AI Insights
The case involves Maruti Tradexim Pvt. Ltd., a private limited company engaged in trading of fabrics, which filed an appeal against the order of the Commissioner of Income Tax (Appeals) confirming additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The additions pertained to Rs. 4,80,00,000 received as share capital and Rs. 9,60,000 as commission for arranging the entry of the said amount, both deemed unexplained by the tax authorities. The Tribunal dismissed the appeal, supporting the lower authorities' findings that the assessee did not satisfactorily establish the identity, creditworthiness, and genuineness of the transactions.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 302718 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 11 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-04-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Next Hearing Date
28-03-2023
Assessment Year
2012-2013
Appeal Filed On
13-05-2018
Judgement Text
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 3615/Del/2018 Asstt. Year: 2012-13 O R D E R PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals) - 33, New Delhi (“CIT(A)”) dated 22.12.2017 pertaining to the Assessment Year (“AY”) 2012-13. 2. The assessee has taken the following grounds of appeal: - “1. That the order of Ld. CIT(A) is perverse, erroneous on facts and law and is contrary to principles of natural justice and deserves to be set aside. 2. That the Ld. CIT (A) has erred in confirming an addition of Rs.4,80,00,000 U/s 68 on account of share capital as unexplained cash credit, this addition being arbitrary and contrary to the facts and provisions of law and is liable to be deleted. 3. That the Ld. CIT (A) has erred in confirming an addition of Rs.9,60,000 as ' unexplained expenditure as commission @2% paid on arranging entry of Rs.4,80,00,000/- which is baseless, Maruti Tradexim Pvt. Ltd. 4/32, 3 rd Floor, WEA Karol Bagh, New Delhi – 110 005 PAN AAHCM5403F Vs. ITO, Ward-16(2), New Delhi. (Appellant) (Respondent) Assessee by: None Department by : Shri Anil Kumar Sharma, Sr. DR Date of Hearing 29.03.2023 Date of pronouncement 26.04.2023 ITA No.3615/Del/2018 2 contrary to facts born on record and provision of law as such liable to be deleted. 4. That the Ld. CIT (A) has erred it confirming an addition of Rs.4,80,00,000 U/s 68 on account of share capital as unexplained cash credit and holding the same as income from undisclosed sources, this addition being arbitrary and contrary to the facts and provisions of law and is liable to be deleted. 5. That the Ld. CIT (A) has erred in confirming the penalty proceedings under sec 271 (1) (c) of the act, which is misconceived on facts and in law and hence liable to be filed. 6. The Ld. CIT (A) has acted arbitrarily, perversely and on presumption basis, contrary to the principles of natural justice, facts and provision of law in conducting the proceeding and framing the order and same stands vitiated being bad in law and liable to be quashed.” 3. Briefly stated, the assessee is a private limited company engaged in the business of trading of fabrics. For AY 2012-13 which is its first year (incorporated on 23.11.2011) it filed its return on 28.09.2012 declaring income of Rs. 8,164/-. Its case was selected for scrutiny under CASS. Statutory notices were issued and served. In response thereto, details were filed from time to time. The Ld. Assessing Officer (“AO”) made addition of Rs. 4,80,00,000/- under section 68 of the Income Tax Act, 1961 (the “Act”) and addition of Rs. 9,60,000/- being commission @ 2% on the aforesaid amount completing the assessment on total income of Rs. 4,89,68,164/- on 13.03.2015 under section 143(3) of the Act. 4. On the factual matrix of the addition under section 68 of the Act, the Ld. AO drew the legal conclusion as follows: “In view of the above, correct position of taw is that assessee has to furnish enough evidences which can convince the AO about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee’s knowledge, in this case the assessee has not been able to produce the director of the said alleged investor company despite asked for time and again, Moreover , mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and ITA No.3615/Del/2018 3 manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. The assesses is a Private Limited Company. It is not the case of the assessee that the Directors or persons behind the company making the investment in their shares were related or known to them. It is highly implausible that unknown persons had made substantial investment in a private limited company to the tune of Rs. 4.80.00.000/- without adequately protecting the investment and ensuring appropriate returns. Other than the confirmation/copy of balance-sheet and acknowledgement of ITR, MCA data etc. no other agreement between the respondent and third company had been placed on record. The director of the said company even did not attend in person for personal deposition in response to summons u/s 131 duly served two times. The persons behind this company was not produced by the assessee despite various opportunities provided. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction 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 ease. 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, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. It is also pointed out that 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 unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. In view of the aforesaid facts and legal position the claim of the assessee of having received share capital and share premium amounting to Rs. 4,80,00,000/- from the aforesaid corporate entity M/s Pushpanjali Export Pvt. Ltd. (now amalgamated with M/s Core International Ltd) is nothing but unexplained money of the assessee brought into its business in the guise of share capital/share premium. Therefore the same is added into the income of the assessee u/s 68 of the income Tax Act, 1961 as unexplained cash credit. And the same is held to be income from undisclosed sources.” 5. As regards addition on account of commission, the Ld. AO observed in para 18 of its order as under:- ITA No.3615/Del/2018 4 “Since, as discussed above, for getting the accommodation entry of the said amount of Rs.4,80,00,000/- the assessee has taken the services of the above party. For routing the money, the assessee has to pay commission to the said party. As per the prevalent rate known at the time which these entries are taken is @ 2%. This expenditure is also made out of the books of accounts. Therefore, the commission paid to the above company @ 2%, comes to Rs. 9,60,000/-i.e, (2% of Rs.4,80,00,000/-), is also added to the income of the assessee.” 6. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who confirmed both the additions by observing and recording his findings in para 8 to 8.22 of the appellate order which is reproduced below:- “8. Decision “8.1 Briefly, the facts of the case are that the Appellant introduced Rs.4,80,00,000/- as share capital in the name of M/s Pushpanjali Export Pvt. Ltd. during the FY 2011-12 relevant for AY 2012-13. The Appellant has credited the sums in the books of account on different dates from 03.12.2011 to 15.12.2011. The Assessing Officer issued notice u/s 133(6) dated 21 08.2014 to verify the identity and creditworthiness of the creditor and genuineness of the transaction. The Assessing Officer issued a summons u/s 131 dated 05.09.2014 to M/s Pushpanjali Export Pvt. Ltd. to record the statement of the competent authorized persons of the company in addition to various other details mentioned on page 4 of the Assessment Order. The Director of the said company did not appear personal as required in the summons u/s 131. However, a written reply was filed in the office of the Assessing Officer. The written reply included acknowledgement of ITR for AYs 2011-12 & 2012-13, copy of Balance Sheet and Profit & Loss Account for AY 2012-13 without any schedule and with extract of one page bank statement The Assessing Officer examined the financial statements of M/s Pushpanjali Export Pvt. Ltd. and noticed that the gross receipts were at Rs 17,78,245/-. The expenses were claimed at Rs. 16,84,544/-. The net profit was declared at Rs.93,700/-, however, the income shown in the ITR was Rs.2,795/-. The Assessing Officer issued notice u/s 133(6) to Punjab National Bank, G.T. Road, Azadpur, Delhi to obtain the bank statement of M/s Pushpanjali Export Pvt. Ltd. On perusal of the statement, the Assessing Officer found that there are entries of huge amounts both on credit and debit sides Thereafter, the Assessing Officer issued a questionnaire to the Assessee. In the notice, the Assessing Officer observed that the Assessee company was incorporated in FY 2011-12 itself. There are no fixed assets except with a computer and furniture & fixture of Rs.37,300/-. The Balance Sheet did not show any other assets like land, building or plant & machinery. The Assessing Officer asked for the justification to charge the premium @ Rs.490/- per share on the face value of Rs.10/- per share. The Assessing Officer also informed the Assessee about his analysis of the bank statement belonging to M/s Pushpanjali Export ITA No.3615/Del/2018 5 Pvt. Ltd. Total credit entries in this bank were Rs.24,42,38,270/- and total debit entries were at Rs.24,41,58,270/-. The Assessing Officer also informed about the income declared by M/s Pushpanjali Export Pvt. Ltd. in the Income Tax Return. The Assessing Officer required the Assessee to produce the principal officer / director of the creditor company for recording the statement. 