Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: VAT RATES :: empanelment :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit :: due date for vat payment :: TDS :: ACCOUNTING STANDARD
From the Courts »
 Group M. Media India Pvt. Ltd vs. UOI (Bombay High Court)
 Shreemati Devi vs. CIT (Allahabad High Court)
 Vatsala Shenoy vs. JCIT (Supreme Court)
  Dr. Gautam Sen vs. CCIT (Bombay High Court)
 Dr. Gautam Sen vs. CCIT (Bombay High Court)
 DCIT vs. Shivshankar R. Sharma (ITAT Mumbai)
 ACIT vs. Jawaharlal Agicha (ITAT Mumbai)
 CIT vs. M/s. D. Chetan & Co (Bombay High Court)
 Makes further amendments to Notification no. 157/90-Customs dated 28th March, 1990 regarding temporary admission under the ATA Carnet
 Appointment of Common Adjudicating Authority by DGRI - 2/2016-Customs

Angel Pipes and Tubes Pvt. Ltd. 110/112, 1st Floor, Kumbharwada, Mumbai-400 020 Vs. Income Tax Officer-5(1)(1), 5 th Floor, Income Tax Office, M. K. Road, Mumbai-400 001
August, 14th 2014

        ,       ,                                     

                     ./I.T.A. No. 405/Mum/2012
                   (   / Assessment Year: 2008-09)
Angel Pipes and Tubes Pvt. Ltd.       Income Tax Officer-5(1)(1),
110/112, 1 Floor, Kumbharwada,      / 5th Floor, Income Tax Office,
Mumbai-400 020                  Vs.   M. K. Road, Mumbai-400 001

     . /  . /PAN/GIR No. AAFCA 9203 P
         (   /Assessee)                     :              (  / Revenue)
                    ./I.T.A. No. 1424/Mum/2012
                   (   / Assessment Year: 2008-09)
Income Tax Officer-5(1)(1),         Angel Pipes and Tubes Pvt. Ltd.
5 Floor, Income Tax Office,   / 110/112, 1st Floor, Kumbharwada,
M. K. Road, Mumbai-400 001     Vs.  Mumbai-400 020

     . /  . /PAN/GIR No. AAFCA 9203 P
          (  / Revenue)                     :             (   /Assessee)

          / Assessee by                    :     Shri Pramod Kumar Parida

            /Revenue by                    :     Shri S. J. Singh

                        /                  :     13.05.2014
                  Date of Hearing
                                           :     13.08.2014
          Date of Pronouncement

                                   / O R D E R
Per Sanjay Arora, A. M.:
      This is a set of two appeals, i.e., by the Assessee and the Revenue for the
assessment year (A.Y.) 2008-09, arising out of the Order by the Commissioner of Income
                                                  ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                 Angel Pipes and Tubes Pvt. Ltd.

Tax (Appeals)-9, Mumbai (`CIT(A)' for short) dated 05.12.2011, partly allowing the
assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (`the
Act' hereinafter) vide order dated 23.12.2010. The appeals raising common issues, were
taken up for hearing together and are being disposed of likewise for the sake of

The background facts
2.     We shall begin by recounting the background facts of the case, being relevant. The
assessee-company, incorporated as Mandarika Proteins Limited on 25/07/1995, is a
manufacturer and dealer in ferrous and non-ferrous metals, with an authorized capital of
Rs.50 lacs (as per its Balance sheet as on 31/03/2008). It was during the course of
assessment proceedings observed to have raised capital of Rs.616.925 lacs during the
relevant year, including share premium of Rs.517.50 lacs, i.e., at over 520% of the
nominal value. Notices under section 133 (6), issued to 21 companies who had
subscribed to the share capital as per details furnished by the assessee, yielded response
from only one company, M/s. Om Procurement & Projects Ltd., which had made
investment of Rs. 20 lacs, in the form of bank statement and acknowledgement of its
return of income for the relevant year. Copy of share certificate(s), final accounts and the
computation of income, also called for, were not furnished. One, Sh. Girish Chand
Yadav, introduced as director of the six companies, representation from whom was
sought by the Assessing Officer (AO), was produced by the assessee on 07/12/2010, and
his statement recorded u/s. 131 of the Act in the presence of the assessee's representative,
Shri Nishant S. Mehta, C.A. He, therein, averred to be in the business of Dalali (broking
services) in textiles fabrics; to have invested Rs.1 lac each in acquiring the said
companies, whose address was at H-157, Dr. Baba Saheb Ambedkar Nagar, S.M. Road,
Kokari Agar, Sion Koliwada, Mumbai 400 037, and that he would furnish the address
proof later. He stated his educational qualification as matric and, further, of not being an
assessee on the records of the Department. He also denied being a director of one of the
said six companies, i.e., M/s. View Mercantile P. Ltd. A perusal of his balance sheet,
                                                 ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                Angel Pipes and Tubes Pvt. Ltd.

however, did not exhibit any loans, which were stated by him to be the principal source
of capital invested by him in the said companies (pages 2-5 of the assessment order).
Girishchand Yadav was also produced on 16/12/2010, whereat he stated himself to be a
director also of View Mercantile (P.) Ltd. Further, the details called for on 20/12/2010
were not provided, even as the assessee sought a copy of the statement recorded on
07/12/2010 vide letter dated 23/12/2010, the date of the assessment order. The assessee,
in the opinion of the AO, had not at all proved, much less satisfactorily, the impugned
credits, on the parameters of genuineness, capacity and identity, even failing to adduce
the correct addresses of the investing companies. Accordingly, he deemed the entire
capital raised as unexplained credit and brought the same to tax as income u/s. 68 of the
Act, relying on the decisions in Velji Deoraj & Co. v. CIT[1968] 68 ITR 708 (Bom) and
A.D. Jayaveerapandia Nadar v. CIT [1964] 54 ITR 401 (Mad.) (pages 6-7 of the
assessment order).
       In appeal, the assessee furnishing additional evidences, a remand report was called
from the AO, the relevant part of which (dated 28/09/2011) is reproduced in the
impugned order (pages 6-11). It stands explained thereby as to why the Revenue had
chosen to concentrate on those six companies; the same having been subject to
investigation by the investigating wing of the Department, consequent to a search &
seizure action u/s. 132 in the case of KSL Industries Ltd. and Reward Real Estate Co.
Ltd. (forming part of KSL group of companies), who were, among others, alleged to have
taken bogus purchase bills from those six companies, and were thus involved in bogus
billing racket. The assessee-company was a beneficiary of such bogus billing and the
Revenue suspected the income generated on account of such bogus claims (of purchases)
to have been introduced in the form of share capital. Further on, the details of the
investigation as carried out by the AO during the assessment proceedings were also spelt
out, whereby the addresses furnished were either found non-existing or as being only a
transit camp, with no company existing. Only one address, of Om Procurement &
Projects Ltd., was found to be of the relevant investor, though even in that case the name-
board at the entrance was of one, Sh. Dilip S. Mehta, a Chartered Accountant and a
                                                 ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                Angel Pipes and Tubes Pvt. Ltd.

director in the said company, who was the person behind floating such bogus companies
and involved in the racket of bogus billing and providing accommodation entries.
Thirdly, the bank details of the investors revealed deposit on one day and its withdrawal
on the same or the following day by way of share subscription, clearly impugning the
genuineness of the investment. Then, again, a reference was made to the recalcitrant
conduct of the assessee during the course of the assessment proceedings. The addition, it
was submitted, was based on definite materials, and it stood proved beyond doubt that it
was the assessee's own unaccounted money introduced as share capital and, accordingly,
the assessee's claim, made with reference to the additional evidences, sought to be
       The learned CIT(A), after recording the relevant part of the remand report dated
28/09/2011, as well as the assessee's submissions in reply, noted that Shri Dilip S Mehta,
Shri Mahavir Dugal, Ms. Sangeeta J. Sawant and Shri Girish Chand Yadav, had
consistently admitted before the jurisdictional Assessing Officers and the investigating
wing of the Revenue to have been involved in issuing bogus billing and bogus share
applications. The assessee had clearly failed to establish the genuineness of the impugned
credits. The law in the matter was clear, and toward which he relied on the decisions in
case of Yash Pal Goel v. CIT [2009] 181 Taxman 175 (P&H); Blowel Auto P. Ltd. v. Asst.
CIT [2009] 177 Taxman 261 (P&H); B. Desraj v. CIT [2008] 171 Taxman 481 (Ker); and
CIT v. Ruby Traders & Exporters [2004] 134 Taxman 29 (Cal). Accordingly, he
confirmed the addition under section 68 in principle, though allowed relief to the assessee
to the extent of Rs.41.925 lacs, being old credits, inasmuch as section 68 is applicable
only to credits made in the assessee's books of account during the relevant year.
Aggrieved, both the assessee and Revenue are in appeal.

The respective cases
3.     Before us, the assessee's principal case, made with reference to its additional
ground 1(a), was of denial of natural justice. The ld. CIT(A) had relied on the statements
recorded behind its back, i.e., without confronting the same to the assessee. Reliance in
                                                  ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                 Angel Pipes and Tubes Pvt. Ltd.

this regard was made to the case of Kishanchand Chellaram vs. CIT [1980] 125 ITR 713
(SC). The Revenue's case, on the other hand, was that the ld. CIT(A), in doing so, had
only confirmed and buttressed the findings of the AO, who had clearly, and in
unambiguous terms, stated his dissatisfaction, as well as reasons therefor, with the
assessee's expalanation qua the impugned credits. The AO's non-satisfaction has
nowhere being challenged by the assessee, which could only be on facts. Where, then,
was the necessity of furnishing the said statements to the assessee. Reliance was also
placed on the decision in case of Major Metals Ltd., 19 176 (Bom), which
was also a case of issue of shares at a premium, which was found by the hon'ble court as
completely unjustified and, thus, unexplained in the facts and circumstances of case. The
decision in case of Nova Promoters & Finlease P. Ltd. 18 217 (Del) was
pressed to meet the assessee's reliance on the decision of case of CIT vs. Lovely Exports
P. Ltd. [2008] 216 CTR (SC) 195. Qua its appeal, the Revenue's contention was that the
deletion had been directed by ld. CIT(A) without allowing the opportunity to the AO.

4.     We have heard the parties, and perused material on record.
4.1    The assessee before us has not in any manner repudiated the findings of the AO as
per the assessment order and the remand report called for by the first appellate authority,
being in fact only a statement and dilation of the basis of his non satisfaction per the
assessment order. There has been no reliance by the AO on the statements of the several
persons recorded by the investigating authorities of the Department and the jurisdictional
Assessing Officers, in arriving at his non satisfaction with the assessee's explanation as to
the nature and source of the impugned credits under section 68. The matter is purely
factual in-as-much as the said non-satisfaction is to be based on materials and evidences
led by the assessee. The onus would fall on the Revenue only where the assessee
discharges the initial onus on it, so that the Revenue, where it seeks to repudiate the
same, would have to lead evidence/s, duly confronting the same to the assessee. The sole
purview of an appellate authority, including the first appellate authority, as one such,
                                                   ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                  Angel Pipes and Tubes Pvt. Ltd.

therefore, where appealed against, is the validity or otherwise of the said non-satisfaction
of the AO, and which would be the deciding factor of the appeal.
       In the present case, there has been complete non-discharge by the assessee of the
burden of proof on it. What is the basis of the premium charged on the share capital; the
assessee in fact returning a loss of Rs. 38 lacs? What is the source of the share capital
subscribed to by the six investing companies? The person produced, Sh. Girish Chand
Yadav, was not even sure whether he is a director of one of those companies or not. He
could not state their businesses, much less why his companies chose to invest in the
assessee-company, a loss making company. This is particularly so as the assessee-
company is a private limited company and, therefore, its shares have extremely limited
transferability, so that the investment is, for all intents and purposes, illiquid. What is the
source of funds, i.e., accumulated surpluses or further capital raised by them, either as
equity or debt. The shares are subscribed to in private placement, and therefore not in
response to a public offering. What, then, forms the connecting link between the assessee
and the investing companies, the share subscription, being risk capital, in a private
company being generally limited to friends and relatives of the directors of the investee-
company. These questions, even otherwise relevant, assume critical significance in view
of the Revenue clarifying a link by way of the assessee being one of the beneficiaries of
bogus billing/accommodation entries racket being run by the persons controlling these
companies, as also found on field enquiry during the course of assessment proceedings at
its given address, i.e., of Om Procurement & Projects Ltd., the only company which
responded to section 133(6) notice. And, further, it (assessee) specifying no reason for the
investment, and that too at a huge, inexplicable premium, which is essentially an
economic decision, so that it ought to be and ostensibly guided by economic reason/s.
Why, else, one may ask, would one risk investing his capital in another company? In fact,
there is no clarity whatsoever on the antecedents of the investing companies, with as
much as their addresses being unable to be corrected stated, as it turns out, by the
assessee. The AO's findings in the matter are explicit and roundly stated per the
assessment order as well as the remand report, and based on field enquiries at the
                                                   ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                  Angel Pipes and Tubes Pvt. Ltd.

