TMI Blog2016 (11) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... rong or illegal dealing, therefore, he cannot obdurately adhere to his suspicion and treat the subscribed capital as undisclosed income of the assessee. The Department would not be justified in drawing and adverse inference only because the creditor/subscribers fails or neglect to respond to its notices - Decided in favour of assessee - ITA No.6365/Mum/2011 - - - Dated:- 7-9-2016 - Shri Joginder Singh, Judicial Member, and Shri Rajesh Kumar, Accountant Member For The Assessee : Shri Hari Raheja For The Revenue : Shri A. Ramachandran-DR ORDER Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 02/08/2011 of the Ld. First Appellate Authority, Mumbai, confirming the addition of ₹ 78 lakh on account of share application money received by the assessee and treated as unexplained cash credit u/s 68 of the Income Tax Act, 1961 (hereinafter the Act). 2. During hearing of this appeal, Shri Hari Raheja, ld. counsel for the assessee, explained that confirmations were filed by the assessee and has no direct relation with Swan Securities, the Directors are not common, the reserves are to the tune of ₹ 1.46 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was affirmed. Now the assessee is in appeal before this Tribunal. 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts discussed hereinabove, as per the provision of 68 of the Act, the assessee has to prove the identity of the share applicant, genuineness of the credit and source thereof. The first and foremost requirement of section 68 of the Act is that the assessee has to prove that the share applicants are existing. In the assessment order, it has been clearly mentioned that pursuant to the summons issued u/s 131 of the Act, nobody attended the proceedings. Meaning thereby, the summons were not returned unserved by the postal authorities, therefore, it can be said that such summons were duly received by the share applicants and they exist. The Hon'ble Delhi High Court in CIT vs Devine Leasing and Finance Ltd.(supra) held that burden of proof can seldom be discharged to the hilt by the assessee. If the Assessing Officer harbours doubts of the legitimacy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and which is capable of being given effect to. Indeed, this precedent contains a comprehensive and erudite discussion on the question of merger of assailed judgments/orders into the decision of the Appellate Court, and with humility, we commend its careful reading. The views of the Supreme Court have been assimilated from a plethora of precedents on this aspect of the law. What should not be lost sight of is the reality that the ITAT actively considers disputes pertaining to the facts as well as to the interpretation of the law. When the High Court dismisses an Appeal filed under Section 260A of the Act it does not ignore the factual matrix pertaining to the particular assessed; and it also does not interpret the law in abstraction or in its generality. If the High Court considers it necessary to speak broadly on the law it invariably frames a substantial question of law and thereafter decides it by a judgment in contradistinction to an order. The question before the Bench in Nirma Industries was whether the ITAT could assume a question being open to discussion despite the fact that the High Court had declined to admit the Appeal on that question in respect of that assessed, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mapped and channeled by larger Benches. 6. We find it indeed remarkable that the attention of the Sophia Finance Full Bench had not been drawn to the decision of the Supreme Court in C.I.T. Orissa v. Orissa Corporation Pvt. Ltd. (, which if cited would really have left no alternative to the Full Bench but to arrive at the conclusion it did. The Books of Accounts of the assessed contained three cash credits aggregating ₹ 1,50,000/- allegedly received as loans from three individual creditors under Hundis. Letters of confirmation as well as the discharged hundis were produced; but notices/summons sent to them remained unserved because they had reportedly `left that address. The view of the Tribunal was that merely because the assessed could not produce these three parties, there was nevertheless no justification to draw an adverse inference. This approach as accorded approval by the Supreme Court in these words: In this case, the assessed had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assesses. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inference being drawn against the assesses. The Court also kept in perspective the fact that the documentation had also been produced by the assessed. It is obvious that the Supreme Court considered that in these circumstances the onus of proof had been discharged by the assessed. It is also palpable that the Supreme Court was of the further opinion that the Department had not discharged the burden of proof that had shifted to it, since it did nothing more than issue notices under Section 131 of the IT Act. Therefore, the Department ought to have made efforts to pursue these notices/creditors to determine their creditworthiness. These observations sound the death-knell for the contentions raised on behalf of the Department in the present batch of Appeals. 