TaxTMI 
TaxTMI 
2018 (2) TMI 1754
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....tatement was recorded in which he has admitted that he was providing accommodation entries. Since the assessee has received accommodation entries from the companies run by Shri Tarun Goel, therefore, case was selected for scrutiny. Initially, notice issued by A.O. remained uncompiled with. However, assessee later on attended the proceedings before A.O. and on 16th December, 2010 and also on 20th December, 2010, the A.O. by order sheet entries on those dates asked the assessee to produce the investors and the case was discussed. Since, it was found that share application money of Rs. 2.44 crores have been received by assessee from the companies run by Shri Tarun Goel in the year under appeal, accordingly, enquiry letters under section 133(6) of the Act were issued to those parties. Reply has been received from some of the parties but the assessee did not produce any of the investors. Since the assessee failed to produce parties for recording their statements, A.O. was of the view that assessee failed to prove the identity, genuineness of the transaction and creditworthiness of the investors. Therefore, addition under section 68 of the Act was made in sum of Rs. 2.44 crores vide orde....
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....(6) of the I.T. Act and it has been confirmed by the A.O. that some of the parties have replied to the query made by A.O. but no such fact was informed to the assessee and was also not recorded in the assessment order. Many of the investors in their reply directly to the A.O. confirmed the investments made in assessee-company and filed their affidavits confirming the transaction, confirmations, copy of PAN, ration card, copy of ITR, copy of audited account with balance-sheet and bank statements. The assessee, therefore, proved genuineness of the transaction in the matter. The assessee also relied upon various decisions of different High Courts in support of the contention that assessee proved ingredients of Section 68 of the I.T. Act. The Ld. CIT(A), however, confirmed the addition and dismissed the appeal of assessee. His findings in paras 8.1 to 8.32 of the order are reproduced as under : "8.1. During the year the A. O. received information that the appellant was receiving accommodation entries. The appellant had received of share application money of Rs. 2,44,00,....
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...., CA, the companies from whom you have received the replies. Also intimate whether or not the assessee furnished confirmation from all the share holders or companies who have contributed the share capital of Rs. 2,44,00,000/- with PAN, details of the assessing officers, copy of ITR etc. as the same is not mentioned in the assessment order. In case the above information has not been furnished by the assessee, kindly furnish the names of such companies. One of the grounds taken by the assessee is that the notice u/s 143(2) was not served within the statutory period. Kindly verify the records and intimate whether there is any evidence on record regarding the service of 143(2) notice on the assessee. It is requested that the above information may kindly be furnished to this office by 31.05.2011. It is also requested that in future earnest efforts should be made to incorporate all the relevant facts in the assessment order itself as the same would save a lot of time and effort of appellate authorities. " 8.4. A.O. sent a remand report vide letter dated 09.06.2011 as under:- "Kindly refer to your letter F. No. CIT(A)-XVII/A. No. 123/10- 11/36 dated 20.05.2011 on the above subje....
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....n the above cases it is not denied that the assessee had established the identity of these parties but the facts remains that the share applicants had never appeared before the AO to confirm that they have creditworthiness to subscribe to the shares of the company. Hence addition in returned income was made on account of share application money Rs. 2,44,00,000/- u/s 68 of I. T. Act. As regard the notice issued u/s 143(2), it is submitted that first scrutiny notice u/s 143(2) was issued on 25.09.2009 by speed post vide acknowledgment no. ED91040868081. This notice was not received back in this office. The assessee company never raised this objection during the assessment proceedings & attended the proceedings after issue of notice." 8.5. The AO in the report has given details of persons who had given share application money. The AO stated that the appellant produced confirmation from all parties but could not produce the parties. Notices u/s 133(6) were issued and reply received in some cases. 8.6. The AO has again stated in the remand report that the creditworthiness of share applicants was not proved and hence addition u/s 68 was made. 8.7. The appellant has given details ....
