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Bogus Share Premium: No reason to interfere. SLP dismissed by SC
PCIT vs. Chain House International (P) Ltd (Supreme Court)
April, 10th 2019
S. 68 Bogus Share Premium: No reason to interfere. SLP dismissed. High Court held there is no limitation on the amount of premium that can be charged. The AO cannot question the transaction merely because he thinks the investor could have managed by paying a lesser amount as share premium. It is the prerogative of the Board of Directors to decide the premium and it is the wisdom of the shareholder whether they want to subscribe to shares at such a premium or not. S. 68 does not apply as the funds were received through banking channels and the identity, creditworthiness and genuineness of the investors was established
The present bunch of appeals have been filed by the revenue against the order dated 27.12.2017, passed by the Income Tax Appellate Tribunal, Indore Bench, Indore in ITA No.596 & 597 / Del / 2017, for the assessment year 2012-13 and 2013-14, whereby the learned Appellate Tribunal affirmed the order passed by the Commissioner Income Tax (Appeals) in First Appeal bearing No.18/16-17 and other connected appeals, and dismissed all the six appeal of the revenue.
4. Facts of the case are that the search, seizure and survey operations under section 132/133A of the Income Tax Act, 1961 (herein after referred as ‘the Act’) were conducted on 17.12.2013, along with other concerns / group companies of the assessee company having its PAN No.AAGCA5346J at various residential and business premises and a notice under Section 153A of the Act was issued to the assessee on 23.9.2015 by the assessing officer where-after in response to the said notice, the assessee (M/s. Chain House International (P) Ltd, New Delhi). filed its returns on 5.10.2015 declaring its total income of Rs.1,03,12,520.
5. During the course of search, it has been revealed that the assessee has received an unsecured loan of Rs.30.00 Crores from HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–3– (ITA No.112/2018 & Other connected matters) M/s. Bharat Securities Pvt. Ltd. (herein after referred as ‘BSPL’) who shown to have got a bogus share applciation money and premium of Rs.55.00 Crores from 5 entry providing companies viz. M/s. Aadhaar Ventures India Ltd (Rs.40.75 Crores), Emporis Project ltd (Rs.3.00 Crores), Dhanus Technologies Ltd. (Rs.9.75 Crores), L.N. Polyester Ltd (Rs.0.75 Crores) and Yantra Natural Resources Ltd. (Rs.0.75 Crores) during the Financial Years 2011- 12 and 2012-13 in the form of accommodation entires and the some share capital with exorbitant premium from the said 5 companies against payment of unaccounted cash which was inter-alia routed back as share capital and share premium during F.Y. 2011-12 & 2012-13. Further it was found that M/s. BSPL has transferred the said receipts of Rs.55.00 Crores of bogus share capital and premium to the main Group companies ie., Rs.30.00 Crores during the Financial Year 2011-12 as unsecured loan which was transferred to M/s. Chain House International Pvt. Ltd and again Rs.8 Crores during the Financial Year 2012-13 as unsecured loan were transferred to M/s. Chain House International Pvt. Ltd and further during Financial Year 2012-13 and Rs.17.00 Crore was transferred as unsecured loan to M/s. Rohtak Chain Company Pvt. Ltd. During the investigation, it was found that commission @ 5% HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–4– (ITA No.112/2018 & Other connected matters) had been charged by the aforesaid 5 entry providers companies for providing accommodation entries, therefore, commission of Rs.30,00,00,000/- (5% of Rs.30 Crores) for the Financial Year 2011-12 and Rs.1,25,00,000/- (5% of Rs.25 Crores) for Financial Year 2012-13 was added to the total income on the assessee company for infusion of accommodation entries as unexplained expenditure under Section 69C of the Act.
6. After the search the investigation wing issued notices under Section 131 (1A) of the Act to the investor companies and also to its Directors. The Directors and the four investor companies (except L.N. Industries Ltd) complied with the requirement as per the notices. They replied the notices accompanied with copy of balance sheets, copy of ITR Ledger Account etc. Investor companies confirmed the investment made by them in the share capital of assessee company. The investigation wing, Delhi was having some information relating to statements of Shrish Chandrakant Shah (SCS) and Sawan Kumar Jajoo (Jajoo) and who have stated that they were engaged through the web of various companies including the five companies who had contributed to the share capital of M/s. Bharat Securities (P) Ltd, in providing accommodation entries to various entities. The HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–5– (ITA No.112/2018 & Other connected matters) statements Mr. Jajoo were recorded on 18.12.2013 and 23.12.2013. On being asked by the investigation wing, the company consented to cross examine the witnesses and later on letter was issued by the department for cancelling the cross examination and also required him to produce the Directors of the investors company. During the assessment proceedings the assessing officer issued notice under Section 133(6) of the Act to all the investor companies and also their Directors separately requiring them to furnish their books of accounts, balance sheets, profit and loss accounts, copy of bank statement and also the details of all the investments including the source made by them in the share capital of BSPL. All the investor companies, except Dhanus Technologies Ltd, complied with the notices. All of them confirmed the investment made in the assessee company and in support thereof furnished the relevant supporting documents including the ledger Account of BSPL in their books of accounts, copy of ITRs, bank statements and also explained their source of investments.
7. M/s. Dhanus Technologies Ltd. was under liquidation vide order of the Madras High Court dated 26.11.2013. The Assessing Officer made necessary enquiries from the Official Liquidator, HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–6– (ITA No.112/2018 & Other connected matters) appointed by the Madras High Court, who after conducting the enquiries from internal auditors, bank BSE confirmed the investment made by Dhanus Technologies Ltd. in the assessee company in 65,000 shares amounting to Rs.9.75 crores. The Official Liquidator also found that the seized record of the company contained annual report for the period ending 31.12.2011 as inventory item. The Official Liquidator confirmed the investment and also sent copies of various supporting documents including copy of bank statement, copy of board resolution, copy of the share application forms, copy of share certificates, and copy of the annual report.
8. At the request to assessing officer the assessee company filed detailed explanation with evidences and documents with regard to Section 68 of the Act in case of each investor company, which includes confirmation of investment, copy of bank statement, copy of balance sheet reflecting the investment made in BSPL, ldeger account of assessee company in the books of accounts of investor companies, copy of ITRs, copy of allotment letter dispatched to investor companies through speed post, copy of share certificates, copy of Form No.2 filed with ROC, Memorandum & Articles of Association of the investor companies HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–7– (ITA No.112/2018 & Other connected matters) etc.
9. On 2.2.2016, the assessing officer issued show cause notice alleging therein that the assessee company received accommodation entries of Rs.55 crores from five listed companies. In response to the show cause notice the assessee company, ie., BSPL submitted its reply dated 12.2.2016, refuting all the allegations of assessing officer and emphasised that the investor companies and their Directors had on several occasions filed confirmations and all supporting documents before the investigation wing as well as before the assessing officer confirming the investment in BSPL. The share of the investor companies were traded in Stock Exchange on regular basis. All the share applicant companies have submitted their audited balance sheets displaying the investment made by them in the share capital of BSPL. The investor companies had also furnished details of the source of capital investment. During the course of search on the assessee company Xerox copy of the share certificate, original counter foils were found and seized by the revenue. The assessee company has, therefore, relied very heavily on sub section 4A of Section 132 providing that all documents etc found during the course of search are to be HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–8– (ITA No.112/2018 & Other connected matters) presumed as correct and genuine and also such documents belong to the person in whose custody these were recovered. Regarding reliance on the statements the assessee company very vociferously stated that no reliance should be placed on such statements for various reasons such as statements were recorded behind the back of the assessee company, recorded during the search of others and also recorded much prior to the date of search on the assessee company. During such search BSPL was not in picture at all and such persons have never referred the name of BSPL. The submission of the assessee company that no reliance should be placed on such statements or at-least unless the opportunity of cross examination was provided. The assessee company had also explained that the assessing officer had completely failed to bring even iota of evidence on record to prove any generation of unaccounted money and also transfer of such money in exchange of share capital.
10. During the course of search on the assessee company no incriminating material whatsoever proving any accommodation entry was unearthed. Finally the assessee company filed voluminous material in the form of evidences and documents supporting the identity and creditworthiness of the investor and HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–9– (ITA No.112/2018 & Other connected matters) genuineness of the transactions. The assessing company produced Directors of major investor company namely Aadhaar Ventures India Ltd who contributed Rs.40.75 crores out of total investment of Rs.55 crore, before the assessing officer. He was examined and his statement was recorded. He produced the books of accounts of the company. He confirmed the investment made by his company in the share capital of the assessee company. The books of accounts produced by him were examined by the Assessing Officer. The Director in his statement has deposed that his company was never engaged in providng accommodation entries and on the contrary was carrying on real business where the turnover runs into approx. 171 crores in Assessment Year 2012-13 and 133 crores in Assessment Year 2013-14. He also produced the bank account of the company with reference to the investment made. He also admitted having known BSPL and its Directors. He stated that share were subscribed @ Rs.1500/- per share including the amount of share premium which was on the basis of mutual decision. He disagreed with the statements of Shri Chandrakant Shah (SCS) and Sawan Kumar Jajoo (Jajoo). He stated that his company was not engaged in providing any accommodation entries and the HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–10– (ITA No.112/2018 & Other connected matters) investment of Rs.40.75 crores was real, correct and genuine. He also stated that share capital was not invested in exchange of any cash. On 15.3.2016, the assessing officer issued show cause notice wherein it was informed that an adverse inference was being drawn against assessing company regarding share capital of Rs.55 Crore. The assessing company filed its reply on 2.3.2016 and emphasized on the cross examination of the persons on whose statements the assessing officer has placed reliance against the assessing company. Copy of statement and Somabhai Sunderbhai Meena and Aadhaar Ventures India Ltd were also sought from the assessing officer, their cross examination were also demanded, however, opportunity of cross examination of such person was not granted nor copies of their statement were also given. The assessee company further stated that the assessee company can only contact the investor company who had contributed to the share capital.
11. Share capital had been contributed by the company and not by the Directors in their individual capacity. It is only the books of accounts and the balance sheets which speak itself. Besides, in this letter itself it was informed that the assessee company was not clothed with the power under Section 131 of HIGH COURT OF M.P. BENCH AT INDORE Pg. No.–11– (ITA No.112/2018 & Other connected matters) the Act, which is enjoyed by the revenue and the assessee company did not succeed except that it had able to produce only the Direcotr of Aadhaar Ventures India Ltd. So far as the other Directors are concerned the assessee company was making request right from beginning that the assessing officer may kindly issue summons under Section 131 of the Act to such Directors and then record their statements and allow cross examination to the assessee company but the assessing officer did not gave any attention to the same and never took any action on the said request of the assessee company.