Income Tax Appellate Tribunal - Delhi
Ajnara India Ltd., New Delhi vs Department Of Income Tax on 25 May, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A': NEW DELHI
BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT
AND SHRI C.L. SETHI, JUDICIAL MEMBER
I.T. A. No.3612/Del/2010
Assessment Year: 2007-2008
Asstt. Commissioner of Income-tax, M/s. Ajnara India Ltd.,
Circle 1(1), New Delhi. Vs. 502, Plot No.17,
Suchdeva Corporate
Tower, Karkardooma
Community Centre,
Delhi.
PAN: AAACA4700C
(Appellant) (Respondent)
Appellant by: Shri Ashok Pandey, CIT-DR
Respondent by: S/Shri R.S. Singhvi &
Narendra Rustogi, CA.
ORDER
PER C.L. SETHI, JUDICIAL MEMBER:
The revenue is in appeal against the order dated 25.05.2010 passed by the Commissioner of Income-tax (Appeals) pertaining to the Assessment Year 2007-08.
2. The various grounds of appeal raised by the revenue are directed against CIT(A)'s order in deleting the addition of Rs.3,47,00,000/- made 2 under section 68 of the Income-tax Act, 1961 (the Act) on account of share capital money credited in the assessee's account.:
3. The facts of the case and the observations of the Assessing Officer in making the addition are summarized as under -
The Assessing Officer has observed that as per the report of the ADIT, Ghaziabad that the various amounts received from the share applicants had come from the non-existent companies. Since these companies were not found at the given address and the Directors were also not found, the onus had not been discharged by the assessee with regard to the credit entries made on account of share application money.
With regard to the various amounts of share application money received from different parties the Assessing Officer has elaborately discussed each entry in para 5 of the assessment order in which he has observed that on the basis of spot inquiries in many cases the addresses of the parties were not found to be genuine and at the same time the explanations provided by the AR of the assessee was not sufficient to establish the identity, genuineness and credit worthiness of the various parties. The primary observations with regard to the various parties were based on the observations of the Investigation Wing and also the fact that the companies could not be located at the given address. The arguments of the 3 Assessing Officer were similar in nature as had been made for assessment year 2006-07. The Assessing Officer observed that with regard to various parties the status was as follows:-
i) The companies were not existing at the given address by the assessee and appeared to be only formed on paper by some name lenders.
ii) In some cases the letters sent for verification at the address provided by the assessee had also been received back unserved, which only indicated that no genuine company existed at the given address.
iii) The Assessing Officer also relied upon statements of various parties collected by the ADIT (Inv. Wing), Ghaziabad to come to the conclusion that no such company existed at the given address of the some of these companies. The Assessing Officer has also relied upon the observations of the Investigation Wing with some of the premises were residential one and therefore the claim of the assessee could not be held as correct and genuine.4
iv) The Assessing Officer has also held that no poster or board containing the name of the company was found in case of many of these companies which also indicate that no such company has claimed by the assessee existed and accordingly the amounts stated to have been received from these companies could not be treated as genuine.
The Assessing Officer has emphasized that in view of the decision of M/s. Divine Leasing, Delhi High Court, the assessee must discharge its initial onus of proving the identity of the shareholder beyond doubt. The Assessing Officer has further observed in para 10 of the order that the unaccounted money of the company seems to have been routed in the disguise of share capital. It was also observed that most of the alleged shareholders have not complied with the summons issued u/s 131 of the Income Tax Act and therefore, the initial onus have not been discharged by the assessee with regard to the share application money received from various parties. On the basis of the above observations and facts the Assessing Officer came to the conclusion that since adequate onus had not been esetablished with regard to Rs.3.47 crores which were 5 introduced as share capital, this amount should be added u/s 68 of the Income-tax Act.