addresses furnished by the assessee, which are only as specified in Form 2 (Return of
Allotment) submitted by it with the Registrar of Companies. Why, for instance, are the
addresses of the six companies, as clarified by Girish Chand Yadav, different from that
furnished earlier by the assessee? The assessee does not explain the reason for the
difference or furnish proof in respect of restated address, which, as it transpires, is only
the residence of Girish Chand Yadav. A conspiracy and confabulation is immanent; the
person produced, Sh. Girish Chand, a man of no means, much less a man of business,
being only a front man. It is not open for assessee to say that it is not aware of addresses
or the whereabouts of the parties or they are not known to it, even as explained by hon'le
court in Major Metals Ltd. (supra). Girish Chand Yadav, as pointed by ld. DR before us,
is only the assessee's witness, so that nothing turns on the AO refusing the assessee's
request, made on the date of passing of the assessment order itself. Even so, the assessee
being in appeal, what we wonder prevented it from obtaining a copy thereof
subsequently. Further, the reliance on his statement is only to the extent what stands
stated in its respect in the assessment order itself, so that the assessee could, where so
desired, dispute the same on facts, of course with materials. Even with regard to the
creditor-subscribers other than the six companies qua which representation was sought
by the Revenue from the assessee, for the reason, as it becomes clear, that they were
subject to investigation consequent to a search action by the Revenue, no materials
except, as it appears, confirmations and share certificates, have been furnished by the
assessee, which rather confirm the factum of the credit and not of it being genuine. The
issue is not of presentation of documentary evidences, but of the truth thereof. If not so
considered, the credit entries as appearing in the assessee's books of account would itself
be regarded as final. It is, given the prescription of s. 68, which is a rule of evidence,
statutorily mandated, the truth of those documents or of the same as representing genuine
transactions, that is to be established. But for s. 68, the principle that what is apparent is
real would obtain, so that the onus to disprove it ­ with evidences - would be on the
person alleging it as not so, i.e., Revenue. The onus on the assessee ­ it of course cannot
be required to prove a negative, would thus depend on the facts and circumstances of the
                                                  ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                 Angel Pipes and Tubes Pvt. Ltd.

case, and becomes accentuated in the wake of those as obtaining in the instant case,
sought to be emphasized per the questions, deemed pertinent, as posed hereinbefore,
equally applicable for those companies.
       The Revenue, its needs to be appreciated, is not required to, in invoking sec.68,
disprove a credit, as it appears to have embarked upon in the present case, and it is
sufficient if it can exhibit a basis for its non-satisfaction with the assessee's explanation
inasmuch as the said discretion is to be exercised judicially. As such, even de hors the
several statements relied upon by ld. CIT(A), the AO's non-satisfaction has not been
impugned by assessee in any manner. We are, thus, in principle in complete agreement
with the Revenue's case.

4.2    So, however, the ld. CIT(A) having relied on those statements as matter of fact, to
what extent his endorsement of the AO's findings has been guided by his reliance on
those statements cannot be determined or segregated by any process known to or having
the sanction of law, being a result of his own satisfaction, based on objective materials.
For example, that the address stated by Girish Chand Yadav, located in a jhuggi jopadi
area, was his residence is clarified by his statement dated 09/01/2009 and the statement
u/s. 131 of Sangeeta J. Sawant. Similarly, Sh. Dilip Mehta, whose premises was the
office address of Om Procurement and Projects Ltd., is involved in bogus billing and the
companies stand floated by him and are only paper companies, and that Shri.Girish
Chand Yadav was in fact his employee, is borne out by his statement dated 23/12/2008.
The said statements are relevant material. In fact, the reliance by the Revenue, which may
have exceeded its brief, thereon is not incorrect inasmuch as it is in possession of
incriminating materials having a direct bearing on the subject matter nf the assessment.
The search at the KSL group and the findings thereon inform and permeate its case, as,
for instance, the AO stating of the link between the assessee and the bogus billing being
engaged in by the creditor companies. The ld. CIT(A), as a first appellate authority, has
co-terminus powers under the law (refer: CIT v. Kanpur Coal Syndicate [1964] 53 ITR
225 (SC), so that his reliance thereon cannot be impugned on that score, being only in
                                                   ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                  Angel Pipes and Tubes Pvt. Ltd.

