CIT-II CHANDIGARH V. M/S CHEEMA BOILERS LTD.

ITA/665/2009

AI Insights

The case involves an appeal by the Commissioner of Income Tax II, Chandigarh against M/s Cheema Boilers Limited concerning the addition of \\u20b920,00,000 to the assessee's income under Section 68 of the Income Tax Act, 1961, for the assessment year 2005-06. The addition was initially made by the Assessing Officer and sustained by the CIT(A), but was later deleted by the Tribunal. The revenue challenged the Tribunal's decision, arguing that the Tribunal erred in reversing the addition without proper consideration of the material evidence, which indicated that the companies involved were bogus and the transactions were not genuine. The High Court, after reviewing the evidence and the decisions of the lower authorities, sided with the revenue, reinstating the addition to the assessee's income.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 720537 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 10-09-2014
• Assessment Year: misc
• Other Referred Cases: CIT vs. Lovely Exports Pvt. Limited, Commissioner of Income Tax II, Ludhiana vs. M/s Shree Dadu Auto (P) Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: RAVISHANKAR; B M MONGA
• Assessee Lawyers: URVASHI DHUGGA
• Keywords: Bogus companies; Genuineness of transactions; Income tax appeal; Share capital
• Section: 143(3); 143(2); 143(1); 68; 133(6); 260A

Judgement Text

"ITA No.665 of 2009 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.665 of 2009 (O&M) Date of decision: 10.9.2014 Commissioner of Income Tax II, Chandigarh ……Appellant Vs. M/s Cheema Boilers Limited …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE FATEH DEEP SINGH Present: Ms. Urvashi Dhugga, Advocate for the appellant. Mr.Ravi Shankar and Mr.B.M.Monga, Advocates for the respondent. Ajay Kumar Mittal,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 30.4.2009, Annexure A.3 passed by Income Tax Appellate Tribunal, Chandigarh Bench 'A', (in short, “the Tribunal') in ITA No.884/CHD/2008 for the assessment year 2005-06. The revenue has claimed the following substantial question of law:- “Whether on the facts and in the circumstances of the case, the order of the Hon'ble ITAT is perverse in deleting the addition made by the Assessing Officer under Section 68 of the Act, since the assessee had failed to discharge its onus to explain the source of share capital raised from the so called shareholders?” 2. A few facts relevant for the decision of the controversy GURBAX SINGH 2014.10.14 10:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.665 of 2009 (O&M) 2 involved as narrated in the appeal may be noticed. The assessee company is engaged in the business of manufacturing and sales of boilers. It filed its return of income for the assessment year 2005-06 at ` 43,79,750/- on 30.10.2005 alongwith Tax Audit Report as per section 44AB of the Act, which was processed under Section 143(1) and refund of ` 19,492/- was granted to the assessee. Subsequently, the case was selected for scrutiny as per Board's guidelines and notice under Section 143(2) of the Act was issued to the assessee on 21.9.2006. During the assessment year in question, the assessee company's share capital increased from ` 1,31,27,750/- in the previous year to ` 3,81,83,750/-. The issue of increase in share capital was thoroughly examined under section 133(6) of the Act. Reference was also made to the Additional DIT(Inv.) Unit No.IV, New Delhi for verifying the genuineness of contribution made to share capital of the assessee company and credit worthiness of M/s Aglow Financial Services Pvt. Limited, Creative Capital Services Limited and RDP Finance Pvt. Limited vide letter dated 9.5.2007. The DDIT(Inv.), Unit IV(3), New Delhi after investigating the matter observed that all the three companies were running on papers without any office being actually run and none of the Directors of the company actually appeared to verify the genuineness of these companies and transactions made by them. Assessment was completed under section 143(3) of the Act vide order dated 28.12.2007, Annexure A.1 making addition of ` 20,00,000/- under Section 68 of the Act on account of share application money. Feeling aggrieved, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 16.9.2008, Annexure A.2, the CIT(A) partly allowed the appeal, sustaining GURBAX SINGH 2014.10.14 10:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.665 of 2009 (O&M) 3 the addition of ` 20,00,000/- made by the Assessing Officer. Still not satisfied, the assessee filed appeal before the Tribunal. Vide order dated 30.4.2009, Annexure A.3, the Tribunal partly allowed the appeal, deleting the addition of ` 20,00,000/-. Hence the instant appeal by the revenue. 3. We have heard learned counsel for the parties and perused the record. 4. Learned counsel for the revenue relied upon the report of DDIT (Inv.) Unit No.-IV New Delhi to submit that the said officer after conducting investigation had recorded that the three companies namely M/s Aglow Financial Services Pvt. Limited, Creative Capital Services Limited and RDP Finance Pvt. Limited were bogus companies. In such a situation, the addition was rightly made by the Assessing Officer and sustained by CIT(A). It was urged that the Tribunal had erred in reversing the same on irrelevant considerations holding that the transactions were genuine. The finding being based on non consideration of material evidence, was vitiated. 5. On the other hand, learned counsel for the assessee besides supporting the order passed by the Tribunal contended that the transactions were genuine and in view of judgment of the Apex Court in CIT vs. Lovely Exports Pvt. Limited, (2008) 216 CTR 195 (SC) and judgment of this Court in Commissioner of income Tax II, Ludhiana vs. M/s Shree Dadu Auto (P) Limited, ITA No.704 of 2009, decided on 30.3.2010, the Tribunal had rightly deleted the addition. 6. After hearing learned counsel for the parties, we find force in the submissions of learned counsel for the revenue. 7. A perusal of the assessment order shows that as per GURBAX SINGH 2014.10.14 10:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.665 of 2009 (O&M) 4 investigation conducted by the DDIT(Inv.) New Delhi, all the three companies were being run on papers without any office being actually run and none of the directors of the company actually appeared to verify the genuineness of these companies and transactions made by them. While examining the records of first company i.e. M/s Aglow Financial Services Private Limited, it was noticed that when summons were issued on 6.8.2007, no compliance was made on 13.8.2007. The telephone numbers given in the letter head of the company were also non existing. On perusal of the details collected, it was found that the application for allotment of shares to M/s Cheema Boilers Limited by the aforesaid three companies was not in proper form and bore no date. It was concluded that genuineness of the affairs of the company was not proved and it was being run purely by Shri Sudhir Kumar Aggarwal, CA in the names of Shri Atul Kumar Aggarwal and Mrs. Rajni Khetarpal whose correct residential addresses were not provided by him. He had been controlling the affairs of all the three companies himself as these companies were previously incorporated by him but later on he became the director of these companies. None of the directors had actually appeared to verify the genuineness of these companies and the transactions made by them. The source of ` 5 lacs given to M/s Cheema Boilers Limited was also not proved. Similar was the position in respect of second and third company i.e. Creative Capital Services Limited and RDP Finance Pvt. Limited. Since the assesee had failed to rebut the report of the DDIT(Inv.), addition of ` 20 lacs under Section 68 of the Act was made to the income of the assessee on account of share application money. The addition was sustained by the CIT(A). GURBAX SINGH 2014.10.14 10:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.665 of 2009 (O&M) 5 However, the Tribunal deleted the addition and had not appreciated that the three companies were not genuine from whom the assessee had shown to have received amount on account of share application money. The Tribunal has allowed the appeal without assigning any cogent and convincing reasons to upset the findings of the Assessing Officer and the CIT(A). 8. In view of the above, it is clear that since the three companies themselves with whom the respondent assessee was dealing, were bogus and the transactions made by them were not genuine, therefore, the addition made by the Assessing Officer and sustained by the CIT(A) was valid. The finding recorded by the Tribunal deleting the addition cannot be sustained. The judgments relied upon by the learned counsel for the assessee in Lovely Exports Pvt. Limited and M/s Shree Dadu Auto (P) Limited 's cases being based on individual fact situation involved therein do not come to the rescue of the assessee. Consequently, the substantial question of law is answered in favour of the revenue and against the assessee. As a result, the appeal stands allowed. (Ajay Kumar Mittal) Judge September 10, 2014 (Fateh Deep Singh) 'gs' Judge GURBAX SINGH 2014.10.14 10:32 I attest to the accuracy and integrity of this document High Court Chandigarh "