$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 49/2018
% Reserved on: 31st October, 2018
Pronounced on: 17th January, 2019
PR. COMMISSIONER OF INCOME TAX -6, NEW DELHI
.... Appellant
Through: Mr. Asheesh Jain, Sr. Standing Counsel
for Income Tax Department with Mr. Dushyant
Sarna, Advocate.
versus
NDR PROMOTERS PVT. LTD. ..... Respondent
Through: Mr. Ved Jain, Mr. Kislaya Parashar and
Ms. Umang Luthra, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI
SANJIV KHANNA, J.
This appeal by the Revenue under Section 260A of the Income Tax
Act, 1961 (,,Act, for short), in the case of NDR Promoters Pvt. Ltd. relates to
Assessment Year 2008-09 and arises from the order dated 3rd March, 2019
passed by the Income Tax Appellate Tribunal (,,Tribunal, for short).
2. The appeal was admitted for hearing vide order dated 17th January,
2018 on the following substantial question of law:-
"Whether the ITAT fell into error in upholding the
deletion directed by the CIT (A) in respect of the
amount of Rs.1,51,50,000/- brought to tax under
Section 68 of the Income Tax Act, 1961, in the
circumstances of the case ?"
ITA 49/2018 Page 1 of 17
3. It is an undisputed position that during the Assessment Year 2008-09,
the respondent-assessee had received money in the form of share
capital/share premium as per the following details:-
S Name & Address of company Value of Share Premium (as Total share
No from whom claim of share shares at Par claimed) holders fund
capital/share premium made (as claimed) claimed to have
been raised
during the year
1 M/s Tejasvi Investment Pvt. 4,00,000 16,00,000 20,00,000
Ltd. 13/34, WEA, IV Floor,
Main Arya Samaj Road, Karol
Bagh, New Delhi-110005
2 M/s Sai Baba Finvest Pvt. Ltd. 6,40,000 25,60,000 32,00,000
13/34, WEA, IV Floor, Main
Arya Samaj Road, Karol Bagh,
New Delhi-110005
3 M/s Bhavani Portfolio Pvt. Ltd. 7,40,000 29,60,000 37,00,000
13/34, WEA, IV Floor, Main
Arya Samaj Road, Karol Bagh,
New Delhi-110005
4 M/s Thar Steels Pvt. Ltd. 4,00,000 16,00,000 20,00,000
13/34, WEA, IV Floor, Main
Arya Samaj Road, Karol Bagh,
New Delhi-110005
5 M/s Tauras Iron & Steel Pvt. 8,50,000 34,00,000 42,50,000
Ltd.
13/34, WEA, IV Floor, Main
Arya Samaj Road, Karol Bagh,
New Delhi-110005
6 M/s Ashwani Finman Services 1,30,000 5,20,000 6,50,000
Pvt. Ltd.
79, Agroha Kunj, Sect.13,
Rohini
Delhi-110085
7 M/s Victory Software Pvt. Ltd. 2,00,000 8,00,000 10,00,000
3198/15, IVth Floor, Arihant
Plaza, Gali No.1, Sangat
Total 1,68,00,000
Issue raised in this appeal relates to first five companies, who had invested
Rs.1,51,50,000/- as share application money with premium as per details
given in above table.
4. The Assessing Officer vide assessment order dated 30th December,
2010, made an addition of Rs.1,51,50,000/- recording that the aforesaid
ITA 49/2018 Page 2 of 17
companies were ,,creation of and de facto operated by one Tarun Goyal,
Chartered Accountant, who had set up about 90 companies/firms including
the aforesaid 5 companies for providing accommodation entries. Paper work
was perfect but there were chinks, which had revealed that the true nature of
the transactions was to convert illegitimate money by providing bogus or
accommodation entries. These evidences and details collected and
ascertained during the course of search under Section 132 of the Act
conducted by the Investigation Wing in the case of Tarun Goyal, had
revealed that the registered office of 90 companies was located at 13/34,
Main Arya Samaj Road, Karol Bagh and their former office was at 203,
Dhaka Chambers, 2069/39, Naiwala, Karol Bagh, New Delhi. These
companies were not carrying on any genuine business activities. Directors of
these companies were employees of Tarun Goyal, who were working as
peons, receptionists etc. Entries in the books were bogus. Modus operandi in
such cases is well known, money is circulated by first depositing cash in the
bank account of one such company, and thereupon it is transferred/circulated
within the group companies before cheque is issued to the beneficiary.
