DCIT, NEW DELHI vs. M/S. VRINDAVAN TUBES LTD., DELHI

This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-9, New Delhi [“Ld. CIT(A)”, for short], dated 30/03/2015 for Assessment Year 2011-12 as well as the assessee has also filed Cross Objections. Grounds of appeal of the Revenue are as under:

“1 The Ld. CIT(A) has erred in deleting addition of Rs.1,71,00,000/- made by AO on account of treating share application money from undisclosed sources u/s 68 of the I.T. Act, 1961.

As per balance sheet of the assessee, the assessee had received the sum of Rs.1,71,00,000/- share application from following parties:

Sr. Name Amount (Rs.) No.

“There is no dispute that the amount was received by the assessee was through banking channel. What is disputed is that was it really invested by genuine lender. This raises the question whether the apparent can be considered as the real. It is surprising to note that the assessee who is able to receive huge loan and has been able to receive the Confirmations and along with income-tax acknowledgement of the alleged applicant but could not produce such entities for verification. It is also surprising to note that the entity who can oblige the assessee by lending such huge sum would make itself unavailable for verification of such fact. Thus it is to be held that everything is not well either with the assessee or with the alleged lender. Mere filing of certain papers do not prove the genuineness of a transaction particularly when the Assessing Officer requires the presence of the party to the transaction. No circumstances are demonstrated as to why the alleged lender could be made available for verification or examination by the Assessing Officer. In such circumstances, apart from the ingredients to prove genuine cash credit, something more is required to be demonstrated to justify such receipts. As laid down by the courts that the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. It is apt to note that a man may lie but the circumstances do not". No meters are available for examining the truth and correctness of statement made but the surrounding circumstances and the relevant fact will throw light on the genuineness or otherwise of any transaction. In such circumstances when the money landing in account of the assessee is nothing but the cash deposited in one of the account of some non-existent entity, which is supposedly a share applicant, the faculties of human rationalities infer that it is nothing but assessee's own money. It is very clear that the person who owned the unaccounted money is reaping the benefit of the same after having utilized the services of the said entry operator who act in form of physically non-existent paper entities and help in laundering of the money.

Section 6 has to be proved on facts, therefore demonstration by assessee in such rebuttal presupposes not relying upon various decisions or orders but demonstrate by way of facts try producing such persons Production of such persons was a farfetched requirement, the assessee did not even give a justification for non- production of such entities

In view of the above, the assessee has failed to discharge its onus of proving the identity & creditworthiness of concerned party, and genuineness of transactions in terms of provisions of Sec 68 of the Act. The amount of Rs. 1,71,00,000/- received from the above entry operator represents the credit entry whose nature and source could not be satisfactorily proved by the assessee and hence it is covered within the mischief of Section 68 of the IT Act Considering the facts discussed above, I am satisfied that initiation of penalty proceedings u/s 271(1)(c) is warranted in this case.

Further the Assessee has failed to place on record any documentary evidence by way of Form-2 (which is required to be filed with the Registrar of the Companies as per the provisions of the Companies Act, 1956) to prove the facts that the Share has been allotted to various parties during the year under assessment.

The provisions of Section 66 of the Income Tax Act, 1961 reads as under:

"61 Where any sum is found credited in the hooks of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing Officer, suthfactory, the sum 10 credited may be charged to income tax us the income of the assessee of that previous year.”

Further the assessee has faded to produce all the parties for examination From the perusal of the documents filed by the assessee it is evident that the assessee has tried to establish the identity of the parties by filing the confirmation letter, income tax return and registers of companies record. The midtrial placed by the assessee is not sufficient to prove the creditworthiness of the share applicants and genuineness of the transactions In the case of CIT V/S Youth Construction Pvt. Ltd [2013] 357 ITR 197 (Delhi) is has been held by the Hon'ble Delhi High Court that section 68 of the income tax act, 1961 applies equally to share application monies And the burden is on the assessee to prove the nature and source Page 6 of 12 thereof, to the satisfaction of the assessing officer. In view of the above observation, settled law the share application monies credited by the assessee in his Books of Accounts during the previous year Rs.1.71,00,000/- is being treated as income from undisclosed sources and is being assessed to tax. (Addition- Rs.1,71,00,000/-)”

“3.3 The submissions of the appellant and the facts have been carefully considered In the assessment order, the AO. has observed that these persons did not appear in response to the summons u/s 131. The A.O. also observed that in certain cases, the details filed did not relate to the assessment year under consideration The AO observed that the bank statements in certain cases shows that payments were made immediately after deposits received. In its submissions, the appellant has pointed out that this is not a case where there is any allegation that enquiries by the Investigating Wing resulted in information that these were bogus accommodation entries received from entry operators. The appellant argued that since this was not a case of bogus accommodation entries unearthed by the investigation wing, it has considering the evidence filed, discharged its burden of proof and there is nothing in the asstt. order to rebut its claim. The appellant stated that it has filed voluminous evidence including confirmations, bank statements, and copy of income tax returns and balance sheet etc., and in certain cases these persons have also appeared before the AO in compliance of summons u/s 131 and had confirmed the investment claimed by the appellant.

