TMI Blog2012 (1) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company. In the present case we noted that ld. CIT (A) has already taken a recourse for taking action against the respective shareholders as the Assessing Officer was directed to take necessary action against the purchaser company for such investment in purchase of shares. Share Applications if remained unproved can be added u/s 68 or not? - Difference b/w Cash Creditor and Shareholder - Contention was is there any difference b/w cash creditor and shareholder. Further, it was contended that cash was deposited in account of the investor companies before issuing cheque to the assessee company for allotting the shares. HELD THAT:- We would like to observe here that there is a difference between cash creditor and shareholder. In case of cash creditor, the cash creditor has right to demand the money back from the assessee. However, in case of shareholder, there is no liability of the company to refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany an amount of ₹ 79,99,950/- was added on account of unexplained share capital and share premium for A.Y 2004-05 and ₹ 3,83,199/- was added on account of excess stock for A.Y 2006-07. Aggrieved assessee preferred the appeal. 4. Detailed submissions were filed before ld. CIT (A) which are discussed in para 4.1 at pages 2 to 8 as under :- It is submitted that the addition made by the Ld. AO is patently invalid, wrong and most unjustified. The said addition is also contrary to the facts, material and 'idence existing on records. The impugned addition is contrary to the provisions of 'w and all cannons of natural justice, interalia in view of the following facts and reasons: The books of accounts and audited statements of the company shows that the amount of share capital and share premium was received by the appellant company through regular banking channels from the following five limited companies, who are all existing income tax assessees and all of them had confirmed the fact of contributing the following amount of share capital and share premium in the appellant company. S.No. Name of concern N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose amounts of, income liable to tax which were detected as a result search and it does not authorise the AO to disturb the finality of the points, which had been accepted in proceedings u/s 143(1) or 143, as the case may be. The Ld. AR relies in the decision of Hon'ble ITAT relating to the scope of assessment u/s153A/153C, that the impugned addition is wholly without jurisdiction and is patently invalid: The AO has further grossly erred in presuming that the assessee has paid commission @ 0.25% for obtaining such accommodation entry aggregating to ₹ 79,80,000/- by way of share capital and share premium from the aforesaid five Delhi based companies and thus made a further addition of R.F. 19,9501- as alleged unexplained expenditure incurred on getting the accommodation entry. There is no evidence, admissible in law, on records of the appellant company, which can support such a wrong presumption drawn by the Ld. AO. The failure on the part of the AO to provide an opportunity of cross examination of the persons, on whose statements, reliance has been placed by the AO, renders the entire addition of ₹ 79,80,000 + ₹ 19,950 i.e. aggregate addition of ₹ 79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings in case of the appellant company nor he was examined in the presence of the assessee company nor he was confronted with the documentary evidence of contemporary period showing investment in shares made by those five companies through regular banking channels. No reliance can he placed whatsoever on such statement or on any other such statements or material gathered behind the back of the assessee without providing opportunity of cross examination and without confronting them with the documentary evidence of contemporary period. It appears that the Ld. A 0 made direct enquiries from those companies and / or from concerning Registrar of companies and other connected persons. The replies received directly from them by the Ld. AO have not beer supplied to the assessee nor those have been referred to in the assessment order. The AO may be directed to supply the copies of all letters sent to all connected persons and the copies of replies received by him from them. The results of enquiries made behind the back of the assessee in relation to the aforesaid point may kindly be directed to be communicated and supplied to the assessee. Perhaps the Ld. AO has kept the results of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Id.A/R relied the following case laws also. 2.ii. CIT vs. Shree Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175 2.iii. Barkha Synthetics Ltd. v. Asstt. CIT (2005) 197 CTR (Raj) 432 Uma Polymers Pvt. Ltd. V/s. DCIT (2006) 101 TTJ (Jd) (TM) 124 = (2006) 284 ITR (At) 1 (Jd.). In respect of share application money from investors, the assesseecompany has to prove only the existence of person in whose name share application is received. No further burden is cast on the assessee 'o prove whether that person himself has invested said money or some other person made investment in his name.