Income Tax Appellate Tribunal - Delhi
Ace Matrix Solutions Ltd.,, Delhi vs Assessee on 13 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A' NEW DELHI.
BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL
I.T.A. No.1219(Del)/2010
Assessment year: 2005-06
ACE Matrix Solutions Ltd., Income-tax Officer,
B-97, All Heaven Building, Vs. Coy. Ward 1(2), New Delhi.
Wazirpur Indl. Area,
Delhi-110052.
PAN: AABCA6670J
(Applicant) (Respondent)
Appellant by : Shri K.P. Garg, FCA
Respondent by: Mrs. Anusha Khurana, Sr. DR.
Date of Hearing: 13.02.2012
Date of Pronouncement: 29.02.2012.
ORDER
PER K.G. BANSAL : A.M The assessee has taken three grounds in this appeal. The real grievance of the assessee is projected in ground no. 2 that the ld. CIT(Appeals) erred on facts and in law in upholding the addition of Rs. 37,40,743/-, made by the AO as unexplained investment u/s 69 of the Income-tax Act, 1961.
1.1 The facts of the case are that the assessee-company filed its return on 20.03.2006 declaring loss of Rs. 12,057/-. The return was processed 2 ITA No. 1219(Del)/2010 u/s 143(1) on 22.03.2006. Subsequently, assessment proceedings were initiated by issuing notice u/s 143(2) of the Act on 28.02.2007, which was served on the assessee. A notice u/s 142(1) and a questionnaire were also issued and served in the course of assessment proceedings. It was found that the assessee is engaged in the business of purchase and sale of shares.
1.2 In the assessment proceedings of another company, AGM Management Services Ltd. ('AGM' for short) for assessment year 2005- 06, it came to the notice of the AO that the assessee-company acquired 5,90,800 shares of this company, which were recorded as such in the shareholder ledger. The assessee, on the other hand, did not show the purchase of these shares in its accounts. Therefore, the assessee was required to state its position in respect of acquisition of the aforesaid shares. It was submitted that as per its books of account, no share of AGM was purchased in the period under consideration. 1.3 As there was a contradiction in the stands of the two companies, AGM was required to furnish its comments on the stand of the assessee. This company furnished the details of the shares which were transferred 3 ITA No. 1219(Del)/2010 in the name of the assessee-company on the basis of share transfer applications lodged with it. Page nos. 2 and 3 of the assessment order contain the details of the shares in terms of distinctive number, certificate number, number of shares, name of the transferor and the date of transfer. Copies of transfer deeds were also filed. 1.4 On receipt of this information, the AO issued letters u/s 133(6) to the sellers of the shares, Shri Anirudh Kumar and Smt. Sudha Aggarwal to furnish certain details. The reply received from them showed that-
(a) 1,18,300 fully paid-up shares and 4,00,000 partly paid-up shares were sold by Shri Anirudh Kumar for which Rs. 26,92,800/- were received by him during F.Y. 2004-05.
(b) 72,500 fully paid-up shares were sold by Smt. Sudha Aggarwal for which Rs. 11,60,000/- were received by her during F.Y. 2004-05.
(c) except for 9,100 shares, for which Rs. 1,00,000/- were received from M/s RCI Industries & Technologies Ltd. ('RCI' for short), all the other shares were sold through M/s Creative Financial Services (P) Ltd. from whom an amount of Rs. 37,52,800/- was received through banker's cheques during the period Feb-March, 2005.
Evidence of receipt of the above cheques was filed in the form of copies of these bankers cheques.
1.5 On receipt of the aforesaid information, statement of Shri Anirudh Kumar was recorded on oath u/s 131 of the Act on 13.12.2007. The crucial part of the statement is reproduced overleaf:- 4 ITA No. 1219(Del)/2010
(a) I stand by the reply to letter u/s 133(6) and further I state that I and my mother were holding majority shares in the AGM and we have received the above said consideration.
(b) When we agreed to sell the above said shares of the company, the party who agreed to buy these shares they became directors of the company. Their names were Mr. Rajeev Gupta and Mr. Pradeep Gupta. The registered office of the company was also transferred to the premises held by them. We have submitted form 29, form 32 and form 18 for change of situation of registered office, in your ward. These persons had agreed to give us the total sale consideration of the shares, as stated above.
