TMI Blog2024 (2) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... s of our aforesaid observation finding no infirmity in the view taken by the CIT(Appeals) to the extent he had vacated the aforementioned additions made by the A.O by treating the money received from the said persons as unexplained cash credits u/s. 68 of the Act, and uphold the same. Sustainability of the addition with respect to two share applicants viz. Shri Ramesh Bind and Shri Dalla Nisad - The fact that Shri Ramesh Bind had returned his income of Rs. 1,78,100/- undeniably raises serious doubts about the veracity of his unsubstantiated claim of having made an investment of Rs. 18 lacs with the assessee company. Also, the financial statement of Shri Ramesh Bind, viz. balance sheet and capital account does not inspire any confidence for the reason that the nature of his business/sources of income cannot be gathered therefrom. Apart from that, the fact that the cash aggregating to Rs. 8 lacs was deposited in the aforesaid persons bank account in two tranches of Rs. 4 lacs each on the same date on which the amount was transferred to the assessee company read a/w. the fact that the said person had no substantial sources of income, thus, raises no confidence as regards the genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is bad in law, against law of natural justice and uncalled for and may kindly be deleted. 2. Ground 2 : The appellant reserves the right to add, amend, alter and delete the ground(s) of appeal at the time of hearing the appeal. III. RELIEF SOUGHT That above mentioned addition amounting to Rs. 1,26,09,000/- made by the Ld. AO and sustained by the CIT(A)-II is uncalled for, against the natural justice may kindly be deleted. 2. On the other hand, the revenue has assailed the impugned order on the following grounds of appeal: 1. Whether on points of law and on facts circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 10,03,14,000/- out of total addition of Rs. 11,19,23,000/- made by the AO u/s. 68 of the Act? 2. Whether on points of law and on facts circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 10,03,14,000/- by ignoring the facts as brought on record by the AO that the assessee company failed to prove the identity, genuineness and creditworthiness of the investor company as per the parameters of the legal provisions u/s. 68 of the Act? 3. Whether on points of law and on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) was justified in deleting the addition made by the AO and giving a decision in favour of the assessee and against the revenue, thereby giving a finding against the ratio of the settled law of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain, Nagpur (I.T.A. No. 18/2017 dated 10.04.2017, Bombay High Court. Nagpur Bench) wherein it is stated that since there is no economic or financial justification for the investment in the shares, the transaction has all the ingredients of attracting the rigors of Section 68 of the IT Act ? 8 Whether on points of law and on points of facts circumstances of the case, the Ld.CIT(A) having concurrent powers of the AO u/s. 250(4) of the Act, was justified in deleting the addition of Rs. Rs. 10,03,14,000/- made by the AO in the absence of satisfaction of parameters prescribed u/s. 68 of the Act? 9. 'Whether on points of law and on facts circumstances of the case, the Ld. CIT(A) was justified by giving a finding which is contrary to the evidence on record, as the Ld. CIT(A) has accepted the identity, creditworthiness of the entities investing in the share capital and share premiums of the assessee company as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,000/- The A.O in order to verify the authenticity of receipt of the share application money by the assessee company issued notices u/s. 133(6) of the Act through speed post to all the aforementioned share applicants. However, all the aforesaid notices were returned back by the postal authority with an endorsement non known . The A.O brought the aforesaid facts to the notice of the assessee company and directed it to substantiate the genuineness of its claim of having received share application money from the aforementioned persons. As per the notice issued u/s. 142(1) of the Act dated 20.03.2015, the A.O directed the assessee company to place on record evidences as regards the genuineness of the transactions a/w. creditworthiness of two share applicant companies, viz. (i) M/s. Arcade Dealcom Pvt. Ltd.; and (ii) M/s. Hector Dealers Pvt. Ltd. Also, the A.O directed the assessee company to produce all the aforementioned share applicants/shareholders for examination before him. In compliance, Shri Ashish Jaiswal, director of the assessee company appeared before the A.O who recorded his statement on oath. As is discernible from the records, Shri Ashish Jaiswal, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of share trading) Rs.6,28,20,794/- Further, on being queried about the bank account of the aforementioned share applicant companies, Shri Ashish Jaiswal had filed the requisite details before the A.O. For the sake of clarity, the same are culled out as under: In reply to