ALFA BHOJ LIMITED vs. DY. COMMISSIONER OF INCOME TAX CENTRAL CIRLE -13

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ITA/27/2019HC DelhiDLHC01007221201916 January 2019Author: HON'BLE MR. JUSTICE SANJIV KHANNA,HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI11 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court dismissed the appeal on the first aspect concerning the addition of bogus share capital. The Court found no reason to accept the assessee's submission that the addition should be restricted to Rs. 1.55 crores, given that it was accepted that bogus share capital received on different days amounted to Rs. 5.72 crores and the amount paid was not returned or refunded. The Court reasoned that the principle of rotation of money was not applicable in this scenario, as the funds were not returned. Therefore, the Tribunal's affirmation of the addition was upheld. Regarding a second aspect, where Rs. 62 lacs was added as undisclosed cash credit for Assessment Years 1999-2000 to 2002-03, the Court granted liberty to the assessee to file an appeal after the disposal of its application under Section 254(2) of the Act before the Tribunal, leaving this issue open for future decision if necessary.

What were the facts?

The assessee, Alfa Bhoj Limited, is in appeal before the Delhi High Court against an order of the Income Tax Appellate Tribunal (Tribunal) dated August 31, 2018. The appeal pertains to Assessment Year 2002-03. The core issue is the addition of Rs. 5.27 crores on account of bogus share capital under Section 68 of the Income Tax Act, 1961. The assessee was subjected to search and seizure operations on November 10, 2004, followed by a notice under Section 153A. The assessee had also approached the Settlement Commission, disclosing undisclosed income, but the application was dismissed for non-payment of tax. The Assessing Officer identified several entities that applied for shares, and their directors/partners accepted being name lenders on a commission basis. The assessee did not dispute the identification of bogus share capital but argued for a reduced addition based on money rotation.

What were the issues?

1. Whether the Tribunal erred in affirming the addition of Rs. 5.27 crores on account of bogus share capital under Section 68 of the Income Tax Act, 1961, when the assessee contended that the amount received was rotated and the addition should be restricted to Rs. 1.55 crores? Assessee's Contention: The assessee argued that the share application money was received in tranches and rotated, and therefore, the addition of bogus share capital should be limited to Rs. 1.55 crores. The assessee also explained a modus operandi of inflating costs to avail bank loans. Revenue's Contention: The revenue, through the Assessing Officer and affirmed by the Tribunal, contended that the entire share capital was bogus, the amount paid was not returned or refunded, and thus, the benefit of peak credit could not be allowed. The Assessing Officer made an addition of Rs. 5.72 crores.

Which sections of the Income-tax Act were involved?

Section 260A,Section 132,Section 153A,Section 68,Section 254(2)

AI-generated summary — verify with the full judgment below

ITA No. 27/2019 $~28 * IN THE HIGH COURT OF DELHI AT NEW DELHI +

INCOME TAX APPEAL 27/2019 Date of decision: 16th January, 2019

ALFA BHOJ LIMITED ..... Appellant

Through: Mr. K. R. Manjani, Advocate.

versus

DY. COMMISSIONER OF INCOME TAX CENTRAL CIRLE -13 ..... Respondent

Through: Mr. Ashok K. Manchanda, SSC.

CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI

SANJIV KHANNA, J. (ORAL):

We have heard counsel for the appellant-assessee in this appeal under Section 260A of the Income Tax Act, 1961 (‘Act’ for short) which pertains to the Assessment Year 2002-03 and arises from the order of the Income Tax Appellate Tribunal (‘ Tribunal’ for short) dated 31st August, 2018. 2. The appellant-assessee has challenged factual findings recorded by the Tribunal in affirming addition of Rs.5.27 crores on account of bogus share capital under Section 68 of the Income Tax Act, thereby affirming the order passed by the Assessing Officer and reversing the findings recorded by the Commissioner of Income Tax (Appeals).

ITA No. 27/2019 3. The appellant-assessee was subjected to search and seizure operations under Section 132 of the Act on 10th November, 2004 and thereafter notice under Section 153A of the Act was issued. During the pendency of the said proceedings, the appellant-assessee also approached the Settlement Commission on disclosing the undisclosed income of Rs.17 lacs.

4.

However, as the tax on the undisclosed income was not paid, settlement application was dismissed as not maintainable vide order dated 17th September, 2007. 5. The appellant-assessee does not dispute the issue on bogus share capital as per the details noticed by the assessing officer who held:- “8. While scrutinizing the seized documents and register of share applications, the Assessing Officer noticed that the following persons applied for shares of the company on different dates:

Name and address of the Applicants No. of shares applied for Total amount paid Date of application Date of allotment Date of payment K.R. Fincap Pvt. Ltd. 63 Shankar Market, New Delhi 30,000 3,00,000 28.02.2002 28.02.2002 28.02.2002 Bampal Securities Pvt. Ltd. 100, Cycle Market, Jhandewalan Exn. N. Delhi 70,000

7,00,000 28.02.2002 28.02.2002 28.02.2002

ITA No. 27/2019 Punjab state Industrial, Udyog Bhawan, Chandigarh 2,50,000 25,00,000 28.02.2002 28.02.2002 28.02.2002 Royal Credit Pvt. Ltd. D-35A, First Floor, Rajouri Garden New Delhi 50,000 5,00,000 28.02.2002 28.02.2002 28.02.2002 Dinanath Luhaliwala Spinning Milss, A-261, Shastri Nagar, Delhi- 110052 50,000 5,00,000 28.02.2002 28.02.2002 28.02.2002 Shatarchi Finance & Leasing. 196/1, Pck. D-12, Sector-7, Rohini, Delhi 2,00,000 20,00,000 28.02.2002 28.02.2002 28.02.2002 Shatarchi Finance & Leasing 196/1, 2,00,000Pck. D- 12, Sectior-7, Rohini, Delhi 50,000 5,00,000 30.03.2002 30.03.2002 30.03.2002 Rabik Exports Ltd. RZ-41A, Mohan Nagar, Panka Road, New Delhi 1,00,000 10,00,000 28.02.2002 28.02.2002 28.02.2002 Changla Steels Pvt. Ltd. 10- 3596, Regarpur Karol Bhag, New Delhi 2,00,000 20,00,000 28.02.2002 28.02.2002 28.02.2002 Bic Consultants 50,000 5,00,000 28.02.2002 28.02.2002 28.02.2002

ITA No. 27/2019 Pvt. Ltd. 204,Delhi Chamber, Delhi Gate, New Delhi Sehgal Fluid Equipment RZ- 41A, Mohan Nagar Pankha Road, New Delhi 1,00,000 10,00,000 30.03.2002 30.03.2002 30.03.2002 FNS Consultancy Pvt. Ltd. A-66, Tagore Garden, New Delhi 1,50,000 15,00,000 30.03.2002 30.03.2002 30.03.2002 Rajesh Kumar Gupta 127, Mohalla Kanjimal Dasna Gate (Ghaziabad) 30,000 3,00,000 30.03.2002 30.03.2002 30.03.2002 Maestro Marketing Adversiting Pvt. Ltd, A-4/181, Sec-17, Rohini Delhi-85 1,50,000 15,00,000 30.03.2002 30.03.2002 30.03.2002 Harish Bhashin T-1, Rajori Garden, New Delhi 1,50,000 15,00,000 10.12.2001 10.12.2001 10.12.2001 Harish Bhashin T-1, Rajori Garden, New Delhi 1,00,000 10,00,00 22.03.2002 22.03.2002 22.03.2002 Jyoti Bhasin T-1, Rajori Garden, New Delhi 1,00,000 10,00,00 10.12.2001 10.12.2001 10.12.2001

ITA No. 27/2019 Jyoti Bhasin T-1, Rajori Garden, New Delhi 1,00,000 10,00,00 22.03.2002 22.03.2002 22.03.2002 Jyoti Bhasin T-1, Rajori Garden, New Delhi 20,000 2,00,000 30.03.2002 30.03.2002 30.03.2002 Connoiseur Management Services Pvt. Ltd. 34, Engineers Enclave, Pitampura, New Delhi 1,00,000 10,00,00 22.03.2002 22.03.2002 22.03.2002 Connoiseur Management Services Pvt. Ltd. 34, Engineers Enclave, Pitampura, New Delhi 1,00,000 10,00,00 28.02.2002 28.02.2002 28.02.2002 Tanita Leasing Finance Ltd. A- 2/3, Lusa Tower 3rd floor, Azadpur New Delhi 70,000 7,00,000 10.12.2001 10.12.2001 10.12.2001 Tanita Leasing Finance Ltd. A- 2/3, Lusa Tower 3rd floor, Azadpur New Delhi 1,30,000 13,00,000 28.02.2002 28.02.2002 28.02.2002 Ethnic Creatio Pvt. Ltd. A-32, Tagore Garden Ex., New Delhi 1,00,000 10,00,000 10.12.2001 10.12.2001 10.12.2001 Ethnic Creatio Pvt. Ltd. A-32, 50,000 5,00,000 28.02.2002 28.02.2002 28.02.2002

ITA No. 27/2019 Tagore Garden Ex., New Delhi SGC Publishing Ashok Nagar, New Delhi-18 1,50,000 15,00,00 10.12.2001 10.12.2001 10.12.2001 SGC Publishing Ashok Nagar, New Delhi-18 50,000 5,00,000 30.03.2002 30.03.2002 30.03.2002 Polo Leasing & Finance Ltd. A- 4/181, Rohini Sector-17, New Delhi 1.25.000 12,50,000 13.12.2001 13.12.2001 13.12.2001 Polo Leasing & Finance Ltd. A- 4/181, Rohini Sector-17, New Delhi 1,00,000 10,00,000 28.02.2002 28.02.2002 28.02.2002 M.v. Marketing Pvt. Ltd. A-32, Tagore Garden(Ext) New Delhi 1,00,000 10,00,000 10.12.2001 10.12.2001 10.12.2001 M.v. Marketing Pvt. Ltd. A-32, Tagore Garden(Ext) New Delhi 20,000 2,00,000 28.02.2002 28.02.2002 28.02.2002 Shree Niwas Leasing & Finance Ltd. A- 10,204 Sai Bhawan, Ranjeet Nagar, New 60,000 6,00,000 10.12.2001 10.12.2001 10.12.2001

ITA No. 27/2019 Delhi Shree Niwas Leasing & Finance Ltd. A- 10,204 Sai Bhawan, Ranjeet Nagar, New Delhi 50,000 5,00,000 28.02.2002 28.02.2002 28.02.2002 Laxman Indus Resources Ltd. 101, 3rd Floor, A Commercial Chambers 30,000 3,00,000 10.12.2001 10.12.2001 10.12.2001 Satwant Singh Sodhi & Sons Pvt. Ltd. A-66 Tagore Garden New Delhi 30,000 3,00,000 10.12.2001 10.12.2001 10.12.2001 Satwant Singh Sodhi & Sons Pvt. Ltd. A-66 Tagore Garden New Delhi 1,65,000 16,50,000 28.02.2002 28.02.2002 28.02.2002 Geeface Finance Ltd. 3rd Floor, 13/34, WEA Karol Bagh, New Delhi 1,00,000 10,00,000 10.12.2001 10.12.2001 10.12.2001 Geeface Finance Ltd. 3rd Floor, 13/34, WEA Karol BAgh, New Delhi 1,30,000 13,00,000 28.02.2002 28.02.2002 28.02.2002 Rahul Finlease Pvt. Ltd. A-2/23, Shakti Nagar 55,000 5,50,000 28.02.2002 28.02.2002 28.02.2002

ITA No. 27/2019 Extn., New Delhi Suma Finance & Investment 1366/21,Nalwala, Karol Bagh, New Delhi 20,000 2,00,000 28.02.2002 28.02.2002 28.02.2002 Performance Trading and Investment Pvt. Ltd. A-261, Sashhtri Nagar, New Delhi 1,65,000 16,50,000 28.02.2002 28.02.2002 28.02.2002 Technocom Associates Pvt. Ltd. 205, Delhi Chambers, Delhi Gate New Delhi 1,65,000 16,50,000 28.02.2002 28.02.2002 28.02.2002 Transpan Financial Services Ltd. E- 36, Jawahar Park, Laxmi Nagar, Delhi-92 1,00,000 10,00,000 28.02.2002 28.02.2002 28.02.2002 Ja eep Financers Pvt. Ltd. 203, Mukund House Commercial Comples, Azadpur, New Delhi 1,50,000 15,00,000 28.02.2002 28.02.2002 28.02.2002 S.N. Electrical Pvt. Ltd. S-172, Co Cir. 29(4), New Delhi 50,000 15,00,000 28.02.2002 28.02.2002 28.02.2002 Titan Securities 2,00,000 20,00,000 28.02.2002 28.02.2002 28.02.2002

ITA No. 27/2019 Ltd. A-2/3, Lusa Tower, Azadpur, New Delhi Tanuja Industries Credit A-2/3, Lusa Tower, 3rd Floor, Azadpur, Delhi 75,000 7,50,000 28.02.2002 28.02.2002 28.02.2002 Arun Finvest Pvt. Ltd. CA/16-D, Hari Nagar, New Delhi 2,00,000 20,00,000 28.02.2002 28.02.2002 28.02.2002 Fair N Saquare A-66, Tagore Garden Ex, New Delhi 2,00,000 20,00,000 28.02.2002 28.02.2002 28.02.2002 Surya Udyog 4832/24, Ansari Road, Daryaganj, New Delhi 2,00,000 20,00,000 28.02.2002 28.02.2002 28.02.2002 Zed Leasing & Finance 4A, Pusa Road, New Delhi 60,000 6,00,000 28.02.2002 28.02.2002 28.02.2002 Zed Leasing & Finance 4A, Pusa Road, New Delhi

1,00,000

10,00,000 30.03.2002 30.03.2002 30.03.2002

9.

The Managing Director/partners of all such companies/firms were examined on oath and all of them accepted that they were name lenders on commission basis. The statements of all such directors/partners were confronted to the assessee company. However, the assessee company chose not to reply. Accordingly, share application money to the tune of Rs. 1.55 cores was treated

ITA No. 27/2019 as bogus. In respect of remaining share applicants, the assessee could not furnish any detail within the parameters of the provisions of section 68 of the Act.

10.

The assessee, in one of its replies, explained that the share application money was received by it in tranches, which was rotated again and again and, therefore, only peak of such credits should be added as undisclosed income of the assessee. The assessee explained the modus operandi by admitting that, to avail the loan from IDBI Bank, it inflated cost of land/building. It also inflated cost of plant and machinery. The explanation of the assessee did not find favour with the Assessing Officers who was of the firm belief that the entire share capital is bogus and benefit of peak credit cannot be allowed on the peculiar facts of the case. The Assessing Officer, accordingly, made addition of Rs. 5.72 crores on account of bogus share capital u/s 68 of the Act.

6.

The contention of the appellant-assessee is that the amount received was rotated. It was submitted that addition of bogus share capital should be restricted to Rs.1.55 cores.

7.

We do not find any reasons and ground to accept the said submission as it is accepted that the bogus share capital received on different days amounted to Rs. 5.72crores. The amount paid was not returned and refunded. This being the position, we are not inclined to accept the contention of the appellant-assessee that there was rotation of money and only bogus share capital of Rs.1.55 crore should have been added as undisclosed credit under Section 68 of the Act.

ITA No. 27/2019 8. At this stage, learned counsel for the appellant-assessee states that Rs.62 lacs was added as undisclosed cash credit for Assessment Years 1999- 2000 to 2002-03. It is stated that the appellant-assessee has filed an application under Section 254(2) of the Act before the Tribunal on the said aspect.

9.

We would on the said aspect give liberty to the appellant-assessee to file an appeal after disposal and decision of the application under Section 254(2) of the Act. This would not bar the appellant from filing an appeal against the decision of the aforesaid miscellaneous applications.

10.

Recording the aforesaid, we dismiss the present appeal on the first aspect. On the second aspect, the issue is left open to be decided if required and necessary. The appeal is dismissed without any order as to costs.

SANJIV KHANNA, J.

ANUP JAIRAM BHAMBHANI, J. JANUARY 16, 2019 MR

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