ITA Nos. 3053/Del/2012 and 2611/Del/2013, ITA No. 3553/Del/2012, ITA Nos. 2610, 2613 to 2616/Del/2013

Sh. N. K. Saini, AM And Sh. Sudhanshu Srivastava, JM

Sh. Vinod Kr. Bindal & Sanjeev Bindal, CAs For The Assessee :
Sh. R. B. Meena, CIT DR For The Revenue :

ORDER

The order of the Bench was delivered by

In the case of M/s Rite Pack Industries Pvt. Ltd., New Delhi, the Cross appeals by the assessee and department for the assessment year 2005-06 are directed against the order dated 30.04.2012, the appeals by the assessee for the assessment year 2006-07 is directed against the order dated 30.03.2013 and for the assessment year 2008-09 against the order dated 13.03.2013 of ld. CIT(A)-XXXI, New Delhi.

2. In the case of M/s Kiwi Foods India Pvt. Ltd., New Delhi, the appeals for the assessment years 2004-05 to 2006-07, 2008-09 & 2009-10 are directed against the separate orders each dated 25.03.2013 of the ld. CIT(A)- XXXI, New Delhi.

3. The issues involved in these appeal are common and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.
4. First we will deal with the Cross appeals for the assessment year 2005-06. In the assessee’s appeal following grounds have been raised:

“1. The learned CIT(A) erred in law and on facts in confirming the addition of Rs. 23,00,000/- for the amounts received against allotment of the share capital during the relevant period and without considering the documentary evidences placed on record. Thus the addition must be deleted.

2. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing.”

5. In the departmental appeal, the only effective ground raised reads as under:

“On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs. 85,00,000/- out of total addition of Rs. 1,08,00,000/- made by the Assessing Officer u/s 68 of the IT Act, 1961 on account of unexplained share capital without appreciating the fact that the assessee failed to prove the genuineness of transaction as well as the identity and creditworthiness of the person who contributed the share capital.”

6. The assessee moved an application dated 22.08.2012 for admission of the following additional grounds:

“The additions in the impugned assessment order passed u/s 153A are bad in law and on facts because

a) The additions were not based on any books of account or other material not produced in the course of original assessment but which could alleged to have been found in the course of search or an undisclosed income or property discovered therein.

b) As the assessment proceedings were not abated but were already completed.

Thus all the additions so made in the assessment order should be deleted following the Special Bench decision dated 6.7.2012 in the case of All Cargo Global Logistics Ltd. in appeals no. ITA/5018-5022/M/10.”

7. The assessee also moved another application dated 18.02.2014 for admission of the following additional ground:

“The CIT(A) erred in law and on facts in confirming issuance of notice u/s 153C to the appellant ignoring the fact that no assets, incriminating material and documents belonging to the appellant company were seized from the searched parties/premises on 31.07.2008, which is the prerequisite for assuming jurisdiction u/s 153C of the Act. Thus, the notice issued without fulfilling the conditions laid down by the law is invalid and the assessment order should be annulled.”

8. In the aforesaid applications, the assessee contended that the additional grounds are purely legal grounds arising out of the core issue as per the assessment order, not involving any fresh investigation into facts, so these deserve to be admitted. The reliance was placed on the following case laws:

ACIT Vs Bhagwati Printers (P) Ltd. (2006) 102 TTJ 480 (Del)
National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383 (SC)
DCIT Vs Turquoise Investment & Finance Ltd. (2006) 154 Taxman 80 (MP)
Kanoi Industries (P.) Ltd. Vs DCIT (2006) 100 ITD 462 (Kol.)
West Bengal State Electricity Board Vs DCIT (2005) 278 ITR 218 (Cal)
Uma Polymers (P) Ltd. Vs DCIT (2006) 101 TTJ (JD) ™ 124
Datamatics Ltd. Vs ACIT (2007) 111 TTJ 55 (Mum-Trib)
Abhishek Industries Ltd. Vs CIT (2007) 290 ITR 655 (P&H)
Dedore Tools Pvt. Ltd. Vs CIT (1999) 238 ITR 268 (Del)
DIT(Exemption) Vs Arunodya (2006) 286 ITR 383 (Del)
Satish Kumar Keshari Vs ITO (2007) 106 TTJ 980 (ITAT-Pat.)
ITO Vs Gurinder Kaur (2006) 102 ITD 189 (ITATDel)
CIT Vs J.K. Cotton Spinning & Weaving Mills Co. Ltd. (2005) 197 CTR 73 (All.)
DCIT Vs Maruti Udyog Ltd. (2006) 99 ITD 666 (Del-Trib)
CIT Vs Ashok Leyland Ltd. (2001) 25) ITR 452 (Mad.)
Orissa Cement Ltd. Vs CIT (2001) 117 Taxman 625/250 ITR 856 (Del)
Eicher Motors Ltd. Vs DCIT (2004) 82 TTJ (Ind.) 61

9. During the course of hearing the ld. Counsel for the assessee reiterated the contents of the aforesaid applications and requested to admit the additional grounds.

10. In his rival submissions the ld. DR objected for the admission of the additional grounds and submitted that these grounds were not raised before the ld. CIT(A), therefore, these should not be admitted.

11. We have considered the submissions of both the parties and perused the material available on record. In the present case, it is noticed that the assessee raised the additional ground first time before the ITAT, the grounds so raised are purely legal grounds and go to the root of the controversy involved, so these grounds deserve to be admitted in view of the ratio laid down by the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Vs CIT (1998) 229 ITR 383 (supra) wherein it has been held as under:

“The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assessee correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commission of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal.”

It has further been held that:

“Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”

12. The facts related to the issue raised by the assessee vide additional grounds, in brief are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act) was carried out in thecase of Rajdarbar Group of cases on 31.07.2008 and certain documents belonging to the assessee were also seized. The AO thereafter issued a notice u/s 153C of the Act on 18.12.2009, in response the assessee furnished the return of income declaring an income of Rs. 1,080/- on 13.01.2010.

13. During the course of assessment proceedings, the AO noticed that the assessee had allotted 2,16,000 shares of Rs. 10/- each at a premium of Rs. 40/- per shares to the following companies:

The AO also noticed that during the search operation at the residence 23/5, Shakti Nagar, Delhi of Sh. Rajender Aggarwal, Director of the assessee company, documents relating to buy back of shares of M/s Kiwi Food India Pvt. Ltd. and M/s Rite Pack India Pvt. Ltd. i.e. the assessee, were found and seized as Annexure A-1 to A-5 and those documents for the transfer and buy back of shares of those companies were lying blank which were summarized by the AO as under:

14. The AO also noticed that Sh. Rajender Aggarwal during the post search proceedings was confronted with those documents and he vide letter dated 12.09.2008, addressed to the Dy. Director of Income Tax (Inv.), Unit- II(1), New Delhi, submitted that he bought back shares from those companies by paying cash amount over and above the value recorded in his books of accounts. The AO, therefore, inferred that the assessee group was in the practice of introducing unaccounted money in the garb of share capital. The AO mentioned the details of income as per copies of acknowledgment of ITR returns of the aforesaid share holders, as under:

15. On the basis of the aforesaid detail, the AO held that all the above companies did not have any creditworthiness of giving such huge amounts to the assessee company, thus, the creditworthiness of those persons was not established and that the genuineness of the transactions with abovementioned persons within the meaning of Section 68 of the Act had not been proved. He, therefore, treated the amount of Rs. 1,08,00,000/- received from those companies as unexplained cash credits and made the addition in the hands of the assessee.

16. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:

“a. It is an undisputed fact that the amounts received from all the above allottees were against the share capital allotted to them.

b. In terms of the provisions of the income-tax Act as well as of the Companies Act, 1956, no company is under an obligation, rather cannot ask the shareholder as to wherefrom he got the money to invest nor the shareholder is obliged to give such information to the company. There is no provision under any of the two above Acts to ask for the balance sheets of the shareholders. However, the details regarding those investors as per list attached were very well placed on the record of the assessing officer during the course of the assessment proceedings and if so desired, she could have called for further information from the office of Registrar of Companies or the shareholders directly. Further PANs of such investors were also placed on the record of the assessing officer and all of them were being assessed in New Delhi. The assessing officer could have made direct enquiries from their assessing officers by deputing inspector or by calling for information and could have obtained their addresses, balance sheets etc.

c. Since the capital and own funds of all these investors / companies are much more than the investments made by each of them in the appellant company, their credit-worthiness stands proved. The amounts were received through banking channel and therefore genuineness of the transactions also stands proved. Since all of them are incorporated bodies or individuals their identity is also beyond doubt. Nothing more could be available with the appellant as all these details are taken at the time of receiving share application money or allotment. No such information is given by the shareholders thereafter.

d. u/s 68A of the Companies Act no person can apply shares of any company under a fictitious and false name.”

