TaxTMI 
TaxTMI 
2011 (10) TMI 496
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....received from Hindustan Continental Ltd. of Rs. 40,00,000/- and from Optimates Textile Industries Ltd. of Rs. 10,00,000/- was properly explained and on the facts and in the circumstances of the case, the addition is wrong and not in accordance with law. It is, therefore, prayed that the said addition requires to be now deleted. 2. That the learned CIT(A) erred in upholding ad hoc disallowance of Rs. 1,00,000/- made by the Assessing Officer out of telephone expenses which on facts and in the circumstances of the case is wrong and unwarranted. It is, therefore, prayed that the said addition requires to be now deleted." ITA No. 283/Ind/2010 "That the learned CIT(A) erred in upholding the disallowance made by the Assessing Officer of Rs. 2,40,000/- out of interest paid on unsecured loans. That the said interest expenditure having properly incurred by the appellant on the unsecured loans on the facts and in the circumstances of the case is allowable to the appellant." ITA No. 136/Ind/2009 1. "That the learned CIT(A) erred in upholding the addition made by the Assessing Officer u/s 68 of the Income Tax Act, 1961 of Rs. 50,00,000/- alleging the sa....
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....earned CIT(A) erred in confirming the ad hoc disallowance of Rs. 50,000/- made by the A.O. out of communication expenses. It is submitted that on the facts and in the circumstances of the case the said addition is wrong and uncalled for. It is, therefore, prayed that the said addition requires to be now deleted. ITA No. 158/Ind/2010 "On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-II, Indore, has erred in - 1. Maintaining the addition of Rs. 10 lacs by treating the same as unexplained cash credits. 2. Maintaining the disallowance of interest paid of Rs. 42,658/- on unsecured loans treated as unexplained in ground no. 1" ITA No. 196/Ind/2010 1. That, the learned CIT(A) erred in confirming the ad hoc disallowance of Rs. 25000/- made by the A.O. out of telephone expenses. It is submitted that on the facts and in the circumstances of the case the said addition is wrong and uncalled for. It is, therefore, prayed that the said addition requires to be now deleted. 2. That the learned CIT(A) erred in confirming the addition of Rs. 10,00,000/- made by the A.O. as alleged ....
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....s are identical, therefore, these appeals can be disposed of by a common and consolidated order. We would like to deal with ITA No. 151/Ind/2009 first. The facts, in brief, are that the assessee is a private limited company engaged in the business of trading in coal. The assessee company, in the year, under consideration, entered in power generation with installation of two wind mills. The assessee declared income of Rs. 83,46,090/- in its return filed for the assessment year 2005-06 on 30.10.2005. During scrutiny proceedings the Assessing Officer noted that Hindustan Continental Limited (in short hereinafter as 'HCL') applied for 40,000 shares of the assessee company on the face value of Rs. 10/- each and premium of Rs. 90/- per share. Similarly, Optimates Textiles Industries Limited (in short hereinafter as 'OTIL') also applied for 10,000 shares of the same face value and the premium per share. The learned Additional CIT (Assessing Officer), referred to the report of ACIT 5(1), Indore, wherein it was informed that the investigation carried out by him in some other cases also found that HCL and OTIL are not the genuine companies and these merely exist on papers. Such report finds ....
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.... application money from Hindustan Continental Ltd. Rs. 4,00,000/- and share premium amount of Rs. 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income. Similarly, assessee has tried to establish identity of M/s Optimates Textile Industries Ltd., but it is evident from the report of the ACIT 5(1), Indore that company is also a paper company used to providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecured loans. Since assessee fails to....
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.... which the assessee has filed its return of income on 31/10/05 declaring total income at Rs 83,46,090/- (copy of computation & Acknowledgment of return at Page 1 to 3 of the compilation, copy of Annual return containing Balance Sheet, P& L A/c etc at Page 4 to 23 and Copy of Tax Audit Report at Page 24 to 43 of the compilation). During the course of the scrutiny proceedings, the Ld. Counsel for assessee filed details in respect of increase in share capital vide replies dated 16/10/07 (Page 47 to 49) of compilation, reply dated 7/12/07 (Page 50 to 54), reply dated 17/12/07 (Page 55 to 58) and reply dated 28/12/07(Page 60 to 64) of the compilation along with documents (Page 67 to 96). The Learned AO vide his order of assessment dated 28/12/07, relying upon some report of ACIT 5(1) Indore, in some other cases, report of Inspector, who was deputed to knows the whereabouts of these companies and the report of the postal department that no such companies were existing at the given addresses and came to the conclusion that the identity of these companies, M/s Hindustan Continental Ltd & M/s Optimat Textiles Industries Ltd formerly known as Priyansh Sari Ind Ltd is not established. Relying....
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....see submitted that it has taken different turns. He submitted that various decisions have two aspects i.e. (i) Regarding applicability of section 68 to such credits and (ii) If section 68 is applicable, then the extent of burden on assessee. 8. Regarding applicability of section 68 to such credits, the Ld. Counsel for assessee relied upon the following decisions :- 1. CIT v. Stellar Investment Ltd. [1991] 192 ITR 287/59 Taxman 568 (Delhi) 2. CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi) 3. CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008] Inviting our attention to the aforesaid judgments, the Learned Counsel for assessee submitted that a combined reading of all the above decisions viz the decision of Delhi High Court, which has been affirmed by Supreme Court in the case of Stellar Investment Ltd. (supra), read with the later decision of Supreme Court in case of Lovely Exports (P.) Ltd. (supra) shows that even if such amounts are received by such assessee company from the alleged bogus share holders, no addition u/s 68 can be made in the hands of the company. It was canvassed....
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....009] 313 ITR 170/178 Taxman 478 (Bom) where their Lordships' have held that once the appeal against the judgment of the High Court is dismissed, it can be said that the decision of the High Court has been affirmed by the Supreme Court 10. The Ld. Counsel for assessee, submitted that in view of the legal position settled by the Hon'ble Supreme Court against the judgment of Delhi High Court in the case of Stellar Investment Ltd. (supra) and dismissal of SLP against judgment of Delhi High Court in case of Lovely Exports (P) Ltd (supra), the proposition of law that even if it is assumed that some of the share holders are bogus, no addition can be made u/s 68 of the Act in the hands of assessee company, which is binding on all Courts including this Tribunal. He, therefore, submitted that assuming without admitting that as held by AO the above two companies viz Hindustan Continental Ltd and Optimat Textiles Industries Ltd are considered as non-existent companies, in that event also, no addition u/s 68 could be made in the hands of the assessee company, for which further reliance was placed on the decision of Delhi High Court in the case of CIT v. Achal Investment Ltd. [2004] 268 ITR 2....
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....orthiness or financial strength of the creditor/subscriber (iv) if relevant details of address or PAN Identity are furnished to the department along with the copies of share holder register, share application Form, share transfer register etc, it would constitute acceptable proof or acceptable explanation by assessee. Further,(i) the department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglect to respond the notices (ii) the onus would not stand discharge if the creditor/subscriber denies or repudiate the transaction set up by assessee nor should the AO take such repudiation on face value and construe it, without more evidence against the assessee (iii) The AO is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and veracity of the repudiation. In that case, their Lordships' upheld the order of Tribunal holding that the AO had not brought any positive material or evidence to indicate that the share holders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources. 2. CIT v. Dwarka....
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....TR 489 (Gauhati) held that the assessee filed details regarding source of funds of the party and their IT File Numbers etc - no addition u/s 68 is permissible where share holders are identified and it is established that they had invested the money in purchase of shares. (Page 127 to 131 of judgment compilation). 8. CIT v. ILLAC Investment Pvt Ltd reported in 287 ITR 135 held that assessee satisfactorily established identity of share holders, the addition u/s 68 rightly deleted - no substantial question of law arises (Page 146 & 147 of judgment compilation). 9. DCIT v. Rohini Builders reported in 256 ITR 360 - assessee furnished addresses of all creditors along with GIR No/PAN as well as confirmations along with copies of assessment orders in case of individual creditors wherever available and copies of returns filed by creditors in other cases. All loans received and repaid by account payee cheques rightly deleted. (Page No 116&117 of Judgment compilation) 10. CIT v. Shri Barkha Synthetics Ltd reported in 270 ITR 477 (Raj) - assessee discharged its initial burden in respect of six out of seven companies but revenue failed to discharge its burden as it di....
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....e companies viz M/s Hindustan Continental Ltd. & M/s Optimat Textiles Industries Ltd have been held to be existing companies on the basis of the similar evidence by the earlier Bench of this Tribunal. It was also submitted that the decision of the higher Forums has to be followed for which reliance was placed upon the following decisions :- 1. Union of India v. Kamalakshi Finance Corporation Ltd 1991 (55) ELT 433 (SC) 2. Agrawal Warehousing & Leasing Ltd v. CIT [2002] 257 ITR 235/124 Taxman 440 (MP) 3. Asstt. Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172(SC) 14. The Ld. Counsel for assessee asserted that in view of above judgment in case of Kalani Industries Ltd (supra), the identity and existence of both the companies cannot be disputed. As to the investment of the money, he submitted that there is no material to show that the said money has flown from the assessee company. He further submitted that it is well established principle of law that once the transaction has taken place through banking channels, the genuineness of transaction cannot be disputed. He submitted that it is also well established proposition....
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....) to say the least appears to be perverse in the matter. As to the duty of the AO to make enquiries by pursuing the matter and by making independent enquiries, the Ld. Counsel for assessee relied upon the decision of Supreme Court in the case of CIT v. Orissa Corporation (P.) Ltd [1986] 159 ITR 78/25 Taxman 80F wherein their Lordships have held that when it is in the knowledge of the revenue that the creditors are Income Tax assessees, their Index Numbers are in the file of revenue, no addition could be made. The Ld. Counsel for assessee contended that the department apart from issuing notices u/s 131 of the Act, did not pursue the matter further and no effort was made to pursue the alleged creditors. He further submitted that the AO has made no effort on his part to even issue the summons u/s 131 to the aforesaid companies nor any proper enquires have been made from Registrar of companies to find out all details about the companies in question. The Ld. Counsel for assessee pointed out that these companies are incorporated and registered under the Companies Act, 1956 and the Registrar of Companies is a statutory authority possessing details of companies. All registered companies ar....
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....of registered office etc., section 21 of the Companies Act prescribing procedures for change of name. He further submitted that it would also be useful to refer to section 34 regarding effect of registration of Memorandum according to which on registration of Memorandum, the Registrar is required to certify that company is incorporated. Sub section (2) provides that on and from date of incorporation the subscribers of Memorandum and other persons, as may from time to time the members of the company, shall be a 'body corporate' having perpetual succession and common seal. Similarly sections 72, 73 & 75 etc. which deal with the procedure for application, allotment of share etc. also throw light on the corporate existence of the company. It was submitted that even the provision regarding appointment and change of auditors etc throw light on the corporate existence of the company under the law. He submitted that in the light of these statutory provisions under the Companies Act governing the affairs of company right from its incorporation till winding up it is difficult to conceive an idea that a company duly incorporated under the Act can be said to be a nonexistent company. 17. Re....
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...., etc. from where the amounts were transferred to creditors account and from there to the assessee. It was strongly asserted that unaccounted cash was flown back in the accounts of the assessee and the source of such cash remained unexplained as the parties in whose accounts the cash was introduced were found non-existent because even summons could not be served upon them at their known addresses. Reliance was placed upon the decision of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC). A plea was also raised that the onus/burden still remained fastened to the assessee for which reliance was placed on the decision in the case of CIT v. Nivedan Vanijya Niyojay Ltd. [2003] 130 Taxman 153 (Cal.); and Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 129 Taxman 601 (Cal.). The decision in the case of CIT v. Rathi Finlease Ltd. [I.T. Appeal No. 63 of 2004, dated 11-10-2007] was time and again reiterated by the learned CIT DR along with the decision in Sophia Finance Ltd. (supra); CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465/[1995] 82 Taxman 31 (Cal) and CIT v. Stellar Investment Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC). 20. Mr. Saxena, the learned CIT DR strongly conte....
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....81] 127 ITR 512 (Mad.). 21. We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee (M/s Agrawal Coal Corporation Private Limited) is a private limited company engaged in the trading business. In the year under consideration the company entered in the field of power generation with installation of two wind mills and declared income of Rs. 83,46,090/- in its return filed on 30.10.2005 for assessment year 2005-06. The case was selected for scrutiny. The learned Assessing Officer, during the assessment proceedings, noted that M/s Hindustan Continental Limited, applied for 40,000 shares of the assessee company of the countenance value of Rs. 10/- each at a premium of Rs. 90/-per share. Similarly, Optimates Textile Industries Limited also applied for 10,000 shares of the assessee company of the same value and premium per share. The learned Additional CIT, Indore (Assessing Officer), has referred the report of ACIT 5(1), Indore, wherein it was found that on the basis of investigation carried out by him in some other cases, M/s Hindustan Continental Limited and Optimates Textiles Limited are not the genuine comp....
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....n, credit in the account of the assessee on account of share application money from Hindustan Continental Ltd. Rs. 4,00,000/- and share premium amount of Rs. 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income. Similarly, assessee has tried to establish identity of M/s Optimates Textile Industries Ltd., but it is evident from the report of the ACIT 5(1), Indore that company is also a paper company used to providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share a....
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....nd non-existent at the addresses supplied to the department by the assessee. Thereafter, commission was issued to ADIT(Inv.) Unit-IX-3, Mumbai, to verify the existence/genuineness of these companies, who also reported that the said companies did not exist at the given addresses. The whole issue for adjudication is whether the identity of these companies was established ? During hearing, the Ld. Counsel for assessee claimed that identity of both these companies has been established as both these companies were registered with Registrar of Companies and their income tax returns were filed and both are having PANs/bank accounts. We are not agreeing with this proposition because at the time of registration, these companies may be existing either on papers or in real sense but thereafter were specifically found non-existent as the summons/notices issued were returned back unserved and the commission issued with this purpose also found that these companies were non-existent. At the same time, none of the certificates, claimed to be issued by various authorities, does not establish the identity of the share applicants as the certificates were issued without physically verifying the existe....
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....ubscribing companies is only possible when the assessee is able to establish identity of these companies which the assessee has grossly failed not only before the Assessing Officer but also before learned Commissioner of Income Tax (Appeals) and the Tribunal. Under these facts and circumstances, there is no question of apply the proposition of law as suggested by the Ld. Counsel for assessee. 24. On the issue of discharge of onus/burden, the assertion of the Ld. Counsel for the assessee is that the onus shifted to the department when copy of share application form, PAN, name and addresses and ROC registration, etc. were filed by the assessee. We are not agreeing with the submission of the assessee in view of the fact that at the addresses (4 places) given to the department, these companies were found to be non-existent. Even the Inspector was deputed to verify the addresses who also reported that these companies were not available at the given addresses. It is not possible that the companies making huge investment in the form of share application are not found at the given addresses. There is a possibility that there may be a change of address but till the stage of the Tribunal,....
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....hia Finance Ltd. (supra) observed as under :- "The ITO would be entitled to engage and it would indeed be his duty to do so whether the alleged shareholders do in fact exist or not. If the shareholders exist then possibly no further enquiry need to be made. But if the ITO finds that the share holders 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. The use of words "may be charged" in section 68 clearly indicates that the ITO would then have the jurisdiction if the facts so warrants to treat such credit to be the income of the assessee." The Hon'ble Calcutta High Court in Precision Finance (P.) Ltd. (supra) held that inquiry of ITO revealed that either the assessee was not traceable or there was no such file and accordingly the first ingredient as to the identity of the creditors has not been established. If the identity of the creditor has not been established, consequently, the question of establishment of the genuineness of the transaction or the credit worthiness of the creditors did not and could not arise. During hearing reliance was placed upon the decision in the c....
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....ture and source of such credit or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income tax as income of the assessee of that previous year. We are aware that the opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. In the present appeals, the Assessing Officer was never satisfied and the notices/summons issued to the subscribing companies, were found to be fictitious or non-existent, therefore, one fact oozing out that the assessee has not fulfilled the requirement of section 68. A close reading of section 68 makes it clear that in case of section 68 there should be credit entry in the books of account. This is a fundamental difference between these two provisions. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him where the nature and source of a receipt whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no fur....
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.... while walking the tight rope of section 68 and 69. The burden of proof can seldom be discharged to the hilt by the assessee. However, if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered rather duty bound to carry out investigations. The assessee merely wants to take shelter of the decision of the Hon'ble Apex Court in the case of Lovely Exports Private Limited wherein it was held that even the share applicants are bogus, it cannot be added in the hands of the assessee. In that case the Tribunal clearly noted that the assessee was a public limited company and subscriptions were received from public at large through banking channel and the shares were allotted in consonance with the provisions of the securities contract (Regulation) Act, 1956 as also the rules and regulations of Delhi Stock Exchange and in para 12 the Hon'ble Delhi High Court has clearly differentiated the cases of share capital of private limited company from public limited company by saying "in the case of private placement, the legal regime will not be the same". Therefore, the facts of that case are not applicable to the case of the assessee as it is a private limited ....
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.... can proceed to reopen their individual assessments. 28. The Hon'ble Madhya Pradesh High Court affirmed the decision of Rathi Finlease Ltd. (supra) in the case of STL Extrusion (P.) Ltd. (supra) upon by both the sides before us. We find that the facts in STL Extrusion (P.) Ltd. (supra) are materially different from both the assessees, namely, M/s Agrawal Coal Corporation as well as from M/s Rathi Finlease Limited. In the case of M/s STL Extrusion (P.) Ltd. (supra) on receipt of confirmation of share applicants, except observing discrepancies in confirmation, the Assessing Officer neither asked anything from the assessee nor made any inquiry to arrive at the conclusion that share applicants were bogus. However, in the present appeal, detailed inquiries were made, notices received unserved, commission also returned empty handed as the share subscribing companies were found non-existent. In that situation, the Hon'ble High Court concluded that once existence of an investor/share holder is proved, onus shifts to the revenue to establish that either the share applicants are bogus or impugned money belongs to the assessee itself. The contrary finding in these cases were confronted to ....
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....nbsp;CIT v. K.C. Fibres Ltd. [2011] 332 ITR 481/[2010] 187 Taxman 53 (Delhi) 9. CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (HC) 10. CIT v. P. Mohanakala [2007] 291 ITR 278/161 Taxman 169 (SC) 11. Sophia Finance Ltd. (supra) 12. Stellar Investment Ltd. (Delhi) (supra) 13. Stellar Investment Ltd. (SC) (supra) 14. CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 (Delhi) 15. Madhuri Investment (P.) Ltd. v. ACIT [ IT Appeal No. 110 of 2004, dated 18.2.2006] (Kar.) 16. Shree Barkha Synthetics Ltd. (supra) 29. As per the provisions of section 68 of the Act, in case the assessee has not been able to give satisfactory explanation in respect of nature and source of any sum or if in the opinion of the Assessing Officer such explanation is not satisfactory, the Assessing Officer may treat the same as undisclosed income and add it to the income of the assessee meaning thereby the assessee is required to give satisfactory explanation about the nature and source of such sums found credited in the books of account. What kind of proof is to be furnished by the assessee is a question. It has come up for di....
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....on at face value and construe it, without more, against the assessee and The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation." 30. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its burden, the assessee is required to prove - The identity of the share holder The genuine of transaction The credit worthiness of the share holder During hearing, Shri R.K. Chaudhary and Shri K.K. Singh the learned Commissioners of Income Tax contended that Hindustan Continent Pvt. Ltd.; Agrawal Road Carriers Pvt. Ltd. and Suni Shares and Stock Limited (inter-connected with each other), are paper concerns. These companies provided accommodation entry to various parties of Indore, Bhopal, Gwalior, Nagpur, Surat, Mumbai, Ahmedabad, Vadodara, and in various other cities through their bank accounts maintained AXIS Bank, Indore, during the period 1.4.2002 t....
