DCIT, NEW DELHI vs. M/S K.G. FINVEST (P) LTD.,, NEW DELHI

For the A.Y. 2005-06, only the assessee is in appeal and for the A.Ys. 2006-07 to 2008-09 the assessee and the Revenue both have filed cross appeals against the orders of the CIT(A).

The assessee, in all of its appeals, has challenged the assumption of jurisdiction by the Assessing Officer to initiate 2

Firstly, we are taking up the legal issue raised in the appeals of the assessee, challenging the jurisdiction of the AO in issuing notices u/s 153A and the consequential framing of assessments.

We have heard the parties and perused the relevant material on record. Similar issue was raised by the assessee in its appeal for the assessment year 2004-05 also. Such appeal also came to be heard simultaneously with the instant appeals.

In view of our decision on the legal issue raised by the assessee, there remains no need to deal with the merits of the appeals.

In the result, the appeals of the Revenue are dismissed and those of the assessee are allowed.

Both the assessee as well as the Revenue are in appeal against the order passed by the CIT(A) for this year on 19.03.2013.

Briefly stated, the facts of the case are that the assessee showed to have received share capital and share premium from four parties as under:-

The assessee was called upon to furnish the details of the amount received and evidence in support of the identity

The Assessing Officer observed that the investor companies had shown only a nominal income as compared to investments made by them; no details were submitted in the case of Lion Auto Components Pvt. Ltd. to prove the credit worthiness of the investor; and no evidence was filed to prove that M/s Saphire Commercial Pvt. Ltd. had income/capital to make investment during the financial year. On going through

During the course of first appellate proceedings, the assessee filed application under rule 46A enclosing certain additional documents to substantiate that the amounts credited in its books of account were genuine. The ld. CIT(A) issued directions to the Assessing Officer for making necessary inquiries in the matter. The AO submitted a report dated 05.12.2012 indicating the result of inquiry conducted by him as under:-

The assessee responded to the remand report by furnishing its explanation which has been recorded on pages 4- 6 of the impugned order. Considering all these material, the ld. CIT(A) held that a sum of Rs.15 lac was genuinely received from M/s Startrans Logistics Pvt. Ltd. As regards the other two amounts, namely, Rs.25 lac and Rs.35 lac, the ld. CIT(A) directed the Assessing Officer to verify if these two investors genuinely made the investment. Both the sides have come up 9

We have heard the rival submissions and perused the relevant material on record. We agree in principle with the ld. DR that the ld. CIT(A) cannot send the matter back to the AO for a fresh decision. Section 251 lists the powers of the CIT(A) in disposing an appeal. Sub-section (1)(a) of sec. 251 provides that the Commissioner (Appeals), in an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment. Thus, the power of restoration to the AO is no more available to the ld. CIT(A). He has to take a decision at ITA Nos.3429, 4709, 3424,3423, 2684, 4437, 4500&3980/Del/2013 & 999/Del/2014 his own end. In that view of the matter, the decision of the ld.

It is noticed from the assessment order for this year as well as the earlier years that the assessee is showing to have received share capital with a huge share premium and simultaneously passing it on to other unlisted companies. The ld. DR submitted that such total amount allegedly received by the assessee and then passed on to other non-descript companies during the years under consideration is more than Rs.2.50 crore. It can be seen from the total amount shown to have been received by the assessee during the year at Rs.75 lac that share capital is only to the tune of Rs.7.50 and share premium is Rs.67.50 lac. Such a huge premium has been shown in the background of the total income returned by the assessee at Rs.59,041 for the current year. Almost similar position is obtaining for the others years. The assessee did not ITA Nos.3429, 4709, 3424,3423, 2684, 4437, 4500&3980/Del/2013 & 999/Del/2014 furnish complete details to the Assessing Officer for proving the genuineness of the transactions and credit worthiness of the parties. Certain sketchy details were filed which did not convince the Assessing Officer. An attempt was made before the ld. CIT(A) to furnish further details. During the remand proceedings, all efforts made by the Assessing Officer went in vain as the letter sent to the three companies, namely, Acumen Paper & Binders Pvt. Ltd., Lion Auto Components Pvt. Ltd., and Sapphire Commercial Pvt. Ltd. were returned with the postal remarks ‘No such firm at such address’ and for the last company, namely, Startrans Logistics Pvt. Ltd., no reply was received till the sending of the remand report. Mere fact that the assessee placed on record bank statements, confirmations, certificates of incorporation, memorandums of association, etc. of the companies who allegedly invested in the assessee’s shares at a huge premium, does not in itself justify the genuineness of the transaction. Apart from the paper trail, the ITA Nos.3429, 4709, 3424,3423, 2684, 4437, 4500&3980/Del/2013 & 999/Del/2014 assessee is supposed to satisfy the Assessing Officer about the genuineness of the transaction. It can be seen that the ld. CIT(A) has deleted the addition to the tune of Rs.15 lac being the amount received as share capital with share premium for M/s Startrans Logistics Pvt. Ltd., simply on the ground that the letter sent to this party was not returned by Postal Department.

