TaxTMI 
TaxTMI 
2022 (11) TMI 355
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.... 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 purchased and sold on the same day and the assessee thereby incurred loss of Rs. 2,11,....
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.... 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 same day. It is also seen that the shares traded are of M/s Reliance Industries Ltd., M/s Alok In....
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.... 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 involved which are not acceptable. Therefore, the ld. CIT(A) confirmed the loss of Rs. 2,11,00,000/-....
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.... 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 balances of other accounts i.e. security deposits, construction advance from Jalgaon Municipal Corporation, Mobilization advance fr....
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.... 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 admitted that the share transactions entered into by the assessee were off-market transactions and not done through any recognized sto....
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....algaon, 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 them in the assessee company. All the transactions are shown to be carried out in cash: How the cash of Rs. 25,50,000/- is paid 'by the respective persons on 04/04/2009 along with exact source is not furnished by the assessee. Except Mr Ravindra Patil and Mr. Rames....
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....y 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/- and share premium of Rs. 160/- per share and thus there is increase in share capital of Rs. 2,55,00,000/-. During the course of appellate proceedings, the Assessing Officer asked the appellant company to substantiate the same, however, the appellant company could not substantiate....
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....he 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 income. He also claims to be engaged in dairy farming Without any prove. His agricultural and farming income is hardly sufficient to meet the requirements of his family. He is not a person of means to subscribe to shares of a dying company. It does not make any sense whatsoever. (3) The share-holder has paid cash of Rs. 25,00,000/- for the subs....
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....tural 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 Ramesh C. Dhake has also subscribed to the share of the appellant company at a premium of Rs. 160/- per share of the face value of Rs. 10/-. Shri Ramesh C. Dhake is also not assessed to tax. He is 62 years old having family. He claims to be having agricultural income of Rs. 5,00,000/- to Rs. 6,00,000/- without any evidence. He also claims to have obtained PAN for general purposes, and not for income-tax p....
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....he 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 contentions are not accepted. Therefore, the addition made by the AO is respect of the above said seven creditors are confirmed. 15.8 In all the ten shareholders/creditors discussed above, I find that they do not have the capacities to pay for the share application money. They do not have explained sources for the cash of Rs. 25,00,000/- each on a particular date i.e. 04-04-2009. The only conclusion that can be drawn is t....
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....rved 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 of Rs. 3,00,000/- to Rs. 4,00,000/- per annum. However, he was unable to even explain before the ld. CIT(A) whether these amounts were gross or net income. No documentary evidences were filed in this regard. (iii) He also claims to be engaged in dairy farming for which no evidences have been furnished. His agriculture and farming income is hardly sufficient to meet the requirement of his family and he is not a person of means to subscribe to shares of a dying comp....
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....s 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 co-operating with the assessee and this explanation is absolutely false, untrue and fabricated since these persons have invested huge money in assessee-company and it is beyond human probabilities that the shareholders would not respond to the legal process of the company in which they are themselves financially interested being the investors. The assessee-company has not filed confirmations, PAN cards, copies of acknowledgement of returns of income filed, balance-sheet, bank st....
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....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 creditworthiness then the genuineness of the transaction would not be established. In such a case the assessee would not have discharged the primary onus contemplated by section 68 of the Act. 18. Reverting to the facts of the present case, the assessee-company was under legal obligation to prove the genuineness of the transactions, identity and creditworthiness of the creditors and the investors and whether they have financial capacity to make the investments in question. This primary onus of the assessee has not be....