9911796707
TMI Blog2010 (11) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... ised is as under: "On the facts and in the circumstances of the case and in law, the authorities below wrongly added a sum of Rs.1,43,37,219/- as unexplained investment despite that being share application monies and despite directions of the Hon'ble Tribunal to them to carry out the verification on their own. The addition has been made without carrying out necessary verification and without abiding by the directions of the Hon'ble Tribunal. At any rate the issue is now squarely covered by the decision of the apex court in the case of Lovely Exports 216 CTR 195 and so the addition as now sustained by the authorities below merits to be quashed." 2. Brief facts are that assessee is a limited company, engaged in the business of telecom consultancy and technology products. The assessee filed its return on 31-12-1999 declaring income of Rs.46,987/- (30% of book profit computed u/s 115Ja). The assessment was originally completed on 22- 03-2002 ex party u/s 144 of I.T. Act by making an addition of Rs.1,43,37,219/- as unexplained investment in share capital u/s 69. Assessee filed appeal before ld. CIT(A), who upheld the ex party assessment in principle. As regards the addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of yourself and person in question. 5. Copy of land line phone bill/voter ID card/Electricity bill/driving licence etc. of person in question (any one or two of these). 6. Copy of ITR for relevant year in question." 2.3. Assessee in reply, vide letter dated 28-11-2008 expressed its difficulty to produce more papers as the matter was about 8 years old and requested to consider evidence adduced before CIT(A). The contents of the letter are as under: "Please note that we are not in possession of any papers for A.Y. 1999-2000 as Company Law or Income Tax guidelines do not require a company to maintain supports and accounting papers beyond eight years. Also kindly note that company management and ownership changed in 2001, subsequent to which most of the earlier shareholders ceased to be shareholders in the company. The company has no empowerment to seek details such as those indicated by you (phone bill/electricity bill/voter ID card etc.) nor were we required to collect or maintain these by prevalent law when the share capital was raised in the nineties. All documents as sought during the appeal proceedings were submitted in original to the Hon'ble Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended list of original contributors Rs.21 lakhs - Section G: One of the shareholders is a non-resident Indians who is not exigible to income tax in India. He is away on overseas engagements and confirmation vide e-mail is enclosed total Rs.2.91. lakhs (1) Mr. Satish Mehta (additions during the year Rs.3489 lakhs) and Sh. H. Mehta (addition during the year Rs.2.91 lakh). Before Ld CIT(A) the appellant company had filed confirmatory letters from both of these persons. In the confirmatory letters complete address of the persons and their PANs have also been mentioned. Ld, CIT(A) held that from these letters, the identity of the persons stands established and the persons in question have also confirmed that they have invested in shares of he appellant company. Therefore, these investments were treated to be r and addition to that extent was deleted by Ld. CIT(A). During the present assessment proceedings vide questionnaire dated 24.8.2008, assessee was asked to file copy of bank statement of each person showing debit entry in bank for DD/cheque/cash, copy of bank statement showing the credit entry. Shri Satish Mehta attended the proceedings from time to time but did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it desires so. However assessee did not provide their current address as sought vide the questionnaire dated 24.8.2008. Hence notice u/s 133(6) or summons u/s 131 could not be issued and no investigation regarding the genuinity of the claim of the assessee could be made. In he absence of these, genuineness of these investments is not proved and addition to that extent is made. (3) K.A.Khan/Y.A. Khan (addition during the year Rs.8.25 Jakhs), Ritu Dalmia (addition during the year Rs.3 lakhs), R. Marwaha (addition during the year Rs.5 lakhs), A. Vaghani (addition during the year Rs.4.35 lakhs) and A.Khurana (addition during the year Rs.5 lakhs) The appellant company has failed to file confirmations in respect of these persons. Instead of their postal addresses, details of the cheques through which the amounts have been received and copy of the bank statement of the appellant company showing the receipt of these amounts have been filed. Further it is stated that the appellant company has filed a suit in the court against these persons for rendition of accounts. Ld. CIT(A) has held that the assessee has failed to file any confirmatory letters from these persons even though it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year Rs.2 lakhs), S. Rajkunda (addition during the year Rs.4 lakhs) and M.Singh (addition during the year Rs.2 lakhs) Confirmations along with complete postal address in respect of all these persons have been filed by the assesseee before Ld. CIT(A). Ld. CIT(A) held that the identity of these persons stands established and they accept to have made these investments in the shares of the appellant company. During the course of assessment proceedings vide questionnaire dated 24.8.2008 assessee was required to provide the current address, copy of bank account of each persons etc. However assessee submitted that it has no empowerment to seek details such as those indicated by the Assessing Officer (phone bull electricity bill/voter ID card etc) nor was it required to collect or maintain these by prevalent law when the share capital was raised in the nineties. Even if the assessee was not empowered to seek their Bank statement etc he could have made effort to seek their addresses, but assessee chose not to do so since he was not ready to put any person to test of enquiry. Assessee company has a limited number of shareholders. Various types of information/dividend etc have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t able to prove the genuinity of his claim. Therefore the these amounts are treated as unexplained investments of the assessee. Keeping in view of the above, addition of Rs.1.43 is made on account of unexplained investment in share capital for which penalty proceedings u/s 271(1)(c) are attracted. Addition of Rs.1,43,37,219/-." 2.5. Aggrieved, assessee preferred first appeal, where CIT(A) confirmed the action of AO by following observations: "5. The issue has been considered. Facts on record show that the Hon'ble ITAT has set aside the order of CIT(A) and restored the matter to the file of the AO with the direction to examine the evidence adduced by the assessee before the CIT((A) and to take decision afresh in accordance with law after giving adequate opportunity of being heard to the assessee. Record shows that the AO, in compliance to the directions of the Hon'ble ITAT,. Issued statutory notices u/s 143(2) and 142(1) along with a query letter dated 24-08-2008 fixing the case for 22-09-2008 on which date no compliance was made. Thereafter also the AO had allowed the assessee further opportunities to comply with the queries raised vide letter dated 24-8-2008. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report. Instead, AO retained volte-face and only objected to the admission of evidenced and without carrying further enquiries issued a caveat that in case material is admitted he may be given further time to enquiry. CIT(A) is a superior authority and apart from deciding the appeal, has independent powers of further inquiry and enhancing the assessment also. AO has himself observed that some documents were requested by CIT(A), implying thereby that CIT(A) invoked his powers of inquiry. CIT(A) decided the issue about admission of additional evidence and rejected the AO's alternative request inasmuch it was AO failed to carry the necessary inquiries for submitting the remand report. A lower functionary cannot ask the superior appellate forum to decide one issue first and then give further time for another issue as it will result into waste of time and delaying the justice. CIT(A) thereafter passed an order on merits. ITAT in this background only in the interest of natural justice set aside the matter back to AO with specific directions to examine the material adduced before CIT(A) which was in possession of AO also for remand report. Learned counsel, therefore, contends that the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n entries. AO's findings are totally baseless inasmuch as all the observations made are contrary to record. The name of share-subscribers AO's view and evidence on record i.e. paper book pleaded to be as under: Subscriber Amount (Lakhs) Evidence AO's view 1. Satish Mehta 34.89 Party is founder of company.(PB 124) (1) This party was before the AO herself.(2) PB-126- Confirmation with PAN and address filed with letter dated 05-12-02.(3) PB A-7-CIT(A) has discussed this issue and held that identity stood proved.(4) PB 67 r.w. PB 60-Mode of payment conveyed.(5) PB 81-82-Copy of share application register.(6) PB 83-Details of shares issued against individual payments, transfers, etc. (7) PB 115 r.w. 114-Share allotment form - Promoter Quota. Notices confirmation from record, that it has complete address and PAN. Asks for bank statement, phone bill, voter ID. This party appeared before the AO himself. 2. H. Mehta 4 Party is a director.(pb 124) (1) PB-129- Confirmation with PAN and address filed with letter dated 05-12-02. (2) PB A- 7-CIT(A) discussed this issue and held that identity stood proved. (3) PB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddress not provided by Assessee, so summons could not be issued. 6. K.A. Khan 8.25 Investment through Broker as per waiver of Promoter Quota (PB 139) (1) PB-2-PAN given vide letter dated 15-09-03, along with cheque details. (2) PB-5- Copy of suit filed. Same address @ PB-8, counsel appears for party. (3) PB-39-Order in suit - PB 45, 46, 47 relevant and telling (4) Affidavit of K.A. Khan in suit (5) PB 67 r.w.. PB 60-Mode of payment conveyed. (6) PB-81-82 Copy of share application register (7) PB 91- Details of shares issued against individual payments, transfers etc. (8) PB 139- Cheque details. (9) PB 140-143- Copy of our bank statement. Postal address, cheque details, and copy of Assessee's bank statement filed. No confirmation or PAN given. Since current address not given, summons could not be issued. Assessee states cases have been filed against party for rendition of accounts, but AO holds that they have not been pursued. 7. Ritu Dalmia. 3 Shares issued through broker. (PB-140)(1) PB-2- PAN given vide letter dated 15-09-03, along with cheque details. (2) PB-152- AD slip of letter to party asking for confirmation. (3) PB 155- Copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n register. (7) PB 158-160- Cheque details and copy of our bank statement Postal address, cheque details, and copy of Assessee's bank statement filed. No confirmation or PAN given. Since current address not given, summons could not be issued. Assessee states cases have been filed against party for rendition of accounts, but AO holds that they have not been pursued. 11. R. Behl 4 Allottee is company Stakeholder (PB 175) (1) PB-A-8-CIT(A) notices confirmation from party with full address, and holds that identity stands established. (2) Pb 179- confirmation with address. (3) Pb 81-82- Copy of share application register. Confirmation along with complete address on record. Further asked to provide current address, copy of bank account, voter ID, etc. Assessee has not even provided the current address, so summons could not be issued. 12. M. Kapoor 2.2. Allottee is company Stakeholder (PB 175) (1) PB-A-8-CIT(A) notices confirmation from party with full address, and holds that identity stands established. (2) Pb 176- confirmation with address.(3) PB 99- Details of share transfer as per ROC records. (4) Pb 81-82- Copy of share applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No confirmation filed, no PAN. Assessee claims they are NRI's and not exigible to tax in India. In absence of confirmation and PAN, identity not proved. 17. R. Jerath 10 (1) PB-3-PAN given vide letter dated 15-09-03.along with cheque details. (2) PB-101- Details of share transfer as per ROC records. (3) PB 81-82- Copy of share application register. (4) PB 183-Letter from Broker asking for transfer of shares. Confirmation along with complete address on record. Further asked to provide current address, copy of bank account, voter ID, etc. Assessee has not even provided the current address, so summons could not be issued. 18. V. Tangri 2 (1) PB-3-PAN given vide letter dated 15-09-03. (2) PB-60- Party is in Ottawa, Canada. (3) PB-96 Details of share transfer as per ROC records. (4) PB 68 r.w. PB 60- Mode of payment conveyed. (5) PB 81-82- Copy of share application register. (4) PB 183-Letter from Broker asking for transfer of shares. Confirmation along with complete address on record. Further asked to provide current address, copy of bank account, voter ID, etc. Assessee has not even provided the current address, so summons could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants could not be found at the address given, it would not give the revenue the right to invoke section 68. One must not lose sight of the fact that it is the revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source'. 9. We also find that in the case of respondent-assessee itself, a Division Bench of this Court in CIT v. Dwarikadhish Investment (P) Ltd. (2008) 167 Taxman 321 had dealt with a similar issue with regard to the assessment year 1997-98. The relevant portion of the order passed by the Division Bench in the said judgment is reproduced hereinbelow:- "3. The Assessing Officer required the assessees to furnish details and documents. The assessees produced copies of sale and purchase bills of the share brokers through whom the transactions took place and photocopies of confirmations of persons who had contributed the fresh share application money. The assessee furnished the PAN(GIR) numbers of the applicants, the details of the cheque numbers and dates. The assessees contended that letters sent to the shareholders had not been responded to. 4. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n particular para 16 which reads thus: "In this analysis, a distillation of the precedent yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove 91) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with the copies of the shareholders Register, shares application forms, share transfer register etc., it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or 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 assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; (7) The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as unexplained in the hands of the assessee company. Hon'ble Supreme Court has further held that AO is at liberty to take up the issue in the hands of the share-holders. AO has not done any exercise in the hands of the share-holders either in the original proceedings or reframed proceedings. The assessee having discharged its part of burden, there is no justification at all in making the entire addition of share applications in the hands of the assessee more so when their identity and creditworthiness has been repeatedly established, some of them appeared before AO and documents were already on record, as explained in detail above. Similar view has been upheld by Hon'ble Delhi High Court in the cases of: (ii) CIT vs. Victor Electodes Ltd. in ITA no. 586/2010 dated 12-05- 2010; and (iii) CIT vs. Winstral Petrochemicals Pvt. Ltd. in ITA no. 592/2010 dated 12-05-2010. 3.3. Learned counsel further contends that relevant details in respect of each and every share applicant, which could reasonably establish the identity of share-holders, their creditworthiness and genuineness of share applicants were already filed before CIT(A) and were forwarded to AO as well, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction AO should have examined the material available on record and decide the issue accordingly. Instead he wanted new evidence to be filed, which was explained to be difficult by assessee due to elapse of long time of 8 years and having no control over share-holders to enforce their attendance or documents. In our view AO was not right in going beyond the ITAT direction and call for new evidence which could not be filed by assessee. Now coming to the issue as to whether the material available on record in respect of share applicants was sufficient to discharge the burden of the assessee, following emerges from record: (1) Satish Mehta: Confirmation, PAN no. with other details are filed. (2) A. Sarin: The investment is through a broker, confirmation, PAN, address filed. (3) A. Sarin: The investment is through a broker, confirmation, PAN, address filed. (4) N. Sarin: The investment is through a broker, confirmation, PAN, address filed. (5) D. Sarin: The investment is through a broker, confirmation, PAN, address filed. (6) K.A. Khan: Assessee has filed suit against this share-holder, which is not disputed. (7) Ritu Dalmia: Investment through broker. P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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