ITO Vs M/s. Synergy Finlease Pvt. Ltd. (ITAT Delhi)
FACTS –
Assessee filed return declaring NIL income. The case was selected for scrutiny. AO completed the assessment contenting the genuineness of the transaction to be establish u/s 68 with regard to increase in share capital of INR 4,85,58,000.
AO 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 AO, these companies are merely conduit for providing accommodation entries and no real
business has been carried out in these companies.
Assessee submitted that they have filed all the documentary evidence to satisfy the nature and source of credit and the AO has examined the directors of the shareholder companies , who have verified the fact of making investment in the assessee company and thus the assessee has discharged his onus under
section 68.
HELD –
Merely presenting of documents of incorporation of the company and making payment for application of the shares through bank in itself or appearance by current director before the Assessing Officer and admitting the fact of share application made, is in itself not sufficient to justify the genuineness of the transaction.
In present case there are evidences and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investment in the form of share application money.
In view of SC judgement in the case of NRA, it has been held that share applicant entities are paper entities created by some individuals for providing entries to the persons including the assessee, not having tax paid capital for promoting their ventures. As the entries of credit are appearing in the books of the assessee, it was the onus of the assessee to explain satisfactorily the nature and source of those credits. As the assessee failed to discharge its onus of explaining source and nature of the credit received and failed to establish creditworthiness and genuineness of the transaction as required u/s 68 of the Act, the assessee is liable for addition under section 68 of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the Revenue is directed against order dated 03/06/2013 passed by the Ld. Commissioner of Income-tax (Appeals)-X, New Delhi [in short the Ld. CIT(A)] for assessment year 2006-07 raising following grounds:
1. “On the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 4,85,58,000/-made by the AO u/s 68 of the IT Act, 1961
2. The appellant craves to amend, modify alter, add or for go any ground(s) of Appeal at any time before or during the hearing this Appeal.”
2.1 Briefly stated facts of the case are that the assessee filed return of income on 12/11/2006 declaring Nil income. The case was selected for scrutiny and notice u/s 143(2) of the Income Tax Act, 1961 (in short the Act) was issued 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, who stated that said company didn’t exist. Accordingly, the Ld. Assessing Officer objected to admission of the additional evidences under rule 46 A of Income Tax Rules, 1962.
2.2. The Ld. CIT(A) confronted the said remand report to the assessee who objected that Sh Surinder Kumar was not authorised to make a statement on behalf of the M/s Karishma Industries Ltd.
2.3. The Ld. CIT(A) himself issued summon to Sh Surinder Kumar Arora and Sh. Naresh Gupta on 28/03/2012. In response to the summons, one Sh Sudhish Verma attended before the Ld. CIT(A) and claimed that he was the current Director of the said company and he provided financial statements and assessment order passed u/s 143(3) of the Act in the case of M/s Karishma Industries Limited. The Ld. CIT(A) also recorded statement of Sh. Surinder Kumar Arora , who stated that he was doing job work of screen printing with M/s Prakash Brothers in Chawri Bazar , New Delhi and he had nothing to do at personal level with M/s Karishma Industries. The Authorised Representative of the assessee requested before the Ld. CIT(A) to produce all the Directors/ CEO of the shareholding companies.
2.4. In view of the submission of the Ld. Authorised Representative of the assessee, the Ld. CIT(A) again directed the Assessing Officer on 2/11/2012 to examine the identity, creditworthiness and genuineness of the transaction in view of the books of accounts, income tax returns and other documents produced before him by the assessee. In the second round of remand proceedings, the Assessing Officer reported that notice u/s 133(6) of the Act issued to all the 10 parties were complied and a statement of the directors as on date, were also recorded and they confirmed the fact of shares applied as well as share premium amounts paid. The Ld. AO recorded two objections in respect of the documentary evidence is produced by the assessee:
(i) from the shareholder’s bank account it was observed that amount had been received by the parties immediately before the amounts had been advanced to the assessee
(ii) the director of the shareholding companies produced before the Assessing Officer were directors as on the date and not the directors in the year in which share capital was collected i.e. assessment year 2006-07
2.5. The Ld. CIT(A) in the impugned order has reproduced relevant part of the statements of the directors of those shareholding 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 statements and confirmations given by the directors.
(g) The A,R. of the appellant has emphatically argued that even though these were transactions pertaining to earlier years, since they have been fully accounted for in the books of accounts of the different parties and the present directors have also confirmed these transactions, there is no adverse material to reject the contention of the appellant regarding the genuineness and creditworthiness of the parties.
(h) It has also been stated by the A.R. of the appellant that under similar circumstances in the case of M/s SBS Properties and Finvest P. Ltd., CIT(A)-X, New Delhi has deleted the similar additions in his order dt.23-11-2007. This concern was a sister concern of the appellant company.
(i) The present set of facts clearly indicate that various documents to establish the identity, creditworthiness and genuineness of the shareholders had been provided by the appellant during the remand proceedings. These included the various documents referred to in earlier paragraphs. At the same time, the A.R. of the appellant insisted that he was willing to produce the directors of the various companies from whom the share application amount and the share premium amount had been taken. The directors of the various companies were also produced before the assessing officer and statements were recorded by him confirming these transactions. The assessing officer has not brought on record any adverse material to controvert the arguments of the A.R. of the appellant that it has fully discharged its onus with regard to this amount of Rs. 4,85,58,000/- which has been received by the company as share .190/08-09 Page 29 of 31 Synergy Finlease P. Ltd. application money and share premium amount. On going through the statements of the directors of different companies it has also been confirmed that shares had been allotted to these companies against the amounts paid.
Though it is observed that the directors of these companies were not always the same as the ones who were existing in the relevant assessment year, since the assessing officer had all the opportunity to examine the various documents pertaining to the relevant assessment year and also confront the directors if any discrepancy was to be found, the assessing officer has not pointed out any discrepancies or raised any such queries from the various parties whose statements 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 CIT(A) in some cases. The facts of this case regarding the various parties is, therefore, on very strong footing as the income tax department itself has recognized and examined in detail the financial transactions of various parties in their own capacities as corporate entities. This aspect clearly establishes that since the directors of these companies have also been produced before the assessing officer apart from the various other documents, there is no material with the assessing officer to come to the conclusion that this share application money and the premium amount can be added u/s 68 of the IT. Act.
Therefore, considering the principal observations in the case of CIT v. Lovely Exports (supra), if at all any addition is to be considered it should be considered in the hands of the shareholders and not in the hands of the company which has received the amount, once the initial onus had been discharged by the appellant and also keeping in view the various subsequent decisions regarding the requirements for discharging the initial onus including the cases of Nipuan Auto P. Ltd. (supra), Nipun Developers & Builders (supra), CIT v. Dwarkadheesh (supra), CIT v. Value Capital Services (supra) and others, the facts in the present case clearly indicate that despite all the documents and personal appearance of the directors from whom the share capital had been received, the assessing officer has not pointed out any discrepancy for coming to the conclusion that this amount should be added u/s 68 of the IT. Act.
After careful consideration of the facts of the present case as well as the various judicial pronouncements on the issue, I am inclined to agree with the arguments of the A.R. of the appellant that there is no justification for the assessing officer to uphold the addition after the details of the remand report alongwith statements of the directors and examination of various documents. Accordingly, this addition of Rs.4,85,000/- is deleted and this ground of the appellant is treated as allowed.”
3. Aggrieved with the above finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
4. Before us, the Ld. DR submitted that the Ld. CIT(A) has not taken into consideration the objection of the Assessing Officer brought on record in second remand proceedings. He submitted that the documents related to 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 on list of other decisions as under:
1. Navodaya Castle Pvt. Ltd. vs. CIT (2015-TIOL-314-SC-IT)
2. CIT vs. Navodaya Castle Pvt. Ltd. (2014) 367 ITR 306 (Del)
3. CIT vs. MAF Academy (P.) Ltd. (361 ITR 258)
4. CIT vs. Nipun Builders & Developers(P.) Ltd. (30 com292, 214 Taxman 429, 350 ITR 407, 256 CTR 34
5. CIT vs Nova Promoters & Finlease (P) Ltd. (18 Com217, 206 Taxman 207, 342 ITR 169, 252 CTR 187
6. CIT vs. Ultra Modern Exports (P.) Ltd. (40 com458, 220 Taxman 165)
7. CIT vs. N.R. Portfolio Pvt. Ltd. (2013) 29 com291 (Delhi)/{2013} 214 Taxman 408 (Delhi)/(2013) 263 CTR 456 (Delhi)
8. CIT vs. Empire Builtech (P.) Ltd. 366 ITR 110)
9. CIT vs. Focus Exprots (P.) Ltd. (51 com46 (Delhi) (2015) 228 Taxman 88)
6. The Ld. DR further relied on the decision of Hon’ble Supreme Court in the case of Konark Structural Engineering (P) Ltd. Vs DCIT (2018) 96 com255 (SC)), decision of Hon’ble Delhi High Court in the case of NDR Promoters Private Limited in ITA 49/2018, decision of the Hon’ble Supreme Court in the case of Prem Castings Private Limited vs CIT in Special Leave Petition No. 16933/2018.
7. According to the Ld. DR, the assessee failed to discharge his onus of creditworthiness of the subscriber parties and genuineness of the transaction and therefore the Ld. CIT(A) was not justified in deleting the addition.
8. On the contrary, the Ld. Counsel of the assessee filed paper book containing pages 1 to 219. The paper who contains the documents filed before the Ld. CIT(A) in support of claim of discharging onus u/s 68 of the Act. The Ld. Counsel submitted that the assessee has filed all the documentary evidence to satisfy the nature and source of credit and the Assessing Officer has examined the directors of the shareholder companies , who have verified the fact of making investment in the assessee company and thus the assessee has discharged his onus under section 68 of the Act and addition any, if required could be considered in the hands of those shareholding companies and not in the hands of the assessee company. The Ld. Counsel relied on the various submissions made before the Ld. CIT(A) and submitted that Ld. CIT(A) has passed a reasoned and justified order on the issue in dispute and thus accordingly, same might be accepted. The Ld. AR relied on the decision of the Tribunal in the case 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)]
