$~ In The High Court Of Delhi At New Delhireserved On: September 15, 2015 Date Of Decision: November 04, 2015 + Ita 204/2002Jet Lite (India) Ltd v. Commissioner Of Income Tax-Xvi

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHIReserved on: September 15, 2015 Date of decision: November 04, 2015 + ITA 204/2002JET LITE (INDIA) LTD. ..... Appellant Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. versus COMMISSIONER OF INCOME TAX-XVI ........ Respondent Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. WITH+ ITA 86/2011CIT ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. WITH + ITA 205/2002 ITA Nos. 204/2002 & batch matters Page 1 of 42 DIRECTOR OF INCOME TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. WITH+ ITA 128/2005JET LITE (INDIA) LTD. ..... Appellant Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates Versus COMMISSIONER OF INCOME TAX-XII ........ Respondent Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. WITH+ ITA 1206/2005 DIRECTOR OF INCOME TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus ITA Nos. 204/2002 & batch matters Page 2 of 42 JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. AND + ITA 1209/2005 DIRECTOR OF INCOME TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU J U D G M E N T % 04.11.2015 S. Muralidhar, J.Introduction 1. These are appeals both by the Assessee and the Revenue, under Section 260A of the Income Tax Act, 1961 („Act‟). While ITA Nos. 204 of 2002 and 205 of 2002 by the Revenue are directed against the common order dated 12[th]February 2002 passed by the Income Tax Appellate Tribunal („ITAT‟) in ITA Nos.950 to 954/Del/2001 for the Financial Years („FY‟) 1994-95 to 1998-99, ITA Nos. 128 of 2005 by the Assessee is directed against the ITA Nos. 204/2002 & batch matters Page 3 of 42 impugned order dated 30[th] August 2004 passed by the ITAT in ITA No. 2753,3151, 3152 & 3153(Del)/1999 for the Assessment Years („AYs‟) 1996-97, 1995-96, 1996-97 & 1997-98. ITA Nos. 1206 of 2005 and 1209 of 2005 of the Revenue are directed against the common order dated 12[th] April 2005 passed by the ITAT in ITA Nos. l42&1143/Del/01 for the AYs1998-99 & 1999-2000. ITA No. 86 of 2011 by the Revenue is directed against the impugned order dated 10[th] July 2009 passed by ITAT in ITA No.682/All/2000 for the AY 1996-97. 2. At the outset it requires to be noticed that in these cases, the Assessing Officers (AO), the Commissioner of Income Tax (Appeals [CIT (A)] have in their respective orders and the ITAT in the order dated 12th February 2002 referred to FYs 1994-95 to 1998-99 whereas the subsequent orders of those authorities including the orders dated 30th August 2004, 12th April 2005 and 10th July 2009 of the ITAT refer to AYs as mentioned hereinbefore. 2. At the outset it requires to be noticed that in these cases, the Assessing Officers (AO), the Commissioner of Income Tax (Appeals [CIT (A)] have in their respective orders and the ITAT in the order dated 12th February 2002 referred to FYs 1994-95 to 1998-99 whereas the subsequent orders of those authorities including the orders dated 30th August 2004, 12th April 2005 and 10th July 2009 of the ITAT refer to AYs as mentioned hereinbefore. 3. Initially the name of the Assessee was Sahara Airlines Limited („Sahara‟).Subsequently it was renamed as Jet Lite (India) Limited. Pursuant to the orders passed by the Court on 23[rd] May 2012 and 31[st] July 2015 the name of the Assessee in these appeals stood amended as such. Background Facts 4. The background to the above appeals is that Sahara entered into an Aircraft Parts Lease-Purchase Agreement („APLPA‟) dated 24[th] August 1993 with AAR Aviation Trading Inc. („AAR‟) in terms of which Sahara, which was engaged in the business of running a schedule airline, agreed to ITA Nos. 204/2002 & batch matters Page 4 of 42 take on hire certain aircraft parts on the terms and conditions set out in the APLPA. Sahara was to pay AAR a rental of US dollars („USD‟) 199,370 on a bi-annual basis. The lease was for a period of three years and in terms of Clause 22 of the APLPA, Sahara had an option, on the termination of the lease, to purchase all the parts at the price of USD 50,000. 5. During the FY 1994-95, Sahara paid USD 199,370 each on 22[nd] April 1994 (equivalent to Rs. 63,00,092) and on 14[th] November 1994 (equivalent to Rs. 63,12,054) respectively. Admittedly, Sahara did not deduct tax at source. It is stated that Sahara had applied to the Assistant Commissioner of Income Tax, Company Circle 3(3), New Delhi („ACIT‟), who was at the relevant time the AO having jurisdiction, to ascertain as to whether it was under any obligation to deduct tax at source in respect of the said payments. 6. It is further stated that pursuant to the said applications, ACIT issued no objection certificates („NOC‟) dated 24[th] February 1994 and 20[th] October 1994 permitting Sahara to remit the aforementioned gross sums of USD 199,370 under both the certificates. It is further stated that at the end of the lease period, Sahara exercised the option under Clause 22 of the APLPA and remitted a sum of USD 50,000 without deducting tax at source as the same did not represent income chargeable to tax in India. 7. The AO raised objections on the grounds that the payments amounted to royalty. Pursuant to the AO's orders requiring that TDS should be deducted @ 10%, Sahara deducted the tax as directed and filed appeals against the AO's order. The appeals before the CIT (A) being unsuccessful, further ITA Nos. 204/2002 & batch matters Page 5 of 42 appeals were filed before the Tribunal. These were for AYs 1995-96 to 1997-98. After not succeeding before the ITAT on this issue, Sahara filed ITA No. 128 of 2005 in this Court. 8. Sahara also entered into „Training Agreements‟ on 30[th] January 1996 with Hughes Flight Trading Limited („HFTL‟) in terms of which HFTL which operated a flight crew training facility at Fleming Way Crawley West Sussex England agreed to provide ground and flight simulator training to Sahara‟s flight crews on the terms and conditions set out in the said agreement. HFTL was to make available to Sahara‟s flight crews and instructors, training equipment including a flight simulator appropriate to the aircraft for use in flight simulator training. Sahara was to pay HFTL GBP 171 per hour for the use of the flight simulator without any instructor of HFTL being present. 8. Sahara also entered into „Training Agreements‟ on 30[th] January 1996 with Hughes Flight Trading Limited („HFTL‟) in terms of which HFTL which operated a flight crew training facility at Fleming Way Crawley West Sussex England agreed to provide ground and flight simulator training to Sahara‟s flight crews on the terms and conditions set out in the said agreement. HFTL was to make available to Sahara‟s flight crews and instructors, training equipment including a flight simulator appropriate to the aircraft for use in flight simulator training. Sahara was to pay HFTL GBP 171 per hour for the use of the flight simulator without any instructor of HFTL being present. 9. Sahara states that similar arrangements were entered into with other companies based in the United Kingdom in terms of which flight crew was provided with the facility of a simulator. The payments were made pursuant to the said agreement made by Sahara without deducting tax at source during the FYs 1994-95 to 1998-99 as such. Sahara was of the view that no part of the payment made for the use of the flight simulator was chargeable to tax in India. 10. Sahara had taken two aircrafts on lease for a period of six years from International Lease Finance Corporation („ILFC‟) and separate agreements were entered into in respect of each aircraft. In terms of Article 1.6 read with ITA Nos. 204/2002 & batch matters Page 6 of 42 Article 5.3 thereof, Sahara was required to pay lease rent @ US Dollars ('USD') 240,000 per month with effect from 31st December 1995 and USD 241,000 with effect from 1st January 1995. In terms of Article 1.7 read with Article 5.4, Sahara was also required to pay supplemental lease rent in the form of reserves @ USD 234 per hour. These reserves were categorised as 'airfreight reserves', 'engine reserves' and 'landing gear reserves' and were created to meet the cost of expenditure incurred by the lessee in respect of the deficiencies and work specified inn Articles 13.1 and 13.2. In terms of Article 13.3 the lessee (i.e. Sahara) was entitled to reimbursement from such reserves after the work was completed and the airframe or engine had left the repair agency by submitting invoices and proper documentation in respect thereof. In terms of Article 13.6, on the termination date of the agreement if any balance was left in the said reserve, it would be retained by the lessor. Similar payments on account of supplemental lease rent were also made by Sahara to other non-resident foreign companies i.e. AMTEC, Malaysian Airlines and Lufthansa during the FYs 1997-98 to 1998-99. 11. Sahara also entered into an agreement dated 8[th]/9[th] May 1996 with Sochata, France, which was engaged in the business of maintaining and operating certain facilities for the repair, maintenance, overhaul, modification and functional testing of aircraft engine including accessories, parts and components. Pursuant to the said agreement Sahara paid, on 25[th]September 1996, a sum of Rs. 3,08,60,702 (equivalent to USD 8,63,719.63) and, on 24[th] January 1997, a sum of Rs. 2,89,19,958 (equivalent to USD 8,04,002.18) respectively in the FY 1996-97. Again it was of the view that the amount did not represent income chargeable to tax in India and no ITA Nos. 204/2002 & batch matters Page 7 of 42 deduction of tax at source was made. ITA Nos. 204/2002 & batch matters Page 7 of 42 deduction of tax at source was made. 12. It is further stated that as a result of the flying operation, several parts of the aircrafts were required to be repaired/replaced. The spares were acquired in three modes. The first was an outright purchase, the second was exchange involving sending of the defective part to the non-resident company which in turn sent a part in lieu thereof. The non-resident company would raise a bill on a proforma basis for the part replaced as well as levy a charge. The third mode was by sending the defective part for repairs and Sahara used to pay a charge for the repair carried out. According to Sahara, it was advised that no tax was required to be deducted in respect of the parts purchased, exchanged or repaired and therefore, it remitted the amounts without deducting tax at source. Facts concerning subscription to share capital 13. From the balance sheet filed by the Assessee along with return it was noted by the AO that for the AY 1996-97 Sahara raised share capital of Rs. 10,87,89,090 and received premium amount of Rs. 44,60,35,269 and share application money of Rs. 7,50,000. Sahara claimed to have mobilized the above amount by way of private placement of shares from 65,285 persons through a network of establishments maintained by its sister concern M/s. Sahara India (Firm). Against the face value of Rs. 10 per share, a sum of Rs. 41was collected as premium. Sahara was asked by the AO to furnish the details of shares issued during the year of Rs. 25,000 or more by a notice dated 10[th] September 1998 under Section 142 (1) of the Act. Sahara filed a reply on 23[rd] October 1998. It was thereafter asked to furnish the basis of ITA Nos. 204/2002 & batch matters Page 8 of 42 working out the premium of shares and the method of allotment of shares to such a large number of persons by way of private placement. Sahara was also asked to furnish the addresses of the top 100 share holders who were allotted shares during the year. 14. In response thereto Sahara furnished the addresses of 92 such persons. Notices under Section 133 (6) were issued to 92 such persons, but notice to the remaining 8 persons could not be sent as their addresses were not indicated in the list furnished by Sahara. These notices were sent on 17[th]February 1999 and 23[rd] February 1999. Only 17 of those notices sent were replied to, while 25 notices were returned unserved with the remarks „not known‟, „refused‟, „incomplete address‟, „dead‟, „left indefinitely‟ etc. 50 persons to whom notices were sent did not reply. Notice dated 18[th] March 1999 was sent to Sahara under Section 142 (1) of the Act requiring it to explain why the entry share capital with premium should not be treated as its unexplained income under Section 68 of the Act. Sahara was called upon to substantiate the identity, genuineness and creditworthiness of the shareholders. 15. Sahara filed two replies dated 24[th] March 1999 stating that the shareholders were spread all over the country and requisitions had to be sent to the Zonal Managers placed in the different zones. Sahara enclosed photocopies of the share applications filed in 1996 to prove the identity of the subscribers. The Department took upon itself to verify the genuineness of the transactions and replies were received only in about 20% of the cases. The AO noticed from the share application forms that the shareholders were ITA Nos. 204/2002 & batch matters Page 9 of 42 15. Sahara filed two replies dated 24[th] March 1999 stating that the shareholders were spread all over the country and requisitions had to be sent to the Zonal Managers placed in the different zones. Sahara enclosed photocopies of the share applications filed in 1996 to prove the identity of the subscribers. The Department took upon itself to verify the genuineness of the transactions and replies were received only in about 20% of the cases. The AO noticed from the share application forms that the shareholders were ITA Nos. 204/2002 & batch matters Page 9 of 42 allotted only 25% of the shares and 75% of the shares were retained by the collecting agent on the plea of getting the shares listed in the stock exchanges. The AO was of the opinion that since 75% of the shares were not handed over to the subscribers the transactions themselves appeared to be suspicious. Further it was noticed that those who had replied stated that they had invested the money in cash. This also gave the transaction a dubious colour. All the persons who replied claimed to have sold their shares back to Sahara. The order of the AO 16. The AO was not convinced by the statement of Sahara and it was found evasive as the shares were not quoted in the stock exchange andhence were not transferable in the market. Observing that it appeared that the Assessee had concealed some very vital facts with regard to the issue and transfer of the shares, the AO treated the sum of Rs. 55,55,89,359 as unexplained credit in the books of the Assessee under Section 68 of the Act and consequently as undisclosed income of the Assessee which was attributable to the total income of the Assessee. Orders of the CIT (A) and the ITAT 17. On appeal, the Commissioner of Income Tax (Appeals) [„CIT (A)‟] by order dated 3[rd] March 2000 held that since the AO has chosen to enquire only into the genuineness of 100 shareholders, no additions could have been made in respect of the other 65,185 shareholders. The CIT(A) noticed that out of these 100 persons, the AO himself had stated that 17 shareholders had furnished replies and 50 of persons to whom notices were served, did not ITA Nos. 204/2002 & batch matters Page 10 of 42 respond. However, as the notices sent were duly received, the existence of these 50 persons was duly proved. The CIT (A), therefore, directed the AO to delete the additions with respect to these 67 persons. With respect to the group of 25 persons in relation to whom the notices were returned with comments such as “refused”, “dead” , “left indefinitely”, etc, the CIT(A) held that they certainly “were in existence and their identity is duly proved.” With respect to those persons who, according to AO, were not traceable and the 8 other persons to whom the AO had not issued notices for want of addresses, the CIT (A) restored the matter back to the AO and also directed the Assessee to furnish necessary evidence to prove their identity. 18. The ITAT by its order dated 10[th] July 2009 confirmed the said order passed by the CIT (A) thereby deleting the addition made by the AO on this account. The ITAT upheld the order of the CIT (A) and held that the Assessee had proved identity of the shareholders. Questions of law 19. At the time of admission of ITA Nos. 204 of 2002 and 205 of 2002, which pertained to FYs1994-95 to 1998-99, this Court by orders dated 28[th]February 2003 framed separate questions for determination in each of these appeals. In ITA No. 204 of 2002, which is the Assessee‟s appeal, the following questions were framed: (i) Whether the Tribunal was right in law in holding that the Assessee could be regarded as Assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of the Income-tax Act, 1961? Questions of law 19. At the time of admission of ITA Nos. 204 of 2002 and 205 of 2002, which pertained to FYs1994-95 to 1998-99, this Court by orders dated 28[th]February 2003 framed separate questions for determination in each of these appeals. In ITA No. 204 of 2002, which is the Assessee‟s appeal, the following questions were framed: (i) Whether the Tribunal was right in law in holding that the Assessee could be regarded as Assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of the Income-tax Act, 1961? ITA Nos. 204/2002 & batch matters Page 11 of 42 (ii) Whether the Tribunal‟s conclusion that the fee paid by the Appellant for use of flight simulator in terms of agreement dated 30[th]January 1996, was to be regarded as a payment by way of fee for technical services and accordingly, chargeable to tax in India is correct in law? (iii) Whether the Tribunal was justified in holding that the payments made to M/s. Sochata France in terms of the agreement dated 8[th]March 1996/9-5-1996, were to be regarded as fee for technical services? 20. In ITA No. 205 of 2002, which is the Revenue‟s appeal, the following questions were framed: (i) Whether the Tribunal was correct in law in holding that the order by the AO under Section 201 of the Income Tax Act, 1961 in respect of financial year 1994-95 was barred by limitation? (ii) Whether the Tribunal was right in law in holding that since the tax had not been deducted at source by the Assessee, the question of grossing up under Section 195-A of the Income Tax Act, 1961, by the Income-tax Officer did not arise? (iii) Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial years 1996-97 to 998-99 were exempt under Section 10 (15A) of the Income tax Act, 1961? 21. As regards the Assessee's appeal ITA 128 of 2005 for AY 1995-96 to 1996-98 is concerned, this Court by order dated 25[th] February 2005 framed the following question of law: "Whether the Tribunal was right in law in holding that the assessee could be regarded as assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of the Income-Tax Act, 1961?" ITA Nos. 204/2002 & batch matters Page 12 of 42 22. As far as the Revenue's appeal ITA 1209 of 2005 for AY 1998-99 is concerned, this Court by order dated 14[th] December 2005, framed the following question of law: “Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial year 1998-99 were exempt under Section 10(15A) of the Income Tax Act, 1961?” 23. As far as the Revenue's appeal ITA 1206 of 2005 for AY 1999-2000 is concerned, this Court by order dated 31[st] January 2006, framed the following question of law: “Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial year 1999-2000 were exempt under Section 10(15A) of the Income Tax Act, 1961?” 24. As far as the Revenue's appeal ITA No. 86 of 2011 is concerned, it arises from the Revenue's appeal before the ITAT being ITA No. 682/All/2000 for AY 1996-97. Although in the said appeal before the ITAT, the Revenue had raised fourteen questions, at the time of admission of the appeal before this Court being ITA 86 of 2011, the Court framed only the following eleven questions of law, on 27[th] August 2012: 23. As far as the Revenue's appeal ITA 1206 of 2005 for AY 1999-2000 is concerned, this Court by order dated 31[st] January 2006, framed the following question of law: “Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial year 1999-2000 were exempt under Section 10(15A) of the Income Tax Act, 1961?” 24. As far as the Revenue's appeal ITA No. 86 of 2011 is concerned, it arises from the Revenue's appeal before the ITAT being ITA No. 682/All/2000 for AY 1996-97. Although in the said appeal before the ITAT, the Revenue had raised fourteen questions, at the time of admission of the appeal before this Court being ITA 86 of 2011, the Court framed only the following eleven questions of law, on 27[th] August 2012: (i) Whether the ITAT was justified in the eyes of law in upholding the deletion of the addition of Rs. 55,40,38,959made by the AO under Section 68 of the Income Tax Act, 1961, on account of the unexplained cash credit, ignoring the material fact that the Assessee had failed to substantiate the credit worthiness of the shareholders and the genuineness of the transactions? (ii) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of Rs. 4,74,13,470 made under Section 195 ITA Nos. 204/2002 & batch matters Page 13 of 42 read with Section 40 (a) (i) of the Income Tax Act, 1961, by the AO, on account of the non-deduction of tax at source (TDS) on the amount paid by the assessee to the non-resident company towards the maintenance reserve for leased Aircraft? (iii) Whether the ITAT was correct in the eyes of law in not adjudicating the issue of inadmissibility of expenses of Rs. 52,47, 225 towards the training and manpower development, paid to foreign companies u/s 40 (a) (i) of the Act for being paid without deducting the TDS? (iv) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of Rs. 1,77,82,789made under Section 40 (a) (i) of the Income Tax Act, 1961, by the AO, for non-deduction of TDS on payment to the non-residents of computerized reservation system? (v) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of Rs. 30,40,170made by the AO on account of disallowance of 50% of total expenditure incurred by the Assessee in issuing the free tickets was a business expenditure, claimed as business expenditure, when the said expenditure had not been incurred wholly and exclusively for the purpose of business and hence is not allowable under Section 37 (1) of the Income Tax Act, 1961? (vi) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of Rs.1,42,76,535made by the AO on account of disallowance of the interest paid on borrowed capital, when the said interest is not allowable under Section 36 (1) (iii) of the Income Tax Act, 1961, on account of substantial interest-free funds advance to the sister concerns? (vii) Whether the ITAT was correct in the eyes of law in upholding the deletion of addition of Rs. 35,97,812made by the AO, on account of disallowance of the 1/5[th] of the foreign travel total expenses claimed under Section 37 (l) of the Income Tax Act, 1961, when the same are inadmissible for want of genuineness to prove that the expenditure was incurred wholly and exclusively for the business purposes? ITA Nos. 204/2002 & batch matters Page 14 of 42 (vii) Whether the ITAT was correct in the eyes of law in upholding the deletion of addition of Rs. 35,97,812made by the AO, on account of disallowance of the 1/5[th] of the foreign