ITO, New Delhi V. M/s. Shri Sidhdata Ispat (P) Ltd., New Delhi

ITA 281/DEL/2010

• Counselvise Citation: [2011] 100 COUNSELVISE.COM (IT) 2218 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 03-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-01-2010

Judgement Text

ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 3569/DEL/2009 & 281/DEL/2010 A.Y. : 2006-07 A CIT, CIRCLE 8 (1), ROOM NO. 163, CR BUILDING, NEW DELHI AND AND AND AND ITO, WARD 8(3), ROOM NO. 196A, CR. BUILDING, NEW DELHI VS. M/S SHRI SIDHATA ISPAT (P) LTD. , 60, SHIV PURI, DELHI -51 (PAN/GIR NO. : AAHCS5123L) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) AND ITA NO. 4577/DEL/2009 A.Y. 2006-07 M/S SHRI SIDHATA ISPAT (P) LTD. 60, SHIV PURI, DELHI -51 (PAN/GIR NO. : AAHCS5123L) VS. ADDL. C.I.T., RANGE - 8, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. BL GUPTA, ITP DEPARTMENT BY : SH. GAJANAND MEENA, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER PER PER PER BENCH BENCH BENCH BENCH THESE APPEALS BY THE REVENUE AND ASSESSEE EMANATE O UT OF THE RESPECTIVE ORDERS OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS) IN QUANTUM PENALTY PROCEEDINGS. SINCE THE APPEALS W ERE HEARD ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 2 TOGETHER, THESE APPEALS ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL ( (( (ITA NO. ITA NO. ITA NO. ITA NO. 3569) 3569) 3569) 3569) 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 1,23 ,35,523/- MADE BY THE ASSESSING OFFICER U/S. 68 OF THE IT ACT ON ACCOUNT OF UNSECURED LOAN RECEIVED IN CASH. 3. ON THIS ISSUE THE ASSESSING OFFICER FOUND THAT UNSECURED LOAN IN THE BALANCE SHEET HAVE INCREASED FROM ` 1,06,27,633/ - IN LAST YEAR TO ` 1,63,09,540 IN THE CURRENT YEAR. THE APPELLANT WA S ASKED TO FILE CONFIRMATIONS ALONGWITH COPY OF BANK STATEMENT AND I T RETURN OF THE PERSONS GIVING LOAN TO THE COMPANY. VIDE LETTER DATE D 1/12/08 THE APPELLANT EXPLAINED THAT OUT OF UNSECURED LOANS OF ` 1,06,27,633/- LAST YEAR (OPENING BALANCE AS ON 1/4/05) THE AMOUNT AGGRE GATING TO ` 53,18,200 HAS BEEN CONVERTED INTO SHARE CAPITAL WHI LE TOTAL AMOUNT OF ` 13,35,416/- HAS BEEN RETURNED TO RESPECTIVE PARTI ES. ACCORDINGLY, THE ASSESSING OFFICER OBSERVED THAT THE APPELLANT HAS ADDED FRESH UNSECURED LOANS OF ` 1,23,35,523/- TO THE NET OLD L OANS OF ` 39,74,017/-. THE APPELLANT FURNISHED COPY OF ACCOUNTS DULY CONFI RMED BY THE PARTY ADVANCING LOANS. ON PERUSAL OF THE SAME IT WAS N OTICED THAT IN ALL THE ACCOUNTS THERE WERE CASH DEPOSITS. THIS FACT WAS B ROUGHT TO THE NOTICE OF THE APPELLANT. IN RESPONSE TO WHICH FOLLOWING EX PLANATION WAS FILED:- THE COMPANY WAS UNDER ESTABLISHMENT TILL 17/08/05. THE MANUFACTURING WAS STARTED W.E.F. 24/8/05. DURING THE ESTABLISHMENT THE CHEQUES WERE ISSUED TO SUPPLIERS O F MACHINERIES, BUILDING MATERIAL, TRANSPORTATION AND OT HER EXPENSES. THE CASH RECEIVED FROM THE DIRECTORS O F THE ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 3 COMPANY AND OTHER PERSON AGAINST PURCHASE OF SHARES AND DEPOSITED IN THE BANK FOR CLEARING THE ISSUED CHEQU ES. THE SITUATION WAS BEYOND THE CONTROL OF THE ASSESSING C OMPANY TO RECEIVE THE CHEQUES FOR CLEARING THE ISSUE CHEQU ES. THE FACTS MAY BE VERIFY FROM THE COPY OF BANK STATEMENT F ILLED AS ANNEXURE G-1 TO G-100 FILED ALONGWITH LETTER DAT ED 14/10/08 DURING THE ASSESSMENT PROCEEDINGS. 