3.4 The appellant stated that the notices u/s 133(6) had returned undelivered because of change in the address of these persons and all the persons had subsequently confirmed the investment. The appellant stated that in certain cases, these persons could not appear before the AO in compliance of summons u/s 131 because the date fixed for compliance by the A.O was a Saturday and a holiday. The appellant stated that in these cases, the representatives of all these persons had met the AO, and as directed by the AO, had filed reply on the next working day. The appellant stated that in certain cases, the AO had wrongly observed that copy of document filed such as income tax return, balance sheet did not relate to the assessment order under consideration. The appellant stated that the AO's observations in this regard were factually Page 7 of 12 incorrect and it had filed documents relevant to the asstt. year under consideration The appellant observed that in certain cases, the AO's observations that investment was not shown in the balance sheet were factually incorrect because in such cases, shares had been allotted and these were duly confirmed by that investor. ……………… …………….. 3.10 It is apparent from the above discussion that the appellant has clearly discharged its burden of proof. In the asstt. order, there is no allegation of any inquiries by the Investigation Wing regarding receipt of bogus accommodation entries in this case. If this was a case of bogus accommodation entries unearthed through enquiries by the Investigation Wing, then the appellant could be expected to furnish a higher degree of proof, but when no such allegation is made in the assessment order, the appellant has clearly discharged its burden of proof by filing the confirmation, affidavit, and copy of income tax return and bank statement of the concerned persons The appellant has explained why these persons could not appear before the A.O within the limited time allowed. In any case, the courts have repeatedly held that it is for the A.O. to enforce attendance if he so requires. These persons had also furnished written replies to the AO. The AO has observed that the bank account shows that investments have been made out of amounts received on the same day but this observation is hardly sufficient to make an addition of this amount, particularly considering the evidence filed by the appellant. In view of the evidence filed by the appellant, the onus had clearly shifted to the AO however The AO has not brought any material on record to controvert the evidence filed by the appellant Such an addition is not legally sustainable on the basis of general observations The share investors have unequivocally confirmed the investment made by them and the appellant has submitted substantial evidence during asstt proceedings. Considering these facts, if the AO still had any doubts about the source from which these persons had made investments in share capital of the appellant, then this information could have been passed to the A.O. of the investors, and he could have considered taking necessary action in their cases, and conveyed his findings to the appellant's A.O. for necessary action, if any Considering the facts and judicial decisions on this subject, the appellant has clearly discharged its burden of proving the identity and capacity of the creditors and the genuineness of the transactions. In the asstt. order, the AO has not brought any material on record to controvert the evidence and explanation furnished by the appellant. Considering the facts and judicial decisions on this subject, the addition made by the AO is not sustainable in law and is deleted. The Ground is allowed.” Page 8 of 12

C.O No. 163/Del/2018

“a. That the liability to pay excise duty on finished goods is payable on removal of goods from the factory premises as per excise law. b. That it is a revenue neutral item as provision for excise duty is debited in accounts as an expense and the same amount is included along with the value of closings stocks. (Pg no 29 of PB). c. The Ld A.O has disallowed the provision for excise duty and confirmed by Ld CIT(A) which amounts to taxing the same income twice, once by disallowing the deduction for provision of excise duty on finished goods and on the other side by addition of excise duty along with the value of closing stock. d. That deduction for tax, duty or cess is not allowed as deduction u/s 43B if the due taxes which is payable is not paid till the due date of filing of income tax return. In the present case this amount was not payable as at 31.03.2011 as the excise duty is due to be paid on removal of goods from the factory premises. In the case of assessee by following the provisions of sec 145A the value of excise duty was included in the value of closing stocks and on the other side it has been debited in profit and loss account as a provision of excise duty on finished goods. e. In the case of CIT Vs Loknete Balasaheb Desai S.S.K Ltd in appeal No 4297 of 2009 The Hon'ble Bombay High court on identical issue has upheld the decision of ITAT deleting the addition of excise duty which was considered in the case of Lakshmi Sugar Mills Co case as quoted by Ld CIT (A). The facts of the assessee are different from the case of Lakshmi Sugar Mills Co in which it was held that MODVAT credit cannot be reduced from value of opening or closing stock. In this case it was held that in respect of unsold sugar lying in stock, central excise liability was not incurred and consequently the addition of excise duty made by the assessing officer to the value of the excisable goods was liable to be deleted.”

DCIT vs. Vrindavan Tubes Ltd. 16. In the result, the C.O. filed by the assessee is partly allowed for statistical purpose.