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TMI Blog2024 (7) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry whatsoever to carry out the authenticity of the report of the Investigation Wing as applicable to the present case. CIT(A) has correctly concluded that the entire re assessment has been done out of mere suspicion and is not backed by independent reason to believe by the AO. The statement of Shri Rajesh Bhutoria, cannot be held to be a gospel truth specifically when the same has been retracted before the Metropolitan Magistrate. Even in the remand report, AO has not done any verification to contradict the humongous evidences adduced by the assessee and to challenge its authenticity. Accordingly, the entire addition made by the AO is based on mere surmises and conjectures and has no legal legs to stand upon. Accordingly, we find no merit in the grounds of appeal raised by the Revenue. The re opening was initiated on the basis of barrowed satisfaction and the Assessing Officer could not bring out the live nexus of information leading to re assessment. There are lots of infirmities in the reasons recorded. Certain persons are named. But it is not clear as to how they are connected with the company. The Bank Statement of Adhik Multitrade Pvt. Ltd. was examined. But significantly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge its onus of producing the said investors despite the AO giving ample time to do so? 4. Whether on the facts and circumstances of the case, the CIT(A) was right to hold that the assessee's contention of not being given the opportunity of cross examination of witness was correct despite the fact that the assessee itself submitted alleged affidavit of the same witness dated 27.12.2017 and submitted before the AO on 27.12.2017, wherein he had retracted the statement made before the income tax authorities u/s 131? 5. Any other grounds at the time of hearing. 3. Facts in Brief: The assessee is a company filed its return of income on 28/09/2011, declaring total loss of ₹ ( ) 31,756. Pursuant to information received from the Dy. Director (Inv.), Unit 2(3), Kolkata, the case was re opened under section 147 Income Tax Act, 1961 ( the Act ) and notice under section 148 of the Act was issued and served on the assessee. Reasons for the re opening of the assessment were also provided to the assessee, which is reproduced below: Credits in assessee s account from the following companies Sr. No. Name of Company Beneficiary Amount (₹) 1. Aadita Construction Pvt. Ltd. M/s. Greene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrastructure Pvt. Ltd. 607701010050051 There have been round amount enter account transfers amongst the above entities Summons dated 10.02.2011 were issued by speed post to all the entities including the directors Le. Shri Arun Behera and Shri Ranjit Kumar Das at their given. address and also to the concerned bank for KYC information and bank statement. As no response received from the companies and its directors further summons dated 23.01.2017 issued by speed post to Shri Arun Behera, at his given address. On going through the company details and the departmental data base it is observed that the STR linked with other STR baring numbers 1000020459 and 20461 in respect of Mr. Anil Kumar Verma, Mr. Rajesh Bhutoria in his statement dated 14.11.2014 ( NNEXURE-A) accepted that the he is one of the director of the above mentioned companies along with some other companies that were managed and controlled by him. Through these companies he facilitated accommodation entry to the beneficiaries in lieu of commission. In his statement he also admitted that his wife Smt. Sangita Bhutoria is also one of the directors in the following companies: Sr. No. Name of Account Holder 1. M/s. Dugar Buk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31/03/2017, on the basis of the information received from the Dy. Director, Unit -2(3), Investigation Wing, Kolkata, who had obtained the statement of one Mr. Rajesh Bhutoria on 14/11/2014. Mr. Bhutoria, in his said statement, had stated that he used to provide accommodation entries through his several companies in which he and his family members or friends, were directors. It is to be noted tG Mr. Bhutoria, in his statement, has specifically mentioned the name of bazar group only to which he had provided accommodation entries and has not specifically mentioned name of our client. Further, even though the Ld. A.O. has stated in his reasons for re-opening that Mr. Rajendra Bhutoria is director in the said companies, Mr. Bhutoria in his statement has not specifically mentioned name of the assessne company and has clearly mentioned the names of SRA Merchandise P. Ltd. and Bhavya Merchandise P. Ltd., only which belong to bazar group companies. Hence to stretch the said statement to include the assessee company is nothing but frivolous attempt to implicate Assessee Company. Therefore, the Ld. A.O. was not justified in re-opening the Assessment merely on such vague statement of Mr. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain records of companies. The documents also included the assessment orders of such companies for the three preceding years. Besides the documents also included the registration of the companies which disclosed their registered addresses. ii) The commissioner (Appeals) as well as the Tribunal on the basis of the appreciation of the evidence on record, concurrently came to the conclusion that the existence of the companies was based on documents produced from public records. iii) The revenue was seeking to rely upon the statements recorded of two persons who had admittedly not been subjected to cross examination. Hence the question of remanding the matter for re-examination of such persons would rot at all be justified. The notice was not valid and had to be quashed. The appeal stands rejected. The above judgements are squarely applicable to our client's case as the Ld. A.O. has not reopened the assessment at any time earlier, even though the said information in the form of the said statement of Mr. Bhutoria, was always available with them and that no cross-examination was allowed to the assessee as held by the Hon. Bombay High Court, which is the jurisdictional High Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished from the bank statements of all the companies that were filed. This established the fact that the share application money was received by Cheque/RTGS from the bank account of those companies, who were having their own sufficient funds in their own bank account out of which they had issued cheques/RTGS. 3. The full set of audited financial statements of all the said companies, were submitted and were on the record of the Ld. A.O. Tax Companies in Assessee Company along-with their investment in other Their balance sheets clearly established the Investment made by those companies. This evidence proved the availability of bonafide funds with those companies and their creditworthiness. 4. Our client also proved the source of investment of said companies, by bringing on record their bank statements and balance sheets in which these investments were clearly accounted for along with their investment in other companies as per their audited statements. 5. We would also like to point out here that the amendment to section 68 of further additional proof of sources of investor companies was brought on the statute book only with effect from 01/04/2013 and hence the said provision does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Companies. As regards the assumption of the Ld. A.O. that the said companies did not have sufficient share capital, we have to state that the Ld. A.O. has miserably failed to appreciate the fact that the Reserves and Surplus , is always considered as part of share holders funds . The same can be appreciated from the above table of all the said companies. The said total shareholder's funds, was very much sufficient, for the said companies, not only to invest in assessee company but in other companies also. As regards the contention of the Ld. A.O. that this paper companies have no credibility or capacity of their own to advance such huge amounts as these companies before advancing funds to the Assessee received exactly same amount from other group company, we have to state that the Ld. A.O. has not made any attempt to enquire into the nature of transactions of the said companies with the group companies. Hence just because exactly the same amounts are transferred, it cannot be said that the said Companies do not have any credibility or capacity to advance funds especially when the said companies have invested a very small amount in the Assessee company, as compared to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and then merely reject it, without carrying out any verification or enquiry into the material placed before him. In the case of Our Client, the Ld. A.O. did not apply his mind to the Investment details of those companies available with him and diverted his attention to the unnecessary data of Profitability of those companies, which was not required. He has just brushed aside the Investment and Balance sheet details and rejected those vital evidences merely on assumptions, presumptions, suspicions and surmises. Also, the Delhi High Court in the case of CIT Vs. Kamdhenu Steel and Alloys Ltd. 361 ITR 220 has held that the delicate balance has to be maintained while applying Section 68 69 of the Income tax Act 1961. On the One hand, no doubt, such kinds of dubious practices are rampant: on the other hand, merely because there is an acknowledgement of such practices that would not mean that in any of such cases, the Court has to presume that the assessee in question has indulged in practise. To make the Assessee responsible there has to be proper evidence. It is equally important that an innocent person is not fastened with liability without cogent evidence. The department is not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record any cogent or clinching evidence to show that the said transactions are not genuine. Further, the Ld. A.O. is also not justified in brushing aside the said affidavit of Mr. Bhutoria, by merely stating that it has no legal validity without even taking any legal opinion on the same. If the said affidavit which is affirmed before the Metropolitan Magistrate is not considered to be legally valid then the statement on oath given before the investigation officer of the Income Tax Department also, cannot be considered as legally valid and binding especially when it is not supported by any corroborative evidence. The Ld. A.O. has also failed to appreciate the fact that in majority of the cases, the Parties/Third Parties have retracted their statements given on oath to the Income Tax Department. It is also strange that the Department, who has been given amass powers under the Act, did not take any action from 10/02/2011 on the persons to whom Summons were issued and who did not appear before them, till the passing of the assessment order including the Bank to enforce their attendance before them. We would also like to point out here that all the Judgments cited by the Ld. A.O., in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the Shareholders but has proved the source of source also. 6.0 The paper book filed by the AR was sent to the AO and he was asked to give his remarks on the same. The AO has sent his remand report dated 12.07.2018 accepting the fact that all the papers and the submissions were filed before him while also holding the same contentions. The copy of the said report was forwarded to the appellant for comments on the same. 8. The paper book filed by the AR was sent to the AO and he was asked to give his remarks on the same. The Assessing Officer has sent his remand report dated 12/07/2018, accepting the fact that no additional evidences have been relied upon. In response to the said remand report, the learned A.R. had submitted rebuttal as under: With reference to the above appeal and under instructions from our above named client, we submit herewith, their following response to the remand report with a request that the same may please be accepted on record and the relief prayed for as per the grounds of appeal may please be granted to them: At the outset, we would like to point out here that the Ld. A.O. has clearly and unambiguously accepted the fact that all the documents that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reserves and Surplus are part of shareholders funds and hence he was not justified in assuming and presuming that all the said companies did not have sufficient share capital. The Ld. A.O. has once again harped on his presumed myth that Affidavit of Mr. Bhutoria has no legal validity, without even ascertaining about the position and importance in Law as regards the Sworn Affidavit made before Metropolitan Magistrate. It is also to be noted that the Ld. A.O. has relied on the Judgement in case of [2017] 394 ITR 27 (Calcutta) Pragati Financial Management (P.) Ltd. Vs. CIT Hon. Kolkata High Court wherein it is held that, an Income Tax Officer is not precluded from making an enquiry as to the true nature and source therefore even if the same is credited as receipt of Share Application Money However, from the facts of Our Client's case, it is clear that the Ld. A.O. has not made any inquiry worth its name including cross verifying the transactions from the concerned assessing officers of those companies and enforcing attendance of Mr. Bhutoria even though he was not satisfied with the Legality of the Sworn Affidavit of Mr. Bhutoriaand he was having sufficient powers to do so. Instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The observations of the learned CIT(A) are reproduced below: Decision: 7.0 I have perused the assessment order, remand report and submissions of the appellant. As regards the first ground of appeal, the appellant company had during re-assessment proceedings, vide letter dated 29/12/2017, submitted the following documents in respect of all the said companies: The copy of their PAN Card Issued to them by the Income Tax Department. Income Tax Return alongwith their Computation of Total Income for the relevant year. Copy of Memorandum of Association and Articles of Association along with the copy of Certificate of Incorporation. Complete set of Audited Financial Statements of all the Companies for the relevant year. The Bank Statements, establishing that all the impugned transactions were by Cheque payment only. The above documents were resubmitted during the appellate proceedings alongwith the Affidavit of Shri Bhutoria, based on which the entire assessment has been framed. It is also noted that all the said documents were submitted during the reassessment proceedings and were always available with the A.O. These were sent back to the AO for re-examination, and the remand repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any mention of the involvement of the appellant company. This coupled with the fact that no corroborating evidences were provided makes this statement a dumb document, and cannot be used against the appellant. It is a settled law that confession in the form of a statement is a weak kind of evidence and hence needed to be corroborated. It may be used to corroborate or contradict a statement made in the court in the manner provided under section 157 and 145 of Indian Evidence Act. The statement cannot be used as a substantive piece of evidence but it can be used for the purpose of corroboration and can be used to contradict by cross-examining the person who made. 7.4 The issue of the sworn affidavit before the Metropolitan Magistrate was examined. The AO has summarily dismissed the later Affidavit of Mr. Bhutoria by stating that merely making a statement in a court stamped paper does not have evidentiary value. The Court, Magistrate, or other officer as aforesaid, before whom an affidavit is made, certifies at the foot of the affidavit the fact of the making of such affidavit before him, and for the purpose of identification, mark, date, and initial every exhibit referred to in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch unrelated third party statement, would amount to an assessment on the basis of conjectures and surmises in the least, and deserves to be deleted. The AO has not proved that the share application money received by the appellant was its own money, and once the appellant has provided all the details and evidences to the AO, the onus of disproving the evidences furnished was on the Assessing Officer- which he has not discharged. 7.7 As regards the merits of the case, I have carefully considered the facts of the ase and the written submissions of the appellant. I find substantial force in the submissions made by the appellant. It is seen that the A.O. during the course of reassessment proceedings, has not made any efforts to summon the directors of the said companies. No letter u/s. 133(6) has been sent by the AO to the any of the said companies at the addresses provided to the AO. In any case, the appellant has furnished sufficient evidences to the AO to not only to establish the identity and creditworthiness of the said party but also to establish the genuineness of the transactions i.e. source of the monies, and has also provided all the documents to prove the source of source as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant company is only a small percentage of their total investments. The table prepared from the financial statements as included in Page 7 of this order provides a clear evidence to establish that the two said companies were having more than sufficient funds of their own to invest in the shares of the assessee company and that their current or past year's profits were not all required to be considered as a parameter of any sort for considering the creditworthiness of the said companies. Hence the AO is not justified in concluding that the said companies are merely paper companies only on the basis that their profit/income are very low or that they have received funds from the group companies without even inquiring into the nature of transactions the said companies had with the group companies. The Hon. Supreme Court in case of Lovely Exports Pvt. Ltd. 216 CTR 195 has held that if share application money is received by Assessee Company from alleged bogus shareholders, whose names are given to A.O. then Department is free to proceed to reopen their individual assessments, but it cannot be regarded as undisclosed income of assessee company. 7.11 In the case of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue. the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee: if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer 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. 16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the Income Tax Act. The assessee has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s contentions that the infusion of advance/ capital into its accounts was legitimate. Where the appellant adduces evidence in support of the advances received, it is open to the AO to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, or some statement of an unconnected party, some meaningful enquiry ought to be conducted by him to establish a link between the appellant and the alleged accommodation entry providers. Consequently, the AO was not justified in making additions of the amounts under Section 68 of the Act. The A.O. has failed to show as to how the appellant, even after submitting all the details that are required, has not satisfactorily explained the transaction, even when he has not examined or verified the same by enforcing the attendance of the persons on whose statements, he is relying on. 8.0 I am also aware of the fact that the Finance Act, 2012 inserted two provisos to Section 68, with effect from 1-4-2013 (assessment year 2013-14). First proviso is to enlarge the onus of a closely held company and provides that if a closely held company receives any share application money or share capital or sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient to hold that the Assessee's income had escaped assessment - 9.2 Also in a recent decision of Hon. Bombay High Court in case of 'Paradise Inland Shipping Pvt. Ltd., 400 ITR 439, on appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under - iv) The Notice of Reassessment had been issued on the Ground that the shareholders of the Assessee Company were fictitious persons. The Shareholders were other companies. The documents which had been produced were basically from public offices, which maintain records of companies. The documents also included the assessment orders of such companies for the three preceding years. Besides the documents also included the registration of the companies which disclosed their registered addresses. v) The Commissioner (Appeals) as well as the Tribunal on the basis of the appreciation of the evidence on record, concurrently came to the conclusion that the existence of the companies was based on documents produced from public records. vi) The revenue was seeking to rely upon the statements recorded of two persons who had admittedly not been subjected to cross examination. Hence the question of remanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investor could had managed by paying a lesser amount as Share Premium as a prudent businessman-Test of prudence by substituting its own view in place of businessman's had not been approved by Supreme Court-It was well settled that if creditworthiness of investor company and genuineness of transaction was proved no addition u/s 68 could be made and no substantial question of law arises-Question raised by revenue in regard to issuing share at a premium was purely a question of fact-There was no reason to interfere with decision of lower authorities- Revenue's appeal dismissed. Held: The Tribunal after due examination of the order of CIT(A) and the documents on record insofar as identity creditworthiness, genuineness of transaction of Aadhaar ventures, Dhanush Technologies, Emporis Projects and L.N. Industries (formarly known as L.N. Polyster) came to the conclusion that the assessee company having receipt share application money through bank channel and furnished complete details of bank statements, copy of accounts and complied with notices issued and the directors of the subscriber company also appeared with books of account before the appellate authority and confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that if the creditworthiness of the investor company and genuineness of the transaction is proved no addition under Section 68 could be made and no substantial question of law arises. The question raised by the revenue in regard to issuing the share at a premium is purely a question of fact. It is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe to shares at such a premium or not and moreover the section 68 does not envisages any law on share premium it only requirement is to identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants which same has been discharged by the respondent authority and the same has been accepted by the appellate authorities thus, the same cannot be reconsidered in these appeals as it is a pure question of fact. 12. We have heard both the parties and gone through the entire material available before us. The addition was made solely on the basis of the statement of Shri Rajesh Bhutoria, which has been retracted subsequently just two days before passing the assessment order. However, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bank accounts of jamakharchi/ accommodation entry provider companies into assessee's bank account. There were number of directors viz Mr. Arun Behra, Mr. Vimlesh Kumar Singh for: the Adhik Multitrade P. Ltd. Further it was informed that STR No. 1000020462 shri Arun Behera is linked other STR bearing No. 1000020459 and 1000020461 in respect of Shri Anil Kumar Verma. Mr. Rajesh Buthoria in his statement dated 14.11.2014 has accepted that he was one of the directors of the above mentioned company. On going through the bank statement of Adhik Multitrade P. Ltd one of the ultimate beneficiary is identified as Green edge construction P. Ltd. As the creditworthiness identity and genuineness of this company is itself not proved, the source of credit in assessee's book of Rs. 1,47,00,000/- is not proved. Income of the assessee introduced as credit in his books has therefore escaped assessment. I have therefore reason to believe that the income has escaped as on part of failure of assessee to disclose fully and truly all the material facts necessary for its assessment for the assessment year Therefore, the case is fit for proceeding u/s 147 of the IT Act 1961. 13. Certain persons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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