H.M. Capital Services Ltd., V. ITO, Ward-12(4),

ITA 2002/DEL/2006

• Counselvise Citation: 200220114 RSA 2006
• Duration Of Justice: 8 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 21-08-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 01-06-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: R C RAI
• Keywords: Unexplained cash credit; Question of law; Onus to prove; Sham transactions
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H , NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2002 /DEL/2006 ASSESSMENT YEAR : 2002-03 H.M. CAPITAL SERVICES LTD., VS. ITO, WARD 12(4), 106, ASHOKA PALACE, NEW DELHI 877, EAST PARK ROAD, KAROL BAGH, NEW DELHI -5 GIR / PAN:AAACH1943E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. C. RAI, CA RESPONDENT BY : SHRI SAMEER SHARMA, SR. DR ORDER PER T.S. KAPOOR, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. CIT(A) DATED 30.03.2006. THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL BUT THE CRUX OF GROUNDS OF APPEAL IS THE GRIEVANCE OF THE ASSESS EE WITH THE ACTION OF LD. CIT(A) BY WHICH HE HAD CONFIRMED THE ADDITION M ADE BY THE A.O. U/S 68 OF THE INCOME TAX ACT, 1961. THE ASSESSEE IS FU RTHER AGGRIEVED AS THE STATEMENT OF THE THIRD PARTY WHICH WAS RECORDED AT THE BACK OF THE ASSESSEE AND WHICH WAS USED FOR MAKING ADDITION U/S 68 OF THE ACT WAS NOT CONFRONTED TO IT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INVESTMENT COMPANY DEALING IN SALE AND PURCHASE OF SHARES. DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DECLARED A TURNOVER OF RS.11,40,000/- WHICH INCLUDED SALE OF SHARES OF RAS.10.05 LACS AND COMMI SSION AT RS.1.35 LACS. ITA NO.2002/DEL/2006 2 THE A.O. NOTED FROM THE SUBMISSIONS OF THE ASSESSEE THAT THE ASSESSEE HAD DECLARED SALE FOR SEVEN UNLISTED SCRIPTS AND HAD AL SO MADE PURCHASES WORTH RS.27 LACS DURING THE YEAR. THE ASSESSEE WAS REQUIRED TO SUBSTANTIATE THE PURCHASE AND SALES MADE DURING THE YEAR AND FURTHER THE A.O. ISSUED NOTICE U/S 131 OF THE ACT THE BUYERS AN D SELLERS OF SUCH SCRIPTS. NOBODY APPEARED, THEREFORE, A.O. DEPUTED AN INSPECTOR TO VERIFY THE CLAIM OF THE ASSESSEE. THE INSPECTOR REPORTED THAT NONE OF THE ALLEGED PURCHASER HAD CONFIRMED ABOUT THE PURCHASES MADE FR OM THE ASSESSEE. THEREFORE, FINALLY ASSESSEE WAS REQUIRED TO PRODUCE THE PERSONS ALONG WITH RELEVANT DOCUMENTS AND IN THIS RESPECT THE ASS ESSEE PRODUCED THREE PERSONS WHO ADMITTED BEFORE A.O. OF HAVING MADE PUR CHASES FROM THE ASSESSEE COMPANY. HOWEVER THE A.O. DID NOT FIND CR EDITWORTHINESS OF THE SAID PURCHASERS. THEREFORE, HE HELD THAT SALES MAD E BY THE ASSESSEE WERE BOGUS AND MADE THE ADDITION OF SALE PROCEEDS OF SAL ES AS UNEXPLAINED CASH CREDITS U/S 68 OF THE ACT. THE APPEAL BEFORE LD. CIT(A) DID NOT RESULT INTO ANY RELIEF TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THE A SSESSEE HAD DECLARED SALES OUT OF PURCHASES MADE IN THE EARLIER YEARS WH ICH WERE REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY AND IN TH IS RESPECT, OUR ATTENTION WAS INVITED TO PAPER BOOK PAGE 8 WHERE A COPY OF THE BALANCE SHEET HIGHLIGHTING THE FIGURES FOR FINANCIAL YEAR 3 1.03.2001 AND 31.03.2002 WERE PLACED. THE LD. A.R. INVITED OUR A TTENTION TO SCHEDULE C AND SUBMITTED THAT THE FIRST SIX SCRIPTS MENTIO NED IN THE SCHEDULE C WERE SOLD DURING THE YEAR ALONG WITH FOUR LACS WORT H OF SHARES OF H M SECURITIES LTD. WHICH WERE PURCHASED AND SOLD IN TH E YEAR ITSELF. THE LD. A.R. SUBMITTED THAT ONCE THE ASSESSEE HAD SUBMITTED THE NAMES AND ADDRESSES OF THE PURCHASES OF THE SHARES, IT WAS NO T REQUIRED TO FURTHER SUBSTANTIATE THEIR CREDITWORTHINESS AS THIS WAS NOT A CASE OF CASH CREDIT BUT ITA NO.2002/DEL/2006 3 WAS A CASE OF SALES MADE BY IT. IT WAS SUBMITTED T HAT IN A SIMILAR CASE IN ONE OF THE GROUP COMPANIES, SIMILAR ISSUE HAD AROSE IN I.T.A.NO. 3374 AND THE TRIBUNAL VIDE ORDER DATED 17.05.2013 HAS DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. LD. A.R. FURTHER RELIED UP ON THE CASE LAW OF ITO VS KAUTILYA MONETARY SERVICES PVT. LTD. IN I.T.A.NO . 4738, WHICH WAS DECIDED BY INCOME TAX APPELLATE TRIBUNAL DELHI BENC H ON 29.02.2012. 4. ON THE OTHER HAND, LD. D.R. SUBMITTED THAT THE A LLEGED PURCHASERS OF SHARES WERE PERSONS WITH MEAGER RESOURCES AND CA NNOT BE EXPECTED TO HAVE MADE PURCHASES OF SHARES SPECIFICALLY IN VIEW OF THE FACT THAT EARLIER THEY HAD DENIED TO HAVE MADE ANY PURCHASES FROM THE ASSESSEE. LD. D.R. INVITED OUR ATTENTION TO THE FINDINGS RECORDED BY T HE A.O. IN THIS RESPECT. IT WAS FURTHER SUBMITTED THAT EVEN PURCHASES MADE D URING THE YEAR WERE ALSO NOT GOT VERIFIED. IN VIEW OF THE ABOVE, IT WA S SUBMITTED THAT CREDITWORTHINESS AND GENUINENESS OF TRANSACTION WAS NOT PROVED AND LD. CIT(A) HAD RIGHTLY CONFIRMED THE ADDITION. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT SIMILAR ISSUE AROSE IN I.T.A.NO. 3374/DEL/2008 IN THE CASE OF H M CONSULTANTS PVT. LTD. A GROUP COMPANY OF ASSESSEE WHEREBY THE HON'BLE TRIBUNAL HA S DISCUSSED SIMILAR ISSUE VIDE PARA 10-14 WHICH IS REPRODUCED BELOW: 10. THIS IS A CASE OF SALE OF SHARES. IN OUR VIEW IN A CASE OF SALE OF STOCK-IN-TRADE, THE BURDEN OF PROOF OF THE ASSES SEE GETS DISCHARGED ONCE IT PROVES THE IDENTITY OF THE PERSO N AND GENUINENESS OF THE TRANSACTION. REGARDING THE CAPA CITY OF THE PERSON TO MAKE THE PURCHASE, THE BURDEN IS DEFINITE LY NOT TO THE EXTENT AS IT IS REQUIRED TO BE PROVED, IN THE CASE OF A LOAN OR A CASH CREDIT. 11. WE MAY SAY SO BECAUSE WHEN A TRADER SELLS HIS G OODS, IT WOULD NOT BE POSSIBLE FOR HIM TO EXAMINE THE CREDIT WORTHINESS OF EACH AND EVERY PURCHASER OF GOODS AND TO DEMONSTRAT E THE SAME BEFORE THE A.O. THE TEST THAT HAS TO BE APPLIED IN CASE OF CASH CREDIT THAT ARISES FROM A SALE OF STOCK IN TRADE IS DIFFERENT FROM THE TEST THAT HAS TO BE APPLIED TO A CASH CREDIT IN THE CASE OF A LOAN OR A ITA NO.2002/DEL/2006 4 DEPOSIT. IN THE CASE OF SALE, THE ASSESSEE CONVERT S HIS ASSET IN THE FORM OF A STOCK IN TRADE, INTO AN ASSET IN THE FORM OF CASH. THIS IS DIFFERENT FROM A LOAN TRANSACTION WHERE THE ASSESSE E RECEIVES CASH AGAINST PROMISE OF REPAYMENT. 12. WE APPLY TESTS TO THE FACTS OF THE CASE. THE U NDISPUTED FACT IS THAT THE ASSESSEE HAD AS ITS CLOSING STOCKS OF SHAR ES. THE IDENTITY OF HT BUYER OF SHARES HAS BEEN PROVED AS THEY APPEARED BEFORE THE A.O. AND HAD NOT ONLY CONFIRMED THE TRANSACTION BUT ALSO TRIED TO EXPLAIN THE SOURCES FOR ACQUISITION. THUS THE ADDI TION IN QUESTION, IN OUR CONSIDERED OPINION CANNOT BE SUSTAINED. IF THE PURCHASER OF THE SHARES HAS NO CAPACITY TO PURCHASE, THEN AN ADD ITION IF ANY MAY BE CONSIDERED IN THE HANDS OF THE PURCHASERS AND NO T IN THE HANDS OF THE ASSESSEE. 13. THE ASSESSEE RELIED ON THE JUDGEMENT IN THE CAS E OF CIT, NEW DELHI VS. MEDSHAVE HEALTH CENTRE LTD. IN I.T.A.NO. 124/2010 DT. 09.02.2010. THE HON'BLE DELHI HIGH COURT IN THAT CASE HELD AS FOLLOWS: 5. THE TRIBUNAL NOTICED THAT THE ASSESSEE HAD FILE D THE CONFIRMATION LETTER OF M/S. RAMESH CHAND INDUSTRIES LTD. BEFORE THE CIT(A). FURTHER, THE ASSESSEE HAD PRODU CED A COPY OF THE LEDGER ACCOUNT IN THE CASE OF M/S. RAME SH CHAND. INDUSTRIES LTD. IN THE BOOKS OF M/S. SILVE R STREAKS TRADING PVT. LTD. BEFORE THE AO IN REMAND PROCEEDIN GS. FURTHERMORE, IT WAS NOTICED BY THE TRIBUNAL THAT TH E SALE OF SHARES TO M/ S SILVER STREAKS TRADING. PVT. LTD. WA S REFLECTED IN THE BOOKS OF THE ASSESSEE AND THAT THESE AMOUNTS WERE ALSO SHOWN AS ADVANCE IN THE BALANCE SHEET OF THE A SSESSEE COMPANY AND AS A CREDIT IN THE BALANCE OF M/S. SILV ER STREAKS TRADING PVT. LTD. AS ON THE 31ST MARCH, 200 3. CONCERNING THE PAYMENT MADE BY M/S SILVER STREAKS T RADING PVT. LTD., IT WAS FOUND THAT THE SAME WAS MADE IN O CTOBER- NOVEMBER, 2003 BY ACCOUNT PAYEE CHEQUES AND A CERTI FICATE FROM CORPORATE BANK IN THIS REGARD WAS PRODUCED BEF ORE THE AO IN THE REMAND PROCEEDINGS, WHICH WAS FORWARDED T O THE CIT(A) BY THE AG. THEREFORE, THE TRIBUNAL CAME TO T HE CONCLUSION THAT IT WAS CLEAR THAT THE ASSESSEE COMP ANY HAD BEEN HOLDING THE SHARES WHICH WERE SOLD BY IT DURIN G THE YEAR AND THAT IT WAS ON THIS BASIS THAT THE ID. CIT (A) HAD ARRIVED AT A CONCLUSION THAT THERE WAS NO REASON TO HOLD THAT THE ASSESSEE COMPANY DO NOT OWN THESE SHARES. ITA NO.2002/DEL/2006 5 THEREFORE, THE TRIBUNAL OBSERVED: THAT THERE WAS NO REASON TO HOLD THESE TRANSACTIONS TO BE SHAM TRANSACTIONS OR THE CREDITS TO BE UNEXPLAINED CASH CREDITS. 6. THE FINDINGS ARRIVED AT BY THE TRIBUNAL ARE PURE FINDINGS OF FACT AND WE DO NOT FIND ANY ERROR IN THEM SO AS TO WARRANT INTERFERENCE BY THIS COURT. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION AND CONSEQUENTLY THE A PPEAL IS DISMISSED. THIS CASE LAW SUPPORTS THE CASE OF THE ASSESSEE. 14. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. 6. WE FIND THAT THE ISSUE IN THE YEAR UNDER CONSIDE RATION IS PERI MATERIA TO THE ISSUE DECIDED BY THE TRIBUNAL IN THE CASE OF GROUP COMPANY OF THE ASSESSEE. MOREOVER, WE FIND THAT THE ASSESSE E HAD DECLARED THE SHARES IN ITS BALANCE SHEET OF EARLIER YEAR AS IS A PPARENT FROM THE PAPER BOOK PAGE 8 AND THEREFORE IT IS NOT A CASE OF CASH CREDIT BUT IT IS A CASE OF SALE OF SHARES WHICH WAS ALREADY EXISTING IN THE BA LANCE SHEET OF THE COMPANY AND ITS OPENING STOCK WAS NOT DOUBTED BY TH E A.O. THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE TRIBUNAL ORDER IN THE CASE OF GROUP COMPANY OF THE ASSESSEE, WE HOLD THAT LD. CIT(A) HAS NOT DECIDED THE ISSUE IN ITS RIGHT P ERSPECTIVE AS IT IS NOT A CASE OF CASH CREDIT BUT ONLY ONE ASSET IN THE FORM OF SHARES HAS BEEN CONVERTED INTO ANOTHER ASSET AND THAT IS CASH. THE REFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN VIEW OF THE ABOVE, APPEAL OF THE ASSESSEE IS ALLOWED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEP., 2014. `SD./- SD./- ( I. C. SUDHIR ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 30 TH SEP., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT ITA NO.2002/DEL/2006 6 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING DATE OF DICTATION DATE OF TYPING DATE OF ORDER SIGNED BY BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.