TMI Blog2012 (3) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... application money. 4. By the impugned order, the learned Commissioner of Income Tax (Appeals) deleted the addition of Rs.49.70 lacs and confirmed the addition of Rs.8.70 lacs particulars of which are as under :- S. No Name Father s/husb and s name Residential address PAN Mode of receipt Amount (Rs.) 1 Shri Jayesh Dube(Cousin brother of Director Shri Arun Dubey Chennai ACKPD3511F Through cheques 50,000 2 Shri Ritesh Lunkad ABGPL6173Q Through cash 2,00,000 3 Shri Ravindra Kumar Menon Shri Haridutt Menon 205, Silver Avenue, Chandralo k Colony, Indore AFCPM8587K Through cash 40,000 4. Shri Rajiv Yadav Shri Jayprakash Yadav B-33, Madhukun Gali, Subhash Mohal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals), the assessee is in appeal before us. However, against the deletion of addition of Rs.49.70 lacs, the Revenue has not filed any appeal before us and the same has been confirmed by the learned Senior DR. 7. Rival contentions have been considered and record perused. From record we find that Shri Jayesh Dubey son of Shri Arun Dubey, was the cousin brother of the director of the assessee company. He was an income tax assessee and PAN was also furnished. The amount of Rs.50,000/- was received through cheque. Shri Ravindra Kumar Menon son of Shri Haridutt Menon was also an incometax assessee who has given Rs. 40,000/- in cash and Shri Rajiv Yadav son of Shri Jayprakash Yadav, who was an incometax assessee, gave share application money through account payee cheque amounting to Rs.80,000/-. Similarly, Shri Ritesh Lunkad was also an income tax assessee and gave the amount through cheque. It appears that while disallowing the share capital so received, the Assessing Officer stated that the assessee has not been able to establish the genuineness of the transaction and the assessee has only furnished a certificate issued by the assessee to the socalled subscription showing the recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee (M/s Agrawal Coal Corporation Private Limited) is a private limited company engaged in the trading business. In the year under consideration the company entered in the field of power generation with installation of two wind mills and declared income of Rs.83,46,090/- in its return filed on 30.10.2005 for assessment year 2005-06. The case was selected for scrutiny. The learned Assessing Officer, during the assessment proceedings, noted that M/s Hindustan Continental Limited, applied for 40,000 shares of the assessee company of the countenance value of Rs.10/- each at a premium of Rs.90/- per share. Similarly, Optimates Textile Industries Limited also applied for 10,000 shares of the assessee company of the same value and premium per share. The learned Additional CIT, Indore (Assessing Officer), has referred the report of ACIT 5(1), Indore, wherein it was found that on the basis of investigation carried out by him in some other cases, M/s Hindustan Continental Limited and Optimates Textiles Limited are not the genuine companies. The report of ACIT 5(1) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on account of share application money from Hindustan Continental Ltd. Rs. 4,00,000/- and share premium amount of Rs. 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income. Similarly, assessee has tried to establish identity of M/s Optimates Textile Industries Ltd., but it is evident from the report of the ACIT 5(1), Indore that company is also a paper company used to providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esses supplied to the department by the assessee. Thereafter, commission was issued to ADIT(Inv.) Unit-IX-3, Mumbai, to verify the existence/genuineness of these companies, who also reported that the said companies did not exist at the given addresses. The whole issue for adjudication is whether the identity of these companies was established ? During hearing, the Ld. Counsel for assessee claimed that identity of both these companies has been established as both these companies were registered with Registrar of Companies and their income tax returns were filed and both are having PANs/bank accounts. We are not agreeing with this proposition because at the time of registration, these companies may be existing either on papers or in real sense but thereafter were specifically found non-existent as the summons/ notices issued were returned back unserved and the commission issued with this purpose also found that these companies were non-existent. At the same time, none of the certificates, claimed to be issued by various authorities, does not establish the identity of the share applicants as the certificates were issued without physically verifying the existence of applicants, such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only possible when the assessee is able to establish identity of these companies which the assessee has grossly failed not only before the Assessing Officer but also before learned Commissioner of Income Tax (Appeals) and the Tribunal. Under these facts and circumstances, there is no question of apply the proposition of law as suggested by the Ld. Counsel for assessee. 