travel total expenses claimed under Section 37 (l) of the Income Tax Act, 1961, when the same are inadmissible for want of genuineness to prove that the expenditure was incurred wholly and exclusively for the business purposes? ITA Nos. 204/2002 & batch matters Page 14 of 42 (viii) Whether ITAT was correct in the eyes of law in upholding the deletion of addition of Rs. 21,60,000 made by the AO, on account of disallowance of consultancy expenses, paid by the assessee to M/s.Sahara India International Corporation Limited, invoking the provisions of Section 40A (2) of the Income Tax Act, 1961, when the said expenditure is excessive and unreasonable and the services, which have been claimed to have been rendered have not been substantiated for genuineness? (ix) Whether the ITAT was justified in the eyes of law in upholding the deletion of addition of Rs.54,06,701 made on account of disallowance of the claim made by the Assessee as staff welfare, when the same were considered as the entertainment expenses in the absence of any corroboratory evidence to substantiate the genuineness and reasonableness of expenditure? (x) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of Rs.10,37,367/- made on account of the disallowance of advertising and publicity expenses, as the same being not related to the year under consideration i.e. AY 1996-97? (xi) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of Rs.10,17,553/- made on account of disallowance of the Air Travel Tax paid by the assessee, when the same is covered under Section 43B of the Income Tax Act, 1961 and for which no proof of payment has been furnished? 25. This Court has heard the submissions of Mr. S. Ganesh, learned Senior counsel for the Assessee as well as Mr. Rahul Chaudhary and Mr. Rohit Madan, learned Standing counsel for the Revenue respectively. Unexplained cash credit under Section 68 of the Act 26. The Court first proposes to examine the issue concerning unexplained ITA Nos. 204/2002 & batch matters Page 15 of 42 cash credits under Section 68 of the Act. 27. A Full Bench of this Court in CIT v. Sophia Finance Limited (1994) 205 ITR 98 [FB, (Delhi)] held that in the context of Section 68 of the Act that: (i) The Assessee has to prima facie prove "(1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber”. (ii) If the relevant details of the address of PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the Assessee. (iii) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices. (iv) The onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the Assessee nor should the AO take such repudiation at face value and construe it, without more, against the Assessee. (v) The AO is duty-bound to investigate the creditworthiness of the ITA Nos. 204/2002 & batch matters Page 16 of 42 creditor/subscriber the genuineness of the transaction and veracity of the repudiation. 28. In CIT v. Steller Investment Limited (1991) 192 ITR 287 (Del) it was observed: (iii) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices. (iv) The onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the Assessee nor should the AO take such repudiation at face value and construe it, without more, against the Assessee. (v) The AO is duty-bound to investigate the creditworthiness of the ITA Nos. 204/2002 & batch matters Page 16 of 42 creditor/subscriber the genuineness of the transaction and veracity of the repudiation. 28. In CIT v. Steller Investment Limited (1991) 192 ITR 287 (Del) it was observed: “Even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons.” 29. Both the aforementioned decisions were again considered by the Division Bench of this Court in CIT v. Lovely Exports Limited 299 ITR 268 (Del). Thereafter, in CIT v. Nova Promoters and Finance (P) Limited (2012) 342 ITR 169 (Del) it was observed as under: “38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. 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 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 ITA Nos. 204/2002 & batch matters Page 17 of 42 is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan-a smokescreen-conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio.” 30. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it was held that the point at which the initial onus on the Assessee to prove the unexplained discredit would stand discharged depends upon the facts and circumstances of each case. It was pointed out that where there is private placement of shares is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan-a smokescreen-conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio.” 30. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it was held that the point at which the initial onus on the Assessee to prove the unexplained discredit would stand discharged depends upon the facts and circumstances of each case. It was pointed out that where there is private placement of shares “the Assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the Assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce share holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the shareholders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the Assessing Officer should get the addresses from Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the Assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders.” 31. In Commissioner of Income Tax v. N.R. Portfolio Pvt. Ltd. 206 (2014) ITA Nos. 204/2002 & batch matters Page 18 of 42 DLT 97 (DB) the Court reiterated the need of the Assessee to satisfy the AO about the "identity, creditworthiness and genuineness" of the creditors. It was pointed out that “mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them.” 32. Turning the facts on hand, the Court notes that only 17 cases of 92 noticees whose addresses and share application forms were provided elicited a response. 25 notices were retuned unserved by the postal authorities with the remarks namely, "not known" , "refused", "incomplete address", "dead", "Left indefinitely", etc." The balance 50 noticees who were served did not respond. 33. The AO concluded that the credit entries were of doubtful nature for the following reasons: (i) The shareholders were allotted only 25% of the shares and 75% shares were retained by the collecting agent on the plea of getting the shares listed in the stock exchanges. The fact that 75% of the shares were not handed to the shareholders rendered the genuineness of the transactions doubtful. (ii) All the persons who replied stated that they made the investment ITA Nos. 204/2002 & batch matters Page 19 of 42 in cash. 33. The AO concluded that the credit entries were of doubtful nature for the following reasons: (i) The shareholders were allotted only 25% of the shares and 75% shares were retained by the collecting agent on the plea of getting the shares listed in the stock exchanges. The fact that 75% of the shares were not handed to the shareholders rendered the genuineness of the transactions doubtful. (ii) All the persons who replied stated that they made the investment ITA Nos. 204/2002 & batch matters Page 19 of 42 in cash. (iii) Almost all the persons in their replies stated that they are agriculturists and their source of income was from agricultural activities. Excepting one, none of them were income tax assessees. (iv) Although there was no provision enabling a company to buy-back shares, at least two persons had categorically stated that they had sold the shares back to Sahara. If the purchase of the shares by Sahara was made through cheque this made the transactions dubious. (v) Sahara has concealed some very vital transactions relating to issue and transfer of the shares and had not come clean with all the relevant facts and documents for the purpose of ascertainment of the exact nature of the transactions. 34. The CIT (A), however, disagreed and held that once the identity of the persons was fully established before the AO, “there was no occasion to treat the share capital as unexplained”. The CIT (A) concluded that the fact that the AO had required the Assessee to furnish the addresses of top 100 shareholders only meant “that AO was not at all interested in verifying the share capital invested by 65185 shareholders and I am really surprised that even with respect to these large numbers of shareholders, without conducting any enquiry of any sort, the share capital invested by them has also been treated as unexplained. This action of the AO by no stretch of imagination can be sustained and I, therefore, direct the AO to delete the addition in respect of the share capital invested by these persons.” ITA Nos. 204/2002 & batch matters Page 20 of 42 35. The CIT (A) then took up the case of the 100 shareholders in respect of whom the AO tried to conduct certain enquiries. Of the 92 persons whose addresses had been furnished, 17 persons had filed replies. Even in respect of the 50 others who were served, but had not replied, their existence was held to be duly proved. the CIT (A), therefore, directed the AO to delete the addition in respect of the share capital introduced by the 17+ 50 persons. Of the balance 25, some had died or had left for an indefinite period or had refused to receive the notices. Their existence and identity were held to be duly proved and, therefore, the AO was directed to delete the share capital introduced by the said persons also. Of the balance 8 persons plus some part of the 25 persons who were unserved, the AO himself noted that notice was not sent to them since addresses were not furnished. In this regard the CIT (A) noted the contention of Sahara that it had furnished their complete addresses and it was prepared to furnish the confirmations of those persons. The CIT (A) then directed, in respect of the 8 persons plus some part of the 25 persons the notices to were returned with the remark „not traceable‟, as under: “I, therefore, in respect of this category of persons only i.e. who according to the AO, were not traceable or whose addresses were not furnished, restore the matter back to the AO and the Appellant is directed to furnish the necessary evidence in this regard before the AO to prove their identity.” 36. The ITAT has upheld the deletion by the CIT (A) of the additions made by the AO on the ground that the existence and identity of the shareholders had been established; that retaining of 75% not unusual in light of “I, therefore, in respect of this category of persons only i.e. who according to the AO, were not traceable or whose addresses were not furnished, restore the matter back to the AO and the Appellant is directed to furnish the necessary evidence in this regard before the AO to prove their identity.” 36. The ITAT has upheld the deletion by the CIT (A) of the additions made by the AO on the ground that the existence and identity of the shareholders had been established; that retaining of 75% not unusual in light of ITA Nos. 204/2002 & batch matters Page 21 of 42 „DEMAT‟ provisions; that Companies Act does not debar share subscription by cash hence payments in cash were not dubious per se; that there was no buy back since there was a separate custodial agreement under which a shareholder could entrust his shares to be kept in the custody of Sahara India who were the managers of the issue of shares by way of private placement. 37. Having perused the documents placed on record, the Court is of the view that there was no justification for the CIT (A) to have deleted the addition made by the AO in respect of the 65,185 shareholders on the ground that the AO did not conduct any enquiry. When the AO sought details of shareholders who invested Rs. 25,000 or more, the Assessee was able to furnish the addresses of only the top 100 shareholders. The only conclusion that was possible in this regard was that reached by the AO, viz., that the Assessee was unable to establish the identities of the 65,185 persons in respect of an amount of Rs. 55,55,89,359. The onus on the Assessee of providing some prima facie material to establish the identity, genuineness and creditworthiness of the said 65,185 persons was not discharged by the Assessee. 38. It was then urged by Mr. Ganesh, learned Senior counsel for the Assessee, that in respect of the above 65,185 persons, the matter should be sent back to the AO for fresh consideration as has been done in respect of those persons whose addresses were purportedly not furnished. With the Assessee even now not coming forth with any further details, no purpose would be served in remanding the matter for determining the identity of the said 65,185 shareholders. ITA Nos. 204/2002 & batch matters Page 22 of 42 39. Consequently, the Court sets aside the orders of the CIT (A) and the ITAT as regards the deletion of the addition ordered by the AO in the sum of Rs. Rs. 55,55,89,359 under Section 68 of the Act on the ground of the failure by the Assessee to establish the identity of the 65,185 shareholders who are stated to have contributed the aforementioned sum. 40. However, as regards the 100 shareholders in whose cases some details were furnished by the Assessee, it is seen that 17 shareholders filed their replies and 50 others did not respond despite receiving the notice. The CIT (A) came to the conclusion that their existence or identity was duly proved. It is noticed that the persons who responded stated that they were agriculturists and not income tax assessees. Pradeep Kumar Sinha of Bhagalpur and Masood Ahmed of Madhubani, Bihar stated that they had sold their shares back to Sahara, but under the Companies Act that was not permissible. 41. The Court is of the considered view that the order of the CIT (A) as affirmed by the ITAT regarding the deletion of the addition made by the AO with regard to the share capital introduced by the said 50+17 persons does not call for interference as, on facts, it was a possible view to take. Even as regards the 8 shareholders and those other shareholders who were untraceable, the order of the CIT (A) remanding the matter to the AO does not call for interference. 42. The net re