TaxTMI 
TaxTMI 
2019 (8) TMI 891
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the appellant on a total income of Rs. 3,66,64,440/- as against return of income of Rs. 1,64,440/-. 2. For that the CIT(A) has erred in passing exparte order dismissing the appeal without giving proper opportunity of being heard to the appellant. 3. For that the CIT(A) has violated the principles of equity, natural justice and fair play which requires proper and adequate opportunity of being heard. 4. For that the CIT(A) has erred in affirming initiation of proceedings u/s.147/148 of the Income tax Act. 5. For that the CIT(A) has erred in holding that the Assessing Officer has followed the guideline laid down by the Hon'ble Supreme Court in the case of GKN Driveshaft and has accordingly disposed of the objection of the appellant to the initiation of proceedings. 6. For that the CIT(A) has erred in holding that the case of the appellant is covered by main provision 147 and not by the first proviso. 7. For the Ld. CIT(A) has erred in not holding the initiation of proceeding u/s 147/148 to be barred by limitation. 8. For that the Ld CIT(A) has erred in holding that there has been proper service of notice u/s 148(1) and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et aside and restored back to CIT(A) for deciding the appeal afresh after allowing proper and adequate opportunity of being heard." 3. Although the assessee has raised multiple grounds in its appeal but the grievance is consisting of three issues i.e. (i) initiation of proceedings u/s.147 of the Act (ii) confirmation of addition of Rs. 3,65,00,000/- made u/s.68 of the Act and (iii) the order passed by the CIT(A) is against the principle of natural justice. 4. Brief facts of the case are that the assessee is a Pvt Ltd Company and filed return of income u/s.139(1) of the Act on 11.10.2010. subsequently, the information was received that the bank account of the assessee has been credited by Rs. 55 lakhs from the three companies, namely, M/s Accord Sales Pvt Ltd, M/s Focus Trade Impex Pvt Ltd and M/s Safari Tradex Pvt Ltd during the year F.Y. 2009-10, however, source of the sum were not explained. Accordingly, reasons were recorded for reopening the case and notice u/s.148 of the Income tax Act, 1961 dated 31.03.2017 was issued and served on the assessee. In compliance to the notice the assessee filed written submission stating that the original return filed u/s.139 of the Act, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d at Delhi at different addresses are identical. These confirmations carry the same wording, the same text and font. In many cases even the envelope is also identical. Copies of some of such identical confirmations are annexed to this order as annexure-1 containing 1 to 30 pages and the same are part of the order. Also, these confirmations contain only a part of the bank account statement of these entities showing only the transaction relating to share capital transferred to the assessee. It is also seen that these" confirmations have been posted from their respective places mostly on same day. In response to letter dated 22.12.2017 the A.R. of the assessee appeared on 28,12.2017 and stated their earlier contention. On the issue of similar nature pf confirmations received, the A.R. stated that he cannot say anything about confirmations sent by other entities. Such similarities in confirmation cannot be just coincidence. It is simply beyond human probability that different companies located at different addresses are sending in identical confirmation in the same language and typing font. It is certainly an outcome of an arrangement of dubious nature. Therefore, suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r :- 2.4 I have considered the submission of the appellant as well as the assessment order on record particularly in reference to the reopening of the assessment under section 148 of the Act. It is matter of record that the appellant company is in receipt of share capital & share application money from the aforesaid 3 companies about which there is no explanation in respect of identity, creditworthiness and genuineness of transaction as required under section 68 of the Act. 2.5 The submissions have been considered carefully in the light of the provisions of the Income tax Act, Constitution of India as well as the legal pronouncements on the subject by the Apex Court and various High Courts In this regard, it would be pertinent to look into the provision of this section which is extracted as under :- Income escaping assessment. 147. If the [Assessing] Officer ^[has reason to believe^] that any income chargeable to tax has escaped assessment/^ for any assessment year, he tl may, subject to the provisions of sections 148 to 153, assess or reassess^ such ^ income ^land also any other income chargeable to tax which has escaped assessment and which com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e income or has claimed excessive loss, deduction allowance or relief in the return ; (b) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;] (c) where an assessment has been made, but'- (i) income chargeable to tax has been underassessed ; or (ii such income has been assessed at too low a ratell; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] c) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated' the income or has claimed excessive loss, deduction, allowance or relief in the return;] (d) Where a person is found to