(c) First cheque of Rs. 1,00,000/- has been given by them from one of their entity, R.C. I and for rest of the amount Mr. Rajeev Gupta, one of the new director stated that he would transact through a DSE broker. He further stated that me and my mother would be paid through that broker's account. In this manner, we received the rest of the consideration (amounting to Rs. 37,52,800/-) by way of cheques/demand draft of the said broker (CFSL) and contract notes of that broker were also given to me. The entire cheques/draft brokers notes etc. have been received by us through the representative of Mr. Rajeev Gupta. These shares were transferred as per agreed price and valuation of the company and in turn me and my mother signed the transfer deeds during the period November, 2004 to February 2004-05. The share certificates in respect of these transactions were handed over to Shri Rajeev Gupta during the period Nov., 2004 to Feb., 2004-05.
1.6 It will be seen from the statement that substantial amount of Rs. 37,52,800/- were received from the brokerage firm, CFSL and contract notes were supplied by this firm. Therefore, the statement of Shri Suresh Garg, director in CFSL was recorded. It was inter-alia deposed that he does not know anything about Creative Financial (P) Ltd. but CFSL has 5 ITA No. 1219(Del)/2010 been a member of Delhi Stock Exchange since 1995. This company has not done any business since June, 2001. He denied having known the AGM, the assessee, Shri Anirudh Kumar, Smt. Sudha Aggarwal and Shri Rajeev Gupta. On being shown the contract notes in respect of sale of shares of AGM, it was deposed with certainty and full conviction that the notes were not issued by CFSL. The notes were stated to be obviously fake documents which have wrongly and fraudulently used the name of CFSL. In this connection, attention was also drawn towards the bottom right corner of the document using the name of Creative Financial (P) Ltd., reinforcing the statement that there is difference in the document itself. On being shown the banker's cheques paid to Shri Anirudh Kumar and Smt. Sudha Aggarwal, it was stated that these were not paid through the funds of CFSL or any of his associated concern. Clarifying the matter further it was stated that CFSL had only one bank account, C.A. No. 3074 and 3075 with Canara Bank, DSE Branch, Asaf Ali Road, Delhi. This company has not maintained any account with State Bank of Bikaner & Jaipur, New Rohtak Road, New Delhi, through which payments were made to Shri Anirudh Kumar and Smt. Sudha Aggarwal. The signatures on the cheques were stated to be of Shri Deepak Changia, Additional Director of CFSL during the period April, 6 ITA No. 1219(Del)/2010 2003 to September, 2003. It was further deposed that he has not heard of Shri Deepak Changia since September, 2003. It was also voluntarily deposed that he was aware of fraudulent transactions being carried out in the name of CFSL and he has submitted a statement to the SEBI in this regard. Subsequently he also filed some details asked by the AO which lead to an inference that Shri Deepak Changia opened a current account number 24852 in the name of CFSL in the period 2004-05 and payments to Shri Anirudh Kumar and Smt. Sudha Aggarwal were made from this account.
1.7 It appears that the investigation wing of the department had also conducted enquiries in respect of accommodation entries provided by a number of persons including the CFSL. Their observations are that Shri Mahesh Garg had been providing accommodation entries in the name of CFSL. The cash was received and deposited in the bank account and thereafter cheques or drafts were issued to the beneficiaries. Shri Deepak Changia was also one of the persons through whom Shri Mahesh Garg operated the business of providing accommodation entries. However, efforts to trace Shri Deepak Changia proved futile. 7 ITA No. 1219(Del)/2010 1.8 On the basis of aforesaid enquiries, the AO drew a number of tentative conclusions that -
(a) Shri Rajeev Gupta, director of the assessee-company, arranged impugned consideration for the sale of shares;
(b) he also became director in AGM and the registered office of the AGM was transferred to the address of the assessee company;
(c) the period of signing of transfer deeds by Shri Anirudh Kumar and Smt. Sudha Aggarwal is the same as the period in which the shares were transferred to the name of the assessee in the books of AGM;
(d) the seller received consideration of Rs. 37,52,800/- through CFSL, a broker;
(e) Shri Suresh Garg denied that the transactions have been undertaken through CFSL and stated that the contract notes are bogus and client code number is not mentioned in the contract notes, which is an essential condition;8 ITA No. 1219(Del)/2010
(f) the bank account used belongs to entry provider, Shri Mahesh Garg and Shri Deepak Changia; and
(g) finally, a tentative conclusion was drawn that the burden to prove the entries and source of funds amounting to Rs. 37,52,800/- lied on the assessee as said investment has been made by it.
