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Rajmandir Estates Private Limited. Versus Principal Commissioner of Income Tax, Kolkata – III, Kolakta.

Revision u/s 263 - Is the finding of the Commissioner of Income Tax that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo motu perverse? - Held that:- Money allegedly received on account of share application can be roped in under Section 68 of the Income Tax Act if the source of the receipt is n .....

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h Court ). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that “the ITO may even be justified in trying to ascertain the source of depositor”. Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no subs .....

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ce to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. - We have demonstrated in some detail as to why is the order of the assessing officer erroneous and prejudi .....

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pertaining to the assessment year 2009-10 upholding an order dated 22nd March, 2013 passed under Section 263 of the Income Tax Act, 1961. The assessee has come up in appeal. Briefly stated the facts and circumstances of the case are as follows:- The share capital of the assessee as at 31st March, 2008 was ₹ 55,15,000/-. During the relevant previous year share capital of the assessee rose to a sum of ₹ 1,34,42,370/-. The reserve and surplus which as at 31st March, 2008 was a sum of & .....

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advertence it had not disclosed receipt of a sum of ₹ 61,000/- on account of consultancy fees. The mistake, it was pointed out, was due to the fact that the sum of ₹ 61,000/- had been spent in making donation to a club. In the circumstances a notice dated 15th February, 2011 under Section 148 was issued. A notice dated 23rd February, 2011 under Section 142(1) of the Income Tax Act was also issued, seeking amongst other the details of share application money received by the assessee, .....

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plicants were directed amongst others to disclose the source of money contributed to the share capital of the assessee. Mr. Poddar contended that though the notices under Section 133(6) were issued to only 15 out of 39 applicants of share, the source of money in respect of each of the applicants of shares including their confirmation and bank statements were disclosed by the assessee. From the information made available by the assessee, it appears that 19 out of 39 applicants secured funds, for .....

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ugh source of fund was disclosed. What has not been specified is, as to on what account was the money received. The forms of share application purporting to have been signed by the applicant companies have also been disclosed from which it appears that the date of allotment, number of allotment, number of shares allotted, share ledger folio, allotment register folio, application number, have all been kept blank. These particulars, Mr. Poddar, submitted should have been filled up by the assessee, .....

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e assessment under Section 143(3) / 147 was completed without application of mind and without requisite enquiry into the increase of the share capital including the premium received by the assessee. The assessee replied stating, inter alia, as follows:- On a bare perusal of the impugned Showcause Notice, it would appear that the allegations of the Revenue may be summarized as under: (i) That the Assessing Officer did not make requisite enquiry on the issue as to what prompted the subscribers to .....

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the previous year relevant to the assessment year 2009-10 the assessee- company had issued 7,92,737 Equity Shares of the Face Value of ₹ 10/- each at a premium of ₹ 390/-. Such shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends. From the List of Allottees of such Shares (copy given herewith), it would be kindly found that all the Shares were offered to, and subscribed by the corporate entities an .....

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n-application of mind. He entertained the belief that unaccounted money is laundered as clean share capital by creating a façade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened u/s.147 suo motu . The order dated 30th March, 2011 passed under Section 143(3)/ 147 was thus erroneous and prejudicial to the interest of the revenue. He, therefore, set aside the same and issued directions for a thorough enq .....

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n other companies or loans given to other companies is converted back into cash by credit in the assessee company s bank account. The source of this money also needs to be examined. Further, information should be sent to the A.Os of the subscriber companies and to the other companies through which the capital has been rotated regarding the findings of the A.O. Subsequent to the inquiries & verification of all relevant aspects of the case, the A.O. should pass a speaking order after providing .....

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atisfied, the CIT has no jurisdiction to tinker with the order of the assessing officer. (2) Receipt of share capital during the relevant assessment year was not a taxable event. He drew our attention to Section 56(2)(viib) which was introduced with effect from 1st April, 2013 which reads as follows:- 56. Income from other sources.- (1)… (2) In particular and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax u .....

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(i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on t .....

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eyebrows were raised because the assessee issued shares of ₹ 10/- each at a premium of ₹ 390/-. Even assuming that the shares were over-priced, the same would not become taxable during the relevant assessment year. If it is not a taxable income there can be no consequent loss of revenue. Therefore the order passed by the assessing officer cannot be prejudicial to the interest of the revenue. (3) The concept of arms length pricing in a domestic transaction was introduced for the firs .....

