$~2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 13.02.2014
+ ITA 31/2013
ONASSIS AXLES PRIVATE LIMITED ..... Appellant
Through: Sh. Salil Aggarwal and Sh.
Prakash Kumar, Advocates.
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through: Sh. Balbir Singh, Sr. Standing
Counsel with Sh. Abhishek Singh Baghel,
Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
%
C.M. APPL. 933/2013 (for exemption)
Allowed, subject to all just exceptions.
ITA 31/2013
1. This is an assessee's appeal, directed against an order of the
Income Tax Appellate Tribunal (ITAT), of 18.05.2012 in I.T.A.
No.1637/Del/2011. The assessment year concerned is 2007-08. The
following question of law arises for consideration:
ITA 31/2013 Page 1
"Did the Tribunal fall into error of law in setting aside
the order of the CIT (A) accepting the assessee's
contention that share application amount, to the extent of
`80 lakhs, received by it, had been properly explained
and it could not be included under Section 68?"
2. The assessee, during the relevant period (A.Y. 2007-08)
claimed that a sum of `1.8 crore had been received by it towards
shares, as application money. The amount in dispute is `80 lakhs. The
Assessing Officer (AO) asked the assessee during the assessment to
explain the amounts received from three applicants viz. M/s. Hub
Services P. Ltd. (`25,00,000/-); M/s. R.S. Associates P. Ltd.
(`30,00,000/-) & M/s. Transaction India P. Ltd. (`25,00,000/-). The
AO asked the learned AR of the assessee to file details regarding
genuineness of the transactions, identity and creditworthiness with
regard to share application money received. The assessee in response
thereto filed photo copies of the following documents: (i) Share
Applications containing the details of pay orders; (ii) Undated
confirmations; (iii) Undated affidavits of the companies from whom
share application money was received; (iv) Undated copy of
Resolution; (v) Memorandum and Article of Association; (vi)
Acknowledgement of return for Assessment Year 2005-06; (vii) PAN
Cards in respect of Hub Services P. Ltd. and Transaction India P. Ltd.
3. The AO asked the assessee to furnish copies of bank accounts
for the F.Y. 2006-07 of all three share applicants along with their
balance-sheet, profit and loss account, income-tax returns, tax audit
report and auditor's report for Assessment Year 2007-08. The AO
ITA 31/2013 Page 2
issued summons under Section 131 of the Act to the said three parties,
which came back unserved with the postal remarks, "No such person".
The AO communicated this fact to the learned AR of the assessee by
an order-sheet entry dated 16.12.2009 and he was asked to file either
the latest address of these three companies or to produce the directors
of those companies along with details already asked for by him. The
case was thereafter adjourned to 21.11.2009 and again adjourned to
24.12.2009. The assessee's representative by a letter dated 24.12.2009
stated that all other details relating to share application monies were
filed. All the three share applicants were existing entities and had filed
their necessary returns with ROC. The assessee filed the necessary
communication with the ROC for the Assessment Year 2007-08 by all
the three companies. As all the three applicants were existing and
assessed to income-tax, it was argued that the share applicants were
genuine. The assessee, however, failed to provide bank statements for
F.Y. 2006-07 of the aforesaid three companies.
4. Acting on the basis of the materials furnished by the assessee,
the AO found that all the three pay orders were obtained from
Mahamedha Urban Cooperative Bank Ltd., Noida. He issued
summons to the said bank, requiring it to send the bank statements of
the three companies from 01.04.2006 till the date of summons. From
the information received from the bank, the AO found that M/s. Hub
Services P. Ltd. opened bank account No.1002014026499 on 31st
March, 2007 whereas the pay order was dated 29.09.2006. M/s. R.S.
Accessories P. Ltd., also opened account No 1002014026502 on 31st
ITA 31/2013 Page 3
March, 2007 whereas the pay order was dated 29.09.2006. The
assessee's contention that the pay orders were made from the accounts
on 29.09.2006 was, therefore, not accepted. M/s. Transaction India P.
Ltd. had two accounts bearing No. 1002014026258 and No.
10020140025746. Both these accounts were opened during F.Y. 2006-
07. On considering account No. 1002014026258, the AO held that the
pay order for `25,03,125/- was issued on 29.09.2006 and on the same
date cash amounting to `25,04,000/- was deposited in the account
raising doubts about the genuineness of transaction. The assessee was
asked to show cause how the amount of `80,00,000/- claimed to have
been received by it as share application money from the share
applicants should not be treated as its income under Section 68 of the
Act.
5. The AO considered the assessee's contentions and observed that
the mere furnishing of particulars was not enough. The creditors were
not only to be identified, but moreover, there should also be some
evidence of their creditworthiness. There should also be proof of
genuineness of transaction. Furnishing of the income-tax file number
was not sufficient to prove the genuineness of cash credit. Since the
assessee had failed to discharge its onus to prove the identity and
creditworthiness of the creditors and genuineness of transaction, the
AO came to the conclusion that the assessee had failed to discharge its
onus. As regards affidavits filed of the three parties, the AO observed
that the statements made in affidavits can be treated as unreliable if
there is other material discrediting the deponents. The affidavit could
ITA 31/2013 Page 4
also be rejected if the assessee failed to produce other supporting
evidence when called upon to do so. The AO, therefore, rejected the
affidavits as self-serving evidence. The AO consequently, made the
addition of `80,00,000/-.
6. The assessee, in its appeal before the CIT(A), complained that
the AO had not doubted the identity of the shareholders from whom
share application money was received. The AO had not pointed out
any discrepancy in the income-tax particulars of the shareholders filed
by the assessee giving their PAN numbers, complete addresses, as also
copies of their acknowledgements. The AO also did not point out any
discrepancy in the facts that all the shareholders were assessed to
income-tax in Delhi. In spite of these facts, he erred in holding that
the three companies were not genuine share applicants who had
invested in the share capital of the assessee. The assessee had filed
confirmations from all the three companies. The assessee relied on
several decisions including the decision of Supreme Court in CIT v.
Lovely Exports Pvt. Ltd., 216 CTR 195 (SC). The CIT (A) deleted the
addition relying on the decision of the Supreme court in Lovely
Exports Pvt. Ltd. (supra) and other decisions on the issue.
7. The Tribunal, in its impugned order set aside the appellate
Commissioner's findings, holding that:
"10. We have heard both the parties and gone through
the material available on record. During the course of
hearing the assessee filed photo copies of share
ITA 31/2013 Page 5
applications containing Pay Order numbers, Photo
copies of undated confirmations, photocopies of undated
affidavits of the companies from whom share application
money claimed to have been received, photo copy of
undated resolution, photo copy of Memorandum &
Article of Association and copies of acknowledgement of
returns for Assessment Year 2005-06 in the cases of all
the three parties. The assessee by filing these evidences
has claimed that initial onus has been discharged. Since
the identity of the share applicants has been established,
the contention of the assessee is that no addition can be
made in the hands of the assessee. The AO had conducted
enquiry from Mahamedha Urban Cooperative Bank Ltd.,
Noida. We have gone through the information obtained
from the bank. It is seen that the bank account in the case
of M/s. Hub Services P. Ltd. having Account
No.1002014026499 was opened on 31st March, 2007.
The assessee received share application money of
Rs.25,00,000/- by Pay order No.011784 dated
29.09.2006. Therefore, when A/c No.1002014026499 was
opened on 31st March, 2007, the Pay Order could not be
made from the bank account of M/s. Hub Services P. Ltd.
with Mahameda Urban Cooperative Bank Ltd., Noida.
Similarly the Bank account of M/s. R.S. Accessories P.
Ltd. bearing No.1002014026502 was also opened on 31st
March, 2007, whereas the amount of Rs.30,00,000/- was
received by Pay Order No.011785 dated 29th September,
2006. This Pay Order cannot be made from the account
of M/s. R.S. Accessories P. Ltd. as on the date of Pay
Order the said account was not in existence. As regards
pay order of Rs.25,00,000/- in the name of Transaction
India P. Ltd., it was issued on 29.09.2006. As per the
information received from the Bank A/c Nos.
2002014026258 & 10020140025746 were opened during
the F.Y. 2006-07. The pay order was made from the A/c
No.1002014026258 on 29.09.2006. On this date the
amount of Rs.25,04,000/- was deposited out of which pay
order of Rs.25,03,125/- was made. From these facts it is
ITA 31/2013 Page 6
evident that in first two cases the pay orders have not
been made from the Bank Account of the said parties. In
the case of third party i.e. M/s. Transaction India P. Ltd.
the pay order was made after depositing cash in the bank.
Thus it is not a case where the AO had not made any
enquiry in the matter. The assessing officer brought this
fact to the notice of the assessee and asked him to
produce either the directors of the share applicants or
give their new addresses as summons sent on the
addresses given in the information supplied by it were
received back as un-served. The assessee, however, did
not comply with the said requirement of the assessing
officer.
11. Another important and interesting feature of pay
orders is that the pay orders have been made in same
series on same date from the same Bank i.e. Pay Order
No.011783 dated 29.09.2006 in the name of M/s.
Transaction India P. Ltd.; Pay Order No.011784 dated
29.09.2006 in the name of M/s. Hub Services P. Ltd. and
Pay Order No.011785 dated 29.09.2006 in the name of
M/s. R.S. Accessories P. Ltd. M/s. Hub Services P. Ltd. is
located at 204, Himalaya Complex, A-65, Laxmi Nagar,
New Delhi. The offices of M/s. R.S. Accessories P. Ltd.
and M/s. Transaction India P. Ltd. are located at 5/7B,
Pusa Road, New Delhi. It is not mere co-incidence that
all the three parties located at two different places in
Delhi went to the same Bank on the same day at the same
time and got the Pay Orders for requisite amounts in the
same series. It will not be possible in the ordinary course
of business that all the three persons would go to Noida
for purchase of pay orders from the same bank at the
same time and with the same running serial numbers.
M/s. Hub Services P. Ltd. is located at Laxmi Nagar, New
Delhi. There is no dearth of banks in Laxmi Nagar or
Pusa Road Delhi. It has to be understood as to why
anyone would go for purchase of pay orders from a bank
located at long distance in Noida. When the AO
ITA 31/2013 Page 7
confronted the assessee vide order-sheet entry dated
24.12.2009 by issuing show cause notice as to why the
amount of Rs.80,00,000/- claimed to have been received
by the assessee as share application money from three
companies, should not be treated as income of the
assessee u/s 68 of the Act, the assessee vide letter dated
29.12.2009 filed reply reiterating that the identity of all
the three applicants was established, their PAN number
and confirmations were filed. It was also contended that
they were existing income-tax assessees and were filing
returns with ROC.
12. It is also interesting to note that the assessee filed
photo copies of undated photo copies of affidavits of the
share applicants, undated copy of Resolution, and
undated confirmations. On one hand the assessee files
confirmations and affidavits and on the other hand the
parties are not found at the addresses when the assessing
officer issues summons to them. The logical conclusion is
that the assessee do not wants to produce them before
assessing officer for best reasons known to him. Thus it is
a case where conduct of the assessee and human
probabilities has to be taken into account while deciding
the issue. The logical conclusion flowing out of above
facts is that undated confirmations and affidavits must
have been obtained by the assessee when pay orders were
received from these entities. Therefore, the contention of
the assessee that share application money was genuinely
received by the assessee is not proved."
8. The assessee contends that the Tribunal fell into error in holding
that the addition made was on account of accommodation entries. It
was urged that neither the AO nor the CIT (Appeals) had drawn the
correct inferences. It was submitted that the AO was adversely
influenced by the fact that the bank account particulars given when the
assessment was framed could not be complete. The Commissioner, it
ITA 31/2013 Page 8
was urged, called for a remand report, which elaborately dealt with all
relevant aspects. Counsel took exception to the adverse inference
drawn against the assessee. It is submitted that the inference was
drawn only on the basis of suspicion without bringing on record any
material to show that the amount of `80 lakhs was either assessee's
own money or that it was not received as share capital contribution
from the three shareholder companies. It is urged that the impugned
addition has been made by the learned AO arbitrarily by brushing
aside the explanation of the assessee and by disregarding the evidence
filed by the assessee to prove the identity and existence of the
shareholder companies. Counsel also further submits that the complete
income tax particulars of these shareholder companies were filed
before the learned AO and it was explained that all the three
shareholder companies are assessed to income tax at Delhi. The
assessee also furnished the latest addresses of the
shareholder/applicants, whose particulars could also be verified from
the Registrar of Companies. Instead of proceeding to make any
inquiry, the AO brushed aside these explanations and wrongly made
the additions.
9. Relying on the judgment in Lovely Exports Pvt. Ltd. (supra), it
was urged that the assessee's responsibility was to adduce acceptable
evidence about the identity of the share applicant and the genuineness
of the transaction. This duty did not extend to actually producing the
share applicants. If the AO wished, he could easily summon them to
attend the proceedings. Counsel highlighted that as against the share
ITA 31/2013 Page 9
application money of `1.8 crores received, the AO made an addition
only of `80 lakhs, implying that the transactions in respect of the sum
of `1 crore was accepted. Therefore, the addition was based purely on
an unverified assumption. Learned counsel invited the attention of the
Court to the remand report called for and considered by the CIT
(Appeals) and underlined the fact that the impugned order entirely
overlooked these circumstances.
10. It was argued that the Supreme Court, in CIT v. Stellar
Investment Ltd., (2001) 251 ITR 263 (SC), has held that mere inability
to ensure the presence of the share applicants/investors does not justify
a conclusion of bogus investment. Likewise, the decision of the
Madras High Court in the case of CIT v. Electropolychem Ltd., (2007)
294 (ITR) 661 (Mad) has been relied on.
11. In this case, the AO had sought for details of the bank
accounts of the share applicants. The assessee's grievance is that he
drew adverse inference from the details furnished to him, without
giving an opportunity to it to rebut any queries which could have
arisen. Particularly, the assessee sought to urge that the AO did not
take into account the correct bank statements for the relevant period
and took note of only a part of it. It was argued that in the remand
report furnished to the CIT (A), full particulars were made available
and he considered it proper to grant relief to the assessee, which was
then overturned by the ITAT.
12. It is a fact that during the pendency of the first appeal before
the Commissioner (Appeals), a remand report was called for by the
ITA 31/2013 Page 10
latter. The remand report contains certain important facts and
conclusions, which are extracted below:
"(f) Now, see the financial worth of the alleged
three applicant companies from whom the assessee is
alleged to have received the share application money.
Despite repeatedly asked for, the assessee did not file
copies of their audited balance sheet, P& L Account,
Income-tax Return, Tax Audit Report and Auditors'
report for the assessment year 2007-08, though the
assessee had filed copies of their undated confirmations,
undated application for allotment of shares, undated
affidavit and Memorandum And Articles of Association of
these companies and copies of acknowledgement of
return for asst year 2005-06 of two of these companies
during the course of assessment proceedings. Even
during the course of remand proceedings, the assessee
was apprised vide this office letter dated 27.10.2010 that
it has not filed the copies of Balance-sheet, P & L
account alongwith schedules of these so claimed share
subscribers. But the assessee expressed its inability to file
the same by stating in its letter dated 08. 11.2010 that
"Since the said three applicants are in. no way related
to the assessee company and the management of the
said share applicant companies are also not under the
control of the assessee company, therefore the assessee
cannot obtain and file the copies of their Balance-
sheets, P & L accounts and its schedules as required by
you in the said letter and also cannot produce the
directors of the said three companies."
It is quite strange to note that on one hand the assessee
has filed copies of the Bank Statements of all the three
applicant companies and copies of acknowledgment of
return of R.S. Accessories P Ltd. and of M/s Transactions
India P.Ltd. for the assessment year 2007-08 vide its
letter dated 27.9.2010 before the learned CIT(A) and on
ITA 31/2013 Page 11
the other hand it is expressing its inability to file the same
in its letter dated 08.11.2010 (reproduced above).
In the copies of acknowledgement of returns of these two
companies (acknowledgment of return of the third not
filed) the gross income for assessment year 2007-08 has
been shown as under:-
M/s R.S. Accessories Pvt.Ltd Rs. 40,194/-(Return
filed on 31.3.09)
M/s Transaction India Pvt.Ltd Rs. 7,31,619/-(Return
filed on 31.3.09)
As per ROC site, all these three companies have been
shown as defaulters of filing DIN 3 and Form 32. The
Authorised/ Issued paid up share capital of these
companies as per ROC site is as under:
Name of Authorized Issued/ Paid up capital
Company capital
M/s R.S. 2,00,000/- 1,00,000/-
Accessories
P. Ltd.
M/s Huba 3,27,000/- 2,000/-
Services P.
Ltd.
M/s 10,00,000/- 3,79,000/-
Transaction
India P.
Ltd.
The assessee company claimed to have received the share
applicationmoney from the above said three companies
as under: .
1 . M/s Huba Services P. Ltd Rs.25,00,000/-
2. M/s RS. Accessories P. Ltd. Rs.30,00,000/-
ITA 31/2013 Page 12
3. M/s Transaction India P. Ltd. : Rs.25,00,000/-
From the above facts can it be said that the above said
companies were of such a worth in investing substantial
amount in the share capital of a Private Limited company
and that too without any hope of receiving any dividends
thereon. Even the assessee company (Onassis Axles Pvt.
Ltd) is not showing enough profit. As per P L account,
the Net profit for assessment year 2006-07 has been
shown at Rs.1,97,707/- and for 2007-08 at Rs.2,47,734/-.
No shrewd businessman will invest such a huge amount
in the share capital of a private limited company. Can ¡t
be accepted that after investing such a huge amount, the
investor company will not contact the investee company?
Thus the contention of the assessee as mentioned in its
reply dated 08.11.2010 that "Since the said three
applicants are in no way related to the assessee
company and the management of the said share
applicant companies are also not under the control of
the assessee company, therefore the assessee cannot
obtain and file the copies of their Balance sheets, P & L
accounts and its schedules as required by you in the
said letter and also cannot produce the directors of the
said three companies'" has no force. Had these
companies were of such a worth, they would have given
the money as loans and advances to earn interest income
and would certainly have been in contact of the
assessee."
13. Previously, in the remand report, the Commissioner (Appeals)
had been informed that the bank statements sought for were given in
respect of a limited period. Thereafter, the bank statements of the three
companies for the same period over a year were sought. These
established a clear pattern. The accounts did not disclose large volume
of transactions. In two cases, the amounts which were ultimately used
ITA 31/2013 Page 13
to subscribe to the shares were deposited in cash on 29.06.2006. In the
third case, the sum of over `24 lakhs was deposited in a span of a
month. All these cash deposits were made into accounts the same day
or on proximate days, and the pay orders given to apply to the shares
were issued from a far-off bank branch in NOIDA. These, together
with the share applicants' lack of resources and the woefully
inadequate share capital, as well as the authorized and subscribed
share capital of the assessee (`50 lakh being the authorized capital,
and the paid up capital being `70 lakh, as against it the reserves being
over `2 crores, for reason of the premium received), showed that the
transaction claimed to have resulted in receipt of share money was
dubious.
14. Lovely Exports Pvt. Ltd. (supra) is an authority for the
proposition that the assessee is under an obligation to dispel any
doubts regarding the genuineness of an investor and the genuineness
of the transaction. Here, though the assessee furnished particulars
relating to three share applicants, the further inquiry made by the AO
raised more questions than answers. The share applicants' lack of
resources, the assessee's position vis-à-vis share amounts received and
its commercial condition all pointed to the amount received by it
falling within the mischief of Section 68 as unexplained amounts. That
the AO or ITAT chose to treat the amount, as bogus share capital, is a
matter of inference which the Court would be loath to interfere with.
ITA 31/2013 Page 14
15. For the above reasons, this Court answers the question framed,
in favour of the revenue and affirms the view of the ITAT. The appeal
is, therefore, dismissed, with no order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
FEBRUARY 13, 2014
ITA 31/2013 Page 15
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