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....aree Industries Limited). Vide para 17 of the order (page 125) it has been held that Sunil Shares & Stocks Private Limited failed to provide necessary information to the investigating authority of SEBI and penalty of Rs. 2 lacs was imposed in terms of provisions of section 15A(a) of SEBI Act, 1992 for failure to provide necessary information to SEBI. 31. The Hon'ble Apex Court in the case of Vijay Kumar Talwar v. CIT [2011] 330 ITR 1/196 Taxman 136/[2010] 8 taxmann.com 624 (S.C.) on the issue u/s 68 read with section 260A decided in favour of the revenue. Identical ratio was laid down by the Hon'ble Supreme Court in case of CIT v. Biju Patnaik [1986] 160 ITR 674/26 Taxman 324. 32. So far as the contention of the Ld. Counsel for assessee to the effect that the issue is squarely covered by the decision of the coordinate Bench in the case of Kalani Industries is concerned, we do not find any substance in the same in view of the fact that the addition made in the cases before us was after passing of the order by the Tribunal and the inquiry conducted by the Department thereafter. The enquiry so conducted by the Department after the relevant assessment years involved in the case o....
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....upra) are distinguishable, as discussed above. 35. So far as the contention of the ld. Counsel for the assessee that the company can only be wound up by the order of the Hon'ble High Court and death of the company is known to the process of law and also that the company is still available on the website of the Company Law Board is concerned, we are not agreeing with this proposition of the assessee because here it is not a case of winding process rather it is a case of admissibility of claim of the assessee u/s 68 of the Act. Since the share applicants'/share subscribers' identity is not proved, therefore, the assessee cannot be permitted to take shelter of technicalities. Even otherwise, website existence on the Company Law Board is not a sole proof that in fact the share applicants are in existence especially when right from the assessment stage to the stage of the Tribunal (three stages) the assessee did not prove the identity of the share applicants. Technicalities also help those who are with clean hands. However, we are in agreement with the argument of the assessee that the winding up powers of a company lies with the Hon'ble High Court but this issue is not before us, th....
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....y/existence of the person in whose names share applications are received meaning thereby the burden lies on the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee has not proved the identity of such share applicants. 37. The contention of the Ld. Counsel for assessee to the effect that the decision of Rathi Finlease by the jurisdictional High Court was rendered much prior to the decision of the Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) therefore, the proposition laid down by the jurisdictional High Court in Rathi Finlease cannot be applied after the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P.) Ltd. (supra), have no legs to stand insofar as the jurisdictional High Court in the case of STL Extrusion wherein case of Lovely Export (P) Ltd. (supra) was relied on, duly approved its previous proposition laid down in case of Rathi Finlease. He further submitted that jurisdictional High Court in the case of ACIT v. Shre....
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....to inquire with the investors about their capacity to invest the amount in the shares ". If the aforesaid conclusion is analysed, one fact is clear that the identity of the share holders has to be proved by the assessee. However, in the present appeals the identity itself is in dispute, therefore, the aforesaid decision clearly supports the case of the revenue. 38. Likewise in the case of ASK Bros. (supra) the shareholders admitted the payment of amount for shares to be allotted. In these circumstances, Hon'ble Court held that the amounts of share capital cannot be added in the assessee's hands. However, in the present appeals, the share applicants itself are non-existent, consequently, there is no question of admitting by the share holders regarding money invested by them and then shares allotted to them. This judicial pronouncement also goes against the assessee. Hon'ble Delhi High Court in a later decision in Vijay Power Generators Ltd. v. DIT [IT Appeal No. 514 of 2007] at page 136 the appeal was admitted on the following question of law :- "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has erred in law in sustaining the a....
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....examined the material available on record and the orders of the lower authorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the assessee could not produce them for verification nor was any evidence filed with regard to their financial status. Out of 15 subscribers, 5 subscribers were produced before the Assessing Officer and during the course of the examination it was admitted that they were small agriculturists and were cultivating the agricultural land after taking it on lease from other agriculturists. No evidence regarding the agricultural holdings were produced before the Assessing Officer nor have they filed any evidence with regard to their financial soundness whereas the investment in shares were made between Rs. 1 lakh to Rs. 2.5 lakhs. Copy of the statement are (sic. Is) placed on record and from its perusal one would find that all these 5 persons are of ordinary status and they have no means to invest a huge sum in shares with the assessee. 16. So far as the legal position and the judgment of the apex court in the case of ....
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.... neither their identity is established nor their capacity to invest this kind of money is proved. They are all agriculturists and had not produced a single document to support their version. This is a finding of fact and there is no reason to interfere with the same. Learned counsel for the revenue had drawn our attention to view all these statements. One Mr. Sukh Lal Singh in his statement had stated that he had purchased the shares of Rs. 1,90,000. Out of the share money, he had paid Rs. 70,000 out of his own source and Rs. 1,20,000 was received by him from his friends and was paid in many instalments. Likewise one Mr. Vijay Kumar who also purportedly purchased the shares of Rs. 1.90 lakhs stated that the payments were made by him in cash in many instalments. He also stated that he personally knew the directors of the company and had very old relation with him. On the basis of such statement without an iota of documentary evidence to support, we are of the opinion that the findings of the authorities below cannot be treated as perverse. It is on proper analysis of the statements of these persons which were recorded by the Assessing Officer. When we keep in mind the principle o....
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....entity produced at a later stage cannot be verified in the absence of concerned person's original documents." 45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even reproduced in the order and thereafter the learned Commissioner of Income Tax (Appeals) discussed the same in the light of certain decisions cited before him and came to the conclusion that the assessee had not given satisfactory evidence to discharge the onus. It had merely given names of the parties without anything more. That would not be sufficient compliance. Even the bank statement of the assessee which was submitted has not been proved. 46. For all these reasons, we are of the view that the assessee had not been able to discharge the onus probandi and addition was rightly made. We, therefore, answer the question in the negative and dismiss this appeal of the assessee." 40. If the aforesaid conclusion drawn by the Hon'ble High Court is kept in juxtaposition with the facts of the present appeal, one fact is clearly oozing out that the assessee has not discharged its onu....
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....pliance, therefore, the decision from Hon'ble Supreme Court in the case of Lovely Exports P.) Ltd. (supra) may not help the assessee. In a later decision dated 25th October, 2010 the Hon'ble jurisdictional High Court in the case of STL Extrusion (P) Ltd. (supra) even considered various decisions including the off-quoted decision of Divine Leasing & Finance Ltd., Rathi Finlease Ltd, Stellar Investment Ltd. (supra) and of course Lovely Exports Private Limited wherein the assessee filed list of all subscribers and gave affidavits of all subscribers in the form of confirmations and in that situation the Hon'ble Court held that the assessee is required to establish the identity and source of credits and further held that if the confirmation is given, no addition could be made against the assessee whereas in the case of the assessee the share applicants were found to be non-existent, therefore, this judicial pronouncement from the Hon'ble jurisdictional High Court clearly goes against the assessee. 42. The next ground pertains to upholding the ad hoc disallowance of Rs. 1 lac made out of telephone expenses. After considering the rival submissions, we find that the learned Assessing Of....
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....ssed. 44. After considering the rival submissions and the facts narrated before us and further the discussion made hereinabove, since the identity of the lender company is not established as such companies were found non-existent at the given four addresses, therefore, various documents alleged to be filed before the Assessing Officer in respect of non-existing companies are of no use. We find no merit in this ground of the assessee and dismiss the same. 45. The identical grounds in other appeals relating to additions made under section 68 of the Act, as discussed above are also dismissed following the reasonings given above. 46. So far as the ground relating to ad hoc disallowance of Rs. 80,000/- on account of telephone expenses is concerned (ITA No. 136/Ind/2009), we are of the view that since the assessee company is a juristic person, no ad hoc disallowance for personal purposes can be made in the hands of the company. We, therefore, allow this ground of the assessee. 47. So far as the disallowance of Rs. 6,17,878/- paid as interest on unsecured loans in respect of accommodation entries is concerned, we are of the view that since the addition made u/s 68 has been sus....