CHOUDHARY EARTHMOVERS (P) LTD,DELHI V. DCIT, CIRCLE-6(1), DELHI, DELHI

ITA 3520/DEL/2023

AI Insights

The case involves M/s Choudhary Earthmovers (P) Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the additions made by the Assessing Officer. The additions were related to unexplained share application money and disallowance of loss on the sale of fixed assets for the assessment year 2012-13. The Tribunal examined the genuineness and creditworthiness of the share applicants and the legality of the transactions under the Companies Act and Income Tax Act. The Tribunal found that the assessee failed to establish the creditworthiness and genuineness of the transactions for two of the share applicants, leading to the confirmation of the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314375 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Other Referred Cases: Haji Aziz & Abdul Shakoor Bros. Vs CIT, Lakshmi Narayan Gouri Shankar Vs CIT, Ishwar Das Alias Ishwar Lal Sindhi Vs. CIT, Mcdowell and Co.Ltd, Roshan D Hatti Vs CIT, CIT vs Biju Patnaik, CIT vs Divine Leasing and Finance Ltd., CIT vs Nipun Builders & Developers, CIT vs Durga Prasad More, Sumati Dayal Vs CIT, PCIT vs. NRA Iron and Steel Pvt. Ltd., Nova Promoters and Finlease (P) Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTHA
• Assessee Lawyers: DEVESH PODDAR
• Keywords: Opportunity of being heard; Business expenditure; Unexplained cash credit; Depreciation; Principle of natural justice; Bogus
• Section: 143(3); 68; 234B; 37; 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.3520/Del/2023 (ASSESSMENT YEAR 2012-13) M/s Choudhary Earthmovers (P) Ltd. 104, Munish Plaza, 20 Ansari Road, Daryaganj, New Delhi-110002 PAN-AAACC5148E Vs. DCIT, Circle-6(1), Delhi. (Appellant) (Respondent) Assessee by Shri Devesh Poddar, Adv. Department by Shri Rajesh Kumar Dhanestha, Sr. DR Date of Hearing 17/03/2025 Date of Pronouncement 07/05/2025 O R D E R PER MANISH AGARWAL, AM: This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi [Ld. CIT(A), in short], dated 27.10.2023 in appeal No. NFAC/2011- 12/10002019, passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2012-13. 2. Brief facts of the case are that assessee is a company engaged in the business of Earth Moving and Civil Contracts. The return of income was e-filed on 30.09.2012 declaring the total income of loss of Rs.47,62,920/-. The assessment was taken for scrutiny by way of issue of notice u/s 143(2) dated 16.08.2013. The issues under scrutiny (i) Large interest expenses relatable to exempt investment u/s 14A (ii) Large Share Premium Received. The AO observed 2 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT that assessee has issued 2,31,000 shares of Rs.10 each at a premium of Rs.90/- each to nine companies which are tabulated as under: S. No. Name of the Party Date of receipt No. of Shares Amount of Share Application money including share premium 01. Accurate Shoppers Pvt. Ltd. 24.03.2011 5,000 5,00,00/- 02. Goldline Dealters Pvt. Ltd. 22.03.2011 31,000 31,00,000/- 03. Intimate Commotrade Pvt. Ltd. 22.03.2011 29,000 29,00,000/- 04. Shivmangal Deal Comm. Pvt. Ltd. 23.03.2011 15,000 15,00,000/- 05. Shagun Commercial Pvt. Ltd. 08.03.2011 26,000 26,00,000/- 06. Surgold Dealcomm Pvt. Ltd. 28.03.2011 20,000 20,00,000/- 07. Dharmwan Merchants Pvt. Ltd. 5,000 5,00,000/- 08. Amarlaxmi Dealtrade Pvt. Ltd. 27.12.2011 50,000 50,00,000/- 09. Samrat Finvestors Pvt. Ltd. 26.12.2011 50,000 50,00,000/- TOTAL 2,31,00,000/- 3. The assessee was asked to establish the genuineness and creditworthiness of the parties. In reply to which, the assessee filed copies of the Share Application Form and Copies of relevant extracts of bank statement details of all the companies tabulated above. After examination of the financials and making enquiries the AO was of the opinion that out of the nine share applicants, the share premium received from two companies i.e. Rs.1,00,00,000/- from M/s Amarlaxmi Dealtrade Pvt. Ltd. and M/s Samrat Finvestors Pvt. Ltd. of Rs.50,00,000/- each is the unexplained money of the assessee and after invoking the provisions of section 68 of the Act, made the addition of Rs. 1.00 crores. Besides this, the claim of loss on sale of fixed assets made by the assessee in its P&L account at Rs. 1,60,915/- was disallowed as the same was not added back to the income in the computation of income. In first appeal, Ld. CIT(A) confirmed the additions and disallowances made by the AO, thus, the assessee is in appeal before us by taking following grounds of appeal:- “1. That having regard to the facts and circumstances of the case. Ld. CII(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.1,00,00,000/- on account of share application money received by treating it as alleged unexplained money of the assessee company u/s 68 and that too by recording incorrect facts and findings and without providing the opportunity of being heard and without observing the principles of natural justice. 3 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT 2. That in any case and in any view of the matter, action of Ld. CII(A) in confirming the action of Ld. AO in making aggregate addition of Rs.1,00,00,000/-on account of share application money u/s 68, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That having regard to the facts and circumstances of the case. Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O in making addition of Rs.1,60,915/- on account of loss on sale of asset and that too by recording incorrect facts and findings and without observing the principles of natural justice. 4. That having regard to the facts and circumstances of the case. Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961.” 4. In ground of appeal No.1 & 2, the assessee has challenged the additions of Rs.1,00,00,000/- made and sustained on account of share application money received from two companies as unexplained credits. 5. Before us, the Ld. AR of the assessee submitted that the assessee has proved all the three ingredients of section 68 of the Act such as identity of the share applicants, genuineness of the transactions and their creditworthiness by filing their PAN, ITR, Bank Statements from where the share application money was received by the assessee. In respect to the creditworthiness, copies of the Balance Sheets of both the companies were filed wherein it is evident that they both have sufficient net worth. Ld. AR further submitted that the AO had failed to point out any defects in the details filed by the assessee. Since both the companies had replied in response to the summons issued u/s 133(6), their identity is established. He further submitted that both the companies had sufficient Reserves and surpluses to make the investment in the assessee company. The Assessing Officer on mere conjecture and surmise made the addition, therefore, the same deserves to be deleted. 6. On the other hand, ld. DR vehemently supported the orders of lower authorities and submitted that the Assessing Officer has made in-depth enquiry in the matter and after analyzing the documents filed by the assessee has accepted the share application receipt from seven companies out of nine share 4 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT applicants as genuine and only in respect of two companies i.e., M/s Amarlaxmi Dealtrade Pvt. Ltd. and M/s Samrat Finvestors Pvt. Ltd., the AO had raised the doubts. The Ld. Sr. DR further submitted that the assessment order clearly reveals that the assessee has failed to establish the genuineness of the transactions and creditworthiness of the parties. The financial statements filed by the assessee of these companies shows that they were having very low business and the income declared by them in the year under appeal and preceding and subsequent years were at very low figures of profit. Thus their creditworthiness cannot be accepted. Therefore, he prayed that confirmations of the additions so made. 7. We have heard the submissions and perused the materials available on record. In the instant case, the assessee has received total share application money of Rs.2,31,00,000/- from nine companies against 2,31,000 equity share Rs.10/- each at a premium of Rs.90/- each. The AO has examined genuineness of the transaction and creditworthiness of all the share applicants and after in depth analysis of the details filed by the assessee, the AO was of the opinion that out of the 9 share applicants, two companies M/s Amarlaxmi Dealtrader Pvt. Ltd. and M/s Samrat Finvestors Pvt. Ltd. who subscribed total 50,000/- share having value of Rs.50 lacs each (including premium) was not genuine as the assessee has failed to establish the creditworthiness of these companies. In this regard, the assessee has filed to controvert the detailed finding given Assessing Officer in the assessment order and by the Ld. CIT(A). The ld. CIT(A) has given following finding while dismissing the claim of the assessee:- “5.9. After duly considering the written submission /reply submitted by the Appellant on various dates during this appeal proceedings, reply submitted by the Appellant on various dates to the AO during assessment proceedings, the Appellant assessee, vide appeal hearing notice dated 25.10.2023 was asked to upload the following: \"Please refer to your appeal and reply dated 26.08.2020, reply dated 04.01.2021, reply dated 04.09.2023 and Writ order of Hon. Delhi High Court dated 11.08.2023. In this regard, upload the following: 5 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT (i) Copy of ITR- Return of income filed by you for the A.Y.2022-23. (ii) Copy of ITR- Return of income filed by M/s. Amarlaxmi Deal Trade P Itd-AAJCA8321L- for the A.Y.2022-23. (iii) Copy of ITR- Return of income filed by M/s. Samrat Finvestors Pvt. Ltd.-AADCS4698G- for the A.Y.2022-23.\". The above details were asked to ascertain whether M/s. Amarlaxmi Deal Trade P Itd & M/s. Samrat Finvestors P Itd, paid any tax, atleast, for the AY.2022-23, as they paid NIL Income tax, for the A.Y.2012-13. 5.10. The Appellant has not uploaded the above details. The Appellant on 26.10.2023, has submitted that if the IRs filed for the A.Y.2022-23, by M/s.Amarlaxmi Deal Trade Pvt. Ltd. & M/s. Samrat Finvestors Pvt. Ltd., are required, the Appellant Assessee, may be given reasonable time. 5.11. As per the direction of the Hon. Delhi High Court, this appeal has to disposed of not later than eight weeks from the order. 5.12. Therefore, after duly considering the grounds of appeal, written submissions filed during appeal proceedings, the details mentioned in the documents uploaded as a part of paper book, and the case laws relied on by the Appellant, the appeal is decided as under: 5.12.1. As per Companies Act, a Private limited Company is prohibited from offering any invitation to the public to subscribe for any share in the company. The Appellant has violated not only the provisions of the Companies Act, but the provisions of Income Tax Act as well. 5.12.2. As per Sec.2(31), \"Person \"includes\" a company, which includes Private limited Company. 5.12.3. As per Explanation 1 to Sec.37 of the Income Tax Act, any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and no deduction or allowance shall be allowed in respect of such expenditure. 5.12.4. The receipts- share application money received by the Appellant - M/s. Choudhary Earthmovers P Itd-is violative of the provisions of the Companies Act. 5.12.5. Considering the spirit and rationale contained in Explanation 1 to Sec.37 of the Income Tax Act, any receipt received by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been received for the purpose of business and no deduction or allowance shall be allowed in respect of such receipt/expenditure. 6 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT 5.12.6. Having violated the provisions of the Companies Act & I.T. Act and further having violated the Public Policy of the Country, the Appellant - M/s. Choudhary Earthmovers P Itd - has not made any submission on this violation before the CIT(A), NFAC. 5.13. Infraction of Law: In the case of Haji Aziz & Abdul Shakoor Bros. Vs CIT (1961) 41 ITR 350(SC) it was held that infraction of law is not a normal incident of business and therefore no expense which paid for a breach of law can be said to be an amount wholly and exclusively laid for the purpose of business. In cases, such as, 100 ITR 143(Patna)-Lakshmi Narayan Gouri Shankar Vs CIT, 244 ITR 146 (All)-Ishwar Das Alias Ishwar Lal Sindhi Vs. CIT, Hon.Courts have held that expenditure claimed relating to infraction of law, as not allowable. 5.14. Therefore, it is hereby held that the deduction claimed by the Appellant that Rs. 1,00,00,000/- on account of share application money received from M/s. Amarlaxmi Dealtrade private Itd & M/s. Samrat Finvestors private Itd, was an explained receipt/income, was without any legal sanction and therefor the addition made on this account in the assessment order passed u/s 143(3) dated 24.03.2015 by the AO-DCIT Circle 6(1) is hereby CONFIRMED. While making addition, the AO has placed reliance on the following case laws: (i) 82 TR 540(SC) - In the case of CIT Vs Durga Prasad More (ii) 214 TR 801(SC) - in the case of Sumati Dayal Vs CIT (iii) 154 TR 148(SC) - in the case of Mcdowell and Co.Ltd (iv) 107 ITR 938(SC) - in the case of Roshan D Hatti Vs CIT (V) 60 ITR 674- (SC) - in the case of CIT vs Biju Patnaik (vi) in the case of CIT vs Divine Leasing and Finance Ltd. (Delhi HC) (vii) 350 ITR 407(Del) in the case of CIT vs Nipun Builders & Developers (Delhi HC) Therefore, it is hereby held that the deduction claimed by the Appellant that Rs.1,00,00,000/- on account of share application money received from M/s. Amarlaxmi Dealtrade private Itd & M/s. Samrat Finvestors private Itd, was an explained receipt/income, is devoid of merit and the addition made on this account in the assessment order passed u/s 143(3) dated 24.03.2015 by the AO-DCIT Circle 6(1) is hereby CONFIRMED. 5.14.1. It is relevant to mention here that the receipt of share application money by the Appellant - Choudhary Earth Movers Private limited - Company, from public -such as from M/S. Amarlaxmi Dealtrade Private L:td. & M/s. Samrat Finvestors Private Ltd., is against the Public Policy of the Country & Companies Act, and therefore the addition made on this 7 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT account in the assessment order passed u/s 143(3) dated 24.03.2015 by the AO-DCIT Circle 6(1) is hereby CONFIRMED. 5.15. The case laws relied on by the Appellant in the Written submission filed before the CIT(A), NFAC have duly been considered. 5.15.1. It is relevant to mention here that the facts of the case of CIT vs Kamadhenu Steel & Alloys Ltd, in (2012) 19 taxmann.com 26 (Delhi) is different from that of the Appellant-M/s Choudhary Earth Movers Pvt. Ltd.. M/s Kamadhenu Steel & Alloys Ltd., it appears that is not a private Limited company. 5.15.2. It is relevant to mention here that the facts of the case of CIT vs Fair Finvest Ltd, in ITA.No.232/2012 is different from that of the Appellant-M/s. Choudhary Earth Movers Pvt. Ltd. M/s. Fair Finvest Ltd., it appears that is not a private Limited company. 5.15.3. It is relevant to mention here that the facts of the case of CIT vs Victor Electrodes Ltd, (2012) 20 taxmann.com 680 (Delhi) is different from that of the Appellant-M/s Choudhary Earth Movers Pvt. Ltd. M/s. Victor Electrodes Ltd., it appears that is not a private Limited company. 5.15.4. It is relevant to mention here that the facts of the case of CIT vs Dataware P Ltd, in G.A. No.2856/2011 is different from that of the Appellant-M/s Choudhary Earth Movers Pvt. Ltd. as under: In the assessment order u/s 143(3) dated 24.03.2015paased in the case of the Appellant- M/s Choudhary Earth Movers P Itd -the AO @ paragraph No.4.11. has discussed the violation of the provisions of the Companies Act In the Assessment order passed in the case of Dataware P. Ltd., it is not clear whether such violation has been discussed by the A.O. Therefore, with due respect to the case laws relied on by the Appellant, it is hereby held that the same is not applicable to this appeal. 5.15.5. While holding so, reliance is placed on the following Authorities: (i) 67 TR 106(SC) - M.M.Ipoh &ors Vs CIT (ii)282 ITR 273(SC) - BSNL Ltd Vs Union of India, wherein it was held that in Income Tax proceedings, 'Res Judicata' is not applicable as each assessment year is a separate proceedings. Reliance is also placed in 211 ITR 635 (Ker) - CIT vs Kalpetta Estates Ltd, wherein the Hon. High Court held that, tribunal is entitled to take a different view of the matter if new materials were placed or on a closer and more intelligent analysis. 8 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT 5.16. In sum, the addition made on this issue in the assessment order passed u/s 143(3) dated 24.03.2015 by the AO-DCIT Circle 6(1) is hereby CONFIRMED.” 8. Before us, the assessee reiterated the same facts and argument which were made before the lower authorities. From the perusal of the details filed by the assessee show that the shareholder companies were only a paper companies having no source of income but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and the surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements must be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 9. Supreme Court in the case of CIT vs Durga Prasad More reported in [1971] 82 ITR 540 (SC) held as under: “The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were required to look into the surrounding circumstances to find out the reality of the recitals made in those documents.” 10. The Hon’ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. reported in 412 ITR 161 (SC) has observed as under: “13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company – Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 9 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 15. On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee’s income.” 11. The Hon’ble jurisdictional High Court in the case of Nova Promoters and Finlease (P) Ltd reported in 342 ITR 169 (Delhi), has held that “The tribunal also erred in law in holding the Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or if the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee.” 12. It is settled proposition that as per the provisions of section 68 of the IT Act, the initial burden is on the assessee to establish the genuineness of the transaction, creditworthiness and identity of the share applicant. Thus, the identity and capacity of the person to subscribe the shares has to be established by producing some cogent evidence. Similarly, the genuineness of the transaction is also required to be established from the fact that the applicant was having the capacity and creditworthiness. Since, the assessee has failed to discharge the burden cast upon it with respect to establish the creditworthiness of the share applicants nor the findings of ld. CIT(A) are controverted by placing on record some reliable material to the satisfaction of lower authorities thus, in our considered opinion, the AO has rightly made the additions. By respectfully following the judgment of the Hon’ble Supreme Court in the case of NRA Iron and Steel Pvt. Ltd. (supra) and of the hon’ble jurisdictional high court the case of Nova Promoters (supra), the additions of Rs.1,00,00,000/- made by AO is 10 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT hereby confirmed. As a result, grounds of appeal No.1 & 2 taken by the assessee are dismissed. 13. In ground of appeal No.3, assessee has challenged the confirmation of the disallowance made of Loss on sale of Fixed assets at Rs. 1,60,915/-. 14. Heard both the parties and perused the material before us. 15. After considering the arguments put-fourth by the parties, we find that assessee has debited a sum of Rs.1,60,915/- in its Profit and Loss Account on account of loss on sale of assets. Such loss is not allowable expenditure u/s 37 of the Act and as per the concept of block of asset to compute the depreciation, the sale price of the asset sold should be reduced from the gross value of block of assets and assessee can claim depreciation on the residuary value of block of that asset. However, the loss cannot be claimed as business expenditure and must be added to the total income. In view of these facts, we find no infirmity in the order of lower authorities. Accordingly, the action of the AO in making disallowance of Rs. 1,60,915/- on sale of fixed assets and sustained by ld. CIT(A) is hereby confirmed. Accordingly, ground of appeal No.3 of the assessee is dismissed. 16. Ground of appeal No.4 is regarding charging of interest u/s 234A & 234B of the Act. Since the charging of interest is consequential in nature therefore, the AO is directed to charge interest u/s 234A and 234B of the Act as per law. 17. In the result, the appeal of the assessee dismissed in view of the above discussion made herein above. Order pronounced on 07/05/2025. Sd/- Sd/- (MAHAVIR SINGH) (MANISH AGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated:07/05/2025 PK/Sr. Ps 11 ITA No.3520/Del/2023 Choudhary Earthmovers Pvt. Ltd. vs. DCIT Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "