Cit v. Odeon Builders Pvt Ltd

SANJEEV SACHDEVA, J. 29*'' NOVEMBER,2013 SANJIVKHANNA,J. SV ITA248/2012 ^ fl -IN THE HIGH COURT OF DELHI AT NEW DELHI o/" Judgmentreservedon : 22-' August, 2013 Judgmentpronouncedon: 29 November,2013 + ITA Nos. 246/2012 COMMISSIONER OF INCOME TAX • Through Mr. Sanjeev Sabharwal, Advocate Versus ODEON BUILDERSPVT. LTD. ....^Respondent ^ Through Mr.Ved Jam, Advocate + ITA Nos. .247/2012 COMMISSIONEROF INCOMETAX Petitioner Through Mr. Sanjeev Sabharwal, Advocate Versus ODEON BUILDERSPVT. LTD. ... Respondent Through Mr.Ved Jain, Advocate + BTA Nos. 248/212 COMMISSIONEROF INCOMETAX Petitioner Through Mr. SanjeevSabharwal, Advocate Versus ODEON BUILDERSPVT. LTD. Respondent Through Mr.Ved Jam, Advocate ITA246 /2012, ITA 247 /2012&l.T.A248/2012 CO RAM: HON'BLE IIVIIR. JU.ST8CESAMJSV KHANNA HON'BLE JUSTICESAMJEEVSACHDEVA SANJEEV SACHDEVA. J-

¶1The revenue has filed these appeals against the common order dated 30.9.2011 passed by the Income Tax AppellateTribunal (for short, 'ITAT') whereby the ITAT dismissed the appeals filed by the revenue againstthe orders of the Commissionerof IncomeTax (Appeals) (for short, CIT (Appeals))for the relevant assessment years as mentioned below. The ITAT confirmedthe orders passed by the CIT (Appeals)and upheld the deletion made in the hands of the Assesseefor the three assessmentyears. On account of the order passed by the ITAT with regard to the deletion, the cross objections by the Assessee to Section148(3)were dismissedas not pressed. ITA246/2012, ITA 24772012&I.T.A248/2012 ^

¶2Though the Assessmentyears and the Assessment Orders for the three appeals are different, the orders of the CIT (Appeals) for all the three Assessment years are identical and the ITAT vide a common Judgment has disposed of the Appeals. Three separate appeals have been preferredby the Revenue againstthe common impugnedJudgmentof the ITAT. Since the legal issue arising in all the three appeals are identical,we are disposingof all the three appeals by a common orders but we will be referring to the factual matrix of each appeal separately.

¶3The following question of law was framed vide order dated 10.12.2012 in all the three appeals for consideration by this Court: "Did the Tribunalfall into error in holdingthat the addition made under Section 68 was not justifiedin the facts and circumstancesof the cases?" ITA 246 /2012, ITA 247 /2012&I.T.A248/2012

¶4The present appeal is for assessment year 2003-04. return of income declaring an income of Rs.93,79,390/- was filed on 15.10.2003. The same was assessed under Section 143(3) of the Act on

28.02.2006.

¶5Information was received from the Investigation Wing of Income Tax Department regarding entry operators and their beneficiaries. As per the information received Assessee had received accommodation entry of Rs.60,00,000/-pertaining to the assessment year 2003-04 as mentioned below: Beneficiary bank name and branch Value of entry Date of entry Name of entry operator Bank and branch of entry operator Accou nt no. of . entry opera tor Union Bank of India, Khari Baoli, Delhi 4,00,000/-

06.05.03 BIC Consultants P. Ltd. State Bank Of Patiala, Daryaganj Union Bank 4,00,000/-

06.05.03 BIC State Bank ITA246/2012, ITA 247/2012&I.T.A248/2012 of India, Khari Baoli, Delhi Consultants P. Ltd Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 3,00,000/-

06.05.03 IMikhil Builders & Promoters P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 3,00,000/-

06.05.03 Nikhil Builders & Promoters P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 3,00,000/-

06.05.03 Transpan Finance Services State. Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 3,00,000/-

06.05.03 Transpan Finance Services State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

07.05.03 Royal credits P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

07.05.03 Royal credits P. Ltd State Bank Of Patiala, Daryaganj VJ C 1 1 Union Bank of India, Khari Baoli, Delhi 5,00,000/-

07.05.03 Sparrow Mkt. P. Ltd. State Bank Of Patiala, Daryaganj ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Union Bank of India, Khari Baoli, Delhi 5,00,000/-

