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TMI Blog2013 (12) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 4. On the basis of the information received from the Investigation Wing of the Income Tax Department, notice under Section 148 was issued to the Assessee. The proceedings were sought to be opened on the basis of the information unearthed by the Investigation Wing of the Income Tax Department, wherein it came to their knowledge that a huge money laundering racket was being run by a few persons and bogus accommodation entries were being provided. As per the information of the Investigation Wing, accommodation entries were being provided in lieu of payment in cash of equivalent amount plus commission being paid thereon to the entry operators. The Investigation Wing during the investigation came across names of various individuals, who were operating as entry providers and also various parties, who were taking such accommodation entries. The name of the Assessee also figured as one of the parties involved in taking such accommodation entries. 5. In response to the notice under Section 148, the Assessee issued a letter dated 06.04.2009 submitting that the return filed on 30.09.2002 may be treated as the return filed in response to the notice under Section 148. The Assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DG 6257 500300 21-May-01 VISHNU KUMAR SBP DG 6058 500300 21-May-01 VISHNU KUMAR SBP DG 6058 501000 22-May-01 BASANT AGENCIES SBP DG 4507 501000 22-May-01 BASANT AGENCIES SBP DG 4507 500000 12-JUN-01 HARBHAGWAN BATRA SBP DG 6701 500000 12-JUN-01 HARBHAGWAN BATRA SBP DG 6701 501000 13-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 501000 13-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 501000 15-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 501000 15-JUN-01 SATISH KUMAR SHARMA SBP DG 6774 900000 17-Sep-01 MANISH KUMAR AGARWAL SBP DG 6810 900000 17-Sep-01 MANISH KUMAR AGARWAL SBP DG 6810 900000 17-Sep-01 SATISH KUMAR SHARMA SBP DG 6774 900000 17-Sep-01 SATISH KUMAR SHARMA SBP DG 6774 600000 26-Sep-01 VINOD GARG SBP DG 6776 600000 26-Sep-01 VINOD GARG SBP DG 6776 1500000 26-Sep-01 CHINTPURNI CREDITS SBP DG 50058 1500000 26-Sep-01 CHINTPURNI CREDITS SBP DG 50058 600000 03-Oct-01 KESO RAM GUPTA SBP DG 6907 600000 03-Oct-01 KESO RAM GU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 600000 20 Subhash Gupta 900000 21 Narender Kumar Gupta 900000 22 Manish Kumar Agarwal 900000 23 Satish Kumar Sharma 900000 24 Chintpurni Credits 1500000 Total 15000000 7. The Assessing Officer during the reassessment proceedings found, on the basis of the inquires and investigations made by the Investigation Wing, that the 24 parties/persons, who legitimately had invested a sum of Rs.1,50,00,000/- as share capital in the Assessee were in fact parties belonging to one Mahesh Garg group and these parties/persons were not carrying on any actual business and were engaged in the business of providing accommodation entries. The Investigation Wing had recorded the statement of Mahesh Garg on various dates and in the statement of Mahesh Garg, various dates and modus operandi unearthed. 8. As per the Investigation wing the modus operandi adopted by this entry operator was that the entry operator (person who provides such entries) would operate a number of accounts either in the same bank or branch or in different branches in the name of banks/firms/proprietor concerns and individuals. For the purpose of operations of these bank accounts and to legitimize the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members/friends of the Directors at a huge discount. The share capital was purchased at high prices (Premium) and in a short span sold back to the company or its Directors at a nominal value thereby creating semblance of legitimacy to the transactions. 11. The Assessee Company is a private limited company. In the case of the Assessee, in order to verify the genuineness of the transactions as well as the creditworthiness of the parties, who had invested in the Assessee Company, the Assessing Officer asked the Assessee to file the necessary details in respect of the parties who had infused share capital in the Assessee Company. The Assessee filed affidavits of confirmation of the following parties: 1 Shri Ajay Bansal Rs. 11,00,000/- 2 Shri Jagdish Pd. Gupta Rs. 5,00,000/- 3 Shri Satish Kumar Sharma Rs. 14,00,000/- 4 Shri Narendra Kumar Gupta Rs. 14,00,000/- 5 Shri Manoj Kumar Batra Rs. 5,00,000/- 6 M/s Technocom Associates P.Ltd. Rs. 5,00,000/- 7 Subhash Chand Gupta Rs. 9,00,000/- 8 Rekha Garg Rs. 6,00,000/- 9 Shri Vijay Kumar Rs. 5,00,000/- 10 M/s.Chitpurni Credits & Leasing Pvt. Ltd. Rs. 20,00,000/- 11 Santosh Kumar Chaudhary Rs. 5,00,000/- 12 Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.5,00,000/- 30. Gyan Chand Jain S/o Bhagwan Sahai Jain Rs.5,00,000/- 31. Anita Kanodia W/o Vinod Garg Rs.5,00,000/- 32. Vasu Dev S/o Jagdish Prasad Rs.5,00,000/- 33. Suresh Kumar S/o Jagdish Prasad Rs.5,00,000/- 34. Suresh Kumar S/o Jagdish Prasad Rs.6,00,000/- 35. Rekha Garg W/o Mahesh Garg Rs.5,00,000/- 36. Vinod Lal S/o Chiranji Lal Rs.5,00,000/- 37. Shyam Lal S/o D.D. Goyal Rs.5,00,000/- 38. Ram Saran Aggarwal S/o Chiranji Lal Rs.5,00,000/- 39. Raj Kumar S/o Bishan Dayal Rs.3,00,000/- 40. Raj Kumar S/o Bishan Dayal Rs.6,00,000/- Total Rs. 2,85,00,000/- 13. The Assessing Officer thus found that the Assessee had received share capital including premium of a sum of Rs. 4,35,00,000/- during the year and out of the said amount only Rs.92,00,000/- had been received from the four Directors/their family members of the Assessee company and the remaining amount had been received from the parties mentioned in the reasons recorded for reopening or from related parties. Summons were selectively issued to 8 more additional parties, however, the same were returned unserved as the parties were not available at the addresses provided by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investment in the share capital of the Assessee nor was an opportunity given to the Assessee to cross-examine Mahesh Garg. The Commissioner of Income Tax (Appeals) further held that the Assessee had been paid money through account payee cheques. The fact that the cash was deposited in the accounts of the persons, who had purchased the shares immediately preceding the issuance of cheque, does not prove that the cash was not of the persons and was of the Assessee company. 18. The Commissioner of Income Tax (Appeals) was further of the view that the subscribers to the share capital were people who existed on the record of the Income Tax Authorities/Department and had bank accounts from which payments were made and thus, it could not be said that their identity was not proved since the Assessee company had submitted copies of their return of income. 19. The Commissioner of Income Tax (Appeals) was further of the view that merely because some information was received by the Assessing Officer, which was not verified and no opportunity was granted by the Assessing Officer to cross-examine or to verify the evidences furnished by the Assessee and that the burden on the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation, an adverse view should be taken. We shall now come to the merits and the findings recorded by the Commissioner (Appeals), which as noted above, have been simply affirmed by the tribunal without verifying or referring to the facts. ........ 17. The Commissioner (Appeals) thereafter proceeded on the basis that even if the subscribers to the share capital were not genuine, the amount received cannot be regarded as undisclosed income of the respondent-assessee. Reference was made to the decision of the Delhi High Court in Lovely Exports Private Limited and Divine Leasing and Finance Limited(supra). Reference was made to some decision of the tribunal. It would be here relevant to highlight and note what was recorded by the Assessing Officer in the assessment order. The Assessing Officer has mentioned that the subscribers belonged to Mahesh Garg group of entry operators, which included 51 companies/ persons, who were operating more than 100 bank accounts in different banks/branches. Their modus operandi was to provide accommodation entries to different persons/beneficiaries. Reference was made to the bank statements of the entry operators that showed substantial deposit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even when payment is through bank account. 19. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any share-dividend or interest to the said entry operators/subscribers. The profit motive was normal in case of investment entirely was absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. ...... 23. The contention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of 'source of source' or 'origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate illgotten and unrecorded money. Without being oblivious to the constraints of the assessee, an objective and fair approach/determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 assessee it should not be harassed by the Revenues's insistence that it should prove the negative. 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. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further noticed that PAN Numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity. PAN Number is allotted as a facility to revenue to keep track of transactions. The PAN Number cannot be blindly and without consideration of surrounding circumstances treated as sufficiently disclosing the identity of the individual. 27. Referring to the various judgments of the Supreme Court {A. GOVINDARAJULU MUDALIAR VS CIT (1958) 34 ITR 807 (SC), CIT VS M. GANAPATHI MUDALIAR (1964) 53 ITR 623 (SC) AND CIT VS DEVI PRASAD VISHWANATH PRASAD (1969 (72) ITR 194 (SC)} we have in N.R.PORTFOLIO PRIVATE LIMITED (SUPRA) rejected the contention that the revenue must have evidence to show a circulation of money from the Assessee to third parties. Following CIT VS NOVA PROMOTERS AND FINLEASE PRIVATE LIMITED CASE (2012) 342 ITR 169 (DELHI) we have held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN Number, acknowledgement of Income Tax Returns of the entry providers, bank account statement is not sufficient to discharge the onus on the Assessee. 28. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach by M/S. M.A.F. Academy Pvt. Ltd. as detailed below: No. of Shares Face Value Premium Total Value Date of Allotment 2,500 100 100 5,00,000 05/05/2001 3. THAT I have made the payment of issue price by P/o. No. 002777 Dt. 23/04/2001 of Innovative co-op Urban Bank Ltd. Ashok Vihar, New Delhi Branch & Ch. No. 496264 Dt. 01/01/2001 of Oriental Bank of Commerce, Minto Road, New Delhi Branch for Rs.5,00,000/- & Rs.6,00,000/- respectively. 4. THAT this is a genuine transaction and I have not received any thing against this issue of Shares from M.A.F. Academy Pvt. Ltd. or from any other person. Deponent. Verified on the 15 day of June, 2009, that the contents of my above affidavit are true & correct to the best of my knowledge & belief & nothing has been concealed. Deponent. 31. The other 9 affidavits do not give the breakup of the number of shares, face value or premium. 7 out of the 9 affidavits in the second set are all attested on 26.11.2001 and one is attested on 23.05.2001. All the nine affidavits are in the same language and are as under:- I, Manish Kumar Aggarwal S/o Sh. D.P.Aggarwal, hereby solemnly affirm and declare as under:- 1. That I am resident of 13/A, Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare i.e. at a price of Rs.200/- to Rs.300/- per share, sold the shares at Rs.35/- per share i.e at a substantial loss. Another surprising factor is that the entire investment happened during a short span of time and re-transfer of the shares to the four Promoters/Directors of the company at Rs.35/- per share by different parties also happened during a short span of few days. The modus operandi and the manner in which cash is deposited in a bank and then utilized by way of an account payee cheque for purchase of shares for a premium of Rs.100/- to Rs.200/- per share and then the sale of shares at a loss clearly establishes that the said transaction was a camouflage transaction. The Assessee has clearly attempted to camouflage the accommodation entries and tried to give it a colour of purchase of share capital and then sale of the same at a loss. Thus the Assessee's capital increased or was enhanced by a substantial figure through these dubious transactions. This should be and has to be checked. 36. Out of Rs.4.35 crores received as share capital including premium, only Rs.92 lacs has been received from the directors or their family members and the remaining amount has been receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance the case of the respondent inasmuch as the judgments are based on the factual matrix of the respective cases. 40. In Nipon Auto Pvt.Ltd. (supra), the High Court decided in favour of the Assessee by holding that the Assessee had been able to discharge the initial burden to establish the identity, creditworthiness and genuineness as regards the transaction concerning the allotment of shares. 41. In the case of Gangeshwari Metals Pvt. Ltd. (supra), the High Court decided on the basis of the fact that the Assessing Officer sat back with folded hands till the Assessee exhausted all the evidence and materials in his possession and then came forward to merely reject the same on the presumptions. The Court was of the view that there was a lack of inquiry on part of the Assessing Officer once the Assessee had furnished all the material. 42. Similarly, in the case of Fair Finvest Ltd. (supra), the Division Bench of this Court formed the opinion in favour of the Assessee by holding that no efforts were made by the Assessing Officer to enquire into the matter or invoke his powers under Section 131 of summoning the share applicants or directors. 43. In the case of Oasis Hospitality Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer had conducted the said enquiry and investigation, probably the challenge made by the Revenue would be justified. In the absence of the said verification and enquiry, the factual findings recorded by the Assessing Officer were incomplete and sparse. In these circumstances, High Court of Delhi refused to interfere on the ground that the order of the tribunal was perverse. 51. In the case of Expo Globe India Ltd. (supra), the Court has noticed that though the Assessing Officer had initially concluded on the basis of material made available, at that stage, the service of entry providers had been utilized to bring in capital, however, after remand, the CIT (Appeals) elaborately took into account considerable material furnished by the Assessee which included amongst other income tax return and the balance sheet which showed the source of the share application money having been satisfactorily explained. 52. The case of Sh. Pradeep Kumar Gupta (supra), is not a case of share application money and was dealing with the issue of addition being made solely on the basis of the statement of an individual, who was not produced for cross-examination and furthermore, the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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