TMI Blog2012 (5) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessee - It is settled proposition of law that the statement recorded during the course of investigation without corroborative evidence has no evidentiary value - Decided in favor of the assessee - ITA No. 3852/Mum/2009, - - - Dated:- 19-10-2011 - P. M. Jagtap And N. V. Vasudevan, JJ. Rajiv Khandelwal for the Appellant Subacham Ram for the Respondent ORDER N. V. Vasudevan, Judicial Member 1. This is an appeal by the assessee against the order dated 12-03-2009 of CIT(A), Central-VII, Mumbai, relating to assessment year 2006-07. 2. Ground no.1 raised by the assessee in the appeal reads as follows: The Commissioner of Income-tax(Appeals), Central-VII, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Deputy Commissioner of Income-tax, Central Circle 40, Mumbai (hereinafter referred to as the Assessing Officer) in making an addition of a sum of ₹ 27,61,50,000 and a sum of ₹ 6,42,00,000, being amount received on allotment of preference share capital and share application money received (pending allotment). The appellants contend that on the facts and in the circumstances of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ANKITA FINVEST PVT LTD 300 1,500,000 2 BANSIDHAR VYAPAAR PVT LTD 1,200 6,000,000 3 GOLDSTONE TRADING CO. PVT LTD 8,240 41,200,000 4 JAISHREE COMMOTRADE PVT LTD 2,100 10,500,000 5 NILHAT PROMOTERS and FISCAL PVT LTD 1,000 5,000,000 6 PENTEX EXPO PVT LTD 780 3,900,000 7 REALSTONE TRADING CO PVT LTD 12,100 60,500,000 8 REGENCY SHARE and HOLDINGS PVT LTD 140 700,000 9 SNEHDEEP IMPEX PVT LTD 200 1,000,000 10 VENTEX TRADE PVT LTD 80 400,000 11 YULAN MARKETING PVT LTD 3,000 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P HOLDINGS PVT LTD 1,400 7,000,000 7 DABRIWAL INVT. and FINANCIERS PVT LTD 1,000 5,000,000 8 REGAL COMMOTRADE PVT LTD 640 3,200,000 9 APSARA TEX PVT LTD 1,000 5,000,000 10 MACRO LEAFIN PVT LTD 1,700 8,500,000 11 ANKUR SUPPLIERS PVT LTD 400 2,000,000 12 LILY ENCLAVE PVT LTD 400 2,000,000 13 BHANU COMPUTRONICES PVT LTD 1,600 8,000,000 12,840 64,200,000 4. According to the AO, there was an investigation by the Special Team constituted by the CBDT to verify the source of funds taken by the assessee for repayment of its dues to M/s. Madhavpura Mercantile Co-op. Bank Ltd. The AO received report from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies to which shares were allotted. 6. The AO confronted the adverse evidence he had collected against the assessee. Mr. Kaushik Chhota Lal Shah, director of the assessee, was examined by the ADIT, Unit-IX(2). In his statement, he denied having given cash to the various companies which had applied for allotment of shares of the assessee company. He also expressed his intention to cross examine the directors of the various companies to whom shares had been allotted and who had stated that cash was given to them for purchases of shares of the assessee company. 7. The AO, in the course of assessment proceedings, by letter dated 16- 09-2008, informed the assessee that it can avail the opportunity of cross examining of the directors of the various companies who had deposed that they had received cash which were used by them to make application for allotment of shares of the assessee company. The AO also afforded opportunity to the assessee to file confirmation from the various shareholders. The assessee, vide its reply dated 08-10-2008, submitted as follows: We refer to the discussions our representative had with you on 16th September, 2008 and the show cause notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. On appeal by the assessee, the CIT(A) confirmed the order of the AO. The CIT(A) also found that in assessment year 2005-06, on identical issue, he had confirmed similar addition. The CIT(A) also observed that despite sufficient opportunity, no written submissions or oral submissions were made except filing the paper book. Aggrieved by the order of the CIT(A), the assessee has raised ground no. 1 before the Tribunal. 10. At the time of hearing, the ld. counsel for the assessee filed before us a copy of the order of the Tribunal in ITA No.3859/Mum/2009 for assessment year 2006-07 in the case of Chat Computers Ltd. vs. DCIT. It was submitted by the ld. counsel for the assessee that the facts of the assessee's case and those of Chat Computers Ld. (supra) are identical. It was his submission that the orders of the CIT(A) and the AO were verbatim the same in both the cases. It was further submitted by him that the annual return filed by the assessee before the Registrar of Companies clearly established the factum of allotment. It was further submitted that the evidence filed by the assessee prima facie showed that it had discharged the onus in explaining the cash credits. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was drawn to para 6.4 of the order of the Tribunal in Chat Computers Ltd.'s case whereby it was held that the AO had a duty to establish that the cash given by the assessee had ultimately reached the assessee in the form of share application money. According to the ld. D.R., in the case of the present assessee, in Annexure-1 to the order of assessment, the AO had clearly demonstrated as to how the assessee's cash went into the bank accounts of several persons and came back to the assessee in the form of share application money by various companies. It was also submitted that the finding by the ADIT (Inv.), Kolkata, was not the only basis on which the AO made the impugned addition. It was highlighted that even without the ADIT(Inv.)'s finding, the AO reached a conclusion that the cash credits in question remained unexplained. Our attention was drawn upto para 4.8 of the AO's order where the conclusions arrived at by the AO about the cash credits not being genuine and para 4.9 where there was only a passing reference to the investigation carried out by the ADIT, Kolkata. It was submitted by him that besides the above, there were several inconsistencies and lacuna in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Delhi High Court in the case of Sophia Finance Ltd.(supra) will hold good even after the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd. (216 CTR 195 (SC) because the case of Lovely Exports Ltd. (supra) was only a dismissal of the SLP. Besides the above, the ld. D.R. reiterated that the burden of proof was on the assessee and non-examination of witnesses by the Revenue will not be fatal to the case of the Revenue. 13. In his rejoinder, the ld. counsel for the assessee relied on the decision of Hon'ble Supreme Court in the case of Orissa Cement Corporation vs. CIT (159 ITR 79) (SC) wherein it was held that once the assessee gives the income-tax particulars of the creditors and their addresses, it was for the AO to make verification and the assessee cannot be held not to have discharged its burden of proof of cash credits. Besides the above, reliance was placed on the decision of Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. (supra) wherein it was held that addition of unexplained share application money cannot be made in the hands of the company but only in the hands of the shareholders. 14. We have given a car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. 15. The Hon'ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. 333 ITR 100 (Bom) observed that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department can always proceed against them and if necessary reopen their individual assessments. The Hon'ble Court further observed that if the assessee had given the details of names and addresses of the shareholders, their PAN/GIR numbers and had also given the cheque numbers, name of the bankers. The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the share-holders. The Hon'ble Court followed the decision of the Hon'ble Supreme Court in the case of CIT v. Lovel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny concerned cannot be expected to know every detail pertaining to the identity 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 statutory share application documents. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the Income-tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. 18. In the light of the law laid down as above, let us examine the evidence on record. The list of documents filed by the Assessee to substantiate the increase in share capital of ₹ 27,61,50,000/- which have been filed in the paper book pages 10 to pages 336 and pages 400 to 510 of the paper book. The share holder's name and the nature of the documents filed by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Extract of the Minutes of the Board Resolution authorizing Mr.Chandresh Kumar Jain, Director to make investments, Certificate of Incorporation of the company on 4.9.96, acknowledgement of having filed Income Tax return for A.Y 2006-07 declaring total income of ₹ 34,349/-, Memorandum and Articles of Association of the company. b)Rajesh Vinimay and Vyapar Pvt. Ltd.: This company made an application for allotment of 400 preference shares and paid a sum of ₹ 20,00,000 along with the application. The sum of ₹ 40,00,000/- had been paid by Cheque No.794853 dated 3.5.2005 drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AABCR 2450B. This assessee had also made application for allotment of 1000 preference shares and 400 preference shares and had paid sum of ₹ 50,00,000/- and ₹ 20,00,000/- respectively by cheque No.548663 dated 5/12/2005 and Cheque No.548671 dated 7/1/2001. both the cheques have been drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.00 lacs along with the application by Cheque No.509741 dated 5.5.2005 drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AAGCS5048H. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 8/8/04 authorizing Mr.Chandresh Kumar Jain, Director to make investments, Certificate of Incorporation of the company on 14/7/98, acknowledgement of having filed Income Tax return for A.Y 2004-05 dated 6/10/04, Memorandum of Association and Articles of Association of the company has also been filed. f) NKP Holdings Pvt. Ltd.: This company made two applications for allotment of 1000 preference shares and 400 preference shares and paid a sum of ₹ 70.00 lacs by two Cheques vide Cheque No. 996473 dated 5.5.2005 for ₹ 50,00,000 and Cheque No.431964 dated 7/1/06 for Res.20,00,000 both drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AABCN0557B. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company on 11/3/96, acknowledgement of having filed Income Tax return, Memorandum of Association and Articles of Association of the company, Directors report, auditors report and audited accounts for the year ending 31/3/06 has also been filed. j) Macro Leafin Pvt. Ltd.: This company made four applications for allotment of 1700 preference shares and paid a sum of ₹ 85.00 lacs along with the application by fours Cheques viz., cheque No.633238 dated 10/1/06 for ₹ 20.00 lacs drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1, Cheque No.003947 dated 6/1/06 for ₹ 30.00 lacs drawn on Standard Charted Bank, Cheque No.633236 dated 6/1/06 for ₹ 20.00 lacs, drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1 and Cheque No.445989 dated 27//5/05 for ₹ 15.00 lacs drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1. The company is stated to be assessed to Income Tax under PAN No.AACCM0345F. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 10/1/2006 authorizing Mr.Hariand Jain, Director to make investments, Certificate of Incorporation of the company on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the transaction has been prima facie established by the Assessee. The Assessee has given the Income Tax Permanent Account Number (PAN) in almost all the share applicants. This would be prima facie proof of the creditworthiness of the Assessee. 21. The Hon'ble Delhi High Court in the case of Divine Leasing (supra) has laid down that if the Assessee satisfies prima facie the three ingredients as set out above then what the AO has to do. The Hon'ble Court has held that the onus thereupon shifts to the AO and he has to show that the money in question is that of the Assessee. The Hon'ble Court has held that the onus on the part of the AO would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee and the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. The Hon'ble Court has also held that in the case of a public issue, the company concerned cannot be expected to kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was also asked by the Assessing Officer to produce the directors, whose statements were recorded by the investigation unit 1, Kolkata for cross examination of them. 6.1 ......... 6.2 Since the investigation proceedings were not part of the assessment proceedings in the case of the assessee and even the investigation was not either u/s 132 or u/s 133 of the I T Act. It seems that investigation by the ADIT(Inv) Unit 1, Kolkata is preliminary investigation only to verify the suspicion of any concealment of income. The Assessing Officer, during the course of assessment proceedings asked the assessee to produce the said directors for cross examination. It is evident from the letter of the Assessing Officer dated 01.10.2008 as well as dated 16.9.2008 that the Assessing Officer did not summon these directors to be present in the office of the Assessing Officer for the purpose of cross examination by the assessee; but on the contrary, the assessee was asked to produce these directors for cross examination purpose. This is a gross violation of principles of natural justice when the Assessing Officer asked the assessee to produce the directors for availing opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said application money was paid by the investing company to the assessee against allotments of the preferential shares. The Investing companies have shown the said amount as investment in their books of account. The money routed through banking channels and through account payee cheques/bank draft, undisputed given by the parties. Even, the source of the application money was found in the bank account of the investing companies not by any cash deposit; but through account payee cheques. Therefore, when all the documentary evidence contradicts the statements of the directors recorded by the investigation unit of the department then such statements alone cannot be taken as the basis much less a good or proper basis for any addition. 6.5 It is settled proposition of law that the statement recorded during the course of investigation without corroborative evidence has no evidentiary value. It is pertinent to mention that the statements recorded in this case are not under search or survey or assessment proceedings therefore the same cannot be used against the assesse without following the due process of corroboration and cross examination. Even otherwise, the statement withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to cross-examine one Mr. Manoj Aggarwal on the basis of whose statement the said addition was made. The CIT(A) also held that the entire addition deserved to be deleted, particularly so, because the transactions also stood duly reflected in his regular returns. 