TaxTMI 
TaxTMI 
2012 (3) TMI 708
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....wards share capital/share application money. 4. By the impugned order, the learned Commissioner of Income Tax (Appeals) deleted the addition of Rs.49.70 lacs and confirmed the addition of Rs.8.70 lacs particulars of which are as under :- S. No Name Father's/husb and's name Residential address PAN Mode of receipt Amount (Rs.) 1 Shri Jayesh Dube(Cousin brother of Director Shri Arun Dubey Chennai ACKPD3511F Through cheques 50,000 2 Shri Ritesh Lunkad ABGPL6173Q Through cash 2,00,000 3 Shri Ravindra Kumar Menon Shri Haridutt Menon 205, Silver Avenue, Chandralo k Colony, Indore AFCPM8587K Through cash 40,000 4. Shri Rajiv Yadav Shri Jayprakash Yadav B-33, Madhukun Gali, Subhash Mohalla, North Gonda, Delhi ABKPY8881C Through cheques 80,000 5. Money Penny Fincom Pvt. Ltd. -- 40-B, Agrawal Nagar, Indore AADCM5417F Through cheques 5,00,000 TOTAL 8,70,000 The precise observation of learned Commissioner of Income Tax (Appeals) with regard to share application money received from Shri Jayesh Dubey - Rs. 50,000/-, Ritesh Lunkad - Rs. 2 lacs, Ravindra Kumar Menon - Rs. 40,000/- and Rajiv Yadav Rs. 80,000/- was as under :- "4.2.3 Now the issue of addi....
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.... was an incometax assessee, gave share application money through account payee cheque amounting to Rs.80,000/-. Similarly, Shri Ritesh Lunkad was also an income tax assessee and gave the amount through cheque. It appears that while disallowing the share capital so received, the Assessing Officer stated that the assessee has not been able to establish the genuineness of the transaction and the assessee has only furnished a certificate issued by the assessee to the socalled subscription showing the receipt of the above subscription. However, the learned Commissioner of Income Tax (Appeals) has confirmed the addition by observing that the assessee has totally failed to establish credit worthiness of such persons and the genuineness of such transactions. The action of the Assessing Officer was accordingly confirmed. From the orders of the lower authorities, it does not appear that they have doubted the identity of the share applicants. Neither the Assessing Officer nor the learned Commissioner of Income Tax (Appeals) has doubted the identity of these persons. In respect of Shri Ritesh Lunkad, who has subscribed the share application of Rs. 2 lacs, while framing the assessment in the ca....
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....each at a premium of Rs.90/- per share. Similarly, Optimates Textile Industries Limited also applied for 10,000 shares of the assessee company of the same value and premium per share. The learned Additional CIT, Indore (Assessing Officer), has referred the report of ACIT 5(1), Indore, wherein it was found that on the basis of investigation carried out by him in some other cases, M/s Hindustan Continental Limited and Optimates Textiles Limited are not the genuine companies. The report of ACIT 5(1) has been reproduced in the assessment order. This report was confronted to the assessee company by the Assessing Officer, during the assessment proceedings, and after considering the reply of the assessee company it was held that the share capital claimed to be applied by these companies is unexplained, therefore, the same was added to the income of the assessee company. The relevant extract from the assessment order is extracted hereunder :- "The contention of the assessee is not acceptable. Assessee has relied upon the decision of Hon'ble I.T.A.T., Indore Bench, in case of ACIT vs. Kalani Industries Ltd. the said decision was not acceptable to the department and is being contested befo....
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....xtile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecured loans. Since assessee fails to establish identity, creditworthiness and genuineness of the transactions, share application money credited on account of M/s Optimates Textile Industries Ltd. Rs. 1,00,000/- share premium Rs.9,00,000/- is treated unexplained u/s 68 and added back to taxable income. Total addition under this head is Rs. 50,00,000/-" 22. The above finding was confronted to the assessee during appellate proceedings against which the assessee preferred written submissions. During the first appellate stage as well as before us, the Ld. Counsel for assessee has challenged the finding of ACIT on the ground that the said company is a listed company on stock exchange and the Assess....
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....ay be existing either on papers or in real sense but thereafter were specifically found non-existent as the summons/ notices issued were returned back unserved and the commission issued with this purpose also found that these companies were non-existent. At the same time, none of the certificates, claimed to be issued by various authorities, does not establish the identity of the share applicants as the certificates were issued without physically verifying the existence of applicants, such as income tax department receives returns of income or documents without verification of existence of the persons filing the returns/documents. PAN is also allotted to the applicants on the basis of applications without verifying the existence of applicants at the address given in the application. Likewise, Registrar of companies also register a company without physical verification of the existence of the applicant company. There is a specific finding that on verification by the ACIT in the case of M/s Sahayata Marketing Company neither the operators of the accounts were available at the addresses given to the bank nor the introducer. Therefore, the assessee cannot claim to have established the ....
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....act that at the addresses (4 places) given to the department, these companies were found to be non-existent. Even the Inspector was deputed to verify the addresses who also reported that these companies were not available at the given addresses. It is not possible that the companies making huge investment in the form of share application are not found at the given addresses. There is a possibility that there may be a change of address but till the stage of the Tribunal, not to talk of the Assessing Officer or the learned Commissioner of Income Tax (Appeals), no such address was furnished by the assessee, therefore, we are of the considered opinion that the onus was not discharged as the assessee neither furnished the correct addresses nor the creditors were produced rather the assessee tried to stall the assessment proceedings by giving misleading facts and incorrect addresses. Even as per preponderance of probabilities, all facts go against the assessee and the ratio laid down by the Hon'ble Apex Court in the case of Sumati Dayal (214 ITR 801) goes against the assessee. Hon'ble Calcutta High Court in the case of Nivendan Vanijya Niyojay Limited (supra) (page 14) held as un....
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....ble Calcutta High Court in Precision Finance Private Limited; 208 ITR 465 held that inquiry of ITO revealed that either the assessee was not traceable or there was no such file and accordinbgly the first ingredient as to the identity of the creditors has not been established. If the identity of the creditor has not been established, consequently, the question of establishment of the genuineness of the transaction or the credit worthiness of the creditors did not and could not arise. During hearing reliance was placed upon the decision in the case of Stellar Investment Limited; 251 ITR 263 (SC) wherein the issue was subscription of share capital of a public limited company whereas in the present apepals, private limited companies are involved, therefore, there is a material difference between the two as discussed earlier, the shares of private limited companies are generally given to applicants known to the directors whereas in a public limited company the applicants are unknown to the directors. It is pertinent to mention that while coming to a particular conclusion, the Full Bench of Delhi High Court in the case of Sophia Finance Limited (supra) duly considered the case of Stellar....
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....illed the requirement of section 68. A close reading of section 68 makes it clear that in case of section 68 there should be credit entry in the books of account. This is a fundamental difference between these two provisions. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him where the nature and source of a receipt whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source for which we are supported by the decision of the Hon'ble Apex Court in Roshan Di Hatti vs. CIT; 107 ITR 938 and Kale Khan Mohd. Hanif vs. CIT; 50 ITR 1 (SC). It is for the assessee to prove that even if cash credit represents income it is income from a source which has already been taxed for which we are supported by the decision in CIT v. Deviprasad Vishwanathprasad; 72 ITR 194 (SC). The Hon'ble Apex in the case of Sumati Dayal vs. CIT; 214 ITR 801 clearly held that if the explanation of the assessee is unsatisfactory, the amoun....
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....ublic limited company and subscriptions were received from public at large through banking channel and the shares were allotted in consonance with the provisions of the securities contract (Regulation) Act, 1956 as also the rules and regulations of Delhi Stock Exchange and in para 12 the Hon'ble Delhi High Court has clearly differentiated the cases of share capital of private limited company from public limited company by saying "in the case of private placement, the legal regime will not be the same". Therefore, the facts of that case are not applicable to the case of the assessee as it is a private limited company or closely held company. Besides this, in case of M/s Lovely Exports Limited (in para 23), the Hon'ble Delhi High Court noted that the Assessing Officer has neither controverted nor disproved the material filed by the assessee. However, in the present case, the Assessing Officer after making inquiry disapproved the very first information regarding identity of such creditors as they were found non-existent at all the given addresses. So far as the argument of the learned CIT DR that dismissal of SLP in the case of Lovely Export, where there is no merger of order,....
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....epancies in confirmation, the Assessing Officer neither asked anything from the assessee nor made any inquiry to arrive at the conclusion that share applicants were bogus. However, in the present appeal, detailed inquiries were made, notices received unserved, commission also returned empty handed as the share subscribing companies were found non-existent. In that situation, the Hon'ble High Court concluded that once existence of an investor/share holder is proved, onus shifts to the revenue to establish that either the share applicants are bogus or impugned money belongs to the assessee itself. The contrary finding in these cases were confronted to the assessee by the Assessing Officer but the assessee in spite of sufficient opportunity provided, failed to prove the existence of such share applicants companies as the correct addresses were not provided to the Assessing Officer and even the Directors or any of the employees or books of account were not produced. Therefore, the only conclusion arrived at by the Hon'ble jurisdictional High Court in the case of M/s Rathi Finlease Limited that the assessee failed to discharge burden with regard to credits in its books and the e....
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.... the assessee has not been able to give satisfactory explanation in respect of nature and source of any sum or if in the opinion of the Assessing Officer such explanation is not satisfactory, the Assessing Officer may treat the same as undisclosed income and add it to the income of the assessee meaning thereby the assessee is required to give satisfactory explanation about the nature and source of such sums found credited in the books of account. What kind of proof is to be furnished by the assessee is a question. It has come up for discussion in various judgments rendered by various Hon'ble Courts including Hon'ble Supreme Court and High Courts. The law discussed by the Hon'ble Court in the case of CIT v. Divine Leasing & Finance Limited (2008) 299 ITR 268 is also an important decision to quote. A delicate balance has to be maintained. The Hon'ble Delhi High Court in CIT v. Dolphin Canpack Ltd.; 283 ITR 190 quoted at page 193 the following observations :- "....credit entry relates to the issue of share capital, the Incometax Officer is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing....
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....hare holder The genuine of transaction The credit worthiness of the share holder During hearing, Shri R.K. Chaudhary and Shri K.K. Singh the learned Commissioners of Income Tax contended that Hindustan Continent Pvt. Ltd.; Agrawal Road Carriers Pvt. Ltd. and Suni Shares and Stock Limited (inter-connected with each other), are paper concerns. These companies provided accommodation entry to various parties of Indore, Bhopal, Gwalior, Nagpur, Surat, Mumbai, Ahmedabad, Vadodara, and in various other cities through their bank accounts maintained AXIS Bank, Indore, during the period 1.4.2002 to 31.3.2005. The modus operandi operated was that the accommodation entries would first pay the cash which was deposited in bank accounts maintained in the name of M/s Yash Associates, M/s G.R. Investments, M/s V.S. Traders, Path Pradarshak Finvest Pvt. Ltd., M.S. Ribeka Garg and Bhanuraj Singh Ranawat, etc. maintained in the same bank branch (in due course old accounts were closed and new accounts in the name of new concerns were opened). Thereafter, the amount was transferred in any of the account of Hindustan Continental Private Limited, Agrawal Road Carriers Private Limited and Sunil Share....
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....naik; 160 ITR 674. 32. So far as the contention of the Ld. Counsel for assessee to the effect that the issue is squarely covered by the decision of the coordinate Bench in the case of Kalani Industries is concerned, we do not find any substance in the same in view of the fact that the addition made in the cases before us was after passing of the order by the Tribunal and the inquiry conducted by the Department thereafter. The enquiry so conducted by the Department after the relevant assessment years involved in the case of Kalani Industry, it was found that neither the share applicants were found existing at the address given by the assessee nor at different addresses supplied by the assessee to the Assessing Officer during the course of assessment proceedings. AS the facts of subsequent year are different, the decision arrived at by the Tribunal in assessment year 2003-04 cannot be applied to the assessment years 2005-06 & 2006-07, facts of which are materially different. 33. The contention of the Ld. Counsel for assessee that in view of the decision of the Hon'ble Supreme Court in the case of Lovely Exports, the issue is covered in favour of the assessee, as per our consi....
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....existence on the Company Law Board is not a sole proof that in fact the share applicants are in existence especially when right from the assessment stage to the stage of the Tribunal (three stages) the assessee did not prove the identity of the share applicants. Technicalities also help those who are with clean hands. However, we are in agreement with the argument of the assessee that the winding up powers of a company lies with the Hon'ble High Court but this issue is not before us, therefore, we are refraining ourselves to comment further. It was fairly accepted by the ld. Counsel for the assessee that in the present appeals merely the assessee filed certain documents which did not prove the identity but did not produce the share applicants/subscribers. At the same time, the learned CIT DR time and again is harping that the share applicants are merely paper companies. Therefore, from this angle also, we are not convinced with the argument of the assessee. With regard to the contention of ld. AR that copy of the inquiry conducted by the Assessing Officer was furnished to the assessee only one day prior to the completion of assessment, we found that the assessee has got full opport....
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....n by the jurisdictional High Court in Rathi Finlease cannot be applied after the decision of the Hon'ble Supreme Court in the case of Lovely Exports, have no legs to stand insofar as the jurisdictional High Court in the case of STL Extrusion wherein case of Lovely Export was relied on, duly approved its previous proposition laid down in case of Rathi Finlease. He further submitted that jurisdictional High Court in the case of ACIT vs. Shree Kela Prakashan Private Limited affirmed the decision of the Tribunal reported at (2010) 14 ITJ 539 dated 8.10.2009, therefore, the later decision has to be followed. As per our considered view, the contention of the Ld. Counsel for assessee is wholly misplaced insofar as decision of Hon'ble Supreme Court in the case of Lovely Exports (supra) itself presupposes the establishment of identity as a pre-condition for not making addition in the hands of the assessee company. In the case of Shri Kela Prakashan Private Limited, the Tribunal has given a categorical finding that the assessee has proved the identity of the subscribers. therefore, no addition was warranted in the hands of the assessee. However, in the instant case before us, the ide....
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....onsequently, there is no question of admitting by the share holders regarding money invested by them and then shares allotted to them. This judicial pronouncement also goes against the assessee. Hon'ble Delhi High Court in a later decision in Vijay Power Generators Limited v. Director of Income Tax and others (ITA No. 514 of 2007) (2011) 333 ITR 119 (Del) at page 136 the appeal was admitted on the following question of law :- " Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has erred in law in sustaining the addition of Rs. 25,23,500/- on account of receipt of share application money ? 37. The facts leading to the admission of the aforesaid question were as follows :- The assessee in the income tax return for the assessment year 1997-98 had shown receipts in the form of share money subscribed of 15 per cent to whom the shares were later on allocated. Total money on this account received by the assessee was Rs. 25,23,500. The investment in these shares was ranging from Rs. 1 lakh toRs. 2.5 lakhs. In order to verify the genuineness of these transactions, the Assessing Officer issued summons to these parties which were received b....
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....m other agriculturists. No evidence regarding the agricultural holdings were produced before the Assessing Officer nor have they filed any evidence with regard to their financial soundness whereas the investment in shares were made between Rs. 1 lakh to Rs. 2.5 lakhs. Copy of the statement are (sic. Is) placed on record and from its perusal one would find that all these 5 persons are of ordinary status and they have no means to invest a huge sum in shares with the assessee. 16. So far as the legal position and the judgment of the apex court in the case of Steller Investment Ltd. (2001) 251 ITR 263 is concerned, we are of the view that the ratio laid down in Steller Investment Ltd. (2001) 251 ITR 263 is applicable only in those cases where the assessee is a limited company and the shares were quoted in the stock exchange. Once the shares are quoted in the stock exchange and the subscription is open to public at large, the assessee cannot have control over the subscription and also cannot make a verification of the subscribers as subscription can be done by any person. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited comp....
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....r who also purportedly purchased the shares of Rs. 1.90 lakhs stated that the payments were made by him in cash in many instalments. He also stated that he personally knew the directors of the company and had very old relation with him. On the basis of such statement without an iota of documentary evidence to support, we are of the opinion that the findings of the authorities below cannot be treated as perverse. It is on proper analysis of the statements of these persons which were recorded by the Assessing Officer. When we keep in mind the principle of law laid down in the ratio in the aforesaid decisions and apply the same to the facts of this case, it is difficult to find fault with the approach of the Tribunal. We have to keep in mind that the ratio in a decision cannot be applied in each case. The facts and circumstances of each case are to be weighed and examined as to whether a particular ratio decided in a particular casae could be applied. As noted above, the initial onus is upon thye assessee to establish three things necessary to obviate the mischief of section 68 of theAct. These are : (i) the identity of investors; (ii) their creditworthiness/investments, and (iii)....
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.... would not be sufficient compliance. Even the bank statement of the assessee which was submitted has not been proved. 46. For all these reasons, we are of the view that the assessee had not been able to discharge the onus probandi and addition was rightly made. We, therefore, answer the question in the negative and dismiss this appeal of the assessee." 40. If the aforesaid conclusion drawn by the Hon'ble High Court is kept in juxtaposition with the facts of the present appeal, one fact is clearly oozing out that the assessee has not discharged its onus to the satisfaction of the Assessing Officer and even did not prove the identity of the share applicants. Merely giving the names of such share applicants is not enough especially when these applicants were found nonexistent, therefore, this judicial pronouncement clearly goes against the assessee. It is pertinent to mention here that while coming to the aforesaid conclusion the Hon'ble Court also discussed the decisions like AKJ Granites Private Limited; 301 ITR 291 (Raj), CIT v. Arunalanda Textiles Pvt. Ltd. (2011) 333 ITR 116 (Karn.) (para 17) order dated 2nd March, 2010, CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) ....