24. On the issue of discharge of onus/burden, the assertion of the Ld. Counsel for the assessee is that the onus shifted to the department when copy of share application form, PAN, name and addresses and ROC registration, etc. were filed by the assessee. We are not agreeing with the submission of the assessee in view of the fact that at the addresses (4 places) given to the department, these companies were found to be non-existent. Even the Inspector was deputed to verify the addresses who also reported that these companies were not available at the given addresses. It is not possible that the companies making huge investment in the form of share application are not found at the given addresses. There is a possibility that there may be a change of address but till the stage of the Tribunal, not to talk of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court in the case of M/s Sophia Finance Limited; 205 ITR 98 observed as under :- The ITO would be entitled to engage and it would indeed be his duty to do so whether the alleged shareholders do in fact exist or not. If the shareholders exist then possibly no further enquiry need to be made. But if the ITO finds that the share holders do not exist, then in effect it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of words may be charged in section 68 clearly indicates that the ITO would then have the jurisdiction if the facts so warrants to treat such credit to be the income of the assessee. The Hon'ble Calcutta High Court in Precision Finance Private Limited; 208 ITR 465 held that inquiry of ITO revealed that either the assessee was not traceable or there was no such file and accordinbgly the first ingredient as to the identity of the creditors has not been established. If the identity of the creditor has not been established, consequently, the question of establishment of the genuineness of the transaction or the credit worthiness of the creditors did not and could not arise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be of a sum during the previous year and the assessee offers no explanation about the nature and source of such credit or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income tax as income of the assessee of that previous year. We are aware that the opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. In the present appeals, the Assessing Officer was never satisfied and the notices/summons issued to the subscribing companies, were found to be fictitious or non-existent, therefore, one fact oozing out that the assessee has not fulfilled the requirement of section 68. A close reading of section 68 makes it clear that in case of section 68 there should be credit entry in the books of account. This is a fundamental difference between these two provisions. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him where the nature and source of a receipt whether it be of money or other property, cannot be satisfactorily explained by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Court clearly held that in case of private placement, the legal regime would not be same. A delicate balance must be maintained while walking the tight rope of section 68 and 69. The burden of proof can seldom be discharged to the hilt by the assessee. However, if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered rather duty bound to carry out investigations. The assessee merely wants to take shelter of the decision of the Hon'ble Apex Court in the case of Lovely Exports Private Limited wherein it was held that even the share applicants are bogus, it cannot be added in the hands of the assessee. In that case the Tribunal clearly noted that the assessee was a public limited company and subscriptions were received from public at large through banking channel and the shares were allotted in consonance with the provisions of the securities contract (Regulation) Act, 1956 as also the rules and regulations of Delhi Stock Exchange and in para 12 the Hon'ble Delhi High Court has clearly differentiated the cases of share capital of private limited company from public limited company by saying in the case of private placement, the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. However, in the present appeals, the share applicants/share subscribers are no more in existence meaning thereby their identity is not proved, therefore, how the department can proceed to reopen their individual assessments. 28. The Hon'ble Madhya Pradesh High Court affirmed the decision of M/s Rathi Finlease Limited (supra) in the case of M/s STL Extrusion Private Limited (2011) 333 ITR 269, relied upon by both the sides before us. We find that the facts in STL Extrusion are materially different from both the assessees, namely, M/s Agrawal Coal Corporation as well as from M/s Rathi Finlease Limited. In the case of M/s STL Extrusion on receipt of confirmation of share applicants, except observing discrepancies in confirmation, the Assessing Officer neither asked anything from the assessee nor made any inquiry to arrive at the conclusion that share applicants were bogus. However, in the present appeal, detailed inquiries were made, notices received unserved, commission also returned empty handed as the share subscribing companies were found non-existent. In that situation, the Hon'ble High Court concluded that once existence of an investor/share holder is proved, onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ltd. (2008) 299 ITR 268 (Del) 7. CIT v. Dolphin Canpack Ltd. (2006) 283 ITR 190 (Delhi) 8. CIT v. K.C. Fibers Ltd. (2011) 332 ITR 481 (Delhi) 9. CIT v. Lovely Exports P. Ltd. (2009) 319 ITR (St.) 5 (HC) 10.CIT v. Mohankala (P) (2007) 291 ITR 278 (SC) 11.CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) 12.CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del) 13.CIT V. Steller Investment Ltd. (2001) 251 ITR 263 (S.C.) 14.CIT v. Value Capital Services P. Ltd. (2008) 307 ITR 334 (Del) 15. Madhuri Investment Pvt. Ltd. v. ACIT(ITA No. 110 of 2004 dated 18.2.2006 (Karn.) 16. Shree Barkha Synthetics Ltd. vs. ACIT; (2006) 283 ITR 377 (Raj.) 29. As per the provisions of section 68 of the Act, in case the assessee has not been able to give satisfactory explanation in respect of nature and source of any sum or if in the opinion of the Assessing Officer such explanation is not satisfactory, the Assessing Officer may treat the same as undisclosed income and add it to the income of the assessee meaning thereby the assessee is required to give satisfactory explanation about the nature and source of such sums found credited in the books of account. What kind o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee and The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. 30. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its burden, the assessee is required to prove The identity of the share holder The genuine of transaction The credit worthiness of the share holder During hearing, Shri R.K. Chaudhary and Shri K.K. Singh the learned Commissioners of Income Tax contended that Hindustan Continent Pvt. Ltd.; Agrawal Road Carriers Pvt. Ltd. and Suni Shares and Stock Limited (inter-connected with each other), are paper concerns. These companies provided accommodation entry to various parties of Indore, Bhopal, Gwalior, Nagpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposing penalties by the adjudicating Officer). Rules 1995 against Optimates Textiles Industries Limited (formerly known as Priyansh Saree Industries Limited). Vide para 17 of the order (page 125) it has been held that Sunil Shares Stocks Private Limited failed to provide necessary information to the investigating authority of SEBI and penalty of Rs. 2 lacs was imposed in terms of provisions of section 15A(a) of SEBI Act, 1992 for failure to provide necessary information to SEBI. 31. The Hon'ble Apex Court in the case of Vijay Kumar Talwar v. CIT (2011) 330 ITR 1 (S.C.) on the issue u/s 68 read with section 260A decided in favour of the revenue . Identical ratio was laid down by the Hon'ble Supreme Court in case of CIT v. Biju Patnaik; 160 ITR 674. 32. So far as the contention of the Ld. Counsel for assessee to the effect that the issue is squarely covered by the decision of the coordinate Bench in the case of Kalani Industries is concerned, we do not find any substance in the same in view of the fact that the addition made in the cases before us was after passing of the order by the Tribunal and the inquiry conducted by the Department thereafter. The enquiry so co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue whereas the facts in the case of Lovely Exports are distinguishable, as discussed above. 35. So far as the contention of the ld. Counsel for the assessee that the company can only be wound up by the order of the Hon ble High Court and death of the company is known to the process of law and also that the company is still available on the website of the Company Law Board is concerned, we are not agreeing with this proposition of the assessee because here it is not a case of winding process rather it is a case of admissibility of claim of the assessee u/s 68 of the Act. Since the share applicants /share subscribers identity is not proved, therefore, the assessee cannot be permitted to take shelter of technicalities. Even otherwise, website existence on the Company Law Board is not a sole proof that in fact the share applicants are in existence especially when right from the assessment stage to the stage of the Tribunal (three stages) the assessee did not prove the identity of the share applicants. Technicalities also help those who are with clean hands. However, we are in agreement with the argument of the assessee that the winding up powers of a company lies with the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at least the assessee has to pove the identity/existence of the person in whose names share applications are received meaning thereby the burden lies on the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee has not proved the identity of such share applicants. 37. The contention of the Ld. Counsel for assessee to the effect that the decision of Rathi Finlease by the jurisdictional High Court was rendered much prior to the decision of the Supreme Court in the case of Lovely Exports (supra) therefore, the proposition laid down by the jurisdictional High Court in Rathi Finlease cannot be applied after the decision of the Hon'ble Supreme Court in the case of Lovely Exports, have no legs to stand insofar as the jurisdictional High Court in the case of STL Extrusion wherein case of Lovely Export was relied on, duly approved its previous proposition laid down in case of Rathi Finlease. He further submitted that jurisdictional High Court in the case of ACIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish but it is for the department to inquire with the investors about their capacity to invest the amount in the shares . If the aforesaid conclusion is analysed, one fact is clear that the identity of the share holders has to be proved by the assessee. However, in the present appeals the identity itself is in dispute, therefore, the aforesaid decision clearly supports the case of the revenue. 38. Likewise in the case of CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) the shareholders admitted the payment of amount for shares to be allotted. In these circumstances, Hon'ble Court held that the amounts of share capital cannot be added in the assessee s hands. However, in the present appeals, the share applicants itself are non-existent, consequently, there is no question of admitting by the share holders regarding money invested by them and then shares allotted to them. This judicial pronouncement also goes against the assessee. Hon'ble Delhi High Court in a later decision in Vijay Power Generators Limited v. Director of Income Tax and others (ITA No. 514 of 2007) (2011) 333 ITR 119 (Del) at page 136 the appeal was admitted on the following question of law :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal affirmed the decision of learned Commissioner of Income Tax (Appeals) in the following manner :- 15. Having carefully examined the material available on record and the orders of the lower authorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the assessee could not produce them for verification nor was any evidence filed with regard to their financial status. Out of 15 subscribers, 5 subscribers were produced before the Assessing Officer and during the course of the examination it was admitted that they were small agriculturists and were cultivating the agricultural land after taking it on lease from other agriculturists. No evidence regarding the agricultural holdings were produced before the Assessing Officer nor have they filed any evidence with regard to their financial soundness whereas the investment in shares were made between Rs. 1 lakh to Rs. 2.5 lakhs. Copy of the statement are (sic. Is) placed on record and from its perusal one would find that all these 5 persons are of ordinary status and they have no means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced are concerned, they are gone into and analysed by the three authorities below on the basis of which finding of fact is arrived at that neither their identity is established nor their capacity to invest this kind of money is proved. They are all agriculturists and had not produced a single document to support their version. This is a finding of fact and there is no reason to interfere with the same. Learned counsel for the revenue had drawn our attention to view all these statements. One Mr. Sukh Lal Singh in his statement had stated that he had purchased the shares of Rs. 1,90,000. Out of the share money, he had paid Rs. 70,000 out of his own source and Rs. 1,20,000 was received by him from his friends and was paid in many instalments. Likewise one Mr. Vijay Kumar who also purportedly purchased the shares of Rs. 1.90 lakhs stated that the payments were made by him in cash in many instalments. He also stated that he personally knew the directors of the company and had very old relation with him. On the basis of such statement without an iota of documentary evidence to support, we are of the opinion that the findings of the authorities below cannot be treated as perverse. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding investment by the shareholders remained unverifiable. No comments can now be offered at this stage without necessary verification. Proof of identity produced at a later stage cannot be verified in the absence of concerned person s original documents. 45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even reproduced in the order and thereafter the learned Commissioner of Income Tax (Appeals) discussed the same in the light of certain decisions cited before him and came to the conclusion that the assessee had not given satisfactory evidence to discharge the onus. It had merely given names of the parties without anything more. That would not be sufficient compliance. Even the bank statement of the assessee which was submitted has not been proved. 46. For all these reasons, we are of the view that the assessee had not been able to discharge the onus probandi and addition was rightly made. We, therefore, answer the question in the negative and dismiss this appeal of the assessee. 40. If the aforesaid conclusion drawn by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unserved and the addresses given by the assessee itself that too at four places were found to be fictitious. The assessee has not given satisfactory evidence to discharge the onus. It has merely given the names of fictitious parties and in our humble opinion this is not a sufficient compliance, therefore, the decision from Hon'ble Supreme Court in the case of Lovely Exports may not help the assessee. In a later decision dated 25th October, 2010 the Hon'ble jurisdictional High Court in the case of CIT v. STL Extrusion (P) Limited; (2011) 17 ITJ 648 (MP) even considered various decisions including the off-quoted decision of Divine Leasing Finance Limited, Rathi Finlease Limited, Steller Investment Limited and of course Lovely Exports Private Limited wherein the assessee filed list of all subscribers and gave affidavits of all subscribers in the form of confirmations and in that situation the Hon'ble Court held that the assessee is required to establish the identity and source of credits and further held that if the confirmation is given, no addition could be made against the assessee whereas in the case of the assessee the share applicants were found to be non-existen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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