MS. BESTECH HOSPITALITIES PVT. LTD,NEW DELHI vs. DEPUTY COMMISSIONER OF INCOME TAX, FARIDABAD
Income Tax Appellate Tribunal, DELHI BENCH, ‘C’: NEW DELHI
Before: SHRI C.N. PRASAD & SHRI M. BALAGANESH, ACCONTANT MEMBER Assessment Year 2011-12
PER C.N. PRASAD, JM,
This appeal is preferred by the Assessee against the order dated 30.10.2023 of the Ld. Commissioner of Income-tax
(Appeals)-3 (hereinafter referred to as CIT(A)), Gurgaon for the Assessment Year 2011-12 in partly sustaining the addition made
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by the Assessing Officer U/s 68 of the Income Tax Act, 1961
(hereinafter referred to as ‘the Act’).
2. The relevant facts emanating from the record and submissions are that the Assessee is a Private Limited company incorporated on 03-07-1995 and admittedly is engaged in the business of construction and running hotels and restaurants.
Search and seizure proceedings were carried out in the group cases of M/s Bestech, Gurgaon. The assessee was also covered u/s 132(1) of the Act as a part of the said search proceedings.
Accordingly notice u/s 153A of the Act was issued in this case on 18.03.2013. In response to the said notice the assessee filed its return of income on 22.08.2013 declaring NIL income. The AO had observed from the balance sheet of the assessee, that it has received following share capital/share application money during the financial year 2010-11 relevant to the assessment year 2011-
12 as under:
Name
Face value (in Rs.)
Premium
(in Rs.)
Amount (in Rs.)
M/s ApoorvaLeasing Finance and Investment Co. Ltd
10/-
990/-
Rs.
25
crore
M/s Micro Management Ltd
10/-
990/-
Rs.
30
crore
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1 In the course of assessment proceedings the AO required the assessee to explain the source of the above share capital. Ongoing through the documents furnished by the Assessee in this respect and other material available on record, it was observed by the AO that M/s Apoorva Leasing Finance & Investment Co. Ltd was managed and controlled by one Shri S.K. Jain, an accommodation entry provider. Further M/s Micro Management Ltd has received share capital/ share premium from M/s Transnational Growth Fund Ltd and the said company M/s Transnational Growth Fund Ltd was also managed and controlled by Shri S.K. Jain. 2.2 As per the AO, independent search proceedings u/s 132 have also been carried out in the case of Shri S.K. Jain by the Investigation Wing, Delhi and it was alleged that Shri S.K Jain through various paper companies such as M/s Apoorva Leasing Finance & Investment Co. Ltd, M/s Transnational Growth Fund Ltd etc. were engaged in providing accommodation entries. 3. With regard to investment from M/s Apoorva Leasing Finance and Investment Co. Ltd it was found that it has applied for 10 lacs shares @ 1000/- i.e., total share application money of Rs.100 crores; out of which an amount of Rs.25 crores was 4
received on 16.02.2011 (25% total share capital). However no further payment was received. Further, Shri S.K. Jain is one of the Directors of M/s Apoorva Leasing. During the course of assessment proceedings statement of one of Directors of M/s
Apoorva Leasing was also recorded by the AO, copy of the same was provided to the Assessee. According to AO, M/s Apoorva
Leasing has not shown any income it its return of income for AY
2011-12 and in its bank account there were credit entries immediately before date of giving share application money to the Assessee. Further in its balance sheet as on 31.03.2010, it has got share premium of Rs.94,99,90,500/- and fresh share capital introduced of Rs.9,99,99,900/- during FY 2009-10 itself. It was thus concluded by AO that it was beyond human probability that M/s Apoorva Leasing could mobilize such huge share premium in the ratio of 1:99 on the basis of such financial profile. It has no fixed assets and in it’s profit and loss account no business activities have been shown to have carried out by it.
4. Similarly with regard to 3 lacs shares allotted to M/s Micro
Management Ltd., and receipt of Rs.30 crores as share capital, the AO observed that M/s Micro Management Ltd., has received the funds from M/s Transnational Growth Fund Ltd. M/s Micro
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Management
Ltd., has allotted
2
lacs shares to M/s
Transnational Growth Fund Ltd., @ 750/- per share (face value
10/- along with share premium of Rs.740/-). M/s Transnational
Growth Fund Ltd was managed and controlled by Shri S.K. Jain.
He and Smt. Preeti Jain (wife of Shri S.K. Jain) were it’s
Directors. M/s Transnational Growth Fund Ltd., was not found existing at its given address. M/s Micro Management Ltd., has shown premium of Rs.69,86,40,000/- on paid up capital of Rs.14,18,85,000/-. It has no fixed assets. It has shown income of Rs.3,00,85,420/- and Rs.NIL for AY 2010-11 and AY 2011-12
respectively. Thus these investments were also alleged to be bogus.
5. In view of these facts the AO confronted the Assessee on 18.02.2015 and proposed to make addition of Rs.55 crores on account of such bogus share capital. The Assessee relied upon details such as PAN, ITR, bank statements, confirmations and balance sheet of the share applicants and other submissions to prove the identity, creditworthiness and genuineness of the transaction but AO was not satisfied with the evidences and explanation furnished by the Assessee. The AO also mentioned that the Assessee could not explain the basis of charging of share
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premium @ 990/- per share on face value. The AO also examined the trading of some other companies which were in similar trade as that of the Assessee and found that shares of one such company EIH Limited traded at Rs.75/- to Rs.150/-., so there was no reason for investment in Assessee company for such high premium. The AO further relied upon the decisions of Hon'ble
Delhi High Court in the case of CIT vs N.R. Portfolio Pvt Ltd., and CIT vs Nova Promoters and Finlease Pvt Ltd. In view of these facts and discussion made in assessment order, the AO made addition of Rs.55 crore u/s 68 of the Act on account of bogus share application money received during the assessment year under consideration.
6. The ld. CIT(A) has deleted the addition of Rs.30 crore on account of share investments from M/s Micro Management Ltd., and sustained the addition of Rs.25 crore from M/s. Apoorva
Leasing Finance & Investment Company Ltd, for which the assessee is in appeal raising following grounds;
“1. (A)That on the facts & circumstances of the case the Assessing Officer and CIT(A) NFAC Delhi, while passing the order U/s 250 erred in:
a. The Assessing Officer and CIT (A) erred in not recognizing the fact that Assessing Officer erred on facts and law in completing assessment made under section 153A(1)(b) of the Income Tax Act, 1961 at an income of Rs. 55,00,00,000/- which is reduced to Rs. 25,00,00,000/-by 7
CIT(Appeal) as against income of Rs. Nil/- returned by the Appellant, treating share application/share capital received during the year Rs. 25,00,00,000/- from M/s.
Apoorva Leasing Finance & Investment Company Ltd as bogus/unexplained income u/s 68 of the Income Tax Act despite the fact that the Appellant has fully discharged its onus of proving identity, genuineness and creditworthiness of the persons from whom application money has been received by submitting all the relevant documents.
b. The CIT (A) erred in not recognizing that the A.O. erred in arbitrarily treating the share application/capital as bogus despite independently verifying the transaction by calling information from the share applicant M/s. Apoorva Leasing Finance & Investment Company Ltd. u/s 133(6) of Income Tax Act and by recording the statement of directors of M/s. Apoorva Leasing Finance & Investment Company Ltd. On oath u/s 131 of Income Tax Act these transactions are genuine. They have even submitted relevant documents in support of the same.
c.The CIT (A) erred in not recognizing that making addition of share application money/ share capital received from M/s Apoorva Leasing Finance & Investment Company Ltd. merely on the basis of observation/ allegation by Investigation wing, Delhi that one of the director of Apoorva Leasing Finance & Investment Company Ltd. is also engaged in the activities of providing accommodation entries whereas none of the paper seized during the course of search operation and also on post search investigations made by the investigating officer as well as enquiries made by assessing officer, suggests that share capital received by the Appellant company is accommodation entry.
5 d. The CIT (A) erred in not recognizing that Id. A.O. erred in making these additions on the basis that the Directors of share applicant company have failed to provide documentary evidence to prove the sources of funds during recording of statement u/s 131 of Income Tax Act although the Assessing Officer only asked for the sources of funds and has never asked/ insisted on the furnishing of documentary evidences.
Never the less, these documentary evidences have been duly furnished by the appellant company during the course of assessment proceedings.
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e. The CIT (A) erred in not recognizing that the A.O. erred in not relying upon the judgment laid down by Hon'ble Supreme Court in the case of Lovely Exports simply on the ground that facts and circumstances of the case are different and appellant company is a private limited company although the fact and circumstances of the Lovely Exports is in line with facts of the appellant company and this judgment very well applies to private limited company as plaintiff in this case was a private limited company i.e. Lovely Export Private Limited.
7 f. The CIT (A) erred in not recognizing that the assessing officer has erred in making addition by relying judgment of Nova Promoters & Finlease (P) Ltd. & NR Portfolio Pvt. Ltd.
although the facts and circumstances in these cases were totally different from the case of appellant company.
g. The CIT (A) erred in not recognizing that the Assessment order is erroneous and unsustainable in law as well as on merits and so the addition made therein.
h. That the orders passed by A.O. & CIT are bad in law and against the principles of natural justice.
The Assessee craves leave to add, Alter or amend the grounds of appeal at or before the hearing.”
During the appellate proceedings before Ld. CIT(A) as well before us reasserting the same, the Ld. AR stated that in order to discharge onus u/s 68 of the Act, the Assessee has proved the identity and creditworthiness of the share applicants and genuineness of transactions by furnishing requisite documents such as PAN, address, copy of share application form, allotment letter, copy of acknowledgment of ITR, copy of bank statement, confirmation, copy of board resolution for making investment in shares of the Assessee company, share holders 9 No.2376/Del/2018; and CIT vs. Vrindavan Farms P. Ltd., ITA No.71 of 2015 of the Hon’ble Delhi High Court, wherein it has been held that the assessee should be considered to have fully discharged the onus cast on it as per section 68 of the Act to prove the identity of the shareholders and genuineness of the transaction by filing requisite proofs/documents like PAN, copy of income-tax return of share applicants, copy of balance sheet, the fact of receiving application money through banking transaction. 7.2 Further Ld. counsel relying on Arbitration orders and order of NCLT it was submitted that the transaction with Apoorva Leasing have been unreasonably tainted while the said scrip has been found to be genuine as confirmation were received and Directors of investor company had appeared. It was also argued that additions if any could have been made only in the case of share applicants and for this proposition, reliance was placed 10
upon the decision of Hon'ble Supreme Court in the case of M/s
Lovely Export Pvt. Ltd. (2008) 216 CTR 195. It was argued that once documents have been furnished in support of share application money, further onus shifts upon the AO. In this case the AO has made addition based upon presumptions and without any evidence.
8. The Ld. AR also submitted that M/s Apoorva Leasing
Finance & Investment Company Ltd., is listed in various stock exchanges of the country, complying with the various listing requirements of the various stock exchanges /