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TMI Blog2011 (9) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit. 3. That the order of the CIT(A)-II be set aside and that of the AO be restored. 4. That the appellant craves leave to add or amend any Ground of Appeal before it is finally disposed. 3. In Ground No.1, the Revenue contended that the ld. CIT(A), erred in law and on facts, in deleting the addition of Rs.5,68,000/-, made by the AO, on account of undisclosed income of the assessee u/s 68 of the Act. The AO after affording 13 opportunities, to the assessee, made an addition of Rs.5,68,000/-, representing introduction of share capital, in the books of account of the assessee, in the name of certain persons. It was categorically observed by the AO that the assessee remained non-cooperative in the course of assessment proceedings. The AO invoked the provisions of Section 68 of the Act and made the impugned addition. The AO further observed that the assessee filed part of confirmations as is evident from a careful perusal of para 2.3 of the impugned assessment order. It is pertinent to reproduce the text of the findings recorded by the AO, on the issue in question : 2.3 Addition of Rs.5,68,000/- as income from undisclosed sources :- It was found that the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sharma CA attended,no Books produced, only part infor- mation filed.Adj to 24.10.2007. 24.10.2007 12.11.2007 Rajesh Sharma attended, no Information filed, case adj.to 2.11.2007 2.11.2007 -- Nobody attended, nor infor-mation filed 3.11.2007 15.11.2007 -do- 15.11.2007 -- Nobody attended, penalty u/s 271(1)(b) 7.12.2007 13.12.2007 -do- 17.12.2007 24.12.2007 Final show cause notice issued 24.12.2007 -- Part confirmation filed, books Produced. No remaining confir-Mation etc. filed. Case discussed From the above reasons it is clear beyond doubt that the assessee has produced the books of account only on the last date of hearing that too in response to final show cause notice and the undersigned has no alternative except to treat the following share application money which was received in cash as income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished Smt. Bachint Kaur 15,000/- Confirmation filed and placed at page 49 of the paper book. She is assessed to income tax. Smt.Ravinder Kaur 18,000/- Confirmation filed and placed at page 48 of the Paper Book. Smt.Manpreet Kaur 40,000/- Confirmation filed and placed at page 46 of the Paper Book. She is assessed to income tax. Smt.Rajinder Kaur 78,000/- Confirmation filed and placed at page 44 of the Paper Book and photo copy of the PAN is at page 45 of the Paper Book. She is aasessed to income tax. Shri Jagdish Singh 55,000/- Confirmation filed and placed at page 32 of the Paper Book and photo copy of the PAN is at page 33 of the Paper Book. He is assessed to income tax. Shri Ravinder Singh 40,000/- Confirmation filed and placed at page 40 of the paper book and photo copy of the PAN is at page 41 of the Paper Book. He is assessed to income tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alyzed and highlighted the infirmities in the confirmations filed by the assessee in the Paper Book from page 1 to 20. The ld. DR submitted that the share capital contribution was made by all the parties in cash and not through banking channels. It was also vehemently contended that in a number of confirmations, the applicant had furnished the address of the assessee itself, for the reason best known to them. It was also clearly pointed out by the ld. DR that the assessee has furnished merely PAN number, in respect of such parties and none of the parties filed a photo copy or any evidence in respect of the return of income filed by them. Therefore, it was argued by the ld. DR that none of the applicants is assessed to tax. It was, further, reiterated by the ld. DR that in all the confirmation letters, a bare assertion of being assessed at range has been made by the parties but none of them had filed any corroborative evidence, in the form of photo copy of the return of income filed by them or any assessment made on them. Ld. DR pleaded that the genuineness of such transactions are not established and the same are in deep-doubt. In the final analysis, the ld. DR placed rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The relevant and operative part of the decision of the Delhi High Court in the case of Sophia Finance Ltd. (supra) is reproduced hereunder for the purposes of proper appreciation of the same : Cash Credits company-capital-amount credited in books of account as receipt of share application money enquiry whether shareholders did exist can be done-if explanation not satisfactory open to Income Tax Officer to treat the cash credits as company s income-Income-tax Act, 1961,s. 68. Reference-question of law-company-claim that credits represented amounts paid by shareholders for shares-assessment passed without making appropriate enquiries regarding whether shareholders existed or not Commissioner setting aside in revision-Tribunal holding that such enquiry as was possible was made-question of law arises-Income-tax Act, 1961, ss. 68,256,263. 9. The Hon'ble High Court in the case of Lovely Exports (P) Ltd. 299 ITR 268 held that in Steller Investment Ltd. (supra) reference to Section 68 of the Act is conspicuous by its absence. Hence, its ratio cannot be stretched to the extent that it pertains as a reflection on Section 68 of the Act when the enquiry pertained only to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show either that the receipt was not income or that if 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 taxable income where the AO has failed to prove satisfactorily the source and nature of credit entry appearing in its books of account and it is held that the relevant amount is income of the assessee, it is not necessary for the Department to locate its exact source. 12. In the present case, the assessee was afforded effective, reasonable and more than adequate opportunities, to present its case. However, the assessee chose not to avail of such opportunities and remained non-cooperative through-out the assessment proceedings. He also opted not to file requisite detail as called for by the AO. It was statutorily incumbent upon the assessee, to prove the genuineness of such transactions. The principle of natural justice embodied in the Latin maxim Audi Alteram Partem simply means that a person has a right to be granted an opportunity of being heard, should be proper and reasonable so as to enable the person affected, to meet the case against him. It implies that only adequate and proper opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reunder 3. We have heard ld. Counsel for the appellant. 4. Ld. counsel for the assessee submitted that the Tribunal had erred in treating the income on account of share application money to be undisclosed income of the assessee. According to him, the department could have proceeded against the individuals in whose name the share application money was deposited. He relied upon the ratio laid down by the Hon'ble Supreme Court in CIT V Lovely Exports P.Ltd. (2008) 216 CTR (S.C) 195 and the judgment of the Delhi High Court in ITA No.1469 of 2010, CIT v New Age Infosys Pvt.Ltd. decided on 27.9.2010. Ld. Counsel also urged that the disallowance of Rs.6,00,000/- on account of interest relatable to advances to Mr.Ashok Anand and Mrs. Raj Rani Anand under Section 36(1)(iii) of the Act was unsustainable. 5. We do not find any substance in the submission made by ld. counsel for the assessee. The Tribunal while upholding that the amount of Rs.42,78,756/- received by the assessee as share application money was infact undisclosed income of the assessee had adjudicated the said issue against the assessee with the following observations : 7 The assessee is a unlisted company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his primary onus of establishing identity, credit worthiness and genuineness of transaction u/s 68 of IT Act moreover entire sum was received in cash where genuineness of transaction is always in doubt. The CIT(A) further held that the assessee had failed to file the confirmation from the creditors and onus not being discharged, the addition merits to be upheld. The Ld. A.R. for the assessee drew our attention to the share application forms received from 28 persons placed at pages 7 to 34 of the paper book in which the requisite details of each persons was given. The Ld. D.R. for the revenue placed reliance on the order of CIT(A) and pointed out that the amounts in question were received in cash and the identity of the share holders not having been established, the addition merits to be upheld. 10 We have heard the rival submissions and perused the record. The assessee company during the year under consideration had raised share application money of Rs. 42,78,756. The entire share application money was received in cash and as per the claim of the assessee the sum was received from 28 persons. The assessee had furnished on record the copies of share application forms submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 after relying on the ratio laid down by the Apex Court in Lovely Exports (P) Ltd (supra) observed that where the identity of the subscriber has been established by way of different proofs filed in this regard and if the Assessing Officer entertains any doubt about the genuineness of the documents, the same could have been verified by him from the records available with the authorities. From the above said, it transpires that the onus is upon the assessee to establish the identity of the subscriber in relation to the share application money received. Where the assessee fails to establish the identity of the subscriber, the onus cast upon the assessee to prove that the credits are genuine does not stand discharged. The Assessing Officer during the course of assessment proceedings, on the perusal of the information furnished by the assessee found the assessee to have only disclosed the names of the persons and incomplete addresses were furnished by the assessee and some of the share applications were bearing only thumb impression. The total share application money was received in cash and not through banking channels and none of the said persons were income tax assessees nor had an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in I.T. Appeal No.953 of 2006 in the case of CIT V Lovely Exports (P) Ltd., 299 ITR 268 (Delhi) held that no substantial question of law arises in the case. A bare perusal of the decision reveals that in the case of Lovely Export (P) Ltd. (supra), the following evidences were filed to support the contention of the assessee, in respect of share application money : i) PAN of the applicants ii) Income Tax Ward, where the applicant assessed to tax iii) Share application money received through banking channels iv) Confirmations/affidavits placed on record. 18. The Hon'ble High Court, adjudicated the issue in favour of this assessee on the basis of above evidence as also keeping in view that the AO failed to refer to the assessment records of the applicant to controvert the documentary evidence filed. The Hon'ble Supreme Court dismissed the SLP of the revenue. In the present case, the share application money was not received through banking channels but in cash. The assessee failed to file evidence indicating that the applicants are assessed to tax. Mere filing of PAN is not sufficient and sacroscent evidence to establish the credit worthiness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeappellant is unlisted company and not made any public issue. In view of the above, it is evident that the assessee failed to file reasonable, proper and plausible explanation regarding nature and source of such receipts and this kind of explanation is construed as no explanation by the Hon'ble Supreme Court in the context of Section 68 in the case of CIT V P.Mohanakala 291 ITR 278 (S.C). 21. In view of the above legal and factual discussions and respectfully following the decision of the Hon'ble jurisdictional High Court in the case of M/s Power Drugs Ltd.(supra), this Ground of Appeal is decided in favour of the revenue and against the assessee. 22. In Ground No.2, the Revenue contended that the CIT(A), erred in law and on facts in deleting the addition of Rs.5,08,822/- made by the AO on account of low GP. The addition on account of low GP made by the AO was deleted by the CIT(A). 23. We have carefully considered the rival submissions, facts of the case and the impugned orders of the lower authorities. Ld. AO made the impugned addition without rejecting the books of account as contemplated u/s 145(3) of the Act, as is evident from the findings, as contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o her for verification/comment. Besides that for assessment year 2006-07 on the basis of same facts and circumstances, the gross profit rate of 10.70% has been accepted by the department u/s 154(3) and copy of the same has been placed before me and the assessee is carrying on the same business as in the earlier year and, therefore, taking into consideration all the facts and circumstances of the case and the case laws as relied upon by the assessee's representative, I hereby confirm the addition of Rs. 50,000/- to cover any leakage of profit and which according to me would meet the ends of justice and the same balance addition of Rs. 5,08,821/- is deleted. 25. The AO substituted his own version in place of book version disclosed by the assessee, without rejection of books of account. The AO failed to bring any credible material on record to justify such addition made by him. On the other hand, the findings of the CIT(A) are well-reasoned and based on the proper appreciation of the legal and factual position, in the matter. In view of this, we don t find any infirmity in the findings of the CIT(A). Hence, the same are upheld. This Ground of Appeal of the Revenue is dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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