TaxTMI 
TaxTMI 
2026 (6) TMI 1035
X X X X Extracts X X X X
X X X X Extracts X X X X
....el/2017 - reg. Ref: Sr. DR/ITAT/G-Bench/2023-24/131 dated 26/09/23. In this regard, it is submitted that the date of limitation for filing second appeal was on 26/06/2017 (from the date of the order dated 31.03.2016 of Ld. CIT(A) in appeal No. 268/14-15 was received in this office on 27/04/2017). On account of introduction of e-assessment and unavoidable administrative reasons i.e. non-availability of dealing official, it was delayed to file appeal before Hon'ble ITAT. The appeal was filed on 11.08.2017). Next date fixed for hearing on 13.12.2023. 2. It is, therefore, most respectfully prayed that the Hon'ble Tribunal may graciously be pleased to condone the delay of filing of appeal (for the period from 27.06.2017 to 10.08.2017) against the order of Ld. CIT(A) dated 31.03.2017 in Appeal No. 268/14-15. In this case the assessment order was passed by the AO u/s 143(3) of the Income Tax Act on 26.03.2013. 3. It is respectfully submitted that the Hon'ble Tribunal may be pleased to condone the aforesaid delay considering the genuine difficulties which were beyond the control of the Appellant herein and not deliberate or intentional. Yo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law, the Ld. CIT(A) has erred in deleting the addition of Rs. 43,29,950/- on account of sundry creditors ignoring the fact that the creditworthiness, identity and the genuineness of the transactions would be proven separately for the different assessment years. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs. 3,00,00,000/- on account of G.P./N.P. Ratio ignoring the facts of the survey report findings wherein the same clearly mentions the GP/NP ratio of around 20% and highlights the discrepancies in stock and expenses. 5. The Appellant craves for reserving the right to amend, modify, alter, add or forego any of the Ground(s) of Appeal at any time before or during the hearing of this appeal." 3. Before us the Ld. DR extensively relied on the findings of Ld. AO and pointed out that in the case of the assessee a survey operation was carried out u/s 133A of the Act and during the course of such survey blank share transfer forms, and other documents of allegedly doubtful provenance, of some companies were found. Such documents found, along with other related documents, raised a suspici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by following the case of Oasis Hospitalities Pvt. Ltd. reported in 198 Taxman 247 (Del). Our attention was drawn to the discussion on pages 22 & 25 of the Ld. AO's order in this regard. The Ld. DR concluded his argument on this issue by stating that in most of the cases the identity of the share subscribers was itself not proved and in all the cases, invariably, the genuineness of the transaction and creditworthiness of the share applicants was also certainly not proved. It was the submission that on facts alone the dubious nature of the transactions was duly established by the Ld. AO and the Ld. CIT(A) had disregarded the extensive fact-finding recorded in the Ld. AO's order and had simply relied on case laws which did not address the peculiar facts of the present case. 3.1 Regarding the addition on account of commission presumed to have been paid it was pointed out that there is a finding given on pages 31 to 32 of the Ld. AO's order through which it has been stated that accommodation entry providers normally charge 3.5% commission on the value of the transaction. The Ld. DR supported this finding as against the deletion of the amount in question by the Ld. CIT(A). 3.2 Re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sue of share capital, the facts on record need to be recapitulated for a decision on merits. In this case, it is seen that the enquiries independently conducted by the Ld. AO have revealed a grim picture about the verifiability of the transactions with numerous entities which have purportedly subscribed to the shares of the assessee company. Even if we disregard the finding that shares issued at a premium of Rs. 190/- where eventually sold out at Rs. 10/-, then also the essential factors which would establish the true nature of such transactions would need to be considered from the angle of establishing the identity of the creditors; establishing the creditworthiness of the creditor; and establishing the genuineness of the transaction. In this case, while the assessee has filed considerable details, as mentioned in Annexure 'A' of the impugned order, regarding the transactions leading to accretion of the share capital of the assessee company, we cannot ignore the fact that independent enquiries made by the Ld. AO cast genuine doubt on the existence of the share subscribers in most cases and in other cases there is a reasonable doubt about the genuineness of the transaction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the capacity or credit-worthiness has not been established. [Para 8.3] The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9] The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the onus required under section 68, the Assessing Officer was justified in adding back the amounts to the assessee's income. [Para 15]" .............................. In the case of Nova Promoters & Finlease (P) Ltd. [342 ITR 169 (Del)], a judgement penned by Hon'ble Justice R. V. Easwar, the following excerpts are relevant since the case of Lovely Exports (supra) has been distinguished and other relevant case laws have been lucidly referred to: "32. Since strong reliance was placed by the assessee on the order of the Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) [Emphasis added] it would be necessary to examine the facts of that case and the ratio laid down therein in order to decide the applicability of that case to the one before us. It would also be necessary to examine the string of decisions of this court on the question of applicability of section 68 of the Act to monies received as share capital. [Emphasis added] 33. The facts of Lovely Exports (P) Ltd. (supra) have been set out in the judgment of this court in that case, reported as Divine Leasing & Finance Ltd. (supra) Lovely Exports (P.) Ltd. (supra). In that case, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td. [1994] 205 ITR 98 /[1993] 70 Taxman 69 could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscribe to the shares and held that it was a matter of concern only of the appropriate authority under that Act. Accordingly, the ultimate decision of the Tribunal cancelling the addition was upheld. 35. The facts of Lovely Exports (P.) Ltd., (supra) as noted by this court, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by the revenue which filed SLP No. 11993/2007. The petition for leave to appeal was dismissed by the Supreme Court observing as below: - "Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. Subject to the above, Special ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 39. The case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC) exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in CIT v. Dolphin Canpack [2006] 283 ITR 190, CIT v. Makhni & Tyagi (P.) Ltd. [2004] 267 ITR 433 / 136 Taxman 641, CIT v. Antartica Investment (P.) Ltd. [2003] 262 ITR 493 / 133 Taxman 605 and CIT v Achal Investment Ltd. [2004] 268 ITR 211/ 136 Taxman 335. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed "ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is from any particular source. 9.4. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. 9.5. The Delhi High Court in CIT v. Oasis Hospitalities (P) Ltd. [CIT v. Oasis Hospitalities (P) Ltd., 2011 SCC OnLine Del 506: (2011) 333 ITR 119], held that: (SCC OnLine Del para 43) "43..... the initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68 of the Act. These are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise....." 9.6. It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or creditworthiness has not been established. In Shankar Ghosh v. CIT [Shankar Ghosh v. CIT, 1985 Tax Pub (DT) 1012: (1985) 13 ITD 440 (1985) 23 TTJ 20], the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansaction: (SCC OnLine Gau para 19) It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-à-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the Revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself....... 12.6. In a recent judgment the Delhi High Court [CIT v. N.R. Portfolio (P) Ltd., 2013 SCC OnLine Del 6466 : (2014) 42 Taxman.com 339: 222 Taxman 157] held that the creditworthiness or genuineness of a transaction regarding share application money depends on whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, creditworthiness of the recipient, object and purpose for which payment/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt with the contention of the revenue. Under Section 68 the onus is upon the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. As to how the onus can be discharged would depend on the facts and circumstances of each case. It is expected of both the sides - the assessee and the Assessing authority - to adopt a reasonable approach. The assessee here is a private limited company. It cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons known to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share-subscribers and the assessee-company lose touch with each other and become incommunicado. Calls due on the shares have to be paid; if dividends are declared, the warrants have to be sent to the shareholders. It is a continuing relationship, even granting that it may not be of the same degree in which it exists between a debtor and creditor. The share-subscribers in the present case have each invested substantial amounts in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hem in the assessment order but it is not in dispute that the copies of the bank statements were furnished before him. Even assuming that the bank statements were filed before the AO, that by itself may not be sufficient to prove the creditworthiness without any explanation for the deposits in the accounts and their source. The usual argument in all such cases, including the present case, is that it is not for the assessee to prove the source of source and origin of origin of the receipts. We are alive to the difficulty that may be faced by an assessee to unimpeachably establish the creditworthiness of the share subscribers but at the same time we are of the opinion that mere furnishing of the copies of the bank accounts of the subscribers is not sufficient to prove their creditworthiness. There must be, in our opinion, some positive evidence to show the nature and source of the resources of the share subscriber himself and therefore it is necessary for him to come before the AO and confirm his sources from which he subscribed to the capital. In the present case the assessee did not produce the principal officer of the companies who subscribed to the shares; it merely filed a lette....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income." Also, to again emphasize the difference in facts between the present matter and the case of Lovely Exports/Divine Leasing and Finance Limited (supra), the critical distinguishing factor is that the assessee is a closely held company as against a publicly held one (as in the case of Lovely Exports). The following para from this case law is worth referring to: "19. As would be evident from a perusal of the Table (supra) for the assessment year 1984-85 the assessee had filed a return declaring a loss of Rs. 25,090 and consequent upon the addition of Rs. 9,53,500 made under section 68 the assessment was made on this sum. The ITAT noted that the assessee was a Public Limited Company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of the Securities Contract Regulation Act, 1956 as also the Rules & Regulations of the Delhi Stock Exchange. Complete details appear to have been furnished. The IT....