IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.545/Ind/2010
AY: 2007-08
M/s Rajshree Finsec Private Limited Indore
PAN -AACCR-2644G .....Assessee
V/s.
Asstt.Commissioner of Income Tax
5(1), Indore .....Respondent
Assessee by : Shri S.N. Agrawal
Respondent by : Shri Arun Dewan
Date of hearing 11.01.2012
Pronounced on 06.02.2012
O R D E R
PER JOGINDER SINGH The assessee has preferred this appeal against
the order of the learned Commissioner of Income Tax (Appeals) dated 16.4.2010
on 7 grounds. However, ground nos. 1, 2, 5, 6 and 7 were not pressed at the
time of hearing. These grounds are, therefore, dismissed as not pressed. In
this scenario, the only grounds left for our consideration are ground nos. 3
and 4 to the effect that the learned Commissioner of Income Tax (Appeals) was
not justified in confirming the order of the Assessing Officer holding that the
sum of Rs. 30 lacs was assessable as cash credit of the assessee without
appreciating the fact that the said sum towards share application money cannot
be charged to income tax under section 68 of the Act.
2. During hearing, we have heard Shri S.N. Agrawal, learned
counsel for the assessee who submitted that identity of share subscribers/share
applicants has been proved, therefore, in view of the decision in the case of
decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. (2008)
172 Taxman 44, no addition u/s 68 of the Act could be made in the hands of the
present assessee, whereas the learned Senior DR, Shri Arun Dewan, defended the
impugned order.
3. We have considered the rival submissions and perused the material
available on file. Brief facts of the case are that the assessee company
declared total income of Rs.70,212/- in the return of income filed on 11.3.08.
The Assessing Officer issued notices u/s.143(2) on 18.9.08 which were served on the
assessee within the prescribed period. Thereafter, a detailed questionnaire
along with notice u/s.142(1) was issued on 28.7.2009 to the assessee which was
responded by the assessee.
During the course of assessment proceedings, after examining the
submissions of the assessee and the balance sheet, the Assessing Officer
observed that during the year under consideration, the assessee has shown
receipt of share application money from various companies as follows :-
S.No. Party's Name Address PAN No. Amount
1. Shrilal Traders Pvt. Ltd. 47, Bhupendra Bose Avenue, 2nd Floor,
Kolkata AAICS8140G 3,00,000/-
2. Lakeview Vinimay P. Ltd. 202, Jessore Road,Shyam
Lake Garden Block-B, Shop No.5, Kolkata AABCL1392G 10,00,000/-
3. Saharsh Suppliers Pvt. Ltd. 25B, Raja Raj Ballav
Street, Ground Floor, Kolkata AAICS5014K 7,00,000/-
4. Ambition Tie-up P. Ltd. 25B, Raja Raj Ballav Street,
Ground Floor, Kolkata AAFCA5571Q 10,00,000/-
Total 30,00,000/-
3.1 The Assessing Officer required the assessee to furnish
evidences regarding identity, creditworthiness and genuineness of the share
applicants. In response to the same, the assessee submitted details and
addresses of the companies from whom it has received share application money.
Later on, notices u/s 133(6) were issued to the above companies to file
confirmations, balance sheet and copies of bank accounts. But all the notices
returned back unserved with the remark 'not found'. Vide order sheet entry
dated 22.09.09, the assessee was confronted and also was asked to produce the share
applicants because no reply of the notices u/s 133(6) was received. However, on
27.10.09 the assessee filed the copies of assessee's bank accounts in two banks
and submitted that there was no other bank account of the assessee. He also
submitted that it is not practicable to produce the directors of the companies
of Kolkata. The assessee also did not produce the copies of the bank
statements of the share applicants. On 10.11.09 Shri Deepak Kalani, Director of
the company attended and his statement on oath was recorded and placed on
record.
During the course of statement of the director of the company, he
was asked vide question no. 9, to explain the reasons of investment in his
company by the share applicants, whereas the income of the was very low. In
reply, surprisingly, Shri Deepak Kalani could not provide any explanation
regarding these facts. The assessee also could not explain huge cash
deposits in the bank account of the company looking into the nature of his
business and submitted that he will provide clarification later. Meanwhile,
confirmations from the above share applicants were filed before the
Assessing Officer after two months from the date of issuance of notices u/s
133(6). It was noted by the Assessing Officer that one share applicant namely
M/s Lakeview Vinimay Pvt. Ltd. admitted that the shares have been allotted
before 31.03.07. The learned Assessing Officer was of the view that the
financial capacity of share subscribers was not sound, therefore, he opined
that it was the own money of the assessee. He was also of the view that the
transactions are only manipulated transactions. The learned Assessing Officer
was also of the view that it is a case of unaccounted income brought back into
the books of accounts of the assessee company in a systematic and organized
manner. He further observed that these companies have been used as mere conduit
companies for routing of unaccounted money into the business in the garb of
share application money. The source of share application money as received
by the assessee company was treated as not properly explained. The learned
Assessing Officer also observed that during the course of his statement, the
director has himself admitted that the all the share applicants are either his
friend or family members. The learned Assessing Officer was also of the opinion
that these companies have no business whatsoever and these companies have been
opened only for providing entries for share application money as well as
unsecured loans. These companies are nothing but dummy companies closely held
and acting on behalf of certain individuals, who are engaged in the business of
providing entries for share application money to various parties. For this
proposition, the Assessing Officer relied upon the decision of Hon'ble Madhya
Pradesh High Court in the case of Commissioner of Income Tax Vs. Rathi Finlease
Ltd.; 215 CTR (MP) 249 and decision of Hon'ble Calcutta High Court in the case
of Commissioner of Income Tax Vs. Nividen Vanijya Niyojan Ltd.; 182 CTR (Cal)
605.
3.3 In view of the above, the Assessing Officer observed that
since, the assessee has failed to prove the identity, genuiness and
creditworthiness of the share applicants, the share application money of
Rs.30,00,00/-
,as received by the assessee, in the year under consideration, is
liable be added to the income of the assessee under section 68 of the Income
Tax Act, 1961.
