TaxTMI 
TaxTMI 
2015 (5) TMI 1227
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It is therefore prayed that the assessment framed u/s 143(3) r.w.s. 147 of the Act may kindly be quashed or alternatively the above additions made by the assessing officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted." 2. Assessee is engaged in the business of high seas sales of imported goods, yarn, plastic granules etc. In this case, original return of income was filed on 17.10.2005 declaring income of Rs. 96,520/-, it was processed u/s. 143(1) of the Act on 20.03.2006. Consequently, Assessing Officer received an information from the Investigation Wing, Mumbai through the offices of DGIT (Inv) Surat, CIT(A)-I, Surat and Addl. CIT(A), Range-1, Surat regarding bogus share application money to the extent of Rs. 21,00,000/- claimed to have been received from M/s. Mihir Agency Pvt. Ltd. and M/s. Buniyad Chemicals Pvt. Ltd. The share application money was claimed to have been received from these companies for purchase of 42000 shares on face value of Rs. 10/- at the premium of Rs. 40 per share. 2.1 During search u/s.132 of the Act on 25.11.2009, consequent to an alert received from FIU, New Delhi in respect of suspicious transaction in the bank ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... share application money. For this the client company provides the list of documents to be given by the Mahasagar Group of companies which includes Memorandum and articles of association of the Company making the investment, extract of resolution passed at the meeting of the Board of Directors of the company making the investment, declaration by the company making the investment, share application form, blank acknowledgement of receipt of sales consideration, of the shares at a later date duly signed by the Directors of the company making the investment, blank transfer deed, duly signed by the Directors of the company making the investment, list of its present Directors. After giving the above mentioned documents, cash is received from the company seeking the entry / adjustment which is deposited in the bank accounts of the (Mukesh Choksi) group companies other than the company from which entry is to be given. The funds are transferred from the subsidiary accounts to the bank account of the company making the investment. Cheque is issued in favour of the company seeking the entry / adjustment from the bank account of the company making the investment. Evidences Gathered in suppo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are application money, commodities profit / loss on commodity trading (through MCX) and had been continuing this business for many years. In the list of clients who have taken accommodation entries from these companies, the name of this assessee ie Pankaj Enka Pvt Ltd is also appearing/. During the course of search and seizure proceedings the statement of Shri Mukesh Chokshi, main person behind the scam, was also recorded on 25.11.2009. In his statement recorded on Oath he has admitted that these transactions are bogus. From the details submitted by the investigation Wing, Mumbai , it is seen that the assessee has obtained entry of the share application money of Rs. 11,00,000/- from Mihir Agency Pvt Ltd , one of company run by Shri Mukesh Chokshi, during the financial year 2004-05 ( AY 2005-06 ) , In view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. In view of the above, income to the extent being more than Rs. 1,00,000/- has escaped assessment within the meaning of section 147 of the Act. Therefore, Notice u/s 148 need to be issued. The approval of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. Without prejudice to the above, and notwithstanding the fact that you may object to the admission of additional evidence, you are being given art opportunity to examine the evidence and produce further evidence if any, in rebuttal of the evidence filed by the appellant under Rule 46A(3) (a) and 46A(9)(b) of the IT Rules. 4. The appellant's submission in two paper book is enclosed herewith for your perusal and report. 5. You are also directed u/s 250(4) of the I T Act to conduct necessary inquiries in respect of additions made u/s 68 of the I T Act regarding share application money and unsecured loan, apart from addition on account of current liability. Such inquiry may involve 3rd party verification and verification of movement of money through banking channels." 3.1 The report of Assessing Officer dated 06.09.2012 forwarded by Additional CIT vide letter dated 10.9.2012 was received on 11.09.2012. A copy of the same was given to assessee and assessee's comments were obtained. Having gone through same, CIT(A) noticed that certain issues were not properly addressed or investigated at assessment stage or during the remand proceedings. Therefore, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of Rs. 1,06,99,714/- party wise list of this amount should be furnished with closing balances in each name on 31.03.2004, 31.3.2005, 31.3.2006, 31.3.2007, 31.3.2008, 31.3.2009, 31.3.2010, 31.3,2011, and 31.3.2012 in the form of a single chart. It should also be mentioned as to what component all these liabilities are pertaining to A Y 2005-06 and what amount is the opening balance ? In case of amount pertaining to AY 2005-06, the nature of credit i,. e trade credit or loan credit should be mentioned. g. In respect of addition of share capital, you should furnish the following details in respect of each share applicant i. The date of receipt of money. ii. The date of allotment of shares. iii. Subsequent movement of shares i.e. changes in ownership, subsequent to allotment till date, iv. In case these shares have been subsequently purchased by the appellant company, or by its promoters, complete details of such transaction should be furnished i.e. date, amount, rate and mode of payment of consideration with book value of shares on the date of purchase. v. Book value of the share on the date of receipt of share applicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remand report as well. Therefore, said clarification was sought vide this office letter dated 30.1.2013, which is reproduced herein under: "Please refer to the remand report F No. SRT.ITO/Wd 1(4)/Pankaj Enka/2012-13 dated 28.01.2013 in respect of the above case. 2. Your attention is invited to para 2 (g) of your report enclosing the letter from the appellant stating that shares have not been transferred to promoters or to "other directors, in this regard, it is again clarified that you were requested to ascertain the present status of corresponding shares starting from the time share application money was received to till date, i.e. when the shares were allotted and who are the successive owners ? This information is available in the form of details of share holding submitted by the Company to the Registrar of Companies. 2.1 Since directions were issued for inquiries u/s 250 (4) of the I T Act, you are expected to obtain the same from ROC or obtain share holders register/ copy of shareholder details filed with the ROC from the appellant. You should therefore, immediately obtain the annual share holders return or shareholders Register from the appellant an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i' in which the assesses was also found to be involved. Even the Tribunal has recorded, while dealing with the assesses' cross objecting challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague and referred to transactions entered into by the assessee during the year under consideration. It has further been recorded by the Tribunal that as per the information of the Investigation Wing, the names of the persons issuing the cheques , the cheque amounts, dates, etc were also mentioned providing a link between the entry providers and the assessee. We are aware of the legal position that at the stage of issuing the notice u/s 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax at escaped assessment. However, once that stage is crossed and the reassessment proceedings are set in motion, the material on the basis of which the requisite belief was formed by the Assessing Officer has to be appraised and examined. That material on the basis of which, the notice under section 148 was issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led that the Mahasagar Securities Pvt. Ltd., and its related group of 34 odd companies (the prominent ones being Alliance Intermediaries & Network Private Limited, M/s Mihir Agencies Private Limited, M/s Gold Star Finest Private Limited etc. all run by Mukesh Chokshi) were engaged in fraudulent biling activities and in the business of providing Bogus speculation profit/loss, short term/long term capital gain/loss, share application money, commodities profit/loss on commodity trading (through MCX) and had been continuing this business for many years. In the list of clients who have taken accommodation entries from these companies, the name of this assessee i.e. Pankaj Enka Pvt. Ltd., is also appearing. During the course the search and seizure proceedings the statement of Shri Mukesh Chokshi, main person behind the scam, was also recorded on 25.11.2009. In his statement recorded on Oath he has admitted that these transactions are bogus. From the details submitted by the Investigation wing, Mumbai, it is seen that the assessee has obtained entry of the share application money of Rs. 11,00,000/- from Mihir Agency Pvt. Ltd., one of company run by Shri Mukesh Chokshi, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....supplied by the Directorate of IT (Inv.) about the alleged bogus/accommodation entries provided by certain individuals/companies, without applying his own mind, he was not justified in invoking jurisdiction u/s. 147. Hon'ble Apex Court in case of Calcutta Discount Co. Ltd. (1961) 41 ITR 191 (SC) analysed the Phrase "reason to believe" and observed that "It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn." ITA No. 816/A 5.3 The case of assessee is squarely covered by the decision of ITAT, Jodhpur Bench in case of M/s Surbhi Minchem Pvt. Ltd. (ITA Nos. 102 & 103/Jodh/2014). In said case, case was reopened u/s. 148 on the basis of same statement of Mukesh Choksi dated 25.11.2009, the director of Mahasagar Group of companies and on this point it was held as under: " the reason recorded by the Assessing Officer were merely on the basis of information received from DDIT (Inv.) Udaipur and Mumbai, therefore, from the so called reason, it was not at all discernable as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that on the basis of the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 143(3) r.w.s. 147 was requested to be quashed. Nothing contrary was brought to our knowledge with regards to decision taken in similar facts and circumstances in case of M/s. Surbhi Minchem Pvt. Ltd. (supra) wherein reopening was quashed on the ground reopening u/s.148 of the Act by Assessing Officer was done merely on the basis of information from Investigation Wing, Mumbai. Even in case before us, it cannot be inferred that concern Assessing Officer has applied his mind to the information and independently arrived at certain belief on the basis of material before him that any income had escaped assessment. In view of above legal discussion, assessment framed u/s. 143(3) r.w.s. 147 of Act is quashed. 6. Without prejudice to above, regarding merit we find that Assessing Officer made addition of Rs. 1,06,00,000/- which can be bifurcated into two sub grounds i.e. Rs. 21,00,000/- and Rs. 85,00,000/-. CIT(A) confirmed both the additions totalling to Rs. 1,06,00,000/- by relying on the decision of CIT V/s Nova Promoters & Finlease (P) Ltd.(supra). 6.1 As stated above, first sub-ground is related to addition of Rs. 21 lacs in respect of receipt of share application money from Mu....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the sum so credited may be charged to income tax as the income of the assessee of that previous year. The Supreme Court held as follows: "It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the mature of income, the burden of proving that it is not taxable income because it fails within exemption provided by the Act lies upon She assessee. ( See Parimisetti Seetharamamma ( 1965) 57UTR 532 at page 536) But, in view of Section 68 of the Act, where any sum is found credited in the books of assessee for any previous year, the same may be charged to income tax as the income of the assesses of that previous year if the explanation offered by the assessee about the nature and source thereof, is in the opinion of the Assessing Officer, not satisfactory. In such a case, there is, prima facie, evidence against the assessee viz. the receipt of money and if he fails to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....High Court. "15. There cannot be two opinions on the aspects that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity (sic) of the assessee it should not be harassed by the Revenue's insistency that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every details pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while waling the tightrope of Sections 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered nay duty - bound, to carry out thorough investigatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... heavy in case the assesses is a private Limited Company where the shareholders are closely, related because in such a case, the assessee cannot ....... ignorance about the status of the parties. The judgment of a Division Bench of this Court in CIT Vs Creative World Telefilms Ltd(2011) 203 Taxman 36(Mag) 333 ITR 100/15 taxmann.com 183 (Bom) is along the same lines. 