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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 ..... ed 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 - Mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. In this case - Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the assessee company – The assessee adopted non- cooperation attitude before the Assessing Officer - Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument - Whether or not onus is discharged depends upon facts of each case - It depends on whether the two parties are related or known to each - The manner or mode by which the parties approached each other - Whether the transaction was entered into through written documentation to protect the inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, who had procured share application money from entry providers. Assessment proceedings under Section 147/148 of the Act in the two years were initiated by issue of notices on 28th November, 2006. The notices were received back unserved and subsequently were served by affixture at the last known address i.e., the address given in the returns. The assessee, however, did not appear in response to the said notices. The Assessing Officer thereupon on 8th October, 2007 issued show cause notice under Section 144 read with Section 147 of the Act, which was sent through Speed Post, but was returned unserved with the remark no such firm . Respondent-assessee again was served through affixture on 25th October, 2007. On examining the return for the assessment year 2004-05, it was noticed that M/s Prakash K. Prakash Chartered Accountants had certified the accounts of the respondent-assessee. Office of M/s Prakash K. Prakash Chartered Accountants was contacted and thereupon they filed their power of attorney on 1st November, 2007. The said Chartered Accountants also filed a letter that the respondent company had not received any notice and had been regularly filing their returns mentioning t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted various details and documents to establish identity of the investors/share applicants. The impugned order in paragraph 6 refers to and quotes several paragraphs from the order passed by the Commissioner (Appeals) and in paragraph 7 refers to the observations made by the Commissioner (Appeals). Thereafter, in paragraph 8 it is recorded that the tribunal had gone through various reasons and principles on which Commissioner (Appeals) had deleted the addition. Commissioner (Appeals) had given a finding that verification of PAN was made and found to be correct except with regard to the share application money of Rs.4,50,000/- and, therefore, in the light of the judgments of Delhi High Court in CIT v. Lovely Exports Private Ltd.[2008] 299 ITR 268, Winstral Petrochemicals Pvt. Ltd. [2011] 330 ITR 603 and CIT Vs. Dwarkadhish Investment (P) Ltd. [2011] 330 ITR 298 and other cases, addition was not justified and not in accordance with law. 10. Cross objections filed by the assessee were not pressed and in paragraph 20 of the impugned order it is specifically recorded that the validity of notice under Section 148 was not argued by the respondent-assessee and it was fairly accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been adhered to and hence contention of the Ld. AR needs rejection. 11. Other findings recorded by the Commissioner (Appeals) refers to the remand report which was called from the Assessing Officer stating that notice under Section 148 was sent at the last known address i.e., F-280, New Rajinder Nagar, New Delhi, which was also mentioned in the return of income, but was received unserved with the remark no such assessee , but subsequently served through affixture at A-46, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi, the address which was shown in the return of income for the assessment year 2004-05. The Assessing Officer in the remand report has mentioned that the assessee s registered office was located at A-46, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi on the date of affixture of notice. Subsequently, on 18th April, 2007, they shifted their registered office to A-15, B-1 Extension, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi. We have already quoted the observation of the Assessing Officer after M/s Prakash K. Prakash Chartered Accountants were served and they in their letter dated 1st November, 2007 had not furnished the new address, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer can also refer to incriminating material or evidence available with him and call upon the assessee to file their response. We cannot lay down or state a general or universal procedure or method which should be adopted by the assessing officer when verification of facts is required. The manner and mode of conducting assessment proceedings has to be left to the discretion of the assessing officer, and the same should be just, fair and should not cause any harassment to the assessee or third persons from whom confirmation or verification is required. The verification and investigation should be done with the least amount of intrusion, inconvenience or harassment especially to third parties, who may have entered into transactions with the assessee. The ultimate finding of the assessing officer should reflect due application of mind on the relevant facts and the decision should take into consideration the entire material, which is germane and which should not be ignored and exclude that which is irrelevant. Certain facts or aspects may be neutral and should be noted. These should not be ignored but they cannot become the bedrock or substratum of the conclusion. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity of the shareholders, their creditworthiness and also genuineness of the transaction as the payments were received through banking channels. Thus, the respondent had discharged the primary onus and there was no evidence or material to show that unaccounted for money was recycled and introduced in the books as share application money. The Commissioner (Appeals) has recorded that verification of PAN numbers was done in the present case and was found to be correct except in the case of Technochem Associates Private Limited and M/s Yogesh Gupta from whom share application money of Rs.1,50,000/- each was raised but no PAN details were furnished. Regarding Ganga Infin Private Limited, PAN number furnished was found to be incorrect and accordingly addition of Rs.1,50,000/- was justified. With regard to others, the Commissioner (Appeals) has recorded that the assessing officer had not affected inquiries to bring on record and establish that the other parties had given accommodation entries and the money, i.e., the share application money was assessee s own undisclosed income. It was further recorded that the respondent had not been provided an opportunity to cross-examine the so-calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to establish identity and availability of funds, it was necessary to have at least some idea if not complete details of the actual business undertaken and engaged in by the respondent-assessee and explained how and why these unrelated and unconnected third parties decided to become investors in the absence of public issue or advertisement. 18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. The word identity as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according to us is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils of the subscribed share capital of Rs.2 crores as it was stated that this was before he became the director. He could not also give details of how share capital got subscribed in a private limited company. Specific question was put to him regarding verification of the shareholders as the summons issued to them had by and large remained uncomplied for want of correct addresses. In response, he had stated that the company had supplied addresses of shareholders as per share application forms and in the absence of dividend or any form of return on the investment, the company was not in a position to call the subscribers for cross-examination. The company had not received any letter for change of address etc. Vicky Chaurasia stated that according to him the subscribers, who were allotted shares, continued and had not ceased to be shareholders. With regard to the past directors, he had stated that they had resigned and he was not in a position to produce the same. In the remand report, it was specifically mentioned that books of accounts were neither produced on 5th November, 2009 nor during the course of remand proceedings. 21. The Assessing Officer had issued notices by speed pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash received during the accounting year. Similarly observations were made in CIT vs. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC), inter alia holding that it was not necessary for the Revenue to locate the exact source. This principle was reiterated in CIT vs. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia vs. CIT [1980] 126 ITR 48, a Division Bench of Delhi High Court has observed:- It is well known that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by step in order to plug loopholes and in order to place certain situations beyond doubt even though there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of s. 68 in the statute book, courts had held that where any amounts were found credited in the books of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the conclusion was on the facts and no interference was called for. Lovely Exports (supra) was a case of public limited company where shares were subscribed by public and it was accordingly observed:- This reasoning must apply a fortiori to large scale subscriptions to the shares of a public Company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/assessee or to creditors of the assessee. This is why this court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. 26. Thereafter reference was made to Full Bench decision in the case of Sophia Finance Ltd. s case (supra) wherein it has been observed that if the shareholders exists then, possibly , no further enquiry needs to be made and that the Full Bench had not reflected upon the question of whether the burden of proof rested entirely on the assessee and at which point this burden justifiably shifted to the assessing officer. The Full Bench has observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [2003]263ITR626(Cal.) are the other three. In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessee 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 assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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. 28. In Nova Promoters Finlease (supra), it was held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. 29. In CIT v. Nipun Builders and Developers [2013] 350 ITR 407 (Del) , this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscriber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Limited Company. It is not the case of the respondent that the Directors or persons behind the companies making the investment in their shares were related or known to them. It is highly implausible that an unknown person had made substantial investment in a private limited company to the tune of Rs.63,80,100/- and Rs.75,60,200/- in two consecutive assessment years 2002-03 and 2003-04 respectively without adequately protecting the investment and ensuring appropriate returns. Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation attitude before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a dee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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