4. Being aggrieved, the assessee preferred an appeal before the CIT(A).
5. After considering the various submissions of the assessee, Assessing Officer's remand report and counter reply by the assessee, the learned CIT(A) deleted the addition by holding and observing as under:-
"FINDINGS:
I have gone through the facts and circumstances of the case, observations of the Assessing Officer, submissions of the AR of the appellant, remand reports of the Assessing Officer and the rejoinders filed by the AR of the appellant. I have also gone through the various judicial pronouncements on the issue. The facts of the present case are similar to the assessment year 2006-07 and the additions made by the Assessing Officer are also based on the report of the ADIT (Inv.), Ghaziabad. The issue had been decided by me for assessment year 2006- 07 after carefully considering the various facts and circumstances and as well as the legal position on the issue. After considering the remand report of the Assessing Officer, it is clear that the facts of the case in this year also are similar to that of the earlier year i.e. assessment year 2006-07. The main issues which need to be considered in this year also are related to the opportunity of cross-examination not having been provided by the Assessing Officer, the issue of establishing the identity of the parties through PAN No., 6 CIN No., confirmation etc. are being summarized as follows:
a. From the facts of the case it is clear that the assessee had raised share application money to the extent of Rs.8.45 crores from various parties. In this case a survey u/s 133A was carried out and on the basis of the findings during the course of survey which were forwarded by the ADIT, Investigation wing, Ghaziabad to the Assessing Officer, the Assessing Officer provided copies of the statements of various parties only at the last moment to the appellant. It is also a fact that the Assessing Officer did not carry out any specific investigation by himself and only relied upon the report of the Investigation Wing. On going through the detailed report of the Investigation Wing with regard to the various parties, it is observed that in almost all the cases on the basis of the enquiry the Investigation Wing indicated that the existence of these parties at the given address could not be established and either these premises were residential premises or they were being occupied by other parties or on some occasions they could not be physically located. The report of the Investigation Wing was based on statements taken of various persons near the premises of the various companies which were being enquired into. The identity, authenticity and credibility of these various parties from whom the statements were taken by the Investigation Wing were not acceptable to the appellant. The AR of the appellant has vehemently argued that first of all no opportunity of cross-examination of these parties was provided to the appellant at any stage and therefore the Assessing Officer was not at all justified for relying on these statements and at the same time ignoring the other documents which establish the identity of the parties.
From the facts available as well as the report of the Assessing Officer it is clear that no proper 7 opportunity for cross-examination of the various parties on whom reliance has been placed by the Assessing Officer, has been provided to the appellant. Even though, the Assessing Officer has relied upon the report of the Investigation Wing, he has himself accepted that notice u/s 133(6) of the Income Tax Act had been served on the various parties in most cases. The Assessing Officer has not been able to reconcile both the issues regarding the report of the Investigation Wing and the service of notice at the given address. The Assessing Officer has also not conducted any independent enquiries to reconfirm the evidence of the Investigation Wing.
b. During the course of appellate proceedings the Assessing Officer was asked to consider providing opportunity for cross-examination of the parties on whose statements the Assessing Officer had relied upon. The Assessing Officer has however not gone ahead to make any deeper investigations and has commented that by doing so it would amount to provide more opportunities to the assessee which were not justified. The AR has argued that the statements of the large number of parties were totally irrelevant and unreliable since these persons had not locus standi to comment on the existence of various companies. The AR has further argued that even during the course of survey u/s 133A no incriminating material has been found which indicated that the share application money was in any manner related to the unexplained income of the appellant. The AR has submitted that even though an amount had been surrendered, during the course of survey only on grounds of buying peace with department, this statement itself was retracted since there was no evidence on material to back this surrender. It has also been contended that during the course of survey all the verifications including cash, stock, books of accounts etc. were conducted by the Investigation Wing and no incriminating documents had been found or brought on record .8
The AR has further submitted that fresh affidavits of all the shareholders were filed before the Assessing Officer and the Assessing Officer has not controverted these affidavits and has also not commented on the legal principles laid down in the cases of CIT vs. Lovely Exports (supra) and Ors. In my opinion the Assessing Officer has not disputed the identity of the various parties and has also not brought on record any specific material or evidence which indicate that the amount of share application money was in the nature of unexplained income of the appellant. The confirmations received, details of PAN and Income Tax Returns as well as details of ROC have not been challenged by the Assessing Officer.
Keeping in view the various judicial pronouncements on this issue which have settled the position of law with regard to introduction of share application money i.e. CIT Vs. Lovely Exports (supra), CIT Vs. Value Capital Services 305 ITR (Delhi), CIT Vs. Sameer Biotech & Ors., in this particular case the identity of the parties has been established by the AR of the appellant. The Assessing Officer has not gone into deeper investigation to find out link/introducer of the various bank accounts or what was the relationship of the different Directors with that of the appellant etc. which could have indicated any nexus between the share application money and any unexplained income of the appellant.
