IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `G', NEW DELHI
Before Sh. D. Manmohan, Vice President And Sh. N. K. Saini, AM
ITA No. 5148/Del/2012 : Asstt. Year : 2009-10
Dy. Commissioner of Income Vs M/s SKM Creations Pvt. Ltd.
Tax, Central Circle-11, 333-A, Sant Nagar, East of
New Delhi Kailash, New Delhi-110065
(APPELLANT) (RESPONDENT)
PAN No. AAICS2335P
Assessee by : Sh. Umesh Thaakur, CA
Revenue by : Sh. J. S. Minhas, ACIT DR
Date of Hearing : 02.07.2015 Date of Pronouncement : 03.07.2015
ORDER
Per N. K. Saini, AM:
This is an appeal by the department against the order
dated 31.07.2012 of ld. CIT(A)-XXXI, New Delhi.
2. Following grounds have been raised in this appeal:
" 1. The order of Ld. CIT(A) is not correct in law and
facts.
2. On the facts and in the circumstances of the case,
Ld. CIT(A) has erred in deleting the addition of Rs.
44,00,000/- made by the assessing officer on account
of unexplained share capital under section 68 of the
IT Act, 1961 treating the same as income from
undisclosed sources without appreciating the fact
that the assessee has failed to discharge its onus to
prove the credit worthiness of company providing
share capital and also the genuineness of the
transaction.
2 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
3. On the facts and in the circumstances of the case,
Ld. CIT(A) has erred in deleting the addition of
Rs.3,12,000/- made by the assessing officer on
account of disallowance of 50% out of salary
expenses on adhoc basis.
4. The appellant craves leave to add, amend any/all
the grounds of appeal before or during the course of
hearing of the appeal. "
3. Vide ground no. 2 grievance of the department relates to the
deletion of addition of Rs. 44,00,000/- made by the AO on account of
unexplained share capital. The facts related to this issue in brief are that
the assessee filed e-return of income on 26.12.2009 declaring an income
of Rs. 3,41,861/- which was processed u/s 143(1) of the Income Tax
Act, 1961 (hereinafter referred to as the Act). Later on the case was
selected for scrutiny. During the course of assessment proceedings that
the AO noticed that the assessee received share application money of
Rs.44,00,000/- including premium of Rs. 41,80,000/- on 22000 shares.
He asked the assessee to explain the source of share application money
& share premium, to produce those persons for examination of
genuineness of transactions, to examine the identity of the persons and
their creditworthiness. The AO observed that no one was produced and
no documentary evidence had been filed showing the source of funds
contributed by the applicants of the share application money and share
premium paid by them except for the assessment details of the
companies contributing to the share capital and premium. The AO made
3 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
the addition of Rs. 44,00,000/- u/s 68 of the Act by considering the said
amount as unexplained credit appearing in the books of the assessee.
The AO also disallowed Rs. 3,12,000/- by observing that the assessee
had paid salary of Rs. 6,24,000/- to three persons and that the payment
of salary was excessive in view of meager business activities. He,
therefore, disallowed 50% of the salary expenses and made the addition
of Rs. 3,12,000/-
4. Being aggrieved the assessee carried the matter to the ld. CIT(A)
and submitted that the assessee had furnished following documents to
prove the existence of the parties and genuineness of the transactions:
(i) Name and address
(ii) Share application Form
(iii) Permanent Account Number
(iv) Detail of Bank Account from where money is paid along
with copy of bank statement
(v) Copy of Acknowledgement of Income Tax Return
(vi) Confirmation from the subscribers
(vii) Copy of Balance Sheets of Companies
5. It was further submitted that the assessee furnished the affidavit
from all the three companies confirming the transaction which included
the distinctive numbers of the shares allotted to those companies and
even the copies of share certificates were also furnished. It was also
submitted that the order had been passed by the AO with some pre
conceived notion in his mind and outrightly by rejecting every
documentary evidence available on records, without assigning any
4 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
specific deficiency and reason for not accepting documents submitted by
the assessee. It was stated that all the three investors are private limited
company registered with Registrar of company, so, it was quite easy to
prove identity of those as the details were available on the website of the
Registrar of companies and could be viewed by public at large. So, there
could not have been any doubt about the identity and existence of the
applicants. It was further submitted that the copy of bank account,
balance sheet and Income Tax Returns were furnished which clearly
proves the genuineness of the transaction. The reliance was placed on
the following case laws:
Ø CIT Vs Oasis Hospitality Pvt. Ltd. 333 ITR 119 (Del)
Ø CIT Vs Dataware Pvt. Ltd. in ITA No. 263 of 2011 (Cal)
Ø CIT Vs Value Capital Services Pvt. Ltd. ITA No. 348/2008
(Del)
Ø CIT Vs Orissa Corp. Pvt. Ltd. (1986) 159 ITR 178 (SC)
Ø CIT Vs Lovely Exports Pvt. Ltd. 216 CTR (SC)
Ø CIT Vs M/s Pondy Metal & Rolling Mills (P) Ltd. in ITA No.
786/06 (Del)
6. It was further submitted that the assessee requested all the
subscribers to make themselves available for confirmation of the
transaction. However, instead of personally appearing they had choosen
to respond via letter posted directly to the AO and if it was necessary
then the AO should have issued notice u/s 131 of the Act but he had
never issued the notice u/s 131 of the Act and made the addition of Rs.
44,00,000/-. It was further submitted that the addition cannot be made
5 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
with regard to the share capital money in the hands of the assessee
company if the identity of the investor is proved. The reliance was
placed on the following case laws:
Ø CIT Vs M/s General Exports Credits Ltd. in ITA No. 880/2006
(Del)
Ø CIT Vs Raghvi Finance Ltd. ITA 1264/2010 (Del HC)
Ø CIT Vs Orbital Communications (P) Ltd. ITA 989/2010 (Del.
HC)
Ø CIT Vs Ultratech Finance & Investment Ltd. ITA 1122/2010
(Delhi HC)
Ø CIT Vs Khushagra Real Estate (P) Ltd. ITA 498/2010 (Delhi
HC)
Ø Glocom Impex 205 CTR 511 (Delhi HC)
Ø CIT Vs Makhni and Tyagi Pvt. Ltd. 276 ITR 433 (Delhi HC)
Ø CIT Vs Illac Investment Pvt. Ltd. 287 ITR 135 (Delhi)
Ø Barkha Synthethics 286 ITR 377 (Raj.)
Ø Avantika Investment 262 ITR 493 (Delhi)
Ø CIT Vs Suntech Vision Ltd. (Delhi HC) ITA No. 463/2010
7. As regards to the disallowance out of the salary expenses, it was
submitted that all the relevant details as required by the AO were
submitted during the course of assessment proceedings which were
accepted by the AO and it was not the case of the AO that the employees
were not actually employed during the year or they were not actually
paid the salary and that the AO had not caused any specific doubt on the
number of employees working in the company. It was further stated that
if the persons were working they were paid for it, therefore, expenses
incurred fully for the purpose of business were allowable.
6 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
8. The ld. CIT(A) after considering the submissions of the assessee
observed that the amounts on account of share capital were received by
the assessee independently through the account payee cheque and
nothing was apparent from the assessment order that any adverse
material existed in the assessment folder for the relevant period. He
further observed that it was not the case where any person claimed
before the department that the impugned share capital was nothing but
bogus introduction by way of accommodation entries. The ld. CIT(A)
categorically stated that all the three investors had sent their letters to the
AO along with their confirmations, share application form, copy of ITR
acknowledgment, copy of balance sheet, bank statement. He also
observed that the assessee had also requested the AO for issuing
summons for personal appearance to all investors as it was not within
the assessee's power to enforce their attendance. According to the ld.
CIT(A), the assessee had discharged the onus cast upon it and provided
all the essential ingredients to prove genuineness, creditworthiness and
identity of the investors as required u/s 68 of the Act. The ld. CIT(A)
deleted the addition of Rs. 44,00,000/-. The reliance was placed on the
judgment of the Hon'ble Supreme Court in the case of CIT Vs Lovely
Exports Pvt. Ltd. reported at 216 CTR.
9. As regards to the another addition of Rs. 3,12,000/-, the ld. CIT(A)
observed that the action of the AO was based only on suspicion and it
was not the case of the AO that the employees were not actually
7 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
employed or not paid the salary. He further observed that when a
business was in a running state and employees were being paid actually,
then the quantum of income cannot decide as to whether the entire salary
paid was for the purpose of business or not. The ld. CIT(A) also
observed that the assessee company had not discontinued the business
and thus the employees will have to be paid to keep the business
activities alive. Accordingly, the addition of Rs. 3,12,000/- was also
deleted.
10. Now the department is in appeal. The ld. DR strongly supported
the order of the AO and further submitted that the assessee did not
produce the persons although the AO specifically asked to do so. He
further submitted that when the inquiries were made through inspector
of the department the concerned parties were not traceable. He also drew
our attention towards page no. 28 of the assessee's paper book, which is
the copy of confirmation furnished by M/s Chandra Buildcon Pvt. Ltd.
and stated that in the said confirmation it has been mentioned that Surbhi
Chandra, Director had confirmed, however the signature had been done
by Kavita as a Director. It was accordingly submitted that the
confirmation furnished by the assessee was not reliable. The ld. DR also
stated that the assessee could not discharge the onus cast upon it, to
prove the identity and creditworthiness of the share applicants and
genuineness of the transaction. Therefore, the AO rightly made the
addition u/s 68 of the Act and the ld. CIT(A) was not justified in deleting
8 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
the impugned addition. As regards to the disallowance out of salary, the
ld. DR reiterated the observations made by the AO.
11. In his rival submissions the ld. Counsel for the assessee reiterated
the submissions made before the authorities below and further submitted
that all the requisite documents and information asked by the AO to
prove the identity and creditworthiness of the investors, genuineness of
transaction, were furnished before the AO. Therefore, the addition made
by the AO was not justified. It was further submitted that the assessee
had specifically asked the AO to issue summons u/s 131 of the Act since
the assessee could not force the appearance of the subscribers, however,
the AO had not taken any action. It was contended that when the
assessee discharged the onus cast upon it, the addition made by the AO
was not justified and the ld. CIT(A) rightly deleted the same. As regards
to the issue relating to the deletion of addition on account of salary
expenses, the ld. Counsel for the assessee reiterated the submissions
made before the authorities below and strongly supported the impugned
order.
12. We have considered the submissions of both the parties and
carefully gone through the material available on the record. In the
present case, it is an admitted fact that the assessee received a sum of Rs.
44,00,000/- from three parties on account of share premium amounting
to Rs. 41,80,000/- and the share application money amounting to Rs.
2,20,000/- on 22000 shares. The AO for examining the genuineness of
9 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
transaction, identity of the persons and their creditworthiness, asked the
assessee to produce the concerned parties but assessee failed to do so.
The AO also deputed one inspector to conduct the inquiries to find out
the genuineness of the parties but he could not locate those parties at the
given addresses. The assessee also did not furnish the change of address,
if any, therefore, the onus cast upon the assessee was not fully
discharged. In our opinion the ld. CIT(A) was not justified in deleting
the addition made by the AO particularly when the assessee failed to
produce the concerned parties. At the same time, it also appears that the
AO without considering the documents furnished by the assessee in the
form of share applications, copy of bank account from where money was
paid, copy of acknowledgment of Income Tax Return, copy of the
balance sheet etc. and made the addition. It is also noticed that the
confirmation furnished by the assessee were doubt full which is evident
from the confirmation placed at page no. 28 of the assessee's paper
book, claimed to have been received from M/s Chandra Buildcon Pvt.
Ltd. and had been signed by Kavita, but it was mentioned that the said
confirmation was given by Surbhi Jain, Director. We, therefore, by
considering the totality of the facts as discussed here in above deem it
appropriate to remand this issue back to the file of the AO to be
adjudicated afresh in accordance with law after providing due and
reasonable opportunities of being heard to the assessee.
10 ITA Nos.5148/Del/2012
SKM Creations Pvt. Ltd.
13. As regards to the another issue relating to disallowance out of
salary, it is relevant to point out that the AO while making the
disallowance @ 50% had not given any basis or cogent reasons. The ld.
CIT(A) also accepted the contention of the assessee by simply stating
that a business is in a running stage and the employees were paid
actually and that the quantum of income cannot decide as to whether the
entire salary paid was for the purpose of business or not. He also
observed that the employees will have to be paid to keep business
activities alive. However, nothing was brought on record to substantiate
that the payment on account of salary was made for the business
purposes in regular course of business. Accordingly, this issue is also set
aside to the file of the AO.
14. In the result, the appeal of the department is allowed for statistical
purposes.
(Order Pronounced in the Court on 03/07/2015)
Sd/- Sd/-
(D. Manmohan) (N. K. Saini)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 03/07/2015
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR
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