TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 982
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....ion of Rs.1,12,37,50,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on irrelevant considerations and arbitrary grounds. 3. That the learned Commissioner of Income Tax (Appeals), Bilaspur, erred in confirming the addition of Rs. 1,12,37,50,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on the basis of judgments which are distinguishable on facts as well as on law. 4. That the learned Commissioner of Income Tax (Appeals), Bilaspur erred in confirming the addition of share capital of Rs. 1,12,37,50,000/- made under section 68 of the Income Tax Act, 1961 in disregard of the binding judgments of Hon'ble Apex Court, Hon'ble High Courts and the Hon'ble ITATs which directly lays down ratio on the merits of the addition of share capital under section 68 of the Income Tax Act. 1961. 5. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal." 2. Succinctly stated, the assessee company, which is registered as a Non-Banking Financial Corporation (NBFC) and is primarily engaged in the business of providing unsecured loans/advances and trading in shares and securities, had f....
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....eport received from DDIT (Inv.), Kolkata, to the assessee company. 5. Further, the A.O., to verify the identity and creditworthiness of the share applicant/subscriber companies a/w. genuineness of the transactions of receipt of the share application money from them, issued summons to the director of the assessee company, viz. Shri Sarad Kumar Darak. The statement of Shri Sarad Kumar Darak (supra) was recorded on oath by the A.O. in the course of the assessment proceedings on 13.12.2016. As is discernible from the assessment order, Shri Sarad Kumar Darak (supra) on being directed to produce the directors of the share applicant/subscriber companies for a necessary examination so that their identity and creditworthiness a/w. genuineness of the transaction of receipt of the share application money from them could be verified; however, he explained his inability to do so and requested that the Department may summon the said persons. Also, Shri. Sarad Kumar Darak (supra), in his attempt to discharge the onus that was cast upon the assessee company as regards proving the authenticity of its claim of having received genuine share application money from the investor companies filed with th....
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....lication money from the investor companies were liable to be drawn. Apart from that, the A.O., on scrutinizing the documents that the assessee company had filed, observed that the amount of share application money was stated to have been received from the share applicant/subscriber companies, which had virtually no worth and no fixed assets. The A.O. further observed that the financial status of the share applicant/subscriber companies during the year under consideration was found to be very pathetic, which established that their creditworthiness to invest a substantial amount with the assessee company was highly questionable. Elaborating on his view above, the A.O. observed that the share applicant/subscriber companies had meager income during the year under consideration, which was not commensurate with the towering figure of their alleged investments towards share capital/premium with the assessee company. The A.O. further observed that though the share applicant/subscriber companies were incorporated about 4-5 years back, their financial status revealed meager profit and loss figures. The A.O. further observed that though the aforementioned share applicant/subscriber companies,....
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....erved that the said facts would by no means establish the identity of the companies which in reality might be existing only on papers and were factually non-existent. Rather, it was observed by the A.O. that mere furnishing of the aforementioned details/documents, i.e., names, addresses, PAN particulars, etc., of the share applicant/subscriber companies would not on such a standalone basis suffice to discharge the onus that was cast upon the assessee company u/s. 68 of the Act. Elaborating on his aforesaid view, the A.O. relied on the judgment of the Hon'ble Supreme Court in the Case of A Govindarajulu Mudaliar, 34 ITR 807 (S.C.), and observed that if on verification of the documents, the A.O. was unable to contact the share applicants or the information was found to be unverifiable, then the onus shifted back to the assessee to substantiate his claim by making available the requisite details, failing which, the addition would be called for u/s.68 of the Act. 9. As the assessee company had failed to substantiate the creditworthiness of the share applicant/subscriber companies, therefore, the A.O., in all fairness, once again issued a "Show Cause Notice" (SCN) dated 16.12.2016,....
