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TMI Blog2022 (8) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... any adverse material found and seized as a result of search. 3.On the facts and in the circumstances of the case as well as in law e Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the addition of share capital & share premium of Rs.3,50,00,000/- made by Ld. Assessing Officer. 4. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that:- a) The onus casted on assessee U/s 68 of the Income Tax Act, 1961 was not discharged. b) The share applicants are non existing and paper companies. c) The appellant has introduced its own unaccounted money in the grab of share capital & share premium. 5. On the facts and in the circumstances of the case as well as in law he Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that the material gather and inquiry conducted at the back and behind of the assessee was confronted to the assessee by Ld. Assessing Officer. 6. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in capriciously rejecting the assessment order of share applicant and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the test of human probabilities with normal course of human conduct. In all the entries through whom the share application money has been received are: (i) Non- Existent Company or (ii) Paper Companies having no real transactions or (iii) Common directors, common addresses (iv)Before each cheque entry to the assessee company, there is corresponding cheque deposit (v) The profit shown by the investing company are nominal. 3.10. The assessee's reply has been considered. However, following observations and counter arguments are being made with respect to same point wise: * In the case of assessee company it is not a case of simple share application money. The Rs. 10/- worth of shares were shown applied for at a huge premium by strangers. As a common perception prevailing even in case of listed companies, the price is generally related to the earning per share and such PE ratio is generally 10. Therefore, if the PE ratio is one, the market price will be to the extent of its face value. In the present case it is seen that the companies have no business and no earning at all and therefore there is no way that the companies credentials can command a huge premium for shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. * It is strongly contended that assessee's duty to establish that the amounts received by it (under section 68) are properly sourced, does not cease by merely furnishing the names, address and PAN particulars, or relying on entries in a Registrar of Companies website or a single page of bank statement. One must remember in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis. If the assessee company has access to the share applicant's PAN particulars, or bank account statement, surely its relationship is closer than arm's length. Its request to such concerns to participate in income tax proceedings, would, viewed from a pragmatic perspective, be quite strong, because the next possible step for the tax administrators could well be re-opening of such investor's proceedings. That apart, the concept of "shifting onus" does not mean that once certain facts are provided, the assessee's duties are over. If on verification, or during proceedings, the AO cannot contact the share applicants, or that the information becomes unverifiable, or there are further doubts in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 263 ITR 289. c) Various judgements which are in favour of assessee and against the revenue have also been considered before completing this assessment. Indeed, facts of Judgment of Hon'ble Supreme Court in Divine Leasing & Finance Ltd. & Lovely Exports are essentially different inasmuch as in this case the assessee is a Pvt. Company and no member of the public participated. On the other hand in the case of Divine Leasing & Finance Ltd. Et Lovely Exports, the share applications were made by way of public issues. Moreover, in the cited cases, the Hon'ble Supreme Court has not laid down any proposition with regard to the question Et it was a purely a question of fact with which the Apex Court had dealt with & was in agreement with the Hon'ble Court on conclusion of facts. d) Further, Hon'ble Jurisdictional High Court in the case of M/s Power Drugs Ltd. Vs. CIT (P&H) ITA No. 194 of 2011 in its order dated 14.7.2011, held that addition on account of share application can be made in the hands of company. The hon'ble court in the said case upheld the view taken by Hon'ble ITAT Chandigarh arid held that "Whether an addition is to be made in the hands of the company or individual asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any duty to further show or establish that the monies emanated from the coffers of the assessee company. To place such a burden on him, an impossible one at that, would be quite contrary to the judgments of the Supreme Court cited above." g) In the case of CIT vs. Frostair (P) Ltd. ITA No. 183/2002, decision dated 24.08.2012, one of the question of law before the Hon'ble Delhi High Court was "whether the ITAT erred on facts and in law in deleting the addition of Rs. 25 Lakhs made by the AO by treating the alleged investment of shareholders as income from undisclosed sources". Answering this question in favour of Revenue, the Hon'ble High Court held that " The application of the ratio of every decision by a quasi- judicial body like the ITAT has to be nuanced, and contextual. Thus, while the findings in Divine Leasing, Oasis International or even Lovely Exports might be preceded by a general discussion of the correct approach to be adopted by the AO, in a given case where additions are sought to be made on account of share application moneys not found to be genuine, the basic facts of the case cannot be lost sight of. On a proper application of the ratio in Oasis - and subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taxed in the year in which such entries were taken. In view of the above , when it has been established that the share applications money received from various parties in the form of accommodation entries will have to be treated as unexplained cash credits under section 68 of the I T Act. 1961. From detail enquiry conducted by the investigation unit Delhi in the case of S.K. Jain and Varinder Jain, Investigation Wing of Chandigarh unit in the case of the assessee company during the course of search and by this office during the assessment proceedings it is concluded that an amount of Rs. 3,50,00,000 which is introduced as share capital/ share application money and share premium are unexplained cash credit u/s 68 Of the I.T. Act 1961 and is added to the returned income of the assessee co and penalty proceedings u/s 271 (1)(c) read with Explanation 5A is also initiated for concealing and furnishing inaccurate particulars of the assessee. In view of the above discussion, the income of the assessee is computed as under:- Net income as declared by the assessee vide his return of income u/s 153(A)(1) = Rs.Nil. Add:- i) As discussed in para (3) above = ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st prove in what manner his case falls within one of the exceptional situations prescribed under the r.46A. Such is not a case here as not even a separate application has even been made by the assessee. Be that as it may, the AO was clearly not satisfied with the documentary evidences so it belies logic why the assessee did not produce the directors in the course of assessment proceedings so as to allay the nagging doubts in the mind of the AO. I am also of the considered view that when the Investigation Unit (of Delhi and Chandigarh), which are an integral part of the Income tax Department, have enquired and found that the investing companies were not traceable at the known/given addresses then the Assessing Officer need not again shoot of letters/summons as such exercise will be futile and merely academic. In any case the information about the assessee regarding accommodation entries were confronted by the AO, so it was incumbent upon the assessee to take the extra step of proving its claim instead of stopping at mere furnishing of the documents to prove the identity, genuineness of the transaction and creditworthiness of the share applicants, especially when the investors were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable approach. The assessee here is a private limited company. It cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons know to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share- subscribers and the assessee-company lose touch with each other and become incommunicado. Calls due on the shares have to be paid; if dividends are declared, the warrants have to be sent to the shareholders. It is a continuing relationship, even granting that it may not be of the same degree in which it exists between a debtor and creditor. The share-subscribers in the present case have each invested substantial amounts in the assessee's shares, as the chart at pp. 2-3 of the assessment order would show. Most of them, barring two or three, are themselves private limited companies. It cannot therefore be contended, as was contended before us on behalf of the assessee, that if the summons issued under s. 131 to the subscribing companies at the addresses furnished by the assessee returned unserved, the A.O. is duty bound to enforce their att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce off source and origin of origin of the receipts. We are alive to the difficulty that may be faced by an assessee to unimpeachably establish the creditworthiness of the share subscribers but at the same time we are of the opinion that mere furnishing of the copies of the bank accounts of the subscribers is not sufficient to prove their creditworthiness. There must be, in our opinion, some positive evidence to show the nature and source of the resources of the share subscriber himself and therefore it is necessary for him to come before the A.O. and confirm his sources from which he subscribed to the capital....... ......it was, therefore, in the assessee's own interest to have actively participated and cooperated in the assessment proceeding and complied with the direction of the A.O. to produce the principal officers of the subscribe company........... 7 .............In an appropriate case, if the facts and circumstances justify, it would be open to the A.O. to seek information from the assessee as to the creditworthiness of the creditor/ share subscriber which may include information as to the sources of the creditor/share subscriber. If proving the creditworthiness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Vs. Ganapathi Mudaliar (1964) 53 ITR 623 (SC); CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC)] (emphasis supplied) Similar position has been taken in CIT vs Maf Academy (P) Ltd. 96 DTR 319 (Del.). The Hon'ble High Court in one of its recent decision dated 16.9.2014, in the case of CIT vs Focus Exports (P) Ltd. (2014) 111 DTR 12 (Del) has upheld the invoking of sec 68 in respect of share application money in which a plethora of cases was referred to an also discussed. Thus, in respect of Private Limited Companies particularly, the Courts are now holding that merely furnishing names, address, bank statements and PAN particulars or relying on entries in ROC website are not sufficient in discharging the onus cast upon the assessee u/s 68. In this case at hand, besides calling for information, the Assessing Officer specifically asked for production of the investors for verification which was not complied with. Consequently, as held by the Hon'ble Delhi High Court, the conduct of the assessee and the surrounding circumstances were to be seen as to whether assessee be said to have discharged its onus u/s 68. I am of the considered opinion that the same remains undi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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