TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 1161
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....o establish the genuineness of the transactions." 3. Briefly stated facts are that the assessee is a manufacturer and dealer in gold ornaments, jewelleries, diamonds, cut and polished stones. A survey u/s. 133A of the Act was conducted on the business premises of the assessee on 05.11.2004. During the course of survey, the books of account and documents were found and were impounded, inventorised and marked as HG-1 to HG-33. The AO during the course of assessment proceedings on going through the return of income noticed that the assessee has increased share capital to the extent of Rs. 65.50 lacs during the year under consideration. The AO also observed that the assessee has issued shares at the face value of Rs. 100/- and premium of Rs. 100/- during the year. The AO required the assessee to furnish the complete details of share-holding stating names, addresses, no. of shares allotted and face value/premium thereon. The assessee filed complete details including names and addresses, PAN of shareholders, face value of shares and premium charged on shares. The relevant details are reproduced by the AO in his assessment order at page 2. The AO issued notice u/s. 133(6) of the Act to t....
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.... Court and Hon'ble Supreme Court on the issue, the Hon'ble Court observed that a distillation of the precedents yields the following proposition of law in context of applicability of provisions of section 68 of the Act in case of issue of share capital. The assessee has to prima facie prove (1) the identity of the creditors/subscriber; (2) the genuineness of 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 creditors/subscriber are furnished to the Department it would constitute acceptable proof or acceptable explanation by the assessee. (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 assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) the Assessing Officer is duty bound to investig....
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....e premium charged on the same. The relevant details as reproduced in the assessment order reads as under: Sl. No. Name & address & PAN of share holders Rs.100/- per share face value Rs. 100/- per share Premium 1. Choudhury Management P. Ltd., P-41, Princep Ghat, Kolkata-72 AABCC1163G 250000 250000 2. Shreevar Overseas Ltd., 2, Jogendra Kabiraj Road, Kol-7, AADCS5853R 500000 500000 3. DAR's Business Finance P. Ltd., 45/2, Rafi Ahmed Kidwai Road, Kol-16, AAACD9635P 200000 200000 4. Akshat Developers Pvt. Ltd. 225C, AJC Bose Road, Kol-20, AAECA5920C 1000000 1000000 5. Binoy Kumari Devi, 34/1W, Ballygunge Circular Road, Kol-20, ADRPD5795R 1000000 1000000 6. Ranjeet Singh Baid, 27, Ekdalia Place, Kol-19, AECPB2347B 50000 50000 7. Anita Mookim, 60/10, Gouri Bari Lane, Kol-4, AFAPM3187K 50000 50000 8. Tilak Devi Dugar, Shyam Apartment, BC- 76, Kestopur, Samarpally, Kol ACSPD7243G 50000 50000 9. Anju Dugar, Shyam Apartment, BC-76, Kestopur, Samarpally, Kol ADWPD0469R 50000 50000 10. Rina Bucha, 118/B, C.R. Avenue, Kol-48, AEIPB8310C 50000 50000 11. Dipti Singhi162, Dakshin Dari Road, Kol- 48, ARBPS6174M 50000 50000 12. Koushik....
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....the directors. We also find that the AO issued notices u/s. 133(6) of the Act to all the shareholders and all of whom filed their replies and confirmed their investment made along with all the details required by the AO. The AO could not point out any defect or any deficiency in these replies but straightway issued notices u/s. 131 of the Act and out of twelve, four persons came forward and their statements were recorded who proved that they have immediate source for investment out of their capital. All these shareholders are regularly assessed to income tax filing their income tax returns along with Balance Sheet. We find that the only premise for making this addition by the AO was that the creditworthiness of these shareholders was not proved. The CIT(A), on the other hand, relying on the decision of Hon'ble Delhi High Court in the case of Divine Leasing & Finance Ltd., supra has deleted the addition . 5. Hon'ble Delhi High Court in the case of Divine Leasing & Finance Ltd., supra has discussed the facts and legal position and finally held as under:- "11. Before applying the law to the facts of the present case, we should reflect on the manner in which the Division Bench dealt....
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....after the issuance of summons under Section 131 of the Income-Tax Act. It did not condone the AO, failing to issue coercive process, and in this manner attempting incorrectly to shift the burden on the assessed to establish the ligitimacy of the transaction. In Commissioner of Income-Tax v. Antarctica Investment Pvt. Ltd. (2002) 262 ITR 493 (Del) the Court was satisfied that no interference was justified since the assessed had produced the Share Application Forms along with confirmation letters and copies of their Accounts, copies of their Bank Accounts of cheque payments and their Auditor's Report. The Assessing Officer's conclusion that the genuineness of the transaction had not been made good was not upheld. This conclusion was reached despite the fact that notices received by one of the common Directors of the two subscribing companies had been ignored and no information was forthcoming from the latter. However, the Under Secretary (Land Revenue, Government of Sikkim, Gangtok) had stated that both the subscribing companies were incorporated in Sikkim and their addresses were disclosed in the return of allotments; the subscribers thus stood identified. Their financial st....
