ITO, NEW DELHI vs. M/S. KAUTILYA MONETARY SERVICES PVT. LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI

BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.5975/Del/2014 Assessment Year: 2005-06 ITO, Vs. Kautilya Monetary Services Pvt. Ward-5(2), Ltd., New Delhi. 10, Local Shopping Centre, Kalkaji, New Delhi. PAN: AAACK3995P CO No.171/Del/2015 (ITA No.5975/Del/2014) Assessment Year: 2005-06 Kautilya Monetary Services Pvt. Ltd., Vs. ITO, 10, Local Shopping Centre, Ward-5(2), Kalkaji, New Delhi. New Delhi. PAN: AAACK3995P

(Appellant) (Respondent) Assessee by : Shri Ved Jain, Advocate & Shri Ashish Chadha, CA Revenue by : Smt. Naina Soin Kapil, Sr. DR Date of Hearing : 08.10.2018 Date of Pronouncement : 30.11.2018

ITA No.5975/Del/2014 CO No.171/Del/2015

ORDER PER R.K. PANDA, AM: This appeal by the Revenue is directed against the order dated 29th August, 2014 of the CIT(A)-8, New Delhi, relating to Assessment Year 2005-06. The assessee has also filed the Cross Objection against the appeal filed by the Revenue. For the sake of convenience, these were heard together and are being disposed of by this common order.

ITA No.5975/Del/2014 CO No.171/Del/2015 the accommodation entries so obtained by the assessee from the following

companies:-

Sl.No. Name of the Parties Amount 1. M/s Karishma Industries Ltd. 51,00,000/- 2. M/s StellerInvestment Ltd. 51,00,000/- 3. M/s Graph Financial Services Pvt. Ltd. 30,00,000/- 4. M/s Lovely Securities Pvt. Ltd. 40,50,000/- 5. M/s Hillridge Investment Ltd. 40,50,000/-

the PANs of the above companies to prove the identity, genuineness and credit

worthiness of the transactions. The assessee also filed the confirmation letters of the

above parties.

the assessee. He observed that the funds were transferred to these companies from

M/s Gainwell Portfolio out of the two accounts maintained by the said company with

Kotak Mahindra Bank and Bank of India on the same day or one or two days in

advance. After then these parties issued cheques to the assessee on account of share

application money. This fact, according to the Assessing Officer, proves that the

assessee has indulged in accommodation entries by which it routed its undisclosed

income. He further noted that the Investigation Wing of the Department have made a

thorough investigation which revealed that the cash book maintained show that these

entries were made through mediator Rishi Singhal and Rishi. He further noted that the

confirmation letters filed by all these companies are arranged letters by the assessee

ITA No.5975/Del/2014 CO No.171/Del/2015 which was filed on the same date and are undated. He further observed that when he has not issued any summon or letter u/s 133(6) of the Act to these companies to file confirmation, it is strange that they have filed the confirmation on the same day and, therefore, it is beyond doubt that these letters have been filed by the assessee company itself. Rejecting various explanation given by the assessee and observing that the assessee could not discharge the onus cast on it i.e., credit worthiness of the loan creditors and the genuineness of the transaction, the Assessing Officer made an addition of Rs.2,13,00,000/- u/s 68 of the IT Act.

ITA No.5975/Del/2014 CO No.171/Del/2015 ground that since the documents were seized during the search u/s 132 of the IT Act,

the assessment proceedings could have been initiated u/s 153C of the IT Act. The

ld.CIT(A) further held that since all the details with regard to share application

received by the assessee were on record of the Assessing Officer during the course of

proceedings u/s 143(3) of the IT Act, therefore, the reassessment proceedings initiated

after a period of four years were barred by limitation. So far as the ground relating to

non-disposal of the objections by the assessee by passing a speaking order is

concerned, he decided the same against the assessee.

6.1 Aggrieved with such order of the CIT(A), the Revenue is in appeal before the

Tribunal by raising the following grounds:-

“1. Whether on the facts and circumstances of the case & in law, the Ld CIT(A) has erred in holding that the initiation of reassessment proceedings u/s 147 of the Income Tax Act, 1961 instead of u/s 153C of the Income Tax Act, 1961 is bad in law and liable to quashed? 2. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,13,00,000/- made by the AO u/s 68 of the I.T. Act, 1961 despite having the adverse information and proof from the Investigation Wing that the assessee has received accommodation entries worth of Rs.2,13,00,000/-? 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,13,00,000/- made by the AO u/s 68 of the I.T. Act, 1961 by ignoring the fact that incriminating documents seized during the search operation in the case of S.K. Jain, which shows/established that the share application money has been received through the sham transactions and were not fulfilled the two main condition i.e. genuineness and creditworthiness of the transaction? 4. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 5. The ground of appeal are without prejudice to each other.

ITA No.5975/Del/2014 CO No.171/Del/2015 6. That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing.”

material available on record. We find the ld.CIT(A), in his order, while deleting the

addition made by the Assessing Officer u/s 68 of the IT Act, on merit has also quashed

the reassessment proceedings on two counts, i.e., (i) the Assessing Officer should have

initiated the proceedings u/s 153C of the IT Act and not u/s 147 of the IT Act; and (ii)

the reassessment proceedings initiated u/s 147 of the Act are barred by limitation. The

relevant observations of the CIT(A) at para 3.1 onwards read as under:-

“3.1 I have considered the facts of the case of the appellant and submissions made by the AR of the appellant before me. 3.2 The case of the appellant has already assessed under section 143(3) of the Act by the then AO at returned loss after examining all the details /documents / explanation filed by the appellant during the course of assessment proceedings. The AO also examined the details / documents /explanation furnished by the appellant in respect of share application money received during the financial 6

ITA No.5975/Del/2014 CO No.171/Del/2015 year under consideration. The AO issued notice under section 148 for reassessment proceeding under section 147 of the Act for the assessment year 2005 - 06 which is barred by limitation i.e. after the expiry of four years from the end of the relevant assessment year by asserting that the appellant has failed to disclose fully and truly all material facts necessary for assessment. The Ld. AR of the appellant filed before the undersigned that the appellant has furnished all the details / documents / explanations in respect of share application money received of Rs.9,27,00,000/- such as Name of share applicants, their confirmation of accounts, bank statements, PAN, Return of Income and proof of latest address as per ROC records of the applicants to prove identity, creditworthiness and genuineness of transactions during the course of assessment proceedings under section 143(3) of the Income tax Act, 1961. In my considered view, the AO has erred in reopening the case of the appellant under section 147 by issuing notice under section 148 which is time barred by making bald assertion that the appellant has failed to disclose fully and truly all material facts necessary for assessment without pointing out that what are the material facts which the appellant company failed to disclose fully and truly during the course of assessment proceedings under section 143(3) of the Income tax Act, 1961. The appellant has also relied on the ratio of cases decided by jurisdictional High Court of Delhi, which is squarely applicable in the case of the appellant keeping in view of the facts and circumstances of the case of the appellant. Hence, in my considered view, the arguments put forth by the appellant is noteworthy, relevant and sustainable, hence this ground of appeal is allowed.”

CIT(A) quashing the reassessment proceedings on the ground that the same should

have been initiated u/s 153C of the IT Act and has also challenged the deletion of the

addition on merit, however, the Revenue has not challenged the order of the CIT(A) quashing the reassessment proceedings by invoking the 1st proviso to section 147 of

the IT Act, i.e., barred by limitation. Once the CIT(A) has quashed the reassessment

proceedings on account of limitation and the Revenue has not challenged the same, the

order of the CIT(A) has attained finality so far as the same is barred by limitation.

ITA No.5975/Del/2014 CO No.171/Del/2015 Once the reassessment proceedings are quashed, the other grounds raised by the

Revenue in the appeal and the grounds raised by the assessee in the CO become

infructuous and academic in nature.

made by the Assessing Officer has observed as under:-

4.1 I have considered the facts of the case of the appellant and submissions made by the AR of the appellant before me. 4.2 The brief fact of the case is that a search & seizure operation under section 132 of the Income tax Act, 1961 was carried out in the case of SK Jain group of companies on 14/09/2010 and certain documents / annexures were seized from which it has been revealed that the appellant has received share application money from five companies of Rs 2,13,00,000/- during the financial year 2004 - 05. The appellant has received total share application money of Rs 9,27,00,000/- i.e.( 2,47,200 preference shares @ of Rs 75 each and premium of Rs 300/- per share) from the share applicants during the financial year under consideration out of which Rs 2,13,00,000/- were received from 5 companies who were alleged to be accommodation entry providers. The appellant company issued 2,30,000 preference shares to 23 companies which inter alia includes 56,800 preference shares issued to the said 5 alleged accommodation entry provider companies during the financial year 2007 - 08. Hence, the learned assessing officer has treated the balance amount of share application money received from other 18 share applicants was genuine and the premium charged on preference shares issued to said applicants not high or excessive. The AO initiated the reassessment proceedings under section 147 of the Act and has made addition of Rs 2,13,00,000/- by treating the share application money received as undisclosed income under section 68 of the Income tax Act, 1961. The Ld. AR of the appellant has submitted sufficient and satisfactory evidence in respect of share application money of Rs 2,13,00,000/- received during the financial year before the learned assessing officer. The Ld AR also submitted that the appellant has submitted the Name of share applicants, their confirmation of accounts, bank statements, PAN, Return of Income and proof of latest address as per ROC records of the applicants to prove identity, creditworthiness and genuineness of transactions during the course of reassessment proceedings under section 147 of the Income tax Act, 1961.

ITA No.5975/Del/2014 CO No.171/Del/2015 The Ld AR also submitted that the AO has himself acknowledged in the impugned order that the appellant company has furnished all the documents to prove the identity, genuineness and creditworthiness of the transactions. The Ld AR also submitted that the AO has not issued any notice /summons to the parties who were alleged to be accommodation entry providers to verify the transactions made with the appellant. The Ld AR also submitted that the AO has relied upon the findings in the report of investigation wing and material gathered by them and not made his independent enquiries. The AO also failed to confront the material gathered by the investigation wing which was relied upon by him for making addition under section 68 of the Income tax Act, 1961. The Ld. AR of the appellant has submitted before the undersigned that it is settled law that addition of cash credit under section 68 of the Income tax Act, 1961 cannot be made when the assessee discharged his initial onus by furnishing necessary documents to prove the identity, creditworthiness and genuineness of transactions. The burden shifts on AO when assessee has furnished all necessary documents to prove the identity, creditworthiness and genuineness of transactions and then the AO should embarked upon further inquiry. If the Assessing Officer(s) did not care to discharge the onus which was laid down, the assessee cannot be fastened with liability under section 68 of the Income tax Act, 1961 even in case some information has been received from Investigation wing etc. The Appellant has relied on the decision of jurisdictional Hon’ble High Court in the case of Commissioner of Income-tax v Gangeshwari Metal Private Limited [2013] 214 Taxman 423. The appellant also furnished decisions rendered by jurisdictional as well non-jurisdictional High Court / ITAT. The relevant portion of citation of the case of Commissioner of Income-tax v Gangeshwari Metal Private Limited [2013] 214 Taxman 423 which have been relied by the assessee is as under: “9 As can be seen from the above extract, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer ‘sits back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the assessing officer, after noting the facts, merely rejected the same. This would be apparent from the observations of the assessing officer in the assessment order to the following effect:- "Investigation made by the Investigation Wing of the Department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.

ITA No.5975/Del/2014 CO No.171/Del/2015 1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs. 55,50,000/- and not Rs.1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tried to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance sheet, etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the Department. As such entries of Rs.55,50,000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(l)(c) are being initiated separately." 10. The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under section 68 of the Act. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law. The appeal is dismissed. ”

The appellant submitted copies of relevant seized documents as per allegation of AO in the assessment order which is considered carefully. (A-36/Page-6, A-38/10, 11, 12, 33, 34, 35 pages) and back side of Page-7 of A-37, which is placed in record. In these seized records, no cash deposit/return is written anywhere. In my considered view, the ratio of the case of Commissioner of Income-tax v Gangeshwari Metal Private Limited [2013] 214 Taxman 423 in which two types of cases have been indicated one in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. In the first type of cases ratio of CIT v. Nova Promoters & Finlease (P) Ltd. [2012] 342 ITR 169 (HC - Delhi) is applicable and addition made by the AO is sustainable while in other type of case ratio of CIT v. Divine

ITA No.5975/Del/2014 CO No.171/Del/2015 Leasing & Finance Ltd./Lovely Exports [2008] 299 ITR 268/[2007] 158 Taxman 440 is applicable and addition made by the AO is not sustainable. In my considered opinion ratio of the case of CIT v. Divine Leasing & Finance Ltd./Lovely Exports [2008] 299 ITR 268/[2007] 158 Taxman 440 is applicable in the case of the appellant company as the AO has not made any further enquiry by his own and by making addition by mere relying on the report of the investigation wing. The Ld. AO has erred in rejecting the evidence / documents furnished in support of identity, creditworthiness and genuineness of the transaction without making further efforts to reveal some more on the documents submitted by the appellant, otherwise the document submitted by the appellant in discharging its initial onus is sufficient and cannot be said false. Hence, by applying the ratio of the case of Commissioner of Income tax v Gangeshwari Metal Private Limited (214 Taxman 423) and the ratio of Lovely Exports Private Limited which is squarely applicable in the case of appellant company, hence the provisions of section 68 of the Income tax Act, 1961 is not applicable in the case of the appellant company and addition of Rs 2,13,00,000/- on account of undisclosed income under section 68 of the Income tax Act, 1961 is not tenable and is hereby deleted. This ground of appeal is allowed.”

on this issue. We find from the various details furnished by the assessee that it has

received share application money aggregating to Rs.9.27 crore from various share

applicants. The assessee company has issued shares @ Rs.100/- with a premium of

Rs.400/- out of which share amount of Rs.75/- and premium amount of Rs.300/- has

been received by the company during the year as share application money. The

assessee has issued 230000 shares out of which 56800 shares have been issued to the

five parties in question. We find the assessee during the course of assessment

proceedings u/s 143(3) as well as during the course of proceedings u/s 147 of the Act

filed various documents in order to prove the identity and credit worthiness of the

parties as well as the genuineness of the transactions by filing documents such as

financial statements of the parties, bank statements of the parties, income-tax returns

ITA No.5975/Del/2014 CO No.171/Del/2015 of the parties, PAN nos. of the parties, confirmation of accounts and master data of the companies as per the ROC records. The Assessing Officer has not pointed out any discrepancy in the documents so filed and not made any further enquiries and simply made the addition on the basis of the report of the Investigation Wing of the Department. We find, while the Assessing Officer has accepted the share application and share premium in case of others, he doubted the premium at which the shares have been issued to the above five parties only. It is not the case of the Assessing Officer that he has issued any notices u/s 133(6) of the Act to the parties which were returned back unserved or that the shareholder companies are not available. The Assessing Officer, after going through the evidences furnished by the assessee sat with folded hands and did not make any effort and not made any independent enquiry and made the addition only by relying on the report of the Investigation Wing. It is the settled proposition of law that addition u/s 68 of the Act cannot be made when the assessee has discharged the initial onus cast on it by furnishing necessary documents to prove the identity and credit worthiness of the share applicants/loan creditors and genuineness of the transaction. Once the assessee satisfies the initial onus cast on it, the burden shifts to the Revenue. However, in the instant case, it appears that the Assessing Officer has not done his job properly. The various decisions relied on by the assessee in the paper book and the decisions relied on by the CIT(A) on this issue supports the case of the assessee. Under these circumstances, we do not find any infirmity in the order of the CIT(A) deleting the addition on merit especially when no contrary material was brought before us by the ld. DR. 12

ITA No.5975/Del/2014 CO No.171/Del/2015 12. Accordingly, the appeal filed by the Revenue as well as the CO filed by the assessee are dismissed. The various other grounds raised by the Revenue as well as the grounds in the CO filed by the assessee become infructuous in view of our above discussion.