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M/s Shivam Securities Pvt. Ltd. Vs. DCIT, Circle-23(2), New Delhi
July, 14th 2021

 

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA
[Before Shri P. M .Jagtap, Vice-President (KZ) and Shri A. T. Varkey, JM]

I.T.A. No. 554/Del/2019
Assessment Year: 2014-15

M/s Shivam Securities Pvt. Ltd. Vs. DCIT, Circle-23(2), New Delhi
(PAN: AAACS 4007 N) Respondent
Appellant

Date of Hearing (Virtual) 06.07.2021
Date of Pronouncement
For the Appellant 14.07.2021

For the Respondent Shri Soumitra Choudhury, Advocate &
Shri Joydeep Chakraborty, Advocate
Shri Manish Kanojia, CIT

ORDER

Per Shri A. T. Varkey, JM:

This is an appeal preferred by the assessee against the order of the Ld. CIT(A)-30,
New Delhi dated 26.11.2018 for AY 2014-15.

2. At the outset the Ld. A.R of the assessee Shri Soumitra Choudhury drew our
attention to the Ld. CIT(A)’s impugned order and pointed out that out of total 34 pages
order upto page no. 33 are reproduction of the certain selected parts of the assessment order
and Ld. CIT(A) has decided the issue by endorsing the view of the AO by a cryptic order
without giving his own reason for upholding the addition/action of AO in respect of share
capital and premium infused into the assessee company for AY 2014-15 to the tune of Rs.
25,54,50,000/-. According to the Ld. AR, the share subscribers were sixteen (16) corporate
entities out of which six (6) are from Kolkata and ten (10) are located at New Delhi.
According to Ld. A.R, though the AO acknowledges that notice u/s 133(6) has been
complied with by the investor companies, the AO found fault with them by taking note of
few trivial spelling mistakes and was of the opinion that the replies were stereo types and
gives an impression that it was all made by one person and, therefore, he cannot act upon it.

ITA No.554/Del/2019
M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

According to Ld. AR, the AO accepted in his assessment order that the assessee has
furnished the following relevant documents to prove the identity, creditworthiness and the
genuineness of the share transaction by furnishing the investor companies (i) copies of
confirmations that they have all subscribed to the share capital/premium, (ii) their respective
financial statements, (iii) bank statement to prove that investments were made in assessee
company was through banking channel and that there was no cash deposit (iv) their
respective ITR’s etc. But despite that according to AO, the assessee has failed to prove the
creditworthiness and genuineness of sixteen (16) investor companies. The main reason for
drawing adverse inference against the assessee, according to AO, was the failure of the
investor companies /assessee to produce their directors before him pursuant to his summons
u/s 131 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Thus, according
to AO, the failure to produce the directors of investor companies and that of the assessee
goes on to show that the assessee has failed to discharge its burden on it casted upon by
Section 68 of the Act. According to Ld. A.R. due to ill health and other unforeseeable
problems faced by the assessee, it could not produce the directors of the investor companies
and submitted that assessee’s director has filed an affidavit giving all the reasons for his
inability to act or coordinate to ensure the appearance of the directors of the investor
companies before AO and given an opportunity, the assessee would be able to produce the
directors of the investor companies before the AO. By doing so, according to Ld. A.R. even
if there is any lingering doubts still subsisting in AO’s mind in respect of share capital it can
be repelled. Further the Ld. AR also pointed out from the assessment order that AO had
based his adverse inference by heavily relying on certain third party’s statement namely viz.
Shri Subash Agarwal to disbelieve the confirmation and other documents filed by the
assessee /investor companies pursuant to section 133(6) notice. Therefore, according to Ld.
AR, the AO has saddled the addition based on suspicion (spelling mistakes, font of letter
head, no dates etc.) and by relying on third party statement which was recorded behind the
back of the assessee and without providing any opportunity to cross-examine, which
according to Ld. AR, the AO should not have done in the first place. According to Ld. AR,
the main fault/reason for AO to have made the addition was the failure of directors of
investor companies non-appearance before him; and in this respect the Ld. A.R. submitted
this omission was not deliberate on the part of assessee and the reason for non-appearance
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A.Y. 2014-15

