IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E' NEW DELHI
BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No. 2081/Del/2010
Assessment Year: 2006-07
Income Tax Officer, vs New Era Infrastructure P. Ltd., Ward 13(2), 363, Agarwal City Plaza, C.R. Building, Near M2K Cinema, New Delhi. Delhi.
Appellant by: Shri R.S. Negi, Sr.DR
Respondent by: Shri Kuldeep Sharma
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the revenue against the order of
Commissioner of Income Tax(A)-XVI, New Delhi dated 03.02.2010 for AY
2006-07 by which the Commissioner of Income Tax(A) deleted the
additions made by the Assessing Officer by allowing the appeal of the
2. The main grounds raised in this appeal read as under:-
"1. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of 2 ITA No.2081/Del/2010
Rs.15,OO,OOO/- made on account of share application money u/s 68 of the Income Tax Act 1961.
2. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.37,5001-made on account of commission.
3. That on the facts and circumstances of the case as well as in law, the ld. Commissioner of Income Tax(A) has erred in ignoring the fact that the judgment of the supreme court in the case of Lovely Exports (P) Ltd 216 CTR 199(SC) cannot be extended to a situation where a mechanism has been formed to introduce unaccounted money in the books of accounts with the help of accommodation entry providers, which has been exposed by deep and detailed investigation carried out by the Investigation wing of the Department.
The Ld. CIT(A) failed to appreciate the facts that the assessee company failed to prove physical existence of the share applicants. The assessee company received an amount of RS.15 ICS as share application money of Rs.7 lacs and Rs. 8 lacs from M/s Ganga Infin Pvt Ltd & M/s Kuberco Sales Pvt Ltd respectively. Except the affidavits furnished no other supporting document has been produced. Summons issued u/s 131 were returned unserved. Enquires got made through Inspector revealed that both the above named entities were not found to be existing. Fresh summons were issued to the above named two parties at le new address furnished by the AR which again went uncomplied with. These facts were confronted to the AR of the assessee company and asked to produce the principal officers of le said companies. No Directors or Principal Officers of the hare applicant companies were produced. Not even copies of the ITRs and balance sheets for the AY 2006-07 been produced. Therefore, as held by the ITAT in its judgment dated 31-12-2009 in ITA No. 2860/Del/2009 in the case of M/s Omega Biotech Ltd, the identity of the share applicants is not proved. Filling of certain documents indicating the mere paper identity of the 3 ITA No.2081/Del/2010 Asstt.Year: 2006-07
share applicants is meaningless when the physical existence of the share applicants is not proved.
4. That on the facts and in the circumstances of the case, the ld. CIT(A) has failed to appreciate that the judgment of the Supreme Court in the case of M/s Lovely Exports (P) Ltd. is not applicable where share application money is not received in a public issue."
3. Briefly stated the facts of the case giving rise to this appeal are that in
the year under consideration, the assessee's case was selected for scrutiny
through CASS and first notice u/s 143(2) of the Income Tax Act, 1961
(hereinafter referred to as the Act) was served on the assessee. The
Assessing Officer noted that the assessee company had received
Rs.1,75,67,000 as share application money from various parties which
included a sum of Rs. 15 lakh - Rs. 7 lakh claimed to have been received
from M/s Ganga Infin Pvt. Ltd. and Rs. 8 lakh from M/s Kuberco Sales Pvt.
Ltd. The Assessing Officer also noted that aforementioned entities have been
subjected to certain inquiries and investigation by Investigation Wing
wherein it was found that they have no creditworthiness nor do they have
any worthwhile source of income. In fact, they are accommodation entry
operators who provide fake entries. When the Assessing Officer asked the
assessee to explain the identity, creditworthiness and capability of these
share applicants, then the assessee furnished affidavits of Shri Mahesh Garg,
Director of M/s Ganga Infin P. Ltd. and another affidavit of Shri Anil 4 ITA No.2081/Del/2010
Kumar, Director of M/s Kuberco Sales Pvt. Ltd. as confirmation of the
respective amounts. In both the confirmations, the deponent directors of the
respective companies mentioned that the amounts have been given to the
assessee company as "unsecured loan". Apart from the said confirmation,
no other supporting document in support of identity, creditworthiness of the
party and genuineness of the transactions, in the form of copies of income
tax returns, audited balance sheets, bank statement and the details of nature
of business activities was furnished.
4. The AO issued summons to the above parties requesting them to
appear on 18.08.2008 along with copies of the income tax returns, books of
accounts and bank account statement etc. for AY 2006-07 but these
summons/notices could not be served. The Assessing Officer sent
summons/notices to both the addresses mentioned in the confirmations
submitted by the assessee and addresses which were recorded by the
Registrar of Companies. The notice issued to M/s Ganga Infin P. Ltd. was
received unserved with a postal remark, "shop always locked". The notice
issued to M/s Kuberco Sales Pvt. Ltd. was received back with a postal
remark "no such company" and notice issued to the same company on the
Rohini address as per Registrar of Companies record was received unserved
with a postal remark "left". The Assessing Officer also deputed Inspector of 5 ITA No.2081/Del/2010
the Ward to make inquiries at the addresses mentioned in the confirmations
and the record of the Registrar of Companies but as per report of the
Inspector dated 22.8.2008, the above entities were not found to be existing at
the said premises and he could not find any sign of any business activity in
the form of employees/assets of business or any evidence to show genuine
business activity by the companies/entities in question.
5. The assessee was confronted to the above facts and provided the
copies of statements of Shri Mahesh Garg and his other associates given
before the Addl. Director of Income Tax(Investigation) Unit 1, New Delhi.
The assessee's representative furnished written submissions stating that
presently both the parties have shifted to 104, B.D. Chambers, D.B.Gupta
Road, Karol Bagh, New Delhi and the Assessing Officer issued notices u/s
131 of the Act requiring the personal attendance of their principal officers
along with their books of accounts and evidence in support of their
creditworthiness and genuineness of the transactions but the same remained
uncomplied and none attended the proceedings. However, replies dated
31.10.2008 were received on the Dak Counter of the concerned Income Tax
Ward wherein the transactions were confirmed describing the transactions as
"share application money". However, our above replies were not
accompanied by any other substantial documentary evidence to show the 6 ITA No.2081/Del/2010
actual business activity being carried on by the companies and their
6. The assessee company was required to explain as to why the said
amount of Rs. 15 lakh claimed to have been received from the above
companies may not be treated as unexplained u/s 68 of the Act and added to
the income of the assessee from undisclosed sources. The assessee
submitted the following points in his favour:-
"a) The assessee company has filed confirmations. The said share applicants are companies incorporated under the Companies Act. The assessee company has
discharged its onus by filing above documents evidencing their identity.
b) The statements given by the above persons are vague and general in nature and these persons have not specifically mentioned the name of the assessee company. The assessee may be provided an opportunity to cross examine them. The statements relate to their activities in the past and not to the any transactions undertaken during the year under assessment.
c) The payments have been received through banking channels and have also since been refunded on 23.10.2007 and 15.11.2007.
d) The assessee having furnished confirmations from the creditors, the onus on it u/s 68 stands discharged. It is not for the assessee to find out the actual source or sources from where the credior has accumulated the amount in question..
7 ITA No.2081/Del/2010
e) The assessee may be given an opportunity to cross- examine the persons Viz. Shri Mahesh Garg his associates, mentioned above."
7. After consideration of facts and circumstances with submissions of
the assessee, the Assessing Officer concluded the assessment with following
"In the light of the above, the onus lay heavily on the assessee to establish the genuineness of the transactions and the true identity and creditworthiness of the alleged share applicants. Rather there is positive evidence as discussed above sufficient to impeach the creditworthiness of the above two "companies" and the genuineness of the transactions. Considering the totality of the circumstances, it is obvious that the "transactions were only a camouflage. The total amount of Rs.15,00,000/- allegedly received from the said parties represents the assessee's own accounted money which has sought to be introduced into its business in the garb of share application money. Thus, keeping in view the totality of the facts, the amount of Rs.15,00,000/- is added back to the income of the assessee company u/s 68 of the IT Act.
As discussed above, the said amount of
Rs.15,00,000/- is the assessee's own unaccounted money which has only been routed through the bank account existing in the name of above-mentioned entry operators by paying a commission to persons who arrange the transaction. The commission paid in transactions of such nature generally varies from 2 to 3 per cent, considering the cost-benefit analysis of the transactions. Taking the average of the commission rates (2.5%), a sum of Rs.37,500/- (i.e 2.5% of Rs.15,00,000/-) is also added to the income of the assessee as the commission paid to the entry operators out of its undisclosed income. 8 ITA No.2081/Del/2010
Keeping in view the facts of the case as discussed above, I am also satisfied that the assessee has concealed its income to the extent of Rs.15,37,500/- (Rs. 15,00,000/- plus commission of Rs.37,000/-) warranting initiation of penalty proceedings u/s 271(1)( c) of the I.T.Act, 1961."
8. The aggrieved assessee filed an appeal before the Commissioner of
Income Tax(A) which was allowed with following observations:-
"3.5 I have considered the submissions made by learned AR of the appellant company. After careful consideration of above facts, I am of the view that in view of various judgments of jurisdictional High Court 'as well as of Hon'ble Supreme Court, no addition on account of share application money (received from other corporate entities/parties) can he made in the hands of the appellant company. The assessing officer has not effected any enquiries to bring out any fact which could suggest that these parties have given accommodation entries to the appellant and that the money received from these parties is appellant's own undisclosed income and routed back to the appellant company in the guise of share application. Even appellant has not been provided with an opportunity to cross-examine the so called entry providers. He has simply relied upon the information provided by the Investigation Wing of the Department and no concrete efforts are made to verify the facts stated therein. On the contrary, it is observed from the assessment folder that the assessing officer issued summons u/s 131 of the Act to M/s Ganga Infin Pvt. Ltd. and M/s Kuberco Sales Pvt. Ltd. In response thereto, M/s Ganga Infin Pvt. Ltd. and M/s Kuberco Sales Pvt. Ltd. wrote letter dated 24.10.2008 and dated 'nil' respectively to the assessing officer confirming the transactions on account of share application money. In the case of Addl. CIT vs. Hanuman Pd. Aggarwal 151 ITR 151 (Patna) it was held that assessee having furnished the correct name 9 ITA No.2081/Del/2010
and address of the creditor, having confirmatory letter from the creditor and all materials show prima facie not only identity of the creditor but also the genuineness of the transaction, no adverse inference can be drawn. Reference can also be made to the judgement of Hon 'ble Apex Court in the case of Steller Investment Ltd. (200 I) 25] ITR 263 (SC), wherein it was held that even if the subscribers to the increased share capital of assessee company were not genuine, the amount could not be regarded as undisclosed income of the assessee company. The above view point of the Hon'ble Apex Court has also been expressed by Jurisdictional Delhi High Court in the case of Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del.), A-One Housing Complex Ltd. vs. ITO 110 ITD 361 (Del.), CIT vs. Value Capital Service Pvt. Ltd. 307 ITR 334 (Del.) and CIT vs. General Exports and Credits Ltd. (2008) 299 ITR 268 (Del.). In the case of CIT vs. Lovely Exports Pvt. Ltd. (2008) 299 ITR 268 (Del.). the Delhi High Court held that once the identify of the share holder has been established, even if there is a case of bogus share capital it cannot be added in the hands of the company unless any adverse evidence is on record. The Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing & Finance Ltd. (supra) has laid down the law on the subject as to what is the extent of the burden that lies on the assessee to prove the cash credit in the shape of share capital. The Hon'ble Court held that "if the relevant details of the address or PAN, identity of the creditor/subscriber are furnished to the Department along with the copies of shareholder's register, share application money forms, share transfer register, etc. it would constitute acceptable proof or acceptable explanation by the assessee. The Department would not be justified in drawing an adverse inference only because the creditors / subscribers fails or neglects to re.\pond to its notices. The onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it. without more against the assessee." The Department filed an SLP 10 ITA No.2081/Del/2010
against the decision of Delhi High Court in the case of Divine Leasing and Finance Ltd. (supra) where the Apex Court, while dismissing the appeal filed by the Department held as follows:-
"We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-Company from alleged bogus shareholders. whose names are given to the AO then the Department, is free to proceed to re-open their individual assessments in accordance with law."
Delhi High Court in the case of CIT vs. M/s Pondy Metal and Rolling Mill Pvt. Ltd. (IT A No. 788/2006) dated 19.02.2007 has concurred with the findings of the Appellate Tribunal. Delhi Bench 'F', New Delhi that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. At best, the amount could be added in the hands of the investor but it certainly could not be treated as undisclosed income of the assessee. The appeal filed against the said decision was dismissed by the Hon'ble Supreme Court in C. C. 12860/2007 dated 08/01/2008. As no adverse/incriminating material has been gathered by the assessing officer during the course of the assessment proceedings hence, I do not see any justification on the part of the assessing officer to make any addition on account of share application money received from M/s Ganga Infin P. Ltd. and M/s Kuberco Sales P. Ltd. as the appellant has discharged the initial onus of establishing the identity or the subscribers and the bonafides of the transactions. In view of our aforesaid discussion, I direct the assessing officer to delete the addition of RS.15.00.000/-made u/s 68 of the Act.
With regard to the addition of RS.37.500/- which has been made by the assessing officer on account of payment of commission out of undisclosed sources for arranging the accommodation entries from the above 11 ITA No.2081/Del/2010
mentioned two companies i.e. M/s Ganga Infin P. Ltd. and M/s Kuberco Sales P. Ltd., I again direct the assessing officer to delete the addition of Rs.37.500/- as nowhere in the impugned order, the assessing officer could prove that the amount received from these parties is an accommodation entry. Addition of Rs.15,00,000/- made u/s 68 of the Act has been deleted by me in pre- pages of this order and hence, there remains no justification for making and sustaining an addition of Rs.37.500/- on account of commission paid. Being of academic interest, this ground of appeal is taken as allowed to the appellant."
9. We have heard rival arguments of both the parties in the light of
material on record before us and carefully considered the same. Ld. DR
submitted that ld. Commissioner of Income Tax(A) failed to properly
appreciate the facts that the assessee company failed to prove the physical
existence of the alleged share applicant company. He further submitted that
as per the assessee company, an amount of Rs. 15 lakh is share application
money of Rs. 7 lakh from M/s Ganga Infin P. Ltd. and Rs. 8 lakh from M/s
Kuberco Sales P. Ltd. but except the affidavit of the respective directors
namely Shri Mahesh Garg, Shri Anil Kumar, no other supporting document
was submitted before the Assessing Officer. The Assessing Officer himself
sent notices to the above companies on the addresses given in the
confirmation affidavits and also to the addresses as per record of Registrar of
Companies but the same could not be served. The ld. DR vehemently
submitted that when the Assessing Officer made inquiries through Inspector 12 ITA No.2081/Del/2010
of Ward, both the above named entities were not found to be existing and
when the assessee submitted new addresses of the above companies, then the
notices sent to the new addresses again remained uncomplied. In these
circumstances, the Assessing Officer rightly held that the identity of the
share applicants was not proved, merely filing of confirmation affidavits
indicating paper identity of the share applicants was meaningless when the
physical existence of the share applicant could not be proved.
10. Ld. DR supported the assessment order and submitted that the
Commissioner of Income Tax(A) was not justified in deleting the addition
made on account of share application money u/s 68 of the Act and also of
any addition on account of commission. The DR submitted that the
Commissioner of Income Tax(A) wrongly extended the benefit of the ratio
of the judgment of Hon'ble Supreme Court in the case of Commissioner
of Income Tax vs Lovely Exports Pvt. Ltd. 6 DTR 308(SC). The DR also
relied on the judgement of Hon'ble Jurisdictional High Court of Delhi in
the case of Commissioner of Income Tax vs Nova Promoters & Finlease
(P) Ltd. reported as (2012) 342 ITR 169 (Delhi).
11. Replying to the above submissions, the assessee's representative
submitted that the assessee discharged its onus to establish the
identity/creditworthiness of the share applicants and the genuineness of the 13 ITA No.2081/Del/2010
transactions but the Assessing Officer merely acted on the report of the
Investigation Wing of the Department taking a hyper technical approach.
He also submitted that the Assessing Officer did not provide an opportunity
to cross-examine the witnesses examined by the Investigation Wing and
without providing an opportunity of cross-examination. He relied on the
submissions of Shri Mahesh Garg and his associates. He placed his reliance
on the judgment of Hon'ble Jurisdictional High Court of Delhi in ITA
No. 212/2012 dated 11.4.2012 in the case of Commissioner of Income
Tax vs Goel Sons Golden Estate Pvt. Ltd. wherein their Lordships held as
"The Revenue by this appeal under Section 260A of the Income Tax Act, 1961 (Act for short) impugns the order dated 05.08.2011 passed by the Income Tax Appellate Tribunal (Tribunal for short) in the case of Goel Estate Sons Pvt. Ltd. in relation to assessment year 2006-07.
2. Learned counsel for the appellant submits that the order passed by the Tribunal is perverse and in fact one S.H. Mallick had given a: statement, which is re- produced in the assessment order saying that he had provided accommodation entries and the said statement conclusively proves that share money of 30,00,000/- allegedly received by the respondent-assessee from 5 companies are sham and bogus transactions.
3. We have examined the said contention and find that the assessee during the course of assessment proceedings has filed confirmation from the companies, their PAN number, copy of bank statements, affidavits and balance 14 ITA No.2081/Del/2010 Asstt.Year: 2006-07
sheet. Thereafter the Assessing Officer had asked the assessee to produce the said Directors/ parties. Assessee expressed its inability to produce them. The Assessing Officer did not consequent thereto conduct any inquiry and closed the proceedings. This is a case where the Assessing Officer has failed to conduct necessary inquiry, verification and deal with the matter in depth specially after the affidavit/confirmation along with the bank statements etc. were filed. In case the Assessing Officer had conducted the said enquiries and investigation probably the challenge made by the Revenue would be justified. In the absence of these inquiries and non-verification of the details at the time of assessment proceedings, the factual findings recorded by the Assessing Officer were incomplete and sparse. The impugned order passed cannot be treated and regarded as perverse. The appeal is dismissed as no substantial question of law arises."
12. The ld. DR placed his reliance on the judgment of Nova Promoters &
Finlease Pvt. Ltd. (supra) wherein it was held:-
"33. The facts of CIT v Lovely Exports (P) Ltd. (supra) have been set out in the judgment of this court in that case, reported as CIT vs (1) Divine Leasing & Finance Ltd. (2) General Exports and Credits Ltd. and (3) Lovely Exports P. Ltd. in (2008) 299 ITR 268. In that case, the share capital subscription was received through banking channels and complete records were maintained by Divine Leasing & Finance Ltd. The Assessing Officer issued summons u/s.131 and thereafter impounded the shareholders' register, share application forms and share transfer register. It was contended by the assessee in that case that because of the action of the Assessing Officer, it was not able to furnish any details about the share subscribers. The Tribunal found that 15 ITA No.2081/Del/2010
the allotment of shares was made as per the relevant rules of the Securities Contracts (Regulation) Act, 1956 as well as those of the Delhi Stock Exchange. No evidence had been brought on record by the Assessing Officer to indicate that the shareholders were either benamidars of the assessee- company or fictitious or that the share application monies were the unaccounted income of the assessee-company. The Tribunal accordingly held that the onus that lay on the assessee under sec.68 stood discharged."
34. In respect of the other assessee, namely, General Exports & Credits Ltd., the monies were received by the said company on issue of rights shares to five companies pursuant to the renunciation of rights by several individual shareholders. A search had been conducted on the premises of the assessee, but those renunciation forms were not found with the assessee. As in the case of Divine Leasing & Finance Ltd., the five companies were registered in Sikkim at the same address. They all filed replies to the department asking for further time to provide the details of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the shares through banking channels. Moreover, the investigations carried out into those companies by the income-tax department at Calcutta and the adverse findings therein had been struck down as being without jurisdiction in appeals filed by those companies and therefore the Assessing Officer having jurisdiction over General Exports and Credits Ltd. in Bulandshahar could not rely upon them. In these circumstances, the Tribunal had deleted the addition made u/s.68 on the ground that the identity of the shareholders had been proved. This court did not approve of the ground on which the Tribunal had cancelled the addition and observed that the judgment of the Full Bench of this court in Sophia Finance (1994) 205 ITR 98 (Delhi) could not be 16 ITA No.2081/Del/2010
understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscribe to the shares and held that it was a matter of concern only of the appropriate authority under that Act. Accordingly, the ultimate decision of the Tribunal cancelling the addition was upheld.
35. The facts of Lovely Exports P. Ltd., as noted by this court, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants 17 ITA No.2081/Del/2010
which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law.
36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases:
"There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessed it should not be harassed by the revenues insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound, to carryout thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company."
18 ITA No.2081/Del/2010 Asstt.Year: 2006-07
We may also note that a reference was made by this court to several authorities, including at least seven judgments of this court on the question of applicability of section 68 to share application monies, and the position was pithily summed up as follows at page 282 (of 299 ITR):
"In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation."
37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by the revenue which filed SLP No.11993/2007. The petition for leave to appeal was dismissed by the Supreme Court observing as below: -
19 ITA No.2081/Del/2010
Can the amount of share money be regarded as undisclosed income under s.68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.
Subject to the above, Special Leave Petition is dismissed."
38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made 20 ITA No.2081/Del/2010
available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary.
39. The case of Orissa Corporation (1986) 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in Dolphin Canpack (2006) 283 ITR 190, CIT v Makhni and Tyagi P. Ltd. (2004) 267 ITR 433, CIT v Antartica Investment P. Ltd. (2003) 262 ITR 493 and CIT v Achal Investment Ltd. (2004) 268 ITR 211. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in 21 ITA No.2081/Del/2010 Asstt.Year: 2006-07
a collusive arrangement with persons who are self-confessed "accommodation entry providers".
40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities Private Limited, (2011) 333 ITR 119. We have given utmost consideration to the judgment. It disposes of several appeals in the case of different assessees. Except the case of CIT v Oasis Hospitalities P Ltd. (ITA Nos.2093 & 2095/2010), the other cases fall under the category of Orissa Corporation (supra). However, in the case of Oasis Hospitalities P Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of which it was found that six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, this court observed: -
"The Assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus 22 ITA No.2081/Del/2010
operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross- examine the persons whose statements were recorded by the Investigating Wing." These quoted observations clearly distinguish the present case from CIT v Oasis Hospitalities P Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard. Further, the assessee had not been confronted with the material collected by the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing.
41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee- company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so-called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (supra)."
23 ITA No.2081/Del/2010 Asstt.Year: 2006-07
13. In view of above, we hold that in the case before us, the Assessing
Officer not only afforded the opportunity to the assessee of being heard but
also the Assessing Officer issued notices to the alleged share applicants to
the addresses given in their confirmation affidavits and also on the addresses
as per record of the Registrar of Companies but the same could not be served
as they were received back with the remark "shop always locked" in case of
M/s Ganga Infin P. Ltd. and with the remark 'no such company' in the case
of M/s Kuberco Sales P. Ltd. Further, the Assessing Officer also deputed
Income Tax Inspector of concerned ward to make inquiries at the given
addresses but the Inspector reported that the said entities were not found to
be existing at the said addresses in the sense that there was no sign of any
business activity in the form of employees, assets of business or any other
evidence of any kind of business activity. The assessee was also confronted
with the report of Income Tax Inspector and he again submitted a new
address i.e. 104, B.D. Chambers, Karol Bagh, New Delhi but the notices by
the Assessing Officer on this address again went uncomplied with. We also
observe that the assessee only submitted confirmatory affidavits signed by
Shri Mahesh Garg, Director M/s Ganga Infin Ltd. and Shri Anil Kumar
Director M/s Kuberco Sales P. Ltd. and in both these confirmations, the
respective amounts were mentioned to have been given to the assessee 24 ITA No.2081/Del/2010 Asstt.Year: 2006-07
company as "unsecured loans" and subsequent confirmations sent by Dak
Desk of Assessing Officer states that the amounts were given as "share
application money". Apart from said contradictory confirmations, no other
supporting document in support of identity and creditworthiness of the party
and genuineness of the transaction was submitted.
14. On the other hand, Commissioner of Income Tax(A) discussed
plethora of judgments but he simply noted that as no adverse/incriminating
material has been gathered by the Assessing Officer during the course of
assessment proceedings, hence, he did not see any justification on the part of
Assessing Officer to make any addition on account of share application
money in question. He was not justified in holding that the appellant had
discharged the initial onus of establishing the identity and creditworthiness
of the subscribers and the genuineness of the transaction because the
Assessing Officer not only issued notices to the various addresses submitted
before him but he also called a report from the Income Tax Inspector of the
Ward. The notices remained unserved and uncomplied and the report of the
Inspector reveals that there was no physical existence of share applicant
companies in the name of M/s Ganga Infin P. Ltd. and M/s Kuberco Sales P.
