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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI J.S. REDDY
Date of Hearing : 12-05-2016 Date of Order : 20-06-2016
ORDER PER H.S. SIDHU, J.M.
These appeals have been filed by the Department against the separate orders of the Ld. CIT(A)-VII, New Delhi dated 27.11.2009 in quantum proceedings and order dated 15.12.2009 in penalty proceedings, pertaining to same assessment year i.e. 2002-03. Since the issue are inter-connected, hence, these appeals were heard together and are being disposed of by this common order for the sake of convenience.
The Revenue has raised the following grounds in its appeal No. 306/Del/2010:-
1. The order of the Ld. CIT(A) is erroneous and contrary to fact and law.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 70,00,000/- made u/s. 68 of the I.T. Act, 1961 being the unexplained / bogus cash credit and Rs. 70,000/- being the unaccounted cash paid for obtaining the accommodation entries.
2.1 The ld. CIT(A) has ignored the fact that the assessee did not discharge the onus of proving the creditworthiness of creditors and genuineness of the transaction.
3. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing.
The Revenue has raised the following grounds in its appeal No. 647/Del/2010:-
The order of the Ld. CIT(A) is erroneous and contrary to fact and law.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty of Rs. 25,23,990/- levied by the AO u/s. 271(1)(c) of the I.T. Act.
2.1 The ld. CIT(A) has ignored that the assessee concealed particulars of its income by claiming bogus expenses on various heads.
3. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing.
The brief facts of the case are that the return of income was filed on 31.10.2002 declaring income of Rs. 7,271/-. The same was processed u/s. 143(1) of the I.T. Act, 1961 on 13.2.2003 at the returned income resulting into a refund of Rs. 13,225/-, which was issued to the assessee.
Subsequently, on the basis of information received from DIT(Inv,) regarding beneficiaries and operations of accommodation entries in Delhi the AO after recording the reasons issued notice dated 5.3.2007 u/s. 148 of the I.T. Act to reopen the case. As the notice was received back, the same was got served through the Inspector and Notice Server of the Department by affixture. Later on vide notice u/s. 142(1) of the I.T. Act dated 12.11.2007, the assessee was directed to furnish the confirmations, bank statements of concerned parties and their income tax returns alongwith all annexures. Simultaneously, the service of this notice was also made through Notice Server and Inspector by affixture at the last known address, which was done as per their reported dated 13.11.2007.
Since the case was time barring one, the AO left with no other alternative but to finalise the re-assessment proceedings u/s. 144 of the I.T. Act. Accordingly, on perusal of the balance sheet as on 31.3.2002 AO observed that the assessee has enhanced its authorized share capital from Rs. 50 lacs to Rs. 2.25 crores. The assessee has also enhanced its issue, subscribed and paid up capital from Rs. 24,90,000/- to Rs. 2,04,90,000/-. AO further observed that since the confirmations, bank statements of concerned parties and their Income Tax Returns alongwith all annexures in respect of the credit entries appearing in the assessee’s bank account could not be furnished, therefore, the assessee failed to discharge its onus of proving the identity and creditworthiness of the concerned parties and also genuineness of the transactions in terms of provision of section 68 of the I.T. Act, 1961, hence, the unexplained amount of Rs. 70 lacs was treated as income of the assessee u/s. 68 of the Act and the same was added to its total income and Rs. 70,000/- was also added back to the total income of the assessee as commission paid to the entry operators being 1% of the undisclosed income and AO completed the assessment at an income of Rs. 70,77,290/- u/s. 144/147 of the I.T. Act, 1961 vide order dated 29.11.2007.
5. Against the aforesaid assessment order, the assessee appealed before the Ld. CIT(A), who vide impugned order dated 27.11.2009 has partly allowed the appeal of the assessee and deleted the additions in dispute.
6. Aggrieved with the impugned order, the Revenue is in appeal before the Tribunal.
7. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.
8. On the contrary, Ld. Authorised Representative of the assessee has relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is a well reasoned order and therefore, the same may be upheld and Revenue’s appeal may be dismissed accordingly.
We have heard both the parties and perused the relevant records, especially the orders of the authorities below. We find that Ld. First Appellate Authority has elaborately discussed the issues in dispute raised in ground no. 2 by considering the submissions of the Ld. Counsel of the assessee and adjudicated the same vide para no. 5 to 5.6 at pages 9 to 14 of his impugned order. For the sake of convenience, we are reproducing the relevant portion of the impugned order i.e. para no. 5 to 5.6 as under:-
“5. During the appellate proceedings, the copies of the following documents evidencing the identity and creditworthiness of the shareholders/ share applicants, were furnished on behalf of the appellant:- i) Share application forms received from the shareholders containing the complete details of applicants which includes Name of the applicants, Address, PAN, assessment particulars, No. of shares applied, mode of payments of share application, details of Bank of share holders, Branch, Cheque No., dated and occupation of applicants; ii) Copies of minutes of Resolution of the share applicant companies authorizing to make investment; iii) Affidavits from shareholders containmg the complete details number, Date, Bank particulars, PAN and Income-Tax particulars; iv) Confirmation from shareholders containing the complete details of amount invested, Cheque number, Date, Bank particulars, PAN and Income-Tax particulars; v) Copy of balance sheet, Profit & loss account for the year under consideration; vi) Copies of their Bank Statements showing source of payments made by these companies to the assessee company, their master data with ROC and vii) Copy of Share Register of the assessee company showing issue of shares to these companies.
5.1 The copies of the above-mentioned evidences were sent to the AO. i.e. ITO, Ward-4(3),New Delhi in order to give opportunity to him in terms of Rule-46A(3) of the LT. Rules, 1962 to examine the aforementioned evidences and to cross- examine the witness etc. Needless to mention here the considering the facts that no evidences were filed before the AO., the evidences filed during the - appellate proceedings were treated as additional evidences. In its response a report was submitted by the A.O. on 30-10-2009 wherein objections have raised against the admission of the additional evidences as sufficient opportunities have been given by the AO which has not been availed by the assessee.
5.2 At this juncture, reference may be made to Rule-46 which provides that the assessee shall not be entitled to produce before the first appellate authority any evidence other than that produced during the course of proceedings before the AO., except in the circumstances mentioned in clause (a) to (d). These clauses deal with the situations where the AO. had refused to admit evidences or where the assessee was prevented by sufficient cause from producing such evidences or the A.O. had not allowed sufficient opportunity to the assessee. In the instant case, the circumstances mentioned in clauses (b) to (d) do exist. The AO. was also given opportunity in terms of Rule-46A (3) to examine the aforementioned evidences but he has not made any comments on the merits of these additional evidences. Under the circumstances stated above, it can be safely presumed that the Assessing Officer has no objection against the additional evidences on merits. It is also significant to note that the assessment has been completed under section 144 of the Act. Considering the totality of facts and circumstances of the case, it was found that the additional evidences were very vital & relevant and therefore they were considered by the undersigned necessary for disposal of the issue (relating to the share application money/share capital) involved in the present appeal. Hence, the aforementioned additional evidences are admitted.
5.3 I have gone through the assessment order, the written and oral submission(s) of the Appellant and the remand report of the AO. Regarding the share application money/share capital/share premium , it is now well settled that where the assessee had furnished (i) the names and addresses of the share applicants (ii) the GIR Nos./P.A.N.
Nos. (iii) the Ward Nos. where assessed (iv) the mode of payment and (v) other information which the assessee knows or possesses, then it can be said that initial burden on the assessee can be said to be discharged. Once the identity of the shareholders was established it also stands established that the shareholders have invested money in the purchase of shares and hence the onus, on the part of the assessee company, is discharged and there cannot be any addition in the hands of the assessee company on account of share application money or share capital. Reliance is placed on the following decisions of the Apex Court and the jurisdictional High Court of Delhi:- i) CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195; ii) CIT vs. Divine Leasing & Finance Ltd. (2007) 299 ITR 268 (Del.). Hon'ble Delhi High Court in para 13 & 16 has held as under:-
"13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would no! be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hill by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.
16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/sub-scriber: (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 fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value andconstrue it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. " iii) CIT vs. Value Capital Services Ltd. (2008) 307 ITR 334 (Del.)- Hon'ble Delhi High Court has held as under:-
"5. While setting aside the order of the Commissioner of Income-tax (Appeals), the Tribunal relied upon two decisions of this court, namely, CIT v. Stellar Investment Ltd. (199I)
192 ITR 287 and a Full Bench decision in CIT v. Sophia Finance Ltd. [J99-1} 205 ITR 98. Several other decisions have been rendered by this court following the above two decisions.
