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2015 (12) TMI 1082 - DELHI HIGH COURT

2015 (12) TMI 1082 - DELHI HIGH COURT - [2016] 380 ITR 370 - Additions under section 68 - ITAT deleted the addition - whether the impugned additions have been made under section 153A /143(3) of the Act without reference to any material found as a result of search? - Held that:- It was for the fact- finding authorities to finally examine the evidence on record and determine whether the Assessee could satisfactorily explain the credit entry in its books and could establish the genuineness of the t .....

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as obtaining in the present case. While it appears that in the case of Pranjul Overseas (P) Ltd., the Assessee disputed that any search took place at its registered office, the written submissions filed by the Assessee in this case, does not indicate that any such dispute was raised. Even before us it has not been contended that no search took place at the declared registered office of the Assessee.

In the circumstances, we find it is necessary to remand the matter to the Tribunal to .....

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he ITAT - Decided in favour of the Revenue - ITA 727/2015, ITA 729/2015 , ITA 760/2015 , ITA 718/2015, ITA 345/2015 , ITA 355/2015 , ITA 356/2015 , ITA 362/2015 , ITA 364/2015 , ITA 399/2015 , ITA 612/2015 , ITA 633/2015 - Dated:- 18-12-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Ms. Suruchi Aggarwal, Senior Standing counsel and Ms. Lakshmi Gurung, Junior Standing counsel alongwith Mr Shiv Raj Singh, Dy. CIT For the Respondent : Mr C.S. Aggarwal, Senior Advocate with Mr Prakas .....

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ve appeals included six appeals preferred by the Assessee and six appeals preferred by the Revenue. The said appeals, respectively, impugned six separate orders passed by the Commissioner of Income Tax (Appeals) [CIT(A)] - all dated 22nd February, 2012 - disposing of the respective appeals preferred by the Assessee against the assessment orders dated 31st December, 2010 passed in respect of the aforementioned AYs. 2. The Revenue has projected the following questions of law in each of the aforesa .....

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) WHETHER in the facts and circumstances of the case, ITAT could have held that additions made in nonabated assessments, are invalid? (iv) WHETHER on the facts and circumstances of the case, findings of the ITAT are perverse? 3. Insofar as question nos. (ii) and (iii) are concerned, the same do not arise from the impugned orders passed by the ITAT. The ITAT had noted in its order that the Assessee had not pressed the legal issues involved in its appeal. It was further noted that the Assessee had .....

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. The above proceedings emanate from the search and seizure operations under Section 132 of the Act, which commenced on 14th October, 2008 in respect of SVP Group of companies . 6. According to the Revenue, the core of SVP Group of companies consisted of four companies, namely, SVP Builders India Ltd., SVP Developers (India) Pvt. Ltd., SVP Liquors India Limited and Five Vision Promoters Pvt. Ltd, which were engaged in the business of construction of residential, commercial and business complexes .....

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e form of share application/unsecured loans, share capital etc. These funds were further invested by the SVP Group of companies to purchase lands for new projects as well as for booking bogus expenses, as site development charges, for inflating the cost of construction. In addition to the four companies forming the core of the SVP Group, warrants for search and seizure operations were also issued in respect of twenty other companies. 7. The Assessee was one of companies on whom a search and seiz .....

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n 153A of the Act was issued on 17th February, calling upon the Assessee to file its returns within 15 days from the receipt of the said notice, however, this is disputed by the Assessee and it is contended that no such notice was ever issued but only an order-sheet entry was passed which was not signed by the AO. Thereafter, another notice dated 15th September, 2010 was issued under Section 153A of the Act calling upon the Assessee to file returns for the AYs 2003-04, 2004-05, 2006-07, 2007-08 .....

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premises declared by the Assessee to be its registered office, however, no books of accounts or any other documents relating to the Assessee were found at the said premises. The address of the registered office of the company was that of a 'Janta Flat', which was used for residential purposes. During the search operations, a statement of one Sh. Bhajarang Bahadur Dubey, who was present at the said premises, was recorded and he denied the existence of an office of any company at the prem .....

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and it had merely received share application money and had shown the same to be invested in share capital of unquoted companies. The AO, thus, concluded that all receipts reflected by the Assessee were unexplained credits taxable under the provisions of Section 68 of the Act. However, the AO deleted the investments made in share capital of SVP Group as the same were taxed as unexplained credits in the hands of the investee companies of the SVP Group. The AO held that the Assessee was not coopera .....

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sits) 84,00,000 4,09,20,498 4,09,20,498 2008-09 2,50,67,324* (Bank Deposits) Nil 2,50,67,324 2,50,67,324 2009-10 2,18,05,733 (Bank Deposits) Nil 2,18,05,733 2,18,05,733 10. Insofar as AY 2003-04 and AY 2004-05 are concerned, no funds were received by the Assessee, nonetheless, the AO made ad hoc additions to protect the revenue leakage . Proceedings before CIT(A) 11. The Assessee, being aggrieved by the assessment orders, preferred appeals before the CIT(A), inter alia, challenging that the Asse .....

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during the course of perch and seizure proceedings conducted at the registered office of the company". 12. The Assessee filed its written submissions and also produced books of accounts as well as the source of the funds received by the Assessee. Thereafter, CIT(A) issued a letter of enquiry under Section 250(4) of the Act dated 10th January, 2012 / 24th January, 2012 calling upon the Assessee to explain entries in respect of cash transaction along with necessary documents. The CIT(A) also .....

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companies had two Directors whose stake in the initial capital of the company was very small; that the disclosed address of the directors was the Janta Flat - thus inferring that the said directors belonged to lower middle strata of the society; each director was also a director in several other similar companies; that all companies had made investment in shares of unlisted companies, which were not saleable in the open market and were thus not a tradable commodity ; and that shares of companies .....

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ssee did not earn any income and was acting only as a conduit. The CIT(A) held that the funds invested through the Assessee were liable to be taxed in the hands of the beneficiaries and, therefore, upheld the decision of the AO in not adding the amounts invested by the Assessee in SVP Group as undisclosed income of the Assessee. The CIT(A) further deleted the addition made and held that the same were also liable to be taxed in the hands of respective beneficiaries (i.e. persons who were the reci .....

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erred in deleting the additions made under Section 68 of the Act. According to the Revenue, the Assessee had failed to discharge its onus of proving the credits in the Assessee's account and, thus, the amount credited in its books was liable to be taxed under Section 68 of the Act. The Assessee, on the other hand, filed appeals challenging the issue of search authorization under Section 132 of the Act and the assumption of jurisdiction under Section 153A of the Act, as no seizure had been m .....

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the issues pressed before it related to the merits of the addition made by the AO under Section 68 of the Act and both the Revenue and the Assessee agreed that the facts and issues were identical to the appeal in the case of Pranjul Overseas (P) Ltd. and, therefore, there was no necessity to hear the appeals pertaining to the Assessee separately. 17. In view of the above, the ITAT reproduced its findings arrived at in the case of Pranjul Overseas (P) Ltd. and held that the additions made under .....

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found to be non-existent. She reiterated that the Assessee had been unable to discharge its onus to show the creditworthiness of the investor companies. In the circumstances, she submitted that the additions made by the AO under Section 68 of the Act were justified and the ITAT had erred in holding that the additions under Section 68 of the Act were not warranted. 19. Countering the contentions advanced by Ms. Suruchi Agarwal, Mr C.S. Aggarwal, learned Senior Counsel appearing for the Assessee .....

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njul Overseas (P) Ltd., the findings of the ITAT in the case of Pranjul Overseas (P) Ltd. would also apply in the case of the Assessee. 20. Insofar as the merits of the addition under Section 68A of the Act is concerned, Mr Aggarwal stressed that the credit in the books of the Assessee had been duly explained and was supported by affidavits of persons from whom the money have been received. He submitted that no defect in the affidavits had been pointed out and no reasons have been provided as to .....

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nent Account Numbers (PAN). He argued that in the circumstances, the identities of the payers and the genuineness of the transaction had been established and the same could not be arbitrarily rejected by the Revenue. On the other hand, the Revenue had not produced any material which would controvert the evidence produced by the Assessee. 21. Mr C.S. Aggarwal further contended that the stand of the Revenue in the proceedings before the authorities was contradictory; whilst, on one hand the Revenu .....

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enue to now contest their identity or the genuineness of the transactions, which had been accepted by the Revenue while making assessments in respect of those persons. Reasoning and Conclusion 22. The law relating to Section 68 of the Act has been a subject matter of several decisions and the legal position is now well settled. An addition under Section 68 of the Act can be made only where the Assessee either offers no explanation for the credit in its books or the explanation offered by it, is .....

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, the Assessee can make such enquiries as are necessary. If on enquires, the AO finds that either the identity of the payer is not established or lacks the means for supporting the transaction or on the basis of some material it is found that the transaction is not genuine or the payer, the AO would have to confront the Assessee with such material and, thereafter, draw an inference as to the merits of the explanation provided by the Assessee. In CIT v. Sophia Finance Pvt. Ltd.: (1994) 205 ITR 98 .....

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y the Income-tax Officer. In the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchas .....

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he Income- tax Officer to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee." 23. This Court in a recent decision in the case of Commissioner of Income Tax - 3 vs. Five Vision Promoters Pvt. Ltd.: ITA 234/2015, decided on 27th November, 2015 examined and reiterated the law relating to Section 68 of the Act. It is now well established that "the AO has jurisdiction to undertake en .....

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made by the parties that the facts and the issues involved were identical to that in the case of Pranjul Overseas (P) Ltd. Thus, it is apparent that the ITAT did not examine whether the Assessee had established the identity, genuineness of the transaction and the creditworthiness of the persons from whom the Assessee claimed that it had received the funds used by the Assessee for purchasing shares of other companies. The AO also could not examine the explanation of the Assessee during the assess .....

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orders, inter alia, on the ground that it had not been provided a reasonable opportunity to furnish the necessary evidence during the assessment proceedings. Before CIT(A), this ground was stoutly disputed by the AO and according to him the Assessee had been provided several opportunities but had failed to comply with the notices and questionnaires issued relating in the additions made by the AO. However, the grievance of the Assessee was allayed as CIT(A) gave sufficient opportunities to the As .....

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llotment of shares. It is seen that one Vijay Kumar, Director of M/s Chyris Information Management Services (P) Ltd. had filed an affidavit affirming that M/s Chyris Information Management Services (P) Ltd. had made a cash payment of ₹ 6 lacs to the Assessee. The registered office of the said company was affirmed as B-4/71A, Lawrence Road, Delhi, which was the same as the registered office of the Assessee Company. A similar affidavit was filed by one Manoj Kumar in his capacity as a Direct .....

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istered office of Sharwan Advertising (P) Ltd. was also reflected at B- 4/71A, Lawrence Road, Delhi-35. One Ghanshyam Dass who was a Director of the Assessee Company at the material time, also furnished affidavits on behalf of the M/s Broad Traders & Finances Pvt. Ltd, M/s Busy Traders and Finances Pvt. Ltd. and Aggarwal Plasto Chem Pvt. Ltd. affirming that the said companies had made cash payments of ₹ 5 lacs each to the Assessee Company as share application money. It is also relevant .....

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dents of B-4/71A, Lawrence Road, Delhi. During the course of the proceedings before us, we pointedly asked Mr Aggarwal whether it was disputed that B- 4/71A, Lawrence Road, Delhi was a Janta Flat and, if so, how was it possible that it housed several residents as well as offices of several companies. While it was not disputed that B-4/71A, Lawrence Road, Delhi which is the registered office of the Assessee was a residential Janta Flat, Mr Aggarwal stressed that it was not unusual for offices to .....

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address had also stated that he had not heard of the Assessee Company. The fact that a common address is shared by several companies may not be a ground to doubt the identity or the creditworthiness of the companies; however in the given facts there are several factors, which viewed cumulatively, clearly provide a good reason to doubt the veracity of the Assessee s claims. The address is that of a Janta flat which is normally used as residence by persons of limited means; the said address is al .....

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d has not made any investment in traded securities yet it has attracted large subscriptions to its share capital. These factors are required to be considered for ascertaining whether the Assessee has established the creditworthiness of the persons who are stated to have made payments to the Assessee as well as to the genuineness of the transactions. 27. At this stage, we must also observe that the stand of the Revenue is somewhat unclear; while the Revenue is contending that the Assessee is liab .....

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red to other SVP concerns/promoters for a sum of ₹ 10,38,65,200/-. Resultantly, the shareholders of SVP group had acquired shares corresponding to funds of ₹ 81,19,32,000/- infused in SVP Group of companies for an aggregate consideration of ₹ 10,38,65,200/-. Thus, acquiring hidden capital of 70,80,66,800/- without payment of corresponding taxes required to generate that wealth. This fact had led the AO to believe that all the companies that had subscribed to the share capital o .....

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nvested into SVP Group by the Assessee and other such companies were cash funds generated by SVP Group that had been routed through companies such as the Assessee. However, AO needed evidence to establish the hypothesis and without any material to establish the link between the source of funds received by the Assessee company (and such other companies) and the investee companies of SVP Group, it was not permissible for the AO to hold that the Assessee had acted as a conduit. There was no materia .....

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ered office was located at a Janta Flat occupied by the persons belonging to lower middle class; (b) that no commercial activity was found at the registered office of the company; (c) that several persons/companies which the Assessee claimed had paid funds to the Assessee for acquiring its share capital or for purchase of shares of other companies held by the Assessee were also stated to be located/residents of the same Janta Flat, it was also the registered office of the Assessee Company; (d) t .....

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neness of the transactions claimed to have been entered into by it. Clearly, the ITAT has not examined the facts relating to the Assessee. The ITAT had simply proceeded on the basis of the facts obtaining in the case of Pranjul Overseas (P) Ltd. on the statement of the parties that the facts of that case were similar to the facts in the case of the Assessee. However, an examination of the documents filed before us, it does not appear that the facts in the case of Pranjul Overseas (P) Ltd. were s .....

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