Income Tax Appellate Tribunal - Delhi
A G Holdings Pvt. Ltd., Noida vs Assessee on 29 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'A' : NEW DELHI)
BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
and
SHRI A.T. VARKEY, JUDICIAL MEMBER
ITA No.5700/Del./2013
(ASSESSMENT YEAR : 2004-05)
M/s. A.G. Holdings Pvt. Ltd., vs. ITO, Ward 1 (2),
5 - A/12, Ansari Road, New Delhi.
Daryaganj,
New Delhi.
(PAN : AADCA6959N)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Salil Aggarwal, Advocate and
Shri Shailesh Gupta, CA
REVENUE by : Shri Manoj Chopra, Senior DR
ORDER
PER A.T. VARKEY, JUDICIAL MEMBER :
This is an appeal filed by the assessee against the order of the CIT (Appeals)-IV, New Delhi dated 26.8.2013.
2 The grounds raised by the assessee are as under:
"1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the action of assessing officer in initiating the proceedings under section 147 of the Act and completion of assessment under section 143(3)/147 of the Act without satisfying the statutory pre-conditions as envisaged under the Act.
2 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in sustaining an addition of a sum of 2 ITA No.5700/Del/2013 Rs. 4,50,000/- being amount received from M/s Quality Security Services (P) Ltd. as share capital alleged to be unexplained cash credit u/s 68 of the Act 2.1 That the learned Commissioner of Income Tax (Appeals) has arbitrarily brushed aside the detailed information evidences and material furnished by the assessee company in order to support the genuineness of share capital and thus, the addition so sustained is wholly untenable and unsustainable in law.
3 That the learned Commissioner of Income Tax (Appeals) has further grossly erred in relying on the judgments which are totally inapplicable to the facts of the case of the appellant company and has proceeded to uphold the order of assessing officer on wholly irrelevant and extraneous considerations which are untenable in law.
4 That the learned Commissioner of Income Tax (Appeals) has further erred in law and on facts in sustaining additions in the hands of assessee company without giving any fair and proper opportunity of being heard to the appellant company, thereby, violating the principles of natural justice.
5 That the learned Commissioner of Income Tax (Appeals) further grossly erred in law and on facts in sustaining an addition of Rs. 9,000/- on account of alleged commission paid as alleged unexplained expenditure, which addition is based on mere conjectures, surmises and suspicion, unsupported by any valid material 6 That the learned Commissioner of Income Tax (Appeals) has further erred sustaining the levy of interest u/s 234A and 234B of the Act which is not leviable on the facts of the appellant company"
3. Brief facts are that the assessee filed return declaring loss of Rs.6,097/- - on 23.03.2005. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter "the Act"). Subsequently information was received from the DIT (Investigation), Jhandewalan New Delhi; and AO after recording reasons, issued notice u/s 148 of the Act on 15.03.2011. In response, the assessee company filed return declared loss of Rs.6,100/- on 3 ITA No.5700/Del/2013 11.04.2011 in compliance to the notice u/s 148 of the Act. The assessee filed objection dated 08.11.2011 which were duly disposed off by a speaking order dated 08.11.2011. Thereinafter, the assessee company filed a writ petition before the Hon'ble Delhi High Court challenging the validity of the re-opening proceedings. The Hon'ble High Court vide its order dated 25.04.2012 dismissed the writ petition of the assessee company and also vacated its interim order. Accordingly notice u/s 143(2) along with letter dated 01.05.2012 was issued to the assessee requesting the assessee to participate in the assessment/re-assessment proceedings after the dismissal of its writ petition by the Hon'ble Delhi High Court. The AO asked the assessee to produce the share applicant in person which the assessee failed to do. Therefore, after giving due opportunity of being heard to the assessee, the AO came to the conclusion that the appellant has received accommodation entries of Rs.4,50,000/- from one M/s Quality Security Services (P) Ltd. in the form of share application money. The AO also concluded that M/s Quality Security Services (P) Ltd. is a mere paper company engaged in the business of providing accommodation entries and is not doing any business. The AO has given elaborate reasons for this conclusion in the assessment order. He has stated that summons u/s 131 were issued to the Quality Security Services (P) Ltd. which remained 4 ITA No.5700/Del/2013 uncomplied. The AO provided a number of opportunities to the assessee to produce Quality Security Services Pvt. Ltd. but the same was not done. From the papers filed by the assessee the AO came to the conclusion that M/s Quality Security Services Pvt. Ltd. is not doing any genuine business. Therefore, the AO added the amount of Rs.4,50,000/- claimed to have been received from Quality Security Services Ltd. as share application money u/s 68 of the Act.
4. Being aggrieved, the assessee preferred an appeal before the ld. CIT(A) who dismissed the appeal vide order dated 26.8.2013 by holding as under :-
"In the case under consideration, the appellant company could not produce share applicants either before the AO or before the under signed. But the appellant was able to produce affidavit from share applicant as recent as 8.11.2011 when assessment proceedings were in progress before the AO. Thus, the facts of the case are similar to the case of Nova Promoters (supra). The share application money which was claimed to have been received @ Rs. 20/- per share and shares were claimed to have been allotted have ultimately come to the Director of the appellant company Mr. Nikhil Mittal @ Rs. 1/- per share. Thus, the appellant company has failed to prove the genuineness of share application money. In view of the above facts and circumstances of the case and judicial pronouncements on the issue, I hold that the AO was justified in making the addition of Rs.
4,50,000/- on account of share application money claimed to have been received from Quality Security Services (P) Ltd. as discussed in the order. The addition on account of commission amount of Rs. 9,000/- on the share application money is also justified as the claimed share applicant M/s Quality Security Services (P) Ltd. could not be established by the applicant to be a genuine investor. Therefore, the addition made by the AO is upheld and the grounds of appeal are rejected."
5. Before us, the AR of the appellant has contended that neither AO was justified in making the addition nor ld. CIT(A) in sustaining the addition of 5 ITA No.5700/Del/2013 Rs.4,59,000/-. It was contended that appellant received Rs.4,50,000/- from Quality Security Services (P) Ltd. through banking channel and assessee has filed copy of incorporation, certificate of the investor, investor's PAN, copy of ITR, copy of the balance sheet, copy of the share application received by the assessee, details of the cheque, confirmation of the investment made by the investor company and details of the share certificates allotted. It was also submitted that the AO's reliance on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Nova Promoters & Finlease (P) Ltd. was not justified as the facts of the assessee case were different from the facts of the Nova Promoters. He further submitted that the summons u/s 131 was fully complied with vide reply dated 08.05.2012 and took our attention to page 10A of Paper book wherein Quality Security Services (P) Ltd. had replied to the summons as under:
"1 That our company M/s Quality Security Services (P) Ltd. is incorporated under Companies Act with Registrar of Companies, NCT of Delhi & Haryana on incorporation number: 5564902 of 1994-95 2 That our company is a regular income tax assessee on PAN AAACQ0001C and presently is being assessed by Income Tax Officer, Ward-14(4), New Delhi.
3 That our company's only relation with the concern M/s AG holdings (P) Ltd. during the period relevant to A.Y. 2004-05 [01..04.2003- 31.3.2004] was that our company, M/s Quality Security Services (P) Ltd. had made an investment of Rs. 4,50,000/- in 22500/- equity shares of AG Holdings (P) Ltd. This investment is dully recorded in our books of account.6 ITA No.5700/Del/2013
4 That these shares were acquired on premium of Rs. 10/- per share i.e., Equity share of face value of Rs. 10/- was acquired for Rs. 20/- each.
5 That against this investment of Rs. 4,50,000/- we were allotted 22500 equity shares of AG Holdings (P) Ltd. bearing distinctive numbers 370101 to 392600"
6. The ld. DR submitted that the assessee had not discharged the burden u/s 68 of the Act and he relied upon the order of ld. CIT(A). According to the ld. DR on the face of the investigation carried out by the Investigation wing, there was sufficient evidence to show that the assessee had failed to explain the credit.
7. We have heard the rival submission and perused the records. We find that the assessee had placed on record affidavit of Sachin Garg, Director of M/s Quality Securities (P) Ltd., certificate of incorporation, bank statement, balance sheet, PAN nos, share application form. Summon issued to them has also been responded to confirming the investment. However, we find that AO made no further enquiry to discredit the claim of the assessee in this respect. Admittedly, the prior-enquiry made by the investigation wing which triggered the re-assessment, has been made behind the back of the assessee, which in the light of the aforesaid facts and materials on record does not justify the inference of the AO to make the addition in the light of ratio laid by the Hon'ble High Courts in the following cases. 7 ITA No.5700/Del/2013
8. In the case of CIT v Fair Finvest Ltd ITA No. 232/2012 dated 22.11.2012, the jurisdictional Delhi High Court has held as under:
"6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed vas untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.
7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).
8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer 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. The appeal is accordingly dismissed."8 ITA No.5700/Del/2013
9. In the case of CIT v Ram Narain Goel - 224 ITR 180, Hon'ble Punjab and Haryana High Court observed that suspicion howsoever strong cannot take the place of evidence or proof.
10. In the case of CIT v Gangeshwari Metal (P) Ltd. in ITA No. 597/ 2012 judgement dated 21.01.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. - 342 ITR 169 and judgement in the case of CIT v Lovely Exports - 319 ITR (Sat.) 5 (SC) held as follows:-
"As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:-
''Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000/- and not Rs.1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tries to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.5,50,000/- received by the assessee 9 ITA No.5700/Del/2013 are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately.
The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961.
Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law"
The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Gangeshwari Metals (supra) and Fair Finvest Ltd. (supra). Applying the ratio laid by the aforesaid case-laws on the case in hand, addition of Rs. 4,50,000/- on account of share capital u/s 68 of the Act and addition of Rs. 9,000/- on account of commission paid are deleted and thus respective grounds raised by the assessee are allowed.
11. Ground No.6 regarding levy of interest is consequential in nature
12. In the result, the appeal of the assessee is allowed Order pronounced in open court on this day of 29th February, 2016.
Sd/- sd/-
(J.S. REDDY) (A.T. VARKEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 29th day of February, 2016
TS
10
ITA No.5700/Del/2013
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-IV, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.