ITO, New Delhi V. Daya Footwear (P) Ltd., Delhi

ITA 1620/DEL/2011

• Counselvise Citation: 162020114 RSA 2011
• Duration Of Justice: 4 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Keywords: Unexplained cash credit; Opportunity of being heard; Accommodation entries; Onus to prove
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B, NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 1620/DEL/2011 ASSESSMENT YEAR : 2006-07 ITO, WARD 10(2), VS. DAYA FOOTWEAR (P) LTD., NEW DELHI 105B, VIKRANT ENCLAVE, MAYAPURI, DELHI GIR / PAN:AABCD4549F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.VASANTHAN, SR. DR RESPONDENT BY : SHRI K SAMPATH, ADV. DATE OF HEARING : 31.03.2015 DATE OF PRONOUNCEMENT : 16.04.2015 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORD ER OF LD. CIT(A) DATED 20.01.2011. THE REVENUE IS AGGRIEVED WITH T HE ACTION OF LD. CIT(A) BY WHICH HE HAD DELETED THE ADDITION OF RS.31 LACS MADE BY A.O. U/S 68 OF THE I. T. ACT, 1961. 2. THE BRIEF FACTS OF THE CASE AS NOTED FROM THE AS SESSMENT ORDER ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF FOOTWEAR AND DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RE TURN DECLARING LOSS OF RS.4,61,676/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT SHAR E CAPITAL OF THE ASSESSEE COMPANY HAD INCREASED FROM RS.52 LACS TO RS.83 LACS , THEREFORE, THE ASSESSEE ITA NO.1620/DEL/2011 2 WAS REQUIRED TO ESTABLISH THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF SHAREHOLDERS. THE ASSESSEE IN REPLY FILED DETAILS OF SHARE APPLICANTS ALONG WITH THEIR CONFIRMATIONS. THE A.O. OBSERVED THAT T HE CONFIRMATIONS WERE NOT SUPPORTED BY COPIES OF INCOME TAX RETURNS, COPIES O F P & L ACCOUNT AND BANK STATEMENTS EVIDENCING THE TRANSACTIONS. THE A.O. F URTHER OBSERVED THAT AS PER THE INFORMATION RECEIVED FROM DIT (INVESTIGATIO N), THE AMOUNTS RECEIVED FROM THE PERSONS WERE IN FACT ACCOMMODATION ENTRIES , THEREFORE, THE ASSESSEE WAS ASKED AS TO WHY THE PROVISIONS OF SECTION 68 BE NOT APPLIED IN THIS CASE AND THE ASSESSEE WAS ALSO DIRECTED TO FILE COPIES O F INCOME TAX RETURNS, BANK STATEMENTS, P & L ACCOUNT ETC. AND IN RESPONSE, THE ASSESSEE FILED COPIES OF BANK ACCOUNTS OF TWO SHARE APPLICANTS FROM THE PER USAL OF THE BANK STATEMENTS, THE A.O. OBSERVED THAT BEFORE ISSUING O F CHEQUE IN THE NAME OF ASSESSEE COMPANY, THERE WAS SIMULTANEOUS DEPOSITS I N THE BANK ACCOUNT. THE A.O. FURTHER NOTED THAT COPIES OF ITR PROVIDED BY ASSESSEE RELATED TO ASSESSMENT YEAR 2004-05 AND THE ASSESSEE WAS COMMUN ICATED ABOUT THIS FACT. HOWEVER, ASSESSEE DID NOT FILE THE RELEVANT I NCOME TAX RETURNS AND DID NOT SUBMIT ANY EXPLANATION, THEREFORE, THE A.O. REL YING UPON VARIOUS CASE LAWS, MADE ADDITION OF RS.31 LACS U/S 68 OF THE ACT . 3. ON APPEAL BEFORE LD. CIT(A), LD. CIT(A) HELD THA T ASSESSEE HAD SUBMITTED THE NECESSARY DETAILS LIKE PAN, COPIES OF RESOLUTION, COPIES OF BANK STATEMENTS, FORM OF ANNUAL RETURNS ETC AND, TH EREFORE, HE ALLOWED THE RELIEF BY HOLDING AS UNDER: 4. FINDING ON GROUND OF APPEAL IT IS SEEN FROM THE SUBMISSIONS AND PAPER BOOK FILE D BY THE APPELLANT THAT IN ORDER TO SUBSTANTIATE THE CLAIM THAT THE AB OVE MENTIONED SIX SHARE APPLICANTS ARE EXISTING AND THE TRANSACTIONS ARE GENUINE, THE APPELLANT HAD FILED THE FOLLOWING DOCUMENTS BEFORE THE