25 ITA No.2081/Del/2010 Asstt.Year: 2006-07
15. In the case of Nova Promoters (supra), their Lordships held that the
ratio of the decisions in the case of Lovely Exports (P) Ltd. by the Apex
Court and in the cases of CIT vs Divine Leasing & Finance Ltd.(2008) 299
ITR 268(SC) and Oasis Hospitalities (P) Ltd.(2011) 333 ITR 119 by
Hon'ble Jurisdictional High Court is to be understood and appreciated in the
background of the facts of these cases. Their lordships further held that it
will be seen that where the complete particulars of the share applicant such
as their names and addresses, income tax file numbers, their
creditworthiness, share application forms and shareholder's register, share
transfer register etc. are furnished to the Assessing Officer and the Assessing
Officer has not conducted any further inquiry into the same and he has no
material in his possession to show that those documentary evidence and
particulars are false and cannot be acted upon and no addition can be made
in the hands of company u/s 68 of the Act and the remedy is open to the
revenue to go after the share applicants in accordance with law. But in the
present case where the Assessing Officer was in possession of material that
discredits and impeaches the particulars furnished by the assessee also
establishes link between self-confessed entry providers whose exclusive
business was to help the assessee to bring into their books of accounts their
unaccounted monies through the medium of share subscription, then we are 26 ITA No.2081/Del/2010
inclined to respectfully hold that the benefit of the ratio of these judgements
is not available to the assessee in the present case. The ratio is inapplicable
to a case such as the present case where the modus operandi of the assessee
is clearly indicated by the valid material made available to the Assessing
Officer as a result of investigation carried out by the revenue authorities into
the activities of such entry providers. In the present case, we observe that
the Assessing Officer did not leave any stone unturned to test and check the
identity and creditworthiness of alleged share applicant's office and the
genuineness of the transaction but except the self contradictory
confirmations in the form of affidavit wherein it has been stated that the
amounts in question have been given as "unsecured loans". The assessee
did not furnish any document or evidence which could be submitted in the
form of PAN No., Income tax returns, bank statement, share subscription
application, share transfer register etc.
16. In view of above, we hold that the findings of the Assessing Officer
for making addition of Rs. 15 lakh made u/s 68 of the Act was based on
justified and reasonable grounds. Per contra, the ld. Commissioner of
Income Tax(A) was wrong in holding that the appellant assessee has
discharged the initial onus of establishing the identity of the subscribers and
the genuineness of the transaction. Therefore, we are unable to uphold the 27 ITA No.2081/Del/2010
order of the Commissioner of Income Tax(A) deleting the addition made by
the Assessing Officer u/s 68 of the Act. The judgement of Hon'ble
Jurisdictional High Court of Delhi in the case of Nova Promoters & Finlease
Pvt. Ltd. (supra) is respectfully followed.
17. In view of above, ground no. 1, 3 and 4 are allowed.
18. From a bare reading of the assessment order, we observe that the
Assessing Officer concluded with the finding that the amount of Rs.15 lakh
was assessee's own unaccounted money which was routed through the bank
account existing in the name of entry operators by which a commission was
paid to the persons who arranged transaction and the Assessing Officer made
an addition of Rs.37,500 on estimation basis. This addition was deleted by
the Commissioner of Income Tax(A) with an observation that the addition of
Rs.37,500 made by the Assessing Officer on account of payment of
commission out of disclosed sources for arranging accommodation entries is
deleted because an addition u/s 68 of the Act has been deleted. Although as
per foregoing discussions pertaining to grounds no. 1, 3 and 4, we confirm
the addition made by the Assessing Officer, setting aside the findings of the
Commissioner of Income Tax(A) in this regard in the impugned order but 28 ITA No.2081/Del/2010 Asstt.Year: 2006-07
regarding addition of Rs.37,500 for payment of commission, we observe that
the Assessing Officer made this addition on hyper technical approach on the
basis of presumption, therefore, its deletion by the impugned order is held
justified and we confirm the same although on different reasoning.
19. In view of above, ground no. 2 of the revenue is dismissed.
20. In the result, the appeal of the revenue is partly allowed.
Order pronounced in the open court on 12.10.2012.
Sd/- Sd/- ( J.S. REDDY ) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 12th OCTOBER 2012
Copy forwarded to:-
4. CIT 5. DR True copy By Order
29 ITA No.2081/Del/2010