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TMI Blog2011 (10) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... of the companies given be assessee were found to be non-existent. Even the Inspector was deputed to verify the addresses who also reported that these companies were not available at the given addresses. It is not possible that the companies making huge investment in the form of share application are not found at the given addresses. There is a possibility that there may be a change of address but till the stage of the Tribunal no such address was furnished by the assessee, therefore the onus was not discharged as the assessee neither furnished the correct addresses nor the creditors were produced rather the assessee tried to stall the assessment proceedings by giving misleading facts and incorrect addresses - Decided against the assessee Dis-allowance of telephone expenses - Held that:- No reason has been assigned for making such ad hoc disallowance by the AO and secondly that since the company is a juristic person, no disallowance of personal nature can be made in the case of a company - Decided in favor of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... on the unsecured loans, on the facts and in the circumstances of the case is allowable to the appellant. It is therefore prayed that the said addition requires to be now deleted. 3. That the learned CIT(A) erred in upholding the ad hoc disallowance made by the Assessing Officer of Rs. 80,000/- on account of telephone expenses for alleged personal use which on the facts and in the circumstances of the case is wrong and uncalled for. It is, therefore, prayed that the said addition requires to be now deleted." ITA No. 34/Ind/2010 "That the learned CIT(A) erred in upholding the disallowance made by the Assessing Officer of Rs. 8,92,890/- paid as interest on unsecured loans. That the said interest expenditure having properly incurred by the appellant on the unsecured loans on the facts and in the circumstances of the case is allowable to the appellant." ITA No. 190/Ind/2009 1. That the learned CIT(A) erred in confirming the addition of Rs. 5,00,000/- made by the A.O. as alleged unexplained credit u/s 68. It is submitted that the said unsecured loan received from M/s Optimates Textile Industries Ltd. was properly explained and on the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on unsecured loan from M/s Optimates Textiles Industries Ltd. That, on the facts and in the circumstances of the case the levy of penalty is wrong. ITA No. 137/Ind/2010 1. That the learned CIT(A) erred in upholding addition made by the Assessing Officer of unsecured loan of Rs. 20,00,000/- received from M/s Hindustan Continental Ltd. as unexplained cash credits u/s 68 of the Income Tax Act, 1961. That on the facts and in the circumstances of the case, the said unsecured loan was properly explained and the addition is wrong and unjustified. It is, therefore, prayed that the said addition now requires to be deleted. 2. That the learned CIT(A) erred in upholding an addition made by the Assessing Officer u/s 69C of Rs. 1,61,096/- being interest paid, as unexplained expenditure which on the facts and in the circumstances of the case is wrong and uncalled for and the same requires to be now deleted. 2. During hearing of these appeals, we have heard Shri P.M. Chaudhary and Shri Ajay Tulsiyan, the learned counsels for the assessee and S/Shri Keshav Saxena, Shri R.K. Chaudhary, Shri K.K. Singh, learned Commissioners of Income Tax along with Shri Arun Dewan, learned Senior DR. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn. It has also furnished various decision in support of its contentions. But it is evident from the investigation made by ACIT 5(1), Indore that both these company are not existing companies in the real sense. These companies are paper companies only and exist nowhere and were used to give accommodation entries to various parties who want to launder their unaccounted money in the guise of share application or unsecured loan or long term capital gain. The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the assessee to establish depositor's identity, creditworthiness and genuineness of transaction. Assessee in its written submission stated that company has received share application money of Rs. 40,00,000/- from Hindustan Continental Ltd. 19, Shubh Kamna Apartment, Gul Bazar, Jabalpur. As per the report of the ACIT 5(1), Indore, it is clear that no such company exist at the given address. The creditworthiness of the company has also not been established in view of the fact that there is huge inflow and outflow of fund in the Bank account without any logic. There is huge cash deposit in the Bank acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust of arguments on behalf of the assessee is that all the ingredients of section 68 were fulfilled by the assessee whereas the crux of arguments on behalf of the revenue is that even the identity of these companies was not established by the assessee and these companies merely exists on papers. It was also contended that the notices issued to these parties at the addresses supplied by the Ld. Counsel for assessee returned unserved with the remark that no such companies ever existed at the given addresses. The Inspector was deputed to know the whereabouts of these companies who also reported that no such companies were in existence at the given address. Before coming to any conclusion, we are reproducing hereunder the relevant provisions of section 68 of the Act which deals with cash credits :- "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." 6. Before us, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuineness of the transaction. He submitted that as such the assessee has placed on record the voluminous material towards discharge of its initial burden to prove the identity and capacity of the share holder companies as also the genuineness of the transaction. The Ld. Counsel for assessee invited our attention by claiming that following information and documents discharged its primary burden. "Names and addresses of the share holders along with details of their PAN furnished along with reply dated 7/12/07. A list of fresh share capital received during the year along with names and address of the share holders and PAN again given along with reply dated 17/12/07 on demand from AO. Copies of Board resolution and share application Forms of all share holders including the above two companies also filed along with the reply." The Ld. Counsel for assessee submitted that various documents for above two companies were filed before the Assessing Officer to prove the identity, capacity and genuineness of the transactions but the Assessing Officer has brushed aside the same and merely relying upon the report of another authorities held that the companies in question are paper companies a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issal of Civil Appeal arising out of the decision of Delhi High Court, which constitutes affirmation of the decision and amounts to the declaration of law. It was canvassed that similarly the order of the Hon'ble Supreme Court, dismissing the SLP in the case of Lovely Exports (P.) Ltd (supra), also has a binding effect for which reliance was placed upon following decisions :- 1. Kunhayammed v. State of Kerala [2000] 245 ITR 360/113 Taxman 470 (SC) where their Lordships' have held that if the order refusing special leave to appeal is a speaking order i.e it gives reason for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is declaration of law by Supreme Court within the meaning of Article 141 which will obviously be binding on all courts and Tribunals in India and certainly the parties thereto. Secondly other then declaration of law, whatever is stated in the order are findings recorded by Supreme Court which would be binding on the parties and the courts, Tribunal or authorities whose orders was under challenge. 2. S Shanmugavel Nadar v. State of Tamil Nadu [2003] 263 ITR 658 (SC). Their Lordships' have held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITJ 689 (I.T.A.T., Jabalpur). (iii) ACIT v. Shri Kela Prakashan (P.) Ltd. [2010] 14 ITJ 539 (I.T.A.T., Indore) 12. So far as application of section 68 of the Act is concerned, the Ld. Counsel for assessee on the issue of burden of the assessee, submitted that assuming without admitting that the view expressed by the Full Bench of Delhi High Court in case of Sophia Finance Ltd (supra) still holds good and the provisions of section 68 are applicable to the credits in respect of share application money/share capital, all that is required to be done is that the assessee is required to prove the existence of the share holders because as held by the Full Bench of the Delhi High Court, if the share holders exists then, possibly no further enquiry needs to be made. He, therefore, submitted that as to the existence of the share holders, of course, the assessee is required to place the primary evidence and discharge the primary burden, for which reliance was placed on the following decisions. 1. "CIT v. Divine Leasing & Financing Ltd reported in 158 Taxmann 440 (Del), wherein their Lordships' have held that a distillation of the precedents yields following propositions of law in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked for and was supplied with a copy of statement of bank account of the subscriber. The payments were made by cheques. In view of this the court held that no addition could be made u/s 68 because assessee has discharged the onus in respect of veracity of the transactions. 5. CIT v. KC Fibers Ltd reported in 187 Taxman 53 (Del), wherein it is held that no material is brought by AO to hold that share holders companies are umbrella company or have any relation with each other and the amount cannot be regarded as undisclosed income of the recipient assessee company. It also held that it is not for the assessee company to probe as to the source. It was for AO to enquire into the affairs of the investor company Their Lordships' have applied the ratio of the decision in case of Lovely Exports Pvt Ltd (supra). 6. CIT v. Dolphine Canpack Ltd 283 ITR 190 (Del) share application money - Tribunal while observing details including confirmation details of bank account, PAN of subscriber and that payments made by cheque - justified in deleting addition u/s 68. Although the Lordships' applied decision in Sophia Finance Ltd, they came to the conclusion that the scope is limited to examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to show that even if the principle laid down by the Hon'ble Delhi High Court in Sophia's case (supra) is held as applicable even then the assessee's burden is restricted to establishing the existence of shareholders and once that is established, the assessee is not required to prove anything further." 13. The Ld. Counsel for assessee submitted that as per the principle laid down in the case of Sophia Finance Ltd. (supra) the assessee has discharged the onus lay upon it. It was, therefore, submitted by the Ld. Counsel for assessee that even if the principle laid down in the case of Sophia Finance Ltd (supra) is to be applied then even in such case also, the assessee is only required to prove the existence of the share holders and the fact that the money has been invested by share holding company and not by the assessee company. It was submitted that since various documents were submitted by the assessee, primary burden which lay upon the assessee, has been discharged. It was strongly contended that the Tribunal in the case of Kalani Industries Limited [2007] 8 ITJ 165 has accepted the existence and identity of these companies, apart from the question of discharge of primary onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time Marketing (P.) Ltd [2008] 306 ITR 35/173 Taxman 41 (Delhi) 5. CIT v. MetaChem Industries [2000] 245 ITR 160/[2001] 116 Taxman 572 (MP) 6. Nemi Chand Kothari v. CIT [2003] 264 ITR 254/[2004] 36 Taxman 213 (Gauhati) 7. P.K. Sethi v. CIT [2006] 286 ITR 318 (Gauhati) 8. CIT v. Barjatya Children Trust [1997] 225 ITR 640/[1996] 87 Taxman 385 (MP) 9. CIT v. Laul Transport Corporation [2009] 180 Taxman 185 (Punj. & Har.) 10. Aravali Trading Co. v. ITO [2010] 187 Taxman 338 (Raj). The Ld. Counsel for assessee further submitted that the learned CIT has merely put the seal of approval without appreciating the legal position in regard to the credits for share application money/share capital. He canvassed that it is important to note that inspite of referring to the evidence placed on record by the assessee in discharge of its burden to prove the identity and existence of the company, the Learned CIT instead of applying and following the decision of this ITAT in the case of Kalani Industries Ltd (supra) has tried to find faults with the system of registration of companies, issuing PAN or about the opening of bank account etc. He submitted that the approach of the CIT(A) to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness. The Ld. Counsel for assessee placed reliance on the following decisions :- 1. ITAT Delhi - Aquatech International Ltd. v. ITO [2009] 27 SOT 69 (Delhi) (URO) 2. ITAT Delhi - ITO v. Nova Promoters & Fin Lease (P.) Ltd [2010] 44 DTR 1. 16. Before us, the Ld. Counsel for assessee vehemently argued that even otherwise as held by the ITAT, Indore Bench in the case of Kalani Industries Ltd (supra), a Limited company duly incorporated and registered under the Companies Act cannot be said to be an nonexistent company in view of the legal position that the company is a juristic person having separate existence apart from its members under the law. The company has its legal birth under the law on its incorporation and the company's existence can come to end only by its legal death in accordance with the provisions of Companies Act i.e by liquidation under the Company Law, which takes place only through High Court. In this respect the Ld. Counsel for assessee referred to the provisions of sections 13 & 17 of the Indian Companies Act, which deal with requirements with respect to Memorandum and Article of Association, change of Memorandum, change of registered office etc., section 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitting that onus is on the assessee at least to establish the identity of share applicants. The notices/commission sent at 4 places, namely, Indore, Mandsaur, Jabalpur and Mumbai were found to be non-existing, consequently, it was contended that these are merely paper companies claimed to have given huge sums of credit in the form of share capital or loans to large number of assessees and then disappeared in thin air after providing accommodation entries. It was strongly contended by the learned CIT DR that neither correct addresses of creditors were given by the assessee nor the creditors were produced before the Assessing Officer for examination and the assessment proceedings were completely stalled as the facts of such transactions can either be explained by the assessee or the creditors who knows entire basis of such credits. Reliance was placed upon the decision in Kale Khan Mohd. Hanif v. CIT [1963] 50 ITR 1 (SC). Our attention was invited to the paper book dated 4.5.2010 by specifically pointing out that huge cash was deposited in number of bank accounts, namely, Sahayata Marketing, Yash Associate, G.R. Investment and V.S. Traders, etc. from where the amounts were transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which reliance was placed upon the decision in CIT v. Shree ManjuNathesware Packing Products & Camphor Works [1998] 231 ITR 53/96 Taxman 1 (SC), Nawab Sir Mir Osman Ali Khan v. CIT [1986] 162 ITR 888/28 Taxman 641 (SC), CIT v. Quality [1997] 224 ITR 77/93 Taxman 222 (Pat.). A strong plea was also raised by the learned CIT DR that many High Courts have distinguished the decision in Lovely Exports (P.) Ltd. (supra) because it was merely dismissal of SLP for which our attention was invited to the decision in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 333 ITR 119/198 Taxman 247/9 taxmann.com 179 (Delhi). Reliance was also placed upon the decision in CIT v. STL Extrusion (P.) Ltd. [2011] 11 taxmann.com 125 (MP). It was submitted that the decision in Rathi Finlease Ltd. (supra) is a binding precedent for which reliance was placed in Geoffrey Manners & Company Ltd. v. CIT [1996] 221 ITR 695/89 Taxman 287 (Bom.), Taylor Instrument Co. (India) Ltd v. CIT [1998] 232 ITR 771/99 Taxman 155 (Delhi); CIT v. Mohan Lal Kansal [1978] 114 ITR 583 (Punj. & Har.); Jorehaut Group Ltd. v. Asstt. CIT [2007] 289 ITR 422 (Gau); CIT v. Vrajlal Manilal & Co. [1981] 127 ITR 512 (Mad.). 21. We have consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted money in the guise of share application or unsecured loan or long term capital gain. The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the assessee to establish depositor's identity, creditworthiness and genuineness of transaction. Assessee in its written submission stated that company has received share application money of Rs. 40,00,000/- from Hindustan Continental Ltd. 19, Shubh Kamna Apartment, Gul Bazar, Jabalpur. As per the report of the ACIT 5(1), Indore, it is clear that no such company exist at the given address. The creditworthiness of the company has also not been established in view of the fact that there is huge inflow and outflow of fund in the Bank account without any logic. There is huge cash deposit in the Bank account of Hindustan Continental Ltd. maintained UTI Bank Ltd. copy of which is filed by the assessee in support of its contention. The company is not existing in real sense the genuineness of transaction is also doubtful. Since assessee failed established identity, creditworthiness and genuineness of transaction, credit in the account of the assessee on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank account of M/s Sunil Shares Stocks Private Limited and thereafter to the ultimate beneficiary. It was submitted that the transactions of cash transfer and deposition of cash has nothing to do with the assessee. A strong plea was raised by the Ld. Counsel for assessee that identity of share applicants is established which was strongly denied by the learned CIT DR. At this stage, a query was raised by the Bench as to whether the assessee is in a position to produce before this Bench any of the Directors or the employees of these companies ? The Ld. Counsel for assessee conveniently contended that the assessee cannot be put to adverse burden meaning thereby that the assessee was not in a position to produce such persons. The Bench again contended that in view of the above reply of the Ld. Counsel for assessee, an adverse view may be taken against the assessee. The Ld. Counsel for assessee remained mum and nothing was canvassed against the query raised by the Bench. 23. The notices issued u/s 133(6) of the Act to M/s HCL Limited and M/s Optimates Textiles Industries Limited could not be served as these companies were found non-existent at the addresses supplied to the departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private and public limited company as in a private limited company, the public at large is not subscribing the shares as the shares are allotted to close relatives, friends and other known persons who are having faith in the subscribing company on personal relations whereas there is an invitation to the public at large by a public limited company and not necessarily having personal relations and in that case, the individual relations are normally found to be non-existent. In view of these facts, the share applicants are known to the assessee company, being private limited company, and there should be no difficulty to produce them or their representative to enable the Assessing Officer to verify the identity, genuineness of the capital claimed to be subscribed by them, therefore, the assessee cannot claim ignorance about these companies. Unless the assessee is able to establish identity of the companies who have subscribed in their share capital, how the department will proceed against these companies in terms of the verdict of the Hon'ble Supreme Court in the case of Lovely Exports (supra). Any addition in the hands of such subscribing companies is only possible when the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not found at the addresses it was held that identity is not established. On the issue of onus, it was held that "principle regarding onus is laid down u/s 68 whereby once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion. When such conclusion is communicated to assessee, onus shifts on the assessee. Likewise, Hon'ble jurisdictional High Court in the case of Rathi Finlease Ltd. (supra) at page 28 when company is not found at the given address against the summons issued by the Assessing Officer observed as under - "The assessee tried to explain the genuineness of the credit on the basis of letters of confirmations. It could not be explained as to how the transaction was materialised when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. The assessee failed to discharge the burden with regard to the credit in its books and the existence of the creditors to indicate the genuineness of the transaction." The Full Bench of Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra) observed as under :- "The ITO would be en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." If the aforesaid provision of the Act is analysed, it speaks about cash credits and the sum found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation is not found satisfactory by the Assessing Officer then the same may be charged to tax as the income of the assessee. In the present appeal, at any stage the assessee did not file any explanation regarding the identity of the share applicants, therefore, the onus was not discharged by the assessee. A bare reading of section 68 suggest that there has to be credits of amounts in the books maintained by the assessee that such credit has to be of a sum during the previous year and the assessee offers no explanation about the nature and source of such credit or the explanation offered by the assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he burden of the assessee to prove whether that person itself has invested the money or some other person has made investment in the name of that person. The burden then shifts to the revenue to establish that such investment has come from the assessee company itself. 26. Once the receipt of the confirmation letter from the creditor is proved and the identity and existence of the investor has not been disputed, no addition on account of share application money in the name of such investor can be made in the hands of the assessee. In the case of CIT v. Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Delhi), the Hon'ble Court clearly held that in case of public issue the company concerned cannot be expected to know every detail pertaining to identity as well as financial worth of each of its subscribers. The company must however maintain and make available to the Assessing Officer for his perusal all the information contained in the share application documents. The Hon'ble Court clearly held that in case of private placement, the legal regime would not be same. A delicate balance must be maintained while walking the tight rope of section 68 and 69. The burden of proof can seldo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the issue is subscribed by its closely connected person, the onus is upon the assessee to prove the identity of the subscribers and their creditworthiness." 27. There is another perception to look into the decision of the Hon'ble Apex Court in the case of Lovely Exports (P.) Ltd. (supra) wherein the Hon'ble Apex Court held that if the share application money is received by the assessee from alleged bogus share holders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessment in accordance with law, but it cannot be regarded as undisclosed income of the assessee company." In our view, first of all, the alleged bogus share holders should be in existence, only then the department may be in a position to reopen their individual assessment. However, in the present appeals, the share applicants/share subscribers are no more in existence meaning thereby their identity is not proved, therefore, how the department can proceed to reopen their individual assessments. 28. The Hon'ble Madhya Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision from the Hon'ble Apex Court in Lovely Exports (P.) Ltd. and Stellar Investment Ltd. (supra). In another latest decision in Oasis Hospitalities (P.) Ltd. (supra) UP Bone Mills India Limited and Vijay Power Generators Ltd. v. ITO [2009] 180 Taxman 102 (Delhi) (Mag.), identically held that identity and credit worthiness of share applicants was not proved, therefore, the addition u/s 68 of the Act was justified. While coming to the aforesaid decision the Hon'ble Delhi High Court considered the following decisions :- 1. Bhola Shankar Cold Storage (P.) Ltd. v. Jt. CIT [2004] 270 ITR 487/[2005] 144 Taxman 889 (Cal.) (Cal (para 40) 2. CIT v. AKJ Granites (P.) Ltd. [2008] 301 ITR 298 (Raj) (para 18) 3. CIT v. Arunananda Textiles (P.) Ltd. [2011] 333 ITR 116/203 Taxman 32/15 taxmann.com 226 (Kar.). 4. ASK Bros. Ltd. (supra) 5. CIT v. Creative World Telefilms Ltd. [2011] 333 ITR 100/15 taxmann.com 183/203 Taxman 36 (Bom.) (Mag.) 6. Divine Leasing & Finance Ltd. (supra) 7. CIT v. Dolphin Canpack Ltd. [2006] 283 ITR 190 (Delhi) 8. CIT v. K.C. Fibres Ltd. [2011] 332 ITR 481/[2010] 187 Taxman 53 (Delhi) 9. CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (HC) 10. CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitions of law in the context of section 68 of the Income Tax Act. The assessee has to prima facie prove - The identity of the creditor/subscriber The genuineness of the transaction, namely, whether it has been transmitted through banking or other undisputable channels The creditworthiness or financial strength of the creditor/subscriber If relevant details of address or PAN, identity of the creditor/subscriber are furnished to the department along with copies of the share holders' register, share application forms, share transfer registers, etc. it would constitute acceptable proof or acceptable explanation by the assessee. The department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices 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 and The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited and Sunil Shares & Stock Private Limited. This assertion of the learned Commissioner of Income Tax was not controverted by the assessee but merely argued that the money was transacted through banking channel and in view of the decision in the case of Lovely Exports (P.) Ltd. (supra) their individual accounts can be reopened. However, as mentioned earlier, the existence of these share subscribers/share applicants was not found existent, therefore, where is the question of reopening their individual assessments. Transaction enquiry was also made (pages 1 to 104) of the paper book filed on 4.5.2010. Pages 108 to 125 of the paper book dated 4.5.2010 contains the adjudication order u/s 151 of the securities and exchange board of India Act read with rule 5(1) of the SEBI (procedure for holding inquiry and imposing penalties by the adjudicating Officer). Rules 1995 against Optimates Textiles Industries Limited (formerly known as Priyansh Saree Industries Limited). Vide para 17 of the order (page 125) it has been held that Sunil Shares & Stocks Private Limited failed to provide necessary information to the investigating authority of SEBI and penalty of Rs. 2 lacs was imposed in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer and the letter issued by the Assessing Officer were returned unserved by the postal department with the remark that the addressees are not existing at the given addresses which clearly establishes that either the share applicants are non-existent or if exist, then merely exist on papers and not in real sense, therefore, their identity is not proved. With all respect, within the territorial jurisdiction of Madhya Pradesh, we are bound to follow the proposition of law laid down by the Hon'ble jurisdictional High Court, which was further confirmed by Hon'ble High Court in the case of STL Extrusion (supra), after considering the proposition laid down in the case of Lovely Export (supra), the facts of which are pari materia especially when the facts of the instant appeals before us are identical to the facts wherein the Hon'ble High Court has decided in favour of the Revenue whereas the facts in the case of Lovely Exports (P.) Ltd. (supra) are distinguishable, as discussed above. 35. So far as the contention of the ld. Counsel for the assessee that the company can only be wound up by the order of the Hon'ble High Court and death of the company is known to the process of law and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare subscribers i.e. M/s. Hindustan Continental Ltd. & M/s. Optimates Textiles Ind. Ltd. Under these circumstances, the inquiry conducted in respect of M/s. Hindustan Continental Ltd. & M/s. Optimates Textiles Ind. Ltd. which are common applicants in the case of all the assessees before us, could not be said to be a relevant and not concerning to the assessee in the instant cases. 36. Even if the cases relied upon by the ld. Counsel for the assessee, as mentioned/cited/discussed in the preceding paras of this order like Divine Leasing & Finance Limited, Dwarkadheesh Investment Private Limited, Gangor Investment Limited, K.C. Fibres Limited, Dolphin Canpack Limited, Shree Barkha Synthetics (Raj.), Down Town Hospitals Private Limited, ILLAC Investments Private Limited, Rohini Builders and Shree Barkha Synthetics (Raj.) (supra) are considered, the Hon'ble Courts have clearly held that at least the assessee has to prove the identity/existence of the person in whose names share applications are received meaning thereby the burden lies on the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing at the given addresses, therefore, in the present appeals, the identity of share holders was not proved at any stage, consequently, the decision in the case of Shri Kela Prakashan (P.) Ltd. (supra) is not applicable being on different findings, therefore, may not help the assessee. Likewise, the Hon'ble Karnatka High Court in the case of Arunananda Textiles (P.) Ltd. dealt with identical issue and that too after considering the decision in the case of Lovely Exports (P.) Ltd. and Steller Investment Ltd. (supra). The Hon'ble Court held as under :- "It is not for the assessee to place material before the Assessing Officer in regard to the credit worthiness of the share holders. If the assessee has given the addresses of the share holders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee to establish but it is for the department to inquire with the investors about their capacity to invest the amount in the shares ". If the aforesaid conclusion is analysed, one fact is clear that the identity of the share holders has to be proved by the assessee. However, in the present appeals the ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not cross examine these persons. They did not furnish any proof of their identity in the form of ration card, election card or passport despite request by the Assessing Officer. The Assessing Officer after analysing the statements of these persons observed that these five persons were small agriculturists and had no means to make investment in the company." 38. In these circumstances, the entire receipt of Rs. 25,23,500/- in respect of these five persons was treated as unexplained investment and made the addition u/s 68 of the Act. 39. The learned Commissioner re-examined the entire issue analysing the evidence in the light of the judgment in the case of Stellar Investment Ltd. and Sophia Finance Ltd. (supra) and ultimately confirmed the addition. On further appeal, the Tribunal affirmed the decision of learned Commissioner of Income Tax (Appeals) in the following manner :- "15. Having carefully examined the material available on record and the orders of the lower authorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld. Whenever the issue was subscribed by closely connected persons of the assessee and the assessee has failed to prove the identity and creditworthiness the addition under section 68 can be made in the hands of the assessee. In the instant case, the assessee could not place any evidence on record to prove the identity and the creditworthiness of the so-called subscribers and the Assessing Officer was justified in treating this investment as unexplained and made the addition under section 68 of the Income Tax Act. We, therefore, find no infirmity in the order of the learned Commissioner of Income Tax (Appeals). Accordingly, we confirm the same." ** ** ** 42. We have considered these submissions in so far as the statements of the persons who are produced are concerned, they are gone into and analysed by the three authorities below on the basis of which finding of fact is arrived at that neither their identity is established nor their capacity to invest this kind of money is proved. They are all agriculturists and had not produced a single document to support their version. This is a finding of fact and there is no reason to interfere with the same. Learned counsel for the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not produced any documentary evidence showing that they are capable of saving/investing any amount at all. If the persons produced are not carrying relevant documents to establish their identity, creditworthiness at the time of recording of the statements and furnishing photo copy of some documents after a gap of substantial period, it is not possible to verify its correctness unless the concerned persons are produced with necessary documentary evidence (in original) in support of their identity and creditworthiness. The assessee has not even furnished basic requirements of share capital i.e. cheque number, date, amount(s), details of drawee bank, etc. The assessee's bank account was also not produced. Hence, the assessee's claim regarding investment by the shareholders remained unverifiable. No comments can now be offered at this stage without necessary verification. Proof of identity produced at a later stage cannot be verified in the absence of concerned person's original documents." 45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), while dismissing the Special Leave Petition, it is clear that the initial burden is upon the assessee to prove the identity of share subscribers and once the identity is proved, in case of bogus investment, addition can be made in their individual capacity and not in the case of the company. However, in the present appeals even the identity of such share holders is not proved as we have discussed above, therefore, the initial onus has not been discharged by the assessee especially when the assessee was confronted with the finding of the commission (Inspector), summons/notices returned unserved and the addresses given by the assessee itself that too at four places were found to be fictitious. The assessee has not given satisfactory evidence to discharge the onus. It has merely given the names of fictitious parties and in our humble opinion this is not a sufficient compliance, therefore, the decision from Hon'ble Supreme Court in the case of Lovely Exports P.) Ltd. (supra) may not help the assessee. In a later decision dated 25th October, 2010 the Hon'ble jurisdictional High Court in the case of STL Extrusion (P) Ltd. (supra) even considered various decisions including the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, M/s Hindustan Continental Limited. The next ground relates to disallowance of interest of Rs. 42,658/-paid on the said amount of loan of Rs. 10 lacs which was argued to be consequential. The ld. Counsel for the assessee relied upon the decision in CIT v. Metachem Industries [2000] 245 ITR 160/[2001] 116 Taxman 572 (MP); Barjatya Children Trust (supra), CIT v. Kalani Industries (P.) Ltd. [2006] 155 Taxman 524 (MP). On the other hand, the learned CIT DR defended the impugned order by submitting that since the identity of M/s Hindustan Continental Limited was not established, therefore, the assertion made by the ld. Counsel for the assessee fails at the initial stage itself. Since in the case of Agrawal Coal Corporation, identical submissions have already been considered, therefore, we do not find any merit in this appeal of the assessee also, consequently, it is dismissed. 44. After considering the rival submissions and the facts narrated before us and further the discussion made hereinabove, since the identity of the lender company is not established as such companies were found non-existent at the given four addresses, therefore, various documents alleged to be filed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 69C of the Act as interest of Rs. 54,257/- paid on unsecured loan. As discussed above, it has been made on papers only and actually not incurred, therefore, this ground is dismissed. 53. The first ground pertains to levy of penalty of Rs. 19,000/- u/s 271(1)(c) of the Act. The claim of the assessee is that the interest was rightly claimed as for the provisions of section 36(1)(iii) and secondly no disallowance can be made by invoking the provisions of section 69C of the Act. We do not find any merit in the claim of the assessee as we have dismissed the identical ground of payment of interest, therefore, since the assessee claimed bogus interest expenses resulting into suppression of income, therefore, the penalty was rightly imposed, consequently, this appeal of the assessee is dismissed. ITA Nos. 137/Ind/2009 54. Both the grounds raised in this appeal pertain to unsecured loan of Rs. 20 lacs received from M/s Hindustan Continental Limited and consequent addition made u/s 68 and further the amount of Rs. 1,61,096/- claimed as interest paid. As we have discussed above, therefore, both these grounds are dismissed. Finally, ITA No.151/Ind/2009 is partly allowed ITA No. 283/In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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