ACIT, NEW DELHI vs. M/S. PLASTOGRAPH INDIA PVT. LTD., NEW DELHI

Date of Hearing 09.06.2016 Date of Pronouncement 27.07.2016 ORDER PER DIVA SINGH, JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 30.04.2012 of CIT(A)-XXXI, New Delhi pertaining to 2005 – 06 assessment year on the following grounds:-

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012

2. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs.50,00,000/- made by the Assessing officer u/s 68 of I.T.Act, 1961 on account of unexplained share capital without appreciating the fact that the assessee failed to prove the genuineness of transaction as well as the identity and creditworthiness of the person who contributed the share capital. 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.”

1.1. The assessee has also filed C.O. on the following grounds:-

1. “The additions in the impugned assessment order passed u/s 153 are bad in law and on facts because a) the additions were not based on any books of account or other material not produced in the course of original assessment but which could alleged to have been found in the course of search or an undisclosed income or property discovered therein b) as the assessment proceedings were not abated but were already completed. Thus all the additions so made in the assessment order should be deleted following the Special Bench decision dated 6/7/12 in the case of All Cargo Global Logistics Ltd. in appeals no. ITA/5018- 5022/M/10.

either before or at the time of hearing.”

2. The relevant facts of the case are that a search and seizure operation under section 132 of the income tax act was carried out in Raj Darbar group of cases on 31.07.2008 wherein certain documents belonging to the assessee company were also seized from the residence of Sh. Rajendra Aggarwal, Director of the assessee’s company. Accordingly proceedings under section 153C of the Income Tax Act was initiated in the case of the assessee by issuing a notice under section 153C dated 21.07.2010. In response thereto the assessee filed its return on 11.08.2010 declaring an income of Rs.10,19,010/-.

In the scrutiny assessment, it was noticed that the assessee had allotted

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 10,000 shares of Rs.100/- each to the following companies at a premium of Rs.400 per share:-

Sl.No. Name of the Party No. of Shares Amount Received in (Rs.) 1. M/s GEEFCEE 5000 25,00,000 Finance Limited 2. M/s Hunt 1000 5,00,000/- Commercial P.Ltd. 3. M/s Reliance 3000 15,00,000/- Polycreate P.Ltd. 4. M/s Viv Sun 1000 5,00,000/- Properties 2.1. The assessee was required to prove the genuineness of the transactions by filing evidences in respect of share application money received during the year. In response thereto the assessee filed Shared Allotment Form as filed before the RoC. No other document such as confirmations, copies of share application form, Income Tax Return acknowledgement, bank account copies etc. were filed. In view of the fact that during the search operation at the residence 23/5, Shakti Nagar. Delhi, of Sh. Rajendra Aggrawal, Director of the assessee company, documents relating to buy back of shares of M/s Kiwi Food India Pvt. Limited and M/s Rite Pac India Pvt. Limited. were found and seized as Ann. A-l to A-5 wherein the documents for the transfer and buy back of shares of these companies were lying blank. These were confronted during the post search proceedings to Sh. Rajendra Aggrawal. In response thereto Sh.

Rajendra Agarwal as per record vide letter dated 12.9.2008, addressed to the Dy. Director of Income Tax (Inv), Unit-II(l), New Delhi stated that he bought back Shares back from these companies by paying cash amount over and above the value recorded in his books of accounts leading to the surrender of I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 Rs.45,00,000/- as his personal undisclosed income for the A.Y. 2009-10. The AO concluded that these facts clearly showed that the group is involved in introducing unaccounted income in the garb of Share Capital in their companies.

2.2. Accordingly, relying upon Sreelekha Banerjee vs CIT 49 ITR 112 (SC); M/s Sophia Finance Ltd. 205 ITR 98 (Delhi); Kamal Kishore vs CIT [2003] 131 Taxman 155 (Raj.); CIT vs Divine Leasing & Finace Ltd. [2007] 158 Taxman 440 (Del.); C.Kant & Co. v CIT [1980] 126 ITR 63 (Cal.); and CIT vs Precision Finance Pvt.Ltd. 208 ITR 465 (Cal.) addition of Rs.50 lakh was made holding that the assessee has failed to discharge the onus as caste upon it by section 68 of the Act as it had failed despite opportunity to file any supporting document.

The argument was also raised that the capital and own funds available to these Page 4 of 11

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 investors/companies were much more than the investments made by each of them thus their creditworthiness stood proved. Further, the amounts having been received through banking channels, it was submitted proved the genuineness of the transactions. Moreover since all of these were incorporated bodies or individuals, their identity was also stated to be proved beyond doubt.

Apart from these facts it was submitted nothing more was available with the assessee as at the time of receiving share application money or allotment no other information is required to be given by a shareholder either under the provisions of the Income Tax Act nor under the provisions of the Companies Act, 1956. It was argued that company is under no obligation to ask a shareholder as to where from he has got the money to invest nor is the shareholder obliged to give such information to the company. The shareholders having been duly identified it was argued could not be regarded as fictitious persons. Accordingly, no adverse action can be taken by the government against them. Reliance was also placed on latest information/documents made available vide letter dated 29.12.2011 consisting of information downloaded from the portal of Ministry of Corporate Affairs.

Considering these facts and arguments, the CIT(A) deleted the addition holding as under:- 6. Determination: The first and second grounds of the appeal are about the addition of share capital investment made u/s 68 of the Act and are disposed off together. The appellant has filed information as mentioned herein to support its claim of the share capital investment as required u/s 68 of the Act. The amounts were received by the appellant undisputedly through the Page 5 of 11

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 account payee cheques. It is also not the case of, the assessing officer that the search in the year 2008 after the above investment in share capital at the premises of the appellant yielded any evidence to show that the appellant gave any cash or allowed any other benefit to the said investors or anybody else against the said investments. Nothing is apparent from assessment order that any adverse material exists in the assessment folder for the relevant period. It is not the case where any person claimed before the revenue that the impugned share capital is nothing but bogus introduction by way of accommodation entries. In the impugned appeal the issue is squarely covered by the earlier judgments in the case of Lovely Exports Pvt. Ltd., Divine Leasing and Finance Ltd. (supra) etc cited in the above preceding paragraphs as none of the reasons to give ruling in favour of the department by the Court exi here. Further on perusal of the information down loaded from the official website of the Ministry of Corporate Affairs, Government of India, which is in public domain, it is noticed about the investor companies that their regular informations i.e. P&L A/c and balance sheets are available on the portal of the MCA and the same shows not only their creditworthiness to make investment in the equity capital of the appellant company at the relevant time but also reflects that they are regular in their business activities on year to' year basis and there has been increase in their own funds ever since they made investment in the appellant company. All these companies have made substantial investments in the equity share capital of the listed as well unlisted scrips and some of them are blue chip companies. It is not the case where the equity was invested in the appellant company only by the investor companies but those have been made in several other companies as a part of their regular investment business. The own available funds of these investors companies were sufficiently large and much more than the investments made by them in the appellant company. There is no findings on record from the assessing officer that these investors are not regular in filing their income tax returns despite that the income tax assessment particulars of these investors were on his record. Therefore, their existence are established. Besides, they had enough resources to make the impugned investments in the relevant period. The genuineness of the transaction has also not been found contrary to the audited books of account by the assessing officer. In absence of any material contrary to the information on record, the action of the assessing officer based on surmises and conjecture while making addition u/s 68 of the Act in respect of share capital received cannot be sustained. Thus the addition of Rs. 50,00,000/- is deleted. The appeal is allowed.”

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012

Particulars Date Original Return filed u/s 139 28/10/05 Time limit prescribed for service of notice u/s 143(2) 31/10/06 12 months from the end of the month in which return was filed Time limit prescribed u/s 153 for completion of assessment 31/12/07 21 months from the end of the assessment year concerned Date of Search 31/07/08 Date of recording of satisfaction u/s 153C 21/07/10

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 6.1. Accordingly it was his prayer that the assessment for the AY 2005-06 was not abated [and deemed to be completed u/s 143(1)] as on the date of recording satisfaction.

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 through the Inspector or for calling for the concerned AOs or corroborate the copies of Bank Accounts with the Bankers etc. of these parties. Further, the fresh evidence presumably taken into consideration from the public domain and relied upon has not discussed the specifics of the evidences and the facts leading to general observations that there were sufficient funds available with the parties have not been brought out in the order. The correctness of these conclusions in the absence of discussion on facts is not possible. We further find that the facile argument advanced on behalf of the assessee that the law requires only a company to satisfy itself at the time of share allotment with only limited information is not of much help as the assessee company is not a public listed company whose activity, business capability, achievements and potential etc. related information is easily available in the public domain. The assessee is a private limited company whose functioning capability strengths etc. would be known only to its close knit circle of friends and Directors and promoters who would be privy to this information. The Private Ltd. Company and such known concerns known to the said company would operate on internal information available to them and it is generally not easily available in the public domain. Thus necessarily the shareholders are limited to persons or concerns managed by the close knit circle of family and friends of the assessee.

Accordingly the benefit of arm’s length distance between a shareholder of a Public Ltd. Company with the company cannot be claimed by a shareholder in a Private Ltd. Company as the shareholders necessarily would be companies/entities managed and controlled by friends, relatives, business Page 9 of 11

I.T.A .No.-3556/Del/2012 & C.O.No.301/Del/2012 partners etc. of the Private Ltd. Company The fact that bogus transactions have been accepted by Director, Sh. Rajendra Agarwal in 2009-10 AY and a surrender has been made of Rs.45 lakhs is sufficient evidence for the Revenue to conclude that such behavior for Director was a norm and not an aberration.

Accordingly the company having been given an opportunity to prove that the transactions were genuine the onus in the peculiar facts and circumstances cannot be said to be discharged by placing insufficient evidences. The evidences now on record stated to be filed all along a position disputed by the Revenue and negated by the AO needs to be reconciled and the evidences relied upon need to be addressed. We note that the finding of fact that relevant documents were not filed before the AO has not been assailed by the assessee by way of any affidavit before the CIT(A) or before us that facts are incorrectly recorded. The impugned order in view of these obvious shortcomings is set aside and the matter is restored to the AO for fresh determination. The AO accordingly is directed to pass a speaking order in accordance with law on the jurisdictional aspect first and thereafter if need be on merits after giving the assessee a reasonable opportunity of being heard.

The order is pronounced in the open court on 27th of July 2016.