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Income Tax Appellate Tribunal, DELHI BENCHES “C” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI N.S. SAINI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “C” : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA.No.2078/Del./2014 Assessment Year 2006-2007 M/s. Ganpati Polymers The Income Tax Officer, Ltd., 1110-11, Chiranjeev Ward-12(1), vs Tower, Nehru Place, New Delhi. New Delhi. PAN AAACG4671J (Appellant (Respondent) For Assessee : Shri R.K. Kapoor, FCA For Revenue : Shri Amit Katosh, Sr. D.R. Date of Hearing : 06.05.2019 Date of Pronouncement : 09.05.2019 ORDER PER BHAVNESH SAINI, J.M.
This appeal by assessee has been directed against the Order of Ld. CIT(A)-IV, New Delhi, Dated 25th February, 2014 for the assessment year 2006 2007.
2 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. 2. We have heard the Learned Representatives of both the parties and perused the material available on record.
On Ground Nos. 1 to 6, the assessee challenged the addition of Rs.35 lacs under section 68 of the Income Tax Act 1961.
Briefly the facts on this issue are that assessee filed return of income declaring loss of Rs.30,72,617/-. The assessee company has received Rs.15 lacs as share application money from Shri Surendra Singh Yadav and Rs.20 lacs from M/s. Wianxx Impex P. Ltd. No shares were allotted to both the above persons till 31st March 2006. The assessee company was required to prove identity, creditworthiness and genuineness of the transaction by filing the confirmations, copy of the income tax return and their bank statements. The assessee only filed bank statements. The assessee was, therefore, directed to produce Shri Surendra Singh Yadav for examination. It was also found that there are cash deposits in the bank account of Shri Surendra Singh Yadav. The Investor was directed to 3 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. be produced along with copy of complete income tax return, books of account, evidence of his source of income and bank passbook in original. The assessee only produced original bank statement/passbook of Shri Surendra Singh Yadav, but, did not produce in person and no details were also furnished. The assessing officer, therefore, made addition of Rs.15 lacs under section 68 of the Income Tax Act, 1961.
4.1. In respect of other cash credit of M/s. Wianxx Impex P. Ltd., only confirmation and bank statement was filed. No copy of ITR including balance sheet was filed. The bank statement was incomplete and only two figures on account of payment of share application money are appearing in the statement. No credit/debit appearing in the statement. Even few entries appearing in the bank statement have been malafidely and intentionally concealed by the marker pen making them illeligible. Even the Bank A/c. No. of the Investor has been darkened with the marker pen. The assessee was, therefore, directed to produce complete details, complete bank statement and original
4 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. documents and to produce the Investor for examination. However, assessee failed to do so. Therefore, addition of Rs.20 lacs was made under section 68 of the Income Tax Act, 1961.
4.2. The assessee at the appellate stage, produced the documents. It was explained in the case of Shri Surendra Singh Yadav that he has received Rs.17,63,084/- through cheque dated 28.10.2005 credited in his bank account against sale of agricultural land, but, the same have been ignored. Copy of the bank statement was filed to show that there were no cash deposit prior to making investment in assessee company.
4.3. Similarly, in the case of M/s. Wianxx Impex P. Ltd., assessee filed confirmation, affidavit, audited balance- sheet, bank statement and list of the Directors. It was submitted that average bank balance appearing in their case was Rs.1.75 crores and no cash have been deposited.
4.4. The submissions and documents filed by the assessee were forwarded to the A.O. for filing remand report.
5 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. The A.O. recorded statement of Shri Surendra Singh Yadav in which he has stated that he was not filing any income tax return as income was below taxable limit. He has also stated that he has not been allotted any shares by the assessee company and money was repaid to him. The A.O. recommended that addition may be confirmed.
4.5. The Ld. CIT(A) after considering the submissions of the assessee in detail and material on record, confirmed the addition and dismissed this ground of appeal of assessee because assessee failed to prove creditworthiness of the share applicants and genuineness of the transaction in the matter. The Ld. CIT(A) considered the case law relied upon by assessee and distinguished the same with facts of the case.
