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TMI Blog2015 (4) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... neness of the transaction assessee has also relied upon the judgment of Nemi Chand Kothari Vs. CIT (2003 (9) TMI 62 - GAUHATI High Court ) wherein it has held that it is a certain law that the of the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hon’ble Supreme Court of India in the case of Hastimal (1962 (12) TMI 60 - MADRAS HIGH COURT) and Daulatram Rawatmal (1972 (9) TMI 9 - SUPREME Court). Ld. First Appellate Authority has cited various decisions rendered by the Hon’ble Supreme Court of India as well as the Hon’ble Jurisdiction High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries he did not find any evidence collected by the AO which could prove otherwise and deleted the additions in dispute. - Decided in favour of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany increased its share capital by ₹ 2,97,50,000/-. From the perusal of details furnished by the assessee company, it was noticed that the said share, application was allegedly received from, among others, the following persons/parties: Sl No. Name Amount Received (Rs.) Cheque No and Date Drawn on Bank 1 M/s Onyz Exim Sales Ltd, 2842, Classic Apartments, Street Moti Mahal, Darya Ganj Delhi 5,00,000 737511 dated 28/10/2004 ABN Amro Bank, Connaught Place, New Delhi 2 M/s Shriniwas Leasing Finance Ltd., 63, Shankar Market, Cannought Place, New Delhi 10,00000 431170 dated 6/10/2004 and 431198 dated 8/10/2004 (for ₹ 5,00,000/- each) State Bank of Bikaner Jaipur, New Rohtak Road, New Delhi 3 M/s Rapid Impex Pvt Ltd., H. 16/332, Bapa Nagar, Karol Bagh, Delhi 5,00,000 783670 dated 28/10/2004 ABN Amro Bank Cannaught Place, New Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group and Mahesh Garg Group of entry operator. The Assessing Officer asked the assessee to produce the Principal Officer/Directors of the said companies along with their books of accounts, copies of all bank accounts etc and the case was fixed for by 22/10/2007. The AR of the assessee expressed his inability to produce them. The AO issued summons u/s 131 of the Act to the Principal Officer/Directors of the said investor companies requiring them to appear along with their books of accounts, evidence is supported of sources of investment in the assessee company etc and matter was fixed for hearing for 13/10/2007. Summon address to M/s Shri Niwas Leasing and Finance Ltd. were received with postal remarks to the effect that the shop is closed as soon as a long time back . Since the said person had not been produce by the AR nor do they appear in response to the summons. The Assessing Officer handed over the copies of statements of following persons to Ld. AR on 13/10/2007. a) Statement dated 10/09/200322/9/2003 and 28/1/2003 of Shri Mahesh Garg S/o f R. S. Garg, Resident of G -8/94, Sector 15, Rohini, Delhi. b) Statement dated 9/9/2003 of Shri Vinod Garg, s/o R. S. Garg, R/O G-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable with us specially orders passed by the revenue authority along with the documentary evidence filed by the assessee. We are of the view that the Assessing Officer during the course the assessment proceedings has made the following observation in the assessment order on the issue in dispute. During the year under consideration, the assessee company increased its share capital by ₹ 2,97.50,000/-. From the perusal of details furnished by the assessee company, if was noticed that the said share application was allegedly received from, among others, the following persons/parties: S.No. Name Amount received Cheque No. and Date (Rs.) Drawn on Bank 1 Mis Onyx Exim Sales Ltd. 2842, Classic Apartments Street Moti Mahal, Darya Ganj Delhi 5,00,000 737511 dated 28.10.2004 Bank, ABN Amro Connaught Place, New Delhi 2 Mis Shriniwas Leasing Finance Ltd., 63, Shankar Market, Connaught Place, New Delhi. 10,00000 431170 dated 06.10.2004 and 431198 dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h clearing in two or more stages. Thus, the beneficiary's unaccounted money sails through several accounts before round-tripping back to it, only disguised in the form of share application money, unsecured loan, gift etc. Interestingly, most of the concerns/individual have obtained PAN from the department and are filing returns as well. But what is shown in the return are not actual state of affairs. It has been further observed that where money was routed through the entry operator in the garb of share capital/share application money these shares are ultimately bought back, in a year or two, by some family member of the Directors at huge discount, sometime at one tenth or even less of the issue price. The bank statements and the account opening forms of the above companies were obtained from their respective banks. The particulars of the bank accounts and the Directors (authorized signatories to operate the accounts) are as under: S.No. Name Bank Branch Account No. Authorized Signatories 1 M/s Onyx Exim Sales Ltd. AMN Amro Bank Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing addresses mentioned in the confirmations provided by the assessee), requiring them to appear along with their books of accounts, evidence in support of the sources of investment in the assessee company etc. Sl. No. Name Address 1 M/s Onyx Exim Sales Ltd. 2824, Classic Apartment, Street Moti Mahal, Darya Ganj, Delhi 2 M/s Shriniwas Leasing Finance Ltd. 63, Shankar Market, CAnnaught Place, New Delhi 3 M/s Rapid Impex Pvt Ltd. H-16/332, Bapa Nagar, Karol Bagh, Delhi The matter was fixed for 13/11/2007. The summons addressed to M.s Shriniwas Leasing Finance Ltd. Were received back unserved with postal remarks to the effect that the ship is closed since a long time back:] . The summons sent to the other two parties went uncomplied with un. Since the said persons had not been produced by the AR nor had they appeared in response to the summons, the AR on 13/11/2007 was provided copies of the aforesaid statements of the following persons. a) Statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments purporting to be confirmation etc of the above share applicants have been considered. but have not been found to be sufficient in view of the above documents filed by it in support of the identities of the share applicants. This rather simplistic contention of the assessee has no legal basis. The Hon ble High Court of Delhi in the case CIT V. M/s Himalaya International Ltd. (rendered on 30/7/2007 in ITA 1509 of 2006) has clearly held that the onus is on the assessee to establish the identity creditworthiness of the subscribers of shares as well as the genuineness of the transaction. Before evaluating the credibility of the purported evidence sought to be relied on by the assessee against the overwhelming circumstantial evidence (as detailed below)exposing the real nature of the transactions, the import and ingredients of section 68 may be briefly discussed. It has been judicially established that the primary onus is on the assesssee to prove the identity creditworthiness of the party and the genuineness of transactions in respect of cash credits in its books of account. The identity and creditworthiness , in the context of the provisions of section 68, cannot be seen as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Or anything which can prove that some actual activity is going on. Inspector was deputed to make lock inquiries at the given addresses. AS per the report of the Inspector, no entities by the said names were found to be existing at the given addresses. Clearly, the addresses are being used only as a post-box. Having PAN or assessment particular is merely a response to the applications and returns filed. These types of identity are merely on paper. The authority allotting PAN or processing the return of income seldom verify the actual identity of the person. These tools are being employed intentionally for the purpose of proving existence, however actual identity of the business and its genuineness do not automatically get proved by these passive documents when in fact no actual and active business is being carried out. The persons have neither been produced nor has any substantive evidence produced in support of their actual affairs, their true identity and their creditworthiness that could only be examined, given the facts of the case, if they are produced along with necessary evidence of the nature and details of their activities on the ground, the sources of deposits and their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the composition of investments. In fact, there are specific reasons for not maintaining/producing books of accounts and annexure showing composition of investments in such cases. For one, the amounts given as share application money are lost forever (as they are on time entries). Another reason for not filing the schedule of investment is that while the amount shown in the balance sheet may be less, the actual amounts may be more. For example, if one crore has been actually routed through the bank accounts the amount shown in the balance sheet may be just twenty or thirty lakhs. (2) The assessee company is private limited company. In the case of such companies, there is close and proximate relationship between the promoters/directors and the shareholders. The closely-held companies are permitted to accept the subscriptions of share capital or deposits only from the friends or relatives of the promoters/director s and such companies are not allowed to accept subscriptions or deposits from the general public. The shares are, therefore, subscribed by a small number of persons who are known to the promoters are related to them by family members. As such, there should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transactions and the true identity creditworthiness of the alleged share applicants. Considering the totality of the circumstances, it is obvious that the transactions were only a camouflage. The total amount of ₹ 20,00,000/- stated to have been received from the said investor companies represents the assesssee s own unaccounted money which has sought to be introduced into its business in the garb of share application money. Thus, keeping in view the totality of the facts, the amount of ₹ 20,00,000/- is added back to the income of the assessese company u/s 68 of the IT Act. .......... As per the details filed, the assessee has also received a sum of ₹ 5,00,000/- from Sh. V. K. Angami, R/o 21/2, Mile, Dimapur, Assam. The assessee has filed a copy of the same application form of Sh. Angami which reveals that the entire amount of ₹ 5,00,000/- has been received in cash. Notice u/s 133(6) was sent to Sh. Angami on 6/9/2007, calling for the following: a) Confirmed copy of account of the assessee in his books of accounts for the year under consideration b) Source of investment in share capital of the assessee company with copies of the bank sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. During the year under consideration, the appellant company had increased its Share Capital by ₹ 2,97,50,000/- from various parties. The Assessing Officer, in the Assessment Order has added the Share Application Money received from 4 parties, namely M/s Onyx Exim Sales Ltd. (Rs. 5,00,000/-), M/s Sriniwas Leasing Finance Ltd. (Rs.10, 00\, 000/-), M/s Rapid Impex Pvt. Ltd. (Rs. 5,00,000/-) and Shri V K. Angami (Rs. 5,00,000/-) as unexplained cash credit in the hands of the appellant company. The addition in respect of first three cases was made on the basis of information received from the Investigation Wing of the Department and on the statement of Shri Mahesh Garg, S/o R.S. Garg, Sh. Vinod Garg, S/o R.S. Garg Sh. Rajeev Kumar Aggarwal, S/o R.S. Aggarwal, and Sh. S.H. Mallick, S/o .NH. Mallick given before the officers of the Investigation Wing, whereas the addition in respect of V. K. Angami was made as the said payment was received in cash and was not supported by any immediate source of the said cash. The Assessing Officer has asked the appellant during the course of assessment proceedings to produce the Directors of the companies from whom share applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It has been further held that in the notice issued by the A.O. specific requirement should be indicated and reasonable, opportunity must be granted. It was held by the Hori'ble Delhi High Court that in absence of a notice of the kind and such reasonable opportunity, the order passed against the person in absentia and becomes wholly vitiated. The AO in his Assessment Order has not brought any material on records, which can prove that this money was appellants own undisclosed income. He has simply relied upon the information received from the Investigation Wing of the Department without making any effort to verifying the facts stated therein. It has also been held by the various courts that AO must bring on record some positive material or evidence to indicate that the share holders were benamidars, fictitious persons or that any part of the share capital money represented the companies own income from undisclosed sources. The appellant has cited various case lax s in the its submissions wherein it has been held that the Share Capital issued cannot be treated as undisclosed income of the appellant and cannot be added U/S 68 of the Income Tax Act. The facts of the cases ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 307 ITR 334 (Delhi) found after referring to the two of the decisions of the Delhi High Court on the subject that in respect of share capital amounts, they cannot be assessed in the hands of the company, unless the Department is able to show that the amount received towards hare capital actually emanated from the coffers of the assessee company. After going through various facts of the case and judicial pronouncement on this issue, cited supra it is seen that the appellant's case is covered by the above judgments. After going through the facts of the case and the judicial pronouncements on this issue. I am of the opinion that the appellant has discharged the initial onus of establishing the bonafide of the transactions and the AO was not justified in ignoring various evidences provided to him by the appellant. It is seen that the Assessing Officer had not any investigation / enquiry, during the course of assessment proceedings. The Assessment Order has been framed by the Assessing Officer only on the basis of the information received from the Investigation Wing of the Department, without making any further investigation. Nothing adverse ha been brought on record by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction assessee has also relied upon the judgment of Nemi Chand Kothari Vs. CIT 264 ITR 254(Gauhati) wherein it has held that it is a certain law that the of the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hon ble Supreme Court of India in the case of Hastimal 49 ITR 273 (Madr) and Daulatram Rawatmal (1973) 87 ITR 349 (SC). Ld. First Appellate Authority has cited various decisions rendered by the Hon ble Supreme Court of India as well as the Hon ble Jurisdiction High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries he did not find any evidence collected by the AO which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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