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THE COMMISSIONER OF INCOME TAX-IV Vs. EMPIRE BUILTECH PVT LTD
February, 10th 2014
$~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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