AI Drafter 
TaxTMI 
TaxTMI 
2018 (4) TMI 181
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....assessee has raised the following grounds of appeal in ITA No. 4520/Del/2009 for the Assessment Year 2006-07:- "1. Because the Ld. CIT (A)'s order is perverse on facts as well as on law. 2. The order of CIT(A) is bad in law and void-ab-initio by not following the provisions of S-251 of I.T. Act and for exceeding their jurisdiction. 3. Because the order of CIT(A) is bad in law and void-ab-initio by exceeding it's jurisdiction in directing the A.O. to invoke necessary provisions of law so that the matter could be examined and decided by the competent court of law. 4. Because the Ld. CIT(A) has erred in confirming an addition of sum of Rs. 50,00,000/- made by the Ld. A.O. on account of unexplained share capital & share premium u/s 68 of the Income Tax Act. 5. That the Ld. CIT(A) has erred in confirming an addition a sum of Rs. 50,00,000/- made by the Ld. A.O. on account of undisclosed income of the Assessee Company which has been utilized for deposit of share capital & share premium account contrary to the settled law. 6. That the Ld. CIT(A)'s order is based upon partly relevant and partly irrelevant documents/evidences and ignorin....
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....onfirmed that the copies of the bank statements submitted by the assessee were not be correct bank statement. Thereafter the Ld. assessing officer issued notice to the assessee on 12/12/2008 confronting the above fact. It was stated by the Ld. assessing officer that the confirmation filed from the parties and from the respective bank statements submitted along with them shows the wrong details where according to the statement submitted by the assessee, prior to issue of the cheque there was a clearance of various cheques, however, the bank statements submitted by the bankers directly to the assessee shows that cash is deposited in the bank accounts of the shares subscribers before issue of the cheques to the assessee company. Therefore, the Ld. assessing officer was of the view that credits in the books of the assessee shall be treated as unexplained. On the appointed date of the hearing, none appeared on behalf of the assessee. Therefore the Ld. assessing officer took a view that on perusal of the bank statement filed by the assessee in respect of these 5 companies clearly shows a credit to the account by way of clearing or transfer while infact cash was deposited in these account....
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....see to the Ld. AO in response to the query letter of the AO dated 12/12/2008, about the bank statement submitted by the assessee along with the confirmation of the depositors, that the conformation was supplied by the depositors to the assessee in good faith and the assessee does not have any knowledge of the wrong particulars mentioned in those bank statements by the above parties. Therefore, the Ld. assessing officer was requested by the assessee to seek reply from the parties concerned and not to treat the above sum as unexplained income of the assessee. Ld. authorised representative submitted that that assessee did not have any knowledge of any mischief in the bank statement by the shareholders/depositors. He stated that assessee was under bona fide belief that the bank statement submitted by the creditors to the assessee were correct. Therefore according to him the Ld. assessing officer should not have taken a view that the above sum an unexplained income of the assessee. (III) He further referred to the statement of Shri Sajan Singh, director of one of the company, who deposited share application money with the assessee, recorded by the Ld. assessing officer on 27/7/2009 i....
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....eral decisions of the Hon'ble court as under:- a. CIT versus Wins petrochemicals private limited 330 ITR 603 b. CIT versus Five Vision promoters private limited 380 ITR 289 c. Principle Commissioner of income tax versus Lakshmanan industrial resources Ltd 397 ITR 106 d. Commissioner of income tax versus Orchid industries private limited 397 ITR 136 e. Commissioner of income tax versus Gagandeep infrastructure private limited 394 ITR 680 10. The Ld. CIT DR vehemently supported the order of the lower authorities and submitted that assessee has failed to prove the creditworthiness and genuineness of the transactions of those depositors. After submission of the preliminary details by the assessee, Assessing Officer has thrown onus back on the assessee by proving that the bank statement of the depositors submitted by the assessee are false and forged. He therefore submitted that once the assessing officer has thrown back onus on the assessee, it is the duty of assessee to produce the Directors of the Depositors before the assessing officer which assessee failed is to do so. He submitted that there is no requirement of the issue of summons ....
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....uestion except the date on which the share certificates were issued was asked cross-examination to which Sh. Singh replied that he did not remember the exact dates. He therefore submitted that assessee has agreed with the total statement of Sh. Singh as no question has been asked by the assessee in cross-examination. With respect to the other four companies he referred to para No. 3 of the remand report filed by the assessing officer wherein it has been stated that though letters have been addressed to all these four parties however none of them appeared before the assessing officer. Coming to the various judgements cited by the Ld. authorised representative he submitted that in those decisions the assessing officer has not thrown onus back to the assessee for proving the further details and those of the cases where after furnishing of the preliminary information by the assessee before the Assessing Officer, no further inquiry was carried out by the assessing officer. He submitted that in the present case the assessing officer has conclusively proved that the transactions of allotment of shares of Rs. 10 Lacs each to the 5 private limited companies is completely bogus. He further r....
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....y has been invested in the assessee company by those depositors without return even after lapse of 3 years. He further stated that this leads to a situation where some persons having invested a sum of Rs. 50 Lacs in the assessee company and simply vanished from the scene without any claim of any dividend or even the principal amount. He submitted this itself proves that the money belonged to the assessee and it cannot be believed that a person who has invested such a huge sum with the assessee company and forgets it and closes its business and not traceable. With respect to the proving of the "source of source" by the assessee, he submitted that "source of source" is not to be proved it the assessee is an honest taxpayer. He submitted that in all the decisions where it has been held by the various courts the "source of source" is not to be proved by assessee in case of provisions of section 68 of the Income Tax Act if the assessee is a honest taxpayer. In the present case is submitted that the Ld. assessing officer has completely proved that the deposit made by the assessee unexplained chargeable to tax under section 68 of the income tax act and the assessee has tried to prove the ....
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....remium five companies of Rs. 1000000/- each totaling Rs. 5000000/-. It has been established through the enquiry that all such companies before advancing fund for share capital/ share premium received identical amount in cash their bank account and only thereafter cheque was issued in favour of the appellant company. The matter was brought to the notice of appellant on several occasions further vide a letter dated 12/12/08 the appellant was asked to explain such mater. Neither anybody neither appeared nor was such thing explained before the AO till the date of framing of the assessment order. Before me also the Ld AR could not produce any evidence which can establish that the observation made by the AO was wrong. In fact the case was remanded to the AO for the benefit of the appellant itself. The appellant was free to furnish such evidence which according to it would establish the creditworthiness of the companies. The record reveals that inspite of repeated opportunities at the remand stage, the appellant had chosen not to appear or not to furnish detail. One of the Directors of one of the five companies appeared before the AO but he could not explain the cash deposit of identical ....
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....tted fact that repeated opportunities were allowed by the AO. Regarding the identity ofthe creditors who have alleged to have invested Rs. 50,00,000/- as share capital/premium with the appellant and in spite of repeated opportunities, no details of the names, address, PAN of the persons who have invested through cash could be filed. 6.7 The essential question before me is a question of establishment of the identity, credit worthiness of the subscriber and the genuineness of the transaction. The identity of the subscriber, in this case has not been established, yet let us examine the next point i.e. the creditworthiness of the investor and also the last one with regard to the establishment of genuineness of the transaction. 6.8 In the present case, in order to establish the creditworthiness, it was shown that Rs. 50,00,000/- has been received from five persons by way of cheque. When the identity of the persons fails, it will be impractical at this stage to go for other two criteria i.e. creditworthiness of the investor and also one with regard to the establishment of the genuineness of transaction. 6.9 On these materials, no one can form an opinion that th....
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.... "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case fo the present kind a party relied on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinders while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." According to section 3 of the Evidence Act, a fact is said to be proved when, after considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular ....
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.... said amount. At the time of framing of the order, after a lapse of three years the entire fund of Rs. 50,00,000/- still remains invested in the hands of the appellant. This leads to a situation where some persons have invested their fund of Rs. 50,00,000/- and simply vanished from the scene without any claim of any dividend or even the Principle amount. Now the question occurs whether any prudent businessman will do the same and if so what benefit has been derived to the investing companies. It is also not known how these investors came into contact with the appellant company and why they became so generous to invest the fund with the appellant and thereafter went out of scene leaving the fund for the utilization of the appellant for any number of years to come. It is not known whether shares were at all allotted to such investors, what remains to be looked into as to what has happened with those shares which were allegedly allotted by the appellant company? I am of the opinion that the circumstantial evidence gathered in the instant case and the factual evidence brought on record shows that in reality no shares were effectively allotted to the investing company and such alleged s....
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....acts of the particular case where such judgement was passed by the Hon'ble High Court of Delhi which was later on vetted by the Hon'ble Supreme Court. The case of Lovely Export (Supra) was decided alongwith Divine Leasing and Finance Ltd (2007) 207 CTR 38 (Del) by the Delhi High Court. In the latter case, the capital was received by way of a public issue. In that case the said assessee filed a revised return taking advantage of the amnesty scheme and which is again not the fact in the present case. As the Hon'ble Court mentioned here:- ....in these fresh assessment proceedings, the Assessing Officer issued summons u/s 131 of the Income tax Act and thereafter impounded the share holders' register, share application forms and share transfer register. The assessee contended that because these materials were in the custody of the Department it was unable to furnish any further details pertaining to the subscribers Certainly these are not the facts of the case under review. Neither the appellant nor the five investing companies are public Ltd company and hence the matter is not covered by the decision of Divine Leasing (Supra). Under any stretch of imaginat....
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....worthiness of the share applicants. Therefore, the appeal is dismissed...... Much contrary to the facts of the case of Lovely Exports (Supra), in the present case no such detail was furnished before the AO and there was no such failure as contemplated in that order and to that extent also the case under appeal is quite distinguishable. 6.17 I am of the opinion that in the present case, the AO has brought all positive material or evidence on record that would establish that the amount introduced by way of alleged share capital/premium to the extent of Rs. 50,00,000/- in the names of five investors are nothing but unexplained unsecured amount and not to be treated as share capital/premium money, and all the parameters of section 68 have been fully satisfied in the instant case. It is reiterated that assessment details of the investing persons were not supplied by the appellant. Applying the above test in the present case, it appears to me that there cannot be any two opinions, having regard to the material produced with regard to identity, the '"'creditworthiness of the subscriber as well as to the question of genuineness of transaction, the same could ....
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....he depositor are completely forged. The bank statement has been prepared on computer in such a manner to give it a semblance of the real bank statement. b) Similarly in case of Huba Services Pvt. Ltd the assessee has submitted A/c No. 65003224129. The bank statement submitted by the assessee shows that before issue cheque to the assessee on 28.02.2006 there were credit entries of cheque deposit on 27.02.2006 of Rs. 4.5 lacs and Rs. 5.6 laks each. However, the bank statement supplied by State Bank of Patiala shows many entries which were not there in bank statement submitted by assessee. The bank statement was also prepared on the computer which is altogether different from the bank statements supplied by the State Bank of Patiala. Furthermore, instead of clearing of Rs. 4.5 and 5.6 lacs on the respective dates as stated in the bank statement supplied by the assessee, the cash deposit is made of Rs. 9.47 lacs in the bank account as supplied by State Bank of Patiala. c) The bank account supplied by Micro Space Systems Pvt. Ltd with State Bank of Patiala of A/c No. 65003229263 also speaks similar story. The bank account of the depositor as supplied by the assessee sh....
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....mpany has also received share application money of Rs. 24.7 lacs from others. The balance sheet of Glitz Media Pvt. Ltd does not have any investment in shares of other companies. Even the loans and advances do not include the above sum. Therefore, there are many discrepancies in the balance sheet and amounts of deposits compared with the claim of the assessee. 17. The several decisions relied upon by the ld AR does not merit our attention at all as in none of the decisions cited before us the forged documents in the form of bank statement were submitted. It was also not the fact in those cases that amount of investment shown are not reflected in the balance sheet of the investor companies. Hence, reliance on those decisions of Hon'ble Delhi High Court is misplaced, hence, rejected. 18. The statement of one of the Director Shri Sajjan Singh is of no relevance, as when the money was accepted by the assessee he was not director at all. Even otherwise, it is very interesting to note that though he was not a director at the time of deposit made by those company with the assessee, he was aware of the fact that one Chartered Accountant Mr. Kumar Tyagi introduced him and also ind....
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....ddition is based on conjectures , surmises as assessment proceedings and penalty proceedings are independent of each other. 4. That the Ld. A.O. in the penalty proceedings has not given proper and adequate opportunity to appellants and examine the transactions with confirmations, passed the order in due haste without any independent enquiry in penalty proceedings. The observations and reasons recorded does not show any act of concealment of income or furnishing of incorrect particulars of income. 5. That in view of the entire material on record Ld. A.O. as well as CIT (A) failed to issue notice u/s 133(6) to verify the veracity of the assessee's claim. 6. That on the facts and circumstances of the case CIT(A) was wrong in not accepting the explanation of the appellants and the law placed by the appellants on more addition of income on the merits, which is subject matter of appeal, no penalty can be sustained." 23. The brief facts shows that with respect to the addition of Rs. 50 lacs u/s 68 of the Act the AO issued a notice initiating penalty u/s 271(1)(C) of the Act for submitting inaccurate particulars of income. On appeal before the ld CIT(A) he con....
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....ere not included in the turnover, were found incorporated in the appellant's account books and therefore, the Hon'ble Supreme Court held that penalty cannot be levied. The issue before us is of furnishing forged bank accounts to whom the assessee has issued the share capital. 27. The ld CIT(A) has dealt with the whole issue as under:- Findings: After considering all documents on record, I shall now take up the various grounds of appeal. All the grounds of appeal are in respect of penalty u/s 271(l)(c) imposed vide order dated 31.03.2011. Additions in this case were made as the appellant had failed to establish the genuineness of the credits of Rs. 50 lacs. The AO had held the amount of Rs. 50 lacs to be unexplained cash credit u/s 68. The views of the AO were fortified by the inquiries from the bank which informed that the bank a/c submitted by the appellant had totally different entries as compared to the copy received from the bank. The Ld. CIT(A) in his order further strengthened the contentions of the AO stating as under:- "The identity of the subscriber (barring one) was not established and also the genuineness of the transac....
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....ed that the appellant had furnished inaccurate particulars of its income and was therefore, liable for penalty u/s 271(l)(c). Therefore, the facts of this case are different from the case of Kanbay. In the first instance I shall quote Sec. 68:- "Where any sum is found credited in the books,of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, the sum so credited maybe charged to income tax as the income of the assessee of that previous year." Thus from the plain reading of the section it is seen that if there is any amount which is found credited in the books of the appellant and the appellant does not offer any explanation about the nature and source of the amount so credited or the explanation offered by the appellant is not satisfactory in the eyes of the AO, the sum so credited may be charged to income tax as income for that year. Section 68 is very widely worded and the AO is not precluded from making an enquiry as to the nature and source of a sum credited in the books of account of the appe....
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....ly explained by the assessee which means that onus u/s 68 has not been discharged. Hence addition u/s 68 is valid. 2. CIT v Biju Patnaik 160 ITR 674 (SC) - It has been held that evidences to prove creditworthiness to donor/creditor is very vital and that the assessee is required to prove even the source of the source. 3. Kale Khan Mohammad Hanif v CIT (1963) 50 ITR 1 (SC) - Asstt of unexplained cash credits in the a/c of business assessable as income from undisclosed sources. Cash credits appearing in accounts relating to business remaining unexplained. 4. CIT v P. Mohanakala (2007) 291 ITR 278 (SC)it is stated that: "It is true that even after rejecting the explanation given by the assessee if found unacceptable, the crucial aspect whether on the facts and circumstances of the case it should be inferred the sums credited in the books of the assessee constituted income where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of the previous year if the explanation offered by the assessees about the nature and source of such sums found credited in the boo....
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....ch were received back un-served and the other summons remained un-complied with. The Assessing Officer sent an Inspector to the addresses to which summons were issued. The Inspector reported that no such person or company was available or existing at the addresses to which summons were issued. On the basis of the report of the Inspector, the Assessing Officer issued notice to the assessee to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. The assessee later filed affidavits of the two individuals, R and M, in which both stated that the transactions with the assessee were genuine and the earlier statements recorded from them by the investigation wing were given under pressure. The Assessing Officer came to the conclusion that the independent enquiries carried out by him disclosed that the assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee-company had introduced its own monies through non¬existing companies using the banking channel in the shape of share application monies. He accordingly invoked section 68 of the Act a....
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....n the reassessment proceedings were made. In finding fault with the Assessing Officer for not accepting the identically worded affidavits of R and M to the effect that the transactions of giving cheques to the assessee- company were genuine and that the cheques were issued to the assessee-company for share application money for allotment of shares and subsequently shares were also issued, both the Commissioner (Appeals) as well as the Tribunal had committed a serious error in appreciating the evidence. The Assessing Officer in his remand report stated that despite repeated opportunities the deponents of the affidavits were not produced before him for examination and that summons issued to all the deponents of the affidavits remained un-complied with and none of the persons attended before him. The assessee had nothing to say as to why the deponents of the affidavits, which were all in its favour, could not present themselves before the Assessing Officer for being examined on the affidavits. In the light of the facts, the evidentiary value of the affidavits was open to serious doubt. The affidavits retracting their earlier statements, filed by M and R were filed more than three year....
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....sent case such proof had been brought - out by the Assessing Officer. The statements of the entry providers referred to the practice of taking cash and of the assessee-company. The appellant has quoted various case laws. However, the recent judgement of the Hon. ITAT Indore Bench in the case of M/s Agarwal Coal Corporation P. Ltd, Indore v Addl. CIT, Range-5 states:- The case of Lovely Exports will be applicable only after the identity of the share applicant is established. Since in the instant appeals before us the identity itself has not been established there is no justification to apply the ratio laid down by the Supreme court in the case of Lovely Exports." "Even if the cases relied upon by the Id. Counsel for the assessee, as mentioned/cited/ discussed in the preceding paras of this order like Divine Leasing & Finance Limited, Dwarkadheesh Investment Private Limited, Gangor Investment Limited, K.C. Fibres Limited, Dolphin Canpack Limited, Shree Barkha Synthetics (Raj.), Down Town Hospitals Private Limited, ILLAC Investments Private Limited, Rohini Builders and Shree Barkha Synthetics (Raj.) (supra) are considered, the Hon'ble Courts have clearly....
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....of opinion that the revenue's appeal has to succeed. The..mtsctiftau framed are answered in the affirmative, in favour of the revenue; the impugned order (and that of the appellate commissioner, are hereby set aside and the order of the AO is restored. The appeal is therefore allowed. The facts of this case clearly show that the appellant has not been able to prove the credit worthiness of the said creditors with respect to the cash credits in question. The identity of the persons, except one, was not established. The genuineness of the transaction was also in doubt. The appellant has not able to prove the identity or creditworthiness of the creditor and the genuineness of the transaction. A sum of Rs. 50 lakhs was found credited in the books of the appellant as share application money and no explanation was given by the appellant about the nature and source thereof. In view thereof the amount credited was considered to be unexplained." It was established that the appellant had furnished wrong particulars. In view thereof, it is clear that the appellant had furnished inaccurate particulars of its income with a view of concealment of income. The explanatio....