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COMMISSIONER INCOME TAX-V Vs. NIPUAN AUTO PVT LTD
May, 20th 2013
                  THE HIGH COURT OF DELHI AT NEW DELHI

%                                        Judgment delivered on: 30.04.2013

+       ITA 225/2013

        COMMISSIONER INCOME TAX-V                            ..... Appellant

                            versus

        NIPUAN AUTO PVT LTD                                  ..... Respondent


Advocates who appeared in this case:
For the Appellant       : Mr Sanjeev Rajpal, Advocate.
For the Respondent      : None.

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU

                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)



1.      This appeal by the revenue is directed against the order dated 28.12.2012
passed by the Income Tax Appellate Tribunal, New Delhi in ITA No. 1493/2012
pertaining to the assessment year 2006-07.

2.      The Assessing Officer had made the additions of ` 37,75,465/- and
` 30,41,000/- under Section 68 of the Income Tax Act, 1961 on account of
alleged unexplained investment and alleged unexplained cash credits which were
shown as share application money received by the assessee, respectively.

3.      The assessee went up in appeal before the Commissioner of Income-tax
(Appeals) who had substantially allowed the appeal of the assessee. In so far as





ITA No.225/2013                                                     Page 1 of 8
the addition of    ` 37,75,465/- is concerned, the CIT (Appeals) deleted the
addition to the extent of ` 35,85,465/- which was essentially the unsecured loan
received from Mr Alok Aggarwal. In so far as the loans and advances received
from Smt Sadhna Aggarwal to the extent of ` 1,90,000/- (` 1,50,000 plus
` 40,000/-) was concerned, the Commissioner of Income-tax concurred with the
Assessing Officer that the same had not been explained. Therefore, to that extent
(i.e., to the extent of ` 1,90,000/-) the Commissioner of Income-tax (Appeals)
confirmed the addition. However, with regard to the amount advanced by Mr
Alok Aggarwal, to the extent of ` 35,85,465/-, the Commissioner of Income-tax
(Appeals) deleted the same.

4.      The Commissioner of Income-tax (Appeals) also deleted the addition of
` 30,41,000/- on account of share application money by holding that the assessee
had discharged its burden to establish the identify and creditworthiness of the
share applicants as also the genuineness of the transactions. The Income Tax
Appellate Tribunal concurred with the views of the Commissioner of Income-tax
(Appeals).

5.      In so far as the addition on account of unexplained investment was
concerned, the Commissioner of Income-tax (Appeals) had directed the
Assessing Officer to submit a remand report.        The directions given by the
Commissioner of Income-tax (Appeals) in that context were as under:-

      "4.2   During the course of appellate proceedings, the matter was
      remanded to the file of the AO as follows:-
      During the course of appellate proceedings, it is noticed that you have
      made additions on account of unsecured loans for failure on the part of
      the directors Sh Alok Agarwal and Smt Sadhna Agarwal to attend the
      proceedings and explain the genuineness of the transactions. The AR
      has given a list of forty seven persons in case of Sh Alok Agarwal,
      one of the directors, in whose bank account there were cash deposits
      and from where the loan was advanced to your assessee and



ITA No.225/2013                                                      Page 2 of 8
      confirmed that the directors are ready to depose before you so that the
      genuineness and credibility of the transaction can be verified. In view
      of the same, you are directed to call Sh Alok Agarwal and Smt Sadhna
      Agarwal with a view to verify the genuineness of receipt of loan of
      ` 37,75,465/- by your assessee. You may also call for the I.T. Returns
      of these persons along with their bank statements and agreements to
      sell the land so that the loan transaction can be verified to the hilt."
6.      The Commissioner of Income-tax (Appeals), noted that the Assessing
Officer, by virtue of his report dated 18.09.2010, had indicated that initially the
said Mr Alok Aggarwal and Smt Sadhna Aggarwal who were Directors of the
Assessee Company did not respond to the notices issued by him. However,
subsequently the Directors appeared and filed details including copies of their
income-tax returns for the assessment years 2005-06 and 2006-07. In so far as
Mr Alok Aggarwal was concerned, in his income-tax return for the assessment
year 2005-06 he had disclosed capital gains to the extent of ` 65,480/- and in
respect of the assessment year 2006-07, the said Mr Alok Aggarwal had
disclosed a capital loss to the extent of ` 5,87,940/- but, at the same time he
disclosed sale proceeds of land to the extent of ` 48,16,742/-.

