KCA ALLIED SERVICES PVT LTD vs. ITO WARD 5(1)

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 1187/2011 . . . KCA ALLIED SERVICES PVT LTD ..... Appellant . Through Mr. Kaanan Kapoor, Adv. . . . versus . . . ITO WARD 5(1) ..... Respondent . Through Mr. Sanjeev Sabharwal, Sr. Standing Counsel. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON?BLE MR. JUSTICE G.P.MITTAL . . . O R D E R . 24.10.2011 . . . This appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) is directed against the order of the Income Tax Appellate Tribunal (for short, the tribunal) dated 28th February, 2011 passed in ITA No.5634/Del./2010, which relates to the assessment year 2002-03. . 2. By the impugned order, tribunal has disposed of the appeal filed by the Revenue against the order of the CIT (Appeals) dated 18th October, . 2010 deleting addition of Rs.8,50,000/- made under Section 68 of the Act towards unexplained share capital and Rs.4,250/-being unaccounted amount paid as commission for obtaining accommodating entries. These shares had been allotted to Division Trading Pvt. Ltd., Nishant Finvest Pvt. Ltd. and SRS Vijay Sales Pvt. Ltd. The tribunal has not decided the issue on merits, but has remitted the matter to the Assessing Officer for fresh consideration. . 3. The appellant-assessee submits that they had established identity of the shareholders, and also the factum that the share application money was paid through banking channels. The appellant-assessee had placed on record share application forms pursuant to which shares were applied. Reference is made to the order of the Commissioner of Income Tax (Appeals). . 4. Commissioner of Income Tax (Appeals) while allowing the appeal had held as under:- . ?5.3 I have carefully considered the submissions made on behalf of the appellant company and findings recorded by the ld AO and I have also gone through the judgments relied upon by the ld. Counsel for the appellant. On consideration, I find that the ratio laid down by the Hon?ble Courts in the cases relied upon by the ld. Counsel squarely covers the facts of the appellant?s case. In the case of the appellant, though the AO refers to an enquiry conducted by the investigation wing of the department, No attempt is made by him to establish the facts that the money in question has original from the coffers of the assessee company. Merely casting a shadow of doubt is not sufficient to charge the assessee with the tax liability without collecting positive evidences to convert the doubts into a real act of tax evasion. . 5.4. Therefore, I do not find that the AO has really made out a case for taxing the share application money received though banking channels from the persons regularly assessed to tax. Under the circumstances, the addition of Rs.8.50 lacs is not sustainable and is accordingly being deleted. . 5.5. For the reasons discussed in para 4.1 to 4.6, the addition of Rs.4250 made u/s 68 of the Act on account of alleged commission to so called Hawala operators is also being deleted.? . . . 5. The Assessing Officer, on the other hand, had relied upon the statement of Mr. Mahesh Garg recorded on oath under Section 131 of the Act to make the said addition. The Assessing Officer in his order had stated as under:- . ?9.1.1 Statement on oath u/s 131 of the Act, 1961 of Sh. Mahesh Garg, S/o Late Sh. RS Garg, R/o G-8/94, Sector-15, Rohini, Delhi was recorded by the Addl. DIT (Inv.), Unit-I, New Delhi on 22.9.03. In this statement, Sh. Mahesh Garg has admitted to have opened bank accounts in the names of various individual, firms and companies which were being . used by him for providing accommodation entries. A duly signed list of such entities were also given by Sh. Mahes Garg. The above four companies find specific mentioned in the list given by Sh. Mahesh Garg during the course of statement on oath. A copy of this statement was provided to the assessee, but the assessee has neither rebutted the statement nor denied the contents of the same and has not even filed by evidences, reply etc. as a rebuttal. . 9.2 the assessee has filed documents in support of its claim that the amounts in question were share application money received from the four parties. These documents include copies of undated application for shares, undated board resolution and undated certificates of having made investments in the equity shares of the assessee company. What we are dealing with here . . . is not a normal business transaction where the genuineness may be proved if both the parties confirm the same. This is a case of collusive and sham transaction which exists only on paper and which has been entered into to facilitate both the parties. In such a scenario self serving evidence have been generated and produced before the department.? . . . 6. The tribunal, after hearing arguments of the parties and looking at the nature of the dispute, evidence on record and relied upon by the parties, has held that the matter requires deeper consideration and scrutiny at the level of Assessing Officer. Paragraph 6 of the order of the tribunal reads:- . ?6. After hearing both the sides, we find that the Hon?ble jurisdictional High Court in its order dated 31.1.2011 in the case of CIT vs. Oasis Hospitalities (Pvt.) Ltd. In ITA Nos.2093 of 2010 and 2095 of 2010 and Ors. has held, after considering the various decisions of Hon?ble Courts including CIT vs. Divine Leasing and Finance Limited 299 ITR 268, CIT vs. Sophia Finance Ltd. 205 ITR 98, CIT vs. Dolphin Canpack Ltd. 283 ITR 190 and CIT vs. Lovely Exports (P) Ltd. 216 CTR 195 (SC), that the initial burden is upon the assessee to explain the nature and source of share application money received and in order to discharge this burden, the assessee is required to prove not only the identity of the shareholders but also the genuineness of the transaction and creditworthiness of the shareholders. The investigation wing of income- tax department, New Delhi made an investigation where the modus operandi for introducing the unaccounted money in the regular books of account by way of accommodation entries was detected. As per this modus operandi, the cheques/demand drafts/Pos were issued in the name of beneficiary from the account where the cash is deposited and in some cases, the amount is transferred to another bank account by showing it as receipt by clearing. The statement of Shri Mashes Garg, s/o Late Shri R.S. Garg R/o G-8/94, Sector 15, Rohini, Delhi was recorded by additional DIT (Inv.), Unit-1, Delhi on 22.9.2003 and in this statement, Shri Mahesh Garg admitted to have opened bank accounts in the names of various individual, firms and . companies where were being used by him for providing accommodation entries. The companies from whom the assessee has shown receipt of share application money were mentioned in the list given by Shri Mahesh Garg during the course of statement used for providing bogus accommodation entries. The copy of statement was provided to the assessee by Assessing Officer and assessee has failed to file a rebuttal to the same. The assessee has also not denied the contents of the statement made by Shri Mahesh Garg. As we have stated above, in view of the latest decision of the Hon?ble jurisdictional High Court, the assessee has to discharge the burden in respect of the identity of the shareholders. No rebuttal or explanation was furnished in respect of the statement of Shri Mahesh Garg. The status of the income-tax assessment of Shri Mahesh Garg is also not known with regard to income earned for the accommodation business. In view of these facts and in the interest of justice, we set aside the issue to the file of Assessing Officer to decide the issue de novo after providing an opportunity to the assessee to prove three ingredients i.e., identity of the shareholders, genuineness of the transactions and creditworthiness of the shareholders in respect of persons from whom money was received.? . . . 7. In view of the aforesaid, we do not think that any substantial question of law arises or requires consideration in this appeal and the same is accordingly dismissed, without any order as to costs. It is clarified that we have not expressed any opinion on merits. The observations made by the tribunal will be treated tentative and the authorities will independently apply their minds on the facts in issue. . . . . . . . SANJIV KHANNA, J. . . . . . . . G.P. MITTAL, J. . OCTOBER 24, 2011 . NA . . . 52 .