TaxTMI 
TaxTMI 
2015 (8) TMI 556
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....nd, the ld. Sr. DR contended that this issue is covered by the decision of this Bench in the case of M/s. Agrawal Coal Corporation Ltd. & others (ITA Nos.151, 136, 196, 137 & 190/Ind/2009) and (ITA Nos.158, 34, 283 & 193/Ind/2010), order dated 31.10.2011. It was also contended that the director of the company Omex Management P. Ltd. categorically tendered in its statement that the company is being managed by them and they are providing accommodation entries through these companies. Our attention was invited to page 1 & 2 of the paper book, filed by the assessee, which is a report of DDIT(Inv.), Kolkata. The crux of argument is that own money of the assessee has been circulated under the guise of share capital/share application money. In reply, the ld. Counsel for the assessee relied upon the decision in 20 ITJ 364. On questioning from the Bench regarding the company, it was replied by the ld. Counsel for the assessee that it is a private limited company. 3. We have considered the rival submissions and perused the material available on file. In view of the above, for ready reference, we are reproducing hereunder the relevant portion of the order in the case of M/s. Agrawal Coal C....
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....nt from the investigation made by ACIT 5(1), Indore that both these company are not existing companies in the real sense. These companies are paper companies only and exist nowhere and were used to give accommodation entries to various parties who want to launder their unaccounted money in the guise of share application or unsecured loan or long term capital gain. The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the assessee to establish depositor's identity, creditworthiness and genuineness of transaction. Assessee in its written submission stated that company has received share application money of Rs. 40,00,000/- from Hindustan Continental Ltd. 19, Shubh Kamna Apartment, Gul Bazar, Jabalpur. As per the report of the ACIT 5(1), Indore, it is clear that no such company exist at the given address. The creditworthiness of the company has also not been established in view of the fact that there is huge inflow and outflow of fund in the Bank account without any logic. There is huge cash deposit in the Bank account of Hindustan Continental Ltd. maintained UTI Bank Ltd. copy of which is filed ....
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.... worthiness of HCL is established since it is having share capital of Rs. 8.09 crores. During hearing before us, the Ld. Counsel for assessee Mr. Choudhary, invited our attention to deposit of cash in bank account of M/s Sahayata Marketing and transfer thereof through account payee cheque to the bank account of M/s Sunil Shares Stocks Private Limited and thereafter to the ultimate beneficiary. It was submitted that the transactions of cash transfer and deposition of cash has nothing to do with the assessee. A strong plea was raised by the Ld. Counsel for assessee that identity of share applicants is established which was strongly denied by the learned CIT DR. At this stage, a query was raised by the Bench as to whether the assessee is in a position to produce before this Bench any of the Directors or the employees of these companies ? The Ld. Counsel for assessee conveniently contended that the assessee cannot be put to adverse burden meaning thereby that the assessee was not in a position to produce such persons. The Bench again contended that in view of the above reply of the Ld. Counsel for assessee, an adverse view may be taken against the assessee. The Ld. Counsel for assessee....
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....the share applicants before the Bench, the assessee did not comply with the directions of the Bench, therefore, to this limited extent, we are of the view that these share applicants are non-existent and their identity is not proved. It is pertinent to mention here that there is a difference between a private and public limited company as in a private limited company, the public at large is not subscribing the shares as the shares are allotted to close relatives, friends and other known persons who are having faith in the subscribing company on personal relations whereas there is an invitation to the public at large by a public limited company and not necessarily having personal relations and in that case, the individual relations are normally found to be non-existent. In view of these facts, the share applicants are known to the assessee company, being private limited company, and there should be no difficulty to produce them or their representative to enable the Assessing Officer to verify the identity, genuineness of the capital claimed to be subscribed by them, therefore, the assessee cannot claim ignorance about these companies. Unless the assessee is able to establish identit....
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....e subscribers who provided such credit, in order to establish its case. But the assessee did not do so. On this basis addition made by the A.O. u/s 68 of I.T. Act was confirmed." Identically, the Hon'ble Calcutta High Court in the case of Hindustan Tea Trading Company Limited; 182 CTR 585 at page 23 (para 21) where the identity of 12 persons who were not found at the addresses it was held that identity is not established. On the issue of onus, it was held that "principle regarding onus is laid down u/s 68 whereby once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion. When such conclusion is communicated to assessee, onus shifts on the assessee. Likewise, Hon'ble jurisdictional High Court in the case of M/s Rathi Finlease Limited; 215 CTR 429 at page 28 when company is not found at the given address against the summons issued by the Assessing Officer observed as under - "The assessee tried to explain the genuineness of the credit on the basis of letters of confirmations. It could not be explained as to how the transaction was materialised when the companies were not in existence and the amount was paid by che....
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....f the IT Act is conspicuous by its absence, the Stellar Investment Limited ratio cannot be stressed to the extent that it partakes as a reflection on section 68, when the inquiry pertained only to section 263." 25. In view of the facts narrated above and the judicial pronouncements discussed hereinabove, it can be said that the assessee did not discharge the onus cast upon it by the provisions of the Act. We tend to reproduce section 68 of the Act :- "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." If the aforesaid provision of the Act is analysed, it speaks about cash credits and the sum found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation is not found satisfactory by the Assessing Officer then the same may be charged to tax as the income of the assessee. In t....
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....levant for cheque transactions but at the same time it is not sacrosanct as was held in Nemichand Kothari vs. CIT; 264 ITR 254 (Gau). In the case of Shri Barkha Synthetics Limited vs. ACIT; 155 Taxman 289 the Hon'ble Rajasthan High Court held that where the matter concerns money receipts by way of share application from the investors through banking channel, the assessee has to prove the existence of the person in whose name the share application is received. Once the existence of the investor is proved, it is not further the burden of the assessee to prove whether that person itself has invested the money or some other person has made investment in the name of that person. The burden then shifts to the revenue to establish that such investment has come from the assessee company itself. 26. Once the receipt of the confirmation letter from the creditor is proved and the identity and existence of the investor has not been disputed, no addition on account of share application money in the name of such investor can be made in the hands of the assessee. In the case of CIT v. Divine Leasing & Finance; 158 Taxman 440 (Del), the Hon'ble Court clearly held that in case of publi....
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.... are distinguishable from the facts of Lovely Exports Private Limited. Hon'ble Delhi High Court in a latter decision in CIT v. Oasis Hospitalities Private Limited (2011) 333 ITR 119 held as under :- " We are of the view that ratio laid down in Steller Investment Ltd. (2001) 251 ITR 263 is applicable only in those cases where the assessee is a limited company and the shares were quoted in the stock exchange. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited company, the presumption is very strong against the assessee that subscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the issue is subscribed by its closely connected person, the onus is upon the assessee to prove the identity of the subscribers and their creditworthiness." 27. There is another perception to look into the decision of the Hon'ble Apex Court in the case of Lovely Exports Private Limited wherein the Hon'ble Apex Court held that if the share application money is received by the assessee from alleged bogus share holders, whose names are given to the Assessin....
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....of the present appeals because identity of share applicant itself was not proved. The principle laid down in the case of M/s Rathi Finlease Limited was recently affirmed by Hon'ble jurisdictional High Court in the case of STL Extrusions, it has become binding precedent on the Tribunal especially when the decision of the Hon'ble Apex Court in the case of Lovely Exports was very much available. Hon'ble jurisdictional High Court while coming to a particular conclusion followed the decision of the Hon'ble Karnataka High Court in CIT v. ASK Brothers Limited (2011) 333 ITR 333 and duly considered the decision from the Hon'ble Apex Court in CIT v. Lovely Exports Private Limited and Steller Investment Limited (supra). In another latest decision in CIT v. Oasis Hospitalities Private Limited, UP Bone Mills India Limited and Vijay Power Generators Limited, etc. (2011) 333 ITR 119 (Del), identically held that identity and credit worthiness of share applicants was not proved, therefore, the addition u/s 68 of the Act was justified. While coming to the aforesaid decision the Hon'ble Delhi High Court considered the following decisions :- 1. Bhola Shankar Cold Stor....
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....sing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the permanent account numbers issued by the Incometax Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessee." The Hon'ble High Court took note of many other judgments of many other High Courts and on analysis of those judgments, formulated the following propositions which emerge as under (Divine Leasing & Finance Limited; 299 ITR page 282 (Del) :- "In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income Tax Act. The assessee has to prima facie prove - The identity of the creditor/subscriber The genuineness of the transaction, namely, whether it has been transmitted through banking or other undisputable channels The credit worthiness or financial strength of the creditor/sub....
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.... Hindustan Continental Private Limited, Agrawal Road Carriers Private Limited and Sunil Shares & Stock Limited. It was submitted that on certain occasion there is inter-transfer of funds amongst the three companies, then the cheques were issued to desiring parties in the garb of loan or share capital. Not only that, the shares of Hindustan Continental were claimed to be traded by Sunil Shares & Stock Limited, M/s Jai Share Fin Limited and others through manipulation giving rise to artificial height so as to enable certain parties to re-introduce their black money as huge capital gain. It was claimed that in those case also the cash was deposited first in certain account and thereafter the funds were transferred to the share brokers involved in the manipulation and then ultimately to the accounts of the party concerned as sale proceeds of shares. It was also submitted that SEBI has even penalised Hindustan Continental Private Limited and Sunil Shares & Stock Private Limited. This assertion of the learned Commissioner of Income Tax was not controverted by the assessee but merely argued that the money was transacted through banking channel and in view of the decision in the case of Lo....
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....;ble Supreme Court in the case of Lovely Exports, the issue is covered in favour of the assessee, as per our considered view, the case of Lovely Exports (supra) will be applicable only after the identity of the share applicant is established. Since in the instant appeals before us, the identity itself has not been established, there is no justification to apply the ratio laid down by the Hon'ble Supreme Court in the case of Lovely Exports (supra). 34. The Hon'ble jurisdictional High Court in the case of Rathi Finlease (supra) has clearly laid down the proposition with respect to circumstances wherein the identity is established in case the share applicants are companies. It was held that even filing of confirmation of share applicants by the assessee will not serve the purpose of establishing the identity insofar as the inquiry conducted by the Assessing Officer and the letter issued by the Assessing Officer were returned unserved by the postal department with the remark that the addressees are not existing at the given addresses which clearly establishes that either the share applicants are non-existent or if exist, then merely exist on papers and not in real sense, there....
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....Assessing Officer was furnished to the assessee only one day prior to the completion of assessment, we found that the assessee has got full opportunity to substantiate its claim and negate the report before the ld. CIT(A) but the assessee grossly failed to rebut the report regarding non-establishment of identity of share applicants. The ld. CIT(A) has got co-terminus powers to do what the Assessing Officer has failed to do. Proceedigns before ld. CIT(A) is also extension of assessment proceedings in addition to the appellate proceedings. However, inspite of full opportunity the assessee failed to rebut the contents of the report which indicated that no shareholders exist in the name of the companies so provided by the assessee. Even though, the report relied by the Assessing Officer was in respect of another assessee but the fact remains that the inquiry was in the case of same share subscribers i.e. M/s. Hindustan Continental Ltd. & M/s. Optimates Textiles Ind. Ltd. Under these circumstances, the inquiry conducted in respect of M/s. Hindustan Continental Ltd. & M/s. Optimates Textiles Ind. Ltd. which are common applicants in the case of all the assessees before us, could not be sa....
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....ee has proved the identity of the subscribers. therefore, no addition was warranted in the hands of the assessee. However, in the instant case before us, the identity of the subscribers has not been established as per our discussion detailed hereinabove. This finding of the Tribunal was affirmed by the Hon'ble High Court and, therefore, the appeal filed by the revenue was dismissed, whereas in the present appeal the matter was investigated by the Assessing Officer and even the Inspector of the department who was directed by the Assessing Officer to know the whereabouts reported that the share subscribing companies are non-existent and the addressees given of four places were also found to be fictitious. The summons/notices issued by the department were also returned unserved by the postal department with the remark that no such companies are existing at the given addresses, therefore, in the present appeals, the identity of share holders was not proved at any stage, consequently, the decision in the case of Shri Kela Prakashan Private Limited is not applicable being on different findings, therefore, may not help the assessee. Likewise, the Hon'ble Karnatka High Cou....
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..... 25,23,500. The investment in these shares was ranging from Rs. 1 lakh toRs. 2.5 lakhs. In order to verify the genuineness of these transactions, the Assessing Officer issued summons to these parties which were received back either with the remarks "incomplete address" or "in spite of best efforts the address not found" or "not met" or "no such person" or "not found", etc. The Assessing Officer thereafter asked the assessee to produce these persons who had introduced the share capital in the company. The assessee was also asked to furnish cheque numbers/draft numbers for payment of share application money along with the names of the drawee bank and branch of the bank. However, no details were furnished despite various opportunities. The assessee could not even identify the entries in the bank account regarding the receipts of the share application money nor could he produce the relevant ledger for verifying the receipts, according to the Assessing Officer. Ultimately, the assessee produced five persons whose statements were recorded. The assessee did not cross examine these persons. They did not furnish any proof of their identity in the form of ration card, election card....
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....e, the assessee cannot have control over the subscription and also cannot make a verification of the subscribers as subscription can be done by any person. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited company the presumption is very strong against the assessee that subscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the issue is subscribed by its closely connected persons, the onus is upon the assessee to prove the identity (sic. Identification) of the subscribers and their credit worthiness. Their Lordships of the Hon'ble Calcutta High Court in the case of Bhola Shankar Cold Storage P. Ltd. v. Joint CIT (2004) 270 ITR 487 have examined the judgment of the apex court in the case of Steller Investment Ltd. and that of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd (1994) 205 ITR 98 and have held that in the case of Steller Investment Ltd. the ratio laid down by the Full Bench of the Delhi High Court was not overruled and it still holds the field. Whenever the issue was subscribed by closely connected persons of the asse....
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....particular ratio decided in a particular casae could be applied. As noted above, the initial onus is upon thye assessee to establish three things necessary to obviate the mischief of section 68 of theAct. These are : (i) the identity of investors; (ii) their creditworthiness/investments, and (iii) the genuineness of the transaction. Only when these three ingredients are established prima facie it is only then the department is required to undertake further exercise as discussed above. In the instant casae, no such documents are filed and no steps taken by the assessee which could establish the aforesaid three ingredients. Additional evidence in the form of bank statement, etc. is given but the assessee has not done anything to prove these bank accounts. On this evidence produced by the assessee remand report was called for and the Assessing Officer in his remand report dated December 23, 2003 submitted as under :- " None of the 6 alleged shareholders produced any documents in support of their identity. The fact was intimated to the assessee vide order sheet entries dated June 13, 2002 and March 17, 2003 . They are not assessed to tax. They have not produced any do....
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....sessee. It is pertinent to mention here that while coming to the aforesaid conclusion the Hon'ble Court also discussed the decisions like AKJ Granites Private Limited; 301 ITR 291 (Raj), CIT v. Arunalanda Textiles Pvt. Ltd. (2011) 333 ITR 116 (Karn.) (para 17) order dated 2nd March, 2010, CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) order dated 18th February, 2010 . In both these cases, the Hon'ble Karnataka High Court has duly discussed the decision in Lovely Exports Pvt. Ltd. and Steller Investment Ltd. (supra) meaning thereby that both these decisions were rendered after the pronouncements of decisions from Hon'ble Apex Court in Lovely Exports Private Limited (supra). As discussed in other paras of this order, so far as the decision in the case of M/s STL Extrusion vs. DCIT (2010) 15 ITJ 872 (I.T.A.T., Indore) is concerned, that decision was rendered by the Bench on the facts that since the assessee proved the identity of the investors, therefore, it was held that no addition can be made in the hands of the assessee company whereas in the present appeals, the existence/identity of share subscribers was not proved, consequently, these judicial pronouncements rather ....
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....een assigned for making such ad hoc disallowance by the Assessing Officer and secondly we are of the view that since the company is a juristic person, no disallowance of personal nature can be made in the case of a company. We, therefore, reverse the orders of the authorities below on this issue and allow this ground of appeal of the assessee. In the result, the appeal of the assessee is partly allowed." 3.1 We are also reproducing hereunder the conclusion drawn by the ld. CIT(A): "4.2.6 In view of the facts as discussed in para 4.2.2 to 4.2.4 above as regards to all of the ten appeals, I find that the concerned assessee had brought in their own unaccounted money in the garb of share application money through the various entry providers. The modus operandi adopted for the purposes is very common. The companies involved in this modus operandi as entry providers exist only for the purpose of providing accommodation entries to such assessee and for that they charge normal commissions. They are duly registered with ROC and file the returns of income also. The beneficiary assessees would support their claim based on such paper documentations. This is what has been done by....
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.... Ki Pehchan Sangat Se Hoti Hai". If the test of 'Human Probabilities' is applied in the light of the two proverb and further test of 'Surrounding Circumstances' is applied, the only logical conclusion which emerges is that share application money brought in by all these assessees has been their own unaccounted money and the same has rightly been taxed by the A.Os u/s 68. In this view of the matter, in the case of the present assessee (i.e. Balaji Coals P. Ltd. 316/09-10 AY 2007-08), I uphold the addition of Rs. 25,00,000/- on account of unexplained share capital/share application money." 3.2 If the facts of the present appeal, factual finding recorded in the assessment order as well as impugned order and the assertion made by the ld. respective counsel are kept in juxtaposition and analysed, we find that the Tribunal has already deliberated upon various judicial pronouncements including the off-quoted decision from Hon'ble Apex Court in the case of Lovely Exports Ltd.; 299 ITR 268 (SC). The facts, in brief, are that the balance-sheet of the assessee was examined by the Assessing Officer wherein the assessee reflected share capital amounting to Rs. 8,50,000/- and share premiu....