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2016 (7) TMI 998 - ITAT DELHI

2016 (7) TMI 998 - ITAT DELHI - TMI - Addition u/s 68 - genuineness of transaction and the creditworthiness and identity of the subscribers not proved - information received from the Investigation Wing of the department - Held that:- In the present case, the AO while making the impugned addition had relied upon the information received from the Investigation Wing of the department that the aforesaid two companies were controlled by one Sh. Tarun Goyal who disclosed in his statement that the said .....

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is basis that even if Sh. Tarun Goyal was engaged in providing accommodation entry, it was not sufficient to hold that M/s Bhavani Portfolio Pvt. Ltd. and M/s Thar Steels Pvt. Ltd. were also engaged in providing accommodation entries, particularly when no evidence was brought on record in support of the said presumption. In the present case, as we have already noted that the assessee discharged the onus cast upon it to prove the identity of the share applicants, their creditworthiness and genuin .....

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dated 24.03.2011 of ld. CIT(A)-XVI, New Delhi. 2. The only effective ground raised in this appeal reads as under: 1. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of ₹ 1,00,000/- made by the AO u/s 68 as the assessee could not discharge its onus of providing genuineness of transaction and the creditworthiness and identity of the subscribers. 3. Facts of the case in brief are that the assessee e-filed the return of income on 11.09. .....

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50,00,000 2. Thar Steels Pvt. Ltd. 400000 46,00,000 50,00,000 3. Vidhyut Mkt. & Foods (I) Ltd. 1100000 1,26,50,000 1,37,50,000 19,00,000 2,18,50,000 2,37,50,000 He further observed that a specific information had been received from the Investigation Wing of the Department, New Delhi that the assessee had received accommodation entry of ₹ 50,00,000/- each from M/s Bhavani Portfolio Pvt. Ltd. and M/s Thar Steels Pvt. Ltd. which were managed by Sh. Tarun Goyal, who was an entry operator .....

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revealed a lot of transaction in the nature of fund transfer. He asked the assessee to justify the amount credited in the accounts of the share applicants prior to giving money to the assessee. According to the AO the assessee did not file any written submission in this regard but argued that the inquiry with regard to source of share applicants could not be made from the assessee. The AO did not find merit in the submission of the assessee by observing that the onus of proving the genuineness, .....

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50,00,000/- each from the said two companies, whose credentials were shady, therefore, there was all the more reason to prove the creditworthiness, identity and capacity relating to the share capital and share premium of ₹ 50,00,000/- each from the said two companies. The AO was of the view that the pattern and frequency of deposits and withdrawals at short intervals of the said entities lends further credence to the fact that account had been used only for the purpose of providing accomm .....

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see. The AO treated the amount of ₹ 1,00,00,000/- as unexplained credit under the provisions of Section 68 of the Act and added the same to the income of the assessee. 5. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission which has been incorporated by the ld. CIT(A) at para 2.1 of the impugned order which read as under: "The appellant during the previous year relevant to the A.Y.2008-09 received the share application money from cert .....

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eceived from M/s Vidyut Marketing & Foods (I) ltd. but did not accept the share application money received from M/s Bhawani Portfolio Pvt. Ltd. & M/s Thar Steels Pvt. Ltd. in whose case the following documents were filed in support of the genuineness of the share application money received:- Particulars Bhawani Portfolio Pvt. Ltd. Page No. Thar Steel Pvt. Ltd. Page No. Audited copy of Balance sheet, PAL A/c for the year ended 3 1.03.2008 1-12 17-28 Confirmation for the investment in shar .....

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i, that the assessee company received accommodation entry of ₹ 50 lacs each from M/s Bhawani Portfolio Pvt. Ltd, and M/s Thar Steels Pvt. Ltd., and these two companies are managed by Shri Tarun Goyal who is an entry operator and indulged in giving accommodation entries. b) In para 5 of the assessment order the observations have been made as under by the Id. A.O.:- i) Bank accounts of M/s Bhawani Portfolio Pvt. Ltd. and M/s Thar Steels Pvt. Ltd. show lot of transactions in nature of funds t .....

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tatement given before the Investigation Wing has admitted that M/s Bhawani Portfolio Pvt. Ltd. and M/s Thar Steels Pvt. Ltd. have provided accommodation entries. Since the assessee company has received an amount of ₹ 50 lacs each from the said two companies whose credentials are shoddy, there is all the more reason to prove the credit worthiness, identity and capacity of the entire transaction. c) In para 6 of the assessment order the Id. A.O. has observed that the assessee has routed his .....

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em for verification of transactions. Hence the onus has not been discharged by the assessee. Before the abovementioned reasons for disallowance of Share Application Money of ₹ 100 lacs are rebutted, the appellant brings to your kind notice the following facts:- The Id. A.O. conducted an enquiry u/s 133(6) of the Income Tax Act, 1961 with all the share applicants during the assessment proceedings. The notices were duly served to M/s Bhawani Portfolio Pvt. Ltd. and M/s Thar Steels Pvt. Ltd. .....

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ry did not yield any negative report regarding the share application money. Further the Balance Sheets of M/s Bhawani Portfolio Pvt. Ltd. and M/s Thar Steels Pvt. Ltd. fetched from the Central Circle 4 only confirmed the investment by these two companies in the appellant company. The Id. A.O. ignored this very important piece of evidence. He did not consider it while framing the assessment. The result of such enquiry was not given any cognition while framing the assessment. The appellant inspect .....

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accordingly for drawing negative inference. The appellant believes that the intimation from Investigation Wing and the statement of Shri Tarun Goyal is not in the assessment record. The fact may be checked up. Further regarding share application money the provision of law and legal -pronouncements are discussed as under:- In the case of CIT vs. Sophia Finance Ltd. 205 ITR 98 (FB) (Del) it has been held that if the shareholders are identified and it is established that they have invested in mone .....

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has held that "the bank statement of the creditors obtained by the A.O. clearly showed that apart from making investment in the assessee company, those creditors made other deposits in their bank accounts and those accounts are regularly maintained. The creditors were also assessed of tax. Thus not only identity of creditor but even their capacity to advance funds has been proved on record. " The relevant portion from the judgment in the case of M/s Uma Polymers is reproduced as under .....

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information collected by the A.O. from the bank of the creditors, identity of the creditors was fully established. The creditors were also found to be assessed to tax. Thus, further investigation of the matter, in instant case, was not necessary. If any shareholder was found to have unexplained investment, then addition of such investment was required to be made in the hands of shareholders and not in the account of the assessee. Money advanced by the creditor did not belong to him but to somebo .....

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d held that the share capital of a limited company cannot be brought to tax as unexplained cash credit on the same footing as spurious loan can possibly be assessed. The observations of the Hon'ble High Court are "..... if the assessments of the persons who are alleged to have really advanced the money are sought to be reopened that would have made some sense but we fail to understand as to how this amount of increased share capital be assessed in the hands of the company itself. The De .....

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from alleged bogus shareholders whose names are given to the A.O. then the Department is free to proceed to reopen their individual assessments in the law but cannot be regarded as undisclosed income of the assessee company. The Lovely case has been followed in the following jurisdictional Hon'ble Delhi High Court judgments:- CIT vs. Victor Electrodes Ltd. 41-46 CIT vs. VRM Global Infrastructure Pvt. Ltd. 47-50 CIT vs. Ultra Tech Finance Investment Ltd. 51-54 CIT vs. Taruna Auto Pvt. Ltd. 55 .....

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hich creates doubts on the genuineness of the transaction relating to share application money and the shares allotted, onus is on the A.O. to prove it. As the appellant vide P.No. 1-36 has discharged its onus regarding genuineness, identity and credit worthiness of the subscribers of the shares, the onus was shifted to Id. A.O. These documents filed confirmed the correctness, genuineness and truthfulness of the transaction appellant had with the subscribers to the share capital and vindicated it .....

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the case. Now each and every observation of the Id. A.O. as mentioned above is rebutted as under:- a. On inspection of the assessment it has been noted that there is no letter/memo or information from the Investigation Wing of the Department New Delhi that Shri Tarun Goyal is an entry operator dealing through M/s Bhawani Portfolio Pvt. Ltd. and Thar Steels Pvt. Ltd. is in the assessment file. Further no statement of Shri Tarun Goyal as mentioned by the Ld. A.O. in the assessment order is in the .....

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lf since the transactions were through banking channels and through cheques. However the appellant further proved the genuineness of the transaction and credit worthiness of the share applicants. There was no onus on the appellant to prove the source of source of the transaction; as the Id. A.O. mentioned in the assessment order that the appellant failed to prove it, and this position of law has been made clear in Jay Iron & Steel Ltd. case by the hon'ble IT AT, New Delhi while quoting t .....

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t. Ltd. and Thar Steels Pvt. Ltd. and the alleged information from Investigation Wing and statement of Shri Tarun Goyal applied on the appellant. Even these Investigation Wing information and Shri Tarun Goyal statement are not in assessment file. All the inquiries conducted by the Id. A.O. only proved the genuineness of the share application money received by the appellant. c. The observation that the assessee routed his unaccounted money in books through share application money is without any f .....

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heet finding place in the paper book. Secondly, appellant had no onus to produce the parties as held by various courts as discussed above. Thirdly, the inquiries conducted by the Id. A.O. did not support the accommodation entry theory; rather it proved the genuineness of the share application money and truthfulness of the documents filed by the appellant in its support. Keeping in view the above discussion, it is requested that the addition of ₹ 100 lacs made on account of unexplained shar .....

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following reasons:- 1. In the Precision Finance Case the company accepted the unsecured loans from various persons, in the background of which the order was passed. However, in the appellant's case the issue is money received on account of share application money and these two situations cannot be equated because provisions of Companies Act 1956 lay down the specific procedure for allotment of shares which the appellant company has followed. The onus on assessee is different in the case of .....

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R 268 and has observed as mentioned in the synopsis on Pg no.268-269 as under:- In the case of a company the following are the propositions of law u/s 68. 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 undisputable channels, (3) the creditworthiness or financial strength of the creditor/subscriber (4) if relevant details of the address or PAN identity of th .....

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t up by the assessee nor should the A.O. take such repudiation at face value and construe it, without more, against the assessee and (7) The A.O. is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. In the case of a public issue, the 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 a .....

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annot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. Now let us see how the conditions laid down in Divine Leasing case are met by the appellant company:- a. Due to transactions through banking channels i.e. cheque the identity of the creditor and genuineness of the transactions has been proved. b. The copy of bank accounts proves the creditworthiness of the subscriber. The copy of the Profit & Loss account and the Balance Sheet of the sub .....

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notices. e. The Id. A. O. conducted the enquiries and such enquiries did not unearth any wrong or illegal dealing. As such the Id. A.O. could not adhere to the suspicion and treat the subscribed capital as the undisclosed income of the assessee. Further the large number of cases discussed in Ground No.2 applied in the appellant's case. All the cases cited are judgments passed by the jurisdictional Delhi HC, ITAT New Delhi and the Apex Court. As such the Id. A.O. misguided himself in believi .....

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of ₹ 100 lacs may kindly be deleted." 7. The ld. CIT(A) after considering the submissions of the assessee observed that there were number of judgments of the Hon ble Apex Court and the Hon ble Jurisdictional High Court that once a company established the identity of its share subscribers and they confirmed that they had invested in the share capital of the company, no addition u/s 68 of the Act could be made and the Revenue was free to reopen the assessment of the shareholders if thei .....

