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TMI Blog2015 (5) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... application monies have been received through proper banking channel and there is no evidence that assessee has paid any money in cash to the share applicant in consideration of cheque received from share. No inquiry is made by the Assessing Officer once the assessee has discharged his primary onus to prove the identity, genuineness and creditworthiness of the share applicants. On perusal of the bank statements of share applicant, it can be seen that no cash has been deposited by them before issue of cheque to assessee towards share application money. None of the parties are related to assessee company. The assessee has proved all the three ingredients of proving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). If the Assessing Officer doubts the source of the source of the source, he was free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account of M/s Mahasagar Securities Pvt. LTd. During course of search, it was detected that M/s Mahasagar Securities Pvt. LTd. along with its 34 group companies, which included above two companies from whom assessee claimed to have received share application money, was engaged in the activity of giving bogus accommodation entries to various persons for bogus share application money, bogus STCG/Loss and bogus share trading and share speculation profit/loss. 2.2 The main person behind this fraudulent activity was alleged to be Mr. Mukesh Choksi whose statement on oath was recorded by the Investigation Wing on 25.11.2009 in which, he explained in detail the modus operandi for giving different types of accommodation entries. Shri Mukesh Choksi, in his statement, admitted that he used to operate with a chain of brokers/ fraudulent agents who used to accept cash from the person seeking accommodation entries. This cash used to be deposited in numerous bank accounts maintained by the Group and after transferring money from one account to another, they used to give cheque for accommodation entry for which commission used to be charged, Kachha cash book used to be maintained by Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of this activity: Analysis of the external hard disk seized from Mukesh Choksi's office reveals numerous ' share application ' forms for different companies, duly filled out , the amount given , blank receipts issued for repurchase of the share (s) (to be used at a future date), Articles of association, Memorandum , extracts of resolutions passed at the Board meetings of the companies making the investment, blank transfer deeds etc in short all evidences required to place the share application money in a company and have the shares sold at a future date and the money returned back. Statements of Anuparmi Patil, Kapil Chaturvedi (employees of the group companies) and Joseph Sampat (Director) engaged in the activity from Choksi's statement confirm the same. 2.5 The said information received from the Investigation Wing also had details regarding name, PAN, address and amount of share application money received by assessee from above companies. 2.6 The notice u/s 148 of the Act was issued by Assessing Officer on the basis of receipt of this specific information after duly recording the reasons for re-opening. The said reasons recorded by Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, sought for issue of notice under the provisions of section 151(2) of the Act. 2.7 In response, assessee vide its letter dated 25.07.2011 stated that its return of income filed on 17.10.2005 should be treated to have been filed, in response to notice u/s. 143. The facts regarding receipt of information from Investigation Wing was communicated to assessee vide show cause notice dated 23.04.2012 by Assessing Officer reproduced in paragraph 5 of the assessment order. 2.8 In this case, assessee could not furnish the required information as asked by Assessing Officer and Assessing Officer made following additions: Sr. No. Particulars Addition made (in Rs) 1 U/s 68 of the Act in respect of share application money claimed to have been received from M/s Mihir Agency Pvt Ltd, and Buniyad Chemicals P Ltd. ₹ 21,00,000/- 2 Share application money claimed to have been received from 12 other companies. ₹ 85,00,000/- 3 Addition of bank interest being interest on FDR n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same was given to assessee and assessee's comments were obtained. Having gone through same, CIT(A) noticed that certain issues were not properly addressed or investigated at assessment stage or during the remand proceedings. Therefore, matter was again remanded to Assessing Officer u/s. 250 (4) of the Act vide this office letter dated 11.01.2013. The said letter is reproduced herein under :- 2. With reference to the above, it is noticed that the remand report sent does not address all the issues properly. Moreover, vide this office letter dated 26.7.2012, directions u/s 250(4) of the IT Act were also issued to conduct necessary inquiry. However, in the remand report sent more or less the same contentions made in the assessment order have been reiterated. Therefore, this letter being issued to you, with specific directions to furnish the following information/s after conducting necessary inquiry u/s 250 (4) of the IT Act, to the extent directed by this letter, in respect of each of the additions made in the assessment order. 3. For the removal of doubt, it is clarified that the scope of inquiry and the nature of information required is limited to what is specificall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be furnished i.e. date, amount, rate and mode of payment of consideration with book value of shares on the date of purchase. v. Book value of the share on the date of receipt of share application money. h. From a perusal of the bank statement, in respect of receipts of share application money, it is noticed that amount received as share application money by the appellant has been immediately transferred to some Other concern/ person/s, details of which are available in the bank statement of the appellant filed during assessment/ earlier remand proceedings. The nature of such transfer i.e the purpose for which this amount was transferred should be enquired. The bank statement of the said party should also be obtained from the appellant, if it is a sister concern. If it is not a sister concern, it may be obtained from Bank, Since beneficiary may not have bank account in the same bank, you may have to write to concerned bank after getting the details of beneficiaries and their bank accounts. i. It is clarified that the above inquiry is limited to only those withdrawals reflected in the bank statement which can be directly co - related with the receipt of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of shareholder details filed with the ROC from the appellant. You should therefore, immediately obtain the annual share holders return or shareholders Register from the appellant and furnish information on specific points asked mentioning the information as per para 3 (g) (iii) of this office letter dated 11.01.2013. 3. Since no further inquiry is needed, except obtaining the details of subsequent owners of shares, till date, your report should be submitted to this office, within a week s time. 3.3 In response to said clarification, Assessing Officer submitted another report dated 04.02.2013 forwarded by the Addl. CIT on 08.02.2012. This copy was also given to assessee on 12.02.2013. Assessee's written submission in respect of various remand reports have been taken on record. In this background, each ground of appeal is being taken - up for adjudication. 3.4 As stated above, specific information was received from Investigation Wing that assessee has received bogus share application money from M/s. Mihir Agencies Pvt. Ltd. and M/s. Buniyad Chemicals Pvt. Ltd. to the extent of ₹ 21 lacs. Evidence was found during course of search in case of Shri Mukesh Cho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of which the requisite belief was formed by the Assessing Officer has to be appraised and examined. That material on the basis of which, the notice under section 148 was issued becomes relevant in the course of the reassessment proceedings . Accordingly, issue on reopening was decided against assessee. 4. Same has been opposed before us on behalf of assessee inter alia submitted that CIT(A) erred in confirming the action of Assessing Officer in reopening assessment by issuing notice u/s. 148 of Income Tax Act, 1961. Assessee has filed written submission in this regard and submitted that CIT(A) was not justified in confirming the action of Assessing Officer assessment by issuing notice u/s. 148 of the Act. Learned Authorized Representative relied upon the decision of Hon ble Delhi High Court in case of Nova Promoters finlease (P). Ltd. (supra). On other hand, learned Departmental Representative submitted that CIT(A) was justified in confirming the action of Assessing Officer assessment by issuing notice u/s. 148 of the Act. 5. After going through rival submissions and material on record. Assessee is engaged in business of high seas sales of imported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has obtained entry of the share application money of ₹ 11,00,000/- from Mihir Agency Pvt. Ltd., one of company run by Shri Mukesh Chokshi, during the financial year 2004-05 (A.Y. 2005-06). In the view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. In view of the above, income to the extent being more than ₹ 1,00,000/- has escaped assessment within the meaning of section 147 of the Act. Therefore, Notice u/s.148 need to be issued. The approval of the Addl CIT Range-I, Surat is therefore, sought for issue of notice under the provisions of section 151(2) of the Act. 5.1 The plain reading of reasons recorded by assessee makes it clear that notice u/s. 148 was issued as per information received from Investigation wing from Mumbai. The reasons recorded by Assessing Officer only indicate that as per information of Investigation wing from Mumbai, certain companies of Mukesh Chokshi group were operating and allegedly providing accommodation entries and assessee has also received share application money from such company. Assessing Officer just made gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all discernable as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that on the basis of the material which he had before him the income had escaped assessment, therefore, the reassessment u/s 147 of the Act was not valid and accordingly the same is quashed. Since we have quashed the reassessment order, therefore, no findings are being given for the grounds raised by the assessee on merit. The reasons recorded in case of M/s. Surbhi Minchem Pvt. Ltd. (supra) u/s. 148 are reproduced as under: In due course, the information have received from the DDIT (Inv.-2), Udaipur alongwith report of the DDIT (Inv.), Unit-1 (4), Mumbai that search seizure action under section 132 of the Income Tax Act, 1961 was undertaken in the case of Mahasagar Group of Companies Mumbai on 25.11.2009 on the basis of information received in an FIU alert from New Delhi regarding suspicious transactions taking place in the bank accounts of M/s Mahasagar Securities Private Limited and its related companies. The directors of these companies were one Mukesh Choksi and Jayesh K. Sampat. During the course of search it was revealed that the Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moters Finlease (P) Ltd.(supra). 6.1 As stated above, first sub-ground is related to addition of ₹ 21 lacs in respect of receipt of share application money from Mukesh Choksi Group of cases and second sub=ground regarding addition of ₹ 85 lacs in respect of share application money received from 12 other companies, for which assessee failed to discharge its onus u/s. 68 of the Act before Assessing Officer. 6.2 In respect of addition of ₹ 21 lacs, CIT(A) decided appeal in another group case of assessee i.e. M/s Harmony Yarns Pvt. Ltd., Surat, A.Y. 2005-06 in appellate order no. CAS-1/2008/2011-12 dated 26.06.2012 against assessee. According to CIT(A), in the said case, assessee had also take share application money from M/s. Mihir Agency Private Ltd. and M/s. Buniyad Chemicals P. Ltd. of ₹ 26 lacs. The relevant portion of said order is reproduced as under: 8.1 During the course of appellant proceedings, the appellant relied on the decision of Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. Before proceeding further, it is necessary to discuss the interpretation of the above judgement by the Hon'ble Mumbai High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. 24. But, it has been urged on behalf of the petitioner that an addition within the meaning of Section 68 would not be justified in law in its hands even if the share application money was received from bogus share holders. Counsel appearing on behalf of the petitioner submitted that in the present case the report submitted by the Commissioner U/s 245D(3) showed that the two companies were duly identified being income tax assesses whose PANs were also furnished. Consequently, relying on the decision of the Delhi High Court in the case of CIT Vs Lovely exports (p) Ltd. ( 2008) 299 ITR 265 ( 2007) 158 Taxman 440 (Delhi) and the order rendered by the Supreme Court in a Special Leave Petition arising therefrom, it was urged that recourse to the provisions of Section 68 was not in order. Now, in order to appreciate the submission it would be necessary to consider the Judgment of Delhi High Court in Lovely Exports (P) Ltd ( supra). The Division Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered nay duty - bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company (Emphasis supplied). 25. Now, it is this decision of the Delhi Court against which a Special Leave Petition before the Supreme Court came to be dismissed on 11 January 2008, In CIT Vs Lovely Exports (P) Ltd (2008) 6 DTR 308 (SC) while dismissing the Special Leave Petition the Supreme Court observed that if the share application money was received by the assessee from allegedly bogus share holders whose names were given to the AO, the department was free to proceed to re-open their individual assessments in accordance with law. On this ground, the Supreme Court while dismissing the Special Leave Petition found no infirmity in the judgment of the Delhi High Court. The principle which was emphasized by that Delhi High Court in the case of Lovely Exports was followed by another Division Bench in CIT Vs Value Capital Services (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cription of shares of a public limited company can obviously have no application to the facts of a case such as the present The view which has been taken by the Settlement Commission is consequently, borne out on the basis of the material on record. This is not a case where the Commission has proceeded contrary to law or on the basis of no evidence. There is no perversity in the findings of Settlement Commission. 27. Before leaving this aspect of the matter, it would be necessary to advert to two decisions of this Supreme Court, the first being in CIT Vs P. Mohanakala (2007) l6l Taxman 169 / 291 ITR 278 ( SC). While considering the scope of section 68, the Supreme Court observed as follows:- 15. ..... When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the two books; or the explanation offered by the assesses in the opinion of the AO is not satisfactory. It is only then the sum so credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x as the income of the assessee of that previous year, if the explanation offered by the assesses about the nature and source thereof, is, in opinion of the assessing officer not satisfactory . 8.2 In this background we may examine the judgement of Hon'ble Supreme Court in the case of M/s Lovely Exports (P) Ltd which is reproduced herein below :- 1. Delay condoned. 2. Can the amount of share money be regarded as undisclosed income under section 68 of the IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assesses company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to re - open their individual assessments In accordance with law. Hence, we find no infirmity with the impugned judgment. 3. Subject to the above, Special Leave Petition is dismissed Since this decision was given in respect of the decision of the Hon'ble Delhi Court against which, the SLP was filed, the findings of the Hon'ble Supreme Court are to be inferred in the background of the facts of the said case. It is pertinent to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , CIT(A) observed that decision of the Hon ble Supreme Court in case of M/s. Lovely Exports (P) Ltd. applies only in those cases, where department has not detected any evidence of collusive transaction between accommodation entry provider and assessee and other circumstances of case are also such that there is no circumstantial evidence of existence of any collusive transaction. It means the decision applies in normal cases of share capital and not colourable transactions. In cases, where a specific evidence of bogus share application by way of collusive transaction between entry provider and assessee exists or other circumstantial evidence make out a case Of collusive transaction. The decision of Hon'ble Supreme Court would not apply. In such cases, decision of M/s. Nova Promoters Finlease Pvt. Ltd. would apply for detailed reasons given therein. Similar view has been taken by Hon'ble High Court of Mumbai in case of M/s. Major Metals Ltd. (supra) wherein decision of M/s. Lovely Exports (P) Ltd. (supra) has been distinguished. 6.5 In this back ground, CIT(A) examined the evidence furnished by assessee and circumstantial evidence in respect of share application money of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.7 Assessee in its paper-book filed share application form in the name of M/s Harmony Yarns P Ltd., which is group concern of assessee company, rather than assessee s company. Moreover, share application form of M/s Buniyad Chemicals Pvt Ltd. does not have any date. The share application money received by assessee had been immediately transferred to assessee s group concern M/s. Rama Tradelink Pvt Ltd. The cheque for share application money in case of M/s. Mihir Agencies has been issued from Current Account no. 4259 with Canara Bank. Santacruz (East), Branch, Mumbai. From the same bank account, M/s. Mihir Agencies has given share application money to M/s Harmony Yarns P. Ltd. of ₹ 6 lakhs on same date on which, it issued cheque to assessee company i.e. on 20.01.2005. Cheque numbers mentioned in list are 659321 and 659320. The source was by way of transfer from Current Account no. 4041 and 4280 in the same bank account. M/s. Buniyad Chemicals P. Ltd. had given a cheque from this bank account number 00405022108 with ICICI Bank Nariman Point, Mumbai. Here again, M/s. Buniyad Chemicals P. Ltd has given share application money to M/s. Harmony Yarns P. Ltd. also apart from assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e letter dated 27.03.2012, wherein they have simply given confirmation of their statement recorded at the time of search but failed to provide information as asked by Assessing Officer vide letter dated 12.03.2012 and on the basis of which, Assessing Officer proceeded to make addition u/s. 68 of the Act. When reply u/s. 133(6) dated 15.03.2012 of the two alleged parties clearly stated that they cannot confirm any alleged collusive transaction with assessee without accounting data, legal position of law still remained unchanged even on the receipt of their letter dated 27.03.2012. Even otherwise Assessing Officer has not bothered to obtain the relevant information from impounded material seized by the Income Tax department. This shows that assessing officer has made addition without making proper inquiry and without confronting the assessee to the statement recorded u/s 132(4) of the Act and compelling persons to be present for the purpose of cross examination by assessee. We find that in case of CIT v/s Kan Singh Rathore in ITA No. 192/2014, Hon ble Rajasthan High Court has held as under: It is not in dispute that the Assessing Officer treated the transaction bogus solely by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were ultimately transferred to various employees of different concerns of family members of assessee at face value. Even in the present case, CIT(A) has stated that the shares were issued at a premium and were re-purchased by the Director of the assessee Company and a group Company of assessee at face value. In such circumstances, Hon ble ITAT Bench in case of Chartered Motors Pvt. Ltd. vs. ACIT held as under: 'Thus, we find that the assessee was not allowed any real opportunity to cross-examine the persons who made the statement at the back of the assessee. In our considered view, in the circumstances, the statement of those persons cannot be read against the assessee. Our above view finds support from then decision of the Hon'ble Jurisdictional High Court in the case of: 1. Heirs and Legal Representatives of Late Laxmanbhai S. Patel Vs. Commissioner of Income Tax (supra) 2. CIT Vs. Indrajit Singh Suri (supra) 3. DCIT Vs. Mahendra Ambalal Patel (supra) 4. CIT Vs. Kanitbhai Revidas Patel (supra) In view of the above settled position of law, we find force in the argument of the assessee that the statements of the persons mentioned above are not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DDIT-unit-1(4) on 25.11.2009. Hence they were not able to provide any information in the matter. However, in case of Nova Promoters Finlease Pvt. Ltd. there was no such fact and the parties in that case have filed their affidavit retracting their statements without being notarized and they did not appear before Assessing Officer for cross examination in response to summons u/s. 131. However, in case of assessee, Assessing Officer did not issued summons to Shri Mukesh Choksi or the Directors of alleged two companies. In the course of remand proceedings, parties were not produced before assessee for cross examination. The statement recorded u/s 132(4) of Mukesh Choksi, Director of M/s Mihir Agencies Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. did not contain any mention of name of assessee company or any evidence of collusive transaction between alleged accommodation entry providers and assessee in the form of transfer of any funds/cash representing unaccounted income from the coffers of the assessee company to the share applicants against share application money. Share application money have been received through proper banking channel and there is nothing on record to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. M/s Komal Commercial Ltd., Mumbai 10,00,000/- 8. Dhawani Marketing Pvt. Ltd. 15,00,000/- 9. Emerald System Eng. Ltd. 5,00,000/- 10. M/s Larite Industries Ltd., Mumbai 15,00,000/- 11. M/s Sargossa Investment Finance Pvt. Ltd., Mumbai 5,00,000/- 12. Study Sales Pvt. Ltd. 5,00,000/- Total 85,00,000/ Assesses filed list of applicants of share application money vide letter dated 22.02.2012. A notice u/s. 133(6) of the Act was issued on 12.03.2012 to all parties. Assessing officer observed that no reply is received from parties at Sr. Nos. 5, 8, 9 12. 6.14 Further in assessment order, Assessing Officer observed that assessee has not filed any confirmation as well as original share application form in respect of above 4 parties and therefore he made addition. In respect of 8 parties, a notice dated 12.03.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his primary onus to prove the identity, genuineness and creditworthiness of the share applicants. On perusal of the bank statements of share applicant, it can be seen that no cash has been deposited by them before issue of cheque to assessee towards share application money. None of the parties are related to assessee company. The assessee has proved all the three ingredients of proving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). If the Assessing Officer doubts the source of the source of the source, he was free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the requirement of section 68. The Honourable Supreme Court in case of Lovely Exports (P) Ltd. [216 CTR 195] has held that If share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then Department is free to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters and Finlease (P) Ltd. fall in the former category as the Assessing Officer had rejected the affidavits filed by applicants on merits; further the AO had also initiated inquiries through issuance of summons u/s 131 which returned unserved, and that is why the Court decided in favour of the revenue in said case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). In the remand report, the Assessing Officer himself has stated that the assessee has requested to issue summons u/s 131 but no further probe was made by the Assessing Officer. Thus there was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which has already been referred to above. Further in the case of Nova Promoters Finlease Pvt. Ltd., the shareholders didn't confirm the transactions of share capital and admitted before Additional Commissioner (Investigation) that they were acting as accommodation entry providers and thereafter later on they have filed the affidavit retracting their statement. The affidavits were not notarized and the depone ..... X X X X Extracts X X X X X X X X Extracts X X X X
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