The only issue raised by the Revenue in its appeal is against the deletion of addition of Rs.40 lac made by the Assessing Officer on account of the alleged receipt of unexplained share capital along with share premium. The facts of the case are that, like earlier years, the assessee showed to have received share capital (including share premium) of Rs.20 lac from M/s Wizard International Ltd. and Rs.20 lac from M/s CRM Systems Pvt. Ltd.). On being called upon to furnish the details of the amount received and evidence in support of identity and credit worthiness of the lender and also the genuineness of the transactions, the assessee simply furnished a reply which has been summarized by the Assessing Officer by way of a table on page 5 of the assessment order, reproduced below:- 14

On the basis of the details filed by the assessee, the Assessing Officer observed that the investor companies had shown only a nominal income as compared to investments made by them; no details were submitted in the case of Wizarad International Ltd. to prove the credit worthiness of the investor. On going through the assessee’s balance sheet, it was noticed that the money received as share capital was passed on to other unlisted and non-descript companies. The AO found that the assessee was facilitating introduction by unaccounted money through its books of account. The modus operandi was noted, being, an entry operator operating a number of accounts in the same bank/branch or in different

We have heard the rival submissions and perused the relevant material on record. It is observed that the ld. CIT(A) considered certain details as filed before the Assessing Officer and also certain fresh documents filed before him, which fact emerges from para ‘B. Supporting Documents’ on page 16 of the impugned order. The addition was deleted by noticing that no independent enquiry was conducted by the Assessing Officer despite the relevant details filed by the assessee. We are not convinced with the view canvassed by the ld. CIT(A) for the reason that he has himself recorded on page 16 of the impugned order that: ‘However, certain other documents are also enclosed which form part of the departmental records or public documents.’ We are unable to find any logic in the impugned order deleting the addition on the ground that no independent enquiry was conducted by the Assessing Officer,

We have noticed above that the assessee was showing to have received share capital with a huge share premium and simultaneously passing it on to other unlisted companies. This practice is not confined only to the year under consideration, but can be seen in all the years argued before us starting from the A.Y. 2004-05. The ld. CIT(A) was swayed by certain documents filed by the assessee and deleted the addition. At the cost of repetition, we state that escape from section 68 can be made not only by showing the identity but also by simultaneously proving the capacity of the depositor and also the genuineness of transaction. All the three ingredients need to be simultaneously satisfied. Merely because a proper paper work has been done, it will not discharge the onus on the assessee under section 68 from further establishing the ITA Nos.3429, 4709, 3424,3423, 2684, 4437, 4500&3980/Del/2013 & 999/Del/2014 genuineness of transaction. In this regard, the ld. DR has rightly relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Youth Construction Pvt. Ltd. (2013) 357 ITR 197 (Del), in which it has been held that the sole fact that share applicants had established their identity by filing confirmation letters and copies of their income-tax returns is not sufficient for the purpose of discharging credit worthiness of share applicants and genuineness of transactions. Similar view has been taken by the Hon'ble jurisdictional High Court in CIT vs. Ultra Modern Exports Pvt. Ltd. (2013) 40 taxmann.com 458 (Del). In this case also, the Assessing Officer noticed that the assessee received share application money from nine applicants. Upon enquiry, five out of nine notices issued to share applicants u/s 133 (6) were returned unserved. Further material indicated that applicants had very meager income.

The ld. AR contended that all the necessary material was before the AO and if he failed to conduct proper inquiry, then no fault can be found with the ld. CIT(A) in deleting the addition. For this proposition, he relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Gangeshwari Metal (2014) 361 ITR 10 (Del). In our considered opinion, this judgment does not fully support the factual position obtaining in the instant case. We have noticed above that the assessee did not furnish complete information before the Assessing Officer. The ld. CIT(A) has categorically recorded this fact on page 16 of the impugned order. When complete information was not admittedly submitted before the Assessing Officer, how he could have proceeded to examine the genuineness of the depositors, is anybody’s guess. In our considered opinion, the impugned order deleting the addition cannot be affirmed.

In the result, the appeal is allowed for statistical purposes.