AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 1302
X X X X Extracts X X X X
X X X X Extracts X X X X
..../10 3rd floor Rani Sati Nagar CHS Ltd. S.V. Road, Malad(W) Mumbai 400064 Shares allotted 6800, rate per share Rs. 100/- share premium per share Rs. 150/- Rs. 6,80,000/- Rs. 10,80,000/- Pranjal Trading Co. (P) Ltd.,1-A, Hill View Apt. Shares allotted 7200, rate per share Rs. 100/- share premium per share Rs. 150/- Rs, 7,20,000/- Rs. 10,80,000/- Melbright Suppliers (p). LTD -2, Jogenda Kaviraj Row, Kolkatta 700072 Shares allowed 12000, rate per share Rs. 100/- share premium Rs. 150/- Per share Rs. 12,00,000/- Rs. 18,00,000/- Gawarja Merchants (P) Ltd., P-27, Princep Street, 3rd Floor Kolkatta Shares allotted 4000/-, rate per share Rs. 100/- share premium per share Rs. 150/- Rs. 4,00,000/- Rs. 6,00,000/- Total share capital Rs.30,00,000/- Rs.45,00,000/- 2.1 To verify the genuineness of share capital and share premium received from the said companies, the AO issued notices to these companies under section 133(6) to furnish information alongwith documentary evidences. A commission u/s 131(1)(d) of the Income Tax Act, 1961 were also issued to the Addl. DIT(Inv.) at Mumbai and Kolkatta. 2.2 The DDIT(Inv.) Unit 1(2), Mumbai sent his report to AO vide let....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s seen that the returned income of the company for A.Y. 2009-10 was only a meagre income of Rs. 47,129/-." "While in the other case of M/s Bright Metals India (P) Ltd., the company named as Melbright Suppliers (P) Ltd. having its office at 2, Jogendra Kaviraj Row, Kolkatta-72, the deputed Inspector could not served the summon as he failed to locate the company in the given address. But on 27.12.2011, the same AR of Gawarja Merchants (P) Ltd. appeared and produced documents. From the produced documents, it is seen that during the year 2008-09 they had applied for and been allotted 12000 equity shares of M/s Bright Metals India (P) Ltd. of Rs. 100/- each at a premium of Rs. 150/- per share amounting to Rs. 30 lacs on 30.09.2008. The said application was made by them out of the advances received from Outlook Tracom Pvt. Ltd. having its office at 3 No. Khalisa Kota Polyy, Kolkatta-150 amounting to Rs. 20,00,000/- on 17.6.2008 and rest 50,00,000/- through share application money from Nandan Merchants Pvt. Ltd. having its office at 11, Pollock Street, Kolkatta-01. The directors of the Melbright Suppliers (P) Ltd. are also presently residing in Mumbai as per the submission of the AR. Fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3(6) on 24.12.2011 giving full details as required in the said notice. 4. So far as the total income of Melbright suppliers (P) Ltd. and Gawarja Merchants (P) Ltd. for the assessment year 2009-10 is concerned it is submitted that the creditworthiness of a company cannot be decided from income of a particular year. To establish creditworthiness of a company net worth of the company has to examine. It is evident from the Balance sheets of the companies that the Net Worth of the Companies as at 31.03.2009 was as under: (a) Omega Vincom Trading P. Ltd. Rs. 373 lacs (b) Pranjal Trading co. P Ltd. Rs, 3626 lacs (c) Melbright Suppliers P. Ltd Rs. 3744 lacs (d) Gawarja Merchants P. Ltd. Rs. 1743 lacs As the net worth of the companies are many times higher than the amount invested into assessee company credit worthiness of these four companies are established. (a) All the four companies are registered and governed under the provisions of Companies Act,1956. (b) All the four companies are filing with annual returns with the Registrar of Companies and their status is active company. (c) All the companies has paid amount to Bright Metals India P. Ltd. towards share cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bmitted that department can directly issue notices u/s 133(6) to the companies on the addresses given by the assessee in its letter dated 25.11.2011. Therefore, now saying that directors cannot be produced at such a short notice is not acceptable. (iii) The assessee has simply taken out information from the Web-site without giving any information about the nature of business actually carried on by the companies and nature and place of its operations. As has been observed in number of cases, mere filing of returns of income by the companies and they having PAN is not sufficient evidences to prove genuineness of the transactions. It was in light of this that the assessee was asked to produce directors but it failed to do so. (iv) It can be seen from the report of ADIT (Inv.) Unit-1(4), Kolkotta that M/s Gawarja Merchants (P) Ltd. and M/s