Dhruv International Pvt. Ltd., New Delhi V. DCIT circle-7(2), New Delhi

ITA 5533/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5427 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 24-06-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 131; 68; 48

Judgement Text

1 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No. _5533/DEL/2019 [Assessment Year: 2012-13 Dhruv International Pvt. Ltd., 306, Akashdeep Building, 26-A, Barakhamba Road, New Delhi-110001 PAN- AAACD1702H Vs DCIT, Circle 7(2), New Delhi APPELLANT RESPONDENT Appellant by None Respondent by Sh. Om Prakash, Sr. DR Date of hearing 05.07.2022 Date of pronouncement 20.07.2022 O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-34, New Delhi, dated 22.04.2019, pertaining to the assessment year 2012-13. The assessee has raised following grounds of appeal: 1. For that the learned C!T(A) erred in upholding the addition of 2 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT Rs. 50,00,000 being share application money received by the appellant company from four companies. For that the addition so upheld being unsustainable is liable to be deleted. 2. For that the Id CIT (A) while upholding the impugned addition on the ground that the appellant company had failed to discharge its onus grossly erred in proceeding with passing of the appellate order without the appellant company being provided with the statements recorded by the Id AO which was a relevant and vital piece of evidence inspite of specific request by the appellant company, 3. For that the learned C!T(A) erred in holding that deduction of expenses at Rs. 7,43,204/-cannot be allowed to the appellant company. For that the deduction claimed ought to have been allowed. 4. For that the Id CIT(A) erred in holding that the appellant company has not furnished anyjustification of expenses during the assessment proceedings and no business activities were carried out by the appellant company during the relevant previous year. 5. For the appellant company craves leave of this Hon’ble Tribunal to take additional grounds of appeal at or before the time of hearing.” FACTS : 2. The facts giving rise to the present appeal are that in this case the assessee company filed its return of income declaring loss of Rs. 10,56,484/- through electronic mode on 27.09.2012. Subsequently, the case of the assessee was selected for scrutiny assessment. In response to the statutory notices, learned authorized representative of the assessee attended the assessment proceedings. The Assessing officer noticed that the assessee has not carried out any business activity and claimed expenses in relation to the various expenses. Hence, he disallowed expenses to the tune of Rs. 8,31,816/-. He further made addition on account of share application money of R. 50,00,000/- and disallowance of capital loss of Rs. 3 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT 1,09,869/-. Thus, the assessing officer assessed income at Rs. 48,85,200/- against the loss of Rs. 10,56,484/-. The assessee carried the matter in appeal before the learned CIT(Appeals), who partly allowed the appeal. Thereby the learned CIT(Appeals) out of disallowance of expenses of Rs. 8,31,816/- sustained the disallowance to the extent of Rs. 7,43,204/- and rest of the additions were sustained. Aggrieved against this the assessee is in appeal before this Tribunal. 3. At the time of hearing no one attended the hearing on behalf of the assessee. It is seen from the record that earlier this appeal was fixed for hearing on 2.11.2021 when, at the request of the assessee’s authorized representative, the hearing was adjourned to 27.1.2022. Since then the assessee has not been attending the hearing, nor moved any application for adjournment of hearing. The notice sent through registered post acknowledgment due has been returned with the postal remark “refused”. Therefore, the appeal is taken up for hearing ex parte to the assessee and is being decided on the basis of material available on record. 4. Apropos to the grounds raised in this appeal learned Sr. DR strongly supported the orders of the authorities below and submitted that the assessee has not been able to explain the justification of expenses and grossly erred to substantiate its claim regarding share application money. He, therefore, submitted that there is no infirmity into the orders of the authorities below. 4 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT 5. I have heard the learned Sr. DR and perused the material on record. The learned CIT(Appeals) in respect of share application money has sustained the finding of the Assessing Officer by observing as under: “6.4 I have considered the facts of the case, finding of the AO, remand report and submission of the appellant. During the year under consideration, appellant has received share application money of Rs. 50 lacs from four companies namely M/s North India Securities Pvt. Ltd., M/s DMC Institute of Capita! Market Pvt. Ltd., M/s V Soft Services Pvt. Ltd. and M/s Shark Communication Pvt. Ltd. The appellant has filed the confirmation, copy of bank statement, PAN Card, copy of ITR, certificate of incorporation, Memorandum & Article of Association etc. in support of share application money received from the investor. The appellant failed to produce the Directors of the companies except Sh. Jitender Singh who was appeared during the assessment proceedings as Director M/s North India Securities Ltd. and during the appellate proceedings before the AO as Director of M/s Shark Communication Pvt. Ltd, I have gone through the statement of Sh. Jitender Singh recorded by the AO and it is observed that he has admitted that he is the domestic servant of Sh. S.K. Gupta and used to work on the instruction of Sh. S.K. Gupta. He has no knowledge about the investment made by these companies in the appellant company. After going through the ITR of these investing company it has been observed that they are showing meager income ranging Rs.5,000/- NIL income and they are having minimum balance in their bank accounts and transferring the fund immediately after receiving the equal amount on the same day. Further identity of the investor companies are also not established as inspite of providing opportunities by the AO no responsible person appeared to own the transactions related to investment in appellant company. Therefore appellant failed to establish identity, creditworthiness and genuineness of the transactions on ground realities. Only accepting the payments through banking channel and filing copy of ITR and bank statement does not make the transaction genuine unless appellant brought certain evidences on record to prove that companies which have made investment are existing companies. 6.5 In the case of POT Vs NRA Iron & Steel (P.) Ltd. [2019] 103 5 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT taxmann.com 48 (SC) Hon'ble Apex Court held that, "Where assessee received share capital/premium, however there was failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 58for share capital / premium received by assessee company." 6.6 In the case of PCIT Vs NDR Promoters (P.) Ltd. [2019] 102 taxmann.com 182 (Delhi) Hon'ble High Court held that, "Where Assessing Officer made additions to assessee's income under section 68 in respect of amount received as share capital from several companies, in view of fact that all of these companies were maintained by one person who was engaged in providing accommodation entries through paper companies and all such companies were located at same address, Impugned addition was justified." 6.7 In the case of Konark Structural Engineers Pvt. Ltd. Vs. DOT (2018) 96 taxmann.com 255 (SC), it is held by Hon'ble Apex Court that, "Where assessee-company received certain amount as share capital from various shareholders, in view of fact that summons to shareholders under section 131 could not be served as addresses were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, addition made by Assessing Officer under section 68 was to be confirmed; SLP dismissed." 6.8 In the case of Pavan Kumar M. Sanghvi Vs ITO [2018] 97 taxmann.com 398 (SC), it is held by the Hon'ble Apex Court that "where assessee received loan from two companies, in view of fact that on date assessee was given loan there were credit entries of almost similar amounts and balance after these transactions was a small amount and moreover assessee failed to produce these lenders for verification, impugned amount was rightly brought to tax under section 68.” 6.9 Hon'ble ITAT, Delhi in the case of Pee Aar Securities Ltd, Vs DCIT (2018) taxmann.com 602 (Delhi) held that "A private limited company cannot say that it has no clue about, subscribers to its share capital; genuineness of transaction has to be determined by ground realities and not by documents like PAN cards, board resolutions, share certificates etc. as even shell companies have these documents." 6.10 In the case of CIT Vs Nova Promoters & Finlease (P) Ltd (18 taxrtiann.com 217, 206 Taxman 207, 342 ITR 169, 252 CTR 187) "where Hon'ble Delhi High Court held that amount received by assessee from - accommodation entry providersjn garb of share application money, was to be added to its taxable income under section 68." 6 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT 6.11 In the case of CIT Vs Ultra Modern Exports (P.) Ltd (40 taxmann.com 458, 220 Taxman 165) "where Hon'ble Delhi High Court held that where In order to ascertain genuineness of assessee’s claim relating to receipt of share application money, Assessing Officer sent notices to share applicants which returned unserved, however, assessee still managed to secure documents such as their income tax returns as well as bank account particulars, in such circumstances, Assessing Officer was justified in drawing adverse inference and adding amount in question to assessee’s taxable income under section 68." 6.12 CIT Vs. Durga Prasad More, [1971] 82ITR 540 (SC) Hon'ble Apex Court held that "it is true that an apparent must be considered real until it Is shown-that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." 6,13 C1T vs. Navodava Castle Pvt. Ltd., Delhi High Court, 2014. [2014] 50 taxmann.com 110 (Delhi) the Decision is upheld by Hon'ble Supreme Court. Hon'ble Court held that "Certificate of incorporation, PAN etc., are relevant for purpose 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. In case of private limited companies, generally persons known to directors or shareholders, directly or Indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc., have to be sent and the relationship remains a continuing one., Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain unserved and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could d o nothing. more and it was for the Assessing Officer to enforce shareholders’ attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding 7 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT may reflect on the genuineness of the transaction and creditworthiness of the creditor. It would also be incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves, Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances require that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for persona! reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.” 6.14 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 a sum during the previous year and if the assessee offers no explanation about the nature and source of such credit or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year. The expression no explanation is offered or the explanation offered is not satisfactory puts an onus on the assessee to offer a lucid, reasonable and acceptable explanation before the Assessing Officer and thereupon the Assessing Officer should form an opinion accepting or rejecting the explanation based upon appreciation of facts/materials and other attending circumstances. The appellant failed to prove genuineness of the transaction with the aforesaid companies whom it has obtained share application money on premium. In spite of giving opportunities to the appellant to produce Directors so that facts may be ascertained about the genuineness of the transaction, appellant failed to avail the opportunity. It is strange that the persons who have filed the certificate of incorporation, share application form, income tax return, bank statement etc. but failed to prove genuineness of the transaction on ground realities. 6.15 Considering the above facts, since appellant failed to establish identity, creditworthiness and genuineness of the transaction, addition made by the AO on account of unexplained share capital at Rs. 50,00,000/- is hereby confirmed. 8 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT 6. This finding of the learned CIT(Appeals) is not controverted by the assessee by filing supporting evidence. In the absence of the evidence regarding creditworthiness of the share applicants and genuineness of the transaction I do not see any reason to interfere in the finding of the authorities below and the same is upheld. Hence, ground nos. 1 & 2 of assessee’s appeal are rejected. 7. Ground nos. 3 & 4 are in relation to the disallowance of expenses amounting to Rs. 7,43,204/-. In this regard the learned CIT(Appeals0 has thoroughly considered the facts and has given a finding of fact in para 7.3 of the order by observing as under: “7.3 I have considered the facts of the case, finding of the AO and submission of the appellant. Appellant has debited the expenses of Rs,8,31,816/- which relates to employee benefit expenses, finance cost, amortization expenses and other expenses. The appellant has not furnished any justification of expenses during the assessment proceedings and no business was carried out by the appellant during the year, therefore AO has disallowed whole of the expenses. The similar issue was considered by the Hon'ble ITAT in the case of the appellant for AY 2009-10 and it Is held by the Hon'ble ITAT that for a company certain minimum expenditure is required to be incurred to continue its existence and to maintain register office and other statutory expenses yet the expenses has to be reasonable and relevant. The huge expenditure on account of salary, Director's remuneration, interest on vehicle loans, vehicle expenses cannot justified to have been incurred just for the continuation of assessee's existence. Considering the finding of the Hon'ble ITAT expenses related to employee benefit expenses at Rs.32,203/-, auditor's remuneration at Rs. 10,112/-, legal and professional expenses Rs. 17,320/-, filing fee Rs.11,724/- and bank charges Rs.17,253/- is hereby allowed which were necessary and legitimate 9 ITA no. 5533/Del/2019 Dhruv International Pvt. Ltd. Vs. DCIT to continued the existence of the assessee and balance expenses are hereby disallowed. The addition made by the AO is hereby confirmed to the extent of Rs. 7,43,204/-.” 8. The assessee has not controverted the finding arrived at by the learned CIT(Appeals) by placing any material on record and in the absence of the supporting evidence the expenditure disallowed by the Assessing officer is sustained. Ground nos. 3 and 4 of assessee’s appeal are dismissed. 9. Ground no. 5 is general in nature and requires no adjudication. 10. In the result, assessee’s appeal stands dismissed. Order pronounced in open court on 20 th July, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI