RAJ KUMAR CHAWLA,DELHI vs. ACIT, NEW DELHI

per assessment order dated 27.12.2011 in his case. Ld. Counsel

13 ITA No. 1323/Del/2015

for the assessee relied upon the same case law as have been relied

upon before the authorities below.

and submitted that investor is a paper company. Assessee is a

director of investor was examined by the AO. He does not know

details of investor. AO proved as to how money came to the

assessee. May be assessee filed all the documents, but AO has

rightly differed with the same on the basis of the material on

record and material collected in search. The unaccounted money

belongs to the assessee.

material available on record. In this case, it is an admitted fact

that assessee filed copy of the loan agreement with calculation of

interest before AO along with confirmation of the account of the

assessee with investor, ledger account in the books of accounts of

the assessee along with copy of ITR of investor and copy of the

bank statements. All the documents have not been disputed by

the AO through any evidence on record. The investor is admittedly

NBFC and was in business of giving loan to others for business

14 ITA No. 1323/Del/2015

purposes. It is a registered company. The balance sheet of the

investor shows loan have been given to the assessee, the investor

was having net worth as noted above to give loan to the assessee.

The assessee submitted complete details before AO. The balance

sheet of the investor company shows that share capital, reserves

and surplus and share application money were same in

assessment year under appeal as well as in the preceding AY

2009-10. It would, therefore, prove that there is no new fund

received by the investor company so as to prove that it has

received any unaccounted cash amount from any third person.

The loan amounts have been received through banking channel,

which is supported by the bank statement of the investor.

Therefore, allegation of the AO that amount have been received as

accommodation entry on rooting the cash is improper and such

finding have not been corroborated by any material or evidence on

record. The findings of the AO are unjustified that cash have been

routed in this case for giving loan because in the course of the

search, no material was found that any cash has been paid by the

assessee. The statements of various persons were recorded during

the course of search as well as post search proceedings and in

15 ITA No. 1323/Del/2015

none of the statements, anybody has made allegation against

assessee of providing cash. The assessee specifically submitted

before Ld. CIT(A) that all the statements of Sh. Aseem Kumar

Gupta along with various documents seized at his premises have

been obtained at the back of the assessee and have never been

provided to the assessee. Even the assessee has never been

accorded an opportunity to cross examine Sh. Aseem Kumar

Gupta. The assessee, therefore, pleaded that action of the AO of

passing the assessment order is against principle of natural

justice and the assessment order passed by the AO is liable to be

quashed as nothing was confronted to the assessee at the stage of

the assessment proceedings. There is no finding given by the AO

on such submissions of the assessee in the remand order passed

by the AO. The Ld. CIT(A) has also not dealt with the submissions

of the assessee specifically in the appellate order. It is well settled

law that any material evidence collected at the back of the

assessee and not confronted to the assessee at assessment stage

could not be read in evidence against the assessee. We rely upon

the decision of the Hon’ble Supreme Court in the case of

Kishanchand Chelaram vs. CIT 125 ITR 713. The authorities

16 ITA No. 1323/Del/2015

below solely made addition against the assessee because of the

material seized during the course of search from Sh. Aseem

Kumar Gupta and his statement recorded at the back of the

assessee. Therefore, such material cannot be used against the

assessee. The assessee also filed PB 269 which is retraction letter

by Sh. Aseem Kumar Gupta to the AO, retracting from his

statement given at the time of search. Therefore, there were no

basis to make addition against the assessee. It may also be noted

here that the assessee appeared before the AO for recording his

statement as a director of the investor company in which he did

not deny giving of loan by the investor company to the assessee.

Ld. DR pointed out certain discrepancies and the answers not

given by the assessee specifically to the questions raised by the

AO. However, it would not be material because the investor

company has confirmed giving loan to the assessee, which was

corroborated by the loan agreement subject to interest and as an

NBFC it was its business activity to give loan to others. Therefore,

such discrepancy in his statement would not be relevant to reject

the explanation of the assessee. The AO also recorded in the

assessment order that the investor has been assessed by him u/s

17 ITA No. 1323/Del/2015

153C for assessment years 2004-05 to 2010-11, it was an existing

company and assessed to tax. The assessee, therefore, proved

that investor is in existence. There is no evidence brought on

record, if assessee gave any cash to the investor company for

giving loan. The assessee proved that investor had sold

investment during the year and has given advance to the assessee.

The onus upon assessee to prove identity of the investor, its

creditworthiness and genuineness of the transaction have been

duly discharged. It is well settled law that assessee is not required

to prove sources of the source. We, rely upon the decision of the

Hon’ble Delhi High Court in the case of Dwarkadhish Investment

P. Ltd. 330 ITR 298 and decision of the Gujarat High Court in the

case of Rohini Builders Ltd. 256 ITR 360. It may be noted here

that it is a case of interest bearing loan taken by the assessee and

there is nothing illogical and there is no material found during the

course of search or any adverse statement against the assessee

about the loan as explained above. Ld. Counsel for the assessee

referred to the assessment order u/s 143(3) of the Act dated

27.12.2011 in the case of Sh. Manoj Kumar proprietor of AMB

Traders and Shiva Trading Company, copy of which is filed at page

18 ITA No. 1323/Del/2015

28 of another paper book. Ld. Counsel for the assessee rightly

pointed out that this addition cannot be made on the ground of

source of the source as the AO himself has recorded a finding in

the case of source of the source i.e. Sh. Manoj Kumar, that the

cash deposited belongs to Sh. Manoj Kumar. AO noted in the case

of Sh. Manoj Kumar that he had deposited cash in his bank

account, therefore, total cash deposit of Rs. 18,81,45,000/- and

Rs. 50,93,77,676/- as other deposits. Therefore, one substantive

addition is made in the case of Sh. Manoj Kumar, no further

addition should be made in the hands of the assessee. Therefore,

there were no basis to make the addition against the assessee. In

support of above findings, we rely upon the following decisions:

i. “CIT vs. Fair Investment Ltd., 357 ITR 146 in which it was held that A.O. did not summon investors and did not make efforts. There is no finding that material disclosed was untrustworthy. The Appellate Authorities rightly deleted the addition. ii. Decision of Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd., (2008) 216 CTR 195 in which it was held as under:

“If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with

19 ITA No. 1323/Del/2015

law, but it cannot be regarded as undisclosed income of assessee company. ”

iii. Decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., & Ors. 361 ITR 220 (Del.) in which it was held as under:

“Once adequate evidence/material is given, 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 before it could nail the assessee and fasten the assessee with such a liability u/s 68; AO failed to carry his suspicion to logical conclusion by further investigation and, therefore, addition u/s 68 was not sustainable.”

iv. Decision of Hon hie jurisdictional High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), in which it was held as under : “The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High Court.” v. Decision of jurisdictional High Court in the case of CIT vs. Laxman Industrial Resources Pvt. Ltd., ITA.No. 169 of 2017 dated 14th March, 2017, in which it was held as under :

20 ITA No. 1323/Del/2015

“The CIT(A) took note of the material filed by the assessee and provided opportunity to the AO in Remand proceedings. The AO merely objected to the material furnished but did not undertake any verification. The CIT(A) deleted the addition by relying upon the decision of the Hon’ble Apex Court in the case of Lovely Exports Pvt. Ltd. (supra) and judgement of Delhi High Court in the case of CIT vs Divine Leasing & Finance Ltd. [2008] 299ITR 268. The ITAT confirmed the opinion of the Ld.CIT(A). Hon’ble High Court in view of the above findings noted that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. The assessee provided details of share applicants i.e. copy of the PAN, Assessment particulars, mode of amount invested through banking channel, copy of resolution and copies of the balance sheet. The AO failed to conduct any scrutiny of the document, the departmental appeal was accordingly dismissed.” vi. Decision of the Hon’ble Supreme Court in the case of Earth Metal Electric Pvt. Ltd., vs. CIT dated 30th July, 2010 in SLP.No.21073 of 1999, in which it was held as under : “We have examined the position, we find that the shareholders are genuine parties. They are not bogus and fictitious therefore, the impugned order is set aside. ” vii. Decision of Hon’ble M.P. High Court in the case of CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65, in which it was held as under: “Dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of

21 ITA No. 1323/Del/2015

the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted. CIT v. Lovely Exports P. Ltd. [2009] 319ITR (St.) 5 (SC) applied.” viii. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. (i) Dwarkadhish Investment P. Ltd. (ITA No. 911 of 2010) and (ii) Dwarkadhish Capital P. Ltd. (ITA No. 913 of 2010) (2011) 330 ITR 298 (Del.) (HC), in which it was held as under: “In any matter, the onus of proof is not a static one. Though in section 68 of the Income Tax Act, 1961, the initial burden of proof lies on the assesses yet once he proves the identity of the creditors/ share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the

22 ITA No. 1323/Del/2015

Revenue the right to invoke section 68. One 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". The assessee- company was engaged in the business of financing and trading of shares. For the assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition ofRs. 71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of share application money from five of its subscribers. Accordingly, the Assessing Officer made an addition of Rs.35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified.”

23 ITA No. 1323/Del/2015

ix. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in which it was held as under:

“Dismissing the appeal, that it had not been disputed that the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee. ” x. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Value Capital Services P. Ltd., (2008) 307 ITR 334 (Del.) (HC), in which it was held as under: “Dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose.” 12. Considering the facts of the case, in the light of the material

on record, it is clear that assessee produced sufficient

24 ITA No. 1323/Del/2015

documentary evidences before AO to prove the ingredients of

Section 68 of the Act. The AO, however, did not make further

enquiry on the documents filed by the assessee. The AO has thus,

failed to conduct scrutiny of the documents at assessment stage

and merely suspected the transaction between the investor

company and the assessee because some materials found during

the course of search in the case of Sh. Aseem Kumar Gupta or his

statement recorded, but these would not prove anything against

the assesse. It is not reported, if any, cash was found deposited in

the account of the investor before making investment in assessee

company. Therefore, the totality of the facts and circumstances of

the case, clearly prove that assessee discharged its initial onus to

prove the identity of the investor company, its creditworthiness

and genuineness of the transaction in the matter. We,

accordingly, set aside the orders of the authorities below and

delete the addition of Rs. 2,29,73,630/- on account of unexplained

loan. Ground nos. 1 to 7 of the appeal of assessee are allowed.

4,36,036/- on account of income from house properties made by

25 ITA No. 1323/Del/2015

the AO on two properties i.e. no. (i) 200, Patparganj, New Delhi

and (ii) 323, Patparganj, New Delhi. The AO noted that assessee

has not declared rental income in respect of the above properties.

Therefore, rental income in respect of these properties should be

prima facie taken u/s 23(1)(a) of the Act. The assessee submitted

that both these properties are used for business purposes of M/s

Kapish Print Pack Pvt. Ltd. and M/s Chawla Packaging Pvt. Ltd.

The AO, however, noted that assessee did not have any business

income from both these companies. Therefore, rental income from

these properties was taken at Rs. 6,22,908/- and after giving

deduction u/s 24(a) of the Act, AO made addition of Rs.

4,36,036/-. The Ld. CIT(A) dismissed this ground of appeal of

assessee.

error in making addition. He has submitted that in AY 2009-10

AO has taken the net annual value of both the properties at Rs.

1,88,760/- each totaling to Rs. 3,77,520/- and by enhancing the

same by 10%, has worked out the amount of Rs. 4,15,272/-. The

AO, however, in respect of property no. (i) 323 Patparganj, New

26 ITA No. 1323/Del/2015

Delhi has taken it at Rs. 4,15,272/- and also taken fair rent of

other property no. (ii) 200 Patparganj, New Delhi at Rs. 2,07,636/.

Thus, the correct figure of both these properties as per AO would

be Rs. 4,15,272/-. He has further submitted that AO was not

justified in enhancing the rent 10% every year. He has filed a

chart in support of the same contention. He has submitted that at

the most AO could have taken the assumed rent at Rs. 1,14,000/-

in case of property no. 200 Patparganj, New Delhi as was taken in

AY 2004-05 and at Rs. 1,71,600/- for property no. 323 Patparganj

as was taken in AY 2008-09. Therefore, the total will be Rs.

2,85,600/- and after allowing deduction of 30% u/s 24(a) the

addition could be of Rs. 1,99,920/- and not Rs. 4,36,036/-. Ld.

DR, however, relied upon the orders of the authorities below.

material available on record. There is a totaling error in

computation of the income from house property. The AO instead

of taking total net fair rental value of both the properties at Rs.

4,15,272/- as explained above has made further addition of Rs.

2,07,636/-. Thus, the error should be corrected by the AO.

27 ITA No. 1323/Del/2015

Further, as per chart filed by the assessee, AO has been increasing

the rent 10% every year which is not justified, which was even as

per Rent Control Act, the rent could be enhanced after three years.

In the absence of any justification or reasons, we are of the view

that rent should not be enhanced every year by the AO

particularly without there being any evidence with the AO. We

may not note that in AY 2009-10, AO has made the addition of Rs.

3,77,520/- on account of income from house property for both

these properties after allowing statutory deduction. It appears

that assessee did not challenge the same computation before the

appellate authorities. Therefore, considering the past history of

the assessee and the annual rental value decided by the AO in

preceding AY 2009-10 at Rs. 3,77,520/- for both the properties,

we set aside the orders of the authorities below and direct the AO

to adopt the same amount as income from house property in a

sum of Rs. 3,77,520/- and make addition accordingly. The

addition is, therefore, restricted to Rs. 3,77,520/- instead of Rs.

4,36,036/-. This ground of appeal of the assessee is partly

allowed.

28 ITA No. 1323/Del/2015

Order pronounced in the open court on 26.09.2018

Sd/- Sd/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26.09.2018 *Kavita Arora