17. It was further submitted that all the shareholders were duly indentified and none of them could be regarded as fictitious person and no adverse action had been taken by the Government against any of them. It was further submitted that if the share capital or the share application money was received by the assessee from persons of companies, whose names and evidence of their identity were given to the AO, then the department was free to proceed to reopen their individual assessments in accordance with law, but it could not be regarded as undisclosed income of the assessee in any manner. The reliance was placed on the following case laws:

CIT Vs Lovely Exports Pvt. Ltd. (2008) 216 CTR (SC) 195
CIT Vs Divine Leasing & Finance Lid. (2008) TIOL 118 (SC) IT
CIT Vs Steller Investment Ltd. (2001) 251 ITR 263 (SC)
CIT Vs Sophia Finance Ltd. (1994) 205 ITR 98 (Del)(FB)
CIT Vs Glocom Impex (P) Ltd. (2006) 157 Taxman 303 (Del)
CIT Vs. Dolphin Canpack Ltd. (2006) 283 ITR 190 (Del - Trib)
DCIT Vs Esteem Towers (P) Ltd. (2006) 99 TTJ (Del) 472
Uma Polymers (P) Ltd. Vs DCIT (2006) 100 1TD 1 (Jodh.) (TM)
Asstt. CIT Vs Anima Investments Ltd. (2000) 73 ITD 125 (Del)
United Cores (P) Ltd. Vs ACIT (1998) 62 TTJ (Delhi) 83
Dy. CIT Vs Sahara India Financial Corporation Ltd. (2003) 81 TTJ (Lucknow) 389
Swagat Synthetics (P) Ltd. Vs ITO (2002) 77 TTJ (Jodh.) 987
Shiv Snakti Engg. Co. (P) Ltd. Vs DCIT (1999) 106 Taxman 224 (Delhi)
CIT Vs. Makhni & Tyagi Pvt. Ltd. (2004) 187 CTR (Del.) 550
Mod Creations (P) Ltd. Vs. ITO [2011] 13 taxmann.com 114 (Delhi)
CIT Vs Orissa Corporation Ltd (1986) 159 ITR 78 (SC)

18. It was contended that if the assessee had furnished the evidences regarding the share capital allotted to the share applicants and the department alleges otherwise then onus lies on the department to prove the same. The reliance was placed on the following case laws:

CIT Vs Bedi & Co. Pvt. Ltd. (1998) 230 ITR 580 (SC)
CIT Vs Daulat Ram Rawatmull (1972) 87 ITR 349 (SC)
Rajabali Nazarali & Sons Vs CIT (1987) 163 ITR 7 (Guj.)
CIT Vs Sukhdayal Rambilas (1982) 136 ITR 414 (Bom.)
Hiraluxmi Pandii Vs ITO 27 ITR 643 (Patna)
Juggilal Kamlapat Vs CIT (1969) 73 ITR 29 (SC)
Jaisalmer Construction Co. 9 TTJ 452

19. It was contended that the income on account of the buy back of the shares was already surrendered by a director of the company namely M/s Rajender Aggarwal in his hands in the year. It was further submitted that as far as the assessee company was concerned, it received money against the shares allotted by it to the shareholders and whether the same were given by the director or the shareholders was not its concern, rather availability of such documents absolved the assessee company altogether and proved that the assessee received the share capital amounts from the independent sources and the said shareholders amongst them transferred those shares. Thus, the said documents did not have any relevance to the matter in hand and no adverse cognizance of the same could be considered in the hands of the assessee company at all. It was further submitted that once it had been admitted by the revenue that the said shares were purchased by Mr. Rajender Aggarwal from the allottee shareholders in the F.Y. 2008-09 for Rs. 45 lacs and in whose hands the same had been so assessed then the entire issue gets settled because in that case it becomes an admitted fact that the funds were invested in the assessee company by those shareholders only and no money of the assessee in any manner was invested, otherwise the said director would not have disclosed the purchase in his hands, rather he would have admitted the same as undisclosed investment by the assessee or his own money in the assessee. It was further submitted that the assessee placed all possible documentary evidences on record to substantiate the identity and creditworthiness of the lender and genuineness of transaction. Thereafter, the onus shifted on the AO to prove otherwise, however, no adverse material/information had been brought on record by the AO. The reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of CIT Vs Value Capital Services (P) Ltd. (2008) 307 ITR 334.

20. The ld. CIT(A) after considering the submissions of the assessee deleted the addition of Rs. 85,00,000/- and confirmed the addition of Rs. 23,00,000/- by observing in para 6 of the impugned order as under:

“ii) The appellant has filed information as mentioned herein to support its claim of the share capital investment as required u/s 68 of the Act. The amounts were received by the appellant undisputedly through the account payee cheques. It is also not the case of the assessing officer that the search in the year 2008 after the above investment in share capital at the premises of the appellant yielded any evidence to show that the appellant gave any cash or allowed any other benefit to the said investors or anybody else against the said investments. Nothing is apparent from assessment order that any adverse material exists in the assessment folder for the relevant period. It is not the case where any person claimed before the revenue that the impugned share capital is nothing but bogus introduction by way of accommodation entries. In the impugned appeal the issue is squarely covered by the earlier judgments in the case of Lovely Exports Pvt. Ltd., Divine Leasing and Finance Ltd. (supra) etc cited in the above preceding paragraphs as none of the reasons to give ruling in favour of the department by the Court exists here. Further on perusal of the information down loaded from the official website of the Ministry of Corporate Affairs, Government of India, which is in public domain and it has been found that as per chart submitted by the appellant the following two companies have not filed their audited annual accounts for the period after the year 2008/09 with the ROC as per the information available on the portal of the MCA as on 28.12.2011. It is highly intriguing that have - .he companies which have invested heavily in the share of the appellant company can vanish. The list these two companies are as under;

Thus activities of these two companies cannot be considered beyond doubt and thus the action of the assessing officer is confirmed.

iii) As regard the other companies, their regular information is available on the portal of the MCA and the same shows not only their creditworthiness to make investment in the equity capital of the appellant company at the relevant time but also reflects that they are regular in their business activities on year to year basis and there has been increase in their own funds ever since they made investment in the appellant company. All these companies have made substantial investments in the equity share capital of the listed as well unlisted scrips and some of them are blue chip companies. It is not the case where the equity was invested in the appellant company only by the investor companies but those have been made in several other companies as a part of their regular investment business. The own available funds of these investors companies were sufficiently large and much more than the investments made by them in the appellant company. There is no findings on record from the assessing officer that these investors are not regular in filing their income tax returns despite that the income tax assessment particulars of these investors were on his record. Therefore, their existence are established. Besides, they had enough resources to make the impugned investments in the relevant period. The genuineness of the transaction has also not been found contrary to the audited books of account by the assessing officer.

iv) In absence of any material contrary to the information on record, the action of the assessing officer based on surmises and conjecture while making addition u/s 68 of the Act in respect of share capital received cannot be sustained. Thus the addition of Rs. 85,00,000/- is deleted and for the balance amount of Rs. 23,00,000/- is confirmed.”

21. Now the department is in appeal against the relief allowed to the assessee and against the sustenance of addition assessee is in appeal. At the first instance, the ld. Counsel for the assessee argued on the legal issues raised vide the additional grounds and submitted that no incriminating material was found during the course ofsearch and Sh. Rajender Aggarwal, Director of the company admitted that shares allotted to different companies were bought by him and not by the company. He also surrendered the income on account of purchase of shares, therefore, the addition sustained by the ld. CIT(A) was not justified. He also submitted that the assessment framed by the AO u/s 153C r.w.s. 143(3) of the Act deserves to be quashed in view of the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla in ITA No. 707/2014 order dated 28.08.2015 (copy of the said order was furnished). He drew our attention towards para 37(vii) of the said judgment wherein it has been held as under:

“vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

22. However, on query from the Bench, the ld. Counsel for the assessee admitted that the additional ground raised by the assessee first time before the ITAT was not raised before the ld. CIT(A) and even the judgment of the Hon’be Jurisdictional High Court in the case of CIT Vs Kabul Chawla (supra) was not available to the ld. CIT(A).

23. In his rival submissions the ld. DR strongly supported the order of the AO and further submitted that the surrender made by Sh. Rajender Aggarwal one of the director of the assessee company was in his own hands and not in the hands of the assessee company and that the shares transactions were bogus, therefore, the addition was rightly made by the AO u/s 68 of the Act. It was further submitted that the additions were made by the AO on the basis of the documents found during the course of search, so it cannot be said that incriminating material was not found at the time of search. It was further submitted that the facts of the case of CIT Vs Kabul Chawla (supra) relied by the ld. Counsel for the assessee is distinguishable from the facts because of the assessee’s case in the saidcase the issue related to the dividend and interest income while the issue in the assessee’s case related to the bogus shares. He, therefore, submitted that the ld. CIT(A) was not justified in deleting the addition made by the AO.

