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Income Tax Appellate Tribunal, DELHI BENCH: “E”, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 13/11/2013, passed by the Ld. Commissioner of Income-tax (Appeals)-1, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10, raising following grounds:
The Commissioner of Income Tax (Appeal) erred in law and on facts in deleting the addition of Rs.2,65,00,000/- u/s 68 of the Act w.r.t. procurement of accommodation entries through share application money from nondescript companies. ./2014 2. The Commissioner of Income Tax (Appeal) erred in law and on facts in deleting an addition of Rs.1,32,000/- made by the AO w.r.t. commission paid @ 5% for procurement of accommodation entries through share application money from non-descript companies. 3. The Commissioner of Income Tax (Appeal) erred in admitting additional evidence under Rule 46A. 4. (a)The order of the CIT(A) is erroneous and not tenable in law and on facts. (b)The appellant craves leave to add, alter or amend any/all the grounds of appeal before or during the course of the hearing of the appeal.
2. Briefly stated facts of the case are that consequent to search and seizure operation under section 132 of the Income-tax Act, 1961 (in short ‘the Act’) carried out at the premises of the assessee company on 30/06/2009, notice under section 153A of the Act was issued on 13/04/2010. In response the assessee submitted that return of income filed originally as per the provisions of section 139 of the Act for the year under consideration, might be treated as return filed in response to notice under section 153A of the Act. Subsequently, statutory notices were issued and assessment proceedings were commenced. The Assessing Officer observed receipt of share application money of Rs.2,65,00,000/- from nine (9) private limited companies other than the promoter’s/ directors of the company. In the assessment completed under section 143(3) read with section 153A of the Act, the Assessing Officer held the said share application money of Rs.2,65,00,000/- as accommodation entry and accordingly made addition under section 68 of the Act as unexplained cash credit. The Assessing Officer also estimated commission paid by the assessee at the rate of 0.5% of the amount of accommodation entry for obtaining the accommodation 3 ITA No.303/Del./2014 entries. On further appeal, the Ld. CIT(A) after considering the additional evidences filed by the assessee, deleted the addition. Aggrieved, the Revenue is in appeal before the Tribunal raising grounds as reproduced above.
3. Before us, the Ld. DR submitted that the assessee failed to produce the Directors of the share applicant companies before the Assessing Officer in assessment proceedings as well as in remand proceedings. She submitted that in view of no business activities carried out by the assessee company, the share premium of Rs.90 per share was not justified and no genuine investor would invest in such a company at such a high premium. She referred to the paper book filed by the assessee and submitted that in the bank statement of the share applicants, money has been deposited and same has been withdrawn within a small period leaving a nominal balance in their bank accounts, which indicates that no worthwhile activities were carried out by those share applicant companies except providing of accommodation entries. She submitted that the huge investment in the shares of the assessee company despite very small amount of income shown by the share applicant companies in their regular return of income, defy the financial rational. According to the Ld. DR, the assessee has failed to explain creditworthiness of the share applicant companies and also failed to explain genuineness of the transactions. In support of her contention, she relied on the decision of the Hon’ble Supreme Court in the case of Principal CIT(Central)-1 Vs. NRA Iron and Steel Private Limited arising out of SLP(Civil) No.29855 of 2018. She also relied on the decision of the coordinate bench of the Tribunal in the case of M/s Synergy 4 ITA No.303/Del./2014 Finlease Private Limited in for assessment year 2006-07 4. On the other hand, the Ld. counsel of the assessee filed paper book containing pages 1 to 130 and relied on the order of the Ld. CIT(A).
We have heard the rival submissions and perused the relevant material on record. In the instant case, the assessee invited share applications from nine private limited companies. The share applicant companies invested/paid Rs.100 per share which included share premium of Rs.90 for each share. The list of share applicant companies along with their address and the amount invested is reproduced as under:
SI. Name of the Address Amount No. applicants 1. Chintapumi 103,Ph complex, 65A, Vijay Block, 40,00,000 Builders Pvt. Ltd. Laxmi Nagar, Delhi-92 2. Dhanvridhi 301, Himalaya Palace, 65 A, 25,00,000 Financial Services Vijay Block, Nr. Child Junction L Ltd Nagar, Delhi-92 3. Indo Dynamic 301, Himalaya Palace, 65 A, 25,00,000 Freight Pvt. Ltd. Vijay Block, Nr. Child Junction L Nagar, Delhi-92 4. Kela Devi Bulders 103,Ph complex, 65A, Vijay Block, 40,00,000 Pvt Ltd. Laxmi Nagar, Delhi-92 5. Kay Buildwell Pvt. 102,Ph complex, 65A, Vijay Block, 50,00,000 Ltd. Laxmi Nagar, Delhi-92 6. Sevbro Domestic 59, Emco complex, Vijay Block, L 40,00,000 Appliance Pt. Ltd. Nagar, Delhi-92 7. IndLon Hosiery B-l 14, Shakarpur, Delhi 15,00,000 Pvt Ltd 8. Multitech S No- 1, B-l 14, Nr. Balaji 15,00,000 Semiconductor Dharamshala Shakarpur, Delhi Pvt. Ltd.
Oracle Cables Pvt. 301, Himalaya Palace, 65 A, 15,00,000 Ltd. Vijay Block, Nr. Child Junction L Nagar, Delhi-92 TOTAL 2,65,00,000
During the assessment proceeding for verification of the investment by these companies, the Assessing Officer issued summons under section 131 of the Act to directors of those companies to attend personally in his office alongwith documents including copy of bank account, copy of ledger account of the assessee in their books of accounts, copy of tax audit report, balance sheet etc, period of holding of the shares, if sold the details of sales etc. However the summon remained non-complied and thus the assessee was asked to produce those persons. Despite specific request, the assessee did not produce those directors before the Assessing Officer. According to the Ld. Assessing Officer, the Private companies are restrained from raising money from public, therefore, the directors of the assessee company must have been in relationship or friendship with the director of the assessee company and in such circumstances, the assessee could have easily produced the authorised signatory or director of the above share applicant companies, however, it failed to do so owing to the application of colourable device into which it had indulged to evade taxes. According to the Assessing Officer, at the fag-end of the assessment proceeding certain documents were filed on behalf of the share applicant, however, on personal verification by the Inspector of the office of the Assessing Officer, those share applicants were not found at their addresses. The relevant finding of the Assessing Officer is reproduced as under:
“At the fag end of the assessment proceedings when the order u/s 153A/143(3) of the Act, in this case was under preparation, the response to the notices issued u/s 131 of the Act to M/s. Dhanvridhi Finance Services Ltd.
301. Himalaya Place 65 Viiav Block Near 6 ITA No.303/Del./2014 Archies Gallery Laxmi Naaar. Delhi-92. M/s. Indo Dynamic Fright (P) Ltd.
301. Himalaya Mace. 65 Viiav Block. Near Archies Gallery Laxmi Naqar. Delhi-92. M/s. Indlon Hosiery P. Ltd B-114. Post office Gali, Shakarpur. Delhi-92. M/s. Multitech semiconductors (P) Ltd. B- 114. post office Gali. Shakarpur, Delhi-92 & M/s. Oracle Cables (PI Ltd.
Himalaya Place. 65 Viiav block. Near Archies Gallery Laxmi Naqar. Delhi-92 were received by registered post. Immediately on receipt of the confirmatory letters the inspector of this circle was deputed to confirm about the existence of these companies at the address from where these confirmations were received. M/s. Dhanvridhi Finance Services Ltd. M/s. Indo Dynamic Fright (P) Ltd. & M/s. Oracle tables (P) Ltd. companies as per records put forth by the assessee in his submissions and from the confirmations received by post exist at 301, Himalaya Place, 65 Vijay Block, Near Archies Gallery Laxmi Nagar, Delhi- 92,whereas the company M/s. Multitech Semiconductor (P) Ltd. & M/s. Londlon Hosiery (P) Ltd. is situated at B-114. Post office Gali. Shakarpur. Delhi-92. The inspector in his report placed on record has submitted that no such company exists at 301, Himalaya Place, 65 Vijay BlocTeTNear Archies Gallery Laxmi Nagar, Delhi-92 as the premises are occupied by M/s. M S Jain & Associates who are dealing in finance & housing loans and on making further enquiry he was apprised that M/s. Jain & Associates were in no way connected with the above companies and The persons there had heard the name of these companies for the first time. As regard M/s. Multitech Semiconductor (P) Ltd. & M/s. Indlon Hosiery IP) Ltd. the inspector in his report has submitted that at the address as given by the assessee and as per confirmations received from B-114. Post office Gali. Shakarpur. Delhi-92 this is a residential premises presently occupied Shri Raghuvir Prasad Gupta and Shri Anil Kumar Gupta and they have also heard about M/s. Multitech Semiconductor (PI Ltd.& M/s. Indlon Hosiery (P) Ltd. for the first time. It is thus inferred that the assessee himself has manipulated the replies sent by registered post. In the form of confirmation of the above companies.”
In view of the above observation, and relying on the various decision cited in the assessment order, the Ld. Assessing Officer held that the assessee failed to establish identity, creditworthiness of the share applicant and genuineness of the transaction, and accordingly, he made addition for the amount received of Rs.2,65,00,000/- as share application money under section 68 of the Act. According to the Assessing Officer, as per the normal practice the entry providers charge commission at the 7 ITA No.303/Del./2014 rate of 5% of the amount of the entry and thus, the assessee has paid the said corresponding amount for obtaining accommodation entries and for which also, addition of Rs.1,32,500/- was made.
Before the Ld. CIT(A), the assessee filed certain documents as additional evidence in relation to share applicant companies; for example; copy of Income-tax Return, audited balance sheet, copy of share application, bank statement, confirmation, assessment order etc. The Ld. CIT(A) forwarded these documents to the Assessing Officer calling for a remand report. The Assessing Officer objected to admission of the additional evidences. After considering the objection of the Ld. Assessing Officer and rejoinder of the assessee, the Ld. CIT(A) admitted the additional evidences. The Ld. CIT(A) observed as under: - there are no cash deposit in the bank accounts of the share applicant; - no incriminating material was found during the course of the search of the assessee; - the share applicant companies has sufficient sources available with them; and - non-compliance of summon cannot lead to burden being placed on the assessee to produce the share applicant. 9. The Ld. CIT(A) relying on various decision cited in the impugned order, deleted the addition made by the Assessing Officer. 10. We find that the Hon’ble Supreme Court in the case of NRA Iron and Steel Private Limited (supra) has laid down following principles in relation to verification of share capital/premium under section 68 of the Act: ./2014 11. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit- worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.” 11. Further, in paras 12, 13 and 14 of the decision, the Hon’ble Supreme Court has observed specific facts in relation to the case as under:
“12. In the present case, the A.O. had conducted detailed enquiry which revealed that : i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. For example: a. The companies Hema Trading Co. Pvt. Ltd. and Eternity Multi Trade Pvt. Ltd. at Mumbai, were found to be non-existent at the address given, and the premises was owned by some other person. b. The companies at Kolkata did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. ./2014 c. The two companies at Guwahati viz. I spat Sheet Ltd. and Novelty Traders Ltd., were found to be nonexistent at the address provided. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90,00,000 to Rs. 95,00,000 in the Assessment Year 2009-10, for purchase of shares at such a high premium. For example: Neha Cassetes Pvt. Ltd. - Kolkata had disclosed a taxable income of Rs. 9,744/- for A.Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. - Kolkata filed a NIL return, but had purchased Shares worth Rs. 95,00,000 in the Assessee Company - Respondent. Another example is of Ganga Builders Ltd. - Kolkata which had filed a return for Rs. 5,850 but invested in shares to the tune of Rs. 90,00,000 in the Assessee Company - Respondent, etc. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act.
The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company - Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a ./2014 meagre or nil income had to explain how they had invested such huge sums of money in the Assessee Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee.
The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.”
In the instant case also on perusal of the paper book, we find that very nominal income was shown by the share applicant in their return of income filed. For example, M/s Chinta Purani Builders Private Limited (AY 2009-10: Rs.4,410/- and AY 2011- 12: Rs. 5372), M/s Kela Devi Builders Private Limited ( AY 2009- 10; Rs.5,540/- and AY 2011-12: Rs. 2235/-), M/s Kay Buildwell Private Limited (AY: 2009-10: Rs. 5090/- and AY 2011-12: Rs.23,634/-), M/s Dhanvridhi Financial Services Ltd.(AY: 2009- 10 : Rs. 5290 and 2011-12 Rs. Nil) M/s Indo Dynamic Freight Private Limited (AY 2009-10 : Rs. 5240 and AY 2011-12 : Rs. 33,729), M/s Indloan Hosiery Private Limited (AY 2009-10 :Rs. 4590 and AY 2011-12 Rs. 38,053) M/s Multitech semiconductor Private Limited (AY 2009-10 : Rs. 2490 and AY 2011-12 Rs. 40,242) and M/s Oracle cables Private Limited ( AY 2009-10 : Rs. 16,470 and 2011-12 : Rs. 37,437), 11 ITA No.303/Del./2014 13. Similarly, on perusal of the bank accounts of the share applicant companies filed in the paper book before us, we find that money has been deposited on various dates and almost equal amount has been withdrawn within a short period leaving a very small nominal balance. This trend has been observed almost in all the share applicants. 14. Further, the share applicants have paid share premium of Rs. 90 per share, whereas on perusal of the financial statement of the company for the year under consideration, a copy of which is available from page 115 to 130 of the Paper Book, we find that net profit during the year under consideration has been shown at Nil. We do not find any financial rational behind making investment by the share applicants companies at huge premium of Rs. 90 per share. No explanation has been furnished by the assessee along with evidences as to why the investor company had applied shares at a such high premium of Rs. 90 per share. 15. In the instant case, on summon being issued by the Assessing Officer, not a single director of those companies attended before the Assessing Officer and the document containing audited financial statements, balance sheet confirmation etc. have only been filed by post and that too when this fact of non-compliance by the share applicants was brought to the notice of the assessee. 16. During physical verification by the Inspector of the office of the Assessing Officer, none of the share applicants was found at their given address. 17. In view of the above observation and relying on the decision of the Hon’ble Supreme Court in the case of NRA Iron and Steel Private Limited (supra), we set aside the finding of the Ld. CIT(A) ./2014 on the issue in dispute and hold that the assessee failed to discharge its onus as required under section 68 of the Act and the Assessing Officer is justified in treating the amount received of Rs.2,65,00,000/- against share application money as unexplained cash credit under section 68 of the Act. The corresponding commission amount of Rs.1,32,500/- is also held as unexplained. Accordingly, the grounds of the appeal of the Revenue are allowed. 18. In the result, the appeal of the Revenue is allowed. Order is pronounced in the open court on 9th April, 2019.