DCIT CENTRAL CIRCLE-13, NEW DELHI V. BAR INVESTMENTS AND FINANCE PRIVATE LIMITED, NEW DELHI

ITA 2165/DEL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0549 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-07-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 26-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund; Onus to prove; Bogus
• Section: 68; 271(1)(c); 69C; 143(3); 142(1); 205; 143(2); 192

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI BEFORE SH. S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SH. SUDHIR KUMAR, JUDICIAL MEMBER ITA No.2165/Del/2023 Assessment Year: 2016-17 DCIT, Central Circle – 13, New Delhi Vs. Bar Investments and Finance Private Limited B- 64/1, Wazirpur Industrial Area, New Delhi-110052 PAN No. AAACB0955E (APPELLANT) (RESPONDENT) Appellant by Sh. Sanjay Kumar, CIT DR Respondent by Sh. Pradeep Dinodia,CA Sh. R.K. Kapoor, CA Sh. Ravi Kumar, CA Sh. Harish Dhamija, CA Date of hearing: 18/07/2024 Date of Pronouncement: 31/07/2024 ORDER PER SUDHIR KUMAR, JM: This appeal by the revenue is directed against the order of the Commissioner of Income Tax (Appeals)-28, New Delhi [hereinafter referred to as “CIT(A)”] vide order dated 16.05.2023 pertaining to A.Y. 2016-17 and arises out of the assessment order dated 24.12.2018 under section 143(3) of the Income Tax Act 1961 [hereinafter referred as ‘the Act’]. 2 2. Aggrieved by the order of the lower authorities, the revenue is in appeal before us by raising the following grounds:- “I. Whether on the facts and circumstances of the case, the Ld.CIT(A) is correct in deleting the addition made u/s 68 of the I.T. Act, 1961 amounting to Rs. 16,16,00,000/- by stating that the assessee has duly discharged the onus that lay upon its u/s 68 of the Act despite the fact that assessee has failed to prove the creditworthiness and genuineness of subscribers who have made investment in the assessee company. II. Whether on the facts and in law, the Ld.CIT (A) is correct in ignoring the facts that the fund which was credited in the bank account of the investor company was debited on the same day in which it was received. III. Whether on the facts and circumstances of the case the Ld.CIT(A) is correct in observing that requisite details and evidences were filed by the assessee to prove the creditworthiness and genuineness of the subscriber, despite the fact that based on their financial statements it was held that the subscriber companies are not doing any real business. IV. Whether on the facts and in law, the Ld.CIT(A) is correct in ignoring the facts that the creditworthiness and genuineness of the share subscribers from whom share capital was received is not proved since they were showing meager returned income with negligible income from operations. 3 V. Whether on the facts and in law, the Ld.CIT(A) is correct in deleting the additions made by the AO, ignoring, the judgement of the Hon'ble Apex Court in DCIT vs NRA Iron and Steel Pvt Ltd in civil appeal No. 29855 of 2018. VI Whether on the facts and in law, the Ld.CIT(A) is correct in deleting the additions ignoring the judgment of the Hon'ble Delhi High Court in the case of N.R Portfolio Pvt Ltd (ITA No. 1018/2011), wherein it is held that the transaction through bank accounts do not reflect the creditworthiness or even the genuineness of the transaction. VII. a) Whether on law and facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. (b)The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.” 3. The brief fact of the case is that the assessee company is a Non-Banking Financial Company incorporated on 26.06.1990 and is engaged in the business of investment and financing. The assessee company has filed its return of income on 25-07-2016 declaring total income of Rs 1,26,51940/-. The case was selected for limited scrutiny through CASS and notice were issued u/s 143(2) and 142(1) of the Act to the assessee. 4 3.1 During the course of the assessment proceedings it was observed that fresh share capital has been raised during the year for Rs.16.16 crores through issue of preference share to two entities viz. Critcare Marketing Pvt. Ltd. (Rs.5.63 crores) and Ziwani Barter Pvt. Ltd. (Rs.10.53 crores). The assessee was asked to substantiate the genuineness and creditworthiness of the allottee entities. 3.2 During the period under consideration, the assessee company has raised fresh share capital of Rs.16,16,00,000/- through the issue of 16,16,000 number of preference share at the face value of Rs.100/- each with no Security Premium. The assessee company has allotted such share capital at a zero premium to the following two companies/ entities :- S.No. Name of the Shareholder / Investor No. of Preference Shares Face Value Amount of Preference Share Capital 1 Ziwani Barter Private 10,53,000 100/- 10,53,00,000/- 2 Critcare Marketing Private Limited 5,63,000 100/- 5,63,00,000/- 4. The AO vide its notice dated 26.10.2018 has asked to substantiate the genuineness and creditworthiness of the allottee entities by furnishing their following documents :- 5 (i) Copy of relevant Banks Statements; (ii) Copy of Income Tax Return; (iii) Copy of Financial Statement. 5. The AO was not satisfied with the reply of the assessee. The AO has made the addition of Rs 16,16,00,000/-u/s 68 of the Act on account of unexplained income and on account of commission paid to entry operators RS 16,16,000/- total Rs 17,58,67,940/- and penalty proceedings u/s. 271(1)(c) r.w.s. 274 of the Act have also been initiated. 6. Aggrieved by the order of the AO the assessee has filed the appeal before Ld. CIT(A), who vide order dated 16-05-2023 allowed the appeal against which the revenue is in appeal before us. The Ld. CIT(A) has observed as under :- “6.2 Considering the findings discussed in para-5.3 above and also since there is no evidence on record that the appellant has taken accommodation entry, the addition made by the AO is not sustainable in the eye of law. Hence, the addition of Rs.16,16,000 made u/s. 69C of the Act by the AO is deleted and accordingly, the ground of appeal taken by the appellant is allowed.” 6 7. We have considered the rival arguments and perused the material available on record. 8. The Ld.DR has submitted that assessee has failed to discharge the onus required u/s of the 68 of the Act. He has further submitted that the assessee has failed to prove the genuineness of the transactions and creditworthiness of the companies. Reliance has placed on the following judgments;- 1. Principal Commissioner of Income Tax (Central)-1 vs NRA IRON Steel Pvt Ltd conclusion :- “SC reverses orders of lower appellate authorities and restores assessment order, upholds addition u/s. 68 for Rs. 0 cr. share capital/premium received by 17.60 co. during AY 2009-10 citing failure of assessee to establish the credit worthiness of the Assessee had submitted that the entire Share Capital was received through normal banking channels, further assessee had filed confirmations from the investor companies, their Return acknowledgments with PAN numbers, to establish the identity and genuineness of the transaction relying on Delhi HC ruling In Lovely Exports P P. Ltd.; Rejecting assessee's submission, SC remarks that The authorities below have erroneously held that merely because the Assessee had filed all the primary evidence, the onus on the Assessee stood discharged.": SC emphasizes that the practice of conversion of unaccounted 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."; SC refers to AO's independent and detailed enquiry, including survey of the so-called 7 investor companies from Mumbai, Kolkata and Guwahati, which revealed that i) the investor companies were non-existent and had no office at the address mentioned by the assessee, ii) there was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee co. at a high premium of Rs. 190 per share over face value of Rs. 10 per share, iii) the investor companies had filed returns for a negligible taxable Income, evidencing that they did not have the financial capacity to purchase shares at such high premium, iv) furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested; Observing that mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68, SC holds that the entire transaction seemed bogus, and lacked credibility; SC states that the lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations, cites plethora of rulings including co-ordinate bench rulings in Sumati Dayal, P. Mohankala, Roshan Di Hatti, Delhi HC rulings in N.R.Portfolio (P.) Ltd and NDR Promoters Pvt. Ltd, Guwahati HC ruling in Nemi Chand Kothari SC.” 2. N.R. Portfolio Pvt. (ITA no 1018/2011) held as under :- 31. The respondent herein is a Private Limited Company. It is not the case of the respondent that the Directors or persons behind the companies making the investment in their shares were related or known to them. It is highly implausible that an unknown person had made substantial investment in a private limited company to the tune of Rs.63,80,100/- and Rs.75,60,200/- in two consecutive assessment years 2002-03 and 2003-04 respectively without adequately protecting the investment and ensuring appropriate returns. Other than the share applications forms, no other 8 agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation attitude before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transactions is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and the purpose for which payment/ investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc cannot in all cases tantamount to satisfactory discharge of onus. The facts of the present case noticed above speak and are obvious. What is mistakenly visible and apparent, cannot be spurred by formal but unreliable pal evidence ignoring the patent and what is plain and writ large. 9 9. We have gone through the said judgments and we find that case the ld AO had made extensive enquiries and from that he found that some of the investor companies were non- existent which is not the case before us. In the instant case both the company details were furnished before the AO. Hence the decision relied upon by the Ld DR is factually distinguishable and does not advance the case of the revenue. 10. The Ld.AR for the assessee has submitted that the documents of the both companies were submitted before the AO. He has further submitted that Ziwani Barter Pvt and Critcare marketing Pvt Ltd is regular Income Tax assessee and the Income tax return of both the companies were submitted before the AO. The investment had made through bank channels. 11. We find that the assessee has successfully clear the doubts of the Ld. CIT(A) by producing relevant documentary evidences which was placed on record and there are no inaccurate particulars of the Income. The assessee had discharged the required onus by proving the genuineness of the transaction and creditworthiness of the company by filing the documents. Perusal of the order of the Ld CIT(A) reveals that the asessee has filed the financial statements and all other relevant 10 documents to prove the genuineness and creditworthiness of the companies. In the case of CIT vs Sophia Finance Ltd’s (1994) 205 ITR 98 (FB) Delhi the Hon’ble Delhi High Court held as under :- “17. It is neither necessary nor desirable to give examples to indicate under what circumstance section 68 of the Act can or cannot be invoked. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessed. In other words, the truthfulness of the assertion of the assessed regarding the nature the Income-tax Officer. In the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessed offers no explanation at all or the explanation offered is not satisfactory then the provision of section 68 may be invoked. In the latter case section 68, being a substantive section, empowers the Income-tax Officer to treat such a sum as income of the assessed which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessed. 11 18. We make it clear that we are not deciding, nor is it our intention to decide as to on whom and to what extent is the onus to show that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend on the facts of each case. 12. Thus, the addition made by the AO merely on the basis of suspicion and without any adverse findings are not found sustainable, hence the said additions of Rs.16,16,00,000/- u/s. 68 and Rs 16,16,000/- u/s 69 of the Act were rightly deleted by the ld. CIT(A). Hence, we do not find any reason to interfere with the findings of the Ld. CIT(A). The grounds raised by the revenue are dismissed accordingly. 13. In the result, the appeal of revenue is dismissed. Order pronounced in the open court on 31.07.2024. Sd/- Sd/- (S. RIFAUR RAHMAN) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *NEHA, Sr. PS* Date:-31.07.2024 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) ` 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI