TMI Blog2014 (8) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... t, was entirely absent - 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. 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 be sufficient when surrounding and attending facts predicate a cover up - These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive - Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. The Tribunal has merely reproduced the order of the CIT(A) and upheld the deletion of the addition - the assessee was unable to produce directors and principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative of the assessee appeared on 9th September, 2009, and sought adjournment for providing documents, evidence etc. in response to the notice under Section 143(2), which was issued on 2nd September, 2009. The case was adjourned to 11th September, 2009, but no one attended the proceedings and belatedly on 14th September, 2009, request for adjournment was made on the ground that authorized representative was ill. To give further opportunity, proceeding was adjourned to 22nd September, 2009, and other details were sought. On 22nd September, 2009, again request for adjournment was made. On the said date, a questionnaire along with notice under Sections 142(1) and 143(2) was issued, fixing the hearing on 8th October, 2009. On 8th October, 2009, authorized representative of the respondent-assessee once again requested for time on the ground that the requisite information was under preparation/compilation. The assessee was required to furnish details of shareholders who were allotted shares in the year under consideration, their confirmations, copy of the income tax returns, bank accounts, copy of share certificate issued, allotment letter etc. The case was adjourned to 22nd October, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and seven years had passed since the transactions took place. The assessment order records and mentions about the transactions recorded in the bank accounts of the shareholder/entry operator companies to show and establish that there was immediate deposit of cash and then issue of cheques. It was further mentioned that these companies were under control of one Mahesh Garg and his group, who were operating various accounts. The Assessing Officer made addition of ₹ 54,00,000/- under Section 68 of the Act and ₹ 1,08,000/- as commission paid for procuring the said shares being 2% of ₹ 54,00,000/-. 9. Commissioner of Income Tax (Appeals) deleted the aforesaid additions on merits. However, he upheld the issuance of notice under Section 147/148 of the Act. He observed that the respondent assesse had submitted various letters/documents in support of genuineness of the transactions towards share capital subscribed, but this was rejected by the Assessing Officer without adducing even a single instance of infirmity and shortcoming. The said evidence was in the form of share application forms, copy of bank statements of the share subscribers from where the share applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of ₹ 80,000 and the other being receipt of ₹ 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led and income tax record numbers of the shareholders were made available, but the Assessing Officer, who had sufficient time, failed to carry out inquiry and examination. reference was made to the observations in Divine Leasing (supra) to the effect that there cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment as share capital must be firmly excoriated by the Revenue, but when there is preponderance of evidence to show absence of culpability, the assessee should not be harassed by the Revenue. A delicate balance must be maintained between the two interests. In Divine Leasing (supra), the following proposition was elucidated:- In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan a smokescreen conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence ormaterial in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 18. Lovely Exports Pvt. Ltd. (supra) was also considered and distinguished in N.R. Portfolio Pvt. Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT Vs. Nipun Builders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according to us is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, 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 hav ..... 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