TMI Blog2011 (7) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that, AO had passed the assessment order in violation of the principles of natural justice in as much as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to cross-examine. Regarding unexplained cash credit - It is cleared from the decision of the Hon ble Delhi High Court in the case of COMMISSIONER OF INCOME TAX VERSUS OASIS HOSPITALITIES (PVT.) LTD UP BONE MILLS INDIA LTD. VIJAY POWER GENERATORS LTD. DIRECTOR OF INCOME-TAX [ 2011 (1) TMI 194 - DELHI HIGH COURT] , that once the assessee filed copy of PAN, Acknowledgement coy of the return of income of the investing companies, their bank accounts statements for the relevant period; then even the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc. The case of the revenue is that the cash moved from the assesse routed though various leveland then reached to the assesse in the form of share application money. The stand of the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as speculation loss by invoking the provisions of Explanation to sec. 73 of the Act. iii) The CIT(A) erred in confirming the action of the Assessing Officer in charging interest of ₹ 1,87,65,450/- u/s 234B of the Act. 3 During the assessment proceedings, the Assessing Officer noted that the assessee has repaid the loan amount to the tune of ₹ 5.51 crores by allotting preferential shares to private corporate bodies. The Assessing Officer found that 11,150 cumulative redeemable preferential shares of ₹ 1000/- each were allotted at a premium of ₹ 4000/-to different private corporate bodies. The assessee has received an amount of ₹ 1,11,50,000/- towards face value of the shares and ₹ 4,46,00,000/- towards premium of shares. Hence, the total amount of ₹ 5,57,50,000/- was received by the assessee towards the allotment of 11150 cumulative preferential shares. The Assessing Officer relied upon the reports of ADIT(Inv) Kolkata received on 4.12.2006, 29.9.2006, 23.2.2007 and 24.4.2007 while addressing the issue of repayment of loan amount. 3.1 The Assessing Officer made an addition of ₹ 5,57,50,000 u/s 68 by treating the share applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount under section 68 of the Act. Assessing Officer, being quasi judicial authority has to pass the order on the basis of his own investigation and by applying his own mind. 4.3 All investigation reports and statements on oath of each director of the applicant company mentioned in para 4.2 of the assessment order were not given to the assessee. Therefore, these statements should be ignored and cannot be relied upon. In support of his contention the ld. A.R. has relied upon the decision of Hon ble supreme Court reported in 125 ITR-713 (SC). 4.4 Td. AR of the assesse then referred para 4.2 of the assessment order and submitted that even from the statements of directors, the following issues arise. (a) Statements recorded covering transactions ₹ 3,90,00,000 only. There is no statement for transactions of ₹ 1,67,50,000 details given below:- Regency Shares Holdings Pvt. Ltd. 50,00,000 M.G. Greenfield Pvt. Ltd. 60,00,000 Clix Securities 7,50,000 Cube Trafin Pvt. Ltd. 50,00,000 All statements on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various companies in Kolkata. If addition is made there, addition again cannot be made in the assessment of the appellants. If no addition is made in their assessments, then there is no reason or justification to make impugned addition. 4.6 Without prejudice, all statements of directors of various companies are not on the file of the Assessing Officer as he has given only those which are filed in paper book at page nos. 134 to 139. Thus, it is pleaded that the addition of the balance amount of ₹ 1,67,50,000 is on the basis of non-existent and non-available material and hence, needs to be quashed. 4.7 The ld AR of the assessee has pointed out that in all the statements, the same error has crept which shows that these statements were not recorded at the spot on the basis of the averments of the directors of the investing company; but already prepared by the department and got them signed from the concern persons. He has referred page 134 as well as page 136 of the paper book and submitted that at page 134, of the paper book, the statement of one Shri Rohit Jain allegedly recorded on 5.12.2006 and there is a mistake in question No.4, which reads as Does you company and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court in case of CIT vs Oasis Hospitalities P Ltd (Supra) and submitted that it has been held that when the assessee being a public limited company received subscriptions to public issue through banking channels and the shares were allotted as per the provisions of Securities and Contract (Regulation) Act and also the Rules and Regulations of Stock Exchange, then there is no justification in making the addition u/s 68. 4.10 The ld AR of the assessee strongly contended and relied up on the decisions of the Hon ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra) and submiited that when the investigation carried by the investigation wing had not given any opportunity to cross examine the persons concerned, whose statements were recorded by the investigation team to draw adverse conclusion against the assessee then the statement so relied upon by the Assessing Officer cannot be used against the assessee. 