Sekhawati Capital Finlease Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2099/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65961 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 22-11-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 28-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Assessee Lawyers: ABHIJAI AGGARWALAR
• Keywords: Unexplained cash credit; Gift; Income from undisclosed sources; Search and seizure; Share purchase agreement; Additional evidence; Question of law; Accommodation entries; Revised return; Reassessment proceedings
• Section: 147; 131; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM ITA NO. 2099/DEL/2011 ASSESSMENT YEAR: 2002-03 SEKHAWATI CAPITAL FINLEASE PVT. LTD., A-62, GROUP INDUSTRIAL AREA, WAZIRPUR, NEW DELHI V/S . INCOME-TAX OFFICER, WARD-8(1), NEW DELHI [PAN : AAHCS 5650 G] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI ABHIJAI AGGARWAL,AR REVENUE BY DR. DEEPAK SEHGAL, DR DATE OF HEARING 22-11-2012 DATE OF PRONOUNCEMENT 07-12-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 28 TH APRIL, 2011 BY THE ASSESSEE AGAINST AN ORDER DATED 09-02-2011 OF THE LD. CIT(A)-XI, NEW DE LHI, RAISES THE FOLLOWING GROUNDS:- 1. LD. CIT (A) IS NOT JUSTIFIED IN LAW AND FACTS A ND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITIO N MADE BY THE LD. A.O. U/S 68 AMOUNTING RS.5,00,000/-ON A CCOUNT OF SHARES ISSUED TO THREE CORPORATE BODY NAMELY M/S. S HIMMER MARKETING PVT. LTD. FOR ` .2,00,000/-, M/S. ONYX EXIM & SALES PVT. LTD. ` .1,00,000/-, M/S. SHIVAM SOFTECH LTD FOR ` .2,00,000/-. 2. ID. CIT (APPEAL) IS NOT JUSTIFIED IN LAW AND FAC TS AND CIRCUMSTANCES OF THE. CASE IN CONFIRMING THE ADDITI ON MADE BY ASSESSING OFFICER BY IGNORING SUBMISSIONS/DOCUME NTS FURNISHED BEFORE ASSESSING OFFICER AS WELL AS BEFOR E CIT (APPEAL) AND IGNORING ALL THE EVIDENCES FILED BEFOR E A.O. AS WELL AS BEFORE CIT(A) FOR PROVING IDENTITY, CREDITW ORTHINESS AND GENUINENESS OF TRANSACTION. ITA N O.2099 /DEL./2011 2 3. LD. CIT (APPEAL) HAS ERRED IN LAW AND ON FACTS A ND CIRCUMSTANCES OF THE CASE IN REFERRING VARIOUS COUR T CASE LAWS JUSTIFYING THE ACTION OF ASSESSING OFFICER IGN ORING THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS . ORISSA CORPORATION PVT. LTD, 159 ITR 78. 'HON'BLE COURT HE LD THAT WHEN THE ASSESSEE BORROWS THE LOAN AND IF AN ASSESS EE GIVES NAME AND ADDRESSES OF THE CREDITORS, WHO ARE ASSESSED TO TAX AND FULL PARTICULARS IS FURNISHED T HEN THE ASSESSEE HAS DISCHARGED THE DUTY. IF THE REVENUE ME RELY ISSUES SUMMONS UNDER SECTION 131 AND DOES NOT PURSU E THE MATTER FURTHER, THE ASSESSEE DOES NOT BECOME RESPON SIBLE FOR THE SAME EVEN IF THE CREDITORS DO NOT APPEAR. A DDITION CANNOT BE MADE UNDER SECTION 68.' 4. LEARNED CIT(A) IS ERRED IN LAW AND FACTS AND CIR CUMSTANCES OF THE CASE WHILE STATING IN PARA 5(16) THAT LOVELY EXPORT CASE IS NOT APPLICABLE IN THE PRESENT CASE BEING LO VELY EXPORT AND DIVINE LEASING THEE WAS PUBLIC ISSUE WHI LE IN THE PRESENT CASE IT IS THE AMOUNT WHICH HAS BEEN RECEIV ED PRIVATELY. 5. ASSESSEE HAS EVERY RIGHT TO MAKE, ADD, DELETE, M ODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING INCOME OF ` ` 44,760/- FILED ON 30.10.2002 BY THE ASSESSEE, WAS P ROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT). SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED U/S 147 O F THE ACT WITH THE SERVICE OF A NOTICE U/S 148 OF THE ACT ISSUED ON 23.03.200 9 IN PURSUANCE TO INFORMATION RECEIVED FROM DIT(INVESTIGATION), NEW DELHI THAT TH E ASSESSEE RECEIVED ACCOMMODATION ENTRIES IN THE FORM OF SHARE APPLICAT ION MONEY OF ` ` 5 LACS FROM THE FOLLOWING THREE PARTIES:- 1. M/S SHIMMER MARKETING PVT. LTD. ` ` 2,00,000/- 2. M/S ONYX EXIM & SALES PVT. LTD. ` ` 1,00,000/- 3. M/S SHIVAM SOFTECH LTD. ` `2,00,000/- ITA N O.2099 /DEL./2011 3 2.1 IN RESPONSE TO THE AFORESAID NOTICE, THE ASSESSEE REPLIED VIDE LETTER DATED 13 TH JUNE, 2009 THAT THE RETURN FILED ON 30.10.2002 MA Y BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. INTER ALIA, A COPY OF THE REASONS RECORDED BY THE ASSESSING OFFICER [AO IN SHORT] WAS HANDED O VER TO THE REPRESENTATIVE OF THE ASSESSEE. TO A QUERY BY THE AO DURING THE COUR SE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE REPLIED THAT THEY RECEIVE D SHARE APPLICATION MONEY FROM THE AFORESAID THREE PARTIES AND SUBMITTED A CO PY OF CONFIRMATION, MOA AND EVIDENCE OF FILING INCOME TAX RETURN BY .THE AFORES AID THREE COMPANIES. THE ASSESSEE PLEADED THAT THE SHARE APPLICATION MONEY COULD NOT BE TREATED AS ASSESSEES INCOME U/S 68 OF THE ACT. HOWEVER, ON PERUSAL OF BANK STATEMENTS OF THE AFORESAID COMPANIES OBTAINED BY THE AO U/S 1 33(6) OF THE ACT, IT TRANSPIRED THAT THERE WAS MEAGER AMOUNT LESS THAN ` `10,000/- AS ON THE FIRST DAY OF ACCOUNTING YEAR I.E. 1.4.2001 AND ALSO ON THE LAST DAY I.E., 31.3.2002. ACCORDINGLY, THE AO ASKED THE ASSESSEE VIDE LETTER DATED 9 TH OCTOBER, 2009 TO ESTABLISH THE CREDITWORTHINESS OF THE AFORESAID THR EE COMPANIES AS ALSO THE GENUINENESS OF THE TRANSACTIONS AND FOR THAT PURPOS E REQUESTED THE ASSESSEE TO PRODUCE THE DIRECTORS OF THE SAID THREE COMPANIE S FOR EXAMINATION. HOWEVER, NONE RESPONDED TO THIS NOTICE NOR SUBMITTED ANY WRI TTEN SUBMISSIONS. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN THE ASSESSEE FAILED TO ESTABLISH THE CREDITWORTHINESS OF THE AFORESAID THREE COMPANIES A S ALSO GENUINENESS OF THE TRANSACTIONS WHILE ACTION OF THE AFORESAID COMPAN IES WITH THE INVESTMENT WAS AGAINST THE NORMAL HUMAN BEHAVIOR ,THERE BEING NO P OSSIBILITY OF ANY RETURN ON INVESTMENT IN THE FUTURE, THE AO ADDED THE AMOUNT O F ` `5 LACS IN TERMS OF PROVISIONS OF SECTION 68 OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE R EOPENING OF THE ASSESSMENT, CONFIRMED THE AFORESAID ADDITION IN TH E FOLLOWING TERMS:- 4.0 ADDITION U/S 68:- THE APPELLANT SOUGHT DETAILS OF EVIDENCE/STATEMENT/REASONS RELIED UPON BY THE DEPTT . THE OBJECTION OF THE APPELLANT WAS DULY DISPOSED OFF BY PROVIDING THE COPIES OF RECORDED REASON AS ASKED FOR BY THE APPELLANT. THE APPELLANT WAS ASKED TO FILE THE DETAILS REGARDING NATURE OF ENTRI ES, CONFIRMATION OF ITA N O.2099 /DEL./2011 4 THE PERSONS FROM WHOM MONEY WAS RECEIVED ETC. THE I NFORMATION AS ASKED FOR WAS NOT SUBMITTED BY THE APPELLANT. THE LD AO THEREAFTER REJECTED THE CLAIM OF THE APP ELLANT. THE ACTION OF THE LD AO COULD BE EXAMINED IN LIGHT OF THE DECISION OF CIT V DURGAPRASAD MORE (1971) 82 ITR 540(SC) AND ITO V K. JAYARAMAN (1987) 168 ITR 757(MAD). IN THE LATTER CA SE IT WAS HELD THAT IF A DOUBT ARISES AS TO THE VALIDITY OR THE GE NUINENESS OF DOCUMENT FILED, FOR THE LIMITED PURPOSE OF A PROCEE DING BEFORE THE AUTHORITY UNDER THE ACT, SUCH AUTHORITIES ARE BOUND TO GO INTO THE QUESTION OF GENUINENESS AND VALIDITY. THE ASSESSEE CO. IS A PVT. LTD. CO. THE COMPANY WAS ASKED TO PRODUCE ANY EVID ENCE BY PRODUCING THE DIRECTOR OF THE INVESTING COMPANIES. AS SUCH THERE SHOULD HAVE BEEN NO DIFFICULTY ON THE PART OF THE A SSESSEE TO PRODUCE SOMEBODY FOR THE SAID ENTITY, HAD THE WHOLE APPARATUS NOT BEEN MERELY A CONDUIT TO PLOUGH BACK THE MONEY OF T HE ASSESSEE COMPANY IN THE GARB OF SALE OF INVESTMENT. MERE PAY MENT BY ACCOUNT PAYEE CHEQUE IS NOT SACROSANCT NOR CAN IT M AKE A NON GENUINE TRANSACTION GENUINE. IN THE CASE OF CIT V HIMALAYAN INTERNATIONAL LTD ( DEL) IN ITA NO.1509 OF 2006 DATED 30/07/07, THE HON'BLE JURISDI CTIONAL. HIGH COURT HELD THAT IF THE ASSESSING OFFICER HARBOURS D OUBTS OF THE LEGITIMACY OF ANY SUBSCRIPTION, HE IS EMPOWERED, NA Y DUTY-BOUND TO CARRY OUT THOROUGH INVESTIGATION. 5.0 ADMITTEDLY THE APPELLANT HAS FILED ITS RETURN DECLARING INCOME BUT NOT INCLUDING RS.5,00,000/- FROM SMPL, O ESPL & SSL. THE REASON FOR SUCH TREATMENT COULD NOT BE EXPLAINE D BEFORE THE AO ALTHOUGH SEVERAL OPPORTUNITIES WERE ALLOWED BY T HE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE SAME H AS BEEN CLEARLY NOTED ON THE FACE OF THE ASSESSMENT ORDER. 5.1 THE ESSENTIAL QUESTION BEFORE ME IS A QUESTIO N OF ESTABLISHMENT OF THE IDENTITY, CREDITWORTHINESS OF THE SUBSCRIBER AND THE GENUINENESS OF THE TRANSACTION. THE ESTABLISHME NT OF IDENTITY OF THE SUBSCRIBER, IN THIS CASE HAS FAILED; YET LET US EXAMINE THE NEXT POINT I.E. THE CREDITWORTHINESS OF THE INVESTOR AN D ALSO THE LAST ONE WITH REGARD TO THE ESTABLISHMENT OF GENUINENESS OF THE TRANSACTION. 5.2 THE SHORT QUESTION TO BE ANSWERED AS TO WHETH ER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ASSESSING OFFICER WAS RIGHT IN TREATING RS.5,00,000/- FROM S MPL, OESPL & SSL AS UNEXPLAINED INCOME IN THE HANDS OF THE APPEL LANT. ITA N O.2099 /DEL./2011 5 5.3 IN THE PRESENT CASE IN ORDER TO ESTABLISH THE CREDITWORTHINESS, IT WAS SHOWN THAT ` .5,00,000/- FROM SMPL, OESPL & SSL. WHEN THE IDENTITY OF THE PERSONS FAIL S, IT WILL BE IMPRACTICAL AT THIS STAGE TO GO FOR OTHER TWO, CRIT ERIA I.E. CREDITWORTHINESS OF THE INVESTOR AND THE GENUINENES S OF TRANSACTION. 5.4 ON THESE MATERIALS, NO ONE CAN FORM AN OPINIO N THAT THIS APPLICANT/CREDITOR HAD ANY INCOME EXIGIBLE TO TAX UNDER INCOME TAX LAWS. SINCE IT IS NOT KNOWN WHETHER THE PARTY D ID HAVE ANY SOURCE OF INCOME OR BUSINESS WHICH COULD BE DERIVED AND WHICH COULD HELP: IT TO INVEST ` .5,00,000/- BY WAY OF SHARE CAPITAL/CASH CREDIT. THEREFORE, ON THE BASIS OF MATERIAL PRODUCE D IT WAS NOT JUST POSSIBLE FOR ANY REASONABLE MAN TO FORM AN OPINION WITH REGARD TO CREDITWORTHINESS OF THE INVESTOR/ENTRY OPERATOR. TH ERE IS NO MATERIAL EVIDENCE ON RECORD TO ESTABLISH THAT THE AMOUNT WAS HELD BY THE INVESTOR TO PROVE ITS CREDITWORTHINESS. 5.5 NOW LET US GO THROUGH THE LATEST CASE LAWS. L ET US CONCENTRATE ON A LATEST JUDGMENT OF LOVELY EXPORTS PVT. LTD (SC) (SUPRA) WHERE THE APPEAL OF THE REVENUE HAS BEEN DI SMISSED ON THE ISSUE OF SECTION 68. BUT BEFORE DISCUSSING THE CASE, LET US EXAMINE THE FACTS OF THE PARTICULAR CASE WHERE SUCH JUDGMENT WAS PASSED BY THE HON'BLE HIGH COURT OF DELHI WHICH WAS VETTED BY THE HON'BLE SUPREME COURT. THE CASE OF LOVELY EXPORT (S UPRA) WAS DECIDED ALONGWITH DIVINE LEASING AND FINANCE LTD BY THE DELHI HIGH COURT. IN THE LATTER CASE, THE CAPITAL WAS REC EIVED BY WAY OF A PUBLIC ISSUE WHICH IS NOT THE FACT IN THE PRESENT C ASE. IN THAT CASE, THE ASSESSEE FILED A REVISED RETURN TAKING ADVANTAG E OF THE AMNESTY SCHEME AND WHICH IS AGAIN NOT THE FACT IN THE PRESE NT CASE. AS THE HON'BLE COURT MENTIONED HERE:- .. IN THESE FRESH ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER ISSUED SUMMONS U/S 131 OF THE INCOME TAX AC T AND THEREAFTER IMPOUNDED THE SHARE HOLDERS' REGISTE R, SHARE APPLICATION FORMS AND SHARE TRANSFER REGISTER . THE ASSESSEE CONTENDED THAT BECAUSE THESE MATERIALS WER E IN THE CUSTODY OF THE DEPARTMENT IT WAS UNABLE TO FURN ISH ANY FURTHER DETAILS PERTAINING TO THE SUBSCRIBERS .. CERTAINLY THESE ARE NOT THE FACTS OF THE CASE UNDER REVIEW. UNDER ANY STRETCH OF IMAGINATION IT CAN BE ALLEGED (AGAINST THE AO) THAT ANY DOCUMENT WAS IN HIS CUSTODY FOR WH ICH THE ITA N O.2099 /DEL./2011 6 APPELLANT COULD NOT GIVE REPLY. FURTHER IN CASE OF DIVINE LEASING (SUPRA) THE SHARES WERE ALLOTTED IN CONSONANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 AS ALSO THE RULES AND REGULATIONS OF THE DELHI STOCK EXCHANGE. HENCE THE PRESENT CASE IS CLEARLY DISTINGUISHABLE AS NONE OF THE AFOR ESAID CRITERIA WAS SATISFIED IN THE CASE UNDER REVIEW. IN CASE OF A P UBLIC ISSUE, THE COMPANY CONCERNED CANNOT BE EXPECTED TO KNOW OTHER DETAILS PERTAINING TO THE IDENTITY AS WELL AS FINANCIAL WOR TH OF EACH OF ITS SUBSCRIBER. THE APPELLANT BEING A PVT. LIMITED COMP ANY, THE FACTS ARE QUITE DISTINGUISHABLE IN COMPARISON TO THE CITE D JUDGMENT. THE RIGOR OF PROOF IN SUCH CASES IS MORE STRINGENT. IT IS ADMITTED THAT THE IDENTITY OF THE SUBS CRIBER WAS NOT ESTABLISHED AND ALSO THE GENUINENESS OF THE TRANSAC TION COULD NOT BE ESTABLISHED, NEITHER THE CREDITWORTHINESS NOR FI NANCIAL STRENGTH COULD BE ESTABLISHED. ALL SUCH MATERIAL EVIDENCE NE VER BROUGHT ON RECORD IN THE CASE OF LOVELY EXPORTS PVT. LTD. OR D IVINE LEASIN9 AND FINANCE LTD (SUPRA) AND HENCE SUCH CASES ARE DISTIN GUISHABLE FOR THE LIMITED PURPOSE OF ADJUDICATING THE PRESENT CAS E. NON FURNISHING OF CURRENT INCOME TAX RETURN, FAILURE OF THE APPELL ANT TO PRODUCE NECESSARY EVIDENCE BEFORE THE AO AND ALSO BEFORE TH E APPELLATE AUTHORITY, WHICH ARE PECULIAR TO THE CASE IN HANDS AND HAD NOT ARISEN FOR CONSIDERATION AND THE FACTS TO THAT EXTE NT ARE SURELY DISTINGUISHABLE. 5.6 IN THE CASE OF LOVELY EXPORTS (SUPRA) THE DECI SION OF THE HON'BLE HIGH COURT DELHI WAS AFFIRMED BY THE HO N'BLE SUPREME COURT. BUT CERTAIN DISTINGUISHABLE FACTS OF THE SAI D CASE ARE PLACED ON RECORD. IT WILL NOT BE OUT OF PLACE TO GIVE EXTR ACT OF THE ORDER OF LOVELY EXPORTS (SUPRA). ..... IN THE PRESENT CASE, THE DETAILS HAD BEEN FU RNISHED TO THE AO MUCH BEFORE MARCH,1999 BUT HE FAILED TO R EACT TO THE SHIFTING OF THE BURDEN, TO INVESTIGATE INTO THE CREDITWORTHINESS OF THE SHARE APPLICANTS. THEREFORE , THE APPEAL IS DISMISSED..... MUCH CONTRARY TO THE FACTS OF THE CASE OF LOVELY EX PORTS (SUPRA), IN THE PRESENT CASE NO SUCH DETAIL WAS EVER FURNISHED BEFORE THE AO AND THERE WAS NO SUCH FAILURE AS CONTEMPLATED IN TH AT ORDER AND TO THAT EXTENT ALSO THE CASE UNDER APPEAL IS QUITE DIS TINGUISHABLE. 5.7 IN .ORDER TO DECIDE AS TO WHETHER THE IMPUGNED SHARE APPLICATION MONEY/CASH CREDIT/ENTRY IN THE PRESENT CASE IS GENUINE ITA N O.2099 /DEL./2011 7 OR NOT, ONE HAS TO LOOK NOT ONLY AT THE DOCUMENTS P RODUCED BUT ALSO AT THE SURROUNDING CIRCUMSTANCES. IN THIS CONNECTIO N, IT IS WORTH WHILE TO REPRODUCE THE FOLLOWING OBSERVATIONS MADE BY THE HON'BLE SUPREME COURT IN CIT V. DURGA PRASAD MORE [1971] 82 ITR 540. 'IT IS TRUE THAT AN APPARENT MUST BE CONSIDERED REAL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT THE REAL. IN A CASE OF THE PRESENT KIND A PARTY WHO RELIES ON A RECITAL IN A DEED HAS TO ESTABLISH THE TRUTH OF THOSE RECITALS, OTHERWISE IT WILL BE VERY EASY TO MAKE SELF-SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY AND RELY ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANTS TO EVADE TAX IS TO HAVE SOME RECITALS MADE IN A DOCUMENT EITHER EXECUTED BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT WIDE OPEN TO EVADE TAX. A LITTLE PROBING WAS SUFFICIENT IN THE PRESENT CASE TO SHOW THAT THE APPARENT WAS NOT THE REAL. THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. THEY WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THOSE DOCUMENTS. ACCORDING TO SECTION 3 OF THE EVIDENCE ACT, A FACT IS SAID TO BE PROVED WHEN, AFTER CONSIDERING THE MATTE RS BEFORE IT, THE COURT EITHER BELIEVES IT TO EXIST, OR CONSIDERS ITS EXISTENCE SO PROBABLE THAT A PRUDENT MAN OUGHT, UNDER THE CIRCUM STANCES OF THE PARTICULAR CASE, TO ACT UPON THE SUPPOSITION THAT I T EXISTS. SECTION 114 OF THE EVIDENCE ACT PROVIDES THAT THE COURT MAY PRESUME THE EXISTENCE OF ANY FACT WHICH IT THINKS LIKELY TO HAV E HAPPENED, REGARD BEING HAD TO THE COMMON COURSE OF NATURAL EVENTS, H UMAN CONDUCT, AND PUBLIC AND PRIVATE BUSINESS, IN THEIR RELATION TO THE FACTS OF THE PARTICULAR CASE. THE AFORESAID PROVISIONS ARE NOTHI NG BUT RECOGNITION OF BROAD PRINCIPLES OF COMMON IAW GOVER NING THE ISSUE UNDER CONSIDERATION. IN THE CASE OF GORDHANDAS HARGOVANDAS & ANOTHER VS . CIT (126 ITR 560) (BOM.) THE HON'BLE HIGH COURT OBSERVE D AS UNDER:- ITA N O.2099 /DEL./2011 8 'THOUGH IN ISOLATION EACH PIECE OF EVIDENCE MAY APPEAR TO BE OF LITTLE WEIGHT, ON AN OVERALL APPRECIATION IT WOULD BE PERMISSIBLE TO CONSIDER THEIR CUMULATIVE EFFECT AND DECIDE ONE WAY OR THE OTHER. GENUINENESS OF TRANSACTION HAS TO BE GATHERED ON TH E PARAMETERS SPELT OUT IN 5.3 OF THE EVIDENCE ACT, WH ICH PROVIDES AS TO WHEN A FACT SHOULD BE TREATED AS PROVED. THE OB SERVATIONS OF HON'BLE SUPREME COURT MADE IN THE CASE OF DIRECTOR OF INCOME TAX VS BHARAT DIAMOND BOURSE (259 ITR 280) WHICH ARE RE LEVANT AND AS UNDER:- 'THE STORY RINGS FALSE FROM BEGINNING TO END, AND YET, THE TRIBUNAL ACCEPTED IT BY SAYING, 'AS REGARDS THE BONAFIDES OF THE TRANSACTION, IN OUR OPINION, THERE IS NOTHING TO SUSPECT THE SAME. THE TRIBUNAL SAYS, 'THERE IS A TRANSPARENCY ABOUT THE ENTIRE TRANSACTION WHICH NULLIFIES ANY ATTEMPT TO MAKE OUT THE TRANSACTION AS SOMETHING UNUSUAL AND OUT OF THE ORDINARY. THAT DIAMONDS ARE NOT TRANSPARENT, THAT THEY DAZZLE WITH A BRILLIANCE THAT BLINDS THE EYE, SEEMS TO HAVE ESCAPED THE NOTICE OF THE TRIBUNAL. IT UN-DISCERNINGLY ACCEPTED THE GLIB EXPLANATION OF THE ASSESSEE, THOUGH TEEMING WITH IMPROBABILITIES AND STRENUOUS ON CREDULITY.' THE AFORESAID OBSERVATIONS EMPHASIZE THE IMPORTANC E THAT A GLIB EXPLANATION TENDERED BY THE ASSESSEE, TEEMING WITH IMPROBABILITIES CANNOT BE ACCEPTED. IN THE CASE OF M/S GOLD LEAF CAPITAL CORPORATION INDIA LTD VS. JCIT, THE HON'BLE ITAT, NEW DELHI VIDE ORDER DATED 11-01-2008 IN ITAT NO. 237(DEI)/2002 FOR ASSTT. YEAR 1995-96 OBSE RVED AS UNDER WITH REGARD TO GENUINENESS OF TRANSACTIONS U/S 68. ' ON GOING THROUGH THE DECISION IN THE CASE OF DIVINE LEASING & FINANCE (SUPRA) AND OTHER RELEVANT CASE LAW IT IS C LEAR THAT THE DEGREE OF ONUS WOULD DEPEND UPON THE FACTS OF EACH CASE AND ITA N O.2099 /DEL./2011 9 NO STANDARD DEGREE OF PROOF CAN BE APPLIED GENERALL Y TO ALL CASES, IRRESPECTIVE OF THE NATURE OF RECEIPTS BECAU SE IN THE CASE OF SHARE INVESTMENTS FOR PUBLIC PLACEMENTS THE DEGR EE OF PROOF MAY BE LIGHT BUT IN THE CASE OF PRIVATE PLACEMENT I F MAY BE STRINGENT, THE REASON BEING A PUBLIC ISSUE CANNOT B E MADE BY A PRIVATE LIMITED COMPANY. HOWEVER WITH REQUISITE PER MISSION THE SHARE CAPITAL CAN BE RECEIVED THROUGH PRIVATE P LACEMENT NORMALLY TO KNOWN PERSONS/COMPANIES. SIMILAR WOULD BE THE POSITION WHEN THE SHARES ARE ALLOTTED BY A PUBLIC L IMITED COMPANY ON PRIVATE PLACEMENT BASIS, WITH THIS UNDERSTANDING OF LAW REGARDING ADDI TIONS MADE UNDER SECTION 68 OF THE ACT, AS LAID DOWN THRO UGH VARIOUS CASE LAW, WE NOW PROCEED TO DETERMINE THE ISSUE UND ER CONSIDERATION BEFORE US ARISING FROM THE ORDERS OF THE TAX AUTHORITIES BELOW LE THE GENUINENESS OF THE SHARE C APITAL/SHARE APPLICATION MONEY INTRODUCED BY THE ASSESSEE DURING THE ASSESSMENT YEAR 1995-96, UNDER CONSIDERATION. 5.8 IT IS FURTHER, TO BE PLACED ON RECORD THAT SIN CE FY 01-02 RELEVANT TO THE AY 02-03, THE ENTIRE FUND OF ` .5,00,000/- FROM SMPL, OESPL & SSL IS KEPT BY THE APPELLANT TILL DATE. THE SAID INVESTING PERSON HAS NEITHER RECEIVED ANY DIVIDEND NOR DERIVE D ANY INCOME OF ANY NATURE BY INVESTMENT OF THE SAID AMOUNT. AT THE TIME OF FRAMING OF THE ORDER, AFTER A LAPSE OF 9 YEARS TILL DATE, THE ENTIRE FUND OF ` .5,00,000/- FROM SMPL, OESPL & SSL STILL REMAINS IN VESTED IN THE HANDS OF THE APPELLANT. THIS LEADS TO A SITUATI ON WHERE A PARTY/PARTIES HAVE INVESTED ITS FUND OF ` .5,00,000/- AND SIMPLY VANISHED FROM THE SCENE WITHOUT ANY CLAIM OF ANY DI VIDEND OR EVEN THE PRINCIPAL AMOUNT. NOW THE QUESTION OCCURS WHETH ER ANY PRUDENT BUSINESSMAN WILL DO THE SAME AND IF SO, WHA T BENEFIT HAS BEEN DERIVED TO THE INVESTING PERSONS. PRACTICALLY THERE IS NO LIABILITY TO REPAY THE ALLEGED SHARE CAPITAL/CASH C REDIT/ENTRY AMOUNT RECEIVED OR TO PAY ANY ANNUAL AMOUNT BY WAY OF DIVI DEND ETC. IT IS ALSO NOT KNOWN HOW THE SAID COMPANY CAME INTO CONTA CT WITH THE APPELLANT COMPANY AND WHY BECAME SO GENEROUS TO IN VEST THE FUND WITH THE APPELLANT AND THEREAFTER WENT OUT OF SCENE LEAVING THE FUND FOR THE UTILIZATION OF THE APPELLANT FOR ANY N UMBER OF YEARS TO COME. FURTHER IN CASE OF COMPANIES THE SHARE CERTIF ICATES ARE TO BE ISSUED AND SERVED THROUGH POST, THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE WHICH COULD JUSTIFY THAT SHARE CERTIFI CATES WERE AT ALL ISSUED AND SERVED ON THE INVESTING COMPANIES/PARTIE S: THERE IS NO ITA N O.2099 /DEL./2011 10 EVIDENCE FROM THE POSTAL AUTHORITY THAT COULD JUSTI FY THAT SUCH CERTIFICATES IN REALITY WERE ISSUED TO SUCH INVESTI NG PERSONS. THUS IT SHOULD BE TREATED AS UNSECURED AMOUNT. IN THE CASE OF INDUS VALLY PROMOTERS (P) LTD VS CIT 305 ITR 202, HON'BLE DELHI HIGH COURT OBSERVED AS UNDER:- .......... IT IS WELL SETTLED THAT THE ASSESSEE MUST DISCHARGE THE BURDEN OF PROVING THE IDENTITY OF THE CREDITORS AND ALSO TO GIVE THE SOURCE OF THE DEPOSITS. IN OTHER WORDS, THE CREDITWORTHINESS OF THE DEPOSITORS MUST BE ESTABLISHED TO THE SATISFACTION OF THE AO WHERE THERE IS AN UNEXPLAINED CASH CREDITORS, IT IS OPEN TO THE AO TO HOLD THAT IT IS IN COME OF THE ASSESSEE AND NO FURTHER BURDEN LIES ON THE AD TO SHOW THAT INCOME IN QUESTION COMES FROM ANY PARTICULAR SOURCE . IT WAS OBSERVED BY THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF GUJCO CARRIERS VS CIT (256 ITR 50) THAT STA RTLING FACTS COULD NOT BE IGNORED. 