8.2 From the information submitted by the Assessee the Assessing Officer found that M/s Pushpanjali Export Pvt. Ltd. was incorporated with the object of export & import of goods. It was informed that the name of M/s Pushpanjali Export Pvt. Ltd. was changed to M/s Anjaneyay Export Pvt. Ltd. w.e.f. 19.07.2013. With respect to the instruction of the As Officer to produce the director of M/s Pushpanjali Export Pvt. Ltd., submitted that penalty proceedings may be initiated for non compliance. Thereafter, the Assessee submitted copy of High Court order dated 06.08.2014 as per which 9 companies, including M/s Anjaneyay Export Pvt. Ltd., earlier M/s Pushpanjali Export Pvt. Ltd amalgamated with M/s Core International Ltd. The Assessing Officer issued a summons u/s 131 to the principal officer of M/s Core International Ltd. requiring him to appear in person for deposition. The Assessing Officer also informed about incomplete submission of details called for. The Assessing Officer noted that M/s Pushpanjali Export Pvt. Ltd. had invested in shares of Indian companies at Rs.21,45,50,000/- as on 31.03.2011 and Rs.17,02,85,000/- as on 31.03.2012. The Assessing Officer also asked to produce minutes registers of erstwhile M/s Pushpanjali Export Pvt. Ltd. for the FY 2011-12 alongwith original share certificates. The summons issued by Assessing Officer was received back unserved with the postal remarks “Left”. In the Assessment Order, the Assessing Officer has observed that earlier notices were being served on the same address. The Assessing Officer asked the authorized representative of the Assessee company to furnish current postal address of M/s Core International Ltd. On the next date of hearing, the director of M/s Core International Ltd. was not produced on the ground that he was station. 8.3 The Assessing Officer analyzed all the facts and documents in his possession and observed that the creditor company did not have any substantial assets. The entire funds were invested in the shares of other companies and loans / advances. Though this company was incorporated on 30.05.1985, it showed (-)2,40,012 in the reserves and surplus. The Assessing Officer could not ascertain as to what type of business the creditor company was doing in all these years. The creditor company showed the gross Receipts at Rs. 11,88,561/- in the year ending 31.03.2011. Profit of Rs.31,766/- was shown in this year. In the next financial year, gross receipts and net profit were shown at Rs.l7,78,245/- and Rs.93,700/- respectively. 8.4 The Assessing Officer has extracted the bank statement of M/s Pushpanjali Export Pvt. Ltd. on pages 11 to 16 of the Assessment Order Aggregate of credit entries on a single date was Rs.2,60,00,000/-. Most of the credit and debit entries were in the round figures of Rs. l0 lakhs, Rs.20 lakhs, Rs.30 lakhs, Rs.40 lakhs and Rs.50 lakhs. After every credit entry there is a debit entry of almost the same amount leaving nominal balance in the bank ITA No.3615/Del/2018 6 account. Total of the credits in the bank were Rs.24,42,38,270/- and total of the debit entries was Rs.24,41,58,270/-. The Assessing Officer also remarked that M/s Pushpanjali Export Pvt. Ltd must be having more bank accounts as deciphered from narration of the bank statement. The said bank statement was opened on 10.09.2008 and closed on 10.10.2013. The income declared by M/s Pushpanjali Export Pvt. Ltd in two Assessment Years was not inconsonance with the entries reflected in the bank statement. The Assessing Officer has relied on the following decisions : i) CIT vs. Divine Leasing and Finance Ltd. ii) McDowell & Co Limited, 154ITR148 iii) M/s Lovely Exports P. Ltd. iv) Sumati Dayal vs. CIT, 214 ITR 801 (SC) v) CIT vs. L.N. Dalmia, 207 ITR 89 (Cal) vi) Sunil Sidharatha vs. CIT, 156 ITR 507 (SC) vii) Mittal Belting and Machinery Stores vs. CIT, 253 ITR 341 (P&H) viii) CIT vs. Durga Prasad More, 82 ITR 540 (SC) ix) CIT vs. Neelkanth Ispat Udyog Pvt. Ltd. (Del) 8.5 On the basis of above discussion, the Assessing Officer held that the nature and source of share capital of Rs.4,80,00,000/- shown in the name of M/s Pushpanjali Export Pvt. Ltd. is not explained m the light of provisions of the Income Tax Act. Accordingly, the Assessing Officer added the amount u/s 68 of the I.T. Act. In addition to this, the Assessing Officer has also made the addition of Rs.9,60,000/- holding that the share Capital introduced in the books was not genuine but only a bogus entry for which the Assessee has paid commission @ 2% on the amount. 8.6 The Appellant, inter alia, submitted that it had filed confirmation, copy of the bank statement and copy of the Income Tax Return to the shareholder for AY 2012-13. The Appellant submitted that promoters bf M/s Maruti Tradexim Sh. Jai Bhagwan Gupta has very vast experience of trading, import and export. He is also a partner of M/s Sky World Exim having turnover above Rs.80 crores. The Assessee company was incorporated with the object of trading, import and export of good on a large scale and huge turnover. This was the reason for issued the shares at premium within the ambit of corporate and taxation laws of India. The Assessee submitted the following documents to prove the^ identity an creditworthiness of the creditor and genuineness of the transaction : A. Confirmation of Party B. Copy of ITR C. Share application forms D. Copy of Bank Statement E. Copy of MOA F. Copy of Name change certificate G. Copy of Company master data as per MCA records ‘ ITA No.3615/Del/2018 7 H. Copy of audited balance sheet having net owned funds than Rs.27.34 crores as on the beginning of the financial year 2011-12 I. Form 2 filed with ROC for allotment of shares 8.7 With respect to the creditworthiness of the creditor company light of meager net profit shown in the Income Tax Returns, it has been submitted that even a company incurring losses may have creditworthiness. The creditworthiness depends on its net worth. On the observation of the Assessing Officer that Assessee company has not given any dividend on its shares as the investments are made with profit motive, the Appellant has submitted that it is almost impossible for a company to earn sufficient profits to declare dividend amongst its shareholders in the initial years. By submitting the necessary documents, the Assessee company discharged its initial burden. The Appellant has also relied on various decisions in the written submission. Since, the submission of the Appellant has been part of this order, the decisions relief on by the Appellant are not mentioned again. 8.8 I have considered the facts of the case, submission of the Appellant and has also understood the provisions of law. Though the Appellant company has been reported to have been formed for the business of trading, export and import, no such activity has been carried out by the Appellant company during the year under consideration. The Appellant has not furnished any details about its business activity in subsequent financial years. The Appellant has failed to prove charge of premium of Rs.490/- per share for the shares of face value of Rs.10/-. Whatever explanation has been given by the Ld. AR for the Appellant does not appeal to the logic. The financial performance of the company could not justify such a huge premium being the first year of the business since incorporation. The creditworthiness of M/s Pushpanjali Export Pvt. Ltd. could never be proved by the Assessee or the creditor company itself which was apparently taking the funds from people and advancing them. The funds of M/s Pushpanjali Export Pvt. Ltd. mainly comprised of the loans and advances from others. The bank statement of M/s Pushpanjali Export Pvt. Ltd. clearly depicts the business activity and its worth. The creditor company was showing meager amounts in the Income Tax Returns. The Appellant has argued that the profit declared in the Income Tax Return alone cannot prove the creditworthiness. But question arises as to what for the creditor company was existing ? Was it for taking the loans from parties and advancing them or for earning some income ? If it had worth of many crores, did it earn income therefrom in any of the Assessment Years ? Even if Rs.25 crores or so is invested in the; banks it may fetch crores of income. But that is not the case of the creditor company. These facts clearly show that income is definitely an indicator for the creditworthiness of a company otherwise there is no use to invest its funds without earning any income. The Appellant company could not produce the director of M/s Pushpanjali Export Pvt. Ltd. who must close touch with the directors of the Appellant company because in the cases of private limited companies the funds are arranged from people in close touch. The director of the creditor company avoided his personal presence before the Assessing Officer on one pretext or the other. Summons sent to M/s Core International Ltd. was received back in the office of the Assessing Officer with ITA No.3615/Del/2018 8 the postal remarks “Left” while earlier letters were being served on the same address. The bank account of M/s Pushpanjali Export Pvt. Ltd. was opened on 10.09.2008 and closed on 10.10.2013 which normally happens in the cases of companies having little substance or nominal business activity. Many other facts which have been narrated in the order of the Assessing Officer are not being repeated here for the sake of brevity. 