which is quite impossible in
   absence of existence. The share application money was
   received by our company by way of bank drafts,
   through normal banking channels. Nothing prevented
   the AO from summoning the record of the banks from
   which bank draft issued by the applicant companies
   were drawn. No such course was however adopted by
   him.
   AO has not declined that the payment of share
   application money was not made from the bank account
   of the applicant companies.

We have also filed name and address of directors of applicant
companies.
Admittedly, copies of application for allotment of shares were
also provided to the AO.

AO has not declined that the share applications were not signed
on behalf of the applicant companies and were forged
documents or the shares were not actually allotted to the
companies.

We have filed copies of resolutions passed by the board of
directors of applicant companies, besides their hank statements
and IT returns. The addresses of the applicant companies are
recorded in these documents.
                              10                 ITA Nos.1324 to 1328/Del/2013
                                   Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

AO has not declined that the copies of board resolutions, IT
returns and bank statements were not genuine documents.

     These companies are active and properly filling their
income tax return. Further ROC related compliances are
properly complied by these companies which can be verified
from ROC website. Then without proper verification, how AO
can decide that these companies are not in existence.

     The AO has merely relied upon the Investigation wing
without referring to the evidences or materials on the basis of
which it could be said that the companies are bogus. The AO
has not made any enquiry from the respective AO assessing
those share applicants. The AO has also not made any enquiry
from the office of registrar. The AO has also not made any
enquiry from the office of ROC about existence of these
companies and the details of their directors.

As held by ITAT, DELHI F Bench in the case of INCOME TAX
OFFICER vs. PURVI FABRICS & TEXTURISE (P) LTD. ITA
No. 4382/Del/2009 AY 2001-02 (2010) 47 DTR (Del) (Trib.)
225 that there was no legal obligation on the assessee to
produce some directors or other representative of the share
applicant companies before the AO and failure of assessee to
produce them would not by itself be sufficient to make the
addition by the AO particularly when the assessee had
furnished documents in support of the genuineness of the share
application money received by the assessee.

In other decision of the Delhi High Court in case of CIT vs.
Victor Electrodes Ltd. in ITA No. 586 of 2010 dated 12th May
2010 [reported at (2010) 42 DTR (Del) 157- Ed.] similar view
has been taken by the Hon'ble Delhi High Court that once the
details of IT returns, bank statements etc. with regard to the
various share applicants have been provided, the mere fact that
                               11                 ITA Nos.1324 to 1328/Del/2013
                                    Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

parties were not produced before the AO was not good enough
for making the addition. The Hon'ble Court has held that since
the AO had not made any efforts to find out the latest address of
the directors and details of these companies, the identity of the
share applicants and the genuineness of the transactions were
held to be genuine on the basis of records and details submitted
by the assessee. The issue was decided in favour of the assessee
and against the Revenue. In the present set of facts also the AO
has been provided various opportunities through remand
proceedings to carry out any inquires or make verifications
with regard to PAN and other details of the share applicants.
Through letter dated 22nd Feb., 2010 the AO was specifically
asked to make any inquires required and issue any summons to
different parties for controverting the documents submitted by
the Authorised Representative of the appellant regarding the
identity and genuineness of the transaction. The relevant
portion of the letter of the office of the CIT(A) is as under:

      Various documents have been enclosed for establishing
the identity and genuineness of the transaction. It has also been
argued that the facts of the case are similar as that of the AY
2006-07 where the issue has been decided in favour of the
appellant.

Similar decision held by ITAT DELHI A BENCH in the case of
ASSISTANT COMMIS5IONER OF INCOME TAX vs AJNARA
INDIA LTD. ITA No. 3612/Del/2010 (2011) 135 TTJ (Del) 430
(2011) 49 DTR 273

 Madam, there was no attempt made by the AO to summon the
director of the applicant companies. The addresses of these
companies are available on the share application forms,
memorandum and articles of association and their IT returns. If
the AO had any doubt identity of the share applicants, he could
                                12                 ITA Nos.1324 to 1328/Del/2013
                                     Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

have summoned the directors of the applicant companies. No
such attempt was, however, made by him.

      Similarly in the case of SOPHIA FINANCE LIMITED it
has been held that if the shareholders are identified and it is
established that they have invested money for the purchase of
shares, then the amount received by the company would be
regarded as a capital receipt. It is further submitted that from
all the material placed on record by us, there is no doubt that
we have fulfilled the onus of establishing the source of share
capital, genuineness of the transaction and the credit
worthiness of the shareholder.

