TMI Blog2018 (4) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs of the lower authorities are confirmed the ground No. 4 to 10 of the appeal of the assessee are dismissed. Penalty u/s 271(1)(c) - Held that:- No infirmity in the order of the ld CIT(A) in confirming the penalty u/s 271(1)(c) of the Act. The facts of the present case are similar to the issue decided by the Hon'ble Supreme Court in case of Makdata Pvt. Ltd vs. CIT [2013 (11) TMI 14 - SUPREME COURT] wherein, when certain documents with respect to the share applicants were found and the assessee surrendered that amount even then Hon'ble Supreme Court confirmed the penalty u/s 271(1)(c) of the Act. In the present case before us the assessee has submitted the forged bank statement of the depositors before the ld Assessing Officer to prove the creditworthiness and genuineness of the transaction. Therefore, the case of the assessee was in much worse situation then the issue before Hon'ble Supreme Court, therefore, we confirm the orders of the ld CIT(A) confirming the penalty u/s 271(1)(c) levied by AO - Decided against assessee. - ITA No. 4520/Del/2009 and 613/Del/2013 - - - Dated:- 28-3-2018 - Shri Suchitra Kamble, Judicial Member And Shri Prashant Maharishi, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) as well as A.O. has failed to prove that investment made by subscribe actually emanates from coffers of assessee to be treated undisclosed income of Assessee u/s 68. 9. That Ld. CIT (A) erred in holding that transaction in question should be treated as unsecured cash credit and not as share capital/premium money. 10. Whether the Assessee has discharged its onus of satisfying requirement of section 68 and there is no evidence on record to support findings of CIT [A] as well as A.O. 4. The ground No. 1 3 and ground No. 11 are general in nature and therefore same are dismissed. 5. Ground No. 4 10 of the appeal are with respect to the single issue involved in this appeal about the confirmation of an addition of ₹ 5000000/ by the Ld. CIT (A) on account of unexplained share capital and share premium under section 68 of the income tax act. 6. The brief facts are that assessee is a company engaged in trading of plots, agricultural land and minor development work. It filed its return of income on 29/11/2006 showing income of ₹ 38350/-. 7. During the assessment proceedings the Ld. assessing officer noted that the authorized capital of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Consequently assessment under section 143 (3) was passed on 19.12.2008 at ₹ 5038350/ against the returned income of ₹ 38350/ . 8. The assessee aggrieved, filed an appeal before the Ld. CIT (A). Before the Ld. CIT (A) the remand report was called for and one of the director of one of the depositor company s was examined on oath however he could not also explain the discrepancy in the bank statement submitted by the assessee as well as the bank statement submitted by the bankers directly to the assessing officer. In the remand report also the Ld. assessing officer stated that assessee has failed to prove the creditworthiness of the such creditor as well as the genuineness of those transactions. In response to the remand report the Ld. authorised representative submitted that the assessing officer should have issued summons and he further relied on the decision of CIT Vs. Lovely Exports Private Limited (2008) 208 CTR 216 (Supreme Court). The Ld. CIT(A) after taking the note of the explanation furnished by the assessee as well as the remand report of the Ld. assessing officer confirmed the addition of ₹ 50 Lacs under section 68 of the act. 9. Aggrieved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who would have made the changes in the bank statement. In fact he also denied that they have made any change in the bank statement submitted to the assessee. In view of this the Ld. authorised representative submitted that assessee has nothing to do with the manipulation done by an unknown person in the bank statement submitted before the assessing officer of those depositors. Therefore it was stated that assessee is not at all involved in any alteration in the bank statements of those depositors. In turn he relied upon the statement made by Sh. Sajan Singh wherein he has confirmed the amount deposited by the shareholder company with the assessee. He therefore submitted that in the statement recorded by the Ld. assessing officer of the director of the company who deposited money with the assessee company have also confirmed the fact that money has been deposited by that company who is regularly assessed to income tax. He therefore submitted that even the deposition of the director of the shareholder company have also confirmed the above transaction. (IV) He further submitted that if the Ld. assessing officer has any doubt about the source of the deposit of the shareholder then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he identity, creditworthiness and genuineness of the transactions of the share capital by the assessee. He further stated that assessee is merely filing return of ₹ 35850/- and garnered share capital of more than ₹ 50 lakhs which itself proved that the transaction of the share capital of obtained by the assessee is a non-genuine and bogus transaction of money laundering. He further referred to the