Income Tax Appellate Tribunal - Delhi
M/S Zirakpur Estate Pvt. Ltd.,, New ... vs Ito, New Delhi on 23 August, 2017
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ITA.No.6546/Del./2016 M/s. Zirakpur
Estate P. Ltd., Delhi.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "SMC" : DELHI
SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA.No.6546/Del./2016
Assessment Year 2005-2006
M/s. Zirakpur Estate Pvt. Ltd.,
B-4, Satya Tower, 36, vs. The Income Tax Officer
Commercial Complex, Ward-18(4)
Wazipur, Delhi - 110 052. New Delhi.
PAN AAACZ2274N
(Appellant) (Respondent)
For Assessee : Shri Ashish Goel, C.A.
For Revenue : Shri T. Vasanthan, Sr. D.R.
Date of Hearing : 16.08.2017
Date of Pronouncement : 23.08.2017
ORDER
This appeal by assessee has been directed against the order of the Ld. CIT(A)-22, New Delhi, dated 20th October, 2016 for the A.Y. 2005-2006.
2. Briefly the facts of the case are that the assessee filed return of income under section 139 of the Act on 20th October, 2005 declaring income at Rs.11,201. It was processed under section 143(1). Subsequently, an information was received from investigation wing regarding accommodation entries taken by assessee of Rs.5 lakhs each from two companies viz., M/s. Mehul 2 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
Finvest P. Ltd., and M/s. Avail Financial Services P. Ltd., through their bank accounts in Kotak Mahindra Bank and ABN Amro Bank. The accommodation entry racket was operated by Shri Surendra K. Jain and Shri Virendra K. Jain who were searched under section 132 of the Act. The above two companies were amongst several paper companies controlled and operated by Shri Surendra K. Jain and his brother. These were approximately 100 entities. The accounts of such entities were maintained at the residential and business premises of Shri Surendra K. Jain and his brother. During the course of enquiries by investigation wing including search/survey, date-wise, month-wise cash book details of fund transfer, names of middlemen involved and evidence of commission payment at Rs.1.75% of the accommodation entries were found and seized. One of the middlemen Shri Rajesh Aggarwal had admitted to have engaged accommodation entries through Shri Surendra K. Jain and his brother Shri V.K. Jain through various paper companies for several beneficiaries. The companies did not have proper registered office and operate from small rooms. In the bank accounts of some of the paper companies, mobile numbers of these persons have been provided for mobile banking. A.O. noted 3 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
some of the details in the assessment order. The Auditor Shri Sudipto Mukherjee whose name appeared in the audited accounts of M/s. Mehul Finvest P. Ltd., denied having audited accounts of the said company and has stated on oath that his signatures were forged. In the case of M/s. Avail Financial Services P. Ltd., the Auditor Shri Rupal Jain stated on oath that his signatures were missing on the page containing details of unquoted investment by M/s. Avail Financial Services P. Ltd., which convey that the corresponding page in the audited accounts was replaced.
3. In view of the above background and on the basis of above information, A.O. recorded the reasons for issuing of notice under section 148of the I.T. Act to the assessee. The reasons are reproduced in the impugned order. Copy of the reasons were supplied to the assessee. However, no objection have been filed by the assessee. The A.O. issued show cause notice as to why addition of Rs.10 lakhs in respect of share capital receipts from the above two companies be not added under section 68 of the I.T. Act. The assessee filed reply which is reproduced in the impugned orders in which the assessee briefly explained that 4 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
assessee-company was incorporated by Assistant Registrar of Companies NCT of Delhi and Haryana with the main objects of doing business of real estates. The details of promoters/directors were furnished. The share holder companies subscribed share capital of the assessee-company and shares have been allotted which have been received by them. The subscriber companies made payments through account payee cheques which are taken in the books of account. No cash was deposited in the bank accounts of the subscribers. Assessee has not given any cash for taking these cheques, copies of subscriber's bank statements have been placed on record. Both the above subscribers has sufficient funds with them and have also filed confirmations along with Board resolution and copy of their certificates along with copy of Memorandum of Articles of Association. Copies of their audited accounts are also placed on record. The assessee also produced report of Registrar of Companies, Delhi of both the above subscriber company along with their accounts. It was, therefore, explained by assessee that assessee-company has proved the identity of the subscriber companies, their creditworthiness and genuineness of the transaction. During the year assessee-company has also received share application 5 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
money from other companies which have not been doubted. No accommodation entries have been received by the assessee.
4. The Ld. CIT(A) noted in the impugned order that assessee filed confirmation of both the subscriber companies along with their bank statements, PAN and accounts. However, A.O. did not accept the contention of assessee and made addition of Rs.10 lakhs. The same contentions were made before Ld. CIT(A). According to the assessee, these documents were filed before A.O. but have not been considered by A.O. Therefore, these documents were referred to the A.O. for filing his report and case records to verify documents. However, the A.O. did not file any report before Ld. CIT(A) on these submissions and evidences furnished by the assessee. The Ld. CIT(A) therefore, noted that these documents/papers have been filed before A.O.
5. The Ld. CIT(A) on the basis of report of investigation wing and other material, confirmed the reopening of the assessment. The Ld. CIT(A) also noted that no business activities have been conducted by assessee during assessment year under appeal and that vide order sheet dated 19th October, 2016, assessee was asked whether he can produce Directors of both the 6 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
creditor companies, if the matter is remanded to the A.O. However, the assessee submitted that it may not be possible due to lapse of time as shares have now been bought back. The Ld. CIT(A) heard the appellant and passed the order on the next day on 20th October, 2016 because the assessee has expressed inability to produce the Directors of both the companies. The Ld. CIT(A) relied upon the decision of Delhi High Court in the case of Nova Promoters and Finlease P. Ltd., 342 ITR 169 and confirmed the addition and dismissed the appeal of assessee.
6. As regards the commission payment of Rs.17,500, the Ld. CIT(A) dismissed this ground of appeal of assessee because of the main addition of Rs.10 lakhs has been confirmed. The appeal of assessee has been dismissed.
7. I have heard the Learned Representatives of both the parties and perused the material on record. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that assessee furnished detailed documents and evidence before A.O. to prove the genuineness of share application money received. In the case of Mehul Finvest P. Ltd., assessee furnished copy of the acknowledgment of return of 7 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
income along with audited accounts and bank accounts, copy of the application for shares, bank account, audited statements and copy of the confirmation of shares, Board resolution, copy of share certificates, copy of receipt of shares along with Memorandum of Articles of Association were filed. In the case of M/s. Avail Financial Services P. Ltd., similar documents were filed before A.O. In this case, even the A.O. asked for information under section 133(6) from this party directly, copy of which is filed at page No.103 of the paper book and copy of the reply of the subscriber is filed at page 104 in which they have confirmed the investment in the assessee company. All the documents like ledger account of assessee, bank statement, audited accounts, acknowledgment of return, share certificates, confirmation of shares, along with Board resolution were filed directly before A.O. in response to letter under section 133(6) of the Act. Learned Counsel for the Assessee therefore, submitted that since assessee produced sufficient evidence before A.O. which have not been examined by the A.O, no addition could be made against the assessee. He has relied upon the decision of Delhi High Court in the case of CIT vs. Fair Finvest Ltd., (2013) 357 ITR 146 (Del.) (HC)in which it was held as under :
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ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
"8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidences in support of the share application monies, it is open to the A.O. to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd., (supra) relied upon by the Revenue.
We are therefore not to be understood to convey that in all cases of share capital added under section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material.
No substantial question of law arises."
7.1. He has also submitted that appeal is for A.Y. 2005-06 and the Ld. CIT(A) asked to produce the Directors of these companies in October, 2016. Therefore, it was practically impossible for the assessee to produce the Directors of subscriber companies when the shares have already been bought back. He has relied upon the decision of Delhi High Court in the case of CIT vs. Victor Electrodes Ltd., (2010) 329 ITR 271 (Del.) (HC). 9
ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
8. On the other hand, Ld. D.R. relied upon the orders of the authorities below and also relied upon the order of ITAT, Delhi Bench in the case of M/s. SBS Properties and Finvest P. Ltd., in ITA.No.378/2008 dated 30th May, 2016.
9. I have considered the rival contentions and material available on record. It is not in dispute that assessee produced all the above evidences before A.O. at assessment stage to prove the identity of the share applicants, their creditworthiness and genuineness of the transaction. Both the subscriber companies are assessed to tax and have made investment in assessee company through banking channel. Both are registered companies and no cash was found to have deposited in their accounts before making investment in assessee-company. Both the subscribers have filed their confirmations before A.O. to confirm the investment in assessee-company, supported by Board resolution and shares which have actually been allotted. The assessee also filed their audited accounts and report of the Registrar of Companies, Delhi. In the case of M/s. Avail Financial Services P. Ltd., the A.O. even called for information under section 133(6) of the I.T. Act and the subscriber company 10 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
confirmed making investment in assessee-company supported by all the above documents. The authorities below merely going through the report of investigation wing presumed that assessee has received accommodation entry. The Ld. CIT(A) also wanted to verify from the A.O. at appellate stage whether these documentary evidences have been filed at assessment stage after verifying the record but the A.O. did not file any remand report before Ld. CIT(A). If the A.O. wanted to rely on the report of investigation authorities, the A.O. should have made some meaningful enquiries to establish the link between the assessee and the alleged accommodation provider. Therefore, in the absence of any link of the assessee with the accommodation provider, it is difficult to sustain the addition. The A.O. did not make any effort to verify the documentary evidences filed by assessee. Therefore, the decision of the Delhi High Court in the case of Fair Finvest Ltd., (supra) squarely apply to the facts of the case. It may be noted here that the A.O. at the assessment stage did not ask the assessee to produce the Directors of both the companies for examination and also did not make any attempt to verify the facts from both the Directors of the aforesaid subscriber companies. The Ld. CIT(A) vide order sheet dated 19th 11 ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
October, 2016 asked the assessee whether it can produce the Directors of both the above companies. The assessee therefore, rightly submitted that due to lapse of time it was not possible to produce the Directors of both the companies and as shares have also been bought back. The assessment year under appeal is 2005-06. Therefore, after lapse of period of 11 years, it would be difficult for the assessee to produce the Directors of these companies at appellate stage. The Hon'ble Delhi High Court in the case of CIT vs. Victor Electrodes Ltd., (supra) held that "there was no legal obligation on the assessee to produce some Directors or other representative of the assessee company before A.O. Therefore, failure of the assessee to produce them could not by itself have justified the addition made by the A.O, when the assessee had furnished documents on the basis of which, the A.O., if he so wanted, could have summoned them for verification."
10. Since, in this case, no attempt have been made by the A.O. to verify the facts from the subscriber company, he has merely rejected the documentary evidence filed by the assessee. Therefore, no fault could be found with the explanation of the assessee.
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ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
11. In the case of M/s. SBS Properties and Finvest P. Ltd., (supra), relied upon by the Ld. D.R., the Tribunal held that the assessee had not discharged the burden of proof that lay out on it, to prove the genuineness of these credits as well as the creditworthiness of the share application companies.
12. Since, in the present case, assessee has proved the identity of both the share applicants companies, their creditworthiness and genuineness of the transaction, therefore, this decision would not apply to the facts of the case.
13. In view of the above discussion, I hold that since the assessee has proved the identity of the share applicants, their creditworthiness and genuineness of the transaction in the matter, therefore, addition cannot be sustained. I, accordingly, set aside the orders of the authorities below and delete the addition of Rs.10 lakhs.
14. The Ld. CIT(A) confirmed the addition of the commission addition of Rs.17,500 because the addition of Rs.10 lakhs was confirmed. Since, I have deleted the addition of Rs.10 lakhs, therefore, the addition of Rs.17,500 is also deleted. Both these grounds of appeals of the assessee on merit are allowed. 13
ITA.No.6546/Del./2016 M/s. Zirakpur Estate P. Ltd., Delhi.
15. The assessee also challenged the reopening of the assessment in the matter. Since both the main additions have already been deleted, therefore, this issue is left with academic discussion only and as such there is no need to adjudicate upon this issue.
16. In the result, appeal of assessee is allowed.
Order pronounced in the open Court.
Sd/-
(BHAVNESH SAINI) JUDICIAL MEMBER Delhi, Dated 23rd August, 2017 VBP/-
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT "SMC" Bench, Delhi
6. Guard File // Asst. Registrar // ITAT : DELHI BENCHES :
DELHI.