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Saanika Industries Pvt. Ltd. Versus ACIT, Circle-4, Surat

2017 (3) TMI 206 - ITAT AHMEDABAD

Addition u/s 68 - addition as share capital receiver from shell/paper company - Held that:- As regards Cap Vanijya (P) Ltd. revenue is believed to prove that the activities undertaken by the alleged company are not meeting commercial prudence and the working of this company is merely to provide accommodation entries. Against the counter evidence of the Department proving the company to be a paper company, assessee miserably failed to bring any strong evidence to justify its plea of genuineness a .....

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the file of Assessing Officer for making further investigation with the help of well equipped Govt. machinery and the power to make commission to the counter part in the city where the alleged companies are existing so as to substantiate its plea that the alleged two companies are paper companies and also to find out the actual modus operandi of these companies qua investments in share capitals of other companies qua their business operation qua the income earned during the year. Needless to me .....

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r 2011-12 is directed against the order of ld. Commissioner of Income Tax(A)-II, Surat, dated 03/12/2015 vide appeal no.CAS/II/104/2014-15 arising out of order u/s 143(3) of the Income-tax Act, 1961 (in short the Act) framed on 29.04.2014 by ACIT-4, Surat. Following grounds have been raised by assessee :- (I) Addition of ₹ 61,00,000 u/s.68: (1) On the facts and circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in confirming the addition of  .....

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ted evidence), there was no justification for confirming the addition by the learned Commissioner of Income-tax (Appeals). (4) The appellant further submits that if at all the department felt that the investing companies were bogus companies, the proceedings should have been initiated against those companies as held by Supreme Court in case of Lovely Export Pvt. Ltd. (216-CTR-195). (5) The appellant further submits that the learned Commissioner of Income-tax (Appeals) has applied law which came .....

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laring total income of ₹ 4,60,61,110/-. Case was selected for scrutiny assessment and notice u/s 143(2) of the Act dated 31.07.2012 followed by notice u/s 142(1) of the Act along with questionnaire was duly issued and served upon the assessee. Gross turnover of the Company for the Asst. Year 2011-12 stood at ₹ 189.98 crores. During the course of assessment proceedings ld. Assessing Officer observed that assessee had received share capital and share premium from various persons includ .....

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nijya Pvt. Ltd. 14-C, 4th Floor, Maharshi Devendra Road, Kolkata-700007. AABCC3989 30000 150000 3 Sadashukh Dealers Pvt. Ltd. 6-A, Raja Subodh Malik Squire, Kolkata- 18 AAKCS9420P 500000 200000 3. Notices u/s 133(6) of the Act were issued to the above three parties which were duly served. Necessary details including addresses, PAN, bank statements, income-tax return, audited balance sheets and confirmations of accounts were placed on record by the assessee. During assessment proceedings ld. Asse .....

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companies are actually controlled by him and the companies are paper/shell companies. Mr. Manohar Lal Nangalia also categorically accepted that Cap Vanijya (P) Ltd. is a paper/shell company amongst others. Ld. Assessing Officer on the basis of these statements examined the balance sheets and profit and loss accounts and observed that a common modus operandi was followed by alleged three companies which were having no fixed assets, meager income vis-à-vis the share capital and premium. In .....

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that these companies are just acting as a conduit of funds with no real business and accordingly made an addition of ₹ 61,00,000/- u/s 68 of the Act towards unexplained cash credit of the alleged three companies. 3.1. Aggrieved, assessee went in appeal before ld. Commissioner of Income Tax(A) by making sincere efforts to convince ld. Commissioner of Income Tax(A) that assessee company is having a huge turnover, regular business activities, premium charged on share capital are genuinely ca .....

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icer making addition u/s 68 of the Act at ₹ 61,00,000/- by observing as follows :- DECISION 6.1.1 I have considered the assessment order as well as the submissions of the appellant. The Grounds of appeal- Ground No. 1 pertains to the assessing officer made addition of ₹ 61,00,000/- u/s 68 as he was not satisfied about the explanation/evidence furnished. The AO found that the appellant had received share capital at premium amounting to ₹ 61,00,000/- from 3 companies of Kolkata. .....

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#39;,00,000/- was considered to be unexplained cash credit and added to the income of the appellant. The appellant submitted that these 3 companies are having PAN, have shown investments in the balance sheets, have filed confirmations before the AO, assessed to tax etc. which shows the existence of these companies and genuineness of the transactions. 6.1,2 During the appellate proceedings, the appellant was issued a query letter dated 20.07.2015 which is as under "On the perusal of the deta .....

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eof. In case the details are not furnished then the only inference that could be drawn was that no such consultation took place, the rate of premium was fixed unilaterally by the appellant without any reference point to past records, present earnings or future prospects. (ii) The Central Government had notified the Unlisted Public Companies (Preferential Allotment) Rules, 2003 which apply to issue- of shares on preferential basis and/or through private placement by a company in pursuance of a re .....

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rms completed? A. How prices of shares determined, how and where negotiation have been done. Basis of fixing share premium- all documents of meeting/advice/consultant advice, B. How the appellant came in contact with investor, where they met, how they met, and how well they know each other. Is there any business/personal relation with investing party directly or indirectly? C. Copies of all communications entered with all prospective investors including calling for investment, applications, inst .....

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he shares were allotted and sent to the parties? (vi) Whether any dividend was declared to its investors or not? (vii) The attendance register for the AGM held is to be produced alongwith the relevant proxy authorization forms and any proof of communication to the share holders in regard to the con vening of the AGM ore ven for the dispatch of the share certificates;" 6.1.3 In response to the query letter the appellant submitted a reply dated 3.08.2015 wherein its submitted as following Ms .....

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es of Reserves which includes balance of profit and loss account, the total of free reserves would be ₹ 7,89,07,684 on 31-03-2011 and ₹ 4,63,15,761 on 31-03-2010. Further, the profits have been continuously rising as profits were ₹ 1,83,07,723 for year ending 31-03-2010 and ₹ 3,25,91,923 for year ending 31-03-2011. In this background the share premium ofRs.50 lacs on shares issued to Cap Vanijya Pvt. Ltd., Newjet Trexim Pvt. Ltd., and Sadasukh Dealers Pvt. Ltd. against is .....

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00. Thus, you wil! find that share premium was rightly collected as per the intrinsic worth and the profitability of the company. You will also note that premium at same rate was collected from family, members and associate concerns. This would take care of your query, I may further point out that out of the three companies, Sadasukh Dealers Pvt. Ltd. is now registered at Ahmedabad and both its directors reside at Surat and known to the directors since last two decades. As it is directors of the .....

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nd his brothers had settled at Tinsukhia, Assam and were doing business at Tinsukhia. The family of Shri Omprakash Agarwal and his sons shifted from Tinsukhia to Surat and his younger brother Shri Gajanand Agrawal shifted from Tinsukhia to Kolkata and had contacts in Koikata. The parties and Shri Gajanand Agarwal knew each other and after negotiation the amount was received. The mode of communication with persons for private placement was telecommunication/verbal communication. The private place .....

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e proceedings dated 15.09.2015, wherein the appellant was directed to file the following details "On the perusal of the details on record, filed during the course of the assessment and appellate proceedings, certain issues need further clarifications. You are required to submit your explanation/clarification on the queries raised as following: (i) When was the execution of the share application forms completed? (ii) Is there any business/personal relation with investing party directly or in .....

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e was any instrument of communication with details of company profile, valuation of shares. Produce the copy of the share application alongwith the original share application (one application for sample) (iv) When were the share applications received, and the shares were allotted and sent to the parties? Share Application - when and where printed, no. of shares printed, bill of such expenses, whether such claims were part of profit and loss account. (v) Delivery of share certificates - mode, dat .....

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ng of the AGM or even for the dispatch of the share certificates. (ix) What was the application of the share application/premium money? What purpose was this amount spent? (x)-Produce the copy of the bank statement in which the share application money has been credited. (xi)The list of Directors of the Company in AY 2009-10 to 2012-13 is to be provided. Whether any of the Directors of the appellant company were Directors of the 3 companies of Kolkata from whom share premium has been taken during .....

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business associates of directors as also of company. Directors of the investing company Sadasukh Dealers Pvt. Ltd. and of the appellant have been known to each other since last two decades since directors of the investing company and that of the appellant stay in Surat. The other investing parties viz. Newjet Trexim Pvt. Ltd. and Cap Vanijaya Pvt. Ltd. have been known to Mr.Gajanand Agarwal, who is younger brother of directors of the appellant company. In Para 3, you have required information/d .....

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gards decision of premium and negotiation, thereof this was based on intrinsic worth of the company. Copy of audited accounts for 37s' March, 2011 is enclosed. The significant aspects therein are brought to your notice. 31-3-2011 31-3-2010 Share capita! (This is because of infusion of two lacs New shares ofRs. 10 each during 31-03-2011.) 1,98,47,500 1,78,47,500 General reserve 4,40,00,000 3,40,00,000 Profit & Loss a/c. balance 3,49,07,684 1,23,15,761 If you consider the figures of Reserv .....

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,000 shares was eminently reasonable. It would be pertinent to point out that during this year, 90,000 shares were issued to family members and associate concerns from whom also similar amount of share premium was collected. This is reflected in the returns of allotment. (d) Share certificates were personally handed over and there was no correspondence about dividend or any other matter. (e) As mentioned earlier, the mode of communication/contact with the investors and evidence of how offer was .....

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re would be no bill for such expenses. In fact, only three share applications came from outsiders and such expenses would be nominal. As regards number of shares certificates printed, 500 shares were printed in 2007 by Rushabh Traders and their bill No.280 dt.14-05-2007 is enclosed (page 23- 25). The payments were debited in that year and copies of related accounts are also enclosed (page 26-28). • Shares were delivered personally and one certificate for sample is produced (page 29-37). &bu .....

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s to of which AGM the attendance register is called. However, attendance register held on 28-09-2010 and 30-09-2011 are enclosed (page 43-48). There was no question of proxy authorization as nobody had given proxy. • The share application/premium money were invested in expansion of the company's business. The company had availed loan from Bank of Baroda and Bank of Baroda laid out several conditions including bringing additional share capital and for the evidence thereof they required c .....

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of the two companies of Kolkata and one company ofsurat from which share premium has been taken during the above period." 6.1.6 On the perusal of the details, it is observed that the appellant had received share capital of ₹ 11,00,000;- and share premium of Rs, 50,00,000;- during the year from 3 companies of Kolkata. The AO issued notices u/s 133(6) of the Act on the given addresses out of which the notice issued to Sadasukh Dealers Pvt. Ltd. was returned back unserved. The AO issued .....

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recorded on 16/01/2014 wherein he stated that the companies in which he is director including M/s Cap Vanijya Pvt. Ltd. is controlled by Shri Manohar Lai Nangalia. Subsequently, the statement on oath of Shri Manohar La! Nangaiia was also recorded on 17/01/2014, wherein he submitted that the companies are actually controlled by him and these companies are paper/shell companies. In the statement on oath, Shri Manohar Lal Nangalia in reply to his question no. 8 had categorically stated as under : .....

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lant in the books. 6.1.7 The AO found on the examination of the various details furnished by the appellant in each of the case, which are briefly enumerated as following: Sadasukh Dealers Pvt. Ltd. fSDPL) • No fixed assets as per the balance sheet • The total turnover as per P&L account from consultancy is Rs. 28,9451- • The appellant only source of income is from consultancy of ₹ 841/- in AY 2011-12 as per return of income filed on 26.09.2011 on which the appellant has .....

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been transferred to other companies in form of investment/loans. . • The bank account statement shows meager balances being maintained. Assessment Year Fixed Assets as on 31st March Interest Income/Turnover Accumulated profit Share capital & premium 2010-11 NIL 9,14,868 2,423 2,42,50,000 2011-12 NIL 13,07,459 3,004 2,42,50,000 Newlet Trexim Pvt. Ltd. (NTPL) No details of nature of business given No fixed assets as per the balance sheet, . . The company was incorporated in the year 1999 .....

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ge to note that the company has no activity and no source of income except interest income but still the expenses incurred towards operation and administration expenses is of ₹ 14.99.526/- No rental payment shows for its registered office premises Though no rental payment has been shown but the total electricity expenses claimed is of ₹ 500/- only for the whole year out of the total expenses of ₹ 14,99,526/-.The electricity bills never come in round figures and cannot be of suc .....

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nijya Pvt. Ltd. (CVPL) No fixed assets as per the balance sheet, The company was incorporated in the year 2000 and has shown meager accumulated profits of ₹ 21,367/- in AY 2010-11 and ₹ 25,1 Ml- in AY2011- 12. The appellant only source of income is from interest and income shown in ITR is of ₹ 6.782/- in AY 2011 -12 as per return of income filed on 27,09.2011. The appellant only source of income is from interest of ₹ 17,00,594/- on which the appellant has claimed salary/w .....

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r balances being .maintained Assessment Year Fixed Assets as on 31 * March Interest Income/Turnover Accumulated profit Share capital & premium 2010-11 NIL 19,43,641 21,367 36,86,51,200 2011-12 NIL 17,00,594 25,117 36,86,51,200 6.1.8 During the appellate proceedings, the appellant was asked to furnish the details regarding that how he came into contact with these 3 companies, where they met, how they met, copies of all communications entered with all prospective investors including calling fo .....

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mit any documentary evidence regarding the correspondence made with the lenders for the investments is share capital. Not a single piece of paper or email could be furnished as a proof of the discussions for share capital along with the terms and conditions, paper work etc. It is important to point out that these 3 companies had never made any transactions earlier with the appellant company which could explain the conduct of them lenders in investment in share capital. 6.1.9 The 3 parties were n .....

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immediately two or three days before or on the same day in the bank accounts of the share holders and that amount of deposit was utilized for investment in the share premium/share capital. During the assessment proceedings, the AO carried out an analysis of the Bank Statements discussed at r=:a 5.20 Page 11 of assessment order, which revealed that money was getting credited in these accounts and on the same day or next day the amount was being debited through transfer/withdrawals by clearing/RTG .....

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the lenders and that amount of deposit was utilized for investment in share capital/loans. 6.1.10. The details of the working of the valuation of the shares were asked to be submitted. The appellant submitted in his reply dated 03.08.2015 that there was no mechanism prescribed for calculation of premium on shares of Pvt. Ltd. Companies during AY 2011-12. It was entirely a matter between the company and the subscribers to share and premium has been fixed on the basis of the intrinsic worth of the .....

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ng the premium at a realistic level but to bring in large amounts of unaccounted funds in the guise of share premium. The net worth as disclosed by the balance sheet, the potential earnings as disclosed by earnings per share or even the vague protestations of future prospects would not justify a high premium. 6.1.11. it was also noticed on the verification of the return of income filed by these persons/share holders, that they all have meager means of income with no capacity to be able to invest .....

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t. Ltd. namely Shri Anjani Banka was summoned u/s 131 of the Act by Investigation Wing, Kolkata and the statement was recorded wherein he stated that the companies in which he is director including M/s Cap Vanijya Pvt. Ltd. is controlled by Shri Manohar Lal Nangalia. Subsequently, the statement on oath of Shri Manohar Lal Nangalia was also recorded wherein he submitted that the companies are actually controlled by him and these companies are 'paper/shell companies'. Thereafter, the appel .....

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xisting, it cannot be said that the amount received by the assessee is proved to be towards share capital. The transaction cannot be proved merely on paper. Therefore, when the identity of the person itself is not proved, the amount received by the assessee cannot be considered to be genuinely received. Similar view has been expressed in the case of Amtrac Automotive India (P.) Ltd. ITRfTRIB.) 649 (DELHI) 2010] and 1 ITRfTRIB.) 529 (DELHI) Dhingra Global Credence (P.) Ltd. 6.2.1 Before going int .....

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d the lender company is only a conduit for routing the money back to the books of account of that person. However, despite having knowledge of this fact and knowing the techniques and methods used by the taxpayers for this purpose, it remains a huge challenge for the tax authorities to bring all material facts and evidences on record so as to prove which in his opinion is a fact, beyond doubt. In an economy where unaccounted income is a big menace, there are always efforts made by the tax evader .....

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the most organized one to bring the unaccounted money back to the books of account without paying any tax on the same. 6.2.2 The method of providing accommodation entry entails breaking up large amounts of money into smaller, less-suspicious amounts. This smaller amount has to be below ₹ 50.000/-as'deposit of cash below this amount does not require providing PAN of the depositors. The money is then deposited into one or more bank accounts either by multiple people or by a single perso .....

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dividuals who are mostly illiterate or semiliterate and work for the entry operators for small salaries or commission. At first sight, most of these companies would pass of as finance, investment or technology companies. But as the entry operators have admitted in large number of cases that these are only paper companies used to route the unaccounted income and, at the same time, clean hoards of unaccounted income for their clients. These companies used for routing the unaccounted money are basi .....

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een exposed from time to time through search and seizure operations by the department, such entry operators controls hundreds of bank accounts for depositing cash and hundreds of companies for routing the entries. Limited resource and infrastructure of the Registrar of Companies (ROC) perhaps makes it easier for them to incorporate large number of such paper companies without any difficulty. The process, prima facie, may appear very simple but it is extremely difficult to expose the whole chain .....

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nst these operators. 6.2:3 An important question arises-'IW/e dealing with doubtful cash credits, is it necessary for the assessing officer to establish that the money came back to the books of the assessee as 'entry' actually emanated from the coffers of the assessee?' This issue has been decided by the Hon'ble Delhi High Court in a decision dated 20.07.2012 in the case of Commissioner of Income-tax v/s Independent Media (P.) Ltd. 210 TAXMANN 14(Delhi)(2012), which is signif .....

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on forms, board resolutions, copy of bank statement, pay orders, confirmation from subscribers, their income-tax returns, copies of their balance sheets, etc. However it was held by the Hon. Court that if explanation adduced by assessee with regard to identity and creditworthiness of subscriber-companies and genuineness of transactions was not acceptable for valid reasons, Assessing Officer could make addition under Section 68 anct for that purpose he would not be under any duty to further show .....

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by the Supreme Court in the case of A Govindarajulu Mudaliar v.CIT [1958] 34 !TR 807 where precisely the same argument was advanced before the Supreme Court on behalf of assessee. The argument was rejected by the Court." 6.2.4 The Hon'ble Court further referred that in the above case,(A.Govindarajulu Mudaliar v.CIT [1958] 34ITR 807) Shri Venkatarama lyer, J. speaking for the Court observed as under: - "Now the contention of the appellant is that assuming that he had failed to estab .....

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cts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy 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 .....

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d these appeals are accordingly dismissed with costs." 6.2.5. The identity, capacity and genuineness aspects are not water tight compartments. An assessee's explanation of the nature and source of the credits cannot be entertained and held by the Assessing Officer as satisfactory unless and until the ground reality i.e. the de-facto existence of the creditor is first established prima facie paving the way for the Assessing Officer to examine further the capacity and genuineness aspects. .....

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me into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessees of t .....

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Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion," In the instant case, the AO has arrived at the conclusion based on the material available on record which showed the lenders to be paper companies. 6.2.6. The Supreme Court noted, following the earlier decision in Commissioner of Income Tax Vs. Orissa Corporation Pvt. Ltd. [1986] 159ITR78 that where the conclusion of the .....

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ugh the process of banking transaction but that itself is of no consequence," The overall circumstances is to be taken into consideration and in the present case, mere transactions being made through banking channels do not make the transactions genuine as in the instant case where the frank accounts of the lenders do not show any genuine activities as discussed in the aforesaid paras. 6.2.7. In another judgment of the Supreme Court in Vijay Kumar Talwar Vs. CIT (2011) 1 SCC 673 the same pr .....

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question viz., realisation from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not satisfactory. It is well settled that in view of Section 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 assessing officer, not.satisfact .....

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rejecting the assessee's explanation A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. In the instant case, the AO had made proper inquiries to establish that the investors were paper companies for accommodation entries as evident from the following facts; • nature of business not known; • no known source of income; • meager income to justify such investments; • no fixed assets; • no rental payments; • miniscul .....

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ma facie proof of the three ingredients and that too cumulatively shall have to be examined at three different stages one after the other but if an assessee fails to establish at the first stage, the identity of the creditor itself, there is no question of an Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys and nor therefore, the Assessing Officer examining the matter at the second stage of ensurin .....

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nd Roshan Di Hatti v CIT [1977] 107 !TR (SC), it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him, Where the nature and source thereof cannot be explained satisfactorily, it is open to the revenue to hold that it is the income of the assessee and no further burden is on the revenue to show that the income is from any particular source. It may also be pointed out that the burden of proof is fluid .....

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at where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, ' :he opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The Supreme Court held in Sumati Dayal vs. CIT 214ITR 801 (SC) in applying the test of human probabilities as follows; "f .....

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sessee 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 Assessing Officer, 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 .....

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erial before the AO to enable him to arrive at a contrary conclusion, the AO might presume that trie cash credit fell under the head 'Income from other sources'. The presumption that an unexplained cash credit is an 'income from other sources' are presumptions which flow naturally from the circumstances that all facts which can establish the nature and source of the cash credit are peculiarly within the knowledge of the assessee. It may be that the onus of displacing the presumpt .....

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We disclosure must come from the assessee and not from the department" 6.2.13. Section 68 of the Act clearly shows that any sum found credited in the books of an assessee maintained for a previous year may be charged to income-tax as the income of the assessee of that previous year, if (a) the assessee offers no explanation about the nature and source of such sum, or (b) the explanation offered by him is, in the opinion of Assessing Officer, not satisfactory. As a matter of fact, section 68 .....

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ck in the matter. Each case has got to be decided orfthe "facts and circumstances of that case. The surrounding circumstances to be considered must, however, be objective facts, evidence adduced before the authorities, presumption of facts based on common human experience in life and reasonable conclusions. In holding a particular receipt to be income from undisclosed source, the fate of the assessee cannot be decided by the authorities on the basis of surmises, suspicions or probabilities. .....

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e final fact finding authority is made conclusive law." 6.2.14 The onus to prove the genuineness of the transaction lies upon the assessee which has upheld in the following cases also: CIT v, W.J. Walker and Co. [1979] 117 ITR 690, 694 (Cal); Sajan Dass and Sons v. CIT [2003] 264 ITR 435 (Delhi) ; M/s Saanika Industries Pvt. Ltd. A.Y. 2011-12 ' Sumati Dayal v. CIT [1995] 214 ITR 801 (SC); and Jaspal Singh v. CIT [2006] 290 ITR 306 (P & H). Dhanalaxmi Steel Re-rolling Mills 57 ITD 36 .....

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;. Section 3 of Companies Act, 1956, defines "private company" as under; (iii) "private company" (means a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed, and by it articles, -] (a) restricts the right to ............. (b) limits............................. (c) Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company: (d) Prohibits............] ................... A .....

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is not the same as emerges from papers and documents furnished in this behalf. 6.3.2 Now, in order to appreciate the above discussions and analysis, it would be necessary to consider the judgment of the Delhi High Court in Lovely Exports 299 ITR 268 which has been heavily relied upon by the appellant. In the case of Lovely Exports, the Assessing Officer had proceeded to make an addition on the ground that the share applicants in question did not exist. The assessee had furnished necessary detai .....

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o had furnished the details in order to ascertain the status of the share applicants. Significantly, the judgment of the Delhi High Court makes a distinction between a case where shares are allotted in the course of a large scale subscription to the shares of a public company on the one hand and a case of private placement on the other. In the case of allotment of shares of a public company, the company may have no material other than the application forms and the bank transaction details to fur .....

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absence of culpability and complexity (sic) of the assessee it should 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 .....

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urately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.". 6.3.3 It is not the case where the AO has not made any efforts regarding the examination of the source of income of these share subscribers to find out whether they were creditworthy or were such who could subscribe to such huge money towards share application in the appellant-company. The facts of the present case is not a case of public issue of shares rather it is a case of priva .....

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pproach to the burden has to be adopted and the same is laid almost entirely on the assessee which receives the share subscription. It is, highly improbable in the case of the appellant that it is not knowing the latest address of all these shareholders and is not in touch with them from whom such a huge amount has been received as share application money with a huge premium especially when all these shareholders taken together hold substantial percent of shares, In a case of public issue, it ca .....

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the appellant to produce the persons for verification. 6.3.4 Now, it is this decision of the Delhi High Court against which a Special Leave Petition before the Supreme Court came to be dismissed on 11 January 2008. In Commissioner of Income Tax Vs. Lovely Exports Pvt. Ltd. (2008) 6 DTR (SC) 308, while dismissing the Special Leave Petition the Supreme Court observed that if the share application money was received by the assessee from allegedly bogus share holders whose names were given to the As .....

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the Constitution of India. Such observations are purely on the facts of the respective case and cannot be applied across the board even when the facts in other cases are altogether different. It is a settled position that the court while deciding the appeal will not put blinker in its sight and merely believe what is written on paper but also consider concerning circumstances and ground reality as observed by the Hon'ble Supreme Court in the cases of CIT v. Durga Prasad More [1971] 82 ITR 5 .....

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(a) Identity of shareholder; (b) Genuineness of transaction; and (c) Credit worthiness of shareholders. As far as the creditworthiness of the subscriber is concerned, that can be proved by producing a bank statement of the subscriber showing that it has sufficient balance in its account to enable it to subscribe to the share capital. The Delhi High Court held that once the initial borden has been discharged, the observations of the Supreme Court in the case of Lovely Exports would suggest that t .....

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e is a private limited company where the shareholders are closely related because in such a case the assessee cannot feign ignorance about the status of the parties. 6.3.6 The various judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money 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 di .....

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on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit, If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. Thus in case of private limited companies higher onus is cast upon them to explain even source of source of the share application money/ share premium etc. 6.3.7 In the present case in sp .....

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lhi High Court in the case of Sophia Finance Ltd. [1994] 205 ITR 98 have held that the provision of section 68 shall equally apply even in the case of amount stated to be received towards share capital. Since the appellant failed to prove even the basic identity as also the creditworthiness and the genuineness of the transaction in the form of share premium, the addition was rightly made by the Assessing Officer has been rightly made. Hence, the isolated evidence of the appellant had no evidenti .....

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ital formation is not tax avoidance, It is more in the nature of tax evasion by money laundering. These transactions have in effect three limbs. The first limb is the creation of the shell companies with substantial share capital which is balanced with inventories in the form of shares in other shell companies. The second limb is the transfer of such shell companies to persons who desire to use such substantial share capital companies for converting their unaccounted money into accounted funds a .....

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an accommodation entry. It could be proved that the company providing loan exists oni;y on paper, ft has no employees, the address given is only a postal address and the company does not have any physical set up at the given address, the same address is possibly being used as postal address for multiple companies indulging in to the same activity of prow ding accommodation entries The appellant was trying to press into service only the legal or de-jure Identity of a creditor and could not adduc .....

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way appear to be genuine loans. They are nothing but arranged affairs being pre-ordained series of transactions and tax evasion device where money laundering transactions have been camouflaged as loans. Hence no credence can be placed on the copies of various documents filed to support I such claim of share capital contribution aid addition of ₹ 61,00,000/- is hereby confirmed and grounds of appeal is dismissed. 4. Aggrieved, assessee is now in appeal before the Tribunal. Ld. Authorised Re .....

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nd bank statements. Ld. Authorised Representative further submitted that all necessary details were available with the Revenue authorities but they could not find any error in the details submitted by the assessee which could have proved that the alleged share capital/premium was unexplained money of the assessee company. It was further submitted with regard to that the alleged statement of Mr. Anjani Banka, director of Cap Vanijya (P) Ltd. and Mr. Manohar Lal Nangalia that assessee had submitte .....

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er whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company. It is not proper on the part of the department to say that the companies could not be located once they are on the record of the department with their PA Nos. Therefore, the better course is to examine their Income tax records before proceedings with any addition in this case. W .....

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That is not relevant because these three companies have invested, have confirmed and in their balance sheets they have shown the investments in the appellant company. The appellant vide letter dated 28.04.2015 submitted that as regards your query about the statement of the assessing officer in para 4.4 of the assessment order it is true that copy of the report DDIT(!nv.) and statement recorded were given. The report of the DDlT (Inv.j, Unit- 11/3, Kolkata is one page report in which he states th .....

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#39;Trexim Pvt. Ltd. and Sadasukh Dealers Pvt. Ltd. Both these companies have given complete details pertaining to them to the Assistant Commissioner of Income Tax, Circle-4, Surat. Copy of the report dated 31.01.2014 alongwith the copies of statements of Mr. Banka and Mr. Nangalia are enclosed. Ld. Authorised Representative also submitted that promoters of the assessee company were previously having business in the State of Assam and thereafter shifted to Gujarat and were having their connectio .....

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(Delhi) 5. Neelkanth Finbuild Ltd. (Delhi)(Trib) 70 SOT 368 6. Shalimar Buildcon Pvt. Ltd.(Jaipur) 128 ITD 396 7. Kisco Casting Pvt. Ltd. (Chandigarh) 685 CHD 2011 8. Anmol Marmo grains Pvt. Ltd. (Jodhpur) 67 SOT 480 9. A. I. Developers Pvt. Ltd. (Delhi) 178 TTJ 332 10. Vitrag Metal Pvt. Ltd. (Mumbai) 46 ITR (Trib) 201 11. Dhanlaxmi Equipment Pvt. Ltd. (Jaipur) 1103 JP 2011 12 Lotus Integrated Taxpark Ltd.(Chd) 173 TTJ 848 13 Dolphins Marbles Pvt. Ltd. (Jab)™ 139 TTJ 126 14 Tulip Finance L .....

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iv Dhooti Pearls & Investment Ltd. Delhi High Court 237 Taxman 104 5. On the other hand, ld. Departmental Representative taking support of various judgments/decisions enumerated below submitted that mere furnishing of PAN, confirmation, balance sheet and copy of income-tax return cannot be held to be a corroborative evidence to prove the genuineness and creditworthiness of the share applicants. In the case of assessee one of the directors of the alleged company has himself accepted that M/s .....

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Ld. Departmental Representative also referred and relied on the following judgments/decision:- 1. N. Tarika Property Invest. (P) Ltd. vs. Commissioner of Income Tax (2014) 51 taxmann.com 387 (SC) 2. Navodaya Castle (P) Ltd. vs. Commissioner of Income Tax (2015) 56 taxmann.com 18 (SC) 3. Commissioner of Income Tax vs. Maithan International (2015) 56 taxmann.com 283 (Calcutta) 6. We have heard the rival contentions and perused the record placed before us and also gone through the judgments/decisi .....

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ich have subscribed to the assessee s share capital:- Sr. No. Name & Address of Shareholders PAN Amount of share capital Share Premium , 1 Newjet Trexim Pvt. Ltd. 27, 5th Floor, Brabourne Road, Kolkata-700001. AAACN8738P 300000 1500000 2 Cap Vanijya Pvt. Ltd. 14-C, 4th Floor, Maharshi Devendra Road, Kolkata-700007. AABCC3989 30000 150000 3 Sadashukh Dealers Pvt. Ltd. 6-A, Raja Subodh Malik Squire, Kolkata-18 AAKCS9420P 500000 200000 We further observe that ld. Assessing Officer took note of .....

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nancial statement of alleged three companies prepared charts showing fixed assets, interest income/turnover, accumulated profits and share capital/premium which is summarized below :- (1) Sadasukh Dealers Pvt. Ltd. Assessment Year Fixed Assets as on 31st March Interest Income/ Turnover Accumulated profit Share capital & premium 2010-11 NIL 9,14,868 2,423 2,42,50,000 2011-12 NIL 13,07,459 3,004 2,42,50,000 (2) NewletTrexim Pvt. Ltd. (NTPL) Assessment Year Fixed Assets as on 31st March Interes .....

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the alleged three companies which were having NIL fixed assets and meager accumulated profits. It was also observed from the balance sheets and schedules thereto that huge investments have been made in the share capital of various companies and the bank statements of these companies are conspicuously replete with deposits and withdrawals of same amounts in a short span of one or two days which shows that these companies are just acting as a conduit of funds with no real business. 6.1 We further .....

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also come from other share holders relates to directors and some amount of premium have been paid by them and this fact is not disputed by the Revenue. Ld. Authorised Representative has also submitted that all evidences in support of identity, creditworthiness and genuineness which a prudent businessman can collect within his limited power which includes addresses, Permanent Account Number, confirmation letters, bank statement and audited balance sheet and profit and loss account and no error h .....

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rised Representative also could not reply that why company based in Kolkata can invest all the way in a company in Gujarat without having any previous business connection. 7. We observe that both the ld. Representatives have referred and relied on various judgments/decision dealing with the issues of unexplained cash credit u/s 68 of the Act as well as reopening of assessment proceedings u/s 147 of the Act which in nutshell gives the view that merely furnishing of PAN, income-tax returns and con .....

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l placed before us and gone through the judgments, decisions cited by both the parties. The solitary grievance of the Revenue is against the order of ld. CIT(A) deleting the addition of ₹ 3.5 crores made u/s 68 of the Act towards share capital and share premium. We find that during the year under appeal ₹ 70 lacs each was contributed by following 5 parties totaling to ₹ 3.5 crores towards share capital and share premium by way of subscribing one lacs equity shares having face v .....

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er to prove the identity, creditworthiness and genuineness of the transactions, assessee has filed PAN, copies of income-tax returns for Asst. Year 2009-10, confirmation regarding share purchases along with proof of payments through cheques, copies of bank accounts and audited balance sheets for Asst. Year 2009-10. We further find that summon was served u/s 131 to the following three parties based at Ahmedabad :- (3) Green Star Financial Service Pvt. Ltd., Ahmedabad. (4) Archer Financial Service .....

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ending in personal due to illness of director s father. We further find that Assessing Officer came across the statement of Mr. Jitendra Jain, one of the directors of Suraj Corporate Service Pvt. Ltd., Ahmedabad recorded by DDIT(Inv) on 21.9.2010, in case of another investigation, in the case of M/s B. R. Metals and Alloy (Gujarat) Ld., wherein it was stated by Mr. Jitendra Jain that the said company, Suraj Corporate Services Pvt. Ltd. provides accommodation entries to the companies which gives .....

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r within last 6 years in the following companies - 1. Surat Corporate Services Pvt. Ltd. 2. Grin BPO Services Pvt. Ltd. 3. Siddhi Vinayak Fincap Ltd. 4. Shelja Finlease Pvt. Ltd. 5. Radhe Finservice Pvt. Ltd. 6. Tirupati Shelters Ltd. 7. Honest Business Deal Pvt. Ltd. Q. 24. How much transactions of Suraj Corporate Services Pvt. Ltd. and Grin BPO Services with B. R. Metals and explain the nature of transaction ? Ans :24 During the F.Y.2008-09 from Suraj Corporate Services Pvt. Ltd. the company i .....

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ls & Alloys (Gujarat) Pvt. Ltd. through PNB by Suraj Corporate Services Pvt. Ltd. and Grin BPO Pvt. Ltd. as share capital and had received commission of 0.25% for making this arrangement. 11. We further find from going through the bank statement of one of the impugned party Fly High Exports Pvt. Ltd., Kolkata placed at pages 21 & 22 of CIT(A) s order that a large volume of transaction totaling in crores of rupees have passed through their bank account during the year but when we turn to .....

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bank statement placed on pages 14 & 15 of CIT(A) s order, we find that transactions worth crores of rupees have moved through bank balances at various points of time are more than ₹ 50 lacs whereas a meager amount of interest has been shown at ₹ 18,903/-. Similar type of financial datas are depicted in other two impugned parties namely - Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. having common address. From observing these documents it seems th .....

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uge amounts in other companies share capital wherein the Co-ordinate Bench has held as under :- HELD Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company? • As per section 68 where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assess .....

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ss of the transactions. Onus under section 68 can be said to have been discharged only when the assessee proves identity and capacity of the creditor along with the genuineness of transaction to the satisfaction of the Assessing Officer. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the Assessing Officer can lawfully make addition.[Para 13.b.] • In case of a closely held company where the shares are issued to the family members .....

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Assessing Officer, the identity and capacity of the shareholders along with the genuineness of the transactions there can be no escape from section 68.[Para 13.t] Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1-4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective? • As per this proviso where any share capital etc. is credited in .....

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be made in the hands of the company. If the amendment is accepted to be prospective, then it would mean precluding the Assessing Officer from examining the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition under section 68 notwithstanding the same being non-genuine. In the oppugnation, if the amendment is held to be retrospective, then it would mean that the Assessing Officer would have all the powers to ex .....

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rts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as re .....

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ater to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the feet that such amendment to the substantive provision has been given prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the1 date such provision was .....

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der line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and a .....

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A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to ' .....

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T[2Q\3] 353 ITR 284/216 Taxman 157 (Mag.)/35 taxmann.com 319 (Cal.) and CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623/1 30 Taxman 153 (Cal.)a has specifically held that the three ingredients, viz, identity and capacity of creditor and genuineness of transaction are required to be satisfied even in case of issue of share capital by a closely held company. It shows that the intention of the legislature, as interpreted by the High Court, is always to cast duty on the assessee to prove the .....

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ounted money 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. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. Thus, the amendment makes it mani .....

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ogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. [Para 13. ad.] Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the assessee being devoid of any merit, are hereby jettisoned. [Para 13. ae.] Thus, the contention of the assessee that since the Assessi .....

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Delhi High Court vide its judgment dated 28.11.2013 has held as under :- 31. We are of the considered opinion that the Assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. The surrounding circumstances and inquiries made by the Assessing Officer were significant but the said finding though not disturbed have been ignored. Further the Tribunal has failed to take h .....

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to day business or were angle investors. f) The subscribers did not bother and ensure protection of their investment. 32. In view of the above, we are of the view that the Assessee has not discharged the onus satisfactorily and the additions made by the Assessing Officer was justified and sustainable and the order of the Tribunal ignoring and nor dealing with the factual findings recorded by the assessing officer is perverse . 33. The substantial question of law is thus answered in favour of the .....

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hat it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See :Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 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 Assessing Officer, not satisfac .....

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n. Calcutta High Court has held as under :- Held - • When payment by cheque did not establish the creditworthiness of the lender mere examination the pass bOOK or the bank statement or me letter of confirmation or the balance sheet of the lender was not enough. The inspector appointed by the Assessing Officer did not go beyond the aforesaid documents. Therefore, it cannot be disputed that the view formed by the Commissioner that in none of the reports, he has commented upon the issue of cre .....

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ply his mind to all aspects of the case is selfevident. Such non-application of mind constituted passing of an erroneous order which is also prejudicial to the interest of revenue. [Para 11] • In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the bank pass book, profit and loss account and balance sheet of the creditors is not enough. When the requisite enquiry was not made, the order is bound to .....

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is erroneous, then the order is also deficient and in order to remedy the situation, power under section 263 has been given. Therefore, the view that the power could not have been exercised to allow the Assessing Officer to make up the deficiency is altogether an incorrect impression of the law. [Para 16] • 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 cours .....

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eported in (2015) 56 taxmann.com 18 (SC) has held that mere filing of certificate of incorporation, PAN were not sufficient for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor. 18. Examining the facts in the light of above judgments and decisions we observe that assessee is a private limited company which is not open to public and, therefore, if it requires to increase its capital base o .....

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ted by these 5 parties which is of a substantial percentage of the total share capital of the company it is surprising to note that none of them was able to appear before the Assessing Authority nor the assessee was able to bring any of them in person to prove the genuineness of transaction and creditworthiness of the investor towards share capital and share premium given these impugned 5 parties. More so we find that out of the 5 parties three parties are within Ahmedabad and so is the assessee .....

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stment; but when the profits and loss account is looked into it seems complete dry as interest against investment running in crores the income shown is few thousand and so is the total turnover. Adding more to this in the statement given by one of the directors of Suraj Corporate Services Pvt. Ltd. it has been clearly accepted that Suraj Corporate Services Pvt. Ltd. is an accommodation entry provider and just a paper company. This modus operandi of accommodation entry provider cannot get itself .....

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ect connection with the voluminous bank transaction then such companies end up into a paper company. 19. From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case before us we observe that assessee is trying to assert again and a .....

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have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. If this has been the situation, then there would have been no doubt on the genuineness of the transactions. On the contrary in the instant case assessee completely fails to prove .....

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ter by the share applicant is by itself, not enough to shift the onus to the Department although these facts may, along with other facts be relevant in establishing the genuineness of the transaction. As held by Hon. Supreme Court in the case of CIT vs. N. Tarika Properties Investment (2014) 51 taxmann.com 387(SC) that PAN cannot be treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of application without actual de facto clarification of identity or ascerta .....

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it necessarily creates difficulties and prevents ascertainment of the truth and correct facts as the Assessing Officer is denied the advantage of the attendance or factual assertion by the assessee before him. If an assessee deliberately and intentionally fails to produce evidence before the Assessing Officer with the desire to prevent enquiry or investigation an adverse opinion should be drawn. The assessee had not discharged the initial onus to establish the identity, creditworthiness of the s .....

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itworthiness of the impugned 5 parties. In the result, the sum of ₹ 3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the ld. Assessing Officer. We set aside the order of ld. CIT(A) and restore that of the Assessing Officer. In the result ground no.(i) of Revenue is allowed. 7.1 On going through the above decision of Co-ordinate Bench which has referred and relied on various judgments of Hon. Supreme Court, Hon. High Courts and Tribunal s decisions and examining .....

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f the investigation wing to prove them to be paper companies. We will, therefore, proceed further by segregating the alleged three companies into two parts wherein in the first part we will discuss about Cap Vanijya (P) Ltd. and the second part remaining Newjet Trexim (P) Ltd. and Sadasukh Dealers (P) Ltd. 8. As regards Cap Vanijya (P) Ltd. we find that undoubtedly assessee has submitted necessary evidences and details at the primary stage but the Revenue came with a counter to disprove the evid .....

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r evidence of the Department proving the company to be a paper company, assessee miserably failed to bring any strong evidence to justify its plea of genuineness and creditworthiness of the alleged cash credit of ₹ 18,00,000/-. We are, therefore, of the firm view that ld. Commissioner of Income Tax(A) has rightly confirmed the addition u/s 68 of the Act of ₹ 18,00,000/- received as share capital and premium from Cap Vanijya (P) Ltd. which is a shell/paper company. 9. As regards remai .....

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ngalia there is no reference of these two companies. However, Revenue have made a guess work on the basis of the financial datas of these two companies and comparing it with that of Cap Vanijya (P) Ltd. and have taken a similar view which seems to be merely a guess work without having a concrete base or evidence. It is well established fact that each assessee is having its distinct identity and its own course of working. Unless the companies are working in the same group or a under a common dire .....

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ing no mention of the alleged two companies. Undoubtedly to a great extent the picture evolving out of the financial statements of the alleged two companies gives an indication about something happening abnormal in their working but that merely cannot be basis to doubt the genuineness and creditworthiness because in various investment companies also one can find that there are no fixed assets and investments are regularly made in other companies. Duty is heavily casted on the Revenue in such typ .....

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