Income Tax Appellate Tribunal - Jaipur
Soni Hospital Pvt. Ltd. , Jaipur vs Department Of Income Tax on 11 August, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 588/JP/2011
fu/kZkj.k o"kZ@Assessment Year : 2005-06.
The Deputy Commissioner cuke M/s. Soni Hospital Pvt. Ltd.,
of Income Tax, Vs. 11, Chetak Marg,
Circle-5, J.L.N. Marg,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAGCS 9508 N
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Dilip Sharma (JCIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Akhilesh Kumar Jain (C.A.)
lquokbZ dh rkjh[k@ Date of Hearing : 23.07.2015.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 11/08/2015.
vkns'k@ ORDER
PER SHRI T.R. MEENA, A.M.
This is an appeal filed by the Revenue emanating from the order of ld. CIT (A)-II, Jaipur dated 22.03.2011 for the A.Y. 2005-06. The ground raised in the appeal are as under :-
" On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in
1) deleting the addition of Rs. 99,00,000/- made by the AO on account of unexplained share application money without appreciating the facts of the case."2
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
2. Brief facts of the case are that the assessee is running a hospital and files its return of loss of Rs. 2,82,73,070/- on 31.10.2005. The case was scrutinized under section 143(3) of the IT Act. The AO observed that during the course of investigation being conducted by the Investigation Wing, Jaipur in the cases of providing accommodation entries, being run by M/s. B.C. Purohit & Co. (searched on 12.04.2005) it was noticed that some entries from the bogus entities being run by these racketeers had gone to Soni Hospital Ltd., Jaipur. In order to verify these entries and confront this party about the non-genuineness of these entries a limited purpose survey was conducted u/s 133A by the Investigation Wing at the office premises of its hospital located at Sector-5, Vidhyadhar Nagar, Jaipur on 03.05.2005 with the authorization issued by the Addl. Director of Income-tax (Inv.), Jaipur. 2.1. The AO further observed that during the course of survey operation when the books of accounts and returns of income of M/s. Soni Hospital Ltd., Jaipur were verified it was found that share application money was shown as received by this company from certain entities being operated by M/s. B.C. Purohit & Co. Group. The Managing Director of the assessee company Dr. Bimal Rai Soni was confronted with the findings of non-genuineness of these parties from whom loans were shown in the books of accounts of his company. However, Shri Bimal Rai Soni did not accept that the transactions relating to receipt of share application money etc. in his company from the entities controlled by B.C. Purohit Group are not genuine. 2.2. The AO also observed that in this matter, as mentioned above, as a result of the evidences gathered during the aforesaid search operation and the investigations 3 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
conducted subsequently it was found that in the guise of tax consultation the owners and employees of his group were running a big racket of providing accommodation entries of gifts, loans, share application money, share investment and long term capital gains in shares. Through this racket entries of hundreds of crores of rupees were being provided. For this purpose they had opened hundreds of back accounts all over the country. The entries were being provided to thousands of assessees spread all over the country. This racket was being used by the parties who were interested in introducing their unaccounted money in their books of accounts.
2.3. The A.O. described that the modus operandi adopted for running this racket was very simple. Cash was received from the party who wanted to take the accommodation entry and deposited in some bank account. The money was rotated through cheque in one or two more bank accounts being operated by these racketeers and finally a cheque or draft was issued in the name of the party who had given the cash. The money was finally parked, in the bank account/books of account of the party who had given the cash in the form of gift, loan, share application money or proceeds of sale of shares. He described the modus operandi of this racket and role of the various parties involved in it as under :-
The Entry Operator : These are the owners and employees of M/s. B.C. Purohit & Co. who have created a complex network of bank accounts and income tax files and are operating these to provide the accommodation entries of different types.
The Beneficiaries : These are the parties who have taken the accommodation entries and have introduced their unaccounted money 4 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
in their books of accounts using this racket run by the entry operators. They are the persons who have been finally benefited by this racket. The bogus Individuals : These are the individuals whose income t4ax files and bank accounts have been created/operated by the entry operators and whose names have been used for providing the accommodation entries. These persons are either non existing or are persons of no means.
The Bogus Companies/Firms : Certain private limited companies which have been floated by this group to provide the accommodation entries. In these companies the share capital is built up in the name of the large number of Bogus individuals whose income tax files are being maintained by the entry operators. The returns of income of these companies are being filed as finance and investment companies. One or two partnership firms have also been used for this purpose. The Middlemen : These are the persons who act as contact persons between the Entry Operators and the Beneficiaries. They are chartered accountants, tax advocates or finance brokers or persons dealing in shares. Generally the beneficiaries even do not know the Entry Operators. The giving of cash and receiving of cheques may be done through these middlemen only. In the registers seized from the residence of the Purohit Family at Kamal Apartment, Jaipur names of about 14-15 such middlemen are mentioned. Some important persons of this group like Pawan Purohit s/o Kripa Shankar Sharma in their statements have also identified some such middlemen also.
2.4. The AO further observed that these Entry Operators are maintaining the income tax files of a large number of bogus individuals. For most of these individuals, the addresses of office, residence or other properties of the Purohit family at Jaipur have 5 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
been used. The Permanent Account Numbers for these individuals have been obtained in Jaipur and their returns of income are being filed regularly and generally very low income around the minimum taxable income is shown, paying either NIL tax or very nominal amount. In the balance sheets of these persons capital of 3 to 4 lakh has been built up by showing less than taxable income over the years or showing cash loans below Rs. 20,000/- from different parties. This bogus built up capital is used for giving entries. This artificially built up capital of the Bogus individuals is shown as available in the form of cash. This artificially built up capital of Bogus Individuals is used by the Entry Operators in two ways :-
(1) For directly giving accommodation entry to the Beneficiary (2) For building up share capital of the Bogus Companies being operated by the Entry Operators.
2.5. The AO observed that the assessee had taken entries during the financial year 2004-05 relevant to the assessment year 2005-06 mostly from the bogus companies operated by the impugned entry operators. These entries are in the form of share application money which have been received from M/s. B.C. Purohit Group in the following names :-
S.No. Name of the Company Cr. Amount
1. Anupriya Transformers (P) Ltd., Rs. 5,00,000/-
17A, Sujan Vihar Nandpuri, Jaipur.
2. Anushree Finlease (P) Ltd., Rs. 5,00,000/-
M-15, New Market, Khasa Kothi Circle
Jaipur.
3. Arpan Agro (P) Ltd., Rs. 3,00,000/-
49, Patel Nagar, Ajmer Road,
6
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
Jaipur.
4. Art Line Finvest (P) Ltd., Rs. 3,00,000/-
M-15, New Market, Khasa Kothi Circle,
Jaipur.
5. Bachpan Credit Capital (P) Ltd., Rs. 3,50,000/-
M-15, New Market, Khasa Kothi Circle,
Jaipur.
6. Bengal Fintrade Co. (P) Ltd., Rs. 2,00,000/-
48, Patel Nagar, Ajmer Road, Jaipur.
7. Bequeen Textiles (P) Ltd., Rs. 5,00,000/-
17A, Sujan Vihar, Nandpuri, Japur.
8. Bhavika Credit Capital (P) Ltd., Rs. 5,00,000/-
M-15, New Market, Khasa Kothi Circle,
Jaipur.
9. Ganpati Film Producers (P) Ltd. Rs. 5,00,000/-
G-103, Kamal Apartment, Bani Park, Jaipur.
10. Great Eastern Movies (P) Ltd., Rs. 3,00,000/-
48, Patel Nagar, Ajmer Road, Jaipur.
11. Jaytara Movies (P) Ltd., Rs. 2,00,000/-
48, Patel Nagar, Ajmer Road, Jaipur.
12. K.K. Petrochem (P) Ltd., Rs. 8,00,000/-
A-94, Nandpuri, Hawa Sarak, Jaipur.
13. Kotputli Investment (P) Ltd. Rs. 11,50,000/-
S-64, Agarsen Tower, Vidhyadhar Nagar,
Jaipur
14. Padam Bearing India Ltd., Rs. 5,00,000/-
F-105, Time Square, Vidhyadhar Nagar,
Jaipur.
15. Ram Prasad Acharya, Rs. 2,00,000/-
28, Nehru Nagar, Jaipur.
16. Sushila Capfin (P) Ltd., Rs. 6,50,000/-
M-9, New Market, Khasa Kothi Circle,
Jaipur.
17. Govind Ram Rs. 1,50,000/-
71, Baba Harish Chandra Marg, Jaipur.
18. Mahendra Kumar Bissa Rs. 1,50,000/-
4, Patel Nagar, Ajmer Road, Jaipur.
19. Om Prakash Agarwal, Rs. 1,50,000/-
3/757, Malviya Nagar, Jaipur.
Total : Rs. 79,00,000/-
7
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
The AO gave show cause notice on this issue and required the assessee to prove the genuineness of share application money of Rs. 79,00,000/- and also requested to produce the relevant parties for examination. Further it was also proposed to add on the basis of evidences collected during the course of search in case of B.C. Purohit Group.
2.6. The assessee submitted vide letter dated 03.12.2007 that there is no basis for treating the amount received from the said parties as bogus. The amount was received from the said parties through banking channel. All the parties are income tax assessees and PANs have been allotted to them after having their identity and addresses. All of them are maintaining bank accounts and no bank account can be opened without any introducer. All these facts established that the parties are genuine and so the amount contributed as share capital is also genuine. Before the AO, the assessee had not filed any evidence regarding genuineness of share application money and also not filed confirmations or copies of their bank statements and also not produced them for examination of the persons. Regarding production of the said parties, the assessee stated that request has been made to them and they have assured to attend before the AO. But nobody attended in this regard before the AO. The statement of Shri Kripa Shankar Sharma recorded during the search and the entries in register of Annexure-A3 found from the residence of Shri Bal Chand Purohit situated at G-1/103, Kamal Apartment, Bani Park, Jaipur clearly indicate that the assessee had obtained only accommodation entries and not any genuine share application money. The relevant 8 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
excerpts of the statement dated 12.04.2005 had been reproduced by the AO on pages 6 & 7 are as under :-
^^c;ku Jh d`ik'kadj 'kekZ fnukad 12-04-2005 iz'u&27 Jh iou iqjksfgr tks fd ch-lh iqjksfgr ,.M dEiuh ds ekfyd Jh ckypUn th iqjksfgr dk iksrk gS ds ;gkWa ls vkt ryk'kh ds nkSjku th&1 103] dey vikVZesUV cuhikdZ t;iqj ls tCr jftLVj ftls Ann-A/3 ekdZ fd;k x;k gS ist la- 18]19]20 dh QksVks izfr eSa vkidks fn[kk jgk gwWa ftlds izR;sd ist ds Top ¼Vksi½ ij KS' fy[kk gqvk gSa ftls ;g izekf.kr gksrk gS fd bu pkjks istks ij tks VªkUtsDlu fy[kh xbZ gS og vkids ek/;e ls dh xbZ gS d`I;k crkb;s fd ;g VªkUtsDlu d;k gS rFkk bu i`'Bksa dh fy[kkoV fdldh d`i;k foLrkj ls crk;s?
mRrj% ;g pkjks ist eSus ns[k fy;s gS ;g pkjks i`"B iou iqjksfgr ds gkFk ds fy[ks gq;s gSA rFkk pkjks i`"Bksa ij Jh cky pUn iqjksfgr ,oe muds ifjokj ds lnL;ksa dh fofHkUu dEifu;ksa }kjk fofHkUu yksxks dks nh xbZ entries' dk fglkc fdrkc ntZ gSA blesa fy[ks x;s pSadksa ,oa dqN ds'k dk vknku iznku esjs ek/;e ls gqvk gSaA bu i`"Bksa ij fofHkUu ikfVª;ksa ls izkIr ds'k rFkk mls mu ikfVª;ksa ls izkIr ds'k rFkk vls mu ikfVª;ksa dks pSd ds ek/;e ls entries n'kkZus dk fooj.k fy[kk x;k gSA tSls bu 9 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
i`"Bksa esa ist 20 ij Rattangarh, Ganpati, Annushree, Bengal, Bhavika, Arpan, Agro, Art line fy[ksa gSaA ;g lkjh dEifu;k Jh ckypUn iqjksfgr ,oa muds ifjokj dh gS ftuds uke Øe'k% Rattangarh Finlease Pvt. Ltd., Ganpati Film, Producers Pvt. Ltd. Anushree Finlease Pvt. Ltd., Arpan Agro Pvt. Ltd., Artline Finvest Pvt. Ltd. gSaA rFkk vU; i`"Bksa ij Hkh ;gh uke repeat gq, gSA buds vykok i`"B 21 ij Thar, Jaitara, Great dk ftØ gSa ;s Hkh Jh ckypUn iqjksfgr ,oa muds ifjokj dh dEifu;k gSA ftuds uke Øe'k% Thar Finance Pvt. Ltd., Jaitara Movies Pvt. Ltd. , oe Great Eastern Movies Pvt. Ltd. gSA bu lkjh dEifu;ksa ds Bank Accounts ls fofHkUu ikfVZ;ksa dks tks entries nh xbZ gS ;g mudh detail gS rFkk buesa 5,00,000/- dks 5]000-00 rFkk blh izdkj 3]00]000@& dks 3]000-00 fy[kk x;k gS rFkk ckdh Entries Hkh blh izdkj gSaA bu i`"Bksa ij fy[kh xbZ Detail ds vuqlkj lksuh gkfLiVy] t;iqj ftls bu i`"Bksa ij lksuh gkfLiVy fy[kk gS] ujs'k dqekj eukst dqekj 'kkfiax lsUVj] dksVk ftls buesa NKMK fy[kk gS] foØekfnR; dksyksukbtlZ izk-fy-t;iqj ftls foØekfnR; fy[kk gS ,oa vU; dks tSls Royal Shelter Pvt.
Ltd. Jaipur dks Entries Jh ckypUn iqjksfgr dh mijksDr deifu;ksa ds Bank Account ls udn :i;k izkIr djds pSd dkV dj nh xbZ gS ftldk blds fooj.k gSA tSls 27-09-2004 dks 5]00]000@& lksuh gkfLiVy] t;iqj ls udn izkIr gq, rFkk 28-
09-2004 dks 5]00]000@& :- dk pSd dkV dj mls Entry ns
10
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
nh xbZ Jh ckypUn iqjksfgr dh dEiuh Bhavika Credit Capital Pvt. Ltd. lsaA blh izdkj lksuh gksfLiVy] t;iqj ls 21-09-2004 dks 6]00]000@& udn izkIr gq;s rFkk 22-09-2004 dks lksuh gkWfLiVy] t;iqj dks 3]00]000@& & 3]00]000@& dks nks Entries Jh ckypUn iqjksfgtr dh nks dEifu;ksa Artline Finvest Pvt. Ltd. ,oe Arpan Agro Pvt. Ltd. ls nh xbZA bu i`"Bksa ij ckbZ vkSj ikfVZ;ksa ls Cash izkIr gksuk rFkk nk;ha vkSj Jh ckypUn iqjksfgr dh dEifu;ka }kjk Entries nsus dk fooj.k gSaA tks mu ikfVZ;ksa dks nh xbZA i`"B &18 ,oa 19 ij NKMK dh dqN Entries Reverse gksus dk fooj.k Hkh fy[kk x;k gSA^^ The statement of Shri Kripa Shankar Sharma recorded on 12.04.2005 was shown to Shri Bimal Rai Soni during the course of survey on 03.05.2005. During the course of search on 12.04.2005 Shri Kripa Shankar Sharma had admitted that he is Director of M/s. K.K. Petrochem (P) Ltd., M/s. Bequeen Textiles Pvt. Ltd., M/s. Kotputli Investment (P) Ltd., M/s. Anupriya Transformers (P) Ltd., M/s. Padam Bearing India Ltd. and M/s.
Sushila Capfin (P) Ltd. He clearly admitted that he is engaged in providing the accommodation entries on a large scale in different names. After search, he had also filed returns of his companies, namely, M/s. Sushila Capfin (P) Ltd., M/s. Bequeen Textiles (P) Ltd. and M/s. K.K. Petrochem (P) Ltd. etc. and shown only commission 11 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
income in the returns of these companies from providing accommodation entries only. The assessments have also been completed in these cases.
2.7. Similarly Shri Sunil Verma who is a peon in the Office of M/s. B.C. Purohit & Co. has been shown as Director in M/s. Anupriya Transformers (P) Ltd., M/s. Bequeen Textiles (P) Ltd., M/s. Kotputli Investment Pvt. Ltd. and M/s. K.K. Petrochem Pvt. Ltd. and his statement recorded on 26.04.2005 he clearly admitted that these companies do not do any business, and cash is received from the beneficiaries and after depositing in the bank account of these companies cheques are issued to the beneficiaries. In respect of the bogus companies and bogus individuals whose files are maintained by B.C. Purohit family, it was noticed that in the income-tax returns addresses of 30 persons were given as 48, Patel Nagar, Ajmer Road, Jaipur, 49, Patel Nagar, Ajmer Road, Jaipur and 50, Patel Nagar, Ajmer Road, Jaipur. The AO further observed that on enquiry by the Investigation Wing, it was found that these were plots only having a common boundary wall owned by Purohit Family and no office of any company was there and no individual resided there.
2.8. It was further observed that on account of enquiry by the Investigation Wing and statements of various persons recorded during the course of investigation in search operation, M/s. Ajay Fourwheels Pvt. Ltd. surrendered the accommodation entries from B.C. Purohit Group / Kripa Shankar Sharma as its undisclosed income in the names of the following companies/individuals (included in the list of Rs. 79,00,000/- as mentioned above.
1. M/s. Bequeen Textiles Pvt. Ltd.
12
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
2. M/s. Sushil Capfin Pvt. Ltd.
3. M/s. K.K. Petrochem Pvt. Ltd.
4. M/s. Padam Bearing India Pvt. Ltd.
5. Govind Ram Similarly, M/s. Bansal Oil Mills Pvt. Ltd. admitted to have taken accommodation entries in the names of M/s. Kotputli Investments Pvt. Ltd. and M/s. Padam Bearing India Pvt. Ltd. M/s. Jamboo Finvest Pvt. Ltd. admitted to have taken accommodation entry in the name of M/s. Kotputli Investments Pvt. Ltd., M/s. K.K. Petrochem Pvt. Ltd. and M/s. Padam Bearing India Pvt. Ltd. M/s. S.K. Solvex (P) Ltd. admitted to have taken accommodation entries in the names of M/s. Bhavika Credit Capital (P) Ltd. and M/s. Bachpan Credit Capital (P) Ltd. M/s. Unique Organics admitted to have taken accommodation entries in the name of M/s. Anupriya Transformers Pvt. Ltd., M/s. Padam Bearing India Pvt. Ltd. and M/s. K.K. Petrochem Pvt. Ltd. M/s. International Maharani Jewels Pvt. Ltd. admited to have taken accommodation entries in the names of M/s. Sushila Capfin Pvt. Ltd., M/s. Padam Bearing Pvt. Ltd., M/s. K.K. Petrochem Pvt. Ltd. and M/s. Bequeen Textiles Pvt. Ltd.
2.9. On the basis of the above observation, the AO concluded that it has been clearly established that the companies and individuals in whose names the assessee had shown share application money of Rs. 79,00,000/- were engaged in providing accommodation entries only and the assessee had also obtained accommodation entries and had not received any genuine share application money and had thus introduced its own undisclosed income in the account books, which was added to the income of the 13 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
assessee. It is further found by the AO that the assessee had raised share application money from various parties which included following concerns :-
1. Shashi sales & Marketing Pvt. Ltd.
RZ-41A, Mohan Nagar, Pankh Road, New Delhi. Rs. 5,00,000/-
2. Lexus Infotech Limited Rs. 10,00,000/-
9, Roxana Building, M.I. Road, Church Gate, Mumbai.
3. Labh Tronics Pvt. Ltd.
RZ-41A, Mohan Nagar, Pankh Road,
New Delhi. Rs. 5,00,000/-
------------------
Rs.20,00,000/-
------------------
The AO asked to prove the genuineness of above said share application money of Rs. 20,00,000/- also. The reply of the assessee was same, as was for share application money of Rs. 79,00,000/- as discussed above. To find out the genuineness of the said share application money of Rs. 20,00,000/-, notices under section 133(6) of the IT Act were sent to the above mentioned parties on 05.11.2007 which were received back with the postal remarks " no such parties exist at the given address". Under these circumstances, the AO vide order sheet entry dated 23.11.2007 requested the assessee to produce the above said parties for examination. But the assessee vide order sheet entry dated 23.11.2007 had shown its inability to produce any of the said 3 parties. However, through its letter dated 26.12.2007 the assessee stated that the amount was received through banking channel and the companies are registered with ROC and the companies are genuine entities. Since the assessee was failed to satisfy the AO to 14 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
prove the genuineness of the transaction of share application money of Rs. 20,00,000/-, he treated this money to have been invested out of undisclosed income of the assessee itself as accommodation entries. Therefore, he made addition of Rs. 20,00,000/- in the income of the assessee.
3. Being aggrieved by the order of AO, assessee carried the matter before ld. CIT (A) who has allowed the appeal by observing as under :-
" 3.1. I have duly considered the submissions of the appellant. I find that in the present case, the appellant had filed the subscription forms from each of the investors. The said subscription form contained complete details, which disclosed not only the identity of the subscribers, but also their complete address along with PAN. Therefore the appellant had been able to discharge its onus in respect of the veracity of the transactions. The AO has alleged that documentary evidences were not filed by the assessee company but in reality, all the primary documents and records were in the custody of the AO as these were impounded on 03.05.2005 when a survey was conducted u/s 133(A) by the Investigation /wing at the premises of the appellant. All these documents were still in the possession of the Department as on date. Since the share applicants were limited companies registered under the Companies Act, and the amount was received through banking channels and the companies were existing income tax assessees, their existence was beyond any doubt. It was held by Honourable Delhi Tribunal in the case of Sky High Properties Pvt. Ltd. Vs. ITO (258 ITR AT 098) that there is a difference between an ordinary cash credit and credit by way of share capital. While in the case of ordinary loans, the onus is on the assessee to prove not only the identity of the creditors but also the genuineness and the capacity of the persons 15 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
to lend, with reference to share capital for which shares have been issued, the onus on the company is very much limited in the light of the law under the Companies Act. In the case of limited companies, the jurisdiction of the Assessing Officer would be limited only to see whether the identity of the shareholders is established. In the instant case out of five shareholders four shareholders were companies incorporated under the Companies Act. They were regularly assessed to tax. They were regularly filing their statements with the Registrar of Companies. All the four companies had huge share capital and their investments in shares of various companies was huge. The audited copy of the accounts were also on record. Looking to these documents, there could not be any dispute about their identity, credit-worthiness as well as genuineness of the transaction. It was held by Honourable Delhi Tribunal in the case of A-One Housing Complex Ltd. (299 ITR AT 327) that the onus on the assessee in the case of share capital by public issue was a lighter one and therefore such onus would stand discharged if the identity of the share applicant was established. There was nothing wrong if confirmations were prepared by the assessee and got signed from the share applicants since the assessee was required to prove only the identity of the share applicant. Even otherwise they had not been found to be false or forged. There was nothing wrong if some of the shareholders had accounts with the same bank. It was not the case of the Revenue that such accounts were bogus or operated by the assessee. It was also not the case of the Revenue that either of the share applicants was a benami of the assessee. Therefore the reasons given by the Assessing Officer were to be rejected."
3.1. He relied on the order of ITAT Delhi in the case of Sky High Properties Pvt. Ltd. vs. ITO, 258 ITR AT 098. The onus is on the assessee to prove difference between an 16 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
ordinary cash credit and credit by way of share capital. He placed reliance on the following decisions :-
M/s. Sky High Properties Pvt. Ltd. vs. ITO 258 ITR AT 098 (ITAT Delhi) M/s. A-One Housing Complex Ltd.
299 ITR AT 327 (Delhi) - On burden of prove in case of share capital through Public Issue is lighter.
CIT vs. Value Capital Services Pvt. Ltd.
307 ITR 334 (Delhi High Court) - On investment made by the shareholder, actually emanated from the coffers of the assessee.
CIT vs. Orbital Communication (P) Ltd.
327 ITR 560 (Delhi High Court) - followed the decision of Hon'ble Supreme Court in case of CIT vs. Lovely Export Pvt. Ltd. (319 ITR (St.) 5 for the proposition that in case of share application money, where the persons are identified, it is not reasonable to expect the AO to establish that the monies belonged to the company without making any enquiries against the shareholders, since there is no presumption that they are bogus shareholders. Normal rule of presumption under section 68 does not go so far as to justify the inference that it is for the company to satisfy the Assessing Officer, that the sources of the shareholders are also established. Once genuineness of share application is manifest from the facts, the remedy for the Revenue, if it entertains any further doubt, is only enquiry with the shareholders. It is unfortunate that additions are being made for share capital contributions routinely and what is more, appeals are filed against the orders of the first appellate authority which are eminently found to be fair as it happened in CIT vs. Victor Electrodes Ltd. (329 ITR 271).
3.2. The issue of providing accommodation entry in the garb of share capital came up for consideration before the Hon'ble Delhi High Court in the case of CIT vs. Oasis Hospitalities Pvt. Ltd. (2010 TIOL-69 HC Del). The observations of the Hon'ble Delhi High Court has been reproduced by the ld. CIT (A) at pages 10, 11 & 12 of his order.
3.3. As regards addition of Rs. 20,00,000/- made on account of subscription from three corporate entities, the assessee filed certain additional evidences before the ld.17
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
CIT (A). The notice issued by the AO in the case of M/s. Labh Tronics Overseas Pvt. Ltd. and M/s. Shashi Sales & Marketing Pvt. Ltd. were returned by Postal Authorities with the remarks " no such person/firm in this location". The ld. CIT (A) further held that on the other hand the Search Report of the Company Secretary clearly indicated that the above named companies were registered on 28.12.1997 and 15.03.1993 respectively. It was stated by the assessee before him that both the companies might have shifted their business premises. The appellant company subsequently received information about the present address of both the companies which was A-4/181, Sector No. 17, Rohini, New Delhi 110 085. Accordingly to financial statements of both the companies for the year ended 31.03.2006, the said companies had enough creditworthiness to make investment in the share capital of the appellant company. The assessee submitted following additional evidences before the ld. CIT (A):-
(1) Copy of the financial statements of both the companies for the year ending 31.03.2008 which proved beyond doubt that the said companies had sufficient resources to invest in the share capital of the appellant company. (2) M/s. Labh Tronics Overseas Pvt. Ltd. and M/s. Shashi Sales & Marketing Pvt. Ltd. had now shifted to A-4/181, Sector No. 17, Rohini, New Delhi 110 085. (3) Photocopies of the Balance Sheets of both the companies as on 31.03.2006 along with copies of respective ITR-V for the A.Y. 2006-07.
(4) Photocopy of the Balance Sheet as on 31.03.2008 and the Profit & Loss Account for the year ending 31.03.2008 of M/s. Lexus Infotech Ltd. along with photocopy of acknowledgement of Return (now known as Traingular Infocom Ltd.) along with copy of PAN Card thereof.
18
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
These additional evidences were forwarded to ACIT, Circle-5, Jaipur vide letter dated 04.02.2011 for examination. The remand report was due by 15.02.2011. However, till passing of the order by ld. CIT (A), the AO had not submitted the remand report. The ld. CIT (A) concluded that ld. AO had failed to make further enquiry as desired from him. In absence of remand report, the ld. CIT (A) decided the appeal on the basis of evidences filed by assessee and concluded that nothing adverse was narrated in the documents filed by the assessee. Accordingly he directed the AO to delete the addition of Rs. 99,00,000/-.
4. Now the revenue is before us. The ld. D/R submitted that the AO had proved that the transactions are bogus. The company has accepted the share application money through entries of operators who provided the fund in the guise of share application money. It is evident from the investigation made by the Department as well as notice issued by the AO for production of these parties that it can easily be concluded that money received through share application money by the assessee is undisclosed income of the assessee. He further argued that Hon'ble Supreme Court decision in the case of M/s. Lovely Export (supra) is longer law of the land as various High Court including Hon'ble Delhi High Court in the case of CIT vs. Empire Builtech P. Ltd., 366 ITR 110 wherein the Supreme Court decision in case of M/s. Lovely Exports (supra) has been considered in respect of notice under section 133(6) issued to 11 investors. The investors had not submitted any confirmation and reporting for less income than amount invested. The assessee had not discharge its burden, the addition u/s 68 held justified.
19
ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
4.1. He further argued that Hon'ble Gujarat High Court in case of Blessing Construction vs. ITO, (2013) 214 Taxman 645 (Guj.) had confirmed the addition u/s 68 which was challenged before Hon'ble Supreme Court and the Hon'ble Supreme Court has confirmed the order dated 13.09.2013 by rejecting SLP No. 29503 of 2013. The Hon'ble Gujarat High Court held that there was sufficient evidence in case of all the depositors, their bank accounts contained meagre balance shortly before sizeable amount of Rs. 1,00,000/- and upward were given to the assessee through such account. In such bank accounts, cash amounts were credited and immediately entire amount were withdrawn through issuance of such cheque in favour of the assessee. Nowhere their capacity to raise such amount for drawing cheque of sizable amounts was established. In short, therefore, the very genuineness of transaction was not established.
4.2. In case of CIT vs. T.S. Krishna & Co. Ltd., 315 ITR 163, the Hon'ble Delhi High Court has held that burden of prove is on the assessee to prove genuineness of the transaction, creditworthiness of creditor, identity of the creditor. The addition made by the AO under section 68 is justified.
4.3. The Hon'ble Delhi High Court in case of CIT vs. Youth Construction Pvt. Ltd. (2013) 357 ITR 97 (Del.) has confirmed the share capital under section 68 on the ground of creditworthiness and genuineness has not been proved by the assessee, wherein Lovely Export (supra) decision had been followed by the Hon'ble Delhi High Court. The ld. D/R further has drawn our attention on recent decision of Hon'ble Supreme Court in the case of N. Tarika Property Invest (P) Ltd. vs. CIT, (2014) 51 20 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
Taxmann.com 387 (SC) and argued that identical issue decided by the Hon'ble Supreme Court recently in the above case wherein share application money was subscribed through bank account cheque before depositing cash in respect to shareholders bank account. Therefore, AO was justified in making the addition on account of share application money under section 68 of the IT Act. It is further held by the Hon'ble Supreme Court that PAN blindly cannot be accepted as a proof for identity of individuals as it is generally issued without ascertaining the active nature of business activities. Therefore, the ld. D/R requested to reverse the order of ld. CIT (A). 4.4. At the out set, the ld. A/R reiterated the arguments as made before ld. CIT (A). The AO had not made addition indicating any particular section of I.T. Act. The assessment revealed that the addition of Rs. 99,00,000/- was purported to have been made for share application money received from 19 corporate entities and 3 individuals treating them as bogus. The ld. A/R argued that this issue is covered by the Hon'ble Supreme Court decision in the case of CIT vs. Steller Investment Ltd., 251 ITR 263 and CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195). He further relied on Hon'ble Jurisdictional High Court decision in the case of Shree Barkha Synthetics Ltd. vs. ACIT, 283 ITR 377 wherein Hon'ble Supreme Court decision in case of CIT vs. Steller Investment Ltd. (supra) had been followed by the Hon'ble High Court. The ITAT, Jaipur Bench in the case of Modi Air Product (P) Ltd. vs. ACIT, 31 Tax World 41) has also followed the decision of Hon'ble Supreme Court in the case of CIT vs. Steller Investment Ltd. (supra). He further relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Gangour Investment Ltd. dated 30.1.2009, wherein similar 21 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
additions on account of share capital was disallowed by the AO under section 68 but Hon'ble Delhi High Court has allowed the appeal on the ground that assesee has filed subscription forms to prove the identity and addresses of the applicant, PAN. The assessee has been able to discharge its onus in respect of veracity of the transactions. He further relied on the decision of Hon'ble ITAT Chandigarh Bench in case of ITO vs. Dr. R.L. Narang (2008) 174 Taxman 96 merely referring the statement of third party and addition made under section 68. The assessee had received share application money through banking channel which proved that applicant is existed and is a living person because an account was opened by the bank as per the Reserve Bank of India norms. It was further argued that Hon'ble Jurisdictional High Court in the case of CIT vs. Supertech Diamond Tools Pvt. Ltd. (2015) 229 Taxman 62 (Raj.)(HC) wherein addition made under section 68 on the basis of Third Party statement made behind the back of the assessee and no opportunity of being heard or cross examining Third Party was provided to the assessee and confirmed the order of the lower authorities for deleting the addition. Further, Hon'ble Allahabad High Court in case of CIT vs. Vacmet Packaging (India) Pvt. Ltd., (2014) 367 ITR 217 (All.) held that assessee had filed documentary evidence consisting of share application forms, copies of bank accounts of the share applicants, copies of the income-tax returns of the share allottees, balance sheets and copies of share allotment certificates and of the Board's Resolution of the share applicants, and on that basis the Hon'ble High Court held that variation of the transaction had been established by calling the documents and assessee has discharged 22 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
its onus establishing the identity, creditworthiness and genuineness of the transaction. Therefore, he requested to uphold the order of ld. CIT (A).
5. We have heard rival contentions and perused the material on record. There was a search on M/s. B.C. Purohit & Co. on 12.04.2005 and detailed investigation was made by the Department on the basis of evidence collected. During the course of search, it was found that assessee was providing entries in form of gift, loans, share application money, share investment and long term capital gain in shares not only to the assessee but other cases also. On the basis of this search, the assessee was also covered under section 133A of the IT Act in survey proceedings on 03.05.2005 to confront these evidences. As per Annexure-A3 seized from residence of Shri Bal Chand Purohit situated at G-1/103, Kamal Apartments, Bani Park, Jaipur during the course of search revealed that there was an entry of cheque and cash received from various parties. There are number of companies on page 20 of this Annexure-A3 and on page 21 there were details of entries provided with amount. The name of the assessee company also figured on these pages and the modus operandi admitted by Shri Kripa Shankar Sharma in his statement recorded on 12.04.2005 that cash was received from the entry receiver parties and cheques were issued through various companies opened by Shri Bal Chand Purohit Group. He categorically admitted on 21.09.2004 that he received Rs. 6,00,000/- in cash from M/s. Soni Hospital and on 22.09.2004 two entries of Rs. 3,00,000/- each were given to M/s. Soni Hospital which were routed through M/s. Artline Finvest Pvt. Ltd. and M/s. Arpan Agro Pvt. Ltd. Similar other details were also found in seized material. The companies were managed by Shri Kripa Shankar Sharma 23 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
for providing accommodation entries and he was getting commission by providing accommodation entries. It is further found fact that Shri Sunil Verma, a peon, has been shown as Director in number of companies who had also admitted on 26.04.2005 that these companies did not have any business but providing entries by receiving cash from the beneficiaries and after depositing in the bank account of these companies, cheques are issued to the beneficiaries. Some of the companies' addresses were found on vacant plots. This group not only providing accommodation entries to the assessee but other persons also. The AO issued notices under section 133(6) of the IT Act for verification but notices were received back with postal remarks " no such party exists at the given address", in case of share capital of Rs. 20,00,000/-. The ld. CIT (A) followed the Hon'ble Supreme Court decision in case of M/s. Lovely Exports (supra). But recently Hon'ble Bombay High Court in the case of M/s. Major Metals Ltd. Vs. UOI, (2013) 359 ITR 450 (Bom.) by following Supreme Court decision in the case of Lovely Exports, 319 ITR 5 (SC) has held that creditworthiness and financial standing of the cash creditor is to be proved by the appellant under section 68 of the Act. The Hon'ble Gujarat High Court decision in the case of Blessing Construction (supra) which has been confirmed by Hon'ble Supreme Court in SLP vide order dated 13.09.2013, wherein the creditworthiness in case of cash creditor is to be proved by the assessee. Recently Hon'ble Delhi High Court in case of CIT vs. T.S. Krishna Kumar & Co. Ltd., 370 ITR 163 has held that under section 68 the identity, genuineness and creditworthiness of the cash creditor is to be proved by the appellant. Repaying the loan through account payee cheque is not a conclusive evidence. The case law referred by the ld. D/R of 24 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
Hon'ble Supreme Court in case of N. Tarika Properlty Invest (P) Ltd. (supra) is squarely applicable in case of assessee. Now, after considering the Hon'ble Supreme Court decision in case of Lovely Exports (supra), we have come to the conclusion that in case of share capital, the creditworthiness along with genuineness of transaction, identity of person is also required to be proved by the assessee. Accordingly we reverse the order of ld. CIT (A).
6. In the result, appeal of the revenue is allowed.
Order pronounced in the open court on 11.08.2015.
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6. xkMZ QkbZy@ Guard File (ITA No. 588/JP/2011) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 25 ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.
26ITA NO. 588/JP/2011 A.Y. 2005-06.
DCIT vs. Soni Hospital Pvt. Ltd.