Income Tax Appellate Tribunal - Delhi
Ito, New Delhi vs M/S. Mahamedha Estate P. Ltd., New Delhi on 22 March, 2019
ITA No.6200 & 6294 /Del/2013
Assessment Year: 2007-08
M/s Mahamedha Estate P Limited V ITO
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E": NEW DELHI
BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No.6200/Del/2013
(Assessment Year: 2007-08)
M/s. Mahamedha Estates (P) Income Tax Officer,
Vs.
Ltd, Ward-6(1),
100-K, Basement, Milap New Delhi
Bhawan, Bahadurshah Zafar
Marg, New Delhi
PAN: AAECM7648D
(Appellant) (Respondent)
ITA No.6294/Del/2013
(Assessment Year: 2007-08)
Income Tax Officer, M/s. Mahamedha Estates
Vs.
Ward-6(1), (P) Ltd,
New Delhi 100-K, Basement, Milap
Bhawan, Bahadurshah
Zafar Marg, New Delhi
PAN: AAECM7648D
(Appellant) (Respondent)
Assessee by : Shri Ashwani Taneja, Adv
Shri Saurabh Goyel, CA
Revenue by: Shri Udit Chauhan, Adv
Date of Hearing 14/01/2019
Date of pronouncement 18/03/2019
ORDER
PER PRASHANT MAHARISHI, A. M. Page | 1 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO
1. These are the appeals filed by the assessee and The Income Tax Officer, Ward - 6 (1), New Delhi (The Learned AO ) against the order of the ld CIT(A)- IX, New Delhi [ The ld CIT (A)] dated 21.01.2010 for the Assessment Year 2007-08.
2. The assessee has raised the following grounds of appeal:-
"1. That the learned Commissioner of Income-tax (Appeals) has erred both in law and on facts in upholding disallowance a sum of Rs. 31,09,174/- representing expenditure incurred by the appellant company and allowable as deduction in the instant Assessment Year.
1.1 That the learned Commissioner of Income tax (Appeals) has failed to appreciate that since the business of the appellant company had been set up therefore expenditure claimed was allowable as deduction in the year under consideration.
1.2 That without prejudice to the above even assuming there was no business then too expenditure incurred to discharge statutory and contractual obligations and maintain assets of the appellant company is eligible for deduction and therefore the disallowance sustained is untenable.
It is therefore, prayed that the disallowance made of Rs. 31,09,174/- and upheld by the learned Commissioner of Income-tax (Appeals) may kindly be deleted and appeal filed by the appellant company be allowed."
3. The ld AO has raised the following grounds of appeal:-
"1. Whether on the facts and circumstances of the case and in law, the ld CIT(A) has erred in deleting the addition of Rs. 8.5 crore made u/s 68 on account of unexplained cash credit by completely ignoring the fact that the assessee failed to establish creditworthiness of creditors?
2. Whether on the facts and circumstances of the case and in law, the ld CIT(A) has erred in deleting the addition of Rs. 8.5 crore made u/s 68 Page | 2 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO on account of unexplained cash credit by completely ignoring the fact that transaction was not genuine as established by the AO in the assessment order.
3. That the order of the ld CIT (A) is erroneous and is not tenable on facts and in law.
4. That the grounds of appeal are without prejudice to each other."
4. The fact shows that assessee is a company engaged in the business of real estate filed its return of income declaring loss of INR 1915957 on 30/1/2008. The assessment u/s 143 (3) was passed on 18/12/2009 by the learned assessing officer determining the total income of the assessee of INR 86193200/-. The learned assessing officer made the following disallowances and additions in the hands of the assessee company.
i) Expenditure u/s 37(1) Rs. 31,09,154/-
(ii) Unexplained credit u/s. 68 Rs. 8,50,00,000/-
(iii) The AO also treated interest income of Rs. 12,11,328/- as „income from other sources‟
5. Aggrieved by the order of the learned assessing officer the assessee preferred an appeal before the learned CIT - A. The learned Commissioner Appeals passed an order dated 17/9/2013 wherein he deleted the addition u/s 68 of INR 85,000,000/- , on this issue the ld AO is in appeal. Further, he confirmed the receipt of INR 1211328/- as income from other sources and not business income as there was no business during the year. He confirmed the disallowance of INR 3109154 of the various expenditure under section 37 (1) of the act, on this issue assessee in appeal. Consequently, both the parties are in appeal before us. Thus, The learned assessing officer has challenged the deletion of the addition u/s 68 of the Page | 3 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO income tax act of INR 85,000,000 and the assessee has challenged the disallowance confirmed of INR 3 109174/-.
6. We 1st take up the appeal of the assessee. Only issue in appeal is that the learned Commissioner (Appeals) has wrongly upheld disallowance of INR 3109174/- being expenditure incurred by the assessee for the purposes of the business and that should have been allowed to the assessee as claimed by the assessee as the business of the appellant company had been set up. Assessee claimed that before incurring these expenses the business of the assessee was set up. The learned assessing officer noted that the assessee has earned only interest income of INR 1211321/- during the year. However, the assessee has claimed the expenditure of INR 3127285/- which includes director remuneration of INR 2,880,000/-. The assessee explained before the learned assessing officer that the director‟s remuneration shown in the profit and loss account at INR 2,880,000/- wrongful includes an amount of INR 1,680,000/- paid to the persons who were not directors of the company. The learned assessing officer noted that assessee failed to furnish the particulars of the person to whom such amount was paid; more over no justification regarding the same was also made available before the assessing officer. It was not explained by the assessee as to why and for what purposes INR 1,680,000/- has been paid to unnamed persons. Accordingly he disallowed the above sum holding that it has not been incurred wholly and exclusively for the purposes of the business. Even otherwise, he also gave a reason that the expenses are not allowable as the assessee is yet to begin its business activity. He further stated that as the assessee has only earned interest income and has not started any business activity such expenses could not be allowed. He held that as assessee is engaged in the business of the real estate barring the statutory expenses other expenses are required to be capitalized as work in progress. Accordingly, he disallowed the same. The assessee challenged the above addition before the learned CIT - A who held that as the appellant has failed to furnish the names of those persons to whom such amount was paid therefore it has been rightly disallowed by the AO of INR 1,680,000/-
Page | 4 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO under section 37 (1) of the act. However the learned CIT - A allowed the audit fees and other taxes amounting to INR 18131/- holding that same are related to the business. Accordingly, disallowance was confirmed.
7. The learned authorised representative vehemently submitted that business of the assessee has already been setup and therefore the above expenditure cannot be disallowed and directed to be capitalized. He stated that assessee has furnished complete details of expenses as directed by the learned assessing officer. He referred to page number 696 of the paper book which is a letter dated 10/3/2011 submitted before the Commissioner of Income Tax Appeals wherein the assessee has submitted details of directors remuneration. He submitted that the directors remuneration of INR 100,000/- is paid to Mr. P Bhati and Mr R S Bhati. He further stated that sum of INR 40,000/- per month was also paid to Mr. Parag as salary. He further referred to page number 707 of the paper book and stated that sum of INR 10,000 per month is paid for the rent of the office of the company. He further referred to page number 708 of the paper book stating that small sum of expenditure are incurred by the assessee as monthly salary to support staff. He further stated that during the year the assessee has commenced the business of the assessee, business has already been setup. He relied on decision of the honourable Delhi High Court in 368 ITR 692 wherein it has been held that when the assessee company had rented out office premises, open bank account, appointed employees and got registered under Shop and establishment act, business of the assessee could be said to have been setup and expenditure incurred thereafter are allowable as revenue expenditure.
8. The learned departmental representative supported the order of the lower authorities and submitted that the business of the assessee has not been setup and further no details were furnished by the assessee before the lower authorities justifying that the expenditure has been incurred wholly and exclusively for the purposes of the business.
9. We have carefully considered the rival contentions and perused orders of the lower authorities. In the present case, the assessee has submitted that Page | 5 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO business of the assessee has been setup during the year. To ascertain the above facts we have carefully perused the balance sheet of the assessee, which is furnished at page number 1 - 11 of the paper book. On careful analysis of the balance sheet of the company, it is apparent that assessee has issued, subscribed and paid-up share capital along with share application money of INR 85,400,000 along with the share premium of INR 27,000,000. Assessee has also obtained unsecured loan from MahaMedha urban cooperative bank Ltd of INR 9,997,000. Assessee has small fixed assets of Rs. 416200/-. It has given loans and advances to others of INR 75,300,000/-. As per the submission before The Commissioner of Income Tax (Appeals) dated 15/9/2010, it is submitted that assessee is engaged in the business as builders and developers. Looking to the balance sheet of the company and the profit and loss account there are no transactions showing that assessee has really set up any business. However, the assessee has stated that appellant company has entered into a memorandum of understanding on 31/5/2006 wherein it has been stated that assessee has entered into transactions for township development with one company Messer Seven Heaven developer‟s private limited. However, no such land was found in the balance sheet. In fact the other issue in the appeal of the learned assessing officer specifically deals with this issue where the assessee has received INR 70,000,000 from Messer Superior Associates and INR 15,000,000 from the Seven Heaven Developers India Private Limited are stated to be in dispute. Furthermore looking at the details of loans and advances given by the assessee, wherein advances have been stated to be given to eight different parties, none of them was stated to be any advance for real estate. On careful analysis of the balance sheet it is apparent that assessee has received money of share capital of INR 400,000 and share application money of INR 85,000,000 and share premium of INR 2,700,000 along with unsecured loan of INR 9,997,000 which has been given to all other companies as an advance and none of them is for real estate business. Complete funds deployed by the assessee are loans and advances other than real estate business. Therefore, it is apparent that Page | 6 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO the assessee‟s business has not been setup. According to the provisions of section 3 of the income tax act, the previous year commences only from the time the business of the assessee is setup.
10. Ld AR has relied up on the decision of Honourable Delhi High court in 368 ITR 692 to support his contentions. On careful analysis of the above decision, Honorable High court held in following circumstances than the business of the assessee is set up that For the commencement of a business, there must be in place some income-generating asset or income- earning structure. It is clear that it is only after the business is set up, that the expenses incurred in the business can be claimed as permissible deduction under section 37 of the Act. For the commencement of a business, there must be in place some income generating asset or income earning structure. In several cases, there is a gap or an interval between setting up and commencement. When the business is set up, is a mixed question of law and fact, and depends upon the line, nature, and character of the business/professional activity. Especially in case of a trader it is held that To set up a business, the following activities become relevant :
"Preparation of a business plan ; establishment of a business premises ; research into the likely markets or profitability of the business ; acquiring assets for use in the business ; registration as an entity and under the local laws, etc."
The said lists of activities are not exhaustive and facts of each case need to be considered. Indeed purchase of goods would amount to commencement of business, but before the said act, spadework and efforts to commence have to be undertaken. A trader before actual purchase would possibly interact and negotiate with manufacturers, landlords, conduct due diligence to identify prospective customers, spread awareness, etc. These are all integral part and parcel of the business of a trader. The said activities continue even post-first sale/purchase. When a trader takes the first steps, the business is set up; commencement of purchase and then sales is post- set up.
Page | 7 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO
11. As assessee is stated to be engaged in real estate Business, there is no evidence placed that assessee has negotiated any land deal or not. Any activity related to real estate transaction was shown to have been carried out by assessee. Merely opening bank account, paying salary to directors, and some other persons whose nature of job profile was not specified, and renting of office does not show that assessee has put forward even a baby step in real estate business. It has merely advanced money to others. Cannot be said to setting up of the business. Memorandum of understanding stated to have been entered was only for showing the source of share application money as genuine. IT is important to consider the submission before ld AO "Assessee company was incorporated to carry on the business of Builder and Developers. The company was incorporated on 18/1/2006. The AR, in his submission dated 28/8/2009 conveyed that "the company is initially incorporated to carry on the business of builders and developers but due to un-avoidable reason, no such activity was undertaken by the company during the year under consideration."
12. In view of this, we do not find any infirmity in the order of the learned assessing officer in disallowing the above sum. Hence we confirm the order of the learned CIT - A and uphold the disallowance of INR 3 109174/-. Accordingly, the solitary ground of appeal of the assessee is dismissed.
13. In the result ITA No. 6200/del/2013 filed by the assessee for assessment year 2007 - 08 is dismissed.
14. Now we come to the appeal of the assessing officer wherein the ground number 1 relates to the deletion of the addition of INR 85,000,000 made u/s 68 on the account of unexplained cash credit. Ground number 2 also related to the same addition contesting that addition. In ground number 1, the AO contested about the creditworthiness of the creditor and in ground number 2, it contested about the genuineness of the transaction. Therefore, both the ground relates to the solitary issue of the deletion of addition of INR 85,000,000 under section 68 of the income tax act.
Page | 8 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO
15. The brief facts of the case shows that during the course of assessment proceedings the assessing officer noted that assessee has INR 85,000,000 share application money received from 2 parties Messer superior associates and Messer Seven Heaven developers India private limited. The learned AO asked the assessee to furnish necessary evidence to establish the identity, nature, and source of such receipts. The assessee submitted the confirmation, affidavit, and extract of the passbook of these parties. On the verification of details, learned AO noted that assessee received INR 70,000,000 from Messer superior associates and INR 15,000,000 from Seven Heaven developers India private limited. In both the cases confirmation was signed by Mr. Sunil Singh in his capacity as a proprietor of Messer superior associate and director of Messer Seven Heaven developers India private limited. Both these entities were operating from the same address at Noida and holding account with Mahamedha urban cooperative bank, Noida branch. Both the passbooks produced before the assessing officer shows huge cash deposits prior to issue of cheques to the assessee. The assessee did not file copy of the income tax return as well as complete bank accounts of both the parties. The AO also noted that assessee has only issued subscribed and paid-up capital of INR 400,000, did not commence any business, despite the same assessee company accepted share application money for 70,00,000 shares from Messer superior associates and 15,00,000 as from Seven Heaven developers private limited. AO noted that it exceeded the authorised share capital of the company also. On questioned the fate of the above share application money, the assessee submitted that part of the share application money has been utilized by the assessee by way of converting the same as advanced against allotting the plots of the size of 200 yd² owned by the sister concerns to Messer superior associates and seven Heaven developers private limited. The assessee also supported it with the terms of the agreement dated 16/3/2000 with the said concerns. The learned AO perused agreement dated 16/3/2007 and noted that the above agreement was between assessee company and its sister concern on one side and Messer superior Page | 9 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO associates and Seven Heaven developers on the other side, assessee was not at all party to this agreement. The learned AO examined the terms of the agreement and noted that it was an attempt by the assessee to derive undue advantage from favourable judicial citations on the issue of share capital and share application money. Therefore with the intention to mislead the authorities and seeking shelter behind the favourable judicial citations on the issue of share capital and share application money, funds now shown to have been received by way of loans and advances from the aforesaid parties which were earlier given the colour of share application money. Therefore, the learned authorised representative of the assessee was asked to produce Mr. Sunil Singh along with the copy of profit and loss account and balance sheet of those lenders for verification. On the appointed date, the learned authorised representative expressed his inability for producing the above party and the documents called for. Therefore, Mr. Sunil Singh was summoned for personal deposition on 3/12/2009 along with evidences such as bank statement, cashbook, bankbook, evidences in support of source of investment, and the copy of the income tax returns for assessment year 2007 - 08 and the annual accounts of those investor companies. The summon was sent through inspector who reported that at the address given was found to be occupied by some consulting company. Therefore, further enquiries were made which shows that both the concerns sharing the common address had vacated and left without any forwarding address. The learned authorised representative was confronted with this information and he was again asked to produce the party Mr. Sunil Singh. On 7/12/2009, he attended along with Shri Sunil Singh but Mr. Singh was not carrying any requisite document and therefore the case was further adjourned. On the appointed date none appeared. The authorised representative submitted that Sri Sunil Singh has informed him that Messer superior associates and Seven Heaven developers private limited are both not in existence at present and they have closed and vacated their business places in the month of May 2007. Therefore, the AR was also once again directed to produce the parties. However, he could not Page | 10 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO produce Mr. Sunil Singh before the assessing officer. Based on this the learned AO reached at the conclusion that Sri Sunil Singh is avoiding the authorities to thwart attempts at in-depth investigation of the affairs of the assessee company as well as of the company and firm owned by Mr. Sunil Singh. In view of this, the learned assessing officer proceeded to frame his assessment order. The learned assessing officer tested the about transactions as per the provisions of section 68 of the income tax act and stated that the identity of these parties are established, However the creditworthiness and genuineness of the above transaction is not at all established by the assessee. With respect to the creditworthiness of the parties, he noted that the explanation given by the assessee is that both these parties before issuing share application money to the assessee company have collected advance money from different persons for purpose of making them available plots or flats of their choice at different locations. A list of such person was though given to the assessing officer but was incomplete and many infirmities were pointed out by ld AO. The learned AO noted that Messer superior associates and Messer Seven Heaven developers Ltd collected funds from 489 parties in view of making available plots/flats to such parties. The AO also noted that it is mentioned before him that Messer superior associates and Messer seven Heaven developers private limited has reportedly entered into a memorandum of understanding with the assessee for purchase of land. He noted that when the above parties were not having any land with them they could not have collected huge amount of money from a large number of persons on the pretext of selling it to them. In the list itself the learned AO noted several infirmities he also noted that the trail of funds is also not tallying, he mentioned five such instances of various cheques of rupees one crore each issued by the depositors with the company. He also noted that before the issue / clearance of cheque from the bank account of lenders, the depositors did not have any cash flow in their bank account from the advances. Therefore, he noted that such huge payments remain much unexplained as far as the list on which the authorised representative had placed reliance for Page | 11 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO explaining the source and establishing the creditworthiness of such parties. He also noted that even otherwise the list is found to be wanting in many ways. He also startlingly noted that in numerous cases it was found that multiple deposits have been received from the same person and address of number of parties are found to be conspicuous by their absence. He therefore stated that such list lacks credibility. He further noted that in the bank pass book of Messer superior associates there is a minimum balance of INR 10915/- as on 17/05/2007 prior to deposit of the first cheque of Rs. One crore to the assessee and for depositing subsequent sums huge cash was deposited prior to the issue of cheques to the assessee company. Similarly, he noted that in passbook of seven Heaven developers private limited there is an inadequate balance in the account at the time of issuing cheques to the assessee company and for clearance of the above cheque cash was deposited. All the explanation furnished before ld AO by the assessee was without substantiating any facts by producing annual accounts of those concerns, bank accounts, cashbooks etc. The details called for by the ld AO was not submitted. Therefore the learned assessing officer made the addition u/s 68 of the act of INR 85,000,000/-. To cull out the complete facts reported by the learned assessing officer, it is important to peruse the relevant paragraphs relating to the above addition in the assessment order as under:-
"Assessment order u/s 143(3) of the Income Tax Act, 1961 Return declaring a loss of Rs. 19,15,957/- was e-filed on 30-01- 2008 by the assessee, vide ack. 12081401300108. Same was processed u/s 143(1) on 6/11/2008. Subsequently, the case was selected for scrutiny by issue of notice u/s 143(2), dated 26/09/2008, which was duly served upon the assessee. In response to the notice, Shri D.K. Goel, Chartered Accountant, attended the proceedings from time to time and filed the requisite details which have been placed on record. The case was discussed with him.
Page | 12 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO Assessee company was incorporated to carry on the business of Builder and Developers. The company was incorporated on 18/1/2006. The AR, in his submission dated 28/8/2009 conveyed that "the company is initially incorporated to carry on the business of builders and developers but due to un-avoidable reason, no such activity was undertaken by the company during the year under consideration." This goes to show that the business activity is yet to begin. In the course of the previous year, assessee had raised funds to the tune of Rs. 8.50 crores claimed as share application money received from two parties viz. M/s Superior Associates and M/s Seven Heaven Developers (India) Private Limited (hereafter referred as SHDPL). Accordingly, AR was asked to furnish necessary evidence to establish the identity of the aforesaid and to verify the nature and source of such receipt, shown as share application money, vide questionnaire dated 31/8/09. In response AR filed so called confirmation & affidavit & extracts of the pass book and cursory look at these do not inspire confidence.
