ITO, New Delhi v. M/s K.C.A Allied Services Pvt. Ltd., New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO.5634/DEL./2010 (ASSESSMENT YEAR : 2002-03) ITO WARD 5 (1) VS. M/S. K.C.A. ALLIED SERVICES PVT. LTD. NEW DELHI. 302 PRESS COMPLEX E-13 JAWAHAR PARK LAXMI NAGAR DELHI. (PAN : AAACK1328E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUBODH GUPTA CA REVENUE BY : SHRI AMRENDRA KUMAR DR ORDER PER B.C. MEENA ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER OF CIT (APPEALS)-VIII NEW DELHI DATED 18.10.2010. THE G ROUNDS OF APPEAL READ AS UNDER :- 1. THE ORDER OF LD. CIT (APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT (APPEALS) HAS ERRED IN DELETIN G THE ADDITION MADE OF RS.8 50 000/- MADE U/S 68 OF THE I .T. ACT BEING THE UNEXPLAINED SHARE CAPITAL AND RS.4 250/- BEING THE UNACCOUNTED CASH PAID AS COMMISSION FOR OBTAINING T HE ACCOMMODATION ENTRIES. ITA NO.5634/DEL./2010 2 2.1 THE LD. CIT (A) IGNORED THE FINDINGS RECORDED B Y THE A.O. AND THE FACT THAT THE ASSESSEE DID NOT DISCHAR GE THE ONUS OF PROVING THE EXISTENCE/CREDITWORTHINESS OF THE CREDI TORS AND GENUINENESS OF THE TRANSACTIONS AND THE FACT THAT T HE ASSESSEE IS INVOLVED IN THE BUSINESS OF RECEIVING ACCOMMODATION ENTRIES. 3. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF T HE HEARING. 2. THE RETURN OF INCOME WAS FILED ON 21.10.2002 DEC LARING LOSS OF RS.5 347/- AND THE SAME WAS ACCEPTED U/S 143(1) OF THE INCOME-TAX ACT. SUBSEQUENTLY INFORMATION WAS RECEIVED FROM THE INV ESTIGATION WING OF THE INCOME-TAX DEPARTMENT THAT CERTAIN PERSONS WERE ENG AGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES TO CHANNELISE THE UNACCOUNTED MONEY IN THE BOOKS OF ACCOUNT. THE NAME OF THE ASSESSEE COMPANY WAS APPE ARING IN THE LIST OF THE PERSONS WHO HAVE GOT THE ENTRIES. THE BANK ACCOUNT OF THE ASSESSEE HAS SHOWN A RECEIPT OF RS.8 50 000/- FROM THREE PERSONS NAMELY DIVISION TRADING PVT. LTD. RS.3 LACS NISHANT FINVEST PVT. L TD. RS.2 LACS AND SRS VIJAY SALES PVT. LTD. RS.3.50 LACS. THIS AMOUNT WAS TAKE N AS ADDITION TO THE SHARE CAPITAL. SHRI MAHESH GARG S/O LATE SHRI R.S. GARG IN HIS STATEMENT RECORDED U/S 131 ON OATH BY THE ADDITIONAL DIT (INV.) UNIT- 1 NEW DELHI ON 22.9.2003 ADMITTED THAT THESE COMPANIES WERE USED BY HIM FOR PROVIDING ACCOMMODATION ENTRIES TO THE BENEFICIARIES. THIS W AS THE MODUS OPERANDI OF THE ENTRY PROVIDER WHICH WAS UNCOVERED BY THE INVES TIGATION WING. THE NAME OF THE ASSESSEE WAS APPEARING IN THE PERSONS W HO ENTERED IN THE ITA NO.5634/DEL./2010 3 TRANSACTION WITH THE ENTRY PROVIDER AND ON THAT BAS IS THE REASSESSMENT PROCEEDINGS WERE INITIATED. 3. CIT (A) GRANTED THE RELIEF BY HOLDING AS UNDER : - 5.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE ON BEHALF OF THE APPELLANT COMPANY AND FINDINGS RECORD ED BY THE LD. AO AND I HAVE ALSO GONE THROUGH THE JUDGMENTS R ELIED UPON BY THE LD. COUNSEL FOR THE APPELLANT. ON CONSIDERAT ION I FIND THAT THE RATIO LAID DOWN BY THE HON'BLE COURTS IN T HE CASES RELIED UPON BY THE LD. COUNSEL SQUARELY COVERS THE FACTS O F THE APPELLANT'S CASE. IN THE CASE OF THE APPELLANT THO UGH THE AO REFERS TO AN ENQUIRY CONDUCTED BY THE INVESTIGATION WING OF THE DEPARTMENT NO ATTEMPT IS MADE BY HIM TO ESTABLISH THE FACT THAT THE MONEY IN QUESTION HAS ORIGINATED FROM THE COFFE RS OF THE ASSESSEE COMPANY. MERELY CASTING A SHADOW OF DOUBT IS NOT SUFFICIENT TO CHARGE THE ASSESSEE WITH THE TAX LIAB ILITY WITHOUT COLLECTING POSITIVE EVIDENCES TO CONVERT THE DOUBTS INTO A REAL ACT OF TAX EVASION. 5.4 THEREFORE I DO NOT FIND THAT THE AO HAS REALLY MADE OUT A CASE FOR TAXING THE SHARE APPLICATION MONEY RECEIVE D THROUGH BANKING CHANNELS FROM THE PERSONS REGULARLY ASSESSE D TO TAX. UNDER THE CIRCUMSTANCES THE ADDITION OF RS.8.50 LA CS/- IS NOT SUSTAINABLE AND IS ACCORDINGLY BEING DELETED. 5.5 FOR THE REASONS DISCUSSED IN PARA 4.1 TO 4.6 T HE ADDITION OF RS.4250 MADE U/S 69 OF THE ACT ON ACCOUNT OF ALL EGED COMMISSION PAID TO SO CALLED HAWALA OPERATORS IS AL SO BEING DELETED. 4. WHILE PLEADING ON BEHALF OF THE REVENUE THE LEA RNED DR SUBMITTED THAT IN A RECENT JUDGEMENT OF HON'BLE DELHI HIGH COURT D ATED 31.1.2011 IN THE CASE OF CIT VS. OASIS HOSPITALITIES (PVT.) LTD. IN ITANOS.2093 OF 2010 AND 2095 OF 2010 & ORS. HON'BLE JURISDICTIONAL HIGH CO URT AFTER CONSIDERING ALL THE CASE LAWS RELIED UPON HAS HELD THAT INITIAL BU RDEN IS UPON THE ASSESSEE TO ITA NO.5634/DEL./2010 4 EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICAT ION MONEY RECEIVED BY THE ASSESSEE. THE HON'BLE COURT HAS HELD THAT IN ORDER TO DISCHARGE THIS BURDEN THE ASSESSEE IS REQUIRED TO PROVE (A) THE IDENTITY OF THE SHAREHOLDER; (B) THE GENUINENESS OF THE TRANSACTION; AND (C) CREDITWORTH INESS OF SHAREHOLDERS. HE PLEADED THAT SINCE THIS IS THE LATEST JUDGEMENT OF HON'BLE JURISDICTIONAL HIGH COURT AND THE BURDEN TO PROVE ALL THE THREE INGREDI ENTS IS ON THE ASSESSEE AND ASSESSEE HAS FAILED TO DO SO WHICH IS VERY CLEAR F ROM PARA 9.1.1 AND 9.2 OF THE ORDER OF CIT (A) AND READ AS UNDER :- 9.1.1 STATEMENT ON OATH U/S 131 OF THE ACT 1961 OF SH. MAHESH GARG S/O LATE SH. RS GARG R/O G-8/94 SECT OR-15 ROHINI DELHI WAS RECORDED BY THE ADDL. DIT (INV.) UNIT-I NEW DELHI ON 22.9.03. IN THIS STATEMENT SH. MAHES H GARG HAS ADMITTED TO HAVE OPENED BANK ACCOUNTS IN THE NAMES OF VARIOUS INDIVIDUAL FIRMS AND COMPANIES WHICH WERE BEING US ED BY HIM FOR PROVIDING ACCOMMODATION ENTRIES. A DULY SIGNED LIST OF SUCH ENTITIES WERE ALSO GIVEN BY SH. MAHESH GARG. THE ABOVE FOUR COMPANIES FIND SPECIFIC MENTIONED IN THE LIST GIVEN BY SH. MAHESH GARG DURING THE COURSE OF STATEMENT ON OATH. A COPY OF THIS STATEMENT WAS PROVIDED TO THE ASSESSEE BUT THE ASSESSEE HAS NEITHER REBUTTED THE STATEMENT NOR DENIED THE C ONTENTS OF THE SAME AND HAS NOT EVEN FILED BY EVIDENCES REPLY ETC . AS A REBUTTAL. 9.2 THE ASSESSEE HAS FILED DOCUMENTS IN SUPPORT OF ITS CLAIM THAT THE AMOUNTS IN QUESTION WERE SHARE APPLICATION MONEY RECEIVED FROM THE FOUR PARTIES. THESE DOCUMENTS IN CLUDE COPIES OF UNDATED APPLICATION FOR SHARES UNDATED BOARD RE SOLUTION AND UNDATED CERTIFICATES OF HAVING MADE INVESTMENTS IN THE EQUITY SHARES OF THE ASSESSEE COMPANY. WHAT WE ARE DEALIN G WITH HERE IS NOT A NORMAL BUSINESS TRANSACTION WHERE THE GENU INENESS MAY BE PROVED IF BOTH THE PARTIES CONFIRM THE SAME. TH IS IS A CASE OF COLLUSIVE & SHAM TRANSACTION WHICH EXISTS ONLY ON P APER AND WHICH HAS BEEN ENTERED INTO TO FACILITATE BOTH THE PARTIES. IN ITA NO.5634/DEL./2010 5 SUCH A SCENARIO SELF SERVING EVIDENCES HAVE BEEN GE NERATED AND PRODUCED BEFORE THE DEPARTMENT. HE SUBMITTED THAT THE CIT (A) HAS GRANTED THE RELIE F ON THE BASIS OF THE JUDGEMENTS RELIED UPON BY THE ASSESSEE WHICH WERE PRIOR TO THE ABOVE CITED JUDGEMENT. HE PLEADED THAT THE ORDER OF THE CIT (A ) DESERVES TO BE SET ASIDE. 5. ON THE OTHER HAND THE LEARNED AR FOR THE ASSESS EE RELIED ON THE ORDER OF THE CIT (A) AND ALSO PLEADED THAT THE CASE OF TH E ASSESSEE IS COVERED BY THE VARIOUS DECISIONS OF HON'BLE COURTS WHICH HAS BEEN MENTIONED IN THE ORDER OF CIT (A). 6. AFTER HEARING BOTH THE SIDES WE FIND THAT THE H ON'BLE JURISDICTIONAL HIGH COURT IN ITS ORDER DATED 31.1.2011 IN THE CASE OF CIT VS. OASIS HOSPITALITIES (PVT.) LTD. IN ITANOS.2093 OF 2010 AN D 2095 OF 2010 & ORS. HAS HELD AFTER CONSIDERING THE VARIOUS DECISIONS O F HON'BLE COURTS INCLUDING CIT VS. DIVINE LEASING AND FINANCE LIMITED 299 ITR 268 CIT VS. SOPHIA FINANCE LTD. 205 ITR 98 CIT VS. DOLPHIN CANPACK LT D. 283 ITR 190 AND CIT VS. LOVELY EXPORTS (P) LTD. 216 CTR 195 (SC) T HAT THE INITIAL BURDEN IS UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF SHARE APPLICATION MONEY RECEIVED AND IN ORDER TO DISCHARGE THIS BURDEN THE ASSESSEE IS REQUIRED TO PROVE NOT ONLY THE IDENTITY OF THE SHAREHOLDERS BUT ALSO THE GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE SHAREHOLDER S. THE INVESTIGATION WING OF INCOME-TAX DEPARTMENT NEW DELHI MADE AN INVESTI GATION WHERE THE MODUS OPERANDI FOR INTRODUCING THE UNACCOUNTED MONEY IN T HE REGULAR BOOKS OF ITA NO.5634/DEL./2010 6 ACCOUNT BY WAY OF ACCOMMODATION ENTRIES WAS DETECTE D. AS PER THIS MODUS OPERANDI THE CHEQUES/DEMAND DRAFTS/POS WERE ISSUED IN THE NAME OF BENEFICIARY FROM THE ACCOUNT WHERE THE CASH IS DEPO SITED AND IN SOME CASES THE AMOUNT IS TRANSFERRED TO ANOTHER BANK ACCOUNT B Y SHOWING IT AS RECEIPT BY CLEARING. THE STATEMENT OF SHRI MAHESH GARG S/O L ATE SHRI R.S. GARG R/O G- 8/94 SECTOR 15 ROHINI DELHI WAS RECORDED BY ADDI TIONAL DIT (INV.) UNIT-1 DELHI ON 22.9.2003 AND IN THIS STATEMENT SHRI MAHE SH GARG ADMITTED TO HAVE OPENED BANK ACCOUNTS IN THE NAMES OF VARIOUS INDIVI DUAL FIRMS AND COMPANIES WHICH WERE BEING USED BY HIM FOR PROVIDIN G ACCOMMODATION ENTRIES. THE COMPANIES FROM WHOM THE ASSESSEE HAS SHOWN RECEIPT OF SHARE APPLICATION MONEY WERE MENTIONED IN THE LIST GIVEN BY SHRI MAHESH GARG DURING THE COURSE OF STATEMENT USED FOR PROVIDING B OGUS ACCOMMODATION ENTRIES. THE COPY OF STATEMENT WAS PROVIDED TO TH E ASSESSEE BY ASSESSING OFFICER AND ASSESSEE HAS FAILED TO FILE A REBUTTAL TO THE SAME. THE ASSESSEE HAS ALSO NOT DENIED THE CONTENTS OF THE STATEMENT MADE BY SHRI MAHESH GARG. AS WE HAVE STATED ABOVE IN VIEW OF THE LATEST DECISIO N OF THE HON'BLE JURISDICTIONAL HIGH COURT THE ASSESSEE HAS TO DISC HARGE THE BURDEN IN RESPECT OF THE IDENTITY OF THE SHAREHOLDERS GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS OF THE SHAREHOLDERS. NO REBUTTAL OR EXPLANATION WAS FURNISHED IN RESPECT OF THE STATEMENT OF SHRI MAHES H GARG. THE STATUS OF THE INCOME-TAX ASSESSMENT OF SHRI MAHESH GARG IS ALSO N OT KNOWN WITH REGARD TO ITA NO.5634/DEL./2010 7 INCOME EARNED FOR THE ACCOMMODATION BUSINESS. IN V IEW OF THESE FACTS AND IN THE INTEREST OF JUSTICE WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE DE NOVO AFTER PROVIDING AN OPPORTU NITY TO THE ASSESSEE TO PROVE THREE INGREDIENTS I.E. IDENTITY OF THE SHA REHOLDERS GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS OF THE SHAREHOLDE RS IN RESPECT OF PERSONS FROM WHOM MONEY WAS RECEIVED. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 28 TH DAY OF FEBRUARY 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VIII NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.