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TMI Blog2023 (3) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... ds have been raised by the Revenue: 1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of Rs.3,00,00,000/- made by the A.O. u/s 68 of the I.T. Act, 1961 on account of undisclosed income which has been introduced in the garb of share capital/share premium from M/s Bhavani Portfolio Pvt. Ltd. and M/s Thar Steels P. Ltd., entry operator companies, being operated by Shri Tarun Goyal, an entry operator identified by the Investigation Wing of the Department. Ld. CIT(A) has not appreciated the fact that the assessee has failed to establish the physical identity and creditworthiness of concerned parties and genuineness of transactions in terms of section 68 of the Income-tax Act, 1961. 2. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that the judgment of the Hon ble Supreme Court in the case of Lovely Exports (P) Ltd. 216 CTR 199 (SC) cannot be extended to a situation where a mechanism has been formed to introduce unaccounted money in the books of accounts with the help of accommodation entry providers which has been exposed by deep and detailed investigation carried out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vincingly so that genuineness of the transaction claimed could be proved without any doubt. Accordingly, the Assessing Officer asked the appellant to file further information which was submitted by the appellant vide its letter dated 23.12.2010. The Assessing Officer was not satisfied and accordingly asked the assessee company to produce the directors of the shareholder companies. On failure of the appellant to produce the directors of the shareholder companies the Assessing Officer held that the appellant had failed to prove all the three ingredients of Section 68 i.e. identity, creditworthiness and genuineness and made addition of Rs.3,00,00,000/-. 8. The authorized representative filed a detailed submission before the ld. CIT(A) which is as under: During the year under consideration the appellant received an amount of Rs.3,00,00,000/- on account of Share Application Money. Out of the same an amount of Rs. 50,00,000/- was received on account of share capital and Rs. 2,50,00,000/- on account of share premium. The Id. AO had some doubts with respect to the genuineness of the said transactions of the appellant with M/s Bhawani Portfolio Pvt. Ltd. M/s Thar Steels Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was submitted before the Id. AO. a. Acknowledgements of Returns of Income. b. Balance sheets Profit and Loss A/cs c. Affidavits from the Directors along with confirmations d. PAN Details e. Copy of Board Resolutions passed at their Board Meetings f. Copy of PAN cards g. Confirmations from the parties h. Copies of share application forms i. Copies of bank statements of the said parties j. Confirmation of receipt of shares k. Copies of Memorandum and Articles of Association l. CIN details Copies of all these documents assessee wise are enclosed in the paper book for your kind perusal. Your honour it is important to state here that the Id. AO in his order has also agreed to the submission of above stated documents. He in his order has stated as under: Vide letter dated 23-12-2010 he filed the following documents:- a. Photocopy of PAN of assessee company b. Copy of the Memorandum and Article of Association of the assessee company c. Copy of return of the assessee company for the A Y 2008-2009 d. Copy of Share capital account in assessee s books e. Copy of Form 2 dated 1-2-2008 and 31-3-2008 f. Copy of Annual return of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of CIT vs. Lovely Exports Pvt. Ltd. [2008] 216 CTR 195 (SC) where it has been specifically stated: Can the amount of share money be regarded as undisclosed income under s. 68 of 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 assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. Your honour it is essential to state here that the assessee filed following details to establish the identity of its share applicants: a. Acknowledgements of Returns of Income. b. Balance sheets Profit and Loss A/cs c. Affidavits from the Directors along with confirmation d. PAN Details e. Copies of Board Resolutions passed at their Board Meetings f. Copies of PAN cards g. Confirmations from the parties h. Copies of share application forms i. Copies of bank statements of the said parties j. Confirmations of receipt of shares k. Copies of Memorandum and Articles of Association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not a satisfactory explanation, section 68 empowers the ITO to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee. Relying on the above judgement of the Apex Court a recent judgement of the jurisdictional Delhi Court in the case of CIT vs Achal Investments Ltd. (204) 268 ITR 211 (Del) has passed an order which stales as under: We are not required to examine the matter in detail as we are of the opinion that the Tribunal has allowed the appeal of the assessee following its judgement delivered in Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) (192 ITR 287(Del) decided on 16th April, 1991. In that case, the subscribed capital of the respondent company had been increased and the ITO accepted the increase and assessed the company. The CIT, in revision, set aside the order of assessment, being of the view that there had been a device of converting black money into white by issuing shares with the help of formation of an investment company, and that the A.O. did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any statement recorded who was that person, why was his statement recorded, why was he trusted, was he the director of the company on who s behalf he passed a statement, whether he took the name of the assessee company and claimed that he had done some business with it, whether any opportunity was given to the assessee to cross examine that person, what was the source which led to a conclusion that the money deposited in accounts of some other entities emanated from the coffers of the appellant. All these questions remain unanswered and thus invalidate the allegations of the assessing officer and thus make the addition void ab-initio. Your honour the Id. AO has written a long story stating that there was one person Mr. Tarun Goyal who was running various companies from his premises and indulged in providing accommodation entries. The assessing officer has written a long story and each and every whereabouts of that person. At one stage these findings of the Id. AG clearly establish the identity of the said person whereas on the other hand he states that the assessee has not been able to prove the identity of the share applicant. Further the AO has not been able to prove that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO to support his disbelief against various claims made by the assessee by giving some finding against it. The Id. AO has to conduct some inquiry to support his claim with regard to a transaction being ingenuine if names/'addresses/PAN details/income tax returns of various creditors have been produced before him. In case the assessee is not able to produce any of the creditors it becomes duty for Id. AO to issue notices u/s 131 of the Act and call. 16 concerned parties for examination before taking any adverse inference against the assessee. In the appellant s case, the Id. AO did not bother to conduct any inquiry. He has not done inquiry with regard to the share application money received by the appellant. He has not bothered to enquire from any party about the genuineness of the transaction in spite of having every detail including PAN and other income tax details with him. Your honour in various judgments delivered by number of High Courts it has been held that after having received all details from the assessee if the assessing officer has not gone beyond issuing notices u/s 131 of the Act to the concerned parties (i.e. he has not conducted any inquiry except issuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not appear. Addition cannot be made u/s 68. Your honour, in the decision of the Supreme Court in C.I. T. vs. Orissa Corporation Pvt. Ltd., [1986] 159 ITR 78 (SC), it was held In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o what extent an assessee is liable to prove the genuineness of the credits appearing in its books of accounts. It is abundantly clear that the onus upon any assessee is to prove the source of any transaction and he cannot be compel led to prove the source of the source. In the appellant s case the appellant has proved the genuineness of the transaction by producing every document related to the source of the credits, rather it has also to a great extent proved the source of the source by enclosing various details of the parties. Your honour here is a case where the appellant has not only discharged its primary onus but has also discharged its onus beyond any doubt. As per the provision of Section 68 of the Act,, the appellant is required to offer explanation about the nature and source of the share application money to the satisfaction of the AO. The satisfaction of the AO has to be not arbitrary but on the basis of prudence. The appellant has taken share application money from M/s Bhawani Portfolio Pvt. Ltd. M/s Thar Steels Pvt. Ltd. The said companies are existing entities and are being duly assessed to income tax (as confirmed by AO himself). It is not a case of vanishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of a very short order: The Assessee had received an amount of Rs. 51 lakhs as share application money from 33 persons. The Assessing Officer required the Assessee to produce all these persons. It appears that some of them did appear. The Assessing Officer accepted the explanation and the statement given by three of these persons but found that the response from the others was either not available or was inadequate. On this basis, the Assessing Officer added an amount of Rs.46 lakhs pertaining to 30 of the persons to the income to the Assessee. In appeal, the Commissioner of Income Tax (Appeals) [CIT(A)j upheld the view taken by the Assessing Officer. In further appeal, the Tribunal noted that the CIT(A) had noted the fact that the Assessee had produced the income tax returns, share application forms, confirmations, PAN letters, ration cards and/or bank statements in respect of all the share applicants. The CIT (A) had accepted the existence of the applicants but did not accept the genuineness of the transaction, subject matter of the inquiry. While setting aside the order of the CIT(A), the Tribunal relied upon two decisions of this Court, namely, Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the judgments as mere reference. Outcomes of almost all judgments are in consonance with the facts of the case of the assessee. Your honour in this regard it is also to mention that the appellant has fully cooperated with the department. The appellant provided all details with regard to parties from whom it had accepted share application/ capital money. Your honour only issue which disturbs the assessee is that every time the Id. AO has made some finding that has been done by him on some estimates based on his own whims and fancies. The Id. AO has not been able to give a single concrete finding which could be held against the assessee in disallowing various claims made by it. Your honour will endorse that here it is not the case that the appellant did not cooperate with the department in providing various details to prove the genuineness of the transaction. The appellant produced all possible documents before him. Having fi led al l the details the assessee discharged its onus of proving the transaction being genuine. Now it was the duty of the revenue to prove with some evidence that the genuineness of the transaction was not established by the assessee. But surprisingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Vs CIT 2018-TIQL-274-SC-1T where Hon ble Supreme Court held as follows: We do not find any merit in this petition. The Special Leave Petition is accordingly dismissed. 5. CIT Vs Navodaya Castle Pvt . Ltd. (2014) 367 ITR 306 (Del) where Hon ble Delhi High Court accepted that since the assessee was unable to produce the directors and the principal officers of the six shareholder companies and also that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer had observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 20. Now, when we go to the order of the Tribunal in the present case, we notice that the Tribunal has merely reproduced the order of the Commissioner of Income-tax (Appeals) and upheld the deletion of the addition. In fact , they substantially relied upon and quoted the decision of its co-ordinate Bench in the case of MAF Academy P. Ltd. , a decision which has been overturned by the Delhi High Court , vide its judgment in CIT v. MAF Academy P. Ltd. [2014] 206 DLT 277 ; [2014] 361 ITR 258 (Delhi)). In the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criber companies to pay share application money, amount so received was liable to be taxed under section 68. It was held as follows: 12. A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the AO and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. It has further been observed that the report of the investigation wing cannot conclusively prove that the assessee s own monies were brought back in the form of share application money. /4s noted in the earlier paragraph, it is not the burden of the AO to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances, Assessing Officer was justified in drawing adverse inference and adding amount in quest ion to assessee's taxable income under sect ion 68. It was held as follows: 9. As noticed previously, the CIT (A) was of the opinion that the assessee had discharged the basic onus which was cast upon it after considering the ruling in Lovely Exports (P.) Ltd. 's case (supra). The material and the records in this case show that notice issued to the 5 of the share applicants were returned unserved. The particulars of returns made available by the assessee and taken into consideration in paragraph 3.4 by the AO in this case would show that the said parties/applicants had disclosed very meager income. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. This discussion itself would reveal that even though the share applicants could not be accessed through notices, the assessee was in a position to obtain documents from them. While there can be no doubt that in Lovely Exports (P.) Ltd. (supra), the Court indicated the rule of shifting onus i .e. the responsibility of the Revenue to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim that the amounts claimed to be received on account of share applications were not based on genuine transactions. The CIT (A) upheld that order, after calling for a remand report . In these circumstances, the conclusion of the Tribunal , that the assessee had discharged its onus, appears to be based on a superficial understanding of the law, and an uninformed one about the overall facts and circumstances of the case. 13. In view of the above reasons, the questions of law in these appeals are answered in favour of the revenue. The orders of the Assessing Officer are restored. The appeals are to succeed and are therefore allowed. 12. CIT Vs N.R. Portfolio Pvt . Ltd. [2014[ 42 taxmann.com 339 (Delhi)/ r20141 222 Taxman 157 (Delhi) (MAG)/[2014] 264 CTR 258 (Delhi) where Hon ble Delhi High Court held that if AO doubts the documents produced by assessee, the onus shifts on assessee to further substantiate the facts or produce the share applicant in proceeding. It was held as follows: 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e denied subscription. Remaining not ices returned with endorsement not known . Hon ble Calcutta High Court held that unexplained share application money was rightly treated as assessee s income. 15. Rick Lunsford Trade Investment Ltd Vs CIT f2016-TIOL-2Q7-SCITI (Supreme Court) where Hon ble Supreme Court dismissed SLP upholding that it is open to the Revenue Department to make addition on account of alleged share capital u/s 68, where the assessee company has failed to show genuineness of its shareholders. Sd/- (Rinku Singh) Addl . Commissioner of income Tax(Sr. DR) E-Bench, ITAT, New Delhi 10. The ld. CIT(A) adjudicated as under: 3.1 I have considered the submissions made by the appellant, the assessment order and perused the evidences filed by the appellant s AR. The issue in this case is the share capital of Rs.3,00,00,000/- received by the appellant company during the year. Admittedly this share capital has been received from two companies. The appellant in this regard has filed confirmations, copies of bank statements and Memoranda Articles and other details to prove the existence of these companies. Based on these docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents produced by the assessee on the aforesaid aspect, there has to be some reason and material for the assessing officer and he cannot go into the realm of suspicion. After analyzing the above facts, the Court referred to the judgment of the Delhi High Court in the case of CIT vs. Creative World Telefilms Ltd. and held that once documents like PAN or bank account details were given by the assessee the onus shifts upon the assessing officer and it is upto him to reach the shareholders and the assessing officer cannot burden the assessee merely on the ground that summons issued to the investors were returned. Thereafter the Court referred to the judgment of Delhi High Court in the case of CIT vs Value Capital Services (P) Ltd. 307 ITR 334 (Delhi) whereby it was observed that additional burden was on the department to show that even if the applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee to enable it to be treated as the undisclosed income of the assessee. After laying down the above principles, the Court dismissed the appeal filed by the Revenue where the applicants were companies despi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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