Om Machines (P) Ltd.,, New Delhi vs Department Of Income Tax

I.T.A. No.5779/Del/2012 Assessment year : 2008-09 ITO, Ward 13(4), Vs. M/s. Om Machines (P) Ltd., New Delhi C-115, Mansarovar Garden, New Delhi-110 015 GIR / PAN:AAACO1693G (Appellant) (Respondent) Appellant by : Shri P. Dum Kanunjana, Sr. DR Respondent by : Shri Rajesh Jain, FCA Date of hearing : 13.05.2015 Date of pronouncement : 25.06.2015 ORDER

PER INTURI RAMA RAO, AM:

This is an appeal filed by Revenue for the Assessment Year 2008-09 against ht order of Ld. CIT(A) - XVI, New Delhi dated 16.07.2012 raising the following grounds of appeal:

"1. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.30,00,000/- u/s 68 of the Act as unexplained share capital /share premium by not appreciating the fact that the assessee has failed to prove the physical identity, the credit worthiness and genuineness of transactions as the identify of share applicants is not proved by the mere filing of some papers.

2. Whether on the facts & in the circumstances of the case, the Ld.CIT(A) has erred in deleting the addition of Rs. 30,00,000/- u/s 68 of the Act appreciating the fact that the details filed by the assessee were not enough to prove the creditworthiness in view of the fact that no substantive evidence was produced to show that any business was being carried out by the alleged shareholders or the sources of 2 ITA No.5779/Del/2012

deposit in the banks existing in their names and also of the fact that the search conducted u/s132disclosed that said three companies are bogus."

2. The brief facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956. The return of income for the Assessment Year 2008-09 was filed on 15th October 2008 declaring income of Rs.1,856/-. The said return of income was processed under the provisions of Section 143(1) and thereafter, the case of assessee was taken up for scrutiny assessment. Finally, the assessment was completed u/s 143(3) vide order dated 21.12.2010 at a total income of Rs.30,01,856/-. The disparity between the returned and assessed income was on account of addition of share application money received from the following companies treating it as undisclosed income u/s 68 of the Act.

S.No. Name and address of company from whom Value of Share Total claim of share capital/share premium made shares at premium share par (as (as holder's claimed) claimed) fund claimed to have been raised during the year 1 M/s. Tauras Iron & Steels Co. Pvt. Ltd. 1,00,000 9,00,000 10,00,000 13/34, WEA, IV Floor, Main Arya Samaj Road, Karol Bagh, New Delhi 2 M/s. Bhawani Portfolio P. Ltd. 13/34, 1,00,000 9,00,000 10,00,000 WEA, IV Floor, Main Arya Samaj Road, Karol Bagh, New Delhi 3 M/s. Thar Steels P. Ltd. 13/34, WEA, IV 1,00,000 9,00,000 10,00,000 Floor, Main Arya Samaj Road, Karol Bagh, New Delhi 3,00,000 27,00,000 30,00,000 3 ITA No.5779/Del/2012

3. During the course of assessment proceedings, the respondent assessee company was called upon to prove the identity, genuineness and creditworthiness of above share applicants. The A.O. doubted the genuineness of these transactions as he received information form Investigation wing of the Department that the business premises of the above companies is the same as the address of the company belonging to one Shri Tarun Goyal who is alleged to be engaged in the business of providing accommodation entries and those three companies alleged to be belonging to Shri Tarun Goyal and, therefore, he presumed that the appellant could have used his unaccounted money for the purpose of obtaining these book entries from those companies and he, therefore, doubted the genuineness and creditworthiness of those three companies. Even the respondent assessee was asked to produce the directors of those companies before the A.O. The respondent assessee had not produced directors before the A.O. The respondent assessee submitted that all the share applicants are corporate assessees, which are duly incorporated under the provisions of Companies Act, 1956 and assessed to income tax and they filed copies of their return of income and furnished particulars of PAN. The submissions made by the respondent assessee company did not find favour with the A.O. The A.O. held that receipt of share application money from those companies is a device for converting black money into white through entry providers and hence, A.O. made addition of Rs.30 lacs to the income of assessee company u/s 68 of the Act.

4. Aggrieved by the above assessment order, an appeal was filed before Ld. CIT(A) XVI, New Delhi, who vide order dated 16.07.2012 allowed the appeal by holding that the respondent assessee company had discharged its 4 ITA No.5779/Del/2012

onus of proving the identity by filing copies of Income tax returns and their bank statement and copies of share application money placing reliance on the decision of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 216 CTR 195 and Hon'ble Delhi High Court's decision in the case of CIT Vs Value Capital Services Pvt. Ltd. 307 ITR 334. Aggrieved by this order, Revenue has come in the present appeal before us.

5. It was argued by Ld. D.R. that Ld. CIT(A) has failed to properly appreciate the evidence gathered by the Department against the assessee and he further argued that merely by filing copies of share application forms and confirmation letters do not establish conclusively that the transactions are genuine and the mere fact that the payments were received through banking channel is not the sacrosanct and the A.O. is very much entitled to probe the matter further. The assessee had also failed to rebut the evidences gathered by Investigation Wing of the Department and these three companies were among 90 companies operated by Mr. Tarun Goyal for the purpose of carrying out the business of entry providers.

6. Ld. A.R. placed heavy reliance on the order of Ld. CIT(A) and submitted that the assessee company had discharged its onus that was lying upon it and therefore, no addition was warranted.

7. We have heard rival submissions and perused the material placed on record. The identical issue was considered by Hon'ble Jurisdictional High Court in the case of CIT Vs Nova Prompters and Finlease (P) Ltd. 342 ITR 169 (Del.). After considering submissions made therein, Hon'ble High Court held as under:

"So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and 5 ITA No.5779/Del/2012

share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary.

The case of CIT Vs Orissa Corporation (1986) 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in Dolphin Canpack (2006) 283 ITR 190, CIT v Makhni and Tyagi P. 6 ITA No.5779/Del/2012

Ltd. (2004) 267 ITR 433, CIT v Antartica Investment P. Ltd. (2003) 262 ITR 493 and CIT v Achal Investment Ltd. (2004) 268 ITR 211. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed "accommodation entry providers".

40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities Private Limited, (2011) 333 ITR 119. We have given utmost consideration to the judgment. It disposes of several appeals in the case of different assessees. Except the case of CIT v Oasis Hospitalities P Ltd. (ITA Nos.2093 & 2095/2010), the other cases fall under the category of Orissa Corporation (supra). However, in the case of Oasis Hospitalities P Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of which it was found that six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, this court observed: -

"The Assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so- called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such 7 ITA No.5779/Del/2012

modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Wing."

These quoted observations clearly distinguish the present case from CIT v Oasis Hospitalities P Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard. Further, the assessee had not been confronted with the material collected by the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing.

41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee- company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so-called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (supra).

42. In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs.1,18,50,000 made under section 68 of the Act as well as the consequential addition of Rs.2,96,250. We accordingly answer the substantial questions of law in the negative and in favour of the department. The assessee shall pay costs which we assess at Rs.30,000/-."

8 ITA No.5779/Del/2012 8. Respectfully following the ratio laid down by Hon'ble High Court in the case of Nova Promoters And Finlease (P) Ltd. (supra), we hold that Ld. CIT(A) is not justified in deleting the addition of R.30 lacs in as much as the respondent assessee had failed to establish conclusively three essential ingredients 'identity, genuineness and creditworthiness' of share applicants. Further, Ld. CIT(A) had also failed to notice that the respondent assessee company failed to produce the Directors of share applicants before the A.O. As held by Hon'ble Jurisdictional High Court in the case of Nova Promoters and Finlease (P) Ltd. that the ratio laid down by Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. is not applicable and CIT(A) adopted wrong approach in allowing the appeal by holding that the A.O. had failed to point out source from which money was received by the assessee company before making addition u/s 68. This observation goes against the ratio laid down by Hon'ble Supreme Court in the case of A. Govindarajulu Mudaliar Vs CIT 34 ITR 807 (S.C.), this argument advanced by the assessee was rejected by the Hon'ble Supreme Court Venkatarama Aiyar J., speaking for the court, observed as under (at page 810):

"Now, the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Wh4ether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case, the recipes are shown in the account books of affirm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs.80,000 and the other being receipt of Rs.42,000 from business of which he claimed to be the 9 ITA No.5779/Del/2012

real owner. When both these explanations were rejected, as they have been it was clearly open to the Income tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the appellate tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs."

9. Therefore, we are unable to uphold the order of CIT(Appeals) and hereby confirm the addition made by A.O.

10. In the result, appeal filed by Revenue is allowed.

11. Order pronounced in the open court on 25th June, 2015.

Sd./- Sd./- ( I. C. SUDHIR) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 25.06. 2015

Sp

Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

10 ITA No.5779/Del/2012 S.No. Details Date Initials Designation 1 Draft dictated on 23/6 Sr. PS/PS 2 Draft placed before author 24,24, Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/6/15 Sr. PS/PS 6 Kept for pronouncement 25/6 Sr. PS/PS 7 File sent to Bench Clerk 25/6 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order