The ACIT, Circle -5, Ahmedabad V. M/s. Nakoda Fashion Pvt.Ltd., Ahmedabad

ITA 1716/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0670 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R B RATH
• Keywords: Bogus Share capital; Gift; Retrospective amendment; Question of law; Accommodation entries; Onus to prove
• Section: 143(3); 142(1); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM, & SHRI MANISH BORAD , AM. ITA NO.1716/AHD/2012 ASST. YEAR: 2009-10 ACIT, CIR-5, AHMEDABAD. VS. NAKODA FASHION PVT. LTD., J-17/18, GHANTAKARNA MAHAVIR MARKET, NR. NEW CLOTH MARKET, SARANGPUR, AHMEDABAD. APPELLANT RESPONDENT PAN AACCS 1393P APPELLANT BY SHRI PRASOON KABRA, SR. DR RESPONDENT BY SHRI R. B. RATH, AR DATE OF HEARING: 22/7/2016 DATE OF PRONOUNCEMENT: 18/8/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL BY REVENUE FOR ASST. YEAR 2009-10 IS D IRECTED AGAINST THE ORDER OF LD. CIT(A)-XI, AHMEDABAD DATED 23.5.2012. ASSESSMENT U/S 143(3) OF THE IT ACT (IN SHORT THE A CT) WAS FRAMED ON 26.12.2011 BY JCIT(OSD) CIRCLE-5, AHMEDABAD. REVENU E HAS RAISED FOLLOWING GROUNDS OF APPEAL :- I) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.3,50,00,000/- U/S 68 OF THE ACT, IN RESPECT OF UNEXPLAINED SHARE CAPITAL AND PREMIUM RECEIVED BY T HE ASSESSEE. ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 2 II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. III) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF GREY CLOTH, DYING PAINTING & PROCESSING IN OTHER PR OCESS HOUSE. RETURN OF INCOME WAS E-FILED ON 28.09.2009 DECLARIN G TOTAL INCOME AT RS.45,85,980/-. CASE WAS SELECTED FOR SCRUTINY ASSE SSMENT THROUGH CASS. NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 7. 6.2011 AND DULY SERVED UPON THE ASSESSEE. NOTICE U/S 142(1) OF THE ACT ALONG WITH DETAILED QUESTIONNAIRE WAS ISSUED ON 25.7.2011. MAJ OR THRUST OF ASSESSING OFFICER WAS TOWARDS EXAMINATION OF AMOUNT RECEIVED DURING THE YEAR AT RS.3.5 CRORES TOWARDS SHARE CAPI TAL ALONG WITH SHARE PREMIUM FROM FOLLOWING 5 COMPANIES EACH CONTR IBUTING RS.70 LACS TOWARDS 1,00,000 EQUITY SHARES OF RS.10/- EAC H AND SHARE PREMIUM OF RS.60/- PER SHARE:- I) GREEN STAR FINANCIAL SERVICE PVT. LTD., AHMEDABA D. II) ARCHER FINANCIAL SERVICE PVT. LTD., AHMEDABAD. III) SURAJ CORPORATE SERVICE PVT. LTD., AHMEDABAD. IV) FLY HIGH EXPORTS PVT. LTD., KOLKATA. V) OASIS CINE COMMUNICATION LTD., KOLKATA. ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 3 NECESSARY DETAILS WERE CALLED FOR TO VERIFY THE IDE NTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION OF THE ABOVE SAID 5 PARTIES. ASSESSEE DULY SUBMITTED NAMES, ADDR ESSES, PAN, I.T. RETURNS, BANK STATEMENTS, CONFIRMATION LETTERS AND CONFIRMATION OF ACCOUNTS. HOWEVER, ASSESSEE WAS UNABLE TO PRODUCE A NY OF THE FIVE SHARE-HOLDERS FOR VERIFICATION. LD. ASSESSING OFFIC ER ALSO CAME ACROSS THE STATEMENT OF SHRI JITENDRA JAIN, DIRECTOR OF SU RAJ CORPORATE SERVICE PVT. LTD., WHICH WAS ONE OF THE SUBSCRIBER TO EQUITY SHARE OF THE ASSESSEE COMPANY HAVING INVESTED RS. 70 LACS. I N HIS STATEMENT GIVEN BEFORE DDIT (INV), AHMEDABAD, DURING INVESTIG ATION OF ANOTHER ASSESSEE, MR. JITENDRA JAIN STATED THAT SURAJ CORP ORATE SERVICE PVT. LTD. IS ENGAGED IN PROVIDING ACCOMMODATION ENTRIES TO THE COMPANIES AND IS JUST A PAPER COMPANY. ON THE BASIS OF THIS S TATEMENT AS WELL AS AFTER GOING THROUGH THE FINANCIAL DOCUMENTS OF O THER 4 IMPUGNED PARTIES LD. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS INTRODUCED ITS UNACCOUNTED MONEY IN THE FORM OF SHA RE APPLICATION AND SHARE PREMIUM AMOUNTS THROUGH THE ENTRY PROVIDE RS AND HAS FAILED TO ESTABLISH THE CREDITWORTHINESS AND GENUIN ENESS OF THE SAID TRANSACTIONS AND HAS ALSO FAILED TO DISCHARGE THE O NUS OF PROVING THE SAID TRANSACTIONS. ACCORDINGLY ADDITION U/S 68 OF T HE ACT TOWARDS UNEXPLAINED CAPITAL IN SHARE CAPITAL AND SHARE PREM IUM OF RS.3.5 CRORES WAS MADE AND INCOME WAS ASSESSED AT RS.3,95, 85,980/-. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A). APPEAL OF THE ASSESSEE WAS ALLOWED IN FULL BY LD. CIT(A) W HO OBSERVED AS UNDER :- ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 4 2,2 I HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS. I HAVE ALSO PERUSED VARIOUS EVIDENCES FILED BY THE APPELLANT DURING ASSESSMENT PROCEEDINGS AND THE CASE LAWS RELIED UPON BY THE APPELLANT. THE APPELLANT HA S RECEIVED SHARE CAPITAL OF RS. 3,50,00,000/- FROM THE FOLLOWING FIVE COMPANIES :- 1. GREEN STAR FINANCIAL SERVICE PVT. LTD. RS. 70 ,00,000/- 2. ARCHER FINANCIAL SERVICE PVT. LTD. RS. 70,00,000/- 3. SURAJ CORPORATE SERVICE PVT. LTD. RS. 70,00,000/- 4. FLY HIGH EXPORTS PVT. LTD. RS. 70,00,000/- 5. OASIS CINE COMMUNICATIONS LTD. RS. 70 ,00,000/- TO EXPLAIN THE SOURCE OF SHARE CAPITAL THE APPELLAN T DURING THE ASSESSMENT PROCEEDINGS HAD FILED FOLLOWING EVIDENCES :- (1) PAN OF THE PERSONS FROM WHOM SHARE CAPITAL WAS RECEIVED. (2) COPY OF RETURN FOR THE A.Y.2009-10 IN RESPECT O F SUBSCRIBERS OF SHARE CAPITAL. (3) CONFIRMATIONS FROM THE SUBSCRIBERS. INVESTMENT MADE IS DULY REFLECTED IN THE BALANCE SHEET OF SUBSCRIBERS. (4) COPY OF BANK STATEMENT OF THE SUBSCRIBERS. IN THESE BANK ACCOUNTS THE CHEQUES ISSUED BY THESE PERSONS ARE REFLECTED. (5) COPY OF AUDITED BALANCE SHEET OF THE SUBSCRIBER S. THE FACT OF THESE DOCUMENTS BEING PART OF ASSESSMEN T RECORDS ARE DULY