TaxTMI 
TaxTMI 
2010 (5) TMI 855
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....he assessee had received share application money was not carrying on any actual business and was providing accommodation entries. Accordingly, assessment was reopened by issue of notice under s. 148. In the assessment order the AO observed that the Investigation Wing had made various enquiries on the basis of which it was found that the companies from whom the share application money was received, were not carrying on any actual business. Accordingly, addition was made under s. 68 of the IT Act as unexplained cash credit. In the appeal filed before the CIT(A), it was submitted that the assessee vide his letter dt. 26th Nov., 2007 has furnished full information along with affidavits and other relevant documents before the AO to justify that these transactions are genuine. The CIT(A) at pp. 10 to 15 of his appellate order stated the documents filed in respect of these companies which are as under : M/s Rajkar Electricals & Electronics (P) Ltd.'Confirmation; Return filing receipt; Proof for PAN allotment; Certificate of incorporation; Company RoC data generated from RoC website; Affidavit for payment of money as share application money. M/s Baldev Harish Electric....
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.... M/s Arun Finvest (P) Ltd.'The documents stands filed in asst. yr. 2001-02, since in the reasons recorded for reopening the same were made part for reasons of asst. yr. 2001-02. However, the addition stands made in asst. yr. 2000-01.'Confirmation; Return filing receipt; Certificate of incorporation; Company RoC data generated from RoC website; Bank statement; Affidavit for payment of money as share application money. M/s Harpaiassocfa Tes (P) Ltd.'The documents stands filed in asst. yr. 2001-02, since in the reasons recorded for reopening the same were made part for reasons of asst. yr. 2001-02. However, the addition stands made in asst. yr. 2000-01. Company RoC data generated from RoC website. 4. It was contended that in view of the above documents filed the identity of the companies from whom share application money has been received stands established. It was also submitted that it has been held in large number of authorities that where the identity of the payer companies stands established then no addition could be made under s. 68 in respect of the recipient and the only course available to the AO is to take action against the payer companies, if he fee....
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....TR (Del) 260: (2008) 1 DTR (Del) 340. Held that'Revenue having failed to prove the service of notice under s. 143(2) within the period prescribed under proviso thereto and affidavit of assessee denying service of notice having not being rebutted, assessment under s. 143(3) is invalid and liable to be quashed. 8. In substance it has been held in these cases that where the persons filed an affidavit and the same is not being rebutted by the Revenue then the contents of such affidavits shall be deemed to be correct. 9. It was submitted before the CIT(A) that in the present case all the payer companies had filed affidavits that all transactions are genuine and no cash has been exchanged in lieu of cheque payments. The learned AO had not rebutted the contents of these affidavits and has neither asked for producing these persons by issuing notice under s. 131 or by requesting the assessee company to produce these persons for recording their statement. Thus, in the absence of such an action by the AO the contents of the affidavits needs to be taken as true and correct. It was further submitted that in the absence of cross-examination of Shri Rajan Jassal and Shri Mukesh Gupta....
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....oceedings, twice, assessee requested for cross-examining these witnesses of the Department it was so asked while filing objections against reopening and secondly, during assessment proceedings also. However, for the reasons best known to AO, they were never produced and no opportunity to cross-examine was allowed. Under these facts and otherwise also, the assessee filed affidavits of Rajan Jassal and Shri Mukesh Gupta during the course of assessment. In these affidavits they stated all the facts correctly. In para 3 of the affidavit, they specifically mentioned as under : "That the above kind of statements have been got recorded from me under pressure and under coercion and absolutely against my wishes." 12. Under above facts, no credence can be given to the statements. Further, the affidavits should be believed and on the basis of these affidavits, the transaction should be held as genuine. Thus, the learned AO has grossly erred in not considering/rebutting the affidavits filed by Shri Mukesh Gupta and Shri Rajan Jassal in which they had specifically mentioned that they had not exchanged any cash and the transactions are genuine. In support strong reliance was placed o....
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.... opportunities, the persons have not been produced nor have they attended in response to the notices. It is well-settled that the statements made in affidavits can be treated as unreliable if there is other material discrediting the deponent. The affidavit can also be rejected if the assessee has failed to produce other supporting evidence when called upon to do so. The matter relating to evidence by affidavits is governed by order of the CPC. Such evidence by affidavit may be admitted only if the same fulfils the conditions precedent thereto. In terms of order 19, r. 1 of CPC, the Court may at any stage permit to party to adduce evidence by affidavit on assigning sufficient or cogent reasons. An affidavits are not evidence since it is not included in the definition of evidence in s. 3 of the Evidence Act and can be used as evidence only if for sufficient reasons, the Court passes an order under order 19 rr. 1, 2 of CPC as observed by Supreme Court in Smt. Sudha Devi vs. P.M. Narain AIR 1988 SC 1381 : (1988) 2 SCJ 422. In view of the same, furnishing of an affidavit in itself and that too at a time when it was not even required under any law of the land reflects that evidence was b....