Melbright suppliers (P) Ltd. has meagre returned income for the assessment year 2009-10 at Rs. 47,129/- and Rs. 31,021/-respectively. The income of other two companies is also meagre as seen from details filed by the assessee. In the case of M/s Pranjal Trading company (P) Ltd. and M/s Omega Vincom Trading (P) Ltd., the return income is Rs. 26,790/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....companies was established by way of PAN, Income Tax returns and returns filed before the Ministry of Corporate affairs. The genuineness of transactions was established as the payments had been received through the banking channels and share were allotted to these companies. The credit worthiness of the companies established from the net worth of these companies which was Rs. 373 lakhs in respect of Omega Vincom Rs. 3626 lakhs in respect of Pranjal Trading, Rs. 3744 lakhs in respect of Melbright Suppliers and Rs. 1743 lakhs in respect of Gawarja Merchants. It was further argued that the address of Omega Vincom and Pranjal Trading had changed. The new address were also provided by the appellant. It was also submitted that the directors of these companies were residing outside Jaipur and their addresses were given to the AO to summon them for necessary enquiry. The AO however did not accept the explanation filed by the appellant and made the addition of Rs. 75,00,000/- as untrue credit. 4.1 It is however, noted that the appellant had given complete details of the share applicants, including their PAN. The copies of return filed by them had also been produced. Thus their identities we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....even though there were statements recorded in the course of survey which is not the case here. In view of the above facts and decision of the Hon'ble ITAT, the addition made by the AO does not appear to be justified and is, accordingly deleted." 2.9 The ld DR vehemently argued the matter and supported the order of the AO and took us through the findings of the AO (reproduced above) and submitted that the AO's order deserve to be sustained and ld CIT(A)'s order to be set-aside. In support, she has relied upon the following legal authorities: (i) Navodaya Castle (P) Ltd vs CIT 56 Taxmann.com 18 (SC) (ii) CIT vs Navodaya Castle (P) Ltd 50 Taxmann.com 110 (Del) (iii) Riddhi Promoters (P) Ltd vs CIT 58 Taxmann.com 367 (Del) (iv) CIT vs Jansampark Advertising & Marketing (P) Ltd 56 Taxmann.com 286 (Del) (v) CIT vs Empire Buildtech (P) Ltd 366 ITR 110 (Del) (vi) CIT vs Ultra Modern Export(P) Ltd 40 Taxmann.com 458 (Del) 2.10 The Ld. AR of the assessee supported the order of the ld CIT(A) and submitted that the identity, genuineness of the transaction and creditworthiness of the creditor of the four companies for which addition is made by the AO is proved from the following:- 1. O....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company on 26.12.2011. The assessee vide letter dt. 26.12.2011 provided the present address of the directors of the company (PB 1 and 27) and requested the AO to directly issue notice to the directors for their presence as they are not residing at Jaipur. However, no such notice was issued. - From these facts, it is evident that assessee has proved the identity, genuineness of the transaction and creditworthiness of the company. 3. Gawarja Merchants (P) Ltd. - Assessee filed board resolution, share application form, confirmation, PAN, MOA/AOA, bank statement, ITR, Balance Sheet and P&L a/c along with relevant schedules of the company. From the Balance Sheet, it can be noted that the net worth of the company is Rs. 1743 lacs and in the schedule of investment, the investment in shares of the assessee is duly reflected at Rs. 10 lacs. - AO conducted the enquiry through ADIT (Inv.), Kolkatta. Summon issued u/s 131 of the IT Act, 1961 was served on the company by ADIT (Inv.), Kolkatta through its inspector. In response to the summon, AR of the company appeared and confirmed the investment in the share capital of the assessee and also explained the source of such investment. - The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ur vs Softline Creations Pvt Ltd 387 ITR 636 (Del) (iv) CIT Vs. Shree Barkha Synthetics Ltd. (2004) 270 ITR 477 and (2006) 283 ITR 377 (Raj.) (HC) (v) Jadau Jewellers & Manufacturers Pvt. Ltd. Vs. ACIT (2016) 130 DTR 17 (Jaipur) (Trib.) ITA No. 686/JP/14 dated 14.12.2015 (vi) Wellman Wacoma Ltd. Vs. JCIT (2016) 46 CCH 0456 (Kol.) (Trib.) (vii) ITO Vs. Nishit Fincap (P.) Ltd. (2016) 46 CCH 0365 (Del.) (Trib.) (viii) CIT Vs. Lovely Exports (P.) Ltd. 216 CTR 195 (SC) (ix) DCIT Vs. Dolphine Marbles (P) Ltd. 57 DTR 58 (Jab.)(TM) (x) M/s Bharti Syntex Ltd., Gangapur Vs. DCIT XLV Tax World 169 (Jpr.) (ITAT) dt. 13.01.11 (xi) CIT Vs. Divine Leasing and Finance Ltd. 299 ITR 268 (Del.) (HC) (xii) CIT Vs. Victor Electrodes Ltd. 329 ITR 271 (Del.) (HC) (xiii) CIT Vs. Gangour Investment Ltd. 18 DTR 242 (Del.) (HC) (xiv) CIT Vs. Ujala Dyeing and Printing Mills P. Ltd. 328 ITR 437 (Guj.) (HC) (xv) CIT vs. Nipuan Auto (P) Ltd. (2013) 89 DTR 342 (Del.) (HC) dated 30.04.2013 (xvi) CIT vs. Kamdhenu Steel & Alloys Ltd. & Ors. (2012) 68 DTR 38 (Del) (HC) dated 23.12.2011 3. In order to appreciate the rival contentions, we refer to various legal authorities on the subject which has been br....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. 18. Lovely Exports (P.) Ltd. (supra) was also considered and distinguished in N.R. Portfolio (P.) Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT v. Nipun Builders and Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), wherein it has been held that a reasonable approach has to be adopted and whether initial onus stands discharged would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 21. In view of the aforesaid discussion, we feel that the matter requires an order of remit to the tribunal for fresh adjudication keeping in view the aforesaid case law. The question of law is, therefore, answered in favour of the Revenue and against the respondent-assessee, but with an order of remit to the tribunal to decide the whole issue afresh. One of the reasons, why we have remitted the matter is that the cross objections of the respondentassessee questioning notice under Section 147/148 were dismissed as infructous and even if we decide the issue on merits in favour of the Revenue, the cross objections would got revived and require adjudication. The appeal is accordingly disposed of." 3.2 We now refer to another leading case of Lovely Exports (P) Ltd. (supra) which has been considered and referred in Navodaya Castle case (supra) and which has also been quoted by the ld AR in support of its contention. It was a case of public limited company where shares were subscribed by public and the facts thereof hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." (p. 84) This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application Forms and Bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. 7.Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) a succinct yet complete precis on the essentials of income-tax liability can be discerned from these words - "In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee." This decision is adequate au....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer 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. 16. 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 (1) the identity of the creditor/subITA scriber; (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 assessee. (5) The Department would not be justified in drawing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the 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. 39. The case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC) exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions 29. In CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opriate returns. Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation attitude before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w could be said to be arising in such circumstances in respect of finding arrived at by the Tribunal, which was essentially a finding of fact and did not stand vitiated in law. [Para 11]" 3.7 In case of Riddhi Promoters (P) Ltd (supra), the Hon'ble Delhi High Court held as under: "6. It is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee's reliance upon the order of the Commissioner (Appeals) to contend that the sources of the funds were in essence as directors, is, in this context, of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. The creditworthiness of the share applicants had to be seen in the context of the assertion made by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... established. [Para 41] The Assessing Officer here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But the Commissioner (Appeals), having noticed want of proper inquiry, cannot close the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of the Tribunal, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under section 148 issued by the Assessing Officer, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a 'further inquiry' in exercise of the power under section 250(4). This approach not having been adopted, the impugned order of the Tribunal, and consequently that of the Commissioner (Appeals), cannot be approved or upheld. [Para 42]" 3.10....