9911796707
TMI Blog2010 (6) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted and remand report was called for. The registration of the Companies is evidenced by the Registrar s certificate issued by the Registrar of Companies. The share application is also reflected in their returns. The allotment of share is also reflected from the share allotment done by the assessee. From the Schedule 3, i.e., investment in shares by this companies, which appears that they had their holding, which they had applied for shares from among other companies, which is reflected and was before the competent authorities, which was produced along with the return and this fact is not denied. All these indicate the existence of companies. Registration of the companies cannot be denied in the light of the above facts, merely because in case of certain companies when the enquiry conducted, the details were not forthcoming ipso facto coming to the conclusion that the application and allotment of shares is false. Thus, we are of the view that there is no material before us to disturb the order of the learned first appellate authority. The appeal by the revenue on this ground fails. Deletion of the addition on substantive basis on account of explanation of share application mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Cross-objection. 2. The first objection by the revenue is against the order of learned Commissioner of Income-tax deleting the addition of ₹ 20 lakhs made by the Assessing Officer on protective basis on account of unexplained share application money from three companies. 3. There was search and seizure action in the case of Vishwanath Prasad Gupta of Katni on 11-3-2005 at the business as well as residential premises. The business-cum-residential premises was occupied by servants and other family members including the assessee. Incriminating documents pertaining to M/s. Dolphin Marbles (P.) Ltd., were found and seized under section 153C. Notice was issued on 9-10-2006 and served on the assessee and directed to file the return under section 142(1)(i). The assessee filed return of income on 31-3-2006. The assessee claimed net loss of ₹ 9,362 on a sale after setting-off of depreciation of current year amounting to ₹ 39,641 and shown the liability on professional tax at ₹ 2,500 in the balance sheet. Since there was no challan enclosed for payment of the liability claimed, the claim of the assessee was rejected. 4. While verifying the balance-sheet of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the report of the ADIT referred to by the Assessing Officer was never confronted to the assessee and never any explanation was sought for. Hence it was contended that it is against the principle of natural justice. The assessee was never directed to file the audited statement of account of the parties, which was filed before the learned CIT(A) including certification of incorporation of the Calcutta based companies that had subscribed share of assessee-company. Companies of audited statement of Calcutta based companies filed their return before the registrar of company and before the revenue authority, copy of application allowed on shares. 9. The additional evidences produced were forwarded to Assessing Officer for comments and objections if any. The Assessing Officer objected to the admission of additional evidences for the reason that he had given sufficient opportunities to produce evidences which, was not complied with. Rejoinder was called for from the assessee. The assessee reiterated the submission that the Assessing Officer was not correct in reporting that several opportunities were given to the assessee at assessment stage and reiterated that only one opportunity wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by M/s. Rajath Commercial (P.) Ltd. was returned by the postal authorities with a note 'not known' and also the fact of denial of issuance of D.D. by ABN-Amro Bank, Calcutta Branch to M/s. Nihal Fiscal Services (P.) Ltd. He also relied on the decision relied by the Assessing Officer for the proposition that merely establishing the identity of the creditor is not sufficient and also where filing of the confirmation letter does not amount to discharge onus cost upon the assessee. Reply to the above, learned counsel for the assessee brought our attention to paper book at page Nos. 19, 53, 66, 64 and 68. Page 19 is the part of the balance sheet of Dolphine Marbles (P.) Ltd., which was filed along with the return showing the share application money. Page 53 is the letter from Transeem Commercial (P.) Ltd., confirming the application for the equity shares numbering 1250 in M/s. Dolphine Marbles (P.) Ltd. and also confirmation with regard to the payment, which was before the Assessing Officer. Page 63 is the copy of the balance sheet of the company for the year ending 31-3-2005 and page 63 is the details of stock-in-trade wherein specifically given the details of M/s. Dolphine Marbles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. The share application is also reflected in their returns. The allotment of share is also reflected from the share allotment done by the assessee. From the Schedule 3, i.e., investment in shares by this companies, which appears that they had their holding, which they had applied for shares from among other companies, which is reflected and was before the competent authorities, which was produced along with the return and this fact is not denied. All these indicate the existence of companies. Registration of the companies cannot be denied in the light of the above facts, merely because in case of certain companies when the enquiry conducted, the details were not forthcoming ipso facto coming to the conclusion that the application and allotment of shares is false. 15. Under the circumstances, we are of the view that there is no material before us to disturb the order of the learned first appellate authority. The appeal by the revenue on this ground fails. 16. The second ground is against the order of the learned CIT(A) deleting the addition of ₹ 5 lakhs made on substantive basis on account of explanation of share application money from one company. 17. Coming to impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n below :- (i) M/s. Transeem Commercial (P.) Ltd. ₹ 5 lakh (ii) M/s. Rajath Commercial (P.) Ltd. ₹ 10 lakh (iii) M/s. Vikash Viniyog (P.) Ltd. ₹ 5 lakh (iv) M/s. Nihal Fiscal Service (P.) Ltd. ₹ 5 lakh Total : ₹ 25 lakh (ii) The assessee filed copy of a letter from M/s. Vikash Viniyog (P.) Ltd., confirming that it had subscribed 1250 share of M/s. Dolphin Marbles (P.) Ltd., at a premium of ₹ 300 per share and paid ₹ 5 lakh as per Demand Draft dated 14-7-2004. (iii) Similarly, a photocopy of certificate was filed from M/s. Nihal Fiscal Service (P.) Ltd., confirming that they had applied for 1250 shares of the assessee and payment of ₹ 5 lakh was made as per Demand Draft dated 20-8-2004. (iv) A copy of letter addressed to the Assessing Officer by M/s. Transeem Commercial (P.) Ltd., was also filed. It was claimed that the aforestated Transeem Commercial (P.) Ltd., had applied for the shares of the assessee-company at a premium of ₹ 300 per share. (v) Confirmation letter dated nil from Rajath Commercial (P.) Ltd., was also filed according to which they had applied for 2,500 equity shares of assessee-company of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound on the given address and the Income-tax inspector could not serve summons on it. 7. M/s. Vikash Viniyog (P.) Ltd., also did not comply with the summons issued under section 131 of the Income-tax Act and income-tax inspector reported that the company was not in existence. The ADIT (Inv.), Calcutta as per his letters dated 15-12-2006 and 20-12-2006 reported that this company also existed only on paper and the assessee had utilised this concern also for introducing its unaccounted money in its books of account under the garb of share application money. 8. The evidence filed was thus not sufficient to prove the capacity, genuineness and creditworthiness of the parties. 9. The assessee could not file the relevant details of filing of income-tax returns of aforestated companies, along with capital account and balance sheet for the relevant period and the earlier years to prove the availability of funds with them. 10. In view of inquiries discussed above and in view of the fact that the relevant details were not filed by the assessee before the Assessing Officer, the Assessing Officer held that burden of proof to establish the financial capacity of the investors was not discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its income. 13. The ld. CIT(A) as per para 4 of his impugned order has taken note of the foregoing facts discussed in the assessment order. It was however contended by the counsel of the assessee before the ld. CIT(A) that : (i) all the aforestated companies had subscribed to the shares of the assessee-company through demand draft, as per confirmation sent by these companies by fax directly to the Assessing Officer; (ii) the claim of the Assessing Officer that repeated opportunity were given to the assessee to prove the genuineness of the claim of receipt of share application money from the aforestated four companies was not correct, because the case of the assessee-company was heard only on 10-10-2006 as could be seen from the entry in the relevant order sheet, which is reproduced below : Dolphine Marbles (P.) Ltd., Katni05-06 10-10-2006 Shri Vishwanath Pd. Gupta with Shri Lokesh Sethi, Accountant attended and produced books of a/c and filed submission which has been kept on record, Case for 6/11 Sd/- 10/10 (iii) it was clear from the order sheet entry reproduced above that the Assessing Officer neither expressed any doubt nor raised any query regarding the Kolka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to the assessee to rebut the same. 16. Ld. CIT(A) allowed the appeal of the assessee for the reasons discussed in para 10 of his decision which is reproduced below : "10. Decision.