7.      From the above, the Commissioner of Income-tax (Appeals) concluded
that Mr Alok Aggarwal had ample availability of funds from which he could
have advanced the loan of ` 35 lacs (approximately) to the assessee during the
year in question after depositing the same in his bank account. It is in this
backdrop that the addition made by the Assessing Officer under Section 68 was
deleted to the extent of the advances given by the said Mr Alok Aggarwal.
However, with regard to the amounts received from Smt Sadhna Aggarwal, since,
she had not disclosed any capital gains or availability of funds during the years in
question, the Commissioner of Income-tax (Appeals) concluded that the said
amount of ` 1.9 lacs remained unexplained and, therefore, the addition made by
the Assessing Officer, to that extent, was upheld. It may also be pointed out at




ITA No.225/2013                                                       Page 3 of 8
this juncture that inasmuch as the amount received from Mr Alok Aggarwal were
in cash and were otherwise, than by way of account payee cheques/drafts, the
Assessing Officer was directed to initiate penalty proceedings under section
271D and 271E of the said Act for the alleged violation of sections 269SS and
269TT.

8.      The Income Tax Appellate Tribunal examined the order passed by the
Commissioner of Income-tax (Appeals) and concurred with the views taken by
him. We also find no reason to take a different view. In any event, no substantial
question of law arises for our consideration in so far as the addition, on account
of unexplained investment is concerned.

9.      With regard to the addition made on account of share application money
allegedly received by the assessee from two companies, the learned counsel for
the appellant/revenue submitted that merely furnishing the income-tax returns
and bank statements etc. of the share applicants would not be sufficient. It was
further necessary for the assessee to have discharged the burden of proving the
creditworthiness of the share applicants by producing the share applicants and by
other evidence to the satisfaction of the Assessing Officer. Reliance was placed
on the decision of this court in the case of CIT Vs. Nipun Builders and
Developers Pvt. Ltd.: ITA No.120/2012 decided on 07.01.2013. The learned
counsel for the appellant had placed reliance on paragraphs 8 and 9 of the said
decision. The said paragraphs are reproduced hereinbelow:-

      "8. So far as the creditworthiness of the share subscribers is
      concerned, the contention of the assessee before us is that it was
      proved by the bank statements of those subscribers submitted before
      the AO. The AO has not referred to them in the assessment order but
      it is not in dispute that the copies of the bank statements were
      furnished before him. Even assuming that the bank statements were
      filed before the AO, that by itself may not be sufficient to prove the
      creditworthiness without any explanation for the deposits in the



ITA No.225/2013                                                      Page 4 of 8
      accounts and their source. The usual argument in all such cases,
      including the present case, is that it is not for the assessee to prove the
      source of source and origin of origin of the receipts. We are alive to
      the difficulty that may be faced by an assessee to unimpeachably
      establish the creditworthiness of the share subscribers but at the same
      time we are of the opinion that mere furnishing of the copies of the
      bank accounts of the subscribers is not sufficient to prove their
      creditworthiness. There must be, in our opinion, some positive
      evidence to show the nature and source of the resources of the share
      subscriber himself and therefore it is necessary for him to come before
      the AO and confirm his sources from which he subscribed to the
      capital. In the present case the assessee did not produce the principal
      officer of the companies who subscribed to the shares; it merely filed
      a letter at the "dak" counter of the AO, stating that the
      communications sent by it to the share subscribers have not come
      back unserved. This is not compliance with the direction of the AO
      who had issued notice to the assessee to produce the principal officers
      of the subscribing companies. As is well known, in the case of private
      limited companies, it cannot be denied that there is a continuing
      contact and relationship with the share holders and if the assessee was
      serious enough to establish its case, it ought to have produced the
      principal officers of the subscribing companies before the AO so that
      they can explain the sources from which the share subscription was
      made. That would also have taken care of the difficulty of the assessee
      in proving the creditworthiness of the subscriber companies. It was,
      therefore, in the assessee's own interest to have actively participated
      and cooperated in the assessment proceedings and complied with the
      direction of the AO to produce the principal officers of the subscribing
      companies. Instead, the assessee took an adamant, if we may use that
      expression, attitude and failed to comply with the direction of the AO;
      not only that, it challenged the AO's finding that the summons sent to
      the companies came back unserved with the remark "no such
      company", which was also supported by the report of the inspector
      who made a visit to the addresses. The assessee thus took a very
      extreme stand which was in our opinion not justified; certainly it did
      nothing worthwhile to discharge the onus to prove the
      creditworthiness of the subscribing companies.

      9. We referred to the argument of the assessee that it is not part of its
      onus to prove the source of source and origin and origin of the share
      subscriptions. In addition to what we had said with reference to that




ITA No.225/2013                                                          Page 5 of 8
      argument in the preceding paragraph we cannot also help observing
      that the basis of the argument is perhaps the judgment of the Madras
      High Court in S. Hastimal vs. Commissioner of Income Tax, Madras,
      (1963) 49 ITR 273. That was a case of reassessment commenced in
      the year 1957 calling upon the assessee to explain a credit in his
      favour in the books of account of the firm, made in the year 1947. The
      assessee explained that he had borrowed the amount from one V in
      order to provide the monies to the firm. The explanation was not
      accepted right up to the Tribunal. Commenting on the order of the
      Tribunal, a Division Bench of the Madras High Court observed as
      under:-
               "The Tribunal however has not chosen to accept the
              assessee's case on grounds which we are unable to
              appreciate. The Tribunal commenting upon the fact that the
              books of account of the assessee were kept only at Phalodi,
              that pakka and katcha roker of the assessee at Phalodi had
              not been produced, and that the necessary link between the
              borrowing of Vijayaram and the money brought to Coonoor
              had not been established. As stated already, with regard to
              the sum of ` 15,000, the assessee produced indisputable
              documentary evidence to show that the amount came out of
              his borrowing at Jodhpur whether it was from Vijayaram
              Ganeshdas or from Gowri Shankar Bagdy. The assessee has
              been able to point out a source for this sum of ` 15,000 and
              this cannot be refuted by a mere steady disability on the part
              of the department or the Tribunal. After the lapse of ten
              years the assessee should not be placed upon the rack and
              called upon to explain not merely the origin and source of
              his capital contribution but the origin of origin and the
              source of source as well."
      The quoted observations will clearly explain the context and setting in
      which they were made. They cannot, therefore, be understood as
      placing an embargo on the power of the AO to ask the assessee to
      prove the creditworthiness of the creditor/share holder for the purpose
      of Section 68. In an appropriate case, if the facts and circumstances
      justify, it would be open to the AO to seek information from the
      assessee as to the creditworthiness of the creditor/share subscriber
      which may include information as to the sources of the creditor/share
      subscriber. If proving the creditworthiness of the creditor/subscriber is
      now judicially accepted as one of the ingredients of the onus cast on
      the assessee under Section 68, we do not see how proof of the





ITA No.225/2013                                                        Page 6 of 8
      resources of the creditor/share subscriber can be completely excluded
      from the sweep of the burden. It may not be required of the assessee to
      give in-depth particulars and details about the resources of the creditor
      or the share subscriber, but the minimum required of him would be, in
      our opinion, information that will prima face satisfy the AO about the
      creditworthiness. Mere furnishing of the bank statements of the share
      subscribers without any explanation for the deposits in the accounts
      may not meet the requirements of Section 68. It may be necessary to
      know the business activities of the share-subscribers in order to
      ascertain whether they are financially sound and are able to purchase
      shares for substantial amounts; if they have borrowed monies for
      making the investment, whether they were capable of repaying them
      having regard to the nature of their business, volume of the business,
      etc. These are very relevant, in our opinion, to establish the
      creditworthiness of the investors. It is for this purpose that it is
      necessary for the assessee, in appropriate cases where the facts and
      surrounding circumstances justify, to seek the assistance of the
      principal officer of the subscribing companies and present him before
      the AO so that he will be in a position to explain in detail the source
      from which the shares were subscribed. A curious aspect of the matter
      which cannot be lost sight of is that the record reveals the assessee's
      ability to procure the share applicant's bank statement. This speaks
      volume about its conduct, and belies the argument about its inability
      to ensure the presence of such company's principal officers."


10.     From a reading of the above extract, it is apparent that the case of Nipun
Builders and Developers Pvt. Ltd. (supra) was different and is distinguishable
from the present case. In that case, the summons sent by the Assessing Officer to
the Companies who had applied for shares had been returned with the remarks
"no such company".       Whereas in the present case, the identity of the two
companies which are sister companies stood established. Furthermore, this is not
a case of mere furnishing of copies of bank accounts of the subscribers. But, in
the present case, as noted by the Commissioner of Income-tax (Appeals) the
assessee had filed the income-tax returns of the subscriber companies as also
their bank statements and balance sheets in addition to the confirmation letters




ITA No.225/2013                                                        Page 7 of 8
from the said two companies. A copy of the Form No. 2 filed by the assessee
with the Registrar of Companies regarding the allotment of shares to the said two
companies had also been furnished. It is in this backdrop that the Commissioner
of Income-tax (Appeals) had concluded that the assessee had been able to prove
its case and that the Assessing Officer could not shift the burden back onto the
Assessee Company without the Assessing Officer producing any tangible
material to doubt the veracity of the documents furnished by the assessee. The
Income Tax Appellate Tribunal concurred with the views taken by the
Commissioner of Income-tax (Appeals).


11.     It is obvious that in the context and factual matrix of the present case, the
case of Nipun Builders and Developers Pvt. Ltd. (supra) is distinguishable. The
assessee in the present case, as rightly observed by the authorities below and
particularly by the Commissioner of Income-tax (Appeals) has been able to
discharge the initial burden to establish the identity, creditworthiness and
genuineness as regards the transactions concerning the allotment of shares. In
that view of the matter no substantial question of law arises for the consideration
of this court. The appeal is dismissed. There shall be no order as to costs.




                                                  BADAR DURREZ AHMED, J




                                                  VIBHU BAKHRU, J

APRIL 30, 2013
`RK'




ITA No.225/2013                                                        Page 8 of 8
 
 
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