TaxTMI 
TaxTMI 
2018 (8) TMI 980
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.... material on record, 4. On Ground No.4, assessee challenged the addition of Rs. 12 lakhs on account of unexplained expenditure under section 69C of the I.T. Act on account of alleged commission paid towards alleged accommodation entries. 5. Briefly, the facts of the case are that the assesseecompany filed e-return on 09.09.2014 declaring anincome of Rs. 92, 29.619/-. The case was selectedfor scrutiny. The A.O. noticed that assessee has received Rs. 6 crores from M/s. Mekastar Finlease P. Ltd., (Investor) as share application money. The assessee re-valued its assets and issued shares of face value of Rs. 10/- at the premium of Rs. 1190/-. For verification of the share application money, notice under section 133(6) was issued to the investor M/s. MekastarFinlease. The investor filed confirmation along with ITR and bank statement to the A.O. The perusal of the bank account statement shows that the investor has received money from M/s. SKPJ and Bilberry before issue of corresponding amounts to the assessee-company. The details are noted at page-3 of the assessment order. The A.O. noted that the investor company and M/s. SKPJ and Bilberry belongs to S.K. Jain group of companies wh....
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....company. Since the assessee has discharged the initial onus to prove conditions of Section 68 of the I.T. Act, therefore, burden shifted upon the Revenue Department to prove their case. In case Revenue Authorities have any doubt, it can make an independent enquiry from the investor company or the sub-investor companies and made their independent assessments. The A.O. however, was not satisfied with the explanation of assessee and noted that why an investor would invest with an entity about whose business activities he does not have any knowledge. Why an investor would invest his hard earned money in such a manner which would not yield any return and there is no security of the amount invested. The assessee failed to produce the Directors of the Investor Companies during the extended period. The A.O. noted that the evidence collected from Jain brothers clearly show that an attempt has been made to give a form of genuineness of the transaction which otherwise falls squarely on substance to be a 'sham transaction'. He has relied upon decision of Hon'ble jurisdictional Delhi High Court in the case of N.R. Portfolio Pvt. Ltd., 42 taxmann.com 339. The A.O. on the basis of investigation c....
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.... Pvt. Ltd., and assessee company earned rental income of Rs. 1.09 crore during F.Y. 2013-2014 relevant to assessment year under appeal. Based on the valuation report of Government approved valuer, the said property had been re-valued at its fair market value of Rs. 20.95 crores on 01.10.2013. The investor has made an investment in assessee company through their own source. The A.O. never asked the assessee to produce Director/Principal Officer of the investor company at all. Copy of the entire order sheet is placed on record which support the explanation of assessee. The assessee, therefore, explained that addition is wholly unjustified. The Ld. CIT(A), however, did not accept the contention of assessee in the light of findings given in the case of S.K. Jain group of cases for providing accommodation entries. The Ld. CIT(A) also relied upon investigation conducted in the case on the same reasoning given by the A.O, confirmed the addition under section 68 of the I.T. Act. The Ld. CIT(A) also noted that in the absence of assessee furnishing reliable and robust basis of valuation of such equity, the assessee did not satisfy as to why the shares were allotted at premium amount. It is a....
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....channel and no material was found during the course of search to prove that money came from the coffers of the assessee company. The financial statement of the investor shows that investment is made in assessee company. There were no basis to make any suspicion against the assessee. Apart from the decisions relied upon before the authorities below, Learned Counsel for the Assessee also relied upon the following decisions. 6.1. ITO vs. XO Infotech Ltd., (2018) 53 CCH 297 (Del.) (Tribu) in which in paras 8 to 12 it was held as under : "8. The Ld. D.R. relied upon the order of the A.O. He has submitted that there were no compliance to the statutory notices at assessment stage. Notice under section 133(6) were issued which were partly complied by the assessee. Copy of the same is filed at pages 74 and 75 of the paper book. The sale and purchase are made with the two parties only. The Ld. CIT(A) admitted the additional evidence without any reasons. The creditworthiness of all the creditors/investors are doubtful. The A.O. made the addition under section 68 of the I.T. Act because its conditions are not satisfied. In case, A.O. has not made further enquiry of the documents fu....
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.... for allotment of additional shares were also obtained. Copies of the same are filed in the paper book. Learned Counsel for the Assessee submitted that it was explained before the authorities below that assessee-company is a listed company and all the issuance of shares are done as per SEBI guidelines and during the year, assessee company has increased its paid-up equity share capital from Rs. 217.284 millions to Rs. 386.784 millions, adding the value of Rs. 169.50millionsand also specified manner of issue of warrants. The details of shareholders whose share warrants are converted in the equity shares and against paid-up value were brought to the notice of the authorities below. All the details were furnished before the authorities below. However, A.O. has not made any investigation on the same. Learned Counsel for the Assessee submitted that assessment record was summoned in this case which have not been produced by the Department to verify the facts on the record. He has relied upon the following the decisions. 9.1. Judgment of the Hon'ble jurisdictional Delhi High Court in the case of CIT vs. Value Capital Services (P) Ltd., (2008) 307 ITR 334 (Del.) in which it was hel....
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....t of Hon'ble jurisdictional Delhi High Court in the case of CIT vs. Shiv Dhooti Pearls & Investment Ltd., (2016) 237 Taxman 104 (Del.) in which it was held as under : "In terms of section 68, assessee is liable to disclose only source(s) from where he has himself received credit and it is not burden of assessee to show source(s) of his creditor nor is it burden of assessee to prove creditworthiness of source(s) of sub-creditors." 9.7. Judgment of Hon'ble jurisdictional Delhi High Court in the case of CIT vs. Gangeshwari Metal (P.) Ltd., (2013) 30 taxmann.com 328 (Del.) in which it was held as under : "Where assessee in support of transaction of receipt of share application money brought on record various documents such as names and addresses of share applicants, etc., no addition could be made in respect of same under section 68." And submitted that in the case of CIT vs. Gangeshwari Metal (P.) Ltd., the Hon'ble jurisdictional Delhi High Court considered its decision in the case of Nova Promoters Finlease Pvt. Ltd., (supra), relied upon by the Ld. D.R. He has, therefore, submitted that order of the Ld. CIT(A) may be confirmed and appeal of the Revenue may....
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.... same. The Ld. CIT(A) on perusal of the same, correctly noted that these documents are relevant and essential for disposal of the matter. The Ld. CIT(A) vide impugned order admitted the additional evidences under Rule 46A of the I.T. Rules. However, the Revenue Department did not challenge those finding of fact recorded by the Ld. CIT(A) for admitting additional evidences at appellate stage. No grounds of appeal have been raised by the Revenue. No material is produced before us to contradict the findings of fact recorded by the Ld. CIT(A). In the absence of any challenge to the admission of additional evidences which were already part of the record of the A.O, the contention of the Ld. D.R. is rejected that additional evidences should not be admitted by the Ld. CIT(A). In this case, it is an admitted fact that assessee produced the documentary evidences before the authorities below to prove the identity of the investors, their creditworthiness and genuineness of the transaction in the matter. The shares of the assessee are listed with the Bombay Stock Exchange and permission of the SEBI for allotment of the additional shares have been obtained in this case. Copies of the approval a....
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....ot been rebutted by the authorities below. The details furnished by the assessee also shows that prior to assessment year under appeal, 11 investor companies have also made investment in assessee company in earlier years which would strengthen the case of the assessee that it has received the amount from genuine parties having creditworthiness. There is no material on record to disprove the explanation of assessee. The Ld. CIT(A) was, therefore, justified in holding that assessee proved creditworthiness of the investors and genuineness of the transaction in the matter. We, rely upon the following decisions. 10.1. Decision of Hon'ble jurisdictional High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., &Ors. 361 ITR 220 (Del.) 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 ....
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....d as under : "No adverse inference should be drawn if shareholders failed to respond to the notice by A.O. 10.6. Decision of Hon'ble M.P. High Court in the case of CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65, in which it was held as under : "Dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or nonexistent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also ....
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....to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified." 10.8. Decision of Hon'ble jurisdictional High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in which it was held as under : "Dismissing the appeal, that it had not been disputed that the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee." ....
