9911796707
TMI Blog2012 (5) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as the monies do not belong to the appellants. The appellants further contend that the Assessing Officer has violated the principles of natural justice in not furnishing the various statements on oath of directors of various companies, being preference shareholders/share applicants of the appellant-company before passing the impugned assessment order and the CIT(A) also did not direct the Assessing Officer to furnish the statements on oath of directors of the shareholder-companies/share applicants not furnish to the appellants and as such, the order of the CIT(A) is bad in law being passed against the principles of natural justice. The CIT(A) erred in holding that adequate opportunity for cross examination of shareholder-companies/share applicants has been allowed to appellants. The CIT(A) further erred in upholding the action of the Assessing Officer of relying on the report of the directors of shareholder-companies/share applicants by other officers of the Department instead of himself examining the said directors. 3. The assessee is a company which is engaged in the business of trading in shares and securities. During the course of assessment proceedings, the AO notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 3 HOOGHLY VINIMAY PVT LTD 800 4,000,000 4 CHOWDHURY CONSULTANTS PVT LTD 300 1,500,000 5 SUNNY FINCOM PVT LTD 1,000 5,000,000 6 NKP 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 Addl. DIT (Inv.) Uniy-I, Kolkata on 04-12- 2006, 29-12-2006, 23-02-2007 and 24-04-2007. 5. The process of investigation involved summoning the directors of the various companies which had applied for allotment of preference shares u/s.131 of the Act. As per the statements of the directors of the various companies who made application for allotment of shares, cash was given to the aforesaid compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors 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 16.9.2008 requiring us to produce the preference shareholders to prove the genuineness of the receipt of monies for allotment of shares. In this connection, we would like to inform you that we have filed all the relevant documents received on application, and thereafter, as required by you, to prove the genuineness of the transactions please refer our letter dated 5th September, 2008. In your aforesaid lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was also submitted that the statement of only some of the directors of companies to whom shares were allotted was recorded. It was highlighted that even in respect of companies to whom shares were allotted, whose directors were not examined, the AO has drawn adverse inference, which was not permissible in law. Our attention was drawn to the various evidence filed by the assesse to establish the identity and capacity of the creditors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank 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 the evidence filed by the assessee to substantiate the identity, capacity and genuineness of the transactions of purchases of shares. To quote a few instances, the ld. D.R. pointed out that many companies had common address and common directors. Many of the companies' addresses were in Mumbai. In some of the acknowledgements for receipt of share application money, the stamp of the share applicant is found. All these things, according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 careful consideration to the submissions. At the outset it will be useful to take a look at the law when there are cash credits in the books of a company by way of increased share capital. The applicable provision of law in this regard is Sec.68 of the Act, which provides that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (SC). 16. In the case of Lovely Exports (Supra), the Hon'ble Supreme Court dismissed SLP against the decision of the Hon'ble Delhi High court by the Revenue against the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing and Finance Ltd. 299 ITR 268(Del) by observing as follows: "Can the amount of share money be regarded as undisclosed income under S.68 of IT Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged 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 Rs. 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 Assessee to substantiate the identity, capacity and genuineness of the transaction are given in the chart annexed to this order. Perusal of the same shows that in respect of the 25 different shareholders, who are all limited companies, to whom shares were allotted, the Assessee had given copy of the share application made by them, the resolution of the board of directors for making investments in the shares of the Assessee, the Memorandum and Articles of Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application. The sum of Rs. 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 Rs. 50,00,000/- and Rs. 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 Resolution authorizing Mr.Narendra Kumar Jain, one of its Directors to make investments on behalf of the company. The acknowledgement of filing of return of income for A.Y 2006-07, wherein gross total income of Rs. 81,573/- has been declared has also been filed. Certificate of Incorporation of the company on 8/1/96, alongwith the Memorandum and Articles of Association of the company was also filed. c) Hoogly Vinimay Pvt. Ltd.: This company made an application for allotment of 800 preference shares under two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004-05 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 Rs. 70.00 lacs by two Cheques vide Cheque No. 996473 dated 5.5.2005 for Rs. 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 Board Resolution dated 28/2/05 authorizing Mr.Narendra Kumar Jain, Director to make investments, Certificate of Incorporation of the company on 15/3/91, acknowledgement of having filed Income Tax return for A.Y 2006-07 dated 20/10/2006, Memorandum of Association and Articles of Association of the company has also been filed. g) Dabriwal Invt.and Financiers Pvt. Ltd.: This company made an application for allotment of 1000 preference shares and paid a sum of Rs. 50.00 lacs along with the application by Cheque No.177482 dated 5.5.2005 drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 dated 6/1/06 for Rs. 30.00 lacs drawn on Standard Charted Bank, Cheque No.633236 dated 6/1/06 for Rs. 20.00 lacs, drawn on ABN Amro Bank, Brabourne Road Branch, Kolkata-1 and Cheque No.445989 dated 27//5/05 for Rs. 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 22/8/95, acknowledgement of having filed Income Tax return for A.Y 2006-07 dated 20/10/2006, Memorandum of Association and Articles of Association of the company has also been filed. k) Ankur Suppliers Pvt. Ltd.: This company made an application for allotment of 400 preference shares and paid a sum of Rs. 20.00 lacs along with the application. The assessee has not furnished the particulars of Bank, PAN etc. The Assessee had filed copy of the application form for allotment of preference shares, Extract of the Minutes of the Board Resolution dated 30/6/05 authorizing Mr.Anku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cross examination. The Assessing Officer relied upon the statement of the directors of the investing company recorded during the investigation proceedings by the ADIT(Inv) Unit 1, Kolkata. Instead of ensuring the presence of these persons for giving opportunity to the assessee to cross examine, the Assessing Officer asked the assessee to produce them, which in our considered opinion is an absolute unjust and opposite to the rule of law and what procedure demands. Therefore, there is a total denial of opportunity to the assessee to cross examine the persons, whose statements are used against the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation 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 without cross examination and corroborative evidence cannot be used against the assessee. 6.6 As pointed out by the ld AR of the assessee the credibility of the statements is also not free from doubt as it appears that all the statements are prepared by the department in an identical fashion and manner before those were got signed on different dates. It is apparent that certain identical mistakes are appearing in those statements allegedly recorded on different dates. For example:- Questionno.4:- Does you company has transaction with the following companies? If so, give details and nature of such transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh 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 proceedings. Following the approach adopted by us in SMC Share Brokers Ltd. (supra), we see no reason to interfere with the impugned order. No substantial question of law arises for our consideration." 8 Similarly, in the latest decision, the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), after considering all the relevant decisions on the issue including the decision of the Hon'ble Supreme Court in the case of Lovely Exports P Ltd (supra), decision of the Full Bench of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd reported in 205 ITR 98 (Del)(FB) and the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs." (emphasis supplied) 16. The court thus clearly held that once documents like PAN card, bank account details or details from the bankers were given by the assessee, onus shifts upon the Assessing Officer and it is on him to reach the shareholders and the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign 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 Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner of Income-tax (Appeals). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee under section 68 of the Act. 23 It is also of relevance to point out that in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) where the increase in subscribed capital of the respondentcompany accepted by the Income-tax Officer and rejected by the Commissioner of Income-tax on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and 24 of the paper book. The assessee also had placed on record the evidence as well as copy of income-tax returns of the share applicants. Keeping in view all these evidence it cannot be held that the assessee did not establish the identity of the share applicants. If it is so, then the law as pronounced by the hon'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 is clear 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 is free to proceed to reopen their individual assessments in accordance with law, but the same can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 said statements do not support the case of the revenue and the reliance place by the AO on such statements is highly misplaced and improper. When the stand of the revenue is in total contraction of the material on record then then in view of the latest decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), we are of the considered opinion that the issue can be decided on merit and need not to be remand to the record of the AO because at the time of the order for the AY 2005- 06, the coordinate Bench of the Tribunal was not having the benefit of the decision of the Hon'ble Delhi High Court in the case cited supra. Further in view of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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