The appeal by the revenue under Section 260-A of the Income Tax Act, 1961 arises from a judgment of the Income Tax Appellate Tribunal dated 14 December 2012. The Assessment Year to which the appeal relates is Assessment Year 2007-08.
Though several questions of law have been raised by the revenue, the first question, which is in the following terms, is broad enough to cover the ambit of the controversy and reads as follows:-
"Whether the Hon'ble ITAT has erred in law as well as in the facts and circumstances of the case in giving relief on account of addition being unexplained credits on wrong appreciation of law and without any basis substituting its own satisfaction in place of AO's satisfaction despite the fact that the assessee company has not discharged the onus as provided in Section 68 of the I.T. Act, 1961."
The Assessing Officer, in the course of an order of assessment under Section 153-A, made an addition of an amount of Rs.8.50 crores which was received by the assessee as share application money from a Company by the name of M/s. K.M.C. Portfolio Pvt. Ltd. In making the addition under Section 68, the Assessing Officer proceeded to hold that this amount was only a movement of the money belonging to the assessee through various channels in a colourable manner and the amount was liable to be added to the income of the assessee as an unexplained investment. A search had been carried out at the premises of the assessee on 26 March 2010. A survey under Section 133-A was carried out and the case of the department was that a Chartered Accountant by the name of Aseem Kumar Gupta was involved in providing accommodation entries to various beneficiaries under the guise of share application money. A summons was issued to the Chartered Accountant under Section 131(1A) and his statement was recorded on 22 April 2010. During the course of this exercise, the Chartered Accountant was confronted with the notings contained in a black diary which had been impounded during the course of the survey.
The CIT (A) deleted the addition which was made by the Assessing Officer. Primarily the CIT (A) noted that the contents of the black diary, (Annexure A-20), consisted of entries which related to Assessment Year 2005-06 and not to the Assessment Year 2007-08 which was under consideration. Moreover, it was observed that during the course of the assessment proceedings, the Assessing Officer had issued notice under Section 133(6) inter alia to K.M.C. Portfolio Pvt. Ltd. as well as to another company in response whereto both the companies had confirmed the investments made by them and filed share receipt confirmation, bank statements of the relevant period, acknowledgments of the income tax returns and the balance sheet. The CIT (A) held that the Assessing Officer had erred in relying upon the contents of the black diary which did not pertain to the Assessment Year 2007-08 but only to Assessment Year 2005-06. As regards the statement of the Chartered Accountant, the CIT(A) referred to a response dated 27 April 2012 in pursuance of the summons under Section 131 in which he denied having entered into any such transaction. The statement of the Chartered Accountant was considered to be contradictory to the statement earlier made on 22 April 2010.
The Tribunal, while sustaining the view of the CIT(A), has observed that the assessee had filed documentary evidence in order to prove the genuineness of the share application money consisting of ; (i) share application forms; (ii) copies of bank accounts of the share applicants; (iii) copies of the income tax returns of the share allottees; (iv) balance sheets; and (v) copies of share allotment certificates and of the Board's resolution of the share applicants. The identity of the applicants was held to be established by the production of copies of the PAN cards and registration certificate with the Registrar of Companies. The financial capacity was held to be proved by the filing of copies of the bank accounts from where the share application money was transferred through banking channels to the assessee. Finally, it was held that the genuineness of the transaction had been established by filing of the documents and in view of the confirmation by both the companies of the respective transactions. The Tribunal has also noted that the black diary, Annexure A-20, in any event, was not before the Assessing Officer at the stage. However, the black diary contained entries between February and March 2005 which were relevant to Assessment Year 2005-06 and not for the Assessment Year 2007-08 which was under consideration. Both the companies had, in response to notice under Section 133(6), confirmed the genuineness of the transactions. On this basis, the Tribunal held that the assessee had discharged the onus which lay on it to prove the identity of the applicant companies, their credit worthiness and genuineness of the transactions.
Two submissions have been urged on behalf of the revenue in this appeal. The first submission relates to the statement of the Chartered Accountant, Aseem Kumar Gupta, who according to the revenue had, during the course of the statement in the survey proceedings and on 22 April 2010, confirmed his involvement in the accommodation entries. It was urged that the retraction by the Chartered Accountant in a letter to the Assessing Officer was an afterthought. Both the CIT(A) and the Tribunal relied on the retraction and it has been urged that Aseem Kumar Gupta had failed to present himself for cross-examination. Secondly, it has been urged that the genuineness of the transaction had not been established and the onus lay on the assessee to establish the identity of the applicant companies, credit worthiness as well as genuineness.
Now, in so far as the statement of Aseem Kumar Gupta is concerned, the Tribunal in the course of the discussion observed that in his initial statement, he had not named the assessee. A further statement of Aseem Kumar Gupta was obtained by the Assessing Officer in pursuance of the remand directions of the CIT(A) at the appellate stage. Hence, this statement was not before the Assessing Officer at the initial stage in spite of which an addition had been made by the Assessing Officer. When the summons were issued to Aseem Kumar Gupta, he had, in reply, denied any transaction between the assessee and the share applicant companies. Having regard to the contradictory statements of the Chartered Accountant, the Tribunal held that his statement could not have any evidentiary value particularly when the black diary upon which reliance was placed by the revenue contained entries which were not relevant to the Assessment Year 2007-08, to which the appeal relates.
That apart, as regards the genuineness of the transaction, the view which has been taken by the Tribunal is at least a possible view to take on the basis of the material on the record. The assessee undoubtedly had to discharge the onus of establishing the identity and credit worthiness of the applicant companies and of the genuineness of the transaction. In this regard, both the CIT(A) and the Tribunal had noted that the assessee had established all the three aspects by producing, during the course of the assessment, necessary documentary material such as the share application forms, copies of bank accounts, income tax returns and balance sheets. The view which was taken by the CIT(A) and which was sustained by the Tribunal would thus have to be regarded as being, at least, a possible view to take in the circumstances of the case.
Reliance has been placed on behalf of the assessee on the judgment of the Supreme Court in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd.1. While dismissing a Special Leave Petition against the judgment of the Delhi High Court in an Income Tax Appeal, the Supreme Court observed that if the share application money had been received by the assessee from bogus share holders, whose names were furnished to the Assessing Officer, the department was free to reopen their assessment proceedings in accordance with law. This decision has been considered in a subsequent judgment of the Delhi High Court in Commissioner of Income Tax Vs. Nova Promoters and Finlease (P) Ltd.2. Applying the dictum in Lovely Exports (supra), the Division Bench of the Delhi High Court observed as follows:-
"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 is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under section 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary."
In the present case the assessee had discharged the onus of establishing the identity, credit worthiness and genuineness of the transactions which had formed the basis of the addition that was made under Section 68. Ultimately, whether the documentary materials which had been produced by the assessee were sufficient to displace the onus is a matter to be decided upon the facts of each case. Both the CIT(A) and the Tribunal having held that the assessee had duly discharged the onus, in our view no substantial question of law would arise.
The appeal shall, accordingly, stand dismissed. However, there shall be no order as to costs.
Order Date :- 11.2.2014 GS (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.) Chief Justice's Court Delay Condonation Application No.1335 of 2014 Inre:
Case :- INCOME TAX APPEAL DEFECTIVE No. - 1 of 2014 Appellant :- Commissioner Of Income Tax (Central) Respondent :- M/S Vacmet Packaging (India) Pvt. Ltd.
Counsel for Appellant :- Shambhu Chopra, Sr. S.C.
Hon'ble Dr. Dhananjaya Yeshwant Chandrachud, Chief Justice Hon'ble Dilip Gupta, J.
This is an application seeking condonation of delay in filing the appeal.
Since sufficient cause has been shown in the affidavit filed in support of the application, the delay in filing the appeal is condoned.
The application is, accordingly, allowed.
Order Date :- 11.2.2014 GS (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.)