TMI Blog2017 (3) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 mention that assessee will have a proper opportunity of being heard for putting forth its arguments and submissions against the information collected by the Revenue authorities. - Decided partly in favour of assessee for statistical purposes. - ITA No. 207/Ahd/2016 - - - Dated:- 2-3-2017 - Shri R.P. Tolani, JM and Shri Manish Borad, AM. For The Appellant : Shri R. N. Vepari,AR For The Respondent : Shri K. Madhusudan,Sr.DR ORDER PER Manish Borad, Accountant Member . This appeal of assessee for Asst. Year 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicants towards share application money and premium paid except for the following three companies which apparently in his view were appearing to be paper/shell companies :- Sr. No. Name Address of Shareholders PAN Amount of share capital Share Premium , 1 Newjet Trexim Pvt. Ltd. 27, 5 th Floor, Brabourne Road, Kolkata-700001. AAACN8738P 300000 1500000 2 Cap Vanijya Pvt. Ltd. 14-C, 4 th 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x(A) by way of giving a detailed finding relying on judicial pronouncements confirmed the action fo ld. Assessing Officer 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. The AO made inquiries by issuance of notice u/s 133(6) of the Act and through issuance of commission u/s 131(1)(d) of the Act to Investigation Unit, Kolkata regarding the identity, creditworthiness and genuineness of the transaction pertaining to share premium. The AO found on the basis of the inquires conducted that the 3 companies who have made investments in share capital are shell companies/paper companies and therefore the investment in form of share capital and share premium of ₹ 61',00,000/- was considered to be unexplained cash credit and added to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for investment, applications, installment of money called, received, decision of premium, round of negotiation, dispatch of share certificate, correspondence about dividend or any other matter etc., along with mode of communication and proof of dispatch etc. (iv) When was the Resolution authorizing the issuance of shares under Section 81(1 A) of the Companies Act, 1956 passed and when it was intimated to the Registrar of Companies? The copy of the resolution is to be produced. (v) When were the share applications received, and the 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 regards premium on share capital, this is based on the intrinsic worth of the company. Copy of audited accounts for 31st March, 2011 is enclosed as An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under This is a private limited company. Hence, share capita! was issued to relatives, friends, business associates of directors. Shri Omprakash Agrawal, the main person of the company, his sons Sanjay and Sumit and 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 placement was accepted by various parties and company had made private placement to these persons based on acceptance of offer of the company. As regards your reference to resolution u/s.81(1A) of the Companies Act, 1956 as mentioned earlier, the above section does not apply to private companies. On receipt of share applications allotment of shares was made and shares were sent to the parties. No dividend has been declared. 6.1.4 The appellant was again iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the above period. 6.1.5 In response to the query letter the appellant filed a reply dated 01,10,2015 received in this office on 05.10.2015 wherein the following details were furnished: The execution of the share application forms was completed by the share applicants and were received by the company in September/October, 2010. As regards any business/persona! relationship, I would inform you that this is private limited company. Hence, share capital was issued to relatives, friends, 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 require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Valuation of share is as under: The company is in the business of textiles and mainly exports the goods Its turnover is around ₹ 300 crores It has been disclosing profits of ₹ 5 to ₹ 6 crores during various years and paying tax accordingly of around ₹ 1.5 crores every year. The share applications were prepared from computer and therefore, there 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). You have mentioned about the response of the persons to the offer. There was no such offer but this was the result of negotiation and the response was positive as is reflected in their investment in the company. There was no instrument of expression of interest/acceptance of offer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement 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 : / agree and confirm that the companies - Cap Vanijya Investment, Ankit Tracom Pvt. Ltd. Shri Balju Trading Investment Pvt. Ltd. are paper/shell companies controlled and managed by me. The AO found that the share capital/premium had been taken from the 3 companies which were paper companies as they were not having any revenue generation activity and therefore the share capital/premium given was treated as a colourable device to bring back the unaccounted money of the appellant 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No real source of income or actual business activity but various persons have invested into equity shares of the company and the same has 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 17,86,754 (-)110918 32,32,20,000 2011-12 NIL 15,20,035 H107199 32,32,20,000 Cap Vanijya 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation Wing, Kolkatta. The onus was on the appellant to prove the existence of the share holders which could not be discharged as the share holders are non-existent and non traceable on the given addresses. Now coming to issue of the creditworthiness and genuineness of the transactions, the AO noticed that in the bank accounts of the share holders meager balances were maintained in the accounts and the deposits were made 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/RTGS transfers etc. The cash deposits have also been made in these accounts. No business transactions have been carried out and at no point of time any substantive balance is seen. The bank statements transactions reveal that these accounts are not being used for any busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 appellant except producing the papers could not prove existence or availability of the share applicants. When the identity of the person is required to be proved so as to examine whether in fact they have .applied for allotment of shares, the existence itself is not proved. The existence of a person is not merely on paper. Particularly when the Assessing Officer required the assessee to produce the share applicants and particularly when at the stated address the share applicants are not found to be existing, 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 Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies controlled by these operators. These companies are incorporated by taking care of ali formalities such as registering with ROC but having only postal addresses with no real office or employees. The directors of such companies are again individuals 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 basically fake companies that exist for no other reason than to layer' the entries or pass it onto the beneficiary as loan or share capita!. They take in unaccounted money as loan or share capital and pass it on to either another such paper company for layering' of the transaction or directly to the beneficiary as loan or share capital. They simply create the appearance of legitimate transactions through fake entries of loans or share capital in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid reasons, Assessing Officer could make addition under Section 68 anct for that purpose he would not be under any duty to further show or establish that monies emanated from coffers of assessee-company. The Hon. Court further observed that 'We are unable to uphold the view of the Tribunal that it is incumbent upon the Assessing Officer, on the facts and circumstances of the case, to establish with the help of material on record that the share monies had come or emanated from the assessee^s coffers. Section 68 of the Act casts no such burden upon the Assessing Officer. This aspect has been considered more than 50 years back 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 establish the case put forward by him, it does not follow as a mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances section 68 of the Act would come 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 that previous year. The expression the assessees offers no explanation means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is .required toUe based on proper appreciation of material and other attending circumstances available on record. The opinion of the 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 opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income of the taxpayer is that proper enquiry must be made by A.O before making any addition u/s 68. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.) It has been heid that section 68 of Income Tax Act, 1961, empowers the Assessing officer to make enquiry regarding cash credit, if he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before 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; miniscule expenses; very low balances in the bank accounts; the bank accounts have been used to transfer funds from one account to other accounts; no proof regarding how the lenders of Kolkatta came in contact with the appellant; 6.2.9 If the above principles of statutory onus on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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; ft is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See ' Pahmisetti Seetharamamma [1965] 57 ITR 532 at page 536). 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 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine borrowings as the facts are exclusively within the assessee's knowledge. In deciding an issue of this nature, there cannot be one generai or universal proposition of law which could be the guiding yardstick 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. Hon'ble Supreme Court's decision in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 which is as follows-at page 546 of the decision; Science has not yet invented any instrument to test the reliability of the evidence placed before a court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeded to make an addition on the ground that the share applicants in question did not exist. The assessee had furnished necessary details such as the PAN of the share applicants. The share money had been received through banking channels. The Assessing Officer made an addition only on the ground that some of the summons which were issued to the share applicants were returned unserved, whereas in the case of others the summons though served, had not been complied with. Now it is in this background that the Delhi High Court noted that the Assessing Officer did not carry out any enquiry into the Income Tax record of the persons who 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 furnish some indication of the identity of the subscribers. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble High Court, a very strict approach 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 can be said that the appellant has discharged the onus the moment it has furnished the permanent account number of shareholders, shareholder register, share application form, share transfer register, etc. But in the case of private placement tf has to satisfy the Assessing Officer about the genuineness of the transaction which in the instant case is highly doubtful as all the applicants are not traceable, Thus the Assessing Officer had reached a dead end of the enquiry and the onus had shifted on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments in the case of alleged bogus shareholders in accordance with law and is not remediless. This would be more so when the assessee is a public limited company and has issued share capital to the public at large as in such cases the company cannot be expected to know every detail pertaining to the identity and financial worth of the subscriber. However, the initial burden on the assessee would be somewhat heavy in case the assessee 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 distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and use such shell companies to do legitimate business. The third limb is when the shell companies after being taken over, the assessee in the form of inventories are encashed whereby the unaccounted monies are laundered and Drought into the company for conducting the legitimate business. All these three limbs are not done in one assessment year but in different assessment years 6.3.9 The Assessing Officer has brought certain facts on record to highlight that the loan received actually represents 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find their locations and further relied on the judgment of the Supreme Court in case of Lovely Exports Ltd. (216 CTR 195), wherein the Hon. apex court has held that if the share application money is received by the assessee company from alleged bogus shareholder 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. We would draw your kind attention to the latest judgment of Gujarat High Court in the case of Ranchhod Jivabhai Nakhava (208 Taxman 35). Copy of the above judgment is enclosed.(P. 22-27) . Despite the above clear-cut judgment of Supreme Court and Gujarat High Court, brought 'to the notice if the assessing officer, he choose not only not to follow them which he was bound to also he has not even referred them in the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bai) 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 Ltd. (Delhi) 15 DTR 185 15. Aquatech International Ltd. (Del-A) 13 DTR 382 16 Monnet Ispat Energy Ltd. (Delhi-Trib) 171 Taxman-27 17 Smart Capital Services Ltd. (Del-E) 10 DTR 593 18 A-One Housing Complex Ltd. (Delhi) 110 ITD 361 19 Uma Polymers Pvt. Ltd. (Jd) 101 TTJ 124 20 Antarctic Investment Pvt. Ltd. (Delhi) 78 TTJ 257 21 AMR Hospitality Services Ltd.(Hyd) 148 ITD 679 22 Dr. Yogiraj Sharma, Indore Bench 118 DTR 20 23 A.P. Refinery Pvt. Ltd. Chandigarh High Court 174 TTJ 41 24 Shiv 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements recorded by DDIT (inv) Wing of Kolkata in the case of Mr. Anjani Banka, director of Cap Vanijya (P) Ltd. and Manoharlal Nangalia wherein Mr. Anjani Banka admitted that Cap Vanijya (P) Ltd. and other companies are under the control and management of Manoharlal Nangalia who has further confirmed that Cap Vanijya (P) Ltd. is a paper/shell company engaged in providing accommodation entries of share capital/premium. We further observe that ld. Assessing Officer on examination of the financial 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. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man 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 has been found in this regard. Further it is not possible for the assessee to know about the source of source and such powers are with the Revenue authorities to make the investigation. However, we also observe that ld. Authorised Representative was unable to file any documentary evidence to show that there was a communication between the company officers and the alleged three companies which can prove any connection between them and also the intention to invest in the assessee company. Ld. Authorised 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd., Ahmedabad. 9. It was alleged by assessee that summons u/s 131 were not received by Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. As far as personal attendance of the director of Suraj Corporate Service Pvt. Ltd., authorized representative on behalf of the company appeared and again filed documents which were already filed by the assessee and submitted that he took leave on behalf of the director for attending 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 cash to the said entities and the same was routed through various other paper entries and finally from the bank account of Suraj Corporate Services Pvt. Ltd. the same was introduced in the form of share application money. 10. Relevant extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that huge volume of transactions are in the form of debit and credit of cheques and are of typical nature of paper companies engaged in providing accommodation entries. 13. Further we observe that Co-ordinate Bench, Kolkata in the case of Subhlakshmi Vanijya(P) Ltd. vs. CIT (2015) 60 taxmann.com 60 (Kolkata Trib) came across issue relating to unexplained cash credit u/s 68 of the Act wherein share capital was received from companies having very meager income and low financial capacity to invest huge 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the Assessing Officer. The essence of this amendment is that a closely held company is required to satisfy the Assessing Officer about the share capital etc. issued by it, in the absence of which, an addition under section 68 can 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 examine the genuineness of share capital and share premium received by the assessee company on the touchstone of section 68. If the assessee fails to satisfy him on the identity and capacity of the subscribers and genuineness of) transactions, then addition will be called for under section 68. [Para 13.w.] It is settled rule of construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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 also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. [Para 13aa] On adverting to the language of section 68, it transpires that it refers to 'any sum credited' in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision Thus, it would extend to all the amounts credited in the books of account. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that there was no requirement on the company to prove the share capital etc. and as such no addition could be made in the hands of company even if such shareholders are bogus. 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 Assessing Officer of the assessee-company is not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 with effect from assessment year 2013-14 and hence the Commissioner by means of impugned order under section 263 could not have directed the Assessing Officer to do so, is unsustainable. [Para 13.ak.] 14. We further observe that in the case of CIT vs. N. Tarika Properties Investment in ITA No.2080 of 2010 Hon. Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut , 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. (See : Sreelekha Banerjee (supra) at p. 120) 16. Further we observe that in the case of CIT vs. Maithan International (2015) 56 taxmann.com 283 (Calcutta), Hon. 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 creditworthiness ;.e. whether these parses had sufficient means to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Navodaya Castle (P) Ltd vs CIT reported 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 or invite investment in the share capital along with premium which in this case is ₹ 60/- over the face value of ₹ 10/- then it has to approach within its friends and relatives for the investment. In the given case ₹ 70 lacs each has been given by the impugned 5 parties to the private limited company i.e. the assessee. Any prudent person who intends to invest in a company with a motive of gaining from the said investment, looking to the quantum of share capital and premium invested 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily called upon the investors. The investors could 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 the same. 20. It is well settled that in order to discharge the onus the assessee must prove the following :- i. The identity of the cash creditor; ii. Capacity of the cash creditor to advance money towards capital. ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated 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 the facts of the case in the light of the above, we find that one common event is with regard to the report of investigation of the Department and the statement on oath of the director of one of the alleged companies admitting it to be a paper company. In the case of assessee out of the alleged three companies M/s Cap Vanijya (P) Ltd. is admittedly a shell/paper company as the director and the controlling person has accepted. As far as other two companies are concerned there is no such report of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responded to the Department s notices, all details have been filed then it was on the part of Revenue to further deeply examine the modus operandi of the companies with the help of investigation. In the given case the report of Investigation Wing, Kolkata, heavily relied on by the Revenue authorities is having 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 type of cases where the burden of proving has been shifted by the assessee to the Revenue by way of furnishing all requisite documents and evidences. It is on the Revenue to further dig out some material information including the statements of persons at helm of affairs of such companies. When the Assessing Officer while confirming the addition has merely taken the information of Cap Vanijya ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
