ACIT, NEW DELHI vs. M/S. SUPERB DEVELOPERS (P) LTD., NEW DELHI

The ground of appeal for (2008-09) are as under:-

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee for statistical purpose by deleting all the additions thereby relying upon the order for Assessment Year 2006-07 passed by the CIT(A) therein. However, the CIT(A) dismissed the legal ground challenging the proceedings u/s 153A of the Income Tax Act, 1961.

The Ld. DR submitted that the assessee has failed to establish the genuineness of the transaction, identity and creditworthiness. Notices u/s 133 (6) were issued to the parties but the notices were not complied by the parties. Therefore, the Assessing Officer rightly passed the Assessment Order. The Ld. DR further submits as per the information gathered during the search and post search, accommodation entries were taken from the parties by the Assessee. The Ld. DR further pointed out that at the time of the assessment proceedings, some replies were received by the revenue through post. The Inspector was deputed to verify the addresses but the parties were found not to be existed at those addresses. The Ld. DR submitted that the assessee has not filed PAN Number as well as bank account details of the other parties.

The Ld. AR submits that the assessee accepted share capital from nine companies amounting to Rs.80,75,000/- through cheque for allotment of 80,750 shares of Rs. 10 each on share premium of Rs.90 per share. There was search operation on premises of the respondent assessee on 30.06.2009. The assessee is a group company of Mahesh Mehta group of cases. During search proceedings no incriminating material with regard to share capital accepted by the assessee company were found. During the Assessment Proceedings, various documents were filed to prove identity and creditworthiness of the shareholders and also to prove genuineness of the transactions. During appeal proceedings, the assessee also submitted that the balance sheet of the share applicant companies and copy of ITR for latest A.Y. 2011-12 before the CIT(A) and also the mater data downloaded from MCA portal of government of India. All these evidences submitted during the appeal proceedings were routine documents which are public documents therefore there is no reason, the same may be treated as additional evidences. During Assessment Proceedings, the Assessing Officer issued summons u/s 131 notices u/s 133(6) to the new share holders on 13.12.2011 for compliance on 19.12.2011. The summons were not complied with the shareholders although there is no dispute about the service of summons. When the summons were not complied by the shareholders by making personal appearance but the shareholders responded by submitting information by Dak. The Assessing Officer required the assessee to provide the directors vide order sheet dated 14.12.2011. The assessee expressed his inability to produce the directors. The Assessing Officer deputed the inspector to verify the existence of four entities out of nine share applicants. The inspector reported that entities namely Chintpurni Builders P. Ltd., Multitech Semi Conductor P. Ltd., Scient Informatics India P. Ltd. and Skylink Software P Ltd. don’t exist at given addresses. Scient and Skylink having address at 301, Himalaya Palace, 65 Vijay Block, Laxmi Nagar, Delhi reported that no such company existed at the above address as the premises were occupied by M/s M.S. Jain and Associates. The said concern was dealing in finance and housing loan and who confirmed that they have not heard name of these companies before. The remaining two companies namely Chintpurni and Multitech both have the address Laxmi Nagar and Shakarpur addresses. The inspector has reported that Multitech address is a residential premises and the occupants have no heard the name of the above entities. There is no report of inspector with regard to Chintpurni. The Assessing Officer rejected the explanation/evidences furnished by the assessee to discharge initial onus u/s 68 of the Income Tax Act by lifting corporate veil. The CIT(A) admitted the additional evidences after forwarding the application of the assessee under Rule 46A of the Income Tax Act to the Assessing Officer. In the application, the assessee had given the reason that adequate opportunity to file the evidences were not given by the Assessing Officer as Assessing Officer had himself issue summon u/s 131/notices u/s 133(6) on 13.12.2011 for compliance on 19.12.2011 to the share applicants to verify the transactions. The assessee therefore did not pursue the matter in view of direct enquiry from the shareholders. When there was non compliance of the summons and when this fact was intimated on 14.12.2011, the assessee was able to collect the documents partly. Since the documents to come from outside sources, the sufficient time was not available to make the collection of the documents. The Assessing Officer in the remand report did not dispute the factual position of lack of reasonable opportunity. In the rejoinder to the remand report, the assessee contended that in the remand report the Assessing Officer has not controverted the facts stated. The CIT(A) after giving opportunity to the Assessing Officer in appeal order for A.Y. 2006-07 which is base order for adjudicating appeal for A.Y. 2008-09 accepted the request of the assessee to admit fresh evidences as the assessment was completed by the Assessing Officer in hurried manner in period just 16 days and total time made available by the Assessing Officer to himself was last two months. The CIT(A) while adjudicating the admissibility of the additional evidences took into account the fact that inspector report was never confronted to the assessee during assessment proceedings nor during remand proceedings. The CIT(A) has made a special mention that the need for filing fresh evidences to highlight the existence of shareholders at the given address, arose because the inspector report was not confronted by the Assessing Officer during assessment proceedings also. The additional evidences therefore were accepted by the CIT(A). The CIT (A) for A.Y. 2006-07 has given a findings that there have been filing of returns for subsequent years by the share applicant companies and all the share applicant companies are active in the compliances under the Companies Act. All the companies had resources more than the share capital investment with the assessee company. There have been cases of Assessment u/s 143(3) completed by the department for A.Y. 2007-08 in December 2009 in the case of Scient Informatics P Ltd. In other cases, returns of income were subsequent years have been filed to show that companies are in existence. There is an observation by the Assessing Officer in Assessment Order that in the instant case the undersigned is of knowledge which was gathered through post search and during the course of assessment proceedings, that entities are subject of accommodation entries. This observation of the Assessing Officer is based on no material and farfetched. Neither in the Assessment Order nor in the remand proceedings the Assessing Officer has substantiated the above allegation and this allegation is the basis for the Assessing Officer to reject the explanation of the assessee u/s 68. The above observation, since unsupported by any material on record need be ignored. On the inspector report, the CIT(A) held that since inspector report has not been confronted by the Assessing Officer, such evidences produced show that these companies are physically present as is evident from the service of the summons, filing of returns of income regularly and the status of the companies appear as active companies as per MCA records. The CIT(A) also took a view that during search proceedings on the appeal no incriminating documents were found with regard to the receipt of share application money. The CIT(A) relied upon case laws which are Dhingra Global Credence P Ltd. (ITAT Del) and McDowell & Co. Ltd. vs. CTO 154 ITR 148 (SC).

The Ld. AR further submitted that the finding of the CIT(A) is that there is no basis for drawing inference that the assessee is accepted accommodation entries as there is no material to support that finding. There is no cash deposit in the bank accounts in the bank accounts in the share applicants and no incriminating material found in the course of search. All the evidences furnished during the assessment proceedings and the appeal proceedings discharge the initial onus lay upon the assessee u/s 68 of the Act. The credit worthiness has sought to be established as the parties were assessed to tax and they have sufficient sources available with them as per balance sheet to finance investment in the share capital. To support the above view, the reliance was placed on CIT vs. Winstral Petrochemicals Ltd. 330 ITR 603 (Del). On the non compliance of the summons to the share applicant companies, it was submitted that the summons were issues by the AO himself on his own and in that situation non compliance of summons cannot lead to burden being placed on the assessee to produce those person. On the non compliance of the summons taken ground to take adverse view, the assessee relied on judgment of Anis Ahmed & Sons vs. CIT 297 ITR 441 (SC). Further reliance were also placed on CIT vs. WinstralPetrochemicals Ltd. (supra). The assessee dealt with the objection of the Assessing Officer that assessee failed to produce the directors of the share applicant companies. Special reference was made by the Assessing Officer that in case of private limited companies the onus to produce the directors is higher. To support the contention of the assessee reliance was placed in the case of Makhani & Tyagi Pvt. Ltd. 267 ITR 430 (Del) and CIT vs. Victor Electrodes Limited 329 ITR 271 (Del). The assessee has relied on various judgments which are mentioned in CIT(A)’s order and special reference is made in the decision of Nova Promoter & Finlease Pvt. Ltd. 342 ITR 169 (Del) extracted in order of the CIT(A). The crux of the judgment was that if the Assessing Officer has any material on the basis of the investigation carried out by the revenue authorities into the activities of the entry providers and the assessee has some accommodation entries from any such entry providers then in that case the paper evidences furnished by the assessee will not sufficient to discharge onus u/s 68. But in case no such material is the hands of the Assessing Officer, the Assessing Officer cannot sit with folded hands till assessee exhaust all material and evidences in his possession. As per this judgment, where there is no adverse material so as to characterized share holder entities as entry provider, no addition cannot be made in the hands of the assessee company u/s 68 and remedies open to the revenue to go after the share applicants in accordance with law. Further the CIT(A) relied on Orissa Corporation Private Limited 1986 AIR 1849: 1986 SCR (1) 979 and other authorities to hold that the evidences and material adduced by the assessee cannot be thrown out without any enquiry but such a rule has limitation if there is a material to link the transaction with accommodation entry providers which is not a case here in the present appeal. The court held that even if there is material as a result of detailed enquiry by investigation wing even in that case non production of the directors, was not held to be a good ground to make addition as primary onus by the assessee is discharged. The Ld. AR submitted that it was case of no enquiry based on the evidences. The assessee relied on CIT vs. Goel Sons Golden Estate Pvt. Ltd. (Del) to hold that in absence of any enquiry and non verification of the details submitted, the factual findings of the AO are incomplete and spars.

We have heard both the parties and perused the material available on record. As regards Ground No. 3 of the Revenue’s appeal, the CIT(A) rightly taken into considerations the evidence filed by the assessee during the Assessment proceedings. There was no fresh evidence submitted by the Assessee. This fact was not denied by the Revenue. Therefore, Ground No. 3 of the Revenue’s appeal is dismissed. On merit of the appeal filed by the Revenue, it is pertinent to take note about the order passed by the CIT(A) in Assessment Year 2006-07 which was handed over by the Ld. AR during the hearing. The CIT(A) for A.Y. 2006-07 held as under:-

In result, Revenue is dismissed.

Grounds for (2009-10) are as under:

The Ld. AR made submission that the Inspector report was not confronted to the assessee during the search and at the time of the search no incriminating material was found. The Ld. AR further submitted that there was no investigation made on behalf of the Assessing Officer . Therefore, this case is squarely covered by the decision of the Hon'ble Supreme Court in case of Lovely Exports (P) Ltd. 216 CTR 195. The Ld. DR relied upon the Assessment Order.

We have heard both the parties and perused all the records. From the perusal of the records, it is found that there was no incriminating material found during the search proceedings and there was no investigation made by the Assessing Officer. Thus, the ratio laid down by the decision of the Hon'ble Apex Court in the case of Lovely Export (supra) will be applicable in the present case. Besides that the Ld. AR further made submission that the issue in Assessment Year 2009-10 is identical to that of A.Y. 2008-09. Therefore, the appeal filed by the Revenue is dismissed.

In result, filed by the Revenue is dismissed.

Grounds of appeal

The Ld. DR submitted that the Companies were not existed as per the Inspector Report. The Ld. DR relied upon the Assessment Order for A.Y. 2010- 11. The Ld. AR submitted that the issue is identical with the A.Y. 2008-09.

We have heard both the parties and perused all the relevant records. For Assessment Year 2010-11, the assessee has filed all the required documents before the Assessing Officer. Therefore, the submission of the Ld. DR that the Companies were not existed as per the Inspector Report is not proper. Therefore, the appeal filed by the Revenue for the Assessment Year 2010-11 is dismissed.

In result, filed by the Revenue is dismissed.

Grounds of Appeal

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee by holding that since the Assessing Officer made enquiries but only part details were provided by the parties and since the part bank statement of the party revealed typical accommodation entry transactions. Therefore, following the ratio in case of Globus Securities and Finance Pvt. Ltd. 41 Taxman.com 465 dismissed the appeal of the assessee by holding that the assessee failed to discharge its obligation in proving the genuineness of the summons credited its books of accounts.

The Ld. AR submitted the assessee accepted share capital from one M/s Indlon Hosiery Pvt. Ltd. by accepting through cheque amount of Rs. 3,00,000/- for allotment of 3,000 shares of Rs. 10 each on share premium of Rs. 90 per share. During Assessment Proceedings, all the evidences like ITR, Bank Statements, copy of PAN Card, names and addresses of the directors and audited balance sheet of the share applicant were submitted by the share applicant directly in response to notice u/s 133(6). The Assessing Officer issued show cause notice on the ground that in normal days the share applicant company has nominal balance and it did not have own funds to make investment of Rs.3,00,000/-. In reply to show cause notice the assessee explained that the share applicant company was assessed u/s 143(3) for A.Y. 2007-08 vide order dated 10.12.2009. The applicant is a registered company under Companies Act with valid CIN number. The company has been operating bank account with nationalized bank with KYC documents and due compliance of banking regulations, the details of the said company was submitted before the Assessing Officer. To prove creditworthiness, the assessee submitted that the said company has net worth of Rs.300.69 lakhs on 31.03.2010 and Rs. 345.95 lakh on 31.03.2011. So said company has sufficient funds accumulated out of past inflow of funds. The Assessing Officer rejected the explanation of the assessee by relying on CIT vs. Globus Securities and Finance P Ltd. to hold that criteria of identity, creditworthiness and genuineness of transaction has not been satisfied. The CIT(A) also confirmed the action of the Assessing Officer by relying on CIT vs. Focus Exports P Ltd., CIT vs. Onassis Axles P Ltd. and CIT vs. MAF Academy P Ltd., CIT vs. N Tarika Properties Investment P Ltd. and CIT vs. Globus Securities & Finance P Ltd. The CIT(A) put onus on the assessee to produce the director of the share applicant company on its own as according to her it was duty of the assessee to produce the director to discharge onus u/s 68. The CIT(A) analyzed the bank account of the share applicant company and observed that the party was merely engaged in providing accommodation entry.

The Ld. DR relied upon the order of the Assessing Officer and CIT(A).

We have heard both the parties and perused the material available on record. The CIT(A) put onus on the assessee to produce the director of the share applicant company on its own as according to her it was duty of the assessee to produce the director to discharge onus u/s 68. The CIT(A) analyzed the bank account of the share applicant company and observed that the party was merely engaged in providing accommodation entry. The CIT(A) dismissed the appeal of the assessee by holding that since the Assessing Officer made enquiries but only part details were provided by the parties and since the part bank statement of the party revealed typical accommodation entry transactions. During Assessment Proceedings, all the evidences like ITR, Bank Statements, copy of PAN Card, names and addresses of the directors and audited balance sheet of the share applicant were submitted by the share applicant directly in response to notice u/s 133(6). Thus, the Assessing Officer as well as the CIT (A) has not at all considered all the documents which was provided by the Assessing Officer as well as before the CIT(A). Therefore, it will be pertinent to remand back this matter to the file of the Assessing Officer to take congnizance of the documents filed by the Assessee. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.

In result, filed by the Assessee for Assessment Year 2011-12 is partly allowed for statistical purpose.