8. Justice B.N. Kirpal (as the learned Chief Justice of India then was) had authored the Order/Judgment both in Stellar Investment and in Sophia Finance. Justice Kirpal's extraordinary experience as the Advocate for the Revenue spanning two decades, and the platitude of precedents established by him in this realm of law may be paralleled only by his Lordship D.K. Jain and in this respect their Judgments can be viewed as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons.... If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if the assessed offers no explanation at all or the explanation offered is not satisfactory then, the provisions of Section 68 may be invoked. It will at once become obvious that the Court had not reflected upon the question of whether the burden of proof rested entirely on the assessed, and at which point, if any, this burden could justifiably be shifted to the Assessing Officer. The Full Bench in fact clarified that they were not deciding as to whom and to what extent is the onus to show that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend on the facts of each case. It has been argued, but without substance, that the Full bench did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iously because an assessed can scarcely be heard to say that he does not know all particulars pertaining to the donor. Thereafter, the same dialectic lead the Bench to arrive at the opposite conclusion inCommissioner of Income-Tax v. R.S. Sibal (2003) 269 ITR 429 (Del). In C.I.T. v. Makhani Tyagi (P) Ltd. this Court has not given its imprimatur to the inaction of the AO in doing nothing further after the issuance of summons under Section 131 of the Income-Tax Act. It did not condone the AO, failing to issue coercive process, and in this manner attempting incorrectly to shift the burden on the assessed to establish the ligitimacy of the transaction. In Commissioner of Income-Tax v. Antarctica Investment Pvt. Ltd. (2002) 262 ITR 493 (Del) the Court was satisfied that no interference was justified since the assessed had produced the Share Application Forms along with confirmation letters and copies of their Accounts, copies of their Bank Accounts of cheque payments and their Auditor's Report. The Assessing Officer's conclusion that the genuineness of the transaction had not been made good was not upheld. This conclusion was reached despite the fact that notices received by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessed in whose books of account a credit was found. GIR number of the creditor was supplied, and it appears that he had confessed that this transaction was not genuine. The High Court did not act on the confession since it had not been made available to the assessed. The Bench observed that since the correct name and address, and the GIR number of the creditor had been supplied by the assessed the initial onus under Section 68of the Income Tax Act had been completely discharged by the assessed. It would not be sanguine to conceive of a possibility of a genuine contributor abandoning his investment for diverse reasons. That would not lead to the conclusion that the assessed is automatically guilty of attempt of converting its income into capital. 15. In Bharati Pvt. Ltd. v. Commissioner of Income-Tax, West Bengal-I, Calcutta where notices to these alleged creditors had come back unserved, the Division Bench affirmed that the mere filing of confirmatory letters by the assessed did not discharge the onus that lay on the assessed. Different Division Benches of the same High Court have opined that the assessed must prove (a) the identity, (b) the capacity of the credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng propositions of law in the context of Section 68 of the IT Act. The assessed 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 address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Appeal of the Revenue in respect of Assessment Years 1984-1985 and 1986-87 was rejected on 4-9- 2003 by the ITAT Bench comprising Shri R.M.Mehta and Shri Ram Bahadur. With regard to the in between Assessment Year 1985- 1986 another Bench comprising Shri H.L.Karwa and Shri B.R.Jain dismissed the Revenue's appeal on 12.8.2005. 19. As would be evident from a perusal of the Table (supra) for the Assessment Year 1984-85 the assessed had filed a Return declaring a loss of ₹ 25,090/- and consequent upon the addition of ₹ 9,53,500/- made under Section 68 the assessment was made on this sum. The ITAT noted that the assessed was a Public Limited Company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of the Securities Contract Regulation Act, 1956 as also the Rules Regulations of the Delhi Stock Exchange. Complete details appear to have been furnished. The ITAT has further recorded that the AO had not brought any positive material or evidence which would indicate that the shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee Building, Nam Nang Road, Gangtok. All of them had replied to the Department asking for further time to provide details. The CIT (A) has noted that (a) the stridently adverse findings of the AO at Calcutta had been struck down in Appeal; (b) Notices under Section 143(6) of the IT Act sent to the five Companies were replied to by them; (c) these Companies were duly incorporated under the Sikkimese Companies Act; (d) Assessment of these Companies had been framed under the Sikkimese Taxation Manual; (e) their share subscriptions or capital were received through Banking channels. The CIT(A) deleted the addition for the reason that the identity of the shareholders had been established on the strength of Steller Investment, which approach may not be entirely correct in the light of the discussion above. We have already concluded that this merely shifts the burden of proving the illegal or illegitimate nature of the transaction onto the Department. The investigations carried out by the AO in Calcutta cannot be relied upon by the AO Bulandsharar consequent on those proceedings being found to be without jurisdiction. While rejecting the assault of the Revenue on this aspect the ITAT has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary details such as PAN No./Income-tax Ward No./ration card of the share applicants and some of them are assessed to tax. The share application money has been received through banking channel. In some case, the confirmations/affidavits of share applicants containing the above detail were also filed. It is seen that the AO did not carry out any inquiry into the income tax record of the persons who have given the PAN No./Ward No. in order to ascertain the non-existence of the share applicants in question. The AO has neither controverter nor disapproved the material filed by the assessed. In the case of CIT v. Makhni tyagi (P) Ltd. reported in 267 ITR 433(Del), the jurisdictional High Court has held that when the documentary evidence was placed on record to prove the identity of all the shareholders including their PAN/GIR numbers and filing of other documentary evidence in the form of ration card etc. which had neither been controverter nor disapproved by the AO, no interference was called for. The Tribunal was justified in deleting the addition. The AO proceeded to make the impugned addition on the ground that in some case some summons issued were returned unserved and in some ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available deciding various facets of this issue and the principles which are to be applied have almost been crystallized and pumped up by the series of decisions of the apex Court and various High Courts, the issue keeps bouncing back with new dimensions and intricacies. In all these appeals, we are again confronted with the additions which were made by the AO under s. 68 of the Act. All these appeals, which pertain to different assessees, are filed by the Revenue as the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') has deleted the additions made by the AO. 2. Before we embark upon the discussion on factual aspects, in the appeals, which prompted the AOs to make the additions, it would be appropriate to revisit the legal position as enunciated in various judgments interpreting the provisions of s. 68/69 of the Act. We may record that this very Bench had the occasion to deal with another batch of appeals touching upon this very issue, which culminated into judgment dt. 31st Jan., 2011 with lead case entitled CIT vs. Oasis Hospitalities (P) Ltd. (2011) 238 CTR (Del) 402 : (2011) 51 DTR (Del) 74 : (2011) 333 ITR 119 (Del). As catena of judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account of the assessee. If the AO doubts the genuineness of the investors, who had purportedly subscribed to the share capital, the AO may ask the assessee to explain the nature and source of those sums received by the assessee on account of share capital. It is in this scenario, the question arises about the genuineness of transactions. The plain language of s. 68 of the Act suggests that when the assessee is to give satisfactory explanation, burden of proof is on the assessee to provide nature and source of those receipts. 6. What kind of proof is to be furnished by the assessee, is the question. It has come up for discussion in various judgments rendered by this Court, other Courts as well as the Supreme Court. The law was discussed by a Division Bench of this Court in the case of CIT vs. Divine Leasing Finance Ltd. (2007) 207 CTR (Del) 38 : (2008) 299 ITR 268 (Del). Since the entire gamut of case law as on that date was visited in the said judgment, we may initiate our discussion by taking note of this case. In this case, the Court highlighted the menace of conversion of unaccounted money through the masquerade or such channels of investment in the share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the names of nonexisting persons. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of s. 68 may be invoked. 8. The Court also referred to the earlier Division Bench judgment in the case of CIT vs. Dolphin Canpack Ltd. (2006) 204 CTR (Del) 50 : (2006) 283 ITR 190 (Del) and quoted the following observation : . . . credit entry relates to the issue of share capital, the ITO is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the AO in the present case. In the course of the said inquiry, the assessee had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PANs issued by the IT Department. Super added to all this was the fact that the amount receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment . 11. It is clear from the above that the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove : (a) Identity of shareholder; (b) Genuineness of transaction; and (c) Creditworthiness of shareholders. 12. In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the AO to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc. can be furnished. 13. Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers from that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that summons issues to the investors were returned back with the endorsement 'not traceable'. Same view is taken by the Karnataka High Court in Madhuri Investments (P) Ltd. vs. Asstt. CIT (in IT Appeal No. 110 of 2004, decided on 18th Feb., 2006). In this case also, some of share applicants did not appear and notices sent to them were returned with remarks 'with no such person'. Addition was made on that basis which was turned down by the High Court in the following words : 6. Having heard the learned counsel for the parties, we notice that whenever a company invites applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genuinenity of the applicants before allotting the shares. If for any reason the address given in the application were to be incorrect or for any reason if the said applicants have changes their residence or the notices sent by the AO has not been received by such applicants, the assessee company cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the Revenue only relying upon the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare application money, no presumption can be drawn that same belong to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown from asssessee's own money. In coming to this conclusion, the Court relied on CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40, which has since been affirmed by the Supreme Court in CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287. In view thereof, this question need not be decided again. 19. This very aspect came up for consideration before different Courts on number of occasions and was dealt with in favour of the assessee. 20. The observations of the Supreme Court in the case of Lovely Exports (supra) go to suggest that the Department is free to proceed to reopen the individual assessment in case of alleged bogus shareholders in accordance with law and, thus, not remediless. It is, thus, for the AO to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f s. 68 of the Act suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged o income-tax as the income of the assessee of that previous year. The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders The manner in which such a burden is to be discharged has been explained in various judgments and noted by us above. At the same time, it is also well established principle of law that in any matter, the onus brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either furnishing PANs or copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the assessee [sic-Revenue] The question which assumes importance at this stage is as to what the Revenue is supposed to do to dislodge the initial burden discharged by the assessee and to throw the ball again in the assessee's court demanding the assessee to give some more proofs, as the documents produced earlier by the assessee either become suspect or are rendered insufficient in view of the material produced by the Department rebutting the assessee's documentary evidence. This is the aspect wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the ITO may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere namelender or not. Be that as it may, it is clear that the ITO 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 s. 68 indicates that the said section is very widely worded and an ITO 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. ..On the basis of the language used under s. 68 and the various decisions of different High Courts and the apex Court, the only conclusion which could be arrived at is : (i) that there is no distinction between the cash credit entry existing in the books of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. [See Parimisetti Seetharamamma vs. CIT (1965) 57 ITR 532 (SC) at p. 536]. But, in view of s. 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz. the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. ..This raises the question whether the apparent can be considered as the real. As laid down by this Court the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had received share application money of ₹ 2.74 crores from various applicants. The assessee filed details of all the share applicants and the amounts received along with their confirmation and copies of the bank accounts of such investors from as many as 32 share applicants. All these applicants were private limited companies. The AO was of the opinion that the creditors were not genuine parties and were only entry providers. He referred to the report dt. 2nd March, 2006 of the Directorate of IT (Inv.), Unit-V, New Delhi in this behalf. He issued detailed questionnaire on 9th Nov., 2006 wherein he also gave specific reasons in respect of each of the applicant which was of the following nature : (i) In the bank accounts of the various share applicants, they had deposited cash for specific purpose for applying for shares in addition to providing entry to the assessee, the same modus was adopted in the other cases as well. (ii) Many companies did not exist at the addresses furnished. The registered letters sent to them had been received back undelivered. (iii) There were reports of the Inspectors (IT) that many parties were not genuine assessees and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits in the accounts of such applicants were shown to have been received by way of transfer of funds to them but when such statements were requisitioned directly from the banks under s. 133(6) of the IT Act, it was discovered that cash had been deposited in the accounts of the share applicants before being transferred to the account of the assessee company. This anomaly is almost universal except in a few cases where transfer entries have been rotated. In certain other cases both cash has been deposited and entries rotated. The claim of the assessee that he was unaware of this state of affairs is much too difficult to digest. In the light of this fact, other contentions of the assessee company in its representation dt. 17th Nov., 2006 become redundant. The claim of the assessee company of its inability to produce the shareholders physically is hollow because no such shareholder exists to be physically present for any deposition. 31. We have taken note of the aforesaid assessment order in detail as the entire argument of the learned counsel for the Revenue was backed by and based upon the reasons given by the learned AO(s). In support thereof, Mr. N.P. Sahni, learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In these circumstances, respectfully following the decision of the Hon'ble jurisdictional High Court as also Hon'ble Supreme Court referred to supra the addition made by the AO and as confirmed by the learned CIT(A) in regard to the alleged bogus shareholders represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. However, respectfully following the decision of the Hon'ble Court referred to supra, it is directed that the Department is free to proceed to reopen the individual assessment of such alleged bogus shareholders. The direction is being given under s. 151(1) r/w s. 153(3) of the IT Act. 33. What does follow from the aforesaid ? It is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmations from the share applicants; bank accounts details; shown payments through account payee cheques, etc. As stated by us in the beginning, with these documents, it can be said that the assessee has discharged its initial onus. With the registration of the companies, its identity stands established, the applicant companies were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out above, these applicant companies have PANs and assessed income tax No effort was made to examine as to whether these companies were filing the IT returns and if they were filing the same, then what kind of returns these companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction AO wanted to go. Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and/or companies were also bogus and were treated for namesake. We say so with more emphasis because of the reason that normally such kind of presumption against the assessee cannot be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here to his suspicions and treat the subscribed capital as the undisclosed income of the company. (Emphasis, italicised in print, supplied) 38. Even in the instant case, it is projected by the Revenue that the Directorate of IT (Inv.) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. Bu it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks (sic companies) and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 39. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of ss. 68 and 69 of the Act. On the on hand, one doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in question has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 68 was not sustainable. 2.6. While coming to aforesaid conclusion, the Hon'ble High Court duly considered the decision in Sarthak Securities Company Pvt. Ltd. vs Income Tax Officer (2010) 236 CTR (Del.) 362, CIT vs S.F.I.L Stock Broking Ltd. (2010) 233 CTR (Del.) 69 and Signature Hotels Pvt. Ltd. vs Income Tax Officer (2011) 60 DTR 30 (Del.). The following cases were also considered by Hon'ble High Court:- i. Addl. CIT vs. Bahri Brothers (P) Ltd. (1984) 42 CTR (Pat) 66: (1985) 154 ITR 244 (Pat) ii. CIT vs. Genesis Commet (P) Ltd. iii. CIT vs. Korlay Trading Co. Ltd. (1999) 152 CTR (Cal) 17: (1998) 232 ITR 820 (Cal) iv. CIT vs. Kundan Investment Ltd. (2003) 182 CTR (Cal) 608: (2003) 263 ITR 626 (Cal) v. CIT vs. Mather Platt (India) Ltd. (1987) 62 CTR (Cal) 231 : (1987) 168 ITR 493 (Cal) vi. CIT vs. Oasis Hospitalities (P) Ltd. (2011) 238 CTR (Del) 402: (2011) 51 DTR (Del) 74: (2011) 333 ITR 119 (Del) vii. CIT vs. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138: (1986) 159 ITR 78 (SC) viii. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30: (2007) 291 ITR 500 (SC) ix. CIT vs. Rathi Finlease Ltd. (2008) 215 CTR (MP) 429 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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