-I have gone through (i) the certificate of incorporation of all the four companies who have subscribed to share of the appellant company, (ii) their audited statement of accounts which have been filed along with return both under the Companies Act and under the Income-tax Act. The subscription in shares of Dolphine Marbles and several other Indian companies have been specifically indicated in the balance sheet of the subscribing companies along with value of the shareholding. The department has also accepted the return of income of the subscribing companies. Once department has accepted the return of income of the sub- scribing companies, and the name of the appellant along with extent of shareholding is clearly depicted in the balance sheet of these companies, the matter ends there. The shareholding has to be accepted as genuine. For this reason, the additions of ₹ 20,00,000 on protective basis and ₹ 5,00,000 on actual basis stand deleted." 17. The ld. Vice-Preside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee-company by way of share application money. He, therefore, held that "the amount of ₹ 20 lakh found at the residential premises which (is) stated to be amount withdrawn from Dolphine Marbles is added to the total income of Shri Vishwanath Gupta on substantive basis and the same is added in the hands of the Dolphine Marbles (P.) Ltd., on protective basis." 19. The ld. CIT(A) has only considered the order sheet entry in the case of Dolphine Marbles (P.) Ltd., i.e., the assessee. Before changing the finding of fact given by the Assessing Officer that the assessee did not file the relevant details despite several opportunities. The ld. CIT(A) should have confronted the Assessing Officer with the submissions of the assessee that only one opportunity was given. He should have also perused the order sheet entries in the case of Shri Vishwanath Prasad Gupta, in whose case the issue regarding share capital of ₹ 25 lakh has been discussed in detail in the assessment order dated 26-12-2006 while making the addition of ₹ 20 lakh under consideration on substantive basis. 20. It is also seen that the Assessing Officer has finalised the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries or causing enquires to be made regarding the genuineness of the additional evidence filed by the assessee. 22. The ld. CIT(A) was also not correct in ignoring the evidence gathered by the Assessing Officer on the basis of enquiries conducted by the ADIT (Inv.), Kolkata especially in view of the facts that : (a) the parties did not comply with the summons issued under section 131 of the Income-tax Act; (b) they were not found at the addresses given by the assessee to the Assessing Officer; and (c) the report of the ADIT (Inv.), Kolkata that the parties were not actually in existence. 23. By its very nature the additional evidence filed by the assessee before the ld. CIT(A) was also such as could not justify the failure of the assessee to file the same before the Assessing Officer because the copies of : (i) certificates of registration with the Registrar of Companies; (ii) acknowledgements of filing the respective returns of income; and (iii) the balance sheets etc. could have been readily available with the parities and the assessee had no justifiable reason for not fling the same before the Assessing Officer. There was no reason that the assessee should have wai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely :- (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer]; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal; or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The [Deputy Commissioner (Appeals)] - [or, as the case may be, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been allowed to the Assessing Officer, the fresh evidence so produced cannot be taken into account by the first appellate authority.... Such an opportunity should be given after the assessee had sought to adduce additional evidence. The fact that the Assessing Officer did not appear in response to notice under section 250(2)(b) cannot empower the appellate authority to take into account the additional evidence without allowing and affording a reasonable opportunity to the Assessing Officer as required by rule 46A(3) CIT v. Valimohammad Ahmadbhai ((1982)) 134 ITR 214 (Guj.). (Chaturvedi & Pithisaria's Income Tax Law, 5th edition, Volume 5 pages 7661-7662)" 30. The CBDT as per Circular No. 108 [F. No. 131(9)/73-TPL], dated 20-3-1973 has also explained the provisions regarding admission of additional evidence by the first appellate authority, relevant portion of which is reproduced below : "The rule requires the Appellate Assistant Commissioner to record his reasons for admitting the additional evidence and also allow to the Income-tax Officer an opportunity of examining the evidence or document or cross-examine the witness produced by the appellant and also to prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer and by relying on the fresh evidence which was neither examined by the ld. CIT(A) himself, nor allowed to be examined by the Assessing Officer as per rule 46A(3), nor was prima facie sufficient to prove the capacity of the parties to send the money in question and the genuineness of the transaction. The decision of the ld. CIT(A) as per impugned order cannot therefore be upheld. 33. It is also observed that since the amount of ₹ 25 lakh was credited to the books of account of the assessee as share subscription in the name of the aforestated four companies, the onus to explain the same was on the assessee in view of the decisions in the case of : (i) CIT v. Sophia Finance Ltd. ((1994)) 205 ITR 98 (Delhi); (ii) CIT v. Kundan Investment Ltd. ((2003)) 263 ITR 626 (Cal.); and (iii) CIT v. Rathi Finlease Ltd. [IT Appeal No. 63 (MP) of 2004, dated 11-10-2007]. 34. In view of the provisions of section 46A, CBDT circular and case laws discussed above, with due respect, I do not agree with the view of the ld. V.P. in per para 14 of his proposed order, which is reproduced below : "that there is no material to disturb the order of the first appellate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with the provisions of Rule 46A(3) of the Income-tax Rules or the issue is to be restored to the Assessing Officer as opined by the learned AM? (ii) Whether, on facts and in the circumstances of the case, the learned Vice President is correct in confirming the order of the Commissioner of Income-tax (Appeals) of the addition of ₹ 20,00,000 made by the Assessing Officer on protective basis on account of unexplained share application money from three companies or the issue is to be restored to Assessing Officer for fresh consideration, as opined by the learned AM? (iii) Whether, on facts and in the circumstances of the case, the learned Vice President is correct in confirming the order of the Commissioner of Income-tax (Appeals) deleting the addition of ₹ 5,00,000 made by Assessing Officer on substantive basis on account of unexplained share application money from one company, or the issue is to be restored to Assessing Officer for fresh consideration as opined by the learned AM?" We, accordingly, forward the records of the appeal mentioned above to the President of the Tribunal. THIRD MEMBER ORDER Per H.L. Karwa (Vice President) (As a Third Member) The fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(DR) relied upon the orders of the Assessing Officer and the ld. Accountant Member. He further submitted that evidences filed by the assessee are not sufficient to prove the capacity and genuineness and creditworthiness of the creditors. He relied on the decision of the Hon'ble jurisdictional High Court in the case of Rathi Finlease Ltd. (supra), wherein it has been held that section 68 of the Act enjoined the assessee to offer explanation about the nature and source of the sum found credited in the books and if the explanation was not satisfactory, the amount can be credited and charged to income-tax as income of the assessee. In the instant case, the assessee has failed to prove the nature and source of cash credit. He, therefore, submitted that in the facts and circumstances of the case, the ld. Accountant Member has correctly remanded the matter to the file of the Assessing Officer for fresh consideration. 5. Shri A.P. Shrivastava, Advocate, Learned Counsel for the assessee supported the orders of the ld. CIT(A) and the ld. V.P. He further submitted that the assessee-company had received share application money of ₹ 25 lakhs from the following four companies : (i) M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven several opportunities to produce necessary evidence in support of the assessee's claim that it had received ₹ 25 lakhs as share application money. The Assessing Officer also stated that because of non-submission of the same, enquiry was conducted through the ADIT (Inv.), Unit-IV(1), Kolkata who reported that companies are only on paper and not actually in existence. Therefore, not only such additional evidence has got to be rejected, the addition of ₹ 25 lakhs is required to be confirmed. Shri A.P. Shrivastava, ld. Counsel for the assessee submitted that from the order sheet entry dated 10-10-2006 in the case of Dolphine Marbles (P.) Ltd., it is amply clear that the assessment was completed in only one hearing during which the Assessing Officer did not ask the assessee to furnish any information. The assessee was prevented by reasonable cause from furnishing the additional evidence and therefore, the ld. CIT(A) has admitted the same. He further pointed out that the report of the ADIT (Inv.), Kolkata is not an admissible evidence as it was never confronted to the assessee before utilizing the same in making assessment of income of the assessee. He, therefore, submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced before him and he has not violated the provisions of rule 46A. Rule 46A provides for admission of additional evidence which was not produced before the Assessing Officer only if the Assessing Officer has refused to admit the evidence or the assessee was prevented by sufficient cause from producing the evidence before the Assessing Officer or the Assessing Officer had final- ized the assessment without giving sufficient opportunity to the assessee to adduce the evidence. In the instant case, the ld. CIT(A) has categorically stated that after going through the certified copy of order sheet entry in the case of Dolphine Marbles, he was satisfied that the Assessing Officer never directed the assessee to produce any evidence to prove the genuineness of shareholding by the subscribing companies nor had he expressed any doubts regarding the genuineness of shareholding of these companies prior to treating of share capital as unexplained under section 68. It is apparent from record that in the case of Dolphine Marbles, the assessment was completed in only one hearing where the assessee was not asked to furnish any information. Therefore, the assessee was prevented by reasonable caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said company has also filed a copy of acknowledgement of return of income, certificate of incorporation and Balance Sheet as on 31-3-2005. The Balance Sheet shows that the said company has purchased the shares of the assessee-company worth ₹ 5 lakhs. In my opinion, there is no justification in remanding the matter to the file of the Assessing Officer. 7. As regards the merits of the case, the assessee has furnished the following details before the ld. CIT(A) in respect of Transeem Commercial (P.) Ltd. (i) Letter addressed by Transeem Commercial (P.) Ltd. to ACIT, Katni confirming that Kolkata Company applied for 1250 equity shares in Dolphine Marbles (P.) Ltd., vide DD No. 636381, dated 28-7-2004 drawn on Oriental Bank of Commerce, Station Road, Kolkata. (A copy of the same is available at page 53 of the assessee's Paper Book filed before the Tribunal). (ii) Copy of acknowledgement of return of income showing address of company and PAN. (A copy of the same is available at page 54 of the assessee's Paper Book filed before the Tribunal). (iii) Letter by Kolkata company to assessee-company requesting issue of 1250 equity shares along with draft of ₹ 5 lakhs. (A co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is available at pages 69 to 72 of the assessee's Paper Book filed before the Tribunal). 7.2 The assessee also submitted the following details before the ld. CIT(A) in respect of Nihal Fiscal Services (P.) Ltd., Kolkata : (i) Certificate sent by Nihal Fiscal Services (P.) Ltd., Kolkata to ACIT, Katni confirming that Kolkata company applied for 1250 equity shares in Dolphin Marble (P.) Ltd. and deposited ₹ 5,00,000 vide DD dated 20-8-2004 drawn on ABN-AMRO Bank, Kolkata. (A copy of the same is available at page 73 of the assessee's Paper Book filed before the Tribunal). (ii) Copy of acknowledgement of return of income showing address of company and PAN. (A copy of the same is available at page 74 of the assessee's Paper Book filed before the Tribunal). (iii) Certificate of incorporation of companies issued by Registrar of Companies, West Bengal. (A copy of the same is available at page 75 of the assessee's Paper Book filed before the Tribunal). (iv) Balance sheet of the company for the year ending 31-3-2005 wherein investment of ₹ 5 lakhs in M/s. Dolphin Marbles (P.) Ltd., is claimed to have been made. This balance sheet was filed along with return of income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter in right perspective. The question raised before the Hon'ble High Court was as under : "Whether the Income-tax Appellate Tribunal was justified in law in remanding back the case to the Assessing Officer when the matter has been examined on the merits by the Commissioner of Income-tax (Appeals)?" The Hon'ble High Court referred to the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) and the decision of the Hon'ble Delhi High Court in the case of CIT v. Divine Leasing & Finance Ltd. ((2008)) 299 ITR 268 and held as under : "However, when we went through the order of the Commissioner of Income-tax (Appeals) we find that he has examined the question of identity, creditworthiness and genuineness of each of the shareholders. The said examination appears in sub-paras (i) to (xx) in paragraph 2.4, which run from pages 48 to 57 of the appeal papers. We find that the Commissioner of Income-tax (Appeals) had considered in detail the case of each of shareholders and came to a conclusion of fact that the identity and creditworthiness of the shareholders and the genuineness of the transactions stood established. Therefore, the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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