TaxTMI 
TaxTMI 
2015 (3) TMI 410
X X X X Extracts X X X X
X X X X Extracts X X X X
....mstances of the case ld. ITAT was correct in allowing the appeal of the assessee in regard to addition of Rs. 1,42,000/- on account of commission paid on entry taken from entry provider." 2. The assessee had filed its return of income for AY 2004-05 on 01.11.2004 declaring income of Rs.3,180/-. The said original return was accepted. It is stated that some time in 2007 the Assessing Officer (AO) was in receipt of information from DIT (Investigation), New Delhi that the assessee had been in receipt of accommodation entries from the entry providers. It is the averment of the Revenue that - "during the course of the enquiries conducted by the investigation wing of the department it was concluded that most of the entry operators are charging commission @ 2% for giving this accommodation approach to another person and hand over the cash plus commission and take cheques/DDs/Pos. The cash is deposited by the entry operator in a bank account either in his own name or in the name of the relative/friends or other person hired by him for the purpose of opening bank account. The other person (in whose name the account is opened) only signs the blank cheque book and hands over the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no one appeared and some of the processes returned un-delivered with the postal remarks "left/no such person". In this fact situation, the AO called upon the assessee to produce the parties/persons in question which direction was not complied with. 7. The AO, thus, treated the amount of Rs.71 Lacs as unexplained credit in terms of the provision contained in Section 68 of Income Tax Act and added it to the income of the assessee. The assessee's explanation was rejected by drawing adverse inferences on the following reasoning:- "(i) Mere payment of a/c payee cheque is not sacrosanct. (ii) Bank account revealed a uniform pattern of cash deposit of equal amount by cash or cheque in respective accounts. (iii) Assessee failed to produce the directors of the companies from whom the share application money was received. (iv) Summons u/s 131 of the Act were issued, but some of the summons were received unserved with postal remarks "left/no such person"; none appeared in response to served summons." 8. Further, a sum of Rs.1,42,000/- taken as probable commission given out of the unaccounted income not having been booked was also added to the income.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llotment letters; (vi) Copies of the registration certificates of the share holder companies from Registrar of Companies disclosing existence of the companies as per master data from the office of ROC along with the subscription of the capital details, number and dates of payments." 12. The contentions of Revenue were rejected by the ITAT with observations to the following effect:- "7. ... the assessee consequent to the assessing officer's queries furnished all the relevant documentary evidence before the assessing officer. From the perusal of record and order-sheets it clearly emerges that the requirement of physical production of the parties was communicated to the assessee as late as on 17-12-2008 as against the date of assessment being 26- 12-2008. Similarly, from the entry dated 22-12-2008 the assessing officer vaguely stated that some summons were issued on some parties, some came unserved and none appeared. The same is sketchy and non-specific. We find merit in the argument of the ld. Counsel that it will not be easily possible to ask an assessee to accompany him to the proceedings before the assessing officer. In our view, adverse inference drawn on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted 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 or 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 applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sing officer, the assessee's primary burden cannot be held to have been rebutted by assessing officer." [emphasis supplied] 16. By way of the cross-objections, the assessee has raised the issue of limitation bar against the re-opening which had not been considered by the authorities below. The ITAT, having rejected the appeal of the Revenue, declined to go into that issue observing that it had been rendered mere academic and infructuous. 17. The Revenue is aggrieved on the ground that the reliance on CIT v. Gangeshwari Metal Pvt. Ltd. (supra) was not correct inasmuch as unlike the said case, here the AO had issued summons to the share applicants which either remained unserved or were not responded to and when the assessee was confronted with this fact-situation and given opportunity to produce the share applicants, there was failure in compliance. 18. It must be noted at this stage that the assessee had also come up with appeal (ITA No. 289/2014) impugning the order dated 14.06.2013 of ITAT raising grievances as to validity of re-opening of the assessment, questions in which respect had remained unaddressed since the cross-objections were rejected as infructuo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....68 as extracted above by Finance Act, 2012 and came into effect from 01.04.2013. Therefore, they would not strictly apply to the case at hand which relates to AY 2004-05. 22. The objective behind the provision is to hold the assessee accountable for each sum found credited in his books of accounts by responding to the call of the AO to give satisfactory explanation about "nature and source" of such sums. If no explanation is forthcoming or the explanation given is found to be unsatisfactory, the sum of money so credited may be lawfully included in the income of the assessee for the corresponding period. 23. More often than not, questions have been arising in assessment proceedings respecting sums found credited in the books of accounts of companies incorporated under the Companies Act in the context of their efforts to raise capital through shares, pursuant to which they receive applications along with share application money from various persons. If the AO doubts the genuineness of such investors as had purportedly subscribed to the share capital, the assessee is generally asked to explain the nature and source as also the genuineness of the transaction. 24. The provision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers and Finlease (P) Ltd.(supra), were as under:- "...The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iber, the proof could include banks statements of the subscriber showing sufficient balance in its kitty to enable it to subscribe. 29. In M/s Nova Promoters and Finlease (P) Ltd. (supra), this court found the facts as under:- "41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so-called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (supra)." [emphasis supplied] 30. The judgment in the case of CIT v. Gangeshwari Metal Pvt. Ltd. (supra), which has been referred by the ITAT in the impugned order followed the same lin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to detailed analysis. 33. Significantly, prior to the amendment of Section 68 by the Finance Act, 2012 (whereby the two provisos quoted earlier were inserted), there was no express statutory obligation on the part of a company called upon it to explain a sum credited in its books of accounts described as share application money to support it with explanation of the share applicant about the nature and source of such sum credited in his name. In such scenario, it could not be expected that the company which had received the share application money in response to the offer made to the public at large to collect minute details respecting the share applicants to the extent of it being able to vouchsafe the financial worth of each subscriber, such that, when called upon by the Income Tax authorities, it would be in a position to conclusively prove their respective creditworthiness. But then, given the larger objective behind the provision contained in Section 68, the primary aim of which is to ensure that no monetary transaction remains unaccounted, the initial burden is on the recipient of the money. For this purpose, the assessee in receipt of money (by whatever name called, incl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....part of the AO. In such event, it is they who are duty bound to either themselves properly inquire or cause such inquiry to be completed. If this were not to be done, the power under Section 148 would be rendered prone to abuse. 36. The authority to bring to tax unaccounted money by exercising the power given to the AO under Section 68 is of great importance. It is expected that the AO would resort to this provision with all requisite circumspection. Since the provision is generally invoked, as has been done in the case at hand, by recourse to the procedure of notice under Section 148 upon satisfaction under Section 147 that the income (purportedly represented by the unexplained sums found credited in the books of accounts), within the mischief of Section 68, it is inherent that the explanation of the assessee respecting such credit entries would be called for only with circumspection and solely upon some concrete material coming up to support the tentative impression about it being suspect. 37. Thus, when the AO sets about seeking explanation for the unaccounted credit entries in the books of accounts of the assessee in terms of Section 68, it is legitimately expected that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party. 40. The CIT (Appeals), as also the ITAT, in the case at hand, in our view, unjustifiably criticized the AO for not having confronted the assessee with the facts regarding return of some of the summons under Section 131 or not having given opportunity for the identity of all the share applicants to be properly established. The order sheet en....