h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exchequer with an inbuilt idea of fairness to taxpayers. The final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction of him as held by the Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO M999] 236 ITR 34. Further, it was held what is to be seen "whether there was prima facie some material on the basis of which the department can reopen the case. The sufficiency or correctness of the material is not to be considered at this stage." If the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... except for the disallowance of a sum claimed in the revised return neither any claim was disallowed nor any addition was made. On appeal, the Commissioner (Appeals) quashed the reassessment proceedings holding that the assessee had disclosed all the facts and no new fact was available to the Assessing Officer. Therefore, it was mere change of opinion on the part of the Assessing Officer and as such, the reassessment proceedings could not have been validly initiated. The Tribunal upheld the decision of the Commissioner (Appeals) which was subsequently upheld by the Delhi High Court to be later affirmed by the hon'ble Supreme Court. On the particular set of facts, it has validly held to be change of opinion not the reason to believe. 2.10 But, in the present case, there is no apparent explanation in respect of sources of investment in the form of share capital received on premium found deposited in the bank accounts of the appellant. In view of this, it can be very well be said that the appellant cannot rest its case on the test of reason to believe as laid down in the case of Kelvinator India Ltd. Therefore, the Assessing Officer had validly assumed jurisdiction under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Co. Ltd.'s case (supra). The formation of belief having a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section had been so held in the case of ofLakhmani Mewal Das's case (supra).If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, such exercise of the discretionary power by the AO cannot said to legally proper and can be said to be invalid assumption of jurisdiction by the AO-S. Narayanappa's case (supra), Ganga Saran & Sons (P.) Ltd.'s case (supra).The existence of belief and the reason, therefore, but not the sufficiency of the reason is justifiable-SheoNath Singh's case (supra), N.K. Textile Mills v. CIT [1966] 62ITR 58 (Punj.) and RoshanLal& Co. v. CIT [1966162 ITR72(Puni). 2.14 In view of the aforesaid, it is being held that on the given facts and circumstances of the case, the AO has validly and legally assumed jurisdiction under section 148 of the Act on the basis of reason to believe that the income chargeable to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, thus barred by limitation. Further, nowhere it has been denied by the appellant company that proceedings initiated by virtue of issue of notice under section 147 of the Act was not attended to, thus, the case of the appellant company would be covered by virtue of provisions contained in Section 292 BB of the Act, for which reliance could be placed on the decision in CIT v. Shital Prasad Kharag Prasad 280 ITR 541 (All); CIT v. Hotline International Pvt. Ltd. 296 ITR 333 (Del); Sri Nath Suresh Chand Ram Naresh v. CIT 280 ITR 396 (All); P.N. Sasikumar v. CIT (1988) 170 ITR 80 (Ker); Venad Properties (P) Limited v. Commissioner of Income Tax (2012) 340 ITR 463 (Del) and Mayawati v. CIT (2010) 321 ITR 349 (Del). 3.5 In view of these particular facts of the present case, it has to be decided whether notice under Section 148 of the Act is a jurisdictional requirement. The relevant portion of Section 148 (1) reads as under: "148. Issue of notice where income has escaped assessment - (1) Before making the assessment, reassessment or re-computation under Section 147. the Income-tax Officer shall serve on the Assessee a notice containing all or any of the requirements whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hasized that no reassessment shall be made "until there has been service." The legal position therefore, even under the 1961 Act, is that service of notice under Section 148 is a jurisdictional requirement for completing the re-assessment. This has been emphasized in several other decisions of varous High Courts as well. 3.9 In C.N Nataraj v. Fifth Income-tax Officer (1965) 56 ITR 250 (Mys), the High Court of Mysore was dealing with the case where the notice under Section 148 of the Act was issued in the names of the Assessee who were minors and not in the names of their guardians. The notices were served on a clerk of the father of the Assessee who was neither an agent of the Assessee nor authorized to accept notices on their behalf. The Court, relying on the decision in N. Narayana Chetty (supra) observed: "There is no doubt that a notice prescribed under section 148 of the Act for initiating reassessment proceedings is not a mere procedural requirement ; the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 147. If no notice is issued or if the notice issued is shown to be invalid, then the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proper service of notice merely from the fact that the person to whom the notice had been addressed had received the notice through some other source or that he had become aware of the contents of the notice. There had not been a due service of notice as contemplated by the provisions of the Code of Civil Procedure dealing with service of notice or summons. Therefore, the service of the notice on the Manager who had no written authority to receive the same could not be held to be a proper service on the Assessee." In Sri Nath Suresh Chand Ram Naresh v. CIT (supra) it was reiterated that service of valid notice under Section 148 was "the foundation for the initiation of reassessment proceedings and a condition precedent for the validity of the notice." It was held that the Tribunal was not right in holding that the notices under Section 148 addressed as "SCR and the karta "S were valid notices for reassessing the income of the HUF "MM or "MS or its successors. Onus on Revenue to prove service of notice. There is sufficient judicial authority for the proposition that the burden of showing that service of noticed has been effected on the Assessee or his duly authorized representative....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n in accordance with the legal requirement under Section 148 of the Act is not dispensed with. Is In B. Johar Forest Works v. Commissioner of Income-tax (1977) 107 ITR 409 (J&K) the notice issued by the ITO to the Assessee under Section 22 (2) of the 1922 Act. The notice was served on an employee of the Assessee who was not authorized to accept such notice. Subsequently, the General Manager of the Assessee applied for extension of time for filing the return, which was allowed by the However, the return was not filed within the extended time and an ex parte order was passed. Before the High Court it was contended that the employee on whom the service of the notice was found to have been made was not duly authorized to accept such notice and that the mere fact that the General Manager of the firm applied for time, would not render the service of notice on the employee a valid and a legal service. It is contended that the Assessee had not denied service of notice on such employee. The High Court however negatived the plea of the Revenue and held that in the absence of finding by the Tribunal that the employee of the Assessee was authorized to accept such service on behalf of the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....82 (1) and Section 153 (2) of the Act is a jurisdictional pre-condition to finalizing the reassessment. (iv) The onus is on the Revenue to show that proper service of notice has been effected under Section 148 of the Act on the Assessee or an agent duly empowered by him to accept notices on his behalf. In the present case the Revenue has failed to discharge that onus. (v) The mere fact that an Assessee or some other person on his behalf not duly authorised participated in the reassessment proceedings after coming to know of it will not constitute a waiver of the requirement of effecting proper service of notice on the Assessee under Section 148 of the Act. (vi) Reassessment proceedings finalised by an AO without effecting proper service of notice on the Assessee under Section 148 (1) of the Act are invalid and liable to be quashed. (vii) Section 292 BB is prospective. In any event the Assessee in the present case, having raised an objection regarding the failure by the Revenue to effect service of notice upon him, the main part of Section 292 BB is not attracted. 4.13 On the facts of the present case, it is found that proper service of n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rce errors of the appellant. 9 3 In the case of P Mohnakala 291 ITR 278. the honourable Supreme Court had held that a bare reading of section 68 suggests that a) there has to be credit of amounts in the books maintained by the assessee: b) such credit has to be a sum of money during the previous year: and c) either (i) The assessee offers no expulsion about the nature and source of such credit is found in the books or (ii) the explanation offered by the assessee. in the opinion of the AO. is not satisfactory It is only then that the sum so credited may be charged to income tax as income of the assessee of that previous year. 9.4 Section 68 requires that there is a credit in the books maintained by an oh credit is of a sum during the previous year: and the assessee offers no explanation about the nature and source of such credit, or the explanation offered by the assessee is not in the opinion of the assessing authority. satisfactory Then the sum so credited may be charged to tax as income of the assessee of that previous year The provisions of section 68 only set up a presumption against the assessee whenever unexplained credits....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... burden has to be discharged with positive material. A conclusion regarding creditworthiness or otherwise of a person is essentially one of fact. It does not give rise to a question of law. unless it is established that the conclusion was contrary to the materials on record. In the instant case. the burden placed on the appellant was not discharged in the course of assessment proceedings, thus, it is held that the most critical ingredient of section 68 is not satisfied in the case. 9.6 In the course of appellate proceedings, it has also been submitted by the appellant that the share capital and share application money received by the appellant company. A genuine, and no addition in this regard is called for. However, the critical comment of section 68 is that the identity, capacity and genuineness of the transaction has to be cumulatively satisfied failing which the AO can invoke the provisions of section 68 of the Act as the obligation cast to discharge the burden of proof was not met Since. the critical requirement of section 68 of the Act has not been met, the AO had invoked the provisions of section 68 of the Income-tax Act, 1961. The burden under section 68 of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/ assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift " 9.8 In this case, the Hon'ble High Court of Kolkata appreciated the possible difficulty which an assessee may be faced with when asked to establish unimpeachable creditworthiness of the share subscribers'. It observed that the "this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. The said doctrine is applied when there is evidence to show that assessee may not be aware. could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction " and that it was not entirely an arm's length transaction, resort or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w that operates as a binding precedent on ti Court.. 9 11 The Hon'ble High Court of Kolkata in CIT Vs. NivedanVanijyaNiyojan Ltd. (20C 263 ITR 0623 (Cal) has held that where the assessee-company did not produce subscribers of its share capital when required to do so, it failed to establish the identity of said subscribers. prove their creditworthiness and the genuineness of the transactions and therefore addition under section 68 was justified. 12 The Hon'ble Delhi High Court in CIT Vs. Navodaya Castles Pvt.Ltd. (2014) 367 ITR 0306 (Del) following the principle laid down in Nova Promoters (supra) has held that the share capital in case of a closely held company is required to be examined by the AO in terms of section 68 and the failure of the assessee to satisfy the AO. calls for addition u/s 68. It is useful to mention that the SLP filed by the assessee against this judgment has been dismissed by the Hon'ble Supreme Court which has been since reported as Navodaya Castles Pvt. Ltd. Vs. CIT (2015) 230 Taxman 268(SC). 9.13 Therefore the assessee has to submit the primary evidence of the cash credits i.e. the confirmation from the creditor with PAN w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onfirmation are identical although the subscribers are located on different addresses at Delhi/ Kolkata and accordingly the A.O. has disbelieve the confirmation and treated the transaction as dubious in nature and has further held that in absence of complete account statement the source as well as creditworthiness of the subscribers cannot be ascertained. The findings of the A.O. has been affirmed by Ld. CIT(A) who in penultimate paragraph of its order at page 23 has held that assessee has failed to satisfy the three vital ingredients i.e. identity, creditworthiness and genuineness of transaction in view of enquiry carried out by the A.O. Thus the issue to be decided by this Hon'ble Tribunal is whether the assessee has discharged its onus saddled by section 68 or not? It is already on record that the Assessing Officer has issued notices u/s 133(6) on 10.11.2017 to the 3 subscribers whose names were appearing in the reasons recorded (copy placed at page 66 to 73 to of PB). The appellant vide reply dated 06.12.2017 (page 4fe_ toT3 of PB) has submitted the names, addresses and the amount of share application / premium besides the complete details of subscribers&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubscribers were forming part of the said reply (page of PB). Thus besides enquiry in the year under consideration, share capital to the tune of Rs. 1,01,50,000/- out of total share capital of Rs. 3,65,00,000/- was enquired into in the year of allotment i.e. A.Y. 2011-12. On the basis of evidence already on record it is established beyond all reasonable doubt that the appellant has discharged its onus of proving identity, genuineness of transaction and creditworthiness in respect of the share application / capital including premium and hence the finding of the A.O. that the transaction is not genuine and/or creditworthiness has not been established and affirmation of such finding by the CIT(A) is contrary to the evidences / material already on record. It is respectfully submitted that the case of the appellant is squarely covered by the judgment of the jurisdictional High Court in the case reported in 154 ITR 244 (Pat) - ACIT Vs Bahri Brothers wherein their lordships have held as under : "In the instant case, the transaction were completed through account payee cheque. The creditors gave the amount in question to the assessee by account payee cheque which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment. The Tribunal reversed this decision for reasons which we need not go into. 8. Further, the ld. AR submitted as under :- On the last date of hearing i.e. 18/06/2019, the Ld. CIT DR has filed the following documents, a copy of which has been handed over to the appellant in the Bench in course of hearing on 18/06/2019 :- Letter issued by Income Tax Officer (Technical) addressed to CIT (ITAT), Patna dated 17/06/2019 with following enclosure :- 1. Letter communicating of approval of PCIT-1, Patna vide F.No.CIT-1/Pat/Tech/ U/s 147/2016-17/8335 dated 31/03/2017; 2. Form No.ITNS 10. After perusal, it was argued on behalf of the appellant that (i) this document i.e. Form no.ITNS 10 cannot be admitted without its forensic examination and (ii) as per the judgment of Hon'ble Patna High Court reported in 189 ITR 786 (copy enclosed at Page 06-15 of this compilation) th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the assessee has not formed the basis for taking action u/s 147(a) of the Act, in as much as this reason has not been recorded as envisaged u/s 148(2) of the Act and therefore, this cannot be taken to be a basis for sustaining the validity of the impugned action and, accordingly it held the proceedings to be invalid and cancelled the order of reassessment." The Hon'ble High Court after considering the above said findings of the Hon'ble Tribunal has given the following verdict :- Pase- 792 Therefore, the legislative scheme is that the Income-tax Officer can clothe himself with the jurisdiction to assess or reassess under section 147(a) of the Act only if he records the reasons which can stand the test of relevance in accordance with the judicial pronouncements and after obtaining necessary sanction as stated above notices are issued by him but if, in any case, it is found that the reasons recorded by him are not germane to the exercise of jurisdiction under section 147(a) of the Act, then the very assumption of jurisdiction will be ab initio void rendering the entire process of assessment as a nullity. There can be hardly any doubt in holding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the satisfaction is mechanical and without application of mind (kindly refer page-5 to 9 of written submission filed along with PB dated 12/03/2019) and in view of the above said judgment of jurisdictional High Court has laid out that "Further, the language employed in section 151 clearly leads to the conclusion that the Board or the Commissioner of Income-tax, while according sanction for issuance of notice under section 148 and for coming to an objective conclusion authorising the Income-tax Officer to take action under section 147(a), are required to confine themselves only to the reasons recorded by the Income-tax Officer." The Td. CIT DR has also relied on the judgment of Apex Court in the case of NRA Iron & Steel now reported in 412 ITR 161 which has already been dealt with at pages 35 to 38 of WS submitted along with PB dated 12/03/2019. The Td. CIT DR has also relied on the order of the Hon'ble Jaipur Bench of Tribunal dated 16/02/2018 which is distinguishable on facts as would be evident from page-48 para 16 wherein the Hon'ble Tribunal has found as a fact that "notwithstanding the same, nothing has been brought to our notice which demonstra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ey have produced their bank statements only for the transactions period most for 2-3 days. The entire bank statement has not been produced, from which it is not possible to find out as to whether the money has been transacted or not. Ld. DR in respect of approval u/s.151 of the Act produced the copy of ITNS-10 forms approved u/s.151 before us and submitted that the copies of the forms was provided to the assessee might have been given copy of the Assessing Officer forms which was submitted before the appropriate authority for approving the case. Therefore, the particular columns were not filed. Accordingly, the approval has been obtained properly. Ld. AO has disposed off the objections two times filed by the assessee by way of speaking order, therefore, the decision of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd vs. ITO & Ors, 259 ITR 019 (SC) has properly been complied with. Further, ld. DR also relied on the decision of Hon'ble Supreme Court in the case of PCIT vs NRA Iron & Steel Pvt Ltd.,(412 ITR 161) and submitted that the issue of showing meager/zero amount in the return of income by the share applicants has been decided by the Hon'ble Supreme Court i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that in the grounds of appeal, the assessee has also stated that the CIT(A) has passed the ex-parte order without giving reasonable opportunity of hearing and violated the provisions of natural justice. In this regard, we noted from the order of CIT(A) that he has issued notice to the assessee for compliance but it is clear from the order of CIT(A) that the assessee has not complied the notice issued by the CIT(A) even reasonable opportunity has been given to him. Therefore, the CIT(A) has contested the issue on the basis of material before him. Accordingly, the ground of assessee is also rejected. 14. The AR of the assessee contested that proper approval has not been obtained from the appropriate authority before initiating the proceedings u/s.147/148 of the Act, in this regard we perused the copy of ITNS-10 which is placed at paper book at page 41 & 42 at column Sl. No.12 & 13 which is blank and this form has been certified by Manish Verma, ITO Ward-2(1), Patna without dated. We also noted from the ITNS -10, which is filed by the CITDR that column No.12 & 13 has duly been filled by the appropriate authority. We are in agreement with the contention of ld. DR that the proposal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ocated at Delhi and Kolkata, the Assessing Officer, in order to ascertain the genuineness of share capital and share application money received by the assessee, issued notices u/s.133(6) of the Act to all the share applicants on the addresses provided by the assessee. Out of 39 corporate entities, replies were received from 32 corporate entities. On perusal of the same, the Assessing Officer was of the view that striking similarities have been found in respect of such replies i.e. the language of the confirmation, very text and typing font of all these confirmations though the corporate entities are located in two different places. He also noticed that identical confirmations have been sent on the same day itself and partial bank statements were also submitted. Therefore, the Assessing Officer observed that these confirmations does not substantiate the genuineness of the share capital and share application money introduced into accounts of the assessee during the year as regards its source. Therefore, share capital of Rs. 2,63,50,000/- and Rs. 1,01,50,000/- as share application money introduced was treated as unexplained credit under section 68 of the Act and added the same to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders; and if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. 21. The AO issued notice u/s.133(6) of the Act to all corporate assessees out of 39, 32 share applicants have complied the notice of AO and from the statement of share applicants, the AO observed as has been spelled out in the above orders as quoted above. Ld. DR has also relied on the decision in the case of NRA Iron and Steel Pvt. Ltd. (supra), the Hon'ble Supreme Court observed that the share applicants have shown meagre/zero income and the creditworthiness of the share applicants have not been proved, which is necessary as per the provisions of Section 68 of the Act. In the present case also the share applicants have shown meagre income and their creditworthiness have not been proved. Ld. AR has filed documents regard to the above 39 share applicants however, it has not been certified as to whether the documents have been produced before any authorities below. For ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... i.e. for Rs. 10,00,000/- and nil return of income has been filed and the assessee has not submitted any trading profit and loss account. Even no bank statement has been submitted by the assessee. Therefore, creditworthiness and genuineness of transactions are not proved. c. Mastermind Vanijya Pvt. Ltd. (PB Page10 to 19)(Rs. 10,00,000/-): The bank statement has been filed only for the month of October, 2009. There was opening balance on the beginning of the month is Rs. 90,481/- and on 1st October, 2009, Rs. 10,00,000/- have been credited into the bank account. The share applicant has issued cheque in favour of the assessee on the same day which has been cleared on 5th Day of October, 2009. Thereafter there is closing balance was remained of Rs. 90,481/- and at the end of the month, after huge transactions just only credited and debited. The closing balance is remained of Rs. 5481/-. The Date of Birth of the company is 4th March, 2008.The assessee has shown meagre income of Rs. 4,991/-for the ear ending 31.03.2010 and Rs. 10,770/- for the financial year 31.03.2009. The turnover for the company of 31.03.2009 is Rs. 7,95,960/- and other income shown at Rs. 158,794/- totalling t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the company is 3rd May, 2008. On perusal of the financial statements, the profit of company is Rs. 5,777/- for 31.03.2010 and Rs. 11,406/- for the financial year 31.03.2009. The total receipts including turnover of the share applicant is Rs. 23,37,464/- and Rs. 16,44,076/- for the financial year 31.03.2009 and 31.03.2010, respectively and earning per share for 31.03.2009 & 31.03.2010 is 0.07 and 0.03, respectively. It shows that the company has no creditworthiness. g. BOR Securities Limited (PB Page No.43 to 48)(Rs. 30,00,000/-) : We noticed from the documents of the share applicants in share application form placed at paper book page no.43 the date of application is 22nd May 2007 running serial No.083and the face value of the share is Rs. 10 and share premium is Rs. 10 resultantly the value of per share is Rs. 20/-(10+10). The share applicant has applied in assessee's company for Rs. 1,50,000/- shares and the value of shares is Rs. 30,00,000/-. The resolution passed by the share applicants is at page no.22 dated 22nd January, 2009. But only they have authorised to the directors of the company for investing the surplus money in the shares securities, debentures, etc. No se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eness and creditworthiness of the transaction is not proved. j. Dhanlabh Tie Up Pvt. Ltd.(PB Page No.66 to 75)(Rs. 10,00,000/-) The share applicant has applied on 19.01.2010 for 50,000 equity shares at Rs. 20/- including premium of Rs. 10/-. On perusal of bank statement placed at page no.68, there is opening balance on 01.01.2010 of Rs. 9717 and on 31.01.2010 the same figures are appearing as closing balance. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same were withdrawn on the same day or on the next day or after two days. The company has shown total turnover of Rs. 41000/- and total expenses is Rs. 42,000/-(containing bank charges, company secretary fees, filing fees, office expenses, postage and stamp, printing and stationery, salary, audit fees and preliminary expenses written off) for the financial year 31.03.2010. No return of income has been produced. The AR of the assessee is unable to prove the creditworthiness of this transaction. We further noted that the assessee company has issued shares to others at Rs. 100/- including Rs. 90/- as premium. k. Navratra Commodities Pvt. Ltd (PB Page No.76 to 8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning balance of Rs. 10,857/- and closing balance on 22.07.2010 it showing also Rs. 10,857/-. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. The assessee has produced only summary of the balance sheet placed at page no.112 of the paper book. No profit and loss account have been submitted. The creditworthiness of the investing company could not be proved by the assessee company. o. Genuine Commotrade Pvt. Ltd. (PB Page No.113-122) (Rs. 03,50,000/-) : On perusal of share application form placed at page no.1123 the applicant has applied 3500 shares at Rs. 100 per share including premium of Rs. 90/- whereas we noticed from page no.114 a letter written by share application company without dated he has applied for 17500 equity shares of Rs. 20/- per share including premium of Rs. 10/- each. There is contradictory documents produced. Both the documents have been issued by the share applicant. No return of income has been filed. The date of birth of the company is 04.03.2008. On perusal of trading profit and loss account the assessee has shown....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2010-2011 as well as other financial statements. The creditworthiness of the investing company could not be proved by the assessee company. r. Unique Conbuild Pvt. Ltd. (PB 176-219)(Rs. 15,00,000/-) : On perusal of page no.182 the share applicant has applied for 75000 shares at Rs. 20/- including share premium of Rs. 10/-. The creditworthiness of the investing company could not be proved by the assessee company. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. Copy of the acknowledgment of the return filed for the assessment year 2007-08 showing total income of Rs. 61,729/- has been filed by the assessee. After the assessment year 2007-08, no financial statement and income tax return has been produced filed by the assessee, therefore, the creditworthiness and genuineness of the transaction could not be proved by the assessee. s. Choice Electricals Pvt. Ltd. (PB 220-251) (Rs. 10,00,000/-) : On perusal of the income tax return filed by the assessee for assessment year 2008-2009 the assessee has declared income of Rs. 32,498/-. On p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k page no.316 dated 01.06.2009 to 03.06.2009, the opening balance of Rs. 1216.05 and the closing balance of Rs. 1335.05.A sum of Rs. 10,00,119/- has been credited on 02.06.2009 and on the same day it has been withdrawn. The return of income placed at paper book page at 319 for the assessment year 2008-2009, the return of income has been shown of Rs. 22,629/-. No latest financial statements and income tax return have been produced. The creditworthiness of the investing company could not be proved by the assessee company. w. R.M. Electricals Pvt. Ltd. (PB 337-363)(Rs. 10,00,000/-) : On perusal of page no.342 with regard to ban statement filed for 03.06.2009 to 20.06.2009, there is opening balance and the closing balance of Rs. 9719/- From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. On perusal of page no.344 the return of income has been filed for the assessment year 2008-09 declaring income of Rs. 7286/-. Date of last AGM and date of balance sheet showing nil. Total revenue has been shown as Rs. 1,57,474/- and total expenditure is Rs. 1,4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovision For Current Tax 25,580.00 2,487.00 Profit after I. Tax 57,204.00 4,903 Profit/Losses brought forward from last year 4,903.00 - Balance Carried to Balance Sheet 62,107.00 4,903.00 Notes on Accounts No latest financial statements and income tax return have been produced. The creditworthiness of the investing company could not be proved by the assessee company. z. Victor Tracom Pvt. Ltd. (PB 419-443 )(Rs. 10,00,000/-) : This company was registered on 21.05.2008 and has filed income tax return for the assessment year 2009-2010 declaring income of Rs. 20,022/-. On perusal of the financial statements filed by the assessee, the share applicant is engaged in purchase and sale of shares whereas on perusal of page no.437 the main object clause of the company in the memorandum of association there is not any single word for purchase and sale of shares. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days.No latest financial statements and income tax return have been produced. The credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Rs. 90/- each vide cheque dated 26.03.2010. The return of income placed at paper book page no.477 for the assessment year 2009-2010 showing nil income of the assessee. On perusal of the trading profit and loss account placed at page no.479 the income from operation is Rs. 8,80,200/- and administration expenditure has been shown of Rs. 8,81,410/- No bank statement has been produced by the assessee. Genuineness of transaction and creditworthiness of the investing company could not be proved by the assessee company. ae. Megatech Realtors Pvt. Ltd. (PB 503-529)(Rs. 10,00,000/-) : The share applicant has applied for 10000 equity shares of Rs. 10/- each at a premium of Rs. 90/- and issued cheque in favour of assessee company on dated 22.03.2010. On perusal of the income tax return filed for the assessment year 2009-2010 the gross total income of the assessee shown at Rs. 8884/-. The total receipts has been shown in the profit and loss account for 31.03.2009 is Rs. 72,145/- and expenditure is Rs. 63,261/-. The creditworthiness of the investing company could not be proved by the assessee company. af. New Age Infrabuilders Pvt. Ltd. (PB 530-538)(Rs. 05,00,000/-) : The share ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. The creditworthiness of the investing company could not be proved by the assessee company. aj. Wizard Developers Pvt. Ltd. (PB 570-588)(Rs. 10,00,000/-) : The share applicant has applied for 10000 equity shares of Rs. 10/- per share at a premium of Rs. 90/- and has issued a cheque dated 25.03.2010 in favour of the assessee company. On perusal of page no.575 the return of income has been filed for the assessment year 2009-2010 showing income at Rs. 6701/-. On perusal of page no.577 the share applicant has shown income from commission of Rs. 70364/- and expenditure of Rs. 63,663/- containing preliminary expenses of Rs. 2500/- audit fee of Rs. 5515/- and other expenses Rs. 55648/-. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. The creditworthiness of the investing company could not be proved by the assessee company. ak. Accord Sales & Tradex Pvt. Ltd. (PB 589-615)(Rs. 10,00,000/-) : The share applicant has appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontaining preliminary expenses of Rs. 1850/- audit fee of Rs. 5618/- and other expenses Rs. 30782/-. The opening balance have been shown at page 649 of the paper book at Rs. 1016.53 and closing balance has been shown at Rs. 1266.53/-. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. Latest balance sheet and income tax return has not been filed. The creditworthiness of the investing company could not be proved by the assessee company. 22. We find that the assessee in the course of the assessment proceedings as well as in the course of the first appellate proceedings had failed to satisfy the vital ingredients of section 68 of the Act to the satisfaction of the AO particularly in respect of creditworthiness and genuineness of transaction including the bona fide of the transaction in question particularly in light of detailed enquiry carried out by the AO of the case in this regard. As the necessary ingredients have to be cumulatively satisfied to escape from the clutches of section 68 of the Act, the CIT(A) upheld the action of the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble business activity or were they merely rotated money, which was coming through the bank accounts. These are some of the questions which remain unanswered in the present case. 24. On the similar circumstances the coordinate bench of the Delhi Bench of the Tribunal in the case of M/s Synergy Finlease Pvt. Ltd. in ITA No.4778/Del/2013, order dated 08.03.2019, has decided the issue in favour of the revenue following the decision of the Hon'ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (supra). The relevant observations of the Tribunal are as under :- "26. The Ld. DR on the other hand relied on number of cases to support his contentions . In the case of Navodya Castle Pvt Ltd. Vs CIT (2015-TIOL-314-SC-IT), it is held that merely showing shareholder companies are duly incorporated and their identity stands established but the deposits in cash in bank accounts prior to issue of cheque or pay orders would raise suspicion and addition can be made on such account. In the instant case also a uniform pattern of deposits in the bank account and immediate issue of cheque has been observed in the case of all the share applicants, which makes the genuineness of the tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vestigation, but it did not follow that the money belonged to the assessee and was their unaccounted money, which had been channelized, 13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted, The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances, The primary requirements, which should be satisfied in such cases is, identification of the creditors / shareholder, creditworthiness of credit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Mumbai, were found to be non-existent at the address given, and the premises was owned by some other person. b. The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. c. The two companies at Guwahati viz. Ispat Sheet Ltd. and Novelty Traders Ltd., were found to be nonexistent at the address provided. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90,00,000 to Rs. 95,00,000 in. the Assessment Year 2009-10, for purchase of shares at such a high premium. For example: Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income of Rs. 9,744/- for A.Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. - Kolkatta filed a NIL return, but had purchased Shares worth Rs. 95,00,000 in the Assessee C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income. 16. The Appeal filed by the Appellant - Revenue is allowed. In the aforesaid facts and circumstances, and the law laid down above, the judgment of the High Court, the ITAT, and the CIT are hereby set-aside. The Order passed by the AO is restored. Pending applications, if any are disposed of." 30. In view of the aforesaid discussion of facts of the case and respectfully following the decision of the Hon'ble Supreme Court in the case of NRA Iron & Steel P. Ltd. (supra) and decision of Hon'ble Delhi High Court in the case of NDR Promoters Pvt. Ltd. (supra), we are of the opinion that share applicant entities are paper entities created by some individuals for providing entries to the persons including the assessee, not having tax paid capital for promoting their ventures. As the entries of credit are appearing in the books of the assessee, it was the onus of the assessee to explain satisfactorily the nature and source of those credits. As the asses....