Arvindo Fabnoplast Pvt. Ltd., ... vs Department Of Income Tax

Asstt. Commissioner of Income Tax, vs M/s Arvindo Fabnoplast Pvt. Ltd., Circle-I, Block I-B, 244, Sector-15A, Faridabad. CGO Complex, NH-4, Faridabad. (Appellant) (Respondent) Appellant by: Shri Y. Kakkar DR Respondent by: Shri Alok Kumar Gupta, CA Date of Hearing: 25.02.2015 Date of Pronouncement: 08.05.2015 ORDER

PER C.M. GARG, JUDICIAL MEMBER

This appeal has been directed by the Revenue against the order of the

CIT, Faridabad dated 27.01.2010 in Appeal No.150/09-10 for AY 2005-06.

2. The sole ground raised by the revenue reads as under:-

"1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.2,50,0000/- made by the AO on account of unexplained credits in the books of account u/s 68 of the Income Tax Act, 1961 especially when the assessee had completely failed to discharge its onus to prove the identity of the persons, genuineness and creditworthiness of the persons giving share applicants money to the assessee."

1 ITA No.1308/Del/2010 Asstt.Year: 2005-06 3. We have heard arguments of both the sides and carefully perused the

relevant material placed on record, inter alia assessment order, impugned order

of the CIT(A), assessee's paper books spread over 164 pages and citations,

judgments and orders relied by both the parties. Ld. DR has drawn our attention

towards para no. 8 to 11 of the assessment order and submitted that the assessee

failed to produce the persons who have given credit to the assessee company

during the year under consideration, leave apart to discharge its onus of proving

the genuineness and creditworthiness of the share application money providers.

Ld. DR, placing reliance on the various decision of Hon'ble Jurisdictional High

Court of Delhi including recent decision in the case of CIT vs MAF Academy

P. Ltd. (2014) 361 ITR 258 (Delhi), submitted that in the context of unexplained

cash credit when the assessee does not produce evidence or tries to avoid

appearance before the AO and the assessee deliberately and intentionally fails to

produce relevant evidence during assessment proceedings with the desire to

prevent inquiry/investigation, then adverse inference should be drawn against

the assessee. Ld. DR further contended that mere production of Permanent

Account Number (PAN) or assessment particulars does not establish the identity

of a person which includes the place of work, staff members and the fact that

such person was actually carrying on business and further the recommendation

of the company or individual in the eyes of public. Ld. DR also contended that

the PAN cannot, blindly and without consideration of surrounding

circumstances, be treated as sufficiently disclosing the identity of the person. 2 ITA No.1308/Del/2010 Asstt.Year: 2005-06

Ld. DR also contended that the AO after considering entire detail, evidence and

explanation of the assessee rightly held that there was no real transaction and

the genuineness and creditworthiness of the persons giving share application

money to the assessee is not proved and the assessee failed to discharge its onus

of proving the genuineness and creditworthiness of the person who claimed to

be the shareholder of the assessee company. Ld. DR pointed out that as per

operative part of the impugned order in the last line of para 6, the CIT(A)

granted relief for the assessee without any justified basis and by wrongly

holding that the AO has not discharged his onus at all. Ld. DR has also drawn

our attention towards decision of Hon'ble Delhi High Court in the case of CIT

vs MAF Academy P. Ltd. (supra) para 29 at page 24 and submitted that the

onus to provide the identity, creditworthiness and the genuineness of the

transaction is on the assessee and when the asessee succeeds to discharge its

onus, then only the onus shifts to the AO to demolish explanation, details and

evidence of the assessee to bring the case for making addition u/s 68 of the Act

because the assessee only filed copies of the bank statement, income tax return

and confirmation of the alleged share application money providers but this was

not sufficient to discharge required onus of the assessee to prove identity,

creditworthiness and genuineness of the transaction. Ld. DR finally prayed that

the impugned order may be set aside by restoring that of the AO.

3 ITA No.1308/Del/2010 Asstt.Year: 2005-06

4. Ld. AR supporting the impugned order submitted that the AO made

additions with pre-determined mind and she has thrown away all relevant

explanation, details and evidence filed by the assessee during the assessment

proceedings. Ld. AR has further drawn our attention towards paper book page

no. 157 to 164 and submitted that the assessee through letter dated 29.12.2009

requested the AO to provide one more day i.e. up to 30.12.2009 to conclude its

submissions and to submit required information and other details but the AO

proceeded to make additions and to frame assessment order in a hasty manner

and violating the fundamental principle of natural justice. Ld. AR also pointed

out that the alleged share application money providers also requested through

their Advocate Shri Devender Singh to provide information about the share

application money providers but the AO did not allow the same. Ld. AR also

pointed out page no. 164 of the Paper book and submitted that this letter was

also submitted by the alleged share application money providers on 30.12.2009

but the AO passed assessment order by mentioning the date of 29.12.2009

denying opportunity of hearing to the assessee and the alleged share application

money providers. Ld. AR has further drawn our attention towards paper book

page no. 51 to 57, 58 to 115 and 116 to 153 and submitted that plethora of

judgements support the case of the assessee that if the assessee has submitted

proof of identity, genuineness and creditworthiness of the alleged transaction in

the form of copies of income tax returns, bank statement, and confirmation from

the share application money contributors, then onus required u/s 68 of the Act 4 ITA No.1308/Del/2010 Asstt.Year: 2005-06

stands discharged by the assessee and if the AO without making any further

inquiry or investigation simply proceeded to make addition u/s 68 of the Act,

then such addition is not sustainable in the light of decision of Hon'ble

Supreme Court in the case of CIT vs Lovely Exports (P) Ltd. (2008) 216

CTR 195 (SC) as relied by the CIT(A) while granting relief for the assessee.

5. On careful consideration of above submissions of both the sides, at the

very outset, we note that admittedly the assessee filed evidence in support of

admissibility and sustainability of share application money before the AO which

is available on pages 11 to 49 of the assessee's Paper Book which contains

copies of the confirmation, bank statement and income tax return for the

relevant AY 2005-06 of the alleged share application money providers but when

the summons u/s 131 of the Act were issued to these entities, either summons

could not be served through notice server as these parties were not available at

the given address as per notice server's report, and the summons sent by post

were returned back unserved. Then the AO asked the assessee to furnish

whereabouts of the said parties from whom the credit entries/share application

money appearing in the books of accounts were received. From para no. 6 of the

assessment order, we note that from 14.12.2009 to 29.12.2009 regularly the AO

was making efforts to verify and investigate the alleged share application

money provider but without result and the Inspector's report was also called on

24.12.2009 which was supplied to the assessee and the case was adjourned to

5 ITA No.1308/Del/2010 Asstt.Year: 2005-06

29.12.2009. On 29.12.2009, the assessee again requested to give one more day

for providing required information and submission but the AO denied

adjournment by holding that as the assessment was getting time barred by

limitation on 31.12.2009, the AO completed assessment proceedings and passed

assessment order on 29.12.2009 itself. From the letter of the Advocate of

alleged share application money provider dated 30.12.2009, we observe that the

alleged entry providers also submitted some details and documents for the

consideration of the AO but the assessment order was passed on 29.12.2009.

Although we are unable to see from record which details were filed by the

alleged share application money provider on 30.12.2009, there was an attempt

to submit information and submission from the AO on behalf of the share

applicants. At this juncture, we respectfully take guidance from the decision of

Hon'ble Delhi High Court in the case of CIT vs MAF Academy P. Ltd. wherein

their lordships after considering the ratio of all relevant judgments and orders of

Hon'ble Supreme Court and Hon'ble High Court at page 283-284 in para 25 to

29 held as under:-

"25. We have in the NR PORTFOLIO CASE (SUPRA ) held that when an Assessee does not produce evidence or tries to avoid appearance before the assessing officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the assessing officer is denied advantage of the contention or factual assertion by the Assessee before him. In case an Assessee deliberately and intentionally fails to produce evidence before the assessing officer with the desire to prevent inquiry or investigation, an adverse inference should be drawn. The said case, i.e., N.R. 6 ITA No.1308/Del/2010 Asstt.Year: 2005-06

PORTFOLIO PRIVATE LIMITED (SUPRA ), was also one of the cases where accommodation entries were being provided by Mahesh Garg Group of entry providers as in the present case . It has been noticed in that case that the modus operandi used by the entry provider s for providing accommodation entry to different persons/beneficiaries was very similar to the one in the present case. It has been further noticed that the bank statements of the entry operators showed substantial deposit of cash in the bank accounts and subsequent issuance of cheques to the beneficiaries. The entry providers were not carrying on any business activity but the only activity was for providing entries. It has been held that a private limited company is a closely held company having proxima te relationship between promoters and shareholders and usually in closely held companies, share capital subscription is from friends, relatives and not from unrelated/unknown third parties/general public.

