TaxTMI 
TaxTMI 
2012 (2) TMI 194
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Director of Income Tax (Investigation), New Delhi which furnished detailed information regarding entry operators/accommodation providers. The letter informed the Assessing Officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was also one. There were also statements recorded from persons confirming the facts. According to the information contained in the letter, the assessee had obtained accommodation entries from these proceedings in the garb of share application monies. The total amount received from such persons as share application monies was Rs.1,18,50,000/- during the relevant year. 3. Based on the aforesaid letter, the Assessing Officer issued notice under Section 148 of the Act on 22nd September, 2006 reopening the assessment of the assessee and called upon it to file return of income in response to the notice. The assessee stated that the return filed by it earlier may be treated as compliance with the notice. It also requested the Assessing Officer to furnish the reasons for reopening the assessment, which were provided under cover of letters dated 1st June, 2007 and 14th June, 2007. 4. In....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer issued notice to the assessee on 23rd October, 2007 to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. On 5th December, 2007 the assessee filed a letter with the Assessing Officer along with the affidavits of Rajan Jassal and Mukesh Gupta in which both of them had stated that the transactions with the assessee were genuine and the earlier statements recorded from them by the investigation wing were given under pressure. A copy of this letter is filed at page 6 of the paper book filed by the learned counsel for the assessee. 8. On the aforesaid facts, the Assessing Officer came to the conclusion that the independent enquiries carried out by him disclosed that the assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee company had introduced its own monies through non-existing companies using the banking channel in the shape of share application monies. He accordingly invoked Section 68 of the Act and added the amount of Rs.1,18,50,000/- to the income of the assessee. 9. In addition, the Assessing Office....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re not sworn to by the deponents and, therefore, they are not admissible in evidence. (c) All the deponents had earlier given statements under Section 131 of the Act before the Addl. Director of Income Tax (Investigation) in which they had admitted that they were not doing any actual business but were only providing entries. (d) The summons issued to the principal officers of the companies who contributed the share application monies to the assessee were not complied with and the independent enquiry made by the Inspector also resulted in the finding that no such companies existed at the addresses furnished by the assessee. (e) To verify the genuineness of the transactions as directed by the CIT (Appeals) summons were issued to the principal officer of the companies, namely, Mukesh Gupta, Rajan Jassal, Raj Kumar and Pramod Kumar on 24th April, 2009 (in the remand proceedings) and these summons were also not complied with and none of the persons attended the proceedings. On the basis of the above findings, the Assessing Officer reported that the transactions have not been proved to be genuine and they were only instruments used by the assessee to mislead the income tax au....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the parties (deponents) were present at the given addresses against whom action could have been taken. (h) No material was brought on record by the Assessing Officer independently of the information received from the investigation wing of the Income Tax Department to show that the monies represented the assessee's undisclosed income. After recording the aforesaid factual findings, the CIT (Appeals) embarked upon a dissertation of the legal position with regard to additions made under Section 68 of the Act, including the order of the Supreme Court in CIT vs. Lovely Export, 216 ITR 198 SC and the judgment of this Court in Divine Leasing and Finance Limited, (2008) 299 ITR 268. On the basis of the authorities referred to by him, the CIT (Appeals) held that in the case of money received towards share capital only the identity of the share holders needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In this view of the matter, he concluded as follows: - "In the light of the above discussion, I am inclined to agree w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onal evidence while deleting the addition, we therefore do not find any reason to interfere in the finding of the CIT(A) who has deleted the addition after applying the proposition of law laid down by the Hon'ble Supreme Court in the case of lovely Exports to the facts of instant case." 16. The revenue is in appeal against the order of the Tribunal confirming deletion of the addition of Rs.1,18,50,000/- as well as the addition of Rs.2,96,250/-, both made under Section 68 of the Act. The following substantial questions of law arise in the appeal: "(1) Whether the Tribunal was right in law in confirming the order of the CIT(Appeals) deleting the additions of Rs.1,18,50,000/- and Rs.2,96,250/- both made under Section 68 of the Act, on the ground that the identity and creditworthiness of the share-applicants as well as the genuineness of the transactions were proved? (2) Whether the order of the Tribunal confirming the deletion of the addition of the aforesaid two amounts was perverse having regard to the evidence and the material on record?" 17. The assessee company claimed that it received monies from several persons as share application monies on various dates during the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the fact that it had received monies from the above named companies' as share subscriptions. 18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz. (i) identity of the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In Commissioner of Income-Tax, West Bengal II v. Durga Prasad More, (1971) 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under: - "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question." In Director of Income-Tax v. Bharat Diamond Bourse, (2003) 259 ITR 280, the Supreme Court again reiterated the aforesaid position and held as under: - "As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see." 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssal, who gave statements to the investigation wing on the basis of which the Assessing Officer had made the addition, were concerned only with four companies out of the 16 companies who advanced monies to the assessee. In respect of the other 12 companies the Directors were different. (f) The summons issued to Mukesh Gupta and Rajan Jassal and the Directors of 12 companies both during the assessment and the remand proceedings were duly served on them and, therefore, their existence and identity stood established. (g) No opportunity was allowed to the assessee to cross examine Mukesh Gupta and Rajan Jassal despite the assessee having specifically requested for cross examination before the Assessing Officer. Even in the reply given by the assessee to the reopening of the assessment, such a request had been made. The opportunity to cross examine was again denied during the remand proceedings. Since the assessee has been refused the opportunity to cross examine Mukesh Gupta and Rajan Jassal for a number of times, no purpose would be served in remanding the matter again to enable the cross examination. (h) In the affidavits filed by Mukesh Gupta and Rajan Jassal the earlier st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sis of which the notice under Section 148 was issued becomes relevant in the course of the reassessment proceedings. It is only because of this position that the assessee in the present case has been provided that the copies of the statement made by the Rajan Jassal and Mukesh Gupta as also copies of the printed contents of the CD received from the investigation wing containing the transactions made with various parties including the assessee. The Assessing Officer had also provided to the assessee the copies of the letters written by Mukesh Gupta and Rajan Jassal to the Additional CIT, Unit-1, New Delhi admitting various benami accounts maintained by them. It is in the light of this copious material that we have to proceed to make an assessment of the credibility of the evidence adduced by the assessee in the course of the reassessment proceedings. We may reiterate, at the cost of the repetition, that in the statements recorded from Rajan Jassal and Mukesh Gupta by the investigation wing, they had implicated the assessee company also, inter alia. The material, as noted earlier, contained specific information relating to the assessee as found by the Tribunal. In the letters written....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ges 85 & 86 of the paper book submitted on behalf of the assessee before us. These affidavits are dated 4th December, 2007. In the affidavit of Rajan Jassal, he has stated that he is connected with M.V.Marketing Pvt. Ltd., Fair "N" Square Exports Pvt. Ltd. and Ethnic Creations Pvt. Ltd. These three companies figure as item Nos. 2, 4 & 5 to 7 in the table set out above. In the affidavit by Mukesh Gupta he has stated that he is connected with Satwant Singh Sodhi Constructions Pvt. Ltd, M.V. Marketing Pvt. Ltd., Fair "N" Square Exports Pvt. Ltd., Ethnic Creations Pvt. Ltd and Maestro Marketing and Development Pvt. Ltd. These companies figure as item Nos.12, 2, 4, 5 to 7 and 3 respectively in the table set out above. They have referred to the connection between them and the above mentioned companies. Both Rajesh Jassal and Mukesh Gupta, in identically worded affidavits proceed to state that in their earlier statements they have stated that the above companies issued cheques to various companies or entities and in turn received back cash from them and thus the transactions were not genuine and bonafide transactions, that the statements as above were got recorded from them under pressure....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... department. The judgment of the Supreme Court in the case of Mehta Parekh and Company v. CIT (1956)30 ITR 181 was cited in support of the plea. Beyond this the assessee did not state anything by way of explanation as to why the deponents of the affidavits, who were its witnesses, could not present themselves before the Assessing Officer in response to summons issued on 24th April, 2009 and be examined. 24. The copies of the affidavits of other persons, namely, Raj Kumar, Harish Kumar, Pramod Kumar and Baldev Raj have also been filed before us on behalf of the assessee. Those affidavits are also identically worded and the deponents, who are Directors in various companies from whom the assessee has taken share application monies, have stated that they had subscribed to the shares issued by the assessee company through cheques and that the cheques were not given in return of any cash and that the transactions were genuine and bonafide which had taken place in the normal course. These affidavits, we find, have not been notarized. Further, the names of all the companies in which the deponents of the affidavits were Directors, figure in the letter written by Mukesh Gupta and Rajan Ja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on has been advanced by the assessee for such long delay in retracting the earlier letters. Reliance on the said affidavits ignoring the apparent, ex facie and factual aspects has vitiated the impugned order. Several aspects have not been kept in view by the Tribunal. Though it was aware of the fact that the retraction was made after a considerable period of time, the Tribunal failed to address this aspect. Failure to appear and answer questions was equally relevant but again ignored. 27. So far as the request of the assessee for cross-examination of Mukesh Gupta and Rajan Jassal is concerned, the same sounds hollow. The Assessing Officer, as we have already noted, issued summons to them as well as the directors of the companies which allegedly advanced the share subscription monies to the assessee, but they were either returned or remained uncomplied with. In the case of summons to the above two persons, it is recorded in the assessment order that summons were issued to them on 23-10-2007 and 26-11-2007 but though they were served they did not respond to the summons. When they did not appear before the Assessing Officer in response to the summons, it would be unfair to expect t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fidavits from them, along with affidavits from some other persons connected with the subscriber-companies were filed before the Assessing Officer. In these affidavits the earlier statements were retracted and the advancing of monies to the assessee as share application monies was confirmed. The Assessing Officer did not accept the affidavits. On appeal, the CIT(A) issued a direction to the Assessing Officer to examine the deponents of the affidavits. The Assessing Officer issued summons on 24-4-2009 but nobody appeared. He therefore reported to the CIT(A) that examination of the deponents on their affidavits was not possible. The CIT(A) held that the affidavits remain uncontroverted and therefore ought to have been accepted. The aforesaid conclusion is fallacious. The Tribunal, however, endorsed the finding of the CIT(A). The attempt of the assessee is there to see. It had been blocking any enquiry by the Assessing Officer at every stage on some plea or the other, including a frivolous plea even before the CIT (Appeals) that no cross-examination of Mukesh Gupta and Rajan Jassal was allowed, overlooking that once they filed the affidavits retracting from their earlier statements the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere served on them, their existence or identity stood established, even if this finding is assumed to be correct in the technical sense overlooks their non-appearance. They were even otherwise not ready and willing to appear before the Assessing Officer. The genuineness of the transactions cannot be said to have been established for the same reason. The genuineness of the transaction critically hinges on the true and veracity of the claim made by the assessee. Material was gathered by the investigation wing and made available to the Assessing Officer, who in turn had made it available to the assessee. Nothing has been said by the Tribunal about the said material. Thus the Tribunal, with respect, seems to have ignored relevant material. 31. The Tribunal also erred in law in holding that the Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers, explaining their modus operandi to help assessee's having unaccounted monies convert the same into accounted monies affords sufficient material on the basis of which the Assessing Officer can be said to have discharged the duty. The statements refer to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a consideration in the form of commission. As already pointed out, names of several companies which figured in the statements given by the above persons to the investigation wing also figured as share-applicants subscribing to the shares of the assessee-company. These constitute materials upon which one could reasonably come to the conclusion that the monies emanated from the coffers of the assessee-company. The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view the material that was relied upon by the Assessing Officer. The CIT (Appeals) also fell into the same error. If such material had been kept in view, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the shares through banking channels. Moreover, the investigations carried out into those companies by the income-tax department at Calcutta and the adverse findings therein had been struck down as being without jurisdiction in appeals filed by those companies and therefore the Assessing Officer having jurisdiction over General Exports and Credits Ltd. in Bulandshahar could not rely upon them. In these circumstances, the Tribunal had deleted the addition made u/s.68 on the ground that the identity of the shareholders had been proved. This court did not approve of the ground on which the Tribunal had cancelled the addition and observed that the judgment of the Full Bench of this court in Sophia Finance (1994) 205 ITR 98 (Delhi) could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the revenues 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 AO 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 Sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound, to carryout thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company." We may also note that a reference was made by this court to several authorities, including at least seven judgments of this court on the question of applicability of section 68 to share application monies, and the position was pithily....
X X X X Extracts X X X X
X X X X Extracts X X X X
....share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the category of Orissa Corporation (supra). However, in the case of Oasis Hospitalities P Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of which it was found that six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, this court observed: - "The Assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by pr....