ITO, NEW DELHI vs. M/S. ISF SECURITIES PVT. LTD., NEW DELHI

Date of Hearing : Date of Hearing : 16 Date of Hearing : Date of Hearing : 16 16-12 16 12 12-201 12 201 2015 201 Date of Order : 18 Date of Order : 18-12 12-201 2015 Date of Order : Date of Order : 18 18 12 12 201 201 ORDER ORDER ORDER ORDER PER H.S. SIDHU PER H.S. SIDHU : : : : JM PER PER H.S. SIDHU H.S. SIDHU This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-XIII, New Delhi dated 1.4.2010 pertaining to assessment year 2005-06 on the following grounds:-

1. On the facts and circumstances of the case and in law the order of the Ld. CIT(A) is wrong, perverse, illegal and against the provisions of law which is liable to be set aside.

2. On the facts and in the circumstance of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,44,85,000/- made u/s. 68 of the I.T. Act, 1961 on account

of income from undisclosed sources from unexplained share application. 3. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 1,20,000/- on account of disallowance of interest. 4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”

2. The brief facts of the case are that the assessee on 31.10.2005 filed its Return declaring Nil income after setting off the b/f losses, but has paid tax as per the provision of section 115JB at book profit. The return was processed u/s 143(1) vide intimation dated 11/02/2006 at the returned income. The case was selected under scrutiny by CASS and accordingly, notice u/s 143(2) was issued on 09/10/2006 fixing the case for hearing on 23/10/2006. On 9th July 2007, the case was again fixed for 3/8/2007, and notices u/s 142(1)/143(2) were issued to the assessee. In compliance to the above, Ld. Authorised Representative of the assessee attended the case proceeding and filed part details as called for which are placed on record. During the year, the assessee has shown income from business of share trading & brokerage. From the details filed, it was noticed that during the year, the assessee company has raised Share Application Money of Rs. 1,44,85,000/-. Vide questionnaire dated 09/07/2007; the assessee was asked to file detail of share applicant along with their bank statement, confirmation and also details of Income-tax particulars for verification of share applicant's creditworthiness, genuineness of the transactions. Thereafter, the AO observed that since the assessee has failed to prove any evidence to prove their identity, creditworthiness and genuineness of the share application money received, in the entire assessment proceedings, therefore, he added a sum of Rs. 1,44,85,000/- as income from undisclosed sources in the declared income of the assessee company. As regards the interest of Rs. 1,20,000/- is concerned, the company is paying interest on the amount borrowed by it, hence, in the absence of any detail and nature of the advance a sum equivalent to Rs. 1,20,000/- on proportionate basis was disallowed out of the interest debited in P&L account and added to the income of the assessee. Accordingly, income of the assessee was assessed at Rs. 1,69,22,730/- u/s. 144 of the I.T. Act, 1961 vide order dated 31.12.2007 passed u/s. 144 of the I.T. Act, 1961.

3. Against the aforesaid assessment order, the assessee appealed before the Ld. CIT(A), who vide impugned order dated 1.4.2010 allowed the appeal of the assessee and deleted the additions in dispute.

5. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.

6. On the contrary, Ld. Authorised Representative of the assessee has relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is a well reasoned order and therefore, the same may be upheld and Revenue’s appeal may be dismissed accordingly. He further stated that the issue no. 1 relating to addition u/s. 68 is squarely covered by the Order dated 12.8.2015 of the Hon’ble Delhi High Court in the case of 72 & 84/2015 in the case of CIT-9 (Erstwhile CIT-VI) vs. Vrindavan Farms (P) Ltd., wherein the similar issue was taken up by the Department and the Appeals of the Department were dismissed. Accordingly, he also requested that the same ratio of the Hon’ble High Court of Delhi may be followed in the present Appeal involved in issue no. 1.

“As appear from the face of the assessment order itself, the order has been passed u/s 144 and AO has admitted that assessee could not file any evidence with regard to share capital applicant as they are out of country, Therefore the appellant, as appears from the facts of the case, was prevented from the sufficient cause in filling these evidence before the AO. Now during the appellant proceedings these evidence has been filed & as per rule 46A AO was given opportunity to verify them. However AO has chosen not to verify these evidence. As these are material evidence in deciding this appeal, hence they are admitted. During the course of assessment proceedings the A.O has not mentioned any details of the investigation carried out and the specific information collected by the department except issue of 133(6) notice, on the basis of which it was held that the payment received by the appellant from the person in the garb of shares application money was actually accommodation entry. It has been held in plethora of judicial pronouncement that if the information or the source of that information is collected at the back of the asseesse and the same is not confronted to the assessee or the assesse is not given reasonable opportunity to rebut them, then the same cannot be used against the asseesee. Reliance in this regard is placed on the following judicial pronouncement given by Honb’le Apex Court and jurisdiction High Court:-

C. Vsantlal & Co. V. CIT (1962) 45 ITR 206(SC) Meenglas Tea Estate V. Workmen. 1963-(050)-AIR- 1719 -SC Dhakeshwari Cotton Mills Ltd. Vs CIT 26lTR 775.782-3SC Menka Gandhi Vs UOI (AIR1978 SC 597)

J.T. (India) Exports and another Vs UOI and another262 ITR269(Del FB) Tulari Ram Pate 45- ITR - 206 (SC) C.B. Gautam (Supra)1993-199-ITR-530(Sc) CIT vs Rajesh Kumar 2008-306-ITR-27(Del) CIT vs Real Time Marketing Pvt. Ltd. 2008-306-ITR-35 (Del) CIT vs Naveen Gupta 2006-5-S0T-94 (Del)/07 (Delhi ITAT) Manoj Bansal v. ACIT (SS)Al14/DeI/07 (Del ITAT) Further it has also been held in various judicial pronouncement cited supra that a statement made during the course of search/survey proceedings is not the final word for making any addition but has to be seen in the light of supporting facts and materials. However in the present case the AO has not brought any evidence on record which could prove that the impugned share application money received by the appellant reflects its unaccounted income. On the other hand the appellant had discharged the initial onus of establishing the identity of the parties. It has held in the case of Harbans Lal Sarna vs. DCIT (2007) 109 TTJ861 (CHD) that as the assessee's transactions with the said parties were complete & was not having any transaction in future with them, it was very difficult for the assessee company to produce them before the AO. It was further held that where appellant had shown certain credit entry, which is supported by bills and the payment have been received through banking channel, then such credit entry could not be treated as unexplained cash credit in appellant's hands.

Hon'ble Delhi High Court in the case of CIT vs Pradeep Gupta 207 CTR 115, which has also been relied upon by the Delhi ITAT in the recent judgment in the case of Babita Gupta ITA N 0.2897 106 where in it is held that in the facts of the case before us it may be seen that from the very beginning A.O had shifted entries burden upon the appellant and no material was brought by him to prove his allegation that the impugned amount represented assessee company's undisclosed income.

It was argued by the appellant that in assessment order, the AO has not given any details about the enquiry conducted by him on the basis of which it was held that the said parties were involved in the business of providing accommodation entry. The Hon'ble Delhi High Court in the case of J.T. India Exports and another vs. UOl and another (2003) 262 ITR 269(Del-FB) has held that the AO must pass a speaking order giving reasons for the conclusion arrived at, and opportunity of being heard must be provided to the appellant before passing any adverse order. It has been further held that in the notice issued by the AO specific requirement should be indicated and reasonable opportunity must be granted. It was held by the Hon'ble High Court that in a absence of notice of the kind and such reasonable opportunity, the order passed against the person in absentia and become wholly vitiated.

It was vehemently argued by the appellant that the AO in the assessment order has not brought any material on records, which can prove that this money was appellants own undisclosed income. It has also been held by the various courts that AO must bring on records some positive material or evidence to indicate that the share holder were benamidars, fictitious person or that any part of the share capital money represented the companies own income from undisclosed sources. The appellant has cited various case laws in the its submission where in it has been held that the share application money cannot be treated as undisclosed income of the appellant and cannot be added uls 68, of the Income Tax Act. The facts of the case cited by the appellant are identical with that of the instant case. Reliance is also placed on following judicial pronouncements: -

- Harbans Lal Sarna Vs. DCIT (2007) 109 TTJ 861(Chd.)

- CIT vs A.K. Daga & Sons (2007) 163 Taxman 682 (Madras) - Divine Leasing & Finance Ltd. 2991TR, Delhi - General Exports & Credits Pvt. Ltd. 880/2006(SC) - A-one Housing complex Ltd. V ITO Ward 1(1) 110ITD 361(Delhi) - CIT Vs Value Capital Service Pvt. Ltd. 307 IT 334 (Delhi) - CIT Vs Orrissa Corporation Pvt. Ltd 159 ITR 789(SC)

In a recent judgment dated 30/01109 Hon'ble Delhi High Court in the case of CIT Vs Gangour Investment Ltd. (ITA No 34/2007) has held the Revenue can make addition under section 68 of the Act only if the assessee is unable to explain the credits appearing in the books of accounts. In the instant case the appellant has duly explained the said credit entries in the from of various documentary evidence. The documentary evidence filed contained details, which set out not only the identity of the subscribers, but also gave information, with respect to their address, as well as, PAN numbers, Assessment particulars etc. Based on these facts, the Hon'ble Delhi Court dismissed the appeal of revenue. The Hon'ble Madras High Court in the case of CIT vs. A.K. Daga & Sons (2007) 163 Taxman 682 (Madras) has held that the amount received on account of sale of jewellery cannot be brought to tax U/S 68 in the absence of material to show that the transaction were sham.

Reliance is also placed on the decision of Hon'ble ITAT Delhi SMC Bench in the case of ITO Vs Rajiv Aggarwal (ITA No.960/Delhil2004) dated 04-06-04. In this case the appellant has made investment in shares in earlier assessment year and during the relevant assessment year, he had sold the said shares through a Broker and payment had been received through account payee cheque. The AO has failed to bring any material on record in support of his allegation that transaction was bogus. The ITAT in view of the facts has concluded that the transaction shown by assessee in his return was genuine transaction.

In the light of the judicial pronouncement and the facts of the case, I am of the opinion that the appellant during the course of proceedings has discharged the initial onus of establishing the bonafides of the transaction and the AO was not justified in ignoring various evidence provided to him by the appellant. Nothing adverse has been brought on record by the AO to establish that the share capital money received by the appellant represented its own undisclosed income. In fact the appellant had filed the share purchase agreement with Mr. Vinay Khosla who is NRI alongwith all the details of NRE bank alc from which the share application money was paid. Similarly about other share applicant all the evidence are filed like PAN No. bank alc details, residential address etc. was filed.

Since in the present case the AO has failed to bring any clinching evidences to support the presumption taken by him, it is clear that even the ratio of judgment in the case of McDowell Ltd. is not applicable in the instant case. In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the share application money received by it was genuine transaction and the same was not accommodation entry. I also don't find any evidence collected by the AO which could prove otherwise. Accordingly, the AO was not justified in treating Rs. 1,44,85,000/- the amount of share application money received by the appellant as its undisclosed income.

Therefore this ground of appeal is allowed.”

7.1 On going through the aforesaid finding of the Ld. CIT(A) on the issue in dispute and the case laws cited in the impugned order, we are of the view that the assessee during the course of proceedings has discharged the initial onus of establishing the bonafides of the transaction and therefore, the AO was not justified in ignoring various evidence provided to him by the assessee. Nothing adverse has been brought on record by the AO to establish that the share capital money received by the assessee represented its own undisclosed income.

In fact the assessee had filed the share purchase agreement with Mr. Vinay Khosla who is NRI alongwith all the details of NRE bank alc from which the share application money was paid. Similarly about other share applicant all the evidence are filed like PAN No. bank alc details, residential address etc. was filed. In the light of the above discussions, we are inclined to agree with the finding of the Ld. CIT(A) that the share application money received by the assessee was a genuine transaction and the same was not an accommodation entry. We also not find any evidence collected by the AO which could prove otherwise. Hence, Ld. CIT(A) has rightly deleted the addition in dispute.

Moreover, we find considerable cogency in the submissions of the Ld. Counsel for the Assessee that the issue in dispute is also covered by the order dated 12.8.2015 of the Hon’ble Delhi High Court passed in 72 & 84/2015 in the case of CIT-9 (Erstwhile CIT-VI) vs. Vrindavan Farms (P) Ltd. wherein it has been held as under:-

“4. The Court is of the view that the Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in CIT vs. Nova Promoters & Finlease Ltd. 342 ITR 169, the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the Assessee under section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law.

7.2 In the background of the aforesaid discussions and respectfully following the precedent, as aforesaid, we uphold the action of the Ld.CIT(A) on the deletion of addition of Rs. 1,44,85,000/- made u/s. 68 of the Act on account of income from undisclosed sources for unexplained share application and accordingly, we dismiss the ground no. 2 raised by the Revenue.

Order pronounced in the Open Court on 18/12/2015.