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TMI Blog2016 (5) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... hese appeals are filed by the revenue. 2. ITA No. 378/Del/2008 is filed against the order of the CIT(A) -X, New Delhi dated 23.11.2007, wherein he has deleted the additions made by the AO u/s 68 of the Income Tax Act, 1961 (the Act) and allowed the appeal of the assessee. 3. ITA No. 2164/Del/2008 is against the order of Ld. CIT(A)-X, New Delhi dated 13.3.2007 wherein the penalty u/s 271(1)(c) of the Act was quashed on the ground that on merits the addition was deleted and the penalty has no legs to stand. 4. Aggrieved the revenue is in appeal. We first take up the revenue's appeal in ITA No. 378/Del/2008. 5. The assessee is a private limited company engaged in the business of investment and finance. The assessee filed return of income for AY 2000-01 on 29.05.01 declaring a loss of ₹ 8,210/-. The case was subsequently reopened u/s 147 by issuing notice u/s 148 dated 21.08.02. In response to the notice the appellant submitted before the AO vide letter dated 21.5.2003 that the return already filed on 29.5.2001 may be treated to have been filed in response to notice u/s 148. The assessment u/s 147 read with section 143(3) was completed vide order dated 29.3.2004 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties 3,00,000/- 27,00,000/- Mehul Finvest Pvt. Ltd. 2,42,000/- 21,78,000/- Synergy Finlease Pvt. Ltd. 4,73,000/- 42,57,000/- Total 20,98,000/- 1,43,82,335/- Grand total 1,64,80,335/- 9. The AO concluded the assessment u/s 143(3) r.w.s 148 determining the total income at ₹ 1,64,95,075/-. Aggrieved the assesee carried the matter in appeal. The first appellate authority deleted the addition by giving the following reasons :- a) The Ld. CIT(A) held as follows :- The reasons tendered by the AO for making the aforesaid additions to income are summarized as under :- (i) That the facts of the case are similar to that of one M/s. Synergy Finlease Pvt. Ltd. where the AO passed an order adding the share capital received during the year. The AO has alleged that the cash credits are entries arranged by one Mr. S.K. Jain in whose case, a search was conducted on 14.12.1999 and the entire modus-operandi of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Shri S.K. Jain. The asessee was neither confronted with the statement of Shri S.K. Jain nor with the material referred to by the AO as seized from Shri S.K. Jain and thus the statement and the material cannot be used against the assessee. The AO also failed to provide opportunity to the assessee to cross examine Shri S.K. Jain and hence this statement cannot be used as evidence against the assessee. c) If statement of Shri S.K. Jain and the material which is not confronted to the assessee is eliminated, then there is no material available with the AO to support his finding that the receipt of share capital and share premium of ₹ 1,64,80,335/- was not a genuine transaction. d) The allegations of the AO that money had been received by the assessee company as share capital and that it had inturn advanced the same as share application money to other companies is no good reason for making an addition as the assessee company is engaged in the business of investment and finance and to arrange and manage its business affairs in the manner it likes. e) The assessee company has filed confirmation letters from the share holders giving their permanent account number and war ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO, to the assessee, he relied on the decision of Delhi High Court in the case of CIT vs. Jansampark Advertising Marketing (P) Ltd. (2015) 56 taxmann.com 286 (Delhi) wherein, it was held that, the Commissioner (Appeals) and Tribunal are also forums for fact finding and that, in the event of the Assessing Officer failing to discharge his functions properly, obligation to conduct proper inquiry on facts would naturally shift to the door of said appellate authorities and when they have noticed want of proper inquiry, it cannot close the chapter simply by allowing the appeal and deleting the addition made and that much deficiency should be cured by the appellate authorities. He also relied on the judgment of M/s. Deepak Agro Foods vs. State of Rajasthan Ors. 2008 TIOL 134 (SC). 12. He further relied on the following case laws for the proposition that the assessee has failed to prove the genuineness of the transactions and hence the addition u/s 68 of the Act has been rightly made by the AO. 1. Navodaya Castle (P) Ltd. vs. CIT (2015) 56 taxmann.com 18 (SC) 367 ITR 306 (Delhi) 2. Rajat Export Import India (P) Ltd. vs. ITO (2012) 18 taxmann.com 311 (Delhi) 3. CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share premium 06/12/99 Timely Fincap Pvt. Ltd. 3,00,000/- --------- 06/12/99 Graph Financial Services Pvt. 2,00,000/- --------- 04/01/2000 VPC Financial Services Pvt. Ltd. 45,000/- 4,05,000/- 31/03/2000 -do- 2,65,000/- 23,85,000/- 04/01/2000 Killa Financial Services Pvt. Ltd. 1,35,000/- 12,15,000/- 31/03/2000 -do- 1,38,000/- 12,42,000/- 30/03/2000 Highyield Securities Pvt. Ltd. 3,00,000/- 27,00,000/- 30/03/2000 Mehul Finvest Pvt. Ltd. 2,42,000/- 21,78,000/- 31/03/2000 Synergy Finlease Pvt. Ltd. 4,73,000/- 42,57,000/- 20,98,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of the assessee as a Director of those companies. This fact is clear from copies of the assessment orders filed in the case of Graph Financial Services Pvt. Ltd. M/s. Timely Fincap Pvt. Ltd., Highyield Securities Pvt. Ltd., Synergy Finlease Pvt. Ltd. , and Kila Financial Services Pvt. Ltd. Hence it is clear that Shri S.K. Jain was a Director in all the companies which have applied for shares in the assessee company and hence is no stranger to the assessee company. The finding of the Ld. CIT(A) that the reference to Shri S.K. Jain and the modus operandi as a figment of imagination is perverse. Under these circumstances the statement given by Shri S.K. Jain is relevant and the activities of Shri S.K. Jain as recorded by the AO cannot be ignored. 21. Any how, as pointed out by the Ld. Commissioner of Income Tax (Appeals), the AO should have confronted the assessee with the statement of Shri S.K. Jain on which he placed reliance. The material on which the AO placed reliance for making the addition, should have also been confronted to the assessee. Thus to the extent to which the AO places reliance on the statement of Shri S.K. Jain, as well as the material seized by the investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power under Section 148 would be rendered prone to abuse. 36. The authority to bring to tax unaccounted money by exercising the power given to the AO under Section 68 is of great importance. It is expected that the AO would resort to this provision with all requisite circumspection. Since the provision is generally invoked, as has been done in the case at hand, by recourse to the procedure of notice under Section 148 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the a e ee with his explanation must itself be wholesome or not untrue. It i 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 13 1 or not having given opportunity for the identity of all the share applicants to be properly established. The orders sheet entries taken note of in the order of CIT (Appeals) seem to indicate otherwise. The order of CIT (Appeals), which was confirmed by ITA T in 'the second appeal, does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ensured that, necessary evidences and copy of statements and opportunity of cross examinations are provided to the assessee and not to simply delete the addition on the ground that, the AO has not confronted the assessee with the statement and evidences or on the ground that opportunity of cross examination has not been provided by the AO to the assessee. Hence the Ld. CIT(A) has erred in his approval. 27. We now consider the merits of the addition without taking into consideration the statement of Shri S.K. Jain or the material found during the search of Shri S.K. Jain. On a perusal of the documents submitted by the assessee, we are of the considered opinion that the genuineness of the transaction and the creditworthiness of the creditors has not been demonstrated by the assessee. The AO in his order at page 7 has clearly recorded that the assessee company has no financial base or business and the money received by it was withdrawn the very same day or the next day. More important he has recorded that the assessee has not given any let alone satisfactory explanation for the high premium charged on the shares. When shares are allotted within a span of less than one month, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In CIT v . Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under: - Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 / 126 Taxman 365 , the Supreme Court again reiterated the aforesaid position and held as under: - As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see. 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as laid down that the evidence adduced in the assessee has to be examined, not superficially, but in depth and having regard to the test of human probabilities and normal course of human conduct. When we do so in this case we have to uphold the action of the AO. 31. In the case of CIT vs. Global Securities Finance (P.) Ltd. (2014) 264 CTR 481 (Delhi) it is held as under :- 11. The respondent assessee is a private limited company. It is not the case of the respondent that their Directors or persons behind the companies, who had purportedly made investment in the shares were related or known to them. In the present case substantial investment has been made in a private limited company which includes share premium @ ₹ 40/- per share amounting to ₹ 41 ,88,000/-. It is not a case of the respondent assessee that they had a proven good past track record justifying a hefty premium, four times the face value. What was placed on record were certain papers which showed that the respondent assessee had taken care to ensure legal compliances. The said evidence is primarily documentary evidence. But, what the tribunal has noticed but not given due credence to are the surroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can take judicial notice is not exhaustive and indeed the purpose of the section is to provide that the Court shall take judicial notice of certain facts rather than exhaust the category of facts of which the Court may in appropriate cases take judicial notice. Recognition of facts without formal proof is a matter of expediency and no one has ever questioned the need and wisdom of accepting the existence of matters which are unquestionably within public knowledge . .......... ........ No Court therefore insists on formal proof, by evidence, of notorious facts of history, past or present. The date of poll' passing away of a man of eminence and events that have rocked the nation need no proof and are judicially noticed. Judicial notice, in such matters, takes the place of proof and is of equal force. In fact, as a means of establishing notorious and widely known facts it is superior to formal means of proof..... 13. It is important, to segregate cases of bonafide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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