ITO, New Delhi V. M/s Nicky Construction Pvt. Ltd., New Delhi

ITA 3858/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5513 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-08-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 11-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Share purchase agreement; Principle of natural justice; Source of fund; Accommodation entries; Reassessment proceedings
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO. 3858/DEL/2009 ASSESSMENT YEAR : 2001-02 ITO, WARD 13(2), ROOM NO. 338, C.R. BLDG., NEW DELHI. VS. NICKY CONSTRUCTION PVT. LTD., M-75, GREATER KAILASH, PART-1, NEW DELHI. PAN NO. AAACN2117Q (APPELLANT) (RESPONDENT) APPELLANT BY : SH. H.K. LAL, SR. D R RESPONDENT BY: NONE O R D E R PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST THE ORDER OF CIT(A) DATED 09.06.09 FOR A.Y. 2001-02. G ROUNDS OF APPEAL READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 28 ,00,000/- MADE BY AO U/S 68 OF THE I.T. ACT IGNORING THE ADVERSE E VIDENCE INCLUDING PATTERN OF TRANSACTION IN THE BANK STATEM ENT, THE ABSENCE OF REAL IDENTITY, CREDITWORTHINESS AND GENU INENESS, THE CONFESSIONAL STATEMENT GIVEN BY THE ENTRY OPERATOR AND THE COLLUSIVE EVASION OF ENQUIRIES INTO THE SOURCES OF DEPOSIT ETC. AS CLEARLY AND ELABORATELY BROUGHT OUT IN THE ASSESSME NT ORDER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 70 ,000/- BEING COMMISSION PAID FOR OBTAINING ACCOMMODATION ENTRIES FOR THE SO CALLED SHARE APPLICATION MONEY IGNORING THE ADVERSE EVIDENCE 2 ITA NO. 3858/DEL/2009 INCLUDING PATTERN OF TRANSACTION IN THE BANK STATEM ENT, THE ABSENCE OF REAL IDENTITY, CREDITWORTHINESS AND GENU INENESS, THE CONFESSIONAL STATEMENT GIVEN BY THE ENTRY OPERATOR AND THE COLLUSIVE EVASION OF ENQUIRIES INTO THE SOURCES OF DEPOSIT ETC. AS CLEARLY AND ELABORATELY BROUGHT OUT IN THE ASSESSME NT ORDER. 3. THE LD. CIT(A) HAS WHILE GRANTING RELIEF TO THE ASSESSEE ON THE ABOVE MENTION TOW COUNTS; ERRED IN LAW AS WELL AS O N FACTS BY RELYING ON THE DECISION OF APEX COURT IN THE CASE O F LOVELY EXPORT P. LTD. 216 CTR 195 (SC). HE HAS FAILED TO APPRECI ATE THAT THE ORDER OF APEX COURT CANNOT BE READ IN ISOLATION FRO M THE JUDGMENTS OF DELHI HIGH COURTS IN THE CASE OF M/S INDUS VALLE Y PROMOTERS LTD. 2008 (305) ITR 0202 DEL AND PUNJAB & HARYANA H IGH COURT IN THE CASE OF M/S BLOWELL AUTO P. LTD., 2008 (219) CTR 0185 P&H (DELIVERED SUBSEQUENT TO THIS DECISION OF APEX COURT), WHEREIN IDENTICAL ADDITIONS HAVE BEEN CONFIRMED. 4. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FR ESH GROUNDS OF APPEAL AND/ OR DELETE OR AMEND ANY OF THE GROUNDS O F APPEAL. 2. NOTICE OF HEARING WAS SENT TO ASSESSEE WHICH HAS BEEN SERVED AS PER ACKNOWLEDGMENT PLACED ON RECORD. HOWEVER, AT T HE TIME OF HEARING NONE WAS PRESENT ON BEHALF OF ASSESSEE. THEREFORE, WE PROCEED TO DECIDE THE APPEAL OF THE REVENUE ON MERITS AFTER CO NSIDERING THE SUBMISSIONS MADE BY LD. DR. 3. THE ISSUE IN THE PRESENT CASE RELATES TO ADDITIO N MADE ON ACCOUNT OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE BEING IN THE SHAPE OF ACCOMMODATION ENTRIES. REASSESSMENT PROCEEDINGS WERE STARTED AGAINST ASSESSEE ON THE BASIS OF INFORMATION RECEIV ED FROM INVESTIGATION WING. IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE PERSONS WHO HAD DEPOSITED SHARE APPLICATION MONEY WITH THE ASSESSEE WERE SUBJECT TO 3 ITA NO. 3858/DEL/2009 CERTAIN ENQUIRIES AND INVESTIGATION BY THE INVESTIG ATION WING WHERE IT WAS FOUND THAT THOSE PERSONS HAVE NO CREDIT WORTHINESS NOR DO THEY HAVE ANY WORTHWHILE SOURCES OF INCOME. THEY ARE CORPORATE E NTITIES FOR THE PURPOSE OF NAMESAKE ONLY AND THEY ARE NOT ENGAGED I N ANY ACTUAL BUSINESS ACTIVITY. IT IS ALSO MENTIONED THAT THOSE SHARE APPLICANTS ARE PAPER ENTITIES FLOATED FOR THE PURPOSE OF ARRANGING ACCOMMODATION ENTRIES TO THE OTHERS. THE BANK ACCOUNTS EXISTING IN THE NAME OF THOSE PERSONS WERE BEING USED AS CONDUITS FOR THE PURPOSE OF ARRANGING ACCOMMODATION ENTRIES. THOSE ACCOMMODATION ENTRY O PERATORS WERE IDENTIFIED BY THE INVESTIGATION WING AFTER THOROUGH INVESTIGATION AS WELL AS DEFINITIVE ANALYSIS OF THEIR IDENTITY, CREDITWORTHI NESS AND SOURCES OF MONEY ROUTED THROUGH THEM INTO THE ACCOUNTS OF THEI R BENEFICIARIES. IT IS FURTHER MENTIONED THAT AN ENTRY OPERATOR OPERATES A NUMBER OF ACCOUNTS IN DIFFERENT BRANCHES IN THE NAME OF COMPANIES, FIR MS, PROPRIETARY CONCERNS AND INDIVIDUAL. FOR THE OPERATION OF THES E BANK ACCOUNTS, FILING INCOME TAX RETURNS ETC. CERTAIN PERSONS ARE HIRED. EXCEPT FOR 2 OR 3 PERSONS WHO ARE REQUIRED TO REGULARLY VISIT TO BANK AND TO DO OTHER SPADE WORK LIKE COLLECTION OF CASH ETC. MOST OF THE PERSO NS INVOLVED ARE ON PART TIME BASIS AND THESE PART TIME EMPLOYEES CALLED AS AND WHEN REQUIRED TO SIGN DOCUMENTS, CHEQUE BOOKS ETC. IT IS FURTHER MENTIONED THAT A PERSON INTERESTED IN INTRODUCING HIS UNDISCLOSED MO NEY IN HIS BOOKS OF ACCOUNT WILL APPROACH SUCH ENTRY OPERATORS AND HAND OVER THE CASH ALONG WITH COMMISSION AND WILL OBTAINED CHEQUES/DD/PO. T HUS, SUCH CASH IS DEPOSITED BY THE ENTRY OPERATOR IN A BANK ACCOUNT E ITHER IN HIS OWN NAME OR IN THE NAME OF RELATIVE/FRIENDS OR OTHER PERSON HIRED FOR THE PURPOSE OF 4 ITA NO. 3858/DEL/2009 OPENING BANK ACCOUNT AND THE PERSON IN WHOSE NAME B ANK ACCOUNT IS MAINTAINED WILL ONLY SIGN THE BLANK CHEQUE AND WILL HANDOVER THE SAME TO MAIN ENTRY OPERATOR. THE ENTRY OPERATOR IN TURN IS SUES CHEQUES/DD/POS IN THE NAME OF THE BENEFICIARY EITHER FROM THE ACCO UNT IN WHICH THE CASH IS DEPOSITED OR AFTER MULTI LAYERING AND FURTHER OB SCURING THE TRAIL BY ROTATING IT THROUGH OTHER ACCOUNT OR ACCOUNTS WHICH ARE USED ONLY AS CONDUITS AND IN WHICH THE FUNDS ARE TRANSFERRED THR OUGH CLEARING IN TWO OR MORE STAGES. IN THIS MANNER BENEFICIARIES UNACCOUN TED MONEY SAILS THROUGH SEVERAL ACCOUNTS BEFORE ROUND TRIPPING BACK TO IT DISGUISED IN THE FORM OF SHARE APPLICATION MONEY, UNSECURED LOAN, GI FT ETC AND MOST OF THE CONCERNS/INDIVIDUALS HAVE OBTAINED PAN FROM THE DEP ARTMENT AND ARE FILING RETURNS AS WELL. BUT WHAT IS SHOWN IN THE R ETURN IS NOT ACTUAL STATE OF AFFAIRS. THE AO OBSERVED THAT IN MANY SUCH CASE S THE SHARE WHICH WERE ISSUED IN THE NAME OF SHARE APPLICANTS WERE UL TIMATELY BOUGHT BACK IN AN YEAR OR TWO BY THE FAMILY MEMBERS AT HUGE DIS COUNT SOMETIME AT 1/10 TH OR EVEN LESS OF THE ISSUE PRICE. 4. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD ISSUED 11,200 EQUITY SHARES OF FACE VALUE OF RS. 100@ RS. 250 PER SHARE I.E. INCLUDING PREMIUM OF RS. 150 PER SHARE. THE AMOUNT RECEIVED BY THE ASSESSEE RS. 28 LAKH WAS FROM THE FOLLOWING PERSONS : - S.NO. NAME & ADDRESS AMOUNT (RS.) DETAILS OF CHEQUE/ DD/PO NO. & BANK 1 M/S ALL TIMES YOURS SECURITIES P. LTD. 5,00,000/- CHEQ. NO. 372053, DATED 14.02.2001. UNION BANK OF INDIA, MALL ROAD, DELHI- 110009. 