TMI Blog2018 (11) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Appeal No. 143/2018 - - - Dated:- 25-7-2018 - Mr. Justice Kalpesh Satyendra Jhaveri And Mr. Justice Vijay Kumar Vyas JJ. For the Appellant(s) : Mr. S.L. Poddar for Mr. N.L. Agarwal For the Respondent(s) : None JUDGMENT 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal filed by the assessee. 2. Counsel for the appellant has framed the following questions of law:- i) Whether the ld. ITAT was justified under law while passing of the impugned order dated 18.12.2017 without applying its mind and by merely reproducing the contents of order passed in its own earlier judgment in ITAT No. 702/JP/2014 titled ACT Circle I, Jaiur vs. Bright Metals Indian Pvt. Ltd. Jaipur dated 24.02.2017 and simply recording that the assessee company being a private limited company the burden of proof on higher pedestal ignoring the law laid down by Hon ble Apex Court in various cases referred in the impugned order itself particularly at page 9 11 of the impugned order? ii) Whether the ld. ITAT was justified under law while confirming the findings of the authorities below it by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Ltd. [2008] 299 ITR 268, CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and CIT v. Nipun Builders Developers [2013] 350 ITR 407 and has held as under: 12. The main submission of the learned counsel for the assessee is that once the assessee had been able to show that the shareholder companies were duly incorporated by the Registrar of Companies, their identity stood established, genuineness of the transactions stood established as payments were made through accounts payee cheques/bank account; and mere deposit of cash in the bank accounts prior to issue of cheque/pay orders etc. would only raise suspicion and, it was for the Assessing Officer to conduct further investigation, but it did not follow that the money belonged to the assessee and was their unaccounted money, which had been channelized. 13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hiding may reflect on the genuineness of the transaction and creditworthiness of the creditor. It would be also incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves. Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders. 20. Now, when we go to the order of the tribunal in the present case, we notice that the tribunal has merely reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Hon ble Delhi High Court has held as under:- 6. We find it indeed remarkable that the attention of the Sophia Finance Full Bench had not been drawn to the decision of the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78, which if cited would really have left no alternative to the Full Bench but to arrive at the conclusion it did. The books of account of the assessee contained three cash credits aggregating ₹ 1,50,000 allegedly received as loans from three individual creditors under hundis. Letters of confirmation as well as the discharged hundis were produced; but notices/summons sent to them remained unserved because they had reportedly left that address. The view of the Tribunal was that merely because the assessee could not produce these three parties, there was nevertheless no justification to draw an adverse inference. This approach as accorded approval by the Supreme Court in these words : In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the revenue. The revenue, apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o respond to the Department s notices would not justify an adverse inference being drawn against the assessees. The Court also kept in perspective the fact that the documentation had also been produced by the assessee. It is obvious that the Supreme Court considered that in these circumstances the onus of proof had been discharged by the assessee. It is also palpable that the Supreme Court was of the further opinion that the Department had not discharged the burden of proof that had shifted to it, since it did nothing more than issue notices under section 131 of the Income-tax Act. Therefore, the Department ought to have made efforts to pursue these notices/creditors to determine their creditworthiness. These observations sound the death-knell for the contentions raised on behalf of the Department in the present batch of appeals. 13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in case of Commissioner of Income-tax v. Nova Promoters Finlease (P) Ltd. [2012] 342 ITR 169 (Delhi), which is again a case of a private limited company and which has been followed in case of Navodaya Castles(supra). In this case, the Hon ble Delhi High Court has held as under:- 38. The ratio of a decision (in case of Lovely Exports) has to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axman 157 which is again a case of a private limited company and which has been followed in case of Navodaya Castles(supra). In this case, the Hon ble Delhi High Court has held as under: 18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. This according to us is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through bank account. 19. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. 3.6 We now refer to the decision in case of CIT vs. Shree Barkha Synthetics Ltd. (supra) wherein the Hon ble Rajasthan High Court has held as under (head notes): The assessee having been asked to furnish explanation about the receipt of capital money on account of share application, had furnished the details of the identity of persons who had made such investments. The particulars of the receipt and GIR number of the persons, who had made such investments in the matter of companies registered under the Companies Act, 1956, were furnished. Notices of 5 companies out of 7 companies were received unserved with the remark of the postal department that they had shifted their addresses. But no attempt was made by the department to pursue the enquiry thereafter which, notwithstanding the remark about shifting of addresses, prima facie established genuineness of such companies as existing persons. It had come on record that another company did exist and was under liquidation, the existence of which at relevant time could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntially to ensure that the matter of assessment reaches finality with all the requisite facts found. The assessment proceedings reopened on the basis of preliminary satisfaction that some part of the income has escaped assessment, particularly when some unexplained credit entries have come to the notice (as in section 68), cannot conclude, save and except by reaching satisfaction on the touchstone of the three tests mentioned earlier; viz. the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount towards share capital and the gross income reported by each of such investors to the revenue. A look at that chart would show that the investors had, by and large, reported amounts far less as compared to the sums invested by them towards share capital. Furthermore, the Assessing Officer had, during the course of assessment, issued notices under section 133(6) to the investors - 28 of them responded; 2 did not receive the notice and 9 of them received the notices and responded but did not submit any confirmation. [Para 7] Having regard to the circumstances, particularly, the fact that these investors not only did not submit confirmation but had concededly reported far less income than the amounts invested, the assessee could not, under the circumstances, be said to have discharged the burden which was upon it. It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the Assessing Officer to afford any reasonable explanation as to how they got the amounts given the nature of their income which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts, i.e., that the assessee commenced its business and immediately sought to infuse share capital at a premium ranging between ₹ 90-190 per share and was able to garner a colossal amount of ₹ 4.34 Crores, this Court is of the opinion that the CIT (Appeals) and the ITAT fell into error in holding that AO could not have added back the said amount under Section 68. The question of law consequently is answered in favour of the Revenue and against the assessee. 3.12 In case of M/s Shubh Mines Pvt Ltd, the Hon ble Rajasthan High Court has held as under: (7) A bare perusal of the assessment order reveals that the AO has made the addition on suspicion which is based on the statements of third party Shri Asseem Kumar Gupta, admittedly, recorded in the back of the assessee. It has come on record that the share application money of ₹ 50,00,000/- was received from Moderate Credit Corporation ltd., a listed company. It is not disputed before this court that the investment made was received by account payee cheque and the same was refunded by an account payee cheque when the company dropped its project. In the considered opinion of this court, in absence of any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction Co. F.Y. 2011-12 Capital Account For The Year Ended 31.03.2012 Cash Account For The Year Ended 31.03.2012 6. The first question of law which has been framed is a question of fact and in view of circular and observations made by the tribunal while considering the matter which reads as under:- 4. After going through the various legal authorities as narrated above, the legal proposition that emerges in the context of section 68 is as under: 4.1 Where any sum is found credited in the books maintained by the assessee, Section 68 requires that the assessee should offer an explanation about the nature and source of such sum found credited in its books of accounts to the satisfaction of the Assessing officer. In absence of explanation, or in the event of explanation being not found satisfactory, the sum so credited would be included in the income of the assessee. 4.2 The primary requirements, which should be satisfied cumulatively by the assessee in such cases is identification of the shareholder, creditworthiness of shareholder and the genuineness of the transaction. 4.3 The explanation offered and material submitted by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the shareholder. It would be also incorrect to universally state that an inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves. 4.7 Unlike the case of private limited companies, in the case of public limited company which has gone for a public issue and got share subscriptions from prospective shareholders across the length and breadth of the country, the legal regime may not be the same. In such cases, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents, bank transactions details and other related KYC documents submitted along with the share application. 4.8 The word identity means the condition or fact of a person or thing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction. 4.11 Where the assessee has discharged the initial burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction, the burden of proof shifts on the Assessing officer. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. If the Assessing Officer harbours any doubts of the legitimacy of any subscription, he is empowered, nay dutybound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings or has no material in his possession, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. 7. In view of the above, in our considered opinion, no substantial ques ..... X X X X Extracts X X X X X X X X Extracts X X X X
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