TMI Blog2017 (4) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... to do so, vitiate the addition made under the set of facts. Mere information is not enough rather it has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the Department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the assessee of such evidence, if any, or the information, no addition can be made - Decided in favour of assessee. - ITA No. 6492/Mum/2016 - - - Dated:- 21-4-2017 - Joginder Singh (Judicial Member) And Rajendra (Accountant Member) For the Assessee : Nimesh Chotani Dharan Gandhi For the Revenue : R. P. Meena CIT-DR ORDER Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 19/08/2016 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to reopening the proceedings u/s 148 of the Income Tax Act, 1961 (hereinafter the Act) by not treating the reassessment proceedings as invalid and bad in law. During hearing, Shri Nimesh Chotani, along with Shri Dharan Gandhi, ld. counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el placed reliance upon the decision in Adman Timber Industries vs CCE (281 CTR 241) (SC), H.R. Mehta vs ACIT 387 ITR 561(Bom.) and G.K.N. Driveshafts (India) Ltd. vs Income Tax Officer 259 ITR 19 (SC). It was also contended that the Ld. Assessing Officer did not apply his independent mind while reopening the assessment and merely relied upon borrowed satisfaction provided by the investigation wing. 2.2. On the other hand, Shri R.P. Meena, Ld. CIT-DR strongly defended the order of the Ld. Assessing Officer and as well as of the Ld. Commissioner of Income Tax (Appeal) by contending that onus caste upon the assessee was not discharged and the necessary details, sought by the Assessing Officer were not filed by the assessee. Reliance was placed upon the decision in CIT vs Kundan Investment Ltd. 263 ITR 626 (Kol.), 11 ITR 951 (Kol.), ITO vs Janak U. Bhatt 8 SOT 353 (Bom.) and Para 2.4.16 of the impugned order. The crux of the argument by the Ld. CIT-DR is that the onus caste upon the assessee was never discharged, therefore, the addition was rightly made. 2.3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed by notices u/s 142(1) of the Act. The appellant replied to the notices issued u/s 142(1) from time to time and furnished the necessary details as required by the Ld. AO. The Ld. AO wanted to verify the details of share application money received by the appellant during the impugned assessment year. The Ld. AO issued a show cause notice to the Appellant as to why ₹ 10,00,000/- received from M/s Yash V Jewels Ltd. and ₹ 10,00,0001- received from M/s Alka Diamond Industries Ltd. as share application money should not be treated as unexplained cash credits and added to the total income of the appellant. The Appellant submitted the necessary details of the parties from whom the appellant had received share application money in the impugned assessment year which discharges the appellant from the primary onus cast upon the appellant of proving the genuineness of the said transaction. The Appellant had also submitted the Bank statement of M/s Yash V Jewels Ltd. along with the confirmation of M/s Yash V Jewels Ltd. And M/s Alka Diamond Industries Ltd. vide letter dated 26.03.2015. Further, relying on the information received from the investigation wing, the Ld. AO issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Notice u/s 148 was issued on account of borrowed satisfaction The Ld. A. O. had not exercised his independent mind and has acted merely on the basis of certain information received from the investigation wing which was accepted without application of mind. Section 68 of the Income Tax Act stales as under: '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 [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. It is a settled position of law that the Assessing Officer has to reach to his own satisfaction that some income has escaped assessment. The satisfaction has to based on some reliable material and judicious application of mind. Further, reliance has been placed on the following decisions which clearly state that no reassessment proceeding is permitted to be initiated on the basis of borrowed satisfaction. i) CIT vs. Atul Jain - (2007) 164 Taxman 33 (Delhi) ii) CIT vs. Smt. Paramjit Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries and the Ld. A O has merely relied on the information received from the Investigation wing The appellant would further like to rely upon certain case laws in this regard which clearly prove that the action of the Ld. A O is unjustified: CIT vs. Vrindavan Farms (P) Ltd. (Delhi High Court) If the identity and other details of the share applicants are available, the share application money cannot be treated as undisclosed income in the hands of the Co. The addition, if at all, should be in the hands of the applicants if their creditworthiness cannot be proved The Hon'ble Mumbai High Court in the recent Judgement in the case of CIT v Creative World Tele films Ltd. (order dated 12.10.2009 in ITA(L) no. 2182 of 2009) has followed the decision of the Apex Court in ClT v. Lovely Exports (P) Ltd, and has held as under: The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgement of the Apex Court in the case of CIT vs. Lovely Exports (P) Ltd. reported in (2008) 216 CTR195 (SC) wherein the Apex Court observed that if the share application money is received by the assessee company fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the investigation wing, but has not submitted or furnished any information. documents to the appellant for its rebuttal. Thus, the Ld. AO has flaunted the principles of natural justice by making the addition behind the back of the appellant. Further, no opportunity to cross examine has been given to the appellant. Thus, this lapse on the part of the Ld. AO goes to the root of the matte shaking the entire foundation and making the order of the. Ld. AO not acceptable in the eyes of law. Thus, the impugned addition, on this count also is liable to be deleted. Further, the appellant requests your honour to provide an opportunity of cross examination. The applicant therefore, prays that the assessment order passed under section 143(3) r.w.s. 147 of the Act is against the principles of natural justice and may be quashed and set aside. 10. The appellant craves leave of your Honour to make further submissions as and when required. 2.5. The Ld. Commissioner of Income Tax (Appeals) considered the aforementioned submission of the assessee and considering various decisions like Shri Krishna P. Ltd. (221 ITR 538), Raymond Woollen Mills vs ITO (236 ITR 34)(Supreme Court) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces u/s 133(6) dated 21/01/2015 to M/s Yash-V-Jewels Ltd. and M/s Alka Diamond Industries Ltd. to furnish the following details:- i) Please confirm that you have subscriber for shares. ii) Please give the exact sources of funds for making the share subscription by you with necessary evidences to show the availability of funds as on the date of making the payment by you. iii) Please furnish details of present status of the holding of the said shares. iv) Please state the mode and complete details of the bank through which the said payment was made to purchase the shares i.e. Name of the Bank and Branch, Instrument/ Transaction Number and date. v) Please furnish copy of I-T return filed for A.Y. 2007-08 showing PAN, full designation of the Assessing Officer and computation of total income. vi) Please provide copy of your Balance Sheet, statement of Income expenditure for F.Y.2006-07. vii) Please furnish copies of bank statements through which the funds were released for making the purchase of shares for the period 01.04.2006 to 31.03.2007 are reflected. viii) Detailed reasons and justification for application of shares. ix) Copy of board resolution passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. 2.10. Now, we shall analyze various case laws on the applicability of section 68 of the Act. We find that Full Bench of Hon'ble Delhi High Court in case of Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB) made an elaborate discussion which still holds good and the provisions of s. 68 are applicable to the credits in respect of share application money/share capital. All that is required to be done is that the assessee is required to prove the existence of the shareholders because as held by the Hon'ble Delhi High Court, if the shareholders exists then, possibly no further enquiry needs to be made. In the present appeal, existence of the shareholders, of course not in doubt. However, the assessee is required to place the primary evidence and discharge the primary burden, for which reliance can be placed upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xman 1 (Del) wherein the High Court held that the assessee had filed subscription form for each of investors. The said subscription Form contained details, which set out not only the identity of subscriber, but also gave information with respect to their addresses as well as PANs. During scrutiny Assessing Officer had also asked for and was supplied with a copy of statement of bank account of the subscriber. The payments were made by cheques. In view of this the Hon'ble Court held that no addition could be made under s. 68 because assessee has discharged the onus in respect of veracity of the transactions. CIT vs. K.C. Fibers Ltd. (2010) 187 Taxman 53 (Del) wherein it is held that no material is brought by AO to hold that shareholders companies are umbrella company or have any relation with each other and the amount cannot be regarded as undisclosed income of the recipient assessee company. It also held that it is not for the assessee company to probe as to the source. It was for Assessing Officer to enquire into the affairs of the investor company. Their Lordships have applied the ratio of the decision in case of Lovely Exports (P) Ltd. (supra). CIT vs. Dolphine Canpack Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee to prove whether that person himself invested the money or some other person made investment in the name of that person. The burden then shifts to the Revenue to establish that such investment has come from assessee company itself. [decision in case of CIT vs. shri Barkha Synthetics Ltd. (supra) followed]. Without prejudice to above contention based on Lovely Export s case (supra), an analysis of all the above judgments thus goes to show that even if the principle laid down by the Hon ble Delhi High Court in Sophia s case (supra) is held as applicable even then the assessee s burden is restricted to establishing the existence of shareholders and once that is established. Since the assessee has submitted various documents, clearly indicates that the primary burden which lay upon the assessee, has been discharged. Even