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Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
Date of Hearing : 04-02-2016 Date of Order : 04-03-2016
ORDER PER H.S. SIDHU, J.M. The Department has filed this Appeal against the impugned Order dated 28.09.2011 of Ld. CIT(A)-XIX, New Delhi pertaining to assessment year 2003-04 on the following grounds:-
1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 40,00,000/- made by the AO u/s. 68 of the I.T. Act and Rs. 1,00,000/- on account of commission thereon, where the assessee failed to discharge its onus to prove the genuineness of the transactions.
2. The appellant craves for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of appeal.”
2. The brief facts of the case are that the Assessee filed return of income on 1.3.2004 declaring a total of Rs. 24,68,110/-. The assessee is a company and also Non-Banking Finance Co. (NBFC) registered with RBI. During the year, the assessee company had shown receipt of share application money / share capital of Rs. 1,15,00,000/- from various companies. The AO received information from the Investigation Wing of the Department, that the companies / persons which contributed towards share application money / share capital were involved in providing accommodation entries. In view of the specific information, the AO initiated action u/s. 148 and completed the assessment on 30.12.2010 determining the total income at Rs. 65,88,106/- disbelieving a part of share application money / share capital of Rs. 40,00,000/-.
3. Aggrieved by the aforesaid order of the Assessing Officer dated 30.12.2010 passed u/s. 143(3)/147, assessee filed an appeal before the Ld. First Appellate Authority, who vide impugned Order dated 28.09.2011 had deleted the addition in dispute by partly allowing the appeal of the Assessee.
4. Aggrieved with the aforesaid finding of the Ld. CIT(A), Revenue is in appeal before the Tribunal.
5. Apropos deletion of addition of Rs. 40,00,000/- made by the AO u/s. 68 of the I.T. Act and Rs. 1,00,000/- on account of commission thereon, where the assessee failed to discharge its onus to prove the genuineness of the transactions.
5.1 On this issue, Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal filed by the Revenue. In connection with addition of Rs. 40,00,000/- made u/s. 68 is concerned, it was the main contention of the Ld. DR that assessee failed to discharge its initial onus cast upon him in accordance with provisions of section 68 of the I.T. Act, 1961, as the assessee has once again filed the same details as had been filed earlier.
Therefore, he stated that the addition was rightly made by the AO and may be upheld accordingly. Moreover, with regard to addition of Rs. 1,00,000/- is concerned relating to commission paid to entry operators, he stated that since the assessee has taken the entry to introduce unaccounted money of Rs. 40 lacs for which the assessee had paid commission to the entry operators was rightly added by the AO, which also needs to be upheld and accordingly, the order of the Ld. CIT(A) may be quashed.
5.2 On the other hand, Ld. Counsel of the Assessee relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference and the same may be upheld.
We have heard both the parties and perused the records, especially the Orders of the revenue authorities and precedents relied upon by the Ld. CIT(A) in his impugned Order. We find that Ld. CIT(A) has elaborately adjudicated the issues in dispute in his impugned order vide para nos. 7 to 19 from pages 4 to 9. For the sake of convenience, we are reproducing the para nos. 7 to 19 from pages 4 to 9 as under:-
“7. I have gone through the assessment order and the written missions filed by the AR. 8. Share application money/Share capital: The assessee company received share application money/share capital from the following persons/companies and the details furnished are as under:
Name«& Address Share capital Remarks s. (Rs.) N.