      With reference to the genuineness of the transaction it is
submitted that the payments were received by account payee
cheques/bank draft only. A perusal of the bank statement of the
investor company makes it clear that it had made many such
transaction during the year under assessment and that this was
not the only transactions that had taken place during the year.

      With reference to creditworthiness it is submitted that the
assessee company was not required to prove the source as has
been held in the case of Daulatram Rawatmull 1972 CTR (SC)
411 (1973) 87 ITR 349 (SC). It is further submitted that the
applicability of section 68 of the Act to the share capital is very
limited as has been held in the case of CIT vs. SOPHIA
FINANCE LMITED (1993) 113 CTR (Del) 472 (1994) 205 ITR
98 (Del). Since the amount has been deposited through the
normal banking channel, their creditworthiness could not be
doubted in view of the decision in Sophia Finance Co., case
Supra. Therefore no addition is called for in the hands of the
assessee.

     On being perusal of assessment order, we found that AO
has drawn adverse inference from offer of surrender. We have
                                13                 ITA Nos.1324 to 1328/Del/2013
                                     Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

 surrendered this amount only for peace of mind with the
 condition of no penalty therefore such addition cannot be a
 basis to treat us having concealed particulars of income or
 having furnished inaccurate particulars of income. It is quite
 wrong that there was wrong intention because the entire share
 capital stood disclosed to the department as having been
 entered in the. regular account books maintained by our
 company prior to the date of search on 04.09.2008, under
 section 132 against Marvel Tea Estate (I) Ltd., as per details
 given by the AO himself in assessment order u/s 153A(1)(b) of
 IT Act, 1961.

      The details of shareholders were filed before the ROC,
 New Delhi and therefore, the AO has no reason to treat the
 share capital as undisclosed income of assessee. Therefore,
 there was no concealment on our part. The levy of penalty
 without any material against assessee is unwarranted and
 inconsistent with the provision of law.

 In this regard, in order to substantiate our fact, we submit as
 follows: There is no concealment of Income
 In order to levy the penalty u/s 271(1)(c) of the Act, following
 conditions should be satisfied.

 If any person has
   a) Concealed the particulars of his income, or
   b) Furnished inaccurate particulars of his income
   c) Concealed the particulars of fringe benefits, or
   d) Furnished inaccurate particulars of such fringe
      benefits.
But in our case:
  a) There was no any concealment of income
                               14                 ITA Nos.1324 to 1328/Del/2013
                                    Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

 b) We have not furnished any inaccurate particulars of
    income. We have only surrender the amount for peace
    of mind subject to no penalty. But Ld. Income Tax
    Authority has accepted the 1st condition of surrender
    but not considered the 2nd condition of no penalty.
 c) There was no any concealment of fringe benefits.
 d) We have not furnished any inaccurate particulars of
    fringe benefits.
   Leaving aside the technically or legality of the matter, it is
submitted with due regards that, it is not out of place to submit
that at the time of completing assessment, surrender was
offered only to buy peace of mind and with the precondition
that we will not be liable for any panel action in respect of the
same. It is also amply clear from our stand which we took as
per mutual agreement that we did not file any appeal before
any appellate authority against the addition made as we were
under bonafide belief that no penalty proceedings shall be
initiated as mutually agreed and discussed with regard to the
surrender made. We have paid the full taxes on the demand
created on the addition made. Hence keeping in view our
discussions and our commitment, penalty should not be levied.

Further, Assessee relied on a plethora of cases to submit that
there was no concealment in regard to the share capital. The
same was duly shown in the balance sheet filed with income tax
return in Income Tax Deportment for the relevant year.

     The offence of concealment is a direct attempt to hide an
item of income or a portion thereof from the knowledge of IT
authorities. In the present case we have not concealed the
amount of share capital and proper details were given to
income tax department through income tax return and as well
as Registrar of companies. All the details regarding share
                                     15                 ITA Nos.1324 to 1328/Del/2013
                                          Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

     capital were also produced during the assessment proceedings
     and penalty proceedings.

     We have surrendered during assessment proceedings despite of
     the fact that we have all documentary evidences of share
     capital just to purchase peace with a condition that no penalty
     proceedings will be initiated. Interest and tax on this
     surrendered amount itself was so heavy that it was like penalty
     and further imposition of penalty has ruined the humble
     petitioner because practically there was no concealment except
     a compromise to avoid litigation.

