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TMI Blog2012 (9) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... investors. Therefore, confirm the action of AO & CIT (A) for applying provisions of Sec 68 in respect of share capital received from company as well as individual investors. Appeal decides in favour of revenue. - I.T.A.No.253/Ind/2010 - - - Dated:- 2-7-2012 - SHRI JOGINDER SINGH AND SHRI R.C.SHARMA, JJ. Appellant by : Shri Hitesh Chimnani, C. A. Respondent by : Shri Keshav Saxena, CIT DR ORDER PER R. C. SHARMA, A.M. This is an appeal filed by the assessee against the order of CIT(A) dated 15.3.2010 for the 2007-08, wherein the following ground have been taken by the assessee :- That on the facts and in the circumstances of the case, the ld. CIT(A) erred in maintaining addition of Rs. 28,00,000/- made by the Assessing Officer u/s 68 in respect of share application money received by the petitioner. 2. Rival contentions have been heard and record perused. In the scrutiny assessment order, the Assessing Officer, observed that on a perusal of balance sheet of the assessee company, it is seen, that assessee has shown share capital of Rs. 3,80,000/- and reserve and surplus of Rs. 25,40,998/-. In addition to above assessee has also shown unsecured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived and how could he contact the share holders either personally or through any broker. He explained that whole money was received through cheque of ABN Amro Bank branch, Kolkata and these parties were known to him in the past and this share money has been managed' without the help of any broker. He further stated that still he is in touch with these share holders and these companies are engaged in the business of investment. He was further asked how and on what basis value of the share was determined at Rs. 100/- as against Rs. 10/- of face value. He was also required to explain the method adopted for valuation of share in absence of any business done and how the cost of Rs. 100/- per share was determined. It was stated that this calculation is not based on any method of valuation, but based on record of his business experience of last 30 years. He is promoter and director of the company and on this basis price of shares has been fixed at Rs. 100/-. In the next question regarding issue of shares on a premium of Rs. 90/- to others and purchase of shares by promoters at the face value, he explained that both directors and promoters have purchased these shares on face value. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 (W.B.) 7.1. Again fresh notices u/s 133(6) dated 09/12/2009 were issued by the Assessing Officer on the above address, the result of which was as under : - 1 Udhav Commercial P.Ltd.,89, Burtolla Street 3rd Floor Kokata 700 007 (W.B.) Dispatch No.3247 information may be required up to 17.12.2009 The information sent by the party by post on 24.12.2009 after due date 2 M/s.B.Jhanwar Co.Pvt.Ltd.,207, Maharishi Devendra Road, 6th Floor Road No.107, Kolkata 700 007 (W.B.) Dispatch No.3248 information may be required up to 17.12.2009 Unserved returned back by the postal authority as marked not known. However, above party has suo moto sent the information to this office by post on 24.12.2009 3 Shri Ranu Tiwari, 35, Arvind Nagar, Ujjain Dispatch No.3249 information may be required up to 16.12.2009 The information filed by Shri Tiwari by post on 21.12.2009 after due date 4. Smt. Priyanka Chouhan, Govind Bhawan, Dhaba Road, Ujjain Dispatch No.3250 information may be required up to 16.12.2009 The information sent by the party by post on 29.12.2009 after due date Thereafter, the Assessing Officer alongwith Shri Manohar Choukde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the companies were taken. Also were taken accounts of the person from whom the deposit were transferred to the said companies. It is seen that all the depositors in the above companies were related to the above companies and all those companies have opened their accounts in the said bank and closed the accounts in a very short period after the transactions. Even the companies under reference had also closed their accounts on 07/12/2007. It is also seen that the deposits received in the account of these companies through cheque but the companies who issued cheques, deposited cash in their accounts on various dates for example, M/s Bagoria Enterprises, 207- Maharishi Devendra Road, 6th floor. Road No. 107 Kolkata-700007 (W.B.). Rs. 3,00,000/- on 18th November 2006, and Rs. 4 lacs on 20.11.06 and thereafter issued a cheque to M/s. Udhav Commercial Pvt. Ltd. on 22.11.06 for Rs. 1,20,000/-. Other company M/s JMK Investment, 207, Maharishi Devendra Road, 6th floor. Road No. 107 Kolkata-700007 (W.B.) is deposited In their account cash of' Rs, 95,000/- on 17.11.06 and Rs. 35,000/- on 18.11.06 and thereafter issued a cheque to Udhov Commercial on 28.11.06 for an amount of Rs. 1,25,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies ( on the present address as provide by assessee) and found that there are no such companies named Udhav commercial Pvt. Ltd. and B. Jhanwar Company P. Ltd. were existed on the given address. The neighbor near the given address stated that no such company ever existed on the given address since last 5 to 6 years. Even there was no sign board on the given address, as prescribed by company law, were no existed. Therefore identity of this company is not proved." 3. The Assessing Officer also visited bankers of this companies named ABN Amro Bank, Kolkata and obtained copies of bank statements of both companies and these A/c's were further investigated from the angle of sources of fund arrived in the Bank account of both companies. The copy of A/c's of the source of fund companies were also obtained which shows that cash was deposited in the associated companies and then cheques were issued in the name of alleged companies ( Share holders of assessee company) and immediately issued cheques in favour of assessee company as share application money. In view of the above please show cause, in absence of identity of the creditors / share holders and creditworthiness is not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on's name, the address given was 108, D. M.Tower, where the administrative officers of the appellant company and the other Associates were situated. Further still, even bank account in the name or Smt. Priyanka Chouhan was opened with the identification and signature of Shri Suresh Mehta, another Director of the appellant company. It has also been established that both the individuals were persons of no means and their bank accounts except for funds coming from the Director s bank account had negligible balances. 4.02 The appellant in its reply filed on 2.3.10 in response to specific query has admitted that all the shares allotted to Uddhav Commercial Pvt. Ltd., at 16,000 were repurchased by the main Director Shri Suresh Mehta at Rs.10 per share and the remaining 10,000 shares allotted to another company, B.Jhavar and Co. Pvt. Ltd., were acquired by another Director Smt. Anita Mehta again at Rs. 10 per share on 10.12.08 i.e. against shares premium of Rs. 100 per share including premium of Rs. 90 per share. 4.03 Nothing has been brought on record as to what transpired within the short period of about a year leading the so-called investors in the company who acquired the shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to opposite parties and thus SLP has been dismissed in limine without being admitted. 4.1.1 The aforesaid observations were made by Hon'ble Supreme Court, while dismissing SLP filed by the Department against judgment in CIT vs. Divine Leasing Finance Limited, 299 ITR 268 (Del) wherein it was held as under : "No question of law, far, less any substantial question of law arises for our consideration. We may, however, briefly reflect upon a submission made by learned counsel for the respondent to the effect that the assessee had, by its letter dated March 8, 1999, requested the Assessing Officer to examine the assessment records of the share applicants whose GR Nos. had been supplied. It is not controverted that action was taken by the Assessing Officer, but it has justifiably been contended that this inaction was due to paucity of time left at that stage since the assessment had to be framed by March, 31, 1999. It has been pointed out that several adjournments had been granted by the Assessing Officer on the asking of the assessee. The timing of the assessee s said letter is most suspect. Generally speaking, it is incumbent on the Assessing Officer to manage his schedule, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elve into creditworthiness of the subscriber; or that the Assessing Officer need not be satisfied about the genuineness of the transaction. " "There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue s insistence that it should prove the negative. 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 share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tight rope of Section 68 and 69 of the Income-tax Act, 1961. 4.1.3 Proceeding further, the Hon'bIe Delhi High Court, in its later decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words from the cited decisions as below: "PRIMA FACIE. Even an obiter dictum of the Federal Court is binding upon the High Court and when a Superior Court held that an Act if "prima facie prospective" it is not open to subordinate courts to canvass the import or implication of that dictum. The use of the word "prima facie" would indicate that there is no possibility of an alternative construction being put on the Act, ,for it is on the face of its prospective - Nand Kishore v. Sukti Dibya, A.I.R 1933 Ori. 240 at 243: I.L.R 1953 24:.19 C.L.T.44". 4.1.7 Reverting back to the decision of the Hon'ble Calcutta High Court in the Shankar Industries case, the concept of shifting of onus from the assessee on to the AO and thereafter, ,could also be found elaborated in this decision. The Hon'ble Court reproduced following extracts, from its own decision in an unreported case of Knitting Machineries Syndicate (India) Pvt.Ltd. v. CIT, decided on 6.9.1972, on pages 697 and 698 of the report :- "we find that by a series of decisions of different High Courts as well as of the Supreme Court it has been consistently laid down that when an assessee claims that he has borrowed money from a th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of the creditor company, he has completely failed even to prima facie establish the de factor existence of the creditor company. The de jure existence is a mere convenient fa ade of the de facto existence of the creditor company. Such dejure existence is self serving one, having been obtained through application and other forms and formalities unilaterally filed before the RO C. Such self serving evidences are also not entertained by courts as in the case of Bansidhar Agrawal Panna v. CIT, MPII (19084) 148 ITR 523 (MP). Hence, such legal evidence is no more than a mirage because of Assessing Officer s findings about nonexistence of such companies at given addresses despite field enquiries made and repurchase of shares issued to other such Kolkata based companies on same date i.e on 10.12.08 by Shri Suresh Mehta (16000 shares), Smt. Anita Mehta (1000 shares) at Rs. 10 i.e. face value on common date 10.12.08 at 10 % of the price at which such shares were offered nearly 1 year back and there being no such event in intervening period to warrant dimunitiion in value of company by 90%. Thus, it is clear that whether the explanation offered by the assessee is satisfactory proof o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue that the said creditors were income tax assessee. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices u/s 131 at the instance of the respondent, did not pursue the matter further. The Revenue, apart from issuing notices u/s 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on its, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case. 4.2.2 It is further settled position of law that no burden lies on the Department to show that other source of income was derived from a particular source. Where there is an unexplained ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. 4.3.1 Before proceeding further, it will be appropriate to examine the preposition of law laid down in various Supreme Court decisions itself to the effects as to what constitutes the law laid down where SLP is dismissed without formulating the substantial question of law and recording arguments of both the sides of such substantial question of law in deciding the appeals. (a) Hon'ble Supreme Court in the case of V.M. Salgaonkar Bros Pvt. Ltd. 243 ITR 383 (Hon'ble Supreme Court), Held: When a appeal is dismissed by the Supreme Court by a non-speaking order, the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case, the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of article 133 of the Constitution (b) Hon'ble Supreme Court in the case of Kunhayammed and others V. State of Kerala 245 ITR 360 considered the point in issue about the doctrine of merger held that once a S.L.P. has been granted, the doors for the exercise of appellate jurisdictions of this Court have been let open. The order impugned before Supreme Court became ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement of law contained in the order is a declaration law by the Supreme Court within the meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court, which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex court of the country, But this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the Special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. (vi) Once leave to appeal has been granted and the appellate jurisdiction of the Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger, the order may be of reversal; modification or merely affirmation. (vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of the High Court to ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. 4.3.3 Still further, the Hon'ble Supreme Court in the case of Padma Sundara Rao (Deceased) and others v. State of Tamil Nadu and Others 255 ITR 147 has emphasized. The Court cannot read anything into a statutory provision which is plain and unambiguous. A stature is the edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. Courts should not place reliance on decisions without discussion how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be necessarily concluded that it will have to be considered and decided in every case by a quasi judicial authority involving application of provision of section 68 in the matter of contribution of share capital / share application money whether the onus case on the assessee / appellant has been discharged or not in accordance with law on appreciation of totality of evidence available on record and surrounding facts and circumstance of the case. It may also be noted that Hon'ble Supreme Court in the case of CIT v P. Mohankala 291 ITR 278 (Hon'ble Supreme Court) while examining the provisions of sections 68 has held that when the explanation offered by assessee is not found to be satisfactory and proper that will be a case of offering no explanation by h the assessee. In this case while in its earlier two decisions namely CIT v. Durgaprasad More 82 ITR 540 and Sumati Dayal V. CIT 214 ITR 801, the Hon'ble Supreme Court has clearly laid down the preposition of law that in appreciation documents, evidence and evidence on record, the Court cannot be oblivious to the surrounding facts and circumstances of the case and human probabilities. Therefore, the assessee appellant cannot de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he modus operandi of the converting unaccounted funds by the Promoters and Directors of the company by first inviting such share application from willing dubious entities and then acquiring back the same at an agreed price which is normally too low compared to the issue price and there being no rational for selling of such shares for such low price by the initial contributors. Reference can be made to the following decisions :- (a) CWT vs. Rohtas Industries Limited, 67 ITR 283 (S.C.), wherein it was held that In the absence of any direct evidence, a judicial or quasijudicial Tribunal can base its conclusions on the basis of what are known as notorious facts bearing in mind the principles of Section 144 of the Evidence Act. (b) Attar Singh Gurmukh Singh vs. ITO, 191 ITR 667 (S.C.), wherein, while interpreting the provisions of Section 40A(3), it was held that In interpreting a taxing statute, the court cannot be oblivious of the proliferation of black money which is under circulation in our country. 4.7 Thus, on overall consideration of facts and circumstances of the case and as discussed in detail above, the amounts claimed to be received by the appellant do not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money was routed by these investors and found that cash was deposited immediately prior to issue of cheque to the assessee and the account of these companies was closed immediately after transfer of funds. Thus, the findings so recorded by the Assessing Officer was also confirmed by CIT(A) after applying the propositions laid down by various High Courts and Supreme Court. The ld. CIT(A) also concluded that the proposed investors were just bogus and did not exist, they were mere paper companies and assessee himself has routed his funds through these companies by issuing share of Rs. 10/- at a premium of Rs. 90/-, which were again bought by the Directors of the assessee company at a discount of 90% in the immediately next year. All these facts clearly establish that there was no genuine transaction of share capital, the companies were not existed at all. The detailed findings recorded by the Assessing Officer and CIT(A) could not be controverted by the ld. Authorized Representative by brining any positive material on record. Accordingly, we confirm the action of lower authorities for applying provisions of Section 68 in respect of share capital received from Kolkata based company as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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