Madras High Court
The Commissioner Of Income Tax vs Smt.Leela Devi on 25 January, 2021
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 25.01.2021
CORAM :
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Ms.Justice R.N.MANJULA
T.C.A.Nos.438 to 445, 447 to 449 & 452 of 2020
and
C.M.P.Nos.14047, 14049, 14060, 14101, 14102, 14104,
14107, 14138, 14139, 14140 & 14245 of 2020
TCA.No.438 of 2020
The Commissioner of Income Tax
Chennai. ...Appellant
Vs
Smt.Leela Devi ...Respondent
PRAYER: Appeal filed under Section 260A of the Income Tax Act, 1961
against the order dated 07.06.2019 made in ITA.No.2648/Chny/2018 on the
file of the Income Tax Appellate Tribunal, Madras 'C' Bench, Chennai for
the assessment year 2013-14.
For Appellant: Mrs.R.Hemalatha
Senior Standing Counsel
1/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
COMMON JUDGMENT
(Delivered by T.S.Sivagnanam,J)
These appeals, filed by the Revenue under Section 260A of the
Income Tax Act, 1961, ('the Act' for brevity) are directed against the order
dated 07.06.2019 made in ITA.Nos.2637 to 2648/Chny/2018 on the file of
the Income Tax Appellate Tribunal, 'C' Bench, Chennai ('the Tribunal' for
brevity) for the assessment years 2010-11, 2011-12, 2012-13, 2013-14.
2. The appellant-Revenue in all these appeals have raised the
following substantial questions of law for consideration:
"1. Whether on the facts and in the
circumstances of the case, the Tribunal was right
in setting aside the well reasoned order passed by
the Assessing Officer for re-examination,
especially when the assessing officer had
considered all the material placed while passing
the assessment order?
2. Whether on the facts and in the
circumstances of the case, the Tribunal was right
in remitting the issue back to the file of the
Assessing Officer by quoting the decision in the
case of Kanhaiyal and Sons (HUF) in ITA No
1849/Chny/2014 Sunil Kumar Lalwani and that
Aashesh Kumar Lalwani wherein the onus has
been shifted to the revenue with a direction that
the Assessing Officer is to bring on record the role
of the Assessee in promoting the Company and the
relation of the Assessee if any with that of the
2/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
promoters and role of inflating of prices etc which
exercise had already been done by the AO and the
SEBI?
3. Is not finding of the Tribunal perverse
especially when the decision of the Tribunal is
contrary to the time tested Principal that the
person who asserts a fact has to discharge the
initial burden cast upon him to show that the said
facts are true and only thereafter the burden
would shift to the department?"
3. We have heard Mrs.R.Hemalatha, learned Senior Standing
Counsel appearing for the appellant-Revenue.
4. The Tribunal relied upon its earlier decision in the case of
Kanhaiyalal & Sons (HUF) vs. ITO in I.T.A.No.1849/Chny/2018 and
remitted the matter back to the file of the Assessing Officer for re-
consideration.
5. Identical impugned order was decided for selectness by this
Court in the case of The Commissioner of Income Tax Vs.Mr.Manish
D.Jain (HUF) in T.C.A.No.223 of 2020 dated 16.12.2020 and the appeal
filed by the Revenue was allowed. The operative portion of the judgment
reads as follows:
3/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
"13. There is no dispute with regard to
the power of the Tribunal to remand while
exercising its jurisdiction under Section 254 of the
Act. The Hon'ble Supreme Court, in the case of
Hukumchand Mills Ltd. Vs. CIT [reported in
(1967) 63 ITR 232] held that the Tribunal had
power to remand the matter back to the Income
Tax Officer. This decision was followed by the
Hon'ble Supreme Court in the case of Martin
Burn Ltd. Vs. CIT [reported in (1993) 68
Taxmann 346]."
14. The question is as to when the power
of remand can be exercised. For this proposition,
it would be beneficial to refer to the decision of
this Court in the case of Cholamandalam MS
General Insurance Co. Vs. Royal Sundaram
Alliance General Insurance Co. Ltd. [reported in
(2013) 357 ITR 597] wherein the Division Bench
held as follows:
“17. In the background of the jurisdiction
of the Tribunal as a fact finding authority, we
feel that the Tribunal should have acted with
greater circumspection to order a remand
particularly when the Revenue itself does not
dispute that the materials were all those that
were considered by the Assessing Officer.
4/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
Remand is not a power to be exercised in a
routine manner and should be used sparingly
as an exception only when the facts warranted
such course of action. We feel that the
Tribunal should have arrived at its own
conclusion on facts after due consideration of
the materials before it which were no different
from which was placed before the authorities
below. Hence, we have no hesitation in setting
aside the order passed by the Tribunal in
remanding the matter back to the Income Tax
Appellate Tribunal on the admitted fact that
no fresh materials were placed before the
Tribunal necessitating remand.”
15. Thus, we are required to consider the
issue as to whether the Tribunal was justified in
remanding the matter to the Assessing Officer to
reconsider the issue regarding the claim made by
the assessee under Section 10(38) of the Act. On a
reading of the order passed by the Tribunal, we
find that the Tribunal did not interfere with the
factual findings recorded by the Assessing Officer
and the CIT(A) with regard to the transaction done
by the assessee. Thus, unless and until the
Tribunal found an error in the approach of the
Assessing Officer or the CIT(A) and only after
interfering with such a finding, the Tribunal could
have exercised its power of remand. Even in such
circumstances, the Tribunal was required to record
5/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
reasons as to why the matter should be remanded
and as to why the Tribunal could not decide the
factual issue on the available material.
16. We find from the order passed by the
CIT(A) that the assessee raised a vague contention
that a thirty party statement was relied upon by the
Assessing Officer without affording an opportunity
to the assessee to confront the same and the
decision was taken against the assessee.
Unfortunately, the Tribunal did not examine as to
whether such a contention raised before the
CIT(A) was rightly decided or not. Further, from
the grounds raised by the assessee before the
CIT(A), we find that they had not disputed the
factual position, which had been brought out by
the Assessing Officer in his order. Before the
Tribunal also, we find that the assessee did not
dispute the factual finding recorded by the CIT(A)
in his order dated 07.8.2018. Thus, we have no
hesitation to hold that the order of remand passed
by the Tribunal was wholly unjustified, devoid of
reasons and unsustainable in law.
6/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
17. Moving to the findings rendered by
the Assessing Officer and the CIT(A) with regard
to the nature of transaction done by the assessee,
we find that there was absolutely no justification
on the part of the Tribunal to interfere with the
facts recorded by both the Lower Authorities. The
gist of the modus operandi done by the assessee as
could be culled from the order of assessment as
well as the order of the CIT(A) is as follows:
“The assessee had purchased 450 shares
of Dhanalabh Mercantile Limited which later
merged with M/s.Bakra Prathisthan Ltd and
the said 450 shares originally held by the
assessee were converted into 4500 shares. All
the purchases were made through off market
ie. after closing of share markets and the
assessee had never heard of the name of the
scrip before. The amount of investments was
very meager in some cases and huge profits
were made by the assessee on the sale of
unknown company shares. The name of the
person and his details were not known to the
assessee and the assessee was not able to
produce the person before the Assessing
Officer from whom the said shares were said
to have been purchased. The letters sent to
the address of the seller were all returned
unserved and details of the Company were
also not known to the assessee. The share
certificate issued to the seller from whom the
assessee had purchased and the certificates
issued to the seller would be a month or so
before the alleged sales to the assessee. The
7/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
evidence was typed date of transfer on the
back side of the share certificates and the bill
for purchasing this scrip was shown as a
proof and the date of bill would be the prior
to the date of share certificate itself allotting
the shares to the seller. In many cases,
implying that the shares were sold to the
assessee, even before the receipt of share
certificate by the seller. The shares were
demated just before the sale of shares to the
assessee, who was having no experience in
share trading.
The Security Exchange Bureau of India
(SEBI) had blacklisted nearly 14 brokers for
their alleged involvement in manipulating the
market prices and rigging the markets for
jacking up the share prices. The Income Tax
Department Investigation Wing which had
conducted detailed investigation had
unearthed shell companies which specialized
in manipulating the market prices of the
shares of certain listed company on the stock
exchange by a group of persons working as a
syndicate for the purpose of providing entries
of tax exempt, bogus long term capital gains
to large number of beneficiaries in lieu of
unaccounted cash converting black money
into white without payment of tax.
The profit made from the sale of scrip
was multiple time the cost of the shares and
sale price was not supported by the financial
status of the company. The companies had
shown very meager profits and were mostly
loss making companies with negative earning
per shares. These unknown companies never
declared dividends and the Director’s report
did not show any projects or major events
8/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
done in the operation of the company that
would attract investors to trade in the scrip.