           Further it is important to mention here that our books of
     accounts have been scrutinized u/s 143 (3) for "the assessment
     year 2003-04 by the Addl. Commissioner of Income Tax, Hisar
     and he has properly verified each and every detail of share
     applicants and made no any doubt regarding existence of share
     applicants. Further it is no worthwhile to mention that our
     books of accounts are also scrutinized u/s 143(3) for the AY
     2004-05 and 2005-06. All the details regarding share capital of
     the company are duly verified by Ld. Income Tax Authorities in
     each year. Therefore there is no question arises regarding
     concealment of income."

5.    The assessee also contended that the surrender was on agreed basis
and was conditional and also submitted as under:

     "Thus in the light of all above facts placed before you, it is well
     settled that under the situation as in our penalty could not be
     levied. There is no accuracy in the fact that there is any
     concealment of any income. At a certain point of time, with a
     view to avoid litigation and to buy peace of mind we agreed to
     surrender the amount subject to no penalty and paid tax on
     such income. We also paid whole the demand of penalty. We
                                    16                 ITA Nos.1324 to 1328/Del/2013
                                         Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

     only want to channelize the energy and our resources towards
     productive work and to make amicable settlement with the
     department that is why we offered to surrender the amount as
     income subject to condition that offer is by way of voluntarily
     disclosure without admitting any concealment and subject to no
     initiation of penalty."

6.    The ld. CIT(A) after considering the submissions of the assessee
observed that the penalty u/s 271(1)(c) of the Act is to be levied if the
assessee has concealed particulars of income or had furnished inaccurate
particulars of such income. He further observed that the assessee
introduced its share capital through certain companies, despite knowing
the fact that those companies were existing only in paper. The ld.
CIT(A) mentioned that no doubt the share capital was raised in the
assessment years 2003-04, 2004-05 and 2005-06 which had been
disclosed in its returns of income filed u/s 139(1) of the Act and those
returns were also assessed u/s 143(3) of the Act. However, the entire
activity came to light only after a search was conducted on the assessee
group of companies and consequent to which proceedings were initiated
u/s 153A of the Act. The ld. CIT(A) pointed out that as per the
provisions of section 153A(1) of the Act, once the assessee is subjected
to the process of section 132(1) of the Act, the AO has to assess the total
income of the assessee and while determining the same, he has to
consider both the disclosed and the undisclosed income. The ld. CIT(A)
observed that there is no condition u/s 153A of the Act that the additions
should be made on the basis of evidence found in the course of search or
                                    17                 ITA Nos.1324 to 1328/Del/2013
                                         Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

the post search materials or information available with the AO which
could be relatable to evidence found, therefore, the information in the
original assessment was of no consequence as assessment was framed
de-novo in respect of the income escaping tax. The ld. CIT(A) further
observed that the imposition of penalty was not dependent on the
consent or otherwise of the assessee on the basis of an agreed surrender,
what was germane was the facts of the case leading to the conclusion
that the assessee had consciously acted to conceal and file inaccurate
particulars of its income. The ld. CIT(A) observed that the assessee was
confronted with the findings of the Investigation Wing during the
assessment proceedings and requiring him to file full evidence of the
additions to its share capital and to produce the directors of the investor
company with affidavits for verification but the same was not complied
with, which persuaded the assessee to voluntarily surrender the amount
of Rs. 65,00,000/-, Rs. 40,00,000/- and Rs. 15,00,000 for the assessment
years 2003-04, 2004-05 and 2005-06 respectively vide letter dated
10.05.2010. The ld. CIT(A) further observed that it was by virtue of
investigation carried out by the department regarding various companies
used to make accommodation entries and assessee's inability to produce
the directors of the companies who had invested in its shares, during the
subsequent proceedings that led to the assessee coming forward to
accept the introduction of its unaccounted money as share capital
through these entities. The ld. CIT(A) also observed that the surrender
                                   18                 ITA Nos.1324 to 1328/Del/2013
                                        Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

letter was filed by the assessee consequent to further query by the AO.
So, there was no requirement of further investigation by the AO as
challenged by the assessee, when the findings of the Investigation Wing
were available and assessee suo-moto had came forward with the
surrender letter. Accordingly, the penalty levied by the AO was
confirmed.