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....5,00,000/- on 18.08.2007 and 19.08.2007 and withdrawal on 20.08.2007. 8.17. Shri Vivek Ghai has unvested 1 crore. Return of income shows income of Rs. 79,813/-. In the bank account nowhere is the name of Prinku mentioned. However, there are huge deposits and then amounts are withdrawn Rs. 50 lakhs are deposited on 14.08.2007 and 16.08.2007 and 17.08.2007 Rs. 25 lakhs are withdrawn. Again on 17.08.2007 Rs. 50 lakhs are deposited and on 18.08.2007 Rs. 25 lakhs each are withdrawn. 8.18. Shri V. K. Verma has invested Rs. 2 lakhs. Return of income shows income of Rs. 3,08,483/-. Bank account shows deposit of Rs. 2 lakhs on 14.03.208 and withdrawal on 15.03.2008. Throughout the year balance in the account is not more than Rs. 20,000/-. 8.19. In the case of Zenith Automotive (P) Ltd., Rs. 10 lakhs have been invested. Return of income shows income of Rs. 1,07,770/- Copy of bank account shows deposit and withdrawal of the same amount on 26.06.2007. 8.20. In the case of Lt. Gen. H. C. Dutta, Rs. 30 lakhs have been invested. Return of income shows income of Rs. 49,454/-. The copy of bank account is not legible and full details have not been given. 8.21. In the case of Manish Saxena ....
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....Canpack Ltd. 283 ITR 190, CIT v. Lovely Exports Pvt. Ltd.216 CTR 195 it was held that the initial burden is upon the appellant to explain the nature and source of share application money received by the appellant. If the creditor/subscriber is a company then the details in the form of resolution or PAN identity, etc. can be furnished. As regards the genuineness of the transaction to be demonstrated, the Court held that by showing that the appellant had in fact received money from the said shareholder and the money came from the corpus of that very shareholder the genuineness was duly established. The Division Bench also held that when the money is received by cheque and is transacted through banking or other undisputable channel, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholder's register, share application form, share transfer register, etc. As far as creditworthiness or the financial strength of the creditor or subscriber is concerned that can be proved by producing bank statement of the creditor/subscriber showing that it had sufficient balance in its account to enable it to subs....
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....its. In other words, the credit worthiness of the depositors must be established to the satisfaction of the AO. Where there is an unexplained cash credit, it is open to the AO to hold that it is income of the assessee and no further burden lies on the AO to show that income in question comes from any particular source. 8.28. The ratio of the judgement in the case of Nova Promoters and Finance (P) Ltd (Delhi Court) can be applied to this case as the facts are similar. Extracts of the judgement are given below: - "For the assessment year 2000-01, the assessee-company filed a return of loss which was processed under section 143(1) accepting the loss. Subsequently, based on a letter from the Director of Income-tax (Investigation) regarding entry operators/accommodation providers, informing the Assessing Officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was one, that there were statements recorded from persons confirming the facts, that the assessee had obtained accommodation entries of Rs. 1,18,50,000 from these persons in the garb of share application monies during the relevant year, the Assessing Officer issued....
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....r was also directed to examine the genuineness of the 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 making the addition of Rs. 1,18,50,000 under section 68 of the Act. Consequently, he also deleted the addition of Rs. 2,96,250 made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. The Tribunal confirmed the deletion of the additions made under section 68 of the Act. On appeal by the Department: Held, that the assessment was reopened on the basis of information received from the investigation wing of the Department about the existence of accommodation entry providers and their modus operandi in which the assessee was also found to be involved. The Tribunal had recorded, while dealing with the assessee's cross- objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to t....
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....ished 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 frivolous plea that no cross-examination was allowed, overlooking that once they filed the affidavits retracting from their earlier statements the plea lost force. The findings of the Tribunal were based on irrelevant material or had been entered ignoring relevant material. The finding that the share application monies had come through account payee cheques was, at best, neutral The question required a thorough examination and not a superficial examination. The fact that the companies which subscribed to the shares were borne on the file of the Registrar of Companies was again a neutral fact. That these companies were complying with such formalities did not add any credibility or evidentiary value, in any case, it did not ipso facto prove that the transactions were genuine. Material was gathered by the investigation wing and made availab....
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.... 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 has not proved the identity of such share applicants." 8.30. In the recent judgment of CIT v. 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:- "It would be clear that the nature of enquiry undertaken by the income tax authorities would vary from case to case, depending on the nature of the material furnished to them by the assessee, when called upon to do so. In this case, the material in the form of addresses and documents pertaining to the share applicants of the assessee were enquired into thoroughly by the AO. He found a pattern in the way funds were moved into the accounts of those inves....
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....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 is considered to be unexplained. I therefore confirm the addition of Rs. 2.44 Crores made by the AO. This ground of appeal is ruled against the appellant.' 3.1. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below. PB-26 is list of share applicants. The A.O. issued notice us 133(6) to all parties and majority of them confirmed making investment in assessee company. Copies of the same are filed at pages 149 to 270 of the paper book. PB-27 to 148 are the documents filed before A.O. in respect of share applicants which are the confirmations, bank statements, audited accounts, ROC, etc., and income tax records to prove the identity, creditworthiness of investors and genuineness of the transaction in the matter. The shares are allotted to all the parties. Statement of Shri Tarun Goel and other documents have not been confronted to the assessee. The A.O. asked the assessee to produce all the investors vide order sheet dated 16th December, 2010 and 20th December, 201....
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....re Ld. CIT(A) in which he has mentioned about the information received from investigation wing about the search conducted in the case of Shri Tarun Goel that assessee received so much money of Rs. 20 lakhs from M/s. Torus Iron and Steel Co. Pvt. Ltd., which information not available in scrutiny assessment and assessee did not receive any such amount from this company not shown in books. The A.O. in the remand report accepted that assessee filed confirmations from all the parties to prove genuineness of the parties but did not produce the parties for examination. The notice under section 133(6) of the Act were issued to the parties and 07 of the investors have filed their replies directly to A.O. confirming investments in assessee-company. The A.O. therefore, noted in the remand report that it is not denied that assessee had established the identity of these parties but the fact remained that share applicants had never appeared before A.O. Learned Counsel for the Assessee produced all the replies filed by these 07 investors before A.O. in response to notice under section 133(6) from pages 149 to 270 of paper book. All these investors have confirmed making investments in assessee com....
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.... 5.1. The Hon'ble M.P. High Court in the case of CIT v. Ramesh Chandra Shukla (MAIT.No.71 of 2003 decided on 1st April, 2005) held that "it is now well settled that where assessee requests the A.O. to issue summons, to enforce attendance of the creditors to establish the genuineness and capacity of the creditors, it is the duty of the A.O. to enforce attendance of creditors by issuing summons. If the A.O. does not choose to issue summons and examine the creditors, he cannot, subsequently treat the loans standing in the name of such creditors as non- genuine nor add the amount thereof to assessee's income." 5.2. Since, in this case, A.O. at the fag end of the assessment asked the assessee to produce the investors and did not issue summons u/s. 131 on the request of assessee to enforce the attendance of the investors, no adverse inference could be drawn against the assessee and no addition could be made against the assessee treating the investment as non-genuine for non-production of parties. The authorities below noted that identity of the investors have not been proved as they have not been produced but the A.O. in the remand report admitted that assessee proved identity ....
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....before making investments in assessee-company. The authorities below have also not brought any evidence on record if the investments came from the coffers of the assessee-company. Thus all the points raised by the authorities below to reject the explanation of assessee are not justified and would not support the case of the Revenue. The evidences on record clearly support the explanation of assessee-company that assessee-company proved all the ingredients of Section 68 of the I.T. Act by proving identity of the investors, their creditworthiness and genuineness of the transaction in the matter. 5.4. Decision of Delhi High Court in the case of CIT v. Kamdhenu Steel & Alloys Ltd. [2014] 361 ITR 220/[2012] 206 Taxman 254/19 taxmann.com 26 (Delhi) in which it was held as under : "Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten th....
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.... of source". The assessee-company was engaged in the business of financing and trading of shares. For the assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition of Rs. 71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of share application money from five of its subscribers. Accordingly, the Assessing Officer made an addition of Rs. 35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way o....