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ACIT, Circle 10 (1) , New Delhi Versus M/s. D.K.B. Infrastructure Pvt. Ltd.

2016 (2) TMI 400 - ITAT DELHI

Addition u/s 68 - CIT(A) deleted the addition - information on accommodations entries received from the Directorate of Income Tax (Investigation) - Held that:- AO in his remand report has admitted that he has heavily relied on the inputs of investigation wing which piece of evidence was not admittedly given to the assessee during the time of the assessment proceedings which amounts to violation of natural justice. If the AO was heavily relying on the Investigation Wing Report then he was duty-bo .....

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d did not cast any finding that whether the documents furnished by the assessee to prove identity, creditworthiness and genuineness of the 4 shareholders were bogus or fabricated. In the light of the above, we find that the ld. CIT (A) has rightly discussed a number of judicial precedents to delete the addition made by the AO. So, therefore, we do not find any infirmity in the order passed by the ld. CIT (A) - Decided against revenue - ITA No.1722/Del./2011 - Dated:- 11-1-2016 - SHRI A.T. VARKEY .....

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) has erred in deleting the addition of ₹ 70,00,000/- made by the AO on account of unexplained cash credit u/s 68 of the IT Act, 1961. 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of ₹ 1,40,000/- made by the AO on account of 2% commission. 3. Brief facts of the case are that the assessee company was engaged in infrastructure business. The assessee filed e-Return declaring total Income under ₹ 11,43,594.- (after set .....

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0/- to ₹ 43,00,000/- i.e. an increase of ₹ 42,00,000/- along with an increase of ₹ 3,78,00,000/- in the share premium account. The AO asked the assessee to produce the details of these increases and details of newly introduced share capital and to prove the identity, creditworthiness & genuineness of the parties to whom the shares were allotted. In response to the same, assessee furnished a list of 23 parties to whom the shares were allotted along with number of shares allo .....

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shares allotted to each and the share application money along with increased share premium are as under: SL.No. Name of the Parties Shares Allotted Share application money 1. M/s Archit Fincap Limited 9000 ₹ 9,00,000/- 2. M/s At All Time Your Securities Ltd 42400 Rs.42,40,000/- 3. M/s Focus Industrial Resources Limited 6600 ₹ 6,60,000/- 4. M/s Paras Fincap Pvt. Ltd. 12000 Rs.12,00,000/- Total : 70000 Rs.70,00,000/- The AO observed that the aforesaid four parties had invested a total .....

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se accommodation entries. 3.2 The AO asked the assessee to produce balance sheets, statement of companies, bank accounts, copy of ITR, confirmations of the parties and other evidences to ascertain the Identity, Creditworthiness and Genuineness of the parties and also their personal appearance to prove the existence of the parties, specially the aforesaid four parties. In response to that, nobody appeared on the next date of hearing. Therefore, the AO issued summons u/s 131 of the Act to the afor .....

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worthiness or genuineness of these transactions and moreover the existence of these parties was even more doubtful. After perusing the submissions of the assessee and failure on the part of the aforesaid four companies to make representation before him, the AO observed that these parties did not exist and they were paper companies who were engaged in the malpractice of providing accommodation entry and the assessee had routed its unaccounted money through them in the guise of application money. .....

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the parties for verification of the transactions. The onus to do so lies on the assessee which has not been discharged by it. Therefore, the AO held that the amount of ₹ 70 lakhs be treated as unexplained credit as per the provisions of section 68 Act and added the same to the income of the assessee. 3.4 During the enquiries conducted by the Investigation Wing of the department, the AO concluded that most of the entry operators were charging commission @ 2% for giving these accommodation .....

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t is argued by the ld. AR that the impugned share application/premium money totaling ₹ 70,00,000/- was received from four companies, Namely, M/s At All times Yours Securities Pvt. Ltd. (Rs.42,40,000/-), M/s Focus Industrial Resources Ltd. (Rs.6,60,000/-), M/s Archit Fincap Ltd. (Rs.9,00,000/-), M/s Paras Fincap Pvt. Ltd. (Rs,12,00,000/-), by account payee cheques/demand draft. It is argued that the appellant company had received share application/premium amount from a total 23 parties (inc .....

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has discharged its initial onus with regard to the above transactions. It is argued that the AO has accepted the share application/premium amount received in respect of 19 parties and has selectively added the amounts pertaining to the above four parties only on the basis of information from the Investigation Wing, although similar details and documents had been filed in respect of each of the above 23 parties before the AO. It is further argued that the AO also issued summons u/s 131 to the abo .....

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rporated on 14.02.2006 with the main object of carrying out business of real estate and infrastructure development and has not commenced its business, other than raising the share capital during the year under consideration which has been invested in bank deposits / loans on which interest income has been earned which has been shown for taxation. It is argued that since this is practically the first year of the company and the business has not commenced, the impugned addition u/s 68 is bad in la .....

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estimated commission made in the hands of the appellant company is illegal. The ld. AR has relied upon a plethora of case laws in support of his claim. On careful consideration of the matter, I find that the above contention of the Id. AR cannot be rejected on merit. The AO has also not been able to bring on record any valid material evidence to disprove the claim of the appellant in this regard. The AO has also not made any adverse comment in his remand report on the merit of the case and the .....

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t on him u/s 68 of the Act. 4.3.3. Further, it is settled law that in the matter of cash credit, the initial onus lies on the assessee to prove the genuineness of the transaction alongwith the identity of the lender/investor and his creditworthiness. Having done so, the appellant in the instant case has discharged the onus cast upon it. Beyond this, for the charge of unexplained cash credit to stick, the onus lies on the AO to disprove the claim of the assessee by establishing that the evidence .....

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l shift to the revenue to disprove it and the assessee's explanation in such case cannot be rejected on mere surmises. Further, it was held in Khandelwal Constructions v. CIT (1997) 227 ITR 900 (Gau.) that since the satisfaction of the AO is the basis for invocation of the powers u/s 68, such satisfaction must be derived from relevant factors on the basis of proper inquiry by the AO and such inquiry must be reasonable and Just. 4.3.4. It is also settled law that it is mandatory for the AO to .....

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d 176 ITR 169 (SC), 125 ITR 713 (SC), Jindal Vegetable (order of Hon'ble Delhi High Court in ITA no. 428 of 2007, 174 Taxmann 440 (Raj.) and Laxman Bhai Patel (order of Hon'ble Gujarat High Court dated 22.07.2008 in ITR no. 41/1997). 4.3.5. Further, in the case of N.P. Garodia (order dated 13.01.2009 of Hon'ble P & H High Court in ITA no. 808 of 2008) and in the case of Brij Pal Sharma (order dated 17.02.2009 in ITA no. 685 of 2008 of Hon'ble P & H High Court) it was held .....

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as held in the case of CIT v. Metachem Industries (2000) 245 ITR 160 (MP) where a credit is shown to have come from a person other than the assessee, there is no further responsibility of the assessee to show that it has come from accounted source of the lender, as long as the fact that he had made the advance and was capable of making the advance are established. It was held by the Hon'ble Madras High Court in Hastimal (S) v. CIT (1963) 49 ITR 273 that after a lapse of decade, the assessee .....

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s and if necessary reopen their individual assessment. Similar decision is also taken in the case of CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del.), (2000) 251 ITR 287 (SC), CIT v. Sophia Finance Ltd. 205 ITR 98 (Del.)(FB), CIT v. Divine Leasing & Finance Ltd. (SLP no. CC 375/2008 arising out of ITA no. 53/2005 of the High Court of Delhi), CIT (Kolkata) v. M/s Shipra Retailers (P) Ltd. (SLP no. CC 451/2008 arising out of ITA no. 576/2004 of the High Court of Calcutta), CIT v. Pondy .....

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nder: "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgement of the Apex Court in the case of CIT vs. Lovely Exports (p) Ltd. reported in (2008) 216 CTR 195 (SC) wherein the Apex. Court observed that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department can always proceed against them and if necess .....

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d view, the assessing officer ought to have found out their details through PAN Card, Bank Account details or from their bankers so as to reach the shareholders since al/ the relevant material details and particulars were given by the assessee to the assessing officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs. Similar decision h .....

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ers Pvt. Ltd. (ITA no. 1113/2010 order dated 12.08.2010) and CIT v. Ultratech Finance & Investment Ltd. (ITA no. 1122/2010 order dated 12.08.2010). In the case of Dwarkadhish Investment Pvt. Ltd. and Dwarakdhish Capital Pvt. Ltd. (supra) the Hon'ble jurisdictional High Court vide its common order dated 02.08.2010 has interalia observed as under: "7. Consequently, the doctrine of merger would apply and the judgment of the Supreme Court in Lovely Exports (P) Ltd. (supra) would cover t .....