7.     Now the assessee is in appeal. The ld. Counsel for the assessee
reiterated the submissions made before the authorities below and further
submitted that all the documents relating to the introduction of share
capital in the assessment years 2003-04, 2004-05 and 2005-06 were
furnished before the AO during the course of regular assessment
proceedings and the AO after proper verification, framed the assessment
u/s 143(3) of the Act. The ld. Counsel for the assessee referred to the
page no. 8 of the penalty order dated 28.03.2011 and submitted that the
assessee proved the identity and the existence of the company by
furnishing the following documents:

     Ø Proof of filing of income tax return in the shape of ITR
     Ø Application for investment in shares.
     Ø Proof of allotment of shares made by the assessee company in
       shape of Form No. 2 and receipt of ROC.
     Ø Affidavit for investing in equity shares of the assessee
       company.
     Ø Copy of bank statement of both sides.
     Ø Copy of MOA
     Ø Copy of certificate of Incorporation.
                                    19                 ITA Nos.1324 to 1328/Del/2013
                                         Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.


  It was further submitted that the aforesaid documents were also
furnished during the course of assessment proceedings u/s 153A(1)(b) of
the Act, which established that all the companies were genuine. It was
also submitted that the AO asked the assessee to furnish the names and
addresses of all the persons from whom the share capital money was
raised, details of amount with their PAN, copy of IT returns, copy of
receipt along with date. It was stated that the assessee furnished all the
requisite information and discharged the onus cast upon it. It was further
stated that the payments were received by account payee cheques and
that the bank account statement of the investor company made it clear
that many such transactions were made during the year and it was not
the only transaction that had taken place during the year, therefore, only
on the basis that the assessee surrendered the amount, it was not
sufficient to levy the penalty u/s 271(1)(c) of the Act. It was submitted
that section 271AAA of the Act has been inserted w.e.f 01.04.2007 and
Sub-section (3) of the said section provides that no penalty under the
provisions of clause (c) of Sub-section (1) of section 271 of the Act shall
be imposed upon the assessee in respect of undisclosed income where
search has been initiated u/s 132 of the Act on or after the 1st day of
June, 2007. It was further submitted that the penalty was not leviable u/s
271(1)(c) of the Act because the search took place on 04.09.2008 and
that the penalty, if any was to be levied, it was leviable u/s 271AAA of
the Act. It was contended that in the instant case no penalty was leviable
                                   20                 ITA Nos.1324 to 1328/Del/2013
                                        Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

as per the provisions of Sub-section (2) of section 271AAA of the Act
because the assessee substantiated the manner in which the amount on
account of share capital was received and gave all the information
during the course of assessment proceedings, therefore, the penalty u/s
271(1)(c) of the Act levied by the AO and sustained by the ld. CIT(A)
was not justified.

8.   In his rival submissions that the ld. DR strongly supported the
impugned order passed by the ld. CIT(A) and reiterated the observations
made in the penalty order by the AO as well as in the impugned order of
the ld. CIT(A).

9.   We have considered the submissions of both the parties and
carefully gone through the material available on the record. In the
present case, it is an admitted fact that the assessee disclosed all the
information relating to the increase in share capital i.e. the form of
application for investment in shares, proof of allotment of shares in the
shape of Form No. 2 and receipt of ROC, affidavit for investment in
equity share of the assessee, copy of bank statement of the assessee as
well as the investor, copy of memorandum of Association, copy of
certificate of incorporation and proof of filing of the Income Tax
Returns by the investor. Therefore, it cannot be said that the assessee
concealed any particulars or information relating to the share
applications from the department. The aforesaid fact has also been
                                    21                 ITA Nos.1324 to 1328/Del/2013
                                         Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

admitted by the AO at Page No. 11 of the penalty order wherein he has
mentioned as under:




    "The fact that despite providing the details like proof of Income
    Tax Return, PAN, copy of certificate of incorporation, MOA etc.,
    the assessee chose to surrender the introduction of share capital
    being bogus. If this was not the case, he would not have
    produced a letter of surrender during the assessment
    proceedings. What more is pertinent to note that it was as a
    result of investigation carried out by the Department that the
    assessee was forced to furnish a letter of surrender by accepting
    that the share capitals introduced by him was his own
    unaccounted money given the colour of genuineness through
    various entities. It is simple that nobody will offer any amount
    for taxation unless it has been generated through unaccounted
    sources."

10. From the aforesaid observation of the AO, it is clear that whatever
was added that was the result of investigation carried out by the
Investigation Wing of the Department. However, the AO during the
course of regular assessment proceedings u/s 143(3) of the Act was fully
satisfied with the explanation of the assessee and no addition was made
in spite of the fact that all the information relating to increase in share
capital were furnished by the assessee. So, it cannot be said that the
assessee concealed any information or particulars from the department.
It is well settled that penalty proceeding and assessment proceedings are
two different and distinct proceedings. In such type of cases, there can
be many reasons for making the surrender but the surrender itself is not a
conclusive proof of concealment of income or furnishing of inaccurate
                                    22                 ITA Nos.1324 to 1328/Del/2013
                                         Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

particulars of income. In the present case, it is also noticed that the AO
levied the penalty u/s 271(1)(c) of the Act. However, for levying the
penalty in search cases the Finance Act, 2007 inserted section 271AAA
of the Act w.e.f 01.04.2007. The said section read as under:

    "271AAA
    (1) The Assessing Officer may, notwithstanding anything
    contained in any other provisions of this Act, direct that, in a
    case where search has been initiated under section 132 on or
    after the 1st day of June, 2007 (but before the 1st day of July,
    2012), the assessee shall pay by way of penalty, in addition to
    tax, if any, payable by him, a sum computed at the rate of ten
    per cent of the undisclosed income of the specified previous
    year.

    (2) Nothing contained in sub-section (1) shall apply if the
    assessee,--
         (i ) in the course of the search, in a statement under sub-
          section (4) of section 132, admits the undisclosed income
          and specifies the manner in which such income has been
          derived;
        (ii ) substantiates the manner in which the undisclosed
          income was derived; and
       (iii ) pays the tax, together with interest, if any, in respect
          of the undisclosed income.
    (3) No penalty under the provisions of clause (c) of sub-section
    (1) of section 271 shall be imposed upon the assessee in respect
    of the undisclosed income referred to in sub-section (1).

     (4) The provisions of sections 274 and 275 shall, so far as may
    be, apply in relation to the penalty referred to in this section."
                                    23                 ITA Nos.1324 to 1328/Del/2013
                                         Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

11. From the plain reading of Sub-section (1) of section 271AAA of
the Act, it is clear that the penalty under this section may be levied if a
search action is taken u/s 132 of the Act on or after first day of June,
2007 but before the first day of July, 2012 (as inserted for the Finance
Act, 2007 w.e.f 01.04.2007). However, Sub-section (3) of section
271AAA clearly states that no penalty under the provisions of clause (c)
of Sub-section (1) of section 271 of the Act shall be imposed upon the
assessee in respect of the undisclosed income referred to in Sub-section
(1) i.e. the undisclosed income found after the search, the word "shall"
used in Sub-section (3) to section 271AAA of the Act makes it
mandatory, therefore, the penalty u/s 271(1)(c) of the Act was not
leviable in the present case. Therefore, it can be said that the AO
wrongly invoked the provisions of section 271(1)(c) of the Act and
levied the penalty under said section. In the present case, since the
search took place on 04.09.2008 i.e. after first day of June 2007,
therefore, penalty if any was leviable that was to be levied u/s 271AAA
of the Act but not u/s 271(1)(c) of the Act. We, therefore, considering
the totality of the facts and the provisions contained in section 271AAA
of the Act are of the view that the penalty levied by the AO u/s 271(1)(c)
of the Act was not justified and the ld. CIT(A) wrongly upheld the
penalty levied by the AO. In that view of the matter, we set aside the
impugned order and delete the penalty levied by the AO u/s 271(1)(c) of
the Act.
                                       24                 ITA Nos.1324 to 1328/Del/2013
                                            Marvel Tea Estate Ltd. & Marvel Chemicals Ltd.

12. The facts for the assessment years 2004-05 and 2005-06 in ITA
Nos. 1325 & 1326/Del/2013 in the case of M/s Marvel Tea Estate (I)
Ltd. i.e. the assessee and in ITA Nos. 1327 & 1328/Del/2013 in the case
of M/s Marvel Global Ltd., VPO Uklana, Distt. Hisar are similar to the
facts involved in ITA No. 1324/Del/2013 are similar, therefore, our
findings given in the former part of this order shall apply mutatis
mutandis for these appeals also.

13.      In the result, the appeals filed by the assessees are allowed.
 (Order Pronounced in the Court on 22/05/2015)

        Sd/-                                             Sd/-
  (G. C. Gupta)                                      (N. K. Saini)
VICE PRESIDENT                                  ACCOUNTANT MEMBER
Dated: 22/05/2015
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
                                                         ASSISTANT REGISTRAR

 
 
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