1.9 These conclusions were communicated to the assessee and it was required to state its case in the matter. For this purpose, a detailed show cause notice has been issued which deals with all aspects of the enquiry. The show cause notice was accompanied by a notice u/s 142(1). The assessee responded to the notice by way of a letter dated 22.12.2007. It was submitted that :
(a) 2,42,100 shares of AGM were purchased through CFSL @ Rs. 0.95 per share;
(b) The rate at which Shri Anirudh Kumar and Smt. Sudha Aggarwal sold these shares to the broker is not known to it;9 ITA No. 1219(Del)/2010
(c) The statement of Shri Anirudh Kumar does not contain anything concrete and in all probability it is a made up statement;
(d) The statement of Shri Suresh Garg shows that CFSL has not conducted the business of share broking firm since June, 2001;
(e) The brokerage firm had a number of accounts and it is not known from which account the sum of Rs. 37,52,800/- has been paid to the sellers of the shares, however, there is no evidence that the assessee-
company had made this payment;
(f) The assessee had purchased shares of this company @ Rs. 0.95 per share and sold the same at Rs. 1.00 per share within a short period, thereby earning a marginal profit; and
(g) The shares were sold to Anupam Construction (P) Ltd. (1,42,100 shares) and Mittal Dairy and Horticulture Products Pvt. Ltd., for which invoices and statements of account have been filed. These 10 ITA No. 1219(Del)/2010 transactions pertain to immediately succeeding year and not this year.
1.10 In the circumstances the AO was requested to verify the records of the CFSL maintained with Registrar of Companies. In view of the specific request of the assessee, it was granted opportunity to cross-examine the deponents, Shri Anirudh Kumar and Shri Suresh Garg, on 31.12.2007, but as per the A.O none attended on behalf of the assessee for such cross- examination.
1.11 The case of the AO is that the shares have been transferred in the name of the assessee-company in this year, but it has not shown the transactions in its books of account. The investment of Rs. 37,40,743/- made in purchase of shares has thus not been satisfactorily explained as to the source and nature. The replies of the assessee do not match with the pattern of actual events. Therefore, this amount has been added, leading to computation of total income at Rs. 37,40,743/-.
2. The assessee filed appeal against this order before the CIT(Appeals)- IV, Delhi. Five grounds were taken up before him. The real grievance 11 ITA No. 1219(Del)/2010 has been projected in ground no. 3, that the Assessing Officer erred in law and on facts in making addition of Rs. 37,40,743/- on account of alleged unexplained investment by invoking the provision contained in section 69 of the Act. Various submissions were made before him. These submissions are more or less the same as the submissions made before the AO that enquiries have been made at the back of the assessee, statements of various persons recorded should be made available for the purpose of cross-examination and rebuttal and that the assessee had nothing to do with payment of Rs. 37,52,800/- to Shri Anirudh Kumar and Smt. Sudha Aggarwal. The comments of the AO were also obtained who reiterated the findings furnished in the assessment order. It was emphasized that Shri Anirudh Kumar and Shri Suresh Garg presented themselves in the office of the AO for the purpose of cross-examination but nobody attended on behalf of the assessee for this purpose. As the results of the enquiry were communicated to the assessee, therefore, it cannot be said that the assessee was not granted fair chance to rebut the evidence found against him. After considering the facts of the case and submissions made before him, it has been concluded that -(a) the enquiries made by the AO show that the shares were transferred in the name of the assessee in February-March, 2005, (b) concurrently Shri 12 ITA No. 1219(Del)/2010 Rajeev Gupta and Shri Pradeep Gupta, brothers, became directors in the AGM, whose office was shifted to the premises of the assessee, and (c) the transferors have been paid a sum of Rs. 37,52,800/- as consideration for shares and the payment has been made through CFSL. The crucial part of his conclusion is that there is no reason as to why CFSL would transfer a sum of Rs. 37,52,800/- without any benefit. The source of this amount may not have been fully examined and, therefore, this matter may also be referred to the AO of CFSL for making requisite enquiry and assessment. However, the facts indicate that the ultimate beneficiary is the assessee-company and it has received the shares of AGM. The amount has been arranged by Shri Rajeev Gupta, a common director in the assessee-company and the AGM. Therefore, the amount represents unexplained investment made by the assessee. Thus, the finding of the AO has been upheld.
3. Before us, the ld. counsel for the assessee filed details of events in chronological order, which are reproduced below:
Date Event Page 21/08/2007 When Investigation Wing was Enquiring 225-279 about CFSPL carrying on the business as entry operators, CFSPL files with ROC Annual Returns of the Co. for the years 2004, 13 ITA No. 1219(Del)/2010 2005 & 2006 ( Rt. At P.278) All signed by CA. Suresh Garg excluding the name of Deepak Changia, Dir.