query raised by the A.O as to how many persons were employed by the aforementioned share applicant companies a/w. details of their respective salaries, we find that Shri Ashish Jaiswal had furnished the requisite details in reply to Question No.8. As regards the query raised by the A.O with respect to the directors of the aforementioned share applicant companies, it transpires that Shri Ashish Jaiswal had in reply to Question No.9 furnished the said requisite details which for the sake of clarity is being culled out as under: Also, on being queried as to when the aforementioned share applicant companies were incorporated, Shri Ashish Jaiswal in reply to Question No.10, had furnished the respective dates of incorporation of the aforementioned companies, as under: 5. At this stage, we may herein observe that Shri Ashish Jaiswal who had made an investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 31.03.2015 assessed income of the assessee company at Rs. 11,19,23,000/-. 7. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals), after deliberating on the contentions advanced by the assessee was of the view that as the latter had duly discharged the onus that was cast upon it as regards proving the identity and creditworthiness and genuineness of the transactions of receipt of share application money from the four share applicants, viz. (i) M/s. Arcade Dealcom Pvt. Ltd., (ii) Shri Ashish Jaiswal, (iii) M/s. Hector Dealers Pvt. Ltd. and (iv) Raja Kaimoor Buildcon Pvt. Ltd., thus, found no justification on the part of the A.O in treating the amount received from the said persons as unexplained cash credit u/s. 68 of the Act. At the same time, the CIT(Appeals) was of the view that as the assessee company had failed to substantiate the authenticity of its claim of having received genuine share application money from two share applicants, viz. S/shri Ramesh Bind and Dallu Nisad, thus, upheld the to the said extent. Accordingly, the CIT(Appeals) partly allowed the appeal of the assessee company. For the sake of clarity, the relevant obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for all the companies u/s 68. AO has not made any adverse comment on the documents submitted by the subscribers. Coming to the merit of the documents submitted in respect of the shareholders, on going through the balance sheet and bank statement in the case of M/s Hector Dealers, this company has paid Rs. 6.79 cr to assessee company. The investor has confirmed before the AO of having subscribed to the shares of assessee company. AO has not discussed anything about the creditworthiness and genuineness of share capital in the light of the documents submitted on behalf of the subscriber companies. Assessee has furnished copies of assessment order completed in the case of this company. The assessment of M/s Hector Dealers has been completed under scrutiny for AY 2010-11 vide order dated 3.12.2018 and for AY 2014-15 vide order dated 25.11.2016. No addition has been made and share capital of M/s Hector Dealers has been accepted as genuine by its assessing officer. As per the balance sheet, the company has capital and R S of Rs 24.60 cr. out which the money has been advanced to the assessee. The company has also explained the source of money which was as received from repayment of mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming that he has invested this amount in the assessee company. No documents have been filed to establish his creditworthiness. There is nothing on record to ascertain what is, his annual income, what is availability of fund and what are the uses of funds. The ,capital thus remains unexplained. Is necessary to examine how courts have treated the additions made on the basis of non-service of notice. Similar facts were encounter in the case of CIT vs. KAMDHENU STEEL ALLOYS LTD. ORS ITA Nos. 1324 of 2008; 972 of 2009; 29, 1228 to 1230 1710 of 2010 and 8, 339, 613 726 of 2011 (0033, (2014) 361 ITR 0220 (Delhi). In this case the notice issue by the AO in case of some shareholders were returned unserved whereupon the share capital was added as income of the assessee company. The matter travelled upto the High court. The honourable Delhi HC held that - .. though initial burden is upon the assessee, once he proves the identity of credits/share applications by either furnishing permanent account numbers or copies of bank accounts and shows the genuineness of the transaction by 'showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of remand was not called for. Initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. The manner in which such a burden is to be discharged has been explained in various judgments. At the same time, it is also well established principle of law that in any matter, the onus brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share applications by either furnishing permanent account numbers or copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the Revenue. The question which assumes importance at this stage is to what the Revenue is supposed to do to dislodge the initial burden discharged by the assessee and to throw the ball again in the assessee's court demanding the assessee to give some more proofs, as the documents produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and/or companies were also bogus and were created for namesake. Normally such kind of presumption against the assessee cannot be made as per the law laid down us judgments. Just because of the creditors/share applicants could not be found at the addresses given it would not give the Revenue a right to invoke s. 68 without any additional material to support such a move. It is projected by the Revenue that the Directorate of IT(Inv.) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant companies and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same, if not, the addition has to be deleted. At that stage, the Tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to. In the facts of these cases, where the appeals relate to the assessment years, which are of 7-8 years old or even more and going by the nature of evidence which is required, it may not be apposite to make such an order. In IT Appeal No. 726 of 2011, the entire case of the Revenue is based on the plea that as per the report, the investing companies were not found at the given addresses and on this basis, argument is raised that the companies are non-existing and the transactions were bogus and not genuine. Here, the case of the Revenue is even weaker than the cases discussed above. It is not even the case that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty of the Learned AO of the assessee to make enquiries through the Learned AO of the concerned share applicants. Since the relevant details are filed by the assessee before the Learned AO to prove the creditworthiness of share applicants, then, the same could not be questioned/ disputed by the Learned AO of the assessee as the same would be travelling beyond his jurisdiction. In other words, the creditworthiness of the share applicants would have to be examined by the AO of those share applicants and not by the AO of the assessee herein. Although it was incumbent on the part of the Learned AO of the assessee herein, to trigger the said verification process from the side of the Department, this needed verification was not done by the AO. Hence the impugned additions made u/s. 68 of the Act, are unsustainable on facts and in law as held by the ITAT Kolkata Bench 'IV in ITA No.1494/Kolkata/2017 dated. 5.4.2019 in M/s. Baba Bhootnath Trade Commerce Ltd. vs. ITO, Ward -9(2) Kolkata It is not that the AO has proved that the impugned sums have been flown from the assessee's coffers. Exchange of cash between the assessee and the impugned share applicants was also not proved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various documents like bank statements, audited balance sheets etc. furnished by the share applicants to the AO in pursuance to the notices issue to them u/s. 133(6) of the Act. The Revenue could not controvert these findings. It is an established position of law that addition cannot be made only on the basis of suspicion or surmises and without controverting the voluminous evidences by bringing any cogent material on record. By observing as above, the order of the Learned CIT (Appeals) deleting the addition made u/s. 68, was confirmed and the Departmental appeal was dismissed. In view of the above facts, and legal position as enunciated by courts, and as the creditworthiness of subscribers is sufficiently established, the addition on account of share capital of M/s Arcade Dealcom Pvt Ltd, Hector Dealers Pvt Ltd, Raja Kaimur Build con Pvt Ltd , and Shri Ashish Jaiswal is hereby deleted. The addition of share capital from Shri Ramesh Bind and Shri Dallu Nishad is hereby sustained. 3.0 Appeal is partly allowed. 8. Both, the assessee company and the revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 9. We shall first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) on 20.03.2015 had categorically observed that he was, inter alia, a director of M/s. Arcade Dealcom Pvt. Ltd. On a perusal of the statement of Shri Ashish Jaiswal (supra), we find that he had provided to the A.O the complete registered office address of the aforementioned investor company, viz. M/s. Arcade Dealcom Pvt. Ltd. and had brought to his notice that he was director in the same for the last 4-5 years. Shri Ashish Jaiswal (supra) had further stated before the A.O that he was looking after the management of the aforementioned investor company. On being queried by the A.O about the business activities of the aforementioned company a/w. its turnover for the year under consideration, Shri Ashish Jaiswal had stated in reply to Question No.6 that the aforesaid investor company was engaged in the business of share trading and had a turnover of Rs. 1,54,92,100/- during the year under consideration. Apart from that, Shri Ashish Jaiswal (supra) on being queried by the A.O had provided the details of bank account of the aforementioned investor company, i.e. current account No.301501010995706 with the Union Bank of India, Branch : Kolkata. Also, in reply to the query raised by the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a/w. audit report, copy of articles of association, copy of share application forms and copy of bank account from which investment towards share application money was made with the assessee company, Page 201 to 244 of APB. On a perusal of the bank statement of the aforementioned investor company, viz. M/s. Arcade Dealcom Pvt. Ltd. i.e. current account No.00000065054345575 with State Bank of Patiala, Branch: Kolkata, we find that on no occasion remittances/transfer of amount to the assessee company as investment towards share application money amounting to Rs. 50 lacs was preceded by any cash deposit. In fact, the A.O had failed to place on record any material which would evidence that the amount received by the assessee company from the aforementioned investor company was, in fact, routing back of its own funds in the garb of the aforesaid transaction. 15. Considering the fact that the assessee company had on the basis of supporting documentary evidence duly substantiated the identity and creditworthiness of the aforementioned investor company, viz. M/s. Arcade Dealcom Pvt. Ltd. and also genuineness of the transaction of receipt of share application money by the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jaiswal, Shri Rajdulare Jaiswal and Shri Ghanshyam Jaiswal, all of whom were residents of Raipur. It was further brought to the notice of the A.O that the aforementioned company was incorporated on 08.05.2008. At this stage, we may herein observe that, on a specific query to question No.5 that was raised by the A.O about non-compliance of the notice u/s. 133(6) which was sent to the aforesaid investor company, viz. M/s. Hector Dealers Pvt. Ltd., Shri Ashish Jaiswal had categorically stated that no such notice was received by the aforesaid investor company. 17. As is discernible from the assessment order, we find that the A.O while framing the assessment had remained more concerned that the claim of Shri Ashish Jaiswal in his statement recorded on 20.03.2015 that no notice/letter u/s. 133(6) of the Act was received by the aforementioned investor company, viz. M/s. Hector Dealers Pvt. Ltd. was factually incorrect. Interestingly, the A.O had failed to place on record any material which would dislodge the identity and creditworthiness of the aforementioned investor company as well as genuineness of the transaction of receipt of share application money by the assessee company from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, inter alia, a director of Raja Kaimoor Buildcon Pvt. Ltd. On a perusal of the statement of Shri Ashish Jaiswal (supra), we find that he had provided to the A.O the complete registered office address of the aforementioned investor company, viz. Raja Kaimoor Buildcon Pvt. Ltd. and had brought to his notice that he was director in the said company for the last 4-5 years. Shri Ashish Jaiswal (supra) had further stated before the A.O that he was looking after the management of the aforementioned investor company. On being queried by the A.O about the business activities of the aforementioned company a/w. its turnover for the year under consideration, Shri Ashish Jaiswal had stated in reply to Question No.6 that the aforesaid investor company was engaged in the business of real estate and during the year under consideration had a turnover of Rs. 3,06,35,000/-. Apart from that, Shri Ashish Jaiswal (supra) on being queried by the A.O had provided the details of bank accounts of the aforementioned investor company, i.e. current account No.0399002100076210 with the PNB, Branch : Kolkata. Also, in reply to the query raised by the A.O about the number of employees a/w. their salary that was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.399003100076210 with Punjab National Bank, Branch: Jaistambh Chowk, Raipur, we find that on no occasion the transfer of amount to the assessee company as investment towards share application money amounting to Rs. 2,70,64,000/- was preceded by any cash deposit in the said bank account. In fact, the A.O had failed to place on record any material which would evidence that the amount received by the assessee company from the aforementioned investor company was in fact, routing back of its own funds in the garb of the aforesaid transaction. 23. Considering the fact that the assessee company had on the basis of supporting documentary evidence duly substantiated the identity and creditworthiness of the aforementioned investor company, viz. Raja Kaimoor Buildcon Pvt. Ltd. and also genuineness of the transaction of receipt of share application money by the assessee company, which as observed by us hereinabove, had not been disproved/dislodged by the department either in the course of the proceedings before the lower authorities or by placing on record any such material even in the course of the proceedings before us, therefore, we find no infirmity in the view taken by the CIT(Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence/material has been placed on record by the assessee, which would prima facie discharge the burden on its part in proving identity and creditworthiness of the share applicant companies and genuineness of the transaction, thereafter, in case such evidence was to be discarded or it was to be proved as being in the nature of created evidence, then the A.O was obligated to carry out thorough probe and place on record material proving to the contrary, is supported by the judgment of the Hon ble High Court of Delhi in the case of Commissioner of Income Tax Vs. Kamdhenu Steel and Alloys Ltd. (2014) 361 ITR 220 ( Del.), wherein, it was, inter alia held as under: 18. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of Sections 68 and 69 of the Act. On the on hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the additions are sustainable and there is adequate material to support the same if not the addition are sustainable and there is adequate material to support the same, the addition has to be deleted. It was further observed that the tribunal would not order further inquiry. The Hon ble High Court, while concluding as hereinabove, had observed that it is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. Further, it was observed that there may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to. For the sake of clarity, the relevant observations of the Hon ble High Court are culled out as under: 20. During the arguments, we had posed these queries Learned counsel appearing for the Revenue understood the limitation of their case. For this reason, a fervent plea was made that this case be remitted back to the AOs to enable him to make further investigation. 21. However, in the facts and circumstances of these cases, it would be difficult to give such an opportunity to the Revenue. There are number of reasons for denying thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if not the addition has to be deleted. At that stage, the tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to. 27. As in the case before us, though the assessee company had duly discharged the primary onus that was cast upon it as regards proving the identity and creditworthiness of the share applicants and genuineness of the transaction of having received share application money from the aforementioned persons, but the A.O could not rebut the same based on any cogent evidence. As the A.O had not cared to discharge the onus that was cast upon him, therefore, as observed by the Hon ble High Court in the case Commissioner of Income Tax Vs. Kamdhenu Steel and Alloys Ltd. (supra), for this negligence on the part of the A.O, he could not be provided with fresh innings . We, thus, in terms of our aforesaid observation finding no infirmity in the view taken by the CIT(Appeals) to the extent he had vacated the aforementioned additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with the assessee company. Also, the financial statement of Shri Ramesh Bind, viz. balance sheet and capital account does not inspire any confidence for the reason that the nature of his business/sources of income cannot be gathered therefrom. Apart from that, the fact that the cash aggregating to Rs. 8 lacs was deposited in the aforesaid persons bank account in two tranches of Rs. 4 lacs each on the same date on which the amount was transferred to the assessee company read a/w. the fact that the said person had no substantial sources of income, thus, raises no confidence as regards the genuineness of the investment claimed by him to have been made with the assessee company. Also, the source out of which an amount of Rs. 10 lacs was transferred by the aforementioned person to the assessee company is not discernible from the record. At this stage, we may also herein observe that though Shri Ramesh Bind (supra) had filed an affidavit wherein he had accepted the fact of having made an investment of Rs. 18 lacs with the assessee company, but despite specific direction by the A.O, the aforesaid company had failed to produce him for necessary examination in the course of the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same date, i.e. on 18.04.2011, details of which, are not discernible from the record. 36. At this stage, we may herein observe that the assessee company despite specific direction by the A.O had not only failed to produce the aforementioned person for necessary verification but also not filed copy of his return of income, which would have evidenced creditworthiness to have made the aforesaid substantial investment of Rs. 1.08 crore (approx.) with the assessee company. All that have been done by the assessee company is to place on record an affidavit of the aforementioned person wherein he had admitted of having made investment of Rs. 1.08 crore towards share application money with the assessee company, Page 104 of APB. As nothing is discernible from the records, which would substantiate the creditworthiness of the aforementioned person who has stated to have made an investment of Rs. 1.08 crore (approx.) with the assessee company, we find no infirmity in the view taken by the A.O who had rightly dubbed the same as unexplained cash credit u/s. 68 of the Act. 37. Based on our aforesaid observations, we concur with the view taken by the CIT(Appeals) who had rightly observed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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