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 Income Tax Addition Made Towards Unsubstantiated Share Capital Is Eligible For Section 80-IC Deduction: Delhi High Court

M/s. Shishya Edutech (P) Ltd. 4346/4-C, 1st Floor, Ansari Road, Daryaganj, New Delhi -02 vs. ITO Ward 23(2) New Delhi
May, 16th 2019

Subject: Sh. Surender Kumar Jain group of cases and the post search enquiries it was noticed that the said group was involved in providing accommodation entries.

Referred Sections:
Section 68 of the Act
Section 147 as against 153 (C),

Referred Cases / Judgments
Novadaya Castles Pvt. Ltd. Vs. CIT
CIT Vs. Durga Prasad More the Assessing Officer made addition
Sudhir Kuamr Sharma (HUF) Vs. CIT
CIT Vs. N. Tarika Properties Investment (P) Ltd. [2013]
N Tarika Properties Investment (P) Ltd. Vs. CIT [ 2014] 51 taxmann.com 387 (SC)/ [2014] 227 Taxman 373 (SC)
CIT Vs. Nova Promoters & Finlease (P) Ltd.
CIT Vs. Ultra Modern Exports (P.) Ltd. (40 taxmann.com 458, 220 Taxman 165)
CIT Vs. Ultra Modern Exports (P.) Ltd. (40taxmann.com 458, 220 Taxman 165)
Suman Gupta Vs. CTI (2013 – LL- 0122-69) (SupremeCourt)
PCIT Vs. Bikram Singh [ITA No.55/2017] (Delhi)
Blessing Construction Vs. ITO [2013] 32 taxmann.com366 (Gujarat) /[2013]
Toby Consultants (P.) Ltd. Vs. CIT [2010] 324 ITR 338 (Delhi)
Sanraj Engineering Pvt. Ltd. Vs. CIT (ITA 79/2016) (Delhi)
PCIT Vs. Paramount Communication (P.) Ltd. (2017-TIOL-253 – SC-IT)
PCIT Vs. Paramount Communication (P.) Ltd. [2017] 79 taxmann.com409 (Delhi) [2017] 392 ITR 444 (Delhi)
Indu Lata Rangwalal Vs. DCIT [2017] 80 taxmann.com 102 (Delhi)/[2016] 384 ITR 337 (Delhi)/[2016] 286 CTR 474 (Delhi)
Thakorbhai Maganbhai patel Vs. ITO [2017] 78 taxmann.com 409 (Delhi) /[2017] 392 ITR 444 (Delhi).
Aravali Infrapower Ltd. Vs. DCIT (2017-TIOL-42-SC-IT)
Yogendrakumar Gupta Vs. ITO (51 taxmann.com 383) (SC)/[2014] 227 Taxman 374 (SC)
Raymond Woollen Mills Ltd. Vs. ITO and others [236 ITR 34]
R. K. Malhotra ITO Vs. Kasturbhai Lalbhai [1977] 109 ITR 537 (SC)
CIT Vs. P. V.S. Beedies (P.) Ltd. [1999] 103 Taxman 294 (SC)/[1999] 237 ITR 13 (SC) /[1999] 155 CTR 538 (SC) ITA No.7726/Del/2017
ACIT Vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316 (SC) / [2007] 291 ITR 500 (SC)/[2007] 210 CTR 30 (SC)
Yuvraj Vs. Union of India [315 ITR 84] (SC)
Ankit Financial Services Ltd. Vs. DCIT [2017] 78 taxmann.com 58 (Gujarat).

 

         IN THE INCOME TAX APPELLATE TRIBUNAL
                  DELHI BENCH `SMC', NEW DELHI

         BEFORE SH. R.K PANDA, ACCOUNTANT MEMBER

                             ITA No.7726/Del/2017
                           Assessment Year: 2009-10
     M/s. Shishya Edutech (P) Ltd.      ITO
                 st
     4346/4-C, 1 Floor, Ansari      Vs Ward ­ 23(2)
     Road, Daryaganj,                   New Delhi
     New Delhi -02
     C/o Shri S. K. Sahpathi
     House No.579, Sector -16A,
     Faridabad -121002
     PAN No. AAHCS9225R
     (APPELLANT)                        (RESPONDENT)

     Appellant by                  Sh. P. C. Yadav, Advocate
     Respondent by                 Sh. S. L. Anuragi, Sr. DR

