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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI B.P. JAIN
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’ NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER Assessment year 2007-08 ITO, Vs. Oriental International Ward-13(4), Room No.219, Coy Pvt. Ltd., C.R. Building, CIT(A)-8/1A, Vasant New Delhi. Vihar, New Delhi PAN: AAACO 1309F (Appellant) (Respondent) Revenue by : Shri Rajesh Kumar, Sr.D.R, Assessee(s) by : Shri R.S. Singhvi, C.A. and Shri Satyajeet Goel, C.A. सुनवाई क� तार�ख/Date of Hearing : 13/04/2017 घोषणा क� तार�ख /Date of Pronouncement: 28/04/2017 ORDER PER B.P. JAIN, ACCOUNTANT MEMBER
The present appeal arises from the order dated 02.08.2010 passed by CIT(A). The assessee is a company which had filed return for year 2007- 08 declaring a loss of Rs. 2,58,075/-. The case of the assessee company was selected for scrutiny assessment and vide order dated 31.12.2009, an assessment under section 143(3) of the Act was framed. The income of the assessee was assessed at Rs. 4,95,14,420/- after making addition under section 68 of the Act with respect to share capital received from five companies amounting to Rs. 5 crores.
Aggrieved by the order dated 31.12.2009, the assessee preferred appeal before the CIT(A) and vide impugned order dated 02.08.2010, the appeal of the assessee was partly allowed. The additions w.r.t. se:tion 68 of the Act were deleted by the CIT(A). 3. The revenue is in appeal before us and has raised the following grounds of appeal:- “1. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of RS.5,00,00,000/- made u/s. 68 of the Act, 1961.
2. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that the judgment of the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. 216 CTR 199 (SC) is distinguishable from the instant case.
3. That on the facts and circumstances of the case and in law the Ld. CIT(A) failed to appreciate the facts that the assessee company failed to prove physical identity and existence of the said four parties from whom alleged share application money of Rs.3.70 crores shown to have been received which was not the case cited supra.
4. That on the facts and circumstances of the case and in law the Ld. CIT(A) has failed to appreciate the fact given in writing with documentary evidence by Shri Suresh Chand Garg, legal director of M/s Creative Financial Services, from whom share application money of Rs.1.30 crores was shown received, that Mis Creative Financial Services P. Ltd. have not made any investment in the share capital of M/s Oriental International Company P. Ltd. during the assessment year 2007 -08 or even ever.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the facts given in writing with documentary evidence by Shri Suresh Chand Garg, legal director of M/s Creative Financial Services that the said company has maintained Bank account with Canara Bank, Asaf Ali Road, Delhi since F.Y. 2001-02 and has not opened any Bank account with Canara Bank, Punjabi Bagh, New Delhi and Oriental Bank of Commerce, Pahar Ganj, New Delhi from which the assessee company shown to have received the said amount of Rs.1.30 crores by way of Bank draft/Pay orders.
6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the facts given in writing with documentary evidence by Shri Suresh Chand Garg, director of M/s Creative Financial Services that the documents given by the assessee company in regard to M/s Creative Financial Services have been created by some unauthorised persons fraudulently with ill motive. The learned CIT(A) also failed to appreciate the facts given by Shri Suresh Chand Garg that similar type of illegal and fraudulent transactions have been made in the name of Creative Financial Services for which M/s Creative Financial Services immediately given public notice in the English News paper in The Economic Times dated 27.12.2007 and also filed FIR in Police Station, Mangolpuri on 5.5.2008.
7. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in stating that Shri Suresh Chand Garg, Director of MIs Creative Financial Services P. Ltd. was not cross-examined because ample opportunities were provided to the assessee company to cross-examine Shri Suresh Chand Garg in the presence of Director of the assessee company but the Director of the assessee companv never attended.”
4. The assessment record would reveal that the assessee is a private limited company engaged in the business of development of real estate. During the year under consideration, the assessee company received share application money amounting to Rs. 5,58,60,000/- from 8 share subscribers. The addition made by the AD was Rs. 5 crores in respect of share application money pertaining to five parties as per details below:- M/s Creative Financial Services Pvt. Ltd. Rs. 1,30,00,000/- M/s Rahul Finlease Pvt. Ltd. Rs. 80,00,000/- M/s Shri Niwas Leasing & Finance Ltd. Rs. 1,40,00,000/- M/s Meghdhoot Express Pvt. Ltd. Rs. 1,00,00,000/- M/s. Niti Housing Development & Rs. 50,00,000/- Finance Pvt. Ltd. The assessee has furnished with respect to the aforesaid share subscribers the share application form, confirmation, board resolution, PAN Card, allotment letter, financial statements, bank statements, affidavit of Director etc.
5. The AO had issued notices under section 133(6) of the Act to the aforesaid companies and the assessee was asked to produce the Directors of the share subscribers from whom either no reply has been received or notices have been received back. The assessee company failed to produce the Directors of the four share subscriber companies i.e. M/s Rahul Finlease Pvt. Ltd., Shri Niwas Leasing and Finance Ltd., Meghdut Express Pvt. Ltd. and M/s Niti Housing Development and Finance Pvt. Ltd. The AO relied upon the statements given by Shri Mahesh Garg, Rekha Garg and Vinod Garg before the ADIT stating that these companies were involved in providing accommodation entries. On the said basis, the share capital amounting to Rs. 3.70 crores received from the aforesaid four companies was treated as unexplained cash credits under section 68 of the Act. 6. With respect to one of the share subscribers, M/s Creative Financial Services Private Limited, the AO received reply from the Director Shri Suresh Chand Garg who categorically denied to have made any transactions with the assessee company in A.Y. 2007-08. The assessee rebutted the said denial by Shri Suresh Chand Garg. The AO was not impressed by the explanation given by the assessee and made the addition of Rs. 1.30 crores in the hands of the assessee. 7. The CIT(A) observed that the evidence given by the assessee with respect to M/s. Creative Financial Services Pvt. Ltd. has not been rebutted by the AO. He further observed that as regards the other four share subscriber companies, the AO has not provided the opportunity of cross examination to the assessee. The addition was therefore, deleted by the CIT{A). 8. The Ld. DR while relying upon the order passed by the AO submits that the addition made in the assessment proceedings should be upheld. The Ld. DR relied upon the judgments passed by the Delhi High Court in the case of CIT Vs. Nova Promoters & Finlease (P) Ltd. 342 ITR 169, CIT Vs. Nipun Builders & Developers Pvt. Ltd., of 2012, CIT Vs. N. R. Portfolio (P.) Ltd., 263 CTR 456 to support the submissions.
The Ld. AR on the other hand submits that the order passed by the AO is an outcome of suspicion and the reliance placed upon material collected behind the back of the assessee without affording opportunity of cross examination cannot be used against the assessee.
We have heard the rival submissions and perused the judgments relied upon by the both the parties. In the case of MIs Creative Financial Services Pvt. Ltd., the assessee has submitted before the AO that Sh. Suresh Chand Garg, who has denied on behalf of the company to have made any transaction with the assessee company was not a director of the share subscriber company when the share capital was subscribed. The assessee has given particulars of .all the directors of the aforesaid company since its incorporation vide letter dated 30.12.2009. The master details available from the ROC also clarifies that the said Sh. Suresh Chand Garg was neither the promoter nor the original director. The share application money was invested on the basis of the resolution of Board of Directors of the aforesaid company. In the said resolution, Sh. Deepak Changia was authorized to execute documents for the purpose of subscription to share capital. It is relevant to note that Sh. Deepak Changia was the Director of the company from the year 2003 and thereafter. The said facts have not been rebutted by the AD. Moreover, the authorized representative of the assessee was denied the opportunity to cross examine Sh. Suresh Chand Garg. The reliance placed by the AO on the statement of Sh. Suresh Chand Garg in the absence of cross examination is incorrect. The law with respect to cross examination is well settled in view of the judgment passed by the Hon'ble Delhi High Court in the case of CIT Vs. SMC Brokers Ltd. 288 ITR 245. The said statement cannot be used against the assessee company.
The assessee in the present case, has discharged its onus by producing all the documents showing the genuineness, creditworthiness and identity of the share subscriber. The AD has not produced anything on record to show how the share application money was tainted money of the assessee company which was routed through the share subscriber company. The Hon'ble Delhi High Court in the case of CIT Vs. Divine Leasing And finance Ltd., 299 ITR 268, observed that if the AO fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicion and treat the subscribed capital as undisclosed income of the company. It is to be further noted that mere denial by Sh. Suresh Chand Garg would not ipso facto lead to the conclusion that the transaction was hit by Section 68 of the Act. We therefore uphold the deletion of addition with respect to the share subscribers M/s Creative Financial Services Pvt. Ltd.
With respect to the other four companies, the AD has solely relied upon the statements recorded of Sh. Mahesh Garg, Ms. Rekha Garg, and Sh. Vinod Garg to the ADIT New Delhi. Though the statements were taken in 2003, they were sought to be relied by the department in A.Y. 2007-08. The assessee, despite requests was not given by the opportunity to cross examine the aforesaid three persons whose statement were relied upon by the department. Moreover, the assessee has furnished the copies of share application forms, PAN, bank details, confirmation, annual returns of the share subscriber companies. In view of the fact, that the assessee has produced all the requisite documents to prove the authenticity of the share application money and also the fact that the assessee was denied the opportunity to cross examine the aforesaid three persons on the basis of whose statements the additions were made in the hands of the assessee, we uphold the order of CIT(A) in deleting the said addition. The judgments relied upon by the Ld. DR were in different facts and circumstances. In the present case, there has been a specific denial by the AD to permit the assessee company to cross examine the witnesses used against it.
13.In view thereof, the grounds raised by the department are dismissed.
Thus appeal of the Revenue in is dismissed.
Order pronounced in the open court on this day 28th April, 2017