TaxTMI 
TaxTMI 
2023 (3) TMI 1395
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....d to establish the physical identity and creditworthiness of concerned parties and genuineness of transactions in terms of section 68 of the Income-tax Act, 1961. 2. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that the judgment of the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. 216 CTR 199 (SC) cannot be extended to a situation where a mechanism has been formed to introduce unaccounted money in the books of accounts with the help of accommodation entry providers which has been exposed by deep and detailed investigation carried out by the Investigation Wing of the Department. Moreover, the facts in the present case are distinguishable from the above cited case in so far as that the assessee could not produce any of the principal officers/directors of companies for examination whereas in the case cited above the A.O. never asked the assessee company to produce any of the share applicants for cross examination. 3. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that the directors of the share applicant companies were the employees of Sh. Taru....
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....efore the ld. CIT(A) which is as under: "During the year under consideration the appellant received an amount of Rs.3,00,00,000/- on account of Share Application Money. Out of the same an amount of Rs. 50,00,000/- was received on account of share capital and Rs. 2,50,00,000/- on account of share premium. The Id. AO had some doubts with respect to the genuineness of the said transactions of the appellant with M/s Bhawani Portfolio Pvt. Ltd. & M/s Thar Steels Pvt. Ltd. In order to satisfy the Id. AO and in order to prove the genuineness of the said transactions the appellant produced share application forms, confirmations, affidavits, balance sheets, PAN details etc. related to various parties, before him. The Id. AO disbelieving the explanations filed by the appellant with respect to the said parties added the amount received from them to the gross total income of the appellant by invoking the provisions of section 68 of the Act by stating that the appellant could not establish the genuineness of the transactions. The addition has been made by the AO on account of following parties:- Name Amount M/s Bhavani Portfolio Pvt. Ltd. 2,00,00,000 Thar Steels....
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....ion of above stated documents. He in his order has stated as under: "Vide letter dated 23-12-2010 he filed the following documents:- a. Photocopy of PAN of assessee company b. Copy of the Memorandum and Article of Association of the assessee company c. Copy of return of the assessee company for the A Y 2008-2009 d. Copy of Share capital account in assessee's books e. Copy of Form 2 dated 1-2-2008 and 31-3-2008 f. Copy of Annual return of the assessee company as per Company Act g. List of shareholders of the assessee company as on 31- 3-2008 h. Details of increase in capital claimed to have been increased during the year i. Copy of bank statement of the assessee company j. In respect of Bhavani Portfolio P Ltd:- Copy of ack. Of AY 2009-10 return, copy of annual return 2008, Auditors report as on 31-3-2007, copy of undated and unsigned share application form, Photo-copy of undated confirmation, affidavit, resolution signed by Ritu Saxena who admitted that she is only signing the papers etc. on the direction of Tarun Goyal, an entry operator and copy of bank statement and copy of cheques....
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....hat the assessee filed following details to establish the identity of its share applicants: a. Acknowledgements of Returns of Income. b. Balance sheets & Profit and Loss A/cs c. Affidavits from the Directors along with confirmation d. PAN Details e. Copies of Board Resolutions passed at their Board Meetings f. Copies of PAN cards g. Confirmations from the parties h. Copies of share application forms i. Copies of bank statements of the said parties j. Confirmations of receipt of shares k. Copies of Memorandum and Articles of Association l. CIN details Your honour will also endorse that by filing confirmations, bank statements & proof of filling income tax return, the appellant has duly discharged his onus of proving the identity, genuineness and credit worthiness of the share applicants. The case of the appellant is also squarely covered by the judgement of the Apex Court in the case of Commissioner of Income Tax vs. Steller Investment Ltd. (2001) 251 ITR 263 (SC), where it was held that: "Even if the subscribers to the increased share capital of assessee company w....
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.... under: "We are not required to examine the matter in detail as we are of the opinion that the Tribunal has allowed the appeal of the assessee following its judgement delivered in Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) (192 ITR 287(Del) decided on 16th April, 1991. In that case, the subscribed capital of the respondent company had been increased and the ITO accepted the increase and assessed the company. The CIT, in revision, set aside the order of assessment, being of the view that there had been a device of converting black money into white by issuing shares with the help of formation of an investment company, and that the A.O. did not make any enquires with regard to the genuineness of the subscribers to the share capital. While confirming the decision of the Tribunal, the Division Bench held as under: 'It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been ....
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....these questions remain unanswered and thus invalidate the allegations of the assessing officer and thus make the addition void ab-initio. Your honour the Id. AO has written a long story stating that there was one person Mr. Tarun Goyal who was running various companies from his premises and indulged in providing accommodation entries. The assessing officer has written a long story and each and every whereabouts of that person. At one stage these findings of the Id. AG clearly establish the identity of the said person whereas on the other hand he states that the assessee has not been able to prove the identity of the share applicant. Further the AO has not been able to prove that the money which came to the assessee emanated from its own coffers. Your honour all the material used by the assessing officer has been collected at the back of the assessee and the assessee has never been confronted with the same. Your honour the Id. AO during the course of assessment proceedings had raised various queries regarding the genuineness of transaction done by the assessee. He has also challenged the quantum of premium received. In this respect at first it is to mention that the amou....
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.... call. 16 concerned parties for examination before taking any adverse inference against the assessee. In the appellant's case, the Id. AO did not bother to conduct any inquiry. He has not done inquiry with regard to the share application money received by the appellant. He has not bothered to enquire from any party about the genuineness of the transaction in spite of having every detail including PAN and other income tax details with him. Your honour in various judgments delivered by number of High Courts it has been held that after having received all details from the assessee if the assessing officer has not gone beyond issuing notices u/s 131 of the Act to the concerned parties (i.e. he has not conducted any inquiry except issuing the notices) he cannot reach a conclusion that the credits appearing in the books of the assessee are fake. In the case of the appellant the AO has though issued notices under section 131 of the Act (which were duly served) to all five share applicants but has not gone beyond that inspite of having all powers vested in him given by the Income Tax Act, 1961. In the case of CIT vs. Divine Leasing & Finance Ltd. 299 ITR 268 (Del) it has been held....
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....issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." In the case of Sumati Dayal v. CIT-Bangalore [1995J 214 ITR 801 (SC) a succinct yet complete précis on the essentials of income-tax liability can be discerned from these words, "In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it ....
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....r it has also to a great extent proved the source of the source by enclosing various details of the parties. Your honour here is a case where the appellant has not only discharged its primary onus but has also discharged its onus beyond any doubt. As per the provision of Section 68 of the Act,, the appellant is required to offer explanation about the nature and source of the share application money to the satisfaction of the AO. The satisfaction of the AO has to be not arbitrary but on the basis of prudence. The appellant has taken share application money from M/s Bhawani Portfolio Pvt. Ltd. & M/s Thar Steels Pvt. Ltd. The said companies are existing entities and are being duly assessed to income tax (as confirmed by AO himself). It is not a case of vanishing company where the identity is in doubt and, as such, the identity of the creditor is well established. As regards creditworthiness, the fact that these companies are carrying on business is not in doubt. They are maintaining regular books of account as well as bank accounts. The money has come to the appellant from regular bank accounts of the said companies. All these transactions are part of the regular business activity ....
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....ate. On this basis, the Assessing Officer added an amount of Rs.46 lakhs pertaining to 30 of the persons to the income to the Assessee. In appeal, the Commissioner of Income Tax (Appeals) [CIT(A)j upheld the view taken by the Assessing Officer. In further appeal, the Tribunal noted that the CIT(A) had noted the fact that the Assessee had produced the income tax returns, share application forms, confirmations, PAN letters, ration cards and/or bank statements in respect of all the share applicants. The CIT (A) had accepted the existence of the applicants but did not accept the genuineness of the transaction, subject matter of the inquiry. While setting aside the order of the CIT(A), the Tribunal relied upon two decisions of this Court, namely, Commissioner of Income Tax v. Stellar Investment Ltd., [1991] 192 ITR 287 and a Full Bench decision in Commissioner of Income Tax v. Sophia Finance Ltd., [1994] 205 ITR 98. Several other decisions have been rendered by this Court following the above two decisions. The principle that has been laid down by the various decisions rendered by this Court from time to time is that if the existence of the applicant is proved, normally no further ....
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.... every time the Id. AO has made some finding that has been done by him on some estimates based on his own whims and fancies. The Id. AO has not been able to give a single concrete finding which could be held against the assessee in disallowing various claims made by it. Your honour will endorse that here it is not the case that the appellant did not cooperate with the department in providing various details to prove the genuineness of the transaction. The appellant produced all possible documents before him. Having fi led al l the details the assessee discharged its onus of proving the transaction being genuine. Now it was the duty of the revenue to prove with some evidence that the genuineness of the transaction was not established by the assessee. But surprisingly the Id. AO did not discharge his onus properly as the same can be made out by reading the relevant portion of the assessment order hand-in-hand with the recent decision given by the Delhi High Court which clearly says that it is the duty of revenue to prove that the money deposited in the account of some other party emanated from the coffers of the assessee. Thus it is very clear that the Id. AO has failed to dischar....
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....the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted." 9. The ld. DR submitted his arguments which are as under: "Sub: Written Submission in the above case- reg. In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to addition made u/s 68 of I.T. Act: 1.....
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....formation and details collected by the Assessing Officer from the concerned bank, the Assessing Officer had observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. "20. Now, when we go to the order of the Tribunal in the present case, we notice that the Tribunal has merely reproduced the order of the Commissioner of Income-tax (Appeals) and upheld the deletion of the addition. In fact , they substantially relied upon and quoted the decision of its co-ordinate Bench in the case of MAF Academy P. Ltd. , a decision which has been overturned by the Delhi High Court , vide its judgment in CIT v. MAF Academy P. Ltd. [2014] 206 DLT 277 ; [2014] 361 ITR 258 (Delhi)). In the impugned order it is accepted that the assessee was unable to produce di rectors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 21. In view ....
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....that the report of the investigation wing cannot conclusively prove that the assessee's own monies were brought back in the form of share application money. /4s noted in the earlier paragraph, it is not the burden of the AO to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under Section 68. With respect , it appears to us that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case. 13. We, therefore, answer the substantial guestion of law framed by us in the negative, in favour of the revenue and against the assessee. The appeal of the revenue is allowed with no order as to costs."....
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....is case show that notice issued to the 5 of the share applicants were returned unserved. The particulars of returns made available by the assessee and taken into consideration in paragraph 3.4 by the AO in this case would show that the said parties/applicants had disclosed very meager income. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. This discussion itself would reveal that even though the share applicants could not be accessed through notices, the assessee was in a position to obtain documents from them. While there can be no doubt that in Lovely Exports (P.) Ltd. (supra), the Court indicated the rule of "shifting onus" i .e. the responsibility of the Revenue to prove that Section 68 could be invoked once the basic burden stood discharged by furnishing relevant and material particulars, at the same time, that judgment cannot be said to limit the inferences that can be logically and legitimately drawn by the Revenue in the natural course of assessment proceedings. The information that assessee furnishes would have to be credible and at the same time verifiable. In this case, 5 share appli....
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..... In view of the above reasons, the questions of law in these appeals are answered in favour of the revenue. The orders of the Assessing Officer are restored. The appeals are to succeed and are therefore allowed." 12. CIT Vs N.R. Portfolio Pvt . Ltd. [2014[ 42 taxmann.com 339 (Delhi)/ r20141 222 Taxman 157 (Delhi) (MAG)/[2014] 264 CTR 258 (Delhi) where Hon'ble Delhi High Court held that if AO doubts the documents produced by assessee, the onus shifts on assessee to further substantiate the facts or produce the share applicant in proceeding. It was held as follows: "30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere product ion of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and at tending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness,....
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....he assessee company has failed to show genuineness of its shareholders." Sd/- (Rinku Singh) Addl . Commissioner of income Tax(Sr. DR) E-Bench, ITAT, New Delhi 10. The ld. CIT(A) adjudicated as under: "3.1 I have considered the submissions made by the appellant, the assessment order and perused the evidences filed by the appellant's AR. The issue in this case is the share capital of Rs.3,00,00,000/- received by the appellant company during the year. Admittedly this share capital has been received from two companies. The appellant in this regard has filed confirmations, copies of bank statements and Memoranda & Articles and other details to prove the existence of these companies. Based on these documents and evidences it is established that both the shareholder companies are in existence. On going through the assessment order I notice that the assessing officer is relying on the three parameters of Section 68 i.e. identity, creditworthiness and genuineness of the transactions. The issue of share capital has been settled in various judicial pronouncements. In my opinion the latest judgment of the Delhi High Court in the case of CIT vs. Oasis Hospitalities Pvt. ....
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....him to reach the shareholders and the assessing officer cannot burden the assessee merely on the ground that summons issued to the investors were returned. Thereafter the Court referred to the judgment of Delhi High Court in the case of CIT vs Value Capital Services (P) Ltd. 307 ITR 334 (Delhi) whereby it was observed that additional burden was on the department to show that even if the applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee to enable it to be treated as the undisclosed income of the assessee. After laying down the above principles, the Court dismissed the appeal filed by the Revenue where the applicants were companies despite the fact that the assessing officer had received information from the Investigation Wing that these investor companies were not carrying on any real business activity and were engaged in the business of providing accommodation entries. Now applying the above judgment to the facts of this case, it is an admitted fact that all the shareholders are companies. The appellant has filed sufficient documents e.g. copies of PAN Cards, bank statements, CINs, etc. ....