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2016 (4) TMI 213 - ITAT DELHI

2016 (4) TMI 213 - ITAT DELHI - TMI - Unexplained share capital u/s 68 - increase in share capital - Held that:- It is seen that the AO has not verified the details furnished by the assessee and I.T. records of the shareholders/investing companies. The averments of the assessee before the AO were not controverted by the AO. The assessee has discharged its burden of providing basic details which were required for verification to fulfill the conditions as laid down by higher judicial authorities f .....

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The addition in regard to the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO. Further the Hon’ble Supreme Court has categorically held that the Revenue is free to proceed to reopen the individual assessments of such alleged bogus shareholders. In these circumstances, respectfully following the decision of the Hon’ble jurisdictional High Co .....

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Sr. DR ORDER Per Sudhanshu Srivastava, Judicial Member This appeal is filed by the Department against the order dated 4.3.2010 passed by the Ld. CIT(A)-XVI, New Delhi for Assessment Year 2006-07. 2. The return of income for the year under consideration was filed declaring income at ₹ 46,968/-. The return was originally processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called the Act ) on 21.11.2007 and later the case was selected for scrutiny through CASS. The Assessing Officer .....

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wing companies in its books:- S. No. Name and address of the person form whom taken Amount in Rs. 1 M/s Chitpurni Credit & Leasing Pvt. Ltd. 15,00,000.00 2 M/s Ethnic Creations Pvt. Ltd. 8,00,000.00 3 M/s Garg Finvest Pvt. Ltd. 10,00,000.00 4 M/s Performance Trading & Investment Pvt. Ltd. 15,00,000.00 5 M/s Rahul Finlease Pvt. Ltd. 15,00,000.00 6 Shri Dinanath Lahariwala Spinning Mills Pvt. Ltd. 10,00,000.00 7 M/s Sparrow Marketing Pvt. Ltd. 3,00,000.00 Total 76,00,000.00 4. The Assessin .....

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and Return of Income of the investors has been filed, neither the shareholders were produced nor any documents from them were produced to establish the availability of funds with reference to their sources of income. He accordingly added back the entire sum received u/s 68 of the Act because, as per him, the assessee had failed to discharge the onus. 5. The Ld. CIT (A), on appeal, however observed that the assessee had filed the following documents in the course of assessment proceedings to pro .....

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g out any fact which could suggest that the parties have given accommodation entries to the assessee and that the money received from these parties was assessee s own undisclosed income routed back to the assessee in the guise of share application money. The Ld. CIT(A) also pointed out that the Assessing Officer had simply relied on the information provided by the information wing of the Department and had made no concrete efforts to verify the facts. He, accordingly, deleted the entire addition .....

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ee company. If there was any doubt about the creditworthiness of share applicant/s, necessary action should have been taken in the hands of share applicant/s. He submitted that there was no reason left for the A.O. to draw any adverse inference. 9. We have heard the rival submissions and carefully perused the relevant material placed on record. It is seen that the AO has not verified the details furnished by the assessee and I.T. records of the shareholders/investing companies. The averments of .....

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ccounted 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 negative. In the case of public issue, the company concerned cannot be expected to know every details pertaining to the identity as well as financial worth of each of its su .....

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of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. Further, a distillation of the precedents yields the following proposition of law in the context of section 68 of the Income Tax Act. The Assessee has to prima facie prove (1) the identity of the creditor/subscr .....

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essee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notice; (6) the onus would not stand discharged if the creditor/subscriber denied of repudiated the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; (7) the Assessing Officer is duty- bound to investigate the credit worthiness of the cred .....

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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. Hence, we find no infirmity with the impugned judgment. 11. The Hon'ble Delhi High Court in the case of CIT vs Nipun Auto Pvt. Ltd. (2014) 361 ITR 155 (Delhi) held as under:- 10. ………..Whereas in the present case, the identity of the two companies which are sister compani .....

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o the said two companies had also been furnished. It is in this backdrop that the Commissioner of Income-tax (Appeals) had concluded that the assessee had been able to prove its case and that the Assessing Officer could not shift the burden back onto the assessee-company without the Assessing Officer producing any tangible material to doubt the veracity of the documents furnished by the assessee. The Income-tax Appellate Tribunal concurred with the views taken by the Commissioner of Income-tax ( .....

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ndividual assessments in accordance with law. Accordingly, addition made under s. 68 which was deleted by the Hon ble High Court was upheld by Hon ble Supreme Court. A perusal of the orders of the Hon ble Supreme Court in the case of Divine Leasing & Finance Ltd. referred to supra is in regard to SLP filed by the Revenue against the order of the Hon ble jurisdictional High Court. The Hon ble Supreme Court has specifically with a speaking order dismissed the SLP. The Hon ble Supreme Court in .....

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ers. The decision of the Hon ble jurisdictional High Court in the case of Value Capital Services Ltd. (supra) has also categorically held that there is additional burden on the Revenue to show that even if the applicant does not have the means to make the investment, but the investment made by the applicant should be shown to have emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. It is noticed that the Revenue has not been able to s .....

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fully following the decision of the Hon ble Supreme Court we direct the Assessing Officer to delete the addition made under s.68. However, the Department is free to proceed to reopen the individual assessments of the share applicant in accordance with law. We direct accordingly. 13. It is seen that in the present case, the identities of the share applicants are not in dispute. The Hon ble Supreme Court in case of Divine Leasing & Finance Ltd. (supra) has held that if the share application mo .....

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