TaxTMI 
TaxTMI 
2022 (11) TMI 355
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeals II, Nashik erred in confirming addition of Rs. 2,55,00,000/- on account of shares subscription money received. 3. Appellant craves leave to add, alter, amend or substitute to the above grounds of appeal at the time of hearing. 2. That, with regard to the facts pertaining to Ground No. 1, the Assessing Officer has discussed this issue in his order at para 9 onwards. During the year under consideration the assessee has shown to have carried out off-market transaction of the shares of EMCO Ltd., with Mr. Suwalal C. Bafna and shown to have incurred losses of Rs. 2,11,00,000/-. The said transaction of purchase and sale were shown to be carried out with certain party i.e., Suwalal C. Bafna. The extract of account of the assessee in the books of account of Mr. Suwalal C. Bafna clearly reveals that the assessee had shown to have purchased shares and sold the same on the same day itself and incurred losses of Rs. 2,11,00,000/- which was ultimately shown to have settled by payment of cheque. Meaning thereby, it was noticed by the ld. A.O first of all, the purchase and sale of the share transaction was carried out only with Mr. Suwalal C. Bafna and that also the shares were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rties but disallowed the loss incurred in case of Shri Suwalal C. Bafna. According to the assessee, the transactions of off-market with Mr. Suwalal C. Bafna and others are at par with those in which the profits have been allowed and accepted and hence loss in the case of Mr. Suwalal C. Bafna cannot be said to be bogus loss. That during the course of assessment proceedings, the assessee had furnished the details of off-market trading in shares which were on record of the Department and also appearing as a part of the ld. CIT(A)'s order. Thereafter, the ld. CIT(A) held as follows: "10.4 From the perusal of the above discussions and details, the appellant had entered into off market transactions with Shri Rajendra Anil Mayur, Shri Suresh Kumar Chakacha Jain (Individual), M/s Sushil Financial Services Pvt. Ltd. and Shri Suwalal C. Bafna. It is a fact that the AO had considered the appellant's off market transactions with Shri Suwalal C. Bafna only and the other similar transactions were not examined. As submitted by the appellant, the off-market transactions are settled on the same day. From the details furnished and shown above, the purchases and sales took place on the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansactions entered with other parties and loss of Rs. 2,11,00,000/- with regard to the transaction with Shri Suwalal C. Bafna. The other important observation by the ld. CIT(A) which is also in accordance with the observation made by the ld. A.O is that on examination of the copies of ledger account of M/s. Khandesh Builders Ltd., it is clear that the purchase and sale took place on the same day. Maximum of market trading had taken place in respect of shares of M/s. EMCO Ltd., and that the said company, as remarked by the ld. CIT(A) upon due verification that all belonged to the assessee's family. The ld. CIT(A) also observed that the modus operandi of the assessee for going in off-market transactions, the purchase and sale transactions, prices of the shares can be arbitrary fixed by the parties involved depending upon their requirement. The purchase and sale prices of the transactions of the said shares so arranged that they have no connection with the prices quoted in recognized stock exchange. Therefore, such off-market share transactions are not genuine transactions but bogus as such off-market transactions are resorting to in order to take illegal tax benefit by the parties in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncorporated with main object of carrying on the business real estate development as appeared from the record. The certified copy of Memorandum & Articles of Association of the Company is not provided by the assessee. The Company is appeared to have promoted by different persons and during the year under consideration, following persons are shown to be beneficial shareholders of the Company 1. Jagannath Nathu Wani (46.02%) 2. Mr. Atul S. Jain (48.392%) 3.2 Surprisingly the ordinary employees of the assessee company i.e., Mr. Gokulchand Birla, Mr. Gopal R. Nagla & Mr. Kishor R. Bhavsar are shown to be directors Company.' Whereas Mr. @okulchand Birla is shown to be manager of the company, Mr. Gopal Nagla is shown to be clerk of the company and Mr. Kishor Bhavsar is shown to be Jr. accountant of the company drawing yearly salary of Rs. 2,00.000/and 80,823/- respectively. The assessee company is charged with the criminal cases by Municipal Corporation of Jalgaon for its alleged involvement in some illegal contract work. In the Balance sheet the opening work in progress as well as closing work in progress is same at Rs. 33,08,00,508/- at the same time the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee with respect to Mr. Suwalal C. Bafna. The ld. A.R also could not establish the genuineness of the transactions with respect to the other parties which is also off-market trading in which the assessee earned profit of Rs. 43,47,956/-. The ld. A.R did not have any justification regarding modus of operations entered into by the assessee both in respect of Mr. Suwalal c. Bafna and with respect to the other parties. The common factor was that both were off-market transactions and the possible need for such usage and the genuinity for resorting to such methods could not be explained by the ld. A.R. We are in conformity with the observations of the revenue authorities that such off-market transactions are resorted to in order to take illegal tax benefit through these bogus and sham dealings. We also do not agree with the submissions of the ld. A.R that the revenue has made the additions without any evidences. This is because the entire case-records were confronted by the revenue authorities to the assessee and the modus of operation regarding these purchases and sales of shares through off-market trading but the assessee could not provide any answer. The ld. A.R before us also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, Dist. Jalgaon Rs. 25,50,000/- No derails furnished. 7. Ramkrishna Shivram Sapkale A/P Fakani, Tal. Jalgaon, Dist. Jalgoan Rs. 25,50,000/- No details furnished. 8. Bharat Himmat Borse A/P Bhadali, Tal. Jalgaon, Dist. Jalgaon Rs. 25,50,000/- No details furnished. 9. Pradip Ankush Patil A/P Pathari, Tal. Jalgaon, Dist. Jalgaon Rs. 25,50,000/- No details furnished. 10. Shamkant Bhaulal Jadhav A/P Fupanagari, Tal. Jalgaon, Dist. Jalgaon. Rs. 25,50,000/- No details furnished. 4.1 I have carefully gone through the documents submitted by the assessee in support of the above credits. The assessee has filed share application forms in respect of in above cases except in the case of Mr. Ramchandra Patil, Mr. Murlidhar Patil & Mr. Yogesh Lathi. Further all the share application forms are filled up by one person. Mr. Ravindra Patil is shown to be resident of Mehunbara, but the documents filed by the assessee shows his residence at Umberkhed. The above persons are not assessed to income tax.' Further the background of the above person is absolutely did not support the above investment shown* to have been made by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee. Before the ld. A.O inspite of being given sufficient opportunity, the assessee was unable to substantiate the identity, credit worthiness and the genuineness of the transactions in respect of the amount of Rs. 25,50,000/- received towards share capital money from each of the ten people. The ld. A.O further observed that main activity of the assessee-company was construction which has come to a stand-still. The company is blacklisted by almost all authorities. There are criminal cases going on against the company and also its main shareholders. The assessee could not answer how a prudent shareholder could buy shares of such dying company at a share premium which has no further chance of revival. Since the amount of Rs. 2.55 crores remained unexplained it was added to the total income of the assessee. 10. The ld. CIT(A) has dealt with this issue at paras 15.2 onwards of his order as follows: 15.2 I have gone through the assessment order, written submissions filed by the appellant and also the remand report. During the year under appeal, the appellant company has increased it's share capital by issuing 1,50,000 equity shares having face value of Rs. 10/- an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are application money of Rs. 25,50,000/- was paid on 04-04-2009 15.3 I have examined the details filed by the appellant in respect of Shri Rammdra confirming the share subscription, copies of PAN, election~7/12 extracts. Therefore, the appellant had claimed that the identification of this creditor is established. However, the appellant has failed to establish the creditworthiness of the creditor and the genuineness of the transaction. The reasons are as under: - (1) the appellant company is incurring heavy losses and there is no business during the year under consideration. There is no scope for revival of this company in near future due to various factors. No businessman or agriculturist in his right mind will subscribe to the shares of the appellant With Such huge premium of Rs.160/- when the appellant company is dying without any hope of revival. This fact will apply to all the share subscribers/creditors. (2) The said share-holder/creditor is not assessed to tax. In his affidavit, he has claimed owning some 9 acres of agricultural land earning an income of 3,00,000/- to (r) 4,00,000/- per annum. He does not say whether the said amount is gross or net ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....filed by the appellant company and the copy of the remand report was also submitted with the Dy. Commissioner of Income-tax, Cir. 1 , Jalgaon. It is stated in the affidavit by this share holder that his annual income from agricultural activities ranges in between Rs. 5,00,000/- to Rs. 6,00,000/-, however, no books of accounts are maintained for the agricultural activities and all agricultural produce are stated to be sold locally to the petty merchants. It is further clarified in the affidavit by the affiant that the summons issued by the A.O in the month of December 2013 was received by him, however, due to his personal work he was out of station and hence could not attend the office of the A.O. While making addition in respect of this creditor, the .A.O has stated that this shareholder has mortgaged his property to syndicate bank and Mamurdabad Primary Co-op. Credit Society for raising the loan and hence his creditworthiness is not proved. 15.5 In the case of Shri Ramesh Chintamani Dhake, the appellant has filed a copy of the affidavit of the shareholde3r claiming to be an agriculturist having 22 acres of land. As in the case of Shri Ravindra K. Patil, Shri Rame....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces. In the absence of any supporting evidences to establish the creditor's identity, creditworthiness and genuineness of transaction, the claim of the appellant cannot be supported. Therefore, the addition of Rs. 25,00,000/- is confirmed. 15.7 In the case of the remaining seven creditors/shareholders, the appellant has not furnished anything. The said seven creditors have not responded to the summons issued by the A.O. The appellant claims that they are not co-operating and therefore, the appellant is not able to furnish the necessary evidences. This explanation of the appellant is unacceptable. These seven parties have paid cash of Rs. 25,00,000/- each as share application money to the appellant company. Now, they are not co-operating. This is too simple an explanation. They have not filed confirmations, PAN, copies of acknowledgement of returns of income filed, balance sheet, bank statements, evidences of explained sources of the share application money. In other words, the appellant has failed to prove the identity of these seven creditors/shareholders, creditworthiness and the genuineness of the transactions. In the absence of documentary evidences, the appellant's co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is stated that his annual income from agricultural activities ranges between Rs. 3,00,000/- to Rs. 4,00,000/-, however, no books of accounts are maintained for such agricultural activities and all the agricultural produces are stated to be sold locally to the petty merchants. That, even when the summons were issued by the ld. A.O., it was received by him, however, he had not attended before the A.O., for some reason or the other. The ld. CIT(A) observed that the creditworthiness of the creditor and genuineness of the transactions is not established for the following reasons: (i) The assessee-company incurred heavy losses and there was no business during the year under consideration and also there was no scope for revival of this company in the near future due to various factors. Therefore, any businessman or agriculturist in his right mind will definitely not subscribe to the shares of the assessee with such huge premium of Rs. 160/- when the assessee-company is dying without any hope of revival; (ii) The said creditor/shareholder is not assessed to tax. In his affidavit he has claimed owning some nine acres of agricultural land and earning an estimated income....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or the other. The source of money that he has paid and invested in assessee-company, is not established. He has failed to establish creditworthiness and genuineness of the transactions. The ld. CIT(A) therefore, confirmed the addition as made by the ld. A.O in this case also. 14. In the case of Shri Bharat Himmat Borse, the assessee had only submitted a copy of 7/12 extracts and nothing else. The identity of this creditor, creditworthiness and genuineness of the transactions have not been established. It is also apparent that this creditor has paid share application money in cash. There is also no evidence of having any explained source of income. In absence of any supporting evidences to establish the identity, creditworthiness and genuineness of the transactions, the assessee-company's claim was not accepted by the ld. CIT(A) and the addition was also confirmed as regards this shareholder also. 15. In the case of the remaining seven creditors/shareholders, the assessee has not furnished any evidences/documents. These seven creditors have also not responded to the summons issued by the ld. A.O. It is the claim of the assessee that these seven creditors/shareholders were not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t use of the words "any sum found credited in the books" in section 68 of the Act indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium. According to settled law, the initial onus is on the assessee to establish by cogent evidence the genuineness of the transaction, and creditworthiness of the investors u/s 68 of the Act. The principles which emerge where sums of money are credited as share capital or premium are: 1. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus; 2. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor or subscriber, verify the identity of the subscriber, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders; 3. If the inquiries and investigations reveal the identity of the creditors to be dubious or doubtful, or lack creditworthine....