26. In the present case, it needs to be emphasized that the Settlement Commission has considered all the material on record including the material which had a bearing on the credit worthiness and financial standing of the alleged subscribing companies to the share capital of the petitioner. None of the companies was held to have a financial standing or credit worthiness which would justify making such a large investment of Rs. 6 crores at a premium of Rs. 990/- per share. The allotment of shares, it must be noted, has taken place in pursuance of a private placement. The principles which have been applied in relation particularly to the public subscription of shares of a public limited company can obviously have no application to the facts of a case such as the present The view which has been taken by the Settle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bank cheques and paid through process of banking transaction but that itself is of no consequence. " 28. In a more recent recent judgment of the Supreme Court in Vijay Kumar Talwar Vs CIT ( 2011) 330 ITR 1/ 196 Taxman / 136 ( 2010) 8 Taxman. Com 264 (SC), the same principle was applied in the following observations ;- " 24 All the authorities below, in particular the Tribunal, have observed in unison that the assessee did not produce any evidence to rebut the presumption drawn against him under section 68 of the Act, by producing the parties in whose name the amounts in question had been credited by the assesses in his books of account. In the absence of any cogent evidence, a bald explanation furnished by the assessee about the source of the credits in question viz, realization from the debtors of the erstwhile firm, in the opinion of the AO, was not satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for previous year, the same may ha charged to income tax as the income of the assessee of that previous year, if the explanation offered by the assesses about the nature and source ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng accommodation entries. Evidence of the same was found in the form of lists maintained by the entry provider. It is not a case where addition has been made only on the basis of statement of entry provider. The lists found during the course of search were maintained by the entry provider in the normal course of his business. The appellant was informed of the evidence gathered but, it neither requested for cross-examination of entry provider nor furnished his fresh confirmation. The statement on oath of Shri Mukesh M Choksi, Director of those two companies was also recorded during the course of search operation." 6.3 Moreover, ITAT, Ahmedabad has accepted that Shri Mukesh Choksi and its group of companies are accommodation entry providers in their cases and has held that only commission income for giving bogus accommodation entries was taxable in their cases. According to CIT(A) on similar facts, Hon'ble Delhi High Court in its judgment dated 15.02.2012 reported in case of Nova Promoters Finlease Pvt. Ltd. (supra) has decided similar issue against assessee. 6.4 In this background, CIT(A) observed that decision of the Hon'ble Supreme Court in case of M/s. Lovely Exports (P) Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....divided into two groups. First group of M/s Mihir Agency Pvt Ltd and M/s. Buniyad Chemicals Pvt Ltd belongs to Mukesh Choksi group of cases from whom share application money of Rs. 21 lakhs has been received with premium of Rs. 40 per share. [g] The name of the appellant company figured in the data, seized from the place of Mukesh Choksi during the search which establish that share application money of Rs. 21 lakhs was on accommodation entry. [h] Mukesh Choksi admitted the business of its group companies as entry providers and Hon'ble ITAT also accepted the same." 6.6 In response to notice u/s 133(6) of the Act issued by Assessing Officer, both these companies confirmed their statement given before the investigation Wing, Mumbai. Their letter dated 27.03.201 2 which is mentioned in assessment order at page - 8, is reproduced herein under :- " We have received a notice dated 20th March, 2012. In this connection, we would like to inform you that we confirm our statement which was given during search proceedings on 25th November, 2009 " 6.7 Assessee in its paper-book filed share application form in the name of M/s Harmony Yarns P Ltd., which is group c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....als Pvt. Ltd. exists. Else there was no reason why this information should be found in seized material during course of search at premises of Shri Mukesh Choksi, consequently, addition of Rs. 21 lacs. In this background, addition of Rs. 21 lacs made by Assessing Officer was confirmed. 6.10 Before us, learned Authorized Representative submitted that Assessing Officer issued notice dated 12.03.2012 u/s.133(6) of the Act asking for confirmation of transaction to the above said share applicants. As per Para 10.3 of the assessment order, in response to notice u/s. 133(6) dated 12.03.2012 issued by Assessing Officer, M/s Mihir Agencies Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. vide letter dated 15.03.2012 intimated that their accounting data has been impounded by Income Tax Department in search action carried out in their office premises by DDIT-unit-1(4) on 25.11.2009. Hence, they were not in position to provide any information in the matter. Thereafter again notice u/s 133(6) were issued to the alleged two parties and reply was received vide letter dated 27.03.2012, wherein they have simply given confirmation of their statement recorded at the time of search but failed to provid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the assessee, despite specific request being made by the assessee for crossexamining both the said persons, the AO has not permitted the assessee to cross-examine them. In the circumstances, no reliance could be placed upon the statements of the said persons as the respondent assessee had no opportunity to cross-examine them. The statements made by the aforesaid persons would have no evidentiary value and as such, would not be admissible in evidence" Beside this, case of assessee is squarely covered by the latest decision of ITAT, Ahmedabad Bench in case of Chartered Motors Pvt Ltd. Vs. ACIT (ITA No.26/Ahd/2012). In the said case, facts were similar as additions were made on the basis of statement of Mukesh Chokshi recorded on date 25.11.2009 who admitted that he only provides accommodation entries. Even in said case as referred supra, share application money was received from Buniyad Chemicals Pvt. Ltd and it was observed that apparently company has allotted shares at the face value of Rs. 10/- at a premium of Rs. 90/- per share which were ultimately transferred to various employees of different concerns of family members of assessee at face value. Even in the present case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd hence no adverse view can be called for. In case the assessee adduces evidence in support of share application money, it is open to Assessing Officer to examine it and reject grounds. In case, he wishes to rely on the report of investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between assessee and the alleged hawala operators, such a link was shown to be present in case of Nova Promoters & Finlease (p) Ltd. relied upon by Revenue. The facts of case of Nova Promoters & Finlease (P) Ltd. 18 taxmann.com 217 (Delhi) is distinguishable on facts. In case of assessee, Shri Mukesh Choksi in his statement recorded u/s. 132(4) has stated that he was engaged in giving accommodation entries and both the companies have confirmed the statement given at the time of search in response to notice u/s. 133(6). However, they have intimated to Assessing Officer in response to notice u/s.133(6) that their accounting data has been impounded by Income Tax Department in search action carried out in their office premises by DDIT-unit-1(4) on 25.11.2009. Hence they were not able to provide any information in the matter. However, in case of Nova Promoters F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion money, only on basis of any third party statement. 6.13 Regarding addition of Rs. 85,00,000/- on account of share application money and share premium money, we find that assessee has received Rs. 85,00,000/- towards share application money and share premium. List of the said parties is as under:- Sr. No. Name of the Party Share Application Money 1. M/s Hiteshwari Marketing Pvt^.td., Kolkata 5,00,000/- 2. M/s JMD Mercantile Pvt. Ltd., Kolkata 5,00,000/- 3. M/s Sunflower Vinimay Pvt. Ltd., Kolkata 5,00,000/- 4. M/s Sugam Commercial Pvt. Ltd., Kolkata 5,00,000/- 5. Edmond Commercial Pvt. Ltd. 5,00,000/- 6. M/s Bhagyalaxmi Mercantile Pvt. Ltd., Kolkata 5,00,000/- 7. M/s Komal Commercial Ltd., Mumbai 10,00,000/- 8. Dhawani Marketing Pvt. Ltd. 15,00,000/- 9. Emerald System Eng. Ltd. 5,00,000/- 10. M/s Larite Industries Ltd., Mumbai 15,00,000/- 11. M/s Sargossa Investment & Finance Pvt. Ltd., Mumbai 5,00,000/- 12. Study Sales Pvt. Ltd. 5,00,000/- Total 85,00,000/ Assesses filed list of applicants of share application money vide letter dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emorandum of Association (hereinafter referred as "MOA") and Articles of Association (hereinafter referred as AOA"") of the share applicant. All the share application monies have been received through proper banking channel and there is no evidence that assessee has paid any money in cash to the share applicant in consideration of cheque received from share. No inquiry is made by the Assessing Officer once the assessee has discharged his primary onus to prove the identity, genuineness and creditworthiness of the share applicants. On perusal of the bank statements of share applicant, it can be seen that no cash has been deposited by them before issue of cheque to assessee towards share application money. None of the parties are related to assessee company. The assessee has proved all the three ingredients of proving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). If the Assessing Officer doubts the source of the source of the source, he was free to conduct inquiries in the case of persons from whom assessee has received fun....