9911796707
TMI Blog2012 (10) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... erused the material available on record. The facts, in brief, are that the assessee declared nil income in its return filed on 31st October, 2012. The case was selected for scrutiny, therefore, notices u/s 143(2) and 142(1)(ii) were issued to the assessee to which assessment proceedings were attended by the assessee. In the balance sheet, the assessee reflected Rs. 5 lacs to be received as share application money from M/s Optimate Textiles Limited and the said company was found involved in rampant share trading manipulations and was delisted in all stock exchanges. On perusal of ROC documents and IT returns, the company showed two addresses of Mumbai on which notices u/s 133(6) of the Act were issued and the same were returned unserved. To confirm the real status, a commission was issued to the ADIT (Inv.), Mumbai to verify the genuineness of the company. Identical report came that the company named M/s Optimate Textiles Limited does not exist at the given address. Show cause notices of SEBI's investigating department were issued and the observation has been duly mentioned from page 2 onwards of the assessment order. Ultimately it was found by the Assessing Officer that the ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee declared income of Rs. 83,46,090/- in its return filed for the assessment year 2005-06 on 30.10.2005. During scrutiny proceedings the Assessing Officer noted that Hindustan Continental Limited (in short hereinafter as 'HCL') applied for 40,000 shares of the assessee company on the face value of Rs. 10/- each and premium of Rs.90/- per share. Similarly, Optimates Texiles Industries Limited (in short hereinafter as 'OTIL') also applied for 10,000 shares of the same face value and the premium per share. The learned Additional CIT (Assessing Officer), referred to the report of ACIT 5(1), Indore, wherein it was informed that the investigation carried out by him in some other cases also found that HCL and OTIL are not the genuine companies and these merely exist on papers. Such report finds place in the assessment order. This report was confronted to the assessee company, during the assessment proceedings, and after considering the reply the learned Assessing Officer concluded that the alleged share capital, claimed to be applied by these companies, is unexplained, therefore, the same was added to the income of the assessee company. The relevant portion from the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecured loans. Since assessee fails to establish identity, creditworthiness and genuineness of the transactions, share application money credited on account of M/s Optimates Textile Industries Ltd. Rs. 1,00,000/- share premium Rs.9,00,000/- is treated unexplained u/s 68 and added back to taxable income. Total addition under this head is Rs. 50,00,000/-" 4. On appeal before the ld. first appellate authority, the Ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed details in respect of increase in share capital vide replies dated 16/10/07 (Page 47 to 49 ) of compilation , reply dated 7/12/07 (Page 50 to 54) , reply dated 17/12/07 (Page 55 to 58) and reply dated 28/12/07(Page 60 to 64) of the compilation along with documents (Page 67 to 96). The Learned AO vide his order of assessment dated 28/12/07, relying upon some report of ACIT 5(1) Indore, in some other cases, report of Inspector, who was deputed to knows the whereabouts of these companies and the report of the postal department that no such companies were existing at the given addresses and came to the conclusion that the identity of these companies, M/s Hindustan Continental Ltd & M/s Optimat Textiles Industries Ltd formerly known as Priyansh Sari Ind Ltd is not established. Relying upon these reports, the Assessing Officer came to the conclusion that the companies are paper companies only, not existing in real sense. The Ld. Counsel for assessee submitted that it is pertinent to note that no independent enquiry has been conducted by Assessing Officer in the case of assessee nor any summons etc was issued by Assessing Officer to the aforesaid companies, thus, no attemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 287 (Del) 2. Sophia Finance Limited; 205 ITR 98 (Del) 3. CIT V. Lovely Exports Pvt. Ltd.; 216 CTR (SC) 195 Inviting our attention to the aforesaid judgments, the Learned Counsel for assessee submitted that a combined reading of all the above decisions viz the decision of Delhi High Court , which has been affirmed by Supreme Court in the case of Stellar Investment, read with the later decision of Supreme Court in case of Lovely Exports shows that even if such amounts are received by such assessee company from the alleged bogus share holders, no addition u/s 68 can be made in the hands of the company. It was canvassed that the Hon'ble Delhi High Court has held that if the assessments of the persons who are alleged to have really advanced money is sought to be reopened, that would have some sense but the amount of increased capital cannot be added in the hands of the company itself . 9. The Ld. Counsel for assessee further submitted that the law laid down by the Supreme Court is binding on all courts, Tribunals and authorities under Article 141 of the Constitution of India and no addition can be made in respect of the amount invested by the aforesaid two companies. It was furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the share holders are bogus, no addition can be made u/s 68 of the Act in the hands of assessee company, which is binding on all Courts including this Tribunal. He, therefore, submitted that assuming without admitting that as held by AO the above two companies viz Hindustan Continental Ltd and Optimat Textiles Industries Ltd are considered as non-existent companies, in that event also, no addition u/s 68 could be made in the hands of the assessee company, for which further reliance was placed on the decision of Delhi High Court in the case of CIT Vs Aanchal Investment Co Ltd reported in 268 ITR211 wherein Delhi High Court has applied decision in the case of Stellar Investment and on that basis upheld the order of Tribunal. 11. The Ld. Counsel for assessee further submitted that recently the Hon'ble Delhi High Court applied the decision of Lovely Exports (supra) in the cases of CIT Vs Jagat Diagnostics Pvt Ltd., CIT Vs HLT Finance Pvt. Ltd. and CIT Vs Meritons Tower Pvt Ltd.(unreported) which shows that even the Delhi High Court is treating the decision of Supreme Court as binding precedent and not following the Full Bench decision in case of Sophia Finance (supra). He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repudiation on face value and construe it , without more evidence against the assessee (iii) The AO is duty bound to investigate the credit worthiness of the creditor / subscriber , the genuineness of the transaction and veracity of the repudiation . In that case , their Lordships' upheld the order of Tribunal holding that the AO had not brought any positive material or evidence to indicate that the share holders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources ." 2. CIT Vs Dwarkadhish Investment (P) Ltd reported in 167 Taxmann 321 (Del) 3. CIT Vs Dwarkadhish Financial Services reported in 148 Taxmann 54 , where it was held that in view of the evidence to establish that identity of share holders such as affidavits , copies of the share application forms, confirmation from applicant companies copies of Board resolution, details of cheque Nos., branch and address of the branch through which the investments are made along with the fact that share holders are tax payers, it was held that it could not be presumed that the share holders, who are assessed to tax, are not in existence . 4. CIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addresses of all creditors along with GIR No / PAN as well as confirmations along with copies of assessment orders in case of individual creditors wherever available and copies of returns filed by creditors in other cases . All loans received and repaid by account payee cheques rightly deleted . ( Page No 116&117 of Judgment compilation) 10. CIT VS shri Barkha Synthetics Ltd reported in 270 ITR 477 (Raj) --- assessee discharged its initial burden in respect of six out of seven companies but revenue failed to discharge its burden as it did not hold any enquiry into genuineness, addition rightly deleted . ( Page No 107 to 115 of judgment compilation) 11. Shree Barkha Synthetic Ltd. vs ACIT reported in 283 ITR 377 (Raj.) the principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channels, the assessee has to prove the existence of the person in whose name share application is received . Once the existence of the investor is proved, it is no further burden of the assessee to prove whether that person himself invested the money or some other person made investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies cannot be disputed. As to the investment of the money, he submitted that there is no material to show that the said money has flown from the assessee company. He further submitted that it is well established principle of law that once the transaction has taken place through banking channels, the genuineness of transaction cannot be disputed. He submitted that it is also well established proposition of law that the assessee is not required to prove source of a source. He, therefore, submitted that in this view of the matter, the addition made by the AO is clearly unsustainable in law on all counts . 15. As regards the question of discharge of assessee's burden in regard to section 68, the Ld. Counsel for assessee submitted that even on general principles, it is well established that the assessee has only the primary burden to prove identity, capacity and genuineness. In this regard he placed reliance on the following decisions . 1.Sarogi Credit Corporation vs CIT reported in 103 ITR 344 . The assessee has only the primary burden to prove the identity of creditor and placed material pointing out that the entry is not fictitious . It is not for the assessee to explain further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar of Companies is a statutory authority possessing details of companies. All registered companies are required to make statutory compliance and file periodic returns etc under Companies Act before the Registrar. Reliance is also placed on the decision of Gauhati High Court in the case of Khandelwal construction vs CIT reported in 227 ITR 900, wherein it has been held that section 68 empowers the AO to make enquiry regarding cash credits. If he is satisfied that entries are not genuine he has every right to add this in Income from other Sources. The satisfaction of the AO is the basis of invocation of powers u/s 68 and the satisfaction must be derived from relevant factors on the basis of proper enquiry . The enquiry must be just and reasonable. The Ld. Counsel for assessee contended that the enquiry was not properly made and on the basis of such enquiry the AO could not come to the conclusion that the creditors were fictitious. He submitted that in the instant case also, the AO has failed to make proper enquiries or rather has not at all made enquiries himself as such, the finding and conclusion about non existence of the companies cannot be sustained and has to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the Act can be said to be a nonexistent company. 17. Regarding the correctness of Ad-hoc Disallowance out of Telephone expenses, the learned Counsel for assessee relied upon the submissions made before the CIT(A) and submitted that the disallowance is arbitrary and unreasonable and ought to have been deleted by CIT(A). 18. So far as certain documents relating to some companies filed by the revenue are concerned, it was contended by the Ld. Counsel for assessee that the share holder companies are paper companies. The Ld. Counsel for assessee objected to the same on the ground that the revenue is trying to rely on certain facts which are totally new and not borne out from record. The said facts do not find place either in the order of AO or the CIT(A). So far as the documents filed by the revenue in Paper Books Page No 21 to 125, it was submitted that by the Ld. Counsel for assessee that these papers/documents, not being part of record, should not be taken into consideration and the same deserve to be summarily rejected. He submitted that even otherwise the facts and the documents sought to be relied upon by the respondents do not have any bearing on the issue involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court is not empowered to read anything into a statutory provision which is plain and unambiguous for which reliance was placed upon the decision in Prakash Nath Khanna; 266 ITR 1 (SC), Keshajiv Raoji & Company; 183 ITR 1 (SC) and Smt. Tarulata Shyam; 108 ITR 345 (SC). It was further contended that the decision in the case of M/s Stellar Investment Limited (supra) is merely a dismissal of appeal simplicitor and not a declaration of law and hence it is not a binding precedence as held in the case of M/s Hindustan Tea Trading Company; 263 ITR 289 (Cal) and S. Shyamughvel Nadar; 263 ITR 658 (SC). A strong plea was raised by the learned CIT DR that the decision in the case of M/s Lovely Exports Private Limited is not applicable to the facts of the present appeals as the Hon'ble Delhi High Court has clearly differentiated cases of share capital of private limited company from public limited company. It was also submitted that in the decision of Lovely Exports Private Limited the Hon'ble Apex Court merely dismissed SLP and it is no longer a speaking order as it is neither expression of judicial view nor a binding precedent for which reliance was placed upon the decision in CIT v Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained, therefore, the same was added to the income of the assessee company. The relevant extract from the assessment order is extracted hereunder :- " The contention of the assessee is not acceptable. Assessee has relied upon the decision of Hon'ble I.T.A.T., Indore Bench, in case of ACIT vs. Kalani Industries Ltd. the said decision was not acceptable to the department and is being contested before Hon'ble High Court of M.P. assessee has tried to prove genuineness of transaction by furnishing confirmation, copy of bank account and acknowledgement of return. 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 ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total addition under this head is Rs. 50,00,000/-" 22. The above finding was confronted to the assessee during appellate proceedings against which the assessee preferred written submissions. During the first appellate stage as well as before us, the Ld. Counsel for assessee has challenged the finding of ACIT on the ground that the said company is a listed company on stock exchange and the Assessing Officer was in knowledge and possession of the income tax return of the company. Our attention was invited to the details of "capital work in progress" and licence capacity of HCL Limited by arguing that the existence and credit worthiness of HCL is established since it is having share capital of Rs. 8.09 crores. During hearing before us, the Ld. Counsel for assessee Mr. Choudhary, invited our attention to deposit of cash in bank account of M/s Sahayata Marketing and transfer thereof through account payee cheque to the 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, Registrar of companies also register a company without physical verification of the existence of the applicant company. There is a specific finding that on verification by the ACIT in the case of M/s Sahayata Marketing Company neither the operators of the accounts were available at the addresses given to the bank nor the introducer. Therefore, the assessee cannot claim to have established the identity of both these companies on the basis of some documents. Leave it apart, as mentioned above, the Ld. Counsel for assessee, in reply to a specific query regarding production of any of the directors or the employees of the share applicants before the Bench, the assessee did not comply with the directions of the Bench, therefore, to this limited extent, we are of the view that these share applicants are non-existent and their identity is not proved. It is pertinent to mention here that there is a difference between a 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 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stall the assessment proceedings by giving misleading facts and incorrect addresses. Even as per preponderance of probabilities, all facts go against the assessee and the ratio laid down by the Hon'ble Apex Court in the case of Sumati Dayal (214 ITR 801) goes against the assessee. Hon'ble Calcutta High Court in the case of Nivendan Vanijya Niyojay Limited (supra) (page 14) held as under :- " After the initial onus was discharged by assessee, the Income Tax authorities have made enquiries and had communicated the result of the enquiry to the assessee and required the assessee to produce the subscribers who provided such credit, in order to establish its case. But the assessee did not do so. On this basis addition made by the A.O. u/s 68 of I.T. Act was confirmed." Identically, the Hon'ble Calcutta High Court in the case of Hindustan Tea Trading Company Limited; 182 CTR 585 at page 23 (para 21) where the identity of 12 persons who were 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 exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares of private limited companies are generally given to applicants known to the directors whereas in a public limited company the applicants are unknown to the directors. It is pertinent to mention that while coming to a particular conclusion, the Full Bench of Delhi High Court in the case of Sophia Finance Limited (supra) duly considered the case of Stellar Investment Limited. Even in the case of M/s Lovely Exports Private Limited (supra) the Hon'ble'ble Delhi HighCourt in para 4 observed as under :- "Reference to section 68 of the IT Act is conspicuous by its absence, the Stellar Investment Limited ratio cannot be stressed to the extent that it partakes as a reflection on section 68, when the inquiry pertained only to section 263." 25. In view of the facts narrated above and the judicial pronouncements discussed hereinabove, it can be said that the assessee did not discharge the onus cast upon it by the provisions of the Act. We tend to reproduce section 68 of the Act :- "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o prove that even if cash credit represents income it is income from a source which has already been taxed for which we are supported by the decision in CIT v. Deviprasad Vishwanathprasad; 72 ITR 194 (SC). The Hon'ble Apex in the case of Sumati Dayal vs. CIT; 214 ITR 801 clearly held that if the explanation of the assessee is unsatisfactory, the amount can be treated as income of the assessee. There are contrary decision like Addl. CIT v. Bahri Brothers; 154 ITR 244 (Pat) holding that identity of creditors is not relevant for cheque transactions but at the same time it is not sacrosanct as was held in Nemichand Kothari vs. CIT; 264 ITR 254 (Gau). In the case of Shri Barkha Synthetics Limited vs. ACIT; 155 Taxman 289 the Hon'ble Rajasthan High Court held that where the matter concerns money receipts by way of share application from the investors through banking channel, the assessee has to prove the existence of the person in whose name the share application is received. Once the existence of the investor is proved, it is not further the 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 pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the present case, the Assessing Officer after making inquiry disapproved the very first information regarding identity of such creditors as they were found nonexistent at all the given addresses. So far as the argument of the learned CIT DR that dismissal of SLP in the case of Lovely Export, where there is no merger of order, is not an expression of judicial view nor a binding precedent. We are not going into this controversy because the facts of the present appeals are distinguishable from the facts of Lovely Exports Private Limited. Hon'ble Delhi High Court in a latter decision in CIT v. Oasis Hospitalities Private Limited (2011) 333 ITR 119 held as under :- " We are of the view that ratio laid down in Steller Investment Ltd. (2001) 251 ITR 263 is applicable only in those cases where the assessee is a limited company and the shares were quoted in the stock exchange. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited company, the presumption is very strong against the assessee that subscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and even the Directors or any of the employees or books of account were not produced. Therefore, the only conclusion arrived at by the Hon'ble jurisdictional High Court in the case of M/s Rathi Finlease Limited that the assessee failed to discharge burden with regard to credits in its books and the existence of its creditors, consequently, addition u/s 68 was sustained. This decision is squarely applicable to the facts of the present appeals because identity of share applicant itself was not proved. The principle laid down in the case of M/s Rathi Finlease Limited was recently affirmed by Hon'ble jurisdictional High Court in the case of STL Extrusions, it has become binding precedent on the Tribunal especially when the decision of the Hon'ble Apex Court in the case of Lovely Exports was very much available. Hon'ble jurisdictional High Court while coming to a particular conclusion followed the decision of the Hon'ble Karnataka High Court in CIT v. ASK Brothers Limited (2011) 333 ITR 333 and duly considered the decision from the Hon'ble Apex Court in CIT v. Lovely Exports Private Limited and Steller Investment Limited (supra). In another latest decision in CIT v. Oasis Hospit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 193 the following observations :- "....credit entry relates to the issue of share capital, the Incometax Officer is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the permanent account numbers issued by the Incometax Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessee." The Hon'ble High Court took note of many other judgments of many other High Courts and on analysis of those judgments, formulated the following propositions which emerge as under (Divine Leasing & Finance Limited; 299 ITR page 282 (Del) :- "In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income Tax Act. The assessee has to prima facie prove - The identity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old accounts were closed and new accounts in the name of new concerns were opened). Thereafter, the amount was transferred in any of the account of Hindustan Continental Private Limited, Agrawal Road Carriers Private Limited and Sunil Shares & Stock Limited. It was submitted that on certain occasion there is inter-transfer of funds amongst the three companies, then the cheques were issued to desiring parties in the garb of loan or share capital. Not only that, the shares of Hindustan Continental were claimed to be traded by Sunil Shares & Stock Limited, M/s Jai Share Fin Limited and others through manipulation giving rise to artificial height so as to enable certain parties to re-introduce their black money as huge capital gain. It was claimed that in those case also the cash was deposited first in certain account and thereafter the funds were transferred to the share brokers involved in the manipulation and then ultimately to the accounts of the party concerned as sale proceeds of shares. It was also submitted that SEBI has even penalised Hindustan Continental Private Limited and Sunil Shares & Stock Private Limited. This assertion of the learned Commissioner of Income Tax was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terially different. 33. The contention of the Ld. Counsel for assessee that in view of the decision of the Hon'ble Supreme Court in the case of Lovely Exports, the issue is covered in favour of the assessee, as per our considered view, the case of Lovely Exports (supra) will be applicable only after the identity of the share applicant is established. Since in the instant appeals before us, the identity itself has not been established, there is no justification to apply the ratio laid down by the Hon'ble Supreme Court in the case of Lovely Exports (supra). 34. The Hon'ble jurisdictional High Court in the case of Rathi Finlease (supra) has clearly laid down the proposition with respect to circumstances wherein the identity is established in case the share applicants are companies. It was held that even filing of confirmation of share applicants by the assessee will not serve the purpose of establishing the identity insofar as the inquiry conducted by the Assessing Officer 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 eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to the contention of ld. AR that copy of the inquiry conducted by the Assessing Officer was furnished to the assessee only one day prior to the completion of assessment, we found that the assessee has got full opportunity to substantiate its claim and negate the report before the ld. CIT(A) but the assessee grossly failed to rebut the report regarding non-establishment of identity of share applicants. The ld. CIT(A) has got co-terminus powers to do what the Assessing Officer has failed to do. Proceedigns before ld. CIT(A) is also extension of assessment proceedings in addition to the appellate proceedings. However, inspite of full opportunity the assessee failed to rebut the contents of the report which indicated that no shareholders exist in the name of the companies so provided by the assessee. Even though, the report relied by the Assessing Officer was in respect of another assessee but the fact remains that the inquiry was in the case of same share 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has given a categorical finding that the assessee has proved the identity of the subscribers. therefore, no addition was warranted in the hands of the assessee. However, in the instant case before us, the identity of the subscribers has not been established as per our discussion detailed hereinabove. This finding of the Tribunal was affirmed by the Hon'ble High Court and, therefore, the appeal filed by the revenue was dismissed, whereas in the present appeal the matter was investigated by the Assessing Officer and even the Inspector of the department who was directed by the Assessing Officer to know the whereabouts reported that the share subscribing companies are non-existent and the addressees given of four places were also found to be fictitious. The summons/notices issued by the department were also returned unserved by the postal department with the remark that no such companies are existing 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 Private Limited is not applicable being on different findings, therefore, may not help the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in these shares was ranging from Rs. 1 lakh toRs. 2.5 lakhs. In order to verify the genuineness of these transactions, the Assessing Officer issued summons to these parties which were received back either with the remarks "incomplete address" or "in spite of best efforts the address not found" or "not met" or "no such person" or "not found", etc. The Assessing Officer thereafter asked the assessee to produce these persons who had introduced the share capital in the company. The assessee was also asked to furnish cheque numbers/draft numbers for payment of share application money along with the names of the drawee bank and branch of the bank. However, no details were furnished despite various opportunities. The assessee could not even identify the entries in the bank account regarding the receipts of the share application money nor could he produce the relevant ledger for verifying the receipts, according to the Assessing Officer. Ultimately, the assessee produced five persons whose statements were recorded. The assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make a verification of the subscribers as subscription can be done by any person. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited company the presumption is very strong against the assessee that subscription 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 persons, the onus is upon the assessee to prove the identity (sic. Identification) of the subscribers and their credit worthiness. Their Lordships of the Hon'ble Calcutta High Court in the case of Bhola Shankar Cold Storage P. Ltd. v. Joint CIT (2004) 270 ITR 487 have examined the judgment of the apex court in the case of Steller Investment Ltd. and that of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd (1994) 205 ITR 98 and have held that in the case of Steller Investment Ltd. the ratio laid down by the Full Bench of the Delhi High Court was not overruled and it still holds the field. Whenever the issue was subscribed by closely connected persons of the assessee and the assessee has failed to prove the identity and creditworthiness the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to establish three things necessary to obviate the mischief of section 68 of theAct. These are : (i) the identity of investors; (ii) their creditworthiness/investments, and (iii) the genuineness of the transaction. Only when these three ingredients are established prima facie it is only then the department is required to undertake further exercise as discussed above. In the instant casae, no such documents are filed and no steps taken by the assessee which could establish the aforesaid three ingredients. Additional evidence in the form of bank statement, etc. is given but the assessee has not done anything to prove these bank accounts. On this evidence produced by the assessee remand report was called for and the Assessing Officer in his remand report dated December 23, 2003 submitted as under :- " None of the 6 alleged shareholders produced any documents in support of their identity. The fact was intimated to the assessee vide order sheet entries dated June 13, 2002 and March 17, 2003 . They are not assessed to tax. They have not produced any documentary evidence showing that they are capable of saving/investing any amount at all. If the persons producved are not carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited; 301 ITR 291 (Raj), CIT v. Arunalanda Textiles Pvt. Ltd. (2011) 333 ITR 116 (Karn.) (para 17) order dated 2nd March, 2010, CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) order dated 18th February, 2010 . In both these cases, the Hon'ble Karnataka High Court has duly discussed the decision in Lovely Exports Pvt. Ltd. and Steller Investment Ltd. (supra) meaning thereby that both these decisions were rendered after the pronouncements of decisions from Hon'ble Apex Court in Lovely Exports Private Limited (supra). As discussed in other paras of this order, so far as the decision in the case of M/s STL Extrusion vs. DCIT (2010) 15 ITJ 872 (I.T.A.T., Indore) is concerned, that decision was rendered by the Bench on the facts that since the assessee proved the identity of the investors, therefore, it was held that no addition can be made in the hands of the assessee company whereas in the present appeals, the existence/identity of share subscribers was not proved, consequently, these judicial pronouncements rather helps the revenue and not the assessee. 41. Even otherwise, if the ratio laid down by the Hon'ble Apex Court in the case of Lovely Exports Private Limited, while dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the non-existent entity cannot be said to be genuine rather a circuitous method has been devised by the assessee itself to enroute its own money through these camouflage routes, therefore, the benefit of the decision in the case of Lovely Exports Private Limited (216 CTR 195) (SC) cannot be extended to the assessee. The Tribunal while concluding in the case of M/s Agrawal Coal Corporation Limited (supra) has already deliberated upon various decisions from the Hon'ble High Courts as well as from the Hon'ble Apex Court. Identical is the situation with respect to unexplained income of Rs. 11 lacs claimed to be received as share application money from Pramila Investment & Finance Limited. The Assessing Officer found considerable amounts of cash transaction with respect to this company. Inspite of sufficient opportunities and summons issued u/s 131 of the Act to Pramila Investment & finance Limited, the identity and credit worthiness was not established. This company never cooperated in the assessment proceedings. It is not the case that no opportunity was provided to the claimed share applicant. Right from the assessment stage, first appellate stage and even before the Tribunal, n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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