TaxTMI 
TaxTMI 
2019 (3) TMI 695
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....sued and served including through affixture of notice. None attended in response to the various notices issued subsequently and thus the assessment was completed 29/12/2008 on the basis of the material available on record. In the assessment completed, the Assessing Officer observed increase in share capital including share premium during the year under consideration of amount of Rs. 4,85,58, 000/-but in view of no evidences with regard to creditworthiness or genuineness of the transaction required to be established by the assessee in terms of section 68 of the Act, he made addition of the said amount of Rs. 4,85,58,000/-. Aggrieved, the assessee filed appeal before the Ld. CIT(A) and filed certain documents as additional evidences. The Ld. CIT(A) forwarded those evidences to the Assessing Officer. In report submitted by the Assessing Officer on 29/10/2010 (first remand report) it was submitted that 10 share applicant companies to whom the notices issued, neither appeared on the stipulated date nor a request for adjournment was filed by those companies. The Assessing Officer also recorded the statement of one Sh Surinder Kumar Arora at the address of M/s Karisma Industry Limited, wh....
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....ng companies. The Ld. Assessing Officer also forwarded, confirmation letters along with the statement of accounts, balance sheets, income tax acknowledgement and assessment order in case of the 10 shareholder companies. The Ld. CIT(A) forwarded copy of the second remand report to the assessee for his comments. The Ld. CIT(A) after taking into consideration the rejoinder of the assessee, deleted the addition observing as under:' "(f) During the course of appellate proceedings and also before the assessing officer the A.R. of the appellant has provided the following documents to establish the identity, genuineness and creditworthiness of the parties: i. Income tax returns alongwith orders passed u/s 143(3) in most cases ii. Copies of CIT(A) orders in some case iii. It has been contended that shares had been allotted and recorded in the books of accounts of all the parties. iv. Copies of audited accounts of all the parties were produced for establishing the identity and genuineness of the transaction. v. The directors of the companies have been produced before the A.O. and no specific discrepancies had been pointed out by the assessing officer to dispute the statement....
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....ements had been taken. This only leads to the conclusion that on the basis of the material available on record, there is no evidence to come to the conclusion that the share application amounts received from the various parties were not genuine. (j) The A.R. of the appellant has relied upon various judicial pronouncements including CIT v. Divine Leasing (supra), CIT v. Lovely Exports (supra), CIT v. Value Capital Services (supra), CIT v. Dwarkadheesh (supra) as well as the latest decision in the case of CIT v. Nipuan Auto Pvt Ltd. in ITA No.225/2013 dt. 30-04-2013 of the jurisdictional High Court. This latest decision has also differentiated the case of Nipun Builders & Developers P. Ltd. of the Delhi High Court dt. 07- 01-2013, where it had been held that principal officers of the subscribing companies should have been produced before the assessing officer for establishing the identity, genuineness and creditworthiness of the transactions. In the factual matrix of this cases, the appellant has also produced the directors of the various companies alongwith the various documents and financial statements of these companies including scrutiny assessment orders and orders of the ....
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....o the alleged shareholders do not explain the creditworthiness and genuineness of the transaction. He submitted that the shareholder companies have shown very small amount of income either from the consultancy or from the interest income as against the huge investment made by them. He also submitted that in bank statements of all the companies, there is similar pattern of deposit of the money in the bank account immediately before issue of cheque to other entities including the assessee. According to him, these companies are merely conduit for providing accommodation entries and no real business has been carried out in these companies. He submitted that the Ld. CIT(A) only satisfied him on the basis of the list of documents filed by the assessee and did not examine the nature and source of the credit in terms of section 68 of the Act. 5. The Ld. DR relied on the decision of the Hon'ble Supreme Court in the case of Navodya Castle Private Limited vs CIT (2015- TIOL-314-SC-IT) to support the proposition that if there are deposits of cash in bank accounts prior to issue the cheque or pay order same would raise suspicion and addition can be made on such account . The Ld. DR also relied....
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.... of RPG Credite and Capital Limited in ITA No. 4688- 4690/Del/2012 to support the contention that the department cannot raise any grievance, when the Assessing Officer in the remand proceedings fails to point out any justification for sustaining addition and under those circumstances appeal filed by the Revenue was held to be carelessly and frivolously filed. 9. We have heard the rival submissions and perused the relevant material on record. The brief facts in respect of the addition dispute have already been reproduced above. The assessee introduced share capital of Rs. 4,85,58,000/- alongwith share premium from following 10 companies [table extracted from para 2.8 of the Ld. CIT(A)] S.N NAME OF SHAREHO LDER COMPANY ADDRESS OF SHARE HOLDER COMPANY PAN OF SHAREHOLD ER COMPANY NAME OF DIRECTOR (PRESENT BEFORE AO) AMOU NT INVES TED BY SHARE HOLDE R Q.NO. OF STATE MENT BY AO IN WHICH AS KIN G FOR AMT. INVEST ED NO OF SHAR E A PP./ ALLO TT. BANK NAME & ACCOU NT NO. OF SHARE HOLDE R CO. FROM PAYME NT MADE 1 Vogue Leasing & Finance Pvt. Ltd. 304, Balaji Chamber, D- 246, Gali No-10, Laxmi Nqr,Delhi-92 AAACV0074 G Sarvesh Pal Singh 56,40, 000.00 Q.NO. 4 9400 0 KOT....
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....se of all the alleged share applicants . The list documents in the case of one share applicant namely M/s Vogue Leasing and Financing Private Limited are reproduced as under: 1. Copies of documents submitted before the AO in support of share application of Rs. 56,40,000/- from M/s. Vogue Leasing and Finance P Ltd. : 1. Form No. 1 of FBT for AY 2006-07 2. Confirmation of Account 3. Audited Balance Sheet 4. Bank Statement for the period 01.02.2006 to 21.03.2006 5. List of Directors 6. Assessment order for AY 1989-1990, AY 2005-06 and AY 2007-08 7. E-filed ITR-V for AY 2012-13 8. Bank Statement for the period 01.04.2009 to 31.03.2010 9. List of Signatory details downloaded from MCA PortalWe have gone through all the documents and found that creditworthiness and genuineness of the transaction is not getting established from these documents. 11. The documents in relation to share application money of Rs. 56,40,000/-from M/s Vouge Leasing and Finance Private Limited have been filed at pages 46 to 64 of the paper book. The documents include audited balance sheet and bank statement for the period from 01/02/2006 to 23/03/2006 and for the period from 01/04/200....
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....09, Bhanot Plaza-II, 3 DB Gupta Road, Paharaganj, New Delhi-110055. The other documents filed are only in the nature of the paper trail documents and do not in any manner establish the nature and the source of the credit in the books of accounts of the assessee. 12. The documents in respect of M/s SR Cables P Ltd have been filed from page 65 to 82 of the paper book. The documents include balance sheet and bank statement for the period from 01/12/2005 to 05.01.2010 alongwith list of signatories etc. downloaded from the Ministry of Company Affairs Portal. On perusal of the profit and loss account on page 69 of the paper book, it is seen that there are rows for the income from consultancy fee, interest on loan and profit on sale of investment, which are identical to the stream of Revenue shown in the case of M/s Vogue Leasing and Finance Private Limited. During the year under consideration no income has been shown from consultancy fee or interest on loans and the only income of Rs. 1, 48,828/- has been shown from the profit on sale of investments. On the expenditure side nominal expenditures on different heads like audit fee (Rs 2,500/-); printing in a stationary ( Rs. 3,990/-) , ban....