5.9 IT IS A SETTLED PROPOSITION OF LAW THAT THE A PPELLANT HAS A LEGAL OBLIGATION TO EXPLAIN THE NATURE AND SOURCE OF CRED IT AS HELD IN THE CASE OF SHRILEKHA BANERJEE VS CIT (1963) 49 ITR SC 112. IN ORDER TO PROVE THE TRANSACTION IS NOT HIT BY SECTION 68, THE APPELLANT HAS TO ESTABLISH FIRST THE IDENTITY, SECOND THE CREDITWORT HINESS OF THE CREDITOR AND THIRD THE GENUINENESS OF TRANSACTION. IT IS TO BE MENTIONED THAT NOT ONE OR TWO OF THE INGREDIENTS AR E TO BE PROVED TO THE SATISFACTION OF THE AO, ALL THE THREE INGREDIEN TS ARE TO BE ESTABLISHED TO MAKE OUT A CASE THAT THE ASSESSEE'S CASE WILL NOT FALL UNDER THE AFORESAID CRITERIA. ONLY WHEN ALL THESE I NGREDIENTS ARE ESTABLISHED, PRIMA FACIE THE ONUS SHIFTS ON THE DEP ARTMENT. IN THE INSTANT CASE NOT THE IDENTITY COULD BE ESTABLISHED. NEITHER THE CREDITWORTHINESS NOR THE GENUINENESS OF THE TRANSAC TION (COULD BE ESTABLISHED) BEYOND ANY IOTA OF DOUBT. THIS VIEW WA S TAKEN IN THE CASE OF SHANKER INDUSTRIES VS CIT (1978) 114 ITR 67 8 (CAL). THE ONUS IS STATED TO BE SHIFTED ONLY WHEN THERE IS EVI DENCE TO SUFFICIENTLY ESTABLISH A PRIMA FACIE CASE IN FAVOUR OF THE PARTY ON WHOM ONUS LIES. 5.10 IN CASE OF ITO V K. JAYARAMAN (1987) 168 ITR 7 57 (MAD) IT WAS HELD ITA N O.2099 /DEL./2011 11 THAT IF A DOUBT ARISES AS TO THE VALIDITY OR THE GENUINENESS OF DOCUMENT FILED, FOR THE LIMITED PURP OSE OF A PROCEEDING BEFORE THE AUTHORITY UNDER THE ACT, SUCH AUTHORITIES ARE BOUND TO GO INTO THE QUESTION OF GENUINENESS AN D VALIDITY . IN THE CASE OF CIT V HIMALAYAN INTERNATIONAL LTD (DEL) IN ITA NO. 1509 OF 2006 DATED 30/07/07, THE HON'BLE JU RISDICTIONAL HIGH COURT HELD THAT IF TILE ASSESSING OFFICER HARBOURS DOUBTS OF THE LEGITIMACY OF ANY SUBSCRIPTION, HE IS EMPOWERED, NAY DUTY-BOUND TO CARRY OUT THOROUGH INVESTIGATION. NOW EXAMINATION OF THE FACTS IN THE INSTANT CASE WO ULD LEAD TO THE FOLLOWING FINDINGS:- I) IT IS A FACT THAT THE APPELLANT HAS RECEIVED HUG E AMOUNT OF FUND IN THE RELEVANT ASSTT. YEAR FROM OUTSIDE PARTI ES? II) IT IS FURTHER A FACT THAT SUCH COMPANY HAS NOT RECEIVED ANY DIVIDEND OR INTEREST WHATSOEVER FROM THE APPELLANT COMPANY IN THE PAST SO MANY YEARS. III) IT IS ALSO A FACT THAT REPEATED OPPORTUNITIES WERE ISSUED BY THE AO TO THE INVESTING COMPANIES. IV) IT IS A FACT THAT IN SPITE OF REPEATED OPPORTUN ITIES, THE PRINCIPAL OFFICERS OF THE INVESTING COMPANIES NEITHER APPEARE D NOR COULD BE PRODUCED BY THE APPELLANT WHO HAD POSITIVE INFORMATION AND KNOWLEDGE REGARDING THE WHEREABOUTS OF THE INVESTING COMPANIES. V) ANY SUCH PERSON (INCLUDING COMPANIES) WOULD NEVE R SIMPLY ADVANCE FUND AND WOULD VANISH FROM THE SCENE. VI) IT IS A FACT THAT THE APPELLANT HAS NO LIABILI TY FOR ANY REPAYMENT OF ANY AMOUNT TO THE INVESTING COMPANIES. VII) IT IS A FACT THAT SHARES WERE NOT ALLOTTED TO THE INVESTING COMPANIES AND IT WAS NEVER SENT THROUGH POSTAL MODE AND NO SUCH EVIDENCE WAS EVER PRODUCED EITHER BEFORE TH E LD AO OR BEFORE ME. 5.11 I AM OF THE OPINION THAT IN THE PRESENT C ASE THE AO HAS BROUGHT ALL POSITIVE MATERIAL OR EVIDENCE ON RE CORD THAT WOULD ITA N O.2099 /DEL./2011 12 ESTABLISH THAT THE AMOUNT INTRODUCED BY WAY OF ALLE GED ENTRY TO THE EXTENT OF RS.5,00,000/- FROM SMPL, OESPL & SSL IS N OTHING BUT UNEXPLAINED UNSECURED AMOUNT. IT IS REITERATED THAT ASSESSMENT DETAILS OF THE PERSON WAS NOT SUPPLIED BY THE APPEL LANT. 5.12 IT IS ONCE AGAIN PLACED ON RECORD THAT THE I DENTITY REGARDING THE ADDRESSEE (INVESTOR) COULD NOT BE EST ABLISHED IN SPITE OF REPEATED OPPORTUNITIES PROVIDED TO THE APPELLANT . 5.13 THE JURISDICTIONAL ITAT IN RECENT CASE OF INC OME-TAX OFFICER WARD 6(3) VS. MAYANK CONTAINERS P. LTD IN I TA N0.2283/DEL/09 DATED 11/08/09, REFERRING THE DECISI ON OF LOVELY EXPORTS (SUPRA) AND DIVINE LEASING & FINANCE (SUPRA ) HAS HELD AS BELOW:- IN OUR VIEW, HON'BLE DELHI HIGH COURT AND HON'BLE SUPREME COURT WHILE RENDERING JUDGMENTS IN THE ABOVE CASES WERE NOT DEALING WITH THE CASE OF HAWALA OPERATORS AND BOGUS ENTRY PROVIDERS. 5.14 RELIANCE IS ALSO PLACED ON THE DECISION OF JURISDICTIONAL ITAT IN THE CASE OF ITO V OMEGA BIOT ECH LTD IN ITA NO. 2860/DEL/2009 FOR AY 02-03 DATED 31/12/09. IN T HAT CASE THE APPELLANT RECEIVED ` .12.50 LACS FROM FIVE PARTIES NAMELY:- I) AMBO ALLOYS P LTD (AAPL) - ` .2,50,000/- II) PROFAN FINANCE & INVESTMENT P LTD(PFIPL) ` .2,50,000/- III) ENPOL P LTD (EPL) ` 2,50,000/- IV) SAURABH PETROCHEM P LTD (SPPL) ` .2,50,000/- V) LANDMARK COMMUNICATION P LTD(LCPL) ` 2,50,000/- TOTAL ` .12,50,000/- THE EXCERPTS OF THE JUDGMENT OF LD ITAT IS REPRODUC ED BELOW:- ITA N O.2099 /DEL./2011 13 WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS, ARGUMENTS ADVANCED AND THE DECISIONS CITED. AFTER T HE ASSESSEE FILED VARIOUS DOCUMENTS IN RESPECT OF SHAR E APPLICANTS, THE AO TRIED TO EXAMINE WHETHER THESE PERSONS EXIST S. THE INQUIRY REVEALED THAT ALL THESE COMPANIES DO NOT EX IST AT THE PLACES MENTIONED. THE FACT WAS BROUGHT TO THE NOTIC E OF THE ASSESSEE ALSO. THEREAFTER THE ASSESSEE HAS NOT TRIE D TO PROVE THE EXISTENCE OF SUCH SHARE APPLICANTS. ON THE CONT RARY, IT HAS STATED THAT THE SO CALLED SHARE ALLOTTED TO THE SHA RE APPLICANTS HAVE BEEN ACQUIRED BY THE DIRECTORS AND THE RELATIV ES OF THE DIRECTORS OF THE RESPONDING COMPANY THEREIN .. TH E AO HAS NOT MERELY RELIED UPON THE INFORMATION RECEIVED FRO M INVESTIGATION WING BUT HAS ALSO TRIED TO FIND OUT W HETHER THE SHARE APPLICANTS EXIST OR NOT. WHEN THE PARTIES WER E NOT FOUND AT THE GIVEN ADDRESS, THIS FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSEE AND THE ASSESSEE HAS THEREAFTER NOT PROVID ED ANY FURTHER PROOF OF THE EXISTENCE OF SHARE APPLICANTS. THOUGH HON'BLE SUPREME COURT OBSERVED AS EXTRACTED HEREIN ABOVE, BEFORE ARRIVING AT A FINDING THAT THE SHARES WERE A LLOTTED, THE EXISTENCE OF SHARE APPLICANTS IS REQUIRED TO BE EST ABLISHED. THE OBSERVATION WILL BE RELEVANT ONLY WHEN THE SHARE AP PLICANTS ARE EXISTING AND SHARES ARE ALLOTTED TO THEM. IN THIS C ASE, EXISTENCE OF SHARE APPLICANTS HAS BEEN SHOWN BY THE ASSESSEE ON PAPERS WHICH EVEN COULD NOT BE SUBSTANTIATED BY PROOF THAT THE EXISTENCE IS ON THE ADDRESS PROVIDED TO THE ASSESSE E BY THE SHARE APPLICANTS, THEREFORE THE PAPERS SUBMITTED IT SELF BY THE ASSESSEE DO NOT PROVE THE EXISTENCE OF SHARE APPLIC ANT FACTUALLY., THEREFORE, IN THE PRESENT CASE WE FIND THAT THE EXISTENCE OF SHARE APPLICANTS WERE NOT PROVED. THE REFORE MERELY ON CERTAIN PAPERS PRODUCED BY ASSESSEE IT CA NNOT BE SAID THAT THESE SHARE APPLICANTS WERE IN EXISTENCE WHO HAVE ACTUALLY APPLIED (OR SHARES AND WERE ALLOTTED THE S HARES .. IN THE ABOVE CASE THE LD JURISDICTIONAL ITAT HAS RE JECTED THE SUBMISSION OF THE APPELLANT. ALL THE OBSERVATIONS M ADE BY THE LD. ITAT IS EQUALLY TRUE FOR THE INVESTOR COMPANY/CREDI TOR/PERSON. NO FURTHER PROOF COULD BE REQUIRED IN RESPECT OF THE P RESENT INVESTING ITA N O.2099 /DEL./2011 14 COMPANY AND I AM OF THE CONSIDERED VIEW THAT THIS C ASE DESERVES INVOKING OF SEC. 68 OF THE ACT. 5.15 RELIANCE IS ALSO PLACED ON TWO RECENT DECISI ONS ON THE SUBJECT OF SUNDRY CREDITORS WHERE THE HIGH COUR TS INCLUDING, THE JURISDICTIONAL HIGH COURT HAS DECIDED IN FAVOUR OF THE REVENUE IN IDENTICAL CIRCUMSTANCES OF THE CASES. TOBY CONSULTA NTS P LTD V CIT (2009) 324 ITR 338 (DEL), BLOWWELL AUTO P LTD V ACI T 219 CTR 185 (P&H). 