Jatin Investments Pvt. Ltd , New Delhi vs Department Of Income Tax

ITO Vs. Jatin Investment Pvt. Ltd. Ward-4(2), Room No. 413A, 104, South Ext. Centre C.R.Building, I.P.Estate 273- Masjid Moth, NDSE-II New Delhi New Delhi PAN : AAACJ1585G Pin : 110049

(Appellant) (Respondent)

Appellant by : Sh. Gaurav Dudeja , Sr. Dr Respondent by : Sh. Ved Jain, CA

Date of hearing : 13/04/2015 Date of pronouncement : 27 /05/2015

ORDER

Per N.K.Saini, A. M. :

These appeals by the department are directed against the order

dated 16/09/2009 of CIT(A)- VII New Delhi.

2 4325 & 4326/ Del/2009

2. First we will deal with the appeal of the department in ITA No.

4325/Del/2009. Following grounds has been raised in this appeal :-

"1. The order of the Ld. CIT (Appeals) is erroneous & contrary to facts & law.

2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in deleting the addition of Rs. 93,45,000/- made u/s 68 of the I.T.Act being the unaccounted sale proceeds of shares and Rs. 1,86,900/- on account of unaccounted commission.

2.1. Ld. CIT(A) has ignored the fact that the assessee failed to discharge the onus of proving the creditworthiness of the creditors and genuineness of the transaction.

2.3. The Ld. CIT(A) has ignored the material finding of the A.O. and investigation made during assessment proceedings.

3. The applicant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing."

3. From the above grounds, it would be clear that the grievance of

the department relates to the deletion of the addition of Rs.

93,45,000/- made by the AO u/s 68 of the IT Act 1961 (hereinafter

referred to as the Act in short) on account of unaccounted sale

proceeds of shares and Rs. 1,86,900/- on account of unaccounted

commission.

4. Facts of the case in brief are that the assessee filed the return

of income on 24.10.2003 declaring an income of Rs. 1950/-, 3 4325 & 4326/ Del/2009

thereafter, the AO on the basis of information received from the

investigation wing that the assessee had received accommodation

entry of Rs. 96,25,000/- had reason to believe that the said amount

escaped the assessment and accordingly the case was reopened

u/s 147 of the Act, after recording the reasons. In response to

notice u/s 148 of the Act the assessee stated that the return already

filed on 24.10.2003 may be treated as a return filed. The AO noticed

that the assessee had received amounts from the following parties

through cheques / payee orders totaling to Rs. 93,45,000/-:

" Name of Party Amount 1. Ishwar Sharma 1,00,000 2. Pramod Kumar 2,90,000 3. Rajesh Kumar Gupta 3,50,000 4. Rohit Rana 1,00,000 5. Baldev Harish Electricals 2,00,000 6. Prosafe Investment Pvt. Ltd. 4,50,000 7. Harjeet Singh 1,50,000 8. Parvati Varshney 2,40,000 9. Mukesh Gupta 2,80,000 10. Harinder Dev 2,10,000 11. Ethnic Creations P. Ltd 9,00,000 12. Kalpana Jha 1,50,000 13. Maestro Mktg. & Advertising 12,75,000 14. Fair n Square Exports P. Ltd. 9,50,000 15. Arun Finvest P. Ltd. 10,00,000 16. Steering Securities P. Ltd. 5,00,000 17. M.V. Marketing P. Ltd. 4,50,000 18. Labhtronics Overseas P. Ltd. 1,60,000 19. Tashi Contractors P. Ltd. 9,00,000 20. SGC Publishing P. Ltd. 6,40,000 21. Polo Leasing & Finance P. Ltd. 50,000" 4 4325 & 4326/ Del/2009

5. The AO issued notices u/s 131 of the Act to the above parties for

the verification of the identity of the person and the genuineness of

the transactions but the summons were received unserved with the

remarks of the postal authorities as "no such party". The assessee

submitted to the AO that there was no increase in the share capital

of the assessee and unsecured loans during the year under

consideration. The assessee also furnished confirmation, bank

statements and copies of the income tax returns of the parties from

whom transactions had been made. The AO asked the assessee to

produce the parties/ persons for verification of the genuineness of

amount in question. The AO mentioned that the assessee failed to

produce parties for cross-verification, therefore, the genuineness of

the transaction was not ascertained and that the assessee routed

its unaccounted money in its books with the help of entry operator

and there was systematic plan followed by the assessee in which

cash was given to the entry provider who in turn issued cheques of

equal amount and for this service of issuing cheques the entry

operator charged some commission. The AO also pointed out that

during the enquiries conducted by the Investigation Wing of the 5 4325 & 4326/ Del/2009

department it was concluded that the most of the entry operators

were charging commission at the rate of 2 % for giving the

accommodation entry. The AO held that the assessee failed to

discharge its onus to prove the identity and creditworthiness of the

concern parties and genuineness of transactions in terms of

provisions of Section 68 of the Act and that the amount of Rs.

93,45,000/- allegedly received from the parties represented

unaccounted money of the assessee and the transactions were only

a camouflage. He, therefore, made the addition of Rs. 93,45,000/-

and also added Rs. 1,86,900/- on account of commission. Reliance

was placed on the following Cases Laws :-

- CIT Vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal.)

- Mc. Dowell & Co. Ltd, Vs. ITO. 148 ITR 154 (S.C.)

6. Being aggrieved the assessee carred the matter to the Ld.

CIT(A) and the submissions made as incorporated in para 5 of the

impugned order are reproduced verbatim .as under :-

"The learned ITO is quite descriptive about the introduction of unaccounted money in the shape of share capital and/ or unsecured loans. He has invoked the provisions of sec. 68 and has made an addition of Rs. 93,45,000/-. This money has been received during this year by the assessee from 6 4325 & 4326/ Del/2009

21 persons listed in asst. order being sale proceeds of shares held brought forward from previous year as well purchased in this year.

First of all we submit that the total of balance sheet as on 31/03/2003 is 1,81,35,543/- and the same figure is the total of balance sheet as on 31/03/2002. So, no new money has been introduced during the relevant previous year in any form. The detailed discussion by ITO in his asst. order is futile as no effort is there to introduce any block money in any form. The ITO has mechanically copied his earlier year order without caring to consider the changed facts of the case in this year.

The nature of assessee company's main objects is basically investments and accordingly it has made purchase and sales in shares. Details of all transactions was filed before the ITO. In this, all shares purchased and sold are enlisted with the name of parties, address, cheque no/bank name and amount. These all transactions are duly recorded in the books of accounts. Balance sheet copy as on 31/03/2003 with previous year figures is attached. It shows investments as on 31/03/2002 at Rs. 1,45,01,800/- and at 1,63,78,774.77 as on 31/03/2003. It means that some of the investments have been disposed off and some new investments have been made in this year. The surplus on sale has been shown as income in P&L a/c and assessed as declared by the ITO.

The money listed in asst. order is out these aggregate to Rs. 93,45,000/- encashed by sale for which entry to entry details were filed before the ITO. So, these deposits are neither loan nor share application money as alleged mindlessly by the ITO in his order. Sec 68 is focused on loans and shares capital. It does not include sale proceeds of goods. When opening stock and new acquisition of goods stands accepted and closing stock at the year end is also accepted, the sale proceeds can not be doubted where the payment received is by cheque from tax paying entity. The third party might not appear for confirmation, the ITO had other sources of direct verification. The one asset

7 4325 & 4326/ Del/2009

has converted into other shape and no new deposit is there in this year.

It is important to mention that an income/receipt can be brought to tax only once. Law do not provide for tax twice on a transaction. When sale proceeds of these shares appear in credit side, being offered as income, the same once again can not be brought to tax as income from undisclosed sources. What the ITO has done is double taxation of same receipt-once as sale of investments and again as income from undisclosed sources. This is not correct/justified.

The order of the ITO (para 4 of the order) says that the confirmations, bank statements, copy of the ITRs from all these parties were filed before him. Please find enclosed herewith another set of all those paper which were filed before the ITO. These are enough to treat as proper discharge of onus by the assessee. Kindly note

-(a) all are income tax payees

(b) all transaction are by a/c payee cheques through their bank a/cs. (copy on ITO file is there)

(c) All parties are confirming the transactions.

(d) ROC details in case of companies.

Merely for certain reasons, these parties did not appear before the ITO in response to summons u/s 131, no adverse inference can be drawn. The ITO had their PAN No. & ward. He could have made enquiry from their respective wards. Delhi faced lot of disturbance due to sealing and shifting of commercial establishments from residential areas. The notice sent by ITO returned back as the time when transaction took place and date of notice, there is a gap of over 6 years. The opportunity given by the ITO thereafter to the assessee was too small to justify the same.

In this assessee's own case for asst. year 2002-03 is appeal no. 124/2007-08 order date 05/01/2009 your honour in similar circumstances or similar evidences have deleted the entire addition made by the ITO."

7. Reliance was placed on the following case laws :-

8 4325 & 4326/ Del/2009

"(i) Anis Ahmad and Sons vs. CIT(A) & Ors 297 ITR 441 (SC);

(ii) CIT vs. Orissa Corporation (P) Ltd (1986) 159 ITR 78 (SC);

(iii) Sarogi Credit Corporation vs. CIT(1976) 103 ITR 344 (Patna) ; &

(iv) DCIT vs. Rohini Builder (2002) 256 ITR 360 (Guj.),"

8. The Ld. CIT(A) after considering the submissions of the

assessee observed that the AO based his arguments purely on the

basis of information from DIT (Investigation), New Delhi and entirely

relied upon such information for reaching such conclusion.

According to the Ld. CIT(A), the information might have been a

sufficient ground to initiate re-assessment proceedings of a case but

to make an addition, the AO has to establish the fact of fraudulent

nature of such transaction and that purely on surmises and

conjectures no transaction could have been held as bogus unless

the same was proved on the basis of sound reasoning and evidence

on the part of the AO before making the addition. The Ld. CIT(A)

further, observed that the assessee furnished all necessary proofs

in support of its claim. It was all the more necessary to rebut such

evidence with cogent and credible evidence on the part of the AO

before making the addition. The Ld. CIT(A) pointed out that the

amount of Rs. 93,45,000/- had been received during the year under

consideration by the assessee from 21 persons listed in the 9 4325 & 4326/ Del/2009

assessment order, however, the balance sheet as on 31st March,

2003 revealed that no new money had been introduced during the

year under consideration which also implied that there had neither

been fresh loan nor fresh share capital introduced in the accounts of

the assessee company during the year under consideration. the

Ld. CIT(A) also pointed out that the accounts of the assessee did

not leave any room for doubt that the said amount was nothing but

the sale proceeds of the shares which had already been shown by

the assessee in the P&L account for the A.Y. 2003-04 and when the

profit had already been offered as income, it could not be brought to

tax again in the same assessment year. The Ld. CIT(A) observed

that the AO could not point out any discrepancy in the evidences

relied upon by the assessee and had neither brought out any direct

or inferential evidence to contradict the contentions of the assessee.

9. The Ld. CIT(A) further observed that even though the AO has

vast powers u/s 131 and 133(6) of the Act, he had not used any

office power to verify the genuineness of the claim of the assessee

by verifying the documents furnished by it and if the AO had doubted

the impugned transaction after receiving the evidences which had

been produced by the assessee in support of its claim it was very 10 4325 & 4326/ Del/2009

much open to the AO to do his independent inquiry and verification

but the same had not been done by the AO. The Ld. CIT(A)

categorically stated that the assessee had adduced the

documentary evidences in support of the transaction in question and

that the identity of the purchasers of the shares was established.

The Ld. CIT(A) observed that the purchasers had PAN Card and

there was no evidence or material even to suggest that the cheques

directly or indirectly emanated from the assessee so that it could be

said that the assessee's own money was brought back in the guise

of sale proceeds of the shares. The Ld. CIT(A) also observed that

though the purchasers of the shares could not be examined by the

AO, but they were existing on the file of the Income Tax Department

and their Income-tax details were made available to the AO, it was

equally the duty of the AO to have taken steps to verify their

assessment records and if necessary to also have them examined

by the respective AOs having jurisdiction over them which had not

been done. The Ld. CIT(A) accordingly deleted the addition of Rs.

93,45,000/- made by the AO on account of accommodation entry

and consequential addition on account of commission amounting to 11 4325 & 4326/ Del/2009

Rs. 1,86,900/- for obtaining the said accommodation entries was

also deleted. Now the department is in appeal.

10. The Ld. DR reiterated the observations made by the AO and

further submitted that for the assessment year 2003-04 the sale was

of Rs. 20,90,309/- only therefore, finding given by the Ld. CIT(A)

was erroneous. It was stated that even if it is presumed that

amounts received on account of sale of shares had been directly

credited to "investments Account" in Schedule 3 of the Balance

Sheet, the figures did not match. It was further, stated that the

opening balance of the investment as on 1.4.2003 was Rs.

1,45,01,800/- and the closing balance as on 31st March, 2003 was

Rs. 1,63,78,774.47. and if shares worth Rs. 93,45,000/- have been

sold at "no loss no profit basis", only the composition of investments

will change but opening and closing would remain the same and if

there was some gain or loss in sale of shares the same is not

reflected in the P&L account. It was also stated that schedule 3 of

the audited balance sheet also revealed that in all cases the

investment had increased except for last line items "others" which

had reduced from Rs. 1,31,24,800/- to Rs. 67,11,774/-. Therefore,

it would be logical to presume that sale of shares had taken place 12 4325 & 4326/ Del/2009

in respect of this item only which came to Rs. 64,13,023/-whereas

the figures of receipts from entry operators was Rs. 93,45,000/-. The

Ld. DR, further, submitted that the Ld. CIT(A) had not examined any

corroborative evidence in support of assessee's explanation such

as - nature of shares, what was acquisition price, what was sale

price, resultant gain/loss, receipt of money on sale in bank account

of assessee, whether share transfer forms executing position in

ROC records regarding actual holding etc., therefore, the

explanation furnished by the assessee did not match with the figures

& numbers reflected in the audited balance sheet as such findings of

the Ld. CIT(A) were erroneous. He also submitted that the matter

may be remanded back to the AO for an in-depth examination of

relevant facts and the evidences.

11. In his rival submissions, the Ld. Counsel for the assessee

reiterated the submissions made before the authorities below and

further submitted that the assessee was having investment in shares

etc. which were duly shown on the asset aside of the balance sheet,

out of those investments some were sold and few new were

purchased and if there was any gain on the sale the same was

offered for taxation. It was further submitted that in earlier year 13 4325 & 4326/ Del/2009

under similar circumstances, the case was reopened u/s 147 of the

Act and the addition made by the AO was deleted bythe I.T.A.T. It

was further submitted that the assessee sold the shares which were

earlier purchased in different years and duly shown in the balance

sheet of the respective years and that the assessee had shown the

sale proceeds in the books of accounts, the investments were

reduced after making the sales. It was contended that there was no

obligation under the law that the assessee was required to prove

the source of payee. It was further contended that the AO had not

rejected the books of accounts and the purchases were duly

accepted so there was no reason to doubt the sales. It was

submitted that the case of the assessee is squarely covered by the

decision of this bench of the Tribunal in the case of ITO vs. M/s

Vishal Holding and Capital Pvt. Ltd. in ITA no. 1788/Del/2009 order

dated 17.07.2009 which has been upheld by the Hon'ble

Jurisdictional High Court as reported in (2011) 200 Taxman 186

(Delhi). It was further, submitted that the issue is also covered by the

order of the ITAT, Delhi Bench in the case of ITO vs. Goodwill

Cresec Pvt. Ltd. in ITA No. 4151/Del./2010 order dated 25.01.2012.

Reliance was also placed on the following cases laws :-

14 4325 & 4326/ Del/2009

"1. CIT vs. Sh. Udit Narain Aggarwal, ITA No. 560 of 2009, dt. 12.12.2012

2. CIT vs. Sudeep Goenka, ITA No. 468 of 2009, dt. 3.01.2013.

3. CIT vs. Anirudh Narain Aggarwal, ITA No. 195 of 2010, dt. 16.01.2013."

It was pointed out that the same issue has been decided by

the I.T.A.T. in assessee's own case in I.T.A.T. No. 1584/Del./2009

for the A.Y. 2002-03 vide order dated 13.11.2009, in assessee's

favour (copy of the order was furnished which is placed on record)

12. We have considered the submissions of both the parties and

gone through the material available on the record. In the present

case, it is noticed that the assessee purchased the shares in earlier

years which were shown as investment in the books of accounts and

reflected in the "Asset Side" of the "Balance Sheet", out of those

investments (copy which is placed at page no. 23 and 24 of the

assessee's paper book), the assessee sold certain investments and

accounted for the profit / loss and offered the same for taxation. In

the present case, the amount in question was neither a loan or the

deposit , it was also not on account of share application money, the

said amount was on account of sale of investment therefore the

provisions of Section 68 of the Act were not applicable and the AO

was not justified in making the addition. In our opinion, the Ld. CIT(A)

rightly deleted the addition made by the AO.

15 4325 & 4326/ Del/2009

13. On a similar issue the Hon'ble Jurisdictional High Court in the

case of CIT vs. Vishal Holding and Capital Pvt. Ltd. vide order dated

9th August, 2010 upheld the order dated 30.7.2009 of the ITAT in ITA

no. 1788/Del/2007 for the assessment year 2000-2001 wherein the

order of the Ld. CIT(A) making the similar deletion was upheld by

observing in para 6 as under :-

"We are of the view that the assessee had produced copies of accounts, bills and contract notes issued by M/s. MKM Finsec Pvt. Ltd., and had been maintaining books of account as per Companies Act. The assessee had also demonstrated the purchase and sale of shares over a period of time as seen from the balance sheet's. In our opinion, the Assessing Officer has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee. The assessee has also produced best possible evidence to support its claim. Consequently the addition made by the Assessing Officer cannot be sustained."

14. We, therefore, considering the totality of the facts do not see

any valid ground to interfere with the findings of the Ld. CIT(A).

Accordingly, we do not see any merit in this appeal of the

department. In ITA no. 4326/Del./2009 of the assessment year 2004-

05 identical issue having similar facts is involved, the only difference

is in the amount of addition which was deleted by the Ld. CIT(A).

Therefore, our findings given in former part of this order, in respect of 16 4325 & 4326/ Del/2009

assessment year 2003-04, shall apply mutatis mutandis for

assessment year 2004-05.

In the result, appeals of the department are dismissed.

(Order pronounced in open court on 27th May, 2015.)

Sd/- Sd/-

(I.C.Sudhir) (N.K.Saini) Judicial Member Accountant Member

Dated 27th 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 17 4325 & 4326/ Del/2009