has been explained in the affidavit and, therefore, in the light of the admitted fact that
assessee/investor companies have responded to sec. 133(6) notice directly to AO, and had
furnished all documents to discharge the onus u/s 68 of the Act, addition only on the basis
of non-appearance of directors of investor companies should not have been resorted to
without giving proper opportunity during assessment proceedings. According to Ld. AR,
due to the reasons given in the affidavit, the assessee did not get proper opportunity for
producing the directors of investment companies before the AO, so given an opportunity
assessee undertakes to produce the directors of investor companies before the AO to his
satisfaction and for which cited the decision of the Hon’ble Supreme Court in the case of
Tin Box Company vs. CIT reported in (2001) 249 ITR 216 (SC) and prayed that the
assessee may be given an opportunity to produce the directors before the AO.

3. Per contra, the Ld. CIT, DR Shri Manish Kanojia opposed the plea of the assessee
and contended that the AO has carried out enquiries and has recorded all the facts which he
collected against the assessee and has passed a detailed order against the assessee company.
According to Ld. CITDR enough opportunity was given to the assessee, however, for
reasons best known to the assessee it did not prefer to produce the directors of the sixteen
(16) investor companies before the AO. According to Ld. CITDR merely by filing ITRs,
confirmations and financials could not discharge the burden casted upon the assessee u/s 68
of the Act. Therefore according to Ld. CITDR one more innings should not be given to the
assessee.

4. Having heard both the parties we note that the assessee company was incorporated at
New Delhi and assessment was done for relevant assessment year at New Delhi. However,
recently it has shifted its Principal Office to Kolkata and that is how the appeal decided by
the Ld. CIT(A)-Delhi has been transferred to Kolkata jurisdiction and thus this appeal is
before us. According to Ld. AR, the AO while making the enquiry has found fault with the
confirmations filed by the investor companies due to similarity in the mistakes found in it,
which prompted him (the AO) to opine that all the confirmations appeared to have prepared
by one person on behalf of all the investor companies irrespective of fact that some
companies are located at Delhi and some in Kolkata. The AO acknowledges that the
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M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

assessee company is an NBFC registered with RBI and the main activity of the company
was dealing in business of shares. The AO notes that the assessee has received share capital
and premium to the tune of Rs. 25,54,50,000/- in this relevant assessment year. And,
therefore, as per the limited scrutiny i.e. purpose of selection “Introduction of Capital &
Receipt of large share premium”, the AO asked the assessee to prove the identity,
creditworthiness and genuineness of the sixteen (16) investor companies, out of them Ten
(10) were from Delhi and six (6) from Kolkata. The AO acknowledges that the assessee had
filed copies of ITRs, confirmation, and bank statement of the investor companies. However,
he found certain glaring discrepancies [similar spelling mistakes in all the confirmation
letter]. According to AO, the notice issued u/s.133(6) of the Act to the six (6) Kolkata
based companies were returned back un-served with the remarks such as “no such
firm/left.” Thereafter AO notes that he has issued a commission u/s 131(1)(d) of the Act at
Kolkata, however, none of them presented themselves before the authorities. Thereafter he
noted that one of the investors M/s Nortel Vanijya Pvt. Ltd. is an accommodation entry
provider which was controlled by an entry operator Shri Subash Agarwal and he reproduced
his statement in his order (which was recorded in some other search proceedings). Based
on the statement of Shri Subhash Agarwal, the AO was of the opinion that the directors of
M/s Nortel Vanijya Pvt. Ltd. were dummy directors and were common directors in so many
shell companies operated by Shri Subash Agarwal. Further, the AO notes that in respect of
Delhi based investor companies he had issued notice u/s 133(6) of the Act to ten (10)
companies and he acknowledges that replies were received from most of the companies.
However, according to him, none of the companies furnished the date of confirmations in
their respective confirmations. According to him, the copy of confirmation were similar as
that filed by the assessee dated 27.05.2016 and found the letter heads of them this time to
be different from the one filed earlier. Thereafter he discussed the financials of this investor
companies and after acknowledging that directors of two investor companies appeared in
his office, whose statements were recorded [and the AO have reproduced these statements
in the assessment order]. But AO was not convinced about the nature and source of the
share capital and premium collected by the assessee. The main fault according to AO was
that the assessee’s failure to produce the directors of investor companies despite summons
and [after pointing out certain discrepancies in the documents filed and after discussion
5

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M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

about the verification done by the Inspectors which made him suspect the genuineness of
the share transaction] he was pleased to make the addition to the tune of Rs.
25,54,50,000/-.

5. On appeal, Ld. CIT(A) has dismissed the appeal of the assessee by passing a cryptic
order after reproducing the AO’s order as stated above (out of 34 pages appellate order, 33
pages contain the reproduction from assessment order).

6. We do not countenance this action of the Ld. CIT(A) which is impugned before us.
Reasons are live links between the mind of the decision taker to the controversy in question
and the decision or conclusion arrived at. The emphasis on recording reasons is that if the
decision reveals the “Inscrutable face of the sphinx, it can, by its silence, render it virtually
impossible for the Court to perform their appellate function or exercise the power of judicial
review in adjudging the validity of the decision. Right to reason is an indispensable part of a
sound judicial system, reasons at least sufficient to indicate an application of mind to the
matter before Court is essential. Another rationale is that the affected party can know why
the decision has gone against him. One of the salutary requirements of natural justice is
spelling out reasons for the order made, in other words, a speaking order. Thus, failure to
give reasons amounts to denial of justice. The aforesaid observation was made by Lord
Denning.

7. Therefore, reasons is the soul of the quasi judicial decision and giving reason while
passing an quasi-judicial order is essential and when the order/decision/action is impugned,
in an appellate forum, it can be evaluated whether the reasoning was logical and based on
relevant facts etc. In this case, the Ld. CIT(A) failed to give his reason as to how he agrees
with the findings of the AO and disagrees with the contentions of assessee. The AO
acknowledges that the assessee is an NBFC recognized by RBI and had filed ITR copies of
all the sixteen (16) investor companies, confirmations from all of them, audited financials of
all of them. He also acknowledges that ten (10) investor companies are residents of Delhi
and has responded to his notice u/s. 133(6) of the Act. However, he found certain
discrepancies in the confirmation letter which raised suspicion about the share transaction.

ITA No.554/Del/2019
M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

Thereafter he has discussed about the non-service of notice of Kolkata investor entities and
commission report and inspector report as well as noting that one investor company was
indulging in entry operator, he disbelieved the transaction. However, the main deficiency
pointed out by the AO was that the assessee has failed to produce the directors of the
sixteen (16) corporate entities before him to satisfy identity, creditworthiness and
genuineness of the transaction though he admits that two directors have appeared before
him, which also according to AO did not inspire confidence. However, the AO has finally
concluded as under:

“8.2 Once the assessee files the basic details such as confirmations, ITRs & bank statements,
the initial onus gets discharged. Since the revenue has doubted the creditworthiness of the
investors & genuineness of share transactions by citing above discussed reasons, the onus
shifts back to the assessee company to offer an explanation to the satisfaction of the AO as
contemplated under section 68 of the I. T. Act. In the present case assessee could have
discharged its onus by producing the share subscribers before the undersigned, so that the
truth behind smokescreen could have been unraveled by the undersigned by interrogating
them. But in the instant case assessee has completely failed to discharge its onus.

[Emphasis given by us]

8. According to Ld. A.R., when the assessment proceedings were going on, as noted by
the AO three (3) Authorized Representatives got changed before the AO i.e. Sudhir Garg,
Girish Bhatia and Anil Kr. Jain. No proper co-ordination could be done between assessee’s
Managing Director Satish Kr. Jha and these authorized representatives because Shri Satish
Kumar Jha was suffering from acute angina problem and was on bed rest for a long period
and was hospitalized between July 2016 to December 2016. Therefore, no effective
coordination between the investing companies could be made which resulted in them not
appearing before the AO. Therefore, according to Ld. A.R., the assessee and the investing
company did not get proper opportunity before the AO during the assessment proceedings
in support of this contention the assessee’s director Shri Satish Kr. Jha has filed an Affidavit
which has been sworn before the Notary Public and has been placed on record and we have
gone through it. And Mr. Jha has undertaken to comply with the directions of the AO given
an opportunity is granted and as submitted earlier they would be presenting all the director
of the investing companies before the AO to his satisfaction. For that he has cited the order
of Hon’ble Supreme Court in the case of Tin Box Company (supra) seeking one more
opportunity to be given to go before the AO. We note that the assessee has furnished ITR,
7

