ACIT,, NEW DELHI vs. M/S WORLDLINK TELECOM LTD.,, NEW DELHI

The ld AO however, noted that all the details with regard to 3 parties had indeed been filed by the assessee. The Inspector attached with the ld AO was sent to make an enquiry about the actual existence of the investor entities at the given addresses. The Inspector in his report dated 24.12.2009 submitted that the premises were usually locked and were house to many companies as gathered from neighbouring premises and there were no identification marks like boards, name plate, etc or sign of any activity justifying carrying out of any business activity there. Accordingly, the ld AO concluded that assessee has not been able to discharge the onus of establishing the identity of the investors, creditworthiness of the investors and genuineness of the transaction and proceeded to add the share application money and share premium received from the aforesaid 3 parties in the sum of ₹2,82,81,000/- as unexplained cash credit u/s 68 of the Act.

The assessee reiterated its submission before the ld CIT(A) that it had received share application money and share premium comprising face value of ₹10 and share premium of ₹90 per share from 11 parties out of which addition has been made only in respect of 3 parties by the ld AO. The assessee submitted that merely because scrutiny assessments were not framed in the hands of 3 investors companies, the assessee cannot be faulted for the same. The assessee does not have control over the Income Tax Department for framing of scrutiny assessments that too in the hands of the third parties. The assessee on its part had furnished all the relevant documents in respect of all the 11 parties from whom monies were received. In respect of Lovely Securities Pvt. Ltd, it was submitted that an amount of ₹64,50,000/- was received prior to AY 2004-05 as well and scrutiny assessment has been framed for assessment years 1999-2000 and 2005-06 in respect of all the said party. Similarly, in the case of Pelicon Finance and Leasing Pvt. Ltd, scrutiny assessment has been framed for AY 2006-07. The assessee submitted that the Inspector’s Report & 2596/Del/2017 M/s. Worldlink Telecom Ltd dated 24.12.2009 which was relied upon by the ld AO was never furnished to the assessee. The assessee also submitted that address of 1 company was changed while the office of two other companies were closed due to renovation and this fact could have been explained had the Inspector’s Report been confronted to the assessee. The assessee submitted that it had furnished confirmations, PAN cards, copies of Income Tax Returns, bank statement of the investors, Board resolution authorizing the investment in assessee company, share allotment letter, share certificate, audited statement of account of investors company, certificate of incorporation and memorandum of articles of association of investors company. The investment made by the investors company in the assessee company have been duly reflected in the balance sheet of the investors Company and the transactions have been routed through regular banking channel. The investor companies are regularly assessed to income tax and scrutiny assessments were even framed on them viz. for earlier or subsequent years. The ld CIT(A) duly appreciated all the contentions of the assessee and deleted the addition.

Before us, the revenue merely reiterated the findings of the ld AO. We find that the ld CIT(A) had deleted the addition by observing as under: – “8. At the outset, it is a case in which the proviso to section 147 does not apply. The notice u/s 148 was issued within four years from the end of assessment year and earlier assessment u/s 143(3) did not exist. The assessment order is however silent regarding specific reasons for re-opening the assessment. It does not mention the nature of information which led to formation of reason to believe. However, the appellant vide written submission filed on 19.01.2017 stated that it does not wish to press the revised ground No. 1 and would like to contest the addition on merits only. Therefore, the revised ground No.1 regarding validity of reopening is dismissed as not pressed.

On merits of addition the appellant had filed all the primary documents for establishing identity of share applicants and the status of companies was "ACTIVE" on the website of ROC/MCA not only at the time when assessment was made but also after that. Therefore, the identity of share applicant companies cannot be doubted. The transactions are through banking channels and reflected in the annual audited accounts of share applicant companies. So Page | 4 & 2596/Del/2017 M/s. Worldlink Telecom Ltd

The aforesaid findings of the ld CIT(A) were not controverted by the revenue with contrary evidences before us. Accordingly grounds raised by the revenue for assessment year 2004-05 are dismissed. for Assessment Year 2006-07

We have heard the rival submissions and perused the material available on record. The ld AO noted that during the year, the assessee had engaged itself in the business of dealing in shares, securities, investments, etc. The ld AO had reproduced the profit and loss account in page 2 of assessment order which is as under: –

The ld AO noted that assessee has shown sundry creditors in its balance sheet as amount payable to the following 3 parties as under: – A. M/s. P.B. Housing Development Pvt. Ltd– Rs. 2,25,000 B. M/s. P. B. Properties Pvt. Ltd– Rs. 260,000/- C. M/s. Surya Vinayak Industries Limited – Rs 2.65 crores

The ld AO noted that opening balance in all these 3 accounts of sundry creditors were Nil. The ld AO noted that no purchase of shares or investments were made from them. The ld AO also noted that no loans or advances were received from them. Accordingly, the credit balance in these 3 creditors account totaling to ₹2,69,85,000/- were added as unexplained cash credit u/s 68 of the Act.

Before the ld CIT(A), the assessee filed additional evidences in the form of confirmation of the creditors and bank statements of the creditors together with copy of acknowledgement of Income Tax Returns. The assessee submitted that the ld AO at the time of assessment proceedings never asked for these details and hence could not be produced before the ld AO. The assessee also submitted that amount received from these persons have been duly returned in the subsequent years. The ld CIT(A) admitted these additional evidences and sought for a remand report from the ld AO. The remand report was submitted by the ld AO finally on 05.01.2016 despite several reminders made by the ld CIT(A) from years 2010 to 2015. The assessee filed rejoinder to the remand report submitted by the ld AO. In the remand proceedings, the ld AO sought to examine veracity of each of the creditors.

The ld AO in the remand report noted that in respect of M/s. Surya Vinayak industries Ltd from whom a sum of ₹2.65 crores credited in their account, assessee furnished the following documents: – Page | 7 & 2596/Del/2017 M/s. Worldlink Telecom Ltd A. copy of ledger account of creditors as per the books of the assessee B. copy of income tax acknowledgement of the creditors for assessment year 2006–07. C. copy of statement of account of the assessee in the letter pad of the creditor. D. ledger account of creditors in the books of the assessee for FY 2006-07 showing repayment of entire amount of ₹2.65 crores from 30.05.2006 to 23.06.2006. E. copy of confirmation from creditors F. copy of bank statement of the assessee showing repayment of loan.

The ld AO despite all these documents having acknowledged that the aforesaid documents were furnished concluded that genuineness of the transaction could not be proved. The ld AO directed the assessee to produce the Director of the lender company, which could not be complied with by the assessee. On discreet enquiry through the Inspector attached to the office, it was found that at the given address of E –3, Mangal Puri Industrial Area, Phase- II, New Delhi, no such Company was found. Then through internet, address of the lender company was located at 11, Prem Sadan, Rajendra Place, New Delhi. Add in this address also, no such company was found in operation. Accordingly, ld AO concluded that addition made by him in the assessment is in order.

We find that in respect of all these creditors i.e. M/s. Surya Vinayak industries Ltd, the assessee has furnished all the relevant documents and had also given the proof of repayment of loan made way back in the Financial Year 2006–07 itself. The enquiry is sought to be made by the Inspector in the year 2015 after a gap of 10 years. Even the inspector’s report was not confronted to the assessee. After the repayment of the loan in financial year 2006-07, the assessee had no relationship with the concerned creditors. Hence, the assessee Page | 8 & 2596/Del/2017 M/s. Worldlink Telecom Ltd cannot be faulted for the change of address of the loan creditors. The ld CIT(A) considered this loan creditor to be genuine by stating that assessee had furnished all the relevant documents to establish the identity of the creditors, genuineness of the transactions and creditworthiness of the creditors. The ld CIT(A) also took note of the fact that the loan creditor was repaid in the subsequent year. The ld CIT(A) observed that this is not the case where cash was deposited in the account of the loan creditors and cheque was issued to the assessee. Sufficient monies were lying in the bank account of the loan creditors and there is no requirement for the assessee to prove the source of source of the loan creditors for the year under consideration. Non-production of the Director by the assessee company cannot be a reason to draw any adverse inference. Accordingly, the CIT(A) deleted the addition made u/s 68 of the Act in respect of the loan received in the sum of ₹2.65 crores from M/s. Surya Vinayak Industries Ltd. We find that the ld CIT(A) had rightly observed that the enquiries were sought to be made with the loan creditors after a gap of 10 years from the date of transaction and 9 years from the date of repayment of the loan to the sundry creditors. The assessee had also furnished all the relevant documents before the ld AO in the remand proceedings. Merely because the director of the lender company could not be produced by the assessee, no adverse inference could be drawn on the assessee. Reliance in this regard placed by the ld AR on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Orissa Corporation (P) Ltd reported in 159 ITR 78 (SC) is well founded. The assessee having furnished all the relevant documents by providing the nature and source of credit within the meaning of Section 68 of the Act had duly discharged its onus and had shifted the burden to the ld AO. It is for the ld AO to make further enquiries, if he so desires, in the manner known to law. Hence, we hold that the ld CIT(A) had rightly deleted the sum of ₹2.65 crores u/s 68 of the Act.

With regard to amounts received from M/s. P.B. Housing Pvt. Ltd and M/s P.B. Properties Pvt. Ltd, the assessee furnished PAN of those parties, address of those parties, bank statement of those parties before the ld AO in the remand proceedings. The ld AO noted that address given is a residential premises and no details furnished with regard to the identity of the said party carrying out of business in the given address. They said the loan is not repaid by the assessee till the date of remand report. The ld CIT(A) despite all these evidences observed that assessee has duly proved all the 3 ingredients of Section 68 of the Act and proceeded to delete the addition. We find that even the basic preliminary documents were not furnished by the assessee with regard to these two parties. The assessee had not proved the source of the credit within the meaning of Section 68 of the Act. Even the nature of receipt was not proved conclusively to show that the said amount is received in the form of loan. Hence, we hold that assessee had not established the genuineness of the transaction and the creditworthiness of the creditors and had not proved the nature and source of the credit within the meaning of Section 68 of the Act qua these 2 parties. Accordingly, we hold that the ld CIT(A) erred in deleting the addition made u/s 68 of the Act in the total sum of ₹4,85,000/- qua these two parties.

Accordingly, the Ground No. 1 raised by the revenue is partly allowed.

Ground Nos. 2 and 3 raised by the assessee are challenging the deletion of addition of Rs. 84,96,000/-.

We have heard the rival submissions and perused the material available on record. The ld AO noted that out of transactions carried out in investments in shares, there was some discrepancy in the trading results submitted by the assessee. It was found that there was some discrepancy in the shares of Avail Financial services Limited (AFSPL) wherein the closing stock of AFSPL should & 2596/Del/2017 M/s. Worldlink Telecom Ltd have been 84960 units, whereas the assessee has shown closing stock of AFSPL as Nil. Accordingly, the closing stock of these shares at Rs. 100 per share was added as undisclosed closing stock by the ld AO in the sum of ₹84,96,000.

Similarly, in respect of shares of Graph Financial Services Private Limited (GFSPL), it was noticed that assessee has sold more shares of GFSPL than the available stock of those shares and accordingly the excess stock of 84960 shares valued at ₹100 were treated as unexplained investment in the sum of ₹84,96,000/- u/s 69 of the Act. The assessee submitted before the ld CIT(A), the chart of details of investments in form of opening stock, additions, reduction, closing stock together with copies of purchase and sale bills. It was submitted that all the investments in shares are duly reflected in the books of accounts of the assessee. The assessee submitted that there was typographical error between the quantities of shares of AFSPL and GFSPL and accordingly prayed for deletion of 2 additions made in the sum of ₹84,96,000/-. The assessee proved with documentary evidences that typographical error that had occurred in table of number of shares in respect of these two scrips (AFSPL and GFSPL). The assessee gave quantitative details of shares of AFSPL and GFSPL as under:- Avail Financial Services Ltd. Items No. of Shares Opening Stock 5000 Purchase during the year 103100 Sold during the year 103100 Closing investment 5000 Graph Financial Services Pvt. Ltd Items No. of Shares Opening Stock NIL Purchase during the year 9962 Sold during the year 9962 Closing investment NIL & 2596/Del/2017 M/s. Worldlink Telecom Ltd

The assessee furnished the purchase and sale bills with regard to the aforesaid transactions. The typographical error that had crept in was the sale of 84960 shares of AFSPL, which was wrongly shown as sale of shares of GFSPL. It was specifically pointed out that this mistake is compensatory nature which lead to excess stock of 84960 shares of AFSPL in one scrip and shortage of 84960 shares of another scrip. The ld AO in the remand report had not pointed out anything on this factual aspect. This fact has been duly appreciated by the ld CIT(A) while deleting the addition, on which we do not find any infirmity. Accordingly, Ground Nos. 2 and 3 raised by the revenue are dismissed.

Ground Nos. 4 to 6 raised by the revenue are general in nature and does not require any specific adjudication.

In the result, the appeal of the revenue for assessment year 2004-05 is dismissed and appeal for assessment year 2006-07 is partly allowed.