5. The Assessing Officer had asked the respondent-assessee to produce
Directors of the shareholder companies for examination after recording:-
(i) most of the directors in their statement recorded by the Investigation
Wing had admitted that they had signed documents/papers on direction of
Tarun Goyal.
(ii) shares of face value of Rs.10/- were issued at a premium of Rs.40/-
(total Rs.50/-). There was no justification and reason for a third person to
purchase shares in the respondent-assessee and to pay substantial premium.
ITA 49/2018 Page 3 of 17
(iii) The respondent-assessee had shown receipts of Rs.16.38 lakhs and
,,Nil income in the year ending 31st March, 2008 and 31st March, 2007,
respectively. There were no fixed assets and the respondent-assessee had
incurred expenses amounting to Rs.12.17 lakhs and ,,Nil in the year ending
31st March, 2008 and 31st March, 2007, respectively.
(iv) share capital/share premium of Rs.168 lakhs was after deposit shown
as investment partly as advance for land and as advance to S.M. Udyog and
Guruji Industries. FDR of Rs.80 lakhs was obtained from Oriental Bank of
Commerce.
6. Respondent-assessee was also asked to produce all papers relating to
issue of shares; state, how the dealings had started with the shareholder
companies; if directly, state the year/date since when they were known to
each other; if indirectly, give the name of the introducer and state that since
when the introducer was known including years of relationship; state,
whether the applications for allotment of shares were received in one lot or
on different dates and whether they were received by hand or post. If
acknowledgement was issued, supporting evidence should be given; provide
the proof if any offer letter was received or issued; whether stamp duty was
paid on allotment of shares; whether the share certificates were delivered by
hand or post. If by hand, details of the person who had delivered the
certificates. If share certificates were issued by post, state whether they were
received back; indicate whether annual reports, balance sheet or notices of
AGM/EGM of the respondent-assessee company were sent to the
shareholders.
ITA 49/2018 Page 4 of 17
7. The respondents-assessee did not produce the Directors for
examination. Other details and particulars were also not filed as required by
the Assessing Officer. However, the respondent-assessee had filed:-
(i) Copy of the ledger account of share application.
(ii) Copy of the bank statement of the account in which money was
received.
(iii) Copy of the ledger account of share capital.
(iv) Copy of balance sheet and profit & loss account reflecting receipt of
share application money.
(v) Share application form with complete list of shareholders, old and new.
(vi) Annual return filed before the Registrar of Companies.
(vii) Copy of Form No.2 i.e., return of allotment filed before the Registrar
of Companies.
(viii) Affidavits of Directors of the shareholder companies along with PAN
details, copy of PAN cards, Board Resolutions, confirmations from the
parties, share application forms, bank account statements of the shareholder
companies, Memorandum and Articles of Association, confirmation of
receipt of shares from M/s Bhawani Portfolio and CIN details of M/s Bhavani
Portfolio.
8. The Assessing Officer made an addition of Rs.1,51,50,000/- as
unexplained cash after referring to the factual matrix including failure to
produce Directors of the shareholder companies so that they could be
examined on oath. He observed that no prudent businessman would invest
in the shares of the respondent-assessee at five times the face value of shares.
There was sufficient evidence to indicate and infer that beneficiaries i.e. the
ITA 49/2018 Page 5 of 17
respondent-assessee had introduced income from undisclosed sources into
their business in the garb of share capital/share premium.
9. The addition was deleted by the Commissioner of Income Tax
(Appeals) on the ground that the respondent-assessee had been able to
establish identity, creditworthiness of the shareholders and genuineness of the
transactions in terms of several decisions of this Court including CIT Vs.
