Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income Tax vs Gvs Investments (P) Ltd. on 22 June, 2004
Equivalent citations: (2005)92TTJ(DELHI)706
ORDER
N.V. Vasudevan, J.M.
1. This is an appeal by the Revenue against the order dt. 18th Jan., 1999, of the CIT(A)-I, New Delhi, relating to the asst. yr. 1995-96. The grounds of the appeal of the Revenue read as follows :
"On the facts and in the circumstances of the case, the CIT(A) has erred both on facts and in law in deleting the addition of Rs. 1 lakh made under Section 68 on account of unexplained share application money introduced in the name of M/s Shri Balaji Portfolio (P) Ltd.
(i) despite the fact that the AO had clearly established that the above creditor was a benami company of Shri KG Hazarika;
(ii) despite the fact that Shri KC Hazarika had admitted in his statement before the IT authorities that he was the real controller of the above company, that he only provided the above entries on commission basis to the assessee, that advance given by the above company was a bogus and sham transaction, and that the above company acted as a conduit to plough back the money of the assessee-company in the garb of advances;
(iii) despite the fact that the statement of Shri KC Hazarika constituted a clinching evidence against the assessee."
2. The assessee is a company which derives income from the business of purchase and sale of shares and interest income. During the previous year, the company had raised share capital by issue of shares to the extent of Rs. 31 lakhs. A sum of 1 lakh was invested in the share capital of the company by one M/s Shri Balaji Portfolio (P) Ltd. (M/s SBPPL). It appears that the AO received certain information from the office of the DI (Investigation) concerning a search conducted on 27th April, 1994, at the business and residential premises of the Hazarika group of concerns. One Shri KC Hazarika in his statement recorded in the course of such search admitted that he was a broker who used to arrange for adjustment entries for fake/bogus purchases, loans, transfers, etc., and this business is done by him and his associates. It was also stated by him that he had floated many limited companies, proprietary concerns and these were managed by him though these companies on paper were managed by his employees who act only on his instructions. The name of M/s SBPPL, was also mentioned by him in his statement as his benami company. He had further stated in his statement that whatever transactions were done by him or through his benami companies/firms did not involve any real transactions and any loans which were given by his benami companies were not genuine, and that the party to whom loans were given would pay him cash and an account payee cheque would be issued by him in favour of the party who pays cash. He also affirmed that there was no physical transaction but only adjustment entries were made.
3. The AO who was in possession of the above information called upon the assessee to show cause as to why the amount of Rs. 1 lakh invested as share capital by M/s SBPPL be not treated as assessee's income under the provisions of the Section 68 of the IT Act. In response, the plea of the assessee before the AO was that M/s SBPPL is a company which has been duly incorporated under the Companies Act and that on such incorporation, it is considered to be a person in the eye of law, It was also contended that the identity of the creditor having been established by the assessee, no addition can be made under Section 68. The assessee in this regard relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Sofia Financial Ltd. (1994) 205 ITR 98 (Del), wherein the Hon'ble Delhi High Court had held that in the case of a limited company the amount found credited in the books of account towards the receipt of share capital can not be treated as income of the limited company under Section 68 of the Act if the assessee establishes the identity of the shareholder and the fact that such shareholder has invested the money in purchase of the shares. It is not in dispute that the consideration paid by M/s SBPPL towards investment in share capital was by account payee cheques.
4. The AO however rejected the contentions putforth by the assessee. According to the AO, the fact that the company was incorporated and that one cannot look beyond the corporate veil cannot be accepted. According to him, the corporate veil can be lifted or pierced where public interest is of paramount importance or where the company has been formed to evade obligations imposed by law. In this regard the AO has referred to several judicial precedents. The AO thereafter concluded that M/s SBPPL was nothing but a benami of Shri Hazarika. Since Shri Hazarika in his statement accepted the fact that the credits given by any of his companies were bogus credits and that cash had been received by these companies from the person in whose favour cheques were given as loans or investments, the investment by SBPPL in the share capital of the assessee was to be considered as unexplained and added as assessee's income under Section 68 of the Act. Thereafter, the AO referred to several judicial decisions rendered under Section 68 of the IT Act and finally concluded that the assessee failed to establish the identity of the shareholder, capacity of the shareholder and genuineness of the transaction.
5. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The contentions of the assessee before the CIT(A) were as follows :
(a) That the AO relied upon the statement of Shri Hazarika which was recorded in some other case. It was also contended that neither the directors of SBPPL nor its shareholders were examined by the AO before coming to a conclusion that the company M/s SBPPL is benami of Hazarika.
(b) It was also contended that without confronting the statement of Mr. Hazarika to the assessee and providing an opportunity to cross-examine him, the AO was not entitled to draw any adverse inferences.
(c) The assessee relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Sofia Finance Ltd. (supra) and contended that the fact that M/s SBPPL was duly incorporated and was a company registered with the Registrar of Companies having been accepted by the AO, the primary onus of proving the identity of the shareholder had been established by the assessee and, therefore, the AO was not right in making addition under Section 68 of the Act.
The CIT(A) found that the company of M/s SBPPL had been duly incorporated under the Companies Act and this fact had not been disputed by the AO. The fact that this company was regularly assessed to tax and that regular returns were being filed by them was also not denied by the AO. The CIT(A) was of the view that on the material available the assessee had established the identity of the shareholder since confirmation letters and assessment orders of M/s SBPPL records were filed by the assessee. The existence of company having not been denied by the AO the onus which lay on the assessee was duly discharged. Applying the ratio laid down by the Hon'ble Delhi High Court in the case of Sofia Finance Ltd. (supra), the CIT(A) held that the addition made by the AO under Section 68 of the Act was not proper. He also held that the AO failed to establish that the shareholders of SBPPL were not in existence and also the fact as to who are the real beneficiaries of SBPPL or the SBPPL was the Benami of Hazarika.
6. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us. We have heard the submissions of the learned Departmental Representative as well as learned counsel for the assessee. The learned Departmental Representative drew our attention to the order of the assessment and submitted that in the light of clear statement of the Hazarika in the course of search it was evident that SBPPL was the benami of Hazarika. Further, statement of Hazarika that whatever transactions done by benami company were not genuine transactions and that they were the transactions done by Hazarika for a commission/brokerage and the fact that cash was taken prior to the issue of cheques in the case of loans given by his benami companies was enough evidence for the AO to come to the conclusion that the credits were not genuine. He also submitted that the AO was justified in lifting the corporate veil and coming to a conclusion that an addition under Section 68 was called for. The learned counsel for the assessee, on the other hand, while relying on the order of the CIT(A) placed strong reliance on the Hon'ble Delhi High Court decision in the case of Sophia Finance Ltd. (supra). He also emphasised the fact that at no point of time Shri Hazarika was stated to be connected as a director or shareholder of the assessee-company. In such circumstances, it was submitted that the conclusions of the CIT(A) do not call for any interference. It was also argued that the statement of Hazarika was not specifically confronted to the assessee and the same was used in violation of the principles of natural justice. It was submitted that no opportunity of cross-examination of Hazarika was ever afforded to the assessee nor were statements of directors and shareholders of SBPPL recorded by the AO. In reply, the learned Departmental Representative submitted that whatever lapses were there on the part of the AO while making order of assessment can be remedied by remitting the issue to the file of AO for fresh consideration and affording an opportunity to the assessee for cross-examination, and also examine the directors and shareholders of SBPPL.
7. We have considered the rival submissions. It is not in dispute that the ascessee-company in discharge of its onus to prove the genuineness of the credit found recorded in its books of account, filed confirmation from the shareholder, viz., SBPPL. The assessee also filed a copy of the assessment order for the asst. yr. 1993-94 of M/s SBPPL. There was a search in the case of Hazarika group of concerns and in the course of such search a statement was given by Shri KC Hazarika, the details of which we have referred to earlier. The AO merely informed through notice under Section 143(2) about the statement in the case of Shri Hazarika group and called upon the assessee to show cause as to why an addition under Section 68 of the IT Act should not be made. The plea of the assessee was that SBPPL was a company duly incorporated under the Companies Act and that moneys were received by the assessee by cheques from this company. Thereafter, the AO has proceeded to discuss various judicial decisions and has finally concluded that the assessee failed to prove the identity of the creditors and genuineness of the transaction. This in our view was not a proper approach. It is not in dispute that neither the statement of Hazarika was furnished to the assessee nor was Shri Hazarika produced for cross-examination in the assessment proceedings. Even in the course of search, neither the directors or shareholders of SBPPL were examined. In the circumstances we do not think that there can be any basis for coming to a conclusion that Hazarika was a benami of SBPPL. If this basic fact does not stand established, we do not think that much credence can be placed on the statement of Hazarika that they are engaged in the business of providing credit entries for commission to various persons. Apart from the above, the company SBPPL was duly incorporated under the Companies Act. The amount in question was received by the assessee by account payee cheques. In the absence of any material to suggest that SBPPL was a sham or nominal company or Benami of Hazarika it is not possible to disregard the corporate personality. It has been laid down by the Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra) that the provisions of Section 68 of the Act are attracted even in the case where an incorporated company claims it has issued shares and received share application money and had credited such receipts in its books of account as share capital. The decision further lays down that if the shareholders are identified and it is established that they have invested the money in the purchase of shares then the amount received by the company should be treated as a capital receipt and no further enquiry needs to be carried out. In the facts of the present case, we are satisfied that the assessee had duly discharged its onus to the extent mentioned in the decision of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra). We, therefore, hold that the CIT(A) was justified in directing the AO to delete the addition made by him under Section 68. The order of the CIT(A) does, not call for any interference and the same is confirmed.
8. This appeal by Revenue is dismissed.