AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 995
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.... as ' unexplained expenditure as commission @2% paid on arranging entry of Rs.4,80,00,000/- which is baseless, contrary to facts born on record and provision of law as such liable to be deleted. 4. That the Ld. CIT (A) has erred it confirming an addition of Rs.4,80,00,000 U/s 68 on account of share capital as unexplained cash credit and holding the same as income from undisclosed sources, this addition being arbitrary and contrary to the facts and provisions of law and is liable to be deleted. 5. That the Ld. CIT (A) has erred in confirming the penalty proceedings under sec 271(1) (c) of the act, which is misconceived on facts and in law and hence liable to be filed. 6. The Ld. CIT (A) has acted arbitrarily, perversely and on presumption basis, contrary to the principles of natural justice, facts and provision of law in conducting the proceeding and framing the order and same stands vitiated being bad in law and liable to be quashed." 3. Briefly stated, the assessee is a private limited company engaged in the business of trading of fabrics. For AY 2012-13 which is its first year (incorporated on 23.11.2011) it filed its return on 28.09.2012 declari....
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....e to summons u/s 131 duly served two times. The persons behind this company was not produced by the assessee despite various opportunities provided. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case, required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each ease. It depends on whether the two parties are related or known to each, the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. It is also pointed out that Certificat....
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....Ltd. to record the statement of the competent authorized persons of the company in addition to various other details mentioned on page 4 of the Assessment Order. The Director of the said company did not appear personal as required in the summons u/s 131. However, a written reply was filed in the office of the Assessing Officer. The written reply included acknowledgement of ITR for AYs 2011-12 & 2012-13, copy of Balance Sheet and Profit & Loss Account for AY 2012-13 without any schedule and with extract of one page bank statement The Assessing Officer examined the financial statements of M/s. Pushpanjali Export Pvt. Ltd. and noticed that the gross receipts were at Rs 17,78,245/-. The expenses were claimed at Rs. 16,84,544/-. The net profit was declared at Rs.93,700/-, however, the income shown in the ITR was Rs.2,795/-. The Assessing Officer issued notice u/s 133(6) to Punjab National Bank, G.T. Road, Azadpur, Delhi to obtain the bank statement of M/s. Pushpanjali Export Pvt. Ltd. On perusal of the statement, the Assessing Officer found that there are entries of huge amounts both on credit and debit sides Thereafter, the Assessing Officer issued a questionnaire to the Assessee. In t....
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....ng Officer has observed that earlier notices were being served on the same address. The Assessing Officer asked the authorized representative of the Assessee company to furnish current postal address of M/s. Core International Ltd. On the next date of hearing, the director of M/s. Core International Ltd. was not produced on the ground that he was station. 8.3 The Assessing Officer analyzed all the facts and documents in his possession and observed that the creditor company did not have any substantial assets. The entire funds were invested in the shares of other companies and loans / advances. Though this company was incorporated on 30.05.1985, it showed (-)2,40,012 in the reserves and surplus. The Assessing Officer could not ascertain as to what type of business the creditor company was doing in all these years. The creditor company showed the gross Receipts at Rs. 11,88,561/- in the year ending 31.03.2011. Profit of Rs.31,766/- was shown in this year. In the next financial year, gross receipts and net profit were shown at Rs.l7,78,245/- and Rs.93,700/- respectively. 8.4 The Assessing Officer has extracted the bank statement of M/s. Pushpanjali Export Pvt. Ltd. o....
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....ee company was incorporated with the object of trading, import and export of good on a large scale and huge turnover. This was the reason for issued the shares at premium within the ambit of corporate and taxation laws of India. The Assessee submitted the following documents to prove the identity an creditworthiness of the creditor and genuineness of the transaction : A. Confirmation of Party B. Copy of ITR C. Share application forms D. Copy of Bank Statement E. Copy of MOA F. Copy of Name change certificate G. Copy of Company master data as per MCA records ' H. Copy of audited balance sheet having net owned funds than Rs.27.34 crores as on the beginning of the financial year 2011-12 I. Form 2 filed with ROC for allotment of shares 8.7 With respect to the creditworthiness of the creditor company light of meager net profit shown in the Income Tax Returns, it has been submitted that even a company incurring losses may have creditworthiness. The creditworthiness depends on its net worth. On the observation of the Assessing Officer that Assessee company has not given any dividend on its shares....
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....any otherwise there is no use to invest its funds without earning any income. The Appellant company could not produce the director of M/s. Pushpanjali Export Pvt. Ltd. who must close touch with the directors of the Appellant company because in the cases of private limited companies the funds are arranged from people in close touch. The director of the creditor company avoided his personal presence before the Assessing Officer on one pretext or the other. Summons sent to M/s. Core International Ltd. was received back in the office of the Assessing Officer with the postal remarks "Left" while earlier letters were being served on the same address. The bank account of M/s. Pushpanjali Export Pvt. Ltd. was opened on 10.09.2008 and closed on 10.10.2013 which normally happens in the cases of companies having little substance or nominal business activity. Many other facts which have been narrated in the order of the Assessing Officer are not being repeated here for the sake of brevity. 8.9 The Appellant failed to rebut the observations of the Assessing Officer stated above. The Appellant rather beats about the bush to defend its case. The courts have been holding that substance of....
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....wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuge." Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe. 8.12 Reliance is also place on the decision of the Hon'ble Supreme Court in the case of CIT vs. P. Mohankala (15/05/2007) wherein the SC held that- "The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous....
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.... strictly speaking be accepted evidence in a court of law. 8.15 Further, it would be relevant to cite the decision of Hon'ble ITAT Delhi in the case of Hersh Win Chadha in I,T.A.Nos.3088 to 3098 & 3107/Del/2005 where the Hon'ble ITAT has held as under- "6.13. It would, at this stage, be relevant to consider the admissibility and use of circumstantial evidence in income tax proceedings. Circumstantial evidence is evidence of the circumstances, as opposed to direct evidence. It may consist of evidence afforded by the bearing on the fact to be proved, of other and subsidiary facts which are relied on as inconsistent with any result other than the truth of the principal fact. It is evidence of various facts, other than the fact in issue which are so associated with the fact in issue that taken together, they form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are - the circumstances alleged must be established by such evidence, as in the case of other evidence the circumstances proved mu....
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....nce the assessee furnishes PAN, addresses of the creditor/subscriber with copies of the shareholders register, share application forms, transfer register, etc. This would constitute sufficient explanation 1 assessee. The Hon'ble Supreme Court was in agreement with above decisions of Delhi High Court, however, on conclusion of facts only without answering the ratio laid down as sought to be pronounced by Delhi High Court [Ref: Hindustan Tea Trading Co. Ltd. vs. CIT 263 ITR 289 (Kol)]. 8.19 However, subsequently, the above decisions of the Hon'ble Supreme Court and Delhi High Court have been considered by various Courts including Delhi High Court itself. Based on the findings of facts and detailed investigations, these courts have distinguished the observations of the Hon'ble Supreme Court in Stellar Investment Ltd and Lovely Exports Pvt. Ltd. and have upheld the invoking of section 68. i. CIT v. Nova Promoters and Finlease (P.) Ltd. [2012] 342 ITR 169 (Delhi) "The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete, particulars of the share a....
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....r Investment Ltd.'s case [2001] 251 ITR 263, the apex court had parsed the following order: "We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs." From the above observation, it appears that the Supreme Court has not entered into the question involved or has not decided the ratio laid down. It had plainly held that it was a question of fact. The Supreme Court has not laid down any proposition with regard to the question. It was purely a question of fact with which the apex court had dealt with and was in agreement with the High Court on conclusion of facts. Therefore, it cannot be said that the Supreme Court answered the ratio laid down as sought to be propounded by the Delhi High Court in Stellar Investment Ltd. 's case [1991] 192 ITR 287. A decision becomes binding as a precedent only when the court decides a particular question of law or lays down through conscious adjudication The above decisions almost in one voice laid down that when such question arises, it is in....
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.... case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness identity are deeper and obtrusive Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them". v. CIT v. Gold Leaf Capital Corporation Ltd. [2013] 353 ITR163 (Delhi) The Hon'ble Court concurred with the view of the Hon'ble Tribunal and observed that: "The conduct of the assessee has been beautifully summarized by the Tribunal itself in the following manner: "All this is again indicative of the tact that in fact the assessee from day one of initiation of initial assessment proceedings was in a position to exercise control on the investing companies and still it withheld all the necessary information called for by the Assessing Officer, which could enable the Assessing Officer to test the genuineness of the transaction and creditworthine....
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....with the observation: "We do not see any merit in this special leave petition, which is hereby dismissed". vii. Onassis Axles P. Ltd. v. CIT [2014] 364 ITR 53 (Delhi) "14. Lovely Exports Pvt. Ltd. (supra) is an authority for the proposition. That the assesses is under an obligation to dispel any doubts regarding the genuineness of an investor and the genuineness of the transaction. Here, though the assessee furnished particulars relating to three share applicants, the further inquiry made Assessing Officer raised more questions than answers. The share applicants lack of resources, the assessee's position vis-a-vis share amounts received and its commercial condition all pointed to the amount received by it falling within the of section 68 as unexplained amounts. That the Assessing Officer or the Income- Tax Appellate Tribunal chose to treat the amount, as bogus share capital, is a matter of inference which the court would be loath to interfere with. 15. For the above reasons, this court answers the question framed, in favour of the Revenue and affirms the view of the Income-tax Appellate Tribunal. The appeal is, therefore, dismissed, with no o....
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.... proved before investigation wing cannot be simple to ignore. * Source of funding is important ingredient of the onus of the assessee. * It is not sufficient that the identity of the share application or creditors should be established for the assessee to discharge the initial onus which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and creditworthiness of the share applicant or the individual who is advancing amounts. 8.20 In view of the above facts and in the circumstances, I hold that the Appellant failed to prove the nature and source of share capital amounting to Rs.4,80,00,000/-. Therefore, the addition made u/s 68 of the Act Assessing Officer is confirmed. 8.21 I also confirm the addition of Rs.9,60,000/- because that is consequential. Once it is established that the said creditor company advanced the funds to accommodate the Appellant company, that is not possible without charging commission. 8.22 Therefore, the above grounds taken by the Appellant are dismissed and the additions are confirmed." 7. Dissatisfied, the assessee i....