5. We have considered the rival submissions and perused the material on record. In the case of Shri Surendra Singh Yadav, Learned Counsel for the Assessee referred to the affidavit filed before A.O. in which he has confirmed to have given cheque to the assessee dated 28.10.2005 drawn on Union Bank of India of Rs.15 lakhs which was paid after
6 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. selling agricultural land . Copy of the bank statement is also filed in the paper book in which prior to making investment in assessee company, Rs.17,63,084/- have been credited in the account of Investor on account of sale of agricultural land . He has referred to statement of the creditor recorded by the A.O. in the remand proceedings, copy of which is filed at page-54 of the PB. Learned Counsel for the Assessee, therefore, submitted that assessee discharged his onus of proving investment made by the Investor for purchase of shares.
5.1. Learned Counsel for the Assessee as regards other creditor M/s. Wianxx Impex P. Ltd., referred to confirmation filed by the creditor supported by affidavit and balance-sheet. He has submitted that bank statement would reveal that no cash have been deposited in the case of this Investor. He has, therefore, submitted that assessee had discharged the onus of proving identity of the Investors, their creditworthiness and genuineness of the transaction in the matter. The department cannot ask the assessee to prove the source of the source.
7 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi.
On the other hand, Ld. D.R. submitted that if the test of human probability is applied, it would prove that assessee failed to prove creditworthiness of the investors and genuineness of the transaction in the matter. The Ld. D.R. submitted that no actual transaction have been proved by the assessee. Assessee is a loss making company and no copy of the sale of agricultural land, income tax return of Shri Surendra Singh Yadav have been filed. He has no source of income, therefore, addition have been correctly made. In the case of M/s. Wianxx Impex P. Ltd., none of the responsible person of the investor have been produced before A.O. for examination. This company has also shown loss, therefore, there is no question of making investment by a loss making company in a loss making assessee company. The Ld. D.R, therefore, submitted that both the additions may be confirmed.
We have considered rival submissions. In the case of Shri Surendra Singh Yadav – Investor, though the affidavit of the creditor is filed, but, the bank statement of the investor shows that prior to making investment in 8 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. assessee company of Rs.15 lakhs, there are cash deposits on three occasions of Rs.5000/-, Rs.50,000/- and Rs.15,000/-. Prior to it, there was a zero balance. After the transaction with the assessee also, there is a cash deposit of Rs.5 lakhs in the account of the investor. The assessee claimed that the investor has sold the agricultural land and got a cheque for Rs.17,63,084/- which is credited in his account, but, no copy of the sale deed is produced on record in relation to proof of selling of the agricultural land. He appeared before A.O. in the remand proceedings and his statement have been recorded by the A.O. in which he has affirmed that his approximate annual income is of Rs.2,50,000/- including salary income of Rs.1,80,000/-. He has explained that investment in assessee company was made, out of sale of agricultural land which was under acquisition by State Government. He has further submitted that he worked with M/s. Innovative Tech Pack Ltd., and the owners/promoter of the said company offered him good return over a period of time, if the investor is interested in making investment in sister concern i.e., assessee company.
9 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. The investor, therefore, made investment in assessee company. He has further submitted that shares were not allotted to him and amount have been later on refunded to him. These facts clearly show that the transaction was not genuine. Admittedly, the assessee is a loss making company and in assessment year under appeal, assessee company declared loss of Rs.30,72,617/-. Therefore, there is no question of giving any assurance to the investor for good return over a period of time. No documents of sale of agricultural land have been filed which is acquired by State Government. No shares were allotted to him till date and at the time of return of amount in question no interest have been given to the investor. He was not assessed to tax because his income was below taxable limit. In his bank account there are several cash deposits and in the initial period there was NIL balance in the account of the investor. Thus, the statement of Shri Surendra Singh Yadav would not inspire any confidence of any authorities to believe that he has made any genuine investment in assessee company.
10 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. 7.1. Similarly, in the case of another creditor M/s. Wianxx Impex P. Ltd., though this firm confirmed to have made investment in assessee company, but, its P & L A/c clearly reveals that this investor company was also running in losses and in P & L A/c [PB-25] it has declared net loss of Rs.52,53,155/-. When the investor company is running into losses and assessee company is also running into losses, where is the question of making genuine investment in assessee company for investment purposes. In this case also, no shares have been allotted and nothing is clarified whether any interest have been paid at the time of return of the money. No responsible person of the investor company was produced before A.O. for examining the genuineness of the transaction in the matter. The Ld. CIT(A) noted that though confirmation was filed before him, but, balance- sheet of the investor company would show NIL investments in assessee company as on 31.03.2007. These facts clearly show that assessee failed to prove creditworthiness and genuineness of the transaction in the matter. The Hon’ble Supreme Court in the case of Durga Prasad More 82 ITR
11 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. 540 (SC) and Sumati Dayal 214 ITR 801 (SC) have held that “Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities.” If the said test is applied in this matter, it is clearly established that assessee has failed to prove creditworthiness of the Investors and genuineness of the transaction in the matter. It is difficult to believe that the assessee company being a loss making company, any investor would make investment in them, particularly, when Shri Surendra Singh Yadav has no source to make any investment in assessee company and that M/s. Wianxx Impex P. Ltd., (Investor Company) itself was running into losses, therefore, there is no question of proving creditworthiness of both the investors and genuineness of the transaction in the matter. We, therefore, do not find any merit in these grounds of appeal of assessee and the same are accordingly dismissed.
8. On Ground Nos.7 and 8, the assessee challenged the addition of Rs.3,46,000/- on account of repair of plant and machinery. The A.O. noted that assessee has shown opening stock as on 01.04.2005 at Rs.3495/- and same
12 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. amount have been shown as closing stock as on 31.03.2006. It would show that assessee company did not make any sales and purchases and, therefore, no business activities or commercial activities as envisaged in the main objects of the Memorandum of Articles and Association were carried out by the assessee company. The A.O. considered the issue with regard to plant and machinery and addition made to it and claim of expenses of depreciation etc., in the assessment order. The A.O. also considered that the assessee leased-out its plant and machinery to the company/persons in which Directors of the assessee company are shareholders/interested. The transaction was found to be collusive and loss claimed in the revised computation of income filed during the course of assessment proceedings at Rs.30,72,617/- was not accepted and income of assessee from the business was assessed at NIL income. This issue was considered in detail by Ld. CIT(A) and Ld. CIT(A) allowed depreciation to the assessee.
13 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. 8.1. However, as regards the addition of Rs.3,46,000/- in challenge in appeal on Ground Nos. 7 and 8, the Ld. CIT(A) noted that assessee submitted that out of expenses claimed at Rs.4.66 lakhs, Rs.3.46 lakhs was on repair of machine and balance amount on expenses on rent, salary, audit fees and bank charges. The Ld. CIT(A) found that assessee failed to explain that when all the assets including plant and machinery were leased-out to its sister concern and assessee did not carry out any manufacturing activity, how the amount of Rs.3.46 lakhs was spent on repair of machinery. Therefore, disallowance of Rs.3.46 lakhs was upheld. This ground of appeal of assessee were dismissed.
After considering the rival submissions, we are of the view that no interference is required in the matter. The A.O. has specifically noted in the assessment order that during the assessment year under appeal, assessee did not make any sales and purchases and no business activities or commercial activities were carried out. The assessee did not establish as to how repairs to plant and machinery and expenses claimed were genuine. Even the loss income
14 ITA.No.2078/Del./2014 M/s. Ganpati Polymers Ltd., New Delhi. declared by the assessee was not accepted by the A.O. and it was treated as NIL income. The Ld. CIT(A) specifically noted that when plant and machinery were leased-out to the sister concern and assessee did not carry out any manufacturing activity, how the amount was spent on repair of machines. In the absence of any evidence on record to rebut the finding of fact recorded by the authorities below, no interference is required in the matter. Ground Nos. 7 and 8 of the appeal of Assessee are accordingly dismissed.
No other point is argued.
In the result, appeal of Assessee dismissed.
Order pronounced in the open Court.