TMI Blog2012 (2) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Apex Court in the case of COMMR. OF INCOME TAX VERSUS M/S LOVELY EXPORTS (PVT) LTD [ 2008 (1) TMI 575 - SC ORDER] , clearly comes to the rescue of the assessee, where it was held that even if such share applicants are bogus, but their identity is proved, then no addition is warranted in the case of the assessee. In the present appeal, since the identity of such share subscribers, as we have discussed above, was established, therefore, no addition u/s 68 is warranted in the case of the assessee company- Decision in favour of Assessee. - ITA No.545/Ind/2010 - - - Dated:- 6-2-2012 - SHRI JOGINDER SINGH, JUDICIAL MEMBER And SHRI R.C. SHARMA, ACCOUNTANT MEMBER For the Appellant : Shri S.N. Agrawal For the Respondent : Shri Arun Dewan ORDER PER JOGINDER SINGH The assessee has preferred this appeal against the order of the learned Commissioner of Income Tax (Appeals) dated 16.4.2010 on 7 grounds. However, ground nos. 1, 2, 5, 6 and 7 were not pressed at the time of hearing. These grounds are, therefore, dismissed as not pressed. In this scenario, the only grounds left for our consideration are ground nos. 3 and 4 to the effect that the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata AAFCA5571Q 10,00,000/- Total 30,00,000/- 3.1 The Assessing Officer required the assessee to furnish evidences regarding identity, creditworthiness and genuineness of the share applicants. In response to the same, the assessee submitted details and addresses of the companies from whom it has received share application money. Later on, notices u/s 133(6) were issued to the above companies to file confirmations, balance sheet and copies of bank accounts. But all the notices returned back unserved with the remark not found . Vide order sheet entry dated 22.09.09, the assessee was confronted and also was asked to produce the share applicants because no reply of the notices u/s 133(6) was received. However, on 27.10.09 the assessee filed the copies of assessee s bank accounts in two banks and submitted that there was no other bank account of the assessee. He also submitted that it is not practicable to produce the directors of the companies of Kolkata. The assessee also did not produce the copies of the bank statements of the share applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh High Court in the case of Commissioner of Income Tax Vs. Rathi Finlease Ltd.; 215 CTR (MP) 249 and decision of Hon ble Calcutta High Court in the case of Commissioner of Income Tax Vs. Nividen Vanijya Niyojan Ltd.; 182 CTR (Cal) 605. 3.3 In view of the above, the Assessing Officer observed that since, the assessee has failed to prove the identity, genuiness and creditworthiness of the share applicants, the share application money of ₹ 30,00,00/- ,as received by the assessee, in the year under consideration, is liable be added to the income of the assessee under section 68 of the Income Tax Act, 1961. 3.4 Felt aggrieved with the above action of the Assessing Officer, the assessee approached the learned Commissioner of Income Tax (Appeals), who required the assessee to furnish further explanation and lead evidences. The assessee filed detailed written submissions, in which it gave details of the share applicants i.e. address, PAN and has referred to further documentary evidences filed and compliances made by such share applicants before Assessing Officer is in response to notice u/s.133(6) issued. Copies of balance sheet of the assessee company for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney was shown as outstanding as such without making necessary allotment of share itself speaks about the financial affairs and the nature of assessee s activity in the matter of managing such share application money. It is also worthwhile to note that in the written submissions a lot has been said about experience, contacts of the Directors and the varied nature of the business activities. But Profit before Income tax for A.Y. 2007-08, 2008- 09 and 2009-10 stood at ₹ 58,643/-, 1,68,493/- and loss at ₹ 3,35,051/- after considering huge F O loss at ₹ 32,98,314/- during F.Y. 2008-09. 4.02 The assessee in support of credit worthiness of share applicant Companies have referred to their net worth as on 31.03.07 as under: (a ) Shri Lal Traders (P.) Ltd., Kolkata 317.31 lakhs (b) Lake View Vinimay Ltd., Kolkata 424.58 lakhs (c) Saharsh Suppliers Pvt. Ltd., Kolkat 385.71 lakhs (d) Ambison Tie Up Pvt.Ltd., Kolkat 289.02 lakhs A closer examination of the Balance sheets P L A/cs of the aforesaid Companies for the year ended 31.03.2007 reveal the following: A) Shri Lal Traders (P) Ltd. (i) Share capital stands at ₹ 16.80 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Pvt. Ltd. Companies and one noteworthy investment is the investment in one of the share applicants' Ambition Tie Up P. Ltd. at ₹ 5 lakhs. Other major portions of Loans and advances is against consists of Advance for shares at ₹ 106.00 lakhs and loans stands at ₹ 21.43 lakhs only. (ii) The Company with such huge networth of nearly ₹ 4 Crores is having sales of ₹ 13.19 lakhs only and interest on loans is reflected at ₹ 2.35 lakhs and in the final results there is a loss and is no income is accounted for on investment in shares and advances given for shares which exceeds ₹ 4 crores. (Copy of Balance sheet, P. L. A/c and Schedule to Balance sheet and details of advance as included in Paper book at Page 180, 181, 182 and 187 are enclosed at Annexure C-1 to C-4). D) Ambition Tie Up P.Ltd.: (i) Share capital stands at ₹ 15.40 lakhs and Reserve surplus stands at ₹ 273.62 lakhs Investment in Unquoted Pvt. Ltd. companies stands at ₹ 445.08 lakhs. The Company on sales of ₹ 46.65 lakhs and interest of ₹ 1.68 lakhs has earned net profit of ₹ 3093 /- only and absolutely no income is acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany 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. CIT v. Lovely Exports Pvt. Ltd. SLP (Civil) No.1153 of 2008. (emphasis supplied) There is no mention of admission / acceptance of SLP filed by the Department, nor issue of notices to opposite parties and thus SLP has been dismissed in limine without being admitted. 4.1.1 The aforesaid observations were made by Hon ble Supreme Court, while dismissing SLP filed by the Department against judgment in CIT V. Divine Leasing Finance Ltd., 299 ITR 268 (Del.) wherein it was held as under No question of law, far less any substantial question of law arises for our consideration. We may, however, briefly reflect upon a submission made by learned counsel for the respondent to the effect that the assessee had, by its letter dated March 8, 1999, requested the Assessing Officer to examine the assessment records of the share applicants whose GR Nos. had been supplied. It is not controverted that action was not taken by the Assessing Officer, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom; the extent to which; and the point of time when the onus could ,if at all, justifiably said to have shifted. This becomes clear from the last para on page 105 of the report. This will depend on the facts of each case. It has been argued, but without substance, that the Full Bench did not go further than holding that the only responsibility on the assessee is to identify the subscriber; or that the Assessing Officer was not required to delve into the credit-worthiness of the subscriber; or that the Assessing Officer need not be satisfied about the genuineness of the transaction. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided) Thus, the initial burden cast by section 68 on an assessee involves these things to be [cumulatively] proved prima facie. The condition of cumulatively proving all three ingredients is clear from the use of the words These things in the ratio reproduced above. 4.1.6 Coming to the use of the words proved prima facie in the ratio reproduced above, it may be made clear that the Law Lexicon compiled by T.P. Mukherjee incorporates the meaning of the words from the cited decisions as below: PRIMA FACIE. Even an obiter dictum of the Federal Court is binding upon the High Court and when a Superior Court held that an Act if prima facie prospective it is not open to subordinate courts to canvass the import or implication of that dictum. The use of the word prima facie would indicate that there is no possibility of an alternative construction being put on the Act, for it is on the face of it prospective- Nand Kishore v. Sukti Dibya, A.I.R 1933 Ori. 240 at 243: I.L.R 1953 24: 19 C.L.T.44 . 4.1.7 Reverting back to the decision of the Hon ble Calcutta High Court in the Shankar Industries case, the concept of shifting of onus from the assessee on to the AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blished prima facie the de facto existence of a creditor company, even then the onus lay on the assessee to further establish certain things because non-production of documentary evidence of corroborative value invites adverse inference against the person who ought to have produced it [CIT v. Krishnaveni Ammal (1986) 158 ITR 826 (Mad)]. When the asessee is pressing into service only the legal or dejure identity of a creditor and not at all coming up with any evidence of the de facto existence of the creditor company, he has completely failed even to prima facie establish the de facto existence of the creditor company. The de jure existence is a mere convenient fa ade of the de facto existence of the creditor company. Such de jure existence is self serving one, having been obtained through application and other forms and formalities unilaterally filed before the ROC. Such self serving evidences are also not entertained by courts as in the case of Bansidhar Agrawal Panna v. CIT , MP II (1984) 148 ITR 523 (MP). Hence such legal evidence is no more than a mirage because of AO s findings about non-existence of such companies at given addresses despite field enquiries made and repurchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is a finding of fact [CIT V. Ghewarchand Kamalkumar (1977) 108 ITR 398 (Ori); R.Dalmia V. CIT(1978) 113 ITR 522(Del.) 4.2.1 Further reference in this respect may be made to often referred and relied decision of Hon ble Supreme Court in the case of CIT V. Orissa Corporation Pvt. Ltd. 159 ITR 78 Wherein also it was held that in this case the respondent had given the names and address of the alleged creditors It was in the knowledge of the Revenue that the said creditors were income tax assessee. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the respondent, 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. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital is / are bogus / by non existent persons / entity of no means, no addition can be made in the hands of the assessee/ assessee company, whether such sum are found credited as contribution to share capital /share application money in the name of non-existent / bogus persons/ entity of prima facie no means or doubtful creditworthiness. 4.3.1 Before proceeding further, it will be appropriate to examine the preposition of law laid down in various Supreme Court decisions itself to the effect as to what constitutes the law laid down where SLP is dismissed without formulating the substantial question of law and recording arguments of both the sides of such substantial question of law in deciding the appeals. (a) Hon ble Supreme Court in the case of V.M.Salgaonkar Bros Pvt. Ltd. 243 ITR 383 (SC), Held: When a appeal is dismissed by the Supreme Court by a non-speaking order, the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case, the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of article 133 of the Constitution ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration law by the Supreme Court within the meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court, which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex court of the country, But this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. (vi) Once leave to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons are given, dismissal simpliciter is not a declaration of law by the Supreme Court. (Emphasis provided) 4.3.2 Further, the Hon ble Supreme Court has held in the case of CIT V. Sun Engineering Pvt. Ltd. 198 ITR 297 as under: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. 4.3.3 Still further, the Hon ble Supreme Court in the case of Padma Sundara Rao (Deceased) and others v. State of Tamil Nadu and Others 255 ITR 147 as emphasized The court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict of the Legislature. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ca Investment (P) Ltd. (2003) 179 CTR (Del) 526: (2003) 262 ITR 493(Del) distinguished. 4.3.5 It may be recalled that similar contentions were advanced from the side of assessee/assessees placing reliance on the judgment of Hon ble Supreme Court in the case of CIT V. Stellar International Ltd. 251 ITR 263(SC) which has been considered by Hon ble M.P. High Court in arriving at the aforesaid conclusions. Thus, it has to be necessarily concluded that it will have to be considered and decided in every case by a quasi judicial authority involving application of provision of section 68 in the matter of contribution of share capital / share application money whether the onus case on the assessee / assessees has been discharged or not in accordance with law on appreciation of totality of evidence available on record and surrounding facts and circumstances of the case. It may also be noted that Hon ble Supreme Court in the case of CIT V. P. Mohankala 291 ITR 278 (SC) while examining the provisions of section 68 has held that when the explanation offered by assessee is not found to be satisfactory and proper that will be a case of offering no explanation by the assessee. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither was return is assured, nor safety of investment was guaranteed, not to speak of capital appreciation and lastly such investment being totally illiquid, defies all logic and rational of conventional investment decision making process. Such investment decision can not be taken by any genuine company, who would be interested in both protecting its investment and earning a decent return on such investment. Thus, it has to be necessarily concluded that these companies engaged them selves in providing bogus share capital by way of accommodation entries to wiling tax evaders. 4.5.1 From the facts available, it prima facie transpires that the company itself contacted these alleged investors to utilize their names in the garb of prospective share holders. No proof of making any correspondence or inquiry with the company by these investors before investing in shares of the company has been produced on record despite specific requisition even in appeal proceedings. 4.6 It will be appropriate to take notice of the commonly known notorious facts about the modus operandi of the converting unaccounted funds by the Promoters and Directors of the company by first inviting such sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations made in the assessment order/impugned order and the assertion made by the learned respective counsels, during hearing the learned counsel for the assessee invited our attention to the reply dated 5.12.2011 (page 465 of the paper book) to the effect that summons (page 463) were issued to the share applicants, requiring certain information u/s 131 of the Act, the share applicants duly confirmed that Srilal Traders Private Limited (share applicants) gave ₹ 3 lacs to the assessee during financial year 2006-07 as share application money through cheque no. 295383 dated 28.4.2006 drawn on HDFC Bank, Calcutta, meaning thereby the identity of the share applicants was proved. It is further noted that the summons sent u/s 131 dated 28.11.2011 to the share applicants were duly received, therefore, it can be said that their address was also confirmed. The share applicants have also filed the copies of the bank statements. Likewise, summons dated 28.11.2011 were also issued to Lake View Vinimay Private Limited which were duly received and vide reply dated 3.12.2011 addressed to the Dy. Director of Income Tax (Investigation) they duly confirmed payment of ₹ 10 lacs vide ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. CIT v. Lovely Exports Pvt. Ltd. SLP (Civil) No.1153 of 2008. (emphasis supplied) If the aforesaid conclusion drawn by the Hon'ble Apex Court is kept in juxtaposition with the facts of the present appeal, it can be said that the identity of share applicants was proved. In view of these facts, it can be said that if the department still finds such applicants to be bogus, they are free to reopen their individual assessments but certain no addition can be made u/s 68 of the Act in the hands of the assessee company. 5. During hearing the learned Senior DR contended that the issue is covered by the decision of the Tribunal in the case of M/s Agrawal Coal Corporation decided by this Bench on 31st October, 2011 in ITA Nos. 151/Ind/2009, 283, 136 and 34/Ind/2010, 190/Ind/09, 158/Ind/2010 etc. We are not agreeing with this proposition because in that case the identity of such share applicants was not proved and even the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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