Commissioner Of Income Tax vs Winstral Petrochemicals Pvt Ltd
2010 Latest Caselaw 2528 Del

             THE HIGH COURT OF DELHI AT NEW DELHI
%                                    Judgment delivered on: 12.05.2010
+            ITA 592/2010
COMMISSIONER OF INCOME TAX                                 ... Appellant
                         - versus -

WINSTRAL PETROCHEMICALS PVT LTD                          ... Respondent

Advocates who appeared in this case:

For the Appellant       : Mr Sanjeev Sabharwal
For the Respondent      : Mr Salil Aggarwal
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may be allowed to see the judgment ? Yes

2. To be referred to the Reporter or not ? Yes

3. Whether the judgment should be reported in Digest ? Yes

V.K. JAIN, J (ORAL)

1. This appeal is preferred against the order of Income

Tax Appellate Tribunal dated 29.05.2009, whereby the appeal

filed by the Revenue, being ITA No.3290/Del/2008, against

the order of the Commissioner of Income Tax (Appeals), for the

Assessment Year 2004-05 was dismissed by it.

2. During the assessment year in question, the assessee

company received share application money amounting to

Rs 44 lakhs from 12 private limited companies. The assessee

company filed income tax return declaring income of Rs

2,20,880/- for the year in question. The case was initially

processed under Section 143(1) of Income Tax Act.

Subsequently, on receipt of information that the assessee

company had received accommodation entries, notice under

Section 148 of Income Tax Act was issued. During the course

of assessment, when asked to prove the identity and

creditworthiness of the applicants and genuineness of the

transactions, the assessee company furnished copies of their

applications for allotment of shares, confirmation of payments,

copies of their Certificates of Incorporation, printouts of their

PAN details, copies of their PAN cards as well as company

details, downloaded from the site of the Department of

Company Affairs, showing their addresses. Notices under

Section 133(6) of the Act were issued to all the 12 applicants,

who reiterated the confirmation given by them and also

supplied copies of their accounts. The Assessing Officer,

however, added the entire amount of Rs 44 lakhs to the

income of the assessee company, on the grounds that the

parties were not produced by the assessee, some of the

applicants had a common address during inspection by the

Income Tax Inspector, five applicants were not found

functioning at the given address and reply submitted by the

applicants were late.

3. The Commissioner of Income Tax (Appeals) noted

that the report of the Inspector, stating therein that five

applicants were not found functioning at the given address

was not provided to the assessee and that the notices sent by

the Department had been duly served on all the 12 applicants,

at the addresses provided by the assessee company. He also

noted that all the payments had been made by account payee

cheques. The addition made by the Assessing Officer was

deleted by him.

4. While dismissing the appeal of Revenue, it was noted

by the Income Tax Appellate Tribunal that all the applicants

were Private Ltd. Companies, whose new as well as old

addresses, were provided by the assessee during the course of

the assessment proceedings. It was further noted that besides

filing confirmation from the applicants, copies of Share

Application Money, PAN card, etc., were also filed. The

Tribunal was of the view that in these circumstances, it

cannot be said that the identity of the share applicants did not

stand established. Relying upon the decision of the Supreme

Court in the case of CIT vs. Lovely Exports (P) Ltd., 216 CTR

198, the Tribunal declined to interfere with the order passed

by the Commissioner of Income Tax (Appeals).

5. The issue involved in this appeal came up for

consideration before this Court in CIT vs. Divine Lasing &

Finance Ltd. 299 ITR 268. After reviewing the case law on the

subject, this Court was of the view that in the context of

Section 68 of the Income Tax Act, the assessee has to prima

facie establish (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; and (3) the creditworthiness or financial strength of

the creditor/subscriber. It was observed that (a) if relevant

details of the address or 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;

(b) the Department would not be justified in drawing an

adverse inference only because the creditor/subscriber fails or

neglects to respond to its notices; (c) the onus would not stand

discharged if the creditor/subscriber denies or repudiates the

transaction set up by the assessee nor should the Assessing

Officer take such repudiation at face value and construe it,

without anything more, against the assessee and the

Assessing Officer is duty-bound to investigate the

creditworthiness of the creditor/subscriber the genuineness of

the transaction and the veracity of the repudiation.

6. The Special Leave Petition filed by the Revenue

against the above-referred decision of this Court was

dismissed by the Supreme Court vide its decision reported

vide 2008 (216) CTR 195 which inter alia reads as under:

"Can the amount of share money be regarded as undisclosed income under Section 68 of IT Act, 1961? We find no in Special Leave Petition for the simple reason that if the share application money is received by the assessee-

company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, no infirmity is found with the impugned judgment.

7. It has not been disputed before us that the share

application money was received by the assessee company by

way of account payee cheques, through normal banking

channels. It is not the case of the Revenue that the payment

of Share Application Money was not made from the bank

account of the applicant companies. Admittedly, copies of

application for allotment of share were also provided to the

Assessing Officer. It is not the case of the Revenue that the

share applications were not signed on behalf of the applicant

companies and were forged documents. It is also not the case

of the Revenue that the shares were not actually allotted to the

companies. Therefore, the Commissioner of Income Tax

(Appeals) and the Income Tax Appellate Tribunal, in our view,

were justified in holding that the genuineness of the

transactions had been duly established by the assessee.

8. As regards identity of the subscribers, the assessee

filed copies of Certifications of Incorporation, PAN cards, PAN

details and company details, downloaded from the site of

Department of Company Affairs besides written confirmation

from the applicants. It is not the case of the Revenue that the

copies of Certificates of Incorporation, PAN cards, PAN details

or company details submitted by the assessee were forged

documents. In fact, the Assessing Officer did not even make

an attempt to verify the genuineness of these documents by

summoning the record of Registrar of Companies or

Department of Company Affairs. If he entertained any doubt

about the genuineness of these documents, nothing prevented

him from summoning the record from these authorities. If the

Assessing Officer so desired, the genuineness of the PAN cards

and PAN details could easily have been verified by him from

the record available with the Department. The assessee

company also furnished written confirmation from the

applicant companies. All the share applicants were duly

served with the notices under Section 133(6) of the Act. In

these circumstances, the finding of Commissioner of Income

Tax (Appeals) and Income Tax Appellate Tribunal that the

identity of the subscribers stood duly established from the

documents produced by the assessee, cannot be said to be

perverse and does not call for interference by this Court.

9. The finding of fact recorded by the Tribunal, which is

the final fact finding authority, cannot be said to be perverse

merely because some of the applicants had a common address

and the Inspector deputed by the Assessing Officer to make

field inquiries did not find five applicants functioning at the

addresses provided to him. There is no legal bar to more than

one companies being registered at the same address. Since the

applicant companies were duly incorporated, were issued PAN

cards and had bank accounts from which money was

transferred to the assessee by way of payee accounts cheque,

they cannot be said to be non-existent, even if they, after

submitting the share application had changed their address or

had stopped functioning.

10. In view of the decision of this Court in the case of

Divine Lasing & Finance Ltd. (supra), the identity of the

share applicants would be established if details of address or

PAN card are furnished to the Department alongwith the

copies of Shareholders' Register, Share Application Form,

Share Transfer Register, etc. In this case, Share Application

Forms were duly produced before the Assessing Officer and

this is not the case of the Revenue that that the Assessing

Officer had asked the assessee to produce Shareholders'

Register and Share Transfer Registers, , but the assessee

company had failed to do so.

11. The Assessing Officer was not justified in adding the

amount of share application money to the income of the

assessee, merely because the applicants did not respond to

the notices sent to them. If the Assessing Officer so wanted, he

could have found out the current address of those applicants,

who, according to the report of the Inspector, were not found

functioning at the address given to the Assessing Officer, by

summoning the Directors, etc. of those companies and asking

them to furnish the current address of the company. The

names and addresses of Directors, if not available with the

assessee, could have been obtained from the office of Registrar

of Companies or from the banks on which the cheques were

drawn. No such attempt, however, was made by the Assessing

Officer. In these circumstances, we found no reason to

disturb the finding of fact recorded by the ITAT.

For the reasons given in the preceding paragraphs,

no substantial question of law arises for our consideration.

The appeal is dismissed.

(V.K. JAIN) JUDGE

(BADAR DURREZ AHMED) JUDGE MAY 12, 2010/bg