The DCITAhmedabad Circle-1, Ahmedabad V. Aman Fabrics Pvt. Ltd., Ahmedabad

ITA 1572/AHD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50698 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R B RATHI
• Keywords: Unexplained cash credit; Income from undisclosed sources; Principle of natural justice; Set aside
• Section: 142(1); 133(6); 143(1); 195; 143(2); 207; 131; 68; 27

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH CAHMEDABAD BEFORE S/SHRI D. K. TYAGI, J.M. AND A. K. GARODIA, A.M. ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 INCOME-TAX OFFICER, WARD 1(1), AHMEDABAD. VS. AMAN FABRIC (P) LTD., 207-208, SHREE MAHAVIR CLOTH MARKET, DIWAN BALLUBHAI ROAD, KANKARIA, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI VINOD TANWANI, SR.DR RESPONDENT BY:- SHRI R. B. RATHI, AR DATE OF HEARING :16/9/2011 DATE OF PRONOUNCEMENT : 7/10/2011. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT (A) DATED 20/04/2011, RAISING FOLLOWING GROUND :- (1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.39,60,000/- WHICH WAS TREATED AS UNEXPLAINED CAS H CREDIT U/S 68 OF THE I.T. ACT. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF TRADING IN CLOTH. THE ASSESSEE E-F ILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,25,871/- ON 12.10.20 07. THE SAME WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961 ON 23.01 .2009 AT THE RETURNED ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 2 INCOME. THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS AND ACCORDINGLY A NOTICE U/S 143(2) OF THE ACT DATED 17 .08.2008 WAS ISSUED AND DULY SERVED UPON THE ASSESSEE COMPANY. A NOTICE U/S 142(1) OF THE ACT WITH DETAILED QUESTIONNAIRE WAS ISSUED AND SERV ED UPON THE ASSESSEE COMPANY. IN RESPONSE TO THE SAID NOTICES ASSESSEE F URNISHED THE DETAILS CALLED FOR. ASSESSEE ALSO PRODUCED BOOKS OF ACCOUNT S AND DOCUMENTS WHICH WERE VERIFIED. FROM THE RECORDS THE AO NOTICE D THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN TU RNOVER OF RS.21,71,65,749/- AND DECLARED GROSS PROFITS OF RS. 44,52,202/- WHICH IS 2.05% OF THE TURNOVER WHEREAS IN THE IMMEDIATELY PR ECEDING YEAR I.E. ASST. YEAR 2006-07 THE ASSESSEE HAD DECLARED GROSS PROFIT OF RS.3,74,445/- WHICH WAS 4.45% ON THE TURNOVER OF RS .84,13,728/-. FROM THE BALANCE SHEET AS ON 31.03.2007, THE AO NOTICED THAT THE ASSESSEE COMPANY HAD RAISED ITS ISSUED & SUBSCRIBED SHARE CA PITAL FROM RS.1,00,000/- IN THE IMMEDIATELY PRECEDING YEAR TO RS.14,20,000/- DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IN ORDER T O VERIFY THE GENUINENESS OF THE TRANSACTIONS/CREDITWORTHINESS OF THE SHARE APPLICANTS, VIDE NOTICE DATED 29.09.2009 ISSUED U/S 142(1) SERV ED UPON THE ASSESSEE- COMPANY IT WAS REQUESTED TO FURNISH THE COPIES OF ACCOUNTS/ADDRESSES/PANS OF THE PERSONS TO WHOM SHAR ES WERE ALLOTTED DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO RE QUESTED TO FURNISH COPIES OF SHARE APPLICATION FORMS AND THE CONFIRMAT IONS OF THE RESPECTIVE PERSONS TO WHOM SHARES WERE ALLOTTED. HOWEVER, VIDE SUBMISSION DATED 13.10.2009 THE ASSESSEE COMPANY DID NOT FURNISH THE COPIES OF ACCOUNTS AND CONFIRMATIONS OF THE PERSONS TO WHOM THE SHARES WERE ALLOTTED DURING THE YEAR. THE ASSESSEE FURNISHED ONLY A LIST SHOWIN G THE NAMES/ADDRESSES/PANS AND THE AMOUNTS OF THE SHARE A PPLICATION MONEY RECEIVED FROM THEM ALONG WITH THE COPIES OF THE SHA RE APPLICATION FORMS. FROM THE DETAILS FURNISHED IT WAS REVEALED THAT THE SHARE APPLICATION ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 3 MONEY HAD BEEN RECEIVED IN JUNE, 2006. IT WAS ALSO REVEALED THAT THE SHARE OF THE FACE VALUE OF RS.10/- EACH WAS ISSUED BY THE ASSESSEE- COMPANY WITH A PREMIUM OF RS.20/- PER SHARE. THE AO NOTED THAT THE ASSESSEE COMPANY IS A PRIVATE LIMITED COMPANY AND N OT A PUBLIC LIMITED COMPANY LISTED WITH A STOCK-EXCHANGE. THE SHARE APP LICATION MONEY OF RS.30/- PER SHARE WAS RECEIVED FROM THE FOLLOWING P ERSONS :- NAME ADDRESS NO. OF SHARES TOTAL AMT.RECD.RS. ATUL L. TATHOD- HUF B-1/2, SHAYONA CITY, GHATLODIA, AHMEDABAD 12000 360000 ATUL L. RATHOD- INDL. -DO- 10000 300000 KAMLABEN L. RATHOD -DO- 10000 300000 NEELA A RATHOD -DO- 8000 240000 CHAMPADEVI P. DAYAL 123, SARVODAYNAGAR, GHATLODIA, AHMEDABAD. 8000 240000 DINDAYAL R. TRIVEDI -DO- 10000 300000 LILAVATI D. SHARMA -DO- 10000 300000 PRAYADARSHAN SHARMA -DO- 10000 300000 ARVINDKUMAR PAREEK 68/815,PANCHVATI APT., SOLA, AHMEDABAD. 10000 300000 SHYAMSUNDAR ARVINDKUMAR- HUF -DO- 10000 300000 SARITA A PAREEK -DO- 10000 300000 GIJUBHAI K MAKWANA 23/267, AKASHDEEP APT., VADAJ, ABAD. 8000 240000 SUSHILABEN J PARIKH 101, AKASHDEEP APT., AMBAVADI, ABAD. 8000 240000 SUDHABEN K. JOSHI 30-B, VASUKI SOC., VASNA, AHMEDABAD 8000 240000 TOTAL 132000 39,60,000 ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 4 SINCE THE ASSESSEE DID NOT FURNISH THE COPIES OF AC COUNTS OF THE RESPECTIVE PERSONS AND THEIR CONFIRMATIONS, VIDE ORDER SHEET E NTRY DATED 14.10.2009 THE ASSESSEE WAS AGAIN REQUESTED TO FURNISH THE REQ UISITE DETAILS. THE DETAILS WERE TO BE FURNISHED ON THE NEXT DATE OF HE ARING FIXED FOR 10.11.2009 AT 4.30 PM. HOWEVER, THE ASSESSEE REQUES TED TO GIVE ADJOURNMENT TO FURNISH THE DETAILS CALLED FOR. THER EFORE, THE HEARING WAS REFIXED ON 23.11.2009 AT 12.00 PM. ON 23.11.2009 TH E ASSESSEE FURNISHED COPIES OF ACCOUNTS OF THE PERSONS FROM WHOM SHARE A PPLICATION MONEY WAS RECEIVED BUT DID NOT FURNISH THEIR CONFIRMATION S. ACCORDINGLY TO ASCERTAIN THE EXISTENCE OF THE PERSONS, GENUINENESS OF THE TRANSACTIONS AND THE CREDITWORTHINESS OF THE PERSONS, SUMMONS U/S 13 1 WERE ISSUED BY THE AO ON 27.11.2009 TO ALL THE 14 PERSONS TO WHOM THE SHARES WERE ALLOTTED. ALL THE SUMMONS WERE SERVED ON THE RESPECTIVE PERSO NS ON THE SAME DAY EXCEPT IN THE CASES OF SUSHILABEN J. PARIKH AND SUD HABEN K. JOSHI TO WHOM THE SUMMONS WERE SERVED ON 30.11.2009. THE PER SONS WERE REQUESTED TO APPEAR PERSONALLY ON 9.12.2009 -10.12. 2009 ALONG WITH COPIES OF BANK STATEMENTS, SHARE APPLICATION FORMS FOR THE SHARES OF THE ASSESSEE COMPANY, RECEIPT & COMPUTATION OF INCOME F OR THE RETURNS OF INCOME FILED FOR THE ASST. YEAR 2007-08 WITH THE CO PIES OF PAN CARD, TO EXPLAIN THE INCOME EARNING ACTIVITIES WITH NECESSAR Y PROOF AND TO PRODUCE BOOKS OF ACCOUNTS FOR THE FY 2006-07, IF MAINTAINED . HOWEVER, NO ONE ATTENDED ON THE APPOINTED DATES NOR ANY WRITTEN SUB MISSIONS WERE RECEIVED FROM THEM. HOWEVER, ON THE NEXT DATE OF HEARING HELD ON 24.12. 2009 THE ASSESSEE DID NOT PRODUCE ANY OF THE SHARE APPLICANTS PERSONALLY FOR VERIFICATION AND FURNISHED THEIR CONFIRMATORY LETTERS ONLY WITH COPI ES OF THEIR BANK PASSBOOKS AND THE RECEIPTS AND THE COMPUTATION OF I NCOME FOR THE RETURNS OF INCOME FILED FOR THE ASST. YEAR 2007-08. ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 5 THE AO STATED THAT THE SUBMISSION OF THE ASSESSEE W AS CONSIDERED VERY CAREFULLY AND THE SAME WAS REJECTED AS IT WAS NOT T ENABLE IN THE EYES OF LAW. THE SHARE APPLICATION MONEY ALONG WITH THE SHA RE PREMIUM AMOUNTING TO RS.39,60,000/- HAD BEEN CREDITED IN TH E BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY WHICH THE ASSESSEE WAS CALL ED UPON TO EXPLAIN BY ADDUCING THE NECESSARY EVIDENCE BY PRODUCING THE SHARE APPLICANTS PERSONALLY FOR VERIFICATION ALONG WITH THE REQUISIT E DETAILS CALLED FOR. BEFORE CALLING UPON THE ASSESSEE TO PRODUCE THEM PE RSONALLY FOR VERIFICATION, IN ORDER TO VERIFY THE TRANSACTIONS S UMMONS U/S 131 WERE ISSUED BY THE AO TO THE SHARE APPLICANTS TO ATTEND HIS OFFICE ALONG WITH THE DETAILS OF THE SHARE APPLICATION MONEY MADE IN THE SHARES OF THE ASSESSEE COMPANY WITH THE DETAILS OF THEIR INCOME E ARNING ACTIVITIES, COPIES OF BANK ACCOUNTS ETC. AND IT HAD BEEN DULY M ENTIONED IN THE SUMMONS ISSUED TO THEM THAT THEY HAD BEEN SUMMONED IN CONNECTION WITH THE PROCEEDINGS UNDER THE INCOME-TAX ACT IN CA SE OF THE M/S AMAN FABRICS (P) LTD. OF AHMEDABAD FOR ASST. YEAR 2007-0 8 AND THEY WERE REQUESTED TO FURNISH THE COPIES OF SHARE APPLICATIO N FORMS FOR THE SHARES PURCHASED BY THEM IN M/S AMAN FABRICS (P) LTD. THUS , THE CONTENTION OF THE ASSESSEE THAT THE SHARE HOLDERS DID NOT ATTEND BECAUSE THEY DID NOT HAVE THE KNOWLEDGE OF THE MATTER IS WITHOUT ANY BAS IS. FURTHER THE SUMMONS HAD BEEN SERVED ON THE SHARE APPLICANTS PER SONALLY ON THEIR ADDRESSES BY THE INSPECTOR AND THEIR SIGNATURES/FAM ILY MEMBERS SIGNATURE HAD BEEN OBTAINED ON THE OFFICE COPY OF THE SUMMONS . REGARDING THE CONTENTION OF THE ASSESSEE THAT SUMMONS U/S 131 IS SUCH AN INSTRUMENT THAT IT SHOULD NOT BE ISSUED WITHOUT THINKING THE S ERIOUSNESS OF THE MATTER, IT MAY BE MENTIONED THAT THE ASSESSEE HAD SHOWN CRE DITS TO THE TUNE OF RS.39,60,000/- IN ITS BOOKS OF ACCOUNTS FOR THE YEA R UNDER CONSIDERATION IN RESPECT OF THE SHARE APPLICATION MONEY RECEIVED FRO M 14 PERSONS WHO THE ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 6 ASSESSEE HAD NOT CLAIMED TO BE EITHER FRIENDS OR RE LATIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY AND THE SHARES OF THE FACE VALUE OF RS.10/- EACH WERE ISSUED AT A PREMIUM OF RS.20/- PER SHARE. IT I S BEYOND COMPREHENSION THAT A PERSON WOULD INVEST IN THE SHA RES OF A PRIVATE LIMITED COMPANY AND NOT A PUBLIC LIMITED COMPANY LI STED IN A STOCK EXCHANGE WHICH IS BEING ISSUED AT A PREMIUM OF RS.2 0/- HAVING THE FACE VALUE OF RS.10/- PER SHARE PARTICULARLY WHEN HE IS A PERFECT STRANGER TO THE COMPANY AS IT HAS NEVER BEEN SHOWN/CLAIMED BY THE A SSESSEE THAT ANY OF THE PERSONS WERE EITHER FRIENDS OR RELATIVES OF THE DIRECTORS OF THE COMPANY. THEREFORE, IT WAS NEEDED THAT THE GENUINEN ESS OF THE TRANSACTIONS AND PARTICULARLY THE CREDITWORTHINESS OF THE PERSONS WHO HAD ACQUIRED SHARES OF RS.10/- EACH AT A PREMIUM OF RS. 20/- PER SHARE WERE TO BE ASCERTAINED IN ORDER TO ASCERTAIN IN ORDER TO LO OK INTO THE GENUINENESS OF THE TRANSACTIONS. HOWEVER NOT A SINGLE PERSON OU T OF THE 14 RESPONDED TO THE SUMMONS AND IT WAS EVEN STRANGE THAT INSTEAD OF DISCHARGING THE ONUS OF PROVING THE GENUINENESS OF THE CREDITS APPE ARING IN THE BOOKS OF ACCOUNTS SATISFACTORILY, THE ASSESSEE DID NOT EVEN ATTEMPT TO DISCHARGE THE ONUS BY PRODUCING ANY OF THE SHARE APPLICANTS PERSO NALLY FOR VERIFICATION ALONG WITH THE REQUISITE DETAILS CALLED FOR. THE AS SESSEE-COMPANY CANNOT BE ALLOWED TO TAKE SHELTER BEHIND QUOTING THE PANS AND FURNISHING THE COPIES OF RETURNS OF INCOME FILED BY THE SHARE APPL ICANTS. MERELY FILING THE PANS AND COPIES OF RETURNS OF INCOME FILED BY T HE SHARE APPLICANTS MAY PROVE THE IDENTITY OF THE SHARE APPLICANTS BUT IT DOES NOT IN ANY CASE, PROVE THE CREDITWORTHINESS OF THE PERSONS WHO HAD A CQUIRED THE SHARES OF RS.10/- EACH WITH A PREMIUM OF RS.20/- PER SHARE NO R DOES IT PROVE THE GENUINENESS OF THE TRANSACTIONS AS CLAIMED BY THE A SSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMP ANY WAS ALSO REQUESTED TO STATE THE BASIS OF FIXING THE AMOUNT O F SHARE PREMIUM, BUT THE QUESTION HAS REMAINED UNANSWERED THROUGHOUT THE PRO CEEDINGS. ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 7 FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. ORISSA CORPORATION (P) LTD. 159 ITR 78 THE AO ISSUED SUMMO NS BUT NONE ATTENDED. EVEN AFTER BRINGING THE FACT TO THE NOTIC E OF THE ASSESSEE, THE ASSESSEE HAD NOT PRODUCED A SINGLE PERSON FOR VERIF ICATION. SPECIFIC EFFORTS WERE BEING MADE BY ISSUE OF SUMMONS ONLY FO R THE PURPOSE OF VERIFICATION OF THE CREDITWORTHINESS OF THE SHARE A PPLICANTS AND THE GENUINENESS OF THE TRANSACTIONS. THEREFORE, WHEN TH E ASSESSEE WAS INFORMED OF NON-ATTENDANCE OF THE PARTIES, IT WAS T HE ONUS OF THE ASSESSEE TO PRODUCE THEM TO DISCHARGE ITS OBLIGATION U/S 68, WHICH IT HAD FAILED TO DO SO. MERELY FILING OF CONFIRMATION LETTERS IS NOT ENOUGH TO PROVE GENUINENESS OF THE CASH CREDITS AS HAS BEEN HELD IN THE CASE OF CIT VS. KORLAY TRADING CO. LTD. 232 ITR 820. THE AO FURTHER STATED THAT THE CONFIRMATORY LETTERS OF ALL THE SHARE APPLICANTS ALONG WITH THE COPIES OF THEIR BANK STAT EMENTS AND THE RECEIPTS FOR THE RETURNS OF INCOME FOR THE ASST. YEAR 2007-0 8 FILED BY THE ASSESSEE COMPANY VIDE ITS SUBMISSION DATED 22.12.2009 FURNIS HED ON 24.12.2009 HAD BEEN SCRUTINIZED. THE AO STATED THAT IT IS VERY STRANGE THAT THOUGH THE SHARE APPLICANTS RESIDE IN DIFFERENT LOCALITIES OF THE CITY, THE SAME CONFIRMATORY LETTERS WITH THE SAME FONTS AND FORMAT S HAVE BEEN USED BY ALL THE SHARE APPLICANTS TO FURNISH THEIR CONFIRMAT IONS TO THIS OFFICE. THE CONFIRMATORY LETTERS GO DITTO TO DITTO THE SAME WAY WITHOUT ANY VARIATION. THEREFORE, THE AO DOUBTED THE CREDITWORTHINESS OF A LL THE SHARE APPLICANTS. ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 8 THE AO FURTHER STATED THAT IT IS WELL ESTABLISHED T HAT THE ONUS OF PROVING THE SOURCE OF ANY MONEY RECEIVED BY ASSESSEE IS UPO N HIM. IT HAS BEEN POINTED OUT BY THE HONBLE SUPREME COURT IN THE CAS E OF CIT VS. DEVI PRASAD VISHWANATH PRASAD 50 ITR 641 THAT WHERE THER E IS AN UNEXPLAINED CASH CREDIT, IT IS OPEN TO AN INCOME-TAX OFFICER TO HOLD THAT IT IS THE INCOME OF THE ASSESSEE AND NO FURTHER BURDEN LIES O N THE INCOME-TAX OFFICER TO SHOW THAT INCOME IS FROM ANY PARTICULAR SOURCE. THE AO ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF ANAND WOOLLEN MILLS (P) LTD. VS. CIT (2002) 174 CTR 477 ( DEL) WHEREIN IT WAS HELD THAT THE AMOUNT APPEARING IN THE BOOKS OF THE ASSESSEE COMPANY AND DESCRIBED AS SHARE CAPITAL MONEY COULD BE CONSIDERE D AND ASSESSED IN THE HANDS OF THE ASSESSEE U/S 68 OF THE I.T. ACT. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. NIVEDAN VANIJYA NIGYOJ AN LTD. (2003) 263 ITR 623, WHEREIN IT WAS HELD THAT IN THE CASE OF SU BSCRIPTION TO THE SHARE CAPITAL OF THE COMPANY THE PRINCIPAL INGREDIENTS TH AT HAS TO BE SATISFIED IS TO ESTABLISH THE IDENTITY OF THE SUBSCRIBERS AND PR OVE THEIR CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSAC TION. WHERE THE ASSESSEE FAILED TO ESTABLISH ANY OF THESE THREE ING REDIENTS IN RESPECT OF AN AMOUNT OF SHARE CAPITAL, THE AMOUNT WAS ASSESSABLE U/S 68 OF THE INCOME- TAX ACT, 1961. ACCORDING TO THE AO IN THE CASE OF CIT VS. C.P. ADA M 105 ITR 465 (KER) IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS NOT BE EN ABLE TO SATISFACTORILY PROVE THE SOURCE AND THE NATURE OF CERTAIN SUMS OF MONEY RECEIVED BY HIM ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 9 DURING THE ACCOUNTING YEAR, THE OFFICER IS JUSTIFIE D IN DRAWING AN INFERENCE THAT THE RECEIPTS ARE UNDISCLOSED INCOME. IN THIS CASE, THE ASSESSEE MADE NO ATTEMPT TO PRODUCE THE WITNESS WHO M HE WANTED TO CROSS-EXAMINE. HE WAS MERELY ASKING THE DEPARTMENT TO ISSUE FRESH SUMMONS. THE AO REFUSED TO ISSUE THE FRESH SUMMONS HOLDING THAT THERE WAS NO PURPOSE IN ISSUING SUMMONS OVER AND OVER AGA IN AFTER THE FIRST SUMMONS HAD BEEN RETURNED UNSERVED. HELD THAT, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO ADDUCE THE NECESSARY EVIDENCE TO PROVE THE SOURCE AND THE NATURE OF CASH CREDITS. IN THIS CASE, THE AO COULD NOT BE SAID TO HAVE ACTED UNREASONABLY OR IN VIOLATION OF THE PRINCIPLE S OF NATURAL JUSTICE, AND THAT THE AO WOULD BE ENTITLED TO DRAW AN INFERENCE THAT THE CASH CREDITS WERE ASSESSABLE. THE AO STATED THAT IN THE CASE OF CIT VS. RUBY TRAD ERS & EXPORTERS LTD. (2004) 270 ITR 526 (CAL) WHILE EXAMINING THE QUESTI ON WHETHER SEC.68 APPLIES TO ISSUE OF SHARE CAPITAL, IT HAS BEEN OBSE RVED BY THE HONBLE HIGH COURT THAT THE CONTENTION THAT THE AUTHORITY COULD NOT RESORT TO SEC.68 WHICH DEALS WITH CASH CREDITS, CANNOT BE ACCEPTED F OR TWO FOLD REASONS. FIRST THAT, IN ORDER TO ESTABLISH THAT THIS PARTICU LAR TRANSACTION IS NOT A CASH CREDIT, BUT A SHARE CAPITAL, LONG DRAWN ARGUMENT IS NECESSARY AND THERE IS POSSIBILITY OF FORMING TWO OPINIONS. SECONDLY, THE TRANSACTION WAS GIVEN A COLOR OF ISSUE OF SHARE CAPITAL, BUT IF IT IS FOU ND ON FACT THAT THE TRANSACTION COULD NOT BE ESTABLISHED AS A SUBSCRIPT ION TO SHARE CAPITAL, THOUGH ADMITTED TO BE SO SHOWN, THEN THE ENTRIES MA DE IN THE BOOKS OF ACCOUNTS WOULD NOT BE A SHARE CAPITAL. IF IT IS NOT A SHARE CAPITAL, THEN IT WOULD DEFINITELY BE AN ENTRY IN THE BOOKS, WHICH IS A CREDIT ENTRY AND A CREDIT ENTRY TO BE TREATED AS CASH SINCE IT DOES NO T FORM PART OF THE SHARE CAPITAL ON ACCOUNT OF ABSENCE OF PROOF OF THE THREE INGREDIENTS WITH REGARD ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 10 TO THE IDENTITY OF THE SUBSCRIBER, ITS CREDITWORTHI NESS AND THE GENUINENESS OF THE TRANSACTION. ACCORDING TO THE AO IN THE CASE OF THE ASSESSEE, TH E ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE TRANSACTIONS AND THE C REDITWORTHINESS OF THE SHARE APPLICANTS AND THEREFORE, IT IS HELD THAT THE ASSESSEE HAS GIVEN THE TRANSACTION A COLOR OF ISSUE OF SHARE CAPITAL AND, THEREFORE, THE ENTRIES MADE IN ITS BOOKS OF ACCOUNTS ARE NOT SHARE CAPITAL BUT UNEXPLAINED CASH CREDITS CLEARLY HIT BY THE PROVISIONS OF SEC.68. IN ORDER TO ASCERTAIN THE GENUINENESS OF THE TRANSACTIONS AND THE CREDITWORTH INESS OF THE PERSONS, SUMMONS U/S 131 WERE ISSUED TO THE SO-CALLED SHARE APPLICANTS FOR WHICH IT CANNOT BE SAID THAT THERE WAS ANY EXAGGERATION O F THE UTILIZATION OF POWERS, AS CONTENDED BY THE ASSESSEE, AND THE ASSES SEE HAS BEEN GIVEN ENOUGH OPPORTUNITIES FOR PROVING THE CREDITS APPEAR ING IN ITS BOOKS, AND HENCE, THE ASSESSEE HAD NOT BEEN DENIED ANY NATURAL JUSTICE AND THE SUMMONS HAD NOT BEEN ISSUED WITHOUT THINKING THE SE RIOUSNESS OF THE MATTER AS ALLEGED BY THE ASSESSEE COMPANY. IN VIEW OF ABOVE, THE AO MADE THE ADDITION RS.39,60 ,000/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY U/S 68 OF THE IT ACT AS UNEXPLAINED CASH CREDITS APPEARING IN ITS BOOKS FOR THE YEAR UNDER CONSIDERATION EARNED FROM UNDISCLOSED SOURCES. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN IT MADE SUBMISSIONS AS UNDER: (1) THE ASSESSEE COMPANY HAS STARTED THE BUSINESS OF CLOTH AND THIS IS THE SECOND YEAR OF THE BUSINESS AND DURING THIS YEA R IN ORDER TO EXPAND THE BUSINESS COMPANY HAS RAISED SHARES CAPITAL TO V ARIOUS PERSON WITH PREMIUM (2) THAT THE LD. AO HAS STARTED THE SCRUTINY PROCEE DINGS BY ISSUING THE NOTICE U/S 142(1) ONWARDS FROM 23 RD FEBRUARY, 2009 AND FROM TIME TO ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 11 TIME. VARIOUS QUESTIONNAIRES WERE ASKED BY TO THE L D. AO WHICH FIRST ON 23 RD FEBRUARY, 2009 SECOND ON 27 TH SEPTEMBER, 2009 AND THIRD ON 14 TH OCTOBER, 2009 AND FOURTH ON 8 TH DECEMBER, 2009 AND FINALLY ON 17 TH DECEMBER, 2009 IN ALL FOUR QUESTIONNAIRES THE LD. A O HAS NOT RAISED ANY QUESTION ON ABOUT THE CREDIT WORTHINESS AND GENUINE NESS OF THE 14 PERSONS TO WHO SHARES HAVE ALLOTTED BY THE COMPANY. IN FACT LD. AO IS NOT CORRECT COMPANY HAS NOT ISSUED THE SHARES ONLY 14 P ERSONS BUT ISSUED THE SHARES TO 16 PERSONS AND RAISED THE PAID UP SHARE C APITAL FROM 10 LACS TO 14.20 LACS. THE DETAILS OF SHARES ALLOTMENT IS AS U NDER : SL. NO. NAME PAN NO. ADDRESS NO. OF SHARES AMOUNT 1 ATUL L RATHOD HUF AAHHA6717M B-1/2 SHAYONA CITY, GHATLODIA,ABAD 12000 1 2 ATUL LAXMIKANTBHAI RATHOD ADSPR7042N -DO- 10000 1 3 ARVINDKUMAR S. PAREEKH AAXPP1162D 68/815 PANCHVATI APT. SOLA RD,AHD. 10000 1 4 CHAMPADEVI P.DATAL TRIVEDI ABZPT6070H 123,SARVODAYANAGAR-III, AHMEDABAD. 8000 5 DEENDAYAL R. TRIVEDI AFAPS3403A -DO- 10000 1 6 GIJUBHAI K. MAKWANA AJPPM9594H 23/267 AAKASHDEEP APT., AHD. 8000 7 KAMLABEN LAXMANI RATHOD ADSPR5910M B-1/2 SHAYONA CITY GHATLODIA,AHD. 10000 1 8 LILAWATI D. SHARMA AJZPS0662A 123, SARVODAYANAGAR- III,AHD 10000 1 9 NEELA ATUL RATHOD ADSPR5912K B-1/2 SHAYONA CITY, GHATLODIA, AHD. 8000 10 PRIYADARSH D. SHARMA AMZPS0600F 123,SARVODAYANAGAR-III, AHD. 10000 1 11 SHYAMSUNDAR A HUF AACHS7503J 68/815 PANCHVATI APT. SOLA RD,AHD. 10000 1 12 SUSHILABEN J. PARIKH AGJPP9718K 101,AAKASHDEEP APT., SOLA RD, AHD. 8000 13 SUDHABEN K. JOSHI AAOPJ7501R VEEKUNJ 30-B, VASUKI SOC., VASNA, AHD. 8000 14 SARITA A. PARIKH ACRPP3333Q 68/815 PANCHVATI APT. SOLA RD,AHD. 10000 1 15 SANDEEPKUMAR S. AGRAWAL AAQPA0560M 43,BASANT BAHAR, BOPAL, AHD. 8000 16 RAJRANI S. AGRAWAL AAQPA0568D -DO- 8000 TOTAL 142000 ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 12 THAT THE LD. AO FOR THE FIRST TIME ON 17 TH DECEMBER, 2009 HAS RAISED THIS ISSUE AND ASKED THE COMPANY. A. PRODUCE THE PERSON PERSONALLY. B. IDENTITY PROOF C. BANK STATEMENT FOR ASST. YEAR 2006-07 D. PAN-CARD. E. PROOF OF THEIR EARNING ACTIVITIES IN FY 2006-07 F. RETURN OF INCOME FILED BY THEM FOR ASST. YEAR 2007- 08 THAT THE LD. AO OBSERVATION IN ASSESSMENT ORDER AT PAGE 4.1 WHICH READ AS UNDER: THEREFORE, IN ORDER TO ASCERTAIN THE EXISTENCE OF THE PERSONS, GENUINENESS OF THE TRANSACTIONS AND THE CREDITWORTH INESS OF THE PERSONS, SUMMONS U/S 131 WAS ISSUED BY THIS OFFICE ON 27.11. 2009 TO ALL THE 14 PERSONS TO WHOM THE SHARES WERE ALLOTTED DURING THE YEAR UNDER CONSIDERATION. ALL THE SUMMONS WERE SERVED ON THE R ESPECTIVE PERSONS ON THE SAME DAY EXCEPT IN THE CASES OF SUSHILABEN J. P ARIKH AND SUDHABEN K. JOSHI, TO WHOM THE SUMMONS WERE SERVED ON 30.11.200 9 ALONG WITH COPIES OF BANK STATEMENTS, SHARE APPLICATION FORMS FOR THE SHARES OF THE ASSESSEE COMPANY, RECEIPT & COMPUTATION OF INCOME F OR THE RETURNS OF INCOME FILED FOR THE ASST. YEAR 2007-08 WITH THE CO PIES OF THE PAN CARD TO EXPLAIN THE INCOME EARNING ACTIVITIES WITH NECES SARY PROOF AND TO PRODUCE BOOKS OF ACCOUNTS FOR THE FY 2006-07, IF MA INTAINED. HOWEVER, NO ONE ATTENDED ON THE APPOINTED DATES NEITHER ANY WRITTEN SUBMISSIONS WERE RECEIVED FROM ANY OF THEM IS NOT CORRECT. WE ARE FILLING HEREWITH THE QUESTIONNAIRES DATED 8 TH DECEMBER, 2009 WHEREIN THERE IS NOTHING ABOUT THE QUESTION RAISED BY THE AO IN ASSESSMENT O RDER. THE LD. AO IS ALSO NOT CORRECT THAT NEXT DATE HEARING HELD ON 24 TH DECEMBER, 2009 BECAUSE IN ANNEXURE DATED 17 TH DECEMBER 2009 IT IS STATED THAT AO HAS ASKED THERE PERSONS FOR PERSONAL HEARING ON NEXT DA TE OF HEARING. WHERE NO NEXT DATE IS BEEN GIVEN. THE ASSESSEE HAS FURNIS HED ITS WRITTEN SUBMISSION WHILE HIS LETTER DATED 22 ND DECEMBER, 2009 A COPY OF WHICH ENCLOSED HEREWITH. THE ABOVE REFERRED MATTER IS BEI NG STATED BEFORE YOUR HONOUR IN ORDER TO DRAW YOUR KIND ATTENTION THAT NO REASONABLE OPPORTUNITY HAS BEEN GIVEN BY LD. AO AND FACTS STAT ED IN THE ASSESSMENT ORDER IS NOT CORRECT. IN ALTERNATIVE AND WITHOUT PREJUDICE OF THE ABOVE W E STATE AS UNDER : ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 13 THAT AS STATED ABOVE, THE ASSESSEE COMPANY HAS FILE D THE DETAILS OF SHARE ALLOTMENT TO WHOM THE SHARES HAVE ALLOTTED WITH PRE MIUM ALONG WITH THEIR PAN NO., ADDRESS AND NUMBER OF SHARE ALLOTTED ALONG WITH RETURN AND FURTHER IN REPLY TO THE LETTER DATED 17 TH DECEMBER, 2009, WE HAVE FILED AS UNDER : A. IDENTITY PROOF. B. BANK STATEMENT FOR FY 2006-07 C. PAN-CAR COPY D. COPY OF THE RETURN FILED BY THEM FOR ASST. YEAR 07- 08 IN THE ASSESSMENT ORDER LD. AO HAS DISCUSSED TWO PO INT 91) BANK A/C AND (2) RETURN STATEMENT. THE LD. AO HAS ELABORATELY DI SCUSS IN EACH AND EVERY CASE. HE HAS STATED THE INCOME DATA AS WELL A S THE BANK BALANCE BUT LD. AO HAS FAILED TO CONSIDER THAT ALL THE PARTIES ARE ASSESSED SINCE LAST SO MANY YEARS. THEIR ASSESSMENT DATA ARE AS UNDER: SL. NO. NAME RETURN FILED INCOME DATA 1. SUDHABEN KAMLESH JOSHI 1985-86 TO 2010-11 1.50 1.90 2 SUSHILABEN J. PARIKH 1992-93 TO 2010-11 2.00 2.30 3 KAMLABEN L. RATHOD 1995-96 TO 2009-10 1.40 1.70 4 LALARAM SHYAMLAL DIED 1985-86 TO 2003-04 0.80 1.20 5 ARVINDKUMAR PAREKH-DIED 1989-90 TO 2006-07 0.60 0.70 6 SARITA A. PARIKH 1988-89 TO 2007-08 1.40 1.50 7 PRIDARSHI SHARMA 1990-91 TO 2010-11 1.55 1.60 8 DEENDAYAL R. TRIVEDI 1992-93 TO 2010-11 1.90 1.95 9 LEELAWATI D. SHARMA 1992-93 TO 2010-11 1.80 0.90 10 CHAMPADEVI P. TRIVEDI 1992-93 TO 2010-11 1.85 1.90 11 ATUL RATHOD HUF 2005-06 TO 2009-10 1.50 1.71 12 ATUL RATHOD-INDL 2000-01 TO 2.08 ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 14 2009-10 2.10 13 NEETA A RATHOD 2004-05 TO 2009-10 1.75 ON VERIFICATION OF THE ABOVE CHART IT IS ARGUED BEF ORE YOUR HONOUR THAT THEIR CREDITWORTHY HAS BEEN COMPLETELY PROVED BY TH E ASSESSEE COMPANY. THAT THE LD. AO HAS WRONGLY STATED THAT ASSESSEE H AS FAILED TO PROVE THE GENUINENESS OF THE TRANSACTION AND CREDIT WORTHINES S OF THE SHARE APPLICANT. THAT ALL SHARES APPLICANT ALL ARE GENUINE BECAUSE. (1) THEY ARE REGULARLY ASSESSED FROM LAST SO MANY YEARS AND STILL MOST OF THEM ARE ON THE ROLL OF DEPARTMENT. (2) THAT ALL THE TRANSACTION IS THROUGH A/C PAYEE CHEQU ES EVEN WHILE ISSUING THE CHEQUE OF SHARE APPLICATION THEY HAVE C REDITED THE BALANCE THROUGH CHEQUE NOT IN THE CASH. NO PRUDENT MAN WILL LIKE TO KEEP THE AMOUNT IN BANK MOST OF THERE APPLI CANT ARE HAVING INTEREST INCOME APPROXIMATELY RS.50,000/- TO RS.70,000/-. (3) THAT ALL THE APPLICANT HAVE SUBMITTED WRITTEN REPLY IN RESPONSE TO THE SUMMON ISSUED BY THE AO. (4) THAT THE LD. AO HAS FAILED TO JUDGE THE RESOURCES A ND HE HAS GONE ONLY TO BANK STATEMENT BUT THE COPY OF THE RET URN FILED BY THE APPLICANT CLEARLY SHOWN THAT THE APPLICANT ARE CAPABLE TO INVEST AS ALL ARE HAVING THE BUSINESS AS WELL AS IN TEREST INCOME. (5) THE LD. AO HAS NOT INFORMED TO COMPANY TO PRODUCE T HEM PERSONALLY THROUGH OUT IN THE ASSESSMENT PROCEEDING . THE LD. AO HAS ISSUED THE SUMMON ON 27 TH NOVEMBER, 2009 BUT ASKED THE COMPANY TO PRODUCE THEM ON 17 TH DECEMBER, 2009 WHICH TOO LATE BECAUSE THE AO HAS NOT GIVEN THE DATE OF H EARING AFTER 17 TH DECEMBER, 2009. IN VIEW OF THE ABOVE FACTS THE ASSESSEE COMPANY HAS PROVED THE (1) IDENTITY OF THE PERSON (2) CREDITWORTHINESS (3) GENUINENESS OF THE TRANSACTION. ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 15 THAT THE LD. AO HAS CLAIMED SO MANY JUDGMENT WHICH ARE NOT RELEVANT TO THE FACTS OF THE CASE. THE SUPREME COURT IN THE CASE OF CIT VS. LOLVELY EX PORTS (P) LTD. (2008) 216 CTR (SC) 216 WHEREIN IT HAS BEEN HELD AS UNDER :- IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAME S ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED T O REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF ASSESSEE COMPANY. CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISC LOSED INCOME UNDER S.68 OF IT ACT, 1961 ? WE FIND NO MERI T IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT I F THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPA NY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN T O THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN TH EIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FIND TO INFIRMITY WITH THE IMPUGNED JUDGMENT. FURTHER AGAIN BY THE DELHI HIGH COURT IN THE CASE O F CIT VS. OASIS HOSPITALITIES (P) LTD. (2011) 238 CTR (DEL) 402 HEL D AS UNDER BY FOLLOWING THE ABOVE REFERRED SUPREME COURT FINDING: THE INITIAL BURDEN IS UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICATION MONEY RECEIVED BY T HE ASSESSEE. IN ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQ UIRED TO PROVE (A) IDENTITY OF SHAREHOLDER, (B) GENUINENESS OF TRA NSACTION AND (C) CREDITWORTHINESS OF SHAREHOLDERS. IN CASE THE INVES TOR/SHAREHOLDER IS AN INDIVIDUAL SOME DOCUMENTS WILL HAVE TO BE FIL ED OR THE SAID SHAREHOLDER WILL HAVE TO BE PRODUCED BEFORE THE AO TO PROVE HIS IDENTITY, IF THE CREDITOR/SUBSCRIBER IS A COMPANY, THEN THE DETAILS IN THE FORM OF REGISTERED ADDRESS OF PAN IDENTITY, ETC . CAN BE FURNISHED. GENUINENESS OF THE TRANSACTION IS TO BE DEMONSTRATED BY SHOWING THAT THE ASSESSEE HAD IN FACT, RECEIVED MON EY FROM THE SAID SHAREHOLDER AND IT CAME FROM THE COFFERS FROM THAT VERY SHAREHOLDER. OTHER DOCUMENTS SHOWING THE GENUINENES S OF TRANSACTION COULD BE THE COPIES OF THE SHAREHOLDERS REGISTER, SHARE APPLICATION FORMS SHARE TRANSFER REGISTER, ETC. AS FAR AS CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDI TOR/SUBSCRIBER IS CONCERNED, THAT CAN BE PROVED BY PRODUCING THE BANK STATEMENTS OF ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 16 THE CREDITORS/SUBSCRIBERS SHOWING THAT IT HAD SUFFI CIENT BALANCE IN ITS ACCOUNTS TO ENABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. HOWEVER, TO DISCREDIT THE DOCUMENTS PRODUCED BY THE ASSESSEE ON THE AFORESAID ASPECTS, THERE HAS TO BE SOME COGENT REAS ONS AND MATERIALS FOR THE AO AND HE CANNOT GO INTO THE REAL M OF SUSPICION CIT VS. DIVINE LEASING & FINANCE LTD. (2007) 207 CT R (DEL) 38 (2008) 299 ITR 268 (DEL) AND CIT VS. LOVELY EXPORTS (P) LTD. (2008) 216 CTR (SC) 195 FOLLOWED. S.68 : CASH CREDIT SHARE APPLICATION MONEY INCOME FROM UNDISCLOSED SOURCES MERELY BECAUSE SOME OF THE PERSONS DID NOT RESPOND TO THE NOTICE ISSUED BY THE AO U/S 133(6) OF THE ACT IT CO ULD NOT BE TAKEN THAT THE TRANSACTION WAS NOT GENUINE. THE AMOUNT COULD NOT B E ADDED AS UNEXPLAINED INCOME IN THE HANDS OF THE ASSESSEE. CI T VS. GP INTERNATIONAL LTD. (2010) 325 ITR 25 (P & H). SHARE APPLICATION MONEY EXISTENCE OF APPLICANTS AC CEPTED. AO HAS NOT SHOWN THAT THE APPLICATION DID NOT HAVE MEANS TO M AKE THE INVESTMENTS AND THAT SUCH INVESTMENTS ACTUALLY HAD COME FROM TH E COFFERS OF THE ASSESSEE COMPANY. ADDITION IS RIGHTLY DELETED. CIT VS. VALUE CAPITAL SERVICE (P) LTD. (2009) 221 C TR (DEL) 511 WHERE THE IDENTITY OF THE SHAREHOLDERS WERE ESTABLI SHED ALL THE SHAREHOLDERS WERE INCOME TAX ASSESSEES AND DISCLOSE D THE ASSESSEES BURDEN IS CONFINED TO PROVE CREDITWORTHINESS OF CRE DITOR WITH REFERENCE TO TRANSACTION BETWEEN ASSESSEE AND CREDITOR A HARMON IOUS CONSTRUCTION OF SECTION 106 OF THE EVIDENCE ACT AND SECTION 68 OF T HE INCOME-TAX ACT WILL BE THAT THOUGH APART FROM ESTABLISHING THE IDENTITY OF THE CREDITOR, THE ASSESSEE MUST ESTABLISH THE GENUINENESS OF THE TRAN SACTION AS WELL AS THE CREDITWORTHINESS OF HIS CREDITOR, THE BURDEN OF THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTION AS WELL AS THE CREDI TWORTHINESS OF THE CREDITOR MUST REMAIN CONFINED TO THE TRANSACTIONS W HICH HAVE TAKEN PLACE BETWEEN THE ASSESSEE AND THE CREDITOR. SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSE E THROUGH ACCOUNT PAYEE CHEQUE FROM A COMPANY WHICH IS REGULARLY ASSE SSED TO TAX AND HAVING A SUBSTANTIAL AMOUNT OF PAID UP CAPITAL. FUR THER, THE SUBSCRIBING COMPANY WAS ALSO A MEMBER OF THE NATIONAL STOCK EXC HANGE (NSE) AND INVOLVED IN PURCHASE AND SALE OF SHARES OF OTHER CO MPANIES. THE ONUS IN RESPECT OF VERACITY AND GENUINENESS OF THE TRANSACT ION WAS HELD TO BE ESTABLISHED AND ADDITION U/S 68 OF THE ACT WAS NOT SUSTAINABLE. ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 17 CIT VS. GANGOUR INVESTMENTS LTD. (2009) 18 DTR 242 (DEL) THEREFORE, THE LD. AO HAS WRONGLY ADDED SUM OF RS.3 9,60,000/- AS SHARE APPLICANT MONEY, IF AT ALL THEY ARE NOT ABLE TO EXP LAIN THEIR INVESTMENT IT WILL BE TAX IN THE HAND A SHARE APPLICANT AS ABLE A RE ASSESSED UNDER 69 OF THE ACT. THEREFORE, WHILE GOING THROUGH THE ABOVE JUDGMENT, COMPANY HAS PROVED AS UNDER : 1. IDENTITY OF SHARE APPLICANT 2. GENUINENESS OF THE TRANSACTION AS ALL THE TRANSACTI ONS ARE ACCOUNT PAYEE CHEQUE. 3. CREDITWORTHINESS OF THE APPLICANT AS ALL/AND THE AP PLICANT ARE REGULAR ASSESSEE SINCE LAST SO MANY YEARS ARE O N THE ROLL OF DEPARTMENT. IN VIEW OF THE ABOVE SAID FACT THE AMOUNT OF RS.39, 60,000/- WRONGLY ADDED IN THE NAME OF THE COMPANY. 4. THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF TH E CASE, ASSESSMENT ORDER AND ASSESSEES SUBMISSIONS DELETED THE ADDITI ON WITH THE FOLLOWING OBSERVATIONS :- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, AS SESSMENT ORDER AND APPELLANTS SUBMISSION. APPELLANT ISSUED SHARE CAPI TAL TO CERTAIN PERSONS FROM WHOM ASSESSING OFFICER MADE ENQUIRIES AND THEY SUBMITTED COPY OF THE INCOME-TAX RETURN, PAN CARD, BANK STATEMENT AND STATEMENT OF EARNING. THE DETAILS OF CHEQUE THROUGH WHICH PAYMEN T WAS MADE WAS ALSO GIVEN. ASSESSING OFFICER MADE ADDITION ON THE GROUND THAT THESE SHAREHOLDERS DID NOT APPEAR PERSONALLY FOR EXAMINAT ION. IT IS NOT IN DISPUTE THAT APPELLANT SUBMITTED CONFIRMATION FROM ALL THESE SHAREHOLDERS. IT IS ALSO NOT IN DISPUTE THAT ALL TH ESE SHAREHOLDERS ARE ASSESSED TO TAX FOR NUMBER OF YEARS AND COPY OF THE IR PAN CARD AND IT RETURNS WERE SUBMITTED. IT IS ALSO NOT IN DISPUTE T HAT COPY OF BANK STATEMENT FROM WHERE CHEQUES WERE ISSUED WAS ALSO G IVEN IN ALL THE CASES. THEREFORE, APPELLANT HAS FULLY DISCHARGED IT S ONUS AS FAR AS PROVING IDENTITY, GENUINENESS AND CREDITWORTHINESS IS CONCE RNED. PAN CARD AND ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 18 CONFIRMATIONS ALONG WITH IT RETURNS PROVE IDENTITY AND CREDITWORTHINESS OF THESE SHAREHOLDERS. COPY OF BANK STATEMENT AND T HE DETAILS OF CHEQUE PROVES GENUINENESS OF THE TRANSACTIONS. THEREFORE, FROM THE DETAILS SUBMITTED WHICH IS NOT DISPUTED BY THE AO ALL THE T HREE INGREDIENTS TO PROVE CASH CREDIT GENUINE ARE PRESENT. ASSESSING OFFICER MADE THE ADDITION ONLY ON THE GR OUND THAT THESE PARTIES DID NOT APPEAR FOR EXAMINATION AND THE BALA NCE IN THE BANK ACCOUNTS WERE NOMINAL. FURTHER THE SHARES WERE ISSU ED AT PREMIUM FOR UNLISTED COMPANY. AS REGARDS NON-ATTENDANCE OF THE PARTIES, IT IS NOT IN DISPUTE THAT PARTIES ARE EXISTING AT THE GIVEN ADDR ESSES AND THEY HAVE REPLIED ALSO TO THE AO. REGARDING THE NON-ATTENDANC E, AO HAS POWER UNDER INCOME-TAX ACT TO ENSURE THEIR COMPLIANCE. TH E NON-ATTENDANCE BY SHAREHOLDERS CANNOT BE USED AGAINST THE APPELLANT I F APPELLANT HAS ALREADY DISCHARGED ITS ONUS. IT IS NOT IN DISPUTE T HAT THESE SHAREHOLDERS ARE ASSESSED TO TAX SINCE MANY YEARS AND THEREFORE NOT KEEPING SUFFICIENT BANK BALANCE TO THE EXTENT OF SHARE APPLICATION MON EY IS NOT RELEVANT. I AGREE WITH THE APPELLANT THAT NO PRUDENT PERSON WIL L KEEP IDLE FUND IN BANK ON WHICH NO INTEREST IS EARNED. WHEN THESE PER SONS ARE REGULARLY FILING THEIR INCOME TAX RETURNS SINCE LAST MANY YEA RS, THEIR CREDITWORTHINESS CANNOT BE DOUBTED. IF THEY ARE NOT ABLE TO EXPLAIN THEIR SOURCE OF INVESTMENT IN SHARES OF APPELLANT COMPANY , ADDITION CAN BE MADE IN THEIR HANDS, WHEN THESE PARTIES ARE ACCEPTI NG THE INVESTMENT AND THE ASSESSED TO TAX REGULARLY, ADVERSE INFERENCE CA NNOT BE DONE AGAINST THE APPELLANT IN RESPECT OF CREDITS APPEARING IN TH EIR NAME. THE ISSUE OF SHARES AT PREMIUM IN THE CASE OF UNLISTED COMPANY I S NOT UNCOMMON. DOUBTING THE GENUINENESS OF SHARE CAPITAL ON THIS B ASIS IS MERE SURMISE. ACCORDINGLY, I DO NOT FIND MERIT IN ASSESSING OFFIC ERS ARGUMENT WHILE REJECTING APPELLANTS EXPLANATION AND TREATING THE SHARE CAPITAL AS UNEXPLAINED. THE DECISION OF APEX COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD.(SUPRA) RELIED UPON BY THE APPELLANT AND TH E SUBSEQUENT DECISIONS OF VARIOUS HIGH COURTS ARE VERY CLEAR ON THIS ISSUE . WHEN APPELLANT DISCHARGED ITS ONUS BY SUBMITTING CONFIRMATION WITH PAN, THE CREDITS CANNOT BE TREATED AS UNEXPLAINED. EVEN IN THE CASE OF ORISSA CORPORATION LTD. RELIED UPON BY THE ASSESSING OFFICER, APEX COU RT HELD THAT ADDITION UNDER SECTION 68 CANNOT BE MADE AFTER APPELLANT DIS CHARGED ITS PRIMARY ONUS BY SUBMITTING CONFIRMATION WITH PAN. APPELLANT CANNOT BE BURDENED FURTHER TO PRODUCE THE PARTY AND ON SUCH NON-COMPLI ANCE ADDITION CANNOT BE MADE. CONSIDERING THE UNANIMITY IN JUDICIAL DECI SIONS AS FAR AS ONUS OF THE APPELLANT IS CONCERNED, APPELLANT IN THIS CA SE HAS DISCHARGED ITS ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 19 ONUS AND ACCORDINGLY ADDITION UNDER SECTION 68 CANN OT BE SUSTAINED. ASSESSING OFFICER IS THEREFORE, DIRECTED TO DELETE THIS ADDITION. AGAINST THIS ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US THE LD. DR SUPPORTED THE ORDER OF AO A ND SUBMITTED THAT AO HAD GIVEN ENOUGH OPPORTUNITIES FOR PROVING THE C REDITS APPEARING IN ITS BOOKS, ASSESSEE WAS NOT DENIED ANY NATURAL JUST ICE. THE AO REQUESTED THE ASSESSEE TO PRODUCE THE SHARE APPLICANTS FOR EX AMINATION BUT THE ASSESSEE FAILED TO PRODUCE THEM BEFORE THE AO. SPEC IFIC EFFORTS WERE MADE BY THE AO BY ISSUING SUMMONS ONLY FOR THE PURP OSE OF VERIFICATION OF THE CREDITWORTHINESS OF THE SHARE APPLICANTS AND GENUINENESS OF THE TRANSACTIONS, BUT NONE APPEARED BEFORE THE AO. THE ASSESSEE WAS INFORMED ABOUT THE NON-ATTENDANCE OF THE PARTIES. I T WAS THE ONUS OF THE ASSESSEE TO PRODUCE THEM TO DISCHARGE ITS OBLIGATIO N U/S 68, WHICH IT FAILED TO DO SO. MERELY FILING OF CONFIRMATION LETTERS IS NOT ENOUGH TO PROVE GENUINENESS OF THE CASH CREDITS. FURTHER THE CONFIR MATORY LETTERS OF ALL THE SHARE APPLICANTS ALONG WITH THE COPIES OF THEIR BAN K STATEMENTS AND THE RECEIPTS FOR THE RETURNS OF INCOME FOR THE ASST. YE AR 2007-08 FILED BY THE ASSESSEE WERE SCRUTINIZED. IT IS WAS NOTICED BY THE AO THAT THOUGH THE SHARE APPLICANTS RESIDE IN DIFFERENT LOCALITIES OF THE CITY, THE SAME CONFIRMATORY LETTERS WITH THE SAME FONTS AND FORMAT S HAVE BEEN USED BY ALL THE SHARE APPLICANTS TO FURNISH THEIR CONFIRMAT IONS TO THE AO. THE CONFIRMATORY LETTERS WERE DITTO TO DITTO THE SAME W AY WITHOUT ANY VARIATION. THEREFORE, THE CREDITWORTHINESS OF ALL T HE SHARE APPLICANTS BEING DOUBTFUL, THE AO MADE THE IMPUGNED ADDITION OF RS.3 9,60,000/- BY RESORTING TO THE PROVISIONS OF SECTION 68 OF THE IT ACT AS UNEXPLAINED CASH CREDITS. THE AO HAD RIGHTLY MADE THE ADDITION AS PE R PROVISIONS OF LAW. THE LD. CIT(A) WITHOUT APPRECIATING THE FACTS AND C IRCUMSTANCES OF THE ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 20 CASE HAS DELETED THE ADDITION. THEREFORE, IT WAS PR AYED BY THE LD. DR THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT O F THE LD. AO BE RESTORED. 6. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSE E RELYING ON THE ORDER OF LD. CIT(A) SUBMITTED THAT ASSESSING OFFICE R MADE THE ADDITION ONLY ON THE GROUND THAT THESE PARTIES DID NOT APPEA R FOR EXAMINATION AND THE BALANCE IN THE BANK ACCOUNTS WERE NOMINAL. THE ASSESSEE HAD FILED (I) IDENTITY PROOF OF THE SHARE APPLICANTS, (II) THEIR BANK STATEMENTS FOR FY 2006-07, (III) THEIR PAN CARD COPIES & (IV) COPIES OF RETURNS FILED BY THEM FOR ASST. YEAR 2007-08 AS REQUIRED BY THE AO. FURTH ER THE SHARES WERE ISSUED AT PREMIUM FOR UNLISTED COMPANY. AS REGARDS NON-ATTENDANCE OF THE PARTIES, IT IS NOT IN DISPUTE THAT PARTIES ARE EXISTING AT THE GIVEN ADDRESSES AND THEY HAVE REPLIED ALSO TO THE AO. REG ARDING THE NON- ATTENDANCE, AO HAS POWER UNDER INCOME-TAX ACT TO EN SURE THEIR COMPLIANCE. THE NON-ATTENDANCE BY SHAREHOLDERS CANN OT BE USED AGAINST THE APPELLANT IF APPELLANT HAS ALREADY DISCHARGED I TS ONUS. THERE IS NO DISPUTE THAT THESE SHAREHOLDERS ARE ASSESSED TO TAX SINCE MANY YEARS AND THEREFORE NOT KEEPING SUFFICIENT BANK BALANCE TO TH E EXTENT OF SHARE APPLICATION MONEY IS NOT RELEVANT. WHEN THESE PERSO NS ARE REGULARLY FILING THEIR INCOME TAX RETURNS SINCE LAST MANY YEARS, THE IR CREDITWORTHINESS CANNOT BE DOUBTED. IF THEY ARE NOT ABLE TO EXPLAIN THEIR SOURCE OF INVESTMENT IN SHARES OF APPELLANT COMPANY, ADDITION CAN BE MADE IN THEIR HANDS, WHEN THESE PARTIES ARE ACCEPTING THE INVESTM ENT AND THE ASSESSED TO TAX REGULARLY, ADVERSE INFERENCE CANNOT BE DONE AGAINST THE APPELLANT IN RESPECT OF CREDITS APPEARING IN THEIR NAME. THE ISS UE OF SHARES AT PREMIUM IN THE CASE OF UNLISTED COMPANY IS NOT UNCOMMON. DO UBTING THE GENUINENESS OF SHARE CAPITAL ON THIS BASIS IS MERE SURMISE. THE DECISION OF APEX COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD.(SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CAS E AND THE SUBSEQUENT ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 21 DECISIONS OF VARIOUS HIGH COURTS ARE VERY CLEAR ON THIS ISSUE. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE IMPUGN ED ADDITION. HIS ORDER MAY KINDLY BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS ON RECORD. IN OUR CONSIDERED VIEW THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. THE REASONS A RE THAT THE ASSESSEE HAD FILED COMPLETE DETAILS -LIKE CONFIRMATORY LETTE RS OF THE SHARE APPLICANTS, THEIR BANK STATEMENTS, PAN CARDS, COPIE S OF INCOME-TAX RETURNS BEFORE THE AO. THE AO MADE THE ADDITION ONL Y ON THE GROUND THAT THESE PARTIES DID NOT APPEAR BEFORE HIM FOR EXAMINA TION AND THE BALANCE IN THE BANK ACCOUNTS WERE NOMINAL. ONCE THE ASSESSEE P RODUCED THE BASIC RECORDS OF THE CREDITORS WHICH SHOW THE IDENTITY OF THE CREDITORS, CAPITAL ACCOUNTS OF THE CREDITORS AND BANK ACCOUNTS THROUGH WHICH MONEY WAS TRANSFERRED THROUGH CHEQUES TO THE ASSESSEE AND EVI DENCE THAT ALL OF THEM ARE INCOME-TAX ASSESSEES THEN IT CANNOT BE SAID THA T ASSESSEE HAS STILL TO DISCHARGE THE ONUS. REGARDING THE NON-ATTENDANCE OF CREDITORS, THE AO HAS POWER UNDER INCOME-TAX ACT TO ENSURE THEIR COMP LIANCE. THE NON- ATTENDANCE BY SHAREHOLDERS CANNOT BE USED AGAINST T HE APPELLANT IF APPELLANT HAS ALREADY DISCHARGED ITS ONUS. THERE IS NO DISPUTE THAT THESE SHAREHOLDERS ARE ASSESSED TO TAX SINCE MANY YEARS A ND THEREFORE NOT KEEPING SUFFICIENT BANK BALANCE TO THE EXTENT OF SH ARE APPLICATION MONEY IS NOT RELEVANT. WHEN THESE PERSONS ARE REGULARLY F ILING THEIR INCOME TAX RETURNS FOR LAST MANY YEARS, THEIR CREDITWORTHINESS CANNOT BE DOUBTED. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD.(SUPRA) HAS HELD THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHARE HOLDERS W HOSE NAMES ARE GIVEN TO THE AO THEN THE DEPARTMENT IS FREE TO PROC EED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. IN O UR OPINION THIS ITA NO.1572/AHD/2011 ASST. YEAR 2007-08 22 DECISION IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND THE SUBSEQUENT DECISIONS OF VARIOUS HIGH COURTS ARE VER Y CLEAR ON THIS ISSUE. THEREFORE, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE IMPUGNED ADDITION. WE CONFIRM HIS ORDER. THE GROUND RAISED BY THE REVE NUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 9. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 7/10/2011 SD/- SD/- (A. K. GARODIA) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VI, AHMEDABAD. 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 20/9/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 29/9/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..