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und to be an exercise in futility unless the case of the assessee can be brought within Section 68 of the Income Tax Act. He in support of his submissions relied upon the judgement in the case of CIT, West Bengal -Vs- Calcutta Discount Company Limited reported in (1973) 91 ITR 8 (SC) wherein the following views were expressed:- The question that, when an assessee transfers some of his stock-in-trade to another person at a price less than the market price, whether that assessee can be considered .....

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on were held to be bona fide sales. At the same time it was held that the goods were sold at a concessional rate. The Income Tax Officer sought to tax the assessee therein after computing the profits earned by that firm on the basis of the market price of the goods sold and not the actual price at which those goods were sold. The assessee challenged the said basis. The Tribunal upheld the contention of the assessee. It came to the conclusion that the assessee had, in reality, made no profits at .....

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he company. A somewhat similar question came up for consideration before this Court in CIT v. A. Raman & Co. [(1968) 1 SCR 10 (SC) : (1968) 67 ITR 11] It is unnecessary to set out the facts of that case and it is sufficient to refer to the relevant observations in the judgment. Shah, J., (as he than was), speaking for the Court, stated the law at p. 17 of the report, thus: The plea raised by the Income Tax Officer is that income which could have been earned by the assessees was not earned, a .....

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trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment a case for commenci .....

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fully be circumvented. It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus foregoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law. He submitt .....

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lect the sum of ₹ 390/- per share by way of premium. (5) All the documents required by the assessing officer by the notice under Section 142(1) of the Income Tax Act were duly submitted and they have also been produced before us. There is nothing in the documents, according to him, to arouse any suspicion with regard to (i ) identity, (ii) genuineness of the transaction and (iii) creditworthiness of the applicants of shares. It cannot therefore be said that the assessing officer either did .....

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ire relevant period were furnished. The Commissioner in his order under Section 263 opined that analysis of this statement does not throw any light whatsoever on the source of funds of the subscriber companies. Mr. Poddar contended that the source of fund of each of the subscribing company including cheque numbers and the nature of receipt except in a few cases were duly furnished by the assessee to the assessing officer. He submitted that those bank statements have also been produced before us .....

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of Pan Card, acknowledgement of return, bank statements, application for shares, source of money, balancesheet showing investment made by the subscribers with the assessee were all furnished before the Assessing Officer and they have also been produced before us. The finding recorded by the Commissioner is also belied, according to him, by the fact that notices issued to 15 out of 39 subscribers by the Assessing Officer under Section 133(6) of the Income Tax Act were duly served and the noticees .....

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es which have been created solely for this purpose. The Directors of such companies are more often than not low paid employees such as peons, darbans, drivers or other persons of humble means. The modus operandi for introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this, the money is transferred by way of cheques to other companies and this is done 3 to 4 layers, the money reaches its intended desti .....

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through & detailed inquiries and go beyond the layers created by the so called entry operators so that it may be established that the share capital is bogus. Mr. Poddar, contended that the Commissioner has drawn upon his imagination without any factual basis and without any evidence in support thereof. He contended that the finding is perverse to the core. He did not, however dispute that the share capital in this case was introduced by rotating the money. But he objected to the use of the e .....

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hat the company returns the amount of share capital and premium in cash is altogether baseless. (d) He drew our attention to the following finding of the Commissioner:- It also needs to be pointed out that this assessee s case is not an isolated example. There are hundreds of such cases in this charge and other charges where the modus operandi is identical. Once the money has been rotated though 3 to 4 companies, return of income is filed showing very nominal income. Subsequent to this, a letter .....

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ut by mistake. It is needless to say that no independent inquiries are carried out regarding the share capital. The company is then passed on to the final purchaser after charging a percentage of the capital in the company. This modus operandi has been confirmed in may search operations carried out by the Investigation Wing on entry operators & others over the past few years. Mr. Poddar contended that there is nothing to show that the assessee requested for issuance of any notice under Secti .....

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ether absent in the case before us. He submitted that the judgement in the case of CIT -Vs- Nova Promoters and Finlease (P) Ltd. reported in 342 ITR 169 is not applicable to the facts of this case because in that case there were confessional statements which is not there in this case. He submitted that the judgements in the case of CIT -vs- Durga Prasad More, relied upon by the Commissioner, reported in (1982) 71 ITR 540 and the judgement in the case of CIT -Vs- Precision Finance Pvt. Ltd. repor .....