c. The two main contentions of the AR of the appellant related to no opportunity of cross-examination and establishing the identity of the various parties. In view of the various judicial pronouncements relied upon by the AR of the appellant and the facts of the cases, it is clear that the Assessing Officer has not provided proper opportunity of cross-examination to the appellant and has only relied upon the statements of the various parties 9 who were at times not at all related to the various shareholder companies. The Assessing Officer was provided opportunity to provide cross-examination even during the appellant proceedings, but the Assessing Officer has not availed this opportunity stating that it would amount to providing more time and opportunity to the appellant for managing its affairs. The Assessing Officer has not brought anything on record to controvert the various evidences establishing the identity of the share applicants. In my opinion the Assessing Officer was not justified in making these additions only based on the statements given by the certain unrelated persons for coming to the conclusion that the various parties did not exist at the given address, without providing proper opportunity of cross-examination.
d. It is also important to keep in mind that, during the course of remand proceedings the Assessing Officer was directed to issue summons u/s 131/133(6) of the Income Tax Act and the outcome of any such inquiries made by the Assessing Officer with regard to the identity of various parties. The Assessing Officer had submitted that all such details were reported as per para 5 of the assessment order. The AR of the appellant subsequently submitted in his letter dated 18/05/2010 that the Assessing Officer had issued summons only to 6 parties and in the case of 3 parties replies were received confirmed the fact and genuineness of the share capital. With regard to the other 3 parties summons were issued at wrong address and factual position was clarified vide letter dated 22/12/2009 and 23/12/2009. It was further submitted by the AR that at the request of the Assessing Officer other documents were submitted relating to these parties and the Assessing Officer has not disputed the correctness of the documents as there is no case of any adverse inference. The AR strongly argued that the identity of the shareholders have never been disputed even in regard to these 3 parties where the notice u/s 133(6) had been returned. The AR has further 10 highlighted that as per the remand report dated 31/03/2010 the Assessing Officer has observed in para 3 that the correctness of the permanent shareholder was not in dispute that all these shareholders were active companies as per ROC.
e. In this context this issue has been recently considered by the Hon'ble Delhi High Court in the case of CIT Vs. Winstrel Petrochemical Pvt. Ltd. In ITA No.592/2010 dated 12/05/2010, where the Hon'ble High Court ahs made the following observations after relying upon various judicial pronouncements in para 11 of the order. The observations of the Hon'ble High Court were as follows:-
"11. The Assessing Officer was not justified in adding the amount of share application money to the income of the assessee merely because the applicants did not respond to the notice sent to them. Further the Assessing Officer so wanted, he could have found out the correct address of the applicants, but according to the reports of the Inspector, were not found functioning at the address given to the Assessing Officer, by summoning the Directors etc. of those companies and asking them to furnish the current address of the company. The names and addresses of the Directors, if not available with the assessee, would have been obtained from the office of the Registrar of Companies or from the banks on which the cheques were drawn. No such attempt however was made by the Assessing Officer. In these circumstances we found no reason to disturb the finding of the fact recorded by the ITAT."11
f. In another decision of the Delhi High Court in the case of CIT Vs. Victor Electrodes in ITA No.586/2010 dated 12/05/2010 similar view has been taken by the Hon'ble Delhi High Court that once the details of Income Tax Returns, bank statements etc. with regard to the various share applicants have been provided, the mere fact that parties were not produced before the Assessing Officer was not good enough for making the addition. The Hon'ble Court has held that since the Assessing Officer had not made any efforts to find out the latest addresses of the Directors and details of these companies, the identity of the share applicants and the genuineness of the transactions were held to be genuine on the basis of records and details submitted by the assessee. The issue was decided in favour of the assessee and against the revenue.
g. In the present set of facts also the Assessing Officer has been provided various opportunities through remand proceedings to carry out any inquiries or make verifications with regard to PAN and other details of the share applicants. Through letter dated 22/02/2010, the Assessing Officer was specifically asked to make any inquiries required and issue any summons to different parties for controverting the documents submitted by the AR of the appellant regarding the identity and genuineness of the transaction. The relevant portion of the letter of the office of the CIT(A) is as under:-
"Various documents have been enclosed for establishing the identity and genuineness of the transaction. It has also been argued that the facts of the case are similar as that of the assessment year 2006-07 where the issue has been decided in favour of the appellant.
After going through the various documents you are required to comment on the contention of the appellant 12 that the identity of the various parties from whom the share application money had been received had been fully established by the assessee. If required summons may be issued to the parties, or otherwise it may be enquired whether the parties are active or not with reference to their PAN No., CIN No. etc."
In response to above queries the Assessing Officer has accepted that PAN No., CIN No. etc. have not been found to be incorrect. Further no other adverse information or details were submitted by the Assessing Officer with regard to the various parties from whom share application money had been received. The Assessing Officer in fact has only reiterated that any comparison to the earlier assessment year, the facts in this year were identical.
h. Accordingly from the facts available, it is clear that the identity of the various share applicants has been established by the assessee by providing various details of PAN No., CIN No., confirmations, details of bank accounts etc. The Assessing Officer was also provided another opportunity during the remand proceedings to bring on record any adverse information with regard to the various applicants. The Assessing Officer has not been able to controvert the basis documents submitted by the AR of the assessee to establish the identity and genuineness of the transaction. By also considering the observations of the Hon'ble Delhi High Court referred to above, it is clear that unless the Assessing Officer brings any adverse information on record to controvert the genuineness of the transaction, addition on account of share application money cannot be made in the hands of the assessee company. In this regard, the Apex Court had already decided the issue in the case of CIT Vs. Lovely Exports 212 CTR & Ors. Decisions of CIT vs. Value Capital Services (Del.) 307 ITR, etc. have also held that such addition cannot be made unless it is 13 established that the unaccounted money originated from the office of the assessee.
The Assessing Office has therefore free to take follow up action against the various share applicants since it has various details of PAN, CIN, details of bank accounts etc. which is enough to proceed and take action against the share applicants. The additions made in the hands of the appellant therefore cannot be sustained in view of the facts of the case and the settled position of law with regard to share application money. The facts and circumstances of the case has been accepted by the Assessing Officer to be similar to A.Y. 2006-07, in his remand report. This ground also therefore gets covered, apart from the latest decisions on this issue by the Hon'ble Delhi High Court, referred to earlier. The issue has been decide din favour of the appellant in the cases of CIT vs. Winstrel Petrochemical (supra) and CIT Vs. Victor Electrodes (supra). Accordingly this ground of the appellant is treated as allowed."
6. Being aggrieved with the CIT(A)'s order, the revenue is in appeal before us.
7. The learned DR has summarized the details of particulars and informations supplied by the assessee with regard to 16 share applicants and submitted that there was no dispute as to the share applicant namely M/s. NTARIX Multimedia P. Ltd. Mentioned at Sl. No.2 of the table furnished by the learned DR that the assessee has furnished the details of address, Permanent Account No., bank account no. and in respect thereof notice issued under sec. 131 was 14 complied with. However, he contended that in respect of parties mentioned at Sl. No.3, 4, 6, 8, 9 & 12 only PAN nos. were furnished without there any evidence to substantiate the addresses of the share applicants. He further submitted that in respect of the rest 9 cases the assessee submitted PAN and other details. He submitted that the share applicants in the six cases were not found available at the given addresses and notice under sec. 131 issued by the Assessing Officer were not complied with. He, therefore, submitted that the assessee has not been able to prove the identity of the share applicant so that the decision of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd., 216 CTR 195 (SC) can be applied to the present case.
8. The learned counsel for the assessee has reiterated all those submissions, contentions and rejoinder as submitted before the CIT(A). It was submitted by the learned counsel for the assessee that all the share applicants have made investments of share capital by way of account payee cheque drawn on Scheduled Commercial Banks and all share applicants are companies registered under the Companies Act, 1956 and are classified as `Active' in the records of Ministry of Company Affairs. He further pointed out that all the share applicants were maintaining bank accounts as per the norms laid down by the 15 Reserve Bank of India and they are existing Income-tax assessees being assessed to tax regularly. He further pointed out that a Permanent Account No. of all the share applicants were furnished by the assessee before the Assessing Officer. The learned counsel for the assessee further submitted that despite assessee's request to supply copy of the statements recorded by the Investigation Wing and to allow the assessee an opportunity to cross-examine those persons, the Assessing Officer failed to provide copies of the statements recorded behind the back of the assessee nor granted an opportunity of cross examination. He further submitted that all the details and particulars about the share applicants such as their addresses as recorded in the Income-tax returns, PAN No., details of bank account and the mode of payment of money have been duly furnished before the Assessing Officer against which the AO has not been able to bring out any material or evidences to the contrary. He therefore, submitted that in the light of the various decisions of the jurisdictional High Court, the learned CIT(A) has rightly deleted the addition.
