Quite frequently, allegations of benami-ship surface for content and refutation
May, 02nd 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH D : NEW DELHI
BEFORE SHRI P. N. PARASHAR, JUDICIAL MEMBER AND
SHRI P. M. JAGTAP, ACCOUNTANT MEMBER
IT(SS) A. No.230/Del/2002
Block Assessment : 1.4.1989 to 14.7.1989
M/s SKN Industries (P) Ltd., Vs. Dy. Commissioner of
E-71, SKN House,Income Tax,
New Delhi.New Delhi.
Appellant by:Shri R. S. Singhvi,CA.
Respondent by:Shri K. C. Jain, CIT-DR.
PER P.M. JAGTAP, AM:
This appeal by the assessee is directed against the order of learned CIT(Appeals)- II, New Delhi dated 29.4.2002.
2.Out of five grounds raised by the assessee in this appeal, ground Nos. 1, 4 and 5 are of general nature seeking no specific decision from us whereas ground Nos.3 is not pressed by the learned Counsel of the assessee at the time of hearing before us.
3.The only issue which thus survives for our consideration and decision as raised in the remaining ground No.2 relates to the addition of Rs.23,80,000/- made by the Assessing Officer and confirmed by the learned CIT(A) to the undisclosed income of the assessee on account of unexplained investment made in shares.
4.The facts of the case relevant to this issue are that a search and seizure operation was conducted at the premises of the assessee u/s 132(1) on 14.7.1999. During the course of search share certificates of the assessee company having face value of Rs.38,11,000/- were found and seized as per Annexure 0-1 to 0-8 along with some share transfer forms and gift deed. It was noted by the AO from the said share certificates that the corresponding shares of the assessee company were initially allotted to different persons in the month of May, 1995 and the same were subsequently transferred in October, 1995 to different persons including one Shri Ved Prakash Mehta. It was also noted that the said shares were later on transferred in the month of September 1996 in the name of seven persons i.e. Shri K. L. Manchanda, Shri Sanju Bajaj, M/s. Kumar Industries Corporation, Shri Devi Chand, Shri Kalu Ram, Shri S. r. Seghal and Shri Rameswar Dayal. During the course of post search enquiry, statement of Shri V. P. Mehta was recorded by the department wherein he denied of having purchased any of the
Shares which were found and seized from the possession of the assessee company during the course of search. He stated that he had just signed some papers as directed by Shri Nishit Chopra, Managing Director of the assessee company. He also stated that the said shares were transferred in the names of different persons with the intention to gift the same finally to the members of Chopra family. Statement of Shri Kalu Ram, one of the seven persons in whose names the shares were transferred in September, 1996 was also recorded on 14.9.1999. In the said statement, he denied the ownership of 38,900 shares as found and seized during the course of search in his name and also denied of having dealt with any shares of the assessee company or any other company. He stated that he knew Shri Kundan Lal Chopra who was associated with the assessee company since he was residing at Rohtak. Keeping in view all these facts of the case, the assessee company was called uponby the AO to explain the share certificates in the name of seven persons as found and seized from its premises. In reply, it was submitted on behalf of the assessee company that the said shares were received by it from the concerned seven persons for the purpose of transfer in their names on being acquired from the outsiders. It was pointed out that no share application forms in respect of the said seven persons was found during the course of search which by itself was sufficient to show that the said shares were not originally allotted by the assessee company to these persons and it was a case of acquisition of
the said shares by these persons subsequently which had been sent to the company for the purpose of transfer. It was contended on behalf of the assessee company before the AO that ithad not invested any amount for the purchase of the said shares and it was a case of shares received by it from the concerned shareholders merely for transfer in their names to facilitate its sales. In order to verify the explanation of the assessee company, enquiry letters were sent by the AO to the concerned seven persons on given addresses. In response to the said enquiry letters, reply was received by theAO from three persons, viz., Shri K. L. Manchanda, M/s. Kumar Industrial Corporation and Shri S. R. Sehgal confirming the stand taken by the assessee company. On the basis of the said replies received from the concerned shareholders, the ownership of the shares in their names was accepted by the AO. No reply,however, was received from the remaining four persons and in the absence of the same, the investment found to be made in the shares in their names was treated by AO as the unexplained investment of the assessee and the sameaggregating to Rs.23,80,000/- was added to the undisclosed income of the assessee by him in the block assessment completed u/s 158BC.
5.Aggrieved by the aforesaid order of the AO passed u/s 158BC, the assessee company preferred an appeal before the
learned CIT(A). During the course of appellate proceedings before the learned CIT(A), the assessee company, however, could not fully comply with the notices issued by the learned CIT(A) and after taking note of this non-compliance in paragraphNo.1 of his impugned order, the learned CIT(A) proceeded to disposed of the appeal of the assessee ex-parte on merits confirming the addition of Rs.23,80,000/- made by the AO on account of investment allegedly made by the assessee company in the shares in the names of benami persons for the following reasons given in paragraph No.4 of his impugned order :-
4.I have carefully considered the ground of appeal takenby the assessee. I have also considered the reasons given by the AO in the asstt. Order while making the addition, I have also consulted the relevant assessment record. Admittedly there was a search in the case of the group on 14.7.99 and during search, shares of the company wee found and seized as per Annexure O-1 to O-8. These shares were of value at Rs.37,11,000/-, These shares were found in the names of 7 persons as mentioned here in above. These shares were transferred in the names of these 7 persons in Sept., 96 from the names of some other persons. These some other persons in fact were the owner of the shares in
Oct., 95 after taking these from the initial shareholders. One of such other person was Sh. Ved Prakash Mehta, in whose names more than 111000 shares were found transferred in Oct.,95. This person on examination admitted that he was not the owner of these shares and rather he has just signed some of the papers given by the promoter of the assessee company. Sh. Nishit Chopra. He also stated that these shares were to be transferred to the family members as gift by these shareholders it is thus evident from record that the shares which were initially allotted to outsiders were transferred in the names of some other persons in Oct., 95 and such persons were in fact the benami of the assessee company.No enquiry seems to be done whether the allotment at the initial stage was itself benami or to what extent it was benami at that time. It is also not clear as to who are the other person excluding Sh. V. P. Mehta, in whose names, shares were transferred in Oct.,95. When such information was desired from the A.R. who appeared in one of the hearing, no such information was submitted at the time of appellate proceedings. However it is proved beyond doubt in the asstt. order that Sh. V. P. Mehta was a benami of the assessee
company and was holding more than 1 lacs shares in Oct., 95. Thereafter in Sep.,96, the share valued at Rs.37,11,000/- were transferred in the names of 7 persons. The AO made enquiries but no worthwhile evidence was forthcoming. However on the basis of some information received from Sh. K. J. Manchanda. M/s. Kumar Industrial Corpn. And Sh. S. R. Sehgal, the AO accepted the investment by these 3 persons. As no evidence was on record in respect of the remaining 4 persons holding shares worth Rs.23,80,000/-, the AO treated that investment as benami investment by the assessee company. I fully agree that the arguments of the AO that when the shares were found from the assessee premises and when these shares were in the name of benami persons in Oct., 95 like V. P. Mehta, the subsequent transfer in Sept.,96 cannot be genuine in the names of the 7 persons. The submission of the assessee before the AO that these were meant for transfer is baseless. It is therefore held that the addition made is justified and is accordingly confirmed.
Aggrieved by the aforesaid order of the learned CIT(A), the assessee has preferred his appeal before the Tribunal.
6.The learned counsel for the assessee submitted that he shares of the assessee company including the shares found form its office premises during the course of search were issued to the public in the previous year relevant to AY 1996-97. He submitted that the assessment for the said year i.e. AY 1996-97 was completed in the assessees case u/s 143(3) and the matter relating to the said public issue was accepted by him after due examination. He submitted that the total share capital issued by theassessee company as on 31.3.1998 was to thetune of Rs.6,73,92,500/- which remained to be same up to 31.3.2000 as is evident from the copies of relevant balance sheets placed at page No.7 & 34 of his paper book. He invited our attention to the copy of assessment order completed by the AO u/s 143(3) for AY 2000-01 placed at page Nos.44 & 45 of his paper book to point out that the share capital shown by the assessee company as on 31.3.2000 was also accepted by the Department in the regular assessment. He submitted that certain share certificates were found from the farmhouse during the course of search and the possession of the said certificates in the name of seven persons was explained by the assessee company stating that the same were received by it from the concerned shareholders
for the purpose of transfer. He submitted that this explanation of the assessee was verified by the AO and during such verification, it was confirmed by three of the seven concerned persons that the explanation offered by the assessee company was correct. He contended that no reply, however, was received by the AO from the remaining four persons and even though it is agreed that there was denial of ownership of such shares by some of the shareholders in whose names the said shares were appearing, there was nothing to show that the said shares were actually owned by the assessee company and the same represented unexplained investment made it in the benami names. He contended that no addition on account of such alleged unexplained investment thus could be made in the hands of the assessee company and that too, to its undisclosed income computed for the block period under Chapter XIV-B. He also contended that the said shares in any case were duly reflected in the books of account regularly maintained by the assessee company and the addition on account of such investment in the shares treating the same as unexplained could be made only in the regular assessment and not in the block assessment.
7.The learned DR, on the other hand, strongly relied on the orders of the authorities below to support the impugned addition made to the undisclosed income of the assessee in the block
Assessment on account of investment found to be made in the shares in benami names. He submitted that the said addition has not been made u/s 69 on account of unexplained share capital but the same has been made u/s 69 for unexplained investment found to be made by the assessee company in its own shares on the basis of evidence found during the course of search. He submitted that the relevant share certificates were admittedly found from the possession of the assessee during the course of search and keeping in view that blank transfer forms duly signed by the concerned persons as well as giftdeeds executed by them were also found along with the said share certificates and in their statements recorded by the AO, some of such persons had denied ownership of the said shares, it was proved that the investment in the said shares was made by the assessee company out of its undisclosed income. He contended that the addition made by the AO and sustained by the learned CIT(A) on the issue thus was fully justified and urged that the same may be confirmed.
8.In the rejoinder, the learned counsel for the assessee pointed out that the persons examined by the AO had bought the shares only in September 1996 from the original allottees of the said shares and no enquiry was made by the AO with such original allottees. He also pointed out that the gift deed and transfer deed stated to be found during the course of search
were only in respect of the shareholder i.e. Devi Chand and no such documents were found in respect of other shareholders.
9.We have considered the rival submissions and also perused the relevant material on record. It is observed that share certificates of the assessee company in respect of 3,71,100 shares in the name of seven persons were found during the course of search conducted in the case of assessee company from the farmhouse. The details of the said shares as summarized by the AO on page No.24 ofhis order are as follows :-
Name of the shareholderNo. of shares
Krishan Lal Manchanda32,400
Kumar Industrial Corporation55,200
S. R. Sehgal45,500
10.The possession of the aforesaid share certificateswas explained by the assessee company before the AO stating that the same were lodged by the concerned shareholders with it for
transfer in their respective names. To verify this explanation of the assessee, summons were issued by the AO to some of the shareholders and in reply received by the AO to the summons so issued, at least three shareholders viz., Shri Krishan Lal Manchanda, Kumar Industrial Corporation and Shri S. R. Sehgal furnished the required details called for by the AO. On the basis of these details furnished by the three shareholders, the explanation of the assessee about the possession of shares in their names was found to be correct by the AO and was also accepted by him. The explanation offered by the assessee about the possession of the share certificates thus was further supported and substantiated by at least three out of total seven shareholders in the enquiry made by the AO and in these circumstances, we are of the view that there was no justifiable reason for the AO to doubt the explanation of the assessee about the possession of the said shares. He, however, proceeded to examine this issue further on the basis of lack of response received by him from the remaining shareholders to the summons issued and during the course of such examination, he recorded a statement of one Shri Ved Prakash Mehta who was not the person in whose names the share certificates were appearing at the relevant time, but who had purchased some of such shares in October, 1995 from the original allottees and had transferred the same in September, 1995 to Shri Rameshwar Dayal and Shri Sanjeev Bajaj. As mentioned by the AO himself on page No. 3 paragraph 2, Shri
Ved Prakash Mehta in his statement initially accepted of having purchased and sold the shares of the assessee company. On further enquiry, he, however, denied of having purchased and sold the said shares as mentioned by the AO at page No 3 itself of the assessment order. The said deponent was also stated to have agreed that the relevant papers were signed by him on the request made by Shri Nishit Chopra. There was thus a clear contradiction in the statement of Shri Ved Prakash Mehta recorded by the AO and in the absence of any enquiry made by the AO with the original allottees from whom the shares were purchased by Shri Mehta in October, 1995, it cannot be inferred on the basis of statement of Shri Mehta that the shares sold by him to Shri Kalu Ram and Shri Rameshwar Dayal in September, 1996 was the investment made by the assessee company in benami names.