07.05.03 Sparrow Mkt. P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

08.05.03 Shree Gupteshwa r Mkt. P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

08.05.03 Shree Gupteshwa r Mkt. P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

09.05.03 SRS Vijay Sales P. Ltd. State Bank Of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

09.05.03 SRS Vijay Sales P. Ltd State Bank Of Patiaia, Daryaganj Total 60,00,000/-

¶6On the basis of the information,notice under Section 148 of the Act was issued on 21.11.2006 for the assessment year in question. Notice was served on the Assessee oh 23.11.2006. The Assessee vide letter dated 19.12.2006 stated that the original return ITA246/2012, ITA 247/2012&LT.A248/2012 of income may be treated as return filed in compliance to notice under Section 148 of the Act.

¶7Notices under Section 142(1) and 133(6) were issued on 21.6.2007 to the Assessee to show cause as to why accommodation entries of Rs.60 lacs and commissionat 2% be not added to the income of the Assessee.

¶8The assessing officer noticed that in the return of income for the year 2003-04there was increase in the share capital of Rs.41,90,000/-and there was share premium of Rs.35,15,000/-.The Assesseewas asked to give details of the increase in share capital during the relevant year.

¶9The Assessee vide its letter dated 10.12.2007 provided details of increasein share capitalfor Rs.30 lacs and stated that the share capital introducedwas Rs.30 lacs and not Rs.60 lacs as mentioned in the notice under Section133(6)of the Act. The Assessee ITA246 /2012, ITA 247 /2012&I.T.A248/2012 submitted a copy of the bank statement to show the deposit of cheques received from the said parties. The Assessee also filed the share application forms, copy of acknowledgementof IT return, copy of bank statement and copy of return to ROC in respect of the persons who had invested in share capital. The Assessee filed the party-wise details of the companies out of which two companies were operated by Mahesh Garg, the Entry Provider. The party-wisedetailsof the said companies are as under; S.No. Name of Person Amount

¶1BIC Consultant P. Ltd. 4,00,000/-

¶2Nikhil Builders and Promoters P. Ltd. 3,00,000/-

¶3Royal Credits P. Ltd. 5,00,000/-

¶4Shree Gupteshwar Mkt. P. Ltd. 5,00,000/-

¶5Sparrow Marketing P. Ltd. 5,00,000/-

¶6SRS Vijay Sales P. Ltd. 5,00,000/- ITA246/2012,ITA 247/2012&I.T.A248/2012

¶10{

¶7Transpan Financial P. Ltd. 3,00,000/- TOTAL 30,00,000/- The details of the investment by the two companies operated by Mr. Mahesh Garg. entry operator are as under: S.No. Name of Person Amount

¶1M/s Chintpurni Credits & Leasing P Ltd 5,00,000/-

¶2M/s Royal Finvest P Ltd 5,00,000/- TOTAL 10,00,000/- The assessing officer invoked provisions of Section 131 of the Act and the bank statements of M/s Transpan Financial Services, M/s Shree Gupteshwar Marketing P. Ltd., were sought from the banks. The Assessee was also directed to produce the parties who had introduced the share capital during relevant ; \ previous year. ITA246/2012, ITA 247/2012& I.T.A248/2012

¶12The assessing officer vide his order dated 19.12.2007 held that mere furnishing of the PAN Number or assessment particulars, copy of share application was not enough as the said documents did not facilitate in cross-verification and could be treated at best as only peripheraldocuments and the mere acknowledgement of return was not sufficient to prove the identity of a person or his correctand true address. The assessing officer held that none of the parties who had invested in the share capital were produced in cross-verification of documents submitted by the Assessee. The assessing officer further held that the Assessee was a private limited company and there was close and proximate relationship between promoters/directorsand shareholders and that the closely held companiesaccept subscriptionsof share capital or depositsonly from the friends or relativesof the promoters/directorsand such companieswere not allowed to accept the subscription or deposit from ITA246/2012, ITA 247/2012&I.T.A248/2012 10 of43 general public. The assessing officerheld that in such circumstances there should have been no difficulty on the part of the Assessee to produce a representative from the companies who had invested in the share capital.

¶13The assessing officer also held that mere payment by an account payee cheque was not sacrosanct nor could it make a non-genuine transaction as genuine. The assessing officer on perusal of the bank statement obtained in case of three parties mentioned above found that there was a uniform pattern of transaction i.e. issuance of cheque was immediately preceded by deposit of an equivalentamount in the account either in the form of cash or through cheque/ transfer entry and at the end of the day the credit balance in account mostly remained below Rs.10,000/-. The assessing officer held that unless the identity and creditworthinessof the entity and the transaction represented by the entries in the bank ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 were co-related with business activity and books of account of the said entity, the pattern and frequency of deposits and withdrawal at short intervals lent credence to the fact that the amount had been used only for the purpose of providing accommodation entries.

¶14The assessing officer, thus, made an addition of Rs.40 lacs to the income of the Assessee under Section of the Act and as a sequitur thereto made an addition of Rs.80,000/- as commission at 2% on Rs.40,00,000/- paid to the entry operators.

¶15On an appeal by the Assessee, the .CIT(Appeals) vide order dated 9.6.2009 deleted the addition made by the assessing officer of Rs.40,00,000/- under Section 68 of the Act and the consequent addition of Rs.80,000/- @ 2% commission paid to the entry providers. ITA246/2012, ITA 247 /2012&I.T.A248/2012 I'ag®12 of43

¶16The present appeal is for the assessment year 2004-

¶05The Assessee filed return of income on

28.10.2004 declaring an income of Rs.72,11,780/-. Information was received from the Investigation Wing of Income Tax Department regarding entry operators and beneficiaries. The return was processed under Section 143(1), however, as the case was selected for scrutiny, notice dated

25.5.2006 ^ under Section 143(2)7142(1) was served and subsequently during scrutiny proceedings it transpired that Assessee had received share application money from 65 parties during the relevant I previous year out of which Rs.9,58,53,500/- was lying in share application money account of 30 parties at the end of the previous year, i.e., on 31.3.2004. Balance 35 parties had been allotted share and the share application amount received from' them was transferred to share capital at Rs.9,30,500/- and share ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Page 13 of43 premium account at Rs.1,76,79,500/- as mentioned below: s. no. Name of persons Share Capital Share Premium Total addition during the year Opening balance after adjustment of repayment during the year Opening balance as at

01.04.03 1565500 7495500

¶1Anil kumar Gupta 28500 541500

¶2Renu Gupta 28500 532000

¶3Asha Singhal 44500 845500 400000 490000

¶4Kashmere Lai Gupta (HUF) 28500 541500

¶5Mehak Singhal 41000 779000 630000 190000

¶6Narendra Kumar Singhal 18500 351500 160000 . 210000

¶7Narendra Kumar Singhal

(HUF) 26000 494000

¶8\ / Naveen Singhal 10000 190000 200000

¶9Naveen Singhal

(HUF) 11000 209000 220000

¶10Naveen Mittal 25000 475000 500000 11: Praveen Gupta 50000 950000 1000000

¶12Poonam Singhal 22500 427500 250000 200000

¶13Rakhi Singhal 41000 779000 600000 220000 Suresh Kumar 31500 598500 425000 205000 -I- " •

¶15Sushila Gupta 24500 465500 490000

¶16J. Singh trading & investment P. 25000 475000 500000 . ITA246/2012, ITA 247/2012&I-T-A248/2012 Ltd

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

¶29New , Generation Finvest P. Ltd. Rizzer Exim P. Ltd. BIC Consultants P. Ltd : Chintapurni credits &• leasing P. Ltd. Division Trading P. Ltd. Kuberco Sales P. Ltd Kuldeep Textiles P. Ltd Nikhil Buildes & Promoters P. Ltd. Nishant finvest p. Ltd. Performance Trading & investment P. Ltd. . Rahul Finlease P. Ltd. Right Choice Constructions P. Ltd. Sekhawati Finance P.Ltd.

¶30Shree Gupteshwar Marketing P.Ltd.

¶31Sobar 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 25000 475000 ITA246 /2012, ITA 247 /2012&I.T.A248/2012 •> 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 1^ Associates Pvt Ltd.

¶32Sparrow Marketing Pvt. Ltd. 25000 475000 500000

¶33SRS Vijay sales Pvt. Ltd. 25000 475000 500000

¶34Transpan Financial Services Ltd. 25000 475000 500000

¶35V.R. Traders Pvt. Ltd. 25000 475000 500000 Total 930500 17679500 Grand Total 2496000 25175000

¶17The assessing officer directed the Assessee to file confirmation of share application money/share capital/share premium received by the Assessee and to justify the credits in the account of the Assessee and to file the confirmation from the respective parties. The Assessee vide order sheet entries dated

30.11.2006 was directed to file the following evidences:

¶1Identify of the person.

¶2Genuineness of the transaction.

¶3Source of creditworthiness of investment. ITA246/2012, ITA 247 72012& I.T.A248/2012

¶4Latest confirmation of party not more than 30 days old with complete address. PAN/Ward Circle."

¶18The assessing officer vide his order dated 26.12.2006 has recorded that the Assessee was specifically asked these details with respect to parties mentioned in the above list from serial No. 19 to

¶35After various adjournments AR of Assessee filed confirmations of parties with copy of bank accounts and acknowledgment of return of income for the parties mention in the above list from serial No. 1 to 15 for the share application money on 13.12.2006. However, the Assessee did not file any confirmation or any of the evidences for the 20 parties mentioned at SI No. 16 to 35 in the above table from which Assessee had received a total sum of Rs.1 Crore (Rs.5 lacs each). Assessee was again directed to file the above mentioned details, confirmation vide order sheet entry dated

13.12.2006 for the 20 parties mentioned from ITA246/2012, ITA 247 /2012&I.T.A248/2012 Page 17 of43 serial. No. 16 to 35. The Assessee was also directed to produce these parties to confirm entries. However, Assessee filed undated general certificates as confirmation qua said parties just before time barring date of.the assessment.

¶19The Assessee was asked to show cause why in some cases confirmation was not furnished, establish genuineness of transactions, produce the parties and why the above sums credited in the books of account of Assessee on account of share application money/share capital/share premium amounting to Rs. 1 Crore during the year under consideration, should not be treated as Assessee's undisclosed income u/s 68 of the I.T.Act. The Assessee was also ,asked to I furnish the details of the parties who would not be appearing so that summons u/s 131 of the Act could be issued to enforce their attendance. ITA246/2012,ITA 247/2012&I.T.A248/2012 Page18 of43

¶20The assessing officer in his order has noticed that the 20 companies mentioned at serial No. 16 to 35 of the list extracted above from whom the Assessee received share applicationmoney were companies operated by Mahesh Garg who was involved in providing accommodation entries.

¶21The assessing officer has also noticed that the confirmations filed by the Assessee were undated and had been taken at the time of taking the entries for share application/share capital/share premium cheques. The assessing officernoticed that out of the 35 persons from whorn the Assessee had received share application money, the Assessee could file proper confirmationsonly qua 15 parties and for the remaining 20 parties which were the companies operated by the said Mahesh Garg, the confirmations filed were undated. ITA246/2012, ITA 247 /2012&I.T.A248/2012 of43

¶22The assessing officer held that the Assessee had not discharged its onus and could not prove genuineness of transactions as well as creditworthiness or proper sources of receiving share application money/share capital/share premium of Rs.1 crore from these 20 parties. The assessing • t officer treated the said money as the money of the Assessee routed through companies run by. Mahesh Garg who, as per the assessing officer, was an entry provider. The assessing officei", thus, added the sum of Rs. 1 crore along With commission being charged by the entry provider @ 1% to the income of the Assessee.

¶23The Assessee filed an appeal before Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide order • dated 9.6.2009 deleted the addition of Rs.1 crore made under Section 68 of the Act and consequent addition of commission at 1%. ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Page20 of,43 ITA 248 of 2012 . .

¶24The present appeal is for the assessment year 2002-

¶03The return of income declaring an income of Rs.68,43,440/- was filed on 30.10.2002. The same was processed under Section 143(1) of the Act. on

22.02.2003. Information was received from Investigation Wing of the Income Tax Department regarding entry operators and the beneficiaries. As per the information received the Assessee company had received accommodationentry of Rs.74,00,000/-pertaining to the assessment year 2002-03 as mentioned below: Beneficiary bank name and branch Value of entry Date of entry Name of entry operator Band and branch of entry operator Account No. of entry operator Union Bank of India, Khari Baoli Delhi 4,00,000/-

21.03.02 Transpan Finance Services. OBC, Minto Road, N.D. Union Bank of India, Khari Baoli, Delhi Union 4,00,000/-4,00,000/-

21.03.02

21.03.02 BIC Consultants P. Ltd BIC State bank of Patiala, Daryaganj State ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Bank of India, Khari Baoli, Delhi Consultants P. Ltd bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 4,00,000/-