18/11/07 AMSL in response to AO W 1 (2) notice PB1/31-65 u/s.133(6) re: Purchase of shares of AGMMSL during FY 04-05 tiles reply before AO that AMSL did not acquire any shares of AGMMSL during the FY 2004-05 And filed copies of Purchases/Sales with evidence Audited accounts, confirmations, etc. 18/11/07 AO W 1 (2) issues detailed enquiry notice PB1/30 u/s.142(1) to AMSL for compliance on 20/11/07 20/11/07 AMSL filed detailed reply to notice dt. PB1/10-29 18/11/07 with evidence re: Purchase and sale of shares in AGMMSL during FY 05-06 and stating that some transactions took place in FY 05-06 and filed necessary evidence 12/12/07 AO issues summons u/s.131 to CA. Suresh N.A. Garg re: AMSPL as per reply filed on 287 24/27.12.07 When AO received report of Investigation Wing Stating that CFSPL is an entry operator is now known Nor copy of any such report furnished to the assessee 13/12/07 AO recorded the statement of CA. Suresh 117-122 Garg, Director of CFSPL in the case of AGMMSLlAMSPL u/s.131 re: cheques issued By CFSPL on SBBJ to Anirudha Kr, RS.25,92,800 & on Bk. Of Raj.to Smt. Sudha Aggarwal for RS.9,10,000/- between 28.01.05 119 to 14.03.05 CA Suresh Garg files B/S. P&L 158-159 of CFSPL 06 Accepted cheques issued by 118 Dir. Deepak Changia 13/12/07 AO recorded statement of CA. Anirudha 156-157 Kumar Dir of AGMMSL u/s.131 in the case of AMSL CA Anirudha 17/12/07 CA Anirudh Kumar, Dir of AGMMSL filed 144,149 letters with AO,W-1 (1) re: consent of Rajiv & Pradeep Gupta during Assessment 14 ITA No. 1219(Del)/2010 proceedings of AGMMSL For AY 05-06, being attended to by him Filed with ROC on date - illegible/unknown 17/12/07 CA. Suresh Garg, Dir of CFSPL files with the 215 AO letter with copies of audited B/S., P&L 178-21 Fy 04 to 06 List of Directors of CFSPL since 1999, which Includes the name of Deepak Changia Files S/A Canara Bk (170-176), ITR 214 02-03 Files copy of complaint to SEBI dt. 177 7.11.06 re: Some customs fraud of some Mfg.
Units However no further action taken. 21318/12/07 AO issued notice dated 14/18-12-07 to AMSL PB1/8-9 re: their assessment proceedings for AY 05- 06 stating that during assessment proceedings of AGMMSL some facts have emerged re:
sale of 590800 shares in AGMMSL held by CA. Anirudha Kr. And his mother to Rajiv Gupta & Pradeep Gupta as per some agreement entered into between them (NO SUCH AGREEMENT IS AVAILABLE ON RECORD WITH THE AO or otherwise) 24/12/07 CFSP Ltd to SBBJ to close the a/c in that 284 bank-Letter signed by CA. Suresh Garg, Director 24/12/07 CFSP Ltd. Issues a caution notice signed by 280-283 CA. Suresh Garg & files the same with AO W-1 (2) 26/12/07 AO issues show cause notice to AMSL as to PB1/6-7 why Rs.37,52,800/- should not be taxed in their hands u/s.69 as you have failed to explain the source for compliance on 28/12/2007 27/12/07 CA. Suresh Garg files reply to summons 287 u/s.131 dt.12.12.07 with W.1(2) with affidavit, caution notice, etc. denying transactions with AMSL & AGMMSL and ownership of SBBJ (but not Bk of Rajasthan from where cheques were issued by CFSPL to Mrs. Sudha Aggarwal) 28/12/07 At 4 PM, AMSL filed WS in response to PB1/3-5 notice dated 26/12/2007 explaining every 15 ITA No. 1219(Del)/2010 thing in detail and questioning the alleged self-serving statement of cA Anirudh Kumar, who was the beneficiary of Rt. Of cheques/drafts from CFSPL and who was the controlling director of AGMMSL during the relevant years & attended to the hearings before AO in the case of AGMMSL.
REQUESTING THE AO ONCE AGAIN TO GIVE COPIES OF MATERIAL BEING RELIED UPON As extracts as reproduced do not give the desired Information 28/12/07 At 5.00 P.M. AO hands over the notice to the PB1/1-2 Rep. Of AMSL for 31/12/07 for Cross examination of CA. Suresh Garg & Anirudha Kumar, between 11-12 AM 31/12/07 Shri Rajiv Gupta appears and waits upto 12.30 PM but no attendance marked as assessment already made as stated by AO and that the witnesses had not come.
