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2015 (6) TMI 163 - ITAT DELHI

2015 (6) TMI 163 - ITAT DELHI - [2015] 40 ITR (Trib) 665 (ITAT [Del]) - Addition u/s 68 - money claimed to have been received as share capital - FAA deleted the addition - Held that:- As in CIT VS. Lovely Export (2008 (1) TMI 575 - SUPREME COURT OF INDIA) which 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 adverse evidence is not on record. Ld.

First Appellat .....

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l as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hastimal (1962 (12) TMI 60 - MADRAS HIGH COURT) and Daulatram Rawatmal (1972 (9) TMI 9 - SUPREME Court). Thus the assessee has substantiated the transaction regarding share application money received by it was genuine t .....

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m of share application money and has rightly deleted the same. - Decided against revenue. - ITA No. 2821/Del/2009 - Dated:- 1-4-2015 - SHRI N.K. SAINI & SHRI H.S. SIDHU, JJ. For the Appellant : Sh. P. Dam Kanunjna, Sr. DR For the Respondent : Sh. O.P. Mody, Adv. ORDER PER H.S. SIDHU, J.M. The Revenue has filed the present appeal against the impugned order dated 27/02/2009 on the following grounds: 1. The ld. CIT(A) erred in law in deleting the addition of ₹ 5,00,000/- made u/s 68 with .....

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d in deleting the addition without appreciating the adverse evidences in the form of inability of the assessee to produce the share applicants, the absence of creditworthiness, the collusive evasion of enquiries into the sources of deposits and not deciding the issue in the light of latest decision of the jurisdictional High Court in the case of Indus Valley Promoters Ltd. vs. CIT, 305 ITR 202 (Delhi HC). 4. The ld. CIT(A) further erred in law in deleting the addition of ₹ 12,500/- as unex .....

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During the year under consideration, the assessee had received share application money of ₹ 15 lacs from M/s Paras Infotech Pvt. Ltd., ₹ 5 lacs and Sh. V.K. Angami ₹ 10 lacs. As per information received from the Investigation Wing of the Department, the AO in the assessment order passed u/s 143(3) of the I.T. Act, 1961 (hereinafter called the Act) has treated the said receipts to the extent of ₹ 15 lacs as unexplained cash credit as per the provision of section 68 of the .....

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on the order passed by the AO and reiterated the contentin raised by the Revenue in its grounds of appeal. On the contrary ld. Counsel for the assessee relied upon the order passed by the ld. First Appellate Authority. He has also filed a paper book attaching various documentary evidences supporting the impugned order passed by the ld. First Appellate Authority. 3. Ld. Counsel for the assessee relied upon the order passed by the First Appellate Authority. He has also filed a paper book containin .....

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on the issues in dispute. During the year under consideration, the assessee company has increased its share capital by ₹ 1,0,000/- having issued 11,00,000 equity shares @ 20/- each. From the perusal of details furnished by the assessee company, it was noticed that share application money of ₹ 15,00,000/- is claimed to have been received from the following two persons: Sl No. Name Amount Received (Rs.) Cheque No. And Date Drawn on Bank 1. M/s Paras Infotech (P) Ltd. E-71, Amar Colony .....

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one of the "companies" floated by these persons and is being used as for the purpose of arranging accommodation entries. It has been found that this "company" is not carrying out any actual business activity, It does not have creditworthiness nor does it have any worthwhile sources of income, It is a corporate entity in name only. The bank accounts existing in the names 0/ these persons arc being used as conduits for the purpose of providing accommodation entries. A person/pa .....

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cash etc., most of the other person involved are on part time basis. The part time employees are called us and when required to sign documents, cheque books etc. A person interested in introducing its undisclosed money into his/her/it, 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 th .....

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ugh clearing in two or more stages. Thus, the beneficiary's unaccounted money sails through several accounts before round-tripping back to it, only disguised in the form of share application money, unsecured loan, gift etc. While most of the concerns/individual have obtained PAN from the department and are filing returns as well. what is shown in the return are not actual state of affairs. During the course of the assessment proceedings, the assessee company furnished a copy of the purported .....

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lly admitted that they are engaged in the activity of providing accommodation entries, The deposits reflected in the bank accounts existing in the ruimes of the "companies" controlled by them actually belong to the persons approaching them for 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 garb of share capital etc. as described above. In view of the above fac .....

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the bank statement 0/ the said company" revealed that there was a cash deposit of ₹ 9,98,000/- in the account (A/c No, 179 2000000192) on 25.03.2008, prior to the release of funds in favour of the assessee by way of cheque dated 25.03. 2006. The AR was confronted with the above facts from time to time during the course of the assessment proceedings and was required to explain as to why adverse inference ,may not be drawn regarding the genuineness of the transaction and the capacity of .....

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assal and Sh. S. P. Singh. In reply to the show-cause, the A R finished his reply vide written submission dated 15. 12.2008. The substance of the reply is as under .. a) The assessee company has filed "confirmation ", copy of the ITR etc. of the said company. It is company duly incorporated under the Companies Act. The assessee company has discharged its onus by filing above documents evidencing their identity and creditworthiness. b) The statements given by the above persons are vague .....

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iled by it in support of the identities of the share applicants. This rather simplistic contention of the assessee has no legal basis. The Hon'ble High Court of Delhi in the case of CIT v. Mls Himalaya International Ltd. (rendered on 30.07.2007 in ITA 1509 of 2006) has clearly held that the onus is all the assessee to establish the identity & creditworthiness of the subscribers of shares as well as the genuineness of the transaction The following observations made by the Hon'ble High .....

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rect, and has not been so enunciated by this Court in Sophia Finance" Before evaluating the credibility of the purported evidence sought to be relied on by the assessee against the overwhelming circumstantial evidence exposing the real nature of the transactions, the import and ingredients of section 68 may be briefly discussed. If has been judicially established that the primary onus is on the assessee to prove the identity & creditworthiness of the party and the genuineness of transac .....

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t capacity to earn income or the capacity of some profit-making apparatus available to one. Further, the degree of onus contemplated/ls 68 depends on the facts of each case and no standard degree of proof can be applied in all cases irrespective of the nature of receipt. Whether the onus, in a particular case, is stringent or light, would depend upon the facts of the case. For example, where the amount it received from close relatives or friends by way of loan or deposit or otherwise, the onus w .....

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s are issued by a private limited company, the onus would be stringent for the reason that the public issue cannot be made by a private limited company and the capital is received through private placement normally to known persons i.e. the relatives and friends of directors. The degree of the onus would be even stringent when the very credentials of the director of an investor company are suspect because of the fact that he has admittedly been running on accommodation entry racket through the m .....

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Amar Colony, Lajpat Nagar, Delhi , the summons sent at the above address has been received back undelivered with postal remarks no such company . The acknowledgement of return etc., by themselves, are not sufficient to prove the true identity of a person or to 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 company at the said addresses and they are shown to have attended the proceedings. The identity should be seen i .....

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ools and apparatus of business, inputs of the business, process involved etc. Or anything which can prove that some actual activity is going on. Having PAN or assessment particulars is merely a response to the applications and returns filed. These types of identity are merely on paper. (2) The person has neither been produced nor has any substantive evidence produced in support to its actual affairs and creditworthiness that could only be examined. given the/acts of the cc/se, if somebody on its .....

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r of the assessee. In fact, there are specific reasons for not maintaining/ producing books of accounts and filing annexures showing composition a/investments in such cases. For one, the amounts given as share application money etc. are lost forever (as they are one time entries). Another reason for not filing the schedule of investment and loans 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 thro .....

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of share capital or deposits onlyfrom the friends or relatives of the promoters/directors and such companies arc not allowed to accept subscriptions or deposits from the general public. The shares are, therefore, subscribed by a small number of persons who are known to the promoters or are related to them by family members. As such, there should have been no difficulty on the part of the assessee to produce the so-called investor, had the whole apparatus not been merely a conduit to plough back .....

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- payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. As mentioned above. cash has been deposited into the account just prior to the issue of the cheque. Therefore, unless the creditworthiness of the "company" and the transactions represented by the entries in the bank are correlated with the "business activity" or their sources of income, the deposit of cash immediately before the release of funds in l favour of the assessee only corroborates th .....

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routed through it. The beneficiary has to have the money in its account through normal bonking channel This is the sole reason/or arranging the entire transaction. 4) The assessee has further contended that the name of the said "investor company " does not appear in the statements given by the above persons. This argument does not carry any' force. That Sh. Mukesh Gupta himself is "director" in the said "company" has not been denied The said "company .. ha .....

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the non- furnishing of any evidence ill support of any actual business being carried out by the said "company", the non-production of original certificates by it, the fact of the notice having received back undelivered, considered in their totality clearly establish that Mls Paras Infotec P Ltd. is also one of the entities being used to arrange accommodation entries. In the light of the above, the onus lay heavily on the assessee to establish the genuineness of the transactions and th .....

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e facts. the amount of ₹ 5,00,000/- is added back to the income of the assessee company u/s 68 of the IT Act. Share Capital of ₹ 10,00,0001- received from Sh. V.K. Angatnt (4) As per the details filed, the assessee has also received a sum of ₹ 10,00,000/- from Sh. V K. Angami, R/o 21/2. Mile, Dimapur, Assam.The entire amount of ₹ 10,00,000/- has been received in cash. Notice u/s 133(6) was sent to Sh. Angami on 06.09.2007, calling/or the the following: (5) (a) Confirmed c .....

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. no evidence (IS to the identity & creditworthiness of said person was furnished by the assessee company. the AR was asked to show cause as to why the amount received from Sh. Angami be not treated as unexplained as the genuineness of the transaction, and the identity & creditworthiness of the share applicant remained unverified. 1n response to the show-cause. the A R, vide his written submission dated J 5. 12.2008, stated as under: "Regarding the share application money of ₹ .....

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te of Nagaland ( certificate in this regard is enclosed as above) and the income so earned by him in the state of Nagaland is exempted income vide section 10(26) of the Income Tax Act.. " The A R, vide written submission dated 24.12.2008, also furnished on affidavit purportedly from Sh. VK. Angatni to the effect that he has invested in the share capital of the assessee company and that "the investment has been made out of the own source of fund and payment made out of my cash balance&q .....

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not included in the definition of evidence in Section 3 of the Evidence Act and can be used as evidence only if for sufficient reasons, the Court passes an order under Order 19 Rules 1,2 of CP. C as observed by Supreme Court in Sudha Devi V MP Narain AIR 1988 (SC) 1381. (1988) 2 SC) 422. In view' of the same, furnishing of an affidavit in itself and that too at a time when it was not even required under any law of the land reflects that evidence was being created artificially/ superfluously .....

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certificate is " M Khrietuo S/o Vizokhol ,. and that appearing on the voter cord is only "Khrieto S/o Vizukhol ", Neither the affidavit, nor the written submission Filed by the assessee is accompanied by any evidence whatsoever (or even description of the sources of income or the Sh. Angami) in support of the creditworthiness of the "investor ". A bare assertion that the amount has been invested out of "own source of fund" is not sufficient. Therefore, the abov .....

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t;confirming" similar transactions in multiple cases. The pressing need for this payment having been made in cash by Sh. Angami is highly suspect as there is no reason why the same was not routed through normal banking channels, if at all the said amount was maintained in any bank account. This assumes greater significance as it is highly improbable that anybody would actually maintain a cash of Rs. J 0,00,000/-. The letter addressed to Sh. Angami at the given address (21/2 Mile, Dimapur, A .....

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ce whatsoever, documentary or otherwise, in support of his financial status and the immediate source of the said amount. Even in the alleged "investor" has chosen to remain silent about the source of this amount of ₹ 10,00,000/-. In view of the above, the identity & creditworthiness of the alleged share applicant and the genuineness of the transaction remain unsubstantiated. Therefore, this amount of Rs. J 0,00, O00/- is treated as unexplained and added to the income of the a .....

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pital by ₹ 1, I 0,00,0001- by issuing I 1,00,000 equity shares of ₹ 10/-each from various parties. The Assessing Officer, in the Assessment Order has added the Share Application Money received from 2 parties, namely Mls Paras lnfotech Pvt. Ltd. (Rs. 5,00,000/-). Shri V.K. Angami (Rs. 10,00.000/-) as unexplained cash credit. in the hands of the appellant company. The addition in respect of first company was made on the basis of information received from the Investigation Wing of the D .....

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creditworthiness I however, the said summons was received back with the remarks 'no such company exists on the given address'. The AR or the appellant company was asked to produce the director of the company and he' was also provided copies of the statement given by Sh Mukcsh Gupta and his associates before the Add!. Director of Income-tax (Investigation) Unit-I), New Delhi. The appellant company to substantiate that the amount of share application money received from the said party .....

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alary from M/s Numen Enterprises Pvt. Ltd. as Director. The appellant further stated that Sh. Angami had capacity to invest the money and income so earned by him is exempt u/s 10(26) of the Income-tax Act, 1961. The appellant on 24.12.2008 also furnished an affidavit of Sh. V.1<.. Angami to the effect that he has invested in the share capital of the appellant company and the investment has been made out of his own source of funds and payment made out of his cash balance. Since the investors f .....

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se observations, the appellant relied upon the direction of Honble ITAT, Mumbai Bench in the case of Kashuka Trading & Services Pvt. Ltd. Vs. ITO, ITA NO.1145/Mum.l06 wherein it is held that mere non-compliance of summons and notice, it cannot be held that the assessee has failed to discharge his burden u/s 68.. On the same issue, the appellant has also relied upon the Hon'ble Supreme Court judgement in the case of CIT Vs. Orissa Corporation 159 ITR 78 (SC) wherein it is held that in cas .....

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his allegation that the impugned amount represented assessee company's undisclosed income. Therefore, on this ground alone the entire addition deserves to be deleted and may kindly be held so. In the Assessment Order, the AO has not given any details 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 Honble Delhi High Court in the case J.T. (India) Exports and another vs. UOI and anot .....

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ortunity, the order passed against the person in absentia and becomes wholly vitiated. The AO in the Assessment Order has simply relied upon the information received from the Investigation Wing of the Department without making any effort to verify 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 or the share capital money rep .....

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ount payee cheque, assessed to income- tax showing investment in the balance sheet, balance sheet were audited by the statutory auditors, their credit worthiness, identity and genuineness of the transactions are well established. The appellant further stated that in the case of Paras Infotech Pvt. Ltd., it has submitted the copy of the income-tax return, confirmations and affidavit of the director of the company who has given share application money. All these documents establish the identity an .....

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e law of Shri Barakha Synthetics Ltd. Vs. ACIT (2006) 155 Taxman 239 (Raj.) wherein it has been held that 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 application money in the name ofsuch investor can be made in the assessee's hands. "In respect of the share application money received from investors, the assessee company has only to prove that the existenc .....

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. even if there is a case of bogus share capital, if cannot be added in the hands of the company unless any adverse evidence is not record. In the instant case, the appellant has provided confirmations from the said parties, as well as various evidences to establish the genuineness or the transaction. With regard to AO's observation in the Assessment Order that before issue of cheque by Mls Paras Infotech Pvt. Ltd .. there was a cash deposit in the said bank account. On these observations, t .....

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in the cases 01' S. Hastimal 49 ITR 273(Mad) and Daulatram Rawatmall (1973)87ITR 349(S C) wherein it is held that source of the source can not be enquired from an assessee which unfortunately seems to be the case in the instant case. In a recent judgement dated 30.1.2009 Honble Delhi High Court in the case of CIT vs. Gangour Investment Ltd. (ITA No. 34/2007) has held that Revenue can make addition under section 68 of the Act only if the assessee is unable to explain the credits appearing in .....

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reating share application money on par with cash credit, the Hori'ble Delhi High 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 share capital actually emanated from the coffers of the assessee company. After going .....

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fficer had not done any investigation / enquiry, during the course of assessment proceedings. 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 has been brought on record by the AO to establish that the Share Application Money received by the appellant. represented its own undisclosed income. Further, if there was doubt about the sourc .....

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se names are given to the Ao. then the Department is Fee to proceed to re-open their individual assessments in accordance with law" 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 AO. Which could prove otherwise. Acco .....

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as 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. Lovely Export 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 adverse evidence is not on .....

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