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....ject, I on behalf of the assessee company do hereby submits following facts along with supporting documents are as under- In your letter dated 20/12/2016, you have mentioned that in response to the commission issued under section 131(d) to the Hon'bie DDIT(inv.), unit 4(1), Kolkata for the enquiry of 48 companies for their investment of Rs.120,71, 50,000/- during the relevant assessment year are well known entry operators and are of doubtful credentials. Further you have also mentioned that the identity, credit worthiness and genuineness of the 48 shareholders of our company are not proved. On the contrary attached documents of the report u/s. 131(d) of Hon'ble DDIT(inv.), unit 4(1), Kolkata clearly shows that all the alleged companies are duly assessed regularly u/s.143(1) and u/s.143(3) .Further statement of some of the directors of some of the alleged companies 4tere recorded on Aug 2014 & March 2015 in case of another assessee not specifically directly or indirectly reared to our company Hon'ble DDIT(inv.), unit 4(1), Kolkata has not enquire our transactions with all such alleged companies. therefore report given the Hon'ble DDIT(inv.), unit 4(1), Kolkata is base....
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....ned. Therefore it proves that the identity of the alleged 48 companies is duly substantiated. - Directors have further furnished an audited financial statements of all the alleged 48 companies to prove their credentials, wherein clearly mentioned sufficient funds for providing share application money to our company. -Directors have also produced rill the bank statement of many alleged companies to prove that all the share application money transactions passed through proper banking channels like RTGS/account pay cheques. Apart from the above since your good office has also compelled to the director of the assessee company during the statement recorded under section 131 dated 13/12/2016 to produce directors of all the 48 alleged companies whereas director stated that companies are located far away from Bilaspur city. Therefore kindly summon the directors as you deem fit necessary. However our company has compelled to the directors/ principal officers of all the alleged 48 companies through a written letter dated 13/12/2016 for their personal appearance along with supporting documents of the transactions between us. All such written letters were received by all the alleged 48 c....
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.... substantiate the authenticity of their investments made with the assessee company, had filed before the A.O. requisite documents to confirm the transactions entered into between them and the assessee company a/w respective source of the same. Also, the assessee company refuted the report of the DDIT (Inv.), Unit-4(1), Kolkata, on the ground that the same was neither specific nor corroborative. Based on its aforesaid contentions, and by drawing support from certain judicial pronouncements, the assessee company tried to impress upon the A.O. that now when the nature and source of the cash credit of Rs.112.37 crore (approx.) received from the share applicant/subscriber companies were proved based on supporting documentary evidence, the same could not be held as unexplained cash credits u/s. 68 of the Act. However, the A.O. was not persuaded to subscribe to the aforesaid claim of the assessee company. The A.O. was of the view that now when the DDIT (Inv.), Unit-4(1), Kolkata, based on deep inquiry and detailed analysis of the facts, had reported that the share applicant companies were briefcase/paper companies, therefore, said fact could not be summarily brushed aside. Also, the A.O. ....
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....at Rs.111.19 crore (approx.). 12. Aggrieved, the assessee assailed the order passed by the A.O. u/s.143(3) dated 28.12.2016 before the CIT(Appeals). The CIT(Appeals), after deliberating at length on the contentions advanced by the assessee, did not find any infirmity in the view taken by the A.O. It was observed by the CIT(Appeals) that as per the post-amended section 68 of the Act that was applicable from A.Y.2013-14, the assessee company was not only required to explain the source of the share application money but was also statutorily obligated to explain the source of the money out of which the investor companies had made the respective investments. The CIT(Appeals) was of the view that as in the case before him, neither of the share applicant/subscriber companies had appeared and put forth any explanation as regards the respective source of their finance out of which investments towards share application money were made with the assessee company; therefore, the assessee company had failed to discharge the onus that was cast upon it u/s. 68 of the Act. Accordingly, based on his deliberations above, the CIT(Appeals) upheld the addition of Rs.112.37 crore (supra) that the A.O ma....
