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2015 (5) TMI 679 - ITAT AHMEDABAD

2015 (5) TMI 679 - ITAT AHMEDABAD - TMI - Unexplained cash credits u/s.68 - addition made by the AO being an amounts of share capital and share premium - Held that:- In the instant case there is contradiction between the statement deposed by the directors of the alleged three investment companies and the audited statement, bank accounts, confirmations and share application forms executed by the three investor companies. In the above circumstances, it is to be adjudicated that which is to be beli .....

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nnot be ignored merely on the basis of unsubstantiated statement of the directors.

Further, we find that the identities of the three investors in the shares of the assessee company are not in dispute and the investment were made through their bank accounts is also established from their bank statements as well as their audited financial statements. The Honourable Supreme Court in the case of CIT versus Lovely Exports (P) Ltd.S.L.P. (CIVIL)[2008 (1) TMI 575 - SUPREME COURT OF INDIA] wh .....

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i M.K. Singh, Sr.DR ORDER Per N. S. Saini, Accountant Member: This is an appeal filed by the assessee against the order of the Commissioner of Income-Tax-VII, Ahmedabad dated 02.11.2010. 2. The sole ground of appeal taken by the assessee reads under: 1. The ld.CIT(A) has erred in confirming the addition made by the AO of ₹ 32,50,000/- being an amounts of share capital of ₹ 6,50,000/- and share premium of ₹ 26,00,000/- treating the same as alleged unexplained cash credits u/s.68 .....

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Nil (b) Smt Reetaben J. Patel (Director) Rs.50,000/- Nil (c) Ankush Finstock Ltd. Rs.4,00,000/- ₹ 16,00,000/- (d) Marrot Stock Holding (P) Ltd. Rs.2,00,000/- ₹ 8,00,000/- (e) Step Securities P. Ltd. Rs.50,000/- ₹ 2,00,000/- TOTAL Rs.7,50,000/- ₹ 26,00,000/- 4. The AO observed that the persons at Sr.No.(a) & (b) are the promoters of the company, and the persons at (c), (d) and (e) are not related to promoters. In order to verify the identity, credit-worthiness and genu .....

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of Ahmedabad each my old acquaintance and v/e know each other for 10 to 12 years he was engaged in investment business. In the month of March 20007 he made a proposal to my company for purchase of premium shares of his newly promoted company with a condition to issue cheques for ₹ 20 lacs from M/s Ankush Finstock Ltd in return he agreed to pay one percent of commission and twenty lacs in cash (shares of premium amount) which he paid before issue of cheques. In fact our company has not purc .....

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instruction of Shri Samir P. Shah, director of Step Securities (P) Ltd.. He further stated that as per his knowledge, Step Securities (P) Ltd. has not purchased any shares with premium of Jay Durga Trade Link (P) Ltd. 6. In order to examine the veracity of statement made by Shri Desai Pintoo Motibhai, summons under section 131 of the Act was issued to Shri Samir P. Shah and his statement was recorded under oath on 23.9.200. He, inter alia, in his reply to question regarding investment made by t .....

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The AO further observed that Shri Pankaj Manubhai Shah, Director of Marrot Stock Holding (P) Ltd. was summoned under section 131 of the Act and his statement was recorded under oath, and he, inter alia, stated that Marrot Stock Holding (P) Ltd. has not made any investment in shares of Jay Durga Trade Link (P) Ltd. during the year under consideration, and further stated that the confirmation letters were signed by him on the instruction of his younger brother Shri Bharatbhai Manubhai Shah and rei .....

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olding (P) Ltd. in their statement recorded u/s.131 of the Act on 23.9.2009 and 22.9.2009 respectively, was true and he abode by the statements made by them in respect of investment in share application and share premium of Jay Durga Trade Link (P) Ltd.. The AO, therefore, opined that in view of the above facts, it was crystal clear that share capital and share premium amounting to ₹ 32.50 lakhs has not been invested by Ankush Finstock Ltd., Marrot Stock Holding (P) Ltd. and Step Securitie .....

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ice dated 13.10.2009 proposing to consider Share Capital & Share Premium amount collected by the Company as Cash Credit u/s 68 which is totally arbitrary, illegal and against the principle of natural justice on the following proposition. First of all, we had already furnished Xerox copies of Share Application Forms received by the Company from M/s Ankush Finstrock Ltd, M/s Marrot Stock Holding Pvt Ltd and M/s Step Securities Pvt Ltd vide out submission dated 24.06.2009. Thereafter we had als .....

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eeting in which shares are allotted and members register with our submission dated 24.06.2009. Thus we had already proved the identity of the subscriber of shares, the genuineness of the transaction namely it has been transmitted through banking channels and credit worthiness or financial strength o the subscriber and furnished relevant details of the subscribers like PAN identity, copy of Shareholders register, share application forms etc and confirmation of the parties. Now coming to the state .....

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irms that he had invested ₹ 20 Lacs in the Share Capital of our company at premium of ₹ 40 per share and also explained the source of investment out of his company's bank a/c with UTI Bank a/c No. 003010200031189, thus, all these affirmation tallies with his confirmations given to the company. It is only after this question, his role changed duo to one or the other reason and given the statement which totally contradictory to the fact given earlier. Further as regards his denial .....

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the assessee which was availed by the assessee company and in the cross examination, Shri Bharat M Shah stood by his statement recorded earlier. During the course of cross examination of Sh Bharat M Shah on 5lh November, 2009 by the director of assessee company, Sh Bharat M Shah categorily stated that whatever he stated in his statement recorded on 14.09.2009 was voluntary, in reply to the question of the director as to whether Sh Bharat M Shah has received cash from Jai Durga Trade Link (P) Lt .....

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(c) As regards to the contention of the assessee company that all so called investors had confirmed the investment. The confirmation of accounts was provided by the assessee company. In the subsequent stage of investigation, the fact that these were accommodation entries has become clear from the statements of so called investors recorded u/s 131 of the act, the so called investors have accepted having given accommodation entries to the assessee by providing their bank accounts to launder unacc .....

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estment. (f) It is noticed from the balance sheet of the assessee company for the year under consideration that the assessee company has invested in share of Navkar Reality Pvt Ltd amounting to ₹ 10,00,000/- and made inter corporate deposit in Aakar Infrastructure Pvt Ltd amounting to ₹ 20,07,076/-, both the concerns are associated with the promoters of the assessee company. (g) The assessee company was incorporated on 06.03.2007 with a share capital of ₹ 1 Lac only. The so cal .....

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ly, the AO made addition of ₹ 32,50,000/- as unexplained cash credit under section 68 of the Act. 11. On appeal, The CIT(A) confirmed the action of the AO by observing as under: I have carefully gone through the decisions relied upon by the Ld. Counsel. It was noticed on examination that except a few, all other decisions are not relevant to the facts of the case. The Ld. Counsel has not established as to how those decisions are relevant and how the same are applicable on the facts of the c .....

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uld avoid the temptation to decide cases, by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive. Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. The path of justice must be clear of obstruction which could impede it. T .....

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pon. 7.4 In view of the detailed discussions held above, I am of the considered opinion that the additions made by the A.O. is justified and therefore confirmed. As such the addition of ₹ 32.50 lakhs is confirmed. 12. Before us, the AR of the assessee contended that the assessee has discharged its burden regarding identity of the persons, genuineness of the transaction and capacity of the person investing in the share capital by furnishing confirmation of accounts, share application made b .....

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stor is proved, it is not further the burden of the assessee to prove whether that person itself has invested the said money or some other persons has made investment in the name of that person. The burden then shifts on to the Revenue to establish that such investment has come from the assessee-company itself. Once the receipt of the confirmation letter from the creditor is proved and the identity and the existence of the investor has not been disputed, no addition on account of share applicati .....

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dit and added the same to the income of the assessee. He argued that from the statement of Shri Pankaj Manubhai Shah of Marrot Stock Holding (P) Ltd., it is to be noted that when the company had made investment in the assessee-company, he has not a director, as can be seen from share application made by the company, and the list of the directors provided to the AO during the course of assessment. 14. Further, it was contended that Shri Bharatbhai Manubhai Shah of Ankush Finstock Ltd. alleged tha .....

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r bank account from which such cheque issued for investment. Further, there was no commission income shown in the books of Ankush Finstock Ltd. nor commission expenses shown in the books of the assessee s company. 16. It was further submitted that according to the AO, the company was newly incorporated and has no asset to charge premium on shares was also not tenable since the issuing of shares at a premium does not necessary to have some assets with the company or there is no definite guideline .....

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ot correct, as the directors and address of both the company is totally different and neither of the company has investment in assessee-company nor assessee company has investment in the form of shares in those companies which was given to the AO during the course of assessment proceedings. 17. Finally, it was contended that in the case of CIT Vs. Lovely Exports Pvt. Ltd., 216 CTR (SC) 195, it was held that the share application money received by the assessee-company from alleged bogus sharehold .....

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98 and submitted that it has been held that if the existence of applications of share application money is proved, no further inquiry was necessary. 19. It was also argued that if the assessee has discharged prima facie onus by submitting various documents such as confirmations of accounts, share applications made by the investor, bank statement of such investors, copy of return of income for the said assessment year, and audited accounts of the investors to establish the identity of the invest .....

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ent made by the existing persons, and therefore, addition could not be made u/s.68 of the Act, and for this, the AR placed reliance on the decision of Hon ble Rajasthan High Court in the case of CIT Vs. First Point Finance Ltd., 286 ITR 477. 20. He also submitted that in the case of CIT Vs. P. Mohanakala, (2007 291 ITR 278 SC), the Hon ble Supreme Court has held that the opinion of the AO is required to be formed objectively with reference to the material available on record, and only by saying .....

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ies of assessment orders, wherever readily available with it, and also proved capacity creditors by showing that the amounts were received by the assessee account payee cheques drawn on bank accounts of the creditors, and that the assessee is not accepted to prove the genuineness of cash deposits in the bank account of these creditors, because under the law, the assessee can be asked to prove the source of credits in its books of accounts, but not the source of source. Thus, taking into consider .....

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e addition. 22. He submitted that in the case of the assessee also, the assessee has filed complete address of share applicants, PANs., copies of incometax returns along with their balance sheets and has also shown the capacity of creditors by showing that all the amounts were received by the assessee by account payee cheques drawn from bank accounts of the share applicants, and that, as alleged by the AO that the share application was received by the assessee on payment of 1% commission to the .....

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orities. 24. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the assessee has claimed to have received share capital and share premium aggregating to ₹ 32.50 lakhs from the following three persons: Name Share Capital Premium Total Ankush Finstock Ltd. 4,00,000/- 16,00,000/- 20,00,000/- Marrot Stock Holding Pvt. Ltd. 2,00,000/- 8,00,000/- 10,00,000/- Step Securities Pvt. Ltd. 50,000 2,00,000/- 2,50,000/- .....

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k Ltd. and pointed out there from that they have duly shown their investment of ₹ 20 lakhs made in the shares of the assessee company. Similarly the authorised representative from the audited accounts of Marrot Stock Holdings Pvt. Ltd. and Step Securities Pvt. Ltd. pointed out there from that they have also shown therein their investment of ₹ 10 lakhs and ₹ 2.50 lakhs respectively in the shares of the assessee company. The authorised representative of the assessee pointed out f .....

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the above documentary evidence evidences along with the confirmations furnished by those companies where in they confirmed of making investment in shares of the assessee company establishes the genuineness of the transaction. He contended that in view of above overwhelming documentary evidences the assessing officer was not justified in treating the un-substantiated and unreliable statements of directors of those companies as correct. 28. The directors in their statements could not bring any ma .....

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of the assessee company before issuing cheque for making investment in the assessee company. However, the bank statement of M/s Ankush Finstock Ltd. shows that there was no cash deposit before issuing of cheque for making investment in the assessee company. Still further the director of Ankush Finstock Ltd. has stated in his statement that cheque was issued for earning commission of 1% but the audited accounts of Ankush Finstock Ltd. does not show any such commission income. No material could be .....

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from the bank statement of Marrot Stock Holdings Pvt. Ltd. that cheque was issued to the assessee-company and the investment in shares of the assessee-company was also appearing in the balance sheet of Marrot Stock Holdings Pvt. Ltd., we find that the recorded statement of Shri Pankaj Manubhai Shah, director of Marrot Stock Holdings Pvt. Ltd. could not explain the circumstances in which cheque was issued to the assessee company, and the circumstances in which the investment in the shares of the .....

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sessee-company was reflected in their audited accounts. In the circumstances, in our considered view, the testimony of Shri Desai Pintoo Motibhai cannot be held to be reliable, and the same is merely an un-substantive statement. Thus the statement of the director of Ankush Finstock Ltd. was not at all reliable and therefore on the basis of such unreliable statement the fact revealed by documentary evidences on record cannot be ignored. 29. In reply the departmental representative supported the o .....

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