Addition U/s. 68 for Receipt of share capital not justified when Identity, creditworthiness & genuineness proved

FULL TEXT OF THE ITAT JUDGMENT

All the appeals by Revenue are directed against different Orders of the Ld. CIT(A)-XXXII, New Delhi, Dated 17^th September, 2013, for the A.Ys. 2005-2006, 2006-2007, 2007­2008 and 2008-2009, challenging the deletion of additions of Rs.1,52,08,500, Rs.96 lakhs, Rs.58,10,000 and Rs.2,46,91,500 on account of bogus share capital and share premium made by A.O. by treating them as unexplained cash credits, under section 68 of the I.T. Act, 1961, respectively in all the assessment years under appeal.

2. We have heard the learned Representatives of both the parties and perused the material on record. Learned Representatives of both the parties submitted that facts and issues are same in all the appeals. Therefore, for the purpose of disposal of all the Departmental Appeals, the facts are taken from A.Y. 2005-2006 in ITA.No.6589/Del./2013.

ITA.No.6589/Del./2013 – A.Y. 2005-2006 :

3. Briefly, the facts of the case are that search and seizure operation under section 132 of the I.T. Act, was conducted by Directorate of Intelligence on 26^th March, 2010 in Aseem Gupta Group of Cases at various premises of Aseem Kumar Gupta, C.A, who was, allegedly, provided accommodation entries to several beneficiaries. Search and survey covered the premises of several beneficiaries including that of the assessee. The A.O. issued notice under section 153A of the I.T. Act. In response thereto, assessee filed return for the assessment year under appeal, declaring income of Rs.3,929/-The assessee had earlier filed return under section 139 of the I.T. Act declaring income of Rs.3,929/- which was processed under section 143(1) of the I.T. Act. The A.O. noted that assessee has shown receipt of sum of Rs.10,13,900/- as share capital and Rs.1,41,94,600/- as share premium. The assessee was asked to file evidences to establish the identity and capacity of the persons who had given him share capital and share premium. The assessee was asked to furnish copy of the ITR, Bank Statement with their names and addresses from whom share application money was received along with the reasons and basis for issue of shares at high premium. The A.O. noted that assessee has failed to furnish any evidence to establish identity and capacity of the persons, who have given share capital and share premium to the assessee. The A.O, therefore, made addition of Rs.1,52,08,500/- considering it to be the unexplained income of assessee under section 68 of the I.T. Act,

1961. The A.O. completed the assessment under section 143(3) r.w.s. 153A of the I.T. Act, 1961 Dated 23^rd December, 2011. Similar additions were made in remaining assessment years.

4. The assessee challenged the findings of the A.O. and above addition before Ld. CIT(A). The assessee raised several grounds of appeal before the Ld. CIT(A) stating therein that assessment order is passed in violation of principles of natural justice and that impugned assessment order is framed without jurisdiction as per law, totally illegal and void abinitio. No cross-examination have been allowed to the assessee. It was submitted that addition have been made without recovery of incriminating material found during the course of search. Therefore, assessment is bad in law. The assessee also filed application under Rule 46A of I.T. Rules for admission of additional evidences. The assessee filed additional evidence in the paper book and it was submitted that A.O. issued show cause notice dated 09^th December, 2011 and fixed the case for 16^th December, 2011. The notice was received by the assessee in the evening of 14^th December, 2011. The assessee brought this fact about late service of the notice to the A.O. vide letter dated 15t^h December, 2011 and requested to grant time up-to 23rd December, 2011 to file required details. However, the A.O. without considering the request of the assessee, passed the impugned assessment order on 23rd December, 2011. Thus, it was a case, where adequate opportunity of hearing was not allowed to the assessee. The assessee, therefore, requested that additional evidences may be admitted which are confirmation of accounts of all the three investors i.e., (1) M/s. KMC Portfolio Pvt. Ltd., (2) Chotti Leasing & Financing Leasing Pvt. Ltd., and (3) Moderate Credit Corporation Ltd., with copy of the Board Resolution, Copy of Form No.2, Copy of company master data of all the investors, copy of PAN, ITR, Certificate of Incorporation, Bank Statements, Share Application Form with resolution of all the Investors. The assessee relied upon several decisions in support of the contention that additional evidence may be admitted.

4.1. The Ld. CIT(A) sent these additional evidences to the A.O. for his examination and to offer his comments. The A.O. filed his remand report which is reproduced in the impugned appellate order, in which he has briefly explained that assessee attended before him in the remand proceedings with all the supporting documents on which assessee relied upon. The assessee produced the books of account and supporting evidences. It was explained that earlier notices were also issued, which were not complied with by the assessee. The assessee was provided copy of seized material seized from the O/o. Shri Aseem Kumar Gupta. The assessee’s letter dated 15^th December, 2011, seeking adjournment is available on record. The A.O, therefore, objected to the filing of the additional evidences. Reply of assessee sent through speed post on 23.12.2011 has been received in Office on 26.12.2011.

4.2. With regard to the merits, the A.O. confirmed that assessee produced the above documentary evidences to prove identity of the investors, their creditworthiness and genuineness of the transaction in the matter. But status of these companies are doubtful. The A.O. in the remand report stated that assessments in the cases of Chotti Leasing & Financing Leasing Pvt. Ltd., and Moderate Credit Corporation Ltd., were completed in his Circle under section 153A/153C of the I.T. Act and M/s. KMC Portfolio Pvt. Ltd., is apparently not related to Shri Aseem Kumar Gupta. The documents are similar in the cases of all the Investors. Since, Shri Aseem Kumar Gupta stated in his statement that he has provided accommodation entries, therefore, there were no reason for him to differ with the order of the A.O.

4.3. The assessee filed rejoinder in which all the facts stated earlier were reiterated and it was submitted that assessee proved the identity and creditworthiness of the Investors. No defects have been pointed out in the documents filed by the assessee. Nothing was found during the course of search against the assessee. The A.O. in the remand report admitted that this Circle assessed two of the Investors and that there is no relation between the Investor and Shri Aseem Kumar Gupta. The assessee relied upon several decisions of Hon’ble jurisdictional Delhi High Court and others in support of the contention that it has proved the conditions of Section 68 of the I.T. Act, 1961.

4.4. The Ld. CIT(A) considering the material on record in the light of remand report of the A.O. admitted the additional evidences as per Rule 46A of the I.T. Act because same were relevant and vital and goes to the route of the matter. It may be noted here that the Revenue Department did not challenge these findings of the Ld. CIT(A) in the Departmental Appeals admitting the above additional evidences.

4.5. The assessee further submitted before Ld. CIT(A) that the additions have been made in the assessment order which were not based upon any material or evidence found as a result of search but were made on the basis of the return of income already filed enclosed with the Audit Report, showing share capital and share premium. Therefore, no assessment could be framed under section 153A of the I.T. Act. The assessee relied upon several decisions in support of his contention. The Ld. CIT(A) however, noted that search was conducted in the case of the assessee and its Directors. Therefore, Section 153A is applicable to frame the assessment against the searched person under section 153A of the I.T. Act. The Ld. CIT(A) following the decision of the Delhi High Court in the case of Anil Kumar Bhatia, rejected the contention of assessee. The Ld. CIT(A) also noted that after search and seizure operation, it is mandatory to initiate proceedings under section 153A of the I.T. Act. This ground of appeal of assessee was dismissed by the Ld. CIT(A).

5. As regards addition of Rs.1,52,86,500 made under section 68 of the I.T. Act, the assessee filed detailed written submissions, supported by evidence and case law to explain that addition on merit is wholly unjustified. The written submissions of the assessee were reproduced in the appellate order, which reads as under :

15. In the course of appeal proceedings the A.R of the appellant filed the following written submissions:

“Ld. CIT(A). AO has made an addition of Rs.10,13,900/- as unexplained share capital and further a sum of Rs.1,41,94,600/- on account of unexplained premium u/s 68.

First, it is submitted as was submitted earlier also that impugned addition has been made dehors the seized material which is evident from the plain reading of the assessment order and which reads that the addition is being made on the basis of sums appearing in the books of accounts. Therefore, in view of the special bench decision in the case of All Cargo Global Logistics Ltd. vs. DCIT in ITA no’s 5018 to 5022 & 5059/M/10 dated 06-07-2012, impugned addition could not be made in the present proceeding u/s 153A.

Even on merit, it is submitted that assessee has filed exhaustive evidences of the impugned share capital and share premium which are held in the paper book (PB 39- 80). Your good self would kindly see from the perusal of these details that the details furnished show not only the names of the shareholders but also their addresses, occupations and PAN numbers (PB39).

The appellant furnished apart from the above details, the copies of share application forms, incorporation certificate, copy of PAN card, copies of bank statements and copy of company master details downloaded from the ROC website, copy of Form No. 2 along with the copy of resolution passed by the appellant company. Copies of these evidences are enclosed in the paper book and are detailed as under :-