TaxTMI 
TaxTMI 
2018 (6) TMI 1317
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....tances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 147/143(3) without appreciating that reasons are merely based on purported documents seized from premises of Mr. SK Jain etc. and same cannot be put against that assessee unless statement of Mr. Jain on those documents vis a vis assessee herein is brought on records and the same is duly followed by cross examination of Mr. Jain which have not happened in present case; 1.3 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 147/143(3) without appreciating that documents so relied in reasons have not evidentiary value qua assessee herein u/s. 292C of the Act and can only bind the person from whose possession those documents are found; 1.4 That on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in sustaining the order passed by the AO us. 147/143(3) without appreciating that on the date when reasons were recorded (07/03/2016) reliance placed in reasons recorded on AO and CIT(A) orders in case of Mr. Jain invalidates the entire foundation (sublato fundamento cadit opus) as those ....
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....the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that while making addition U/S 68 Ld AO has not issued required show cause notice nor Ld AO has considered detailed reply filed by the assessee; 2.6 That on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that while making addition u/s 68 position of net worth of companies is suitably ignored; 2.7 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that none of evidence filed by assessee is overruled In accordance with law 3. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in not restoring the returned income declared by assessee in its return of income. 4. That on the facts and in the circumstances of the case and in law, ld CIT-A erred In not deleting the addition made by Ld AO which was also unlawful and made in violation of principles of natural justice. That the ....
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....fund of rs. 1,15,42,000/- as on 31.3.2009 as compared to Rs. 89,12,000/- as on 31.3.2008. On further perusal of balance sheet of the assessee AO observed that the assessee has shown receipt of share application money amounting to Rs. 26,30,000/- during the year under consideration. The AO observed that Rs. 25 lacs has been found credited in the books of accounts of the assessee. The immediate source of this amount has been found to be received from one of the entities controlled by Jain Brothers. Accordingly, the AO held that Rs. 25 lacs credited in the books of account of the assessee fails to pass the test of genuineness within the meaning of Section 68 of the Act and held to be the income of the assessee u/s. 68 of the Act and was added to the income of the assessee and also Rs. 45,000/- was added for arranging such accommodation entry necessary entails payment of commission to entry providers, vide order dated 31.10.2016 and assessed the income of the assessee at Rs. 25,37,950/- u/s. 147(143(3) of the I.T. Act, 1961. Against the assessment order, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 26.3.2018 has dismissed the appeal of the assessee. ....
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....atters Pvt Ltd (order dated 13/10/2015); iv) Hon'ble Delhi high court in Goodview Industries order dated 21//11/2016; v) Delhi ITAT decision (on same facts) in case of Aksar wire Products Pvt Ltd (order dated 11/12/2015); vi) Delhi ITAT decision in case of Madhusudan Packaging order dated 09/05/2018 4.1 On the other hand, Ld. Sr. DR referring to material shared by investigation wing as extracted and narrated in detail that orders of AO and Ld CIT(A) are justified and placed reliance on the following decisions: i) Hon'ble Delhi high court decision in case of N.Tarika Properties Pvt Ltd (28/11/2013); ii) Hon'ble Delhi high court decision in case of Nipun Builders and Developers Pvt Ltd (07/01/2013); iii) Hon'ble Delhi high court decision in case of Nova Promoters and Finlease Pvt Ltd (15/02/2012) 4.1.1 Finally Ld Sr. DR requested and pleaded for dismissal of assesse's appeal and confirmation of action of addition made u/s 68 of the Act by AO as sustained by Ld. CIT(A). 5. I have heard both the parties and perused the records especially the impugned order as well as the Paper Books and the decisions referred by both the si....
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.....R.Mehta reported at 387 ITR 561) This violation of natural justice in my view is a serious flaw and goes to the root of the matter and nullifies the entire proceedings. 5.2 Be that as it may, once assesseee places all the reliable and trustworthy documentary evidences to support the veracity of transaction u/s 68 of the Act, it is the duty of AO to dispassionately consider the same with objective standards and not to make the additions simply reproducing at length from the internal report of investigation wing prepared at the time of search (here on Jain Brothers). That is AO cannot make addition u/s 68 on mere basis of ifs and buts only and some credible incriminating material must be brought on records to displace the detailed evidence filed by the assessee during assessment proceedings. That is if reopening u/s 148 and addition u/s 68 are allowed to be made on same subjective standards of prima-facie opinion only which are generally required to reopen/start the case, and additions are allowed to be made without any credible material which can validly counter assessee's evidences in my view same would totally frustrate the entire object/scheme of the law. In my view, AO is un....
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....its and share capital are deemed to unexplained unless otherwise proved. My aforesaid view is fortified by the following decisions - - Hon'ble Delhi High Court decision in case of Softline Creations Pvt. Ltd., order dated 31.08.2016 (ITA 504/2016) (387 ITR 636) Relevant Extract: "The revenue is aggrieved by the order dated 10.02.2016 of the Income Tax Appellate Tribunal (ITAT) which confirmed the Commissioner of Income Tax (Appeals)'s order [hereafter "CIT(A)"]. The CIT(A) had ruled in favor of the assessee, i.e. the additions under Section 68 of the Income Tax Act, 1961 [hereafter "the Act"] were unwarranted. It is urged on behalf of the revenue that the AO's order, adding the amounts under Section 68 of the Act was justified in the circumstances. Learned counsel emphasized that to prove the identity, genuineness of the transaction and the creditworthiness of share applicants, it was essential for the assessee to produce the Directors as well as the source of funds of the share applicants since in the absence of these materials, the assessee could not claim to be aggrieved by the addition. This Court has considered the concurrent order of the CIT(A) as well as th....
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....e the payments, the AO held that the share application money received from the companies should be treated as income in the hands of the Assessee. He accordingly ordered an addition of Rs. 60 lakhs. The Court is essentially called upon to consider whether on the facts of the present case, the view taken by CIT(A) as confirmed by the ITAT could be said to be plausible or is it so perverse as to require interference by the Court? A perusal of the order of the AO shows that its foundation is the report of the DIT (Investigation). Admittedly, the Assessee was not confronted with that material in the course of the reassessment proceedings. The Assessee was also not confronted with the statements recorded in the course of the investigation. Once that material is kept aside then the scope of enquiry can only be whether the Assessee has produced documents to discharge the initial onus of proving the genuineness and creditworthiness of the companies who were stated to have subscribed to the Assessee's shares. It is not in dispute that extensive material was produced by the Assessee in the present case to prove the identity, genuineness and creditworthiness of the companies who had subscribe....
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....e submissions. 5] The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares....
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....does not appear that the Assessing Officer has applied his mind to the information and has independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In the facts of the present case, the assessee had furnished the names and all the relevant details of the companies, with which it had entered into transaction, and that the Assessing Officer was made aware of the situation. I observe from the records placed before me that the Assessing Officer has not disputed the bank accounts and the payments that were made to the assessee by the applicant companies. Nowhere in the assessment order the Assessing Officer has brought into existence any material to show that the company Victory Software P. Ltd. is a non-existing and a fictitious entity. It is, therefore, incorrect to arrive at a conclusion that the money received by the assessee by way of share application from Victory Software is bogus. Merely because the name of one Shri Sukesh Gupta appears as a mediator in the annexure, it cannot be concluded that Sukesh Gupta had facilitated so called bogus transaction between the assessee and M/s Victory Software P. Ltd. T....
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....fidavit of the Director confirming the investment f) Application for allotment of shares g) Photocopy of the share certificate h) Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2009. i) Audited account and Directors report hereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010 j) The Bank Statement highlighting receipt of the amount by way of RTGS. k) Banks certificate certifying the receipt of the amount through Banking channels." On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record pro....
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....t/investment within the scope of Section 68/69 of the Act in spite of the material evidence filed before them and the lower authorities establishing clearly/discharging of initial burden/onus statutorily vested on the appellant company to provide the source ? (ii) Whether the Appellate Tribunal is correct in law in confirming the assessment of share capital contributions as the income of the appellant company even though there were no materials in their possession of the respondent/Assessing Officer establishing such facts apart from mere suspicion as well as establishing perversity both on facts and in law in rendering their decision? and (iii) Whether the Appellate Tribunal is correct in law in sustaining the assessment of share capital contributions as the income of the appellant company on the application of the deeming provisions in Section 68/69 of the Act even though there was no legal mandate for the appellant company to establish/prove the 'source for source' ?" 13. Before proceeding further, it is only appropriate to refer the contents of Section 68 of the Act. It reads as under........ 14. It is clear from the above provision t....
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....rmises and suspicions and partly on evidence, in such a situation, an issue of law arises [Dhirajlal Girdharilal Vs. CIT [1954] 26 ITR 736 (SC)]. The Court went on to hold that a person can still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. Thus, the explanation regarding the source of money furnished by the person was not satisfactory does not automatically lead to a conclusion that that the money does not belong to that particular person, but belongs to the other automatically. 17. More importantly, the Supreme Court, in Daulat Ram, has laid down the following principle, which has a direct bearing upon the controversy at issue and it reads as under: "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent firm even though the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Bis....
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....see to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting a good explanation unreasonably, convert good proof into no proof." 20. Again in the case of Sumati Dayal Vs. CIT [reported in 214ITR 801], at page 805, the Supreme Court has clearly explained the point of approach to be followed both by the assessee and the Department, in the context of Section 68 of the Act, in the following words: "It is no doubt true that in all cases, in which, a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee [Parimisetti Seetharamamma [1965] 57 ITR 532 ....
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....ase, (1963) 49 ITR (SC) 112. Even when the investor of the assessee demonstrated its resources, the Assessing Officer still has suspicion. 24. Thus, the assessee company has completely explained the sources of investments received by it. It has also disclosed the identity of such investors. The Assessing Officer traced out and reached all the four investors of the assessee. He also found as a fact that all the payments have been received through banking channels. Hence, the burden cast on the assessee stood discharged. But yet, the Assessing Officer disallowed and added the amount to income of the assessee. In this context, it is apt to take note of the crisply worded order of the Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. [reported in (2008) 216 CTR 195 (SC)], which runs as follows : "Can the amount of share money be regarded as undisclosed income under Section 68 of IT Act, 1961 ? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reo....
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....from their respective business enterprises. The assessee cannot also call upon its investors to prove their good business sense in investing in the assessee company, as such investors cannot gain any controlling stake. 43. In the result, the questions of law framed in TCA.No.435 of 2013 are answered in favour of the assessee and against the Revenue. Hence, TCA.No.435 of 2013 is allowed. Consequently, MP.No.1 of 2014 is closed." 5.4 In a case where the issue was whether the assessee availed cash credit as against future sale of product, the AO issued summons to the creditors who did not turn up before him, so AO disbelieved the existence of creditors and saddled the addition, which was overturned by Ld. CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax 353 ITR 171 wherein the Tribunal's decision was overturned and decision of Ld. CIT(A) upheld and the Hon'ble High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot b....
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....st the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commi....