3.1 THE ASSESSING OFFICER CONSIDERED APPELLANTS S UBMISSIONS AND NOTED THAT THE APPELLANT HAD ACCEPTED CASH DEPOSITS IN THE BANK ACCOUNTS. HOWEVER SOURCE OF CASH DEPOSITS WAS NOT EXPLAINED. HE ALSO OBSERVED THAT DOCUMENTS TO PROVE CAPACITY AND CREDITWORTHINESS OF THE PARTIES WERE NOT FILED. SINCE THE APPELLANT FAILED TO DISCHARGE THE ONUS CAST UPON IT, THE AMOUNT OF ` 1,23,35,523/ - WAS TREATED AS INCOME FROM UNDISCLOSED SOURCES AND ADDED U/S 68. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) VERY ELABORATELY CONSIDERED THE SUBMISSION S AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. I HAVE SEEN THE DOCUMENT S IN THE FORM AFFIDAVIT, CONFIRMATION OF ACCOUNT, RETURN ACKNOWLEDGEMENT, AUDITED BALANCE SHEET, BANK STATEME NT ETC. OF THE PARTY. THE AMOUNT OF LOAN STATED TO BE RECEIVED BY THE APPELLANT WAS DIFFERENT THAN WHAT WAS MENTION ED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS WORKED OUT THE AMOUNT FROM THE FIGURES IN THE BALANCE SHEET AND APPELLANTS EXPLANATION. IT APPEARS THAT THE ASS ESSING OFFICER DID NOT LOOK INTO THE COPY OF ACCOUNTS FIL ED BY THE ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 4 APPELLANT TO DETERMINE THE CORRECT AMOUNT OF FRESH LO AN TAKEN. IT ALSO APPEARS THAT THE ASSESSING OFFICE R HAS MIXED UP THE ISSUE OF SHARE CAPITAL AND UNSECURED LO AN AS HE OBSERVED THAT IN ALL THE ACCOUNTS THERE WAS CASH DEPOSITS, WHEREAS THERE WAS ONLY ONE PARTY FROM WHO M UNSECURED LOAN HAS BEEN SHOWN. SO FAR AS UNSECURED LOAN RECEIVED BY THE APPELLANT FROM SST IS CONCERNED, TH E NECESSARY EVIDENCE HAS BEEN FILED WHICH PROVES ALL THE THREE INGREDIENTS I.E. IDENTITY OF THE PARTY, CREDI TWORTHINESS / CAPACITY OF THE PARTY AS WELL AS GENUINENESS OF TRA NSACTION. IT MAY BE SEEN FROM THE COPY OF ACCOUNT THAT ALL THE PAYMENTS WERE RECEIVED BY ACCOUNT PAYEE CHEQUE AND THERE IS NO CASH RECEIVED. IN THE TRADING ACCOUNT THE CREDITS ARE BECAUSE OF PURCHASE OF MATERIAL BEGINNING FROM 19/9/05. AGAINST TOTAL PURCHASES OF ABOUT 3.86 CRO RES THE APPELLANT PAID AGGREGATE SUM OF ` 3.55 CRORES WHICH WAS ALL PAID BY CHEQUE. FROM THE AUDITED ACCOUNTS OF SST IT IS NOTED THAT THE PARTY HAD MADE A TURN OVER OF ` 12.8 CRORES AND NET PROFIT OF ` 6.96 LACS. THIS SHOWS THAT THE PARTY WAS IN THE REGULAR BUSINESS AND NOT SOME BOGUS OR PAPER ENTITY. IN FACT IT WAS EXPLAINED BY THE APPELLANTS A.R. TH AT ONE OF THE DIRECTORS OF THE APPELLANT COMPANY WAS A PARTNER IN THE FIRM SST. THE FIRM WAS ALSO IN THE BUSINESS OF TRAD ING OF STEEL PRODUCTS AND THE APPELLANT COMPANY HAD PURCHAS ED HR COIL FROM IT. SINCE THE APPELLANT HAS PROVED WIT H SUFFICIENT EVIDENCE, THE GENUINENESS OF TRANSACTION OF RECEIPT OF UNSECURED LOAN, ADDITION OF ` 1,23,35,52 3/- MADE ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 5 BY THE ASSESSING OFFICER IS NOT JUSTIFIED. HENCE THE SAME IS DELETED. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. UPON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCE S OF THE CASE, WE FIND THAT ASSESSEE HAS CLEARLY ESTABLISHED THAT IT HAS TAKEN THE LOAN BY CHEQUE AND NO CASH TRANSACTION WAS INVOLVED AS FOUN D BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). FURTHERMORE LD . COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO GIVEN A CLEAR FIND ING THAT THE LENDER HAS THE CAPACITY AND CREDITWORTHINESS TO GIVE THE L OAN. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND WE UPHOLD T HE SAME. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 1,48, 82,000/- MADE BY THE ASSESSING OFFICER U/S 68 OF THE IT ACT ON ACCOUNT OF UNEXPLAINED SHARE CAPITAL RECEIVED FROM VARIOUS PARTIES. 8. ON THIS ISSUE ASSESSING OFFICER MADE THE ADDITIO N BY OBSERVED AS UNDER:- AS DISCUSSED ABOVE THE ASSESSEE COMPANY HAS RAISED SHARE CA PITAL FROM ` 197.78 LACS IN THE LAST YEAR TO ` 399.34 LACS IN THE CURRENT YEAR. MEANING THEREBY AN ADDITION OF ` 202 LACS HAS B EEN MADE TO THE SHARE CAPITAL DURING THE YEAR. THE ASSESSEE WAS ASKED TO EXPLAIN THE ADDITION ALONGWITH DOCUMENTARY EVIDENCE TO PROVE THE CAPACITY AND CREDIT WORTHINESS OF THE INVESTORS. THE ASSESSEE VIDE LET TER DATED 1/12/08 STATED THAT AN AMOUNT OF ` 5318200 OUT OF T HE UNSECURED LOANS IN THE LAST YEAR HAS BEEN CONVERTED INTO SHARE C APITAL IN THE CURRENT YEAR. HOWEVER IN RESPECT OF THE REMAINING A DDITION TO SHARE ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 6 APPLICATION. THE ASSESSEE HAS STATED VIDE LETTER DATED 2 2/12/08 THAT INVESTORS HAVE MADE PAYMENT IN CASH TO PURCHASE SHARES IN THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO FURNISHED A LIST OF P ERSONS WHO ARE ALLEGED TO HAVE MADE CASH PAYMENT FOR THE PU RCHASE OF SHARES IN THE ASSESSEE COMPANY. THE ASSESSEE WAS ASKED TO EX PLAIN AS TO HOW AND WHY THE CASH PAYMENTS HAVE BEEN RECEIVED . THE ASSESSEES SUBMISSIONS ARE THE SAME AS IN RESPECT OF UNSECURE D LOANS. THE ASSESSEES SUBMISSIONS WERE CONSIDERED. THE SOURCE OF CA SH RECEIVED HAS NOT BEEN EXPLAINED AT ALL. THE ASSESSEE H AS MERELY FILED A LIST OF PERSONS MAKING CASH PAYMENTS. NO DOCUMENTAR Y EVIDENCE IN SUPPORT OF ITS SUBMISSIONS HAS BEEN BROUGHT ON RECORD. UND ER THESE CIRCUMSTANCES THE DOCUMENTS FURNISHED BY THE ASSESSEE ARE SELF SERVING DOCUMENTS WHICH CANNOT BE GIVEN ANY CREDENCE . NEEDLESS TO SAY THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT UNDER THE IT ACT. HENCE AN AMOUNT OF ` 148.82 LACS ADDED T O THE SHARE CAPITAL OF THE ASSESSEE COMPANY IS TREATED AS INCOME FROM UNDISCLO SED SOURCES AND HENCE ADDED U/S 68 OF THE IT ACT. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX ( APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF APP ELLANT. THE DETAILS OF ADDITIONAL/FRESH SHARE CAPITAL RECEIVED CAN BE SEEN FROM THE TABLE FURNISHED BY THE APPELLANT AND ANNEXED TO THI S ORDER. IT MAY BE NOTED THAT SOME OF THE AMOUNT HAS BEEN ADDED BY WAY OF CONVERSION OF LOAN FROM THE SHARE HOLDERS RECEIVED IN EARLIER Y EARS INTO SHARE CAPITAL IN THIS YEAR. SOME ADDITIONAL/ FRESH AMOUNT H AS ALSO BEEN RECEIVED FROM VARIOUS SHARE HOLDERS. AS CAN BE SEEN FROM DISCUSSION ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 7 MADE BY THE AO IN THE ASSESSMENT ORDER, HE HAD ASKED TO THE APPELLANT TO FURNISH DOCUMENTARY EVIDENCE TO PROVE I DENTITY & CREDITWORTHINESS OF THE INVESTORS. IN RESPONSE TO THAT TH E APPELLANT FURNISHED BEFORE THE AO VARIOUS DOCUMENTS LIKE AFFIDAV ITS, ACKNOWLEDGMENT OF RETURN, BALANCE SHEET AND IN SOME C ASES THE BANK STATEMENT AS WELL AS COPY OF CHEQUE FROM VARIOUS PARTIE S. THE COPY OF THESE DOCUMENTS HAS BEEN FILED IN APPEAL PROCEEDINGS A LSO. FROM THESE DOCUMENTS AND THE SUMMARY OF DETAILS IN THE TABLE SHOWN IN ANNEXURE-A IT IS SEEN THAT ALL THE SHARE HOLDERS EXISTIN G AND NEW ARE SEPARATELY ASSESSED TO TAX. THEIR PAN NUMBER AND WARDS ET C HAVE BEEN MENTIONED. THEY HAVE ALL CONFIRMED, BY WAY OF AFFIDAVIT, HAVING INVESTED IN THE APPELLANT COMPANY, THE RELEVANT AMOU NT BY WAY OF SHARE CAPITAL. IN LIEU OF THE PAYMENTS, SHARES HAVE BEE N ACTUALLY ALLOTTED TO THESE PERSONS. INSPITE OF THESE DOCUMENTS BEI NG FURNISHED BEFORE THE AO, HE NEITHER ASKED THE APPELLANT TO PRO DUCE THE SHARE HOLDERS FOR CROSS VERIFICATION OF AFFIDAVITS NOR MADE A NY INDEPENDENT ENQUIRES. THE AO MADE ADDITION MERELY BECAUSE A PART OF THE PAYMENT WAS RECEIVED IN CASH FROM SOME OF THE SHARE HOLDERS. HE STATED THAT THE SOURCE OF THE CASH HAS NOT BEEN EXPLAINED. HOWEVER THE AO DID NOT APPRECIATE THE FACTS THAT SOURCE OF CASH WAS TO BE EXPL AINED BY THE CONCERNED SHARE HOLDERS AND NOT THE APPELLANT. THE A PPELLANT COMPANY HAD EXPLAINED THE CIRCUMSTANCES IN WHICH CASH WAS RECEIVED FROM DIRECTORS AND RELATIVES TOWARDS SHARE CAPITAL FOR URGENT CLEARING OF CHEQUES DURING THE ESTABLISHMENT OF THE COMPANY AND CO NSTRUCTION OF FACTORY. FROM THE PART OF EXPLANATION REPRODUCED BY THE AO HIMSELF IN THE ASSESSMENT ORDER, IT IS CLEAR THAT THE MANUFACTURING HAD STARTED TOWARDS THE END OF THE AUGUST 05. THERE ARE A FEW IN STANCES OF CASH RECEIVED TOWARD SHARE CAPITAL AFTER THAT ALSO BUT MOST LY THE CASH WAS RECEIVED DURING THE CONSTRUCTION PERIOD. I AGREE WIT H THE APPELLANT'S CONTENTION THAT MERELY BECAUSE THE AMOUNT OF SHARES CA PITAL WAS RECEIVED IN CASH IT CANNOT BE SAID TO BE UNEXPLAINED. THE IDENTITY OF ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 8 THE PAYER IS ESTABLISHED BEYOND DOUBT. THE CASH HAS BEEN PAID MOSTLY BY DIRECTORS AND THEIR RELATIVE WHO BELONG TO THE PR OMOTER FAMILY. IT IS NOT UNUSUAL OR UNCOMMON TO RECEIVE CASH AND DEPOSIT I N THE BANK FOR URGENT NEED. THE POINT IS THAT RECEIPT OF CASH AS SHA RE APPLICATION MONEY IS NOT PROHIBITED BY LAW. IT IS ALSO SETTLED POSI TION THAT THE APPELLANT COMPANY NEED NOT TO EXPLAIN SOURCE OF SOURC E. IF THE AO HAD ANY DOUBTS OR SUSPICION AT ALL ABOUT THE CREDITWORTHI NESS OF THE SHARE HOLDERS HE COULD HAVE PASSED ON THE RELEVANT INFORMATI ON TO THE CONCERNED AO FOR FURTHER VERIFICATION. SO FAR AS APP ELLANT'S CASE IS CONCERNED, THE IDENTITY OF THE SHARE HOLDER HAS BEEN FULLY ESTABLISHED AND THEY HAVE CONFIRMED THE TRANSACTION OF MAKING P AYMENT TOWARDS SHARE CAPITAL. THEREFORE IN VIEW OF RATIO OF SUPREME COURT DECISION IN THE CASE OF LOVELY EXPORTS PVT LTD IT IS HELD THAT T HE ADDITION MADE IN THE CASE OF APPELLANT IN RESPECT OF SHARE CAPITAL IS NO T JUSTIFIED. IT ALSO APPEARS THAT THERE WAS SOME CALCULATION MISTAKE IN THE AMOUNT OF SHARE CAPITAL AND LOAN. WHEREAS THE LOAN ABOUT WAS LESS THAN WHAT WAS ACTUAL AMOUNT STATED BY THE APPELLANT, THE SHARE CAPI TAL ADDED BY THE AO IS MUCH HIGHER THAN WHAT IS ACTUAL AMOUNT RECEIVED BY THE APPELLANT. IN ANY CASE SINCE THE AO HAS MADE ADDITION OF RS 1,48,82,000 WHICH IS DELETED. THE AO IS HOWEVER DIREC TED TO PASS ON THE INFORMATION TO THE AOS HAVING JURISDICTION OVER T HE CONCERNED SHARE HOLDERS. 10. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPE AL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORDS. UPON CAREFUL CONSIDERATION, WE FIND THAT LD. COMMISSIONER O F INCOME TAX (APPEALS) HAS GIVEN A CATEGORICAL FINDING THAT ASSESSEE HAS PROVID ED ALL THE NECESSARY DETAILS RELATING TO SHARE CAPITAL. THE NAMES, ADDRE SSES, PAN NUMBERS, COPY OF IT RETURN AND ALL THE NECESSARY DOCUMENTS WERE FURN ISHED. IN SUCH SITUATION, IN OUR CONSIDERED OPINION THE RATIO OF HON BLE APEX COURT IN THE CASE OF LOVELY EXPORTS 216 CTR 195 CLEARLY APPLIES. I N THE SAID CASE IT WAS ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 9 HELD THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WI TH LAW, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASS ESSEE. 11.1 RESPECTFULLY FOLLOWING THE AFORESAID PRECEDEN T, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 12. THE LAST ISSUE RAISED IS THAT LD. COMMISSIONER OF I NCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 98,30, 000/- MADE BY THE ASSESSING OFFICER U/S 68 OF THE IT ACT. 13. ON THIS ISSUE THE ASSESSING OFFICER MADE THE ADDITION BY HOLDING AS UNDER:- ON PERUSAL OF BALANCE SHEET FURNISHED DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, IT IS NOTICED THAT THE ASSESSEE COMPA NY HAS RECEIVED SHARE APPLICATION MONEY OF RS 98.30 LACS FROM THE FOLLOWING PARTIES: 1. MRS MANJU GUPTA - ` 13.95 LACS 2. SH PRADEEP GUPTA - ` 21.10 LACS 3. SH RAJESH GUPTA - ` 35.40 LACS 4. MRS RENU GUPTA - ` 11.10 LACS 5. SH SURESH KR GUTPA - ` 16.75 LACS ` 98.30 LACS ` 98.30 LACS ` 98.30 LACS ` 98.30 LACS THE ASSESSEE WAS ASKED TO FILE THE CONFIRMATIONS ALONGWITH BANK STATEMENTS AND COPY OF INCOME TAX RETURN. THE ASSESSEE FI LED AFFIDAVITS FROM THE INVESTOR'S ALONGWITH COPY OF RETURN VIDE LET TER DATED 1/12/08, THE SAME WAS CONSIDERED. ON PERUSAL OF THE SAME, IT IS NO TICED THAT THE INVESTORS WERE FILING RETURNS DECLARING INCOMES BETWEE N RS 63,280 & ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 10 RS 1,35,000. THE INCOME DECLARED BY THE INVESTORS IN T HEIR RETURNS OF INCOME IS NOT SUFFICIENT TO MEET THEIR DAILY NEEDS. IT IS QUITE UN- BELIEVABLE THAT OUT OF THIS SMALL INCOME THEY WILL SAV E SUCH HUGE AMOUNT AND INVEST THE SAME IN THE COMPANY, WHICH IS RU NNING INTO HEAVY LOSSES. HENCE THE ASSESSEE'S SUBMISSIONS CANNOT BE RELIED UPON. THUS THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT AND THE AMOUNT OF RS 98.30 LACS INVESTED IN THE ASSESSEE'S COMPANY AS SHARE APPLICATION MONEY IS TREATED AS INCOME FROM UNDISCLOSED SOURCES AND HENCE ADDED U/S 68 OF IT ACT. 14. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TA X (APPEALS) CONSIDERED THE ISSUE AND SUBMISSIONS AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEH ALF OF APPELLANT. FROM THE DOCUMENTS FILED BY THE APPELLANT IN SUPPORT OF THE TRANSACTION IT IS SEEN THAT NOT ONLY THE INCOME STATEME NT BUT EVEN THE BALANCE SHEET OF THESE PERSONS HAVE BEEN FILED. EVEN I F THE INCOME OF THESE PERSONS WAS IN THE RANGE OF ` 1 TO 1.5 LACS, THEY HAD SUFFICIENT CAPITAL AND OTHER RESOURCES ON THE BASIS OF WHICH THE SO URCE OF SHARE APPLICATION MONEY AS WELL AS SHARE CAPITAL WAS ESTABLISHE D. THE THREE DIRECTORS OF THE APPELLANT COMPANY WERE PARTNERS IN O THER FAMILY FIRMS LIKE KAMDENU METAL INDUS & SHRI SIDHATA STEEL TUBES E TC. THEY HAVE TAKEN LOAN FROM THESE FIRMS, WHICH WAS REFLECTED IN TH EIR BALANCE SHEETS. IT MAY BE NOTED THAT THE AO HAS MERELY EXPRESSED HIS DOUBTS & SUSPICION ABOUT THE CREDITWORTHINESS OF THESE PARTIES ON THE BASIS OF INCOME DECLARED BY THEM IN THEIR RETURNS. BUT HE DID NOT BRING ON RECORD ANY COGENT MATERIAL TO SUPPORT HIS DOUBTS. THE ASSESSING OFFICER ALSO HAD DOUBTS ABOUT INVESTMENT IN THE AP PELLANT COMPANY BECAUSE IT WAS RUNNING INTO HEAVY LOSSES. HOWEVER HE AGAIN DID NOT APPRECIATE THAT THIS WAS A FAMILY CONCERN AND THE CU RRENT YEAR WAS THE FIRST YEAR OF ITS MANUFACTURING OPERATION WHERE IT WO RKED ONLY FOR PART OF THE YEAR. IN ANY CASE SUCH DOUBTS OR SUSPICIONS ALO NE CANNOT BE ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 11 THE BASIS OF ADDITION U/S 68. OTHERWISE ALSO THE IDENT ITY OF THE PARTIES HAS BEEN ESTABLISHED BEYOND DOUBT AND EVEN THEIR SOURCE S EXPLAINED. THE AMOUNT HAS BEEN RECEIVED TOWARDS SHARE APPLICATION MONEY. THEREFORE NO ADDITION CAN BE MADE IN THE HANDS OF TH E APPELLANT COMPANY. THE ASSESSING OFFICER MAY PASS ON THE INFORM ATION ABOUT QUANTUM OF INVESTMENT TO THE CONCERNED AOS HAVING JU RISDICTION OVER THE INVESTORS. HOWEVER, THE ADDITION OF ` 98,30,000/ - IS DELETED. 15. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFOR E US. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT RECORDS. WE FIND THAT THE IDENTITY OF THE SHARE APPL ICANTS HAS BEEN ESTABLISHED. THIS HAS NOT BEEN DISPUTED EVEN BY THE ASSE SSING OFFICER . THE CLAIM OF SHARE APPLICATION MONEY HAS BEEN REJECTED ON THE GROUND THAT THE SHARE APPLICANTS DID NOT HAVE ADEQUATE INCOME. IN SUCH SITUATION, IN OUR CONSIDERED OPINION THE RATIO OF HONBLE APEX COURT I N THE CASE OF LOVELY EXPORTS 216 CTR 195 CLEARLY APPLIES. IN THE SAID CASE IT WAS HELD THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO R EOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT I T CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE. 16.1 RESPECTFULLY FOLLOWING THE AFORESAID PRECEDEN T, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 17. IN THE RESULT, THE APPEAL BY THE REVENUE STANDS D ISMISSED. ITA NOS. 281 AND 4577 ITA NOS. 281 AND 4577 ITA NOS. 281 AND 4577 ITA NOS. 281 AND 4577 18. THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE EMA NATE OUT OF ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 5.11.2009 PERTAINS TO ASSESSMENT YEAR 2006-07. ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 12 19. THE ISSUE IS RELATED TO LEVY OF PENALTY U/S 271D O F THE IT ACT. 20. IN THIS CASE DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THE ASSESSING OFFICER HAS OBSERVED THAT THE APPELLANT HAS AC CEPTED PAYMENT IN CASH IN THE FORM OF SHARE APPLICATION MONEY / UNSECURE D LOAN TO THE TUNE OF ` 3,70,47,523/-. THE APPELLANT WAS ASKED TO EXPLAIN AS T O WHY NOT PENALTY PROCEEDINGS U/S 271D WILL NOT BE INVOLVED IN ITS CASE. THE APPELLANT FILED A REPLY BEFORE THE DEPARTMENT VIDE DATED 22/12/08 WHE RE IT HAS STATED:- THE ASSESSEE COMPANY HAD DEPOSITED THE CASH OUT OF THE AMOUNT RECEIVED FROM THE DIRECTORS AND OTHERS FOR PURCHASE OF COMPANY SHARE S. THEREAFTER PENALTY PROCEEDINGS WERE INITIATED BY ISSUE OF SHOW CAU SE NOTICE U/S 271D / 274 DATED 26.12.2008 BY THE ADDL. C.I.T., RANGE-8. OPPORTUNITY WAS ADDUCED, SUBMISSION WAS CONSIDERED AND THEREAFTER PENALT Y WAS IMPOSED U/S 271D FOR CONTRAVENTION OF SECTION 269SS FOR ` 3, 70,47,523/-. THE ADDL. C.I.T. OBSERVED THAT THIS IS A FIT CASE FOR INVOKING SEC TION 269SS AND ACCORDINGLY PENALTY WAS IMPOSED U/S 271D READ WITH SECT ION 269SS OF THE ACT. IMPOSING PENALTY OF ` 3,70,47,523/-, RAISING A D EMAND OF ` 3,70,47,523/-. 21. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) GAVE A FINDING THAT SHARE CAPITAL OF ` 19,00,000/- HAS BEEN RECEIVED BY WAY OF CHEQUE. IN THIS CONNECTION, LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED THE DECISION OF THE HONBLE HIGH COURT OF J HARKHAND IN THE CASE OF BHALOTIA ENGINEERING WORKS (P) LTD. VS. C.I.T. (2005) 275 ITR 399 FOR THE PROPOSITION THAT ACCEPTANCE OF SHARE APPLICATION MON EY IN CASH VIOLATES THE PROVISION OF SECTION 269SS ATTRACTING PENALTY U/S 271D . LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS UNDER:- HEREIN THE INSTANT CASE THE APPELLANT ACCEPTED UNSEC URED LOAN IN CASH. HE HAS ACCEPTED SHARE CAPITAL OF ` 1,48,82,0 00/- ENTIRELY IN CASH (BARRING ` 19,00,000/- WHICH WAS TAKEN BY CHE QUE). AGAIN HE HAS RECEIVED SHARE APPLICATION MONEY OF ` 98,30,00 0/- IN CASH. THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT AN Y SHARE ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 13 HAS EVER BEEN ALLOTTED DURING THE PERIOD UNDER CONSI DERATION. THE CASE OF THE APPELLANT TO THE EXTENT OF ` 3,51,47,523/- WOULD SQUARELY FALL UNDER THE SWEEP O F SEC. 269SS AND THE APPELLANT HAS MADE ITSELF LIABLE FOR PE NAL PROVISION U/S 271D. AFTER EXAMINING ALL THE MATERIA L FACTS ON RECORD, I AM OF THE CONSIDERED VIEW THAT THE INVOKIN G OF SECTION 271D WAS CORRECTLY DONE IN THE CASE OF THE APPELLANT AND TO THAT EXTENT THE GROUNDS OF THE APPELLANT FAIL. HOWEVER, THE ADDL. C.I.T. HAS DISCUSSED THE PENALTY AMOUNT ON CASH DEPOSIT OF ` 3,70,47,523/- AND THEREAFTER HE HAS IMPOSED PENALTY O N THE IDENTICAL AMOUNT. ACCORDING TO THE RECORD THE CASH D EPOSIT WAS ` 3,51,47,523/- AND PENALTY SHOULD BE RESTRICTED TO TH AT AMOUNT ONLY. 22. AGAINST THE ABOVE ORDER BOTH THE ASSESSEE AND REVE NUE ARE IN CROSS APPEAL BEFORE US. WE HAVE HEARD THE RIVAL CONTENT IONS AND PERUSED THE RECORDS 23. AS REGARDS THE REVENUES APPEAL IS CONCERNED, WE F IND THAT THE SAME IS LIABLE TO BE DISMISSED IN AS MUCH AS LD. COMMISSIONER O F INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT SHARE CAPITAL AMOUN TING TO ` 19,00,000/- WAS RECEIVED BY CHEQUE. HENCE, THERE IS NO QUESTION OF LEVY OF PENALTY IN THIS REGARD U/S 271D. HENCE, THE APPEAL FILED BY TH E REVENUE STANDS DISMISSED. 24. AS REGARDS THE ASSESSEES APPEAL, WE FIND THAT SO FA R AS PENALTY PERTAINING TO UNSECURED LOAN IS CONCERNED, WHICH A MOUNTED TO ` 1,23,35,523/- IN THE QUANTUM APPEAL ABOVE, WE HAVE ALREADY CONFIRMED THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) WHEREIN THE SAID AMOUNT HAS BEEN ACCEPTED THROUGH CHEQUE AND NOT CASH. HENCE, THE PENALTY TO THAT EXTENT IS DELETED, AS LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE PENALTY IN THAT REGARD. ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 14 25. AS REGARDS THE REST OF THE SHARE CAPITAL MONEY ARE CONCERNED, WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RELI ED UPON THE DECISION OF THE HONBLE HIGH COURT OF JHARKHAND IN THE CASE O F BHALOTIA ENGINEERING WORKS (P) LTD. VS. C.I.T. (SUPRA). 26. IN THIS CONNECTION, LD. COUNSEL OF THE ASSESSEE HAS PL ACED RELIANCE UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF C.I.T. VS. RUGMINI RAM RAGHAV SPINNERS PVT. LTD. 304 ITR 417 W HEREIN IT HAS BEEN HELD THAT THE SHARE APPLICATION MONEY WAS NOT DEPOSIT OR LOAN UNDER THE PROVISIONS OF SECTION 269T AND THEREFORE, THE PENALTY U/S 271E WAS LIABLE TO BE DELETED. ON THE STRENGTH OF THIS RULING, LD. CO UNSEL OF THE ASSESSEE REFERRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C.I.T. VS. VEGETABLE PRODUCTS 88 ITR 192 FOR THE PROPOSITION TH AT WHEN TWO VIEWS ARE POSSIBLE, THE VIEW WHICH IS IN FAVOUR OF THE ASSESSEE SHOUL D BE ADOPTED. 27. RESPECTFULLY, FOLLOWING THE AFORESAID HONBLE APE X COURT DECISION, IN OUR CONSIDERED OPINION, ON THE STRENGTH OF HONBLE MA DRAS HIGH COURT DECISION STATED ABOVE, THE ASSESSEE IS LIABLE TO GET RELI EF FROM THE LEVY OF PENALTY IN THIS REGARD. HENCE, RESPECTFULLY FOLLOWI NG THE HONBLE MADRAS HIGH COURT DECISION CITED ABOVE, WE HOLD THAT THE PE NALTY ON CASH RECEIPTS OF SHARE APPLICATION MONEY IS LIABLE TO BE DELETED. HEN CE, WE SET ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DELETE THE LEVY OF PENALTY IN THIS CASE. HENCE, ASSESSEES APPEAL IS ALLOWED. ITA NOS. 3569 & 4577/DEL/2009 & 281/DEL/2010 15 28. IN THE RESULT, THE REVENUES APPEALS BEING ITA NO 3569 AND 281 STAND DISMISSED AND ASSESSEES APPEAL BEING ITA NO. 4577 STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03/2011. SD/- SD/- [ [[ [A.D. JAIN] A.D. JAIN] A.D. JAIN] A.D. JAIN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 31/03/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES