Income Tax Appellate Tribunal - Ahmedabad
Chartered Speed Pvt.Ltd.,, Ahmedabad vs Assessee on 28 August, 2014
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ 'ए
ए' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
ौी एन0
एन0एस0
एस0 सैनी,
ी, लेखा सदःय एवं ौी कुल भारत,
भारत, Ûयाियक
याियक सदःय के सम¢
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./
./ IT(SS)A No.26/Ahd/2012
िनधा[रण वष[/Assessment Year: 2008-09
Chartered Motors Pvt. Vs ACIT,
Ltd., Ahmedabad Central Circle-2(2),
PAN: AAFFC2270F Ahmedabad.
(Appellant) (Respondent)
आयकर अपील सं./
./ IT(SS)A No.25/Ahd/2013
िनधा[रण वष[/ Assessment Year: 2008-09
Chartered Speed Vs ACIT,
Pvt. Ltd., Central Circle-2(2),
Ahmedabad Ahmedabad.
PAN: AADCC0802E
(Appellant) (Respondent)
Revenue by : Sh. Subhash Bains, Sr.D.R.
Assessee(s) by : Sh. Tushar P. Hemani, AR
सुनवाई कȧ तारȣख/
/ Date of Hearing : 21/08/2014
घोषणा कȧ तारȣख /Date of Pronouncement : 28/08/2014
आदे श/O R D E R
PER SHRI N.S. SAINI, ACCOUNTANT MEMBER:
These are the appeals filed by the two assessees for the Assessment Year 2008-09 against the order of the CIT(A)-III, Ahmedabad, both dated 30.11.2012.
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -2-
2. The sole issue involved in both the appeals is that the Ld. CIT(A) erred in confirming the addition of Rs 2 crores in the case of M/s Chartered Motors Pvt. Ltd. and Rs 70 lakhs in the case of M/s Chartered Speed Pvt. Ltd., being share application/share capital subscribed by various companies u/s 68 of the Income Tax Act as undisclosed income.
3. At the time of the hearing, the Authorized Representative of the assessee submitted that in both the appeals, the facts and issue involved are the same and therefore the case of Chartered Motors Pvt. Ltd. is argued as a leading case and the same arguments are to be treated as arguments for the case of Chartered Speed Pvt. Ltd.
4. The brief facts in the case of M/s Charted Motors Pvt. Ltd. are that the Assessing Officer observed that during the year, the assessee has received share application money from the following companies:
Date Name of the company Amount (Rs)
11.05.2007 Alembic Securities Pvt. Ltd. 25,00,000/-
11.05.2007 Buniyad Chemicals Ltd. 25,00,000/-
02.05.2007 Genu Commu Trade Ltd. 30,00,000/-
07.05.2007 Genu Commu Trade Ltd. 20,00,000/-
08.05.2007 Ken Securities Ltd. 25,00,000/-
03.05.2007 Nexus Software Ltd. 30,00,000/-
05.05.2007 Nexus Software Ltd. 20,00,000/-
10.05.2007 Tribhuvan Housing Ltd. 25,00,000/-
It was further observed that appellant company has allotted shares of face value of Rs 10/- at a premium of Rs 90/- per share. These shares were ultimately transferred to various employees of different ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -3- concerns of family members of appellant. All the transferees are salaried employees with meager income and they could not explain the source of investment in the share capital. A.O. also made enquiry regarding these companies. Movement of funds was traced in every case. All these facts have been narrated by AO in the assessment order. The result of enquiry was communicated to the appellant by AO and he was asked to furnish his explanation. After considering all the facts and reply of appellant, AO concluded that the transactions shown in the name of these companies are not genuine. He, therefore, made addition of Rs 2 crore u/s 68 with the following observation:
"Thus in view of the facts as listed out in the show cause dated 21/11/2011 and deductions, summarized above it is clear that what is apparent is not real and the assessee's claim of having received genuine investment is not genuine. As laid down by the Hon'ble Supreme Court in the case, of CIT vs Sumatt Dayal [1995] 80 TAXMAN 89 (SC), apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities, importing the ratio of the Hon'ble Supreme Court of India as propounded in the case of Sumatt Dayal (supra), there is no dispute that the amount has been received by the appellant from various companies, some of which are listed companies, and the funds have been received against the issue of shares and that the funds have been received through banking channels. What is disputed is whether the funds received by the assessee is actually genuine investment or the unaccounted income introduced in the garb of investment. This raises the question whether the apparent could be considered as real. In the present case the claim of the assessee having received genuine investment is incorrect in light of the following facts and evidences
a) It is to be noted that the assessee-company is stated to have issued shares at premium nine times its face value.
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -4- The assessee is a private limited company. It has not issued prospectus for issue of shares nor under the Companies Act, 1956, can it invite the public to apply for and allot the shares. The company is prohibited from making any invitation for allotment of shares. How the premium was fixed is not forthcoming. In such circumstances the share premium is not found to be justified by any of the act on the part of the assessee. These facts are revealing more than the apparent shown on the paper.
b) The companies which have invested in Chartered Motors Pvt. Ltd. have either not shown or shown very meagre taxable income. A perusal of the balance sheet of the said companies also shows that they are having practically no fixed assets. Thus in absence of any apparent business activity, it is very difficult to comprehend that how these companies have generated such large reserves and surplus and share capital. The only plausible explanation seems to be as given by the directors/operators of these companies in their statements as discussed above, wherein it has been stated that these companies are mere entry providers.
c) Moreover, the decision of the investors to sell back the shares of the company at face value, a short time after purchasing the same by paying the premium at nine times the face value, fails to stand the test of a prudent business decision.
d) The shares were sold back by the investors even before the share certificates were received by the investors. This points to the fact that the decision of issue and buyback of shares by the assessee company was a premeditated decision and not a prudent business decision. There was no drastic change in the financial position of the assessee company and its net worth between the period, when the shares were subscribed at a hefty premium and later on when shares were bought back by the assessee company at the face value. The short time lag between these two transactions without any underlying financial changes only confirms the pre-conceived plan of the assessee company to introduce its unaccounted income.
e) As discussed in the show cause dated 21/11/2011, which has been reproduced above, it is clear that a large part of these investments is attributable to the cash deposits which have been made in the various accounts operated by Mr. Ram Dinesh Sharma whose statement was recorded u/s 133A on 31/08/2009 and u/s. 131 on 16.12.2011. In his ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -5- statement he has admitted that he only provided the accommodation entries. He received cash from various persons and issued cheques against the cash to the persons who needed it. Looking in the total scheme of the things, as the ultimate beneficiary of the whole transaction is CMPL where ultimately all the funds have been retained, it is clear that the whole scheme was charted but to introduce the unaccounted money, in the company in the form of share application money.
f) Further these shares were ultimately transferred by the investor companies to the persons who are employed with concerns of the family members of the promoters of the 'Chartered Group' at face value of Rs. 10/- each. Thus, it is clear that the shares have finally been transferred to persons under influence and control of Promoters of Chartered Group at face value.
g) A cursory look on the overall device makes it clear that the assessee has successfully retained the funds and also the control over the shares of the company. It clearly falls within the artifice as discussed by the Hon'ble Gujarat High Court in the case of CIT vs. Sakarlal Balabhai [1968] 169 ITR 186. In the said decision it has been stated that "Tax avoidance postulates that-the assessee is in receipt of amount which is really and in truth his income liable to-tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently show the income as accruing to another person, at the same time making it available for use and enjoyment to the assessee as in a case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms. But there must be some artifice or device enabling the assessee to avoid payment of tax on what is really and in truth his income." In the present case at hand, the funds have been routed through various layers, in such a manner so as to give it a color of genuine: investment, whereas the circumstantial evidences point otherwise.
19. In view of the discussion above; the share application money received by the assessee during the year, is being treated as the undisclosed income u/s 68 of the assessee and the same is being added to the total income of the assessee."
