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2016 (4) TMI 736 - ITAT KOLKATA

2016 (4) TMI 736 - ITAT KOLKATA - TMI - Unexplained cash credit u/s 68 - share application money received by the assessee company from seven share applicants - Held that:- In the instant case, the assessee had indeed proved the identity of the share applicants, creditworthiness of share applicants and genuineness of transactions beyond doubt by explaining firstly the source , secondly the source of source and thirdly the source of source of source. Moreover, the seven share applicants had duly c .....

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ddition made u/s 68 of the Act deserves to be deleted. See Jaydayal Poddar (Deceased) through L.R.s and Another vs Mst.Bibi Hazra and Others [1973 (10) TMI 55 - SUPREME COURT] - Decided in favour of assessee - ITA No. 1229/Kol/2012 - Dated:- 13-4-2016 - Shri M. Balaganesh, Accountant Member And Shri S.S. Vishwanethra Ravi Judicial Member For the Appellant/assessee: Shri S.M Surana, Advocate, ld. AR For the Respondent/department: Md. Ghyas Uddin, JCIT, ld.Sr. DR ORDER Shri M. Balaganesh, AM This .....

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brought to tax in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a public limited company engaged in the business of manufacture and trading of Industrial Couplings, Spares, Telecommunication and Transmission Line Towers and Parts. The Learned AO observed that during the assessment year under appeal, the assessee company issued fresh shares to the following parties at face value of ₹ 10 each per share :- Sl. No. Name of the Share Applican .....

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ed the identity and creditworthiness of Mr.Kushal Khemka and Smt.Saroj Kabra and made no addition for the amounts received from them. In respect of amounts received from 7 corporate entities, the Learned AO doubted the creditworthiness of the parties. The total share capital received from these seven corporate entities amounted to ₹ 1,25,49,980/-. The assessee had duly furnished the documents in respect of all the seven share applicants before the Learned AO. The Learned AO observed that a .....

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money on behalf of such a share applicant having almost no net worth and having no business activity or having no business connection with the payer company. He observed that the assessee had not furnished the copy of share applications or share applicant s bank account details. Based on the above observations, he concluded that the seven share applicants do not have sufficient creditworthiness to make investment in shares of assessee company . He observed that none of them had carried on any s .....

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of the Act. 4. On first appeal, the assessee reiterated the submissions made before the Learned AO and produced the same documents and evidences that were produced before the Learned AO. The Learned CIT(A) held that it is not the case of the assessee that M/s Premium Agro Exports Ltd and M/s Agarpara Jute Mills Ltd have issued the cheques to seven share applicants and the seven share applicants in turn had issued their respective cheques to the assessee company towards investment in shares. Base .....

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A.O. on account of unexplained cash credit U/s 68 of the Income Tax Act when in fact, such sum represents share application money received from seven share applicant companies. 2) For that on the facts and in the circumstances of the case, the action of the Ld. CIT(A) in confirming ₹ 1,25,49,980/- as appellant's undisclosed income U/s 68 of the Income Tax Act is highly arbitrary, unjustified and unwarranted. 3) For that on the facts and in the circumstances of the case, the Ld. CIT(A) .....

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gued that the entire details from whom the monies were received through share capital were furnished by the assessee before the lower authorities as follows :- a) Audited Balance Sheets of seven share applicant companies as on 31.3.2009. b) IT Return acknowledgements for Asst Year 2009-10 of seven share applicants. c) Confirmation from the share applicants explaining the fact that the cheque was issued by M/s Premium Agro Exports Ltd or Agarpala Jute Mills Ltd , as the case may be, on their beha .....

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ing the course of previous hearings, he had furnished a supplementary paper book and also stated that the same has been duly certified as such and referred to the relevant pages of the paper book. He argued that the assessee had proved the source of source of source in the instant case. He argued that sources of money cannot be termed as assessee s own money introduced in the garb of share application because all such issuer of cheques are manufacturing companies having high volume of business a .....

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flected as current liabilities in the seven share applicants audited annual accounts. The Learned AR also referred to the relevant page of the paper book containing the list of directors in all the seven share applicant companies and the list of directors in two jute mill companies to prove the fact that Jute Mill companies and seven share applicant companies are having common directors. Hence he argued that there is nothing wrong for the jute mill company to pay the monies directly to the asses .....

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ed that the assessee in the instant case had proved all the three ingredients of section 68 of the Act viz identity of the share applicants, creditworthiness of share applicants and genuineness of the transactions. He also placed reliance on the following decisions in support of his contentions:- (i) Decision of Hon ble Delhi High Court in the case of CIT vs Vrindavan Farms (P) Ltd in ITA No. 71/2015 , 72/2015 and 84/2015 dated 12.8.2015 (ii) Decision of co-ordinate bench of this tribunal in the .....

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s been signed on the same day i.e 7.3.2013 by all the seven share applicants ; that no break up of other advances under liabilities side of the balance sheet of seven share applicants is given by the assessee ; that no business activity at all is carried on in these seven share applicants during the asst year under appeal ; that no prudent businessman would invest in these type of companies. He further argued that the supplementary paper book containing various details of source of source of fun .....

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(b) Decision of the co-ordinate bench of this tribunal in the case of Bisakha Sales (P) Ltd vs CIT reported in (2015) 52 taxmann.com 305 (Kolkata - Trib.) dated 19.9.2014. (c) Decision of the Hon ble Delhi High Court in the case of Riddhi Promoters (P) Ltd vs CIT reported in 377 ITR 641 (Del), (d) Decision of the Hon ble Calcutta High Court in the case of CIT vs Maithan International reported in (2015) 375 ITR 123 (Cal) (e) Decision of the Hon ble Apex Court in the case of Navodaya Castle (P) Lt .....

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h aggregating to ₹ 1,29,49,930. Out of it the A.O. accepted the share applications of 2 individuals namely Kushal Khemka and Saroj Kabra and made addition of the balance amount of Rs.,125,49,980 being the aggregate amount of share applications by 7 share applicant companies. The details of share application amount, Cheque No., Bank's name etc. are as under: a) Deva Merchants P Ltd. [PAN AACCD4311L] By Cheque No. 824600 dated 25.8.2008 drawn on Syndicate Bank, Camac Street Br. (Audited .....

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8377; 7,00,000 c) Rosevalley Merchants P Ltd. [PAN AABCR3695Q] (Audited B/S at pg 67-72; Copy of ITR Ack pg 73, Certificate reg share investment at pg 74, Bank Statement of Agarpara at pg 75 and certificate regarding payment by Agarpara at page 76 of paper book) Rs.1,12,500 d) Triton Vinimay P Ltd. [PAN AACCT7004J] By Cheque No. 033175 dated 25.8.2008 drawn on IDBI Bank, Park Street Branch (Audited B/S at pg 25-30; Copy of ITR Ack pg 31, Certificate reg share investment at pg 32, Bank Statement .....

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N3532F] By Cheque No. 809487 dated 25.8.2008. drawn on Oriental Bank of Commerce, Gariahat Branch (Audited B/S at pg 77-82; Copy of ITR Ack pg 83, Certificate reg share investment at pg 84, Bank Statement of Premium Agro at pg 85 and certificate regarding payment by Premium Agro at page 86 of paper book) ₹ 27,00,000 g) Safal Vyapar P Ltd. [PAN AAKCS1261N] By Cheque No. 809496 dated 27.8.2008. drawn on Oriental Bank of Commerce, Gariahat Branch (Audited B/S at pg 87-92; Copy of ITR Ack pg 9 .....

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led in Form No. 2 with the Registrar of Companies on 5.9.2008 (Copy at pages 20 to 23 of paper book). 7.3. The assessee had submitted copies of its Audited Annual Accounts (page 1 to 18 of paper book), IT Acknowledgements, Certificate for investment from applicant companies along with certificate/confirmation and bank statement of the companies from whose bank account cheques were issued in favour of assessee in respect of all of the aforesaid share applicants before Id. A.O. in course of assess .....

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ents were made by A/c Payee Cheques in favour of the assessee company. Details of Cheque No., date and Bank's name are mentioned above and therefore not being repeated. 7.4.2 Agarpara Jute Mills Ltd. is a Jute manufacturing company having its factory at 28, BT Road, Kamarhati, Kolkata 700058 and assessed under PAN AACCA4864H. The copy of Annual Report also comprising Profit & Loss a/c, Balance Sheet and relevant details were submitted during assessment proceedings and the copy of the sam .....

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Ankur Tie up P Ltd. ₹ 7,00,000/- (copy at page 66); and Rosevalley Merchants P Ltd. ₹ 1,12,500 (copy at page 76). These confirmations were furnished in course of assessment proceedings. 7.4.5. The amount given by the said company Agarpara Jute Mills Ltd. on behalf of the said 3 share applicants is duly shown by Agarpara Jute Mills Ltd. in list of Loans & Advances. Copy at page 138-139 of paper book. 7.4.6. The copy of Bank Statement of the said company with Syndicate Bank, Camac .....

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garpara Jute Mills Ltd. on behalf of 3 share applicant companies is duly included in the amount of advances received in the case of the said 3 companies under the head current liabilities. We find that the ld. A.O. is factually incorrect in observing in para 4 (i) at page 3 and also at other paras of his order that the share applicant had no borrowed fund by way of secured or unsecured loan in its Balance Sheet. The borrowed funds have been reflected under the head current liabilities. 7.4.8. Th .....

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the assessee company. Details of Cheque No., date and Bank's name are mentioned hereinabove and therefore not being repeated. 7.5.2 Premium Agro Export Ltd. runs a Jute Mill at Ali Hyder Road, Titagarh, North 24 Parganas (WB) and assessed under PAN AACCP6412C. The copy of Annual Report also comprising Profit & Loss a/c, Balance Sheet and relevant details were submitted during assessment proceedings and the copy of the same is appearing at page 100 to 117 of the paper book. 7.5.3. The tur .....

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ge 44); Nalanda Vanijya P Ltd. (copy of certificate at page 84); and Safal Vyapar P Ltd. (copy of certificate at page 94). These confirmations were furnished in course of assessment proceedings. 7.5.5. The amount given by the said company Premium Agro Export Ltd. on behalf of the four share applicants is duly shown in list of Loans & Advances. Copy at page 116 of paper book. 7.5.6. The copy of Bank Statements of the said company Premium Agro Export Ltd. was also furnished in course of assess .....

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ny is running a Jute Mill and has sale turnover of ₹ 42.91 crores and having sundry debtors of ₹ 8.92 crores for the year ended 31.3.2009. 7.5.7. The Profit & Loss account and Balance Sheet etc. together with PAN / copy of acknowledge of filing IT Returns of the share applicant company were also furnished in course of assessment proceedings. The copy of the same are appearing in paper book: Triton Vinimay P Ltd. (at page 26 to 30, ack of IT Return at page 31); Arunoday Dealcom P .....

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amount of share investment in their respective balance sheet. 7.6. We find that the assessee had filed the following documents :- a) Audited Balance Sheets of seven share applicant companies as on 31.3.2009. b) IT Return acknowledgements for Asst Year 2009-10 of seven share applicants. c) Confirmation from the share applicants explaining the fact that the cheque was issued by M/s Premium Agro Exports Ltd or Agarpala Jute Mills Ltd , as the case may be, on their behalf, to Wellman Wacoma Limited .....

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and for Agarpala Jute Mills Ltd u/s 153C/153A/143(3) of the act for AY 2009-10. g) Relevant pages of Bank Statements of the assessee 7.7. We find that the following documents were filed by the assessee before us by way of supplementary paper book which were called for by the Bench during the course of previous hearings :- 1. Details of Directors of seven share applicant companies , Agartala Jute Mills Ltd, Premium Agro Exports Ltd and the assessee company together with the details of companies .....

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tailed source of funds in the hands of Premium Agro Exports Ltd for advancing the amount to the share applicant companies. (pages 286 to 289 of paper book dated 29.4.15). Relevant bank statements with Oriental Bank of Commerce was already filed in paper book 2. 5. Detailed source of utilization of funds by the assessee company vide pages 290 to 348 of paper book dated 29.4.15. We find that this paper book is duly certified by stating that the same has been filed as requisitioned in the course of .....

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o income-tax as the income of the assessee of that previous year : Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books .....

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ty cast on the assessee is to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital from seven share applicants. The nature of receipt towards share capital is well established from the entries passed in the respective balance sheets of the companies as share capital and investments. Hence the nature of receipt is proved by the assessee beyond doubt. In respect of source of credit, the assessee has to prove the thre .....

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e company s shares by taking money from some other companies who has directly given cheques in the name of the assessee company on behalf of applicant companies. These transactions are also duly reflected in the balance sheets of the seven share applicants by debiting the investment in share capital of assessee company by corresponding credit to the loan creditors who had advanced monies on behalf of share applicants. Hence the source of the share applicants for making investment in share capita .....

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f those two jute companies represented by way of sale proceeds getting deposited into their bank accounts which in turn has been used by them to advance monies to assessee company on behalf of share applicants. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law. We find that the share applicants have not denied the fact of making investment in share capital in assessee company. The two lending j .....

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and documents filed before him. We place reliance on the decision of the Hon ble Apex Court in this regard in the case of Dhakeshwari Cotton Mills Ltd vs CIT reported in 26 ITR 775 (SC) wherein it has been held that no addition can be made without material and on mere suspicion. 7.9. We also find that the case laws relied upon by the Learned AR are well founded:- (i) Decision of Hon ble Delhi High Court in the case of CIT vs Vrindavan Farms (P) Ltd in ITA No. 71/2015 , 72/2015 and 84/2015 dated .....

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d that in the present case the Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income- Tax- Returns. The entire details of the share applicants were made available to the AO by the Assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT .....

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he share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in Nova Promoters (supra), the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands 0 r the Assessee under Section 68 of the Act a .....

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e considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt.3-10-2007. On careful consideration of the facts and in law 1 am of the opinion that the AO was not justified in making, the addition aggregating to ₹ 54,00,000/- u/ s.68 of the Act being the amount of share application money by holding that the appellant company has failed to .....

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rved' that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s.143(3) of the LT Act for AY.2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY.2005-06 was completed by the ITO, Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A.Y.2005-06 and AY.2004-05 respectively were completed by the ITO, Ward 9(4), .....

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rt of its claim of receipt of share application money, I am of the opinion that the no addition u/ s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of ₹ 54,00,000/ -. The ground Nos. 2 and 3 are allowed," 7. Aggrieved by the order of CIT{A) the revenue is in appeal befor .....

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, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs Devinder Singh Shant in ITA No.208/Kol/2009 vide order dated 17.04.2009. 9. We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the revenue that the revenue disputed only the proof of identity of the share h .....

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f the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITAT Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been esta .....

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of invoking revisionary jurisdiction u/s 263 of the Act by the Learned CIT and whether adequate enquiries were made by the Learned AO in the facts and circumstances of that case. In fact this tribunal had specifically framed certain questions to be answered by them and had duly replied by them in the order. The questions raised by them are as below:- (i) Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company ? (ii) Wh .....

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o conduct a thorough enquiry, thereby interfering with the jurisdiction of the Assessing Officer conferred on him in terms of section 142(1) and 143(2) of the Act? (v) Whether inadequate inquiry conducted by the Assessing Officer empowers the Commissioner to revise the assessment order ? (vi) Whether the order of the Commissioner was based on irrelevant consideration and was he supposed to point out specifically where the Assessing Officer went wrong in not properly examining the issue of share .....

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e notice having not been signed by the Commissioner ? Hence from the above, it could be seen that this tribunal never had an occasion to look into the merits of the addition proposed to be made towards share capital in the facts and circumstances of that case and no decision was rendered thereon on merits of the issue. Various case laws were analysed by this tribunal only in the context of validity of revisionary jurisdiction u/s 263 of the Act to consider whether the order passed by the Learned .....

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a High Court in the case of CIT vs Maithan International reported in (2015) 375 ITR 123 (Cal). 7.11. Now coming to another decision relied upon by the Learned DR rendered by the Hon ble Delhi High Court in the case of Riddhi Promoters (P) Ltd vs CIT reported in 377 ITR 641 (Del), in that case, the issue involved is as to whether an addition towards share application money could be made merely on the fact of proving the identity of the creditor by the assessee ignoring the other ingredients of ge .....

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the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. The appeal is accordingly dismissed. In the instant case, the assessee had indeed proved the identity of the share applicants, creditworthiness of share applicants and genuineness of transactions beyond doubt by explaining firstly the source , secondly the source of source and thirdly the source of source of source. Moreover, the seven share applicants h .....

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Ltd vs CIT reported in (2015) 56 taxmann.com 18 (SC) is concerned, we find that the issue before the Hon ble Apex Court was whether an addition towards cash credit u/s 68 of the Act could be made in the event of assessee filing certificate of incorporation , PAN for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor. In these circumstances, the special leave petition filed by the assessee .....

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o treat the receipt of share capital from seven share applicants as unexplained u/s 68 of the Act. 7.13. We find that the Learned CIT(A) had applied the provisions of Benami Transactions (Prohibition) Act, 1988 as under:- Section 3- Prohibition of benami transactions (1) No person shall enter into any benami transaction. (2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary .....

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ve as to how he has reached to a conclusion that the subject mentioned transactions would fall within the ambit of Benami Transactions (Prohibition) Act, 1988. On the contrary, the evidences filed by the assessee are staring on us and the same cannot be brushed aside or swept under the carpet. Moreover, it is well settled that it is the duty of the person to prove that the subject mentioned transactions are Benami Transactions by adducing proper legal evidences because he is the person who is as .....

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s lying in fixed deposit in the name of one Shanti Devi was an asset belonging to the appellant and that Shanti Devi was a benamidar of the appellant. The learned Judge speaking for the Bench has disposed of that contention holding thus: It is well settled that the burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person asserting it to be so and this burden has to be strictly discharged by adducing legal evidence of a definite char .....

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for proof. (b) It was also held by the Hon ble Supreme Court in the case of Jaydayal Poddar (Deceased) through L.R.s and Another vs Mst.Bibi Hazra and Others in Civil Appeal No. 1759 of 1967 dated 19.10.1973 reported in (1974) 1 SCC 3 that :- 6. It is well settled that the burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person asserting it to be so and this burden has to be strictly discharged by adducing legal evidence of a defi .....

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ubstitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation, and the peson expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question, whether a particular sale is benami or not, is largely one of fact, and for determining this question, no absolute formulae or acid test, uniformly applicable in all s .....

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