Income Tax Appellate Tribunal - Delhi
Well Worth Construction Udyog Ltd., New ... vs Department Of Income Tax on 25 June, 2010
1 ITA No. 4086/Del/2010
Asstt.Year: 2003-04
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `H' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.4086/Del/2010
Assessment Year : 2003-04
Income Tax Officer, vs M/s Well Worth Construction Udyog Ltd.,
Ward-18(3), 7, South Patel Nagar,
New Delhi. New Delhi-110008
(Appellant) (Respondent)
Appellant by: Shri Salil Agarwal, Shailesh Gupta
Respondent by : Shri Sameer Sharma, Sr. DR
ORDER
PER CHANDRAMOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the Revenue against the order of the Commissioner of Income Tax(A)-XXI, New Delhi dated 25.06.2010 in Appeal No.242/08-09 for AY 2003-04. Originally, the following grounds were raised by the revenue at the time of filing of appeal:-
"1. The ld. Commissioner of Income Tax(A) has erred on facts and in law by deleting the addition of Rs.1.65 crores made on account of share application money received by the assessee through accommodation entries, ignoring that:
(i) the creditworthiness of the share applicant to advance the huge amounts of share application money was not established and 2 ITA No. 4086/Del/2010 Asstt.Year: 2003-04
(ii) the nexus between the cash deposits in the bank accounts of the share applicants and the cheques issued by them to the assessee company as share application money was established.
2. The ld. Commissioner of Income Tax(A) has erred on facts and in law by deleting addition of Rs.1,18,50,000/- on account of cash deposits in the bank account of the assessee by ignoring and not deciding on merits the observations of the Assessing Officer in the assessment order and in the remand report that the assessee had no business receipts or other receipts during the year to support and establish the genuineness of cash deposits in the bank account."
2. Subsequently, the ld. DR submitted revised grounds of appeal on 13.1.2011. On the date of hearing i.e. 3.3.2011, the revenue filed following additional grounds:-
"The Ld CIT (A) has erred on facts and in law by deleting the addition of Rs 1.65 crores made under section 68 of the IT Act ignoring that:
i) The assessee company had repaid the share application money without allotting shares to the share applicants. Hence, this fact distinguish the present case from the case of Lovely Export Pvt.
Ltd (216 CTR 195) relied by the Ld CIT(A).
ii) The Assessing Officer has given a finding that amount of Rs 1.65 crore received by assessee was in the nature of unsecured loan rather than the share application money as claimed by the assessee, for which the credit worthiness of the creditors were not proved. Hence the addition was rightly made under section 68 of the Income Tax Act.
3 ITA No. 4086/Del/2010Asstt.Year: 2003-04
iii) The assessing officer has examined the bank a/c of the share applicants and has also noticed that the so called three share applicants had filed income declaring loss of Rs 3444/-, Rs 1022 and Rs 1122/- for the year under consideration. Hence the assessing officer had drawn a correct inference regarding creditworthiness of the M/s Richie Rich Pvt Ltd, M/s Goyal Textiles Industries Pvt Ltd and M/s Ankur Distributors Pvt Ltd."
3. We have heard both the parties on the issue of admissibility of additional grounds. Ld. DR submitted that at the time of filing of appeal, ground no.1 was raised pertaining to the deletion of addition of Rs.1.65 crore made by the Assessing Officer on account of share application money received by the assessee and the additional grounds are merely an elaboration of this ground to agitate all the issues related to this impugned addition made u/s 68 of the Income Tax Act, 1961. Ld. counsel of the assessee objected the admissibility of above additional grounds of the revenue and submitted that ground already placed at the time of filing of appeal is sufficient and there is no need of additional ground in this regard. The counsel of the assessee also submitted that the revenue is trying to submit facts of the issue in the form of additional grounds which is not permissible. On careful consideration of above submissions, we are of the view that the revenue has raised ground pertaining to addition of Rs.1.65 crore made by the Assessing Officer on account of share application money and additional grounds are merely an elaboration of this ground. The revenue wants to agitate 4 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 the issue on the legal and factual matrix of the case by submitting these additional grounds. We are of the opinion that although the additional grounds are description of facts and allegations of the revenue related to original ground no.1 of the revenue but these are necessary for proper adjudication of the issue contained in original ground no.1 of the revenue. Accordingly, additional grounds of the revenue are admitted as an extension and supportive to the original ground no. 1 of the revenue.
Original ground no.1 and additional ground no. (i), (ii) & (iii)
4. Apropos these grounds, ld. DR submitted that the Commissioner of Income Tax(A) has erred by deleting the addition of Rs.1.65 crore made on account of share application money received by the assessee during the year under consideration through accommodation entries. The DR further submitted that the Commissioner of Income Tax(A) ignored that the creditworthiness of the share applicants to advance the huge amount of share applicants money was not established and also the nexus between the cash deposits in the bank account of the share applicants and the cheques issued by them to the assessee company as share application money was established. The DR also pointed out that the assessee company had repaid the share application money without allotting any shares to the respective applicants, therefore, this fact distinguished the present 5 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 case from the case of Lovely Export Pvt. Ltd. 216 CTR 195 (SC) on which the Commissioner of Income Tax(A) relied while granting relief for the assessee.
5. The DR also contended that the Assessing Officer has rightly given a finding that the amount of Rs.1.65 crore received by the assessee was in the nature of unsecured loan for which creditworthiness of the creditor could not be proved by the assessee, hence, the Assessing Officer rightly made the addition u/s 68 of the Act. The DR vehemently contended that after careful examination of the bank account of the share applicants, the Assessing Officer noticed that the so-called three share applicants had filed return of income declaring a loss of Rs.3,444/-, Rs.1022/- and Rs.1122/- for the year under consideration. Therefore, the Assessing Officer had drawn a correct negative inference regarding creditworthiness of so-called share applicants namely M/s Richie Rich Overseas Pvt. Ltd., M/s Goyal Textile Industries Pvt. Ltd. and M/s Ankur Distributors Pvt. Ltd.
6. The DR supported the assessment order and submitted that the Commissioner of Income Tax(A) deleted the impugned addition without any basis and cogent material and wrongly held that once the identity of share applicants is proved, no addition can be made in the hands of assessee even if the share applicants have been found to be persons of no means until and unless it is otherwise proved by the revenue. The DR supported the assessment order and submitted that the 6 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 Commissioner of Income Tax(A) wrongly held in the impugned order that the revenue could not prove that the money received by the assessee in the form of share application money has come from its own sources. The ld. counsel of the assessee drew our attention towards the decision of Hon'ble Delhi High Court in the case of Sarthak Securities Ltd. 329 ITR 110 (Del) and submitted that when the names of the companies which granted share application money were available with the Assessing Officer and their legal existence was not disputed by the Assessing Officer, and further when the share applicant company had bank accounts and the payments were made to the assessee through banking channels and the identity of the companies were not disputed, then addition u/s 68 of the Act is not sustainable. The counsel also placed reliance on the decision of Hon'ble Apex Court in the case of Lovely Export Pvt. Ltd. (supra) wherein it has been held as under:-
"2. Can the amount of share money be regarded as undisclosed income under section 68 of the 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 the 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 ITA No. 4086/Del/2010 Asstt.Year: 2003-04
7. In the case in hand, the Assessing Officer made impugned addition u/s 68 of the Act with following observations and findings:-
"Although the receipts of share application money of Rs.1.65 crores was through banking channels, this fact by itself is not sufficient to proof the genuineness of the persons who gave the share application money or their creditworthiness. A perusal of the bank accounts of the three share applicant parties M/s Richie Rich Overseas Pvt. Ltd., M/s Ankur Distributors Pvt. Ltd. and M/s Goyal Textiles Pvt. Ltd. reveal as well as prove that they are mere conduits utilized by the entry-operators for providing bogus accommodation entries to interested parties. The balances in their bank accounts are very low on a given date after which substantial amounts are deposited either by cheques or by cash to increase the balance but invariable within a day or two the same is withdrawn or transferred to some other account bringing the balance down. The process is repeated over and over again many many times although the P&L Mc of the assessee reveals no business activity worthy of mention. The copies of income tax returns of the share applicant Mis Richie Rich Pvt. Ltd. reflects a loss of Rs. 3444/-. There is no business activity in this company at all and the loss of Rs. 3444/- is due to claims of certain statutory expenses. Same is the case with M/s Ankur Distributors Pvt. Ltd. which has a loss of Rs.1022/- and M/s Goyal Textile Industries Pvt. Ltd. which has a loss of Rs. 1122/-. The three share applicants in this case do not have any source of income of the stature that would enable them to give large amounts of share application money as has been given by them to the assessee company. The onus to prove their creditworthiness squarely lay on the assessee but it has totally failed to discharge the onus cast on it. In these circumstances there is no alternative left than to draw an adverse 8 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 inference regarding the creditworthiness of the three share applicants.
The plea of the assessee that it has not allotted any share to the applicants and had refunded the same either during that year or in the subsequent year also does not give any leverage to the assessee. The important issue is whether any benefit has been derived or not from the share application money so received. It is seen that the share application money under consideration has been received by the assessee on various dates mostly during December 2002 barring two cheques one of which is dated 18.11.2002 and another which is dated 15.02.03. The share application money received has been utilised along with other funds to give loans and advances to several parties as apparent from the narrations given in the copies of bank statements of the assessee of Current Account No. 530011003562 maintained in ING Vysya Bank Ltd., Karol Bagh, New Delhi which was submitted during the original scrutiny assessment proceedings vide letter dated 05-12-05. The opening balance for the year of loans and advances was Rs. 1,61,30,000/- and the closing balance was Rs. 8,94,55,000/- as per the Balance Sheet of the assessee. Thus the assessee has derived substantial benefit from the share application money received by it from the three share applicants even though the same has been refunded by it without allotting any share to them. Even though the nomenclature given by the assessee to the money concerned is share application money, the same is more in the nature of an unsecured loan given without interest which was received and returned while making planned use of it notwithstanding the applications for allotment of shares. So benefit has been derived from the share application money that has been received only through accommodation entries since the creditworthiness of share applicants have not been proved. In view of the above facts the amount of Rs.9 ITA No. 4086/Del/2010 Asstt.Year: 2003-04
1,65,00,000/- is being added to the income of the assessee under section 68 of the Income Tax Act. Since it is clear that there is concealment of income by furnishing of inaccurate particulars thereof initiation of penalty proceedings under section 271(1)(c) is called for on this issue."
8. During the first appellate proceedings, the Commissioner of Income Tax(A) considered the detailed submissions of the assessee and the remand report was called from the Assessing Officer on the detailed documentary evidence submitted by the assessee. In the remand report, the Assessing Officer objected the admissibility of detailed additional evidence but the Assessing Officer admitted that the assessee received share application money through banking channels. The Commissioner of Income Tax(A) granted relief for the assessee with following observations and findings: -
"The Hon'ble Delhi High Court vide ITA No. 463/2010 in the case of CIT Vs Suntech Vision Ltd. has held that:
"This appeal by the revenue is directed against the order of the Income-tax Appellate Tribunal dated 15.12.2008 in relation to the A.Y. 04-05 arising out of ITA No. 3511/Del/2007. The point in issue is with regard to investments of about Rs. 49.00 lakhs made by four companies in the assessee company. The said amount of Rs. 49.00 lakhs was received by way of share application money.
'The AO held the same to be unexplained income of the assessee under section 68 of the Income-tax Act, 1961. However, in appeal, the CIT(A) 10 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 held in favor of the assessee and allowed the assessee's appeal by holding that the assessee had produced the PAN numbers, confirmatory letters, returns of income, etc. in respect of the parties who had made the said investments. Therefore, the Commissioner of Income-tax (A) had come to the conclusion that the preliminary onus, which was upon the assessee, had been discharged by him. Consequently, the addition made by the Assessing Officer stood deleted. The Income tax Appellate Tribunal, in the appeal preferred by the revenue, confirmed the order passed by the Commissioner of Income tax(A) and found that the said share application money was substantiated by the assessee by providing all the necessary details as indicated above. The two authorities below, on findings of fact, held that the assessee was not liable tot any addition on account of the said share application money. We see no reason to interfere with the said findings".
In the case of CIT Vs Dwarkashis Financial Services Pvt. Ltd vide ITA No. 439/2010 has held that:-
This is an appeal against the order dated 12.09.2008 passed by the Income tax Appellate Tribunal in ITA No. 82/0/06 for the assessment year 2001-02. The Assessing Officer had made the addition of Rs. 45 lakhs as unexplained investment on account of share application money received by the assessee.
The Commissioner of Income tax (Appeals) as well as the Income tax Appellate Tribunal, after examining the case on facts as well as on law, deleted the said addition. The Income tax Appellate Tribunal has specifically noted amongst other things that the appellant has produced confirmation letters from the share applicants, the payments had been received through account payee cheques and, that too, from the applicant's accounts. The applicants were all registered companies and their identities were clearly 11 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 established. It is in these circumstances that the Commissioner of Income tax (Appeals) as well as the Income tax Appellate Tribunal deleted the addition made by the Assessing Officer. Consequently, we see no reason to interfere with the findings recorded by the Tribunal"
In the instant case no evidence has been brought on record by the AO to prove that the share application money emanated from the coffers of the applicant. The AO has not made any enquiries from the concerned parties nor did he examine the assessment records of the share applicants.
Relying on the various documents placed on record and the principle laid down by the Hon'ble Supreme Court in the case of M/s Lovely Export Pvt. Ltd. which is directly on the issue of share capital and in view of the decisions cited above, the addition on account of share capital cannot be sustained. The AO has nowhere proved that documents in support of the identity of the parties have not been placed on record or they were forged documents. The AO also has not brought any evidence on record regarding the facts that the share applicants were not creditworthy or genuine, despite the fact that their PAN and copies of I.T. Return were submitted by the appellant. After considering the facts on record, judicial pronouncements of the jurisdictional High Court and Hon'ble Supreme Court it can be concluded that the appellant has undoubtedly proved the identity of the share applicant. Once the identity of these share applicants is proved, no addition can be made in the hands of the appellant even if the share applicants have been found to be persons of no means until and unless it is otherwise proved by the revenue. The revenue could not prove that the money received by the appellant in the form of share application money has come from its own sources.12 ITA No. 4086/Del/2010 Asstt.Year: 2003-04
In view of the discussion made above the addition of Rs. 1.65 crores is deleted. However the AO is, free to take appropriate action as may be permissible under the law in the case of various shareholders alleged to be entry providers."
9. In view of above observations and findings of the Commissioner of Income Tax(A) in the impugned order, we clearly observe that the disputed share application money was received through banking channels and names, address, PAN Nos. supported by confirmation, copies of bank account, copies of application for return of shares, copies of annual accounts of share applicants, copies of return of income of share applicants and affidavits of the office bearers of the applicant companies were submitted before the revenue authorities and all these details were confronted to the Assessing Officer. From careful perusal of the remand report and the assessment order, we are unable to see any finding of fact that the assessee company routed or used its own money through said share applicant's company. In the present case, the Commissioner of Income Tax(A) has rightly held that no evidence has been brought on record by the Assessing Officer to prove that the share application money emanated from the coffers of the assessee and the Assessing Officer has not made any inquiries from the concerned authorities nor did he examine the assessment record of the share applicants. In this situation, the Commissioner of Income Tax(A) rightly relied and followed the decision of Hon'ble Apex Court in the case of C.I.T. vs Lovely 13 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 Export P. Ltd.(supra). We also observe that the Assessing Officer has nowhere proved that the documents in support of the identity and creditworthiness of the share applicants have not been placed on record or they were found as forged documents in the course of verification. In the assessment order and remand report, the Assessing Officer has not brought any evidence regarding the fact that the share applicants were not creditworthy or genuine despite the fact that the PAN Nos. and the copies of the income tax returns were submitted before the Assessing Officer by the assessee. In this situation, when the identity of the share applicants is proved by the assessee and the Assessing Officer has not brought any adverse material or fact against the share applicants, then no addition can be made in the hands of appellants. We hold that the Assessing Officer could not prove that the money received by the assessee from alleged three companies in the form of share application money had come from the own sources of the assessee. In this situation, we are unable to see any perversity, infirmity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A). Accordingly, ground no.1 and additional ground no. (i), (ii) and (iii) being devoid of merits are dismissed.
Ground no. 2 of the revenue
10. Apropos ground no.2, ld. DR submitted that the ld. Commissioner of Income Tax(A) has erred on facts and in law by deleting addition of 14 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 Rs.1,18,50,000/- on account of cash deposits in the bank account of the assessee by ignoring the observations of the Assessing Officer that the assessee had no business receipts or other receipts during the year to support and establish the genuineness of cash deposits in the bank account. The DR supported the assessment order and submitted that when as per Profit and loss account of the assessee, its income and receipts are nil and the assessee has not carried out any business during the year, there was no increase in the share capital but the same was not received in cash and the opening and closing balance of the current liabilities have remained the same, then in these circumstances, the amount found deposited in cash to the bank account of the assessee was rightly added to the income of the assessee u/s 68 of the Act. The DR forcefully contended that since there was no explained source from which the assessee had received the disputed cash deposits found in its bank account, then the Assessing Officer rightly made an addition in this regard because there was a clear concealment of income and furnishing of inaccurate particulars of income by the assessee.
11. Replying to the above, ld. counsel of the assessee pointed out that the copies of the replies before the Assessing Officer (page no. 19 to 74), copies of ledger and cash book (PB page no. 75-76), copy of bank statement related to financial year (PB page no. 77 to 86), copies of the submission before the Commissioner of Income Tax(A) dated 08.02.2009 (PB page no. 87-92), copy of 15 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 remand report of Assessing Officer dated 23.04.2010 (PB page 93-98), copy of submissions before the Commissioner of Income Tax(A) dated 26.05.2010 (PB page 99-177) and copies of last submissions before the Commissioner of Income Tax(A) (PB 178-193). The counsel of the assessee submitted that the disputed cash deposits were made out of cash withdrawals made from the same bank on earlier occasions and as per remand report, the Assessing Officer was satisfied about the source of cash deposited in the bank account of the assessee. The Commissioner of Income Tax(A), after consideration of details and evidence submitted by the assessee, remand report of the Assessing Officer and rejoinder and submission of the assessee, held that the conclusion of the Assessing Officer in the reassessment order appears to be unilateral and no explanation of the assessee was called in respect of alleged cash deposits. From careful perusal of the remand report available on Paper Book page No. 93-98, we also observe that the Assessing Officer has not commented adversely in respect of explanation furnished by the assessee pertaining to the cash deposits found during the financial year in the bank accounts of the assessee. The Commissioner of Income Tax(A) rightly held that when the balance matches with the balance sheet and cash book, no addition u/s 68 of the Act is sustainable and the Commissioner of Income Tax(A) rightly deleted the same. Accordingly, we are unable to see any 16 ITA No. 4086/Del/2010 Asstt.Year: 2003-04 valid reason to interfere with the impugned order in this regard. In this situation, ground no. 2 of the revenue is also dismissed.
12. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 20/12/2013.
Sd/- Sd/-
(G.D. AGRAWAL) (CHANDRAMOHAN GARG)
VICE PRESIDENT JUDICIAL MEMBER
DT. 20th DECEMBER 2013
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T. 5. DR
By Order
Asstt.Registrar