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -6-
4. The assessee filed the appeal before the Commissioner of Income Tax(A) and submitted a written submission which is as follows:
"We refer to our submission dt. 15/2/2012 furnishing reply on addition of Rs. 2,00,00,000/- made U/s. 68 of I.T, Act. The said reply contained paper book and various judgments relied upon by us. Sir, we also rely on the following judgments and request your goodself to consider the same:
1. I.T.O. Jaipur vs.Orchid Medicare Pvt. Ltd.ITA No.939/JP/2011
ITAT, Jaipur Bench (16/5/2012)
2. Param Poly pack Pvt Ltd. Vs. I.T.O. Baroda ITA No. 506/Ahd/2009 ITAT Ahmedabad Bench. (08/5/2012)
3. C.I.T. vs. Kamdhenu Steel & Alloys Ltd.
(2012) 19 Taxmann.Com 26 (Delhi High Court)(Dec.23, 2011) All these judgements have taken note of earlier judgements on the said issue and decided in favour of the appellant.
Without prejudice to above, on perusal of judgements of various Courts including S.C. and Appellate Tribunals, your honour will find that if assessee has discharged its burden of proving amounts credited in books of accounts as share application money/capital, the addition can not be made.
Sir, it is pertinent to note and appreciate that these judgements have stood the test of law and have proved to be law of the land, This is evidenced by the fact that Finance Act, 2012 has amended section 68 of the Act,, prospectively w.e.f. 1-.4-2013 whereby after this date if any, such credit is there in books, assessee is required to explain the source of funds in the hands of the resident shareholder. Thus, it is quite dear that provisions of section 68 as stood on the statue book are required to be considered as interpreted by judgements of various courts upto A.Y. 2012-2013 i.e. till amendment came in force w.e.f, 1/4/2013. In case of appellant the transactions are prior to the said amendment and hence additions made are requested to be deleted.
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -7- Share Capital Contribution
1. Nexus Software Ltd,
2. Genus Comm. Trade Ltd.
3. Ken Securities Ltd.
(i) We have analyzed and commented on the statement of directors of above named companies in our earlier reply. In case of all the above companies, their respective directors have used the name of Mr. Raman Jain for advising the investment and giving/Transfer cheques in their Bank A/c. and thereafter they have given the cheques in the name of Chartered Motors Pvt. Ltd.
(ii) We invite your attention to the statement of Raman Jain recorded by ADIT on 18/4/2010 and provided to us by you on 12/12/2011. Your honour will find that Raman in Ans. To Q. No. 4 & 5 has categorically denied by stating that" I have carefully go through the statements of Shri Dipak R. Patel, Hitesh M. Panchal & Jayesh Narandas Patel. / do not know the above persons and whatever stated in their statements and for the financial transaction and for investment in shares. I specifically deny to whatever they stated".
(iii) On analysis of Audited A/cs. it is very clear that these Companies are showing sales/purchase and closing stock. Hence, the shares taken in our company are appearing in purchases and in turn in closing stock/Inventory. Thus the purchases/ investments are duly accounted for by them.
(iv) The story of Commission received and investment
not being genuine has ho base at all, as
companies have accounted for purchases and shown the same in closing stock. There is no commission element as income in the books of A/cs. as well as nothing has been brought on record as to who has paid commission and to whom.
(v) In case of Nexus Software Ltd., we have the statement of accounts for the period 1/4/2007 To 31/3/2008 duly confirmed by director Jayesh Patel wherein entries of cheques paid to us and accounting to purchases of 50000 Shares of Chartered Motors Pvt. Ltd. @ Rs. 100/- per share ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -8- (Rs. 50.00 lacs) is duly reflected. Same may be the case in other two companies also copy enclosed.
(vi) On perusal of bank statement of above Companies, you will find that when cheques were given to us for share capital, there was sufficient balance which was built up by cheques clearances i.e. received 'through proper banking channel. Thus source for our chqeues in the hands of companies were proper bank credits which can be or might have been explained by the share applicant in his case.
(vii) Your honour is aware that all the above 3 Companies are assessed by you only in Central Circle 2(2), A'bad hence, your honour has access to whatever you require as to genuineness identity and capacity.
(viii) It appears to us that whatever, we have stated in our earlier reply and in this reply as to these companies shall prove beyond, doubt that the share capital contributed by these companies is genuine.
Tribhovan Housing Ltd.
i. In our First reply to SCN, we have explained and clarified the contents of the statement of director Narendra Shah recorded by ADIT and relied upon by you. The statement, as stated, is completely vague and unless other records are provided nothing can be explained about the same.
ii. The said company is LISTED Co. and its scrip is regularly traded on stock exchange. Beyond this that it is listed and regularly traded company, no other detail should be required to establish its identity, genuineness or capacity.
iii. The said company is assessed by you only in Central Circle 2(2), Ahmedabad and hence your honour has access to all the details and information as to genuineness, Identity and capacity.
iv. In view of above, we request your goodself to accept the Share Capital contribution as genuine.
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09 -9- Buniyad Chemicals Pvt. Ltd.
Alembic Securities Pvt. Ltd.
(i) In our First reply to SCN, we have explained and clarified the contents of statement of director Mukesh Choksi recorded by ADIT and relied upon by you. Your honour has also provided us statement of Mukesh Choksi and other director Mr. Sampat wherein they have stated modus operandi of their Trade which includes share capital also. However, their statements are just general and nothing to do with share capital contributed by them in our company. Only relevant is his answer to Q. No, 9 where on being asked as to how he accommodates the bills with various group entities of Chartered Logistics Ltd., he denied to have knowledge of approaching any agent for accommodating bills for Chartered Group. It is also pertinent to. note here that the statement of Company's other director J.K. Sampat was recorded much later after our search on 14/5/2010, wherein he has not stated any thing about Chartered Group investments being not genuine.
(ii) Thus it is very clear that Share Capital Contributed by these Companies is genuine and requested to be accepted.
Sir, on perusal of our submissions made before A.O. as well furnished herein your honour will find that;
i. Share capital is contributed by Companies incorporated under Companies Act, 1956 ii. Accounts of all the companies are regularly passed by respective Board of Directors, approved, and signed, it is Audited by statutory auditors and while filing tax returns all the contents are verified by director.
iii. The accounts duly audited are filed with Govt.
Agencies, Income Tax and ROC every year. iv. All the transaction are through proper Banking Channel i.e. we have received the contribution by cheque only.
v. There is no cash deposit in the bank A/c. of company for passing the cheques given to us for share capital in respect of companies whose Bank statements are provided to us.
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09
- 10 -
vi. All these companies are having PAN. vii. 4 of the companies are assessed by our A.O. and 1 of them is listed with BSE.
viii. During search proceedings nothing incriminating was found so as to indicate that any cash has been given/introduced through us directly or indirectly, Hence/the allegation that money of the appellant itself have been introduced completely baseless, false, derogatory and not supported by any evidence."
5. After considering the above submission, the Commissioner of Income Tax(A) held as under:
"2.3 Facts of the case and submissions of the appellant have been carefully considered. Following observations have been made in respect of these transactions;
(a) Appellant allotted shares to these six companies at a premium of Rs.90/- per share on 30/11/2007. All the shares were ultimately sold to various persons who are salaried employees in various concerns of appellant. They have limited income and source of investment in share capital in their hands is not satisfactorily explained,
(b) Original share certificate were never sent to these companies. Share certificate register was also found during the course of search and the same was seized at Annexure A/14.
(c) Statement of Shri Mukesh Choksi was recorded, who admitted that he only provides accommodation entries. In view of his statement, genuineness of capital introduced. in the name of Alembic Securities Pvt. Ltd, and Buniyad Chemicals Ltd. is not established.
(d) Statement of Shri Hitesh Panchal was recorded who is director of Genu Commu Trade Ltd. He stated that Mr. Raman Jain of Chartered Motors Pvt. Ltd. gave him cheques of Rs.50 lakhs which was deposited in their account. He also admitted that share certificates were not given to him. He further admitted that he only gives adjustment entries for which he charges fixed commission.
(e) AO further found that cash was deposited in 4 different bank accounts maintained in Vinayak Sahakari Bank from which sum of Rs.20 lakhs was transferred to Genu Cbmmu Trade Pvt. Ltd. All these four accounts are operated ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09
- 11 -
by one Ram Dinesh Sharma, Similarly, another sum of Rs.30 lakh was introduced through six bank accounts of Vinayak Sahakari Bank. The initial source of deposit in these six bank accounts is in cash, source of which remains unexplained. Statement of Mr. Ram Dinesh Sharma was also recorded, who admitted that abovementioned bank accounts are operated by him for providing accommodation entries. The entire statement of Mr, Ram Dinesh Sharma has been reproduced by AO in the assessment order in which these facts are mentioned.
(f) Statement of Mr. Deepak Patel was recorded who is director of Ken Securities Ltd He also admitted that cheque of Rs.25 lakhs was received by him from Mr. Raman Jain. He also admitted that he provides adjustment entries on commission basis. The source of deposit of this money in the account of Ken Securities Ltd. was also found from various bank accounts which are managed by Ram Dinesh Sharma only.
(g) Statement of Narendra Shah was recorded who is director of Tribhuvan Housing Ltd. He stated that he has given blank cheques to Laxman Zala, who is finance broker and he does not know any transaction undertaken by him. He further denied any transaction with appellant company or its promoter.
2.4 In view of above mentioned facts, claim of the appellant that nothing incriminating was found in his case, is factually incorrect. During search and post search proceedings sufficient material has been brought on record by the department to prove that appellant introduced its own unaccounted money in the garb of share application. The initial source of funds in the case of allottee companies remains unexplained. Statements of Mr. Ram Dinesh Sharma, Mukesh Choksi, Raman Jain, Deepak Patel and Hitesh Panchal clearly indicate the nature of accommodation entry business carried out by the six allottee companies. Allotment of shares by appellant at a huge premium without actually sending the share certificates and subsequent purchase of shares at par within a short period by various employees of appellant company conclusively prove involvement of appellant. All these facts taken in totality don't leave an iota of doubt that the transactions are bogus, AO has duly discharged his burden in this case by pointing out various contradictions in the claim of appellant while appellant has miserably failed to discharge his burden to prove genuineness of these transactions.
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09
- 12 -
2.5 The issue regarding entry racket in respect of share application money has been examined in detail by Hon'ble High Court of Delhi in one of its recent judgements in the case of CIT vs. Nova Promoters Finlease Pvt. Ltd.(18 taxmann.com 217, Delhi), In this case the Hon'ble court has considered various case laws on the issue and held that where modus operandi of entry operators taking cash from assessee company and then providing share application money through cheques from various companies to assessee company has been unearthed and two king-pins of the racket have accepted their involvement to the department and all material collected by investigation wing of the department has been put to the assessee, the fact that these monies were received through banking channels or that companies existed in ROC's register do not meet the burden of proof under section 68. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course, of human conduct. The affidavits submitted by assessee need not be accepted as reliable when there is enough material on record to doubt the veracity of the transaction; In such a case it cannot be said that the affidavits can be rejected only after cross examination.
2.6 In this judgement Hon'ble High Court made the following observation:
18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz, (i) identity of the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide Whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court in Commissioner of Income-Tax, West Bengal II v. Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under:-
"Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09
- 13 -
recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to 'find out the reality of the recitals made in those documents."
In Commissioner of Income-Tax(Central), Calcutta v. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under Section 66 of the Indian Income Tax Act, 1922. The Supreme Court referred to the leading case of Edwards. (Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (H.U) decided by the House of Lords in which Viscount Simonds observed as under:-
"For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be"
In the same case Lord Radcliffe expressed himself in the following words:
"If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person, acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene."
Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC), which are as under: -
ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09
- 14 -
"It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of laws The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question."
In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280, the Supreme Court again reiterated the aforesaid position and held as under: -
"As a principle, this court does not disturb findings of fact unless the findings of fact are perverse, it appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see."
19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact "recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal, The position in an appeal under Section 260A of the Act is "a fortiori" as the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra] would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
ITA(SS) No.25/Ahd/2013 Chartered Speed Pvt. Ltd., Ahd.
For A.Y. 2008-09
- 15 -
relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were Its own unaccounted monies."
2.7 Hon'ble High Court also distinguished the decisions in the eases of CIT v. Lovely Exports P. Ltd., General Exports and Credits Ltd. and Divine Leasing & Finance by making the following observation:
"32. Since strong reliance was placed by the assessee on the order of the Supreme Court in the case of CIT vs. Lovely Exports P. Ltd. [2008] 216 CTR (SC) 195 it would be necessary to examine the facts of that case and the ratio laid down therein in order to decide the applicability of that case, to the one before us. It would also be necessary to examine the string of decisions of this court on the question of applicability; of section 68 of the Act to monies received as share capital
33. The facts of Lovely Exports (P) Ltd, (supra) have been set out in the judgment of this court in that case, reported as CIT v, (1) Divine Leasing & Finance Ltd. (supra) (2),General. Exports arid Credits Ltd. and (3) Lovely Exports P. Ltd. in [2008] 299 ITR 268. In that case, the share capital subscription was received through banking channels and complete records were maintained by Divine Leasing- & Finance Ltd. The Assessing Officer issued summons u/s. 131 and thereafter impounded the shareholders' register, share application forms and share transfer register. It was contended by the assessee in that case that because of the action of the Assessing Officer, it was not able to furnish any details about the share subscribers. The Tribunal found that the allotment of shares was made as per the relevant rules of the Securities Contracts (Regulation) Act, 1956 as well as those of the Delhi Stock Exchange, No evidence had been brought on record by the Assessing Officer to indicate that the shareholders were either benamidars of the assessee-
company or fictitious or that, the share application monies were the unaccounted income of the assessee-company. The Tribunal accordingly held that the onus that lay on the assessee under sec. 68 stood discharged.
34. In respect of the other assessee, namely, General Exports & Credits Ltd., the monies were received by the said company on issue of rights shares to five companies pursuant to the renunciation of rights by several individual shareholders. A search had been conducted on the premises of the assessee, but those renunciation forms were not found with the assessee. As in the case of Divine Leasing & Finance ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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Ltd., the five companies were registered in Sikkim at the same address. They all filed replies to the department asking for further time to provide the details of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the shares through banking channels, Moreover, the investigations carried out into those companies by the income-tax department at Calcutta and the adverse findings therein had been struck down as being without jurisdiction in appeals filed by those companies and therefore the Assessing Officer having jurisdiction over General Exports and Credits Ltd, in Bulandshahar could not rely upon them. In these circumstances, the Tribunal had deleted the addition made u/s. 68 on the ground that the identity of the shareholders had been proved. This court did not approve of the ground, on which the Tribunal had cancelled the addition and observed that the judgment of the Full Bench of this court in CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscribe to the shares and held that it was a matter of concern only of the appropriate authority under that Act. Accordingly, the ultimate decision of the Tribunal cancelling the addition was upheld.
35. The facts of Lovely Exports (P.) Ltd., (supra) as noted by this court are these. The assessee company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some cases, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted, nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law.
36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases:
"There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the revenues insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the ease of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and. treat the subscribed capital as the undisclosed income of the company,"
We may also note that a reference was made by this court to several authorities; including at least seven judgments of this court on the question of applicability of section 68 to share application monies, and the position was pithily summed up as follows at page 282 (of 299 ITR):
"In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the "creditor/subscriber; (2) the genuineness of ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the "transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation."
2.8 Hon'ble High Court also considered other decisions on this issue and held that:
38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms, and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated:
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by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan-a smokescreen conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary.
39. The case of Orissa Corporation [1986] 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in Dolphin Canpack [2006] 283 ITR 190, CIT v. Makhni & Tyagi P. Ltd. (2004) 267 ITR 433, CIT v. Antarctica Investment (P.) Ltd. [2003] 262 ITR 493 and CIT v. Achal Investment Ltd. [2004] 268 ITR 211.
To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with, persons who are self- confessed "accommodation entry providers".
40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities (P.) Ltd. (2011) 333 ITR 119. We have given utmost consideration to the judgment. It disposes of several ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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appeals in the case of different assessees. Except the case of Oasis Hospitalities (P.) Ltd. (ITA Nos.2093 & 2095/2010), the other cases fall under the .category of Orissa Corporation (supra). However, in the case of Oasis Hospitalities (P.) Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of which it was found that six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, this court observed:-
"The Assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced, on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by producing PAN number, bank account, copies of incorne tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Wing."
These quoted observations clearly distinguish the present case from Oasis Hospitalities (P.) Ltd (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made; in this regard. Further, the assessee had not been confronted with the material collected by the ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing.
41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-cornpany, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so-called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P.) Ltd.. (supra).
42. In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs. 1,18,50,000 made under section 68 of the Act as well as the consequential addition of Rs. 2,96,250. We accordingly answer the substantial questions of law in the negative and in favour of the department. The assessee shall pay costs which we assess at Rs. 30,000/-."
