ITO, New Delhi v. M/s. Eclear Leasing & Finance (P) Ltd., New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA VP AND SHRI H.S.SIDHU JM ITA NOS.723/DEL/2010 & 724/DEL/2010 ASSESSMENT YEARS : 2001-02 & 2002-03 INCOME TAX OFFICER VS. M/S ECLEAR LEASING & WARD-11(1) ROOM NO.321 FINANCE (P) LTD. C.R. BUILDING NEW DELHI. 5/83 DDA FLATS MADAN GIR NEW DELHI. PAN NO.AAACE2133R. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANISH GUPTA DR. RESPONDENT BY : SHRI RAJAN NANDA CA. ORDER PER H.S. SIDHU JM REVENUE HAS FILED THE CAPTIONED APPEALS AGAINST TH E ORDERS OF CIT(A)-XIII NEW DELHI BOTH DATED 18.12.2009 FOR THE ASSESSMEN T YEARS 2001-02 AND 2002-03. SINCE COMMON ISSUE IS INVOLVED IN BOTH THESE APPEAL S THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE. 2. FOLLOWING IDENTICAL GROUNDS HAVE BEEN RAISED IN THE APPEALS EXCEPT DIFFERENCE IN THE AMOUNT OF ADDITIONS MADE:- ITA NOS.723 & 724/DEL/2010 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE ORDER OF THE CIT(A) IS WRONG PERVERSE ILLEGAL AN D AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASI DE. 2. ON THE ACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN DELETING ADDITION MADE OF RS.6 50 000 U/S 68 AND OF RS.13 000/- ON ACCOUNT OF COMMISSION PAID ((RS.20 00 000/- U/S 68 AND OF RS.40 000/- ON ACCOU NT OF COMMISSION PAID FOR ASSESSMENT YEAR 2002-03) IGNORI NG:- A) THAT THE ASSESSEE FAILED TO PRODUCE THE ALLEGED SHARE APPLICANT FOR VERIFICATION. MERE SUBMISSION OF DOCUMENTS AND MATERIAL IS HELD TO BE INSUFFICIENT I N THE CASE OF HINDUSTAN TEA TRADING CO. VS. CIT 263 ITR 289. B) THE DICTUM GIVEN BY THE HON'BLE SUPREME COURT IN CIT V. DURGA PRASAD MORE 82 ITR 540 & SUMATI DAYAL V. CIT 214 ITR 801 IN WHICH APEX COURT HAS LAID DOWN THE PROPOSITION THAT THE COURTS & TRIBUNA L SHOULD SEE THE PREPONDERANCE OF PROBABILITIES WHILE CONSIDERING THE EVIDENCE FURNISHED BY THE ASSESSEE. C) THE FINDING OF FACTS RECORDED BY THE ASSESSING O FFICER THAT THE ASSESSEE INDULGED IN A NOTORIOUS PRACTICE OF RESORTING TO ACCOMMODATION ENTRIES IN ORDER TO EVAD E PAYMENT OF LEGITIMATE TAX. D) THAT THE A.O. IS DUTY BOUND U/S 68 TO ENQUIRE IN TO THE CREDITWORTHINESS IDENTITY OF THE CREDITORS AND GENUINENESS OF THE TRANSACTIONS. THE CIT(A) HAS ERR ED IN IGNORING SUCH FINDINGS RECORDED BY THE A.O. IN THE ASSESSMENT ORDER. 3. THE BRIEF FACTS RELATING TO THE ISSUE IN DISPUTE ARE THAT THE ASSESSEE FILED RETURNS OF INCOME AT RS.9241 ON 31.10.2001 FOR THE ASSESSMENT YEAR 2001-02 AND AT RS.10 217 ON 28.10.2007 FOR THE ASSESSMENT YEAR 2002-03. THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE INVESTIGATION WING NEW DELHI THAT THE ITA NOS.723 & 724/DEL/2010 3 ASSESSEE IS INDULGING IN RECEIVING ACCOMMODATION EN TRIES FROM THE ENTRY OPERATORS AFTER PAYING ITS UNACCOUNTED CASH. THEREFORE NOTI CE U/S 148 OF THE INCOME-TAX ACT 1961 HEREINAFTER CALLED AS THE ACT WAS ISSUE D TO THE ASSESSEE WHICH WAS DULY SERVED UPON THE ASSESSEE WITHIN TIME. IN RESPONSE TO THE SAME THE ASSESSEE FILED ITS REPLY SUBMITTING THAT RETURNS FILED ORIGINALLY ON 31.10.2001 FOR THE ASSESSMENT YEAR 2001-02 AND ON 28.10.2002 FOR THE ASSESSMENT Y EAR 2002-03 BE TREATED AS RETURNS FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. THE ASSESSING OFFICER ASKED THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE TO FURNISH THE DETAILS REGARDING THE TRANSACTION IN DISPUTE. IN COMPLIANCE OF THE S AME THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURNISHED COPIES OF BANK STATEMENTS STATING THAT THE ASSESSEE COMPANY HAD RECEIVED THE PAYMENT IN DISPUT E FROM DIFFERENT PARTIES ON ACCOUNT OF SHARE APPLICATION MONEY AMOUNTING TO RS. 6 50 000/- FOR THE ASSESSMENT YEAR 2001-02 AND RS.20 00 000 FOR THE ASSESSMENT YE AR 2002-03. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE NAMES OF THE SH ARE APPLICANTS WERE APPEARING IN THE ACCOMMODATION ENTRIES PROVIDERS LIST SUPPLIED B Y THE INVESTIGATION WING OF THE INCOME-TAX DEPARTMENT NEW DELHI AND THE ASSESSEE H AD FAILED TO FURNISH CONFIRMATIONS FROM THESE PARTIES. THEREFORE IN OR DER TO ASCERTAIN THE GENUINENESS OF THE TRANSACTION THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE SHARE APPLICANTS IN PERSON FOR EXAMINATION. THE ASSESSING OFFICER OPINED THAT NEITHER THE ASSESSEE-COMPANY FURNISHED COMPLETE INFORMATION NOR PRODUCED THE PARTIES FOR EXAMINATION. THEREFORE HE HAD NO OPTION BUT TO CO MPLETE THE ASSESSMENT ON THE BASIS OF INFORMATION AVAILABLE ON RECORD. THE ASSE SSING OFFICER COMPLETED THE ITA NOS.723 & 724/DEL/2010 4 ASSESSMENT ON 22.12.2008 BY ADDING INCOME OF RS.6 5 0 000 TO THE TOTAL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001-02 AS INC OME FROM UNDISCLOSED SOURCES U/S 68 OF THE ACT AND ALSO ADDED RS.13 000/- WHICH IS 2% OF RS.6 50 000/- AS COMMISSION CHARGED BY THE ENTRY OPERATORS FOR GIVIN G THESE ACCOMMODATION ENTRIES TO THE ASSESSEE. LIKEWISE THE ASSESSING O FFICER ADDED RS.20 LACS AS INCOME FROM UNDISCLOSED SOURCES AND ALSO ADDED A SU M OF RS.40 000/- BEING 2% PAID TO THE ENTRY OPERATORS FOR PROVIDING ACCOMMODA TION ENTRIES TO THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03. THE ASSESSING OFFICER THUS COMPLETED THE ASSESSMENTS VIDE ORDERS DATED 22.12.2008 U/S 143(3) /147 OF THE ACT FOR THE ASSESSMENT YEARS UNDER APPEAL. 4. AGGRIEVED BY THE ASSESSMENT ORDERS THE ASSESSEE FILED APPEALS BEFORE THE LD. FIRST APPELLATE AUTHORITY WHO VIDE ORDERS DATED 18.12.2009 PARTLY ALLOWED THE APPEALS OF THE ASSESSEE BY DELETING THE ADDITIONS M ADE U/S 68 OF THE ACT AND CONFIRMING THE ACTION OF THE ASSESSING OFFICER U/S 147/148 OF THE ACT. REVENUE IS AGGRIEVED BY THE IMPUGNED ORDERS DATED 18.12.2009 F OR DELETION OF ADDITIONS FOR THE ASSESSMENT YEARS IN DISPUTE. HENCE THE PRESENT APPEALS BEFORE US. 5. AT THE TIME OF HEARING THE LD. D.R. RELIED UPON THE ORDERS PASSED BY THE ASSESSING OFFICER. HE SUBMITTED THAT THE LD. FIRST APPELLATE AUTHORITY HAD WRONGLY DELETED THE ADDITIONS IN DISPUTE BY RELYING UPON TH E DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DIVINE LEASING & FINANCE PVT. LTD. 299 ITR 268 (DELHI) . ITA NOS.723 & 724/DEL/2010 5 6. ON THE CONTRARY LD. COUNSEL FOR THE ASSESSEE VE HEMENTLY SUPPORTED THE ORDERS PASSED BY THE LD. FIRST APPELLATE AUTHORITY. HE STATED THAT THE ASSESSEE HAD DULY DISCHARGED THE PRIMARY ONUS WITH REGARD TO ES TABLISHING THE IDENTITY OF PURCHASERS OF SHARES BY PROVIDING THEIR NAMES ADDR ESSES AND CONFIRMATIONS WHICH HAVE NOT BEEN DISPUTED BY THE ASSESSING OFFICER IN HIS REMAND REPORT DATED 15.5.2009. HE FURTHER STATED THAT STATEMENT OF SHR I MAHESH BHAT RELIED UPON BY THE ASSESSING OFFICER FOR MAKING THE IMPUGNED ADDIT ION HAD NOT BEEN SUPPLIED TO THE ASSESSEE. THEREFORE SUCH A STATEMENT WAS NOT B INDING UPON THE ASSESSEE AND NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASS ESSEE WHILE MAKING THE IMPUGNED ADDITIONS. HE SUBMITTED THAT THE ASSESSEE HAD SUPPLIED ALL THE NECESSARY INFORMATION REGARDING THE WHEREABOUTS OF THE SHARE APPLICANTS BUT THEY DID NOT ATTEND BEFORE THE ASSESSING OFFICER AND THAT SHOULD NOT LEAD TO ADVERSE EVIDENCE AGAINST THE ASSESSEE. IN SUPPORT OF HIS CONTENTION THE LD. COUNSEL CITED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T V. ORISSA CORPORATION PVT. LTD. 159 ITR 78 (SC). FINALLY THE LD. COUNSEL FO R THE ASSESSEE STATED THAT THE ASSESSEE HAD SUPPLIED ALL THE INFORMATION REQUIRED BY THE ASSESSING OFFICER AND SHIFTED THE BURDEN UPON THE REVENUE AUTHORITIES TO ESTABLISH THAT THE MONEY BEING TREATED AS UNEXPLAINED U/S 68 OF THE ACT HAD ORIGIN ATED FROM THE COFFERS OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ISSUE IN DISPUTE IS COVERED BY VARIOUS DECISIONS OF THE COURTS INCLUDI NG THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF D IVINE LEASING & FINANCE PVT. LTD. (SUPRA) AND THE RECENT DECISION OF HON'BLE SUP REME COURT IN THE CASE OF CIT ITA NOS.723 & 724/DEL/2010 6 V. LOVELY EXPORTS PVT. LTD. 216 CTR (SC) 195. TH E LD. COUNSEL FOR THE ASSESSEE THUS PRAYED THAT ORDERS OF LD. FIRST APPELLATE AUTH ORITY BE UPHELD. 7. WE HAVE GIVEN OUR CAREFUL THOUGHT TO THE SUBMISS IONS OF BOTH THE PARTIES AND PERUSED THE RECORD AVAILABLE WITH US ESPECIALL Y THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS PVT. LT D. (SUPRA) AND THE JUDGMENT RENDERED BY THE HON'BLE DELHI HIGH COURT IN THE CAS E OF DIVINE LEASING & FINANCE PVT. LTD. (SUPRA). WE ARE OF THE CONSIDERED OPINIO N THAT THE LD. FIRST APPELLATE AUTHORITY HAS PASSED A WELL-REASONED ORDER AND DELE TED THE IMPUGNED ADDITIONS BY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT OF DELHI IN THE CASE OF DIVINE LEASING & FINANCE PVT. LTD (SUPRA). THE REL EVANT PORTION OF THE ORDER OF THE LD. FIRST APPELLATE AUTHORITY IS REPRODUCED HER EUNDER:- I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES O F THE CASE OBSERVATIONS OF THE AO AND THE SUBMISSIONS OF THE AR OF THE APPELLANT THE FOLLOWING OBSERVATIONS ARE BEING MADE ON THE BASIS OF WHICH THIS GROUND OF APPEAL IS FINALIZED. A. THE ASSESSING OFFICER HAS MADE THE ADDITIONS U/S 68 OF THE INCOME- TAX ACT BY OBSERVING THAT THE APPELLANT DID NOT PRO DUCE THE PARTIES TO WHOM THE SHARES HAD BEEN SOLD AND HAD NOT THEREFORE ESTABLISHED THE IDENTITY AND GENUINENESS OF THE TRANSACTION. THE A SSESSING OFFICER HAD ASKED TO PRODUCE THE PARTIES AND PROVIDE ALL TH E DETAILS TO ESTABLISH THE IDENTITY AND GENUINENESS OF THE SHARE PURCHASERS. THE AR OF THE APPELLANT SUBMITTED THAT SINCE VERY LITTL E TIME HAD BEEN PROVIDED FOR GIVING ALL THE DETAILS LIKE CONFIRMATI ON TIME ITR ITA NOS.723 & 724/DEL/2010 7 DETAILS ETC. THE SAME SHOULD BE ADMITTED AS ADDITI ONAL EVIDENCE DURING THE APPELLATE PROCEEDINGS. ACCORDINGLY THE A SSESSING OFFICER WAS ALSO PROVIDED A COPY OF THESE DOCUMENTS WHICH I NCLUDED CONFIRMATION ITR DETAILS BANK STATEMENT ETC. THE ASSESSING OFFICER HAS NOT DISPUTED THESE DOCUMENTS IN HIS REM AND REPORT WHICH INDICATES OR ESTABLISHES THAT THE INITIAL ONUS OF E STABLISHING THE IDENTITY AND GENUINENESS OF THE TRANSACTION HAS BEE N DISCHARGED BY THE APPELLANT. B. FROM THE FACTS OF THE CASE IT IS SEEN THAT THE E XISTENCE OF SHARES THEIR VALUATION OR THEIR TRANSFER HAS NOT BEEN DISPUTED B Y THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ALSO NOT CONFRO NTED THE APPELLANT WITH REGARD TO THE STATEMENT OF SH. MAHESH BATRA WH ICH WAS RELIED UPON BY HIM. THE ASSESSING OFFICER HAS ONLY EMPHAS IZED THAT THE PARTIES WERE NOT PRODUCED BEFORE HIM. THE DETAILS O F PAN INCOME TAX RETURN AND BANK STATEMENT FILED BY THE APPELLAN T WERE NOT CONTROVERTED BY THE ASSESSING OFFICER. THIS IS CAS E OF SALE OF SHARES AND THE IDENTITY GENUINENESS AND CREDITWORTHINESS OF THE PARTIES TO WHOM SALE OF SHARES HAVE BEEN MADE HAS BEEN DISCHAR GED BY THE APPELLANT BY PROVIDING VARIOUS SUPPORTING DOCUMENTS AND EVIDENCES. IT HAS BEEN HELD IN THE CASE OF CIT VS. DIVINE LEAS ING AND FINANCE PVT. LTD. 299 ITR THAT ONCE THE BASIC DETA ILS OF THE PARTIES LIKE PAN ITR ETC. HAS BEEN PROVIDED BY THE ASSESSE E MERELY BECAUSE THE PARTIES DID NOT ATTEND BEFORE THE ASSES SING OFFICER SHOULD NOT RESULT AN ADVERSE INFERENCE AGAINST THE ASSESSEE. RELIANCE IS ALSO PLACED UPON THE DECISION OF CIT V. VALUE CAPITAL SERVICES PVT. LTD. 307 ITR AND CIT VS. SAM IR BIOTECH PVT. LTD. OF DELHI HIGH COURT WHERE IT HAS BEEN HELD THA T IT IS THE ITA NOS.723 & 724/DEL/2010 8 ADDITIONAL BURDEN OF REVENUE TO ESTABLISH THAT THE MONEY BEING TREATED AS UNEXPLAINED U/S 68 OF THE INCOME TAX ACT HAD ORIGINATED FROM THE COFFERS OF THE ASSESSEE. IN VIEW OF THE ABOVE OBSERVATIONS AFTER CAREFUL CON SIDERATION I AM OF THE OPINION THAT SINCE THE IDENTITY CREDITWO RTHINESS AND GENUINENESS OF THE TRANSACTION HAS NOT BEEN CONTROV ERTED BY THE ASSESSING OFFICER ON THE BASIS OF THE DOCUMENTS AND EVIDENCE PRODUCED BY THE ASSESSEE THIS ADDITION U/S 68 OF T HE INCOME TAX ACT WAS NOT JUSTIFIED. ACCORDINGLY THIS GROUND OF THE APPELLANT IS ALLOWED. SAME ARE THE OBSERVATIONS OF THE LD. FIRST APPELLA TE AUTHORITY FOR THE ASSESSMENT YEAR 2002-03. 8. AFTER GOING THROUGH THE ORDERS OF LD. FIRST APPE LLATE AUTHORITY WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAD FILED ALL THE INFORMATION LIKE CONFIRMATIONS DETAILS OF INCOME TAX RETURNS BANK STATEMENTS ETC. BEFORE THE LD. FIRST APPELLATE AUTHORITY AS ADDITIONAL EVIDENCE DU RING THE COURSE OF APPELLATE PROCEEDINGS BEFORE HIM WHICH HAVE BEEN CONFRONTED T O THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT DISPUTED THESE DOCUMENTS IN HIS REMAND REPORT. SECONDLY IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAD ALSO NOT CONFRONTED THE STATEMENT OF SHRI MALHESH BATRA WHICH WAS RELIE D UPON BY HIM WHILE MAKING THE ADDITION IN DISPUTE. AFTER PRODUCING ALL THE R ELEVANT EVIDENCE BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS FULLY DISCHARGE D ITS ONUS THAT LAY UPON IT AND IT ITA NOS.723 & 724/DEL/2010 9 WAS UP TO THE DEPARTMENT TO HAVE PURSUED THE MATTER FURTHER TO TRACE THE CREDITORS AND EXAMINE THEIR CREDITWORTHINESS AND SOURCES. THE ASSESSEE ASSESSING OFFICER HAS ALSO NOT BROUGHT ANY EVIDENCE REGARDING THE ALL EGATION THAT UNACCOUNTED INCOME OF THE ASSESSEE HAD BEEN ROUTED BACK TO ITS COFFERS THROUGH BOGUS ENTRIES. THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITIO NS ONLY ON THE BASIS THAT IN RESPONSE TO SUMMONS U/S 131 OF THE ACT NONE OF THE SHAREHOLDERS HAD APPEARED BEFORE HIM THOUGH EACH ONE THEM HAD FILE HIS CONFIR MATION BEFORE THE ASSESSING OFFICER. IF THE ASSESSING OFFICER FELT THAT THEIR E XAMINATION WAS ABSOLUTELY NECESSARY THEN HE COULD HAVE ENFORCED THEIR ATTEND ANCE AS POINTED OUT BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF NATHU R AM PREMCHAND V. CIT 49 ITR 561 (ALL.) AND IN THE CASE OF E.M.C. (WORKS) (P ) LTD. V. ITO 49 ITR 650 (ALL.). 9. AFTER GOING THROUGH THE DECISION RENDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF DIVINE LEASING & FINANCE PVT. LTD (SUPRA) AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F LOVELY EXPORTS PVT. LTD. (SUPRA) WE ARE OF THE CONSIDERED OPINION THAT WHEN DOCUMENTARY EVIDENCE HAS BEEN PLACED ON RECORD TO PROVE THE IDENTITY OF THE CREDITORS THEIR CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION OF THE SHAREHOLD ERS BY PRODUCING THEIR PAN NUMBERS AND DETAILS OF INCOME TAX RETURNS BANK STA TEMENTS ETC. WHICH HAD NOT BEEN CONTROVERTED BY THE ASSESSING OFFICER WE FIND NO JUSTIFICATION TO INTERFERE WITH THE WELL-REASONED ORDERS PASSED BY THE LD. FIR ST APPELLATE AUTHORITY. ITA NOS.723 & 724/DEL/2010 10 ACCORDINGLY THE IMPUGNED ORDERS PASSED BY THE LD. FIRST APPELLATE AUTHORITY FOR THE ASSESSMENT YEARS UNDER APPEAL ARE HEREBY UPHELD. CO NSEQUENTLY THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN ITS APPEALS FOR BOTH THE ASSESSMENT YEARS ARE REJECTED. 10. IN THE RESULT BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.4.2010. SD/- SD/- (G.E.VEERABHADRAPPA) (H.S.SIDHU) VICE PRESIDENT JUDICIAL MEMBER DATED : 23.04.2010. VSK COPY FORWARDED TO: - 1. APPELLANT-REVENUE 2. RESPONDENT-ASSESSEE 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR ITA NOS.723 & 724/DEL/2010 11