ACIT, NEW DELHI vs. MS. HABITAT ROYALE PROJECTS PVT. LTD., NEW DELHI

The Department has filed this appeal against the impugned Order dated 8.12.2011 of Ld. CIT(A)-III, New Delhi pertaining to assessment year 2009-10.

2. The order of the CIT(A) is erroneous and is not tenable on facts and in law.

3. The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal.

Act, was carried out on 6.11.2008 in Nimitaya group of cases/companies in which there is sub group that is Khinda group. Notice u/s. 142(1) was issued on 10.3.2010 and served upon the assessee company. Notice u/s. 143(2) and 142(1) alongwith detailed questionnaire was issued on 12.8.2010 and served upon the assessee company. In response to the notices assessee’s AR attended the proceedings and filed the submissions from time to time as called for. The assessee company was formed to carry on the business of manufacturing and development of plots in the year under consideration the assessee company had not carried on any business activity. AO observed that this group of companies is in the business of land and far house dealing and has generated huge black money and to bring the said black money in the books of account the assessee company has floated the shares at the premium of Rs. 90/- each share and the investment were arranged through Kolkata based non existing paper companies. Accordingly, AO made the addition of Rs. 1,00,00,000/- in the hands of the assessee company being the share application money received from Kolkata based non-existing companies/ entry operating companies treating it as unexplained and unaccounted income for the year under consideration within the meaning of section 68 of the I.T. Act, 1961 and assessed the income of the assessee at Rs. 1,82,00,000/- u/s. 143(3) of the I.T. Act, 1961 vide his order dated 31.12.2010.

7. On the other hand, Ld. Counsel of the Assessee relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference and the same may be upheld.

“On a careful consideration of the assessment order and the appellant's submission the undisputed fact on records that during the course of search no incriminating document was found with reference to the fact that the amount invested by the 9 shareholder investor companies in the appellant company does not belong to the respective shareholders but is the unaccounted income of the appellant company which has been ploughed back in the appellant company in the form of the share capital.

The argument of the assessee is that the entire payment of Rs. 1 Crore as share application money including premium has been received through account payee cheques. That in order to prove the genuineness of the amount received the assessee has produced several documents, as is referred below and that the AO has disregarded all these evidences filed by the assessee. Referring to the observation of the AO that by not producing the so called share applicants the assessee has failed to discharge it's primary onus cast on it U/S 68 of the Act, the appellant submits that it has discharged its initial burden of proving the identity of the share applicants by furnishing their PAN and genuineness of transaction by showing money in its books by account payee cheques. That further the creditworthiness of the subscribes has also been proved by producing the bank statements of the subscribers showing that it has sufficient bank balance in it's account to enable it to subscribe to the share applicant. The appellant has also cited some decisions of the jurisdictional High Court in support of its submission.

It is seen from the assessment order and the submissions made by the appellant that in order to substantiate the claim that the share applicants are existing and the transactions are genuine, the appellant had filed the following documents before the AO:- a. Form of Application of Equity shares b. Certificate from the company certifying the payment of money to the assessee with details of cheque and the bank wherefrom the payment has been made towards share application money duly signed by one of the directors of the company. c. Bank Statement of the company where from payment has been made. d. Copy of P AN card of the assessee. e. Copy of ITR Acknowledgement f. Copy of Audited balance Sheet & P & L NC of the company. g. Copy of Resolution of the Company. h. Copy of Memorandum & Article of Association along with Certificate' of Incorporation

Apart from the above ,vide submission dated 02.12.11, the appellant also submitted the latest status of the share applicant companies on the website of Ministry of Company Affairs as on 30.11.11 which shows that all these companies are active and their annual return have been duly filed. Further the distinctive numbers of the shares issued by the appellant to the 9 share applicant Companies have also been filed. Thus from the above details and placing reliance on the latest decisions of jurisdictional High Court in the cases of Dwarkadhish Investment P. Ltd. 330 ITR 298, CIT vs. Victor Electrodes Ltd. 329 ITR 271 & CIT Vs. Oasis Hospitality Private Limited in of2010 (Supra) and Winstrol Petrochemical Pvt. Ltd. (Supra) in which various earlier decisions of High Court and that of the S.C. has been considered, it is observed that the appellant has discharged the initial burden placed on it to prove the identity and existence of the share applicant investor company. The fact that the share application money from the applicant have been received through banking channel further goes to substantiate the identity of the share applicant and genuineness of the transaction in case of the investor. So far as the issue 5 of credit worthiness of the share subscriber company is concerned, the Hon'ble S.C. in case of Lovely Exports P. Ltd. 216 CTR 195 has held that if the share application money is received by the assessee company from alleged bogus share holders whose names are given to the AO then the department is free to proceed in their individual assessment, but it cannot be regarded as undisclosed income of the assessee company. On this issue another decision of Delhi High Court in case of CIT vs. Value Capital Services (307 ITR 334) is also quite relevant wherein the court inter alia observed that there is additional burden on the revenue in as much as even if the applicant does not have the means for the investment, it must show that the investment made by the applicant actually emanated from the coffers of the assessee, so as to enable it to be treated as undisclosed income of the assessee. Further the following observation of the jurisdictional H.C. in case of CIT vs. Divine Leasing and Finance Ltd. (207 CTR 38), which has been quoted with approval in the case of Dwarkadhish Investment (Supra) are also quite relevant viz.

“In this analysis, a distillation of the precedents yields the following propositions of law in the context of s. 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber, (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc. it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber (ails or neglects to respond to its notices,' (6) the onus would not 6 stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AD take such repudiation at face value and construe it, without more, against the assessee; (7) the AO is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. "

Thus from the details filed by the assessee and referred to above it cannot be said that the identity of the subscriber is not established. The AO has observed that the Director of the share applicant companies have not been produced in person inspite of repeated requests. That thus the assessee has not fully discharged it's onus to prove the creditworthiness of the company which do not have any source of profit and are not in any actual business.

On this matter, the observation of the jurisdictional High Court in case of Dwarkadhish Investment, (Supra) are quite relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person .Moreover, it is settled law that the assessee need not prove the "source of source". Thus in view of the fact that the assessee had filed on record the several documents to substantiate the fact of investment through share application money by the investor companies, it was now for the AO to have enforced the attendance of the Director's concerned for making further investigation in the case. This could have been done by issuance of summons under the Act. On the issue of the initial burden of proof the observation of the Jurisdictional High Court in case of Dwarkadhish Investment (Supra) made in para 8 thereto is also relevant which is as under.-

"In any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income tax 7 assessment number, and shows the genuineness of transaction by showing money in his books either by account payee Cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue the right to invoke Section 68. Moreover law that the assessee need not to prove the source of source .

In view of the above discussion it is held that the appellant's case is squarely covered by the ratio of various decision of the High Court's & Supreme Court discussed above. From the necessary evidences / details provided to the AO during the proceeding it is seen that the initial onus has been duly discharged by the appellant company. As 'discussed above, the investigation done by the AO is not sufficient / adequate to controvert the appellant's explanation and to hold that the impugned share application money is the undisclosed income of the appellant.

The AO has also raised doubts on the genuineness of the share application money on the premises that it is at abnormally high premium, even where the shares of the applicant company were not listed. On this issue it is observed that such features are triggers for further investigation but the matters ends at this point & the AO is required to investigate the issue independently and through corroborative evidences and cannot form this fact of abnormal premium the very basis for making addition U/s 68.

In view of all the above discussion taken in totality and respectfully following the ratio of decision of jurisdiction high court and the Hon'ble Supreme Court in CIT vs. Lovely Export P. Ltd. 216 CTR 195 (supra) as also the latest judgment of Dwarkadhish Investments (P) Ltd. 330 ITR 298 CIT vs. Victor Electrodes Ltd. 329 ITR 271 (Del) & CIT Vs. Oasis Hospitality Private Limited in of2010, CIT 8 vs. Winstral Petrochemicals Private Limited {20ll} 199 Taxman 135 (Del), the addition made for Rs.1 ,00,00,0001- is directed to be deleted on merits.”

"In any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income tax assessment number, and shows the genuineness of transaction by showing money in his books either by account payee Cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue the right to invoke Section 68. Moreover law that the assessee need not to prove the source of source .”

9.1 In the background of the aforesaid discussions, we are of the considered view that the Ld. CIT(A) has rightly observed that the assessee’s case is squarely covered by the ratio of various decision of the High Court's & Supreme Court because from the necessary evidences / details provided to the AO during the proceeding it is seen that the initial onus has been duly discharged by the appellant company. The AO has also raised doubts on the genuineness of the share application money on the premises that it is at abnormally high premium, even where the shares of the applicant company were not listed. On this issue it is observed that such features are triggers for further investigation but the matters ends at this point & the AO is required to investigate the issue independently and through corroborative evidences and cannot form this fact of abnormal premium the very basis for making addition U/s 68. In view of all the above discussions taken in totality and respectfully following the ratio of the Hon'ble Supreme Court in CIT vs. Lovely Export P. Ltd. 216 CTR 195 (supra) as also the Jurisdictional High Court judgment of Dwarkadhish Investments (P) Ltd. 330 ITR 298 CIT vs. Victor Electrodes Ltd. 329 ITR 271 (Del) & CIT Vs. Oasis Hospitality Private Limited in of2010, CIT vs. Winstral Petrochemicals Private Limited {20ll} 199 Taxman 135 (Del), Ld. CIT(A) has rightly directed the AO to delete the addition of Rs.1,00,00,000/- which does not need any interference on our part, hence, we uphold the order of the ld. CIT(A) on the issue in dispute and accordingly, dismiss the ground raised by the Revenue.

Order pronounced in the Open Court on 29/11/2016.