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M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

confirmation, audited financials etc of all these sixteen (16) investor companies. The AO
has admitted ten (10) Delhi based companies have replied to the AO pursuant to his 133(6)
notice which the AO finds faults for reasons not repeated. As far as Kolkata based
companies are concerned [six (6)] according to assessee there were certain changes in
addresses, so therefore notice u/s 133(6) might not have been served upon them which the
AO contest. According to Ld. A.R since the assessee company’s managing director was bed
ridden and so could not effectively coordinate the requirements as directed by the AO, the
directors of investor companies could not be physically presented before the AO. In such a
scenario, and the AO’s finding we have recorded (supra) that failure of director of investor
companies made him conclude that assessee did not discharge their burden of proof u/s 68
of the Act, so for the reason stated in the affidavit filed by the director of assessee company
in the interest of justice and fair play we are inclined to allow the assessee an opportunity to
produce the directors of the investor companies before the AO. For that we rely on the
decision of Hon’ble Supreme Court in Tin Box Co. (supra) wherein it was held as under:

“1. It is unnecessary to go into great detail in these matters for there is a statement in the
order of the Tribunal, the fact-finding authority, that reads thus :

"We will straightaway agree with the assessee's submission that the Income-tax Officer had
not given to the assessee proper opportunity of being heard."

2. That the assessee could have placed evidence before the first appellate authority or before
the Tribunal is really of no consequence for it is the assessment order that counts. That
order must be made after the assessee has been given a reasonable opportunity of selling out
his case. We, therefore, do not agree with the Tribunal and the High Court that it was not
necessary to set aside the order of assessment and remand the matter to the assessing
authority for fresh assessment after giving to the assessee a proper opportunity of being
heard.

3. Two questions were placed before the High Court, of which the second question is not
pressed. The first question reads thus :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in
not setting aside the assessment order in spite of a finding arrived at by it that the Income-
tax Officer had not given a proper opportunity of hearing to the assessee ?"

4. In our opinion, there can only be one answer to this question which is inherent in the
question itself : in the negative and in favour of the asses-see.

5. The appeals are allowed. The order under challenge is set aside. The assessment order,
that of the Commissioner (Appeals) and of the Tribunal are also set aside. The matter shall
8

ITA No.554/Del/2019
M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

now be remanded to the assessing authority for fresh consideration, as aforestated. No order
as to costs.”

9. In the light of the aforesaid decision of Hon’ble Supreme Court an opportunity is
being given to the assessee to produce the director of investor companies as well as itself
to the satisfaction of the AO to prove identity, creditworthiness and genuineness of the
share capital and premium infused into their account. And the AO after giving proper
opportunity to the assessee, to pass assessment order considering the documents and
material produced post/pre this order and after appreciation of entire evidence the AO to
decide the issue in accordance with law. And the assessee is at liberty to produce all
documents & written submission before the AO to substantiate/clarify the observation of
AO in the assessment order dated 30.12.2016 and needless to say that if AO is intending to
use any third party statement against the assessee, then the assessee may be given a copy of
the statement/material and opportunity to cross-examine the maker of the statement. With
the aforesaid observation, the impugned order is set aside, and the matter is remanded back
to AO for fresh consideration and to give opportunity to assessee to produce the director of
sixteen investor companies in accordance to law.

10. In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order is pronounced in the open court on 14th July, 2021

Sd/- Sd/-
(P. M . Jagtap) (A. T. Varkey)
Vice-President Judicial Member

SB, Sr. PS Dated: 14.07.2021
9

ITA No.554/Del/2019
M/s Shivam Securities Pvt. Ltd.

A.Y. 2014-15

Copy of the order forwarded to:
1. Appellant- M/s Shivam Securities Pvt. Ltd., C/o, Anil Jain D.D & Co. 611, Surya
Kiran Building, K. G. Marg, Delhi-110001

2. Respondent – DCIT, Circle-23(2), New Delhi

3. The CIT(A)- 30, New Delhi

4. CIT- , Kolkata

5. DR, Kolkata Benches, Kolkata (sent through e-mail)

True Copy By Order

Sr. Private Secretary/DDO
ITAT, Kolkata Benches, Kolkata

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