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TMI Blog2019 (3) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. - In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company – Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Name of the shareholder Amount (A)Mumbai Based Companies 1. Clifton Securities Pvt. Ltd. 95,00,000 2. Lexus Infotech Ltd. 95,00,000 3. Nicco Securities Pvt. Ltd. 95,00,000 4. Real Gold Trading Company Pvt. Ltd. 90,00,000 5. Hema Trading Company Pvt. Ltd. 95,00,000 6. Eternity Multi-trade Pvt. Ltd. 90,00,000 (B)Kolkata Based Companies 1. Neha Cassettes Pvt. Ltd. 90,00,000 2. Warner Multimedia Ltd. 95,00,000 3. Gopikar Supply Pvt. Ltd. 90,00,000 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and genuineness of the transaction. It was submitted that, there was no cause to take recourse to Section 68 of the Act, and that the onus on the Assessee Company stood fully discharged. 3.7. The AO had issued summons to the representatives of the investor companies. Despite the summons having been served, nobody appeared on behalf of any of the investor companies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies. 3.8. The AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of the transaction. Enquiries were made at Mumbai, Kolkatta, and Guwahati where these Companies were stated to be situated. The result of the enquiry is summarised by the A.O. in his Order as under :- S. No. Name of Investor Company AO s Enquiries Amounts invested Tax returns filed 1. Clifton Securities Pvt. Ltd.- Mumbai Notice Served on 29.11.2011 at the given address but no reply rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 45,00,000/- Ch. No. 000083 dt. 21.10.2008 drawn on Kotak Mahindra Bank. The Company had shown Nil income for A.Y. 2009-10. Rs. 95,00,000 invested on 21.10.2008 Returned income Rs. Nil 9. Gopikar Supply Pvt. Ltd. Kolkatta A submission on 15.12.2011 through dak was received wherein it was submitted, that the company had applied for 45,000 equity shares of ₹ 10/- of NRA Iron and Steel Pvt. Ltd. each at a premium of ₹ 190/- each. The Company had not Rs. 90,00,000 invested on 21.10.2008 Return income ₹ 28,387 given any reason for paying such a high premium. (50,00,000/- Ch. No. 000040 dt. 21.10.2008 ₹ 40,00,000/- Ch. No. 000039 dt. 21.10.2008 drawn on Kotak Mahindra Bank. The Company had shown income of ₹ 28,387/- for A.Y. 2009-10. 10. Ganga Builders Ltd. Kolkatta It was submitted, that the company had applied for shares of NRA Iron and Steel Pvt.Ltd. However, they had not specified how many shares, and at what premium they had purchased. The Company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company had not given any reason for paying such a high premium. (50,00,000/- Ch. No. 121824 dt. 18.11.2008 ₹ 45,00,000/- Ch. No. 121825 dt. 18.11.2008 drawn on Deutsche Bank. The Company had shown income of ₹ 10,480/- for A.Y. 2009-10 Rs. 95,00,000 invested on 18.11.2008 Return income ₹ 10480 15 Natraj Vinimay Pvt. Ltd. Kolkatta It was submitted, that the company had applied for 41,500 equity shares of ₹ 10/- of NRA Iron and Steel Pvt. Ltd. each at a premium of ₹ 190/- each. The Company had not given any reason for paying such a high premium. (50,00,000/- Ch. No. 000098 dt. 19.11.2008 ₹ 45,00,000/- Ch. No. 000009 dt. 19.11.2008 drawn on Kotak Mahindra Bank. The Company had shown income of ₹ 42,083/- for A.Y. 2009-10 Rs. 95,00,000 invested on 19.11.2008 Return income ₹ 42083 16 Neelkanth Commoditie s Pvt. Ltd. Kolkatta It was submitted, that the company had applied for 47,500 equity shares of ₹ 10/- of NRA Iron and Steel Pvt. Ltd. each at a premium of ₹ 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king such a huge investment in the shares, even though they were declaring a very meagre income in their returns; iv. None of the investor-companies appeared before the A.O., but merely sent a written response through dak. The AO held that the Assessee had failed to discharge the onus by cogent evidence either of the credit worthiness of the so-called investor-companies, or genuineness of the transaction. As a consequence, the amount of ₹ 17,60,00,000/- was added back to the total income of the Assessee for the assessment year in question. 4. The Respondent Company Assessee filed an Appeal before the Commissioner of Income Tax (Appeals)-I, New Delhi. Reliance was placed on the decision of the Delhi High Court in CIT v. Lovely Exports Pvt. Ltd (2008) 299 ITR 268 (Delhi). wherein it was held that : In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable cannels; (3) the creditworthiness or financial strength of the creditor/subscribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable in six weeks. After service was effected on the Respondent Company Assessee, the matter was listed on 02.01.2019. However, none appeared on behalf of the Respondent Company Assessee. Consequently, the matter was adjourned for two weeks, and posted on 18.01.2019, when it was ordered that in case the Respondent Company Assessee chooses not to enter appearance, the matter would be disposed of ex-parte. The matter was thereafter listed again on 23.01.2019, when the following Order was passed: Notice was issued in the matter on 12.11.2018, Office report dated 22.12.2018 indicated that notice was served upon the sole Respondent but none had entered appearance. By order dated 02.01.2019, last opportunity was given to the Respondent and it was indicated that if the Respondent chose not to enter appearance, the matter would be disposed of ex-parte. Even then none has entered appearance. Having gone through the matter, we give one more opportunity to the Respondent to enter appearance and make submissions with respect to the merits of the matter. If the Respondent still chooses not to appear, the matter shall definitely be decided ex-parte. The Respondent C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income is from any particular source. 8.3. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee s knowledge. The Delhi High Court in CIT v. Oasis Hospitalities Pvt. Ltd. 333 ITR 119 (Delhi)(2011), held that : The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise. It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. In Shankar Ghosh v. ITO [1985] 23 TTJ (Cal.), the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The loan amount was rightly held to be the assessee s own undisclosed income. 8.4. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. (emphasis supplied) iii. The Delhi High Court in a recent judgment delivered in PR.CIT -6, New Delhi v. NDR Promoters Pvt. Ltd. 410 ITR 379 upheld the additions made by the Assessing Officer on account of introducing bogus share capital into the assessee company on the facts of the case. iv. The Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 12. In the present case, the A.O. had conducted detailed enquiry which revealed that : i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. For example: a. The companies Hema Trading Co. Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 15. On the facts of the present case, clearly the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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