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2015 (6) TMI 179 - ITAT DELHI

2015 (6) TMI 179 - ITAT DELHI - TMI - Reopening of assessment - addition u/s. 68 - 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.

The facts and circumstances of the present case are similar and identical to that of the aforesaid case i.e. ITO vs. Neelkanth Finbuiltd Ltd. (2015 (6) TMI 163 - ITAT DELHI) in which both of the M .....

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anjeev Jain, CA For the Respondent : S h. Vikram Sahay, Sr. DR ORDER PER H.S. SIDHU : JM Assessee has filed this Appeal against the impugned order dated 01.8.2013 passed by the Ld. CIT(A)-XVII, New Delhi relevant to assessment year 2002-03 on the following grounds:- 1. That the Ld. CIT(A) has erred in upholding the order passed by the AO u/s. 143(3)/147 of the Act even though the AO did not have valid jurisdiction to do so. 2. That the Ld. CIT(A) has erred in upholding the addition of ₹ 30 .....

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pplication of the assessee company and that those directors have confirmed the fact of having made investment in assessee company and have also explained the mode and manner of the investment made by them in the assessee company. That the Ld. CIT(A) has further failed to appreciate that the AO has accepted in the remand report that the source of investment made in the assesssee company have also been explained by the share holders in their statements recorded on oath by the AO. 5. That the appel .....

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ice at 212, Jaina Tower-I, District Centre, Janak Puri, New Delhi. On 22.4.2009, Sh. Harmit Singh, CA of the assessee company attended and filed acknowledgement of the return filed on 29.10.2002. Again letter and notice under section 143(2), 142(1) dated 9.7.2009 issued and requested the assesssee to file complete return of income, copy of balance sheet and Tax Audit Report and the case was fixed for 16.7.2009. None attended on this date. Penalty show cause notice under section 271(1)(b) was iss .....

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elevant to assessment year 2002-03. The case of the assessee was reopened on the ground that the assessee during the financial year relevant to assessment year 2002-03 has received share application money/ accommodation entries from various persons. Asseessee s AR vide letter dated 27.11.2009 filed details i.e. name and address of the persons from whom share application money was received. AR of the assessee was asked to file details of four credit entries appearing in its bank account with HDFC .....

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77; 30,00,000/- as unexplained cash deposit u/s. 68 of the Act. 3. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 01.8.2013 has dismissed the appeal of the assessee. 4. Aggrieved with the order of the Ld. CIT(A), Assessee is in appeal before us. 5. Shri Sanjeev Jain, Ld. Counsel of the assessee stated that both the Revenue authorities have wrongly made the addition in dispute under section 68 of the I.T. Act as unexplained credit of share .....

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in dispute who has invested the share application money in the assessee company and those Directors have confirmed the facts of having made the investment in assessee company and have also explained the mode and manner of the investment made by them in the assessee company by appearing before the AO. But these facts have not been appreciated by the authorities below and they have wrongly made the addition in dispute in the case of the assessee. Lastly, he stated that the issue in dispute is sim .....

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l Kanth Finbuild Ltd (Supra) may be followed and the appeal of the assessee may be allowed on the same terms by deleting the addition in dispute. 6. Ld. DR also raised preliminary objection that the assessee while filing the appeal before the ld. CIT()A in the Statutory Form No. 35 has not given the Statement of Facts. He contended that Form No. 35 is statutory Form and not giving Statement of Facts before the Ld. CIT()A in the prescribed form makes the order defective and consequently, the orde .....

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e dismissed. 7. Ld. DR relied upon the order passed by the Ld. First Appellate Authority. He further stated that assessee was not able to prove the identity of the persons, the creditworthiness, genuineness of transaction in dispute. He further stated that the Revenue Authority has perused the return of income filed by Shree Gupteshwar Marketing (P) Ltd, D.K. Ispat and Timber Ltd. and Kuberco Sales (P) Ltd. and found that the return filed by them are on a very meager side which established that .....

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ndia) Ltd. vs. DCIT, we are of the view that the objections raised by the Ld. DR has already been adjudicated and answered in favor of the assessee by the ITAT in the aforesaid case in which one of the Judicial Member was the party. The relevant para no. 15 of the aforesaid order is reproduced below:- 15. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and the orders of the authorities below, as well as case laws c .....

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in Form No. 35. · In our view the arguments raised by the Ld. DR are devoid on merit. Defects in the return of income filed, defects on Form No. 35 which is the form of appeal etc. are to be considered by the respective authorities before whom these are filed and the maintainability of the appeal before us cannot be challenged. The right of appeal is a substantive right. Procedural issues cannot take away substantial rights of a person. This cannot be a ground for the Revenue to challenge .....

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peal. At the time of hearing, Ld. Counsel of the assessee made a statement that he is not pressing the issue involved in ground no. 1 in which the assessee has raised the issue of jurisdiction of the AO. Ld. DR has not raised any objection. Keeping in view of the agreed position by both the parties, the issue involved in Ground No. 1 regarding challenging the AO s jurisdiction is dismissed as not pressed. 11. With regard to ground no. 2 to 4 are concerned, as stated by the Ld. Counsel of the ass .....

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/2009 (A.Y. 2006- 07), we find considerable cogency in the assessee s counsel submission that the facts and circumstances of the case are identical and similar to that the aforesaid case in the matter of ITO vs. Neelkanth Finbuild Ltd. wherein, the Coordinate Bench has adjudicated the issue in dispute as under:- 4. We have heard both the parties perused the record available with us specially orders passed by the revenue authority along with the documentary evidence filed by the assessee. We are .....

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he 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, Lajpat Nagar, Delhi-24 5,00,000/- 000009 dated 25/13/2006 Kotak Mahindra Bank, Old Rajinder Nagar Delhi 2. Sh. V. K. Angami, R/o 21/2 Mile, Dimapur, Asam 10,00000 Amount received in Cash Share application money received from M/s Paras Infotech Pvt. Ltd. Before proceeding further, it may be mentioned that the Investigation Wing has carried our certain inv .....

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ank accounts existing in the names 0/ these persons arc being used as conduits for the purpose of providing accommodation entries. A person/party who provides such entry is known as 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 in different branches in the names of' companies, firms, proprietary concerns and individuals. For the operation of these bank accounts, filing income tax returns .....

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s 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 sign: the blank cheque -book and hands over the same to the main entry operator The entry operator, in turn. Issues cheques/DD/POs in the name of the Beneficiary either from the account in which the cash is deposited or after multi-layering and further obsc .....

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eturn are not actual state of affairs. During the course of the assessment proceedings, the assessee company furnished a copy of the purported confirmation from the Director of the said company, namely Sh. Mukesh Gupta. The said Sh. Mukesh Gupta S/o Sh. R. D Gupta, RIo WZ-414, Naraina Village, Delhi, along with his associates, has given sworn statements u/s 131 before the Addl. Director of Income Tax (investigation), Unit-I, New Delhi. 1n the said statements they have admitted that the "com .....

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s for the purpose of arranging accommodation entries for others in the garb of share capital etc. as described above. In view of the above facts, notice u /s 131 of the Act addressed to the Principal Officer of M/s Paras Infotech Pvt Ltd (directed at the above address) was issued requiring the director of the said "company" to attend this office personally, along with its books of accounts, evidence in support of its creditworthiness, the original share certificates issued by the asses .....

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ngs and was required to explain as to why adverse inference ,may not be drawn regarding the genuineness of the transaction and the capacity of the said "company". He was also asked to produce the director of the company (Sh. Mukesh Gupta). The AR was also provided copies 0f the following sworn statements 0f Sh. Mukesh Gupta and his other associates given before the Additional Director of Income Tax Investigation), Unit-I, New Delhi. a) Statements dated 14.0 I. 2004 of Sh. Mukesh Gupta. .....

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arged its onus by filing above documents evidencing their identity and creditworthiness. b) The statements given by the above persons are vague and general in nature and the name of the said company does not figure in the companies/concerns identified by them. The assessee's contentions in support of the genuineness of the transactions and the documents purporting to be confirmations etc of the above share applicants have been considered, but have not been found to be sufficient in view of t .....

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itworthiness of the subscribers of shares as well as the genuineness of the transaction The following observations made by the Hon'ble High Court in the case of CIT Vs. Divine Leasing and Finance Ltd., General Exports and Credits Ltd., Lovely Exports (P) Ltd (299 ITR 268) in para 2 I of the judgment, should lay to rest any further lingering doubts on the import of the section 68 vis a vis the question of share capital " But we hasten to clarify that the statement of law made by the ITA .....

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y established that the primary onus is on the assessee to prove the identity & creditworthiness of the party and the genuineness of transactions in respect of cash credits in its books of account. The identity and creditworthiness. in the context of the provisions of section 68, cannot be seen as two separate elements but as two sides of the same coin. The PAN or other assessment particular are at best, only peripheral documents as while allotting PAN or processing the ret urns, the actual a .....

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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 would be stringent or light, would depend upon the facts of the case. For example, where the amount is received from close relatives or friends by way of loan or deposit or otherwise, the onus would be stringent since the assessee is supposed to know all the particulars. In case where the share capital is received through public issue, the company is not s .....

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director of an investor company are suspect because of the fact that he has admittedly been running on accommodation entry racket through the medium of many companies floated by him. 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) As discussed above, simply furnishing the PAN or assessment particulars is not enough. The so-called evidence in the form of return of income etc. Does not facil .....

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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 in perspective that the person has got to have some standing in a particular line of activity. Identity is defined in the new shorter oxford dictionary as The condition or fact of a person or thing being that specified unique person or thing . The person has to have some sign of identification other than merely on paper. These signs could be the infrastruc .....

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nce 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 behalf is produced along with necessary evidence of the nature and details of their activities on the ground, the sources of deposits and their books of accounts. For accepting the identity and the availability of funds in their hands in its own capacity, it is necessary to hove at least some idea, if not complete details, of the actual "business&qu .....

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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 he just ten or twenty lakhs. Providing rhe schedule of investments and assets makes it difficult for them to give a confirmation to anyone whose name is not available in the schedule. (3) (2) The assessee company is private limited company In the case of such companies, there is close and pro .....

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no difficulty on the part of the assessee to produce the socalled investor, had the whole apparatus not been merely a conduit to plough back tlie unaccounted money of the assessee-company in the garb of share application money. There is no reason why a genuine investor would evade inquiries into its affairs. The investors are at least supposed to produce the original share certificates. It is also hard to believe the assessee's contention that it has had no contact with the so-called share- .....

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quot; or their sources of income, the deposit of cash immediately before the release of funds in l favour of the assessee only corroborates the fact that the account has been used only for the purpose of providing accommodation entries. The evidence afforded by the above facts is only fortified by the aforesaid statements of Sh. Mukesh Gupta That the money has come through banking channel per se does not make the transaction genuine when there is presence of other factors present suggesting othe .....

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force. That Sh. Mukesh Gupta himself is "director" in the said "company" has not been denied The said "company .. has clearly been identified in the information/report received from the Wing as one of the entities belonging to the group and through which accommodation entries are being provided Further, the above statements by themselves are sufficient to impeach the credentials of the said Sh. Mukesh Gupta. Apart from this tell-tale connection, the other factors. namel .....

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accommodation entries. In the light of the above, the onus lay heavily on the assessee to establish the genuineness of the transactions and the creditworthiness of the alleged share applicants and the genuineness ofthe transactions. Considering the totality of the circumstances, it is obvious that the "transaction" was only a camouflage. The total amount of ₹ 5,00,000/- stated to have been received From the said .. investor company" represents the assessee's own unaccoun .....

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,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 copy of account of the assessee in his books of accounts for the year under consideration (6) (b) Source o.f investment in share capital of the assessee company with copies of the hank statement. Copy ofhis Balance Sheet/ Statement of Affairs as on 31. 03. 2006. (c) His PAN and I T Particulars with copy of acknowledgement for I T. Return for the A. y, 2006- .....

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e show-cause. the A R, vide his written submission dated J 5. 12.2008, stated as under: "Regarding the share application money of ₹ 10, 00, 000/- received from Sh V K, Angami, we are enclosing the following documents/details for your consideration. a) A copy of the certificate certifying Sh. Angami as a Schedule Tribe in the state of Nagaland. b) A copy of the election 1 Card of Sh. V. Khriuto Angami. The aforesaid documents clearly establish the identity as well as the creditworthine .....

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al 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" The law with regard to the admissibility of an affidavit as an evidence is 'well- settled The matter relating to evidence by affidavits is governed by Order of the Code of Civil Procedure. Such evidence by affidavit may be admitted only if the same fulfils the conditions precedent thereto. ln terms of Order 19, Rule 1 of C. P. C, the court may at .....

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hat too at a time when it was not even required under any law of the land reflects that evidence was being created artificially/ superfluously in anticipation of it being required in the course of assessment proceedings. Therefore. affidavit of alleged "investor" which has been filed suo-mote is not even admissible evidence, specially when no evidence in support of [he assertions mode therein is forthcoming. The documents filed in the form of the schedule tribe certificate and the vote .....

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vestor ". A bare assertion that the amount has been invested out of "own source of fund" is not sufficient. Therefore, the above documents. by themselves, do not in 0/1)' II'([Y substantiate the creditworthiness of the said person and the genuineness or the transaction. It is well settled that where moneys have been received ill cosh or even Demand Drafts the standard of proof u/s68 of the ACI would be much more rigorous and :stringent than where the transaction is by cheq .....

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hat 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, Assam) has been received back undelivered with postal remarks 'Address insufficient. Addressee could not be traced out. This further suggests that the said Sh. Angami, if he really existed at the given address or even thereabout. could not have been a man of such financial standing as has been sought to be made out. As per the documents filed, the entir .....

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the transaction remain unsubstantiated. Therefore, this amount of ₹ 10,00, O00/- is treated as unexplained and added to the income of the assessee u/s 68 of the Act .. " 5. On the appeal filed by the assessee, Ld. First Appellate Authority in the impugned order had adjudicated the issue in dispute the findings of the Ld. CIT(A) is as under:- I have gone through the facts and circumstances of the case, observation of the A.O. as contained in the Assessment Order, submissions of the AR .....

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appellant company. The addition in respect of first company was made on the basis of information received from the Investigation Wing of the Department and on the statement of Shri Mukesh Gupia given before the officers of the Investigation Wing. whereas the addition in respect of Sh. V. K. Angarni was made as the said payment was received in cash and was not supported by any immediate source of the said cash. The Assessing Officer had issued summons to the principal officer of the company uls 1 .....

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estigation) Unit-I), New Delhi. The appellant company to substantiate that the amount of share application money received from the said party was genuine. provided supporting evidence vide its letter dated 15.12.200 to prove the identity and creditworthiness of the party in the form of confirmation, Copy or ITR, certificate of Incorporation of the said company. Copy of PAN Card. In respect of Sh. V.K Angani who is a resident of 21/2.Mile Dirnapur, the appellant filed copy of certificate (certify .....

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ellant 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 failed to appear before the AO in response to summons issued u/s 131 of the IT Act, the AO disregarded the other evidences produced and emphasized that identity and creditworthiness of the investors has not been proved. He accordingly held that the amount of ₹ 5,00,000/- from M/s Paras Infotech Pvt. Ltd and Rs.IO,OO,OOO/- from Sh. V.K. Angami received .....

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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 case the creditor does not appear in response to summon issued u/s 131. no adverse inference can be drawn. 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 IT A T in recent judgement in the case 0 f Babita Gupta ITA No. 2897/06, wherein it is held that in the facts of the case before us .....

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d in the business of providing accommodation entry. The Honble 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 further held that in the notice issued by the A.O. specific requirement should be indicated and reasonable .....

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e material or evidence to indicate that the share holders were benamidars. fictitious persons or that any part or the share capital money represented the company's own income from undisclosed sources. The appellant has cited various case laws in the its submissions wherein it has been held that the Share Capital issued cannot be treated as undisclosed income of the appellant and cannot be added uls 68 of the Income Tax Act. The appellant in its submissions relied upon by the case law of CIT .....

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nfirmations and affidavit of the director of the company who has given share application money. All these documents establish the identity and creditworthiness of Mls Paras Infotech Pvt. Ltd. With regard to Sh. V.K. Angami, the appellant submits that he has filed affidavit of Sh. V.K. Angami confirming the transaction. copy of election identity card, copy of tho Schedule Tribe Certificate and copy of the salary certificate received from M/s Newman Enterprises Pvt. Ltd. for the salary paid as Dir .....

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39;s hands. "In respect of the share application money received from investors, the assessee company has only to prove that the existence of the persons in whose name share application is received. No further burden is cast upon the assessee to prove whether that person himself has invested the said money or some other person made investment in his name." The appellant has also relied upon the judgement of Hon'ble Supreme Court in the case of CIT Vs. Lovely Export 299 ITR 268 (SC) .....

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der that before issue of cheque by Mls Paras Infotech Pvt. Ltd .. there was a cash deposit in the said bank account. On these observations, the appellant has relied upon the judgement of Nemichand Kothari Vs. CIT (2003) 264 ITR 254 (Gauh.) wherein it is held that it is a settled law that the burden of the assessee is to prove the genuineness of the transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and .....

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/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 its books of accounts. In the said case the appellant has duly explained the said credit entries in the form of various documentary evidence filed. The said documentary evidence contained details, which set out not only the identity of the subscribers, but also gave information, with respect to their address, as well as, PAN numbers, Assessment particulars .....

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rtment is able to show that the amount received towards share 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 supra, it is seen that the appellant's case is covered by the above judgments. After going through the facts of the case and the judicial pronouncements on this issue, I am of the opinion that the appellant has discharged the initial onus of establishing the bona-fide of .....

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at the Share Application Money received by the appellant. represented its own undisclosed income. Further, if there was doubt about the source of investment or the said investors, then additions should have been made in the case of those parties and not in the hands of the appellant company. The appellant has relied upon the decision of Hon'ble Supreme Court in CIT' vs. Divine Leasing & Finance Ltd. (CC 375/2008) dated 21.01.2008 wherein it was held - .. We find no merit in this Spec .....

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transactions and the same were not accommodation entries, I also do not find any evidence collected by the AO. Which could prove otherwise. Accordingly. the AO was not justified in treating the amount of' share application money received by the appellant as its undisclosed income. In view of the aforesaid discussion, I delete the addition of ₹ 15,00,000/- made by the A.O. u/s 68 of the I. T. Act, 1961. 6. Keeping in view of the findings given so Assessing Officer as well as the Ld. Fir .....

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en 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 Appellate Authority has examined the documentary evidence filed by the assessee before the Assessing 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 Ch .....

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49 (SC). Ld. First Appellate Authority has cited various decisions rendered by the Hon ble Supreme Court of India as well as the Hon ble Jurisdictional High 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. As regard .....

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