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TMI Blog2024 (6) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... in circumstances of the case and in law, Ld. CIT(A) has Erred in upholding the addition of Rs. 30,00,000/- under section 68 of the act for share money of Parshwanath sales Ltd.? 4. Whether, on facts and in circumstances of the case and in law, Ld. CIT(A) has erred in upholding the addition of Rs. 35,00,000/- under section 68 of the act for share money of Chaturbhai G Patel? 5. In view of order passed by Hon'ble Supreme Court in CIT v. Lovely Exports (P.)Ltd. [Application No. 11993 of 2007, dated 11-1-2008], whether Ld. AO has erred in treating the share money as unexplained credit of the assessee when identity of the share applicant is not in doubt? 5. Whether, on facts of the case and as per prevailing judicial pronouncements, Ld. CIT(A) has erred by neither accepting nor rejecting the additional ground of Appeal which was purely a question of law? 3. The assessee has also raised the following additional grounds of appeal: "Whether on facts and in circumstances of the case and in law, Ld. AO has erred in initiating reassessment u/s. 147 of the Act for A.Y. 2009-10?" 4. We shall first deal with the assessee's additional ground of appeal, in which the assessee has cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf that the reasons for reopening the assessment was duly furnished to the assessee and adequate opportunity was given to the assessee to file objections against issuance of notices. However, the assessee did not raise any objection to the issuance of notices and therefore, the assessee cannot raise this objection at this stage of hearing before ITAT for the first time. 6. Looking into the merits of the reasons to believe, it is observed that the reassessment proceedings were initiated by the assessing officer on the basis of search action conducted on the assessee in which it was found that the assessee over a period from 25/03/2007 to 31/03/2009 was engaged in issuing bogus share capital and thereby introducing his own unaccounted money, through this modus operandi. In fact, Mr. Mahendra Purohit, being the Director of the company had admitted that in respect of 16 persons, the investments were actually his own unaccounted money. During the year under consideration, the assessee, by following the same modus operandi had issues shares to person/entity having no creditworthiness at a huge premium of Rs. 90 per share. Accordingly, the assessing officer was of the view that there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries (P.) Ltd. v. ACIT [2022] 138 taxmann.com 69 (SC), the AO sought to reopen assessment in case of assessee on count that assessee was beneficiary of certain accommodation. The Assessee challenged impugned notice mainly on ground that jurisdictional facts were not established and hence, revenue could not have assumed jurisdiction and reopened assessment. The ITAT found that exercise of reopening had been made only after due inquiries and recording of statements of concerned persons and on having found prima-facie material, impugned notice had been issued to assessee. The Gujarat High Court held that where Assessing Officer had reason to believe that income chargeable to tax had escaped assessment and basis for formation of such belief were several inquiries and investigation by Investigation Wing that there had been escapement of income of assessee from assessment because of his failure to disclose fully and truly all material facts, reopening of assessment was justified, SLP against said impugned order was liable to be dismissed. 9. In the case of Kottex Industries (P.) Ltd. v. ACIT [2021] 129 taxmann.com 151 (Gujarat), the Gujarat High Court held that at the time of recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of search/survey, incriminating documents were seized to the effect that the assessee has introduced unaccounted money in the form of share capital with huge premium. The assessing officer observed that the assessee company had allotted its shares to various persons through private placement from 25/03/2007 to 31/03/2009. In the course of search and survey proceedings, various documents were found from which it emerged that shares were never issued to the share applicants and it was merely on paper that the transaction was done. In fact, Shri Mahendra Purohit, Director of the assessee company in his statement u/s. 132(4) admitted that the investments in the name of as many as 16 parties was actually his own investment. During the year under consideration, the assessing officer observed that shares were issued to four parties amounting to Rs. 90 lakhs and the assessee was asked to furnish details regarding the share capital introduced by these four persons, during the impugned year under consideration. 15. In respect of Shri Chaturbhai Patel, the A.O. observed that this person was issued 35,000 shares at the premium of Rs. 90 per share and the assessee company had receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding of funds by the seller Mr. Chandrakant Solanki himself to the buyer company i.e. M/s. Parshvanath Sales Ltd. shows that the entire transaction is non-genuine. The mere fact that the applicants have furnished PAN, filing return of income and payments have been made through bank account cannot itself prove the genuineness of the transaction. 16.1 Share capital introduced in the name of Hitendra V. Solanki: In this case, Mr. Hitendra Solanki was issued 15000 shares at a premium of Rs. 90/- per share and the assessee has received a sum of Rs. 15,00,000/- The assessing officer observed that the precise modus operandi as in the case of Shri Chandrakant Solanki was also followed at the time of issuance of shares to Shri Hitendra Solanki and facts which emerges are that the genuineness of the entire transaction reasons doubtful and the assessee has not able to prove the genuineness of the transaction. In this case, the A.O. noted that Shri Hitendra Solanki who had invested a sum of Rs. 15 lakhs had not filed return of income since A.Y. 2010-11. Further, thereafter Mr. Hitendra Solanki has been filing return of income declaring miniscule amounts as compared to the investment made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... More importantly, the assessing officer observed that the parties to whom shares have been issued have all been non responsive to notices issued u/s 133(6) of the Act and the creditworthiness of the share applicants are under serious doubt. The shares allotted to Shri Chandrakant Solanki and Shri Hitendra Solanki reached the hands of persons/entities who have no creditworthiness or capacity. The flow of funds into their bank accounts and bank account of the company from which these parties have received funds for subscribing to the shares of the assessee company are of doubtful nature. The company in which Shri Chandrakant Solanki and Shri Hitendra Solanki are directors provided the funds to an unknown company for purchase of shares from them. Therefore, considering the returned income, pattern of entries in the bank account, flow of funds into the bank account from the bank account of three related entities clearly suggests that they are providing accommodation entries. Accordingly, the assessing officer held that the aforesaid share capital is the unaccounted money of the assessee company itself and accordingly assessing officer made an addition of Rs. 90,00,000/- by invoking th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey subscribed to the shares through S.S. Dasani, a Chartered Accountant, that they were not aware of the face value and premium of the shares, that they did not receive the original share certificates, that they did not make any investment other than in the assessee company, and BMJ Cables P Ltd, a group concern of the assessee and that the shares were sold to Vineeta Enterprise P Ltd in April 2009 at the cost price. The assessee was provided cross examination of both the parties on 24.2.2015. After giving exhaustive findings the AO treated investment by this party as non genuine and made addition into income of the assessee. 5.2 Parshwanath Sales Ltd was another investor claimed to have made investment of Rs. 30 lakhs in the assessee company. The AO sent notice u/s 133 (6) of the Act to this party at the address furnished by the assessee calling for relevant details, however, the same was returned by the postal authorities. Therefore, the assessee was asked to produce the party or any authorized person on behalf of this party, which was also not complied with. As mentioned above, the AO gave a detailed finding that funds for purchase of the shares to this party were provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to all the facts and circumstances of the case, submission of the appellant and position of law on the issue, in my considered opinion the action of the AO was in order, hence, does not warrant any interference. Therefore, the grounds of appeal are dismissed. 8. The third ground of the appeal was related to initiation of penalty proceedings under section 271(1)(c). It may be mentioned that no appeal lies against initiation of penalty under section 271(1)(c) of the I.T. Act Appeal could arise only when penalty under this section is levied. In view of the above, this ground is dismissed. 19. The assessee is in appeal before us against the order passed by Ld. CIT(A). Before us, the Counsel for the assessee drew our attention to page 41 of the Paper Book and submitted that Shri Chandrakant Solanki has been regularly filing return of income and the identity and creditworthiness of such persons is not unknown. Further, from the return of income submitted of Shri Chandrakant Solanki for the impugned year under consideration clearly, the creditworthiness is also established. Similarly in the case of Shri Hitendra Solanki, the ld. Counsel for the assessee drew our attention to page 45 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their respective orders. 21. We have heard the rival contentions and perused the material on record. On-going through the facts of the instant case and the totality of circumstances including the statement of Shri Mahendra Purohit director of the assessee company, looking into the modus operandi in which investments in the share capital has been done by the assessee, looking into the fact that the identity and creditworthiness of Shri Chaturbhai Patel who has invested a sum of Rs. 35,00,000/- is under serious doubt, the fact that with respect to balance two shareholders Shri Chandrakant Solanki and Shri Hitendra Solanki were not even aware about the share premium they had paid for the purchase of share of assessee company, coupled with the fact that these persons were not in possession of the original shares certificate and had sold shares of the assessee company at cost price without any justifiable reason and further even the identity and creditworthiness of the fourth investor i.e. M/s. Parashvanath Sales Ltd. is also under serious doubt, all leads us to conclude as the Ld. assessing officer and Ld. CIT(A) have correctly held that the assessee has used colourable device/colo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said amounts were income of the appellant from other sources was not based on evidence." 23. On the issue of circumstantial evidence and in the matters related to the discharge of 'onus of proof' and the relevance of surrounding circumstances of the case, the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More [1972] 82 ITR 540, have observed as under: "...that though an appellant's statement must be considered real until it zvas shown that there were reasons to believe that the appellant was not the real, in a case where the party relied on self-sewing recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities zvere entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority is made conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as undisclosed income. The facts of this case were that assessee claimed to have received gift from his NRI brother. The Assessing Officer treated it as assessee's undisclosed income on ground that same was not real and genuine. The Assessee's brother, apart from furnishing his employment particulars, confirmed gift that he had made. However, assessee's brother didn't make any endeavour to explain genuineness of transactions or his creditworthiness by producing necessary documents proving his monetary ability to make such gift of substantial amount. 26 The Hon'ble Supreme Court in the case of Pr. CIT v NRA Iron & Steel (P.) Ltd [2019] 103 taxmann.com 48 (SC) held that that where assessee received share capital/premium, however there was failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company. 27 The High Court of Andhra Pradesh in the case of Gayathri Associates [2014] 41 taxmann.com 526 (Andhra Pradesh) has held that Identity, creditworthiness and genuineness of transaction is not establi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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