TRIANGLE TRADING LTD.,NEW DELHI vs. ITO, WARD- 25(4), NEW DELHI

Date of Hearing : 30.11.2022 Date of Pronouncement : 23.12.2022 ORDER PER C.M. GARG, J.M.: This appeal filed by assessee is directed against the Order of the Ld. CIT(A)-31, New Delhi, dated 07.09.2018 relating to the A.Y. 2008-09.

raised by the assessee read as under:-

1. The CIT (A) has erred in law and on the facts in confirming additions of Rs.40,80,000/- made without any reason whatsoever by treating the amount of share capital/share application money Rs.40,00,000 as unexplained cash credit u/s 68 of the Income Tax Act and in adding arbitrary commission of Rs.80,000 as unexplained expenditure u/s 69C of the Income Tax Act. The additions so made on surmises should be deleted.

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2. The CIT (A) has erred in law and on the facts in confirming the addition of Rs.40,00,000/- on the basis of the alleged investigation about entities controlled by Mr. S K Jain and without bringing any material on record, if any, collected against the appellant and without confronting the same and without providing an opportunity to the appellant to cross examine the same. The said act of the income tax authorities is illegal, against the provisions contained in the Act, bad in law and hence addition made on the basis of the same is liable to be deleted.

3. The CIT (A) erred in law and on facts in not discussing the submissions and confirmations made by the appellant before him to prove the genuineness of transactions and without appreciating that even the material on his record clearly support the contention of the appellant regarding the creditworthiness or the genuineness of the parties. The confirmations and other documents placed before the CIT(A) by the appellant company on 10/03/2017 during the course of proceedings were completely disregarded and therefore the addition so confirmed is liable to be deleted. 4. The CIT (A) erred in law and on facts in ignoring that the impugned assessment order was passed in a cut and paste manner without application of mind with a biased and predetermined approach. Even material placed before the AO by the assessee and the confirmations obtained by the AO from the parties directly under section 133(6) were ignored by the AO. Thus, the impugned addition must be deleted. 5. The appellant herein craves his right to alter, substitute, amend, add and / or withdraw any or all grounds of appeal.”

4. The contentions of the assessee before the ld.CIT(A) on merits read as under:- “1. The assessee company was Incorporated on 08 09 2006 with the main objective of carrying on of Trading of all types of goods, import, export or to do collaboration, to set up distillery, hotels or manufacturing units etc. Accordingly the company executed memorandum of understanding with the Government of Jharkhand for setting up steel and power plant, mining activities, etc. There was also an understanding with the Government of Jharkhand to assist in acquiring land for the above mentioned projects. 2. The return of income declaring an income of Rs.41,30,700/- was E-filed vide acknowledgement receipt 46453611300908 dated 30/09/2008 with Company Ward-18(1), New Delhi which was processed u/s 143(1) of the I T. Act, 1961. Later on, the case was reopened u/s 148 of the Income Tax Act and selected for re-assessment and the learned Income Tax officer Company Ward 25(4), New Delhi, completed re- assessment u/s 147/143(3) of the Income Tax Act 1961 vide order dated 09.03.2015. 3. During the course of hearing, the assessee has submitted various documents of the parties from whom the assessee received share application money, i.e., confirmation of account statement, balance sheet, copy of ITR return, photocopy of the cheque, Bank statement, etc. on various hearings before the learned Assessing officer. The Assessing officer has admitted that the bank statement of he following companies has also been received from Axis Bank against notice issued u/s 133(6) of the Income Tax Act for verification of source of Share application money:- i) Hum Tum Marketing Pvt. Ltd. ii) Victory Software Pvt. Ltd. iii) Virgin Capital Services Pvt. Ltd.

4 ITA.No.7137/Del./2018 The bank statement of VIP Leasing and Finance Pvt Ltd was submitted by the assessee vide letter dt 21/01/2015 along with the explanation that the Assessing Officer has received the bank statement of above named companies as per S. No. i to iii. Therefore, the conclusion of learned Assessing Officer that the assessee has not filed any confirmation, copy of ITR and bank statement of the subscriber is wrong ( as per last para of page No.(2) of the Income tax order). Further, no addition should be made on the basis of explanation/ documents received from the third parties when the assessee has submitted all the relevant documents/ information and copy of bank statements etc.

5. The ld. Sr. DR relied on the order of the AO and the CIT(A) and submitted that the addition should be confirmed dismissing the appeal of the assessee.