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nspector to Central Circle-IV to obtain balance sheets alongwith schedules of the aforesaid two companies which was complied with by the Income Tax Inspector on 08.12.2010 and the Balance Sheet so obtained reflected the investments made by those companies in the shares of the assessee company, but the aforesaid fact had not been discussed by the AO in his assessment order. The ld. CIT(A) categorically stated that the aforesaid two companies were filing their Income Tax Returns and the investment .....

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s 68 of the Act had relied upon information received from Investigation Wing of the department that those two companies were controlled by one Sh. Tarun Goyal who was engaged in providing accommodation entries and on the fact that those two parties were not produced by the assessee. The ld. CIT(A) referred to the judgment of the Hon ble Jurisdictional High Court in the case of CIT Vs Oasis Hospitalities Pvt. Ltd. dated 31.01.2011 wherein after analyzing the provisions of the Companies Act, Secti .....

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riber is a company then details in the form of resolution or PAN etc. can be furnished. She further observed that as regards to the genuineness of the transaction, the Hon ble High Court held that by showing that the assessee had in fact received money from the shareholder and the money came from the corpus from that very shareholder, the genuineness was duly established and when the money was received by cheque and was transacted through baking or undisputable channel, the genuineness of the tr .....

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bt about the veracity of those documents to prove the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspect, there has to be some reason and material for the AO and he cannot go into the realm of suspicion. The ld. CIT(A) observed that the assessee provided the requisite documents to prove the identity and capacity of the share subscriber and the genuineness of the transaction but the AO, other than relying on the information received from the Inves .....

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Ltd. 307 ITR 334 (Del) 8. Now the department is in appeal. The ld. DR strongly supported the order of the AO and reiterated the observations made by the AO. It was further submitted that mere filing of the Income Tax Returns is not sufficient to prove the creditworthiness and that the AO not only acted upon the information received from the Investigation Directorate but also discussed the case in detail and made the addition u/s 68 of the Act and that the onus cast upon the assessee was not disc .....

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s account for the year ended on 31.03.2008, confirmation letter for investment, copy of bank account of the investor and copy of Income Tax Returns for the assessment year 2008-09 of the investor, our attention was drawn towards page nos. 1 to 16 of the assessee s paper book. It was further submitted that the similar documents relating to M/s Thar Steels Pvt. Ltd. were furnished before the AO, the attention was drawn towards page nos. 17 to 36 of the assessee s paper book. It was contended that .....

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ctor of the department was deputed by the AO who made the inquiry on 08.12.2010 and obtained the relevant documents relating to the said companies from the Central Circle-IV which reflected the investigation made by those companies in the shares of the assessee. Therefore, the onus cast upon the assessee was discharged and the arbitrary addition made by the AO was rightly deleted by the ld. CIT(A). 10. We have considered the submissions of both the parties and carefully gone through the material .....

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d this fact in their respective balance sheet which is clear from page no. 8 of the assessee s paper book wherein the said investment has been mentioned in the Balance Sheet of M/s Bhavani Portfolio Pvt. Ltd. and page no. 24 of the assessee s paper book wherein the similar investment has been disclosed in the case M/s Thar Steels Pvt. Ltd. The investors also furnished the copies of their confirmation letters which are placed at page nos. 13 & 29 of the assessee s paper book, both the parties .....

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r Steels Pvt. Ltd. wherein the amounts have been debited in their respective bank accounts for the investment in M/s Ottoman Steel Tubes i.e. the assessee. Therefore, it is clear that the assessee discharged the onus cast upon it by furnishing the copies of balance sheets of the investors wherein they have disclosed the investment in the shares of the assessee, copies of their bank accounts disclosing this fact that the investments were made through cheques which proved their creditworthiness, s .....

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the addresses mentioned in their confirmation. The AO merely on the basis of the report of the Investigation Wing presumed that the investors were the entry operator. On the contrary, the assessee furnished all the evidences to prove the identity of the investors their creditworthiness and the genuineness of the transactions. It was also noticed that the AO received the information in respect of three companies i.e. M/s Bhavani Portfolio Pvt. Ltd., M/s Tejasvi Investments Pvt. Ltd. and M/s Thar .....

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