M/S. KVN AUTO ENGINEERING (P) LTD.,NEW DELHI vs. ITO- 1(2), HALDWANI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Haldwani (hereinafter referred to as 'the CIT(A)') dated 26.10.2016, for assessment year 2012-13.

The assessee in appeal has raised as many as eight grounds. The gist of grounds raised in appeal is ad under:

Dr. Rakesh Gupta, appearing on behalf of the assessee submits that he would be pressing only ground no. 1 & 2 of appeal i.e. qua addition of Rs.3.30 crores u/s. 68 of the Act made by Assessing Officer (AO) and confirmed by the CIT(A). The ld. Counsel submits that addition has been made on account of bogus share capital and share premium received from various persons. Narrating facts of the case, he submitted that the Chartered Accountant of assessee has window dressed the balance sheet for obtaining higher credit facilities from the bank had shown share capital and share premium to the tune of Rs.3,30,00,000/- whereas in actual no share capital was received by the assessee/appellant. It was merely a book entry this fact was admitted by auditors of the company and MD before the AO. The Assessing Officer forwarded the bank details received from assessee from where alleged share capital/share premium was received. The AO has mentioned (A.Y.2012-13) the fact in assessment order that banks have confirmed that neither there was such branch or bank account number wherefrom alleged share capital was received by the assessee. The assessee had made corresponding entries on assets sides of Balance Sheet as Plant and Machinery which were in fact never purchase by the assessee. The assessee had claimed depreciation on such non-existing plant and machinery, the same was disallowed by the AO on statement made by the assessee. Once the claim of depreciation has been disallowed by the AO, on the ground that there is no such plant and machinery, no addition was warranted in respect of share capital and share premium. The AO and the CIT(A) should either have believed entire statement made by the assessee or should have rejected statement in whole. He finally submitted that in facts of the case, no addition on account share capital and share premium could have been made by the AO. To support his contentions, he placed reliance on the following decisions to contend that where the balance sheet was window dressed for obtaining higher banking facilities, no addition could have been made under the provisions of the Act: (i) DCIT vs. M/s Galss Tech India, dated 25.03.2022 (Del.); (ii) ITO vs. Zexus Air Services (P.) Ltd. (2021) 189 ITD 434 (Del.); (iii) Rich Paints Ltd. ITO, (2021) 199 DTR 249 (Ahd); and (iv) ACIT vs. Shri Suren Goel, dated 01.12.2011 (Del.). He finally submitted that entries in books of account do not create any income. To buttress his argument; he placed reliance on the decision in the case of ITO vs. V.R. Global Energy (P.) Ltd., (2020) 268 taxmann.com 392 (SC.).

Both sides heard, orders of the authorities below examined. The solitary issue assailed by the assessee in appeal is the addition of Rs.3.30 crores u/s. 68 of the Act on account of share capital and share premium. During assessment proceedings, the AO questioned increase in share capital and share premium to the extent of Rs.3,30,00,000/-. The assessee was asked to furnish details of subscribers to prove genuineness of the said transactions and creditworthiness of subscribers. Notices sent by the Assessing Officer to the alleged subscribers of share were received back un-served. The AO made inquiries from the banks. The banks confirmed that the details of bank accounts were not genuine. Even confirmations from the so called subscribers and the statement of their bank accounts were found not to be genuine. Hence, the AO made addition of share capital and share premium of Rs.3.30 crores u/s. 68 of the Act. During First Appellate proceedings, the Chartered Accountant of the assessee Shri Saurabh Bhardwaj filed an affidavit before the CIT(A) stating that to secure higher bank credit facilities, the balance sheet of company was window dressed Rs.3.30 crores was added on both sides of Balance Sheet. On liabilities side Rs.3.30 crores was increased on account of share capital and share premium and on the assets sides equal value of plant and machinery was increased. We find that the CIT(A) deleted addition of bogus claim of deprecation, whereas confirmed the addition (A.Y.2012-13) in respect of bogus entry of share capital and share premium. Once it is established that the increase in assets and liabilities in the balance sheet is on account of bogus entries, the statement with regard to bogus entries on the asset sides having been accepted corresponding effect on the liability side should also have been given. The affidavit sworn by Chartered Accountant of the assessee is either have to be accepted in whole or rejected in toto. Once it is accepted that there were bogus entries on the assets side and corresponding entire on the liability side should also have been accepted. Taking into consideration entire facts of the case, the addition of Rs.3.30 crores made on account of bogus share capital and share premium is deleted.

Before parting with the order we would like to observe that the addition is deleted under the provisions of Income Tax Act, however, we do not subscribe to the unscrupulous method adopted by the assessee for obtaining higher credit facilities from the bank by window dressing balance sheet. The conduct of the assessee is deplorable.