5.16 IN CASE OF CIT V DWARKADHISH INVESTMENT P. L TD & DWARKADHISH CAPITAL P LTD ITA NO.911 & 913/2010 DAT ED 02.08.10, THE HON'BLE HIGH COURT HAS DISMISSED THE PETITION O F THE REVENUE, MATTER RELATING TO SEC.68 OF THE ACT. IN SUCH CASE THERE WAS CLEAR FINDING BY LD CIT(A) THAT THE SAID CASE WAS NOT A F IT CASE FOR INVOKING OF SEC.68, THE SAME WAS ALSO REPRODUCED IN THE ORDER OF THE HON'BLE HIGH COURT. THE DECISION OF THE LD CIT( A) WAS AGAIN SUSTAINED BY THE LD ITAT. HENCE IN THAT CASE TWO AU THORITIES BELOW (THAN THE HIGH COURT) HAVE REACHED TO THE SAME FIND ING THAT SEC.68 WAS NOT ATTRACTED AND THE HIGH COURT VETTED THE DEC ISION OF ITAT. CONTRARY TO SUCH CASE, IN THE INSTANT CASE MY FINDI NGS ALONGWITH THE FINDINGS OF THE LD AO ARE ON THE SAME LINE AND IT I S CLEAR THAT THE APPELLANT HAS FAILED TO ESTABLISH THE IDENTITY, CRE DITWORTHINESS OF THE CREDITOR/SHARE APPLICANT, NEITHER THE GENUINENESS O F THE TRANSACTION COULD BE ESTABLISHED AS CASH PAYMENT OF THE MATCHIN G AMOUNT/PART THEREOF WAS MADE BEFORE GIVING THE CREDIT AND IT IS DUTY OF THE APPELLANT TO ESTABLISH THE FACT. NOW IT CANNOT BE C LAIMED THAT THE ENQUIRY IS TO BE CAUSED IN THE FILE OF THE CREDITOR AND NOT IN THAT OF THE APPELLANT. THE DETAILS OF THE CREDITOR IS NOT K NOWN AT THE PRESENT POINT OF TIME. THE APPELLANT CANNOT BE ABSOLVED OF ITS LIABILITY BY SIMPLY GIVING THE NAME (WITHOUT GIVING ADDRESS, PAN AND OTHER ACCOUNTING DETAILS) OF THE CREDITOR/SHARE APPLICANT . THE AO IS VERY MUCH WITHIN. HIS JURISDICTION TO INVOKE SEC.68 IN S UCH CASES. IT IS ALSO NOT KNOWN WHETHER THERE IS ANY TIME LEFT FOR I NITIATION OF PROCEEDING IN CASE OF SUCH CREDITOR/SHARE APPLICANT . IN ANY CASE THE INITIATION, IF ANY, OF PROCEEDING IN CASE OF SUCH C REDITOR/SHARE APPLICANT IS NOTHING TO DO WITH THE INVOKING OF PRO VISION U/S 68 IN CASE OF THE APPELLANT. ALL THE PREREQUISITES FOR IN VOKING THE PROVISION IS CLEARLY AVAILABLE IN THE INSTANT CASE AND TO THA T EXTENT THE ACTION OF THE AD IS QUITE JUSTIFIED. IN SUCH TYPE OF CASES , EVERY CASE HAS TO BE DECIDED ON THE FACTS OF THE PARTICULAR CASE ONLY . REFERENCE TO CATENA OF DECISIONS FAVOURING APPELLANT OR REVENUE WOULD BE OF LITTLE USE IF THE FACTS DO NOT FIT TO THE CASE UNDER REFER ENCE. BECAUSE OF THE PECULIAR FACTS OF THE CASE, AS BROUGHT ON RECOR D BY THE LD AO ITA N O.2099 /DEL./2011 15 AND AS DISCUSSED ABOVE BY ME IN FOREGOING PARAGRAPH S, THE INVOKING OF SEC.68 IS HELD TO BE CORRECT. 5.17 JURISPRUDENCE ON THIS ISSUE :- THE SUBSTANCE OF THE AGREEMENT TAKE PRECEDENCE OVER THE FORM OF THE AGRE EMENT. THE PRINCIPAL OF 'SUBSTANCE' OVER 'FORM' IS A WELL ACCE PTED DOCTRINE IN INTERNATIONAL LAW. THE HON. SC IN THE CASE OF DEVID AS V CIT (1972) 84 ITR 277 HAS HELD :- THE COURT HAS TO LOOK NOT ONLY INTO THE DOCUMENT RELATING TO THE TRANSACTION BUT ALSO THE SURROUNDING CIRCUMSTANCES TO DECIDE ITS TRUE NATURE, THE NAME WHICH THE PARTIES GIVE TO IT BEING OF LITTLE CONSEQUENCE. THE ASSESSING AUTHORITY IS UNDOUBTEDLY ENTITLED AND IS, INDEED, BOUND TO DETERMINE THE TRUE LEGAL RELATIONSHIP RESULTING FROM A TRANSACTION. IF THE' PARTIES HAVE CHOSEN TO CONCEAL, BY A DEVICE, THE TRUE LEGAL RELATION, IT IS OPEN TO IT TO UNRAVEL SUCH DEVICE AND TO ASCERTAIN THE NATURE OF THE RELATIONSHIP. IF THE TRANSACTION IS EMBODIED IN A DOCUMENT, THE LIABILITY TO TAX DEPENDS UPON THE MEANING AND CONTENT OF THE LANGUAGE USED IN IT IN CONNECTION, WITH THE ORDINARY RULES OF CONSTRUCTION. 5.18 IT HAS BEEN HELD BY A FULL BENCH OF PATNA HI GH COURT IN THE CASE OF H.D. AGGARWAL & SONS (1988) 169 ITR 617, THAT THE MERE USE OF THE TERMINOLOGY OF THE PRINCIPAL AND AG ENT MAY BE FAR FROM BEING CONCLUSIVE AND MAY IN FACT BE A MISNOMER . ONE HAS TO GO TO THE ROOT AND SUBSTANCE OF THE CONTRACT AND NO T MERELY TO ITS FORM AND NAME, BECAUSE OTHERWISE, IT WOULD BE OPEN TO THE PARTIES TO CAMOUFLAGE THE SUBSTANCE OF AN AGREEMENT BY MERE LY EMPLOYING THE LABELS OF PRINCIPAL AND AGENT. 5.19 THE SAME PRINCIPLE HAD EARLIER BEEN ENUNCI ATED BY THE HON'BLE SC IN THE CASE OF BHOPAL SUGAR INDUSTRI ES LTD V STO (1977) 40 STC 42, WHERE THE COURT OBSERVED THAT A M ERE FORMAL DESCRIPTION OF A PERSON IN A CONTRACT AS AN AGENT O R A BUYER, IT IS NOT CONCLUSIVE UNLESS THE CONTEXT SHOWS THAT THE PARTIE S CLEARLY ITA N O.2099 /DEL./2011 16 INTENDED TO TREAT A BUYER AS A BUYER AND NOT AN AGE NT. IT WAS HELD THAT ONE MUST LOOK TO THE SUBSTANCE OF THE TRANSACT ION AS DISCLOSED IN THE CONTRACT IN ORDER TO DETERMINE THE NATURE OF THE CONTRACT. THE TRUE RELATIONSHIP HAS TO BE GATHERED FROM THE TERMS AND CONDITIONS OF THE CONTRACT. 5.20 IN VIEW OF THE ABOVE, THE ACTUAL CONDUCT OF THE PARTIES IS IMPORTANT IN DETERMINING THE TRUE RELATI ONSHIP AND THE FUNCTIONAL INTERDEPENDENCE. IT HAS BEEN PROVED BEY OND ANY REASONABLE DOUBT THAT ONLY A CAMOUFLAGE HAS BEEN MA DE BY THE APPELLANT TO CONCEAL THE FACTS AND HENCE THE ACTION OF THE AO IN THIS CASE CANNOT BE FAULTED. 5.21 REGARDING INTERPRETATION OF SECTION 68:- ONE OF THE WELL RECOGNIZED RULES OF INTERPRETATION IS, WHERE T HE LANGUAGE IS PLAIN AND ADMITS OF ONE MEANING, THE TASK OF INTERP RETATION CAN HARDLY BE SAID TO ARISE. IT IS WELL-SETTLED THAT WH EN THE LANGUAGE EMPLOYED BY THE ENACTMENT IS CLEAR THERE IS NO QUES TION OF INTERPRETING THE PROVISIONS IN ANY MANNER EXCEPT BY GIVING THEM THERE PLAIN AND OBVIOUS MEANING. THE OBJECT OR PURP OSE OF ALL CONSTRUCTIONS OR INTERPRETATION IS TO ASCERTAIN THE INTENTION OF THE LAW MAKERS AND MAKE IT EFFECTIVE. THE COURT HAS TO DETE RMINE THE INTENTION AS EXPRESSED BY WORDS USED. IF THE WORDS OF THE STATUTE ARE THEMSELVES PRECISE AND UNAMBIGUOUS THEN NO MORE CAN BE NECESSARY THEN TO EXPOUND THOSE WORDS IN THEIR ORDI NARY AND NATURAL SENSE. THE WORDS THEMSELVES ALONE DO IN SUC H A CASE BEST DECLARED THE INTENTION OF THE LAW GIVER. THE COURT' S FUNCTION OF ASCERTAINING THE LEGISLATIVE INTENTION ARISES ONLY IF THERE IS ANY AMBIGUITY IN THE PROVISION OR THE LITERAL CONSTRUCT ION OF A PROVISION MAY BE CONTRARY TO THE LEGISLATIVE PURPOSE OR OBJEC TIVE OR MAY RESULT IN DISASTROUS CONSEQUENCES. IN DETERMINING THE LEG ISLATIVE INTENT, THE COURT IS REQUIRED TO CONSIDER THREE FACTORS VIZ . THE CONTEXT AND THE OBJECT OF THE STATUE, THE NATURE AND PRECISE SC OPE OF THE RELEVANT PROVISIONS AND THE DAMAGE SUFFERED NOT OF THE KIND TO BE GUARDED AGAINST. IT IS SAID THAT A STATUE IS AN EDI CT OF THE LEGISLATURE. THE ELEMENTARY PRINCIPLE OF INTERPRETING OR CONSTRU ING A STATUTE IS TO GATHER THE MENS OR SENTENTIA LEGIS OF THE LEGISLATU RE. WHERE THE LANGUAGE IS CLEAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED. WHAT IS TO BE BORNE IN MIND IS AS TO WHAT HAS BEEN SAID IN THE STATUTE AS ALSO WHAT HAS NOT B EEN SAID. THERE IS NO AMBIGUITY IN THE PROVISION OF SEC.68 AND ALL THE ESSENTIAL ELEMENTS OF SEE.68 IS SQUARELY APPLICABLE IN THE PR ESENT CASE AND HENCE THERE IS NO SCOPE FOR ANY OTHER MODE OF INTER PRETATION OF THE ACT IN THE PRESENT CIRCUMSTANCES OF THE CASE. ITA N O.2099 /DEL./2011 17 5.22 APPLYING THE ABOVE TESTS IN THE PRESENT CASE , IT APPEARS TO ME THAT THERE CANNOT BE ANY TWO OPINIONS , HAVING REGARD TO THE MATERIAL PRODUCED WITH REGARD TO IDENTITY, T HE CREDITWORTHINESS OF THE SUBSCRIBERS AS WELL AS TO T HE QUESTION OF GENUINENESS OF TRANSACTION, THE SAME COULD NOT BE E STABLISHED BY THE APPELLANT AND HENCE THE AO HAS RIGHTLY ADDED ` .5,00,000/- AND SUCH DECISION OF THE AO IS SUSTAINED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDER RELIED UPON DECISION DAT ED 9 TH OCTOBER, 2012 OF A CO- ORDINATE BENCH IN THE CASE OF INCOME-TAX OFFICER VS . RACHNA SAGAR PVT. LTD., IN I.T.A. NO.2819/DEL./2011 FOR THE AY 2003-04 AND VEH EMENTLY ARGUED THAT THE CASE IS SQUARELY COVERED BY THE SAID DECISION. TO A QUERY BY THE BENCH, THE LD. AR DID NOT REPLY AS TO WHY THE DIRECTORS OF THE AFO RESAID THREE COMPANIES WERE NOT PRODUCED BEFORE THE AO OR THE LD. CIT(A) AND WH Y NO REPLY TO SHOW CAUSE NOTICE DATED 9 TH OCTOBER, 2009 ISSUED BY THE AO WAS SUBMITTED. THE LD. AR DID NOT DEMONSTRATE BEFORE US AS TO HOW THE FACTS AND C IRCUMSTANCES IN THE AFORESAID DECISION IN RACHNA SAGAR PVT. LTD.(SUPRA) ARE PARALLEL TO THE FACTS AND CIRCUMSTANCES IN THE INSTANT CASE. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDE R OF THE LD. CIT(A) WHILE RELYING UPON DECISION IN CIT VS. PRECISION FINANCE CO. PVT. LTD. (1994) 208 ITR 465, 470, 471 (CAL). 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE GON E THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY BOTH THE SIDES. INDISPUTABLY, AN AMOUNT OF ` `5 LACS WAS RECEIVED FROM THE THREE PARTIES VIZ. M/S SHIMME R MARKETING PVT. LTD.- ` `2 LACS; M/S LNYX EXIM & SALES PVT. LTD- ` `1 LAC AND M/S SHIVAM SOFTECH LTD.- ` `2 LACS BY WAY OF SHARE APPLICATION MONEY. ON RECE IPT OF INFORMATION FROM DIT(INV.) ,NEW DELHI THAT THE ASSESSEE WAS IN RECEI PT OF ACCOMMODATION ENTRIES OF ` 5 LACS FROM THREE PARTIES IN THE FORM OF SHARE APPL ICATION MONEY, THE AO REOPENED THE ASSESSMENT U/S 147 OF THE ACT. THE VA LIDITY OF REOPENING OF THE ITA N O.2099 /DEL./2011 18 ASSESSMENT HAS NOT BEEN DISPUTED BEFORE US. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THOUGH THE ASSESSEE SUBMITTED COPIES O F ACKNOWLEDGMENTS OF FILING THE RETURNS BY THE AFORESAID THREE COMPANIES AS ALS O THEIR BALANCESHEETS AND COPIES OF RELEVANT PORTION OF BANK STATEMENTS, THE AO ASKED THE ASSESSEE TO PRODUCE DIRECTORS OF THE AFORESAID COMPANIES FOR AS CERTAINING CREDITWORTHINESS OF THE AFORESAID COMPANIES AND GENUINENESS OF THE TRAN SACTIONS, OPENING BALANCE AND CLOSING BALANCE AS ON 1.4.2001 AND 31.3.2002 IN THEIR BANK ACCOUNT BEING BELOW ` ` 10,000/-. INDISPUTABLY, THE ASSESSEE DID NOT PRODU CE THE DIRECTORS OF THE AFORESAID COMPANIES NOR RESPONDED TO THE LETTER DAT ED 9.10.2009 ISSUED BY THE AO. EVEN IN RESPONSE TO A QUERY BY US, THE LD. AR DID NOT ADDUCE ANY REASONS AS TO WHY THE DIRECTORS OF THE AFORESAID COMPANIES WERE NOT PRODUCED BEFORE THE AO OR THE LD. CIT(A) AND WHY NO REPLY TO THE LETTER DATED 9.10.2009 ISSUED BY THE AO WAS SUBMITTED. THE LD. CIT(A) UPHELD THE ORDER O F THE AO ON THE GROUND THAT NEITHER IDENTITY OR CREDITWORTHINESS OF THE AFORESA ID THREE COMPANIES NOR GENUINENESS OF TRANSACTIONS HAS BEEN ESTABLISHED BY THE ASSESSEE. AS IS APPARENT FROM THE FACTS OF THE CASE, THE ASSESSEE I S A PRIVATE LIMITED COMPANY AND SHARE APPLICATION MONEY WAS RECEIVED BY IT NOT ON ACCOUNT OF PUBLIC ISSUE OF SHARES BUT ON ACCOUNT OF PRIVATE PLACEMENT. THE RE LEVANT DETAILS OF AUTHORIZED AND SUBSCRIBED SHARE CAPITAL WERE NOT PLACED BEFORE US BY THE LD. AR NOR EVEN BALANCESHEET OF THE COMPANY AS ON 31.3.2002.THE ASS ESSEE DID NOT PRODUCE THE DIRECTORS OF THE AFORESAID THREE COMPANIES DESP ITE SUFFICIENT OPPORTUNITY ALLOWED BY THE AO IN THE LIGHT OF FACTS POINTED OUT IN THE REPORT OF DIT(INVESTIGATION) REGARDING RECEIPT OF ACCOMMODATI ON ENTRY BY THE ASSESSEE IN THE FORM OF SHARE APPLICATION MONEY FROM THE SAID T HREE COMPANIES. IT IS WELL ESTABLISHED THAT THE INITIAL BURDEN IS ON THE ASSES SEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE. THE ASSESSEE ALONE IS REQUIRED TO PROVE: (A) IDENTITY OF SHAREHOLDER; (B) GENUINENESS OF TRANSACTION; AND (C) CREDIT WORTHINESS OF SHAREHOLDERS. 6.1 IN THE CASE OF THE INVESTOR/SHAREHOLDER BEIN G A COMPANY, THE DETAILS IN THE FORM OF REGISTERED ADDRESS OR ITS PAN IDENTITY, ET C. ESTABLISHES THE IDENTITY OF THE ITA N O.2099 /DEL./2011 19 COMPANY. THE LD. CIT(A) IN THE IMPUGNED ORDER CONCL UDED THAT THE ASSESSEE FAILED TO ESTABLISH THE IDENTITY OF THE AFORESAID THREE COMPANIES. HOWEVER, IN THE PAPER BOOK SUBMITTED BEFORE US, THE ASSESSEE PLACED COPIES OF AFFIDAVITS OF DIRECTORS OF THE AFORESAID THREE COMPANIES[PG.14 TO 19], WHICH HAVE BEEN ATTESTED BY THE NOTARY ONLY ON 11.12.2009 WHILE ASS ESSMENT HAS BEEN COMPLETED ON 7.12.2009. THE LD. AR DID NOT EXPLAIN AS TO WHEN THESE DOCUMENTS WERE PLACED BEFORE THE AO NOR ANY SUCH EVIDENCE OF FURN ISHING THESE DOCUMENTS BEFORE THE AO OR THE LD. CIT(A) IS PLACED BEFORE US . NEITHER THE AO NOR THE LD. CIT(A) RECORDED ANY FINDINGS IN THE CONTEXT OF THES E AFFIDAVITS. IN THE AFFIDAVITS ON BEHALF OF M/S SHIMMER MARKETING PVT. LTD. & M/S ON YX EXIM & SALES LTD.,A COMMON DIRECTOR SHRI SH MALLICK AVERRED IN THE AFFI DAVIT THAT M/S SHIMMER MARKETING PVT. LTD. HAD ITS REGISTERED OFFICE AT 28 42,CLASSIC APARTMENTS, DARYA STREET, MOTI MAHAL, DARYA GANJ, DELHI AND SUBSCRIBE D 20000 EQUITY SHARES OF ` 10 EACH OF THE ASSESSEE COMPANY VIDE CHEQUE NO.922885 DATED 1.2.2002 FOR ` 2,00,000/-. IN THE AFFIDAVIT ON BEHALF OF M/S ONYX EXIM & SALES LTD.,SHRI SH MALLICK AVERRED THAT M/S ONYX EXIM & SALES LTD. HA D ITS REGISTERED OFFICE AT 6707/9,DEV NAGAR,KAROL BAGH,NEW DELHI AND SUBSCRIBE D 10000 EQUITY SHARES OF ` 10 EACH OF THE ASSESSEE COMPANY VIDE CHEQUE NO.7502 22 DATED 13.2.2002 FOR ` 1 ,00,000/-./-. LIKEWISE IN THE AFFIDAVIT DATED 11.12 .2009 ON BEHALF OF M/S SHIVAM SOFTECH LTD.,SHRI VISHAL AGARWAL AVERRED TH AT M/S SHIVAM SOFTECH LTD. HAD ITS REGISTERED OFFICE AT 6707/9,PYARELAL ROAD,D EV NAGAR,KAROL BAGH,NEW DELHI AND SUBSCRIBED 12000 EQUITY SHARES OF ` 10 EACH OF THE ASSESSEE COMPANY VIDE CHEQUE NO. 479689 FOR ` 2 ,00,000/-. THE DATE OF CHEQUE IS NOT MENTIONED IN THE AFFIDAVIT. A COPY OF THE ACKNOWLEDGMENT OF FI LING OF RETURNS BY M/S SHIMMER MARKETING PVT. LTD. & M/S ONYX EXIM & SALES LTD.. R EVEALS SAME ADDRESS AT 2842,CLASSIC APARTMENTS, DARYA STREET, MOTI MAHAL, DARYA GANJ, DELHI WHILE IN CASE OF M/S SHIVAM SOFTECH LTD,ADDRESS SHOWN IS 67 07/9,PYARELAL ROAD, DEV NAGAR, KAROL BAGH, NEW DELHI. THE BALANCESHEETS OF THESE THREE COMPANIES ARE SIGNED BY THE SAME CHARTERED ACCOUNTANT RAWAL SK & CO. THESE FACTS REVEAL THAT ALL THE THREE INVESTOR COMPANIES OPERATE FROM FROM THE SAME ADDRESS OR ARE ARE CONTROLLED BY THE SAME GROUP OF PERSONS. HOWEVE R, SINCE THE ASSESSEE DID ITA N O.2099 /DEL./2011 20 NOT PRODUCE THE DIRECTORS OF THE SAID COMPANIES BEF ORE THE AO NOR THE AFORESAID AFFIDAVITS ATTESTED BY NOTARY ON 11.12.2009 WERE AV AILABLE BEFORE HIM AND NOR EVEN THE LD. CIT(A) APPEARS TO HAVE EXAMINED THESE DOCUMENTS, THERE BEING NO PRAYER FOR ADMISSION OF ANY ADDITIONAL EVIDENCE, T HE LD. CIT(A) CONCLUDED THAT IDENTITY & CREDITWORTHINESS OF THE AFORESAID THREE COMPANIES AS ALSO GENUINENESS OF TRANSACTIONS WAS NOT ESTABLISHED. 6.2 AS REGARDS GENUINENESS OF THE TRANSACTIONS A ND CREDITWORTHINESS OF THE INVESTORS, THIS CAN BE DEMONSTRATED BY SHOWING THAT THE ASSESSEE HAD, IN FACT, RECEIVED MONEY FROM THE SAID SHAREHOLDER AND IT CAM E FROM THE COFFERS OF THAT VERY SHAREHOLDER. IN THE INSTANT CASE, THE LD. CIT( A) FOUND THAT THE ASSESSEE RECEIVED HUGE AMOUNT OF FUND IN THE RELEVANT ASSTT. YEAR FROM OUTSIDE PARTIES, WHO DID NOT RECEIVE ANY DIVIDEND OR INTEREST WHATSO EVER FROM THE ASSESSEE THE PAST SO MANY YEARS. THE LD. CIT(A) FOUND THAT SINCE FY 01-02 RELEVANT TO THE AY 02-03, THE ENTIRE FUND OF ` .5,00,000/- FROM THE SAID THREE COMPANIES IS KEPT BY THE ASSESSEE TILL DATE AND THE INVESTING COMPANIES HAVE NEITHER RECEIVED ANY DIVIDEND NOR DERIVED ANY INCOME OF ANY NATURE BY IN VESTMENT OF THE SAID AMOUNT EVEN AFTER A LAPSE OF 9 YEARS. DESPITE REPEATED OPPORTUNITIES, THE PRINCIPAL OFFICERS OF THE INVESTING COMPANIES NEITHER APPEARE D NOR WERE PRODUCED BY THE ASSESSEE BEFORE THE AO OR THE LD. CIT(A).EVEN NO R EASONS HAVE BEEN ADDUCED BEFORE US AS TO WHY THESE PERSONS WERE NOT PRODUCED BEFORE THE AO OR LD. CIT(A) AND WHY REPLY TO LETTER