TaxTMI 
TaxTMI 
2013 (12) TMI 554
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....t from which investments were made, copy of share application form and copy of audited balance sheet of the share applicants. It has been accordingly held that the identity, creditworthiness of the shareholders and genuineness of the transactions has been established. Reference and reliance was placed on judgments of Delhi High Court in CIT vs. Stellar Investment Ltd. [1991] 192 ITR 287, Monnet Ispat and Energy Ltd. vs. DCIT (2008) 171 Taxman 27, CIT vs. Divine Leasing and Finance Ltd. (2007) and CIT vs. Lovely Exports Pvt. Ltd. both reported (2008) 299 ITR 268. Some other decisions have also been referred to in the order of the Commissioner of Income Tax (Appeals) (CIT (A) for short). 3. For the sake of convenience, we are reproducing below the observations made by the Tribunal in their order dated 4th November, 2011 dismissing the appeal of the Revenue. The relevant paragraph reads as under: "4. We have considered the facts of the case and submissions made before us. We find that the assessee had filed sufficient evidence in the form of name, address and PAN details of the contributors. Further, copies of confirmation, income-tax return, bank statement, share application form a....
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.... assessee that there was no corresponding credit entry in the bank account of M/s Inter Steller Exports Pvt. Ltd. as the assessment order mentions that there were debit entries of Rs.4,23,000/- and Rs.5,15,000/- on 27th May, 2005 before a sum of Rs.9,35,000/- was transferred to the respondent assessee"s account. The word "debit", it is apparent, is a typographical error in the order of the Assessing Officer. Paragraph 3 of the impugned order passed by the tribunal which records the submission made by the Departmental Representative, reads:- "3. Before us, the ld. DR submitted that the shares of the face value of Rs. 10/- have been issued at Rs. 50/- per share and, thus, premium of Rs. 40/- per share has been charged. There are matching deposits in the bank account of the contributors. The relevant schedules of the balancesheet of the contributors, containing the details of investments, have not been filed. The assessee had not charged premium in any earlier year. Thus, it is argued that the creditworthiness of the contributors and genuineness of the transactions have not been established." 7. In paragraph 4 of the impugned order quoted above, it is recorded by the Tribunal that t....
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....action lied in the case of the contributors i.e., the share applicants. 10. We had the occasion to deal with a similar controversy and issue in our recent decision dated 22nd November, 2013 passed in ITA No. 1018/2011 and 1019/2011 titled CIT vs. N.R. Portfolio Pvt. Ltd. In the said decision we referred to the decisions of Delhi High Court in Lovely Exports Pvt. Ltd. (supra) and Divine Leasing & Finance Ltd. (supra) and observed as under: "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 ....
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....owledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and that it was not entirely an arm"s length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate ill gotten and unrecorded money. Without being oblivious to the constraints of the assessee, an objective and fair approach/determination is required. Thus, no assessee should be harassed and harried but any dishonest façade and smokescreens which masquerade as pretence should be exposed and not accepted." With reference to two decisions, it was further held "25. In Lovely Exports (supra), a Division Bench examined two earlier decisions of this court in CIT vs. Steller Investment Ltd. [1991] 192 ITR 287 (Delhi) and CIT vs. Sophia finance Ltd. [1994] 205 ITR 98 (FB) (Delhi). The decision in Steller....
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....th 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. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer 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..................... xxxx ..........Once material to prove these ingredients are produced it is for the Assessing Officer to find out as to whether, on these materials, the assessed has succeeded in establishing the ingredients mentioned above. The Assessing Officer `lift the veil" and enquire into the real nature of the transaction. C.I.T. v. Ruby Traders and Exporters Ltd. : [2003]263 ITR 300(Cal) , ....
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....ly 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 activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establi....
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..... Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee"s knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them." 11. The respondent assessee is a private limited company. It is no....
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....ited company, in the normal circumstances, unless there are other peculiar or personal reasons, entails due diligence by both the share applicant and the recipient company. This implies inquiry and verification by the persons behind the artificial entity. There have been a spate of cases where private limited companies have purportedly received share application money from unconcerned, unrelated parties without securing adequate protection of their investment and with other surrounding circumstances clearly indicative of racket or a scam. We reproduce a portion the ruling in Onkar Nath v. Delhi Administration, AIR 1977 SC 1108, wherein it was stated: "6.....................The list of facts mentioned in Section 57 of which the Court can take judicial notice is not exhaustive and indeed the purpose of the section is to provide that the Court shall take judicial notice of certain facts rather than exhaust the category of facts of which the Court may in appropriate cases take judicial notice. Recognition of facts without formal proof is a matter of expediency and no one has ever questioned the need and wisdom of accepting the existence of matters which are unquestionably within publi....
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....vidence and material. 16. In ITA No. 212/2012 titled CIT vs. Goel Sons Golden Estate Pvt. Ltd., appeal of the Revenue was dismissed holding that the Assessing Officer had failed to make necessary enquiry at the time of the assessment proceedings. It was specifically observed that the factual findings recorded by the Assessing Officer were incomplete and sparse. In the present case, we find that the Assessing Officer had conducted enquiries and made a reference to the surrounding facts i.e. deposits/credit of the amounts in the bank account of the share applicants; substantial amount of Rs.41,88,000/- paid as premium and referred to the fact that only one Shri R.C. Verma, CA and Power of Attorney holder of M/s Ritika Finance & Investment Pvt. Ltd. had appeared alongwith Shri Dinesh Kumar, the AR of the assessee company during the assessment proceedings and filed the bank statement and copy of the balance sheet but, failed to file schedule of investments made by the said company. Others had failed to appear. 17. Learned counsel for the assessee during the course of hearing had drawn our attention to the order of the CIT (Appeals), wherein he had recorded that the assessing officer ....