Same set of brokerages would be seen
selling and buying the shares and the sale
prices were increased with every trade and
trading was done by the same of brokers and
also the buyers who were not assessed to tax
and had not filed return of income but have
purchased large amount of shares. Even
those persons who had filed the return of
income had declared low income and all
buyers would have made losses on account of
trading in scrip. Statements recorded from
brokers/operators had admitted using shell
companies who were the buyers trading in
shares just to jack up the prices and to keep
the volume of trade going so as not to come
under the scanner of the SEBI. The buyers of
the shares from the beneficiaries were found
to have common directors and common
address and the shares were sold by the
members of same family and same surname
and same address or from the same town.
Once the operators started rigging the prices
of the shares through circular trading and
increase the price of the shares with the help
of brokers and bogus clients and arrived at
optimum amount over a period of time. Once
a period of one year was over (for claiming
exemption) under long term capital gains
under Section 10(38) the Operator asked the
beneficiary to deliver the unaccounted cash.
Once the unaccounted cash was delivered by
the beneficiary, then the same was routed by
the operator to the books of various
papers/bogus companies which ultimately
bought the shares belonging to the
9/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
beneficiary at a very high price and these
paper companies avoided direct cash trail.
Thereafter the operator used to instruct the
beneficiary to sell the shares with a
particular lot on a particular day and time.
In the present assessee’s case, the
assessee has originally purchased 450 shares
of face value of Rs.10/- each at Rs.200/- per
share amounting to Rs.90,000/- of Dhanlabh
Mercantile Ltd, Offline on 15.1.2010 from
M/s.Excellent Barter Ltd, Calcutta. The said
company was subsequently merged with
M/s.Bakra Prathisthan Ltd and 4500 shares
of M/s.Bakra Prathisthan Ltd., were allotted
to assessee at Rs.10/- per share. The assessee
sold 4500 shares of M/s.Baktra Prathisthan
Limited on 03.01.2012 for Rs.15,83,623/-,
which had acquired for Rs 90,000/-. The
assessee had not furnished any documentary
evidence to prove the genuineness of the
transaction in respect of purchase and sale of
shares. The assessee had not discharged the
onus cast upon him to prove the genuineness
of the transactions. The assessee had entered
into engineered transaction to generate
artificial long term capital gains and the
Explanation offered by the assessee
regarding the credit of Rs.15,86,250/- in its
book was found to be unsatisfactory and
therefore, the Assessing Officer held the same
as unexplained cash credit which was added
to the total income of the assessee as per the
provisions of Section 68 of the Act and
assessed under the head Income from other
sources.”
10/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
18. The above facts have been culled out
by the Assessing Officer as well as the CIT(A). If
such is the case, it is not known as to whether
there was any justification on the part of the
Tribunal to interfere with the order and that too,
by remanding the matter for a fresh consideration.
19. In the decision in the case of Sumati
Dayal Vs. CIT [reported in (1995) 214 ITR 0801],
the Hon'ble Supreme Court, while considering the
aspect regarding burden of proof relating to cash
credits, pointed out as follows:
“4. It is no doubt true that in all cases in
which a receipt is sought to be taxed as
income, the burden lies on the Department to
prove that it is within the taxing provision
and if a receipt is in the nature of income, the
burden of proving that it is not taxable
because it falls within exemption provided by
the Act lies upon the assessee. [See:
Parimisetti Seetharamamma (supra) at P.
536. But, in view of Section 68 of the Act,
where any sum is found credited in the books
of the assessee for any previous year the
same may be charged to income tax as the
income of the assessee of that previous year
if the explanation offered by the assessee
about the nature and source thereof is, in the
opinion of the Assessing Officer, not
satisfactory. In such a case there is, prima
facie, evidence against the assessee, viz., the
11/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
receipt of money, and if he fails to rebut, the
said evidence being unrebutted, can be used
against him by holding that it was a receipt
of an income nature. While considering the
explanation of the assessee the Department
cannot, however, act unreasonably. (See:
Sreelekha Banerjee (supra) at p. 120).”
20. The decision of the Hon'ble Supreme
Court in the case of Sumati Dayal was followed in
the decision of the High Court of Delhi in the case
of Sanjay Kaul Vs. PCIT [reported in (2020) 119
Taxmann.com 470] wherein it was held that
where the assessee was not a regular investor in
shares and had only invested in high risk stocks of
obscure companies with no business activity or
asset, which were identified as penny stocks, the
Assessing Officer had correctly concluded that the
assessee had entered into a pre-arranged sham
transaction so as to convert unaccounted money
into accounted money in guise of capital loss and
therefore, the alleged short term capital loss was
rightly disallowed.