ACKNOWLEDGED BY THE A.O. IN THE ASSESSMENT ORDER IT SELF. THE ABOVE DOCUMENTS CLEARLY ESTABLISH THE FACT THAT ALL THE SHARE CAPIT AL HAS BEEN RECEIVED FROM FIVE COMPANIES WHO ARE REGULARLY ASSESSED TO INCOME-TAX. THE SHARE CAPITAL HAS BEEN RECEIVED THROUGH BANKING CHANNELS AND THE SAME IS REFLECTED IN THE BALANCE SHEET OF THE SUBSCRIBING COMPANIES. THE BALANCE SHE ET OF SUBSCRIBING COMPANIES ARE AUDITED AND THESE INVESTMENTS ARE REF LECTED IN THE BALANCE SHEET OF THE SUBSCRIBING, COMPANIES. THE SUBSCRIBING COMP ANIES ARE ESTABLISHED COMPANIES AS THESE ARE HAVING SUBSTANTIAL FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUSES. THE FUNDS AVAILABLE IN-THE F ORM OF SHARE CAPITAL AND RESERVE AND SURPLUS IS FAR EXCEEDING THE AMOUNT OF SUBSCRIPTION I.E. RS. 70,00,000/-. THE APPELLANT HAS EVEN FURNISHED COPIE S OF INCOME-TAX RETURNS OF SUBSCRIBING COMPANIES. IN MY CONSIDERED VIEW, THESE DOCUMENTS CONCLUSIVELY PROVES THE IDENTITY, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF THE CREDITOR IN RESPECT OF THE SHARE CAPITAL RECEIVED B Y THE APPELLANT. BY FILING THESE DOCUMENTS THE APPELLANT HAD DISCHARGED ONUS CAST UP ON HIM BY THE PROVISIONS OF SECTION 68 OF THE I.T. ACT. IN VIEW OF ABOVE, I AM OF FIRM OPINION THAT ADDITION OF RS. 3,50,00,000/- MADE BY THE A.O. U/S.68 IS UNTENA BLE. ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 5 2.3 IT IS FURTHER SEEN THAT THE APPELLANT HAS RECEI VED SHARE CAPITAL AND SHARE PREMIUM OF RS. 3,50,00,000/- FROM FIVE COMPANIES. I T IS CLEARLY HELD BY HON'BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS PVT. LT D. 216 CTR 195 (S.C.) THAT IN CASE OF SHARE SUBSCRIPTIONS, TO DISCHARGE ONUS OF S ECTION 68, THE APPELLANT HAS TO ESTABLISH THE IDENTITY OF THE PERSONS WHO HAD SUBSC RIBED THE SHARE CAPITAL, IN THIS CASE THE IDENTITY OF THE SUBSCRIBING COMPANIES IS E STABLISHED BEYOND DOUBT.' THE A.O. HAS NOT DOUBTED THE IDENTITY OF THE SUBSCRIBIN G COMPANIES. IN VIEW OF THESE FACTS, ADDITION OF RS.3,50,00,000/- CANNOT BE MADE U/S.68 OF THE I.T. ACT. ' 2.4 I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UP ON BY THE APPELLANT. THE CASE LAWS SUPPORT THE CONCLUSIONS AS DISCUSSED IN THE PR ECEDING PARAS. 2.5 IT IS FURTHER SEEN THAT IN SOME CASES THE A.O. HAD DOUBTED THE SOURCE OF DEPOSITS IN THE BANK ACCOUNTS OF THE SUBSCRIBING CO MPANIES BEFORE ISSUING CHEQUES TO THE APPELLANT COMPANY. IT IS ALSO A MATT ER OF FACT THAT THE DEPOSITS IN THE ACCOUNTS OF SUBSCRIBING COMPANIES WERE ALSO THR OUGH BANKING CHANNELS. SINCE THE DEPOSITS IN THE BANK ACCOUNT OF SUBSCRIBI NG COMPANIES ARE THROUGH BANKING CHANNELS, APPARENTLY THESE DEPOSITS HAVE BE EN MADE FROM LEGITIMATE SOURCES. EVEN IF FOR THE ARGUMENT SAKE, IT IS ASSUM ED THAT THE DEPOSITS IN THE BANK ACCOUNT OF SUBSCRIBING COMPANIES ARE SUSPECT, IN SUCH EVENTUALITY ALSO, ADDITION CANNOT BE MADE IN THE HANDS OF THE APPELLA NT COMPANY. IN SUCH A CASE, APPROPRIATE ACTION WILL BE TO INITIATE PROCEEDINGS IN THE CASE OF SUBSCRIBING COMPANIES. THIS WAY ADDITIONS MADE IN THE INCOME OF THE APPELLANT OF RS. 3,50,00,000/-U/S.68 IS UNCALLED FOR. 2,6 IN VIEW OF ABOVE FACTS, ADDITION OF RS. 3,50,00 ,000/- MADE BY THE A.O. U/S.68 OF THE I.T. ACT IS DELETED. THIS GROUND OF APPEAL I S ALLOWED. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. 5. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER AND ALSO PLACED RELIANCE ON THE JUDGMENT OF HON. SUPREME COU RT IN THE CASE OF NAVODAYA CASTLES (P) LTD. VS. CIT (2015) 56 TAX MANN.COM 18 (SC), JUDGMENT OF HON. CALCUTTA HIGH COURT IN THE C ASE OF CIT VS. MAITHAN INTERNATIONAL (2015) 56 TAXMANN.COM 283 (CA LCUTTA), DECISION OF THE TRIBUNAL, KOLKATA BENCH B IN THE CASE OF SUBHLAKSHMI VANIJYA PVT. LTD. VS. CIT (2015) 60 TA XMANN.COM 60 (KOLKATA-TRIB) AND LD. DR URGED THAT ALL THE 5 COMP ANIES THROUGH ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 6 WHICH SHARE CAPITAL AND SHARE PREMIUM OF RS.3.5 CRO RES HAS BEEN RECEIVED ARE JUST PAPER COMPANY WHICH ARE ENGAGED I N PROVIDING ACCOMMODATION ENTRIES. LD. DR FURTHER REFERRED TO T HE BANK STATEMENTS, FINANCIAL STATEMENTS, BALANCE SHEETS AN D PROFIT AND LOSS ACCOUNTS OF ALL THOSE 5 CONCERNS WHERE THERE IS HUG E TRANSACTIONS IN THE BANK ACCOUNTS BUT ARE HAVING A MEAGER SALE AND MEAGER INCOME WHICH NOWHERE CO-RELATES TO THE VOLUMINOUS TRANSACT IONS PASSED THROUGH BANK ACCOUNTS. LD. DR ALSO REFERRED THE STA TEMENT OF ONE OF THE DIRECTORS OF THE CASH CREDITORS M/S SURAJ CORPO RATE SERVICES PVT. LTD., AHMEDABAD WHERE THE DIRECTOR HAS CATEGORICALL Y ACCEPTED THAT THIS COMPANY IS ENGAGED IN PROVIDING ACCOMMODATION ENTRIES IN WHICH CASH IS ROUTED THROUGH VARIOUS OTHER PAPER EN TITIES AND FINALLY ONCE THE AMOUNT REACHES TO THE BANK OF SURAJ CORPOR ATE SERVICES PVT. LTD. THE SAME IS INTRODUCED IN THE FORM OF SHA RE CAPITAL ALONG WITH SHARE PREMIUM. LD. DR FURTHER SUBMITTED THAT LD. AS SESSING OFFICER HAS RIGHTLY MADE THE ADDITION U/S 68 OF THE ACT AS THE ASSESSEE HAS BEEN UNABLE TO PROVE THE GENUINENESS, CREDITWORTHIN ESS OF THE IMPUGNED TRANSACTIONS. 6. ON THE OTHER HAND, LD. AR RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT ASSESSEE HAS PROVED BEYOND DOUBT THE IDENTITY OF THE 5 PARTIES BY FILING PAN, COPIES OF IT RETURNS, NAME S AND ADDRESSES AND FURTHER SUBMITTED TO PROVE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS FILED EVIDENCE TOWARDS PAYMENT THR OUGH CHEQUES, COPY OF BANK STATEMENTS, AUDITED BALANCE SHEETS, FO R ASST. YEAR 2009-10 AND COMPLETE EXPLANATION HAS BEEN OFFERED F OR THE CREDIT APPEARING IN THE BOOKS OF ACCOUNT. LD. AR FURTHER S UBMITTED THAT ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 7 ASSESSEE IS NOT REQUIRED TO PROVE THE SOURCE OF SOU RCE AS HELD BY HON. SUPREME COURT IN THE CASE OF CIT VS. LOVELY EX PORTS (2008) 216 CTR 195 (SC) AND THE DEPARTMENT WAS FREE TO PROCEED TO TAKE ACTION IN THE CASES OF IMPUGNED 5 CASH CREDITORS BUT CERTA INLY NO ADDITION SHOULD HAVE BEEN MADE U/S 68 OF THE ACT IN THE HAND S OF ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US AND GONE THROUGH THE JUDGMENTS, DE CISIONS CITED BY BOTH THE PARTIES. THE SOLITARY GRIEVANCE OF THE REV ENUE IS AGAINST THE ORDER OF LD. CIT(A) DELETING THE ADDITION OF RS.3.5 CRORES MADE U/S 68 OF THE ACT TOWARDS SHARE CAPITAL AND SHARE PREMIUM. WE FIND THAT DURING THE YEAR UNDER APPEAL RS.70 LACS EACH WAS CO NTRIBUTED BY FOLLOWING 5 PARTIES TOTALING TO RS.3.5 CRORES TOWAR DS SHARE CAPITAL AND SHARE PREMIUM BY WAY OF SUBSCRIBING ONE LACS EQUITY SHARES HAVING FACE VALUE OF RS.10/- EACH AND PREMIUM OF RS.60/-:- 1. GREEN STAR FINANCIAL SERVICE PVT. LTD. RS. 7 0,00,000/- 2. ARCHER FINANCIAL SERVICE PVT. LTD. RS . 70,00,000/- 3. SURAJ CORPORATE SERVICE PVT. LTD. RS. 70,00,000/- 4. FLY HIGH EXPORTS PVT. LTD. RS. 70,00,000/- 5. OASIS CINE COMMUNICATIONS LTD. RS. 70 ,00,000/- 8. WE FURTHER OBSERVE THAT TOTAL AMOUNT OF RS.3.5 C RORES WAS RECEIVED THROUGH ACCOUNT PAYEE CHEQUES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF IN ORDER TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION S, ASSESSEE HAS FILED PAN, COPIES OF INCOME-TAX RETURNS FOR ASST. Y EAR 2009-10, CONFIRMATION REGARDING SHARE PURCHASES ALONG WITH P ROOF OF PAYMENTS THROUGH CHEQUES, COPIES OF BANK ACCOUNTS AND AUDITE D BALANCE ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 8 SHEETS FOR ASST. YEAR 2009-10. WE FURTHER FIND THAT SUMMON WAS SERVED U/S 131 TO THE FOLLOWING THREE PARTIES BASED AT AHMEDABAD :- I) GREEN STAR FINANCIAL SERVICE PVT. LTD., AHMEDABA D. II) ARCHER FINANCIAL SERVICE PVT. LTD., AHMEDABAD. III) SURAJ CORPORATE SERVICE PVT. LTD., AHMEDABAD. 9. IT WAS ALLEGED BY ASSESSEE THAT SUMMONS U/S 131 WERE NOT RECEIVED BY ARCHER FINANCIAL SERVICE PVT. LTD. AND GREEN STAR FINANCIAL SERVICE PVT. LTD. AS FAR AS PERSONAL ATTE NDANCE OF THE DIRECTOR OF SURAJ CORPORATE SERVICE PVT. LTD., AUTH ORIZED REPRESENTATIVE ON BEHALF OF THE COMPANY APPEARED AN D AGAIN FILED DOCUMENTS WHICH WERE ALREADY FILED BY THE ASSESSEE AND SUBMITTED THAT HE TOOK LEAVE ON BEHALF OF THE DIRECTOR FOR AT TENDING IN PERSONAL DUE TO ILLNESS OF DIRECTORS FATHER. WE FURTHER FIN D THAT ASSESSING OFFICER CAME ACROSS THE STATEMENT OF MR. JITENDRA J AIN, ONE OF THE DIRECTORS OF SURAJ CORPORATE SERVICE PVT. LTD., AHM EDABAD RECORDED BY DDIT(INV) ON 21.9.2010, IN CASE OF ANOTHER INVES TIGATION, IN THE CASE OF M/S B. R. METALS AND ALLOY (GUJARAT) LD., W HEREIN IT WAS STATED BY MR. JITENDRA JAIN THAT THE SAID COMPANY, SURAJ CORPORATE SERVICES PVT. LTD. PROVIDES ACCOMMODATION ENTRIES T O THE COMPANIES WHICH GIVES CASH TO THE SAID ENTITIES AND THE SAME WAS ROUTED THROUGH VARIOUS OTHER PAPER ENTRIES AND FINALLY FRO M THE BANK ACCOUNT OF SURAJ CORPORATE SERVICES PVT. LTD. THE SAME WAS INTRODUCED IN THE FORM OF SHARE APPLICATION MONEY. ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 9 10. RELEVANT EXTRACT OF STATEMENT RECORDED ON 21.09 .2010- IN THE FORM OF QUESTIONS & ANSWERS IN RESPECT OF SHRI JIT ENDRA JAIN BY DDIT(INV), AHMEDABAD, ARE AS FOLLOWS :- Q. 22. IN WHICH COMPANIES YOU ARE THE DIRECTOR WITH IN LAST 6 YEARS ? PL. EXPLAIN. ANS:22 I AM THE DIRECTOR WITHIN LAST 6 YEARS IN THE FOLLOWING COMPANIES 1. SURAT CORPORATE SERVICES PVT. LTD. 2. GRIN BPO SERVICES PVT. LTD. 3. SIDDHI VINAYAK FINCAP LTD. 4. SHELJA FINLEASE PVT. LTD. 5. RADHE FINSERVICE PVT. LTD. 6. TIRUPATI SHELTERS LTD. 7. HONEST BUSINESS DEAL PVT. LTD. Q. 24. HOW MUCH TRANSACTIONS OF SURAJ CORPORATE SE RVICES PVT. LTD. AND GRIN BPO SERVICES WITH B. R. METALS AND EXPLAIN THE NATURE OF TRANSACTION ? ANS :24 DURING THE F.Y.2008-09 FROM SURAJ CORPORATE SERVICES PVT. LTD. THE COMPANY INVESTED RS. 1 CRORES WITH B. R. METALS VID E A/C NO.213090 OF PNB AS SHARE CAPITAL AND GRIN BPO PVT. LTD. HAS INVESTED 1 CRORES 85 LACS IN F.Y.2008-09 THROUGH BA NK ACCOUNT NO.213373 OF PNB AS SHARE CAPITAL. Q. 25 WHAT ARE THE SOURCES OF ABOVE INVESTMENT ? ANS: 25 THE TRANSACTIONS ARE NEARLY ACCOMMODATION E NTRIES WHEREBY CASH WAS RECEIVED FROM B. R. METALS AND ALLOY (GUJARAT ) LTD. WHICH WAS THEN ROUTED THROUGH A FEW BANK A/CS OF PAPER CONCER NS AND ULTIMATELY THE MONEY WAS INVESTED IN B.R. METALS & ALLOYS (GUJARAT) PVT. LTD. THROUGH PNB BY SURAJ CORPORATE SERVICES P VT. LTD. AND GRIN BPO PVT. LTD. AS SHARE CAPITAL AND HAD RECEIVE D COMMISSION OF 0.25% FOR MAKING THIS ARRANGEMENT. 11. WE FURTHER FIND FROM GOING THROUGH THE BANK STA TEMENT OF ONE OF THE IMPUGNED PARTY FLY HIGH EXPORTS PVT. LTD., KOLK ATA PLACED AT ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 10 PAGES 21 & 22 OF CIT(A)S ORDER THAT A LARGE VOLUME OF TRANSACTION TOTALING IN CRORES OF RUPEES HAVE PASSED THROUGH TH EIR BANK ACCOUNT DURING THE YEAR BUT WHEN WE TURN TO THE PROFITS AND LOSS ACCOUNT, THERE IS A MEAGER INTEREST INCOME OF RS.9,77,080/- AND SIMILARLY IN CASE OF OASIS CINE COMMUNICATION LTD., KOLKATA AGA INST BANK TRANSACTION IN CRORES OF RUPEES THERE IS SALES TURN OVER OF RS.348500/- AND NET PROFIT BEFORE TAX AT RS.1289.56 WHICH SHOW S THAT THE TRANSACTIONS WHICH HAPPENED THROUGH THE BANK ACCOUN T ARE NOT HAVING ANY IMPACT ON THE PROFIT AND LOSS ACCOUNT. 