09/03/09 Affidavit dt. 20/02/2009 of Sh. Rajiv Gupta filed with CITA in appeal nO.87/07-08 of the assessee for 05-06. Regarding his attendance on 31/12/07 & non-appearance Of the witnesses.
20/02/09 WS dt. 18/02/09 filed before CITA - 25 pages 13/03/09 Assessee filed request dated 9.3.09 for copies of material relied upon for making the assessment, listing 26 documents.
31/03/09 Request dt. 12/3/09 filed before CITA in duplicate to direct the AO to provide copies of material relied upon as requested by the assessee on 09-13/03/09.
15/04/09 Request dt. 12/3/09 filed before CITA in duplicate to direct the AO to provide copies of material relied upon as requested by the assessee on 09-13/03/09 filed before AO once again 04/09/09 Assessee filed before AO the following documents as directed By CITA for submission of report by AO: PB-1, 65 pages, WS filed before CITA on 20/02/09,25 pages 16 ITA No. 1219(Del)/2010 Affidavit of Shri Rajiv Gupta in denial of facts stated by AO Assessee's submissions re:
Rule 46A dt. 9/3/09. WS filed before CITA on 31/3/09 seeking directions to AO For supplying copies of material relied upon.
27/11/09 AO submits remand report AO supplied copies of some documents out of 14/01/10 the list of requirements made on 12/3/2009 -
rest not available on his record as per inspection of file carried on 12/01/2010 and listing the available record as directed by the AO on 13/1/10.
28/01/10 Assessee files Synopsis and rejoinder to AO report with comments on the documents supplied on 14/01/2010 and PB-2 consisting of copies of material supplied on 14/1/10.
3.1 It is submitted that the assessee is engaged in the business of dealing in shares. The point of dispute is regarding alleged investment of Rs.
37,52,800/- made by the assessee in purchase of 5,90,800 shares of the AGM. The selling price has been fixed by the AO on the basis of the statement of Shri Anirudh Kumar at Rs. 16/- per share for 1,90,800 fully paid-up shares and Rs. 2/- per share for 4,00,000 partly paid shares. The assessee has not made the investment and such purchase is not recorded in its books of account. It appears that the AO received a report from the investigation wing to the effect that Shri Anirudh Kumar and his mother, Smt. Sudha Aggarwal, are beneficiaries of accommodation entries provided by Shri Mahesh Garg and his front companies, including CFSL. The 17 ITA No. 1219(Del)/2010 proceedings in the case of the assessee and the case of CFSL were being conducted at the same time in the last quarter of the year, 2007. Shri Anirudh Kumar alleged that he sold shares of AGM to Shri Rajeev Gupta and Shri Pradeep Gupta for a consideration of Rs. 37,52,800/-. The consideration was stated to have been received in the months of February/March, 2005 by account payee cheques/pay orders from CFSL, the broker. On the basis of this statement, the assessee was required to explain the source of investment in the shares of the AGM. While the assessee denied to have undertaken any transaction in the shares of AGM in financial year 2004-05, it was confirmed that certain transactions took place in financial year 2005-06. In respect of these transactions, purchase and sale bills and books of account were produced. In that year, the assessee had acquired 2,42,000 shares of the AGM on 15.05.2005 for a consideration of Rs. 2,29,995/-, i.e., @ Rs. 0.95 per share. These shares were sold to Anupam Constuction (P) Ltd. and Mittal Dairy and Horticulture Products Pvt. Ltd. @ Re. 1/- per share. The AO ignored the investigation report and the fact that Shri Anirudh Kumar and his mother were beneficiaries of the transactions. Thus, the version of the assessee was rejected. In this way, he completely misconstrued the real facts and relied on irrelevant facts. These facts are, - 18 ITA No. 1219(Del)/2010
(a) Shri Anirudh Kumar and his mother were substantial owners of the AGM;
(b) the investigation report showed that he and his mother received cheques from CFSL in financial year 2004-05 aggregating in amount of Rs. 37,52,800/-. No agreement between Shri Anirudh Kumar and Shri Rajeev Gupta was brought on record which could show in any manner that the assessee was a party to this agreement;
(c) although the consideration of the share was said to have made on the basis of a valuation report, such report is not on record;
(d) Shri Anirudh Kumar is the real beneficiary who managed to fabricate the records of the AGM to suit his requirement; and
(e) instead of examining Shri Suresh Garg, the director in CFSL, the A.O should have examined Shri Deepak Changia looking to the fact that the latter was managing the show and the cheques were signed by him under overall control of Shri Mahesh Garg.