     Date of hearing:              20/02/2019
     Date of Pronouncement:        01/04/2019

                              ORDER

PER R.K. PANDA, AM:


1.     This appeal filed by the assessee is directed against the
order dated 16.10.2017 of the CIT(A)-28, New Delhi relating to A.
Y. 2009-10.
2.     The facts of the case, in brief, are that the assessee is a
company engaged in the business of service sector such as
computer training/ educational / coaching institute. It filed its
return of income on 20.09.2009 declaring total income of
Rs.12,05,779/-. The return was processed u/s 143 (1) of the IT
Act, 1961.      Subsequently information was received from the
investigation wing of the department that during the course of
search operation in the case of Sh. Surender Kumar Jain group of
                                                         ITA No.7726/Del/2017


cases and the post search enquiries it was noticed that the said
group was involved in providing accommodation entries. The
name of the assessee company also appears in the list as one of
the beneficiaries. The assessee has received an amount of Rs.30
lacs in the form of share capital / share premium from companies
/ entities engaged in the business of providing accommodation
entries in lieu of cash payment by the beneficiary including the
assessee   by   charging   commission.   Accordingly,   reopening
proceeding were initiated u/s. 147 of the IT Act , 1961 by
recording reasons and after obtaining sanction of the competent
authority u/s 151 of the IT Act. The notice u/s 148 of the Act
was issued on 11.03.2016. The assessee vide letter dated
11.04.2016 submitted that the return already filed be treated as
return in response to notice u/s. 148.   d
3.   The Assessing Officer during the course of assessment
proceedings observed that the assessee has received an amount
of Rs. 30 lacs from M/s. VIP Leasing & Finance Pvt. Ltd.          He
deputed his Inspector to serve summon u/s 131 of the IT Act
dated 12.12.2016 to the directors of the company at the
addresses available on record.   The Inspector reported that the
addresses given by the company was fake and no such company
actually exists and it is just a paper company involved in
providing accommodation entry. The Assessing Officer observed
from the balancesheet of the assessee that it has received share
application money of Rs.2,25,000/- in the previous year i.e. year
ending 31.03.2008 and in the current year i.e. 31.03.2009 it has
received Rs. 30 lacs as share application money. The assessee
has not filed any P & L Account for the financial year 2008-09.
He, therefore, held that assessee willfully did not file its P & L
                                  2
                                                        ITA No.7726/Del/2017


account. In absence of the same it is not ascertainable that the
assesee has done any business and no income from operation has
been shown. This according to the Assessing Officer gives a fair
belief that the assessee's own income has been routed through
balancesheet. He, therefore, asked the assesee to explain as to
why the amount should not be added in its own hand in view of
the seized documents which were found during the search
operation at the premises of Sh. S. K. Jain wherein there is a
clear mention of M/s. VIP Leasing & Finance Ltd., where the
name of the assesse company appears. Further there is also
mention of the pay order number, date of Pay Order number and
amount of Rs.30 lacs.     According to the Assessing Officer the
assessee had not carried out any genuine transactions with the
said party and the amount of Rs.30 lacs is assesse's own funds
out of undisclosed sources of income, routed through the name of
the said entry operator. Relying on various decisions including
the decision of Hon'ble Delhi High Court in the case Novadaya
Castles Pvt. Ltd. Vs. CIT and Nova Promoters and Finlease Private
Limited and decision of Hon'ble Supreme Court in the case of CIT
Vs. Durga Prasad More the Assessing Officer made addition of
Rs.30 lacs to the total income of the assessee.
4.   Before CIT(A) the assessee challenged the validity of the
reassessment proceedings as well as the addition on merit. So far
as the validity of the reassessment proceedings are concerned it
was submitted that the Assessing Officer while reopening the
assessment has not applied his mind and formed his belief on the
basis of information received from the investigation wing of the
department which is invalid. Further relying on various decisions







                                   3
                                                                     ITA No.7726/Del/2017


it was argued that the reopening of the assessment is void in lieu
of various infirmities.
5.   So far as the merit of the case is concerned, it was argued
that the assessee has filed various documents to substantiate the
identity and credit worthiness of the share applicant and the
genuiness of the transactions, therefore, no addition is called for
u/s 68 of the IT Act.
6.   However, the ld. CIT(A) was also not satisfied with the
arguments advanced by the assessee and dismissed the grounds
raised by the assessee on the issue of validity of reassessment
proceedings.       He further upheld the addition made by the
Assessing Officer u/s 68 of the IT Act on merit.
7.   Aggrieved with such order of the CIT(A), the assessee is in
appeal before the Tribunal by raising following grounds of
appeal:-
             "1.   That the Ld. CIT(A) erred in law and on facts in holding
     that the initiation of reassessment proceedings u/s 147/148 of the
     IT Act by the A. O. was valid in the facts and circumstances of the
     case.
             2.    That the Ld. CIT(A) erred in law and on facts in holding
     that the assessee failed to fulfil the requirements of section 68 of the
     Act as per settled law in the facts and circumstances of the case.
             3.    That the Ld. CIT(A) erred in law and on facts in
     confirming the addition of Rs.3000000/- to the income of the
     assessee made by the A.O. u/s 68 of the Act in the facts and
     circumstances of the case.
             4.    The appellant craves leave to amend or alter all or any
     of the aforesaid grounds of appeal and add any other ground of
     appeal".




                                         4
                                                        ITA No.7726/Del/2017


8.   The Ld. Counsel for the asseessee at the outset strongly
challenged the order of the CIT(A) upholding the action of the
Assessing Officer in reopening the assessment.     He submitted
that assessee filed his objections to the notice u/s 148 of the IT
Act on 31.08.2016 and the Assessing Officer disposed of the
objections vide order dated 19.12.2016. The Assessing Officer
passed the assessment order on 28.12.2016 and thus the
Assessing Officer has not given the period of four weeks to the
assessee and passed the order, therefore, the assessment order is
null and void. Further the Assessing Officer has not passed a
speaking order while disposing off the objections of the assessee.
He submitted that the authorities have also accorded          their
sanction in a mechanical manner without due application of
mind. Referring to page 27 of the paper book where the approval
has been given by the additional CIT and DCIT, he submitted that
these are not proper approval. Relying on various decisions he
submitted that the reassessment proceedings are based on report
of the investigation wing and without independent application of
mind by the Assessing Officer and since the order has been
passed without passing a speaking order on the objections raised
by the assessee and since the final order was passed within a
period of two weeks from date of the disposal of the objections as
against mandatory four weeks, therefore, the reassessment
proceedings are null and void.
9.   The Ld. Counsel for the assesse in yet another alternate
argument submitted that if certain documents belonging to the
assessee were found from the premises of Sh. S.K. Jain during
the course of search then the correct action should have been
action u/s 153 C and 153 A and not u/s 148/147. Since the
                                  5
                                                         ITA No.7726/Del/2017


Assessing Officer in the instant case has taken recourse of the
provision of section 147 as against 153 (C), therefore, such
reassessment proceedings also should be held as void ab initio.
10.   So far as the merit of the case is concerned, the Ld. Counsel
for the asssesee drew the attention of the bench to the copy of the
order passed u/s 153 C and 153 A of the IT Act 1961 vide order
dated 28.03.2013 for assessment year 2009-10 in the case of
M/s. VIP Leasing & Finance Private Limited, copy of which is
placed at page 125 and 126 of the paper book. Referring to the
schedule of investments as on 31.03.2009 in the case of M/s. VIP
Leasing & Finance Private Limited copy of which is placed at 122
and 124 of the paper book, he drew the attention of the bench to
the same and submitted that at Sr. No. 132 the name of the
assessee appears towards the investment of Rs.30 lacs in the
shares of the assessee company. Referring to paper book pages
from 108 to 126 he submitted that the said company has duly
disclosed in its balancesheet regarding the investment in the
assessee company and the assessment has been framed u/s 153
C by the ACIT, CC-23, New Delhi and no addition has been made.
Therefore, when the investor is identifiable since assessment has
been framed u/.s 153 C and 153 A of the IT Act, 1961 and said
investor has duly disclosed in its balancesheet regarding
investment in the assessee company alongwith so many other
companies and no adverse inference has been drawn in the
hands of the investor company and since the amount has been
received through banking channels, therefore, addition cannot be
made in the hands of the assessee u/s 68 of the IT Act. He
submitted that although these documents were very much
available before the lower authorities,      however, these were
                                   6
                                                           ITA No.7726/Del/2017


completely ignored and addition has been made which is not
justified.
11.   The Ld. DR on the other hand heavily relied on the orders of
the Assessing Officer and CIT(A). He submitted that information
was received in the instant case from the investigation wing that
the assessee has received Rs.30 lacs from an entity belonging to
the S. K. Jain group of companies who are engaged in providing
accommodation entries. Although the assessee was asked to
furnish documents to substantiate the identity and credit
worthiness of the share applicant and the genuiness of the
transaction, the assessee could not substantiate with evidence to
the satisfaction of the Assessing Officer regarding the identity and
credit worthiness of the share applicant and genuiness of the
transaction.
12.   Relying on the following decisions he submitted that the
order of the CIT(A) which is in accordance with law should be
upheld on validity of the reassessment proceedings as well as the
addition on merit :-
      1.     Sudhir Kuamr Sharma (HUF) Vs. CIT 46 taxmann.com
      340 (Punjab & Haryana) [2014] 224 Taxman 178 (Punjab &
      Haryana)
      2.     CIT Vs. N. Tarika Properties Investment (P) Ltd. [2013]
      40 taxmann.com 525 (Delhi) [2014] 221 Taxmann 14
      (Delhi)/ [2014] CTR 472 (Delhi).
      3      N Tarika Properties Investment (P) Ltd. Vs. CIT [ 2014]
      51 taxmann.com 387 (SC)/ [2014] 227 Taxman 373 (SC)
      4.     CIT Vs. Nova Promoters & Finlease (P) Ltd. (18
      taxmann.com 217, 206 Taxman 207, 342 ITR 169, 252 CTR
      187
                                    7
                                                         ITA No.7726/Del/2017


5.    CIT   Vs.    Ultra   Modern    Exports     (P.)    Ltd.    (40
taxmann.com 458, 220 Taxman 165)
6.    Suman Gupta Vs. CTI (2013 ­ LL- 0122-69) (Supreme
Court)
7.    PCIT Vs. Bikram Singh [ITA No.55/2017] (Delhi)
8.    Blessing     Construction     Vs.    ITO        [2013]      32
taxmann.com366 (Gujarat) /[2013]
9.    Toby Consultants (P.) Ltd. Vs. CIT [2010] 324 ITR 338
(Delhi)
10.   Sanraj Engineering Pvt. Ltd. Vs. CIT (ITA 79/2016)
(Delhi)
11.   PCIT Vs. Paramount Communication (P.) Ltd. (2017-
TIOL-253 ­ SC-IT)
12.   PCIT Vs. Paramount Communication (P.) Ltd. [2017] 79
taxmann.com409 (Delhi) [2017] 392 ITR 444 (Delhi)
13.   Indu Lata Rangwalal Vs. DCIT [2017] 80 taxmann.com
102 (Delhi)/[2016] 384 ITR 337 (Delhi)/[2016] 286 CTR 474
(Delhi)
14.   Thakorbhai    Maganbhai     patel   Vs.   ITO     [2017]    78
taxmann.com 409 (Delhi) /[2017] 392 ITR 444 (Delhi).
15.   Aravali Infrapower Ltd. Vs. DCIT (2017-TIOL-42-SC-IT)
16.   Yogendrakumar Gupta Vs. ITO (51 taxmann.com 383)
(SC)/[2014] 227 Taxman 374 (SC)
17.   Raymond Woollen Mills Ltd. Vs. ITO and others [236
ITR 34]
18.   R. K. Malhotra ITO Vs. Kasturbhai Lalbhai [1977] 109
ITR 537 (SC)
19.   CIT Vs. P. V.S. Beedies (P.) Ltd. [1999] 103 Taxman
294 (SC)/[1999] 237 ITR 13 (SC) /[1999] 155 CTR 538 (SC)
                              8
                                                            ITA No.7726/Del/2017







      20.   ACIT Vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007]
      161 Taxman 316 (SC) / [2007] 291 ITR 500 (SC)/[2007] 210
      CTR 30 (SC)
      21.   Yuvraj Vs. Union of India [315 ITR 84] (SC)
      22.   Ankit Financial Services Ltd. Vs. DCIT [2017] 78
      taxmann.com 58 (Gujarat).


13. I have considered the rival arguments made by both the sides
and perused the orders of the authorities below.          I have also
considered the various decisions cited before me. I find the case
of the assesssee was reopened on the basis of the report of the
investigation wing that the name of the assessee appears in the
list of beneficiaries who have obtained accommodation entries
from companies controlled by Sh. S. K. Jain group of cases who
are basically engaged in providing accommodation entries for
commission. Since the assessee according to the assessing officer
could not satisfy him regarding the identity and credit worthiness
of the share applicant and genuine of the transactions, the
Assessing Officer made addition of Rs.30 lacs to the total income
of the assessee company being the amount received for share
application money by the assessee company from M/s. VIP
Leasing & Finance Private Limited. I find the Ld. CIT(A) upheld
the action of the Assessing Officer both on merit as well as
validity of the reassessment proceedings for which the assessee is
in appeal before the Tribunal.
14.   So far as the validity of the reassessment proceedings are
concerned, I do not find any infirmity in the order of the CIT(A)
and, therefore, I uphold the same. I find the Assessing Officer in
the instant case, after obtaining the report of the investigation
                                    9
                                                          ITA No.7726/Del/2017


wing has applied his mind and taken one approval of the higher
authorities. He has also disposed of the objections. Since, the re-
reopening was based on specific information. No notice u/s 153 C
is also required. The various arguments advanced by the Ld.
Counsel for the assessee in the instant case are without any merit
and therefore, the legal ground raised by the assessee challenging
the validity of the reassessment proceedings is dismissed.
15.   So far as the merit of the case is concerned I find from the
copy of the Assessment Order framed u/s 153 C/153A in the
case of M/s. VIP Leasing & Finance Private Limited, copy of which
is placed on pages 125 and 126 of the paper book, that the
assessment in that case has been completed u/s. 153 C and 153
A. The address of the assessee has been given at 209, 2nd Floor,
Sunder Kiran Building, WEA, Karol Bagh, New Delhi with PAN
No. AAACV0475F. The audited accounts and the paper book in
the case of M/s. VIP Leasing & Finance Private Limited disclosed
the name of the assessee in the schedule of investment at Sr. No.
132 according to which an amount of Rs.30 lacs has been
invested in shares of the assessee company. There are also
various investments in shares of different companies. No adverse
inference has been drawn in the order passed u/s 153C/153A.
Although the assessment has been framed u/s. 153 C in the case
of M/s. VIP Leasing & Finance Private Limited and the copy of the
same was available before the authorities below however, the
same was completely ignored and addition has been made u/s 68
of the IT Act. As per provision of the u/s. 68 of the IT Act the
onus is always on the assessee to substantiate with evidence to
the satisfaction of the Assessing Officer regarding the identity and
credit worthiness of the share applicant and the genuiness of the
                                   10
                                                             ITA No.7726/Del/2017


transaction. The assessee in the instant case has filed the copy of
the assessment order in the case of share applicant i.e. M/s. VIP
Leasing & Finance Private Limited.      Since the assessment has
been framed u/s. 153 C and 153 A, it cannot be said that the
assessee is a non existing company or a bogus company. Since
this vital evidence was not considered by the Assessing Officer or
CIT(A) although the same was very much available with the
department during the course of the assessment proceedings,
therefore, I deem it proper to restore this issue to the file of the
Assessing Officer with a direction to verify the assessment record
of M/s. VIP Leasing & Finance Private Limited from their
Assessing Officer and decide the issue afresh and in accordance
with law after giving due opportunity of being heard to the
assessee. I hold and direct accordingly. The grounds raised by
the assessee on merit are allowed for statistical purpose.
16.    In the result, the appeal filed by the assessee is partly
allowed for statistical purpose.

       Order pronounced in the open court on 01.04.2019.



                                              Sd/-
                                          (R.K PANDA)
                                        ACCOUNTANT MEMBER
*Neha*
Date:- 01.04.2019
Copy forwarded to:
1.      Appellant
2.      Respondent
3.      CIT
4.      CIT(Appeals)
5.      DR: ITAT
                                              ASSISTANT REGISTRAR
                                                ITAT NEW DELHI




                                   11
                                                                      ITA No.7726/Del/2017

Date of dictation                                        05.03.2019
Date on which the typed draft is placed before the
dictating Member
Date on which the approved draft comes to the
Sr.PS/PS
Date on which the fair order is placed before the
Dictating Member for Pronouncement
Date on which the fair order comes back to the Sr.
PS/ PS
Date on which the final order is uploaded on the         01.04.2019
website of ITAT
Date on which the file goes to the Bench Clerk
Date on which file goes to the Head Clerk.
The date on which file goes to the Assistant Registrar
for signature on the order
Date of dispatch of the Order




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