5 ITA NO. 3858/DEL/2009 2 M/S JUNOON CAPITAL SERVICES P. LTD. 5,00,000/- CHEQ. NO. 372002, DATED 14.2.2001. UNION BANK OF INDIA, MALL ROAD, DELHI- 110009. 3 M/S ETISHA FINANCE & INVESTMENT P. LTD. 5,00,000/- CHEQ. NO. 421146, DATED 14.2.2001. UNION BANK OF INDIA, MALL ROAD, DELHI- 110009. 4 M/S JASDEEP FINANCIERS P.LTD. 8,00,000/- CHEQ. NO. 435012, DATED 14.2.2001. UNION BANK OF INDIA, MALL ROAD, DELHI- 110009. 5 M/S DUPAS LEASING & FINANCE LTD. 5,00,000/- CHEQ. NO. 161655, DATED 14.2.2001. UCO BANK, MODEL TOWN, DELHI-110009. 5. IN RESPONSE TO QUERIES RAISED BY THE AO THE ASSE SSEE SUBMITTED COPIES OF SHARE APPLICATION FORMS, COPIES OF SHARE CERTIFICATES, AND COPY OF UNDATED AFFIDAVITS/CONFIRMATIONS FROM THE SAID E NTITIES. 6. ACCORDING TO AO THE ABOVE MENTIONED SHARE APPLIC ATION MONEY BELONG TO PRADEEP KUMAR JINDAL GROUP OF ENTRY OPERA TORS. ACCORDING TO AO SAID SH. PRADEEP KUMAR JINDAL HAD GIVEN SWORN ST ATEMENTS U/S 131 BEFORE ADDL. DIRECTOR OF INCOME TAX (INVESTIGATION, UNIT-1, NEW DELHI) AND IN THE STATEMENT RECORDED ON 15.4.04 HE ADMITTE D THAT THE SAID COMPANIES ARE NOT CARRYING ON ANY ACTUAL BUSINESS A CTIVITY AND NO BOOKS OF ACCOUNT ARE MAINTAINED. HE CATEGORICALLY ADMITT ED THAT THROUGH THE MEDIUM OF ALL THESE COMPANIES HE IS ENGAGED IN THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRIES. THE DEPOSITS REFLECTED IN T HE BANK ACCOUNTS EXISTING IN THE NAME OF THOSE COMPANIES ACTUALLY BE LONG TO THE PERSONS APPROACHING THEM FOR TAKING ACCOMMODATION ENTRIES. THOSE BANK ACCOUNTS EXISTING IN THEIR NAMES HAVE BEEN USED ONL Y AS CONDUITS FOR THE 6 ITA NO. 3858/DEL/2009 PURPOSE OF ARRANGING ACCOMMODATION ENTRIES FOR OTHE RS IN THE GRAB OF SHARE CAPITAL ETC. 7. UNDER THESE FACTS, IN ORDER TO VERIFY THE GENUIN ENESS OF THE TRANSACTION AND THE CREDITWORTHINESS OF THESE COMPA NIES THE ASSESSEE WAS REQUIRED TO PRODUCE THE PRINCIPLE OFFICERS OF T HE SO CALLED SHARE APPLICANT COMPANIES ALONG WITH THEIR BOOKS OF ACCOU NT AND EVIDENCE IN SUPPORT OF THE ACTUAL BUSINESS BEING CARRIED OUT BY THEM AND THE SOURCE OF FUNDS IN THEIR HANDS. SUMMONS U/S 131 WERE ALSO ISSUED ON 7 TH AUGUST, 2008 TO THE PRINCIPLE OFFICERS OF THOSE COM PANIES REQUESTING THEM TO APPEAR PERSONALLY ON 18 TH AUGUST, 2008 ALONG WITH, INTER-ALIA, COPIES OF ITRS, THEIR BOOKS OF ACCOUNT, COPIES OF BANK STATEMENTS ETC. THE ADDRESS AT WHICH THE SUMMONS WERE SENT AND THE FACTS OF THE SUMMONS ARE TABULIZED BY THE AO IN THE CHART WHICH IS AS UNDER: - NAME ADDRESS AS PER CONFIRMATION OF THE PARTY FATE OF THE NOTICE ADDRESS AS PER ROC WEBSITE FATE OF THE NOTICE M/S ALL TIMES YOURS SECURITIES P. LTD. 104-A, MUKUND HOUSE, COMMERCIAL COMPLEX, AZADPUR, NEW DELHI-33. NOBODY ATTENDED IN RESPONSE TO THE NOTICE. ONLY REPLY RECEIVED ON 19.8.08 AT THE DAK COUNTER. A FRESH NOTICE/SUMMONS WAS ISSUED ON 15.09.08 REQUIRING PERSONAL ATTENDANCE WITH BOOKS OF ACCOUNTS. AGAIN, NOBODY ATTENDED THE PROCEEDINGS. INSTEAD, A WRITTEN REPLY WAS RECEIVED. 104-A, MUKUND HOUSE, COMMERCIAL COMPLEX, AZADPUR, NEW DELHI-33 - M/S JUNOON CAPITAL SERVICES 104, MUKUND HOUSE, NO REPLY RECEIVED. - - 7 ITA NO. 3858/DEL/2009 P. LTD. COMMERCIAL COMPLEX, AZADPUR, NEW DELHI-33 M/S ETISHA FINANCE & INVESTMENT P. LTD. 109, USHA KIRAN BUILDING, COMMERCIAL COMPLEX, AZADPUR, DELHI- 33. NOTICE RECEIVED BACK WITH POSTAL REMARKS TO THE EFFECT LEFT WITHOUT ADDRESS. 4830/43, ANSARI ROAD, KAUSHALYA BUILDING, NEW DELHI. NOTICE RECEIVED BACK WITH POSTAL REMARKS NO SUCH COMPANY IN THE ADDRESS. M/S JASDEEP FINANCERS P. LTD. 203,MUKUND HOUSE COMMERCIAL COMPLEX, AZADPUR, NEW DELHI-33. NOTICE RECEIVED BACK WITH POSTAL REMARKS TO THE EFFECT LEFT WITHOUT ADDRESS. A-180/1, G.T. KARNAL ROAD, INDUSTRIAL AREA, DELHI. LETTER DATED 18.08.08 RECEIVED BY POST, SEEKING TIME TILL THE FIRST WEEK OF SPT. 2008. HOWEVER, NOBODY ATTENDED. M/S DUPAS LEASING & FINANCE CO. LTD. 104, MUKUND HOUSE, COMMERCIAL COMPLEX, AZADPUR, NEW DELHI-33. NOTICE RECEIVED BACK WITH POSTAL REMARKS TO THE EFFECT LEFT WITHOUT ADDRESS. C-106, PHASE-II, MAYA PURI, INDUSTRIAL AREA, NEW DELHI. LETTER DATED 18.08.08 RECEIVED BY POST, SEEKING TIME TILL THE FIRST WEEK OF SPT. 2008. HOWEVER, NOBODY ATTENDED. 8. FROM THE ABOVE CHART, IT IS OBSERVED BY THE AO T HAT THE EXISTENCE OF THESE COMPANIES AT THE ABOVE ADDRESS IS LIMITED TO USE THESE ADDRESSES AS POST BOX ONLY AND THESE FACTS WERE BRO UGHT TO THE NOTICE OF LD. AR OF THE ASSESSEE FROM TIME TO TIME AND LD. AR OF THE ASSESSEE WAS ALSO PROVIDED WITH THE COPY OF SWORN STATEMENT AND SH. PRADEEP KUMAR JINDAL. IN RESPONSE TO FURTHER QUERIES WITH THE SU BMISSION DATED 5.12.08 FRESH CONFIRMATIONS FROM THESE PARTIES ALONG WITH T HEIR ITR ACKNOWLEDGEMENTS AND BALANCE SHEETS FOR A.Y. 2001-0 2 WERE FILED AND IT WAS STATED THAT IN VIEW OF THESE DOCUMENTS THE O NUS ON ASSESSEE STANDS DISCHARGED. 9. CONSIDERING THESE SUBMISSIONS LD. AO OBSERVED TH AT THE DEGREE OF ONUS AS CONTEMPLATED U/S 68 DEPENDS ON THE FACTS OF EACH CASE. HE 8 ITA NO. 3858/DEL/2009 OBSERVED THAT THOUGH IN THE CASES WHERE SHARE APPLI CATION MONEY IS RECEIVED THE ONUS WOULD BE LIGHT BUT THAT WILL BE I N THE CASE OF PUBLIC LIMITED COMPANY AS IN THE CASE OF PRIVATE PLACEMENT THE SHARES ARE ISSUED TO THE KNOWN PERSONS. THEREFORE, ONUS IN TH OSE CASES WILL BE LITTLE MORE STRINGENT. LD. AO OBSERVED THAT SIMPLY FURNISHING BALANCE SHEET OR ASSESSMENT PARTICULARS IS NOT ENOUGH TO DI SCHARGE THE ONUS IN THE PRESENT CASE. THE PARTIES HAVE NOT ATTENDED IN RESPONSE TO THE SUMMONS. THE ASSESSEE DESPITE HAVING PROVIDED WITH SEVERAL OPPORTUNITIES HAS FAILED TO PRODUCE THEM ALONG WITH THEIR BOOKS OF ACCOUNT AND OTHER DOCUMENTS IN SUPPORT OF THEIR CRE DITWORTHINESS. THE CONFIRMATIONS ARE SELF-SERVING DOCUMENTS WHICH ARE NOT SUFFICIENT TO PROVE THE CREDITWORTHINESS. IN THE CASE OF COMPANI ES THE IDENTITY COULD BE ESTABLISHED BY PLACING MATERIAL ON RECORD IN THE SHAPE OF ON GOING BUSINESS ACTIVITIES AND THAT IS NOT LIMITED TO FURN ISH OF ADDRESS ONLY WHICH ARE USED ONLY AS POST BOX. HE FURTHER OBSERVED THA T IN THE CASE OF M/S DUPAZ LEASING & FINANCE PVT. LTD. THE RETURNED INCO ME IS ONLY RS. 15,284/- AND DEPOSITS IN BANK WERE APPROXIMATELY 3. 10 CRORES AND SUM OF RS. 45,85,000/- WAS DEPOSITED AS CASH AND WITHIN A SPAN OF ONE OR TWO DAYS CHEQUES OF THE SAID AMOUNT HAVE BEEN ISSUE D. THE AO HAS NOTED THE FACT THAT SH. P.K. JINDAL HIMSELF WAS AUT HORIZE SIGNATORY OF BANK ACCOUNT IN THE CASE OF M/S DUPAZ LEASING & FIN ANCE LTD. IN THE CAPACITY OF DIRECTOR, WHEREIN THE ENTRY OF RS. 5 LA KH WAS RECEIVED FROM ACCOUNT NO. 2171 EXISTING IN THE NAME OF M/S RANI E NTERPRISES IN THE SAME BRANCH AND REFERRING TO THE STATEMENT GIVEN BY SH. PRADEEP JINDAL WHICH CONCERN WAS ALSO OWNED BY HIM AND IN THAT ACC OUNT A SUM OF RS. 9 ITA NO. 3858/DEL/2009 5 LAKH WAS DEPOSITED AS CASH FROM WHERE THE SAID AM OUNT WAS TRANSFERRED TO THE ACCOUNT OF M/S DUPAZ LEASING & F INANCE LTD. LD. AO HAS REPRODUCED THE BANK ACCOUNT ENTRIES OF BOTH THE SE CONCERNS NAMELY M/S DUPAZ LEASING & FINANCE P. LTD. & M/S RANI ENTE RPRISES. THESE ENTRY IN THESE ACCOUNTS HAS BEEN TAKEN AS EXAMPLE B Y THE AO TO SHOW THAT CASH IS DEPOSITED IN ONE ACCOUNT AND THEN THE SAME IS ROUTED THROUGH 2 OR 3 ACCOUNTS BEFORE THE AMOUNTS HAVE PAI D BACK TO THE ASSESSEE COMPANY IN THE GRAB OF SHARE APPLICATION M ONEY. 10. THE AO ALSO NOTICED THAT WITHIN A SPAN OF SHORT PERIOD THE SHARES SOLD WERE ALSO BOUGHT BACK BY THE PROMOTER DIRECTOR S OF THE ASSESSEE COMPANY @ RS. 100 PER SHARE AND SUCH PARTICULARS HA VE BEEN TABULIZED BY THE AO IN THE FOLLOWING CHART: - DATE OF TRANSFER TRANSFERORS NAME AMOUNT PER SHARE TRANSFEREES NAME (SH./SMT.) 26.04.02 M/S AT ALL TIMES YOURS SECURITIES P. LTD. 100/- PREM ARORA, PROMOTER DIRECTOR 26.04.02 M/S JUNOON CAPITAL SERVICES P. LTD. 100/- PREM ARORA, PROMOTER DIECTOR 26.04.02 M/S ETISHA FINANCE & INVESTMENT P. LTD. 100/- GEETA ARORA PROMOTER DIRECTOR 26.04.02 M/S JASDEEP FINANCIERS P. LTD. 100/- GEETA ARORA, PROMOTER DIRECTOR 26.04.02 M/S DUPAS LEASING & FINANCE P. LTD. 100/- PREM ARORA, PROMOTER DIRECTOR. 11. THUS, THE AO OBSERVED THAT SHARES WHICH THE ALL EGED INVESTORS HAD PURCHASED AT A HUGE PREMIUM WERE SHORTLY TRANSF ERRED TO THE PROMOTERS AT A PRICE MUCH BELOW THE ISSUE PRICE ITS ELF EXPLAINS THE WHOLE 10 ITA NO. 3858/DEL/2009 DESIGN BEHIND THE TRANSACTION. HE OBSERVED THAT IN THE LIGHT OF THESE FACTS THE QUANTUM OF ONUS LAID UPON ASSESSEE IS HEA VY TO ESTABLISH THE GENUINENESS OF THE TRANSACTION AND THE TRUE IDENTIT Y AND CREDITWORTHINESS OF THE ALLEGED SHARE APPLICANTS. THERE IS POSITIVE EVIDENCE TO IMPEACH THE CREDITWORTHINESS OF THESE SHARE APPLICANTS AND THE GENUINENESS OF THE TRANSACTION. IN THE CIRCUMSTANCES THE AO ADDED A SUM OF RS. 28 LAKH TO THE INCOME OF THE ASSESSEE U/S 68 OF THE AC T AND FURTHER AMOUNT OF RS. 70,000/- BEING 2.50% COMMISSION PAID FOR ARR ANGING THE SAID TRANSACTION. 12. LD. CIT(A) HAS DELETED THE ADDITION FOR THE FOL LOWING REASONS: - I) THE APPELLANT SUBMITTED FOLLOWING DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE GENUINENESS OF THE TRANSACTION BUT HE COULD NOT PRODUCE THE SAID PARTIES: - I. THE COPY OF LEDGER ACCOUNT OF SHARE APPLICATION IN THE BOOKS OF APPELLANT. II. THE COPY OF BANK STATEMENT. III. COPY OF LEDGER ACCOUNT OF SHARE CAPITAL I.E. I N WHICH THE MONEY WAS TRANSFERRED AFTER ALLOTMENT. IV. COPY OF BALANCE SHEET AND PROFIT & LOSS A/C DEP ICTING THE SAME. V. COPY OF ANNUAL RETURN FILED WITH REGISTRAR OF CO MPANIES WHICH INCLUDED LIST OF SHARE HOLDERS I.E. OLD AS WE LL AS NEW. 11 ITA NO. 3858/DEL/2009 VI. COPY OF FORM NO. 2 I.E. RETURN OF ALLOTMENT OF SHARES ALONG WITH THE LIST OF NEW SHAREHOLDERS WHICH WAS FILED A ND REGISTERED WITH REGISTRAR OF COMPANIES. BESIDES, FOLLOWING DOCUMENTS RELATING TO INVESTOR C OMPANIES, WERE ALSO FILED BY THE APPELLANT TO PROVE THEIR IDENTIFY AND GENUINENESS OF THE TRANSACTION. A) ACKNOWLEDGMENT OF RETURN OF INCOME. B) AFFIDAVIT FROM THE PARTIES C) CONFIRMATION D) COPIES OF BANK ACCOUNTS E) SHARE APPLICATION FORMS F) MEMORANDUM AND ARTICLES ASSOCIATION G) SHARE CERTIFICATES DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO I SSUED SUMMON TO ALL THESE COMPANIES AND SUMMONS WERE SERV ED ON 4 OUT OF 5 PARTIES NAMELY M/S ALL TIMES YOURS SECURITIES P. LTD., M/S JUNOON CAPITAL SERVICES P. LTD., M/S JASD EEP FINANCIERS P. LTD. AND M/S DUPAS LEASING & FINANCE COMPANY LTD., HOWEVER THEY DID NOT COMPLIED WITH TH E SUMMONS. II) THE SUMMONS AND THE SUMMON ISSUED TO TISHA FINANCE & P. LTD. WERE RECEIVED BACK FROM POSTAL AUTHORITIES WIT H THE REMARK LEFT WITHOUT ADDRESS. NO FURTHER ACTION WAS TAKE N BY AO TO ENFORCE THEIR ATTENDANCE. ENOUGH POWERS HAVE BEEN GIVEN TO AO TO DEAL WITH SUCH DILIGENT PERSONS. 12 ITA NO. 3858/DEL/2009 III) NO ADVERSE INFERENCE CAN BE DRAWN IN THE NAME OF THE ASSESSEE EVEN IF CREDITOR DOES NOT APPEAR IN RESPON SE TO SUMMONS ISSUED U/S 131 AND FOR THIS PURPOSE LD. CIT (A) HAS PLACED RELIANCE ON CIT VS. ORISSA CORPORATION P. LT D. 159 ITR 78 (SC) IV) AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PR OVE THAT THE SAID MONEY WAS OF ASSESSEES OWN MONEY AND WAS HIS UNDISCLOSED INCOME. THE AO SIMPLY RELIED ON THE IN FORMATION RECEIVED FROM INVESTIGATION WING WITHOUT MAKING ANY CONCRETE EFFORT TO VERIFY THE FACTS STATED THEREIN. THE CONCLUSION OF THE AO THAT THESE WERE PAPER ENTI TIES DOES NOT DISCLOSE THE FACTS ON THE BASIS OF WHICH SUCH C ONCLUSION HAS BEEN ARRIVED AT. IT WAS INCUMBENT ON THE AO TO AFFORD ASSESSEE AN OPPORTUNITY TO CROSS-EXAMINE THE PARTIE S. YHE AO DID NOT ACCEDE THE REQUEST OF ASSESSEE FOR CROSS EXAMINATION OF THE SAID PARTIES WHICH IS AGAINST TH E PRINCIPLES OF NATURAL JUSTICE AND FOR THIS PURPOSE LD. CIT(A) HAS RELIED UPON FOLLOWING DECISIONS: - - PRAKASH CHAND NAHTA VS.UOI (2000) 163 CTR (SC) 310 - CIT VS. SMC SHARE BROKERS LTD. (2007) 288 ITR 345 ( DEL.) - CIT VS. PRADEEP KUMAR GUPTA (2007) 207 CTR (DEL.) 1 15 - CIT VS. DHARAM PAL PREM CHAND LTD. (2007) 212 CTR (DEL) 253 - M/S GOLDLINE POLYMERS P. LTD. DELHI VS. ITO WARD 12 (2) NEW DELHI - KISHAN CHAND CHELARAM VS. CIT 125 ITR 713 13 ITA NO. 3858/DEL/2009 V) THE EVIDENCE COLLECTED AT THE BACK OF THE ASSESS EE COULD NOT BE USED AGAINST ASSESSEE WITHOUT GIVING REASONABLE OPPORTUNITY TO REBUT THE SAME AND FOR THIS PURPOSE LD. CIT(A) HAS RELIED UPON THE FOLLOWING DECISION: - - C. VASANTLAL & CO. VS. CIT (1962) 45 ITR 206 (SC) - MEENGLAS TEA ESTATE VS. ITS WORKMEN, 1963-(050)-AIR - 1719-SC - DHAKESWARI COTTON MILLS LTD. VS. CIT 26 ITR 775, 78 2- 3(SC) - MENKA GANDHI VS. UOI (AIR 1978 SC 597) - J.T. (INDIA) EXPORTS AND ANOTHER VS. UOI AND ANOTHE R (2003) 262 ITR 269 (DEL-FB) THUS, REFERRING TO THE FOLLOWING DECISIONS LD. CIT( A) HAS OBSERVED THAT NO ADDITION COULD BE MADE IN RESPECT OF SHARE APPLICAT ION MONEY: I) STELLER INVESTMENT LTD. 251 ITR 263 (SC) II) CIT VS. SOPHIA FINANCE LTD. 205 ITR 98 (DEL.) III) CIT VS. MUKHNI & TYAGI LTD. 267 ITR 433 IV) CIT VS. LOVELY EXPORTS V) CIT VS. GANGORE INVESTMENT LTD. DECISION DATED 3 0.1.09 VI) CIT VS. VALUE CAPITAL SERVICES P. LTD. 307 ITR 334 (DEL) VII) CIT VS. DEVINE LEASING AND FINANCE LTD. 375/20 08 DATED 21.01.08 VIII) CIT VS. M/S PONDY METAL & ROLLING MILLS P. LT D. ITA NO. 788/2006 DATED 19.2.07 14 ITA NO. 3858/DEL/2009 AS ABOVE MENTIONED ADDITION WAS DELETED COMMISSION ADDITION IS ALSO DELETED BY LD. CIT(A). 13. THE DEPARTMENT IS AGGRIEVED BY SUCH DELETION, HENCE AS FILED THIS APPEAL. 14. AFTER NARRATING THE FACTS, IT WAS VEHEMENTLY P LEADED BY LD. DR THAT IT IS A CASE WHERE ASSESSEE HAS ARRANGED SH ARE APPLICATION MONEY THROUGH ENTRY OPERATORS. THE ASSESSEE COULD NOT ESTABLISH THE IDENTITY. THE ASSESSEE COULD NOT ESTABLISH THE IDENTITY, CREDITWORTHINESS AS WELL AS GENUINENESS OF THE TRAN SACTION, THEREFORE, THE AO WAS RIGHT IN TREATING THE SAID AMOUNT AS UNE XPLAINED CASH CREDIT. HE CONTENDED THAT AO HAS CLEARLY BROUGHT O UT THE FACTS ON RECORD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN THE SHAPE OF SO- CALLED SHARE APPLICATION MONEY AND SHARE PREMIUM WA S NOT A GENUINE TRANSACTION AS IT WAS SHOWN TO HAVE RECEIVE D BY THE ASSESSEE FROM THE ENTITIES WHICH WERE ENTITIES EXIS TED ONLY ON PAPERS AND THEIR MAIN ACTIVITY WAS TO PROVIDE ACCOMMODATIO N ENTRIES. HE CONTENDED THAT NOT ONLY THE ASSESSEE HAS RECEIVED T HE SAID AMOUNT OF SHARE APPLICATION AND PREMIUM FROM THE ENTRY PRO VIDERS BUT THE SAME SHARES WERE AGAIN PURCHASED BY THE DIRECTORS O F THE ASSESSEE COMPANY AT A MUCH LESS RATE I.E. ON FACE VALUE WITH IN A SHORT SPAN OF TIME. REFERRING TO THE OBSERVATIONS OF AO, THE DET AILS OF WHICH HAS ALREADY BEEN DESCRIBED IN THIS ORDER, IT WAS PLEADE D BY LD. DR THAT IT WAS A DEVICE ADOPTED BY THE ASSESSEE TO INTRODUCE I TS OWN MONEY IN 15 ITA NO. 3858/DEL/2009 THE SHAPE OF SHARE APPLICATION MONEY AND PREMIUM TH EREON. HE ALSO RELIED UPON THE OBSERVATION OF AO REGARDING MODUS-O PERANDI ADOPTED BY THE SHARE APPLICANTS AS THE MONEY IN CASH WAS BE ING DEPOSITED BY THEM IN SEVERAL SAVING BANK ACCOUNTS RELATING TO TH E PERSONS OF NO MEANS AND THEN TRANSFER THOSE AMOUNTS TO THE MAIN A CCOUNTS FROM WHERE THE SAID AMOUNT IS SHOWN TO HAVE GIVEN TO THE ASSESSEE IN THE SHAPE OF SHARE APPLICATION MONEY. HE CONTENDED THA T ONE OF SUCH EXAMPLE HAS BEEN DESCRIBED BY THE AO IN HIS ORDER I S THE AMOUNT RECEIVED BY THE ASSESSEE FROM M/S DUPAZ LEASING & F INANCE LTD. IN WHOSE BANK ACCOUNT A SUM OF RS. 5 LAKH HAD COME FRO M THE BANK ACCOUNT OF M/S RANI ENTERPRISES WHERE CASH OF AN EQ UIVALENT AMOUNT WAS DEPOSITED. THUS, RELYING UPON THE ORDER OF AO, LD. DR PLEADED THAT CIT(A) WAS WRONG IN DELETING THE ADDITION WITH OUT GOING INTO THE FACTS THAT THE PERSONS WHO WERE OPERATING THE AFFAI RS OF SHARE APPLICANTS HAD ADMITTED BEFORE THE DEPARTMENT THAT THEY ARE ENGAGED IN THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRIES IN THE SHAPE OF SHARE APPLICATION ETC. THUS, HE PLEADED THAT ORDER OF AO SHOULD BE RESTORED AND THAT OF CIT(A) SHOULD BE SET ASIDE. 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF LD. DR AND CAREFULLY GONE THROUGH THE ORDER OF AO AS WELL AS C IT(A). THE FACTS WHICH HAVE BEEN BROUGHT ON RECORD BY THE AO ARE SUM MARIZED IN PARA 3 TO 11 OF THIS ORDER. IN THE PRESENT CASE RE ASSESSMENT PROCEEDINGS WERE INITIATED AGAINST ASSESSEE ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING AND IN VESTIGATION HAD 16 ITA NO. 3858/DEL/2009 MADE CERTAIN ENQUIRIES AND INVESTIGATION FROM WHICH IT WAS FOUND THAT THE PERSONS WHO WERE OPERATING THE SO CALLED SHARE APPLICANT COMPANIES WERE OF NO CREDITWORTHINESS AND THEY WERE ALSO NOT HAVING ANY WORTHWHILE SOURCE OF INCOME. THEY WERE CORPORATE ENTRIES FOR THE PURPOSE OF NAME SAKE ONLY AS THEY W ERE NOT CARRYING ON ANY ACTUAL BUSINESS ACTIVITY. THEY WERE THE PAP ER ENTITIES FLOATED FOR THE PURPOSE OF ARRANGING ACCOMMODATION ENTRIES FOR OTHERS AND THE MODUS OPERANDI ADOPTED BY THEM HAS ALSO BEEN DE SCRIBED BY THE AO. FURTHER NOWHERE ASSESSEE HAS JUSTIFIED ITS ACT ION REGARDING CHARGING OF PREMIUM AS IT HAS CHARGED PREMIUM FROM THE SO CALLED SHARE APPLICANTS OF RS. 150/- PER SHARE ON THE FACE VALUE OF RS. 100/- PER SHARE. ONE SHRI PRADEEP KUMAR JINDAL WAS MANAG ING THESE ENTRY OPERATORS WHO HAD GIVEN A SWORN STATEMENT TO THE DEPARTMENT ON 15 TH APRIL, 2004 AND IN HIS STATEMENT HE ADMITTED THAT HE WAS ENGAGED IN THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRIES. IN VIEW OF EVIDENCE POSSESSED BY THE DEPARTMENT, THE AO HAS OBSERVED THAT DEGREE OF ONUS AS CONTEMPLATED U/S 68 WAS HIGHER ON THE ASSESSEE. IT WAS OBSERVED BY THE AO THAT SIMPLY FURNISHING TH E BALANCE SHEET, CONFIRMATION, COPY OF BANK STATEMENT ETC. WERE NOT SUFFICIENT TO DISCHARGE THAT ONUS UNLESS THOSE SHARE APPLICANTS A RE PRODUCED FOR EXAMINATION. IT IS OBSERVED BY THE AO THAT IT WAS A CASE OF PRIVATE PLACEMENT OF SHARES WHERE THE SHARES ARE BEING PRIV ATELY PLACED TO THE NEARS AND DEARS AND IN THIS MANNER THE ASSESSEE WAS REQUIRED TO PRODUCE THEM. LD. AO HAS ALSO DONE THE EXERCISE OF SENDING SUMMONS TO THESE CONCERNS, WHICH REMAINS UN-RESPOND ED. THE AO 17 ITA NO. 3858/DEL/2009 HAS GIVEN EXAMPLES THAT IN WHAT MANNER THE SHARE AP PLICATION MONEY HAS TRAVELED IN THE ACCOUNT OF SHARE APPLICANTS AND THEN GIVEN TO THE ASSESSEE. IT HAS ALSO BEEN BROUGHT ON RECORD BY TH E AO THAT THOSE VERY SHARES IN THE VERY NEXT FINANCIAL YEAR I.E. IN THE MONTH OF APRIL ON 26 TH APRIL, 2002 WERE PURCHASED BY THE DIRECTORS OF THE ASSESSEE COMPANY AT RS. 100/- ONLY AS AGAINST ALLOTMENT PRIC E OF RS. 250/- (RS. 100/- AS SHARE APPLICATION AND RS. 150/- AS SHARE P REMIUM). THE CIRCUMSTANCES PLACED ON RECORD BY THE AO CLEARLY SU GGEST THAT ALL THIS WAS AN ARRANGED AFFAIR. LD. CIT(A) WITHOUT GO ING INTO THOSE DETAILS HAS DELETED THE ADDITION WHICH IN OUR OPINI ON IS INCORRECT. ALL THE FACTS WHICH HAVE BEEN PLACED BY THE AO ON RECOR D HAS VERY MUCH RELEVANCE IN THE PRESENT CASE AS THE FACTS OF PRESE NT CASE ARE PECULIAR AS IN THE PRESENT CASE NOT ONLY THE PERSON WHO WERE MANAGING AFFAIRS OF SHARE APPLICANT COMPANIES HAD A DMITTED BEFORE THE DEPARTMENT THAT HE WAS MANAGING THESE COMPANIES ONLY FOR THE PURPOSE OF PROVIDING ACCOMMODATION ENTRIES AND BY E XAMINATION OF BANK ACCOUNTS RELATING TO THOSE SHARE APPLICANTS TH E AO HAS BEEN ABLE TO SHOW THAT A PARTICULAR MODUS OPERANDI WAS B EING ADOPTED BY THEM TO CARRY ON SUCH ACTIVITY. THE ORDER OF LD. C IT(A) IS SILENT ABOUT ALL THESE FACTS FOUND BY THE AO. THEREFORE, WE SEE NO JUSTIFICATION IN THE ORDER OF CIT(A) VIDE WHICH THE IMPUGNED ADDITIO N HAS BEEN DELETED. HOWEVER, KEEPING IN VIEW THE INTEREST OF JUSTICE AND TO PROVIDE THE ASESSEE ONE MORE OPPORTUNITY TO PRODUCE THE SO CALLED SHARE APPLICANTS WE RESTORE THIS APPEAL TO THE FILE OF AO WITH A DIRECTION TO PROVIDE THE ASSESSEEA REASONABLE OPPOR TUNITY IN THIS 18 ITA NO. 3858/DEL/2009 REGARD AND THEREAFTER RE-ADJUDICATE THE SAME AS PER PROVISIONS OF LAW. WE DIRECT ACCORDINGLY. 16. AS THE MAIN ISSUE IS BEING RESTORED TO THE FIL E OF AO THE ISSUE REGARDING COMMISSION WILL BE DECIDED THEREAFT ER BY THE AO. WE DIRECT ACCORDINGLY. 17. THE APPEAL FILED BY THE REVENUE IS DISPOSED OF F IN AFOREMENTIONED MANNER AND FOR STATISTICAL PURPOSES THE APPEAL OF THE REVENUE IS TREATED TO BE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.03.2010 (G.E. VEERABHADRAPPA) VICE PRESIDENT (I.P. BANSAL) JUDICIAL MEMBER DATED: 19.3.2010 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR