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Income Tax Appellate Tribunal, “A” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Amit Shukla (JM)
The assessee has filed this appeal challenging the order dated 12.12.2011 passed by Ld CIT(A)-8, Mumbai for assessment year 2008-09, wherein the Ld CIT(A) has confirmed the addition of Share Application money of Rs.96.00 lakhs made by the AO u/s 68 of the Act.
The assessee received share application money aggregating to Rs.96.00 lakhs during the year under consideration from the following persons:- a. M/s Spider Web Solutions Ltd Rs.24.00 lakhs b. M/s Saragossa Investment & Finance Rs.24.00 lakhs c. M/s Komal Commercial Ltd Rs.24.00 lakhs d. M/s Larite Industries Ltd Rs.24.00 lakhs The assessing officer made enquiries about the Share application money receipts, referred above, in terms of sec. 68 of the Act and the same has been narrated as under by Ld CIT(A):-
2 M/s. Kenhans Shares & Stocks Pvt. Ltd.
“2.3 The appellant had filed the confirmations from the above mentioned parties during the course of assessment proceedings. The A.O. found on perusal of the confirmations furnished on record that the confirmation letters were on similar type of printed paper and on a similar letter head, contents and the font of all the four confirmation letters were same. This led to the suspicion of the A.O that the amount received was not genuine. To verify the genuineness the A.O. issued notices u/s.133(6) to all the four parties on 25.08.2010. The notices issued to Kornai Commercial Ltd. and Larite Industries Ltd. were not served and returned back. The other two parties did not respond to the notices received by them. Again the A.O. issued fresh notices u/s.133(6) dated 22.10.2010 to the two parties who did not respond earlier. The party Saragossa Investment & Finance Ltd. did not respond again to the second notice and the second notice issued to Spider Web Solutions Ltd. was returned back un-served. The appellant was confronted by issuing a letter dated 22/10/2010 by the A.O to explain why the share application money received from the above four parties should not be treated as un-explained and why the addition for the same should not be made u/s.68 of I.T. Act, 1961. The appellant had filed a letter dated 26/10/2010 submitting the bank statements of the appellant showing the receipt of money found credited therein. After more than a month time on 8/12/2010 the appellant filed further details i.e., Affidavit from all the four parties with the bank statements of the respective parties highlighting the amount given to the appellant and Balance Sheet, P& L account and income tax returns for A.Y.2008-09 of those parties. The affidavits were perused by the A.O and he found that why the parties are giving the affidavits and not appearing in response to the notices issued. The A.O. again issued summons u/s.131 to the persons who filed the affidavits to examine them under oath and to verify the existence of the persons & to verify the authenticity of the affidavits. The summons were issued to the persons who gave affidavits at the address given by them in the affidavits. At the same time the summons were also issued to the directors of these companies at the address of the respective company. Further the A.O. asked the appellant to produce the Principal Officers of these four companies vide order sheet entry dated 8.12.2010 before him. An inspector was deputed by the A.O. to serve the summons but he could serve the summons only on two persons viz; Mrs. Madhuben Amrutlal Director of Larite Industries Ltd. and Shri Chandresh Shah Director of Saragossa Investment & Finance Ltd. and the remaining two address were not found and therefore summons could not be served by the inspector. Even the address given in the affidavits were not correct and therefore the parties could not be located by the inspector. Thereafter the summons were issued and sent through posts which were returned back unserved. Information was also collected from the banks in which these four companies had their bank accounts and through which the cheques were given to the appellant.”
3 M/s. Kenhans Shares & Stocks Pvt. Ltd.
The assessing officer also collected account copies of share applicants from their respective bank accounts and noticed that some accounts were closed subsequently. Further the closing balance available in those accounts were small amounts, even though there was deposits and withdrawals of huge amounts.
In view of the above, the AO finally concluded as under:- “From the above discussion, it is held as under:- (i) Most of the addresses given of these companies appear to be fake.
(ii) The business of all the four companies appears to be providing accommodation entries.
(iii) The frequency and quantum of deposits and withdrawals in their bank accounts without generation of any substantial income further strengthens this belief.
(iv) Two bank accounts namely M/s. Spider Web Solutions and M/s. Saragossa Investments were opened and closed in the same year. Bank account of M/s. Komal Commercial has also been closed in the same year. This shows that the bank accounts were opened only for the purpose of using them to provide accommodation entries.
(v) The Directors/Principal Officers of the four concerns have been avoiding the notices/summons issued by the Department.
(vi) In case of Larite Industries ltd and Komal Commercial Ltd., the person making the affidavit in the capacity of a Director is different from the person shown as Director in the account opening form of the bank.
(vii) Considering the nominal income returned by the four companies, the capacity of the companies to make an investment of Rs.24,00,000/- • each is doubtful.
Hence, it is held that The amount of ` 96,00,000/- received by the assessee is through accommodation entries. The identity, the genuineness of transaction, the exact nature of the transactions and the capacity of the persons to make the investment is doubtful. The amount of ` 96,00,000/- is added back to the income of the assessee u/s. 68 of the I.T. Act.”
In the appellate proceedings, the Ld CIT(A) held that the assessee has failed to show very existence of parties, since they did not appear before the 4 M/s. Kenhans Shares & Stocks Pvt. Ltd.
AO. Even though the assessee relied upon following case laws, the Ld CIT(A) held that they are distinguishable:-
(a) Shree Barkha Synthetics Ltd Vs CIT (2006)(155 Taxman 289)(Raj) (b) CIT Vs. Lovely Exports (P) Ltd (2008)(216 CTR (SC) 195)(SC) (c) CIT Vs. Stellar Investment ltd (2000)(164 CTR (SC) 287 (d) CIT Vs. AKJ Granites (P) Ltd (2008)(301 ITR 298) (e) CIT Vs. VRM Global Infrastructure (P) Ltd (12 taxman.com 174)
The Ld CIT(A) also expressed the view that the conduct of the assessee should be examined by applying the test of human probabilities and in this regard he took support of the decision of Hon’ble Supreme Court rendered in the case of Sumati Dayal Vs. CIT (214 ITR 801). Accordingly he confirmed the order passed by the assessing officer on this issue. Aggrieved, the assessee has filed this appeal before us.
The Ld A.R submitted that the assessee has furnished all the details relating to the share application money. He submitted that there is no information with the assessee that these companies are providing accommodation entries. He submitted that these companies are existing for a quiet for a long time and they have made investments in several other companies, besides the assessee. He submitted that the assessee has furnished the copies of their incorporation certificate, PAN details, the Annual report and income tax returns. He submitted that the share application money was given by the applicants by following proper procedure through banking channels. He submitted that the assessee could not prevail upon the share applicants and their directors to co-operate with the assessing officer and their non-cooperation should not have been considered to take adverse view against the assessee. He submitted that the assessee has fully discharged the initial burden of proof placed upon it u/s 68 of the Act and accordingly submitted that the impugned addition is liable to deleted.
On the contrary, the ld D.R submitted that the assessee did not offer proper explanation for non-appearance of share applicants and their respective
5 M/s. Kenhans Shares & Stocks Pvt. Ltd. directors. He submitted that the notices issued by the AO were returned back unserved and in some cases, the parties did not respond. Further, the Inspector could not locate the addresses of some of the directors also. He submitted that the affidavits given the directors are self serving documents and they could be examined by applying the test of human probabilities. The Ld D.R submitted that the assessment of Share Application money as unexplained cash credits u/s 68 of the Act has been upheld by Hon’ble Delhi High Court in case of CIT Vs. Nova Promoters & Finlease (P) Ltd (2012)(18 taxmann.com 217) and other cases. He submitted that the facts prevailing in the above said case is identical to the facts of the instant case. The Ld D.R also placed reliance on the decision rendered by the Indore bench of ITAT in the case of Agarwal Coal Corporation (P) Ltd (135 ITD 270).
In the rejoinder, the Ld A.R submitted that the share applicant companies are not recently established companies and they have been established long back. He further submitted that the assessee could not also enforce the attendance of the directors of the company.
We have heard the rival contentions and perused the record. We notice that the addition of share application money has been made u/s 68 of the Act. It is well settled proposition of law that the initial burden to prove the cash credits is placed upon the assessee u/s 68 of the Act, i.e., the assessee has to prove three main ingredients viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transactions. If the assessee discharges the initial burden placed upon him, then the burden shifts upon the shoulders of the assessing officer, who is required to disprove the evidences furnished by the assessee. If the AO does so, then the burden shifts upon the shoulders of the assessee, who is required to counter the view taken by the AO. There should not be any dispute that the facts available in each case have to be tested independently and the decision has to be taken by applying the principles discussed above.
6 M/s. Kenhans Shares & Stocks Pvt. Ltd.
In the instant case, we notice that the assessee has furnished copies of Certificate of Incorporation of the share applicants and the PAN numbers. The same establishes their identity. It is not in dispute that the share application money was received through banking channels. In fact, the AO himself has verified the same by calling for account copies from the respective bank accounts. Hence the genuineness of the transaction also stands proved. A perusal of the Balance Sheet furnished by all the Share applicants show that they have made impugned investments out of their own funds only. The following table clarifies this position:- Name of Share Applicant Investment Own Funds a. M/s Spider Web Solutions Ltd Rs.24.00 lakhs 200 lakhs b. M/s Saragossa Investment & Finance Rs.24.00 lakhs 250 lakhs c. M/s Komal Commercial Ltd Rs.24.00 lakhs 406 lakhs d. M/s Larite Industries Ltd Rs.24.00 lakhs 248 lakhs All the share applicants are also regularly filing return of income and the assessee has furnished copies of returns of income filed by them. It is seen that these companies have made other investments also. Thus, we notice that the assessee has discharged the initial onus placed upon it u/s 68 of the Act.
The tax authorities have made the addition only for the reason that the directors of share applicant companies did not respond to the notices/summons issued to them and the non-compliance has been interpreted by them as cases of providing accommodation entries. In this regard, the Ld D.R also placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of Nova Promoters & Finlease (P) Ltd (supra). We have noticed that the facts prevailing in each case need to be examined in terms of sec. 68 of the Act. The facts prevailing in the case considered by Hon’ble Delhi High Court are that (a) The assessee therein received share application money of Rs.1,18,50,000/- during the year relevant to AY 2000-01.
(b) The assessing officer re-opened the assessment upon receipt of a report from the Director of Income tax (Investigation) that 16
7 M/s. Kenhans Shares & Stocks Pvt. Ltd. persons are providing accommodation entries to several persons, of which the assessee was also one.
(c) The entry operators/accommodation providers have admitted before the Investigation wing in May 2004 that they have provided only accommodation entries.
(d) During the course of assessment proceedings, the entry operators filed affidavits retracting the statement given by them before the Investigation wing. The retraction affidavits were filed in December, 2007, i.e., after expiry of more than three years after admitting the accommodation operations.
(e) During the course of assessment proceedings, they did not respond to the notices/summons issued by the AO. Independent enquiry made by the Inspector also resulted in the finding that no such companies existed at the address furnished by the assessee.
(f) Before Ld CIT(A), the assessee contended that they were not provided an opportunity to cross examine them. Hence the Ld CIT(A) remanded the matter to the AO. During the remand proceedings also, these entry operators did not appear before the AO.
Under these peculiar set of facts, the Hon’ble Delhi High Court upheld the addition made by the AO u/s 68 of the Act.
Before the Hon’ble Delhi High Court, the assessee relied upon another decision rendered by the very same High Court in the case of CIT Vs. Hospitalities (P) Ltd (333 ITR 119). We notice that the facts prevailing in the present case is somewhat similar to the facts prevailing in the case of Hospitalities (P) Ltd (supra). The relevant discussions made by Hon’ble Delhi High Court in the case of Nova Promoters & Finlease (P) Ltd (supra) are extracted below:- “40. Reference was also made oil of the assessee to the recent judgment of a Division Bench of this court in CIT v. Hospitalities (P.) Ltd. [2011] 333 ITR 119/ 198 Taxman 247. We have given utmost consideration to the judgment. It disposes of several appeals in the case of different assessees. Except the case of Oasis Hospitalities (P.) Ltd (supra), the other cases fall under the category of Orissa Corporation (P) Ltd. (supra). However, in the case of Oasis Hospitalities (P.) Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of 8 M/s. Kenhans Shares & Stocks Pvt. Ltd.
which it was found that six investors belong to one Mahesh Garg Group who were not carrying oil real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, this court observed: - “The Assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period i.e. for the period when the cheques were cleared. However, the parties not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by producing PAN number, bank account, copies of income tax returns of the share applicants. etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-exam Inc the persons whose statements were recorded by the Investigating Wing.” These quoted observations clearly distinguish the present case from Oasis Hospitalities (P). Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard, Further, the assessee had not been confronted with the material collected by the investigation wing was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing.
In the case before us, not only did the material before the Assessing Officer show the link between entry providers and assessee-company, but the Assessing officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose name figured in the information given by them to the investigation wing, 15 companies had provided the so called “share subscription monies” to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P) Ltd (supra).”
9 M/s. Kenhans Shares & Stocks Pvt. Ltd.
The facts prevailing in the present case are different. There is no allegation that the share applicants herein are entry operators/accommodation providers. There is no report from the Investigation wing to that effect. We have noticed that the assessee has provided all the information in order to discharge the initial burden placed upon it u/s 68 of the Act. Further these companies have been incorporated long back as detailed below:-
Name of company Date of Incorporation a. M/s Spider Web Solutions Ltd 14-07-1992 b. M/s Saragossa Investment & Finance 20-07-1992 c. M/s Komal Commercial Ltd 26-12-1997 d. M/s Larite Industries Ltd 28-03-1985 In our view, these companies cannot be considered to be the types of flight by night operators, since they have been incorporated long back. Further, it is an undisputed fact that these companies are regularly filing their income tax returns and Company returns. Hence we are of the view that the tax authorities have only entertained presumption that they have provided accommodation entries. We have seen that the assessee has discharged the onus placed upon it and hence, as held by the Hon’ble Supreme Court in the case of CIT Vs. Orissa Corporation (P) Ltd (159 ITR 78) and the Hon’ble Delhi High Court in the case of Hospitalities (P) Ltd (supra), the assessee cannot be penalized for the failure of the AO to discharge the burden shifted upon him. Accordingly we are of the view that the Ld CIT(A) was not justified in confirming the addition. Accordingly we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned addition.
In the result, the appeal filed by the assessee is allowed. Order has been pronounced in the Court on 2.9.2016