TaxTMI 
TaxTMI 
2015 (6) TMI 163
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....ssessee to produce the share applicants, the absence of creditworthiness, the collusive evasion of enquiries into the sources of deposits and not deciding the issue in the light of latest decision of the jurisdictional High Court in the case of Indus Valley Promoters Ltd. vs. CIT, 305 ITR 202 (Delhi HC). 4. The ld. CIT(A) further erred in law in deleting the addition of Rs. 12,500/- as unexplained expenditure with respect to commission for raising the share capital of Rs. 5,00,000/- without appreciating the facts and circumstances of the case in the right perspective. 5. The appellant craves to be allowed to add, delete or amend any other grounds of appeal." 2. The brief facts relating to the issue are that the assessee filed its return of income on 30/10/2006 declaring an income of Rs. 3,25,660/-. Subsequently, the case of the assessee was selected for scrutiny assessment. During the year under consideration, the assessee had received share application money of Rs. 15 lacs from M/s Paras Infotech Pvt. Ltd., Rs. 5 lacs and Sh. V.K. Angami Rs. 10 lacs. As per information received from the Investigation Wing of the Department, the AO in the assessment order passed u/s 143(3) of th....
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....mapur, Asam 10,00000 Amount received in Cash Share application money received from M/s Paras Infotech Pvt. Ltd. Before proceeding further, it may be mentioned that the Investigation Wing has carried our certain investigations into an accommodation entry racket being run by some persons. It has been found that the said Mls Paras Infotech Pvt Ltd. is also one of the "companies" floated by these persons and is being used as for the purpose of arranging accommodation entries. It has been found that this "company" is not carrying out any actual business activity, It does not have creditworthiness nor does it have any worthwhile sources of income, It is a corporate entity in name only. The bank accounts existing in the names 0/ these persons arc being used as conduits for the purpose of providing accommodation entries. A person/party who provides such entry is known as Entry Operator and the person/party taking such entry is called Beneficiary. An entry operator operates a number of accounts in the same bank/branch or in different branches in the names of' companies, firms, proprietary concerns and individuals. For the operation of these bank accounts, filing inco....
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....accommodation entries. These bank accounts existing in their names have been used only as conduits for the purpose of arranging accommodation entries for others in the garb of share capital etc. as described above. In view of the above facts, notice u /s 131 of the Act addressed to the Principal Officer of M/s Paras Infotech Pvt Ltd (directed at the above address) was issued requiring the director of the said "company" to attend this office personally, along with its books of accounts, evidence in support of its creditworthiness, the original share certificates issued by the assessee company etc. However, the notice was received back undelivered with postal remarks to the effect "no such company" A perusal 0f the bank statement 0/ the said "company" revealed that there was a cash deposit of Rs. 9,98,000/- in the account (A/c No, 179 2000000192) on 25.03.2008, prior to the release of funds in favour of the assessee by way of cheque dated 25.03. 2006. The AR was confronted with the above facts from time to time during the course of the assessment proceedings and was required to explain as to why adverse inference ,may not be drawn regarding the genuineness of the transaction and t....
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....e statement of law made by the ITA T to the effect that in case of share capital no additions could be made if it is established that the shareholders exist is no! completely correct, and has not been so enunciated by this Court in Sophia Finance" Before evaluating the credibility of the purported evidence sought to be relied on by the assessee against the overwhelming circumstantial evidence exposing the real nature of the transactions, the import and ingredients of section 68 may be briefly discussed. If has been judicially established that the primary onus is on the assessee 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 sides of the same coin. The PAN or other assessment particular are at best, only peripheral documents as while allotting PAN or processing the ret urns, the actual affairs are seldom verified. The creditworthiness essentially means some financial standing in one's own right backed by one "s inherent capacity to earn income or the ca....
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....they are shown to have attended the proceedings. The identity should be seen in perspective that the person has got to have some standing in a particular line of activity. Identity is defined in the new shorter oxford dictionary as "The condition or fact of a person or thing being that specified unique person or thing". The person has to have some sign of identification other than merely on paper. These signs could be the infrastructure of business, place of work, staff members, books of accounts, substantive evidence of the business carried by the persons in the form of tools and apparatus of business, inputs of the business, process involved etc. Or anything which can prove that some actual activity is going on. Having PAN or assessment particulars is merely a response to the applications and returns filed. These types of identity are merely on paper. (2) The person has neither been produced nor has any substantive evidence produced in support to its actual affairs and creditworthiness that could only be examined. given the/acts of the cc/se, if somebody on its behalf is produced along with necessary evidence of the nature and details of their activities on the ground, the sourc....
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.... sacrosanct nor can it make a non-genuine transaction genuine. As mentioned above. cash has been deposited into the account just prior to the issue of the cheque. Therefore, unless the creditworthiness of the "company" and the transactions represented by the entries in the bank are correlated with the "business activity" or their sources of income, the deposit of cash immediately before the release of funds in l favour of the assessee only corroborates the fact that the account has been used only for the purpose of providing accommodation entries. The evidence afforded by the above facts is only fortified by the aforesaid statements of Sh. Mukesh Gupta That the money has come through banking channel per se does not make the transaction genuine when there is presence of other factors present suggesting otherwise The nature of deposits in its accounts cannot be explained except by the truth that these amounts represent the money of the beneficiary routed through it. The beneficiary has to have the money in its account through normal bonking channel This is the sole reason/or arranging the entire transaction. 4) The assessee has further contended that the name of the said "investor c....
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....Sheet/ Statement of Affairs as on 31. 03. 2006. (c) His PAN and I T Particulars with copy of acknowledgement for I T. Return for the A. y, 2006-07. However. the notice was received back unserved The AR was informed that the notice U/s 133(6) to SI? Angami has been received hock Further. no evidence (IS to the identity & creditworthiness of said person was furnished by the assessee company. the AR was asked to show cause as to why the amount received from Sh. Angami be not treated as unexplained as the genuineness of the transaction, and the identity & creditworthiness of the share applicant remained unverified. 1n response to the show-cause. the A R, vide his written submission dated J 5. 12.2008, stated as under: "Regarding the share application money of Rs. 10, 00, 000/- received from Sh V K, Angami, we are enclosing the following documents/details for your consideration. a) A copy of the certificate certifying Sh. Angami as a Schedule Tribe in the state of Nagaland. b) A copy of the election 1 Card of Sh. V. Khriuto Angami. The aforesaid documents clearly establish the identity as well as the creditworthiness of Sh. V K. Angami and he is capable to invest so much amount of m....
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....bare assertion that the amount has been invested out of "own source of fund" is not sufficient. Therefore, the above documents. by themselves, do not in 0/1)' II'([Y substantiate the creditworthiness of the said person and the genuineness or the transaction. It is well settled that where moneys have been received ill cosh or even Demand Drafts the standard of proof u/s68 of the ACI would be much more rigorous and :stringent than where the transaction is by cheque where the date and source of the investment cannot be manipulated. For example, the availability of the same cash may well be used for "confirming" similar transactions in multiple cases. The pressing need for this payment having been made in cash by Sh. Angami is highly suspect as there is no reason why the same was not routed through normal banking channels, if at all the said amount was maintained in any bank account. This assumes greater significance as it is highly improbable that anybody would actually maintain a cash of Rs. J 0,00,000/-. The letter addressed to Sh. Angami at the given address (21/2 Mile, Dimapur, Assam) has been received back undelivered with postal remarks 'Address insufficient. Addres....
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....ess I however, the said summons was received back with the remarks 'no such company exists on the given address'. The AR or the appellant company was asked to produce the director of the company and he' was also provided copies of the statement given by Sh Mukcsh Gupta and his associates before the Add!. Director of Income-tax (Investigation) Unit-I), New Delhi. The appellant company to substantiate that the amount of share application money received from the said party was genuine. provided supporting evidence vide its letter dated 15.12.200~ to prove the identity and creditworthiness of the party in the form of confirmation, Copy or ITR, certificate of Incorporation of the said company. Copy of PAN Card. In respect of Sh. V.K Angani who is a resident of 21/2.Mile Dirnapur, the appellant filed copy of certificate (certifying that the Sh. V. K. Anagami is a Schedule Tribe in the State of Nagaland, copy of Election Card and salary certificate of having received salary from M/s Numen Enterprises Pvt. Ltd. as Director. The appellant further stated that Sh. Angami had capacity to invest the money and income so earned by him is exempt u/s 10(26) of the Income-tax Act, 1961. ....
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....nclusions arrived at, and opportunity of being heard must be provided to the assessee before passing any adverse order. It has been further held that in the notice issued by the A.O. specific requirement should be indicated and reasonable opportunity must be granted. It was held by the Hon '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 the Assessment Order has simply relied upon the information received from the Investigation Wing of the Department without making any effort to verify 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 or the share capital money represented the company's own income from undisclosed sources. The appellant has cited various case laws 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 uls 68 of the Income Tax Act. The appellant in its submis....
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....ecord. In the instant case, the appellant has provided confirmations from the said parties, as well as various evidences to establish the genuineness or the transaction. With regard to AO's observation in the Assessment Order that before issue of cheque by Mls Paras Infotech Pvt. Ltd .. there was a cash deposit in the said bank account. On these observations, the appellant has relied upon the judgement of Nemichand Kothari Vs. CIT (2003) 264 ITR 254 (Gauh.) wherein it is held that it is a settled law that the burden of the assessee is to prove the genuineness of the transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of the assessee to find out the source of the money of his creditors Similar observations have been made in the cases 01' S. Hastimal 49 ITR 273(Mad) and Daulatram Rawatmall (1973)87ITR 349(S C) wherein it is held that source of the source can not be enquired from an assessee which unfortunately seems to be the case in the instant case. In a recent judgement dated 30.1.2009 Honble Delhi High Court in the case of CIT vs. Gangou....
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....' vs. Divine Leasing & Finance Ltd. (CC 375/2008) dated 21.01.2008 wherein it was held - We find no merit in this Special Leave Petition for the simple reason that If the share application money is received by the assessee company alleged bogus shareholders, whose names are given to the Ao. then the Department is Fee to proceed to re-open their individual assessments in accordance with law" In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not accommodation entries, I also do not find any evidence collected by the AO. Which could prove otherwise. Accordingly. the AO was not justified in treating the amount of' share application money received by the appellant as its undisclosed income. In view of the aforesaid discussion, I delete the addition of Rs. 15,00,000/- made by the A.O. u/s 68 of the I. T. Act, 1961." 6. Keeping in view of the findings given so Assessing Officer as well as the Ld. First Appellate Authority and the documentary finding by the assessee before us. We a....