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TMI Blog2019 (8) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... passed the ex-parte order without giving reasonable opportunity of hearing and violated the provisions of natural justice - We noted from the order of CIT(A) that he has issued notice to the assessee for compliance but it is clear from the order of CIT(A) that the assessee has not complied the notice issued by the CIT(A) even reasonable opportunity has been given to him. Therefore, the CIT(A) has contested the issue on the basis of material before him. Accordingly, the ground of assessee is also rejected. Proper approval has not been obtained from the appropriate authority before initiating the proceedings u/s.147/148 - we perused the copy of ITNS-10 which is placed at paper book at page 41 42 at column Sl. No.12 13 which is blank and this form has been certified by Manish Verma, ITO Ward-2(1), Patna without dated. We also noted from the ITNS -10, which is filed by the CITDR that column No.12 13 has duly been filled by the appropriate authority. We are in agreement with the contention of ld. DR that the proposal copy for approval might have been given to the assessee as certified copy which was kept in the file of the AO at the time of sending for approval as one offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BER And LAXMI PRASAD SAHU, ACCOUNTANT MEMBER Assessee by: Shri A.K. Rastogi And Rakesh Kumar, ARs Revenue by: Shri Indrajeet Singh, DR ORDER Per Bench This is an appeal filed by the assessee against the order of the CIT(A)-1, Patna dated 27.9.2018 for the assessment year 2010-2011. 2. The appeal filed by the assessee is delayed by 51 days. The assessee has filed application for condonation of delay stating the reasons for not filing the appeal in time before the Tribunal. After hearing the submissions of the parties, we are satisfied that the assessee had a bonafide reason for not filing the appeal in time. Therefore, we condone the delay and proceed to decide the appeal of the assessee on merits. 3. The assessee has raised the following grounds of appeal 1. For that the CIT(A) has erred in affirming the order of the Assessing Officer passed u/s.143(3)/147 wherein the Assessing Officer has assessed the appellant on a total income of ₹ 3,66,64,440/- as against return of income of ₹ 1,64,440/-. 2. For that the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld CIT(A) has erred in confirming the addition of ₹ 3.65 Crores out of total addition of ₹ 3.65 crores even after noticing the fact that out of 39 share applicants/subscribers, 32 have complied to the notice u/s 133(6) issued by the Assessing Officer and thus the addition to the extent of ₹ 3.65 crores wholly unjustified and contrary to the evidence/material on record. 15. For that the Ld CIT(A) has erred in drawing adverse inference by noticing that the language of the confirmation, the very text and typing font of the confirmation, envelop and the date of dispatch were same even though the companies sending the confirmation were located at two different places. 16. For that the sustenance of addition of ₹ 3.65 crores on account of unexplained cash credit u/s 68 is wrong, illegal and unjustified on the facts and in the circumstances of the appellant s case. 17. For that the whole order is bad in fact and law of the case and is fit to be annulled. 18. For that since the CIT(A) has passed the impugned order ex party and without giving proper and adequate opportunity of being hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed by the AO that all the companies located at Delhi and Kolkata for ascertaining the genuineness of share capital and share application money received by the assessee. The AO should issue notice u/s.133(6) of the Act to all the share applicants on the basis of address provided by the assessee and it was stated that information should be furnished by 15.12.2017 but till date i.e on 22.12.2017 no comments/compliance was received and it was informed by way of letter to the assessee that no reply has been received from share applicants, therefore, these amounts are liable to be treated as unexplained and assessee was given one opportunity. On 26.12.2017 27.12.2017, out of 39 companies, replies were received from 32 companies. From the replies submitted, ld. AO observed as under :- On perusal of these replies, however some very strange facts come to notice. The similarities between the confirmations received from different companies is striking. The language of the confirmation, the very text and the typing font, everything is same, though the companies are located at different addresses. The confirmations of almost all companies located at Kolkata, though at diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dubious means. As such, these confirmations does not substantiate the genuineness of the share capital and share application money introduced into accounts of the assessee during the year as regards its source. In view of the above facts, the share capital and the share application money introduced during the year amounting to, ₹ 2,63,50,000/- and ₹ 1,01,50,000/- respectively totaling ₹ 3,65,00,000/- is treated as unexplained credit under section 68 of the Income tax Act, 1961 and accordingly added to the total income of the assessee. From the above observations, the AO treated the entire share capital money received of ₹ 3,65,00,000/- as unexplained credit u/s.68 of the I.T.Act, 1961 and made addition into the total income of the assessee. 5. Feeling aggrieved from the order of AO, the assessee appealed before the ld. CIT(A). In the Form 35, the assessee challenged to the reopening of the case as per the Section 147/148 of the Act as well as on merit. Ld.CIT(A) fixed case for hearing and issued notice to the assessee but the assessee did not appear before the CIT(A). Accordingly, the CIT(A) proceeded to dispose off the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:] ^[Provided ^[also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production^: before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily^ amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- i where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, the assess or reassess such income and any other income which has escaped assessment and which comes to his notice subsequently in the course of the assessment proceedings. This has been furthe elaborated in Explanation 2 to this section which provides that the cases where no return of income has been furnished although total income exceeds the maximum amount not chargeable to tax, such cases would be deemed to be cases where income chargeable to tax has escaped assessment. In the present case, admittedly no return of income has been filed and also that total income has been much in excess of maximum amount not chargeable to tax, accordingly the reassessment has been validly reopened. 2.7 Further, Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has not required to establish by conclusive evidence that the issue raised in reopening assessment would be calculated with the addition of income in reassessment order. Issue of notice u/s.148 of the Act, for the purpose of reopening of assessment u/s.147 of the Act is based on material available before the Assessing Officer in respect of income of the appellant having escaped assessment, accordingly he had validly assumed jurisdiction in this regard. 2.9 So far as the test of reason to believe vis-a-vis change of opinion is concerned particularly in the light of judgment of the Apex Court in the case of M/s Kelvinator India Ltd. 320 ITR 561 affirming the judgment of the Full Bench of the Delhi High Court in the same case reported at 123 Taxman 423, the said judgment has to be seen the particular facts of the case. In that case, the assessee had filed its return of income along with computation of income, annual report, tax audit report, etc but the assessee did not claim certain expenses relating to rent, depreciation, etc. So it filed revised return with a claim of rent and depreciation to be allowed under sections 30 and 32. The Assessing Officer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.12 The jurisdictional High Court in the case of Bhimraj Panna Lal v. CIT [1957] 32JTR 89 (Pat.) held that the words 'reason to believe' do not mean 'reason to suspect'. Section 147 does not give unfettered discretion to the income-tax authorities. The belief entertained by the authorities must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material-Ganga Saran Sons (P.) Ltd. v. ITO [1981] 130 ITR 1(SC). 2.13 Further, the expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the ITO, the belief must be held in good faith; it cannot merely be a pretext-Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), S. Narayanappav. CIT [1967] 63 ITR 219 (SC) and Y. Rajanv.lTO [1970] 77 ITR 839(AP).The belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour-SheoNath Singh v. AAC [1971] 82 ITR 147 (SC), Asoke Kumar Sen v. ITO [1981] 132 ITR 707 (Delhi), Manikonda Venkata Narasimhamv. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is bad in law. 3.2 I have gone through the assessment order and submissions made by the appellant in the course of the appellate proceeding as well as given careful consideration to the facts and circumstances of the case. The only matter of dispute in this regard is that the service of notice under section 147 of the Act had been made beyond the period of limitation. 3.3 It would be of significance to note in this regard that there is distinction to be drawn between issuance of notice under Section 148 of the Act and service of such notice upon the Assessee as held by the hon'ble Supreme Court in the case of R.K. Upadhyaya v. Shanbhai P. Patel (1987) 3 SCC 96. In the that case, it was held that service of notice under Section 148 of the Act was not a condition precedent to conferment of jurisdiction in the ITO to deal with the matter . As regards to Section 153 (2) of the Act, there was no time limit for completion of the re-assessment. This was different from the requirement under Section 34 of the Income Tax Act, 1922 (,,1922 Act) In other words as long as notice had been issued under Section 148 of the Act, the AO would have jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Income Tax Officer, Nellore [1959] 35 ITR 388 (SC) the Supreme Court observed in the context of Section 34 of the 1922 Act,: The notice prescribed by section 34 of the Income tax Act for the purpose of initiating reassessment proceedings is not a mere procedural requirement; the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by the Income- tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. This was also the basis for the decision in Banarasi Debi v. ITR (1964) 53 ITR 100. 3.7 However, under the Income-tax Act, 1961, the procedural requirement has been spread over three sections, being Sections 147, 148 and 149. The period of limitation within which notice under Section 148 has to be issued is specified in Section 149. Section 153 (2) of the Act stipulates that no order of re-assessment can be passed beyond the period of one year from the expiry of the financial year in which service of the notice was effected. Section 148 (1), however, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved upon one S, who was neither a member of the family of the Assessee nor his duly authorized agent. However, S had been accepting the notice on behalf of the Assessee and prosecuting the cases on his behalf earlier before the income tax authorities. The High Court held: the object of issuance the notice or summons is to intimate the concerned person to appear and answer the queries or the question sought to be clarified by a Court or the authorities. As serious consequences are likely to follow, a notice or summons must necessarily be issued and served in the form and in the manner prescribed by law. The High Court in Dina Nath (supra), referred to Order V Rule 12 CPC as well as Order III Rule 6 CPC. It thereafter concluded that notice must be served personally upon the individual or upon his agent duly authorized in terms of Order III Rule 6 CPC. The contention of the Assessee was upheld and the reassessment proceeding was quashed. In Jayanthi Talkies Distributors v. Commissioner of Income-tax (1979) 120 ITR 576 (Mad) the notice was served by the notice-server of the Department on the Manager of the Assessee-firm. The Manager wrote to the ITO seeking time. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings for reassessment under Section 34 of 1922 Act. It was further held that service of notice under Section 34 (1) (a) within the period of limitation being a condition precedent to the existence of jurisdiction, if the Income-tax Officer was unable to prove that the notice was duly served upon the Respondent within the prescribed period, any return filed by the Respondent after the expiry of the period of eight years will not invest the Income-tax Officer with authority to reassess the income of the Respondent pursuant to such return. On the facts of that case it was held that the Revenue had sufficiently discharged the onus by producing the affidavit of the process server. 35. Under Section 282 (1) of the Act, service of notice may be made by delivering or transmitting a copy thereof to the person to whom the notice is addressed by more than on mode. One of the modes is in such manner as provided under the Code of Civil Procedure, 1908 ( CPC) . For the purpose of service of summons under Order V Rule 12 CPC, service can be taken to complete, if it is effected, on person to whom his address or to another person who is empowered to receive such notice on his behalf. Besid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of initiation proceeding under Section 21 of U.P. Sales Tax Act, 1947 was a condition precedent and not only a procedural requirement. The mere fact that the Assessee had obtained knowledge of the proceeding and participated could not validate the proceeding being initiated without jurisdiction. It is subsequently held that it is firmly established that where a Court or Tribunal has no jurisdiction, no amount of consent, acquiescence or waiver can create it. Decisions referred to by the Revenue The general observations in Venad Properties (P) Limited (supra) to the effect that the failure to comply with a procedural requirement should not defeat substantive justice may not be apposite in the present context where the failure to serve notice under Section 148 is a jurisdictional and not merely a procedural requirement. 3.12 To summarize, the conclusions: (i) Under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements. (ii) For the AO to exercise jurisdiction to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- during the previous year relevant to assessment year under appeal. It is also matter of record that the identity, creditworthiness and particularly genuineness of the transaction towards the sale subscription of the appellant company could not be established to the satisfaction of the Assessing Officer as required u/s 68 of the Act. 9 1 It is of significance to note in this regard that the AO of the case had carried out all the necessary enquiries and had afforded due opportunities to the appellant-company to establish the identity, creditworthiness and genuineness of the share application but. no evidence whatsoever was brought on record in respect of identity. creditworthiness and genuineness of the receipt of so-called share application money from such share applicants. Since it is found that in spite of the specific request made by the AO. the appellant failed to satisfy the 3 critical requirements of section 68 of the Act in respect of identity. creditworthiness and genuineness of the so-called share applicants and also that the appellant did not offer any explanation in the course of the assessment proceedings of the case, the AO brought this amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as the explanation offered by the assessee. the model can be added towards the income of the assessee and brought to tax in the hands of the assessee as held in the case of V.I.S.P. (P) Ltd. 265 ITR 202 (MP). The honourable Supreme Court. in the case of A Govindarajalu Mudaliar 34 ITR 8007. the honourable Supreme Court had held that there is ample authority for the proposition that when an assessee fails to prove satisfactorily the source and nature of a certain amount of cash received during the accounting year, the AO is entitled to draw the inference that receipts are of assessable nature. Further, in the case of Kale Khan Mohammad Hanif 50 ITR 1. it has been held that if the assessee dispute celebrity for tax. it is for him to so either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act In the absence of such proof. the AO is entitled to treat it as a taxable income. In the case of Sreelekha Banerjee 49 ITR 112. the Supreme Court held that when a credit entry appears in the books of account of an assessee in and accounting year, the assessee has a legal obligation to explain the nature and source of such credit. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditworthiness_ There should be a genuine transaction. In K.M. Sadhukhan Sons P. Ltd Vs. CIT (1999) 239 ITR 77 (Cal), it has been held that the burden lies on the assessee to prove the genuineness of loan. The Hon'ble High Court has held that the initial burden is on the assessee to prove the identity of the creditor, the capacity of the creditor to advance the loan and the genuineness of the transaction. In CIT Vs. Precision Finance P. Ltd (1994) 208 ITR 465 (Cal). the Tribunal deleted the addition on the footing that since the transactions were through bank account. hence it was to be presumed that those were genuine. Setting aside the order of the Tribunal. the Hon ble High Court of Kolkata has held that : It is for the assessee to prove the identity of the creditors. their creditworthiness and the genuineness of the transactions. Mere furnishing of the particulars is not enough. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can lawfully make addition. 9 7 So far as the case of a company issuing shares vis-a-vis the burden cast u/s 68 in respect of share capital is concerned, the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that 'in view of the link between the entry providers and incriminating evidence. mere filing of PAN number, acknowledgement of income tax returns of the entry provider bank account statements etc. was not sufficient to discharge the onus. After thoroughly e Exports judgment in the light of other judgments. the High Court has concluded by holding that: In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers....In the case of private placement the legal regime WO the same. A delicate balance must be maintained while walking the tightrope 68 and 69 of the Income Tax Act. 9.9 The Hon'ble High Court of Kolkata in CIT Vs. Active Traders (P) Ltd. (19 ITR 583 (Cal) has held that the Assessing Officer in the assessment of the cc has jurisdiction to ask for the information from the shareholders regarding the so investment made in the company. It set aside the view of the tribunal that there be no enquiry regarding the source of investment of the shareholders in the sha the company. Their Lordships observed that : If a cash credit is shown b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the amount is received by cheque that is not enough to discharge the onus. Further when confirmations were filed and the AO did not proceed further and did not issue any notice u/s 131 to those companies and their directors, the addition is not justified as has been held by the Supreme Court in the case of Orissa Sales Corporation reported in 159 ITR page 78. 9.14 In short the principles laid down by various courts is that the initial onus is on the assessee to establish the identity. prove the genuineness of the transaction and establish the creditworthiness of the creditor This has again been repeated in the case of Oasis Hospitalities Pvt. Ltd. reported in 333 ITR 119 (Delhi). 9.15 The appellant in the course of the assessment proceedings as well as in the course of the appellate proceedings had failed to satisfy the three vital ingredients of section 68 of the Act to the satisfaction of the AO particularly in respect of the identity creditworthiness and genuineness of transaction including the bona fide of the transaction in question particularly in light of detailed enquiry carried out by the AO of the case in this regard. As the necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat out of 39 subscribers compliances have been made from 32 subscribers (excluding 3 subscribers mentioned in the reasons recorded), copies of confirmations from 30 subscribers (including 3 subscribers mentioned in the reasons recorded) are forming part of the assessment order marked as Annexure-1 to the assessment order as would be evident from page-6 of the assessment order. Thus out of 39 subscribers, 35 (32+3) subscribers have complied to the notices u/s 133(6) and have confirmed their respective investment. The A.O. at page 6 of the order has clearly stated that the confirmation sent by the subscribers also contains their bank statement showing transfer of the share capital. Thus the admitted fact on record is that 35 subscribers out of 39 have responded to the enquiry instituted by the department u/s 133(6). In respect of remaining 4, there is no allegation that notices issued to them have not been served and/or returned back with postal remark such as 'addressee not traceable' or 'left the premises' or 'refuse to accept' the notices. The fact remains that notices to the remaining four subscribers were served and no action whatsoever was taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee disclosed the names of the creditors and the names of the Bank on which the cheques were drawn, the assessee discharged the primary onus and the assessee not only disclosed the identity of the creditor but also the source of income, In view of these facts, it could not be said that the creditors were fictitious persons. If the facts of the appellant's case is tested on the anvil of the aforesaid judgment of the Jurisdictional High Court, there is no dispute that the sum in question had come from subscribers who are assessed to tax, sum in question have been received through proper banking channel, the subscribers are known to income tax, bank and ROC and hence the aforesaid judgment of the jurisdictional High Court applies on all fours to the facts of the appellant's case. Further, the case of the appellant is covered by the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Stellar Investment reported in 192 ITR 287 which has been affirmed by Apex Court whereby the SLP of the department was dismissed (reported in 251 ITR 263). The relevant portion from the judgment of the Delhi High Court is repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en if it can be otherwise inferred and/or gathered from the record. It would be evident from the letter dated 17/06/2019 that the enclosures (2) containing the alleged antedated satisfaction of the Pr. CIT is forming part of the record of the Pr. CIT and not of the Assessing Officer. Pursuant to petition dated 17/05/2018 (copy enclosed at page16-17 of this compilation) the Assessing Officer has issued certified copy of Form 10 (forming part of PB dated 12/03/2019 at page 41 42) which does not contain any satisfaction of the two authorities which are now appearing in the copy of Form 10 given along with letter dated 17/06/2019 before the Hon'ble Tribunal. The forensic examination, before this Form No. 10 could be admitted as an evidence, is necessary as the records are in possession of the authorities i.e. Pr. CIT and is not part of the record of the Assessing Officer. As stated above, the record of the Assessing Officer do contain Form 10, certified copy of which has been given by the AO (page 41 42 of PB) which does not contain any alleged satisfaction. There no variation in respect of the other enclosure i.e. enclosure (1) of letter dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer for initiating the proceedings under section 147(a). The reasons so recorded acquire much significance when the action is taken under clause (a) of section 147 because it is only the recorded reasons which can indicate as to why the Income-tax Officer was made to believe that income has escaped assessment for the relevant assessment year. Further, the language employed in section 151 clearly leads to the conclusion that the Board or the Commissioner of Income-tax, while according sanction for issuance of notice under section 148 and for coming to an objective conclusion authorising the Income-tax Officer to take action under section 147(a), are required to confine themselves only to the reasons recorded by the Income-tax Officer. Therefore, looking at the entire scheme and purpose of the Act, I am of the considered view that the validity of the assumption of jurisdiction under section 147(a) can be tested only by reference to the reasons recorded under section 148(2) of the Act and the Income-tax Officer is not authorised to refer to any other reason even if it can be otherwise inferred and/or gathered from the records. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the asses see company and accepted by the AO during the course of assessment proceedings. In the present case the Assessing Officer, however, recorded a categorical finding at page-7 of the order which is reproduced hereunder :- Out of a total number of 39 corporate entities replies were received in 32 cases. On perusal of these replies, however some very strange facts come to notice. The similarities between the confirmations received from different companies is striking. The language of the confirmation, 'the very text and the typing font, everything is same, though the companies are located at different addresses. The confirmations of almost all companies located at Kolkata, though at different addresses are identical. Similarly, confirmation of the companies located at Delhi at different addresses are identical. These confirmations carry the same wording, the same text and font. In many cases even the envelope is also identical. Copies of some of such identical confirmations are annexed to this order as annexure- 1 containing 1 to 30 pages and the same are part of the order. [already quoted at page-14 15 of the WS] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Hon ble Supreme Court in the above case and similar is the position in the case of the present assessee. In the present case in hand, the share applicants have shown meager/zero amount in their return of income and creditworthiness of the share applicants have also not been proved, therefore, the above decision of Hon ble Supreme Court is squarely applicable in the present case. Ld. DR further relied on the order of coordinate bench of the Tribunal in the case of Shree Bhagwati Concast Pvt. Ltd, in ITA No.33/JP/2015, order dated 16.02.2018. 11. Ld. DR also submitted that the provisions Section 68 require to prove by the assessee of three ingredients i.e. identity of creditors/depositors, creditworthiness and genuineness of the transaction is to be fulfilled by the assessee. In this case, one of the three ingredients i.e. creditworthiness of the share applicants have not been proved, therefore, Section 68 is applicable. Accordingly, ld. DR submitted that the AO has rightly invoked the provisions of Section 68 of I.T.Act and rightly made additions. Ld. DR also submitted that the case relied on by the AR is not applicable in the present facts of the case in ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te authority. We are in agreement with the contention of ld. DR that the proposal copy for approval might have been given to the assessee as certified copy which was kept in the file of the AO at the time of sending for approval as one office copy. Therefore, this argument of the ld. AR of the assessee is also rejected. 15. With regard to the contention of ld. AR that the reassessment is not sustainable as there is a difference in figure in reasons recorded and in the findings recorded by the AO. In this regard, we are of opinion, that if there is any difference of figure mentioned in the reasons recorded and the findings recorded by the AO, that will not amount to non-sustainability of the reassessment proceedings. Accordingly, we reject this ground of assessee. 16. We also find that Hon ble Supreme Court in the case of GKN Driveshafts (India) Ltd vs. ITO Ors, 259 ITR 019 (SC) has held that when a notice under section 148 of the A.T.Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,01,50,000/- as share application money introduced was treated as unexplained credit under section 68 of the Act and added the same to the total income of the assessee. 18. Before us, Learned A.R. of the assessee relied on the decision of ITAT Kolkata in the case of Baba Bhootnath Trade Commerce Ltd (supra),wherein, the Tribunal followed the decision of Hon ble Supreme Court in the case of vs NRA Iron Steel Pvt Ltd.,((supra) in deciding the issue in favour of the assessee. The Ld. A.R. argued that the onus cast on the assessee is fully discharged and there is no cause to take recourse to section 68 of the Act since the income tax returns and acknowledgements of the investor companies were provided to establish the identity of the investors and genuineness of the transaction. We find that the Hon ble Supreme Court in the case of NRA Iron and Steel Pvt Ltd (supra) held that the assessee company is under a legal obligation to prove the source of receipt of share capital and/or premium to the satisfaction of the Assessing Officer. Mere filing of primary evidence of investors does not discharge the onus cast on the assessee company by virtue of section 68 of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been proved. Ld. AR has filed documents regard to the above 39 share applicants however, it has not been certified as to whether the documents have been produced before any authorities below. For examination and finding out as to whether the 39 share applicants have fulfilled the ingredients as prescribed in the provisions of Section 68 of the Act, we would like to discuss the documents filed with regard to 39 share applicants in the following paragraphs. a. M/s Debraj Vincom (P) Ltd . (PB 1 to 5) : (₹ 10,00,000/-) The documents in relation to share application money of ₹ 10,00,000/-from this company have been filed at pages 1 to 5 of the paper book. The documents include Share Application form, details of Cheque/DD dated 22.09.2009, Acknowledgement of Return Filed for the assessement year 2009-10 declaring total income of ₹ 6007/- PAN CARD and audited balance sheet for the year ending 31.03.2009 without annexure and Schedules notes to accounts. No bank statement filed and Trading and Profit and Loss Accounts filed. On perusal of the balance sheet as on 31/03/2009 available on page 05 of the paper book, we find that share capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been credited into the bank account. The share applicant has issued cheque in favour of the assessee on the same day which has been cleared on 5th Day of October, 2009. Thereafter there is closing balance was remained of ₹ 90,481/- and at the end of the month, after huge transactions just only credited and debited. The closing balance is remained of ₹ 5481/-. The Date of Birth of the company is 4th March, 2008.The assessee has shown meagre income of ₹ 4,991/-for the ear ending 31.03.2010 and ₹ 10,770/- for the financial year 31.03.2009. The turnover for the company of 31.03.2009 is ₹ 7,95,960/- and other income shown at ₹ 158,794/- totalling to ₹ 954,754/- and total expenditure shown at ₹ 9,40,984/- containing purchase, salary, audit fees, printing and stationery, preliminary expenses, w/off, general expenses and back charges. The earnings per share shown in the notes of the account at page no.19 of the paper book is 0.09 0.04 for the financial year 2008-2009 2009-2010 respectively, the source thatthere is a no creditworthiness. We further noticed that there are huge reserve and surplus of the company. d. Rajka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning per share for 31.03.2009 31.03.2010 is 0.07 and 0.03, respectively. It shows that the company has no creditworthiness. g. BOR Securities Limited (PB Page No.43 to 48)(₹ 30,00,000/-) : We noticed from the documents of the share applicants in share application form placed at paper book page no.43 the date of application is 22nd May 2007 running serial No.083and the face value of the share is ₹ 10 and share premium is ₹ 10 resultantly the value of per share is ₹ 20/-(10+10). The share applicant has applied in assessee s company for ₹ 1,50,000/- shares and the value of shares is ₹ 30,00,000/-. The resolution passed by the share applicants is at page no.22 dated 22nd January, 2009. But only they have authorised to the directors of the company for investing the surplus money in the shares securities, debentures, etc. No separate resolution are available on the record. The share applicants return of income for the assessment year 2009-2010 is placed at paper book at page no.45 showing total income of ₹ 6924. The assessee has enclosed only the auditor s report of the share applicants for the year ending 31.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant has applied on 19.01.2010 for 50,000 equity shares at ₹ 20/- including premium of ₹ 10/-. On perusal of bank statement placed at page no.68, there is opening balance on 01.01.2010 of ₹ 9717 and on 31.01.2010 the same figures are appearing as closing balance. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same were withdrawn on the same day or on the next day or after two days. The company has shown total turnover of ₹ 41000/- and total expenses is ₹ 42,000/-(containing bank charges, company secretary fees, filing fees, office expenses, postage and stamp, printing and stationery, salary, audit fees and preliminary expenses written off) for the financial year 31.03.2010. No return of income has been produced. The AR of the assessee is unable to prove the creditworthiness of this transaction. We further noted that the assessee company has issued shares to others at ₹ 100/- including ₹ 90/- as premium. k. Navratra Commodities Pvt. Ltd (PB Page No.76 to 84) (₹ 5,00,000/-) The share applicant has applied on 29.01.2010. On perusal of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.111 the bank statement available on record which showing opening balance of ₹ 10,857/- and closing balance on 22.07.2010 it showing also ₹ 10,857/-. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. The assessee has produced only summary of the balance sheet placed at page no.112 of the paper book. No profit and loss account have been submitted. The creditworthiness of the investing company could not be proved by the assessee company. o. Genuine Commotrade Pvt. Ltd. (PB Page No.113-122) (₹ 03,50,000/-) : On perusal of share application form placed at page no.1123 the applicant has applied 3500 shares at ₹ 100 per share including premium of ₹ 90/- whereas we noticed from page no.114 a letter written by share application company without dated he has applied for 17500 equity shares of ₹ 20/- per share including premium of ₹ 10/- each. There is contradictory documents produced. Both the documents have been issued by the share applicant. No return of income has been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring income of ₹ 1,19,212/- on the turnover achieved by way of commission of ₹ 3,51,81,220/- and total expenses have been shown ₹ 3,50,62,008/-. The assessee could not produce income tax return for the assessment year 2009-2010 and 2010-2011 as well as other financial statements. The creditworthiness of the investing company could not be proved by the assessee company. r. Unique Conbuild Pvt. Ltd. (PB 176-219)(₹ 15,00,000/-) : On perusal of page no.182 the share applicant has applied for 75000 shares at ₹ 20/- including share premium of ₹ 10/-. The creditworthiness of the investing company could not be proved by the assessee company. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. Copy of the acknowledgment of the return filed for the assessment year 2007-08 showing total income of ₹ 61,729/- has been filed by the assessee. After the assessment year 2007-08, no financial statement and income tax return has been produced filed by the assessee, therefore, the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t financial statements and income tax return had been provided. The creditworthiness of the investing company could not be proved by the assessee company. v. Nitya Sales Company Pvt. Ltd. (PB 313-336)(₹ 10,00,000/-) : As per share application form placed the share applicant has applied for 50,000 equity shares, the face value of shares is ₹ 10/- along with premium of ₹ 10/-. The bank statements placed at paper book page no.316 dated 01.06.2009 to 03.06.2009, the opening balance of ₹ 1216.05 and the closing balance of ₹ 1335.05.A sum of ₹ 10,00,119/- has been credited on 02.06.2009 and on the same day it has been withdrawn. The return of income placed at paper book page at 319 for the assessment year 2008-2009, the return of income has been shown of ₹ 22,629/-. No latest financial statements and income tax return have been produced. The creditworthiness of the investing company could not be proved by the assessee company. w. R.M. Electricals Pvt. Ltd. (PB 337-363)(₹ 10,00,000/-) : On perusal of page no.342 with regard to ban statement filed for 03.06.2009 to 20.06.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2008-2009 showing income of ₹ 82,784/-. On perusal of trading profit and loss account filed for the financial year 31.03.2007 2008 is as under :- Particulars For the year ending on 31.03.2008 For the year ending on 31.03.2007 Income Income from Commission 16.337.982.00 17,829.00 Total 16,337,982.00 17,829.00 Expenditure Preliminary Expenses 3,689.00 3,689.00 Audit Fee 13,483.00 5056.00 Other Expenses 16,238,026.00 1,694.00 Total 16,255,198.00 10,439.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 10/- each. The issued subscribed and paid up capital of 10000 equity share capital of ₹ 10 each fully paid up for the financial year 31.03.2009 31.03.2010. We noticed from paper book page no.449 the share application money has been shown of ₹ 3,60,40,800/-, how it is possible, the AR of the assessee has not explained anything about this that if all the shares have been issued on 31.03.2009, then share application money how it can be received as on 31.03.2010. Because all 10000 equity shares were issued, subscribed and fully paid up in the financial year 31.03.2009. The AR of the assessee was unable to explain about the above facts that without increase in authorised share capital of the company how they could receive the share applicant money. No bank statement neither latest financial statements and income tax return have been produced, therefore, genuineness of transaction and in view of the above facts the creditworthiness of the investing company could not be proved by the assessee company. ab. Edward Impex Pvt. Ltd. (PB 453-456)(₹ 05,00,000/-) : The company has not filed bank statement, latest financial statements and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd expenditure is ₹ 52,756/-. The creditworthiness of the investing company could not be proved by the assessee company. ag. Pixel Engineering Pvt. Ltd. (PB 539 -545)(₹ 05,00,000/-) : The share applicant has applied for 5000 equity shares of ₹ 10/- per share at a premium of ₹ 90/- and has issued a cheque dated 20.03.2010 in favour of the assessee company. On perusal of page no.542 the return of income has been filed for the assessment year 2009-2010 showing nil income. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. The creditworthiness of the investing company could not be proved by the assessee company. ah. Pranam Foods Pvt. Ltd. (PB 546-562)(₹ 05,00,000/-) : The share applicant has applied for 5000 equity shares of ₹ 10/- per share at a premium of ₹ 90/- and has issued a cheque dated 26.03.2010 in favour of the assessee company. On perusal of page no.548 the return of income has been filed for the assessment year 2009-2010 showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of page no.598 the return of income has been filed for the assessment year 2008-2009 showing income at ₹ 3278/-. On perusal of page no.599 the share applicant has shown income from commission of ₹ 45290/- and expenditure of ₹ 42,012/- containing preliminary expenses of ₹ 2720/- audit fee of ₹ 5618/- and other expenses ₹ 33674/-. The opening and closing balance have been shown at page 600 of the paper book at ₹ 1676.50. From the bank statement of the share applicant it is also apparent that the amounts are being deposited and the same have been withdrawn on the same day or on the next day or after two days. Latest balance sheet and income tax return has not been filed. The creditworthiness of the investing company could not be proved by the assessee company. al. Safari Tradex Pvt. Ltd. (PB 616-638)(₹ 10,00,000/-) : The share applicant has applied for 50000 equity shares of ₹ 10/- per share at a premium of ₹ 10/- and has issued a cheque dated 01.06.2009 in favour of the assessee company. On perusal of page no.620 the return of income has been filed for the assessment year 2008-2009 showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer in adding the amount of share capital and share application money of ₹ 3,65,00,000 as unexplained cash credit under section 68 of the Act. 23. We further noticed that during the same financial year the assessee has issued share capital to the different share applicants at a premium of ₹ 10/- and ₹ 90/- and the face value of the share is ₹ 10/- only which has deliberately been discussed in the foregoing paragraphs. At the same time, we find it very unusual that investment in shares of the assessee company having face value of ₹ 10 per share have been made at a premium which varies between ₹ 90/- in individual cases during the same financial year. The same clearly raises an apprehension on the overall genuineness of these and other similar related share transactions during the year under consideration. The genuineness of the transaction is not just limited to issuance of share capital rather it is coupled and necessarily has to be understood and read alongwith receipt and payment of share application money which is commensurate with the value of the shares being issued and allotted to and subscribed by the prospective shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the share applicants, which makes the genuineness of the transaction vulnerable. 27. In the case of Principal Commissioner of Income Tax-6, New Delhi Vs. NDR promoter's private limited in ITA 49/2018, the Hon'ble High Court of the Delhi has held the transaction of share application in similar circumstances as shame and make-believe only. In the above case the addition made u/s 68 of the Act for alleged share application money by the Assessing Officer, was deleted by that Tribunal, however the Hon'ble High Court reversed the decision of the Tribunal and sustained the addition. The Hon'ble High Court has relied on the decision of the CIT Vs Navodaya Castles P Lid (2014) 367 ITR 306 (Delhi). The relevant discussion and finding of the Hon'ble Court in the above case is reproduced as under: 11. Issue of bogus share capital in the form of accommodation entries has been subject matter of several decisions of this Court and we would like to refer to decision in Commissioner of Income Tax Vs. Navodaya Castles Pvt. Ltd. [2014] 367 ITR 306, wherein the earlier judgments were classified into two separate categories observing as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which should be satisfied in such cases is, identification of the creditors / shareholder, creditworthiness of creditors / shareholder and genuineness of the transactions. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 28. In a recent judgment dated 5.3.2019 in the case of Principal CIT(Central)-I vs. NRA Iron Steel P. Ltd. arising out of SLP (civil) No. 29855 of 2018, the Hon'ble Supreme Court considered the decision of various courts on the issue in dispute and enumerated the principles emerged from various decision as under :- 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 AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olkatta had disclosed a taxable income of ₹ 9,744/- for A.Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. - Kolkatta filed a NIL return, but had purchased 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. (supra), we are of the opinion that share applicant entities are paper entities created by some individuals for providing entries to the persons including the assessee, not having tax paid capital for promoting their ventures. As the entries of credit are appearing in the books of the assessee, it was the onus of the assessee to explain satisfactorily the nature and source of those credits. As the assessee failed to discharge its onus of explaining source and nature of the credit received and failed to establish creditworthiness and genuineness of the transaction as required u/s 68 of the Act, the assessee is liable for addition under section 68 of the Act. Accordingly, we reverse the finding of the Ld. CIT(A) on the issue in dispute and confirm the addition of ₹ 4, 85, 58,000/-in the hands of the assessee in terms of section 68 of the Act. The ground of the appeal of the Revenue is accordingly allowed. 25. In the peculiar facts and circumstances of the case, the case laws relied on by the assessee are not applicable in the present case. 26. From our above discussions as well as the judicial precedence along with the findings recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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