TaxTMI 
TaxTMI 
2015 (4) TMI 1278
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....of survey proceedings, it came to the notice of the Investigating Officer that M/s. Globe Pharma was issuing bogus accommodation bills to various concerns and the assessee in question alongwith its sister company was one of the beneficiaries of the accommodation bills. A search operation was conducted on 09.09.2010 in the business premises of the assessee and its sister concerns. The operation also covered the residence of the directors. Consequent to the search, the total additional income disclosed by the Directors of the assessee companies was at Rs. 25.35 crores which was namely 24 crores in the hands of the present assessee and Rs. 1.35 crores in the hands of Aquatic Formulations Pvt. Ltd. 3.1. The offer of the undisclosed income covered assessment years 2004-05 to assessment year 2010-11. The offer covered the accommodation bills taken by the assessee from M/s. Globe Pharma and others and it can be better understood by the following chart. Name F.Y 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY.10-11 Total Globe Pharma 10031783 13116698 17614166 24380594 18901698 26576407 105000 110726346 Premier Trading....
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....respect of share capital introduced during the year and treated as unexplained cash credit. The following specific queries were raised on this issue and a show cause notice was served on the assessee. "In respect of introduction of share capital/ premium or share application money received in your company please furnish subscribers details along with following further details: a)Copies of minutes of the board meeting held and recorded for raising these funds, b)Supporting bank statements, c) Details of any dividend paid by the company from the date of investment to till date. d)Details of the past performance of the company and its present earnings justifying the amount of premium which had been charged and supported by the copies of annual reports, e) Details of any comparable instances of the companies in this line of business commanding or having charged such a premium on their share value during the year under consideration. f) Whether you have relied an advice of any financial consultant or institution in justifying the share premium amount fixed. If so furnish names and addresses of the persons and a copy of any r....
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....uthorization forms or any communication to the share holders in regard to the convening of the AGM and proof of the dispatch of the share certificates. All the details proving the sources of income for the investors, their identity, creditworthiness and genuineness of the transaction". 8. A further show cause notice was issued and served on the assessee for the following points: "In connection with the assessments in your case for the assessment years 2005-06 o 2011-12 you are required to furnish following information. 1. Allotment of shares: It is claimed by you that during the financial years 2005-06 to 2009-10, relevant to AY's, 2006-07 to 2010-11 you have claimed receipt of share investment from various parties as per the Annexures enclosed. The brief details or the share investment claimed to have been received by you are as under: F.Y. No. of Shares Value of each share (Rs.) Amount of share investment received (Rs.) 2004-05 1,99,946 10 19,99,460/- 2005-06 4,90,000 10 49,00,000/- 2006-07 27,90,000 10 2,79,00,000/- 2007-08 20,00,000 10 2,00,00,000/- 2008-09 2....
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....of the Shareholders. 3. As regards producing the shareholders for verification it is submitted that it is beyond our legal powers to enforce the attendance. We have requested them to present themselves before your good self and submit the necessary evidence in respect of the share application. They have assured us that they shall appear before you and make the necessary submissions. You are most humbly requested to issue summons u/s.131 / Notices u/s133(6) and obtain whatever further information that you may require from these shareholders. 4*In any case since we have already discharged the primary onus of proving the Identity of shareholders, genuineness of the transactions and capacity or the shareholders. It is submitted that as far as share capital is concerned the onus of the Assessee is only to prove the identity of the share holders which is more than sufficiently discharged. 5. On the facts of the case we submit that the position of the Share applicants are as under:- a) All the share applicants are existing assessees. b) Some of the shareholders are companies which are registered with the Registrar of Companies. c) The ....
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.... of earning undisclosed income does not arise. In CIT Vs P.K.Noorjahan (supra), the Hon'ble Supreme Court, in a case where the assessee had no source of income, held that an addition cannot be made under section 69 and the word "may" used in section 69 cannot be read as "shall". It held that "the ITO is not obliged to treat such source of investments as income in every case where an explanation offered by the assessee is found to be not satisfactory and that discretion has to be exercised keeping in view the facts and circumstances of a particular case". In that case, the Tribunal held that even though the explanation about the nature and source of purchases money was not satisfactory but in the facts and circumstances of the case, it is not possible for that aseeseee to earn the amount invested in the properties. It held that, by no stretch of imagination, could the assessee be credited for having earned this income, in the course of assessment year not was she in a position to earn it for a decade or more. The case was of a Muslim lady who is aged about 20 years in the case on hand, the assessee company was in the process of setting-up of a project and has not commenced produ....
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.... enclosed herewith. 12. In addition to the above details filed by the assessee, we find that the assessee has also furnished affidavit from the share holders. A sample affidavit has been incorporated by the AO at pages 22 and 23 of the order. It can be seen from the affidavit that all the deponents have furnished their Permanent Account No. 13. These clinching evidences have been discarded by the AO for the following reasons: i) The assessee has admitted the undisclosed income during the course of search. Now the Directors have retracted from the statement made which is not acceptable. ii) Blank share transfer forms were found at the time of search which clearly show that the shares were supposed to be bought back by the family members of the group at a discounted price. iii) There are evidences of assessee getting cash back on account of bogus accommodation bills relating to purchases reintroduced in the form of share capital. 14. These observations made by the AO for making the additions u/s. 68 of the Act have been confirmed by the Ld. CIT(A). To justify these additions, the Ld. Departmental Representative has relied upon the decision of the H....
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....hat the assessee company has raised share capital from the seven companies situated at Delhi by way of accommodation entries and also the assessee company has failed to give satisfactory explanation in respect of the addition of Rs. 50 lakh to its share capital. The DR has placed reliance on the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Nova Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Delhi) and requested that the impugned order may kindly be set aside by restoring that of the Assessing Officer. Replying to the above submissions, the counsel for the assessee submitted that the Assessing Officer called several details and documents from the assessee which were duly submitted by the assessee in the form of confirmation from the distributors of the share application money and the assessee also submitted details of PAN No. and addresses of the corporate office. In addition to that the counsel for the assessee also submitted that all transactions were routed through banking channels and the share application money was paid through cheque and assessee submitted bank statements and other supporting evidence before th....
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....rg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68. 7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). 8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it an....
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....s furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit ba....
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....the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated separately." The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under section 68 of the Act. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law." In the case of Gangeshwari Metal Pvt. Ltd. (supra), their Lordships held that two types of cases have been indicated, one in which the Assessing Officer carries out exercise which is required in law and the other in which the Assessing Officer sits back with folded hands till the assessee exha....
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....er has not given any basis for his observation regarding so-called accommodation entries." 19. In the facts of the case of Empire Builtech Pvt. Ltd. (supra), the summon issued were returned unserved with a remark " no such company" even the Inspector went to the address and confirmed that no such company exist however in the case in hand, there is no evidence on record to show that physical verifications were done by the Officer. On the contrary, we find that there is no adverse inference drawn in respect of affidavit filed by the assessee in support of establishing the genuineness of the share capital. 20. Further, a close perusal of the submissions made by the assessee during the course of the assessment proceedings show that the transactions have been made in cheque duly reflected in the bank statements and we find that no adverse inferences have been drawn in this respect nor we find that any verification from the bank have been made by the AO for making the impugned addition. The entire addition have been made only on the basis of admission of the Director during the course of search proceedings. However, we find that the admission was made on 9.9.2010 and retracted by t....
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.... it has effected the sales. It is more important so because the assessee is trading in pharmaceutical products which have batch Nos. embedded on it and it cannot be sold without performing the formalities of FDA and other relevant laws relating to the pharmaceutical business. 24. So one thing is clear that assessee was actually purchasing goods and selling them. We have also gone through the audited statement of accounts. We find that the trading results are quantified and so also the closing stock. No adverse inferences have been drawn in these respect. The additions have been made purely on presumptions and surmises and the statement of third party i.e. M/s. Globe Pharma and others who may be providing accommodation bills but the trading account of the present assessee do not show anything which could suggest that the purchases are bogus as there is no adverse inferences in so far as sales are concerned. Without purchases there cannot be any sales. Considering all these facts in totality, we do not find any merit in respect of the additions made on account of alleged bogus purchases which are based merely on the statements backed by no cogent/demonstrative material evidences o....