M/s. Sindwave Finance Services Ltd., New Delhi V. ITO, New Delhi

ITA 3592/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82208 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 28-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 27-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Business income; Share purchase agreement; Additional evidence; Notional interest
• Section: 133A; 147; 131; 68; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 3592, 4330, &4331 /DEL/2010 A.Y. 2003-04, 2002-03 & 2004-05 RESPECTIVELY SINDWAVE FINANCE SERVICES LTD. VS. INCOME-TAX OFFI CER, 250, BLOCK NO. 3, TRIBHUVAN COMPLEX, WARD-8(4), NE W DELHI. ISHWAR NAGAR, NEW DELHI. PAN: AAAGCS 2744 C ITA NO. 3951 & 4558/DEL/2010 A.Y. 2003-04 & 2002-03 RESPECTIVELY INCOME-TAX OFFICER, VS. SINDWAVE FINANCE SERVICES L TD. WARD-8(4),NEW DELHI. 250, BLOCK NO. 3, TRIBHUVAN C OMPLEX, ISHWAR NAGAR, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI SALIL KAPOOR ADV. & SHRI VIKAS JAIN ADV. DEPARTMENT BY : SHRI SATPAL SINGH SR. DR DATE OF HEARING : 28-11-2014 DATE OF ORDER : 30-12-2014. O R D E R PER S.V. MEHROTRA, A.M:- THE ASSESSEE AS WELL AS THE DEPARTMENT ARE IN CROSS APPEALS AGAINST RESPECTIVE ORDERS OF LD. CIT(A) FOR A.YS. 2002-03 A ND 2003-04. FURTHER, THE ASSESSEE HAS ALSO PREFERRED APPEAL AGAINST THE ORDE R OF CIT(A) FOR A.Y. 2 2004-05. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP CROSS APPEALS FOR A.Y. 2003-04. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY REPORTED THAT IT EARNED BUSINESS RECEIPTS FROM SALE OF SHARES. THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME A T RS. 24,093/-, WHICH WAS PROCESSED U/S 143(1). THE CASE WAS REOPENED U/S 147 OF THE ACT ON THE BASIS OF FACTS UNEARTHED FROM THE MATERIAL GATHERED DURIN G THE COURSE OF SURVEY OPERATION U/S 133A OF THE ACT ON 24-11-2004. THE AO HAS REFERRED TO VARIOUS BOOKS OF ACCOUNT, REGISTERS, FILES ETC., I NCLUDING BLANK SHARE CERTIFICATES (PURPORTEDLY ISSUED TO SHARE-HOLDERS, BUT ACTUALLY IN CUSTODY OF THE COMPANY PLUS SHARE APPLICATIONS IN 78 PAGES), W ERE IMPOUNDED. FURTHER, STATEMENT OF SH. SURESH SINDHU S/O D.S. SINDHU AND DIRECTOR OF THE ASSESSEE COMPANY WAS RECORDED ON OATH U/S 131 OF THE ACT DUR ING THE COURSE OF SURVEY ON 24-11-2004. THE AO HAS FURTHER OBSERVED T HAT ON 6 PAGES INKED IMPRESSIONS OF MORE THAN 100 RUBBER STAMPS WERE ALS O TAKEN. HE HAS OBSERVED THAT THESE RUBBER STAMPS OF VARIOUS COMPAN IES, INCLUDING ONE RUBBER STAMP OF CENTRAL BANK OF INDIA, MORI GATE BR ANCH, DELHI, WERE FOUND IN THE PREMISES UNDER THE CONTROL AND OCCUPATION OF ASSESSEE COMPANY. THE AO HAS OBSERVED THAT IN COURSE OF HEARING, NECESSAR Y DETAILS WERE CALLED FOR. 3 HOWEVER, HUGE NUMBER OF QUERIES REMAINED UNANSWERED . THE BOOKS OF A/C( NEITHER FOUND NOR IMPOUNDED DURING THE SURVEY OPERA TION), WERE NOT PRODUCED DURING ASSESSMENT PROCEEDINGS. ON EXAMINAT ION OF IMPOUNDED BOOKS OF A/C, THE AO NOTICED THAT CASH BOOK FOR FY 2002-03 AND 2003-04 CONTAINED NEGATIVE BALANCES AT NUMEROUS POINTS OF T IME AND, THEREFORE, REJECTED THE BOOKS OF A/C. HE COMPLETED THE ASSESS MENT ACCORDINGLY U/S 144 OF THE ACT. THE AO NOTICED THAT ASSESSEE COMPANY HAD RAISED SHARE CAPITAL AND ENHANCED THE CAPITAL W.E.F. AY 2001-02 TO 2003- 04 AS UNDER: A.Y. PAID UP CAPITAL FRESH ADDITION TO CAPITAL 2001-02 1,30,95,000 RS. 67,75,000/- 2002-03 27,59,5000 RS. 1,45,00.000/- 2003-04 49,79,5000 RS. 2,22,000/- 3. ON THE BASIS OF STATEMENT OF SHRI S.K. SINDHU, T HE CONTENTS WHEREOF HAVE BEEN REPRODUCED FROM PAGES 7 TO 9 OF THE ASSES SMENT ORDER AND ON THE BASIS OF SHARE CERTIFICATES FOUND LYING WITH THE CO MPANY, WHICH HAD NOT BEEN ISSUED TO THE PARTIES CONCERNED, THE AO OBSERVED TH AT APPROXIMATELY 98% SHARE CERTIFICATES LYING WITH THE COMPANY WERE WITH OUT SIGNATURES OF THE DIRECTORS. POINTING OUT VARIOUS OTHER DISCREPANCIES , THE AO CONCLUDED THAT THE AMOUNTS RECEIVED ALLEGEDLY AS SHARE CAPITAL WER E NOT PROVED TO BE GENUINE. HE, ACCORDINGLY, MADE ADDITION OF RS. 2,22 ,00,000/- U/S 68. 4. FURTHER, HE NOTICED THAT ASSESSEE COMPANY HAD SH OWN SALES ON REVENUE ACCOUNT AT RS.7,15,000/- AND PURCHASES AT RS. 15,98 ,660/-. THE ASSESSEE HAD 4 CONTENDED BEFORE THE AO THAT SHARES WORTH RS. 2,14, 17,200/- WERE HELD AS INVESTMENT ON THE FIRST DAY OF THE FINANCIAL YEAR A ND PART OF THE SAME WERE SOLD AT COST PRICE FOR RS. 1,50,67,200/- AND FURTHE R FRESH PURCHASES WERE MADE AT RS. 2,97,50,000/-, WITH THE RESULT THAT TH E CLOSING VALUE OF INVESTMENT WAS AT RS. 3,61,00,000/-. AS THE ACCOUNT S OF THE ASSESSEE WERE NOT FOUND TO BE ACCEPTABLE BY THE AO, THEREFORE, HE HELD THAT ASSESSEE COMPANY HAD ACTUALLY NOT MADE ADDITIONAL PURCHASES OF SHARES AMOUNTING TO RS. 2,97,50,000/- BUT WAS PROVIDING CREDIT FACILITI ES TO CUSTOMERS IN THE GARB OF SHOWING TRANSACTION OF SALE/PURCHASE OF SHARES. HE, ACCORDINGLY, HELD THAT TOTAL ADDITIONAL PURCHASE AT RS. 2,97,50,000/- REPR ESENTED LOANS GIVEN DURING THE YEAR AND CLOSING BALANCE REPRESENTED OUTSTANDIN G LOANS. CONSIDERING THE PREVALENT RATE OF INTEREST IN BLACK MARKET ECONOMY AT 24% PER ANNUM, HE CONCLUDED THAT THE ASSESSEE COMPANY HAD EARNED INCO ME OUTSIDE ITS BOOKS OF ACCOUNT TO THE TUNE OF APPROXIMATELY AT RS. 54,00,0 00/-. HE, ACCORDINGLY, MADE THIS ADDITION ALSO U/S 68 OF THE ACT. 5. LD. CIT(A) CONFIRMED THE ADDITION OF RS. 2,22,00 ,000/- OBSERVING THAT HAVING REGARD TO THE MATERIAL PRODUCED THE IDENTITY , CREDITWORTHINESS OF THE SUBSCRIBERS AS WELL AS THE GENUINENESS OF THE TRANS ACTION COULD NOT BE ESTABLISHED BY THE ASSESSEE. 5 6. AS REGARDS THE ADDITION OF NOTIONAL INTEREST OF RS. 54 LACS, LD. CIT(A) DELETED THE SAME OBSERVING THAT SINCE THE ADDITION WAS NOT SUPPORTED BY ADDITIONAL DOCUMENTS OR EVIDENCE TO ARRIVE AT SUCH CONCLUSION AS MADE BY THE AO, THE SAME DESERVES TO BE DELETED. 7. THE ASSESSEE IS IN APPEAL AGAINST THE SUSTENANCE OF ADDITION AND THE REVENUE HAS PREFERRED APPEAL AGAINST THE DELETION O F ADDITION BY THE LD.CIT(A). 8. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE REFER RED TO GROUND NOS. 7 & 8 TAKEN BEFORE THE TRIBUNAL, WHICH READS AS UNDER: 7. THAT IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDE RING THE APPLICATION FILED UNDER RULE 46A AND THE EVIDENCES FILED BEFORE HIM. THE CIT(A) HAS FAILED TO DEAL WITH THE APPLICA TION UNDER RULE 46A AND EVIDENCES FILED BEFORE HIM. 8. THAT IN VIEW OF FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDE RING THE APPLICATION FOR ADDITIONAL GROUNDS FILED BEFORE HIM . THE CIT(A) HAS FAILED TO APPRECIATE THAT ALL ADDITIONAL GROUND S RAISED BY APPELLANT WERE LEGAL IN NATURE AND SHOULD HAVE BEEN ADMITTED. THE RELEVANT FACTS ARE ALREADY ON RECORD AND NO NEW FACT IS REQUIRED TO BE INVESTIGATED. 9. LD. COUNSEL FOR THE ASSESSEE REFERRED TO COPY O F APPLICATION UNDER RULE 46A OF THE INCOME-TAX RULES, FILED BY THE AS SESSEE BEFORE THE LD. CIT(A), WHICH IS CONTAINED AT PAGES 224 TO 226 OF T HE PB. LD. COUNSEL SUBMITTED THAT ASSESSEE SOUGHT TO FILE THE ACKNOWLE DGMENT OF THE INCOME-TAX 6 RETURN/ EVIDENCE OF ASSESSMENT OF THE SUBSCRIBER SH ARE HOLDERS, WHOSE SHARE APPLICATION MONEY HAS BEEN ADDED AS UNEXPLAINED CAS H CREDIT. BESIDES, THE ASSESSEE ALSO SOUGHT TO RELY ON THE BALANCE-SHEET O F THE SHARE-HOLDERS IN QUESTION, WHICH WAS IN PUBLIC DOMAIN. HE POINTED O UT THAT APART FROM REQUIRING THE ASSESSEE TO FILE THE CONFIRMATION OF THE SUBSCRIBERS OF THE SHARE APPLICATION, THE AO DID NOT ASK FOR ANY OTHER DETAI LS. 10. LD. COUNSEL FURTHER POINTED OUT THAT AS REGARDS THE FINDINGS RELATING TO NEGATIVE CASH BALANCES, RECORDED BY AO, THE ASSESSE E SOUGHT TO FILE THE CERTIFICATE FROM DIRECTOR ABOUT THE CONTRIBUTION OF THE CASH POINTING OUT THAT AO HAD NOT DURING ASSESSMENT PROCEEDINGS REQUIRED T HE ASSESSEE TO FURNISH ANY EXPLANATION OR EVIDENCE TO EXPLAIN THE DEFICIEN CY OF CASH. IT IS FURTHER STATED IN THIS APPLICATION THAT AS REGARDS THE ADDI TION OF RS. 54 LACS ON ACCOUNT OF NOTIONAL INCOME, THE AO HAD SIMPLY REQUI RED THE DETAILS OF THE INVESTMENTS MADE AND NO FURTHER DETAILS WERE REQUIR ED BY THE AO DURING ASSESSMENT PROCEEDINGS. THE ASSESSEE SOUGHT TIME T O FILE EVIDENCE IN SUPPORT OF THE CONTENTION THAT THE INVESTMENT IN Q UESTION WAS NOT LOAN AND ADVANCE BUT WAS INVESTMENT IN SHARES ON WHICH NO IN COME HAD BEEN EARNED BY THE ASSESSEE. 7 11. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. CIT(A) DID NOT ADJUDICATE THE ADDITIONAL GROUNDS TAKEN BEFORE HIM AS ALSO THE ADDITIONAL EVIDENCE FILED. HE REFERRED TO THE APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL CONTAINED AT PAGES 227 AND 228 O F THE PB, WHICH HAD ALSO NOT BEEN ADJUDICATED BY LD. CIT(A). HE SUBMITTED TH AT CONSIDERING THE ASSESSEES APPLICATION FOR ADDITIONAL GROUNDS AND THE ADDITIONAL EVIDENCE FILED BEFORE LD. CIT(A), WHICH ASSESSEE COULD NOT P RODUCE BECAUSE AO AS HE HAD NOT ASKED FOR ANY FURTHER DETAILS THE SAME MAY BE ADMITTED AND MATTER MAY BE RESTORED BACK TO THE FILE OF AO FOR DE NOVO CONSIDERATION. 12. AS REGARDS THE APPEAL FILED BY THE DEPARTMENT IN REGARD TO DELETION OF NOTIONAL INCOME, LD. COUNSEL SUBMITTED THAT THIS MA TTER MAY ALSO BE RESTORED TO THE FILE OF AO FOR DE NOVO CONSIDERATION. 13. LD. DR HAD NO OBJECTION IN RESTORING THE MATTER TO THE FILE OF AO. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND FIND THAT AT PAGES 224 TO 226 OF PAPER BOOK, COPY OF APPLICAT ION UNDER RULE 46A IS CONTAINED, AND AT PAGES 227 AND 228 COPY OF APPLICA TION BEFORE LD. CIT(A) RAISING VARIOUS ADDITIONAL GROUNDS OF APPEAL IS CON TAINED. WE FIND THAT LD. CIT(A) HAS NOT EVEN REFERRED TO THE APPLICATION FIL ED BY ASSESSEE UNDER RULE 46A AS WELL AS THE ADDITIONAL GROUNDS TAKEN BEFORE HIM. WE, THEREFORE, AS AGREED BY BOTH PARTIES, RESTORE THE MATTER TO THE F ILE OF AO FOR DE NOVO CONSIDERATION. 8 IN THE RESULT BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. 15. IN A.Y. 2002-03 THE LD. CIT(A) HAS REFERRED TO THE APPLICATION FILED BY ASSESSEE UNDER RULE 46A, BUT HAS REJECTED THE SAME. IN A.Y. 2002-03 THE CIT(A) HAS ADJUDICATED ASSESSEES APPEAL BY FOLLOW ING HIS OWN ORDER FOR A.Y. 2003-04. IN AY 2003-04 WE HAVE RESTORED THE M ATTER BACK TO THE FILE OF AO FOR DE NOVO CONSIDERATION. FOR THE VERY SAME REASONS HEREIN ALSO WE RESTORE THE MATTERS INVOLVED IN CROSS APPEALS, BA CK TO THE FILE OF AO FOR DE NOVO CONSIDERATION. 16. AS REGARDS AY 2004-05, THE ISSUE OF NOTIONAL IN TEREST HAS BEEN RESTORED BY US TO THE FILE OF AO FOR DE NOVO CONSID ERATION. FOR THE SAME REASONS HEREIN ALSO WE RESTORE THE MATTER TO THE FI LE OF AO FOR DENOVO CONSIDERATION. 17. IN THE RESULT, ALL THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN OPEN COURT ON 30-12-2014. SD/- SD/- ( C.M. GARG ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30-12-2014. MP COPY TO : 1. ASSESSEE 2. AO 9 3. CIT 4. CIT(A) 5. DR