The principle that has been laid down by the various decisions rendered by this court from time to time is that if the existence of the applicant is proved, normally no further inquiry is necessary.
6. Learned counsel for the Revenue submits that the creditworthiness of the applicants can nevertheless be examined by the Assessing Officer. It is quite obvious that is very difficult for the assessee to show the credit-worthiness of strangers. If the Revenue has any doubt with regard to their ability to make the investment, their returns may be reopened by the Department.
In any case, what is clinching is the additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. This has not been done in so far as the present case is concerned and that has been noted by the Tribunal also.
Under the circumstances. we are of the view that the Tribunal has not committed any error in deleting the addition:
9. No substantial question of law arises". iv) CIT vs. TDI Marketing Pvt. Ltd, (2009) 26 DTR (Del.)
358; and v) Bhav Shakti Steel Mines (P) Ltd. vs. CrT (2009) 179 Taxman 25, wherein the Hon’ble Delhi High Court has observed as under:-
"In any event we also note that the Supreme Court in the case of CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 considered the question as to whether the share application money can be regarded as undisclosed income under section 68 of the Income-tax Act, 1961. The Supreme Court dismissing the SLP observed that if the share money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, then the Department is free to proceed to assess them individually, in accordance with law. The Supreme Court did not find any infirmity with the impugned judgment of the High Court which was a common order along with the decision in CIT v. Divine Leasing & Finance Ltd. [2008} 299 ITR 268 (Delhi). Since the Commissioner of Income-tax (A) has not only found that the identity of each of the shareholders stood established, but has also examined the fact that each of them were income-tax assessees and had disclosed the share application money in their accounts which were duly reflected in their Income-tax return as well as in their balance sheets.
In these circumstances we see merit in what the learned counsel for the appellant has submitted and we feel that the Tribunal was unjustified in coming to the conclusion that the CIT(A) had not considered the matter in the right perspective.
Consequently, we decide the question in favour of the assessee and set aside the order passed by the Tribunal.
5.4 In the present case the assessee can be said to have discharged its onus under section 68 of The appellant has given all the necessary details in order to establish the identity of the share applicants. After considering the entire material placed on record, it is fair to conclude that the share applicants were existing parties and the payments were made through banking channels. It is also observed that the Assessing Officer could not point out any discrepancy in the evidences relied upon by the assessee. He has neither brought out any direct or inferential evidence to contradict the contention of the assessee. It is further observed that even though AO. has vast powers u/s 131 and 133(6) of the Act, he has not used any of his powers to verify the genuineness of the claim of the assessee by verifying the documents furnished by it. If AO had doubted the impugned transaction after receiving the evidences (in the remand proceedings in terms of Rule 46A(3) of the Income-tax Rules, 1962) which had been produced by the assessee in support of its claim it was very much open to the AO to do his independent enquiry and verification. This has not been done by the A.O. Though, the share-applicants could not be examined by the AO, since they were existing on the file of the Income Tax Department and their income-tax details were made available to the AO, it was equally the duty of the AO to have taken steps to verify their assessment records and if necessary to also have them examined by the respective AOs having jurisdiction over them (share-applicants), which has not been done by him.
5.5 The A.O. has also given a finding that all the share- applicants were entry operators as per e information available on the basis of the investigation conducted by the Investigation the Income-tax department. As contended on behalf of the appellant, the Ld. Assessing Officer did not provide any such information to the assessee to rebut the adverse material ,if any and he did not afford any opportunity of cross examination of all the adverse material on the basis of which impugned addition has been made in the assessment order. It is settled proposition of law that the information gathered behind the back of the assessee cannot be used against him unless until an opportunity of rebutting the same is given to the assessee. It is against the principle of natural justice. Reliance is placed on the decision of Hon'ble Supreme Court in case of Prakash Chand Nahta v. Union of India [2001] 247 ITR 274 in support of the proposition that cross- examination of the witness is must, before the A.O. relies on the statement of the witness for making addition. Reliance is also placed on the decision of Allahabad High Court in the case of Nathu Ram Premchand v. CIT [1963] 49 ITR 561, wherein the Hon'ble Court explained that it was the duty of the Assessing Officer to enforce the attendance of a witness, if his witness is material in exercise of his powers under order 16, r. 10 of CPC and where the officer does not do so, no inference can be drawn against the assessee. Reliance is also placed on the decision of the jurisdictional High Court i.e. Delhi High Court in Commissioner of Income-tax Vs. Pradeep Kumar Gupta and Vijay Gupta(2008) 303 ITR 95(Delhi) wherein it was held that reopening of assessment is not permissible on mere adverse statements from others. Such statement by itself does not constitute information, unless the Assessing Officer has made enquiries thereon and inferred understatement of income. I am therefore inclined to agree with the submissions made on behalf of the appellant to the effect that the information, if ,any, gathered behind the back of the assessee without being subjected to cross-examination cannot be fully admitted as evidence against the assessee.
5.6 Under the facts and circumstances of the case stated above, it is held that the addition of Rs.70,00,OO0/- cannot be sustained and accordingly. the same is directed to be deleted. The consequential addition on account of commission of Rs.70,000/- for obtaining the said accommodation entries is also directed to be deleted. As a result, grounds no. 5,6, 7, 8 and 9 are allowed.”
9.1 We have heard both the parties and perused the records available with us, especially the impugned order passed by the Ld. First Appellate Authority as reproduced above. After going through the same, we are of the considered view that the assessee has filed the Application under Rule 46A(3) of the Income Tax Rules, 1962 before the Ld. First Appellate Authority in which the assessee has attached the following documents :- i) Share application forms received from the shareholders containing the complete details of applicants which includes Name of the applicants, Address, PAN, assessment particulars, No. of shares applied, mode of payments of share application, details of Bank of share holders, Branch, Cheque No., dated and occupation of applicants; ii) Copies of minutes of Resolution of the share applicant companies authorizing to make investment; iii) Affidavits from shareholders containmg the complete details number, Date, Bank particulars, PAN and Income-Tax particulars; iv) Confirmation from shareholders containing the complete details of amount invested, Cheque number, Date, Bank particulars, PAN and Income-Tax particulars; v) Copy of balance sheet, Profit & loss account for the year under consideration; vi) Copies of their Bank Statements showing source of payments made by these companies to the assessee company, their master data with ROC and vii) Copy of Share Register of the assessee company showing issue of shares to these companies.
After receiving the aforesaid documentary evidences filed by the assessee, the Ld. First Appellate Authority has given an opportunity to the AO to verify the same, but the AO has not availed the opportunity granted by the Ld. CIT(A) to him. After going through all the evidences produced by the Assessee before the Ld. CIT(A), the Ld. CIT(A) has deleted the addition in dispute by holding that once the identity, creditworthiness of the share holders and genuineness of the transactions is proved by furnishing all particulars of the share applicants alongwith other documentary evidences, then the Assessee has discharged its onus and there cannot be any addition in the hands of the assessee company in the matter of share application money or share capital. The view of the Ld. CIT(A) has also been supported by the decision of the Hon’ble Supreme Court of India as well as the Hon’ble Delhi High Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 and CIT vs. Divine Leasing and Finance Ltd. (2007) 299 ITR 278 (Delhi High Court). In our view, the Ld. CIT(A) has rightly deleted the additions in dispute by passing a well reasoned and detailed order while relying upon the various decisions rendered by the Hon’ble Supreme Court of India and Hon’ble Delhi High Court. Therefore, in our considered opinion, no interference is required on our part in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same. Accordingly, the ground no. 2 raised by the Revenue stands dismissed. As a result, the appeal filed by the Revenue stands dismissed.
ITA NO. 647/DEL/2010 (AY 2002-03)
This Appeal has been filed by the Revenue against the order dated 15.12.2009 passed by the Ld. CIT(A) relevant for the assessment year 2002-03 in the penalty proceedings u/s. 271(1)(c) of the I.T. Act. The facts of the present appeal are exactly similar and identical to the quantum Appeal being , as aforesaid, hence, the same are not repeated here for the sake of brevity. In this case the AO initiated penalty proceedings u/s. 271(1)(c) of the I.T. Act, notice u/s. 274 r.w.s. 271 of I.T. Act, dated 29.11.2007. However, no compliance was made to this notice. Again show cause notice dated 13.5.2008 was issued allowing the assessee an opportunity of being heard and to show cause as to why penalty u/s. 271(1)(c) should not be imposed on account of furnishing of inaccurate particulars of its income and the case was fixed for hearing on 21.5.2008. This show cause notice was also served through the Inspector and the Notice Server through affixture on 13.5.2008. However, the same was remained uncomplied with. AO observed that as the penalty proceedings are going to be barred by limitation on 31.5.2008 and nothing is heard from the assessee’s side till date, therefore, the penalty proceedings are finalized on the basis of the information available on record. Accordingly, the AO observed that it is established that the assessee has furnished inaccurate particulars of its income and has concealed the material facts relating to computation of its correct income for the year under consideration. Therefore, the AO held that the assessee was guilty of furnishing of inaccurate particulars of income in respect of addition of the unexplained amount of Rs. 70 lacs, which was treated as income of the assessee u/s. 68 of the Act and commission as Rs. 70,000/- paid for raising this amount and levied the penalty of Rs. 25,23,990/- u/s. 271(1)(c) of the I.T. Act being 100% of tax sought to be evaded vide his order dated 30.5.2008.
Against the aforesaid penalty order, the assessee appealed before the Ld. CIT(A), who vide impugned order dated 15.12.2009 who has deleted the penalty in dispute and allowed the appeal of the assessee.
Aggrieved with the impugned order, the Revenue is in appeal before the Tribunal.
Ld. DR relied upon the penalty order of the AO and reiterated the contentions raised in the grounds of appeal.
14. On the contrary, Ld. Authorised Representative of the assessee has relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is a well reasoned order and therefore, the same may be upheld and Revenue’s appeal may be dismissed accordingly.
We have heard both the parties and perused the relevant records, especially the orders of the authorities below. We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute raised in ground no. 2 by considering the submissions of the Ld. Counsel of the assessee and adjudicated the same vide para no. 3 to 5 at pages 1 to 2 of his impugned order. For the sake of convenience, we are reproducing the relevant portion of the impugned order i.e. para no. 3 to 6 as under:-
“3. It was pointed out by the AR at the time of hearing that the quantum appeal in the appellant’s case for assessment year 2002-03 has been disposed of by the undersigned in Appeal No. 40/2008-09 vide order dated 27.11.2009 wherein the addition made by the AO to the extent of (a) Rs. 70 lacs on account of unexplained Bank entries and (b) Rs. 70,000/- on account of commission or obtaining such accommodation entry. The Ld. AR placed before me a copy of aforementioned order of the undersigned in the quantum appeal. It was further submitted by the Ld. AR that in view of the findings of the undersigned in the quantum appeal, the 20 penalty under section 271(1)(c) of the Act did not survive and is liable to be deleted.
4. I have considered the submissions made on behalf of the appellant and the facts on record. I have also perused my order referred to above. It is noticed that in para 5.6 of the said order, I have held as follows:- “5.6 Under the facts and circumstances of the case stated above, it is held that the addition of Rs. 70,00,000/- cannot be sustained and accordingly, the same is directed to be deleted. The consequential addition on account of commission of Rs. 70,000/- for obtaining the said accommodation entries is also directed to be deleted. As a result, ground nos. 5, 6, 7, 8 & 9 are allowed.”
As the addition in respect of which the penalty was imposed has been deleted by the undersigned, there remains no basis to uphold the penalty of Rs. 25,23,990/- imposed in terms of section 271(1)(c). In the circumstances, the penalty as levied by the AO stands cancelled.
In the result, the appeal of the assessee is allowed granting relief of Rs. 25,23,990/- to the appellant.”
15.1 On going through the aforesaid finding of the Ld. CIT(A) on the issue in dispute, we are of the view that CIT(A) has deleted the penalty in dispute, on the ground that quantum additions in respect of which the penalty was imposed has been deleted by him. Therefore, we do not find any infirmity in the well reasoned order passed by the Ld. CIT(A) on the penalty in dispute raised vide no. 2, and uphold the finding of the ld. CIT(A) on this issue. Therefore, the ground no. 2 raised by the Revenue stands dismissed.
In the result, both the Appeals filed by the Revenue stand dismissed.
Order pronounced in the Open Court on 20/06/2016.