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lies only to an undisclosed income earned abroad. (g) The Prevention of Money Laundering Act, 2002 (hereinafter referred to as PMLA ) defines the offence of money laundering under Section 3 thereof which reads as follows:- 3. Offence of money-laundering.- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of .....

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which has been derived as a result of criminal activity relating to a scheduled offence. The scheduled offences have been classified in three parts A, B and C. Neither of the parts include any offence under the Income Tax Act. He therefore, contended that the PMLA, even assuming that the Commissioner has referred to in his order under Section 263, can have no manner of application to the facts and circumstance of this case. (h) He submitted, which we quote verbatim, that supposing there is a cha .....

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assessee under Section 68 nexus between the assessee and the unaccounted money has to be established. In the ultimate analysis the object of any investigation is to find out whether there has been any unaccounted transaction which can come within the provision of Section 68 of the Income Tax Act. Section 68, he contended, insists upon the satisfaction of the assessing officer. Unless the satisfaction of the assessing officer is perverse, the CIT has no jurisdiction to interfere. (7) The next su .....

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, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Inco .....

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r enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the ma .....

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lso not permissible relied upon the following judgements:- (a) CIT -Vs- Steller Investment Ltd. reported in (1991) 192 ITR 287 (Delhi). The Delhi High Court refused to admit reference when the revenue sought to challenge an order of the Tribunal setting aside an order under Section 263 holding as follows:- The petitioner seeks reference of the following question: Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on facts and in law in .....

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The Commissioner of Income-tax came to the conclusion that the Assessing Officer did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment. The Tribunal rever .....

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advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. In our opinion, no question of law arises and the petition is, therefore, dismissed. The aforesaid views of the Delhi High Court were unsuccessfully challenged before the Supreme Court. The Supreme Court refused to entertain the special leave petition holding as follows:- We have read the questi .....

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ein the following views were expressed:- As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whe .....

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lear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words any sum found credited in the books in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not pr .....

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ection 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The Income-tax Officer would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer .....

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circumstance section 68 of the Act can or cannot be invoked. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into b .....

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se of shares then the amount received by the company would be regard as a capital receipt and to that extent the observations in the case of Steller Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of section 68 may be invoked. In the latter case section 68, being a substantive section, empowers the Income-tax Officer to treat such a sum as income of the .....

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expressed:- Therefore, for a detailed discussion on Section 68 one should first turn to Gee Vee Enterprises v. Addl. CIT (1975) 99 ITR 375 (Delhi) and thence finally to the decision of the Full Bench of this Court in Sophia Finance (1994) 205 ITR 98. In Gee Vee Enterprises -Vs- Addl. CIT (1975) 99 ITR 375 (Delhi), the Division Bench had in the context of a challenge to the maintainability of the writ petition on the grounds of the availability of an alternative remedy laid down situations which .....

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icer is both an adjudicator as well as an investigator, and it is his duty to ascertain the truth of the facts stated in the return if such an exercise is provoked , or becomes prudent . The Bench held that Section 263 which deals with the revision of orders prejudicial to the Revenue by the Commissioner comes into operation wherever the Assessing Officer fails to make such an inquiry, because it renders the order of the Assessing Officer erroneous . It seems to us that if this duty pervades the .....

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d not be harassed by the Revenue s insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same .....

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ndisclosed income of the company. in this analysis, a distillation of the precedents yields the following propositions 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/ subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the addr .....

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diates 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; and (7) the Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. The Commissioner of Income-tax (Appeals) deleted the addition for the reason that the identity of the shareholders had been established on the strength o .....

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is aspect the Income-tax Appellate Tribunal has cogently noted that the share capital issued to the original shareholders in the assessment year 1984- 85, which had been cancelled by the Assessing Officer, Calcutta, was found to be valid by the jurisdictional Assessing Officer at Bulandshahar. But we hasten to clarify that the statement of law made by the Income-tax Appellate Tribunal to the effect that in case of share capital no additions could be made if it is established that the shareholder .....

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find no merit in this special leave petition for the simple reason 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. Hence, we find no infirmity with the impugned judgement. : CIT v. Lovely Exports P. Ltd. : S. L. P. (Civil ) No.1153 of 2008. Mr. Poddar submitted that the views expressed by th .....

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ere binding and therefore, the assessing officer could not have taken a different view of the matter. The Commissioner, according to him, drawing upon his imaginary grounds interfered with the order of the assessing officer and that was erroneously upheld by the learned Tribunal. (d) Mr. Poddar drew our attention to a judgement of the Tribunal in ITA No.479/KOL/2011 M/s. Lotus Capital Financial Services Ltd. -Vs- ITO wherein an order under Section 263 passed by the Commissioner of Income Tax was .....

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fore the Assessing Officer at the time of framing of assessment and he has given this finding in his order passed u/s. 143(3) of the Act. We, after going through provisions of section 263 of the Act, find that Commissioner can revise assessment order passed by Assessing Officer only if - (i) it is erroneous, and (ii) it is prejudicial to the interests of the revenue. If the order sought to be revised is not prejudicial to the interests of the revenue, Commissioner has no jurisdiction to revise i .....

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rther be shown that the order was prejudicial to the interests of the revenue and it is not each and every order passed by the Assessing Officer which can be revised under section 263 of the Act. A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied with twin conditions, na .....

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ssment framed by AO is neither erroneous nor prejudicial to the interest of revenue and this is clearly demonstrated by facts discussed by AO in his order and documents produced before us by assessee. Accordingly, we set aside the order of CIT passed u/s. 263 of the Act being not as per law. (e) This Court in ITAT No.125 of 2012 CIT -Vs- M/s. Lotus Capital Financial Services Pvt. Ltd. refused to admit an appeal preferred by the revenue. The object of citing this judgement, Mr. Poddar contended, .....

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of the transaction. The order of the CIT(A) was confirmed by the Tribunal. This Court refused to admit an appeal preferred by the revenue. The object of citing this judgment is that the identity of the applicants of shares has been fully established by the assessee. Payments were all made by cheques, bank statements have been submitted. The applicants of shares are also assessees to the income tax. They have furnished pan details. Therefore any further enquiry in the case was not called for. (g .....

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t be added under Section 68. This Court refused to admit an appeal preferred by the revenue. (h) In another unreported judgement of this Court in the case of CIT -Vs- M/s. Sanchati Projects (P) Ltd. (ITAT No. 140 of 2011) cited by Mr. Poddar, a sum of ₹ 82 lakhs were collected by the assessee by issuing shares to 8 persons. The assessing officer doubted the credibility of the share holders on the basis that they or some of them had the same address as the other applicants of the shares. Th .....

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294 (Delhi) wherein an appeal preferred by the revenue was dismissed because the identity of the subscribers of shares were not in doubt and the transaction had also taken place by account payee cheques. The assessing officer had taken an adverse view only because the subscriber initially did not respond to the summons but subsequently they did. He also drew our attention for an identical proposition to CIT -Vs- Kamdhenu Steel & Alloys Ltd. reported in (2014) 361 ITR 220 (Delhi). A special l .....

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ort of his submission relied upon a judgement in the case of CIT -Vs- Dwarkadhish Capital Pvt. Ltd. reported in (2011) 330 ITR 298 (Delhi) Vol.5. In this case share capital was increased by a sum of ₹ 71.75 lakhs. The assessing officer asked for explanations which were duly filed. The assessing officer was, however of the opinion that the assessee had failed to offer proper explanation with respect to 5 subscribers and, therefore a sum of ₹ 35,50,000/- was added. The CIT deleted the .....

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by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the source. Mr. Poddar contended that the view expressed in the case of Dwarkadhish (su .....

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the assessee. The assessee is required to discharge this initial onus. Once that onus is discharged, it is for the Revenue to prove that the credit found in the books of account of the assessee is the undisclosed income of the assessee. In the circumstances obtaining in the present case, in our view, the assessee has discharged that initial onus. The assessee is not required thereafter to prove the genuineness of the transactions as between its creditors and that of the creditors source of inco .....

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en by the Allahabad High Court in the case of Anil Rice Mills -Vs- CIT reported in (2006) 282 ITR 236. In the aforesaid judgement reference was also made to other cases as would appear from page 248 which is as follows:- It has been held by the various High Courts that the assessee cannot be asked to prove source of source or the origin of origin [vide S. Hastimal v. CIT [1963] 49 ITR 273 (Mad) ; Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam) ; CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC); .....

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turn had been financed by M/s. Ganesh Builtech. In other words, Ganesh Builtech invested money in those 16 companies, those 16 companies invested money with the assessee and all of them belonged to the same group. The similarity however ends there. The assessing officer based on the statement made by one Sri Vijay Jindal came to the conclusion that the shares originally issued by the assessee at ₹ 81.19 crores were bought back by the individuals/ concerns belonging to the same group at a s .....

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dance of tax thereby may have to be examined in the hands of the person purchasing the shares. (12) Mr. Poddar submitted that concluded matters cannot be reopened as was done in this case by the Commissioner of Income Tax. He in support of his submission relied on the following passage from the judgement in the case of CIT -Vs- Gabriel India Ltd. reported in (1993) 202 ITR 108:- The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders .....

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[1978] 114 ITR 404, 407 (AP) by Raghuveer J. ( as his Lordship then was ), the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this permited, litigation would have no end, except when legal ingenuity is exhausted . To do so….. to divide one argument into two and to multiply the .....

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(2003) 263 ITR 437 for the following proposition:- In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act. Taking inspiration from the aforesaid views expressed in the case Hari Iron Trading Company, Mr. Poddar contended that in the case before us, the CIT has directed the assessing officer to carry out enquiries about various layers through which the share capital has been rotated . .....

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as a part of his argument which reads as follows:- The power of revision is not meant to be exercised for the purpose of directing the Assessing Officer to hold another investigation without describing as to how the order of the Assessing Officer is erroneous. From this it also follows that where the assessment order has been passed by the Assessing Officer after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on reco .....

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a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings .....

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ce or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court. Mr. Poddar contended that the aforesaid views of the Supreme Court are equally applicable to the order passed by the CIT in the exercise of his revisional jurisdiction. Mr. Poddar drew our attention to another judgement of the Supreme Court in the case of Lalchand Bhagat Ambica Ram -Vs- CIT re .....

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in merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain license at Nawgachia and the prescience inasmuch as the appellant was acquitted of the offence with which it had been charged and its license also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was pure conjecture on the part of the Income-tax Officer and the fact that the appellant indu .....

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ontended that his client was also tarred with the same brush without any iota of evidence in that behalf. (15) The proviso to Section 68 has been added with effect from 1st April, 2013. Therefore, the proviso is prospective in nature and cannot apply to any transaction during any period prior to 1st April, 2013, whereas the Court, in this case is concerned with the assessment year 2009-10. In the absence of the aforesaid proviso the mere fact that 4 or 5 contributors did not disclose the nature .....

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nciple of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. (a) He also relied upon an earlier judgement of the Supreme Court in the case of Karimtharuvi Tea Estate Ltd. -Vs- State of Kerala reported in (1966) 60 ITR 262 wherein the following views were expressed:- It is well-settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment .....

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CIRCULATION OF UNACCOUNTED MONEY Cash credits under section 68 of the Act Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either (i) does not offer any explanation about nature and source of money; or (ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer, then, such amount can be taxed as income of the assessee. The onus of satisfactorily explaining such credits remains on the person i .....

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y through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefor .....

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added to its income. It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the ha .....

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ioner. He in support of his contention relied upon the judgement in the case of CIT -Vs- Sunbeam Auto Ltd. reported in (2011) 332 ITR 167 (Del.) (17) The next submission advanced by Mr. Poddar is that the assessing officer in his notice under Section 142(1) specified a large number of documents to be produced by the assessee which is a pointer to show that the assessing officer had duly applied his mind. He in support of his submission relied upon a judgement of this Court in the case of Grindla .....

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r the purpose of making the assessment. To fulfil these requirements it is quite obvious that the ITO must apply his mind because without such application of mind he can never arrive at any bona fide satisfaction on the two points referred to hereinbefore. As pointed out by this court in a Bench decision in the case of Hindustan Motors Ltd. v. T. N. Kaul (Appeal No.280 of 1970) arriving at such a satisfaction is a part of the jurisdictional fact so that the ITO never acquires jurisdiction to iss .....

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h can certainly be challenged before this court in the writ jurisdiction. Moreover, issue of a notice in mechanical exercise of powers under s.142(1) would be merely a purported exercise of powers and not a real one and it is always open to a person aggrieved by such a notice to challenge it before this court in its writ jurisdiction (See Union of India v. Tarachand Gupta & Bros., AIR 1971 Sc 1558, and also the decision of the Supreme Court in the case of Barium Chemicals v. A. J. Rana [1972 .....

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owever, to be noticed that in both the cases the subject matter of challenge was that the notice under Section 142(1) had been issued without application of mind. (b) The next judgement cited by Mr. Poddar is in the case of CIT -Vs- J. L. Morrison (India) Ltd. reported in (2014) 366 ITR 593 to which one of us (Girish Chandra Gupta, J.) was a party wherein the following views were expressed:- The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time c .....

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e share-holders are bogus, the share capital contributed by them shall not become taxable at the hands of the assessee, in view of the law laid down by the Apex Court in the case of Lovely Exports (supra) and Steller Investment (supra). Therefore, the assessing officer had no option but to accept the share capital. Mr. Poddar submitted that in any event this was a possible view. If this was a possible view the Commissioner could not have exercised the revisional jurisdiction. In support of his s .....

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d the order under Section 263 was passed the proviso to Section 68 had not been introduced. The law as it stood on the date of exercise of power shall govern the controversy. (19) Lastly, it was submitted by Mr. Poddar that it would appear from the impugned judgment that by the order under challenge only two appeals were disposed of. But the learned Tribunal has relied upon the conclusions arrived at in the judgement of Subholaxmi. Mr. Poddar contended that there is factual dissimilarity between .....

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he contents of the order under Section 263 and submitted that the judgements cited by Mr. Podddar have no manner of application because the facts and circumstances of this case are altogether dissimilar to the facts and circumstances of the judgements cited by him. He contended that there has been total non-application of mind on the part of the assessing officer. He did not realize nor did he try to find out the real nature of the transaction. He also relied upon the following judgements:- (a) .....

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y or inadequate investigation. Such a course is bound to result in erroneous and prejudicial orders. Where the relevant enquiry was not undertaken, as in this case, the order is erroneous and prejudicial too and, therefore, revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. In a different context the apex court observed contra veritatem lex nunquam aliquid permittit: impli .....

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to their account; confirmation by the applicant companies; certificates of incorporation together with copies of memorandum and articles of association; copies of pan card and income tax return etc. Based on the aforesaid documents no further enquiries were made and the return was processed under Section 143(1) of the Act. Subsequently the case was reopened under Section 147 and a sum of ₹ 54 laks were added to the income of the assessee by the assessing officer. The addition was deleted .....

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n? The matter was remanded back by the Division Bench to the Tribunal for rehearing relying upon judgement in the case of Commissioner of Income Tax - Vs- N. R. Portfolio (P.) Ltd. reported in (2013) 2014 Taxman 408 (Delhi) wherein a similar addition under Section 68 in respect of receipt on account of share application money was set aside by the CIT and upheld by the Tribunal. The High Court restored the order of addition allowing the appeal of the revenue. The High court also held as follows:- .....

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articulars, or relying on entries in a Registrar of Companies website. One must remember that in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis. If the assessee has access to the share applicant's PAN particulars, or bank account statement, surely its relationship is closer than arm's length. Its request to such concerns to participate in income tax proceedings, wou .....

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he onus shifts back to the assessee. At that stage, if it falters, the consequence may well be an addition under Section 68. This court recollects the robustness with which the issue was dealt with, in A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), in the following terms: Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued duri .....

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ovindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of ₹ 80,000 and the other being receipt of ₹ 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactori .....

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Pvt. Ltd. reported in (1995) 214 ITR 583 (Cal). The receipt was on account of share application money of ₹ 10 lakhs. The Commissioner revised the order on the ground that the assessing officer had not made a proper and detailed enquiry which rendered the assessment order erroneous in so far as it was prejudicial to the interest of the revenue. The assessing officer in that case also had made test checks at random. The Tribunal quashed the order under Section 263. In an appeal preferred by .....

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nd as such the assessment of the company may not be affected. If a cash credit is shown by the company in its books of account and if the source cannot be explained properly, the Income-tax Officer may assess the sum as the income of the company from undisclosed sources. We do not find any reason why the Income-tax Officer will be precluded from making an enquiry where such enquiry is called for on the facts and in the circumstances of a case. Whether or not ultimately the shareholder fails to d .....

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ment, but another to say as to what procedure should be followed by the Assessing Officer in making the assessment of the company. In our view, on the facts of this case, it cannot be said that the Assessing Officer has no jurisdiction to ask for information from the shareholders regarding the source of investment made in the company. As a matter of fact, the Commissioner of Income-tax, in this particular case, came to the conclusion on the facts that the matter relating to shareholders and thei .....

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imply sent letters confirming their subscription to the share capital of the company. It was also seen that the letters were written on similar papers and typed in the same typewriter. No acknowledgment or reply was received from six others. The examination of records by the Commissioner revealed that there was no existence of N. K. Trading Company, at 132, Cotton Street, where Atmaram Goel and Mahendra Kedia were stated to be working. They could not also produce any document to show that they w .....

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is erroneous. In our view, the Tribunal decided the question purely on a question of law and not on the facts found by the Commissioner of Income-tax. (d) The last judgement cited by Mr. Ghosal is in the case of CIT -Vs- Jawahar Bhattacharjee reported in (2012) 341 ITR 434 (Gau) (FB). What had happened, in that case was that for the assessment year 2002-03 the assessment was completed during the period of exemption under Section 54F of the Income Tax Act for a long-term capital gains from sale o .....

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re the Larger Bench because of an apparent conflict between the judgements of two Division Benches. The Larger Bench after analyzing various authorities came to the following conclusion:- We have already referred to the judgments of this court In Rajendra Singh [1990] 79 STC 10 (Gauhati) and two single Bench judgments following the said judgment in Bongaigaon Refinery and Petrochemicals Ltd. [2006] 287 ITR 120 (Gauhati) and Shyam Sundar Agarwal [2003] 131 STC 70 (Gauhati) as also the second Divi .....

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applying mind to the relevant material would certainly be "erroneous" assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course of reasoning in the judgment should not be divorced from the context in which it was used. The judgment is neither to be interpreted as an Act of Parliament nor as a holy book. If this principle is kept in mind, we do not find any conflict in the view taken in Rajendra Singh [1990] 79 STC .....

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y. Accordingly, we hold that Daga Entrade P. Ltd. [2010] 327 ITR 467 (Gauhati) lays down correct law and the same is not in conflict with the earlier order of this court in Rajendra Singh [1990] 79 STC 1O (Gauhati). Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interests of the Revenue. Cases of assessment order passed on wrong assumption of facts, or incorrect application of law, without due application of .....

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or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo motu perverse? (c) Whether the order passed by the assessing officer under Section 143(3)/147 of the Income Tax Act is erroneous and also prejudicial to the interest of the revenue? (d)Whether the impugned judgement of the learned Tribunal is perverse? [22] We shall co .....

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mounts of cash into smaller sums that are then deposited directly into a bank account, or by purchasing monetary instruments, transferring the cash overseas for deposit in banking/financial institutions, use for purchase of high value things such as gold, precious stones, art works etc. and reselling the same through cheques or bank transfers etc. 2. Layering This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the .....

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ed to the real owner or etc. In some cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance. 3. Integration This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through front companies etc. The money may be invested in real estates, business and etc. The stages at which money-laundering could be easily detected are those where cash ent .....

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lack money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unreported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled th .....

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pital of the assessee, on account of share application money. In other words, those 19 applicants collected funds on account of share application money in their respective companies and that money was contributed to the share capital of the assessee. 15 out of the 39 applicants procured the requisite fund by selling shares. The rest of the applicants of shares, in the share capital of the assessee company, did not disclose the nature of receipt at their end though the source of fund was identifi .....

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e. (d) Another significant fact admitted by the assessee in reply to the notice to show cause under Section 263 is that the shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends . (e) From the bank statements disclosed it appears that to have the cheques issued in favour of the asseessee honoured, matching amounts were credited to the accounts of the subscribers shortly before the cheques issued in favour of the .....

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s of the assessee. (g) Though, Mr. Poddar made extensive submissions scanning the order under Section 263 in between the lines, he did not criticize the finding of the Commissioner that the A.O. did not examine a single Director of the assessee company or of the subscribing company which goes to show that correctness of this assertion is not in dispute. (24) From the aforesaid evidence the following, prima facie, inferences can safely be drawn:- (a)The promoter/directors of the assessee and thei .....

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cording to them, the assessee company had prospect in future, is a plain lie. (c) The blank share application forms etc. tabulated above go to show that the alleged application for shares and the alleged allotment were not in the usual course of the business. (d) In the light of the aforesaid pieces of evidence and the prima facie finding, we are emboldened to say that the three requirements: (A) identity of the share-holders; (B) genuineness of the transaction and (C) the creditworthiness of th .....

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enders. [25] For the reasons discussed in the preceding paragraph, we are satisfied that the judgement in the case of CIT -Vs- Steller Investment (supra) has no manner of application to the facts and circumstances of this case. The question as to whether there has been a device adopted for money laundering also did not crop up for consideration in that case. The Prevention of Money Laundering Act, 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investme .....

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said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the d .....

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ny sum found credited in the books in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. In the case of Sumati Dayal -Vs- CIT reported in (1995) 214 ITR 801 (SC) Their Lordships held that a capital receipt can become taxable if the explanation offered by the assessee about the nature and source thereof is not .....

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absence of culpability . In the present case there exists reasonable suspicion if not prima facie evidence of culpability. [26] The learned Tribunal in the impugned judgement in paragraphs 3, 4 and 5 observed, inter alia as follows:- We have heard the rival submissions and perused the relevant material on record. It is relevant to mention that we have disposed of more than 500 cases involving same issue through certain orders with the main order having been passed in a group of cases led by Sub .....

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of the above conclusions are applicable to the appeals in this batch. The appellant has disclosed a copy of the judgement delivered by the learned Tribunal in Subhalaxmi Vanijya Pvt. Ltd. -Vs- CIT. The learned Tribunal in paragraph 17.i. opined as follows:- All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry co .....

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e Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment order for 1960-61 was considered by itself, it could not be said that the assessment order was prejudicial to the interests of revenue. It was also observed that the factum of advance of initial capital, realization of amounts by sale of gold ornaments and the carrying on of the money-lending and speculative business had already been accepted and assessed in the previous years, that even in the yea .....

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hout territorial jurisdiction it could not be said to be prejudicial to the interests of revenue. This Court set aside the order of the learned Tribunal. In an appeal by the assessee before the Apex Court their Lordships upheld the order of this Court holding, inter alia as follows:- The learned advocate for the assessee contends that under section 33B the Commissioner had no jurisdiction to cancel the assessment made by the Income-tax Officer inasmuch as it cannot be said that where an assessee .....

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passed was erroneous in so far as it is prejudicial to the interests of the revenue. It is not, as submitted by the learned advocate, prejudicial to the interests of the revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been a .....

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is, according to us, equally applicable to an alleged capital receipt which, in fact, was received only in papers. The attempt of the assessee, it was apprehended in the case of Tara Devi (supra) was to assist someone else. An identical attempt is involved in this case. Who is the person sought to be assisted by the assessee? This question can only be answered after a thorough enquiry, directed by the CIT, is held. The assessee is interested in stalling that investigation on the plea that the o .....

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from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself which reads as follows:- During the Financial Year the assessee company has issued 792737 No. of equity share with a face value of ₹ 10/- along with a premium of ₹ 390/-. Thereafter, Notices u/s. 133(6) of the I.T. Act, 1961 were also issued to verify the transactions of the assessee o .....

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prejudicial to the interest of the revenue was considered by this Court in the case of CIT -Vs- Maithan International reported in (2015) 375 ITR 123 (Cal) to which one of us (Girish Chandra Gupta, J.) was a party wherein the following views were expressed:- It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial order .....

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lt of faithful and fruitful investigation" (See Sidhartha Vashisht alais Manu Sharma v. State (NCT of Delhi) reported in [2010] 6 SCC 1 paragraph 200 at page 80) In the case of CIT -Vs- N. R. Portfolio Pvt. Ltd. reported in (2014) 2 ITR 68 (Delhi) the following views were expressed:- What we perceive and regard as correct position of law is that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three fact .....

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ons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, control and manage them. The persons behind the assessee company and the persons behind the subscribing companies were not interrogated which was essential to unearth the truth. Reference may also be made to the judgement of this Court in the case of CIT -Vs- Active Traders Pvt. Ltd. (supra). The question for consideratio .....

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13 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of ₹ 1.36 crores raised nearly a sum of ₹ 32 crores on account of premium and chose not to go in for incre .....

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see for any previous year, the same may be charged to income tax…. . We are unable to accept the submission that any further investigation is futile because the money was received on capital account. The Special Bench in the case of Sophia Finance Ltd. (supra) opined that the use of the words any sum found credited in the books in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and sou .....

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n this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that the ITO may even be justified in trying to ascertain the source of depositor . Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the .....

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udgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. The judgement in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in thi .....

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