TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 1395
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....thiness 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. Tarun Goyal, who worked in his office as peons, receptionists etc.....
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....nt 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 Pvt. Ltd. 1,00,00,000 Total 3,00,00,000 In order to prove the genuineness of the transaction and to establish....
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....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 k. In respect of Thar Steels P Ltd.:- copy of PAN, certificate of incorporation, M/A and A/A, Annual report 2008, Auditors report as on 31-3-2007, Photo-copy of undated confirmation, affidavit, resolution, bank statement and cheque. Besides the aforesaid details the assessee company has taken the plea on the following case laws:- I. CI....
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.... 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 were not genuine, the amount could not be regarded as undisclosed income of the assessee company; Tribunal having cancel led CTT's order under section 263 whereby the assessment was set aside on the ground that A. O had accepted the genuineness of share capital without making enquiries, no question of law arises." This judgement was delivered affirming the earlier judgement of Delhi High Court in the case of Commissioner of Income Tax vs. Sophia Finance Ltd. (1993) 205 ITR 98 (Del)(FB), w....
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....e 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 provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.' The ratio of all the above judgments is that even if the A.O. could not verify the identity, credit worthiness & genuineness of the above applicants, no addition in the hands of the company could be made. However, in the p....
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....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 amount of premium is the sole discretion of the investor. A company which issues shares at a premium does so based on its future potential. It is important to mention here that M/s Reliance Power brought its public issue few years back at a premium of Rs.990/- whereas its share is in a real bad shape and has not yet started any business activity. Thus charging and paying of premium is best blown to the investor and assessing officer as an outside authority cannot comment on the genuineness of the same. Further to prove the genuineness of the transaction....
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.... 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: "Thus, the question is whether in the present case, the AO had material to conclude that the share applicants in questions did not exist. It is seen that the assessee company has furnished the necessary details such as PAN No./Income- tax Ward No./ration card of the share applicants and some of them are assessed to tax. The share application money has been received through banking channel. In some cases, the confirmations/affidavits of share applicants containing the above details were also filed. It is seen that the AO did not carry out any inquiry into the income tax record of the persons who have given the ....
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....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 falls within the exemption provided by the Act lies upon the assessee. This decision is adequate authority for the proposition that by virtue of Section 68 of the IT Act the assessee is obliged to establish that amounts credited in the accounts do not represent its income; in that case the assessee's version that she had won them through betting on horse racing in two consecutive years did not attract credibility. The Apex Court had followed its earlier decision, namely, Orissa Corporation wherein it had held that since the assessee had given the names and addresses of the creditors, all of whom were income-tax assesses, the failure o....
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....re 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 of the said companies. Both the companies have shown the name of the assessee company in the schedule of investments. The AO has got no basis to take an adverse inference. Your honour will appreciate that this adverse inference cannot be drawn by the AO from any logic. Thus the action of Id. AO in this case is void and liable to be quashed. Your honour as regards the adverse inference drawn by the AO that the assessee has failed to produce the creditor, it is submitted that the AO probably is not aware of the settled position of law on this issue. The Supreme Court in the case of CIT vs Orissa Corporation (P) Ltd., 159 ITR 78 has clearly hel....
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....etting 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 inquiry is necessary. Learned counsel for the Revenue submits that the creditworthiness of the applicants can nevertheless be examined by the Assessing Officer. It is quite obvious that is very difficult for the Assessee to show the creditworthiness of strangers. If the Revenue has any doubt with regard to their ability to make the investment, their returns may be re-opened by the department. In any case, what is cl inching is the additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the Assessee so as to en....
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....ence 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 discharge his liability and in order to just make an addition he has ignored the provisions of law and various judicial pronouncements in this regard and made the addition with closed eyes which is untenable in the eyes of law and thus liable to be deleted. Your honour it is interesting to see that the Id. AO has very easily drawn a conclusion that the money received by the assessee from the share applicants was its own money. He has grossly neglected the fact that the books of the appellant company were duly audited by a Chartered Accountant who did not give any adverse finding with regard to the genuineness of its claim. Also there is no proof which comes out from the books of....
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....ssee 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. PCIT Vs. NRA Iron & Steel Pvt . Ltd. (SC) dated 05.03.2019: Where Hon'ble Apex Court held that the practice of conversion of un-accounted money through cloak of Share Capital/Premium must be subjected to careful scrutiny especially in private placement of shares. Filing primary evidence is not sufficient . The onus to establish credit worthiness of the investor companies is on the assessee. The Assessee is under legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 2. Hon'ble Delhi High Court Judgement dated 17.01.2019 in case of NDR Promoters Pvt . Ltd. , ITA....
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....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 of the aforesaid discussion, we feel that the matter requires an order of remit to the Tribunal for fresh adjudication keeping in view the aforesaid case law." Navodava Castle Pvt . Ltd. Vs CIT (2015-TIQL-314-SC-IT) SLP of assessee dismissed by Hon'ble Supreme Court 6. Konark Structural Engineering (P.) Ltd. Vs DCIT [2018] 96 taxmann.com 255 (SC) where assessee-company received certain amount as share capital from various shareholders, in view of fact that summons to shareholders under sect ion 131 could not be served as addresses were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, addition made by Assessing Officer u....
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.... 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." 9. CIT Vs Nova Promoters & FinSease (P) Ltd (18 taxmann.com 217, 206 Taxman 207, 342 ITR 169. 252 CTR 187) where Hon'ble Delhi High Court held that amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under sect ion 68. It was held as follows: "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 Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing,....
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....o 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 applicants could not be served as the notices were returned unserved. In the backdrop of this circumstance, the assessee's ability to secure documents such as income tax returns of the share applicants as well as bank account particulars would itself give rise to a circumstance which the AO in this case proceeded to draw inferences from. Having regard to the totality of the facts, i .e. , that the assessee commenced its business and immediately sought to infuse share capital at a premium ranging between Rs. 90-190 per share and was able to garner a colossal amount of Rs. 4.34 Crores, this Court is of the opinion that the CIT (Appeals) and the IT AT fell into error in holding that AO could not have added back the said amount under Sect ion 68. The quest ion....
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....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, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soul less 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." 13. CIT Vs Empire Builtech (P.) Ltd (366 ITR 110) where Hon'ble Delhi High Court held that u/s 68 it is not sufficient for assessee to merely disclose address and identities of shareholders; it has to show genuineness of such individuals or entities. 14. CIT Vs Focus Exports (P.) Ltd (51 taxmann.com 46 (Delhi)/r20151 228 Taxman 881 where Hon'ble Delhi High Court held that where in respect of share application money, assessee failed to provide complete addres....
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.... 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. Ltd. dated 31st January, 2011 has dealt with the issue at length and after examining the various judgments has settled certain parameters to decide an issue like this. After analyzing the provisions of the Companies Act and Section 68 of the I T Act, the judgments delivered in the cases of CIT vs. Divine Leasing & Finance Ltd. 299 ITR 268 (Dei), CIT vs. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) (FB), CIT vs. Dolphin Canpack Ltd. 283 ITR 190, CIT vs. Lovely Exports Pvt. Ltd. 216 CTR 195 the Hon'ble Court held that the initial burden is upon an assessee to explain the nature and source of share application money received by it. The Court further observed that in case the investor/shareholder is an individual some documents will have to be filed or the said shareholder will have to b....
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.... 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. to establish their identity. It is not the case of the assessing officer that these companies have not been incorporated. The copies of the bank statements of the share subscribers wherein the transactions are reflected as well as their balance sheets showing investment in the appellant company on their assets' sides establish the creditworthiness of the parties while the genuineness of the transactions are borne out by the fact that the transactions were through banking channels. On going through the assessment order, it is seen that the assessing officer has not been able to rebut or find any discrepancy about the documents submitted by the appellant. If that be the case the assessing officer cannot make addition under Section 68 in the hands of the appellant company. The appellant comp....