Abo Investment Pvt. Ltd., New Delhi vs Department Of Income Tax

Income Tax Officer, M/s. ABO Investment Private Limited, Ward No.1(1), Room No.398, 12/56, DR Chambers, DB Gupta Road, CR Building, New Delhi Vs. Karol Bagh, New Delhi

(Appellant) (Respondent)

CO No. 41/Del/ /2012 (Assessment Year: 2002-03)

M/s. ABO Investment Private Limited, Income Tax Officer, 12/56, DR Chambers, DB Gupta Road, Ward No.1(1), Room Karol Bagh, New Delhi Vs. No.398, CR Building, New Delhi (Appellant) (Respondent)

Appellant by : Satpal, DR Respondent by : Kapil Goel, Adv

ORDER

PER A. T. VARKEY, JUDICIAL MEMBER

This is an appeal filed by the Revenue and cross-objection filed by the

assessee, against the order of the ld CIT(A), IV, New Delhi dated 20.10.2011

for Assessment Year 2002-03.

2. Brief facts are that the assessee filed return declaring income of

Rs.3,519/- on 30.01.2002. The return was processed u/s 143(1) of the Income

Tax Act, 1961 (herein after 'the Act'). Subsequently information was received

from the DIT (Investigation), New Delhi; and AO after recording reasons,

issued notice u/s 148 of the Act on 30.03.2009. In response, the assessee

company filed reply stating that return of income filed earlier may be taken in

compliance to the notice u/s 148 of the Act.

Page 2 of 8

3. Pursuant to the above, order of re-assessment was framed by the AO,

making an addition of Rs.9,96,000/- u/s 68 of the Act. He has held as under:-

"During the course of proceedings summons u/s 131 of the I.T.Act1961 was issued to the these persons to attend personally with certain details as mentioned in the summons. No detail was filed nor did anyone appear on his behalf. During the course of assessment proceedings the assessee had only filed an affidavit with confirmations from these persons in support of their providing the money to the company. In its letter the assessee had also requested that an opportunity was to be given to them to cross examine the persons who have given statement against them. It was with this view that summons u/s. 131 dated 18.12.2009 was issued to the persons to attend the office personally. But as stated none appeared nor any reply filed till date of this order. Hence in view of this the share capital of Rs.9,96,000/- stands unconfirmed. On the facts and various judicial pronouncement on the applicability of provisions of section 68 of the I.T. Act 1961 I hold the amount of Rs.9,96,000/- would be added back to the income of the assessee u/s 68 of the Act."

4. Being aggrieved, the assessee preferred an appeal before the ld

CIT(A), who upheld the action of the AO u/s 147 of the Act, but was pleased

to delete the impugned addition. He has held as under:-

"5.1 I have carefully considered the reassessment order and the submissions made by the Id. AR on the above issue. It is argued by the Id. AR that the impugned share capital money of Rs.9,96,000/- was received from ten parties, namely Balvinder Singh (Rs.92,0001-), Hukum Chand (Rs. 93,000/-), Babita Gupta (Rs, 97,000/-), Rajesh Kumar Gupta (Rs. 50,000/-), Mukesh Gupta (Rs. 91,0001-), M/s Arun Finvest Pvt. Ltd. (Rs 90,000/-), M/s Polo Leasing & Finance Pvt. Ltd. (Rs. 1,50,000/-), M/s SCG Publishing Pvt. Ltd. (Rs. 95,000/-), M/s Ethnic Creations Pvt. Ltd. (Rs. 1,50,000) and M/s Webnet Systems Pvt. Ltd. (Rs. 88,000/-), by account payee cheques. The appellant has filed copies of confirmation I affidavit from the said parties confirming the payment of the above amount as share application money, copies of Income-tax returns, copy of PAN details, Memorandum & Articles of Association, Certificate of Incorporation, copy, of bank statement, copy of share application forms, details of shares allotted, copy of ROC Company Master details showing the company's status a 'Active', copy Board Resolution, copy of audited Balance Sheet and Profit and Loss Accounts, residence proof and wealth tax return copies in case of individuals etc. in respect of the investors in support of its claim. It is argued by the Id. AR that the appellant has discharged its made initial onus with regard to the above transactions. It is argued that the addition has been made by the AO merely on the basis of information received from the Investigation Wing which was at the back of the appellant and for Page 3 of 8

inability to produce the parties. Further, it is argued that opportunity of cross-examination was not received back by the AO, in response to which the affidavits from the parties were produced and the parties filed their replies seeking time for personal appearance which was not allowed by the AO. It is argued that the AO has also not conducted any independent enquiry in the matter. It is also argued that even in the event of the investor companies being bogus, as alleged, no addition can be made u/s 68 in the hands of the appellant company. The Id. AR has accordingly argued that the said addition Rs.9,96,000/- u/s 68 made by the AO in the hands of the appellant company is illegal. The Id. AR has relied upon a plethora of case laws in support of his claim. On careful consideration of the matter, I find that the above contention of the Id. AR cannot be rejected on merit. The AO has also not been able to bring on record any valid material evidence to disprove the claim of the appellant in this regard."

5. Now the Revenue, is in appeal and has raised the following ground:-

"1. In the facts and circumstances of the case, the ld CIT(A) has erred in law and on facts in deleting addition of Rs.9,96,000/- u/s 68 of the IT Act on account on unexplained cash credits."

6. The ld DR, submitted that the assessee had not discharged the burden

u/s 68 of the Act and ld CIT(A) was not justified in deleting the impugned

addition. According to the ld DR, on the face of the investigation carried out

by the investigation wing, there was sufficient evidence to show that the

assessee had failed to explain the credit. Moreover, the purported investors

did not attend in response to the summons issued u/s 131 of the Act.

7. The ld AR on the other hand supported the conclusion of the ld CIT(A)

in respect to deletion of the addition. He submitted that the assessee

received share-application money of Rs.26,12,000/- in the instant year, which

included Rs.9,96,000/- received from five corporate assessee's and five

individual assessee's, through banking channels. He further submitted that the

summons u/s 131 were fully complied with and took our attention to Page7 of

PB, wherein, one of the investor, Shri Balwinder Singh had replied to the

summons as under:-

Page 4 of 8

"In above reference I deeply regret that I could not attend your office on dated 23/12/2002 at 11.00 A.M. due to non receipt of Summons to Assessee witness U/s 131 of the Income Tax Act, 1961. I request to kindly give me some future date to attend your office. I confirm that I have dealt with M/s ABO Investment Pvt. Ltd. During the financial year 2001- 02 i.e. Assessment year 2002-03 by way of contributing/ subscribing to share capital of M/s ABO Investment Pvt. Ltd Details of which are as follows :

Date Cheque No. Amount Drawn At 01.03.2002 603331 Rs.92,000/- The Karur Vyasya Bank Ltd, K.Bagh, New Delhi

I had been allotted 1840 equity shares by ABO Investment Pvt. Ltd. and received Share Certificate of ABO Investment Pvt. Ltd. containing Distinctive Nos.14781-6620, under Folio No.07.

Now I am furnishing the documents required by you as follows:-

1. Copy of Bank Account for period 01.04.2001 to 31.03.2002.

Copy of the Income Tax Return & balance sheet and profit and loss account for Assessment year 2002-03 are enclosed.

I feel above declaration with submission and documents will help to assess the case."

8. We have heard the rival submission and perused the records. We find

that the assessee had placed on record confirmations, income tax returns,

bank-statements and share-application forms from each of the share-holders.

Summons issued to them, have also been responded to, confirming the

investment. However, we find that AO made no further enquiry to discredit

the claim of the assessee in this respect. Admittedly,the prior-enquiry made

by the investigation wing which triggered the re-assessment, has been made

behind the back of the assessee, which in the light of the aforesaid facts and

materials on records does not justify the inference of the AO to make the

addition in the light of ratio laid by the Hon'ble High Courts in the following

cases.

9. In the case of CIT vs Fair Finvest Ltd ITA no. 232/2012 dated 22-11-2012, the jurisdictional Delhi High Court has held as under:- Page 5 of 8

"6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed vas untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.

7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).

8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators; such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. No substantial question of law arises. The appeal is accordingly dismissed."

10. In the case of CIT Vs. Ram Narain Goel 224 ITR 180 Punjab and Haryana

High Court observed that suspicion howsoever strong cannot take the place

of evidence or proof.

11. In the case of CIT vs. Gangeshwari Metal P.Ltd. in ITA no. 597/ 2012 judgement dated 21.01.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and Page 6 of 8

judgement in the case of CIT vs. Lovely Exports 319 ITR (Sat 5)(5. C) held as follows:-

"As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:-

''Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000/- and not Rs.1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tries to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.5,50,000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately.

The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no Page 7 of 8

addition can be made under Section 68 of the Income Tax Act 1961.

Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law"

12. The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra).

b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8 it was held as follows.

"6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).

The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. "

Page 8 of 8 13. Applying the ratio laid by the aforesaid case-laws on the case in hand,

we uphold the order of the ld CIT(A) deleting the additions.

14. In the result the ground of the revenue is dismissed.

CO No.41/Del/2012

15. In the light of the decision as stated above, the validity of reopening

u/s 147 is not being decided separately, as the same has become

academic.

16. In the result the appeal of the revenue is dismissed and the CO of the

assessee is rejected for statistical purposes.

Order pronounced in the open court on 07.01.2015.

-Sd/- -Sd/- (S.V. MEHROTRA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07/01/2015 A K Keot

Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi