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TMI Blog2015 (3) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... the time given to the assessee for proving the identity of the third party was too short, and further that it is probably not always possible for the assessee placed in such situation to be able to enforce the physical attendance of such third party (who, in the case of share applicants vis-à-vis a company, would be individuals at large and may not be even in direct or personal contact), the curtains on such exercise at verification may not be drawn and adverse inferences reached only on the basis of returning undelivered of the summonses under Section 131. Conversely, with doubts as to the genuineness of some of the parties persisting on account of non-delivery of the processes, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged. We are inclined to agree with the CIT (Appeals), and consequently with ITAT, to the extent of their conclusion that the assessee herein had come up with some proof of identity of some of the entries in question. But, from this inference, or from the fact that the transactions were through banking channels, it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accepted. It is stated that some time in 2007 the Assessing Officer (AO) was in receipt of information from DIT (Investigation), New Delhi that the assessee had been in receipt of accommodation entries from the entry providers. It is the averment of the Revenue that - ―during the course of the enquiries conducted by the investigation wing of the department it was concluded that most of the entry operators are charging commission @ 2% for giving this accommodation approach to another person and hand over the cash plus commission and take cheques/DDs/Pos. The cash is deposited by the entry operator in a bank account either in his own name or in the name of the relative/friends or other person hired by him for the purpose of opening bank account. The other person (in whose name the account is opened) only signs the blank cheque book and hands over the same to main entry operators. The entry operator then issues cheques/DDs/Pos in the name of the beneficiary from the same account in which the funds are transferred through clearing in two or more stages. The beneficiary in turn deposits these instruments in his bank accounts and the money comes to his regular books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The assessee's explanation was rejected by drawing adverse inferences on the following reasoning:- ―(i) Mere payment of a/c payee cheque is not sacrosanct. (ii) Bank account revealed a uniform pattern of cash deposit of equal amount by cash or cheque in respective accounts. (iii) Assessee failed to produce the directors of the companies from whom the share application money was received. (iv) Summons u/s 131 of the Act were issued, but some of the summons were received unserved with postal remarks "left/no such person"; none appeared in response to served summons.‖ 8. Further, a sum of ₹1,42,000/- taken as probable commission given out of the unaccounted income not having been booked was also added to the income. 9. The assessee preferred appeal against the assessment order before the Commissioner of Income Tax (Appeals) [hereinafter referred to as "the CIT (Appeals)"] making the following submissions:- ―(i) The allegation of the assessing officer that some of the summons came back unserved, the assessee was never confronted with any such correspondence. (ii) Assessee had discharged the preliminary burden in terms of Sec. 68 for the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidence before the assessing officer. From the perusal of record and order-sheets it clearly emerges that the requirement of physical production of the parties was communicated to the assessee as late as on 17-12-2008 as against the date of assessment being 26- 12-2008. Similarly, from the entry dated 22-12-2008 the assessing officer vaguely stated that some summons were issued on some parties, some came unserved and none appeared. The same is sketchy and non-specific. We find merit in the argument of the ld. Counsel that it will not be easily possible to ask an assessee to accompany him to the proceedings before the assessing officer. In our view, adverse inference drawn on these issues is unjustified. 7.1. No adverse material was confronted to the assessee by the assessing officer. Thus, the addition cannot be sustained on the ground of canon of natural justice i.e. audi alteram partem. The assessing officer set back on his query and merely asking some non-specific sketchy questions at the fag end of the assessment order, it cannot be held that proper inquiries were instituted. Thus, it is case which suffers from lack of enquiries as referred to by Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into their books of account their unaccounted monies through the medium or 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 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, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the reliance on CIT v. Gangeshwari Metal Pvt. Ltd. (supra) was not correct inasmuch as unlike the said case, here the AO had issued summons to the share applicants which either remained unserved or were not responded to and when the assessee was confronted with this fact-situation and given opportunity to produce the share applicants, there was failure in compliance. 18. It must be noted at this stage that the assessee had also come up with appeal (ITA No. 289/2014) impugning the order dated 14.06.2013 of ITAT raising grievances as to validity of re-opening of the assessment, questions in which respect had remained unaddressed since the cross-objections were rejected as infructuous. While entertaining the appeal at hand filed by the Revenue (ITA No. 525/2014), the Division Bench then seized of the matter by order dated 29.08.2014 disposed of the assessee's appeal with observations that in the event of Revenue succeeding here, the issue with regard to validity of re-opening would be remitted to the ITAT for determination. 19. The argument of the Revenue that the entities which had provided the share capital having been found in case of M/s Nova Promoters and Finlease (P) Ltd. (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the income of the assessee for the corresponding period. 23. More often than not, questions have been arising in assessment proceedings respecting sums found credited in the books of accounts of companies incorporated under the Companies Act in the context of their efforts to raise capital through shares, pursuant to which they receive applications along with share application money from various persons. If the AO doubts the genuineness of such investors as had purportedly subscribed to the share capital, the assessee is generally asked to explain the nature and source as also the genuineness of the transaction. 24. The provision contained in Section 68 read in above context suggests that the initial burden of proof is on the assessee to explain. The question as to what kind of proof is to be furnished by the assessee to discharge such burden, however, has been the subject matter of adjudication in a number of judicial pronouncements, including CIT V. Biju Patnaik, (1996) 160 ITR 674 (SC), crystallizing eventually in the view upheld by the Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd. (supra). 25. The appeal before the Supreme Court in the case of CIT v. Lovely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent 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 it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge...‖ [emphasis supplied] 27. The matter concerning CIT v. Lovely Exports Pvt. Ltd. (supra) was taken by the Revenue to the Supreme Court. The Special Leave Petition was dismissed in limine with the following observations:- 2. Can the amount of share money be regarded as undisclosed income under S. 68 of IT Act, 1961? W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the information given by them to the investigation wing, 15 companies had provided the so-called ―share subscription monies‖ to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (supra).‖ [emphasis supplied] 30. The judgment in the case of CIT v. Gangeshwari Metal Pvt. Ltd. (supra), which has been referred by the ITAT in the impugned order followed the same line of reasoning but with adverse result for the Revenue because, on facts, it was held that the assessee having furnished all the requisite material, there had been a failure on the part of the AO to conduct proper inquiry. 31. In the case at hand, the counsel for the assessee submitted that a large number of documents were made available to the AO to prove not only the identity of some of the entities, the share application money received from which was under scrutiny but also their respective creditworthiness and the genuineness of each transaction, and yet they were not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the public at large to collect minute details respecting the share applicants to the extent of it being able to vouchsafe the financial worth of each subscriber, such that, when called upon by the Income Tax authorities, it would be in a position to conclusively prove their respective creditworthiness. But then, given the larger objective behind the provision contained in Section 68, the primary aim of which is to ensure that no monetary transaction remains unaccounted, the initial burden is on the recipient of the money. For this purpose, the assessee in receipt of money (by whatever name called, including in the form of share application money credited in its book by a company) must collect and have in its possession some proof to satisfy, when the need arises, the assessing authorities not only as to the identity of the party making the payment but also its creditworthiness as indeed the genuineness of the transaction. 34. From the orders passed by the three authorities below, it does appear that the assessee in the case at hand had submitted some documents respecting the twelve entities indicative of their identity/existence. Some further material appears to have been shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 upon satisfaction under Section 147 that the income (purportedly represented by the unexplained sums found credited in the books of accounts), within the mischief of Section 68, it is inherent that the explanation of the assessee respecting such credit entries would be called for only with circumspection and solely upon some concrete material coming up to support the tentative impression about it being suspect. 37. Thus, when the AO sets about seeking explanation for the unaccounted credit entries in the books of accounts of the assessee in terms of Section 68, it is legitimately expected that the exercise would be taken to the logical end, in all fairness taking into account the material submitted by the assessee in support of his assertion that the person making the payment is real, and not non-existent, and that such other person was actually the source of the money forming the subject matter of the transaction as indeed that the transaction is real and genuine, same as it is represented to be. Having embarked upon such exercise, the AO is not expected to short-shrift the inquiry or ignore the material submitted by the assessee. 38. The provision of appeal, before the CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party. 40. The CIT (Appeals), as also the ITAT, in the case at hand, in our view, unjustifiably criticized the AO for not having confronted the assessee with the facts regarding return of some of the summons under Section 131 or not having given opportunity for the identity of all the share applicants to be properly established. The order sheet entries taken note of in the order of CIT (Appeals) seem to indicate otherwise. The order of CIT (Appeals), which was confirmed by ITAT in the second appeal, does not demonstrate as to on the basis of which material it had been concluded that the genuineness of the transactions had been duly established. There is virtually no discussion in the said orders on such score, except for vague description of the material submitted by the assessee at the appellate stage. Whilst it does appear that the time given to the assessee for proving the identity of the third party was too short, and further th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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