RAMESH CHAND INVESTMENT & LEASING PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

O R D E R. PER I. C. SUDHIR, J. M. :

The assessee has questioned first appellate order on the following grounds :- “ 1. The ld. CIT (Appeals) has erred on facts and in law in upholding the impugned order of the learned Assessing

Officer which is contrary to law, equity and justice and facts and material on record, devoid of jurisdiction, arbitrary based on conjectures and surmises, passed without application of mind without granting proper opportunity to defend as no notice under section 143(2) or section 144 was issued after the filing of return till the assessment was made under section 144. The order under section 144 is bad in law;

2. The appellant denies his liability to tax as upheld by the ld. CIT (Appeals) and determined and computed by the learned Assessing Officer and the manner in which it has been so determined or computed;

3. The ld. CIT (Appeals) has erred in law and on facts in sustaining the impugned addition of Rs.4,50,000/- under section 68 received as Share application money;

4. The ld. CIT (Appeals) has erred in law and on facts in sustaining the impugned addition of Rs.8,00,000/- under section 68 which has been already considered as income as sale proceeds. ”

(i) Comparative share holder list as on 31.03.2002 and 31.03.2003 showing additions during assessment year 2003-04;

(ii) Ledger account of JMK SPL showing receipt of Rs.4.50 lakhs; (iii) Register of members and ledger – JMK SPL; (iv) Confirmation of payment of Rs.4.50 lakhs by cheque dated 25.06.2002; (v) Copy of share application of JMK SPL for 90 equity shares;

(vi) Copy of affidavit of Shri Surender Kumar, Director of JMK SPL confirming investment;

(vii) Extract of Board Resolution of JMK SPL;

(viii) ROC Profile of JMK Securities Pvt. Ltd.

(ix) Copy of assessment order under section 143(3) for assessment year 2002-03 passed on 27.12.2004 accepting similar increase in share capital and share premium by Rs.8,63,200/- and Rs.4,22,96,800/- respectively.

5.2 The ld. AR submitted that in view of the above submission and furnishing of sufficient evidence in support there was no reason or material or any evidence with the ld. CIT (Appeals) to disbelieve the similar evidence regarding increase in share capital and premium during assessment year 2003-04, which has been accepted in assessment year 2002-03 in the assessment framed under section 143(3) of the Act. The ld. CIT (Appeals) has failed to consider the entire evidence and has erred in concluding that the assessee had offered no creditable explanation. In support of the above submission the ld. AR placed reliance on the following decisions :-

(i) CIT Vs. TWOBRO Investment and Finance Ltd., ITA. 5/2014, order dated 14.1.2014 (Delhi High Court);

(ii) ITO Vs. TWOBRO Investment and Finance Ltd. & Other, ITA. 4486/Del/2011 & Others (A.Y. 2003-04) – order dated 7.06.2013;

(iii) Akshay Portfolio (P) Ltd. Vs. ITO ITA. 789/Del/2010 (A.Y. 2000-01) – order dated 13.07.2012;

(iv) CIT Vs. Vishal Holding & Capital P. Ltd. ITA. 1031/2010 – Judgement dated 9.8.2010 (Delhi High Court);

(v) ITO Vs. MF Portfolio P. Ltd. & Other, ITA. 1866/Del/2011 (A.Y. 2002-03) – order dated 8.08.2013;

(vi) CIT Vs. Anirudh Narain Aggarwal (2013) 38 taxman.com 367 (All.); (vii) CIT Vs. Vrindavan Farms (P) Ltd. ITA. 71–72 & 84 of 2015 – [order dated 12th August, 2015] (Delhi High Court).

5.3 In support of ground No. 3, the ld. AR submitted that cheques of Rs. 8 lakh (Rs.4 lakhs each) were not received from Elbee Portfolio Pvt. Ltd. and these cheques have not been received against share capital. He submitted that in the normal course of its business of dealing in shares the assessee had share trading transactions with RPS Securities and Finance Services, both purchases and sales. During the assessment year 2003-04, there was a sale transaction of Rs.25,500/- against which the assessee realized Rs.22,5000/- during the year leaving a balance of Rs.3 lakhs as outstanding against the debtor. The assessee filed evidence of trading transactions with RPS Securities as called for by the ld. CIT (Appeals) made available at page Nos. 165 to 219 of the paper book. The assessee filed complete evidence of business of assessee as trading in shares in assessment year 2002-03 and 2003-04 as specifically required by the ld. CIT (Appeals) showing the sale proceeds as income, made available at page Nos. 162 to 219 and 220 to 259. In support the assessee also filed copy of assessment order under section 143(3) for assessment year 2002-03, accepting trading in shares as the regular business of the assessee company, made available at Page No. 243 of the paper book. The ld. AR submitted that after considering part of evidence the ld. CIT (Appeals) treated Rs.8 lakhs out of total receipts of Rs.22,05,000/- on account of sale consideration from RPS as cash credits and upheld the addition. Thus, replacing the addition made by the Assessing Officer on account of Elbee Portfolio Pvt. Ltd. as capital contribution by unexplained receipts from RPS rejecting the entire evidence on the basis of conjecture and surmises. He referred to page Nos. 19 to 22 of the first appellate order in this regard. The ld. CIT (Appeals) has upheld the addition of Rs.8 lakhs in spite of accepting and recording the findings that cheques for Rs.4 lakhs have not been received from Elbee Portfolio Pvt. Ltd. on account of which the Assessing Officer has made the addition and that these cheques have not been received against share capital. The Assessing Officer had not submitted the report before the ld. CIT (Appeals) on the submission made by the assessee supported with evidence in spite of repeated reminders. The documents filed by the assessee clearly support that similar amount was received from RPS Securities against sale of shares, which has been duly reflected in the trading account as income. Thus the addition made by the ld. CIT (Appeals) has resulted into accounting of the same income twice, submitted the ld. AR once by the assessee and again by the ld. CIT (Appeals). If at all this addition had to be made by the ld. CIT (Appeals) then she ought to have reduced the same amount from the trading receipts accounted for by the assessee. The same amount cannot be considered both as trading income and cash credit. The ld. AR also made following submissions :-

“ The assessee had brought on record complete evidence in this regard for AY two years regarding opening stock, purchases, sales and closing stock with quantitative statement and value (P.220-259) and as filed before the AO for AY 02-03 where assessment order u/s 143(3) had been made accepting the fact that assessee is a trader in shares and accepting the closing stock in trade as on 31.3.02. Asstt order at page-243.

The entire evidence has been rejected by the Ld. CITA on conjectures and surmises stating at page-19/22 of the order: “the assessee was, however, unable to produce either the share certificates, evidence of purchase & sale, confirmation of the parties with whom the purchase/sale transaction had been undertaken and the copy of bank account showing payment against purchase of shares.”

Regarding trading receipts of Rs.8,00,000/- for which addition u/s.68 has been sustained by Ld. CITA it is humbly submitted that the case is squarely covered by the judgment of Hon’ble Delhi ITAT, “C" Bench (constitution: Shri Rajpal Yadav, JM and Shri K.G. Bansal, AM) reported as Eland International (P) Ltd. vs. DCIT and vice versa - (2009) 124 TTJ (Del) 554: held in Para 5.4 of the order in cross appeals “When transactions of sale and purchase were recorded in the books of account and these transactions led to the profit of assessee, which was brought to tax, therefore, the said transactions could not be regarded as bogus and no addition under S. 68 was called for. ”

After a detailed discussion on facts of the case in Para 5, 5.1 to 5.3, the Hon’ble ITAT summarised the issue in Para 5.4 and Held, “It is clear that the transactions of purchase and sale were recorded in the books of account and these transactions led to profit to the assessee, which was brought to tax. If sales have been effected out of purchases made from these parties, then, it cannot be said that the purchases were bogus. The finding of bogus sale can only lead to the inference that the corresponding amount should be deleted from the turnover of the assessee. The AO has also not rejected the books of account to estimate profit on these transactions in case it was a firm finding that purchases and sales were bogus. The facts of the case of La Medica (supra) are different in the sense that detailed enquiries were made into the purchases made by the assessee, which were held to be bogus by the AO. It was found that the purchase consideration got deposited in a bank account of an employee in Calcutta, which was opened with the introduction of the assessee. No such enquiry was made in this case. In the case of La Medica, it was also not the case that Sales were effected from the purchases made and, thus, the purchases could not be out- rightly termed as bogus. Therefore, we are of the view that the facts of the two cases are distinguishable. In absence of displacing the finding of the CIT(A) and the fact that the assessee showed profit from these transactions, it is held that there is no such error in the order of learned CIT(A) which requires correction from us. Thus this ground is dismissed"

: In the present case before Your Honors:

The transactions of purchase and sale were duly recorded in the • books of account and these transactions led to profit to the assessee, which has been brought to tax. (See assessments for AY 02-03 & 03-04). as per evidence filed before AO and the CITA for AY 2002-03 • and AY 03-04 the facts accepted in the original assessment made u/s. 143(3) are:

AY 02-03 AY 03-04 Opening stock of shares (trading asset)-P.251/222 26694824 39519299 Purchases - P251/222 41462000 2302107 Sales (cost 2302107 plus gp 60,903/-) P251/222 28637000 2363010 Closing Stock - P.251/222 39519299 41882309 Trading Loss/profit - P.251/222 -52560903

The trading loss of Rs.525 and net loss of Rs.27147/- has been accepted in the assessment order for AY 2002-03, passed u/s.143(3)-(Page-243).

The Ld. CITA made the addition by rejecting the transactions of purchase and sale, which had been duly accepted as the business of the assessee in Assessment u/s. 143(3) for AY 2002-03 and subsequently, trading in shares being the business of the Co. The business of trading in shares has not been disputed even by the Ld. CITA.

PRAYER: Thus the present case is squarely covered by the above judgment of the co-ordinate bench of the Hon’ble Delhi ITAT in Eland International (P) Ltd. vs. DCIT and vice versa - (2009) 124 TTJ (Del) 554 and should be followed. For easy reference, the print out of both the judgments are enclosed. ”

5.4 The ld. Sr. DR, on the other hand, placed reliance on the orders of the authorities below. He submitted that onus lies upon the claimant to establish genuineness of the claim to which the assessee has thoroughly failed to. The assessee has failed to establish identity and creditworthiness of the share applicant and genuineness of the transaction. The authorities below were thus justified in making and sustaining the addition of Rs.4,50,000/- under section 68 of the Act on account of unexplained share application money received from JMK Securities Pvt. Ltd. 5.5 On having gone through the orders of the authorities below that the ld. CIT (Appeals) has asked the assessee to produce the parties from whom share capital was received during the year to produce the share transfer register, specify the dates on which shares were allotted and to produce evidence whether confirmation, proof of identity and source of investment had been filed before the Assessing Officer and if not, can it be filed during first appellate proceedings. The ld. CIT (Appeals) had also called for a report from the Assessing Officer in regard to the additional evidence produced by the assessee. The Assessing Officer despite repeated reminders did not file any report in compliance of the direction of the ld. CIT (Appeals). The ld. CIT (Appeals) proceeded to make enquiries herself. Regarding the addition of Rs.4,50,000/- on account of share capital from JMK Securities Pvt. Ltd., the contention of the assessee remained that as per audited accounts during the assessment year 2003-04 the total capital allotted during the year was only Rs.1,09,300/-. Out of which Rs.9,000/- was from JMK Securities and the balance was on account of premium shown in capital reserve. The assessee accepted receipt of Rs.4,50,000/- from JMK Securities towards contribution to share capital, which was allotted and shares were issued. The Assessing Officer alleged receipt of cash from the assessee or its Director made addition of Rs.25,00,000/- under section 68 as unexplained share application money. This addition of Rs.25,00,000/- consisted of Rs.9,00,000/- on account of unexplained share application money received from JMK Securities Pvt. Ltd. and remaining Rs.16,00,000/- as share application money received from Elbee Portfolio Pvt. Ltd. In support of receipt from JMK Securities Pvt. Ltd. the assessee filed confirmation, copy of share application, resolution of board of directors, affidavit of Shri Surender Kumar, Director of JMK conforming the payment/investment of Rs.4,50,000/-, affidavit of the then Director of the assessee company, ledger account of JMK Securities Pvt. Ltd., JMK Securities Status i.e. copies of company master details, as per ROC website indicating that the company is Government as on 20.02.2012. On the contrary the authorities below were having nothing on record to falsify the evidence filed by the assessee except the information of the Investigation Wing of the Department that the entry operators named therein had alleged that it is part of the accommodation entry business carried on by them. There is no any information therein that the assessee had paid in cash and if so to whom it was paid. There is no any explanation regarding subsequent sale by JMK Securities of those shares to somebody else and how the proceeds were recorded. In its recent decision the Hon’ble High Court of Delhi in the case of CIT Vs. Vrindavan Farms (P) Ltd. (supra) on the issue of validity of addition made under section 68 of the Act has been pleased to hold that if the identity and other details of share applicants are available, the share application money cannot be treated as undisclosed income in the hands of the company. The addition, if at all, could be in the hands of the applicants if their creditworthiness cannot be proved. Again in the case of Lovely Exports 216 CTR (SC) 195, the Hon’ble Supreme Court had been pleased to hold that if the assessee had given details of the subscribing applicants and the Department alleged that the applicants were bogus, it was free to proceed against the applicants. It was held that share application money received could not be regarded as undisclosed income of the assessee company under section 68 of the I. T. Act. The ld. CIT (Appeals) was not justified in rejecting the evidences filed by the assessee merely on the ground that the assessee had established paper trail of all the trading transactions as per audited accounts, but without producing the relevant parties. The submission of the assessee in this regard remained that it was beyond power and control of the assessee to produce relevant parties in 2012 for examining the trading transactions, which took place in the financial year 2001-02 and further that assessment upto assessment year 2002-03 had been framed under section 143(3) after a detailed scrutiny. Under these circumstances, we are of the view that the ld. CIT (Appeals) was not justified in sustaining the addition of Rs.4,50,000/- under section 68 of the Act on account of unexplained share application money received from JMK Securities Pvt. Ltd. The same is directed to be deleted. The ground No. 3 is accordingly allowed.