TMI Blog2013 (12) TMI 1679X X X X Extracts X X X X X X X X Extracts X X X X ..... s Madhavpura Mercantile Co-operative Bank Ltd. from the amount received on allotment of 20,340 cumulative redeemable preference shares of ₹ 1000/- each at a premium of ₹ 4,000/- per share. This source of funds utilized by the assessee for repayment of loan of Madhavpura Mercantile Co-operative Bank Ltd. was investigated by the department in the case of the assessee as well as in the case of other group companies involving the similar issue. During the course of such investigation, the directors of 28 companies who had subscribed to the preference shares were summoned and their statements were recorded. In the said statements, they stated of having received cash of equal amount from the assessee-company against the amount paid for subscribing to the preference shares. Statement of one Shri Kishan Kumar Verma was also recorded, who admitted of having made available his individual Bank Account as well as the bank accounts of his propriety concern to deposit cash in lieu of signed blank account payee cheques to Shri Pawan Kumar Agarwal and Shri D.K. Nahata. Statement of Shri Pawan Kumar Agarwal was also recorded wherein he admitted that the cheques received from Shri Kishan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also submitted that the said statements even otherwise could not be relied upon as there was huge similarity therein despite the fact that different directors were examined at different times. It was contended that this fact alone was sufficient to establish that the said statements were kept ready by the department and only the signatures of the concerned directors were obtained. It was also submitted that no independently enquiry was made by the AO and addition u/s 68 was made solely relying on the report of the ADIT, Kolkata. It was contended that even the opportunity of cross examination of the share applicants was not afforded to the assessee. The ld. CIT(A) did not find merit in these submissions made by the assessee and confirmed the addition made by the AO u/s 68 mainly following his appellate order passed in the case M/s Chat Computer Pvt. Ltd, another group concern wherein a similar issue was decided by him against the assessee involving identical facts and circumstances . Aggrieved by the order of the ld. CIT(A) confirming the addition made by the AO u/s 68, the assessee has raised this issue in the present appeal. 5. We have heard the arguments of both the sides an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o called companies which in turn issued back to assessee cheques/demand draft of equivalent amount. This fact was stated on oath by the directors of the said companies. However, director of the assessee Shri Kiriti Kumar N Parekh denied to have paid any cash to these parties in his statement before ADIT(Inv) Unit IX(2), Mumbai. In his statement he stated his intention to cross examine the aforesaid directors to prove his stand. DDIT(Inv) Unit 1(2) Kolkata has given several opportunities to the assessee to cross examine the aforesaid directors at its Kolkata office. In spite of repeated opportunities given to the assessee, the said cross examination could not take place as the assessee sought adjournment every time. Thereafter, the assessee stated that he would exercise his right of cross examine at the time of assessment. 4.6 A letter dated 16.9.2008 was issued by this office to the Managing Director of the company giving him opportunity to cross examine the share4 applicants and was asked to file confirmation of the said share applicants on 30th Sept, 2008. However, no one appeared on 30th Sept 200. It is pertinent to mention here that assessee was given several opportuniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the application money received by the assessee is assesse s own money routed through those applicants companies. There is no evidence or material brought on record by the Assessing Officer, except the un-cross examined statements of the third party, to show any movement of cash routed back to the assessee in form of application money in the alleged allotment of cumulative preferential shares. Rather, it is undisputed fact that the application money was received through account payee cheque/bank draft given by the investing companies from their respective bank account. It is also an accepted fact that source of the application money was found in the bank account of the investing companies deposited through account payee cheques; therefore, no cash transaction was found by the Assessing Officer in the bank account of the investing companies. 6.4 The Assessing Officer doubted the movement of cash from the assessee as being passing through various levels and reached to the assessee company. However, no finding has been given to the effect as to how the alleged cash/money of the assessee company routed through various levels finally reached to the assessee. Not an iota of evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident from the answer to question no.6 as under: Question No. 6 Do you have to say anything else? Ans: I have gone through the above statement and the same has been recorded correctly and without any fabrication. The above statement gas been given by me without the use of any force, coercion or threat. The mistake in the answer no. 6 is also identical in all the statements recorded on different dates. Since the statements were recorded by the investigation team of ADIT(Inv) Unit 1, Kolkata and not during the proceedings before any Court of law; therefore, all these facts suggest and indicate to believe that the same are not recorded as a verbatim of what the concerned person stated; but obtained by the department in a mechanical manner. However, without going into validity of the statements when all other records, material and documentary evidences contradict and nullify the statements then the reliance placed by the Assessing Officer on such statement is highly unjustified and improper. 7 Even otherwise, in the case of the Ashwani Gupta (supra), the Hon ble Delhi High Court has taken a note of the finding of the Tribunal in para 2 as under: 2. The Tribunal has conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are application money received by the assessee. In order to discharge this burden, the assessee is required to prove : (a) the identity of shareholder ; (b) the genuineness of transaction ; and (c) the creditworthiness of shareholders. 12. In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. 13. The genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be copies of the shareholders register, share application forms, share transfer register, etc. 14 As far as creditworthiness or financial strength of the creditor/subscriber is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adhuri Investments Pvt. Ltd. v. Asst. CIT (in I. T. A. No. 110 of 2004, decided on February 18, 2006). In this case also, some of the share applicants did not appear and notices sent to them were returned with remarks with no such person . Addition was made on that basis which was turned down by the High Court in the following words : 6. Having heard the learned counsel for the parties, we notice that whenever a company invites applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genuineness of the applicants before allotting the shares. If for any reason the address given in the application were to be incorrect or for any reason if the said applicants have changed their residence or the notices sent by the Assessing Officer have not been received by such applicants, the assessee-company cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the Revenue only relying upon the statement of Sri Anil Raj Mehta, a chartered accountant. 8.1 The Hon bl High Court further discussed the issue in paras 20 to 24 as under: 20 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spicion. On appeal tothe Supreme Court, the court while reversing the decision of the High Court held that the findings of the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of section 68 of the Act suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books, or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged toincome-tax as the income of the assessee of that previous year. The expression t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This view was confirmed by the apex court in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. 24. Having taken note of the legal position in detail, we now proceed to decide each appeal on the application of the aforesaid principles. I. T. A. No. 2093 of 2010 and I. T. A. No. 2095 of 2010 9 It is clear from the decision of the Hon ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra) that once the assessee filed copy of PAN, Acknowledgement coy of the return of income of the investing companies, their bank accounts statements for the relevant period; then even the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc. 10 In the case in hand, there is no dispute about the identity of the applicant companies, who had paid the application money and the source of the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of share application money has been deleted. 34. Having regard to the decisions noted above, we are of the view that the addition was rightly deleted by the Commissioner of Income-tax (Appeals) and the Tribunal. Requisite documents were furnished showing the existence of the shareholders from bank accounts and even their income-tax details. From bank accounts of these shareholder, it was found that they had deposed certain cash and source thereof was questionable. The Assessing Officer should have made further probe which he failed to do. Moreover, the remedy of the Department lies in reopening the case of these investors and the addition cannot be made in the hands of the assessee. Thus in view of the above observation of Hon ble High Court when requite document were produced and available with the AO to establish that no cash was deposited in the bank accounts of the investing companies then without further probe to prove contrary the addition in the hand of the assessee cannot be made. 13 There is no quarrel on the aspect that so far as it is possible the consistency of the view has to be maintained; however, in the case of the assessee, the Tribunal, for the AY 2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Delhi High Court in the case cited supra. Further in view of the decision of hon ble Gujrat High Court in case of Rajeh Babubhai Damania (supra), we see no reason for giving the A.O. any further innings to fill up the lacunas or lapses in the assessment which would cause a great injustice to the assessee. 15. In view of the above discussion and the facts and circumstances of the case, the share application money cannot be treated as income of the assessee company until and unless it is proved beyond doubt that the assessee s own money has come back through some closely related applicant. Once the identity of the applicant is disclosed and found as correct then, even if the said transaction is suspected by the revenue authorities, the same cannot be treated as income of the assessee company which is a public limited company. Accordingly, we delete the addition made by the Assessing Officer and confirmed by the CIT(A) on this account. However, we may clarify that our findings on the issue are based on particular facts of this assessment year and therefore, would not affect the respective rights of the parties for the other assessment years. 6. As the issue involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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