4.11 Per contra, the ld DR has submitted that repeated opportunities were given to the assessee to cross examine the persons, whose statements were recorded by the Investigation Team. He has pointed out that the Assessing Officer has mentioned in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06,23,2,2007 and on 24.4.2007. As per the investigation report received from theADdl.DIT)(Inv) Unit I Kolkata, the following companies has paid share application money to the assessee: Sl.No. Name of the Party Shares allotted Amount Recd. 1 Regency Shares Holdings P Ltd 1000 5000000 2 Yulan Marketing P Ltd 1200 6000000 3 Nilhat Promoters Fiscals P Ltd 600 3000000 4 M G Greenfield P Ltd 1200 6000000 5 Dabriwal Investment Financiers P Ltd 200 10000000 6 Asrara Fintrade P Ltd 1000 5000000 7 Hooghly Vinimary P Ltd 1000 5000000 8 Clix Securities P Ltd 150 750000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh various levels it has reached to the assessee company. Few such instances are covered in the report annexed herewith. 6 It is evident from the assessment order that the Assessing Officer has not conducted any independent enquiry during the assessment proceedings; but simply relied upon the report of the ADIT(Inv), Unit 1, Kolkata as well as the statements of the directors of various Kolkata based companies, who have paid the application money. The said investigation by the ADIT(Inv) Unit 1, Kolkata was not carried out during the assessment proceedings; therefore, the said investigation was neither the inquiry carried out during the assessment proceedings nor part of the assessment proceedings. It is clear that the scrutiny assessment commenced after about one year from the alleged investigation was over. The Assessing Officer has heavily relied upon the investigation report and proceedings and specifically on the point that the assessee was given opportunity to cross examine the directors of the investing companies, who paid the application money and further, the assessee was also asked by the Assessing Officer to produce the directors, whose statements were recorded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It seems that investigation by the ADIT(Inv) Unit 1, Kolkata is preliminary investigation only to verify the suspicion of any concealment of income. The Assessing Officer, during the course of assessment proceedings asked the assessee to produce the said directors for cross examination. It is evident from the letter of the Assessing Officer dated 01.10.2008 as well as dated 16.9.2008 that the Assessing Officer did not summon these directors to be present in the office of the Assessing Officer for the purpose of cross examination by the assessee; but on the contrary, the assessee was asked to produce these directors for cross examination purpose. This is a gross violation of principles of natural justice when the Assessing Officer asked the assessee to produce the directors for availing opportunity of cross examination. The Assessing Officer relied upon the statement of the directors of the investing company recorded during the investigation proceedings by the ADIT(Inv) Unit 1, Kolkata. Instead of ensuring the presence of these persons for giving opportunity to the assessee to cross examine, the Assessing Officer asked the assessee to produce them, which in our considered opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound in the bank account of the investing companies not by any cash deposit; but through account payee cheques. Therefore, when all the documentary evidence contradicts the statements of the directors recorded by the investigation unit of the department then such statements alone cannot be taken as the basis much less a good or proper basis for any addition. 6.5 It is settled proposition of law that the statement recorded during the course of investigation without corroborative evidence has no evidentiary value. It is pertinent to mention that the statements recorded in this case are not under search or survey or assessment proceedings therefore the same cannot be used against the assesse without following the due process of corroboration and cross examination. Even otherwise, the statement without cross examination and corroborative evidence cannot be used against the assessee. 6.6 As pointed out by the ld AR of the assessee the credibility of the statements is also not free from doubt as it appears that all the statements are prepared by the department in an identical fashion and manner before those were got signed on different dates. It is apparent that certain identical m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing seized material to the assessee as well as cross examination of the persons on whose statements, the Assessing Officer relied upon, amounts to denial of opportunity and would be fatal to the proceedings. The Hon ble Delhi High Court has observed in para 7 as under: 7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice in as much as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. Following the approach adopted by us in SMC Share Brokers Ltd. (supra), we see no reason to interfere with the impugned order. No substantial question of law arises for our consideration. 8 Similarly, in the latest decision, the Hon ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), after considering all the relevant decisions on the issue including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer to the judgment of the Bombay High Court in the case of CIT v. Creative World Telefilms Ltd. (in I. T. A. No. 2182 of 2009 decided on October 12, 2009) [2011] 333 ITR 100. The relevant portion of this order is reproduced below: In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/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 and reach the shareholders. The Assessing Officer did 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. In the result, the appeal is dismissed in limine with no order as to costs. (emphasis supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e initial burden on the assessee would be somewhat heavy in case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties. 21 We may also usefully refer to the judgment of the Supreme Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. 22 We would like to refer to another judgment of the Division Bench of this court in the case of CIT v. Value Capital Services P. Ltd. [2008] 307 ITR 334. The court in that case held that the additional burden was on the Department to show that even if share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee under section 68 of the Act. 23 It is also of relevance to point out that in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the alleged cash from the assesse. 12 The Hon ble Delhi High Court, in the case of Oasis Hospitalities P Ltd (supra) in para 33 and 34 has observed as under: 33 The Tribunal while confirming the aforesaid view of the Commissioner of Income-tax (Appeals) has summarized the discussion as under: 9. We have carefully considered the rival submissions in the light of the material placed before us. The necessary details were filed by the assessee with the Assessing Officer to show the identity of the person who had applied for the shares. The shares also been allotted to respective persons in respect of which intimation was given to the Registrar of Companies and necessary evidence has also been placed on record in the paper book which found place at pages 23 and 24 of the paper book. The assessee also had placed on record the evidence as well as copy of income-tax returns of the share applicants. Keeping in view all these evidence it cannot be held that the assessee did not establish the identity of the share applicants. If it is so, then the law as pronounced by the hon'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be noticed that those companies invariably received fund by way of cheques from another source. On the basis of enquiry in few cases the A.O. was of the opinion that all the monies were from the assessee and treated them as income from unaccounted sources. It is one of the contentions of the assessee that the assessee was not given all the statements and only 15 of the 37 statements were furnished. As seen from the record this aspect is correct. As seen from the statement recorded from the companies in Kolkata, it is noticed that they have invested in various group companies of the assessee at the same point of time. This aspect also has not been examined and the issue whether the investment in those companies by the same company was accepted or not was also not on record. Few of the companies of the assessee s group like Luminants Investments Ltd., Netscape Software Pvt. Ltd. and Saimangal Investrade Pvt. Ltd. were also involved in getting share application money / funds as can be seen from the statement recorded by the ADIT. Sources of fund also required to be examined/correlated whether those companies have capacity to invest monies in assessee company s case and also in other g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial produced by any of the parties before us which requires examination or investigation to verify the correctness of the new facts first time brought before us. The case of the revenue is that the cash moved from the assesse routed though various leveland then reached to the assesse in the form of share application money. The stand of the revenue is not in consonance with the statements of the directors of thhe investing companies which is the basis of the investigation report as well as addition by the AO. In their statements the directors stated to have received cash from assesse for investing in the preferential share of the assesse company, whereas, this fact was not found to be correct from the record and the revenue also took a stand that the cash was not directly given to the investing companies but routed through various levels. When it was found by the investigating unit as well as recorded by the AO that the fund in the bank account of the investing companies was deposited through a/c payee cheques than it is apparent that the statements of the directors are in total contradiction of the facts emerged from the record as well as stand of the revenue. Hence the said sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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