9911796707
TMI Blog2015 (5) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) r.w.s. 147 of the Act may kindly be quashed or alternatively the above additions made by the assessing officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted." 2. Assessee is engaged in the business of high seas sales of imported goods, yarn, plastic granules etc. In this case, original return of income was filed on 17.10.2005 declaring income of Rs. 96,520/-, it was processed u/s. 143(1) of the Act on 20.03.2006. Consequently, Assessing Officer received an information from the Investigation Wing, Mumbai through the offices of DGIT (Inv) Surat, CIT(A)-I, Surat and Addl. CIT(A), Range-1, Surat regarding bogus share application money to the extent of Rs. 21,00,000/- claimed to have been received from M/s. Mihir Agency Pvt. Ltd. and M/s. Buniyad Chemicals Pvt. Ltd. The share application money was claimed to have been received from these companies for purchase of 42000 shares on face value of Rs. 10/- at the premium of Rs. 40 per share. 2.1 During search u/s.132 of the Act on 25.11.2009, consequent to an alert received from FIU, New Delhi in respect of suspicious transaction in the bank account of M/s Mahasagar Securities Pvt. LTd. During course of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments to be given by the Mahasagar Group of companies which includes Memorandum and articles of association of the Company making the investment, extract of resolution passed at the meeting of the Board of Directors of the company making the investment, declaration by the company making the investment, share application form, blank acknowledgement of receipt of sales consideration, of the shares at a later date duly signed by the Directors of the company making the investment, blank transfer deed, duly signed by the Directors of the company making the investment, list of its present Directors. After giving the above mentioned documents, cash is received from the company seeking the entry / adjustment which is deposited in the bank accounts of the (Mukesh Choksi) group companies other than the company from which entry is to be given. The funds are transferred from the subsidiary accounts to the bank account of the company making the investment. Cheque is issued in favour of the company seeking the entry / adjustment from the bank account of the company making the investment. Evidences Gathered in support of this activity: * Analysis of the external hard disk seized from Mukesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess for many years. In the list of clients who have taken accommodation entries from these companies, the name of this assessee ie Pankaj Enka Pvt Ltd is also appearing/. During the course of search and seizure proceedings the statement of Shri Mukesh Chokshi, main person behind the scam, was also recorded on 25.11.2009. In his statement recorded on Oath he has admitted that these transactions are bogus. From the details submitted by the investigation Wing, Mumbai , it is seen that the assessee has obtained entry of the share application money of Rs. 11,00,000/- from Mihir Agency Pvt Ltd , one of company run by Shri Mukesh Chokshi, during the financial year 2004-05 ( AY 2005-06 ) , In view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. In view of the above, income to the extent being more than Rs. 1,00,000/- has escaped assessment within the meaning of section 147 of the Act. Therefore, Notice u/s 148 need to be issued. The approval of the Addl. CIT Rang e-1, Surat is, therefore, sought for issue of notice under the provisions of section 151(2) of the Act." 2.7 In response, asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e if any, in rebuttal of the evidence filed by the appellant under Rule 46A(3) (a) and 46A(9)(b) of the IT Rules. 4. The appellant's submission in two paper book is enclosed herewith for your perusal and report. 5. You are also directed u/s 250(4) of the I T Act to conduct necessary inquiries in respect of additions made u/s 68 of the I T Act regarding share application money and unsecured loan, apart from addition on account of current liability. Such inquiry may involve 3rd party verification and verification of movement of money through banking channels." 3.1 The report of Assessing Officer dated 06.09.2012 forwarded by Additional CIT vide letter dated 10.9.2012 was received on 11.09.2012. A copy of the same was given to assessee and assessee's comments were obtained. Having gone through same, CIT(A) noticed that certain issues were not properly addressed or investigated at assessment stage or during the remand proceedings. Therefore, matter was again remanded to Assessing Officer u/s. 250 (4) of the Act vide this office letter dated 11.01.2013. The said letter is reproduced herein under :- "2. With reference to the above, it is noticed that the remand report se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at component all these liabilities are pertaining to A Y 2005-06 and what amount is the opening balance ? In case of amount pertaining to AY 2005-06, the nature of credit i,. e trade credit or loan credit should be mentioned. g. In respect of addition of share capital, you should furnish the following details in respect of each share applicant i. The date of receipt of money. ii. The date of allotment of shares. iii. Subsequent movement of shares i.e. changes in ownership, subsequent to allotment till date, iv. In case these shares have been subsequently purchased by the appellant company, or by its promoters, complete details of such transaction should be furnished i.e. date, amount, rate and mode of payment of consideration with book value of shares on the date of purchase. v. Book value of the share on the date of receipt of share application money. h. From a perusal of the bank statement, in respect of receipts of share application money, it is noticed that amount received as share application money by the appellant has been immediately transferred to some Other concern/ person/s, details of which are available in the bank statement of the appellant filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant stating that shares have not been transferred to promoters or to "other directors, in this regard, it is again clarified that you were requested to ascertain the present status of corresponding shares starting from the time share application money was received to till date, i.e. when the shares were allotted and who are the successive owners ? This information is available in the form of details of share holding submitted by the Company to the Registrar of Companies. 2.1 Since directions were issued for inquiries u/s 250 (4) of the I T Act, you are expected to obtain the same from ROC or obtain share holders register/ copy of shareholder details filed with the ROC from the appellant. You should therefore, immediately obtain the annual share holders return or shareholders Register from the appellant and furnish information on specific points asked mentioning the information as per para 3 (g) (iii) of this office letter dated 11.01.2013. 3. Since no further inquiry is needed, except obtaining the details of subsequent owners of shares, till date, your report should be submitted to this office, within a week's time." 3.3 In response to said clarification, Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Tribunal that as per the information of the Investigation Wing, the names of the persons issuing the cheques , the cheque amounts, dates, etc were also mentioned providing a link between the entry providers and the assessee. We are aware of the legal position that at the stage of issuing the notice u/s 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax at escaped assessment. However, once that stage is crossed and the reassessment proceedings are set in motion, the material on the basis of which the requisite belief was formed by the Assessing Officer has to be appraised and examined. That material on the basis of which, the notice under section 148 was issued becomes relevant in the course of the reassessment proceedings............................" Accordingly, issue on reopening was decided against assessee. 4. Same has been opposed before us on behalf of assessee inter alia submitted that CIT(A) erred in confirming the action of Assessing Officer in reopening assessment by issuing notice u/s. 148 of Income Tax Act, 1961. Assessee has file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, share application money, commodities profit/loss on commodity trading (through MCX) and had been continuing this business for many years. In the list of clients who have taken accommodation entries from these companies, the name of this assessee i.e. Pankaj Enka Pvt. Ltd., is also appearing. During the course the search and seizure proceedings the statement of Shri Mukesh Chokshi, main person behind the scam, was also recorded on 25.11.2009. In his statement recorded on Oath he has admitted that these transactions are bogus. From the details submitted by the Investigation wing, Mumbai, it is seen that the assessee has obtained entry of the share application money of Rs. 11,00,000/- from Mihir Agency Pvt. Ltd., one of company run by Shri Mukesh Chokshi, during the financial year 2004-05 (A.Y. 2005-06). In the view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. In view of the above, income to the extent being more than Rs. 1,00,000/- has escaped assessment within the meaning of section 147 of the Act. Therefore, Notice u/s.148 need to be issued. The approval of the Addl CIT Rang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferences have ultimately to be drawn." ITA No. 816/A 5.3 The case of assessee is squarely covered by the decision of ITAT, Jodhpur Bench in case of M/s Surbhi Minchem Pvt. Ltd. (ITA Nos. 102 & 103/Jodh/2014). In said case, case was reopened u/s. 148 on the basis of same statement of Mukesh Choksi dated 25.11.2009, the director of Mahasagar Group of companies and on this point it was held as under: " the reason recorded by the Assessing Officer were merely on the basis of information received from DDIT (Inv.) Udaipur and Mumbai, therefore, from the so called reason, it was not at all discernable as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that on the basis of the material which he had before him the income had escaped assessment, therefore, the reassessment u/s 147 of the Act was not valid and accordingly the same is quashed. Since we have quashed the reassessment order, therefore, no findings are being given for the grounds raised by the assessee on merit." The reasons recorded in case of M/s. Surbhi Minchem Pvt. Ltd. (supra) u/s. 148 are reproduced as under: "In due course, the information have received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied his mind to the information and independently arrived at certain belief on the basis of material before him that any income had escaped assessment. In view of above legal discussion, assessment framed u/s. 143(3) r.w.s. 147 of Act is quashed. 6. Without prejudice to above, regarding merit we find that Assessing Officer made addition of Rs. 1,06,00,000/- which can be bifurcated into two sub grounds i.e. Rs. 21,00,000/- and Rs. 85,00,000/-. CIT(A) confirmed both the additions totalling to Rs. 1,06,00,000/- by relying on the decision of CIT V/s Nova Promoters & Finlease (P) Ltd.(supra). 6.1 As stated above, first sub-ground is related to addition of Rs. 21 lacs in respect of receipt of share application money from Mukesh Choksi Group of cases and second sub=ground regarding addition of Rs. 85 lacs in respect of share application money received from 12 other companies, for which assessee failed to discharge its onus u/s. 68 of the Act before Assessing Officer. 6.2 In respect of addition of Rs. 21 lacs, CIT(A) decided appeal in another group case of assessee i.e. M/s Harmony Yarns Pvt. Ltd., Surat, A.Y. 2005-06 in appellate order no. CAS-1/2008/2011-12 dated 26.06.2012 against a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. ( See Parimisetti Seetharamamma ( 1965) 57UTR 532 at page 536) But, in view of Section 68 of the Act, where any sum is found credited in the books of assessee for any previous year, the same may be charged to income tax as the income of the assesses of that previous year if the explanation offered by the assessee about the nature and source thereof, is in the opinion of the Assessing Officer, not satisfactory. In such a case, there is, prima facie, evidence against the assessee viz. the receipt of money and if he fails to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. 24. But, it has been urged on behalf of the petitioner that an addition within the meaning of Section 68 would not be justified in law in its hands even if the share application money was received from bogus share holders. Counsel appearing on behalf of the petitioner submitted that in the present case the report submitted by the Commissioner U/s 245D(3) showed that the two companies were duly identified being income tax assesses whose P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned cannot be expected to know every details 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. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while waling the tightrope of Sections 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered nay duty - bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company (Emphasis supplied). 25. Now, it is this decision of the Delhi Court against which a Special Leave Petition before the Supreme Court came to be dismissed on 11 January 2008, In CIT Vs Lovely Exports (P) Ltd (2008) 6 DTR 308 (SC) while dismissing the Special Leave Petition the Supreme Court observed that if the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial which had a bearing on the credit worthiness and financial standing of the alleged subscribing companies to the share capital of the petitioner. None of the companies was held to have a financial standing or credit worthiness which would justify making such a large investment of Rs. 6 crores at a premium of Rs. 990/- per share. The allotment of shares, it must be noted, has taken place in pursuance of a private placement. The principles which have been applied in relation particularly to the public subscription of shares of a public limited company can obviously have no application to the facts of a case such as the present The view which has been taken by the Settlement Commission is consequently, borne out on the basis of the material on record. This is not a case where the Commission has proceeded contrary to law or on the basis of no evidence. There is no perversity in the findings of Settlement Commission. 