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Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. SUCHITRA KAMBLE
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
With this appeal, the assessee has challenged the correctness of the order of the CIT(A)-3, Delhi dated 27.03.2015 pertaining to A.Y 2010-11.
The sum and substance of the grievance of the assessee is that the CIT(A) erred in sustaining the addition of Rs. 31.56 crores made by the Assessing Officer u/s 68 of the Act.
The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused.
Briefly stated, the facts of the case are that the assessee filed its return of income on 29.03.2011 declaring total income of Rs. 1.62 crores. The return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that there is an increase in the share capital of the assessee from Rs. 11.94 crores to 31.56 crores. The assessee was asked to substantiate the identity, credit worthiness and genuineness of the share capital received.
The assessee furnished list of share applicants with full names and addresses. To cross verify the genuineness of the share application money received, the Assessing Officer issued notices u/s 133(6) of the Act. Reply to all the notices were received by the Assessing Officer alongwith ledger account, bank statements and copies of Income tax returns,
The Assessing Officer analysed the details submitted by the share applicants in the following table:
Share Application Remarks ~ S.No. Name of the Assessee Money Tyagl Portfolio Management The gross receipt of 1 Rs. 50,00,000/- Pvt.Ltd.(Earlies known as Tyagi Trading the companies ofRs.. Pvt Ltd.)D-33/100, Sector-16, 250300/-. Security premium account has Rohini,New Delhi-110085 Rs/-95376480/- 2 The gross receipt of M/s Basic Portfolio Management Pvt. Rs. 50,00,000/- the companies ofRs.. Ltdfearlier known as Urvashl Transport 508356/-. Security Co. Pvt. Ltd), A-19, 202 Akshay House premium account has 2nd Floor Guru Nanak Pura, Laxml Rs40,00,000/- Rs/-95666800/- Nagar, Delhi-110092 3 Rs. 1,30,00,000/- M/s 1-Tech Insurance Brokers Pvt. Ltd The gross receipt of 1/119, Khichri Pur Delhi-110091 the companies of Rs. . 745426/-. Security premium account has Rs/-147576000/- 4 Rs.65,00,000/- M/s New international Stainless. Pipe The gross receipt of Co. Ltd D-3/100, Sector-6, New Delhi- the companies ofRs.. 643697/-. Security 110085 premium account has Rs 143202750/- 1,03,50,000/- The gross receipt of M/s Prayog (India) Pvt. Ltd 5 the 1 RZ-74-A, Ravi Nagar Extension Vishnu companies of Rs.. Garden Near Kesho Pur Depot Delhi- 504924/-. Security 110018 premium account has Rs/-102195200/- Rs. 1,40,00,000/- 6 M/s Subhra Finvest (India) Ltd 292, The gross receipt of the Katra Peran Tilak Bazar Delhi-110006 companies of Rs NIL Security premium account has Rs. 94335000/- 7 Rs.32,50,000/- M/s ASR Infraprojects Pvt Ltd (Earlier The gross receipt of Known as Arrow Charter Pvt. Ltd)A- the companies ofRs.- 19, 202 Akshay Housing, 2nd Floor 577167/-. Security Guru Nanak Pura Laxmi Nagar- premium account has 110092 Rs. 124279050/- i 8 1,80,00,000/- No information received 1 M/s Bawasons Holdings Pvt. Ltd I 14/2, Old China Bazar Street 4th Floor, Room No. 402, Kolkata West Bengal- 700001 , l 9 50,00,000/- 1 1 M/s Mansarover Realtech Ltd 1 The gross receipt of the Rs companies of NIL The gross receipt (Earlier Known as Mansarovar Metals 30,00,000/- Security premium account of the companies industries Ltd) has NIL ofRs.. 5,14,983/-. I B-113, Chander Nagar New Delhi- Security premium 110058 10 Rs.75,00,000/- account has M/s India Information Technology Ltd The gross receipt of the Rs.9,93,60,000/- , 1001, Nirmal Tower Bara Khamba Road companies of Rs.. Connaught Place toevvDelhl-rioooi 1064460/-. Security^: , 1 ...... prernltfm accourithas RS- --- -- /. 11 Rs.90,00,000 M/s Arudhra Finvest (India) Ltd Ground Floor, 11-A, The gross receipt of the Kamala Nagar Delhi-110007 companies ofRs..Nil. Security premium account has Rs/- 96071894/- Rs.55,00,000 M/s Ramgarh Leisure and Entertainment The gross receipt of the Pvt. LTdfEarller known as Jacob Balias 12 T 11 companies of Rs.. Informations Technologies 1 Pvt. 1637173-. Security Ltd)114, Shlvlol House-ll, Commercial premium account has Rs Complex Karampura Delhi-110015 1,76,94,500/ 13 Rs 30,00,000/- VI/s Premium Autotech Pvt. Ltd The gross receipt of the ( Earlier known as Mayapuri Finlease Pvt companies of Nil security ' 4 Ltd) premium account has Rs/- ( E 28, Tower-ll, Mount Kailash 1,75,00,000/- E ast of Kailash t elhi-110065. 14 1/s Remote Equity Pvt. Ltd Rs 20,00,000/- l he gross receipt of the companies of Rs.. Earlier known as Vardhan Retails Pvt. c ,70,398/-. Security Ltd)208, 5 P remium account has s/-l Aggarwal Chamber Veer Sarvarkar Block, R 10064000/- Shakarpur Delhi-110092
15 Rs 20,00,000 M/s Silversmith Marketing Pvt. Ltd 204, The gross receipt of IV, Aggarwal Chamber Savarkar Block, the companies ofRs.. Shakurpur Delhi-110092 5,51,327/-. Security premium account has Rs 10,64,16,000/- 16 RS 20,00,000/- M/s S3 Infradevelopers Pvt. Ltd J-221, The gross receipt of Sarita Vihar New Delhi-110076 the companies of Rs.. 5,51,327/-. Security premium account has Rs. 10,64,16,000/- 17 . Rs20,00,000/- M/s United Equity Pvt Ltd The gross receipt of the companies ofRs. (Earlier known as Garg Brothers 5,48,943/-. Security Woodcraft Pvt. Ltd), F-103, Plot No. 10,1st Floor premium account has Rs. 10,56,48,000/- Chetan Complex, Central Market Suraj mal RS 30,00,000/- 18 1 M/s Hare Krishna Garments Pvt. Ltd B- Vihar, Delhi-110092 The gross receipt of 4827, Gali No 112/2, Sant Nagar 1 Burari the companies ofRs.. New Delhi-110084 6,21,439/-. Security premium account has Rs/- 12,05;93,G00/- Rs 30,00,000/- | M/s Unique Finman Consultancy Pvt. LTd [ The gross receipt of 1 19 RZ-74-A, Ravi Nagar Exten. the companies ofRs.. 5,14,983/-. Security Vishnu Garden, Near kesho pur Depot premium account has Delhi-110018 Rs.9,93,60,000/- , 20 Rs 30,00,000/- M/s Zoom Developers SFZ(lndore) Pvt. The gross receipt of the companies ofRs.. : Ltd 204niyi,Agearwal Chamber, 578973/-i Security Ve^Vvarltar Block Shakarpur, Delhi-110092 pfenfilum account has Rs/- 108560000/- Rs30,00,000/- 21 M/s SKY Equity Pvt Ltd The gross receipt of the companies ofRs. (lEarlier Known as Achievers Technologies Pvt . Ltd), 12,2nd Floor, Club Road Market, 549387/-. Security premium account has Punjabi Bagh Rs. 120273150/- New Delhi-110026 Rs40,00,000/- M/s Pallavl Portfollio Management Pvt Ltd( The gross receipts of 22 Earlier known as Haryana Tractor Ltd)208, the companies ofRs. Aggarwal Chamber, Veer Sarvarkar Block, 713200/-. Security 22 Shakarpur, Delhi-110092 premium account has Rs. 127958750/- 23 Rs 40,00,000/- The gross receipt of the Vl/s Paragun Finance Pvt. Ltd, 302, Pooja 23 companies ofRs.. Complex, 22, Veer Sarvarkar Block, 661350/-. Security Shakarpur ielhi-110092 premium account has Rs 24329/- Rs 45,00,000/- 24 h L 24 A/s Scope Portfolio Management Pvt. rhe confirmation has been eceived from td,(Earlier Known as Ekta Infrabuild Pvt. company lamed Ltd)C- 4E, Street-C MIG Flats G-8, Rajouri Garden;Mayapufi Delhi 110064 rhe,gross receipt of the 1 companies ofRs.. 3568000/-. Security premium account has Rs. 21 |M/s SKY Equity Pvt Ltd 101568000/ 25 (lEarlier Known as Achievers Rs 30,00,000/- M/s Subhra Plantations (India) Ltd Technologies Pvt Ltd), 12,2 n d 7A/AC Block, Shalimar Bagh New Delhi- Floor, Club Road Market, 110088 Punjabi Bagh i
Analysing the pattern of the share applicants, the Assessing Officer deputed an Income tax Inspector for making further enquiry. The Inspector submitted his report stating that the above said subscriber companies’ addresses are fake and they do not exist at the given addresses.
On 25.03.2018, the Assessing Officer asked the assessee to produce the people from whom the share application money has been received. On receiving no plausible reply and on the strength of the Inspector’s report, the Assessing Officer came to the conclusion that the assessee grossly failed to identify the share applicants and, drawing support from the provisions of section 68 of the Act, the Assessing Officer made the addition of Rs. 31.56 crores.
The assessee carried the matter before the CIT(A), but without any success.
It would be pertinent to mention here that the CIT(A) himself had issued summons u/s 131 of the Act to the share applicants, which were duly served.
Before we embark upon the discussion on factual aspects, it would be better to understand the provisions of section 68 of the Act which read as under:
“Where any sum is found credited in the book of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
A plain reading of the aforesaid section shows that the initial onus is upon the assessee to establish the identity of the creditor, genuineness of the transaction and capacity of the lender. What kind of proof is to be furnished by the assessee has been considered by the Hon'ble Delhi High Court in the case of CIT Vs. Kamadhenu Steel & Alloys 361 ITR 220 wherein the Hon'ble High Court observed that:
“In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the AO to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc. can be furnished.”
We find that in response to notice served upon them u/s 133(6) of the Act, all the share applicants have furnished their documents in the form of copy of ledger account, bank statements and copies of Income tax returns. It should be kept in mind that these documents were furnished by the share applicants directly to the Assessing Officer in response to his notice. Therefore, it cannot be said that the said share applicants do not exist on the given addresses as reported by the Inspector.
A perusal of the respective bank statements, which are exhibited at pages 1 to 74 of the paper book, clearly shows that all the transactions are duly reflected in the bank statements of the subscriber company. It is not the case of the Assessing Officer nor it is the case of the first appellate authority, that the appellant company has purchased cheques from the subscriber company in lieu of cash. All the transactions have been done through banking channel.
While delivering the judgment in the case of Kamadhenu Steel & Alloys [supra], the Hon'ble High Court observed as under:
“36. The AO did not bother to find out from the office of the Registrar of Companies the address of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the AO wanted to arrive at, that by itself cannot be treated as the conclusive factor. As pointed out above, these applicant companies have PAN and assessed income tax. No effort was made to examine as to whether these companies were filing the income tax return and if they were filing the same, then what kind of returns these companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction AO wanted to go. Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and or companies were also bogus and were treated for namesake. We say so with more emphasis because of the reason that normally such kind of presumption against the assessee cannot be made as per the law laid down in various judgments noted above. Just because of the creditors/share applicants could not be found at the address given it would not give the Revenue a right to invoke Section 68 of the Act without any additional material to support such a move. We are reminding ourselves of the following remarks of a Division Bench of this Court in its decision dated 02.8.2010 in the case of Commissioner of Income Tax - IV Vs. M/s. Dwarkadhish Investment (P) Ltd. (ITA No.911 of 2010) in the following words:
"Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. Once must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". (Emphasis supplied)
We are conscious of the malice of such kind of pernicious practice which is prevalent. In Divine Leasing and Finance Ltd. (supra), this Court had eloquently highlighted the same in the following manner:
"There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue‟s insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and made available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company."
(Emphasis supplied) 38. Even in the instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability.
We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of Sections 68 and 69 of the Act. On the on hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessees herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding.
In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under Section 68 and 69 of the Act.”
In our understanding of the facts, once the appellant company filed complete details before the Assessing Officer, then the initial onus upon the assessee company has been discharged to prove the identity of the investor. The appellant company has provided the balance sheet of the investor companys alongwith with their company profiles and details with the Registrar of Companies. The subscriber companies themselves have provided the bank statements and their respective PAN details. It is not the case of the Revenue that the subscriber companies are name lenders or entry providers. Their details are available on public domain on the website of the Registrar of Companies.
The Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd 216 CTR 195 has laid down the ratio that the assessee has to be merely identified as the share holder and the initial onus u/s 68 of the Act stands discharged on mere identification.
The Hon'ble High Court of Delhi in the case of CIT Vs. Sophia Finance Ltd 205 ITR 98 has laid down the ratio that if the share holders are identified and it is established that they have invested in the purchase of shares, then the amount received by the company would be regarded as capital received. The assessee has no further onus.
Exhibits 123 to 139 of the paper book reveal the proportion of investment made by the share applicant companies in the share capital of the appellant company. The percentage of their investment ranges from 5% to 40%, which means that the share applicant company portfolios include investment in other companies also. There is nothing on record to suggest that the other investments made by the share applicant companies have been treated as bogus in the hands of other companies.
In our considered opinion, the applicant company has successfully discharged the initial onus cast upon it by the provisions of section 68 of the Act and, therefore, no addition is called for u/s 68 of the Act as unexplained cash credit.
The ld. DR has relied upon certain judicial decisions and mainly emphasized on the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Navodaya Castle Pvt Ltd [2014] 367 ITR 306 wherein the Hon'ble High Court has accepted that since the assessee was unable to produce the directors and the principal officers of the six shareholder companies and also that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer had observed that there were genuine concerns about the identity, creditworthiness of shareholders as well as genuineness of the transactions.
In our understanding of the facts of the case in hand, this decision of the Hon'ble High Court of Delhi would not do any good to the Revenue, in as much as, on 25.03 the Assessing Officer asked the assessee to produce the directors of the subscriber company and on 28.03 he passed the assessment order by giving only two days time. The Assessing Officer did not comply with the principles of natural justice, which requires reasonable and sufficient time. Moreover, on 28.03, the assessee, in its reply to the Assessing Officer, had made it very clear that the Assessing Officer may serve summons u/s 131 of the Act on the subscriber companies. As mentioned elsewhere, the first appellate authority did serve summons on the subscriber companies and none of the summons were returned unserved and yet the first appellate authority did not enforce the attendance of the directors of the subscriber company when he was vested with the powers of civil court.
In another decision which has been relied upon by the ld. DR, in the case of Konark Structural Engineering P. Ltd Vs. DCIT 96 Taxmann.com 255, the summons to shareholders u/s 131 of the Act could not be served as the addresses were not available. These facts are clearly distinguishable from the facts of the case in hand. In the decisions relied upon by the ld. DR, the addresses were not proper and, therefore, the additions u/s 68 of the Act have been confirmed, but that is not the fact of the case in hand. As mentioned elsewhere when the notices u/s 133(6) of the Act were served at the given addresses of the subscriber companies all of them responded to the notices and furnished their bank statements, copy of Income tax return and copy of ledger account.
Considering the facts of the case in totality, we have no hesitation in setting aside the findings of the CIT(A). The Assessing Officer is directed to delete the addition so made u/s 68 of the Act.
In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 29.11.2018.