Facts emerging from the submission made by the assessee from time to time for explaining the antecedents of funds received as alleged share application money are discussed as under
i) Assessee claimed to have received a sum of Rs. 7 Crores from M/s Superior Associates
ii) Similarly, a surn of Rs. 1.50 crores was allegedly received from M/s Seven Heaven Developers India (P) Ltd.
iii) The confirmation in this regard was signed by Shri Sunil Singh in his capacity as proprietor and director of the aforesaid firms
iv) Both the parties stated to be operating from the same address at Noida Page | 13 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO
v) Both such parties were holding account with Mahamedha Urban Co-operative Bank, Noida Branch.
vi) The Pass Book extracts of both the parties showed huge cash deposits prior to issue of cheques to assessee.
vii) Copy of the ITRs of the two parties were also not filed.
Assessee Company got itself registered with the ROC with an authorized capital of Rs. 20 lacs. This fact is clearly evident from the Balance Sheet. If the authorized capital of the assessee company was only Rs. 20 lacs and out of the same shares worth Rs. 4 lacs were already issued in the previous year, then assessee could have only raised a further sum of Rs. 16 lacs, unless the authorized capital is increased. Despite the same assessee company reportedly accepted application for 70 lacs shares from M/s Superior Associates and for 15 lacs shares from M/s SHDPL. Therefore, it seemed most unusual that assessee accepted share application money for 85 lacs more shares even when it was only authorized to raise additional 1.60 lacs shares. Moreover, the amount claimed to have been received as share application money was received during the period between May and October, 2006. So, even if assessee had accepted share application money for shares far in excess of its authorized capacity, assessee company could have approached the ROC even at a later date during the previous year for raising the limit of its authorized capital. However, no such effort was made. It clearly shows that assessee had no plans to increase its authorized capital, at least, during the year under consideration. If this were to be so then there is no reason why huge funds supposedly belonging to third parties were accepted in the name of share application money. It is all the more surprising that both M/s Superior Associates and M/s SHDPL also failed to take note of such material and critical fact and advanced huge sum of reportedly borrowed money to the assessee, putting at risk the funds of the third Page | 14 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO parties. Therefore, the contention of the AR that sums of Rs. 7 crores and Rs. 1.5 crores from M/s Superior Associates and M/s SHDPL respectively, were raised on account of share application money, is found to be baseless and contrary to the prevalent fact of the case.
In order to settle such doubt, a clarification was sought, vide note sheet entry dt. 27/11/2009 as to whether any shares were allotted to such parties or such money was refunded. The AR in his submission dated 4/12/2009 explained the fate of alleged share application money. It was clarified that "Part of the share application money has been utilized by the assessee by way of converting tne same as advance against allotting the plots of the size of 200 Sq. Yards owned by its following sister concerns to M/s Superior Associates & SHDPL as agreed in accordance with the terms of the agreement dated 16-3-2007 executed with the said concerns. The copy enclosed.
i) Nutech Buildcon Pvt. Ltd. : Rs. 2,30,52,000/-
ii) Nuage Buildcon Pvt. Ltd. : Rs. 1,27,21,000/-
iii) Pushpanjali Buildwell Pvt. Ltd. : Rs. 71.40.000/-
Rs. 4.29.13.000/-"
The reply of the AR settles the issues clearly. As suspected, the amount claimed to have been received as share application money was never intended to be such. To illustrate and establish this fact beyond doubt, reference is made to Agreement dt. 16.03.07. It is an agreement between assessee company and its sister concerns M/s Stride Infrastructure Pvt. Ltd. on one side and M/s Superior Associates and SHDPL on the other. It is a five page agreement. The top two paras on page 3 reads as follows "AND WHEREAS the constituents of the First Part has already entered into an MOU dated 31st May, 2006 and 30th Page | 15 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO December, 2006 with the Second Part whereby the First Part has agreed for sale of land at NH-24 Haour to Second Part on payment of sale consideration bv Second Part to First Part.
AND WHEREAS the Second Party alongwith its sister concern M/s Superior Associates paid a sum of Rs. 8,50,0,000/- as per MOU dated 31st May, 2006 but due to circumstances beyond the control of Second Party, the said deal could not be finalized at that time. However, keeping general interest of public at large and mutual discussions, the First Party is still willing to final the land deal with Second Party to the extent of Rs. 8,50,00,000/- which has been received by First Party from the Second Party."
Specific reference is made to the underlined and bold portion of the extract of the agreement dated 16/3/2007. From the aforesaid, it emerges that money shown as share application by the assessee was not received as Share application money but apparently for the purpose of selling land to M/s Superior Associates and SHDPL on NH- 24, Hapur and merits/credibility of this claim will be discussed in subsequent para's.
In light of the same, assessee's claim of labeling funds received from M/s Superior Associates and SHDPL, as share application money stands disproved. To such extent assessee had recorded facts in its books of accounts, in an inaccurate and misleading manner. It appears to be an attempt by the assessee to derive undue advantage from favourable judicial citations on the issue of share capital/share application money. With the intention to mislead the authorities, and to seek shelter behind the favourable judicial citations on the issue share capital/share application money, the funds now shown to have been received by way of loans and advances from the aforesaid parties were earlier given the color of share application money.
Page | 16 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO In order to get the bottom of the matter and to verify whether the recitals made in the agreement dated 16/3/2007 actually presented true facts, AR was then asked to produce Shri Sunil Singh alongwith copy of Profit and Loss Account and Balance Sheet of such entities for verification vide note sheet entry dated 19/11/2009. Matter was adjourned to 24/11/2009. However, on the said date, AR requisitioned for adjournment. Matter was then adjourned to 27/11/2009. On such date, the AR expressed his inability in producing the party.
In light of the above facts, Shri Sunil Singh was summoned for personal deposition on 3/12/2009 and was required to furnish the following documents
1. Copy of bank statement and ledger including cash book and bank book.
2. Evidence in support of sources of investment, if any, made in M/s Mahamedha Estates Pvt. Ltd. during the period relevant to AY 2007-08.
3. Copy of ITR alongwith Balance Sheet filed for Asstt. Year 2007-08 relevant to FY 2006-07.
The summons were handed over to the Inspector of this ward for serving at the office address of the two firms, namely M/s Superior Associates and SHDPL at LG-7, Krishna Apra Plaza, Sector-18, Noida. However, Inspector in his report dated 30/11/2009 conveyed that the address at LG-7, Krishna Apra Plaza, Sector-18, Noida was found to be occupied by M/s M.V.G. Consulting Pvt. Ltd. On further enquiries, it emerged that both the aforesaid concern sharing the common address had vacated and left without any forwarding address. The AR was then confronted with such fact and he was yet again asked to produce such party alongwith supporting documents. On 7/12/2009 AR came to the office accompanied by Shri Sunil Singh. However, as Shri Sunil Page | 17 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO Singh was not carrying the requisite documents, he requested to adjourn the case to 11/12/2009. On the said date, the AR attended and conveyed that Shri Sunil Singh is out of station and he is not in touch with us since 7.12.2009. He also submitted that Shri Sunil Singh has told him that M/s Superior Associates and SHPL are both not in existent at present and they have closed and vacated their business places most probably in the month of May, 2007. AR was once again asked to produce the parties failing which provisions of section 68 shail be invoked on the funds shown to have been received by way of share application and the matter was adjourned for 14/12/2009. On 14.12.2009 AR attended but did not produce Shri Sunil Singh. This clearly indicates that Shri Sunil Singh is avoiding the authorities to thwart attempts at in depth investigation of the affairs of the assessee company as well as of the company and firm owned by Shri Sunil Singh. Accordingly, matter is being decided based on information made available by the AR from time to time.
Before proceeding further, it is pertinent to refer to the provisions of section 68. Such Section prescribes as under :-
68. Cash credits : Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
Section 68 provides that any sum found credited in the books relating to which the assessee offers no explanation about the nature and source thereof or where an explanation is offered the same is unsatisfactory, then such credits could be charged to tax as income of the assessee. From the same, it emerges that it is the taxpayer who has Page | 18 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO to prove the genuineness of borrowings or other credits appearing in his books of accounts. The onus has been squarely vested in the assessee primarily because the relevant facts are exclusively within the knowledge of the assessee and no other.
Such onus comprised establishing the identity, genuineness and the creditworthiness of the parties from whom sums of money have been received. On the issue of scope and extent of discharging onus, it has been held by higher judiciary that "It is necessary for the assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes proof of the identity of his creditor, the capacity of such creditor to advance the money and, lastly, the genuineness of the transaction. These things must be proved prima facie by the assessee and only after the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts on the department. Merely establishing the identity of the credit is not enough"
(Shankar Industries v. CIT (1978) 114 ITR 689 (Cal) (C. Kant & Co. v CIT (1980) 126 ITR 63 (Cal), (Prakash Textile Agency vs CIT (1980) 121 ITR 890 (Cal), (Oriental Wire Industries (P) Ltd. v. CIT (1981) 131 ITR 688 (Cal).
Further, mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine CIT vs. Precision Finance (P) Ltd. (1994) 208 ITR 465.
Accordingly, in light of the provisions of section 68 and the judicial citations referred above, it is to be examined whether assessee has discharged its onus adequately or not. Flowever, in the instant case, it is found that assessee has not discharged its onus, in accordance with the spirit and intent of section 68. Failure of the assessee to discharge its onus is established as under
Page | 19 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO As far as the issue of identity of the parties from whom funds of Rs. 8.5 crores were received, stands explained. As per the assessee, a sum of Rs. 7 crores was received from M/s Superior Associates, a Proprietary firm of Shri Sunil Singh. A further sum of Rs. 1.5 crores was said to have been received from M/s SHDPL, Shri Sunil Singh, one of the director. His address and PAN alongwith the PAN of M/s SHDPL was made available along with their respective bank statements. Such documentary evidence was then examined for assessing the genuineness and the capacity of such parties to have lent such huge sums of money to the assessee. The issue of genuineness of the transaction is also not established bevond doubts in view of the discussion in the preceding paras.
With regard to the issue of creditworthiness, the AR filed a submission dated 14/12/2009, stating as under "During the course of hearing in the above noted case on the earlier date of hearing, it was required by your honour to prove the creditworthiness of the parties from which the share application money is received by the assessee during the year under consideration. In this respect I beg to submit that as per discussion made with Shri Sunil Singh, M/s Superior Associates and Seven Heaven Developers (India) 'P' Ltd. both had been doing the real estate business collectively and during the course of their business they have collected advance money from different persons for the purpose of making them the availability of plots/flats of their choice at different locations. 4 combined list of such persons prepared by above firms is received by the assessee from their. A copy of the said list is enclosed for vour kind perusal and record. Also the copy of statement of account of Superior Associates and Seven Heaven Developers (India) 'P' Ltd.