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.... the material produced, he could have used the coercive powers available to him, which he failed to exercise. 11. Therefore, we are of the view that in this case, no substantial question of law arises for our consideration." 6.3. Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. M/s. AdamineConstruction Pvt. Ltd., ITA.No.130 of 2018, dated 06.02.2018, in which in paras 3 to 5 it was held as under: "3. The Revenue in its appeal urges that the lower appellate authorities fell into error in not placing much emphasis on the report obtained by the AO during the course of the proceedings in the form of replies to queries received from the concerned Commissioners. It was submitted that these materials clearly pointed to the entities who were shown as share applicants, in fact, did not exist and their financial transactions were dubious. It was submitted that the CIT(A)'s conclusions with respect to the assessee having discharged its onus were anomalous. 4. The material on record in the form of the orders of the lower appellate authorities disclosed that both the assessee and later the share applicants (upon receiving notice under Sectio....
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....rmed that it has made investment of Rs. 6 crores in assessee company. The assessee filed copy of their CIN No and details of their Directors and Auditors. The balance sheet of the Investor (PB- 149) shows that as on 31.03.2014, it has total availability of funds of Rs. 300, 36, 48, 781 and name of assessee-company is mentioned at PB-155. The assessee also produced before A.O. copy of the Master Data of ROC of Investor Company, Copy of Confirmation of Accounts, Copy of the Board Resolution of Assessee, Copy of Bank Statement of Investor, Copy of intimation of allotment to investor, Copy of letter to M/s. Anuj & Associates from assessee company in respect of fair market value of shares, Copy of the audited financial statements of the assessee-company, Copy of share valuation report of assessee-company, Copy of Notification for New Circle Rate applicable to NCT of Delhi, Copy of Memorandum from CPWD, Copy of Bank Statement of Investor Company and their minutes etc. These documents on record clearly proved that assessee-company has established the identity of the Investor which is not disputed by the authorities below. The assesseecompany also proved the creditworthiness of the Investo....
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....elhi High Court in the case of MOD Creations Pvt. Ltd., vs. ITO (2013) 354 ITR 282 (Del.) (HC) held as under : "Section 68 of the Income-tax Act, 1961, only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactionsas executed between the assessee and its creditors. It is no part of the assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the subcreditors. The Assessing Officer, for the assessment year 2002-03, after perusing the material placed before him and the explanation given by the assessee, came to the conclusion that both the genuineness of the transactions as also the creditworthiness of the creditors, who were directors and shareholders of the assessee, remained unexplained for the reasons that (i) at the point in time when the l....
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....ibunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their income-tax returns, it could gather the necessary information from the sources to which the information was attributable. No such exercise had been conducted by the Assessing Officer. Both the Assessing Officer and the Tribunal lost track of the fact that they were dealing with the assessment of the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub-creditors (ii) That notices were issued to the sub-creditors on February 24, 2005. The Assessing Officer without giving sufficient time for service of the notices, to be effected, within a period of four days proceeded to frame the assessment order. As a matter of fact the Assessing Officer observed in the assessment....
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....ad also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of the fccts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12, 85, 000. On appeal to the High Court: Held, that considering the facts and circumstances of the case narrated by the Tribunal and the law explained by it, the appeal was liable to be dismissed." 9.2. Hon'ble Delhi High Court in the case of CIT vs. Fair Investment Ltd., 357 ....
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.... decision of the Hon'ble Apex Court in the case of Lovely Exports Pvt.Ltd. (supra) and judgement of Delhi High Court in the case of CIT vs Divine Leasing & Finance Ltd. [2008] 299 ITR 268. The ITAT confirmed the opinion of the Ld.CIT(A). Hon'ble High Court in view of the above findings noted that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. The assessee provided details of share applicants i.e. copy of the PAN, Assessment particulars, mode of amount invested through banking channel, copy of resolution and copies of the balance sheet. The AO failed to conduct any scrutiny of the document, the departmental appeal was accordingly dismissed. 9.7. Decision of the Hon'ble Supreme Court in the case of Earth Metal Electric Pvt. Ltd., vs. CIT dated 30th July, 2010 in SLP.No.21073 of 1999, in which it was held as under : "We have examined the position, we find that the shareholders are genuine parties. They are not bogus and fictitious therefore, the impugned order is set aside." 9.8. Decision of Hon'ble jurisdictional High Court in the case of Divine Leasing & Finance Ltd., 299 ITR 268, in which it ....
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....person. Moreover, it is settled law that the assessee need not to prove the "source 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 iden....