HEATFLEX CABLES PVT. LTD.,NEW DELHI vs. ITO, WARD- 11(2), NEW DELHI

Therefore, he did not interfere with the reopening of the assessment and rejected this ground of appeal of assessee.

3. The assessee-company as regards the addition on merit, submitted that assessee-company filed complete documentary evidence before the authorities below which prove the identity of the investors, their creditworthiness and genuineness of the transaction. One of the investor M/s.

Singhal Securities Pvt. Ltd., has assessed to tax even for block assessment order under section 153C/153A and both the investors have confirmed the genuineness of the transaction directly to the A.O. in their reply to the notice under section 133(6) of the I.T. Act. One of the Director of the Investor company M/s. Finage Leasing & Finance (India) Ltd., was produced before A.O. who have confirmed the transaction with the assessee-company and investment made by them. The A.O. did not make any further enquiry on the same, therefore, no 6 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi addition should be made against the assessee-company. The assessee-company filed the balance-sheet of both the investors to show that M/s. Singhal Securities Pvt. Ltd., has availability of funds of Rs.10,49,97,-000/- and have other assets as well.

In the case of M/s. Finage Leasing & Finance (India) Ltd., they have availability of the funds of Rs.14,57,42,032/- along with other assets. It was, therefore, submitted that assessee- company proved identity of the investors, their creditworthiness and genuineness of the transactions. Large number of case law were relied upon in support of the above contention. The case law relied upon by the A.O. were distinguishable on facts. The Ld. CIT(A), however, did not accept the contention of the assessee-company and dismissed the appeal of the assessee- company.

7 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi

“3. We have examined the said contention and find that the assessee during the course of assessment proceedings has filed confirmation letters from the companies, their PAN number, copy of bank statements, affidavits and balance sheet. Thereafter the Assessing

Officer had asked the assessee to produce the said

Directors/parties. Assessee expressed its inability to produce them. TheAO did not consequent thereto conduct any inquiry and closed the proceedings. This is a case where the Assessing Officer has failed to conduct

8 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi necessary inquiry, verification and deal with the matter in depth specially after the affidavit/ confirmation along with the bank statements etc. were filed. In case the Assessing

Officer had conducted the said enquiries and investigation probably the challenge made by the Revenue would be justified. In the absence of these inquiries and non- verification of the details at the time of assessment proceedings, the factual findings recorded by the Assessing Officer were incomplete and sparse. The impugned order passed cannot be treated and regarded as perverse. The appeal is dismissed as no substantial question of law arises.”

5.1. He has also relied upon the order of ITAT, Delhi, SMC-Bench in the case of Moti Adhesives P. Ltd., Delhi vs. ITO, Ward-17(2), New Delhi in ITA.No.3133/Del./2018 dated 25.06.2018 in which in paras 6 and 7 it was held as under :

9 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi

6. “Keeping in view of the facts and circumstances of the case and respectfully following the aforesaid

decisions, I hold that mere non-production of Director of said shareholder company cannot justify adverse inference u/s 68 of the Act. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held by Hon'ble High Court in CIT vs DATAWARE (supra) which has not been done, so no adverse view could have been drawn, In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee and in my view it cannot be brushed aside by the AO to draw the adverse view which here in present facts cannot be countenanced.

Therefore addition of Rs. 25,45,000 made by AO and 10 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi sustained by Ld CIT(A) are hereby deleted.

7. I have considered the rival submissions and also written submissions filed by the assessee-company and case laws relied upon in the written submissions would be considered in this order. It is an admitted fact that during the assessment year under appeal, assessee-company has received Rs.40 lakhs from the two investor companies mentioned above.

The assessee-company has filed details of their net worth supported by their balance-sheet which shows that M/s.

Singhal Securities Pvt. Ltd., was having availability of the funds of Rs.10,49,97,000/- and in case of Finage Leasing & Finance (India) Ltd., it has availability of funds of Rs.14,57,42,032/-.

The transactions are conducted through banking channel and no cash was found deposited in the bank account of the investor

11 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi companies. The assessee-company in the case of both the investor companies filed confirmation of both the investors, their certificate of incorporation, PAN of the investor companies and their Directors, copy of the Board Resolution, copy of the share application form, copy of the receipt of shares, copy of the Memorandum and Article of Association of both the investors, their audited accounts, acknowledgment of filing of the return of income and bank statement. In the case of M/s. Singhal Securities Pvt. Ltd., copy of the assessment order for A.Y. 2008- 2009 under section 153C, 153A have been filed. In the case of M/s. Finage Leasing & Finance (India) Ltd., the Director was produced for examination whose statement was recorded by A.O. in which she has confirmed making investment in assessee-company. These documents on record clearly support the explanation of the assessee-company that it has proved identity of the investors, their creditworthiness and genuineness of the transaction in the matter. No evidence have been brought on record if such investment was made from the 12 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi coffers of the assessee company. The material on record shows that investors have net worth to make the above investments in the assessee-company. Both the investors are corporate entities and assessed to tax and transactions are made through banking channel. The documentary evidences filed by assessee- company on record have not been rebutted by the A.O. in any manner. I rely upon the following decisions.

7.1. 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.

7.2. 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

13 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.”

7.3. 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 under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable.”

14 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi 7.4. Decision of Hon’ble 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.

7.5. 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 :

“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 15 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi 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] 299 ITR 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.

7.6. 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 :

16 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi

“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.”

7.7. Decision of Hon’ble jurisdictional High Court in the case of Divine Leasing & Finance Ltd., 299 ITR 268, in which it was held as under :

“No adverse inference should be drawn if shareholders failed to respond to the notice by A.O.

7.8. 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 the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were 17 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi 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 [2009] 319ITR (St.) 5 (SC) applied.”

7.9. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. (i) Dwarakadhish Investment P. Ltd., (ITA.No.

911 of 2010) and (ii) Dwarkadhish Capital P. Ltd., (ITA.No.913

18 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi 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 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 19 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition of Rs.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

20 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi 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.”

7.10. 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 21 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi 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.”

7.11. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Value Capital Services Pvt. 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.”

7.12. The decisions relied upon by the Learned Counsel for the Assessee above squarely apply to the facts and 22 ITA.No.2376/Del./2018 M/s. Heat Flex Cables (P) Ltd., New Delhi circumstances of the case. Since the investor companies have confirmed the transaction with the assessee-company which were conducted through banking channel and entire evidence were brought on record, thereafter, if the A.O. was not satisfied with the documents on record and explanation of the assessee- company and the Investors, the A.O. should have made further enquiry on the same. However, it is a case where the A.O. has failed to conduct necessary enquiry, verification and deal with the matter in depth. Therefore, the explanation of the assessee- company should not have been disbelieved by the authorities below. In this view of the matter, I set aside the orders of the authorities below and delete the addition of Rs.40 lakhs. This ground of appeal of assessee is allowed.

Order pronounced in the open Court.