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M/s Prem Castings (P) Ltd. Versus Commissioner of Income Tax (Appeals)

2017 (12) TMI 368 - ALLAHABAD HIGH COURT

Addition u/s 68 - ingenuity of transaction - Held that:- Assessee is a private limited company and it being further admitted to it that the alleged investors were close friends and business associates of its directors and/or share holders, as the case may be, the burden rested squarely on the assessee to disclose true and correct details of the persons it claimed had made the substantial investments of ₹ 3.46 crores. That burden was not discharged. The identity of the alleged investors was .....

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those persons. Therefore, the objection raised by learned counsel for the assessee as to lack of opportunity to cross-examine the Bank Manager or other witnesses, is largely inconsequential. Even if such opportunity has been granted to the assessee by the Assessing Officer, it would have led to no different result inasmuch as since the assessee failed to establish the identity of the investors, the genuineness of the transaction itself gets disapproved for the reason that for a genuine transact .....

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.C.,S.S.C. I.T. ORDER Heard Sri Rahul Agarwal, learned counsel for the appellant and Sri Praveen Kumar, learned counsel for the revenue. This appeal has been filed by the assessee under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against the order of the Income Tax Appellate Tribunal, Delhi dated 11.09.2015 for the Assessment Year 2007-08. It has been admitted on the following question of law: "Whether the Assessing Officer was justified in makin .....

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₹ 3,46,00,000/- that had been recorded against share capital subscribed by 37 persons, being 23 corporate entities and 14 individuals. The assessee provided the names, addresses and other details of the investors who it claimed, had made investment of ₹ 3.46 crores. The assessee further claimed to have provided the PAN details, date of transactions, etc. According to the Assessing Officer these details had been provided with some delay. The Assessing Officer then randomly picked up 9 .....

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ining inquiry in respect of two persons went to a common address to two corporate entities. It was alleged one Sardar Surender Pal Singh was found at that address who claimed to have remained a director of those two companies till March, 2006 only. He further disclosed that the said companies had closed down in March, 2006. The statement of the said Sardar Surender Pal Singh was recorded and extracted in the assessment order. In short, the Assessing Officer reasoned that no person was found exis .....

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not support/confirm the claim made by the assessee with regard to the identity of the persons who the assessee claimed had made the investment. Thus, the Assessing Officer disbelieved the explanation furnished by the assessee in support of cash credit entries amounting to ₹ 3.46 crores found recorded in the books of account of the assessee and consequently he made an addition of that amount to the income of the assessee. Upon appeal, the CIT (Appeals) however, accepted the explanation furn .....

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the present appeal. The Tribunal thereafter found that the genuineness of the transactions had not been established by the assessee inasmuch the inquiries made under Section 133(6) of the Act resulted in negative confirmation of the details given by the assessee and also the AIS database had similarly resulted in a negative confirmation of the information furnished by the assessee as to the identity of the alleged investors. Then, the Tribunal further held that the burden to establish the ident .....

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ies reflecting subscription made to the share capital of the company. That investment having been made by the third parties, the assessee was not in a position to offer any further details other than that which was available with it. According to him, if such details had been found to be false or wrong, it was for the department to make additions at the hands of the persons who had subscribed to the share capital of the assessee and not at the hands of the company itself. Opposing the submission .....

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eged investors were close friends and business associates of the directors and/or the share holders of the assessee company, the burden to establish their identity and genuineness of the transaction rested strictly on the assessee. It was not open to the assessee to thereafter submit that it cannot be burdened to lead any further evidence to establish the identity of the investors or the genuineness of the transactions. According to him, the order of the Tribunal is wholly just. In any case, the .....

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wo of the investors as disclosed by the assessee effectively denied the fact of having made the investment. The PAN details of the alleged investors also did not establish the identity of such persons. In that view of the matter, the Tribunal recorded its finding that the identity of the investors was not established. The Tribunal disapproved the reasoning given by the CIT (Appeals) to accept the claim of the investment based solely on the fact that the investments had been made through banking .....

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ive some amount through banking channel from persons completely unknown to its directors. In those cases an argument does arise that even if the identity of the investor is not established, it cannot lead to a consequential addition at the hands of the assessee - a public limited company. The position is materially different in the case of the assessee here, a private limited company. In this case subscription to share capital (as claimed) is made through private invitation and not through publi .....

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nd the consequential addition had to be made at the hands of the company itself under section 68 of the Act by disbelieving the cash credit entries found recorded in the books of the assessee a private limited company. One exception where such addition may not be made at the hands of the private limited company may be where such an addition may be proposed to be made at the hands of a private limited company at the very beginning i.e. at a time when it may not have conducted any business so as t .....

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to its share capital (as has also been suggested during the course of arguments). Once it is found that the entries itself are bogus and the investors as disclosed are non-existent, the reflection of the amount in the books of account of the assesse is only a tax evasion device or a mere pretence. It is not an entry based on or arising from a real transaction. There being no transaction, the entry is a paper entry or a bogus entry. It cannot upon be relied to create any legal effect when there e .....

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ross-examine the bank officials or the hand writing expert. Thus, we find that it being undisputed that the assessee is a private limited company and it being further admitted to it that the alleged investors were close friends and business associates of its directors and/or share holders, as the case may be, the burden rested squarely on the assessee to disclose true and correct details of the persons it claimed had made the substantial investments of ₹ 3.46 crores. That burden was not di .....

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