TaxTMI 
TaxTMI 
2016 (5) TMI 1298
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....ssee has raised the following grounds of appeal:- "1. That the ld.CIT(A) has erred on both facts and law of the case in confirming the additions of Rs. 3.60 crores u/s 68 on account of share capital issued by the assessee company and holding the same to be undisclosed income of the assessee company, which is unjustified, arbitrary, contrary to the law and facts and bad in law. 2. The ld.CIT(A) has erred both in law and facts of the case in confirming the additions made in assessment framed u/s 153A, which is not based upon any incriminating material found during the course of the search and that the Ld. AO erred in making the assessment in view of the fact that the assessment was not pending as on the date of the search, which is incorrect, unjustified and bad in law. 3. The ld.CIT(A) has erred in law & facts of the case in confirming the additions of Rs. 8,10,000/- on account of alleged commission paid for obtaining accommodation entries which is highly arbitrary, unjustified, bad in law, uncalled for and merely on presumption of the ld.A.O. 4. The ld.CIT(A) has erred in facts and law of the case in holding the validity of assessment u/s 153A wh....
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....r share capital and alleged payment of commission on presumption, is out of the purview of assessment u/s 153A. In support of this contention, he relied upon the following decisions of Hon'ble Delhi High Court :- (i) CIT Vs. Kabul Chawla in ITA No.707, 709 and 713/2014 dated 28.08.2015. (ii) CIT Vs. RRJ Securities Ltd. in ITA No.175 to 177/Del/2015 dated 30.10.2015. 5. Learned DR, on the other hand, relied upon the order of the Assessing Officer as well as learned CIT(A). He stated that there was search and seizure operation at the premises of Shri Tarun Goyal group of companies. During the course of such search, Shri Tarun Goyal admitted that he is carrying on the business of providing accommodation entries to various parties. He also admitted to have provided accommodation entries to Best Group of cases. That during the course of search of Shri Tarun Goyal group, he was also taken to the assessee's premises for allowing his cross-examination to the assessee. However, the assessee refused to cross-examine Shri Tarun Goyal. He, therefore, submitted that the statement of Shri Tarun Goyal is a conclusive evidence against the assessee. He further pointed....
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.... and, therefore, his statement cannot be used against the assessee. In support of this contention, he relied upon the following decisions:- (i) M/s Andaman Timber Industries Vs. CCE, Kolkata-II - Civil Appeal No.4228 of 2006, judgment dated 2nd September, 2015 (SC). (ii) CIT, Delhi Vs. SMC Share Brokers Ltd. - [2007] 159 Taxman 306 (Delhi). (iii) Alok Agarwal Vs. DCIT - [2000] 67 TTJ 109 (Del). 7. With regard to the statement of Shri Anu Aggarwal, it is stated by the learned counsel that when a question was put to Shri Anu Aggarwal in respect of loose papers, he stated that the loose papers are with regard to receipt of cash as advance for sale of property in certain cases which has not been reflected in the books of account. Part of the cash received which has not been accounted in the regular books of account has been utilized for making expenses in construction business. This reflects unexplained or unaccounted work in progress. He had surrendered the sum of Rs. 8 crores during the course of search. However, subsequently, the surrender was modified and the assessee made the surrender of only Rs. 2 crores. In the assessment order also, the Assessing ....
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.... v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood ....
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....search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation. 24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which c....
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....which give details of expenses made for construction work which are also not reflected in the books of accounts. You are requested to explain these documents and reconcile them with your regular books of accounts. Ans : I have gone through these documents in Annexure A- 1, A-4 and A-11 and I am unable to explain these documents. We have received cash as advance for sale of property in certain instances which has not been reflected in our books of accounts. Part of the cash received which has not been accounted by us in regular books of accounts has been utilized for making expenses in our construction business. This reflects our unexplained, unaccounted work in progress. This is the explanation for the seized documents Annexure A-1. To account for these seized documents and other seized documents which can not be adequately explain by us, we voluntarily offer a sum of Rs. 8 Crores (Rs. Eight Crores) which is over and above the normal income earned by us during the course of the year. This Rs. 8 Crores (Eight Crores) represents our undisclosed income earned during the year on accounts of unexplained cash receipts, unexplained work in progress as well as share capital and sh....
