Shaan Construction P Ltd Vs ITO (ITAT Delhi)
ITAT noted that whole exercise carried out by the assessee is simply a devise to introduce unaccounted money through various shell companies in the form of share capital at a premium. The manner of issue of the shares through these companies, the manner of providing confirmation on the letter pad, the manner of maintaining the annual accounts and the manner of submitting the bank accounts on the letter pad or on a computerized print out to give it a semblance of originality to defraud the revenue, proves much more than what is under challenge before us. It shows the whole picture how the accommodation entries are routed through shell companies as share capital to evade the taxes. The whole façade created by assessee shows the real purpose of introducing the unaccounted money of the assessee without payment of taxes.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
1. These are the two appeals filed by the assessee against the quantum addition u/s 68 of the Income Tax Act and penalty u/s 271(1)(c) confirmed by the ld CIT(A).
2. This appeal in ITA No. 4520/Del/2009 is filed by assessee for assessment year 2006–07 against the order of the Commissioner of income tax (appeals) – XI, New Delhi (the Ld. CIT (A)) passed on 21/10/2009 wherein the addition made by the Income Tax Officer, Ward 8 (1), New Delhi (the Ld. AO) of Rs. 5000000/– on account of unexplained share capital and share premium under section 68 of the Income Tax Act vide assessment order passed Under Section 143 (3) of the Income Tax Act (the Act) on 19/12/2008 is confirmed.
3. The assessee has raised the following grounds of appeal in ITA No. 4520/Del/2009 for the Assessment Year 2006-07:-
“1. Because the Ld. CIT (A)’s order is perverse on facts as well as on law.
2. The order of CIT(A) is bad in law and void-ab-initio by not following the provisions of S-251 of I.T. Act and for exceeding their jurisdiction.
3. Because the order of CIT(A) is bad in law and void-ab-initio by exceeding it’s jurisdiction in directing the A.O. to invoke necessary provisions of law so that the matter could be examined and decided by the competent court of law.
4. Because the Ld. CIT(A) has erred in confirming an addition of sum of Rs. 50,00,000/- made by the Ld. A.O. on account of unexplained share capital & share premium u/s 68 of the Income Tax Act.
5. That the Ld. CIT(A) has erred in confirming an addition a sum of Rs. 50,00,000/- made by the Ld. A.O. on account of undisclosed income of the Assessee Company which has been utilized for deposit of share capital & share premium account contrary to the settled law.
6. That the Ld. CIT(A)’s order is based upon partly relevant and partly irrelevant documents/evidences and ignoring the relevant documents/evidences hence void-ab-initio.
7. That Ld. CIT(A)’s order is totally against the settled positions of law enunciated by the Apex Court and jurisdiction High Court in the case of Commissioner of Income Tax vs Lovely Export P. LTd (216 CTR 195 (SC)) and Commissioner of Income Tax vs. Value Capital
8. That Ld. CIT(A) as well as A.O. has failed to prove that investment made by subscribe actually emanates from coffers of assessee to be treated undisclosed income of Assessee u/s 68.
9. That Ld. CIT (A) erred in holding that transaction in question should be treated as unsecured cash credit and not as share capital/premium money.
10. Whether the Assessee has discharged its onus of satisfying requirement of section 68 and there is no evidence on record to support findings of CIT [A] as well as A.O.”
4. The ground No. 1 – 3 and ground No. 11 are general in nature and therefore same are dismissed.
5. Ground No. 4 – 10 of the appeal are with respect to the single issue involved in this appeal about the confirmation of an addition of Rs. 5000000/– by the Ld. CIT (A) on account of unexplained share capital and share premium under section 68 of the income tax act.
6. The brief facts are that assessee is a company engaged in trading of plots, agricultural land and minor development work. It filed its return of income on 29/11/2006 showing income of Rs. 38350/-.
7. During the assessment proceedings the Ld. assessing officer noted that the authorized capital of the assessee company has increased from Rs. 5 lakhs to Rs. 20 lakhs and in pursuance thereof 50,000 shares of Rs. 10 which were allotted at the premium of Rs. 90 per share to the five companies. Before the assessing officer the assessee filed confirmation from these parties along with their memorandum of articles and permanent account number along with copy of their bank statements from where these amounts were paid to the assessee. The Ld. assessing officer called for information under section 133(6) from the banks of these companies and it was found by him that the bank statement submitted by the assessee were totally different from the bank account statement submitted by banker of these shares subscribers. The Ld. assessing officer therefore addressed a letter to the bank enclosing the bank statement submitted by the assessee and the banker confirmed that the copies of the bank statements submitted by the assessee were not be correct bank statement. Thereafter the Ld. assessing officer issued notice to the assessee on 12/12/2008 confronting the above fact. It was stated by the Ld. assessing officer that the confirmation filed from the parties and from the respective bank statements submitted along with them shows the wrong details where according to the statement submitted by the assessee, prior to issue of the cheque there was a clearance of various cheques, however, the bank statements submitted by the bankers directly to the assessee shows that cash is deposited in the bank accounts of the shares subscribers before issue of the cheques to the assessee company. Therefore, the Ld. assessing officer was of the view that credits in the books of the assessee shall be treated as unexplained. On the appointed date of the hearing, none appeared on behalf of the assessee. Therefore the Ld. assessing officer took a view that on perusal of the bank statement filed by the assessee in respect of these 5 companies clearly shows a credit to the account by way of clearing or transfer while in fact cash was deposited in these accounts before a cheque was given to the assessee camouflaging it to be a receipt for share capital and share premium. Therefore he took the view that assessee has failed to prove the creditworthiness of the depositors as well as genuineness of the above transaction and hence he made an addition under section 68 of the income tax act 1961. Consequently assessment under section 143 (3) was passed on 19.12.2008 at Rs. 5038350/– against the returned income of Rs. 38350/–.
8. The assessee aggrieved, filed an appeal before the Ld. CIT (A). Before the Ld. CIT (A) the remand report was called for and one of the director of one of the depositor company’s was examined on oath however he could not also explain the discrepancy in the bank statement submitted by the assessee as well as the bank statement submitted by the bankers directly to the assessing officer. In the remand report also the Ld. assessing officer stated that assessee has failed to prove the creditworthiness of the such creditor as well as the genuineness of those transactions. In response to the remand report the Ld. authorized representative submitted that the assessing officer should have issued summons and he further relied on the decision of CIT Vs. Lovely Exports Private Limited (2008) 208 CTR 216 (Supreme Court). The Ld. CIT(A) after taking the note of the explanation furnished by the assessee as well as the remand report of the Ld. assessing officer confirmed the addition of Rs. 50 Lacs under section 68 of the act.
9. Aggrieved by the order of the Ld. CIT (A) the assessee has preferred an appeal before us. The main argument of the assessee before us was as under:-
(I) The Ld. authorized representative referred to letter dated 27/2/2008 submitted by the assessee before the Ld. assessing officer showing the complete details about the number of shares allotted to these companies. He also referred that along with the submission copy of the conformation, copy of the income tax return for assessment year 2006-07, copy of the share application form, copy of the bank statement and copy of the PAN card and memorandum and articles of Association of all these companies were submitted. Therefore, the assessee has discharged its onus of proving the identity, creditworthiness of the depositors as well as the genuineness of the transactions.
(II) He further referred to the letter submitted by the assessee to the Ld. AO in response to the query letter of the AO dated 12/12/2008, about the bank statement submitted by the assessee along with the confirmation of the depositors, that the conformation was supplied by the depositors to the assessee in good faith and the assessee does not have any knowledge of the wrong particulars mentioned in those bank statements by the above parties. Therefore, the Ld. assessing officer was requested by the assessee to seek reply from the parties concerned and not to treat the above sum as unexplained income of the assessee. Ld. authorized representative submitted that that assessee did not have any knowledge of any mischief in the bank statement by the shareholders/depositors. He stated that assessee was under bona fide belief that the bank statement submitted by the creditors to the assessee were correct. Therefore according to him the Ld. assessing officer should not have taken a view that the above sum an unexplained income of the assessee.
(III) He further referred to the statement of Shri Sajan Singh, director of one of the company, who deposited share application money with the assessee, recorded by the Ld. assessing officer on 27/7/2009 in remand proceeding. He referred to the question No. 13 wherein it has been confirmed by that person that bank statements were submitted by the company to the assessee company for onward submission before the Ld. AO. He further referred to question No. 14 and 15 of the statement where that person also could not show that who would have made the changes in the bank statement. In fact he also denied that they have made any change in the bank statement submitted to the assessee. In view of this the Ld. authorized representative submitted that assessee has nothing to do with the manipulation done by an unknown person in the bank statement submitted before the assessing officer of those depositors. Therefore it was stated that assessee is not at all involved in any alteration in the bank statements of those depositors. In turn he relied upon the statement made by Sh. Sajan Singh wherein he has confirmed the amount deposited by the shareholder company with the assessee. He therefore submitted that in the statement recorded by the Ld. assessing officer of the director of the company who deposited money with the assessee company have also confirmed the fact that money has been deposited by that company who is regularly assessed to income tax. He therefore submitted that even the deposition of the director of the shareholder company have also confirmed the above transaction.
