Principal Commissioner Of Income Tax(Central) vs M/S Kataria Industries Pvt. Ltd

This appeal under Section 260A of the Income Tax Act, 1961 has been filed by the Revenue against the order dated 11/01/2016, passed in IT(SS)A.

Nos.293 to 297/Ind/2014, whereby all the appeals filed by the revenue has been dismissed and all the cross-objections and appeals of the

respondent/assessee are allowed.

These three appeals which has been filed by the revenue is in respect of Assessment year 2006-07, 2008-09, 2009-10, 201011 and 2011-12.

The assessee is a private limited company engaged in  the business of manufacturing and sale of Steel wire, Plastic, Cables, Conductors and also

generation of wind power energy through wind mills and sale thereof.

The assessee company has purchased two wind mills in the assessment year 2008-09 from M/s Enercon India Limited by entering into turn-key

contracts. The Assessing officer did not allow depreciation. However, the learned CIT(A) granted relief to the assessee by holding that ownership has

been duly proved by direct inquiries from the supplier /Electricity Board and physical verification of existence of same through spot visits.

It is also held that the appellant has owned and purchased the wind mill made huge investment sold electricity to various Electricity Boards,

reflected the sale proceeds of electricity in books of accounts during the period under consideration. Therefore, the action of Assessing Officer

denying the depreciation cannot be sustained and directed the Assessing Officer to allow the depreciation @ 80% in the relevant Assessment

Years from Assessment Year 2006-07 to Assessment Year 2012-13 as per provisions of Income tax Act, 1961.Â

The learned Tribunal also held that the assesee was able to establish the ownership of the wind mill by way of filing following documents :-

a) Purchase orders for Wind Turbine (Wind Mill) placed to M/s. Enercon India Ltd. As per turn-key contract i.e. for supply of wind mill, transformers

& tower, erection and commissioning of the Wind Mill at site.

b) Copies of invoices raised by the supplier of Wind Mills I.e. M/s. Enercon India Ltd. during A.Y. 2003-04 & 2007-08.

c) The Sub-lease deed of land by M/s. Enercon India Ltd, in the favour of appellant for setting up the Wind Mill.

d) Copy of sanction letters issued by HDFC Bank Ltd. Who sanctioned term loan against Hypothecation of wind mills.

e) Tri-party agreements executed on various dates between M/s. Rajasthan Rajya Vidyut Prasaran Nigam Limited (RVPN), Enercon India Ltd. And

the appellant whereby after installation, erection and commissioning, RVPN had agreed to purchase power generated in the Wind Mill.

f) Commissioning certificates issued by JVVNL and GEDA.

g) Certificate of generation of power issued by respective JVVNL.

h) Insurance policy in favour of owner of the wind mills i.e., appellant issued by insurance company.

i) Specimen copies of debit notes raised by the appellant to State Electricity Boards based on electricity units generated and transmitted in Power Grid

and copies of bank statements of HDFC in support of payment received.Â

In respect of investment made by M/s. Sonic Biochem Extractions Ltd. in Kataria Group of companies, the learned Tribunal gave the following

findings in Paragraphs 8 and 9 which reads as under :-

The brief facts of the issue and pleadings of the learned counsel for the assessee can be summarised as under :-

 “Cash credit u/s. 68 of Act (A.Y. 2006-07, 2008-09 & 2011-12) The company had accepted Share Application money from M/s Sonic Biochem

Extractions Ltd., 38, Patel Nagar, In dore, having its registered office at Mumbai (PAN : AABCS6326B) during A.Y. 2006-07, 2008-09 and 2011-12.

The identity, genuineness of the transactions, capacity & credit worthiness of the applicant was proved beyond doubt from following:-

(I) Networth of the applicant was over Rs.40 crores and it also declared substantial income while filing income tax returns. The share application

money was received by A/c payee cheques and the investment in shares of assessee company was approved by the Board of Directors of applicant

company.

(ii) To ascertain the genuineness information was also called u/s 133(6) of the Act by the A.O. from M/s. Sonic Biochem Extractions Limited

directly who had personally attended the hearings and produced voluminous documents including various correspondences, resolutions passed for the

purpose of investments in companies of Kataria Group as well bank statements in support of investments made to prove identity, capacity and credit

worthiness, which have not been doubted upon by the A.O. (Page no. 161 & 162 of paper book).

(iii) M/s. Sonic Biochem Extractions Limited regularly submitted returns with Tax Audit reports under I.T.Act & is being regularly assessed to tax by

Dy. Commissioner of Income tax, Circle-7(2), Mumbai as per copies of assessment orders for A.Y. 2006-07, 2008-09 & 2010-11 were placed on

record. (Page no. 203 to 222 of paper book).

(iv) Income returned by said company for A.Y. 2010-11 was Rs.4,05,78,550/- which was assessed vide order dated 03.01.2013 at Rs.4,44,43,520/-. In

this year, provision for tax as per audited accounts appears at Rs.1,05,00,000/-. (v) The applicant company is registered with the Registrar of the

Companies and Annual Returns under Companies Act are being submitted regularly.

(vi) The company confirmed the investment made in shares of Kataria Industries Pvt. Ltd. Such investments are reflected in the Balance sheet of

investor company year after year. (Page no. 163 to 198 of paper book). (vii) The turnover & networth (capital and reserves) as per the audited

accounts from A.Y. 2006-07 to A.Y. 2011-12 of M/s. Sonic Biochem Extractions Limited was as under :

           A.Y.                          Networth         Turnover

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           2006-07             Rs.10.91 crores        Rs.129.61 crores

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           2007-08             Rs.11.84 crores        Rs.147.84 crores

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           2008-09             Rs.14.61 crores        Rs.248.90 crores

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           2009-10            Rs.33.40 crores        Rs.304.81 crores

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           2010-11             Rs.41.51 crores        Rs.248.33 crores

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           2011-12             Rs.39.99 crores        Rs.286.72 crores

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             A.Y.     Networth                   Turnover

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           2006-07          Rs.10.91 crores           Rs.129.61 crores

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           2007-08          Rs.11.84 crores           Rs.147.84 crores

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           2008-09          Rs.14.61 crores           Rs.248.90 crores

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           2009-10          Rs.33.40 crores           Rs.304.81 crores

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           2010-11          Rs.41.51 crores           Rs.248.33 crores

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           2011-12          Rs.39.99 crores           Rs.286.72 crores

(viii) That the directors of said company and other stakeholders who made the investment in this company are known to all members of Kataria Group

including the directors of M/s. Kataria Industries Pvt. Ltd.

(ix) In the case of the company, the assessment for A.Y. 2008-09 was taken up for scrutiny and after detailed enquiry in relation to share capital

subscribed at Rs. 6.72 crores by M/s. Sonic Biochem Extraction Ltd., the assessment order was passed u/s. 143(3) of the Act by the Dy.

Commissioner of Income Tax, 6(2), Mumbai (Page no. 199 to 202 of paper book).

Vide para-10.4 of the assessment order, the AO did not doubt the identity and capacity of M/s. Sonic Biochem Extract ion Ltd. but merely observed

that the genuineness of the transaction was not established in respect of amount received on the ground that shares are not traded on any stock

exchange nor any dividend or good profit has been shown by the assessee company.

It was explained that M/s. Sonic Biochem Extraction Ltd. had mainly invested in share capital of Kataria Industries Pvt. Limited to establish Mega

Project, to manufacture various type of Steel Wires such as Tyre Bead Wire, L.R.P.C. wire, Oil Tempered wire, Cable Conductor, to set up Properzy

Mill for Aluminum Wire Rod, wire drawing Machine & to acquire Wind Mills for generation of electricity. Total Projected cost was planned over Rs.

50 Crore. The Company accordingly started the project in phase manner by setting up Wire Division in 2006 and commenced commercial production

on 19.03.2007 in Kataria Industries Pvt. Ltd.

As per M.P. Government Industrial Policy 2004, the Company was required to invest more than Rs. 25 Crore in “Backward Category to avail 75%

Subsidy under Udhyog Sanvardhan Sahayata Yojana before commencement of production. To avail such benefits it became necessary to join hands

with other entrepreneur, a trust worthy strategic partner, who can invest huge funds and take risk and wait for sharing the reward. Thereafter, an old

Trusted and familiar family friend viz. Shri Kishan Matlani, father of Mr. Girish Matlani (Director of Sonic Biochem) came forward & invested in

shares of Kataria Group, which was familiar to him since 1995. Matlani Group agreed to invest to the extent of Rs.15 crores whereby initial

investment of Rs. 479.81 lacs was made by Sonic Biochem Extraction Ltd in A.Y. 2006-07 & thereafter Rs.672 lacs in A.Y. 2008-09 and a sum of

Rs.37.40 lacs in A.Y. 2011-12.

In this context it is submitted that the applicant company personally attended the hearing before A.O. in response to Notice u/s. 133(6) and produced

various documents, identity was proved beyond doubt. Audited accounts of all years were submitted which were not doubted by A.O.. Copies of

Bank statements of applicant company for all years were also furnished/produced with related extract of their books of accounts along with copies of

assessment orders, income returned / assessed. Therefore creditworthiness was also proved beyond doubt. As the amount was received by A/c

payee cheques for allotment of shares duly supported by Bank statements and Board’s Resolution of said company and the directors of both the

companies are well acquainted to each other, genuineness of the transaction was also proved. In substance, identity, capacity, creditworthiness and

genuineness of share capital subscribed by M/s. Sonic Biochem Extractions Ltd., was proved beyond doubt by aforesaid explanations and documents

placed on record.

