Bhoomidar Builders (P) Ltd., New Delhi vs Department Of Income Tax

This appeal has been preferred by the department against the

order of the Commissioner of Income Tax (Appeals) - V dated

26.3.2010 in appeal no. 98/09-10 for AY 2007-08.

2 ITA NO.2924/ Del/2010

2. The revenue has raised following grounds in this appeal :-

" 1. The Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 47,00,000/- being unexplained ' Share application money' and Rs. 11,70,000/- being unexplained ' unsecured loan' u/s 68 of the I.T. Act, ignoring the fact that necessary details were not submitted and the onus of proving necessary ingredients of section 68 was not discharged by the assessee."

3. Briefly stated the facts giving rise to this appeal are that the case

was selected for scrutiny through CASS and statutory notice u/s

143(2) if the Income Tax Act, 1961 (for short the Act) was issued on

15.9.2008 which was not complied. Subsequently, notice u/s 143(2)

and 142(1) of the Act were issued to the Assessee. The assessing

officer noted that in spite of show cause dated 11.12.2009, the

assessee company has not bothered to adduce any evidence to

prove the genuineness / existence and creditworthiness of share

applicants who given a sum of Rs. 47 lacs to the assessee company

as share application money. The AO treated the said amount of share

applications as unexplained deposits and added the same u/s 68 of

the Act as income from undisclosed sources to the return income of

the Assessee. The AO also noted that the assessee company has

shown unsecured loan from the directors during the year of Rs.

11,70,000/- and accept confirmation no other document was 3 ITA NO.2924/ Del/2010

submitted by the assessee to prove genuineness, creditworthiness of

the said amount and therefore the assessing officer hold that in

absence of any supporting document the said amount is added to the

return income of the assessee company as the income from

undisclosed sources u/s 68 of the Act. Being aggrieved by the above

assessment order the assessee prefer CIT(A) which was allowed by

passing the impugned order of both the grounds. Now the aggrieved

revenue is before this tribunal in this second appeal with the main

ground as reproduced hereinabove.

4. Share application money - The Ld. Departmental Representative

(DR) pointed out that the Assessing Officer after detailed

deliberations rightly held that the assessee company did not adduce

any evidence to prove the genuineness, existences and

creditworthiness of share applicants therefore, the same was rightly

treated as income from undisclosed sources. The Ld. DR

vehemently, contended that the CIT(A) simply relying on the decision

of Hon'ble Supreme Court in the case of M/s Lovely Exports Pvt. Ltd.

216 CTR 195 (SC) observe that the AR had proved the identity and

genuineness of the share applicant company's, therefore, the amount 4 ITA NO.2924/ Del/2010

addition cannot be sustained and the CIT(A) directed to delete the

addition without any basis and justified reasoning.

5. Replying to the above the Ld. Counsel of the assessee placing

reliance on the decision of Hon'ble Jurisdictional High Court of Delhi

in the case of CIT Vs. Gangenwary Metals Pvt. Ltd. 361 ITR 10

(Del.), decision of Hon'ble Madras High Court in the case of Smt.

Reetu Devi Vs. CIT 271 ITR 466 and decision of Hon'ble Supreme

Court in the case of CIT vs. Orissa Corporation P. Ltd. 159 ITR 78

(SC) submitted that the Assessing Officer did not provide due

opportunity of hearing for the assessee and to submit relevant

documents and explanation regarding alleged share application

money. The Ld. Counsel of the assessee drawn our attention towards

assessment order page 3 para 2 and submitted that the AO issued

office letter vide dated 11.12.2009 fixing the date of 14.12.2009

asking to produce share applicants and to provide copies of their

bank statements and income tax return etc. fixing the date for

14.12.2009 i.e. only after 2 days. The Ld. Counsel further pointed out

that the AO provided only 2 days time which were in fact holidays and

after lapse of 2 days i.e. 14.12.2009 the AO passed impugned order

by holding that no reply has been received from the assessee 5 ITA NO.2924/ Del/2010

company and its actions are as speaking quite clear that the

assessee has nothing to offer on this issue. The Ld. Counsel

venemently conteded that the Assessing Officer wrongly noted that

non-reference to share premium in the confirmations by the said four

share applicants and the non-response to the notice u/s 133(6) of the

Act proves that the said amounts are only introduction of unexplained

funds in the garb of share application money by the assessee

company.

6. The Ld. Counsel further drawn our attention towards

paragraph no. 3.1 to 3.8 of the impugned order and submitted that

the CIT(A) after detailed deliberations and after considering the

explanation and documentary evidence filed by the assessee and

also considering the relevant propositions and ratio of the case was

rightly held that the assessee had proved the identity and

genuineness of the share applicants companies and therefore the

amount addition cannot be sustained. The Ld. Counsel parted with

the arguments with a final submission that the assesse's case is

squarely covered by the decision of Hon'ble Jurisdictional High Court

in the case of CIT Vs. Gangeswary metals Pvt. Ltd. (Supra). 6 ITA NO.2924/ Del/2010

7. On careful consideration on above submissions and careful

perusal of the relevant material placed before us at the very outset

we note that during the assessment proceedings the assessee

submitted confirmations, copies of the share application and the

Assessing Officer issued notice u/s 133(6) of the Act on 4.11.2009 to

confirm the amounts of share application money to M/s United

Petroleum Pvt. Ltd, Bhawani Engineering Services Pvt. Ltd, Fort

Leather Pvt. Ltd. and PMP Farms Pvt. Ltd. But there was no

response from these companies. The Assessing Officer again issues

the show cause notice on 11.12.2009 to the assessee to produce

these share applicants and to submit copies of their bank statements

And Income Tax Returns etc. fixing the date on 14.12.2009 only after

two days. From operative part of the order on this issue at page 3 of

the assessment order we note that the Assessing Officer alleged that

the assessee company has not bothered to adduce any evidence to

prove the genuineness/ existence and creditworthiness of these

share applicants and made a addition treating the same as income

from undisclosed sources. Under these facts and circumstances, we

made safely infer that the Assessing Officer did not provide due

opportunity to produce alleged share applicants into submit copies of 7 ITA NO.2924/ Del/2010

their bank statement, income tax returns and other relevant

documents.

8. From bare reading of the impugned order, we note that the

CIT(A) granted relief for the assessee with following observations and

conclusion -

"3.1. Against this, A.R. of the appellant submitted that the assessee company received a sum of Rs. 33,00,000/- as share application money from the four companies i./e. M/s United Petroleum (P) Ltd. Bhawani Engineering Services (P), Fort Leather (P) Ltd., PMP Farms (P) Ltd. and not Rs. 47,00,000/- as alleged by the assessing officer. The asse4ssing officer's observation that wrong number of shares were applied for by the four different share applicants in the share application forms is highly unjustified and with respect it is submitted as malicious. There is absolutely no valid basis for the aforesaid allegation which is wholly unsubstantiated by any material. The assessee company did not charge any share premium; therefore assessing officer's observation that share premium amount has not been mentioned is also meaningless. The table (annexed to this order) containing details of share application money from above companies, bank details, A.O. details, cheque no. is enclosed for ready reference.

3.2 As regards un-complied notices dated 4.11.2009 issued u/s 133(6) to M/s United Petroleum (P) Ltd. Bhawani Engineering Services (P), Fort Leather (P) Ltd. and PMP Farms (P) Ltd, A.R of the appellant submitted tha the assessee company was issued notice dated 11.12.2009 asking to produce the parties on 14.12.2009. It is respectfully submitted that a fair and proper opportunity of being heard was not granted to the assessee to comply with the notice. The notice was dated 11th December (Friday) and 12th & 13th December being Saturday and Sunday were holidays and the assessment order was framed on 14th December itself. Before coming to any adverse conclusion, the learned 8 ITA NO.2924/ Del/2010

assessing officer ought to have given a proper opportunity of being heard to the assessee. The addition being highly arbitrary and in violation of principles of natural justice is liable to deleted as such.

3.3 It is submitted that the difficulty on the part of assessee to produce the details/parties in a short span of time pertaining to transactions which took place years ago should have been borne in mind by the department and should under no circumstances be underestimated or taken advantage of. After a lapse of number of years, an assessee should not be placed upon the rack and called upon to explain the transactions pertaining to third parties. 3.4 If the learned assessing officer was of the opinion that share applicants were to be examined personally, he was fully empowered to enforce the attendance of the said parties by virtue of powers bestowed upon him u/s 131 of the Income Tax Act. However, he failed to exercise such power as reported in Nathuram Prem Chand Vs. CIT (Allahabad H.C.) (49 ITR 561). The head note of the case law is produced as under for ready reference:

"No inference can be drawn against an assessee merely because the assessee had taken a dasti summons for production of witness and had not produced him. It is the duty of ITO to enforce attendance of the witness if his evidence is material, in exercise of powers u/s 37(1) of the I.T.Act, 1922 read with order XVI rule of Civil Procedure Code."

It is most respectfully submitted that for any default on the part of the assessing officer to summon the witness, the assessee could not be penalized.

3.5 As regards Assessing Officer's observation that the assessee company has failed to adduce any evidence to prove the genuineness/existence and credit worthiness of share applicants, it is submitted that the amounts were paid by the parties by cheques, the amount so received by cheques had not only been established, but that even the identity of the parties as well as the genuineness of the transactions had been proved by the assessee. The assessing officer also failed to appreciate the fact that the parties had advanced the money as a shareholder and the assessee company had neither any authority to know their 9 ITA NO.2924/ Del/2010

source of investment nor had any access to their books of accounts. The A.R. placed reliance in the case of CIT. Vs. Stellar Investment Ltd. 192 ITR 287 as confirmed by the Hon'ble Supreme Court in 251 ITR 263.

3.6 It is not the burden of the assessee, to prove how the parties happened to obtain the amount. Even if the parties had failed to show how they had received the amount, then, the said amount could have, at best, been treated as income from undisclosed sources of the parties, but the failure, if, any, on the part of parties to show their creditworthiness could not have been stretched to mean that the said amounts formed income of the assessee- Nemi Chand Kothari v. C.I.T (2003) 264 I.T.R. 254 (Gau) It is submitted that an assessee can be said to have discharged the primary onus if he establishes the identity of the aprties. In the instant case, the assesssee had filed the confirmations and there is no evidence to rebut the case of the assessee.

3.7 Since no material direct or indirect, exists on record to come to conclusion that the amounts in question actually belonged to, or owned by the assessee, therefore addition made under section 68 of the Income Tax Act deserves to be deleted.

3.8 I have perused the assessment order, grounds of appeals, and considered the submissions made by A.R. of the appellant. Since the AR had proved the identity and genuineness of share applicant companies, therefore, the addition of Rs. 47,00,000/- cannot be sustained and the same is deleted, following the Supreme Court case in the case of M/s Lovely Exports (P) Ltd. reported in 216 CTR 195. The AO is directed to pass on the information to other AOs of the above share applicant companies so that necessary action can be taken at the other end, if found to be fit. There is no share premium paid by these companies as share applicant to the appellant company."

9. In view of the above submissions of both the sides from

operative part on the issue on top of page 3 of the assessment order 10 ITA NO.2924/ Del/2010

we clearly observe that the assessing officer ask the assessee to

submit bank statements, copies of the ITR returns etc. of the share

application money depositors applicants by issuing notice dated

11.12.2009 fixing the date of hearing for 14.12.2009 i.e. only after 2

days and the AO passed the assessment order on the very same

date i.e. 14.12.2009. In this situation, we are in agreement with the

contention of the Ld. Counsel of the assessee that the assessing

officer did not provide due opportunity of hearing for the assessee to

furnish required bank statements copies of the ITR and other relevant

supportive evidence to explain share application money alleged

during assessment proceedings. From bare reading of the operative

paragraph no. 3.8 at page 5 of the impugned order we note that the

CIT(A) granted relief by holding that the AR had proved the identity

of genuineness of share applicant companies, therefore, impugned

addition on account of share application money cannot be sustained

by following the decision of Hon'ble Apex Court in the case of Lovely

Exports Pvt. Ltd. (Supra). At the same time, from deliberations and

adjudication of the CIT(A) from para 3 to 3.7 we note that the CIT(A)

did not bother to ask the assessee to submit bank statements, ITR

and other relevant details of the share applicants from the assessee 11 ITA NO.2924/ Del/2010

and simply held that the assessee has discharged its onus required

u/s 68 of the Act this is also not a proper approach. On the basis of

foregoing discussion, we are of the considered opinion that the

authorities below had not decided the issue as per requirements of

the relevant provisions of the Act including section 68 of the Act and

as per recent decision of Hon'ble Jurisdictional High Court of Delhi in

the case of CIT vs. Gangeshwari Metals Pvt. Ltd. 361 ITR 10 (S.

Delhi) and decision of Hon'ble Supreme Court in the case of CIT vs.

Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC), therefore, we find it just

and proper to restore this issue to the file of AO for a fresh

adjudication by following the relevant provisions of the act and

proposition and ratio of the decisions on the issue including aforesaid

decisions of Hon'ble Supreme Court and Jurisdictional High Court of

Delhi and after affording due opportunity of hearing and assessee

and without being prejudiced from the earlier assessment and

impugned order. Accordingly first issue of ground no. 1 of the

revenue is deem to be allowed for statistical purpose.

10. Issue of unsecured loan from Director - The apropos this

issue the Ld. DR supporting the assessment order, submitted that the

assessee company only submitted a confirmation from Mr. Atul 12 ITA NO.2924/ Del/2010

Bhasin regarding the amount of unsecured loan but no other

document or evidence has been submitted by the assessee to prove

genuineness, creditworthiness for the said amount. The Ld. DR also

contended that in absence of any proper explanation and supporting

documentary evidence. The Assessing Officer had not open but to at

the same to the return income of the assessee company as income

from undisclosed sources u/s 68 of the act. The Ld. DR vehemently

contended that the CIT(A) granted relief for the assessee without any

basis and directed the AO to verify from the IT Returns of the director

and his wife, without any basis. Replying to the above, the Ld.

Counsel of the assessee submitted that the assessing officer did not

ask any further documents or evidence such as bank statement,

income tax return and statement of income of the director Mr. Atul

Basim during the assessment proceedings. The Ld. Counsel also

contended that in this situation the Assessing Officer was not justified

in holding that in absence of any other document the amount of

unsecured loan deserve to be added to the return of income of the

assessee as income from undisclosed sources. The Ld. Counsel also

pointed out that the CIT(A) has granted relief for the assessee after 13 ITA NO.2924/ Del/2010

considering all the relevant evidence and details, which is quite

justified and sustainable.

11. On careful consideration on above submissions and perusal

of the relevant operative part of the assessment order and the

impugned order we note that the assessing officer did not provide

proper opportunity to submit supporting document and evidence

during the assessment proceedings and proceeded to make addition

u/s 68 of the Act by making adverse remarks against the assessee.

From paragraph no. 4.7 of the impugned order we note that the

CIT(A) adjudicated the issue in favour of the assessee by holding that

the AO did not give proper opportunity to the AR to explain his case

and granted relief by directing the AO verify the returns of the

concerned director and his wife. The relevant operative paragraph no.

4.7 reads as under :-

"I have perused the assessment order, grounds of appeals, written submissions, considered the submissions made by the A.R of the appellant company. Since the AO did not give proper opportunity to AR to explain his case, there is negligence on the part of AO. The AO is directed to verify the director's returns and his wife's returns, or pass on the necessary information to concerned AO for verification of the investments made by director and his wife. If there is insufficient fund with them, then addition can be made in their individual hands and not in case of the company u/s 68 of the I.T. Act as per the case of CIT vs. M/s Lovely Exports (P) Ltd. (Supreme Court) reported in 216 CTR 195."

14 ITA NO.2924/ Del/2010 In view of above, we note that the Assessing Officer did not ask

any further document or evidence from the assessee to explain

amount of unsecured loan as mentioned in the statements of

accounts filed alongwith return of income. On appeal before CIT(A)

the first appellate authority considered the situation properly and

directed the AO to verify the amount of unsecured loan from income

tax returns of director and his wife at this point. We are inclined to

hold that the CIT(A) enjoys co-terminus power with the AO and

therefore the CIT(A) can also examined verify the relevant documents

and evidence and the CIT(A) has also empowered to ask the

assessee to submit relevant documents and evidence or to produce

relevant person supporting the confirmation amount of unsecured

loan as shown by the assessee in its books of accounts. Hence, we

are of the considered opinion that the AO was not justified in making

addition without affording the due opportunity of hearing for the

assessee and without considering the relevant details and evidence

such as bank statement, IT Returns of the director and his wife etc.

The CIT(A) observed this lapse on the part of the AO and after

considering the same granted relief for the assessee subject to

verification of the AO. We are unable to see any perversity or any 15 ITA NO.2924/ Del/2010

other valid reason to interfere with the impugned order in this regard

and we upheld the same confirming the deletion of amount of

unsecured loan from the director. Accordingly, appeal of the Revenue

partly dismissed on this issue i.e. second limb of the sole ground of

the Revenue.

12. Accordingly first part of the ground of the Revenue is deemed

to be allowed for statistical purposes and second part of the ground of

the Revenue is dismissed as indicated above.

Order pronounced in open court on 6th May, 2015.

Sd/- Sd/- (N.K.Saini) (C.M.Garg) Accountant Member Judicial Member

Dated 6th May, 2015 B.Rukhaiyar

Copy forwarded to 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), New Delhi. AR, ITAT

N. Delhi 16 ITA NO.2924/ Del/2010