Oasis Hospitalities Pvt. Ltd. decided on 31st January, 2011. He held that
once documents like PAN or bank account details were given, then the onus
had shifted on the Assessing Officer and it was up to him to reach the
shareholders. This burden could not be passed on to the assessee, merely on
the ground that the summons issued to the shareholders were returned.
Assessing Officer had issued notice Section 133 (6) of the Act and in
response had received replies confirming the investment. The shareholder
companies were incorporated and had invested money through banking
channels, which was reflected in the books. Investment was proved by the
bank statements that disclosed sufficient balance before cheques were issued.
Accordingly, the three requirements i.e. identity of the investor,
creditworthiness of the investors and genuineness of the transactions were
satisfied.
10. Appeal preferred by the Revenue against the said deletion has been
dismissed by the impugned order passed by the Tribunal, which records as
under:-
"4. In view of above citations, when we go through the
orders of the authorities below, we find that there is no
dispute that the assessees in support of genuineness of
their claims regarding receipt of share application moneys
from different parties had furnished their confirmatory
letters, PAN details, copies of Income Tax Returns as well
ITA 49/2018 Page 6 of 17
as share application forms and complete name and address
of share applicants. These documents were sufficient to
establish the identity of share applicants. It is also not in
dispute that all the transactions have been routed through
banking channels and share application money has been
received through account payee cheques, details of which
were furnished. The assessees had also furnished returns
of income of the creditors accepted by the Department and
thus, we are of the view that in absence of rebuttal of
these facts there was no reason to doubt the genuineness
of the transactions. The creditworthiness of the share
applicants was also established by the assessee by filing
the audited balance sheet of each of the share-holder
company. On the contrary, no evidence has been brought
on record by the Assessing Officer to prove that share
application money emanated from the coffers of the
assessees. It is also pertinent to note here that in response
to the notices issued under section 133(6) of the Act by
the Assessing Officer were responded by the share
applicants. Merely because the assessee, as directed by the
Assessing Officer, could not produce any of the share
applicants, cannot be a reason for doubting the
genuineness of the transactions. This view is well
supported by the decisions of the Hon'ble jurisdictional
High Court of Delhi in the cases of CIT Vs. Rakam
Money Matters Pvt. Ltd. (supra) and CIT Vs. Victor
Electrodes (supra), relevant extract thereof, are
respectively reproduced hereunder :-
CIT Vs. Rakam Money Matters Pvt. Ltd, :
" 12. A perusal of the order of the AO shows
that its foundation is the report of the DIT
(Investigation). Admittedly, the Assessee was
not confronted with that material in the course
of the reassessment proceedings. The Assessee
was also not confronted with the statements
recorded in the course of the investigation.
Once that material is kept aside then the scope
ITA 49/2018 Page 7 of 17
of enquiry can only be whether the Assessee has
produced documents to discharge the initial
onus of proving the genuineness and
creditworthiness of the companies who were
stated to have subscribed to the Assessee's
shares.
13. It is not in dispute that extensive material
was produced by the assessee in the present case
to prove the identity, genuineness and
creditworthiness of the companies who had
subscribed to its shares. Among the materials
produced were the Income Tax Returns and the
PAN card details of the eight companies. Even if
the Directors of these companies did not
respond to the summons issued by the AO, it was
not impossible for the AO to make proper
enquiries to ascertain the genuineness of these
entities and satisfy himself of their
creditworthiness. As pointed out by the CIT(A),
the AO failed to make any effort in that
direction. He did not take to the logical end the
halfhearted attempt at getting the Directors to
appear before him. He did not even seek the
assistance of the AOs of the concerned
companies whose ITRs and PAN card copies had
been produced.
14. The view taken by the CIT(A) that the AO
failed to come up with the material to disprove
what had been produced by the Assessee is
certainly a plausible view in the facts and
circumstances of the case. Likewise, the view
taken by the ITAT concurring with the CIT(A) on
facts cannot be said to be perverse. "
CIT Vs. Victor Electrodes :
ITA 49/2018 Page 8 of 17
" There was no legal obligation on the assessee
to produce same Director or other
representative of the applicant companies before
the Assessing Officer. Therefore, failure of
assessee to produce then could not by itself
have justified the additions made by A. 0. "
4.1 As discussed above, we find that the assessees have
been able to discharge its initial onus to establish the
genuineness of the claimed transactions of share
application moneys by furnishing all the necessary
possible evidences and thus, the onus to disprove those
evidences were shifted upon the Assessing Officer the
Assessing Officer has failed -to discharge by not
disproving those evidences. The assessees were thus, able
to establish the identification as well as creditworthiness
of the share applicants and the genuineness of the claimed
receipt of share application moneys from those parties.
