IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `B': NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA No. 3987/Del/2010
Assessment Year: 2006-2007
ITO, CEE AAR Decors P. Ltd.,
Ward 3(2), Room No. 21-A, Darya Ganj,
385A, Vs. Delhi.
C.R. Bldg., I.P. Estate, AABCC6962D
New Delhi.
(Appellant) (Respondent)
Appellant by : Sh. S. Krishna, CIT(DR)
Respondent by : Sh. Rajeev Saxena, Adv.
ORDER
PER S.V. MEHROTRA, A.M.
This appeal is filed by the Department and directed against the order
of ld. CIT(A) dated 17.06.2010 for A.Y. 2006-07.
2. The assessee company had filed its return of income declaring
income of Rs. 18,077/-. The assessment was completed at a total income
of Rs. 3,35,53,077/- after making an addition of Rs. 3,35,35,000/- u/s 68.
3. Ld. CIT(A) deleted the addition. Being aggrieved, the department is
in appeal before us and has taken the following grounds of appeal: -
1) On the facts and in the circumstances of the case and in law,
the order of the ld. CIT(A) is wrong, perverse, illegal and
against the provisions of law which is liable to be set aside.
2) The ld. CIT(A) has erred on facts and in law in deleting
addition of Rs. 3,35,35,000/- made by the Assessing Officer
u/s 68 of the I.T. Act, 1961 as : -
ITA No. 3987/D/2010 2
a) the onus envisaged u/s 68 upon the assessee has not
been properly discharged as the assessee did not
respond when confronted with returned notices from
the claimed creditors;
b) ld.CIT(A) has admitted fresh evidence in contravention
of the provisions of sub rule (3) of Rule 46A.
c) the findings of Hon'ble Supreme Court in the case of
Lovely Exports Pvt. Ltd. was in response of an SLP and
not in a Civil appeal which has not binding precedent
under Article 141 of the Constitution of India, as held
by Hon'ble Tribunal in ITA No. 2927/Del/2009, M/s
Dhingra Global Credence Pvt. Ltd. A.Y. 05-06 dated
31/12/2009;
d) the ld. CIT(A) reliance upon the ratio laid down by the
jurisdictional High Court in cases of CIT vs. Winstrel
Petrochemical P. Ltd. and CIT vs. Victor Electronics
Ltd. is misplaced as in the said cases the Hon'ble High
Court did not absolve the assessee from the
responsibilities of furnishing proper and complete
details regarding the creditors as has been overlooked
by the ld. CIT(A).
e) recently the Hon'ble Tribunal has held in several cases
namely Omega Biotech Ltd. in ITA No. 2860/Del/2009;
Optibelt Pvt. Ltd. in ITA No. 1964/Del/2009; Aryan
Management Services Pvt. Ltd. in ITA No. 2986/Del/09;
Bcautex in ITA No. 217/Del/08, that even if proper
identity of the share applicants have been established,
yet for the purpose of accepting the genuineness of
funds u/s 68 of the I.T. Act, the physical identity of the
share applicants has to be established and in the
present case the same has not happened.
3) The appellant craves leave for reserving the right to amend,
modify, alter, add or forego any grounds of appeal at any
time before or during the hearing of this appeal."
4. Thus, the only issue is regarding deletion of addition of Rs.
3,35,35,000/-. Brief facts apropos this issue are that during the relevant
assessment year, the assessee had received share application money
amounting to Rs. 3,35,35,000/- from different entities. On examination of
the details filed, the AO noticed that all the entities who had provided funds
to the assessee in the shape of share application money, shared the same
ITA No. 3987/D/2010 3
address as that of the directors of the assessee company, Shri Rajiv
Kumar, S/o Shri Ganda Ram Sharma and Sh. S.C. Jain, S/o Lt. Sh. Hemraj
Jain i.e. 1510/11 Shiv Ashram, 2nd Floor, Room No. 1,S.V. Mukerji Marg,
New Delhi. From these details, the AO concluded that all such entities
were basically of the same group and controlled by same set of individuals.
From page 2 to page 5 AO has given details of amounts received from
various entities in order to demonstrate that they were of the same group,
as they shared two common addresses viz.:
1. 1510/11, Shiv Ashram, Second Floor, Room No-1, S.P. Mukherjee
Marg, New Delhi 110006.