statement of Sh. Sajan Singh who was the director of the company w.e.f. 20/2/2007. He submitted that the impugned assessment year involved is assessment year 2006-07 therefore how a person who was not the director of the company can depose before the assessing officer and state that those companies have deposited the money with the assessee as share capital. He was specifically referring to the question No. 6 of the statement. He further stated that his company has made an investment of ₹ 10 Lacs in the assessee company however the share certificates were not given to that company till one month prior to the date of statement i.e. 27/7/2009. He therefore submitted that amount of investment is made in assessment year 2006 07 where the share certificate have not been allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of those companies or not. He further stated that as depositors of the money have deposited cash in the bank account prior to the issue of cheque to the assessee company. It is apparent that these companies do not have any money with them but the assessee has given these money to the depositors who in turn have deposited the cash into the bank account and then issued the cheque to the assessee. He stated that the assessee has failed to show that these companies was having such a huge cash in their books of accounts. The assessee has failed to prove by producing the cashbook and the books of accounts of those depositors before the assessee officer. He further referred to the submission dated 27/2/2008 which is placed at paper book filed by the assessee at page No. I-23 and submitted that assessee has simply submitted the permanent account number photo copies of those parties and has not submitted the return filed by those companies before the assessing officer. He submitted that these are also not available in the paper book filed by the assessee before tribunal. Therefore it is a wrong statement made by the assessee that they have filed the income tax returns filed by those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that there is no infirmity in the orders of the lower authorities in making and confirming the above addition under section 68 of the income tax act. 11. We have carefully considered the rival contentions and also the orders of the lower authorities. Looking to the fact of the case we have also called for the assessment records which has been produced by the ld CIT DR. 12. Brief facts shows that the assessee has received share application money from five companies of ₹ 10 lakhs each towards issue of 10000 shares of face value of ₹ 10 each at a premium of ₹ 90 per share to each of the company. Before the ld Assessing Officer the assessee submitted a confirmation, copy of the income tax return, copy of share application form, copy of bank statement, copy of PAN and copy of memorandum of articles and association. The ld Assessing Officer issued notice u/s 133(6) and calling for the bank statement from the five parties vide order sheet entry dated 14.11.2008. The ld Assessing Officer further issued notices to the banks of the five companies to provide their bank statement. The bank statement provided by the assessee showed that before the issue of cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree with the observation of the Ld AR that the AO has no authority to cause enquiry when the case was remanded to him with specific direction. The crux of the issue is that the appellant has not cooperated with the AO at the assessment stage and on the specific direction of the Department, the appellant again failed to comply with the requisitions of the AO at remand stage. This leads to an inescapable conclusion that the appellant was not interested to comply with the direction of the Department rather it wants to base its argument only on Court decision but not on factual grounds. 6.4 The issue and the short question of law to be answered in the present contest as to whether in the facts and in the circumstances of the case, the AO was justified in treating ₹ 50,00,000/- as unexplained cash credit u/s 68 in the hands of the appellant. 6.5 The AO has disallowed the entire amount of ₹ 50,00,000/- u/s 68 of the Act. The fact remains, as per own admission of the appellant that it has received share capital/ share premium money of ₹ 5000000/- and neither the names of the Directors nor the addresses nor PAN nor the ledger copy of the account of any of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was not just possible for any reasonable man to form an opinion with regard to creditworthiness of the investor. There is no material evidence on record to establish that the amount was held by the investors to prove their creditworthiness. It is once again placed on record that repeated opportunities failed to urge the appellant to file the name, postal address, PAN and ledger copy of all these persons (companies). In one case although one of the Directors appeared but he could not explain the details of the transaction made with the appellant. 