ITO, New Delhi V. M/s Diplomat Leasing & Ward Finance Pvt. Ltd., New Delhi

ITA 5929/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53308 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-12-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG
• Assessee Lawyers: R S SINGHVI
• Keywords: Unexplained cash credit; Income from undisclosed sources; Accommodation entries; Sham transactions
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SMT. DIVA SINGH AND SHRI K.G. BANSAL ITA NO. 5929(DEL)/2010 ASSESSMENT YEAR: 2002-03 INCOME-TAX OFFICER, M/S DIPLOMAT LEASING & FINANCE WARD 10(3), NEW DELHI. VS. PVT. LT D., 40-41, COMMUNITY CENTRE, NEW FRIENDS COLONY, NEW DELHI. PAN: AAACD4243M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ROHIT GARG, SR. DR RESPONDENT BY : SHRI R.S. SINGHVI, C.A. DATE OF HEARIN G: 01.12.2011 DATE OF PRONOU NCEMENT: 09.12.2011. ORDER PER K.G. BANSAL : AM THE REVENUE HAS TAKEN UP TWO SUBSTANTIVE GROUND S AS UNDER:- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE U/S 68 OF THE I.T.ACT, 1961 AMOUNTING TO RS. 39,53,000/- BEING BOGUS ACCOMMODATION ENTRY RECEIVED IN THE GARB OF SA LE OF SHARES TO THE PARTIES WHO WERE FOUND TO BE AN ENTRY OPERATO R. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF M/S LOVELY EXPORTS PVT. L TD. TO THE FACTS OF THE CASE WHEREAS IN THAT CASE NO FINDING HAD BEEN REACHED BY ANY AUTHORITY THAT THE SHARE APPLICATION TRANSA CTIONS WERE SHAM AND A COVER FOR ACCOMMODATION ENTRIES RECEIVED BY THE ASSESSEE I.E., A GARB UNDER WHICH THE MONEY OF T HE BENEFICIARY ITA NO. 5929(DEL)/2010 2 ASSESSEE COMPANY IS INTRODUCED IN THE FORM OF SA LE OF SHARE TO THE ENTRY PROVIDER. 2. THE FACTS ARE THAT THE ASSESSEE SOLD SHARE S OF M/S MORDI TEXTILE & PROCESSORS LTD. @ RS. 10/- PER SHARE. THE AO GOT INFORMATION THAT THE TRANSACTIONS WERE IN THE NATURE OF ACCOMMO DATION ENTRIES UNDER WHICH THE SALE PRICE WAS INFLATED. IN VIEW THEREOF, THE AO VALUED THE SHARES AS PER RULE 2 OF SCHEDULE-III OF THE WEALTH-TAX A CT, WHICH CAME TO RS. 6.98 PER SHARE. ON THESE FACTS, HE CAME TO THE CONCLUSION THAT THE SALE PRICE OF THE SHARE WAS INFLATED BY AN AMOUNT OF RS . 3.02. IN RESPECT OF 14,20,000 SHARES SOLD BY THE ASSESSEE, THE INFLATE D VALUE CAME TO RS. 39,53,000/-. THIS AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS:- AS PER BALANCE SHEET OF M/S MORDI TEXTILES & PROCESSORS LTD. FOR F.Y. 2001-02, ITS NET WORTH PER SHARE I N ACCORDANCE WITH RULE 2 OF SCHEDULE III TO W.T.ACT COMES TO RS . 6.98. THE ASSESSEE DURING THE YEAR HAD SOLD 14,20,000 SHA RES AT THE INFLATED PRICE OF RS. 3.02 PER SHARE, THE AGGREG ATE OF WHICH ROUGHLY MATCHES THE AMOUNT OF ACCOMMODATION ENTR Y REPORTED BY THE DI(INV.). NEW DELHI. IT IS THU S APPARENT THAT THE ASSESSEE COMPANY HAD INFLATED ITS SALES CO NSIDERATION OF THE SHARES RECEIVED BY THE ASSESSEE. THE ASSES SEE MAY TAKE THE PLEA THAT BY INFLATING ITS SALE CONSIDERATIO N, IT HAD ONLY INCREASED ITS BUSINESS PROFITS AND THERE IS NO LO SS TO THE EXCHEQUER. THIS MAY THOUGH LOOK QUITE INNOCUOUS BUT UNACCEPTABLE AS THE VALUATION OF THE SHARES OF M /S MORDI TEXTILE & PROCESSORS FOR THE F.Y. 2000-01 COMES TO RS. 6.91 ITA NO. 5929(DEL)/2010 3 FOR WHICH IT PAID RS. 10/- PER SHARE. IT IS THUS APPARENT THAT THE ASSESSEE COMPANY HAD CHOSEN THE SALE AND PUR CHASE OF UNQUOTED SHARES AS A MEDIUM OF NOT ONLY ACCEPTI NG BUT PROVIDING ACCOMMODATION ENTRIES. IN VIEW OF T HE FOREGOING, ASSESSEES SALES TRANSACTIONS OF SHARES OF M /S MORDI TEXTILE BUT UNACCEPTABLE AS THE VALUATION OF THE SHARES OF M/S MORDI TEXTILE & PROCESSORS FOR THE F.Y. 2000-01 COMES TO RS. 6.91 FOR WHICH IT PAID RS. 10/- PER SHARE. IT IS THUS APPARENT THAT THE ASSESSEE COMPANY HAD CHOSEN THE SALE AND PUR CHASE OF UNQUOTED SHARES AS A MEDIUM OF NOT ONLY ACCEPTI NG BUT PROVIDING ACCOMMODATION ENTRIES. IN VIEW OF T HE FOREGOING, ASSESSEES SALES TRANSACTIONS OF SHARES OF M /S MORDI TEXTILES AND PROCESSORS AO IS LIMITED TO TREATE D AS SHAM TRANSACTIONS TO RECEIVE ACCOMMODATION ENTRIES TO THE TUNE OF RS. 39,53,000/-, WHICH IS TREATED AS UNEXPLAINED CASH CREDITS AND ADDED TO ITS INCOME U/S 68 OF THE I.T.ACT, 1961. 3. IT WAS SUBMITTED BEFORE THE LD. CIT(APPEALS) THAT THE ASSESSEE SOLD THE SHARES IN RESPECT OF WHICH EVIDENCE WAS PRODU CED BEFORE THE AO. THE VALUATION UNDER THE WEALTH-TAX RULES IS OF NO C ONSEQUENCE. THE LD. CIT(APPEALS) AGREED WITH THE ASSESSEE AND DELE TED THE ADDITION BY MAKING THE FOLLOWING OBSERVATIONS:- 5.1.10 CONSIDERING THE FACTS AND CIRCUMSTANC ES OF THE CASE AS DISCUSSED ABOVE AND RESPECTFULLY FOLLOW ING THE PLETHORA OF JUDICIAL PRONOUNCEMENTS ON THE SUBJECT , THE IMPUGNED ADDITION OF RS. 39,53,000/- IN THE HANDS OF THE APPELLANT COMPANY IS FOUND TO BE LEGALLY UNSUSTAI NABLE. THE SAME IS, THEREFORE, DELETED. ITA NO. 5929(DEL)/2010 4 4. THE LD. DR TOOK US THROUGH THE FINDINGS OF TH E AO AND THE LD. CIT(APPEALS). IT IS SUBMITTED THAT THE AO HAD RECEIVED SPECIFIC INFORMATION FROM THE INVESTIGATION WING THAT THE TRANSACTIONS WERE IN THE NATURE OF ACCOMMODATION ENTRIES, UNDERTAKEN WITH A VIEW TO INFLATE THE SALE PRICE. IN VIEW THEREOF, HE VALUED THE SH ARES AS PER WEALTH-TAX RULES AND ADDED THE DIFFERENCE BETWEEN OSTENSIBL E SALE CONSIDERATION AND THE VALUE DETERMINED AS UNACCOUNTED INCOME OF THE ASSESSEE. 5. THE CASE OF THE LD. COUNSEL IS SIMPLE. IT IS SUBMITTED THAT THE SHARES WERE HELD AS STOCK-IN-TRADE. THE WHOL E OF THE SALE PROCEEDS HAD BEEN SHOWN AS BUSINESS PROFITS. THUS, THE WHOLE OF THE SALE PROCEEDS STOOD ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. ASSUMING THAT THE SALE PRICE WAS INFLATED AND IN FACT IT WAS RS. 6.98 P ER SHARE, THE AO SHOULD HAVE REDUCED THE BALANCE AMOUNT WORKED OUT @ RS. 3.02 PER SHARE FROM THE SALE CONSIDERATION AND THEREAFTER ADDED AN EQUIVALENT AMOUNT AS UNDISCLOSED INCOME. THIS WOULD HAVE RESULTED INTO NO ADDITION. HOWEVER, IT IS STRESSED THAT THE SHARES WERE PURCHASE @ RS. 10/- PER SHARE AND ALSO SOLD AT RS. 10/- PER SHARE, LEADING TO NO LOSS OR PROFIT IN THE TRANSACTION. SIMILAR OTHER SALES HAVE BEEN AC CEPTED BY THE AO AT RS. 10/- PER SHARE. THEREFORE, THERE IS NO REASON T O MAKE ANY ADDITION AS ITA NO. 5929(DEL)/2010 5 THE WHOLE OF THE AMOUNT STANDS INCLUDED IN THE SA LE PROCEEDS IN THE BOOKS OF ACCOUNT. 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE AGREE WITH THE LD. COUNSEL THAT I F SALE CONSIDERATION WAS ACTUALLY RS. 6.98 PER SHARE, THE AO OUGHT TO HA VE GIVEN REDUCTION IN THE SALE PROCEEDS COMPUTED AT THIS RATE BEFORE MAKING ANY ADDITION OF THE ALLEGED OVER-STATING THE SALE PRICE BY RS. 3.02 PER SHARE. IF THIS CORRECT METHOD HAD BEEN FOLLOWED, NO ADDITION WOULD HAVE R ESULTED IN THE CASE OF THE ASSESSEE. THUS, WE DO NOT FIND ANY ERROR IN THE FINDING OF THE LD. CIT(APPEALS). 7. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (DIVA SINGH) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- DIPLOMAT LEASING & FINANCE PVT. LTD., NEW DELHI. ITO, WARD 10(3), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.