11.Similarly, the denial of Shri Kalu Ram, whose name was appearing in 38,900 shares found during the course of search of having purchased the said shares, in our opinion, was not sufficient to establish that the investment in said shares was made by the assessee company in benami names especially when there was nothing brought on record to show that the investment in purchase of the said shares in the name of Shri Kalu Ram was made by the assessee company. In his case also, no enquiry was made by the AO with the original allottees
of the concerned shares or even with the person from whom the said shares were shown to be purchased by Shri Kalu Ram to show that the investment in the said shares was flown form the assessee company. This position evident from record was accepted by the learned CIT(A) while observing in his impugned order that no enquiry seems to be done whether the allotment at the initial stage was itself benami or to what extent it was benami at that time. He also noted that it was also not clear as to who were the other persons excluding Sh. V. P. Mehta, in whose names, shares had been transferred in Oct., 95. Still he held that it was proved beyond doubt in the assessment order that Sh. V. P. Mehta was a benami of the assessee company in holding more than 1 lakh shares in Oct., 95 and the subsequent transfer of shares found during the search in the names of the 7 persons in Sept., 95 was not genuine, a view with which we are unable to agree in the facts and circumstances of the case. First of all, he overlooked the fact that genuineness of transfer of the said shares in the names of at least three persons out of seven was accepted by the Assessing Officer himself during the course of assessment proceedings after the necessary enquiry and investigation. Moreover, the onus to establish that the said shares appearing in the names of concerned persons as found during the course of search were actually owned by the assessee company and the same represented its unexplained investment made in benami names was not duly discharged by the Assessing Officer.
12.It is a settled position that the onus to prove that the ostensible owner of property is not the real owner but is only a benamindar for another is on the person who makes assertion of such benami owner. In the case of Usha Bhar Vs Sanath Kumar Bhar 135 Taxman 526. Honble Calcutta High Court has held that in order to ascertain whether a particular sale is benami and the apparent purchaser is not the real owner, the burden lies on the person asserting to prove so and such burden has to be strictly discharged through legal evidence of definite character. Reference in this regard was made by the Honble Calcutta High Court to the decision of Honble Supreme Court in the case of Jai Dayal Poddar Vs Mst. B. B. Hajra AIR 1974 SC 171 and to the case of Krishna Nand Agnihotri Vs State of Madhya Pradesh AIR 1977 SC 796 wherein the following criterion were laid down by the Honble Apex Court in order to determine whether a transaction is a benami one or not :-
(i)The source from which the purchase money came;
(ii)The nature and possession of the property after the purchase;
(iii)Motive, if any, for giving the transaction a benami colour;
(iv)The position of the parties and the relationship, if any, between the claimant and the alleged benamidar;
(v)The custody of the title deeds after the sale; and
(vi)The conduct of the parties concerned in dealing with theproperty after the sale.
13.In the present case, all the shares found during the course of search were duly registered in the name of the concerned shareholders in the record of the assessee company as is evident from the copies of the relevant share certificates placed on record by the learned counsel for the assessee before us, but the same were held to be the benami investment of the assessee company by the Assessing Officer mainly on the basis of custody/possession thereof as found to be during the course of search. However, as already observed by us, such custody/possession of the said shares was satisfactorily explained by the assessee company. Moreover, there was hardly any cogent or material evidence brought on record by the Assessing Officer to establish that the funds invested in the saidshares had flown from the assessee company or for that matter even to satisfy any other criteria as laid down by the Honble Supreme Court in order establish that thesaid shares ostensibly owned by the concerned persons were held by them as
benamidar of the assessee company and that the assessee company was the real owner of the said shares. In our opinion, the onus to prove that the said shares registered in the name of the concerned shareholders represented the investment made by the assessee company in benami names thus was not discharged by the Assessing Officer. In any case, in their statements recorded by the AO, the concerned deponents had stated of having signed the relevant documents at the instance of some individuals i.e. Shri Kundan Lal Chopra and Shri Nishit Chopra to facilitate transfer of the said shares finally in the name of their family members as gifts and in these circumstances, even if the, investment in the concerned shares was to be held as benami, the same should have been considered as that of the concerned individuals and not of the assessee company. As such, considering all the facts and circumstances of the case, we are of the view that the onus to prove that the investment in the relevant shares was made by the assessee company in the benami names was not satisfactorily/successfully discharged by the AO in the present case and in the absence of the same, the learned CIT(A) was not justified in confirming the addition made by him treating the said investment as the unexplained investment of the assessee company. His impugned order on this issue is, therefore, set aside and the Assessing Officer is directed to delete the addition made on this count.
14.In the result, the appeal of the assessee is partly allowed.
Decision pronounced in the open Court on 23rd February, 2007.