IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on : 21.01.2013
+ ITA 597/2012
CIT ..... Appellant
versus
GANGESHWARI METAL PVT LTD ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Sanjeev Sabharwal, Sr. Standing Counsel with
Mr Puneet Gupta, Jr. Standing Counsel.
For the Respondent: Mr O.P. Sapra with Mr Sandeep Sapra, Advocates.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V. EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
In this appeal the following question of law has been framed for
our consideration by virtue of the order dated 16.10.2011: -
"Whether the Tribunal by the impugned order dated
19.12.2011 fell into error in upholding the order of the
appellate commissioner which directed deletion of
`55,50,000/- added on account of unexplained share
application, added by the Assessing Officer in the case of
the assessee under Section 68 of the Act?"
The learned counsel for the revenue/ appellant submitted that the
Commissioner of Income Tax (Appeals) and the Income Tax Appellate
WP(C)597/2012 Page 1 of 10
Tribunal were both wrong in deleting the addition of `55.5 lakhs on
account of unexplained share application money under section 68 of the
Income Tax Act, 1961 (hereinafter referred to as ,,the said Act).
The present case pertains to the assessment year 2004-05. The
assessment proceedings were completed by the assessing officer on
16.12.2009. The assessment order indicates that initially the respondent
was asked to explain as to why an amount of `1,11,50,000/- should not be
added to the respondents income. It was explained by the assessee that
there was several entries which had been taken into account twice over
and by removing the duplicate entries the amount received as share
application money by the respondent/ assessee was only `55,50,000/- and
not `1,11,50,000/-. In response to the query with regard to the said sum
of `55.5 lakhs, the respondent/ assessee had furnished various documents
in support of the share application money received by it. Those
documents included: -
(i) Complete names and addresses of the share applicants and
PAN/ GIR details.
(ii) Confirmatory letters of the share applicants.
(iii) Copies of Bank statements of the share applicants.
(iv) Copies of bank a/c of the appellant.
WP(C)597/2012 Page 2 of 10
(v) Certificate of incorporation of the share applicants.
(vi) Memorandum of Association of the share applicants.
(vii) Copies of the share application forms.
However, despite the respondent/ assessee furnishing the above
information/ documents, the assessing officer found the explanation to be
unacceptable and held that the sum of `55.5 lakhs was unexplained in the
hands of the assessee and thereby made an addition to the assessees
income.
Being aggrieved by the assessment order, the respondent/ assessee
preferred an appeal before the Commissioner Income Tax (Appeals) who
held in favour of the respondent/ assessee by virtue of his order dated
31.03.2011. The CIT (Appeals) held that the documents/ details
submitted by the respondent/ assessee indicated that the identity of the
share applicants stood established beyond any doubt. Particularly so,
because each of the share applicants was an income tax assessee. The
CIT (Appeals) held as under: -
"The genuineness of the transactions are established as the
transactions are routed through banking channels. It is seen
that the share application money was received through a/c
payee cheques, detail of which had been filed by the
appellant by filing the copy of the bank a/c of the share
WP(C)597/2012 Page 3 of 10
applicants. Thus where the return of income is filed by the
creditors of the assessee and is accepted by the Department,
and the payments are through a/c payee cheques the
genuineness of the transaction can not be doubted."
The CIT (Appeals) also held as under: -
"After considering the totality of all the facts and
circumstances and the latest judicial pronouncements made
by the jurisdictional Delhi High Court and Honble Supreme
Court, it can be concluded that the appellant company has
undoubtedly proved and established the identity of the share
applicant. Once the identity of this share applicant is
proved, no addition can be made in the hand of the appellant
company even if the share applicants have been found
persons of no means until and unless otherwise it is proved
by the revenue. The revenue could not prove that the money
received by the appellant in the form of share application
has come from its own sources. No evidences regarding this
have been brought on record by the AO."
The CIT (Appeals) had also placed reliance on the Supreme Court
decision in CIT v. Lovely Exports (P) Ltd.: 319 ITR (St.) 5 (SC). The
Supreme Court was considering the question as to whether share money
should be regarded as undisclosed income under section 68 of the said
Act. The Supreme Court while dismissing the SLP observed that if share
money is received from alleged bogus shareholders whose names are
given it is open to the assessing officer to reopen their individual
assessments in accordance with law. The CIT ultimately held as under: -
WP(C)597/2012 Page 4 of 10
"Relying on the various documents placed on record and the
principle laid down by the Honble Supreme Court in the
case of M/s Lovely Export Pvt. Ltd. which is directly on the
issue of share capital and in view of the decisions cited
above the addition on account of share capital cannot be
sustained. The AO has no where proved that documents in
support of the identity of the party have not been placed on
record or they were forged documents. The AO also has not
brought any evidence on record regarding the facts that the
share applicants were not creditworthy or genuine, despite
the fact that their PAN and confirmatory affidavit and the
details of the AO where the share applicants were assessed
were submitted by the appellant alongwith copy of bank
accounts of the share applicants. In view of the findings
above and the judicial precedents on the subject that once
the identity of the share applicants were proved by the
appellant, which in the instant case has not been
controverted by the AO, the addition of `55,50,000/- made
by the AO on account of unexplained share application
money is deleted. However, the AO is free to take
appropriate action as may be permissible under the law in
the cases of various share holders alleged to be entry
providers."
Being aggrieved by the decision of the CIT (Appeals), the revenue
preferred an appeal before the Income Tax Appellate Tribunal which has
been dismissed by virtue of the impugned order dated 19.12.2011 in ITA
No.2886/Del/2011. After referring to the order passed by the CIT
(Appeals) in detail, the Tribunal held as under: -
"12. In the course of hearing of this appeal, the ld.
Departmental Representative has not been able to point out
any material to rebut the findings recorded by the ld. CIT(A)
WP(C)597/2012 Page 5 of 10
in the light of the various documents and evidences
furnished by the assessee before the AO as well as before
the ld. CIT (A). The ld. DR has merely relied upon the
AOs order to contend that since there was an information
from the Invstigation Wing that all the share applicants were
engaged in providing accommodation entries, the AO was
justified in treating the credit entries as unexplained liable to
be taxed in the hands of the assessee. However, neither the
AO nor the ld. DR before us has been able to prove and
establish that the various documents and evidences filed by
the assessee are in any manner false and fabricated, and
assessee has not been able to discharge its initiation onus.
Therefore, in the light of the detailed discussions made by
the CIT(A) in his order and for the reasons given by him, we
are in full agreement with him in deleting the addition of
`55,50,000/- made by the AO after giving a finding by him
that the AO has nowhere been able to prove that the
document in support of the identity of the parties have not
been placed on record or otherwise there were forged
documents, and further the AO has also not brought any
evidence on record regarding the facts that the share
applicants were not creditworthy or genuine despite the fact
that their PAN and confirmatory affidavits and the details of
the AO, where the share applicants were assessed were
submitted by the assessee along with copy of bank accounts
of the share applicants. In this view of the matter, we,
therefore, upheld the order of ld. CIT(A) and reject this
ground raised by the revenue."
Mr. Sabharwal, appearing on behalf of the revenue/ appellant
sought to place reliance on a Division Bench decision of this Court in
CIT v. Nova Promoters and Finlease (P) Ltd.: (2012) 342 ITR 169
(Del.). However, on going through the said decision in Nova Promoters
and Finlease (P) Ltd. (supra) we find that the facts are clearly
WP(C)597/2012 Page 6 of 10
distinguishable. In fact, in Nova Promoters and Finlease (P) Ltd.
(supra) itself this Court has observed, in the context of Lovely Exports
(P) Ltd. (supra), as under: -
"The ratio of a decision is to be understood and appreciated
in the background of the facts of that case. So understood, it
will be seen that where the complete particulars of the share
applicants such as their names and addresses, income tax file
numbers, their creditworthiness, share application forms and
share holders register, share transfer register etc. are
furnished to the Assessing Officer and the Assessing Officer
has not conducted any enquiry into the same or has no
material in his possession to show that those particulars are
false and cannot be acted upon, then no addition can be
made in the hands of the company under sec.68 and the
remedy open to the revenue is to go after the share applicants
in accordance with law. We are afraid that we cannot apply
the ratio to a case, such as the present one, where the
Assessing Officer is in possession of material that discredits
and impeaches the particulars furnished by the assessee and
also establishes the link between self-confessed
"accommodation entry providers", whose business it is to
help assessees bring into their books of account their
unaccounted monies through the medium of share
subscription, and the assessee. The ratio is inapplicable to a
case, again such as the present one, where the involvement
of the assessee in such modus operandi is clearly indicated
by valid material made available to the Assessing Officer as
a result of investigations carried out by the revenue
authorities into the activities of such "entry providers". The
existence with the Assessing Officer of material showing
that the share subscriptions were collected as part of a pre-
meditated plan - a smokescreen - conceived and executed
with the connivance or involvement of the assessee excludes
the applicability of the ratio. In our understanding, the ratio
WP(C)597/2012 Page 7 of 10
is attracted to a case where it is a simple question of whether
the assessee has discharged the burden placed upon him
under sec.68 to prove and establish the identity and
creditworthiness of the share applicant and the genuineness
of the transaction. In such a case, the Assessing Officer
cannot sit back with folded hands till the assessee exhausts
all the evidence or material in his possession and then come
forward to merely reject the same, without carrying out any
verification or enquiry into the material placed before him.
The case before us does not fall under this category and it
would be a travesty of truth and justice to express a view to
the contrary. (underlining added)
As can be seen from the above extract, two types of cases have
been indicated. One in which the assessing officer carries out the
exercise which is required in law and the other in which the assessing
officer ,,sits back with folded hands till the assessee exhausts all the
evidence or material in his possession and then comes forward to merely
reject the same on the presumptions. The present case falls in the latter
category. Here the assessing officer, after noting the facts, merely
rejected the same. This would be apparent from the observations of the
assessing officer in the assessment order to the following effect: -
"Investigation made by the Investigation Wing of the
Department clearly showed that this was nothing but a sham
transaction of accommodation entry. The assessee was
asked to explain as to why the said amount of `1,11,50,000/-
may not be added to its income. In response, the assessee
has submitted that there is no such credit in the books of the
WP(C)597/2012 Page 8 of 10
assessee. Rather, the assessee company has received the
share application money for allotment of its share. It was
stated that the actual amount received was `55,50,000/- and
not `1,11,50,000/- as mentioned in the notice. The assessee
has furnished details of such receipts and the contention of
the assessee in respect of the amount is found correct. As
such the unexplained amount is to be taken at `55,50,000/-.
The assessee has further tried to explain the source of this
amount of `55,50,000/- by furnishing copies of share
application money, balance sheet, etc. of the parties
mentioned above and asserted that the question of addition
in the income of the assessee does not arise. This
explanation of the assessee has been duly considered and
found not acceptable. This entry remains unexplained in the
hands of the assessee as has been arrived by the
Investigation wing of the Department. As such entries of
`55,50,000/- received by the assessee are treated as an
unexplained cash credit in the hands of the assessee and
added to its income. Since I am satisfied that the assessee
has furnished inaccurate particulars of its income, penalty
proceedings under section 271(1)(c) are being initiated
separately."
The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in
the former category and that is why this Court decided in favour of the
revenue in that case. However, the facts of the present case are clearly
distinguishable and fall in the second category and are more in line with
facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of
inquiry on the part of the assessing officer once the assessee had
furnished all the material which we have already referred to above. In
such an eventuality no addition can be made under section 68 of the Act.
WP(C)597/2012 Page 9 of 10
Consequently, the question is answered in the negative. The decision of
the Tribunal is correct in law.
The appeal is dismissed.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
JANUARY 21, 2013
hs
WP(C)597/2012 Page 10 of 10
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