TaxTMI 
TaxTMI 
2023 (4) TMI 333
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee is as under:- "The ld. Commissioner of Income-tax (Appeals)-1, Ahmedabad [ld. CIT(A) for short] has grossly erred in law and on facts in confirming the addition of Rs.25,00,00/- being addition to the share capital on the ground that the appellant fails to discharge the onus u/s 68 of the Income-tax Act." 4. The issue raised in this ground of appeal is related to the addition made in the income of the assessee on account of genuineness of the share capital of Rs.25,00,000/- remaining to be explained. The learned CIT(A) has dealt with the facts of the case and has adjudicated the issue at paragraph Nos. 2.3 to 2.7 of his order as under:- "2.3. I have carefully considered the Assessment Order and submission filed by the Appellant. On careful perusal of the Balance sheet, the A.O. has observed that Appellant company has raised share capital of Rs. 25,00,000/-. The A.O. has asked appellant to submit the proof of identity, creditworthiness and genuineness regarding share capital of Rs. 25,00,000/-. The appellant has furnished the detail in respect of share capital raised during the year as under:- Sr No. Name Address No. of share allotted duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shareholders were not submitted by the appellant even after reasonable opportunities given both at the time of assessment as well as appellate proceedings. It is a well settled law that once an amount is found credited in the accounts of the assessee; it is the assessee who has to prove that identity, source and creditworthiness of such persons/parties/depositors. In all the decision cited by the appellant the Hon'ble Courts have held that the appellant has to prove the identity, source and creditworthiness of such persons/parties/depositors. The assessing officer has duly discharged his burden in this case by pointing all various contradictions in the claim of appellant while appellant has miserably failed to discharge his burden to prove creditworthiness of these transactions. 2.6 The issue regarding entry (in respect of share application money has been examined in detail by Hon'ble High Court of Delhi in one of its leading judgment in the case of CIT v/s Nova Promoters Fin Lease Private Limited in 18 taxmann.com 217 Delhi. In this case the Hon'ble High Court has considered various case laws on the issue and held that where modus operandi of entry operators ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 2.9. Hon'ble High Court also distinguished the decisions in the case of Lovely Exports P. Ltd. in (2008) 299 ITR 268, general exports and credits Ltd and Divine leasing and finance by making the following observation: 32. Since strong reliance was placed by the assessee on the order of the Supreme Court in the case of CIT v Lovely Exports P. Ltd., (2008) 216 CTR (SC) 195 it would be necessary to examine the facts of that case and the ratio laid down therein in order to decide the applicability of that case to the one before us. It would also be necessary to examine the string of decisions of this court on the question of applicability of section 68 of the Act to monies received as share capital. 33. The facts of CIT v Lovely Exports (P) Ltd. (supra) have been set out in the judgment of this court in that case, reported as CIT vs (1) Divine Leasing & Finance Ltd. (2) General Exports and Credits Ltd. and (3) Lovely Exports....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Full Bench of this court in Sophia Finance (1994) 205ITR 98 (Delhi) could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscribe to the shares and held that it was a matter of concern only of the appropriate authority under that Act. Accordingly, the ultimate decision of the Tribunal cancelling the addition was upheld. 35. The facts of Lovely Exports P. Ltd., as noted by this court, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company." We may also note that a reference was made by this court to several authorities, including at least seven judgments of this court on the question of applicability of section 68 to share application monies, and the position was pithily summed up as follows at page 282 (of 299ITR): "In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecuted with the connivance or involvement of the assesses excludes the applicability of the ratio, in our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 39. The case of Orissa Corporation (1986) 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in Dolphin Canpack (2006) 283 ITR 190, CIT v Makhni and Tyagi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ating Wing and on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Wing." These quoted observations clearly distinguish the present case from CIT v Oasis Hospitalities P Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard. Further, the assessee had not been confronted with the material collected by the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing. 41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee- company, but the Assessing Officer had also provided the statements of Mukesh G....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o share capital of Rs.12,50,000/- each received from two persons, i.e. (i) Shri Hiteshbhai Balubhai Shah and (ii) Shri Poojan Hiteshbhai Shah, remaining unproved for the genuineness of the share capital. A perusal of the order of the Ld.CIT(A) reveals that the assessee had furnished only the name, address and PAN of the aforesaid two parties to evidence the genuineness of the transactions. Nothing was filed to prove the creditworthiness. The learned CIT(A) has held that the above, therefore, was insufficient for discharging the onus to prove the creditworthiness and genuineness of the said transaction. In the absence of any submissions made on behalf of the assessee before us controverting the aforestated facts as noted by the Ld.CIT(A), we see no reason to interfere in the order of the learned CIT(A) who has rightly appreciated the facts of the case and held that the evidences furnished by the assessee did not establish the creditworthiness of the parties to make the impugned investment in share capital, and the genuineness of the transactions therefore remained unproved. The order of the learned CIT(A) upholding the addition made on account of unexplained share capital of Rs.25,0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orthiness of such persons/parties/depositors. The issue regarding credit entry has been examined in detail by Hon'ble High Court of Delhi in one of its leading judgement in the case of CIT v/s Nova Promoters Fin Lease Private Limited in 18 taxmann.com 217 Delhi. In this case the Hon'ble High Court has considered various case laws on the issue and held that where modus operand! of entry operators taking cash from assessee company and then providing share application money through cheques from various companies to assessee company has been unearthed. The fact that these monies were received through banking channels or that companies existed in the ROC's register do not meet the burden of proof under section 68 of the LT. Act. The evidence adduced by the assessee has to be examined and not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. The affidavits submitted by the assessee need not be accepted as a reliable when there is enough material on record to doubt the veracity of the transaction. In such a case it cannot said that the affidavits can be rejected only after cross verification. In this judgement CIT v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion that the loan taken of Rs. 5,00,000/- from Bhavnaben Hitesh Shah is not genuine. The assessing officer has given detailed reason in the assessment order for coming to this conclusion (as discussed supra) which is not repeated here. In view of various discrepancies pointed out by the assessing officer, the appellant was not able to prove source and creditworthiness of the person as discussed above in this case. The appellant has failed to discharge the onus of the two limbs (source and creditworthiness) of the section 68 of the IT Act. The addition on loan taken from Bhavanaben Hitesh Shah of Rs.5,00,000/- made u/s 68 of the IT Act by the assessing officer is confirmed. The ground of the appellant is dismissed." 8. We have gone through the order of the learned CIT(A) and we have noted that, as evidence of the genuineness of the unsecured loan of Rs.5,00,000/- received by the assessee from one Bhavnaben Hitesh Shah, the assessee submitted only the return of income of Bhavnaben Hitesh Shah. No confirmation was filed by the said party. The case of the assessee was that the amount was received through banking channel. We are in agreement with the learned CIT(A) that the documents....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cash has been invested in the Land for cash payments and the whole value of purchase deed already recorded in the books of accounts, and the same reproduced before A.O. at the time of assessment proceedings. Thus is not the unrecorded investment, accordingly addition for consideration mentioned in the purchase deed considering the same as unexplained Investment is required to be deleted. 4.4 On careful consideration of observation of Assessing Officer and contention of the Appellant, it is observed that the Assessing officer has made addition on the basis of cash payment made for purchase the land and appellant has not provided the supporting evidences regarding cash payment before the A.O. at the time of assessment proceedings. It is observed Appellant has nowhere proved or submitted any evidences which can establish that source ofcash payments for investment in land should be allowed. Further, the appellant has not submitted any detail during the time of appeal proceedings before me. Hence as the appellant could not justify his claim even after reasonable opportunities given both at the time of assessment as well as appellate proceedings it can be presumed that he has no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the facts and circumstances of the case the Tribunal was right in holding that income on the unexplained investments should be considered in the hands of the firm, M/s. V. V. Enterprises. For the sake of convenience, we mention herein below the facts of the civil appeal arising out of Special Leave Petition (C.) No.11596/2006. K. Chinnathamban, the respondent-assessee, was connected with the firm by the name V. V. Enterprises, having its premises at Nos. 2 and 3A, East Perumanoor Road, Salem. There was a search in the premises by police officers on August 19, 1991, when Rs. 1.18 crores (approx.) was seized. This seizure was followed by a survey under section 133A and investigations under section 132 of the Income-tax Act, 1961 (hereinafter referred to as the "said Act"). The firm was managed by one K. Palanisamy who had filed his return and who appeared on summons and gave statements. In the course of assessment proceedings, it was detected that the books of accounts were incomplete. K. Palanisamy was not in a position to explain the source of the deposit amount of Rs. 1.18 crores (approx.). Therefore, the Assessing Officer ("the AO") treated the said amount as undisclosed incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee could not establish the source of deposits. The Department was right in coming to the conclusion that there was no evidence in support of the claim of the assessee that the aforestated amount was collected from the members of the public. The assessee had failed to show that the collections did not represent his income. In order to find out whether the assessee is the owner of any money in terms of section 69A of the said Act, the principle of common law jurisprudence in section 110 of the Evidence Act, 1872 can be applied. In the case of Chuharmal Vs. CIT reported in [1988] 3 SCO 588 it has been held by this court that the word "income" in section 69A of the Income-tax Act has wide meaning which meant anything which came in as gain. In the present case, the assessee did not adduce any evidence to show that the aforestated amount did not belong to him. In the facts of this case, therefore, the Department was right in drawing inference that the assessee had the aforestated amount as his income which was subject to tax under section 69A. In our view, the Tribunal should not have interfered with these findings of fact rightly recorded by the Assessing Officer and the Commissione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sit appeared in various banks. In the circumstances, the Department was right in making individual assessment in the hands of the respondent-assessee, K. Chinnathamban. Similarly, the Department was right in making the individual assessment in the names of other respondent-assessees, who are parties to connected civil appeals herein. Accordingly, the above civil appeals filed by the Department are allowed with no order as to costs". 4.5. At the time of hearing the appellant has requested for additional evidences under rule 46A of LT. Act regarding addition made by the A.O. u/s 69 of the LT. Act as undisclosed investments. The same has been accepted when finalizing the appeal. It is seen that the appellant has given the copies of cash book of Poojan Shah, Hitesh Shah and P&L A/c., balance sheet and its annexure of the appellant company. It is to be noted that these details are already submitted to the A.O. at the time of assessment proceedings and has been taking note of them. It is further seen that these papers are no help as per as the unexplained investment u/s. 69 has been made and do not prove the source of investments. Considering the facts discussed herein above and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....:- "5.3. I have carefully considered the Assessment Order and submission filed by the Appellant. On careful perusal of Profit & loss account, it is seen that the appellant has claimed employee benefit expenses of Rs. 6,44,000/- which included Salary, Wages and bonus & director's remuneration and other expenses which included machinery expenses, property valuation charges and documentation charges etc. of Rs. 7,10,000/- The A.O. has asked to appellant to submit the copy of ledger account of various expenses with supporting evidences. However, in spite of issuing various notices/letters, the assessee has not filed the details in support of various expenses with supporting evidences. However, the assessee has not furnished any details. In the absence of supporting evidence, the A.O. has made disallowance of Rs. 13,54,000/- and added back to the total income. On the other hand appellant has contended that purchase of Rs. 5,00,000/- relates the machinery purchase from which the sales affected and relates to the Director Remuneration which is already shown in the return of income of the promoters and the same reproduced before A. O. at the time of assessment proceedings....