furtherance of the Revenue's case, and toward arriving at the truth of the matter.
Reference in this context may also be made to the decisions in the case of Nova
Promoters & Finlease P. Ltd. (supra) as well as others by the hon'ble Delhi high court
subsequent thereto, also specified and considered by the tribunal in Luminant Investments
(P.) Ltd. v. Dy. CIT (in ITA No. 3925/Mum(A)/2009 dated 06/11/2013), to which again
reference is made.
       We, accordingly, consider it proper that the said material be considered as a part of
the record. The reliance by the Revenue thereon has necessarily to be subject to the
assessee being allowed due opportunity to explain its case with reference thereto. The
final satisfaction or non-satisfaction, as the case may be, by the Revenue, the onus to lead
satisfaction being on the assessee, has to be with reference to proven facts. Why, toward
this, even the assessee argues, per its additional ground 1(c), that the addition u/s. 68 is to
be made on the basis of facts, as determined, and not on the basis of statements. It,
however, does not lie in the assessee's mouth to contend that the Revenue is not entitled
to rely on those statements inasmuch as there can be no presumption that they are not true
or represent untruth, unless and to the extent retracted. Where and to the extent they
purport to clarify and elucidate facts, there is no reason that the Revenue cannot rely on
the same. The argument is even inconsistent with the assessee's case of the Revenue
having relied on the same without confronting the relevant materials, to the assessee, the
onus to contradict which though would be on the assessee. The question is essentially of
the discharge of onus toward proving facts, based on positive materials, so that it is only
proper and in order that either party furnishes to the other all the material it relies upon
­ the assessee toward establishing the facts qua the genuineness of the credits; the
Revenue in repudiating the same; the assessee, again, in rebutting the same, so on and so
forth, so that a final decision is taken upon consideration of the emerging factual matrix.
       The ld. DR before us also relied on the decision in case of Major Metals Ltd.
(supra), besides drawing on certain facts, viz, the assessee having allotted shares
subscribed to without premium; of the share allotments being not presumably backed by
resolutions inasmuch as shares are allotted on regular basis, i.e., as when the money is
                                                   ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                                  Angel Pipes and Tubes Pvt. Ltd.

received, and which is neither normative nor practical; of a mismatch between authorized
share capital on record and that subscribed to - the latter being higher. These are relevant
and inasmuch as they emanate from the material on record, we consider their
consideration as only appropriate in law, which was pleaded by him alluding to the
decision in the case of Hukum Chand Mills Ltd., 63 ITR 232 (SC) and Gilbert and Barker
Mfg. Co. 111 ITR 529 (Bom). The contentions by the ld. DR in the matter stand reduced
in writing, and placed on record, with a copy to the assessee. The Revenue shall also be at
liberty to rely thereon.

5.     The matter is accordingly restored back to the file of the ld. CIT(A), who shall
adjudicate the same in accordance with law per a speaking order after allowing both the
parties before him to state their case with reference to all the materials being relied upon
by either side. He shall do so qua each credit. It is pertinent to state that the assessee has
made no case either before us or before the lower authorities in respect of the share
subscriptions by other than the six companies allegedly involved in bogus billing, even as
the addition under reference is for the entire sum credited. The ld. CIT(A) shall, in
deciding the matter, be guided by our observations, which though cannot be regarded as
conclusive, being made on the basis of the existing material on record. He shall also
decide the subject matter of the Revenue's appeal; the ld. DR contending of lack of
opportunity as well as of their being a qualitative change in the credit brought forward
from the earlier year, referring to the decision in the case of Major Metals Ltd. (supra),
where loan/s received in an earlier year stood converted to share capital during the
relevant year, inasmuch as the same may have a bearing on the otherwise trite law that it
is only the amount credited in books that can form the basis of assessment u/s. 68, so that
the sums credited in the books prior to the current year are excluded. We decided
                                                ITA Nos. 405 & 1424/Mum/2012 (A.Y. 2008-09)
                                                               Angel Pipes and Tubes Pvt. Ltd.

6.     In the result, both the assessee's and the Revenue's appeals are allowed for
statistical purposes.
                  Order pronounced in the open court on August 13, 2014

                   Sd/-                                         Sd/-
       (Vivek Varma)                              (Sanjay Arora)
         / Judicial Member                          / Accountant Member

 Mumbai;  Dated : 13.08.2014

         /Copy of the Order forwarded to :
1.  / The Appellant
2.  / The Respondent
3.     () / The CIT(A)
4.      / CIT - concerned
5.                 ,     ,  / DR, ITAT, Mumbai
6.     / Guard File
                                                   / BY ORDER,

                                            /  (Dy./Asstt. Registrar)
                                         ,  / ITAT, Mumbai
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Internet Marketing Website Marketing Internet Promotion Internet Marketing India Website Marketing India Internet Promotion India Internet Marketing Consultancy Website Marketing Consulta

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions