DELHI HIGH COURT
PCIT VS NDR PROMOTERS
PVT. LTD, ITA 49/2018
17-01-2019
This appeal by the
Revenue under Section 260A of the Income Tax Act, 1961 (Act‟, for short), in
the case of NDR Promoters Pvt. Ltd. relates to Assessment Year 2008-09 and
arises from the order dated 3rd March, 2019 passed by the Income Tax Appellate
Tribunal („Tribunal‟, for short).
2. The appeal was admitted for hearing vide
order dated 17th January, 2018 on the following substantial question of law:-
“Whether the ITAT fell
into error in upholding the deletion directed by the CIT (A) in respect of the
amount of Rs.1,51,50,000/- brought to tax under Section 68 of the Income Tax
Act, 1961, in the circumstances of the case ?”
3. It is an undisputed
position that during the Assessment Year 2008-09, the respondent-assessee had
received money in the form of share capital/share premium as per the following
details:-
S. No
|
Name &
Address of company from whom claim of share capital/share premium made
|
Value of
shares at Par (as claimed)
|
Share Premium (as claimed)
|
Total share
holder‟s fund claimed to have been raised during the year
|
1
|
M/s. Tejasvi Investment Pvt. Ltd. 13/34,
WEA, IV Floor,
Main Arya Samaj Road, Karol Bagh, New
Delhi-110005
|
4,00,000 |
16,00,000 |
20,00,000 |
2
|
M/s. Sai Baba Finvest Pvt. Ltd. 13/34,
WEA, IV Floor, Main, Arya Samaj Road, Karol Bagh, New Delhi-110005
|
6,40,000
|
25,60,000
|
32,00,000
|
3
|
M/s. Bhavani
Portfolio Pvt. Ltd. 13/34, WEA, IV Floor, Main Arya Samaj Road, Karol Bagh,
New Delhi-110005
|
7,40,000
|
29,60,000
|
37,00,000
|
4
|
M/s. Thar Steels Pvt. Ltd. 13/34, WEA,
IV Floor, Main
Arya Samaj Road,
Karol Bagh, New Delhi-110005
|
4,00,000
|
16,00,000
|
20,00,000
|
5
|
M/s. Tauras Iron
& Steel Pvt. Ltd.
13/34, WEA, IV
Floor, Main Arya Samaj Road, Karol Bagh, New Delhi-110005
|
8,50,000
|
34,00,000
|
42,50,000
|
6
|
M/s. Ashwani
Finman Services Pvt. Ltd.
79, Agroha Kunj, Sect.13, Rohini, Delhi-110085
|
1,30,000
|
5,20,000
|
6,50,000
|
7
|
M/s. Victory Software Pvt. Ltd.
3198/15,
IVth Floor, Arihant Plaza, Gali No.1, Sangat
|
2,00,000
|
8,00,000
|
10,00,000
|
Total
|
1,68,00,000
|
|||
Issue raised in this
appeal relates to first five companies, who had invested Rs.1,51,50,000/- as
share application money with premium as per details given in above table.
4. The Assessing
Officer vide assessment order dated 30th December, 2010, made an addition of
Rs.1,51,50,000/- recording that the aforesaid companies were „creation‟ of and
de facto operated by one Tarun Goyal, Chartered Accountant, who had set up
about 90 companies/firms including the aforesaid 5 companies for providing
accommodation entries. Paper work was perfect but there were chinks, which had
revealed that the true nature of the transactions was to convert illegitimate
money by providing bogus or accommodation entries. These evidences and details
collected and ascertained during the course of search under Section 132 of the
Act conducted by the Investigation Wing in the case of Tarun Goyal, had revealed
that the registered office of 90 companies was located at 13/34, Main Arya
Samaj Road, Karol Bagh and their former office was at 203, Dhaka Chambers,
2069/39, Naiwala, Karol Bagh, New Delhi. These companies were not carrying on
any genuine business activities. Directors of these companies were employees of
Tarun Goyal, who were working as peons, receptionists etc. Entries in the books
were bogus. Modus operandi in such cases is well known, money is circulated by
first depositing cash in the bank account of one such company, and thereupon it
is transferred/ circulated within the group companies before cheque is issued
to the beneficiary.
5. The Assessing
Officer had asked the respondent-assessee to produce Directors of the
shareholder companies for examination after recording:-
(i) most of the
directors in their statement recorded by the Investigation Wing had admitted
that they had signed documents/papers on direction of Tarun Goyal.
(ii) shares of face
value of Rs.10/- were issued at a premium of Rs.40/- (total Rs.50/-). There was
no justification and reason for a third person to purchase shares in the
respondent-assessee and to pay substantial premium.
(iii) The
respondent-assessee had shown receipts of Rs.16.38 lakhs and „Nil‟ income in
the year ending 31st March, 2008 and 31st March, 2007, respectively. There were
no fixed assets and the respondent-assessee had incurred expenses amounting to
Rs.12.17 lakhs and „Nil‟ in the year ending 31st March, 2008 and 31st March,
2007, respectively.
(iv) share
capital/share premium of Rs.168 lakhs was after deposit shown as investment
partly as advance for land and as advance to S. M. Udyog and Guruji Industries.
FDR of Rs.80 lakhs was obtained from Oriental Bank of Commerce.
6. Respondent-assessee
was also asked to produce all papers relating to issue of shares; state, how
the dealings had started with the shareholder companies; if directly, state the
year/date since when they were known to each other; if indirectly, give the
name of the introducer and state that since when the introducer was known
including years of relationship; state, whether the applications for allotment
of shares were received in one lot or on different dates and whether they were
received by hand or post. If acknowledgement was issued, supporting evidence
should be given; provide the proof if any offer letter was received or issued;
whether stamp duty was paid on allotment of shares; whether the share
certificates were delivered by hand or post. If by hand, details of the person
who had delivered the certificates. If share certificates were issued by post,
state whether they were received back; indicate whether annual reports, balance
sheet or notices of AGM/EGM of the respondent-assessee company were sent to the
shareholders.
7. The
respondents-assessee did not produce the Directors for examination. Other
details and particulars were also not filed as required by the Assessing
Officer. However, the respondent-assessee had filed:-
(i) Copy of the ledger
account of share application.
(ii) Copy of the bank
statement of the account in which money was received.
(iii) Copy of the
ledger account of share capital.
(iv) Copy of balance
sheet and profit & loss account reflecting receipt of share application
money.
(v) Share application
form with complete list of shareholders, old and new.
(vi) Annual return
filed before the Registrar of Companies.
(vii) Copy of Form No.2
i.e., return of allotment filed before the Registrar of Companies.
(viii) Affidavits of
Directors of the shareholder companies along with PAN details, copy of PAN
cards, Board Resolutions, confirmations from the parties, share application
forms, bank account statements of the shareholder companies, Memorandum and
Articles of Association, confirmation of receipt of shares from M/s. Bhawani
Portfolio and CIN details of M/s Bhavani Portfolio.
8. The Assessing
Officer made an addition of Rs.1,51,50,000/- as unexplained cash after
referring to the factual matrix including failure to produce Directors of the
shareholder companies so that they could be examined on oath. He observed that
no prudent businessman would invest in the shares of the respondent-assessee at
five times the face value of shares. There was sufficient evidence to indicate
and infer that beneficiaries i.e. the respondent-assessee had introduced income
from undisclosed sources into their business in the garb of share capital/share
premium.
9. The addition was
deleted by the Commissioner of Income Tax (Appeals) on the ground that the
respondent-assessee had been able to establish identity, creditworthiness of
the shareholders and genuineness of the transactions in terms of several
decisions of this Court including CIT Vs. Oasis Hospitalities Pvt. Ltd. decided
on 31st January, 2011. He held that once documents like PAN or bank account
details were given, then the onus had shifted on the Assessing Officer and it
was up to him to reach the shareholders. This burden could not be passed on to
the assessee, merely on the ground that the summons issued to the shareholders
were returned. Assessing Officer had issued notice Section 133 (6) of the Act
and in response had received replies confirming the investment. The shareholder
companies were incorporated and had invested money through banking channels,
which was reflected in the books. Investment was proved by the bank statements
that disclosed sufficient balance before cheques were issued. Accordingly, the
three requirements i.e. identity of the investor, creditworthiness of the
investors and genuineness of the transactions were satisfied.
10. Appeal preferred by
the Revenue against the said deletion has been dismissed by the impugned order
passed by the Tribunal, which records as under:-
" 12. A perusal of
the order of the AO shows that its foundation is the report of the DIT
(Investigation). Admittedly, the Assessee was not confronted with that material
in the course of the reassessment proceedings. The Assessee was also not
confronted with the statements recorded in the course of the investigation.
Once that material is kept aside then the scope of enquiry can only be whether
the Assessee has produced documents to discharge the initial onus of proving
the genuineness and creditworthiness of the companies who were stated to have
subscribed to the Assessee's shares.
13. It is not in
dispute that extensive material was produced by the assessee in the present
case to prove the identity, genuineness and creditworthiness of the companies
who had subscribed to its shares. Among the materials produced were the Income
Tax Returns and the PAN card details of the eight companies. Even if the
Directors of these companies did not respond to the summons issued by the AO,
it was not impossible for the AO to make proper enquiries to ascertain the
genuineness of these entities and satisfy himself of their creditworthiness. As
pointed out by the CIT(A), the AO failed to make any effort in that direction.
He did not take to the logical end the halfhearted attempt at getting the
Directors to appear before him. He did not even seek the assistance of the AOs
of the concerned companies whose ITRs and PAN card copies had been produced.
14. The view taken by
the CIT(A) that the AO failed to come up with the material to disprove what had
been produced by the Assessee is certainly a plausible view in the facts and
circumstances of the case. Likewise, the view taken by the ITAT concurring with
the CIT(A) on facts cannot be said to be perverse. "
CIT Vs. Victor
Electrodes :
"There was no
legal obligation on the assessee to produce same Director or other
representative of the applicant companies before the Assessing Officer.
Therefore, failure of assessee to produce then could not by itself have
justified the additions made by A. 0. "
4.1 As discussed above,
we find that the assessees have been able to discharge its initial onus to
establish the genuineness of the claimed transactions of share application
moneys by furnishing all the necessary possible evidences and thus, the onus to
disprove those evidences were shifted upon the Assessing Officer the Assessing
Officer has failed-to discharge by not disproving those evidences. The
assessees were thus, able to establish the identification as well as
creditworthiness of the share applicants and the genuineness of the claimed
receipt of share application moneys from those parties. The ld. CIT (Appeals)
was thus justified in deleting the additions made under section 68 of the Act
on account of the alleged unexplained share application money. The same is
upheld. The grounds questioning the action of the Id. CIT (Appeals) in this
regard are thus rejected.”
11. Issue of bogus
share capital in the form of accommodation entries has been subject matter of
several decisions of this Court and we would like to refer to decision in
Commissioner of Income Tax Vs. Navodaya Castles Pvt. Ltd. [2014] 367 ITR 306,
wherein the earlier judgments were classified into two separate categories
observing as under:-
“11. We have heard the
Senior Standing counsel for the Revenue, who has relied upon decisions of the
Delhi High Court in Commissioner of Income Tax Vs. Nova Promoters and Finlease
(P) Ltd. [2012] 342 ITR 169 (Delhi), Commissioner of Income Tax Vs. N.R.
Portfolio Pvt. Ltd., 206 (2014) DLT 97 (DB) (Del) and Commissioner of Income
Tax-II Vs. MAF Academy P. Ltd., 206 (2014) DLT 277 (DB) (Del). The aforesaid
decisions mentioned above refer to the earlier decisions of Delhi High Court in
Commissioner of Income Tax Vs. Sophia Finance Ltd., [1994] 205 ITR 98
(FB)(Delhi), CIT Vs. Divine Leasing and Finance Limited [2008] 299 ITR 268
(Delhi) and observations of the Supreme Court in CIT Vs. Lovely Exports P. Ltd.
[2008] 319 ITR (St.) 5 (SC).
12. The main submission
of the learned counsel for the assessee is that once the assessee had been able
to show that the shareholder companies were duly incorporated by the Registrar
of Companies, their identity stood established, genuineness of the transactions
stood established as payments were made through accounts payee cheques/bank
account; and mere deposit of cash in the bank accounts prior to issue of
cheque/pay orders etc. would only raise suspicion and, it was for the Assessing
Officer to conduct further investigation, but it did not follow that the money
belonged to the assessee and was their unaccounted money, which had been
channelized.
13. As we perceive,
there are two sets of judgments and cases, but these judgments and cases
proceed on their own facts. In one set of cases, the assessee produced
necessary documents/evidence to show and establish identity of the
shareholders, bank account from which payment was made, the fact that payments
were received thorough banking channels, filed necessary affidavits of the
shareholders or confirmations of the directors of the shareholder companies,
but thereafter no further inquiries were conducted. The second set of cases are
those where there was evidence and material to show that the shareholder
company was only a paper company having no source of income, but had made
substantial and huge investments in the form of share application money. The
assessing officer has referred to the bank statement, financial position of the
recipient and beneficiary assessee and surrounding circumstances. The primary
requirements, which should be satisfied in such cases is, identification of the
creditors/shareholder, creditworthiness of creditors/shareholder and
genuineness of the transaction. These three requirements have to be tested not
superficially but in depth having regard to the human probabilities and normal
course of human conduct.
14. Certificate of
incorporation, PAN number etc. are relevant for purchase of identification, but
have their limitation when there is evidence and material to show that the
subscriber was a paper company and not a genuine investor. It is in this
context, the Supreme Court in CIT Vs. Durga Prasad More [1971] 82 ITR 540 (SC)
had observed:-
“Now we shall proceed
to examine the validity of those grounds that appealed to the learned judges.
It is true that the apparent must be considered real until it is shown that
there are reasons to believe that the apparent is not the real. In a case of
the present kind a party who relies on a recital in a deed has to establish the
truth of those recitals, otherwise it will be very easy to make self-serving
statements in documents either executed or taken by a party and rely on those
recitals. If all that an assessee who wants to evade tax is to have some
recitals made in a document either executed by him or executed in his favour
then the door will be left wide open to evade tax. A little probing was
sufficient in the present case to show that the apparent was not the real. The
taxing authorities were not required to put on blinkers while looking at the
documents produced before them. They were entitled to look into the surrounding
circumstances to find out the reality of the recitals made in those documents.”
15. Summarizing the
legal position in Nova Promoters and Finlease (P) Ltd.(supra), and highlighting
the legal effect of section 68 of the Act, the Division Bench has held as
under:
“32. The tribunal also
erred in law in holding Assessing Officer ought to have proved that the monies
emanated from the coffers of the assessee- company and came back as share
capital. Section 68 permits the Assessing Officer to add the credit appearing
in the books of account of the assessee if the latter offers no explanation
regarding the nature and source of the credit or the explanation offered is not
satisfactory. It places no duty upon him to point to the source from which the
money was received by the assessee. In A. Govindarajulu Mudaliar v CIT, (1958)
34 ITR 807, this argument advanced by the assessee was rejected by the Supreme
Court. Venkatarama Iyer, J., speaking for the court observed as under (@ 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. Whether 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
receipts are shown in the account books of a firm 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 real owner. When both these explanations were rejected, as they have been
it was clearly upon 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.”
Section 68 recognizes
the aforesaid legal position. The view taken by the Tribunal on the duty cast on
the Assessing Officer by section 68 is contrary to the law laid down by the
Supreme Court in the judgment cited above. Even if one were to hold, albeit
erroneously and without being aware of the legal position adumbrated above,
that the Assessing Officer is bound to show that the source of the unaccounted
monies was the coffers of the assessee, we are inclined to think that in the
facts of the present case such proof has been brought out by the Assessing
Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers,
explaining their modus operandi to help assessee‟s having unaccounted monies
convert the same into accounted monies affords sufficient material on the basis
of which the Assessing Officer can be said to have discharged the duty. The
statements refer to the practice of taking cash and issuing cheques in the
guise of subscription to share capital, for a consideration in the form of
commission. As already pointed out, names of several companies which figured in
the statements given by the above persons to the investigation wing also
figured as share-applicants subscribing to the shares of the assessee-company.
These constitute materials upon which one could reasonably come to the
conclusion that the monies emanated from the coffers of the assessee- company.
The Tribunal, apart from adopting an erroneous legal approach, also failed to
keep in view the material that was relied upon by the Assessing Officer. The
CIT (Appeals) also fell into the same error. If such material had been kept in
view, the Tribunal could not have failed to draw the appropriate inference.”
12. Asessee to examine
the issue of genuineness of the transactions. The Tribunal unfortunately did
not examine the said aspect and has ignored the following factual position:-
(a) The shareholder
companies, 5 in number, were all located at a common address i.e. 13/34, WEA,
Fourth Floor, Main Arya Samaj Road, Karol Bagh, New Delhi.
(b) The total
investment made by these companies was Rs.1,51,00,000/-, which was a
substantial amount.
(c) Evidence and
material on bogus transactions found during the course of search of Tarun
Goyal. Evidence and material that the companies were providing accommodation
entries to beneficiaries was not considered.
(d) The findings
recorded as mentioned in the assessment order, which read as under:-
“1. From the finding of
search, it is evident and undeniable that all the companies including the
alleged shareholders companies belong to Sh. Tarun Goyal. This is enforced even
more from the following:-
i. All the companies
are operated from the-office premises of Sh. Tarun Goyal.
ii. All the directors
are either his employees or close relatives. Sh. Tarun Goyal could never
produce the directors nor furnish their residential address.
iii. The statement of
employees of Sh. Tarun Goyal is ,on record, whereby they have clearly stated that
they signed on the papers produced before them by Sh Tarun GoyaL They do not
know about the basic details of the companies like shareholding patterns,
nature of business of these companies etc.
iv. The statement of
auditors of Sh. Tarun Goyal is on record. They have stated to have never meet
(sic) the directors of the companies and audited the accounts only on the
directions of Sh Tarun Goyal. As per the statement of auditors, the employees
of Sh Tarun Goyal were directors of the companies run by them, also they could
not ascertain the so called share capital subscribed by Sh Tarun Goyal as
documentary proof of the same was lacking.
v. During the course of
search, all the passbooks, cheque books, PAN Cards etc. were always in
possession of Sh Tarun Goyal. On his directions all the employees signed all
the documents.
vi. All the bank
account opening forms appear to be in the handwriting of Sh Tarun Goyal.
vii. All the books of
accounts of all the companies have been retrieved from the computers/laptop of
Sh Tarun Goyal.
viii. Sh Tarun Goyal
has given letters for the release of bank accounts of companies put under restraints
after search. No such application was received from so called directors of the
companies.
ix. Sh Tarun Goyal
appears in all the scrutiny assessments as well as appeals of his companies
himself before various income' tax authorities. From verification carried out
in respective wards/ circles where the above mentioned companies are assessed,
it is' evident that Sh Tarun Goyal is appearing in all the income tax
proceedings on behalf of all the companies. He is not charging any fees for
appearing in these cases.
x. During the post
search investigation it was revealed that besides, aiding and abetting the
evasion of taxes, Sh Tarun Goyal has been indulging in violation other
provisions of the law of the land. This matter has also been taken up by REIC
for multi-agency probe.”
(e) The
respondent-assessee did not have any business income in the year ending 31st
March, 2007 and had income from other sources of Rs.16.38 lakhs in the year
ending 31st March, 2008. The respondent-assessee had not incurred any
expenditure in the year ending 31st March, 2007 and had incurred expenditure of
Rs.12.17 lakhs in the year ending 31st March, 2008.
(f) Shares of face
value of Rs.10/- each were issued at a premium of Rs.40/- (total Rs.50/-).
(g) The
respondent-assessee had failed to produce Directors of the companies, though
they had filed confirmations, and therefore, were in touch with the
respondent-assessee. The respondent-assessee had also failed to produce the
details and particulars with regard to issue of shares, notices etc. to the
shareholders of AGM/EGM etc.
13. In view of the
aforesaid factual position, we have no hesitation in holding that the
transactions in question were clearly sham and make-believe with excellent
paper work to camouflage their bogus nature. Accordingly, the order passed by
the Tribunal is clearly superficial and adopts a perfunctory approach and
ignores evidence and material referred to in the assessment order. The
reasoning given is contrary to human probabilities, for in the normal course of
conduct, no one will make investment of such huge amounts without being
concerned about the return and safety of such investment.
14. Accordingly, the
appeal is allowed. The substantial question of law framed above is accordingly
answered in favour of the appellant-revenue and against the
respondent–assessee. There would be no order as to costs.
(SANJIV KHANNA) JUDGE
JANUARY 17th, 2019
(ANUP JAIRAM BHAMBHANI)
JUDGE
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