21.03.02 Performance trading and investment P. Ltd State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 4,00,000/-

21.03.02 Performance trading and investment P. Ltd State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 D.K. Ispat & Timber Ltd. State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 D.K. Ispat-& Timber Ltd State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 Division trading Private Ltd. State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 Division trading Private Ltd. State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 Nikhil builders and promoters P. Ltd. State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 Nikhil builders and promoters P. Ltd. State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 3,00,000/-

23.03.02 Rahul Finlease P. Ltd State bank of Patiala, Daryaganj ITA 246 /2012, ITA 247 /2012 & I.T.A 248/2012 Union Bank of India, Khari Baoli, Delhi 2,00,000/-

23.03.02 Rahul Finlease P. Ltd State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 3,00,000/-

23.03.02 Rahul Finlease P. Ltd State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 2,00,000/-

23.03.02 Rahul Finlease P. Ltd State bank of Patiala, Daryaganj Union Bank of India, Khari Baoli, Delhi 4,00,000/-

23.03.02 Transpan Finance Services OBC Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 Sobar Associates P. Ltd. Innovative Union Bank of India, Khari Baoli, Delhi 5,00,000/-

23.03.02 Sobar Associates P. Ltd. Innovative TOTAL 74,00,000/-

¶25On the basis of the information received from the Investigation Wing, notice under Section 148 of the Act was issued on 21.11.2006 for the assessment year in question. Notice was served on the Assessee on

23.11.2006. The Assessee vide letter dated ITA246/2012, ITA 247 /2012& I.T.A248/2012 , V

19.12.2006 stated that the original return of income may be treated as return filed in compliance of notice under Section 148 of the Act.

¶26Notices under Section 142(1) and 133(6) were issued on 21.6.2007 to the Assessee to show cause as to why accommodation entries of Rs.74 lacs and commission at 2% be not added to the income of the Assessee. ^

¶27The assessing officer noticed that in the return of income for the year 2002-03 there was increase in the share capital of Rs.37 lacs and there was share premium of Rs. 35,15,000/-. The Assessee was asked to give details of the increase in share, capital during the relevant year.

¶28The Assessee vide its letter dated

14.12.2007 provided details of increase in share capital of Rs.37 lacs and stated that the share capital introduced was Rs.37 lacs and not Rs.74 lacs as mentioned in the ITA 246/2012, ITA 247 /2012&I.T.A248/2012 Page24 of 43 c? notice under Section 133(6) of the Act. The Assessee submitted a copy of ,the bank statement to show deposit of cheques received from the said parties. The Assessee also filed the share application forms, copy of acknowledgement of IT return, copy of bank statement and copy of return to ROC in respect of the persons who had invested in share capital. The Assessee filed the party-wise details as under: S.No. Name of the person Amount BIC Consultants Pvt. Ltd. 4,00,000/-D.K. Ispat & Timbers Pvt. Ltd. 5,00,000/-Division Trading Pvt. Ltd. 5,00,000/-Nikhil Builders & Promoters Pvt. Ltd. 5,oo"ooo7-Performance Trading & investment Pvt. Ltd. 4,00,000/-Rahul Finlease Pvt. Ltd. 5,00,000/-Sobar Associates Pvt. Ltd. 5,00,000/-. Transpan Financial Pvt. Ltd. 4,00,000/-ITA246/2012, ITA 247/2012& I.T.A248/2012 Total 37,00,000/-

¶29The assessing officer invoked the provisions of Section 131 of the Act and the bank statements of M/s Transpan ^Financial Services, M/s BIC Consultants P.Ltd, M/s Sober Associate P. Ltd. were sought from banks. The Assessee was also directed to produce the parties who had introduced the share capital during relevant previous year:

¶30The assessing officervide his order dated 19.12.2007 held that mere furnishing of the PAN Number or assessment particulars, copy of share application was not enough as the said documentsdid not facilitatein cross-verificationand could be treated at best as only peripheraldocumentsand the mere acknowledgement of return was not sufficientto prove the identity of a person or his correctand true address. The assessing officer held that none of the partieswho had invested ITA246/2012, ITA 247 /2012&I.T.A248/2012 ^6 of43 in tine share capital were produced in cross-verification of documents submitted by Assessee. The assessing officer further held that the Assessee was a private limited company and there was close and proximate relationship between promoters/directors and shareholders and that the closely held companies accept subscriptions of share capital or deposits only from the friends or relatives of the promoters/directors and such companies were not allowed to accept the subscription or deposit from general public. The assessing officerheld that in such circumstances there should have been no difficulty on the part of the Assessee to produce a representative from the companies who had invested in the share capital.

¶31The assessing officer also held that mere payment by an account payee cheque was not sacrosanct nor could it make a non-genuine transaction as genuine. The assessing officer on perusal of the bank ITA246 /2012, ITA 247/2012&I.T.A248/2012. Page27 of43 a statement obtained in case of three parties mentioned above found that there was a uniform pattern of transaction i.e. issuance of cheque was immediately preceded by deposit of an equivalent amount in the account either in the form of cash or through cheque/ transfer entry and at the end of the day the credit balance in account mostly remained below Rs.10,000/-. The assessing officer held that unless the identity and creditworthiness of the entity and the transaction represented by the entries in the bank were co-related with the business activity and the books of account of the said entity, the pattern and frequencyof depositsand withdrawalat short intervals lent credence to the fact that the amount had been used only for the purposeof providingaccommodation entries.

¶32The assessing officer,thus, made an additionof Rs.37 lacs to the income of the Assessee under Section 68 of the Act and as a sequitur thereto made an addition ITA246 /2012, ITA 247/2012&I.T.A248/2012 28 of 43 of Rs.74,000/- as commission at 2% on Rs.37,00,000/- paid to the entry operators.

¶33On an appeal by the Assessee, the CIT(Appeals) vide order dated 8.6.2009 deleted the addition made by the assessing officer of Rs.37,00,000/- under Section 68 of the Act and consequently addition of Rs.74,000/- @ 2% commission paid to the entry providers.

¶34The orders of CIT (Appeals) for three assessment years is identical and as such are being commonly dealt with hereinafter.

¶35The CIT (Appeals) held that Assessee had submitted the following documents to substantiate genuineness of the transaction though could not produce the said parties for confirmations; "a) Share Application forms received from Investor Companies containing full details of investment in Assessee company their addresses & PAN etc. ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Page29 of43 b) Board Resolutions of investor Connpanies for mal<ing investnnent in Assessee company. c) Certificates issued by investor Companies confirming tiie investment in Assessee company & source thereof along with their PAN & assessment particulars. d) PAN and address proof of investor Companies. e) IT return Acknowledgement receipt/l.T. Asstt. orders etc. of Investor Companies. f) Certificate of Incorporation and other relevant documents of R.O.C relating to Investor Companies."

¶36The CIT (Appeals) held that the statennent of Mahesh Garg recorded by the Addl. D.l.(lnv.)Unit-I was shown to the Assessee only on 18.12.2006 at the fag end of the proceedings. The CIT (Appeals)held that the said statement was general with no reference to the transactions with the appellant. The CIT (Appeals) held that the assessing officer had simply relied upon ITA246/2012, ITA 247 /2012&I.T.A248/2012 Pag®30 of43 the information received from the Investigation Wing of the Department without making any concrete effort to verify the facts stated therein and has not brought any positive material or evidence to indicate that shareholders were benamidars, fictitious persons or any part of the share capital money represented income from undisclosed sources.

¶37The CIT (Appeals) held that assessing officer returned the finding that the investor companies were i only paper entities floated for purposes of arranging accommodation entries and share application money received was accommodation entries without any factual basis on which this conclusion was drawn. The CIT (Appeals) further held that the Assessee was not afforded an opportunity to cross examine said parties based on which adverse inference was drawn by the assessing officer. ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Page31 of43

¶38The CIT (Appeals), thus, held that the appellant had discharge initial onus of establishing bona fides of the transactions and the assessing officer was not justified in ignoring various evidences provided to him and had not brought on record any adverse material to show that share application money received by Assessee from said parties represented its own undisclosed income.

¶39The CIT (Appeals), thus, deleted the additions made by the assessing officer under iSection 68 of the Act and the consequent addition of commission paid @ 1 or 2% (as the case may be) for obtaining the entries from the entry provider.

¶40Aggrieved by the decision of the CIT (appeals) Revenue filed an appeal to the iTAT. The STAT has upheld the order of the CIT (Appeals) and held that the additional documents submitted by Assessee supported identity and creditworthiness of the ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 Page32 of43 investor companies and proved that share application transaction entry by the Assessee with the said investors transactions were genuine transactions and confirmed the deletion.

¶41Aggrieved by the said decision the Revenue is up in appeal before us.

¶42We have heard the learned counsel for the parties. We are of the considered opinion that the orders of the CIT (Appeals) and the !TAT in deleting the addition made by the AO.of Rs. 40,00,000/- under Section 68 of the Act and the consequent addition of Rs.80,000/- as commission paid @ 2% for obtaining the entry of Rs.40,00,000/- are clearly unsustainable. -J

¶43Recently in CowiftflissioNER of Incowie Tax vs NR PORTFOLSO Pvt. Ltd (Incowie Tax Appeal ^So. 1018 of 2011 and 1019 OF 2011) vide Judgment dated 22"'' November, 2013 we have held that when an Assessee does not produce evidence or tries to avoid ITA 246 /2012, ITA 247/2012&I.T.A248/2012 Page33 of43 appearancebeforethe assessingofficer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the assessing officer is denied advantage of the contentionor factual,assertion by the Assessee before him. In case an Assessee deliberatelyand intentionallyfails to produce evidence before the assessing officerwith the desire to prevent inquiry or investigation,an adverse inference should be drawn.

¶44The said case, i.e., N.R. Portfolio Private Libviited (SUPRA), was also one of cases where accommodation entries were being provided by Mahesh Garg Group of entry providers as m the presentcase. It has been noticed in that case that the modus operand! used by the entry providers for providing accommodation entry to different persons/beneficiarieswas very similar to the one in the presentcase. It has been further noticed that the bank statements of the entry operators showed ITA246/2012, ITA 247/2012&I.T.A248/2012 34 of43 substantial deposit of cash in the bank accounts and subsequent issuance of cheques to the beneficiaries. The entry providers were not carrying on any business activity but the only activity was for providing entries. It has been held that a private limited company Is a closely held company having proximate relationship between promoters and shareholders and usually in closely held companies, share capital subscription is from friends, relatives and not from unrelated/unknown third parties/general public.

¶45We have further In N.R.Portfouo Pfuvate Liwiited (Supra) held that mere production of PAN Number or assessment particulars does not establish the Identity of a person. The identification of a person includes the place of work, the staff and the fact that it was actuallycarryingon business and furtherrecognitionof the said company/individualin the eyes of public. We have further noticed that PAN Numbers are allotted on basis of applications without actual de facto ITA246/2012, ITA 247 /2012&I.T.A248/2012 Page35 of43 (g verification of tlie identity or ascertainment of the active nature of business activity. PAN Number is allotted as a facility to revenue to keep track of transactions. The PAN Number cannot,be blindly and without consideration of surrounding circumstances treated as sufficiently disclosing identity of the individual.

¶46Following CiT vs Mova Prowioters and Finlease • Private Liwiited case (2012) 342 ITR 169 (Delhi) we have held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN Number, acknowledgement of income Tax Returns of entry providers, bank account statement is not sufficient to discharge the onus on the Assessee. ')

¶47in the case of private limited companies, generally person known to the directors or shareholders directly or indirectly buy or subscribe to shares. The share ITA246 /2012, ITA 247 /2012&I.T.A248/2012 Fage36 of 43 subscribers post investment do not lose touch or become incommunicado. In the case of private limited companies where normally there is close proximity between company, i.e., directors and shareholders and the investors. The Assessee cannot simply furnish details and remain quiet even when summons issued to the shareholders under Section are returned unserved and uncomplied. Bn N.R.Portfoljo Private Liiviited (supra) we have held that Assessee cannot plead as a general preposition that they had received summons and it was for the assessing officer to enforce the attendance of the share holders.

¶48We have further held that the Court or Tribunal should be convinced about the identity, creditworthihess and genuineness of the transactions. The onus to prove the three factum is on the Assessee as the facts are within the personal knowledge of the Assessee. Mere production of incorporation details, PAN Numbers or ITA246/2012, ITA 247 /2012&l.T.A248/2012 Page37 of43 a income tax returns may not be sufficient when surrounding and attending facts predicate a cover up. The production of incorporation details, PAN numbers or income tax details may indicate towards completion of paper work or documentation but genuineness, creditworthiness and identity of investment and investors are deeper and obtrusive than mere completion of paper work or documentation.

¶49As we have held that PAN Numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity. PAN Number is • allotted as a facility to revenue to keep track of transactions. The PAN Number cannot be blindly and without consideration of surrounding circumstances treated as sufficiently disclosing identity of the individual. The mere filing of share application is not enough as said application is not an unimpeachable document and does not on its own ITA 246 /2012, ITA 247 /2012&I.T.A248/2012 . Page38 of43 prove genuineness or authenticity of transaction, it can at best be treated as a corroborative document. Since the share application form is not an unimpeachable document, it cannot on its own be treated as sufficient for establishing genuineness of the transaction or credit worthiness of the share applicant. The identification of a person includes the place of work, the staff and the fact that it was actually carrying on business and further recognition of the said company/individual in the eyes of public.

¶50The Assessee is a private limited company and has received substantial amounts of Rs. 9,30,500/- as share application money and Rs 1,76,79,500/- as share premium in the Assessment Years 2004-05 and share capital of Rs. 37,00,000/-and share premium of Rs. 35,15,000/- in the Assessment Years 2002-03 and ^ share capitalof Rs. 41,90,000/-and Share Premiumof Rs. 35,15,000/- in Assessment Years 2003-04. The ITA 246/2012, ITA 247 /2012&l.T.A248/2012 39 of43 o share subscribers post investment do not lose touch or become invisible. Nature and normal conduct is that they would protect and seek return on their investment if the same is genuine. This failure, the bank account statements, huge premium received are palpable surrounding facts, which have to be given due credence and relevance. The Assessee cannot in these circumstances simply furnish details and remain quiet even when summonsissued to the shareholders under Section are returned unserved and uncomplied. The Assessee cannot plead in the factual matrix that they had received summons and it was for the assessing officerto enforce appearance of the share holders.

¶51None of the parties that had invested in the share capital were produced for examination/verificationof documents, transactions or to prove genuinenessof the transactions.Reason and cause to make investmentremains unknown and unexplained. ITA246/2012, ITA 247 /2012&I.T.A248/2012 ^0 of43

¶52The assessing officer on perusal of bank statements obtained in case of three parties has found that there was a uniform pattern of transaction i.e. issuance of cheque immediately preceded by deposit of an equivalent amount In the account either in the form of cash or through cheque/ transfer entry and at the end of the day the credit balance in the account mostly remaining below Rs.10,000/-.

¶53Another aspect of the matter that was noticed by the Assessing officer in the ITA 247 of 2013 is that some of the confirmations filed by the Assessee were undated and had been taken at the time of taking the entries for share application/share capital/share premium cheques. We find it strange that an Assessee alongwith share applicationmoneywould obtain confirmationsfrom investors to confirm genuineness of the transaction. In a normal business transaction, no ITA 246 /2012, ITA 247/2012&I.T.A248/2012 ' 41 of43 n-such confirmation would be obtained by any company from persons investing in its share capital. The fact that Assessee felt necessity of obtaining such confirmations at the time of receiving share application money raises a •suspicion on genuineness of very transaction.

¶54The assessing officer found and rightly so that unless identity and creditworthiness of the entity and genuineness of the transactions were co-related with the business activity and the books of account of the said entity, the pattern and frequency of deposits and vyithdrawalat short Intervals lent credence to the fact that the amount had been used only for the purpose of providing accommodation entries.

¶55We are of the considered opinion that the Assessee has not been able to discharge the initial onus and has not been able to establish identity, ITA246mil, ITA 247 /2012&l.T.A248/2012 Page42 of43 creditworthiness of share applicants and genuineness of the transaction.

¶56The substantial question of law is thus answered in favour of Appellant/Revenue and against Respondent/Assessee. The appeals are accordingly allowed with costs that are assessed at Rs. 20,000/- In each case. SANJEEV SACHDEVA, J. 29*'' NOVEMBER, 2013 SV ITA 246 /2012, ITA 247 /2012 & I.T.A 248/2012 SANJI¥ KHAMNA, J.

*IN THE HIGH COURT OF DELHI AT NEW DELHI o/o Judgmentreservedon : 22"^ August,2013 Judgment pronouncedon: 29 November,2013 + ITA No. 248/2012 COMMISSIONER OF INCOME TAX CENTRAL-lli Petitioner Througfi Mr. Sanjeev Sabharwal, Advocate Versus ODEON BUILDERSPVT. LTD Respondent Through Mr.Ved Jain, Advocate CORAM; HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE SANJEEV SACHDEVA SANJEEV SACHDEVA. J. For orders see ITA No.246/2012. •