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2015 (4) TMI 501 - ITAT DELHI

2015 (4) TMI 501 - ITAT DELHI - TMI - Unaccounted money received as share application money - Held that:- CIT(A) deleted the addition - Held that:- Keeping in view of the findings given so Assessing Officer as well as the Ld. First Appellate Authority and the documentary finding by the assessee before us. We are of the considered view that Ld. First Appellate Authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Offi .....

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Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction assessee has also relied upon the judgment of Nemi Chand Kothari Vs. CIT (2003 (9) TMI 62 - GAUHATI High Court ) wherein it has held that it is a certain law that the of the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions whi .....

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igh Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries he did not find any evidence collected by the AO which could prove otherwise and deleted the additions in dispute. - Decided in favour of assessee. - I.T.A NO. 1932 /Del/2009 - Dated:- 1-4-2015 - Shri N. K. Saini And Shri H. S. Sidhu JJ. For the Appellant : Shri O.P. Mody, Adv. .....

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ommodation entries, in the right perspective. 2. The Ld. CIT(A) further erred in law in deleting the addition of ₹ 22,450/- made as unexplained expenditure with respect to commission for arranging the share application accommodation entries, without appreciating the facts and circumstances of the case in the right perspective. 3. The Ld. CIT (A) also erred in law in deleting the addition of ₹ 5,00,000/- made u/s 68 of the Act without appreciating the circumstances and the fact that n .....

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select the case of assessee for scrutiny and issue notice u/s 143 (2) of the Act on 4/10/2006, in response to the same authorities represent assessee appeared and filed requisite details. The assessee company is non-banking finance company engage in the activities of Finance and investment. During the year it has earned income by way of interest, rent and capital gains. During the year under consideration, assessee company increased its share capital by ₹ 2,97,50,000/-. From the perusal of .....

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d Date Drawn on Bank 1 M/s Onyz Exim & Sales Ltd, 2842, Classic Apartments, Street Moti Mahal, Darya Ganj Delhi 5,00,000 737511 dated 28/10/2004 ABN Amro Bank, Connaught Place, New Delhi 2 M/s Shriniwas Leasing & Finance Ltd., 63, Shankar Market, Cannought Place, New Delhi 10,00000 431170 dated 6/10/2004 and 431198 dated 8/10/2004 (for ₹ 5,00,000/- each) State Bank of Bikaner & Jaipur, New Rohtak Road, New Delhi 3 M/s Rapid Impex Pvt Ltd., H. 16/332, Bapa Nagar, Karol Bagh, Del .....

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existing in the name of these persons are being used as conduits for the purpose of raising accommodation entries. A person/party who provides such entry is known as entry operator and the present party taking such entry is called beneficiary. According to the Assessing Officer a person interested in introducing its undisclosed money into his/her/its business approaches the entry operator and hands over the cash along with commission and take cheques/DD/PO. The cash is deposited by the entry ope .....

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gh other account or account which are used only as conduits and in which the funds are transferred through colouring into or more stages. Thus, the beneficiaries unaccounted money sails through several accounts before round trapping back to it, only disguise in the form of share application money unsecure rent, gift etc. Interestingly most of the concerned/individual have obtain PAN from the Department and are filing return as well. But what it shown in return as not accrual states of affairs. T .....

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of entry operator. The Assessing Officer asked the assessee to produce the Principal Officer/Directors of the said companies along with their books of accounts, copies of all bank accounts etc and the case was fixed for by 22/10/2007. The AR of the assessee expressed his inability to produce them. The AO issued summons u/s 131 of the Act to the Principal Officer/Directors of the said investor companies requiring them to appear along with their books of accounts, evidence is supported of sources .....

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28/1/2003 of Shri Mahesh Garg S/o f R. S. Garg, Resident of G -8/94, Sector 15, Rohini, Delhi. b) Statement dated 9/9/2003 of Shri Vinod Garg, s/o R. S. Garg, R/O G-8 94, Sector 15, Rohini, Delhi. c) Statement dated 10/10/2003 of Shri Rajiv Kumar Agrawal S/o R. S. Agrawal, R/o 1444, Gali No. 5, Nawal Park, Alipur Delhi. d) Statement dated 23/6/2004 to S.H Mallick son of N. H. Mallick R/o 2842, Classic Apartments, Darya Ganj, Delhi 5. The assessee has also filed reply to the show cause notice alo .....

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r the documentary evidences filed by the assessee, assessee has not establish its case to prove creditworthiness/ identity etc. and the alleged transaction remain substantiated. Therefore an amount ₹ 20,00,000 he added as unexplained share capital 68 of the Act secondly ₹ 50,000/- as commission paid on the same and ₹ 5,00,000 u/s 68 of I. T Act on account of Share Capital Money received from Sh. V. K. Angami and complete assessment u/s 43(3) of the Act on 28/12/2007. 6. Aggriev .....

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at the impugned order passed by the Ld. First Appellate Authority may be cancelled and the order of the Assessing Officer may be upheld by allowing the appeal filed by the revenue. 8. Ld. Counsel for the assessee relied upon the order passed by the First Appellate Authority. He has also filed a paper book containing page 174 pages in which he has attached various documentary evidence supporting the claim of assessee and he requested that appeal filed by the revenue may be dismissed. 9. We have h .....

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the assessee company, if was noticed that the said share application was allegedly received from, among others, the following persons/parties: S.No. Name Amount received Cheque No. and Date (Rs.) Drawn on Bank 1 Mis Onyx Exim & Sales Ltd. 2842, Classic Apartments Street Moti Mahal, Darya Ganj Delhi 5,00,000 737511 dated 28.10.2004 Bank, ABN Amro Connaught Place, New Delhi 2 Mis Shriniwas Leasing & Finance Ltd., 63, Shankar Market, Connaught Place, New Delhi. 10,00000 431170 dated 06.10. .....

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ged in any actual business activities. It has been found by the Wing that they are only engaged in the activity of arranging accommodation entries to the others. The bank accounts existing in the names of these persons are being used as conduits for the purpose of arranging accommodation entries. A person/party who provides such entry is known a Entry Operator and the person/party taking such entry is called Beneficiary. An entry operator operates a number of accounts in the same bank/branch or .....

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its undisclosed money into his/her/its business approaches the entry operator and hands over the cash, along with commission and takes cheques/DD/PO. The cash is deposited by the entry operator in a bank account either in his own name or in the name of relative/friends or other person hired him for the purposes 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 the main entry operator. The entry operator, i .....

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nsecured loan, gift etc. Interestingly, most of the concerns/individual have obtained PAN from the department and are filing returns as well. But what is shown in the return are not actual state of affairs. It has been further observed that where money was routed through the entry operator in the garb of share capital/share application money these shares are ultimately bought back, in a year or two, by some family member of the Directors at huge discount, sometime at one tenth or even less of th .....

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tak New Delhi 024657 Sh. Vinod Garg & Sh. Rajeev Aggarwal New Delhi 3 M/s Rapid Impex Pvt. Ltd. ABN Amro Bank, Connaught Place, New Delhi. 1024592 Sh. Shiv Lal & Sh. Satyendra Kumar Singh The above companies /persons from whom the share application money amounting to ₹ 20,00,000/- has allegedly been received belong to the S.H. Mallick Group and Mahesh Garg group of entry operators. The companies /persons mentioned at (1) and (3) above belong to the S. H. Mallick Group and the compa .....

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deposits reflected in the bank accounts existing in the names of these companies actually belong to the persons approaching them fro taking accommodation entries. These bank accounts existing in their names have been used only as conduits for the purpose of arranging accommodation entries for others in the barb of share capital etc. As described above. In view of these facts, the AR was asked on 10/10/2007 to arrange to produce the Principal Officers/Directors of the said companies (hereinafter .....