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee had discharged the basic onus which was cast upon it after considering the ruling in Lovely Exports (P.) Ltd.'s case (supra). The material and the records in this case show that notice issued to the 5 of the share applicants were returned unserved. The particulars of returns made available by the assessee and taken into consideration in paragraph 3.4 by the AO in this case would show that the said parties/applicants had disclosed very meager income. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. This discussion itself would reveal that even though the share applicants could not be accessed through notices, the assessee was in a position to obtain documents from them. While there can be no doubt that in Lovely Exports (P.) Ltd. (supra), the Court indicated the rule of "shifting onus" i.e. the responsibility of the Revenue to prove that Section 68 could be invoked once the basic burden stood discharged by furnishing relevant and material particulars, at the same time, that judgment cannot be said to limit the inferences that can be logically and legitimately drawn by the Revenue in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se authorities primarily went by the fact that the assessee had provided sufficient indication by way of PAN numbers, to highlight the identity of the share applicants, as well as produced the affidavits of Directors. Furthermore, the bank details of share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their credit-worthiness. The AO chose to proceed no further but merely added the amounts because of the absence of the Directors physically present themselves before him. 6 We are of the opinion that no question of law arises, having regard to the concurrent findings of fact. The assessee has, in our opinion, complied with the law spelt out by the Supreme Court in CIT vs. Lovely Exports Pvt. Ltd. 216 CTR (SC) 195. The appeal is meritless and is consequently dismissed." 4. After going through the various legal authorities as narrated above, the legal proposition that emerges in the context of section 68 is as under: 4.1 Where any sum is found credited in the books maintained by the assessee, Section 68 requires that the assessee should offer an explanat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the shareholder. It would be also incorrect to universally state that an inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves. 4.7 Unlike the case of private limited companies, in the case of public limited company which has gone for a public issue and got share subscriptions from prospective shareholders across the length and breadth of the country, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of a cheque or by furnishing a copy of statement of bank account of share subscriber, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment. 4.10 The entire evidence available on record has to be considered and a reasonable approach has to be adopted. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction. 4.11 Where the assessee has discharged the initial 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, the burden of proof shifts on the Assessing officer. 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 carry....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not found existing at the last provided address in calcutta, on further enquiry, the ld AR appeared and informed the department that the address of the company has changed to Mumbai and submitted certain documents. Further, personal attendance of the Directors of the investee companies were called for by the Assessing officer, however they couldn't appear before the Assessing officer as the assessee submitted that the notice served to them was too short and as they were residing out of Jaipur, they couldn't attend the hearing before the Assessing officer. The identity of these investee companies therefore cannot be said to have been established as there are surrounding circumstances to show that these companies donot exist at first place and secondly, there is no proof that these companies were carrying out any business activity. Further, in case of Gawarja Merchants, source of the investment in the assessee company was share application money received by the Replica Tracom Pvt Ltd and returned income for AY 2009-10 was shown as meagre Rs. 47,129. In case of Melbright Suppliers (P) ltd, source of the investment in the assessee company was advance money received from the Outlook T....