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TMI Blog2013 (11) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that the decision in the case of CIT Vs. Lovely Exports Ltd. 299 ITR 268 (Del) is being misunderstood and misinterpreted resulting in a spate of matters wherein assessees have adopted this surreptitious method to convert unaccounted for money into share application money. 3. Revenue has relied upon the decision of this Court in the case of CIT vs. Nova Promoters and Finlease (P) Ltd. [2012] 342 ITR 169 (Del). 4. By order dated 13th August, 2013, the following substantial question of law was framed in the two appeals:- "Whether the Income Tax Appellate Tribunal was right in deleting the additions of Rs.63,80,100/- and Rs.75,60,200/- in respect of Assessment Years 2002-03 and 2003-04 under Section 68 of the Income Tax Act, 1961 and whether the decision of the Tribunal is perverse?" 5. The respondent-assessee is a private limited company and for the assessment years 2002-03 and 2003-04 had filed returns declaring income of Rs.11,566/- and 18,720/-, respectively. These returns were processed under Section 143(1) of the Act. Subsequently, reassessment proceedings were initiated under Section 147/148 of the Act on the basis of information received from the Investigation Wing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one appeared at the time of hearing. Subsequently, a request for adjournment was received by way of courier from M/s Prakash K. Prakash Chartered Accountants and they were allowed time up to 10th December, 2007, but on the said date also, no one appeared and no written request was received. Accordingly, ex-parte or best judgment assessment orders both dated 17th December, 2007 were passed for the two assessment years. We shall be referring to the details/contents of the assessment orders subsequently. 8. The respondent-assessee, however, preferred appeals and substantially succeeded on merits before the Commissioner of Income Tax (Appeals) but did not succeed in their challenge to reopening under Section 147/148 of the Act or on the question of service of notice. 9. Two cross appeals were preferred before the tribunal by the Revenue and the respondent-assessee for the two assessment years but the same have been dismissed by the impugned order dated 29th October, 2010. The reasoning given by the tribunal is that the respondent-assessee had furnished Permanent Account Number (PAN) of the share applicants except with regard to the share capital of Rs.4,50,000/- and before the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located by the assessing officer, the AR filed a letter dated 'nil' along with POA dated 1-11-2007 but still the appellant chose not to intimate the address to the assessing officer except vaguely stating that the Department have been informed about the change of address from time to time. In these circumstances, I do not see any justification on the part of the appellant to either raise the issue of non- service of notices or improper procedure of substituted service and accordingly, I hold that the impugned assessment is in order. The contentions of the appellant company that the impugned assessment has been framed without looking into the contentions of the appellant has also not found favour with me as despite knowing fully well that the assessment shall be time barred as on 31-12-2007, the AR chose to sent the details through post which were received by the assessing officer on 18-12-2007 whereas the impugned order us passed on 17-12-2008. Otherwise too, during the present proceedings, the assessing officer submitted a remand report wherein the appellant has not been given an opportunity to put forth its view points and on which rejoinder has also been filed which means that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latest address in spite of the fact that M/s Prakash K. Prakash, Chartered Accountants were served and informed about the proceedings, speaks for itself. Their conduct in not responding and appearing before the Assessing Officer was adversely commented upon by the Commissioner (Appeals) and the said finding has not been disturbed by the tribunal. However, this fact and the conduct of the respondent before the Assessing Officer was not noticed and given adequate reference while dealing with the question of deletion of addition on merits. 13. The Assessing Officer is both an investigator and an adjudicator. When a fact is alleged and stated before the Assessing Officer by an assessee, he must and should examine and verify, when in doubt or when the assertion is debatable. Normally a factual assertion made should be accepted by the Assessing Officer unless for justification and reasons the assessing officer feels that he needs/requires a deeper and detailed verification of the facts alleged. The assessee in such circumstances should cooperate and furnish papers, details and particulars. This may entail issue of notices to third parties to furnish and supply information or confirm fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o produce evidence before the Assessing Officer with the desire to prevent inquiry or investigation, an adverse view should be taken. We shall now come to the merits and the findings recorded by the Commissioner (Appeals), which as noted above, have been simply affirmed by the tribunal without verifying or referring to the facts. 15. In the present case, the undisputed position is that the respondent had received share application money of Rs.68,30,100/- and Rs.75,60,200/- in the Assessment Years 2002-03 and 2003-04 respectively. For the Assessment Year 2002-03, the Assessing Officer had taken the share application money received in the year as Rs.1,20,34,100/-, which included Rs.32,80,000/- and Rs.19,24,000/- related to previous years or was the opening share capital. As noted above, addition of Rs.4,50,000/- has been sustained in the Assessment Year 2002-03. Thus, the Commissioner (Appeals) and the tribunal have deleted additions of Rs.63,80,100/- and Rs.75,60,200/- in the two assessment years. Before the Commissioner (Appeals), the respondent-assessee had furnished name of the share applicants which mostly consisted of companies. It was accordingly submitted that the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arg group of entry operators, which included 51 companies/ persons, who were operating more than 100 bank accounts in different banks/branches. Their modus operandi was to provide accommodation entries to different persons/beneficiaries. Reference was made to the bank statements of the entry operators that showed substantial deposit of cash in the bank accounts and subsequent issue of cheques to the beneficiaries. This was the only activity of these companies/persons. The said companies/persons were not carrying on any other business activity i.e., manufacturing or trading activity. The assessment order has quoted and referred to the bank account statements in support of the said assertion and finding. The Assessing Officer has mentioned that the respondent-assessee was a private limited company, closely held and there should be proximate relationship between the promoter directors and the shareholders. Closely held companies usually receive share capital subscriptions from friends, relatives and not from unrelated/ unknown third parties/ general public. There was no relationship or connection between the subscribers and the respondent-assessee, for subscribers to become investors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 20. Vicky Chaurasia, additional director of the respondent company was asked to appear before the Assessing Officer pursuant to the letter by the Commissioner (Appeals) directing the Assessing Officer to go through the submissions and submit a report after carrying out necessary inquiries. He was asked to produce books of accounts and evidence in support. By letter dated 12th October, 2009, the respondent-assessee was asked to furnish details/information. These included details of dividend paid to the shareholders and to show and establish creditworthiness of the parties. Statement of Vicky Chaurasia recorded under Section 131 of the Act dated 5th November, 2009 has been placed on record by the respondent in ITA No. 1019/2011. He has stated that he along with Sandeep Chaurasia had been directors of the company since June, 2003 and the company was engaged in investment and finance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 2009. Subsequently, fresh summons dated 30th October, 2009 were issued requiring compliance by 7th November, 2009, but the Assessing Officer had sent the remand report on 6th November, 2009 without waiting for compliance of summons. The said submission is without merit as we notice that the order of the Commissioner (Appeals) is dated 1st October, 2010, i.e., much after the date 17th November, 2009 and 7th November, 2009. A wrong year was mentioned in the earlier summons dated 23rd October, 2009. It was only a typographical error and a response or reply from the shareholder would have been sufficient. Further, in the case of 22 parties, the summons were received back undelivered/unserved. 23. The contention that the Revenue must have evidence to show circulation of money from the assessee to the third party is fallacious and has been repeatedly rejected, even when Section 68 of the Act was not in the statute. In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, Supreme Court observed that it was not the duty of the Revenue to adduce evidence to show from what source, income was derived and why it should be treated as concealed income. The assessee must prove satisfactorily th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate ill gotten and unrecorded money. Without being oblivious to the constraints of the assessee, an objective and fair approach/determination is required. Thus, no assessee should be harassed and harried but any dishonest façade and smokescreens which masquerade as pretence should be exposed and not accepted. 25. In Lovely Exports (supra), a Division Bench examined two earlier decisions of this court in CIT vs. Steller Investment Ltd. [1991] 192 ITR 287 (Delhi) and CIT vs. Sophia finance Ltd. [1994] 205 ITR 98 (FB) (Delhi). The decision in Steller Investment's case (supra) was affirmed by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, 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 tightrope of Section 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company..................... xxxx ..........Once material to prove these ingredients are produced it is for the Assessing Officer to find out as to whether, on these materials, the assessed has succeeded in establishing the ingredients mentioned above. The Assessing Officer `lift the veil' and enquire into the real nature of the transaction. C.I.T. v. Ruby Traders and Exporters Ltd. : [2003] 263 ITR 300(Cal) , C.I.T. v. Nivedan Vanijya Niyojan Ltd. [2003]263I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence 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 genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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