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addresses mentioned in the "confirmations" provided by the assessee), requiring them to appear along with their books of accounts, evidence in support of the sources of investment in the assessee company etc. Sl. No. Name Address 1 M/s Onyx Exim & Sales Ltd. 2824, Classic Apartment, Street Moti Mahal, Darya Ganj, Delhi 2 M/s Shriniwas Leasing & Finance Ltd. 63, Shankar Market, CAnnaught Place, New Delhi 3 M/s Rapid Impex Pvt Ltd. H-16/332, Bapa Nagar, Karol Bagh, Delhi The mat .....

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/200322/9/2003 and 28/1/2003 of Shri Mahesh Garg S/o f R. S. Garg, Resident of G -8/94, Sector 15, Rohini, Delhi. b) Statement dated 9/9/2003 of Shri Vinod Garg, s/o R. S. Garg, R/O G-8 94, Sector 15, Rohini, Delhi. c) Statement dated 10/10/2003 of Shri Rajiv Kumar Agrawal S/o R. S. Agrawal, R/o 1444, Gali No. 5, Nawal Park, Alipur Delhi. d) Statement dated 23/6/2004 to S.H Mallick son of N. H. Mallick R/o 2842, Classic Apartments, Darya Ganj, Delhi The AR was required to explain as to why adver .....

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ice were sent to the Principal Officers/Directors of the said investor companies ". fixing the case for 11.12.2007. The summons again met the same fact, with the one addressed to M/S Shriniwas Leasing & Finance Ltd having been received back unserved and nobody attending in response the ones addressed to the other two parties. However, on J 4.12.2007 letters from the M/s Rapid Impex Pvt. Ltd. and M/ss- Onyx Exim & Sales Ltd. said "investor companies" were received confirmin .....

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mpanies incorporated under the Companies Act. The assessee company has discharged its onus by filing above document evidencing their identity. a) The statements given by the above persons are vague and general in nature and these persons have not specifically mentioned the name of the assessee company. The assessee's contentions in support 0f the genuineness of the transactions and the documents purporting to be confirmation etc of the above share applicants have been considered. but have no .....

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efore evaluating the credibility of the purported evidence sought to be relied on by the assessee against the overwhelming circumstantial evidence (as detailed below)exposing the real nature of the transactions, the import and ingredients of section 68 may be briefly discussed. It has been judicially established that the primary onus is on the assesssee to prove the identity & creditworthiness of the party and the genuineness of transactions in respect of cash credits in its books of account .....

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apparatus available to one. The genuineness of the transaction means that it was actuated by prudent commercial considerations on both sides and there was nothing in the circumstances before during and after the transaction that strongly suggest that it was just a make believe affair or was heavily loaded in the favour of one of the parties. It is now proposed to consider the purported evidence sought to be relied upon by the assessee in the light of the facts and circumstances of the case. (1) .....

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to prove the true identity of a person or to do disclose a true address. This is not a case where some legal proceedings are shown to have been made in the hands of the said persona at these addresses and they are shown to have attended the proceedings. Therefore, the alleged documents filed by the assessee are not sufficient for establishing the identity and creditworthiness of the investors. The identity should be seen in perspective that the person has got to have some standing in a particula .....

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Or anything which can prove that some actual activity is going on. Inspector was deputed to make lock inquiries at the given addresses. AS per the report of the Inspector, no entities by the said names were found to be existing at the given addresses. Clearly, the addresses are being used only as a post-box. Having PAN or assessment particular is merely a response to the applications and returns filed. These types of identity are merely on paper. The authority allotting PAN or processing the re .....

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could only be examined, given the facts of the case, if they are produced along with necessary evidence of the nature and details of their activities on the ground, the sources of deposits and their books of account. For accepting the identity and the availability of funds in their hands in their own capacity, it is necessary to have at least some idea, if not complete details, of the actual business in which they are said to be engaged. It would be relevant to discuss the elements of the so-cal .....

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uot;Depreciation" of ₹ 11,588. As against this, the total of the deposit sidein the said Bank Account alone is to the tune of ₹ 91,41,820/-. There is a uniform pattern to Iran 'actions in that invariably the issue of cheques (mostly in exact round figures of ₹ 1 lac, 1. 5 lac, 2 lac, 2.5 lac, 3 lac, 5 lac etc.) is immediately preceded by (within a day or two) the deposits of equivalent amounts in the account through cheque transfer entries. The Balance Sheet as on 31.0 .....

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"Administrative & Other Expenses" of ₹ 50, 053/- and "Depreciation of ₹ 25,711. As against this, the total of the deposit side in the said Bank account alone (during the year) is to the tune of ₹ 69,73,409/-. There is a uniform pattern to transactions in that invariably the issue of cheques (mostly in exact round figures of ₹ 1 lac, 1.5 lac, 2 lac, 2.5 lac, 3 lac, 5 lac etc.) is immediately preceded by (within a day or two) the deposits of equivalent a .....

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r reason for not filing the schedule of investment is that while the amount shown in the balance sheet may be less, the actual amounts may be more. For example, if one crore has been actually routed through the bank accounts the amount shown in the balance sheet may be just twenty or thirty lakhs. (2) The assessee company is private limited company. In the case of such companies, there is close and proximate relationship between the promoters/directors and the shareholders. The closely-held comp .....

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aratus not been merely a conduit to plough back the unaccounted money of the assessee-company in the garb of share application money. Indeed, in the case of share capital received by a Private Limited Company. the transactions partake the character of cash credits. Therefore, the assessee's burden to establish the genuineness of funds flown in the guise of share capital subscription and the creditworthiness of the investor is at par with the cash credits. Even if it is presumed for the sake .....

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hey are said to be engaged. (3) Mere payment by account- payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. The nature and volume of transactions reflected in the bank statement transactions has already been discussed briefly above. Therefore, unless the creditworthiness of theses persons and the transactions represented by the entries in the bank are correlated with the "business activity" or their sources or income, the above pattern and the frequency o .....

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h that these amounts represent the money of the beneficiary routed through it. The beneficiary has to have the money in its account through normal banking channel. This is the sole reason for arranging the entire transaction. In the light of the above, the onus lay heavily on the assessee to establish the genuineness of the transactions and the true identity & creditworthiness of the alleged share applicants. Considering the totality of the circumstances, it is obvious that the transactions .....

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f ₹ 5,00,000/- from Sh. V. K. Angami, R/o 21/2, Mile, Dimapur, Assam. The assessee has filed a copy of the same application form of Sh. Angami which reveals that the entire amount of ₹ 5,00,000/- has been received in cash. Notice u/s 133(6) was sent to Sh. Angami on 6/9/2007, calling for the following: a) Confirmed copy of account of the assessee in his books of accounts for the year under consideration b) Source of investment in share capital of the assessee company with copies of t .....

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tworthiness of the share applicant remained unverified. On 27/12/2007, the AR furnished a confirmation of Sh. Angami, along with his identity document. It has also been stated that Sh. Angami belongs to a Schedule Tribe of Nagaland and, therefore, his income is exempt and he has no PAN. Perusal of the details confirmation of Sh. VK. Angami filed reveals that the source, availability, financial capacity do not stand substantiated in any way. The pressing need for this payment having been made in .....

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his financial status and the immediate source of the said amount. The alleged hare applicant has chosen to remain silent about the source of this amount 0f Rs. -5,00,000/- which had specifically been asked for vide notice uls 133(6) d t 06.09.2007 . In view of the above, the creditworthiness of the alleged share applicant and the genuineness of the transaction remain unsubstantiated. Therefore, This amount of ₹ 5,00,000/- is treated as unexplained and added to the income of the assessee u .....

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y ₹ 2,97,50,000/- from various parties. The Assessing Officer, in the Assessment Order has added the Share Application Money received from 4 parties, namely M/s Onyx Exim & Sales Ltd. (Rs. 5,00,000/-), M/s Sriniwas Leasing & Finance Ltd. (Rs.10, 00\, 000/-), M/s Rapid Impex Pvt. Ltd. (Rs. 5,00,000/-) and Shri V K. Angami (Rs. 5,00,000/-) as unexplained cash credit in the hands of the appellant company. The addition in respect of first three cases was made on the basis of informatio .....

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course of assessment proceedings to produce the Directors of the companies from whom share application money was received, for examination. The appellant company to substantiate that the amount of share application money received from the said parties was genuine, provided various supporting evidence, to prove the identity and creditworthiness of the party in the form of confirmation from the said parties Copy of certificate of Incorporation of the said companies, Copy of PAN Card, Copy 0f Reso .....

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from the aid four parties cannot be treated as genuine and is only an accommodation entry. On going through the facts of the case and keeping in view the various pronouncements of the courts, it is clear that that the appellant had discharged the initial onus of establishing the existence, identity and creditworthiness of the investor company. Hon'ble Delhi High Court in the case of CIT vs. Pradeep Gupta 207 CTR 115, which has also been relied upon by the Delhi ITA T in the recent judgement .....

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about the enquiry conducted by him on the basis of which it was held that the said parties were involved in the business of providing accommodation entry. The Hon'ble Delhi High Court in the case J.T. (India) Exports and another VS. UOI and another (2003) 262 ITR 269 (Del-FB) has held that the Assessing Officer must pass a speaking order giving reasons for the conclusions arrived at, and opportunity of being heard must be provided to the assessee before passing any adverse order. It has been .....

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upon the information received from the Investigation Wing of the Department without making any effort to verifying the facts stated therein. It has also been held by the various courts that AO must bring on record some positive material or evidence to indicate that the share holders were benamidars, fictitious persons or that any part of the share capital money represented the companies own income from undisclosed sources. The appellant has cited various case lax s in the its submissions wherei .....

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ousing Complex Ltd. V. ITO Ward 1(1),110 ITD 361 (Delhi) 5. CIT Vs. Value Capital Service Pvt. Ltd 307- ITR 334 (Delhi). 6. CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR7 8 (S C). 7. CIT vs Sophia Finance Ltd. (1994)ITR 98 (Del) In the latest judgement of the Ape x Court in the case of CIT \Vs Lovely Export 299 ITR 268 (SC) which has confirmed the order 0f the Delhi High Court. It has been held that once the identify of the share holder have been established. even if there is a case of bogus shar .....

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73(Mad) and Daulatram Rawatmull (1973) 871TR 349(SC), that source of the source cannot be enquired from an assessee which unfortunately seems to be the case in the instant case. In a recent judgment dated 30/1/2009 Hon ble Delhi High Court in the case of CIT VS. Gangour Investment Ltd. (ITA NO. 34/2007) has held that Revenue can make addition u/s 68 of the Act only if the assessee is unable to explain the credits appearing in its books of accounts. In the said case the appellant has duly explain .....

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h Court in CIT vs. Value Capital Services P. Ltd. (2008) 307 ITR 334 (Delhi) found after referring to the two of the decisions of the Delhi High Court on the subject that in respect of share capital amounts, they cannot be assessed in the hands of the company, unless the Department is able to show that the amount received towards hare capital actually emanated from the coffers of the assessee company. After going through various facts of the case and judicial pronouncement on this issue, cited s .....

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s. The Assessment Order has been framed by the Assessing Officer only on the basis of the information received from the Investigation Wing of the Department, without making any further investigation. Nothing adverse ha been brought on record by the AO to establish that the Share Application Money received b the appellant, represented its own undisclosed income. Further, if there was doubt about the source of investment of the said companies, then additions should have been made in the case of th .....

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mount represented assessee company- undisclosed income and has completed the assessment on the basis of information received from the Investigation Directorate. In the light of the above discussion. I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share application Money received by it were genuine transactions and the same were not accommodation entries. I also do not find any evidence collected by the A.O. which co .....

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Appellate Authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. Hon ble Supreme Court of India in the case of CIT VS. Export Lovely 299 ITR 261 (SC) which has confirmed the order of Hon ble Delhi High Court has held that once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adver .....

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