Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: articles on VAT and GST in India :: VAT RATES :: list of goods taxed at 4% :: Central Excise rule to resale the machines to a new company :: TDS :: due date for vat payment :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: cpt :: VAT Audit :: ARTICLES ON INPUT TAX CREDIT IN VAT :: empanelment :: ACCOUNTING STANDARD
 
 
From the Courts »
  Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 CIT vs. Greenfield Hotels & Estates Pvt. Ltd (Bombay High Court)
 IndiaBulls Financial Services Ltd vs. DCIT (Delhi High Court)
 Maharao Bhim Singh of Kota vs. CIT (Supreme Court)
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)

COMMISSIONER OF INCOME TAX -3 Vs. FIVE VISION PROMOTERS PVT.LTD.
December, 21st 2015
 $~
 *         IN THE HIGH COURT OF DELHI AT NEW DELHI

 +                                         ITA 234/2015

                                           Reserved on: November 17, 2015
                                           Date of decision: November 27, 2015

           COMMISSIONER OF INCOME TAX -3          ..... Appellant
                       Through: Mr. Rohit Madan and Mr. Akash
                       Vajpai, Advocates.

                           versus

           FIVE VISION PROMOTERS PVT.LTD.              ..... Respondent
                          Through: Mr C.S. Aggarwal, Senior Advocate
                          with Mr Prakash Kumar, Mr Rupinder
                          Aggarwal and Mr Gautam Jain, Advocates,

                                    With

   +                                ITA 235/2015

           COMMISSIONER OF INCOME TAX -3          ..... Appellant
                       Through: Mr. Rohit Madan and Mr. Akash
                       Vajpai, Advocates.

                           versus

           FIVE VISION PROMOTERS PVT.LTD.              ..... Respondent
                          Through: Mr C.S. Aggarwal, Senior Advocate
                          with Mr Prakash Kumar, Mr Rupinder
                          Aggarwal and Mr Gautam Jain, Advocates,

                                    and

   +                                ITA 236/2015

           COMMISSIONER OF INCOME TAX -3          ..... Appellant
                       Through: Mr. Rohit Madan and Mr. Akash
                       Vajpai, Advocates.



ITA Nos. 234, 235 & 236/2015                                             Page 1 of 23
                           versus

           FIVE VISION PROMOTERS PVT.LTD.              ..... Respondent
                          Through: Mr C.S. Aggarwal, Senior Advocate
                          with Mr Prakash Kumar, Mr Rupinder
                          Aggarwal and Mr Gautam Jain, Advocates,


         CORAM:
         JUSTICE S. MURALIDHAR
         JUSTICE VIBHU BAKHRU

                                    JUDGMENT
 %                                    27.11.2015

 Dr. S. Muralidhar, J.

 1. These are three appeals by the Appellant, Revenue, against the common
 order dated 29th April 2014 passed by the Income Tax Appellate Tribunal
 (`ITAT') in ITA Nos. 4545, 4246 and 4247/Del/2012 for the Assessment
 Years (`AYs') 2007-08, 2008-09 and 2009-10 respectively.


 Limitation
 2. Considering that the impugned order is dated 29 th April 2014 and the
 appeals were first listed for hearing nearly a year later on 10 th April 2015,
 the question whether the appeals were in time was examined by the Court.
 In para 8 of the memorandum of appeal in each of the appeals it is stated
 that the impugned order was received by the Appellant, i.e. the
 Commissioner of Income Tax, Delhi -3 (CIT-3) on 24th November 2014.
 The affidavit in support of the appeal has been signed by Mr. Narendra
 Prasad Sinha, posted as CIT -3.


 3. Enclosed with the memorandum of appeal, is a copy of the certified
 copy of the impugned order of ITAT which bears different date stamps.


ITA Nos. 234, 235 & 236/2015                                         Page 2 of 23
 One of them is a date stamp of the CIT-3 dated 1st August 2014. Next to it,
 is a noting of 5th August 2014 asking the matter to be put up for 'appeal
 effect' urgently. However, also enclosed is a copy of a covering letter dated
 24th November 2014 from the Income Tax Officer (ITO), Headquarters-8
 (Judicial), New Delhi addressed to the CIT-III (Post restructured) drawing
 the attention of the latter to the ITAT's order in the cases of the present
 Respondent, Five Vision Promoters Pvt. Ltd. (`Five Vision').


