Delhi High Court
Commissioner Of Income Tax-Ii vs Maf Academy P. Ltd. on 28 November, 2013
Author: Sanjeev Sachdeva
*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on : 13 th August, 2013
Judgment pronounced on: 28 th November, 2013
+ ITA 341/2012
COMMISSIONER OF INCOME T AX-II ..... Appellant
Through Mr. N.P. Sahni with Mr.
Ruchesh Sinha, Advocates.
Versus
MAF A CA DEMY P. LTD. ..... Respondent
Through Dr. Rakesh Gupta with Ms.
Rani Kiyala and Mr.
Rishabh Kapoor,
Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJEEV SACHDEVA, J.
1. This is an appeal under Se ction 260A(1) of the Income
Tax Act, 1961 (for short "the Act") filed by the Revenue
against the order of the Income Tax Appellate Tribunal
dated 14.10.2011 in ITA No.3650/DEL/2011 for the
Assessment Year 2002-03.
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2. Vide order dated 07.11.2012, the following substantial
question of law was framed:-
"Whether on the facts and circumstances of
case, the Income Tax Appellate Tribunal was
correct in law in deleting the addition of Rs.
3,43,00,000/- u/s 68 of the Income Tax Act,
1961 holding the same to be camouflage
transactions / accommodation entries?
3. The Assessee had filed the return for the Assessment
Year 2002-03 declaring nil income. The return was
processed under Section 143(1) of the Income Tax
Act.
4. On the basis of the information received from the
Investigation Wing of the Income Tax Department,
notice under Section 148 was issued to the Assessee.
The proceedings were sought to be opened on the
basis of the information unearthed by the Investigation
Wing of the Income Tax Department, wherein it came
to their knowledge that a huge money laundering
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racket was being run by a few person s and bogus
accommodation entries were being provided. A s per
the information of the Investigation Wing,
accommodation entries were being provided in lieu of
payment in cash of equivalent amount plus
commission being paid thereon to the entry o perators.
The Investigation Wing during the investigation came
across names of various individuals, who were
operating as entry providers and also various parties,
who were taking such accommodation entries. The
name of the Assessee also figured as one of the
parties involved in taking such accommodation entries.
5. In response to the notice under Section 148, the
Assessee issued a letter dated 06.04.2009 submitting
that the return filed on 30.09.2002 may be treated as
the return filed in response to the notice under Section
148. The Assessee filed the said letter also inquiring
about the rea sons for reopening of the case. The
reasons for reopening of the case were duly provided
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to the Assessee vide letter dated 12.10.2009 and the
same are as under:-
"The Investigation wing of the Income Tax
Department had unearthed a huge money
laundering mechanism wherein it was
established that bogus accommodation entries
were being provided. These accommodation
entries are received in lieu of payment of cash
of equivalent amount plus commission thereon
to the entry operator. For obvious reasons,
these cash transactions are not routed through
the books of account of the Assessee. In this
case, information has been received from
Directorate of Income Tax, (Investigation), New
Delhi that during the relevant assessment year,
this Assessee had received the following
cheque amount(s) in the nature of
accommodation entry:
Table:
VALUE OF INSTRUMENT DATE OF NAME OF BANK FROM BRANCH A/C No.
ENTRY No. BY ENTRY ACCOUNT WHICH OF ENTRY OF ENTRY
TAKEN WHICH TAKEN HOLDER OF ENTRY GIVEN GIVING GIVING
ENTRY ENTRY GIVING BANK ACCOUNT
TAKEN ACCOUNT
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500500 17296 23-Apr-01 AJAY BANSAL INNOVATIVE WAZIRPUR 819
500500 19097 15-Apr-01 JAGDISH INNOVATIVE WAZIRPUR 1100882
PARSHAD
500500 19757 18-Apr-01 SATISH KUMAR INNOVATIVE WAZIRPUR 56
SHARMA
500500 20066 15-Apr-01 NARENDER INNOVATIVE WAZIRPUR 809
KUMAR GUPTA
500500 20118 15-Apr-01 MANOJ KUMAR INNOVATIVE WAZIRPUR 868
BATRA
500500 33821 12-Apr-01 TECHNOCOM INNOVATIVE WAZIRPUR 220
ASSOCIATES P
LTD.
500500 495827 21-May 01 KANODIA AGENCY OBC MINTO 18
ROAD
600000 496264 03-Oct-01 AJAY BANSAL OBC MINTO 53
ROAD
900000 496288 17-Sep-01 SUBHASH GUPTA OBC MINTO 56
ROAD
KUMAR GUPTA ROAD
600000 496876 16-Oct-01 REKHA GARG OBC MINTO 88
ROAD
500500 692028 15-Apr-01 GEXICLE AD IND BANK RP BAGH 5040
MEDIA
500000 790569 12-Jun-01 VIJAY KUMAR KVB KAROL SB 5385
BAGH
500300 12-Apr-01 CHINTPURNI SBP DG 50058
CREDITS
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500300 12-Apr-01 CHINTPURNI SBP DG 50058
CREDITS
500300 23-Apr-01 SANTOSH KUMAR SBP DG 6182
CHAUDHARY
500300 23-Apr-01 SANTOSH KUMAR SBP DG 6182
CHAUDHARY
500300 01-May-01 KESO RAM GUPTA SBP DG 6257
500300 01-May-01 KESO RAM GUPTA SBP DG 6257
500300 21-May-01 VISHNU KUMAR SBP DG 6058
500300 21-May-01 VISHNU KUMAR SBP DG 6058
501000 22-May-01 BASANT SBP DG 4507
AGENCIES
501000 22-May-01 BASANT SBP DG 4507
AGENCIES
500000 12-JUN-01 HARBHAGWAN SBP DG 6701
BATRA
500000 12-JUN-01 HARBHAGWAN SBP DG 6701
BATRA
501000 13-JUN-01 SATISH KUMAR SBP DG 6774
SHARMA
501000 13-JUN-01 SATISH KUMAR SBP DG 6774
SHARMA
501000 15-JUN-01 SATISH KUMAR SBP DG 6774
SHARMA
501000 15-JUN-01 SATISH KUMAR SBP DG 6774
SHARMA
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900000 17-Sep-01 MANISH KUMAR SBP DG 6810
AGARWAL
900000 17-Sep-01 MANISH KUMAR SBP DG 6810
AGARWAL
900000 17-Sep-01 SATISH KUMAR SBP DG 6774
SHARMA
900000 17-Sep-01 SATISH KUMAR SBP DG 6774
SHARMA
600000 26-Sep-01 VINOD GARG SBP DG 6776
600000 26-Sep-01 VINOD GARG SBP DG 6776
1500000 26-Sep-01 CHINTPURNI SBP DG 50058
CREDITS
1500000 26-Sep-01 CHINTPURNI SBP DG 50058
CREDITS
600000 03-Oct-01 KESO RAM GUPTA SBP DG 6907
600000 03-Oct-01 KESO RAM GUPTA SBP DG 6907
600000 09-Oct-01 CHETAN PRAKASH SBP DG 6888
AGGARWAL
600000 09-Oct-01 CHETAN PRAKASH SBP DG 6888
AGGARWAL
600000 09-Oct-01 VISHNU KUMAR SBP DG 6807
JAIN
600000 09-Oct-01 VISHNU KUMAR SBP DG 6807
JAIN
600000 16-Oct-01 RAJEEV KUMAR SBP DG 6910
AGGARWAL
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600000 16-Oct-01 RAJEEV KUMAR SBP DG 6910
AGGARWAL
300000 22-Oct-01 KESO RAM GUPTA SBP DG 6907
300000 22-Oct-01 KESO RAM GUPTA SBP DG 6907
500500 692028 15-4-2001 GEXICLE AD IND BANK RP BAGH 5040
MEDIA
29212400
Therefore, I have reason to believe that an
income of Rs.2,92,12,400/- plus commission @
2% thereon amounting to Rs.5,84,248/-,
totalling to Rs.2,97,96,648/- has escaped
assessment during the assessment year. On
the basis of this information, I have reason to
believe that the incomes described above have
escaped assessment and that the case is fit for
issuing Notice U/s of the I.T.Act,1961".
6. The Assessee, vide letter dated 21.10.2009 , filed the
objections to the initiation of proceedings under
Section 147 of the Income Tax Act. The objections
were disposed of against the Assessee on 21.10.2009.
One of the grounds taken by the Assessee was that
certain entries mentioned in the reasons recorded
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were duplicate entries and were figuring in two or
three places and on account of this, the amount
mentioned in the reasons was inflated. The Assessee
before the Assessing Officer submitted a list of parties
out of the parties mentioned in the reasons for
reopening and claimed that th ese parties had invested
money towards acquisition of share capital in the
Assessee amounting to Rs.1,50,00,000/-. The list of
the parties is as under:-
Sl. No. Name of the Persons Amount
1 Kes o Ram Gupta 300 00 0
2 Vij ay kumar 500 00 0
3 Har bhagwan Batr a 500 00 0
4 Chintpur ni Cr edits 500 00 0
5 Santos h Kumar Chaudhary 500 00 0
6 Kes o Ram Gupta 500 00 0
7 Vis hnu Kumar 500 00 0
8 Aj ay Bans al 500 00 0
9 Jagdis h Pr as ad 500 00 0
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10 Satis h Kumar Shar ma 500 00 0
11 Nar e nder Kumar Gupta 500 00 0
12 Manoj Kumar Batr a 500 00 0
13 Te chnocom Ass ociates Ltd. 500 00 0
14 Aj ay Bans al 600 00 0
15 Rek ha Gar g 600 00 0
16 Vinod Gar g 600 00 0
17 Kes o Ram Gupta 600 00 0
18 Che tan Park as ha Aggar wal 600 00 0
19 Rajee v Kumar Aggar wal 600 00 0
20 Subhas h Gupta 900 00 0
21 Nar e nder Kumar Gupta 900 00 0
22 Manis h Kumar Agar wal 900 00 0
23 Satis h Kumar Shar ma 900 00 0
24 Chintpur ni Cr edits 150 00 00
Total 15000000
7. The Assessing Officer during the reassessment
proceedings found , on the basis of the inquires and
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investigations made by the Investigation Wing , that the
24 parties/persons, who legitimately had invested a
sum of Rs.1,50,00,000/- as share capital in the
Assessee were in fact parties belonging to one
Mahesh Garg group and these parties/persons were
not carrying on any actual business and were engaged
in the business of providing accommodation entries.
The Investigation Wing h ad recorded the statement of
Mahesh Garg on various dates and in the statemen t of
Mahesh Garg, various dates and mod us operandi
unearthed.
8. As per the Investigation wing the modus operandi
adopted by th is entry operator was that the entry
operator (person who provides such entries) would
operate a number of accounts either in the s ame bank
or branch or in different branches in the name of
banks/firms/proprietor concerns and individuals. For
the purpose of operations of these bank accounts and
to legitimize the transactions, income tax returns
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would be filed and PA N numbers would be obtained in
the names of these persons. Various individuals
would be hired , who would be merely name lenders in
whose names bank accounts would be operated and
returns would be filed. Ho wever, two or three key
persons would be employed who would be invo lved in
the operations of bank accounts, collection of cash
and deposit of the same. The name lenders would be
required to sign documents and che que books from
time to time.
9. As per the Investigation wing whenever any
beneficiary (person who obtains an entry) was
interested in taking an entry, he would approach the
entry operator and in exchange for cash and
commission, obtain a cheque/Demand Draft/Pay Order
for the value of the cash. The cash would be
deposited by the entry operator in an account either
his own account or the account of the name lender or
in the name of a relative/friend. On deposit of the said
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cash, a cheque of the account of the said name
lenders or demand draft or pay order obtained from
the bank of the name lenders would be then handed
over to the beneficiary. At times, the entry operator or
name lender would transfer the fund s from one
account to the other and through th is process give
semblance of legitimacy to the transaction. The
beneficiary's cash would be made to transfer through
various bank accounts before being routed back to the
beneficiary. The real purpose of transferring the fund
from one account to the other was to mislead the
authorities and to create a semblance of legitimate
transaction. The entry operators were cautious
enough to obtain a PA N number in their names and
also in the name s of the name lenders and regular
returns would be filed with the Department so as to
create semblance of genuineness and also to show
creditworthiness of these parties.
10. As per the investigation wing a nother modus operandi,
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which was an extension of the first modus operandi
mentioned above , was that the entry provider would
invest money in a company which was a private
limited unlisted co mpany. The money would be
infused into such company as money towards
acquisition of share capital or would be share
application money. The acquisition of the share
capital or investment in the share application money
would at times be at a huge premium. Ultimately, the
said share capital was then sold back by the Directors
or family members/friends of the Directors at a huge
discount. The share capital was purchased at high
prices (Premium) and in a short span sold back to the
company or its Directors at a nominal value thereby
creating semblance of legitimacy to the transactions.
11. The Assessee Company is a private limited company.
In the case of the Assessee, in order to verify the
genuineness of the transactions as well as the
creditworthiness of the parties, who had invested in
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the Assessee Company, the Assessing Officer asked
the Assessee to file the necessary details in respect of
the parties who had infused share capital in the
Assessee Company. The Assessee filed affidavits of
confirmation of the following parties:
1 Shr i Aj ay Bans al Rs. 11, 00,0 00 /-
2 Shr i Jagdis h Pd. Gupta Rs. 5,0 0,00 0 /-
3 Shr i Satis h Kumar Shar ma Rs. 14, 00,0 00 /-
4 Shr i Nar e ndr a Kumar Gupta Rs. 14, 00,0 00 /-
5 Shr i Manoj Kumar Batr a Rs. 5,0 0,00 0 /-
6 M/s Te chnocom Ass ociates Rs. 5,0 0,00 0 /-
P.Ltd.
7 Subhas h Chand Gupta Rs. 9,0 0,00 0 /-
8 Rek ha Gar g Rs. 6,0 0,00 0 /-
9 Shr i Vij ay Kumar Rs. 5,0 0,00 0 /-
10 M/s. Chitpurni Cre dits & Rs. 20, 00,0 00 /-
Le asing Pv t. Ltd.
11 Santos h Kumar Chaudhary Rs. 5,0 0,00 0 /-
12 Shr i Kes ho Ram Gupta Rs. 14, 00,0 00 /-
13 Shr i Vis hnu Kr. Gupta Rs. 5,0 0,00 0 /-
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14 Shr i Har bhagwan Batr a Rs. 5,0 0,00 0 /-
15 Manis h Kumar Aggar wal Rs. 9,0 0,00 0 /-
16 Shr i Vinod Gar g Rs. 6,0 0,00 0 /-
17 Che tan Park as h Rs. 6,0 0,00 0 /-
18 Shr i Rajee v Kumar Aggar wal Rs. 6,0 0,00 0 /-
12. The Assessing Officer on receipt of the affidavits from
the Assessee issued summons under Section 131 to
the 9 parties, who had executed the affidavits in the
year 2009. The summons were received back
unserved. The Assessing Officer during the
reassessment proceedings further noticed that the
addition to the share capital of the Assessee was not
only Rs.1,50,00,000/-, as mentioned by the Assessee,
but was Rs.2,85,00,000/- by as many as 40 more
persons, as mentioned below:-
Sl. Name of the persons Amount
No. Received
1. As ad F ar ooqi S/o Mohd. Abdul Rs. 23,0 0,0 00 /-
Faz al Far ooqi
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2. Mohd. Abul Faz al Farooqi S/o Rs. 23,0 0,0 00 /-
Abul Bark at
3. Jafr i Far ooqi W/o Mohd. Abul Rs. 23,0 0,0 00 /-
Faz al Far ooqi
4. Ay esha Far ooqi D/o Mohd. Rs. 23,0 0,0 00 /-
Abul Faz al Far ooqi
5. M/s. Technocom Ass ociates P. Rs. 15,0 0,0 00 /-
Ltd.
6. Manoj Kumar Batr a S/o Rs. 6,00, 00 0/-
Pushk ar Singh
7. Mahadev Pr as ad Bans al S/o Rs. 5,00, 00 0/-
Phool Chand Bans al
8. Vinod Gar g S/o R.S. Garg Rs. 5,00, 00 0/-
9. Trilok Chand Bans al S/o Chote Rs. 5,00, 00 0/-
Lal Bans al
10. Rak es h Chawla S/o Manohar Rs. 5,00, 00 0/-
Lal Chawla
11. Jagbeer Singh S/o Kulde ep Rs. 5,00, 00 0/-
Singh
12. Che tan Pr ak as h S/o Shimbhu Rs. 5,00, 00 0/-
Day al
13. Bimla De vi W/o J. N. Jain Rs. 5,00, 00 0/-
14. Bimla De vi W/o J. N. Jain Rs. 6,00, 00 0/-
15. Subhas h Chand Gupta S/o R. S. Rs. 5,00, 00 0/-
Singla
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16. Manis h Kumar Aggar wal S/o Rs. 5,00, 00 0/-
D.P. Aggar wal
17. Shakuntla Devi W/o Santosh Rs. 3,00, 00 0/-
Kumar Jain
18. Satis h Jain S/o Sunder Lal Jain Rs. 5,00, 00 0/-
19. Santos h Kumar Jain S/o P. D. Rs. 5,00, 00 0/-
Jain
20. Satis h Kumar Dhingr a S/o Rs. 5,00, 00 0/-
Ladhu Ram
21. Kir an Kapoor S/o M. R. Kapoor Rs. 5,00, 00 0/-
22. Aj ay Mittal S/o Kes ho Ram Rs. 5,00, 00 0/-
23. Vis hnu Kumar Gupta S/o Ram Rs. 6,00, 00 0/-
Gopal
24. Mahes h Gar g S/o R.S. Garg Rs. 5,00, 00 0/-
25. Mahes h Gar g S/o R.S. Garg Rs. 6,00, 00 0/-
26. Laxmi Aggar wal W/o Rajiv Rs. 5,00, 00 0/-
Aggar wal
27. Laxmi Aggar wal W/o Rajiv Rs. 6,00, 00 0/-
Aggar wal
28. Rajiv Kumar Aggar wal S/o R. S. Rs. 5,00, 00 0/-
Aggar wal
29. Balraj Jain S/o Bhim Se n Jain Rs. 5,00, 00 0/-
30. Gy an Chand Jain S/o Bhagwan Rs. 5,00, 00 0/-
Sahai Jain
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31. Anita Kanodia W/o Vinod Gar g Rs. 5,00, 00 0/-
32. Vasu Dev S/o Jagdis h Pr as ad Rs. 5,00, 00 0/-
33. Sur esh Kumar S/o Jagdish Rs. 5,00, 00 0/-
Pr asad
34. Sur esh Kumar S/o Jagdish Rs. 6,00, 00 0/-
Pr asad
35. Rek ha Gar g W/o Mahes h Gar g Rs. 5,00, 00 0/-
36. Vinod Lal S/o Chir anji Lal Rs. 5,00, 00 0/-
37. Shyam Lal S/o D. D. Goy al Rs. 5,00, 00 0/-
38. Ram Sar an Aggar wal S/o Rs. 5,00, 00 0/-
Chir anji Lal
39. Raj Kumar S/o Bis han Day al Rs. 3,00, 00 0/-
40. Raj Kumar S/o Bis han Day al Rs. 6,00, 00 0/-
Total Rs. 2,85,00,000/-
13. The Assessing Officer thus found that the Assessee
had received share capital including premium of a sum
of Rs. 4,35,00,000/- during the year and out of the said
amount only Rs.92,00,000/- had been received from
the four Directors/their family members of the
Assessee company and the remaining amount had
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been received from the parties mentioned in the
reasons recorded for reopening or from related
parties. Summons were selectively issued to 8 more
additional parties, however, the same were returned
unserved as the parties were not available at the
addresses provided by the Assessee. On the failure
of the availability of the parties at the given addresses
and also their failure to appear pursuant to the
summons, an Inspector was deputed to serve
summons, who reported that none of the parties were
available at the addresses given by the Assessee.
The Assessee was thereafter directed to produce the
parties. However, the authorized representative of the
Assessee stated that it was not possible for them to
produce the said parties, who had invested in the
share capital of the Assessee Company.
14. The Assessing Officer, vide his assessment order
dated 29.12.2009, assessed the income at
Rs.3,49,86,000/-. Aggrieved by the assessment order,
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the Assessee filed an appeal against the said
assessment order. The Commissioner of Income Tax
(Appeals) noticed that the appellant company was
incorporated on 17.07.2007 and upto 31.03.2001, it
had only nominal share capital and had not carried out
any business activity either in the year of incorporation
or the subsequent year in which the present
assessment relates to. On the grounds of challenge to
the reopening of assessment proceedings under
Section 147, the Commissioner of Income Tax
(Appeals) held in favour of the Revenue and held that
the proceedings had been rightly reopened for
reassessment.
15. With regard to the additions made by the Assessing
Officer of Rs.3,49,86,000/-, the Commissioner of
Income Tax (Appeals) allowed the appeal filed by the
Assessee. One of the reasons for allowing the appeal
is that the Assessing Officer has relied on the
statement of Mahesh Garg recorded by the
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Investigation Wing and neither the statement was
recorded by the Assessing Officer nor was Mahesh
Garg summoned to re -examine the fact as to whether
Mahesh Garg knew the Assessee company and to
verify the veracity and the statement made by Mahesh
Garg before the Investigation Wing.
16. The Commissioner of Income Tax (Appeals) was of
the view that merely because the Assessee could not
furnish the present addresses of the subscribers to the
share capital or could not produce them before the
Assessing Officer for personal deposition , would not
prove that the share capital had emanated from the
coffers of the Assessee's unexplained sources.
17. The Commissioner of Income Tax (Appeals) had
further held that the Assessing Officer did n ot make
any effort to find out from the Assessee whether the
said parties had made investment in the share capital
of the Assessee nor was an opportunity given to the
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Assessee to cross-examine Mahesh Garg. The
Commissioner of Income Tax (Appeals) further held
that the Assessee had been paid money through
account payee cheques. The fact that the cash was
deposited in the accounts of the persons, who had
purchased the shares immediately preceding the
issuance of cheque, does not prove that the cash was
not of the persons and was of the Assessee company.
18. The Commissioner of Income Tax (Appeals) was
further of the view that the subscribers to the share
capital were people who existed on the record of the
Income Tax Authorities/Department and had bank
accounts from which payments were made and thus, it
could not be said that their identity was not proved
since the Assessee company had submitted copies of
their return of income.
19. The Commissioner of Income Tax (Appeals) was
further of the view that merely because some
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information was received by the Assessing Officer,
which was not ver ified and no opportunity was granted
by the Assessing Officer to cross-examine or to verify
the evidences furnished by the Assessee and that the
burden on the Assessing Officer of establishing these
evidences could not be shifted to the Assessee.
20. Another factor that the Commissioner of Income Tax
(Appeals) has relied on is that the Assessing Officer
had not held that no dividend or interest would be
credited to the parties subscribing to the share capital
and with regard to the non-availability of the parties at
the given addresses, the A ssessing Officer was
required to find out from the Assessee and bankers of
these parties about their current addresses and since
cash had been deposited in the accounts of these
parties, the additions should have been made in the
hands of the subscribers and not the Assessee
company.
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21. The Commissioner of Income Tax (Appeals) has
further held that the appellant has furnished
voluminous evidences to justify the identity and
creditworthiness of the parties and genuineness of the
transactions and that no verification was carried out by
the Assessing Officer to controvert the evidences filed
by the Assessee from the Income Tax record of the
concerned parties. A ccordingly, the Commissioner of
Income Tax (Appeals) has held that the officer was not
justified in making an addition of Rs.3,43,00,0 00/-
under Section 68 of the Act and the same was thus
deleted.
22. The matter was carried forward by the Revenue by
way of an appeal to the Income Tax Appellate
Tribunal. Vide the impugned order, the ITAT upheld
the order passed by the Commissioner of Incom e Tax
(Appeals).
23. We have heard the learned counsel for the parties and
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also perused the records produced by the Revenue.
We are of the considered opinion that the orders of the
CIT (Appeals) and the ITAT in deleting the addition
made by the AO of Rs. 3,43,00,000/- under section 68
of the Act are clearly unsustainable.
24. Recently in the case of C OMM ISSIONER O F I NCOME TAX
VS NR P OR TFO LIO P V T. L TD (INCOME TAX A PPEA L N O .
1018 OF 2011 AND 1019 OF 2011) vide Judgment dated
22.11.13 we have held as under:
14. When an assessee does not produce
evidence or tries to avoid appearance before
the Assessing Officer, it necessarily creates
difficulties and prevents ascertainment of true
and correct facts as the Assessing officer is
denied advantage of the contention or factual
assertion by the assessee before him. In case
an assessee deliberately and intentionally fails
to produce evidence before the Assessing
Officer with the desire to prevent inquiry or
investigation, an adverse view should be taken.
We shall now come to the merits and the
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findings recorded by the Commissioner
(Appeals), which as noted above, have been
simply affirmed by the tribunal without
verifying or referring to the facts.
........
17. The Commissioner (Appeals) thereafter
proceeded on the basis that even if the
subscribers to the share capital were not
genuine, the amount received cannot be
regarded as undisclosed income of the
respondent-assessee. Reference was made to
the decision of the Delhi High Court in Lovely
Exports Private Limited and Divine Leasing and
Finance Limited(supra). Reference was made
to some decision of the tribunal. It would be
here relevant to highlight and note what was
recorded by the Assessing Officer in the
assessment order. The Assessing Officer has
mentioned that the subscribers belonged to
Mahesh Garg group of entry operators, which
included 51 companies/ persons, who were
operating more than 100 bank accounts in
different banks/branches. Their modus
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operandi was to provide accommodation
entries to different persons/beneficiaries.
Reference was made to the bank statements of
the entry operators that showed substantial
deposit of cash in the bank accounts and
subsequent issue of cheques to the
beneficiaries. This was the only activity of
these companies/persons. The said
companies/persons were not carrying on any
other business activity i.e., manufacturing or
trading activity. The assessment order has
quoted and referred to the bank account
statements in support of the said assertion and
finding. The Assessing Officer has mentioned
that the respondent-assessee was a private
limited company, closely held and there should
be proximate relationship between the
promoter directors and the shareholders.
Closely held companies usually receive share
capital subscriptions from friends, relatives and
not from unrelated/ unknown third parties/
general public. There was no relationship or
connection between the subscribers and the
respondent-assessee, for subscribers to
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become investors. Assessment order records
that to establish identity and availability of
funds, it was necessary to have at least some
idea if not complete details of the actual
business undertaken and engaged in by the
respondent-assessee and explained how and
why these unrelated and unconnected third
parties decided to become investors in the
absence of public issue or advertisement.
18. In the remand report, the Assessing
Officer referred to the provisions of Section 68
of the Act and their applicability. The word
"identity" as defined, it was observed meant
the condition or fact of a person or thing being
that specified unique person or thing. The
identification of the person would include the
place of work, the staff, the fact that it was
actually carrying on business and recognition of
the said company in the eyes of public. Merely
producing PAN number or assessment
particulars did not establish the identity of the
person. The actual and true identity of the
person or a company was the business
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undertaken by them. This according to us is the
correct and true legal position as identity,
creditworthiness and genuineness have to be
established. PAN numbers are allotted on the
basis of applications without actual de facto
verification of the identity or ascertaining
active nature of business activity. PAN is a
number which is allotted and helps the
Revenue keep track of the transactions. PAN
number is relevant but cannot be blindly and
without considering surrounding circumstances
treated as sufficient to discharge the onus,
even when payment is through bank account.
19. On the question of creditworthiness and
genuineness, it was highlighted that the money
no doubt was received through banking
channels, but did not reflect actual genuine
business activity. The share subscribers did not
have their own profit making apparatus and
were not involved in business activity. They
merely rotated money, which was coming
through the bank accounts, which means
deposits by way of cash and issue of cheques.
=======================================================================
The bank accounts, therefore, did not reflect
their creditworthiness or even genuineness of
the transaction. The beneficiaries, including
the respondent-assessee, did not give any
share-dividend or interest to the said entry
operators/subscribers. The profit motive was
normal in case of investment entirely was
absent. In the present case, no profit or
dividend was declared on the shares. Any
person, who would invest money or give loan
would certainly seek return or income as
consideration. These facts are not adverted to
and as noticed below are true and correct .
They are undoubtedly relevant and material
facts for ascertaining creditworthiness and
genuineness of the transactions.
......
23. The contention that the Revenue must
have evidence to show circulation of money
from the assessee to the third party is
fallacious and has been repeatedly rejected,
even when Section 68 of the Act was not in the
statute. In A. Govindarajulu Mudaliar v. CIT
=======================================================================
[1958] 34 ITR 807, Supreme Court observed
that it was not the duty of the Revenue to
adduce evidence to show from what source,
income was derived and why it should be
treated as concealed income. The assessee
must prove satisfactorily the source and nature
of cash received during the accounting year.
Similarly observations were made in CIT vs. M.
Ganapathi Mudaliar [1964] 53 ITR 623 (SC),
inter alia holding that it was not necessary for
the Revenue to locate the exact source. This
principle was reiterated in CIT vs. Devi Prasad
Vishwanath Prasad [1969] 72 ITR 194 (SC),
wherein the contention that the Assessing
Officer should indicate the source of income
before it was taxable, was described as an
incorrect legal position. Thus when there is an
unexplained cash credit, it is open to the
Assessing Officer to hold that it was income of
the assessee and no further burden lies on him
to show the source. In Yadu Hari Dalmia vs.
CIT [1980] 126 ITR 48, a Division Bench of Delhi
High Court has observed:-
"It is well known that the whole catena
=======================================================================
of sections starting from s. 68 have been
introduced into the taxing enactments
step by step in order to plug loopholes
and in order to place certain situations
beyond doubt even though there were
judicial decisions covering some of the
aspects. For example, even long prior to
the introduction of s. 68 in the statute
book, courts had held that where any
amounts were found credited in the
books of the assessee in the previous
year and the assessee offered no
explanation about the nature and source
thereof or the explanation offered was,
in the opinion of the ITO, not
satisfactory, the sums so credited could
be charged to income-tax as income of
the assessee of a relevant previous year.
Section 68 was inserted in the I.T. Act,
1961, only to provide statutory
recognition to a principle which had been
clearly adumbrated in judicial decisions."
24. We are conscious of the doctrine of
=======================================================================
'source of source' or 'origin of origin' and also
possible difficulty which an assessee may be
faced with when asked to establish
unimpeachable credit worthiness of the share
subscribers. But this aspect has to be decided
on factual matrix of each case and strict or
stringent test may not be applied to arms
length angel investors or normal public issues.
Doctrine of 'source of source' or 'origin of
origin' cannot be applied universally, without
reference to the factual matrix and facts of
each case. The said test in case of normal
business transactions may be light and not
vigorous. The said doctrine is applied when
there is evidence to show that assessee may
not be aware, could not have knowledge or
was unconcerned as to the source of money
paid or belonging to the third party. This may
be due to the nature and character of the
commercial/business transaction relationship
between the parties, statutory postulates etc.
However, when there is surrounding evidence
and material manifesting and revealing
involvement of the assessee in the
=======================================================================
"transaction" and that it was not entirely an
arm's length transaction, resort or reliance to
the said doctrine may be counter-productive
and contrary to equity and justice. The
doctrine is not an eldritch or a camouflage to
circulate illgotten and unrecorded money.
Without being oblivious to the constraints of
the assessee, an objective and fair
approach/determination is required. Thus no
assessee should be harassed and harried but
any dishonest façade and smokescreens which
masquerade as pretence should be exposed
and not accepted.
25. In Lovely Exports (supra), a Division Bench
examined two earlier decisions of this court in
CIT vs. Steller Investment Ltd. [1991] 192 ITR
287 (Delhi) and CIT vs. Sophia finance Ltd.
[1994] 205 ITR 98 (FB) (Delhi). The decision in
Steller Investment's case (supra) was affirmed
by the Supreme court but by observing that the
conclusion was on the facts and no
interference was called for. Lovely Exports
(supra) was a case of public limited company
=======================================================================
where shares were subscribed by public and it
was accordingly observed:-
"This reasoning must apply a fortiori to
large scale subscriptions to the shares of
a public Company where the latter may
have no material other than the
application forms and bank transaction
details to give some indication of the
identity of these subscribers. It may not
apply in circumstances where the shares
are allotted directly by the
Company/assessee or to creditors of the
assessee. This is why this court has
adopted a very strict approach to the
burden being laid almost entirely on an
assessee which receives a gift."
26. Thereafter reference was made to Full
Bench decision in the case of Sophia Finance
Ltd.'s case (supra) wherein it has been
observed that if the shareholders exists then,
"possibly", no further enquiry need to be made
and that the Full Bench had not reflected upon
the question of whether the burden of proof
=======================================================================
rested entirely on the assessee and at which
point this burden justifiably shifted to the
assessing officer. The Full Bench has observed
that they were not deciding as to on whom and
to what extent was the onus to show that the
amount credited in the books of accounts was
share capital and when the onus was
discharged, was not decided. The standard of
proof might be rigorous and stringent and was
dependent upon nature of the transaction and
where there was evidence that the source of
investment cannot be manipulated, it was
material. Similarly, it was observed that
assessee could scarcely be heard to say that he
did not know the particulars of a donor in case
of a gift. It was held:-
"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's 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 Assessing
Officer 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 Section 68 and 69 of the
Income Tax 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
Assessing Officer 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.....................
xxxx
..........Once material to prove these
ingredients are produced it is for the
Assessing Officer to find out as to
whether, on these materials, the
assessed has succeeded in establishing
the ingredients mentioned above. The
Assessing Officer `lift the veil' and
enquire into the real nature of the
transaction. C.I.T. v. Ruby Traders and
Exporters Ltd. : [2003]263ITR300(Cal) ,
C.I.T. v. Nivedan Vanijya Niyojan Ltd.
[2003]263ITR623(Cal) and C.I.T.
v. Kundan Investment Ltd.
[2003]263ITR626(Cal.) are the other
three.
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 assessed. (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 Assessing Officer take
such repudiation at face value and
construe it, without more, against the
assessee; and (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."
27. The decision in the case of Lovely Exports
(supra) was considered in CIT vs. Nova
Promoters and Finlease (P) Ltd. (supra) and it
was elucidated:-
"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
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."
28. In Nova Promoters & Finlease(supra), it
was held that in view of the link between the
entry providers and incriminating evidence,
mere filing of PAN number, acknowledgement
of income tax returns of the entry provider,
bank account statements etc. was not
sufficient to discharge the onus.
29. In Nipun Builders and Developers (2013)
350 ITR 407 (Del), this principle has been
reiterated holding that the assessee and the
Assessing Officer have to adopt a reasonable
approach and when the initial onus on the
assessee would stand discharged depends
upon facts and circumstances of each case. In
case of private limited companies, generally
=======================================================================
persons known to directors or shareholders,
directly or indirectly, buy or subscribe to
shares. Upon receipt of money, the share
subscribers do not lose touch and become
incommunicado. Call monies, dividends,
warrants etc. have to be sent and the
relationship is/was a continuing one. In such
cases, therefore, the assessee cannot simply
furnish details and remain quiet even when
summons issued to shareholders under Section
131 return unserved and uncomplied. This
approach would be unreasonable as a general
proposition as the assessee cannot plead that
they had received money, but could do nothing
more and it was for the assessing officer to
enforce share holders attendance. Some cases
might require or justify visit by the Inspector to
ascertain whether the
shareholders/subscribers were functioning or
available at the addresses, but it would be
incorrect to state that the assessing officer
should get the addresses from Registrar of
Companies' website or search for the
addresses of shareholders and communicate
=======================================================================
with them. Similarly, creditworthiness was not
proved by mere issue of a cheque or by
furnishing a copy of statement of bank
account. Circumstances might require that
there should be some evidence of positive
nature to show that the said subscribers had
made a genuine investment, acted as angel
investors, after due diligence or for personal
reasons. Thus finding or a conclusion must be
practicable, pragmatic and might in a given
case take into account that the assessee might
find it difficult to unimpeachably establish
creditworthiness of the shareholders.
30. What we perceive and regard as correct
position of law is that the court or tribunal
should be convinced about the identity,
creditworthiness and genuineness of the
transaction. The onus to prove the three
factum is on the assessee as the facts are
within the assessee's knowledge. Mere
production of incorporation details, PAN Nos.
or the fact that third persons or company had
filed income tax details in case of a private
=======================================================================
limited company may not be sufficient when
surrounding and attending facts predicate a
cover up. These facts indicate and reflect
proper paper work or documentation but
genuineness, creditworthiness, identity are
deeper and obtrusive. Companies no doubt are
artificial or juristic persons but they are
soulless and are dependent upon the
individuals behind them who run and manage
the said companies. It is the persons behind
the company who take the decisions, controls
and manage them."
25. We have in the NR P ORTFO LIO CASE (S UPRA ) held that
when an Assessee does not produce evidence or tries
to avoid appearance before the assessing officer, it
necessarily creates difficulties and prevents
ascertainment of true and correct facts as the
assessing officer is denied advantage of the
contention or factual assertion by the Assessee before
him. In case an Assessee deliberately and
intentionally fails to produce evidence before the
=======================================================================
assessing officer with the desire to prevent inquiry or
investigation, an adverse inference should be drawn.
The said case, i.e., N.R. P ORTFOLIO P RIVA TE L IM ITED
(SUPRA ), was also one of the cases where
accommodation entries were being provided by
Mahesh Garg Group of entry providers as in the
present case . It has been noticed in that case that the
modus operandi used by the entry provider s for
providing accommodation entry to different
persons/beneficiaries was very similar to the one in
the present case. It has been further noticed that the
bank statements of the entry operators showed
substantial deposit of cash in the bank accounts and
subsequent issuance of cheques to the beneficiaries.
The entry providers were not carrying on any business
activity but the only activity was for providing entries.
It has been held that a private limited company is a
closely held company having proxima te relationship
between promoters and shareholders and usually in
=======================================================================
closely held companies, share capital subscription is
from friends, relatives and not from unrelated/unknown
third parties/general public.
26. We have further in N.R.P ORTFO LIO P RIVA TE L IM ITED
(S UPRA ) held that mere production of PAN Number or
assessment particulars does not establish the identity
of a person. The identification of a person includes
the place of work, the staff and the fact that it was
actually carrying on business and further re cognition of
the said company/individual in the eyes of public. We
have further noticed that PA N Number s are allotted on
the basis of applications without actual de facto
verification of the identity or ascertainment of the
active nature of business activity. PAN Number is
allotted as a facility to revenue to keep track of
transactions. The PA N Number cannot be blindly and
without consideration of surrounding circumstances
treated as sufficiently disclosing the identity of the
individual.
=======================================================================
27. Referring to the various judgments of the Supreme
Court {A. GOVINDARA JU LU M UDALIAR VS CIT (1958) 34
ITR 807 (SC), CIT VS M. GANAPA TH I M UDALIAR (1964)
53 ITR 623 (SC) AND CIT VS D EVI P RASAD V ISH WANA TH
P RASAD (1969 (72) ITR 194 (SC)} we have in
N.R.P ORTFO LIO P RIVA TE L IMITED (SUPR A ) rejected the
contention that the revenue must have evidence to
show a circulation of money from the Assessee to third
parties. Following CIT VS N OVA P ROMOTERS AND
FIN LEASE P RIVA TE LIM ITED CASE (2012) 342 ITR 169
(D ELH I) we have held that in view of the link between
the entry providers and incriminating evidence, mere
filing of PAN Number, acknowledgement of Income
Tax Returns of the entry providers, bank account
statement is not sufficient to discharge the onus on the
Assessee.
28. In the case of private limited companies, generally
person known to the directors or shareholders directly
or indirectly buy or subscribe to shares. The share
=======================================================================
subscribers post investment do not lose touch or
become incommunicado. In the case of private limited
companies where normally there is close proximity
between the company, i.e., the directors and
shareholders and the investors. The Assessee cannot
simply furnish details and remain quiet even when
summons issued to the shareholders under Section
131 are returned unserved and uncomplied. In
N.R.P ORTFO LIO P RIVA TE LIMITED (SUPRA ) we have held
that the Assessee cannot plead as a general
preposition that they had received summons and it
was for the assessing officer to enforce the contents
on the share holders.
29. We have further held that the Court or Tribunal should
be convinced about the identity, creditworthiness and
genuineness of the transactions. The onus to prove
the three factum is on the Assessee as the facts are
within the personal knowledge of the Assessee. Mere
production of incorporation details, PA N Numbers or
=======================================================================
income tax returns may not be sufficient when
surrounding and attending facts predicate a cover up.
The production of incorporation details, PAN numbers
or income tax details may indicate towards completion
of paper work or documentation but genuineness,
creditworthiness and identity of investment and the
investors are deeper and obtrusive than mere
completion of paper work or documentation.
30. The affidavits filed by the Assessee have been
produced before us and we have perused the same.
Out of the 18 affidavits filed, 9 affidavits give the
number of shares which have been allotted by the
Assessee. The said 9 affidavits show that the face
value of the share is Rs.100/- and the premium at
which the shares are purchased was Rs.100 /- in the
month of May 2001 and Rs.200 /- for the shares
purchased in the month of November 2001. These 9
affidavits are all in seriatim and prepared on the same
date i.e. 15.06.2009 and all pertain to transaction s of
=======================================================================
the year May and November, 2001. The language of
all these 9 affidavits is standard and one such affidavit
is as under:-
I Ajay Bansal S/o V.P.Bansal R/o 9/1970, Gali
No.4, Kailash Nagar, Delhi 110031 do hereby
solemnly affirm & declare as under:
1. THAT I am holder of PAN ADIPB6339G
2. THAT I have been issued 4,500/- equity
shares of Rs. 100/- each by M/S. M.A.F.
Academy Pvt. Ltd. as detailed below:
No. of Shares Face Value Premium Total Value Date of
Allotment
2,500 100 100 5,00,000 05/05/2001
3. THAT I have made the payment of issue
price by P/o. No. 002777 Dt. 23/04/2001 of
Innovative co-op Urban Bank Ltd. Ashok Vihar,
New Delhi Branch & Ch. No. 496264 Dt.
01/01/2001 of Oriental Bank of Commerce,
Minto Road, New Delhi Branch for
Rs.5,00,000/- & Rs.6,00,000/- respectively.
4. THAT this is a genuine transaction and I
have not received any thing against this issue
of Shares from M.A.F. Academy Pvt. Ltd. or
from any other person.
Deponent.
Verified on the 15 day of June, 2009, that the
contents of my above affidavit are true &
=======================================================================
correct to the best of my knowledge & belief &
nothing has been concealed.
Deponent.
31. The other 9 affidavits do not give the breakup of the
number of shares, face value or premium. 7 out of the
9 affidavits in the second set are all attested on
26.11.2001 and one is attested on 23.05.2001. All the
nine affidavits are in the same language and are as
under:-
I, Manish Kumar Aggarwal S/o Sh. D.P.Aggarwal,
hereby solemnly affirm and declare as under:-
1. That I am resident of 13/A, Sector-11,
Rohini, Delhi-110085.
2. That I have invested Rs.9,00,000/-
(Rs.Nine Lacs only) vide cheque No.011269
dated 13.09.2001 drawn on State Bank of
Patiala, Darya Ganj, New Delhi in the equity
share capital of M/s MAF ACADEMY PVT. LTD.,
D-11, Abbul Fazal Enclave, New Delhi - 110025.
3. That I am regularly assessed to Income
Tax vide GIR/PAN No. AGKPK24261
Deponent
VERIFICATION
=======================================================================
Verified at New Delhi that the contents of the
above said affidavit are true and correct to the
best of my knowledge and belief and nothing
has been concealed therefrom.
Deponent.
32. The reason why we have referred to the date of
attestation of the ye ar 2001 is that we find it strange
that the Assessee in the year 2001 felt the need of
obtaining affidavits from the persons investing in the
shares of the company to certify the genuineness of
the transaction as far back in the year 2001 when
there was no suspicion or inquiry/investigation in
contemplation even in the Department. We find it
strange that an Assessee alongwith share application
money would obtain affidavits from the investors to
confirm genuineness of the transaction. In a normal
business transaction, no such certificate /affidavit
would be obtained by any company from persons
investing in its share capital. The fact that the
Assessee felt the necessity of obtaining such affidavits
=======================================================================
raises a suspicion on the genuineness of the very
transaction.
33. The Assessee company is a private limited company
and had not come out with any public issue nor made
any advertisement for issuance of share capital.
However, in one year there is infusion of share capital
including premium of Rs.4,35,00,000/-, out of which
only Rs.92,00,000/- was infused from the
Directors/family members of the Directors. The
remaining share capital had been infused from parties
which were completely unrelated either to the
Assessee or to any of its Directors. In a private limited
company, normally the investment of shares is from
parties or persons who are friends or relatives of
Promoters/Directors.
34. It is noticed that the shares had face value of Rs.100 /-
and were allotted at a premium of Rs.100 /- to Rs.200/-
and were then subsequently purchased by the
=======================================================================
Promoters/Directors, who had originally transferred
these shares at Rs.35 /- per share.
35. It is really surprising that a person who ha d purchased
shares at a premium of Rs.100 /- to Rs.200/- per share
i.e. at a price of Rs.200 /- to Rs.300/- per share, sold
the shares at Rs.35 /- per share i.e at a substantial
loss. Another surprising factor is th at the entire
investment happened during a short span of time and
re-transfer of the shares to the four
Promoters/Directors of the company at Rs.35 /- per
share by different parties also happened during a short
span of few days. The modus operandi and the
manner in which cash is deposited in a bank and then
utilized by way of an account payee cheque for
purchase of shares for a premium of Rs.100 /- to
Rs.200/- per share and then the sale of shares at a
loss clearly establishes that the said transaction was a
camouflage transaction. The Assessee has clearly
attempted to camouflage the accommodation entries
=======================================================================
and tried to give it a colour of purchase of share
capital and then sale of the same at a loss. Thus the
Assessee's capital increased or was enhanced by a
substantial figure through these dubious transactions.
This should be and has to be checked.
36. Out of Rs.4.35 crores received as share capital
including premium, only Rs.92 lacs has been received
from the directors or their family members and the
remaining amount has been received from parties
totally unrelated to the Assessee. Notices to some of
the investors could not be served and even the
Inspector who wa s deputed to serve the summons
stated that none of the addresses could be found. The
authorised representative of the Assessee refused to
produce the parties who had invested in the share
capital on the ground that they were not in a position
to produce them. The fact that the Assessee failed to
produce the persons who had invested towards share
capital shows that these were people who were
=======================================================================
completely unrelated to the Assessee and as such, all
the entries were merely accommodation entries.
Otherwise, in a private limited company, it would not
have been difficult on the part of the Assessee to
produce persons who were investing substantial
amount of money in the company towards share
capital.
37. The Assessing Officer in his order has as a sample
referred to the entries in the account of some of the
share holders noticing that there are cash deposits of
the exact amount for which cheque is subsequently
issued to the Assessee. Perusal of the bank
statements clearly establishes that these parties wer e
depositing cash and immediately either on the same
day or in the near future withdrawing the same through
a cheque which was issued in favour of the Assessee.
38. Reliance is placed by the counsel for the respondent
on the judgments in the case of CIT vs. M/ s. Nipun
=======================================================================
Auto (P) Ltd. dated 30.04.2013 in ITA 225 of 2013
(Del)., CIT vs. Gangeshwari Metals Pvt. Ltd., 2013 (2)
AD (Delhi) 378, CIT vs. Fair Finvest Ltd., ITA No.232
of 2012 dated 22-11-2012, CIT vs. Oasis Hospitalities
Pvt. Ltd., (2011) 333 ITR 119 (De l.), CIT vs.
Dwarkadish Investment Pvt. Ltd. (2011) 330 ITR 298
(Del), CIT vs. Kamdhenu Steel & Alloys Ltd. & Ors,
(2012) 248 CTR 33 (Del)., CIT vs. Gourdin Herbals
India Ltd., ITA No.665 of 2009 dated 17.09.2009
(Del.), CIT vs. Victor Electrodes Ltd., (20 10) 329 ITR
271 (Del), CIT vs. Value Capital Services Pvt. Ltd.,
(2008) 307 ITR 334 (Del), Madhuri Investment Pvt.
Ltd. vs. ACIT and Ors., ITA No.110 of 2004 dated 18 -
01-2006, CIT vs. Goel Sons Golden Estate Pvt. Ltd.,
ITA No.212 of 2012 dated 11-04-2012 (Del), CIT vs.
Expo Globe India Ltd., ITA No.1257 of 2011 dated 20 -
07-2012 (Del) and CIT vs. Sh. Pradeep Kumar Gupta
(2008) 303 ITR 95 (Del).
=======================================================================
39. None of the judgments, referred to by the learned
counsel for the respondent, advance the case of the
respondent inasmuch as the judgments are based on
the factual matrix of the respective cases .
40. In Nipon Auto Pvt.Ltd. (supra) , the High Court decided
in favour of the Assessee by holding that the
Assessee had been able to discharge the initial
burden to establish the identity, creditworthiness and
genuineness as regards the transaction concerning
the allotment of shares.
41. In the case of Gangeshwari Metals Pvt. Ltd. (supra),
the High Court decided on the basis of the fact that the
Assessing Officer sat back with folded hands till the
Assessee exhausted all the evidence and materials in
his possession and then came forward to merely reject
the same on the presumptions. The Court was of the
view that there wa s a lack of inquiry on part of the
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Assessing Officer once the Assessee had furnished all
the material.
42. Similarly, in the case of Fair Finvest Ltd. (supra), the
Division Bench of this Court formed the opinion in
favour of the Assessee by holding that no efforts were
made by the A ssessing Officer to enquire into the
matter or invoke his powers under Section 131 of
summoning the share applicants or directors.
43. In the case of Oasis Hospitality Pvt. Ltd. (supra), the
Assessee had produced the share applicants and the
court was satisfied that the onus had been discharged
by the Assessee in terms of the identity,
creditworthiness and genuineness of the transaction.
44. In the case of Dwarkadish Investment Pvt. Ltd.
(supra), the Division Bench of this Court has found as
a fact that the Assessee has proved the identity of the
creditors/share applicants and shown the genuineness
of the transaction.
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45. Similar is the view of the Division Bench of this Court
in the case of Kamdhenu Steel & Alloys Ltd. & Ors.
(supra) which is based on the factual matrix of the
case.
46. The order relied upon in the case of Gourdin Herbals
India Ltd. (supra) does not further the case of the
respondent since the said Assessee was a limited
company in contrast to the present case in which the
Assessee is a private limited company and was based
on the facts of the case .
47. In the case of Victor Electrodes Ltd. (supra), once
again the said judgment pertains to a limited company
and the Division Bench has returned a finding that the
Assessing Officer did not make any verification vis -a-
vis the bank statements and the Assessing Officer had
not summoned the share applicants.
48. In the case of Value Capital Services Pvt. Ltd. (supra),
the High Court has noticed that the share applicants
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had appeared before the Assessing Officer during the
inquiry.
49. In the case of Madhuri Investment Pvt. Ltd. (surpa),
some of the applicants had appeared before the
Assessing Officer and confirmed the applications
made by them and the Assessing Officer had came to
the conclusion that the transaction was not genuine
solely on the ground that the Assessee had failed to
produce the correct addresses.
50. Decision in Goel Sons Golden Estate P vt. Ltd. (supra)
is distinguishable as it proceeds on its own facts. No
doubt, one S.H. Mallick in his statement had stated
that he had provided accommodation entries, but the
Assessee during the course of assessment
proceedings had filed several details and evidence
including affidavits, confirmation letters from the
companies, bank statements, balance sheets etc. It
was observed that the Assessing Officer had failed to
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conduct necessary enquiry, verification and deal with
the matter in depth especially after affidavit,
confirmation letters and bank statements were filed. It
was further observed that if the Assessing Officer had
conducted the said enquiry and investigati on, probably
the challenge made by the Revenue would be justified.
In the absence of the said verification and enquiry, the
factual findings recorded by the A ssessing Officer
were incomplete and sparse. In these circumstances,
High Court of Delhi refused to interfere on the ground
that the order of the tribunal was perverse.
51. In the case of Expo Globe India Ltd. (supra), the Court
has noticed that though the Assessing Officer had
initially concluded on the basis of material made
available, at that stage, the service of entry providers
had been utilized to bring in capital, however, after
remand, the CIT (Appeals) elaborately took into
account considerable material furnished by the
Assessee which included amongst other income tax
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return and the balance sheet which showed the source
of the share application money having been
satisfactorily explained.
52. The case of Sh. Pradeep Kumar Gupta (supra), is not
a case of share application money and was dealing
with the issue of addition being made solely on the
basis of the statement of an individual, who was not
produced for cross-examination and furthermore, the
same was also rejected on the ground of low tax
effect.
53. In contrast to the above judgments, in the present
case, the Assessee is a private limited company and
in the factual matrix, we have held that the Assessee
has not been able to discharge the initial onus and has
not been able to establish the identity,
creditworthiness of the share applicants and the
genuineness of the transaction. Though, in our
considered opinion, none of the above judgments,
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referred to by the Assessee respondent, are
applicable in the facts of the present case and in view
of the findings recorded by us hereinabove.
54. In view of the above, we are of the view that the
Assessee has not discharged the onus satisfactorily
and the additions made by the Assessing Officer were
justified and sustainable.
55. The substantial question of law is thus answered in
favour of the Appellant and against the Respondent -
Assessee. The appeal is accordingly allowed with
costs that are assessed at Rs. 20,000/ -
SANJEEV SACHDEVA, J.
28 th NOVEMBER, 2013 SANJIV KHANNA, J.
st
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