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.... the genuineness of the transaction, these are the instruments used by the assessee company to mislead the proceedings at the time of assessment." 16. The CIT(A) supplied copy of remand report to the assessee for R his rebuttal. In response to the remand report, the assessee filed its rejoinder vide its letter dt. 1st May, 2009, the same are reproduced hereinunder : "I. Learned AO had reiterated the assessment order and has not controverted : I. Twelve affidavits filed giving therein (i) Complete name of shareholder company. (ii) Complete address of shareholder company. (iii) PAN of shareholder company. (iv) Assessment circle/Ward shareholder company. (v) Cheque number, date, name of bank and amount of cheques. (vi) Confirmation of issue of shares in response to above investment. (vii) PAN and bank particulars of all shareholder companies. All that was within control of appellant company was filed supported by affidavits contents in affidavits are duly supported by audited company accounts master details from RoC. Appellant company has filed sufficient and conclusive evidenc....
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....hat shareholders did not exist and identity capacity and genuineness is established. Reference is drawn to : (i) CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del); (ii) CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472: (1994) 205 ITR 98(Del)(FB). In view of the evidence placed on the record especially all the shareholders were income-tax payees, it could not be presumed that shareholders who were assessed to tax were not in existence particularly when assessee had produced all relevant evidence to establish that share application money received by company was a result of genuine transactions. In view of the submissions made above additions of Rs. 1,18,50,000 and alleged estimated commission of Rs. 2,96,250 is ill founded and is opposed to facts laws and evidence place on record." 17. After considering the above submission along with the remand report and its reply filed by the assessee, the CIT(A) deleted the addition after recording a finding to the effect that identity of all shareholders were established and thereafter by applying the proposition of law laid down by the Hon'ble Supreme Court in the case of....
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....e Inspector, who reported that no such companies exist on the given addresses. However, the Inspector did not make any effort to find out the latest whereabouts of the investor companies. As the summons sent through Postal Department were served on the investor companies, the Inspector could have found the latest address of the investor companies through the Postal Department also. However, no such efforts were made by the Inspector or the assessing authority. Regarding the summons which were served on the investor companies through postal authorities, but which remained uncomplied, it is seen that no further action was taken by the AO to enforce their attendance. The AO did not initiate any action against the said investors for non compliance of the summons issued by him. There are enough powers given to the AOs/Investigating Officers to deal with such delinquent persons, but nothing of that sort has been done in the instant case. Moreover, if the said investors are not complying the summons of the Department, then how the appellant, who has no authority or legal power to compel the said parties, can enforce their attendance before the AO. In this regard reliance....
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....led by the appellant have not been disproved by the AO. Further, the AO has issued summons to the said parties on 24th April, 2009 which were served upon the directors of the said companies and it is stated by the AO that no one attended in response to the said summons. The AO submitted report on 30th April, 2009 without further issuing any summon to said parties. This shows that the parties were present at the given addresses. It is also seen that no action has been taken against the said parties for non-compliance of summons. During the course of assessment proceedings, the AO has not brought any material on record which can prove that this money was appellant's own undisclosed income. He has simply relied upon the information received from the Investigation Wing of the Department without making any concrete efforts 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 of the share capital money represented the companies own income from undisclosed sources. The appellant has relied u....
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....avit to establish the genuineness of the transaction. There are plethora of judgments of various judicial authorities, including Hon'ble apex Court and also the jurisdictional High Court wherein it has been held that in case of money received towards share capital, only the identity of the shareholders needs to be proved. Once identity of the shareholders is established and it is proved that the money did in fact come from them, it is not for the assessee to prove as to how the shareholders came to be in possession of the money. In a recent judgment dt. 30th Jan., 2009 Hon'ble Delhi High Court in the case of CIT vs. Gangour Investment Ltd. (IT Appeal No. 34 of 2007) [reported at (2009) 18 DTR (Del) 242'Ed.] has held that Revenue can make addition under s. 68 of the Act only if the assessee is unable to explain the credits appearing in its books of account. In the said case the appellant has duly explained the said credit entries in the form of various documentary evidence. The said documentary evidence contained details, which set out not only the identity or the subscribers, but also gave information, with respect to their address, as well as, PAN, as....
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....-company from alleged bogus shareholders, whose names are given to the AO, then the Department, is free to proceed to reopen their individual assessments in accordance with law.' Reliance in this regard is also placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Pondy Metal & Rolling Mill (P) Ltd. (ITA No. 788 of 2006) dt. 19th Feb., 2007, wherein the Hon'ble Court concurred with the findings of the Tribunal, Delhi Bench 'F' that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. At best, the amount could be added in the hands of the investor but it certainly could not be treated as undisclosed income of the assessee. The appeal filed against the said decision was dismissed by the Hon'ble Supreme Court in C.C 12860/2007 dt. 8th Jan., 2008. 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 fin....
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....identity of the shareholders stood established but also examined the fact that each of them were income-tax assessees and had disclosed the share application money in their accounts which was duly reflected in their IT returns as well as their balance sheets. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Gangour Investment Ltd. (2009) 18 DTR (Del) 242 wherein it was held that assessee having filed the subscription form of the investors containing details and information with respect to their addresses and PAN, thereby establishing their identity, the assessee has discharged its onus in respect of the veracity of the transaction and the addition made by the AO in respect of share capital was rightly deleted by the CIT(A) and the Tribunal. Copy of the order of the Hon'ble Delhi High Court in the case of CIT vs. Samir Bio-Tech (P) Ltd. (2009) 17 DTR (Del) 224 was also placed on record, wherein it was observed that in respect of share application money, where identity of the subscribers are not in doubt, share application money having been paid by account payee cheques, subscribers having shown the amounts in their balance sheets, n....
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....held to be rightly deleted by the Tribunal. 24. We have considered the rival contentions, carefully gone through the orders of the authorities below and also the remand report. We have also deliberated upon the case laws referred by the lower authorities in their respective orders as well as relied upon by the learned Authorised Representative and learned Departmental Representative during the course of hearing before us. From the record, we found that the AO has made the addition on account of share capital/share application money received during the year under consideration on the basis of report of Investigation Wing. The CIT(A) found that the share application money was received through account payee cheques which were duly registered with ROC and as per the website of Ministry of Corporate Affairs and all the companies were active. The CIT(A) also found that assessee has filed confirmation, certificate of incorporation of the company who has applied for shares, company ROC data generated from ROC website, bank statement and affidavit for payment of money as share application money. The CIT(A) also found that the AO has disregarded various documents filed by the assessee com....
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....ble Delhi High Court, CIT vs. Jindal Vegetables Products Ltd. (2008) 16 DTR (Del) 61: (2009) 315 ITR 265(Del) of Hon'ble Delhi High Court, to support the view of affording opportunity of cross-examination. The opportunity of cross-examination was not allowed even during remand proceedings before the CIT(A), therefore Department having been already given two innings cannot be given any further opportunity in this matter in view of the decision of Hon'ble Delhi High Court in the case of Indocon Finance (supra). Learned Authorised Representative also relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Pradeep Kumar Gupta (2007) 207 CTR (Del) 115: (2008) 303 ITR 95(Del) in support of the proposition that failure to produce the third party who was purportedly the entry provider for cross-examination despite request of the assessee was fatal to the assessment itself. Our attention was also drawn to the statement given by Mukesh Gupta and Rajan Jassal wherein earlier statement given to the Investigation Wing was retracted, by way of an affidavit filed before the AO and have confirmed the subscription towards share capital in the assessee company. The affi....
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....AO, then the Department is free to proceed to reopen the individual assessments of shareholders in accordance with law. Recently, Hon'ble Delhi High Court in the case of Intex Technology India Ltd., IT Appeal No. 1239 of 2009 and Narender Bansal, IT Appeal No. 1245 of 2009 vide order dt. 28th April, 2010, confirmed the action of the CIT(A) and the Tribunal wherein by applying the verdict of Hon'ble Supreme Court in the case of Lovely Exports (supra), addition on account of share capital was deleted. Hon'ble Punjab & Haryana High Court vide its order dt. 30th March, 2010 in case of Shree Dadu Auto (P) Ltd., IT Appeal No. 704 of 2009, dismissed the appeal of the Revenue on similar ground by observing that view of Hon'ble Supreme Court in various judgments like Lovely Exports (supra), Divine Leasing & Finance (supra), is absolutely clear and it was held that proper course for the AO could have been to reopen the assessment of the share applicants/shareholders rather than making addition against the assessee company. Hon'ble High Court of Karnataka at Bangalore vide their order dt. 2nd March, 2010 in case of Arunananda Textiles (P) Ltd., IT Appeal No. 1515 of 2005 w....
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....shareholders are to be given to the AO. Even if the shareholders are unable to explain the source of funds, the addition if any can be made in their individual hands only. In the instant case, the finding recorded by the CIT(A) with regard to identity of the shareholder has not been controverted by the learned Departmental Representative. The Revenue has also not taken any ground that CIT(A) has relied on the additional evidence while deleting the addition, we therefore do not find any reason to interfere in the finding of the CIT(A) who has deleted the addition after applying the proposition of law laid down by the Hon'ble Supreme Court in the case of Lovely Exports (supra) to the facts of instant case. 28. The cross-objection filed by the assessee is delayed, after considering the reasons for delay as stated in the condonation application filed by the assessee, we condone the delay. Contention of learned Authorised Representative was that proceedings under s. 147/148 are unsustainable since the AO has not applied its independent mind for forming the opinion for existence of reasons for proceedings under s. 147/148 and he has simply followed the observation of the Investiga....