Subject: During the course of post search investigation,
Referred Sections:
Section 147/148 of the I.T. Act,
Section 143(1) of the I.T. Act.
Section 132/133A of the I.T. Act
Section 148 of the I.T. Act.
Section 133(6)
Section 153C/153A
Section 133(6) of the I.T. Act.
Section 153C, 153A
Section 68 of the Income-tax Act,
Referred Cases / judgments
CIT vs. Goel Sons Golden Estate
Delhi vs. ITO, Ward-17(2),
CIT vs DATAWARE (supra)
CIT vs. Fair Investment Ltd.,
CIT vs. Lovely Exports Pvt. Ltd.,
CIT vs. Kamdhenu Steel
CIT vs. Vrindavan Farms Pvt.
CIT vs. Laxman Industrial Resources Pvt.
CIT vs Divine Leasing & Finance Ltd.
Earth Metal Electric Pvt. Ltd., vs. CIT
CIT vs. Peoples General Hospital Ltd.,
CIT vs. (i) Dwarakadhish Investment P. Ltd.,
CIT vs. Winstral Petrochemicals P. Ltd.,
CIT vs. Value Capital Services Pvt. Ltd.,
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "SMC" : DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA.No.2376/Del./2018
Assessment Year 2008-2009
M/s. Heat Flex Cables (P)
Ltd., H-1464, DSIDC, The Income Tax Officer,
Narela Industrial Area, vs Ward-11(2),
New Delhi 110 040. New Delhi.
PAN AABCH3816K
(Appellant) (Respondent)
Shri Gautam Jain, Advocate &
For Assessee :
Shri Lalit Mohan, C.A.
For Revenue : Shri S.L. Anuragi, Sr. D.R.
Date of Hearing : 12.07.2018
Date of Pronouncement : 01.08.2018
ORDER
This appeal by assessee has been directed against
the Order of the Ld. CIT(A)-35, New Delhi, Dated 15.02.2018,
for the A.Y. 2008-2009, challenging the reopening of the
assessment under section 147/148 of the I.T. Act, 1961 and
addition of Rs.40 lakhs under section 68 of the I.T. Act, 1961.
2. Briefly the facts of the case are that original return
declaring income of Rs.9,74,054/- for the assessment year
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Flex Cables (P) Ltd., New Delhi
under appeal was filed by the assessee-company on 29.09.2008
and the same was processed under section 143(1) of the I.T. Act.
Thereafter, the DCIT, Investigation Wing vide their letter dated
12.03.2013 has informed that during the course of search/
survey action under section 132/133A of the I.T. Act conducted
at the residential and business premises of Shri Surender
Kumar Jain and his brother Shri Virender Jain, certain
incriminating documents were found and seized. These
documents include date-wise hand-written cheque books and
cash hooks maintained by Shri S.K. Jain and his brother over
a long period of time. In these cheque books and cash books
details of cheque provided to the beneficiaries companies/
entities/persons and receipt of cash by them and beneficiaries
were recorded. During the course of post search investigation,
it has been evidently established accommodation entries to
various beneficiary companies/entities/persons through
cheques through a number of paper and dummy companies in
lieu of cash. These dummy companies were controlled by Shri
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Flex Cables (P) Ltd., New Delhi
Surender Kumar Jain and brothers. It was found from the list
that assessee has obtained accommodation entry of Rs.40 lakhs
in assessment year under appeal. Therefore, assessment was
reopened under section 148 of the I.T. Act. The assessee was
directed to file return of income, to which, assessee submitted
that original return filed may be treated as return filed in
response to notice under section 148 of the I.T. Act. The
assessee do not file any objection to the reopening of the
assessment. The A.O. asked the assessee to prove the
genuineness of the amount received of Rs.40 lakhs. The
assessee filed details as well as ledger account and confirmation
from the persons who have contributed to share application
money and unsecured loans. The assessee explained that it has
received the amount of Rs.20 lakhs each from M/s. Finage
Leasing and Finance (India) ltd., and M/s. Singhal Securities
Pvt. Ltd., The A.O. in order to verify the genuineness and
creditworthiness of these companies, issued notice under
section 133(6) to both the companies. Both the companies have
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Flex Cables (P) Ltd., New Delhi
replied the letter under section 133(6) directly to the A.O. along
with documentary evidence like bank statement, copy of the
return and confirmation of accounts and confirmation of
transaction with the assessee-company. The A.O. then asked
the assessee to produce Directors of both these companies. The
assessee in response to the same, produced Ms. Lovely Kumari
as Director of M/s. Finage Leasing and Finance (India) Ltd. who
is also employee of the same company, which was recently
appointed as Director. The A.O. did not accept the contention of
the assessee and noted that assessee failed to prove
creditworthiness of the investors and genuineness of the
transaction in the matter. The Inspector reported that above
company do not exist at the address. The A.O. made addition of
Rs.40 lakhs under section 68 of the I.T. Act. The assessee
challenged the reopening of the assessment as well as addition
on merit before Ld. CIT(A). The Ld. CIT(A) noted that assessee
has not raised objection to the re-assessment proceedings and
that investigation conducted by the Investigation wing is part of
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Flex Cables (P) Ltd., New Delhi
the department who have produced sufficient evidence on
record against the assessee for reopening of the assessment.
