CIT vs Ldk Shares and Securities (P) Ltd.

These nine income tax appeals have been preferred by the Revenue against a common judgment and order passed by the Tribunal in connected appeals. The dispute relates to the various assessment years 2003-04 to 2005-06 in the case of M/s LDK Share & Securities (P) Ltd., 2003-04 to 2008-09 in the case of M/s LDK Builders (P) Ltd.

The learned standing counsel for the Department states that identical questions of law and facts are involved in all these appeals. We have heard the IT Appeal No. 487 of 2012, dt. 5-4-2012 (All-HC) : CIT v. LDK Share & Securities (P) Ltd., which relates to the assessment year 2003-04 and is treated as the lead appeal by the counsel.

The following substantial questions of law have been framed in the memo of appeal:

Whether the Hon''ble Tribunal 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 his own satisfaction in place of AOs satisfaction that the assessee has not discharged his onus as provided in section 68 of the IT Act, 1961?

Whether the Hon''ble Tribunal has erred in law as well as in the facts and circumstances of the case in ignoring the affidavit filed by Shri Anil Kumar Gupta, Director of M/s Welcome Coir Industries Ltd., Gwalior, regarding rerouting of the appellants own money?

That the order of Hon''ble Tribunal being erroneous in law and on facts be vacated and the order of the AO be restored.

The background facts may be noted in brief.

The assessee company was incorporated on 6-4-2000 and is deriving income from commission/brokerage of commodities. There was a search and seizure operation in the place of M/s Welcome Coir Industries Ltd. In view of the aforesaid search and seizure operation, the assessment of the respondent assessee was centralized and was made u/s 153A r/w section 143(3) of the Act. During the assessment proceeding, the AO noticed that in the account books of the assessee certain deposits as loan during the assessment year and receipt of certain amounts of share application money were disclosed. An explanation was called from the assessee. The explanation furnished by the assessee was found not sufficient in view of the affidavit dated 30-9-2009 of one Shri Anil Gupta who was the director in the company Welcome Coir Industries Ltd. He had stated that, in fact, no share application money or loan was given by Welcome Coir Industries Ltd. to the assessee. He stated that the above two companies are of Kesarwani Group and in fact the money shown as loan/share application money was the undisclosed money belonging to Shri Kamal Kumar Kesharwani and his business concerns which was only routed through M/s Welcome Coir Industries Ltd. as loan/share application money. The deposit/share application money was treated as unexplained loan and was added in the income of the assessee company.

The matter was carried in appeal before the CIT(A) who has allowed the appeal on the finding that the deposits in the account books of the assessee are fully explained. The matter was carried further by the Department in appeal before the Tribunal. The Tribunal has dismissed all the appeals filed by the Department and confirmed the order of the first appellate authority.

Shri Shambhu Chopra, learned standing counsel for the Department, submits that the Tribunal committed illegality in not giving due weight to the affidavit of Anil Kumar Gupta. The Court was taken through the affidavit of Anil Kumar Gupta which has been filed as Annex. 2. Elaborating the argument, he submits that merely because the identity of the depositor is proved, it does not mean that the deposit u/s 68 of the Act has been fully explained.

We have given careful consideration to the above submission of the learned standing counsel for the Department.

To begin with, it may be noted that the assessing authority has proceeded on the footing that the writing given by Sri Anil Kumar Gupta is an affidavit. A bare perusal of the said document which has been filed as Annex. 2 would show that it is in the form of a letter written by Shri Anil Kumar Gupta claiming himself as former director of Welcome Coir Industries Ltd. to the Dy. CIT, Central Circle, Agra. The said document is in the form of a letter and it cannot be treated as an affidavit. It was not sworn before any authority such as Notary/Oath Commr. There is no verification clause. Nor Shri Anil Kumar Gupta has been identified by any person. It is true that it bears a seal of Notary, Government of India and is on a non-judicial stamp paper of Rs. 20 but is not an affidavit in the eyes of law.

It has come on record that the contents of aforesaid letter/affidavit were very much disputed by the assessee who applied for cross-examination of Sri Anil Kumar Gupta. Multiple opportunities were given to Shri Anil Kumar Gupta but he did not appear. He failed to offer himself for cross-examination. This being so, the letter of Sri Anil Kumar Gupta is of little evidentiary value and no reliance on such document can be placed.

The other aspect of the case is that the finding that the Welcome Coir Industries Ltd. is an income tax assessee and is a public limited company, has been returned. It is maintaining its account books. u/s 68 of the IT Act, the assessee in whose account books any sum is found credited is required to explain about the nature and the source of the said cash credit. The two authorities below have; found that the assessee has been able to prove the identity of the depositors namely, M/s Welcome Coir Industries Ltd. The said company is assessed to income tax and is filing its return of income, a fact which could not be disputed by the learned standing counsel for the Department.

It has been found that the assessee company has issued share certificates on receipt of share application money. Share certificates have been issued to the applicants. The amount so received has been credited in the books of account of the assessee. On inquiry, the AO could not found any adverse material except the letter of Sri Anil Kumar Gupta already dealt with. It may also be placed on record that the search and seizure operation was carried out by the Department on 30-1-2008 and no incriminating material in that search and seizure operation was found relating to the assessee company. This is a case where the assessee company has discharged the burden by disclosing the identity of the depositors/share applicants, their source of investment and their creditworthiness. No attempt was made to show that the findings recorded by the two authorities below in this regard are in any manner perverse or illegal. The findings are based on appreciation of evidence. The relevant findings of the Tribunal are reproduced below :

The identity of Welcome Coir Industries Ltd. stands proved from the fact that it is a public company which is duly registered and has raised its funds through public issue. It is a regular income tax assessee assessed with the same AO. The capacity of Welcome Coir Industries Ltd. duly stands proved from the balance sheets of Welcome Coir Industries Ltd. filed. The total sources of funds of Welcome Coir Industries Ltd. as on 31-3-2005 amount to Rs. 9,48,39,776 out of which a sum of Rs. 5,44,90,000 has been applied in forms of investments in unquoted equity shares. As on 31-3-2004, the total sources of Welcome Coir Industries Ltd. amounted to Rs. 8,93,84,776 out of which a sum of Rs. 5,22,00,000 is applied towards unquoted shares. These investments shown in the balance sheet of Welcome Coir Industries Ltd. are higher than the amount given to the respondent-assessee. All the transactions to the respondent assessee company are by account payee cheques issued from the bank account of Welcome Coir Industries Ltd. These bank accounts are duly reflected in the balance sheet of Welcome Coir Industries Ltd. also confirming the share certificates have been received by them. These confirmations also confirm the share certificate number as well as the distinctive number of shares indicating and hence the genuineness of transactions of these amounts which were in the nature of share application money cannot be doubted. Also, the AO after reopening the assessments of Welcome Coir Industries Ltd. u/s 148 has added deposits in the bank account of Welcome Coir Industries Ltd. as its unexplained investment vide assessment orders placed at pp. 170 to 178 of the paper book in the case of LDK Shares & Securities (P) Ltd.

The amount invested by the shareholder company is duly appearing in its audited balance sheets of various years as investment in unquoted equity shares and such balance sheets were also signed by the directors of the said shareholder company including Mr. Anil Kumar Gupta.

Investment made by the said shareholder company was through the bank account of the said company maintained at Agra by the said company. Amount invested by the said shareholder company was out of the said bank account and deposits in the said bank account have been treated as investment from undisclosed income of the said shareholder company by the AO of Welcome Coir Industries Ltd. in assessments passed under s. 147. It is important to mention that the cases of Welcome Coir Industries Ltd. were reopened u/s 147. Only evidence against the respondent-assessee is the affidavit filed by Mr. Anil Kumar Gupta which does not have mandatory the legal verification and as such is liable to be rejected as affidavit on this ground alone. However, it is also seen by us that after the filing of the said purported affidavit, Mr. Anil Kumar Gupta never appeared to support that affidavit despite repeated opportunities allowed by AO and for this reason also, there is no justification to take into account such unsubstantiated and unproved alleged affidavit and hence we reject the same. Statement of Mr. Prashant another director of Welcome Coir Industries Ltd. was never confronted by AO to the respondents and hence, no assistance can be taken by Revenue.

Thus, the assessees have proved the share capital with overwhelming evidence as narrated above and there is no adverse legally admissible evidence in possession of Revenue. So much so, even Revenue has accepted that the investment has been made by Welcome Coir Industries Ltd. in the assessees which is evident from the assessment orders of Welcome Coir Industries Ltd. placed in the paper book.

The above findings are essentially findings of fact. We, therefore, do not find any merit in the appeals as no substantial question of law is involved in any of them. All the appeals are hereby dismissed summarily.