6. The Commissioner of Income Tax (A) held as under:
"In view of above mentioned facts and legal position, I hold that AO is justified in coming to the conclusion that receipt of Rs.2 crores shown by the appellant as share application money from the 6 companies is only an accommodation entry. AO has given detailed reasons in the assessment order for coming to this conclusion which need not be repeated here. In view of various discrepancies pointed out by AO, the onus on appellant was very heavy to prove that the transactions are genuine. Appellant has failed to discharge this onus. I therefore, hold that addition of Rs.2 crores made u/s. 68 by AO is justified and the same is confirmed. Ground No.2 of the appeal is thus dismissed."
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7. The AR of the assessee submitted that while confirming the aforesaid addition, CIT(A) has not given any independent finding and he has merely relied on certain ca laws and on the reasoning given by AO (Pg. 20, Para 2.9 of CIT(A)'s order). The Ld. AR submitted that the amount has been received from various companies (some of which are listed), funds have been received against issue of shares and funds have been received through banking channels from the bank accounts owned and operated by these companies. The details of documentary evidences placed on record in respect of the aforesaid companies are as per Annexure "A". Copy of Board Resolution w.r.t. allotment of 2,00,000 shares is placed at Pg. 407 of P/B. Copy of a table containing the date of allotment, name, address and no. of shares allotted in respect of the aforesaid companies is placed at Pg. 408 of P/B. Copies of relevant extract of bank statement of the appellant are placed at Pgs. 409 & 410 of P/B. Copy of Form 2 (i.e. 'Return of allotment') filed by the appellant pursuant to S. 75(1) of the Companies Act, 1956 is placed at Pgs. 411 to 413 of P/B. Thus, assessee had furnished various details pertaining to the share applicants such as name, addresses, PAN share application and mode of payment. Having furnished the aforesaid documents, the primary onus as casted on the assessee stood discharged. Thereafter, it is for the AO to scrutinize such details. AO didn't make any efforts to scrutinize the details given to him. In fact, it was brought to the notice of AO that out of the aforesaid six companies, four companies were assessed with the very same circle. i.e. Central Circle-2(2), any further inquiry in light of the evidences placed before him in the hands of the above stated companies except relying upon so called statements of some of the directors without any supporting or evidences. AO has placed heavy reliance on ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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statements of directors of share applicant companies. However, assessee was not given effective opportunity to cross-examine such persons since on the given date and time set for cross-examination, such persons failed to appear before AO (Pg.34, Para 9 of Asst. Order). Hence, the same violates the principles of natural justice. In any case mere bald statement, that too self-serving, without any corroborative evidences cannot be made a ground to make huge addition. Mr. Raman Jain has given a statement in favour of the appellant. However the same is ignored by AO on the ground that he is the auditor of the appellant. If self-serving statements are to be ignored, all the statements of the directors as stated above have to be ignored. As regards statement of Mr. Ram Dinesh Sharma is concerned, nowhere it has been even remotely suggested that the appellant is connected in the transaction in any manner. In answer to Q. No. 7 also, Mr. Sharma has never named the appellant or any of its director or employees. The fact that these investments are not reflected by Genus & THL in fact support the appellant in as much as since these parties have made investments outside its books of accounts, they are trying to disown the same and saving their own skin by blaming the appellant. In private limited company, the shares are seldom sent to the concerned shareholders as shares are not easily transferable. Therefore, the mere fact that shares were in possession of the appellant would not affect the genuineness of the transaction. AO and CIT(A) doubted "Source of source" of the funds received by the assessee (Pg. 11, Para 2.4 of CIT(A)'s order) S.68 not at all requires an assessee to prove source of such source. Source of source is not required to be proved by the assessee. Reliance is placed on following authorities:
(a) DCIT Vs. Rohini Builders 256 ITR 360 (Guj.) ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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(b) Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.)
(c) CIT Vs. Pragati Co. Op. Bank Ltd. 278 ITR 170 (Guj.)
(d) CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) If AO doubts the source of the source, he is free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the requirement of S.68. The appellant has proved all the three ingredients of proving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). In case of share application money only the identity of the share applicants is to be proved. Once identity is proved, burden of the assessee can be said to have been fully discharged. Reliance is placed on the following:
(i) CIT vs. Lovely Exports (P.) Ltd. 216 CTR 195 (SC)
(ii) Hindustan Inks & Resins Ltd vs. DCIT (Tax Appeal No. 523 of 2004 dated 17.06.2011) (Annexure "B")
(iii) ITO vs. Ankush Finstock Ltd.-149 TTJ 502 (Ahd)-
Annexure "C"
(iv) CIT vs. Shree Rama Multi Tech Ltd.- (2013) 34 taxmann.com 177 (Gujarat)- Annexure "D"
(v) CIT vs. Gangeshwari Metal (P.) Ltd. - Annexure "E"
(vi) CIT vs. Peoples General Hospital Ltd.-(2013) 356 ITR 65 (MP)
(vii) CIT vs. Stellar Investment Ltd. - 251 ITR 263 (SC) ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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CIT(A) has relied upon the decision in the case of Nova Promoters Finlease Pvt. Ltd. which has been distinguished and differed by the Delhi High Court itself in the case of Gangeshwari Metal (supra) wherein it was held that when an assessee brings various documentary evidences in support of its claim that share application money is genuine, no addition can be made u/s 68 of the Act. In the light of the above, the impugned addition rightly deserves to be deleted.
8. The DEPARTMENTAL REPRESENTATIVE relied on the order of Assessing Officer and placed reliance on the following decisions:
(i) CIT Vs. Nova Promoters Finance Pvt. Ltd.
2012 18 Taxmann 217 Delhi HC
(ii) CIT Vs. Titan Securities Ltd.
2013, 32 Taxmann.com 306 Delhi HC
(iii) CIT Vs NR Portfolios Pvt. Ltd.
Delhi HC ITA No. 134/2012 dated 21.12.12.
9. In the case of Chartered Speed Pvt. Ltd., the Assessing Officer observed that during the relevant period, the assessee company has received share application money from various companies, the details of which are given below:
Date Name of the company Amount (Rs)
28.09.2007 Kailash Fincom Pvt. Ltd. 20,00,000/-
12.09.2007 Shivpujan Agencies Pvt. Ltd. 15,00,000/-
03.09.2007 Gold Star Finvest Pvt. Ltd. 20,00,000/-
14.09.2007 Nexus Software Ltd. 15,00,000/-
Total 70,00,000/-
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It was further observed by AO that appellant company has allotted shares of face value of Rs 10/- at a premium of Rs 90/- per share and the shares were ultimately bought back by Shri Pankaj Gandhi, who is a promoter director of the appellant company at par within a period of 9 months. AO made further enquiry regarding these companies. All these facts have been discussed in detail by AO in the assessment order. Details furnished by appellant were also considered. After considering all these facts and reply of appellant, AO concluded that the transactions shown in the name of these companies are not genuine. He therefore, made addition of Rs 70 lakhs u/s 68 with the following observation:
"17. Thus in view of the facts as listed out in the show cause dated 21.11.2011 and deductions summarized above, it is clear that what is apparent is not real and the assessee's claim of having received investment is not genuine. As laid down by the Hon'ble Supreme Court in the case of CIT vs Sumati Dayal (1995) 80 TAXMAN 89 (SC), apparent must be considered real until it is shown that there are reasons to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities. Importing the ratio of the Hon'ble Supreme Court of India as propounded in the case of Sumati Dayal (supra), there is no dispute that the amount has been received by the appellant from various companies, some of which are listed companies, and the funds have been received against the issue of shares and that the funds have been received through banking channels. What is disputed is whether the funds received by the assessee is actually genuine investment or the unaccounted income introduced in the garb of investment. This raises the question whether the apparent could be considered as real. In the present case the claim of the assessee having received genuine investment is incorrect in light of the following facts and evidences
a) It is to be noted that the assessee-company is stated to have issued shares at premium nine times its ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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face value. The assessee is a private limited company. It has not issued prospectus for issue of shares nor under the Companies Act, 1956, can it invite the public to apply for and allot the shares. The company is prohibited from making any invitation for allotment of shares. How the premium was fixed is not forthcoming. In such circumstances the share premium is not found to be justified by any of the act on the part of the assessee. These facts are revealing more than the apparent shown on the paper.
b) The companies which have invested in Chartered Speed Pvt. Ltd. have either not shown or shown very meagre taxable income. A perusal of the balance sheet of the said companies also shows that they are having practically no fixed assets. Thus in absence of any apparent business activity, it is very difficult to comprehend that how these companies have generated such large reserves and surplus and share capital. The only plausible explanation seems to be as given by the directors/operators of these companies in their statements as discussed above, wherein it has been stated that these companies are mere entry providers.
c) Moreover, the decision of the investors to sell back the shares of the company at face value, a short time after purchasing the same by paying the premium at nine times the face value, fails to stand the test of a prudent business decision.
d) The shares were sold back by the investors even before the share certificates were received by the investors. This points to the fact that the decision of issue and buy back of shares by the assessee company was a premeditated decision and not a prudent business decision. There was no drastic change in the financial position of the assessee company and its net worth between the period, when the shares were subscribed at a hefty premium and later on when shares were bought back by the assessee company at face value. The short time lag between these two transactions without any underlying financial changes only confirms the pre- conceived plan of the assessee company to introduce its unaccounted income.
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e) As discussed in the show cause dated 21/11/2011, which has been reproduced above, it is clear that a large part of these investments is attributable to the cash deposits which have been made in the various accounts operated by Mr. Ram Dinesh Sharma whose statement was recorded u/s 133A on 31/08/2009 and u/s. 131 on 16.12.2011. In his statement, he has admitted that he only provided the accommodation entries. He received cash from various persons and issued cheques against the cash to the persons who needed it. Looking in the total scheme of the things, as the ultimate beneficiary of the whole transaction is Chartered Speed Pvt. Ltd. where ultimately all the funds have been retained, it is clear that the whole scheme was charted out to introduce the unaccounted money in the company in the form of share application money.
f) Further these shares were ultimately transferred by the investor companies to Shri Pankaj Gandhi, the Promoter Director of the assessee company at face value of Rs. 10/-each. Thus, it is clear that the shares have finally been transferred to the promoters of the Chartered Group at face value.
g) A cursory look on the overall device makes it clear that the assessee has successfully retained the funds and also the control over the shares of the company. It clearly falls within the artifice as discussed by the Hon'ble Gujarat High Court in the case of CIT v. Sakarlal Balabhai (1968)169 ITR 186. In the said decision it has been stated that "Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently show the income as accruing to another person, at the same time making it available for use and enjoyment to the assessee as in a case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms... But there must be some artifice or device enabling the assessee to avoid payment of tax on what is really and in truth his income." In the present case at hand, the funds have been routed through various layers, in such a manner so as to give it a color of genuine investment, whereas the circumstantial evidences point otherwise.
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1.8. In view of the discussion above, the share application money received by the assessee during the year, is being treated as the undisclosed income u/s 68 of the assessee and the same is being added to the total income of the assessee under the head "Income from other sources".
10. The appellant in its written submission argued that "We refer to our submission dt. 15/2/2012 furnishing reply on addition of Rs. 70,00,000/- made U/s. 68 of I.T. Act. The said reply contained paper book and various judgements relied upon by us.
Sir, we also rely on the following judgements and request your goodself to consider the same:
1. I.T.O. Jaipur vs. Orchid Medicare Pvt. Ltd. ITA No. 939/JP/2011, ITAT, Jaipur S Bench (16/5/2012)
2. Param Polypack Pvt. Ltd. Vs. I.T.O. Baroda, ITA No. 506/Ahd/2009, ITAT Ahmedabad Bench (08/5/2012)
3. C.I.T. vs. Kamdhenu Steel & Alloys Ltd.
(2012) 19 Taxmann.Com 26 (Delhi High Court), (Dec. 23, 2011) All these judgements have taken note of earlier judgements on the said issue and decided in favour of the appellant. Without prejudice to above, on perusal of judgements of various Courts including S.C. and Appellate Tribunals, your honour will find that if assessee has discharged its burden of proving amounts credited in books of accounts as share application money/capital, the addition can not be made. Sir, it is pertinent to note and appreciate that these judgements have stood the test of law and have proved to be law of the land. This is evidenced by the fact that Finance Act, 2012 has amended section 68 of the Act, prospectively w.e.f. 1-4- 2013 whereby after this date if any such credit is there in books, assesses is required to explain the source of funds in the hands, of the resident shareholder. Thus, it is quite clear that provisions of section 68 as stood on the statue book and required to be considered as interpreted by judgements of various courts upto A.Y. 2012-2013 i.e. till amendment came in force w.e.f. 1/4/2013. In case of appellant the transactions are prior to the said amendment and hence additions made are requested to be deleted.
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Share Capital Contribution
1. Nexus Software Ltd.
(i) We have analyzed and commented on the statement of directors of above named companies in our earlier reply. In case of all the above companies, their respective directors have used the name of Mr. Raman Jain for advising the investment and giving/Transfer cheques in their Bank A/c. and thereafter they have given the cheques in the name of Chartered Speed Pvt. Ltd.
(ii) We invite your attention to the statement of Raman Jain recorded by ADIT on 18/4/2010 and provided to us by you on 12/12/2011. Your honour will find that Raman in Ans. To Q. No. 4 & 5 has categorically denied by stating that" I have carefully gone through the statements of Shri Dipak R. Patel, Hitesh M. Panchal & Jayesh Narandas Patel. I do not know the above persons and whatever stated in their statements and for the Financial transaction and for investment in shares. I specifically deny to whatever they stated".
(iii) On analysis of Audited A/cs. it is very clear that these Companies are showing sales/purchase and closing stock. Hence, the shares taken in our company are appearing in purchases and in turn in closing stock/Inventory. Thus the purchases/investments are duly accounted for by them.
The story of Commission received and investment not being genuine has no base at all, as companies have accounted for purchases and shown the same in closing stock. There is no commission element as income in the books of A/cs. as well as nothing has been brought on record as to who has paid commission and to whom.
(iv) In case of Nexus Software Ltd., we have the statement of accounts for the period 1/4/2007 To 31/3/2008 duly confirmed by director Jayesh Patel wherein entries of cheques paid to us and accounting to purchases of 15000 Shares of Chartered Motors Pvt. Ltd, @ Rs. 100/-per share (Rs. 15.00 lacs) is duly reflected. Same may be the case in other two companies also copy enclosed.
(v) On perusal of bank statement of above Companies, you will find that when cheques were given to us for share capital, there were sufficient balance which was built up by cheques clearances i.e, received, through proper banking channel, Thus source for our cheques in the hands of ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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companies were, proper hank credits, which can be or might have been explained by the share applicant in his case.
(vi) Your honour is aware that the above Company is assessed by you only in Central Circle 2(2), A'bad hence, your honour has access to whatever you require as to genuineness identity and capacity.
(vii) It appears to us that whatever we have stated in our earlier reply and in this reply as to these companies shall prove beyond doubt that the share capital contributed by these companies is genuine.
Goldstar Finvest Ltd.
(i) In our First reply to SCN, we have explained and clarified the contents of statement of director Mukesh Choksi recorded by ADI and relied upon by you. Your honour has also provided us statement of Mukesh Choksi and other director Mr. Sampat wherein they have stated modus operandi of their Trade which includes share capital also. However, there statements are just general and nothing to do with share capital contributed by them in our company. Only relevant is his answer to Q. No. 9 where on being asked as to how he accommodates the bills with various group entities of Chartered Logistics Ltd., he denied to have knowledge of approaching any agent for accommodating bills for Chartered Group. It is also pertinent to note here that the statement of Company's other director J.K. Sampat was recorded much later after our search on 14/5/2010, wherein he has not stated any thing about Chartered Group investments being not genuine.
(ii) Thus it is very clear that Share Capital Contributed by these Companies is genuine and requested to be accepted.
Kailash Fincom Ltd.
i. In our First reply to SCN, we have explained and clarified the contents of the statement of director Narendra Shah recorded by ADIT and relied upon by you. The statement, as stated, is completely vague and unless other records are provided nothing can be explained about the same. ii. The said company is LISTED Co. and its scrip is regularly traded on stock exchange. Beyond this ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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that it is listed and regularly traded company, no other detail should be required to establish its identity, genuineness or capacity.
iii. The said company is assessed by you only in Central Circle 2(2), Ahmedabad and hence your honour has access to alt the details and information as to genuineness, identity and capacity.
iv. In view of above, we request your goodself to accept the Share Capital contribution as genuine.
Sir, on perusal of our submissions made before A.O. as well furnished herein your honour will find that;
i. Share capital is contributed by Companies incorporated under Companies Act, 1956 ii. Accounts of all the companies are regularly passed by respective Board of Directors, approved and signed, it is Audited by statutory auditors and while filing tax returns all the contents are verified by director.
iii. The accounts duly audited are filed with Govt.
Agencies, Income Tax and ROC every year. iv. All the transactions are through proper- Banking Channel i.e. we have received the contribution by cheque only.
v. There is no cash deposit in the bank A/c. of company for passing the cheques given to us for share capital in respect of companies whose Bank statements are provided to us.
vi. All these companies are having PAN. vii. 4 of the companies are assessed by our own A.O. and 1 of them listed with BSE viii. During search proceedings nothing incriminating was found so as to indicate that any cash has been given/introduced through us directly or indirectly.
Hence, the allegation that money of the appellant itself have been introduced completely baseless, false, derogatory and not supported by any evidence."
2.3 Facts of the case and submissions of the appellant have been carefully considered. Following observations; have been made in respect of these transactions:
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(a) Appellant allotted shares to these four companies at a premium of Rs.90/- per share on 30/1/2008 and all the shares were ultimately transferred to Mr, Pankaj Gandhi (promoter of appellant company) at par on 10/10/200 8.
(b) Original share certificate were never sent to these companies. Share certificate register was also found during the course of search and the same was seized at Annexure A/14.
(c) Statement of Shri Mukesh Choksi was recorded, who admitted that he is only entry provider. In view of his statement, genuineness of capital introduced in the name of Goldstar Finvest Pvt. Ltd. is not established. .
(d) Source of deposit in Kailash Fincom Pvt. Ltd. is cash of Rs.9 lakhs and transfer entry from two current accounts in Vinayak Sahakari Bank. These accounts are operated by one Ram Dinesh Sharma. Survey u/s. 133A was conducted in the case of Mr. Sharma and he admitted that he only provides accommodation entries.
(e) In the case of Nexus Software Ltd., money has been transferred from following 4 accounts
1. Naresh Trading Co.
2. Kundan Traders
3. Sarita Textiles
4. Vishnu International All these four accounts are also managed by Shri Ram Dinesh Sharma.
(f) Statement of Mr, Jayesh N Patel (director of M/s, Hexus Software Ltd.) was recorded in which he stated that Mr. Ramanlal Jain of Chartered Speed advised him to purchase shares of appellant company. He also admitted that he only provides entries on commission basis.
2.4 In view of above mentioned facts, claim of the appellant that nothing incriminating was found in his case, is factually incorrect. During search and post search proceedings sufficient material has been brought on record by the department to prove that appellant introduced its own unaccounted money in the garb of share application. The initial source of funds in the case of allottee companies remains unexplained. Statements of Mr. Ram Dinesh Sharma, Mukesh Choksi and Jayesh Patel clearly indicate the nature of accommodation entry business carried out by the ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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four allottee companies. Allotment of shares by appellant at a huge premium without actually sending the share certificates and subsequent purchase of shares at par within a period of 9 months by the promoter conclusively prove involvement of appellant. All these facts taken in totality don't leave an iota of doubt that the transactions are bogus. AO has duly discharged his burden in this case by pointing out various contradictions in the claim of appellant while appellant has miserably failed to discharge his burden to prove genuineness of these transactions.
2.5 The issue regarding entry racket in respect of share application money has been examined in detail by Hon'ble High Court of Delhi in one of its recent judgements in the case of CIT vs. Nova Promoters Finlease Pvt. Ltd. 18 taxmann.com 217 (Delhi). In this case, the Hon'ble court has considered various case laws on the issue and held that where modus operandi of entry operators taking cash from assessee company and then providing share application money through cheques from various companies to assessee company has been unearthed and two king-pins of the racket have accepted their involvement to the department and all material collected by investigation wing of the department has been put to the assessee, the fact that these monies were received through banking channels or that companies existed in ROC's register do not meet the burden of proof under section 68. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. The affidavits submitted by assessee need not be accepted as reliable when there is enough material on record to doubt the veracity of the transaction. In such a case it cannot be said that the affidavits can be rejected only after cross examination, 2.6 In this judgement Hon'ble High Court made the following observation:
"18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz. (i) identity of the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In Commissioner of Income-Tax, West Bengal II v. Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under: -
"Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents."
In Commissioner of Income-Tax(Central), Calcutta v. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under Section 66 of the Indian Income Tax Act, 1922. The Supreme Court 1 referred to the leading case of Edwards (inspector of Taxes) y. Bairstow [1955] 28 ITR 579 (H.L) decided by the House of Lords in which Viscount Simonds observed as under:
"For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears 'that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be". In the same case Lord Radcliffe expressed himself in the following words:
"If the case contains anything ex facie which is bad in law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene."
Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC), which are as under: -
"It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question."
In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280, the Supreme Court again reiterated the aforesaid position held as under; -
"As a principle, this court does not 'disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see."
19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is "a fortiori" as the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra).
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The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies."
2.7 Hon'ble High Court also distinguished the decisions in the cases of CIT v. Lovely Exports P. Ltd., General Exports and Credits Ltd. and Divine Leasing & Finance by making the following observation:
32. Since strong reliance was placed by the assessee on the order of the Supreme Court in the case of CIT vs. Lovely Exports P. Ltd. [2008] 216 CTR (SC) 195 it would be necessary to examine the facts of that case and the ratio laid down therein in order to decide the applicability of that ease to the one before US; It would also feel necessary to examine the string of decisions of this court on the question of applicability of section 68 of the Act to monies received as share capital.
33. The facts of Lovely Exports (P) Ltd. (supra) have been set out in the judgment of this court in that case, reported as CIT v. (1) Divine Leasing & Finance Ltd. (supra) (2) General Exports and Credits Ltd. and (3) Lovely Exports P. Ltd. in [2008] 299 ITR 268. In that ease, the share capital subscription was received through banking channels and complete records were maintained by Divine Leasing & Finance Ltd.
The Assessing Officer issued summons u/s. 131 and thereafter impounded the shareholders' register, share application forms and share transfer register. It was contended by the assessee in that case that because of the action of the Assessing Officer, it was not able to furnish any details about the share subscribers. The Tribunal found that-the allotment of shares was made as per the relevant rules of the Securities Contracts (Regulation) Act, 1956 as well as those of the Delhi Stock Exchange. No evidence had been brought on record by the ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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Assessing Officer to indicate that the shareholders were either benamidars of the assessee-company or fictitious or that the share application monies were the unaccounted income of the assessee-company. The Tribunal accordingly held that the onus that lay on the assessee under sec. 68 stood discharged.
34. In respect of the other assessee, namely, General Exports & Credits Ltd., the monies were received by the said company on issue of rights shares to five companies pursuant to the renunciation of rights by several individual shareholders. A search had been conducted on the premises of the assessee, but those renunciation forms were not found with the assessee. As in the case of Divine Leasing & Finance Ltd., the five companies were registered in Sikkim at the same address. They all filed replies to the department asking for further time to provide the details of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the shares through banking channels. Moreover, the investigations carried out into those companies by the income-tax department at Calcutta and the adverse findings therein had been struck down as being without jurisdiction in appeals filed by those companies and therefore the Assessing Officer having jurisdiction over General Exports and Credits Ltd. in Bulandshahar could not rely upon them. In these circumstances, the Tribunal had deleted the addition made u/s. 68 on the ground that the identity of the shareholders had been proved. This court did not approve of the ground on which the Tribunal had cancelled the addition and observed that the judgment of the Full Bench of this court in CIT v. Sophia Finance. Ltd.(1994) 205 ITR 98 (Delhi) could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscribe to the shares and held that it was a matter of concern only of the appropriate authority under that Act. Accordingly, the ultimate ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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decision of the Tribunal cancelling the addition was upheld.
35. The facts of Lovely Exports (P.) Ltd., (supra) as noted by this court, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law.
36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases:
"There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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indicates absence of culpability and complexity of the assessee it should not be harassed by the revenues- insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know-every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company."
