Income Tax Appellate Tribunal - Lucknow
Kansal Pumps (P) Ltd., Lucknow vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL,
B - BENCH, LUCKNOW.
Before Shri H.L.Karwa, Hon'ble Vice President and
Shri N.K.Saini, Accountant Member
I.T.A.No.29 (LKW.)/2011
A.Y. : 2003-04
The ACIT, Range -IV, vs. M/s. Kansal Pumps (P.)Ltd.,
Lucknow. Flat No.A-1,K.K.Apartment,
7, Dalibagh, Lucknow.
. PAN AAACK9031E
(Appellant) (Respondent)
C.O.No.3 (LKW.)/2011
(In I.T.A.No.29(LKW.)/2011)
A.Y. : 2003-04
M/s. Kansal Pumps (P.) Ltd., vs. The ACIT, Range-IV,
Lucknow. Lucknow.
PAN AACK9031E
(Cross Objector) (Respondent)
Revenue by : Shri P.K.Bajaj, Sr.D.R.
Assessee by : Shri Rakesh Garg, Advocate
O R D E R
PER H.L.KARWA, VICE PRESIDENT The appeal filed by the Revenue and the Cross Objection by the assessee are directed against the order of the Ld.CIT(A), Meerut dated 26.8.2010 relating to the assessment year 2003-04.
2. In this appeal, the Revenue has raised the following grounds:
"1. Under the facts and circumstances of the case, the Ld. CIT(A) 2 has erred in dismissing the appeal of the Department without appreciating the facts of the case.
2. Under the facts and circumstances of the case, the Ld. CIT(A) has erred on facts in deleting addition on share capital creditors of Rs.8,90,000/- even though the assessee had failed to prove the credit worthiness of the subscribers and the genuineness of the transaction.
3. Under the facts and circumstances of the case, the Ld. CIT(A) has applied the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. (2008), 216 CTR (SC) 195 mechanically. He failed to appreciate that the assessee company is not a listed company in which the public are substantially interested. Since it is a closely held private company, merely establishing the identity of the subscribers was not sufficient. Their credit worthiness and genuineness of transactions was also to be established. He has failed to appreciate and apply the decision of the Hon'ble High Court Delhi in the case of Rajeev Tandon Vs. ACIT, Circle 31 Delhi, 2007 -(IT3 )-GJX-0364-DEL.
4. Appellant craves leave to add or amend anyone or more of the grounds of appeal, as stated above, as and when need of doing so arises with the prior permission of the Hon'ble Court."
3. In C.O.No.3(LKW)/2011,the assessee has taken the following ground:
"1. Because the learned CIT(Appeals) has erred in law and facts in holding that the proceedings u/s 147 were rightly initiated."
4. Brief facts of the case are that the assessee filed its return showing income at Rs.1,83,070 on 1.12.2003. Assessment was completed under Section 147/143(3) of the Income-tax Act, 1961 (In short "the Act") on 30.12.2008 on an income of Rs.11,67,332. One of the major addition of Rs.8,90,000 was made on account of bogus share capital. From the Balance 3 Sheet filed by the assessee, the AO noticed that during the year, the assessee-company has shown increase in share capital to the tune of Rs.10,40,000. From the details called for in this respect, the AO noticed that during the year the assessee has claimed to have taken share capital from the following persons:
S.No. Name of the claimed share capital creditor Amount of share capital claimed 1 Sh.Pankaj Kansal Rs.4,23,100 2 Sh.Himanshu Kansal Rs.1,76,500 3 Smt.Anita Kansal Rs.1,50,000 4 Smt.Anu Kansal Rs.1,40,000 5 Smt.Charu Varshney Rs.1,50,000 All the above share capital creditors are stated to be directors of the assessee-company. The AO vide questionnaire dated 4.11.2008 required the assessee to file confirmations from the aforesaid capital creditors. The AO also required the assessee to explain sources of share capital given by the said persons with supporting documentary evidences and to prove the identity, genuineness and creditworthiness of the said share capital creditors. The AO also required the assessee to file copies of bank statements of the above claimed share capital creditors and their copies of returns with statements of income for the year under consideration.
However, the requisite confirmations and other documents were not filed on the date of hearing i.e. 10.11.2008 Hence on 10.11.2008, the AO again asked the assessee to file copies of bank statements of the above claimed share capital creditors and their copies of returns with statements of income for the year under consideration and to prove their identity, genuineness and creditworthiness. According to the AO, in response on 27.11.2008, only confirmations from the above mentioned persons were filed but in the filed 4 confirmations, the mode of giving claimed share application or cheque number etc. or dates of giving claimed share application were not mentioned nor any supporting document was enclosed/filed. Hence, the AO afforded one more opportunity to the assessee for filing supporting documentary evidence to prove the identity, genuineness and creditworthiness of the said persons and to explain the mode and date of taking the share application money and the case was adjourned to 8.12.2008,but on the fixed date, again, no documents/details/explanation were filed in this respect. Hence, the AO gave one more opportunity on 8.12.2008 to file supporting documentary evidence to prove the identity, genuineness and creditworthiness of the said persons and to explain the mode and date of taking the share application money and the case was adjourned to 22.12.2008 but again there was no compliance on the part of the assessee in this regard. Hence, on 22.12.2008, the AO gave final opportunity to the assessee and also asked the assessee to produce all the five claimed share capital creditors for their deposition and the case was fixed for 26.12.2008. However, on the fixed date, none of the claimed share capital creditor was produced and copy of bank statement and copy of acknowledgement of return and Balance sheet in the case of Smt.Charu Varshney only was filed and these documents were not filed in the case of other four persons. The AO on 26.12.2008, asked the assessee to explain and show cause as to why share application money shown in the names of Shri Pankaj Kansal, Shri Himanshu Kansal, Anita Kansal and Anu Kansal should not be treated as assessee's own money earned from unexplained sources and incorporated in the company in the name of above persons as share application money for its failure to prove the identity, genuineness and creditworthiness of the said persons though many opportunities were 5 given to the assessee in this respect and the case was finally adjourned to 30.12.2008,but on this date also, no explanation or documents were filed by the assessee. The AO concluded that the assessee failed to prove the identity, genuineness and creditworthiness of the said share capital creditors claimed by it in the name of Shri Pankaj Kansal, Shri Himanshu Kansal, Anita Kansal and Anu Kansal and the AO, therefore, added the sums of Rs.,4,23,10, Rs.1,76,500, Rs.1,50,000 and Rs.1,40,000 shown in the name of above persons respectively totalling to Rs.8,90,000 as share capital and treated the same as assessee's own money earned from undisclosed sources and added the same under Section 68 of the Act.
5. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee took the following line of arguments:
(i) That the AO has made addition of Rs.8,90,000 on account of deposit of share capital money by the following share holders/directors of the assessee-company:
1 Shri Pankaj Kansal Rs.4,23,100 (Director) 2 Shri Himanshu Kansal Rs.1,76,500 (Director) 3 Smt.Anita Kansal Rs.1,50,000 4 Smt. Anu Kansal Rs.1,40,400 Total Rs.8,90,000
(ii) That the assessee has also filed a chart showing the date , the amount and dates of allotment of shares to the share holders:
Date of Allotment Name of Allottee Equity Shares Amount (Rs.) 27.3.2003 Pankaj Kansal 4231 423100 27.3.2003 Himanshu Kansal 1765 176500 27.3.2003 Anita Kansal 1500 150000 27.3.2003 Anju Kansal 1404 140400 27.3.2003 Charu Kansal 1500 150000 6
(iii) That all the aforesaid shareholders/directors are assessed to tax.
(iv) That during the course of assessment proceedings, confirmatory letters of all the shareholders/directors confirming the aforesaid deposits were submitted. Confirmatory letters also contained their complete address Permanent Account Numbers and Ranges and Wards where they are assessed.
(v) That all the aforesaid shareholders/directors are assessed at Meerut where assessee's assessment was made.
