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TMI Blog2009 (9) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... son" respectively. The assessee, therefore, was asked to provide the present addresses of these two shareholders. The assessee failed to provide the address of the persons. Shri Mool Chand Nirmal and Shri Yogesh Saxena attended the office on 5-12-2006 and 29-1-2007 respectively and their statements were recorded. Both of them had denied to have made any investment in the assessee-company. Shri Mool Chand Nirmal was running a proprietorship concern in the name of Royal Chemical India at 1/30, Lalita Park, Laxmi Nagar, Delhi - 92 and holding a bank account number with Karnataka Bank, Laxmi Nagar Branch, Savings Bank Account number 734. Shri Yogesh Saxena was running a proprietorship concern in the name of M/s. Third Eye Vision at 31, Chawla Complex, Shakarpur and was holding current account number 8747 and Savings Bank account number 114324 with OBC, Laxmi Nagar Branch. The Assessing Officer further initiated enquiries from bank to ascertain the source of share application money. The enquiry made with ABN Amro Bank, Barakhamba Road, New Delhi, revealed that account from which the share application money was received by the assessee-company belonged to one Shri Aggarwal. From the enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le at the given address nor the said concerns operated from the given address; (iii)That two shareholders denied of having invested any share in any company. Shri Yogesh Saxena denied the signature appearing on the confirmation filed by the assessee. This proved that his signature was forged. This further proved that the affidavit also had his forged signature; (iv)That the rubber stamps appearing on the Income-tax return of the alleged shareholders were different from what were appearing on the confirmation filed by the assessee in respect of the shareholders. This proved that these confirmations were fabricated from the actual Income-tax filers by forging their signatures; (v)That the principal officer of M/s. MLF Classic Finance Ltd. and M/s. Rapid Impex (P.) Ltd. did not attend this office despite repeated opportunities provided. The perusal of the bank accounts gave the indication that these two were also entry provider for the mere fact that all the transactions were of "By transfer" and "To Transfer", i.e., in the nature of circular entries; (vi)That the assessee had not established the actual existence of its shareholders. Nothing precluded the assessee to produce its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company being private limited company is not allowed to make public offer for its shares and therefore by necessary corollary the appellant company was required to raise its share capital from close circle. Further, from the facts of the case it is seen that two shareholders viz., Shri Mool Chand Nirmal and Shri Yogesh Saxena had categorically denied having invested any amount in the appellant company by way of share application. Further this fact could also be confirmed from the fact that amounts credited in these two cases had never been received from their own accounts but the same was received from the account of one Mr. Aggarwal, who incidentally was not found at its given address. This clearly indicates that the appellant company had included the names of these persons for name sake and that they had never invested in the appellant company. In this regard the appellant has submitted that they were not aware of such facts, but it would not absolve the appellant company's liability to prove its claim. Since the appellant company had failed to identify the person per se it is not its claim that it had proved its claim. It is well settled the primarily onus lies on the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of section 68 may be invoked. In the latter case section 68, being a substantive section, empowers the Income-tax Officer 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.' 2.4 It is thus clear that in the instant case the appellant has failed to prove its claim since it had not produced any share holders before the Assessing Officer and hence identity of the shareholders were not proved on the contrary it is found that persons in whose names such amount had been credited had denied having invested any such sum and, therefore, it is not the appellant's claim that appellant had discharged its liabilities further in the instant case the person from whose bank account the sum was received was neither-traceable not produced before the Assessing Officer. Thus considering the overall facts of the case I do not find any infirmity in the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issued show-cause notice to the assessee based on the enquiries conducted wherein it has been specifically mentioned that Shri Yogesh Saxena and Shri Mool Chand Nirmal had denied to have made any investment in the shares of the company. During the course of assessment proceedings the assessee never asked for cross examination. Therefore, from the facts of the case stated above, it is clear that the identity of the persons have not been proved. The money for investment of shares had not come from the accounts of the investors. The deposits were made in the accounts of the parties, which were routed through the bank accounts of Shri Aggarwal. From these facts it is clear that the identities of share- holders were not proved. Sh. Yogesh Saxena had stated that his signatures on confirmation as well as on affidavit were forged. The Assessing Officer also noted that Sh. Aggarwal or his said concerns were not found at the address given in the bank. As per bank records the share application money were received from Mr. Aggarwal through proprietary concerns namely (i) N.D. Trading Co.; (ii) Royal Builders & Pro.; (iii) Third Eye Vision; and Shunya Marketing. It is not a case of public is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial strength of the creditor/subscriber; (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the assessee; (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the Creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 9. Further Hon'ble Delhi High Court in the case of Bhav Shakti Steel Mines (P.) Ltd. v. CIT [2009] 179 Taxman 25 observed as under :- ". . . In any event we also note that the Supreme Court in the case of CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 considered the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely Shri Amit Gupta and Shri Surender Kumar Srivastava were returned back unserved. The share application money was received in respect of these two persons from the account of Sh. Aggarwal. The assessee could not provide the new address of these persons nor were they produced before Assessing Officer. The principal officer of other two share applicants namely M/s. MLF Classic Finance Ltd. & M/s. Rapid Impex (P.) Ltd. did not attend the office of Assessing Officer despite of repeated opportunities provided. Ld. CIT(A) has directed the Assessing Officer to verify the contention of assessee as to whether the share application money was received from these two companies in earlier year and decide the issue accordingly. We do not find any infirmity in the direction given by ld. CIT(A) in this regard. We also find that Assessing Officer on further investigation from bank had found that share application money was received from the four accounts of Mr. Aggarwal maintained in the names of his proprietary concerns which were not also found at the addresses given in the banks and not from the account of four persons as mentioned in table given in para 2 above. Hence the contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. Therefore, no disallowance could be made. The ld. CIT (Appeals) after considering the arguments advanced by the assessee observed that the assessee had made substantial investments in shares and securities. The assessee's establishment resources were diverted in investment activities. Therefore, the assessee's argument that the expenses were not incurred for investment activities could not be accepted. He, therefore, was of the view that some part of the expenses would be incurred for investment activities where-from earning is made in terms of dividend, which was exempt from tax. Therefore, provisions of section 14A of the Act were applicable. The ld. CIT (Appeals) accordingly restricted the disallowance to the extent of 20 per cent of the total expenses as against 30 per cent disallowed by the Assessing Officer. 14. Before us the ld. AR of the assessee submitted that the books of account were produced before the Assessing Officer. No expenditure was incurred for earning the exempted income. On the other hand, the ld. Sr. DR supported the order of the ld. CIT (Appeals). 15. We have heard both the parties and gone through the material available on record. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the expenditure was incurred for increasing share capital and 1/5th of the same was claimed as deduction under section 35D of the Act. The Assessing Officer was of the view that section 35D does not cover the expenses in the nature of issue of private subscription to shares. He placed reliance on the decision of Brook Bond (India) Ltd. v. CIT [1997] 225 ITR 798 (SC). He also mentioned that the company was incorporated in the year 1982 and, therefore, the limitation to claim preliminary expenses was over long back. The Assessing Officer, therefore, disallowed the claim of expenses at Rs. 17,308. 17. On appeal, it was submitted that the law did not distinguish between the (P.) Ltd. company and Public Ltd. company, hence no disallowance should be called for. The ld. CIT (Appeals) confirmed the disallowance on the ground that deduction under section 35D of the Act is for the increase in the share capital, which was nothing but an expense incurred for broadening capital base and hence, it was capital expenditure not allowable as deduction in view of the decision of Hon'ble Supreme Court in the case of Brook Bond (India) Ltd. (supra). 18. Before us the ld. AR of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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