TaxTMI 
TaxTMI 
2011 (7) TMI 1216
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....ent proceedings, the Assessing Officer noted that the assessee has repaid the loan amount to the tune of Rs. 5.51 crores by allotting preferential shares to private corporate bodies. The Assessing Officer found that 11,150 cumulative redeemable preferential shares of Rs. 1000/- each were allotted at a premium of Rs. 4000/-to different private corporate bodies. The assessee has received an amount of Rs. 1,11,50,000/- towards face value of the shares and Rs. 4,46,00,000/- towards premium of shares. Hence, the total amount of Rs. 5,57,50,000/- was received by the assessee towards the allotment of 11150 cumulative preferential shares. The Assessing Officer relied upon the reports of ADIT(Inv) Kolkata received on 4.12.2006, 29.9.2006, 23.2.2007 and 24.4.2007 while addressing the issue of repayment of loan amount. 3.1 The Assessing Officer made an addition of Rs. 5,57,50,000 u/s 68 by treating the share application money as asssessee's own income as bogus cash credit. The Assessing Officer while making this addition, mainly relied upon the investigation report of the ADIT(Inv) Wing, Kolkata and the statements of the directors of the investing companies recorded during the investigatio....
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....ioned in para 4.2 of the assessment order were not given to the assessee. Therefore, these statements should be ignored and cannot be relied upon. In support of his contention the ld. A.R. has relied upon the decision of Hon'ble supreme Court reported in 125 ITR-713 (SC). 4.4 Td. AR of the assesse then referred para 4.2 of the assessment order and submitted that even from the statements of directors, the following issues arise. (a) Statements recorded covering transactions Rs. 3,90,00,000 only. There is no statement for transactions of Rs. 1,67,50,000 details given below:- Regency Shares & Holdings Pvt. Ltd. 50,00,000 M.G. Greenfield Pvt. Ltd. 60,00,000 Clix Securities 7,50,000 Cube Trafin Pvt. Ltd. 50,00,000 All statements on oath of directors of various companies probably not on the files of the Assessing Officer as he has given only the ones in paper book page nos. 694 to 7/26-which are only very few. Thus, the addition is on the basis of insufficient/non-existence / non-available material. (b) All statements absolutely similar and give to the fact that either collusion between the department and directors of variou....
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....only those which are filed in paper book at page nos. 134 to 139. Thus, it is pleaded that the addition of the balance amount of Rs. 1,67,50,000 is on the basis of non-existent and non-available material and hence, needs to be quashed. 4.7 The ld AR of the assessee has pointed out that in all the statements, the same error has crept which shows that these statements were not recorded at the spot on the basis of the averments of the directors of the investing company; but already prepared by the department and got them signed from the concern persons. He has referred page 134 as well as page 136 of the paper book and submitted that at page 134, of the paper book, the statement of one Shri Rohit Jain allegedly recorded on 5.12.2006 and there is a mistake in question No.4, which reads as "Does you company" and an identical mistake in question no. 4 appears in the statement of Shri Kali Kant Choudhary allegedly recorded on 24.11.2006 which reads as "Does you company". The ld AR of the assessee has submitted that these statements were not recorded as per the averments of the concerned persons but appears to be already prepared by the department and got it signed from the persons. He ....
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....d Regulations of Stock Exchange, then there is no justification in making the addition u/s 68. 4.10 The ld AR of the assessee strongly contended and relied up on the decisions of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra) and submiited that when the investigation carried by the investigation wing had not given any opportunity to cross examine the persons concerned, whose statements were recorded by the investigation team to draw adverse conclusion against the assessee then the statement so relied upon by the Assessing Officer cannot be used against the assessee. 4.11 Per contra, the ld DR has submitted that repeated opportunities were given to the assessee to cross examine the persons, whose statements were recorded by the Investigation Team. He has pointed out that the Assessing Officer has mentioned in the assessment order that the Investigation Unit-1 Kolkata has given several opportunities to the assessee to cross examine the directors of the investing company. Further, the Assessing Officer has also given one more opportunity to the assessee to cross examine the persons. The ld DR has pointed out that on identical facts of the case of t....
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....td 1200 6000000 3 Nilhat Promoters & Fiscals P Ltd 600 3000000 4 M G Greenfield P Ltd 1200 6000000 5 Dabriwal Investment & Financiers P Ltd 200 10000000 6 Asrara Fintrade P Ltd 1000 5000000 7 Hooghly Vinimary P Ltd 1000 5000000 8 Clix Securities P Ltd 150 750000 9 PNR Holdings P Ltd 200 10000000 10 Cube Trafin P Ltd 1000 5000000 Total 11150 5,57,50,000 The Directors of the above companies were summoned u/s 131 of the I T Act. The Directors of aforesaid investment company, in their sworn statement recorded u/s 131 has stated that " I got cash of equivalent amount from the company (M/s Chat Computers P Ltd) and against the same cheque have been issued." 4.3 The ADIT(Inv), Unit 1, Kolkata has also recorded statement of one Shri Kishan Kumar Verma S/o Vijay Kumar Verma, resident of Howrah 2 who has admitted in his statement recorded u/s 131 of the I T Act, 1961 on 13.10.2006 that he rendered his individual bank account as well his propriety concerns Bank accounts to deposit cash in lieu of signed blank account payee cheques to Shri Pawan K....
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....e directors of the investing companies, who paid the application money and further, the assessee was also asked by the Assessing Officer to produce the directors, whose statements were recorded by the investigation unit 1, Kolkata for cross examination of them. 6.1 In para 4.5 and 4.6, the Assessing Officer has recorded the reasons for forming the view that the assessee was given several opportunities to cross examine the directors of the investing companies as under: "4.5 As per the statements of the Directors of various Kolkata based companies and the other persons, it is clear that the assessee had given cash to so called companies which in turn issued back to assessee cheques/demand draft of equivalent amount. This fact was stated on oath by the directors of the said companies. However, director of the assessee Shri Kiriti Kumar N Parekh denied to have paid any cash to these parties in his statement before ADIT(Inv) Unit IX(2), Mumbai. In his statement he stated his intention to cross examine the aforesaid directors to prove his stand. DDIT(Inv) Unit 1(2) Kolkata has given several opportunities to the assessee to cross examine the aforesaid directors at its Kolkata ....
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....nv) Unit 1, Kolkata. Instead of ensuring the presence of these persons for giving opportunity to the assessee to cross examine, the Assessing Officer asked the assessee to produce them, which in our considered opinion is an absolute unjust and opposite to the rule of law and what procedure demands. Therefore, there is a total denial of opportunity to the assessee to cross examine the persons, whose statements are used against the assessee. 6.3 Further, when the director of the assessee categorically denied, during the investigation, the allegation of giving cash to those investing companies then the onus is on the revenue to prove that the application money received by the assessee is assesse's own money routed through those applicants companies. There is no evidence or material brought on record by the Assessing Officer, except the un-cross examined statements of the third party, to show any movement of cash routed back to the assessee in form of application money in the alleged allotment of cumulative preferential shares. Rather, it is undisputed fact that the application money was received through account payee cheque/bank draft given by the investing companies from thei....
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....ts is also not free from doubt as it appears that all the statements are prepared by the department in an identical fashion and manner before those were got signed on different dates. It is apparent that certain identical mistakes are appearing in those statements allegedly recorded on different dates. For example:- Questionno.4:- Does you company has transaction with the following companies? If so, give details and nature of such transaction: This mistake "Does you" is appearing in question No. 4, of all the statements, which shows that questionnaire was already prepared and answers were already written in the same manner as it is evident from the answer to question no.6 as under: Question No. 6 Do you have to say anything else? Ans: I have gone through the above statement and the same has been recorded correctly and without any fabrication. The above statement gas been given by me without the use of any force, coercion or threat. The mistake in the answer no. 6 is also identical in all the statements recorded on different dates. Since the statements were recorded by the investigation team of ADIT(Inv) Unit 1, Kolkata and not during the pr....
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.... substantial question of law arises for our consideration." 8 Similarly, in the latest decision, the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), after considering all the relevant decisions on the issue including the decision of the Hon'ble Supreme Court in the case of Lovely Exports P Ltd (supra), decision of the Full Bench of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd reported in 205 ITR 98 (Del)(FB) and the decision in the case of Divine Leasing & Finance Ltd (supra) has observed in paras 11 to 16 as under: "It is clear from the above that the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove : (a) the identity of shareholder ; (b) the genuineness of transaction ; and (c) the creditworthiness of shareholders. 12 In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, t....
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.... were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs." (emphasis supplied) 16 The court thus clearly held that once documents like PAN card, bank account details or details from the bankers were given by the assessee, onus shifts upon the Assessing Officer and it is on him to reach the shareholders and the Assessing Officer cannot burden the assessee merely on the ground that summons issues to the investors were returned back with the endorsement "not traceable". The same view is taken by the Karnataka High Court in Madhuri Investments Pvt. Ltd. v. Asst. CIT (in I. T. A. No. 110 of 2004, decided on February 18, 2006). In this case also, some of the share applicants did not appear and notices sent to them were returned with remarks "with no such person". Addition was made on that basis which was turned down by the High Court in the following words : " 6. Having heard the learned counsel for the parties, we notice that whenever a company invites applications....
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.... in the books of account of the assessee, as their income applying section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner of Income-tax (Appeals). On appeal, the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the court while reversing the decision of the High Court held that the findings of the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as not by itself of any consequence. The High Court misdirecte....
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....e so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee under section 68 of the Act. 23 It is also of relevance to point out that in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) where the increase in subscribed capital of the respondent-company accepted by the Income-tax Officer and rejected by the Commissioner of Income-tax on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares with the help of formation of an investment which was reversed by the Tribunal, this court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This view was confirmed by the apex court in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. 24 Having taken note of the legal position in detail, we now proceed to decide each appeal on the application of the aforesaid principles. I. T. A. No. ....
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....y of income-tax returns of the share applicants. Keeping in view all these evidence it cannot be held that the assessee did not establish the identity of the share applicants. If it is so, then the law as pronounced by the hon'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 is clear that if the share application money is received by the assessee-company from alleged bogus shareholders whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but the same cannot be regarded as undisclosed income of the assessee. In this view of the situation, we find no infirmity in the order of the Commissioner of Income-tax (Appeals) vide which addition made on account of share application money has been deleted." 34 Having regard to the decisions noted above, we are of the view that the addition was rightly deleted by the Commissioner of Incometax (Appeals) and the Tribunal. Requisite documents were furnished showing the existence of the shareholders from bank accounts and even their income-tax details. From bank accounts of these shareholders, it was foun....
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....ape Software Pvt. Ltd. and Saimangal Investrade Pvt. Ltd. were also involved in getting share application money / funds as can be seen from the statement recorded by the ADIT. Sources of fund also required to be examined/correlated whether those companies have capacity to invest monies in assessee company's case and also in other group companies and the treatment given in their cases about the source of their funds." 13.1 Since there was a plea on behalf of the assessee that the assessee was not given an opportunity to cross examine the witnesses, the Tribunal, instead of going into the merits of the case, remanded the matter to the records of the Assessing Officer on the reason as recorded in para 13 as under: "13. In view of the above, prima-facie it cannot be concluded that the assessee received share application money which cannot be treated as unaccounted income. Complete facts are not on record to give such a finding. However, it is noticed that the assessee was not given proper opportunity to substantiate its claim and defend the department's observations/allegations. It is also noticed that the Department has not followed up its own investigation to its logical ....
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.... found by the investigating unit as well as recorded by the AO that the fund in the bank account of the investing companies was deposited through a/c payee cheques than it is apparent that the statements of the directors are in total contradiction of the facts emerged from the record as well as stand of the revenue. Hence the said statements do not support the case of the revenue and the reliance place by the AO on such statements is highly misplaced and improper. When the stand of the revenue is in total contraction of the material on record then then in view of the latest decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), we are of the considered opinion that the issue can be decided on merit and need not to be remand to the record of the AO because at the time of the order for the AY 2005-06, the coordinate Bench of the Tribunal was not having the benefit of the decision of the Hon'ble Delhi High Court in the case cited supra. Further in view of the decision of hon'ble Gujrat High Court in case of Rajeh Babubhai Damania (supra), we see no reason for giving the A.O. any further innings to fill up the lacunas or lapses in the assessment whic....