(vi) That Income-tax returns of all the depositors were furnished to the AO in confirmation of which a copy of assessee's explanation was submitted before the AO during the course of assessment proceedings.
(vii) Affidavits of all the shareholders confirming the aforesaid payments were also submitted.
In support of the above, the assessee relied on the following decisions:
(1) CIT vs. Lovely Exports (P.)Ltd. (2008) 216 CTR (SC) 195, (2) Jaya Securities Ltd. vs. CIT(2008) 166 Taxman 7(Alld.), (3) CIT vs. AKJ Granites (P.) Ltd. (2008) 301 ITR 298(Raj.), 7 (4) CIT vs. Value Capital Services P. Ltd. (2008) 307 ITR 334(Del.), (5) CIT vs. Steller Investment Co. Ltd. (1991)192 ITR 287 (Del.), (6) CIT vs. Steller Investment Co. Ltd. (2000) 165 CTR 287 : (2001) 251 ITR 263 (SC), (7) CIT vs. First Point Finance Ltd. (2006) 286 ITR 477(Raj.), (8) CIT vs. Electro Polychem Ltd.(2007) 294 ITR 661(Mad.).
(a) That in the following judgments it has been held that if the existence of the shareholder has been proved, no addition can be made in the hands of the company in which deposit is made. (1) Showveen Finance and Investment Pvt. Ltd. Lucknow vs. Dy.CIT,2005 (6)MTC 951 (ITAT, Lucknow), (2) JCIT j(OSD) vs. Yuvraj Construction and Leasing India Ltd.,2007 [10] MTC 271 (ITAT, LKO), (3) Uma Polymers (P.)Ltd. vs. DCIT (2006) 100 ITD 1(Jodh.)(T.M.), (4) Indradhan Agro Products Ltd. vs.DCIT (2004) 89 TTJ (Del.) 1958, (5) DCIT vs. Arjun Cold Storage and Gen. Mills Ltd., 2009 (13) MTC 1001 (ITAT, Del.), (6) CIT vs. First Point Finance Ltd., (2006) 286 ITR 477(Raj.), (7) Barkha Synthetics Ltd. vs. ACIT (2005) 197CTR (Raj.) 432, 8
(b) That the assessee has already furnished confirmatory letters of all the creditors alongwith their PANs, place of assessment etc. Thus, the assessee has discharged the onus that had laid upon it. In this regard, reliance was placed on the following judgments.
(1) Aravali Trading Co. vs. ITO (2010) 187 Taxman 338(Raj.), (2) Murlidhar Lahorimal vs.CIT, (2006) 280 ITR 512 (Gujarat),
(c) That in number of judgments it has been held that in the cases covered under Section 68, the assessee is not required to prove the source of source.
In view of the above, the assessee submitted before the ld.CIT(A) that the addition of Rs.8,90,000 may be deleted.
6. The ld.CIT(A) deleted the addition relying on the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports(P.) Ltd.(2008) 216 CTR (S.C.) 195. The decisions and the reasons of the ld.CIT(A) read as under :
"I have gone through the order of the A.O. and considered the written submissions and arguments of the A.R. carefully. I have also gone through the plethora of case laws referred to by the AR. I find that there is no doubt about the identity of the depositors as confirmation was filed for the same from all of them. This fact is even reflected in the order of the A.O. Taking into consideration the facts that confirmatory letters also contained their complete addresses, Permanent Account Numbers and Ranges and Wards where they are 9 assessed, identity and genuineness cannot be called into question. Further in the course of assessment proceedings it was informed to the A.O. that all depositors were Income Tax assessee as evident from the assessment order. Going through the judgement of Hon'ble Supreme Court in the case of CIT v Lovely Exports (P) Ltd (2008) 216 CTR (SC) 195, wherein it was held that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company. Taking into consideration the above case, there remains no doubt that the amount of Rs.8,90,000/- received from directors/shareholders cannot be treated as income from other sources u/s 68 of the Income Tax Act, 1968 of the appellant. Also the fact that the appellant is not required to prove the source of source cannot be ignored on the basis of various judgements of Hon'ble Supreme Court and High Court. In view of the above facts and judgement by Apex Court in the case of CIT Vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195, the addition of Rs.8,90,000/- made by the A.O. is deleted.
(Relief Rs.8,90,000)."
7. Before us Shri P.K.Bajaj, ld.Sr.D.R. strongly supported the order of the AO and further submitted that the assessee failed to prove the creditworthiness of the shareholders and genuineness of the transaction. Therefore, the alleged share application money has rightly been added by the AO under Section 68 of the I.T.Act. He, therefore, submitted that the order of the ld.CIT(A) may be reversed and restore that of the AO.
8. Shri Rakesh Garg, Advocate, ld. Counsel for the assessee, while appearing for the assessee, reiterated the submissions made before the authorities and further submitted that the in the instant case, the assessee has proved the identity of the shareholders, their creditworthiness and also 10 the genuineness of the transactions. He further pointed out that during the course of assessment proceedings confirmatory letters were filed, which contained complete addresses, Permanent Account Numbers and Ranges and Wards where they are assessed and therefore, the identity and genuineness cannot be called into question. He further submitted that all the aforesaid shareholders/directors are assessed at Meerut where assessee's assessment was made. He also submitted that Income-tax Returns of the depositors/shareholders were furnished to the AO. In addition to above, affidavits of all the shareholders confirming the aforesaid payments were also filed before the lower authorities. Shri Rakesh Garg, ld. Counsel for the assessee also relied on the decision of the I.T.A.T., Lucknow Bench 'A" in the case of ITO-6(1), Kanpur vs. M/s.G.R.C.Tex Pvt. Ltd., Kanpur in ITA No.311(Luc.)/2010 relating to the assessment yea 2002-03. The Tribunal vide its order dated 30.9.2010 in the case of M/s.G.R.C.Tex Pvt. Ltd.(Supra) relying on the ratio laid down by the Hon'ble Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) and also on the decision of the Hon'ble jurisdictional High Court in the case of Jaya Securities Ltd. vs. CIT (2008) 166 Taxman 7(All.), confirmed the view taken by the ld. CIT(A). The relevant findings of the Tribunal are as under :
"7. We have considered the rival submissions and carefully gone through the material available on the record. In the instant case, it is not in dispute that the assessee received `1,00,000/- as share capital and a premium of `3,00,000/- from each of the companies namely M/s Tiwari Hotels Ltd, M/s Madhav Securities Ltd. and M/s Laxmi Katha Udyog Ltd. The assessee filed the acknowledgement of income-tax returns, balance sheet of the aforesaid companies. The authenticity of those returns and the balance sheet has not been doubted. In the balance sheet of the aforesaid companies, the amount in question was duly shown as investment with the assessee. Therefore, the investment made 11 by those companies with the assessee was established. On a similar issue, the Hon'ble Supreme Court, while dismissing the SLP in the case of CIT vs. Lovely Exports (P) Ltd. reported at 319 ITR (ST) 5 has held as under:
"Can the amount or share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961 ? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment."
7.1 On a similar issue, the Hon'ble Jurisdictional High Court in the case of Jaya Securities Ltd. vs. CIT [2008] 166 Taxman 7 (All), in para 4 to 8 observed as under:
"4. Learned counsel for the appellant submitted that no addition under section 68 could be made in respect of the subscription amount towards the share capital of a company limited by shares whether it is private or public and in support thereof a Division Bench decision of the Delhi High Court has been referred in the case of CIT vs. Steller Investment Ltd [1991] 192 ITR 287 which decision has been upheld by the Apex Court in the case of CIT vs. Steller Investment Ltd [2001] 251 ITR 263.
5. Shri R. K. Upadhyaya on the other hand submitted that the Delhi High Court had only declined to call for a reference on the ground that no question of law arises which order has been upheld by the Apex Court which does not benefit the appellant.
6. The submission of Shri R.K. Upadhyaya is not correct. The Delhi High Court while declining to call for reference had given the following reasons:
"It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital 12 be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose name shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.
7. The matter was carried by the revenue before the Apex Court in Civil Appeal No. 7668 of 1996. The Apex Court while dismissing the appeal had clearly held that "we are in agreement with the High Court". It clearly means that the reasoning given by the Delhi High Court reproduced above, stand confirmed by the Apex Court and, therefore, the principle which emerges is that no addition to section 68 can be made in the investment in the share capital of a company limited by shares whether public or private.
8. It may be mentioned here that the Apex Court had decided the Civil Appeal and had not passed the order while considering the Special Leave Petition. While deciding the Special Leave Petition, it may not have amounted to confirmation of the reasoning given by the Delhi High Court but as the Apex Court has decided the Civil Appeal expressing in agree- ment with the reasoning given by the Delhi High Court, it would amount to confirmation of the principles laid down by the Delhi High Court."
7.2 Similarly the Hon'ble Delhi High Court in the case of CIT vs. Windstral Petrochemicals (P) Ltd. [2010] 41 DTR (Del) 139, has held as under:
"The identity of the share applicants would be established if details of address or PAN card are 13 furnished to the Department along with the copies of shareholders' register, share application forms, share transfer register, etc. In this case, share application forms were duly produced before the AO and this is not the case of the Revenue that the AO had asked the assessee to produce shareholders' register and share transfer registers, but the assessee company had failed to do so, - CIT vs. Divine Leasing & Finance Ltd. [2007] 207 CTR (Del) 38: [2008] 299 ITR 268 (Del) followed."
7.3 It has further been held as under:
"The AO was not justified in adding the amount of share application money to the income of the assessee, merely because the applicants did not respond to the notices sent to them. If the AO so wanted, he could have found out the current address of those applicants, who, according to the report of the Inspector, were not found functioning at the address given to the AO, by summoning the directors, etc. of those companies and asking them to furnish the current address of the company. The names and addresses of directors, if not available with the assessee, could have been obtained from the office of RoC or from the banks on which the cheques were drawn. No such attempt, however, was made by the AO. In these circumstances, there is no reason found to disturb the finding of fact recorded by the Tribunal. - CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 relied on."
8. We, therefore, considering the judicial pronouncements in the aforesaid referred to case, are of the confirmed view that the learned CIT (A) was fully justified in deleting the addition made by the Assessing Officer."
9. Considering the entire facts and the circumstances of the present case, we agree with this observation of the ld.CIT(A) that in the instant case, the assessee has proved the identity of the shareholders, their creditworthiness 14 and also the genuineness of the transaction. It is seen that Shri Pankaj Kansal and Shri Himanshu Kansal are the directors of the company. They are separately assessed to tax. The third shareholder Smt.Anita Kansal is wife of Shri Pankaj Kansal, Director of the Company. Similarly, Smt.Anu Kansal is wife of another director Shri Himanshu Kansal. Smt.Anita Kansal and Smt.Anu Kansal are separately assessed to Income-tax. All the aforesaid shareholders are assessed at Meerut where assessee's assessment was made. Thus, in view of the ratio laid down by the Hon'ble Supreme Court in the case of Lovely Exports (P.) Ltd.(supra), the amount in question cannot be regarded as undisclosed income of the assessee under Section 68 of the Act. Accordingly, we hold that the appeal filed by the Revenue is devoid of any merit and deserves to be dismissed. We order accordingly.
10. Since we have confirmed the order of the ld.CIT(A) in deleting the addition of Rs.8,90,000, we, therefore, do not think it necessary to adjudicate the legal ground raised by the assessee in the Cross Objection. Even otherwise also, Shri Rakesh Garg, ld. Counsel for the assessee did not press for the ground raised in the Cross Objection.
11. In the result, the appeal of the Revenue and the Cross Objection by the assessee are dismissed.
The order pronounced in the open Court on 17.3.2011.
Sd. Sd.
(N.K.Saini) (H.L.Karwa)
ACCOUNTANT MEMBER VICE PRESIDENT
March 17th ,2011.
15
Copy to the :
1. Appellant 2. Respondent 3. CIT(A) (4) CIT 5.DR.
A.R.,ITAT, Lucknow.
Srivastava.