6.10 It is admitted that the identity of the subscriber (barring one case) was not established and also the genuineness of the transaction could not be established, neither the creditworthiness nor financial strength could be established. No PAN of all such persons was given and whether the said persons are filing the return on regular basis could not be stated by the Ld AR before me and with this submission no fruitful enquiry could be caused by the Department. As since the Department has established that such person (who's PAN was also not given) does not have sufficient creditworthiness as such identity itself (barring one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular case. The aforesaid provisions are nothing but recognition of broad principles of common law governing the issue under consideration. In the case of Gordhandas Hargovandas 5t Another Vs. CIT (126 ITR 560) (Bom.) the Hon'ble High Court observed as under:- Though in isolation each piece of evidence may appear to be of little weight, on an overall appreciation it would be permissible to consider their cumulative effect and decide one way or the other. Genuineness of transaction has to be gathered on the parameters spelt out in S.3 of the Evidence Act, which provides as to when a fact should be treated as proved. The observations of Hon'ble Supreme Court made in the case of Director of Income Tax Vs Bharat Diamond Bourse (259 ITR 280) which are relevant and as under: The story rings false from beginning to end, and yet, the Tribunal accepted it by saying, as regards the bonafides of the transaction, in our opinion, there is nothing to suspect the same. The Tribunal says, there is a transparency about the entire transaction which nullifies any attempt to make out the transaction as something unusual and out of the ordinary. That diamonds are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge the burden of proving the identity of the creditors and also to give the source of the deposits. In other words, the creditworthiness of the depositors must be established to the satisfaction of the AO. Where there is an unexplained cash credits, it is open to the AO to hold that it is income of the assessee and no further burden lies on the AO to show that income in question comes from any particular source. It was observed by the Hon'ble Sujrat High Court in the case of Gujco Carriers Vs CIT (256 ITR 50) that startling facts could not be ignored. 6.13. It is a settled proposition of law that the appellant has a legal obligation to explain the nature and source of credit as held in the case of Shriiekha Banerjee Vs CIT (1963) 49 ITR SC 112. In order to prove the transaction is not hit by section 68, the appellant has to establish first to identity, second the creditworthiness of the creditor and third the genuineness of transaction. It is to be mentioned that not one or two of the ingredients are to be proved to the satisfaction of the AO, all the three ingredients are to be established to make out a case that the assessee's case will not fall under the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is clearly, distinguishable as none of the aforesaid criteria was satisfied in the case under review. In case of a public issue, the company concerned cannot be expected to know other details pertaining to the identity as well as financial worth of each of its subscriber, yet there cannot be any reason not to give the details of such investors which run to the extent of ₹ 50,00,000/-. The rigor of proof in such cases is more stringent. 6.15 It is admitted that the identity of the subscriber (barring one) was not established and also the genuineness of the transaction could not be established, neither the creditworthiness nor financial strength could be established. No PAN of such investor was given and also whether the said person is at all filing the return on regular basis could not be stated by the Ld AR before me and with this submission no fruitful enquiry could be caused by the Department. Again when PAN was not given, it go, ts without saying that such persons have not sufficient creditworthiness as such identity (barring one) itself remains to be verified, the onus automatically shifts from the Department to the appellant and now it is the appellant to es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and comparing the same with the data supplied to the AO. This is a very serious lapse on part of the appellant and a deliberate attempt to furnish false evidence to defraud the revenue and also to deflect the attention of the revenue authority from the proper enquiry. As an Appellate Authority, the matter was brought before me and the AO is hereby directed to invoke necessary provisions of the law so that the matter could be examined and taken to its logical conclusion and decided by the Competent Court of Law. 10.0 Gist of the order:- In light of above facts and circumstances the gist of my order is given below:- With this the appeal of the appellant is dismissed. That addition of ₹ 50,00,000/- u/s 68 is correct and the action of the AO is sustained. (Ground NO. 1 to 5 dismissed.) 