SHITIZ METAL LTD,NEW DELHI vs. ITO, NEW DELHI

ORDER PER O.P. KANT, A.M.: These cross appeals by the assessee and Revenue are directed against the order dated 23rd of March 2010, of learned Commissioner of & 2378/Del/2010 Shitiz Metal Ltd., New Delhi Income-tax (Appeals)-XI, New Delhi for assessment year 2004-05. As both the appeals are emanating from the same impugned order, they are heard together and are disposed of by this consolidated order. 2. The grounds of appeal

3. The sole ground in the appeal of the Revenue in ITA No. 2378/Del/2010 read as under: “on the facts and in the circumstances of the case, the Ld. CIT (A) erred in law and on the facts and circumstances of the case, in deleting the addition of Rs. 66, 25, 000/-made by the AO under section 68 of IT Act”

4. First, we take up the appeal of the assessee. 4.1 The facts in brief are that the assessee company was incorporated on 08/10/1982. The assessee company invested its funds in various public and private limited companies. For the year under consideration the & 2378/Del/2010 Shitiz Metal Ltd., New Delhi assessee company filed its return of income on 13th December 2004, declaring a loss of Rs. 35/-. The return of income filed by the assessee was processed under section 143(1) of the Income-tax Act,1961 (in short the Act). Subsequently the case of the assessee was reopened under section 147 of the Act through a notice issued under section 148 of the Act dated 03/11/2008, after recording reasons. In response, the assessee filed return of income declaring a loss of Rs. 40/- under the head business and declaring nil income on account of capital gains on sale of property bearing no. D- 819, new friends colony, New Delhi for Rs. 2,40,00,000/-. It was claimed in the in the return of income that property was purchased at a sum of Rs. 2,40,00,000/-and thus there was no capital gain. This transaction was not disclosed in the original return of income filed. In the reassessment proceedings, the Assessing Officer noted that no books of accounts were produced by the assessee and thus after discussion he, assessed the income at Rs. 1,88,65,000/- making additions on following three accounts (i) addition of Rs. 1,20,00,000/-for unexplained credit in books of accounts. (ii) disallowance of Rs. 2,40,000/- for salary paid to Ms Akansha Gupta and Ms. Vasudha Gupta, the daughters of the director Sh. Ajay Kumar Gupta (iii) advance received of Rs. 66,25,000/- against property at Gaziabad. 4.2 Aggrieved, the assessee filed appeal before the Ld. Commissioner of Income-tax (Appeals), who upheld the additions on 1st two accounts, against, which the assessee in appeal before us and deleted the third addition of Rs. 66, 25, 000/- against which the Revenue is in appeal. & 2378/Del/2010 Shitiz Metal Ltd., New Delhi 5. At the outset, the Ld. Authorized Representative (in short ‘AR’) of the assessee submitted not to press the ground No. 1 and 3 of the appeal, and thus both the grounds are dismissed as not pressed. 6. The sole ground left for adjudication is in respect of addition of Rs. 1,20,00,000/-. The Ld. AR of the assessee submitted that the assessee company agreed to purchase a property from M/s Bharti Overseas Trading Company (BOTC) at a value of Rs. 2,40,00,000/- on behalf of Smt. Sushma Gupta and Smt. Shashi Garg on 18th July 2003 through a unregistered sale agreement. Subsequently, within a short period, the property was sold through three different registered sale deeds to Smt. Sushma Gupta and Smt. Shashi Garg. The Ld. AR submitted that though all the three sale agreements were registered at a total value of Rs. 1,20,00,000/- however the property was actually sold for Rs. 2,40,00,000/- and thus there was no capital gain in the entire transaction of purchase and sale of the property. The Ld. AR further submitted that finding of the Assessing Officer that the property was purchased and sold at Rs.1,20,00,000/-and the balance amount of Rs.1,20,00,000/-received in lieu of sale of property were in fact amounts received on some other account, are not correct. The payments received were duly explained by the assessee in the course of scrutiny proceedings and the Assessing Officer also gathered information in respect of those parties directly, however, the Assessing Officer without mentioning the verification made from the parties, held the amount received from those parties as unexplained cash credit under section 68 of the Act. The Ld AR further submitted that Ld CIT(Appeal) was also requested to issue summons to those parties as those people were appearing before the trial court in civil and criminal proceedings. The Ld. AR referred to the pages 3 to 48 of 3rd & 2378/Del/2010 Shitiz Metal Ltd., New Delhi paper book and submitted that all the documents in respect of identity, genuineness of the transaction and creditworthiness were duly available before the AO. The Ld. AR also referred to the statement of Mr Pawan Kumar Garg in the civil suit filed regarding advancing money placed at pages 49 to 57 of the 3rd Paper book. 6.1 The Ld. Departmental Representative (in short DR), on the other hand, relied on the order of the lower authorities and submitted that the assessee did not submit the books of accounts including cash book, even after repeated request by the Assessing Officer . He further submitted that the assessee referred to the litigation going on between the family/ concerns of director Sh. Ajay Kumar, Gupta and Sh. Pawan Kumar Garg, husband of Smt. Shashi Garg but did not make attempt to substantiate the money introduced in the company in the name of different persons. The Ld DR further submitted that Mr. Pawan Kumar Grag, husband of Shashi Grag has narrated the fact of introduction of crediting fictitious names and same was not refuted by the assessee company. He also referred to the practice of obtaining demand drafts below Rs. 50,000 without having any PAN detail as mentioned by the Assessing Officer in para 6 of his order . He submitted that the addition of Rs. 1,20,00,000/- for unexplained credit under section 68 of the Act may be upheld in view of failure of the assessee in discharging its burden of proof . 6.2 We have heard the rival submissions and perused the material on record including the three paper books filed by the assessee. The assessee made agreement for purchase of a property located at ‘Friends Colony, New Delhi, for a sum of Rs. 2,40,00,000/- from the seller, is a undisputed fact. This agreement was not registered for the purpose of & 2378/Del/2010 Shitiz Metal Ltd., New Delhi stamp duty. Subsequently, the assessee transferred this property through three registered sale deeds to Smt Sushama Gupta and smt Shashi Garg. Both the buyers of property are related to the directors of the assessee company. It was claimed by the assessee company that the property was transferred for a sum of Rs. 2,40,00,000/- but for the purpose of stamp duty, the property was registered only at Rs. 1,20,00,000/-. Thus according to the assessee, there was no capital gain in the transaction of purchase and sale of the property. The Assessing Officer asked for the detail and source of payment of Rs. 2,40,00,000/-, which was replied by the assessee vide letter dated 12 /06/2009 as under: S. No Name and Address of the person Money introduced 1 Smt Shashi Garg, Rs. 65, 00, 000/- 2 Smt. Sushma Gupta Rs. 60,00,000/- Other Sources 3 M/s Pawan Resources P ltd Rs. 34,75,000/- 4 M/s Sun Tech Vision Ltd Rs. 20,00,000/- 5 M/s G K Mittal ( HUF) Rs. 15,00,000/- 6 M/s Sketch India Electronics (P) Ltd Rs. 11,00,000/- 7 M/s N P Audio System Rs. 9,00,000/- 8 Pawan Kumar Garg Rs. 12,75,000/- 9 Sh Roop Basant Gupta Rs. 5,00,000/- 10 Sh Sachin Garg Rs. 4,00,000/- 11 Sh Anuj Garg Rs. 4,00,000/- 6.3 The Assessing Officer called for on five different dates, the books of accounts of the assessee company along with cash book and ledger accounts of the persons who has introduced the money in the company, however, the books of accounts were not produced by the assessee before the Assessing Officer. The Assessing Officer has claimed that no documents in support of the money introduced as other sources were filed as per the requirements of section 68 of the Act and he held that property & 2378/Del/2010 Shitiz Metal Ltd., New Delhi was transacted at Rs.1,20,00,000/- only and the balance money introduced in the books of the company was unaccounted money of the company itself. The relevant finding of the Assessing Officer is as under: “in view of the discussion, as above, it is held that the sale of the property took place it a price of Rs. 1, 20, 00, 000/-only (as depicted in the registered sale deeds) and the ‘Agreement to Sell’ is an unreliable document since it is unregistered. The amounts purportedly claimed to have been received in lieu of sale of property are in fact amounts received on some other account whose explanation is not forthcoming from the Assessee Company. Here, it would not be out of context to mention that a rather shameful practice is widely prevalent in the Indian Economy and particularly in Metropolitan Cities. We all know about the parallel economy (black money economy) and also about it being multiple times the size of the white money economy. The shameful practice which is being talked about here is the practice of exchange of Demand Drafts in lieu of payment of cash of equal and amount plus commission at rates ranging from 1% to 5%. It is very easy to procure these Demand Drafts from the ‘Entry Operators’. The source of these Demand Drafts can be shown to be anything. There are no ways and means for the Assessing Officer to investigate the source of the same even by the Independent means. Take, for example, a case where an Assessee deposits one such Demand Draft in his account for an amount say Rs. 25,000/-. The Assessee will simply submit the DD along with the pay-in- slips to his Bank. The assessee will not mention the name of the Branch of Bank which has issued the DD. The payment is made through centralised clearing. In the absence of mention of the name (in the pay-in-slip) of the issuing Branch, it is just impossible to trace out the source from which the DD was made. And in his Books of Accounts the Assessee can show receipt of this DD from any party that the Assessee may choose to show. The credit entry to the account of that party would be & 2378/Del/2010 Shitiz Metal Ltd., New Delhi actually bogus and, therefore, if a dispute arises, then, who should be believed? There are hundreds of such entries (office Marla amounts ranging from Rs. 10,002 Rs. 49,900/-) which are attributed to various parties by the Assessee but the same are not substantiated from the accounts of those parties. The truth is that the Assessee has utilised unaccounted cash to purchase the Demand Drafts from the Entry Operators and now, when it has been caught and cannot prove the source of the same, is shying away from producing its Books of Accounts etc because upon the original of the same it would be clearly revealed that the Demand Drafts did not originate from the accounts of the so-called ‘Other Sources’ from which payments were received (events which are not recorded in the sale deeds) to show that the property had been sold for Rs. 2.40 crores and not Rs. 1.20 crores. Therefore, the explanations filed in this regard (being neither substantiated and also being contradictory) are rejected. Therefore, this sum of Rs. 1, 20, 00, 000/-is being added back to the returned income of the assessee company, for A. Y. 07- 08, under section 68 of the Income-Tax Act, 1961…………………. ” 6.4 The Ld. CIT (Appeal) also held that no plausible explanation was submitted by the assessee in respect of the credits and the person lending the credits could not be produced before the Department in spite of repeated opportunities. The relevant findings of the ld. CIT(Appeal) in para 2.4 are as under: “…………….. the fact remains that the agreement to sell is unregistered document. There is no bar from income tax point of view for executing an agreement and not getting it registered but the issue arises only when different amounts shown at different stages for the same transaction which is neither permitted from the point of view of the relevant IT Act or the stamp duty law of the State Govt. it is also an admitted fact that in spite of repeated request no books of accounts were ever & 2378/Del/2010 Shitiz Metal Ltd., New Delhi produced before the AO probably to cover of the transactions. The AO has noted that there were number of entries of a small amounts ranging from Rs. 10,000 to Rs. 49,900/-and it is well- known that the requirement of PAN can be obligated if demand draft is purchased below Rs. 50,000/-. The AO has added Rs. 1,20, 00, 000/-under section 68 of the Act. Before me the appellant admitted in no uncertain terms that the sale deed was registered at Rs. 1.20 crore in place of Rs. 2.40 crore. Out of Rs. 1.20 crore, Rs. 0.70 crore was shown in the name of smt. Sushma and Rs. 0.50 crore was shown in the name of smt. Shashi. Hence from the registration point of view this was a money paid by these 2 parties to the appellant company but the appellant has paid Rs. 2.40 crore to BOTC. The appellant for the limited purpose of this transaction has received Rs. 1.20 crore from the 2 persons and the balance amount of Rs. 1.20 crore in name of various different persons and paid the entire amount of Rs. 2.40 crore to BOTC for the property transaction. It is immaterial for the purpose of IT Act that there are court cases between Gupta group and Garg group and it the Civil or criminal cases pending before the court of law has no bearing from the IT point of view. The fact also remains that there was an introduction of Rs. 1.20 crore by the appellant company in the different names in the credit of the books of the company for the period under consideration for which no plausible explanation could be submitted by the appellant. Such persons lending the credits could not be produced the Department in spite of repeated opportunities. One of the witnesses Pawan Kumar Garg has narrated the facts regarding introduction of credit in the fictitious names and the appellant could not refute such claim of Sh Garg. This shows that there is a hole in the argument and the preconditions of invoking section 68 does exist and the AO has rightly invoked the section. The addition of Rs. 1.20 crore under section 68 stands sustained. ” 6.5 Whereas, before us the assessee has claimed that all the documents related to identity, genuineness of the transaction and creditworthiness of ITA No. 2826 & 2378/Del/2010 Shitiz Metal Ltd., New Delhi the persons who landed money to the assessee company were already supplied to the Assessing Officer by those persons, however the Assessing Officer did not consider those documents and other enquiries conducted by him in respect of those persons. The assessee company has filed copy of all those documents from pages 3 to 48 of the 3rd paper book. 6.6 In view of the assertions of the parties on the issue of examination of documents, we are of opinion that the vital evidences have not been considered by the Assessing Officer while arriving at the conclusion that money received from different persons was unexplained. The Ld. CIT(Appeals) has also not attended the request of the assessee to summon and examine those persons. Thus, in the interest of natural Justice, we restore the matter back to the file of the Assessing Officer with the direction to examine the credits introduced of Rs. 1,20,00,000/- held as unexplained under section 68 of the Act in accordance to law. The Assessing Officer is directed to provide sufficient opportunity of hearing to the assessee. The assessee is also directed to submit all the relevant documents in support of its claim including the books of accounts before the Assessing Officer. Accordingly, the ground of the assessee is allowed for statistical purpose.

ITA No. 2826 & 2378/Del/2010 Shitiz Metal Ltd., New Delhi 9. The Ld. DR relying on the order of the Assessing Officer submitted that a sum of Rs. 66,25,000/- was observed by the Assessing Officer as liability under the head ‘advance against sale of property’ and on query it was stated by the assessee that said advance was received against plot of land No. 32, South of GT road, Industrial area, Ghaziabad from Shri Rajeshwar Kumar Mittal, vide agreement to sale dated 01/10/2001. The Ld. DR further submitted that no copy of agreement to sale was filed by the assessee and the assessee failed to explain as why the property was not transferred even after a lapse of more than 8 years. Since the assessee failed to explain the said advance of Rs. 66,25,000/- , the Assessing Officer has rightly held the money as own money of the assessee and added under section 68 of the Act. On the other hand, Ld. AR relying on the finding of the CIT (Appeal) submitted that the advance in question was not received in the year under consideration and therefore provisions of section 68 were not applicable.