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TMI Blog2018 (6) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... the order passed by Ld AO uls 147/143(3) without appreciating that reasons are merely based on purported documents seized from premises of Mr. SK Jain etc. and same cannot be put against that assessee unless statement of Mr. Jain on those documents vis a vis assessee herein is brought on records and the same is duly followed by cross examination of Mr. Jain which have not happened in present case; 1.3 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 147/143(3) without appreciating that documents so relied in reasons have not evidentiary value qua assessee herein u/s. 292C of the Act and can only bind the person from whose possession those documents are found; 1.4 That on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in sustaining the order passed by the AO us. 147/143(3) without appreciating that on the date when reasons were recorded (07/03/2016) reliance placed in reasons recorded on AO and CIT(A) orders in case of Mr. Jain invalidates the entire foundation (sublato fundamento cadit opus) as those orders were quashed and set aside by ITAT Delhi bench order dated 3.2.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that while making addition U/S 68 Ld AO has not issued required show cause notice nor Ld AO has considered detailed reply filed by the assessee; 2.6 That on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that while making addition u/s 68 position of net worth of companies is suitably ignored; 2.7 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that none of evidence filed by assessee is overruled In accordance with law 3. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in not restoring the returned income declared by assessee in its return of income. 4. That on the facts and in the circumstances of the case and in law, ld CIT-A erred In not deleting the addition made by Ld AO which was also unlawful and made in violation of principles of natural justice. That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal. 2. The brief facts of the case are that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has shown receipt of share application money amounting to Rs. 26,30,000/- during the year under consideration. The AO observed that Rs. 25 lacs has been found credited in the books of accounts of the assessee. The immediate source of this amount has been found to be received from one of the entities controlled by Jain Brothers. Accordingly, the AO held that Rs. 25 lacs credited in the books of account of the assessee fails to pass the test of genuineness within the meaning of Section 68 of the Act and held to be the income of the assessee u/s. 68 of the Act and was added to the income of the assessee and also Rs. 45,000/- was added for arranging such accommodation entry necessary entails payment of commission to entry providers, vide order dated 31.10.2016 and assessed the income of the assessee at Rs. 25,37,950/- u/s. 147(143(3) of the I.T. Act, 1961. Against the assessment order, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 26.3.2018 has dismissed the appeal of the assessee. 3. Apropos validity of the reopening action u/s 148 of the Act made by AO, Ld. AR submitted that same is invalid being mechanical and based on borrowed satisfaction onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in case of Madhusudan Packaging order dated 09/05/2018 4.1 On the other hand, Ld. Sr. DR referring to material shared by investigation wing as extracted and narrated in detail that orders of AO and Ld CIT(A) are justified and placed reliance on the following decisions: i) Hon'ble Delhi high court decision in case of N.Tarika Properties Pvt Ltd (28/11/2013); ii) Hon'ble Delhi high court decision in case of Nipun Builders and Developers Pvt Ltd (07/01/2013); iii) Hon'ble Delhi high court decision in case of Nova Promoters and Finlease Pvt Ltd (15/02/2012) 4.1.1 Finally Ld Sr. DR requested and pleaded for dismissal of assesse's appeal and confirmation of action of addition made u/s 68 of the Act by AO as sustained by Ld. CIT(A). 5. I have heard both the parties and perused the records especially the impugned order as well as the Paper Books and the decisions referred by both the sides. Before giving my opinion on the important legal issue raised u/s 68 of the Act, for sake of convenience, the important issue which requires the adjudication by this Tribunal is framed as: Whether once assessee places before Ld AO all the relevant and best documents in its possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 68 of the Act, it is the duty of AO to dispassionately consider the same with objective standards and not to make the additions simply reproducing at length from the internal report of investigation wing prepared at the time of search (here on Jain Brothers). That is AO cannot make addition u/s 68 on mere basis of ifs and buts only and some credible incriminating material must be brought on records to displace the detailed evidence filed by the assessee during assessment proceedings. That is if reopening u/s 148 and addition u/s 68 are allowed to be made on same subjective standards of prima-facie opinion only which are generally required to reopen/start the case, and additions are allowed to be made without any credible material which can validly counter assessee's evidences in my view same would totally frustrate the entire object/scheme of the law. In my view, AO is under a bounden legal duty to discharge his secondary burden u/s 68 of the Act before making any addition therein, where in present case as evident from facts noted above, only ground made is non production of director concerned which is plainly incorrect. For this reliance is placed on decisions which are nar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order dated 10.02.2016 of the Income Tax Appellate Tribunal (ITAT) which confirmed the Commissioner of Income Tax (Appeals)'s order [hereafter "CIT(A)"]. The CIT(A) had ruled in favor of the assessee, i.e. the additions under Section 68 of the Income Tax Act, 1961 [hereafter "the Act"] were unwarranted. It is urged on behalf of the revenue that the AO's order, adding the amounts under Section 68 of the Act was justified in the circumstances. Learned counsel emphasized that to prove the identity, genuineness of the transaction and the creditworthiness of share applicants, it was essential for the assessee to produce the Directors as well as the source of funds of the share applicants since in the absence of these materials, the assessee could not claim to be aggrieved by the addition. This Court has considered the concurrent order of 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 the share applicants too had been provided. In the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be said to be plausible or is it so perverse as to require interference by the Court? A perusal of the order of the AO shows that its foundation is the report of the DIT (Investigation). Admittedly, the Assessee was not confronted with that material in the course of the reassessment proceedings. The Assessee was also not confronted with the statements recorded in the course of the investigation. Once that material is kept aside then the scope of enquiry can only be whether the Assessee has produced documents to discharge the initial onus of proving the genuineness and creditworthiness of the companies who were stated to have subscribed to the Assessee's shares. It is not in dispute that extensive material was produced by the Assessee in the present case to prove the identity, genuineness and creditworthiness of the companies who had subscribed to its shares. Among the materials produced were the Income Tax Returns and the PAN card details of the eight companies. Even if the Directors of these companies did not respond to the summons issued by the AO, it was not impossible for the AO to make proper enquiries to ascertain the genuineness of these entities and satisfy himself of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case. 7] Considering the above, no substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was made aware of the situation. I observe from the records placed before me that the Assessing Officer has not disputed the bank accounts and the payments that were made to the assessee by the applicant companies. Nowhere in the assessment order the Assessing Officer has brought into existence any material to show that the company Victory Software P. Ltd. is a non-existing and a fictitious entity. It is, therefore, incorrect to arrive at a conclusion that the money received by the assessee by way of share application from Victory Software is bogus. Merely because the name of one Shri Sukesh Gupta appears as a mediator in the annexure, it cannot be concluded that Sukesh Gupta had facilitated so called bogus transaction between the assessee and M/s Victory Software P. Ltd. The Assessing Officer has not issued any summons u/s 131 of the Act, to Sukesh Gupta to ascertain whether he was involved in the so called bogus transaction. From the above discussion, I arrived at a conclusion that the Assessing Officer could not establish that the share application money received by the assessee from M/s Victory Software P. Ltd. are bogus. I also hold that the assessee has discharged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount by way of RTGS. k) Banks certificate certifying the receipt of the amount through Banking channels." On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art from mere suspicion as well as establishing perversity both on facts and in law in rendering their decision? and (iii) Whether the Appellate Tribunal is correct in law in sustaining the assessment of share capital contributions as the income of the appellant company on the application of the deeming provisions in Section 68/69 of the Act even though there was no legal mandate for the appellant company to establish/prove the 'source for source' ?" 13. Before proceeding further, it is only appropriate to refer the contents of Section 68 of the Act. It reads as under........ 14. It is clear from the above provision that burden, initially, is cast upon the assessee to offer an explanation about the nature and source of the money found credited in its books of account and if that explanation is not satisfactory in the opinion of the Assessing Officer, the sum so credited be charged as the income for the previous year. Similarly, if the assessee is a company and the sum is credited, consisting of share application money or share capital or share premium or any such amount, the assessee is required to offer satisfactory explanation about the nature and source of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utomatically. 17. More importantly, the Supreme Court, in Daulat Ram, has laid down the following principle, which has a direct bearing upon the controversy at issue and it reads as under: "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent firm even though the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to trace the source and origin of the amount and find out its ultimate destination....." (Emphasis is mine) 18. Similarly, in the case of CIT, Orissa Vs. Orissa Corporation P. Ltd. [reported in (1986) Vol.159 ITR 78], the Supreme Court has held as under: "To what extent the assessee had an obligation to discharge the burden of proving that these were genuine incomes has been considered by this court in Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288. This court was concerned there with the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court has clearly explained the point of approach to be followed both by the assessee and the Department, in the context of Section 68 of the Act, in the following words: "It is no doubt true that in all cases, in which, a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee [Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536]. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee viz. the receipt of money and if he fails to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote of the crisply worded order of the Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. [reported in (2008) 216 CTR 195 (SC)], which runs as follows : "Can the amount of share money be regarded as undisclosed income under Section 68 of IT Act, 1961 ? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law." 41. However, the main theme, upon which, the Assessing Officer as well as the Tribunal proceeded to discredit the investors of the assessee is completely erroneous. They are both looking for proof beyond doubt. They are proceeding on an element of suspicion that the amounts of investments are really those of the assessee, which have been ploughed back by the assessee, whereas the settled principle of law is that any amount of suspicion, however strong it might be as well, is no substitute for proof. Suspicion is not sufficient enough to lead to a conclusion that the investments received by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition, which was overturned by Ld. CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax 353 ITR 171 wherein the Tribunal's decision was overturned and decision of Ld. CIT(A) upheld and the Hon'ble High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows: "8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Incometax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. " 11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Hon'ble Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X
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