12. SIMILARLY IN THE CASE OF SURAJ CORPORATE SERVIC ES PVT. LTD. WHEN WE REFER TO THE BANK STATEMENT PLACED ON PAGES 14 & 15 OF CIT(A)S ORDER, WE FIND THAT TRANSACTIONS WORTH CRORES OF RU PEES HAVE MOVED THROUGH BANK BALANCES AT VARIOUS POINTS OF TIME ARE MORE THAN RS.50 LACS WHEREAS A MEAGER AMOUNT OF INTEREST HAS BEEN S HOWN AT RS.18,903/-. SIMILAR TYPE OF FINANCIAL DATAS ARE DE PICTED IN OTHER TWO IMPUGNED PARTIES NAMELY ARCHER FINANCIAL SERVICE PVT. LTD. AND GREEN STAR FINANCIAL SERVICE PVT. LTD. HAVING COMMO N ADDRESS. FROM OBSERVING THESE DOCUMENTS IT SEEMS THAT HUGE VOLUME OF TRANSACTIONS ARE IN THE FORM OF DEBIT AND CREDIT O F CHEQUES AND ARE OF TYPICAL NATURE OF PAPER COMPANIES ENGAGED IN PROVID ING ACCOMMODATION ENTRIES. 13. FURTHER WE OBSERVE THAT CO-ORDINATE BENCH, KOLK ATA IN THE CASE OF SUBHLAKSHMI VANIJYA(P) LTD. VS. CIT (2015) 60 TAXMANN.COM 60 (KOLKATA TRIB) CAME ACROSS ISSUE RELATING TO UNEXP LAINED CASH CREDIT U/S 68 OF THE ACT WHEREIN SHARE CAPITAL WAS RECEIVE D FROM COMPANIES ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 11 HAVING VERY MEAGER INCOME AND LOW FINANCIAL CAPACIT Y TO INVEST HUGE AMOUNTS IN OTHER COMPANIESSHARE CAPITAL WHEREIN TH E CO-ORDINATE BENCH HAS HELD AS UNDER :- HELD WHETHER THE PROVISIONS OF SECTION 68 CAN BE ATTRACT ED IF SHARE CAPITAL WITH PREMIUM IS NOT PROPERLY EXPLAINED BY THE ASSESSEE C OMPANY? AS PER SECTION 68 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. THIS SECTION HAS RECEIVED THE ATTENT ION OF THE SUPREME COURT AND ALMOST ALL THE HIGH COURTS IN NUMEROUS CASES. IT HA S BEEN ALMOST UNANIMOUSLY HELD THAT THE BURDEN UNDER THIS SECTION IS DISCHARG ED BY THE ASSESSEE ONLY WHEN THE ASSESSEE PROVES THREE THINGS TO THE SATISFACTIO N OF THE ASSESSING OFFICER, VIZ., IDENTITY OF THE CREDITOR, CAPACITY OF THE CREDITOR AND GENUINENESS OF THE TRANSACTIONS. ONUS UNDER SECTION 68 CAN BE SAID TO HAVE BEEN DISCHARGED ONLY WHEN THE ASSESSEE PROVES IDENTITY AND CAPACITY OF T HE CREDITOR ALONG WITH THE GENUINENESS OF TRANSACTION TO THE SATISFACTION OF T HE ASSESSING OFFICER. ALL THE THREE CONSTITUENTS ARE REQUIRED TO BE CUMULATIVELY SATISFIED. IF ONE OR MORE OF THEM IS ABSENT, THEN THE ASSESSING OFFICER CAN LAWF ULLY MAKE ADDITION.[PARA 13.B.] IN CASE OF A CLOSELY HELD COMPANY WHERE THE SHAR ES ARE ISSUED TO THE FAMILY MEMBERS OR CLOSE FRIENDS/RELATIVES, THE BURDEN OF P ROOF RESTS ON THE COMPANY TO PROPERLY EXPLAIN THE IDENTITY AND CAPACITY OF SHAREHOLDERS ALONG WITH THE GENUINENESS OF THE TRANSACTIONS. EX CONSEQUENT THE ARGUMENT OF THE ASSESSEE THAT HE WAS NOT OBLIGED TO EXPLAIN THE GENUINENESS OF SH ARE CAPITAL AFTER HAVING FURNISHED PRELIMINARY DETAILS ABOUT THE SHAREHOLDER S ETC., IS NOT CAPABLE OF ACCEPTANCE AND HENCE REJE ?%D. IN ALL CASES, WHERE THE ASSESSEE FAILS TO CUMULATIVELY PROVE TO THE SATISFACTION OF THE ASSES SING OFFICER, THE IDENTITY AND CAPACITY OF THE SHAREHOLDERS ALONG WITH THE GENUINE NESS OF THE TRANSACTIONS THERE CAN BE NO ESCAPE FROM SECTION 68.[PARA 13.T] WHETHER INSERTION OF PROVISO TO SECTION 68 BY THE F INANCE ACT, 2012 WITH EFFECT FROM 1-4-2013 EMPOWERING THE ASSESSING OFFICER TO E XAMINE THE GENUINENESS OF THE SHARE CAPITAL IN THE CASE OF A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, IS PROSPECTIVE? ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 12 AS PER THIS PROVISO WHERE ANY SHARE CAPITAL ETC . IS CREDITED IN THE CASE OF CLOSELY HELD COMPANY, THE EXPLANATION GIVEN BY SUCH COMPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS THE RESIDENT SHAREHOLDER OFFER S AN EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED AND SUCH EXPLANA TION IS FOUND TO BE SATISFACTORY BY THE ASSESSING OFFICER. THE ESSENCE OF THIS AMENDMENT IS THAT A CLOSELY HELD COMPANY IS REQUIRED TO SATISFY THE ASS ESSING OFFICER ABOUT THE SHARE CAPITAL ETC. ISSUED BY IT, IN THE ABSENCE OF WHICH, AN ADDITION UNDER SECTION 68 CAN BE MADE IN THE HANDS OF THE COMPANY. IF THE AMENDME NT IS ACCEPTED TO BE PROSPECTIVE, THEN IT WOULD MEAN PRECLUDING THE ASSE SSING OFFICER FROM EXAMINING THE GENUINENESS OF TRANSACTIONS OF RECEIPT OF SHARE CAPITAL WITH PREMIUM UNDER CONSIDERATION AND HENCE PROHIBITING HIM FROM MAKING ANY ADDITION UNDER SECTION 68 NOTWITHSTANDING THE SAME BEING NON-GENUINE. IN T HE OPPUGNATION, IF THE AMENDMENT IS HELD TO BE RETROSPECTIVE, THEN IT WOUL D MEAN THAT THE ASSESSING OFFICER WOULD HAVE ALL THE POWERS TO EXAMINE THE GE NUINENESS OF SHARE CAPITAL AND SHARE PREMIUM RECEIVED BY THE ASSESSEE COMPANY ON T HE TOUCHSTONE OF SECTION 68. IF THE ASSESSEE FAILS TO SATISFY HIM ON THE IDENTIT Y AND CAPACITY OF THE SUBSCRIBERS AND GENUINENESS OF) TRANSACTIONS, THEN ADDITION WIL L BE CALLED FOR UNDER SECTION 68. [PARA 13.W.] IT IS SETTLED RULE OF CONSTRUCTION THAT EVERY S TATUTE IS PRIMA FACIE PROSPECTIVE UNLESS IT IS EXPRESSLY OR BY NECESSARY IMPLICATION MADE TO HAVE RETROSPECTIVE OPERATION ORDINARILY THE COURTS ARE REQUIRED TO GAT HER THE INTENTION OF THE LEGISLATURE FROM THE