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TMI Blog2012 (11) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax(A) has erred in ignoring the fact that the judgment of the supreme court in the case of Lovely Exports (P) Ltd 216 CTR 199(SC) cannot be extended to a situation where a mechanism has been formed to introduce unaccounted money in the books of accounts with the help of accommodation entry providers, which has been exposed by deep and detailed investigation carried out by the Investigation wing of the Department. The Ld. CIT(A) failed to appreciate the facts that the assessee company failed to prove physical existence of the share applicants. The assessee company received an amount of RS.15 ICS as share application money of Rs.7 lacs and Rs. 8 lacs from M/s Ganga Infin Pvt Ltd & M/s Kuberco Sales Pvt Ltd respectively. Except the affidavits furnished no other supporting document has been produced. Summons issued u/s 131 were returned unserved. Enquires got made through Inspector revealed that both the above named entities were not found to be existing. Fresh summons were issued to the above named two parties at le new address furnished by the AR which again went uncomplied with. These facts were confronted to the AR of the assessee company and asked to produce the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of copies of income tax returns, audited balance sheets, bank statement and the details of nature of business activities was furnished. 4. The AO issued summons to the above parties requesting them to appear on 18.08.2008 along with copies of the income tax returns, books of accounts and bank account statement etc. for AY 2006-07 but these summons/notices could not be served. The Assessing Officer sent summons/notices to both the addresses mentioned in the confirmations submitted by the assessee and addresses which were recorded by the Registrar of Companies. The notice issued to M/s Ganga Infin P. Ltd. was received unserved with a postal remark, "shop always locked". The notice issued to M/s Kuberco Sales Pvt. Ltd. was received back with a postal remark "no such company" and notice issued to the same company on the Rohini address as per Registrar of Companies record was received unserved with a postal remark "left". The Assessing Officer also deputed Inspector of the Ward to make inquiries at the addresses mentioned in the confirmations and the record of the Registrar of Companies but as per report of the Inspector dated 22.8.2008, the above entities were not found to be existi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors, the onus on it u/s 68 stands discharged. It is not for the assessee to find out the actual source or sources from where the credior has accumulated the amount in question.. e) The assessee may be given an opportunity to crossexamine the persons Viz. Shri Mahesh Garg his associates, mentioned above." 7. After consideration of facts and circumstances with submissions of the assessee, the Assessing Officer concluded the assessment with following observations:- "In the light of the above, the onus lay heavily on the assessee to establish the genuineness of the transactions and the true identity and creditworthiness of the alleged share applicants. Rather there is positive evidence as discussed above sufficient to impeach the creditworthiness of the above two "companies" and the genuineness of the transactions. Considering the totality of the circumstances, it is obvious that the "transactions were only a camouflage. The total amount of Rs.15,00,000/- allegedly received from the said parties represents the assessee's own accounted money which has sought to be introduced into its business in the garb of share application money. Thus, keeping in view the totality of the facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erco Sales Pvt. Ltd. wrote letter dated 24.10.2008 and dated 'nil' respectively to the assessing officer confirming the transactions on account of share application money. In the case of Addl. CIT vs. Hanuman Pd. Aggarwal 151 ITR 151 (Patna) it was held that assessee having furnished the correct name and address of the creditor, having confirmatory letter from the creditor and all materials show prima facie not only identity of the creditor but also the genuineness of the transaction, no adverse inference can be drawn. Reference can also be made to the judgement of Hon 'ble Apex Court in the case of Steller Investment Ltd. (2001) 25] ITR 263 (SC), wherein it was held that even if the subscribers to the increased share capital of assessee company were not genuine, the amount could not be regarded as undisclosed income of the assessee company. The above view point of the Hon'ble Apex Court has also been expressed by Jurisdictional Delhi High Court in the case of Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del.), A-One Housing Complex Ltd. vs. ITO 110 ITD 361 (Del.), CIT vs. Value Capital Service Pvt. Ltd. 307 ITR 334 (Del.) and CIT vs. General Exports and Credits Ltd. (2008) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in C. C. 12860/2007 dated 08/01/2008. As no adverse/incriminating material has been gathered by the assessing officer during the course of the assessment proceedings hence, I do not see any justification on the part of the assessing officer to make any addition on account of share application money received from M/s Ganga Infin P. Ltd. and M/s Kuberco Sales P. Ltd. as the appellant has discharged the initial onus of establishing the identity or the subscribers and the bonafides of the transactions. In view of our aforesaid discussion, I direct the assessing officer to delete the addition of RS.15.00.000/-made u/s 68 of the Act. With regard to the addition of RS.37.500/- which has been made by the assessing officer on account of payment of commission out of undisclosed sources for arranging the accommodation entries from the above mentioned two companies i.e. M/s Ganga Infin P. Ltd. and M/s Kuberco Sales P. Ltd., I again direct the assessing officer to delete the addition of Rs.37.500/- as nowhere in the impugned order, the assessing officer could prove that the amount received from these parties is an accommodation entry. Addition of Rs.15,00,000/- made u/s 68 of the Act has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease (P) Ltd. reported as (2012) 342 ITR 169 (Delhi). 11. Replying to the above submissions, the assessee's representative submitted that the assessee discharged its onus to establish the identity/creditworthiness of the share applicants and the genuineness of the transactions but the Assessing Officer merely acted on the report of the Investigation Wing of the Department taking a hyper technical approach. He also submitted that the Assessing Officer did not provide an opportunity to cross-examine the witnesses examined by the Investigation Wing and without providing an opportunity of cross-examination. He relied on the submissions of Shri Mahesh Garg and his associates. He placed his reliance on the judgment of Hon'ble Jurisdictional High Court of Delhi in ITA No. 212/2012 dated 11.4.2012 in the case of Commissioner of Income Tax vs Goel Sons Golden Estate Pvt. Ltd. wherein their Lordships held as under:- "The Revenue by this appeal under Section 260A of the Income Tax Act, 1961 (Act for short) impugns the order dated 05.08.2011 passed by the Income Tax Appellate Tribunal (Tribunal for short) in the case of Goel Estate Sons Pvt. Ltd. in relation to assessment year 2006-07. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s about the share subscribers. The Tribunal found that the allotment of shares was made as per the relevant rules of the Securities Contracts (Regulation) Act, 1956 as well as those of the Delhi Stock Exchange. No evidence had been brought on record by the Assessing Officer to indicate that the shareholders were either benamidars of the assesseecompany or fictitious or that the share application monies were the unaccounted income of the assessee-company. The Tribunal accordingly held that the onus that lay on the assessee under sec.68 stood discharged." 34. In respect of the other assessee, namely, General Exports & Credits Ltd., the monies were received by the said company on issue of rights shares to five companies pursuant to the renunciation of rights by several individual shareholders. A search had been conducted on the premises of the assessee, but those renunciation forms were not found with the assessee. As in the case of Divine Leasing & Finance Ltd., the five companies were registered in Sikkim at the same address. They all filed replies to the department asking for further time to provide the details of their investments. They had also filed returns of income under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law. 36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases: "There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessed it should not be harassed by the revenues insistence that it should prove the negative. In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuineness of the transaction and the veracity of the repudiation." 37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by the revenue which filed SLP No.11993/2007. The petition for leave to appeal was dismissed by the Supreme Court observing as below: - "Delay condoned. Can the amount of share money be regarded as undisclosed income under s.68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. Subject to the above, Special Leave Petition is dismissed." 38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax file numbers. In the same category fall cases decided by this court in Dolphin Canpack (2006) 283 ITR 190, CIT v Makhni and Tyagi P. Ltd. (2004) 267 ITR 433, CIT v Antartica Investment P. Ltd. (2003) 262 ITR 493 and CIT v Achal Investment Ltd. (2004) 268 ITR 211. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed "accommodation entry providers". 40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities Private Limited, (2011) 333 ITR 119. We have given utmost consideration to the judgment. It disposes of several appeals in the case of different assessees. Except the case of CIT v Oasis Hospitalities P Ltd. (ITA Nos.2093 & 2095/2010), the other cases fall under the category of Orissa Corporation (supra). However, in the case of O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and the assessee- company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so-called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (supra)." 13. In view of above, we hold that in the case before us, the Assessing Officer not only afforded the opportunity to the assessee of being heard but also the Assessing Officer issued notices to the alleged share applicants to the addresses given in their confirmation affidavits and also on the addresses as per record of the Registrar of Companies but the same could not be served as they were received back with the remark "shop always locked" in case of M/s Ganga Infin P. Ltd. and with the remark 'no such company' in the case of M/s Kuberc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the cases of CIT vs Divine Leasing & Finance Ltd.(2008) 299 ITR 268(SC) and Oasis Hospitalities (P) Ltd.(2011) 333 ITR 119 by Hon'ble Jurisdictional High Court is to be understood and appreciated in the background of the facts of these cases. Their lordships further held that it will be seen that where the complete particulars of the share applicant such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and shareholder's register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any further inquiry into the same and he has no material in his possession to show that those documentary evidence and particulars are false and cannot be acted upon and no addition can be made in the hands of company u/s 68 of the Act and the remedy is open to the revenue to go after the share applicants in accordance with law. But in the present case where the Assessing Officer was in possession of material that discredits and impeaches the particulars furnished by the assessee also establishes link between self-confessed entry providers whose exclusive business was to help the assessee ..... 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