27. Before leaving this aspect of the matter, it would be necessary to advert to two decisions of this Supreme Court, the first being in CIT Vs P. Mohanakala (2007) l6l Taxman 169 / 291 ITR 278 ( SC). While considering the scope of section 68, the Supreme Court obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties in whose name the amounts in question had been credited by the assesses in his books of account. In the absence of any cogent evidence, a bald explanation furnished by the assessee about the source of the credits in question viz, realization from the debtors of the erstwhile firm, in the opinion of the AO, was not satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for previous year, the same may ha charged to income tax as the income of the assessee of that previous year, if the explanation offered by the assesses about the nature and source thereof, is, in opinion of the assessing officer not satisfactory................' 8.2 In this background we may examine the judgement of Hon'ble Supreme Court in the case of M/s Lovely Exports (P) Ltd which is reproduced herein below :- "1. Delay condoned. 2. Can the amount of share money be regarded as undisclosed income under section 68 of the IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assesses company from alleged bogus shareholders, whose names ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch operation." 6.3 Moreover, ITAT, Ahmedabad has accepted that Shri Mukesh Choksi and its group of companies are accommodation entry providers in their cases and has held that only commission income for giving bogus accommodation entries was taxable in their cases. According to CIT(A) on similar facts, Hon'ble Delhi High Court in its judgment dated 15.02.2012 reported in case of Nova Promoters Finlease Pvt. Ltd. (supra) has decided similar issue against assessee. 6.4 In this background, CIT(A) observed that decision of the Hon'ble Supreme Court in case of M/s. Lovely Exports (P) Ltd. applies only in those cases, where department has not detected any evidence of collusive transaction between accommodation entry provider and assessee and other circumstances of case are also such that there is no circumstantial evidence of existence of any collusive transaction. It means the decision applies in normal cases of share capital and not colourable transactions. In cases, where a specific evidence of bogus share application by way of collusive transaction between entry provider and assessee exists or other circumstantial evidence make out a case Of collusive transaction. The decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, both these companies confirmed their statement given before the investigation Wing, Mumbai. Their letter dated 27.03.201 2 which is mentioned in assessment order at page - 8, is reproduced herein under :- " We have received a notice dated 20th March, 2012. In this connection, we would like to inform you that we confirm our statement which was given during search proceedings on 25th November, 2009 " 6.7 Assessee in its paper-book filed share application form in the name of M/s Harmony Yarns P Ltd., which is group concern of assessee company, rather than assessee's company. Moreover, share application form of M/s Buniyad Chemicals Pvt Ltd. does not have any date. The share application money received by assessee had been immediately transferred to assessee's group concern M/s. Rama Tradelink Pvt Ltd. The cheque for share application money in case of M/s. Mihir Agencies has been issued from Current Account no. 4259 with Canara Bank. Santacruz (East), Branch, Mumbai. From the same bank account, M/s. Mihir Agencies has given share application money to M/s Harmony Yarns P. Ltd. of Rs. 6 lakhs on same date on which, it issued cheque to assessee company i.e. on 20.01.2005. Chequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pvt. Ltd. vide letter dated 15.03.2012 intimated that their accounting data has been impounded by Income Tax Department in search action carried out in their office premises by DDIT-unit-1(4) on 25.11.2009. Hence, they were not in position to provide any information in the matter. Thereafter again notice u/s 133(6) were issued to the alleged two parties and reply was received vide letter dated 27.03.2012, wherein they have simply given confirmation of their statement recorded at the time of search but failed to provide information as asked by Assessing Officer vide letter dated 12.03.2012 and on the basis of which, Assessing Officer proceeded to make addition u/s. 68 of the Act. When reply u/s. 133(6) dated 15.03.2012 of the two alleged parties clearly stated that they cannot confirm any alleged collusive transaction with assessee without accounting data, legal position of law still remained unchanged even on the receipt of their letter dated 27.03.2012. Even otherwise Assessing Officer has not bothered to obtain the relevant information from impounded material seized by the Income Tax department. This shows that assessing officer has made addition without making proper inquiry a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of statement of Mukesh Chokshi recorded on date 25.11.2009 who admitted that he only provides accommodation entries. Even in said case as referred supra, share application money was received from Buniyad Chemicals Pvt. Ltd and it was observed that apparently company has allotted shares at the face value of Rs. 10/- at a premium of Rs. 90/- per share which were ultimately transferred to various employees of different concerns of family members of assessee at face value. Even in the present case, CIT(A) has stated that the shares were issued at a premium and were re-purchased by the Director of the assessee Company and a group Company of assessee at face value. In such circumstances, Hon'ble ITAT Bench in case of Chartered Motors Pvt. Ltd. vs. ACIT held as under: 'Thus, we find that the assessee was not allowed any real opportunity to cross-examine the persons who made the statement at the back of the assessee. In our considered view, in the circumstances, the statement of those persons cannot be read against the assessee. Our above view finds support from then decision of the Hon'ble Jurisdictional High Court in the case of: 1. Heirs and Legal Representatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odation entries and both the companies have confirmed the statement given at the time of search in response to notice u/s. 133(6). However, they have intimated to Assessing Officer in response to notice u/s.133(6) that their accounting data has been impounded by Income Tax Department in search action carried out in their office premises by DDIT-unit-1(4) on 25.11.2009. Hence they were not able to provide any information in the matter. However, in case of Nova Promoters Finlease Pvt. Ltd. there was no such fact and the parties in that case have filed their affidavit retracting their statements without being notarized and they did not appear before Assessing Officer for cross examination in response to summons u/s. 131. However, in case of assessee, Assessing Officer did not issued summons to Shri Mukesh Choksi or the Directors of alleged two companies. In the course of remand proceedings, parties were not produced before assessee for cross examination. The statement recorded u/s 132(4) of Mukesh Choksi, Director of M/s Mihir Agencies Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. did not contain any mention of name of assessee company or any evidence of collusive transaction between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Ltd., Mumbai 10,00,000/- 8. Dhawani Marketing Pvt. Ltd. 15,00,000/- 9. Emerald System Eng. Ltd. 5,00,000/- 10. M/s Larite Industries Ltd., Mumbai 15,00,000/- 11. M/s Sargossa Investment & Finance Pvt. Ltd., Mumbai 5,00,000/- 12. Study Sales Pvt. Ltd. 5,00,000/- Total 85,00,000/ Assesses filed list of applicants of share application money vide letter dated 22.02.2012. A notice u/s. 133(6) of the Act was issued on 12.03.2012 to all parties. Assessing officer observed that no reply is received from parties at Sr. Nos. 5, 8, 9 & 12. 6.14 Further in assessment order, Assessing Officer observed that assessee has not filed any confirmation as well as original share application form in respect of above 4 parties and therefore he made addition. In respect of 8 parties, a notice dated 12.03.2012 u/s 133(6) of the Act was issued and subsequently a reminder dated 03.04.2012 was issued. Assessing officer observed that all the parties have given same replies on the same day. A show cause notice dated 23.04.2012 was issued to assessee and Assessing Officer requested to supply details along with confirmation. Assessee asked for more time for submission of details. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). If the Assessing Officer doubts the source of the source of the source, he was free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the requirement of section 68. The Honourable Supreme Court in case of Lovely Exports (P) Ltd. [216 CTR 195] has held that "If share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company. Honourable Delhi High Court in case of CIT v. Kamdhenu Steel & Alloys Ltd. (2012) 361 ITR 220 (Delhi) held that though initial burden is upon the assessee, once he proves the identity of credit/share applications by either furnishing permanent acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). In the remand report, the Assessing Officer himself has stated that the assessee has requested to issue summons u/s 131 but no further probe was made by the Assessing Officer. Thus there was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which has already been referred to above. Further in the case of Nova Promoters Finlease Pvt. Ltd., the shareholders didn't confirm the transactions of share capital and admitted before Additional Commissioner (Investigation) that they were acting as accommodation entry providers and thereafter later on they have filed the affidavit retracting their statement. The affidavits were not notarized and the deponents of the affidavit didn't appear before assessing officer for cross examination. So ratio of Nova Promoters Finlease Pvt. Ltd. does not support case of revenue. In view of above legal and factual discussion on merit, the addition made by Assessing Officer of Rs. 1,06,00,000/- (Rs. 21,00,000/- + Rs. 85,00,000/-) on account of share application money under provision of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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