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TMI Blog2023 (5) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 3615/Del/2018 - - - Dated:- 26-4-2023 - SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA , JUDICIAL MEMBER For the Assessee : None For the Department : Shri Anil Kumar Sharma , Sr. DR ORDER PER ASTHA CHANDRA , JM The appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals) - 33, New Delhi ( CIT(A) ) dated 22.12.2017 pertaining to the Assessment Year ( AY ) 2012-13. 2. The assessee has taken the following grounds of appeal: - 1. That the order of Ld. CIT(A) is perverse, erroneous on facts and law and is contrary to principles of natural justice and deserves to be set aside. 2. That the Ld. CIT (A) has erred in confirming an addition of Rs.4,80,00,000 U/s 68 on account of share capital as unexplained cash credit, this addition being arbitrary and contrary to the facts and provisions of law and is liable to be deleted. 3. That the Ld. CIT (A) has erred in confirming an addition of Rs.9,60,000 as ' unexplained expenditure as commission @2% paid on arranging entry of Rs.4,80,00,000/- which is baseless, contrary to facts born on record and provision of law as such liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. The assesses is a Private Limited Company. It is not the case of the assessee that the Directors or persons behind the company making the investment in their shares were related or known to them. It is highly implausible that unknown persons had made substantial investment in a private limited company to the tune of Rs. 4,80,00,000/- without adequately protecting the investment and ensuring appropriate returns. Other than the confirmation/copy of balance-sheet and acknowledgement of ITR, MCA data etc. no other agreement between the respondent and third company had been placed on record. The director of the said company even did not attend in person for personal deposition in response to summons u/s 131 duly served two times. The persons behind this company was not produced by the assessee despite various opportunities provided. Evasive and transient approach before the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the books of accounts. Therefore, the commission paid to the above company @ 2%, comes to Rs. 9,60,000/-i.e, (2% of Rs.4,80,00,000/-), is also added to the income of the assessee. 6. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who confirmed both the additions by observing and recording his findings in para 8 to 8.22 of the appellate order which is reproduced below:- 8. Decision 8.1 Briefly, the facts of the case are that the Appellant introduced Rs.4,80,00,000/- as share capital in the name of M/s. Pushpanjali Export Pvt. Ltd. during the FY 2011-12 relevant for AY 2012-13. The Appellant has credited the sums in the books of account on different dates from 03.12.2011 to 15.12.2011. The Assessing Officer issued notice u/s 133(6) dated 21.08.2014 to verify the identity and creditworthiness of the creditor and genuineness of the transaction. The Assessing Officer issued a summons u/s 131 dated 05.09.2014 to M/s. Pushpanjali Export Pvt. Ltd. to record the statement of the competent authorized persons of the company in addition to various other details mentioned on page 4 of the Assessment Order. The Director of the said company did not appear person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non compliance. Thereafter, the Assessee submitted copy of High Court order dated 06.08.2014 as per which 9 companies, including M/s. Anjaneyay Export Pvt. Ltd., earlier M/s. Pushpanjali Export Pvt. Ltd amalgamated with M/s. Core International Ltd. The Assessing Officer issued a summons u/s 131 to the principal officer of M/s. Core International Ltd. requiring him to appear in person for deposition. The Assessing Officer also informed about incomplete submission of details called for. The Assessing Officer noted that M/s. Pushpanjali Export Pvt. Ltd. had invested in shares of Indian companies at Rs.21,45,50,000/- as on 31.03.2011 and Rs.17,02,85,000/- as on 31.03.2012. The Assessing Officer also asked to produce minutes registers of erstwhile M/s. Pushpanjali Export Pvt. Ltd. for the FY 2011-12 alongwith original share certificates. The summons issued by Assessing Officer was received back unserved with the postal remarks Left . In the Assessment Order, the Assessing Officer has observed that earlier notices were being served on the same address. The Assessing Officer asked the authorized representative of the Assessee company to furnish current postal address of M/s. Core Interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer held that the nature and source of share capital of Rs.4,80,00,000/- shown in the name of M/s. Pushpanjali Export Pvt. Ltd. is not explained m the light of provisions of the Income Tax Act. Accordingly, the Assessing Officer added the amount u/s 68 of the I.T. Act. In addition to this, the Assessing Officer has also made the addition of Rs.9,60,000/- holding that the share Capital introduced in the books was not genuine but only a bogus entry for which the Assessee has paid commission @ 2% on the amount. 8.6 The Appellant, inter alia, submitted that it had filed confirmation, copy of the bank statement and copy of the Income Tax Return to the shareholder for AY 2012-13. The Appellant submitted that promoters bf M/s. Maruti Tradexim Sh. Jai Bhagwan Gupta has very vast experience of trading, import and export. He is also a partner of M/s. Sky World Exim having turnover above Rs.80 crores. The Assessee company was incorporated with the object of trading, import and export of good on a large scale and huge turnover. This was the reason for issued the shares at premium within the ambit of corporate and taxation laws of India. The Assessee submitted the following docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of M/s. Pushpanjali Export Pvt. Ltd. mainly comprised of the loans and advances from others. The bank statement of M/s. Pushpanjali Export Pvt. Ltd. clearly depicts the business activity and its worth. The creditor company was showing meager amounts in the Income Tax Returns. The Appellant has argued that the profit declared in the Income Tax Return alone cannot prove the creditworthiness. But question arises as to what for the creditor company was existing ? Was it for taking the loans from parties and advancing them or for earning some income ? If it had worth of many crores, did it earn income therefrom in any of the Assessment Years ? Even if Rs.25 crores or so is invested in the; banks it may fetch crores of income. But that is not the case of the creditor company. These facts clearly show that income is definitely an indicator for the creditworthiness of a company otherwise there is no use to invest its funds without earning any income. The Appellant company could not produce the director of M/s. Pushpanjali Export Pvt. Ltd. who must close touch with the directors of the Appellant company because in the cases of private limited companies the funds are arranged from peopl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the real nature of transaction and what happens in the real world and contextualize the same to such transactions in the real market situation. It is pertinent to state here, the wisdom of Hon'ble Supreme Court in CIT V Arvinda Raju (TN) (1979) 120 ITR 46 (S.C) wherein it was held that- One day, in our welfare state geared to social justice, this clever concept of 'avoid a against 'evasion' may have to be exposed . 8.11 Hon'ble Supreme Court in the case of McDowell Co. Ltd. (1985) 154 ITR 148 (S.C), wherein the Hon'ble Supreme Court has denounced tax avoidance, if not bonafide. The relevant part of the observation of the Hon'ble Supreme Court is reproduced hereunder: Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuge. Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence also. Under the tax jurisprudence, the word 'evidence' had much wider connotations. WI word 'evidence' might recall the oral and documentary evidence as admissible under the Indian Evidence Act, the use of word 'material' in Sec. 143(3) showed that the assessing officer, not being a court could rely material, which might not strictly be evidence admissible under the Evidence Act for the purpose of making an order of assessment. Court often took judicial notice of certain facts which need not be proved before The plain reading of section 142 and 143 clearly suggests that the as:: officer may also act on the material gathered by him. The word 'material' clearly shows that the assessing officer is not fettered by the technical of evidence and the like, and that he may act on material which ir strictly speaking be accepted evidence in a court of law. 8.15 Further, it would be relevant to cite the decision of Hon'ble ITAT Delhi in the case of Hersh Win Chadha in I,T.A.Nos.3088 to 3098 3107/Del/2005 where the Hon'ble ITAT has held as under- 6.13. It would, at this stage, be relevant to consider the admissibility and use of circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.17 The Appellant has failed to substantiate his arguments in the light of the detailed discussion in this regard in the foregoing paras wherein it has been established that the Assessee introduced his unaccounted money in the garb of share capital. It is reiterated that what matters to decide a particular case is not the form but its real content. The Assessing Officer has successfully lifted the veil from the artful design of the transactions. In none of the case laws relied on by the Ld. AR for the Appellant the courts have supported deceitful transactions. 8.18 The earlier view of Hon'ble Delhi High Court in the cases Stellar Investment Ltd. 192 ITR 287 and Lovely Exports Pvt. Ltd., 299 ITR 268 was that share capital cannot be added in the hands of the assessee company once the assessee furnishes PAN, addresses of the creditor/subscriber with copies of the shareholders register, share application forms, transfer register, etc. This would constitute sufficient explanation 1 assessee. The Hon'ble Supreme Court was in agreement with above decisions of Delhi High Court, however, on conclusion of facts only without answering the ratio laid down as sought to be pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary . ii. `Hindusthan Tea Trading Co. Ltd. vs. CIT 263 ITR 289 (Kol) In Steller Investment Ltd.'s case [2001] 251 ITR 263, the apex court had parsed the following order: We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs. From the above observation, it appears that the Supreme Court has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable pragmatic and might in a given case take into account that the assessee might find if difficult to unimpeachably establish the creditworthiness of the shareholders . iv. In CIT v. N. R. Portfolio Pvt. Ltd. [2014] 2 ITR-OL 68 (Delhi); [2014] 206 DLT 97 (DB) -Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness identity are deeper and obtrusive Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor, it is in this context, the Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) had observed:- .... The Hon'ble Supreme Court rejected the SLP filed in the above case Navodaya Castle (P.) Ltd. vs. CIT [2015] 56 taxmann.com 18 (SC) with the observation: We do not see any merit in this special leave petition, which is hereby dismissed . vii. Onassis Axles P. Ltd. v. CIT [2014] 364 ITR 53 (Delhi) 14. Lovely Exports Pvt. Ltd. (supra) is an authority for the proposition. That the assesses is under an obligation to dispel any doubts regarding the genuineness of an investor and the genuineness of the transaction. Here, though the assessee furnished particulars relating to three share applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or search for the addresses of shareholders and communicate with them. Creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank accounts. Circumstances might require that there should be some evidence of positive nature to show cause that the said subscribes had made a genuine investment, acted as angle investors, after due diligence or for personal reasons. Where there is admission before the investigation wing of the department that the subscribers to share capital had availed accommodation from bogus entry operators creditworthiness must be proved and these factual aspects and circumstances as proved before investigation wing cannot be simple to ignore. Source of funding is important ingredient of the onus of the assessee. It is not sufficient that the identity of the share application or creditors should be established for the assessee to discharge the initial onus which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and creditworthiness of the share applicant or the individual who is advancing amounts. ..... 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