2. 302, IIIrd Floor, Vardhman North-Ex Plaza, Netaji Subhash Place,
Pitampura, New Delhi.
5. The AO further noticed that from the bank statements of these
entities, it transpired that debit entries were mostly same as credit entry
and they were mostly in round figures. He observed that this was
practically not always possible in any type of business. In the backdrop of
these factual aspects, the AO proceeded to verify the genuineness of the
transaction and the identity and creditworthiness of the lenders who had
provided their funds as share application money as per the requirements of
section 68 and required the assessee to submit: -
i) details of shareholding of companies who had advanced share
application money to the assessee, in a tabulated format citing
the number of shares and percentage of total holdings;
ii) the assessee was asked to produce the Principal Officer of the
above mentioned companies, who had advanced share
application money to assessee;
6. The AO has observed that the notices were sent to both the
addresses of the assessee viz. 21-A, Darya Ganj, Delhi and 1510/11, Shiv
Ashram, 2nd Floor, Room No. 1,S.V. Mukerji Marg, New Delhi 110006. He
ITA No. 3987/D/2010 4
pointed out that on the date of hearing the assessee's representative
refused to furnish such details. He further pointed out that the notices sent
were returned by postal authorities with the remark "address incomplete"
with respect to 21A, Darya Ganj, Delhi and with the remark "premises
locked from a long time" with respect to 1510/11, Shiv Ashram, 2nd Floor,
Room No. 1,S.V. Mukerji Marg, New Delhi 110006. Since no compliance
was made and also the assessee failed to explain as to why the letters sent
at the addresses as provided by it were returned by the postal authorities
with the remark "premises locked for a long time" and "incomplete
address", the AO relying on the decision of Hon'ble Delhi High Court in the
case of CIT vs. Divine Leasing and Finance Ltd., made an addition of Rs.
3,35,35,000/- u/s 68.
7. Before ld. CIT(A) the assessee submitted that the findings of AO
were merely on the basis of suspicion not based on any concrete
evidences. It was submitted that most of the companies have been
regularly assessed to Income Tax and in most of the cases assessment
had also been completed u/s 143(3)/144 of the Income Tax Act. The AR of
the assessee filed the details of the orders passed by the ITO/CIT(A)/ITAT
in respect of various entities during the course of appellate proceedings.
This has been reproduced at pages 21 to 23 of ld. CIT(A)'s order. It was
further submitted that in the next A.Y. 2007-08, the AO had examined the
various parties from whom the share application money had been received
in A.Y. 2006-07 and 2007-08 and had held that the allotment was genuine.
Ld. CIT(A) deleted the addition for the following reasons: -
i) the various documents relating to the PAN Number, scrutiny
assessment of various parties, bank account etc. of various
parties from whom the share application money had been
received had not been controverted by the AO.
ITA No. 3987/D/2010 5
ii) all the parties were regular corporate entities and were
registered with the Registrar of the Companies.
iii) apart from general suspicion with reference to addresses of
various companies and figures in the bank statements, the AO
could not brought any material on the record to dispute the
contentions of the AR of the assessee that the various
amounts received from the parties were backed by the
adequate proof of the identity as well as details of PAN,
Income Tax assessment orders, bank statements etc.
iv) merely because the directors of various entities were not
produced, no adverse inference against the assessee could
be drawn. In this regard he relied on the decisions of Hon'ble
Delhi High Court in the case of CIT vs. Winstrel Petrochemical
Pvt. Ltd. and CIT vs. Victor Electronics Ltd., wherein it was
held that AO was not justified in adding the amount of share
application money to the income of the assessee merely
because the applicants did not respond to the notices sent to
them and if the AO so wanted he could found out the current
address of those applicants who were not found functioning at
the given address. He further observed that it had also been
held in these decisions that there was no legal obligation on
the assessee to produce the same director or the other
representative of the assessee before the AO. Therefore,
failure of assessee to produce them could not by itself justify
the additions made by the AO when the assessee had
furnished documents, on the basis of which the AO, if he so
wanted could have summoned them.
v) The submission of AR that the AO had not provided any
opportunity with regard to return of the notices sent to the
ITA No. 3987/D/2010 6
various parties and the new address of the parties had never
been taken by the AO for making verifications.
vi) The AO has not brought anything on record to prove that the
share application money originated from the coffers of the
assessee itself. The ld. CIT(A) following the decision of
Hon'ble Delhi High Court in the case of CIT vs. Value Capital
Services (supra).
vii)AO had completed the assessment for A.Y. 2007-08 after
considering these parties also, which were not accepted in
A.Y. 2006-07.
8. He further relied on the decision of Hon'ble Supreme Court in the
case of CIT vs. Lovely Exports (P) Ltd., 216 CTR 195.
9. Ld. DR submitted that in the present case two issues are involved.
First is acceptance of fresh evidence by ld. CIT(A) in violation to Rule 46A
of the Income Tax Rules and second is deletion of addition of Rs.
3,35,35,000/- on merits. Ld. DR submitted that there were in all 18 share
applicants and all were having two addresses one as directors and one
another address. He pointed out that all the entities were basically of the
same group controlled by the same set of individuals. He referred to page
6 of CIT(A)'s order to demonstrate that the share capital of the assessee
was Rs. 1,70,290/- as against which the assessee company had received
share premium of Rs. 5,85,27,710/- which in itself is a very peculiear
feature. He submitted that no details of net worth of the assessee
company had been given which could justify such huge premium by a
company the returned income of which was Rs. 18,000/- only. In the
backdrop of these factual aspects, ld. DR referred to page 20 of CIT(A)'s
order to demonstrate that ld. CIT(A) accepted the evidence in the form of
ITA No. 3987/D/2010 7
various orders passed by the ITO/CIT(A)/ITAT as noted at pages 21 to 23
of ld. CIT(A)'s order and after considering the same deleted the addition.
He submitted that no comments were asked for from the AO. He submitted
that Rule 46A mandates a specific procedure which should have been
followed by the ld. CIT(A). He further pointed out that ld. CIT(A) had not
even himself examined these details by calling for the records. He referred
to Rule 46A(3) and submitted that the same is mandatory. In support of his
contention he relied on the following decisions: -
i) CIT vs. Ranjit Kumar Choudhury [2007] 288 ITR 179
ii) Haji Lal Mohd. Biri Words vs. CIT [2005] 275 ITR 496
iii) CIT vs. Shree Kangra Steel Pvt. Ltd. [2010] 320 ITR 691
iv) JCIT vs. Venus Financial Services Ltd. [2012] 21 taxmann 436 (Del.)
10. With reference to aforementioned decisions, ld. DR submitted that ld.
CIT(A) did not record any reason for admitting evidence and thus, violated
Rule 46A(2). In support of his contentions he relied on the following
decisions: -
288 ITR 179
"Documentary Evidence not tendered before Assessing
Officer--No reason for failure to adduce evidence--
Documents not admissible as evidence before
Commissioner (Appeals)"
11. Therefore, in sum and substance he submitted that ld. CIT(A)
blatantly violated the provisions of Rule 46A.
12. On merits, ld. DR submitted that onus was on assessee to
substantiate the credit entries found in its books of account in order to take
out the same from the garb of section 68. After narrating the facts in detail
ld. DR relied on the CIT vs. Nova Promoters & Finlease (P) Ltd.
ITA No. 3987/D/2010 8
13. Ld. DR submitted that ld. CIT(A) has relied on the findings of AO for
A.Y. 2007-08, but the facts are distinguishable inasmuch as in A.Y. 2007-
08 eight persons had filed affidavits on which basis AO accepted the
amounts received as share application money but in the current
assessment year even no affidavits were filed. Further no explanation was
being given by the assessee for not producing the persons particularly
when in next year affidavits were filed. He submitted that AO had sent the
notices at the addresses given by the assessee which were returned un-
served. Thus, he did whatever he could possibly do in the given
circumstances. He submitted that firstly ld. CIT(A) erred in holding that by
furnishing confirmation and Income Tax particulars of the share applicant
companies, assessee had discharged its onus. He pointed out that though
the initial onus of furnishing details of the share applicants stood
discharged but since notices requisitioning such information were returned
by the Postal Department, the onus shifted back on the assessee. Despite
being confronted with such issues, the AR failed to offer any explanation,
whatsoever. Therefore, to such extent the onus envisaged u/s 68 was not
discharged by the assessee; Secondly, ld. CIT(A) has not only admitted
fresh evidence but also relied upon such fresh evidence while allowing
relief to assessee. Such evidence was never made available by the
assessee during the assessment proceedings. Neither an opportunity was
allowed by CIT(A) to the Revenue to examine and comment upon the
veracity of such evidences, which is in contravention of the provisions of
sub rule (3) of Rule 46A which bars the CIT(A) from considering any
evidence without offering a reasonable opportunity to the AO to both
examine and rebut such evidence nor the ld. CIT(A) himself examined the
evidence by calling for the Assessment Records. He submitted that on the
basis of this very fact, the order of CIT(A) deserves to be set aside as bad
in law. Thirdly, reliance of the CIT(A) on the ratio laid down by the Hon'ble
ITA No. 3987/D/2010 9
Supreme Court in the case of Lovely Exports (P) Ltd. (216 CTR 195), is
also misplaced. The judgment of the Apex Court in case of Lovely Export
was delivered while adjudicating an SLP and not in Civil appeal. Therefore,
this decision does not partake the character of law laid down by the Hon'ble
Supreme Court and it cannot be inferred as binding precedent under Article
141 of the Constitution of India, as held by Tribunal in ITA No.
2927/Del/2009, (M/s Dhingra Global Credence P. Ltd. (As Yr: 05-06) dtd.
31.12.09. Fourthly, reliance by CIT(A), on the ratio laid down by the
jurisdictional High Court in cases of CIT vs. Winstrel Petrochemical P. Ltd.
and CIT vs.Victor Electronics Ltd. in ITA No. 5/2010 and586/2010 dt.
12.5.10, is also misplaced. He submitted that in order to treat a case as
covered matter, CIT(A) ought to have ensured that facts in the instant case
were also on all fours same with the facts of the cases being relied upon.
In the instant case, the fact regarding failure of the assessee to discharge
its onus, in a satisfactory and adequate manner, has been overlooked.
Mere furnishing of particulars of the share applicants is not adequate
discharge of onus on part of assessee. The moment loopholes were
pointed out in the evidence furnished by the assessee and the AR was
confronted with the same, onus shifted back on to the assessee. Despite
adequate opportunity to explain the same, assessee failed to offer any
explanation/evidence on the issues raised by the AO. Therefore, to such
extent, assessee failed to discharge its onus. In all the aforesaid cases,
Hon'ble High Court did not absolve assessee of the responsibility of
furnishing proper and complete details so as to enable the Revenue to
carry out further investigation, if need be. In view of the same, the instant
case is distinguishable on facts from the cases cited aforesaid and relied
upon by CIT(A), while allowing relief. Thus, such cases do not support the
case of the assessee and reliance upon the same by CIT(A) was,
therefore, factually incorrect.
ITA No. 3987/D/2010 10
14. Ld. DR further referred to the decision of Indore Bench Tribunal in the
case of Agarwal Coal Corporation P. Ltd. vs. Addl. CIT (2012) 13 ITR (Trib)
531, wherein on page 14, Tribunal observed as under: -
"On the issue of discharge of onus/burden, the assertion of learned
counsel for the assessee is that the onus shifted to the Department
when copy of the share application from, permanent account
number, name and addresses and Registrar of Companies
registration, etc., were filed by the assessee. We are not agreeing
with the submission of the assessee in view of the fact that at the
addresses (4 places) given to the Department, these companies
were found to be non-existent. Even the Inspector was deputed to
verify the addresses, who also reported that these companies were
not available at the given addresses. It is not possible that the
companies making huge investment in the form of share
application are not found at the given addresses. There is a
possibility that there may be a change of address but till the stage
of the Tribunal, not to talk of the Assessing Officer or the ld.
Commissioner of Income-tax (Appeals), no such address was
furnished by the assessee, therefore, we are of the considered
opinion that the onus was not discharged as the assessee neither
furnished the correct addresses nor the creditors were produced
rather the assessee tried to stall the assessment proceedings by
giving misleading facts and incorrect addresses. Even as per the
preponderance of probabilities, all facts go against the assessee
and the ratio laid down by the Hon'ble Apex Court in the case of
Sumati Dayal [1995] 214 ITR 801 (SC) goes against the assessee.
The Hon'ble Calcutta High Court in the case of CIT vs. Nivedan
Vanijya Niyojan Ltd. [2003] 263 ITR 623 (Cal.); 182 CTR (Cal.)
