ACIT, NEW DELHI vs. M/S. BLUEBIRD SOFTWARE PVT. LTD., NEW DELHI

The Revenue has raised the following effective grounds of appeal: “ 1. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs. 1,00,00,000/- made by the Assessing Officer u/s 68 on account of bogus share application money /share premium received by the assessee company.

2. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs. 2,34,57,000/- made by the Assessing Officer on account of unexplained investment on the basis of difference found in the balance sheet filed by the assessee before the bank authority.

Briefly stated, the facts of the case as emanating from the orders of the authorities below are that the assessee company filed its return of income for the assessment year 2008-09 on 24.6.2009. That a search action was carried out by the department on 6.11.2008 and the notice u/s 153A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] was issued to the Respondent company on 30.10.2009. In response to this notice, the assessee company furnished its return of income u/s 153A of the Act on 27.11.2009 declaring income at NIL. The assessment proceedings were initiated by issuing notice u/s 143(2) of the Act on 9.2.2010. A detailed questionnaire was issued on 21.5.2010. The respondent company had further increased the share capital during the assessment year. It is stated in the assessment order that details were called for in respect of the persons who have applied for the share capital and mode of receipt of the capital money. The Assessee had filed confirmation, copy of Income tax returns, share application forms and bank statements in respect of fresh share capital. The AO referred to the report of the Addl. Director of Income Tax (Inv.), Kolkata which is in continuation of his letter dated 27.2.2009 has submitted its report, it is found that the companies are not existing in the given address and as such notice u/s 131 could not be served to them as those are being evaded. In para 10 of the assessment order reproduced the findings of ADI (Inv.) Unit Kolkata letter dated 15.5.2009. It is further stated that post search enquiries the Addl DIT (Inv.)-IV vide his letter dated 3.9.2009 written to Registrar of Companies, Delhi and Kolkata for cancellation of registration of Companies and reproduces such letter on page 6-11 of the assessment order.

The show-cause notice at para 15 pages 11 and 12 of the assessment order is reproduced , as below :

The Assessing Officer further observed in the assessment order that response was received from the assessee company which is reproduced in the order at page 12-14 of the assessment order. The AO asked the assessee to produce this person who had invested for examination but assessee failed, and added a sum of Rs. 1,00,00,000/- to the returned income of the appellant under section 68 of the Act.

Being dissatisfied with the impugned addition, the assessee carried the matter in appeal before the learned Commissioner of Income Tax (Appeals) and vehemently contended in respect of addition of Rs1,00,00,000/- as follows:

After considering the submissions of the assessee, ld. CIT(A) deleted the addition vide Para 4.2 of its order by holding that no incriminating document was found during the course of search which shows that the amount invested by shareholder company in the assessee company do not belong to the shareholder but is the unaccounted income of the assessee company which has been ploughed back in the assessee company in the form of share capital. The ld CIT(A) further held that the assessee company has discharged its onus by filing the requisite details including the bank statement, balance sheet etc. of the shareholder company.

The ld. DR argued that the order of the CIT (Appeals) is not correct and relied upon the order of the assessing officer. She pointed out that the assessee might have furnished certain documentary evidences but the same were not proved by it during the course of assessment proceedings as evident from the report of ADIT – Kolkata. It is further contended by the Learned DR that the CIT (Appeals) failed to take into consideration report of ADIT Kolkata. The Ld. DR has relied on the following judgments:

On the other hand, the ld. counsel for the assessee company referred to the assessment order and stated that the assessment order has been passed in mechanical manner. Our attention was drawn to Para 2 of the order where it is stated that the notice u/s 153A was issued on 30.10.2009, return was filed by the assessee company on 27.11.2009, notice u/s 143(2) was issued on 9.2.2010. It was further contended that the report of ADIT Kolkata has been referred in Para 9 and 10 which are dated 27.2.2009 and 15.5.2009. Both these reports do not relate to the assessment proceedings as these are of a date which is even prior to the issuance of notice u/s 153A of the Act. Hence, no enquiry was conducted by the AO during the assessment proceedings in this regard and this general report cannot be of any help. He also submitted that this report was never confronted to the assessee. He further stated that evidence filed by the assessee on 4.12.2010 in the shape of confirmation, income tax returns bank statements have been ignored as no enquiry has been made by the AO after that. Further, our attention was drawn to Para 13 of the order where the AO has discussed that they sent a report to ROC and CLB for cancel the registration of these companies. The counsel of the assessee company submitted the copy of master data drawn from Ministry of Corporate Affairs website on 6.9.2017 which shows that this shareholder company has created charge on its assets on 3.6.2015 and the filing of Audited Financial Statement with ROC shows that the status of the company is active. The ld. counsel for the assessee further submitted that there is no revenue or income of the respondent company as sale had not started yet. The property is under construction and the same is standing the balance sheet as fixed asset. No doubt that value of property is very high but there is no revenue in the hands of the company and the allegation of the AO that assessee has used its own income in the form of this share capital is baseless as there is no income. Even the preoperative expenses are standing in the balance sheet. He relied on the following decisions in support of his contentions:

He also contended that the word used in section 68 is ‘may’ which means that AO has the discretion make addition or not even if the amount is found to be credited in the books of account. He relied on the decision of P.K. Noor Jahan 237 ITR 571 (SC) to submit that in the facts of this case no additions should have been made by the AO as there is no income in the hands of assessee and it is incorrect to say that it has used its own undisclosed income in the shape of share capital.

We have considered the rival arguments made by both the sides, perused the orders of the A.O and the ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied upon by both the sides. It is noted from the records that the assessee had submitted all the documentary evidences to ascertain the credibility of the shareholder company and none of these documents are assailed by the learned AO by further investigation or enquiry. The report of ADIT as referred by the AO is much before the evidences filed by the Assessee. The AO has not made any enquiry after the evidences are filed by the assessee. The CIT(A) has noted that the following documents have been filed by the assessee:

Further, the master data of ROC shows that the company is an existing company and has filed its Audited Financial Statement until F.Y. 2015-16. The report received from Kolkata was never confronted to the assessee. There is another important fact in this case that the assessee has not generated any revenue as it is still constructing the building which is standing in the balance sheet. The asset may have high value but finding of the AO that assessee has used its own undisclosed income to show it as share capital cannot be upheld. As held by the Hon’ble Jurisdictional High Court in the case of CIT Vs Value capital (supra) it is for the revenue to prove that investment made in the shares actually emanated from the coffers of the assessee. In view of the facts of this case the case laws relied upon by the Revenue will not support its case. In these facts and circumstances of the case, we do not find any infirmity in the order of the ld. CIT(A) which does not call for any interference at our end. Therefore, the order of the CIT (A) is upheld on this ground of appeal raised by the revenue which stands dismissed. Ground No. 1 raised by the Revenue stands dismissed.

The case of the AO from Para 41 onwards of the assessment order is that in the course of assessment proceedings it is noticed that the assessee company has obtained secured loan from Oriental Bank of Commerce (OBC) to the tune of Rs. 25 Crores. In this respect enquiries have been conducted from Bank and details have been called for u/s 133(6) of the I.T. Act. In response to the notice u/s 133(6), Oriental Bank of Commerce vide its letter dated 29.11.2010 submitted that-

The balance sheet filed by the assessee shows total of Rs. 27.55 Crores. The Assessing Officer, therefore, asked the assessee to furnish Balance Sheet as at 31.12.2007 as per regular books of accounts i.e. as on the date of the Balance Sheet (the date of CA Certificate) submitted by the assessee to the Bank. The AO in para 43 of the Assessment order observed that the Balance Sheet with the Bank duty certified by the CA when compared with the Balance Sheet on the same day as per regular books of accounts shows that the total of the assets side of the Balance Sheet filed with the Bank is Rs. 234.57 Lacs (Rs. 2755.46 lacs – Rs. 2520.89 lacs) more than the same as per regular books of accounts. Accordingly, a show cause notice was issued by the AO on 26.11.2010, which reads as under:-

In response to the show cause notice the assessee company inter- alia submitted that the CA certificate has been prepared as on 31.12.2007, which is not the year end date. A lot of rectification entries are made or provisions are crated at the time of finalization of balance sheet after audit by the Auditors. The AO added the same to the returned income of assessee. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and made the following submissions qua addition of Rs. 234.57 lakhs:

After considering the submissions of the ld. counsel for the assessee, the Ld. CIT(A) came to the conclusion that the Audited Financial Statements of the assessee company for the year under consideration were audited by Rajesh Gupta & Associates Chartered Accountant and whereas the certificate for the purpose of bank loan was issued by some Ajay K Gupta & Company, Chartered Accountant. The impugned order further state that CA certificate ipso facto cannot prove the existence of unaccounted investment by the appellant company. The assessee company provided a comparative statement in first appellate proceedings by which it was noted by the CIT(A) that a difference of Rs. 234.57 lacs in source of funds and there is corresponding increase in utilization of funds shown in CA Certificate. The CIT(A) after discussing the same in detail, deleted the impugned addition of Rs. 234.57 lacs.

The ld. DR submitted that the order of the ld. CIT(A) is not correct and relied upon the order of the assessing officer. She pointed out that the assessee failed to explain the difference of Rs. 234.57 lacs and relied on para 47 of the order that the actual balance showing assets of Rs. 27.55 crore to the bank and also secured loan on the strength of the same. She contended that the CA certificate is a basic document and goes to the root of the matter and justifies the addition made by the assessing officer.

Per contra, the ld. counsel for the assessee invited our attention to page 114 of paper book which is a comparative statement of figures in Audited Financial Statement duly signed by the Statutory Auditors which were before AO and CA certificate issued by different chartered accountant and clearly shows that there is a difference in source of funds and application of funds i.e. Rs. 234.57 lacs. He stated that the learned DR did not point out any discrepancy in that statement. He further stated that there is no evidence of any investment made by the assessee except what is debited in the books of account. He also stated that no addition can be made on the basis of CA certificate when there is no investment made by the assessee outside books of account. He also submitted that books of account have been wrongly rejected by the AO without pointing any mistake in the books and also without giving any notice to the assessee. He submitted that during search also no material is found which shows any unaccounted investment is made by the assessee. He also relied on CIT Vs N. Swamy 125 Taxman 233 (Madras).

We have carefully considered the rival contentions of both the parties and have gone through the material available on record. It is noted from the records that the assessee had submitted the Audited Financial Statement to the AO which were also filed with the Registrar of Companies. In absence of any cogent or material evidence on record in respect of alleged unaccounted investment during the year under consideration either by way of some incriminating material found during the course of search or otherwise, we are of the view that no addition can be made only on the basis of CA certificates. The AO has not stated anything qua source of funds in Audited Financial Statement. On the contrary the AO has admitted the Audited Financial Statements of the assessee company treating the increase of share capital to the extent of Rs. 1,00,00,000/- and has not discussed the difference as shown in comparative statement. The AO has rejected the books of account without pointing any mistake in it. Admittedly no notice was given to the Assessee before rejecting the books of account. No evidence has been brought on record by the AO that any undisclosed investment has been made by the Assessee. In these circumstances we are of the opinion that the AO has made this addition without bringing any evidence on record that any undisclosed investment has been made by assessee. The said CA certificate cannot be the only basis, it may be a basis to probe further but it alone cannot be basis for addition. We do not find any infirmity in the order of the learned Commissioner of Income Tax (Appeals) and it does not call for any interference. Therefore, the order of the CIT (A) is upheld and this ground of appeal raised by the revenue stands dismissed. Accordingly, Ground No. 2 is dismissed .