AO:- A. COPY OF SHARE APPLICATION FORM. ITA NO.1620/DEL/2011 3 B. CONFIRMATION FOR SHARE CAPITAL CONTRIBUTION FRO M THE ABOVE SHAREHOLDERS, GIVING DETAILS OF THE CHEQUE AND BANK THROUGH WHICH THE SHARE APPLICATION HAS BEEN MADE. C. PAN DETAILS AND ASSESSING OFFICERS JURISDICTION OF THE SHAREHOLDERS. D. IT RETURNS COPIES OF THE SHAREHOLDERS. E. COPY OF RESOLUTION PASSED BY BOARD OF SHARE APPL ICANT COMPANIES IN RESPECT OF AUTHORIZATION TO INVEST IN SHARES IN THE APPELLANT COMPANY. F. COPY OF BANK STATEMENT G. CERTIFICATE OF INCORPORATION OF SHARE HOLDER COM PANY & FROM NO. 18 & 32 FILED WITH ROC H. MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE SH ARE HOLDER COMPANY AS WELL AS THEIR BALANCE SHEET, PROFIT AND LOSS ACCOUNT WITH SCHEDULES. I. FORM OF ANNUAL RETURN IN FORM 2-B FILED WITH ROC . THUS FROM THE ABOVE DETAILS AND PLACING RELIANCE ON THE LATEST DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F DWARKADHISH INVESTMENT PVT. LTD. 2010 INDLAW DEL 1969, IN WHICH VARIOUS DECISIONS OF HIGH COURT AND THAT OF S C HAS BEEN CONSIDERED, IT IS OBSERVED THAT THE APPELLANT HAS DISCHARGED THE INITIAL BURDEN PLA CED ON IT TO PROVE THE IDENTITY AND EXISTENCE OF THE SHARE APPLICANTS, WHOSE PAN DETAILS AND INCOME TAX RETURNS HAVE ALSO BEEN FILED ON RECO RD. THE FACT THAT THE SHARE APPLICATION MONEY FROM THE APPLICANTS HAV E BEEN RECEIVED THROUGH BANKING CHANNEL AND THE FACT THAT THE SHARE S HAVE BEEN ALLOTTED TO THESE COMPANIES ON 31.03.06 AS EVIDENCE D FROM THE RETURN OF ALLOTMENTS IN FORM NO 2 FILED WITH THE DEPARTMEN T OF COMPANY AFFAIRS FURTHER GOES TO SUBSTANTIATE THE IDENTITY O F THE SHARE APPLICANTS AND GENUINENESS OF THE TRANSACTION IN CASE OF THESE INVESTORS. SO FAR AS THE ISSUE OF CREDITWORTHINESS OF THE SHARE SUBSCRIB ER COMPANY ARE CONCERNED, THE HON'BLE S.C. IN CASE OF LOVELY EXPOR TS P. LTD. 216 CTR'. 195 HAS HELD THAT IF THE SHARE APPLICATION M ONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHARE HOLDE RS WHOSE NAMES ARE GIVEN TO THE AO THEN THE DEPARTMENT IS FREE TO PROCEED IN THEIR INDIVIDUAL ASSESSMENT, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY. ON THIS ISSUE ANOTH ER DECISION OF DELHI HIGH COURT IN CASE OF CIT VS. VALUE CAPITAL S ERVICES (307 ITR 334) CITED ABOVE BY THE APPELLANT IS ALSO QUITE REL EVANT WHEREIN THE COURT INTER ALIA OBSERVED THAT THERE IS ADDITIONAL BURDEN ON THE ITA NO.1620/DEL/2011 4 REVENUE IN AS MUCH AS EVEN IF THE APPLICANT DOES NO T HAVE THE MEANS FOR THE INVESTMENT, IT MUST SHOW THAT THE INVESTMEN T MADE BY THE APPLICANT ACTUALLY EMANATED FROM THE COFFERS OF THE ASSESSEE SO AS TO ENABLE IT TO BE TREATED AS UNDISCLOSED INCOME OF TH E ASSESSEE. FURTHER THE FOLLOWING OBSERVATION OF THE JURISDICTIONAL H.C . IN CASE OF CIT VS. DIVINE LEASING AND FINANCE LTD. ( 207 CTR 38), WHIC H HAS BEEN QUOTED WITH APPROVAL IN THE CASE OF DWARKADHISH INV ESTMENT (SUPRA) ARE ALSO QUITE RELEVANT VIZ. 'IN THIS ANALYSIS A DISTILLATION OF THE PRECEDENTS YIELDS THE FOLLOWING PROPOSITIONS OF LAW IN THE CONTEXT OF SEC TION 68 OF THE IT ACT. THE ASSESSEE HAS TO PRIMA FACIE PROVE (1) THE IDENT ITY OF THE CREDITOR/ SUBSCRIBER; (2) THE GENUINENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTED THROUGH BANKING OR OTHER INDIS PUTABLE CHANNELS: (3) THE CREDIT WORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/ SUBSCRIBER (4) IF RELEVANT DETAILS OF THE ADDRESS P AN IDENTITY OF THE CREDITOR/SUBSCRIBER ARE FURNISHED TO THE DEPARTMENT ALONG WITH THE COPIES OF THE SHAREHOLDERS REGISTER, SHARED APPLICA TION FORMS, SHARE TRANSFER REGISTER ETC. IT WOULD CONSTITUTE ACCEPTAB LE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE. (5) THE DEP ARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY B ECAUSE THE CREDITOR SUBSCRIBER FAILS OR NEGLECTS TO RESPONDS TO ITS NOT ICES: (6) THE ONUS WOULD NOT STAND DISCHARGED IF THE CREDITOR /SUBSCRI BER DENIES OR REPUDIATES THE TRANSACTION SET UP BY THE ASSESSEE N OR SHOULD THE AO TAKE SUCH REPUDIATION AT FACE VALUE AND CONSTRUE IT WITHOUT MORE AGAINST THE ASSESSEE. (7) THE AO IS DUTY BOUND TO I NVESTIGATION THE CREDIT WORTHINESS OR THE CREDITOR/ SUBSCRIBER THE G ENUINENESS OF THE TRANSACTION AND THE VERACITY OF THE REPUDIATION. ' IT IS OBSERVED FROM THE FACTS OF THE CASE THAT THE AO HAS MADE THE ADDITION DUE TO THE REASON THAT CERTAIN INFORM ATION HAD BEEN RECEIVED FROM DIRECTOR OF INCOME TAX (INVESTIGATION ) THAT AN AMOUNT OF RS. 4 LACS HAS BEEN RECEIVED BY THE APPELLANT FR OM KUBERCO SALES P. LTD AND FOR RS.4.50 LACS FROM SPARROW MARKETING P. LTD., ARE IN FACT ACCOMMODATION ENTRIES. IT HAS ALSO BEEN REFERR ED TO BY THE AO THAT FROM A PERUSAL OF BANK STATEMENTS EVIDENCING T HE TRANSACTIONS IN CASE OF RIZZER EXIM P. LTD. AND MADAN ELECTRONICS P . LTD. IT IS NOTED THAT IMMEDIATELY BEFORE THE DEBIT ENTRY FOR RS. 4 L ACS ON 16.12.05 THERE WAS A DEPOSIT OF RS. 3,86,715/- ON 15.01.85 ' WHICH REMAINED ITA NO.1620/DEL/2011 5 UNEXPLAINED. SIMILARLY IN THE BANK STATEMENT OF MAD AN ELECTRONICS P. LTD. THERE HAS BEEN DEPOSIT OF RS. 4 LACS ON 15.12. 05 AND DEPOSIT OF RS.3,85,000/- ON 04.02.06 IMMEDIATELY BEFORE THE MA KING OF THE SHARE INVESTMENTS. IT HAS .ALSO BEEN NOTED BY THE AO THAT WHILE THE ASSESSEE HAS SUBMITTED THE COPY OF INCOME TAX RETURNS OF THE PARTIES WHO HAVE CONTRIBUTED TO THE SHARE CAPITAL BUT THEY PERTAIN T O A Y 04-05 AND THEREFORE THE ASSESSEE HAS FAILED TO ESTABLISHED TH E FINANCIAL STANDING OF THE PARTIES DURING THE RELEVANT ASSESSMENT YEAR AND THUS CREDITWORTHINESS OF THE SHAREHOLDERS HAS NOT BEEN E STABLISHED. IT HAS BEEN CONCLUDED THAT AS THE ASSESSEE HAD FAILED TO E STABLISH THE GENUINENESS OF THE TRANSACTION (AS THE DEPOSIT OF S AME OR ALMOST THE SAME AMOUNT BEFORE THE TRANSACTION CASE DOUBT OVER ITS GENUINENESS) AND CREDITWORTHINESS OF THE SHAREHOLDERS IN THE FOR M OF THEIR INCOME TAX RETURN FOR RELEVANT A Y, COMPUTATION OF INCOME, BALANCE SHEET ETC. THEREFORE THE SHARE CAPITAL FOR RS. 31 LACS HAS BEE N TREATED AS UNEXPLAINED CASH CREDITS U/S 68 OF THE IT ACT BY TH E AO. IN VIEW OF THE FACT THAT THE ASSESSEE HAS FILED THE COPY OF PAN, COPIES OF INCOME TAX RETURN & CHEQUE DETAILS THROUG H WHICH THE TRANSACTIONS HAVE BEEN EFFECTED AND OTHER DETAILS F ILED WITH THE REGISTRAR OF THE COMPANIES REGARDING ALLOTMENT OF S HARES TO THE INVESTORS. IT CANNOT BE SAID THAT THE IDENTITY OF T HE SUBSCRIBER IS NOT ESTABLISHED. IN FACT MERELY BECAUSE THE ITR, P & L A/C & BALANCE SHEET FOR A Y 2006-07 IN CASE OF THE SHARE APPLICAN TS HAVE NOT BEEN FURNISHED BY THE ASSESSEE DOES NOT GET TO DISPROVE THE IDENTITY OF THE SHAREHOLDERS IN VIEW OF THE DETAILS FURNISHED ON RE CORD. ON THIS ISSUE RELIANCE IS ALSO PLACED ON THE DECISION OF THE JURI SDICTIONAL HIGH COURT IN CASE OF CIT VS. WINSTRAL PETROCHEMICALS P. LTD. 41 DTR DEL 139, WHERE IN CONCLUDING PARA NO. 11 THE COURT HAS HELD THAT 'THE A 0 WAS NOT JUSTIFIED IN ADDING THE AMOUNT OF SHARE APP LICATION MONEY TO THE INCOME OF THE ASSESSEE, MERELY BECAUSE THE APPL ICANTS DID NOT RESPOND TO THE NOTICES SENT TO THEM. IF THE AO SO W ANTED, HE COULD HAVE FOUND OUT THE CURRENT ADDRESS OF THOSE APPLICA NTS, WHO, ACCORDING TO THE REPORT OF THE INSPECTOR, WERE NOT FOUND FUNCTIONING AT THE ADDRESS GIVEN TO THE AO, BY SUMMONING THE DIREC TORS, ETC., OF THOSE COMPANIES AND ASKING THEM TO FURNISH THE CURR ENT ADDRESS OF THE COMPANY. THE NAMES AND ADDRESSES OF THE DIRECTORS, IF NOT AVAILABLE WITH THE ASSESSEE, COULD HAVE BEEN OBTAINED FROM TH E OFFICE OF THE ROC OR FROM THE BANKS ON WHICH THE CHEQUE WERE DRAW N. NO SUCH ITA NO.1620/DEL/2011 6 ATTEMPT, HOWEVER, WAS MADE BY THE AD. IN THESE CIRC UMSTANCES, WE FIND NO REASON TO DISTURB THE FINDING RECORDED BY T HE TRIBUNAL. FURTHER THE OBSERVATION OF THE JURISDICTION H.C. IN DWARKADHISH INVESTMENT (SUPRA) MADE IN PARA 8 THERE OF ARE ALSO RELEVANT IN THE FACTS OF THE APPELLANT CASE. THE RE LEVANT PART OF THIS JUDGMENT IS AS UNDER:- 'IN ANY MATTER, THE ONUS OF PROOF IS NOT A STATIC O NE. THOUGH IN SECTION 68 PROCEEDINGS, THE INITIAL BURDEN OF PROOF LIES ON THE ASSESSEE YET ONCE HE PROVES THE IDENTITY OF THE CREDITORS/SH ARE APPLICANTS BY EITHER FURNISHING THEIR PAN NUMBER OR INCOME TAX AS SESSMENT NUMBER AND SHOWS THE GENUINENESS OF TRANSACTION BY SHOWING MONEY IN HIS BOOKS EITHER BY ACCOUNT PAYEE CHEQUE OR BY DRAFT OR BY ANY OTHER MODE THEN THE ONUS OF PROOF WOULD SHIFT TO THE REVE NUE. JUST BECAUSE THE CREDITORS/SHARE APPLICANTS COULD NOT BE FOUND A T THE ADDRESS GIVEN, IT WOULD NOT GIVE THE REVENUE THE RIGHT TO INVOKE S ECTION 68. ... MOREOVER, IT IS SETTLED LAW THAT THE ASSESSEE NEED NOT TO PROVE THE' SOURCE OF SOURCE. ' AS REGARDS THE FACT THAT MONEY (BY WAY OF CLEARING IN THE BANK A/C) HAS BEEN DEPOSITED IN THE ACCOUNT OF THE SHARE HOLDERS JUST BEFORE ISSUE OF CHEQUE FOR SHARE APPLICATION MONEY, IT HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. GOURDI N HERBALS INDIA LTD. IN ITA NO. 665/2009 DATED 17.09.09 THAT IN A C ASE WHERE THE SHARE APPLICANT COMPANY HAD RECEIVED CERTAIN CASH, WHICH WAS DEPOSITED IN THEIR BANK ACCOUNT IT WAS FOR THE INCO ME TAX DEPARTMENT TO TAKE ACTION AGAINST THE SAID COMPANIES. NOW IN T HE FACTS OF THE PRESENT CASE THE MONEYS HAVE BEEN DEPOSITED THROUGH CLEARING CHEQUES. THE HC HAS FOLLOWED THE JUDGMENT OF SC IN CASE OF CIT VS. LOVELY EXPORTS P. LTD. 216 CTR 195 IN COMING TO THE ABOVE DECISION. IT IS OBSERVED IN THE FACTS OF THE CASE THAT THE AS SESSING OFFICER HAS SIMPLY REFERRED TO CERTAIN INFORMATION RECEIVED FRO M INVESTIGATION WING WHEREIN TWO OF THE SUBSCRIBERS COMPANIES TO TH E SHARE CAPITAL HAVE BEEN FOUND TO BE PROVIDING ACCOMMODATION ENTRI ES. THESE STATEMENTS / INFORMATION WHICH HAVE BEEN COLLECTED AT THE BACK OF THE ASSESSEE HAVE NOT BEEN CONFRONTED AND NEITHER ANY C ROSS-EXAMINATION HAS BEEN PROVIDED TO THE ASSESSEE. THE AO HAS ALSO REJECTED THE CONFIRMATION & OTHER DOCUMENTS OF SHARE APPLICANTS WITHOUT ITA NO.1620/DEL/2011 7 EXAMINING THE SHARE HOLDERS WHOSE IDENTITY AND EXIS TENCE CANNOT BE DOUBTED IN VIEW OF THE DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE. IN THIS CONNECTION THE OBSERVATION OF THE JURISDICT IONAL HIGH COURT IN CASE OF DWARKADHISH INVESTMENT (SUPRA) ARE QUITE RE LEVANT WHERE THE COURT HAS OBSERVED THAT IT IS THE REVENUE WHICH HAS ALL THE POWER AND WHEREWITHAL TO TRACE ANY PERSON. MOREOVER, IT IS SE TTLED LAW THAT THE ASSESSEE NEED NOT PROVE THE' SOURCE OF SOURCE'. RELIANCE IS ALSO PLACED ON THE DECISION OF DELHI H. C. IN CASE OF CIT VS. ASHWANI GUPTA ( 322 ITR 396) AND CIT VS. SMC SH ARE BROKERS LTD. {288 ITR 345) WHERE THE ADDITION MADE BY THE A O HAS HELD AS DELETED AS THE AO HAS PASSED THE ASSESSMENT ORDER I N VIOLATION OF THE PRINCIPLES OF NATURE JUSTICE IN AS MUCH AS NO CROSS EXAMINATION WAS ALLOWED TO THE ASSESSEE ON BASIS OF WHOSE STATEMENT THE SAID ADDITION WAS MADE. IN VIEW OF THE ABOVE DISCUSSION IT IS HELD THAT THE APPELLANT'S CASE IS SQUARELY COVERED BY THE RATIO OF VARIOUS DE CISIONS OF THE HIGH COURT'S & SUPREME COURT DISCUSSED ABOVE. FROM THE N ECESSARY EVIDENCES I DETAILS PROVIDED TO THE AO DURING THE P ROCEEDINGS IT IS SEEN THAT THE INITIAL ONUS HAS BEEN DULY DISCHARGED BY THE APPELLANT COMPANY. AS DISCUSSED ABOVE, THE INVESTIGATION DONE BY THE AO IS NOT SUFFICIENT / ADEQUATE TO CONTROVERT THE APPELLANT'S EXPLANATION AND TO HOLD THAT THE 'IMPUGNED SHARE APPLICATION MONEY IS THE UNDISCLOSED INCOME OF THE APPELLANT. RESPECTFULLY FOLLOWING TH E DECISIONS OF JURISDICTIONAL HIGH COURT AND THE HON'BLE SUPREME C OURT (SUPRA) PARTICULARLY THE LATEST JUDGMENT OF DWARKADHISH INV ESTMENT CP) LTD. 20 I 0- TLOL-617-HS-DEL-IT, THE ADDITION MADE FOR R S. 31,00,0001- IS DIRECTED TO BE DELETED. THE OTHER GROUNDS OF APP EAL ARE GENERAL AND CONSEQUENTIAL IN NATURE AND THEREFORE NO ADJUDICATI ON IS REQUIRED. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. AT THE OUTSET, LD. D.R. SUBMITTED THAT THE ASSESSEE DID NOT FILE COPIES OF INCOME TAX RETURNS FOR THE RELEVANT PERIOD DESPITE THE FACT THAT IT WAS COMMUN ICATED TO IT THAT THE COPIES OF RETURNS FILED BY ASSESSEE RELATED TO EARLIER YEA RS. HE ARGUED THAT THOUGH LD. CIT(A) HAS NOTED THIS FACT THAT THE COPIES OF R ETURNS RELATED TO EARLIER ITA NO.1620/DEL/2011 8 YEARS HE HAS SIMPLY IGNORED THIS FACT AND HE EVEN H AS NOT DISCUSSED THE CREDITWORTHINESS OF SHAREHOLDERS. HE ALSO SUBMITTE D THAT MONEY IN THE BANK ACCOUNT OF SHARE APPLICANTS WAS DEPOSITED IN THEIR ACCOUNTS ONLY A DAY OR TWO BEFORE THE ISSUANCE OF CHEQUE. IT WAS FURTHER SUBM ITTED THAT DIT (INV.) HAS HELD THAT THE SHARE APPLICANTS WERE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES, THEREFORE, THE CASE LAW OF N OVA PROMOTERS 342 ITR 169 IS SQUARELY APPLICABLE IN THIS CASE. LD. D.R. ALSO PLACED HIS RELIANCE ON THE CASE LAW OF HON'BLE DELHI HIGH COURT IN THE CA SE OF CIT VS EMPIRE BUILDTECH (P) LTD. 366 ITR 110. IN VIEW OF ABOVE, LD. D.R. SUBMITTED THAT ONLY PROVIDING CERTAIN DOCUMENTS WAS NOT SUFFICIENT TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF SHARE APPLICANT S. 5. LD. A.R. ON THE OTHER HAND INVITED OUR ATTENTION TO PARA 8 OF LD. CIT(A)S ORDER AND SUBMITTED THAT THE DOCUMENTS LIS TED AT (A) TO (I) WERE PROVIDED TO A.O. AND THESE DOCUMENTS WERE SUFFICIEN T TO ESTABLISH THE IDENTITY OF THE SHARE APPLICANTS. LD. A.R. FURTHER SUBMITTED THAT ONLY PAN DETAILS WERE SUFFICIENT TO ESTABLISH THE IDENTITY O F THE SHARE APPLICANTS. THE GENUINENESS OF TRANSACTIONS WERE PROVED AS THE TRAN SACTIONS WERE MADE THROUGH BANKING CHANNELS. IT WAS SUBMITTED THAT IN ITIAL BURDEN WAS DISCHARGED BY ASSESSEE AND THE A.O. HAD TO COME BAC K WITH HIS OBJECTIONS ON THE DOCUMENTS BEFORE MAKING ADDITIONS U/S 68. LD. A.R. RELYING UPON A NUMBER OF CASE LAWS AS PLACED IN THE PAPER BOOK RUN NING INTO 52 PAGES, SPECIFICALLY ON THE CASE LAW OF CIT(A) VS GANGESHWA R METAL PVT. LTD. 214 TAXMAN 243 SUBMITTED THAT HON'BLE HIGH COURT HAS DI SCUSSED THE CASE LAW OF NOVA PROMOTERS AND HAS DECIDED THE ISSUE IN FAVO UR OF ASSESSEE. LD. A.R. ALSO PLACED HIS RELIANCE ON THE CASE LAW OF CI T VS VINSTAL PETRO CHEMICALS PVT. LTD. 330 ITR 603 DEL. LD. D.R. IN H IS REJOINDER SUBMITTED ITA NO.1620/DEL/2011 9 THAT NO BANK STATEMENT / COPIES OF I T RETURNS RELA TING TO THE YEAR UNDER CONSIDERATION WEE SUBMITTED TO ASSESSING OFFICER. 6. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT THE A.O. HAS MADE ADDITION RELYING UPON A NUMBER OF CASE LAWS WHEREAS LD. CIT(A) HAS ALLOWED RELIEF TO THE ASSESSEE AGAIN RELYING UPON A NUMBER OF CASE LAWS. HOWEVER, THE F ACT OF THE MATTER REMAINED THAT THE ASSESSEE HAD ACCEPTED THE SHARE A PPLICATION MONEY FROM 6 SHARE APPLICANTS WHOSE IDENTITY WAS THOUGH PROVED B UT THE OTHER TWO ESSENTIAL INGREDIENTS SUCH AS CREDITWORTHINESS AND GENUINENESS OF TRANSACTIONS WAS NOT PROVED AS ASSESSEE HAD NOT FIL ED COPIES OF INCOME TAX RETURNS FOR THE RELEVANT PERIOD AND LD. CIT(A) HAS ALSO NOT MADE ANY COMMENT ON THE CREDITWORTHINESS OF SHARE APPLICANTS . SIMPLY SUBMITTING CERTAIN DOCUMENTS SUCH AS COPY OF SHARE APPLICATION FORMS, DOCUMENTS SHOWING ALLOTMENT OF SHARES, COPIES OF ANNUAL RETUR NS, PAN DETAILS DOES NOT MAKE THE TRANSACTIONS GENUINE SPECIFICALLY IN VIEW OF THE FACT THAT THERE WAS INFORMATION AVAILABLE WITH THE A.O. THROUGH DIRECTO R (INVESTIGATION) THAT SOME OF SHARE APPLICANTS WERE ACCOMMODATION ENTRY P ROVIDERS. THE FACT THAT THE FUNDS WERE RECEIVED THROUGH BANKING CHANNELS CA NNOT ITSELF MAKE THE BASIS TO CLAIM THAT GENUINENESS OF TRANSACTIONS WAS PROVED. IN ANY CASE, INVOLVING RECEIPT OF FUNDS THROUGH ACCOMMODATION EN TRIES, THE FUNDS ARE ALWAYS ROUTED THROUGH BANKING CHANNELS. FOR ESTABL ISHING THE GENUINENESS OF SUCH SHARE TRANSACTIONS, ESPECIALLY IN THE CASE OF PRIVATE LIMITED COMPANIES ANY PRUDENT PERSON WOULD FIRST ASCERTAIN AS TO WHETHER THE INVESTEE COMPANY WAS WORTH MAKING INVESTMENT. IN T HE PRESENT CASE, THE ASSESSEE IS A LOSS MAKING COMPANY AND ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH AS TO WHY AN ORDINARY PERSON OF EVEN HAVI NG LITTLE PRUDENCE WILL ITA NO.1620/DEL/2011 10 INVEST IN SUCH A COMPANY. AS REGARDS, CREDITWORTHI NESS, LD. CIT(A) HAS NOT MADE ANY FINDING AS TO WHAT WERE THE EARNINGS OF TH ESE COMPANIES AND WHAT WERE THE NET OWNED FUNDS. LD. CIT(A) STRESSED COMP LIANCE ONLY OF ONE INGREDIENT AND THAT IS IDENTITY OF SHAREHOLDERS AND THE OTHER TWO ESSENTIAL INGREDIENTS SUCH AS GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF SHAREHOLDERS HAS BEEN IGNORED. MOREOVER, THERE IS CERTAIN SET PATTERN OF ENTRIES IN THE BANK ACCOUNTS OF ALLEGED SHAREHOLDER S