We may also note that a reference was made by this court to several authorities, including at least seven judgments of this court on the question of applicability of section 68 to share application monies, and the position was pithily summed up as follows at page 282 (of 299 ITR):
"In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessee. (5) The Department would not be justified in drawing an ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation."
2.8 Hon'ble High Court also considered other decisions on this issue and held that:
38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary.
39. The case of Orissa Corporation [1986] 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall pases decided by this court in Dolphin Canpack [2006] 283 ITR 190 , CIT v. Makhni & Tyagi P. Ltd. [2004] 267 ITR 433. CIT v. Antartica Investment (P.) Ltd. [2003] 262 ITR 493 and CIT v. Achat Investment Ltd. [2004] 268 ITR 211. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self- confessed "accommodation entry providers".
40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 333 ITR 119. We have given utmost consideration to the judgment. It disposes of several appeals in the case of different assessees. Except the case of Oasis Hospitalities (P.) Ltd. (ITA Nos.2093 & 2095/2010), the other cases fall under the category of Orissa Corporation (supra). However, in the case of Oasis Hospitalities (P.) Ltd., there is reference to information received by the Assessing Officer from the investigation wing of the revenue on the basis of ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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which it was found that six investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries. They were entry operators and the assessee in that case was alleged to be a beneficiary. While disposing of these appeals, this court observed: -
"The Assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the Assessee by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and, on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The Assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Wing."
These quoted observations clearly distinguish the present case from Oasis Hospitalities (P.) Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard. Further, the assessee had not been confronted with the material collected by the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing.
41. In the ease before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured In the information given by them to the investigation wing, 15 companies had provided the so-called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P.) Ltd.(supra).
11. The CIT(A) held as under:
"In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs. 1,18,50,000 made under section 68 of the Act as well as the consequential addition of Rs. 2,96,250. We accordingly answer the substantial questions of law in the negative and in favour of the department. The assessee shall pay costs which we assess at Rs. 30,000/-."
12. The Authorized Representative of the assessee submitted that while confirming the aforesaid addition, the Commissioner of Income Tax(A) has not given any independent finding. He has merely relied on certain case-laws and on the reasoning given by the Assessing Officer (Pg. 19 & 20, Para 2.9 of Commissioner of Income Tax(A)'s order. The undisputed facts in the appellant's case (pg. 34 of Asst. Order) are that the amount has been received from various companies (some of which are listed), funds have been received against issue of shares and funds have been received through banking channels. Details of documentary evidences placed on record in respect of the aforesaid companies are as per Annexure "A". Copy of Board Resolution w.r.t. allotment of 70,000 shares is placed at Pg. 126 of P/B. Copy of a table containing the date of allotment, name, address, nos. of shares ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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allotted and PAN of the aforesaid companies is placed at Pg. 127 of P/B. Copies of relevant extract of bank statement of the appellant are placed at Pgs. 128 & 129 of P/B. Copy of Form. 2 (i.e. '''Return of allotment) filed by the appellant pursuant to S.75(l) of the Companies Act, 1956 is placed at Pgs.130 to 132 of P/B. Thus, assessee had furnished various details pertaining to the share applicants such as name, addresses. PAN, share application and mode of payment. Having furnished the aforesaid documents, the primary onus as casted on the assessee stood discharged. Thereafter, it is for the Assessing Officer to scrutinize such details. The Assessing Officer didn't make any efforts to scrutinize the details given to him. In fact, it was brought to the notice of Assessing Officer that out of the said companies, one company was assessed with the very same circle i.e. Central Circle 2(2), Ahmedabad (Pg.26 of Asst, Order), Still, the Assessing Officer didn't think fit to carry out any further inquiry in light of the evidences placed before him in the hands of the above stated companies except relying upon so called statements of some of the directors without any supporting evidences, Assessing Officer has placed heavy reliance on statements of directors of share applicant companies. However, assessee was no given effective opportunity to cross- examine such persons since on the given date and time set for cross- examination, such persons failed to appear before Assessing Officer (Pgs.27 & 28, Para 8 of Asst. Order). Hence, the same violates the principles of natural justice. In any case mere bald statement, that too self-serving, without any corroborative evidences cannot be made a ground to make huge addition. Mr. Raman Jain has given a statement in favour of the appellant. However the same is ignored by AO on the ground that he is the auditor of the appellant. If self-serving statements arc to be ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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ignored, all the statements of the directors as stated above have to be ignored. As regards statement of Mr. Ram Dincsh Sharma is concerned, nowhere has it been even remotely suggested that the appellant is connected in the transaction in any manner. In answer to Q. No. 7 also, Mr. Sharma has never named the appellant or any of its director or employees. The fact that these investments are not reflected by Genus & THL in fact support the appellant in as much as since these parties have made investments outside its books of accounts, they are trying to disown the same and saving their own skin by blaming the appellant. In Private limited company, the shares are seldom sent to the concerned shareholders as shares are not easily transferable. Therefore the mere fact that shares were in possession of the appellant would not affect the genuineness of the transaction, AO and Commissioner of Income Tax (A) doubted "Source of source" of the funds received by the assessee (Pg.10, Para 2.4 of CIT(A)'s order). Section 68 not at all requires an assessee to prove source of such source. Source of source is not required to be proved by the assessee. Reliance is placed on following authorities:
(a) DCIT vs. Rohini Builders 256 ITR 360 (Guj.)
(b) Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj.)
(c) CIT vs. Pragati Co. Op. Bank Ltd. 278 ITR 170 (Guj.)
(d) CIT vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) If Assessing Officer doubts the source of the source, he is free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the requirement of section 68. The appellant has proved all the three ingredients of proving a genuine cash ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). In case of share application money, only the identity of the share applicants is to be proved. Once identity is proved, burden of the assessee can be said to have been duly discharged. Reliance is placed on the followings:
(i) CIT v. Lovely Exports (P.) Ltd. 216 CTR 195 (SC)
(ii) Hindustan Inks & Resins Ltd vs. DCIT (Tax Appeal No. 523 of 2004 dated 17/06/2011)
(iii) ITO vs. Ankush Finstock Ltd. - 149 TTJ 502 (Ahd) CIT vs, Rama Multl Tech Ltd. - 34 taxmann.com 177 (Guj)
(iv) CIT vs. Gangeshwari Metal (P.) Ltd.- 30 taxmann.com 328 (Delhi)
(v) CIT vs. Peoples General Hospital Ld.- (2013) 356 ITR 65 (MP)
(vi) CIT vs. Steller Investment Ltd. - 251 ITR 263 (SC) The Commissioner of Income Tax (A) has relied upon the decision in the case of Nova Promoters Finlease Pvt. Ltd. which has been distinguished and differed by the Delhi High Court in the case of Gangeshwari Metal (supra) wherein it was held that when an assessee brings various documentary evidences in support of its claim that share application money is genuine, no addition can be made u/s 68 of the Act. In the light of the above, the impugned addition rightly deserves to be deleted.
13. We have heard the rival submissions and perused the orders of lower authorities and material available on record. In the instant case, the assessee claimed to have received following ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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amounts from the following parties against allotment of shares to them:
Amounts received by Chartered Motors Pvt.
Ltd.
Name of the company Amount (Rs)
Alembic Securities Pvt. Ltd. 25,00,000/-
Buniyad Chemicals Ltd. 25,00,000/-
Genu Commu Trade Ltd. 30,00,000/-
Genu Commu Trade Ltd. 20,00,000/-
Ken Securities Ltd. 25,00,000/-
Nexus Software Ltd. 30,00,000/-
Nexus Software Ltd. 20,00,000/-
Tribhuvan Housing Ltd. 25,00,000/-
Total 2,00,00,000/-
The Assessing Officer has not accepted the above as genuine transactions and added the entire amount u/s. 68 as income of the assessee-company. The main reason for addition in respect of share application money received from Buniyad Chemicals Limited Rs 25 lakhs and Alembic Securities Private Limited Rs 25 lakhs was statement of Shri Mukesh Choksi, director of Buniyad Chemicals Limited and Alembic Securities Private Limited; Rs 25 lakhs from Tribhuvan Housing Ltd. was statement of Shri Narendra Shah, director of Tribhuvan Housing Ltd.; Rs 50 lakhs from Nexus Software Limited was statement of Jayesh Patel director of Nexus Software Limited; Rs 50 lakhs from Genu Commu Trade Ltd. was the statement Shri Hitesh Panchal director of Genu Commu Trade Ltd.; Rs 25 lakhs from Ken Securities Ltd. was statement of Deepak Patel director of Ken Securities Ltd. The assessee claimed before ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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the Assessing Officer that the money was received from banking channel and are supported by the following documents:
1. Copy of MOA
2. Copy of AOA
3. Copy of Share application
4. Copy of board resolution
5. Certificate of Incorporation
6. Certificate of Commencement
7. Acknowledgement of ITRs
8. Audited accounts of concerned companies In view of these overwhelming evidences and materials furnished by the assessee, the transactions in question cannot be held as not genuine. The identity of the share applicants cannot be doubted.
The statements made by the persons in question were self-serving statements and the same cannot be taken as evidence against the assessee unless the assessee was allowed an opportunity to cross- examine them. The statements were recorded at the back of the assessee. The Assessing Officer thereafter issued summons to the aforesaid persons u/s. 131 of the Act. However, on the appointed date, none of the parties appeared though the assessee through its Authorized Representative was present before the Assessing Officer at the appointed time. The Assessing Officer thereafter observed that as the issue involved is covered by section 68, the onus is upon the assessee and therefore merely because the cross- examination has not been allowed, the assessee cannot be held to have discharged its onus which was upon the assessee u/s. 68 of the Act. He therefore relying upon the statement of the aforesaid persons made addition of Rs 2 crore in the case of Chartered ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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Motors Pvt. Ltd. and Rs 70 lakhs in the case of Chartered Speed Pvt. Ltd. u/s. 68 in the hands of the assessee.
14. On appeal, the Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer.
15. Before us, the Authorized Representative of the assessee submitted that the receipt of share application by the assessee from the above mentioned 8 companies are supported by various documents which were filed before the Assessing Officer. In view of these documents which were filed before the Assessing Officer, the identity of the share applicants is beyond dispute. Further, the transactions were through banking channels and were also supported by share application form duly executed by the share applicant companies and board resolution passed by these companies. Thus, the genuineness of the transactions and their creditworthiness were also proved by the assessee. In the circumstances, the initial onus which was upon the assessee u/s. 68 of the Act to explain the nature and source of credit was duly discharged by the assessee. Thereafter, the Assessing Officer ignored all these evidences by solely relying upon the statements which were inadmissible in law. He explained that these statements were recorded at the back of the assessee. These statements were self-serving statements made by those persons. The assessee requested for cross-examination of those persons. The Assessing Officer, agreeing with the assessee that cross- examination was needed to bring out the truth about recorded statements, also issued summons to those persons on 12.12.2011 as recorded at page no. 33 of the order of assessment. The date and time for cross-examination was fixed on 16.12.2011 at 11:00 ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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AM. Though on that date, the Authorized Representative of the assessee presented himself before the Assessing Officer for cross- examination, none of the persons appeared on that date. This fact is also recorded on page 34 of the assessment order by the Assessing Officer. Thereafter, the Assessing Officer, for the reasons best known to him, took contrary stand and not taken any further steps to allow the assessee an opportunity to cross-examine those persons and by unreasonably holding that the assessee has not discharged its burden which was on the assessee u/s. 68 of the Act, made the addition under consideration. The Authorized Representative of the assessee contended that on the above facts, addition made is unsustainable in law. For this, he placed reliance on the following decisions:
(i) Decision of Hon'ble Gujarat High Court in the case of Heirs and Legal Representatives of Late Laxmanbhai S. Patel Vs. CIT (2008) 174 taxman 206 (Guj.) wherein it was held as under:
"In the instant case, the finding was arrived at by the authorities below while denying an opportunity of cross-examining the important witness, namely 'R' and the legal effect of that finding was certainly a question of law which required to be reviewed by the Court. The legal effect of the statement recorded behind the back of the assesses and without furnishing the copy thereof to the assessee or without giving him an opportunity of cross-
examination, if the addition was made, the same was required to be delete on the ground of violation of the principles of natural justice."
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(ii) Decision of Hon'ble Gujarat High Court in the case of CIT Vs. Indrajit Singh Suri (2013) 33 taxmann.com 281 (Guj.) wherein the Hon'ble High Court held as under:
"Where additions were made on basis of statements of persons who were not allowed to be cross examined by assessee, additions were not sustainable."
(iii) Decision of Hon'ble Gujarat High Court in the case DCIT Vs. Mahendra Ambalal Patel Tax Appeal No. 462 of 1999 13th April, 2010 40 DTR (Guj.) 243 wherein the Hon'ble High Court held as under:
"Though the AO has placed reliance upon the statements of Shri Manoj Vadodaria and Shri G.C. Patel for the purpose of taxing the amount in the hands of the assessee, despite specific request being made by the assessee for cross-examining both the said persons, the AO has not permitted the assessee to cross-examine them. In the circumstances, no reliance could be placed upon the statements of the said persons as the respondent assessee had no opportunity to cross-examine them. The statements made by the aforesaid persons would have no evidentiary value and as such, would not be admissible in evidence."
(iv) Decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Kantibhai Revidas Patel Tax Appeal No. 910 of 2013 wherein it was held as under:
"The Ld. A.O. had used this statement without allowing cross examination of Vikas ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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A. Shah which is against the principle of natural justice."
16. On the other hand, the Departmental Representative supported the orders of lower authorities and submitted that in view of the statements of the persons recorded by the Department, the addition made was fully justified.
17. We find that in the instant case, the addition is made u/s. 68 of the Act on the ground of unexplained cash credit. As per the provisions of section 68, the initial onus lies upon the assessee to prove the nature and source of amount credited in his books of account. We find that this initial onus was discharged in the instant case by the assessee by furnishing documents like MOA, AOA, share application & board resolution, Certificate of Incorporation, Certificate of Commencement, acknowledgements of ITRs, audited accounts etc. of concerned companies. Thereafter, in our view, the onus shifted upon the Department and it was for the Department to bring on record relevant material to show that why inspite of the above stated documents, the addition is still to be made in the hands of the assessee. In the instant case, the Department has endeavoured to discharge its burden on the basis of statements recorded by it of the persons mentioned above.
18. We find that the assessee requested for cross-objection of the maker of the statement. Further, we find that the Assessing Officer also made an attempt to allow the assessee opportunity to cross-examine the makers of the statement by issuing summons to them. However, the cross-examination could not take place because of failure on the part of the makers of the statements to appear on the appointed date. But strangely, thereafter, the ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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Assessing Officer did not take any step to allow effective opportunity to the assessee to cross-examine the makers of the statements. The Assessing Officer did not pursue the matter further. Thus, we find that the assessee was not allowed any real opportunity to cross-examine the persons who made the statement at the back of the assessee. In our considered view, in the circumstances, the statement of those persons cannot be read against the assessee. Our above view finds support from the decision of the Hon'ble Jurisdictional High Court in the case of
(i) Heirs and Legal Representatives of Late Laxmanbhai S. Patel Vs. Commissioner of Income Tax (supra)
(ii) CIT Vs. Indrajit Singh Suri (supra)
(iii) DCIT Vs. Mahendra Ambalal Patel (supra)
(iv) CIT Vs. Kantibhai Revidas Patel (supra) In view of the above settled position of law, we find force in the argument of the assessee that the statements of the persons mentioned above are not admissible evidence against the assessee. In absence of these statements, we find that no other material has been brought on record by the Revenue to show that why still the amount in question should be treated as income of the assessee when the assessee furnished all the documents which were available with it to discharge the onus which was upon it u/s. 68 of the Act. In the above circumstances, in our considered view, the addition was made solely based on the inadmissible and unreliable material and therefore addition so made cannot be sustained. We, therefore, delete the addition of Rs 2,00,00,000/- made in the case of M/s Charted Motors Pvt. Ltd. as well as addition of Rs ITA(SS) No. 26 Ahd 2012 Chartered Motors Pvt. Ltd. Ahd.
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70,00,000/- made in the case of M/s. Chartered Speed Private Limited.
19. In the result, both the appeals of the assessee are allowed.
Order pronounced in the Court on Thursday, the 28th of August, 2014 at Ahmedabad.
Sd/- Sd/-
(KUL BHARAT) ( N.S. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 28/08/2014
Ghanshyam Maurya, Sr. P.S.
TRUE COPY
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-III, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad