IN INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE, BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. No. 418/Ind/2016 /Assessment Year:2007-08 Balaji Coal Private DCIT, Limited, Vs. 1(1), Plot No. 69, Ratnalok Indore. Colony, Scheme No. 53, Behind MPEB Power House, Indore.PAN: AACCB8991N /Appellant /Respondent /Appellant by Shri Pankaj Shah, CA /Respondent by Shri K. G. Goyal, DR 07.09.2016 Date of hearing 21.09.2016 Date of pronouncement ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 2 of 23 /O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. This appeal is filed by assessee against order of ld. Commissioner of Income-tax (Appeals)-I, Indore [hereinafter referred to as CIT(A)] dated 11.02.2016 and pertains to assessment year 2007-08 as against appeal decided in order dated 29.11.2013 passed u/s 271(1)(c) of Dy. CIT, 1(1), Indore, 2. only ground of appeal taken by assessee relates to confirmation of penalty u/s 271(1)(c) by ld. CIT(A). 3. Briefly stated facts of case are that assessee has filed his return of income declaring total income at Rs. 2,54,470/- on 30.10.2007, which was assessed u/s 143(3) on 21.12.2009 at Rs. 27,54,470/-. enhancement of return of income was on account of addition for Rs. 25 lakhs u/s 68 of Act. AO also initiated penalty proceedings u/s 271(1)(c) of Income-tax Act, 1961. During course of assessment proceedings, AO noticed that assessee has claimed to have received Rs. 25 lakhs for allotment of ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 3 of 23 shares from M/s. Standard Dealers Private Limited, Kolkata. To ascertain genuineness of transaction, reference was made to Director of Income-tax, Investigation Kolkata. DDIT Investigation Unit-(4), Kolkata, vide his report dated 10.12.2009, has intimated that directors of company Omax management Shri Manoharlal Nangalia is entry operator. In recent search on 16.09.2009, his son Shri Arun Nangalia and Shri Mukesh Banka had given their statement that this company is being managed by them and they are providing accommodation entry through these companies. Above report was forwarded to assessee to furnish its comments. In response, written submission has been, made stating that : That share applicant of company as mentioned at Sl.No. 3 Standard Dealers Private Limited has invested Rs. 25 lacs towards share application wherein report has confirmed ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 4 of 23 identity, genuineness and creditworthiness of share applicant. amount, received from said company is through normal banking channel and transaction/entry related to application money is also appearing in Balance Sheet of said applicant. source of share applicant is explained as same ) has been received through bank, identity of company is established and amount invested for share applications also appearing in bank statement as well as books of account of of company. In circumstances onus to prove identity, genuineness of transaction and their worthiness is established from our end. Here we deserve to mentioned that we have neither business relation/ transaction with said company is earlier years nor any director of assessee company has any business interest with above company and share ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 5 of 23 application received is in general course of business and amount invested in our company for share application has also been accepted by mid company which is standard Dealers Private Limited. Above submission is not acceptable, Deputy Director of income tax (Investigation) Unit- 1(4), Kolkata has reported that M/s. Standard Dealers Pvt. Ltd., Kolkata, has claimed receipt of funds from Omax management Pvt. Ltd. which has timed out to be -a Company providing accommodation entries. Obviously, funds have been claimed as received from company who has ., passed on entry only and not real money, Even otherwise also, financial statements of M/ s Standard Dealers Pvt. Ltd., Kolkata also depict true story, its total receipt during subject period is meager sum of Rs.3,51,449/ - out of which sales amount to Rs.2,250/ - only. Virtually, no business has been ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 6 of 23 carried out by Company. expenses booked by this company comprise of Administrative expenses only resulting into book profit of Rs.25,311/ - only. It can be well understood that company which does not earn income of respectful figure can not think to divert its fund to others unless it is only to pass on entry. This company's balance sheet also' depicts peculiar picture. Its funds have been shown as parked In investment of shares mainly from which there is hardly any income. Now, we need to analyze assesses claim of investment by above company. assessee is new entrant in business. It has no background of prosperous business in field of operation. introduction of capital by promoters of company is meager, It has claimed that M/s. Standard Dealers Pvt. Ltd.. Kolkata has contributed to capital at premium of nine times of face value of its ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 7 of 23 share, which is not believable. No prudent person would invest at high premium of above magnitude unless, there is earning potential to very-very high figure, which is mirage, in present scenario. Considering profit of assessee company, there is hardly any hope of distribution of dividend of rate of even saving bank interest. Thus human approach of probability does not permit anybody to believe that such invest could be genuine. As regards assessee's argument that funds, have been received through normal banking channel, is concerned, it is not deciding factor to find out genuineness. It has been further argued that investment appear in balance sheet of investor. This argument is also of no use to assessee. It can be perceived that M/ S Standard Dealers Pvt. Ltd., Kolkata has claimed receipt of funds from Omax Management which is nothing but ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 8 of 23 entry operator. Thus very source of funds is found to be not genuine, Therefore entries in books of account can not be accepted as base for accepting explanation, In view of discussion made In foregoing paras, share application money amounting to Rs.25,00,000/-, is assessed u/s 68 of Income-tax Act. Penalty u/s 271 (1)(c) is simultaneously initiated for furnishing inaccurate particulars of income to above extent. 4. assessee carried matter before CIT(A), who has also upheld findings of AO. 5. Dissatisfied with order of ld. CIT(A), assessee has filed appeal before this Tribunal. Tribunal vide I.T.A.No. 366/Ind/2012 dated 30.04.2013 also upheld findings of lower authorities. In view of these facts, AO required assessee to explain as to why penalty u/s 271(1)(c) of Act should not be levied. In response to which ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 9 of 23 assessee replied that assessee has filed appeal with Hon'ble High Court, Indore, Indore Bench, against order u/s 143(3) of Act and same has been accepted by Hon'ble High Court. Since addition has been made on account of debatable issue regarding share application money, therefore, it was requested to defer penalty proceedings u/s 271(1)(c) of Act. However, AO was of view that contention of assessee that I.T.A.T., Indore Bench had accepted assessee s appeal, it would suffice to say that Hon'ble High Court has merely admitted assessee s appeal. From this it follows that it would rather be incorrect on part of assessee to assert that Hon'ble High Court of Madhya Pradesh has decided issue in his favour. Therefore, AO did not find any merit in assessee s arguments. 6. With regard to second argument of assessee that assessee has not concealed income, AO observed that in view of facts discussed at length in para 2.1.1 with regard to non-genuineness of share capital of Rs. 25 lakhs and subsequently upheld by ld. CIT(A), it is ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 10 of 23 apparent that assessee did furnish inaccurate particulars of its income to extent of Rs. 25 lakhs and thereby concealed correct particulars of income. With regard to contention of assessee that penalty proceedings be kept in abeyance, AO noted that there is no provision in Income-tax Act, 1961, whereby penalty proceedings, can be kept in abeyance till decision of Hon'ble High Court. Therefore, AO has held that assessee has committed default within meaning of provisions of Section 271(1)(c) of Act and, therefore, liable for penalty in respect of concealing income and furnishing inaccurate particulars of his income to extent of Rs. 25 lakhs. Accordingly, AO levied minimum penalty of Rs. 10 lakhs. 7. Aggrieved with order, assessee filed appeal before ld. CIT(A). ld. CIT(A) has also upheld levy of penalty vide para 4.2.6, which is reproduced as under :- 4.2.6 In view of facts as discussed in para 4.2.2 to 4.2.4 above as regards to all of ten appeals, I find that concerned ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 11 of 23 assessees had brought in their own unaccounted money in garb of share application money through various entry providers. modus operandi adopted for purpose is very common. companies involved in this modus operandi as entry providers exist only for purpose of providing accommodation entries to such assessees and for that they charge normal commissions. They are duly registered with ROC and me returns of income also. beneficiary assessees would support their claim based on such paper documentations. This is what has been done by assessees in all these ten appeals. Inspite of Show cause notices and sufficient opportunities, these assessees have preferred not to produce Directors of such entry giver companies. avoidance has been made with sole purpose to ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 12 of 23 prevent me to carry out detailed inquiries in manner which I had done in context of Hindustan Continental Ltd and Agrawal Road Carriers Ltd whereby I could find various persons whom similar entries were given and remedial action could be initiated by concerned assessing, officers. In facts of aforesaid ten appeals, ratio' of decision of Hon'ble Supreme Court as given in case of Lovely Exports P Ltd does not apply. For this reliance is placed onto decision of Hon'ble Delhi High Court (in case of Nova Promoters & Finlease Pvt Ltd (supra) ). other case laws relied upon by assessees are also not applicable to facts of their cases, more so in view of ratio' / principle laid down by Hon'ble Delhi High Court in said case [Nova Promoters & Finlease Pvt Ltd). In facts & ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 13 of 23 circumstances of these cases, I have applied test of 'Human Probabilities'. It is noted that Hon'ble Supreme Court in celebrated decision in case of CIT vs. Durga Prasad More. 82 ITR 540(SC), on page 545 has categorically held that genuineness of transactions cannot be decided merely on basis of recitals in documents and same has to be examined in light of 'Surrounding Circumstances'. same analogy was applied later by Hon'ble Supreme Court in case of Sumati Dayal vs. CIT 214 ITR 801 (SC) as elaborated on page 808-809 of report that test of' Human Probabilities' have to be applied to judge true nature of any transaction. same view was again reiterated by Hon'ble Supreme Court, taking notice of aforesaid two decision, in case of P. Mohan Kala 291 ITR . 278(SC) on pages 288-289 of report. Further, there ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 14 of 23 are two well known sayings or proverbs which have evolved from examination of human nature and conduct over period of centuries and are thus recognized as 'Conventional Wisdom' of Universal application. Similar proverbs exist in many' Indian languages and even foreign languages. proverbs are ' MAN IS KNOWN BY COMPANY HE KEEPS and BIRDS OF SAME FEATHER FLOCK TOGETHER . In Hindi , near equivalent is "Addami Ki Pehchan Sangat Se Hoti Hai". If test of 'Human Probabilities' is applied in light of two proverb and further test of 'Surrounding Circumstances' is applied, only logical conclusion which emerges is that share application money brought in by all these assessees has been their own unaccounted money and same has rightly been taxed by AOs u/s.68. In this view of ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 15 of 23 matter, in case of present assessee (i.e. Balaji Coals P Ltd 316/09-10 AY 2007-08), I uphold addition of Rs.25,00,000/- on account of unexplained share capital / share application money. 8. Aggrieved with above order, assessee has filed this appeal before us. 9. Ld. Counsel for assessee submitted that addition of Rs. 25 lakhs made u/s 68 on account of share application money received from M/s. Standard Dealers Private Limited is unjustified and is challenged before Jurisdictional High Court wherein same has been admitted. Ld. Counsel for assessee further contended that addition is not tenable on following reasons as identity of investor company has been proved due to following evidences furnished by assessee :- (i) Audited financials of investors. (ii) Permanent Account Number details of Investor. ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 16 of 23 (iii) NBFC Registration Certificate of Investor issued by RBI. (iv) Master details as per ROC (v) Copy of Bank Account of Investor from which investment is made. (vi) Copy of share application and allotment forms. 10. It was further argued that genuineness and commercial rationale of investment is established by fact that investor acquired shares of Rs. 10/- at premium of Rs. 90/- per share and later in subsequent year sold shares at Rs. 120/- earning capital gains on transaction. only basis of addition is that source of source of investment was tainted. investor M/s. Standard Dealers Private Limited had entered into transaction with M/s. Omax Management, which was stated to be involved in illegal transactions. However, to no stretch of imagination, assessee can be made to suffer for conduct of source of source of investors. ld. Authorized Representative of assessee further submitted that it is settled position that ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 17 of 23 person cannot be forced to prove source of source as held by Hon'ble Supreme Court in case of CIT vs. Daulat Ram Rawatmull, 87 ITR 349 (S.C.), Anil Rice Mills vs. CIT, (2006) 282 ITR 236, DCIT vs. Rohini Builders, 256 ITR 360, Labh Chand Bohra vs. ITO, (2010) 189 Taxman 141. 11. ld. Authorized Representative of assessee vehemently argued that quantum appeal on issue is admitted by Jurisdictional High Court as substantial question of law. Therefore, issue automatically becomes debatable and it is settled law that no penalty can be levied on debatable issue. In support of this proposition, ld. Authorized Representative of assessee placed reliance in case of Santosh Hazari, 3 SCC 179 (S.C.), wherein Hon'ble Supreme Court has defined substantial question of law point of law which admits of no two opinions may be proposition of law but cannot be substantial question of law. To be substantial, question of law must be debatable. 12. quantum addition has been made on probabilities and presumptions. Indeed additions can be made on probabilities, but it is equally settled that no penalty can be ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 18 of 23 levied on preponderance of probabilities. Further reliance is placed on following decisions :- a. Shri Jagjit Singh vs. ITO (I.T.A.No. 536/Chd/2014) b. Jayendra G. Soni vs. ITO, (2011) (16 taxmann.com 87). c. Dishman Pharmaceuticals & Chemcials Limited, I.T.A.No. 1138/Ahd/2011. 13. penalty was initiated on charge of furnishing inaccurate particulars of income in assessment order, however, same is levied in penalty order on charge of concealing income and furnishing inaccurate particulars of income. It is settled law that both are different charges and it is incumbent on AO to clearly specify charge, however, it is seen that levy of penalty is without proper application of mind which cannot survive in law. Reliance is placed on decision of Indore Bench in case of DCIT vs. Nepa Limited, (2015) 58 taxmnn.com 137, which has been approved by MPHC. ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 19 of 23 14. ld. Departmental Representative, on other hand, supported order of ITO and CIT(A). 15. We have heard rival submissions and perused materials available on record as well as orders of lower authorities. We find that assessee has claimed to have received share application money of Rs. 25 lakhs. AO did not accept share application money as claimed to have been received from M/s. Standard Dealers Private Limited, Kolkata, on ground that said company was engaged in providing accommodation entries to beneficiaries. As Directors of Omax Management Company have accepted in their statement recorded during course of search on 16.09.2009 in their case that their company is being managed by them and they are providing accommodation entries through these companies. It is seen that M/s. Standard Dealers Private Limited, Kolkata has claimed receipt of fund from M/s. Omax Management, which was entry provider entity. additions so made by AO were came to be confirmed by ld. CIT(A) as well as Tribunal. We find that Hon'ble M.P. High Court in case of assessee has ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 20 of 23 admitted appeal of assessee vide I.T.A.No. 52 of 2013 dated 26.09.2013, on following questions of law :- 1. Whether on facts and in circumstances of case, Income Tax Appellate Tribunal is right in confirming addition of Rs. 25 lacs in respect of share application money received from M/s. Standard Dealers Private Limited, Kolkata ? 2. Whether on facts and in circumstances of case addition u/s 68 could be made/sustained in hands of appellant company in respect of receipt of share application money from another company on ground of non- Existence of investor company in view of principles laid down by Apex Court in cases Steller Investments and Lovely Exports Pvt.Ltd. (supra) ? 3. Whether on facts and in circumstances of case any addition u/s 68 of Income-tax Act, 1961, could be made/sustained on account of ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 21 of 23 liability of investor company to establish/prove source of its investment in appellant company and whether appellant can be required to prove source of source of investment in question ? 16. We also find that Ld. Authorized Representative of assessee has placed reliance in case of Shri Ajay Engicon (P) Limited vs. ACIT, I.T.A.No. 93/Ran/2013 (A.Y. 2004-05) dated 27.10.2015 and Singhai Vikas Kumar Jain vs. ITO, I.T.A.No. 231/Jab/2013 (A.Y. 2003-04) dated 07.04.2016, wherein relying in case of Shree Nirmal Commercial Limited vs. CIT, 2008-TIOL-426-High Court- MUM-IT, wherein it was held that no penalty u/s 271(1) of Act can be levied where income is assessed u/s 68 of Income-tax Act, 1961. We also find that Hon'ble Karnataka High Court in case of CIT vs. Gulbarga and others vs. M/s. Manjunatha Cotton and Ginning factory, Bellary, 2013-TIOL- 536-HC-KAR-IT, held that if explanation offered by assessee, even though not substantiated, but is found to be ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 22 of 23 bona fide and all facts relating to same and material to computation of his total income have been disclosed by him, no penalty could be imposed. Similarly, Hon'ble Delhi High Court in case of CIT vs. Liquid Investment Limited vide its order dated 5.10.2010 in I.T.A.No. 240/09 has held that where High Court has accepted substantial question of law u/s 260A, this itself shows that issue is debatable. Similarly, in case of CIT vs. M/s. Nayan Builders and Developers in I.T.A.No. 415/2012 vide order dated 08.07.2014 it was held that when High Court admits substantial question of law on addition, it becomes apparent that addition is certainly debatable. In such circumstances, penalty cannot be levied u/s 271(1)(c) of Income-tax Act, 1961. In light of foregoing reasons, we set-aside orders of lower authorities and delete penalty of Rs. 10 lakhs and allow ground of appeal. ITA No.418/Ind/16 Balaji Coal Pvt.Ltd. A.Y.2007-08 Page 23 of 23 17. In result, appeal of assessee is allowed. order has been pronounced in open court on 21st September, 2016. Sd/- Sd/- (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER /Dated : 21st September, 2016. CPU* Copy of order forwarded to : Assessee/ PCIT- Indore/ CIT(A)-I, Indore, AO/ DR- Indore Bench/ Guard file By order Assistant Registrar of ITAT, Indore Bench Balaji Coal Private Limited v. DCIT, 1(1), Indore