9911796707
TMI Blog2012 (5) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... e share applicants. This would be prima facie proof of the creditworthiness of the Assessee - It is settled proposition of law that the statement recorded during the course of investigation without corroborative evidence has no evidentiary value - Decided in favor of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 GOLDSTONE TRADING CO. PVT LTD 8,240 41,200,000 4 JAISHREE COMMOTRADE PVT LTD 2,100 10,500,000 5 NILHAT PROMOTERS and FISCAL PVT LTD 1,000 5,000,000 6 PENTEX EXPO PVT LTD 780 3,900,000 7 REALSTONE TRADING CO PVT LTD 12,100 60,500,000 8 REGENCY SHARE and HOLDINGS PVT LTD 140 700,000 9 SNEHDEEP IMPEX PVT LTD 200 1,000,000 10 VENTEX TRADE PVT LTD 80 400,000 11 YULAN MARKETING PVT LTD 3,000 15,000,000 12 ABHIFLAX TRACON PVT LTD 700 3,500,000 13 M.G. GREENFIELD PVT LTD 500 2,500,000 14 CONCERT TRADELINK LTD 1,860 9,300,000 15 PLATINUM COMMERCIAL PVT LTD 4,580 22,900,000 16 ALLWORTH COMMODITIES PVT LTD 400 2,000,000 17 GOODVIEW TRADING PVT LTD 1,000 5,000,000 18 IRIS COMMERCIAL PVT LTD 3,500 17,500,000 19 CUBE TRAFIN PVT LTD 2,500 12,500,000 20 BAKLIWAL FINVEST PVT LTD 2,900 14,500,000 21 NEERAV HOLDINGS PVT LTD 800 4,000,000 22 KANODIA VYAPAAR CO. PVT LTD 2,000 10,000,000 23 APSARA FINTRADE PVT LTD 1,400 7,000,000 24 COSMIC TRADE and INVST PVT LTD 2,000 10,000,000 25 CLIX SECURITIES PVT LTD 1,950 9,750,000 The details of the share application money received for allotment of 12,840 shares were as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade for allotment of shares of the assessee. They were also asked about the source of funds for making the investment in shares of the assessee company. They had in this regard given the following answer: "I had got cash of equivalent amount from this company and against the same the above cheque has been issued to them." This is the substance of the statement recorded of the directors of the various companies who had applied for allotment of shares of the Assessee company. It is also pertinent to mention the statement of the directors of some of the companies was only recorded and not all the companies which made application for issue of shares. Annexure-1 to this order gives the details of the various companies in whose case the statements of the directors were recorded. The statement also gives the evidence filed by the assessee to substantiate the receipt of share application money from the various companies to which shares were allotted. 6. The AO confronted the adverse evidence he had collected against the assessee. Mr. Kaushik Chhota Lal Shah, director of the assessee, was examined by the ADIT, Unit-IX(2). In his statement, he denied having given cash to the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receipt of share application money to the satisfaction of the AO. He held that the mere filing of the various documents by the assessee does not discharge the burden that lay on the assessee. According to the AO, the assessee failed to produce the directors of the various companies and also failed to file confirmation from the companies to whom shares were allotted. 8. In view of the above facts and also relying on the report of ADIT (Inv.) Unit-I, Kolkata, the AO held that the source of investment by the various companies of the shares of the assessee was funds provided by the assessee itself. For all the above reasons, the AO treated the share application money of ₹ 6.42 crores pending allotment and the sum of ₹ 27,61,50,000/- on allotment of shares were unexplained cash credits u/s.68 of the Act. Accordingly, a sum of ₹ 34,03,50,000/- was added to the total income of the assessee. 9. On appeal by the assessee, the CIT(A) confirmed the order of the AO. The CIT(A) also found that in assessment year 2005-06, on identical issue, he had confirmed similar addition. The CIT(A) also observed that despite sufficient opportunity, no written submissions or oral submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to para 6 of the order of the Tribunal in the case of Chat Computers Ltd. (supra) wherein the Tribunal had given a finding that the assessee was not afforded opportunity of cross examination. In this regard, our attention was drawn to the letter dated 16-09-2008 whereby the assessee was given specific opportunity of cross examination of the directors of the various companies which had applied for allotment of shares of the assessee company. Our attention was also drawn to the letter dated 08-10-2008 by the assessee whereby the assessee refused to avail the right of cross examination. Our attention was also drawn to the fact that in the case of the assessee there was no confirmation filed by the assessee from the companies to whom shares were allotted. It was pointed out that there was also a complete failure on the part of the assessee to prove its case even before the CIT(A). 12. Our attention was drawn to para 6.4 of the order of the Tribunal in Chat Computers Ltd.'s case whereby it was held that the AO had a duty to establish that the cash given by the assessee had ultimately reached the assessee in the form of share application money. According to the ld. D.R., in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT Bench in the case of ITO vs. Omega Biotech Ltd. (2010) 4 ITR (TRIB.) 72 (Delhi)wherein similar proposition was laid down. Reliance was placed on the decision of Hon'ble Bombay High Court in the case of Orient Trading Co. Ltd. vs. CIT (49 ITR 723 (Bom.) wherein it was held that the assessee should prima facie show that the cash credit entry is not fictitious and that the initial burden of proof lies on the assessee. Reliance was placed on the decision of Mumbai ITAT in the case of ITO vs. Janak U. Bhatt (2006) 101 TTJ 337 (Mum.) wherein similar proposition was laid down. Reference was made to the decision of Hon'ble Delhi High Court in the case of Sophia Finance Ltd. 70 Taxmann 69 (Del.) wherein it was held that the AO is not precluded from making enquiry as to the true nature and source of the cash credit in the form of receipt of share application money. According to the ld. D.R., the decision of the Delhi High Court in the case of Sophia Finance Ltd.(supra) will hold good even after the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd. (216 CTR 195 (SC) because the case of Lovely Exports Ltd. (supra) was only a dismissal of the SLP. Beside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. When the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholders register, share application forms, share transfer register, etc. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aspects, there have to be some cogent reasons and materials for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share 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; and (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. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the 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 statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties or Certificate of Incorporation issued by the Registrar of Companies. Even in respect of Neerav Holdings Pvt.Ltd., the application form for allotment of shares shows that they have given the income tax PAN No. (AABCN 1477C). 19. In respect of receipt of share application money of ₹ 6,42,00,000 for allotment of 12,840 shares, from 13 different entities (all are limited companies), the evidence produced by the Assessee are discussed itemwise: a) Star Trafin Pvt.Ltd.: This company made an application for allotment of 800 preference shares and paid a sum of ₹ 40,00,000 along with the application. The sum of ₹ 40,00,000/- had been paid by Cheque No.643628 dated 5.5.2005 drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AADCS5989A. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution authorizing Mr.Chandresh Kumar Jain, Director to make investments, Certificate of Incorporation of the company on 4.9.96, acknowledgement of having filed Income Tax return for A.Y 2006-07 declaring total income of ₹ 34,349/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) Chowdhary Consultants Pvt. Ltd.: This company made an application for allotment of 300 preference shares and paid a sum of ₹ 15.00 lacs along with the application by Cheque No.354335 dated 3.5.2005 drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AABCC1035H. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 23/8/04 authorizing Mr.Chandresh Kumar Jain, Director to make investments, Certificate of Incorporation of the company on 6/5/96, acknowledgement of having filed Income Tax return for A.Y 2006-07 dated 30/10/06, Memorandum of Association and Articles of Association of the company has also been filed. e) Sunny Fincom Pvt. Ltd.: This company made an application for allotment of 1000 preference shares and paid a sum of ₹ 50.00 lacs along with the application by Cheque No.509741 dated 5.5.2005 drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AAGCS5048H. The Assessee had filed copy of the application form for allotment of preferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 29/6/03, authorizing Mr.Ajay Singh, Director to make investments and Memorandum of Association and Articles of Association of the company has been filed. i) Apsara Trex Pvt. Ltd.: This company made an application for allotment of 1000 preference shares and paid a sum of ₹ 50.00 lacs along with the application by Cheque No.329992 dated 27/7/2005 drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AACCA2015N. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 19/04/2005 authorizing Mr. Iteprata Biswas and Mr.Chandresh Kumar Jain, Directors to make investments, Certificate of Incorporation of the company on 11/3/96, acknowledgement of having filed Income Tax return, Memorandum of Association and Articles of Association of the company, Directors report, auditors report and audited accounts for the year ending 31/3/06 has also been filed. j) Macro Leafin Pvt. Ltd.: This compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd paid a sum of ₹ 80.00 lacs along with the application by DD No.480865 dated 12/5/05 Frs.50.00 lacs and DD No.480884 dated 12/05/05 for ₹ 30.00 lcas. The assessee has not filed details of bank, PAN etc. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 11/4/05 authorizing Mr.Govind B.Sharma, Director to make investments, Certificate of Incorporation of the company on 14/7/98, acknowledgement of having filed Income Tax return for A.Y 2006-07 dated 20/10/2006, Memorandum of Association and Articles of Association of the company has also been filed. 20. We are of the view that identity of the shareholders has been sufficiently explained by the Assessee. The mode of payment of application money has been through banking channels and these details are available in the application forms. Thus the genuineness of the transaction has been prima facie established by the Assessee. The Assessee has given the Income Tax Permanent Account Number (PAN) in almost all the share applicants. This would be prima facie proof of the creditworthiness of the Assessee. 21. The Hon'ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has not conducted any independent enquiry during the assessment proceedings; but simply relied upon the report of the ADIT(Inv), Unit 1, Kolkata as well as the statements of the directors of various Kolkata based companies, who have paid the application money. The said investigation by the ADIT(Inv) Unit 1, Kolkata was not carried out during the assessment proceedings; therefore, the said investigation was neither the inquiry carried out during the assessment proceedings nor part of the assessment proceedings. It is clear that the scrutiny assessment commenced after about one year from the alleged investigation was over. The Assessing Officer has heavily relied upon the investigation report and proceedings and specifically on the point that the assessee was given opportunity to cross examine the directors of the investing companies, who paid the application money and further, the assessee was also asked by the Assessing Officer to produce the directors, whose statements were recorded by the investigation unit 1, Kolkata for cross examination of them. 6.1 ......... 6.2 Since the investigation proceedings were not part of the assessment proceedings in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vesting companies deposited through account payee cheques; therefore, no cash transaction was found by the Assessing Officer in the bank account of the investing companies. 6.4 The Assessing Officer doubted the movement of cash from the assessee as being passing through various levels and reached to the assessee company. However, no finding has been given to the effect as to how the alleged cash/money of the assessee company routed through various levels finally reached to the assessee. Not an iota of evidence or material has been brought on record to show even, prima facie that the said amount representing application money moved from the assessee and reached to the assessee. Rather, documentary evidence on record exhibits different facts i.e. as per books of account of the assessee as well as those of investing companies together with the return of income, board resolution go to prove that the said application money was paid by the investing company to the assessee against allotments of the preferential shares. The Investing companies have shown the said amount as investment in their books of account. The money routed through banking channels and through account payee cheques/b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned person stated; but obtained by the department in a mechanical manner. However, without going into validity of the statements when all other records, material and documentary evidences contradict and nullify the statements then the reliance placed by the Assessing Officer on such statement is highly unjustified and improper. 7 Even otherwise, in the case of the Ashwani Gupta (supra), the Hon'ble Delhi High Court has taken a note of the finding of the Tribunal in para 2 as under: "2. The Tribunal has confirmed the order passed by the CIT(A) which held the entire addition made by the Assessing Officer to be invalid and had deleted the same. The CIT(A) had clearly held that the Assessing Officer had passed the assessment order in violation of the principles of natural justice in as much as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to cross-examine one Mr. Manoj Aggarwal on the basis of whose statement the said addition was made. The CIT(A) also held that the entire addition deserved to be deleted, particularly so, because the transactions also stood duly reflected in his regular returns." 7.1 The Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... howing that the assessee had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be copies of the shareholders register, share application forms, share transfer register, etc. 14. As far as creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditor/subscriber showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants before allotting the shares. If for any reason the address given in the application were to be incorrect or for any reason if the said applicants have changed their residence or the notices sent by the Assessing Officer have not been received by such applicants, the assesseecompany cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the Revenue only relying upon the statement of Sri Anil Raj Mehta, a chartered accountant." 8.1 The Hon'ble High Court further discussed the issue in paras 20 to 24 as under: " 20 The observations of the Supreme Court in the case of Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (SC) go to suggest that the Department is free to proceed to reopen the individual assessments in the case of alleged bogus shareholders in accordance with law and, thus, not remediless. It is, thus, for the Assessing Officer to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public limited company and has issued the share capital to the public at large, as in suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court by assessing that a bare reading of section 68 of the Act suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books, or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged toincome-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee filed copy of PAN, Acknowledgement coy of the return of income of the investing companies, their bank accounts statements for the relevant period; then even the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc. 10 In the case in hand, there is no dispute about the identity of the applicant companies, who had paid the application money and the source of the application money was also found in the respective bank accounts of the investing companies and there was no trace of cash deposit in the bank accounts of the investing companies, then, the action of the Assessing Officer under influenced of the report of the investigation wing without giving opportunity to the assessee for cross examination of the persons, is not sustainable. 11 The Assessing Officer has raised some doubts and suspicion about the movement of the money through various levels but could not establish any direct or indirect link of the said outward movement from the assessee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment lies in reopening the case of these investors and the addition cannot be made in the hands of the assessee." Thus in view of the above observation of hon'ble High Court when requite document were produced and available with the A O to establish that no cash was deposited in the bank accounts of the investing companies then without further probe to prove contrary the addition in the hand of the assesse cannot be made. 13........ 13.1..... 13........ 13.1 Before us, the ld AR of the assessee has forcibly urged that in view of the decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra) as well as the decision of the Hon'ble Gujarat High Court in the case of Rajeh Babubhai Damania (supra), the issue may be decided on merits on the basis of the material available on record. 14 It is to be noted that it is not the case of any additional evidence or fresh material produced by any of the parties before us which requires examination or investigation to verify the correctness of the new facts first time brought before us. The case of the revenue is that the cash moved from the assesse routed though various leveland then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we delete the addition made by the Assessing Officer and confirmed by the CIT(A) on this account. However, we may clarify that our findings on the issue are based on particular facts of this assessment year and therefore, would not affect the respective rights of the parties for the other assessment years." 23. The above observations of the Tribunal in our view are squarely applicable to the case of the Assessee also as the statement of the directors of the companies who applied for shares were also similar in the case of the Assessee as well as the case of Chat Computers (supra). The order of the AO as well as that of the CIT(A) in both the cases are verbatim the same. 24. Apart from the above, we also find that the Assessee has filed before the Registrar of Companies return of allotment in respect of the shares which were allotted to the applicants and the same has been taken on file by the Registrar of Companies. Perusal of the same reveals that the shares allotted to the various companies totaling ₹ 27,61,50,000/- has been duly shown as shares allotted in those returns. The objections raised by the learned D.R. before us at best could raise doubts about the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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