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Income Tax Officer, Ward 13 (1) , New Delhi Versus Navodaya Castles Pvt. Ltd.

2011 (10) TMI 675 - ITAT DELHI

Addition u/s 68 - share application money - proof of identity of the subscribers - Held that:- AO did not bring any material on record, suggesting that the six parties provided accommodation entries to the assessee and that the money received from these parties was ,in fact, the assessee's own undisclosed income , routed back in the guise of share application. As the assessee submitted copies of share application forms, containing names, addresses, PAN, Bank details and confirmations of the inve .....

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appeal filed on 19th October, 2010 by the Revenue and the corresponding cross-objection[CO] filed on 9th November, 2010 by the assessee against an order dated 02.08.2010 of the learned CIT(A)-XVI, New Delhi, raise the following grounds:- I.T.A. No.4613/D/2010[Revenue] 1. That on the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ₹ 54,00,000/- made u/s 68 of the Income-tax Act, 1961 on account of share application money. 2. That on the f .....

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cision given in the case of Lovely Exports (P) Ltd., the AO did not ask the assessee to produce any of the investor shareholders. However, in the instant case the assessee was specifically asked and given a number of opportunities to produce the directors/authorized representatives of the investing companies, but yet none could be produced before the Assessing Officer by the taxpayer. 4. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the groun .....

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the leave to add, amend, modify, delete any of the ground(s) of cross objection before or at the time of hearing. 2. Adverting first to the appeal of the Revenue, facts, in brief, as per relevant orders are that return declaring loss of ₹ 1,58,035/- filed on 20th October, 2002 by the assessee, a finance company, was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). Subsequently, the Assessing Officer (A.O. in short) received information from .....

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Date on which entry taken Name of a/c Account Holder of Entry of giving A/c Bank from which entry given Branch of entry giving bank A/c No. of entry giving account HDFC Bank Rajender Nagar Mkt., ND 70000 972521 07.3.02 Sekhawati Finance P. Ltd. SBP Daryaganj 50111 HDFC OLD Rajender Nagar, ND 1000000 13.3.02 D.K. Ispat & Timber Ltd. SBP -do- 50090 HDFC -do- 650000 13.3.02 Kuberso Sales P. Ltd. SBP -do- 50084 HDFC -do- 1200000 14.3.02 Dinanath Luhariwal Spinning Mills Ltd. SBP -do- 50103 HDFC .....

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of the Act with the service of a notice u/s 148 of the Act on 25th March, 2009. In response, the assessee submitted a written reply dated 14th April, 2009 that the return filed u/s 139(1) may be treated as return in response to notice u/s 148 of the Act. The reasons recorded by the AO for reopening of the assessment were communicated to the assessee vide letter dated 2nd September, 2009. In response to a questionnaire issued by the AO, after taking a number of adjournments, the assessee submitt .....

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ssued a show cause notice dated 8th December, 2009 asking the assessee to explain as to why share capital of ₹ 54 lacs be not treated as income from undisclosed sources. On the date of hearing, the A.R. of the assessee was informed that summons issued u/s 131 of the Act to the aforesaid six parties, subscribing to share capital, were returned unserved in the case of five parties. Accordingly, the AR on behalf of the assessee was requested to furnish latest addresses of the aforesaid partie .....

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neness of the transactions and accordingly ,added an amount of ₹ 54 lacs in terms of provisions of section 68 of the Act besides adding an amount of ₹ 1,08,000/- @2% of the aforesaid amount paid as commission to the entry operators. 3. On appeal, the learned CIT(A) deleted the addition in the following terms:- "4.5.0 I have considered the submissions of the learned AR of the appellant company. After considering the various judgments of jurisdictional High Court as well as of Hon .....

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een provided with an opportunity to cross examine the so called entry providers and the fact is that the Assessing Officer has simply relied upon the information provided by the Investigating wing of the Department with no concrete efforts made to verify the facts stated therein. On the contrary, the appellant has filed copies of share application forms which contained names, addresses, PAN, Bank details and confirmations of the investors and hence, in view of various judicial pronouncements, no .....

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nt Ltd. (2001) 251 ITR 263 (S.C.), wherein it was held that even if the subscribers to the increased share capital of assessee company were not genuine, the amount could not be regarded as undisclosed income of the assessee company. The above view point of the Hon'ble Apex Court has also been expressed by Jurisdictional Delhi High Court in the case of Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del.), A-one Housing Complex Ltd. Vs. I.T.O. 110 ITD 361 (Del.), CIT Vs. Value Capital S .....

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Department along with the copies of Share Holder's Register, share application money forms, Share Transfer Register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. The Department would not be justified in drawing an adverse inference only because the creditors/subscribers fails or neglects to respond to its notices. The onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the .....

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e names are given to the A0, then the Department is free to proceed to re-open their individual assessments in accordance with law." Delhi High Court in the case of CIT vs M/s Pondy Metal and Rolling Mill Pvt. Ltd. (ITA No. 788/2006) dated 19.02.2007 has concurred with the findings of the Appellate Tribunal, Delhi Bench 'F', New Delhi that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. At .....

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nt of share application money received from different parties especially when the assessing officer has been provided with PAN and other documentary evidences to prove the identity of the share subscribers. In view of above, it is clear that the appellant has discharged the initial onus of establishing the identity of the subscribers and the bonafides of the transactions hence the assessing officer is not justified in ignoring various evidences provided to him by the appellant. Nothing adverse h .....

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aining an addition of ₹ 1,08,000/- on account of commission paid to the persons from whom the appellant has been alleged to have received share application money. The Assessing Officer is accordingly directed to delete addition of ₹ 1,08,000/-. These grounds of appeal are taken as allowed to the appellant." 4. The Revenue is now in appeal against the aforesaid findings of learned CIT(A).The ld. DR supported the findings of the AO. On the other hand, learned AR on behalf of the a .....

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ld. CIT(A) found that the AO did not bring any material on record, suggesting that the aforesaid six parties provided accommodation entries to the assessee and that the money received from these parties was ,in fact, the assessee's own undisclosed income , routed back in the guise of share application. On the other hand, the assessee submitted copies of share application forms, containing names, addresses, PAN, Bank details and confirmations of the investors. In these circumstances, relying .....

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ought to our notice any contrary decision. On similar facts, a co- ordinate Bench in M/s MAF Academy Pvt. Ltd.(Supra) in their order dated 14th October, 2011, to which one of us i.e. JM is a party, concluded as under:- "6. We have heard the rival contention in light of the material produced and precedents relied upon. We find that assessee has submitted the following documents before the Assessing Officer, in support of the share application money :- (i) Copies of share application form; (i .....

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nces filed by the assessee from the income tax records of the concerned parties. Assessing Officer insisted for the production of the parties before him by the assessee but he did not make any independent effort to enforce the appearance of such parties. We agree with the finding of the Ld. Commissioner of Income Tax (Appeals) that no evidence was brought on record to establish that the documents filed by the assessee were false or the transactions entered into by the assessee were sham transact .....

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rts 216 CTR 195. In this case it was held 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 is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee. 6.3 We further place reliance upon the decision of the Hon'ble Jurisdictional High Court in the case of C.I.T. vs. Dwarkadhish Investm .....

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te and time to the aforesaid judgement. In fact, a Special Leave Petition filed against the said Division Bench Judgement was dismissed by the Supreme Court by way of speaking order in C.I.T. vs. Lovely Exports (P) Ltd. 216 CTR 195 (SC). The Supreme Court in Lovely Exports Pvt. Ltd. (Supra) has held as under:- "Can the amount of share money be regarded as undisclosed income under section 68 of the Income Tax Act, 1961. We find no merit in this Special Leave Petition for the simple reason th .....

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tion 68 of the Act. 8. In any manner, the onus of proof is not a static one. Though in section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/ share applicants by either furnishing their PAN number or income tax assessment number and shows the genuineness of transaction by showing money / his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the revenue. Just because the .....

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. The order of Assessing Officer would reveal that it had received an information from the Investigation Wing which had made various enquiries / investigations on the basis of which it was found that these six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were rather engaged in the business of providing accommodations entries. They were, thus, entry operators of which the appellant was the beneficiary. According to the Assessing Officer, the mo .....

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entry, he would approach the entry operator and handover the cash alongwith commission and take cheques, demand draft, postal order. The cash is deposited by the Entry Operator in a bank account either in his name or in the name of relative/ friends or other person hired by him for the purposes of opening the bank account. After the deposit of cash when there is sufficient balance, the entry operator issues demand draft, postal orders, cheques in the name of beneficiary. Most of these concerns / .....

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behalf. Since the so called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the investigation wing of the department, the Assessing Officer made the addition. This addition could not be sustained as the primary onus was discharged by the appellant by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received .....

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ficer in the bank statement, suffice it to mention that the bank statements that were filed by the appellant were provided by the share holders and were computer printed on the bank stationery. The same were filed by the appellant during the assessment proceeding without any suspicion of their being incorrect. During the assessment proceedings, the appellant was never confronted by the Assessing Officer that there are discrepancies between the bank statements filed and the statements directly ca .....

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the Assessing Officer is questioning the bona fides of M/s Diamond Protein Ltd. for collecting money to subscribe to the share to the capital of the appellant, but it is the appellant who is fastened with the liability. The Assessing Officer did not question M/s Diamond Protein Ltd. in this behalf. Insofar as Assessing Officer is concerned, it is not disputed that money was paid to it towards the aforesaid share application money, by means of cheques. It is not for the Assessing Officer to prob .....

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