21. A similar view was taken in the
decision of the High Court of Bombay in the case
of Sanjay Bimalchand Jain Vs. PCIT-1, Nagpur
12/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
[reported in (2018) 89 Taxmann.com 196]. In that
case, the assessee purchased shares of two penny
stock companies for a lower amount and within a
year, sold such shares at a higher amount. The
assessee had not tendered cogent evidence to
explain as to why shares in an unknown company
had jumped to such a higher amount in no time
and also failed to provide details of persons, who
purchased the said shares and the transaction was
held to be an attempt to hedge the undisclosed
income as long term capital gain.
22. In the decision in the case of Suman
Poddar Vs. ITO [reported in (2019) 112
Taxmann.com 329], the Delhi High Court upheld
the order of the Tribunal, which held that the share
transactions were bogus because the company,
whose shares were allegedly purchased, was a
penny stock. This decision was affirmed by the
Hon'ble Supreme Court in the decision reported in
(2019) 112 Taxmann.com 330.
23. In the decision of the Hon'ble
Supreme Court in the case of PCIT, Central Vs.
NRA Iron & Steel Private Limited [reported in
13/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
(2019) 412 ITR 0161], the issue, which fell for
consideration was as to whether in a case where
share capital/premium was credited in the books of
accounts of the assessee company, the onus of
proof was on the assessee to establish by cogent
and reliable evidence after identity of the investor
companies, the credit worthiness of the investors
and genuineness of transactions to the satisfaction
of the Assessing Officer. While answering the
issue, the Hon'ble Supreme Court, after referring
to its decisions in the case of Sumati Dayal and
CIT Vs. P.Mohankala [reported in (2007) 291
ITR 0278], held as follows:
“8.2. As per settled law, the initial onus
is on the assessee to establish by cogent
evidence the genuineness of the transaction,
and credit-worthiness of the investors under
Section 68 of the Act. The assessee is
expected to establish to the satisfaction of the
Assessing Officer [CIT Vs. Precision Finance
Pvt. Ltd. (1994) 208 ITR 465 (Cal.) :
• Proof of Identity of the creditors
• Capacity of creditors to advance
money; and
• Genuineness of transaction.
This Court in the land mark case of Kale
Khan Mohammad Hanif v. CIT [(1963) 50
ITR 1 (SC)] and Roshan Di Hatti v. CIT
[(1977) 107 ITR (SC) 938] laid down that
the onus of proving the source of a sum of
money found to have been received by an
14/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
assessee, is on the assessee. Once the
assessee has submitted the documents
relating to identity, genuineness of the
transaction and credit-worthiness, then the
AO must conduct an inquiry, and call for
more details before invoking Section 68. If
the assessee is not able to provide a
satisfactory explanation of the nature and
source of the investments made, it is open to
the Revenue to hold that it is the income of
the assessee and there would be no further
burden on the Revenue to show that the
income is from any particular source.
8.3. With respect to the issue of
genuineness of transaction, it is for the
assessee to prove by cogent and credible
evidence that the investments made in share
capital are genuine borrowings, since the
facts are exclusively within the assessee’s
knowledge.
The Delhi High Court in CIT v. Oasis
Hospitalities Pvt. Ltd. [333 ITR 119 (Delhi)
(2011)], held that :
“The initial onus is upon the assessee to
establish three things necessary to obviate
the mischief of Section 68. Those are: (i)
identity of the investors; (ii) their
creditworthiness/investments; and (iii)
genuineness of the transaction. Only when
these three ingredients are established prima
facie, the department is required to
undertake further exercise.”
It has been held that merely proving the
identity of the investors does not discharge
the onus of the assessee, if the capacity or
creditworthiness has not been established.
In Shankar Ghosh v. ITO [(1985) 23 TTJ
15/32
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
(Cal.) 20], the assessee failed to prove the
financial capacity of the person from whom
he had allegedly taken the loan. The loan
amount was rightly held to be the assessee’s
own undisclosed income.
8.4. Reliance was also placed on the
decision of CIT v. Kamdhenu Steel & Alloys
Limited and Others [(2012) 206 Taxman 254
(Delhi)] wherein the Court that :
“38. Even in that instant case, it is
projected by the Revenue that the Directorate
of Income Tax (Investigation) had
purportedly found such a racket of floating
bogus companies with sole purpose of
lending entries. But, it is unfortunate that all
this exercise if going in vain as few more
steps which should have been taken by the
Revenue in order to find out causal
connection between the case deposited in the
bank accounts of the applicant banks and the
assessee were not taken. It is necessary to
link the assessee with the source when that
link is missing, it is difficult to fasten the
assessee with such a liability.
.......
10. On the issue of unexplained credit
entries/share capital, we have examined the
following judgments :
i. In Sumati Dayal v. CIT [(1995) 214
ITR 801 (SC), this Court held that :
“if the explanation offered by the
assessee about the nature and source thereof
is, in the opinion of the Assessing Officer, not
satisfactory, there is prima facie evidence
against the assessee, vis., the receipt of
money, and if he fails to rebut the same, the
said evidence being unrebutted can be used
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
against him by holding that it is a receipt of
an income nature. While considering the
explanation of the assessee, the department
cannot, however, act unreasonably”.
ii. In CIT v. P. Mohankala [291 ITR
278], this Court held that:
“A bare reading of Section 68 of the
Income- tax Act, 1961, suggests that (i) there
as to be credit of amounts in the books
maintained by the assessee; (ii) such credit
has to be a sum of money during the previous
year ; and (iii) either (a) the assessee offers
no explanation about the nature and source
of such credits found in the books or (b) the
explanation offered by the assessee, in the
opinion of the Assessing Officer, is not
satisfactory. It is only then that the sum so
credited may be charged to Income-tax as the
income of the assessee of that previous year.
The expression “the assessee offers no
explanation” means the assessee offers no
proper, reasonable and acceptable
explanation as regards the sums found
credited in the books maintained by the
assessee.
The burden is on the assessee to take the
plea that, even if the explanation is not
acceptable, the material and attending
circumstances available on record do not
justify the sum found credited in the books
being treated as a receipt of income nature.”
(emphasis supplied)
iii. The Delhi High Court in a recent
judgment delivered in PR.CIT -6, New Delhi
v. NDR Promoters Pvt. Ltd. (410 ITR 379)
upheld the additions made by the Assessing
Officer on account of introducing bogus
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
share capital into the assessee company on
the facts of the case.
iv. The Courts have held that in the case
of cash credit entries, it is necessary for the
assessee to prove not only the identity of the
creditors, but also the capacity of the
creditors to advance money and establish the
genuineness of the transactions. The initial
onus of proof lies on the assessee. This Court
in Roshan Di Hatti v. CIT [(1992) 2 SCC
378], held that if the assessee fails to
discharge the onus by producing cogent
evidence and explanation, the AO would be
justified in making the additions back into
the income of the assessee.
v. The Guwahati High Court in Nemi
Chand Kothari v. CIT [(2003) 264 ITR 254
(Gau.)] held that merely because a
transaction takes place by cheque is not
sufficient to discharge the burden. The
assessee has to prove the identity of the
creditors and genuineness of the transaction:
“It cannot be said that a transaction,
which takes place by way of cheque, is
invariably sacrosanct. Once the assessee has
proved the identity of his creditors, the
genuineness of the transactions which he had
with his creditors, and the creditworthiness
of his creditors vis-a-vis the transactions
which he had with the creditors, his burden
stands discharged and the burden then shifts
to the revenue to show that though covered
by cheques, the amounts in question, actually
belonged to, or was owned by the assessee
himself.” (emphasis supplied)
vi. In a recent judgment the Delhi High
Court in CIT Vs. N.R.Portfolio (P) Ltd.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
[(2014) 42 Taxmann.com 339/222 Taxman
157 (Mag.) (Delhi) 21] held that the credit-
worthiness or genuineness of a transaction
regarding share application money depends
on whether the two parties are related or
known to each other, or mode by which
parties approached each other, whether the
transaction is entered into through written
documentation to protect investment, whether
the investor was an angel investor, the
quantum of money invested, credit-
worthiness of the recipient, object and
purpose for which payment/investment was
made, etc. The incorporation of a company,
and payment by banking channel, etc. cannot
in all cases tantamount to satisfactory
discharge of onus.
vii. Other cases where the issue of share
application money received by an assessee
was examined in the context of Section 68 are
CIT v. Divine Leasing & Financing Ltd.
[(2007) 158 Taxman 440] and CIT v. Value
Capital Service (P.) Ltd. [(2008) 307 ITR
334].
11. The principles which emerge where
sums of money are credited as Share
Capital/Premium are :
i. The assessee is under a legal
obligation to prove the genuineness of the
transaction, the identity of the creditors, and
credit-worthiness of the investors who should
have the financial capacity to make the
investment in question, to the satisfaction of
the AO, so as to discharge the primary onus.
ii. The Assessing Officer is duty bound to
investigate the credit-worthiness of the
creditor/subscriber, verify the identity of the
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
subscribers and ascertain whether the
transaction is genuine, or these are bogus
entries of name-lenders.
iii. If the enquiries and investigations
reveal that the identity of the creditors to be
dubious or doubtful, or lack credit- orthiness,
then the genuineness of the transaction
would not be established.
In such a case, the assessee would not
have discharged the primary onus
contemplated by Section 68 of the Act.
......
13. The lower appellate authorities
appear to have ignored the detailed findings
of the AO from the field enquiry and
investigations carried out by his office. The
authorities below have erroneously held that
merely because the Respondent Company –
assessee had filed all the primary evidence,
the onus on the assessee stood discharged.
The lower appellate authorities failed to
appreciate that the investor companies which
had filed income tax returns with a meagre
or nil income had to explain how they had
invested such huge sums of money in the
assessee Company - Respondent. Clearly the
onus to establish the credit worthiness of the
investor companies was not discharged. The
entire transaction seemed bogus, and lacked
credibility.
The Court/Authorities below did not
even advert to the field enquiry conducted by
the AO which revealed that in several cases
the investor companies were found to be
nonexistent, and the onus to establish the
identity of the investor companies, was not
discharged by the assessee.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
14. The practice of conversion of
unaccounted money through the cloak of
Share Capital/Premium must be subjected to
careful scrutiny. This would be particularly
so in the case of private placement of shares,
where a higher onus is required to be placed
on the assessee since the information is
within the personal knowledge of the
assessee. The assessee is under a legal
obligation to prove the receipt of share
capital/premium to the satisfaction of the AO,
failure of which, would justify addition of the
said amount to the income of the assessee.”
24. Bearing the principles laid down in
the decision of the Hon'ble Supreme Court in the
case of NRA Iron & Steel Private Ltd., in mind, if
we examine the order passed by the Assessing
Officer, we find that a detailed enquiry had been
conducted by the Assessing Officer after affording
an opportunity to the assessee. The assessee
availed the opportunity through written
submissions. The assessee was represented by an
authorized representative and thereafter a finding
had been rendered. The said finding was tested for
its correctness by the CIT(A), who approved the
same by order dated 07.8.2018.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
25. We refer to the following factual
findings rendered by the CIT(A) while dismissing
the appeal filed by the assessee :
“2.1. .......In response to notices, the AR
of the assessee Shri Omprakash Jain, B.Com,
FCA of Om Jain & Associates, Chartered
Accountants appeared and filed the details of
purchase of 450 shares of M/s.Dhanlabh
Merchandise Limited, later it was merged
with M/s.Bakra Pratisthan Limited and 450
shares converted into 4500 shares. In this
connection, the AR furnished the copy of sale
bill dated 15.1.2010 of M/s.Excellent Barter
Private Limited of Shaym Nagar WB 743127
wherein it is noticed that the assessee has
purchased 450 shares of Dhanlabh
Merchandise Limited @ Rs.200 each per
share for a consideration of Rs.90,000/-. But
the bill does not contain any distinctive
numbers and it was stated 'as per Demat
form'. The AR of the assessee also furnished
the copy of transaction report from Motilal
Oswal Securities as documentary evidence
for purchase of these shares and later
converted into M/s.Bakra Pratisthan Limited
on 28.12.2011.
.....
2.2........On the perusal of the same, it is
noticed that the closing balance as on
02.3.2010 was Rs.5,607/-. On 03.3.2010,
there was a credit entry of Rs.90,000/- and a
debit entry with narration 'manual chg'
Rs.90,000/-. As per the narration of the
bankers, it is manual cheque only and the
same was passed in clearing on the same day
by Calcutta base company. It is not at all
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
possible.
....
2.3. As it was held by the assessee the
shares of M/s.Dhanlabh Merchandise
Limited was purchased from M/s.Excellent
Barter Pvt. Ltd. Of Shaym Nagar WB
743127, a communication dated 28.9.2017
was sent to M/s.Excellent Batter Private
Limited calling for the following details
under Section 133(6) of the I.T. Act 1961. By
the examination of the details and the same
was returned unserved by the postal
authorities with remarks 'not known'.
......
Besides the above, the AR of the assessee
has not furnished any documentary evidences
with respect to the sale of shares of
M/s.Bakra Pratisthan Limited. Instead, he
furnished the bank account copy wherein on
03.1.2012, an amount of Rs.9,50,714/- was
credited in the bank with description 'RTGS-
NWFIX-FIT SECURITIES'. Considering the
above fact, it is concluded as under :
2.4. The purchase of 450 shares of
M/s.Dhanlabh Merchandise Limited is itself
a sham transaction for the following reasons:
1. Based on the details filed by the AR of
the assessee and the address was provided
the assessee the communication sent by this
office to M/s.Excellent Batters Private
Limited.
2. The postal remarks is 'not known' only.
The postal authorities did not mention that
the person left or something else. The word
'not known' means that the address itself
bogus or incorrect one.
3. Accordingly, it is established that
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
there is no such person in that address
having name M/s.Excellent Batters Private
Limited.
4. It is onus on the part of the assessee to
prove the genuineness of the transaction.
5. It is also noticed that the documentary
evidence filed by the assessee towards
payment made for purchase of shares also
not related to this transaction.
6. In the absence of the distinctive nos.,
in the sale bill dated 25.1.2010 of
M/s.Excellent Batters Pvt. Ltd., and hence, it
is not known that to whom the shares were
originally allotted and how the same was
subsequently transferred to the assessee for
that there is no documentary evidence
produced. The assessee HUF not furnished
the copy of name transfer application also.
7. It is also noticed from the AR of the
assessee's submission dated 15.11.2017 that
M/s.Excellent Batters P. Ltd., is a
shareholder of M/s.Dhanlabh Merchandise
Ltd., but there is no documentary evidence
was filed by him.
8. As the assessee HUF itself has stated
that the HUF is doing commodities trading,
why off market transaction for purchase of
shares not reported to BSE.
Considering the above fact findings, it is
established that the purchase of 450 shares of
M/s.Dhanlabh Merchandise Limited from
M/s.Excellent Barter Private Limited by the
assessee is itself a sham transaction.
Accordingly, the documentary evidence
furnished by the assessee towards purchase
of shares of 4500 M/s.Bakra Pratisthan
Limited is not a genuine one and hence, the
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
claim of exemption under Section 10(38)
towards selling of the same is not
entertained.
....
7.11. It can be seen from the client
statement of Shri Ashok Kumar Kayan that
not only the assessee but the following
members of the HUF family members have
also invested in the said impugned shares :
SNo Name PAN Amount
01 Karuna A Jain AGTPJ5140K 25,46,855
02 Abhishek Jain AEUPJ3242F 15,93,300
03 Abhishek M Jain HUF AAJHA1645J 15,86,250
04 Amit Kumar AEEPA9942F 15,86,250
05 Amit Kumar I Jain HUF AAJHA1641N 15,86,250
06 Hitesh M Jain HUF AADHH3539N 10,57,500
07 Mamta M Jain AFJPM4958B 9,52,290
08 Manish D Jain HUF AAJHM6100N 15,86,250
(assessee)
09 Nitin I Jain AEPPN8578R 15,86,250
10 Nitu Amit Jain AEZPJ1421K 22,21,695
11 Rajesh D Jain AEOPR8702G 15,93,300
12 Shilpa M Jain AGZPJ9692C 15,93,300
Total 1,94,89,490
From the above table, it is established that the entire
family involved in this operation to convert their black
money into white. It is a sham transaction only.
....
9. Considering the above factual
position as also the legal position, it is held
that the assessee has entered into an
engineered transaction to generate artificial
long term capital gains. As the explanation
furnished by the assessee regarding the
credits of Rs.15,86,250/- in its books is found
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
to be unsatisfactory, the same are hereby
held as 'unexplained cash credits' in the
books of the assessee and accordingly added
to the total income of the assessee in
accordance with the provisions of Section 68
of the IT Act, 1961 and assessed under the
head 'income from other sources' Penalty
proceedings under Section 271(1)(c) read
with Explanation 1 thereto are separately
initiated for furnishing the inaccurate
particulars of income with respect to the
claim of capital gain made in the light of the
findings made in the preceding paragraphs.
......
7.3.......However, in the present appeal,
the appellant purchased the shares of
M/s.Bakra Pratisthan Limited in off market.
During the course of the hearing on
24.7.2018, the AR admitted that the assessee
purchased the shares of M/s.Dhanlab
Merchandise Limited in off market.
.....
7.4. These shares were purchased
through off market and not through Stock
Exchange.
The notice under Section 133(6) dated
28.9.2017 sent by the Assessing Officer to
M/s.Excellent Barter Private Limited from
which the assessee had purchased the shares
of M/s.Dhanlab Merchandise Limited was
returned unserved with remark 'not known'.
Moreover, the assessee did not bring any
other material on record to establish the
genuineness of the purchase of shares.
M/s.Bakra Pratisthan Limited did not
pay dividend or did not issue bonus shares
during the period of holding of these shares
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
by the assessee corresponding to the increase
in the price of the share of M/s.Bakra
Pratisthan Limited. During this period, there
has been no corporate announcement by
M/s.Bakra Pratisthan Limited which suggests
that the company is undertaking any
substantial development activity.
The above facts were not disputed by the
appellant.
These facts clearly establish that the
share prices of M/s.Bakra Pratisthan Limited
were artificially hiked.
.....
7.6. In the present case also, the shares
were purchased through off market and not
through Stock Exchange and selling rates
were artificially hiked later on.”
26. The above findings will clearly show
that not only the Assessing Officer, but also the
CIT(A) examined the modus operandi of the
assessee and held that the shares were purchased
through off market and not through Stock
Exchange and that the selling rates were
artificially hiked later on. The above findings have
not been set aside by the Tribunal and there is no
reason for the Tribunal to remand the matter to
the Assessing Officer for a fresh consideration.
27. As pointed out in the decision of this
Court in the case of Cholamandalam MS General
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
Insurance Co., we find in the instant case that
there was no material, which necessitated the
remand of the case to the Assessing Officer and it
is a clear case where the Tribunal had failed to
exercise its jurisdiction in the manner known to
law. The Tribunal, being a last fact finding
Authority, is under the legal obligation to record a
correct finding of fact. It has been held in the
cases of
(i) M.R.M.Periyannan Chettiar Vs. CIT [reported
in (1960) 39 ITR 159 (Madras)]
(ii) V.Ramaswamy Iyengar Vs. CIT [reported in
(1960) 40 ITR 377 (Madras)]
(iii) Hindustan Sanitary Ware and Industries
Ltd. Vs. CIT [reported in (1978) 114 ITR 85
(Calcutta)]
(iv) CIT Vs. Ishwardass [reported in (1986) 158
ITR 168 (Delhi)] and
(v) CIT Vs. Harikishan Jethalal Patel [reported
in (1987) 168 ITR 472 (Gujarat)]
that the power to remand the case should be
exercised on judicial principles.
28. Further, in the decisions in the cases
of (i) United Commercial Bank Vs. CIT [reported
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
in (1982) 137 ITR 434 (Calcutta)]
(ii) Darjeeling Dooars Plantations Vs. CIT
[reported in (1988) 174 ITR 37 (Calcutta)] and
(iii) Siemens India Ltd. Vs. CIT [reported in
(1997) 226 ITR 801 (Bombay)],
it was held that where all the evidence had been
produced and the CIT(A), after full investigation
of the evidence and examination of the accounts,
had given a definite finding on the question in
issue, the Tribunal's order of remand was held to
be invalid.
29. Further, in the recent decision of the
Hon'ble Division Bench of this Court in the case
of Tharakumari Vs. ITO [TCA.No.128 of 2019
dated 11.2.2019], the appeal filed by the assessee
in a case relating to penny stock was dismissed
after noting the factual findings rendered by the
Assessing Officer, the CIT(A) and the Tribunal.
Thus, for all the above reasons, we hold that the
order passed by the Tribunal calls for
interference.
30. In the result, the above tax case
appeal is allowed, the impugned order passed by
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
the Tribunal is set aside and the substantial
questions of law framed are answered in favour of
the Revenue and against the assessee.
Consequently, the order passed by the CIT(A)
stands restored."
6. Since the Tribunal had followed the earlier decision, which has
been set aside in the above mentioned decision, the same has to be applied
in these cases as well.
7. Thus, the Tax Case Appeals are allowed and the impugned
orders are set aside. Consequently, the substantial questions of law are
answered in favour of the Revenue and against the assessees. No costs.
Connected miscellaneous petitions are closed.
(T.S.S.,J.) (R.N.M.,J.)
25.01.2021
Index: Yes/No
Internet:Yes/No
Speaking Judgment/Non speaking Judgment
hvk
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
To
1. The Income Tax Appellate Tribunal,
'C' Bench, Chennai.
2. The Commissioner of Income Tax
Chennai.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.438 to 445, 447 to 449 & 452 of 2020
T.S.SIVAGNANAM,J
AND
R.N.MANJULA,J
hvk
T.C.A.Nos.438 to 445, 447 to 449 & 452 of 2020
and
C.M.P.Nos.14047, 14049, 14060, 14101, 14102, 14104,
14107, 14138, 14139, 14140 & 14245 of 2020
25.01.2021
https://www.mhc.tn.gov.in/judis/