3.4 Felt aggrieved with the above action of the Assessing Officer,
the assessee approached the learned Commissioner of Income Tax (Appeals), who
required the assessee to furnish further explanation and lead evidences. The
assessee filed detailed written submissions, in which it gave details of the
share applicants i.e. address, PAN and has referred to further documentary
evidences filed and compliances made by such share applicants before Assessing
Officer is in response to notice u/s.133(6) issued. Copies of balance sheet of
the assessee company for the year under consideration as well preceding two
years and subsequent years were also filed and it was emphasized that the
Directors of the assessee company Mr. Deepak Kalani and Pankaj Kalani CAs, were
born and brought up in Kolkatta before coming to Indore and thus they were
having business and social contacts at Kolkatta and the company being promoted
by seasoned CAs having varied experience in finance and banking sector with
strong business connections and was engaged in the business of loan syndication
to corporate clients apart from business and investment activities.
3.5 It was also submitted that the decisions relied upon by the
Assessing Officer were not applicable to the facts of the case and again
emphasis was made to documentary evidences filed and receipt of money from
banking channel. It was contended that the Assessing Officer failed to
appreciate that in the facts of the assessee's case considering the
compliance made, provision of section 68 should not have been attracted and
reliance has been placed on the Hon'ble Supreme Court decisions in the cases of
CIT vs. Steller Investment Limited (2001) 251 ITR 263 (SC) and CIT Vs. Lovely
Exports (P) Ltd. (2008) 172 Taxman 44.
3.6 On consideration of the above facts and the submissions made
by the learned counsel for the assessee, the learned Commissioner of Income Tax
(Appeals) observed as under :-
"4.01 Coming to the facts of the case, the AO has clearly
brought out relevant facts in the assessment order. The assessee miserably
failed to explain and establish the soundness of the decision made by such
alleged share applicants for making such substantial investment in the assessee
company and some totally vague and unconvincing explanation was offered in this
behalf. The AO has clearly made out a case that the share applicant companies
were merely paper companies and were not genuine existing legal entities having
the financial worth to have made such investment in the assessee company. It is
further interesting to note that an amount of Rs.19,02,500/- which was shown as
share application money pending allotment on balance-sheet date 31.3.07
continued to be so reflected till the end of next F.Y 31.3.08 and was reduced
to Rs.18,30,000/- as on 31.3.09 there being no increase in share capital which
stood unaltered at Rs.9,52,000/-.
The very fact that the huge amount of share application money was
shown as outstanding as such without making necessary allotment of share itself
speaks about the financial affairs and the nature of assessee's activity in the
matter of managing such share application money. It is also worthwhile to note
that in the written submissions a lot has been said about experience, contacts
of the Directors and the varied nature of the business activities. But Profit
before Income tax for A.Y. 2007-08, 2008- 09 and 2009-10 stood at Rs.58,643/-,
1,68,493/- and loss at Rs.3,35,051/- after considering huge F&O loss at
Rs.32,98,314/- during F.Y. 2008-09.
4.02 The assessee in support of credit worthiness of share
applicant Companies have referred to their net worth as on 31.03.07 as under:
(a ) Shri Lal Traders (P.) Ltd., Kolkata 317.31 lakhs
(b) Lake View Vinimay Ltd., Kolkata 424.58 lakhs
(c) Saharsh Suppliers Pvt. Ltd., Kolkat 385.71 lakhs
(d) Ambison Tie Up Pvt.Ltd., Kolkat 289.02 lakhs A closer
examination of the Balance sheets & P & L A/cs of the aforesaid
Companies for the year ended 31.03.2007 reveal the following:
A) Shri Lal Traders (P) Ltd.
(i) Share capital stands at Rs.16.80 lakhs and Reserve &
Surplus at Rs. 300.52 lakhs and Application of Funds is made in Investment at
Rs.284.46 lakhs and Loans and advances at Rs. 31.03 lakhs. The entire
investment is made in Unquoted Pvt. Ltd. Companies . Note worthy among them are
two of the above named share applicants itself namely Amsition Tie Up Pvt.
Ltd. Rs.1.85 lakhs Lake View Vinimay Pvt.Ltd. Rs.4.37 lakhs
(ii) Profit & Loss A/c reveals that on sale and other
receipts (Rs.72 lakhs + 30,886 interest on TDS ) final result is loss of
Rs.3,198/-, line of business is stated as Trading in shares. Absolutely no
income is accounted from either Investments or Loans & advances, which
clearly suggests that these are accommodation entries entries only. (Copy of
Balance sheet, P & L A/c schedule to Balance sheet/ &
Investment details included Paper book on pages 26, 27, 28 & 33 are
annexed to the appeal order as Annexure A 1 to A 4).
B. Lake View Vinimay Ltd.
(i) Share capital stands at Rs.2,,17,500/- and Reserve &
Surplus stand at Rs.402.412 lakhs. The application of funds reveal Investment
of Rs.261.99 lakhs and Loans & advances at Rs.165.31 lakhs. Investments
are made entirely in Pvt. Ltd. Cos. and there is cross Investment of
Rs.1,90,000/- in Sri Lal Traders Pvt. Ltd. against investment of Rs.4.37 lakhs
made in this Company by Srilal Traders Pvt. Ltd. as noticed above.
(ii) P. & L. A/c reveal that on sale of Rs.46.52 lakhs and
interest on loans at Rs.1,20,000/- , final net profit stands at Rs. 14,032/-
only on such huge share holders funds of Rs.24.58 lakhs. Details of loans and
advances again reveal that loans stand at Rs.10 lakhs and further advances are
given for shares at Rs.154.95 lakhs. No income whatsoever is accounted from
such huge investment in shares and advances given for shares exceeding Rs.4
crores which clearly suggests that these are only accommodation entries.
(Copy of Balance sheet, P.&L. A/c and Investment details
as included in Paper book at page 84, 85, 86 and 91 enclosed at Annexure B 1 to
B 4).
C) Saharsh Suppliers Pvt.Ltd.
(i) Share capital stands at Rs.20,22,000/- and Reserve &
Surplus stands at Rs.364.50 lakhs , Investment stands at Rs.301.39 lakhs and
Loans and advances at Rs.137.88 lakhs, in Unquoted Pvt. Ltd. Companies and one
noteworthy investment is the investment in one of the share applicants'
Ambition Tie Up P. Ltd. at Rs.5 lakhs. Other major portions of Loans and
advances is against consists of Advance for shares at Rs.106.00 lakhs and loans
stands at Rs.21.43 lakhs only.
(ii) The Company with such huge networth of nearly Rs. 4 Crores is
having sales of Rs.13.19 lakhs only and interest on loans is reflected at
Rs.2.35 lakhs and in the final results there is a loss and is no income is
accounted for on investment in shares and advances given for shares which exceeds
Rs.4 crores. (Copy of Balance sheet, P.& L. A/c and Schedule to
Balance sheet and details of advance as included in Paper book at Page 180,
181, 182 and 187 are enclosed at Annexure C-1 to C-4). D) Ambition Tie Up
P.Ltd.:
(i) Share capital stands at Rs.15.40 lakhs and Reserve &
surplus stands at Rs.273.62 lakhs Investment in Unquoted Pvt. Ltd. companies
stands at Rs.445.08 lakhs. The Company on sales of Rs.46.65 lakhs and interest
of Rs.1.68 lakhs has earned net profit of Rs.3093 /- only and absolutely no
income is accounted for from unquoted investments in Pvt. Ltd. Company which
stands at Rs.4.45 crores and which again clearly suggests that there are only
accommodation entries given. (Copy of Balance sheet and Investment details as
included in Paper book at page 243, 244, 245 and 248 are enclosed with
appeal order as Annexure D-1 to D-4).
The common feature which emerges from the above discussion is that
all these Companies had broadly made entire investments in unquoted Pvt. Ltd.
Companies from which no income whatsoever is being earned and even these
Companies had cross investment in other Company and the turn over is not
commensurate with the net worth of the Company and in these Companies there is
either loss or negligible profit and is no worthwhile taxes have been paid by
these Companies, commensurate with their net worth. Again most common striking
similarity is Reserve & Surplus is more than 15-18 times of share
capital, which in turn suggests that these companies have also raised share
capital on substantial premium from dummy share holders / accommodation
entries. It can thus be safely concluded that all these four companies are
fictitious paper companies only.
4.1 Now, the legal contentions are examined. It is worthwhile to
note that the observation made by Hon'ble Supreme Court while dismissing SLP in
the case of Lovely Exports as has been reported as judgment delivered by the
CTR at 216 CTR 295 has been simply stated to be dismissal of SLP in the oldest
and still considered to be most leading and reliable Indian Tax Reporter on
page 319 ITR 5,6 (statute) in following manner.
"Share application moneys received by company 11.1.2008-
Their Lordships S.H. Kapadia and B. Sudershan Reddy JJ dismissed the
Department's special leave petition against the judgment dated November 16,
2006 of the Delhi High Court in I.T.A No.953 of 2006 reported in 299 ITR 268,
whereby the High Court affirmed the deletion by the Tribunal of additions made
on account of sums received from directors of promoters and also by way of a
public issue. The court while dismissing the special leave petition held as
follows: "Can the amount of share money be regarded as undisclosed income
under section 68 of the Income tax Act, 1961? We find no merit in this special
leave petition for the simple reason that if the share application money is
received by the assessee-company from alleged bogus shareholders, whose names
are given to the AO, then the Department is free to proceed to reopen their
individual assessments in accordance with law. Hence, we find no infirmity with
the impugned judgment.' CIT v. Lovely Exports Pvt. Ltd. SLP (Civil) No.1153 of
2008." (emphasis supplied) There is no mention of admission / acceptance
of SLP filed by the Department, nor issue of notices to opposite parties and
thus SLP has been dismissed in limine without being admitted.
4.1.1 The aforesaid observations were made by Hon'ble Supreme
Court, while dismissing SLP filed by the Department against judgment in CIT V.
Divine Leasing & Finance Ltd., 299 ITR 268 (Del.) wherein it was held
as under "No question of law, far less any substantial question of law
arises for our consideration. We may, however, briefly reflect upon a
submission made by learned counsel for the respondent to the effect that the
assessee had, by its letter dated March 8, 1999, requested the Assessing
Officer to examine the assessment records of the share applicants whose GR Nos.
had been supplied. It is not controverted that action was not taken by the
Assessing Officer, but it has justifiably been contended that this inaction was
due to paucity of time left at that stage since the assessment had to be framed
by March 31, 1999. It has been pointed out that several adjournments had been
granted by the Assessing Officer on the asking of the assessee. The timing of
the assessee's said letter is most suspect. Generally speaking, it is incumbent
on the Assessing Officer to manage his schedule, while granting adjournments,
in such a manner that he does not run out of time for discharging the duties
cast on him by the statute. In the present case, the details had been furnished
to the Assessing Officer much before March 1999, but he failed to react to the
shifting of the burden to investigate into the creditworthiness of the share
applicants. Therefore, the appeal is dismissed."
(emphasis provided ) 4.1.2 Further Hon'ble Delhi High Court has
observed in the same judgment on page 278 of the report -
" Returning to Sophia Finance [1994] 205 ITR 98 (Delhi) the
Full Bench which was now presided over by B.N.Kirpal J. (as the Chief Justice
of India then was) had enunciated that section 68 reposes in the Income-tax
Officer or the Assessing Officer the jurisdiction to inquire from the assessee
the nature and source of the sum found credited in its books of account. If the
explanation offered by the assesee is found not to be satisfactory further
enquiries can be made by the Income-tax Officer himself, both in regard to the
nature and the source of the sum credited by the assessee in its books of
account, since the wording of section 68 is very wide. The full Bench opined
that (page 105): "If the shareholders exist then, possibly, no further
enquiry need be made. But if the Incometax Officer finds that the alleged
shareholders do not exist then, in effect, it would mean that there is no valid
issuance of share capital. Shares cannot be issued in the name of non-existing
persons ... If the shareholders are identified and it is established that they
have invested money in the purchase of shares then the amount received by the
company would be regarded as a capital receipt... but if .... the assessee
offers no explanation at all or the explanation offered is not satisfactory
then, the provisions of section 68 may be invoked." It will at once become
obvious that the court had not reflected upon the questions as to: the party on
whom; the extent to which; and the point of time when the onus could ,if at
all, justifiably said to have shifted. This becomes clear from the last para on
page 105 of the report.
This will depend on the facts of each case." It has been
argued, but without substance, that the Full Bench did not go further than
holding that the only responsibility on the assessee is to identify the
subscriber; or that the Assessing Officer was not required to delve into the
credit-worthiness of the
subscriber; or that the Assessing Officer need not be satisfied
about the genuineness of the transaction."
"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 Revenue'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."
4.1.3 Proceeding further, the Hon'ble Delhi High Court, in its
later decision in the case of CIT V. Himalaya International Ltd. 214 CTR (Del)
437 where the decision in the case of Divine Leasing (supra) was considered ,
has held "Since, in the present case, the Tribunal has not gone into
creditworthiness of the creditors and genuineness of the transaction, it is a
fit case which ought to be remanded to the Tribunal to give its finding on
these two issues."