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f would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". …….. 10. We are also informed that a Special Leave Petition against the aforesaid Division .....

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Vs. KN. Modi and Ors., (1998) 3 see 573 has held, "It is an abuse of the process of the court and contrary to justice and public policy for a party to relitigate the same issue which has already been tried and decided earlier against him. The reagitation mayor may not be barred as res judicata. But if the same issue is sought to be reagitated, it also amounts to an abuse of the process of the court .... 12. Though we were initially inclined to impose costs yet we are of the opinion that en .....

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ction. With the aforesaid direction, the present appeals are dismissed in limine but without any order as to costs. " 4.3.9. Considering the facts and circumstances of the case as discussed above and respectfully following the plethora of judicial pronouncements on the subject, the impugned addition of ₹ 70,00,000/- u/s 68 and ₹ 1,40,000/- as estimated commission in the hands of the appellant company is found to be legally unsustainable. In view of the above, the above impugned .....

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copies of PAN cards, share application money form, confirmation of party, statement of bank account and balance sheet of 19 out of total 23 companies but no details were filed in respect of the above said four parties who are alleged entry operators. The ld. DR further submitted that the assessee has routed its unaccounted money through them in the guise of application money. In this view, ld. AR submitted that the order of the ld. CIT (A) be set aside and order of the AO be restored. 6. On the .....

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,000/- on account of commission paid for taking accommodation entries. He further submitted that after giving proper explanation and adducing evidence in respect of existence, identity, creditworthiness and genuineness of the receipt of share capital by both the assessee and the persons to whom summons were issued, the AO had not issued any show cause notice before making addition that he was not satisfied with the explanation furnished by the assessee. He submitted that the assessee had furnish .....

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se. He submitted that the assessee and the persons to whom summons were issued have furnished sufficient details / documents to prove the existence, identity, creditworthiness and genuineness of receipt of share capital by submitting confirmation, ROC records, Income tax particulars of the share applicants and their bank statements, their audited financial statements and evidence regarding issue of shares to the share applicants. He submitted that assessee had received share application money th .....

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tted that in the remand proceedings also, the AO was not able to adduce any evidence on record that the contentions of the assessee are false. He also pointed out that it is well settled law that non-appearance of persons to whom summons u/s 131 of the Act were issued, does not make the assessee liable to produce such parties. He submitted that the assessee did not have the legal power to enforce the attendance, as such, he could not be called upon to do something which was beyond his power and .....

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e business of real estate. The assessee received share capital including share premium aggregating to ₹ 4.20 crores during the assessment year which was either invested in bank deposits or used for giving loans and it earned interest income thereon during the financial year under consideration. The assessee had issued 4,20,000 equity shares of ₹ 10 each at a premium of ₹ 90/- each to 23 companies incorporated under the provisions of Companies Act, 1956 which has been duly refle .....

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ed 16.11.2009 and 08.12.2009. The AO notes that out of the 23 shareholders, 4 parties from this list figures in the information on accommodation entries received from the Directorate of Income-tax (Investigation), New Delhi and they were M/s. Archit Fincap Limited ₹ 9 lakhs, M/s. At All Time Your Securities Ltd. ₹ 42,40,000/-, M/s. Focus Industrial Resources Limited ₹ 6,60,000/- and M/s. Paras Fincap Pvt. Ltd. ₹ 12 lakhs, thus totaling amount to ₹ 70 lakhs. Thereaft .....

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urnished before him. Therefore, because of non-appearance of 4 parties and the source of their fund in the bank accounts, the AO was of the opinion that the assessee failed to prove identity, creditworthiness and genuineness of the transactions. During the appellate proceedings, the assessee brought to the notice of the CIT (A) that based on some report of the Investigation Wing, the AO had prejudiced mind against the four companies who had a shareholding of ₹ 70 lakhs and did not provide .....

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ments, Income-tax returns, particulars of the share applicants and their banks statements, their audited financial statements and evidence regarding issue of shares to the share applicants. We find that in the remand report, the AO has failed to bring any material on record that would suggest that these documents were false or fabricated. The AO by heavily relying on the investigation wing report has simply made an opinion because the 4 parties did not turn up in front of him and could not subst .....

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