OVERT LANGUAGE OF THE PROVISIO N AS TO WHETHER IT HAS BEEN MADE PROSPECTIVE OR RETROSPECTIVE, AND IF RETROSPECTIVE, THEN FROM WHICH DATE. HOWEVER, SOME TIMES WHAT HAPPENS IS THAT THE SUBSTANTIVE PRO VISION, AS ORIGINALLY ENACTED OR LATER AMENDED, FAILS TO CLARIFY THE INTENTION OF TH E LEGISLATURE. IN SUCH A SITUATION IF SUBSEQUENTLY SOME AMENDMENT IS CARRIED OUT TO CLARI FY THE REAL INTENT, SUCH AMENDMENT HAS TO BE CONSIDERED AS RETROSPECTIVE FRO M THE DATE WHEN THE EARLIER PROVISION WAS MADE EFFECTIVE. SUCH CLARIFICATORY OR EXPLANATORY AMENDMENT IS DECLARATORY. AS THE LATER AMENDMENT CLARIFIES THE R EAL INTENT AND DECLARES THE POSITION AS WAS ORIGINALLY INTENDED, IT TAKES RETRO ACTIVE EFFECT FROM THE DATE WHEN THE ORIGINAL PROVISION WAS MADE EFFECTIVE. NORMALLY SUCH CLARIFICATORY AMENDMENT IS MADE RETROSPECTIVELY EFFECTIVE FROM THE EARLIER DATE. IT MAY ALSO HAPPEN THAT THE CLARIFICATORY OR EXPLANATORY PROVISION INTRODUCED L ATER TO DEPICT THE REAL INTENTION OF THE LEGISLATURE IS NOT SPECIFICALLY MADE RETROSP ECTIVE BY THE STATUTE. NOTWITHSTANDING THE FEET THAT SUCH AMENDMENT TO THE SUBSTANTIVE PROVISION HAS BEEN GIVEN PROSPECTIVE EFFECT, THE JUDICIAL OR QUAS I-JUDICIAL AUTHORITIES, ON A CHALLENGE MADE TO IT, CAN JUSTIFIABLY HOLD SUCH AME NDMENT TO BE RETROSPECTIVE. THE JUSTIFICATION BEHIND GIVING RETROSPECTIVE EFFECT TO SUCH AMENDMENT IS TO APPLY THE REAL INTENTION OF THE LEGISLATURE FROM THE 1 DATE SUCH PROVISION WAS INITIALLY INTRODUCED. THE INTENTION OF THE LEGISLATURE WHILE INTRODUCING THE PROVISION IS ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 13 GATHERED, INTER ALIA, FROM THE FINANCE BILL, MEMORANDUM EXPLAINING THE PR OVISION OF THE FINANCE BILL ETC. [PARA 13.X.] / ANY AMENDMENT TO THE SUBSTANTIVE PROVISION WHIC H IS AIMED AT CLARIFYING THE EXISTING POSITION OR REMOVING UNINTENDED CONSEQUENC ES TO MAKE THE PROVISION WORKABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITH STANDING THE FEET THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY. THE BORDER LINE BETWEEN A SUBSTANTIVE PROVISION HAVING RETROSPECTIVE OR PROSP ECTIVE EFFECT, IS QUITE PROMINENT. ONE NEEDS TO APPRECIATE THE NATURE OF TH E ORIGINAL PROVISION IN CONJUNCTION WITH THE AMENDMENT. ONCE A PROVISION HA S BEEN GIVEN RETROSPECTIVE EFFECT BY THE LEGISLATURE, IT SHALL CONTINUE TO BE RETROSPECTIVE. IF ON THE OTHER HAND, THE STATUTE DOES NOT AMEND IT RETROSPECTIVELY, THEN ONE HAS TO DIG OUT THE INTENTION OF THE PARLIAMENT AT THE TIME WHEN THE ORIGINAL PRO VISION WAS INCORPORATED AND ALSO THE NEW AMENDMENT. IF THE LATER AMENDMENT SIMP LY CLARIFIES THE INTENTION OF THE ORIGINAL PROVISION, THEN IT WILL ALWAYS BE CONS IDERED AS RETROSPECTIVE. [PARA 13AA] ON ADVERTING TO THE LANGUAGE OF SECTION 68, IT TRAN SPIRES THAT IT REFERS TO 'ANY SUM CREDITED' IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREV IOUS YEAR. THE EXPRESSION 'ANY SUM CREDITED' HAS NOT BEEN SPECIFIC ALLY DEFINED IN THE PROVISION THUS, IT WOULD EXTEND TO ALL THE AMOUNTS CREDITED I N THE BOOKS OF ACCOUNT. A SUM CAN BE CREDITED IN THE BOOKS OF ACCOUNT, WHICH WOUL D INVARIABLY EITHER FIND ITS PLACE EITHER ON THE INCOME SIDE OF THE PROFIT AND L OSS ACCOUNT OR IN THE LIABILITY SIDE OF THE BALANCE SHEET. ITEMS CREDITED TO THE PROFIT AND LOSS ACCOUNT ARE THEMSELVES INCOME AND HENCE THERE CAN BE NO REASON TO MAKE ADD ITION ONCE AGAIN FOR THEM. ITEMS APPEARING ON THE LIABILITY SIDE OF THE BALANC E SHEET CAN BE LOANS OR SHARE CAPITAL ETC. ONCE THERE IS SPECIFIC REFERENCE IN SE CTION 68 FOR APPLYING IT TO 'ANY SUM CREDITED', THERE CAN BE NO REASON TO RESTRICT I TS APPLICATION ONLY TO 'LOANS' AND NOT TO 'SHARE CAPITAL 1 . THE BURDEN OF PROOF UNDER SECTION 68 CAN BE NO DI FFERENT IN RESPECT OF ISSUE OF SHARE CAPITAL BY CLOSELY HELD C OMPANIES VIS-A-VIS LOANS OR GIFTS. THE HIGH COURT IN CIT V. MAITHAN INTERNATIONAL [2015] 375 ITR 123/231 TAXMAN 381/56 TAXMANN.COM 283 (CAL.). CITV. ACTIVE TRADERS (P.) LTD. 19951214 ITR 583/[1993] 69 TAXMAN 281 (CALL MIMEC (INDIA) (P.) LTD, V. DY. C1T[2Q\3] 353 ITR 284/216 TAXMAN 157 (MAG.)/35 TAXMANN.COM 319 (C AL.) AND CIT V. NIVEDAN VANIJYA NIYOJAN LTD. [2003] 263 ITR 623/1 30 TAXMAN 153 (CAL.)A HAS SPECIFICALLY HELD THAT THE THREE INGREDIENTS, VIZ, IDENTITY AND CAPACITY OF CREDITOR AND GENUINENESS OF TRANSACTION ARE REQUIRED TO BE S ATISFIED EVEN IN CASE OF ISSUE OF SHARE CAPITAL BY A CLOSELY HELD COMPANY. IT SHOWS T HAT THE INTENTION OF THE LEGISLATURE, AS INTERPRETED BY THE HIGH COURT, IS A LWAYS TO CAST DUTY ON THE ASSESSEE TO PROVE THE SATISFACTION OF THE THREE INGREDIENTS IN CASE OF TRANSACTION OF ISSUE OF SHARE CAPITAL BY A CLOSELY HELD COMPANY IN THE SAME WAY AS IS IN THE CASE OF TRANSACTION OF LOANS. [PARA 13. AB] ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 14 A CAREFUL PERUSAL OF THE FIRST PARA OF THE MEMORAND UM BRINGS OUT THAT THE ONUS OF SATISFACTORILY EXPLAINING ISSUE OF SHARE CAPITAL WI TH PREMIUM ETC. BY A CLOSELY HELD COMPANY IS ON THE COMPANY. NEXT PARA RECOGNIZES THA T JUDICIAL PRONOUNCEMENTS, WHILE CONSIDERING THAT THE PERNICIOUS PRACTICE OF C ONVERSION OF UNACCOUNTED MONEY THROUGH MASQUERADE OF INVESTMENT IN THE SHARE CAPITAL OF A COMPANY NEEDS TO BE PREVENTED, HAVE ADVISED A BALANCE TO BE MAINT AINED REGARDING ONUS OF PROOF TO BE PLACED ON THE COMPANY. AFTER GOING THROUGH TH E ABOVE PARTS OF THE MEMORANDUM