19 ITA No. 1219(Del)/20103.2 Accordingly, it is argued that the assessee has not made any investment in the shares of AGM. Therefore, the addition made by the AO and sustained by the ld. CIT(Appeals) may be deleted. 3.3 It appears that one Shri Rajeev Gupta filed an application under the Right to Information Act, 2005, before Income-tax Officer, Ward 1(2), New Delhi (the CPIO). In this application, information was sought on 13 points. The CPIO held that the applicant requested for information in respect of a third party, primarily the AGM, assessed under his charge. The disclosure of such information is exempt u/s 8 of that Act. Further, the information does not pertain to the income-tax matters. Therefore, it has been held that the same cannot be made available to the applicant.
4. In reply, the ld. senior D.R. submitted that in the course of assessment proceedings of the AGM, it was found that the assessee- company acquired its 5,90,800 shares. Such acquisition was confirmed by the AGM by filing copies of share transfer deeds. Therefore, enquiry was conducted into acquisition of these shares by the assessee. Statement of Shri Anirudh Kumar, the seller, was recorded. It was deposed that all 20 ITA No. 1219(Del)/2010 the shares save 9,100, were sold by him through CFSL. He and his mother received the consideration and the parties who agreed to buy these shares became director in the AGM. Their names are Shri Rajeev Gupta and Shri Pradeep Gupta. Consequent upon this transaction, the registered office of the AGM was transferred to the premises of the assessee- company. An amount of Rs. 1,00,000/- was received from R.C. Industries, a group concern of the assessee and the balance amount was received through CFSL, a Delhi Stock Exchange broker. Thereafter, Shri Suresh Garg, director of CFSL, was examined. He denied that he issued the contract notes or that any payment was made through the funds of CFSL. The enquiry from State Bank of Bikner & Jaipur showed that the account through which payments were made was opened by Shri Deepak Changia on behalf of CFSL. He is one of the persons through whom Shri Mahesh Garg, the entry operator, acted. The first payment of Rs. 1.00 lakh has been made by one of the entities of Shri Rajeev Gupta. This payment laid foundation for further transactions, the payment of which was made through the bank account of CFSL operated by Shri Deepak Changia. CFSL has confirmed that the shares were transferred in the name of the assessee in this financial year. Therefore, it is clear that the assessee purchased the shares. The assessee was given opportunity 21 ITA No. 1219(Del)/2010 to cross-examine Shri Anirudh Kumar and Shri Suresh Garg, which was not availed of by the assessee. These facts lead to the conclusion that the assessee had acquired the shares and, therefore, the onus to prove the investment as to its nature and source was on it.
4.1 It may be mentioned here that the ld. senior D.R. produced the case record. She filed copies of five share transfer forms in respect of transfer of 40,000, 1,16,800, 32,50, 4,00,000 and 1,500 shares of the AGM to the assessee. It is seen that one form regarding 1500 shares has been signed as transferor by Shri Anirudh Kumar and all other forms have been signed by Shri Anirudh Kumar and Smt. Sudha Aggarwal jointly. All these forms have been duly witnessed. Further, all these forms have been signed by Shri Rajeev Gupta, director/authorized signatory of the assessee-company, as transferee/buyer. Two transfer applications have been processed on 07.12.2004 and the two others have been processed on 24.02.2005 by the AGM. She also filed a copy of register of members, which shows that the assessee-company became registered shareholder of the AGM on 07.12.2004 and further shares were added to its name on 24.02.2005. 22 ITA No. 1219(Del)/2010
5. In the rejoinder, the ld. counsel submitted that the AGM could only be treated as a witness in respect of alleged transactions between Shri Anirudh Kumar and Smt. Sudha Aggarwal on one side and the assessee on the other. The books of the AGM do not show receipt of any share transfer fee. The transfer of shares of a company has to take place in accordance with a set procedure. This involves lodging of valid share transfer forms containing details of the consideration. The forms have to be duly stamped and signed. In this case, the forms have not been stamped. The register of shareholders has to be maintained in a prescribed form, and only copies of relevant pages of this register has been produced. The register has not been properly maintained. The annual return filed with Registrar of Companies in respect of transfer of shares to the assessee has also not been brought on record. The lower authorities have ignored the investigation report. The cheques of Rs. 37,52,800/- have been issued by CFSL and this amount has not been linked with the assessee in any manner. It is an admitted fact that a sum of Rs. 1.00 lakh is paid through RCI, a company of Shri Rajeev Gupta and Shri Pradeep Gupta, who assumed the control of the AGM after this transaction. The AO has also ignored the statement of Shri Suresh Garg, in which the transaction was denied to have been carried through CFSL, and Shri 23 ITA No. 1219(Del)/2010 Deepak Changia has not been examined at all, who was operating the bank account of CFSL through which payment has been made to Shri Anirudh Kumar and Smt. Sudha Aggarwal. As per information obtained by the assessee hearings were conducted in its case only up to 27.11.2007. No opportunity was granted till that date for cross- examination of Shri Anirudh Kumar or Shri Rajev Gupta. The ld. senior D.R. had also produced the instrument drawn on State Bank of Bikaner & Jaipur by way of which sale consideration was paid to Shri Anirudh Kumar and Smt. Sudha Aggarwal. It is argued that these instruments were not drawn by the assessee but by CFSL and there is no evidence on record that the assessee paid any money to the CFSL.
6. We have considered the facts of the case and the submissions made before us. The main question in this case is-whether, the assessee-company has made investment of Rs. 37,40,743/- in purchase of 5,90,800 shares of the AGM? The case of the revenue is based on statements of Shri Anirudh Kumar (seller), Shri Suresh Garg (broker), the director in CFSL, share transfer forms and the share holder register of the AGM. The ld. counsel has denied the purchase of shares in this financial year. It has been argued that none of the aforesaid evidences lead to the conclusion 24 ITA No. 1219(Del)/2010 that the shares were purchased by the assessee-company in this year. With these brief remarks, we may now examine each of the evidence initially separately and thereafter consider the cumulative effect of all these evidences.
6.1 The gist of statement of Shri Anirudh Kumar is that when he and his mother agreed to sell these shares, the intending buyer party became the directors in the AGM. The intending buyers were Shri Rajeev Gupta and Shri Pradeep Gupta. On purchase of shares, the registered office of this company was also changed to their address, which is the same as that of the assessee-company. The first cheque of Rs. 1.00 lakh emanated from R.C. Industries. Shri Rajeev Gupta and one more director held out that further transactions will be done through a Delhi Stock Exchange broker and the consideration will be paid through the broker's account. The consideration of Rs. 37,52,800/- was thus received through the account of broker, CFSL. It will be seen from the statement that Shri Anirudh Kumar that he has not implicated the assessee in any manner by way purchasing party or payment of consideration from its account. There is no dispute about first payment of Rs. 1.00 lakh. Subsequent 25 ITA No. 1219(Del)/2010 payments aggregating to Rs. 37,52,800/- have been stated to be emanating from the account of CSFL.
6.2 Coming to the statement of Shri Suresh Garg, the director in CFSL, he denied any acquaintance with the AGM, the assessee, Shri Anirudh Kumar, Smt. Sudha Aggarwal or Shri Rajeev Gupta. It is specifically stated that the contract notes allegedly issued by CFSL have not been issued by this company as it has not conducted any business from June, 2001. The bank account of this company had been maintained with Canara Bank, DSE branch, Asaf Ali Road, Delhi, only. The cheques aggregating to Rs. 37,52,800/- were not issued by this company as it never maintained any account with State Bank of Bikaner & Jaipur, from where the banker's cheques etc. originated. Finally it was deposed that he was aware that some fraudulent transactions are being carried out in the name of his company and he has submitted a statement in this regard to the SEBI. This statement also does not implicate the assessee in any manner. The director denied acquaintance with seller, buyer, the AGM or the bank account. The signatures in the cheques were stated to be those of Shri Deepak Changia, an Additional Director in CFSL from April, 2003 to September, 2003. The only inference which can be drawn 26 ITA No. 1219(Del)/2010 from this statement is that Shri Deepak Changia maintained an unauthorized account in the name of brokerage company with State Bank of Bikaner & Jaipur and the payment made to Shri Anirudh Kumar emanated from this account.
6.3 According to the ld. senior DR, the clinching evidence in this case is in the form of five share transfer forms, copies of which were filed before us. These forms show that Shri Anirudh Kumar and his family members sold shares to the assessee-company and transfer applications were processed on 7.12.2004 and 24.2.2005. These forms have been duly signed as transferee by Shri Rajeev Gupta, the director in the assessee- company. The ld. counsel has pointed out three defects in these forms, i.e., the transfer consideration is not mentioned, necessary stamps for transfer of shares have not been affixed and fees charged by the company has not been mentioned. It is further submitted that the statement of shareholders filed with the Registrar of Company has not been brought on record. It is his case that in absence of specification of consideration and affixing of stamps these share transfer forms are invalid. We find that the defects pointed out by the ld. counsel exist in all share transfer forms. In absence of mentioning of consideration of transfer, the amount 27 ITA No. 1219(Del)/2010 allegedly paid by the assessee for purchase of these shares cannot be ascertained from the forms. Non-payment of stamp duty is another vital defect. Therefore, these forms by themselves cannot be relied upon. Further, the fact that the payment was made through the bank account of CFSL maintained with State Bank of Bikaner & Jaipur was known to the AO. He could have examined this account further by finding out the source of credit in this account and ascertain whether such source was the assessee, Rajiv Gupta or Anirudha Kumar. This has not been done. The assessee has not shown purchase of these shares in its account. Therefore, existence of these forms does not lead to any clear inference that the assessee has made investment in purchase of these shares. This conclusion is corroborated by the statement of Shri Suresh Garg, who deposed that the aforesaid account was not the regular account of CFSL, but it was maintained by Shri Deepak Changia for undertaking certain transactions which were fraudulent in nature.
