TMI Blog2010 (5) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on any actual business and was providing accommodation entries. Accordingly, assessment was reopened by issue of notice under s. 148. In the assessment order the AO observed that the Investigation Wing had made various enquiries on the basis of which it was found that the companies from whom the share application money was received, were not carrying on any actual business. Accordingly, addition was made under s. 68 of the IT Act as unexplained cash credit. In the appeal filed before the CIT(A), it was submitted that the assessee vide his letter dt. 26th Nov., 2007 has furnished full information along with affidavits and other relevant documents before the AO to justify that these transactions are genuine. The CIT(A) at pp. 10 to 15 of his appellate order stated the documents filed in respect of these companies which are as under : M/s Rajkar Electricals Electronics (P) Ltd.'Confirmation; Return filing receipt; Proof for PAN allotment; Certificate of incorporation; Company RoC data generated from RoC website; Affidavit for payment of money as share application money. M/s Baldev Harish Electricals (P) Ltd.'Confirmation; Certificate of incorporation; Company Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the same were made part for reasons of asst. yr. 2001-02. However, the addition stands made in asst. yr. 2000-01.'Confirmation; Return filing receipt; Certificate of incorporation; Company RoC data generated from RoC website; Bank statement; Affidavit for payment of money as share application money. M/s Harpaiassocfa Tes (P) Ltd.'The documents stands filed in asst. yr. 2001-02, since in the reasons recorded for reopening the same were made part for reasons of asst. yr. 2001-02. However, the addition stands made in asst. yr. 2000-01. Company RoC data generated from RoC website. 4. It was contended that in view of the above documents filed the identity of the companies from whom share application money has been received stands established. It was also submitted that it has been held in large number of authorities that where the identity of the payer companies stands established then no addition could be made under s. 68 in respect of the recipient and the only course available to the AO is to take action against the payer companies, if he feels necessary. Few of such authorities as relied upon before the lower authorities are as under : (i) CIT vs. Lovely Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der proviso thereto and affidavit of assessee denying service of notice having not being rebutted, assessment under s. 143(3) is invalid and liable to be quashed. 8. In substance it has been held in these cases that where the persons filed an affidavit and the same is not being rebutted by the Revenue then the contents of such affidavits shall be deemed to be correct. 9. It was submitted before the CIT(A) that in the present case all the payer companies had filed affidavits that all transactions are genuine and no cash has been exchanged in lieu of cheque payments. The learned AO had not rebutted the contents of these affidavits and has neither asked for producing these persons by issuing notice under s. 131 or by requesting the assessee company to produce these persons for recording their statement. Thus, in the absence of such an action by the AO the contents of the affidavits needs to be taken as true and correct. It was further submitted that in the absence of cross-examination of Shri Rajan Jassal and Shri Mukesh Gupta, their statement cannot be used adversely. The assessee specifically asked for cross-examination vide letter dt. 16th Nov., 2007 (10-11) of Shri Rajan Jas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings also. However, for the reasons best known to AO, they were never produced and no opportunity to cross-examine was allowed. Under these facts and otherwise also, the assessee filed affidavits of Rajan Jassal and Shri Mukesh Gupta during the course of assessment. In these affidavits they stated all the facts correctly. In para 3 of the affidavit, they specifically mentioned as under : That the above kind of statements have been got recorded from me under pressure and under coercion and absolutely against my wishes. 12. Under above facts, no credence can be given to the statements. Further, the affidavits should be believed and on the basis of these affidavits, the transaction should be held as genuine. Thus, the learned AO has grossly erred in not considering/rebutting the affidavits filed by Shri Mukesh Gupta and Shri Rajan Jassal in which they had specifically mentioned that they had not exchanged any cash and the transactions are genuine. In support strong reliance was placed on the following authorities : (i) Smt. Amarjeet Kaur (supra); (ii) CIT vs. Silver Streak Trading (P) Ltd. (supra). Held that'Revenue having failed to prove the service of not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er material discrediting the deponent. The affidavit can also be rejected if the assessee has failed to produce other supporting evidence when called upon to do so. The matter relating to evidence by affidavits is governed by order of the CPC. Such evidence by affidavit may be admitted only if the same fulfils the conditions precedent thereto. In terms of order 19, r. 1 of CPC, the Court may at any stage permit to party to adduce evidence by affidavit on assigning sufficient or cogent reasons. An affidavits are not evidence since it is not included in the definition of evidence in s. 3 of the Evidence Act and can be used as evidence only if for sufficient reasons, the Court passes an order under order 19 rr. 1, 2 of CPC as observed by Supreme Court in Smt. Sudha Devi vs. P.M. Narain AIR 1988 SC 1381 : (1988) 2 SCJ 422. In view of the same, furnishing of an affidavit in itself and that too at a time when it was not even required under any law of the land reflects that evidence was being created artificially/superfluously in anticipation of it being required in the course of assessment proceedings. Therefore, affidavit of alleged investors which have been filed suo motu are not even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remand report, the assessee filed its rejoinder vide its letter dt. 1st May, 2009, the same are reproduced hereinunder : I. Learned AO had reiterated the assessment order and has not controverted : I. Twelve affidavits filed giving therein (i) Complete name of shareholder company. (ii) Complete address of shareholder company. (iii) PAN of shareholder company. (iv) Assessment circle/Ward shareholder company. (v) Cheque number, date, name of bank and amount of cheques. (vi) Confirmation of issue of shares in response to above investment. (vii) PAN and bank particulars of all shareholder companies. All that was within control of appellant company was filed supported by affidavits contents in affidavits are duly supported by audited company accounts master details from RoC. Appellant company has filed sufficient and conclusive evidence to establish identity/capacity/genuineness of transactions of share capital received. If the ITO or other authority do not verify by way of cross-questioning, the correctness of and affidavit filed on oath, the same shall be treated as accepted by the Department Mehta Parikh Co. vs. CIT (1956) 30 ITR 181(SC). 2. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh that share application money received by company was a result of genuine transactions. In view of the submissions made above additions of ₹ 1,18,50,000 and alleged estimated commission of ₹ 2,96,250 is ill founded and is opposed to facts laws and evidence place on record. 17. After considering the above submission along with the remand report and its reply filed by the assessee, the CIT(A) deleted the addition after recording a finding to the effect that identity of all shareholders were established and thereafter by applying the proposition of law laid down by the Hon'ble Supreme Court in the case of Lovely Exports (supra), deleted the addition on account of share capital with the following observation : I have considered the observation of the AO as contained in the assessment order, submissions of the appellant and judicial pronouncements on the issue. The appellant company, during the year under consideration had received share application money of ₹ 1,18,50,000 from 16 parties. The AO has made an addition of the said share capital in the hands of the appellant company based on the information received from the Investigation Wing of the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncomplied, it is seen that no further action was taken by the AO to enforce their attendance. The AO did not initiate any action against the said investors for non compliance of the summons issued by him. There are enough powers given to the AOs/Investigating Officers to deal with such delinquent persons, but nothing of that sort has been done in the instant case. Moreover, if the said investors are not complying the summons of the Department, then how the appellant, who has no authority or legal power to compel the said parties, can enforce their attendance before the AO. In this regard reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138: (1986) 159 ITR 78(SC), wherein it has been held that in case the creditor does not appear in response to summon issued under s. 131, no adverse inference can be drawn in the case of the assessee. It is observed that subscription of shares was received from above mentioned companies by the appellant, through cheques and these companies are duly registered with ROC and same are active as per the website of the Ministry of Corporate Affairs. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught any material on record which can prove that this money was appellant's own undisclosed income. He has simply relied upon the information received from the Investigation Wing of the Department without making any concrete efforts to verify the facts stated therein. It has also been held by the various Courts that AO must bring on record some positive material or evidence to indicate that the share holders were Benamidars, fictitious persons or that any part of the share capital money represented the companies own income from undisclosed sources. The appellant has relied upon the judgment of Hon'ble apex Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287: (2001) 251 ITR 263(SC), wherein it has been held that even if the subscribers to the increased share capital of assessee company were not genuine, the amount could not be regarded as undisclosed income of the assessee company. Hon'ble Delhi High Court in CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB) has held that : 'If the shareholders exist then, possibly, no further enquiry need be made. But if the ITO finds that the alleged share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gangour Investment Ltd. (IT Appeal No. 34 of 2007) [reported at (2009) 18 DTR (Del) 242'Ed.] has held that Revenue can make addition under s. 68 of the Act only if the assessee is unable to explain the credits appearing in its books of account. In the said case the appellant has duly explained the said credit entries in the form of various documentary evidence. The said documentary evidence contained details, which set out not only the identity or the subscribers, but also gave information, with respect to their address, as well as, PAN, assessment particulars etc. based on these facts, the Hon'ble Delhi Court dismissed the appeal of Revenue. In yet another decision as to the correctness of treating share application money on par with cash credit, the Hon'ble Delhi High Court in CIT vs. Value Capital Services (P) Ltd. (2009) 221 CTR (Del) 511: (2008) 307 ITR 334(Del) found after referring to the two of the decisions of the Delhi High Court on the subject that in respect of share capital amounts, they cannot be assessed in the hands of the company, unless the Department is able to show that the amount received towards share capital actually emanated from the coffers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the investor but it certainly could not be treated as undisclosed income of the assessee. The appeal filed against the said decision was dismissed by the Hon'ble Supreme Court in C.C 12860/2007 dt. 8th Jan., 2008. In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding share application money received by it were genuine transactions and the same were not accommodation entries. I also do not find any evidence collected by the AO. which could prove otherwise. Accordingly, the AO was not justified in treating the amount of share application money received by the appellant as its undisclosed income. In view of our aforesaid discussion, I delete the addition of ₹ 1,18,50,000, made by the AO under s. 68 of the IT Act 1961. 