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Shaan Construction P Ltd vs. ITO (ITAT Delhi)
April, 03rd 2018

S. 68 Bogus share capital: The assessee set up a devise to introduce unaccounted money through various shell companies in the form of share capital at a premium. The manner of issue of the shares through these companies, the manner of providing confirmation on the letter pad, the manner of maintaining the annual accounts and the manner of submitting the bank accounts on the letter pad or on a computerized print out to give it a semblance of originality to defraud the revenue shows the whole picture how the accommodation entries are routed through shell companies as share capital to evade taxes

(i) During the assessment proceedings the Ld. assessing officer noted that the authorized capital of the assessee company has increased from Rs. 5 lakhs to Rs. 20 lakhs and in pursuance thereof 50,000 shares of Rs. 10 which were allotted at the premium of Rs. 90 per share to the five companies. Before the assessing officer the assessee filed confirmation from these parties along with their memorandum of articles and permanent account number along with copy of their bank statements from where these amounts were paid to the assessee. The Ld. assessing officer called for information under section 133(6) from the banks of these companies and it was found by him that the bank statement submitted by the assessee were totally different from the bank account statement submitted by banker of these shares subscribers. The Ld. assessing officer therefore addressed a letter to the bank enclosing the bank statement submitted by the assessee and the banker confirmed that the copies of the bank statements submitted by the assessee were not be correct bank statement. Thereafter the Ld. assessing officer issued notice to the assessee on 12/12/2008 confronting the above fact. It was stated by the Ld. assessing officer that the confirmation filed from the parties and from the respective bank statements submitted along with them shows the wrong details where according to the statement submitted by the assessee, prior to issue of the cheque there was a clearance of various cheques, however, the bank statements submitted by the bankers directly to the assessee shows that cash is deposited in the bank accounts of the shares subscribers before issue of the cheques to the assessee company. Therefore, the Ld. assessing officer was of the view that credits in the books of the assessee shall be treated as unexplained. On the appointed date of the hearing, none appeared on behalf of the assessee. Therefore the Ld. assessing officer took a view that on perusal of the bank statement filed by the assessee in respect of these 5 companies clearly shows a credit to the account by way of clearing or transfer while infact cash was deposited in these accounts before a cheque was given to the assessee camouflaging it to be a receipt for share capital and share premium. Therefore he took the view that assessee has failed to prove the creditworthiness of the depositors as well as genuineness of the above transaction and hence he made an addition under section 68 of the income tax act 1961. Consequently assessment under section 143 (3) was passed on 19.12.2008 at Rs. 5038350/– against the returned income of Rs. 38350/–.

(ii) The assessee aggrieved, filed an appeal before the Ld. CIT (A). Before the Ld. CIT (A) the remand report was called for and one of the director of one of the depositor company’s was examined on oath however he could not also explain the discrepancy in the bank statement submitted by the assessee as well as the bank statement submitted by the bankers directly to the assessing officer. In the remand report also the Ld. assessing officer stated that assessee has failed to prove the creditworthiness of the such creditor as well as the genuineness of those transactions. In response to the remand report the Ld. authorised representative submitted that the assessing officer should have issued summons and he further relied on the decision of CIT Vs. Lovely Exports Private Limited (2008) 208 CTR 216 (Supreme Court). The Ld. CIT(A) after taking the note of the explanation furnished by the assessee as well as the remand report of the Ld. assessing officer confirmed the addition of Rs. 50 Lacs under section 68 of the act.

On appeal by the assessee to the Tribunal HELD dismissing the appeal:

(a) It is evident that all these bank accounts submitted by the assessee along with the confirmation of the depositor are forged and not correct statements. In these circumstances the claim of the assessee that it is not required to prove “source of the source” of the credit is nothing but trying to take a shelter under a feeble legal argument. The bank account of the depositor companies shows a clear picture that cash is deposited of huge amounts and simultaneously cheques are issued to parties. We do not have any hesitation to say that they are entry providers.

(b) All the bankers have stated to the ld Assessing Officer that bank accounts submitted before him are forged one and not supplied by the bank.

(c) Furthermore, the balance sheets supplied by the assessee of the depositor company as well as the income tax return do not inspire any confidence in the whole transaction. For example, the Micro Space Systems has invested Rs. 10 lacs in the assessee company, however, the investment shown by that company in balance sheet is only Rs. 8 lacs. Further, the balance sheet of Transaction India Ltd shows opening investment of Rs. 8.5 lacs and closing investment of Rs. 15.5 lacs which does not show the fresh investment of Rs. 10 lacs in assessee. Further, the income shown by that company is merely Rs. 72000/-. This company has also received share application money of Rs. 24.7 lacs from others. The balance sheet of Glitz Media Pvt. Ltd does not have any investment in shares of other companies. Even the loans and advances do not include the above sum. Therefore, there are many discrepancies in the balance sheet and amounts of deposits compared with the claim of the assessee.

(d) The several decisions relied upon by the ld AR does not merit our attention at all as in none of the decisions cited before us the forged documents in the form of bank statement were submitted. It was also not the fact in those cases that amount of investment shown are not reflected in the balance sheet of the investor companies. Hence, reliance on those decisions of Hon’ble Delhi High Court is misplaced, hence, rejected.

(e) The statement of one of the Director Shri Sajjan Singh is of no relevance, as when the money was accepted by the assessee he was not director at all. Even otherwise, it is very interesting to note that though he was not a director at the time of deposit made by those company with the assessee, he was aware of the fact that one Chartered Accountant Mr. Kumar Tyagi introduced him and also induced the company for investment in the assessee company.

(f) Before parting we are of the view that the whole exercise carried out by the assessee is simply a devise to introduce unaccounted money through various shell companies in the form of share capital at a premium. The manner of issue of the shares through these companies, the manner of providing confirmation on the letter pad, the manner of maintaining the annual accounts and the manner of submitting the bank accounts on the letter pad or on a computerized print out to give it a semblance of originality to defraud the revenue, proves much more than what is under challenge before us. It shows the whole picture how the accommodation entries are routed through shell companies as share capital to evade the taxes. The whole façade created by assessee shows the real purpose of introducing the unaccounted money of the assessee without payment of taxes. The finding of the ld CIT(A) also demonstrates this fact.

a. CIT versus Wins petrochemicals private limited 330 ITR 603

b. CIT versus Five Vision promoters private limited 380 ITR 289

c. Principle Commissioner of income tax versus Lakshmanan industrial resources Ltd 397 ITR 106

d. Commissioner of income tax versus Orchid industries private limited 397 ITR 136

e. Commissioner of income tax versus Gagandeep infrastructure private limited 394 ITR 680

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