IN HIGH COURT OF DELHI AT NEW DELHI Decided on: April 16,2015 ITA 467/2014 COMMISSIONER OF INCOME TAX (CENTRAL)-III Appellant Through: Ms.Suruchi Aggarwal, Adv. versus ANSHIKA CONSULTANTS PVT. LTD. Respondent ITA 470/2014 FLEX INTERNATIONAL PVT. LTD. Respondent ITA 484/2014 ANANT OVERSEAS PVT. LTD. .Respondent ITA 518/2014 APOORVA EXTRUSION PVT. LTD. . Respondent ITA 523/2014 ANSHIKA INVESTMENT PVT. LTD. Respondent ITA 524/2014 A.R. LEASING PVT. LTD. Respondent Through: Mr.M.P.Rastogi and Mr. K.N.Ahuja, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K.GAUBA MR. JUSTICE S. RAVINDRA BHAT % 1. Revenue urges that whole order dated 31.12.2013 of Income Tax Appellate Tribunal (ITAT) rejecting its appeal is erroneous. ITA 467/2014 & Conn. Page 1 of 7 Assessing Officer (AO) had added back sum of 12,78,60,000/- under Section 68 of Income Tax Act, 1961 (hereinafter referred to as Act ). This was set aside concurrently by CIT (Appeals) and ITAT. 2. During relevant Assessment Year (AY) 2006-07, assessee had issued shares at premium ranging from 24000-39000 to applicants which were companies. In course of assessment proceedings, AO had sought, details in particular of such share applicants. assessee had provided various details of such share applicants i.e. (Star Pleat Vincon Pvt. Ltd., Shree Mahavir Management Services Pvt. Ltd,. Bhuwania Brothers Pvt. Ltd. and Manush Marketing Pvt. Ltd.), such as bank account statements, Memorandum and Articles of Association, income tax return, balance sheet, PAN details etc. AO considered submissions and materials on record. He also took note of fact that notices sent under Section 133(6) to share applicants were returned unserved. After his analysis of material placed on record, AO added back sum of 12,78,60,000/-. Before CIT (Appeals) to whom assessee preferred appeal, it was contended that all necessary documents to establish identity of share applicants, their creditworthiness and genuineness of transaction had been placed on record. In these circumstances, AO could not have on basis of suspicion fuelled by higher premium claimed by assessee and lack of response of notices issued, added back amounts to assessee s income. rival contentions were noticed in detail by CIT (Appeals), who in his elaborate discussion of materials on record, held as follows: 5. I have carefully considered facts of case, submissions made by counsel of appellant and remand report ITA 467/2014 & Conn. Page 2 of 7 submitted by Assessing Officer. Assessing Officer has held that appellant has introduced share capital of Rs.12,78,60,000/- and noted that there are common peculiarities in facts and circumstances regarding issue of share capital and treated same as sham transaction. share capital amounting to Rs.12,78,60,000/- was assessed as income of appellant u/s 68 'of Act. 3. After noticing relevant case law on Section 68 of Act, CIT(Appeals) concluded as follows: 9. In light of aforesaid judicial precedents, it is held that appellant had received share capital from 3 companies who are regularly assessed to tax, companies have submitted copies of share application forms, minutes of Board's resolution authorizing companies to make application for shares, copy of certificate of incorporation, copy of PAN etc. AO had relied on inquiry of Inspector that concerned companies were not found existing on given addresses. On other hand, crucial fact is missed that these companies are regularly doing business and file their tax returns on regular basis. taxes are paid by them on income so earned by them. Principal Officers from companies attended before ADIT, Investigation in Kolkata and submitted that investment in appellant company has been made from realisation of sale of earlier investments held by companies. In light of observations of Hon'ble Supreme Court in case of CIT Vs. Lovely Exports (P) Ltd. reported in 216 CTR 295, onus on appellant has been duly discharged. Further, search had been conducted at premises of appellant u/s 132 of Act and no incriminating documents or other assets were found or seized to indicate that appellant had in fact routed its own money through these companies. peculiar facts of case may ITA 467/2014 & Conn. Page 3 of 7 have caused suspicion in mind of A.O. but despite having conducted search on premises of appellant, no evidence or other material could be gathered to hold that appellant had routed its own money. In view of totality of facts and circumstances and judicial precedents as discussed, addition of Rs.12,78,60,000/- made by A.O. is deleted. 4. ITAT by impugned order affirmed findings of CIT (Appeals). Importantly, ITAT also took note of investigation report dated 17.12.2007 made available to revenue authorities by investigation wing of Kolkata Income Tax Department. report specifically looked into allegations to determine whether share applicants/investors companies were genuine. relevant part of said investigation report dated 17.12.2007 is extracted below: From documents submitted by above mentioned Kolkata based parties. It transpires that M/s. Bhuwania Brothers Pvt. Ltd. and M/s. Shri Mahabir Management & Services Pvt. Ltd. created source of investment out of sale of stock-in-trade as on 31.03,2005, sale of investment, receipts from sundry debtors etc. whereas M/s. Star Pleat Vincom Pvt. Ltd. and M/s. Manush Marketing Pvt. Ltd. did so with amount received from loan debtors outstanding as on 31.3.2005. companies produced share certificates, few photocopies of which are enclosed. Directors of Companies stated, in their depositions that companies still hold shares. Photocopies of statements are enclosed. 5. ITAT also noted that balance sheets of investors showed that share applicants were possessed of considerable means and had been existing for long period of time prior to transaction in question. ITAT reasoned as follows: ITA 467/2014 & Conn. Page 4 of 7 10. On analysis of these records, we are of view that department was able to lay its hands on addresses of share applicants and where share applicants are assessed. These companies are existing from long period. They have confirmed that they have contributed to share capital of assessee company. next aspect is their creditworthiness. assessee has filed balance sheet of all investors. It emerges out from record that in case of Manush Marketing Pvt Ltd., there were sundry debtors of 1187,50,000 as on 31.3.2005. According to assessee, these were realized by said investors and invested sum of 129,75,000 in A.R. Leasing Pvt. Ltd. Similarly, other investments are made in other companies. In case of Shri Mahabir Management Services, it is demonstrated that this concern had investment of 1186,00,080 as on 31.3.2005.It had loan and advances of 1179,50,000 which were realized during year and 2 crores was invested in A.R. Leasing Pvt Ltd. In case of Star Pleat Vincom, sundry debtors as on 31.3.2005 are of Rs. 1120,00,000. These were realized and sum of . 3.99 crores was invested in A.R. Leasing. Thus, companies have sufficient balance in their balance sheets in shape of investment as well loan and advances. These companies are existing more than 10 years. Learned DIT has also verified this aspect and did not report any particular irregularity. next issue is about genuineness of transaction. assessee has produced details of bank account. All share application money have been issued through baking channel. ADIT, Calcutta has pointed out that these companies were still holding share i.e. on December 2007. During course of hearing, we enquired about present status of these companies as well as position of investment. learned counsel for assessee has placed on record details of shareholding pattern as on 31.3.2013, it reveals that these ITA 467/2014 & Conn. Page 5 of 7 companies are still keeping shares of respondent. Shri Mahabir Management is keeping 10,000 share and Bhuvania Brothers is holding 12,590 share in M/s Anshika Consultants Pvt Ltd. Similarly, in Anant Overseas, Bhuvania Brothers is holding 12,000 shares, Star Pleat Vincom is holding 14,700 shares. In Flex International, Shri Mahabir Management Services is holding 37210 shares. Though these details were not before Assessing Officer and could not be because this in shareholding pattern as on 31.3.20 13, these were referred by assessee, in response to query and only for purpose that these share applicant companies are not only proper entities. They are in existence. 6. onus cast upon assessee under Section 68 of Act to satisfy department about true identity of investor, its creditworthiness and genuineness of transaction was explained by Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295,. Whilst, AO acted legitimately in enquiring into matter, inferences drawn by him were not justified at all in circumstances of case. Whether assessee company charged higher premium or not, should not have been subject matter of enquiry in first instance. Instead, issue was whether amount invested by share applicants were from legitimate sources. objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, emphasis on genuineness of all three aspects, identity, creditworthiness and transaction. What is disquieting in present case is when assessment was completed on 31.12.2007, investigation report which was specifically called from concerned department in Kolkata was available but not discussed by AO. Had he cared to do so, identity of investors, genuineness of transaction and ITA 467/2014 & Conn. Page 6 of 7 creditworthiness of share applicants would have been apparent. Even otherwise, share applicants particulars were available with AO in form of balance sheets income tax returns, PAN details etc. While arriving at conclusion that he did, AO did not consider it worthwhile to make any further enquiry but based his order on high nature of premium and certain features which appeared to be suspect, to determine that amount had been routed from assessee s account to share applicants account. As held concurrently by CIT (Appeals) and ITAT, these conclusions were clearly baseless and false. This Court is constrained to observe that AO utterly failed to comply with his duty considers all materials on record, ignoring specifically most crucial documents. We place these observations on record and direct copy of judgment to be furnished to concerned income tax authorities for appropriate action towards reflecting these observations suitably in service record of concerned AO to avoid such instances in future. 7. For above reasons, this Court is of opinion that concurrent findings of fact, as to true identity of share applicants, their creditworthiness and genuineness of transaction, are based on sound reasoning and do not call for interference. No substantial question of law arises. appeals are dismissed. S. RAVINDRA BHAT, J R.K.GAUBA, J APRIL 16, 2015 mr ITA 467/2014 & Conn. Page 7 of 7 Commissioner of Income-tax (Central)-III v. Anshika Consultants Pvt. Ltd