Income Tax Appellate Tribunal - Delhi
Navodaya Castles Pvt. Ltd., New Delhi vs Department Of Income Tax on 2 August, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'F' BENCH
BEFORE SHRI R.P. TOLANI, JM & SHRI A.N. PAHUJA, AM
ITA No.4613/Del/2010
with
CO No.366/Del/2010
Assessment Year:2002-03
Income Tax Officer, V/s. M/s Navodaya Castles Pvt.
W ard 13(1),Room no. Ltd., 783, Desh Bandhu
218,CR Building, Gupta Road, Karol Bagh,
New Delhi New Delhi-5
[PAN:AAACN 5437 D]
(Appellant) (Respondent)
Assessee by S/Shri Ashwani Taneja &
Tarun Kumar, Advocates
Revenue by Shri A.K. Monga, DR
Date of hearing 25-10-2011
Date of pronouncement 31-10-2011
ORDER
A.N.Pahuja:- This appeal filed on 19th October, 2010 by the Revenue and the corresponding cross-objection[CO] filed on 9th November, 2010 by the assessee against an order dated 02.08.2010 of the learned CIT(A)-XVI, New Delhi, raise the following grounds:-
I.T.A. No.4613/D/2010[Revenue]
1. That on the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ``54,00,000/- made u/s 68 of the Income-tax Act, 1961 on account of share application money.
2. That on the facts and circumstances of the case and in law the learned CIT(A) erred in ignoring the fact that the assessee failed to produce directors/authorized representative of the alleged applicants even after specifically being asked to do so by the AO and thus failed to discharge its onus to establish the identity and creditworthiness of the share applicants and/ the genuineness of transaction.2 ITA No.4613/Del./2010
& CO No.366/Del./2010
3. That on the facts and circumstances of the case and in law the learned CIT(A) erred in relying upon the decision given in the case of Lovely Exports (P) Ltd., the AO did not ask the assessee to produce any of the investor shareholders. However, in the instant case the assessee was specifically asked and given a number of opportunities to produce the directors/authorized representatives of the investing companies, but yet none could be produced before the Assessing Officer by the taxpayer.
4. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal.
C.O. No.366/D/2010[Assessee]
1. That having regard to the facts and circumstances of the case, learned Assessing Officer in assuming jurisdiction u/s 147 and that too without complying with the mandatory conditions as prescribed u/s 147 to 153 of the Income-tax Act, 1961.
2. That in any case and in any view of the matter action of learned CIT(A) in not quashing the assessment order is bad in law and against the facts and circumstances of the case.
3. That the cross objector craves the leave to add, amend, modify, delete any of the ground(s) of cross objection before or at the time of hearing.
2. Adverting first to the appeal of the Revenue, facts, in brief, as per relevant orders are that return declaring loss of ``1,58,035/- filed on 20th October, 2002 by the assessee, a finance company, was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). Subsequently, the Assessing Officer (A.O. in short) received information from the Investigating Wing of the Department that assessee was one of the beneficiaries of accommodation entries received from certain established operators identified by the Investigation Wing of the department . It was noticed that in the period relevant to The AY 2002-03, the assessee received accommodation entry in the garb of share application money/share capital/share premium from the following entry operators:-
3 ITA No.4613/Del./2010& CO No.366/Del./2010 Beneficiary Beneficiary Value of Instrument Date Name of Bank from Branch of A/c No. Bank Bank entry No. by on a/c account which entry of entry name branch taken which which holder of entry giving giving entry entry entry giving given bank account.
taken taken a/c
HSFC Rejender 700000 972521 7.3.02 Sekhawati SBP Daryaganj 50111
Bank Ngr. Mkt. Finance P.
ND Ltd.
HDFC Old 1000000 13.3.02 D.K. Ispat SBP -do- 50090
Regender & Timber
Nagar,ND Ltd.
HDFC -do- 650000 13.3.02 Kuberso SBP -do- 50084
Sales P.
Ltd.
HDFC -do- 1200000 14.3.02 Dinanath SBP -do- 50103
Luhariwal
Spinning
Mills Ltd.
HDFC -do- 850000 33834 16.3.02 Technocom Innovative Wazirpur 220
Associates
P. Ltd.
HDFC -do- 1000000 18.3.02 Chintpuri SBP DG 50058
Credits
Total 5400000
In the light of aforesaid information received from the investigating wing, the AO was of the opinion that the assessee failed to disclose fully and truly all the material facts in relation to assessment of income of `54 lacs received on account of aforesaid alleged entries for the AY 2002-03 . Accordingly, the assessment was reopened u/s 147 of the Act with the service of a notice u/s 148 of the Act on 25th March, 2009. In response, the assessee submitted a written reply dated 14th April, 2009 that the return filed u/s 139(1) may be treated as return in response to notice u/s 148 of the Act. The reasons recorded by the AO for reopening of the assessment were communicated to the assessee vide letter dated 2nd September, 2009. In response to a questionnaire issued by the AO, after taking a number of adjournments, the assessee submitted vide letter dated 17th November, 2009 that the reasons recorded for reopening the assessment did not contain the full details and reasons within the meaning of provisions of section 147 of the Act. Accordingly, the assessee objected to the notice issued u/s 148 of the Act and submitted that the company had received only an amount of ``54 lacs out of the 11 items mentioned in letter dated 2nd September, 2009.After having details and confirmations for the aforesaid share capital, the AO issued a show cause notice dated 8th December, 2009 asking the assessee 4 ITA No.4613/Del./2010 & CO No.366/Del./2010 to explain as to why share capital of ``54 lacs be not treated as income from undisclosed sources. On the date of hearing, the A.R. of the assessee was informed that summons issued u/s 131 of the Act to the aforesaid six parties, subscribing to share capital, were returned unserved in the case of five parties. Accordingly, the AR on behalf of the assessee was requested to furnish latest addresses of the aforesaid parties and produce the directors of the said companies. In response to the show cause notice, the assessee replied that they were unable to produce Directors/principal officers of the aforesaid six companies. After having information of the aforesaid six parties from the concerned banks and while narrating the modus operandi of the entry operators, the AO concluded that the assessee failed to discharge their onus in establishing identity and creditworthiness of the aforesaid six parties as also genuineness of the transactions and accordingly ,added an amount of ``54 lacs in terms of provisions of section 68 of the Act besides adding an amount of ``1,08,000/- @2% of the aforesaid amount paid as commission to the entry operators.
3. On appeal, the learned CIT(A) deleted the addition in the following terms:-
"4.5.0 I have considered the submissions of the learned AR of the appellant company. After considering the various judgments of jurisdictional High Court as well as of Hon'ble Supreme Court, I am of the view that no addition on account of share application money can be made in the hands of the appellant company. The Assessing Officer has not effected any enquiries to bring out any fact which could suggest that these parties have given accommodation entries to the appellant and that the money received from these parties is appellant's own undisclosed income and routed back to the appellant company in the guise of share application. Even appellant has not been provided with an opportunity to cross examine the so called entry providers and the fact is that the Assessing Officer has simply relied upon the information provided by the Investigating wing of the Department with no concrete efforts made to verify the facts stated therein. On the contrary, the appellant has filed copies of share application forms which contained names, addresses, PAN, Bank details and confirmations of the investors and hence, in view of various judicial 5 ITA No.4613/Del./2010 & CO No.366/Del./2010 pronouncements, no addition can be made in appellant's hand. In the case of Addl. CIT Vs. Hanuman Pd. Aggarwal 151 ITR 151 (Patna) it was held that assessee having furnished the correct name and address of the creditor, having confirmatory letter from the creditor and all materials show prima facie not only identity of the creditor but also the genuineness of the transaction, no adverse inference can be drawn. Reference can also be made to the judgment of Hon'ble Apex Court in the case of Steller Investment Ltd. (2001) 251 ITR 263 (S.C.), wherein it was held that even if the subscribers to the increased share capital of assessee company were not genuine, the amount could not be regarded as undisclosed income of the assessee company. The above view point of the Hon'ble Apex Court has also been expressed by Jurisdictional Delhi High Court in the case of Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del.), A-one Housing Complex Ltd. Vs. I.T.O. 110 ITD 361 (Del.), CIT Vs. Value Capital Service Pvt. Ltd. 307 ITR 334 (Del.) and CIT Vs. General Exports and Credits Ltd. (2008) 299 ITR 268 (Del.). In the case of CIT Vs. Divine Leasing & Finance Ltd. (supra) the Hon'ble Delhi High Court had laid down the law on the subject as to what is the extent of the burden lies on the assessee to prove the cash credit in the shape of share capital. The Hon'ble Court held that "if the relevant details of the address or PAN, identity of the creditor/subscriber are furnished to the Department along with the copies of Share Holder's Register, share application money forms, Share Transfer Register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. The Department would not be justified in drawing an adverse inference only because the creditors/subscribers fails or neglects to respond to its notices. The onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the A.O. take such repudiation at face value and construe it, without more against the assessee." The Department filed an SLP against the decision of Delhi High Court in the case of Divine Leasing and Finance Ltd. (supra) where the Apex Court, while dismissing the appeal filed by the Department held as follows:-
"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 alleged bogus shareholders, whose names are given to the A0, then the Department is free to proceed to re-open their individual assessments in accordance with law."
Delhi High Court in the case of CIT vs M/s Pondy Metal and Rolling 6 ITA No.4613/Del./2010 & CO No.366/Del./2010 Mill Pvt. Ltd. (ITA No. 788/2006) dated 19.02.2007 has concurred with the findings of the Appellate Tribunal, Delhi Bench 'F', New Delhi that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. At best, the amount could be added in the hands of the investor but it certainly could not be treated as undisclosed income of the assessee. The appeal filed against the said decision, was dismissed by the Hon'ble Supreme Court in C. C. 12860/2007 dated 08/01/2008. As no adverse/incriminating material has been gathered by the assessing officer during the course of the assessment proceedings hence, I do not see any justification on the part of the assessing officer to make any addition on account of share application money received from different parties especially when the assessing officer has been provided with PAN and other documentary evidences to prove the identity of the share subscribers. In view of above, it is clear that the appellant has discharged the initial onus of establishing the identity of the subscribers and the bonafides of the transactions hence the assessing officer is not justified in ignoring various evidences provided to him by the appellant. Nothing adverse has been brought on record by the assessing officer to establish that the amount of share application money received by the appellant from the above mentioned different persons represents its own undisclosed income. In view of our aforesaid discussion, I direct the assessing officer to delete the addition of Rs.54,00,000/- made U/S 68 of the Act.
4.5.1 As the addition of Rs.33,00,000/- has been deleted in pre- pages of this order, hence there remains no justification for making and sustaining an addition of Rs.`l,08,000/- on account of commission paid to the persons from whom the appellant has been alleged to have received share application money. The Assessing Officer is accordingly directed to delete addition of Rs.`1,08,000/-. These grounds of appeal are taken as allowed to the appellant."
4. The Revenue is now in appeal against the aforesaid findings of learned CIT(A).The ld. DR supported the findings of the AO. On the other hand, learned AR on behalf of the assessee while inviting our attention to decision dated 14th October, 2011 of the ITAT in the case of M/s MAF Academy Pvt. Ltd. in I.T.A. no.3650/D/2011 & C.O.no.317D/2011 for the AY 2002-03 contended that facts and circumstances in their case being similar to the facts and circumstances in the aforesaid decision, the matter may be adjudicated in the light of said decision.
7 ITA No.4613/Del./2010& CO No.366/Del./2010
5. We have heard both the parties and gone through the facts of the case. As is apparent from the aforecited facts, the ld. CIT(A) found that the AO did not bring any material on record, suggesting that the aforesaid six parties provided accommodation entries to the assessee and that the money received from these parties was ,in fact, the assessee's own undisclosed income , routed back in the guise of share application. On the other hand, the assessee submitted copies of share application forms, containing names, addresses, PAN, Bank details and confirmations of the investors. In these circumstances, relying on various decisions, including in Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del.), CIT Vs. Value Capital Service Pvt. Ltd. 307 ITR 334 (Del.) and CIT Vs. General Exports and Credits Ltd. (2008) 299 ITR 268 (Del.), the ld. CIT(A) deleted the addition while holding that the assessee discharged the initial onus of establishing the identity of the subscribers and the bonafide of the transactions. The Revenue have not controverted these findings of facts recorded by the ld. CIT(A) nor brought to our notice any contrary decision. On similar facts, a co- ordinate Bench in M/s MAF Academy Pvt. Ltd.(Supra) in their order dated 14th October, 2011, to which one of us i.e. JM is a party, concluded as under:-
"6. We have heard the rival contention in light of the material produced and precedents relied upon. We find that assessee has submitted the following documents before the Assessing Officer, in support of the share application money :- (i) Copies of share application form; (ii) affidavits of share holders; (iii) copy of audited balance sheet; (iv) copies of assessment orders; (v) copies of the banks statements; (vi) copies of ITR/WTR and (vii) copy of PAN.
6.1 Thus, we agree with the finding of the Ld. Commissioner of Income Tax (Appeals) that assessee has furnished sufficient evidences to justify the identity, creditworthiness of the parties and genuineness of the transactions. We find no verification was carried out by the Assessing Officer to controvert the evidences filed by the assessee from the income tax records of the concerned parties. Assessing Officer insisted for the production of the parties before him by the assessee but he did not make any independent effort to enforce the appearance of such parties. We agree with the finding of the Ld. Commissioner of Income Tax (Appeals) that no evidence was brought on record to establish that the documents filed by the assessee were false or the transactions entered into by 8 ITA No.4613/Del./2010 & CO No.366/Del./2010 the assessee were sham transactions. We further agree with the Ld. Commissioner of Income Tax (Appeals) that no cross examination was granted by the Assessing Officer to the assessee before making the additions. We also find that nothing has been brought on record to establish that the entries appearing in the assessee's books resulted from the assessee's own cash and were thus accommodation entries.
6.2 In this regard, we refer to the decision of the Hon'ble Apex Court delivered in the case of CIT Vs. Lovely Exports 216 CTR
195. In this case it was held that if the share application money is received by the assessee company from 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, but it cannot be regarded as undisclosed income of the assessee.
6.3 We further place reliance upon the decision of the Hon'ble Jurisdictional High Court in the case of C.I.T. vs. Dwarkadhish Investment P Ltd. in ITA No. 911/2010 vide order dated 02.8.2010. The relevant paras of this judgement of Hon'ble Delhi High Court i.e. para No. 6, 7 & 8 are reproduced herein below:-
"6. In our opinion, as section 68 of the Act, 1961 has been interpreted as recently as 2008 by a Division Bench of this Court in Divine Leasing and Finance Ltd. (Supra) after considering all the relevant judgements, we do not have to reconsider all the judgements referred to by Mr. Sahni which are prior in date and time to the aforesaid judgement. In fact, a Special Leave Petition filed against the said Division Bench Judgement was dismissed by the Supreme Court by way of speaking order in C.I.T. vs. Lovely Exports (P) Ltd. 216 CTR 195 (SC). The Supreme Court in Lovely Exports Pvt. Ltd. (Supra) has held as under:-
"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 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 judgement."
7. Consequently, the doctrine of merger would apply and the judgement of the Supreme Court in Lovely Exports (P) Ltd. (Supra) would cover the field with regard to interpretation of section 68 of the Act.9 ITA No.4613/Del./2010
& CO No.366/Del./2010
8. In any manner, the onus of proof is not a static one. Though in section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/ share applicants by either furnishing their PAN number or income tax assessment number and shows the genuineness of transaction by showing money / his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the revenue. Just because the creditors /share applicants could not be found at the address given, it would not give the revenue the right to invoke section 68. One must not lose sight of the fact that it is the revenue, which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the source of source."
6.4 We also place reliance upon the Jurisdictional High Court decision in the case of C.I.T. vs. Oasis Hospitalities P Ltd. ,333 ITR 119 as under:-
"27. The order of Assessing Officer would reveal that it had received an information from the Investigation Wing which had made various enquiries / investigations on the basis of which it was found that these six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were rather engaged in the business of providing accommodations entries. They were, thus, entry operators of which the appellant was the beneficiary. According to the Assessing Officer, the modus operandi involved in such type of activity was like this:
an entry operator operates a number of accounts in the same bank/branch or in different branches in the name of companies, firms, proprietary concerns and individuals and for the operation of these bank accounts, filing income tax returns etc. persons are hired. Most of these persons work on part-time basis and are called upon to sign documents, cheque books, etc. whenever required. Whenever any beneficiary is interested in taking an entry, he would approach the entry operator and handover the cash alongwith commission and take cheques, demand draft, postal order. The cash is deposited by the Entry Operator in a bank account either in his name or in the name of relative/ friends or other person hired by him for the purposes of opening the bank account. After the deposit of cash when there is sufficient balance, the entry operator issues demand draft, postal orders, cheques in the name of beneficiary. Most of these concerns / individuals also have obtained PAN from the department and are filing income tax returns, but what is shown in the return is not actual state of affairs.
28. The appellant filed copies of PAN, acknowledgement of filing of income tax returns of the companies, their bank account statements for the relevant period, i.e. for the period when the cheques were cleared.10 ITA No.4613/Del./2010
& CO No.366/Del./2010 However, the parties were not produced in spite of specific direction of the Assessing Officer instead of taking opportunities in this behalf. Since the so called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the investigation wing of the department, the Assessing Officer made the addition. This addition could not be sustained as the primary onus was discharged by the appellant by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such entry operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the Assessing Officer. The appellant was not confronted with the investigation carried out by the Investigation Wing or was given an opportunity to cross examine the persons whose statements were recorded by the Investigation Wing.
29. As regards discrepancies found by the Assessing Officer in the bank statement, suffice it to mention that the bank statements that were filed by the appellant were provided by the share holders and were computer printed on the bank stationery. The same were filed by the appellant during the assessment proceeding without any suspicion of their being incorrect. During the assessment proceedings, the appellant was never confronted by the Assessing Officer that there are discrepancies between the bank statements filed and the statements directly called by the Assessing Officer . However, even after considering the alleged discrepancies, it does not follow that the amount of share capital was the undisclosed income of the appellant. Even the correct bank statements as claimed by the Assessing Officer reveal that the appellant has received cheques from the shareholders. In this backdrop, the following observations of the Court in the case of C.I.T. vs. K.C. Fibres Ltd. (2010) 187 Taxman 53 (Del) are reproduced:
"It is strange that when the Assessing Officer is questioning the bona fides of M/s Diamond Protein Ltd. for collecting money to subscribe to the share to the capital of the appellant, but it is the appellant who is fastened with the liability. The Assessing Officer did not question M/s Diamond Protein Ltd. in this behalf. Insofar as Assessing Officer is concerned, it is not disputed that money was paid to it towards the aforesaid share application money, by means of cheques. It is not for the Assessing Officer to probe as to the source from where M/s Diamond Protein Ltd. collected the aforesaid money. It was for the Assessing Officer, in these circumstances to inquire into the affairs of M/s Diamond Protein Ltd. which 11 ITA No.4613/Del./2010 & CO No.366/Del./2010 is an independent company inasmuch as no finding is arrived at by the Assessing Officer that the two companies are umbrella companies or have any relationship with each other."
30. We are, therefore, of the opinion, that there is no merit in these two appeals, which are accordingly dismissed at the admission stage itself."
7. In the background of the aforesaid discussion and precedents, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) directing that the addition of `` 3,43,00,000/- is liable to be deleted. Since the addition of `` 3,43,00,000/- u/s. 68 has been deleted, we agree that the there is no basis for sustaining the addition of `` 6,86,000/- u/s 69C, the same is also directed to be deleted. Hence, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) and decide the issue in favour of the assessee. Hence, the Revenue's appeal stands dismissed.
Assessee's Cross Objection No. (317)
8. In the cross objection the assessee has challenged the reassessment proceeding and appealed that reopening is bad in law and beyond the jurisdiction of the Assessing Officer .
9. We find that we have already decided the issue on merits and upheld the order of the Ld. Commissioner of Income Tax (Appeals), therefore, the issue of reopening has become academic and hence, infructuous. Hence, the assessee's C.O. stands dismissed as infructuous.".
6. In view of the foregoing and in the absence of any basis, we have no alternative but to uphold the findings of learned CIT(A). Therefore, ground nos.1 to 3 in the appeal are dismissed. As a corollary, the grounds raised in CO become academic and do not survive for our adjudication and are , therefore, treated as infructuous 12 ITA No.4613/Del./2010 & CO No.366/Del./2010
7. No additional ground having been raised before us in terms of residuary ground no.4 in the appeal of the Revenue , accordingly, this ground is dismissed.
8. No other plea or submission was made before us.
9. In the result, both the appeal of the Revenue and the corresponding CO are dismissed.
Order pronounced in Open Court
Sd/- Sd/-
(R.P. Tolani) (A.N. Pahuja)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. Income Tax Officer, W ard-13(1), New Delhi.
2. M/s Navodaya Castles Pvt. Ltd., 783, Desh Bandhu Gupta Road, Karol Bagh, New Delhi-05
3. CIT(A)-XVI, New Delhi
4. CIT concerned.
5. DR, ITAT,'F' Bench, New Delhi
6. Guard File.
BY ORDER, Deputy/Asstt.Registrar ITAT, Delhi