$~5
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 27.01.2014
+ ITA 493/2013
THE COMMISSIONER OF INCOME TAX-IV ..... Appellant
Through: Mr. Sanjiv Sabharwal, Sr. Standing
Counsel with Mr. Ruchir Bhatia, Jr. Standing
Counsel.
versus
EMPIRE BUILTECH PVT LTD ..... Respondent
Through: Mr. V.N. Jha, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. The following substantial question of law arises for
consideration : -
"Did the Tribunal fall into error of law in upholding the
deletion of Rs.31.94 lakhs which had been added under Section
68 by the Assessing Officer in respect of AY 2006-07 in the
circumstances of the case?"
2. With the consent of counsel for the parties, the matter is heard
for disposal.
3. The facts in brief are that the assessee filed its income tax
return for the year 2006-07. It is a matter of record that the assessee
was incorporated on 20.10.2005 and commenced business thereafter.
ITA 493/2013 Page 1
The assessee had reported receipt of share capital to the tune of `11
lakhs; it sold them at 1000% premium and claimed to have received
`1.1 crores on that count. During the enquiry made at the time of
assessment proceedings, the AO required the assessee to furnish
various particulars which have been set out in pages 21-23 of the
paper book and contained in about 10 columns. He also proceeded to
make further enquiry to that end and issued notices under Section 133
(6) of the Income Tax Act, 1961 to the individuals and entities who
had applied as shareholders directly. This yielded certain information.
28 of the 39 investors responded to the queries. Out of the balance of
11, 2 of them did not receive the notice and 9 received the notices and
apparently had responded. Based on the materials on record, the AO
framed the assessment adding the entire amount under Section 68.
The assessee claiming to be aggrieved approached the Commissioner
(Appeals) and successfully argued that once the identity of the
investors had been disclosed, it had discharged the burden imposed
upon it by law and that the amount could not be added back under
Section 68. The Commissioner of Income Tax (Appeals) directed
the deletion of `1.10 crores holding that since these individuals had
responded and furnished the particulars elicited, the AO should not
have added the amount as income. Almost similar approach was
adopted in respect of the other 11 investors on the reasoning that the
assessee did all that was required of it under the law by disclosing the
identity of investors. The ITAT confirmed the order of the CIT (A).
The Revenue, therefore, is in appeal before us.
4. It is argued on behalf of the Revenue before us that the
ITA 493/2013 Page 2
impugned order is in clear error of law in upholding the reasoning of
the CIT (A) that the assessee had discharged the burden imposed
upon it and disclosed the particulars and identity of the investors. It is
pointed out that a bare reading of the chart prepared by the Assessing
Officer, during the course of his investigation, reflected in the
impugned order would show that apart from the Section 133 (6)
notices, independent enquiries had been made on the basis of the
materials disclosed by way of income tax returns from the relevant
assessing authorities. The AO concluded that the amounts claimed by
the subscribers to be bona fide investors could not have been so
having regard to the quantum of the income reported by them during
the relevant assessment years. Counsel, therefore, submitted that
even the requirement of the assessee having to discharge the burden
imposed upon him was not in fact discharged in the facts of this case.
Counsel highlighted that the decision in CIT v. Lovely Exports (2008)
299 ITR 268 (SC) has to be read with CIT v. Nova Promoters &
Finlease (P) Ltd. (2012) 342 ITR 169 (Del). It is submitted that the
Assessing Officer in this case not only issued notice to the investors
but also carried on further enquiry which led into the conclusion that
such persons or individuals could not have made the extent of
investment that was claimed and that in these circumstances the
addition under Section 68 was justified.
5. Counsel for the respondent submitted that the impugned order
should not be interfered with given that it has concurrently upheld the
decision to set aside the addition under Section 68. It was stressed
that once the assessee disclosed the identity of the investors - as it did
ITA 493/2013 Page 3
in the present case - the onus clearly shifted to the Revenue which
then had to record its satisfaction based only on some objective
material. In the present case, 28 investors had responded to the
notices issued; 11 did not submit any confirmation. Having regard to
the fact that the assessee was a company and the investors were
shareholders, it could do only that much as was reasonably possible
for it. In the present case, it responded to the questions put to it by
the AO; that the investors or third parties did not respond or that some
of them did but did not fully satisfy the AO, would not be a matter of
concern to the assessee. Learned counsel relied upon the judgment
of the Division Bench of this Court reported as Commissioner of
Income Tax v. Dwarkadhish Capital P. Ltd., (2011) 330 ITR 298
(Delhi) to the following effect: -
"In any matter, the onus of proof is not a static one. Though in
Section 68 proceedings, the initial burden of proof lies on the
assessee yet once he proves the identity of the creditors/share
applicants by either furnishing their PAN number or income tax
assessment number and shows the genuineness of transaction
by showing money in his books either by account payee cheque
or by draft or by any other mode, then the onus of proof would
shift to the Revenue. Just because the creditors/share
applicants could not be found at the address given, it would not
give the Revenue the right to invoke Section 68. One must not
lose sight of the fact that it is the Revenue which has all the
power and wherewithal to trace any person. Moreover, it is
settled law that the assessee need not to prove the source of
source".
6. It was submitted that all the investors were known individuals or
entities subject to taxation. Counsel, therefore, submitted that this Court
should not interfere with the impugned order.
ITA 493/2013 Page 4
7. In Lovely Exports (supra), the Supreme Court emphasized that the
initial burden is upon the assessee to show as to the genuineness of the
identity of the individuals or entities which seek to subscribe to the share
capital. Once the relevant facts are furnished, the onus, stated the Supreme
Court, shifts to the Revenue. In the present case, what this Court is to
determine, therefore, is whether the burden had been fully discharged and
whether the AO recorded its conclusion on the basis of the material on
record. The AO in its order has produced the tabular statement describing
the number of shares subscribed by the investors, the amounts paid by them,
the individuals who paid the amount towards such capital and the gross
income reported by each of such investors to the Revenue. A look at that
chart - the contents of which have nowhere been disputed - would show that
the investors had by and large reported amounts far less as compared to the
sums invested by them, towards share capital. Furthermore, the AO had
during the course of the assessment issued notices under Section 133 (6) to
the investors - 28 of them responded; 2 did not receive the notice and 9 of
them received the notices and responded, but did not submit any
confirmation. While entertaining this appeal on 12.11.2013, the Court had
issued notice restricting to the addition of `31,94,000/-, i.e., so far as it
pertained to 11 subscribers/investors whose particulars could not be verified
and who did not respond to the notices issued by the AO.
8. Having regard to the circumstances, particularly, the fact that these
investors not only did not submit any confirmation and had concededly
reported far less income than the amounts invested, this Court is of the
opinion that the assessee could not under the circumstances be said to have
discharged the burden which was upon it in the first instance in view of the
ITA 493/2013 Page 5
law declared in Lovely Exports (supra) matter. It is not sufficient for the
assessee to merely disclose the addresses or identities of the individuals
concerned. The other way of looking at the matter is that having given the
addresses, the inability of the noticees who are approached by the AO to
afford any reasonable explanation as to how they got the amounts given the
nature of their income which was disproportionally less than what they
subscribed as share capital would also amount to the Revenue having
discharged the onus if at all which fell upon it. This Court also notices that
the assessee in this case was incorporated barely few months before the
commencement of the assessment year, and there is no further information,
or anything to indicate why its mark up of the share premium thousand folds
in respect of the shares which were of the face value of `10 lakhs was
justified.
9. In view of the above discussion, this Court is of the opinion that the
Revenues appeal has to be partly allowed.
10. The impugned order is accordingly set aside to the extent it deleted
the addition of `31,94,000/-. The said amount is directed to be restored and
added back to the assessee ,,s income under Section 68.
11. The appeal is partly allowed to the above extent.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
JANUARY 27, 2014
/vks/
ITA 493/2013 Page 6
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