9. The rival contentions of both the parties have been considered and materials on record have been perused.
16
10. In this case, the A.O. has treated the share application money received by the assessee to be the undisclosed income of the assessee on the basis of report given by the Investigation Wing that during the course of survey conducted by Investigation Wing, the share- applicant companies were found to be non-existence at the addresses given and their directors were also not found at the given addresses and the companies were formed merely on papers. The identical addition was also made by the A.O. in A.Y. 2006-07 on the basis of report of Investigation Wing. The report of investigation Wing relied upon by the A.O. in Assessment Year 2006-07 has also been relied upon in A.Y. 2007-08 as well. From the assessment order, the CIT(A)'s order and remand report submitted by the A.O. before the CIT(A), it is clear that the assessee was not given a chance to cross- examine various persons, on the basis of their statement, the Investigation Wing had given a report that the share-applicant companies were found to be non-existent at the given addresses and their directors were also not found at the addresses given by the assessee. During appellate proceedings before the CIT(A), the CIT(A) had given a chance to the A.O. to provide the assessee an opportunity to examine those persons but at this stage also the AO 17 failed to do so by stating that it would not serve any purpose. We fail to understand as to why a process of cross-examination of a person on the strength of whose statement an adverse conclusion has been drawn against the assessee would not serve any purpose. The step of cross-examination of a witness is inherent in the process of appreciating the evidences to bring the truth and reality to surface. Therefore, the AO's conduct in denying the assessee a right to cross- examine concerned persons is against, the basic rules of evidences, and for that reason, the statement of persons recorded by the Investigation Wing would have no evidentiary value against the assessee. It is the case where during the appellate proceedings, the AO was given an opportunity by the CIT(A) to allow the assessee to cross-examine the concerned persons, but the AO has failed to do so by specifically asserting that it would not serve any purpose. Therefore, in these circumstances, restoring the matter back to the AO would not serve any purpose. The learned CIT(A) has appreciated and considered this aspect of the matter in its right and correct perspective and was justified in holding that the AO was not justified in making additions only based on the statements given by the certain unrelated persons for coming to the conclusion that the various parties 18 did not exist at the given address, without providing proper opportunity of cross-examination.
11. The Hon'ble Delhi High Court in the case of CIT vs. M/s. Dwarkadhish Investment (P) Ltd. In ITA 911/2010 decided on 2nd August, 2010, held as under:-
"6. In our opinion, as Section 68 of the Act, 1961 has been interpreted as recently as 208 by a Division Bench of this Court in Divine Leasing & Finance Ltd. (supra) after considering all the relevant judgments, we do not have to reconsider all the judgments referred to by Mr. Sahni which are prior in date and time to the aforesaid judgment. In fact, a Special Leave Petition filed against the said Division Bench judgment was dismissed by the Supreme Court by way of a speaking order in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., 216 CTR 195 (SC). The Supreme Court in Lovely Exports (P) Ltd. (supra) has held as under:-
"2. Can the amount of share money be regarded as undisclosed income under s 68 of IT 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 AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment......"
7. Consequently, the doctrine of merger would apply and the judgment of the Supreme Court in Lovely Exports 19 (P) Ltd. (supra) would cover the field with regard to interpretation of Section 68 of the Act, 1961.
8. In any matter, 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 in 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 ahs 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'." From the aforesaid decision of the Hon'ble Delhi High Court in the case of M/s. Dwarkadhish Investment (P) Ltd. (supra), it is clear to us that initial burden to prove the identity of the creditors or share applicants can be discharged by the assessee by either furnishing their PAN number or Income-tax assessment number. In the present case, it is not in dispute that the assessee has furnished permanent account number or copy of income-tax returns of all the share applicants and the same has not been found to be false or untrue by the Assessing Officer. The assessee has also produced the certificate of incorporation of company under the Companies Act along with their 20 identification number. All these documents were duly furnished before the Assessing Officer and the Assessing Officer has not brought any material to the contrary. The AO has merely stated that the assessee has not been able to prove the identity of the creditors or share applicants because they were not found available at the given addresses by the Investigation Wing but that by itself is not sufficient to controvert the various documents or papers filed by the assessee such as Permanent Account No., copy of Income-tax return, copy of certification of incorporation and other details. The assessee has also produced the bank details of the share applicants which goes to indicate and establish that all the share applicants were existing account holders and were operating the bank account as per norms fixed by the bank. Therefore, identity of the creditors can said to have been proved by the assessee and department has not been able to rebut the same. In that case, before the Hon'ble High Court, it has also been held that genuineness of the transactions can be proved by showing that the money in the books had been received either by account payee cheque or by draft or by any other mode, which condition is satisfied in the present case before us. It is not in dispute that the assessee has received the share application money by account payee cheque, and 21 details of the bank account of share applicants as well as of the assessee have been duly furnished. Therefore, in the light of the above-referred decision of Hon'ble Delhi High Court, we hold that the assessee has been able to discharge its initial burden to prove the identity of the creditors and genuineness of the transaction. The same cannot be rejected merely because the creditors or share applicants could not be found at the address given and it would not give the revenue the right to invoke sec. 68 of the Act. Therefore, in the light of the proposition laid down by the Hon'ble Delhi High Court in this case, the order of the CIT(A) in deleting the addition cannot be said to be improper and unjustified.
12. Similarly, the Hon'ble Delhi High Court in the case of CIT vs. Victor Electrodes Ltd. (2010) 42 DTR (Del) 152 held as under:-
"6. The special leave petition filed by the Revenue against he above-referred decision of this Court was dismissed by the Supreme Court vide its decision in CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 :
(2008) 6 DTR (SC) 308 which inter alia reads as under:-
"Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no in special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus 22 shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, no infirmity is found with the impugned judgment."
7. It has not been disputed before us that the share application money was received by the assessee company by way of account payee cheques, through normal banking channels. It is not the case of the Revenue that the payment of share application money was not made from the bank account of the applicant companies. Admittedly, copies of application for allotment of shares were also provided to the AO. It is not the case of the Revenue that the share applications were not signed on behalf of the applicant companies and were forged documents. It is also not the case of the Revenue that the shares were not actually allotted to the companies.
8. The assessee filed copies of resolutions passed by the board of directors of applicant companies, besides their bank statements and IT returns. The addresses of the applicant companies are recorded in these documents. It is not the case of the Revenue that the copies of board resolutions, IT returns and bank statements were not genuine documents. The AO did not make any verification in this regard either from the internal record of the Department or from the concerned banks. If he so wanted, he could have called for the IT returns of the share applicants to ascertain whether the investment made in the assessee company was reflected in their balance sheets or not. Nothing prevented the AO from summoning the record of the banks on which cheques issued by the applicant companies were drawn. No such course was, however, adopted by him.
9. There was no legal obligation on the assessee to produce some director or other representative of the 23 applicant companies before the AO. Therefore, failure of assessee to produce them could not, by itself, have justified the additions made by the AO, when the assessee had furnished documents, on the basis of which, the AO, if he so wanted, could have summoned them for verification. No attempt was made by the AO to summon the directors of the applicant companies. The addresses of these companies must be available on the share applications, memorandum and articles of association and their IT returns. If the AO had any doubt about identity of the share applicants, he could have summoned the directors of the applicant companies. No such attempt was, however, made by him. Therefore, the CIT(A) and the Tribunal, in our view were justified in holding that the identity of share applicants and the genuineness of the transactions had been established by the assessee."
13. In this decision, in the case of CIT vs. Victor Electrodes Ltd. (supra), it has been clearly laid down by the Hon'ble Delhi High Court that there is no legal obligation on the assessee to produce some director or representative of the applicant companies before the AO, and, therefore, failure of assessee to produce them could not, by itself, have justified the additions made by the Assessing Officer, when the assessee had furnished documents, on the basis of which, the AO, if he so wanted, could have summoned them for verification. Similarly in the present case, mere because directors of share applicant companies were not found available at the addresses given, that by itself is not sufficient for the AO to reject assessee's case when the 24 assessee has furnished all documents relating to share applicants, such as their Permanent Account No., details of Income-tax assessment, registration of companies under Companies Act and bank details. Therefore, this case is also squarely applicable to the present case in upholding the order of the CIT(A).
14. Further, the Hon'ble Delhi High Court in the case of CIT vs. Winstral Petrochemicals Pvt. Ltd. In ITA 592/2010, in their decision delivered on 12.05.2010, held as under:-
"7. It has not been disputed before us that the share application money was received by the assessee company by way of account payee cheques, through normal banking channels. It is not the case of the Revenue that the payment of share application money was not made from the bank account of the applicant companies. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. It is not the case of the Revenue that the share applications were not signed on behalf of the applicant companies and were forged documents. It is also not the case of the Revenue that the shares were not actually allotted to the companies. Therefore, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, in our view, were justified in holding that the genuineness of the transactions had been duly established by the assessee.