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..... The A.O. has provided the opportunity to the appellant to produce directors of purported share application companies who could have given statements and added further to what was said before the DDIT and establish the genuineness of share application mono and creditworthiness of their respective companies. But the assessee refused to avail the opportunity and instead tried to shift the onus on the A.O., which is not permissible prior to the assessee discharging his onus. The Director Shri Darak has not produced the directors of companies advancing share application money and has, in turn, requested the A.O. to summon these persons. When a person claims certain facts as true, the onus is on him to produce necessary witnesses to support his claim. He cannot shift the onus on the A.O. Only after Shri Darak produces his witnesses; the onus will shift on the A.O. It is on record that these directors were already summoned by the Deputy Director of Income-tax (DDIT) (Inv) at Kolkata. In several cases, the summons could not be served at the addresses, and in other cases where the summons were served, the directors of these companies failed to appear before the DDIT Inv. In light of th....
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....ITAT (Kolkata), status of appeal before the ITAT, Kolkata, and a comparative chart of additions made in the case of sister concern vis-à-vis assessee company and other group concerns. As the present appeal had earlier been adjourned on twelve occasions, out of which, on two occasions, it was adjourned on the request of the assessee, while on three occasions, the matter had to be adjourned as the assessee appellant had failed to put up an appearance, therefore, finding no justification in the reason based on which the hearing of the appeal was requested to be adjourned, i.e. request for adjourning the hearing of the appeal till the disposal of the appeal of the sister concern, the same was in all fairness posted for final hearing on 08.06.2023. On 08.06.2023, the Ld. AR sought liberty for placing on record "Paper Book Volume-2" (sic) (comprising of Page 1-43), which subject to no objection of the Ld. DR was admitted, and the appeal of the assessee appellant was heard at length and the order was reserved. 15. Before proceeding any further, it would be pertinent to point out that though the hearing of the captioned appeal was concluded on 08.06.2023, but thereafter, the regist....
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.... books, etc.- (1) If the appellant or the respondent as the case may be, proposes to refer or rely upon any document or statements or other papers on the file of or referred to in the assessment or appellate orders, he may submit a paper book in duplicate containing such papers duly indexed and paged at least a day before the date of hearing of the appeal along with proof of service of a copy of the same on the other side at least a week before: Provided, however, the Bench may in an appropriate case condone the delay and admit the paper book. (2) The Tribunal may suo motu direct the preparation of a paper book in triplicate by and at the cost of the appellant or the respondent containing copies of such statements, papers and documents as it may consider necessary for the proper disposal of the appeal. (3) The papers referred to in sub-rule (1) above must always be legibly written or type-written in double space or printed. If xerox copy of a document is filed, then the same should be legible. Each paper should be certified as true copy by the party filing the same, or his authorised representative and indexed in such a manner as to give the brief description of the relevance....
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....aj Auto Ltd. since they were already receiving the price compensation in terms of inputs at reduced landed cost, and thereby were aiding each other for mutual business interest so that the production cost by both of them be kept at a minimum, and the central excise duty is discharged at a lower value. Before the Hon'ble Apex Court, it was claimed by the appellant company that both the adjudicating commissioner and the Tribunal had non-suited it because the details of the final product and the landed cost of the material supplied were not provided. Also, it was observed that the appellant company had not furnished any material/data as regards the actual expenses incurred on account of freight, loading, unloading charges, profit margin, etc. The appellant company produced before the Hon'ble Apex Court a Certificate issued by a Chartered Accountant (CA) in respect of the valuation of the normal price of "Magneto assemblies," which were manufactured and sold by it to M/s Bajaj Auto Ltd. in wholesale, which was in support of costing. Also, the said Certificate pointed out freight charges incurred by the appellant company for getting material from M/s Bajaj Auto Ltd. a/w loading and unlo....
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....letter seeking permission for admission of the same (received through post), however, it would be relevant to point out that though the same states that an "Annexure-A" is being enclosed but no such annexure is found enclosed with the said application/written submission/synopsis. 22. Adverting to the facts involved in the present appeal before us, we find that the controversy therein involved lies in a narrow compass, i.e., as to whether or not the lower authorities are correct in law and facts of the case in concluding that the amount of share application money of Rs.112.37 crore (approx.) claimed by the assessee company to have been received from 41 share applicant/subscriber companies was to be treated as unexplained cash credit u/s. 68 of the Act? 23. On a perusal of the assessment order, it transpires that the A.O., in the course of assessment proceedings, observed that the assessee company had claimed to have received share application money to the tune of Rs.112.37 crore (approx.) from 41 Kolkata-based share applicant/subscriber companies, as under: 24. The A.O. further noticed that the assessee company had, during the year, allotted 4,49,500 shares of a face value of Rs.....
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....xercise of summoning the persons above on his part would be nothing but futile and of no use, refrained from doing so. 25. Apart from that, as noticed by us hereinabove, the assessee company had throughout adopted an evasive approach, wherein instead of complying with the directions of the A.O. and producing the directors/principal officers of the share applicant/subscriber companies for necessary examination before him, it had instead chosen to file through speed post bundles of papers with the office of the A.O. The A.O. considering the fact that the assessee company was not forthcoming with the requisite details in discharge of the primary onus that was cast upon it as regards proving the authenticity of its claim of having received genuine share application money from the share applicant/subscriber companies, thus, for verifying the factual position referred to the financial statements of the share applicant/subscriber companies, which revealed that they had virtually no worth and no fixed assets, as under: Based on the facts above, the A.O. held a firm conviction that the share applicant/subscriber companies lacked creditworthiness to make investments aggregating to Rs.112.3....
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....ad filed before his predecessor. However, on a specific query by the Bench, whether the documents mentioned above, stated to have not been considered by the A.O., were produced before the CIT(Appeals), the Ld. A.R. failed to come forth with any reply. Also, no such material/documents were placed before us, which would evidence that the assessee company had duly discharged the onus that was cast upon it as regarding proving the authenticity of its claim of having received genuine share application money from the 41 share applicant/subscribers companies. Further, a "chart" filed by the assessee appellant company demonstrating that out of 40 companies therein stated, some of those were active, along with details of company master data from ROC website of 45 share subscriber companies, in our considered view on such standalone basis would not suffice to discharge the onus cast upon it as regards proving the authenticity of the transactions under consideration. 27. Be that as it may, we shall look into the aspect as to whether the assessee company had duly discharged the primary onus that was cast upon it as regards proving the identity and creditworthiness of the share applicant/subsc....
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....d an evasive approach and had deliberately and intentionally failed to produce evidence before the A.O. with the desire to prevent inquiry or investigation, then adverse view should be taken. At this stage, we may herein observe that Shri Sarad Kumar Darak (supra), in his statement recorded on oath by the A.O. on 13.12.2016 on being directed to produce the principal officers/directors of the share subscriber/applicant companies, had expressed his inability to do so and had requested that the Department may summon the said persons. In our considered view, now when neither of the aforementioned persons had complied with the summons issued to them u/s. 131 of the Act by the DDIT (Inv.), Unit-4(1), Kolkata; therefore, the A.O. being well aware of the fact that the summoning of the said persons on his part would be a futile exercise, had thus rightly refrained from acceding to the said request of the assessee. Considering the totality of the facts involved in the present case, wherein the principal officers/directors of the share applicant/subscriber companies were evading their participation and compliance to the summons that were issued by the DDIT(Inv.)-4(1), Kolkata on a commission ....
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....we find that the assessee company had failed to discharge the primary onus that was cast upon it for proving the authenticity of the transactions of receipt of the share application money from the share applicant/subscriber companies based on any irrefutable documentary evidence. As observed by us hereinabove, it is though the claim of the Ld. AR that the assessee company on the basis of supporting documents/material had duly discharged the onus that was cast upon it as regards proving the authenticity of its claim of having received genuine share application money from the 41 investors companies, which, as claimed by him had not been considered by the A.O, but we find that neither any such documents/ material so heavily relied upon by the Ld. AR were produced before the CIT(Appeals) or before us. 29. Also, the fact that notices issued by the DDIT (Inv.) Unit-4(1), Kolkata, to the 41 shares applicant/subscriber companies mentioned above were either returned unserved; or were not complied with by them, further fortifies the view taken by the A.O. that the assessee company had laundered its ill-gotten money in the garb of the share application money from the aforementioned shell/pap....
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....editors, and the creditworthiness of the investors who should have the financial capacity to invest in question to the satisfaction of the A.O., to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine or these are bogus name-lender entries. iii. If the inquiries and investigations reveal that the identity of the creditors is dubious or doubtful, or lacks creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." (emphasis supplied by us) 30. Considering the facts as were involved in the case before the Hon'ble Apex Court, it was observed, viz. (i). that the investor companies had filed returns for a negligible taxable income which would show that the investors did not have the financial capacity to invest the substantial amount with the assessee company; (ii) there was no explanation whatsoever offered by the investor company as to why they had applied for shares o....
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.... prove the receipt of share capital/premium to the satisfaction of the A.O., failure of which would justify addition of the said amount to the income of the assessee." Also, the Hon'ble Apex Court had not found favour with the view taken by the lower appellate authorities, wherein they had observed that as the assessee company had filed all the documentary evidence in the course of assessment proceedings, therefore, the onus that was cast upon it to establish the creditworthiness of the investor companies stood discharged. Rebutting the aforesaid view taken by the lower authorities, the Hon'ble Apex Court had observed that the lower appellate authorities, while so concluding, had not even adverted to the field inquiry conducted by the A.O., which revealed that in several cases, the investor companies were found to be non-existent, and thus the onus to establish the identity of the investor companies was not discharged by the assessee. 32. Considering the principles which the Hon'ble Supreme Court had laid down in the case of Pr. CIT, Circle-1 Vs. NRA Iron & Steel Pvt. Ltd. (supra), we find that the facts involved in the present case before us fall within four corners ....
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....ion of the nature and source of the investments made, then it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particulars source. 33. Be that as it may, as observed by the lower authorities and rightly so, the case of the assessee company falls within the realm of post-amended Section 68 of the Act, i.e., as had been made available on the statute vide the Finance Act, 2012 w.e.f. 01.04.2013. For the sake of clarity, Sec. 68 (post-amended - as applies to the case of the assessee company) is culled out as under : "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital,....
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....share application money from the 41 share applicant/subscriber companies was duly discharged, therefore, on a similar footing, no adverse inferences were liable to be drawn in its case. We are unable to persuade ourselves to subscribe to the aforesaid claim of the assessee. We, say so, for the reason that a perusal of the facts involved in the aforementioned case of Chhattisgarh Metaliks and Alloys (P) Ltd. Vs. ITO (supra) reveals that the same is distinguishable on facts. In the aforesaid case, the assessee company that had received share application money from the concerned share applicant/subscriber company had filed requisite documents to prove the transaction's authenticity. On a perusal of the capital account of the investor company, viz. M/s. Aayush Steelco (P) Ltd., it was therein observed by the Tribunal that the investment in question was made by the investor company out of its "opening balance" of Rs.89.18 lac on 01.04.2014 as a partner with M/s. Sri Balaji Iron & Steel Traders, Visakhapatnam, and not out of any fresh amount parked in its capital account during the year under consideration. Considering the duly substantiated explanation as regards the source of inves....
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....ntity, creditworthiness, and genuineness of the investor companies in the aforesaid case were proved to the hilt based on irrefutable documentary evidence, therefore, the facts therein involved leading to the view taken by the Hon'ble High Court would by no means assist the case of the assessee before us. (C) ACIT Vs. Shri Pramod Kumar Sethi, ITA No.382 & 383/Ind/2014 dated 06.11.2018 39. As is discernible from the aforesaid order, it transpires that the same had been pressed into service by the Ld. AR to impress upon us that the assessee company a/w. its two other sister concerns were held by the Tribunal to be genuine, and it was held that the unsecured loans raised by the assessee before them, viz. Shri Pramod Kumar Sethi (supra) from the present assessee before us and its sister concerns was not to be treated as unexplained cash credit u/s.68 of the Act. 40. We are unable to comprehend that as to how the aforesaid order of the ITAT, Indore would assist the case of the assessee company before us. It is not the existence of the assessee company before us which is in question, but it is the authenticity of its claim of having raised genuine amount of share application money fr....