Get our post in your mailbox

Rajshree Finsec Private Ltd., vs Assessee

 Income Tax Appellate Tribunal - Indore



Rajshree Finsec Private Ltd., ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE

BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
 
AND

SHRI R.C. SHARMA, ACCOUNTANT MEMBER

ITA No.545/Ind/2010

AY: 2007-08

M/s Rajshree Finsec Private Limited Indore
PAN -AACCR-2644G .....Assessee

V/s.

Asstt.Commissioner of Income Tax
5(1), Indore .....Respondent

Assessee by : Shri S.N. Agrawal
Respondent by : Shri Arun Dewan

Date of hearing 11.01.2012
Pronounced on 06.02.2012

O R D E R

PER JOGINDER SINGH The assessee has preferred this appeal against the order of the learned Commissioner of Income Tax (Appeals) dated 16.4.2010 on 7 grounds. However, ground nos. 1, 2, 5, 6 and 7 were not pressed at the time of hearing. These grounds are, therefore, dismissed as not pressed. In this scenario, the only grounds left for our consideration are ground nos. 3 and 4 to the effect that the learned Commissioner of Income Tax (Appeals) was not justified in confirming the order of the Assessing Officer holding that the sum of Rs. 30 lacs was assessable as cash credit of the assessee without appreciating the fact that the said sum towards share application money cannot be charged to income tax under section 68 of the Act.

2. During hearing, we have heard Shri S.N. Agrawal, learned counsel for the assessee who submitted that identity of share subscribers/share applicants has been proved, therefore, in view of the decision in the case of decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. (2008) 172 Taxman 44, no addition u/s 68 of the Act could be made in the hands of the present assessee, whereas the learned Senior DR, Shri Arun Dewan, defended the impugned order.

3. We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee company declared total income of Rs.70,212/- in the return of income filed on 11.3.08. The Assessing Officer issued notices u/s.143(2) on 18.9.08 which were served on the assessee within the prescribed period. Thereafter, a detailed questionnaire along with notice u/s.142(1) was issued on 28.7.2009 to the assessee which was responded by the assessee.

During the course of assessment proceedings, after examining the submissions of the assessee and the balance sheet, the Assessing Officer observed that during the year under consideration, the assessee has shown receipt of share application money from various companies as follows :-

S.No. Party's Name Address PAN No. Amount
1. Shrilal Traders Pvt. Ltd. 47, Bhupendra Bose Avenue, 2nd Floor, Kolkata   AAICS8140G 3,00,000/- 
2. Lakeview Vinimay P. Ltd.  202, Jessore  Road,Shyam Lake Garden Block-B, Shop No.5, Kolkata AABCL1392G 10,00,000/- 
3. Saharsh Suppliers Pvt. Ltd.  25B, Raja Raj  Ballav Street, Ground Floor, Kolkata AAICS5014K 7,00,000/-
4. Ambition Tie-up P. Ltd.  25B, Raja Raj Ballav Street, Ground Floor, Kolkata AAFCA5571Q 10,00,000/- 
Total 30,00,000/-

3.1 The Assessing Officer required the assessee to furnish evidences regarding identity, creditworthiness and genuineness of the share applicants. In response to the same, the assessee submitted details and addresses of the companies from whom it has received share application money. Later on, notices u/s 133(6) were issued to the above companies to file confirmations, balance sheet and copies of bank accounts. But all the notices returned back unserved with the remark 'not found'. Vide order sheet entry dated 22.09.09, the assessee was confronted and also was asked to produce the share applicants because no reply of the notices u/s 133(6) was received. However, on 27.10.09 the assessee filed the copies of assessee's bank accounts in two banks and submitted that there was no other bank account of the assessee. He also submitted that it is not practicable to produce the directors of the companies of Kolkata. The assessee also did not produce the copies of the bank statements of the share applicants. On 10.11.09 Shri Deepak Kalani, Director of the company attended and his statement on oath was recorded and placed on record.

During the course of statement of the director of the company, he was asked vide question no. 9, to explain the reasons of investment in his company by the share applicants, whereas the income of the was very low. In reply, surprisingly, Shri Deepak Kalani could not provide any explanation regarding these facts. The assessee also could not explain huge cash deposits in the bank account of the company looking into the nature of his business and submitted that he will provide clarification later. Meanwhile, confirmations from the above share applicants were filed before the Assessing Officer after two months from the date of issuance of notices u/s 133(6). It was noted by the Assessing Officer that one share applicant namely M/s Lakeview Vinimay Pvt. Ltd. admitted that the shares have been allotted before 31.03.07. The learned Assessing Officer was of the view that the financial capacity of share subscribers was not sound, therefore, he opined that it was the own money of the assessee. He was also of the view that the transactions are only manipulated transactions. The learned Assessing Officer was also of the view that it is a case of unaccounted income brought back into the books of accounts of the assessee company in a systematic and organized manner. He further observed that these companies have been used as mere conduit companies for routing of unaccounted money into the business in the garb of share application money. The source of share application money as received by the assessee company was treated as not properly explained. The learned Assessing Officer also observed that during the course of his statement, the director has himself admitted that the all the share applicants are either his friend or family members. The learned Assessing Officer was also of the opinion that these companies have no business whatsoever and these companies have been opened only for providing entries for share application money as well as unsecured loans. These companies are nothing but dummy companies closely held and acting on behalf of certain individuals, who are engaged in the business of providing entries for share application money to various parties. For this proposition, the Assessing Officer relied upon the decision of Hon'ble Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Rathi Finlease Ltd.; 215 CTR (MP) 249 and decision of Hon'ble Calcutta High Court in the case of Commissioner of Income Tax Vs. Nividen Vanijya Niyojan Ltd.; 182 CTR (Cal) 605.

3.3 In view of the above, the Assessing Officer observed that since, the assessee has failed to prove the identity, genuiness and creditworthiness of the share applicants, the share application money of Rs.30,00,00/-

,as received by the assessee, in the year under consideration, is liable be added to the income of the assessee under section 68 of the Income Tax Act, 1961.

3.4 Felt aggrieved with the above action of the Assessing Officer, the assessee approached the learned Commissioner of Income Tax (Appeals), who required the assessee to furnish further explanation and lead evidences. The assessee filed detailed written submissions, in which it gave details of the share applicants i.e. address, PAN and has referred to further documentary evidences filed and compliances made by such share applicants before Assessing Officer is in response to notice u/s.133(6) issued. Copies of balance sheet of the assessee company for the year under consideration as well preceding two years and subsequent years were also filed and it was emphasized that the Directors of the assessee company Mr. Deepak Kalani and Pankaj Kalani CAs, were born and brought up in Kolkatta before coming to Indore and thus they were having business and social contacts at Kolkatta and the company being promoted by seasoned CAs having varied experience in finance and banking sector with strong business connections and was engaged in the business of loan syndication to corporate clients apart from business and investment activities.

3.5 It was also submitted that the decisions relied upon by the Assessing Officer were not applicable to the facts of the case and again emphasis was made to documentary evidences filed and receipt of money from banking channel. It was contended that the Assessing Officer failed to appreciate that in the facts of the assessee's case considering the compliance made, provision of section 68 should not have been attracted and reliance has been placed on the Hon'ble Supreme Court decisions in the cases of CIT vs. Steller Investment Limited (2001) 251 ITR 263 (SC) and CIT Vs. Lovely Exports (P) Ltd. (2008) 172 Taxman 44.

3.6 On consideration of the above facts and the submissions made by the learned counsel for the assessee, the learned Commissioner of Income Tax (Appeals) observed as under :-

"4.01 Coming to the facts of the case, the AO has clearly brought out relevant facts in the assessment order. The assessee miserably failed to explain and establish the soundness of the decision made by such alleged share applicants for making such substantial investment in the assessee company and some totally vague and unconvincing explanation was offered in this behalf. The AO has clearly made out a case that the share applicant companies were merely paper companies and were not genuine existing legal entities having the financial worth to have made such investment in the assessee company. It is further interesting to note that an amount of Rs.19,02,500/- which was shown as share application money pending allotment on balance-sheet date 31.3.07 continued to be so reflected till the end of next F.Y 31.3.08 and was reduced to Rs.18,30,000/- as on 31.3.09 there being no increase in share capital which stood unaltered at Rs.9,52,000/-.

The very fact that the huge amount of share application money was shown as outstanding as such without making necessary allotment of share itself speaks about the financial affairs and the nature of assessee's activity in the matter of managing such share application money. It is also worthwhile to note that in the written submissions a lot has been said about experience, contacts of the Directors and the varied nature of the business activities. But Profit before Income tax for A.Y. 2007-08, 2008- 09 and 2009-10 stood at Rs.58,643/-, 1,68,493/- and loss at Rs.3,35,051/- after considering huge F&O loss at Rs.32,98,314/- during F.Y. 2008-09.

4.02 The assessee in support of credit worthiness of share applicant Companies have referred to their net worth as on 31.03.07 as under:

(a ) Shri Lal Traders (P.) Ltd., Kolkata 317.31 lakhs
(b) Lake View Vinimay Ltd., Kolkata 424.58 lakhs
(c) Saharsh Suppliers Pvt. Ltd., Kolkat 385.71 lakhs
(d) Ambison Tie Up Pvt.Ltd., Kolkat 289.02 lakhs A closer examination of the Balance sheets & P & L A/cs of the aforesaid Companies for the year ended 31.03.2007 reveal the following:

A) Shri Lal Traders (P) Ltd.

(i) Share capital stands at Rs.16.80 lakhs and Reserve & Surplus at Rs. 300.52 lakhs and Application of Funds is made in Investment at Rs.284.46 lakhs and Loans and advances at Rs. 31.03 lakhs. The entire investment is made in Unquoted Pvt. Ltd. Companies . Note worthy among them are two of the above named share applicants itself namely Amsition Tie Up Pvt. Ltd. Rs.1.85 lakhs Lake View Vinimay Pvt.Ltd. Rs.4.37 lakhs

(ii) Profit & Loss A/c reveals that on sale and other receipts (Rs.72 lakhs + 30,886 interest on TDS ) final result is loss of Rs.3,198/-, line of business is stated as Trading in shares. Absolutely no income is accounted from either Investments or Loans & advances, which clearly suggests that these are accommodation entries entries only. (Copy of Balance sheet, P & L A/c schedule to Balance sheet/ & Investment details included Paper book on pages 26, 27, 28 & 33 are annexed to the appeal order as Annexure A 1 to A 4).

B. Lake View Vinimay Ltd.

(i) Share capital stands at Rs.2,,17,500/- and Reserve & Surplus stand at Rs.402.412 lakhs. The application of funds reveal Investment of Rs.261.99 lakhs and Loans & advances at Rs.165.31 lakhs. Investments are made entirely in Pvt. Ltd. Cos. and there is cross Investment of Rs.1,90,000/- in Sri Lal Traders Pvt. Ltd. against investment of Rs.4.37 lakhs made in this Company by Srilal Traders Pvt. Ltd. as noticed above.

