TaxTMI 
TaxTMI 
2013 (12) TMI 13
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....s processed under Section 143(1) of the Income Tax Act. 4. On the basis of the information received from the Investigation Wing of the Income Tax Department, notice under Section 148 was issued to the Assessee. The proceedings were sought to be opened on the basis of the information unearthed by the Investigation Wing of the Income Tax Department, wherein it came to their knowledge that a huge money laundering racket was being run by a few persons and bogus accommodation entries were being provided. As per the information of the Investigation Wing, accommodation entries were being provided in lieu of payment in cash of equivalent amount plus commission being paid thereon to the entry operators. The Investigation Wing during the investigation came across names of various individuals, who were operating as entry providers and also various parties, who were taking such accommodation entries. The name of the Assessee also figured as one of the parties involved in taking such accommodation entries. 5. In response to the notice under Section 148, the Assessee issued a letter dated 06.04.2009 submitting that the return filed on 30.09.2002 may be treated as the return filed in respon....
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.... 500300 23-Apr-01 SANTOSH KUMAR CHAUDHARY SBP DG 6182 500300 23-Apr-01 SANTOSH KUMAR CHAUDHARY SBP DG 6182 500300 01-May-01 KESO RAM GUPTA SBP DG 6257 500300 01-May-01 KESO RAM GUPTA SBP DG 6257 500300 21-May-01 VISHNU KUMAR SBP DG 6058 500300 21-May-01 VISHNU KUMAR SBP DG 6058 501000 22-May-01 BASANT AGENCIES SBP DG 4507 501000 22-May-01 BASANT AGENCIES SBP DG 4507 500000 12-JUN-01 HARBHAGWAN BATRA SBP DG 6701 500000 12-JUN-01 HARBHAGWAN BATRA SBP DG 6701 501000 13-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 501000 13-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 501000 15-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 501000 15-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 900000 17-Sep-01 MANISH KUMAR AGARWAL SBP DG 6810 900000 17-Sep-01 MANISH KUMAR AGARWAL SBP DG 6....
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....ey towards acquisition of share capital in the Assessee amounting to Rs.1,50,00,000/-. The list of the parties is as under:- Sl. No. Name of the Persons Amount 1 Keso Ram Gupta 300000 2 Vijay kumar 500000 3 Harbhagwan Batra 500000 4 Chintpurni Credits 500000 5 Santosh Kumar Chaudhary 500000 6 Keso Ram Gupta 500000 7 Vishnu Kumar 500000 8 Ajay Bansal 500000 9 Jagdish Prasad 500000 10 Satish Kumar Sharma 500000 11 Narender Kumar Gupta 500000 12 Manoj Kumar Batra 500000 13 Technocom Associates Ltd. 500000 14 Ajay Bansal 600000 15 Rekha Garg 600000 16 Vinod Garg 600000 17 Keso Ram Gupta 600000 18 Chetan Parkasha Aggarwal 600000 19 Rajeev Kumar Aggarwal 600000 20 Subhash Gupta 900000 21 Narender Kumar Gupta 900000 22 Manish Kumar Agarwal 900000 23 Satish Kumar Sharma 900000 24 Chintpurni Credits 1500000 Total 15000000 7. The Assessing Officer during the reassessment proceedings found, on the basis of the inquires and investigations made ....
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....ities and to create a semblance of legitimate transaction. The entry operators were cautious enough to obtain a PAN number in their names and also in the names of the name lenders and regular returns would be filed with the Department so as to create semblance of genuineness and also to show creditworthiness of these parties. 10. As per the investigation wing another modus operandi, which was an extension of the first modus operandi mentioned above, was that the entry provider would invest money in a company which was a private limited unlisted company. The money would be infused into such company as money towards acquisition of share capital or would be share application money. The acquisition of the share capital or investment in the share application money would at times be at a huge premium. Ultimately, the said share capital was then sold back by the Directors or family members/friends of the Directors at a huge discount. The share capital was purchased at high prices (Premium) and in a short span sold back to the company or its Directors at a nominal value thereby creating semblance of legitimacy to the transactions. 11. The Assessee Company is a private limited company....
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.... Rs.5,00,000/- 10. Rakesh Chawla S/o Manohar Lal Chawla Rs.5,00,000/- 11. Jagbeer Singh S/o Kuldeep Singh Rs.5,00,000/- 12. Chetan Prakash S/o Shimbhu Dayal Rs.5,00,000/- 13. Bimla Devi W/o J.N. Jain Rs.5,00,000/- 14. Bimla Devi W/o J.N. Jain Rs.6,00,000/- 15. Subhash Chand Gupta S/o R.S. Singla Rs.5,00,000/- 16. Manish Kumar Aggarwal S/o D.P. Aggarwal Rs.5,00,000/- 17. Shakuntla Devi W/o Santosh Kumar Jain Rs.3,00,000/- 18. Satish Jain S/o Sunder Lal Jain Rs.5,00,000/- 19. Santosh Kumar Jain S/o P.D. Jain Rs.5,00,000/- 20. Satish Kumar Dhingra S/o Ladhu Ram Rs.5,00,000/- 21. Kiran Kapoor S/o M.R. Kapoor Rs.5,00,000/- 22. Ajay Mittal S/o Kesho Ram Rs.5,00,000/- 23. Vishnu Kumar Gupta S/o Ram Gopal Rs.6,00,000/- 24. Mahesh Garg S/o R.S. Garg Rs.5,00,000/- 25. Mahesh Garg S/o R.S. Garg Rs.6,00,000/- 26. Laxmi Aggarwal W/o Rajiv Aggarwal Rs.5,00,000/- 27. Laxmi Aggarwal W/o Rajiv Aggarwal Rs.6,00,000/- 28. Rajiv Kumar Aggarwal S/o R.S. Aggarwal Rs.5,00,000/- 29. Balraj Jain S/o Bhim Sen Jain Rs.5,00,000/- ....
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....issioner of Income Tax (Appeals) held in favour of the Revenue and held that the proceedings had been rightly reopened for reassessment. 15. With regard to the additions made by the Assessing Officer of Rs.3,49,86,000/-, the Commissioner of Income Tax (Appeals) allowed the appeal filed by the Assessee. One of the reasons for allowing the appeal is that the Assessing Officer has relied on the statement of Mahesh Garg recorded by the Investigation Wing and neither the statement was recorded by the Assessing Officer nor was Mahesh Garg summoned to re-examine the fact as to whether Mahesh Garg knew the Assessee company and to verify the veracity and the statement made by Mahesh Garg before the Investigation Wing. 16. The Commissioner of Income Tax (Appeals) was of the view that merely because the Assessee could not furnish the present addresses of the subscribers to the share capital or could not produce them before the Assessing Officer for personal deposition, would not prove that the share capital had emanated from the coffers of the Assessee's unexplained sources. 17. The Commissioner of Income Tax (Appeals) had further held that the Assessing Officer did not make any effo....
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.... justified in making an addition of Rs.3,43,00,000/- under Section 68 of the Act and the same was thus deleted. 22. The matter was carried forward by the Revenue by way of an appeal to the Income Tax Appellate Tribunal. Vide the impugned order, the ITAT upheld the order passed by the Commissioner of Income Tax (Appeals). 23. We have heard the learned counsel for the parties and also perused the records produced by the Revenue. We are of the considered opinion that the orders of the CIT (Appeals) and the ITAT in deleting the addition made by the AO of Rs. 3,43,00,000/- under section 68 of the Act are clearly unsustainable. 24. Recently in the case of COMMISSIONER OF INCOME TAX VS NR PORTFOLIO PVT. LTD (INCOME TAX APPEAL NO. 1018 OF 2011 AND 1019 OF 2011) vide Judgment dated 22.11.13 we have held as under: 14. When an assessee does not produce evidence or tries to avoid appearance before the Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing officer is denied advantage of the contention or factual assertion by the assessee before him. In case an assessee deliberately and intentionally fails to....
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....ned how and why these unrelated and unconnected third parties decided to become investors in the absence of public issue or advertisement. 18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. The word "identity" as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according to us is the correct and true legal position as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but c....
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.... income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia vs. CIT [1980] 126 ITR 48, a Division Bench of Delhi High Court has observed:- "It is well known that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by step in order to plug loopholes and in order to place certain situations beyond doubt even though there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of s. 68 in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the ITO, not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of a relevant previous year. Section 68 was inserted in the I.T. Act, 1961, only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions." 24. We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty whi....
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....ctly by the Company/assessee or to creditors of the assessee. This is why this court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift." 26. Thereafter reference was made to Full Bench decision in the case of Sophia Finance Ltd.'s case (supra) wherein it has been observed that if the shareholders exists then, "possibly", no further enquiry need to be made and that the Full Bench had not reflected upon the question of whether the burden of proof rested entirely on the assessee and at which point this burden justifiably shifted to the assessing officer. The Full Bench has observed that they were not deciding as to on whom and to what extent was the onus to show that the amount credited in the books of accounts was share capital and when the onus was discharged, was not decided. The standard of proof might be rigorous and stringent and was dependent upon nature of the transaction and where there was evidence that the source of investment cannot be manipulated, it was material. Similarly, it was observed that assessee could scarcely be heard to say that he did not know the particulars of a donor in case of a gift. ....
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....t details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assesse nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/ subscriber the genuineness of the transaction and the veracity of the repudiation." 27. The decision in the case of Lovely Exports (supra) was considered in CIT vs. Nova Promoters and Finlease (P) Ltd. (supra) and it was elucidated:- "38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete....
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.... view of the link between the entry providers and incriminating evidence, mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. 29. In Nipun Builders and Developers (2013) 350 ITR 407 (Del), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more ....
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....nquiry or investigation, an adverse inference should be drawn. The said case, i.e., N.R. PORTFOLIO PRIVATE LIMITED (SUPRA), was also one of the cases where accommodation entries were being provided by Mahesh Garg Group of entry providers as in the present case. It has been noticed in that case that the modus operandi used by the entry providers for providing accommodation entry to different persons/beneficiaries was very similar to the one in the present case. It has been further noticed that the bank statements of the entry operators showed substantial deposit of cash in the bank accounts and subsequent issuance of cheques to the beneficiaries. The entry providers were not carrying on any business activity but the only activity was for providing entries. It has been held that a private limited company is a closely held company having proximate relationship between promoters and shareholders and usually inclosely held companies, share capital subscription is from friends, relatives and not from unrelated/unknown third parties/general public. 26. We have further in N.R.PORTFOLIO PRIVATE LIMITED (SUPRA) held that mere production of PAN Number or assessment particulars does not est....
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.... is on the Assessee as the facts are within the personal knowledge of the Assessee. Mere production of incorporation details, PAN Numbers or income tax returns may not be sufficient when surrounding and attending facts predicate a cover up. The production of incorporation details, PAN numbers or income tax details may indicate towards completion of paper work or documentation but genuineness, creditworthiness and identity of investment and the investors are deeper and obtrusive than mere completion of paper work or documentation. 30. The affidavits filed by the Assessee have been produced before us and we have perused the same. Out of the 18 affidavits filed, 9 affidavits give the number of shares which have been allotted by the Assessee. The said 9 affidavits show that the face value of the share is Rs.100/- and the premium at which the shares are purchased was Rs.100/- in the month of May 2001 and Rs.200/- for the shares purchased in the month of November 2001. These 9 affidavits are all in seriatim and prepared on the same date i.e. 15.06.2009 and all pertain to transactions of the year May and November, 2001. The language of all these 9 affidavits is standard and one such af....
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....ify the genuineness of the transaction as far back in the year 2001 when there was no suspicion or inquiry/investigation in contemplation even in the Department. We find it strange that an Assessee alongwith share application money would obtain affidavits from the investors to confirm genuineness of the transaction. In a normal business transaction, no such certificate/affidavit would be obtained by any company from persons investing in its share capital. The fact that the Assessee felt the necessity of obtaining such affidavits raises a suspicion on the genuineness of the very transaction. 33. The Assessee company is a private limited company and had not come out with any public issue nor made any advertisement for issuance of share capital. However, in one year there is infusion of share capital including premium of Rs.4,35,00,000/-, out of which only Rs.92,00,000/- was infused from the Directors/family members of the Directors. The remaining share capital had been infused from parties which were completely unrelated either to the Assessee or to any of its Directors. In a private limited company, normally the investment of shares is from parties or persons who are friends or r....
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....he company towards share capital. 37. The Assessing Officer in his order has as a sample referred to the entries in the account of some of the share holders noticing that there are cash deposits of the exact amount for which cheque is subsequently issued to the Assessee. Perusal of the bank statements clearly establishes that these parties were depositing cash and immediately either on the same day or in the near future withdrawing the same through a cheque which was issued in favour of the Assessee. 38. Reliance is placed by the counsel for the respondent on the judgments in the case of CIT vs. M/s. Nipun Auto (P) Ltd. dated 30.04.2013 in ITA 225 of 2013 (Del)., CIT vs. Gangeshwari Metals Pvt. Ltd., 2013 (2) AD (Delhi) 378, CIT vs. Fair Finvest Ltd., ITA No.232 of 2012 dated 22-11-2012, CIT vs. Oasis Hospitalities Pvt. Ltd., (2011) 333 ITR 119 (Del.), CIT vs. Dwarkadish Investment Pvt. Ltd. (2011) 330 ITR 298 (Del), CIT vs. Kamdhenu Steel & Alloys Ltd. & Ors, (2012) 248 CTR 33 (Del)., CIT vs. Gourdin Herbals India Ltd., ITA No.665 of 2009 dated 17.09.2009 (Del.), CIT vs. Victor Electrodes Ltd., (2010) 329 ITR 271 (Del), CIT vs. Value Capital Services Pvt. Ltd., (2008) 307 IT....
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....mited company in contrast to the present case in which the Assessee is a private limited company and was based on the facts of the case. 47. In the case of Victor Electrodes Ltd. (supra), once again the said judgment pertains to a limited company and the Division Bench has returned a finding that the Assessing Officer did not make any verification vis-a-vis the bank statements and the Assessing Officer had not summoned the share applicants. 48. In the case of Value Capital Services Pvt. Ltd. (supra), the High Court has noticed that the share applicants had appeared before the Assessing Officer during the inquiry. 49. In the case of Madhuri Investment Pvt. Ltd. (surpa), some of the applicants had appeared before the Assessing Officer and confirmed the applications made by them and the Assessing Officer had came to the conclusion that the transaction was not genuine solely on the ground that the Assessee had failed to produce the correct addresses. 50. Decision in Goel Sons Golden Estate Pvt. Ltd. (supra) is distinguishable as it proceeds on its own facts. No doubt, one S.H. Mallick in his statement had stated that he had provided accommodation entries, but the Assessee d....