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TMI Blog2015 (8) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... nt were duly forwarded to the assessee for its comments. The financial statement of Standard Dealers P. Ltd. was duly examined by the Assessing Officer, wherein total receipt during the period was of a meagre sum of ₹ 3,51,449/-, virtually no business was carried out by the company. The expenses booked by this company comprises of administrative expenses, resulting into, book profit of ₹ 25,311/- only. In view of these facts, how a figure of the disputed amount can be believed to be diverted to others. The assessee has claimed that M/s. Standard Dealers P. Ltd. contributed the capital at a premium of nine times of the face value of its shares. The human probability does not permit to believe the story. The assessee, at any stage right from the assessment itself, neither brought on record any positive material in its favour nor cross-examined the director of the company Omex Management P. Ltd. which was brought to the notice of the assessee and the report dated 10.12.2009 of DDIT(Inv.), Kolkata wherein it was tendered that they are providing accommodation entries. We further find that due enquiry has been made by the Assessing Officer before making the impugned addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the material available on file. In view of the above, for ready reference, we are reproducing hereunder the relevant portion of the order in the case of M/s. Agrawal Coal Corporation Ltd. others (ITA Nos.151, 136, 196, 137 190/Ind/2009) and (ITA Nos.158, 34, 283 193/Ind/2010), order dated 31.10.2011, wherein an elaborate discussion has been made by this Bench on identical issue: 21. We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee (M/s Agrawal Coal Corporation Private Limited) is a private limited company engaged in the trading business. In the year under consideration the company entered in the field of power generation with installation of two wind mills and declared income of ₹ 83,46,090/- in its return filed on 30.10.2005 for assessment year 2005-06. The case was selected for scrutiny. The learned Assessing Officer, during the assessment proceedings, noted that M/s Hindustan Continental Limited, applied for 40,000 shares of the assessee company of the countenance value of ₹ 10/- each at a premium of ₹ 90/- per share. Similarly, Optimates Textile Industries Limited al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the Bank account without any logic. There is huge cash deposit in the Bank account of Hindustan Continental Ltd. maintained UTI Bank Ltd. copy of which is filed by the assessee in support of its contention. The company is not existing in real sense the genuineness of transaction is also doubtful. Since assessee failed established identity, creditworthiness and genuineness of transaction, credit in the account of the assessee on account of share application money from Hindustan Continental Ltd. ₹ 4,00,000/- and share premium amount of ₹ 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income. Similarly, assessee has tried to establish identity of M/s Optimates Textile Industries Ltd., but it is evident from the report of the ACIT 5(1), Indore that company is also a paper company used to providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. The Bench again contended that in view of the above reply of the Ld. Counsel for assessee, an adverse view may be taken against the assessee. The Ld. Counsel for assessee remained mum and nothing was canvassed against the query raised by the Bench. 23. The notices issued u/s 133(6) of the Act to M/s HCL Limited and M/s Optimates Textiles Industries Limited could not be served as these companies were found non-existent at the addresses supplied to the department by the assessee. Thereafter, commission was issued to ADIT(Inv.) Unit-IX-3, Mumbai, to verify the existence/genuineness of these companies, who also reported that the said companies did not exist at the given addresses. The whole issue for adjudication is whether the identity of these companies was established ? During hearing, the Ld. Counsel for assessee claimed that identity of both these companies has been established as both these companies were registered with Registrar of Companies and their income tax returns were filed and both are having PANs/bank accounts. We are not agreeing with this proposition because at the time of registration, these companies may be existing either on papers or in real sense but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of the capital claimed to be subscribed by them, therefore, the assessee cannot claim ignorance about these companies. Unless the assessee is able to establish identity of the companies who have subscribed in their share capital, how the department will proceed against these companies in terms of the verdict of the Hon'ble Supreme Court in the case of Lovely Exports (supra). Any addition in the hands of such subscribing companies is only possible when the assessee is able to establish identity of these companies which the assessee has grossly failed not only before the Assessing Officer but also before learned Commissioner of Income Tax (Appeals) and the Tribunal. Under these facts and circumstances, there is no question of apply the proposition of law as suggested by the Ld. Counsel for assessee. 24. On the issue of discharge of onus/burden, the assertion of the Ld. Counsel for the assessee is that the onus shifted to the department when copy of share application form, PAN, name and addresses and ROC registration, etc. were filed by the assessee. We are not agreeing with the submission of the assessee in view of the fact that at the addresses (4 places) given to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmations. It could not be explained as to how the transaction was materialised when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. The assessee failed to discharge the burden with regard to the credit in its books and the existence of the creditors to indicate the genuineness of the transaction. The Full Bench of Hon'ble Delhi High Court in the case of M/s Sophia Finance Limited; 205 ITR 98 observed as under :- The ITO would be entitled to engage and it would indeed be his duty to do so whether the alleged shareholders do in fact exist or not. If the shareholders exist then possibly no further enquiry need to be made. But if the ITO finds that the share holders do not exist, then in effect it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of nonexisting persons. The use of words may be charged in section 68 clearly indicates that the ITO would then have the jurisdiction if the facts so warrants to treat such credit to be the income of the assessee. The Hon'ble Calcutta High Court in Precision Finance Priv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not found satisfactory by the Assessing Officer then the same may be charged to tax as the income of the assessee. In the present appeal, at any stage the assessee did not file any explanation regarding the identity of the share applicants, therefore, the onus was not discharged by the assessee. A bare reading of section 68 suggest that there has to be credits of amounts in the books maintained by the assessee that such credit has to be of a sum during the previous year and the assessee offers no explanation about the nature and source of such credit or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income tax as income of the assessee of that previous year. We are aware that the opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. In the present appeals, the Assessing Officer was never satisfied and the notices/summons issued to the subscribing companies, were found to be fictitious or nonexistent, therefore, one fact oozing out that the assessee has not fulfilled the requirement of section 68. A close read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Divine Leasing Finance; 158 Taxman 440 (Del), the Hon'ble Court clearly held that in case of public issue the company concerned cannot be expected to know every detail pertaining to identity as well as financial worth of each of its subscribers. The company must however maintain and make available to the Assessing Officer for his perusal all the information contained in the share application documents. The Hon'ble Court clearly held that in case of private placement, the legal regime would not be same. A delicate balance must be maintained while walking the tight rope of section 68 and 69. The burden of proof can seldom be discharged to the hilt by the assessee. However, if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered rather duty bound to carry out investigations. The assessee merely wants to take shelter of the decision of the Hon'ble Apex Court in the case of Lovely Exports Private Limited wherein it was held that even the share applicants are bogus, it cannot be added in the hands of the assessee. In that case the Tribunal clearly noted that the assessee was a public limited company and subscriptions were rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee from alleged bogus share holders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessment in accordance with law, but it cannot be regarded as undisclosed income of the assessee company. In our view, first of all, the alleged bogus share holders should be in existence, only then the department may be in a position to reopen their individual assessment. However, in the present appeals, the share applicants/share subscribers are no more in existence meaning thereby their identity is not proved, therefore, how the department can proceed to reopen their individual assessments. 28. The Hon'ble Madhya Pradesh High Court affirmed the decision of M/s Rathi Finlease Limited (supra) in the case of M/s STL Extrusion Private Limited (2011) 333 ITR 269, relied upon by both the sides before us. We find that the facts in STL Extrusion are materially different from both the assessees, namely, M/s Agrawal Coal Corporation as well as from M/s Rathi Finlease Limited. In the case of M/s STL Extrusion on receipt of confirmation of share applicants, except observing discrepancies in confirmation, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court considered the following decisions :- 1. Bhola Shankar Cold Storage P. Ltd. v. JCIT; (2004)270 ITR 487 (Cal (Para 40) 2. CIT v. AKJ Granites P. Ltd. (2008) 301 ITR 298 (Raj) (para 18) 3. CIT v. Arunananda Textiles P. Ltd. (2011) 333 ITR 116 (Karn) (para 17) 4. CIT v. ASK Brothers Ltd. (2011) 333 ITR 111 (Karn) 5. CIT vs. Creative World Telefilms Ltd. (2011) 333 ITR 100 (Bom) 6. CIT vs. Divine Leasing Finance Ltd. (2008) 299 ITR 268 (Del) 7. CIT v. Dolphin Canpack Ltd. (2006) 283 ITR 190 (Delhi) 8. CIT v. K.C. Fibers Ltd. (2011) 332 ITR 481 (Delhi) 9. CIT v. Lovely Exports P. Ltd. (2009) 319 ITR (St.) 5 (HC) 10.CIT v. Mohankala (P) (2007) 291 ITR 278 (SC) 11.CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) 12.CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del) 13.CIT V. Steller Investment Ltd. (2001) 251 ITR 263 (S.C.) 14.CIT v. Value Capital Services P. Ltd. (2008) 307 ITR 334 (Del) 15. Madhuri Investment Pvt. Ltd. v. ACIT(ITA No. 110 of 2004 dated 18.2.2006 (Karn.) 16. Shree Barkha Synthetics Ltd. vs. ACIT; (2006) 283 ITR 377 (Raj.) 29. As per the provisions of section 68 of the Act, in case the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identity of the creditor/subscriber are furnished to the department along with copies of the share holders register, share application forms, share transfer registers, etc. it would constitute acceptable proof or acceptable explanation by the assessee. The department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices 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 The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. 30. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its burden, the assessee is required to prove The identity of the share holder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these share subscribers/share applicants was not found existent, therefore, where is the question of reopening their individual assessments. Transaction enquiry was also made (pages 1 to 104) of the paper book filed on 4.5.2010. Pages 108 to 125 of the paper book dated 4.5.2010 contains the adjudication order u/s 151 of the securities and exchange board of India Act read with rule 5(1) of the SEBI (procedure for holding inquiry and imposing penalties by the adjudicating Officer). Rules 1995 against Optimates Textiles Industries Limited (formerly known as Priyansh Saree Industries Limited). Vide para 17 of the order (page 125) it has been held that Sunil Shares Stocks Private Limited failed to provide necessary information to the investigating authority of SEBI and penalty of ₹ 2 lacs was imposed in terms of provisions of section 15A(a) of SEBI Act, 1992 for failure to provide necessary information to SEBI. 31. The Hon'ble Apex Court in the case of Vijay Kumar Talwar v. CIT (2011) 330 ITR 1 (S.C.) on the issue u/s 68 read with section 260A decided in favour of the revenue . Identical ratio was laid down by the Hon'ble Supreme Court in case of CIT v. Biju Patnaik; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o follow the proposition of law laid down by the Hon ble jurisdictional High Court, which was further confirmed by Hon'ble High Court in the case of STL Extrusion (supra), after considering the proposition laid down in the case of Lovely Export (supra), the facts of which are pari materia especially when the facts of the instant appeals before us are identical to the facts wherein the Hon ble High Court has decided in favour of the Revenue whereas the facts in the case of Lovely Exports are distinguishable, as discussed above. 35. So far as the contention of the ld. Counsel for the assessee that the company can only be wound up by the order of the Hon ble High Court and death of the company is known to the process of law and also that the company is still available on the website of the Company Law Board is concerned, we are not agreeing with this proposition of the assessee because here it is not a case of winding process rather it is a case of admissibility of claim of the assessee u/s 68 of the Act. Since the share applicants /share subscribers identity is not proved, therefore, the assessee cannot be permitted to take shelter of technicalities. Even otherwise, websit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, as mentioned/cited/discussed in the preceding paras of this order like Divine Leasing Finance Limited, Dwarkadheesh Investment Private Limited, Gangor Investment Limited, K.C. Fibres Limited, Dolphin Canpack Limited, Shree Barkha Synthetics (Raj.), Down Town Hospitals Private Limited, ILLAC Investments Private Limited, Rohini Builders and Shree Barkha Synthetics (Raj.) (supra) are considered, the Hon ble Courts have clearly held that at least the assessee has to pove the identity/existence of the person in whose names share applications are received meaning thereby the burden lies on the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee has not proved the identity of such share applicants. 37. The contention of the Ld. Counsel for assessee to the effect that the decision of Rathi Finlease by the jurisdictional High Court was rendered much prior to the decision of the Supreme Court in the case of Lovely Exports (supra) therefore, the proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Lovely Exports Private Limited and Steller Investment Limited. The Hon'ble Court held as under :- It is not for the assessee to place material before the Assessing Officer in regard to the credit worthiness of the share holders. If the assessee has given the addresses of the share holders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee to establish but it is for the department to inquire with the investors about their capacity to invest the amount in the shares . If the aforesaid conclusion is analysed, one fact is clear that the identity of the share holders has to be proved by the assessee. However, in the present appeals the identity itself is in dispute, therefore, the aforesaid decision clearly supports the case of the revenue. 38. Likewise in the case of CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) the shareholders admitted the payment of amount for shares to be allotted. In these circumstances, Hon'ble Court held that the amounts of share capital cannot be added in the assessee s hands. However, in the present appeals, the share applicants itself a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means to make investment in the company. 38. In these circumstances, the entire receipt of ₹ 25,23,500/- in respect of these five persons was treated as unexplained investment and made the addition u/s 68 of the Act. 39. The learned Commissioner re-examined the entire issue analysing the evidence in the light of the judgment in the case of Steller Investment Limited and Sophia Finance Limited (supra) and ultimately confirmed the addition. On further appeal, the Tribunal affirmed the decision of learned Commissioner of Income Tax (Appeals) in the following manner :- 15. Having carefully examined the material available on record and the orders of the lower authorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the assessee could not produce them for verification nor was any evidence filed with regard to their financial status. Out of 15 subscribers, 5 subscribers were produced before the Assessing Officer and during the course of the examination it was admitted that they were small agriculturists and were cultivating the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record to prove the identity and the creditworthiness of the so-called subscribers and the Assessing Officer was justified in treating this investment as unexplained and made the addition under section 68 of the Income Tax Act. We, therefore, find no infirmity in the order of the learned Commissioner of Income Tax (Appeals). Accordingly, we confirm the same. Xxx xxx Xxx xxx 42. We have considered these submissions in so far as the statements of the persons who are produced are concerned, they are gone into and analysed by the three authorities below on the basis of which finding of fact is arrived at that neither their identity is established nor their capacity to invest this kind of money is proved. They are all agriculturists and had not produced a single document to support their version. This is a finding of fact and there is no reason to interfere with the same. Learned counsel for the revenue had drawn our attention to view all these statements. One Mr. Sukh Lal Singh in his statement had stated that he had purchased the shares of ₹ 1,90,000. Out of the share money, he had paid ₹ 70,000 out of his own source and ₹ 1,20,000 was received by him from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents and furnishing photo copy of some documents after a gap of substantial period, it is not possible to verify its correctness unless the concerned persons are produced with necessary documentary evidence (in original) in support of their identity and creditworthiness. The assessee has not even furnished basic requirements of share capital i.e. cheque number, date, amount(s), details of drawee bank, etc. The assessee s bank account was also not produced. Hence, the assessee s claim regarding investment by the shareholders remained unverifiable. No comments can now be offered at this stage without necessary verification. Proof of identity produced at a later stage cannot be verified in the absence of concerned person s original documents. 45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even reproduced in the order and thereafter the learned Commissioner of Income Tax (Appeals) discussed the same in the light of certain decisions cited before him and came to the conclusion that the assessee had not given satisfactory evidence to dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to prove the identity of share subscribers and once the identity is proved, in case of bogus investment, addition can be made in their individual capacity and not in the case of the company. However, in the present appeals even the identity of such share holders is not proved as we have discussed above, therefore, the initial onus has not been discharged by the assessee especially when the assessee was confronted with the finding of the commission (Inspector), summons/notices returned unserved and the addresses given by the assessee itself that too at four places were found to be fictitious. The assessee has not given satisfactory evidence to discharge the onus. It has merely given the names of fictitious parties and in our humble opinion this is not a sufficient compliance, therefore, the decision from Hon'ble Supreme Court in the case of Lovely Exports may not help the assessee. In a later decision dated 25th October, 2010 the Hon'ble jurisdictional High Court in the case of CIT v. STL Extrusion (P) Limited; (2011) 17 ITJ 648 (MP) even considered various decisions including the offquoted decision of Divine Leasing Finance Limited, Rathi Finlease Limited, Steller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry out the detailed inquiries in the manner which I had done in the context of Hindustan Continental Ltd and Agrawal Road Carriers Ltd whereby I could find various persons whom similar entries where given and the remedial action could be initiated by the concerned Assessing Officers. In the facts of the aforesaid ten appeals, the ratio of the decision of Hon ble Supreme Court as given in the case of Lovely Export P. Ltd. does not apply. For this reliance is placed onto the decision of Hon ble Delhi High Court (in the case of Nova Promoters Finlease Pvt. Ltd. (supra) ). The other case laws relied upon by the assessees are also not applicable to the facts of their cases, more so in view of the ratio/principle laid down by the Hon ble Delhi High Court in the said case (Nova Promoters Finlease Pvt. Ltd.). In the facts circumstances of these cases, I have applied the test of Human Probabilities . It is noted that Hon'ble Supreme Court in the celebrated decision in the case of CIT vs Durga Prasad More; 82 ITR 540 (SC), on page 545 has categorically held that genuineness of transactions cannot be decided merely on the basis of recitals in documents and same has to be examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m whom the amount of ₹ 25 lacs was shown to have been received. To ascertain the genuineness of the transaction, reference was made to the Directorate of Income Tax (Investigation), Kolkata. In response, vide report dated 10.12.2009, the DDIT(Inv.) reported that statement of the director was recorded, who categorically tendered that their company is being managed by Shri Manoharlal Nangalia and his son Shri Arun Nangalia and Mukesh Banka and they are providing accommodation entries through their company i.e. Omex Management (P) Ltd. In the present appeal also, the fund was claimed to be received from Omex Management (P) Ltd. Itself. This report was never contradicted by the assessee by bringing any adverse material on record. Before us, the ld. Counsel for the assessee merely contended that the search operation in the case of Omex Management P. Ltd. was done on 16.9.2009 whereas the transaction in the case of the assessee was made in 2007. We are not convinced with this argument because the director of Omex Management P. Ltd. was never produced by the assessee in its support, evidencing that it was not an accommodation entry, more specifically, when the report/statement were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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