AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 1388
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.... business of investment and finance. The assessee filed return of income for AY 2000-01 on 29.05.01 declaring a loss of Rs. 8,210/-. The case was subsequently reopened u/s 147 by issuing notice u/s 148 dated 21.08.02. In response to the notice the appellant submitted before the AO vide letter dated 21.5.2003 that the return already filed on 29.5.2001 may be treated to have been filed in response to notice u/s 148. The assessment u/s 147 read with section 143(3) was completed vide order dated 29.3.2004 determining taxable income at Rs. 1,64,95,070/-. The AO interalia made addition of Rs. 1,64,80,335/- on account of unexplained introduction of share capital and share premium u/s 68 of the Act. The assessee had preferred an appeal against the assessment order before the CIT(A) who, vide her order A. No. 104/04- 05 dated 26.8.2004, had dismissed the appeal of the appellant thereby confirming the addition made by the AO in the assessment order. The assessee preferred an appeal against the Ld. CIT(A)'s order before the ITAT. The ITAT in ITA No. 4648/Del of 2004 for AY 2000-01 vide order dated 23.5.07 restored the matter back to the file of the Ld. CIT(A) observing as under :- ....
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.... that the cash credits are entries arranged by one Mr. S.K. Jain in whose case, a search was conducted on 14.12.1999 and the entire modus-operandi of converting un-accounted money into accounted one was unearthed. The AO further stated that the material seized during search on Mr. S.K. Jain indicates involvement of certain parties some of whom are those who have contributed to the share capital of the company. (ii) The bank transactions and books of accounts were verified by the AO and observed that the appellant company has no financial base and it is not doing any real business except receiving money and remitting the same immediately. He further observed that no explanation on reasons for receipt of high premium on shares could be furnished and the assessee failed to produce the parties from whom share capital and share premium was received. (iii) The AO further stated that the Bank Manager of Standard Chartered Bank, Parliament Street, New Delhi was summoned uls 131 of the Act but there was no response from him. According to the AO, Standard Chartered Bank has the accounts of the share holders who have contributed to the share capital of the company. ....
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....ge and manage its business affairs in the manner it likes. e) The assessee company has filed confirmation letters from the share holders giving their permanent account number and ward/circle in which it exist, balance sheet of the respective companies evidencing contribution towards share capital , registration numbers of the companies with date of incorporation as per the records of the Registrar of companies and wherever the shareholder companies were registered with the RBI, as envisaged, the certificate number of NBFC. He observed that the investments were made by account payee cheques. He recorded that final assessment orders passed u/s 143(3) of the Act passed in the case of five shareholders companies were also filed. He relied on certain case laws and held that assessee had discharged the burden of proof that lay on it. f) On the issue of non production of the directors of the share holder companies for examination before the AO, the Ld. CIT(A) held that no addition can be made for non-production of persons and that the assessee has discharged its primary onus and the AO has not pointed out any discrepancy in the evidences filed by the assessee. He held th....
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....e AO. 1. Navodaya Castle (P) Ltd. vs. CIT (2015) 56 taxmann.com 18 (SC) 367 ITR 306 (Delhi) 2. Rajat Export Import India (P) Ltd. vs. ITO (2012) 18 taxmann.com 311 (Delhi) 3. CIT vs. Nova Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Delhi) 4. Roshan Di Hatti vs. CIT (1977) 107 ITR 938 (SC) 5. CIT vs. Globus Securities & Finance (P). Ltd. (2014) 264 CTR 481 (Delhi) 13. The Ld. Counsel for the assessee on the other hand opposed the contentions and submitted that the asessee has furnished all necessary details before the AO and the AO was wrong in making an addition u/s 68 of the Act. He argued that the so called modus operandi of Shri S.K. Jain was merely a figment of imagination and lacks in substance and has no relevance to the proceedings against the assesee. On a query from the bench as to the basis on which quantum of share premium amount was fixed, the Ld. Counsel for the assessee submitted that shares of Rs. 10/- was allotted at a premium of Rs. 90/- per share to some of the companies and that it is the prerogative of the assessee to fix the amount of share premium. No explanation or substantiation of the amount charged as s....
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..... and M/s. Graph Financial Services Pvt. Ltd. on 10th December, 1999 as per the entries in its books of account though the cheques may have been dated 6.12.99. Within less than a month of allotment of shares to M/s. Timely Fincap Pvt. Ltd. and M/s. Graph Financial Services Pvt. Ltd. at par, on 4.1.2000 an amount of 4,05,000/- was received from M/s. VPC Financial Services Pvt. Ltd. and shares were allotted to this company at a premium of Rs. 90/- per share. Similarly in the case of Kila Financial Services Pvt. Ltd. 1,35,000 shares were allotted at a premium of Rs. 90 per share on 4th January, 2000. No explanation as to why the shares were allotted at a premium and the logic or basis on which such premium was charged was given. Further allotment of 26500 shares were made to VPC Financial Services Pvt. Ltd. and share of 1380 to M/s. Killa Financial Services Pvt. Ltd. on 31st March 2000. 18. In the case of Highyield Securities Pvt. Ltd. 30,000 shares and in case of Mehul Finvest Pvt. Ltd. 24,200 shares were allotted at a premium of Rs. 90 per share on 30th March,2000. Similarly in the case of M/s. Synergy Finlease Pvt. Ltd. 47,300 shares were allotted on 30.3.2000 at a premium of Rs....
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....the identity, creditworthiness and genuineness of the cash credit in its books of accounts. If the assessee has not discharged the initial burden of proof that lay on it, then the addition has to be confirmed. 23. We have to also examine the duty of the appellate authorities as laid down by the jurisdictional High Court. 24. The jurisdictional High Court in the case of M/s. Jansampark Advertising & Marketing (P) Ltd. (supra) has considered the issue at length. The decisions of the High Court as well as the Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (supra), CIT vs. Gangeshwari Metal Pvt. Ltd. (supra), M/s. Oasis Hospitalities Pvt. Ltd., M/s. Divine Leasing and Finance Limited (supra) had been considered by the court and it was held as follows :- "35. Assessment proceedings under the Income Tax Act are not a game of hide and seek. The inquiry in the wake of a notice under Section 148 is not an empty formality. It must be effective and with a sense of purpose. There is an elaborate procedure set out which requires scrupulous adherence and followed up on. In the hierarchy of the authorities, the AO is placed at the bottom rung. The two layers of appea....
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....The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact-finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income Tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty to make, or cause to be made, "further inquiry", in terms of sub-section (4) which reads as under:- "The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals). " 39. The further inquiry envi....
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....ing the identity of the third party was too short, and further that it is probably not always possible for the assessee placed in such situation to be able to enforce the physical attendance of such third party (who, in the case of share applicants vis-a-vis a company, would be individuals at large and may not be even in direct or personal contact), the curtains on such exercise at verification may not be drawn and adverse inferences reached only on the basis of returning undelivered of the summonses under Section 131. Conversely, with doubts as to the genuineness of some of the parties persisting on account of non- delivery of the processes, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged." 25. The Hon'ble Jurisdictional High Court at para 42 further held as follows :- "42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed....
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....ven that the Ld. Counsel for the assessee that charging of premium is the sole discretion of the company and that price is a contract entered between two parties and cannot be questioned by the revenue is devoid of merit. The AO cannot be expected to wear blinkers and accept bald explanations of the assessee. There should be some explanation which is logical and rationale. Ld. Counsel could not demonstrate that the assessee company was in fact, carrying on the business of finance and investment. It is common sense that shares of loss making companies do not command a premium. The financial status or the projected cash flow of the assessee company or any such record has been produced by the assessee to justify the charging of such premiums for allotment. Discounted cash flow matter is one of the accepted methods to determine premium chargeable on share capital. Certain other methods have also been prescribed. Premium cannot be charged as per the whims and fancies of the company. In cases where explanation or justification of the valuation of shares is given, to explain the basis on which share premium has been fixed, then no addition can be made, as the genuineness of the transactio....
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....They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." In CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under section 66 of the Indian Income Tax Act, 1922. The Supreme Court referred to the leading case of Edwards ( Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (H.L.) decided by the House of Lords in which Viscount Simonds observed as under: "For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be " In the same case Lord Radcliffe expressed himself in the following words: "If the case contains anything exfacie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such m....
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....would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 29. At para 41 he further held as follows :- "41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the as....
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....premium earlier. Identity, creditworthiness of the shareholders and genuineness of the transaction in all cases is not established by only showing that the transaction was through banking channels or account payee instrument. It would be incorrect to state that the onus to prove genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Surrounding and corroborative factual detail are equally important and may justify further proof or details before it is held that onus is discharged. As held in N.R. Portfolio (P.) Ltd. (supra) the question of discharge of onus depends upon whether the two parties are related or known to each other, the manner in which the parties approached each other, whether the transaction was entered into through written documents to protect the investment, whether the investor professes and was an angel investor, the quantum of money , creditworthiness of the recipient. the object and purpose for which payment was made etc. These fact are primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Thus, mere reliance on....