Page | 20 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO of Mahamedha Urban Co-operative Bank Ltd. for the financial year 2006-07 are also enclosed for your record.
Seeing the enclosed list and volume of transactions in the bank accounts of Superior Associates and Seven Heaven Developers (India) 'P' Ltd. it may be said that the money collected bv both the above parties from different persons is very much sufficient to justify the creditworthiness of the Superior Associates and Seven Heaven Developers (India) 'P' Ltd."
From the above submission, it emerged that both M/s Superior Associates and M/s SHDPL reportedly collected funds from 489 parties, as per list, in lieu of making available plots/flats to such parties. As per the AR, (reference made to the highlighted and bold portion of the submission made by the AR), the funds collected from such parties is sufficient to justify the creditworthiness of M/s Superior Associates and SHDPL. It is to be noted that as mentioned Supra M/s Superior Associates and M/s SHDPL has reportedly entered in to an MOU with the assessee for purchase of land. It is noteworthy that when these parties were not having any land with him how could they collect huge amount of money from a large no. of persons on the pretext of selling it to them. Further when the list so furnished was examined large no. of infirmities were observed. The list contains particulars of the parties from whom money has been received either in cash or through cheques alongwith date and agreement no. When such information was collated and correlated with the information regarding receipt of funds by the assessee, it was found that the trail of funds does not tally. For instance, M/s Superior Associates had issued 5 cheques of Rs. 1 crore each, in favour of the assessee. Details of the same are as under
S.NO. Cheque No. Date Amount (Rs.) Page | 21 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO 1 145813 19/5/2006 1 crore 2 145826 5/6/2006 1 crore 3 145827 5/6/2006 1 crore 4 145828 30/5/2006 1 crore 5 145833 5/6/2006 1 crore On the other hand as per the list, the inflow of funds started from 3.6.2006 and the first payment was received from Shri H.C. Prasad.
The next payment after 3.6.2006 was received on 12.6.2006 and that too was for Rs. 2,00,000/-. As against such meager inflow of funds in the hands of M/s Superior Associates and SHDPL, prior to the date when such parties had issued cheques worth Rs. 5 crores, as per chart given above. Therefore, such huge payments remain totally unexplained as far as the list on which the AR had placed reliance for explaining the source and establishing the creditworthiness of such parties. Therefore, to such extent the list relied upon by the AR falls woefully short of explaining the source of huge payments made by such parties to the assessee. Even otherwise, such list is found to be wanting in more ways than one. Firstly, even if M/s Superior Associates and SHDPL are owned by same persons, the fact remains that both have separate legal entity and, therefore, funds collected by them from members of public, should have been submitted separately as evidence. There is no reason why the list of advances should not show the funds collected by each of such parties, separately. Secondly, the list is found to be incomplete in many respects. Thirdly, in numerous cases, it is found that multiple deposits have been received in the same name. Fourthly, addresses of number of parties are found to be conspicuous by their absence. In view of the aforesaid, the list in support of establishing creditworthiness of M/s Superior Associates and SHDPL is found to be incomplete and therefore, information reflected therein loses credibility.
Page | 22 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO Moreover, other than the list, the passbook of M/s Superior Associates showed a very minimal balance of Rs. 10,915/- as on 17.5.2006, the date prior to issue of first cheque of Rs. 1 crore to the assessee. Even with regard to subsequent cheques it is found that there were huge cash deposits prior to issue of cheques to the assessee company.
Similarly, the passbook of M/s SHDPL also showed inadequate balance in the account on the eve of issuing cheques to the assessee company S.NO. Cheque No. Date of Issue Amount (Rs.) Date of deposit 1 132791 28/9/2006 50 lacs 4/10/2006 2 132790 28/9/2006 50 lacs 1/10/2006 3 132789 28/9/2006 50 lacs 1/10/2006 On the date when the cheques were issued, i.e., 28/9/2006, SHDPL had a balance of Rs. 382.32 p. With regard to cheque nos. 132789 and 132790, a sum of Rs. 81 lacs was deposited in cash on 1.10.2006. Also, prior to clearing of cheque no. 132791, a sum of Rs. 59.90 lacs was deposited in cash.
In light of the above facts, the evidence produced for establishing creditworthiness is found to be wanting, as it fails to explain the source of cash deposits from which cheques for advances given to the assessee were issued. The documentary evidence in the form of list of advances received by M/s Superior Associates and SHDPL and their pass books relied upon by the AR fails to establish the creditworthiness or the financial capacity of such parties to advance huge sums of money to the assessee. To such extent, the explanation offered by the AR to explain the creditworthiness of such parties stands disproved and the onus vested in the assessee u/s 68 remains undischarged. The AR was not required to explain the source of source of funds at any Page | 23 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO point of time. He was only asked to discharge the onus to the extent of explaining the creditworthiness of such parties. But the explanation so submitted is found to be false and misleading in addition to being non- maintainable, as the flow of funds in the hands of such parties do not match up with the receipt of funds. AR failed to corroborate his own explanation with suitable facts and documentary evidence. Therefore, his explanation to explain the creditworthiness is hereby rejected.
Notwithstanding the above, even otherwise the sequence of events described by the AR in various submissions results in a highly improbable tale. The AR submitted a list of parties from whom funds were reportedly received by M/s Superior Associates and SHDPL with the purpose of selling plots. Such parties then reportedly advanced the funds so collected to the assessee company and assessee company, in turn, further lent these amounts to its sister concerns (companies under the same management). However, it is found to be highly improbable. Numerous parties from whom funds were raised by Superior Associates and SHDPL, have given their money, that too in cash to such parties who in turn have applied for the shares of the assessee company and assessee without making allotment has advanced such funds to its sister concerns. The series of events are clearly found to be incredulous and against normal commercial practices. They are simply against preponderant probability. For instance, why an investor would invest /advance money with Superior Associates and SHDPL when such parties were not having any projects in their own hands but instead advanced such funds to assessee company who in turn advanced such money to its sister concern. So from such investors' point of view such transaction is highly risk prone. If such investor would have been genuinely interested in investing in property he could have approached a builder directly instead of going through a long a circuitous route which is highly risky. In short, the trail of events described by the AR, are found to be incredulous as well as contrary to normal business Page | 24 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO practices and therefore, beyond preponderance of probability. In this regard, reference is placed on the observation of the lordships of the Supreme Court in the case of CIT Vs Durga Prasad More (82 ITR 540), which is as follows :
"The taxing authorities were not required to out on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents."
To summarise, barring the issue of identity, the AR failed to establish the creditworthiness/capacity of M/s Superior Associates and M/s SHDPL to have advanced huge funds of money to the assessee. The nature of such advances has already been disproved in preceding paras, in an indisputable manner using the self-contradicting evidence filed by the AR. In the Balance Sheet, such advances were shown as Share Application Money whereas from the agreement dated 16/3/2007 it emerged that the money received from such parties was in consequence of agreement dated 31.5.2006 for purchase of land. Therefore, the issue of genuineness was disproved. Even the issue of creditworthiness also could not be established by the AR with proper facts and supporting evidence (reference made to the list of advances submitted on 14/12/2009). It is, therefore, held that assessee failed to discharge the onus vested in him by virtue of provisions of section 68. Consequently, by invoking the provisions of section 68, the sum of Rs. 8.5 crores allegedly received from M/s Superior Associates and SHDPL is held to be income of the assessee from unexplained sources. The same were introduced in the books in the garb of share application money by creating a facade of having received such sum from M/s Superior Associates and SHDPL. In view of the same, an addition of Rs. 8.50 crores is made to taxable income of the assessee and the same shall be taxed under the head "Income from Other Sources".
Page | 25 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO
16. The assessee aggrieved with the order of the learned assessing officer preferred appeal before the learned CIT - A who deleted the above addition as paragraph number 3.3 - 7 of his order as under:-
"3.3. During the relevant Financial Year, the appellant declared receipt of share application money of Rs.7 crore from M/s Superior Associates, (SA) and Rs.1.5 crore from M/s Seven Heaven Developers (India) Pvt. Ltd. (SHDPL). During the course of assessment, after the inquiry made by AO, the appellant explained that although this money has been received from one Sh. Sunil Singh in the form of share application money, this was actually an advance received for allotment of plots out of land owned by other sister concerns of the appellant company. It was also found that both SA and SHDPL belong to Sh. Sunil Singh where SA is his proprietorship concern. He is also Director in SHDPL. It has also come to the notice of AO that the said amount of total Rs.8.5 crore has come to assessee company from the accounts maintained in the name SA and SHDPL in Mahamedha Urban Co-operative Bank Ltd. The AO noticed that there are a lot of cash deposits in these two Bank accounts from which the advance was given to assessee company. The AO asked assessee to prove the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. In respect of its claim, the assessee furnished confirmation, affidavit, extracts of bank pass book and other relevant documents. However, Sh. Sunil Singh, the creditor was not produced before AO. The AO tried to verify the address of Sh. Sunil Singh. During the visit by the inspector to the address given, he was told that both SA, SHDPL and Sh. Sunil Singh is not operating from that address at that point of time and left without ..giving any forwarding address. Since, the assessee failed to produce Sh. Sunil Singh to support the confirmation and copy of the agreement with assessee, the AO invoked the provision of 68 of the Act. The AO held that the entire amount of Rs.8.5 crore is unaccounted income in the hands of appellant. Apart Page | 26 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO from that, the AO also disallowed an amount of Rs.31,09,154/- u/s 37(1) of the Act including Rs.16,80,000/- which is being a part of expenses claimed under the head Directors remuneration paid to the persons who are not Directors of the company.
3.4 On the basis of submission given by the appellant on 15.09.2010, my predecessor Ld. CIT(A) called for remand report from AO on 17.02.2011 and 27.05.2011. Although the AO objected to the admission of fresh evidence u/r 46(A), my Ld. predecessor CIT(A) intimated that these evidence are not fresh evidences but are in support of the document filed during the assessment proceedings. In the remand report dated 25.10.2010, the AO mentioned that adequate opportunity was given during the time of assessment but the assessee failed to produce the ITR and audited account of ^ the creditors. Subsequently, the AO was asked by CIT(A) to verify the creditor giving opportunity to the assessee. The AO obtained statement of Sh. Sunil Singh and sent a report on 04.10.2011. The AO furnished the copy of the statement of Sh. Sunil Singh which was taken on 12.09.2011.
Since, the identity of the creditor is established, statement of the creditor confirming the payment, agreement and transaction is available on record and all the relevant documentary evidences in support of the transaction are filed before the AO & the CIT(A), the appeal can be examined on issues raised by the facts & circumstances of the case.
4. Grounds No. 1 and 2 are related to addition made u/s 68 of the Act for Rs. 8.5 crore. The AO mentioned in his assessment order that the assessee failed to substantiate the source of receipt of this Rs. 8.5 crore.
4.1 The decision of AO is based on following inferences:-
i. Without raising authorized capital, the assessee cannot raise such a huge amount as share capital money against authorised capital Page | 27 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO of Rs. 20 lakhs out of which Rs. 4 lakhs issued earlier year living room for only Rs. 16 lakhs.
ii. Assessee did not make any attempt to raise authorised capital with ROC even after receiving share application money. Therefore, there is no intension of the assessee to issue shares against share application money.
iii. SA and SHDPL did not evaluate the risk to advance such money.
iv. Merely, establishing the identity of the creditor is not enough. For this the AO relied on the following decisions:
a. Shankar Industries Vs. CIT (1978) 114 ITR 689 (Cal.) b. C. Kant & Co. Vs. CIT (1980) 126 ITR 63 (Cal.) c. Prakash Textile Agency Vs. CIT (1980) 121 ITR 890 (Cal.) d. Oriental Wire Industries (P.) Ltd. Vs. CIT (1981) 131 ITR 688 (Cal.) v. Mere payment by account payee cheque is not sacrosanct.
vi. Thus, the AO held that the identity of the creditor is explained with documentary evidence and there is no doubt about the identity of the creditor but AO did not accept the explanation of assessee for creditworthiness and genuineness of the transaction.
vii. The AO doubted that without having any land how could Sh. Sunil Singh collect such huge amount.
viii. The AO analyzed the Bank statement of creditor i.e. SA and SHDPL and noted following infirmities Page | 28 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO
a) Inflow of fund started on 03.06.2006 and 12.06.2006 but the cheque to assessee was given prior to that.
b) The time gap between the receipt of money in the account of creditor and issue of cheque does not justify the transaction.
c) There are huge cash deposits prior to issue of cheques.
ix. Although the assessee submitted the list of depositor who deposited money (cash and cheque) in the account of creditor, i.e. SA and SHDPL, the AO rejected the list treating it without any credibility. The AO found the list without any credibility because of following reasons:
a) Both the concern are owned by same person Sh. Sunil Singh.
b) The list does not indicate identity of the creditor.
c) The list is incomplete in many respects (but he did not mention what are these).
d) There are multiple deposits in the name of same person.
e) Address of the depositors are incomplete.
x. Thus, the AO concluded that the assessee failed to
discharge its onus to substantiate the creditworthiness of the creditors.
4.2. The appellant explained the transactions before AO as well as before CIT(A) as below:-
a. The assessee and Sh. Sunil Singh entered into an agreement for sale of plot at Hapur in NH4 owned by other sister concerns Page | 29 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO of the group. Sh. Sunil Singh is suppose to collect advance from prospective customers for selling plot of various sizes ranging from 200 sqr. yard to 500 sqr. yard.
b. The assessee furnish a list of persons from whom advance were collected in cash or cheque by Sh. Sunil Singh and out of which an amount of Rs. 8.5 crore was advanced to the appellant.
c. The appellant further transferred this amount to three sister concerns namely Nuage Buildcon Pvt. Ltd., Nutech Buildcon Pvt. Ltd, and Pushpanajali Buildwell Pvt. Ltd.
d. The appellant also furnished a list of 489 persons to whom plots were allotted against advance collected by Sh. Sunil Singh.
4.3. The first issue is whether the credit is share application money on advance against land?
On this issue the AO held that although the credit is taken as share application money', to take the benefit of favourable judicial decision, later on assessee accepted the money received as loans or advances.
The appellant explained that the difference is only on nomenclature, the content of transaction is same. The appellant relied on the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC), wherein it has been held that "whether the assessee is entitled to a particular deduction or not will depend on the provision of Law relating thereto and not on the view which the assessee might take off his right; nor can the existence or absence of Page | 30 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO entries in the books of account be decisive or conclusive in the matter."
4.4 The appellant stated that it is well settled position of law that, nomenclature adopted by assessee does not determine the taxability of the receipt as also has been held in following cases i. 227 ITR 172 (SC) Tuticorn Alkali Chemicals & Fertilizer Ltd.
Vs. CIT
ii. 285 ITR 221 (madras) CIT Vs. Idhayam Publication Ltd.
iii. 42 ITR 69 (SC) National Cement Mines Industries Ltd. Vs.
CIT
Thus, in view of the judicial pronouncement on this issue, the treatment of a particular entry as share application money or Loans/ advances is less material than the examination of otherwise disallowability u/s 68 of the Act.
4.5 It is stated that the appellant together with sister concerns agreed to provide land in the form of plots of 200 sqr. yards each @ Rs. 5,900/- per sqr yards that approximately equivalent to 85 plots, in lieu of total sum received Rs. 8.5 crores. The appellant also provided the address of SA and the SHDPL. It is mentioned in the assessment order that Sh. Sunil Singh appeared before AO on 07.12.2009 but did not submit any document as required by AO although an adjournment was taken, Sh. Sunil Singh did not turn up subsequently. The creditor Sh. Sunil Singh also appeared before the AO on behalf of SA and SHDPL during the proceedings under remand report on 12.09.2011 and his statement was recorded under oath. On the basis of the statement, the AO mentioned in the remand report that Sh. Sunil Singh is filing his return of income vide PAN, BDLPS1201G with ITO Ward-4, Noida. In the statement, Sh. Sunil Singh mentioned that payment of Rs. 8.5 crores Page | 31 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO has been made on behalf of SHDPL and SA as an advance for purchase / booking of plots from assessee and its associates companies.
4.6. The issue raised by AO, submission by the appellant and facts on records are considered. It emerges that the identity of the creditor is established and there is no dispute that the entire transaction is carried out through banking channel. Hence, just because of change in the nomenclature due to changing business requirement, supported by MOU, it cannot be held that transaction is not genuine. Respectfully following the decision of the jurisdictional High Court in the case of CIT Vs Nova Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del) wherein it is held that production of creditor is necessary, the burden of the appellant in establishing the identity of the creditor and genuineness of transaction between two income tax assessees held to be discharged.
4.7 The AO has not specifically brought any evidence into contrary to show that transaction is not genuine. The circumstantial probability discussed in the assessment order is not sufficient to contradict the transaction through banking channel and based on real asset. There may be some reflection in the whole affair that may create some doubt. But, the reflection of transaction is independent of the genuineness of the transaction. Since the existence of asset, that is the land in question, is never doubted and allotment of plot against the depositor of money in the accounts of the creditor are never questioned, the genuineness of transaction is hereby established. Hence, it is not in dispute that the sister concerns are owner of the land who have entered into an agreement for the sale of land with SA and SHDPL and they had advanced money in pursuance to the aforesaid agreements and in fact have also been allotted plots subsequently, it cannot be either legally, logically or factually be held that no money is received as advance for purchase of land. Just because the entries in the bank account of the creditor are not verified, the genuineness of transaction Page | 32 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO cannot be in doubt. In the case of CIT Vs. Devine Leasing & Finance Ltd. (2008) 299 ITR 268 Delhi, the Hon'ble High Court held that "In the case of a company the following are the propositions of law u/s 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber ; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee ; (5) the Department would not be justified in drawing an adverse inference only because the creditors/ subscriber fails or neglects to respond to its notices ; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee ; and (7) the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. The burden of proof can seldom be discharged to the hilt by the assessee ; if the AO harbours doubts of the legitimacy of any subscription, he is empowered, to carry out thorough investigations. But, if the A O fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company.
The Income-tax Appellate Tribunal further recorded that the AO had not brought any positive material or evidence which would Page | 33 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO indicate that the shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital represented the company's own income from undisclosed sources. The addition of Rs.76,51,650/- for the AY 1986-87 deleted by the Commissioner (Appeals) was upheld. On appeal:
Held : dismissing the appeals, that the Tribunal had categorically held that the assessee "has discharged its onus of proving the identity of the share subscribers". Had any suspicion still remained in the mind of the AO he could have initiated "coercive process" but this course of action had not been adopted. The deletion of the additions was justified. "
In view of the judicial pronouncement and in the facts and circumstances of the case, the decision of the AO treating the transaction as not genuine is found to be erroneous.
5. The next issue arises is the burden to establish creditworthiness of the creditor. The AO held that since there are deposits in the bank account of the creditor, some of them are in cash, the financial capacity is unsubstantiated. The AO also found the difference in balance available in the bank account of the creditor and the cheque given to the appellant. But the AO has not established that any of the depositor in the bank account of the creditor is bogus or without adequate financial capacity. Without verification of the depositor, the unsustainability of the financial capacity is only a matter of imagination. It is submitted by the appellant that since the money has originated from the account of SA and SHDPL, no addition can be made u/s 68 in the hands of appellant. Regarding the time gap between the deposit and issue of cheque & non-availability of sufficient balance in the bank account of the creditor, it is submitted that the time gap is due to clearance of the cheque. It is submitted that it can be seen from the bank statement of SA and SHDPL that there was an opening balance of Rs.38.44 lakhs, Page | 34 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO prior to the issue of first cheque to the appellant on 19.05.2006. There were debits aggregating to Rs.703.10 lakhs approximately and credits aggregating to Rs.664.71 lakhs, thus, there were sufficient balance in the account of creditor before issuing the cheque. Once the payment is made by cheque, insufficiency of fund in the account of payee is a matter of banking regulation and does not throw any light on creditworthiness of the issuer. There was no enquiries made by the AO on any of the persons depositing the money as appeared in the list of depositor in the hands of the creditor. In view of the above facts and in the circumstances of the case, it is found that the creditworthiness of the creditor does not lead to any adverse inference.
6. In the case of Sona Electric Company Vs. CIT (1985) 152 ITR 507, the Hon'ble High Court of Delhi held that "Section 68 makes it clear that entry in the books of accounts can be rejected by the ITO on cogent grounds and if such grounds are themselves based on no evidence, the question of presumption does not arise." Since, the AO did not bring any evidence contrary to the submissions and documents furnished by the appellant, the presumption of lack of creditworthiness cannot be held.
7. In this case, the appellant submitted all possible evidence and there is no evidence on record which may prove that assessee has ever given cash for receiving advances. It is thus can be held that appellant has duly discharged his burden of proof which a person of ordinary prudence could have discharged u/s 68 of the Act. Once the appellant has discharged its primary onus, burden shifts to the AO to prove that transaction of advance against land was not genuine. The jurisdictional Hon'ble High Court of Delhi in the case of CIT vs. Value Capital Services Ltd. (2008) 307 ITR 334 (Del) held that burden is on AO to show that money received originated from the coffers of the appellant company. AO has noted in the remand report that creditor Sh. Sunil Singh is Page | 35 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO involved in many litigations. That may indicate the fact that he has collected advance from various persons against allotment of plots that are deposited n bank a/cs of SA & SHDPL. If this is true then the presumption that assessee has introduced its own unaccounted income in the bank A/c of SA & SHDPL and shown in the books of assessee as credits that attracts disallowance u/s 68 as unexplained credit held by AO, becomes null & void. The question remains to be answered why assessee will introduce its own unaccounted income in the form of advance and allot plot of land to others against such advance. The facts that there is allotment of plot is not denied or established as untrue. The identity of the creditor is also proved. The deposits made by various persons in the accounts of creditor is not questioned. In view of the facts and in the circumstance of the case, the addition made u/s 68 of the Act to the tune of Rs. 8,50,00,000/- deleted and appellant's ground of appeal is allowed."
17. The learned departmental representative vehemently stated that the addition deleted by the learned CIT - A is erroneous as assessing officer has conclusively proved that the amount deposited by these two concerns as share application was bogus. It was stated that the assessee has failed to prove the creditworthiness and genuineness of the above transaction. A paper book was also submitted by the learned departmental representative wherein the statement of Mr. Sunil Singh recorded by the learned assessing officer on 12/9/2011 was placed. It was submitted that in the statement of Sunil Singh has neither produced the income tax return, the books of accounts, the details of land transacted, or the purpose of transactions. It was further stated that sweeping finding given by the ld CIT (A) that Sunil Singh is filing return with ITO ward -4, Noida is borne out of the records, wherefrom the CT (A) has got this information is not known as neither assessee nor Sunil Singh stated so, she referred to her statement where he said that he does not know the ITO. This shows that the order of the ld CIT (A) deleting the whole addition is not based on facts available with him.
Page | 36 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO Mr. Sunil Singh also did not explain the business of the depositor. He answered most of the questions in a general manner. It was further pleaded that Mr. Singh in fact confirmed that even subsequently the amount was transferred to the share capital account. Therefore the learned DR stated that originally the money was credited as share capital, for some reasons best known to the assessee amount was converted as advance against loan and subsequently later on the same amount was now converted as share application money. Neither the assessee, nor Mr. Sunil Singh brought the balance sheet of the assessee as well as subsequent years to show about the fate of above transactions. Therefore it was submitted that the allegation of the assessing officer that assessee accepted the original amount as share application money, later on took shelter under advance against loan and ultimately the amount was shown to be share application money only. This fact itself shows that the transaction is non- Genuine. It was further stated that even in the remand proceedings, the assessee could not produce balance sheets or income tax returns et cetera of the lender. Therefore, the creditworthiness of the lenders was not established. It was further stated that no land was transacted at all and the learned CIT appeal has stated such things without any basis. He neither verified the balance sheet of lenders, nor their bank passbooks. CIT (A) also did not see any land documents as situs of land is not at all mentioned. Merely mentioning high way number 44 does not shows the situs of and. The learned departmental representative also vehemently referred to the remand report wherein it has been contested that addition cannot be deleted in the hands of the assessee. It was further stated that assessee has also not submitted the complete bank account of the lender. It was further stated that the discrepancies pointed out by the learned assessing officer in the list submitted by the assessee, which was held to be amount received by the lenders through various parties was also not addressed by the CIT appeal. The learned DR stated that to prove the genuineness of the transaction the onus is on the assessee to prove the genuineness and creditworthiness of the lender, the learned CIT has mentioned that AO could not prove anything contrary to Page | 37 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO what is stated by the assessing officer is incorrect. In fact it is the duty of the assessee to prove the creditworthiness and genuineness of the lender and it cannot be said that to rebut even if the assessee does not prove these two ingredients as the onus of the AO. She submitted that it is against the settled judicial precedents. Therefore, it was stated that the assessee has failed to prove the creditworthiness and the genuineness of the above transactions. The learned DR further made the point that purpose for making such a huge investment with the loss-making company was never substantiated. She stated that a. assessee company has filed return showing loss of INR 1 915957/-, b. assessee company did not carry any business during the year, c. written submission of the authorised representative also speaks that the company is initially incorporated to carry on the business of builders and developers but due to unavoidable reason, no such activity was undertaken by the company during the year under consideration.
d. Balance sheet of the lenders were not produced before any of the authorities e. Complete Pass books/ bank statements were not produced before any of the authorities f. Income tax returns were not produced before any of the authorities. g. Statement of Mr. Sunil Singh speaks volume about the transaction and its genuineness. She read the statement of Mr. Singh as part of her paper book.
h. She also relied upon the 12 judicial precedents in her written submission.
18. Contesting the above fact the learned authorised representative submitted that assessee is engaged in the real estate business and therefore it entered into an MOU with the depositor for sale of plots. It was stated that Mr. Sunil Singh collected fund and transfer to the assessee through two business entities. He further referred to the various paragraphs of the order of the learned CIT - A to state that the assessee has proved the identity, Page | 38 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO creditworthiness and genuineness of the depositor. He further referred to the remand report submitted by the learned assessing officer before the learned CIT - A and submitted that based on the information submitted by the assessee before the learned CIT - A, creditworthiness and genuineness was not questioned by the learned assessing officer. He further stated that the learned assessing officer never questioned the allotment of plot. He therefore stated that assessee has clearly explained the „nature and source‟ of the above deposit. He further stated that creditworthiness was also established by the assessee by submitting the copy of the bank account of the depositors as well as giving the complete list of persons who have booked plot from the lender. He further submitted that Mr. Sunil Singh was produced before the assessing officer on 12/9/2011 wherein he explained the complete transaction with the assessee. In view of this he stated that even the objection of the assessing officer that assessee could not produce Mr. Sunil Singh does not survive and not sustainable. He further stated that as CIT - A has clearly mentioned that Mr. Singh was involved in many litigation and therefore he could not be produced during assessment proceedings. He referred to the various pages of the paper book submitted. He referred to the written submission placed at page number 612 onwards. He further referred to the evidences placed before the assessing officer as well as before the learned CIT - A to prove the identity, creditworthiness and genuineness of the transaction. He further referred to page number 734 of the paper book wherein the final analysis was submitted of the whole issue before the lower authorities. He further placed on record page number 743
- 753 of the paper book, which is the concise written submission before the lower authorities.
19. The learned authorised representative vehemently relied upon the decision of the coordinate bench in case of DCIT vs Esteem Towers Private Limited 99 TTJ 472 to submit that investor company is incorporated under the companies act holding general index registered number and assessed to tax, copies of acknowledgement of filing of IT returns as also the affidavits and confirmation and also share application forms and letters of allotment of Page | 39 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO shares being available on record, identity of these investors could not be doubted so as to call for addition u/s 68 more so, when there was no material to show that said application money belonged to the assessee. He submitted that there is no evidence that money belonged to the assessee and complete details have been furnished by the assessee.
20. In the end he relied upon the decision of [2018] 95 taxmann.com 330 (Rajasthan) Commissioner of Income Tax, Alwar v.Jalan Hard Coke Ltd and stated that company cannot be assessed for the income tax to find out the person who has applied as the shareholder.
21. The learned departmental representative vehemently stated that all paperwork agreements and all MOU are merely paperwork. It was vehemently contested that assessee has failed to show the creditworthiness and genuineness of the depositors by not producing a. bank account of lenders , b. Annual accounts of lenders , c. income tax return of the depositors.
d. Documents of land e. Complete List of plot allottes with plot numbers, area, situs, rate, document registered deed etc It was further stated that all the transactions stated to by the assessee are false and they never existed. It was further stated that the statement of Sunil Singh has shown that it is ultimately the unexplained credit in the books of the assessee.
22. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, in the books of the assessee company a credit entry of INR 85,000,000 has been introduced in the form of share application money from two different entities belonging to/ controlled by one person Sri Sunil Singh.
23. One of the two entities is namely M/s Superior associates from whom INR 70,000,000/- received. As per page number 612 of the paper book to prove Page | 40 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO the identity, creditworthiness and genuineness of the transaction assessee submitted following details a. copy of ledger account of share application money in the books of assessee company b. copy of confirmation from Sri Sunil Singh proprietor of Messer Superior associates c. Copy of permanent account number along with driving license of Sri Sunil Singh.
d. Copies of 3 cheque of Rs. one crore each e. copies of cheque of INR 7,500,000 and INR 12,500,000 f. copy of bank statement of Messer Superior associates g. copy of affidavit from Mr. Sunil Singh
24. The assessee has also received INR 15,000,000 from Messer Seven Heaven developers India private limited. To prove the identity, creditworthiness and genuineness of the transaction assessee produced following evidences:-
a) ledger account of share application money in the books of assessee
b) minutes of the meeting of the board of directors of 7 Heaven developers India private limited held on 20/9/2006
c) confirmation from Messer Seven Heaven developers India private limited
d) certificate of incorporation of that company
e) memorandum and articles of Association of that company
f) copy of permanent account number along with driving license of Sri Sunil Singh director of that company
g) various copies of the cheques issued by company to the assessee
h) affidavit from Mr. Sunil Singh director of the company
i) Master detail from registration of companies
j) bank statement of the company
25. The learned AO based on the above information noted that assessee has not produced the complete bank statements s well as the Income tax Returns of the lenders, he asked the assessee to produce the complete bank statement of the above 2 entities as well as their income tax returns. The Page | 41 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO AO also asked assessee to produce the main person of both these entities, Mr. Sunil Singh, who is the proprietor of the 1st concern and the director of the company who deposited money with the assessee, with complete details. The assessee could not produce at the first instance that person. The AO issued the summons through inspector where it was found that the above company as well as the proprietary concern does not exist. Therefore, the assessee was confronted and asked to produce the above director. The assessee produced the director on one day, however without any details. His statement was also not recorded at that time, as he was not having any information. Therefore, during the whole assessment proceedings the assessee could not produce Mr. Sunil Singh before the assessing officer for his examination. Hence, as neither the director, nor complete bank account as well as income tax return of both the entities were produced. Therefore, the assessing officer has noted that only identity of the above creditors was established before him. With respect to the creditworthiness and genuineness of the transaction, the learned AO clearly stated that assessee has submitted that Mr. Sunil Singh has collected money on behalf of several persons for booking the plots, which would have been procured by the assessee company for sale. Mr. Sunil Singh received consideration from more than 850 people for the sale of plot. However neither the assessee nor Mr. Sunil Singh in any of the submission could produce any evidence about the exact location, area specifications of plots, area sold, area booked of the land, copies of any agreement with the prospective buyers etc. Only the National Highway was mentioned for location of plot. Further in the list submitted by the authorised representative with respect to the person from whom money was received by Mr. Sunil Singh, the learned AO recorded many infirmities. The assessee even before us has not at all rebutted these infirmities. The ld CIT (A) has ignored them without reasons/ or shifted burden on the AO. The address of the plot of land was not at all mentioned in any of the documents or it was ever shown that who owns these plots, how the plots have been sold to various persons, No Page | 42 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO agreements with respect to those persons with Mr. Sunil Singh was produced before any of the lower authorities.
26. During the course of remand proceedings as per the direction of the learned CIT - A, the assessee produced Mr. Sunil Singh before the assessing officer and his statement was recorded on 12/9/2011 which is placed at page number 1 - 6 of the paper book submitted by the DR. In question number two the AO asked him to give the income tax particulars; in reply, thereto he could only say the permanent account number. He could not remember about the Ward number or any particulars about furnishing the return of income. However surprisingly CIT (A) has got the ward number where this person is filing his return of income and he held that this person is assssed to tax!. Even in the case of the company, no information could be supplied by him. In question number 3 the learned assessing officer enquired from him that whether he has brought details of transaction with the assessee company during the financial year 2006 - 07 and the copies of any agreement or income tax particulars. In response to that, he submitted that he would be submitting the copies of the memorandum of understanding and details of other transactions with the assessee. He could not recollect any information about such MOU. However, he confirmed that the amount is paid by his proprietary concern as well as the company to the assessee. In question number 6, the AO specifically asked him to give the details of the time of purchase of the land. In response to this question, he could only give the year of entering into a memorandum of understanding but did not give any details of the time of purchase of land. Regarding the location of the plot, he could only say that it is at Hapur Bye pass , NH-24. He did say that it could be a sale of plot in upcoming or future projects. In view of this, it is apparent that he did not mention for which plot of land the transaction took place and what is the exact address of that land. It is highly unusual that a person who has collected money from 900 persons approximately did not know that for which particular land the transaction is being entered into. Further, it is beyond comprehension that 900 persons will pay the advance money to the Page | 43 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO tune of Rs 20 crore without having any identification of land. He was specifically asked in question number 7 about the details of the company. The answer to that question is curiously unanswered with respect to the company, though he was the director of that company, signed confirmations , main person in the deal, but he could only answer with respect to his proprietary concern. In answer to question number 8 about the status of the money deposited by that person in the name of 2 concern with assessee, he stated that he has not received any communication regarding the status of money given to the assessee and stated that some of the money has been refunded and some of the money has been adjusted for purchase of plot. However no information about the property or plot was given. Neither any document was produced by assessee or by Mr. Sunil Singh. Further mere repayment of the money subsequently does not obliterate the liability of the assessee u/s 68 of the income tax act to prove the identity, creditworthiness, and genuineness of the transaction at the time of receipt of money. The answer to question number 10 makes it absolutely clear that originally the money was received as share application money but later on converted as an advance for plot of land and subsequently once again it was converted into share application money. This itself shows that the signing of various MoUs between the assessee and lender are merely the paperwork because they were neither acted upon at any time and there was no underlying property for which the MOUs were entered into. Further in question number 11 with respect to the source of funds, he explained that he has accepted advance registration amount from 937 persons totaling to INR 200,000,000 approximately. Out of which only 8,50,00,000 was transferred to the assessee, he could not give any explanation why 20,00,00,000 were collected from various persons and only 8,50,00,000 was transferred to the assessee, when these were advances for sale of plot. He also did not explain where the balance 12.5 crores were invested/ spent. Further he did not give any information that who are these 937 persons, their addresses, the area of plot allotted to them, exact plot specification allotted to these parties, the rates at which the booking Page | 44 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO has been made or any registered deed, agreements for allotment of the plot. In absence of all these information, it is merely a make-believe story. The learned CIT - A has stated that AO has not doubted the source of this fund. It is too naïve to say that AO has not doubted the source of these funds because there was no information submitted to the assessing officer to make any enquiry, whatever inquiry AO made did not give an iota of evidence about the genuineness of the transactions and creditworthiness of the lenders. Even otherwise, assessing officer is not inquiring the source of Mr. Sunil Singh but asking assessee to prove the creditworthiness of Mr. Sunil Singh‟s concerns. Then It is for assessee and Mr. Sunil Singh to produce all those persons for verification before the assessing officer, assessee and Mr. Sunil Singh did not give the complete list of plot allottees, the infirmities remained unaddressed. In response to question number 12 where the AO asked Mr. Sunil Singh to produce the bank statement where a sum of INR 200,000,000 have been accepted and INR 85,000,000 has been transferred to the assessee, he stated that it is not available with him and it would be submitted on the next date. The AO stated that it was never submitted. Therefore, the complete bank statement has not at all been submitted by the lender/depositors with any of the lower authorities, nor the same is placed in paper book before us. With respect to question number 13, the audited accounts of the company as well as the proprietary concern were asked which was also not produced by him. Even otherwise, he expressed ignorance about the books of account and the exact transactions of the company. Neither the assessee, nor Mr. Singh produced the annual accounts of both the concerns for relevant years. In answer to question number 14, where the AO asked him to give a specific number and description of land plot initially and what was the change later on ( as there was change in MOU) , he could not give any specific detail about the area and the exact location of the land and plot. Therefore, this proves that all the MOUs shown by the assessee are only a paper work and make believe stories. In question number 16, AO asked him to produce accounts of the proprietary concern as well as the company, he did not submitted at all.
Page | 45 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO Assessee also did not submit that. In question number 17, the AO asked him to produce the minutes book of the company since incorporation ( as some resolution was placed by assessee to show the creditworthiness and genuineness of the share application money from Seven Heaven developers P ltd ), he replied that he is not aware of any minute book at right now which is lying with EOW. In response to question number 18, where the AO asked him to substantiate the claim that source of INR 85,000,000 was deposit received by the company from 937 persons, he stated that he can submit a consolidated list along with the addresses and receipt number of such persons and if required they can be produced for personal examination but never produced such a list as well as any of those persons. In view of this, statement of Mr. Sunil Singh clearly proves that the transaction entered into by the lenders by depositing the sum of INR 85,000,000 with the assessee company shows that those lenders do not have creditworthiness of depositing such amount in absence of production of books of accounts, income tax returns, and bank accounts of those persons. Further, with respect to the genuineness of transaction, in absence of any detail of the underlying asset for which the money was received it was not proved by the assessee. The collection of advance money from 937 persons without having any specific location of the plot of land speaks a lot about the genuineness of the transaction. The learned CIT - A noted that subsequently the sale of the plot has happened is devoid of any merit so far as the addition u/s 68 with respect to the above sum is concerned. When Mr. Sunil Singh could not identify the plot, which was being transacted for, which the MoUs were frequently entered into there was no reason to believe that Mr. Sunil Singh and his associate concerns could have cornered more than INR 200,000,000 towards sale of those plots and deposited Rs 8.5 Crores with the assessee. Absence of any explanation about the Collection of Rs 20 crores by Mr. Singh, depositing only Rs 8.5 Crores with assessee, no explanation about balance sum, clearly shows whole transaction as non-genuine and it lacks substance. The changing stand of the assessee from first crediting it to share application money, then converting it is an Page | 46 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO advance and then once again converting it to share application money does not inspire any confidence about the genuineness.
27. Coming to the order of the learned CIT - A, a. In para, number 4.38 stated that appellant has explained the difference , which is only a nominal, and the content of the transaction is the same. It is important to mention that earlier at the first instance the assessee‟s stated that it is share application money subsequently stated it to be the advance against land and ultimately it was confirmed that the amount has been transferred as application money once again. This was the allegation of the assessing officer for which the CIT - A has failed to give any plausible reason for deleting the above addition.
b. In para number, 4.4 he rebutted the above finding of the AO citing several case laws the facts of those case laws are not at all fitting into the context in which the addition has been made. Those judicial precedents were not at all in context of section 68 of the act but with respect to the principles that the entries in the books of accounts which are not in conformity with the accounting principles, such accounting entries cannot determine the taxability or otherwise of the transactions. Such is not the fact before him. Therefore, all those judicial precedents relied up on by ld CIT (A) are not applicable to the facts before him.
c. In para number 4.5 the learned CIT - A has considered the statement of Mr. Sunil Singh and stated that he is filing his return of income however, he did not find where the return of Mr. Sunil Singh is being filed. Surprisingly CIT (A) could find the ward number also when same was not mentioned by Mr. Sunil Singh or assessee or copy of such return was filed. The return of Mr. Sunil Singh as well as of the company was neither placed before us not before the lower authorities. Therefore, such conclusion of the learned CIT - A is incorrect.
d. In para No 4.6 the ld CIT (A) has held that Page | 47 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO "4.6. The issue raised by AO, submission by the appellant and facts on records are considered. It emerges that the identity of the creditor is established and there is no dispute that the entire transaction is carried out through banking channel. Hence, just because of change in the nomenclature due to changing business requirement, supported by MOU, it cannot be held that transaction is not genuine. Respectfully following the decision of the jurisdictional High Court in the case of CIT Vs Nova Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del) wherein it is held that production of creditor is necessary, the burden of the appellant in establishing the identity of the creditor and genuineness of transaction between two income tax assessees held to be discharged."
