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Facts
The Revenue filed an appeal against the order of the CIT(A) which had partly allowed the assessee's appeal. The AO had made an addition of Rs. 4,00,00,000/- on account of share capital and premium received by the assessee from M/s. Apoorva Leasing Finance and Investment Company Ltd.
Held
The Tribunal noted that the CIT(A) had considered the identity of the investor company as proved based on documents like MOA, PAN card, and MCA data. The Tribunal also agreed with the CIT(A) that the transactions were conducted through banking channels and the AO had not brought forth any evidence to prove otherwise. The reliance on the investigation report was found to be insufficient as it was not confronted to the assessee.
Key Issues
Whether the CIT(A) rightly deleted the addition made by the AO regarding share application money and premium, considering the identity and creditworthiness of the investor and genuineness of the transaction?
Sections Cited
68, 143(3), 250, 143(1), 142(1), 143(2), 131, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI M BALAGANESH & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JUDICIAL MEMBER:
The application for condonation of delay in filing appeal and appeal filed by Revenue are against order dated 28.08.2020 of Learned Commissioner of Income-Tax (Appeals), Meerut (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 ( hereinafter referred as “the Act”) arising out of assessment order dated 27.03.2015 of the Learned Assessing Officer/Income Tax Officer, Ward-1(4), Meerut (hereinafter referred as “Ld. AO") under Sections 143(3) of the Act for assessment year 2012-13.
Brief facts are that audited return declaring Nil income was e-filed on 18.09.2012. The same was processed u/s 143(1) by the CPC. The case was selected for scrutiny by the Directorate of Income Tax (System) through CASS. Notice under Section 143(2) of the Act dated 12.08.2013 was issued. Various notices under Section 142(1) of the Act were issued calling for specific evidence, explanation and clarifications. During hearing further clarifications were obtained. The assessee also filed report of the Auditor in Form 3CD with related Trading Account, P. & L. Account and Balance Sheet with Annexures. Initially, Shri Pankaj Gupta, CA attended proceedings. Later, Shri Ravindra Agarwal, C.A. attended the proceedings. On completion of proceedings, Ld. AO vide order dated 27.03.2015 made addition of Rs.4,00,00,000/-.
Against order dated 27.03.2015 of Ld. AO, the appellant/assessee preferred appeal before the Ld. CIT(A) which was partly allowed vide order dated 28.02.2020.
Being aggrieved, the appellant/revenue preferred present appeal with following grounds:
“1. The CIT(A), Meerut has erred in law in not appreciating the fact that in view of the section 68 of the I.T. Act, 1961, the onus was upon the assessee company to proved the source of credit entries of Rs.4,00,00,000/- received by the assessee company as share application money from M/s Approva Leasing Finance and investment Company Ltd. However, by solely upon the submissions furnished by the assessee company, Ld. CIT(A) has deleted the addition made by the AO.
2. The CIT(A), Meerut has erred in law and failed to appreciate the fact that the assessee company remain failed to prove the creditworthiness of the investor company i.e. M/s Apoorva Leasing Finance the investment Co. Ltd. before the AO.
3. The CIT(A), Meerut has erred in law in ignoring the fact that the net worth of the assessee company was not so high to justify having received such higher share premium.
4. The CIT(A) has erred in law in ignoring the fact that the investor company has failed to prove source of the credit matching amounts deposited just before issue of cheques to assessee company 5. The CIT(A) has erred in law in not relying on the report of the ADIT(Inv.) Unit-VI(2), New Delhi, a search/ survey operation was conducted by them at the residence and the offices of Sh. Surendra Kumar Jain and Sh. Virendra Jain and from the post search investigations, it was found that they were engaged in the business of providing accommodation entries by providing cheques/PO/DD in lieu of cash to a large number of beneficiary company through paper and dummy companies floated and controlled by them. This could be established by the investigation wing after careful examination of seized material, including computer hard disks and tally data which contained the books of accounts. The wing had enough evidences on record which evidently establish that Sh. Surendra Kumar Jain and his brother Sh. Virendra Jain are known as entry providers. A list of paper and dummy companies run and controlled by these 'Jain' brothers from various addressed given therein also contained the name of M/s Apoorva Leasing Finance and Investment Company Limited, from whom assessee company has shown receipts of share application and share premium amount. The Ld. CIT(A), Meerut is perverse in law while giving the findings that the identities of the companies are beyond doubt ignoring the enquires made by the AO and allowed the entire share application money of Rs.4,00,00,000/- on technical grounds. 6. Appellant craves leave to modify/amend or add any one or more grounds of appeal.”
Learned Authorized Representative for the Department of Revenue submitted that appeal against order dated 28.08.2020 was filed on 22.12.2020. Because of Covid Pandemic 2019, as per Notification, dated 24.06.2020, the last day for filling the departmental appeal had been extended up to 31.03.2021.
Learned Authorized Representative for the respondent/assessee had no objection.
In view of above submissions raised by the Learned Authorized Representative for the Department of Revenue, since appeal was filed with extended period, there is no delay in filing the appeal. Therefore, since the period for filing appeal by the Revenue had been extended, the application for condonation of delay in filing of appeal is dismissed.
Learned Authorized Representative for the Department of Revenue further submitted that a search & seizure action was conducted by Director of Income Tax (Inv), Unit -VI(2), New Delhi in the Surendra Kumar Jain Group of cases. During the course of post search Investigations and while examining the seized documents it was observed that Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain were engaged in the business of providing accommodation entries to large number of beneficiary companies through various paper and dummy companies floated and controlled by them. Accommodation entries were provided to the beneficiary companies through cheques/PO/DD in lieu of cash charging a certain amount of commission for the same. M/s Apoorva Leasing Finance and Investment Company Limited is also one of the group company of Sh. S.K. Jain being run by Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain. During the year the assessee company M/s Livros Publishing Pvt. Ltd. received share capital of Rs 400,00,000/- on account of Share capital at premium from Apoorva Leasing Finance and Investment Company Ltd. The assessee had no business transaction with Sh. Surendra Kumar Jain Group of cases before or after the transaction took place and no interest/ dividend was paid to Sh. Surendra Kumar Jain.
8.1 Perusal of the Balance-sheet of the assessee company M/s Livros Publishing Pvt. Ltd., for the year ending on 31.03.20212 revealed that during the year 160000 equity shares having face value of Rs. 10/- were allotted to M/s. Apoorva Leasing Finance and Investment Company Limited, Delhi. Only Rs.5/- per share was received from the Investor company aggregating Rs.800000/-. Further, assessee company received share premium of Rs.39200000/-1.e. Rs.245/- per share from M/s Apoorva Leasing Finance and Investment Company Limited. Share capital at premium amounting to Rs. 400,00,000/- received from M/s Apoorva Leasing Finance and Investment Company Limited was added to the income of the assessee company M/s Livros Publishing Pvt. Ltd. for the A.Y. 2012-13 vide assessment order dated 27.03.2015 passed u/s 143(3) of the I.T. Act, 1961 because the assessee company could not prove the identity of the person from whom money was taken, creditworthiness of the person and the genuineness of the transaction.
8.2 Regarding Identity it is submitted that During the course of assessment proceedings vide point no.(vi) of order sheet entry dt. 05.02.2015 the assessee company M/s Livros Publishing Pvt. Ltd. was required to produce the Director of investor company M/s Apoorva Leasing Finance and Investment Company Limited. Several adjournments were given but of no use. The assessee company also requested to issue summons u/s 131 of 1. T. Act to the Directors of the investor company. Since the matter involved limitation no further adjournment was given and no summons u/s 131 were issued. The assessee company on 13.03.2015 filed application dated 12.03.2015 that since assessment order has not yet been finalized opportunity may be provided to the assessee to produce the director of the Investor company. In the interest of natural justice request was granted and date of 20.03.2015 was fixed to produce the Director. On 20.03.2015 assessee submitted reply that the Director of the investor company has given tentative date of 24.03.2015, hence adjournment for 24.03.2015 was sought. The adjournment was granted for 27.03.2015.
8.3 Learned Authorized Representative for the Department of Revenue that regarding creditworthiness of the person from whom money was taken, submitted that investor company M/s. Apoorva Leasing Finance and Investment Company Limited didn't had any credit worthiness of its own. The documents as provided by the Investigating wing clearly suggested that at one side the company operative were receiving the money in cash, depositing in their sister concern and then transferring to the company for further transfer to the entry seeking beneficiary companies. Perusal of Bank A/c No. 014706400000509 maintained with Dhanlaxmi Bank of investor company M/s. Apoorva Leasing Finance and Investment Company Limited revealed that just before or after issue of cheque to assessee company M/s. Livros Publishing Pvt. Ltd. there are credit entries of matching amount in the bank. Vide letter issued under Section 133(6) of the I.T. Act, 1961 dated 25.11.2014 information was called for from the investment company M/s. Apoorva Leasing Finance and Investment Company Limited regarding source of these credits of matching amounts in its bank account just before and after issuing cheques to assessee company M/s. Livros Publishing Pvt. Ltd. In compliance, the investor company M/s. Apoorva Leasing Finance and Investment Company Limited failed to prove the source of credits. The fact shows that Investor company M/s. Apoorva Leasing Finance and Investment Company Limited is an entry provider and it is clearly established during the course of assessment proceedings that the money was given by assessee company M/s. Livros Publishing Pvt. Ltd. and reverted back to it through garb of share application money and premium on it. There was direct inflow and related outflow of the cash. The investor company's Profit & Loss Account clearly establishes this incoming & outgoing as the Investor 7 Company was having negligible income from operations. It clearly shows that the investor company's main activity was to route the money to the respective beneficiary company on commission basis. Merely furnishing of the copies of the bank account of the investor company, share application, balance-sheet is not sufficient to prove their creditworthiness. There must be some positive evidence to show the nature and source of the resources of the share-subscribe himself. The investor company was operating as cash entry banking channel nexus. Thus, the assessee company failed in its onus to prove the creditworthiness of the investor company M/s. Apoorva Leasing Finance and Investment Company Limited.
8.4 As there is a question of genuineness of genuineness of the transaction, it is submitted that - During the year the assessee company M/s. Livros Publishing Pvt. Ltd. had received share capital of Rs.400,00,000/- on account of Share capital at premium from M/s. Apoorva Leasing Finance and Investment Company Ltd. During the course of assessment proceedings, a detailed questionnaire was issued to the assessee company regarding the genuineness of the transaction. Vide note sheet entry dated 05.02.2015 the assessee was required to furnish several details. The intention was to provide the assessee an opportunity to explain the transaction as genuine. Vide Point No.(iv) of order sheet entry dt.05.02.2015 the assessee company was required to furnish a brief note on the transaction of the share capital. The assessee in written submissions dated 27.02.2015 only provided the mathematical calculation without throwing any purpose/understanding/memorandum understanding, signed with the company. Thus it failed to submit any document to substantiate the genuineness of the transaction. Even the copy of the counterfoil of Share Certificate issued was not submitted. Vide Point No.(v) of order sheet entry dt.05.02.2015 the assessee company was asked about the motive of investor company M/s. Apoorva Leasing Finance and Investment Company for Investing huge amount with premium of 49 times the share allotted. It is to be mentioned here that the share of Rs.10 was sold for Rs.500. M/s. Apoorva Leasing Finance and Investment Company had simply stated that due to future prospects the share premium was paid. The company M/s. Apoorva Leasing Finance and Investment Company main objects are to invest in securities but the balance sheet submitted for the relevant year clearly showed that the company had done nothing except receiving interest on some loan advanced to other companies. The assessee's version cannot be accepted because - No memorandum of understanding was submitted by the assessee company. What were the future prospects had not been disclosed. The reply given is vague. Even the calculation of Book Value and calculation of Share Premium had not been submitted. It is further pointed out that neither the balance sheet of the assessee company nor the investing company M/s. Apoorva Leasing Finance and Investment Company reflected any transaction or expenditure related to the proposed activity. It is established that there was no such motive of M/s. Apoorva Leasing Finance and 9 Investment Company reflected in its financial statements and balance sheet also does not substantiate such a claim. Vide Point No.(iii) sheet entry dt.05.02.2015, the assessee company was specifically asked about the position as on date of the shares allotted. The assessee company had given its reply and admitted that on 31.03.2012 the assessee company has issued 50% paid partly paid up shares to M/s. Apoorva Leasing Finance and Investment Company and had raised the demand note for call money for which the said company had not deposited the amount and the above mentioned shares were forfeited on 31st August 2012. M/s. Apoorva Leasing Finance and Investment Company didn't objected to this forfeiture and didn't tried to settle the dispute if any. It is not possible in the genuine transaction that the company has received such a considerable amount, forfeited it and no action is taken by it. All saying in the matter is dubious one and clearly established it as sham transaction. The assessee failed to file reasonable reply to satisfy the genuineness of the transaction, thus, the assessee company failed in its onus to prove the genuineness of the transaction.
Learned Authorized Representative for the respondent/assessee relied on order of Ld. CIT(A).
From examination of record in light of aforesaid rival contentions, it is crystal clear that Ld. AO vide order dated 27.03.2015, made addition of Rs.4,00,00,000/- on account of share capital received by the assessee on account of share application under Section 68 of the Act.
10.1 Vide order dated 28.08.2020, Ld. CIT(A) in para nso. 5.3.7 to 5.3.9 observed as under:
“5.3.7 I have considered the facts, findings of the A.0., submissions of the appellant and the various case laws relied upon by the A.O. as well as appellant and have observed that an amount of Rs.4,00,00,000/- was invested by M/s. Apoorva Leasing Finance and Investment Company Ltd. in the appellant company, as the share capital and share premium. The invested was credited in the books of account of the appellant. The appellant was legally required to prove the same u/s 68 of the I.T, Act, 1961. The A.0. required the appellant to explain the credit of share capital and share premium and after considering the evidences filed before him, reached a conclusion that the appellant could not prove the identity and creditworthiness of the share investor and genuineness of the transaction with him. The A.O. has placed heavy reliance on the report/information received from the Investigation wing, Delhi, stating that the documents provided by the Investigation Wing clearly suggest that at one side the investor company was receiving the money in cash, depositing in their sister concern and then transferring to the investor company for further transfer to entry seeker company. On this basis, he held that the money was given by the appellant company and was received back to its th rough grab of share application money and share premium on it. The A.O. made addition of Rs.4,00,00,000/- u/s 68 in the hands of the appellant. 5.3.8 I have considered the documents and evidences filed by the appant during assessment proceedings as well as in the appeal proceedings and has taken note that from the copies of memorandum of association, PAN card, copy of master data as downloaded from MCA website, return filing proof of the M/s. Apoorva Leasing Finance and Investment Company Limited on record, the identity of the investor stood proved. The identity is further proved by the facts on record that the investor is a limited company, whose shares are listed at stock exchange and is an ISO 9001- 2008 certified company. On these facts, I am of the considered view that the A.O. has wrongly doubted the identity of the creditor/investor.
5.3.9 I have perused the bank statements of the investor as well as the bank account of the appellant on record and have noted that all the transactions of share investment were through banking channel. The A.O. has not brought on record any documentary evidence to hold that the transaction in bank accounts were not genuine. The A.O. has proceeded solely on the basis of information from investigation department to the effect that the investor was an entry provider and was rotating the money of the entry seeker but such information cannot part take the character of an evidence unless any proof in support of the same is brought on record. The A.O. has not carried out any enquiry on the information from investigation wing of the department and has not brought on record any evidence that money of the appellant was used at any stage of the transactions. The A. O. has nowhere in the assessment order stated that the information from DIT (Investigation), New Delhi, did contain any reference to appellant's name therein or not. The information so received was never con fronted to the appellant for his rebuttal and therefore the reliance placed by the A.O. on such information cannot be given any credence. There was no cash deposit in the bank account of the investor before issuance of cheques/RTGS towards share money to the appellant. The investor has filed explanation of the sources of the entries in its bank account credited prior to the payments to the appellant for share investment and the A. 0. has neither controverted nor disproved the same. In view of these facts on record I have no hesitation in holding that the genuineness of the transaction stood proved and the A.O. has wrongly doubted the same”.
In view of above discussion and observations of the Ld. CIT(A), it is apparent on record that appellant/assessee had received share investments through banking channel. Ld. AO had not brought on record any documentary evidence to show that the bank transactions brought were not genuine. In present appeal also, the Department of Revenue has not produced any evidence in support of grounds of appeal
. Therefore, the grounds of appeal nos. 1 to 6 being untenable are dismissed.
12. In the result, the appeal of the Revenue is dismissed.