TMI Blog2014 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... udited accounts etc. of concerned companies - the onus shifted upon the Department and it was for the Department to bring on record relevant material to show that why inspite of the documents, the addition is still to be made in the hands of the assessee - the Department has endeavoured to discharge its burden on the basis of statements recorded by it. The assessee requested for cross-objection of the maker of the statement - the AO also made an attempt to allow the assessee opportunity to cross-examine the makers of the statement by issuing summons to them - the cross-examination could not take place because of failure on the part of the makers of the statements to appear on the appointed date – but, thereafter the AO did not take any step to allow effective opportunity to the assessee to cross-examine the makers of the statements - the assessee was not allowed any real opportunity to cross-examine the persons who made the statement at the back of the assessee - the statement of those persons cannot be read against the assessee – relying upon Heirs and Legal Representatives of Late Laxmanbhai S. Patel Vs. Commissioner of Income Tax [2008 (7) TMI 544 - GUJRAT HIGH COURT] - the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2007 Genu Commu Trade Ltd. 30,00,000/- 07.05.2007 Genu Commu Trade Ltd. 20,00,000/- 08.05.2007 Ken Securities Ltd. 25,00,000/- 03.05.2007 Nexus Software Ltd. 30,00,000/- 05.05.2007 Nexus Software Ltd. 20,00,000/- 10.05.2007 Tribhuvan Housing Ltd. 25,00,000/- It was further observed that appellant company has allotted shares of face value of ₹ 10/- at a premium of ₹ 90/- per share. These shares were ultimately transferred to various employees of different concerns of family members of appellant. All the transferees are salaried employees with meager income and they could not explain the source of investment in the share capital. A.O. also made enquiry regarding these companies. Movement of funds was traced in every case. All these facts have been narrated by AO in the assessment order. The result of enquiry was communicated to the appellant by AO and he was asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hartered Motors Pvt. Ltd. have either not shown or shown very meagre taxable income. A perusal of the balance sheet of the said companies also shows that they are having practically no fixed assets. Thus in absence of any apparent business activity, it is very difficult to comprehend that how these companies have generated such large reserves and surplus and share capital. The only plausible explanation seems to be as given by the directors/operators of these companies in their statements as discussed above, wherein it has been stated that these companies are mere entry providers. c) Moreover, the decision of the investors to sell back the shares of the company at face value, a short time after purchasing the same by paying the premium at nine times the face value, fails to stand the test of a prudent business decision. d) The shares were sold back by the investors even before the share certificates were received by the investors. This points to the fact that the decision of issue and buyback of shares by the assessee company was a premeditated decision and not a prudent business decision. There was no drastic change in the financial position of the assessee company and its n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing within section 44E or assume diverse other forms. But there must be some artifice or device enabling the assessee to avoid payment of tax on what is really and in truth his income. In the present case at hand, the funds have been routed through various layers, in such a manner so as to give it a color of genuine: investment, whereas the circumstantial evidences point otherwise. 19. In view of the discussion above; the share application money received by the assessee during the year, is being treated as the undisclosed income u/s 68 of the assessee and the same is being added to the total income of the assessee. 4. The assessee filed the appeal before the Commissioner of Income Tax(A) and submitted a written submission which is as follows: We refer to our submission dt. 15/2/2012 furnishing reply on addition of ₹ 2,00,00,000/- made U/s. 68 of I.T, Act. The said reply contained paper book and various judgments relied upon by us. Sir, we also rely on the following judgments and request your goodself to consider the same: 1. I.T.O. Jaipur vs.Orchid Medicare Pvt. Ltd. ITA No.939/JP/2011 ITAT, Jaipur Bench (16/5/2012) 2. Param Poly pack Pvt Ltd. Vs. I.T.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is very clear that these Companies are showing sales/purchase and closing stock. Hence, the shares taken in our company are appearing in purchases and in turn in closing stock/Inventory. Thus the purchases/ investments are duly accounted for by them. (iv) The story of Commission received and investment not being genuine has ho base at all, as companies have accounted for purchases and shown the same in closing stock. There is no commission element as income in the books of A/cs. as well as nothing has been brought on record as to who has paid commission and to whom. (v) In case of Nexus Software Ltd., we have the statement of accounts for the period 1/4/2007 To 31/3/2008 duly confirmed by director Jayesh Patel wherein entries of cheques paid to us and accounting to purchases of 50000 Shares of Chartered Motors Pvt. Ltd. @ ₹ 100/- per share (Rs. 50.00 lacs) is duly reflected. Same may be the case in other two companies also copy enclosed. (vi) On perusal of bank statement of above Companies, you will find that when cheques were given to us for share capital, there was sufficient balance which was built up by cheques clearances i.e. received 'through proper ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng about Chartered Group investments being not genuine. (ii) Thus it is very clear that Share Capital Contributed by these Companies is genuine and requested to be accepted. Sir, on perusal of our submissions made before A.O. as well furnished herein your honour will find that; i. Share capital is contributed by Companies incorporated under Companies Act, 1956 ii. Accounts of all the companies are regularly passed by respective Board of Directors, approved, and signed, it is Audited by statutory auditors and while filing tax returns all the contents are verified by director. iii. The accounts duly audited are filed with Govt. Agencies, Income Tax and ROC every year. iv. All the transaction are through proper Banking Channel i.e. we have received the contribution by cheque only. v. There is no cash deposit in the bank A/c. of company for passing the cheques given to us for share capital in respect of companies whose Bank statements are provided to us. vi. All these companies are having PAN. vii. 4 of the companies are assessed by our A.O. and 1 of them is listed with BSE. viii. During search proceedings nothing incriminating was found so as to indicate that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts are mentioned. (f) Statement of Mr. Deepak Patel was recorded who is director of Ken Securities Ltd He also admitted that cheque of ₹ 25 lakhs was received by him from Mr. Raman Jain. He also admitted that he provides adjustment entries on commission basis. The source of deposit of this money in the account of Ken Securities Ltd. was also found from various bank accounts which are managed by Ram Dinesh Sharma only. (g) Statement of Narendra Shah was recorded who is director of Tribhuvan Housing Ltd. He stated that he has given blank cheques to Laxman Zala, who is finance broker and he does not know any transaction undertaken by him. He further denied any transaction with appellant company or its promoter. 2.4 In view of above mentioned facts, claim of the appellant that nothing incriminating was found in his case, is factually incorrect. During search and post search proceedings sufficient material has been brought on record by the department to prove that appellant introduced its own unaccounted money in the garb of share application. The initial source of funds in the case of allottee companies remains unexplained. Statements of Mr. Ram Dinesh Sharma, Mukesh C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide Whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court in Commissioner of Income-Tax, West Bengal II v. Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under:- Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280, the Supreme Court again reiterated the aforesaid position and held as under: - As a principle, this court does not disturb findings of fact unless the findings of fact are perverse, it appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see. 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forms and share transfer register. It was contended by the assessee in that case that because of the action of the Assessing Officer, it was not able to furnish any details 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 assessee- company 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld the AO take such repudiation at face value and construe it, without more, against the assessee. (7) 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. 2.8 Hon'ble High Court also considered other decisions on this issue and held that: 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 register etc. are furnished 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end 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 (P.) Ltd. (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 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 Oasis Hospitalities (P.) Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of which it was found that six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P.) Ltd.. (supra). 42. In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of ₹ 1,18,50,000 made under section 68 of the Act as well as the consequential addition of ₹ 2,96,250. We accordingly answer the substantial questions of law in the negative and in favour of the department. The assessee shall pay costs which we assess at ₹ 30,000/-. 6. The Commissioner of Income Tax (A) held as under: In view of above mentioned facts and legal position, I hold that AO is justified in coming to the conclusion that receipt of ₹ 2 crores shown by the appellant as share application money from the 6 companies is only an accommodation entry. AO has given detailed reasons in the assessment order for coming to this conclusion which need not be repeated here. In view of various discrepancies pointed out by AO, the onus on appellant was very heavy to prove that the transactions are genuine. Appellant has failed to discharge this onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice. In any case mere bald statement, that too self-serving, without any corroborative evidences cannot be made a ground to make huge addition. Mr. Raman Jain has given a statement in favour of the appellant. However the same is ignored by AO on the ground that he is the auditor of the appellant. If self-serving statements are to be ignored, all the statements of the directors as stated above have to be ignored. As regards statement of Mr. Ram Dinesh Sharma is concerned, nowhere it has been even remotely suggested that the appellant is connected in the transaction in any manner. In answer to Q. No. 7 also, Mr. Sharma has never named the appellant or any of its director or employees. The fact that these investments are not reflected by Genus THL in fact support the appellant in as much as since these parties have made investments outside its books of accounts, they are trying to disown the same and saving their own skin by blaming the appellant. In private limited company, the shares are seldom sent to the concerned shareholders as shares are not easily transferable. Therefore, the mere fact that shares were in possession of the appellant would not affect the genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and placed reliance on the following decisions: (i) CIT Vs. Nova Promoters Finance Pvt. Ltd. 2012 18 Taxmann 217 Delhi HC (ii) CIT Vs. Titan Securities Ltd. 2013, 32 Taxmann.com 306 Delhi HC (iii) CIT Vs NR Portfolios Pvt. Ltd. Delhi HC ITA No. 134/2012 dated 21.12.12. 9. In the case of Chartered Speed Pvt. Ltd., the Assessing Officer observed that during the relevant period, the assessee company has received share application money from various companies, the details of which are given below: Date Name of the company Amount (Rs) 28.09.2007 Kailash Fincom Pvt. Ltd. 20,00,000/- 12.09.2007 Shivpujan Agencies Pvt. Ltd. 15,00,000/- 03.09.2007 Gold Star Finvest Pvt. Ltd. 20,00,000/- 14.09.2007 Nexus Software Ltd. 15,00,000/- Total 70,00,000/- It was further observed by AO that appellant company has allotted shares of face value of ₹ 10/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is not forthcoming. In such circumstances the share premium is not found to be justified by any of the act on the part of the assessee. These facts are revealing more than the apparent shown on the paper. b) The companies which have invested in Chartered Speed Pvt. Ltd. have either not shown or shown very meagre taxable income. A perusal of the balance sheet of the said companies also shows that they are having practically no fixed assets. Thus in absence of any apparent business activity, it is very difficult to comprehend that how these companies have generated such large reserves and surplus and share capital. The only plausible explanation seems to be as given by the directors/operators of these companies in their statements as discussed above, wherein it has been stated that these companies are mere entry providers. c) Moreover, the decision of the investors to sell back the shares of the company at face value, a short time after purchasing the same by paying the premium at nine times the face value, fails to stand the test of a prudent business decision. d) The shares were sold back by the investors even before the share certificates were received by the investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it available for use and enjoyment to the assessee as in a case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms... But there must be some artifice or device enabling the assessee to avoid payment of tax on what is really and in truth his income. In the present case at hand, the funds have been routed through various layers, in such a manner so as to give it a color of genuine investment, whereas the circumstantial evidences point otherwise. 1.8. In view of the discussion above, the share application money received by the assessee during the year, is being treated as the undisclosed income u/s 68 of the assessee and the same is being added to the total income of the assessee under the head Income from other sources . 10. The appellant in its written submission argued that We refer to our submission dt. 15/2/2012 furnishing reply on addition of ₹ 70,00,000/- made U/s. 68 of I.T. Act. The said reply contained paper book and various judgements relied upon by us. Sir, we also rely on the following judgements and request your goodself to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in shares. I specifically deny to whatever they stated . (iii) On analysis of Audited A/cs. it is very clear that these Companies are showing sales/purchase and closing stock. Hence, the shares taken in our company are appearing in purchases and in turn in closing stock/Inventory. Thus the purchases/investments are duly accounted for by them. The story of Commission received and investment not being genuine has no base at all, as companies have accounted for purchases and shown the same in closing stock. There is no commission element as income in the books of A/cs. as well as nothing has been brought on record as to who has paid commission and to whom. (iv) In case of Nexus Software Ltd., we have the statement of accounts for the period 1/4/2007 To 31/3/2008 duly confirmed by director Jayesh Patel wherein entries of cheques paid to us and accounting to purchases of 15000 Shares of Chartered Motors Pvt. Ltd, @ ₹ 100/-per share (Rs. 15.00 lacs) is duly reflected. Same may be the case in other two companies also copy enclosed. (v) On perusal of bank statement of above Companies, you will find that when cheques were given to us for share capital, there were suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence your honour has access to alt the details and information as to genuineness, identity and capacity. iv. In view of above, we request your goodself to accept the Share Capital contribution as genuine. Sir, on perusal of our submissions made before A.O. as well furnished herein your honour will find that; i. Share capital is contributed by Companies incorporated under Companies Act, 1956 ii. Accounts of all the companies are regularly passed by respective Board of Directors, approved and signed, it is Audited by statutory auditors and while filing tax returns all the contents are verified by director. iii. The accounts duly audited are filed with Govt. Agencies, Income Tax and ROC every year. iv. All the transactions are through proper- Banking Channel i.e. we have received the contribution by cheque only. v. There is no cash deposit in the bank A/c. of company for passing the cheques given to us for share capital in respect of companies whose Bank statements are provided to us. vi. All these companies are having PAN. vii. 4 of the companies are assessed by our own A.O. and 1 of them listed with BSE viii. During search proceedings nothing incrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Jayesh Patel clearly indicate the nature of accommodation entry business carried out by the four allottee companies. Allotment of shares by appellant at a huge premium without actually sending the share certificates and subsequent purchase of shares at par within a period of 9 months by the promoter conclusively prove involvement of appellant. All these facts taken in totality don't leave an iota of doubt that the transactions are bogus. AO has duly discharged his burden in this case by pointing out various contradictions in the claim of appellant while appellant has miserably failed to discharge his burden to prove genuineness of these transactions. 2.5 The issue regarding entry racket in respect of share application money has been examined in detail by Hon'ble High Court of Delhi in one of its recent judgements in the case of CIT vs. Nova Promoters Finlease Pvt. Ltd. 18 taxmann.com 217 (Delhi). In this case, the Hon'ble court has considered various case laws on the issue and held that where modus operandi of entry operators taking cash from assessee company and then providing share application money through cheques from various companies to assessee company has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. In Commissioner of Income-Tax(Central), Calcutta v. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under Section 66 of the Indian Income Tax Act, 1922. The Supreme Court 1 referred to the leading case of Edwards (inspector of Taxes) y. Bairstow [1955] 28 ITR 579 (H.L) decided by the House of Lords in which Viscount Simonds observed as under: For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears 'that the Commissioners have acted without any evidence or upon a view of the facts which could not reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is a fortiori as the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 2.7 Hon'ble High Court also distinguished the decisions in the cases of CIT v. Lovely Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt asking for further time to provide the details of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the shares through banking channels. Moreover, the investigations carried out into those companies by the income-tax department at Calcutta and the adverse findings therein had been struck down as being without jurisdiction in appeals filed by those companies and therefore the Assessing Officer having jurisdiction over General Exports and Credits Ltd. in Bulandshahar could not rely upon them. In these circumstances, the Tribunal had deleted the addition made u/s. 68 on the ground that the identity of the shareholders had been proved. This court did not approve of the ground on which the Tribunal had cancelled the addition and observed that the judgment of the Full Bench of this court in CIT v. Sophia Finance. Ltd.(1994) 205 ITR 98 (Delhi) could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of culpability and complexity of the assessee it should not be harassed by the revenues- 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 AO 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 Sections 68 and 69 of the IT 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 AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. We may also note that a reference was made by this court to several authorities, including at least seven judgments of this court on the question of applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and, on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary evidences placed on record in respect of the aforesaid companies are as per Annexure A . Copy of Board Resolution w.r.t. allotment of 70,000 shares is placed at Pg. 126 of P/B. Copy of a table containing the date of allotment, name, address, nos. of shares allotted and PAN of the aforesaid companies is placed at Pg. 127 of P/B. Copies of relevant extract of bank statement of the appellant are placed at Pgs. 128 129 of P/B. Copy of Form. 2 (i.e. '''Return of allotment) filed by the appellant pursuant to S.75(l) of the Companies Act, 1956 is placed at Pgs.130 to 132 of P/B. Thus, assessee had furnished various details pertaining to the share applicants such as name, addresses. PAN, share application and mode of payment. Having furnished the aforesaid documents, the primary onus as casted on the assessee stood discharged. Thereafter, it is for the Assessing Officer to scrutinize such details. The Assessing Officer didn't make any efforts to scrutinize the details given to him. In fact, it was brought to the notice of Assessing Officer that out of the said companies, one company was assessed with the very same circle i.e. Central Circle 2(2), Ahmedabad (Pg.26 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa Corporation Pvt. Ltd. 159 ITR 78 (SC) If Assessing Officer doubts the source of the source, he is free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the requirement of section 68. The appellant has proved all the three ingredients of proving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). In case of share application money, only the identity of the share applicants is to be proved. Once identity is proved, burden of the assessee can be said to have been duly discharged. Reliance is placed on the followings: (i) CIT v. Lovely Exports (P.) Ltd. 216 CTR 195 (SC) (ii) Hindustan Inks Resins Ltd vs. DCIT (Tax Appeal No. 523 of 2004 dated 17/06/2011) (iii) ITO vs. Ankush Finstock Ltd. - 149 TTJ 502 (Ahd) CIT vs, Rama Multl Tech Ltd. - 34 taxmann.com 177 (Guj) (iv) CIT vs. Gangeshwari Metal (P.) Ltd.- 30 taxmann.com 328 (Delhi) (v) CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh Panchal director of Genu Commu Trade Ltd.; ₹ 25 lakhs from Ken Securities Ltd. was statement of Deepak Patel director of Ken Securities Ltd. The assessee claimed before the Assessing Officer that the money was received from banking channel and are supported by the following documents: 1. Copy of MOA 2. Copy of AOA 3. Copy of Share application 4. Copy of board resolution 5. Certificate of Incorporation 6. Certificate of Commencement 7. Acknowledgement of ITRs 8. Audited accounts of concerned companies In view of these overwhelming evidences and materials furnished by the assessee, the transactions in question cannot be held as not genuine. The identity of the share applicants cannot be doubted. The statements made by the persons in question were self-serving statements and the same cannot be taken as evidence against the assessee unless the assessee was allowed an opportunity to cross- examine them. The statements were recorded at the back of the assessee. The Assessing Officer thereafter issued summons to the aforesaid persons u/s. 131 of the Act. However, on the appointed date, none of the parties appeared though the assessee through its Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peared on that date. This fact is also recorded on page 34 of the assessment order by the Assessing Officer. Thereafter, the Assessing Officer, for the reasons best known to him, took contrary stand and not taken any further steps to allow the assessee an opportunity to cross-examine those persons and by unreasonably holding that the assessee has not discharged its burden which was on the assessee u/s. 68 of the Act, made the addition under consideration. The Authorized Representative of the assessee contended that on the above facts, addition made is unsustainable in law. For this, he placed reliance on the following decisions: (i) Decision of Hon'ble Gujarat High Court in the case of Heirs and Legal Representatives of Late Laxmanbhai S. Patel Vs. CIT (2008) 174 taxman 206 (Guj.) wherein it was held as under: In the instant case, the finding was arrived at by the authorities below while denying an opportunity of cross-examining the important witness, namely 'R' and the legal effect of that finding was certainly a question of law which required to be reviewed by the Court. The legal effect of the statement recorded behind the back of the assesses and without furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , acknowledgements of ITRs, audited accounts etc. of concerned companies. Thereafter, in our view, the onus shifted upon the Department and it was for the Department to bring on record relevant material to show that why inspite of the above stated documents, the addition is still to be made in the hands of the assessee. In the instant case, the Department has endeavoured to discharge its burden on the basis of statements recorded by it of the persons mentioned above. 18. We find that the assessee requested for cross-objection of the maker of the statement. Further, we find that the Assessing Officer also made an attempt to allow the assessee opportunity to cross-examine the makers of the statement by issuing summons to them. However, the cross-examination could not take place because of failure on the part of the makers of the statements to appear on the appointed date. But strangely, thereafter, the Assessing Officer did not take any step to allow effective opportunity to the assessee to cross-examine the makers of the statements. The Assessing Officer did not pursue the matter further. Thus, we find that the assessee was not allowed any real opportunity to cross-examine the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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