8.9 The Appellant failed to rebut the observations of the Assessing Officer stated above. The Appellant rather beats about the bush to defend its case. The courts have been holding that substance of any facts is more important than the form. In order to understand the substance of a particular thing or happening, it is important to look at the circumstantial evidences. With respect to the circumstantial evidence and in the matter related to the discharge of onus of proof and the relevance of surrounding circumstances of the case, the relevant observations and findings of Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More, are: "that though an appellant's statement must be considered real until it was shown that there were reasons to believe that the appellant was not the real, in a case where tie party relied on self-serving recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds, may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority conclusive by law." 8.10 The above ratio laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon’ble Apex Court in the case of Sumati Dayal vs. CIT 214 ITR 801 (S.C). It is essential on the part Assessing Officer to look into the real nature of transaction and what happens in the real world and eontextualize the same to such transactions in the real market situation. It is pertinent to state here, the wisdom of Hon'ble Supreme Court in CIT V Arvinda Raju (TN) (1979) 120 ITR 46 (S.C) wherein it was held that- "One day, in our welfare state geared to social justice, this clever concept of 'avoid a against 'evasion' may have to be exposed”. 8.11 Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (1985) 154 ITR 148 (S.C), wherein the Hon'ble Supreme Court has denounced tax avoidance, if not bonafide. The relevant part of the observation of the Hon'ble Supreme Court is reproduced hereunder: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong ITA No.3615/Del/2018 9 to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuge.” Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe. 8.12 Reliance is also place on the decision of the Hon'ble Supreme Court in the case of CIT vs P. Mohankala (15/05/2007) wherein the SC held that- "The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the essessee offers no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee coffers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion." 8.13 In this case the Hon'ble Supreme Court has decided the case in the favour of the revenue and set aside the decision of the Hon'ble Madras High Court regarding the transactions of gift received by Assessee even though these were done through banking channels, apparently giving the form of real one. 8.14 In this connection, I would also like to refer to the decision of the Hon'ble ITAT Bombay Bench 'B' (ITA No.614/Bom/87 A.Y. 1983 -84) in the case of M/s. Mont Blane Properties and Industries Pvt. Ltd., which was upheld by the Hon'ble Supreme Court. The Hon'ble Tribunal had held that the word 'evidence' as used in sec. 143(3) covered circumstantial evidence also. The word 'evidence' as used in sec. 143 (3) obviously could not be confined to direct evidence. The word 'evidence' was compressive enough to cover the circumstantial evidence also. Under the tax jurisprudence, the word 'evidence' had much wider connotations. WI word 'evidence' might recall the oral and documentary evidence as admissible under the Indian Evidence Act, the use of word 'material' in Sec.143(3) showed that the assessing officer, not being a court could rely material, which might not strictly be evidence ITA No.3615/Del/2018 10 admissible under the Evidence Act for the purpose of making an order of assessment. Court often took judicial notice of certain facts which need not be proved before The plain reading of section 142 and 143 clearly suggests that the as:: officer may also act on the material gathered by him. The word 'material’ clearly shows that the assessing officer is not fettered by the technical of evidence and the like, and that he may act on material which ir strictly speaking be accepted evidence in a court of law. 8.15 Further, it would be relevant to cite the decision of Hon'ble ITAT Delhi in the case of Hersh Win Chadha in I,T.A.Nos.3088 to 3098 & 3107/Del/2005 where the Hon'ble ITAT has held as under- “6.13. It would, at this stage, be relevant to consider the admissibility and use of circumstantial evidence in income tax proceedings. Circumstantial evidence is evidence of the circumstances, as opposed to direct evidence. It may consist of evidence afforded by the bearing on the fact to be proved, of other and subsidiary facts which are relied on as inconsistent with any result other than the truth of the principal fact. It is evidence of various facts, other than the fact in issue which are so associated with the fact in issue that taken together, they form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are — the circumstances alleged must be established by such evidence, as in the case of other evidence the circumstances proved must be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced; some of these li have to be inferred from the proved facts; in drawing those inferences or presumptions, the Authorities must have regard to the common course of natural events, to human conduct and their relation to the facts of the particular case. (5) The circumstantial evidence can, with equal facility be resorted to in proof of a fact in issue which arises in proceedings for the assessment of taxes both direct and indirect circumstantial evidence can be made use of in order to prove or disprove a fact alleged or in issue. In fact, in whatever proceedings or context inferences are required to be drawn from the evidence or materials available or lacking, circumstantial evidence has its place to assist the process of arriving at the truth”. 8.16 After going through the entirety of the circumstances and not getting in influenced by the picture shown by the Appellant, it can be confidently stated ITA No.3615/Del/2018 11 that the Appellant resorted to sham devices. The Assessing Officer has gone to the very root of the transactions after doing deep analysis of the facts and circumstances and after taking into account the various inputs available with him from different sources. The arguments forwarded by the Appellant fail to convince me to accept the genuineness of the transactions. 8.17 The Appellant has failed to substantiate his arguments in the light of the detailed discussion in this regard in the foregoing paras wherein it has been established that the Assessee introduced his unaccounted money in the garb of share capital. It is reiterated that what matters to decide a particular case is not the form but its real content. The Assessing Officer has successfully lifted the veil from the artful design of the transactions. In none of the case laws relied on by the Ld. AR for the Appellant the courts have supported deceitful transactions. 8.18 The earlier view of Hon'ble Delhi High Court in the cases Stellar Investment Ltd. 192 ITR 287 and Lovely Exports Pvt. Ltd., 299 IT1R 268 was that share capital cannot be added in the hands of the assessee company once the assessee furnishes PAN, addresses of the creditor/subscriber with copies of the shareholders register, share application forms, transfer register, etc. This would constitute sufficient explanation 1 assessee. The Hon'ble Supreme Court was in agreement with above decisions of Delhi High Court, however, on conclusion of facts only without answering the ratio laid down as sought to be pronounced by Delhi High Court [Ref: Hindustan Tea Trading Co. Ltd. vs CIT 263 ITR 289 (Kol)]. 8.19 However, subsequently, the above decisions of the Hon'ble Supreme Court and Delhi High Court have been considered by various Courts including Delhi High Court itself. Based on the findings of facts and detailed investigations, these courts have distinguished the observations of the Hon'ble Supreme Court in Stellar Investment Ltd and Lovely Exports Pvt. Ltd. and have upheld the invoking of section 68. i. CIT v. Nova Promoters and Finlease (P.) Ltd. [2012] 342 ITR 169 (Delhi) "The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete, particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing ITA No.3615/Del/2018 12 Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers’, whose business it is to help assessee bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan- a smokescreen – conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary". ii. `Hindusthan Tea Trading Co. Ltd. vs CIT 263 ITR 289 (Kol) "In Steller Investment Ltd.'s case [2001] 251 ITR 263, the apex court had parsed the following order: "We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs." From the above observation, it appears that the Supreme Court has not entered into the question involved or has not decided the ratio laid down. It had plainly held that it was a question of fact. The Supreme Court has not laid down any proposition with regard to the question. It was purely a question of fact with which the apex court had dealt with and was in agreement with the High Court on conclusion of facts. Therefore, it cannot be said that the Supreme Court answered the ratio laid down as sought to be propounded by the Delhi High Court in Stellar Investment Ltd. 's case [1991] 192 ITR 287. A decision becomes binding as a precedent only when the court decides a particular question of law or lays down through conscious adjudication The above decisions almost in one voice laid down that when such question arises, it is incumbent on the assessee to prove and establish the identity of the subscriber and prove their creditworthiness and the ITA No.3615/Del/2018 13 genuineness of the transaction. The furnishing of material is not sufficient. The income-tax authority has a right to pierce the veil and find out the real nature of the transaction. But once sufficient material is produced and explanation is given, the onus is discharged and shifted on the Revenue. Having regard to the materials, it might ask for further materials from the assessee or it might come to a conclusion on the materials so produced as it might in law arrive at. Once the materials are there, it is incumbent on the assessing authority to enquire into the same. It cannot overlook one or the other materials nor can it undertake a half-hearted enquiry”. iii. CIT V. Nipun Builders and Developers P. Ltd. [2013] 350 ITR 407 (Delhi) -the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders attendance. Some cases might require or justify visit by the inspector to ascertain whether the shareholders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the Assessing Officer should get the addresses from the Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable pragmatic and might in a given case take into account that the assessee might find if difficult to unimpeachably establish the creditworthiness of the shareholders”. iv. In CIT v. N. R. Portfolio Pvt. Ltd. [2014] 2 ITR-OL 68 (Delhi); [2014] 206 DLT 97 (DB) -Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness identity are deeper and obtrusive Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them”. ITA No.3615/Del/2018 14 v. CIT v. Gold Leaf Capital Corporation Ltd. [2013] 353 ITR163 (Delhi) The Hon'ble Court concurred with the view of the Hon'ble Tribunal and observed that: "The conduct of the assessee has been beautifully summarized by the Tribunal itself in the following manner: “All this is again indicative of the tact that in fact the assessee from day one of initiation of initial assessment proceedings was in a position to exercise control on the investing companies and still it withheld all the necessary information called for by the Assessing Officer, which could enable the Assessing Officer to test the genuineness of the transaction and creditworthiness of the investing companies by verifying the genuineness of the claims made by the assessee before the CIT (A) on the basis of those documents which the assessee filed for the first time before the CIT (A) during the 2nd inning or the appellate proceedings. Thus, it stands established that in fact the assessee produced only the information/documents/ person for recording statement called for by the Assessing Officer suited the interest of the assessee and intentionally withheld that information which did not suit the interest of the assessee." vi. CIT vs Navodaya Castles (P.) Ltd. [2014] 367ITR 306 (Delhi "13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company 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 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 have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. ITA No.3615/Del/2018 15 14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor, it is in this context, the Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) had observed:- ....” The Hon'ble Supreme Court rejected the SLP filed in the above case Navodaya Castle (P.) Ltd. Vs CIT [2015] 56 taxmann.com 18 (SC) with the observation: "We do not see any merit in this special leave petition, which is hereby dismissed”. vii. Onassis Axles P. Ltd. v. CIT [2014] 364 ITR 53 (Delhi) "14. Lovely Exports Pvt. Ltd. (supra) is an authority for the proposition. That the assesses is under an obligation to dispel any doubts regarding the genuineness of an investor and the genuineness of the transaction. Here, though the assessee furnished particulars relating to three share applicants, the further inquiry made Assessing Officer raised more questions than answers. The share applicants lack of resources, the assessee's position vis-a-vis share amounts received and its commercial condition all pointed to the amount received by it falling within the of section 68 as unexplained amounts. That the Assessing Officer or the Income- Tax Appellate Tribunal chose to treat the amount, as bogus share capital, is a matter of inference which the court would be loath to interfere with. 15. For the above reasons, this court answers the question framed, in favour of the Revenue and affirms the view of the Income-tax Appellate Tribunal. The appeal is, therefore, dismissed, with no order as to costs." viii. Commissioner of Income Tax-11 vs. Jan Sampark Advertisement & Marketing Pvt. Ltd. 2015-TIOL-600-HC-DEL-IT. "Since section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third part." Summary of legal principles as laid by Hon'ble Delhi High Court in above referred to cases for analysis of explanation of the assessee: ITA No.3615/Del/2018 16 It is evident from foregoing legal analysis that following parameters have been laid down in the decisions cited supra: o Mere production of incorporation details, PAN or the fact that third persons or company had filed Income Tax details may not be sufficient when surrounding and attending facts predicate a cover up. o Paper work like details of PAN, Income Tax Return, details of cheque and bank accounts indicate and reflect proper paper work or documentation but genuineness, creditworthiness and identity are deeper and obtrusive. o Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon individuals behind them who take the decision manage control the said companies. o It would be incorrect to state that the AO should get the addresses from Registrar of the Companies website or search for the addresses of shareholders and communicate with them. o Creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank accounts. Circumstances might require that there should be some evidence of positive nature to show cause that the said subscribes had made a genuine investment, acted as angle investors, after due diligence or for personal reasons. o Where there is admission before the investigation wing of the department that the subscribers to share capital had availed accommodation from bogus entry operators creditworthiness must be proved and these factual aspects and circumstances as proved before investigation wing cannot be simple to ignore. o Source of funding is important ingredient of the onus of the assessee. o It is not sufficient that the identity of the share application or creditors should be established for the assessee to discharge the initial onus which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and creditworthiness of the share applicant or the individual who is advancing amounts. 8.20 In view of the above facts and in the circumstances, I hold that the Appellant failed to prove the nature and source of share capital amounting to Rs.4,80,00,000/-. Therefore, the addition made u/s 68 of the Act Assessing Officer is confirmed. ITA No.3615/Del/2018 17 8.21 I also confirm the addition of Rs.9,60,000/- because that is consequential. Once it is established that the said creditor company advanced the funds to accommodate the Appellant company, that is not possible without charging commission. 8.22 Therefore, the above grounds taken by the Appellant are dismissed and the additions are confirmed.” 7. Dissatisfied, the assessee is before the Tribunal. 8. The case was fixed for hearing on 02.08.2021, 04.10.2021, 22.11.2021, 20.01.2022, 06.07.2022, 05.01.2023 and 29.03.2023. None appeared for and / or on behalf of the assessee company on any of the above dates, though the Ld. DR remained present on all the aforesaid dates of hearing. We have, therefore, no alternative but to proceed to decide the appeal ex-parte on merits after hearing the Ld. DR. 9. The Ld. DR strongly supported the order of the Ld. AO/CIT(A). 10. We have gone through the orders of the Ld. AO/CIT(A) and perused the records. The Ld. AO found credits amounting to Rs. 4,80,00,000/- in the name of M/s. Pushpanjali Exports Pvt. Ltd. in the books of account of the assessee on different dates from 03.12.2011 to 15.12.2011. He asked for explanation as to the nature and source of the above credit entries. The explanation offered by the assessee was put to test. It was not found satisfactory by the Ld. AO. We may refer to the decision in CIT vs. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal.) wherein the Hon’ble Calcutta High Court held that it is for the assessee to prove the identity of the creditor, his creditworthiness and the genuineness of transaction. Mere furnishing of particulars is not enough. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. For the cogent reasons recorded by the Ld. AO, he made the impugned addition under section 68 of the Act which has been upheld by the Ld. CIT(A). We ITA No.3615/Del/2018 18 endorse the findings of the Ld. AO/CIT(A) and reject ground No. 2, 3 and 4 of the assessee. 11. Ground No. 1 and 6 are of general nature. 12. Ground No. 5 relates to initiation of penalty proceedings under section 271(1)(c) of the Act which being pre-mature is dismissed. 13. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 26 th April, 2023. sd/- sd/- (SHAMIM YAHYA) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26/04/2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order
Other Referred Cases
CIT vs. Divine Leasing and Finance Ltd., McDowell & Co Limited, M/s Lovely Exports P. Ltd., Sumati Dayal vs. CIT, CIT vs. L.N. Dalmia, Sunil Sidharatha vs. CIT, Mittal Belting and Machinery Stores vs. CIT, CIT vs. Durga Prasad More, CIT vs. Neelkanth Ispat Udyog Pvt. Ltd., CIT vs. Gold Leaf Capital Corporation Ltd., CIT vs. Navodaya Castles (P.) Ltd., Onassis Axles P. Ltd. v. CIT, Commissioner of Income Tax-11 vs. Jan Sampark Advertisement & Marketing Pvt. Ltd.
Laws Referred To
Income Tax Act, 1961
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