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2015 (12) TMI 1185 - DELHI HIGH COURT

2015 (12) TMI 1185 - DELHI HIGH COURT - TMI - Addition under Section 68 - ITAT deleted the addition - Held that:- ITAT was fully justified in coming to the conclusion that there exists no evidence to establish that there was any re-routing of the money collected by the Respondent-Companies. None of the shareholders denied having contributed to their share capital. The Revenue has not been able to show why the decision of the Supreme Court in CIT v. Lovely Exports (P) Ltd. (2008 (1) TMI 575 - SUP .....

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nd Vibhu Bakhru, JJ. For the Appellant : Mr Kamal Sawhney, Senior Standing Counsel, Raghvendra Singh, Junior Standing Counsel, Mr Shikhar Garg and Mr Sharad Agarwal, Advocates For the Respondent : Mr C. S. Aggarwal, Senior Advocate with Mr Prakash Kumar and Mr Rupinder Aggarwal, Advocates ORDER CM No.30897/2015 in ITA No.962/2015 CM No.30899/2015 in ITA No.963/2015 CM No.30901/2015 in ITA No.964/2015 CM No.30904/2015 in ITA No.965/2015 CM No.30906/2015 in ITA No.966/2015 1. Allowed, subject to a .....

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e reasons stated therein, the delay in re-filing the appeals is condoned. 4. The applications stand disposed of. ITA Nos.871/2015, 872/2015, 873/2015, 874/2015, 875/2015, 876/2015, 883/2015, 962/2015, 963/2015, 964/2015, 965/2015 & 966/2015 5. These appeals by the Revenue are directed against the common impugned order dated 29th April, 2014 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Years (AYs) 2003-2004 to 2009-2010 in respect of the three Respondent-Assessees herein, .....

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enue, four companies comprised the core of the SVP Group, i.e., SVPB, SVPD, SVLI and Five Vision Promoters Private Limited (Five Vision). These four companies were found to have received share capital from 106 companies between AYs 2003-2004 and 2009-2010. The said shareholders have been categorised as Table-I, Table-II and Table-III shareholders. Shareholder companies in Table-I were subjected to search under Section 132 of the Act. As regards shareholder companies in Table-II, proceedings were .....

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nds. The further case of the Revenue was that the Group had been charging on-money on the sale of flats, shops etc. which was not accounted for in their regular books of accounts. The allegation was that on-money was taken in cash and in turn was routed back into the Group companies in the form of share application money/unsecured loans, share capital etc. The unaccounted money routed through the said channel was reinvested in the purchase of further lands and for new projects. The share applica .....

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on was that in the course of the investigation undertaken by the Additional Director of Income Tax (Investigation), Ghaziabad, the SVP Group of companies did not produce the shareholders despite being served with notices for that purpose. It was alleged that the shareholders were not produced till finalization of assessment order, i.e., upto 21 months thereafter. 9. As far as SVPB is concerned it was incorporated on 28th February, 2000 under the Companies Act, 1956. SVPD was incorporated on 9th .....

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gh it had not commenced business in those AYs) and AYs 2004-2005 to 2009-2010 in the case of SVLI. Further notice was issued under Section 142(1) of the Act to the three Assessees on 22nd November, 2010 (in the case of SVPB and SVPD) and 2nd December, 2010 in the case of SVLI. 11. On the basis of the replies filed by the Assessees, assessments were framed under Section 153A/143(3) of the Act and additions were made as unexplained cash credit under Section 68 of the Act. The findings of the Asses .....

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Goyal, Smt. Sushila Goyal and Shri Sachin Garg denied that any of the said companies existed at the said addresses. Further, despite letter dated 5th March 2009, and summons under Section 131 dated 20th March and 6th April 2009, the Assessee failed to produce the shareholders for cross examination. (iii) As far as the Table III companies were concerned, many of the summons issued were returned unserved with the remarks "unknown" or "no such person". 24 of the companies submi .....

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, stood proved from the fact that shares were bought back by the individuals/concerns belonging to SVP Group. During the search, original share certificates worth ₹ 38 crores were found, some of which were seized. During the search one Shri Vijay Jindal gave a statement that shares were allotted at ₹ 10 per share and later on bought back at ₹ 2-3/- per share. The actual average purchase price was ₹ 1.04 per share. Thus shares that were initially issued by the SVP Group to .....

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e Assessees, thereby sustaining the additions, the Assessees filed appeals before the ITAT. Allowing the appeals, the ITAT by its impugned order held as under: (i) The Revenue had been unable to deny the factual position that only 11 of the 20 companies in Table I had actually been searched. The material on record showed that directors of 18 companies of the 20 companies were examined by the AO in the course of the remand proceedings and found from the books of accounts that the share capital st .....

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sum of ₹ 28 lakhs invested by it in Five Vision for AY 2006-07 and ₹ 1,57,27,500 in AY 2007-08, he added the sum of ₹ 1,74,75,000 received from it in AY 2007-08. This apparent contradiction showed that the addition was made without appreciating the complete facts on record. (iv) The decision of this Court in CIT v. M/s. Nova Promoters and Finlease (P) Ltd. 342 ITR 169 (Del) was distinguishable on facts since in that case two directors of the shareholder companies admitted to m .....

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to the question of the genuineness of the share capital amount received by the Assessees. Once the capital raised stood explained, the issue of disinvestment by the shareholder subsequently was a non-issue. The addition if at all was to be examined in the hands of the person purchasing the shares. (vii) There was no material to support the Revenue's case that the 'on-money' collected in cash was routed back into the SVP Group companies in the form of share application money and late .....

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t the additions if at all should be made in the hands of the beneficiaries. In the appeals filed in those cases, the Revenue had contended that the additions ought to have been sustained. Thus, the stand of the Revenue was contradictory and untenable. (ix) The Assessee had discharged its primary onus of proving the identity, genuineness and creditworthiness of the said shareholders. 13. In particular in para 8.7 of the impugned order, the ITAT held as under: 8.7 Having regard to the above judici .....

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of directions, returns of income of shareholders, bank statements of shareholders, board resolutions, certificate of incorporation and, Memorandum of Association of shareholder companies. The Assessing Officer issued summons under section 131 of the Act to such shareholders who then independently confirmed that they have only subscribed to the share capital of the appellant companies. No further investigation was carried out by the Assessing Officer during the course of assessment proceedings in .....

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e evidence led by the appellant during the remand proceedings. He had directed the appellant to produce 7 directors of 39 shareholders companies. Out of 7 directors, 6 directors had been produced whose statements had been recorded and in their statements, they have duly deposed and confirmed that they have subscribed to the capital of the appellant companies. These directors had not only produced the books of accounts that source of the shareholders companies but also established from such books .....

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s Misra Preservers Pvt. Ltd. (supra) the initial burden which lay upon the appellants to establish the source of the share capital received stands duly discharged. 14. At the outset it requires to be noticed that the grounds urged in the present appeals by the Revenue and the question of law urged is similar to that urged in the appeals filed by the Revenue against the 5th company in the core group in the SVP Group of Companies, i.e., Five Vision, viz., ITA Nos.234, 235 and 236/2015. Those appea .....

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re no different from what was urged in the Revenue's appeals in the case of Five Vision, viz., that the Assessees had manipulated substantial funds movement through paper existence of the investor companies; that the CIT(A) found that common directors repeatedly appeared in the list of directors of the Assessee Companies which showed that they belonged to the same group and were manipulating their books for the purpose of introduction of unexplained cash money and creating 5-6 steps of chequ .....

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10/- were transferred in the names of individuals/concerns belonging to SVP Group at a meagre price ranging from ₹ 0.50 to ₹ 2.00 per share; that the persons available at the premises during the search of the Table-I companies denied the existence of such companies; that the cash of ₹ 2,23,40,000/- was found during the search operation from the residence of the Directors of the Assessees and the fact that it had received ₹ 44.15 crore in cash as share application money wa .....

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tions that they had contributed towards the share capital and the sums had been recorded in their respective books of accounts, no incriminating evidence was found as a result of the search to suspect that the shareholders had not contributed to the share capital. Further it is pointed out that in respect of each of the share holders, the following evidence was tendered by the Respondent-Companies before the AO: i) Name and address of the Investor ii) PAN of the Investor iii) Ward of the Investo .....

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9-2010, the contributions of the share capital of the three Assessee was by Table-III companies in respect of which the CIT(A) observed as under: I have carefully appreciated the contentions and do admit that at least these few companies do not seem to be having connection with the majority of the conduit companies and their common directors and that their financial creditworthiness is on much better footing. 18. Additionally it is pointed out that as far as SVPB is concerned no business had com .....

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been in existence much prior to the date of the search and commenced their business operations at least 5-6 years earlier thereto. It has been pointed out that as far as SVPB is concerned, the following details were furnished: Details/Evidence of 20 share holders contributing ₹ 10,96,00,000/- of Table I in A.Y. 2003-04 to 2009-10 ; 12 share holders contributing ₹ 8,26,00,000/- of Table 11 in A,Y. 2003-04 to 2009-10; & 44 share holders contributing ₹ 15,85,50,000/- of Table .....

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e AO in respect of these shareholders 21. As far as SVLI is concerned, the following details were furnished: Details/Evidence of 19 share holders contributing ₹ 7,16,00,000/- of Table I in A.Y. 2004-05 to 2009-10; 10 share holders contributing ₹ 3,58,50,000/- of Table II in A.Y. 2004-05 to 2009-10; & 36 share holders contributing ₹ 17,10,50,000/- of Table III in A.Y. 2004-05 to 2009-10 and evidence filed before AO in respect of these shareholders 22. The other submission is .....

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pt is to show that this money in fact belongs to certain other entities whose source has not been explained by the Assessees. As noted by the ITAT in the assessment proceedings of the investor companies, the monies invested were sought to be added as income of those companies by the AOs. The said additions were deleted by the CIT (A) in their cases holding that the additions if at all should be made in the hands of the beneficiaries. The Revenue then filed appeals in the ITAT insisting on the ad .....

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They had responded to the summons issued to them. Directors of 14 of these companies appeared before the AO and produced their books of accounts. 24. As regards Table-III companies, notices were issued under Section 131 of the Act to which many of them responded confirming having made investments. The Assessees had been asked by the CIT (A) to produce 7 directors of the Table III companies. 6 directors appeared and their statements were recorded. They had confirmed that they had subscribed to t .....

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additions to the income of those Table-II companies. As far as Table-I shareholders was concerned, none of them denied having made the investment in the Assessee companies. The AO does not appear to have undertaken any particular investigation into the affairs of the Table-I, II or Table III companies apart from issuance of the notices under Section 131 of the Act which were duly responded to. 26. Detailed findings have been given by the ITAT in the present cases after a thorough examination of .....

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vestment in the share capital of the Assessees. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares. 28. Some of the investor companies, for e.g., (i) Quality Security Services Pvt. Ltd., (ii) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. have been shown to be filing returns and being assessed on a regular basis. Some of them have been shown to be in existence even before the incorporation of the Assesse .....

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en discussed in some detail by this Court in its decision dated 27th November, 2015 in ITA No.234/2015 (CIT v. Five Vision Promoters Pvt. Ltd.). In the said decision, reference has been made to the decisions in CIT v. Lovely Exports (P) Ltd. 216 CTR 195 (SC), the decision dated 21st January 2008 of the Supreme Court in SLP (Civil) (CC) 375 of 2008 (CIT v. Divine Leasing and Finance Ltd.) and decision dated 17th September 2012 of the Supreme Court in SLP (Civil) CC 15640 of 2012 (CIT v. Kamdhenu .....

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013) 350 ITR 407 (Del) and CIT v. N.R. Portfolio Pvt. Ltd. (2014) 206 DLT 97 (DB). 30. In sum, it was explained by this Court in CIT v. Five Vision Promoters Pvt. Ltd. (supra) that: "under Section 68 of the Act, the AO has jurisdiction to undertake enquiries with regard to the amount credited in the books of the accounts of an Assessee. This could be any sum whether in the form of sale proceeds or receipt of share capital money. First, the AO is to enquire whether the alleged shareholders i .....

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