4.1.4 Now, the provisions of section 68 of I.T.Act, which remain
totally unaltered and unamended in more than 46 years of its existence on
statute, reads as under:
" 68 Cash Credits Where any sum is found credited in the
books of an assessee maintained for any previous year, and the assessee offers
no explanation about the nature and source thereof or the explanation offered
by him is not, in the opinion of the Assessing Officer, satisfactory, the sum
so credited may be charged to income tax as the income of the assessee of that
previous year."
4.1.5 The proposition of law laid down is very clear and
well-established by various judicial decisions. The landmark judgment
elucidating the nature of onus cast u/s.68 on an assessee is that of Shankar
Industtries v. Addl.CIT (1978) 114 ITR 689 (Cal.). The principle laid down is
to be found on page 698 in the following words:
"We would like to observe that the law on this point is now
well settled. It is necessary for the assessee to prove prima facie the
transaction which results in a cash credit in his books of account. Such proof
includes proof of the identity of this creditor, the capacity of such creditor
to advance the money and, lastly, the genuineness of the transaction. These
things must be proved prima facie and only after the assessee has adduced
evidence to establish prima facie in the aforesaid, the onus shifts on the
department. In the instant case, it seems that the assessee established only
the identity of the creditor and nothing more." (emphasis provided) Thus,
the initial burden cast by section 68 on an assessee involves these things to
be [cumulatively] proved prima facie. The condition of cumulatively proving all
three ingredients is clear from the use of the words "These things"
in the ratio reproduced above.
4.1.6 Coming to the use of the words "proved prima
facie" in the ratio reproduced above, it may be made clear that the Law
Lexicon compiled by T.P. Mukherjee incorporates the meaning of the words from
the cited decisions as below:
"PRIMA FACIE. Even an obiter dictum of the Federal Court is
binding upon the High Court and when a Superior Court held that an Act if
"prima facie prospective" it is not open to subordinate courts to
canvass the import or implication of that dictum. The use of the word
"prima facie" would indicate that there is no possibility of an
alternative construction being put on the Act, for it is on the face of it prospective-
Nand Kishore v. Sukti Dibya, A.I.R 1933 Ori. 240 at 243: I.L.R 1953 24: 19
C.L.T.44".
4.1.7 Reverting back to the decision of the Hon'ble Calcutta High
Court in the Shankar Industries case, the concept of shifting of onus from the
assessee on to the AO and thereafter, could also be found elaborated in this
decision. The Hon'ble Court reproduced following extracts, from its own
decision in an unreported case of Knitting Machineries Syndicate (India) Pvt.
Ltd. v. CIT decided on 6.9.1972, on pages 697 and 698 of the report:
"we find that by a series of decisions of different High
Courts as well as of the Supreme Court it has been consistently laid down that
when an assessee claims that he has borrowed money from a third party the
initial onus lies on the assesee to establish (a) the existence of the third
party; (b) the ability of the third party to advance moneys; and (c) that prima
facie the loan is a genuine one. The assessee by proving these facts discharges
the onus upon him. But that does not prevent the authority concerned to probe
further into the matter and to investigate the case on materials available to
the authority to come to an independent and unbiased finding as to the
genuineness of the transaction. It is true that the tax authority is not entitled
to reject the assessee's case summarily or arbitrarily or without sufficient
reason. It is true that the authority's duty is to examine all the materials
carefully and objectively. But it is found that the authority concerned after
careful consideration of all relevant materials has come to the conclusion that
the assesee's case of a loan from a third party cannot be accepted it is not
open to this court to disturb the finding in reference under section
66(1)."
This precisely provides the concept of "shifting of
onus" in a case covered by section 68 of the Act. 4.1.8 If the above
principles of statutory onus on an assesee u/s.68 and of the shifting of such
onus from the assessee on to the AO are applied to any case including the
present assessee's case, the following position shall emerge. Prima facie proof
of the three ingredients and that too cumulatively shall have to be examined at
three different stages one after the other but if an assessee fails to
establish at the first stage, the identity of the creditor itself, there is no
question of an AO examining the matter at the second stage of ensuring and
satisfying himself of the capacity of the creditor to advance the moneys and
nor therefore, the AO examining the matter at third stage of ensuring and
satisfying himself of the genuineness of the transaction. Had the assessee
established prima facie the de facto existence of a creditor company, even then
the onus lay on the assessee to further establish certain things because
non-production of documentary evidence of corroborative value invites adverse
inference against the person who ought to have produced it [CIT v. Krishnaveni
Ammal (1986) 158 ITR 826 (Mad)]. When the asessee is pressing into service only
the legal or dejure identity of a creditor and not at all coming up with any
evidence of the de facto existence of the creditor company, he has completely
failed even to prima facie establish the de facto existence of the creditor
company. The de jure existence is a mere convenient façade of the de facto
existence of the creditor company. Such de jure existence is self serving one,
having been obtained through application and other forms and formalities
unilaterally filed before the ROC. Such self serving evidences are also not
entertained by courts as in the case of Bansidhar Agrawal Panna v. CIT , MP II
(1984) 148 ITR 523 (MP). Hence such legal evidence is no more than a mirage
because of AO's findings about non-existence of such companies at given
addresses despite field enquiries made and repurchase of shares issued to both
such Kolkata based companies on same date i.e. on 10.12.08 by Shri Suresh Mehta
(16000 shares) , Smt. Anita Mehta (10000 shares) at Rs.10 i.e. face value on
common date 10.12.08 at 10% of the price at which such shares were offered
nearly 1 year back and there being no such event in intervening period to
warrant diminution in value of company by 90%.
Thus, it is clear that whether the explanation offered by the
assesee is satisfactory proof of the credits is a question of fact and the
finding of the authority that it is a satisfactory explanation is a finding of
fact. The present assessee assessee is running away from the AO in the matter
of establishing the matter of factly existence of share capital contributing
companies and taking shelter to legal contentions only.
4.1.9 On such facts, there is no question of the AO again rushing
on its own to the banks where also accounts are opened in the such company's
names. Further, the identity, capacity and genuineness aspects are not water
tight compartments. An assessee's explanation of the nature and source of the
credits cannot be entertained and held by the AO as satisfactory unless and
until the ground reality i.e. the de facto existence of the creditor is first
established prima facie paving the way for the AO to examine further the
capacity and genuineness aspects. Hence merely based on arranged affairs and
supporting documents, the identity cannot be said to be established, and in any
case NOT the CAPACITY and GENUINENESS of transaction. The AO as discussed above
has clearly established the two individuals to benami persons on behalf of one
of the Director.
4.2 It has been further established by a series of decisions that
the conclusion whether a cash credit in the books of account of an assessee is
properly explained or not is a question of fact [CIT V.S.Nelliappan (1967) 66
ITR 722 (SC); CIT V. Manick Sons (1969) 74 ITR 1, 6(S ). Also see, Jadunandan
Sahu Deokisanram V. CIT (1984) 16 ITR 175 (Pat); Hari Chand and Prem Chand Bassi
V. CIT (1974) 94 ITR 557 (Delhi); Lakshmiratan Cotton Mills Co. Ltd. V.
CIT(1972) Tax LR 585(All); Ram Kumar Jalan V.CIT. Further, whether the
explanation offered by the assessee is a satisfactory proof of the nature and
source of the cash credits is a question of fact and the finding of the
authority that it is a satisfactory explanation is a finding of fact [CIT V.
Ghewarchand Kamalkumar (1977) 108 ITR 398 (Ori); R.Dalmia V. CIT(1978) 113 ITR
522(Del.) 4.2.1 Further reference in this respect may be made to often referred
and relied decision of Hon'ble Supreme Court in the case of CIT V. Orissa
Corporation Pvt. Ltd. 159 ITR 78 Wherein also it was held " that in this
case the respondent had given the names and address of the alleged creditors It
was in the knowledge of the Revenue that the said creditors were income tax
assessee. Their index numbers were in the file of the Revenue. The Revenue,
apart from issuing notices under section 131 at the instance of the respondent,
did not pursue the matter further. The Revenue did not examine the source of
income of the said alleged creditors to find out whether they were
creditworthy. There was no effort made to pursue the so-called alleged
creditors. In those circumstances, the respondent could not do anything further.
In the premises, if the Tribunal came to the conclusion that the respondent had
discharged the burden that lay on it, then it could not be said that such a
conclusion was unreasonable or perverse or based on no evidence. If the
conclusion was based on some evidence on which a conclusion could be arrived
at, no question of law as such arose. The High Court was right in refusing to
state a case." (emphasis supplied) 4.2.2 It is further settled position of
law that no burden lies on the Department to show that other source of income
was derived from a particular source. Where there is an unexplained cash
credit, it is open to the Assessing Officer to hold that it is income of the
assessee and no further burden lies on the Assessing Officer to show that income
is from any particular source. It is for the assessee to prove that even if the
cash credit represents income, it is income from a source which has already
been taxed [CIT V. Devi Prasad Vishwanath Prasad, (1969) 72 ITR 194(SC); CIT V.
Madhavnagar Cotton Mills Ltd. (1976) 104 ITR 493 (Bom); Roshan Di Hatti V. CIT
(1977) 107 ITR 938 (SC); CIT V. Daluram Pannalal Modhi (1981)129 ITR 398(MP)].
For the purpose of bringing such amount to tax, the enquiry whether the income
was from a business activity or from other sources is not relevant [CIT V.
Durga Prasad More(1969) 72 ITR 807 (SC)].The principle laid down in CIT V. M.
Ganapathi Mudaliar [(1964) 53 ITR 623 (SC)], that once it is found that a
receipt by the assessee was income of the assessee it is not necessary for the
revenue to locate its exact source applies alike to cases in which an entry is
found in the books of accounts of the assessee as to cases in which no entry is
found [CIT V.Durga Prasad More (1969) 72 ITR 807(SC)].
4.3 Thus, to recapitulate, the correct position that emerges is
that onus lies on the assessee to establish identity and creditworthiness of
the loan/cash credits and genuineness of the transaction and in each case it
has to be decided on consideration of totality of facts and circumstances of
the case whether such onus has been discharged by the assessee or not and there
is no burden on the AO to link up or establish the source of such credit to the
known sources or activities in any manner. In view of such clear proposition of
law, it has to be examined whether aforesaid brief decision of Hon'ble Supreme
Court in Lovely exports(supra) dismissing the SLP simpliciter after condoning
delay with brief observation can be read and understood as laying down the
proposition of law as canvassed by the assessee / assessees that even if the
contributions of share capital is / are bogus / by non existent persons /
entity of no means, no addition can be made in the hands of the assessee/
assessee company, whether such sum are found credited as contribution to share
capital /share application money in the name of non-existent / bogus persons/
entity of prima facie no means or doubtful creditworthiness.
4.3.1 Before proceeding further, it will be appropriate to examine
the preposition of law laid down in various Supreme Court decisions itself to
the effect as to what constitutes the law laid down where SLP is dismissed
without formulating the substantial question of law and recording arguments of
both the sides of such substantial question of law in deciding the appeals.
(a) Hon'ble Supreme Court in the case of V.M.Salgaonkar &
Bros Pvt. Ltd. 243 ITR 383 (SC), Held:
"When a appeal is dismissed by the Supreme Court by a
non-speaking order, the order of the High Court or the Tribunal from which the
appeal arose, merges with that of the Supreme Court. In such a case, the
Supreme Court upholds the decision of the High Court or the Tribunal from which
the appeal is provided under clause (3) of article 133 of the
Constitution"
(b) Hon'ble Supreme Court in the case of Kunhayammed and others V.
State of Kerala 245 ITR 360 considered the point in issue about the doctrine of
merger held that once a S.L.P. has been granted, the doors for the exercise of
appellate jurisdictions of this Court have been let open. The order impugned
before Supreme Court became an order appealed against. Any order passed
thereafter would be an appellate order and would attract the applicability of
the doctrine of merger. It would not make a difference whether the order is of
reversal or of modification or of dismissal affirming, the order appealed
against. It would also not make any difference. Hon'ble Supreme Court while
summing up the conclusions, Held:
" (i) "Where an appeal or revision is provided against
an order passed by a court, tribunal or any other authority before a superior
forum and such superior forum modifies, reverses or affirms the decision put in
issue before it, the decision by the subordinate forum merges in the decision
by the superior forum and it is the latter which subsists, remains operative
and is capable of enforcement in the eye of law.
(ii) The Jurisdiction conferred by article 136 of the Constitution
is divisible into two stages. The first stage is up to the disposal if the
prayer for special leave to file an appeal. The second stage commences if and
when the leave to appeal is granted and the special leave petition is converted
into an appeal.
(iii) The doctrine of merger is not a doctrine of universal or
unlimited application. It will depend on the nature of jurisdiction exercised
by the superior forum and the content or subject-matter of challenge laid or
capable of being laid shall be determinative of the applicability of merger.
The superior jurisdiction should be capable of reversing, modifying or
affirming the order put in issue before it. Under article 136 of the
Constitution, the Supreme Court may reverse, modify or affirm the judgment
decree or order appealed against while exercising its appellate jurisdiction
and not while exercising the discretionary jurisdiction disposing of a petition
for special leave to appeal. The doctrine of merger can, therefore be applied
to the former and not to the latter.
(iv) An order refusing special leave to appeal may be non-speaking
order or a speaking one. In either case it does not attract the doctrine of
merger. An order refusing special leave to appeal does not stand substituted in
place of the order under challenge. All that it means is that the court was not
inclined to exercise its discretion so as to allow the appeal being filed.
(v) If the order refusing leave to appeal is a speaking order,
i.e. gives reasons for refusing the grant of leave, then the order has two
implications. Firstly, the statement of law contained in the order is a
declaration law by the Supreme Court within the meaning of article 141 of the
Constitution.
Secondly, other than the declaration of law, whatever is stated in
the order are the findings recorded by the Supreme Court, which would bind the
parties thereto and also the court, tribunal or authority in any proceedings
subsequent thereto by way of judicial discipline, the Supreme Court being the
apex court of the country, But this does not amount to saying that
the order of the court, tribunal or authority below has stood merged in the
order of the Supreme Court rejecting the special leave petition or that the
order of the Supreme Court is the only order binding as res judicata in
subsequent proceedings between the parties.
(vi) Once leave to appeal has been granted and the appellate
jurisdiction of the Supreme Court has been invoked the order passed in appeal
would attract the doctrine of merger; the order may be of reversal;
modification or merely affirmation.
(vii) On an appeal having been preferred or a petition seeking
leave to appeal having been converted into an appeal before the Supreme Court
the jurisdiction of the High Court to entertain a review petition is lost
thereafter as provided by sub-rule (1) of rule I of Order XLVII of the code of
Civil- Procedure." (Emphasis Provided)
(c) Hon'ble Supreme Court in the case of S. Shanmugavel Nadar, 263
ITR 658 (SC) by following the decision in the case of Kunhayammed and other
(supra) Held:
"Though loosely an expression " merger of judgment,
order of decision of a court or forum into the judgment, order or decision of a
superior forum" is often employed, as a general rule, the judgment or order
having been dealt with by a superior forum and having resulted in confirmation,
reversal or
modification, what merges is the operative part, i.e. the mandate
or decree issued by the court which may have been expressed in positive or
negative form. The application of the doctrine depends on the nature of the
appellate or revisional order in each case, the scope of the statutory
provisions
conferring the appellate or revisional jurisdiction and the
content and subject matter of challenge laid or which could have been laid.
Apart altogether from the merits of the grounds for rejection, the
mere rejection by a superior forum resulting in refusal to exercise its
jurisdiction which is invoked cannot by itself be construed as the imprimatur
of the superior forum on the correctness of the decision sought to be appealed
against.
Article 141 of the Constitution of India speaks of declaration of
law by the Supreme Court: for a declaration of law there should be a speech,
i.e. a speaking order. A decision which is not express and is not founded on
reasons nor on consideration of the issues, cannot be deemed to be a law
declared, to have binding effect as is contemplated by article 141. A summary
dismissal by the Supreme Court, without laying down any law, is not a
declaration of law envisaged by article 141.
When reasons are given the decision of the Supreme Court would be
binding on all courts within the territory of India: when no reasons are given,
dismissal simpliciter is not a declaration of law by the Supreme Court. "
(Emphasis provided) 4.3.2 Further, the Hon'ble Supreme Court has
held in the case of CIT V. Sun Engineering Pvt. Ltd. 198 ITR 297 as under:
" It is neither desirable nor permissible to pick out a word
or a sentence from the judgment of the Supreme Court divorced from the context
of the question under consideration and treat it to be the complete law
declared by the court. The judgment must be read as a whole and the
observations from the judgment have to be considered in the light of the
questions which were before the court. A decision of the Supreme Court takes
its colour from the questions involved in the case in which it is rendered and
while applying the decision to a later case, courts must carefully try to
ascertain the true principle laid down by the decision."
4.3.3 Still further, the Hon'ble Supreme Court in the case of
Padma Sundara Rao (Deceased) and others v. State of Tamil Nadu and Others 255
ITR 147 as emphasized " The court cannot read anything into a statutory
provision which is plain and unambiguous. A statute is the edict of the
Legislature. The language employed in a statute is the determinative factor of
legislative intent. The first and primary rule of construction is that the
intention of the legislation must be found in the words used by the Legislature
itself.
Courts should not place reliance on decisions without discussion
how the factual situation fits in with the fact situation of the decision on
which reliance is placed. There is always peril in treating the words of a
speech or judgment as though they were words in a legislative enactment.
Judicial utterances are made in the setting of the setting of the facts of
particular cases. Circumstantial flexibility, one additional or different fact
may make a world of difference between conclusions in two cases."
4.3.4 Now it is to be noticed that Hon'ble M.P. High Court in its
latest and recent Judgment on the issue in the case of CIT V. Rathi Finlease
Ltd. 215 CTR (MP) 429 has held as under:
" Without considering that the payments were made by each
creditors by first depositing a sum of Rs. 5,00,000/- and then issuing a cheque
for the purchase of the shares and that the companies were not found to be in
existence, the Tribunal has hastened to come to the conclusion that addition
was not justified. In coming to this conclusion, the Tribunal has observed that
since AO had himself examined the bank accounts of three subscribing companies
and found that there were numerous transactions, the genuineness of the
transaction could not have been assailed. Section 68 enjoined the assessee to
offer an explanation about the nature and source of the sum found credited in
his books and if the explanation was not satisfactory, the amount can be
credited and charged to income as income of the assessee. Since the assessee,
though tried to explain the genuineness of the credit on the basis of letters
of confirmation, it could not be explained as to how the transaction was
materialized when the companies were not in existence and the amount was paid
by cheque only on the date on which the amount was credited to the account of
the company. It was for the assessee to discharge this burden. Therefore, the
assessee failed to discharge the burden with regard to the credit in its book
and the existence of the creditors to indicate the genuineness of the
transaction -
CITV. Steller Investment Ltd. (2000) 164 CTR(SC)287 (2001) 251
ITR4 263(SC) and CIT V. Antartica Investment (P) Ltd. (2003) 179 CTR (Del) 526:
(2003) 262 ITR 493(Del) distinguished."
4.3.5 It may be recalled that similar contentions were advanced
from the side of assessee/assessees placing reliance on the judgment of Hon'ble
Supreme Court in the case of CIT V. Stellar International Ltd. 251 ITR 263(SC)
which has been considered by Hon'ble M.P. High Court in arriving at the
aforesaid conclusions. Thus, it has to be necessarily concluded that it will
have to be considered and decided in every case by a quasi judicial authority
involving application of provision of section 68 in the matter of contribution
of share capital / share application money whether the onus case on the
assessee / assessees has been discharged or not in accordance with law on
appreciation of totality of evidence available on record and surrounding facts
and circumstances of the case. It may also be noted that Hon'ble Supreme Court
in the case of CIT V. P. Mohankala 291 ITR 278 (SC) while examining the
provisions of section 68 has held that when the explanation offered by assessee
is not found to be satisfactory and proper that will be a case of offering no
explanation by the assessee. In this case while in its earlier two decisions
namely CIT V. Durgaprasad More 82 ITR 540 and Sumati Dayal V. CIT 214 ITR 801,
the Hon'ble Supreme Court has clearly laid down the preposition of law that in appreciating
documents, evidence and evidence on record, the Court can not be oblivious to
the surrounding facts and circumstances of the case and human probabilities.
Therefore, the assessee assessee cannot derive any support from the decision of
the Hon'ble Supreme Court in the case of Lovely Exports & Other
(supra.) and for that matter much support from other reported decision except
to the extent of broad preposition of law as analysed and discussed above.
4.4 The detailed legal contention of the assessee have been
examined above. Now reverting back to the facts of the case, the assessee is a
private limited company.
4.5 Section 3 of Companies Act, 1956, defines "private
company" as under:
(iii) "private company" [means a company which has a
minimum paid up capital of one lakh rupees or such higher paid up capital as
may be prescribed, and by its articles,-]
(a) restricts the right to ......
(b) limits .............
© Prohibits any invitation to the public to subscribe for any
shares in, or debentures of, the company:
(d) Prohibits....] ........ as a single member Clause (c) as
above, makes it clear that the subscribers to shares of private company cannot
be from public. It, therefore, follows that the subscribers to shares of
private company can be only private persons. Such private persons must
invariably be persons of confidence and acquaintance of directors of private
company and there should be normally, no difficulty in producing them before
the AO. And in case, they are not produced, the natural corollary is that the
real position is not the same as emerges form papers and documents furnished in
this behalf.
The company very tactfully and intelligently has tried to overcome
the condition of inviting subscription from public. In reply to query from this
office to establish genuineness of transaction, it has been admitted by the
Assessee that no dividend was distributed and such share applicant companies
are found to be dummy / paper companies as discussed in para 4.02 above.
Further, investment of almost entire networth by all the four share applicant
companies in Pvt.Ltd. companies, that too at premium, where from neither was
return is assured, nor safety of investment was guaranteed, not to speak of
capital appreciation and lastly such investment being totally illiquid, defies
all logic and rational of conventional investment decision making process. Such
investment decision can not be taken by any genuine company, who would be
interested in both protecting its investment and earning a decent return on
such investment. Thus, it has to be necessarily concluded that these companies
engaged them selves in providing bogus share capital by way of accommodation
entries to wiling tax evaders.
4.5.1 From the facts available, it prima facie transpires that the
company itself contacted these alleged investors to utilize their names in the
garb of prospective share holders. No proof of making any correspondence or
inquiry with the company by these investors before investing in shares of the
company has been produced on record despite specific requisition even in appeal
proceedings.
4.6 It will be appropriate to take notice of the commonly known
notorious facts about the modus operandi of the converting unaccounted funds by
the Promoters and Directors of the company by first inviting such share
application from willing dubious entities and then acquiring back the same at
an agreed price which is normally too low compared to the issue price and there
being no rational for selling of such shares for such low price by the initial
contributors. Reference can be made to the following decisions:
(a) CWT v. Rohtas Industries Ltd., 67 ITR 283 (SC), wherein it was
held that "In the absence of any direct evidence, a judicial or
quasi-judicial Tribunal can base its conclusions on the basis of what are known
as notorious facts bearing in mind the principles of section 144 of the
Evidence Act."
(b) Attar Singh Gurmukh Singh v. ITO 191 ITR 667(SC) wherein,
while interpreting the provisions of section 40A(3), it was held that "In
interpreting a taxing statute, the court cannot be oblivious of the
proliferation of black money which is under circulation in our country."
4.7 Before concluding, it will be only proper to take note of the
following recent decisions from Hon'ble ITAT, where in even after taking note
of the decision of Hon'ble Supreme Court in the case of Lovely Exports (Supra),
it has been held that onus still rests on the assessee to establish
genuineness of share application transactions besides establishing
Identity & Credit worthiness of such share applicants. AO's power and
duty to investigate the reality and genuineness of transactions has also been
recognized and emphasized.
I. GOLD LEAF CAPITAL CORPORATION OF INDIA LTD. VS JCIT 308 ITR
(AC) 94 (DELHI) II. ITO VS CHANDIGARH THEATERS (P.) LTD 125 TTJ (CHD) III.
MOTLAY FINANCE (P.) LTD VS ACIT- ITAT INDORE BENCH. (ITA NO. 96/IND/48 DECIDED
ON 28/01/07)
4.8 Thus, on overall consideration of the facts and circumstances
of the case and as discussed in detail above, the amounts claimed to be
received by the assessee do not in any way appear to be genuine share capital.
They are nothing but arranged affairs being pre-ordained series of transactions
and tax evasion device where money laundering transactions have been camouflaged
as share application money. Hence no credence can be placed on the copies of
various documents filed to support such claim of share capital contribution and
addition of Rs.30 lakhs is hereby confirmed."
4. We have considered the rival submissions and perused the
material available on file. Under the aforementioned facts/observations made in
the assessment order/impugned order and the assertion made by the learned
respective counsels, during hearing the learned counsel for the assessee
invited our attention to the reply dated 5.12.2011 (page 465 of the paper book)
to the effect that summons (page 463) were issued to the share applicants,
requiring certain information u/s 131 of the Act, the share applicants duly
confirmed that Srilal Traders Private Limited (share applicants) gave Rs. 3
lacs to the assessee during financial year 2006-07 as share application money
through cheque no. 295383 dated 28.4.2006 drawn on HDFC Bank, Calcutta, meaning
thereby the identity of the share applicants was proved.
It is further noted that the summons sent u/s 131 dated 28.11.2011
to the share applicants were duly received, therefore, it can be said that
their address was also confirmed. The share applicants have also filed the
copies of the bank statements. Likewise, summons dated 28.11.2011 were also
issued to Lake View Vinimay Private Limited which were duly received and vide
reply dated 3.12.2011 addressed to the Dy. Director of Income Tax
(Investigation) they duly confirmed payment of Rs. 10 lacs vide cheque no. 126786
and 126785 both dated 26.4.2006 (each Rs. 5 lacs) and the said reply is duly
acknowledged by the office of the Directorate of Income Tax Department
(Investigation), Kolkata, on 5th December, 2011. The share applicants have also
furnished copies of bank statements along with acknowledgement of the return.
The summons were also issued on 28.11.2011 to Saharsh Suppliers Private
Limited, which were duly received, and confirmation was also filed with the
Directorate of Income Tax (Investigation) on 7th December, 2011 as is evident
from the seal of the department affixed on these papers. That party also filed
the confirmation letter confirming the payment of Rs. 7 lacs through account
payeed cheque no. 000036 dated 28.4.2006. We further find that the summons dated
28.11.2011 issued to Ambition Tie Up Private Limited were duly served by the
department and in compliance thereof, they confirmed the payment of Rs.10 lacs,
in the form of share application money vide cheque dated 24.4.2006 along with
copy of bank statement and copy of acknowledgement of filing of income tax
return. All these documents clearly prove their identity if the summons would
not have been received or the addresses of the share applicants would have been
fake, there was no question of service of summons and consequent reply by such
share applicants. Under these facts, it can be said that their identity is
proved. In view of these facts, the decision from Hon'ble Apex Court in
the case of Lovely Exports Private Limited, 18 ITJ 717 clearly comes to the
rescue of the assessee, the relevant portion of the same is reproduced
hereunder :-
""Share application moneys received by company
11.1.2008- Their Lordships S.H. Kapadia and B. Sudershan Reddy JJ dismissed the
Department's special leave petition against the judgment dated November 16,
2006 of the Delhi High Court in I.T.A No.953 of 2006 reported in 299 ITR 268,
whereby the High Court affirmed the deletion by the Tribunal of additions made
on account of sums received from directors of promoters and also by way of a
public issue. The court while dismissing the special leave petition held as
follows: "Can the amount of share money be regarded as undisclosed income
under section 68 of the Income tax Act, 1961? We find no merit in this special
leave petition for the simple reason that if the share application money is
received by the assessee-company from alleged bogus shareholders, whose names
are given to the AO, then the Department is free to proceed to reopen their
individual assessments in accordance with law. Hence, we find no infirmity with
the impugned judgment.' CIT v. Lovely Exports Pvt. Ltd. SLP (Civil)
No.1153 of 2008." (emphasis supplied) If the aforesaid conclusion drawn by
the Hon'ble Apex Court is kept in juxtaposition with the facts of the present
appeal, it can be said that the identity of share applicants was proved. In
view of these facts, it can be said that if the department still finds such
applicants to be bogus, they are free to reopen their individual assessments
but certain no addition can be made u/s 68 of the Act in the hands of the
assessee company.
5. During hearing the learned Senior DR contended that the issue
is covered by the decision of the Tribunal in the case of M/s Agrawal Coal
Corporation decided by this Bench on 31st October, 2011 in ITA Nos.
151/Ind/2009, 283, 136 and 34/Ind/2010, 190/Ind/09, 158/Ind/2010 etc. We are
not agreeing with this proposition because in that case the identity of such
share applicants was not proved and even the addresses of such share applicants
were found non-existent/bogus.
In view of those facts, this Bench concluded that the decision
from Hon'ble Apex Court pronounced in Lovely Exports Private Limited is not
applicable and the addition was confirmed in the hands of the assessee.
However, in the present appeal, since the identity of such share
subscribers, as we have discussed above, was established, therefore, no
addition u/s 68 is warranted in the case of the assessee company. So far as the
decision from Hon'ble jurisdictional High Court in the case of CIT vs. Rathi
Finlease Limited (2008) 215 CTR (MP) 249 is concerned, in that case, despite
several opportunities, the assessee was unable to provided confirmations from
the concerned parties, therefore, the Hon'ble Court reached to a particular
conclusion, whereas in the present appeals, the identity of share applicants,
namely, M/s. Shrilal Traders Private Limited, M/s Lakeview Vinimay Private
Limited, M/s Saharsh Suppliers Private Limited and M/s Ambitions Tie Up Private
Limited was established, therefore, in view of the decision from Hon'ble
Apex Court in the case of Lovely Exports Private Limited (supra), this judicial
decision from Hon'ble High Court may not help the revenue.
6. So far as the argument of the learned Sr. DR and the
objections/observations of the learned Assessing Officer/learned Commissioner
of Income Tax (Appeals) that these are paper companies only, the contention
raised on behalf of the assessee is that the net worth (as on 31.3.2007) of
such share subscribers is Rs. 317.31 lacs, Rs. 424.58 lacs, Rs. 385.71 lacs and
Rs. 289.01 lacs. We are not going on the issue of worth of these share
applicants because the Hon'ble Apex Court in the case of Lovely Exports Private
Limited (supra) held that even if such share applicants are bogus, but their
identity is proved, then no addition is warranted in the case of the assessee.
So far as the decisions cited in the impugned order are concerned, in view of
the decision from Hon'ble Apex Court in the case of Lovely Exports (supra), has
remained for academic interest only, being on different facts, therefore, we
are refraining ourselves in dealing with each and every case individually,
especially in the light of the evidences, filed by the assessee, evidencing
that the identity of such share applicants was very much proved by further
filing of confirmation by them.
7. In view of these facts, the decision from Hon'ble Apex Court in
Lovely Exports (supra) and uncontroverted fact that the summons issued to the
impugned share applicants were duly received by them with further filing of
confirmation by such share applicants, at least their identity is proved,
therefore, this appeal of the assessee deserves to be allowed.
Finally, the appeal of the assessee is allowed.
Order pronounced in open Court on 6th February, 2012.
Sd
sd
(R.C. SHARMA)
(JOGINDER SINGH)
ACCOUNTANT MEMBER
JUDICIAL MEMBER
February 6, 2012
Copy to Appellant/Respondent/CIT/CIT(A)/DR Dn/-
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