8. As regards identity of the subscribers. The assessee filed copies of Certifications of Incorporation, PAN cards, PAN details and company details, downloaded from the site of Department of Company 25 Affairs besides written confirmation from the applicants. It is not the case of the Revenue that the copies of Certificates of Incorporation, PAN cards, PAN details or company details submitted by the assessee were forged documents. In fact, the Assessing Officer did not even make an attempt to verify the genuineness of these documents by summoning the record of Registrar of companies or Department of Company Affairs. If he entertained any doubt about the genuineness of these documents, nothing prevented him from summoning the record from these authorities. If the Assessing Officer so desired, the genuineness of the PAN cards and PAN details could easily have been verified by him from the record available with the Department. The assessee company also furnished written confirmation from the applicant companies. All the share applicants were duly served with the notices under Section 133(6) of the Act. In these circumstances, the finding of Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal that the identity of the subscribers stood duly established from the documents produced by the assessee, cannot be said to be perverse and does not call for interference by this Court.
9. The finding of fact recorded by the Tribunal, which is the final fact finding authority, cannot be said to be perverse merely because some of the applicants had a common address and the Inspector deputed by the Assessing Officer to make field inquiries did not find five applicants functioning at the addresses provided to him. There is no legal bar to more than one companies being registered at the same address. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of payee accounts cheque, they cannot be said to be non-existence, even if they, after submitting the share application had changed their address or had stopped functioning.26
10. In view of the decision of this Court in the case of Divine Leasing & Finance Ltd. (supra), the identity of the share applicants would be established if details of address or PAN card are furnished to the Department along with the copies of Shareholders Register/ Share Application Form, Share Transfer Register, etc. In this case, Share Application Forms were duly produced before the Assessing Officer and this is not the case of the Revenue that the Assessing Officer had asked the assessee to produce Shareholders' register and Share Transfer Registers, but the assessee company had failed to do so.
11. The Assessing Officer was not justified in adding the amount of share application money to the income of the assessee merely because the applicants did not respond to the notice sent to them. Further the Assessing Officer so wanted, he could have found out the correct address of the applicants, but according to the reports of the Inspector, were not found functioning at the address given to the Assessing Officer, by summoning the Directors etc. of those companies and asking them to furnish the current address of the company. The names and addresses of the Directors, if not available with the assessee, would have been obtained from the office of the Registrar of Companies or from the banks on which the cheques were drawn. No such attempt however was made by the Assessing Officer. In these circumstances we found no reason to disturb the finding of the fact recorded by the ITAT."
15. It is also pertinent to note that on the basis of the same report of Investigation Wing to the effect that applicant companies were not found existent at the given addresses and the directors were also not available at the addresses given as per the enquiry conducted by 27 Investigation Wing, share application money received by the assessee during assessment year 2006-07 was treated by the AO to be unexplained income of the assessee, and on an appeal, the same was deleted by the CIT(A) by giving identical reasons and basis as given in this assessment year. It has been pointed out to us in the course of hearing of this appeal that the department has not preferred any appeal against the CIT(A)'s order pertaining to the assessment year 2006-07. It is also noted by the CIT(A) in his order that facts and circumstances of the present case are identical to the assessment year 2006-07 as so accepted by the AO in his remand report. Therefore, on this count also, the department has no case in the present assessment year inasmuch as the findings given by the CIT(A) in assessment year 2006-07 has been accepted by the department.
16. In the light of the discussion made above, and following the parameters laid down by the Hon'ble Delhi High Court in the above referred cases and having regard to the detailed analysis of the evidences and material brought on record, made by the CIT(A) in his reasoned order, we are inclined to uphold the order of the CIT(A) in deleting the addition on account of share capital received by the 28 assessee from various share applicants during the year under consideration. Therefore, the order of the CIT(A) is upheld.
17. In the result, the appeal filed by the revenue is dismissed.
18. This decision is pronounced in the Open Court on 10th December, 2010.
Sd/- Sd/-
(G.E. VEERABHADRAPPA) (C.L. SETHI)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 10th December, 2010.
Copy of the order forwarded to:-
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR By Order
*mg Deputy Registrar, ITAT.