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TMI Blog2017 (6) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... s the circuitous route of round tripping is completed. We come to understand the modus operandi is to sell these companies having huge share capital and investments, to persons who have unaccounted money, by transfer of the shares at a nominal amount. The shares in these companies are sold at a ridiculously low value and consequently the management and control of this company is transferred. The purchasers of shares of the companies thereafter, show bogus sale of the investments held by such company to third parties through a chain of transactions, by way of layering and bring in their unaccounted money into that company. Such practices have to be depreciated. In such cases the assessees cannot claim that the entire transactions are bogus transactions and hence the provisions of law will not apply and no addition can be made u/s 68. We dismiss this argument as devoid of merit. CIT(A) was wrong in concluding that Section 68 does not apply as the transaction is a fraudulent transaction and as it is a sham transaction. He was also in error in holding that the assessee has discharged the onus that lay on it. The genuineness of the transactions has not been proved by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 600000 60,00,000 59,40,00,000 60,00,00,000 19000000 19,00,00,000 188,10,00,000 190,00,00,000 Para 1.2.2. The assessee has shown subsequent investment against this huge receipt. There is nothing extraordinary that the receipt was utilized in investment with others. But the most extraordinary fact is that the assessee has shown its investment with the same companies with same denomination most interestingly through the same through the same cheque, details of which are given below in Table-2 : - Table 2 Particulars Of Investment during Asst. Year 2010-11 Date of Allotment : 22-06-2009 S.I. No. Particulars of the Company in which Investment was made No. of Share applied for Allotment received Amount of Share applied for Allotment received (Face Value: @ 10/-) Amount of Share Premium (Value : @ 990/-) Total Amount of Share applied for Allotment received (Total Value : @ 1,000/-) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suer. The modus operandi of the assessee company other three companies is to raise fictitious funds through book entry. The assessee other three companies raised their capital to the tune of ₹ 190,00,00,000/- each through this fictitious book entry. Para 1.6 Conclusion: - The above facts circumstances leads to a reasonable conclusion that the above arrangement were made by the assessee with other three companies. The idea of counterbalancing the capital raise by way of investment of similar nature does not sound novel or worth mentioning. The unique feature of the overall transactions lies in a different field and smacks of meticulous planning in order to throw dirt in the eyes of all and sundry. On a careful analysis of the data made threadbare in the discussion above, it is crystal clear that the labyrinth woven by the assessee company in convenience with the other three companies is nothing but a mare's nest. As is apparent from the record and as submitted by the assessee company itself, the said four cheques only made their ways between the interacting companies without ever being deposited in any bank A/c and ultimately reached back to the issuing company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty proceeding u/s 271(1)(c) is applicable in this issue and accordingly initiated. Accordingly, total income of the assessee for the Asst. Year 2010-11 is assessed calculated as under:- Total Returned Income : Rs. NIL Total Loss as per return : -668 Add: (i) Unexplained Cash Credit, as in Para 1.6 : 190,00,00,000.00 ----------------------------------- Total Assessed Income = ₹ 189,99,99,332.00 Rs.189,99,99,330.00 ----------------------------------- Tax on assessed income ₹ 189,99,99,330/-, as above : Rs.56,99,99,799.00 For Tax Computation, see separate sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant craves leave to adduce addition and / or supplementary ground / grounds and to amend and / or alter the ground / grounds any time before or at the time of hearing of the appeal. 7. The ld. Counsel for the Revenue, Mr. Goulen Hangshing, CIT, DR., submitted that Section 68 of the Act, applies on the facts and circumstances of the case, as the assessee has shown a credit in its books of account. He contended that the assessee received a cheque and after crediting the same in its books of account, endorsed it to a third party. The mode of utilisation of the credit, as per the ld. CIT, DR, is not relevant in the facts and circumstances of the case and what is to be seen is whether the three ingredients i.e. the identity, creditworthiness and genuineness of the credit transactions have been proved by the assessee. He took this Bench through the order of the ld. A.O. and submitted that circular transactions have been undertaken by the assessee at huge premium, without any justification. He pointed out to the cash balance available in the bank account of these companies on various dates, which are at table 5 of the assessment order and submitted that, against a balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties have confirmed the transaction. He further submitted that if it is the Revenue‟s case that the entire transactions are sham transactions, then the transactions should be ignored and no cognigence should be taken of the same and hence no addition can be made. He argued that no money whatsoever was received by any of the companies and it was a case of book building by exchange of share capital. He relied on the order of the ld. CIT(A) and argued that the same may be upheld as this is a case where no real income has accrued to the assessee. 9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record as well as of the order of the Authorities below and case laws cited, we hold as follows:- 9.1. Section 68 of the Act, reads as follows: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of sister concerns without actual inflow of cash. Here a valid cheque was received and credited in the books of account as valuable consideration for allotment of shares. 9.4.2. Similarly, in the case of ACIT vs. Mahendra Kumar Agarwal(supra), the Jaipur Bench of the Tribunal was considering a case of unexplained investment, where there were certain journal entries passed without any cash transactions. It was not a case where cheques have been issued. Thus, on facts this case law does not apply. 9.4.3. In the case of Jatia Investment Co. (supra), the facts were that entries were made in the books of account so as to comply with the directions of RBI given to NBFC‟s. These directions were in the public domain. The RBI had directed the three companies belonging to Jatia Group to maintain a particular ratio of loans to share capital and reserves. This required discharge of loans and through a transparent arrangement these three companies sold shares held by them in various other companies of Jatia Group and the consideration received through book entries were utilized for repayment of loans borrowed from a proprietary concerns of one of the partners. Under such circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued. Bank Balance are around ₹ 12,000/- Thus in our view the creditworthiness is not proved. As the genuineness of the transactions and the creditworthiness of the parties have not been proved, the addition has been correctly made u/s 68 of the Act by the A.O. 13. The last contention of the ld. Counsel for the assessee is that, if these credits as well as investments are sham, then no addition whatsoever can be made as these are not real transactions. He submits that when the A.O. gives a categorical finding that these are fictitious book entries, then logically no additions should be made. In our view, this argument has to be dismissed for the reason that credit entry has been made in the books of account consequent to receipt of cheques against which share capital has been allotted by the assesse company which, by the admission of the assessee, are legally valid transaction. The requirements of the Negotiable Instruments Act and the Companies Act are fulfilled in this case. Shares have been legally allotted. Amounts have been validly received by cheque. There is no violation of law. Thus, it cannot be said that these are fictitious or sham entries and no cognigence shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2000-2001, ITO vs. M/s. SBS Properties Finvest Pvt. Ltd., order dt. 30.05.2016, wherein one of us is the author of the decisions, has held as follows: 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 reason for charging high premium in the case of VPC Financial Services P Ltd. , Killa Financial Services Pvt. Ltd., Highyield Securities Pvt. Ltd. , Mehul Finvest Pvt. Ltd. and Synergy Finlease P. Ltd. and reason for not charging premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is a fortiori as the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 surrounding circumstances which include a huge premium i.e. four times of the face value of the shares, credit entries in the bank accounts before transfer of money to the assessee, failure of the companies to file details of the invento ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate 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 question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paper work though important may not be always c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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