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Income Tax Appellate Tribunal, DELHI BENCH : E : NEW DELHI
Before: SHRI R.K. PANDA & SHRI SANJAY GARG
(Appellant) (Respondent) Assessee by : Shri Mayank Patwari, CA Revenue by : Ms Paramita M. Biswas, CIT, DR Date of Hearing : 28.09.2021 Date of Pronouncement : 10.12.2021 ORDER
PER R.K. PANDA, AM:
This appeal filed by the Revenue is directed against the order dated 18th March, 2016 of the CIT(A)-29, New Delhi, relating to Assessment Year 2012-13.
Facts of the case, in brief, are that the assessee is a company. The main business of the company as per Memorandum of Association is to act as builder, to construct houses/commercial centres, etc. However, during the year under consideration, the assessee has not done any business and has received only interest on FDR which has been declared under the head ‘Income from other sources.’ The original return of income was filed on 27th September, 2012 declaring the income at Rs.1,91,760/-.
A search and seizure action u/s 132 of the Act was carried out in Ocus Group of cases including the assessee on 12th February, 2013. In response to notice u/s 153A of the Act issued on 25th August, 2014, the assessee submitted the copy of the original return filed on 20th October, 2014 declaring the income at Rs.1,91,757/-. During the course of assessment proceedings, the AO noted that the share capital of the assessee company has increased from Rs.5 lakh to about Rs.11.67 crore as on 31.03.2012. Similarly, the share premium balance increased from nil as on 31.03.2011 to Rs.29.59 crores as on 31.03.2012. Thus, the assessee company during the year has received aggregate amount of Rs.41,22,16,000/- consisting of share capital of Rs.11,62,46,450/- and share premium of Rs.29,59,69,550/-. He, therefore, asked the assessee to file certain details in connection with share application money and share premium such as details of investors, relationship with them, basis of determination of share premium and issue and dispatch of share certificate, etc. The assessee was also required to substantiate the genuineness of the transaction and credit worthiness of the parties. Since there was no compliance to the first notice, the AO issued another notice for compliance. 2
The AO asked the assessee to produce the share allotment (holders) register and minutes book of AGM. He also summoned Mr. V.P. Mehta, director of the company to produce these books. Since there was no response, a survey u/s 133A was carried out at the assessee’s premises to verify as to whether these books are maintained at all or not. However, these books were not found at the assessee’s premises during the course of survey. On being confronted, it was stated by the director Mr. V.P. Mehta that the books are with Shri Gaurav Kapoor who works as company secretary. Subsequently, the Board of Directors minutes book and shareholders register were produced before the AO. From the various details filed by the assessee, the AO noted that share application money and share premium received by the assessee are as under:-
From the various details filed by the assessee, the AO observed that out of the total 13 investors, two are companies and others are individuals/HUF. He noted that while most of the applicants have applied for shares at par, however, some have paid premium. The AO noted that the premium amount is very high in case of two companies, namely, M/s Garden View Foods Pvt. Ltd., and M/s Nihantri Realtors Pvt. Ltd. In order to prove the creditworthiness of parties, the assessee filed the copy of acknowledgement of income-tax return, bank statement, copy of PAN card and confirmation of investment, etc. In respect of companies, documents like certificate of incorporation, printout from ROC, audited balance sheet, copy of bank statements, etc., were filed. It was submitted that two companies who have invested in the shares of the assessee company are being assessed in the same Circle and, as such, there is no doubt regarding their identity and genuineness of the transactions. The assessee also requested the AO to independently verify the transaction in the case of those companies and provide opportunity to the assessee to cross examine the parties. It was further submitted that the director, Shri Ashok Tyagi, of the two investor companies, Garden View and Nihantri, in his statement recorded during search has admitted the investment in shares of the assessee company.
On perusal the financial statements of both these companies submitted by the assessee, the AO noticed that both the investor companies were not carrying out any worthwhile business activities. He, therefore, asked the assessee to Director / authorized person of the above two investor companies who have invested in shares of Assessee Company at huge premium of Rs.790/- per share. The assessee did not produce the authorized persons of the two investor companies, but, stated that the investor companies are assessed in the same circle and that the director in his statement recorded during the course of search had confirmed the investment in shares of the assessee company.
6.1 From the various details furnished by the assessee, the AO noticed the following points:- a) Shares to some of the investors have been issued at huge premium of Rs.790/- per share. b) Though some individuals have also been issued shares at premium, but the number of shares (and accordingly amount of premium) in the case of two companies is very high. c) That the investors have made many (Garden View 49 & Nihantri 67) share applications on different dates and each payment is for separate share application. d) In respect of the column No 11 regarding the question that how the investor is known to you the assessee has submitted that the investor companies are ‘directly known to us’ which term has not been explained even on specific query.
No dividend has been paid to these investor companies till date as per column 23 of the chart. f) Details given by the assessee in columns 11, 14, 15, 16 were evasive without any proper input.
7. The AO after analysis of the various statements filed by the assessee from time to time came to the conclusion that the funds received by the assessee from Garden View and Nihantri are in the nature of accommodation entries. Immediately before payment to assessee, equivalent funds were received by these two companies from different entities. There is hardly any balance in the bank account prior to making investment in the assessee company. On record only such receipts were claimed to be towards share capital. Rejecting the various explanations given by the assessee and observing that the assessee failed to substantiate with evidence to his satisfaction regarding the three ingredients of provisions of section 68, i.e., identity and credit worthiness of the investors and the genuineness of the transaction, the AO made addition of Rs.29,60,00,000/- to the total income of the assessee. Thus, he determined the total income of the assessee at Rs.29,61,91,760/-.
Before the CIT(A), the assessee made elaborate submissions based on which the ld.CIT(A) called for a remand report from the AO. After considering the remand report of the AO and rejoinder of the assessee to such remand report, the ld.CIT(A) deleted the addition by observing as under:-
“8. I have gone through the earlier submissions of the appellant regarding merit of the addition of this case, the submissions by the AO/Addl. CIT and the rejoinder by the appellant and further affidavits by Mr. Ranjit Kumar Shrivastava Ashok Tyagi in this respect. 8.1 With respect to the submissions of the appellant regarding unsigned share certificate found and seized from the premises of the appellant, related to its investor companies, after one year of allotment and the averments on affidavit, it is found that in the absence of any corroborative evidence regarding the contentions in the affidavit by Mr. Shrivastava, the same cannot be considered as any evidence of substance. Since this document was found and seized during search and has been considered as a vital evidence, based on which the addition has been proceeded, after making further enquiries and therefore this piece of evidence cannot be disregarded. This matter was also discussed by the AO in his assessment order vide para 4.10. During search, no satisfactory explanation was furnished with regard to the said seized document, therefore the discovery of unsigned share certificate from the premises of the appellant after one year of allotment, not properly explained by the appellant, definitely gives a reason to proceed for further investigation and scrutiny of the matter. As mentioned earlier, this issue was not taken up by the appellant during assessment proceedings that- another set of share certificates has already been issued and delivered to the directors of investor companies- and raising the same at the appellate stage through statement of one Mr. Ranjit Kumar Shrivastava is not palatable as without any corroborative evidence. 8.2 However, irrespective of their credence regarding the narration for unsigned share certificates seized during search, having misplaced or not and issuance of other set of shares is not material as the addition is to be discussed on the merits of this case. At this stage it is not important to scrutinize whether such share certificates were misplaced, not signed or not delivered or otherwise. However, Mr. Ranjit Kumar Shrivastava has provided another affidavit stating that facts narrated in earlier affidavit and true and correct and due to the mistake he has provided the wrong address in the earlier affidavit. Mr. Shrivastava should have been careful to provide his correct address in affidavit. The similar type of affidavit is also provided by Mr. Shrivastava with respect to the other company M/s MGC Estate P. Ltd. It is also not clear whether he was working for both the companies and in what capacity. 8.3 Similarly, for the affidavit of Mr. Ashok Kumar Tyagi regarding his statement that he was referring to the duplicate set of shares for his companies from the appellate company, regarding receipt of share certificates, it is not material whether it is issued or received by him or not because the substance of the addition is with respect to the genuineness, identity and creditworthiness of such investor company to provide money to the applicant in the form of share application and share premium. However, 7 it is found that he has confirmed of having made investment in the appellant company through his two companies namely M/s Garden View Foods P. Ltd. (GVFPL) and M/s Nihantari Realtors P. Ltd. (NRPL), and also stated that the share certificates were received by him, which was misplaced later on. 8.4 Therefore this will not have any relevance to the merits of the additions of the case to the extent that whether share certificates were prepared, delivered, received and misplaced or not. The test is with respect to the cash credit, which will be examined subsequently while discussing the merit of the addition. 8.5 In the grounds of appeal no.3 it has been stated that during the course of search no incriminating material/documents were found in respect of share capital and therefore the addition is not justified. In this regard it is to be stated that the appellant has submitted return of income on 27.09.2012 originally declaring income of Rs.1,91,760/-. The search was carried out in the Ocus group of cases on 12.02.2013 and the case of appellant was also covered. In response to the notice under section 153A of the Act, the appellant provided a copy of e –filed return on 20.10.2014 declaring income at Rs.1,91,760/-, which is the same as returned earlier. Therefore it may be seen that the search has take place within 5 months on the submission of return of income and the time period to issue notice under section 143(2) was not expired by limitation. Thus proceedings are abated and AO has powers to examine the issue in question. Further, as discussed in earlier paragraphs , such unsigned share certificates were found and seized during course of search, which was a vital evidence to necessitate further enquiries and therefore the action of AO to proceed for further examination and enquiry in the present proceedings are in accordance with law and hence the contention of the appellant is not tenable and this ground of appeal is rejected.
9. Now coming to the grounds of appeal regarding merits of the addition of this case. It has been observed that the addition has been made amounting to Rs.29,60,00,000/- as share application money and share premium, received from M/s Garden View Foods P. Ltd. (GVFPL) and M/s Nihantari Realtors P. Ltd. (NRPL), which has been treated by the AO as unexplained, after discussing in detail. It was noticed from the balance sheet of the company that during the year under consideration, the appellant has received share capital and premium thereof from various investors. The particulars of receipts by the appellant company from the investors are as follows:- S. No. Name of Date of No of Amount of Amount of Total amount How is the investor share share share share invested investor application Applied Application premium knows to you 8 for money 1 Garden Various 1,65,000/- 16,50,000/- 13,03,50,000/- 13,20,00,000/- Directly known View dates to us Foods P. Ltd.