(ii) P. & L. A/c reveal that on sale of Rs.46.52 lakhs and interest on loans at Rs.1,20,000/- , final net profit stands at Rs. 14,032/- only on such huge share holders funds of Rs.24.58 lakhs. Details of loans and advances again reveal that loans stand at Rs.10 lakhs and further advances are given for shares at Rs.154.95 lakhs. No income whatsoever is accounted from such huge investment in shares and advances given for shares exceeding Rs.4 crores which clearly suggests that these are only accommodation entries.

(Copy of Balance sheet, P.&L. A/c and Investment details as included in Paper book at page 84, 85, 86 and 91 enclosed at Annexure B 1 to B 4).

C) Saharsh Suppliers Pvt.Ltd.

(i) Share capital stands at Rs.20,22,000/- and Reserve & Surplus stands at Rs.364.50 lakhs , Investment stands at Rs.301.39 lakhs and Loans and advances at Rs.137.88 lakhs, in Unquoted Pvt. Ltd. Companies and one noteworthy investment is the investment in one of the share applicants' Ambition Tie Up P. Ltd. at Rs.5 lakhs. Other major portions of Loans and advances is against consists of Advance for shares at Rs.106.00 lakhs and loans stands at Rs.21.43 lakhs only.

(ii) The Company with such huge networth of nearly Rs. 4 Crores is having sales of Rs.13.19 lakhs only and interest on loans is reflected at Rs.2.35 lakhs and in the final results there is a loss and is no income is accounted for on investment in shares and advances given for shares which exceeds Rs.4 crores. (Copy of Balance sheet, P.& L. A/c and Schedule to Balance sheet and details of advance as included in Paper book at Page 180, 181, 182 and 187 are enclosed at Annexure C-1 to C-4). D) Ambition Tie Up P.Ltd.:

(i) Share capital stands at Rs.15.40 lakhs and Reserve & surplus stands at Rs.273.62 lakhs Investment in Unquoted Pvt. Ltd. companies stands at Rs.445.08 lakhs. The Company on sales of Rs.46.65 lakhs and interest of Rs.1.68 lakhs has earned net profit of Rs.3093 /- only and absolutely no income is accounted for from unquoted investments in Pvt. Ltd. Company which stands at Rs.4.45 crores and which again clearly suggests that there are only accommodation entries given. (Copy of Balance sheet and Investment details as included in Paper book at page 243, 244, 245 and 248 are enclosed with appeal order as Annexure D-1 to D-4).

The common feature which emerges from the above discussion is that all these Companies had broadly made entire investments in unquoted Pvt. Ltd. Companies from which no income whatsoever is being earned and even these Companies had cross investment in other Company and the turn over is not commensurate with the net worth of the Company and in these Companies there is either loss or negligible profit and is no worthwhile taxes have been paid by these Companies, commensurate with their net worth. Again most common striking similarity is Reserve & Surplus is more than 15-18 times of share capital, which in turn suggests that these companies have also raised share capital on substantial premium from dummy share holders / accommodation entries. It can thus be safely concluded that all these four companies are fictitious paper companies only.

4.1 Now, the legal contentions are examined. It is worthwhile to note that the observation made by Hon'ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295 has been simply stated to be dismissal of SLP in the oldest and still considered to be most leading and reliable Indian Tax Reporter on page 319 ITR 5,6 (statute) in following manner.

"Share application moneys received by company 11.1.2008- Their Lordships S.H. Kapadia and B. Sudershan Reddy JJ dismissed the Department's special leave petition against the judgment dated November 16, 2006 of the Delhi High Court in I.T.A No.953 of 2006 reported in 299 ITR 268, whereby the High Court affirmed the deletion by the Tribunal of additions made on account of sums received from directors of promoters and also by way of a public issue. The court while dismissing the special leave petition held as follows: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this 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, we find no infirmity with the impugned judgment.' CIT v. Lovely Exports Pvt. Ltd. SLP (Civil) No.1153 of 2008." (emphasis supplied) There is no mention of admission / acceptance of SLP filed by the Department, nor issue of notices to opposite parties and thus SLP has been dismissed in limine without being admitted.

4.1.1 The aforesaid observations were made by Hon'ble Supreme Court, while dismissing SLP filed by the Department against judgment in CIT V. Divine Leasing & Finance Ltd., 299 ITR 268 (Del.) wherein it was held as under "No question of law, far less any substantial question of law arises for our consideration. We may, however, briefly reflect upon a submission made by learned counsel for the respondent to the effect that the assessee had, by its letter dated March 8, 1999, requested the Assessing Officer to examine the assessment records of the share applicants whose GR Nos. had been supplied. It is not controverted that action was not taken by the Assessing Officer, but it has justifiably been contended that this inaction was due to paucity of time left at that stage since the assessment had to be framed by March 31, 1999. It has been pointed out that several adjournments had been granted by the Assessing Officer on the asking of the assessee. The timing of the assessee's said letter is most suspect. Generally speaking, it is incumbent on the Assessing Officer to manage his schedule, while granting adjournments, in such a manner that he does not run out of time for discharging the duties cast on him by the statute. In the present case, the details had been furnished to the Assessing Officer much before March 1999, but he failed to react to the shifting of the burden to investigate into the creditworthiness of the share applicants. Therefore, the appeal is dismissed."

(emphasis provided ) 4.1.2 Further Hon'ble Delhi High Court has observed in the same judgment on page 278 of the report -

" Returning to Sophia Finance [1994] 205 ITR 98 (Delhi) the Full Bench which was now presided over by B.N.Kirpal J. (as the Chief Justice of India then was) had enunciated that section 68 reposes in the Income-tax Officer or the Assessing Officer the jurisdiction to inquire from the assessee the nature and source of the sum found credited in its books of account. If the explanation offered by the assesee is found not to be satisfactory further enquiries can be made by the Income-tax Officer himself, both in regard to the nature and the source of the sum credited by the assessee in its books of account, since the wording of section 68 is very wide. The full Bench opined that (page 105): "If the shareholders exist then, possibly, no further enquiry need be made. But if the Incometax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons ... If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt... but if .... the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of section 68 may be invoked." It will at once become obvious that the court had not reflected upon the questions as to: the party on whom; the extent to which; and the point of time when the onus could ,if at all, justifiably said to have shifted. This becomes clear from the last para on page 105 of the report.

This will depend on the facts of each case." It has been argued, but without substance, that the Full Bench did not go further than holding that the only responsibility on the assessee is to identify the subscriber; or that the Assessing Officer was not required to delve into the credit-worthiness of the
subscriber; or that the Assessing Officer need not be satisfied about the genuineness of the transaction."

"There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of section 68 and 69 of the Income-tax Act."

4.1.3 Proceeding further, the Hon'ble Delhi High Court, in its later decision in the case of CIT V. Himalaya International Ltd. 214 CTR (Del) 437 where the decision in the case of Divine Leasing (supra) was considered , has held "Since, in the present case, the Tribunal has not gone into creditworthiness of the creditors and genuineness of the transaction, it is a fit case which ought to be remanded to the Tribunal to give its finding on these two issues."

4.1.4 Now, the provisions of section 68 of I.T.Act, which remain totally unaltered and unamended in more than 46 years of its existence on statute, reads as under:

" 68 Cash Credits Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year."

4.1.5 The proposition of law laid down is very clear and well-established by various judicial decisions. The landmark judgment elucidating the nature of onus cast u/s.68 on an assessee is that of Shankar Industtries v. Addl.CIT (1978) 114 ITR 689 (Cal.). The principle laid down is to be found on page 698 in the following words:

"We would like to observe that the law on this point is now well settled. It is necessary for the assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes proof of the identity of this creditor, the capacity of such creditor to advance the money and, lastly, the genuineness of the transaction. These things must be proved prima facie and only after the assessee has adduced evidence to establish prima facie in the aforesaid, the onus shifts on the department. In the instant case, it seems that the assessee established only the identity of the creditor and nothing more." (emphasis provided) Thus, the initial burden cast by section 68 on an assessee involves these things to be [cumulatively] proved prima facie. The condition of cumulatively proving all three ingredients is clear from the use of the words "These things" in the ratio reproduced above.

4.1.6 Coming to the use of the words "proved prima facie" in the ratio reproduced above, it may be made clear that the Law Lexicon compiled by T.P. Mukherjee incorporates the meaning of the words from the cited decisions as below:

"PRIMA FACIE. Even an obiter dictum of the Federal Court is binding upon the High Court and when a Superior Court held that an Act if "prima facie prospective" it is not open to subordinate courts to canvass the import or implication of that dictum. The use of the word "prima facie" would indicate that there is no possibility of an alternative construction being put on the Act, for it is on the face of it prospective- Nand Kishore v. Sukti Dibya, A.I.R 1933 Ori. 240 at 243: I.L.R 1953 24: 19 C.L.T.44".

4.1.7 Reverting back to the decision of the Hon'ble Calcutta High Court in the Shankar Industries case, the concept of shifting of onus from the assessee on to the AO and thereafter, could also be found elaborated in this decision. The Hon'ble Court reproduced following extracts, from its own decision in an unreported case of Knitting Machineries Syndicate (India) Pvt. Ltd. v. CIT decided on 6.9.1972, on pages 697 and 698 of the report:

"we find that by a series of decisions of different High Courts as well as of the Supreme Court it has been consistently laid down that when an assessee claims that he has borrowed money from a third party the initial onus lies on the assesee to establish (a) the existence of the third party; (b) the ability of the third party to advance moneys; and (c) that prima facie the loan is a genuine one. The assessee by proving these facts discharges the onus upon him. But that does not prevent the authority concerned to probe further into the matter and to investigate the case on materials available to the authority to come to an independent and unbiased finding as to the genuineness of the transaction. It is true that the tax authority is not entitled to reject the assessee's case summarily or arbitrarily or without sufficient reason. It is true that the authority's duty is to examine all the materials carefully and objectively. But it is found that the authority concerned after careful consideration of all relevant materials has come to the conclusion that the assesee's case of a loan from a third party cannot be accepted it is not open to this court to disturb the finding in reference under section 66(1)."

This precisely provides the concept of "shifting of onus" in a case covered by section 68 of the Act. 4.1.8 If the above principles of statutory onus on an assesee u/s.68 and of the shifting of such onus from the assessee on to the AO are applied to any case including the present assessee's case, the following position shall emerge. Prima facie proof of the three ingredients and that too cumulatively shall have to be examined at three different stages one after the other but if an assessee fails to establish at the first stage, the identity of the creditor itself, there is no question of an AO examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys and nor therefore, the AO examining the matter at third stage of ensuring and satisfying himself of the genuineness of the transaction. Had the assessee established prima facie the de facto existence of a creditor company, even then the onus lay on the assessee to further establish certain things because non-production of documentary evidence of corroborative value invites adverse inference against the person who ought to have produced it [CIT v. Krishnaveni Ammal (1986) 158 ITR 826 (Mad)]. When the asessee is pressing into service only the legal or dejure identity of a creditor and not at all coming up with any evidence of the de facto existence of the creditor company, he has completely failed even to prima facie establish the de facto existence of the creditor company. The de jure existence is a mere convenient façade of the de facto existence of the creditor company. Such de jure existence is self serving one, having been obtained through application and other forms and formalities unilaterally filed before the ROC. Such self serving evidences are also not entertained by courts as in the case of Bansidhar Agrawal Panna v. CIT , MP II (1984) 148 ITR 523 (MP). Hence such legal evidence is no more than a mirage because of AO's findings about non-existence of such companies at given addresses despite field enquiries made and repurchase of shares issued to both such Kolkata based companies on same date i.e. on 10.12.08 by Shri Suresh Mehta (16000 shares) , Smt. Anita Mehta (10000 shares) at Rs.10 i.e. face value on common date 10.12.08 at 10% of the price at which such shares were offered nearly 1 year back and there being no such event in intervening period to warrant diminution in value of company by 90%.
Thus, it is clear that whether the explanation offered by the assesee is satisfactory proof of the credits is a question of fact and the finding of the authority that it is a satisfactory explanation is a finding of fact. The present assessee assessee is running away from the AO in the matter of establishing the matter of factly existence of share capital contributing companies and taking shelter to legal contentions only.

4.1.9 On such facts, there is no question of the AO again rushing on its own to the banks where also accounts are opened in the such company's names. Further, the identity, capacity and genuineness aspects are not water tight compartments. An assessee's explanation of the nature and source of the credits cannot be entertained and held by the AO as satisfactory unless and until the ground reality i.e. the de facto existence of the creditor is first established prima facie paving the way for the AO to examine further the capacity and genuineness aspects. Hence merely based on arranged affairs and supporting documents, the identity cannot be said to be established, and in any case NOT the CAPACITY and GENUINENESS of transaction. The AO as discussed above has clearly established the two individuals to benami persons on behalf of one of the Director.

4.2 It has been further established by a series of decisions that the conclusion whether a cash credit in the books of account of an assessee is properly explained or not is a question of fact [CIT V.S.Nelliappan (1967) 66 ITR 722 (SC); CIT V. Manick Sons (1969) 74 ITR 1, 6(S ). Also see, Jadunandan Sahu Deokisanram V. CIT (1984) 16 ITR 175 (Pat); Hari Chand and Prem Chand Bassi V. CIT (1974) 94 ITR 557 (Delhi); Lakshmiratan Cotton Mills Co. Ltd. V. CIT(1972) Tax LR 585(All); Ram Kumar Jalan V.CIT. Further, whether the explanation offered by the assessee is a satisfactory proof of the nature and source of the cash credits is a question of fact and the finding of the authority that it is a satisfactory explanation is a finding of fact [CIT V. Ghewarchand Kamalkumar (1977) 108 ITR 398 (Ori); R.Dalmia V. CIT(1978) 113 ITR 522(Del.) 4.2.1 Further reference in this respect may be made to often referred and relied decision of Hon'ble Supreme Court in the case of CIT V. Orissa Corporation Pvt. Ltd. 159 ITR 78 Wherein also it was held " that in this case the respondent had given the names and address of the alleged creditors It was in the knowledge of the Revenue that the said creditors were income tax assessee. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case." (emphasis supplied) 4.2.2 It is further settled position of law that no burden lies on the Department to show that other source of income was derived from a particular source. Where there is an unexplained cash credit, it is open to the Assessing Officer to hold that it is income of the assessee and no further burden lies on the Assessing Officer to show that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income, it is income from a source which has already been taxed [CIT V. Devi Prasad Vishwanath Prasad, (1969) 72 ITR 194(SC); CIT V. Madhavnagar Cotton Mills Ltd. (1976) 104 ITR 493 (Bom); Roshan Di Hatti V. CIT (1977) 107 ITR 938 (SC); CIT V. Daluram Pannalal Modhi (1981)129 ITR 398(MP)]. For the purpose of bringing such amount to tax, the enquiry whether the income was from a business activity or from other sources is not relevant [CIT V. Durga Prasad More(1969) 72 ITR 807 (SC)].The principle laid down in CIT V. M. Ganapathi Mudaliar [(1964) 53 ITR 623 (SC)], that once it is found that a receipt by the assessee was income of the assessee it is not necessary for the revenue to locate its exact source applies alike to cases in which an entry is found in the books of accounts of the assessee as to cases in which no entry is found [CIT V.Durga Prasad More (1969) 72 ITR 807(SC)].

4.3 Thus, to recapitulate, the correct position that emerges is that onus lies on the assessee to establish identity and creditworthiness of the loan/cash credits and genuineness of the transaction and in each case it has to be decided on consideration of totality of facts and circumstances of the case whether such onus has been discharged by the assessee or not and there is no burden on the AO to link up or establish the source of such credit to the known sources or activities in any manner. In view of such clear proposition of law, it has to be examined whether aforesaid brief decision of Hon'ble Supreme Court in Lovely exports(supra) dismissing the SLP simpliciter after condoning delay with brief observation can be read and understood as laying down the proposition of law as canvassed by the assessee / assessees that even if the contributions of share capital is / are bogus / by non existent persons / entity of no means, no addition can be made in the hands of the assessee/ assessee company, whether such sum are found credited as contribution to share capital /share application money in the name of non-existent / bogus persons/ entity of prima facie no means or doubtful creditworthiness.

4.3.1 Before proceeding further, it will be appropriate to examine the preposition of law laid down in various Supreme Court decisions itself to the effect as to what constitutes the law laid down where SLP is dismissed without formulating the substantial question of law and recording arguments of both the sides of such substantial question of law in deciding the appeals.

(a) Hon'ble Supreme Court in the case of V.M.Salgaonkar & Bros Pvt. Ltd. 243 ITR 383 (SC), Held:

"When a appeal is dismissed by the Supreme Court by a non-speaking order, the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case, the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of article 133 of the Constitution"

(b) Hon'ble Supreme Court in the case of Kunhayammed and others V. State of Kerala 245 ITR 360 considered the point in issue about the doctrine of merger held that once a S.L.P. has been granted, the doors for the exercise of appellate jurisdictions of this Court have been let open. The order impugned before Supreme Court became an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of the doctrine of merger. It would not make a difference whether the order is of reversal or of modification or of dismissal affirming, the order appealed against. It would also not make any difference. Hon'ble Supreme Court while summing up the conclusions, Held:

" (i) "Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.

(ii) The Jurisdiction conferred by article 136 of the Constitution is divisible into two stages. The first stage is up to the disposal if the prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and the special leave petition is converted into an appeal.

(iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under article 136 of the Constitution, the Supreme Court may reverse, modify or affirm the judgment decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of a petition for special leave to appeal. The doctrine of merger can, therefore be applied to the former and not to the latter.

(iv) An order refusing special leave to appeal may be non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the court was not inclined to exercise its discretion so as to allow the appeal being filed.

(v) If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration law by the Supreme Court within the meaning of article 141 of the Constitution.
Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court, which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the
apex court of the country, But this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.

(vi) Once leave to appeal has been granted and the appellate jurisdiction of the Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal; modification or merely affirmation.

(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of rule I of Order XLVII of the code of Civil- Procedure." (Emphasis Provided)

(c) Hon'ble Supreme Court in the case of S. Shanmugavel Nadar, 263 ITR 658 (SC) by following the decision in the case of Kunhayammed and other (supra) Held:

"Though loosely an expression " merger of judgment, order of decision of a court or forum into the judgment, order or decision of a superior forum" is often employed, as a general rule, the judgment or order having been dealt with by a superior forum and having resulted in confirmation, reversal or
modification, what merges is the operative part, i.e. the mandate or decree issued by the court which may have been expressed in positive or negative form. The application of the doctrine depends on the nature of the appellate or revisional order in each case, the scope of the statutory provisions
conferring the appellate or revisional jurisdiction and the content and subject matter of challenge laid or which could have been laid.

Apart altogether from the merits of the grounds for rejection, the mere rejection by a superior forum resulting in refusal to exercise its jurisdiction which is invoked cannot by itself be construed as the imprimatur of the superior forum on the correctness of the decision sought to be appealed against.
Article 141 of the Constitution of India speaks of declaration of law by the Supreme Court: for a declaration of law there should be a speech, i.e. a speaking order. A decision which is not express and is not founded on reasons nor on consideration of the issues, cannot be deemed to be a law declared, to have binding effect as is contemplated by article 141. A summary dismissal by the Supreme Court, without laying down any law, is not a declaration of law envisaged by article 141.

When reasons are given the decision of the Supreme Court would be binding on all courts within the territory of India: when no reasons are given, dismissal simpliciter is not a declaration of law by the Supreme Court. "

(Emphasis provided) 4.3.2 Further, the Hon'ble Supreme Court has held in the case of CIT V. Sun Engineering Pvt. Ltd. 198 ITR 297 as under:

" It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision."

4.3.3 Still further, the Hon'ble Supreme Court in the case of Padma Sundara Rao (Deceased) and others v. State of Tamil Nadu and Others 255 ITR 147 as emphasized " The court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself.

Courts should not place reliance on decisions without discussion how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they were words in a legislative enactment. Judicial utterances are made in the setting of the setting of the facts of particular cases. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases."

4.3.4 Now it is to be noticed that Hon'ble M.P. High Court in its latest and recent Judgment on the issue in the case of CIT V. Rathi Finlease Ltd. 215 CTR (MP) 429 has held as under:

" Without considering that the payments were made by each creditors by first depositing a sum of Rs. 5,00,000/- and then issuing a cheque for the purchase of the shares and that the companies were not found to be in existence, the Tribunal has hastened to come to the conclusion that addition was not justified. In coming to this conclusion, the Tribunal has observed that since AO had himself examined the bank accounts of three subscribing companies and found that there were numerous transactions, the genuineness of the transaction could not have been assailed. Section 68 enjoined the assessee to offer an explanation about the nature and source of the sum found credited in his books and if the explanation was not satisfactory, the amount can be credited and charged to income as income of the assessee. Since the assessee, though tried to explain the genuineness of the credit on the basis of letters of confirmation, it could not be explained as to how the transaction was materialized when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. It was for the assessee to discharge this burden. Therefore, the assessee failed to discharge the burden with regard to the credit in its book and the existence of the creditors to indicate the genuineness of the transaction -
CITV. Steller Investment Ltd. (2000) 164 CTR(SC)287 (2001) 251 ITR4 263(SC) and CIT V. Antartica Investment (P) Ltd. (2003) 179 CTR (Del) 526: (2003) 262 ITR 493(Del) distinguished."

4.3.5 It may be recalled that similar contentions were advanced from the side of assessee/assessees placing reliance on the judgment of Hon'ble Supreme Court in the case of CIT V. Stellar International Ltd. 251 ITR 263(SC) which has been considered by Hon'ble M.P. High Court in arriving at the aforesaid conclusions. Thus, it has to be necessarily concluded that it will have to be considered and decided in every case by a quasi judicial authority involving application of provision of section 68 in the matter of contribution of share capital / share application money whether the onus case on the assessee / assessees has been discharged or not in accordance with law on appreciation of totality of evidence available on record and surrounding facts and circumstances of the case. It may also be noted that Hon'ble Supreme Court in the case of CIT V. P. Mohankala 291 ITR 278 (SC) while examining the provisions of section 68 has held that when the explanation offered by assessee is not found to be satisfactory and proper that will be a case of offering no explanation by the assessee. In this case while in its earlier two decisions namely CIT V. Durgaprasad More 82 ITR 540 and Sumati Dayal V. CIT 214 ITR 801, the Hon'ble Supreme Court has clearly laid down the preposition of law that in appreciating documents, evidence and evidence on record, the Court can not be oblivious to the surrounding facts and circumstances of the case and human probabilities. Therefore, the assessee assessee cannot derive any support from the decision of the Hon'ble Supreme Court in the case of Lovely Exports & Other (supra.) and for that matter much support from other reported decision except to the extent of broad preposition of law as analysed and discussed above.

4.4 The detailed legal contention of the assessee have been examined above. Now reverting back to the facts of the case, the assessee is a private limited company.

4.5 Section 3 of Companies Act, 1956, defines "private company" as under:
(iii) "private company" [means a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed, and by its articles,-]
(a) restricts the right to ......

(b) limits .............
© Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company:

(d) Prohibits....] ........ as a single member Clause (c) as above, makes it clear that the subscribers to shares of private company cannot be from public. It, therefore, follows that the subscribers to shares of private company can be only private persons. Such private persons must invariably be persons of confidence and acquaintance of directors of private company and there should be normally, no difficulty in producing them before the AO. And in case, they are not produced, the natural corollary is that the real position is not the same as emerges form papers and documents furnished in this behalf.

The company very tactfully and intelligently has tried to overcome the condition of inviting subscription from public. In reply to query from this office to establish genuineness of transaction, it has been admitted by the Assessee that no dividend was distributed and such share applicant companies are found to be dummy / paper companies as discussed in para 4.02 above. Further, investment of almost entire networth by all the four share applicant companies in Pvt.Ltd. companies, that too at premium, where from neither was return is assured, nor safety of investment was guaranteed, not to speak of capital appreciation and lastly such investment being totally illiquid, defies all logic and rational of conventional investment decision making process. Such investment decision can not be taken by any genuine company, who would be interested in both protecting its investment and earning a decent return on such investment. Thus, it has to be necessarily concluded that these companies engaged them selves in providing bogus share capital by way of accommodation entries to wiling tax evaders.

4.5.1 From the facts available, it prima facie transpires that the company itself contacted these alleged investors to utilize their names in the garb of prospective share holders. No proof of making any correspondence or inquiry with the company by these investors before investing in shares of the company has been produced on record despite specific requisition even in appeal proceedings.

4.6 It will be appropriate to take notice of the commonly known notorious facts about the modus operandi of the converting unaccounted funds by the Promoters and Directors of the company by first inviting such share application from willing dubious entities and then acquiring back the same at an agreed price which is normally too low compared to the issue price and there being no rational for selling of such shares for such low price by the initial contributors. Reference can be made to the following decisions:

(a) CWT v. Rohtas Industries Ltd., 67 ITR 283 (SC), wherein it was held that "In the absence of any direct evidence, a judicial or quasi-judicial Tribunal can base its conclusions on the basis of what are known as notorious facts bearing in mind the principles of section 144 of the Evidence Act."

(b) Attar Singh Gurmukh Singh v. ITO 191 ITR 667(SC) wherein, while interpreting the provisions of section 40A(3), it was held that "In interpreting a taxing statute, the court cannot be oblivious of the proliferation of black money which is under circulation in our country."

4.7 Before concluding, it will be only proper to take note of the following recent decisions from Hon'ble ITAT, where in even after taking note of the decision of Hon'ble Supreme Court in the case of Lovely Exports (Supra), it has been held that onus still rests on the assessee to establish
genuineness of share application transactions besides establishing Identity & Credit worthiness of such share applicants. AO's power and duty to investigate the reality and genuineness of transactions has also been recognized and emphasized.

I. GOLD LEAF CAPITAL CORPORATION OF INDIA LTD. VS JCIT 308 ITR (AC) 94 (DELHI) II. ITO VS CHANDIGARH THEATERS (P.) LTD 125 TTJ (CHD) III. MOTLAY FINANCE (P.) LTD VS ACIT- ITAT INDORE BENCH. (ITA NO. 96/IND/48 DECIDED ON 28/01/07)
4.8 Thus, on overall consideration of the facts and circumstances of the case and as discussed in detail above, the amounts claimed to be received by the assessee do not in any way appear to be genuine share capital. They are nothing but arranged affairs being pre-ordained series of transactions and tax evasion device where money laundering transactions have been camouflaged as share application money. Hence no credence can be placed on the copies of various documents filed to support such claim of share capital contribution and addition of Rs.30 lakhs is hereby confirmed."

4. We have considered the rival submissions and perused the material available on file. Under the aforementioned facts/observations made in the assessment order/impugned order and the assertion made by the learned respective counsels, during hearing the learned counsel for the assessee invited our attention to the reply dated 5.12.2011 (page 465 of the paper book) to the effect that summons (page 463) were issued to the share applicants, requiring certain information u/s 131 of the Act, the share applicants duly confirmed that Srilal Traders Private Limited (share applicants) gave Rs. 3 lacs to the assessee during financial year 2006-07 as share application money through cheque no. 295383 dated 28.4.2006 drawn on HDFC Bank, Calcutta, meaning thereby the identity of the share applicants was proved.

It is further noted that the summons sent u/s 131 dated 28.11.2011 to the share applicants were duly received, therefore, it can be said that their address was also confirmed. The share applicants have also filed the copies of the bank statements. Likewise, summons dated 28.11.2011 were also issued to Lake View Vinimay Private Limited which were duly received and vide reply dated 3.12.2011 addressed to the Dy. Director of Income Tax (Investigation) they duly confirmed payment of Rs. 10 lacs vide cheque no. 126786 and 126785 both dated 26.4.2006 (each Rs. 5 lacs) and the said reply is duly acknowledged by the office of the Directorate of Income Tax Department (Investigation), Kolkata, on 5th December, 2011. The share applicants have also furnished copies of bank statements along with acknowledgement of the return. The summons were also issued on 28.11.2011 to Saharsh Suppliers Private Limited, which were duly received, and confirmation was also filed with the Directorate of Income Tax (Investigation) on 7th December, 2011 as is evident from the seal of the department affixed on these papers. That party also filed the confirmation letter confirming the payment of Rs. 7 lacs through account payeed cheque no. 000036 dated 28.4.2006. We further find that the summons dated 28.11.2011 issued to Ambition Tie Up Private Limited were duly served by the department and in compliance thereof, they confirmed the payment of Rs.10 lacs, in the form of share application money vide cheque dated 24.4.2006 along with copy of bank statement and copy of acknowledgement of filing of income tax return. All these documents clearly prove their identity if the summons would not have been received or the addresses of the share applicants would have been fake, there was no question of service of summons and consequent reply by such share applicants. Under these facts, it can be said that their identity is proved. In view of these facts, the decision from Hon'ble Apex Court in the case of Lovely Exports Private Limited, 18 ITJ 717 clearly comes to the rescue of the assessee, the relevant portion of the same is reproduced hereunder :-

""Share application moneys received by company 11.1.2008- Their Lordships S.H. Kapadia and B. Sudershan Reddy JJ dismissed the Department's special leave petition against the judgment dated November 16, 2006 of the Delhi High Court in I.T.A No.953 of 2006 reported in 299 ITR 268, whereby the High Court affirmed the deletion by the Tribunal of additions made on account of sums received from directors of promoters and also by way of a public issue. The court while dismissing the special leave petition held as follows: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this 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, we find no infirmity with the impugned judgment.' CIT v. Lovely Exports Pvt. Ltd. SLP (Civil) No.1153 of 2008." (emphasis supplied) If the aforesaid conclusion drawn by the Hon'ble Apex Court is kept in juxtaposition with the facts of the present appeal, it can be said that the identity of share applicants was proved. In view of these facts, it can be said that if the department still finds such applicants to be bogus, they are free to reopen their individual assessments but certain no addition can be made u/s 68 of the Act in the hands of the assessee company.

5. During hearing the learned Senior DR contended that the issue is covered by the decision of the Tribunal in the case of M/s Agrawal Coal Corporation decided by this Bench on 31st October, 2011 in ITA Nos. 151/Ind/2009, 283, 136 and 34/Ind/2010, 190/Ind/09, 158/Ind/2010 etc. We are not agreeing with this proposition because in that case the identity of such share applicants was not proved and even the addresses of such share applicants were found non-existent/bogus.

In view of those facts, this Bench concluded that the decision from Hon'ble Apex Court pronounced in Lovely Exports Private Limited is not applicable and the addition was confirmed in the hands of the assessee.

However, in the present appeal, since the identity of such share subscribers, as we have discussed above, was established, therefore, no addition u/s 68 is warranted in the case of the assessee company. So far as the decision from Hon'ble jurisdictional High Court in the case of CIT vs. Rathi Finlease Limited (2008) 215 CTR (MP) 249 is concerned, in that case, despite several opportunities, the assessee was unable to provided confirmations from the concerned parties, therefore, the Hon'ble Court reached to a particular conclusion, whereas in the present appeals, the identity of share applicants, namely, M/s. Shrilal Traders Private Limited, M/s Lakeview Vinimay Private Limited, M/s Saharsh Suppliers Private Limited and M/s Ambitions Tie Up Private Limited was established, therefore, in view of the decision from Hon'ble Apex Court in the case of Lovely Exports Private Limited (supra), this judicial decision from Hon'ble High Court may not help the revenue.

6. So far as the argument of the learned Sr. DR and the objections/observations of the learned Assessing Officer/learned Commissioner of Income Tax (Appeals) that these are paper companies only, the contention raised on behalf of the assessee is that the net worth (as on 31.3.2007) of such share subscribers is Rs. 317.31 lacs, Rs. 424.58 lacs, Rs. 385.71 lacs and Rs. 289.01 lacs. We are not going on the issue of worth of these share applicants because the Hon'ble Apex Court in the case of Lovely Exports Private Limited (supra) held that even if such share applicants are bogus, but their identity is proved, then no addition is warranted in the case of the assessee. So far as the decisions cited in the impugned order are concerned, in view of the decision from Hon'ble Apex Court in the case of Lovely Exports (supra), has remained for academic interest only, being on different facts, therefore, we are refraining ourselves in dealing with each and every case individually, especially in the light of the evidences, filed by the assessee, evidencing that the identity of such share applicants was very much proved by further filing of confirmation by them.

7. In view of these facts, the decision from Hon'ble Apex Court in Lovely Exports (supra) and uncontroverted fact that the summons issued to the impugned share applicants were duly received by them with further filing of confirmation by such share applicants, at least their identity is proved,
therefore, this appeal of the assessee deserves to be allowed. Finally, the appeal of the assessee is allowed.

Order pronounced in open Court on 6th February, 2012.

Sd                                                                                                                                           sd
(R.C. SHARMA)                                                                                                  (JOGINDER SINGH)
ACCOUNTANT MEMBER                                                                                 JUDICIAL MEMBER
February 6, 2012

Copy to Appellant/Respondent/CIT/CIT(A)/DR Dn/-
  

Pioneer Buildwell (P) Ltd.,New ... vs Assessee

 Income Tax Appellate Tribunal - Delhi



Pioneer Buildwell (P) Ltd., New ... vs Assessee

ITA NO.6070/Del/2013

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F", NEW DELHI

BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND
SHRI H.S. SIDHU, JUDICIAL MEMBER

I.T.A. No. 6070/DEL/2013

A.Y. : 2002-03

M/S PIONEER BUILDWELL (P)LTD.,
212, JAINA TOWER-I, DISTRICT CENTRE,  JANAKPURI,
NEW DELHI - 110008 (PAN: AACCP3217F)(APPELLANT)
 
VS.
 INCOME TAX OFFICER,
WARD 14(2), NEW DELHI (RESPONDENT)

Assessee by : Sh. Sanjeev Jain, CA
Department by : Sh. Vikram Sahay, Sr. DR

Date of Hearing : 28-05-2015
Date of Order : 29-05-2015

ORDER

PER H.S. SIDHU : JM Assessee has filed this Appeal against the impugned order dated 01.8.2013 passed by the Ld. CIT(A)-XVII, New Delhi relevant to assessment year 2002-03 on the following grounds:-

1. That the Ld. CIT(A) has erred in upholding the order passed by the AO u/s. 143(3)/147 of the Act even though the AO did not have valid jurisdiction to do so.

2. That the Ld. CIT(A) has erred in upholding the addition of Rs. 30,00,000/- made u/s. 68 of the Act by the AO on the allegation of unexplained credits of share application money.
3. That the Ld. CIT(A) has erred in holding that the assessee has not been able to prove the identity or creditworthiness of the creditor and the genuineness of the transaction.

4. That the Ld. CIT(A) has erred in ignoring the remand report submitted to her by the AO wherein the AO has clearly stated that the assessee has produced the directors of the companies investing in the share application of the assessee company and that those directors have confirmed the fact of having made investment in assessee company and have also explained the mode and manner of the investment made by them in the assessee company. That the Ld. CIT(A) has further failed to appreciate that the AO has accepted in the remand report that the source of investment made in the assesssee company have also been explained by the share holders in their statements recorded on oath by the AO.

5. That the appellant craves the right to amend, append, delete any or all grounds of appeal.

2. The brief facts of the case are that on receiving information from Investigation Wing that assessee company has received accommodation entries in the shape of share application money. AO issued a notice u/s. 148 dated 30.3.2009 to the assessee to file its return of income for the above mentioned assessment year within 30 days from receipt of the notice. The notice was sent by speed post and also through personal service at 212, Jaina Tower-I, District Centre, Janak Puri, New Delhi. On 22.4.2009, Sh. Harmit Singh, CA of the assessee company attended and filed acknowledgement of the return filed on 29.10.2002. Again letter and notice under section 143(2), 142(1) dated 9.7.2009 issued and requested the assesssee to file complete return of income, copy of ITA NO.6070/Del/2013 balance sheet and Tax Audit Report and the case was fixed for 16.7.2009. None attended on this date. Penalty show cause notice under section 271(1)(b) was issued and fixed the case for 6.8.2009. Sh. Harmit Singh, CA attended on this date and asked to give reason for reopening of assessment.

2.1 The assessee company was incorporated on 20.12.2001 to carry on the business as owners, builders, colonizers developers etc. During the course of assessment proceedings the Assessee's AR was asked to provide complete details i.e. name and address of the parties from whom share application money of Rs. 30 lakhs were taken during the financial year 2001-02 relevant to assessment year 2002-03. The case of the assessee was reopened on the ground that the assessee during the financial year relevant to assessment year 2002-03 has received share application money/ accommodation entries from various persons. Asseessee's AR vide letter dated 27.11.2009 filed details i.e. name and address of the persons from whom share application money was received. AR of the assessee was asked to file details of four credit entries appearing in its bank account with HDFC Bank. As on 30.11.2009 AR of the assessee company was aksed to produce the said parties in person for cross verification and was asked to produce copies of bank accounts of the persons from whom share application money was received. But AR of the assessee failed to produce thoese persons for cross verification and also bank accounts of them were not filed. Under the circumstances, the AO completed the assessment u/s. 143(3) /147 of the Act vide his order dated 16.12.2009 and added a sum of Rs. 30,00,000/- as unexplained cash deposit u/s. 68 of the Act.

3. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 01.8.2013 has dismissed the appeal of the assessee.

4. Aggrieved with the order of the Ld. CIT(A), Assessee is in appeal before us.

5. Shri Sanjeev Jain, Ld. Counsel of the assessee stated that both the Revenue authorities have wrongly made the addition in dispute under section 68 of the I.T. Act as unexplained credit of share application money in spite of the fact that assessee has fully been proved the identity, creditworthiness of the creditors and the genuineness of the transaction with the support of all necessary documentary evidence before the authorities below. But the revenue authorities has not properly appreciated the evidence filed by the assessee and made the addition in dispute. Ld. Counsel of the assessee further stated that as required by the AO, the Assessee has produced the Directors of the Companies in dispute who has invested the share application money in the assessee company and those Directors have confirmed the facts of having made the investment in assessee company and have also explained the mode and manner of the investment made by them in the assessee company by appearing before the AO. But these facts have not been appreciated by the authorities below and they have wrongly made the addition in dispute in the case of the assessee. Lastly, he stated that the issue in dispute is similar to the issue involved in the case of ITO vs. Neel Kanth Finbuild Ltd. in ITA No. 2821/Del/2009 (A.Y. 2006-07) in which the Coordinate 'E' Bench, ITAT, New Delhi vide order dated 1.4.2015 has decided the issue in favour of the assessee by citing various decisions rendered by the Hon'ble Supreme Court of India and the Hon'ble High Courts. He has also filed the copy of this order alongwith the Paper Book. He requested ITA NO.6070/Del/2013 that the aforesaid decision of the Coordinate Bench in the case of ITO vs. Neel Kanth Finbuild Ltd (Supra) may be followed and the appeal of the assessee may be allowed on the same terms by deleting the addition in dispute.

6. Ld. DR also raised preliminary objection that the assessee while filing the appeal before the ld. CIT()A in the Statutory Form No. 35 has not given the Statement of Facts. He contended that Form No. 35 is statutory Form and not giving Statement of Facts before the Ld. CIT()A in the prescribed form makes the order defective and consequently, the order passed by the Ld. CIT(A) is bad in law. To reply this objection by the Ld. DR, Ld. Counsel of the assessee filed the copy of the order dated 19.2.2015 passed by the ITAT, Delhi 'G' Bench, New Delhi in ITA No. 4674/Del/2014 A.Y. 2009-10 in the case of SVP Builders (India) Ltd. vs. DCIT. He stated that the objection raised by the Ld. DR has already been answered in favor of the assessee in the said order and therefore, he requested that the action of the Revenue is devoid on merits and hence may be dismissed.

7. Ld. DR relied upon the order passed by the Ld. First Appellate Authority. He further stated that assessee was not able to prove the identity of the persons, the creditworthiness, genuineness of transaction in dispute. He further stated that the Revenue Authority has perused the return of income filed by Shree Gupteshwar Marketing (P) Ltd, D.K. Ispat and Timber Ltd. and Kuberco Sales (P) Ltd. and found that the return filed by them are on a very meager side which established that these parties have not established their creditworthiness and genuineness of transactions in dispute, therefore, the Revenue Authority rightly made the addition in dispute, which may be upheld by dismissing the appeal filed by the assessee.

8. We have heard both the parties and perused the records available with us on the preliminary objection and especially the order dated 19.2.2015 passed by the ITAT, Delhi 'G' Bench, New Delhi in ITA No. 4674/Del/2014 A.Y. 2009-10 in the case of SVP Builders (India) Ltd. vs. DCIT, we are of the view that the objections raised by the Ld. DR has already been adjudicated and answered in favor of the assessee by the ITAT in the aforesaid case in which one of the Judicial Member was the party. The relevant para no. 15 of the aforesaid order is reproduced below:-

"15. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and the orders of the authorities below, as well as case laws cited, we hold as follows:-

The first objection of the Ld. DR is that the statement of facts have not been filed by the assessee, in Form No. 35, filed before the CIT(A). the CIT(A) has not treated the forms filed before him as defective. He admitted the appeal and adjudicated the matter on merits. The order of the Ld. CIT(A), is the impugned order appealed against before us. The Ld. DR wants us to hold that the order of the Ld. CIT(A) is illegal and against the law as there is a defect in Form No. · In our view the arguments raised by the Ld. DR are devoid on merit. Defects in the return of income filed, defects on Form No. 35 which is the form of appeal etc. are to be considered by the respective authorities before whom these are filed and the maintainability of the appeal before us cannot be challenged. The right of appeal is a substantive right. Procedural issues cannot take away substantial rights of a person. This cannot be a ground for the Revenue to challenge the order of the Ld. CIT(A), which is in this case in favor of the Revenue. The arguments, to say the least are farfetched. Hence we dismiss the same."

9. Keeping in view of the aforesaid order dated 19.2.2015 passed by the ITAT, Delhi 'G' Bench, New Delhi in ITA No. 4674/Del/2014 A.Y. 2009-10 in the case of SVP Builders (India) Ltd. vs. DCIT, the objection raised by the Ld. DR is devoid on merits and as such dismissed.

10. As regards the merits of the case, the assessee has raised 5 grounds of appeal. At the time of hearing, Ld. Counsel of the assessee made a statement that he is not pressing the issue involved in ground no. 1 in which the assessee has raised the issue of jurisdiction of the AO. Ld. DR has not raised any objection. Keeping in view of the agreed position by both the parties, the issue involved in Ground No. 1 regarding challenging the AO's jurisdiction is dismissed as not pressed.

11. With regard to ground no. 2 to 4 are concerned, as stated by the Ld. Counsel of the assessee that the issues in dispute are squarely covered in favor of the assessee by the decision of the Coordinate  Bench, 'E' Bench, ITAT, New Delhi vide order dated 1.4.2015 passed in the case of ITO vs. Neelkanth Finbuild Ltd. in ITA No. 2821/Del/2009 (A.Y. 2006-07).ITA NO.6070/Del/2013

12. We have heard both the counsel and perused the records available on record especially order dated 1.4.2015 of the Coordinate Bench, 'E' Bench, ITAT, New Delhi passed in the case of ITO vs. Neelkanth Finbuild Ltd. in ITA No. 2821/Del/2009 (A.Y. 2006- 07), we find considerable cogency in the assessee's counsel submission that the facts and circumstances of the case are identical and similar to that the aforesaid case in the matter of ITO vs. Neelkanth Finbuild Ltd. wherein, the Coordinate Bench has adjudicated the issue in dispute as under:-

"4. We have heard both the parties perused the record available with us specially orders passed by the revenue authority along with the documentary evidence filed by the assessee. We are of the view that the Assessing Officer during the course the assessment proceedings has made the following observation in the assessment order on the issues in dispute.
"During the year under consideration, the assessee company has increased its share capital by Rs.1,0,000/- having issued 11,00,000 equity shares @ 20/- each. From the perusal of details furnished by the assessee company, it was noticed that share application money of Rs. 15,00,000/- is claimed to have been received from the following two persons:

Sl No.  Name         Amount Received (Rs.)            Cheque No.And Date                   Drawn  on Bank
1. M/s Paras Infotech (P) Ltd.  E-71, Amar Colony, Lajpat Nagar, Delhi-24   5,00,000/-  000009  dated  25/13/2006  Kotak Mahindra Bank, Old Rajinder Nagar  Delhi

2. Sh. V. K. Angami, R/o 21/2 Mile  Dimapur, Asam  10,00000  Amount received in Cash

Share application money received from M/s Paras Infotech Pvt. Ltd.

Before proceeding further, it may be mentioned that the Investigation Wing has carried our certain investigations into an accommodation entry racket being run by some persons. It has been found that the said Mls Paras Infotech Pvt Ltd. is also one of the "companies" floated by these persons and is being used as for the purpose of arranging accommodation entries. It has been found that this "company" is not carrying out any actual business activity, It does not have creditworthiness nor does it have any worthwhile sources of income, It is a corporate entity in name only. The bank accounts existing in the names 0/ these persons arc being used as conduits for the purpose of providing accommodation entries. A person/party who provides such entry is known as Entry Operator and the person/party taking such entry is called Beneficiary. An entry operator operates a number of accounts in the same bank/branch or in different branches in the names of' companies, firms, proprietary concerns and individuals. For the operation of these bank accounts, filing income tax returns etc. persons are hired Except for two or three persons who arc required to regularly visit bank and to do other spade work like collection of cash etc., most of the other person involved are on part time basis. The part time employees are called us and when required to sign documents, cheque books etc. A person interested in introducing its undisclosed money into his/her/it, business approaches the entry operator and hands over the cash. along with commission and takes cheques DD/PO. The cash is deposited by the entry operator in a bank account either in his own name or in the name of relative/friends or other person hired him for the purposes of' opening bank account. The other person, in whose name the account is opened. only sign: the blank cheque -book and hands over the same to the main entry operator The entry operator, in turn. Issues cheques/DD/POs in the name of the Beneficiary either from the account in which the cash is deposited or after multi-layering and further obscuring the trail by rotating it through other account or accounts, which are used only as conduits and in ,which the funds are transferred through clearing in two or more stages.

Thus, the beneficiary's unaccounted money sails through several accounts before round-tripping back to it, only disguised in the form of share application money, unsecured loan, gift etc. While most of the concerns/individual have obtained PAN from the department and are filing returns as well. what is shown in the return are not actual state of affairs.

During the course of the assessment proceedings, the assessee company furnished a copy of the purported confirmation from the Director of the said company, namely Sh. Mukesh Gupta. The said Sh. Mukesh Gupta S/o Sh. R. D Gupta, RIo WZ-414, Naraina Village, Delhi, along with his associates, has given sworn statements u/s 131 before the Addl. Director of Income Tax (investigation), Unit-I, New Delhi. 1n the said statements they have admitted that the "companies" and other such concerns owned/controlled/managed by them are not carrying on any actual business activities. They have categorically admitted that they are engaged in the activity of providing accommodation entries, The deposits reflected in the bank accounts existing in the ruimes of the "companies" controlled by them actually belong to the persons approaching them for taking accommodation entries. These bank accounts existing in their names have been used only as conduits for the purpose of arranging accommodation entries for others in the garb of share capital etc. as described above.

In view of the above facts, notice u /s 131 of the Act addressed to the Principal Officer of M/s Paras Infotech Pvt Ltd (directed at the above address) was issued requiring the director of the said "company" to attend this office personally, along with its books of accounts, evidence in support of its creditworthiness, the original share certificates issued by the assessee company etc. However, the notice was received back undelivered with postal remarks to the effect "no such company"

A perusal 0f the bank statement 0/ the said "company" revealed that there was a cash deposit of Rs. 9,98,000/- in the account (A/c No, 179 2000000192) on 25.03.2008, prior to the release of funds in favour of the assessee by way of cheque dated 25.03. 2006.

The AR was confronted with the above facts from time to time during the course of the assessment proceedings and was required to explain as to why adverse inference ,may not be drawn regarding the genuineness of the transaction and the capacity of the said "company". He was also asked to produce the director of the company (Sh. Mukesh Gupta). The AR was also provided copies 0f the following sworn statements 0f Sh. Mukesh Gupta and his other associates given before the Additional Director of Income Tax Investigation), Unit-I, New Delhi.

a) Statements dated 14.0 I. 2004 of Sh. Mukesh Gupta.

b) A joint letter/statement dated 11. 05. 2004 addressed to the Addl. DIT (Investigation), Unit- 1, New Delhi by Sh. Mukesh Gupta, Sh. Rajan Jassal and Sh. S. P. Singh.

In reply to the show-cause, the A R finished his reply vide written submission dated 15. 12.2008. The substance of the reply is as under.

a) The assessee company has filed "confirmation ", copy of the ITR etc. of the said company. It is company duly incorporated under the Companies Act. The assessee company has discharged its onus by filing above documents evidencing their identity and creditworthiness.

b) The statements given by the above persons are vague and general in nature and the name of the said company does not figure in the companies/concerns identified by them.

The assessee's contentions in support of the genuineness of the transactions and the documents purporting to be confirmations etc of the above share applicants have been considered, but have not been found to be sufficient in view of the facts and circumstances of the case. The assessee's contention is that the onus on it stands discharged in view of the above documents filed by it in support of the identities of the share applicants. This rather simplistic contention of the assessee has no legal basis. The Hon'ble High Court of Delhi in the case of CIT v. Mls Himalaya International Ltd. (rendered on 30.07.2007 in ITA 1509 of 2006) has clearly held that the onus is all the assessee to establish the identity & creditworthiness of the subscribers of shares as well as the genuineness of the transaction The following observations made by the Hon'ble High Court in the case of CIT Vs. Divine Leasing and Finance Ltd., General Exports and Credits Ltd., Lovely Exports (P) Ltd (299 ITR 268) in para 2 I of the judgment, should lay to rest any further lingering doubts on the import of the section 68 vis a vis the question of share capital ITA NO.6070/Del/2013 " But we hasten to clarify that the statement of law made by the ITA T to the effect that in case of share capital no additions could be made if it is established that the shareholders exist is no! completely correct, and has not been so enunciated by this Court in Sophia Finance"

Before evaluating the credibility of the purported evidence sought to be relied on by the assessee against the overwhelming circumstantial evidence exposing the real nature of the transactions, the import and ingredients of section 68 may be briefly discussed. If has been judicially established that the primary onus is on the assessee to prove the identity & creditworthiness of the party and the genuineness of transactions in respect of cash credits in its books of account. The identity and creditworthiness. in the context of the provisions of section 68, cannot be seen as two separate elements but as two sides of the same coin. The PAN or other assessment particular are at best, only peripheral documents as while allotting PAN or processing the ret urns, the actual affairs are seldom verified. The creditworthiness essentially means some financial standing in one's own right backed by one "s inherent capacity to earn income or the capacity of some profit-making apparatus available to one.

Further, the degree of onus contemplated/ls 68 depends on the facts of each case and no standard degree of proof can be applied in all cases irrespective of the nature of receipt. Whether the onus, in a particular case, is stringent or light, would depend upon the facts of the case. For example, where the amount it received from close relatives or friends by way of loan or deposit or otherwise, the onus would be stringent or light, would depend upon the facts of the case. For example, where the amount is received from close relatives or friends by way of loan or deposit or otherwise, the onus would be stringent since the assessee is supposed to know all the particulars. In case where the share capital is received through public issue, the company is not supposed too know about the source from which share applicant makes the investment. Therefore, the onus would be light. However, where the shares are issued by a private limited company, the onus would be stringent for the reason that the public issue cannot be made by a private limited company and the capital is received through private placement normally to known persons i.e. the relatives and friends of directors. The degree of the onus would be even stringent when the very credentials of the 'director' of an investor company "are suspect because of the fact that he has admittedly been running on accommodation entry racket through the medium of many "companies "floated by him. It is now proposed to consider the purported evidence sought to be relied upon by the assessee in the light of the facts and circumstances of the case.

(1) As discussed above, simply furnishing the PAN or assessment particulars is not enough. The so-called evidence in the form of return of income etc. Does not facilitate cross verification. While on the purported "confirmation "filed on behalf of the investor "company", its address is mentioned as Ë -71, Amar Colony, Lajpat Nagar, Delhi", the summons sent at the above address has been received back undelivered with postal remarks "no such company". The acknowledgement of return etc., by themselves, are not sufficient to prove the true identity of a person or to disclose a true address. This is not a case where some legal proceedings are shown to have been made in the hands of the said "company" at the said addresses and they are shown to have attended the proceedings. The identity should be seen in perspective that the person has got to have some standing in a particular line of ITA NO.6070/Del/2013 activity. Identity is defined in the new shorter oxford dictionary as "The condition or fact of a person or thing being that specified unique person or thing". The person has to have some sign of identification other than merely on paper. These signs could be the infrastructure of business, place of work, staff members, books of accounts, substantive evidence of the business carried by the persons in the form of tools and apparatus of business, inputs of the business, process involved etc. Or anything which can prove that some actual activity is going on. Having PAN or assessment particulars is merely a response to the applications and returns filed. These types of identity are merely on paper.

(2) The person has neither been produced nor has any substantive evidence produced in support to its actual affairs and creditworthiness that could only be examined. given the/acts of the cc/se, if somebody on its behalf is produced along with necessary evidence of the nature and details of their activities on the ground, the sources of deposits and their books of accounts. For accepting the identity and the availability of funds in their hands in its own capacity, it is necessary to hove at least some idea, if not complete details, of the actual "business" in which it is said to he engage As mentioned above, there was cash deposit in the said bank account prior to the release of funds in favour of the assessee. In fact, there are specific reasons for not maintaining/ producing books of accounts and filing annexures showing composition a/investments in such cases. For one, the amounts given as share application money etc. are lost forever (as they are one time entries). Another reason for not filing the schedule of investment and loans is that while the amount shown in the balance sheet may be less the actual amounts may be more. For example, if one crore has been actually routed through the bank accounts the amount shown in the balance sheet may he just ten or twenty lakhs. Providing rhe schedule of investments and assets makes it difficult for them to give a confirmation to anyone whose name is not available in the schedule.

 (3) (2) The assessee company is private limited company In the case of such companies, there is close and proximate relationship between the promoters/directors and the shareholders. The closely-held companies are permitted to accept the subscriptions of share capital or deposits only from the friends or relatives of the promoters/directors and such companies arc not allowed to accept subscriptions or deposits from the general public. The shares are, therefore, subscribed by a small number of persons who are known to the promoters or are related to them by family members. As such, there should have been no difficulty on the part of the assessee to produce the so- called investor, had the whole apparatus not been merely a conduit to plough back tlie unaccounted money of the assessee-company in the garb of share application money. There is no reason why a genuine investor would evade inquiries into its affairs. The investors are at least supposed to produce the original share certificates. It is also hard to believe the assessee's contention that it has had no contact with the so-called share- holder in the light of the fact that a genuine contributor in the share capital would not abandon his investment ITA NO.6070/Del/2013 4(3) Mere payment by account- payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. As mentioned above. cash has been deposited into the account just prior to the issue of the cheque. Therefore, unless the creditworthiness of the "company" and the transactions represented by the entries in the bank are correlated with the "business activity" or their sources of income, the deposit of cash immediately before the release of funds in l favour of the assessee only corroborates the fact that the account has been used only for the purpose of providing accommodation entries. The evidence afforded by the above facts is only fortified by the aforesaid statements of Sh. Mukesh Gupta That the money has come through banking channel per se does not make the transaction genuine when there is presence of other factors present suggesting otherwise The nature of deposits in its accounts cannot be explained except by the truth that these amounts represent the money of the beneficiary routed through it. The beneficiary has to have the money in its account through normal bonking channel This is the sole reason/or arranging the entire transaction.

4) The assessee has further contended that the name of the said "investor company " does not appear in the statements given by the above persons. This argument does not carry any' force. That Sh. Mukesh Gupta himself is "director" in the said "company" has not been denied The said "company .. has clearly been identified in the information/report received from the Wing as one of the entities belonging to the group and through which accommodation entries are being provided Further, the above statements by themselves are sufficient to impeach the credentials of the said Sh. Mukesh Gupta. Apart from this tell-tale connection, the other factors. namely. the pattern of the transactions, the deposit of cash in the bank account immediately before the release of funds in favour of the assessee, the non- furnishing of any evidence ill support of any actual business being carried out by the said "company", the non-production of original certificates by it, the fact of the notice having received back undelivered, considered in their totality clearly establish that Mls Paras Infotec P Ltd. is also one of the entities being used to arrange accommodation entries.

In the light of the above, the onus lay heavily on the assessee to establish the genuineness of the transactions and the creditworthiness of the alleged share applicants and the genuineness of the transactions. Considering the totality of the circumstances, it is obvious that the "transaction" was only a camouflage. The total amount of Rs. 5,00,000/- stated to have been received From the said .. investor company" represents the assessee's own unaccounted money which has sought to be introduced into its business in the garb of share application money. Thus, keeping in view the totality of the facts. the amount of Rs. 5,00,000/- is added back to the income of the assessee company u/s 68 of the IT Act. Share Capital of Rs. 10,00,0001- received from Sh. V.K. Angatnt ITA NO.6070/Del/2013 (4) As per the details filed, the assessee has also received a sum of Rs. 10,00,000/- from Sh. V K. Angami, R/o 21/2. Mile, Dimapur, Assam.The entire amount of Rs. 10,00,000/- has been received in cash. Notice u/s 133(6) was sent to Sh. Angami on 06.09.2007, calling/or the the following:

(5) (a) Confirmed copy of account of the assessee in his books of accounts for the year under consideration (6) (b) Source o.f investment in share capital of the assessee company with copies of the hank statement. Copy ofhis Balance Sheet/ Statement of Affairs as on 31. 03. 2006.

(c) His PAN and I T Particulars with copy of acknowledgement for I T. Return for the A. y, 2006-07.
However. the notice was received back unserved The AR was informed that the notice U/s 133(6) to SI? Angami has been received hock Further. no evidence (IS to the identity & creditworthiness of said person was furnished by the assessee company. the AR was asked to show cause as to why the amount received from Sh. Angami be not treated as unexplained as the genuineness of the transaction, and the identity & creditworthiness of the share applicant remained unverified. 1n response to the show-cause. the A R, vide his written submission dated J 5. 12.2008, stated as under: "Regarding the share application money of Rs. 10, 00, 000/- received from Sh V K, Angami, we are enclosing the following documents/details for your consideration.

a) A copy of the certificate certifying Sh. Angami as a Schedule Tribe in the state of Nagaland.

b) A copy of the election 1 Card of Sh. V. Khriuto Angami. The aforesaid documents clearly establish the identity as well as the creditworthiness of Sh. V K. Angami and he is capable to invest so much amount of money Regarding PAN, the persons concerned is a scheduled tribe in the state of Nagaland ( certificate in this regard is enclosed as above) and the income so earned by him in the state of Nagaland is exempted income vide section 10(26) of the Income Tax Act.. " The A R, vide written submission dated 24.12.2008, also furnished on affidavit purportedly from Sh. VK. Angatni to the effect that he has invested in the share capital of the assessee company and that "the investment has been made out of the own source of fund and payment made out of my cash balance"

The law with regard to the admissibility of an affidavit as an evidence is 'well- settled The matter relating to evidence by affidavits is governed by Order of the Code of Civil Procedure. Such evidence by affidavit may be admitted only if the same fulfils the conditions precedent thereto. ln terms of Order 19, Rule 1 of C. P. C, the court may at any stage permit a party to adduce evidence by affidavit on assigning sufficient or cogent reasons. An affidavits are not evidence since it is not included in the definition of evidence in Section 3 of the Evidence Act and can be used as evidence only if for sufficient reasons, the Court passes an order under Order 19 Rules 1,2 of CP. C as observed by ITA NO.6070/Del/2013 Supreme Court in Sudha Devi V MP Narain AIR 1988 (SC) 1381. (1988) 2 SC) 422. In view' of the same, furnishing of an affidavit in itself and that too at a time when it was not even required under any law of the land reflects that evidence was being created artificially/ superfluously in anticipation of it being required in the course of assessment proceedings.
Therefore. affidavit of alleged "investor" which has been filed suo-mote is not even admissible evidence, specially when no evidence in support of [he assertions mode therein is forthcoming.

The documents filed in the form of the schedule tribe certificate and the voter card are just cord are just photocopies, which are not attested by on)' competent authority. Further, the name os appearing in the said certificate is " M Khrietuo S/o Vizokhol ,. and that appearing on the voter cord is only "Khrieto S/o Vizukhol ", Neither the affidavit, nor the written submission Filed by the assessee is accompanied by any evidence whatsoever (or even description of the sources of income or the Sh. Angami) in support of the creditworthiness of the "investor ". A bare assertion that the amount has been invested out of "own source of fund" is not sufficient. Therefore, the above documents. by themselves, do not in 0/1)' II'([Y substantiate the creditworthiness of the said person and the genuineness or the transaction. It is well settled that where moneys have been received ill cosh or even Demand Drafts the standard of proof u/s68 of the ACI would be much more rigorous and :stringent than where the transaction is by cheque where the date and source of the investment cannot be manipulated. For example, the availability of the same cash may well be used for "confirming" similar transactions in multiple cases.

The pressing need for this payment having been made in cash by Sh. Angami is highly suspect as there is no reason why the same was not routed through normal banking channels, if at all the said amount was maintained in any bank account. This assumes greater significance as it is highly improbable that anybody would actually maintain a cash of Rs. J 0,00,000/-. The letter addressed to Sh. Angami at the given address (21/2 Mile, Dimapur, Assam) has been received back undelivered with postal remarks 'Address insufficient. Addressee could not be traced out. This further suggests that the said Sh. Angami, if he really existed at the given address or even thereabout. could not have been a man of such financial standing as has been sought to be made out. As per the documents filed, the entire creditworthiness is being sought to be established merely on the basis of mere self-serving assertions which are not supported by any evidence whatsoever, documentary or otherwise, in support of his financial status and the immediate source of the said amount. Even in the alleged "investor" has chosen to remain silent about the source of this amount of Rs. 10,00,000/-. In view of the above, the identity & creditworthiness of the alleged share applicant and the genuineness of the transaction remain unsubstantiated. Therefore, this amount of Rs. 10,00, 000/- is treated as unexplained and added to the income of the assessee u/s 68 of the Act.

5. On the appeal filed by the assessee, Ld. First Appellate Authority in the impugned order had adjudicated the issue in dispute the findings of the Ld. CIT(A) is as under:-

"I have gone through the facts and circumstances of the case, observation of the A.O. as contained in the Assessment Order, submissions of the AR of the appellant and judicial pronouncements on this issue.

During the year under consideration, the appellant company had increased its Share Capital by Rs. 1,I0,00,000/- by issuing 11,00,000 equity shares of Rs. 10/-each from various parties. The Assessing Officer, in the Assessment Order has added the Share Application Money received from 2 parties, namely Mls Paras lnfotech Pvt. Ltd. (Rs. 5,00,000/-). Shri V.K. Angami (Rs. 10,00.000/-) as unexplained cash credit. in the hands of the appellant company. The addition in respect of first company was made on the basis of information received from the Investigation Wing of the Department and on the statement of Shri Mukesh Gupia given before the officers of the Investigation Wing. whereas the addition in respect of Sh. V. K. Angarni was made as the said payment was received in cash and was not supported by any immediate source of the said cash.

The Assessing Officer had issued summons to the principal officer of the company uls 131 of the l.T. Act during the course 01' assessment proceedings for producing the books of accounts and other evidences in support of its creditworthiness I however, the said summons was received back with the remarks 'no such company exists on the given address'. The AR or the appellant company was asked to produce the director of the company and he' was also provided copies of the statement given by Sh Mukcsh Gupta and his associates before the Add!. Director of Income-tax (Investigation) Unit-I), New Delhi. The appellant company to substantiate that the amount of share application money received from the said party was genuine. provided supporting evidence vide its letter dated 15.12.200~ to prove the identity and creditworthiness of the party in the form of confirmation, Copy or ITR, certificate of Incorporation of the said company. Copy of PAN Card. In respect of Sh. V.K Angani who is a resident of 21/2.Mile Dirnapur, the appellant filed copy of certificate (certifying that the Sh. V. K. Anagami is a Schedule Tribe in the State of Nagaland, copy of Election Card and salary certificate of having received salary from M/s Numen Enterprises Pvt. Ltd. as Director. The appellant further stated that Sh. Angami had capacity to invest the money and income so earned by him is exempt u/s 10(26) of the Income-tax Act, 1961. The appellant on 24.12.2008 ITA NO.6070/Del/2013 also furnished an affidavit of Sh. V.1<.. Angami to the effect that he has invested in the share capital of the appellant company and the investment has been made out of his own source of funds and payment made out of his cash balance.

Since the investors failed to appear before the AO in response to summons issued u/s 131 of the IT Act, the AO disregarded the other evidences produced and emphasized that identity and creditworthiness of the investors has not been proved. He accordingly held that the amount of Rs.5,00,000/- from M/s Paras Infotech Pvt. Ltd and Rs.IO,OO,OOO/- from Sh. V.K. Angami received by the appellant as share application money from the said two parties cannot be treated as genuine and is only an accommodation entry. On these observations, the appellant relied upon the direction of Honble ITAT, Mumbai Bench in the case of Kashuka Trading & Services Pvt. Ltd. Vs. ITO, ITA NO.1145/Mum.l06 wherein it is held that mere non- compliance of summons and notice, it cannot be held that the assessee has failed to discharge his burden u/s 68.

On the same issue, the appellant has also relied upon the Hon'ble Supreme Court judgement in the case of CIT Vs. Orissa Corporation 159 ITR 78 (SC) wherein it is held that in case the creditor does not appear in response to summon issued u/s 131. no adverse inference can be drawn.

Hon'ble Delhi High Court in the case of CIT vs. Pradeep Gupta 207 CTR 115, which has also been relied upon by the Delhi IT A T in recent judgement in the case 0 f Babita Gupta ITA No. 2897/06, wherein it is held that in the facts of the case before us it may be seen that from the very beginning Ld A. 0. had shifted entire burden Upon the assessee and no material was brought by him to prove his allegation that the impugned amount represented assessee company's undisclosed income. Therefore, on this ground alone the entire addition deserves to be deleted and may kindly be held so.

In the Assessment Order, the AO has not given any details about the enquiry conducted by him on the basis of which it was held that the said parties were involved in the business of providing accommodation entry. The Honble Delhi High Court in the case J.T. (India) Exports and another vs. UOI and another (2003) 262 ITR 269 (Del-FB) has held that the Assessing Officer must pass a speaking order giving reasons for the conclusions arrived at, and opportunity of being heard must be provided to the assessee before passing any adverse order. It has been further held that in the notice issued by the A.O. specific requirement should be indicated and reasonable opportunity must be granted. It was held by the Hon 'ble ITA NO.6070/Del/2013 Delhi High Court that in absence of a notice of the kind and such reasonable opportunity, the order passed against the person in absentia and becomes wholly vitiated.

The AO in the Assessment Order has simply relied upon the information received from the Investigation Wing of the Department without making any effort to verify the facts stated therein. It has also been held by the various courts that AO must bring on record some positive material or evidence to indicate that the share holders were benamidars. fictitious persons or that any part or the share capital money represented the company's own income from undisclosed sources. The appellant has cited various case laws in the its submissions wherein it has been held that the Share Capital issued cannot be treated as undisclosed income of the appellant and cannot be added uls 68 of the Income Tax Act.

The appellant in its submissions relied upon by the case law of CIT vs. Samir Biotech Pvt. Ltd. `ITA No415/I2008 of Delhi High Court, wherein it is held that if subscribers are having bank accounts, issuing account payee cheque, assessed to income- tax showing investment in the balance sheet, balance sheet were audited by the statutory auditors, their credit worthiness, identity and genuineness of the transactions are well established. The appellant further stated that in the case of Paras Infotech Pvt. Ltd., it has submitted the copy of the income-tax return, confirmations and affidavit of the director of the company who has given share application money. All these documents establish the identity and creditworthiness of Mls Paras Infotech Pvt. Ltd.

With regard to Sh. V.K. Angami, the appellant submits that he has filed affidavit of Sh. V.K. Angami confirming the transaction. copy of election identity card, copy of tho Schedule Tribe Certificate and copy of the salary certificate received from M/s Newman Enterprises Pvt. Ltd. for the salary paid as Director. All these documents prove the identity and creditworthiness of the investor. In support of this, the appellant has relied upon the case law of Shri Barakha Synthetics Ltd. Vs. ACIT (2006) 155 Taxman 239 (Raj.) wherein it has been held that once the receipt of the confirmation letter from the creditor is proved and the identity and the existence of the investor has not been disputed, no addition on account of share application money in the name ofsuch investor can be made in the assessee's hands.

"In respect of the share application money received from investors, the assessee company has only to prove that the existence of the persons in whose name share application is received. No further burden is cast upon the assessee to prove whether that person himself has invested the said money or some other person made investment in his name."

ITA NO.6070/Del/2013 The appellant has also relied upon the judgement of Hon'ble Supreme Court in the case of CIT Vs. Lovely Export 299 ITR 268 (SC) which has confirmed the order or the Delhi High Court. It has been held that once' the identify of the share holder have been established. even if there is a case of bogus share capital, if cannot be added in the hands of the company unless any adverse evidence is not record. In the instant case, the appellant has provided confirmations from the said parties, as well as various evidences to establish the genuineness or the transaction.

With regard to AO's observation in the Assessment Order that before issue of cheque by Mls Paras Infotech Pvt. Ltd .. there was a cash deposit in the said bank account. On these observations, the appellant has relied upon the judgement of Nemichand Kothari Vs. CIT (2003) 264 ITR 254 (Gauh.) wherein it is held that it is a settled law that the burden of the assessee is to prove the genuineness of the transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of the assessee to find out the source of the money of his creditors Similar observations have been made in the cases 01' S. Hastimal 49 ITR 273(Mad) and Daulatram Rawatmall (1973)87ITR 349(S C) wherein it is held that source of the source can not be enquired from an assessee which unfortunately seems to be the case in the instant case.

In a recent judgement dated 30.1.2009 Honble Delhi High Court in the case of CIT vs. Gangour Investment Ltd. (ITA No. 34/2007) has held that Revenue can make addition under section 68 of the Act only if the assessee is unable to explain the credits appearing in its books of accounts. In the said case the appellant has duly explained the said credit entries in the form of various documentary evidence filed. The said documentary evidence contained details, which set out not only the identity of the subscribers, but also gave information, with respect to their address, as well as, PAN numbers, Assessment particulars etc. Based on these facts, the Hon "ble Delhi Court dismissed the appeal of revenue.

In yet another decision as to the correctness of treating share application money on par with cash credit, the Hori'ble Delhi High Court in CIT vs, Value Capital Services P. Ltd. (2008) 307 ITR 334 (Delhi) found after referring to the two of the decisions of the Delhi High Court on the subject that in respect of share capital amounts, they cannot be assessed in the hands of the ITA NO.6070/Del/2013 company, unless the Department is able to show that the amount received towards share capital actually emanated from the coffers of the assessee company.

After going through various facts of the case and judicial pronouncement on this issue, cited supra, it is seen that the appellant's case is covered by the above judgments.

After going through the facts of the case and the judicial pronouncements on this issue, I am of the opinion that the appellant has discharged the initial onus of establishing the bona-fide of the transactions and the AO was not justified in ignoring various evidences provided to him by the appellant. It is seen that the Assessing Officer had not done any investigation / enquiry, during the course of assessment proceedings. The Assessment Order has been framed by the Assessing Officer only on the basis of the information received from the Investigation Wing of the Department. without making any further investigation. Nothing adverse has been brought on record by the AO to establish that the Share Application Money received by the appellant. represented its own undisclosed income.

Further, if there was doubt about the source of investment or the said investors, then additions should have been made in the case of those parties and not in the hands of the appellant company.
The appellant has relied upon the decision of Hon'ble Supreme Court in CIT' vs. Divine Leasing & Finance Ltd. (CC 375/2008) dated 21.01.2008 wherein it was held -

.. We find no merit in this Special Leave Petition for the simple reason that If the share application money is received by the assessee company alleged bogus shareholders, whose names are given to the Ao. then the Department is Fee to proceed to re-open their individual assessments in accordance with law"

In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not accommodation entries, I also do not find any evidence collected by the AO. Which could prove otherwise. Accordingly. the AO was not justified in treating the amount of' share application money received by the appellant as its undisclosed income.

In view of the aforesaid discussion, I delete the addition of Rs. 15,00,000/- made by the A.O. u/s 68 of the I. T. Act, 1961.

6. Keeping in view of the findings given so Assessing Officer as well as the Ld. First Appellate Authority and the documentary finding by the assessee before us. We are of the considered view that Ld. First Appellate Authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. Hon'ble Supreme Court of India in the case of CIT VS. Lovely Export 299 ITR 261 (SC) which has confirmed the order of Hon'ble Delhi High Court has held that once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adverse evidence is not on record. Ld. First Appellate Authority has examined the documentary evidence filed by the assessee before the Assessing Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction, assessee has also relied upon the judgment of Nemi Chand Kothari Vs. CIT 264 ITR 254 (Gauhati) wherein it has held that it is a certain law that the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hastimal 49 ITR 273 (Madr) and Daulatram Rawatmal (1973) 87 ITR 349 (SC). Ld. First Appellate Authority has cited various decisions rendered by ITA NO.6070/Del/2013 the Hon'ble Supreme Court of India as well as the Hon'ble Jurisdictional High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries. He did not find any evidence collected by the AO which could prove otherwise and deleted the additions in dispute. As regard to the addition of Rs.12,500/- made on account of commission which was presumed to have been allowed by the assessee for obtaining the Hawala entry in dispute, the ld. CIT(A) observed that the Assessing Officer was not able to brought anything on record that it was assessee's own money which was rooted in the form of share application money and has rightly deleted the same.

7. Keeping in view all the facts and circumstances , we are of the considered view that the Ld. First Appellate Authority has passed the impugned order under the law and according to the facts of the present case and has rightly deleted the addition in dispute. We find no infirmity in the impugned order and upheld the impugned order by dismissing the appeal filed by the revenue.

8. In the result, appeal filed by the Revenue is dismissed."

13. After going through the aforesaid order of the Tribunal, we find that the facts and circumstances of the present case are similar and identical to that of the aforesaid case i.e. ITO vs. Neelkanth Finbuiltd Ltd. (Supra) passed by the 'E' Bench, ITAT, New Delhi in ITA No. ITA NO.6070/Del/2013 2821/Del/2009 (A.Y. 2006-07) in which both of the Members were the parties wherein the issues in dispute are decided in favor of the assessee. Respectfully, following the precedent of the Coordinate Bench as aforesaid, we quash the orders of the authorities below and delete the addition of Rs. 30,00,000/- made u/s. 68 of the Act by the AO on the allegation of unexplained credits of share application and allow the appeal of the assessee.

14. In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the Open Court on 29/5/2015.       
                                                                                                                                                                       Sd/-                                                                                                          Sd/-
[N.K. SAINI]                                                                                          [H.S. SIDHU]
ACCOUNTANT MEMBER                                                                 JUDICIAL MEMBER

Date 29/05/2015
"SRBHATNAGAR"

Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT

TRUE COPY
By Order,


Assistant Registrar,
ITAT, Delhi Benches
  

This blog is Created by CA Anil Kumar Jain.