Commissioner Of Income Tax-Vi v. Wellworth Construction Udyog Ltd

$~62 *IN THE HIGH COURT OF DELHI AT NEW DELHI Decided on : 25.02.2015 +ITA 443/2014 COMMISSIONER OF INCOME TAX-VI ..... AppellantThrough : Sh. Rohit Madan, Sr. Standing Counseland Sh. P. Roy Chaudhary, Advocate. versus WELLWORTH CONSTRUCTION UDYOG LTD...... RespondentThrough : Sh. Salil Aggarwal, Advocate. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1.The Revenue is in appeal against the order of the Income TaxAppellate Tribunal (ITAT) dated 20.12.2013 in ITA No.4086/Del/2010 andurges that the ITAT fell into error in confirming the order of the CIT(Appeals) who had reversed the Assessing Officer’s (AO) decision todisallow `1.65 crores under Section 68 of the Income Tax Act, 1961(hereafter referred to as “the Act”). 2.During AY 2003-04, the assessee had received `1.65 crores as shareapplication money from three concerns, i.e. M/s. Richie Rich OverseasPrivate Limited (`75 crores); M/s. Goyal Textiles Industries Pvt. Ltd. (`60lakhs) and M/s. Ankur Distributors Pvt. Ltd. (`30 lakhs) (hereafter referredto as “the share applicants”). These three amounts were returned by the assessee in the succeeding financial year 2004-05. It is a matter of recordthat the amounts were retained by the assessee for about 3-4 months. TheAO disallowed the entire amount of `1.65 crores on the basis of his decisionthat the three entities, i.e. the share applicants did not have adequateresources. The AO, in the assessment order framed under Sections143(3)/147 of the Act felt that each of the three concerns did not have thevolume of business which could have reasonably enabled them to invest tothe extent that they did. The AO’s decision was appealed; the CIT (Appeals)considered the submissions of the parties and also took into account aremand report. In the course of the remand, it appeared that the three shareapplicants had transacted business and had in fact reported to the incometax. For M/s. Goyal Textiles Industries Pvt. Ltd., the total volume ofpurchases and sales was `4.7 crores and `3.6 crores respectively. Likewise,in respect of M/s. Ankur Distributors Pvt. Ltd., the sales were `3.71 croresand purchase was `75.18 lakhs and with respect to M/s. Richie RichOverseas Pvt. Ltd., the CIT(A) noticed that the paid up share capital itselfwas `5 crores. The CIT(A) in this context observed as follows: “The creditworthiness of the party is the most important aspect ofcredit transaction. The AO examined the P&L a/cs filed of thecreditors. In case of M/s. Goyal Textiles Inds. Pvt. Ltd., thepurchase and sales were found to be Rs.4.70 crores and Rs.3.60crores. Similarly, in the case of M/s. Ankur Distributors (P) Ltd.,there are sales of Rs.3.71 crores and purchase of Rs.75.18 lacs.So, is the case of M/s. Richie Rich Overseas (Pvt.) Ltd., where alsothere are substantial sale and purchase running into severalcrores. A perusal of expenses claimed, refute the observation ofthe AO that they were merely statutory expenses. The bankstatement showed transfer entries in Mahan Enterprises Ltd. byway of cash deposit, and debit by issue of cheques to the concerns for routing the money. The AO, therefore, treated the credits asunexplained and made addition of Rs.1.65 crores. The AO has not discussed any documentary evidences in theassessment order/Remand Report except giving the particulars ofbank transactions of Mahan Enterprises Ltd. and so calledintermediaries. The balance sheet of the creditors shows that theyhad sufficient funds. In case of M/s. Goyal Textiles Pvt. Ltd. thebalance sheet shows paid up capital of Rs.5.00 crores. The fundshave been given as loans & advances. In case of M/s. AnkurDistributors Pvt. Ltd. as well as in case of M/s. Richi RichOverseas Pvt. Ltd. the paid up share capital is of Rs.5.00 croreseach.” for routing the money. The AO, therefore, treated the credits asunexplained and made addition of Rs.1.65 crores. The AO has not discussed any documentary evidences in theassessment order/Remand Report except giving the particulars ofbank transactions of Mahan Enterprises Ltd. and so calledintermediaries. The balance sheet of the creditors shows that theyhad sufficient funds. In case of M/s. Goyal Textiles Pvt. Ltd. thebalance sheet shows paid up capital of Rs.5.00 crores. The fundshave been given as loans & advances. In case of M/s. AnkurDistributors Pvt. Ltd. as well as in case of M/s. Richi RichOverseas Pvt. Ltd. the paid up share capital is of Rs.5.00 croreseach.” “In the instant case no evidence has been brought on record bythe AO to prove that the share application money emanated fromthe coffers of the applicant. The AO has not made any enquiriesfrom the concerned parties nor did he examine the assessmentrecords of the share applicants. Relying on the various documents placed on record and theprinciple laid down by the Hon’ble Supreme Court in the case ofM/s. Lovely Export Pvt. Ltd. which is directly on the issue of sharecapital and in view of the decisions cited above the addition onaccount of share capital cannot be sustained. The AO has nowhere proved that documents in support of the identity of theparties have not been placed on record or they were forgeddocuments. The AO also has not brought any evidence on recordregardingthefactsthattheshareapplicantswerenotcreditworthy or genuine, despite the fact that their PAN andcopies of IT Return were submitted by the appellant. Afterconsidering the facts on record, judicial pronouncements of thejurisdictional High Court and Hon’ble Supreme Court, it can beconcluded that the appellant has undoubtedly proved the identityof the share applicant. Once the identity of these share applicantsis proved, no addition can be made in the hands of the appellanteven if the share applicants have been found to be persons of nomeans until and unless it is otherwise proved by the revenue. The revenue could not prove that the money received by the appellantin the form of share application money has come from its ownsources.” 3.The CIT(A) thereafter observed as follows: 4.The ITAT, to which the Revenue appealed, was unimpressed by thesubmissions made before it and accordingly rejected the contentions. In thepresent case, learned counsel for the Revenue highlighted that the AO hadclearly noticed that there was hardly any business transacted by the shareapplicants which could have legitimately allowed them to invest large sumsof money in the assessee’s shares. It is also contended that merely becausethe share applicants had a large volume of turnover did not mean that theyhad sufficient funds to invest in the assessee’s shares. Learned counsel alsosubmitted that the CIT(A) and the ITAT fell into error in directing deletionof `1,18,50,000/- since the assessee could not explain these amountswithdrawn from its accounts. 5.The preceding discussion so far as the share application money of`1.65 crores is concerned, clearly reveals that the AO’s suspicions formedthe basis of including the amounts under Section 68 of the Act; whilstsuspicion can be the basis for further enquiry, it can never be the ground fora conclusion. In the present instance, the AO apparently had the books andall the relevant information pertaining to the share applicants. CIT v. LovelyExports (P) Ltd. 2008 (216) CTR (SC) 195 directs that whilst the initial onusto prove the identity of a third party, its creditworthiness and thegenuineness of the transaction by some material is upon the assessee, theburden is constantly, however, onwards upon the Revenue. Once the initial 5.The preceding discussion so far as the share application money of`1.65 crores is concerned, clearly reveals that the AO’s suspicions formedthe basis of including the amounts under Section 68 of the Act; whilstsuspicion can be the basis for further enquiry, it can never be the ground fora conclusion. In the present instance, the AO apparently had the books andall the relevant information pertaining to the share applicants. CIT v. LovelyExports (P) Ltd. 2008 (216) CTR (SC) 195 directs that whilst the initial onusto prove the identity of a third party, its creditworthiness and thegenuineness of the transaction by some material is upon the assessee, theburden is constantly, however, onwards upon the Revenue. Once the initial onus is discharged, the Revenue is not absolved of its duty to collect furthermaterial which should assist it in coming to the correct conclusions. In thepresent case, the course of proceedings indicates that the CIT(Appeals) hadcalled for the Remand Report. That Remand Report clearly pointed to thethree share applicants not only being genuine business concerns but alsohaving substantial business activities and further having reasonably sizedturnovers. In these circumstances, to establish implausibility on the part ofthe share applicants to have possessed the means when they applied, the AOought to have probed further. He did not do so as is evident from theRemand Report where the AO did not offer any comments upon thematerials taken into account by the CIT (Appeals). Consequently, theITAT’s order cannot be faulted. 6.So far as the second amount of `1,18,50,000/- is concerned, the ITATnoticed as follows: “11.Replying to the above, ld. counsel of the assessee pointedout that the copies of the replies before the Assessing Officer(page no.19 to 74), copies of ledger and cash book (PB pageno.75-76), copy of bank statement related to financial year (PBpageno.77to86),copiesofthesubmissionbeforetheCommissioner of Income Tax(A) dated 08.02.2009 (PB pageno.87-92), copy of remand report of Assessing Officer dated23.04.2010 (PB page 93-98), copy of submissions before theCommissioner of Income Tax (A) dated 26.05.2010 (PB page 99-177) and copies of last submissions before the Commissioner ofIncome Tax (A) (PB 178-193). The counsel of the assesseesubmitted that the disputed cash deposits were made out of cashwithdrawals made from the same bank on earlier occasions and asper remand report, the Assessing Officer was satisfied about thesource of cash deposited in the bank account of the assessee. TheCommissioner of Income Tax (A), after consideration of details and evidence submitted by the assessee, remand report of theAssessing Officer and rejoinder and submission of the assessee,heldthattheconclusionoftheAssessingOfficer in thereassessment order appears to be unilateral and no explanation ofthe assessee was called in respect of alleged cash deposits. Fromcareful perusal of the remand report available on Paper Bookpage No.93-98, we also observe that the Assessing Officer has notcommented adversely in respect of explanation furnished by theassessee pertaining to the cash deposits found during the financialyear in the bank accounts of the assessee. The Commissioner ofIncome Tax(A) rightly held that when the balance matches withthe balance sheet and cash book, no addition u/s 68 of the Act issustainable and the Commissioner of Income Tax (A) rightlydeleted the same. Accordingly, we are unable to see any validreason to interfere with the impugned order in this regard. In thissituation, ground no.2 of the revenue is also dismissed.” 7.This Court is of the opinion that since the AO did not commentadversely in respect of the assessee’s explanation pertaining to the cashdeposits in the bank accounts even in the remand report, the inference drawnby the CIT (A) and later the ITAT cannot be held unreasonable. No questionof law arises. 8.For the above reasons, the appeal is unmerited and is consequentlydismissed. S. RAVINDRA BHAT(JUDGE) FEBRUARY 25, 2015 R.K. GAUBA(JUDGE)