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Agrawal Coal Corporation (P.) Ltd. and Ad-Manum Finance Limited Versus Additional Commissioner of Income tax, Range 5

2011 (10) TMI 496 - ITAT INDORE

Unexplained cash credits - addition u/s 68 - assessee alleged of not explaining amount representing share capital and share premium received from Hindustan Continental Ltd. of ₹ 40,00,000/- and from Optimates Textile Industries Ltd. of ₹ 10,00,000/- Held that:- It is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. Any addition in the hands of such subscribing companies is only possible when the a .....

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not available at the given addresses. It is not possible that the companies making huge investment in the form of share application are not found at the given addresses. There is a possibility that there may be a change of address but till the stage of the Tribunal no such address was furnished by the assessee, therefore the onus was not discharged as the assessee neither furnished the correct addresses nor the creditors were produced rather the assessee tried to stall the assessment proceeding .....

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R SINGH, R.C. SHARMA, JJ. P.M. Chaudhary, Ajay Tulsiyan and Hitesh Chimnani for the Appellant. Keshave Saxena, R.K. Choudhary and K.K. Singh for the Respondent. ORDER Joginder Singh, Judicial Member - This bunch of 9 appeals is preferred by different assessees against the orders of the learned CIT(A) dated 5.12.2008, 3.3.2010, 11.12.2008, 7.12.2009, 22.1.2009, 28.1.2010, 6.1.2009, 18.12.2009 and 5.12.2008, respectively, on the following common grounds :- ITA No. 151/Ind/2009 1. That the learned .....

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is, therefore, prayed that the said addition requires to be now deleted. 2. That the learned CIT(A) erred in upholding ad hoc disallowance of Rs. 1,00,000/- made by the Assessing Officer out of telephone expenses which on facts and in the circumstances of the case is wrong and unwarranted. It is, therefore, prayed that the said addition requires to be now deleted. ITA No. 283/Ind/2010 That the learned CIT(A) erred in upholding the disallowance made by the Assessing Officer of Rs. 2,40,000/- out .....

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s parties was properly explained and on the facts and in the circumstances of the case the said addition is patently wrong and not in accordance with law. It is, therefore, prayed that the said addition requires to be now deleted. 2. That the learned CIT(A) erred in upholding the disallowance made by the Assessing Officer of Rs. 6,17,878/- paid as interest on above unsecured loan alleging that the said interest is in respect of accommodation entries. That the said interest expenditure having pro .....

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e said addition requires to be now deleted. ITA No. 34/Ind/2010 That the learned CIT(A) erred in upholding the disallowance made by the Assessing Officer of Rs. 8,92,890/- paid as interest on unsecured loans. That the said interest expenditure having properly incurred by the appellant on the unsecured loans on the facts and in the circumstances of the case is allowable to the appellant. ITA No. 190/Ind/2009 1. That the learned CIT(A) erred in confirming the addition of Rs. 5,00,000/- made by the .....

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It is submitted that the said disallowance is wrong and uncalled for on the facts and in the circumstances of the case. It is, therefore, prayed that the said addition requires to be now deleted. 3. That the learned CIT(A) erred in confirming the ad hoc disallowance of Rs. 50,000/- made by the A.O. out of communication expenses. It is submitted that on the facts and in the circumstances of the case the said addition is wrong and uncalled for. It is, therefore, prayed that the said addition requ .....

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by the A.O. out of telephone expenses. It is submitted that on the facts and in the circumstances of the case the said addition is wrong and uncalled for. It is, therefore, prayed that the said addition requires to be now deleted. 2. That the learned CIT(A) erred in confirming the addition of Rs. 10,00,000/- made by the A.O. as alleged unexplained credit u/s 68. It is submitted that the said unsecured loan received from M/s Optimates Textile Industries Ltd. was properly explained and on the fac .....

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ed by the Assessing Officer on the basis of disallowance made u/s 69C of interest of Rs. 54257/- paid on unsecured loan from M/s Optimates Textiles Industries Ltd. That, on the facts and in the circumstances of the case the levy of penalty is wrong. ITA No. 137/Ind/2010 1. That the learned CIT(A) erred in upholding addition made by the Assessing Officer of unsecured loan of Rs. 20,00,000/- received from M/s Hindustan Continental Ltd. as unexplained cash credits u/s 68 of the Income Tax Act, 1961 .....

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deleted. 2. During hearing of these appeals, we have heard Shri P.M. Chaudhary and Shri Ajay Tulsiyan, the learned counsels for the assessee and S/Shri Keshav Saxena, Shri R.K. Chaudhary, Shri K.K. Singh, learned Commissioners of Income Tax along with Shri Arun Dewan, learned Senior DR. The learned representatives from both the sides contended that the facts and the issue regarding share application money involved in these appeals is identical as the share capital and share premium was alleged t .....

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n power generation with installation of two wind mills. The assessee declared income of Rs. 83,46,090/- in its return filed for the assessment year 2005-06 on 30.10.2005. During scrutiny proceedings the Assessing Officer noted that Hindustan Continental Limited (in short hereinafter as HCL ) applied for 40,000 shares of the assessee company on the face value of Rs. 10/- each and premium of Rs. 90/- per share. Similarly, Optimates Textiles Industries Limited (in short hereinafter as OTIL ) also a .....

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ring the reply the learned Assessing Officer concluded that the alleged share capital, claimed to be applied by these companies, is unexplained, therefore, the same was added to the income of the assessee company. The relevant portion from the assessment order is extracted below :- The contention of the assessee is not acceptable. Assessee has relied upon the decision of Hon ble I.T.A.T., Indore Bench, in case of ACIT v. Kalani Industries Ltd. the said decision was not acceptable to the departme .....

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ries to various parties who want to launder their unaccounted money in the guise of share application or unsecured loan or long term capital gain. The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the assessee to establish depositor s identity, creditworthiness and genuineness of transaction. Assessee in its written submission stated that company has received share application money of Rs. 40,00,000/- from Hindu .....

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its contention. The company is not existing in real sense the genuineness of transaction is also doubtful. Since assessee failed established identity, creditworthiness and genuineness of transaction, credit in the account of the assessee on account of share application money from Hindustan Continental Ltd. Rs. 4,00,000/- and share premium amount of Rs. 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income. Similarly, assessee has tried to establish identity .....

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s. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecured loans. Since assessee fails to establish identity, creditworthiness and gen .....

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ts. However, learned Commissioner of Income Tax (Appeals) did not agree with the submissions of the assessee by holding that the assessee has not established the genuineness of credits introduced in the form of share capital and thus confirmed the addition. 5. Before us, the whole thrust of arguments on behalf of the assessee is that all the ingredients of section 68 were fulfilled by the assessee whereas the crux of arguments on behalf of the revenue is that even the identity of these companies .....

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ereunder the relevant provisions of section 68 of the Act which deals with cash credits :- 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 6. Before us, the Ld. Counsel for a .....

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at Page 1 to 3 of the compilation, copy of Annual return containing Balance Sheet, P& L A/c etc at Page 4 to 23 and Copy of Tax Audit Report at Page 24 to 43 of the compilation). During the course of the scrutiny proceedings, the Ld. Counsel for assessee filed details in respect of increase in share capital vide replies dated 16/10/07 (Page 47 to 49) of compilation, reply dated 7/12/07 (Page 50 to 54), reply dated 17/12/07 (Page 55 to 58) and reply dated 28/12/07(Page 60 to 64) of the compil .....

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own as Priyansh Sari Ind Ltd is not established. Relying upon these reports, the Assessing Officer came to the conclusion that the companies are paper companies only, not existing in real sense. The Ld. Counsel for assessee submitted that it is pertinent to note that no independent enquiry has been conducted by Assessing Officer in the case of assessee nor any summons etc was issued by Assessing Officer to the aforesaid companies, thus, no attempt has been made by Assessing Officer on his part t .....

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s material towards discharge of its initial burden to prove the identity and capacity of the share holder companies as also the genuineness of the transaction. The Ld. Counsel for assessee invited our attention by claiming that following information and documents discharged its primary burden. Names and addresses of the share holders along with details of their PAN furnished along with reply dated 7/12/07. A list of fresh share capital received during the year along with names and address of the .....

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the report of another authorities held that the companies in question are paper companies and not existing in real sense and has made the aforesaid addition u/s 68 of the IT Act, without application of mind. 7. So far as the legal position in respect of applicability of section 68 to the credits in respect of share application money/share capital credits towards share application money/share capital is concerned, the Ld. Counsel for assessee submitted that it has taken different turns. He submit .....

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lication No. 11993 of 2007, dated 11-1-2008] Inviting our attention to the aforesaid judgments, the Learned Counsel for assessee submitted that a combined reading of all the above decisions viz the decision of Delhi High Court, which has been affirmed by Supreme Court in the case of Stellar Investment Ltd. (supra), read with the later decision of Supreme Court in case of Lovely Exports (P.) Ltd. (supra) shows that even if such amounts are received by such assessee company from the alleged bogus .....

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rities under Article 141 of the Constitution of India and no addition can be made in respect of the amount invested by the aforesaid two companies. It was further submitted that even if it is assumed without admitting that the said share holder companies are non existing companies, no addition could be made in respect of the amounts invested by the aforesaid two companies. He invited our attention to the decision of Supreme Court in Stellar Investment Ltd (supra) being on dismissal of Civil Appe .....

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leave to appeal is a speaking order i.e it gives reason for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is declaration of law by Supreme Court within the meaning of Article 141 which will obviously be binding on all courts and Tribunals in India and certainly the parties thereto. Secondly other then declaration of law, whatever is stated in the order are findings recorded by Supreme Court which would be binding on the par .....

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re their Lordships have held that once the appeal against the judgment of the High Court is dismissed, it can be said that the decision of the High Court has been affirmed by the Supreme Court 10. The Ld. Counsel for assessee, submitted that in view of the legal position settled by the Hon ble Supreme Court against the judgment of Delhi High Court in the case of Stellar Investment Ltd. (supra) and dismissal of SLP against judgment of Delhi High Court in case of Lovely Exports (P) Ltd (supra), th .....

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he assessee company, for which further reliance was placed on the decision of Delhi High Court in the case of CIT v. Achal Investment Ltd. [2004] 268 ITR 211/136 Taxman 335 wherein Delhi High Court has applied decision in the case of Stellar Investment Ltd. (supra) and on that basis upheld the order of Tribunal. 11. The Ld. Counsel for assessee further submitted that recently the Hon ble Delhi High Court applied the decision of Lovely Exports (P.) Ltd. (supra) in the cases of CIT v. Jagat Diagno .....

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14 ITJ 83 (Chhatisgarh). (ii) ACIT v. Hitkarni Prakashan Ltd. [2010] 14 ITJ 689 (I.T.A.T., Jabalpur). (iii) ACIT v. Shri Kela Prakashan (P.) Ltd. [2010] 14 ITJ 539 (I.T.A.T., Indore) 12. So far as application of section 68 of the Act is concerned, the Ld. Counsel for assessee on the issue of burden of the assessee, submitted that assuming without admitting that the view expressed by the Full Bench of Delhi High Court in case of Sophia Finance Ltd (supra) still holds good and the provisions of se .....

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ary burden, for which reliance was placed on the following decisions. 1. CIT v. Divine Leasing & Financing Ltd reported in 158 Taxmann 440 (Del), wherein their Lordships have held that a distillation of the precedents yields following propositions of law in the context of section 68. The assessee has to prima facie prove -(i) the identity of the creditor/subscriber (ii) the Genuineness of the transaction, viz, whether it has been transmitted through banking or other indisputable channels (ii .....

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he onus would not stand discharge if the creditor/subscriber denies or repudiate the transaction set up by assessee nor should the AO take such repudiation on face value and construe it, without more evidence against the assessee (iii) The AO is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and veracity of the repudiation. In that case, their Lordships upheld the order of Tribunal holding that the AO had not brought any positive ma .....

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pplicant companies copies of Board resolution, details of cheque Nos., branch and address of the branch through which the investments are made along with the fact that share holders are tax payers, it was held that it could not be presumed that the share holders, who are assessed to tax, are not in existence. 4. CIT v. Gangor Investment Ltd reported in 179 Taxman, wherein the High Court held that the assessee had filed subscription Form for each of investors. The said subscription Form contained .....

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rein it is held that no material is brought by AO to hold that share holders companies are umbrella company or have any relation with each other and the amount cannot be regarded as undisclosed income of the recipient assessee company. It also held that it is not for the assessee company to probe as to the source. It was for AO to enquire into the affairs of the investor company Their Lordships have applied the ratio of the decision in case of Lovely Exports Pvt Ltd (supra). 6. CIT v. Dolphine C .....

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t. 7. CIT v. Down Town Hospitals Pvt Ltd reported in 267 ITR 489 (Gauhati) held that the assessee filed details regarding source of funds of the party and their IT File Numbers etc - no addition u/s 68 is permissible where share holders are identified and it is established that they had invested the money in purchase of shares. (Page 127 to 131 of judgment compilation). 8. CIT v. ILLAC Investment Pvt Ltd reported in 287 ITR 135 held that assessee satisfactorily established identity of share hold .....

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116&117 of Judgment compilation) 10. CIT v. Shri Barkha Synthetics Ltd reported in 270 ITR 477 (Raj) - assessee discharged its initial burden in respect of six out of seven companies but revenue failed to discharge its burden as it did not hold any enquiry into genuineness, addition rightly deleted. (Page No 107 to 115 of judgment compilation) 11. Shree Barkha Synthetic Ltd. v. ACIT reported in 283 ITR 377 (Raj.) the principle relating to burden of proof concerning the assessee is that wher .....

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m assessee company itself. (decision in case of CIT v. Shri Barkha Synthetics Ltd (supra) followed). 12. Without prejudice to above contention based on Lovely Export s case, the Ld. Counsel for assessee submitted that an analysis of all the above judgments thus goes to show that even if the principle laid down by the Hon ble Delhi High Court in Sophia s case (supra) is held as applicable even then the assessee s burden is restricted to establishing the existence of shareholders and once that is .....

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and the fact that the money has been invested by share holding company and not by the assessee company. It was submitted that since various documents were submitted by the assessee, primary burden which lay upon the assessee, has been discharged. It was strongly contended that the Tribunal in the case of Kalani Industries Limited [2007] 8 ITJ 165 has accepted the existence and identity of these companies, apart from the question of discharge of primary onus and shifting of burden to the departm .....

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nce Corporation Ltd 1991 (55) ELT 433 (SC) 2. Agrawal Warehousing & Leasing Ltd v. CIT [2002] 257 ITR 235/124 Taxman 440 (MP) 3. Asstt. Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172(SC) 14. The Ld. Counsel for assessee asserted that in view of above judgment in case of Kalani Industries Ltd (supra), the identity and existence of both the companies cannot be disputed. As to the investment of the money, he submitted that there is no material to show that the said money ha .....

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question of discharge of assessee s burden in regard to section 68, the Ld. Counsel for assessee submitted that even on general principles, it is well established that the assessee has only the primary burden to prove identity, capacity and genuineness. In this regard he placed reliance on the following decisions. 1. Sarogi Credit Corporation v. CIT [1976] 103 ITR 344 (Pat.). The assessee has only the primary burden to prove the identity of creditor and placed material pointing out that the entr .....

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i Chand Kothari v. CIT [2003] 264 ITR 254/[2004] 36 Taxman 213 (Gauhati) 7. P.K. Sethi v. CIT [2006] 286 ITR 318 (Gauhati) 8. CIT v. Barjatya Children Trust [1997] 225 ITR 640/[1996] 87 Taxman 385 (MP) 9. CIT v. Laul Transport Corporation [2009] 180 Taxman 185 (Punj. & Har.) 10. Aravali Trading Co. v. ITO [2010] 187 Taxman 338 (Raj). The Ld. Counsel for assessee further submitted that the learned CIT has merely put the seal of approval without appreciating the legal position in regard to the .....

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mitted that the approach of the CIT(A) to say the least appears to be perverse in the matter. As to the duty of the AO to make enquiries by pursuing the matter and by making independent enquiries, the Ld. Counsel for assessee relied upon the decision of Supreme Court in the case of CIT v. Orissa Corporation (P.) Ltd [1986] 159 ITR 78/25 Taxman 80F wherein their Lordships have held that when it is in the knowledge of the revenue that the creditors are Income Tax assessees, their Index Numbers are .....

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Ld. Counsel for assessee pointed out that these companies are incorporated and registered under the Companies Act, 1956 and the Registrar of Companies is a statutory authority possessing details of companies. All registered companies are required to make statutory compliance and file periodic returns etc under Companies Act before the Registrar. Reliance is also placed on the decision of Gauhati High Court in the case of Khandelwal Constructions v. CIT [1997] 227 ITR 900, wherein it has been he .....

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e AO could not come to the conclusion that the creditors were fictitious. He submitted that in the instant case also, the AO has failed to make proper enquiries or rather has not at all made enquiries himself as such, the finding and conclusion about non existence of the companies cannot be sustained and has to be treated as without proper material/evidence. The AO has failed to discharge the onus to disprove the identity, capacity and genuineness. The Ld. Counsel for assessee placed reliance on .....

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that the company is a juristic person having separate existence apart from its members under the law. The company has its legal birth under the law on its incorporation and the company s existence can come to end only by its legal death in accordance with the provisions of Companies Act i.e by liquidation under the Company Law, which takes place only through High Court. In this respect the Ld. Counsel for assessee referred to the provisions of sections 13 & 17 of the Indian Companies Act, w .....

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incorporation the subscribers of Memorandum and other persons, as may from time to time the members of the company, shall be a body corporate having perpetual succession and common seal. Similarly sections 72, 73 & 75 etc. which deal with the procedure for application, allotment of share etc. also throw light on the corporate existence of the company. It was submitted that even the provision regarding appointment and change of auditors etc throw light on the corporate existence of the compa .....

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ance is arbitrary and unreasonable and ought to have been deleted by CIT(A). 18. So far as certain documents relating to some companies filed by the revenue are concerned, it was contended by the Ld. Counsel for assessee that the share holder companies are paper companies. The Ld. Counsel for assessee objected to the same on the ground that the revenue is trying to rely on certain facts which are totally new and not borne out from record. The said facts do not find place either in the order of A .....

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T DR strongly defended the impugned orders by submitting that onus is on the assessee at least to establish the identity of share applicants. The notices/commission sent at 4 places, namely, Indore, Mandsaur, Jabalpur and Mumbai were found to be non-existing, consequently, it was contended that these are merely paper companies claimed to have given huge sums of credit in the form of share capital or loans to large number of assessees and then disappeared in thin air after providing accommodation .....

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s invited to the paper book dated 4.5.2010 by specifically pointing out that huge cash was deposited in number of bank accounts, namely, Sahayata Marketing, Yash Associate, G.R. Investment and V.S. Traders, etc. from where the amounts were transferred to creditors account and from there to the assessee. It was strongly asserted that unaccounted cash was flown back in the accounts of the assessee and the source of such cash remained unexplained as the parties in whose accounts the cash was introd .....

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n in the case of CIT v. Rathi Finlease Ltd. [I.T. Appeal No. 63 of 2004, dated 11-10-2007] was time and again reiterated by the learned CIT DR along with the decision in Sophia Finance Ltd. (supra); CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465/[1995] 82 Taxman 31 (Cal) and CIT v. Stellar Investment Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC). 20. Mr. Saxena, the learned CIT DR strongly contended that when the language used in the statutory provisions is clear, the Court is not empowered .....

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inding precedence as held in the case of Hindustan Tea Trading Co. Ltd. (supra) and S. Shanmughvel Nadar (supra). A strong plea was raised by the learned CIT DR that the decision in the case of Lovely Exports (P.) Ltd. (supra) is not applicable to the facts of the present appeals as the Hon ble Delhi High Court has clearly differentiated cases of share capital of private limited company from public limited company. It was also submitted that in the decision of Lovely Exports (P.) Ltd. (supra) th .....

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urts have distinguished the decision in Lovely Exports (P.) Ltd. (supra) because it was merely dismissal of SLP for which our attention was invited to the decision in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 333 ITR 119/198 Taxman 247/9 taxmann.com 179 (Delhi). Reliance was also placed upon the decision in CIT v. STL Extrusion (P.) Ltd. [2011] 11 taxmann.com 125 (MP). It was submitted that the decision in Rathi Finlease Ltd. (supra) is a binding precedent for which reliance was placed in Geof .....

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orporation Private Limited) is a private limited company engaged in the trading business. In the year under consideration the company entered in the field of power generation with installation of two wind mills and declared income of Rs. 83,46,090/- in its return filed on 30.10.2005 for assessment year 2005-06. The case was selected for scrutiny. The learned Assessing Officer, during the assessment proceedings, noted that M/s Hindustan Continental Limited, applied for 40,000 shares of the assess .....

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ot the genuine companies. The report of ACIT 5(1) has been reproduced in the assessment order. This report was confronted to the assessee company by the Assessing Officer, during the assessment proceedings, and after considering the reply of the assessee company it was held that the share capital claimed to be applied by these companies is unexplained, therefore, the same was added to the income of the assessee company. The relevant extract from the assessment order is extracted hereunder :- The .....

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m the investigation made by ACIT 5(1), Indore that both these company are not existing companies in the real sense. These companies are paper companies only and exist nowhere and were used to give accommodation entries to various parties who want to launder their unaccounted money in the guise of share application or unsecured loan or long term capital gain. The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the .....

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and outflow of fund in the Bank account without any logic. There is huge cash deposit in the Bank account of Hindustan Continental Ltd. maintained UTI Bank Ltd. copy of which is filed by the assessee in support of its contention. The company is not existing in real sense the genuineness of transaction is also doubtful. Since assessee failed established identity, creditworthiness and genuineness of transaction, credit in the account of the assessee on account of share application money from Hind .....

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Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not exis .....

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finding was confronted to the assessee during appellate proceedings against which the assessee preferred written submissions. During the first appellate stage as well as before us, the Ld. Counsel for assessee has challenged the finding of ACIT on the ground that the said company is a listed company on stock exchange and the Assessing Officer was in knowledge and possession of the income tax return of the company. Our attention was invited to the details of capital work in progress and licence .....

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of cash transfer and deposition of cash has nothing to do with the assessee. A strong plea was raised by the Ld. Counsel for assessee that identity of share applicants is established which was strongly denied by the learned CIT DR. At this stage, a query was raised by the Bench as to whether the assessee is in a position to produce before this Bench any of the Directors or the employees of these companies ? The Ld. Counsel for assessee conveniently contended that the assessee cannot be put to ad .....

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nd non-existent at the addresses supplied to the department by the assessee. Thereafter, commission was issued to ADIT(Inv.) Unit-IX-3, Mumbai, to verify the existence/genuineness of these companies, who also reported that the said companies did not exist at the given addresses. The whole issue for adjudication is whether the identity of these companies was established ? During hearing, the Ld. Counsel for assessee claimed that identity of both these companies has been established as both these .....

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, none of the certificates, claimed to be issued by various authorities, does not establish the identity of the share applicants as the certificates were issued without physically verifying the existence of applicants, such as income tax department receives returns of income or documents without verification of existence of the persons filing the returns/documents. PAN is also allotted to the applicants on the basis of applications without verifying the existence of applicants at the address giv .....

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it apart, as mentioned above, the Ld. Counsel for assessee, in reply to a specific query regarding production of any of the directors or the employees of the share applicants before the Bench, the assessee did not comply with the directions of the Bench, therefore, to this limited extent, we are of the view that these share applicants are non-existent and their identity is not proved. It is pertinent to mention here that there is a difference between a private and public limited company as in a .....

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ssee company, being private limited company, and there should be no difficulty to produce them or their representative to enable the Assessing Officer to verify the identity, genuineness of the capital claimed to be subscribed by them, therefore, the assessee cannot claim ignorance about these companies. Unless the assessee is able to establish identity of the companies who have subscribed in their share capital, how the department will proceed against these companies in terms of the verdict of .....

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On the issue of discharge of onus/burden, the assertion of the Ld. Counsel for the assessee is that the onus shifted to the department when copy of share application form, PAN, name and addresses and ROC registration, etc. were filed by the assessee. We are not agreeing with the submission of the assessee in view of the fact that at the addresses (4 places) given to the department, these companies were found to be non-existent. Even the Inspector was deputed to verify the addresses who also repo .....

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discharged as the assessee neither furnished the correct addresses nor the creditors were produced rather the assessee tried to stall the assessment proceedings by giving misleading facts and incorrect addresses. Even as per preponderance of probabilities, all facts go against the assessee and the ratio laid down by the Hon ble Apex Court in the case of Sumati Dayal (supra) goes against the assessee. Hon ble Calcutta High Court in the case of Nivedan Vanijya Niyojay Ltd. (supra) (page 14) held .....

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(para 21) where the identity of 12 persons who were not found at the addresses it was held that identity is not established. On the issue of onus, it was held that principle regarding onus is laid down u/s 68 whereby once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion. When such conclusion is communicated to assessee, onus shifts on the assessee. Likewise, Hon ble jurisdictional High Court in the case of Rathi Finlease Ltd. (supra) at p .....

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h regard to the credit in its books and the existence of the creditors to indicate the genuineness of the transaction. The Full Bench of Hon ble Delhi High Court in the case of Sophia Finance Ltd. (supra) observed as under :- The ITO would be entitled to engage and it would indeed be his duty to do so whether the alleged shareholders do in fact exist or not. If the shareholders exist then possibly no further enquiry need to be made. But if the ITO finds that the share holders do not exist, then .....

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nd accordingly the first ingredient as to the identity of the creditors has not been established. If the identity of the creditor has not been established, consequently, the question of establishment of the genuineness of the transaction or the credit worthiness of the creditors did not and could not arise. During hearing reliance was placed upon the decision in the case of Stellar Investment Ltd. (supra) wherein the issue was subscription of share capital of a public limited company whereas in .....

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ellar Investment Ltd. (supra) Even in the case of Lovely Exports (P.) Ltd. (supra) the Hon ble Delhi High Court in para 4 observed as under :- Reference to section 68 of the IT Act is conspicuous by its absence, the Stellar Investment Limited ratio cannot be stressed to the extent that it partakes as a reflection on section 68, when the inquiry pertained only to section 263. 25. In view of the facts narrated above and the judicial pronouncements discussed hereinabove, it can be said that the ass .....

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he aforesaid provision of the Act is analysed, it speaks about cash credits and the sum found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation is not found satisfactory by the Assessing Officer then the same may be charged to tax as the income of the assessee. In the present appeal, at any stage the assessee did not file any explanation regarding the identity of the share applicants, therefore, the onus was not dis .....

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r. We are aware that the opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. In the present appeals, the Assessing Officer was never satisfied and the notices/summons issued to the subscribing companies, were found to be fictitious or non-existent, therefore, one fact oozing out that the assessee has not fulfilled the requirement of section 68. A close reading of section 68 makes it clear that in case of section 68 there shoul .....

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he income is from any particular source for which we are supported by the decision of the Hon ble Apex Court in Roshan Di Hatti v. CIT [1977] 107 ITR 938 and Kale Khan Mohd. Hanif (supra). It is for the assessee to prove that even if cash credit represents income it is income from a source which has already been taxed for which we are supported by the decision in CIT v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC). The Hon ble Apex in the case of Sumati Dayal (supra) clearly held that if the ex .....

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of share application from the investors through banking channel, the assessee has to prove the existence of the person in whose name the share application is received. Once the existence of the investor is proved, it is not further the burden of the assessee to prove whether that person itself has invested the money or some other person has made investment in the name of that person. The burden then shifts to the revenue to establish that such investment has come from the assessee company itself .....

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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 share application documents. The Hon ble Court clearly held that in case of private placement, the legal regime would not be same. A delicate balance must be maintained while walking the tight rope of section 68 and 69. The burden of proof can seldom be discharged to the hilt by the assessee. However, if the Ass .....

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blic at large through banking channel and the shares were allotted in consonance with the provisions of the securities contract (Regulation) Act, 1956 as also the rules and regulations of Delhi Stock Exchange and in para 12 the Hon ble Delhi High Court has clearly differentiated the cases of share capital of private limited company from public limited company by saying in the case of private placement, the legal regime will not be the same . Therefore, the facts of that case are not applicable t .....

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far as the argument of the learned CIT DR that dismissal of SLP in the case of Lovely Export, where there is no merger of order, is not an expression of judicial view nor a binding precedent. We are not going into this controversy because the facts of the present appeals are distinguishable from the facts of Lovely Exports Private Limited. Hon ble Delhi High Court in a latter decision in Oasis Hospitalities (P.) Ltd. (supra) held as under :- We are of the view that ratio laid down in Steller Inv .....

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connected person, the onus is upon the assessee to prove the identity of the subscribers and their creditworthiness. 27. There is another perception to look into the decision of the Hon ble Apex Court in the case of Lovely Exports (P.) Ltd. (supra) wherein the Hon ble Apex Court held that if the share application money is received by the assessee from alleged bogus share holders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual ass .....

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. The Hon ble Madhya Pradesh High Court affirmed the decision of Rathi Finlease Ltd. (supra) in the case of STL Extrusion (P.) Ltd. (supra) upon by both the sides before us. We find that the facts in STL Extrusion (P.) Ltd. (supra) are materially different from both the assessees, namely, M/s Agrawal Coal Corporation as well as from M/s Rathi Finlease Limited. In the case of M/s STL Extrusion (P.) Ltd. (supra) on receipt of confirmation of share applicants, except observing discrepancies in conf .....

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ither the share applicants are bogus or impugned money belongs to the assessee itself. The contrary finding in these cases were confronted to the assessee by the Assessing Officer but the assessee in spite of sufficient opportunity provided, failed to prove the existence of such share applicants companies as the correct addresses were not provided to the Assessing Officer and even the Directors or any of the employees or books of account were not produced. Therefore, the only conclusion arrived .....

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Court in the case of STL Extrusions (P.) Ltd. (supra), it has become binding precedent on the Tribunal especially when the decision of the Hon ble Apex Court in the case of Lovely Exports (P.) Ltd. (supra) was very much available. Hon ble jurisdictional High Court while coming to a particular conclusion followed the decision of the Hon ble Karnataka High Court in CIT v. ASK Bros. Ltd. [2011] 333 ITR 111 and duly considered the decision from the Hon ble Apex Court in Lovely Exports (P.) Ltd. and .....

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. Jt. CIT [2004] 270 ITR 487/[2005] 144 Taxman 889 (Cal.) (Cal (para 40) 2. CIT v. AKJ Granites (P.) Ltd. [2008] 301 ITR 298 (Raj) (para 18) 3. CIT v. Arunananda Textiles (P.) Ltd. [2011] 333 ITR 116/203 Taxman 32/15 taxmann.com 226 (Kar.). 4. ASK Bros. Ltd. (supra) 5. CIT v. Creative World Telefilms Ltd. [2011] 333 ITR 100/15 taxmann.com 183/203 Taxman 36 (Bom.) (Mag.) 6. Divine Leasing & Finance Ltd. (supra) 7. CIT v. Dolphin Canpack Ltd. [2006] 283 ITR 190 (Delhi) 8. CIT v. K.C. Fibres Lt .....

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9. As per the provisions of section 68 of the Act, in case the assessee has not been able to give satisfactory explanation in respect of nature and source of any sum or if in the opinion of the Assessing Officer such explanation is not satisfactory, the Assessing Officer may treat the same as undisclosed income and add it to the income of the assessee meaning thereby the assessee is required to give satisfactory explanation about the nature and source of such sums found credited in the books of .....

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....credit entry relates to the issue of share capital, the Income-tax Officer is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the permanent account numbers issued by the Income-tax Department. .....

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he following propositions of law in the context of section 68 of the Income Tax Act. The assessee has to prima facie prove - The identity of the creditor/subscriber The genuineness of the transaction, namely, whether it has been transmitted through banking or other undisputable channels The creditworthiness or financial strength of the creditor/subscriber If relevant details of address or PAN, identity of the creditor/subscriber are furnished to the department along with copies of the share hold .....

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strue it, without more, against the assessee and The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. 30. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its .....

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, Nagpur, Surat, Mumbai, Ahmedabad, Vadodara, and in various other cities through their bank accounts maintained AXIS Bank, Indore, during the period 1.4.2002 to 31.3.2005. The modus operandi operated was that the accommodation entries would first pay the cash which was deposited in bank accounts maintained in the name of M/s Yash Associates, M/s G.R. Investments, M/s V.S. Traders, Path Pradarshak Finvest Pvt. Ltd., M.S. Ribeka Garg and Bhanuraj Singh Ranawat, etc. maintained in the same bank br .....

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of Hindustan Continental were claimed to be traded by Sunil Shares & Stock Limited, M/s Jai Share Fin Limited and others through manipulation giving rise to artificial height so as to enable certain parties to re-introduce their black money as huge capital gain. It was claimed that in those case also the cash was deposited first in certain account and thereafter the funds were transferred to the share brokers involved in the manipulation and then ultimately to the accounts of the party conce .....

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these share subscribers/share applicants was not found existent, therefore, where is the question of reopening their individual assessments. Transaction enquiry was also made (pages 1 to 104) of the paper book filed on 4.5.2010. Pages 108 to 125 of the paper book dated 4.5.2010 contains the adjudication order u/s 151 of the securities and exchange board of India Act read with rule 5(1) of the SEBI (procedure for holding inquiry and imposing penalties by the adjudicating Officer). Rules 1995 aga .....

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11] 330 ITR 1/196 Taxman 136/[2010] 8 taxmann.com 624 (S.C.) on the issue u/s 68 read with section 260A decided in favour of the revenue. Identical ratio was laid down by the Hon ble Supreme Court in case of CIT v. Biju Patnaik [1986] 160 ITR 674/26 Taxman 324. 32. So far as the contention of the Ld. Counsel for assessee to the effect that the issue is squarely covered by the decision of the coordinate Bench in the case of Kalani Industries is concerned, we do not find any substance in the same .....

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t proceedings. AS the facts of subsequent year are different, the decision arrived at by the Tribunal in assessment year 2003-04 cannot be applied to the assessment years 2005-06 & 2006-07, facts of which are materially different. 33. The contention of the Ld. Counsel for assessee that in view of the decision of the Hon ble Supreme Court in the case of Lovely Exports, the issue is covered in favour of the assessee, as per our considered view, the case of Lovely Exports (P.) Ltd. (supra) will .....

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are applicants are companies. It was held that even filing of confirmation of share applicants by the assessee will not serve the purpose of establishing the identity insofar as the inquiry conducted by the Assessing Officer and the letter issued by the Assessing Officer were returned unserved by the postal department with the remark that the addressees are not existing at the given addresses which clearly establishes that either the share applicants are non-existent or if exist, then merely exi .....

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ls before us are identical to the facts wherein the Hon ble High Court has decided in favour of the Revenue whereas the facts in the case of Lovely Exports (P.) Ltd. (supra) are distinguishable, as discussed above. 35. So far as the contention of the ld. Counsel for the assessee that the company can only be wound up by the order of the Hon ble High Court and death of the company is known to the process of law and also that the company is still available on the website of the Company Law Board is .....

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from the assessment stage to the stage of the Tribunal (three stages) the assessee did not prove the identity of the share applicants. Technicalities also help those who are with clean hands. However, we are in agreement with the argument of the assessee that the winding up powers of a company lies with the Hon ble High Court but this issue is not before us, therefore, we are refraining ourselves to comment further. It was fairly accepted by the ld. Counsel for the assessee that in the present .....

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completion of assessment, we found that the assessee has got full opportunity to substantiate its claim and negate the report before the ld. CIT(A) but the assessee grossly failed to rebut the report regarding non-establishment of identity of share applicants. The ld. CIT(A) has got co-terminus powers to do what the Assessing Officer has failed to do. Proceedigns before ld. CIT(A) is also extension of assessment proceedings in addition to the appellate proceedings. However, inspite of full oppo .....

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al Ltd. & M/s. Optimates Textiles Ind. Ltd. which are common applicants in the case of all the assessees before us, could not be said to be a relevant and not concerning to the assessee in the instant cases. 36. Even if the cases relied upon by the ld. Counsel for the assessee, as mentioned/cited/discussed in the preceding paras of this order like Divine Leasing & Finance Limited, Dwarkadheesh Investment Private Limited, Gangor Investment Limited, K.C. Fibres Limited, Dolphin Canpack Lim .....

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not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee has not proved the identity of such share applicants. 37. The contention of the Ld. Counsel for assessee to the effect that the decision of Rathi Finlease by the jurisdictional High Court was rendered much prior to the decision of the Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) therefore, the proposition laid down by th .....

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ed affirmed the decision of the Tribunal reported at (2010) 14 ITJ 539 dated 8.10.2009, therefore, the later decision has to be followed. As per our considered view, the contention of the Ld. Counsel for assessee is wholly misplaced insofar as decision of Hon ble Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) itself presupposes the establishment of identity as a pre-condition for not making addition in the hands of the assessee company. In the case of Shri Kela Prakashan (P.) Ltd. .....

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investigated by the Assessing Officer and even the Inspector of the department who was directed by the Assessing Officer to know the whereabouts reported that the share subscribing companies are non-existent and the addressees given of four places were also found to be fictitious. The summons/notices issued by the department were also returned unserved by the postal department with the remark that no such companies are existing at the given addresses, therefore, in the present appeals, the iden .....

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the assessee to place material before the Assessing Officer in regard to the credit worthiness of the share holders. If the assessee has given the addresses of the share holders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee to establish but it is for the department to inquire with the investors about their capacity to invest the amount in the shares . If the aforesaid conclusion is analysed, one f .....

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the share applicants itself are non-existent, consequently, there is no question of admitting by the share holders regarding money invested by them and then shares allotted to them. This judicial pronouncement also goes against the assessee. Hon ble Delhi High Court in a later decision in Vijay Power Generators Ltd. v. DIT [IT Appeal No. 514 of 2007] at page 136 the appeal was admitted on the following question of law :- Whether on the facts and in the circumstances of the case, the Income Tax .....

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hares was ranging from Rs. 1 lakh to Rs. 2.5 lakhs. In order to verify the genuineness of these transactions, the Assessing Officer issued summons to these parties which were received back either with the remarks incomplete address or in spite of best efforts the address not found or not met or no such person or not found , etc. The Assessing Officer thereafter asked the assessee to produce these persons who had introduced the share capital in the company. The assessee was also asked to furnish .....

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ded. The assessee did not cross examine these persons. They did not furnish any proof of their identity in the form of ration card, election card or passport despite request by the Assessing Officer. The Assessing Officer after analysing the statements of these persons observed that these five persons were small agriculturists and had no means to make investment in the company. 38. In these circumstances, the entire receipt of Rs. 25,23,500/- in respect of these five persons was treated as unexp .....

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uthorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the assessee could not produce them for verification nor was any evidence filed with regard to their financial status. Out of 15 subscribers, 5 subscribers were produced before the Assessing Officer and during the course of the examination it was admitted that they were small agriculturists and wer .....

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st a huge sum in shares with the assessee. 16. So far as the legal position and the judgment of the apex court in the case of Steller Investment Ltd. [2001] 251 ITR 263 is concerned, we are of the view that the ratio laid down in Steller Investment Ltd. [2001] 251 ITR 263 is applicable only in those cases where the assessee is a limited company and the shares were quoted in the stock exchange. Once the shares are quoted in the stock exchange and the subscription is open to public at large, the a .....

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persons, the onus is upon the assessee to prove the identity (sic. Identification) of the subscribers and their credit worthiness. Their Lordships of the Hon ble Calcutta High Court in the case of Bhola Shankar Cold Storage P. Ltd. v. Joint CIT [2004] 270 ITR 487 have examined the judgment of the apex court in the case of Steller Investment Ltd. and that of the Hon ble Delhi High Court in the case of Sophia Finance Ltd [1994] 205 ITR 98 and have held that in the case of Steller Investment Ltd. .....

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fficer was justified in treating this investment as unexplained and made the addition under section 68 of the Income Tax Act. We, therefore, find no infirmity in the order of the learned Commissioner of Income Tax (Appeals). Accordingly, we confirm the same. ** ** ** 42. We have considered these submissions in so far as the statements of the persons who are produced are concerned, they are gone into and analysed by the three authorities below on the basis of which finding of fact is arrived at t .....

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,000 out of his own source and Rs. 1,20,000 was received by him from his friends and was paid in many instalments. Likewise one Mr. Vijay Kumar who also purportedly purchased the shares of Rs. 1.90 lakhs stated that the payments were made by him in cash in many instalments. He also stated that he personally knew the directors of the company and had very old relation with him. On the basis of such statement without an iota of documentary evidence to support, we are of the opinion that the finding .....

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be weighed and examined as to whether a particular ratio decided in a particular case could be applied. As noted above, the initial onus is upon the assessee to establish three things necessary to obviate the mischief of section 68 of the Act. These are : (i) the identity of investors; (ii) their creditworthiness/investments, and (iii) the genuineness of the transaction. Only when these three ingredients are established prima facie it is only then the department is required to undertake further .....

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produced any documents in support of their identity. The fact was intimated to the assessee vide order sheet entries dated June 13, 2002 and March 17, 2003. They are not assessed to tax. They have not produced any documentary evidence showing that they are capable of saving/investing any amount at all. If the persons produced are not carrying relevant documents to establish their identity, creditworthiness at the time of recording of the statements and furnishing photo copy of some documents af .....

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. No comments can now be offered at this stage without necessary verification. Proof of identity produced at a later stage cannot be verified in the absence of concerned person s original documents. 45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even reproduced in the order and thereafter the learned Commissioner of Income Tax (Appeals) discussed the same .....

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answer the question in the negative and dismiss this appeal of the assessee. 40. If the aforesaid conclusion drawn by the Hon ble High Court is kept in juxtaposition with the facts of the present appeal, one fact is clearly oozing out that the assessee has not discharged its onus to the satisfaction of the Assessing Officer and even did not prove the identity of the share applicants. Merely giving the names of such share applicants is not enough especially when these applicants were found non-ex .....

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t Ltd. (supra) meaning thereby that both these decisions were rendered after the pronouncements of decisions from Hon ble Apex Court in Lovely Exports (P.) Ltd. (supra). As discussed in other paras of this order, so far as the decision in the case of STL Extrusion Ltd. (supra) is concerned, that decision was rendered by the Bench on the facts that since the assessee proved the identity of the investors, therefore, it was held that no addition can be made in the hands of the assessee company wher .....

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nt, addition can be made in their individual capacity and not in the case of the company. However, in the present appeals even the identity of such share holders is not proved as we have discussed above, therefore, the initial onus has not been discharged by the assessee especially when the assessee was confronted with the finding of the commission (Inspector), summons/notices returned unserved and the addresses given by the assessee itself that too at four places were found to be fictitious. Th .....

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cision of Divine Leasing & Finance Ltd., Rathi Finlease Ltd, Stellar Investment Ltd. (supra) and of course Lovely Exports Private Limited wherein the assessee filed list of all subscribers and gave affidavits of all subscribers in the form of confirmations and in that situation the Hon ble Court held that the assessee is required to establish the identity and source of credits and further held that if the confirmation is given, no addition could be made against the assessee whereas in the ca .....

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assigned for making such ad hoc disallowance by the Assessing Officer and secondly we are of the view that since the company is a juristic person, no disallowance of personal nature can be made in the case of a company. We, therefore, reverse the orders of the authorities below on this issue and allow this ground of appeal of the assessee. In the result, the appeal of the assessee is partly allowed. 43. In the case of Ad-Manum Packaging Ltd. (IT Appeal No. 158/Ind/2010) for the assessment year .....

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ets and capital work in progress. The financial position of M/s Hindustan Continental was highlighted before us by further submitting that the lender company is a quoted public limited company, the loan amount was advanced by account payee cheque and returned with interest. It was contended that the identity, capacity and genuineness of the transaction were fulfilled by the lender company, M/s Hindustan Continental Limited. The next ground relates to disallowance of interest of Rs. 42,658/-paid .....

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de by the ld. Counsel for the assessee fails at the initial stage itself. Since in the case of Agrawal Coal Corporation, identical submissions have already been considered, therefore, we do not find any merit in this appeal of the assessee also, consequently, it is dismissed. 44. After considering the rival submissions and the facts narrated before us and further the discussion made hereinabove, since the identity of the lender company is not established as such companies were found non-existent .....

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e expenses is concerned (ITA No. 136/Ind/2009), we are of the view that since the assessee company is a juristic person, no ad hoc disallowance for personal purposes can be made in the hands of the company. We, therefore, allow this ground of the assessee. 47. So far as the disallowance of Rs. 6,17,878/- paid as interest on unsecured loans in respect of accommodation entries is concerned, we are of the view that since the addition made u/s 68 has been sustained, therefore, there is no question o .....

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owance of personal nature can be made in the case of a company, therefore, this ground is allowed, consequently, this appeal is partly allowed. ITA No. 158/Ind/2010 - 49. Ground nos. 1 and 2 are identical as we have discussed in preceding paras of this order, therefore, these ground are dismissed. Ground no. 3 is general in nature, therefore, this appeal is dismissed. ITA Nos. 196/Ind/2009 50. Ground no. 1 pertains to confirming the ad hoc disallowance of Rs. 25,000/- made out of telephone expen .....

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