WHEREBY BEFORE ISSUANCE OF CHEQUES, THE SHARE APPLICANTS HAD GOT DEPOSITS A LMOST EQUIVALENT AMOUNTS IN THEIR BANK ACCOUNTS. MOREOVER, THE FACT REMAINE D THAT A.O. HAD THE INFORMATION THAT THE SHARE APPLICANTS WERE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES AND THEREFORE, THE RATIO OF NOVA PROMOTERS AND FINLEASE 342 ITR 169 IS SQUARELY APPLICABLE IN THIS CASE. THEREFORE, IN THE ABSENCE OF PROPER EXPLANATION OF CREDITS, THE O NLY OPTION AVAILABLE WITH THE A.O. WAS TO MAKE ADDITION U/S 68 OF THE ACT. T HE ASSESSEE CANNOT BE ALLOWED RELIEF SIMPLY HOLDING THAT ASSESSEE HAD DIS CHARGED ITS ONUS BY FILING CERTAIN DOCUMENTS AND THE A.O. HAD FAILED TO TAKE F URTHER ACTION. MOREOVER, WE FIND THAT WHEN ASSESSEE FILED DOCUMENTS WITHOUT COPIES OF BANK STATEMENTS AND COPIES OF RETURN THIS FACT WAS BROUG HT TO THE NOTICE OF ASSESSEE BY A.O. AS NOTED BY HIM ON THE FIRST PAGE OF HIS ORDER. THE ASSESSEE WAS DIRECTED TO FILE COPIES OF BANK STATEMENTS P &L ACCOUNTS, BALANCE SHEETS AND COPIES OF RETURNS VIDE ORDER SHEET ENTRY DATED 05.12.2008. WHEN ON 24.12.2008, THE ASSESSEE FILED COPIES OF INCOME TAX RETURNS, THE A.O. BROUGHT TO THE NOTICE OF ASSESSEE THAT THE RETURNS RELATE T O EARLIER YEAR BUT ASSESSEE DID NOT FILE THE RELEVANT RETURNS. SIMILARLY REGARDING QUERY OF A.O. THAT ASSESSEE HAD RECEIVED ACCOMMODATION ENTRIES; NO EXPLANATION WAS FILED BY ASSESSEE. IN VIEW OF THE ABOVE, THE ARGUMENT OF LD. A.R. THAT A.O. HAD NOT POINTED OUT ITA NO.1620/DEL/2011 11 DEFECTS IN THE DOCUMENTS SO FILED, IS NOT CORRECT. THEREFORE, IN THE ABSENCE OF PROPER EXPLANATION FOR CASH CREDITS, THE A.O. WAS B OUND TO MAKE ADDITIONS U/S 68. LD. CIT(A) SHOULD HAVE CONTINUED FROM WHER E A.O. HAD LEFT AND INSTEAD OF DOING SO HE ALLOWED THE RELIEF SIMPLY BY HOLDING THAT ASSESSEE HAD COMPLETED ITS PART OF ONUS, WHICH IN OUR OPINION IS NOT THE PROPER DISCHARGE OF ONUS AS ONUS HAD AGAIN SHIFTED TO ASSESSEE WHEN A.O. BROUGHT TO THE NOTICE OF ASSESSEE ABOUT THE DEFECTS IN DOCUMENTS. IN THE HIERARCHY OF INCOME TAX PROCEEDINGS, THE A.O. IS PLACED AT THE BOTTOM O F THE JURISDICTION AND CIT(A) LIES ABOVE A.O. AND ITAT LIES ABOVE CIT(A). THE A.O. IS BOUND TO CONDUCT PROPER INQUIRY AND ARRIVE AT PROPER FINDING BASED UPON FACTS AND CIRCUMSTANCES OF EACH CASE AND IN THE CASE OF FAILU RE OF A.O. TO CONDUCT SUCH INQUIRY, THE OBLIGATION MOVES TOWARDS LD. CIT(A). IN THE PRESENT CASE, LD. CIT(A) HAS ALLOWED RELIEF RELYING UPON THE RATIO OF CERTAIN CASE LAWS AND HAS NOT CONDUCTED ANY INQUIRY WHICH HE SHOULD HAVE COND UCTED TO COMPENSATE THE NON ACTION OF THE A.O. IF ANY. HON'BLE DELHI HI GH COURT IN THE CASE OF CITVS JANSAMPARK ADVERTISING AND MARKETING PVT. LTD . VIDE ITS JUDGEMENT DELIVERED ON 11.03.2015 UNDER SIMILAR CIRCUMSTANCES , ELABORATED THE DUTIES OF A.O. AND CIT(A) AND ITAT IN THE FOLLOWING MANNER . II) THUS, WHEN THE AO SETS ABOUT SEEKING EXPLANATI ON FOR THE UNACCOUNTED CREDIT ENTRIES IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IN TERMS OF SECTION 68, IT IS LEGITIMATELY EXPECTED TH AT THE EXERCISE WOULD BE TAKEN TO THE LOGICAL END, IN ALL FAIRNESS TAKING INTO ACCOUNT THE MATERIAL SUBMITTED BY THE ASSESSEE IN SUPPORT OF HI S ASSERTION THAT THE PERSON MAKING THE PAYMENT IS REAL, AND NOT NON-EXIS TENT, AND THAT SUCH OTHER PERSON WAS ACTUALLY THE SOURCE OF THE MO NEY FORMING THE SUBJECT MAILER OF THE TRANSACTION AS INDEED THAT TH E TRANSACTION IS REAL AND GENUINE, SAME AS IT IS REPRESENTED TO BE. HAVIN G EMBARKED UPON SUCH EXERCISE, THE AO IS NOT EXPECTED TO SHORT-SHRI FT THE INQUIRY OR IGNORE THE MATERIAL SUBMITTED BY THE ASSESSEE. ITA NO.1620/DEL/2011 12 (IV) THE PROVISION OF APPEAL, BEFORE THE CIT (APPEA LS) AND THEN BEFORE THE ITAT, IS MADE MORE AS A CHECK ON THE ABUSE OF P OWER AND AUTHORITY BY THE AO. WHILST IT IS TRUE THAT IT IS T HE OBLIGATION OF THE AO TO CONDUCT PROPER SCRUTINY OF THE MATERIAL, GIVEN T HE FACT THAT THE TWO APPELLATE AUTHORITIES ABOVE ARE ALSO FORUMS FOR FAC T-FINDING, IN THE EVENT OF AO FAILING TO DISCHARGE HIS FUNCTIONS PROP ERLY, THE OBLIGATION TO CONDUCT PROPER INQUIRY ON FACTS WOULD NATURALLY SHIFT TO THE DOOR OF THE SAID APPELLATE AUTHORITY. (V) THE AO HERE MAY HAVE FAILED TO DISCHARGE HIS OB LIGATION TO CONDUCT A PROPER INQUIRY TO TAKE THE MATTER TO LOGI CAL CONCLUSION. BUT CIT (APPEALS), HAVING NOTICED WANT OF PROPER INQUIR Y, COULD NOT HAVE CLOSED THE CHAPTER SIMPLY BY ALLOWING THE APPEAL AN D DELETING THE ADDITIONS MADE. IT WAS ALSO THE OBLIGATION OF THE F IRST APPELLATE AUTHORITY, AS INDEED OF ITAT, TO HAVE ENSURED THAT EFFECTIVE INQUIRY WAS CARRIED OUT, PARTICULARLY IN THE FACE OF THE AL LEGATIONS OF THE REVENUE THAT THE ACCOUNT STATEMENTS REVEAL A UNIFOR M PATTERN OF CASH DEPOSITS OF EQUAL AMOUNTS IN THE RESPECTIVE ACCOUNT S PRECEDING THE TRANSACTIONS IN QUESTION. THIS NECESSITATED A DETAI LED SCRUTINY OF THE MATERIAL SUBMITTED BY THE ASSESSEE IN RESPONSE TO T HE NOTICE UNDER SECTION 148 ISSUED BY THE AO, AS ALSO THE MATERIAL SUBMITTED AT THE STAGE OF APPEALS, IF DEEMED PROPER BY WAY OF MAKING OR CAUSING TO BE MADE A 'FURTHER INQUIRY' IN EXERCISE OF THE POWER U NDER SECTION 250(4). THIS APPROACH NOT HAVING BEEN ADOPTED, THE IMPUGNED ORDER OF ITAT, AND CONSEQUENTLY THAT OF CIT (APPEALS), C ANNOT BE APPROVED OR UPHELD. 7. WE FIND THAT THE HON'BLE DELHI HIGH COURT HAS CL EARLY HELD THAT WHERE A.O. HAS FAILED TO DISCHARGE HIS OBLIGATION TO COND UCT PROPER INQUIRY TO MAKE ADDITIONS THE LD. CIT(A) COULD NOT HAVE CLOSED THE CHAPTER BY SIMPLY ALLOWING THE APPEAL AND DELETING THE ADDITION RELYI NG UPON CERTAIN CASE LAWS AND IGNORING THE FACTS THAT NO DOCUMENTS FOR ESTABL ISHING CREDITWORTHINESS OF ALLEGED SHAREHOLDERS WERE FILED AND INCOME TAX RETU RNS ALSO RELATED TO EARLIER YEARS. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES, W E SET ASIDE THE ISSUE TO THE OFFICE OF LD. CIT(A) WHO SHOULD PASS A WELL REA SONED AND SPEAKING ITA NO.1620/DEL/2011 13 ORDER BASED UPON THE FACTS OF THE CASE AFTER AFFOR DING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN VIEW OF ABOVE, APPEAL FILED BY REVENUE IS ALL OWED FOR STATISTICAL PURPOSES. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH APRIL, 2015. SD./- SD./- (DIVA SINGH) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 16 TH APRIL, 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8/4 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9/4,10, SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 16/4 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 16/4 SR. PS/PS 7 FILE SENT TO BENCH CLERK 16/4 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER