TMI Blog2015 (3) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... urther that it is probably not always possible for the assessee placed in such situation to be able to enforce the physical attendance of such third party (who, in the case of share applicants vis-à-vis a company, would be individuals at large and may not be even in direct or personal contact), the curtains on such exercise at verification may not be drawn and adverse inferences reached only on the basis of returning undelivered of the summonses under Section 131. Conversely, with doubts as to the genuineness of some of the parties persisting on account of non-delivery of the processes, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged. We are inclined to agree with the CIT (Appeals), and consequently with ITAT, to the extent of their conclusion that the assessee herein had come up with some proof of identity of some of the entries in question. But, from this inference, or from the fact that the transactions were through banking channels, it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established. The AO here may hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat some time in 2007 the Assessing Officer (AO) was in receipt of information from DIT (Investigation), New Delhi that the assessee had been in receipt of accommodation entries from the entry providers. It is the averment of the Revenue that - ―during the course of the enquiries conducted by the investigation wing of the department it was concluded that most of the entry operators are charging commission @ 2% for giving this accommodation approach to another person and hand over the cash plus commission and take cheques/DDs/Pos. The cash is deposited by the entry operator in a bank account either in his own name or in the name of the relative/friends or other person hired by him for the purpose of opening bank account. The other person (in whose name the account is opened) only signs the blank cheque book and hands over the same to main entry operators. The entry operator then issues cheques/DDs/Pos in the name of the beneficiary from the same account in which the funds are transferred through clearing in two or more stages. The beneficiary in turn deposits these instruments in his bank accounts and the money comes to his regular books of accounts in the forms of gift, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. It is stated that in order to verify the genuineness of the claim of receipt of share application money, summons were issued under Section 131 of the Income Tax Act to the twelve entities in response to which, no one appeared and some of the processes returned un-delivered with the postal remarks left/no such person . In this fact situation, the AO called upon the assessee to produce the parties/persons in question which direction was not complied with. 7. The AO, thus, treated the amount of ₹71 Lacs as unexplained credit in terms of the provision contained in Section 68 of Income Tax Act and added it to the income of the assessee. The assessee s explanation was rejected by drawing adverse inferences on the following reasoning:- ―(i) Mere payment of a/c payee cheque is not sacrosanct. (ii) Bank account revealed a uniform pattern of cash deposit of equal amount by cash or cheque in respective accounts. (iii) Assessee failed to produce the directors of the companies from whom the share application money was received. (iv) Summons u/s 131 of the Act were issued, but some of the summons were received unserved with postal remarks left/no such person ; none appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements; (iv) Copies of the Board resolution of the respective share holding companies for subscribing the share applications; (v) Copies of allotment letters; (vi) Copies of the registration certificates of the share holder companies from Registrar of Companies disclosing existence of the companies as per master data from the office of ROC along with the subscription of the capital details, number and dates of payments.‖ 12. The contentions of Revenue were rejected by the ITAT with observations to the following effect:- ―7. ... the assessee consequent to the assessing officer's queries furnished all the relevant documentary evidence before the assessing officer. From the perusal of record and order-sheets it clearly emerges that the requirement of physical production of the parties was communicated to the assessee as late as on 17-12-2008 as against the date of assessment being 26- 12-2008. Similarly, from the entry dated 22-12-2008 the assessing officer vaguely stated that some summons were issued on some parties, some came unserved and none appeared. The same is sketchy and non-specific. We find merit in the argument of the ld. Counsel that it will not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification of income-tax record and without any confrontation to the assessee. In the absence of any exercise what so ever by assessing officer, the assessee's primary burden cannot be held to have been rebutted by assessing officer.‖ [emphasis supplied] 16. By way of the cross-objections, the assessee has raised the issue of limitation bar against the re-opening which had not been considered by the authorities below. The ITAT, having rejected the appeal of the Revenue, declined to go into that issue observing that it had been rendered mere academic and infructuous. 17. The Revenue is aggrieved on the ground that the reliance on CIT v. Gangeshwari Metal Pvt. Ltd. (supra) was not correct inasmuch as unlike the said case, here the AO had issued summons to the share applicants which either remained unserved or were not responded to and when the assessee was confronted with this fact-situation and given opportunity to produce the share applicants, there was failure in compliance. 18. It must be noted at this stage that the assessee had also come up with appeal (ITA No. 289/2014) impugning the order dated 14.06.2013 of ITAT raising grievances as to validity of re-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must be mentioned at this stage that two provisos were added to the main provision in Section 68 as extracted above by Finance Act, 2012 and came into effect from 01.04.2013. Therefore, they would not strictly apply to the case at hand which relates to AY 2004-05. 22. The objective behind the provision is to hold the assessee accountable for each sum found credited in his books of accounts by responding to the call of the AO to give satisfactory explanation about nature and source of such sums. If no explanation is forthcoming or the explanation given is found to be unsatisfactory, the sum of money so credited may be lawfully included in the income of the assessee for the corresponding period. 23. More often than not, questions have been arising in assessment proceedings respecting sums found credited in the books of accounts of companies incorporated under the Companies Act in the context of their efforts to raise capital through shares, pursuant to which they receive applications along with share application money from various persons. If the AO doubts the genuineness of such investors as had purportedly subscribed to the share capital, the assessee is generally asked t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Lovely Exports Pvt. Ltd.(supra), as summarized later in the case of M/s Nova Promoters and Finlease (P) Ltd.(supra), were as under:- ―...The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant shareholder. As to the creditworthiness or financial strength of the subscriber, the proof could include banks statements of the subscriber showing sufficient balance in its kitty to enable it to subscribe. 29. In M/s Nova Promoters and Finlease (P) Ltd. (supra), this court found the facts as under:- ―41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers 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).‖ [emphasis supplied] 30. The judgment in the case of CIT v. Gangeshwari Metal Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and, for such purposes, a remand report could and should have been called for and subjected to detailed analysis. 33. Significantly, prior to the amendment of Section 68 by the Finance Act, 2012 (whereby the two provisos quoted earlier were inserted), there was no express statutory obligation on the part of a company called upon it to explain a sum credited in its books of accounts described as share application money to support it with explanation of the share applicant about the nature and source of such sum credited in his name. In such scenario, it could not be expected that the company which had received the share application money in response to the offer made to the public at large to collect minute details respecting the share applicants to the extent of it being able to vouchsafe the financial worth of each subscriber, such that, when called upon by the Income Tax authorities, it would be in a position to conclusively prove their respective creditworthiness. But then, given the larger objective behind the provision contained in Section 68, the primary aim of which is to ensure that no monetary transaction remains unaccounted, the initial burden is on the recipient of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also ITAT, should it come to their notice that there has been default in such respect on the part of the AO. In such event, it is they who are duty bound to either themselves properly inquire or cause such inquiry to be completed. If this were not to be done, the power under Section 148 would be rendered prone to abuse. 36. The authority to bring to tax unaccounted money by exercising the power given to the AO under Section 68 is of great importance. It is expected that the AO would resort to this provision with all requisite circumspection. Since the provision is generally invoked, as has been done in the case at hand, by recourse to the procedure of notice under Section 148 upon satisfaction under Section 147 that the income (purportedly represented by the unexplained sums found credited in the books of accounts), within the mischief of Section 68, it is inherent that the explanation of the assessee respecting such credit entries would be called for only with circumspection and solely upon some concrete material coming up to support the tentative impression about it being suspect. 37. Thus, when the AO sets about seeking explanation for the unaccounted credit entries in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee tests mentioned earlier; viz. the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party. 40. The CIT (Appeals), as also the ITAT, in the case at hand, in our view, unjustifiably criticized the AO for not having confronted the assessee with the facts regarding return of some of the summons under Section 131 or not having given oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a further inquiry in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. 43. In the result, the questions of law stand answered in favour of the Revenue though with a direction that the matter of assessment arising out of notice under Section 148 Income Tax Act issued on 18.04.2007 for AY 2004-05 in respect of the assessee would stand remitted to the CIT (Appeals) for fresh consideration/adjudication in accordance with law. 44. In above view, the contentions of the assessee respecting the validity of the assessment, as preserved for consideration by this court by order dated 29.08.2014 in ITAT No. 289/2014, would also be examined by the CIT (Appeals). Given the fact that such objections have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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