TMI Blog2022 (11) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 of the appeal of the assessee is dismissed. Addition of share subscription money received - HELD THAT:- The assessee-company was under legal obligation to prove the genuineness of the transactions, identity and creditworthiness of the creditors and the investors and whether they have financial capacity to make the investments in question. This primary onus of the assessee has not been discharged as contemplated u/s 68 of the Act. A.O has done his duty by issuing summons and has done detailed examination of the facts and circumstances of the case. However, the assessee-company has not submitted any documentary evidences for ascertaining whether the transactions were genuine or not and neither have established through any materials/documents that the share subscription money received were not bogus or that they were not name-lending entries. In fact, the summons remained unanswered by these shareholders which were issued and served by the ld. A.O. We are therefore, of the considered view that the creditworthiness of the shareholders are not established, the genuineness of the transactions are also not established and in majority cases the identity of the creditors als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction was carried out only with Mr. Suwalal C. Bafna and that also the shares were purchased and sold on the same day and the assessee thereby incurred loss of Rs. 2,11,00,000/-. The ld. A.O on verification of computation of income of Mr. Suwalal C. Bafna observed that the said party has claimed set off of the speculation gain out of off-market transactions shown to be carried out with the assessee. The assessee and Mr. Suwalal C. Bafna have managed the transaction with a view to siphon the funds of the assessee by showing speculation loss and claim the said income in the hands of Mr. Suwalal C. Bafna as set off against loss incurred by Mr. Suwalal C. Bafna in future and option transactions, without paying taxes. The said transactions shown to be carried out by the assessee and Mr. Suwalal C. Bafna, were therefore, held to be bogus transactions and the speculation loss of Rs. 2,11,00,000/- was added to the income of the assessee as bogus claim. The ld. A.O in his assessment order has also taken cognizance of the ledger account of M/s. Khandesh Builders Ltd., Jalgaon, regarding Mr. Suwalal C. Bafna which is annexed along with the assessment order as Exhibit 1 and also a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details furnished and shown above, the purchases and sales took place on the same day. It is also seen that the shares traded are of M/s Reliance Industries Ltd., M/s Alok Industries Ltd. and M/s EMCO Ltd., M/s EMCO Ltd. can be said to be belonging to the appellant's family. Maximum off market trading had taken place in respect of shares of M/s EMCO Ltd. The above three companies are traded in stock exchanges. For instances, M/s Reliance Industries Ltd. is a well-known company in India and its shares are traded in all stock exchanges of India. Therefore, the question to be raised is that why the appellant has to resort to off market trading when the transactions in the said shares can be routed through the recognized stock exchanges of India. There is no difficulty in buying and selling the said shares through the broker. In off market transactions, the purchase and sale prices of the said shares are arbitrarily fixed by the parties involved depending on their requirements. In other words, the purchase and sale prices of the said shares. are so arranged that they have no connection with the prices quoted in the recognized stock exchanges. Off market share transactions are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e resorting to in order to take illegal tax benefit by the parties involved which are not acceptable. Therefore, the ld. CIT(A) confirmed the loss of Rs. 2,11,00,000/- in respect of off-market trading in case of Shri Suwalal C. Bafna and further disallowed the profit of Rs. 43,47,956/- on account of off-market trading of shares with other parties and held to be bogus in the hands of the assessee. 4. At the time of hearing before us, the ld. A.R of the assessee could not explain the mechanism of purchase and sale of shares as demonstrated in Exhibit 1 in the account extract of M/s. Khandesh Builders Ltd. for A.Y. 2010-11 wherein the purchases and sales were made on the same day. We observe from the Exhibit 1 that the shares were purchased on a particular date and were also sold on that very day itself and this peculiarity of transactions continued throughout ultimately giving rise to the loss of Rs. 2,11,00,000/-. The ld. A.R failed to answer the question that when the shares are purchased and again sold on the same day, how come there arises loss as claimed by the assessee of Rs. 2,11,00,000/- with respect to transactions with Mr. Suwalal C. Bafna. It can only be left to the bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is same at Rs. 33,08,00,508/- at the same time the balances of other accounts i.e. security deposits, construction advance from Jalgaon Municipal Corporation, Mobilization advance from Jalgaon Municipal Corporation, etc, are also same as last year. On careful analysis of the entire affairs of the Company, it clearly appears that due to involvement of the company in the criminal scam that happened in Jalgaon Municipal Corporation, the funds as well as other assets of the Company are systematically siphoned off on account of one and other reasons. It is also a matter of fact that out of the main shareholders Mr. Jagannath Nathu Wani is at present in Police/Judicial custody along with Mr. Suresh Jain i.e. father of Mr. Atul S. Jain. Earlier the address of the company was shown to be at Jalgaon but all of a sudden the company has shifted its office at Mumbai even when there is no any activity or staff, etc. at Mumbai. The assessee vide its letter dated 25/03/2013 has accepted that there is no activity of the Company at Mumbai. 6. From the aforesaid paras, it is evident that the assessee-company had involvement in criminal scam that happened in Jalgaon Municipal Corporation and fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not provide any answer. The ld. A.R before us also admitted that the share transactions entered into by the assessee were off-market transactions and not done through any recognized stock-exchange. The ld. A.R could not submit any reason why such off-market trading was resorted to when the share transactions could genuinely be done through recognized stock-exchange. Therefore, upon examination of the facts and circumstances of this case, we are in conformity with the submissions of the ld. D.R that the modus of operations of the share transactions adopted by the assessee through off-market trading and the corresponding claim of loss of Rs. 2,11,00,000/- and also the profit of Rs. 43,47,956/- are fictitious, fabricated, false and bogus. We do not find any reasons to interfere with the findings of the ld. CIT(A) and the same is upheld. Ground No. 1 of the appeal of the assessee is dismissed. 8. In ground No. 2, the assessee is aggrieved by sustaining of addition by the ld. CIT(A) of Rs. 2,55,00,000/ on account of share subscription money received. The ld. A.O has discussed this issue from para 4 onwards of his order as follows: 4. Issue of Shares of Rs. 15,00,000/- at a prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... av A/P Fupanagari, Tal. Jalgaon, Dist. Jalgaon. Rs. 25,50,000/- No details furnished. 4.1 I have carefully gone through the documents submitted by the assessee in support of the above credits. The assessee has filed share application forms in respect of in above cases except in the case of Mr. Ramchandra Patil, Mr. Murlidhar Patil Mr. Yogesh Lathi. Further all the share application forms are filled up by one person. Mr. Ravindra Patil is shown to be resident of Mehunbara, but the documents filed by the assessee shows his residence at Umberkhed. The above persons are not assessed to income tax.' Further the background of the above person is absolutely did not support the above investment shown to have been made by them in the assessee company. All the transactions are shown to be carried out in cash: How the cash of Rs. 25,50,000/- is paid 'by the respective persons on 04/04/2009 along with exact source is not furnished by the assessee. Except Mr Ravindra Patil and Mr. Ramesh Dhake, nobody has even confirmed the transaction. The assessee has asked to issue Summons to said parties. As regards Mr. Ravindra Dhake, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stand-still. The company is blacklisted by almost all authorities. There are criminal cases going on against the company and also its main shareholders. The assessee could not answer how a prudent shareholder could buy shares of such dying company at a share premium which has no further chance of revival. Since the amount of Rs. 2.55 crores remained unexplained it was added to the total income of the assessee. 10. The ld. CIT(A) has dealt with this issue at paras 15.2 onwards of his order as follows: 15.2 I have gone through the assessment order, written submissions filed by the appellant and also the remand report. During the year under appeal, the appellant company has increased it's share capital by issuing 1,50,000 equity shares having face value of Rs. 10/- and share premium of Rs. 160/- per share and thus there is increase in share capital of Rs. 2,55,00,000/-. During the course of appellate proceedings, the Assessing Officer asked the appellant company to substantiate the same, however, the appellant company could not substantiate the claim in respect of shareholders. In respect of following three shareholders mentioned below, some information were submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The reasons are as under: - (1) the appellant company is incurring heavy losses and there is no business during the year under consideration. There is no scope for revival of this company in near future due to various factors. No businessman or agriculturist in his right mind will subscribe to the shares of the appellant With Such huge premium of Rs.160/- when the appellant company is dying without any hope of revival. This fact will apply to all the share subscribers/creditors. (2) The said share-holder/creditor is not assessed to tax. In his affidavit, he has claimed owning some 9 acres of agricultural land earning an income of 3,00,000/- to 4,00,000/- per annum. He does not say whether the said amount is gross or net income. He also claims to be engaged in dairy farming Without any prove. His agricultural and farming income is hardly sufficient to meet the requirements of his family. He is not a person of means to subscribe to shares of a dying company. It does not make any sense whatsoever. (3) The share-holder has paid cash of Rs. 25,00,000/- for the subscription of the shares. He does not have the capacity to have so much cash in hand on 04-404-2009. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in the affidavit by the affiant that the summons issued by the A.O in the month of December 2013 was received by him, however, due to his personal work he was out of station and hence could not attend the office of the A.O. While making addition in respect of this creditor, the .A.O has stated that this shareholder has mortgaged his property to syndicate bank and Mamurdabad Primary Co-op. Credit Society for raising the loan and hence his creditworthiness is not proved. 15.5 In the case of Shri Ramesh Chintamani Dhake, the appellant has filed a copy of the affidavit of the shareholde3r claiming to be an agriculturist having 22 acres of land. As in the case of Shri Ravindra K. Patil, Shri Ramesh C. Dhake has also subscribed to the share of the appellant company at a premium of Rs. 160/- per share of the face value of Rs. 10/-. Shri Ramesh C. Dhake is also not assessed to tax. He is 62 years old having family. He claims to be having agricultural income of Rs. 5,00,000/- to Rs. 6,00,000/- without any evidence. He also claims to have obtained PAN for general purposes, and not for income-tax purposes. He is not maintaining any accounts and records of the agricultural activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the appellant is not able to furnish the necessary evidences. This explanation of the appellant is unacceptable. These seven parties have paid cash of Rs. 25,00,000/- each as share application money to the appellant company. Now, they are not co-operating. This is too simple an explanation. They have not filed confirmations, PAN, copies of acknowledgement of returns of income filed, balance sheet, bank statements, evidences of explained sources of the share application money. In other words, the appellant has failed to prove the identity of these seven creditors/shareholders, creditworthiness and the genuineness of the transactions. In the absence of documentary evidences, the appellant s contentions are not accepted. Therefore, the addition made by the AO is respect of the above said seven creditors are confirmed. 15.8 In all the ten shareholders/creditors discussed above, I find that they do not have the capacities to pay for the share application money. They do not have explained sources for the cash of Rs. 25,00,000/- each on a particular date i.e. 04-04-2009. The only conclusion that can be drawn is that the sources of the said cash originate from the appellant itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the transactions is not established for the following reasons: (i) The assessee-company incurred heavy losses and there was no business during the year under consideration and also there was no scope for revival of this company in the near future due to various factors. Therefore, any businessman or agriculturist in his right mind will definitely not subscribe to the shares of the assessee with such huge premium of Rs. 160/- when the assessee-company is dying without any hope of revival; (ii) The said creditor/shareholder is not assessed to tax. In his affidavit he has claimed owning some nine acres of agricultural land and earning an estimated income of Rs. 3,00,000/- to Rs. 4,00,000/- per annum. However, he was unable to even explain before the ld. CIT(A) whether these amounts were gross or net income. No documentary evidences were filed in this regard. (iii) He also claims to be engaged in dairy farming for which no evidences have been furnished. His agriculture and farming income is hardly sufficient to meet the requirement of his family and he is not a person of means to subscribe to shares of a dying company. That before the ld. CIT(A), the shareholder has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this creditor has paid share application money in cash. There is also no evidence of having any explained source of income. In absence of any supporting evidences to establish the identity, creditworthiness and genuineness of the transactions, the assessee-company s claim was not accepted by the ld. CIT(A) and the addition was also confirmed as regards this shareholder also. 15. In the case of the remaining seven creditors/shareholders, the assessee has not furnished any evidences/documents. These seven creditors have also not responded to the summons issued by the ld. A.O. It is the claim of the assessee that these seven creditors/shareholders were not co-operating with the assessee and this explanation is absolutely false, untrue and fabricated since these persons have invested huge money in assessee-company and it is beyond human probabilities that the shareholders would not respond to the legal process of the company in which they are themselves financially interested being the investors. The assessee-company has not filed confirmations, PAN cards, copies of acknowledgement of returns of income filed, balance-sheet, bank statement, evidences of explained source of share appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus; 2. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor or subscriber, verify the identity of the subscriber, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders; 3. If the inquiries and investigations reveal the identity of the creditors to be dubious or doubtful, or lack creditworthiness then the genuineness of the transaction would not be established. In such a case the assessee would not have discharged the primary onus contemplated by section 68 of the Act. 18. Reverting to the facts of the present case, the assessee-company was under legal obligation to prove the genuineness of the transactions, identity and creditworthiness of the creditors and the investors and whether they have financial capacity to make the investments in question. This primary onus of the assessee has not been discharged as contemplated u/s 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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