DHANWAN LEASING AND FINANCE COMPANY LIMITED,INDORE vs. INCOME TAX OFFICER 2 (2), INDORE
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI C.M. GARG & SHRI BHAGIRATH MAL BIYANI
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE
BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER
ITA No.225/Ind/2018 Assessment Year: 2010-11
Dhanwan Leasing and Finance Vs. ITO, Company Ltd., Ward 2(2), 107, Sapna Sangeeta Road, Indore. Indoare (MP).
PAN: AAACD7026L
(Appellant) (Respondent)
Assessee by : Shri Pankaj Shah, CA & Shri Somya Bumb Revenue by : Shri P.K. Mishra, CIT, DR
Date of Hearing : 16.11.2022 Date of Pronouncement : 10.02.2023
ORDER PER C.M. GARG, JM:
This appeal filed by the assessee is directed against the order dated
15.01.2018 of the CIT(A)-I, Indore, relating to Assessment Year 2010-11.
The grounds raised by the assessee read as under:-
“GROUND 1: AGAINST REOPENING OF ASSESSMENT
The learned Commissioner of Income tax (Appeals)-l (CIT(A)) erred in confirming the action of reopening the Assessment for the year u/s 148 of the Act
The Appellant prays that the said reopening is bad in law and deserves to be quashed.
ITA No.225/Ind/2018
GROUND 2: MECHANICALLY CONFIRMING THE ADDITION U/S 68
On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the addition made by the learned AO without properly appreciating and dealing with the submissions and contentions of the Appellant made during the appellate proceedings and reproduced in his order.
The Appellant prays that the order passed mechanically without application of mind be quashed/ set aside.
GROUND 3: AGAINST ADDITION U/S 68
The learned CIT(A) erred in confirming the addition on account of unexplained share application money under Section 68 of the Act amounting to Rs.24,14,75,000.
He failed to appreciate and ought to have held that the same has already been taxed in the hands of Keti Constructions Limited and also in hands of its SPV companies.
Accordingly, the Appellant prays that the said addition be deleted.
GROUND 4: AGAINST ADDITION U/S 69
The learned CIT(A) erred in confirming the addition on account of unexplained investment on account of alleged commission paid amounting to Rs.70,00,000.
The Appellant prays that the said addition be deleted.
The Appellant craves leave to add to, alter and / or amend the above grounds of appeal.
The ld. Counsel of the assessee submitted that the assessee does not want to
press ground No.1, hence the same is dismissed as ‘not pressed.’
Apropos Grounds No.2 and 3, the ld. Counsel of the assessee submitted that
the ld.CIT(A) has erred in confirming the addition made by the AO without properly
appreciating and dealing with the submissions and contentions of the assessee made
during the appellate proceedings mechanically and without application of mind,
ITA No.225/Ind/2018
therefore, the same may kindly be quashed/ set aside. The ld. Counsel also
submitted that the the learned CIT(A) has erred in confirming the addition on account
of unexplained share application money under Section 68 of the Act amounting to
Rs.24,14,75,000 as he failed to appreciate that the same has already been taxed in
the hands of Keti Constructions Limited and also in the hands of its special purpose
vehicle companies (SPVs), therefore, the said addition may kindly be deleted. Further,
drawing our attention to page 9 of the assessee’s paper book, the ld. Counsel
submitted that the assessee received share application money of Rs.24,14,75,000/-
and, simultaneously, made investment in share application money with Keti
Constructions Ltd. of Rs.24,09,50,000/-, therefore, the money merely came to the
assessee in the form of share application money and, further transferred to M/s Keti
Construction Ltd. as share application money. Further, drawing our attention to pages
15 and 16 of the assessee’s paper book, the ld. Counsel submitted that the assessee
received share application money of Rs.24,14,75,000/- from 40 entities and made
investments of Rs.24,24,32,085/- including investment as share application money
with M/s Keti Construction Ltd. of Rs.24,09,50,000/-, therefore, the source of share
application money and its further investment in share application money with M/s Keti
Constructions Ltd. is established, therefore, no addition can be made in the hands of
the assessee on this account.
The ld. Counsel further drawing our attention to page 25 of the assessee’s
paper book, submitted that M/s Keti Constructions Ltd., in turn, has made further
investments, out of amount received from the assessee as share application money,
with four entities i.e., Keti Highway Developers Pvt. Ltd., Keti Infrastructure Pvt. Ltd.,
Keti Toll Infrastructure P. Ltd. and Keti Buildcon Pvt. Ltd. in equity shares. Therefore, 3
ITA No.225/Ind/2018
the use of share application money by Keti Constructions Ltd. is also properly
explained and discernible from the audited accounts of the said associate company,
therefore, no addition is called for in the hands of the assessee u/s 68 of the Act.
Further, drawing our attention to pages 26-50 of the assessee’s paper book, the ld.
Counsel submitted that the AO has not made any addition in the hands of the four
companies in which M/s Keti Construction Ltd. made investment in the form of equity
shares application money, therefore, no addition can be made in the hands of the
assessee as the further use or investment is properly explained by way of
documentary evidence from assessee to M/s Keti Construction Ltd. and M/s Keti
Constructions Ltd. to the said four companies. The ld. Counsel further explained that
the assessee was a special purpose vehicle (SPV) to procure funds in the form of
investments as share application money and, after receiving share application money
from 40 entities as listed at page 25 of the assessee’s paper book, almost the entire
amount was re-invested with M/s Keti Construction Ltd. and, furthermore, M/s Keti
Construction Ltd. again invested the same to its four associate companies, therefore,
the transaction of share application money between group companies cannot be
doubted as the assessee was merely a special purpose vehicle for procuring
investments for the parent Keti Construction Ltd.
Replying to the above, the ld. CIT-DR drew our attention to orders of the
authorities below and submitted that the assessee failed to prove the identity of 40
share applicants, genuineness of the transaction and credit worthiness and capacity of
the share applicants. Therefore, considering the entire facts and circumstances of the
case, the AO was right in making the addition u/s 68 of the Act as the assessee could
not discharge the onus lay on its shoulders to escape from the rigors of the 4
ITA No.225/Ind/2018
provisions of section 68 of the Act. Further, drawing our attention to first appellate
order, the ld.CIT-DR submitted that the ld.CIT(A), after considering the entire facts
and circumstances, has rightly upheld the findings arrived at by the ld. AO because
further use of the amount received in the form of share application money from 40
entities is of no relevance. The assessee was duty bound to establish the identity of
40 investors listed at page 25 of the assessee’s paper book along with their capacity
and credit worthiness and also the genuineness of the transaction and, thereafter, the
assessee could successfully escape from the rigors of section 68 of the Act. The
ld.CIT-DR submitted that the ld.CIT(A) has dealt with the issue elaborately in paras
4.2 to 4.2.5 which are unambiguous and clear, therefore, in view of the judicial
pronouncements relied on by the ld.CIT(A), the addition made by the AO may kindly
be confirmed.
Placing rejoinder to the above, the ld. Counsel placed reliance on the following
Judgements:-
(i) Omni Farms P. Ltd (2017 85 taxmann.com 214) (ITAT Del);
(ii) Vijay Conductors India P Ltd (ITA 3484/Del/13) (ITAT Del);
(iii) Vijay Conductors India P Ltd (Delhi HC); &
(iv) AGM Holdings Limited (ITA No.1667/Del/2014 - ITAT Delhi)
The ld. Counsel submitted that in this case, Addl. CIT, u/s 144A of the Act,
issued directions for not making any addition in the hands of the conduit entities, i.e.,
companies which were controlled by Shri S.K. Gupta and were utilized for issuing
cheques to the beneficiaries after depositing the cash received from the beneficiaries.
Further, placing reliance on the judgement of the Hon’ble High Court of Delhi in the
ITA No.225/Ind/2018
case of PCIT vs. Vijay Conductors India Pvt. Ltd. and other appeals, order dated
29.09.2015, the ld. Counsel submitted that when it is not in dispute that the assessee
is the conduit entity and not the beneficiary then the order of ITAT deleting the
addition u/s 68 in their hands does not suffer from any legal infirmity. The ld. Counsel
has also drawn our attention to the order of ITAT, Delhi in the case of AGM Holdings
Limited vs. DCIT (supra).
On careful consideration of rival submissions, we note that the sole ground of
the assessee, challenging the addition on account of unexplained share application
money u/s 68 of the Act amounting to Rs.24,14,75,000/- is that the assessee is a
conduit company and it received the said amount as share application money from 40
entities as listed at page 15 of the assessee’s paper book and invested the same in
the same form of share application money to M/s Keti Construction Ltd. In ground
No.3.2, the assessee has also contended that the ld.CIT(A) has failed to appreciate
and ought to have held that the impugned amount has already been taxed in the
hands of Keti Construction Ltd. and also in the case of SPV companies. It was also
contended by the ld. Counsel that when the amount has been taxed in the hands of
Keti Construction Ltd., and other SPV companies, then, further addition in the hands
of the present assessee which is a conduit company, would not be justified and would
certainly amount to double taxation. Therefore, the addition made by the AO and
confirmed by the ld.CIT(A) may kindly be deleted.
First of all, we may point out, on being asked by the Bench, the ld. Counsel of
the assessee, in all fairness accepted that the addition made in the hands of Keti
Construction Ltd. by the AO has been challenged before the ld.CIT(A) and the appeal
ITA No.225/Ind/2018
is pending before the concerned ld. First appellate authority for adjudication.
Therefore, we safely presume that M/s Keti Construction Ltd. has not accepted the
addition made by the AO in their hands u/s 68 of the Act and litigation is going on.
So far as the mention in ground 3.2 of the assessee that the amounts have
been taxed in the hands of the respective four SPV companies is concerned, during
the arguments, the ld. Counsel of the assessee has drawn our attention to the
assessee’s paper book pages 26 to 50 and submitted that no addition has been made
in the hands of four SPV companies on this account, therefore, the facts mentioned in
the grounds of the assessee are contrary to the factual position revealed from the
documents submitted by the assessee itself.
So far as the contention of the ld. AR that the assessee is a conduit company
which is part of group of Keti Construction Ltd. is concerned, admittedly, the assessee
company has received the impugned amount in the form of share application money
from the 40 entities as listed at page 15 of the assessee’s paper book amounting to
Rs.24,14,75,000/- and simultaneously made investments as share application money
with M/s Keti Construction Ltd. amounting to Rs.24,09,50,000/- and M/s Construction
Ltd. further invested the same as share application money with four entities i.e., Keti
Highway Developers Pvt. Ltd., Keti Infrastructure Pvt. Ltd., Keti Toll Infrastructure P.
Ltd. and Keti Buildcon Pvt. Ltd. in equity shares.
The onus lie on the shoulders of the assessee to escape from the rigors of
section 68 of the Act to explain the source of share application money received by it
from investor companies which are four companies in the present case. But, the
assessee neither before the authorities below nor before this Bench has furnished
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details and particulars showing the identity of 40 investor companies, their capacity
and credit worthiness and genuineness of the transaction as listed at page 15 of the
assessee’s paper book. From the said list, we note that the assessee has submitted
names of four parties, their addresses, PANs and respective amounts, but, has not
furnished any documentary evidence in support of their capacity and credit worthiness
to make investment and genuineness of the transaction to escape from the rigors of
section 68 of the Act. The main contention of the assessee is that the assessee is a
conduit company which received amount from 40 share applicants/investors and
further invested the same to its associate/main group company M/s Keti Construction
Ltd. and M/s Keti Construction Ltd. further invested the same in four group
companies. Therefore, the addition has been made in the hands of Keti Construction
Ltd., which is the ultimate beneficiary and which is sufficient and no addition is called
for in the hands of the present assessee.
We may point out that for establishing a factum of conduit company the
assessee is duty bound to establish that the source of the impugned amount is a
group company and the assessee, after receiving the amount further invested the
same by making investments in the group company. But, it is a peculiar situation of
present case that the 40 investor companies, who invested the amount in the
assessee company as share application money are not part of Keti Construction group
of companies and in this situation, the onus lay upon the shoulders of the assessee
cannot be held discharged in absence of substantiating the factum of capacity and
credit worthiness of the investor companies and genuineness of the transaction. We
may point out that the assessee has shown that the amount was invested in group
head company M/s Keti Construction Ltd. and M/s Keti Construction Ltd. further
ITA No.225/Ind/2018
invested the same in four group SPV companies, but, this fact would be relevant if the
assessee successfully establishes that the entities or companies who made
investments as share application money to the assessee company are also group
companies having clear identity and having capacity and credit worthiness to invest
the amount establishing genuineness of the transaction. But, in the present case, the
assessee cannot be held as conduit company because capacity and credit worthiness
of 40 companies who invested share application money in the assessee company and
genuineness of transaction has not been established.
It may also be pointed out that the assessee cannot be held as intermediary
company because the assessee has not successfully established that the source
companies are also group companies and it is working merely as middleman entity
and a conduit company. Therefore, the benefit of the judgements relied on by the
assessee in the case of Omni Farms Pvt. Ltd. (supra), Vijay Conductors India Pvt. Ltd.
(supra) and AGM Holdings Ltd. (supra) is not available for the assessee in the present
case having distinct and dissimilar facts as the assessee could not substantiate the
fact that it is a conduit company of Keti group of companies. Therefore, we are
inclined to hold that since the assessee company has not discharged the onus lay on
the shoulders of it that it is a conduit company and also has not successfully proved
and established the identity, capacity and credit worthiness of 40 investor companies
and genuineness of the transaction, therefore, the AO was right in making addition in
the hands of the assessee u/s 68 of the Act and the ld.CIT(A) was also correct in
confirming the same.
ITA No.225/Ind/2018
In the result, the appeal filed by the assessee is dismissed.
Order pronounced u/r 34(4) of the Income-tax (Appellate Tribunal) Rules,
1963 on 10.02.2023.
Sd/- Sd/- (BHAGIRATH MAL BIYANI) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 10th February, 2023.
dk