6.4 The position of the shareholder register, although stated to have received by a forwarding letter, is also unsatisfactory because it does not bear the signatures of the authorized person or the seal of the company.
28 ITA No. 1219(Del)/20106.5 We may now look at these four evidences together. When we do so, it can be said that the AO did not carry the matter to its logical conclusion in spite of the statement of Shri Suresh Garg about fraudulent transactions and role of Shri Deepak Changia. He was in the knowledge that the payments have been made through State Bank of Bikaner & Jaipur but no linkage was established in respect of corresponding credits in this account with the assessee.
7. At this stage, we may examine the cases relied upon by the ld. senior D.R. In the case of Himmatram Laxminarain Vs. CIT, (1986) 161 ITR 7 (P&H), the AO detected that the assessee had been carrying out business, the transactions in respect of which were not entered in the books of account. The transactions were not denied by the assessee but claimed that the payment to the vendor was made out of sale proceeds collected by it. The question as to whether the Tribunal was right in sustaining the addition of Rs. 73,075/- u/s 69 was answered in favour of the revenue and against the assessee. Further, in the case of Unit Construction Co. Ltd. Vs. ACIT, (2003) 260 ITR 188 (Cal.), the question was in regard to the computation of investment made in the property. The 29 ITA No. 1219(Del)/2010 assessee had shown the expenditure of Rs. 8,31,225/-. It was admitted that there was a further spending of Rs. 2,68,986/-. The valuer had determined the cost at Rs. 10,67,638/- against the sum of Rs. 11,00,211/- as accepted by the assessee. In these facts, the Hon'ble Court held that the provisions of section 69 were applicable and there was no error in the order of the Tribunal which accepted the figure of investment at Rs. 10,67,638/-. Finally the citation of the case at (2002) 254 ITR 117 (Del) is incorrect because the case reported there, CIT Vs. Sohan Singh, deals with levy of penalty u/s 271(1)(c) on the amount added to the income representing the income of the benami firm. 7.1 From all these cases, it is clear that the investment had been admitted by the assessee and the question was only regarding examination of the explanation of the assessee. In this case, the assessee has not admitted to any investment in the shares of the AGM in this year. Therefore, the ratio of these cases is not applicable.
8. Section 69 regarding "unexplained investments" is applicable where the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income. It 30 ITA No. 1219(Del)/2010 provides that if the assessee offers no explanation about the nature and source of investment or the explanation is not found to be satisfactory, the value of investments may be deemed to be the income of the assessee of the relevant financial year. The first limb of the provision deals with investment made which is not recorded in the books of account, if any, maintained by the assessee. The burden to prove that the investment has been made is on the assessing officer. Once such burden is discharged, we move to the second limb which provides that it is for the assessee to satisfactorily explain the nature and source of investment. We are of the view that the burden to prove that the investment has been made by the assessee has not been discharged by the AO. The evidence on record shows that the money flowed from the CFSL for the ultimate benefit of Shri Anirudh Kumar and his family members. As per enquiries of the investigation wing, CFSL was indulging in providing accommodation entries. In absence of any direct linkage with the assessee, as discussed above, it is held that the burden cast on the AO u/s 69 remains un- discharged. Therefore, the addition made to the income cannot be sustained.
31 ITA No. 1219(Del)/20108.1 It may be mentioned that certain other arguments were taken by the ld. counsel. These are lack of opportunity to cross-examine the deponents, though the version of the ld. senior D.R. is different, non-examination of Shri Deepak Changia etc. are not discussed because of the primary finding that it has not been proved that the assessee has made investment in the shares.
9. In the result, the appeal is allowed.
Sd/- sd/- (I.P. Bansal) (K.G. Bansal) Judicial Member Accountant Member SP Satia Copy of the order forwarded to:- ACE Matrix Solutions Ltd., New Delhi. ITO, Coy. Ward 1(2), New Delhi. CIT(A) CIT, The D.R., ITAT, New Delhi. Assistant Registrar.