9911796707
TMI Blog2015 (12) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... tor's report that no share applicant ever existed at the given addresses by assessee, adverse report of handwriting expert, non AIS verification, information from Bank that no Bank Accounts of share applicants existed in their branches etc and as such the orders in case of M/s Lovely Exports (P) Ltd, reported in 216 CTR 195 and others are not applicable in this case. 2. On the facts and in the circumstances of the case, the CIT (A) has erred in law in deleting the addition of Rs. 3,46,00,000/- made by the Assessing Officer under section 68 of I.T. Act, 1961 as unexplained share application money, credited in the books of account ignoring the decision of Hon'ble Apex Court in the case Sumati Dayal Vs CIT (214 ITR-801) and Hon'ble High Court of Chhattisgarh in the case of Kushal Prased Manhar Vs CIT, {(2010) 236-CIT -192)}, without appreciating the full facts of the case. 3. On the facts and in the circumstances of the case, the CIT (A) has erred in law in deleting the addition of Rs. 3,46,00,000/- made by the Assessing Officer under section 68 of I.T. Act, 1961 as unexplained share application money, credited in the books of account without appreciating the full fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion money and date of transaction. 5. The Assessing Officer has taken note of the fact that the assessee had been delaying filing of reply to the queries for details of share capital and answer was given only after a gap of three (3) months and nine (9) days knowing very well that the instant case was getting time barred on 31-12-2009; and that there was only 31 working days remaining with him for completing the investigation. So, within 31 working days, the AO, had to cross-check the details furnished by the assessee, and confront the assessee, if need be, with the results of the investigation and thus facilitate completion of the assessment by following the process of natural justice and provisions of law. To demonstrate the conduct of the assessee after issuance of notice on 04.08.2009, the Assessing Officer had given all the details about the number of opportunities granted by him to the assessee to comply with the queries posed to it; and to demonstrate the delaying tactics adopted by the assessee in Table-1 at page 2 of his order, from which it is discernible that Assessing Officer after receiving the documents pertaining to this case on 03.08.2009, on next day i.e. 04.08.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 asking the assessee to produce the investors/shareholders as claimed by it for examination before him; and the Assessing Officer cautioned the assessee that if it failed to produce these investors for examination, the amount of share application money received by it will be added to the income of the assessee. The Assessing Officer issued another notice dated 10.12.2009 wherein, the assessee was further supplied with Handwriting Expert's opinion, the copies of the report of Inspector and reasons were spelt out as to why the identity, creditworthiness and genuineness of the share holders was under serious doubt and the assessee was asked to submit original affidavits of the shareholder, since the assessee did not produce the original affidavit of the shareholders and had filed before him only the photocopies of the same. Meanwhile AO, cross checked with few banks, the veracity of the bank statements submitted by the assessee in order to prove the credit worthiness of the investors, which also turned out to be bogus. The Assessing Officer, taking into consideration the report of ITO, unserved notices, hand writing expert opinion and the bank report which stated that the share appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of India sites wherein the addresses of the companies are given. (ii) As per the appellant the I.T.I.'s report dated 07.12.2009 was made part of show cause notice issue u/s 142(1) dated 04.12.2009. Further it has also been contended that I.T.I''s report dated 18.12.2009 has been made part of show cause notice issued u/s 142(1) dated 17.12.2009. In the I.T.I's report dated 18.12.2009 it has been specifically reported that on the directions issued by the A.O., on 18.12.2009, the I.T.I. had made spot enquiries. Thus it is not understood how the enquiries conducted by the I.T.I. on 18.12.2009 were known to the A.O. before hand on 17.12.2009. Furthermore, it is also gathered from I.T.I's reports dated 08.12.2009 that interestingly he has made enquiries in Delhi from tea vendors, fruit vendors and passer-by in order to ascertain the addresses of share applicants whereas the fact is that in city like Delhi even the neighbours do not know each other what to talk of fruit vendors, tea vendors and passer-by. Thus the enquires made from the aforesaid sets of persons is ridiculous and is brushed aside. Further, the I.T.I's report is not based on specific results o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dwriting expert cannot be given much weightage." (iii) Checking of PANs on Assessee Information System (AIS). Ld. CIT (A) observed that according to the AO, the addresses of the claimed investors were checked in the AIS database but in almost all cases either the address was different or the PAN was simply invalid. After going through the written submissions filed by the assessee on this issue before the ld. CIT (A) (reproduced at pages 34 & 35 of his order), ld. CIT (A) observed as under :- "The A.O. in the assessment order has mentioned that while checking on Assessee Information System either the addresses furnished by the appellant in respect of share applicants were different from those on the AIS or the PANs were simply invalid. It is observed that the AO while holding that PANs were invalid has not made any specific reference of such defective PAN. The appellant has contended that in the case of M/s Ria Marketing company had changed its name to M/s Simarjeet Electronics (P) Ltd and has also furnished copy of R.O.C. for approval of name change. Whereas in the case of Smt. Saraswati Devi Goel, the appellant has submitted photocopy of the PAN card of the share applicant. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof etc. to prove the identity & creditworthiness of the share applicants and genuineness of transaction, which the ld. CIT (A) had discussed in the aforesaid pages of his order. After discussing the AO's contention and the submissions of the assessee about each and every share applicants individually, the ld. CIT (A) deleted the addition as under :- "It is observed that the share subscribers are identifiable and are assessed to tax. The transactions are genuine as the share application money has been received through undisputed banking channel. The appellant has furnished copies of ITRs, PAN cards, copy of driving licence, voter card, incorporation certificate from R.O.C., active status of the company from Ministry of Company Affairs sites. Further, the A.O. in the assessment order has mentioned that as per returns of income of the share applications for A.Ys.2004-05 and 2005-06, the income declared by them is not commensurate with the amount of investment made in share capital. Regarding creditworthiness in returned income shown in the ITR or the capital of the company cannot be the sole determinants. It is observed that the capacity to invest fund by an investor depends upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer, In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal .... " The Court thus clearly held that once documents like PAN Card, bank account details or details from the bankers were given by the assessee, onus shifts upon the Assessing Officer and it is on him to reach the shareholders and the Assessing Officer cannot burden the assessee merely on the ground that notices issued u/s 133(6) to the investors were returned back with the endorsement 'not traceable'. Same view is taken by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been restricted to prove genuineness of the transaction and to provide copies of ITRs, PANs, details of bank accounts. Further, the Hon'ble Delhi High Court in the case of CIT vs. HLT Finance (P) Ltd (ITA 1133/2010) while deciding the issue in respect of addition u/s 68, has cited the observation of the Hon'ble ITAT as under in the impugned order wherein addition made u/s 68 was deleted. ".....It was argued by the learned A.R. that all the primary information with regard to shareholders was furnished before the lower authorities. Our attention was drawn to Annexure-I wherein with respect to each and every shareholder the assessee has furnished status of person, relationship with the company and the documents filed before the lower authorities. From this statement, we found that assessee has filed confirmation in respect of Shri N.R. Suri and Mrs. Harvinder Kaur. In respect of Sh. M.P. Khanna and Shri JP. Khanna, the assessee has filed capital account in the firm from where withdrawal for this investment was made and these two are the directors of the assessee company. The assessee has also filed copies of ledger account. In respect of three private limited companies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Court has further opined that the approach adopted by CIT(A) and ITAT is in consonance with the decision of Supreme Court in Commissioner of Income Tax vs. Lovely Exports (P) Ltd., 216 CTR 195 (SC) wherein it has been held as under :- "2. Can the amount of share money be regarded, as undisclosed income under s. 68 of I.T.Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the A.O. then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment ..... " Applying these yardsticks in the appellant's case it is observed that the appellant company has discharged its onus cast upon it by the statute. The appellant has amply proved and discharged its burden by filing the necessary relevant documentary evidences in support of share capital introduced. Even if there is any doubt on the source of fund; the same be based on inquiry in the hands of the share applicants. Thus the jurisdictional A.O.s of the share applicants are given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two concerns and the Inspector was able to locate the director of these companies who stated that both these companies have stopped functioning way back in March 2006. Ld. DR also took our attention to page 14 where the AO has discussed the report of the handwriting expert, wherein the AO had taken note of the fact that the said expert had prepared a total 32 sets of specimen signature and had disputed signatures on the basis of the names of the persons who have signed the documents. The Ld DR pointed out that the handwriting expert was of the opinion that out of the 32 sets of signature, 20 sets were not matching and two were forged signatures. Ld. DR contended that the assessee was issued a showcause notice on 14.12.2009 stating that the results of the investigation created serious doubts about the identity, creditworthiness of its claimed investors and genuineness of the transactions of share application money and it was directed to produce the investors; and in addition to that the ld. AR of the assessee, was also directed to produce the original affidavits of the investors also. The ld. DR also took our attention to page 15 of the AO's order where the AO has discussed the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee before him and therefore, the impugned order of the Ld CIT(A) be set-aside and the AO order may be upheld. 11. On the other hand, ld. AR has submitted a written submission and also contended that there were 37 investors in the financial year out of which 23 investors are corporate companies duly registered with the Registrar of Companies, Ministry of Corporate affairs, Govt. of India; and remaining are the individual persons and he submitted that this amount of Rs. 3.46 crores was the fresh share capital received by the assessee company during the relevant year. This share capital of Rs. 3.46 crores was received by the assessee company through account payee cheques during the relevant year and the entire amount of share capital has been duly allotted during the relevant year itself, for which necessary statutory declaration in Form No.2 has already been filed before the ROC on 20.10.2006 as appearing on PB No. 305 i.e. much before the assessment proceedings started. The details of the amount of Rs. 3.46 crores received as share capital during the relevant year was summarized as under :- Share capital received from 23 companies Duly registered with Regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between the Muzaffarnagar to Delhi will take around at least 6 hours journey due to various reasons like traffic jam, congested road and wondered as to how the Inspector could have covered the said distance and went to each addresses at Delhi on the same day. He further elaborated that from a perusal of the copy of the ITI report as appeared in the assessment order from page nos.8 to 13 suggests that the addresses of these 6 persons was not in one place but in a different location and according to him, it is not possible to inquire within such a short time to locate the independent addresses of all these shareholders on a single day. He contended that as per report, it is nowhere mentioned that he was accompanied by any independent witness and where he has prepared the report and the same has been relied as such blindly by the AO, which, according to Ld AR, clearly establishes that these have been prepared in the office itself because, according to him, if a government officer visits for inquiry then his visit has to be recorded, properly, i.e. mode of transportation, submission of bills, escorts of the persons, at what time he has come back, etc., however from a perusal of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt/report/information cannot be relied upon unless the aggrieved party has been provided an opportunity for cross-examination. In this regard, he relied on the judgment of Hon'ble Delhi High Court in the case of SMC Share Brokers - 288 ITR 345 wherein, after considering the Hon'ble Bombay High Court in the case of M/s. One-up shares and stock brokers - 266 ITR 275, wherein the Hon'ble High court has held that there is no doubt that the statement of Sh. Manoj Agarwal has evidentiary value but weight could not be given to it without it being tested in cross-examination. Therefore, the Ld AR argued that in the absence of the bank officials being tested by crossexamination by the assessee, it cannot be said that it should be believed completely to the prejudice of the assessee. He further submitted that against the Hon'ble Delhi High Court judgment in SMC Share Broker (supra), the Department filed an appeal being SLP (C) 20015/2009 before the Apex Court which has been dismissed. He submitted that the AO has stated that the investors' identity have not been proved which is factually incorrect because by filing the PAN details etc. are sufficient for establishing the identity and fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Ld. AR further submitted while justifying the order of the Ld CIT(A) that the ld. CIT (A) has given his finding of the shareholding companies based on PAN, Financial Statements, ITR etc; and as regards the individual investor he has examined the details of the PAN, Voter Id card towards the genuineness examined the share application form, affidavit and bank account for creditworthiness. According to him, once these documents are on the record the burden shifts upon the AO and the Ld CIT(A) has passed an order / direction as appearing in the last Para 67 & 68 wherein enquiry has been ordered against the investors. According to him, the assessee is not required to prove the source of source as held by Hon'ble Courts reported in 256 ITR 360 and 280 ITR 516 as well as by Hon'ble Delhi High Court in the case of Diamond Products wherein it has been held that examining of source of source is not required for section 68 as reported in 21 DTR 206 (2009) / 177 TAXMAN 331. He assailed the report of the ITI and submitted that report of the inspector was on a later date and show cause notice was pre-dated and by this process the AO has not properly examined the report which is also doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cross examine the ITI, Handwriting Expert, 3 Bank officials despite a clear demand made by the assessee. The Ld AR also submitted that these are settled laws that in the case of non service of notice u/s 133(6), no adverse view can be taken. And thus ld. AR does not want us to interfere in the impugned order of the Ld CIT (A). 13. We have heard both the parties and perused the records. The case in nutshell as per the assessee is that in the relevant assessment year, certain friends and business associates have invested to the tune of Rs. 3.46 crores in the assessee company and they have been duly allotted shares along with share certificates. However, according to the AO, the assessee could not discharge the burden of proof regarding the share investors' identity, creditworthiness and genuineness of the transactions, so he made an addition of Rs. 3.46 crores u/s 68 of the Act. On appeal, the ld. CIT (A) was pleased to delete the said addition. Aggrieved by the impugned order of the ld. CIT (A), the revenue is before us. 14. Before proceeding further, let us refresh ourselves as to the principles of burden of proof and whom it lies in the case of share capital which has been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he owner. In other words, if Income-tax Officer finds that the assessee is in possession of valuable items like bullion, jewellery, etc., he must draw a rebuttable presumption that the assessee is the owner thereof unless the burden of proving that he is not the owner thereof is discharged by the assessee. Whether certain sums of money were claimed by the assessee to have been received from certain persons, it was for the assessee to prove by cogent and proper evidence that these were genuine transactions as these facts were within the exclusive knowledge of the assessee and it should be kept in mind that the assessee cannot discharge this burden of merely proving the identity of the share applicant/shareholder, he has to prove all about the transaction, namely, identity, capacity of the shareholder to invest money and genuineness of the transaction. 15. What is burden of proof ? As pointed out by Sarkar in his book Indian Evidence Act, the phrase "burden of proof" has two distinct and frequently confused meanings. As a matter of law and pleading, the "burden of proof" is in the nature of establishing a case. This burden rests upon the party, whether plaintiff or defendant, who su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged, and then the onus will get shifted to the department. But once the materials are scrutinized and it is found by the AO that documents furnished cast serious doubt about the veracity of the same, then the materials of the scrutiny are to be communicated to the assessee, thereafter the onus shifts from the revenue to the assessee. Then, the assessee has to take appropriate steps for proving his case. Unless, there are sufficient materials after such communication, produced by the assessee, the Income-tax officer can do no further. It should be kept in mind that the transactions which had occurred are things of which assessee is aware of and it has to come clean before the AO. 17. Dealing with share capital their Lordship of the Apex court has held that there cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that eight opportunities within a period of three months and nine days were granted to the assessee to give answers and produce documents in its support. However, we find that only on 16.11.2009, after three months and nine days, the assessee answered the query no.31 in respect to the details of investors in the share capital of the company. In order to discharge the burden of proof casted on it, we find that the assessee submitted a list of the shareholders, their address and affidavits to prove the identity, to prove the genuineness the assessee filed PAN details, details of the cheques/draft numbers and the date of transaction from the banking channel and to prove the creditworthiness, the assessee filed the bank statement of the investors and ITRs. Since 31.12.2009 was the last day for completion of assessment the Assessing Officer had only 31 working days to complete the assessment. 20. By providing these documents before the AO, we find that the onus shifted from the assessee to the AO. Here it should be remembered that after submission of these documents, if the AO had done nothing but to exhort to the assessee to produce the investors, then assessee not could have been sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not taking into consideration the opinion of handwriting expert, we are not going to go into the objection of assessee on this aspect. Thereafter, we find that the AO found from searching the database of Assessee Information System (AIS) that either the addresses given by the assessee were different or the PANs were invalid. The following results emerged from the first round of investigation (as stated before we are not including the handwriting expert's opinion) :- ITO Report 7 of these addresses were wrong and at the common address of the other two concerns, who have allegedly invested money in the assessee company, one person Shri Sardar Surender Pal Singh was found who claimed to be the Director of these two concerns till March-2006 only; and also mentioned that after March- 2006 both these companies were closed down. He mentioned these facts in a statement given by him. AIS (PAN) The addresses of the "claimed" investors were checked in the Assessee. Information System (AIS) data base, but in almost all cases either the address was different or the PAN was simply invalid 24. Taking note of the aforesaid outcome of the preliminary enquiry, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese three companies after assessment year 2005-06, as well as there was no such concern ever existed at that address. A copy of the report is scanned and copied at page 22 of the assessment order. 25. We find the following facts emerged from pages 30 & 31 of the assessment order to dislodge the onus of proof from the Assessing Officer and the burden is seen shifted back to the shoulder of the assessee to prove the identity, genuineness of transaction and creditworthiness of the shareholders which the AO has summarized as under in his show-cause notice dated 15.12.2009 wherein he spelt out the same as under :- "(i) Report of the Inspector which found out that the addresses of seven alleged investors in Delhi are wrong and in reality such investors never existed at those addresses. (ii) Later on 6 more addresses in Delhi were verified by the Inspector but here also all were found to be wrong. (iii) Statement of Sh. Sardar Surender Pal Singh, who states that he was not director in two companies M/s. Salwan Developers and Promoter Pvt. Ltd. and Satwant Singh Sodhi Construction Pvt. Ltd. after March, 2006 and moreover these companies closed down after March, 2006. The statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application money allegedly invested and gross, total income (before any deduction) of these claimed investors was given in show cause notice dated 17-12-2009." Thereafter a show-cause notice dated 17.12.2009 was issued directing the assessee to produce any 25 of these claimed investors, since the assessee had claimed the same to be his close friends and business associates. We find that the assessee has made a submission on 23.12.2009 that investors could not be approached by the assessee company as it did not pay any dividend to them. Along with the written submissions dated 23.12.2009, we find that the AR of the assessee had provided certain documents like company's certificates of incorporation and company master details. 26. However, on scrutiny of the said documents by the AO, it revealed that the said certification of incorporation was not signed by the Assistant Registrar of Companies, the signing authority and AO observed that in most of the cases, the company master details did not reflect the date of last balance sheet submitted with the ROC or that it was filed before FY 2006-07 (the year in which the share applicant company was allegedly invested in the assessee's co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of HDFC Bank, Chandani Chowk Branch (Delhi) through which the share application money was allegedly invested in the assessee company was never in existence and this fact was confirmed in writing by the branch of the bank through a letter which is reproduce din the assessment order. It was also observed that the different address was given in AIS data base and even this address was found to be bogus when the Inspector went for physical verification. He found that she did not have creditworthiness to invest such a huge amount as she had filed total gross income at Rs. 1,05,064/- for assessment year 2005-06. 3. Manohar Lal Gupta Rs.7,50,000/- was invested by this alleged investor. The Assessing Officer found that the signature on ITR did not match with signatures on share application form according to the report of the Hand Writing Expert. He also observed that the account number of HDFC Bank, Chandani Chowk Brach (Delhi) through which the share application money was allegedly invested in the assessee company was never in existence since the opening of this Branch was July 2004 and this fact was confirmed in writing by the branch of the bank through a letter. He found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vest such a huge amount as the investor had shown gross total income of Rs. 1,00,128./- in assessment year 2005-06. 7. Sushma Goel The Assessing Officer observed that the amount invested by this alleged investor was Rs. 5,50,000/-. The Assessing Officer found that the alleged investor had given the bogus address of Delhi which was verified by Inspector. He also observed that the account number of Punjab National Bank, Khari Baoli Branch, Delhi, through which the share application money was allegedly invested in the assessee company was not in existence at least since 01.04.2006 and this fact was confirmed in writing by the branch of the bank through a letter. The Assessing Officer found that the different address was given in AIS data base. He observed that she did not have creditworthiness to invest such a huge amount as she had shown gross total income of Rs. 1,05,054/- in A.Y. 2005-06. 8. Vivek Kumar Jain The alleged investor had invested a sum of Rs. 6,00,000/-. The Assessing Officer observed that the signature on ITR did not match with signature on share application form according to the report of the Hand Writing Expert. He also found that the account number of Punj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inspector. It was also observed by the Assessing Officer that she did not have creditworthiness to invest such a huge amount as the total gross income was shown at Rs. 1,05,130/- in the assessment year 2005-06. 13. Smt. Rekha Bansal The alleged investor had invested Rs. 15,00,000/-. The Assessing Officer observed that the signature on ITR did not match with signature on share application form according to the report of the Hand Writing Expert. He observed that the she had given the bogus address of Delhi as verified by Inspector. It was also observed that it did not have creditworthiness to invest such a huge amount as Rs. 1,03,225/- was shown as total gross income in the assessment year 2005-06. 14. Ganesh Kumar The amount invested by this alleged investor was Rs.,8,00,000/-. The Assessing Officer observed that the signature on ITR did not match with signatures on share application form according to the report of the Hand Writing Expert. It is also found that different address was given in AIS data base and even this address was found to be bogus when the Inspector went for physical verification. The Assessing Officer also found that he did not have creditworthiness to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies), this company filed its last Balance Sheet on 31-03-2006. He also found that the given PAN was invalid according to AIS. 19. Yogson Impex Pvt. Ltd. The Assessing Officer observed that the amount invested by this alleged investor was Rs. 5,00,000/-. The Assessing Officer observed that the company has given bogus address of Delhi as verified by Inspector. He found that different address was given in AIS data base and even this address was found to be bogus when the inspector went for physical verification. He also observed that the signatures on documents were forged according to the report of hand writing expert. He also observed that it did not have creditworthiness to invest such a huge amount as copy of ITR was not submitted. 20. Singhal Fluidline Equipment Pvt. Ltd. The amount invested by this alleged investor was Rs. 5,00,000/-. The Assessing Officer found that signature on ITR did not match with signature on share application form according to the report of the Hand Writing Expert and the same Director, Shri Rajan Jassal S/o Sh. S.K. Jassal had signed on all the documents referred to the Hand Writing Expert. He also observed that the investor did not have credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany had not filed its Balance Sheet with Registrar of Companies for many years as the last Balance Sheet date was not given in Company Master Details (from Registrar of Companies) and also the different address was given in AIS data base. The Assessing Officer observed that it did not have creditworthiness to invest such a huge amount as copy of ITRs were not submitted. 24. MLF Classic Finance Limited The amount invested by this alleged investor was Rs. 10,00,000/-. The Assessing Officer observed that the signature on ITR did not match with signature on share application form according to the report of the Hand Writing Expert and the same Director Sh. Prasham Mishra S/o Sh. Panchanand Mishra had signed on all the documents referred to the Hand Writing Expert. He also observed that for assessment year 2005-06, this company filed its return of income at Muzaffarnagar but it did not file any return of income for subsequent. Assessment Year and the inquiry of the Inspector at the address given on ITR proved that the company never existed at that address. The Assessing Officer also observed that it did not have creditworthiness to invest such a huge amount as it had shown NIL in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer observed that the signature on ITR did not match with signatures on share application form according to the report of the Hand Writing Expert and the same Director, Shri Pramod Kumar S/o Sh. Prakash Chand had signed on all the documents referred to the Hand Writing Expert. He also found that bogus address of Delhi was given which was verified by Inspector. He also found that it did not have creditworthiness to invest such a huge amount as Rs. 4110/- was only shown as gross total income in assessment year 2004-05 and the company did not also submit ITR for assessment years 2005-06 or 2006-07. It was also found that the Company had not filed its Balance Sheet with Registrar of Companies for many years as the last Balance Sheet date was not given in Company Master Details (from Registrar of Companies). 29. UP Electricals Limited The alleged investor had invested Rs. 20,00,000/-. The Assessing Officer found that the inquiry letter u/s 133(6), sent at the Delhi address of the company through registered post, returned unserved. The Assessing Officer observed that different address was given in AIS data base. He also observed that the company did not have credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sheet with Registrar of Companies for many years as the last Balance Sheet date was not given in Company Master Details (from Registrar of Companies). It is also observed that different address was given in AIS data base. He observed that it did not have creditworthiness to invest such a huge amount as Rs. 4,581/- was shown as gross total income in assessment year 2004-05 and it did not submit ITR for assessment years 2005-06 or 2006-07. 34. Keshri Industrial Lab Private Limited The alleged investor had invested Rs. 30,00,000/-. The Assessing Officer found that the signature on ITR did not match with signatures on share application form according to the report of the Hand Writing Expert and the same Director, Shri Sanjay Mittal had signed on all the documents referred to the Hand Writing Expert. The Assessing Officer observed that inquiry letter u/s 133(6), sent at the Delhi address of the company through registered post, returned unserved. The Assessing Officer also observed that the Company had not filed its Balance Sheet with Registrar of Companies for many years as the last Balance Sheet date was not given in Company Master Details (from Registrar of Companies). The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Director of the concern, Shri Surender Pal Singh stated that this company closed down in March, 2006. The Assessing Officer found that the company had given bogus address of Delhi which was verified by Inspector. He also observed that it did not have creditworthiness to invest such a huge amount as the NIL income was filed for the assessment year 2005-6. It was also found by the Assessing Officer that according to Company Master Details (from Registrar of Companies), this company filed its last Balance Sheet on 31-03-2005 and the company was in default of filing of Form DIN3/Form 32." 27. The AO came to the conclusion based on his investigation as aforesaid that the assessee could not discharge the burden of proof casted upon it to prove the share applicants'/investors' identity, creditworthiness and genuineness of the transaction; and the said amount to the tune of Rs. 3.46 crores was added to the total income of the assessee. 28. We find that on appeal, the first appellate authority had called upon the AO to furnish the remand report which was submitted vide letter dated 28.01.2011 which is part of the impugned order from pages 20 to 22, wherein the AO had again issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order that the ITI made enquires in respect of nine share applicants in the first round and later on, the AO conducted inquiries from ITI against another twelve, thus, the physical verification so done against twenty one share applicants/investors (names of 21 investors out of 37 are at page 28 of CIT (A) order). The assessee's argument against the ITI report mainly hinges on the ground that notices of the AO dated 04.12.2009 and 17.12.2009 contained reports of the ITI dated 07.12.2009 and 18.12.2009 respectively and wondered as to how AO, could know what ITI could report on later dates, thus questions the reliability of the show-cause issued by the AO. Here we would like to point out that the ITI report is the outcome of an order passed by the AO to the ITI to verify the addresses given by the assessee to prove the identity of the shareholders/investors. A perusal of page 4 of the AO's order shows that the ITI recorded the statement of Shri Surendra Pal Singh on 04.12.2009 on behalf of two firms i.e. M/s. Satwant Singh Sodhi Construction Pvt. Ltd. and M/s. Salwan Developers & Promoters Pvt. Ltd. in which he was the director. He said that the said firms have ceased to funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (d) ..... (e) that judicial and official acts have been regularly performed. The rule embodies in the illustration flows from the maxim omnia praesumuntur rite et solemniter esse acta, i.e., all acts are presumed to have been rightly and regularly done. "The true principle intended to be conveyed by the rule, 'omnia praesumuntur rite et solemniter esse acta,'. The court cited the following passage from Herbert Broom's A SELECTION OF LEGAL MAXIMS : "In these cases the ordinary rule is that everything is presumed to be duly and rightly performed until the contrary is shown. The following may be mentioned as general presumptions of law illustrating this maxim : that a man, in fact acting in a public capacity, was properly appointed and is duly authorized so to act; that in the absence of proof to the contrary, credit should be given to public officers who have acted prima facie within the limits of their authority, for having done so with honesty and discretion." 30. Admittedly the assessee was in receipt of the ITI report from AO, however the assessee has not led any other evidences to prove that ITI report was factually wrong, without addressing the said factual aspect, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ld. CIT (A) for the simple reason that before the assessment was completed, the assessee was aware of the said statement of Shri Sardar Surender Pal Singh and did not do anything to disprove the said statement of Shri Sardar Surender Pal Singh that the said two companies have ceased to function from March 2006 and moreover the document filed before CIT(A) was that of subsequent assessment years i.e. FY 2007-08 i.e. AY 2008-09 and not that of the relevant assessment year. Not only that if audited balance sheets are filed after the statement was recorded on 04.12.2009 can be termed as an afterthought and in no manner, will affect the credibility of the statement given by Shri Sardar Surender Pal Singh on 04.12.2009. So, we are of the opinion that the ld. CIT (A) erred in giving such a finding based on irrelevant material like document pertaining to subsequent assessment years, which is not legally tenable and on the facts and circumstances we cannot discard the statement of Shri Sardar Surender pal Singh given on 04.12.2009 to the ITI. 31. The ld. CIT (A) dealt with the report of the handwriting expert at page no.33 of his order that the reliance placed by the AO on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e banks have reported back (pages 51 to 53 of the AO's order) that there are no such accounts in these banks by these share holders / investors. The said report of Banks were handed over to the assessee by AO. However, the ld. CIT (A) after relying on the judgment of Hon'ble Delhi High Court in CIT vs. K.C. Fibres Ltd. - (2010) 187 Taxman 53 (Del.), has made the said finding "thus if the bank accounts of the aforesaid share applicants are non-existent, the appellant cannot be fastened with the liability. The share application money has been received through undisputed banking channels and the appellant has furnished copies of bank statements to establish the genuineness of transaction." We do not agree to the said erroneous finding of the ld. CIT (A). First of all, the ld. CIT (A) wrongly applied the case law of the decision of Hon'ble High Court to come to the aforesaid finding. CIT(A) has reproduced the following extraction from the said order of Hon'ble High Court :- "It is strange that when the Assessing Officer is questioning the bona fides of M/s. Diamond Protein Ltd. for collecting money to subscribe to the share to the capital of the assessee, but it is the assessee who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so called investors since the documents furnished by the assessee turned out to be bogus. 36. Coming to the next aspect which is the AO's finding that assessee failed to prove the identity, creditworthiness of the share applicants and genuineness of the transaction, we find the ld. CIT (A) has taken each companies and noted the AO's observations and the assessee's contentions from page nos.37 to 63 of his order which is summarised below in a chart to have a bird's eye view and how the CIT (A) has dealt with the observations of the AO :- 37. We find a common thread in each of the alleged share applicants who are juristic personalities i.e. incorporated private limited companies when the matter came before the CIT(A). The AO noted that these companies were not existing in FY 2006-07 relevant to AY 2007-08 under consideration because the balance sheets were not filed after AY 2005-06 or return of income were not filed or the ITI could not find the purported share holders / investors in the addresses given by the assessee, therefore, it was held that they were not existing in the FY under consideration. Here, we find that the ld. CIT (A) has relied on the audited balance sheet for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny doubt with regard to the genuineness of the said amount then it should be taxed in the hands of the investor/shareholder and not that of the assessee company and the CIT (A) has in fact given such directions, so CIT (A) order is valid in the eyes of law. We do not subscribe to the said contention of the ld AR because the case-laws cited are those cases in which the public issue of shares are done and public at large subscribe to the shares, then there is a disability for the public limited company to verify each and every subscriber but that is not how a private limited company shares are allotted and its shares are closely held. The private limited company generally allows the shareholding only to persons who are closely known to them. So, therefore, the contention of the ld. AR cannot be countenanced because assessee in this case is a private limited company and has admitted in its correspondence with the AO that the investors were close friends and business associates. The case laws relied upon by the ld. AR as aforestated pertains to cases where public issue of shares are involved and the case laws regarding share subscription of Public Limited company stands on a different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was trying to find fault with the manner of investigation conducted by the ITI by saying that he had asked from the shopkeepers, street vendors, etc. etc. On the above said factual scenario, we find that the cross examination of ITI was not necessary because burden of proof was casted upon the assessee to prove the identity of the shareholders for that the assessee had furnished addresses which were verified by the ITI who had found it to be wrong and presumption in favour of the ITI report as per section 114 (e) of the Evidence Act needs to be drawn, unless it has been rebutted by the assessee, who had ample time to disprove it, which the assessee failed to have done, so the burden was still on assessee as per law we have discussed earlier in the order. It should be noted that why we have observed that cross examination does not vitiate the impugned addition because, what the AO did was only cross-check the information adduced by the assessee in respect to the identity of the share-holders, which when enquired by the ITI was found to be false. So, no new evidence has been brought in by the AO, to mulct the impugned additions. 40. Coming to the similar attack on the opinion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. bank statement submitted by the assessee to prove the creditworthiness of the share-holders, so without adducing evidence to prove that the said share-holder had bank account in the said bank branches, the inference drawn u/s 114(e) is in favour of the said letters wrote by the bank managers and without the factual rebuttal of the contents of the letters, the lack of cross-examination in no manner affects the veracity of the said letters of the bank officer. 42. The ld. AR also brought to our notice that during remand proceedings, six shareholders have replied to the AO as noted by the AO in his remand report, so the identity was in fact proved of these six shareholders and three letters have not returned back, meaning they were received by the shareholders. In the said background, addition of the entire amount u/s 68 of the Act is not legally tenable. We have gone into the said contention of the ld. AR, however, nothing turns around as to the said contention because 6 investors had replied to the AO during remand proceeding as seen from the letter dated 20.01.2011 (Page 533 PB), because all those six alleged investors were private limited companies, who had been found to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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