TaxTMI 
TaxTMI 
2023 (5) TMI 995
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....ing 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 declaring income of Rs. 8,164/-. Its case was selected for scrutiny under CASS. Statutory notice....
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....see 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 Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfa....
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....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 the notice, the Assessing Officer observed that the Assessee company was incorporated in FY 2011-12 itself. There are no fixed assets exce....
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.... 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. on pages 11 to 16 of the Assessment Order Aggregate of credit entries on a single date was Rs.2,60,00,000/-. Most of the credit and debit entries were in the r....
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....sessee 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 as the investments are made with profit motive, the Appellant has submitted that it is almost impossible for a company to earn sufficient profits to declare dividend amongst its shareholders in the initial years. By submitting the necessary documents, the Assessee company discharged its initial burden. ....
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....eople 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 any facts is more important than the form. In order to understand the substance of a particular thing or happening, it is important to look at the circumstantial evidences. With respect to the circumstantial evidence and in the matter related to the discharge of onus of proof and the relevance of surrounding circumst....
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....ham 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 year. The expression "the assessee coffers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on prope....
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....roceedings. 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 must be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced; some of these li have to be inferred from the proved facts; in drawing those inferences or presumptions, the Authorities must have regard....
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.... 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 applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec 68 and the remedy op....
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.... 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 incumbent on the assessee to prove and establish the identity of the subscriber and prove their creditworthiness and the genuineness of the transaction. The furnishing of material is not sufficient. The income-tax authority has a right to pierce the veil and find out the real nature of the transaction. But once sufficient material is produced and explanation is given, the onus is discharged and shifted on the Revenue. Having regard to the materials, it might ask for further materials from the asses....
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....apital 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 creditworthiness of the investing companies by verifying the genuineness of the claims made by the assessee before the CIT (A) on the basis of those documents which the assessee filed for the first time before the CIT (A) during the 2nd inning or the appellate proceedings. Thus, it stands established that in fact the assessee produced only the information/documents/ person for recording statement called for by the Assessing Officer suited the interest of the assessee and intentionally withheld that information which did not suit the interest of the assessee." v....
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....ssessee'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 order as to costs." viii. Commissioner of Income Tax-11 vs. Jan Sampark Advertisement & Marketing Pvt. Ltd. 2015-TIOL-600-HC-DEL-IT. "Since section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to....
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..../-. 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 is before the Tribunal. 8. The case was fixed for hearing on 02.08.2021, 04.10.2021, 22.11.2021, 20.01.2022, 06.07.2022, 05.01.2023 and 29.03.2023. None appeared for and / or on behalf of the assessee company on any of the above dates, though the Ld. DR remained present on all the aforesaid dates of hearing. We have, therefore, no alternative but to proceed to decide the appeal ex-parte on merits after hearing the Ld. DR. 9. The Ld. DR strongly supported the order of the Ld. AO/CIT(A). 10. We have gone through the orders of the Ld. AO/CIT(A) and perused the records. The Ld. AO found credits amounting to Rs. 4,80,00,000/- in the name of M/s. Pushpanjali Exports Pvt. Ltd. in the books of account of the assessee on different ....