In view of aforesaid facts, there was no reason to doubt the genuineness of the transactions relating to investment made by M/s. Sonic Biochem

Extraction Ltd in Kataria Group of companies. The onus casted upon the appellant u/s 68 of the Act was discharged not only with reference to

identity and credit worthiness of M/s. Sonic Biochem Extraction Ltd but also in respect of genuineness of transaction. Therefore additions made by

the A.O. u/s 68 of the Act without appreciating aforesaid facts was rightly deleted by CIT(A). Reliance is placed on certain judgments gist of which is

annexed (Annexure â€" 1).

The A.O. had relied upon the judgment in the case of CIT Vs. P. Mohanlkala (2007) 291 ITR 278 (SC) & Sumatidayal Vs. CIT (1995) 214 ITR 801

(SC) which related to foreign gifts received by the appellant and earning from horse racing respect ively. Both the judgments are distinguishable not

only on facts but on demerits of such cases which are not present even slightly in the case of the appellant. The ratio of the principal laid down in

these judgments by the Apex Court cannot be applied by any stretch of imagination to the case of the appellant. (II) - Appeals/cross objections by the

assessee Cash credit u/s. 68 of the Act (A.Y. 2006-07) :

During A.Y. 2006-07 the company had accepted Share Application money from M/s. Ani Anu Developers Pvt. Ltd. & M/s. Samarpan Textiles Pvt

Ltd, Mumbai. Above two share applicants invested in shares of the appellant company during A.Y. 2006-07 at Rs.40 lacs each. Though no

incriminating documents were found relating to such investment made by these two companies during search, yet the Investigation Wing referred the

matter to Asstt. Director of Income tax, Investigation, Unit-I(1), Mumbai who had recorded the statement u/s 131 of the Act of the common director

on 21.01.2014. Shri Ashok Gupta, director of above two companies, stated in reply to question no. 24 of the statement that had provided

accommodation entries to the appellant company through above two companies.

Based on aforesaid statement, vide para-10.8.1 of the assessment order, it was concluded by A.O. that amount of share application money received

from two companies viz. Ani-Anu Developers Pvt Ltd at Rs. 40 lacs and M/s. Samarpan Textiles Pvt Ltd at Rs.40 lacs is not genuine and the

assessee company has taken only accommodation entry from the bogus paper companies and assessed to tax u/s. 68 of the Act. Detailed reply was

submitted by the appellant vide letter dated 24.03.2014 along with share application form, share certificates and acknowledgment of returns of income

submitted by two companies to prove the identity and capacity (Page no. 270 to 274, 283 & 284 of paper book). The common director of above two

companies also filed affidavits on 24.05.2014 whereby he re-affirmed the investment made by both the companies.

The identity of both the companies was proved beyond doubt not only by filing the affidavits later on but also by the presence of common director of

both companies in response to notice u/s 133(6) of the Act before ADIT, Mumbai.

The Commissioner of Income Tax (Appeals) confirmed the addition of Rs. 80 lacs u/s. 68 of the Act vide last para of the appellate order at page (16)

on the ground that above two companies had given accommodation entry to the appellant, the genuineness of the transactions and source of which has

not been explained and proved.

It is humbly submitted that once identity is proved beyond doubt, the onus is discharged specially when the subscriber to the share capital is being

assessed to tax. Reliance is placed on certain judgments gist of which is annexed (Annexure â€" 2).

We have heard both the sides. The assessee has received share application money from M/s Sonic Biochem Extraction Pvt. Ltd. which has a

permanent account number. Net worth of the company is about Rs. 40 crores. The investor company has also confirmed the investment while the

information was called for u/s 133(6) of the Act by the Assessing Officer. M/s Sonic Biochem Extraction Pvt. Ltd.has also represented before the

Assessing Officer to confirm the investments made in the assessee company. The copy of bank statement was also furnished. The assessment order

made by the income tax authorities for the assessment years 2006-07, 2008-09 and 2010-11 were also placed on record of M/s Sonic Biochem

Extraction Pvt. Ltd. For the assessment year 201011 the return of income of the investor company M/s Sonic Biochem Extraction Pvt. Ltd. was

Rs.4,05,78,550/-. The turnover and net worth of this investor company can be summarised as under :