--Bharkha Synthetics Ltd. v. Asstt. CIT (2005) 197 CTR (;Raj) 432 followed. CIT V/s Lovely Exports (P.) Ltd. (2008) 6 DTR (SC) 308. If the share application money is received by ,tile assessee company from alleged bogus shareholders, whose names are given to the A0, then the Department is free to proceed to reopen their individual assessments ;n accordance with law, but it ,pi nnot be regarded as undisclosed income of assessee company, CIT V/s Divine Leasing and Finance Ltd. ((2008) 299 ITR 268 (Delhi). CIT v. Gujarat Heavy Chemicals Ltd. (2002) 256 ITR 795 (SC) CIT v. Sophia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). It was held in this case that additions cannot be made on the basis of statements in a case where no opportunity of cross-examination was allowed to the assessee. It was also held that a retracted statement cannot be made the sole basis for addition. The aforesaid ground relating to illegality of the impugned assessment order and invalidity of the search is implicit in the ground in which it has been inter-alia contended that the entire addition is bad in law. However, as a matter of abundant question, if such a ground is not treated as implicit, the following additional ground, which goes to the root of the matter and which involves consideration of only a legal point may kindly be entertained and decided as an additional ground: 5. The ld. CIT (A) rejected the contention of the assessee that the assessment is illegal and out of jurisdiction. However, the addition made by Assessing Officer on account of bogus share capital, share application money and commission payment for arranging those entries were deleted by ld. CIT (A) by observing his finding at page 9 are as under :- However, the assessee filed confirmations along with the affidavit of the directors of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take necessary action against the purchaser companies for such investment in purchase of share. Consequently the A.O's addition on account of commission payment for such transaction to the purchaser companies at a rate of 0.25% amounting to ₹ 19,950/- also can not sustain and the same is deleted. 6. Now the department is in appeal here before the Tribunal. 7. Firstly, the ld. D/R placed reliance on the order of the Assessing Officer. Attention of the Bench was drawn on written note filed before Tribunal on 13.7.210. Reliance was placed on various case laws, list of the same is placed on record. The ld. D/R also filed a copy of another written submission dated 14.12.2011 which are placed on record. The detailed written submissions filed by ld. CIT D/R are as under :- On behalf of the department, it is most respectfully and humbly submitted as under: In this case the department, in earlier hearing, has already submitted a detailed written submissions, which is reproduced, here as under:- 1. Facts of case :- In the instant case during the assessment proceeding it was observed by the department that (i) The assessee is engaged in manufacturing of segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient of share capital, wherein the sources of the same is not found satisfactory, or not ? 3. Scope of the Section 68 :- From the wording of section 68 itself it can be seen that it being a deeming provision enjoys wider scope which covers almost all types of credit entries in the books of accounts of the assessee, be it a cash credit from outsiders or credit found in assessee s own capital account as such. 4. Onus :- It is a established law that as per the provision of section 68, the onus of proving the genuineness of such cash credits is on the assessee, wherein he has to prove the identity, capacity of creditors and genuineness of the transaction. If the assessee is failed to prove these basic ingredients in respect of the cash credit alongwith supporting documents or other evidences, the deeming fiction created by section 68 can be invoked (please refer CIT v/s Kishori Lal Santosh Lal - 216 ITR 9 (Raj.) ) 5. Present controversy :- Although the marginal note to section 68 refers to cash credits , now it is settled law that the provision of section 68 can be invoked in relation to any credit entry in assesee s own capital account (Dharmawat Provision Store 139 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Technical issue and having validity for very limited purpose. 6. Correct legal position: - In view of the above contradictory decisions of Hon ble Courts, now question arises what is the final legal position in respect of applicability of section 68 i.r.o. share capital of a company. To resolve this issue, the reference of rule of precedent has to refer to. As per the established rule of precedent, it can be summarized that : (i) In case of no different decision any High Court on the issue under consideration, the decision of any High Court on such issue will be guiding factor to decide the same. (ii) In case of various contradictory decisions of different High Courts on a particular issue, the decision of the jurisdictional High Court has to follow to decide the issue under consideration. (iii) In case of a decision pronounced by a larger bench / full bench, even in the past would be binding in case of a contrary decision given by the same High Court, by single or division bench, later on. (iv) The decision of the Supreme Court, based on the merits of the case, would be binding on all the lower courts irrespective of the time period of the case. (v) In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 68 is definitely applicable. The Calcutta High Court has further elaborated the issue under consideration that it is a settled law that the A.O. can lift the veil and inquire into the real nature of transaction and entered into the real issues. While deciding the above issue the Calcutta High Court did referred the case of Sophia Finance Ltd., Steller Investment Ltd. 251 ITR 263 (SC) and Sumati Dayal 214 ITR 801 (SC). The above contention is further strengthen with the fact that the even after ruling of the Supreme Court in the case of Lovely Exports (216 CTR 195, Order dated 11th January 2008), the High Court of Punjab Haryana in the case of Blowell Auto (P) Ltd. (219 CTR 185, Order dated 27th March, 2008) has again reaffirm that even in the case of share capital, the assessee s required to discharge his onus u/s 68 else the department is justified in treating the same as its deemed income u/s 68 of the Act. Moreover, in the past the larger Bench (Three Judges) of the Supreme Court in the case of S.P. Jain (87 ITR 370) has ruled that in case of unexplained investment in the form of share capital made by the assessee s benami entity, the IT Authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances, then the assessee s one are not applicable in the instant case. (iii) Accordingly, the assessee company was required to establish three elements i.e. identity, capacity of the investor and genuineness of the transaction, i.r.o. share capital as enumerated u/s 68 of the IT Act. Thus it is prayed that the decision of CIT(A) being based on erroneous findings and understanding of the relevant law, may be set aside and the decision of the AO may be restored. In addition to above, the undersigned would like to most respectfully submit as under :- 1. The assessments u/s 153A read with section 143(3) for A.Y. 2004-05 were completed on 28-12-2007. The CIT(A) (Central) vide order No. 239/2008-09 dated 09-02-2009 had deleted the addition of ₹ 7999950/- on account of accommodation entries taken for share capital, share premium and commission paid for managing these entries. The Ld. CIT(A) had deleted the addition relying on the various decisions including latest decision of Hon ble Supreme Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. 216 CTR 195 (SC). From the contents of the said order it can be seen that the Hon ble Supreme Court has rejected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court decision in the case of Biju Patnaik (supra). Subsequently, without noticing that the decision in the case of Steller Investment Ltd. had since been overruled by the full bench of Delhi High Court, the Supreme Court confirmed this decision on facts in their decision in the case of CIT Vs. Steller Investment Ltd. 251 ITR 269 (SC), without laying down any proposition of law so as to create a binding precedent. The Calcutta High Court, in their subsequent decision in the case of Hindustan Tea Trading Co. Ltd. Vs. CIT 263 ITR 289 (Cal), after considering the Supreme Court decision in the case of Steller Investment Ltd., decided to follow the full bench decision of the Delhi High Court in the case of Sophia Finance Ltd. (supra). Thus, it is the full bench decision of the Delhi High Court in the case of Sophia Finance Ltd. that presently holds the field despite the Supreme Court decision in the case of Steller Investment Ltd. which was on the fact of the case, without laying down, any proposition of law. - CIT Vs. Sophia Finance Ltd. 205 ITR 98 (Del) (FB) It is clear that under s. 68 the ITO has jurisdiction to make enquiries with regard to the nature and source of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers no explanation of s. 68 may be invoked. In the latter case s. 68, being a substantive section, empowers the ITO to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee CIT Vs. Steller Investment Ltd. (1991) 99 CTR 40 (Del) : (1991) 192 ITR 287 (Del) distinguished and explained. - CIT Vs. Ruby Traders Exporters Ltd. 263 ITR 300 (Cal) Special leave petition Dismissal lay non-speaking order Effect Dismissal of SLP by the Supreme Court by a non-speaking order has no binding effect under Art. 141 of the Constitution - Municipal Corporation of Delhi Vs. Gurnam Kaur AIR 1989 SC 38, Gangadharan Vs. Janardan Mallar AIR 1996 SC 2124 and Director of Settlement Vs. M.R. Appa Rao 2002 (4) SCC 638 applied. When s. 68 is resorted to, it is incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the AO to find out as to whether on these materials the assessee was able to establish the ingredients mentioned above. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed sources under s. 68. Case referred CIT Vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC). - CIT Vs. Rathi Finlease Ltd. 215 CTR 429 (MP) Income Cash credit Share application money Though confirmation letters were produced, genuineness of share application money received by assessee company cannot be said to have been established since the alleged companies which had paid the money were found to be non-existent and the amounts were paid by cheques on the same date on which such amounts were credited to the bank accounts of those companies Therefore, assessee has failed to discharge the burden of proof in respect of said credits in its books and the genuineness of the transactions Addition under s. 68 sustained CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC) and CIT vs. Antarctica Investment (P) Ltd. (2003) 179 CTR (Del) 526 : (2003) 262 ITR 493 (Del) distinguished. - CIT vs. Himalaya International Ltd. 214 CTR 437 (Del) Income Cash credit Share application money Assessee furnished only the list of shareholders and not their addresses AO made addition under s. 68 as he could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of the subscribers and the genuineness of the transaction. - CIT Vs. Dhar Ispat (P) Ltd. 180 CTR 491 (MP)- Sec. 68 is applicable in respect of share application money; however, the question of genuineness of the entries regarding share application money is a question of fact to be decided by the assessing authority on the basis of evidence available on record. - Credits in the name of third parties Assessee must prove identity of creditors, capacity of creditor to advance money and genuineness of transaction. In this case the assessee has failed to establish the genuineness of credit of ₹ 79,80,000/-, as has been held in the following cases. CIT Vs. Biju Patnaik (SC) 160 ITR 674 Roshan De Hatti Vs. CIT (SC) 107 ITR 938 - Where any sum is found credited in the books of the assessee for any previous year it may be charged to Income Tax as the income of the assessee for that previous year if the explanation offered by assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. Sumati Dayal Vs. CIT (SC) 214 ITR 801 Vasantibai N. Shah Vs. CIT (Bom) 213 ITR 805 Sreelekha Banarjee Ors. Vs. CIT (SC) 49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission charges and Shri Pradeep Jindal could not be produced for further verification in respect of such companies who applied for shares of the assessee company. Shri Dilip Singh Choudhary, one of the Director of the company had expressed his inability to provide any information in respect of share capital investment made by these five investors in the assessee company. Thereafter, ld. CIT D/R has explained the scope of section 68 and onus of the assessee, which remained undischarged. Reliance has been placed on various case laws mentioned in the written submission which is reproduced somewhere above in this order. The ld. CIT D/R has also tried to distinguish the decision of Hon ble Apex Court in case of Lovely Exports Pvt. Ltd. (supra) and the decision of Steller Investment Ltd. by placing reliance on the decision of Sophia Finance Ltd., 205 ITR 98 (Del.) wherein it is held that Assessing Officer can make enquiry in respect of alleged shareholders whether they exist or not. We have gone through written submissions of ld. CIT D/R and also gone through various case laws relied upon and found that there is no evidence that assessee had paid any commission and has refunded the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., 6 DTR 308 wherein it has been held that If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company. Similar view has been expressed by Hon ble Delhi High Court in case of Divine Leasing and Finance Ltd., 299 ITR 268 (Del). The Hon ble Rajasthan High Court has taken similar view in case of Shree Barkha Synthetics Ltd., 182 CTR 175 and again reported in 197 CTR 432. Earlier, the Hon ble Delhi High Court in case of Steller Investment Ltd., 192 ITR 287 has taken similar view and this decision of Hon ble Delhi High Court has been affirmed by Hon'ble Supreme Court in 251 ITR 263 wherein it is held that It is evident that even if it be assumed that the subscribers to the increase share capital were not genuine, nevertheless, under no circumstances can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names the shares had be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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