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Principal Commissioner Of Income Tax-7 Vs. Oriental International Co. Pvt. Ltd.
January, 16th 2018
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                   Decided on: 08.01.2018

+      ITA 9/2018
       PRINCIPAL COMMISSIONER OF INCOME TAX-7..... Appellant
                    Through : Sh. Sanjay Kumar, Standing Counsel.

                          versus

       ORIENTAL INTERNATIONAL CO. PVT. LTD. ..... Respondent
                    Through : None.
       CORAM:
       HON'BLE MR. JUSTICE S. RAVINDRA BHAT
       HON'BLE MR. JUSTICE A.K. CHALWA


MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%

1.     The Revenue is aggrieved by an order of the Income Tax Appellate
Tribunal (ITAT). The ITAT confirmed the order of the CIT(A) who had set
aside addition made to the extent of `5 crores under Section 68 of the
Income Tax Act, 1961 [hereafter "the 1961 Act"].
2.     The assessee had claimed that these amounts were received as share
application money from various parties, i.e. M/s. Creative Financial Services
Pvt. Ltd.; M/s. Rahul Finlease P. Ltd.; M/s. Shri Niwas Leasing Finance
Ltd.; M/s. Meghdoot Express P. Ltd. and M/s. Niti Housing Development
and Finance Corporation Ltd.
3.     The Assessing Officer (AO) was of the opinion that such large
amounts of share application money need to be probed further and, therefore,
required the assessee to furnish particulars, which it did.
4.     The assessee inter alia provided details relating to the share



ITA 9/2018                                                          Page 1 of 6
application money provided by each of the entities - confirmation letters;
board resolutions from each company; PAN card details; copies of the
Memorandum and Articles of Association; Forms 18 and 32 and audited
financial statements for the years 2004, 2005 and 2006; copies of pay orders
which were used for the share application money. In addition, affidavits of
Directors and share investors were also furnished.
5.     The AO was not satisfied with the materials furnished and held that
the assessee had not discharged the onus/burden of proving the genuineness
of the identity of the applicants, the genuineness of the transactions or the
creditworthiness of the investors as required by the decision in CIT v. Lovely
Exports P. Ltd. 216 ITR 195 (SC).
6.     Aggrieved, the assessee appealed to the CIT(A). By an order dated
02.08.2010, the CIT(A) examined all the materials afresh and held that
further material in the form of documents pertaining to the share applicant
companies had been provided, which however, were not examined by the
AO while confirming the assessment. The CIT(A) was of the opinion that
the AO gave undue importance to the statements given by Mr. Mahesh Garg,
Ms. Rekha Garg and Mr. Vinod Garg and one Mr. Suresh Kumar Jain,
Director of M/s. Creative Financial Services Pvt. Ltd. The relevant findings
of the CIT(A) are as follows:
       "...............After careful consideration of above facts. I am of
       the view that in view of various judgements of jurisdictional
       High Court as well as of Hon'ble Supreme Court, no addition
       on account of share application money (received from other
       corporate entities/parties) can be made in the hands of the
       appellant company. The assessing officer has not effected any
       enquiries to bring out any facts which could suggest that these
       parties have given accommodation entries to the appellant and









ITA 9/2018                                                              Page 2 of 6
       that the money received from these parties is appellant's own
       undisclosed income and routed back to the appellant company
       in the guise of share application. Even appellant has not been
       provided with an opportunity to cross-examine the so called
       entry providers. He has simply relied upon the statement given
       by Sh. Mahesh Garg, Ms. Reba Garg and Sh. Vinod Garg to
       Investigation Wing of the Department in the year 2003. No
       concrete efforts have been made to verify the facts stated
       therein. On the contrary, the appellant has filed copies of share
       application forms which contained names, addresses, PAN,
       bank details, confirmations of the investors, copy of the annual
       returns and returns of allotment filed with the Registrar of
       Companies, etc. and hence, in view' of various judicial
       pronouncements, no addition can be made in appellant's hand.
       In the case of Addl. CIT v. Hanuman Pd. Aggarwal 151 ITR 151
       (Parna) it was held that assessee having furnished the correct
       name and address of the creditor, having confirmatory letter
       from the creditor and all materials show prima facie not only
       identify of the creditor but also the genuineness of the
       transaction, no adverse inference can be drawn. Reference can
       also be made to the judgement of Hon'ble Apex Court in the
       case of Steller Investment Ltd. (2001) 251 ITR 263 (SC) wherein
       it was held that even if the subscribers to the increased share
       capital of assessee company were not genuine, the amount
       could not be regarded as undisclosed income of the assessee
       company. The above view point of the Hon'ble Apex Court has
       also been expressed by Jurisdictional Delhi High Court in the
       case of Divine Leasing & Finance Ltd. (2008) 299 ITR 268
       (Del), A-One Housing Complex Ltd. vs. ITO 110 ITD 361 (Del),
       CIT vs. Value Capital Service Pvt. Ltd. 307 ITR 334 (Del) and
       CIT vs. General Exports and Credits Ltd (2008) 299 ITR 268
       (Del). In the case of CIT vs. Lovely Exports Pvt. Ltd. (2008) 299
       ITR 268 (Del), the Delhi High Court held that once the identify
       of the share holder has been established, even if there is a case
       of bogus share capital, it can not be added in the hands of the
       company unless any adverse evidence is no record. The Hon'ble
       Delhi High Court in the case of CIT vs. Divine Leasing &
       Finance Ltd. (supra) has laid down the law on the subject as to




ITA 9/2018                                                            Page 3 of 6
       what is the extent of the burden that lies on the assessee to
       prove the cash credit in the share of share capital. The Hon'ble
       Court held that "if the relevant details of the address or PAN
       identity of the creditor/subscriber are furnished to the
       Department along with the copies of share holder's register,
       share application money forms, share transfer register, etc, it
       would constitute an acceptable proof or acceptable explanation
       by the assessee. The Department would not be justified in
       drawing an adverse inference only because the
       creditors/subscribers fails or neglects to respond to its notices.
       The onus would not stand discharged if the creditors/subscriber
       denies or repudiates the transaction set up by the assessee."

7.     The CIT(A) was also of the opinion with respect to M/s. Creative
Financial Services Pvt. Ltd that the AO did not complete the task assigned
diligently in that the master details furnished to him were neither examined
nor controverted. The CIT(A) was of the opinion that the assessee had
discharged the onus to prove the identity of          the   concerned       share
applicants, i.e. M/s. Creative Financial Services Pvt. Ltd. as in the other
cases. The ITAT, by the impugned order, re-examined the materials afresh
and affirmed the findings of the CIT(A). It was held inter alia as follows:
       "10. We have heard the rival submissions and perused the
       judgments relied upon by the both the parties. In the case of M/s
       Creative Financial Services Pvt. Ltd., the assessee has
       submitted before the AO that Sh. Suresh Chand Garg, who has
       denied on behalf of the company to have made any transaction
       with the assessee company was not a director of the share
       subscriber company when the share capital was subscribed. The
       assessee has given particulars of all the directors of the
       aforesaid company since its incorporation vide letter dated
       30.12.2009. The master details available from the ROC also
       clarifies that the said Sh. Suresh Chand Garg was neither the
       promoter nor the original director. The share application
       money was invested on the basis of the resolution of Board of



ITA 9/2018                                                             Page 4 of 6
       Directors of the aforesaid company. In the said resolution, Sh.
       Deepak Changia was authorized to execute documents for the
       purpose of subscription to share capital. It is relevant to note
       that Sh. Deepak Changia was the Director of the company from
       the year 2003 and thereafter. The said facts have not been
       rebutted by the AD. Moreover, the authorized representative of
       the assessee was denied the opportunity to cross examine Shri
       Suresh Chand Garg. The reliance placed by the AO on the
       statement of Sh. Suresh Chand Garg in the absence of cross
       examination is incorrect. The law with respect to cross
       examination is well settled in view of the judgment passed by the
       Hon'ble Delhi High Court in the case of CIT Vs. SMC Brokers
       Ltd. 288 ITR 245. The said statement cannot be used against the
       assessee company.






       11. The assessee in the present case, has discharged its onus
       by producing all the documents showing the genuineness,
       creditworthiness and identity of the share subscriber. The AD
       has not produced anything on record to show how the share
       application money was tainted money of the assessee company
       which was routed through the share subscriber company. The
       Hon'ble Delhi High Court in the case of CIT Vs. Divine Leasing
       And finance Ltd., 299 ITR 268, observed that if the AO fails to
       unearth any wrong or illegal dealings, he cannot adhere to his
       suspicion and treat the subscribed capital as undisclosed
       income of the company. It is to be further noted that mere denial
       by Sh. Suresh Chand Garg would not ipso facto lead to the
       conclusion that the transaction was hit by Section 68 of the Act.
       We therefore uphold the deletion of addition with respect to the
       share subscribers M/s Creative Financial Services Pvt. Ltd."

8.     Learned counsel for the Revenue highlighted that the AO examined all
the materials in great detail and rejected the affidavit furnished to him. It was
highlighted that the AO took note of the statement made by the individual
styled as Director, disowning the investment made in the assessee company
by M/s. Creative Financial Services Pvt. Ltd.




ITA 9/2018                                                              Page 5 of 6
9.     This Court is of the opinion that the lone circumstance of a Director
disowning the document per se could not have constituted a fresh material to
reject the documentary evidence. In this case, the existence of the company
as an income tax assessee, and that it had furnished audited accounts is not in
dispute. Furthermore, its bank details too were furnished to the AO. If the
AO were to conduct his task diligently, he ought to have at least sought the
material by way of bank statements etc. to discern whether in fact the
amounts were infused into the share holder's account in cash at any point of
time or that the amount of `1.3 crores ­ in the case of M/s. Creative
Financial Services Pvt. Ltd and `3.7 crores in the case of other share
applicants were such as to be beyond their means. In the absence of any such
enquiry, the Court is of the opinion that the findings holding that the assessee
had not discharged the onus placed upon it by law cannot be considered
unreasonable. No question of law arises.
10.    The appeal is accordingly dismissed.



                                                       S. RAVINDRA BHAT
                                                                 (JUDGE)



                                                              A.K. CHAWLA
                                                                    (JUDGE)
JANUARY 08, 2018




ITA 9/2018                                                             Page 6 of 6

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