 4. By an order dated 9th October 2015 the Court required Mr. Kamal
 Sawhney, learned Senior standing counsel for the Revenue, to produce the
 certified copy of the order of the ITAT in original with the date stamp to
 show when it was received by the CIT-3. On the next date, i.e. 17th
 November 2015, Mr. Sawhney sought more time for that purpose. The
 Court was not inclined to grant further time for that purpose and decided to
 proceed on the basis of the documents already on record.


 5. It appears from the covering letter dated 24th November 2014 of the ITO
 (Judicial) that cases concerning Five Vision were under the jurisdiction of
 the ACIT/DCIT, Circle-9 (1) [Pre restructured Cir.11 (1)]. The letter stated
 that it was not known whether a copy of the consolidated order of ITAT
 had been forwarded to the concerned CIT. Therefore, a letter was again
 being written to the CIT-III (Post restructured). However, as noticed earlier
 CIT-III had already received a copy of the order on 1 st August 2014 itself.
 In any event, going by the earliest of the date stamps on the certified copy
 of the impugned order of the ITAT, it is seen that it was first received by
 the CIT (Judicial) on 10th June 2014. That should normally be taken to be
 the date of commencement of limitation for the purposes of Section 260A
 (2) (a) of the Act. On that basis, the appeal filed on 19 th March 2015, with


ITA Nos. 234, 235 & 236/2015                                        Page 3 of 23
 the supporting affidavit attested on 31st March 2015 would be beyond the
 stipulated limitation period of 120 days in terms of Section 260A (2) (a) of
 the Act. There is, however, no application for condonation of delay and the
 appeals have been numbered and listed by the Registry as if they were
 within limitation.


 6. Faced with the above difficulty, Mr. Sawhney, learned Senior standing
 counsel for the Revenue, volunteered to file a separate application for
 condonation of delay. However, at that stage Mr. C.S. Aggarwal, learned
 Senior counsel appearing for the Assessee, Five Vision, made a statement
 that the Assessee was not pressing the objection as to the delay in filing the
 appeals. In that view of the matter, the Court proceeds with the merits of
 the appeals. However, the Registry is directed to hereafter examine
 carefully the date stamp on the certified copy of the order of the ITAT and
 insist on the original being produced in order to satisfy itself of the
 correctness of the statement made in the memorandum of appeal regarding
 the date of receipt of the certified copy of the ITAT's order.


 Question urged
 7. The Revenue has in these appeals sought to urge the following question
 for consideration:
           "Whether the ITAT         erred in deleting the addition made under
           Section 68 of the Act of share application money by holding that
           the identity and genuineness of the    share      applicants   was
           established?"

 Background facts
 8. The background to filing of these appeals is that the Assessee, Five
 Vision, is a company incorporated under the Companies Act, 1956 on 14 th



ITA Nos. 234, 235 & 236/2015                                         Page 4 of 23
 January 2005 with the object of running a shopping mall. The business of
 the Assessee had not commenced till 31st March 2009 because the Mall
 was under construction.


 9. The genesis of the present proceedings is a search which commenced on
 14th October 2008 in the premises of SVP Builders India Limited (`SVP
 Builders') and the SVP Group of Companies. Four companies were said to
 comprise the core of the SVP Group, of which the fourth was Five Vision.
 The other three are SVP Builders, SV Liquor (India) Ltd. and SVP
 Developers Ltd. These four companies were found to have received share
 capital from 106 companies between AYs 2003-04 to 2009-10. The said
 shareholders have been categorised Table-I, II and III shareholders. Table-I
 shareholders, which were 20 companies, were subjected to search under
 Section 132 of the Act. Table-II shareholders, comprised 12 companies
 against whom the proceedings were initiated under Section 153C of the
 Act consequent upon the search. Table-III shareholders, comprised 74
 companies whose identity and existence were not doubted since they were
 being regularly assessed to tax.


 10. The case of the Revenue is that SVP Group of companies (in whose
 premises, and the residential premises of their Directors, searches were
 conducted) were engaged in the business of construction of residential,
 commercial and business complexes and also sale/purchase of lands. The
 further case of the Revenue was that the Group had been charging `on -
 money' on the sale of flats, shops etc. which was not accounted for in their
 regular books of accounts. The allegation was that `on -money' was taken
 in cash and in turn was routed back into the Group companies in the form
 of share application/unsecured loans, share capital etc. The unaccounted


ITA Nos. 234, 235 & 236/2015                                       Page 5 of 23
 money routed through the said channel was reinvested in the purchase of
 further lands and for new projects. The share application money received
 in cash was also utilized for booking bogus expenses as site development
 charges for inflating the cost of construction to bring down profits. Among
 the SVP Group of companies, which are stated to have constituted the core
 group, is the Assessee, Five Vision.


