TaxTMI 
TaxTMI 
2015 (4) TMI 501
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.... of the Act without appreciating the circumstances and the fact that neither the assessee nor the share applicant furnished any evidence in support of credit worthiness of the share applicant and the genuineness of the transaction. 4. The appellant craves to be allowed to add, delete or amend any other grounds of appeal. 2. The assessee filed its return of income and declaring an income of Rs. 62.400 on 31/10/2005 which was processed by the Assessing Officer u/s 143(1) of the Income Tax Act 1961 (hereinafter called the Act) on 31/3/2007. The Assessing Officer select the case of assessee for scrutiny and issue notice u/s 143 (2) of the Act on 4/10/2006, in response to the same authorities represent assessee appeared and filed requisite details. The assessee company is non-banking finance company engage in the activities of Finance and investment. During the year it has earned income by way of interest, rent and capital gains. During the year under consideration, assessee company increased its share capital by Rs. 2,97,50,000/-. From the perusal of details furnished by the assessee company the Assessing Officer noticed that the said share application was allegedly received from fol....
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.... are used only as conduits and in which the funds are transferred through colouring into or more stages. Thus, the beneficiaries unaccounted money sails through several accounts before round trapping back to it, only disguise in the form of share application money unsecure rent, gift etc. Interestingly most of the concerned/individual have obtain PAN from the Department and are filing return as well. But what it shown in return as not accrual states of affairs. The Assessing Officer further observed that where money was routed through the entry operator in the garb of capital application money. These shares are ultimately bought back in a year or two, by some family member of the Directors at huge discount, some time at one tenth or eleven even less of the issue price. 4. The above said three companies from whose in the share application money amounting to Rs. 20 lakhs has alleged being received belonging to S. H. Mallick Group and Mahesh Garg Group of entry operator. The Assessing Officer asked the assessee to produce the Principal Officer/Directors of the said companies along with their books of accounts, copies of all bank accounts etc and the case was fixed for by 22/10/2007. ....
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....7/2/2009 deleted the additions indispute by partly allowing the appeal filed by the assessee. Now the Revenue is aggrieved against the impugned order dated 27/2/2009 filed the present appeal. 7. At the time of hearing Ld. DR relied upon the order passed upon the Assessing Officer and contention raised by the Revenue in the grounds of appeal. He requested that the impugned order passed by the Ld. First Appellate Authority may be cancelled and the order of the Assessing Officer may be upheld by allowing the appeal filed by the revenue. 8. Ld. Counsel for the assessee relied upon the order passed by the First Appellate Authority. He has also filed a paper book containing page 174 pages in which he has attached various documentary evidence supporting the claim of assessee and he requested that appeal filed by the revenue may be dismissed. 9. We have heard both the parties perused the record available with us specially orders passed by the revenue authority along with the documentary evidence filed by the assessee. We are of the view that the Assessing Officer during the course the assessment proceedings has made the following observation in the assessment order on the issue in dispu....
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....nk account either in his own name or in the name of relative/friends or other person hired him for the purposes of opening bank account. The other person, in whose name the account is opened, only signs the blank cheque-book and hands over the same to the main entry operator. The entry operator, in turn, issues cheques/DD/Pos in the name of the beneficiary either from the account in which the cash is deposited or after multi-layering and further obscuring the trail by rotating it through other account or accounts, which are used only as conduits and in which the funds are transferred through clearing in two or more stages. Thus, the beneficiary's unaccounted money sails through several accounts before round-tripping back to it, only disguised in the form of share application money, unsecured loan, gift etc. Interestingly, most of the concerns/individual have obtained PAN from the department and are filing returns as well. But what is shown in the return are not actual state of affairs. It has been further observed that where money was routed through the entry operator in the garb of share capital/share application money these shares are ultimately bought back, in a year or tw....
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....expressed his inability to produce them. On 05.12.2007, on the request of the AR, summons U/S 131 of the Act were issued to the Principal Officers Director of the said "investor companies" ( at the following addresses mentioned in the "confirmations" provided by the assessee), requiring them to appear along with their books of accounts, evidence in support of the sources of investment in the assessee company etc. Sl. No. Name Address 1 M/s Onyx Exim & Sales Ltd. 2824, Classic Apartment, Street Moti Mahal, Darya Ganj, Delhi 2 M/s Shriniwas Leasing & Finance Ltd. 63, Shankar Market, CAnnaught Place, New Delhi 3 M/s Rapid Impex Pvt Ltd. H-16/332, Bapa Nagar, Karol Bagh, Delhi The matter was fixed for 13/11/2007. The summons addressed to M.s Shriniwas Leasing & Finance Ltd. Were received back unserved with postal remarks to the effect that "the ship is closed since a long time back:]". The summons sent to the other two parties went uncomplied with un. Since the said persons had not been produced by the AR nor had they appeared in response to the summons, the AR on 13/11/2007 was provided copies of the aforesaid statements of the following persons. a) Statement dated 10/09....
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....tion etc of the above share applicants have been considered. but have not been found to be sufficient in view of the above documents filed by it in support of the identities of the share applicants. This rather simplistic contention of the assessee has no legal basis. The Hon'ble High Court of Delhi in the case CIT V. M/s Himalaya International Ltd. (rendered on 30/7/2007 in ITA 1509 of 2006) has clearly held that the onus is on the assessee to establish the identity & creditworthiness of the subscribers of shares as well as the genuineness of the transaction. Before evaluating the credibility of the purported evidence sought to be relied on by the assessee against the overwhelming circumstantial evidence (as detailed below)exposing the real nature of the transactions, the import and ingredients of section 68 may be briefly discussed. It has been judicially established that the primary onus is on the assesssee to prove the identity & creditworthiness of the party and the genuineness of transactions in respect of cash credits in its books of account. The identity and creditworthiness , in the context of the provisions of section 68, cannot be seen as two separate elements but as two....
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....me actual activity is going on. Inspector was deputed to make lock inquiries at the given addresses. AS per the report of the Inspector, no entities by the said names were found to be existing at the given addresses. Clearly, the addresses are being used only as a post-box. Having PAN or assessment particular is merely a response to the applications and returns filed. These types of identity are merely on paper. The authority allotting PAN or processing the return of income seldom verify the actual identity of the person. These tools are being employed intentionally for the purpose of proving existence, however actual identity of the business and its genuineness do not automatically get proved by these passive documents when in fact no actual and active business is being carried out. The persons have neither been produced nor has any substantive evidence produced in support of their actual affairs, their true identity and their creditworthiness that could only be examined, given the facts of the case, if they are produced along with necessary evidence of the nature and details of their activities on the ground, the sources of deposits and their books of account. For accepting the ....
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....oks of accounts and annexure showing composition of investments in such cases. For one, the amounts given as share application money are lost forever (as they are on time entries). Another reason for not filing the schedule of investment is that while the amount shown in the balance sheet may be less, the actual amounts may be more. For example, if one crore has been actually routed through the bank accounts the amount shown in the balance sheet may be just twenty or thirty lakhs. (2) The assessee company is private limited company. In the case of such companies, there is close and proximate relationship between the promoters/directors and the shareholders. The closely-held companies are permitted to accept the subscriptions of share capital or deposits only from the friends or relatives of the promoters/director s and such companies are not allowed to accept subscriptions or deposits from the general public. The shares are, therefore, subscribed by a small number of persons who are known to the promoters are related to them by family members. As such, there should have been no difficulty on the part of the assessee to produce the so-called investors, had the whole apparatus not b....
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....f the circumstances, it is obvious that the "transactions" were only a camouflage. The total amount of Rs. 20,00,000/- stated to have been received from the said investor companies" represents the assesssee's own unaccounted money which has sought to be introduced into its business in the garb of share application money. Thus, keeping in view the totality of the facts, the amount of Rs. 20,00,000/- is added back to the income of the assessese company u/s 68 of the IT Act." .......... As per the details filed, the assessee has also received a sum of Rs. 5,00,000/- from Sh. V. K. Angami, R/o 21/2, Mile, Dimapur, Assam. The assessee has filed a copy of the same application form of Sh. Angami which reveals that the entire amount of Rs. 5,00,000/- has been received in cash. Notice u/s 133(6) was sent to Sh. Angami on 6/9/2007, calling for the following: a) Confirmed copy of account of the assessee in his books of accounts for the year under consideration b) Source of investment in share capital of the assessee company with copies of the bank statement c) His PAN and I. T. Particulars with copy of acknowledgement for I.T. Return for the A. Y 2005-06 There was no response to this let....
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....g Officer, in the Assessment Order has added the Share Application Money received from 4 parties, namely M/s Onyx Exim & Sales Ltd. (Rs. 5,00,000/-), M/s Sriniwas Leasing & Finance Ltd. (Rs.10, 00\, 000/-), M/s Rapid Impex Pvt. Ltd. (Rs. 5,00,000/-) and Shri V K. Angami (Rs. 5,00,000/-) as unexplained cash credit in the hands of the appellant company. The addition in respect of first three cases was made on the basis of information received from the Investigation Wing of the Department and on the statement of Shri Mahesh Garg, S/o R.S. Garg, Sh. Vinod Garg, S/o R.S. Garg Sh. Rajeev Kumar Aggarwal, S/o R.S. Aggarwal, and Sh. S.H. Mallick, S/o .NH. Mallick given before the officers of the Investigation Wing, whereas the addition in respect of V. K. Angami was made as the said payment was received in cash and was not supported by any immediate source of the said cash. The Assessing Officer has asked the appellant during the course of assessment proceedings to produce the Directors of the companies from whom share application money was received, for examination. The appellant company to substantiate that the amount of share application money received from the said parties was genuine....
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....39;ble Delhi High Court that in absence of a notice of the kind and such reasonable opportunity, the order passed against the person in absentia and becomes wholly vitiated. The AO in his Assessment Order has not brought any material on records, which can prove that this money was appellants own undisclosed income. He has simply relied upon the information received from the Investigation Wing of the Department without making any effort to verifying the facts stated therein. It has also been held by the various courts that AO must bring on record some positive material or evidence to indicate that the share holders were benamidars, fictitious persons or that any part of the share capital money represented the companies own income from undisclosed sources. The appellant has cited various case lax s in the its submissions wherein it has been held that the Share Capital issued cannot be treated as undisclosed income of the appellant and cannot be added U/S 68 of the Income Tax Act. The facts of the cases cited by the appellant are identical with that of the instant case. Further, the reliance is also placed on following decisions of various courts :- 1. Divine Leasing & Finance Ltd. ....
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...., unless the Department is able to show that the amount received towards hare capital actually emanated from the coffers of the assessee company. After going through various facts of the case and judicial pronouncement on this issue, cited supra it is seen that the appellant's case is covered by the above judgments. After going through the facts of the case and the judicial pronouncements on this issue. I am of the opinion that the appellant has discharged the initial onus of establishing the bonafide of the transactions and the AO was not justified in ignoring various evidences provided to him by the appellant. It is seen that the Assessing Officer had not any investigation / enquiry, during the course of assessment proceedings. The Assessment Order has been framed by the Assessing Officer only on the basis of the information received from the Investigation Wing of the Department, without making any further investigation. Nothing adverse ha been brought on record by the AO to establish that the Share Application Money received b the appellant, represented its own undisclosed income. Further, if there was doubt about the source of investment of the said companies, then addit....