1 5,00,000 Chanakya Finvest Pvt. Ltd. Copies of confirmation letter, Affidavit of Director, ITR Ack, 5/1, Clive Row, 3rd Floor Bank A/c copy, P&L A/c, B/S PAN: AAACC 3760 G Date of incorporation 24.08. 1995 Kolkata West Bengal-70000! 2 5,00,000 PCB Consultant Pvt. Ltd. 301, Copies of confirmation letter, Affidavit of Director, ITR Ack, Bank A/c copy, P&L A/c, B/S PAN :AAACP 0782 H Date of Dhaka Chamber, 2068/39, incorporation 23.04. 1 993 Naiwala Karol Bagh, New Delhi- 11 0005 3 5,00,000 Ramsons Travels Ltd. G- Copies of confirmation letter, Affidavit of Director, ITR Ack, Bank A/c copy, P&L A/c, B/S PAN:AAACR 1237 R Date of 1/204, Uttam Nagar, Delhi- incorporation 29.12.1994 110059 4 5,00,000 Fine Finance & Leasing Pvt. . Copies of confirmation fetter, Affidavit of Director, ITR Ack, Bank A/c copy, P&L A/c. B/S PAN:AAACF2029H Date of Ltd. 30 1 , Dhaka Chamber, incorporation 18.03.1995 2068/39, Naiwala Karol Bagh, New Delhi- 11 0005 5,00,000 5 Copies of Share application form, Affidavit of Director, ITR Viniyas Finance & Investment Pvt. Ltd. 2l2,G.F.,IslMainRoad Aek, Bank A/c copy, P&L A/c, B/S PAN:AAACV 1597 A . chamrajpet, Banglore-18, Karnataka 6 Copies of confirmation letter, Affidavit of Director, ITR Divya Secfin Pvt. Ltd. 5,00,000 27, Wcston Street, 5Ih Floor, Ack, Bank A/c copy, P&L A/c, B/S PAN:AAACD4907G Date of incorporation 02.04.1996 Room No. 525, Kolkata West Bengal-700012 7 5,00,000 Ramsons Drugs Ltd. 122-J, Copies of Share application form, confirmation letter, ITR Ack, Bank A/c copy, P&L A/c, B/S PAN:AAACR 5650 E Laxmi Nagar Extn., New • f Date of incorporation 07.04. !995 Delhi- 11 00 18 8 5,00,000 Jatin Investment Pvt. Ltd. 12, Copies of confirmation letter, ITR Ack, Affidavit of Director, Crooked Lane, 1st Floor Bank A/c copy PAN:AAACJ 1585G ;. -„ ,' Date of incorporation 15.03.1993 Kolkatta, West Bengal-700069 Total 40,00,000
The assessee has filed the following documents in the course of assessment proceedings to prove the transactions. a) Share Application Form received from sharps. b) Board resolution of share holders. I c) Memorandum & article of associates of share holders. d) Share allotment letters e) Copy of Form no.2 i.e. return of allotment of share in ROC f) Confirmations from share holders g) Copy of PAN card of share holders. h) Copy of acknowledgment of Income Tax Return of share holders i) Copy of Bank Statement of share holders j) Copy of Audited Balance Sheet of share holders k) Affidavit from share holders 1) Copy of annual return of assessee filed in ROC showing the name of these applicants as share holders m) Copy of Form no. 18 filed in ROC in case of change of address of share holders.
10.1 In a nutshell the main allegation of the AO is that receipt of Share application money/share capital was an arranged affair. The other observation of the AO is that the genuineness and credit worthiness of the transaction remained unproved. On the other hand, the main contention of the AR is that the burden cast on it was discharged by providing basic details required for verification as envisaged u/ s 68. The AR further stated that principles of natural justice were not followed. ~ 10.2 It is very much pertinent to mention here that in the appellant's case scrutiny assessment u/s 143(3) was made on 28.02.2006. In the course of the said proceedings, the details of share application money / share capital were furnished vide its explanation dated 16.11.2005 which are available at pages 40 to 43 of the paper book furnished. Nothing adverse was found. The AO has not verified the details furnished by the assessee and I.T. records of the shareholders/investing companies. These facts were not controverted by the AO. The assessee has discharged its burden of providing basic details which were required for verification to fulfill the conditions viz. identity of the creditor, credit worthiness of the creditor and genuineness of transaction as laid down by higher judicial authorities for examining the issue is u/s.
In the case of CIT vs. Divine Leasing & Finance Ltd. 207 CTR 38, the Hon'ble Jurisdictional High Court observed as under:-
"On appeal this Court held that:
'There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the Assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of public issue, the company concerned cannot be expected to know every details pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents.
In the case of private placement the legal regime would not be the same.
A delicate balance must be maintained while walking the tightrope of section 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbors doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company.
'Further, a distillation of the precedents yields the following proposition of law in the context of section 68 of the Income Tax Act. The Assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely: whether it has been transmitted through banking or other indisputable channels; (3) the credit worthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address of PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders
Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee;
(5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notice; (6) the onus would not stand discharged if the creditor/subscriber denied of repudiated the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; (7) the Assessing Officer is duty-bound to investigate the credit worthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation."
With regard to the issue of share application money, while dismissing the SLP filed by the Department, the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. (216 CTR 195) observed as under:
"Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave
Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law.
Hence, we find no 'infirmity with the impugned judgment."
In the case of Anu Industries Ltd. vs. ACIT (2009) 19 DTR (Del) (Trib) 465 (Dated 28.11.2008) after referring decisions in the cases of CIT VS. Value Capital Services (P) Ltd. (2009) 221 CTR (Del) 511, CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195: (2008) 6 DTR (SC) 308, Shipra Retailers (P) Ltd. (SLP No. 451 of 2008, dt. 21st Jan. 2008) and Divine Leasing & Finance Ltd. (SLP No. 375 of 2008, dt. 21st Jan. 2008) the Hon'ble ITAT observed as under: "We have considered the rival contentions and found that identity of the share applicants are not in dispute, The Hon'ble Supreme Court in case of Divine Leasing & Finance Ltd. (supra) has held that if the share application money is received by the assessee company even from the bogus shareholders whose names are given to the AO then the Department is free to proceed to reopen their individual assessments in accordance with law. Accordingly, addition made under s. 68 which was deleted by the Hon'ble High Court was upheld by Hon'ble Supreme Court. A perusal of the orders of the Hon'ble Supreme Court in the case of Divine Leasing & Finance Ltd. referred to supra is in regard to SLP filed by the Revenue against the order of the Hon'ble Jurisdictional High Court. The Hon'ble Supreme Court has specifically with a speaking order dismissed the SLP. The Hon'ble Supreme Court in the various decisions referred to by the learned Authorized Representative has categorically held that the addition in regard to the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO. Further the Hon'ble Supreme Court has categorically held that the Revenue is free to proceed to reopen the individual assessments of such alleged bogus shareholders. The decision of the Hon'ble jurisdictional High Court in the case of Value Capital Services Ltd. (supra) has also categorically held that there is additional burden on the Revenue to show that even if the applicant does not have the means to make the investment, but the investment made by the applicant should be shown to have emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. It is noticed that the Revenue has not been able to specifically show that the investments had emanated from the coffers of the assessee in this case. In these circumstances, respectfully following the decision of the Hon'ble jurisdictional High
Court as also Hon'ble Supreme Court referred to supra, the addition made by the AO and confirmed by the learned CIT(A) in regard to the alleged bogus shareholders represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. Respectfully following the decision of the Hon'ble
Supreme Court we direct the AO to delete the addition made under s.68.
However, the Department is free to proceed to reopen the individual assessments of the share applicants in accordance with law. We direct accordingly."
I have no hesitation to conclude that the assessee has provided necessary details including the ward/circle where the share applicants/ investing companies were assessed to income tax and discharged the onus cast on it. All the amounts were received, through Banking channels by way of cheques issued in favour of the Appellant Company towards share application money. It is further seen that shares were allotted as per the documents furnished before ROC.
The law of evidence mandates that if the best evidence is not placed before the court, an adverse inference can be drawn against the person who ought to have produced it. As stated above the assessee has produced possible/best evidence to support its claim. 13. The AO has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee company and also not placing before the assessee the information and findings of the Investigation Wing violating the principles of natural justice. 14. If there is any discrepancy in the books of accounts maintained by the investing companies, there is a case for reopening of the assessment of the respective shareholders/investing companies. 15. The assessee cannot be penalized for the mistakes/faults committed by the share holders. The AO has not found any discrepancy in the books of account and bank accounts maintained by the assessee.
It is settled principle of law that no addition / disallowance can be made on suspicion, surmises and conjectures as held by the Hon'ble Supreme Court in the following cases. a) Dhirajlal Girdharilal v CIT 26 ITR 775 b) Omar Salay Mohammed Sait v CIT 37 ITR 151 c) Dhakeshwari Cotton Mills Ltd. v CIT 26 ITR 775 d) Lalchand Bhagat Ambica Ram v CIT 37 ITR 288 17. In the case of Acchyalal Shaw v. ITO (2009) 30 SOT 44 (Kol.) (URO), the Hon'ble ITAT observed as under:
"Suspicion cannot replace evidential document. Simple argument or allegation of manipulation is not sufficient without proper evidence."
In view of the above facts and circumstances and available legal position, the share application money/share capital to the extent of Rs. 40,00,000/- stands explained.
Since the main addition is deleted, there is no case for addition of Rs. 1,00,000/- towards alleged commission payment.” 7. After going through the aforesaid detailed finding given by the Ld. CIT(A) and the precedents relied upon by him in his impugned order on the additions in dispute, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. CIT(A) on the deletion of additions in dispute, hence, we uphold the same and dismiss the ground no. 1 raised by the Revenue in its Appeal. 8. In the result, the Revenue’s Appeal stands dismissed. Order pronounced in the Open Court on 04/03/2016. Sd/- Sd/-