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....of this statement." 16. It is trite law that the statement of a third party recorded behind the back of the assessee cannot be utilized against the assessee unless assessee is given an opportunity to cross-examine. Therefore, anything stated in the statement of Shri Tarun Goyal cannot be relied upon to claim that the assessee was allowed an opportunity to crossexamine Shri Tarun Goyal and it was refused by them. No documentary evidence has been placed on record before us by the Revenue to support their contention that the director of the assessee company has refused to cross-examine Shri Tarun Goyal. It is pertinent to note that the search at assessee's premises as well as Shri Tarun Goyal group of companies took place simultaneously i.e., on 15th September, 2008. The statement of Shri Tarun Goyal on which the Department is placing heavy reliance is recorded on 15th September, 2008 and, in the said statement, it is mentioned by Shri Tarun Goyal that he was taken to the office of Best Group of companies for crossexamination by the director of the said company. However, they refused any such cross-examination. On the same day i.e., 15th September, 2008, the statements of Shri Anu ....
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....be allowed to the assessee. It is settled law that the statement of a third party recorded behind the back of the assessee cannot be utilized against the assessee unless he has been allowed an opportunity to cross-examine the said third party. 18. Hon'ble Apex Court has considered the issue of validity of statement without allowing opportunity of cross-examination to the other side in the case of M/s Andaman Timber Industries (supra). Their Lordships held as under:- "According to us, not allowing the assessee to crossexamine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee." 19. Hon'ble Jurisdictional High Court has also consid....
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.... has stated in his statement that he has provided you accommodation entries. Please explain the same. Ans. I personally do not know Sh. Tarun Goyal, except that he may have invested in our group companies. However, we have not received any accommodation entries from any body. I have already given my statement on 15-09-2008 in which in my answer to question no.15. I had surrendered a total amount of Rs. 8 Cr. on account of unexplained cash received from various bookings in my group companies and the unexplained expenses towards the work in progress of various projects in those companies and other outgoing. These unexplained receipts and out goings can be correlated and detailed at the time of assessment after going through the seized material and other available records. Q.No.7 At the time of search on 15-09-2008 to the question No.15, you also confirmed in your answer that this surrender of Rs. 8 Cr. Includes receipt of share capital and share premium. Please explain and clarify the same. Ans. As explained in the answer to the question no.6, the utilization of the unexplained receipts and its correlation with the outgoings can be ascertained after examining the se....
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.... the statement of Shri Tarun Goyal cannot be utilized against the assessee as his statement was recorded behind the back of the assessee and the assessee was not allowed opportunity to cross-examine him. (iv) In the statement of Shri Anu Aggarwal dated 15th September, 2008, the query was raised with regard to loose papers found and seized from their premises. Admittedly, none of the loose papers was relating to issue of share capital. The loose papers were pertaining to unaccounted receipt on sale and unaccounted expenditure on construction. In the statement dated 24th October, 2008, though the query was raised with regard to issue of share capital and the statement of Shri Tarun Goyal was confronted wherein he has alleged to have provided accommodation entry to the assessee group, Shri Anu Aggarwal categorically denied to have received any accommodation entries from anybody. 24. In view of the above, we hold that the issue of share capital was out of the purview of assessment u/s 153A as the assessment for assessment year 2005-06 was not pending on the date of search and no incriminating material relating to share capital was found during the course of search. Accordin....
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....l Addition for alleged expenditure on commission 1704/Del/2014 2007-08 1,00,00,000/- 2,25,000/- M/s Best City Realtors (India) Pvt.Ltd. :- ITA No. AY Addition for unexplained share capital Addition for alleged expenditure on commission 1706/Del/2014 2007-08 3,55,00,000/- 7,98,750/- M/s Best Realtors (India) Pvt.Ltd. :- ITA No. AY Addition for unexplained share capital Addition for alleged expenditure on commission 1708/Del/2014 2005-06 2,00,00,000/- 4,50,000/- 1709/Del/2014 2007-08 15,00,000/- 33,750/- 27. At the time of hearing before us, both the parties fairly agreed that the grounds raised and the facts in all these appeals are identical to the facts and grounds raised in the case of M/s Best Infrastructure (India) Pvt.Ltd. for assessment year 2005-06 vide ITA No.1698/Del/2014, except the difference in amount of share capital. Therefore, both the parties fairly stated that the outcome of the appeal in ITA No.1698/Del/2014 in the case of M/s Best Infrastructure (India) Pvt.Ltd. for assessment year 2005-06 would be squarely applicable in ....
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....es in all the years and thereafter, he made the addition in respect of respective assessment year in each case. He, therefore, submitted that if any one case is taken and considered, the finding in that one case would be made applicable to all the assessees in both the years. 30. Learned DR also fairly admitted that the facts in all the cases for both the years are identical and the Assessing Officer has virtually passed identically worded order in all the cases. He, therefore, agreed with the submission of the learned counsel that any one case can be taken up for detailed consideration and arguments. Accordingly, as agreed by both the parties, the appeal in ITA No.1705/Del/2014 i.e., in the case of M/s Best City Developers India Pvt.Ltd. for assessment year 2008-09 is taken up for consideration. In this case, the assessee has raised the following grounds:- "1. That the ld.CIT(A) has erred on both facts and law of the case in confirming the additions of Rs. 1.5 Crore u/s 68 on account of share capital issued by the assessee company and holding the same to be undisclosed income of the assessee company, which is unjustified, arbitrary, contrary to the law and facts and ba....
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.... In support of this contention, he relied upon the following decisions:- (i) Pr.CIT Vs. Rakam Money Matters Pvt.Ltd. - ITA No.778/2015, judgment dated 13th October, 2015 of Hon'ble Delhi High Court. (ii) CIT Vs. Victor Electrodes Ltd. - [2010] 329 ITR 271 (Del). (iii) DCIT Vs. G.S. Controls (P) Ltd. - ITA No.1560/Del/2010, order dated 13th March, 2015 of ITAT, Delhi Bench 'C', New Delhi. (iv) CIT Vs. Fair Finvest Ltd. - [2013] 357 ITR 146 (Delhi). (v) CIT Vs. Gangeshwari Metal (P) Ltd. - [2014] 361 ITR 10 (Delhi). (vi) CIT Vs. Vrindavan Farms (P) Ltd. - ITA No.71/2015 and others, judgment dated 12th August, 2015 of Hon'ble Delhi High Court. (vii) ITO Vs. Nishit Fincap (P) Ltd. - 2016 (4) TMI 213, order dated 31st March, 2016 in ITA No.2515/Del/2010 (ITAT Delhi). (viii) ITO Vs. Softline Creations (P) Ltd. - ITA No.744/Del/2012, order dated 10th February, 2016 of ITAT, Delhi Bench 'G', New Delhi. (ix) Suncity Projects Pvt.Ltd. Vs. DCIT & others - ITA No.14/Del/2012 and others, order dated 21st March, 2016 of ITAT, Delhi Bench 'G', New Delhi. (x) CIT, Orissa Vs. Orissa Corporation P....
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....of learned CIT(A) and stated that the search at the premises of Shri Tarun Goyal and the assessee took place simultaneously. Shri Tarun Goyal admitted to have provided accommodation entries to various parties including Best group of companies. That Shri Tarun Goyal was brought to the assessee's premises for providing cross-examination to the assessee but it could not be provided because the assessee refused to cross-examine him. That during remand proceedings, the Assessing Officer issued notice twice to Shri Tarun Goyal but he did not appear. Thereafter, the assessee was also requested to produce Shri Tarun Goyal but the assessee also did not produce. Therefore, despite all sincere efforts, the Assessing Officer could not provide cross examination of Shri Tarun Goyal to the assessee during remand proceedings. But when the assessee was offered the cross examination of Shri Tarun Goyal, the assessee refused to cross examine him. Therefore, now, assessee cannot claim that the statement of Shri Tarun Goyal cannot be utilized against him. He further submitted that even the assessee in his statement while making the surrender of Rs. 8 crores referred to unexplained share capital. Tha....
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....d any opportunity to cross-examine him. Hon'ble Apex Court has considered the validity of statement in the case of M/s Andaman Timber Industries (supra) and held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority is a serious flaw which makes the order nullity inasmuch as it is violating the principles of natural justice. Similar view is expressed by Hon'ble Jurisdictional High Court in the case of SMC Share Brokers Ltd. (supra) wherein Hon'ble Jurisdictional High Court has held "There is no doubt that the statement of Manoj Aggarwal had evidentiary value but weight could not be given to it in proceedings against the assessee without it being tested under cross-examination". We have already discussed this issue at length earlier in this order and have arrived at the conclusion that the statement of Shri Tarun Goyal cannot be used against the assessee. 37. Further, Hon'ble Jurisdictional High Court in the case of Harjeev Aggarwal (supra) has also considered the evidentiary value of the statement recorded at the time of search and has held that any statement recorded during the course of search on a standalone basis without refe....
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....s by way of transaction. During remand proceedings, the Assessing Officer has made necessary verification from the bank of the share applicant and no adverse finding is recorded by him in the remand report. Therefore, the facts on record are contrary to the allegation of the Revenue that the assessee gave cash to Shri Tarun Goyal and he, after depositing the same in the bank account of various companies, issued cheques for share application money. On these facts, the decision of Hon'ble Jurisdictional High Court in the case of Harjeev Aggarwal (supra) would be squarely applicable. Therefore, we hold that the statement of Shri Tarun Goyal cannot be used against the assessee because :- (i) His statement was recorded behind the back of the assessee and the assessee was not allowed any opportunity to cross-examine him. (ii) There is no corroborative evidence in support of the statement of Shri Tarun Goyal. On the other hand, the material found during the course of search and other evidences placed on record by the assessee are contrary to the allegation made by Shri Tarun Goyal in his statement. 39. Now, the next question is whether the assessee has been able t....
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....case of Rakam Money Matters Pvt.Ltd. (supra) held as under:- "13. It is not in dispute that extensive material was produced by the assessee in the present case to prove the identity, genuineness and creditworthiness of the companies who had subscribed to its shares. Among the materials produced were the income tax returns and the PAN card details of the eight companies. Even if the Directors of these companies did not respond to the summons issued by the AO, it was not impossible for the AO to make proper enquiries to ascertain the genuineness of these entities and satisfy himself of their creditworthiness. As pointed out by the CIT(A), the AO failed to make any effort in that direction. He did not take to the logical end the half-hearted attempt at getting the Directors to appear before him. He did not even seek the assistance of the AOs of the concerned companies whose ITRs and PAN card copies had been produced." 42. In the case of CIT Vs. Victor Electrodes Ltd. - [2010] 329 ITR 271 (Del), Hon'ble Jurisdictional High Court has held :- "9. There was no legal obligation on the assessee to produce some Director or other representative of the applicant compan....
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....ht to be added fell within the description of Section 68. 7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (P) Ltd. (supra). 8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (P) Ltd. (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators; such a link was shown to be present in the case of Nova Promoters & Finlease (P.) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under section 68, the ratio of Lovely Exports (P) Ltd. (supra) is attracted, irrespective of the facts, evidence and material. 9. No substantial question of law arises. The appeal is accordin....
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....The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under section 68 of the Act. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law." 45. Now, we come back to the facts of the assessee's case in respect of the share application money received. The assessee has furnished the affidavit of the director of share applicant company, share application form, confirmation from share applicant, certificate of incorporation of the shareholder company and copy of income tax return of share applicant company. The Assessing Officer has disputed the validity of the affidavit on the ground that affidavit is not certified by the notary and the stamp paper for pu....
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.... We do hereby confirm that the information furnished above is correct. For Aries Crafts Private Limited Sd/- Authorised Signatory" 46. From the above, it is evident that the share applicant company has given the confirmation on its letter head which gives the complete address of the said company. In the confirmation, number of shares applied and the amount invested has been given. Details of payments i.e., cheque number, date of cheque and name of the bank on whom cheque is drawn is given. Address of the bank and bank account number has also been given, source of fund is given as well as permanent account number of the company is also given. 47. Hon'ble Apex Court in the case of Orissa Corporation P. Ltd. (supra) has considered the situation wherein the assessee has furnished only the confirmation of the creditor which gave the particulars of income tax number of the creditor. The Assessing Officer issued summons u/s 131 to the creditors which were returned unserved with the remark "left". Thereafter, the Assessing Officer did not make any further verification from the income tax files of those creditors and confirmed the addition. The Tribunal deleted the additio....
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....f Gangeshwari Metal Pvt. Ltd. (supra). In the case under appeal before us also, the Assessing Officer simply sits back till the assessee submitted all the evidences and thereafter rejected those evidences on the basis of presumption and suspicion. He did not make any enquiry, he did not issue any summons to the share applicant company, he did not try to verify from the record of the share applicant company who are all assessed to income tax. In view of the above, respectfully following the decision of Hon'ble Apex Court in the case of Orissa Corporation P. Ltd. (supra) and of Hon'ble Jurisdictional High Court in the case of Rakam Money Matters Pvt. Ltd. (supra), Victor Electrodes Ltd. (supra), Fair Finvest Ltd. (supra) and Gangeshwari Metal Pvt. Ltd. (supra), we hold that the assessee has duly discharged the onus which lay upon it to prove the credit in the form of share capital. Accordingly, the addition made for unexplained share capital is deleted. 49. The addition relating to unexplained expenditure on alleged commission on the share application money is made by the Assessing Officer on the presumption that the assessee has taken the accommodation entry and for availing ....