AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1169
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....cer to issue summons u/s 131 to 4 applicants with aggregate investment of Rs. 1,20,000 but the same was ignored by the Assessing Officer and the Commissioner of Income Tax (Appeals) did not adjudicate this specific ground raised before her, and iv. Request was made to issue commissions to 4 applicants with aggregate investment of Rs. 1,65,000 who were aged and infirm but such request was ignored by the Assessing Officer and the Commissioner of Income Tax (Appeals) did not adjudicate this ground. 2) The learned Commissioner of Income Tax (Appeals) erred in holding that Rs. 13,90,000 received by the assessee towards share application money cannot be regarded as share application money, despite the fact that the A.O. never disputed this fact either in the original assessment proceedings or in the remand assessment proceedings or in the various appeals filed before the ITAT and the High Court. 3) The learned Commissioner of Income Tax (Appeals) erred in law by holding that paid up share capital and share application money cannot exceed authorized share capital, in total ignorance of the provisions of Companies Act, 1956, 4) The learned CIT(A) failed to consider and ex....
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....e shareholder i.e. Sh. Vijay Veer Singh was produced for examination before the Assessing Officer , who stated payment of Rs. 30,000 in cash to Sh. RP Singh but denied any knowledge of shares, his role in the affairs of the company and knowledge of benefit or risk associated with the amount invested in the share of the company and; (vii) that the share application money was introduced in names of bogus share holders to explain the source of investments in IVPs in the return of income filed subsequent to the search by the CBI. 2.2 Aggrieved, the assessee filed an appeal before learned CIT(A), who vide order dated 02/07/2008 deleted the addition by observing that all the persons filed their affidavit and filed copies of share application form. 2.3 On further appeal before the Income Tax Appellate Tribunal (for short 'the Tribunal'), the matter was restored back to the file of the Assessing Officer by the Tribunal vide order dated 07/07/2009 with following observations: "We are of the considered opinion that the parties were required to be examined on their affidavits in view of the facts and circumstances of the case narrated by the Assessing Officer in the assessment ord....
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....rounding circumstances, human probabilities and the conduct of the connected parties. Thus the transaction cannot be said to be genuine in the light of human probabilities. A transaction does not become genuine merely because a paper trail has been created/filed. The Assessing Officer while exercising his power as an investigation officer has a right to go beyond what is apparent. Even though the document may be in order, if there is enough material to raise a very strong suspicion that there is something not quite right with the nature of transaction, the authority under the act may reject the document and require the assessee to show that the transaction is really one which is above board." 2.6 On further appeal, before the learned Commissioner of Income-tax (Appeals), the detailed submissions filed by the assessee were forwarded to the Assessing Officer calling for remand report. In the remand report the Assessing Officer observed that most of the shareholders were farmers and it was not practically possible for a farmer who earn around Rs. 50,000/- to 60,000 per annum, to invest Rs. 30,000/- out of the total earning in the share capital. He also further observed that in copi....
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....unsel submitted a detailed paper book having pages 1 to 209, which contain all documentary evidence in respect of money received from 29 applicants. The Ld. counsel submitted that CIT(A) ventured into finding whether the amounts were share application money or current liability or loans whereas as per the terms of remand the issue to be gone into in the fresh assessment was to examine the genuineness of the credits after examining the parties on their affidavits. It was submitted that in case of eight persons, in respect of whom, request was made to issue summons and commission however the AO did not act upon the request of the assessee and thus no addition could have been made in respect of share application money received from them. In case of the two persons, who died during the course of assessment and appeal proceedings, the assessee cannot be penalized. Further, he submitted that out of the 19 persons except two persons i.e. Sh. Krishan Kumar ( Rs. 1.00 lakhs) and Sh. Deepak Kumar ( Rs. 2.50 lakhs) all of them invested meager amount of Rs. 30,000 to Rs. 50,000/-. The learned counsel referred to the statement of the persons and submitted that the Assessing Officer has not impe....
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....nd or profit for last more than 10 years. In support of the contention, the Ld. senior DR relied on the decision of Hon'ble Supreme Court in the case of Sumati Dayal 214 ITR 801 and submitted that the genuineness of the transaction is to be considered on the basis of surrounding circumstances, human probabilities and the conduct of the connected parties and a transaction does not become genuine merely because a paper trail has been created. 6. We have heard the rival submissions and perused the relevant material on record. In the paper book filed before us, the Ld. counsel of the assessee has submitted, a list of all the 29 share applicants alongwith the amount invested and the documents filed in support of the requirements of section 68 of the Act, which were filed before the lower authorities. 7. The issue in dispute before us is whether the assessee has discharged its onus in terms of requirements of section 68 in respect of each of the persons, who have alleged to have paid money to the assessee company. The Ld. counsel submitted before us that in the present case the assessee submitted name and address of the persons, who according to the assessee invested in share appli....
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....viz-a-viz private limited companies. In the said case, the assessee was a public limited company. The case of Lovely Exports (P) Ltd in ITA No. 953/2006 was also heard alongwith the case of Divine Leasing & Finance Ltd., having ITA No. 53/2005, 56/2005 and 305/2006. The Hon'ble High Court in para 6 of the judgment referred to the judgment of the Hon'ble Delhi High Court in the case of CIT versus Sophia Finance Ltd. ( 1994) 205 ITR 98 (Del) (FB) and decision of the Supreme Court in the case of Orissa Corporation Private Limited (1986) 159 ITR 78 (SC), wherein it is observed that the assessee had given names and address of the alleged creditors and said creditors were income tax assessees and if the assessee could not produce the parties or did not attend in response to summons issued under section 131 of the Act, in the circumstances the assessee could not do anything further and Tribunal came to the conclusion that the assessee has discharged the burden that lay on him and held that such a conclusion was not unreasonable or perverse or based on no evidence. In subsequent part of paragraph 6, the Hon'ble High Court has agreed that above reasoning must apply to cases of large scale s....
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.... the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company." ( emphasis supplied) 10. Further, after considering the various decisions of the Hon'ble High Courts in paragraph 14 and 15 of the judgment, the Hon'ble High Court considered the decision of the Hon'ble Calcutta High Court in the case of Hindustan Tea Trading Company Limited Vs. CIT (2003) 263 ITR 289 (Cal), wherein the bench opined that in case of a subscription to share capital, section 68 of the Act is to be resorted, it is necessary for the assessee to prove and establish the identity of the subscriber, their creditworthiness and the genuineness of the transaction and once material to prove these ingredients are produced it is for the AO to find out as to whether, on these material, the assessee has succeeded in establishing the ingredients mentioned above and the AO can 'lift the veil' on enquiry into the real nature of transactions. 10.1 After considering the d....
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....ourt, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It....
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....ty of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by....
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.... connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 11. In the present case, only one person provided PAN and he also not filed return of income of relevant period and evidence of creditworthiness have not been filed in case of most of the persons. Thus, the ratio of the decision in the case of M/s. Lovely Exports (P) Ltd. cannot be applied. In view of above position of the law, the decision cited by the Ld. counsel to support its contention, are not applicabl....
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....urse of search by CBI at the residence of Sh. R.P. Singh. The appellant had introduced share application money in the name of bogus shareholders to show availability of funds of investment in IVPs." 14. The Ld. Commissioner of Income-tax (Appeals), finally concluded that the assessee failed to discharge the primary onus of providing the capacity to make investment in the share application money and to prove the genuineness of the transaction. 15. On perusal of the orders of the lower authorities and documentary evidences filed before us by the assessee, we find that out of 29 persons, the assessee has produced 19 persons before the Assessing Officer in compliance to the direction of the Tribunal. In respect of other persons, the assessee has submitted before us copy of letters filed before the Assessing Officer, requesting to issue summons to those persons. The evidences filed by the assessee before us in respect of the persons and our observation in respect of those evidences are summarized as under: (i) Sh. Nanu Singh (Rs.40,000/-): The assessee has submitted a copy of statement on oath dated 16/12/2010, share application form, counterfoil of share certificate , ration c....
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....ed a copy of the voter identity card issued by the election commission of India and he himself attended before the Ld. Assessing Officer and thus identity of the person is not in doubt. In respect of creditworthiness, the person stated source of income as agriculture income. In his statement dated 16/12/2010 the person stated agriculture land holding of eight acres. In the statement dated 26/02/2004, the person stated of having paid Rs. 30,000 in cash to the assessee company, out of sale of sugarcane crop, however no evidence in support of the sale was submitted before the Assessing Officer or before us. The assessee has produced evidence in support of agriculture land holding of the share applicant from page 27 to 29 of the paper book. In the statement recorded on 26/02/2004, the person declined to have received the shares however in his statement dated 16/12/2010, he stated that he received 3000 shares. In the affidavit as well as in the statement, the person stated that the money was invested for getting profit in the form of dividend, however for the last 10 years he did not receive any profit from the company. In our opinion, no genuine investor will keep his investment with a....
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....money invested for a period of 10 years without any return. (v) Sh.Yograj Singh (Rs. 45,000/-): The assessee has filed a copy of his statements dated 26/02/2004 and 16/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate, voter identity card and proof of agriculture land holding, which are available on page 45 to 55 of the paper book. The person stated his income from agriculture and immediate source of investment in the company was explained as money received on sale of sugarcane and mustard, however no evidence in support of such sale was filed. He also stated of investment made in shares of 'Mahindra and Mahindra' and Mutual fund in the year 2010. The contents of the affidavit filed by the person are identical with the affidavit of other persons having agriculture income. The person said that he did not know what is mean by the share application money . He said that Rs. 45,000 was invested for profit however no profit was received except 4500 shares. (vi) Sh. Mange Ram Dabas (Rs. 50,000/-): The assessee has submitted a copy of the statement dated 16/12/2010, confirmatory affidavit, share application form, counterfoil of share certificat....
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....ale of crops by the person. The person admitted that he had not made any investment in companies other than the assessee company. The person also admitted that he did not receive any profit from the company nor any letter for meeting of the company. In our opinion, in normal circumstances, no prudent person will keep investment in the company for a period of 10 years without any return on the investment. (ix) Sh Chander Sain ( Rs. 30,000/-) : The assessee has filed a copy of statement dated 20/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate and voter identity card, which are available on page 75 to 81 of the paper book. In the statement recorded the person stated his income as Rs. 45,000 per annum from agriculture and animal husbandry in the year 1999. The person admitted that he had not invested in companies and he only paid to Rs. 30,000 in cash to the assessee company out of his agriculture income. He accepted that he did not receive any profit from the investment in the assessee company. The Assessing Officer asked whether the company was in continued loss since 1999-2000, the person replied that the company was going in profit and h....
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.... Ashok Kumar son of Jaipal Singh( Rs. 40,000/-): The assessee has filed a copy of statement dated 20/12/2010, share application form, counterfoil of share certificate , and voter identity card, which are available on page 97 to 102 of the paper book. Sh. Ashok Kumar admitted of giving Rs. 40,000/- in cash to the assessee company out of the agriculture income. In the statement, he stated of having 10-12 Acres of agriculture land, however no documentary evidence in support of agriculture holding was filed either by Sh. Ashok Kumar or by the assessee before the Assessing Officer. No such evidence was also filed before us. Sh. Suresh Kumar admitted that he was not aware about the shares investments and money was invested for the first time in the assessee company. He stated that he was not aware about the share application money. On being asked by the Assessing Officer about receipt of any profit or dividend from the assessee company, Sh. Ashok Kumar stated that he received Rs. 4000/- in cash from Sh. RP Singh. The assessee company has not confirmed any payment of such amount to Sh. Ashok Kumar. (xiii) Sh. Deepak Kumar (Rs.2,50,000/-): The assessee has filed a copy of statement date....
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....s filed either by Sh. Suresh Kumar Marwaha or by the assessee company. He was not aware about the term 'share application' money and whether the company was in profit and loss. He also admitted that no profit was received from the assessee company though the money was invested for earning profit. (xvi) Sh. Rajendra Shokeen (Rs.40,000/-) : The assessee submitted copy of statement dated 22/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate, which are available on page 124 to 128 of the paper book. In the statement, sh Rajendra Singh stated his source of income from property dealing and agriculture, however in the affidavit and in the share application form, source of income is mentioned as agriculture income. No evidence in support of the source of income or land holding or creditworthiness filed either by Sh. Rajendra Singh or by the assessee. In the statement Sh Rajendra Singh admitted that he was not knowing about the share application money and money was invested for getting profit but no profit was received. (xvii) Sh. Ranvir Singh ( Rs. 35,000/-): The assessee submitted a copy of statement dated 22/12/2010, confirmatory affidavit, sh....
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....ificate, confirmatory affidavit, share application form and counterfoil of share certificate in respect of Sh. Brahm Parkash, which are available on page 155 to 158 of the paper book. In the death certificate, date of death of Sh. Brahm Prakash is recorded as 01/08/2007, whereas on perusal of the photocopy of affidavit of Sh. Brahm Prakash filed by the assessee, which is available on page 156 of the paper book , we find that it is stamped in the month of August 2007, though the exact date is not readable. This raises doubt on the authenticity of the affidavit of the person. (xxi) Sh Rajiv Kumar (Rs.40,000/-): The assessee has submitted a copy of statement on oath dated 26/02/2004, confirmatory affidavit, share application form, counterfoil of share certificate and death certificate in respect of Sri Rajiv Kumar, which are as available on page 159 to 163 of the paper book. In the statement recorded , the person stated of giving Rs. 40,000 in cash to Sh. RP Singh. He stated that said money was invested out of sale of sugarcane crops, however no evidence in support of such sale was filed either by the assessee or by Sh. Rajiv Kumar before the Assessing Officer. He also stated that ....
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....iness of the said person. (xxvii) Sh Sudhir Kumar Prashar ( Rs. 35,000/-) : The assessee has filed a copy of confirmatory affidavit, share application form and counterfoil of share certificate, which are available on page 198 to 200 of the paper book. No evidence in support of creditworthiness of the person was filed with assessee and the person was also not produced before the Assessing Officer. (xxviii) Sh Rajesh Kumar (Rs.15,000/-) . The assessee filed a copy of confirmatory affidavit, share application form and counterfoil of share certificate, which are available on page 201 to 203 of the paper book. The person was not produced before the Assessing Officer and the assessee requested for issue of summon to him. (xxix) Sh Roop Ram Singh (Rs.30,000/-): The assessee filed a copy of statement dated 26/02/2004, confirmatory affidavit, share application form, counterfoil of share certificate and voter ID card which are available on page 204 to 209 of the paper book. In the statement the person stated of having given Rs. 30,000 to Shri R.P. Singh expecting some return on the money however neither any shares nor any benefit were received. The person stated that money was invested....
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....29 persons have been claimed to be made in cash and the persons claimed that they were not having any bank account. In our opinion, this is quite uncommon in normal circumstances as neither a single person was having bank account nor utilized bank faculties for issuing draft or banker's cheque for payment to the company. (ii) that the Indira Vikas Patras (IVP) of Rs. 8,97,500/- and cash of Rs. 2.00 lakhs were found from locker of Sh RP Singh and his wife in search carried out by the CBI on 12/05/2000. These IVPs were purchased during the period from 12/07/1999 and 15/07/99 and were not bearing name of any purchaser. It was explained before the CBI, that these IVPs were purchased by the assessee company in cash out of the share application money received from 29 applicants between April, 1999 to August, 1999. In our opinion, in normal circumstances, any company would have deposited the share application money or share capital received , in its bank account and then any investment in IVPs etc would have been made through banking channel as the company was having bank account facilities. (iii) that the interest accrued on the Indira Vikas Patras for the relevant year was not rec....
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....red by the lower authorities and secondly the Assessing Officer has given his finding in respect of the testimonies in the assessment order that the persons were tutored for the statements which they have given. 20. In view of our observations and analysis of all the evidences available on record, the facts and circumstances of the case, we conclude that the impugned transactions accepting share application money by the company do not appear to be genuine transactions. The Hon'ble Supreme Court in the case of Sumati Dayal 214 ITR 801 has held that genuineness of the transaction is to be considered on the basis of surrounding circumstances and human probabilities. In said case, the assessee shown income from winning horse races and there was difference of opinion among the members of the settlement commission on genuineness of the income from winning horse races. The relevant finding of the Hon'ble Supreme Court is reproduced as under: "This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities: The Chairman of the Settlement Commission has emphasised that the appellant did posses the winning ticket which....