7.1 The Hon'ble High Court has held that once there is violation of principles of natural justice by not providing seized material to the assessee as well as cross examination of the persons on whose statements, the Assessing Officer relied upon, amounts to denial of opportunity and would be fatal to the proceedings. The Hon'ble Delhi High Court has observed in para 7 as under: 7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice in as much as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. 15. At this stage, we would like to refer to the judgment of the Bombay High Court in the case of CIT v. Creative World Telefilms Ltd. (in I. T. A. No. 2182 of 2009 decided on October 12, 2009) [2011] 333 ITR 100. The relevant portion of this order is reproduced below: In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement Not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further the initial burden on the assessee would be somewhat heavy in case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties. 21 We may also usefully refer to the judgment of the Supreme Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. 22 We would like to refer to another judgment of the Division Bench of this court in the case of CIT v. Value Capital Services P. Ltd. [2008] 307 ITR 334. The court in that case held that the additional burden was on the Department to show that even if share applicants did not have the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s examination of the persons, is not sustainable. 11 The Assessing Officer has raised some doubts and suspicion about the movement of the money through various levels but could not establish any direct or indirect link of the said outward movement from the assessee and then again received by the assessee in the form of application money. Even the revenue has failed to bring anything on record to show movement of the alleged cash from the assesse. 12 The Hon'ble Delhi High Court, in the case of Oasis Hospitalities P Ltd (supra) in para 33 and 34 has observed as under: 33 The Tribunal while confirming the aforesaid view of the Commissioner of Income-tax (Appeals) has summarized the discussion as under: 9. We have carefully considered the rival submissions in the light of the material placed before us. The necessary details were filed by the assessee with the Assessing Officer to show the identity of the person who had applied for the shares. The shares also been allotted to respective persons in respect of which intimation was given to the Registrar of Companies and necessary evidence has also been placed on record in the paper book which found place at pages 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh material produced by any of the parties before us which requires examination or investigation to verify the correctness of the new facts first time brought before us. The case of the revenue is that the cash moved from the assesse routed though various leveland then reached to the assesse in the form of share application money. The stand of the revenue is not in consonance with the statements of the directors of thhe investing companies which is the basis of the investigation report as well as addition by the AO. In their statements the directors stated to have received cash from assesse for investing in the preferential share of the assesse company, whereas, this fact was not found to be correct from the record and the revenue also took a stand that the cash was not directly given to the investing companies but routed through various levels. When it was found by the investigating unit as well as recorded by the AO that the fund in the bank account of the investing companies was deposited through a/c payee cheques than it is apparent that the statements of the directors are in total contradiction of the facts emerged from the record as well as stand of the revenue. Hence the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Companies. Perusal of the same reveals that the shares allotted to the various companies totaling ₹ 27,61,50,000/- has been duly shown as shares allotted in those returns. The objections raised by the learned D.R. before us at best could raise doubts about the satisfaction of the three conditions for accepting credit entry in the books of accounts. Those objections cannot be the basis to hold that the Assessee has not satisfactorily explained credit entry in its books of accounts. The investigation referred to by the AO in the order of assessment, as we have already seen has been held by the Tribunal in the case of Chat Computers (supra) to be insufficient to hold that the credits in question were unexplained. We are therefore of the view that the addition of ₹ 27,61,50,000/- being the share capital received by the Assessee during the previous year for which allotment of shares were made and the share application money received pending allotment of ₹ 6,42,00,000 cannot be treated as unexplained and the addition made in this regard is directed to be deleted. 23. Ground No.2 was not pressed and Gr.No.3 with regard to charging of interest u/s.234-B is purely co ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