otherwise, we are expected to follow the decision of the higher Forums for which reliance can be placed upon the following decisions: i. Kamalakshi Finance Corporation Ltd. 55 ELT 433 ii. Agrawal Warehousing Leasing Ltd. vs. CIT (2002) 177 CTR (MP) 15 : (2002) 257 ITR 235 (MP) iii. Asstt. CCE vs. Dunlop India Ltd. Ors. (1985) 154 ITR 172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and invoked Section 68 of the Act to treat the amount of ₹ 7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the Act. (b) Being aggrieved, the respondent carried the issue in appeal. By an order dated 24th May, 2011 the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition of ₹ 7.53 crores made by the Assessing Officer by holding that the Assessing Officer had given no reason to conclude that the investment made (inclusive of premium) was not genuine. This inspite of evidence being furnished by the respondent in support of the genuineness of the transactions. Further he held that the appropriate valuation of the shares is for the subscriber/investor to decide and not a subject of enquiry by the Revenue. Finally he relied upon the decision of the Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 to hold that if the amounts have been subscribed by bogus shareholders it is for the Revenue to proceed against such shareholders. Therefore it held the Assessing Officer was not justified in adding the amount of share capital subscription including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the preamended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee s income as unexplained cash credit. XXXXXXXXXXXXXXXXXXX 2.14. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 and the registrar of companies is a statutory authority possessing details of companies. 2.17. We are also expected to analyze the arguments advanced by learned CIT Departmental Representative wherein, reliance was placed upon the decision in Kale Khan Mohd. Hanif vs. CIT (1963) 50 ITR 1 (SC). He contended that the source of money remained unexplained. Reliance was placed upon the decision of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC). A plea was also raised that the onus/burden still remained fastened to the assessee. We find that there are following decisions, which are in favour of the Revenue but based upon the facts of each case. i. CIT vs. Nivendan Vanijya Niyojay Ltd. (2003) 182 CTR (Cal) 605 ii. Hindustan Tea Trading Co. vs. CIT (2003) 182 CTR (Cal) 585. iii. CIT vs. Rathi Finlease Ltd. (2008) 215 CTR (MP) 429 : (2008) 2 DTR (MP) 31 iv. CIT vs. Precision Finance (P) Ltd. (1994) 121 CTR (Cal) 20 : (1994) 208 ITR 465 (Cal) v. Stellar Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC). 2.18. We are aware that many High Courts have distinguished/analyzed/considered the decision in Lovely Exports (P) Ltd. becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement not traceable . In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs. 2.21. So far as, non-providing opportunity to cross examine, in spite of repeated request made by the assessee, is concerned, the Hon'ble Apex Court in Andaman Timber Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) held as under:- Held, that the Revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross- examine the deponent on the statements relied upon by the Assistant Commissioner. Quite apart from denial of an opportunity of cross examination, the Revenue did not even provide the material on the basis of which th' Department sought to conclude that the loan was a bogus transaction. In Me light of the fact that the monies were advanced apparently by account payee cheque and were repaid by account payee cheque the least that the Revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against the assessee before passing the order of reassessment. This not having been done, the denial of such opportunity went to the root of the matter. The order of reassessment was not valid. Cases referred to: Andaman Timber Industries v. CCE [2016] 38 GSTR 117 (SC) (para CIT v. Ashwani Gupta [2010] 322 ITR 396 (Delhi) (para 9) CIT (Add!.) v. Bahri Bros P. Ltd. [1985] 154 ITR 244 (Patna) (para 9) CIT (Deputy) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven has proved the source of source, therefore, the creditworthiness was also proved, consequently, no addition made u/s 68 of the Act can be said to be justified. The ratio laid down in Creative World Telefilms Ltd. (supra) by Hon'ble jurisdictional High Court squarely comes to the rescue of the assessee. The assessee duly furnished the proof of identity like PAN, bank account details from the bank, other relevant material, genuineness of the transaction, payment through banking channel and even the source of source, therefore, the assessee has proved the conditions laid down u/s 68 of the Act. It is also noted that in spite of repeated request, the Ld. Assessing Officer did not provide opportunity to cross examine the concerned persons and even the relevant information and allegation, if any, made therein, which has been used against the assessee, was not provided to the assessee. At this stage, we add here that mere information is not enough rather it has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the Department has to provide the authenticity of the information to the person against whom such informa ..... 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