2. Nihantari Various 2,05,000/- 20,50,000/- 16,19,50,000/- 16,40,00,000/- Directly known Realtors P. dates to us Ltd, 3. Sh. Satish 14.02.2012 4,625/- 46,250/- 36,53,750/- 37,00,000/- Known Oberio However it is further observed that additions have been made only with respect to the serial nos 1 and 2. 9.1 The addition has been made broadly on the basis of following observations: (i) Shares to the investor company has been issued at huge premium of Rs.790/- per share. (ii) No dividend has been paid to the investor company. (iii) In respect of question regarding how the investor is known to the appellant, it is submitted by the appellant that the investor company is directly known them. (iv) Evasive replies given on various issues without any proper input. (v) During the course of search, the unsigned share certificates purported to be allotted to M/s GVFPL and NRPL were found and seized from the premises of the appellant, after more than a year of allotment, for which no reason was submitted during search. (vi) A simultaneous search was carried out in the case of Sh. Ashok Tyagi, Controller and Director of investor companies. Though during search he confirmed having made investment in appellant company however given evasive or unsatisfactory reply to most of the questions relating to the process of investments and arrangement of source of funds. Sh. Tyagi remained unresponsive in the post search enquiries and the assessment proceedings. He did not comply to the summons issued by the AO during assessment proceedings and only filed a written reply, relying upon his earlier submissions and stated that the appellant company has not provided him any documents, affidavits, confirmation and share certificate for his record purposes. It is also stated that books of accounts are not available with them and hence they are not in a position to produce the same. Looking to the non production of documents or non compliance and considering that Mr. Tyagi is not bothered about the interest of his company even though having made huge investments, the AO considered that the payments made are not genuine. (vii) With respect to the merits of addition ,it is stated by the AO that M/s GVFPL and NRPL has not disclosed any substantial income or receipts from the revenue operations and all the transactions regarding receipt of share application by those investor companies from various investors and payments of money for shares and its premium to the appellant company has taken place in a very short span, indicates that the GVFPL and NRPL has no creditworthiness to provide such amount to the appellant. (viii) The AO has also held that the transactions are not genuine and GVFPL and NRPL are paper companies through which the funds of appellant has been routed and deposited in the hands of the appellant, though all documents have been prepared after due legal compliance and planning to show the transactions as real however the same are not genuine due to the various discrepancies found. The source of funds are not duly explained in the hands of investor companies GVFPL and NRPL. 9.2 Accordingly, the AO added Rs.29,60,00,000/-under section 68 of the Act with the following remarks: "….6.1 In view of the discussion above and also the facts complied/discussed in Exhibit-17, the explanation furnished by the assessee as regards nature and source of aggregate sum of Rs.29.60 crores credit in its books of accounts as share capital/share premium in the name of investor companies namely Garden View and Nihantari is in my opinion, not satisfactory. And hence the sum of Rs.29.60 crores is added to the income of the assessee under section 68 of the IT Act………….. " 9.3 The appellant provided its elaborate submissions as reproduced earlier and rebutted all the basis of additions and stated that it has proved the identity, creditworthiness and genuineness of the transaction. To substantiate its averments the appellant provided various details such as share application forms, ledger account of GVFPL and NRPL in the books of appellant, printout of ROC form submitted to the CLB, which is before the date of search, copy of board resolution by the appellant to allot shares to GVFPL and NRPL, balance sheet, bank statement, PAN of GVFPL and NRPL etc. It is also pointed out that the investor companies are assessed with the same AO and all its details are available with the AO at the time of making such assessments. It has been pointed out that the payments have been made through the legitimate founds of GVFPL and NRPL and by way of cheques. Therefore, even if the financial results shown by GVFPL and NRPL may not indicate huge profits, however availability of funds is duly justified. All the legal formalities such as submission before the registrar of companies, board resolution passed by the appellant to allot shares proves that share has been duly allotted, before the search. 10 9.4 It is also stated by appellant that non production of Mr. A K Tyagi, Director/controlling the affairs of GVFPL and NRPL was not in its control and during search Mr. Tyagi has confirmed of having made such investment in the share capital of appellant company. Moreover, GVFPL and NRPL are assessed with the same AO, therefore identity of the investor is duly proved. It is also stated that no addition can be made merely on the reason of non production of Mr. Tyagi and if he did not attend the summons issued, the appellant cannot be held liable for his non attendance. Further, in his various replies Mr. Tyagi has not disputed of making such investments and the same is existing even today in the form of share capital. The appellant has also provided the case laws in this regard to substantiate its argument. 9.5 It is stated that the genuineness of share capital and share premium has been duly proved as the payments were made through banking channels, proper share application form was submitted by GVFPL and NRPL and after completing all legal formalities ,the shares were allotted. Bank account details and copy of Form 2 to ROC is also produced before AO as well as in appellate proceedings. Even the resolution by GVFPL and NRPL and its authorization for share application has also been produced, therefore there is no basis before AO to say that genuineness of the transaction is not proved, when the relevant evidences were already furnished before him. The AO himself has stated that "mere documents were submitted". This has no force as the genuineness of the transaction can be proved only through the documents and not by the presence of a person, physically especially when the appellant is a company. 9.6 Further, with reference to the high share premium of Rs.790/- per share, it was submitted by the appellant that during the year, apart from GVFPL and NRPL, one more person i.e. Mr. Satish Oberoi has also submitted the application for investment in the shares of the applicant. The same amount of premium @790 per share has been paid by him. A total of 4,625 shares were allotted to Mr. Satish Oberoi for the year under consideration. During assessment proceedings, AO had issued notices under section 133(6) of the Act to Sh. Satish Oberio enquiring the justification of share premium and genuineness of share capital totaling to Rs.37 lacs (4625x800). The AO was satisfied with the explanation of Mr. Satish Oberoi and neither any addition was made on account of share application nor on account of premium. Therefore it is contended by the appellant that AO is not justified to make such addition on the basis that high share premium has been paid by GVFPL and NRPL when the same amount of premium has been accepted in the case of Mr. Satish Oberoi and no interference is made. There is no reason for addition on this selective approach. Further, the quantum of share premium is always commercial decision, for which no justification is required and it is treated as capital receipt. The newly inserted provision under section 56(viib) regarding the share premium is to be taxed is 11 applicable with effect from 01.04.2013 i.e. AY 2013-14 and the same is not applicable for the year under consideration. The contention of the appellant is found correct as during the year, appellant has also received share capital and share premium from Mr. Satish Oberoi amounting to Rs.37 lacs which includes the share premium of Rs.36,53,750/-, whereas the addition has only been made in the hands of GVFPL and NRPL on account of such share capital and share premium. Therefore, there is no consistency the approach of AO and the addition is made with a selective approach where no change in the facts. 9.7 The appellant has duly discharged its onus regarding identity of the GVFPL and NRPL, genuineness of transactions and creditworthiness. AO has already stated that appellant has received the funds from GVFPL and NRPL, though financial results are not indicative of such amounts, received as revenue receipts. In this regard as per the bank statements provided, it is observed that the funds has been duly provided through cheque, out of its own funds by GVFPL and NRPL, which has been received in the form of share application money from its own share holders/investors that too by banking channels. Thus, there has been availability of funds at the time of making payments, which is duly disclosed by GVFPL and NRPL and recorded in its books of accounts. The share allotment still exists in the name of GVFPL and NRPL and hence the addition is beyond the scope of section 68 of the Act. It is pointed out that proviso to section 68 regarding justification of source of source of such funds has been applicable with effect from 01.04.2013 and hence not applicable to the year under consideration. 9.8 During the appellate proceedings it was pointed out by the appellant that this is the first year of the business of appellant company and therefore there is no possibility of earning any undisclosed income. Further, it is also contended that the income tax department has taken most severe action in the form of search and seizure and nothing was found to establish that appellant has earned undisclosed income, which is routed through in the garb of share application money. The appellant relied upon the ratio laid down by Hon'ble Delhi High Court in the case of CIT vs. Five Visions Promoters P. Ltd. order dated 27.11.2015 and also CIT vs. Jaiswal Motor Finance (1983 ) 141 ITR 706 (All) wherein the courts have held that once the earning of on money was not found to be established, the allegation of routing its black money by way of share application money also failed. I have Considered the above submissions and found that since nothing has been found during search to support the contention of AO regarding unexplained income in the garb of share application and share premium money which is also supported by the decision relied upon, therefore the action of AO is not justified. 9.9 One reason given by AO for addition is "even if legally correct, the whole of chain of transaction is not logically justifiable". However, the 12 matter is to be seen not on any presumptions but as per the prevailing legal position. It has been also conceded by AO that all documents have been prepared after due legal compliance and planned in such a manner to show the transaction as real on record. Therefore, merely having some discrepancy or technical defect, the transaction cannot be stated to be non genuine or liable for addition, only on conjectures and surmises, without any corroborative evidence, where the appellant has discharged its onus regarding genuineness, creditworthiness and identity of the investors. 9.10 It is also pointed out that a search has taken place not only in the case of appellant but also on the investor companies GVFPL and NRPL. No unaccounted cash, investment or any other assets has been found for the year under consideration. Nothing has also been reported in the assessment order to show that there is a generation of unaccounted income in the hands of appellant. Therefore, in the absence of any such assets or corroborative evidence, it cannot be proved that the appellant has ploughed in its income, derived from unexplained sources in the form of such share application money. For taking any accommodation entry or making such cash credit, it is necessary to substantiate the cycle and source of such unaccounted money deposited in the books of appellant. There is no proof to substantiate that money has been given by appellant in cash against this transaction. No further enquiry by AO to prove that it is e bogus transaction for accommodation entry. 9.11 With regard to the arrangement of funds, the contention of the appellant is found correct that for making any investment, the funds are arranged from different sources and made as investment and it does not go against the appellant. Similarly, there is no abnormality in making investment by GVFPL and NRPL immediately after receiving funds either from their investors or otherwise as it is not barred by any statute and it is a commercial decision of the investor company to arrange for the funds and make investments. With regard to the investor company having not received the share certificate, I find that a detailed explanation regarding unsigned share certificate found during course of search is provided and it is observed that it has no bearing with respect to the merits of the additions made because it is immaterial whether the share certificates have been received by GVFPL and NRPL or not. 9.12 For non receipt of dividend, it is stated that the dividend may arise in subsequent years and may be not the year of investment itself. Therefore it is held that this cannot be made as basis for addition. 9.13 With reference to the observation of AO regarding investor companies GVFPL and NRPL are not bothered about the safety and security of its money, it is stated that the investment is already appearing in the books of the appellant company by way of share capital in the name of investor companies and it is also shown as investment in shares by GVFPL and 13 NRPL. Books of accounts of appellant are audited and shares allotted to GVFPL and NRPL for which form no.2 has already been filed to the ROC and still exists in its name. Even if for the arguments sake it is considered as bogus share capital from GVFPL and NRPL, actually the appellant is legally unsafe and unsecure, as such company may claim refund from the appellant for such deposit through legal process or may sell such shares to other persons. Considering the fact and logic as mentioned above, the argument of AO is not found tenable. 9.14 The appellant has also relied upon various judicial pronouncements including of Hon'ble Delhi High Court and mainly with respect to the CIT vs. Lovely Exports P. Ltd.(2008), 216 CTR 195 (SC). It has been stated that the appellant has discharged its onus with regard to the identity, capacity and genuineness of transaction, as reproduced earlier in its detailed submission and therefore in view of the ratio laid down in the above referred case laws, no additions can be made in the hands of appellant. 9.15 The appellant has also relied upon the judgment of CIT vs. Anchal Investment Ltd. by Hon'ble Delhi High Court (2004) 268 ITR 211 and CIT vs. Kamdhenu Steel and Alloys Ltd. Delhi High Court, of 2009 dated 23.12.2011 to state that once the documents like PAN Card, bank account details etc. were given by the assessee, the onus shifts to the AO and it is on him to reach the shareholders and AO cannot burden the assessee merely on the ground that summons issued to the investor were returned back and addition cannot be made. In the present case the investor was assessed with the same AO and all the details have been provided. 9.16 The appellant has also relied upon the latest judgment of Hon'ble Delhi High court in the case of Anshika Consultants P. Ltd. ITA 467/2014 vide order dated 16.04.2015 and Express Earthmovers and Equipments P. Ltd. ITA No.508/Del/2012 dated 30.09.2015 by Hon'ble ITAT New Delhi. The same has been reproduced by the appellant in its submissions and it was observed that the ratio laid down by the Hon'ble court is squarely applicable to the case of appellant where search was conducted and no material was found to show that appellant is generating any unexplained income, which is also evident from the assessment order. Therefore, looking to the facts of the present case and as per the ratio laid down in the above referred case I find that all the evidence relevant to establish the creditworthiness, identity and genuineness of the transaction has been provided to prove the same and onus has been duly discharged. All the issues raised by the AO has been duly rebutted and looking to the case laws, no addition can be made under section 68 of the Act in the case of the appellant. 9.17 The appellant has also pointed out the decision of Hon'ble Delhi High Court in the case of CIT vs. Five Visions Promoters P. Ltd. (Supra) dated 27.11.2015, where the facts are identical as that of appellant. The contents of the decision has .already been reproduced by the appellant in its detailed 14 submission and argued that search was conducted in both the cases simultaneously in the premises of investor companies and the company in which the funds were invested and no incriminating documents were found in respect of alleged bogus share capital. In both the cases share application has been admitted and shares were allotted to the applicants and all are assessed to tax. In the case of appellant, the shares are still in existence in the name of investors and both the share applicants are assessed to tax with the same AO. Funds were received through banking channels, whereas in the case of Five Vision (Supra) amount for share application has been received in cash. Therefore, the case of appellant is on much more sound footings with transparent transactions. I have gone through the above submission of the appellant and it is seen that the facts are similar to that of the case of Five Vision (Supra) and respectfully following the decision of Fion'ble Delhi High court, it cannot be stated that this is the unexplained cash credit in the hands of appellant, especially when it is the first year of the business operation. 9.18 The detailed submissions of the appellant as reproduced earlier is duly considered and also as per the discussions in the foregoing paragraphs, it is found that the appellant has duly discharged its onus to prove that the investor companies GVFPL and NRPL are genuine and its identity is proved beyond doubt being a company incorporated as per the company law, having its PAN number and audited accounts and other legal formalities are complete and also assessed with the same AO. The funds are routed through banking channels and funds were available at the time of share application, therefore creditworthiness with respect to the funds are duly proved. Considering above, it can be stated that the onus on the appellant has been duly discharged in view of the decision of Lovely Exports (Supra). There is no cash or investment or any other material found during search to show that there has been any generation of unexplained income for the year under consideration, thus the claim of the AO that it is non genuine and merely an entry through paper companies are not found substantiated. 9.19 Some features have been observed by the AO, considering it as abnormal but I find that it is only a doubt and no legal infirmity has been found. The additions have been made merely on observations or technical defects and the AO cannot prove conclusively regarding his theory of unexplained cash credit by any corroborative evidence. The additions are made on the basis of suspicion, assumptions, conjecture and surmises and has no corroborative evidence or further investigation to prove that it is the unexplained income of the appellant, found credited in its books. 9.20 It has been mentioned by the AO that the provisions of section 68 contains deeming provision and it is not necessary to prove that the relevant amount is actually appellant's income. Once the explanation of the appellant is held as unsatisfactory, such amount can be treated as the income of the 15 appellant. It is further stated by the AO that there is enough evidence which shows that the explanation submitted about nature and source of credit is not correct and the material goes to show that the amount has been introduced in the books as part of planning, but that finding is not required to be recorded. Hence, the addition has been made due to the rejection of appellant's explanation. I have carefully considered the above observation of the AO. For satisfaction of AO to treat any income as unexplained in the hands of appellant, the same is necessarily required to be supported with some corroborative evidence. As mentioned earlier, a search action has taken place on the appellant as well as both the investors and nothing has been found mentioned in the assessment order to show that any generation of unexplained income or any bogus entry has been substantiated by evidence. The satisfaction of AO is based on some features such as premium on shares, non production of Mr. Ashok Tyagi, unsigned share certificates found during search, non availability of funds with investor companies, payments for share money has been made immediately after the receiving of funds in the form of share money from various investors of GVFPL and NRPL etc., as discussed in the assessment order. However, the AO himself has stated that there is no legal infirmity in the paper work and looking to the fact that the shares has been allotted and informed to the registrar of companies, before the search, payments were received through cheque and could not brought on record regarding the generation of such unexplained income which is ploughed back in the form of share capital, the basis of satisfaction of AO is not borne out of any corroborative evidence and therefore cannot be considered to have fulfilled the conditions present under section 68 to deem it as income of the appellant. Further, it has been held by various courts that even if for deeming provision, it is necessary to prove either generation of unexplained income or any material to show that the recipient of money has made such payments to the fund provider, not recorded in the books of accounts. The same is not present in this case. In the light of above, the observation of AO is not palatable and deserves to be rejected. Accordingly, the additions so made under section 68 of the Act is not found tenable and directed to be deleted. Accordingly the AO is directed to allow relief of Rs.29.60 crores. This ground of appeal
is allowed.
10. In a result, the appeal is partly allowed.”
Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:-
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.29,60,00,000/-, made u/s 68 by the AO, without appreciating the detailed reasons given in the assessment order and without appreciating the fact that incriminating documents, in form of unsigned Share Certificates issued to M/s Nihantri Realtors Pvt. Ltd. and M/s Garden View Foods Pvt. Ltd., were found and seized.
2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.29,60,00,000/-, made u/s 68 by the AO, without appreciating the fact that Sh. Ashok Kumar Tyagi, Director in M/s Nihantri Realtors Pvt. Ltd. and M/s Garden View Foods Pvt. Ltd., has, vide his letter dated 14.01.2016, has denied receiving any Share Certificates till date as clearly mentioned in the Remand Report which proves that the above transaction was not genuine as no prudent investor will not bother to collect his share certificates which are proof of his investments.
3. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.29,60,00,000/-, made u/s 68 by the AO on the ground that genuineness of share capital and share premium has been proved as the payments were made through banking channels without appreciating the fact that Hon’ble Courts have held in plethora of judgements that transactions through banking channels are not sacrosanct and the onus is on the assessee to establish identity and creditworthiness of share applicant and genuineness of transactions.
4. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that the above addition was made by the AO without any cogent reason and on surmise and conjectures without appreciating the fact the above addition was made after detailed inquiries and was based on seized documents which is evident from the perusal of the assessment order.
5. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in not following the binding judgements of Hon’ble Delhi High Courts given in cases like CIT VS NOVA PROMOTERS AND FINLEASE PRIVATE LIMITED CASE (2012) 342 ITR 169 (DELHI), COMMISSIONER OF INCOME TAX VS NR PORTFOLIO PVT. LTD (INCOME TAX APPEAL NO. 1018 OF 2011 AND 1019 OF 2011), CIT v. N TARIKA PROPERTIES INVESTMENT PVT. LTD. ITA 2080/2010 etc.
6. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law.
That the grounds of appeal are without prejudice to each other. 17
8. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.”
There is a delay of about 240 days in filing of the appeal by the Revenue for which an application requesting condonation of delay has been filed the contents of which are as under:-
The ld. DR, referring to the above condonation application, submitted that the application is self-explanatory and, therefore, the delay in filing of the appeal by the Revenue should be condoned.
The ld. Counsel for the assessee, on the other hand, strongly objected to the delay condonation application filed by the Revenue. Referring to the decision of the Hon’ble Supreme Court in the case of Office of the Chief Post Master General vs. Living Media India Ltd. (2012) 348 ITR 7, he submitted that the Hon’ble Supreme Court in the said decision has held that in absence of acceptable and cogent reasons sufficient to condone the delay in filing appeal by Government department, it was to be dismissed being barred by limitation. He submitted that in the instant case, there is no cogent reason sufficient to condone the delay in filing of the appeal by the Revenue. Therefore, the delay in filing of the appeal should not be condoned and the appeal filed by the Revenue should be dismissed on account of delay in filing of the appeal. He also relied on the following decisions:- (i) CIT vs. Dowager Maharani Residential Accommodation Welfare Amenities Trust (2008) 304 ITR 166; (ii) CIT (Exemptions), Pune, vs. Lata Mangeshkar Medical Foundation (2019) 410 ITR 347; & (iii) CIT-3 vs. Five Vision Promoters (P) Ltd. (2016) 380 ITR 289.
We have considered the rival arguments made by both the sides regarding the admissibility of the appeal filed by the Revenue due to delay in filing of the same. Undisputedly, there is a delay of about 240 days in filing of the appeal by the Revenue. We find the Hon’ble Supreme Court in the case of Collector Land Acquisition vs. Mst. Katiji & Ors., reported in 1987 AIR 1353 has laid down the following guidelines for delay condonation:- “1. Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
13.1 Therefore, while we strongly deprecate the attitude of the Department in adopting a casual approach in filing of the appeal, however, in view of the above guidelines of Hon’ble Supreme Court cited (supra) we condone the delay and the appeal is admitted for adjudication.
The ld. DR strongly objected to the order of the CIT(A) in deleting the addition made by the AO. He submitted that the AO had given justifiable reasons Rs.29.60 crores towards share capital and share premium. He submitted that the unsigned share certificate were found at the time of survey and Shri Ashok Tyagi and Mr. Mehta could not submit anything about the same in their reply to the query put by the survey team. Referring to the following decisions, he submitted that the addition deleted by the CIT(A) is not just and proper in the instant case and, therefore, the order of the CIT(A) be set aside and that of the AO be restored:- (i) NRA Iron & Steel Pvt. Ltd. vs. PCIT, (2019) 103 taxman.com 48 (SC); (ii) CIT (Exemptions) vs. Progressive Education Society, 410 ITR 370; & (iii) Adarsh Cooperative Bank vs. ITO, 431 ITR 71 (Guj).
The ld. Counsel, on the other hand, heavily relied on the order of the CIT(A). He submitted that the company has received an amount of Rs.29,60,00,000/- towards share capital and share premium from the two companies, namely, M/s Garden View Foods Pvt. Ltd. and M/s Nihantri Realtors Pvt. Ltd. He submitted that the Director of the above two companies, namely, Mr. A.K. Tyagi, in his statement recorded u/s 132(4) during the course of search had categorically admitted that both the companies have invested in shares of Ocus Skycrapers. Further, both the companies, namely, M/s Garden View Foods Pvt. Ltd. and M/s Nihantri Realtors Pvt. Ltd., were also subjected to search and are assessed under the same AO. Therefore, merely for non-production of Mr. A.K. Tyagi, who is not under the control of the assessee, cannot be the reason for Shri Tyagi himself had admitted to have invested in shares of these companies by the two companies controlled by him and those two companies were also simultaneously searched. So far as the high premium of shares @ 790/- per share is concerned, he submitted that 4625 shares were allotted to one Mr. Satish Oberoi for the year under consideration @ Rs.790/- per share as premium. The AO had issued notice u/s 133(6) of the Act to Shri Satish Oberoi for enquiring the justification of the share premium and genuineness of share capital totaling to Rs.37 lakhs and he has accepted the share premium as genuine. Therefore, once the share premium of Rs.790/- obtained from Shri Satish Oberoi is accepted by the AO as genuine, he cannot doubt the high premium of Rs.790/- obtained from GVPL and NRPL. He submitted that this is also the first year of business of the assessee company and there is no possibility of earning any undisclosed income by the assessee. So far as the observation of the AO that the investor companies had no bank balance before investing in the shares of the assessee company that the funds were immediately credited and, thereafter, transferred to the assessee company is concerned, he submitted that there is no abnormality in making the investment by the above two companies after receiving funds either from their investors or otherwise. He submitted that the order of the ld.CIT(A) being a reasoned one wherein he has addressed all the issues raised by the AO therefore, the same should be upheld and the grounds raised by the Revenue should be dismissed.
We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made addition of Rs.29,60,00,000/- u/s 68 of the Act on the ground that assessee could not substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the share applicants and genuineness of the transaction in the case of these two companies, namely, M/s Garden View Foods Pvt. Ltd. – Rs.13,20,00,000/-, and M/s Nihantri Realtors Pvt. Ltd.-Rs.16,40,00,000/-, from whom the assessee has received the share capital and share premium. It is the allegation of the AO that despite opportunities granted, the assessee failed to produce the authorized persons of the above two investors, the financial statements of these companies show that they are not carrying on any worthwhile business activities, even after more than a year of making share allotments to the investors, the unsigned share certificates purported to be allotted to the above two corporate investors were found at the premises of the assessee and the assessee has accepted huge premium from these two investor companies, no dividend has been paid to the investor company, etc. We find, the ld.CIT(A) deleted the addition made by the AO the reasons of which have already been reproduced in the preceding paragraphs.
We do not find any infirmity in the order of the CIT(A) on this issue. Admittedly, for accepting any cash credit, the onus is always on the assessee to AO regarding the identity and credit worthiness of the investors/share applicants and the genuineness of the transaction. In the instant case, it is an admitted fact that simultaneous search was carried out in the case of M/s Garden View Foods Pvt. Ltd., and M/s Nihantri Realtors Pvt. Ltd. on 12.02.2013 and the statement of Shri Ashok Tyagi, the director of these two companies was recorded u/s 132(4) of the Act who stated on oath in his statement that he had made the investment in the shares of the assessee company, a fact brought on record by the AO himself. His only allegation is that Shri Ashok Tyagi gave evasive or unsatisfactory replies to most of the questions relating to the process of the investment and arrangement of funds. However, it is pertinent to mention here that the assessment order of M/s Garden View Foods Pvt. Ltd., and M/s Nihantri Realtors Pvt. Ltd. was passed by the very same AO, who is the AO of the assessee company, u/s 153A r.w.s 143(3) copies of which are placed at pages 90-117 of the paper book. In the said assessment order although the AO has made specific queries to Shri Ashok Tyagi, director of the company, however, he has not made any addition, but, merely held that the transactions of the assessee company are sham and not a normal business transaction. The fact that simultaneous search took place in the case of M/s Garden View Foods Pvt. Ltd., the statement of Shri Ashok Tyagi was recorded is evident from the observation of the AO at para 4.11 of his order which reads as under:-
4.11 It was further noted that simultaneously with search in the case of assessee, search was also carried out in the case of Garden View and during the search operation statement of Sh Ashok Tyagi, Director was recorded. When asked about investment in the assessee company, he did confirm having made the investment…..
From the above, it is seen that when the premises of M/s Garden View Foods Pvt. Ltd., was searched, the statement of Shri Ashok Tyagi, who is the controlling person of these two companies i.e., M/s Garden View Foods Pvt. Ltd., and M/s Nihantri Realtors Pvt. Ltd., was recorded. The assessment u/s 153A r.w.s. 143(3) was passed in the case of these two companies by the same AO for the very same assessment year on the very same date. Therefore, the identity of the two investor companies cannot be doubted.
So far as the credit worthiness and genuineness of the transactions are concerned, it is an admitted fact that Shri Ashok Tyagi, director of M/s Garden View Foods Pvt. Ltd., and M/s Nihantri Realtors Pvt. Ltd., has categorically stated that these two companies have made investment in the shares of the assessee company. Once Shri Ashok Tyagi, the director of the above two companies, owns up the investment made by the two companies controlled by him in the shares of the assessee company, addition, if any, can be made in the hands of those two companies and not in the hands of the assessee company especially when this is the first year of the business of the assessee company and, therefore, there is no possibility of earning any undisclosed income by the assessee. So far as the allegation of the AO that huge premium of Rs.790/- was charged from these two companies is concerned, we find, apart from these two companies the assessee has also issued shares to one Shri Satish Oberoi from whom premium @ Rs.790/- per share was charged. The AO has accepted the same and has not made any addition on account of investment by Shri Satish Oberoi from whom an amount of Rs.37 lakhs including share premium of Rs.36,53,750/- has been accepted. Therefore, once such share premium from Shri Satish Oberoi is accepted at Rs.790/- per share, we fail to understand how the AO can doubt the share premium of Rs.790/- received from M/s Garden View Foods Pvt. Ltd., and M/s Nihantri Realtors Pvt. Ltd. In our opinion, there should be some consistency in the approach of the AO and the addition cannot be made by making selective approach. Further, at the time of search at the premises of the assessee as well as the investor company, nothing has been found to show that there is any generation of unexplained income or any bogus entry. We further find there is no immediate cash deposit made by the two investor companies before issuing cheques to the assessee company towards share capital and share premium so as to infer that some unaccounted cash was deposited which has come back to the assessee in the guise of share capital and share premium. Therefore, the genuineness of the transaction, in our opinion, cannot be doubted. So far as the credit worthiness of the investor companies is concerned, we find, the entire investment is made through cheques and no immediate cash was deposited before issue of cheques. Further, as mentioned earlier, once Shri Ashok Tyagi owns up the investment made by the two companies controlled by 27 him in the shares of the assessee company, addition, if any, can be made in the hands of the investor companies and not in the hands of the assessee.
So far as the other allegations of the AO are concerned, i.e., no dividend has been paid to the investor company is concerned, the same, in our opinion, cannot be a ground for rejecting the explanation of the assessee since dividend may arise in subsequent years and may not be in the very first year itself. So far as the allegation of the AO that the investor companies are not bothered about the safety and security of their money is concerned, we find both these companies have shown as investment in shares in the assessee company in their books of account which are duly audited. So far as non-issue of share certificates to the investor companies are concerned, the same cannot be a ground, in our opinion, to reject the explanation of the assessee regarding identity and creditworthiness of the investor companies especially when the director of the investor company had categorically stated to have made the investment, such investment has been duly recorded in the books of the companies concerned, books of account are audited, return of allotment of shares have been duly filed before ROC and all statutory compliances were made. In this view of the matter and in view of the detailed reasoning given by the CIT(A), we do not find any infirmity in his order. Accordingly, we uphold the same and the grounds raised by the Revenue are dismissed.