TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 181
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....peal 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 ignoring the relevant documents/evidences hence void-ab-initio. 7. That Ld. CIT(A)'s order is ....
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....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 accounts before a cheque was given to the assessee camouflaging it to be a receipt for share capital and share premium. Therefore he....
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....g 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 in remand proceeding. He referred to the question No. 13 wherein it has been confirmed by that person that bank statements were submitte....
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....omoters 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 under section 131 of the income tax by the assessing officer to the depositors of the assessee company. The Ld. assessing officer has independently proved that bank statement sub....
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....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 referred to the various confirmation submitted by those companies and stated that all those confirmations are on computer printed letterhead and no copy of account from the books ....
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....ving 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 creditworthiness of the parties by submitting the forged documents and not submitting the copies of the confirmatory accounts of the depositors. Therefore, in the present situati....
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....m 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 amount before advancing loan. The Ld AR stated that the AO has lost the golden opportunity of causing enquiry at the assessment stage but unfortunately there was no reciprocation by way of ....
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.... 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 these applicants had any income exigible to tax under Income Tax laws. Since, it is not known whether all such investors did have any source of income or business which could be derived and which could help them to invest Rs. 50,00,0....
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....therwise 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 case, to act upon the supposition that it exists. Section 114 of the Evidence Act provides that the court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and publi....
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....ny 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 share capjtqrf/premium money was retained by the appellant company for the past three years. Thus it should be treated as unsecured cash credit and not as share capital/premium monev. In the case of Indus Vally Promoters (P) Ltd Vs CIT 305 ITR 202. Hon'ble Delhi High Court observed as under:- .. . . It is well se....
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....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 imagination it can never be alleged (against the AO) that any document was in his custody for which the applicant could not give reply. Further in case of Divine Leasing (Supra) the shares were allotted in consonance with the provisions of the Securities Contracts (Regulation) Act, 1956 as also in accordance with the rules and regulations of the Delhi Stock Excha....
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.... 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 not be established by the appellant and hence the AO has rightly added Rs. 50,00,000/- and such decision of the AO is sustained. 6.18 It is further established that the appellant has furnished details before the Department by way of bank statement which was patently wrong and was doctored document. The matter could be successfully established by the AO by seeking reports from the individual ban....
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....aks 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 shows cheque deposits whereas, the bank account supplied by State Bank of Patiala shows cash deposit. The bank account is also prepared on computer which is not the normal system of submitting the bank account by the bank. d) Similar is the story of the bank account No. 337700019 of M/s. Glitz Media Pvt. Ltd the depositor has shown the transfer entries of Rs. 4.78 lacs and Rs. 4 lac prior to issue of cheque of Rs. 10 lacs to the assessee whereas, the ba....
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....s 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 induced the company for investment in the assessee company. 19. Before parting we are of the view that the whole exercise carried out by the assessee is simply a devise to introduce unaccounted money through various shell companies in the form of share capital at a premium. The manner of issue of the shares through these companies, the manner of providing confirmation on the letter pad, the manner of maintaining the annual accounts and the manner of submitting the bank accounts ....
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....hat 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 confirmed the penalty giving a finding that in facts of the case appellant could not prove the creditworthiness of the parties to whom the share capital of Rs. 50 lacs was issued. According to him the assessee could not explain the nature and source of credit and therefore, assessee has furnished inaccurate particulars of income. Hence, he confirmed the penalty. 24. Before us the assessee submitted that the assessee has submitted complete details and assessee is not involved in any of the forged documents which were submitted by ....
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....d 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 transaction could not be established, neither the creditworthiness nor financial strength could be established. No PAN of such investor was given and also whether the said person is at all filing the return on regular basis could not be stated by the Ld AR before me and with this submission no fruitful enquiry could be caused by the Department." " 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/- ....
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....e 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 appellant company even if the same is credited as receipt of share application money. Where, therefore, an appellant company represents that it has issued shares on receipt of share application money, then the amount so received would be credited in the books of account of the appellant. In such a case, the AO would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. The latest judgement of the Hon'ble Delhi High Court in the case of CIT vs Oasis Hospitalities Pvt Ltd. dated 31st January, 2011 has dealt with the issue at length and after examining the various judgm....
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....ting 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 books of the assessees is in the opinion of the AO not satisfactory. Such opinion found itself constitutes a prima facie evidence against the assessees, viz., the receipt of money, and if the assessees fail to rebut the said evidence the same can be used against the assessee by holding that it was a receipt of an income nature. In the case in hand the authorities concurrently found the explanation offered by the assessee unacceptable. 5. Indus Valley Promoters Ltd v CIT (2008) 305 ITR 202 (Delhi) it is stated that: It is well settled that the assessee must discharge the burden of proving the identity of the creditors and also to give the source of the deposits. In other words, the cre....
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.... 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 and added the amount of Rs. 1,18,50,000 to the income of the assessee and a sum of Rs. 2,96,250 representing commission. On appeal the Commissioner (Appeals) rejected the assessee's contention against the validity of the reopening of the assessment but, taking note of the statement of the assessee that the affidavits from R and M, who were directors in the three companies as well as the affidavits of the directors in transactions. The Assessing Officer submitted a remand report to the effect that the transactions had not been proved genuine and were only instruments used by the assessee to mislead the income-tax authorities. The Commissioner (Appeals) concluded that the Assessing Officer was not justified in m....
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....vits 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 years after they wrote letters admitting to their role as entry providers. No reason had been advanced by the assessee for such long delay in retracting the earlier letters. The observation of the Commissioner (Appeals) that if summons had been served it would mean that the parties were present at the addresses and even if they were not found by the Inspector at the addresses furnished by the assessee, it was for the Assessing Officer to have made enquiries from the post office regarding the whereabouts of the addressees was not proper. There was, in this case, no such duty cast on the Assessing Officer. The assessee had been blocking any enquiry by the Assessing Officer at every stage on some plea or the other, including a....
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....r 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 held that at least the assessee has to prove the identity/existence of the person in whose names share applications are received meaning thereby the burden lies on the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee ha§ not proved the identity of such share applicants." In the recent judgment of CIT Vs. M/s Neelkanth Ispat Udhyog Pvt Ltd (Delhi High Court ITA No. 427/2012), the court has given its decision in favour of the revenue in respect of addition made u/s 68 of the IT Act. The Court observed as under:-....