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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
ORDER PER H.S. SIDHU, JM
This Appeal has been filed by the Assessee against the order of the Ld. CIT(A) dated 15.02.2007 relating to assessment year 2001-02.
2. The grounds raised in the Appeal read as under:-
1. On the facts and in the circumstances, the Ld. CIT(A) has erred in law in confirming the disallowance of loss as sale of shares of Rs. 15,80,705/-.
On the facts and in the circumstances of the case, returned included loss on sale of shares of Rs. 15,80,705/-. During the course of assessment proceedings, on being enquiry made by the AO, the details of the persons to whom the shares were sold and the mode of receipt of the consideration has been furnished. Further, the assessee has brought on record affidavits from the purchasers of the shares. The parties were agriculturists, individuals and none of them were income tax assessee.
The AO has conducted the enquiry with 9 parties out of 14 to whom the shares were sold. During the course of enquiry they confirmed about purchase of shares by them in cash. Almost all of them are residing in villages and they keep their money at home. a) The amount invested by each of them being less than Rs. 50,000/- and earning income by way of agriculture. b) They had filed their affidavits and identification papers in the form of copies of-Election Commission Card etc. c) Everyone has confirmed having made investment in purchase of shares. d) Some of the persons who has not disclosed the names of their relatives, only to avoid harassment by the Income Tax Authorities. On the facts and in the circumstances of the case, the assessee has proved genuineness of the transactions and the disallowance of the loss of Rs. 15,80,705/- deserves to be fully deleted.
5. The Ld. CIT(A) has erred in applying the provisions of Section 68 of the Income Tax Act 1961 to the cash receipt of sale of shares Rs. 5,60,000/-. On transactions discussed above being proved to be genuine, the addition of cash credit of Rs. 5,60,000/- being receipt of sale consideration of shares is unjustified and illegal.
6. The Ld. CJT(A) has erred while confirming the addition made for cash credit of RS.75,000/- being share application money received from M/s. Silverline Appliances Ltd. The confirmation of the receipt of share application has been filed. M/s. Silverline Appliances Ltd. is an Income-Tax assessee and his Permanent Account Number has also been filed. The addition of Rs. 75,000/- is unjustified and illegal.
7. The Ld. CIT(A) has erred in confirming the disallowance of an amount of Rs. 28,938/- out of establishment expenses on proportionate basis by applying the provision of Section Income Tax Act, 1961 no method of apportionment is prescribed under section 14 of the Income Tax Act, 1961, disallowance of Rs. 28,938/- is arbitrary and justifies deletion.
7. The order is illegal and against facts of the case and is bad at law.
The assessee craves leave to add, alter or modify any grounds of appeal
either before or at the time of hearing of the appeal.”
3. The brief facts of the case are that assessee company filed its return of income on 30.3.2002 declaring total income at Rs. 7,990/- After processing u/s. 143(1) of the I.T. Act, 1961 the case of the assessee was picked up for scrutiny assessment. Accordingly, Notice u/s. 143(2) of the Act dated 28.10.2002 was issued and in response to the said notice the A.R. of the assessee and the employee of the 3 assessee attended the proceedings from time to time and filed necessary details. Books of accounts and vouchers were produced and examined on test check basis. During the year under reference the assessee company was engaged in the dealing / trading in shares and securities and rendering services. The profit and loss account shows the following receipts as incomes of the year; Service Receipts Rs. 1729000/-; Interest Rs. 2702/- and Dividend Rs. 451337/-. On the debit side of the P&L account a sum of Rs. 1580705/- has been debited on account of ‘Loss and Stock-in- trade’. On scrutiny AO observed that the amount represented the loss on the sale of shares as per details given at page no. 1 of the assessment order dated 26.3.2004. In order to verify, the genuineness of the transactions of the sale of the shares and the alleged resulted loss, the assessee company was asked to furnish the details of the persons to whom the said shares were sold and what was the mode of receipt of the sale consideration. It was stated that the sale consideration was received in cash from the individuals who had purchased the alleged shares from the assessee. Further, the assessee brought on record affidavits from the individuals in support of its claim of shares sold to them.
However, the AO noted that all the affidavits are of similar pattern and language wherein it was stated that they were agriculturists and have some land holdings in their names and the alleged shares were claimed to be purchased by them in cash. But, no documentary evidence regarding the immediate sources of the cash paid by them towards the purchase of the shares was furnished with the affidavits and none of the individuals were income tax assesses and neither the bank account statement of the confirming party has been furnished in support of the immediate source of the funds. In view of the above, AO observed that it is clear that the assessee company debited the sum of Rs. 1580705/- to the P&L account with an intention to adjust the income accrued to it from the Service Receipts during the year. Secondly, the unexplained cash credit of Rs. 75000/- was given the color of share application money. These were the willful attempts on the part of the assessee to reduce its tax liability. Accordingly, the AO completed the assessement at Rs. 22,52,633/- u/s. 143(3) of the I.T. Act, 1961, by making various additions vide order dated 26.3.2004. Against the assessment order dated 26.3.2004, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 15.02.2007 has dismissed the appeal of the assessee.
Ld. Counsel of the assessee has stated that the additions made by the AO are purely based on suspicion and surmises. The explanation of the assessee found to be correct has been totally ignored and additions made are based merely on surmises and conjectures. He further stated that during the course of assessment proceedings, on being enquiry made by the AO, the details of the persons to whom the shares were sold and the mode of receipt of the consideration has been furnished. Further, the assessee has brought on record affidavits from the purchasers of the shares. The parties were agriculturists, individuals and none of them were income tax assessee. It was further stated that AO has conducted the enquiry with 9 parties out of 14 to whom the shares were sold.
During the course of enquiry they confirmed about purchase of shares by them in cash. Almost all of them are residing in villages and they keep their money at home; a) The amount invested by each of them being less than Rs. 50,000/- and earning income by way of agriculture; b) They had filed their affidavits and identification papers in the form of copies of-Election Commission Card etc.; c) Everyone has confirmed having made investment in purchase of shares; d) Some of the persons who has not disclosed the names of their relatives, only to avoid harassment by the Income Tax Authorities. Ld. Counsel of the assessee further stated that Ld. CIT(A) has erred in applying the provisions of Section 68 of the Income Tax Act 1961 to the cash receipt of sale of shares Rs. 5,60,000/-. It was further stated that Ld. CIT(A) has erred while confirming the addition made for cash credit of RS.75,000/- being share application money received from M/s.
Silverline Appliances Ltd. The confirmation of the receipt of share application has been filed. M/s. Silverline Appliances Ltd. is an Income-Tax assessee and his Permanent Account Number has also been filed. The addition of Rs. 75,000/- is unjustified and illegal. It was further stated that Ld. CIT(A) has erred in confirming the disallowance of an amount of Rs. 28,938/- out of establishment expenses on proportionate basis by applying the provision of Section 14A of the Income Tax Act, 1961 no method of apportionment is prescribed under section 14 of the Income Tax Act, 1961, disallowance of Rs. 28,938/- is arbitrary and needs to be deleted.
Ld. DR relied upon the orders of the authorities below and in support of his contention, he filed the Written Submission in the case. For the sake of convenience, we are reproducing the contents of the Written Submission filed by the Ld. DR as under:-
“Facts and issues involved in the case and my submission
(A)GOA 1, 2 & 3 Disallowance of loss of Rs. 15,80,705/- claimed by the appellant on account of sale of shares addition of Rs 5,60,000/- u/s 68 of the I T Act on account of bogus sale of shares.
(1) The assessee company claimed loss of Rs.
15,80,705/-on account of sale of shares of a sister concerns namely M/s Pentagon Screw &Fasteners Ltd. and PSB Finance and Hire Purchase L!d. This loss adjusted mainly against 'Service Receipt' of Rs. 17,29,000/-.
(2) The assessee was asked to furnish the detail of the persons to whom shares were sold. It was also asked to furnish about the mode of receipts against such sale.
(3) In response, the assessee furnished the requisite detail which has been reproduced by the AO at page 2&3 of the assessment order.
(4) All receipts against the sale are claimed to be received in cash.
(5) The appellant had also furnished the copy affidavits from the persons to whom shares were sold. Ld. AO pointed out that all affidavits have been written in same pattern and language which indicates that all of them have been drafted by same person. These parties stay at different places in remote areas in different states. How it is possible that they got their affidavits prepared in same pattern and language. Thus, veracity of affidavits filed by the assessee is doubtful.
(6) The Ld. AO got enquiry done through investigation wing of the department at Bhatinda and Amritsar. The Dy. DIT at Bhatinda got the local enquiry done through
Income Tax Inspector who recorded the statement of the following persons: i). Sh. Rajinder Singh S/o Sh. Ajmer Singh ii) Sh. Kaur Sigh S/o Sh. Amar Singh iii) Sh. Gurdas Singh S/o Sh. Kartar Singh iv) Sh. Dharminder Sigh S/o Sh. Gurdeep Singh v) Sh. Gurdeep Singh S/o Sh. Janrail Singh vi) Sh. Sham Sunder S/o Sh. Teja Ram vii) Sh. Baljeet Singh S/o Sh. Ajmer Singh viii) Sh. Amarjeet Singh Sfo Sh. Bagga Singh ix) Sh. Surinder Singh S/o Sh. Bagga Singh
(7) From the statements of the above individuals the following facts emerged: i) None of them are Income Tax Assessee. ii) They were not aware of the name of the company of which shares have been claimed to be solo to them. iii) They were not in possession of share certificates of shares alleged to be purchased by them. iv) None of them could tell that how did they know about the company based in Delhi and who was mediator for them to make them purchases of shares. v) They are basically villagers and farmers and they don't know about investment in shares.
(8) The report and statement recorded by the Investigation Wing Patiala were forwarded to the AR of the appellant, but he could not submit anything concrete against the above finding.
(9) Value of shares of M/s Pentagon Screw Fastener Ltd. as determined by the assessee company vide letter dt.
27.01.2004 was at Rs. 1.06 against the sale price of Rs.
2.50 per share whereas value of shares of Ms PSB
Finance and Hire Purchase Ltd was nil which was sold at Rs. 3/- and Rs. 3.50/- per share. No dividend has been declared by the company since its incorporation. It cannot be understandable at any stretch of imagination as to why the farmers staying 300Km. far in a village purchased the share of the company at Rs. 2.50, 3/- and 3.50/- per share whereas the value as per submission of the assessee was mere Rs. 1.06.and Nil. No explanation was offered from assessee's side.
Reliance is placed on the ratio pronounced by the Hon'ble Supreme Court in the case of Sumati Dayal Vs.
CIT 214 ITR 801 (Copy Enclosed) is very much relevant to this issue that the matter must be looked into from the angle of human probabilities.
(10) Another sister concern of the assessee company
M/s Hemkund Construction Ltd. has purchased shares of the same company i.e. M/s Pentagon Screw Fastener Ltd. during the same period at Rs. 10/- per share whereas the assessee company claimed to sale the same shares
@2.5/- per share. Assessee was asked about this anomaly during the assessment proceedings but it could not offer any justification for the same.
(11) From the above mentioned fact it is crystal clear that the assessee has shown fictitious sale of shares in cash to the villagers, booking loss of Rs. 15,80,705/- which has been adjusted against taxable income of the assessee company.
(12) On the other hand the Assessee company has introduce its own unaccounted money in garb of so called sale consideration of shares at Rs. 5,60,000/-. Thus, Ld.
AO has rightly added this amount uls 68 of the I T Act to the total income of the assessee.
(13) Ld. CIT(A) afforded more than 15 opportunities to the appellant company within the time span of more than two year to substantiate its appeal but the appellant miserably failed to do so.
(14) Neither before Ld. AO nor before CIT(A) the appellant could established the identity and creditworthiness of buyers and genuineness of transaction.
(8)Grounds of appeal 4 : Addition on account of Share
Application Money.
(1) The appellant received share application money at Rs. 75,000/- from M/s Silver Line Appliances Pvt. Ltd. for allotment of Shares.
(2) This was a cash transaction.
(3) The voucher dated 28.03.2001 through which the alleged cash of the share application Money was claimed to have been returned to the applicant company does not substantiate the payment of Rs. 75,000/- as the acknowledgement part of the voucher is totally blank.
(4) Ld. AO has rightly added this amount uls 68, which has further upheld by the CIT(A).
(C) Grounds of Appeal 5 : Disallowance u/s 14A.
(1) The appellant has shown dividend income of Rs.
4,51,337/- which is claimed to be exempt from tax and which constitutes 20.67% of total receipt.
(2) It is settled law that no income can be earned without any expenditure. Since, the appellant had not made any disallowance against this income, the Ld. AO rightly estimated the disallowance in proportion of receipt against the total establishment expenditure of Rs.
1,43,003/- and made an addition of Rs. 28,938/-.
(3) Ld. CIT(A) also found this addition justified and upheld the same. Thus, looking into the facts of the case this addition also deserves to be upheld.
(D.) Apart from facts of the case and order of Ld. CIT(A) and Ld. AO rely on the following judgments of the Hon'ble Supreme Court and Jurisdictional High Court:
CIT Vs Nipun Builders & Developers (P.) Ltd (30
taxmann.com 292, 214 Taxman 429, 350 ITR 407, 256
CTR 34) (Copy Enclosed). where Hon'ble Delhi High Court held that where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. It would not be correct to state that AO should get the addresses from Registrar of Companies Website or search for the addresses of the shareholders of the company with them.
Similarly, Credit Worthiness was not proved by mere issue of cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment acted as angel investors, after due diligence or for personal reasons.
2. CIT Vs Nova Promoters & Finlease (P) Ltd (18
taxmann.com 217, 206 Taxman 207, 342 ITR 169, 252
CTR 187) (Copy Enclosed) where Hon'ble Delhi High Court held that amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68.”
We have heard both the parties and perused the records, especially the impugned order. With regard to ground no. 1 to 3 relating to disallowance of loss of Rs. 15,80,705/- claimed by the assessee on account of sale of shares addition of Rs. 5,60,000/- u/s. 68 of the I.T. Act on account of bogus sale of shares is concerned, we find that during the assessment proceedings AO noticed that during the year under consideration the assessee was engaged in the dealing / trading in shares and securities and rendering services.
The profit and loss account showed the receipts as incomes of the year; Service Receipts Rs. 1729000/-; Interest Rs. 2702/- and Dividend Rs. 451337/-. On the debit side of the P&L account a sum of Rs. 1580705/- has been debited on account of ‘Loss and Stock- in-trade’. On scrutiny AO observed that the amount represented the loss on the sale of shares as per details given at page no. 1 of the assessment order dated 26.3.2004. In order to verify, the genuineness of the transactions of the sale of the shares and the alleged resulted loss, the assessee company was asked to furnish the details of the persons to whom the said shares were sold and what was the mode of receipt of the sale consideration. It was stated that the sale consideration was received in cash from the individuals who had purchased the alleged shares from the assessee. Further, the assessee brought on record affidavits from the individuals in support of its claim of shares sold to them.
However, the AO noted that all the affidavits are of similar pattern and language wherein it was stated that they were agriculturists and have some land holdings in their names and the alleged shares were claimed to be purchased by them in cash. But, no documentary evidence regarding the immediate sources of the cash paid by them towards the purchase of the shares was furnished with the affidavits and none of the individuals were income tax assesses and neither the bank account statement of the confirming party has been furnished in support of the immediate source of the funds. In view of the above, AO observed that it is clear that the assessee company debited the sum of Rs. 1580705/- to the P&L account with an intention to adjust the income accrued to it from the Service Receipts during the year. AO after examination of all the facts held that the loss amounting to Rs. 15,80,705/- on the alleged sale of the shares to such farmers was booked and cash amounting to Rs. 5,60,000/- was introduced in the guise of sale consideration of the alleged shares and rightly relied upon the Hon’ble Apex Court decision in the case of Sumati Dayal vs. CIT 214 ITR 801(SC). We further find that Ld. CIT(A) has rightly observed that the identity and creditworthiness of buyers and genuineness of the transactions were never established. The loss of Rs. 15.80 lacs claimed is not admissible also on account of provisions of Explanation to section 73 of the Income Tax Act. The receipts shown on sale of shares, the amount of Rs. 5,60,000/- falsely shown as sale consideration has been rightly treated as unexplained cash credit, hence, Ld. CIT(A) has rightly upheld the addition made by the AO, which does not need any interference on our part, therefore, we uphold the same and reject the ground no. 1 to 3 raised by the assessee.
6.1 With regard to ground no. 4 relating to confirmation of addition on account of share application money amounting to Rs. 75,000/- is concerned, we find that Rs.75,OOO/- were received by the assessee from M/s Silverline Appliances P. Ltd. for allotment of shares. The AO made an addition of this amount stating that the colour of share application money was given to a transaction by furnishing a confirmation from M/s Silverline Appliances Ltd. However, the same was not acceptable since there were too many discrepancies involved. In the appeal, the assessee contended that the party making payment of share application was an income-tax assessee and had recorded the transaction in its books.
Confirmations were filed along with copies of accounts. During the appellate proceedings, the AO in his report has indicated that MIs Silver line Appliances had received cash to the tune of RS.6 lacs before subscribing for share application in cash. Although, the assessee has been able to indicate that M/s Silverline Appliance Ltd. had entered the transactions in its books of account, it is clear that this was a cash transaction and as indicated by the AO in his letter dated 29.10.2004, the said company had received cash to the tune of RS.6 lacs on account of share application money on different dates in September of the relevant year. The mere fact that M/s Silverline Appliance Ltd. is an income- tax assessee does not prove that this is a genuine transaction. The voucher dated 28.3.2001 through which the alleged cash of the share application money was claimed to have been returned to the appellant company does not appear to be a reliable document. There are no signatures of any person and the acknowledgment part is totally blank. The AO's conclusion that there was never a transaction and this was only a squared up cash account of unexplained cash introduced sounds totally feasible. Hence, Ld. CIT(A) felt that the genuineness bf the transaction was proved and the AO has rightly treated it as unexplained cash credit and confirmed the same, which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) and reject the ground no. 4 raised by the assessee.
6.2 With regard to ground no. 5 relating to confirmation of disallowance u/s. 14A amounting to Rs. 28,938/- is concerned, we find that during the assessment the assessee company earned dividend income of Rs. 4,51,337/- which was exempted u/s. 10(33) of the I.T. Act. The AO noted that the assessee had not made any disallowance on account of establishment expenses relating to exempted income u/s. 14A of the Act. AO calculated the proportion of expenses relating to dividend income at 20.67% of the total receipts of Rs. 21,83,039/- against which total establishment expenses amounting to Rs. 1,43,003/- had been debited and on this basis an amount of Rs. 28,939/- had been disallowed u/s. 14A of the I.T. Act. We note that Section 14A of the Act envisages disallowance of expenses relating to exempted income. Legislature in its wisdom has inserted the said disallowance with a view to balance the claim of exemption of dividend / any other exempt income since it was felt that it would amount to double benefit, if a business first claims a particular income as exempt and then sets off the expenditure related to the same against its other incomes.
In such a situation, a prescribed method for working out this expenditure is already on the anvil. In the absence of a specified parameter of apportionment of expenditure in such a situation, the responsibility, (fiscal and moral) of determining corresponding expenditure lies with the assessee. In the absence of any such execution of responsibility, the AO left with no choice but to apportion the expenditure on estimate basis. Therefore, in this case the AO has very reasonably and scientifically worked out the proportion of the business receipts vis-à-vis, the exempted income and then applied that ratio to the expenditure, hence, he rightly affirmed the addition, which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) and reject the ground no. 5 raised by the assessee.
In the result, the Appeal of the Assessee is dismissed.
Order pronounced in the Open Court on 16/11/2017.