All these facts establish that there was no doubt regarding identity and capacity of Sonic Biochem Extractions Ltd. The transactions were established

to be genuine, therefore, the assessee was able to discharge the onus placed upon it as per the provisions of section 68 of the Act. Therefore, we find

no merit in this ground of the revenue’s appeal and uphold the order of the learned CIT(A). We would also like to mention that the case laws

relied upon by the revenue CIT vs. P. Mohanakala; 291 ITR 278 and Sumati Dayal;

214 ITR 801 were having totally different facts. In the case of P.Mohankala the foreign currency received and in the case of Sumati Dayal the

earning was from horse racing. Therefore, the ratio laid down by the Hon'ble Apex Court in these judgments is not applicable to the facts of the

present case. By holding so, we dismiss this ground of the revenue’s appeal. We would also like to mention that since no incriminating documents

were found in relation to share capital, therefore, no addition could have been made in proceedings u/s 153A of the Act where no assessments were

abated. For the assessment year 2006-07 there was no abatement of assessment, hence, no addition could have been made in the order passed u/s

153A of the Act. Therefore, the assessee’s appeal also stands allowed on this issue.

During the course of arguments it has not been disputed by the learned counsel for the appellant that copy of the Bank statements of M/s.

Sonic Biochem Extractions Ltd. was also furnished and the aforesaid company has also represented before the Assessing Officer to confirm the

investments made in the Assessee/Company. The Assessment order made by the Income Tax Authorities for Assessment years 2006-07, 2008-09

and 2010-11 were also placed on record of M/s. Sonic Biochem Extractions Ltd. For the Assessment Year 2010-11, the return of income of the

investor company M/s Sonic Biochem Extraction Pvt. Ltd. was Rs.4,05,78,550/- and the learned Tribunal considering the aforesaid came to the

conclusion that all the above mentioned facts establish that there was no doubt regarding identity and capacity of M/s Sonic Biochem Extractions Ltd.

The transactions were established to be genuine, therefore, the assessee was able to discharge the onus placed upon it as per the provisions of Section

68 of the Act. The learned tribunal find no merit in this ground of the revenue's appeal and uphold the order of the learned Commissioner Income

Tax(Appeal).

During the Assessment year 2006-07, the Company had accepted share application of Rs.40 lacs each from M/s. Ani Anu Developers Pvt. Ltd.

and M/s Samarpan Textile Pvt. Ltd. S The learned Commissioner Income Tax(Appeal)Â confirmed the order of the Assessing Officer regardingÂ

investments of Rs.40 lacs each of the above mentioned company..

It is submitted that the learned Tribunal has wrongly deleted the same in Income Tax Appeal No.95/2016 whereas they failed to prove their

identity, capacity, creditworthiness and genuineness of transactions of share capital subscribed.

In respect of M/s Sonic Biochem Extractions Ltd., for the reasons assigned herein above, we are of the view that the learned Tribunal has rightly

affirmed the view taken by the Commissioner of Income Tax(Appeal) and dismissed the appeal filed by the Revenue by holding that in compliance to

the inquiry letters issued under Section 133(6) of the Income Tax Act, 1961, the representatives of said company i.e. M/s Sonic Biochem Extractions

Ltd. appeared before the Assessing Officer and submitted various documents along with audited accounts of the said company and confirmed the

genuineness of transactions and having subscribed the share capital of the respondent and necessary evidence to prove the genuineness and source

of investment have also been furnished before the Assessing Officer. The respondent has discharged the burden casted upon the respondent under

Section 68 of the I.T. Act regarding identity, creditworthiness and genuineness of transactions.

The aforesaid finding recorded by the Tribunal is finding of facts based on appreciation of record. We are of the view that once the identity of the

subscriber is established and accepted by the Assessing Officer, the addition on account of share subscription amount if at all not found provedÂ

under section 68 of the I.T. Act, has to be made in the hands of the subscriber. Therefore, no question of law is arising in respect of M/s Sonic

Biochem Extractions Ltd.. The appeal bearing ITA No.ITA No.97/2016 and ITA No.98/2016 filed by the appellant has no merit and are

accordingly dismissed.

On due consideration of the aforesaid, we are inclined to admit the appeal No.ITA No.95/2016 only on the following substantial question of

law :-

Whether the Tribunal was right in law in reverting the order of the CIT(A) sustaining the additions made under Section 68 of the Act, on the ground

that the identity and creditworthiness of the share-applicants as well as the genuineness of the transactions were proved ?

Issue notice on merit to the respondents, on payment of PF within a week, returnable within six weeks.

A copy of the judgment be placed in the record of I.T.A. No.97 of 2016 and I.T.A. No.98 of 2016.