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TMI Blog2018 (1) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... er pedestal as compared to public limited companies which it has failed to discharge in the instant case as we have discussed above in terms of creditworthiness and genuineness of the transaction and till such time, initial burden is not satisfied, the burden cannot be said to have been shifted on the Revenue to conduct further enquiries. Accordingly, we hereby affirm the action of the ld. CIT(A) in sustaining the addition of ₹ 93.30 crores in the hands of the assessee company u/s 68 of the Act. In the result, ground no. 1-3 are dismissed. - ITA. No. 130/JP/2017 - - - Dated:- 18-12-2017 - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri Himanshu Goyal (CA) For The Revenue : Smt. Roshanta Meena (JCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-III, Jaipur dated 22.09.2016 for Assessment Year 2012-13 wherein the assessee has taken the following grounds of appeal as under:- 1. That on the facts and as per the circumstances of the case, both the Lower Authorities i.e. AO CIT(A), have erred in assessing the Income of the appellant at ₹ 96,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney and share premium and the assessee was accordingly asked to furnish the necessary details in this regard. In respect of Shri Janardhan Sharma, the assessee submitted that he is a contractor in Delhi from whom the assessee has received share application money in cash for a sum of ₹ 30,00,000/-. It was submitted Shri Janardhan Sharma has a sanctioned cash credit limit with drawing power of ₹ 1,35,00,000/- which has been used for paying the share application money. Further, copy of his income tax return for last 3 years was also submitted. 4. The Assessing Officer, on perusal of the balance-sheet of Shri Janardhan Sharma proprietary concern, M/s K.K. Construction Company observed that he has shown investments of ₹ 53,20,000/- in respect of shares in Indian companies without any specific endorsement that any investment was made with the assessee company. The Assessing Officer further observed that the bank statements filed alongwith the above reply does not reflect any evidence that an amount of ₹ 30,00,000/- was paid to the assessee. Further, the contention of the assessee that Shri Zanardhan Sharma has paid the share application money through his cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is bank account with the investments made in the assessee company. 7. The above findings of the ld CIT(A) remain uncontroverted before us. The ld AR has not been able to demonstrate through any verifiable evidence that share application in form of cash has been withdrawn from Shri Janardhan Sharma s bank account and which has been paid to the assessee company. The same thus puts a question mark on genuineness of the whole transaction and the initial onus cast on the assessee in terms of section 68 cannot be said to have been discharged in the instant case. 8. In respect of Shri Jagjit Singh who is British citizen from whom the assessee has claimed to be received ₹ 66,30,000 during the year under consideration, the assessee has submitted the return of share allotment, a copy of ITR returns of his company Quick Forex Transfer Limited for last 3 years, a copy of his NRI account bank statement, a copy of his passport and a copy of his domestic electricity bill. It was also submitted that ₹ 30,000,00/- was sent directly from his bank account and the balance amount of ₹ 36,30,000 was paid by his relatives in SNHL Bank account. On perusal of the notes to the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to the assessee company. There is no confirmation either from the relatives or the bankers to the effect that money has been remitted on behalf of Jagjit Singh towards the share application money. Further, both the AO as well as ld CIT(A) have analysed the financial statements and tax returns of his company and found that Jagjit Singh is not creditworthy to make such an investment of ₹ 63.30 lacs in the assessee company. In light of the same, we find that the initial onus cast on the assessee company in terms of section 68 has not been discharged in the instant case. 11. Now, coming to various legal authorities on the subject which have been quoted by the ld AR in support of his contentions, the same have recently been analysed by us (speaking through one of us) in exhaustive detail in case of ACIT Circle-1, Jaipur vs. Bright Metals Pvt. Ltd. Jaipur (ITA No.702/JP/14) dated 24.02.2017 as under: 3. In order to appreciate the rival contentions, we refer to various legal authorities on the subject which has been brought to our notice by both the parties. 3.1 In case of Navodaya Castle (P) Ltd (supra) which is a case of a private limited company, it is noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. 18. Lovely Exports (P.) Ltd. (supra) was also considered and distinguished in N.R. Portfolio (P.) Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT v. Nipun Builders and Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), wherein it has been held that a reasonable approach has to be adopted and whether initial onus stands discharged would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as genuineness of the transactions. 21. In view of the aforesaid discussion, we feel that the matter requires an order of remit to the tribunal for fresh adjudication keeping in view the aforesaid case law. The question of law is, therefore, answered in favour of the Revenue and against the respondent-assessee, but with an order of remit to the tribunal to decide the whole issue afresh. One of the reasons, why we have remitted the matter is that the cross objections of the respondentassessee questioning notice under Section 147/148 were dismissed as infructous and even if we decide the issue on merits in favour of the Revenue, the cross objections would got revived and require adjudication. The appeal is accordingly disposed of. 3.2 We now refer to another leading case of Lovely Exports (P) Ltd. (supra) which has been considered and referred in Navodaya Castle case (supra) and which has also been quoted by the ld AR in support of its contention. It was a case of public limited company where shares were subscribed by public and the facts thereof have been set out in the judgment of Hon ble Delhi High Court reported as Divine Leasing Finance Ltd.[2008] 299 ITR 268. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrived at, no question of law as such arises. (p. 84) This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application Forms and Bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. 7.Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) a succinct yet complete precis on the essentials of income-tax liability can be discerned from these words - In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. This decision is adequate authority for the proposition that by virtue of section 68 of the Income-tax Act the assessee is ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. 16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/sub-scriber; (2) the genuineness of the transaction, namely: whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 39. The case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC) exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions 29. In CIT v. Nipun Builders Developers (P.) Ltd. [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer to enforce share holders attendance. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation attitude before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h circumstances in respect of finding arrived at by the Tribunal, which was essentially a finding of fact and did not stand vitiated in law. [Para 11] 3.7 In case of Riddhi Promoters (P) Ltd (supra), the Hon ble Delhi High Court held as under: 6. It is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee's reliance upon the order of the Commissioner (Appeals) to contend that the sources of the funds were in essence as directors, is, in this context, of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. The creditworthiness of the share applicants had to be seen in the context of the assertion made by them or the materials presented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 41] The Assessing Officer here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But the Commissioner (Appeals), having noticed want of proper inquiry, cannot close the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of the Tribunal, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under section 148 issued by the Assessing Officer, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a 'further inquiry' in exercise of the power under section 250(4). This approach not having been adopted, the impugned order of the Tribunal, and consequently that of the Commissioner (Appeals), cannot be approved or upheld. [Para 42] 3.10 In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had discharged the basic onus which was cast upon it after considering the ruling in Lovely Exports (P.) Ltd.'s case (supra). The material and the records in this case show that notice issued to the 5 of the share applicants were returned unserved. The particulars of returns made available by the assessee and taken into consideration in paragraph 3.4 by the AO in this case would show that the said parties/applicants had disclosed very meager income. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. This discussion itself would reveal that even though the share applicants could not be accessed through notices, the assessee was in a position to obtain documents from them. While there can be no doubt that in Lovely Exports (P.) Ltd. (supra), the Court indicated the rule of shifting onus i.e. the responsibility of the Revenue to prove that Section 68 could be invoked once the basic burden stood discharged by furnishing relevant and material particulars, at the same time, that judgment cannot be said to limit the inferences that can be logically and legitimately drawn by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) as well as the ITAT. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of PAN numbers, to highlight the identity of the share applicants, as well as produced the affidavits of Directors. Furthermore, the bank details of share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their credit-worthiness. The AO chose to proceed no further but merely added the amounts because of the absence of the Directors physically present themselves before him. 6 We are of the opinion that no question of law arises, having regard to the concurrent findings of fact. The assessee has, in our opinion, complied with the law spelt out by the Supreme Court in CIT vs. Lovely Exports Pvt. Ltd. 216 CTR (SC) 195. The appeal is meritless and is consequently dismissed. 4. After going through the various legal authorities as narrated above, the legal proposition that emerges in the context of section 68 is as under: 4.1 Where any sum is found credited in the books maintained by the assessee, Section 68 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the shareholder. It would be also incorrect to universally state that an inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves. 4.7 Unlike the case of private limited companies, in the case of public limited company which has gone for a public issue and got share subscriptions from prospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h means deposits by way of cash and issue of cheques. Creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of a cheque or by furnishing a copy of statement of bank account of share subscriber, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment. 4.10 The entire evidence available on record has to be considered and a reasonable approach has to be adopted. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction. 4.11 Where the assessee has discharged the initial 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, the burden of proof shifts on the Assessing officer. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his poss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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