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TMI Blog2012 (12) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) for proving identity, creditworthiness and genuineness of transaction. 3. ld. CIT (Appeal) has erred in law and on facts and circumstances of the case in referring various court case laws justifying the action of Assessing Officer ignoring the decision of Hon'ble Supreme Court in case of CIT Vs. Orissa Corporation Pvt. Ltd, 159 ITR 78. Hon'ble Court held that when the assessee borrows the loan and if an assessee gives name and addresses of the creditors, who are assessed to tax and full particulars is furnished then the assessee has discharged the duty. If the Revenue merely issues summons under section 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Addition cannot be made under section 68. 4. Learned CIT(A) is erred in law and facts and circumstances of the case while stating in para 5(16) that Lovely Export case is not applicable in the present case being Lovely Export and Divine Leasing thee was public issue while in the present case it is the amount which has been received privately. 5. Assessee has every right to make, add, delete, modify or alter any grounds of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal human behavior, there being no possibility of any return on investment in the future, the AO added the amount of ₹ 5 lacs in terms of provisions of section 68 of the Act. 3. On appeal, the ld. CIT(A) while upholding the reopening of the assessment, confirmed the aforesaid addition in the following terms:- 4.0 Addition u/s 68:- The appellant sought details of evidence/statement/reasons relied upon by the Deptt. The objection of the appellant was duly disposed off by providing the copies of recorded reason as asked for by the appellant. The appellant was asked to file the details regarding nature of entries, confirmation of the persons from whom money was received etc. The information as asked for was not submitted by the appellant. The Ld AO thereafter rejected the claim of the appellant. The action of the Ld AO could be examined in light of the decision of CIT v Durgaprasad More (1971) 82 ITR 540(SC) and ITO v K. Jayaraman (1987) 168 ITR 757(Mad). In the latter case it was held that if a doubt arises as to the validity or the genuineness of document filed, for the limited purpose of a proceeding before the authority under the Act, such authorities are bound t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived and which could help: it to invest ₹ .5,00,000/- by way of share capital/cash credit. Therefore, on the basis of material produced it was not just possible for any reasonable man to form an opinion with regard to creditworthiness of the investor/entry operator. There is no material evidence on record to establish that the amount was held by the investor to prove its creditworthiness. 5.5 Now let us go through the latest case laws. Let us concentrate on a latest judgment of Lovely Exports Pvt. Ltd (SC) (Supra) where the appeal of the Revenue has been dismissed on the issue of section 68. But before discussing the case, let us examine the facts of the particular case where such judgment was passed by the Hon'ble High Court of Delhi which was vetted by the Hon'ble Supreme Court. The case of Lovely Export (Supra) was decided alongwith Divine Leasing and Finance Ltd by the Delhi High Court. In the latter case, the capital was received by way of a public issue which is not the fact in the present case. In that case, the assessee filed a revised return taking advantage of the amnesty scheme and which is again not the fact in the present case. As the Hon'ble Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed to the AO much before March,1999 but he failed to react to the shifting of the burden, to investigate into the creditworthiness of the share applicants. Therefore, the appeal is dismissed..... Much contrary to the facts of the case of Lovely Exports (Supra), in the present case no such detail was ever furnished before the AO and there was no such failure as contemplated in that order and to that extent also the case under appeal is quite distinguishable. 5.7 In .order to decide as to whether the impugned share application money/cash credit/entry in the present case is genuine or not, one has to look not only at the documents produced but also at the surrounding circumstances. In this connection, it is worth while to reproduce the following observations made by the Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540. It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they dazzle with a brilliance that blinds the eye, seems to have escaped the notice of the Tribunal. It un-discerningly accepted the glib explanation of the assessee, though teeming with improbabilities and strenuous on credulity. The aforesaid observations emphasize the importance that a glib explanation tendered by the assessee, teeming with improbabilities cannot be accepted. In the case of M/s Gold Leaf Capital Corporation India Ltd Vs. JCIT, the Hon'ble ITAT, New Delhi vide order dated 11-01-2008 in ITAT No. 237(DeI)/2002 for Asstt. Year 1995-96 observed as under with regard to genuineness of transactions u/s 68. On going through the decision in the case of Divine Leasing Finance (Supra) and other relevant case law it is clear that the degree of onus would depend upon the facts of each case and no standard degree of proof can be applied generally to all cases, irrespective of the nature of receipts because in the case of share investments for public placements the degree of proof may be light but in the case of private placement if may be stringent, the reason being a public issue cannot be made by a Private Limited Company. However with requisite perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court observed as under:- .......... It is well settled that the assessee must discharge the burden of proving the identity of the creditors and also to give the source of the deposits. In other words, the creditworthiness of the depositors must be established to the satisfaction of the AO Where there is an unexplained cash creditors, it is open to the AO to hold that it is in Come of the assessee and no further burden lies on the AD to show that income in question comes from any particular source. It was observed by the Hon'ble Gujrat High Court in the case of Gujco Carriers Vs CIT (256 ITR 50) that startling facts could not be ignored. 5.9 It is a settled proposition of law that the appellant has a legal obligation to explain the nature and source of credit as held in the case of Shrilekha Banerjee Vs CIT (1963) 49 ITR SC 112. In order to prove the transaction is not hit by section 68, the appellant has to establish first the identity, second the creditworthiness of the creditor and third the genuineness of transaction. It is to be mentioned that not one or two of the ingredients are to be proved to the satisfaction of the AO, all the three ingredients are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the opinion that in the present case the AO has brought all positive material or evidence on record that would establish that the amount introduced by way of alleged entry to the extent of Rs.5,00,000/- from SMPL, OESPL SSL is nothing but unexplained unsecured amount. It is reiterated that assessment details of the person was not supplied by the appellant. 5.12 It is once again placed on record that the identity regarding the addressee (investor) could not be established in spite of repeated opportunities provided to the appellant. 5.13 The jurisdictional ITAT in recent case of Income-tax Officer Ward 6(3) Vs. Mayank Containers P. Ltd in ITA N0.2283/Del/09 dated 11/08/09, referring the decision of Lovely Exports (Supra) and Divine Leasing Finance (Supra) has held as below:- In our view, Hon'ble Delhi High Court and Hon'ble Supreme Court while rendering judgments in the above cases were not dealing with the case of Hawala Operators and Bogus Entry Providers. 5.14 Reliance is also placed on the decision of jurisdictional ITAT in the case of ITO v Omega Biotech Ltd in ITA No. 2860/Del/2009 for AY 02-03 dated 31/12/09. In that case the appellant received &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in the present case we find that the existence of share applicants were not proved. Therefore merely on certain papers produced by assessee it cannot be said that these share applicants were in existence who have actually applied (or shares and were allotted the shares .. In the above case the Ld Jurisdictional ITAT has rejected the submission of the appellant. All the observations made by the Ld. ITAT is equally true for the investor company/creditor/person. No further proof could be required in respect of the present investing company and I am of the considered view that this case deserves invoking of sec. 68 of the Act. 5.15 Reliance is also placed on two recent decisions on the subject of sundry creditors where the High Courts including, the jurisdictional High Court has decided in favour of the Revenue in identical circumstances of the cases. Toby Consultants P Ltd v CIT (2009) 324 ITR 338 (Del), Blowwell Auto P Ltd v ACIT 219 CTR 185 (P H). 5.16 In case of CIT v Dwarkadhish Investment P. Ltd Dwarkadhish Capital P Ltd ITA No.911 913/2010 dated 02.08.10, the Hon'ble High Court has dismissed the petition of the Revenue, matter relating to Sec.68 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v CIT (1972) 84 ITR 277 has held :- The Court has to look not only into the document relating to the transaction but also the surrounding circumstances to decide its true nature, the name which the parties give to it being of little consequence. The assessing authority is undoubtedly entitled and is, indeed, bound to determine the true legal relationship resulting from a transaction. If the' parties have chosen to conceal, by a device, the true legal relation, it is open to it to unravel such device and to ascertain the nature of the relationship. If the transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used in it in connection, with the ordinary rules of construction. 5.18 It has been held by a full bench of Patna High Court in the case of H.D. Aggarwal Sons (1988) 169 ITR 617, that the mere use of the terminology of the principal and agent may be far from being conclusive and may in fact be a misnomer. One has to go to the root and substance of the contract and not merely to its form and name, because otherwise, it would be open to the parties to camouflage the substance of an agreement by merely emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dict of the legislature. The elementary principle of interpreting or construing a statute is to gather the mens or sententia legis of the legislature. Where the language is clear the intention of the legislature is to be gathered from the language used. What is to be borne in mind is as to what has been said in the statute as also what has not been said. There is no ambiguity in the provision of Sec.68 and all the essential elements of See.68 is squarely applicable in the present case and hence there is no scope for any other mode of interpretation of the Act in the present circumstances of the case. 5.22 Applying the above tests in the present case, it appears to me that there cannot be any two opinions, having regard to the material produced with regard to identity, the creditworthiness of the subscribers as well as to the question of genuineness of transaction, the same could not be established by the appellant and hence the AO has rightly added ₹ .5,00,000/- and such decision of the AO is sustained. 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR on behalf of the assessee while carrying us through the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot produced before the AO or the ld. CIT(A) and why no reply to the letter dated 9.10.2009 issued by the AO was submitted. The ld. CIT(A) upheld the order of the AO on the ground that neither identity or creditworthiness of the aforesaid three companies nor genuineness of transactions has been established by the assessee. As is apparent from the facts of the case, the assessee is a private limited company and share application money was received by it not on account of public issue of shares but on account of private placement. The relevant details of authorized and subscribed share capital were not placed before us by the ld. AR nor even balancesheet of the company as on 31.3.2002.The assessee did not produce the directors of the aforesaid three companies despite sufficient opportunity allowed by the AO in the light of facts pointed out in the report of DIT(investigation) regarding receipt of accommodation entry by the assessee in the form of share application money from the said three companies. It is well established that the initial burden is on the assessee to explain the nature and source of the share application money received by the assessee. The assessee alone is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dev Nagar, Karol Bagh, New Delhi. The balancesheets of these three companies are signed by the same Chartered Accountant Rawal SK Co. These facts reveal that all the three investor companies operate from from the same address or are are controlled by the same group of persons. However, since the assessee did not produce the directors of the said companies before the AO nor the aforesaid affidavits attested by notary on 11.12.2009 were available before him and nor even the ld. CIT(A) appears to have examined these documents, there being no prayer for admission of any additional evidence, the ld. CIT(A) concluded that identity creditworthiness of the aforesaid three companies as also genuineness of transactions was not established. 6.2 As regards genuineness of the transactions and creditworthiness of the investors, this can be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder. In the instant case, the ld. CIT(A) found that the assessee received huge amount of fund in the relevant asstt. year from outside parties, who did not receive any dividend or interest whatsoever from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may point out that Special Leave Petition before the Hon‟ble Supreme Court in the said case arose out of the judgment dated 16.11.2006 of Hon‟ble Delhi High Court in CIT v. Divine Leasing Finance Ltd, 299 ITR 268. In that case ,the assessee ,a public limited company received subscription from public issue through banking channel and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1953. The said assessee furnished complete details the Tribunal noticed that the AO did not bring any evidence on record, which would indicate that the share holders were benamidar or fictitious persons or that any part of the share capital represented company s own income from undisclosed sources. There were five Sikkimese companies who subscribed to rights shares. Such Companies were duly incorporated under the Sikkimese Company Act and were assessed under Sikkimese Taxation Manual. In the above facts, the Tribunal deleted addition made on account of share capital by the AO and such action of the Tribunal was upheld by the Hon‟ble High Court by holding that no question of law arose. The Hon‟ble Supreme Court in the case of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such entry providers . The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our 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 materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000/- and the other being receipt of Rs. 42,000/- from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor produced the persons desired by the AO and the ld. CIT(A). Even it was not established as to how the assessee came to know the three parties Accordingly, the ld. CIT(A) concluded that the assessee failed to discharge its onus in establishing the identity creditworthiness of the aforesaid three parties and genuineness of the transaction. The situation before us is no better nor the ld. AR placed before us any material so as to improve upon the case of the assessee. The ld. AR did not adduce any reasons before us as to why the aforesaid three parties were not produced before the AO and ld. CIT(A) despite specific request and why no reply to letter dated 9.10.2009 issued by the AO was filed. The ld. AR did not even dispute the findings of the ld. CIT(A) that the shares were not even issued to the aforesaid companies nor copies of such share certificates or share transfer registers have been placed before us. In the absence of any evidence regarding genuineness of the aforesaid transactions in the light of information received by the AO from the DIT(Investigation) that there was specific involvement of the assessee-company in the modus operandi followed by entry providers, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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