 11. The further case of the Revenue was that during the pre-search
 enquiries it was gathered that SVP Group of companies had been receiving
 share capital from several companies which did not undertake any genuine
 business activities but acted as 'conduit channels' for converting black
 money into white. The broad general allegation was that in the course of
 the investigation undertaken by the Additional Director of Income Tax
 (Investigation), Ghaziabad, the SVP Group of companies did not produce
 the shareholders despite being served with notices for that purpose. It was
 alleged that the shareholders were not produced till finalization of
 assessment order, i.e., upto 21 months thereafter.


 12. As far as the present Assessee, Five Vision, is concerned, it filed its
 return of income for AY 2007-08 on 2nd November 2007. For AY 2007-08,
 the amount contributed by the corporate shareholders to the share capital of
 Five Vision aggregated to Rs. 4,56,47,500. The extent of investment in the
 share capital of Five Vision by these three categories of shareholders for
 AY 2007-08 was as under:
           (i) Table ­ I (14 companies):       Rs. 1.33 crores
           (ii) Table ­ II (9 companies)        Rs. 87 lakhs
           (iii) Table ­ III (15 companies)     Rs. 2.36 crores




ITA Nos. 234, 235 & 236/2015                                       Page 6 of 23
 13. The Assessee filed it return of income for AY 2008-09 on 6th October
 2008 and for AY 2009-10 on 26th September 2009. As far as AYs 2008-09
 and 2009-10 are concerned, the total contribution to the equity share
 capital of Five Vision aggregated to Rs. 2 crores and Rs. 4.55 crores
 respectively. The said contribution was entirely from Table-III category
 shareholders.


 14. Consequent upon the search that took place on the SVP Group of
 companies on 14th October 2008, notices were sent to Five Vision on 14th
 May 2010 under Section 153C of the Act for AYs 2007-08, 2008-09 and
 under Section 271F of the Act for AY 2009-10. In response to the above
 notices, the Assessee filed its return of income for AYs 2007-08 and 2008-
 09 on 4th June 2010. It replied on the same date to the notice under Section
 271F stating that it had already filed a return for AY 2009-10 on 29th
 September 2009. It enclosed to the reply a hard copy of the said return.
 Thereafter, notices were again sent to the Assessee by the Assessing
 Officer (`AO') on 15th September 2010 under Section 143 (2) of the Act.
 The jurisdiction of the case was shifted from Meerut to Ghaziabad on 13th
 October 2010. Again notices under Section 142 (1) of Act were issued to
 the Assessee for the AYs in question by the ACIT, Central Circle,
 Ghaziabad on 25th October 2010. For AY 2007-08, a further notice under
 Section 142 (1) was issued on 22nd November 2010 and for AYs 2008-09
 and 2009-10 on 2nd December 2010.


 15. As already noted, there were 20 companies belonging to Table-I. As
 far as Five Vision is concerned, the case of the Revenue was that 14 of
 these Table-I companies were its shareholders during AY 2007-08,
 contributing an aggregate of Rs. 1.33 crores. As far as Table-II is


ITA Nos. 234, 235 & 236/2015                                       Page 7 of 23
 concerned, of the 12 companies therein, 9 were shareholders of Five
 Vision during 2007-08 contributing in the aggregate Rs. 87 lakhs. These
 are companies against whom information was gathered during the course
 of search although these companies themselves were not searched. Of the
 74 companies in Table-III, 15 were stated to have contributed in the
 aggregate Rs. 2,36,47,500 to the share capital of Five Vision during the
 AY 2007-08.


 16. As far as AY 2008-09 was concerned, four of the Table-III companies
 contributed Rs. 2 crores to the share capital of Five Vision. As far as AY
 2009-10 was concerned, 20 of the Table-III companies contributed an
 aggregate of Rs. 4.55 crores to its share capital. None of the companies in
 Tables I and II contributed to the share capital of Five Vision for AYs
 2008-09 and 2009-10.


 Assessment order
 17. The assessment order was passed on 30th December 2010 by the AO
 holding that the above investments were not genuine. He held that:


   (i) As far as the Table I shareholders were concerned, the AO noted that
   none of the companies were found to be operating at the given addresses.
   There was neither any display board for name of these companies nor
   their books of accounts or related accounts or documents were found
   from such premises.


   (ii) Moreover, even the persons available at the said premises namely Shri
   Bajrang Bahadur Dubey, Smt. Meena Goyal, Smt. Sushila Goyal and Shri
   Sachin Garg denied that any of the said companies existed at the said


ITA Nos. 234, 235 & 236/2015                                       Page 8 of 23
   addresses. Further, despite letter dated 5th March 2009, and summons
   under Section 131 dated 20th March and 6th April 2009, the Assessee
   failed to produce the shareholders for cross examination.


   (iii) As far as the Table III companies were concerned, many of the
   summons issued were returned unserved with the remarks "unknown" or
   "no such person". 24 of the companies submitted replies and some filed
   affidavits but did not submit any other details. The letter of M/s. Ganesh
   Buildtech showed that it had invested Rs. 10.50 crores in 16 of the
   companies in figuring in Tables III and they in turn invested in the SVP
   Group companies. This was proof of the said companies acting as a
   "conduit channel". Further, the Assessee failed to produce the
   shareholders for cross-examination.


   (iv) Also, the nexus of the shareholders and the beneficiary, i.e. the SVP
   Group stood proved from the fact that shares were bought back by the
   individuals/concerns belonging to SVP Group. During the search, original
   share certificate worth Rs. 38 crores were found out of which some were
   seized. During the search one Shri Vijay Jindal gave a statement that the
   shares were allotted at Rs. 10 per share and later on bought back at Rs.2-
   3/- per share. The actual average purchase price was Rs. 1.04 per share.
   Thus shares that were initially issued by the SVP Group to the extent of
   Rs. 81.19 crores had been cheaply bought back for Rs. 10.38 crores and
   therefore the transactions were sham.


   (v) Thus the Assessee had failed to prove the identity, genuineness and
   creditworthiness            of   the   said   shareholders.   Accordingly,    the




ITA Nos. 234, 235 & 236/2015                                              Page 9 of 23
   aforementioned sums shown as investments in its shares for the AYs in
   question were added to its income for those AYs.


 Proceedings before the CIT (A)
 18. Aggrieved by the aforementioned assessment orders, the Assessee,
 Five Vision filed appeals before the Commissioner of Income Tax
 (Appeals) [`CIT (A)']. The Assessee furnished some more documents on
 which remand report was called for by the CIT (A) from the AO. The
 remand report was submitted by the AO on 11 th November 2011. A
 rejoinder and recapitulation note was submitted before the CIT (A) on 8th
 December 2011. A reply dated 21st December 2011 was also filed by the
 Assessee on the questions raised by the CIT (A) on 8th December 2011.
 Further responses were submitted on 7th and 10th February 2012 for
 questions raised on 3rd and 8th February 2012 respectively.


 19. The CIT (A) issued common directions in all the cases on 10th
 February 2012 directing the shareholders of SVP Group of companies to
 be produced before the AO. The remand report was submitted by the AO
 on 24th February 2012. A rejoinder was filed to the said report on 5th March
 2012.


 20. By an order dated 31st May 2012, the CIT (A) upheld the additions
 made by the AO. Against the said order of the CIT (A), the Assessee, Five
 Vision, filed appeals before the ITAT.


 Impugned order of the ITAT
 21. By the impugned order dated 29th April 2014, the ITAT deleted the
 additions made under Section 68 of the Act by holding that:


ITA Nos. 234, 235 & 236/2015                                      Page 10 of 23
 (i) The Revenue had been unable to deny the factual position that only 11
 of the 20 companies in Table I had actually been searched. The material on
 record showed that directors of 18 companies of the 20 companies were
 examined by the AO in the course of the remand proceedings and found
 from the books of accounts that the share capital stands duly recorded in
 their books of accounts. Thus there was no justification for drawing an
 adverse inference particularly since no contrary material was placed on
 record by the revenue.


 (ii) The statements of Shri Bajrang Dubey and Shri Sachin Garg when
 carefully examined did not show that the investor companies did not exist
 or did not in fact subscribe to the share capital of the SVP Group
 companies.


 (iii) As far as Ganesh Buildtech was concerned, while no addition was
 made by the AO of the sum of Rs. 28 lakhs invested by it in Five Vision
 for AY 2006-07 and Rs. 1,57,27,500 in AY 2007-08, he added the sum of
 Rs. 1,74,75,000 received from it in AY 2007-08. This apparent
 contradiction showed that the addition was made without appreciating the
 complete facts on record.


 (iv) The decision of this Court in M/s. Nova Promoters and Finlease (P)
 Ltd. 342 ITR 169 (Del) was distinguishable on facts since in that case two
 directors of the shareholder companies admitted to maintaining benami
 accounts and providing accommodation entries, whereas in the present
 cases there were no such statements. Also, here the AO did not take any
 steps to rebut the confirmation and evidence tendered by the shareholders.


ITA Nos. 234, 235 & 236/2015                                      Page 11 of 23
 (v) The common address of shareholders was not a valid basis to disregard
 the claim of the Assessee in view of the decision of this Court in CIT v.
 Winstral-Petrochemicals Pvt. Ltd. 330 ITR 603 (Del).


 (vi) The subsequent sale of the shares subscribed was not germane to the
 question of the genuineness of the share capital amount received by the
 Assessees. Once the capital raised stood explained, the issue of
 disinvestment by the shareholder subsequently was a non-issue. The
 addition if at all was to be examined in the hands of the person purchasing
 the shares.


 (vii) There was no material to support the Revenue's case that the 'on-
 money' collected in cash was routed back into the SVP Group companies
 in the form of share application and later reinvested in purchase of further
 lands for new projects.


 (viii) There was no material to conclude that some of the investors were
 'paper' companies. They had been regularly assessed to tax and had
 produced their books of accounts during their respective assessment
 proceedings to show that they had made the investment in question. This
 had been accepted by the CIT (A) in their assessments by deleting the
 additions made of the said sums to their income by the AO concerned by
 holding that the additions if at all should be made in the hands of the
 beneficiaries. In the appeals filed in those cases, the Revenue had
 contended that the additions ought to have been sustained. Thus, the stand
 of the Revenue was contradictory and untenable.




ITA Nos. 234, 235 & 236/2015                                      Page 12 of 23
 (ix) The Assessee had discharged primary onus of proving the the identity,
 genuineness and creditworthiness of the said shareholders.


 Submissions of counsel
 22. Mr. Rohit Madan, learned counsel for the Revenue reiterated the
 grounds of appeal. He first submitted that the CIT (A) had found that the
 Assessee had manipulated substantial fund movement through `paper
 existence' of the investor companies. Secondly, the CIT (A) found that the
 common directors repetitively appeared in the list of directors of the
 companies which clearly indicated that they belonged to the same group,
 and were manipulating their books for the purpose of introduction of
 unexplained cash money and creating 5-6 steps of cheque transactions
 before the investment was made eventually in SVP group of companies.
 Thirdly, the CIT (A) checked the creditworthiness of three shareholding
 companies, viz., (i) Quality Security Services Pvt. Ltd. (b) United Head
 Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. and found
 that these companies did not have any worthwhile share capital and their
 activities were only in the form of management of fund rotation in the garb
 of share application money invested in each other. Such rotation was with
 a view to artificially inflate their credit worthiness. Fourthly, the AO had
 found that the Assessee bought back its own shares at a very low price.
 The share allotted at the face value of Rs. 10 were transferred in the names
 of individuals/ concerns belonging to SVP group at a meagre price ranging
 from Rs. 0.50 to Rs. 2 per share. Fifthly, the persons available at the
 premises during search of the Table I companies denied the existence of
 such companies at that place. The Assessee had received huge amounts of
 money of Rs. 11 crores in cash in the form of share application money,
 which was not explained. Lastly, it was submitted that the decision in M/s.


ITA Nos. 234, 235 & 236/2015                                      Page 13 of 23
 Nova Promoters and Finlease (P) Ltd. (supra) was wrongly distinguished
 by the ITAT in its application to the facts of the present case.





 23. Mr. C.S. Aggarwal, learned Senior counsel for the Assessee, filed the
 entire record of the case submitted before the AO, CIT (A) and the ITAT
 and urged that no substantial question of law arises since the findings of
 the ITAT were purely factual and consistent with the well settled law
 explained by the Supreme Court and the High Courts in several decisions
 concerning Section 68 of the Act. Mr. Aggarwal pointed out that as regards
 the 38 shareholders who contributed share capital for AY 2007-08, a sum
 of Rs. 4,56,47,500, 14 belonged to Table-I, 9 to Table-II and 15 to Table-
 III. Evidence in respect of each of the 14 Table I companies was filed by
 the Assessee. This included, inter alia
           (i) copy of share application forms;
           (ii) copy of board resolution;
           (iii) copy of allotment letter confirming the allotment;
           (iv) confirmation in affidavit by the investor
           (v) copy of share certificate evidencing the allotment of shares;
           (vi) copy of income tax return (`ITR') for the relevant AY;
           (vii) the relevant extracts of the copy of bank book; and
           (viii) copy of the letter with enclosures filed by the investor
           company addressed to AO in response to summons issued under
           Section 131 of the Act making direct enquiries.

 24. Mr. Aggarwal pointed out that similar details were provided for 9
 corporate shareholders belonging to Table-II who invested in Five Vision
 for AY 2007-08 and in respect of 15 corporate shareholders belonging to
 Table-III who invested in the same AY, i.e., 2007-08.


 25. Mr. Aggarwal drew the attention of the Court to the fact that the
 following details were furnished in respect of the four corporate



ITA Nos. 234, 235 & 236/2015                                        Page 14 of 23
 shareholders which contributed a sum of Rs. 2 crores for the share capital
 of Five Vision for AY 2008-09:
           (a) copy of certificate of incorporation/MOA;
           (b) copy of ITR filed for relevant AY;
           (c) copy of share application forms;
           (d) copy of board resolutions;
           (e) copy of bank statement (relevant extracts);
           (f) copy of confirmation;
           (g) confirmation in the affidavit by the investor
           (h) copy of the letter with enclosures submitted by the investor
           companies in response to the summons under Section 131 o the
           Act.

 26. As regards 18 shareholders who contributed Rs. 4.55 crores to the
 share capital for AY 2009-10, all the aforesaid documents were filed by the
 Assessee. The said documents were also placed before this Court. Mr.
 Aggarwal submitted that the Assessee had therefore, discharged its initial
 onus on the identity, creditworthiness and genuineness of the transactions.
 He submitted that the ITAT had itself recorded the fact that the AO had
 issued summons under Section 131 of the Act which had been duly
 complied with and then the shareholders independently confirmed having
 subscribed to the share capital in Five Vision.


 27. Reliance was placed by Mr. Aggarwal on the decision of the Supreme
 Court in CIT v. Lovely Exports (P) Ltd. 216 CTR 195 (SC), CIT v. Divine
 Leasing and Finance Ltd. (decision dated 21st January 2008 of the
 Supreme Court in Special Leave to Appeal (Civil) (CC) 375 of 2008) and
 decision dated 17th September 2012 of the Supreme Court in CIT v.
 Kamdhenu Steel & Alloys Limited [SLP (Civil) CC 15640 of 2012)]. In all
 the above three decisions the Supreme Court had affirmed the
 corresponding decisions of this Court including CIT v. Divine Leasing and
 Finance Ltd. 299 ITR 268. Reliance was also placed on the decision of


ITA Nos. 234, 235 & 236/2015                                      Page 15 of 23
 this Court in (1994) CIT v. Sophia Finance Ltd. (1994)205 ITR 98 (FB)
 (Del).


 Law concerning Section 68 of the Act
 28. Before proceeding to discuss the above submissions, a brief
 recapitulation of the legal position as regards Section 68 of the Act is
 necessary. Under Section 68 of the Act, the AO has jurisdiction to
 undertake enquiries with regard to the amount credited in the books of the
 accounts of an Assessee. This could be any sum whether in the form of
 sale proceeds or receipt of share capital money. First, the AO is to enquire
 whether the alleged shareholders in fact exist or not. The truthfulness of
 the assertion by the Assessee regarding the nature and the source of the
 credit in its books of accounts can be examined by the AO. Where the
 identity of the shareholders stands established and it is shown that they had
 in fact invested money in the purchase of the Assessee's shares, then the
 amount received would be regarded as capital. Where the Assessee offers
 no explanation at all or the explanation offered is unsatisfactory, the
 provision of Section 68 may be invoked.


 29. A Full Bench of this Court in CIT v. Sophia Finance Limited (supra)
 held in the context of Section 68 of the Act that:

   (i) The Assessee has to prima facie prove "(1) the identity of the
   creditor/subscriber; (2) the genuineness of the transaction, namely,
   whether it has been transmitted through banking or other indisputable
   channels; (3) the creditworthiness or financial strength of the
   creditor/subscriber".

   (ii) If the relevant details of the address of PAN identity of the


ITA Nos. 234, 235 & 236/2015                                       Page 16 of 23
   creditor/subscriber are furnished to the Department along with copies of
   the Shareholders Register, Share Application Forms, Share Transfer
   Register etc., it would constitute acceptable proof or acceptable
   explanation by the Assessee.

   (iii) The Department would not be justified in drawing an adverse
   inference only because the creditor/subscriber fails or neglects to respond
   to its notices.

   (iv) The onus would not stand discharged if the creditor/subscriber denies
   or repudiates the transaction set up by the Assessee nor should the AO
   take such repudiation at face value and construe it, without more, against
   the Assessee.


   (v) The AO is duty-bound to investigate the creditworthiness of the
   creditor/subscriber the genuineness of the transaction and veracity of the
   repudiation.


 30. In the decision CIT v. Divine Leasing and Finance Ltd. (supra), this
 Court held that if the Assessee had furnished relevant details of the
 subscribers and the shares were allotted as per the prevalent norms of the
 Stock Exchange, no addition could be made on account of unexplained
 cash credits. Where the Assessee had provided the relevant details it had
 discharged its onus and then it is for the Revenue to show that the
 subscribers were benamidars or any part of the share capital represented
 the Assessee's own income from undisclosed sources. In CIT v. Divine
 Leasing and Finance Ltd. (supra), the Supreme Court while affirming the
 order of this Court observed that "if the share application money is
 received by the Assessee company from bogus shareholders, whose names


ITA Nos. 234, 235 & 236/2015                                       Page 17 of 23
 are given to the AO, then the Department is free to proceed to re-open their
 individual assessments in accordance with law."


 31. Likewise in CIT v. Dolphin Canpack Ltd. 283 ITR 190 the Court held
 no substantial question of law arose since the ITAT found that the
 Assessee had disclosed to the AO during the course of enquiry "not only
 the names and the particulars of the subscribers of the shares but also their
 bank accounts and the permanent account numbers issued by the income
 tax department. Superadded to all this was the fact that the amount
 received by the company was all by way of cheques."


 32. The law was reiterated in CIT v. Kamdhenu Steel & Alloys Ltd. 206
 Taxman 254. The Assessee there had given particulars of registration of
 the investing companies; confirmation from share applicants, their bank
 account details; and had shown payment through account payee cheques
 etc. In the circumstances, it was held that it could be said that the Assessee
 had discharged its initial onus and just because some of creditors/share
 applicants could not be found at the addresses given," would not give
 Revenue a right to invoke Section 68 without any additional material to
 support such a move." It was held likewise in Sarthak Securities Co. (P)
 Ltd. v. ITO 329 ITR 110.


 33. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it
 was held that the point at which the initial onus on the Assessee to prove
 the unexplained credit would stand discharged depends upon the facts and
 circumstances of each case. It was observed:
           "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


ITA Nos. 234, 235 & 236/2015                                        Page 18 of 23
           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 it difficult to unimpeachably establish
           creditworthiness of the shareholders."

 34. In Commissioner of Income Tax v. N.R. Portfolio Pvt. Ltd. (2014) 206
 DLT 97 (DB) the Court reiterated the need of the Assessee to satisfy the
 AO about the "identity, creditworthiness and genuineness" of the creditors.
 It was observed that the
           "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."

 35. Recently in Jet Lite (India) Ltd. v. CIT (decision dated 4th November
 2015 in ITA No. 204 of 2002), this Court examined the entire case law and
 reiterated the settled legal position.


 Reasons and decision
 36. In the present case, there is a basic fallacy in the submission of the
 Revenue about the precise role of the Assessee, Five Vision. The broad
 sweeping allegation made is that "the Assessee being a developer is
 charging on money which is taken in cash". This, however, does not apply
 to the Assessee which appears to be involved in the construction of a
 shopping mall. In fact for the AYs in question, the Assessee had not
 commenced any business. The construction of the mall was not yet
 complete during the AYs in question. The profit and loss account of the
 Assessee for all the three AYs, which has been placed on record, shows
 that only revenue received was interest on the deposits with the bank. The



ITA Nos. 234, 235 & 236/2015                                        Page 19 of 23
 Assessee is, therefore, right in the contention that the basic presumption of
 the Revenue as far as the Assessee is concerned has no legs to stand.
 Correspondingly, the further allegation that such `on money' was routed
 back to the mainstream in the form of capital has also to fail.


 37. The other submission that the Assessee was itself being used as a
 conduit for routing the `on money' or that the investment in the Assessee
 was also for routing such 'on money' has not even prima facie been able to
 be established by the Revenue. On the one hand there is an attempt to treat
 the cash credit found in the Assessee's books of accounts to be
 `undisclosed income of the Assessee' by showing the investors to be 'paper
 companies'. On the other hand, the attempt is to show that this money in
 fact belongs to certain other entities whose source has not been explained
 by the Assessee. As noted by the ITAT in the assessment proceedings of
 the investor companies, the monies invested were sought to be added as
 income of those companies by the AOs. The said additions were deleted by
 the CIT (A) in their cases holding that the additions if at all should be
 made in the hands of the beneficiaries. The Revenue then filed appeals in
 the ITAT insisting on the additions being sustained. Thus there is no clarity
 in the stand of the Revenue in these cases.


