TMI Blog2009 (9) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... were returned back with the postal remarks "incomplete address" and "no such person" 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assessee relied on the following : "( i )That the assessee had not produced the six of its shareholders of the company for verification when the same was requisitioned vide this office letter No. 450, dated 9-1-2007 and show-cause notice dated 28-2-2007; ( ii )That the share application money had been received from a fictitious account maintained by one Mr. Aggarwal who was not available 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT (Appeals) after considering the material on record and submissions made by the assessee observed upheld the action of Assessing Officer by observing as under : "2.3 I have gone through the contention of the appellant as also perused the records produced before me. In the instant case the appellant company is a private limited company whose shares are not listed in any stock exchange or for that matter the appellant 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 na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y onus on the assessee to prove the cash credit was not discharged. The ld. CIT (Appeals) further noted that the assessee had failed to prove its claim since it had not produced any shareholder before the Assessing Officer. Hence the identity of the shareholder was not proved. As regards the contention of the assessee that opportunity of cross-examination was not provided by the Assessing Officer, we find from the assessment order that the Assessing Officer 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. Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany." 8.1 Further Hon ble High Court in para 16 of this order held as under : "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 prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely; whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial 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 mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment is free to proceed to assess them individually, in accordance with law. Hence the issue of share capital has to be examined in the light of propositions laid down by Hon ble Delhi High Court in paragraph 16 in the case of Divine Leasing Finance Ltd. ( supra ). If the facts of the present case are examined in the light of decision of Hon ble Delhi High Court we find that two subscribers have denied to have invested in shares of the assessee- company. The summons sent to two other share applicants namely 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 earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from tax the Assessing Officer considering the fact that office resources were also used for the purpose of earning dividend, the Assess- ing Officer disallowed 30 per cent of total expenses as related to earning of exempt income. The disallowance made by the Assessing Officer amounted to Rs. 1,80,692. 13. On appeal it was submitted that the Assessing Officer had violated the principle of natural justice. The assessee had produced all the books of account, which were audited. No adverse remarks were made by the auditors 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue authorities, we feel it proper to set aside the computation of disallowance to the file of the Assessing Officer with the directions to determine the amount disallowable under section 14A as provided under Rule 8D of Income-tax Rules, 1962, if any. Needless to say the Assessing Officer will provide opportunity of being heard to the assessee. 16. The last issue for consideration relates to confirming the disallowance of Rs. 17,308 relating to preliminary expenses written off. During the course of assessment proceedings it was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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