5 ITA.No.7137/Del./2018 “Since due opportunity was provided during the appeal proceedings, the appellant's grievance on this account does not survive.

mention of personal telephone numbers with the investing entities controlled by Sh S K Jain and others ( as per the AO's findings) further reinforces the AO's conclusion. These companies do not have sufficient capacity in the form of cash availability to be able to invest in the appellant's equity. These entities are engaged only in providing accommodation entries. The appellant had shown total receipts of Rs.40,00,000/-, in the garb of share application money from these paper / without substance companies. 7.5 Upon examining the facts and circumstances of the case, submissions of the appellant, and the assessment order, I am led to the conclusion that the evidentiary matrix leads to an inference that the share capital (including share premium) /share application money/loans/money inflow is not genuine. Further, from a perusal of the details/documents filed by the appellant, it is clear that the share applicants were not having any real business activity. They were having meager income. It is clear that these were paper/shell companies, engaged in giving accommodation entries to the beneficiaries in the garb of share application money/share capital money or otherwise. The appellant has tried to make out a case as to the genuineness of the transactions in question but the same does not conclusively establish the case of the appellant. Onus was upon the appellant to prove the genuineness of the transactions, but the appellant failed to do so. The investing entities were only paper/ shell/without substance companies without any genuine business activities. In this regard judgements of Hon’ble Delhi High Court in the cases of CIT Vs. Nova Promoters and Finlease (P) Ltd. (2012) 342 ITR 169 (Del) and CIT Vs. N. R. Portfolio Pvt. Ltd. (2014) 264 CTR 258 (Del) are relied upon. Further, the judgement of Hon’ble Kolkata High Court in the case of Rajmandir Estate Pvt. Ltd. (2016; reported in 70 Taxmann.com 124 (Cal) and the judgement of ITAT, ‘D’ Bench. Mumbai in dated 24.8.2016 in the case of Royal Rich Developers Pvt. Ltd. are also relied upon. In view of facts as obtaining, and in view of jurisprudence as above, I am of the view that the appellant, by merely providing addresses and PANs of the entities involved has not discharged his onus, particularly when the cash position of the investing entities and credit worthiness and capacity of the entities, stands not established. Further, the share applicant entities did not have any independent or genuine business at all. The whole edifice was created to provide bogus accommodation entries.

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The fact remains that share applicant entities are private limited companies in which public are not substantially interested. In such companies, the onus is heavy on the recipient of share capital money/ share application money / loans, to prove identity and capacity of the shareholders / contributors, as well as genuineness of the transaction. In view of the above discussion, I am of the considered view that appellant failed to establish the capacity, creditworthiness (i.e. share capital and share application including premium), and genuineness of the impugned transactions. In the case at hand, the appellant company is a private company who could not prove the identity and credit worthiness of the alleged share subscribers and the genuineness of the share subscriptions. Being private limited company wherein no public issue has been floated to raise the share capital, it was the duty of the appellant to prove genuineness of the transactions. But the appellant failed to do so. The applicants were having nominal/meager income. The appellant company failed to prove- (a) The identity of the alleged share holders. (b) The credit worthiness of the share holders. (c) The genuineness of the transactions. In view of the aforesaid analysis, I am of the view that the AO was justified to make addition u/s 68 of the IT Act and further addition on account of payment of commission to the entry providers. I also note that an essential ingredient of provisions of section 68 is that the nature and the source of the sum so received as credit needs to be got satisfactorily explained. The emphasis is on nature as well as on source of the payment. An examination of facts clearly leads to an inference that the sum shown to have been received as share application money is not share application money but an accommodation entry. The sum so received is not share application/share capital money/loan, but something else. As such, the nature of the amount(s) so received remains unexplained, triggering the applicability of provisions of section 68 of the I.T. Act, 1961.”

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7. After hearing the ld. Sr. DR and on perusal of the material available on record, first of all, we note that the assessee company is a private limited company who could not prove the identity and credit worthiness of the alleged shareholders and genuineness of the transaction of share subscriptions. It is also noted that being a private limited company wherein no public issue has been floated to raise share capital, it was the duty of the assessee company to prove the identity and credit worthiness of the investor and genuineness of the transaction of investment by the share subscriber to the assessee company. But, in the present case, before both the authorities below as well as before this Tribunal the assessee failed to substantiate the said elements. We categorically note that the assessee were having nominal/meager income and the assessee company failed to prove the identity and credit worthiness of the alleged shareholders and genuineness of the transaction. Therefore, the AO was justified in invoking the provisions of section 68 of the Act. We are of the considered opinion that the essential ingredients of the provisions of section 68 of the Act is that nature and source of the amount received as credit or investment needs to be satisfactorily explained. The legislature has put great emphasis on the nature as well as on the source of investment. In the present case, the authorities below, after careful examination of the facts and circumstances, rightly invoked the provisions of section 68 by taking an inference that the sum shown to have been received as share application money is not share application money ,but, an accommodation entry in the garb of investment. Therefore, we are 9 ITA.No.7137/Del./2018 unable to see any valid reason to interfere with the findings made by the authorities below for invoking the provisions of section 68 of the Act. Accordingly, the grounds of the assessee are dismissed and the addition made by the AO and confirmed by the ld.CIT(A) is upheld on both the counts.