Case Law Details

Case Name : Gomti Exim Pvt. Ltd. Vs ITO (ITAT Delhi)
Appeal Number : ITA NO. 5383 /DEL/2010
Date of Judgement/Order : 12/06/2015
Related Assessment Year : 2006-07
Courts : All ITAT (4337) ITAT Delhi (959)

Brief Facts:

The facts of the case in brief are that the assessee filed e-return of Income on 28.11.2006 declaring nil income which was processed u/s 143(1) of the Income Tax Act, 1961(hereinafter referred to as the Act) and thereafter the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had raised share capital including share premium amounting to Rs. 10,00,000/- from Shri Vinod Kumar and Rs. 6,50,000/- from Shri Jasbir Singh.
The AO asked the assessee to furnish the confirmation and the sources of investment made by the above mentioned two share holders. He also asked to produce the aforesaid persons to verify the veracity of the transactions. In response the assessee produced both the persons on 5.12.2008. The AO observed that Shri Jasbir Singh was was able to substantiate his sources of investment from sale proceeds of agricultural land but Shri Vinod Kumar could not do so. The AO further observed that the statement of Shri Vinod Kumar was also recorded in which he explained that he made the investment out of his past savings from agricultural activities and out of refund of cash loan given to Shri Jasbir Singh alias Pappu. Shri Vinod Kumar in his statement also stated that he owned approximately 40 bighas of land, however, papers were not available with him since those were mortgaged in was connection with a tractor loan. The AO observed that Shri Vinod Kumar could not explain the exigency under which he had to apply for bank loan specially when a sum of Rs. 10,00,000/- in cash was available with him. He further observed that copy of the Khasra Khatoni of agricultural land at Village Nathupur the names mentioned were Shri Sardare, Shri Tare and Shri Umed Singh as owner of agricultural land and the name of Shri Vinod Kumar was not amongst the co-owners of the land. The AO pointed out that the assessee produced an agreement on the blank paper which revealed that Shri Jasbir Singh of Village Nathupur had refunded and an old cash loan to Shri Vinod Kumar, however, he did not find merit in the submission of the assessee and added Rs. 10,00,000/- to its income by considering the same as unexplained credits u/s 68 of the Act.

Assessee Contention :

The assessee submitted that he produced following evidences before the AO to prove the identity and creditworthiness of Shri Vinod Kumar :-

“(i) Copy of Share Application received from Mr. Vinod Kumar

(ii) Copy of Shares Certificate of shares Allotted to him

(iii) Copy of confirmation received from him

(iv) Copy of Annual Return and Form 2 filed before the Registrar of Companies

(v) Various documents related to assets owned by him, Identity Card.”

It was further submitted that the assessee produced the person who confirmed the amount of contribution to the assessee. It was also stated that the assessee produced various papers related to land and other assets owned by Shri Vinod Kumar which could establish his creditworthiness and to prove the genuineness of the transaction it was necessary to prove the identity and creditworthiness of the creditor. It was submitted that the AO specifically mentioned in his order that Shri Vinod Kumar appeared before him and produced details of assets owned by him. Therefore, assessee discharged the onus cast upon him. It was prayed that the addition of Rs. 10,00,000/- made by the AO may be deleted. Reliance was placed on the following case laws :-

  1. CIT vs. M/s Lovely Exports Pvt. Ltd. 216 CTR 195
  2. CIT vs. Steller Investment Ltd. 251 ITR 263 (SC)
  3. CIT vs. Sophia Finance Ltd. 205 ITR 98 (Del)
  4. CIT vs. Achal Investment Ltd. 268 ITR 211 (Del)
  5. CIT vs. M/s Divine Leasing & Finance Ltd. (299 ITR 268)
  6. CIT vs. Sumati Dayal 214 ITR 801 (SC)

Revenue Contention :

The Ld. CIT(A) after considering the submissions of the assessee observed that Shri Vinod Kumar was not assessed to tax and did not have a PAN. He further observed that Shri Vinod Kumar could not produce any evidence with regard to the source of income for his creditworthiness and that the mode of payment regarding his claim of agricultural income was not furnished before the AO. The ld. C.I.T.(A) also observed that the assessee could not submit either the copy of Khasra, Khatauni or any receipt of agricultural produce and that the genuineness of the transaction was in doubt since the payment was not made through banking channel but was made in cash. The Ld. CIT(A) also mentioned that the case laws relied by the assessee were not applicable to the present case. Accordingly the addition made by the AO on account of share capital of Rs. 10 lac received from Sh. Vinod Kumar was sustained.

Court Order

In the present case, the main objection of the AO was that in khasra khatauni, the name of the assessee was not appearing as the owner of land. In this regard the explanation of assessee was that the name of his father Shri Umed Singh was appearing in khasra khatauni which is placed on page no. 43 of the assessee’s paper book which clearly established the ownership of land. It is also noticed that the assessee furnished copies of “J” froms in the name of Shri Vinod Kumar which clearly established that he sold the agricultural produce to M/s. Rameshwer Dayal Prem Chand Aadhti, Sonepat Mandi, copies of the same are placed at page no. 37 to 43 of the assessee’s paper book. In the present case, it is noticed that the assessee received a sum of Rs. 5,00,000/- from Shri Jasbir Singh to whom the said amount was given as an advance to purchase the land which is evident from page no. 44 of the assessee’s paper book which clearly shows that the advance money given to Shri Jasbir Singh was taken back by Shri Vinod Kumar on 25.12.2005. Both the parties affixed their signature on the above said document which is witnessed by Shri Ajay Kumar son of Shri Jagdish and Shri Jagdish Son of Shri Raj Kumar.

From the above facts, it is clear that Shri Vinod Kumar was a man of means, his creditworthiness was proved and the identity was not in doubt since the assessee produced Shri Vinod Kumar before the AO who recorded his statement wherein the investment in the shares was admitted, copy of the share certificate, is placed at page no. 36 of the assessee’s paper book which revealed that 10,000 shares having destructive nos. 16,501 to 26,500 were allotted to Shri Vinod Kumar vide certificate no. 22, therefore, the genuineness of transaction can also not be doubted. From the above facts, it is clear that the asseseee proved the identity and creditworthiness of Shri Vinod Kumar as well as the genuineness of transactions amounting to Rs. 10,00,000/-, therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified, accordingly the same is deleted.

Compiled by Our Team member CA Amit Handa

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0 responses to “Identity and creditworthiness of shareholder proved, addition u/s 68 not Justified”

  1. Nem Singh says:

    Also read the judgments in the case of CIT vs Kamdhenu Steel & Alloys Ltd & Others (2012) 248 CTR 33 (Delhi) / 206 Taxman 254 (Delhi) land mark judgments considering the all previous judgments on the issue relating to addition made by Ld AO under section 68 of the Income Tax Act on account of unexplained share application money the hon’ble court decided in issue in favour of the assessee. Refer relevant para of the order (the last para referred is more important for study and interpretation):

    “26. With this discourse on the legal position, we advert to the cases at hand. In these appeals, there is a common thread which runs through all these cases insofar as nature of transaction is concerned. As would be seen when we discuss the facts of this case, the share applicants are all companies incorporated under the Indian Companies Act, either public limited or private limited companies. Since these companies are incorporated under the provisions of Indian Companies Act, their identity, at least on papers, is established. Here, they are assessed to income tax as well. These companies have PAN numbers and are filing regular income tax returns. The assessee companies which have received share applicant money from such applicants have produced documents in the form of PAN, income tax returns, copies of the bank accounts through which the funds were transferred by way of credit entries, deposits in the accounts of such applicants, etc. by furnishing such kinds of proofs/documents, the assessees have been able to discharge their initial burden. Notwithstanding the same, as per the AO(s), the applicants were bogus companies which were only paper companies and there is no real existence. In certain cases, it was also found that just before issuing the cheques by the applicants towards share applicant money, cash was deposited in their bank accounts. Except in ITA No.726/2011, in other cases, the AOs also relied upon the investigation report of Director of Income Tax (Investigation), the details whereof would be mentioned at the appropriate stage. From the aforesaid and some other aspects peculiar to each case, the AO(s) was of the opinion that the assessees had not discharged the burden.

    27. With this background, we now pick up one of the appeals, the outcome whereof would determine the fate of all these appeals.
    ITA No.972 of 2009

    28. In the case of this assessee, we are concerned with the Assessment Year 2004-05. While scrutinizing this case, the AO found that the balance-sheet revealed that during the period relevant to the year under assessment, the assessee had received share application money of `2.74 Crores from various applicants. The assessee filed details of all the share applicants and the amounts received along with their confirmation and copies of the bank accounts of such investors from as many as 32 share applicants. All these applicants were private limited companies. The AO was of the opinion that the creditors were not genuine parties and were only entry providers. He referred to the report dated 02.3.2006 of the Directorate of Income Tax (Investigation), Unit-V, New Delhi in this behalf. He issued detailed questionnaire on 09.11.2006 wherein he also gave specific reasons in respect of each of the applicant which was of the following nature:

    i) In the bank account of the various share applicants, they had deposited cash for specific purpose for applying for share in addition to providing entry to the assessee, the same modus was adopted in the other cases as well.
    (ii) Many companies did not exist at the addresses furnished. The registered letters sent to them had been received back undelivered.
    (iii) There were reports of the Inspectors (Income Tax) that many parties were not genuine assessees and were not in existence.

    ……………………………………………………………………………………….

    42. However, in the facts and circumstances of these cases, it would be difficult to give such an opportunity to the Revenue. There are number of reasons for denying this course of action which are mentioned below:
    (i) It is not a case where some procedural defect or irregularity had crept in the order of the AO. Had

    that been the situation, and the additions made by the AO were deleted because of such infirmity, viz., violation of principle of natural justice, the Court could have given a chance to the AO to proceed afresh curing such procedural irregularity. One example of such a case would be when statement of a witness is relied upon, but opportunity to cross-examine is not afforded to the assessee.
    (ii) On the contrary, it is a case where the AO(s) did not collect the required evidence which they were supposed to do. To put it otherwise, once the assessee had discharged their onus and the burden shifted on the AO(s), they could not come out with any cogent evidence to make the additions. No doubt, as indicate by us above, the AO(s) could have embark upon further inquiry. If that is not done and the AO(s) did not care to discharge the onus which was laid down, for this “negligence” on the part of the AO(s), he cannot be provided with “fresh innings”.

    (iii) The order of the AO(s) had merged in the order of the CIT(A) and in some of the cases before us and before the CIT(A), the assessees had succeeded.
    (iv) This Court is acting as appellate Court and has to act within the limitations provided under Section 26A of the Act. The appeals can be entertained only on substantial questions of law. In the process, this Court is to examine as to whether the order of the Tribunal is correct and any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority, on the basis of available record. When the matter is to be examined from this angle, there is no reason or scope to remit the case back to the AO(s) once it is found that on the basis of material on record, the order of the Tribunal is justified. Even the Tribunal acts purely as an appellate authority. In that capacity, the Tribunal has to see whether the assessment framed by the AO, all for that matter, orders of the CIT(A) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same if not the addition has to be deleted. At that stage, the tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to.”

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