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Ito Versus Daya Footwear (P) Ltd.

2015 (5) TMI 473 - ITAT DELHI

Addition u/s 68 - genuineness of investments - cash credit - Held that:- In the present case, the assessee is a loss making company and assessee has not been able to establish as to why an ordinary person of even having little prudence will invest in such a company. As regards, creditworthiness, Ld. CIT(A) has not made any finding as to what were the earnings of these companies and what were the net owned funds. Ld. CIT(A) stressed compliance only of one ingredient and that is identity of shareh .....

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ies and therefore, the ratio of Nova Promoters and Finlease 342 ITR 169 is squarely applicable in this case. Therefore, in the absence of proper explanation of credits, the only option available with the A.O. was to make addition u/s 68 of the Act. The assessee cannot be allowed relief simply holding that assessee had discharged its onus by filing certain documents and the A.O. had failed to take further action.

As decided in CIT v/s M/s Jansampark Advertising And Marketing (p) ltd. [ .....

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he office of Ld. CIT(A) who should pass a well reasoned and speaking order based upon the facts of the case after affording reasonable opportunity of being heard to the assessee. - Decided in favour of revenue for statistical purposes. - I.T.A. No. 1620/Del/2011 - Dated:- 16-4-2015 - Smt. Diva Singh And Shri T.S. Kapoor JJ. For the Appellant : Shri T.Vasanthan, Sr. DR For the Respondent : Shri K Sampath, Adv. ORDER PER T.S. KAPOOR, AM: This is an appeal filed by Revenue against the order of Ld. .....

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edings, the A.O. observed that share capital of the assessee company had increased from ₹ 52 lacs to ₹ 83 lacs, therefore, the assessee was required to establish the identity, genuineness and creditworthiness of shareholders. The assessee in reply filed details of share applicants along with their confirmations. The A.O. observed that the confirmations were not supported by copies of income tax returns, copies of P & L account and bank statements evidencing the transactions. The .....

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e A.O. observed that before issuing of cheque in the name of assessee company, there was simultaneous deposits in the bank account. The A.O. further noted that copies of ITR provided by assessee related to Assessment Year 2004-05 and the assessee was communicated about this fact. However, assessee did not file the relevant income tax returns and did not submit any explanation, therefore, the A.O. relying upon various case laws, made addition of ₹ 31 lacs u/s 68 of the Act. 3. On appeal bef .....

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ocuments before the AO:- a. Copy of share application Form. b. Confirmation for share capital contribution from the above shareholders, giving details of the cheque and Bank through which the share application has been made. c. PAN details and assessing officers jurisdiction of the shareholders. d. IT returns copies of the shareholders. e. Copy of resolution passed by Board of share applicant companies in respect of authorization to invest in shares in the appellant company. f. Copy of Bank Stat .....

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High court and that of S C has been considered, it is observed that the appellant has discharged the initial burden placed on it to prove the identity and existence of the share applicants, whose PAN details and Income Tax Returns have also been filed on record. The fact that the share application money from the applicants have been received through banking channel and the fact that the shares have been allotted to these companies on 31.03.06 as evidenced from the Return of Allotments in Form No .....

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ent is free to proceed in their individual assessment, but it cannot be regarded as undisclosed income of the assessee company. On this issue another decision of Delhi High Court in case of CIT vs. Value Capital Services (307 ITR 334) cited above by the appellant is also quite relevant wherein the court inter alia observed that there is additional burden on the revenue in as much as even if the applicant does not have the means for the investment, it must show that the investment made by the app .....

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IT Act. The assessee 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 credit worthiness or financial strength of the creditor/ subscriber (4) if relevant details of the address PAN identity of the creditor/subscriber are furnished to the Department along with the copies of the shareholders Register, Shared Application Forms, Share Transfer .....

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uty bound to investigation the credit worthiness or the creditor/ subscriber the genuineness of the transaction and the veracity of the repudiation. " It is observed from the facts of the case that the AO has made the addition due to the reason that certain information had been received from Director of Income Tax (Investigation) that an amount of ₹ 4 lacs has been received by the appellant from Kuberco Sales P. Ltd and for ₹ 4.50 lacs from Sparrow Marketing P. Ltd., are in fact .....

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85,000/- on 04.02.06 immediately before the making of the share investments. It has .also been noted by the AO that while the assessee has submitted the copy of Income Tax Returns of the parties who have contributed to the share capital but they pertain to A Y 04-05 and therefore the assessee has failed to established the financial standing of the parties during the relevant assessment year and thus creditworthiness of the shareholders has not been established. It has been concluded that as the .....

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AN, Copies of Income Tax Return & cheque details through which the transactions have been effected and other details filed with the Registrar of the Companies regarding allotment of shares to the investors. it cannot be said that the identity of the subscriber is not established. In fact merely because the ITR, P & L A/c & balance sheet for A Y 2006-07 in case of the share applicants have not been furnished by the assessee does not get to disprove the identity of the shareholders in .....

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s of those applicants, who, according to the report of the Inspector, were not found functioning at the address given to the AO, by summoning the Directors, etc., of those companies and asking them to furnish the current address of the company. The names and addresses of the Directors, if not available with the assessee, could have been obtained from the office of the ROC or from the Banks on which the cheque were drawn. No such attempt, however, was made by the AD. In these circumstances, we fi .....

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their PAN number or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. ... Moreover, it is settled law that the assessee need not to prove the" source of source. " As regards the .....

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n the facts of the present case the moneys have been deposited through clearing cheques. The HC has followed the Judgment of SC in case of CIT vs. Lovely Exports P. Ltd. 216 CTR 195 in coming to the above decision. It is observed in the facts of the case that the Assessing Officer has simply referred to certain information received from Investigation Wing wherein two of the subscribers companies to the share capital have been found to be providing accommodation entries. These statements / inform .....

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relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not prove the" source of source". Reliance is also placed on the decision of Delhi H.C. in case of CIT vs. Ashwani Gupta ( 322 ITR 396) and CIT vs. SMC Share Brokers Ltd. {288 ITR 345) where the addition made by the AO has held as deleted as the AO has passed the assessment order in violation of the principles of n .....

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bove, the investigation done by the AO is not sufficient / adequate to controvert the appellant's explanation and to hold that the "impugned share application money is the undisclosed income of the appellant. Respectfully following the decisions of jurisdictional High Court and the Hon'ble Supreme court (supra) particularly the latest judgment of Dwarkadhish Investment CP) Ltd. 20 I 0- TlOL-617-HS-DEL-IT, the addition made for ₹ 31,00,0001- is directed to be deleted. The other .....

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simply ignored this fact and he even has not discussed the creditworthiness of shareholders. He also submitted that money in the bank account of share applicants was deposited in their accounts only a day or two before the issuance of cheque. It was further submitted that DIT (Inv.) has held that the share applicants were engaged in the business of providing accommodation entries, therefore, the case law of Nova Promoters 342 ITR 169 is squarely applicable in this case. Ld. D.R. also placed his .....

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he identity of the share applicants. Ld. A.R. further submitted that only PAN details were sufficient to establish the identity of the share applicants. The genuineness of transactions were proved as the transactions were made through banking channels. It was submitted that initial burden was discharged by assessee and the A.O. had to come back with his objections on the documents before making additions u/s 68. Ld. A.R. relying upon a number of case laws as placed in the paper book running into .....

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We have heard rival parties and have gone through the material placed on record. We find that the A.O. has made addition relying upon a number of case laws whereas Ld. CIT(A) has allowed relief to the assessee again relying upon a number of case laws. However, the fact of the matter remained that the assessee had accepted the share application money from 6 share applicants whose identity was though proved but the other two essential ingredients such as creditworthiness and genuineness of transa .....

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that some of share applicants were accommodation entry providers. The fact that the funds were received through banking channels cannot itself make the basis to claim that genuineness of transactions was proved. In any case, involving receipt of funds through accommodation entries, the funds are always routed through banking channels. For establishing the genuineness of such share transactions, especially in the case of private limited companies any prudent person would first ascertain as to wh .....

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her two essential ingredients such as genuineness of transaction and creditworthiness of shareholders has been ignored. Moreover, there is certain set pattern of entries in the bank accounts of alleged shareholders whereby before issuance of cheques, the share applicants had got deposits almost equivalent amounts in their bank accounts. Moreover, the fact remained that A.O. had the information that the share applicants were engaged in the business of providing accommodation entries and therefore .....

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return this fact was brought to the notice of assessee by A.O. as noted by him on the first page of his order. The assessee was directed to file copies of bank statements P &L accounts, balance sheets and copies of returns vide order sheet entry dated 05.12.2008. When on 24.12.2008, the assessee filed copies of income tax returns, the A.O. brought to the notice of assessee that the returns relate to earlier year but assessee did not file the relevant returns. Similarly regarding query of A.O .....

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ch in our opinion is not the proper discharge of onus as onus had again shifted to assessee when A.O. brought to the notice of assessee about the defects in documents. In the hierarchy of income tax proceedings, the A.O. is placed at the bottom of the jurisdiction and CIT(A) lies above A.O. and ITAT lies above CIT(A). The A.O. is bound to conduct proper inquiry and arrive at proper finding based upon facts and circumstances of each case and in the case of failure of A.O. to conduct such inquiry, .....

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hus, when the AO sets about seeking explanation for the unaccounted credit entries in the books of accounts of the assessee in terms of Section 68, it is legitimately expected that the exercise would be taken to the logical end, in all fairness taking into account the material submitted by the assessee in support of his assertion that the person making the payment is real, and not non-existent, and that such other person was actually the source of the money forming the subject mailer of the tran .....

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the two appellate authorities above are also forums for fact-finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. (v) The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appe .....

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