Income Tax Appellate Tribunal - Delhi
Sanco Plastics Pvt. Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'G' NEW DELHI)
BEFORE SMT DIVA SINGH, JUDICIAL MEMBER
AND
SHRI B.K. HALDAR, ACCOUNTANT MEMBER
I.T.A. No.4921/Del/2009
Assessment year : 2006-07
DCIT, M/s Sanco Plastic Co. Ltd.,
Circle-7 (1), 9/51, Bazar Gali Vishwas Nagar,
New Delhi. V. Delhi.
(Appellant) (Respondent)
PAN /GIR/No.AAACS
/GIR/No.AAACS-
AAACS-1021-
1021-N
Department by : SMt. S. Mohanty, Sr. DR.
Respondent by : Shri D.P. Bansal, C.A.
ORDER
PER B.K. HALDAR, AM:
This is an appeal filed by the revenue against the order of Ld CIT(A)
-X, New Delhi dated 26.12.2008 for assessment year 2006-07. The revenue has taken following grounds of appeals:-
1. Ld CIT(A) erred in law and on the facts and circumstances of the case in deleting the addition of `.41 lakhs made by the Assessing Officer u/s 68 of the Income Tax Act, 1961.
2. The appellant craves to amend, modify, alter, add or forego any ground of appeal at any time before or during the hearing of the appeal."2 ITA No.4921/Del/09
2. The assessee is a private limited company engaged in the business of manufacture of PVC compound, pipes & cables which are used for electrical fittings. During the assessment proceedings, it was noted by the Assessing Officer that an amount of `.50 lakhs was received by the assessee towards authorized share capital money. When asked to furnish details regarding the same, the assessee furnished confirmations of share holders along with copies of their Income Tax returns and balance sheet for the relevant assessment year. As the details furnished by the assessee were incomplete, the Assessing Officer sought further information from the share applicants u/s 133(6) of the Income Tax Act, 1961. The replies were not received within the time specified in such notices. The assessee was, therefore, asked to show cause as to why in absence of reply being received from the share applicants, the impugned transactions should not be considered ingenuine and added back to the total income of the assessee. Thereafter, some confirmations were received by the Assessing Officer.
3. On the basis of information on record, the Assessing Officer was of the opinion that some of the impugned transactions were in-genuine and fake for the reasons mentioned hereunder:-
i) While comparing the confirmations filed by the assessee of shareholders and confirmations received in response of notice u/s 133(6), it is noticed that the letter heads of these shareholders companies are not same. The letter head of most of the companies are printed in black ink while the latter received is in red color.3 ITA No.4921/Del/09
ii) It is also noticed that 5 out of six confirmations have been signed by the same person in same signature in capacity of the Director.
iii) It is also noticed that two of the investor companies having same addresses as registered office.
iv) The language, pattern & style of all the confirmations filed are same and without date.
V) In most of the confirmations, it is written· as " applied for the allotment of (no) equity shares of Rs.100 each ........ We were allotted Equity shares of Rs.10/- each. It is not understandable that how shares have been purchased 100/-
each and allotted of Rs.10/- each and if it is issued on premium, assessee has never stated this fact.
vi) During a perusal of the confirmations received from the shareholders and their copies of return of income filed, it is revealed that the creditworthiness of these shareholders has not been proven. The details of the same is as under:
S.No. Name of shareholders Amount Returned invested Income in shares 1 Akik Education Centre (P) Ltd 500000 6,452 2 Agroha Savinqs Ltd 600000 31,310 3 Parsandi Leasing Finance Pvt Ltd 1000000 13,280 4 Paras Fincap Pvt Ltd 500000 10,140 5 Lokpriya Tea Company Ltd 1400000 23,960 6 Shri Giriraj Fincap Pvt Ltd 100000 Nil Total 41,00,000 4 ITA No.4921/Del/09
vii) During the perusal of above mentioned details, it is particularly seen that assessee has either nil or below taxable income and has been claimed to invest/purchase share for huge consideration. From any stretch of imagination, it is unbelievable that such assesses can actually invest in such huge amount. This again points to the lack of credit worthiness of these assessees.
viii) The copies of bank accounts of some of the shareholders provided by the assesses reveals that many transactions of depositing cash or crediting the amount through cheques has occurred well before the transaction date and some on the date of transaction itself.
ix) To further investigate upon the creditworthiness of the alleged shareholders, information from various banks was' sought u/s 133(6) regarding the credit entries in these bank accounts for appx. 2 months just before the said transaction date and also the bank opening forms of the same. In response to this, only 2 banks have responded. From the information so received, it is gathered that in two cases namely M/s Akik Education Centre (P) Ltd and M/s Paras Leasing & Finance (P) Ltd whose accounts are in same bank i.e State Bank of India, Roop Nagar, New Delhi, there are no transaction in the month of March. As per copies of bank accounts of above shareholders furnished by the assessee, cheques have been cleared on 15.4.2006 & 28.4.2006. There is a gross mismatch in the information provided by the assessee and the bank,
x) The information required u/s 133(6) from banks has not been complied fully. In this, it is particularly noted that even 5 ITA No.4921/Del/09 where banks have parted with information, they have not given the narration and credit entries in the alleged shareholders bank accounts. In absence of such information, an adverse view regarding the whole transaction is taken.
xi) The bank account opening forms in the case of M/s Paras Fincap Pvt Ltd & M/s Akik Education Centre Pvt Ltd whose accounts are in Bank of Baroda, Model Town Branch, & SBI, Roop Nagar Branch shows that the same person i.e. Shri Subodh Kumar Khandelwal has been authorized to operate the bank on behalf of both the company.
xii) From the perusal of balance sheet of the assessee, it is seen that the pattern of B/S & Profit & Loss Account are exactly on same pattern in most of the shareholders accounts showing the income and expenditure under same heads. Such as under
the head of Income has mostly income from interest and miscellaneous income etc. This pattern clearly indicative that the balance sheets are forged and created only for the purpose of the alleged transactions. There are no such companies actually existing and they are merely companies on paper.
4. The Assessing Officer, therefore, held that the shareholders holding share worth `.41 lakhs did not have creditworthiness and the impugned transactions were in-genuine. He added `.41 lakhs as income of the assessee. Aggrieved, the assessee filed appeal before the ld CIT(A).
5. In the appeal before the Ld CIT(A), the assessee contended as under:-6 ITA No.4921/Del/09
i) The assessee had discharged its onus with regard to the share capital raised during the year under consideration by filing shareholders confirmations containing full details such as address, mode of payment, income tax particulars, copy of IT returns, copy of bank statement, and audited balance-sheet.
ii) The Assessing Officer issued notices to the shareholders and replies thereof were received by the Assessing Officer after the stipulated time. The assessee could not be blamed for the same as held in the judgment of Hon'ble Bombay High Court in the case of CIT v. U.M. Shah 141 ITR 396.
iii) The observations of the Assessing Officer that the assessee could not provide adequate information/details as desired, was without any basis. The Assessing Officer has not specified the deficiencies.
iv) The observations of the Assessing Officer that the letter heads used in the confirmations furnished by the assessee and those received in response to notice u/s 133(6) of the Act were different is not material as in both of these the parties confirmed that the impugned transactions were entered into by them.
v) The observation of the Assessing Officer that the same person had signed five confirmations does not have any bearing on the issue involved as there is no bar under the Companies Act for a person to be a director in five or more companies. If the Assessing Officer had any doubt in this regard, she could have got the same clarified either from the companies or from the assessee. But she did not do either. As such the assessee was required to be given an opportunity before drawing any adverse conclusion on material obtained by the Assessing 7 ITA No.4921/Del/09 Officer. As no such opportunity was allowed, it amounted to violation of principle of natural justice. Reliance was placed in the case of Gargi Ben Jawala Prasad v. CIT 96 ITR 97 (Alld.).
vi) As regards the registered address of two companies being the same, the same would not make any difference to the genuineness of the transaction entered into.
vii) As regards the observation of the Assessing Officer that the confirmations filed in same language, pattern and style, It was submitted that the same also do not effect the genuineness of the transaction.
viii) The Assessing Officer did not accept the creditworthiness of the shareholders on the basis of income disclosed by them.
The same is incorrect. Availability of funds with the shareholders is material for determining their creditworthiness.
ix) The transactions in the bank account of the share holders may be routine transactions and without any adverse material or information, no adverse inference should have been drawn by the Assessing Officer.
x) The observation of the Assessing Officer that the same person was authorized to operate bank accounts of two shareholder companies would not make such transactions in-genuine until and unless there were some corroborative adverse material on record.
xi) Schedule-VI of Companies Act has standard pattern which all the companies were required to follow. The same would not affect the genuineness of the transaction.
xii) The observations and allegations made by the Assessing Officer are based on conjecture or surmises.
8 ITA No.4921/Del/09xiii) The Assessing Officer has disregarded the material furnished by the assessee and shareholders without bringing any material contrary to the same on record.
6. On the basis of above submissions, it was contended by the assessee that the impugned addition should be deleted. Reliance was placed on the following case laws:-
1. CIT v. Lovely Exports (P) Ltd. 216 CTR 195 (SC).
2. CIT v. Divine Leasing & Finance Ltd., SPL Civil...2007 cc 6698/2007 order dated 10.8.2007 (SC).
3. CIT v. Value Capital Services (P) Ltd. I.T.A. No.348/2008) 221 CTR 511 ((Del.).
4. CIT v. General Exports Credits Ltd. (SC) Order dated 10.3.2008 SPL Civil No.21349/2007.
5. CIT v. Dwarkadish Financial Services (P) Ltd. 197 CTR 202 (Del.).
6. CIT v. Divine Leasing & Finance Ltd. I.T.A. No.880/2006, General Exports & Credits Ltd. (I.T.A. No.953/2006, Lovely Exports (P) Ltd., (Delhi High Court Date of decision 16.11.2006).
7. CIT v. Achal Investment Ltd. 268 ITR 211 (Del.).
8. CIT v. Dolphin Canpack Ltd., 204 CTR 50 (Del.).
9. Shree Barkha Synthetics Ltd. v. ACIT 155 Taxmann 209 (Raj.).
10. CIT v. Shree Barkha Synthetics Ltd. 270 ITR 477 (Raj.).
11. CIT v. Sophia Finance Ltd. 205 ITR 98 (Del.).
12. DCIT v. Rohini Builders 256 ITR 360 (Guj.).
7. A remand report was called for by the Ld CIT(A). In the said remand report, the Assessing Officer made out the following additional points:-
9 ITA No.4921/Del/09i) In five our of six share applicant companies, Shri Subodh Kumar Khandelwal is the director. Out of these companies, Paras Fincap Pvt. Ltd., Akik Education Centre Pvt. Ltd. and Parasandi Leasing Finance Pvt. Ltd. had received money from two concerns namely Achal Investment and Rani Enterprises just before applying for share capital. From the bank accounts of these two concerns, it was noticed that cash were deposited just before issuing cheques to the three share applicants. The Assessing Officer, therefore, issued summons to Shri Pradeep Kumar Jindal twice but there were no compliance. The Assessing Officer, therefore, observed as under:-
"The entire chain of depositing cash and the issuing cheques to the share applicants has been established. Therefore, finding of Assessing Officer regarding creditworthiness of shareholder is again established with the help of money trail. Also the genuineness of the transaction as claimed by the assessee, is sham. This exercise of depositing cash and getting cheques for share application was entirely to introduce money to its books."
8. When confronted with the remand report of Assessing Officer, the assessee submitted that the Assessing Officer cannot go into source of source. Even otherwise, the material relied on by the Assessing Officer cannot be said to be adversely impacting on the issue involved. Reliance was placed on the following case laws:-
1. Nemichand Kothari v. CIT 264 ITR 254 (Gauhati).
2. CIT v. Daulat Ram Rawat Mal. 87 ITR 349 (SC).10 ITA No.4921/Del/09
9. With reference to non appearance of the person, it was submitted that the same cannot be considered to be fault of the assessee. Reliance was placed on the following case laws:-
1. CIT v. U.M. Shah (supra).
2. Nathu Ram Prem Chand v. CIT 49 ITR 561 (Alld.).
10. After considering the facts and circumstances of the case, the Ld. CIT(A) observed that the observations made by the Assessing Officer in the assessment order have been clarified by the assessee during the appellate proceedings. Thus, these do not appear to be sufficient and reasonable grounds for addition especially when the same have not been confronted to the appellant.
11. The assessee contended that following facts have been established by relevant evidences :-
- All share applicants are companies having separate existence and are registered with the Registrar of Companies.
- They are regular Income tax assessee.
- They have their own bank account.
- They were issued and served notice u/s 133(6) of the Act.
- They have responded to the notices by way of confirming the investments in the appellant company.
The Ld CIT(A) held that on the basis of the same, the identity of the parties have been established.
12. The Ld CIT(A) took note of the following facts:-
11 ITA No.4921/Del/09--------------------------------------------------------------------------------------------------
Sl. Name of the shareholder Investment in Capital/ No. appellant co. fund 1. Akik Edu., Centre Pvt. Ltd. 500000 32678033 2. Agroha Savings Ltd. 600000 5000000 3. Parsandi Leasing Fin.(P) Ltd. 1000000 64442577 4. Paras Fincap Pvt. Ltd. 500000 17368420 5. Lokpriya Tea Co. Ltd. 1400000 10000000 6. Shri Giriraj Fincap Pvt. Ltd. 100000 2566700
He, therefore, held that the parties were creditworthy.
13. As the impugned amounts were received by the assessee through banking transactions and as discrepancies noted by the Assessing Officer have been reconciled, the Ld CIT(A) held the transactions to be genuine.
14. In the above facts and circumstances and placing reliance on the judgment of Hon'ble Apex Court in the case of CIT v. Lovely Exports Pvt. Ltd. 216 CTR 195 (SC) and Hon'ble jurisdictional High Court's decision in the case of CIT v. Value Capital Services Pvt. Ltd. 221 ITR 511 (Del.), the Ld CIT(A) deleted the impugned addition of `.41 lakhs. Aggrieved, the revenue has filed appeal before the Tribunal.
15. Before us, the Ld DR in addition to relying on the order of the Assessing Officer, submitted that it is clear from the remand report of the Assessing Officer that it is not the source of source which the Assessing Officer went into but merely traced the money trail of the 12 ITA No.4921/Del/09 impugned share investments. According to the Ld DR, the same is very relevant for deciding the issue at hand.
16. It was further submitted by her that the ratio laid down by the Hon'ble Apex Court in Lovely Exports (P) Ltd. (supra) was not applicable to the facts of the present case in so far as it was not a case of public issue of shares. The shares were privately placed and thus merely establishment of identity of share applicant was not sufficient for the addition to be deleted.
17. The Ld AR for the assessee, on the other hand, relied on the order of the Ld CIT(A). It was emphasized by him that the identity of the share applicants have been proved by the assessee and therefore no addition on this account was called for.
18. We have heard the parties and perused the record. We have also gone through the case laws cited by both the parties. We find that the impugned share holders/applicants had very meager income. However, the companies had sufficient resources from which the impugned amounts could have been paid. Evidence on record show that the amounts were paid by the parties to the assessee through their respective bank accounts. The Ld CIT(A) had categorically found that the identity of the parties were proved, the parties had creditworthiness and the evidence on record proved the genuinity of the transaction. The above factual findings of the Ld CIT(A) have not been dislodged by the revenue by bringing on record any contrary evidence. In this view of the matter, we do not find any infirmity in the order of the ld CIT(A) on the issue involved and confirm the same.
19. In the result, the appeal filed by the revenue is dismissed.
13 ITA No.4921/Del/0920. Order pronounced in the open court on the 25th day of November, 2011.
Sd/- Sd/- (DIVA SINGH) (B.K. HALDAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dt. 25.11.2011. HMS Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing
Date of Dictation
Date of order signed by the
Hon'ble" Member.
Date of order Sent to the
concerned Bench
14 ITA No.4921/Del/09