TaxTMI 
TaxTMI 
2012 (3) TMI 708
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.... account of unexplained subscription towards 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....
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.... Kumar Menon son of Shri Haridutt Menon was also an incometax assessee who has given Rs. 40,000/- in cash and Shri Rajiv Yadav son of Shri Jayprakash Yadav, who 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....
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...., during the assessment proceedings, noted that M/s Hindustan Continental Limited, applied for 40,000 shares of the assessee company of the countenance value of Rs.10/- 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 up....
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....pany exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile 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....
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.... registered with Registrar of Companies and their income tax returns were filed and both are having PANs/bank accounts. We are not agreeing with this proposition because at the time of registration, these companies may 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....
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....the onus shifted to the department when copy of share application form, PAN, name and addresses and ROC registration, etc. were filed by the assessee. We are not agreeing with the submission of the assessee in view of the fact 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 ....
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....l. Shares cannot be issued in the name of non-existing persons. The use of words "may be charged"in section 68 clearly indicates that the ITO would then have the jurisdiction if the facts so warrants to treat such credit to be the income of the assessee." The Hon'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 dir....
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.... to be formed objectively with reference to the material available on record. In the present appeals, the Assessing Officer was never satisfied and the notices/summons issued to the subscribing companies, were found to be fictitious or non-existent, therefore, one fact oozing out that the assessee has not fulfilled 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 represent....
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....ations. The assessee merely wants to take shelter of the decision of the Hon'ble Apex Court in the case of Lovely Exports Private Limited wherein it was held that even the share applicants are bogus, it cannot be added in the hands of the assessee. In that case the Tribunal clearly noted that the assessee was a public 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 presen....
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....ted (2011) 333 ITR 269, relied upon by both the sides before us. We find that the facts in STL Extrusion are materially different from both the assessees, namely, M/s Agrawal Coal Corporation as well as from M/s Rathi Finlease Limited. In the case of M/s STL Extrusion on receipt of confirmation of share applicants, except observing discrepancies 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 ....
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....(Del) 12.CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del) 13.CIT V. Steller Investment Ltd. (2001) 251 ITR 263 (S.C.) 14.CIT v. Value Capital Services P. Ltd. (2008) 307 ITR 334 (Del) 15. Madhuri Investment Pvt. Ltd. v. ACIT(ITA No. 110 of 2004 dated 18.2.2006 (Karn.) 16. Shree Barkha Synthetics Ltd. vs. ACIT; (2006) 283 ITR 377 (Raj.) 29. As per the provisions of section 68 of the Act, in case 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....
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.... The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation." 30. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its burden, the assessee is required to prove - The identity of the share 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 opera....
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....ge 125) it has been held that Sunil Shares & Stocks Private Limited failed to provide necessary information to the investigating authority of SEBI and penalty of Rs. 2 lacs was imposed in terms of provisions of section 15A(a) of SEBI Act, 1992 for failure to provide necessary information to SEBI. 31. The Hon'ble Apex Court in the case of Vijay Kumar Talwar v. CIT (2011) 330 ITR 1 (S.C.) on the issue u/s 68 read with section 260A decided in favour of the revenue . Identical ratio was laid down by the Hon'ble Supreme Court in case of CIT v. Biju Patnaik; 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 a....
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....see that the company can only be wound up by the order of the Hon'ble High Court and death of the company is known to the process of law and also that the company is still available on the website of the Company Law Board is concerned, we are not agreeing with this proposition of the assessee because here it is not a case of winding process rather it is a case of admissibility of claim of the assessee u/s 68 of the Act. Since the share applicants'/share subscribers' identity is not proved, therefore, the assessee cannot be permitted to take shelter of technicalities. Even otherwise, website 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 asse....
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.... the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee has not proved the identity of such share applicants. 37. The contention of the Ld. Counsel for assessee to the effect that the decision of Rathi Finlease by the jurisdictional High Court was rendered much prior to the decision of the Supreme Court in the case of Lovely Exports (supra) therefore, the proposition laid down 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 de....
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....the aforesaid conclusion is analysed, one fact is clear that the identity of the share holders has to be proved by the assessee. However, in the present appeals the identity itself is in dispute, therefore, the aforesaid decision clearly supports the case of the revenue. 38. Likewise in the case of CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) the shareholders admitted the payment of amount for shares to be allotted. In these circumstances, Hon'ble Court held that the amounts of share capital cannot be added in the assessee's hands. However, in the present appeals, the share applicants itself are non-existent, consequently, 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 sus....
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.... following manner :- "15. Having carefully examined the material available on record and the orders of the lower authorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the assessee could not produce them for verification nor was any evidence filed with regard to their financial status. Out of 15 subscribers, 5 subscribers were produced before the Assessing Officer and during the course of the examination it was admitted that they were small agriculturists and were cultivating the agricultural land after taking it on lease from 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 p....
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....ies below on the basis of which finding of fact is arrived at that neither their identity is established nor their capacity to invest this kind of money is proved. They are all agriculturists and had not produced a single document to support their version. This is a finding of fact and there is no reason to interfere with the same. Learned counsel for the revenue had drawn our attention to view all these statements. One Mr. Sukh Lal Singh in his statement had stated that he had purchased the shares of Rs. 1,90,000. Out of the share money, he had paid Rs. 70,000 out of his own source and Rs. 1,20,000 was received by him from his friends and was paid in many instalments. Likewise one Mr. Vijay Kumar 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 whic....
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....areholders remained unverifiable. No comments can now be offered at this stage without necessary verification. Proof of identity produced at a later stage cannot be verified in the absence of concerned person's original documents." 45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even reproduced in the order and thereafter the learned Commissioner of Income Tax (Appeals) discussed the same in the light of certain decisions cited before him and came to the conclusion that the assessee had not given satisfactory evidence to discharge the onus. It had merely given names of the parties without anything more. That 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 ....