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....wn income only from interest on loans of Rs. 6,60,414/- and share profit from partnership firm amounting to Rs. 18,866/-against which operating expenses of Rs. 6,45,574/-, interest and finance charges of Rs. 60,110/-and loss on sale of investment of Rs. 4,62,760/- has been shown, and thus overall loss has been shown. In the balance sheet as on 31/03/2006 on liability side , paid-up share capital of Rs. 8,52, 00,000/-share premium of Rs. 16,18,00,000/-under reserve and surplus has been shown . On the asset side, investment in equity shares of companies has been shown as Rs. 35,66,54,000/- loan advances, share application money paid of Rs. 49,00,000/- loans of Rs. 10,60,72,542/-have been shown. The investment in equity shares is mostly in private limited companies. The copy of bank accounts available on page 92 to 96 is not found to be legible but in this also money has been withdrawn immediately after deposit in the bank account. The confirmation filed by the alleged share applicant is undated and without any address of the alleged share applicants. In the list of the directors, two names have been provided namely Sh. Rajesh Kumar Mishra and Sh. Pradeep Kumar Sharma, both having sam....
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....he profit and loss account available on page 129 of the paper book, we find income from interest on loans of Rs. 28,274/-and profit on sale of investment amounting to Rs. 2,15,278/-. Against the said income, nominal expenses under different heads including audit fees, bank charges, post and telegraph, printing and stationery etc amounting to Rs. 2,23,950/-has been shown. The expenses also include salary of Rs. 98,950/-. A nominal profit of Rs. 19,601/- has been shown in the profit and loss account. On perusal of the balance sheet as on 31/03/2006, available on page 128, we find that on liability side the paid-up share capital of Rs. 1,19,58,400/- share premium of Rs. 10,22,19,300/-under reserve and surplus has been shown. On the asset side investment in shares of the companies has been shown at Rs. 7,03,69,511/-loans and advances of Rs. 59,22,490/-have been shown and debtors of Rs. 7,56,73,007/- are shown. We find that the debtor appearing are M/s Hillfridge Investment Limited ( Rs. 7,49,12,000/-) and M/s Vogoue Leasing and Finance at Ltd. ( Rs. 7,61,000/-) , which are other two alleged share applicants in the present case before us. The bank statement available on page 132 of the ....
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....on page 159 is undated. On perusal of profit and loss account available on page 162 of the paper book, we find that income from consultancy fees has been shown at nil, profit on sale of investment has been shown at Rs. 1,76,752/- and interest on loan has been shown at Rs. 2,325/-. Against which expenses of Rs. 1,73,759/- which includes expenses on bank charges, auditors remuneration, office rent ( Rs. 4500/-), salary of Rs. 63,685/-. A nominal profit of Rs. 5318/- has been shown for the year under consideration. On perusal of the balance sheet available on page 161 alongwith schedule on page 164, we find that on liability side paid-up share capital of Rs. 1,57,93,200/- and share premium of Rs. 14,12,38,800/-has been shown. On asset side, investment in shares of mainly private limited company has been shown Rs. 815,30, 93,477/- and share application money of Rs. 4,00,000/- has been shown. On perusal of the bank statement for the period filed similar trend of deposit and withdrawal of the equal amount within short interval has been shown leaving a nominal balance of Rs. 4,919/-. The list of the directors contain two names :- Sh Ajay Garg having address at 209, Bhanot Plaza-II, 3, D....
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...., 452/- interest of Rs. 7,123/-and profit on sale of investment of Rs. 1,12,450/-. On expense side, administrative expenses of Rs. 2,44,873/- have been shown against advertisement expenses, auditor, bank charges, printing & stationary , salary ( Rs. 39,900/-). During the year loss of Rs. 1,23,832/- has been shown. On perusal of the balance sheet as on 31/03/2006, available on page 195 alongwith schedule on page 197 of the paper book, we find that on liability side paid-up share capital of Rs. 9,99,80,000/-and share premium of Rs. 4, 87,50,000/-has been shown. On asset side investment in an unquoted equity shares of Rs. 14,01,37,500/-has been shown along with loan of Rs. 25,05,525/-. On perusal of the bank statement available on page 199, we find that deposit of Rs. 25, 02,000/- is appearing on the bank account on 18 March, 2006 and corresponding amount of Rs. 25,00,000/- has been withdrawn by way of clearing on 20/03/2006. Similarly amount of Rs. 22,50,000/-has been deposited and withdrawn within short interval of two days. Similarly on 23/03/2006 payment of Rs. 1,25,50,000/-was received from UGS Finance and on same date payment of Rs. 1,25,00,000/- has been shown. Similar pattern ....
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....cants. No dividend income from investment in private limited companies has been shown. (iii) Salary expenses of these companies are around Rs. 1 lakh per annum, which shows that not more than one or two employees must have been employed by these companies that too for clerical services. (iv) The income and potential of the these alleged share applicant do not justify, the high amount of share premium appearing in their reserve and surplus account. (v) All the alleged share applicants have made investment in shares mostly of the private limited companies , most of which are common. (vi) The pattern of receipt of money and immediate withdrawal of almost equal amount is identical in all the alleged share applicants. (vii) One common person is director in two or three alleged share applicant companies. (viii) One of the most glaring observation is that there are only two common address of the director's in case of all alleged shareholders. The two common addresses are located in Paharganj , New Delhi as under: (a) 209, Bhanot Plaza-II, 3 DB Gupta Road , Paharganj, New Delhi-110055. (b) 3198/15, Gali No. 1,4th Floor, Sagatrashan , Paharganj, New Delhi-110055 (ix) commo....
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....e application money or share capital or loans by way of accommodation entries. 24. The Ld. Counsel of the assessee has submitted that all the share applicants have been examined by the Assessing Officer in remand proceedings and no adverse comments have been made and thus he should be precluded from agitating the issue before the Tribunal. In support of the contention the Ld. Counsel has relied on the decision of the coordinate bench in the case of ACIT vs. RPG Credit and Capital Limited in ITA No. 4688, 4690/Del/2012. The Tribunal in the said case held that the department cannot raise any grievance when the Assessing Officer even in the remand proceedings fails to point out any justification for sustaining addition and under those circumstances appeals filed with the Revenue were held to be carelessly and frivolously filed. 25. But in the instant case, the Ld. Assessing Officer during the remand proceedings clearly pointed out that the person appeared before him were the current directors of these alleged the share applicant companies and the persons who invested were not produced before him. Thus it cannot be inferred that the Ld. Assessing Officer found the source and nature o....
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....Commissioner of Income Tax vs.. N.R. Portfolio Pvt. Ltd., 206 (2014) DLT 97 (DB) (Del) and Commissioner of Income Tax-ll vs. MAF Academy P. Ltd. 206 (2014) DLT 277 (DB) (Del). The aforesaid decisions mentioned above refer to the earlier decisions of Delhi High Court in Commissioner of Income Tax vs. Sophia Finance Ltd. [1994] 205 IIR 98 (FB)(Delhi), CIT vs. Divine Leasing and Finance Limited [2008] 299 IIR 268 (Delhi) and observations of the Supreme Court in CIT vs. Lovely Exports P. Ltd. [2008] 319 ITR (St.) 5 (SC), 12. The main submission of the learned counsel for the assessee is that once the assessee had been able to show that the shareholder companies were duly incorporated by the Registrar of Companies, their identity stood established, genuineness of the transactions stood established as payments were made through accounts payee cheques/bank account; and mere deposit of cash in the bank accounts prior to issue of cheque/pay orders etc. would only raise suspicion and, it was for the Assessing Officer to conduct further investigation, but it did not follow that the money belonged to the assessee and was their unaccounted money, which had been channelized, 13. As we perc....
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.... not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 29. After examining the facts of above referred case, in view of the principles on the issue of applicability of section 68 in the cases of credit of share capital/premium, the Hon'ble Supreme Court reversed the orders of Hon'ble High Court, ITAT and 1st appellate authority and restored the order of the Assessing Officer observing as under :- "12. In the present case, the A.O. had conducted detailed enquiry which revealed that: i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. For example: a. The companies Hema Trading Co. Pvt. Ltd. and Eternity Multi Trade Pvt. Ltd. at Mumbai, were found to be non-existent at the address given, and the premises was owned by some other person. b. The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of....
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....rities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 15. On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income. 16. The Appeal filed by the Appellant - Revenue is allowed. In the aforesaid facts and circumstances, and the law laid down above,....