Realisation of shares cannot be treated as commission

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘E’: NEW DELHI

BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND

SHRI RAJPAL YADAV, JUDICIAL MEMBER

ITA No.4388/Del/2012

Assessment Year: 2004-05

Assistant Commissioner of

Income Tax,

Central Circle-13,

New Delhi.

(Appellant)

Vs.

M/s Northern Strips Limited,

1, Central Market,

West Avenue Road,

West Punjabi Bagh,

New Delhi.

PAN: AAACN0642C.

 (Respondent)

Appellant by: Shri Tarun Seem, Sr.DR.

Respondent by: Shri Ved Jain & Smt. Rano Jain, CAs.

ORDER

PER G.D.AGRAWAL, VP:

This appeal by the Revenue is directed against the order of learned CIT(A)-XVI, New Delhi dated 29th March, 2012 for the AY 2004- 05.

2. The grounds raised by the Revenue read as under:-

“1. The order of the ld.CIT(Appeals) is not correct in law and facts.

2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of Rs.15,00,000/- made by the Assessing Officer u/s 68 of I.T.Act, 1961 in respect of unexplained cash credits without appreciating the fact that the assessee has failed to discharge its onus as required u/s 68 of I.T.Act, 1961 and did not file any documentary evidence to establish the genuineness of the transactions, confirmations and credit worthiness of the companies.

3. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of Rs.30,000/- made by the Assessing Officer u/s 68 of the I.T.Act, 1961 on account of commissions paid for getting accommodating entries.

4. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.”

3. Ground No.1 raised by the Revenue is general in nature. As regards ground No.2, at the time of hearing before us, it is submitted by the learned DR that during the accounting year relevant to assessment year under consideration, there was credit of `15,00,000/- in the assessee’s books of account, which assessee claimed to be out of the sale proceed of shares to following three companies:-

1. M/s Rizzer Exim P.Ltd. for Rs.5,00,000/-

2. M/s Tosha Chemicals P.Ltd. for Rs.5,00,000/-

3. M/s V R Traders P.Ltd. for Rs.5,00,000/-

-------------------

Rs.15,00,000/-

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4. That during the course of statement of Shri Mahesh Garg recorded by the Additional DIT (Inv.), New Delhi, it was found that Shri Mahesh Garg is an entry operator who has established various companies which included the above three companies to whom the assessee has claimed to have sold the shares. Since the assessee was unable to prove the identity and creditworthiness of the above companies, the Assessing Officer rightly made the addition of `15,00,000/- for unexplained credit in the books of account and further addition of `30,000/- on account of commission paid by the assessee for getting above accommodation entries of `15,00,000/-. He, therefore, submitted that the order of the learned CIT(A) should be reversed and that of the Assessing Officer be restored.

5. The learned counsel for the assessee, on the other hand, heavily relied upon the order of learned CIT(A) and he stated that learned CIT(A) has discussed the facts in detail. That the assessee has purchased the shares in Ujala Leasing and Financial Services Ltd. for a sum of `15,00,000/- in FY 2000-01. The shares were held by the assessee till April, 2003 and in its balance sheet for the period ended on 31st March, 2001, 31st March, 2002 and 31st March, 2003, the shares were duly disclosed and accepted by the Revenue. During the year under consideration, the assessee sold the shares and the sale proceed of the shares received by cheque is credited in the assessee’s books of account. The assessee has also produced the evidence that the shares of Ujala Leasing and Financial Services Ltd. sold by the assessee have already been registered in the name of purchaser companies. Learned CIT(A) called for the remand report from the Assessing Officer and he allowed adequate time of almost three years to the Assessing Officer to submit the remand report but despite the period of almost three years allowed by him and repeated reminders, the Assessing Officer did not submit the remand report, therefore, the learned CIT(A), after considering the facts of the case, deleted the addition. He, therefore, submitted that the order of learned CIT(A) should be sustained.

