TMI Blog2019 (2) TMI 1923X X X X Extracts X X X X X X X X Extracts X X X X ..... d companies could not be traced out at the given address - we find from the record that the assessee company has furnished the bank details of the investor companies. The address on the existence of the said companies could have been verified from the account opening forms etc. it is in the common knowledge that the accounts are opened in the bank through introducers who approve that the account holder is known to him / her and is genuine. Enquiries could have been made from the said introducers also. There is voluminous record placed on the file such as share application forms, share certificates, bank accounts statements, confirmation from the investors, certificate of incorporation of the said companies, directors report , auditors report and balance sheets etc. So far as the question as to why the said investment company would investigate the assessee company, that in our view, is the internal / market decision of the said investor company and that cannot be a basis for holding that the said investor is bogus. So far as the observation that the investor companies were running into losses, the Ld. Counsel for the assessee in this respect has demonstrated from the balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m reserve from ₹ 1,51,12,500/- to ₹ 2,24,25,000/- as compared to last year . It was noticed by the Assessing Officer that the assessee company During the year under consideration had issued 18750 shares to two companies at a premium of ₹ 390/- having face value of ₹ 10/- and received an amount of ₹ 75,00,000/- by way of share capital and share premium. During the course of assessment proceedings, the Assessing Officer asked the assessee company to prove identity, credit worthiness and genuineness of transact ion in the case of the companies who have subscribed to the share capital of the assessee company at a huge premium of ₹ 390/- per share. In response to this, the assessee company supplied requisite information with regard to the companies who subscribed to the share capital of the assessee company. After going through the information as supplied by the assessee company During assessment proceedings, the Assessing Officer issued commission under sect ion 131(l)(d) of the Act to the DDIT (lnv.) , Unit-l (l), Kolkata vide letter dated 16.02.2015 for determining the identity, creditworthiness and genuineness of transact ion in the case of two co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A), the assessee has made the following submissions:- This is with reference to an appeal filed by M/s Technico Metals Pvt. Ltd. (herein after referred to as the appellant ) against the order U/s 143(3) of the Income-Tax Act, 1961 for the above captioned assessment year. Brief Facts The appellant, a private limited company, is engaged in the business of trading of steel, and, also runs a service steel centre. For the previous year, relevant to assessment year 2012-13, the year under consideration, the appellant filed its return of income on 25.09.2012 declaring NIL income. However, the taxable profit shown by the appellant U/s 115JB of the Income-Tax Act, 1961 was ₹ 1,06,902/-. The return was also processed U/s 143(1) of the Income-Tax Act, 1961 on 17.06.2013. The case of the appellant was taken up for scrutiny, and, the same was assessed vide order dated 27.03.2015 U/s 143(3) of the Income-Tax Act, 1961. Aggrieved by the order dated 27.03.2015, the appellant preferred an appeal before Your Honor. The appellant seeks to place on record, its preliminary legal assertions, challenging the legitimacy of the addition affected in the assessment order, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies and the appellant are normal and genuine business transactions. No material has been placed on record by the Ld. Assessing Officer to contradict the veracity of the documents furnished by the appellant. The Ld. Assessing Officer, further, contented that the submissions of confirmations did not prove genuineness of the transactions. The Ld. Assessing Officer did not carry out any enquiry into the income tax records of the investor companies, in order to ascertain, whether, they were in existence or not. Even, the commission U/s 131(1)(d) was issued by the Ld. Assessing Officer to the Deputy Director of Income Tax(Investigation), Unit I(I), Kolkata, and, in turn, the Ld. Deputy Director of Income Tax (Investigation) issued summons to the investor companies. In response to those summons, the investor companies submitted information with respect to details of investments made in the shares of the appellant during the financial year 2011-12 relevant to assessment year. Copies of application forms made for the allotment of shares, details of bank accounts from where the amounts were invested, copies of the annual accounts for F.Y. 2010-11 to F.Y. 2012-13 and copies of Income-T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the real position is not the same as emerges from papers and documents furnished by the appellant. However, the appellant submitted its reply vide a letter, the relevant extract of which, is, also reproduced in the body of the assessment order dated 27.03.2015 at Page 14 Para 4.4.1, as under: Inspite of the best efforts made by the assessee company, none of the subscriber is agreed to be personally present before Your Honor, since, all these are staying in Kolkata or other places which are far from Ludhiana. The assessee company has already submitted confirmations giving their full addresses. Your Honor is requested to kindly summon these parties by using Your good office. The assessee company is ready to make payment of diet money for the same . However, the Ld. Assessing Officer did not consider the aforesaid reply filed by the appellant. Even, the appellant, further, said that the diet money, if required and ordered by the Ld. Assessing Officer, would also be paid. The Ld. Assessing Officer did not take any such action. The appellant made its keen efforts, in order to establish the fact, that the transactions between the investor companies and the appellant were genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and discharged and, therefore, it could not be said that, there was a failure to establish the identity, creditworthiness and genuineness of a transaction regarding the share capital and share premium. The action of the Ld. Assessing Officer and the arguments advanced by the Ld. Assessing Officer asking the appellant to prove source of source of deposit of the amount of ₹ 75,00,000/-, which, was not only against the spirit, but, also letter of the provisions relating to establishment of the identity of cash creditors embodied in the Income-tax Act, 1961. The copious, exhaustive but, at the same time, aimless exercise had been carried out by the Ld. Assessing Officer asking the appellant to furnish documents and offer explanations in respect of the investor companies, over, whom the appellant neither had, nor, is expected to have any control, physical or moral or even notional. The appellant could not be asked to prove the source of money of the investor companies, and, could not be held liable or penalized for any alleged shortcoming therein. Moreover, independent investigations, over, which the appellant did not have any control, could not, be used to form any conclusion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be within special knowledge of assessee. On a careful reading of section 106 of the Indian Evidence Act, it is noticed that what is the source from where an assessee has obtained the loan can be safely held to be a fact-situation, which is actually within the special knowledge of the assessee, hence, it is the burden of the assessee to show the source(s) from where he has received the loans. Once the assessee discloses the source(s) from where he has received the loans, his burden under section 106 stands discharged and the onus then shifts to the Assessing Officer to show, if he wants to treat the loans as an income of the assessee from undisclosed sources, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which has been received by the assessee in the form of loans, actually belongs to the assessee himself. While section 106 of the Indian Evidence Act limits the onus of the assessee to extent to his proving the source from where he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the amount, which he has advanced in the form of loan to the assessee, section 68 cannot be read to show that in the case of failure of the sub-creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be treated, as a corollary, as the income from undisclosed source of the assessee himself. II. The Hon ble High Court of Gujarat in the case of DCIT V. Rohini Builders [2002] 256 ITR 360 (Gujarat) has laid down as under: The assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source. Merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as nongenuine. Also, The Hon ble Supreme Court in the case of M/s Lovely Exports (P.) Limited V. Commissioner of Income-Tax (2008) 216 CTR 195(SC) has also laid down as under: If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity, capacity and genuineness have to be on the assessee; if the cash credit is not satisfactorily explained, the ITO would be justified to treat it as income from undisclosed sources ; the firm has to establish that the amount was actually given by the lender; the genuineness and regularity in the maintenance of the account have to be taken into consideration by the taxing authorities; and if the explanation is not supported by any documentary or other evidences, then the deeming fiction created by section 68 can be invoked. [Para 7] In the instant case, the first requirement was not relevant. So far as the second requirement was concerned, there was no doubt about initial burden being on the assessee. So far as the third requirement was concerned, obviously if the explanation was not satisfactory, then it was to be added. Then fourth requirement was that the firm had to establish that the amount was actually given by the lender. Fifth requirement was about genuineness and regularity in maintenance of the accounts obviously of the assessee, and it was not the finding that the accounts were not regularly maintained. Then sixth requirement was that if the expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, i.e., identity of the creditors was established before any of the authorities below. It will have to be kept in mind that section 68 only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee s burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the sub-creditors. In the light of the above principle, one should examine as to what the authorities below found vis-a-vis the genuineness of the transactions and the creditworthiness of their creditors. The fact that there was sufficient balance available with the creditors when cheques have been issued to the assessee-company was established. It was also established that the funds available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer. In any event what both the Assessing Officer and the Tribunal lost track of was that they were dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If had any doubts with regard to their creditworthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub creditors. So far as non-appearance of the sub-creditors to whom the notices have been issued under section 131 by the Assessing Officer is concerned, notices had been issued to the sub-creditors on 24-2-2005. The Assessing Officer, without giving sufficient time for the services to be effected on the said notices, within a period of four days proceeded to frame the assessment order. As a matter of fact, the Assessing Officer, quite curiously, has observed in the assessment order that the said noticees have preferred not to reply to the summons issued to them. There is no observation whatsoever as to the date on which the said notices were dispatched and thereafter served on the said noticees. It is not uncommon that notice issued by the revenue gets dispatched much later than the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had discharged its burden of proving identity, capacity and genuineness of transaction and in those circumstances, addition made by Assessing Officer was not justified. An appeal preferred there against by revenue was dismissed by Tribunal. Since there was no material with Assessing Officer to come to conclusion regarding any ingenuineness or fictitious identity of entries or noncapacity of lender, addition was rightly deleted . Even, The Hon ble High Court of Punjab and Haryana in the case of CIT v. Ramneet Singh [(2008)] 306 ITR 267 (P H)] has laid down as under: Where assessee had produced sufficient documents to show that loan shown in name of two companies had been received from those parties, addition made by Assessing Officer on account of unexplained loans was rightly deleted by Tribunal. To conclude, it may be said, that, on the basis of the facts discussed and the ratio of the judgements made it clear that, if the cash creditors were identified, and, it was established that they had lent money to the appellant, no recourse could be made to the provisions of Section 68. All the requisite particulars were provided to establish the identity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguishing point was that, in the case of Sumati Dayal, the assessee, herself, filed a sworn statement to effect that, she started going for races only towards end of year 1969 and had no experience in races, but, she purchased jackpot tickets on combination worked out by her on basis of advice given by her husband, whereas, in the instant case, the appellant did not file any such statement, on the basis of which, the matter in question had to be considered in light of human probabilities. From the above, it could be undoubtedly, and, unquestionably established that the facts in the case of the appellant were very much different from the facts of the case of Sumati Dayal. Therefore, the judgement in the case of Sumati Dayal relied placed upon by the Ld. Assessing Officer, would, not be applicable in the case of the appellant. As such, the addition of ₹ 75,00,000/- made by the Ld. Assessing Officer by invoking the provisions of Section 68 of the Income-Tax Act, 1961, are, neither warranted nor sustainable, keeping in view, both the factual as well as the legal position outlined above. Thus, the assessment order dated 27.03.2015 is contrary to law and facts. Furthermore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by these companies, their bank statements, share application forms, share transfer certificates, copy of articles and memorandum of association, copy of PAN card etc. It has also been submitted that the share holder companies have also replied to summons issued by the DDIT(Inv.), Unit -1(1), Kolkata by way of a letter and they have also explained the source of investments. The learned AR of the assessee company has also enclosed copies of letters addressed by these share holder companies to DDIT (lnv.), Unit-l (1),Kolkata. On careful consideration of the rival contentions, I am also of the opinion that the identity, creditworthiness and genuineness of transaction in the case of the shareholder companies namely M/s Lawa Marketing Pvt. Limited and M/s Pansy Dealer Pvt. Limited has not been established by the assessee company by producing the directors of these companies. The inquiries conducted by the Department clearly establish that the shareholder companies do not exist at their respective addresses and are believed to be paper companies and are in fact created just to provide accommodation entries to the needy persons. During the course of assessment proceedings, the learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee company is showing losses in its returns being filed by it with the Department and still sought to infuse share capital at a huge premium of ₹ 390/- per share and was able to garner a colossal amount of ₹ 75,00,000/-, I am of the Opinion that the Assessing Officer has correct1y invoked provisions of section 68 of the Act in this case. The enquiries made by the Assessing officer reveal that the investor companies had substantial means and could not reasonably be said to possess means to make investment that they did in purchasing shares of the assessee company. The Honourable Delhi High Court in the case of CIT Vs. M/s N.R. Portfolio (P) Limited [ITA No. 1018 1019 of 2011] has held that when Assessee does not produce evidence or tries to avoid appearance before Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as Assessing Officer is denied advantage of contention or factual assertion. It has also been held that the Court or Tribunal should be convinced about the identity, credit worthiness and genuineness of the transactions. It has further been held that the onus to prove the three factum is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company in this case will not prove identity, creditworthiness and genuineness of transaction in the case of share holder companies as held in various court decisions as referred to above. I am again of the opinion that the decisions of the Honourable Apex Court in the case M/s Lovely Exports is also not applicable here as many of the decisions relied upon by me and the Assessing Officer have been delivered after considering the decision of the Honourable Apex Court. Under such circumstances, the action of the Assessing Officer in making an addition of ₹ 75,00,000/- in this case by invoking provisions of section 68 of the Act by treating share capital/share premium received by the assessee company from M/s Lawa Marketing Pvt. Limited and M/s Pansy Dealer Pvt. Limited as its own income from undisclosed sources on the ground that the assessee company could not prove the identity, creditworthiness and genuineness of transaction in the case of these companies from whom share capital/share premium has been stated to be received by the assessee company cannot be said to be unjustified. 5.3 In view of the above stated facts and in the circumstances of the case, I a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid two companies who in turn reported that an Inspector was sent to the address of the companies, however, the said companies could not be located by him. The Ld. DR has, therefore, submi tted that these companies were non-existent companies and, hence, the ent ire transaction was a bogus transaction. 8. We have considered the above submissions of Ld. Representat ives of the par ties. It is not iced from the record that the assessee company to prove the identity and creditworthiness of the investor companies and genuineness of the transactions has furnished the fol lowing documents in relat ion to the investor company. (A) M/s Lawa Marketing (P) Ltd. a) Copy of Application Form for Equity Shares b) Copy of Statement of Bank Account of Transactions effected on 20.03.2012 c) Copy of Permanent Accounts-lumber d) Copy of Income-Tax Return Acknowledgement of A.Y. 2011-12 e) Copy of Blank Share Transfer Form g) Copy of Certificate of Incorporation f) Copy of Memorandum and Articles of Association g) Copy of Letter (along with Enclosed copies) to the Deputy Director of Income-Tax, DDIT(lnv.), Unit-(I)l, Kolkata; wherein Information was furnished U/s 131 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company, none of the subscriber is agreed to be personally present before Your Honor, since, al l these are staying in Kolkata or other places which are far from Ludhiana. The assessee company has already submit ted confirmat ions giving their full addresses. Your Honor is requested to kindly summon these part ies by using Your good office. The assessee company is ready to make payment of diet money for the same . 10. The Ld. counsel in this respect has also rel ied on the decision of the Hon'ble Rajasthan High Cour t in the case of CIT Vs. Jalan Hard Coke Ltd., [2018] 95 taxmann.com 330(Rajasthan), wherein, in somewhat ident ical facts, the assessee expressed i ts inabil ity to produce the share applicants, the Hon'ble High Court held that addi tions were not warranted observing that the company cannot assess for the income tax to f ind out the persons who has applied as shareholder. The said decision of the Hon'ble Rajasthan High Cour t has been af f irmed by the Hon'ble Supreme Court by way of dismissal of SLP filed against the said order reported in CIT Vs. Jalan Hard Coke Ltd., [2018] 95 taxmann.com 331 (SC) . The Ld. counsel has also brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, CA of the respective companies could have been enquired / investigated. It has been explained that the M/s Lawa Marketing (P.) Ltd. had paid share applicat ion money of ₹ 25 lacs through RTGS and the same was sourced out of the sale of shares for ₹ 32 lacs to M/s Ability Dealmark (P.) Ltd.) . Similarly, the source of funds in the case of M/s Pansy Dealer (P.) Ltd. has been explained that the same were sourced by sale of shares of M/s Malcom Marketing Pvt. Ltd. There is voluminous record placed on the file such as share application forms, share cer tif icates, bank accounts statements, conf irmation from the investors, cer tif icate of incorporation of the said companies, directors report , audi tors repor t and balance sheets etc. So far as the question as to why the said investment company would investigate the assessee company, that in our view, is the internal / market decision of the said investor company and that cannot be a basis for holding that the said investor is bogus. So far as the observation that the investor companies were running into losses, the Ld. Counsel for the assessee in this respect has demonstrated from the balance sheet , that as on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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