The ld CIT (A) believed the gullible statement of the assessee that if the transactions are through banking channel they established the creditworthiness and genuineness of the transactions. Everybody is aware in this world that banking channel neither proves nor disapproves the creditworthiness or genuineness of the transactions, banking channel is merely a mode of carrying out transactions. Even otherwise there is no reason to believe that if the transaction is carried out through banking channel, it is genuine, even if the identity, creditworthiness and genuineness of transaction is not proved independent of that. The ld CIT (A) has also held without any basis that transaction is between two income tax assessee, when the Super Associates and seven heaven Developers Both did not have any income tax return on record, merely having a PAN does not make an entity a tax assessee.
e. In para number 4.7 the learned CIT - A held as under
Page | 48 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO "4.7 The AO has not specifically brought any evidence into contrary to show that transaction is not genuine. The circumstantial probability discussed in the assessment order is not sufficient to contradict the transaction through banking channel and based on real asset. There may be some reflection in the whole affair that may create some doubt. But, the reflection of transaction is independent of the genuineness of the transaction.
Since the existence of asset, that is the land in question, is never doubted and allotment of plot against the depositor of money in the accounts of the creditor are never questioned, the genuineness of transaction is hereby established. Hence, it is not in dispute that the sister concerns are owner of the land who have entered into an agreement for the sale of land with SA and SHDPL and they had advanced money in pursuance to the aforesaid agreements and in fact have also been allotted plots subsequently, it cannot be either legally, logically or factually be held that no money is received as advance for purchase of land. Just because the entries in the bank account of the creditor are not verified, the genuineness of transaction cannot be in doubt."
[ Underline supplied by us] The ld CIT (A) did not show which is the "real asset." He did not mention the location of the land, nor is it available on record. Neither before us nor before lower authorities the exact details of the land as placed on record.
Further the order of the ld CIT (A) itself accepts that there are doubts in the whole transactions, there is no answer that how the ld CIT (A) ahs satisfied himself that such doubts are not real and nonexistent. In fact the finding of the ld AO clearly shows the make believe story of the whole transactions.
The ld CIT (A) also held that ld AO has never doubted the allotment of plot of land is not borne out from the records, the ld AO has never been given such comprehensive statement which will allow him to Page | 49 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO make any inquiry. Even statement of Mr. Sunil Singh also promises to provide the details but those were never provided. No agreements, address, complete details, are of land, rates of such land, address of the land was provided to the ld Ao. Therefore finding of the d CIT (A) is incorrect and non-palatable .
The ld CIT (A) held that it is not in dispute that the sister concerns are owner of the land who have entered into an agreement for the sale of land, there is no such details either produced before AO or before CIT (A) and not certainly before us. There is no mentioned of the exact situs of such land. Hence , it is incomprehensible that how he has held that it is not in dispute.
Ld CIT (A) held to shift the burden of proving the genuineness on the assessing officer whereas the primary onus of proving the creditworthiness and the genuineness of the transaction is on the assessee. Once the assessee discharges its initial onus, then only the burden shifts to AO. In the present case, the AO has clearly questioned the creditworthiness and genuineness of the transactions, which onus assessee has completely failed to discharges. In section 68, the pendulum of onus keeps on shifting and never remains static. f. In para number 5 the learned CIT - A has discussed the creditworthiness of those creditors and stated that AO has not established that any of the deposit in the bank account of the creditor is bogus or without adequate financial capacity. In absence of any list along with the name and address of those persons, the AO could not have done any such examination. The ld CIT (A) clearly ignored the finding of the AO that assessee or the lenders have never furnished the complete bank statement, cashbooks, banks books etc of the lenders. Even CIT (A) did not have any occasion to examine them. Further, the duty of the assessing officer was only to examine the creditworthiness and the genuineness of INR 85,000,000 and not the source of those persons who have deposited such sum with the assessee company. In fact, the assessee has failed to prove the Page | 50 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO creditworthiness of the depositors by not producing the bank statement, income tax records, balance sheets of the entities, therefore the onus did not shift to the AO at all.
g. In para, no six the ld CIT (A) has relied up on the decision of Honourable Jurisdictional high court to delete the addition. He relied up on decision of Sona Electric Company Vs. CIT (1985) 152 ITR
507. The facts of that case show that The assessee-firm had supplied goods to another firm, HES, and had raised a bill dated February 6, 1967, for Rs. 16,551.09. This amount was shown in its accounts as having been received in cash as follows: Rs. 10,000 on February 23, 1967, Rs. 3,000 on March 14, 1967, and Rs. 3,551.09 on March 22, 1967. However, the account books of HES showed the amount of the bill as having been paid by cheque drawn on July 27, 1967, which was encashed on the very same day. Upon an enquiry, a partner of HES insisted that the payment was made on July 27, 1967, and not on the dates mentioned by the assessee. It was stated that cash payment had been recorded on the bill by BM, a brother of a partner of the assessee-firm. The statement of SL, the accountant of HES, however, showed that the only words written were "received cash" and no date appeared there under. According to SL, the accountant of HES, who gave evidence in the absence of (any representative from) the assessee-firm, payment was made by a bearer cheque and it was encashed by himself (SL) for the assessee. SL was, however, unable to explain why all other payments were made against account payee cheques or receipted vouchers only whereas even against a bearer cheque no signature was taken on the counterfoil in the case of the assessee. The ITO concluded that the statement in the books of HES was correct and that the assessee-firm had introduced its own cash on the three dates, which was, therefore, income from undisclosed sources. The AAC and the Tribunal affirmed the decision of the ITO. On a reference the Honorable High court held that the finding of the Tribunal that the sum of Rs. 16,551 represented the assessee's Page | 51 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO income from undisclosed sources was not based upon any evidence because:
(a) the fact that the bearer cheque was encashed by SL, the accountant of HES, and not by the assessee showed that that circumstance was of no avail at all;
(b) the acknowledgment on the bill without any mention of the date of receipt of the cash could not establish the fact of the payment of cash in July rather than in February and March:
the absence of a date on the writing made all the difference;
(c) the statement of SL, in the absence of the assessee, had to be excluded from consideration;
(d) it was significant that SL was unable to explain why the assessee-firm had been treated differently by HES in the matter of payments. Thus, this was a case, where there was no evidence to show that, the entries made by the assessee in its accounts were wrong.
We failed to comprehend that how the ratio laid down by the Honourable High court in that case that Section 68 of the I.T. Act, 1961, makes it clear that a cash credit entry in the assessee's books of account can be rejected by the ITO on cogent grounds. When such grounds are themselves based on no evidence, the question of raising a presumption against the assessee does not arise. The facts of issue before Honourable high court and in the impugned appeal are nowhere near to each other. Further, in the impugned appeal before us the assessee has miserably failed to prove the creditworthiness and genuineness of the transaction.
h. In para no 7 the ld CIT (A) has held that there is no evidence on record which may prove that assessee has ever given cash for receiving advances relying on 307 ITR 334 . On careful analysis of Page | 52 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO the decision of the honourable high court , it shows that in para no 7 it has been held that there is an additional burden on the Revenue to show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee.. According to provision of section 68 of the act with respect to share application money The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. In the present case this initial onus itself is not discharged , therefore the ld AO was not required to discharge its onus , as that stage has not come in the present case. Further If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit- worthiness, then the genuineness of the transaction would not be established. Hence the decision relied up on by the ld CIT (A) does not apply to the facts of the case. Even otherwise, that is not the requirement of the provision of section 68 of the act, unless the complete initial onus is discharged by the assessee. Provision of section 68 provides that where any sum is found credited in the books of the assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Therefore, it is the duty of the assessee to offer explanation about the nature and source of any sum found credited in the books maintained by him for the previous year or if the explanation offered by him is not found satisfactory to the Assessing Officer, the sum credited in the Page | 53 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO books of account of the assessee may be charged to income-tax as the income of the assessee of that previous year.
Hence, according to us the ld CIT (A) has incorrectly deleted the above additions.
28. Coming to the decision of the honourable Rajasthan High Court in CIT vs Jalan hard coke Ltd [2018] 95 taxmann.com 330 (Rajasthan) relied upon by the learned authorised representative wherein it has been held that assessee company cannot be assessed for income tax to find out the person who is applied a shareholder. In the present case as the claim of the assessee itself is that it is not the said application money and further when in the remand proceedings the director of the lender company as well as his proprietary concern were produced before the assessing officer and examined the facts of the case cited before us and the facts and the impugned appeal are different and therefore reliance on the decision of the honourable Rajasthan High Court is misplaced.
29. Coming to the decision of the coordinate bench in 99 TTJ 47 to in DCIT vs Esteem Towers Private Limited the facts were that that investor companies were holding the general index register numbers and were assessed to tax. The copies of acknowledgement of filing of IT returns and the affidavits and confirmation of the shareholders were filed. Therefore, the coordinate bench deleted the addition u/s 68 of the act. Before us, the assessee has not at all produced any information about the tax assessment of Mr. Sunil Singh as well as of the companies. The copies of the acknowledgement of the IT returns are not produced. Further, the balance sheets and the bank statements of those entities are also not produced before the lower authorities. In view of this, the decision cited by the learned authorised representative is distinguishable on its fact.
30. In view of above facts, we reverse the finding of the learned CIT - A, restore the order of the learned assessing officer and confirm addition of INR Page | 54 ITA No.6200 & 6294 /Del/2013 Assessment Year: 2007-08 M/s Mahamedha Estate P Limited V ITO 85,000,000 in the hands of the assessee u/s 68 of the income tax act with respect to the sums received from 2 different entities controlled by Mr. Sunil Singh namely M/s Super Associates and M/s Seven Heaven Dev India P Ltd holding that assessee has failed to prove the creditworthiness and genuineness of the transaction. Accordingly, ground number 1 and 2 of the appeal of the AO are allowed.
31. The ground number 3 - 5 of the appeal are general in nature and therefore there dismissed.
32. In the result ITA number 6294/Del/2013 is partly allowed.
Order pronounced in the open court on 18/03/2019.
-Sd/- -Sd/-
(H.S.SIDHU) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 18/03/2019
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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