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TMI Blog2012 (11) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... cal approach on the basis of presumption, therefore, its deletion by the impugned order is held justified - in favour of assessee. - ITA No. 2081/Del/2010 - - - Dated:- 12-10-2012 - SHRI J.S. REDDY, AND SHRI CHANDRA MOHAN GARG, JJ. Appellant by: Shri R.S. Negi, Sr.DR Respondent by: Shri Kuldeep Sharma O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER This appeal has been preferred by the revenue against the order of Commissioner of Income Tax(A)-XVI, New Delhi dated 03.02.2010 for AY 2006-07 by which the Commissioner of Income Tax(A) deleted the additions made by the Assessing Officer by allowing the appeal of the assessee. 2. The main grounds raised in this appeal read as under:- 1. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.15,OO,OOO/- made on account of share application money u/s 68 of the Income Tax Act 1961. 2. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.37,5001-made on account of commission. 3. That on the facts and circumstances of the case as well as in law, the ld. Commissioner of Income Tax(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties which included a sum of Rs. 15 lakh Rs. 7 lakh claimed to have been received from M/s Ganga Infin Pvt. Ltd. and Rs. 8 lakh from M/s Kuberco Sales Pvt. Ltd. The Assessing Officer also noted that aforementioned entities have been subjected to certain inquiries and investigation by Investigation Wing wherein it was found that they have no creditworthiness nor do they have any worthwhile source of income. In fact, they are accommodation entry operators who provide fake entries. When the Assessing Officer asked the assessee to explain the identity, creditworthiness and capability of these share applicants, then the assessee furnished affidavits of Shri Mahesh Garg, Director of M/s Ganga Infin P. Ltd. and another affidavit of Shri Anil Kumar, Director of M/s Kuberco Sales Pvt. Ltd. as confirmation of the respective amounts. In both the confirmations, the deponent directors of the respective companies mentioned that the amounts have been given to the assessee company as unsecured loan . Apart from the said confirmation, no other supporting document in support of identity, creditworthiness of the party and genuineness of the transactions, in the form of copies of income tax ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness activity being carried on by the companies and their creditworthiness. 6. The assessee company was required to explain as to why the said amount of Rs. 15 lakh claimed to have been received from the above companies may not be treated as unexplained u/s 68 of the Act and added to the income of the assessee from undisclosed sources. The assessee submitted the following points in his favour:- a) The assessee company has filed confirmations. The said share applicants are companies incorporated under the Companies Act. The assessee company has discharged its onus by filing above documents evidencing their identity. b) The statements given by the above persons are vague and general in nature and these persons have not specifically mentioned the name of the assessee company. The assessee may be provided an opportunity to cross examine them. The statements relate to their activities in the past and not to the any transactions undertaken during the year under assessment. c) The payments have been received through banking channels and have also since been refunded on 23.10.2007 and 15.11.2007. d) The assessee having furnished confirmations from the creditors, the onus on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by learned AR of the appellant company. After careful consideration of above facts, I am of the view that in view of various judgments of jurisdictional High Court 'as well as of Hon ble Supreme Court, no addition on account of share application money (received from other corporate entities/parties) can he made in the hands of the appellant company. The assessing officer has not effected any enquiries to bring out any fact which could suggest that these parties have given accommodation entries to the appellant and that the money received from these parties is appellant s own undisclosed income and routed back to the appellant company in the guise of share application. Even appellant has not been provided with an opportunity to cross-examine the so called entry providers. He has simply relied upon the information provided by the Investigation Wing of the Department and no concrete efforts are made to verify the facts stated therein. On the contrary, it is observed from the assessment folder that the assessing officer issued summons u/s 131 of the Act to M/s Ganga Infin Pvt. Ltd. and M/s Kuberco Sales Pvt. Ltd. In response thereto, M/s Ganga Infin Pvt. Ltd. and M/s Kuberco Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch repudiation at face value and construe it. without more against the assessee. The Department filed an SLP against the decision of Delhi High Court in the case of Divine Leasing and Finance Ltd. (supra) where the Apex Court, while dismissing the appeal filed by the Department held as follows:- "We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-Company from alleged bogus shareholders. whose names are given to the AO then the Department, is free to proceed to re-open their individual assessments in accordance with law. Delhi High Court in the case of CIT vs. M/s Pondy Metal and Rolling Mill Pvt. Ltd. (IT A No. 788/2006) dated 19.02.2007 has concurred with the findings of the Appellate Tribunal. Delhi Bench 'F', New Delhi that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. At best, the amount could be added in the hands of the investor but it certainly could not be treated as undisclosed income of the assessee. The appeal filed against the said decision was dismissed by the Hon ble Supreme Court in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that when the Assessing Officer made inquiries through Inspector of Ward, both the above named entities were not found to be existing and when the assessee submitted new addresses of the above companies, then the notices sent to the new addresses again remained uncomplied. In these circumstances, the Assessing Officer rightly held that the identity of the share applicants was not proved, merely filing of confirmation affidavits indicating paper identity of the share applicants was meaningless when the physical existence of the share applicant could not be proved. 10. Ld. DR supported the assessment order and submitted that the Commissioner of Income Tax(A) was not justified in deleting the addition made on account of share application money u/s 68 of the Act and also of any addition on account of commission. The DR submitted that the Commissioner of Income Tax(A) wrongly extended the benefit of the ratio of the judgment of Hon ble Supreme Court in the case of Commissioner of Income Tax vs Lovely Exports Pvt. Ltd. 6 DTR 308(SC). The DR also relied on the judgement of Hon ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Nova Promoters Finlea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge made by the Revenue would be justified. In the absence of these inquiries and non-verification of the details at the time of assessment proceedings, the factual findings recorded by the Assessing Officer were incomplete and sparse. The impugned order passed cannot be treated and regarded as perverse. The appeal is dismissed as no substantial question of law arises. 12. The ld. DR placed his reliance on the judgment of Nova Promoters Finlease Pvt. Ltd. (supra) wherein it was held:- 33. The facts of CIT v Lovely Exports (P) Ltd. (supra) have been set out in the judgment of this court in that case, reported as CIT vs (1) Divine Leasing Finance Ltd. (2) General Exports and Credits Ltd. and (3) Lovely Exports P. Ltd. in (2008) 299 ITR 268. In that case, the share capital subscription was received through banking channels and complete records were maintained by Divine Leasing Finance Ltd. The Assessing Officer issued summons u/s.131 and thereafter impounded the shareholders' register, share application forms and share transfer register. It was contended by the assessee in that case that because of the action of the Assessing Officer, it was not able to furnish any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appropriate authority under that Act. Accordingly, the ultimate decision of the Tribunal cancelling the addition was upheld. 35. The facts of Lovely Exports P. Ltd., as noted by this court, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (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 assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 39. The case of Orissa Corporation (1986) 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to crossexamine the persons whose statements were recorded by the Investigating Wing." These quoted observations clearly distinguish the present case from CIT v Oasis Hospitalities P Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard. Further, the assessee had not been confronted with the material collected by the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing. 41. In the case before us, not only did the material before the Assessing Officer show the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in support of identity and creditworthiness of the party and genuineness of the transaction was submitted. 14. On the other hand, Commissioner of Income Tax(A) discussed plethora of judgments but he simply noted that as no adverse/incriminating material has been gathered by the Assessing Officer during the course of assessment proceedings, hence, he did not see any justification on the part of Assessing Officer to make any addition on account of share application money in question. He was not justified in holding that the appellant had discharged the initial onus of establishing the identity and creditworthiness of the subscribers and the genuineness of the transaction because the Assessing Officer not only issued notices to the various addresses submitted before him but he also called a report from the Income Tax Inspector of the Ward. The notices remained unserved and uncomplied and the report of the Inspector reveals that there was no physical existence of share applicant companies in the name of M/s Ganga Infin P. Ltd. and M/s Kuberco Sales P. Ltd. 15. In the case of Nova Promoters (supra), their Lordships held that the ratio of the decisions in the case of Lovely Exports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the findings of the Assessing Officer for making addition of Rs. 15 lakh made u/s 68 of the Act was based on justified and reasonable grounds. Per contra, the ld. Commissioner of Income Tax(A) was wrong in holding that the appellant assessee has discharged the initial onus of establishing the identity of the subscribers and the genuineness of the transaction. Therefore, we are unable to uphold the order of the Commissioner of Income Tax(A) deleting the addition made by the Assessing Officer u/s 68 of the Act. The judgement of Hon ble Jurisdictional High Court of Delhi in the case of Nova Promoters Finlease Pvt. Ltd. (supra) is respectfully followed. 17. In view of above, ground no. 1, 3 and 4 are allowed. Ground No.2 18. From a bare reading of the assessment order, we observe that the Assessing Officer concluded with the finding that the amount of Rs.15 lakh was assessee s own unaccounted money which was routed through the bank account existing in the name of entry operators by which a commission was paid to the persons who arranged transaction and the Assessing Officer made an addition of Rs.37,500 on estimation basis. This addition was deleted by the Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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