EXPLAINING PROVISIONS OF THE FINANCE BIL L, THERE REMAINS NO DOUBT WHATSOEVER THAT THE ONUS HAS ALWAYS BEEN ON THE CLO SELY HELD COMPANIES TO PROVE THE ISSUE OF SHARE CAPITAL ETC. BY THE COMPANY IN T ERMS OF SECTION 68. THUS, THE AMENDMENT MAKES IT MANIFEST THAT THE INTENTION OF T HE LEGISLATURE WAS ALWAYS TO CAST OBLIGATION ON THE CLOSELY HELD COMPANIES TO PR OVE RECEIPT OF SHARE CAPITAL ETC. TO THE SATISFACTION OF THE ASSESSING OFFICER AND IT WAS ONLY WITH THE AIM OF SETTING TO NAUGHT CERTAIN CONTRARY JUDGMENTS WHICH 'CREATED DOUBTS' ABOUT THE ONUS OF PROOF BY HOLDING THAT THERE WAS NO REQUIREMENT ON T HE COMPANY TO PROVE THE SHARE CAPITAL ETC. AND AS SUCH NO ADDITION COULD BE MADE IN THE HANDS OF COMPANY EVEN IF SUCH SHAREHOLDERS ARE BOGUS. AS THE AMENDMENT AIMS AT CLARIFYING THE POSITION OF LAW WHICH ALWAYS EXISTED, BUT WAS NOT PROPERLY CONS TRUED IN CERTAIN JUDGMENTS, THERE CAN BE NO DOUBT ABOUT THE SAME BEING RETROSPE CTIVE IN OPERATION. [PARA 13. AD.] THEREFORE, THE AMENDMENT TO SECTION 68 BY INSERTION OF PROVISO IS CLARIFICATORY AND HENCE RETROSPECTIVE. THE CONTRARY ARGUMENTS ADVANCE D BY THE ASSESSEE BEING DEVOID OF ANY MERIT, ARE HEREBY JETTISONED. [PARA 1 3. AE.] THUS, THE CONTENTION OF THE ASSESSEE THAT SINCE THE ASSESSING OFFICER OF THE ASSESSEE-COMPANY IS NOT EMPOWERED TO EXAMINE OR MAK E ANY ADDITION ON ACCOUNT OF RECEIPT OF SHARE CAPITAL WITH OR WITHOUT PREMIUM BEFORE AMENDMENT BY THE FINANCE ACT, 2012 WITH EFFECT FROM ASSESSMENT YEAR 2013-14 AND HENCE THE COMMISSIONER BY MEANS OF IMPUGNED ORDER UNDER SECTI ON 263 COULD NOT HAVE DIRECTED THE ASSESSING OFFICER TO DO SO, IS UNSUSTA INABLE. [PARA 13.AK.] 14. WE FURTHER OBSERVE THAT IN THE CASE OF CIT VS. N. TARIKA PROPERTIES INVESTMENT IN ITA NO.2080 OF 2010 HON. D ELHI HIGH COURT VIDE ITS JUDGMENT DATED 28.11.2013 HAS HELD AS UNDE R :- 31. WE ARE OF THE CONSIDERED OPINION THAT THE ASSES SEE HAS NOT BEEN ABLE TO DISCHARGE THE INITIAL ONUS AND HAS NOT BEEN ABLE TO ESTABLISH THE IDENTITY, CREDITWORTHINESS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRANSACTION. THE SURROUNDING CIRCUMSTANCES AND ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 15 INQUIRIES MADE BY THE ASSESSING OFFICER WERE SIGNIF ICANT BUT THE SAID FINDING THOUGH NOT DISTURBED HAVE BEEN IGNORED. FURTHER THE TRIBUNAL H AS FAILED TO TAKE HOLISTIC VIEW AND HAS RELIED UPON NEUTRAL AND GENERAL EVIDENCE WITHOUT NO TICING OTHER EVIDENCE, WHICH ARE :- A) THE RESPONDENT - ASSESSEE IS A PRIVATE LIMITED C OMPANY. B) THE SUBSCRIBERS WERE UNKNOWN PERSONS, NOT RELATE D OR FRIENDS. C) THE SUBSCRIBERS BANK ACCOUNT STATEMENTS FURNISHE D WERE FORGED AND FABRICATED. D) THERE WERE CORRESPONDING CASH DEPOSITS IN THE BA NK ACCOUNTS BEFORE ISSUE OF SHARE APPLICATION CHEQUES. E) THE SUBSCRIBER COMPANIES IT HAS BEEN SHOWN WERE CARRYING ON EFFECTIVE AND DAY TO DAY BUSINESS OR WERE ANGLE INVESTORS. F) THE SUBSCRIBERS DID NOT BOTHER AND ENSURE PROTEC TION OF THEIR INVESTMENT. 32. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT T HE ASSESSEE HAS NOT DISCHARGED THE ONUS SATISFACTORILY AND THE ADDITIONS MADE BY THE ASSESS ING OFFICER WAS JUSTIFIED AND SUSTAINABLE AND THE ORDER OF THE TRIBUNAL IGNORING AND NOR DEALING WITH THE FACTUAL FINDINGS RECORDED BY THE ASSESSING OFFICER IS PERVE RSE . 33. THE SUBSTANTIAL QUESTION OF LAW IS THUS ANSWERE D IN FAVOUR OF THE APPELLANT/REVENUE AND AGAINST THE RESPONDENT/ASSESSEE. THE APPEAL IS ACCORDINGLY ALLOWED WITH COSTS THAT ARE ASSESSED AT RS. 2O,000/-. 15. FURTHER WE OBSERVE THAT IN THE CASE OF SUMATI D AYAL VS. CIT 1995 AIR 2109, HON. SUPREME COURT HELD AS UNDER :- 5. IT IS NO DOUBT TRUE THAT IN ALL CASES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES ON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXING PROVI- SION AND IF A RECEIPT IS IN THE NATURE OF IN COME, THE BURDEN OF PROVING THAT IT IS NOT TAXABLE BECAUSE IT FALLS WITHIN EXEMPTION PROVIDED BY THE ACT LIES UPON THE ASSESSEE. [SEE :PARIMISETTI SEETHARAMAMMA (SUPR A) AT P. 5361. BUT, IN VIEW OF SECTION 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE FOR ANY PREVIOUS YEAR THE SAME MAY BE CHAR GED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR IF THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE NATURE AND SOURCE THEREOF IS, IN THE OPINION OF THE ASSESSING OFFICER, NOT SATISFACTORY. IN SUCH CASE THERE IS, P RIMA FACIE, EVIDENCE AGAINST THE ASSESSEE, VIZ., THE RECEIPT OF MONEY, AND IF HE FAI LS TO REBUT , THE SAID EVIDENCE BEING UNREBUTTED, CAN BE USED AGAINST HIM BY HOLDIN G THAT IT WAS A RECEIPT OF AN INCOME NATURE. WHILE CONSIDERING THE EXPLANATION OF THE ASSESSEE THE DEPARTMENT CANNOT, HOWEVER, ACT UNREASONABLY. (SEE : SREELEKHA BANERJEE (SUPRA) AT P. 120) ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 16 16. FURTHER WE OBSERVE THAT IN THE CASE OF CIT VS. MAITHAN INTERNATIONAL (2015) 56 TAXMANN.COM 283 (CALCUTTA), HON. CALCUTTA HIGH COURT HAS HELD AS UNDER :- HELD WHEN PAYMENT BY CHEQUE DID NOT ESTABLISH THE CREDIT WORTHINESS OF THE LENDER MERE EXAMINATION THE PASS B OOK OR THE BANK STATEMENT OR ME LETTER OF CONFIRMATION OR THE BALANCE SHEET OF THE LENDER WAS NOT ENOUGH. THE INSPECTOR APPOINTED BY THE ASSESSING OFFICER DI D NOT GO BEYOND THE AFORESAID DOCUMENTS. THEREFORE, IT CANNOT BE DISPUT ED THAT THE VIEW FORMED BY THE COMMISSIONER THAT IN NONE OF THE REPO RTS, HE HAS COMMENTED UPON THE ISSUE OF CREDITWORTHINESS ;.E. W HETHER THESE PARSES HAD SUFFICIENT MEANS TO ADVANCE SUCH HUGE LOANS, IS NOT WITHOUT BASIS. IT IS WELL ESTABLISHES THAT CREDITS ALLEGEDLY BAS ED ON LOAN FROM PARTIES, WHO ARE. NOT POSSESSED OF SUFFICIENT MEANS CANNOT BE AC CEPTED AS GENUINE. THE ASSESSING OFFICER WAS REQUIRED TO MAKE PROPER I NVESTIGATION TO DETERMINE WHETHER THE MONEY WAS REALLY LENT BY THE THIRD PARTY OR IT HAS COME OUT OF THE RESOURCES OF THE ASSESSEE HIMSELF. THUS THE ASSESSING OFFICER HAS FAILED TO APPLY HIS MIND TO ALL ASPECTS OF THE CASE IS SELF- EVIDENT. SUCH NON-APPLICATION OF MIND CONSTITUTED P ASSING OF AN ERRONEOUS ORDER WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. [PARA 11] I IN THE INSTANT CASE, THE COMMISSIONER HAD REASON S TO HOLD THAT CREDITWORTHINESS OF THE ALLEGED LENDERS WAS NOT ENQ UIRED INTO. MERE EXAMINATION OF THE BANK PASS BOOK, PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE CREDITORS IS NOT ENOUGH. WHEN THE REQU ISITE ENQUIRY WAS NOT MADE, THE ORDER IS BOUND TO BE ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. THE TRIBUNAL PROCEEDED ON THE THEORY T HAT IT WAS NOT A CASE OF NO ENQUIRY; THAT NO DOUBT IS TRUE, BUT THAT IS N OT ENOUGH, IF THE RELEVANT ENQUIRY WAS NOT MADE, IT MAY IN APPROPRIATE CASES A MOUNT TO NO ENQUIRY AND MAY ALSO BE A CASE OF NON-APPLICATION OF MIND. [PARA 12] THE POWER UNDER SECTION 263 CAN BE EXERCISED WHERE THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. WHEN AN ORDER IS ERRONEOUS, THEN THE ORDER IS ALSO DEFICIENT AND IN ORDER TO REMEDY THE SITUATION, POWER UNDER SECTI ON 263 HAS BEEN GIVEN. THEREFORE, THE VIEW THAT THE POWER COULD NOT HAVE B EEN EXERCISED TO ALLOW THE ASSESSING OFFICER TO MAKE UP THE DEFICIENCY IS ALTOGETHER AN INCORRECT IMPRESSION OF THE LAW. [PARA 16] IT IS NOT THE LAW THAT THE ASSESSING OFFICER OCCU PYING THE POSITION OF AN INVESTIGATOR AND ADJUDICATOR CAN DISCHARGE HIS FUNC TION BY PERFUNCTORY OR ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 17 INADEQUATE INVESTIGATION. SUCH A COURSE IS BOUND TO RESULT IN ERRONEOUS AND PREJUDICIAL, ORDERS. WHERE THE RELEVANT ENQUIRY WAS NOT UNDERTAKEN AS IN THIS CASE, THE ORDER IS ERRONEOUS AND PREJUDICIA L TOO AND THEREFORE REVISABLE. INVESTIGATION SHOULD ALWAYS BE FAITHFUL AND FRUITFUL UNLESS ALL FRUITFUL AREAS OF ENQUIRY ARE PURSUED THE ENQUIRY C ANNOT BE SAID TO HAVE BEEN FAITHFULLY CONDUCTED. .[PARA 19] IN VIEW OF ABOVE, THE ORDER OF THE TRIBUNAL IS SE T ASIDE. 17. HONBLE APEX COURT IN THE CASE OF NAVODAYA CAST LE (P) LTD VS CIT REPORTED IN (2015) 56 TAXMANN.COM 18 (SC) HAS H ELD THAT MERE FILING OF CERTIFICATE OF INCORPORATION, PAN WERE NO T SUFFICIENT FOR THE PURPOSE OF IDENTIFICATION OF SUBSCRIBER COMPANY ESP ECIALLY WHEN THERE WAS MATERIAL TO SHOW THAT SUBSCRIBER WAS A PAPER CO MPANY AND NOT A GENUINE INVESTOR. 18. EXAMINING THE FACTS IN THE LIGHT OF ABOVE JUDGM ENTS AND DECISIONS WE OBSERVE THAT ASSESSEE IS A PRIVATE LIM ITED COMPANY WHICH IS NOT OPEN TO PUBLIC AND, THEREFORE, IF IT R EQUIRES TO INCREASE ITS CAPITAL BASE OR INVITE INVESTMENT IN THE SHARE CAPI TAL ALONG WITH PREMIUM WHICH IN THIS CASE IS RS.60/- OVER THE FACE VALUE OF RS.10/- THEN IT HAS TO APPROACH WITHIN ITS FRIENDS AND RELA TIVES FOR THE INVESTMENT. IN THE GIVEN CASE RS.70 LACS EACH HAS B EEN GIVEN BY THE IMPUGNED 5 PARTIES TO THE PRIVATE LIMITED COMPANY I .E. THE ASSESSEE. ANY PRUDENT PERSON WHO INTENDS TO INVEST IN A COMPA NY WITH A MOTIVE OF GAINING FROM THE SAID INVESTMENT, LOOKING TO THE QUANTUM OF SHARE CAPITAL AND PREMIUM INVESTED BY THESE 5 PARTIES WHI CH IS OF A SUBSTANTIAL PERCENTAGE OF THE TOTAL SHARE CAPITAL O F THE COMPANY IT IS SURPRISING TO NOTE THAT NONE OF THEM WAS ABLE TO AP PEAR BEFORE THE ASSESSING AUTHORITY NOR THE ASSESSEE WAS ABLE TO BR ING ANY OF THEM ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 18 IN PERSON TO PROVE THE GENUINENESS OF TRANSACTION A ND CREDITWORTHINESS OF THE INVESTOR TOWARDS SHARE CAPI TAL AND SHARE PREMIUM GIVEN THESE IMPUGNED 5 PARTIES. MORE SO WE FIND THAT OUT OF THE 5 PARTIES THREE PARTIES ARE WITHIN AHMEDABAD AN D SO IS THE ASSESSEE. IT IS NOT SIMPLE TO BELIEVE THAT NONE OF THEM COULD HAVE BEEN MADE TO APPEAR BEFORE THE ASSESSING OFFICER TO PROVE THE TRANSACTION. THIS NON-ATTENDANCE OF THE EQUITY SHAR E HOLDERS MAKES THE SITUATION LITTLE GRIMY WHICH FURTHER GETS SUSPI CIOUS WHEN THE FINANCIAL STATEMENTS ARE GONE THROUGH. IT HAS BEEN UNIFORM SITUATION IN ALL THE 5 PARTIES THAT TRANSACTIONS TOTALING IN CRORES ARE ROUTED THROUGH BANK ACCOUNTS, HUGE RESERVE AND SURPLUS IS APPEARING IN THE BALANCE SHEET ALONG EQUAL AMOUNT OF INVESTMENT; BUT WHEN THE PROFITS AND LOSS ACCOUNT IS LOOKED INTO IT SEEMS COMPLETE D RY AS INTEREST AGAINST INVESTMENT RUNNING IN CRORES THE INCOME SHO WN IS FEW THOUSAND AND SO IS THE TOTAL TURNOVER. ADDING MORE TO THIS IN THE STATEMENT GIVEN BY ONE OF THE DIRECTORS OF SURAJ CO RPORATE SERVICES PVT. LTD. IT HAS BEEN CLEARLY ACCEPTED THAT SURAJ C ORPORATE SERVICES PVT. LTD. IS AN ACCOMMODATION ENTRY PROVIDER AND JU ST A PAPER COMPANY. THIS MODUS OPERANDI OF ACCOMMODATION ENTRY PROVIDER CANNOT GET ITSELF COVERED UNDER THE SHADOW OF PAN, INCOME-TAX RETURN, AUDITED FINANCIAL STATEMENT AND PROOF OF TR ANSACTIONS BY ACCOUNT PAYEE CHEQUES. ONE HAS TO GO AHEAD TO RETHI NK WHY SUCH COMPANY IS INCORPORATED. IN NORMAL COURSE A BUSINES S ENTITY IS INCORPORATED TO EARN PROFITS AND CAPITAL IS CONTRIB UTED FOR DOING THE SAME BUT WHEN THE CAPITAL INVESTMENT OR RESERVE AND SURPLUS CREATED IS JUST USED TO INVEST IN OTHER COMPANIES WITHOUT H AVING ANY RETURN AND THE GROSS TURNOVER OF THE COMPANY IS NOT HAVING ANY DIRECT ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 19 CONNECTION WITH THE VOLUMINOUS BANK TRANSACTION THE N SUCH COMPANIES END UP INTO A PAPER COMPANY. 19. FROM GOING THROUGH ALL THE ABOVE JUDGMENTS AND DECISION, WE FIND THAT ALONG WITH EVIDENCES, SURROUNDING CIRCUMS TANCES, HUMAN PROBABILITY AND INTENTIONAL ACTS ARE ALSO TO BE TAK EN NOTE OFF WHILE ACCEPTING THE IDENTITY, CREDITWORTHINESS AND GENUIN ENESS OF THE CASH CREDITORS WHICH IN THIS CASE IS THE SHARE APPLICANT S. IN THE CASE BEFORE US WE OBSERVE THAT ASSESSEE IS TRYING TO ASSERT AGA IN AND AGAIN UPON THE PAN, IT RETURNS, BANK STATEMENT AND CONFIRMATIO NS OF THE IMPUGNED 5 PARTIES BUT HAS NOWHERE TRIED TO CLARIFY OR DISCLOSE THE FACT WHICH HAS EMBEDDED IN THE FINANCIAL STATEMENT OF THESE 5 PARTIES WHICH SPEAKS IN ITSELF THAT THEY ARE PAPER COMPANIE S. FURTHER IF IT HAS BEEN GENUINE TRANSACTION AND ASSESSEE COMPANY IS A SKED TO PRODUCE THE NEW SHARE HOLDERS WHO HAVE BEEN ALLOTTE D A SUBSTANTIAL PORTION OF EQUITY SHARES, HE WOULD HAVE EASILY CALL ED UPON THE INVESTORS. THE INVESTORS COULD HAVE COME ALONG WITH ALL THE FINANCIAL DOCUMENTS AND COULD HAVE CLARIFIED ABOUT HIS INTENT ION TO MAKE INVESTMENT IN THE EQUITY SHARES OF THE COMPANY BECA USE EVERY INVESTOR WANTS TO EARN INCOME FROM INVESTMENT IN TH E FORM OF DIVIDEND AS WELL AS EXPECTS APPRECIATION IN THE VALUATION OF SHARES WITH THE GROWTH OF BUSINESS. IF THIS HAS BEEN THE SITUATION, THEN THERE WOULD HAVE BEEN NO DOUBT ON THE GENUINENESS OF THE TRANSA CTIONS. ON THE CONTRARY IN THE INSTANT CASE ASSESSEE COMPLETELY FA ILS TO PROVE THE SAME. ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 20 20. IT IS WELL SETTLED THAT IN ORDER TO DISCHARGE T HE ONUS THE ASSESSEE MUST PROVE THE FOLLOWING :- I. THE IDENTITY OF THE CASH CREDITOR; II. CAPACITY OF THE CASH CREDITOR TO ADVANCE MONEY TOWARDS CAPITAL. III. GENUINENESS OF THE TRANSACTION. IF THE ASSESSEE HAS ADDUCED EVIDENCES TO ESTABLISH THE PRIMA FACIE, THE AFORESAID ONUS SHIFTS TO THE DEPARTMENT. HOWEVE R, MERE FURNISHING OF PARTICULARS OR THE MERE FACT OF PAYME NT BY ACCOUNT PAYEE CHEQUE OR THE MERE SUBMISSION OF CONFIRMATION LETTER BY THE SHARE APPLICANT IS BY ITSELF, NOT ENOUGH TO SHIFT T HE ONUS TO THE DEPARTMENT ALTHOUGH THESE FACTS MAY, ALONG WITH OTH ER FACTS BE RELEVANT IN ESTABLISHING THE GENUINENESS OF THE TRA NSACTION. AS HELD BY HON. SUPREME COURT IN THE CASE OF CIT VS. N. TAR IKA PROPERTIES INVESTMENT (2014) 51 TAXMANN.COM 387(SC) THAT PAN CANNOT BE TREATED AS SUFFICIENT DISCLOSURE OF IDENTITY OF THE PERSON. PANS ARE ALLOWED ON THE BASIS OF APPLICATION WITHOUT ACTUAL DE FACTO CLARIFICATION OF IDENTITY OR ASCERTAINMENT OF ACTIVITIES, NATURE OF BUSINESS ACTIVITY AND ARE JUST AS TO FACILITATE THE REVENUE TO KEEP T RACK OF TRANSACTIONS AND THUS PAN CANNOT BE BLINDLY AND WITHOUT CONSIDER ATION OF SURROUNDING CIRCUMSTANCES TREATED AS SUFFICIENT DIS CLOSING THE IDENTITY OF INDIVIDUAL. 21. WE FURTHER OBSERVE THAT HON. DELHI HIGH COURT I N THE CASE OF CIT V EMPIRE BUILTECH P LTD 361 ITR 258 (DEL), HAS HELD THAT WHEN ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 21 ASSESSEE DOES NOT PRODUCE EVIDENCE OR TRIES TO AVOI D THE APPEARANCE BEFORE THE ASSESSING AUTHORITY IT NECESSARILY CREAT ES DIFFICULTIES AND PREVENTS ASCERTAINMENT OF THE TRUTH AND CORRECT FAC TS AS THE ASSESSING OFFICER IS DENIED THE ADVANTAGE OF THE AT TENDANCE OR FACTUAL ASSERTION BY THE ASSESSEE BEFORE HIM. IF AN ASSESSEE DELIBERATELY AND INTENTIONALLY FAILS TO PRODUCE EVI DENCE BEFORE THE ASSESSING OFFICER WITH THE DESIRE TO PREVENT ENQUIR Y OR INVESTIGATION AN ADVERSE OPINION SHOULD BE DRAWN. THE ASSESSEE HA D NOT DISCHARGED THE INITIAL ONUS TO ESTABLISH THE IDENTI TY, CREDITWORTHINESS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRANSACTIONS. THE ADDITIONS MADE BY THE ASSESSING OFFICER WERE JUSTIF IED AND SUSTAINABLE. 22. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWIN G THE JUDGMENTS OF HON. SUPREME COURT, HIGH COURT AND THE DECISION OF CO-ORDINATE BENCH AS DISCUSSED ABOVE, WE ARE OF THE CONFIRMED V IEW THAT ASSESSEE HAS BEEN ABLE TO JUST PROVE THE IDENTITY O F THE COMPANY BUT UNABLE TO PROVE THE GENUINENESS & CREDITWORTHINESS OF THE IMPUGNED 5 PARTIES. IN THE RESULT, THE SUM OF RS.3.5 CRORES HAS RIGHTLY BEEN TREATED AS UNEXPLAINED MONEY U/S 68 OF THE ACT BY T HE LD. ASSESSING OFFICER. WE SET ASIDE THE ORDER OF LD. CIT(A) AND R ESTORE THAT OF THE ASSESSING OFFICER. IN THE RESULT GROUND NO.(I) OF R EVENUE IS ALLOWED. 23. GROUND NO.(II) & (III) ARE OF GENERAL NATURE, W HICH NEED NO ADJUDICATION. ITA NO. 1716/AHD/2012 ASST. YEAR 2009-10 22 24. IN THE RESULT, APPEAL FILED BY THE REVENUE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST, 2016 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 18/8/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 16/08/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 17/08/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 18/8/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: