Income Tax Appellate Tribunal - Delhi
Optibelt Private Ltd,, New Delhi vs Department Of Income Tax on 9 February, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F': NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND
SHRI B.P. JAIN, ACCOUNTANT MEMBER
I.T.A.No.1964/Del/2009
Assessment Year : 2005-06
Income-tax Officer, M/s. Optibelt Private Ltd.,
Ward 13(4), New Delhi. Vs. S-23, Green Park Extension,
New Delhi.
(Appellant) (Respondent)
Appellant by : Shri H.K. Lal, Sr. DR.
Respondent by : Shri Sanjeev Jain, CA.
ORDER
PER B.P. JAIN, ACCOUNTANT MEMBER.
This appeal by the revenue is directed against the order of the learned Commissioner of Income-tax (Appeals)-XVI, New Delhi, dated 09.02.2009 in an appeal against the assessment framed under section 143(3) of the Income-tax Act (the Act).
2. The revenue has raised the following solitary ground before us:-
"The Ld. CIT(A) erred in law in deleting the addition of Rs.18,00,000/- made u/s 68 with respect to the money claimed to have been received as share application money without appreciating the facts and the circumstances in the right perspective."2
3. Brief facts of the case as noted in the order of the Assessing Officer at Pages 1 to 6 are reproduced hereunder for the sake of clarity:-
"During the year the assessee company has shown income from house property. It was noticed from the balance- sheet that during the year the assessee company has issued 18000 shares of Rs.10/- each at a premium of rs.90. During the course of asstt. Proceedings the AR of the assessee was asked to file the details in respect of this.
From the details filed it was seen that the assessee has allegedly received Rs.9,00,000/- each from M/s. G.C. Technology India Pvt. Ltd. And M/s. Fair `N/ Square Exports Pvt. Ltd. And shares having face value of Rs.10/- were allegedly allotted to them at a premium of Rs.90/-. The AR of the assessee filed copy of ack. of IT return filed by these companies and their balance-sheet and confirmation on affidavit dated 4.3.2005.
The AR of the assessee was asked vide ordersheet entry dated 7.8.2007 to produce the Principal Officer of these parties alongwith their copy of bank statement and books of account for verification. The assessee after taking such a long time submitted vide its letter dated 10.9.2007 that:
"It is submitted that we have already filed the confirmation of the above referred two shareholders alongwith copies of their Balance Sheets, Income Tax Returns acknowledgment receipts in evidence of filing the returns. The shareholders have also confirmed their investment in our Company's Shares and have identified themselves by giving their PAN.
With regard to their bank accounts and production of principal officer is concerned, it is stated that the shareholders are not in our control as they are not related to Directors of the Company. We requested them to provide the desired information 3 which they refused to submit on the ground that they would submit the same to the assessing officer as & when they will be called for. So far our onus of proving their investment in shares of our company is concerned the same have been discharged by filing the relevant documents as stated above.
It would not be incongruous to mention here that the Investigation Wing had made various enquiries/investigations on the basis of which it was found that M/s. G.C. Technology India Pvt. Ltd. And M/s. Fair `N/ Square Exports Pvt. Ltd. were not carrying on any actual business and were engaged in the business of providing accommodation entries. The person/party who provides such entry is known as Entry Operator and the person/party taking such entry is called Beneficiary.
An entry operator operates a number of accounts in the same bank/branch or in different branches in the names of companies, firms, proprietary concerns and individuals. For the operation of these bank accounts, filing income tax returns etc. persons are hired. Except for two or three persons who are required regularly to visit bank and to do other spade work like collection of cash etc., most of the other person involved are on part time basis. The part time employees are called as and when required to sign documents, cheque books etc. Whenever any beneficiary is interested in taking an entry he/she/it approaches the entry operators and handover the cash, along with commission and take cheques/DD/PO. The cash is deposited by the entry operator in a bank account either in his own name or in the name of relative/friends or other person hired by him for the purposes of opening bank account. The other person, in whose name the account is opened, only signs the blank cheque book and handover the same to the main entry operator. The entry operator than issue cheques/DD/Pos in the name of the beneficiary from the same account, in which the cash is deposited, or another account in which the funds are transferred though clearing in two or more stages.4
Thus, the beneficiary's money sails through several accounts before reaching him/it in the end. Interestingly, most of the concerns/individual, who are operating as Entry Operator, have obtained PAN from the department and are filing returns as well. But what is shown in the return are not actual state of affairs. They create such a façade that on the face of it all things appear to be in order such as they have PAN and are filing income-tax returns etc. Shri Rajan Jassal, Director of M/s. Fair `N' Square Exports Pvt. Ltd. and Shri Mukesh Gupta, Director of M/s. G.C. Technology India Pvt. Ltd. had in their statement, recorded on oath by Shri P.S. Tomar, the then Addl. DIT (Investigation) categorically stated that these companies under their control were not doing any genuine business and were merely providing accommodation entries. In view of this, the photocopies of the so called confirmation on affidavit dt.
04.03.2005 from these parties i.e. the date even prior to the clearance of alleged cheques from the bank, have no evidentiary value. It is important to mention here that in the case of CIT Vs Durga Prasad More (1971) 82 ITR 540 (SC) it was held by the Hon'ble Supreme Court that "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. But a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour, then the door will be left wide open to evade tax. The taxing authorities are not required to put no blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances 5 to find out the reality of the recitals made in those documents---"
Further it was held in the case of ITO Vs K. Jayaraman (1987) 168 ITR 757 (Mad) that if a doubt arises as to the validity or the genuineness of a document filed, for the limited purpose of a proceeding before the authority under the Act, such authorities are bound to go into the question of genuineness and validity.
It will not be incongruous to mention here that Bank statement of M/s. G.C. Technology India Pvt. Ltd. and M/s. Fair `N' Square Exports Pvt. Ltd. were cancelled for u/s 133(6) of the IT Act from the Bans.
A perusal of the Bank Statement of these parties leaves no room for any doubt. It clearly shows, what was observed in the case of bank account of entry operators i.e. for most of the period the balance in the account was quite meager as compared to the volume and value of transactions. The deposits were made in the account mostly through deposits of the huge cash and occasionally through transfer entries and the same are immediately followed by transfer out of funds through transfer entries, cheques and at times through withdrawal of cash.
In respect of bank statement of M/s. Fair `N' Square Exports Pvt. Ltd. from whom the assessee has allegedly shown receipt of Rs.9,00,000/- as share capital on 07.03.2005, it is noticed that a sum of Rs.8,00,000/- (4,00,000 + 4,00,000) was deposited in cash on 07.03.2005 itself. It is worthwhile to mention here that, in this particular account of M/s. Fair `N' Square Exports Pvt. Ltd. during F.Y. 2004-05, about Rupees ten crore were deposited in cash. Even a cursory look at P & L A/c & balance-sheet of this company filed by the shows that this company is not capable of depositing such a huge amount of cash in its accounts as the total revenue as per its P & L A/c is Rs.3,52,142/- only.
In view of these facts and the assessee's inability/unwillingness to produce these parties summons u/s 6 131 dated 10.10.2007 were issued in the name of M/s. G.C. Technology India Pvt. Ltd. and M/s. Fair `N' Square Exports Pvt. Ltd. requiring them to appear on 17.10.2007 and to produce the followings:-
Bank statement for F.Y. 2004-05 i.e. relevant to A.Y. 2005-06.
Copy of acknowledgement of filing of income-tax return for A.Y. 2005-06 and for the current assessment year i.e. A.Y. 2006-07, along with copy of audited balance sheet for A.Y. 2005-06.
Supporting documents in respect source of investment in shares of M/s. Optibelt Pvt. Ltd. during A.Y. 2005- 06, along with complete ledger and cash book.
Photocopy of share certificate, if any allotted by M/s. Optibelt Pvt. Ltd.
The summons were sent through speed post at the address given by the assessee but neither these were received back unserved nor anybody attended in response to this notice. In view of this summons u/s 131 were again issued on 25.10.2007 in the name of both these companies requiring them to produce the details mentioned above, on 1.11.2007. The Inspector of this Ward Mrs. Renu Kamra was deputed to serve the summon personally on both these companies. The Inspector after visiting the given addresses filed her report whereby she informed as under:-
Inspector Report M/s. Fair `N' Square Exports Pvt. Ltd.
WZ-134, Plot No.170, Vishnu Garden, New Delhi.
I was deputed by the ITO Ward 13(4), New Delhi to serve the summons u/s 131 of the I.T. Act, 1961 in connection 7 with the Income tax proceedings in the case of M/s. Optibelt Pvt. Ltd. for the Asstt. Year 2005-06. I visited the above mentioned place it is find that this address does not exist in Vishnu Garden but this address is located in Khyala & Chand Nagar also. But the above named company does not exist at above mentioned places.
Inspector Report M/s. G.C. Technology (I) Pvt. Ltd.
B-348, 3rd Floor, Hari Nagar, New Delhi.
I was deputed by the ITO Ward 13(4), New Delhi to serve the summons u/s 131 of the I.T. Act, 1961 in connection with the Income tax proceedings in the case of M/s. Optibelt Pvt. Ltd. for the Asstt. Year 2005-06. I visited the above mentioned place. This plot is divided in four equal residential houses. None of these is constructed upto the third floor. Out of the above, one house is vacated and locked for the last four years. All the persons living in the above premises refused to know about the above said company. I also enquired from Sh. Manohar Lal, resident of House No.336, also stated that he has been living there for the last eight years and he is not aware of the above named company.
In view of this and the report of the Inspector, the assessee was informed accordingly vide letter dated 15.11.2007 of this office and it was asked to depute someone to accompany the Inspector and get the summons served or produce these parties on its own for verification. The case was fixed for 19.11.2007. On this date the AR of the assessee rather than producing these parties filed its reply vide letter dated 17.11.2007 which is similar to what it submitted vide its letter dt. 10.09.2007 as discussed above.
The assessee company is a Private Ltd. Company. In the case of such companies there is close and proximate relationship between the promoters/directors and the shareholders. The closely held companies are permitted to 8 accept the subscription of share capital or deposits from the friends or relatives of the promoters. As such there should have been no difficulty on the part of the assessee to produce somebody from the said entity, had the whole apparatus not been merely a conduit to plough back the money of the assessee company in the garb of share capital. Mere payment by A/c payee cheque is not sacrosanct nor can it make a non genuine transaction genuine.
The assessee was failed to discharge its onus and to produce these parties to prove beyond doubt, the genuineness of the transaction and the existence and creditworthiness of these parties.
In view of the above facts, I am satisfied that the amount of Rs.18,00,000/- allegedly received from M/s. G.C. Technology India Pvt. Ltd. and M/s. Fair `N' Square Exports Pvt. Ltd. was never received as share capital & premium. It was a camouflaged transaction to avail the benefit of favorable judicial pronouncement on share capital. Thus, keeping in view the totality of the facts, the amount of Rs.18,00,000/- is added back to the income of the u/s 68 of the IT Act."
4. The learned CIT(A) after considering the submissions made by the learned AR held that the additions have been made by the Assessing Officer on the basis of information received from the Investigation Wing of the Department. When the assessee was asked to produce the directors of the companies from whom share application money was received, the assessee submitted confirmations and other evidences but did not produce the directors of the said companies. It was observed by the learned CIT(A) that the AO disregarded these evidences and emphasized that identity and creditworthiness of the investors was not proved. The learned CIT(A) 9 further observed that the AO has not given any details about the enquiry conducted by him on the basis of which it was held that the said parties were involved in the business of providing accommodation entries. The AO has not brought any material on record which can prove that this money was assessee's own money but the findings are on the basis of information received from the Investigation Wing of the Department without making any effort to verify the facts stated therein. Nothing has been brought on record in the form of positive material or evidence to indicate that the shareholders were benamidars. The learned CIT(A) relied upon the decision of various Courts of law as stated by the assessee including the decision of Hon'ble Supreme Court where it has been held that whereas the identity of the shareholders has been established, even if there is a case of bogus share capital, it cannot be added in the hands of the company unless any adverse evidence is not on record. The learned CIT(A) further observed that the assessee has duly explained the credit entries in the form of documentary evidences which prove the identity of the shareholders. The assessee has discharged its initial onus of establishing the bona fide of transactions and the AO was not justified in ignoring the various evidences provided to him by the assessee. The AO has not done any investigation/enquiry during the 10 course of assessment proceedings. Accordingly, the learned CIT(A) deleted the addition of Rs18,00,000/- made u/s 68 of the Act by the AO.
5. The learned DR Shri H.K. Lal relied upon the order of the AO and the learned counsel for the assessee Shri Sanjeev Jain relied upon the findings of the learned CIT(A) and submitted that in the absence of any contrary evidence, the addition has rightly been deleted by the learned CIT(A).
6. We have considered the facts of the case and the arguments made by the parties and the decisions cited. The learned DR at the outset relied upon the order of ITAT Delhi Bench `B' in the case of ITO vs. M/s. Omega Biotech Ltd. in ITA No.2860/Del/09, dated 31.12.2009 on identical issue.
We have gone through the said decision, which is on the identical facts as in the present case. The decision of the said Bench of ITAT in the case of M/s.
Omega Biotech Ltd. (supra) for the sake of clarity in Para 7 to 10 is reproduced in entirety hereunder:-
7. We have carefully considered the relevant facts arguments advanced and the decisions cited. After the assessee filed various documents in respect of share applicants the AO tried to examine whether this person exist. The inquiry revealed that all these companies do not exist at the places mentioned. This fact was brought to the notice of assessee also. Thereafter the assessee has not tried to prove the existence of such share applicants. On the contrary It has been stated that the so called shares allotted to the share applicants have been acquired by the Directors and the relatives of the Directors of respondent company herein. In such circumstances Ld. CIT(A) erred in holding that the addition is to be deleted. The Commissioner 11 (A) has failed to take note of the fact that when the share applicants do not exist and were not available for their examination, how merely on paper the existence of share applicants can be proved. The AO has not merely relied upon the information received from investigation wing but has also tried to find out whether the share applicants exist or not. When the parties were not found at the given address, this fact was brought to the notice of assessee and the assessee has thereafter not provided any further proof of the existence of share applicants. Though Hon'ble Supreme Court observed as extracted herein above, before arriving at a finding that the shares were allotted, the existence of share applicants is required to be established. The observation will be relevant only when the shares applicants are existing and shares are allotted to them. In this case existence of share applicants has been shown by the assessee on papers which even could not be substantiated by proof that the existence is on the address provided to the assessee by the share applicants. Therefore, the papers submitted itself by the assessee do not prove the existence of share applicant factually. Therefore in the present case we find that the existence of share applicants were not proved. Therefore merely on certain papers produced by assessee it cannot be said that these share applicants were in existence who have actually applied for shares and were allotted the shares. The fact also remains that now the shares are acquired by the family members of the Directors at much lesser price. This fact also should have been examined .
8. The Commissioner (Appeals) has deleted the addition for the reason that since the Assessing Officer has not made any enquiry after the appellant furnished all these particulars, it has discharged its onus and no addition is called for under section 68 of the Act. The Commissioner (Appeals) has also not examined whether the share applicant had any creditworthiness and the transaction was genuine. In such a situation the Commissioner (Appeals) erred in deleting the addition as the Assessing Officer failed to make any enquiry. Rather it was incumbent upon the Commission (Appeals) to carry the enquiry further and should have done what the Assessing Officer failed 12 to do. Hon'ble Supreme Court in the case of Kapurchand Shrimal vs. CIT, 131 ITR 451 held -
"It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by statute."
9. Since no further evidence is available before us to give a finding that the cash credit during the year has been proved, and since the authorities below also failed to conduct necessary enquiries in this regard, we remit the matter back to the file of the Assessing Officer to examine the nature of credit and then to satisfy whether the credit is properly explained or not. The assessee is directed to place necessary evidence so as to justify the identity and creditworthiness of the creditor and genuineness of the transaction.
10. For statistical purposes, the appeal is treated as allowed."
7. In the present case on enquiry by the Inspector all these companies claimed as shareholders do not exist at the places/addresses given by the assessee. The result of the enquiry was brought to the notice of the assessee company and the assessee company did not even try to prove the existence of such share applicants. Moreover, in the present case the directors of shareholder companies were examined by the Investigation Wing of the Department, who had categorically stated that these companies under their control were not doing any genuine business and they were merely providing accommodation entries. The photocopies of the so called 13 confirmations/affidavit dated 4.3.2005 from these parties are dated even prior to the clearance of alleged cheques from the bank. The findings of the learned CIT(A) that the AO has merely relied upon the information received from the Investigation Wing cannot be said to be true since the AO has tried to find out the share applicants exist or not and the Inspector's report has been reproduced in the order of the AO and the same has been brought to the notice of the assessee as well. As per the judgment of Hon'ble Supreme Court the existence of share applicants is required to be established. In the present case the existence of the shareholders has not been established in spite of opportunity given to the assessee. No further evidence since the start of assessment proceedings has been given except the documents procured before the start of the assessment proceedings. Moreover, in the present case the assessee has charged a premium of Rs.90/- per share over and above the face value of Rs.10/- per share and this aspect has not been examined by any of the authorities below. Though the fact of charging premium of Rs.90/- per share, no material has been brought on record vis-à-
vis the financial position of the assessee to the justification of charging the premium. No balance sheet of the assessee company has been filed before us. In the circumstances and facts of the case the existence of the share applicants is not proved. The learned CIT(A) has deleted the addition since 14 the AO has not made any enquiry of the documents submitted. At the same time, the learned CIT(A) has also not conducted any enquiry. As per decision of Hon'ble Supreme Court in the case of Kapur Chand Shrimal (supra) CIT(A) could also make appropriate enquiry, if anything was found lacking in the Assessment Order.
8. From the facts as discussed above, it can be seen that the assessee has not been even able to establish the identity of the shareholders as after the commencement of assessment proceedings, no fresh confirmation has been filed from the shareholder and no fresh address has been given. The address, which was given, was not found correct. However, in the interest of justice, we are of the opinion that this matter should be restored back to the file of the AO with a direction to provide the assessee a reasonable opportunity of hearing to establish the identity of the shareholders. With these directions the matter is restored back to the file of the AO.
9. In the result, the appeal is allowed for statistical purposes.
Pronounced in the open court on 29th January, 2010.
Sd/- Sd/-
(I.P. BANSAL) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 29th January, 2010.
15
ITA No.1964/Del/2009
Copy of the order forwarded to:-
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
By Order
*mg Deputy Registrar, ITAT.