24. 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 additional ground raised by the assessee first time before the ITAT is a legal ground but the same was not raised before the ld. CIT(A), so he has no occasion to deal with this ground. It is also an admitted fact that the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla (supra) relied by the ld. Counsel for the assessee was also not available to the ld. CIT(A) while deciding the appeal of the assessee. In the present case, the ld. CIT(A) observed that nothing was apparent from the assessment order that any adverse material existed in the assessment folder for the relevant period, on the other hand, claim of the ld. DR is that the additions were made by the AO on the basis of the documents found during the search. Thus, there is contradiction in the facts. On merit also the ld. CIT(A) without bringing on record the figures & statistics came to the conclusion that the companies had enough resources to make the impugned investment. Therefore, by keeping in view the aforesaid facts, we are of the opinion that the issues under consideration require a fresh adjudication. As the principles of natural justice demand that opportunity is to be given to both the parties, we, therefore, deem it appropriate to set aside these issues raised vide additional grounds to the file of the ld. CIT(A) to be adjudicated expeditiously in accordance with law after providing due and reasonable opportunity of being heard to both the parties. The assessee is also directed to co-operate and not to seek any unwarranted or undue adjournment. In the present case, no other ground was argued by either of the parties before us. Therefore, no finding is given on the merit of the case.

25. In ITA No. 2611 & 2609/Del/2013 for the assessment years 2006-07 & 2008-09, the assessee has raised the similar ground challenging the validity of the assessment framed u/s 153C of the Act. Therefore, considering the similarity in the facts for these assessment years vis-à-vis assessment year 2005-06, the issues in these appeals are also set aside to the file of the ld. CIT(A) to be adjudicated alongwith the appeal for the assessment year 2005-06.

26. In the case of M/s Kiwi Foods India Pvt. Ltd., the common grounds have been raised. For the sake of convenience, the grounds raised for the assessment year 2004-05 are reproduced as under:
“1. The CIT(A) erred in law and on facts in confirming issuance of notice u/s 153C to the appellant ignoring the fact that no assets and documents belonging to the appellant company were seized from the searched premises on 31/07/2008 which is the prerequisite for assuming jurisdiction u/s 153C of the Act. Thus the assessment order should be cancelled.

2. The CIT(A) erred in law and on facts in confirming issuance of notice u/s 153C to the appellant ignoring the fact that no incriminating material and documents belonging to the appellant was found at the time ofsearch and seizure operation carried out on 31/07/08. Thus, the notice issued without fulfilling the conditions laid down by the law is invalid and the assessment made on the basis of an invalid notice should be cancelled.

3. The CIT(A) erred in law and on facts in confirming the addition of Rs. 20,00,000/- for the amounts received against allotment of the share capital during the relevant period due to irrelevant reasons. Thus the addition must be deleted.

4. The CIT(A) erred in law and on facts to confirm that the additions in the impugned assessment order passed u/s 153A are perverse and illegal because

a. The additions were not based on any books of account or other material not produced in the course of search for an undisclosed income property discovered therein

b. As the assessment proceedings were not abated but were already completed. Thus all the additions so made in the assessment order should be deleted following the Special Bench decision dated 06/07/12 in the case of All Cargo Global Logistics Ltd. in appeals no. ITA/5018-5022/M/10.

5. The appellant craves the leave to add, substitute, modify, delete or amend al or any ground of appeal either before or at the time of hearing.”

27. For another assessment years under considerations, similar grounds are raised, the only difference is in the figure mentioned in ground no. 3. The assessee has also raised additional grounds in respect of the aforesaid appeals vide application dated 29.09.2015. The additional ground raised reads as under:

“The Assessing Officer erred in law and on facts in making the assessment u/s 143(3) of the Act instead of section 153A since the satisfaction note was prepared by the Assessing Officer on 27.07.10, which became the “substituted” date of search u/s 153C and AY 2009-10 fell within the six preceding assessment years, i.e., from AY 2005-06 to 2010-11 for the purpose of assessment u/s 153A. Thus, the assessment framed u/s 143(3) is not valid and should be annulled.”

28. During the course of hearing the contention of both the parties were similar to the case of M/s Rite Pack Industries Pvt. Ltd., New Delhi which we have already adjudicated in the former part of this order. As regards to the additional ground, the ld. Counsel for the assessee admitted that this legal ground is raised first time before the ITAT and it was not raised before the ld. CIT(A). We, therefore, by considering the similarity of the facts in the appeals pertaining to the case of assessee i.e. M/s Kiwi Foods India Pvt. Ltd., New Delhi, vis-à-vis the case of M/s Rite Pack Industries Pvt. Ltd. (supra), set aside the issues to the file of the ld. CIT(A) to be decided in accordance with our finding given in the former part of this order while deciding the appeals pertaining to M/s Rite Pack Industries Pvt. Ltd., New Delhi.

29. In the result, appeals of the assessees as well as department are allowed for statistical purposes.

The order pronounced in the open court on 13/04/2016