 38. Coming to the core issue concerning the identity, creditworthiness and
 genuineness of the investor companies, it is seen that as far as the Table I
 investors were concerned, only 9 were searched and in their cases, the
 ITAT on a very detailed examination was satisfied that they not only
 existed, but that the Assessee had discharged the primary onus of proving
 their creditworthiness and genuineness. They had responded to the




ITA Nos. 234, 235 & 236/2015                                       Page 20 of 23
 summons issued to them. Directors of 14 of these companies appeared
 before the AO and produced their books of accounts.


 39. In respect of four of the Table II companies, who invested Rs. 2 crores
 in the share capital of the Assessee for the AY 2008-09, the CIT (A)
 observed: "I have carefully appreciated the contentions and do admit that
 at least these few companies do not seem to be having connection with the
 majority of the 'conduit' companies and their common directors and that
 their financial credit worthiness is on much better footing."





 40. As regards Table-III companies, notices were issued under Section 131
 of the Act to which many of them responded confirming having made
 investments. The Assessee had been asked by the CIT (A) to produce 7
 directors of the Table III companies. 6 directors appeared and their
 statements were recorded. They had confirmed that they had subscribed to
 the share capital of the Assessee. These directors had not only produced
 the books of accounts but showed that the source of investment was duly
 recorded therein. The Revenue on the other hand did not produce any
 further evidence to dispute the above evidence produced by the Assessee.
 As far as Table II shareholders were concerned, if the Revenue was of the
 view that they were simply using the Assessee for parking their
 undisclosed income, then it was certainly open to the Revenue to make
 additions to the income of those Table-II companies. As far as Table-I
 shareholders was concerned, none of them denied having made the
 investment in the Assessee company. The AO does not appear to have
 undertaken any particular investigation into the affairs of the Table-I, II or
 Table III companies apart from issuance of the notices under Section 131
 of the Act which were duly responded to.


ITA Nos. 234, 235 & 236/2015                                        Page 21 of 23
 41. Detailed findings have been given by the ITAT in the present cases
 after a thorough examination of the records. These have been extracted
 hereinabove. The Court finds no reason to differ from the decision of the
 ITAT in its rejection of the very same contentions urged before the Court
 by the Revenue. In particular, the Court concurs with the ITAT that the
 mere fact that some of the investors have a common address is not a valid
 basis to doubt their identity or genuineness.


 42. Also, the fact that the shares of the Assessee were subsequently sold at
 a reduced price is indeed not germane to the question of the genuineness of
 the investment in the share capital of the Assessee. The question of
 avoidance of tax thereby may have to be examined in the hands of the
 person purchasing the shares.


 43. Some of the investor companies for e.g., Quality Security Services Pvt.
 Ltd. (b) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs
 Pvt. Ltd. have been shown to be filing returns and being assessed on a
 regular basis. Some of them have been shown to be in existence even
 before the incorporation of the Assessee. Indeed the Revenue was unable
 to produce material to substantiate its case that the genuineness and
 creditworthiness of the investors and the source of the money received by
 the Assessee by way of investments in the AYs in question was not
 satisfactorily explained by the Assessee. Also, the ITAT rightly
 distinguished the decision in M/s. Nova Promoters and Finlease (P) Ltd.
 (supra) in its application to the facts of the present case.




ITA Nos. 234, 235 & 236/2015                                      Page 22 of 23
 Conclusion
 44.     The Revenue has not been able to show that there is any legal
 infirmity in the impugned order of the ITAT as regards the analysis of the
 facts or the application of the law in relation to Section 68 of the Act.


 45. Consequently, no substantial question of law arises for determination.


 46. The appeals are dismissed but in the circumstances, with no orders as
 to costs.




                                                   S. MURALIDHAR, J




                                                   VIBHU BAKHRU, J
 NOVEMBER 27, 2015
 Rk




ITA Nos. 234, 235 & 236/2015                                         Page 23 of 23

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Internet Marketing Website Marketing Internet Promotion Internet Marketing India Website Marketing India Internet Promotion India Internet Marketing Consultancy Website Marketing Consulta

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions