TMI Blog2012 (2) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated:- 15-2-2012 - MR.JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant : Mr.Deepak Chopra, Advocate . For Respondent: Mr. C.S.Aggarwal, Sr.Advocate with Mr.Prakash Kumar and Mr.Arta Trana Panda, Advocates. R.V. EASWAR, J.: This is an appeal filed by the Commissioner of Income Tax under Section 260A of the Income Tax Act,1961 ( the Act for short) against the order passed by the Income Tax Appellate Tribunal ( Tribunal , for short) on 14th May, 2010 in ITA No.3368/Delhi/2009, relating to the assessment year 2000-2001. 2. The assessee is a private limited company. In respect of the assessment year 2000-2001, for the previous year ended on 31st March, 2000, it filed a return of income declaring loss of Rs.2,800/-. The return was processed under Section 143(1) and the loss was accepted. Subsequently, the Assessing Officer received a letter dated 3rd March, 2006 from the Director of Income Tax (Investigation), New Delhi which furnished detailed information regarding entry operators/accommodation providers. The letter informed the Assessing Officer that there were 16 entry operators who had given accommodation entries to several persons of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies were received back unserved and the other summons remained uncomplied with. The summons issued to Mukesh Gupta and Rajan Jassal were served but remained uncomplied with. 6. In the meantime, it would appear that the assessee had raised objections to the reopening to the assessment which were disposed of by the Assessing Officer vide letter dated 19th November, 2007. The further objections raised on 26th November, 2007 were also disposed of by the Assessing Officer vide order dated 28th November, 2007. 7. Since there was no response to the summons which were served and some of them had been returned unserved, the Assessing Officer sent an Inspector of Income Tax to the addresses to which summons were issued. The Inspector reported that no such person or company was available or existing at the addresses to which summons were issued. On the basis of the report of the Inspector, the Assessing Officer issued notice to the assessee on 23rd October, 2007 to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. On 5th December, 2007 the assessee filed a letter with the Assessing Officer along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies as well as the affidavits of Raj Kumar, Harish Kumar and Pramod Kumar who were the directors in other companies which provided the share capital, were not considered by the Assessing Officer, directed the Assessing Officer to examine the contents of the affidavits and verify the veracity and genuineness thereof. The Assessing Officer was also directed to examine the genuineness of the transactions. 12. The Assessing Officer submitted a remand report dated 30th April, 2009 which is reproduced in pages 41 to 45 of the order of the CIT(Appeals) and for the sake of brevity it is not reproduced here. However, we may briefly notice the findings recorded in the remand report which are as under:- (a) The assessee did not produce the deponents of the affidavits despite repeated opportunities and, therefore, they could not be examined by him. (b) The affidavits were not sworn to by the deponents and, therefore, they are not admissible in evidence. (c) All the deponents had earlier given statements under Section 131 of the Act before the Addl. Director of Income Tax (Investigation) in which they had admitted that they were not doing any actual business but were only provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ription for the shares were received through cheques. (e) The Investor-companies were active as per the website of the Ministry of Corporate Affairs and they were duly registered with ROC. (f) Those companies were also having their income tax PAN numbers and regularly filed returns of income. (g) No material was brought on record by the Assessing Officer to show that the affidavits filed by the Directors of the investor- companies were not genuine. No enquiries were conducted about the contents of the affidavits. Even during the remand proceedings the Assessing Officer did not make any attempt to discredit the affidavits and merely stated that the summons issued to the deponents on 24th April, 2009 (in the course of the remand proceedings) remain uncomplied with. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. (h) No material was brought on record by the Assessing Officer independently of the information received from the investigation wing of the Income Tax Department to show that the monies represented the assessee s undisclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax had escaped assessment had a rational nexus with the material placed before the Assessing Officer by the investigation wing of the income tax department. As regards the appeal filed by the Revenue challenging the relief granted by the CIT (Appeals) on merits, the Tribunal concluded as follows: - In view of the above, the only requirement in a case where share capital is received is the establishment of the identity of the shareholder whereby the names of the shareholders are to be given to the AO. Even if the shareholders are unable to explain the source of funds, the addition if any can be made in their individual hands only. In the instant case, the finding recorded by the CIT(A) with regard to identity of the shareholder has not been controverted by the learned DR. The Revenue has also not taken any ground that CIT(A) has relied on the additional evidence while deleting the addition, we therefore do not find any reason to interfere in the finding of the CIT(A) who has deleted the addition after applying the proposition of law laid down by the Hon ble Supreme Court in the case of lovely Exports to the facts of instant case. 16. The revenue is in appeal against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates Pvt. Ltd. 7,50,000 Total 1,18,50,000 The aforesaid amounts were added by the Assessing Officer by invoking Section 68 of the Act. He also added an amount of Rs.2,96,250/- as commission allegedly paid to the above companies for obtaining the accommodation entries. The whole case of the Assessing Officer, articulated before us by the learned Standing Counsel for the revenue, is that there was enough material on record to show that the companies named above were mere entry providers for consideration and that the transactions were not genuine, though documentary evidence was adduced by the assessee to show to the contrary. The case of the assessee on the other hand, briefly stated, is that the documentary evidence was adequate to establish all the three ingredients required to be established by the assessee under Section 68, namely, the identity and creditworthiness of the share applicants and the genuineness of the transactions. It is also contended that the Assessing Officer has not disproved or discredited any of the evidence adduced by the assessee in support of the fact that it had received monies from the above named c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as under: - For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be In the same case Lord Radcliffe expressed himself in the following words: If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh Co. v. CIT, (1956) 30 ITR 181, which are as under: - It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 20. We now summarize the findings of the Tribunal as follows: - (a) The Assessing Officer has made the addition on the basis of the report of the investigation wing. (b) The share application monies were received through account payee cheques from companies duly registered with ROC and as per the website of the Ministry of Corporate Affairs, all these companies were active. (c) The assessee has filed confirmations, certificate of incorporation of the companies who applied for the shares, data generated from the website of the ROC, bank statements from the companies/Directors for payment of money to the assessee company as share application money. (d) The Assessing Officer has not brought any material which can prove that the share capital emanated from the coffers of the assessee company. (e) As per record, Mukesh Gupta and Rajan Jassal, who gave statements to the investigation wing on the basis of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to be involved. Even the Tribunal has recorded, while dealing with the assessee s cross objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee during the year under consideration. It has further been recorded by the Tribunal that as per the information of the investigation wing, the names of the persons issuing the cheques, the cheque amounts, dates etc., were also mentioned providing a link between the entry providers and the assessee. We are aware of the legal position that at the stage of issuing the notice under Section 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax at escaped assessment. However, once that stage is crossed and the reassessment proceedings are set in motion, the material on the basis of which the requisite belief was formed by the Assessing Officer has to be appraised and examined. That material on the basis of which the notice under Section 148 was issued becomes relevant in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 15th April, 2004, admitting that he was operating several accounts in various banks in the names of Jayanti Lal Sons, Mukesh Co. and in his own name as well as in the benami names of Preeti Arora, Babita Gupta, Manju Gupta, Rajesh Kumar Gupta, Hukum Chand and Ashok Kumar Gupta. In this letter, against the names in which the accounts were operated, the names of the banks and the branches were also given. A similar letter was written also by Rajesh Jassal to the Additional CIT, Investigation Unit-1, New Delhi giving details of the bank accounts operated by him. In the letter written by Mukesh Gupta, the names of Vijaya Bank, Ram Nagar Branch, New Delhi and Bank of Punjab, Rohini Branch, New Delhi also figure. The former account is in the name of Babita Gupta and Manju Gupta, admittedly benamis of Mukesh Gupta. 22. It is in the aforesaid background that we have to vet the evidence adduced by the assessee in the course of the reassessment proceedings, which form the bedrock of the appellate order. So far as the affidavits of Rajan Jassal and Mukesh Gupta are concerned, copies are placed at pages 85 86 of the paper book submitted on behalf of the assessee before us. These a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced before him for examination. It may be noted at this juncture that the assessee filed affidavits not only from Mukesh Gupta and Rajesh Jassal but also from several other persons who were in charge of some of the companies which had subscribed to the shares of the assessee company. Their names are Raj Kumar, Pramod Kumar, Harish Kumar etc. In the remand report, the Assessing Officer stated that as per the directions of the CIT(Appeals), summons were issued to all the deponents of the affidavits on 24th April, 2009 but they remained uncomplied with and none of the persons attended before him. When the remand report was given to the assessee for rejoinder, it is rather surprising to note that the assessee had nothing to say as to why the deponents of the affidavits, which were all in its favour, could not present themselves before the Assessing Officer for being examined on the affidavits. On the other hand, the assessee raised a legal plea that if the Assessing Officer is unable to verify the contents and correctness of the affidavits filed on oath, the same shall be treated as accepted by the department. The judgment of the Supreme Court in the case of Mehta Parekh and Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected to cross-examination for bringing out the validity of their statements, then the Tribunal would not be justified in doubting the correctness of the statement made by the deponents in the affidavits. Thus the affidavits need not be accepted as reliable when there is enough material on record to doubt the veracity of the transaction. In such a case it cannot be said that the affidavits can be rejected only after cross examination. In the present case, there is enough material on record to negate the claim of genuineness of the transactions and in the light of over-whelming material, the plea that the Assessing Officer should not have rejected the affidavits without cross-examination of the deponents has no force. The said exercise has resulted in complete miscarriage of justice. 26. The affidavits retracting their earlier statements, filed by Mukesh Gupta and Rajan Jassal were filed in December, 2007, that is after more than three years after they wrote letters to the Addl. CIT, Investigation Wing, Unit-1, Delhi sometime in May, 2004 admitting to their role as entry providers. No reason has been advanced by the assessee for such long delay in retracting the earlier lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enforce the attendance of Mukesh Gupta and Rajan Jassal and the directors of the companies who have allegedly paid the monies to the assessee, the CIT(A) has observed that if summons had been served it would mean that the parties were present at the addresses and even if they were not found by the inspector at the addresses furnished by the assessee, it was for the Assessing Officer to have made enquiries from the post office regarding the whereabouts of the addressees. We do not think that there was, in this case, any such duty cast on the Assessing Officer. 28. It is rather unfortunate that the assessee seems to have sent the Assessing Officer on a vain chase. It was first pleaded that the statements of Mukesh Gupta and Rajan Jassal should be given to it for rebuttal. They were given along with other material available with the Assessing Officer. When the assessee made a request for cross examination by letter dated 16-11-2007 (after the change of counsel) the Assessing Officer took efforts to issue summons to them. They were served, but those persons did not appear. On 4-12-2007 affidavits from them, along with affidavits from some other persons connected with the subscriber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were involved with only 4 out of the 16 companies which advanced monies is only part of the picture. They had stated before the investigation wing that their operations were routed through 22 companies whose names were also given. Fifteen out of those 22 companies have subscribed to the shares of the assessee. Therefore even if they were not directors of 12 companies, the fact remains, as admitted by them, that their entry providing operations were carried out through 22 companies, 15 of which have subscribed to the shares of the assessee-company. The Tribunal has ignored this vital aspect and has examined the issue rather superficially. Compliance with statutory norms and requirements is only one aspect, but in the present case a deeper scrutiny was required and the camouflage adopted was the primary aspect that required adjudication. This aspect has been ignored. Bonafide and genuineness of the transactions was the issue. 30. The finding that since the summons issued to Mukesh Gupta, Rajan Jassal and the directors of 12 companies both during assessment and remand proceedings were served on them, their existence or identity stood established, even if this finding is assumed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs. (emphasis supplied) Section 68 recognizes the aforesaid legal position. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court in the judgment cited above. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the allotment of shares was made as per the relevant rules of the Securities Contracts (Regulation) Act, 1956 as well as those of the Delhi Stock Exchange. No evidence had been brought on record by the Assessing Officer to indicate that the shareholders were either benamidars of the assessee-company or fictitious or that the share application monies were the unaccounted income of the assessee-company. The Tribunal accordingly held that the onus that lay on the assessee under sec.68 stood discharged. 34. In respect of the other assessee, namely, General Exports Credits Ltd., the monies were received by the said company on issue of rights shares to five companies pursuant to the renunciation of rights by several individual shareholders. A search had been conducted on the premises of the assessee, but those renunciation forms were not found with the assessee. As in the case of Divine Leasing Finance Ltd., the five companies were registered in Sikkim at the same address. They all filed replies to the department asking for further time to provide the details of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law. 36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases: 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 assessed it should not be harassed by the revenues insistence that it should prove the negative. In the case of a public issue, the company concerned cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udiation. 37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by the revenue which filed SLP No.11993/2007. The petition for leave to appeal was dismissed by the Supreme Court observing as below: - Delay condoned. 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. Subject to the above, Special Leave Petition is dismissed. 38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders register, share transfer register etc. are furnished to the Assessing Officer and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court in Dolphin Canpack (2006) 283 ITR 190, CIT v Makhni and Tyagi P. Ltd. (2004) 267 ITR 433, CIT v Antartica Investment P. Ltd. (2003) 262 ITR 493 and CIT v Achal Investment Ltd. (2004) 268 ITR 211. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed accommodation entry providers . 40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities Private Limited, (2011) 333 ITR 119. We have given utmost consideration to the judgment. It disposes of several appeals in the case of different assessees. Except the case of CIT v Oasis Hospitalities P Ltd. (ITA Nos.2093 2095/2010), the other cases fall under the category of Orissa Corporation (supra). However, in the case of Oasis Hospitalities P Ltd., there is reference to informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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