13. We have also perused the bank statement submitted by the assessee as well as the depositors and compared it with the bank account received by the AO from the bankers and our observations are as under:- a) In account NO. 6920200000471 of Development Credit Bank of Transactions India Pvt. Ltd, the depositor, has shown that on 27.02.2006 a sum of ₹ 625000/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of cheque of ₹ 10 lacs to the assessee whereas, the bank account of the Deutshe Bank shows the entries of cash deposits. Even the bank account is also printed in a forged manner. e) In case of the Columns Net Channels Pvt. Ltd in A/c NO. 06920200000745 with Development Credit Bank also shows cash deposit prior to the issue of cheque to the assessee as per bank statement furnished by the bank directly to the AO whereas, the bank statement submitted by the depositor and the assessee shows clearing amounts prior to the issue of cheques. The bank statement is also prepared on computer in a different manner then submitted by the bank. 14. It is evident that all these bank accounts submitted by the assessee along with the confirmation of the depositor are forged and not correct statements. In these circumstances the claim of the assessee that it is not required to prove source of the source of the credit is nothing but trying to take a shelter under a feeble legal argument. The bank account of the depositor companies shows a clear picture that cash is deposited of huge amounts and simultaneously cheques are issued to parties. We do not have any hesitation to say that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter pad, the manner of maintaining the annual accounts and the manner of submitting the bank accounts on the letter pad or on a computerized print out to give it a semblance of originality to defraud the revenue, proves much more than what is under challenge before us. It shows the whole picture how the accommodation entries are routed through shell companies as share capital to evade the taxes. The whole fa ade created by assessee shows the real purpose of introducing the unaccounted money of the assessee without payment of taxes. The finding of the ld CIT(A) also demonstrates this fact. 20. In view of this facts and looking at the detailed findings of the ld CIT(A) and ld Assessing Officer we do not want to interfere in the findings of the lower authorities in confirming the above addition of ₹ 50 lacs. Therefore, the findings of the lower authorities are confirmed the ground No. 4 to 10 of the appeal of the assessee are dismissed. 21. In the result ITA No. 4520/Del/2009 of the assessee is dismissed. 22. Now we come to the appeal of the assessee in ITA No. 613/Del/2013 for Assessment Year 2006-07 against the order of the ld CIT(A)-XI, New Delhi dated 31.12.2012, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee has submitted complete details and assessee is not involved in any of the forged documents which were submitted by the depositors to the assessee. It is stated that assessee has received the share application money through the registered companies by banking channel and AO should not have asked the source of the funds. He further relied on the decision of the Hon'ble Supreme Court in case of CIT Vs Reliance Petro Products Pvt. Ltd 321 ITR 158. In the end he pressed into the service the decision of the Hon'ble Supreme Court in Sree Krishna Electricals Vs. State of Tamil Nadu 23 VST 249 (SC), where it is held that when the claim of the assessee is rejected as sales are incorporated in account books penalty cannot be imposed. 25. The ld Departmental Representative vehemently supported the order of the ld Assessing Officer and further relied on the decision of the Hon'ble Supreme Court in case of Makdata and Zoom Communications. 26. We have carefully considered the rival contentions and also perused the orders of the lower authorities with respect to the quantum proceedings as well as penalty proceedings. The assessee has issued share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has brought all positive material or evidence on record that would establish that the amount introduced by way of alleged share capital/premium to the extent of ₹ 50,00,000/- in the names of five investors are nothing but unexplained unsecured amount and not to be treated as share capital/premium money, and all the parameters of section 68 have been fully satisfied in the instant case. It is reiterated that assessment details of the investing persons were not supplied by the appellant. Applying the above test in the present case, it appears to me that there cannot be any two opinions, having regard to the material produced with regard to identity, the creditworthiness of the subscriber as well as to the question of genuineness of transaction, the same could not be established by the appellant and hence the AO has rightly added ₹ 50,00,000/- and such decision of the AO is sustained. It is further established that the appellant has furnished details before the Department by way of bank statement which was patently wrong and was doctored document. The matter could be successfully established by the AO by seeking reports from the individual banks and comparing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not. The latest judgement of the Hon'ble Delhi High Court in the case of CIT vs Oasis Hospitalities Pvt Ltd. dated 31st January, 2011 has dealt with the issue at length and after examining the various judgments has settled certain parameters to decide an issue like this. After analyzing the provisions of the Companies Act, Section Finance Ltd. 299 ITR 268 (Del), CIT vs. Sophia Finance Ltd. (1994) 205 ITR 98 (Del)(FB), CIT vs. Dolphin Canpack Ltd. 283 ITR 190, CIT vs. Lovely Exports Pvt Ltd. 216 CTR 195 it was held that the initial burden is upon the appellant to explain the nature and source of share application money received by the appellant. If the creditor/subscriber is a company then the details in the form of resolution or PAN identity, etc. can be furnished. As regards the genuineness of the transaction to be demonstrated, the Court held that by showing that the appellant had in fact received money from the said shareholder and the money came from the corpus of that very shareholder the genuineness was duly established. The Division Bench also held that when the money is received by cheque and is transacted through banking or other undisputable channel, the genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omoters Ltd v CIT (2008) 305 ITR 202 (Delhi) it is stated that: It is well settled that the assessee must discharge the burden of proving the identity of the creditors and also to give the source of the deposits. In other words, the credit worthiness of the depositors must be established to the satisfaction of the AO. Where there is an unexplained cash credit, it is open to the AO to hold that it is income of the assessee and no further burden lies on the AO to show that income in question comes from any particular source. The ratio of the judgement in the case of Nova Promoters and Finance (P) Ltd (Delhi Court) can be applied to this case as the facts are similar. Extracts of the judgement are given below:- For the assessment year 2000-01, the assessee-company filed a return of loss which was processed under section 143(1) accepting the loss. Subsequently, based on a letter from the Director of Income-tax (Investigation) regarding entry operators/accommodation providers, informing the Assessing Officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was one, that there were statements recorded from per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a remand report to the effect that the transactions had not been proved genuine and were only instruments used by the assessee to mislead the income-tax authorities. The Commissioner (Appeals) concluded that the Assessing Officer was not justified in making the addition of ₹ 1,18,50,000 under section 68 of the Act. Consequently, he also deleted the addition of ₹ 2,96,250 made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. The Tribunal confirmed the deletion of the additions made under section 68 of the Act. On appeal by the Department: Held, that the assessment was reopened on the basis of information received from the investigation wing of the Department about the existence of accommodation entry providers and their modus operandi in which the assessee was also found to be involved. The Tribunal had recorded, while dealing with the assessee's cross objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee during the year under consideration, that as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post office regarding the whereabouts of the addressees was not proper. There was, in this case, no such duty cast on the Assessing Officer. The assessee had been blocking any enquiry by the Assessing Officer at every stage on some plea or the other, including a frivolous plea that no cross-examination was allowed, overlooking that once they filed the affidavits retracting from their earlier statements the plea lost force. The findings of the Tribunal were based on irrelevant material or had been entered ignoring relevant material. The finding that the share application monies had come through account payee cheques was, at best, neutral. The question required a thorough examination and not a superficial examination. The fact that the companies which subscribed to the shares were borne on the file of the Registrar of Companies was again a neutral fact. That these companies were complying with such formalities did not add any credibility or evidentiary value. In any case, it did not ipso facto prove that the transactions were genuine. Material was gathered by the investigation wing and made available to the Assessing Officer, who in turn had made it available to the assessee. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h share applicants. In the recent judgment of CIT Vs. M/s Neelkanth Ispat Udhyog Pvt Ltd (Delhi High Court ITA No. 427/2012), the court has given its decision in favour of the revenue in respect of addition made u/s 68 of the IT Act. The Court observed as under:- It would be clear that the nature of enquiry undertaken by the income tax authorities would vary from case to case, depending on the nature of the material furnished to them by the assessee, when called upon to do so. In this case, the material in the form of addresses and documents pertaining to the share applicants of the assessee were enquired into thoroughly by the AO. He found a pattern in the way funds were moved into the accounts of those investors. The pattern was common to each of them; the amounts were received within a few days or weeks before the shares were allotted; there was no material to show how they knew that shares could be purchased. Furthermore, the AO s efforts to get them involved, through summons were unsuccessful. The applicant made no attempt to assist the AO in these proceedings. While it is true that the AO did look into the investigation report and did not allow cross examination o ..... 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