6. We have heard the arguments of both the sides and perused the material placed before us. We find that the learned CIT(A) has considered the issue at length and deleted the addition with the following finding:-

 “6.2 I have considered the submissions made by the appellant’s AR. I have also perused the assessment order. The A.O. has made an addition of Rs.15,00,000/- in respect of the shares held by the appellant in M/s Ujala Leasing & Financial Services Limited which were sold during the year. My predecessor CIT(Appeals), vide his letter no.185 dated 10.02.2009, had issued directions to the Assessing Officer as follows:-

“During the course of appellate proceedings, the Authorized Representative of M/s Northern Strips P. Ltd. attended and filed the submission before me on the issue raised in the grounds of appeal. In support of its contention, the appellant has submitted that during the year under consideration it has sold shares of M/s Ujala Leasing & Financial Services Ltd. to three companies namely M/s Rizzer Exim P.Ltd., M/s Tosha Chemicals P.Ltd. and M/s V.R. Traders P.Ltd. The AR of the appellant has submitted that since the shares were sold to these companies all the documents were handed over to these companies and the appellant has not retained any evidence.

It is seen from your order that you have not examined these parties to verify the genuineness of the transaction. You are accordingly requested to examine these parties on oath to verify the genuineness of the transactions. For this you may also conduct necessary enquiries and verification, as desired. I would also suggest that before submitting your report, opportunity of cross examination of these parties may also be provided to the appellant. In case if these parties confirm the transactions, necessary steps for making additions, in the case of the said parties may be initiated as per law.

The submissions as made by the appellant are enclosed herewith. You are requested to conduct necessary enquiries/verification and submit report latest by 09.04.2009.”

Thereafter, a number of reminders were issued to the Assessing Officer by the office of the undersigned between May, 2009 and March, 2012, for submission of report by the AO along the above lines. However, till date no report has been received from his end. Therefore, I am constrained to decide the appeal on the basis of material available on record.

On going through the assessment order I notice that the A.O. has not disputed the acquisition of the shares by the appellant company. The shares were purchased by the appellant company in the financial year 2000-01. The appellant company continued to hold these shares till April, 2003 when they were transferred in the names of three companies, viz. M/s Rizzer Exim P.Ltd., M/s Tosha Chemicals P.Ltd. and M/s V.R. Traders P.Ltd. The allegation of the A.O. is that these three companies are not genuine companies and as such the sale of shares by the appellant company was held by him to be not genuine and secondly, the money so received on sale of shares has been considered as unexplained credit and added under Section

68 of the Act. In this regard, the A.O. has relied upon the statement of one Mr. Mahesh Garg where he has stated that these companies do not carry out any business and are used to open different accounts in banks in which cheques are issued after depositing cash or pay orders. On the basis of this, the A.O. has assumed that this money which the appellant company has received from sale of shares is its own money and not real proceeds of the sale of shares. The allegation of the AO in the assessment order is that the appellant could not produce the three parties to whom shares of M/s Ujala Leasing & Financial Services Ltd. were sold by the appellant during the year. However, it has been held by various courts that it is the Assessing Officer who has the wherewithal to summon parties and enforce their attendance. As already discussed above, the AO was directed by my predecessor CIT(Appeals) to examine these parties on oath to verify the genuineness of the transaction but there has been no compliance till date.

In this regard, I have gone through the balance sheet of the appellant company for each of the years starting from 31st March, 2001 and I notice that the appellant company has been showing investment of Rs.15,00,000/- in M/s Ujala Leasing & Financial Services Limited. In the year 2003-04 i.e. assessment year 2004-05 it has sold out these shares and has received payment from three companies by account payee cheques. The investment has been sold at the same value at which it was purchased and accordingly there is no profit or loss on account of these transactions. In this regard, the appellant company has given the details of the cheques nos., banks and branches from which the money was received. It has also filed inspection report carried out by a Company Secretary of each of these companies giving details of the shareholders, directors and the registered office of each of the companies, etc. It has also filed copy of the annual return of M/s Ujala Leasing & Financial Services Ltd., whereby it is clear that the shares sold by the appellant company have been registered in the name of the purchaser companies. All these documents clearly show that appellant company was holding these shares since 2001 to 2004 and thereafter it has sold out these shares to these three companies. The shares so sold have been duly transferred and registered in the name of these companies. This fact has also been taken on record by the company i.e. M/s Ujala Leasing & Financial Services Limited in which such investment was made. The fact that these shares stand registered in the names of these three companies is recognized by M/s Ujala Leasing & Financial Services Limited. On the basis of these facts the A.O. was not justified in holding that the money so credited in the bank account of the appellant consequent to sale of shares is its own money. There is no evidence to the effect that the money received by the appellant on account of sale of shares of M/s Ujala Leasing & Financial Services Limited is its own concealed income, which has found its way into the appellant’s books in the guise of sale proceeds of shares. On the contrary, there is evidence that this money has come from the bank accounts of these three companies who became the new shareholders of M/s Ujala Leasing & Financial Services Limited. The appellant has given prima facie evidence about the transfer of the shares consequent to which this money has been received. No doubts have been raised regarding the ownership of the shares held by the appellant company in earlier years and the sale of such shares has been duly accounted for and included in its income by the appellant. The investments in the form of shares ceased to exist in the hands of the appellant company and there is documentary evidence on record to the effect that these investments which have ceased to exist in the hands of the appellant company are being owned by these three companies. For this there is an independent evidence in the form of annual return of the investee company i.e. M/s Ujala Leasing & Financial Services Limited.

In view of these facts, the A.O. was not justified in treating Rs.15,00,000/- as income of the appellant under Section 68 of the Act. Accordingly, I direct the A.O. to delete this addition of Rs.15,00,000/- on this account.”

7. After considering the arguments of both the sides and the facts of the case, we do not find any infirmity in the order of learned CIT(A). After the assessee’s written submission and the evidences furnished by the assessee, the learned CIT(A), vide letter dated 10.02.2009, called for the remand report from the Assessing Officer. The remand report was directed to be submitted by 09.04.2009. Thereafter, a number of reminders were issued by the learned CIT(A) to the Assessing Officer between May, 2009 to March, 2012. However, no remand report was submitted by the Assessing Officer. Thereafter, learned CIT(A), considering the facts of the case, recorded the finding that the shares were purchased by the assessee company in FY 2000- 01 and the assessee continued to hold these shares till April, 2003 when these shares were transferred to three companies mentioned above. Thus, what the assessee received is the sale proceeds of the shares. It is also worthwhile to be noted that the shares were sold at the cost price. Thus, during the year under consideration, there is only realization of the shares which were held by the assessee. Learned CIT(A) has also recorded the finding that the assessee company has given the details of cheque numbers, bank and branch from which the money was received. He has also recorded the finding that from the annual return of M/s Ujala Leasing & Financial Services Limited, it was found that the shares sold by the assessee company have been registered in the name of the purchaser company. On these facts, learned CIT(A) held that the credit in the assessee’s bank account was only realization of the sale of shares. After considering the arguments of both the sides and the facts of the case, we do not find any infirmity in the above finding of learned CIT(A). The same is sustained and ground No.2 of the Revenue’s appeal is rejected.

8. Ground No.3 of the Revenue’s appeal is only consequential to ground No.1. The Assessing Officer has made the addition of `30,000/- holding the same to be commission for getting accommodation entries on the above sale proceed of shares of `15,00,000/-. Since we have upheld the order of learned CIT(A) accepting the assessee’s explanation of the credit of above sum of `15,00,000/-, the addition of `30,000/- made by the Assessing Officer as commission was rightly deleted by learned CIT(A). The same is sustained.

9. In the result, the appeal of the Revenue is dismissed.

Decision pronounced in the open Court on 22nd March, 2013.

Sd/- Sd/-

(RAJPAL YADAV) (G.D.AGRAWAL)

JUDICIAL MEMBER VICE PRESIDENT

Dated: 22.03.2013

VK.

Copy forwarded to: -

1. Appellant: Assistant Commissioner of Income Tax, Central Circle-13, New Delhi.

2. Respondent: M/s Northern Strips Limited,1, Central Market, West Avenue Road,West Punjabi Bagh, New Delhi.

3. CIT

4. CIT (A)

5. DR, ITAT

Assistant Registrar