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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 ..... justify adverse inference u/s 68 of the Act. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held by Hon’ble High Court in CIT vs DATAWARE (2011 (9) TMI 175 - CALCUTTA HIGH COURT) which has not been done, so no adverse view could have been drawn. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee and in my view it cannot be brushed aside by the AO to draw the adverse view which here in present facts cannot be countenanced. Therefore addition made by AO and sustained by Ld CIT(A) are hereby deleted. - Decided in favour of assessee. - ITA No. 3133/Del/2018 - - - Dated:- 25-6-2018 - SHRI H.S. SIDHU, JUDICIAL MEMBER For The Assessee : Sh. Kapil Goel, Adv. For The Revenue : Ms. Ashima Neb, Sr. DR. ORDER The Assessee has filed this Appeal against the Order dated 26.3.2018 of the Ld. CIT(A)-22, New Delhi relating to assessment year 2009-10 on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by AO u/s. 147/143(3) without appreciating that AO issued notice with questionnaire u/s. 142(1) and Section 143(2) on 1.6.2016 when reasons were supplied only on 1.6.2016 which vitiates the entire exercise being done in undue hurry and haste; 2. 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 147/43(3) without appreciating that on basis of surfeit and inundated evidences on records burden uls 68 lying on assessee has been fully discharged and met so addition made by Ld AO (Rs 25,00,000 ₹ 45,000) and confirmed by CIT-A in impugned order deserves to be deleted. 2.1 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 there is no basis of any of the addition of (Rs. 25,00,000 ₹ 45,000). 2.2 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 all the additions made are without bringing legally admissible document; 2.3 That on the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation-II), New Delhi vide letter dated 12.3.2013 mentioning therein that a search operation was carried out in the case of Surendera Kumar Jain group of cases therein after known as Entry Operator wherein after intensive and extensive enquiry and examination of documents seized during the course of search it has been noticed that the said group is involved in providing accommodation entries to the persons which were named in the report. The assessee company also figures in the list as one of the beneficiaries of the accommodation entries. On the basis of material available on record and reasons recorded in writing, Notice u/s 148 of the Act dated 10/03/2016 was issued by the Assessing Officer. In response to the same, the assessee vide letter dated 18.4.2016 requested that the original return filed on 30.9.2009 may be treated as return filed in response to notice u/s. 148 of the Act and requested to supply copy of reasons recorded for reopening of the assessee. A copy of the reasons recorded was supplied to the assessee alongwith notice dated 01.6.2016 u/s. 142(1) of the Act. The assessee filed its objections to the initiation of proceedings u/s. 147 of the Act vide its lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h court Sabh Infrastructure 398 ITR 198 3.1 It was specifically pleaded that merely reopening on basis of directions of Investigation Wing cannot justify the reopening action made u/s 148 of the Act which requires independent application of mind. Further it was highlighted with reference to reasons that one major weakness in reasons is no where statement of searched persons is brought on records qua seized papers which vitiate the entire exercise. Moreover only one sided version of investigation wing on seized material that too which is not found from assessee s possession is submitted that it cannot be made as valid basis to infer income escaping assessment u/s 148 of the Act. Countering this, Ld. Sr. DR. opposed strongly contentions and stated that reopening made is perfectly in order and she relied on following case laws: i) Hon ble Delhi High Court in Paramount Communications 250 Taxmann 100; ii) Hon ble Supreme court in Raymond Woollen Silk Mills 236 ITR 34; iii) Hon ble Delhi high court in AGR Investments order dated 7/11/2011; 4. On merits of the case and on issue of addition u/s 68 of the Act, Ld. AR relying upon the following decisions and argued that merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all important and crucial documents are filed by assessee to prove its case qua share capital received u/s 68 of the Act, then simply harping on non production of director in person before the AO cannot be justified ground to draw adverse inference without adequate discharge of secondary burden lying on AO u/s 68 of the Act. Burden u/s 68 of the Act as it is settled law keeps shifting. 5.1 Particularly once reopening u/s 148 of the Act is resorted being extra-ordinary jurisdiction, on the basis of aforesaid apprehension and charge of accommodation entry u/s 68 of the Act for share capital received, firstly in my view AO should discharge the crucial and critical burden u/s 148 of the Act to bring home the material that income has escaped assessment without which assessee cannot be asked to prove negative. For this reference may be made to sagacious observations of Hon ble Delhi high court in Pardeep Gupta case 303 ITR 95. If this primary burden u/s 148 lying on AO remains un-discharged then in my considered opinion entire proceedings shall crumble (refer latin maxim sublato fundamento cadit opus meaning once foundation fails super structure falls). In present case AO till end ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the horse and cannot pass the final assessment order just reproducing from investigation wing report which are made basis to reopen the case. The fact that present order is passed on mere basis of borrowed satisfaction only is evident if one compares the reasons recorded, show cause notice issued and final order as impugned before this Tribunal. At all three stages same and similar allegations are made dehors the evidences filed by assesssee. 5.3 Turning back to facts of present case, I find from paper book running into 84 pages all the relevant and necessary documents required to establish the subject transaction of share capital received are brought on records before AO and Ld CIT(A) and have totally remained uncontroverted. Specially the fact of positive response made by share holder in response to enquiry made u/s 131 and confirmation of subject investment therein by share holder to AO clinches the issue in favor of assessee. Moreover the share holder company having handsome net worth and assessed u/s 153C/153A for subject period also supports assessee s case. Further AO has remained sited with folded hands and has not made any independent enquiry from concerned AO of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings of fact. The assessee has, in our opinion, complied with the law spelt out by the Supreme Court in CIT v. Lovely Exports Pvt. Ltd. 216 CTR (SC) 195. The appeal is meritless and is consequently dismissed. - Hon ble Delhi High Court decision in case of Rakam Money Matters Pvt. Ltd., order dated 13.10.2015 (ITA no. 778/2015) Relevant Extract: The question sought to be urged before the Court by the Revenue is whether the ITAT was correct in law in affirming the order of Commissioner of Income Tax (Appeals) [ CIT (A) ] deleting the addition in the sum of ₹ 60,00,000/- made by the Assessing Officer ( AO ) to the income of the Assessee under Section 68 of the Act pertaining to share application/capital money received by the Assessee. The AO issued notices to the Directors of the aforementioned companies but none of them appeared. The AO was of the view that the fact that money had been received through banking channels was not in itself sufficient to prove the genuineness of the creditors or their credit worthiness. The AO noted that the balance in the respective bank accounts of the companies demonstrated a common pattern where the balance would be ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO failed to come up with the material to disprove what had been produced by the Assessee is certainly aplausible view in the facts and circumstances of the case. Likewise, the view taken by the ITAT concurring with the CIT(A) on facts cannot be said to be perverse. As far as the broad principles governing the law under Section 68 of the Act is concerned, the Court is satisfied that the order of the CIT(A) as confirmed by the ITAT suffers from no legal infirmity. No substantial question of law arises. - Hon ble Bombay High Court decision in case of M/s Orchid Industries Pvt. Ltd., order dated 05.07.2017 (ITA no. 1433/2014) 397 ITR 136 Relevant Extract: 3] The learned counsel for the Assessee supports the order and submits that the Assessee had discharged its onus. The Assesse had produced the PAN of all the creditors along with the confirmation, Bank Statement showing payment of share application money and relevant record is produced with regard to the allotment of shares to those parties. The share application form, allotment letter, share certificate are also produced. Even the balance-sheet, profit and loss account, the books of account of these credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined any share application money from the alleged Shri S.K. Jain Group. The ld. Assessing Officer, however, has alleged that the company by the name Victory Software Pvt. Ltd. is one of the group companies of Shri S.K. Jain and it is pertinent to note that the ld. Assessing Officer has not brought out materials on record to establish the same. It is further observed that the assessee has received the share application money from its applicant being Victory Software P. Ltd. by proper banking channels. The assessee has further submitted all the details regarding the applicants including PAN numbers, board resolution, copy of the bank statements, incorporation certificates, memorandum and articles of association and the acknowledgement of IT returns filed by the applicants. The ld. Assessing Officer had issued summons to the company by the name Victory Software P. Ltd. which was received back from the postal authorities with remark Refused . This does not mean that there was nobody who was present at the said address and further it cannot be inferred that the company is merely existing on papers. The assessee counsel placed reliance on the judgment of the Hon ble Jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove that the receipt of money by the assessee from M/s Victory Software P. Ltd. is accommodation entries from the entry operator S.K. Jain Group. In the above circumstances, I allow grounds filed by the assessee and held that reopening by the Assessing Officer was met valid. - Hon ble Bombay High Court at Goa Bench in case of M/s Paradise Inland Shipping Pvt. Ltd., order dated 10.04.2017 (Tax Appeal no. 66/2016) 400 ITR 439 (Bom): (SLP dismissed by Hon ble Apex court) Relevant Extract: We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the shareholders who have invested in the shares of the Respondents are fictitious or not. In this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus : The assessment is completed without rebutting the 550 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocumentary evidence on record cannot be said to be perverse. This Court in the Judgments relied upon by the learned Counsel appearing for the Respondents, have come to the conclusion that once the Assessee has produced documentary evidence to establish the existence of such Companies, the burden would shift on the Revenue-Appellants herein to establish their case. In the present case, the Appellants are seeking to rely upon the statements recorded of two persons who have admittedly not been subjected to cross examination. In such circumstances, the question of remanding the matter for re-examination of such persons, would not at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. - Further that law relating to section 68 is succinctly analyzed with great clarity in recent decision of Madras high court in case of Lalitha Jewellery wherein entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aulat Ram Rawatmull [reported in (1973) Vol.87 ITR 349], it has been set out therein as under: Before dealing with the facts of this case, we may advert to the principles which should govern the decisions of the court in such like cases. Findings on questions of pure fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this is so, even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding can be reviewed only on the ground that there is no evidence to support it or that it is perverse. Further, when a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole [Sree Meenakshi Mills Ltd. Vs. Commissioner of Income- Tax [1957] 31 ITR 28 : [1956] SCR 691 (SC)]. 16. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion by considering material which is irrelevant to the enquiry, or acts on material, partly relevant and partly irrelevant, and it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises, whether the finding of the court is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises, nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures and surmises. In that case, the so-called hundi racket in which the assessee was alleged to have been involved was not proved. That was only a suspicion of the Revenue. 19. It would also be appropriate to notice the observation of the Supreme Court in the case of Orissa Corporation P.Ltd., at page 83, as under : In Sreelekha Banerjee Vs. CIT [1963] 49 ITR 112, this Court held that if there was an ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of CIT Vs. Stellar Investment Ltd., [reported in 192 ITR 2870, has pointed out the approach to be adopted in this type of matters, as under : It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. 22. The above view on the point of approach to the subject has been approved by the Hon ble Supreme Court in CIT Vs. Stellar Investment Ltd., on 20.7.2000, in Civil Appeal No.7968 of 1996. 23. Applying the legal principles noticed supra, let us examine as to how the issue has been handled by the Assessing Officer at the first instance. By the above observation of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legal principle enunciated by the Hon ble Supreme Court, as noticed supra by us, is that so long as the proof and identity of the investor and the payment received from him is through a doubtless channel like that of a banking channel, the receipt in the hands of the assessee towards share capital or share premium does not change its colour. The money so invested in the assessee company would still be the money available and belonging to the investors. The consistent principle followed is that the investors sources and credit worthiness cannot be explained by the assessee. If the Department has a doubt about the genuineness of the investors capacity, it is open to it to proceed against those investors. Without taking such a course of action, the Assessing Officer and the Tribunal are proceeding on conjectures that the assessee has, in fact, ploughed back the money. The very approach of the Assessing Officer and the Tribunal are completely opposed to settled legal principles enunciated and they have arrived at conclusions contrary to the legal principles on the subject. Further, they are finding fault with the assessee for the alleged failure of it's investors in proving beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). 9. In this connection, he has drawn our attention to a decision of the Hon ble Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that 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. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. I restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 5.5 When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the OMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN numb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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