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....assessed the initial onus under Section 68of the Income Tax Act had been completely discharged by the assessed. It would not be sanguine to conceive of a possibility of a genuine contributor abandoning his investment for diverse reasons. That would not lead to the conclusion that the assessed is automatically guilty of attempt of converting its income into capital. 15. In Bharati Pvt. Ltd. v. Commissioner of Income-Tax, West Bengal-I, Calcutta where notices to these alleged creditors had come back unserved, the Division Bench affirmed that the mere filing of confirmatory letters by the assessed did not discharge the onus that lay on the assessed. Different Division Benches of the same High Court have opined that the assessed must prove (a) the identity, (b) the capacity of the creditors to advance money, (c) the genuineness of the transaction. (See Shankar Industries v. Commissioner of Income-Tax, Central, Calcutta C.Kant & Co. v. Commissioner of Income-Tax, West Bengal-III and Commissioner of Income-Tax v. United Commercial and Industrial Co. Ltd. . In C.I.T. v. Korlay Trading Co. Ltd. , certain shares purchased through a broker were lost. The assessed furnished the name of the ....
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....ity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shared 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. 17. For a complete understanding of the concept of 'burden of proof attention should be drawn to decisions delivered in the context of penalty proceeding under Section 271 of the Income Tax Act.CIT, West Bengal v. Anwar Ali [1970] 76 ITR 697 was decided by the Apex Court holding that, if there is no evidence on record except the explanation of the assessed, which explanation has been ....
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....ssessment Year 1984-85 the assessed had filed a Return declaring a loss of Rs. 25,090/- and consequent upon the addition of Rs. 9,53,500/- made under Section 68 the assessment was made on this sum. The ITAT noted that the assessed was a Public Limited Company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of the Securities Contract Regulation Act, 1956 as also the Rules & Regulations of the Delhi Stock Exchange. Complete details appear to have been furnished. The ITAT has further recorded that the AO had not brought any positive material or evidence which would indicate that the shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital represented the company's own income from undisclosed sources. By the same Orders dated 4.9.2003 the addition of Rs. 76,51,650/- for the Assessment Year 1986-87 deleted by the CIT (A), was upheld. 20. In connection with Assessment Year 1985-86 the ITAT has extracted portions of the Orders of the CIT (A) and we must assume that it did so to adopt that reasoning. The ITAT has not articulated its own reasoning in....
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.... following ground no. 1 to 3: "Revenue's grounds: 2. The Ld. CIT(A) went wrong in directing the AO to assess only the profit arising out of the unaccounted transactions recorded in the impounded documents HG-4, HG-30 and HG-31. 3. The Ld. CIT(A) ought to have realized that assessing only the profit element of the unaccounted transactions would mean that the purchases of those items sold were accounted in the books which in turn would logically follow that the entire sales should be treated as the profit of the assessee. 4. That on the facts and in the circumstances of the case, the Ld. Cit(A) has erred in holding that only the profit element in the sale of the stock found short should be assessed as income. As the purchases have been debited to the profit and loss account, the unaccounted sales should be credited to the profit and loss account and not merely the profit." "Assessee's grounds: 1. FOR that the Ld. CIT (Appeals) erred in law as well as on facts in holding that the notings in the impounded document marked HG/9 were relating to actual business transactions of the assessee and that the income arising from such transactions was not recorded in the regular books....
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....d treated the same as sales and undisclosed profit to the tune of Rs. 13,27,485/- was assessed. For this, the AO observed as under: "In the course of survey operation conducted in the business premises of the assessee company on 5.11.04 amongst others the following Registers were impounded and marked as under: Sl. No. Identification Mark Description 9 HG-9 Register 30 HG-30 Red pocket diary 31 HG-31 -do- On perusal of the above registers/diaries, it is seen that they pertain to transaction of gold (18 and 22K) and diamonds. On totaling of various entries contained in the said Registers/Diaries the following quantity of gold/diamond is found (as per attached sheet vide Annexure "A" being a part of assessment order). Gold 22K 274.98 grm -do- 18K 551.19 grm Diamond 1075.50 C During the course of survey, the assessee company claimed that the diaries so found belonged to Sri Uttam Ray and Chinu Ray respectively and said parties were summoned u/s. 131 and their statement were recorded. It is stated by them that they have no knowledge of these diaries. Thus, the assessee's earlier claim is found incorrect, the ownership of the said diaries cons....
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.... thereby worked out profit rate @ 13.39% and estimated the profit at Rs. 90,591/- by observing in para 4.10, 4.11, 4.12 and para 5 as under: "4.10 Having held as above, that the notings recorded in the said documents HG-9, HG/30 & HG/31 relate to the business of the assessee, the question arises about the quantum of the transactions recorded therein. The A.O., in the assessment order, had determined the value of such undisclosed transactions of the assessee at Rs. 99,14,006/-. However, during the appellate proceedings the A.R. of the assessee pointed out certain discrepancies in the calculations made by the A.O., therefore, the matter was remanded to the A.O. vide this office letter no. CIT(A)-XXXII/09-10/Koll17 dated 17.04.2009. In his remand report submitted vide letter no. ITO,W-12(3)/Kol/Remand Report/09-10/l25 dated 01.06.2009, the A.O. admitted that certain discrepancies had in fact crept in the calculation of unaccounted income of the assessee on the basis of the impounded material HG-9, HG/30 & HG/31while completing the assessment. As per the said remand report the quantity of unaccounted stock of diamonds, as recorded in the document HG-9, was taken in the assessment ord....
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....ansactions can be added as income of the assessee. The A.O. has not worked out the value of the unaccounted transactions in his Remand Report. He is therefore directed to ascertain the value of the unaccounted transactions and work out the profit arising from such transactions @ 13.39% of the value (being the G.P. % shown by the assessee in regular accounts) and reduce the addition made in respect of three documents - HG-9, HG-30 and HG-31 to the extent of the profit so worked out. The addition to that extent is confirmed. 5. Grounds no.10 to 12 of the appellant are against the addition of Rs. 13,27,485/- as estimated profit @ 13.39 % on the alleged undisclosed purchases. In view of my finding in the preceding paragraph-4.12 no separate addition is called for the estimated profit on the undisclosed transactions. The separate addition of Rs. 13,27,485/- has already been considered by me in the said preceding paragraph. The addition of Rs. 13,27,485/- is therefore deleted. These grounds are disposed as above." Aggrieved, against recalculation of undisclosed purchases and estimation of profit rate, the revenue came in appeal against deletion of addition and assessee came in appeal ....
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....Precisions stones) 0.00 cts 10.79 cts. Fancy 0.00 cts. 02.85 cts Colour stone 66.00 cts. 48.99 cts. During the depositions of the above two persons, they deposed that all the notings in their diaries were not related to M/s. Harshabardhan (the assessee company) but some other parties also. However, both of them could not specify and/or identity which entries belonged to Assessee Company and others." 11. Further, in regard to HG-9 the quantity mentioned in respect to round stick, fancy, colour stone etc. was at 1098.19. In view of the above, revised correct quantity of gold, diamond and colour of semi precious stone received by these the Karigars from customers for the purpose of making jewellery and/or design is given and the total quantity received was revised by the AO during remand proceedings (as given above). Similarly, in respect to HG-9, the AO has admitted the mistake in calculating the quantity of diamond and stones and also treating other fancy coloured and semi precious stone as diamond but now he has furnished the correct quantity as per the noting in two diaries. In the revised working the AO has intimated that the diamond quantity is....
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....d 236 cts. as declared in the books of account and, therefore, he valued 62 items at Rs. 23,45,278/- as under: "Gold - 447 Gms. @ Rs. 570 ... Rs. 2,54,790/- Diamond - 236 Cts. @ Rs. 8,858/- ... Rs.20,90,485/- Rs.23,45,278/- The AO accordingly made addition treating the same as sale. Aggrieved, assessee preferred appeal before CIT(A), who restricted the addition of gross profit rate by applying the GP at 13.39% on the above sale which was found as short stock and estimated the profit at Rs. 3,14,033/- and partly allowed the appeal of the assessee. Aggrieved against the action of CIT(A) both revenue as well as assessee is in appeal before us. 14. We have heard rival submissions and gone through facts and circumstances of the case. We find that there is discrepancy found in the physical stock vis-à-vis the stock in the books of account of 447 gms of gold and 236 cts of diamond. The AO presumed the shortage of stock as sales of diamond the sale price at Rs. 23,45,278/-. The CIT(A) deleted the addition that no separate addition was called for when addition of unaccounted purchase and profit was being made on undisclosed purchase in the earlier issue and h....