18. Revenue is in further appeal before us and the assessee has filed cross-objection against the order of CIT(A) holding the reopening of assessment as valid. 19. It was argued by the learned Departmental Representative that there was information from the Investigation Wing, according to which, the assessee was in receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction and the addition made by the AO in respect of share capital was rightly deleted by the CIT(A) and the Tribunal. Copy of the order of the Hon'ble Delhi High Court in the case of CIT vs. Samir Bio-Tech (P) Ltd. (2009) 17 DTR (Del) 224 was also placed on record, wherein it was observed that in respect of share application money, where identity of the subscribers are not in doubt, share application money having been paid by account payee cheques, subscribers having shown the amounts in their balance sheets, no addition can be made under s. 68 only because the subscribers did not initially respond to the summons issued by the AO. Reliance was also placed on the decision of Co-ordinate Bench in the case of ITO vs. Orbital Communication (P) Ltd. (2009) 125 TTJ (Del) 484: (2009) 29 DTR (Del)(Trib) 382wherein it was held that where a company received share application money and it has furnished details of share applicants to the AO including PAN, copy of IT return, bank statement, etc., the amount cannot be added as unexplained income of the assessee merely on the ground of non-production of the share applicant before the AO. 21. Learned Authorised Representative also pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on money was received through account payee cheques which were duly registered with ROC and as per the website of Ministry of Corporate Affairs and all the companies were active. The CIT(A) also found that assessee has filed confirmation, certificate of incorporation of the company who has applied for shares, company ROC data generated from ROC website, bank statement and affidavit for payment of money as share application money. The CIT(A) also found that the AO has disregarded various documents filed by the assessee company and wrongly concluded that share application money is not genuine. It was also observed by the CIT(A) that the AO has not brought any material which can prove that share capital emanated from the coffers of the assessee company in terms of the verdict laid down by the Hon'ble Delhi High Court in the case of Value Capital Services (supra). We found that CIT(A) has considered the decisions of Hon'ble Delhi High Court in the case of Gangour Investment Ltd. (ITA No. 34/2007), Value Capital Services (supra), Divine Leasing Finance (supra) and CIT vs. Makhni Tyagi (P) Ltd. (2004) 187 CTR (Del) 550: (2004) 267 ITR 433(Del) and observed that once the ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R (Del) 115: (2008) 303 ITR 95(Del) in support of the proposition that failure to produce the third party who was purportedly the entry provider for cross-examination despite request of the assessee was fatal to the assessment itself. Our attention was also drawn to the statement given by Mukesh Gupta and Rajan Jassal wherein earlier statement given to the Investigation Wing was retracted, by way of an affidavit filed before the AO and have confirmed the subscription towards share capital in the assessee company. The affidavits filed by the directors of the assessee company were unrebutted, these were backed by corroborative evidence in the form of audited balance sheets and P L a/c, bank statements of the shareholders reflecting the issue of cheques to the assessee company, confirmation with the PAN and ward number, etc. We also found that during remand proceedings, the CIT(A) has directed the AO for examination of the affidavit, the CIT(A) at pp. 20 and 21 of the appellate order has observed that affidavits as filed by the directors have not been examined by the AO despite opportunity having been given during remand proceedings. From the bank statement of the shareholder so filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal of the Revenue on similar ground by observing that view of Hon'ble Supreme Court in various judgments like Lovely Exports (supra), Divine Leasing Finance (supra), is absolutely clear and it was held that proper course for the AO could have been to reopen the assessment of the share applicants/shareholders rather than making addition against the assessee company. Hon'ble High Court of Karnataka at Bangalore vide their order dt. 2nd March, 2010 in case of Arunananda Textiles (P) Ltd., IT Appeal No. 1515 of 2005 while confirming the deletion of addition made on account of share capital held as under : The question raised in this appeal are squarely covered by several judgments of the Supreme Court and also the judgment of this Court passed in ASK Brothers Ltd. vs. CIT wherein this Court following the judgments of the Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195: (2008) 6 DTR (SC) 308 and also in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287: (2001) 251 ITR 263(SC) has ruled that it is not for the assessee to place material before the AO in regard to creditworthiness of the shareholders. If the company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xports (supra) to the facts of instant case. 28. The cross-objection filed by the assessee is delayed, after considering the reasons for delay as stated in the condonation application filed by the assessee, we condone the delay. Contention of learned Authorised Representative was that proceedings under s. 147/148 are unsustainable since the AO has not applied its independent mind for forming the opinion for existence of reasons for proceedings under s. 147/148 and he has simply followed the observation of the Investigation Wing even without having the relevant material in his possession and also even without going through personally the said material on the basis of which the Investigation Wing formed the adverse opinion. 29. We have considered the contention of learned Authorised Representative and learned Departmental Representative with regard to validity of reopening and also gone through the orders of the authorities below and found that in the instant case, reason to believe that there was escapement of income in respect of the share capital introduced by the assessee, was formed by the AO on the basis of specific information received from the Investigation Wing of the ..... 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