Therefore, he did not interfere with the reopening of the
assessment and rejected this ground of appeal of assessee.
3. The assessee-company as regards the addition on
merit, submitted that assessee-company filed complete
documentary evidence before the authorities below which prove
the identity of the investors, their creditworthiness and
genuineness of the transaction. One of the investor M/s.
Singhal Securities Pvt. Ltd., has assessed to tax even for block
assessment order under section 153C/153A and both the
investors have confirmed the genuineness of the transaction
directly to the A.O. in their reply to the notice under section
133(6) of the I.T. Act. One of the Director of the Investor
company M/s. Finage Leasing & Finance (India) Ltd., was
produced before A.O. who have confirmed the transaction with
the assessee-company and investment made by them. The A.O.
did not make any further enquiry on the same, therefore, no
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Flex Cables (P) Ltd., New Delhi
addition should be made against the assessee-company. The
assessee-company filed the balance-sheet of both the investors
to show that M/s. Singhal Securities Pvt. Ltd., has availability
of funds of Rs.10,49,97,-000/- and have other assets as well.
In the case of M/s. Finage Leasing & Finance (India) Ltd., they
have availability of the funds of Rs.14,57,42,032/- along with
other assets. It was, therefore, submitted that assessee-
company proved identity of the investors, their creditworthiness
and genuineness of the transactions. Large number of case law
were relied upon in support of the above contention. The case
law relied upon by the A.O. were distinguishable on facts. The
Ld. CIT(A), however, did not accept the contention of the
assessee-company and dismissed the appeal of the assessee-
company.
4. I have heard the learned Representatives of both the
parties and perused the material on record.
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5. Learned Counsel for the Assessee reiterated the
submissions made before the authorities below and referred to
various documents filed before authorities below, has relied
upon the same case laws which were relied upon before Ld.
CIT(A). He has also relied upon the Judgment of the Hon'ble
Delhi High Court in the case of CIT vs. Goel Sons Golden Estate
(P) Ltd., in ITA.No.212/2012, Dated 11.04.2012 in his written
submissions, in which it was held as under :
"3. We have examined the said contention and find
that the assessee during the course of assessment
proceedings has filed confirmation letters from the
companies, their PAN number, copy of bank statements,
affidavits and balance sheet. Thereafter the Assessing
Officer had asked the assessee to produce the said
Directors/parties. Assessee expressed its inability to
produce them. TheAO did not consequent thereto conduct
any inquiry and closed the proceedings. This is a case
where the Assessing Officer has failed to conduct
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Flex Cables (P) Ltd., New Delhi
necessary inquiry, verification and deal with the matter in
depth specially after the affidavit/ confirmation along with
the bank statements etc. were filed. In case the Assessing
Officer had conducted the said enquiries and investigation
probably the challenge made by the Revenue would be
justified. In the absence of these inquiries and non-
verification of the details at the time of assessment
proceedings, the factual findings recorded by the
Assessing Officer were incomplete and sparse. The
impugned order passed cannot be treated and regarded as
perverse. The appeal is dismissed as no substantial
question of law arises."
5.1. He has also relied upon the order of ITAT, Delhi,
SMC-Bench in the case of Moti Adhesives P. Ltd., Delhi vs. ITO,
Ward-17(2), New Delhi in ITA.No.3133/Del./2018 dated
25.06.2018 in which in paras 6 and 7 it was held as under :
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Flex Cables (P) Ltd., New Delhi
6. "Keeping in view of the facts and circumstances of
the case and respectfully following the aforesaid
decisions, I hold that mere non-production of Director of
said shareholder company cannot justify adverse
inference u/s 68 of the Act. Even if there was any doubt
if any regarding the creditworthiness of the share
applicants was still subsisting, then AO should have
made enquiries from the AO of the share subscribers as
held by Hon'ble High Court in CIT vs DATAWARE (supra)
which has not been done, so no adverse view could have
been drawn, In this case on hand, the assessee had
discharged its onus to prove the identity,
creditworthiness and genuineness of the share
applicants, thereafter the onus shifted to AO to disprove
the documents furnished by assessee and in my view it
cannot be brushed aside by the AO to draw the adverse
view which here in present facts cannot be countenanced.
Therefore addition of Rs. 25,45,000 made by AO and
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Flex Cables (P) Ltd., New Delhi
sustained by Ld CIT(A) are hereby deleted.
7. In the result, the appeal of the assessee is allowed."
6. On the other hand, Ld. D.R. relied upon the orders of
the authorities below.
7. I have considered the rival submissions and also
written submissions filed by the assessee-company and case
laws relied upon in the written submissions would be
considered in this order. It is an admitted fact that during the
assessment year under appeal, assessee-company has received
Rs.40 lakhs from the two investor companies mentioned above.
The assessee-company has filed details of their net worth
supported by their balance-sheet which shows that M/s.
Singhal Securities Pvt. Ltd., was having availability of the funds
of Rs.10,49,97,000/- and in case of Finage Leasing & Finance
(India) Ltd., it has availability of funds of Rs.14,57,42,032/-.
The transactions are conducted through banking channel and
no cash was found deposited in the bank account of the investor
11
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Flex Cables (P) Ltd., New Delhi
companies. The assessee-company in the case of both the
investor companies filed confirmation of both the investors,
their certificate of incorporation, PAN of the investor companies
and their Directors, copy of the Board Resolution, copy of the
share application form, copy of the receipt of shares, copy of the
Memorandum and Article of Association of both the investors,
their audited accounts, acknowledgment of filing of the return
of income and bank statement. In the case of M/s. Singhal
Securities Pvt. Ltd., copy of the assessment order for A.Y. 2008-
2009 under section 153C, 153A have been filed. In the case of
M/s. Finage Leasing & Finance (India) Ltd., the Director was
produced for examination whose statement was recorded by
A.O. in which she has confirmed making investment in
assessee-company. These documents on record clearly support
the explanation of the assessee-company that it has proved
identity of the investors, their creditworthiness and
genuineness of the transaction in the matter. No evidence have
been brought on record if such investment was made from the
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Flex Cables (P) Ltd., New Delhi
coffers of the assessee company. The material on record shows
that investors have net worth to make the above investments in
the assessee-company. Both the investors are corporate entities
and assessed to tax and transactions are made through
banking channel. The documentary evidences filed by assessee-
company on record have not been rebutted by the A.O. in any
manner. I rely upon the following decisions.
7.1. CIT vs. Fair Investment Ltd., 357 ITR 146 in which it
was held that A.O. did not summon investors and did not make
efforts. There is no finding that material disclosed was
untrustworthy. The Appellate Authorities rightly deleted the
addition.
7.2. Decision of Supreme Court in the case of CIT vs.
Lovely Exports Pvt. Ltd., (2008) 216 CTR 195 in which it was
held as under:
"If the share application money is received by the assessee
company from alleged bogus shareholders, whose names
13
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Flex Cables (P) Ltd., New Delhi
are given to the AO, then the Department is free to proceed
to reopen their individual assessments in accordance with
law, but it cannot be regarded as undisclosed income of
assessee company."
7.3. Decision of Hon'ble jurisdictional High Court in the
case of CIT vs. Kamdhenu Steel and Alloys Ltd., & Ors. 361 ITR
220 (Del.) in which it was held as under :
"Once adequate evidence/material is given, which would
prima facie discharge the burden of the assessee in proving
the identity of shareholders, genuineness of the transaction
and creditworthiness of the shareholders, thereafter in case
such evidence is to be discarded or it is proved that it has
"created" evidence, the Revenue is supposed to make
thorough probe before it could nail the assessee and fasten
the assessee with such a liability under s.68; AO failed to
carry his suspicion to logical conclusion by further
investigation and therefore addition under s.68 was not
sustainable."
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Flex Cables (P) Ltd., New Delhi
7.4. Decision of Hon'ble jurisdictional High Court in the
case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of
2015 dated 12th August, 2015 (Del.), in which it was held as
under :
"The sole basis for the Revenue to doubt their
creditworthiness was the low income as reflected in their
return of income. It was observed by the ITAT that the AO
had not undertaken any investigation of the veracity of the
documents submitted by the assessee, the departmental
appeal was dismissed by the Hon'ble High Court.
7.5. Decision of jurisdictional High Court in the case of
CIT vs. Laxman Industrial Resources Pvt. Ltd., ITA.No.169 of
2017 dated 14th March, 2017, in which it was held as under :
"The CIT(A) took note of the material filed by the assessee
and provided opportunity to the AO in Remand proceedings.
The AO merely objected to the material furnished but did
not undertake any verification. The CIT(A) deleted the
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Flex Cables (P) Ltd., New Delhi
addition by relying upon the decision of the Hon'ble Apex
Court in the case of Lovely Exports Pvt.Ltd. (supra) and
judgement of Delhi High Court in the case of CIT vs Divine
Leasing & Finance Ltd. [2008] 299 ITR 268. The ITAT
confirmed the opinion of the Ld.CIT(A). Hon'ble High Court
in view of the above findings noted that the assessee had
provided several documents that could have showed light
into whether truly the transactions were genuine. The
assessee provided details of share applicants i.e. copy of
the PAN, Assessment particulars, mode of amount invested
through banking channel, copy of resolution and copies of
the balance sheet. The AO failed to conduct any scrutiny of
the document, the departmental appeal was accordingly
dismissed.
7.6. Decision of the Hon'ble Supreme Court in the case of
Earth Metal Electric Pvt. Ltd., vs. CIT dated 30th July, 2010 in
SLP.No.21073 of 1999, in which it was held as under :
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Flex Cables (P) Ltd., New Delhi
"We have examined the position, we find that the
shareholders are genuine parties. They are not bogus and
fictitious therefore, the impugned order is set aside."
7.7. Decision of Hon'ble jurisdictional High Court in the
case of Divine Leasing & Finance Ltd., 299 ITR 268, in which it
was held as under :
"No adverse inference should be drawn if shareholders
failed to respond to the notice by A.O.
7.8. Decision of Hon'ble M.P. High Court in the case of
CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65, in
which it was held as under :
"Dismissing the appeals, that if the assessee had received
subscriptions to the public or rights issue through banking
channels and furnished complete details of the
shareholders, no addition could be made under section 68
of the Income-tax Act, 1961, in the absence of any positive
material or evidence to indicate that the shareholders were
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Flex Cables (P) Ltd., New Delhi
benamidars or fictitious persons or that any part of the
share capital represented the company's own income from
undisclosed sources. It was nobody's case that the non-
resident Indian company was a bogus or non-existent
company or that the amount subscribed by the company by
way of share subscription was in fact the money of the
assessee. The assessee had established the identity of the
investor who had provided the share subscription and that
the transaction was genuine. Though the assessee's
contention was that the creditworthiness of the creditor was
also established, in this case, the establishment of the
identity of the investor alone was to be seen. Thus, the
addition was rightly deleted. CIT v. Lovely Exports P. Ltd.
[2009] 319ITR (St.) 5 (SC) applied."
7.9. Decision of Hon'ble jurisdictional High Court in the
case of CIT vs. (i) Dwarakadhish Investment P. Ltd., (ITA.No.
911 of 2010) and (ii) Dwarkadhish Capital P. Ltd., (ITA.No.913
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Flex Cables (P) Ltd., New Delhi
of 2010) (2011) 330 ITR 298 (Del.) (HC), in which it was held as
under :
"In any matter, the onus of proof is not a static one. Though
in section 68 of the Income Tax Act, 1961, the initial burden
of proof lies on the assesses yet once he proves the identity
of the creditors/share applicants by either furnishing their
PAN number or income-tax assessment number and shows
the genuineness of transaction by showing money in his
books either by account payee cheque or by draft or by any
other mode, then the onus of proof would shift to the
Revenue. Just because the creditors/share applicants could
not be found at the address given, it would not give the
Revenue the right to invoke section 68. One must not lose
sight of the fact that it is the Revenue which has all the
power and wherewithal to trace any person. Moreover, it is
settled law that the assessee need not to prove the "source
of source". The assessee-company was engaged in the
business of financing and trading of shares. For the
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Flex Cables (P) Ltd., New Delhi
assessment year 2001-02 on scrutiny of accounts, the
Assessing Officer found an addition of Rs.71,75,000 in the
share capital of the assessee. The Assessing Officer sought
an explanation of the assessee about this addition in the
share capital. The assessee offered a detailed explanation.
However, according to the Assessing Officer, the assessee
failed to explain the addition of share application money
from five of its subscribers. Accordingly, the Assessing
Officer made an addition of Rs.35,50,000/- with the aid of
section 68 of the Act, 1961 on account of unexplained cash
credits appearing in the books of the assessee. However, in
appeal, the Commissioner of Income-tax (Appeals) deleted
the addition on the ground that the assessee had proved
the existence of the shareholders and the genuineness of
the transaction. The Income-tax Appellate Tribunal
confirmed the order of the Commissioner of Income-tax
(Appeals) as it was also of the opinion that the assessee
had been able to prove the identity of the share applicants
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Flex Cables (P) Ltd., New Delhi
and the share application money had been received by way
of account payee cheques. On appeal to the High Court:
Held, dismissing the appeals, that the deletion of addition
was justified."
7.10. Decision of Hon'ble jurisdictional High Court in the
case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in
which it was held as under :
"Dismissing the appeal, that it had not been disputed that
the share application money was received by the assessee-
company by way of account payee cheques, through normal
banking channels. Admittedly, copies of application for
allotment of shares were also provided to the Assessing
Officer. Since the applicant companies were duly
incorporated, were issued PAN cards and had bank
accounts from which money was transferred to the
assessee by way of account payee cheques, they could not
be said to be non-existent, even if they, after submitting the
21
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Flex Cables (P) Ltd., New Delhi
share applications had changed their addresses or had
stopped functioning. Therefore, the Commissioner (Appeals)
and the Tribunal were justified in holding that the
genuineness of the transactions had been duly established
by the assessee."
7.11. Decision of Hon'ble jurisdictional High Court in the
case of CIT vs. Value Capital Services Pvt. Ltd., (2008) 307 ITR
334 (Del.) (HC), in which it was held as under :
"Dismissing the appeal, that the additional burden was on
the Department to show that even if the share applicants
did not have the means to make the investment, the
investment made by them actually emanated from the
coffers of the assessee so as to enable it to be treated as the
undisclosed income of the assessee. No substantial
question of law arose."
7.12. The decisions relied upon by the Learned Counsel for
the Assessee above squarely apply to the facts and
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Flex Cables (P) Ltd., New Delhi
circumstances of the case. Since the investor companies have
confirmed the transaction with the assessee-company which
were conducted through banking channel and entire evidence
were brought on record, thereafter, if the A.O. was not satisfied
with the documents on record and explanation of the assessee-
company and the Investors, the A.O. should have made further
enquiry on the same. However, it is a case where the A.O. has
failed to conduct necessary enquiry, verification and deal with
the matter in depth. Therefore, the explanation of the assessee-
company should not have been disbelieved by the authorities
below. In this view of the matter, I set aside the orders of the
authorities below and delete the addition of Rs.40 lakhs. This
ground of appeal of assessee is allowed.
8. As regards reopening of the assessment is concerned,
Learned Counsel for the Assessee did not argue specifically this
ground in appeal. Further, no objections were filed before the
authorities below to challenge the reopening of the assessment
in the matter. In this view of the matter, I am of the view that
23
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Flex Cables (P) Ltd., New Delhi
no interference is called for in the matter as regards reopening
of the assessment. I, accordingly, reject this ground of appeal of
assessee.
9. In the result, appeal of assessee is partly allowed.
Order pronounced in the open Court.
Sd/-
(BHAVNESH SAINI)
JUDICIAL MEMBER
Delhi, Dated 01st August, 2018
VBP/-
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT `SMC' Bench, Delhi
6. Guard File.
// BY Order //
Assistant Registrar : ITAT Delhi Benches :
Delhi.
|