26. We have further in N.R.PORTFOLIO PRIVATE LIMITED (SUPRA ) held that mere production of PAN Number or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work, the staff and the fact that it was actually carrying on business and further re cognition of the said company/individual in the eyes of public. We have further noticed that PA N Number s are allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity. PAN Number is allotted as a facility to revenue to keep track of transactions. The PA N Number cannot be blindly and without consideration of surrounding circumstances treated as sufficiently disclosing the identity of the individual.

27. Referring to the various judgments of the Supreme Court {A. GOVINDARAJU LU MUDALIAR VS CIT (1958) 34 ITR 807 (SC), CIT VS M. GANAPATHI MUDALIAR (1964) 53 ITR 623 (SC) AND CIT VS DEVI PRASAD VISHWANATH PRASAD (1969 (72) ITR 194 (SC)} we have in N.R.P ORTFOLIO PRIVATE LIMITED (SUPRA) rejected the contention that the revenue must have evidence to show a circulation of money from the Assessee to third

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parties. Following CIT VS NOVA PROMOTERS AND FINLEASE PRIVATE LIMITED CASE (2012) 342 ITR 169 (DELHI) we have held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN Number, acknowledgement of Income Tax Returns of the entry providers, bank account statement is not sufficient to discharge the onus on the Assessee.

28. In the case of private limited companies, generally person known to the directors or shareholders directly or indirectly buy or subscribe to shares. The share subscribers post investment do not lose touch or become incommunicado. In the case of private limited companies where normally there is close proximity between the company, i.e., the directors and shareholders and the investors. The Assessee cannot simply furnish details and remain quiet even when summons issued to the shareholders under Section 131 are returned unserved and uncomplied. In N.R.P ORTFOLIO PRIVATE LIMITED (SUPRA ) we have held that the Assessee cannot plead as a general preposition that they had received summons and it was for the assessing officer to enforce the contents on the share holders.

29. We have further held that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transactions. The onus to prove the three factum is on the Assessee as the facts are within the personal knowledge of the Assessee. Mere production of incorporation details, PAN Numbers or income tax returns may not be sufficient when surrounding and attending facts predicate a cover up. The production of incorporation details, PAN numbers or income tax details may indicate towards completion of paper work or documentation but genuineness, creditworthiness and identity of investment and the investors are deeper and obtrusive than mere completion of paper work or documentation."

8 ITA No.1308/Del/2010 Asstt.Year: 2005-06

6. In view of above noted facts and circumstances, we note that since the

assessment was getting barred on 31.12.2009, therefore, the AO denied even one

day adjournment to the assessee and completed the assessment proceedings on

29.12.2009. During the assessment proceedings, the assessee furnished copies

of the confirmation, income tax returns for relevant AY 2005-06 and bank

statement pertaining to financial year 2004-05 of the alleged share application

money contributors which are available at pages 11-26 of the assessee's paper

book. This is a peculiar fact of the present case that the assessee requested for

one day adjournment on 29.12.2009 for filing of additional information and

submissions regarding alleged share application money and this request of the

assessee was rejected by the AO. From Paper Book page no. 164, we also note

that there was an attempt by the alleged share application money contributors

through their Advocate to submit supporting documents but the same were not

considered as the assessment order was passed on 29.12.2009 itself. From

careful reading of the impugned order, we note that the CIT(A) granted relief for

the assessee with following observations and conclusion:-

"6. I have carefully considered the contentions of the Ld. AR and perused the order of assessment. I have also gone through the various documents produced by the Ld. AR in the shape of the paper book, examination of which clearly shows that during the course of reassessment proceedings u/s 147, the appellant through the Ld. AR had produced all the documentary evidences which establish the genuineness of the transaction of the credits of receipt of Rs. 5 lakhs from the 5 persons involved and that the AO has no material on record to prove that all these credits of Rs. 25 lakhs were mere

9 ITA No.1308/Del/2010 Asstt.Year: 2005-06

accommodation entries and not genuine credits in the books of account as per the provisions of section 68 of the Income Tax Act, because the appellant had proved also the identity an credit-worthiness of all the parties through their confirmations and accounts through the banking channels which left no room for any shred of doubt for the genuineness of the credits in the books of the company. Moreover, as per the legal position settled by a catena of judicial pronouncements cited by the Ld. AR as above, that in the case of the company only the identity of the share-holders is sufficient to be proved and which the appellant has through various documents on record proved, for example, the cases of Steller Investment Ltd., Sophia Finance Ltd. and Achal Investment Ltd. (all Supra). Moreover, the issue regarding cash credits in the shape of share application money in the case of a company has been finally clinched recently by the Apex Court's decision in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 ITR (SC) 195 wherein it has been held that if the share application money is received by the assessee company from alleged bogus share holders whose names are given to the AD, then the department is free to proceed to reopen their individual assessment in accordance with law, but it cannot be regarded as undisclosed income of the assessee company under the provisions of section 68 of the Income Tax Act, 1961. It is also further pertinent to cite the Ld.

Jurisdictional Tribunal's order dated 03.03.2006 in ITA No. 4288/D/2005 assessment year 1997- 98in the case of M/s Gulati Industrial Fabrication Pvt. Ltd. Vs. ACIT wherein on the identical facts and circumstances, it has been ruled that the statement of a person /party that he had been doing name lending business in regard to giving of loans is only a general confession made to secure immunities for himself and for the members of his family and such mere confessional statement by a third party would not be sufficient to hold that the assessee's income had escaped assessment for invoking the provisions of section 147/148 of the Income Tax Act, 1961. Moreover, as has been decided by the various Courts, when the Revenue has taken the recourse to the provisions of section 147/148 of the Income Tax Act, 1961, its intent and the duty of the Revenue is to establish its case by bringing material on record, and in this regard, as the facts and circumstances float in the instant case, the AO has not discharged his onus at all. Keeping in view such discussion,

10 ITA No.1308/Del/2010 Asstt.Year: 2005-06

the addition of Rs. 25 lakh made u/s 147/143(3) is unsustainable and hence stands deleted."

7. On the basis of foregoing discussion and operative part of the impugned

order, we hold that the AO denied opportunity to submit additional information

and submissions for the assessee to discharge required onus upon the assessee

u/s 68 of the Act and the assessment proceedings were completed, keeping in

view the fact that the assessment was getting time barred on 31.12.2009. During

first appellate proceedings, CIT(A) granted relief for the assessee by holding

that the duty of the revenue is to establish its case by bringing material on record

and the AO has not discharged his onus at all. At this stage, we respectfully take

cognizance of the ratio of the decision of Hon'ble Jurisdictional High Court of

Delhi in the case of MAF Academy P. Ltd. wherein it was held that the onus to

prove genuineness, creditworthiness and identity of the transaction is on the

assessee and mere production of incorporation details, PAN or income tax

returns may not be sufficient when surrounding and attending facts predicate a

cover up. Their Lordships also made it clear that the production of

incorporation details, PAN or income tax details may indicate towards

completion of paper work or documentation but the genuineness, the

creditworthiness and the identity of investment and the investors are deeper and

obtrusive than mere completion of paper work or documentation. On the basis

of foregoing discussion, we hold that the AO denied opportunity of being heard

for the assessee and the CIT(A) wrongly shifted onus on the revenue authorities

11 ITA No.1308/Del/2010 Asstt.Year: 2005-06

and misunderstood the meaning of onus with regard to section 68 of the Act.

Hence, we are of the considered opinion that the issue of share application

money was not adjudicated by the lower authorities as per provisions of section

68 of the Act and as per ratio and proposition laid down by Hon'ble

Jurisdictional High Court of Delhi in the case of CIT vs MAF Academy P. Ltd.

(supra). Therefore, we find it just and proper to restore the issue to the file of

AO for de novo adjudication only on the issue of alleged share application

money after affording due opportunity of hearing for the assessee and without

being prejudiced with the earlier assessment and impugned order. The AO is

directed to adjudicate the issue afresh in the light of judgment of Hon'ble High

Court of Delhi in the case of MAF Academy P. Ltd. (supra) and the case is

restored to the file of AO for this limited purpose only. Accordingly, sole

ground of the revenue is deemed to be allowed for statistical purposes.

8. In the result, the appeal of the revenue is allowed as indicated above.

Order pronounced in the open court on 08.05.2015.

Sd/- Sd/-

(N.K. SAINI) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 8th May, 2015 'GS'

12 ITA No.1308/Del/2010 Asstt.Year: 2005-06

Copy forwarded to:-

1. Appellant 2. Respondent 3. CIT(A) 4. C.I.T. 5. DR By Order

Asstt. Registrar

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