605 held as under:
"After the initial onus was discharged by the
assessee, the Income-tax authorities have made
enquiries and had communicated the result of the
enquiry to the assessee and required the assessee to
produce the subscribers who provided such credit,
in order to establish its case. But the assessee did
not do so. On this basis addition made by the
Assessing Officer u/s 68 of the Income-tax Act was
confirmed."
ITA No. 3987/D/2010 11
15. Ld. DR, in sum and substance, submitted that mere fact that certain
legal formalities were fulfilled, it does not absolve the assessee of its onus
to substantiate its claim. Ld. DR submitted that even before the Bench the
assessee has not produced the share applicants.
16. Ld. Counsel submitted that the assessee had furnished following
evidences before the AO but he did not carry out any enquiry in regard to
those evidences: -
S.No. Name & PAN Amount Annexure Page
Address Submitted No.
To
1. Amar Shree AAECA2176F 3,400,000/- Confirmation, bank 149-159
Industries Ltd. Statement, copy of
13, Bonafield ITR, Balance sheet
Lane, 6th Floor, & P&L Account
Kolkata 700001 Including PAN
2. Best Buildmart AAHFB0817H 2,000,000/- Confirmation, bank 160-
Pvt. Ltd. Statement, copy of 179
H-69, Ground ITR, Balance sheet
Floor, DDA & P&L Account
Flats, Ashok Including PAN
Vihar,
New Delhi-110052
3. Dost International AACCD2033M 370,000/- Confirmation, bank 180-
Ltd. 4697/3, 2nd Statement, copy of 196
Floor, Neepal ITR, Balance sheet
Carrier Building, & P&L Account
21-A, Daryaganj, Including PAN
Delhi.
4. Kuber Buildmart AACCK6410H 400,000/- Confirmation, bank 197-
Pvt. Ltd. H-69, Statement, copy of 216
Ground Floor, ITR, Balance sheet
DDA Flats, & P&L Account
Ashok Vihar, Including PAN
New Delhi
110052
5. Maloo Construction AABCM5690A 6,300,000/- Confirmation, bank 217-
Pvt. Ltd., 13, Statement, copy of 228
Bonafield lane, ITR, Balance sheet
6th Floor, & P&L Account
Kolkata-700001 Including PAN
6. Maloo Finance AABCM5692C 4,500,000/- Confirmation, bank 229-
& Builders Pvt. Ltd., Statement, copy of 240
13, Bonafield lane, ITR, Balance sheet
6th Floor, Kolkata- & P&L Account
700001 Including PAN
7. Mohit Finance & AABCM5689H 300,000/- Confirmation, bank 240-
ITA No. 3987/D/2010 12
Builders Pvt. Ltd. Statement, copy of 255
13, Bonafield lane, ITR, Balance sheet
6th Floor, & P&L Account
Kolkata-700001 Including PAN
8. Paras Builders Pvt. AABCP3534A 3,400,000/- Confirmation, bank 256-
Ltd., 13, Bonafield Statement, copy of 271
Lane, 6th Floor, ITR, Balance sheet
Kolkata-700001 & P&L Account
Including PAN
9. Pearl Contractor AAECP1089P 500,000/- Confirmation, bank 272-
Pvt. Ltd., 341/36-A, Statement, copy of 281
2nd Floor, Mangal ITR, Balance sheet
Sain Builders, & P&L Account
Baghkare Khan, Including PAN
Delhi 110007
10. Pearl Durobuild AAECP1093K 500,000/- Confirmation, bank 282-
Pvt. Ltd., 341/36-A, Statement, copy of 293
2nd Floor, Mangal ITR, Balance sheet
Sain Builders, & P&L Account
Baghkare Khan, Including PAN
Delhi-110007
11. Pearl Handicraft AADCP6258P 250,000/- Confirmation, bank 294-
Pvt. Ltd., H-69, Statement, copy of 307
Ground Floor, DDA ITR, Balance sheet
Flats, Ashok Vihar, & P&L Account
New Delhi- Including PAN
110052
12. PP Buildmart P. Ltd. AADCP663Q 250,000/- Confirmation, bank 308-
H-69, Ground Floor, Statement, copy of 307
DDA Flats, Ashok ITR, Balance sheet
Vihar, New Delhi- & P&L Account
110052 Including PAN
13. Rishi Credit & AABCR2777B 250,000/- Confirmation, bank 328-
Industries Ltd., Statement, copy of 337
13, Bonafield lane, ITR, Balance sheet
6th Floor, Kolkata- & P&L Account
700001 Including PAN
14. Rishikesh Buildcom AADCR0902N 3,300,000/- Confirmation, bank 338-
Pvt. Ltd., H-69, Statement, copy of 359
Ground Floor, DDA ITR, Balance sheet
Flats, Ashok Vihar, & P&L Account
New Delhi-110052 Including PAN
15. Rishikesh AADCR0527R 1,000,000/- Confirmation, bank 360-
Properties Pvt. Ltd., Statement, copy of 379
H-69, Ground Floor, ITR, Balance sheet
DDA Flats, Ashok & P&L Account
Vihar, New Delhi- Including PAN
110052
16. Rupa Merchants P. AADCR0528A 510,000/- Confirmation, bank 380-
Ltd. H-69, Ground Statement, copy of 393
Floor, DDA Flats, ITR, Balance sheet
Ashok Vihar, New & P&L Account
Delhi-110052 Including PAN
17. Rupa Promoters AADCR0877Q 3,055,000/- Confirmation, bank 394-416
P. Ltd., H-69, Statement, copy of
Ground Floor, DDA ITR, Balance sheet
ITA No. 3987/D/2010 13
Flats, Ashok Vihar, & P&L Account
New Delhi- Including PAN
110052
18. Venus Polymer P. AABCV5030H 6,00,000 Confirmation, bank 417-
Ltd. 13, Bonafield Statement, copy of 425
Lane, 6th floor, ITR, Balance sheet
Kolkata- & P&L Account
700001 Including PAN
17. He submitted that it is a case of group companies, which are
controlled by same set of individuals and, therefore, there was no question
of avoiding to produce the directors. However, since the time was short, as
proceedings effectively started from 5.11.08, the directors could not be
produced as they were residing outside Delhi. In this regard, ld. Counsel
referred to the submissions made before CIT(A) as reproduced at page 14
of his order: -
"7. In connection of the production of the principal
officers, it was submitted that they are away from the
cities as in the remote places of Tamil Nadu as such the
compliances of their attendance cannot be made and
non-attendance of principal officers cannot be made the
ground for making additions where all other credentials
were proved and the same cannot be a ground for
making additions in view of the fact that the investment
made by those applicants and subscribers to the share
application money have already been assessed by their
respective ward officers for the very same assessment
year, when the credentials have been established and
have been accepted by the AO this cannot be a ground
for making addition in the hands of the assessee
company."
18. Ld. Counsel referred to the decision of Hon'ble Delhi High Court in
the case of Nova Promoters & Finlease P Ltd. (supra) and referred to para
38 at page 42 of the judgment, to submit that if AO has not conducted any
enquiry into the evidence in his possession to show that particulars are
false and cannot be acted upon, no addition can be made in the hands of
the company u/s 68 and the remedy open to the Revenue is to go after the
ITA No. 3987/D/2010 14
share applicants in accordance with law. The para 38 of the judgment is
reproduced here under : -
"38. The ratio of a decision is to be understood and
appreciated in the background of the facts of that case. So
understood, it will be seen that where the complete particulars of
the share applicants such as their names and addresses, income
tax file numbers, their creditworthiness, share application forms
and shareholders' register, share transfer register etc. are
furnished to the Assessing Officer and the Assessing Officer has
not conducted any enquiry into the same or has no material in his
possession to show that those particulars are false and cannot be
acted upon, then no addition can be made in the hands of the
company u/s 68 and the remedy open to the revenue is to go after
the share applicants in accordance with law. We are afraid that
we cannot apply the ratio to a case, such as the present one,
where the Assessing Officer is in possession of material that
discredits and impeaches the particulars furnished by the
assessee and also establishes the link between self-confessed
"accommodation entry providers", whose business it is to help
assesses bring into their books of account their unaccounted
monies through the medium of share subscription, and the
assessee. The ratio is inapplicable to a case, again such as the
present one, where the involvement of the assesse in such modus
operandi is clearly indicated by valid material made available to
the Assessing Officer as a result of investigations carried out by
the revenue authorities into the activities of such "entry
providers". The existence with the AO of material showing that
the share subscriptions were collected as part of a pre-meditated
plan a smokescreen conceived and executed with the connivance
or involvement of the assessee excludes the applicability of the
ratio. In our understanding, the ratio is attracted to a case
where is a simple question of whether the assessee has
discharged the burden placed upon him under sec. 68 to prove
and establish the identity and creditworthiness of the share
applicant and the genuineness of the transaction. In such a case,
the AO cannot sit back with folded hands till the assessee
exhausts all the evidence or material in his possession and then
come forward to merely reject the same, without carrying out any
verification or enquiry into the material placed before him. The
case before us does not fall under this category and it would be a
travesty of truth and justice to express a view to the contrary."
ITA No. 3987/D/2010 15
19. He, therefore, submitted that merely on account of non-production of
directors on account of compelling circumstances, no adverse inference
could be drawn.
20. We have considered the submissions of both the parties and have
perused the record of the case.
21. The AO admittedly made the addition for the following reasons as
summarized by him at page 9 of his order: -
"1. No compliance of the notices issued.
2. Notices sent at the addresses as provided by the assessee are returned
by the postal authorities with the remark as "Address Incomplete" &
"Premises locked from a long time".
3. Debit entries are mostly same as credit entries.
4. Debit entries and credit entries in the bank statement are mostly in
round figures.
5. Multitude of companies from same addresses.
6. Outright refusal of the assessee's authorized representative as per
order sheet noting to furnish details to the satisfaction of AO as
requirement of section 68.
7. No compliance to produce the Principle Officers of such companies
who had allegedly furnished funds the ascertain the genuineness and
creditworthiness of such parties."
22. Ld. CIT(A), however, took into consideration the orders passed by the
ITO/CIT(A)/ITAT in respect of share applicant companies and further taking
into consideration that in A.Y. 2007-08 the AO had accepted the allotment
as genuine, deleted the addition. Admittedly, these details were not before
the AO and ld. CIT(A) also did not even call for a remand report from the
AO in respect of these documents. Thus, there was a clear violation of
mandatory requirements of Rule 46A. Further in facts and circumstances
of the case, we find that para 38 of Nova Promoters & Finlease P. Ltd.
(supra) reproduced earlier relied upon by the ld. Counsel for the assessee,
is of no assistance. It is only when assessee has effectively complied with
ITA No. 3987/D/2010 16
all the enquiries made by AO and, thereafter, AO does not make further
enquiries that the assessee can take shelter of the observations of Hon'ble
Delhi High Court in the case of Nova Promoters (supra) cited above. But
here AO required production of Directors only for verification of documents
furnished by assessee.
23. Further we find that the confirmations filed by various share
applicants contained at pages 217, 229, 240, 256, 272, 294, 308, 328, 360,
380, 394 & 417 are all undated. Further these confirmations have been
given mostly by one person on behalf of various entities except in one or
two cases. Under such circumstances, unless the directors were produced
before the AO, he could not carry out further investigations. Thus, by not
producing the directors assessee installed all further investigations. The
other documents which were filed in the form of bank statement copy of
ITR balance sheet and P&L Account including PAN could be verified only
when the director of the share applicant companies were produced.
24. Considering the entirety of facts and circumstances of the case, it
was proposed by the Bench that the matter be restored back to the file of
AO for denovo assessment. On this ld. Counsel for the assessee
submitted that the matter should be restored only for limited purpose of
producing the directors. However, in our opinion since ld. CIT(A) has taken
into consideration fresh evidence, which was not confronted to the AO and
by not producing the directors assessee installed all further enquiry into the
matter, it would be in the interest of justice that the mater be restored back
to AO for denovo considerations. As regards the assesse's submission
that in the A.Y. 2007-08 AO accepted the share application money received
from these applicant companies, we are in agreement with the submissions
of ld. DR that in A.Y. 2007-08 the assessee had filed affidavits of the share
ITA No. 3987/D/2010 17
applicant but in the present assessment year assessee did not file any
evidence. Under such circumstances, on the basis of assessment order for
A.Y. 2007-08, no inference can be drawn. We, therefore, restore the
matter to the file of AO for denovo assessment.
25. In the result, the Department's appeal is allowed for statistical
purposes.
Order pronounced in the open court on 20.07.2012
Sd/- Sd/-
(A.D. JAIN) (S.V. MEHROTRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 20.7.12
*Kavita
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
TRUE COPY
By Order
DEPUTY REGISTRAR
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