The ld. CIT (Appeals) was thus justified in deleting the
additions made under section 68 of the Act on account of
the alleged unexplained share application money. The
same is upheld. The grounds questioning the action of the
Id. CIT (Appeals) in this regard are thus rejected. "
11. Issue of bogus share capital in the form of accommodation entries has
been subject matter of several decisions of this Court and we would like to
refer to decision in Commissioner of Income Tax Vs. Navodaya Castles Pvt.
Ltd. [2014] 367 ITR 306, wherein the earlier judgments were classified into
two separate categories observing as under:-
"11. We have heard the Senior Standing counsel for the
Revenue, who has relied upon decisions of the Delhi High
Court in Commissioner of Income Tax Vs. Nova
Promoters and Finlease (P) Ltd. [2012] 342 ITR 169
(Delhi), Commissioner of Income Tax Vs. N.R. Portfolio
Pvt. Ltd., 206 (2014) DLT 97 (DB) (Del) and
Commissioner of Income Tax-II Vs. MAF Academy P.
Ltd., 206 (2014) DLT 277 (DB) (Del). The aforesaid
ITA 49/2018 Page 9 of 17
decisions mentioned above refer to the earlier decisions of
Delhi High Court in Commissioner of Income Tax Vs.
Sophia Finance Ltd., [1994] 205 ITR 98 (FB)(Delhi), CIT
Vs. Divine Leasing and Finance Limited [2008] 299 ITR
268 (Delhi) and observations of the Supreme Court in CIT
Vs. Lovely Exports P. Ltd. [2008] 319 ITR (St.) 5 (SC).
12. The main submission of the learned counsel for the
assessee is that once the assessee had been able to show that
the shareholder companies were duly incorporated by the
Registrar of Companies, their identity stood established,
genuineness of the transactions stood established as
payments were made through accounts payee cheques/bank
account; and mere deposit of cash in the bank accounts prior
to issue of cheque/pay orders etc. would only raise suspicion
and, it was for the Assessing Officer to conduct further
investigation, but it did not follow that the money belonged
to the assessee and was their unaccounted money, which
had been channelized.
13. As we perceive, there are two sets of judgments and
cases, but these judgments and cases proceed on their own
facts. In one set of cases, the assessee produced necessary
documents/evidence to show and establish identity of the
shareholders, bank account from which payment was made,
the fact that payments were received thorough banking
channels, filed necessary affidavits of the shareholders or
confirmations of the directors of the shareholder companies,
but thereafter no further inquiries were conducted. The
second set of cases are those where there was evidence and
material to show that the shareholder company was only a
paper company having no source of income, but had made
substantial and huge investments in the form of share
application money. The assessing officer has referred to the
bank statement, financial position of the recipient and
beneficiary assessee and surrounding circumstances. The
primary requirements, which should be satisfied in such
cases is, identification of the creditors/shareholder,
creditworthiness of creditors/shareholder and genuineness of
ITA 49/2018 Page 10 of 17
the transaction. These three requirements have to be tested
not superficially but in depth having regard to the human
probabilities and normal course of human conduct.
14. Certificate of incorporation, PAN number etc. are
relevant for purchase 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. It is in this context, the Supreme Court in CIT
Vs. Durga Prasad More [1971] 82 ITR 540 (SC) had
observed:-
"Now we shall proceed to examine the validity of those
grounds that appealed to the learned judges. It is true
that the apparent must be considered real until it is
shown that there are reasons to believe that the apparent
is not the real. In a case of the present kind a 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."
15. Summarizing the legal position in Nova Promoters
and Finlease (P) Ltd.(supra), and highlighting the legal
effect of section 68 of the Act, the Division Bench has held
as under:-
"32. The tribunal also erred in law in holding
Assessing Officer ought to have proved that the
monies emanated from the coffers of the assessee-
ITA 49/2018 Page 11 of 17
company and came back as share capital. Section 68
permits the Assessing Officer to add the credit
appearing in the books of account of the assessee if
the latter offers no explanation regarding the nature
and source of the credit or the explanation offered is
not satisfactory. It places no duty upon him to point
to the source from which the money was received by
the assessee. In A. Govindarajulu Mudaliar v CIT,
(1958) 34 ITR 807, this argument advanced by the
assessee was rejected by the Supreme Court.
Venkatarama Iyer, J., speaking for the court
observed as under (@ page 810): -
"Now the contention of the appellant is that
assuming that he had failed to establish the case put
forward by him, it does not follow as a matter of law
that the amounts in question were income received
or accrued during the previous year, that it was the
duty of the Department to adduce evidence to show
from what source the income was derived and why it
should be treated as concealed income. In the
absence of such evidence, it is argued, the finding is
erroneous. We are unable to agree. Whether a
receipt is to be treated as income or not, must
depend very largely on the facts and circumstances
of each case. In the present case the receipts are
shown in the account books of a firm of which the
appellant and Govindaswamy Mudaliar were
partners. When he was called upon to give
explanation he put forward two explanations, one
being a gift of Rs. 80,000 and the other being receipt
of Rs. 42,000 from business of which he claimed to
be the real owner. When both these explanations
were rejected, as they have been it was clearly upon
to the Income-tax Officer to hold that the income
must be concealed income. There is ample authority
for the position that where an assessee fails to prove
satisfactorily the source and nature of certain
amount of cash received during the accounting year,
the Income-tax Officer is entitled to draw the
ITA 49/2018 Page 12 of 17
inference that the receipt are of an assessable
nature. The conclusion to which the Appellate
Tribunal came appears to us to be amply warranted
by the facts of the case. There is no ground for
interfering with that finding, and these appeals are
accordingly dismissed with costs."
(emphasis supplied)
Section 68 recognizes the aforesaid legal position. The view
taken by the Tribunal on the duty cast on the Assessing
Officer by section 68 is contrary to the law laid down by the
Supreme Court in the judgment cited above. Even if one
were to hold, albeit erroneously and without being aware of
the legal position adumbrated above, that the Assessing
Officer is bound to show that the source of the unaccounted
monies was the coffers of the assessee, we are inclined to
think that in the facts of the present case such proof has been
brought out by the Assessing Officer. The statements of
Mukesh Gupta and Rajan Jassal, the entry providers,
explaining their modus operandi to help assessees having
unaccounted monies convert the same into accounted monies
affords sufficient material on the basis of which the
Assessing Officer can be said to have discharged the duty.
The statements refer to the practice of taking cash and issuing
cheques in the guise of subscription to share capital, for a
consideration in the form of commission. As already pointed
out, names of several companies which figured in the
statements given by the above persons to the investigation
wing also figured as share-applicants subscribing to the
shares of the assessee-company. These constitute materials
upon which one could reasonably come to the conclusion that
the monies emanated from the coffers of the assessee-
company. The Tribunal, apart from adopting an erroneous
legal approach, also failed to keep in view the material that
was relied upon by the Assessing Officer. The CIT (Appeals)
also fell into the same error. If such material had been kept in
view, the Tribunal could not have failed to draw the
appropriate inference."
ITA 49/2018 Page 13 of 17
12. The present case would clearly fall in the category where the Assessing
Officer had not kept quiet and had made inquiries and queried the
respondent-assessee to examine the issue of genuineness of the transactions.
The Tribunal unfortunately did not examine the said aspect and has ignored
the following factual position:-
(a) The shareholder companies, 5 in number, were all located at a common
address i.e. 13/34, WEA, Fourth Floor, Main Arya Samaj Road, Karol Bagh,
New Delhi.
(b) The total investment made by these companies was Rs.1,51,00,000/-,
which was a substantial amount.
(c) Evidence and material on bogus transactions found during the course
of search of Tarun Goyal. Evidence and material that the companies were
providing accommodation entries to beneficiaries was not considered.
(d) The findings recorded as mentioned in the assessment order, which
read as under:-
"1. From the finding of search, it is evident and undeniable
that all the companies including the alleged shareholders
companies belong to Sh. Tarun Goyal. This is enforced
even more from the following:-
i. All the companies are operated from the-office
premises of Sh. Tarun Goyal.
ii. All the directors are either his employees or close
relatives. Sh. Tarun Goyal could never produce the
directors nor furnish their residential address.
iii. The statement of employees of Sh. Tarun Goyal is
,on record, whereby they have clearly stated that
they signed on the papers produced before them by
Sh Tarun GoyaL They do not know about the basic
ITA 49/2018 Page 14 of 17
details of the companies like shareholding patterns,
nature of business of these companies etc.
iv. The statement of auditors of Sh. Tarun Goyal is on
record. They have stated to have never meet (sic)
the directors of the companies and audited the
accounts only on the directions of Sh Tarun Goyal.
As per the statement of auditors, the employees of
Sh Tarun Goyal were directors of the companies run
by them, also they could not ascertain the so called
share capital subscribed by Sh Tarun Goyal as
documentary proof of the same was lacking.
v. During the course of search, all the passbooks,
cheque books, PAN Cards etc. were always in
possession of Sh Tarun Goyal. On his directions all
the employees signed all the documents.
vi. All the bank account opening forms appear to be in
the handwriting of Sh Tarun Goyal.
vii. All the books of accounts of all the companies have
been retrieved from the computers/laptop of Sh
Tarun Goyal.
viii. Sh Tarun Goyal has given letters for the release of
bank accounts of companies put under restraints
after search. No such application was received from
so called directors of the companies.
ix. Sh Tarun Goyal appears in all the scrutiny
assessments as well as appeals of his companies
himself before various income' tax authorities. From
verification carried out in respective wards/ circles
where the above mentioned companies are assessed,
it is' evident that Sh Tarun Goyal is appearing in all
the income tax proceedings on behalf of all the
ITA 49/2018 Page 15 of 17
companies. He is not charging any fees for
appearing in these cases.
x. During the post search investigation it was revealed
that besides, aiding and abetting the evasion of taxes,
Sh Tarun Goyal has been indulging in violation other
provisions of the law of the land. This matter has also
been taken up by REIC for multi-agency probe."
(e) The respondent-assessee did not have any business income in the year
ending 31st March, 2007 and had income from other sources of Rs.16.38
lakhs in the year ending 31st March, 2008. The respondent-assessee had not
incurred any expenditure in the year ending 31st March, 2007 and had
incurred expenditure of Rs.12.17 lakhs in the year ending 31st March, 2008.
(f) Shares of face value of Rs.10/- each were issued at a premium of
Rs.40/- (total Rs.50/-).
(g) The respondent-assessee had failed to produce Directors of the
companies, though they had filed confirmations, and therefore, were in touch
with the respondent-assessee. The respondent-assessee had also failed to
produce the details and particulars with regard to issue of shares, notices etc.
to the shareholders of AGM/EGM etc.
13. In view of the aforesaid factual position, we have no hesitation in
holding that the transactions in question were clearly sham and make-believe
with excellent paper work to camouflage their bogus nature. Accordingly,
the order passed by the Tribunal is clearly superficial and adopts a
perfunctory approach and ignores evidence and material referred to in the
assessment order. The reasoning given is contrary to human probabilities, for
in the normal course of conduct, no one will make investment of such huge
ITA 49/2018 Page 16 of 17
amounts without being concerned about the return and safety of such
investment.
14. Accordingly, the appeal is allowed. The substantial question of law
framed above is accordingly answered in favour of the appellant-revenue and
against the respondentassessee. There would be no order as to costs.
(SANJIV KHANNA)
JUDGE
(ANUP JAIRAM BHAMBHANI)
JUDGE
JANUARY 17th, 2019 NA/ssn
ITA 49/2018 Page 17 of 17
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