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TMI Blog2019 (7) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... a huge investment in the assessee company. CIT A has not even looked at the fact that what the assessee company is doing and what is the reason that nine companies operated by one person, comes together, and invest ₹ 70,00,000/- in the assessee company as share capital, in short span of time, which does not have any chance of return or earning huge dividend. All these facts considered in one compass clearly show that the identity of the creditors, creditworthiness of those creditors and genuineness of the transaction is just a make-believe story. AO is correct in making an addition u/s 68 representing unexplained share capital and consequent addition of the commission thereon. - Decided in favour of revenue - ITA NO 6460/DEL/2015 - - - Dated:- 15-7-2019 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Appellant : Shri PV Gupta Senior departmental representative For the Respondent : None ORDER PER PRASHANT MAHARISHI, ACCOUNTANT MEMBER:- 1. Learned Income Tax Officer Ward 1 (1), New Delhi (the learned AO ) has pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agent was found to be Mr. Satish Goel. Thus, it was apparent that Assessee Company was found to be one of the beneficiaries who have obtained the accommodation entry. 5. Therefore, the proceedings under section 147 read with section 148 were initiated. The assessee was issued notice u/s 148 of the income tax act on 28/3/2013. The assessee responded vide letter dated 30/4/2013 stating that original return filed by it on 29/11/2006 may be considered as the return of income filed in response to the notice for reopening of the assessment. Consequently, the reassessment proceedings begin and the assessee was provided with the copies of the reasons recorded 02/05/2013. Subsequently the notice u/s 142 (1) and 143 (2) was also issued. Despite repeated opportunities, none appeared for many opportunities granted by the AO. Subsequently on 9/1/2014, the authorised representative of the assessee appeared and raised objection against the reopening proceedings under section 147 of the income tax act. Such objections were disposed of by the learned assessing officer on 5/2/2014. 6. Subsequently the assessee was also given several opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussion of facts and considering the provisions of section 68 of the income tax act along with various judicial precedents of several high courts and honourable Supreme Court, he made the addition of INR 7,000,000 as unexplained cash credit under section 68 of the income tax act. He further held that during the course of enquiries conducted by the investigation wing of the department it was found that most of the entry operators are charging commission at the rate of 1.75 percentage for giving accommodation entry and therefore he further made an addition of INR 1 22500/ towards the unexplained expenditure on commission. Accordingly he determined the taxable income of the assessee at INR 7102199/ against the returned loss of INR 19801/ as per order passed u/s 147 read with section 143 (3) of the income tax act on 28/3/2014. 7. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT A, who passed an order dated 14/11/2014. The assessee objected the proceedings u/s 148 of the income tax act before the learned CIT A and on this ground the learned CIT A upheld the order of the learned assessing officer hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore submitted that in this case the addition deserves to be upheld and the order of the learned CIT A deserves to be vacated and the order of the learned assessing officer may be restored. 10. We have carefully considered the contention and perused the orders of the lower authorities. In the present, case apparently assessee obtained share capital from nine different companies through 14 transactions of INR 500,000 each between December 2005 to February 2006 through Mr. satish Goel through accommodation entry provider Shri SK Jain and VK Jain. The information was received during the course of search and seizure proceedings where the name of the assessee and the complete details of the whole transaction were found. It is apparent that had these companies through whom the assessee has obtained share application money, were not belonging to, or operated by Mr. SK Jain of VK Jain then this information would not have been unearthed from the premises of Sri VK Jain and Shri SK Jain. Therefore, the case of the assessee was reopened and assessee was asked to produce the relevant information to prove the identity, creditworthiness, and genuineness of the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer could not have done anything more than what he has done. 11. The learned CIT A has deleted the above addition merely on the basis of the information submitted by the assessee, in the form of complete name and address of share applicants, confirmation of share applicants, certificate of incorporation and memorandum and articles of Association of the companies, copies of income tax return acknowledgement of the shareholders, copies of the bank statement of the shareholders reflecting the investments made in appellant company, copies of audited statement of the accounts of investor companies duly reflecting the investment made by them in the share capital of the company. The learned CIT A did not give any answer to the nonexistence of the above creditors, shareholders at the given address as well as non-production of the directors of these companies before the assessing officer to verify the creditworthiness of those companies. There is no whisper in the order of the learned CIT A about genuineness of the transactions. He has merely considered the submission made by the assessee that all these companies are having huge net worth. He failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the assessee in connivance with the accommodation entry operator who sent this confirmations under section 133 (6) of the act when the report of the inspector categorically says that they do not exist at the given address. The learned CIT A further conveniently held that the order of the honourable Delhi High Court in case of Nipun builders and developers private limited does not apply to the facts of the case as in that particular case it was found that no such companies exist by the Post authorities. Apparently, in this case it is the report of the inspector himself that said that no such companies are existing thereon at the addresses given. Therefore, according to us the learned CIT A distinguished the decision of the honourable Delhi High Court on flimsy ground, which is not acceptable. 12. The learned departmental representative has heavily relied on the decision of the honourable Supreme Court in case of Commissioner of income tax vs NRA iron and steel Co Ltd [2019] 103 taxmann.com 48 (SC)/[2019] 262 Taxman 74 (SC)/[2019] 412 ITR 161 (SC). It is interesting to note the history of the above decision of the honourable Supreme Court. The earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has thus been discharged. The assessee relied upon the decision of the Delhi High Court in the case of CIT vs. Steller Investment Ltd., (1991) 192 ITR 287 (Del.) in which it was held that any increased capital is not assessable in the hands of the assessee which has been confirmed by the Hon'ble Supreme Court in the case of CIT vs. Steller Investment Ltd., (2001) 251 ITR 263 (SC). The assessee also relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195 in which it was held that if the share application money is received by the assessee-company from alleged bogus share holders whose names are given to the A.O, then the Department is free to proceed to reopen their individual assessments in accordance with law . The assessee relied upon several decisions in support of the contention. The A.O. however, did not accept the contention of the assessee on the basis of the enquiries conducted by him. It was found that existence of investment companies and genuineness of the transactions has not been proved. The A.O. noted that as regards Mumbai based Companies, some notices were served and some cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs. From the said report it transpires that the business premises of the appellant actually belonged to M/s Bhushan Steel Ltd. and several other companies were having their registered offices in the same premises. This led to the suspicion that these companies were paper companies. During further verification of the identity of the shareholders in Mumbai, some summons were served but parties did not respond. In Guwahati, both parties were not found at the given address. In Kolkata, all 11 parties responded by post but no one appeared. 3.4. There is no law that more than one company cannot have its registered office at one address. There is no law that companies cannot change their registered office. Several companies can have the same registered office. Businesses raise capital and such capital is rotated in economy for increasing production and trade and for making more efficient use of capital. Companies change hands, sometimes in quick succession. This is the normal formation of capital in any open economy and the process of capital formation cannot be taken to be representing only unaccounted funds or impeded. All the companies having registered office at tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablished during their respective assessment proceedings including in the case of the present assessee-company as per the findings of the Ld. CIT(A). Ld. CIT(A) also found that no evidence was found during the course of survey to indicate introduction of unaccounted cash/funds in the form of share capital in these companies. These findings of fact recorded by the Ld. CIT(A) have not been rebutted through any evidence or material on record. No evidence has been brought on record that money so invested in assessee-company came from coffers of assessee-company. All objections of A.O. have been considered by Ld. CIT(A) and various case law referred to above support the findings of Ld. CIT(A) that addition has been correctly deleted. 20. The Ld. D.R. relied upon the decision of various Hon'ble High Courts and Delhi High Court referred to above. In these cases, the gist of the findings are that the assessee failed either to prove the identity or capacity of the subscriber companies or that the amount was received as accommodation entries. However, the assessee- company, in the present case, has been able to prove the identity of the investors, creditworthiness and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found at the given address. In Kolkata, all 11 parties responded by post but no one appeared. 3.4. There is no law that more than one company cannot have its registered of me at one address. There is no law that companies cannot change their registered office. Several companies can have the same registered office. Businesses raise capital and such capital is rotated in economy for increasing is the normal formation of capital in any open economy and the process of capital formation cannot be taken to be representing only unaccounted finds or impeded. All the companies having registered office at that premises undisputedly belonged to Bhushan Group. The sources of capital introduced in these - companies were established during the respective assessment proceedings, including in the case of this appellant company. No evidence was found during the search to indicate introduction of unaccounted cash/finds in the form of share capital in these companies. Therefore, the conclusion based on the facts relied upon by the revenue that the share capital introduced in the companies belonging to Bhushan Group, including the appellant company, are unexplained, is at best prematu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assesse, and there would be no further burden on the revenue to show that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, vis., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably ii. In CIT v. P. Mohankala, 291 ITR 278, this Court held that: A bare reading of section 68 of the Income-tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, credit-worthiness of the recipient, object and purpose for which payment/investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. vii. Other cases where the issue of share application money received by an assessee was examined in the context of Section 68 are CIT v. Divine Leasing Financing Ltd., (2007) 158 Taxman 440, and CIT v. Value Capital Service (P.) Ltd., [2008]307 ITR 334. 11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shares worth ₹ 95,00,000 in the Assessee Company - Respondent. Another example is of Ganga Builders Ltd. - Kolkatta which had filed a return for ₹ 5,850 but invested in shares to the tune of ₹ 90,00,000 in the Assessee Company - Respondent, etc. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of ₹ 190 per share, even though the face value of the share was ₹ 10/- per share. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act. 13. 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 discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t return to these companies. Further, it is conclusively found that information of the investment by the shareholders was unearthed during the course of search on Shri SK Jain. The assessee being private limited company should be in the know of things of the investors when they have made such a huge investment in the assessee company. The learned CIT A has not even looked at the fact that what the assessee company is doing and what is the reason that nine companies operated by one person, comes together, and invest ₹ 70,00,000/- in the assessee company as share capital, in short span of time, which does not have any chance of return or earning huge dividend. All these facts considered in one compass clearly show that the identity of the creditors, creditworthiness of those creditors and genuineness of the transaction is just a make-believe story. In the result, we hold that the learned assessing officer is correct in making an addition u/s 68 of the income tax act of INR 7,000,000/- representing unexplained share capital and consequent addition of INR 1 22500/ of the commission thereon. Accordingly we reverse the order of the learned CIT A and allow ground number 1 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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