DATED 9.10.2009 ISSU ED BY THE AO WAS NOT SUBMITTED. IN THESE CIRCUMSTANCES, THE OBSERVATIONS OF THE LD. CIT(A) THAT ANY SUCH PERSON (INCLUDING COMPANIES) WOULD NEVER SIMPL Y ADVANCE FUND AND WOULD VANISH FROM THE SCENE AND THAT THERE IS NO EVIDENC E ON RECORD THAT SHARES WERE INDEED ALLOTTED TO THE AFORESAID COMPANIES, ARE JUS TIFIED. IN .ORDER TO DECIDE THE GENUINENESS OF TRANSACTIONS, NOT ONLY THE DOCUMENTS BUT CONDUCT OF THE ASSESSEE AND SURROUNDING CIRCUMSTANCES ARE RELEVANT . MERELY ESTABLISHING THE IDENTITY OF THE CREDITOR IS NOT ENOUGH AS HELD IN S HANKAR INDUSTRIES VS. CIT (1978) 114 ITR 689 (CAL);C. KANT & CO. VS. CIT (1980) 126 ITR 63 (CAL);PRAKASH TEXTILE AGENCY VS. CIT (1980) 121 ITR 890 (CAL); ORIENTAL W IRE INDUSTRIES PVT. LTD. VS. ITA N O.2099 /DEL./2011 21 CIT (1981) 131 ITR 685 (CAL);CIT VS UNITED COMMERCI AL & INDUSTRIAL CO. PVT. LTD. (1991) 187 ITR 596, 599 (CAL.); AND CIT VS. KO RLAY TRADING CO. LTD. (CAL.) 232 ITR 820.BESIDES, MERE FILING OF CONFIRMATORY L ETTERS DOES NOT DISCHARGE THE ONUS THAT LIES ON THE ASSESSEE AS HELD IN BHARATI P VT. LTD. VS. CIT (1978 111 ITR 951 (CAL);CIT VS. W.J. WALKAR & CO. (1979) 117 ITR 690, 694 (CAL)AND CIT VS. UNITED COMMERCIAL & INDUSTRIAL CO. (P) LTD. (1991) 187 ITR 596, 599 (CAL).MOREOVER, MERE FURNISHING OF THE PARTICULARS OR PAYMENT BY ACCOUNT PAYEE CHEQUE IS NOT SACROSANCT NOR CAN IT MAKE A NON-GENU INE TRANSACTION GENUINE AS CONCLUDED IN CIT VS. PRECISION FINANCE CO. PVT. LTD . (1994) 208 ITR 465, 470, 471 (CAL); NIZAM WOOL AGENCY VS.CIT (1992) 193 ITR 318, 320 (ALL)AND CIT VS. UNITED COMMERCIAL & INDUSTRIAL CO. (P) LTD. 187 ITR 596 (CAL.). 6.3 AS REGARDS ONUS AND APPLICABILITY OF DECISI ON OF THE HON BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS PVT. LTD. (SUPR A) , WE MAY POINT OUT THAT SPECIAL LEAVE PETITION BEFORE THE HON BLE SUPREME COURT IN THE SAID CASE AROSE OUT OF THE JUDGMENT DATED 16.11.2006 OF HON BLE DELHI HIGH COURT IN CIT V. DIVINE LEASING & FINANCE LTD, 299 ITR 268. IN THAT CASE ,THE ASSESSEE ,A PUBLIC LIMITED COMPANY RECEIVED SUBSCRIPTION FROM PUBLIC I SSUE THROUGH BANKING CHANNEL AND THE SHARES WERE ALLOTTED IN CONSONANCE WITH THE PROVISIONS OF SECURITIES CONTRACT (REGULATION) ACT, 1953. THE SAID ASSESSEE FURNISHED COMPLETE DETAILS & THE TRIBUNAL NOTICED THAT THE AO DID NOT BRING ANY EVIDENCE ON RECORD, WHICH WOULD INDICATE THAT THE SHARE HOLDERS WERE BENAMIDA R OR FICTITIOUS PERSONS OR THAT ANY PART OF THE SHARE CAPITAL REPRESENTED COMPANYS OWN INCOME FROM UNDISCLOSED SOURCES. THERE WERE FIVE SIKKIMESE COMP ANIES WHO SUBSCRIBED TO RIGHTS SHARES. SUCH COMPANIES WERE DULY INCORPORATE D UNDER THE SIKKIMESE COMPANY ACT AND WERE ASSESSED UNDER SIKKIMESE TAXAT ION MANUAL. IN THE ABOVE FACTS, THE TRIBUNAL DELETED ADDITION MADE ON ACCOUNT OF SHARE CAPITAL BY THE AO AND SUCH ACTION OF THE TRIBUNAL WAS UPHELD B Y THE HON BLE HIGH COURT BY HOLDING THAT NO QUESTION OF LAW AROSE. THE HON BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS PVT. LTD. (SUPRA) UPHELD THE SAID JU DGMENT OF THE HONBLE DELHI HIGH COURT. ITA N O.2099 /DEL./2011 22 6.4 HOWEVER, IN THE INSTANT CASE, THE ASSESSEE, A PRIVATE LIMITED COMPANY RECEIVED THE SHARE APPLICATION MONEY THROUGH PRIVA TE PLACEMENT. THE AO AFTER PERUSAL OF COPIES OF ACKNOWLEDGEMENT OF FILING OF T HEIR INCOME TAX RETURNS AND BANK STATEMENTS FOUND THAT THESE COMPANIES HAD VER Y MEAGRE INCOME . THOUGH THE ASSESSEE COULD OBTAIN COPIES OF THEIR ACKNOWLED GMENT OF FILING RETURNS AND BANK STATEMENTS, FOR REASONS BEST KNOWN TO THE ASSE SSEE, THE DIRECTORS OF THE AFORESAID COMPANIES WERE NEVER PRODUCED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS OR EVEN BEFORE THE LD. CIT( A) IN APPELLATE PROCEEDINGS. THUS, IT CANNOT BE SAID THAT THE AO DID NOT BRING O N RECORD ANY EVIDENCE TO SHOW THAT THERE WERE STRONG INDICATION THAT THE SO-CALLE D SHARE APPLICANTS WERE MERE PAPER ENTITIES AND DID NOT HAVE THE REQUISITE CAPAC ITY TO ADVANCE THE IMPUGNED AMOUNTS. MOREOVER, HONBLE JURISDICTIONAL HIGH COUR T IN CIT VS. NOVA PROMOTERS & FINLEASE (P) LTD,342 ITR 169(DEL.) WHILE CONSIDER ING VARIOUS DECISIONS INCLUDING IN LOVELY EXPORTS P LTD.(SUPRA) & ORISSA CORPORATION (P) LTD.(SUPRA) RELIED UPON BY THE LD. CIT(A) ,OBSERVED IN SOMEWHAT SIMILAR CIRCUMSTANCES, AS UNDER: 38. THE RATIO OF A DECISION IS TO BE UNDERSTOOD AND AP PRECIATED IN THE BACKGROUND OF THE FACTS OF THAT CASE. SO UNDERSTOOD , IT WILL BE SEEN THAT WHERE THE COMPLETE PARTICULARS OF THE SHARE AP PLICANTS SUCH AS THEIR NAMES AND ADDRESSES, INCOME TAX FILE NUMBERS, THEIR CREDITWORTHINESS, SHARE APPLICATION FORMS AND SHARE HOLDERS' REGISTER, SHARE TRANSFER REGISTER ETC. ARE FURNISHED TO THE A SSESSING OFFICER AND THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY INTO THE SAME OR HAS NO MATERIAL IN HIS POSSESSION TO SHOW THAT THOS E PARTICULARS ARE FALSE AND CANNOT BE ACTED UPON, THEN NO ADDITION CA N BE MADE IN THE HANDS OF THE COMPANY UNDER SEC. 68 AND THE REMEDY O PEN TO THE REVENUE IS TO GO AFTER THE SHARE APPLICANTS IN ACCO RDANCE WITH LAW. WE ARE AFRAID THAT WE CANNOT APPLY THE RATIO TO A CASE , SUCH AS THE PRESENT ONE, WHERE THE ASSESSING OFFICER IS IN POSSESSION O F MATERIAL THAT DISCREDITS AND IMPEACHES THE PARTICULARS FURNISHED BY THE ASSESSEE AND ALSO ESTABLISHES THE LINK BETWEEN SELF-CONFESSE D 'ACCOMMODATION ENTRY PROVIDERS', WHOSE BUSINESS IT IS TO HELP ASSE SSEES BRING INTO THEIR BOOKS OF ACCOUNT THEIR UNACCOUNTED MONIES THR OUGH THE MEDIUM OF SHARE SUBSCRIPTION, AND THE ASSESSEE. THE RATIO IS INAPPLICABLE TO A CASE, AGAIN SUCH AS THE PRESENT ONE, WHERE THE INVO LVEMENT OF THE ASSESSEE IN SUCH MODUS OPERANDI IS CLEARLY INDICATE D BY VALID MATERIAL ITA N O.2099 /DEL./2011 23 MADE AVAILABLE TO THE ASSESSING OFFICER AS A RESULT OF INVESTIGATIONS CARRIED OUT BY THE REVENUE AUTHORITIES INTO THE ACT IVITIES OF SUCH 'ENTRY PROVIDERS'. THE EXISTENCE WITH THE ASSESSING OFFICE R OF MATERIAL SHOWING THAT THE SHARE SUBSCRIPTIONS WERE COLLECTED AS PART OF A PRE- MEDITATED PLAN - A SMOKESCREEN - CONCEIVED AND EXEC UTED WITH THE CONNIVANCE OR INVOLVEMENT OF THE ASSESSEE EXCLUDES THE APPLICABILITY OF THE RATIO. IN OUR UNDERSTANDING, THE RATIO IS AT TRACTED TO A CASE WHERE IT IS A SIMPLE QUESTION OF WHETHER THE ASSESSEE HAS DISCHARGED THE BURDEN PLACED UPON HIM UNDER SEC. 68 TO PROVE AND E STABLISH THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICAN T AND THE GENUINENESS OF THE TRANSACTION. IN SUCH A CASE, THE ASSESSING OFFICER CANNOT SIT BACK WITH FOLDED HANDS TILL THE ASSESSEE EXHAUSTS ALL THE EVIDENCE OR MATERIAL IN HIS POSSESSION AND THEN COM E FORWARD TO MERELY REJECT THE SAME, WITHOUT CARRYING OUT ANY VE RIFICATION OR ENQUIRY INTO THE MATERIAL PLACED BEFORE HIM. THE CASE BEFOR E US DOES NOT FALL UNDER THIS CATEGORY AND IT WOULD BE A TRAVESTY OF T RUTH AND JUSTICE TO EXPRESS A VIEW TO THE CONTRARY. 39. THE CASE OF CIT V. ORISSA CORPORATION (P.) LTD. [1 986] 159 ITR 78/25 TAXMAN 80 (SC) EXEMPLIFIES THE CATEGORY OF CA SES WHERE NO ACTION IS TAKEN BY THE ASSESSING OFFICER TO VERIFY OR CONDUCT AN ENQUIRY INTO THE PARTICULARS ABOUT THE CREDITORS FURNISHED BY THE ASSESSEE, INCLUDING THEIR INCOME-TAX FILE NUMBERS. IN THE SAM E CATEGORY FALL CASES DECIDED BY THIS COURT IN CIT V. DOLPHIN CANPA CK [2006] 283 ITR 190, CIT V. MAKHNI & TYAGI (P.) LTD. [2004] 267 ITR 433/136 TAXMAN 641, CIT V. ANTARTICA INVESTMENT (P.) LTD. [2003] 2 62 ITR 493/133 TAXMAN 605 AND CIT V. ACHAL INVESTMENT LTD. [2004] 268 ITR 211/136 TAXMAN 335. TO PUT IT SIMPLY, IN THESE CASES THE DE CISION WAS BASED ON THE FUNDAMENTAL RULE OF LAW THAT EVIDENCE OR MAT ERIAL ADDUCED BY THE ASSESSEE CANNOT BE THROWN OUT WITHOUT ANY ENQUI RY. THE RATIO DOES NOT EXTEND BEYOND THAT. THE BOUNDARIES OF THE RATIO CANNOT BE, AND SHOULD NOT BE, WIDENED TO INCLUDE THEREIN CASES WHERE THERE EXISTS MATERIAL TO IMPLICATE THE ASSESSEE IN A COLL USIVE ARRANGEMENT WITH PERSONS WHO ARE SELF-CONFESSED 'ACCOMMODATION ENTRY PROVIDERS'. 6.5 AS REGARDS ONUS TO ESTABLISH WITH THE HELP OF MATERIAL ON RECORD THAT THE SHARE MONIES HAD COME OR EMANATED FROM THE ASSESSEE 'S COFFERS, RECENTLY, HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. INDEP ENDENT MEDIA (P.) LTD., [ 2012] 25 TAXMANN.COM 276 (DELHI)WHILE ADJUDICATING A SIMI LAR ISSUE OBSERVED AS UNDER: ITA N O.2099 /DEL./2011 24 THE REVENUE IS AGGRIEVED BY THE AFORESAID ORDER OF THE TRIBUNAL AND HAS FILED THE PRESENT APPEAL. WE ARE UNABLE TO UPHOLD THE VIEW OF THE TRIBUNAL THAT IT IS INCUMBENT UPON THE ASSESSING OFFICER, ON THE FACTS AND CIRCUM STANCES OF THE CASE, TO ESTABLISH WITH THE HELP OF MATERIAL ON RECORD THAT THE SHARE MONIE S HAD COME OR EMANATED FROM THE ASSESSEE'S COFFERS. SECTION 68 OF THE ACT CASTS NO SUCH BURDEN UPON THE ASSESSING OFFICER. THIS ASPECT HAS BEEN CONSIDERED MORE THAN 50 YEARS BACK BY THE SUPREME COURT IN THE CASE OF A GOVINDARAJULU MUDALIAR V. CIT [1958] 34 ITR 807 WHERE PRECISELY THE SAME ARGUMENT WAS ADVANCED BEFORE THE SUPREME COURT ON B EHALF ASSESSEE. THE ARGUMENT WAS REJECTED BY THE COURT. VENKATARAMA IYER, J. SPE AKING FOR THE COURT OBSERVED AS UNDER (PAGE 810 OF THE REPORT): - 'NOW THE CONTENTION OF THE APPELLANT IS THAT ASSUMING THAT HE HAD FAILED TO ESTABLISH THE CASE PUT FORWARD BY HIM, IT DOES NOT FOLLOW AS A MATTER OF LAW THAT THE AMOUNTS IN QUESTION WERE INCOME RECEIVED OR ACCRUED DURING THE PREVIOUS YEAR, THAT IT WAS THE DUTY OF THE DEPARTMENT TO ADDUCE EVIDENCE TO SHOW FROM WHAT SOURCE THE INCOME WAS DERIVED AND WHY IT SHOULD BE TREATED AS CONCEALED INCOME. IN THE ABSENCE OF SUCH EVIDENCE, IT IS ARGUED, THE FINDING IS ERRONEOUS. WE ARE UNABLE TO AGREE. WHETHER A RECEIPT IS TO BE TREATED AS INCOME OR NOT, MUST DEPEND VERY LARGELY ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE PRESENT CASE THE RECEIPTS ARE SHOWN IN THE ACCOUNT BOOKS OF A FIRM OF WHICH THE APPELLANT AND GOVINDASWAMY MUDALIAR WERE PARTNERS. WHEN HE WAS CALLED UPON TO GIVE EXPLANATION HE PUT FORWARD TWO EXPLANATIONS, ONE BEING A GIFT OF RS. 80,000/- AND THE OTHER BEING RECEIPT OF RS. 42,000/- FROM BUSINESS OF WHICH HE CLAIMED TO BE THE REAL OWNER. WHEN BOTH THESE EXPLANATIONS WERE REJECTED, AS THEY HAVE BEEN IT WAS CLEARLY UPON TO THE INCOME-TAX OFFICER TO HOLD THAT THE INCOME MUST BE CONCEALED INCOME. THERE IS AMPLE AUTHORITY FOR THE POSITION THAT WHERE AN ASSESSEE FAILS TO PROVE SATISFACTORILY THE SOURCE AND NATURE OF CERTAIN AMOUNT OF CASH RECEIVED DURING THE ACCOUNTING YEAR, THE INCOME-TAX OFFICER IS ENTITLED TO DRAW THE INFERENCE THAT THE RECEIPT ARE OF AN ASSESSABLE NATURE. THE CONCLUSION TO WHICH THE APPELLATE TRIBUNAL CAME APPEARS TO US TO BE AMPLY WARRANTED BY THE FACTS OF THE CASE. THERE IS NO GROUND FOR INTERFERING WITH THAT FINDING, AND THESE APPEALS ARE ACCORDINGLY DISMISSED WITH COSTS.' A SIMILAR VIEW WAS TAKEN BY THE SUPREME COURT IN CI T V. DEVI PRASAD VISHWANATH PRASAD [1969] 72 ITR 194 . 12. IN THE LIGHT OF THE AFORESAID EXPOSITION OF THE LE GAL POSITION THE VIEW TAKEN BY THE TRIBUNAL CANNOT BE UPHELD. .. ITA N O.2099 /DEL./2011 25 6.6 HONBLE KERALA HIGH COURT T.P. ABDULLA VS. ACIT , [2012] 20 TAXMANN.COM 402 (KER.) OBSERVED IN SIMILAR CIRCUMSTANCES THAT MERE PRODUCTION OF CONFIRMATION LETTERS, IT GOES WITHOUT SAYING, DOES NOT DISCHARGE THE LIABILITY OF THE ASSESSEE TO OFFER SATISFACTORY EXPLANATION FOR THE LOAN RECEIPTS. THE PRODUCTION OF SUCH MATERIAL CANNOT LEAD EITHER TO A CONCLUSION TH AT THE AO HAS TO DISCREDIT THE SAME OR CALL FOR FURTHER DETAILS IN THE EVENT OF NO N-SATISFACTION. THE AO CANNOT BE BURDENED WITH THE ONUS OF PROVING THE NEGATIVE NOR CAN THERE BE AN ENDLESS PROCESS OF SUBSTANTIATION OF MATERIALS BY PRODUCTIO N OF OTHER MATERIALS. THE BURDEN OF THE ASSESSEE IS TO OFFER SATISFACTORY EXP LANATION AND IF THE MATERIALS AND DOCUMENTS PRODUCED BY THE ASSESSEE DOES NOT LEA D TO A PROPER, REASONABLE OR ACCEPTABLE EXPLANATION AS REGARDS THE RECEIPTS IN T HE BOOKS, THE AO IS PERFECTLY ENTITLED TO RECORD HIS NON-SATISFACTION, PROVIDED HE HAS APPLIED HIS MIND WHICH IS DISCERNIBLE FROM THE IMPUGNED ORDER. 6.7 WE MAY NOTE HERE THAT THE INFORMATION P ROVIDED BY THE DIRECTORATE OF INCOME TAX INVESTIGATION WAS NOT AVAILABLE WITH THE AO DURING THE COURSE OF THE ORIGINAL PROCEEDINGS. THE SAID INFORMATION CONSTITU TED NEW AND FRESH EVIDENCE ON WHICH THE AO DREW INFERENCE AND FORMED A PRIMA FACI E OPINION TO INITIATE REASSESSMENT PROCEEDINGS. THE INITIATION OF REASSES SMENT PROCEEDINGS ON THE BASIS OF SAID MATERIAL HAS NOT BEEN DISPUTED BEFORE US. THE AO, WHEN RAISED SPECIFIC QUERIES REGARDING GENUINENESS OF THE TRAN SACTIONS AND CREDITWORTHINESS OF THE AFORESAID THREE PARTIES, ASKED THE ASSESSEE TO PRODUCE THE PARTIES VIZ. DIRECTORS OF THE AFORESAID THREE COMPANIES, WHICH ARE OPERATING FROM THE SAME ADDRESS, THE ASSESSEE FAILED TO ESTABLISH THE GEN UINENESS OF TRANSACTIONS NOR PRODUCED THE PERSONS DESIRED BY THE AO AND THE LD. CIT(A). EVEN IT WAS NOT ESTABLISHED AS TO HOW THE ASSESSEE CAME TO KNOW THE THREE PARTIES ACCORDINGLY, THE LD. CIT(A) CONCLUDED THAT THE ASSE SSEE FAILED TO DISCHARGE ITS ONUS IN ESTABLISHING THE IDENTITY & CREDITWORTHINE SS OF THE AFORESAID THREE PARTIES AND GENUINENESS OF THE TRANSACTION. THE SITUATION BEFORE US IS NO BETTER NOR THE LD. AR PLACED BEFORE US ANY MATERIAL SO AS TO IMPRO VE UPON THE CASE OF THE ASSESSEE. THE LD. AR DID NOT ADDUCE ANY REASONS BE FORE US AS TO WHY THE ITA N O.2099 /DEL./2011 26 AFORESAID THREE PARTIES WERE NOT PRODUCED BEFORE TH E AO AND LD. CIT(A) DESPITE SPECIFIC REQUEST AND WHY NO REPLY TO LETTER DATED 9 .10.2009 ISSUED BY THE AO WAS FILED. THE LD. AR DID NOT EVEN DISPUTE THE FINDING S OF THE LD. CIT(A) THAT THE SHARES WERE NOT EVEN ISSUED TO THE AFORESAID COMPAN IES NOR COPIES OF SUCH SHARE CERTIFICATES OR SHARE TRANSFER REGISTERS HAVE BEEN PLACED BEFORE US. IN THE ABSENCE OF ANY EVIDENCE REGARDING GENUINENESS OF TH E AFORESAID TRANSACTIONS IN THE LIGHT OF INFORMATION RECEIVED BY THE AO FROM TH E DIT(INVESTIGATION) THAT THERE WAS SPECIFIC INVOLVEMENT OF THE ASSESSEE-COMPANY I N THE MODUS OPERANDI FOLLOWED BY ENTRY PROVIDERS, WE ARE OF THE OPINION THAT THE CREDITWORTHINESS OF THE AFORESAID THREE PARTIES AND THE GENUINENESS OF THE TRANSACTIONS CANNOT BE SAID TO HAVE BEEN ESTABLISHED. IN VIEW OF THE FOREG OING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THERE FORE, GROUND NOS. 1 TO 4 IN THE APPEAL ARE DISMISSED. 7. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM OF RESIDUARY GROUND NO. 5 IN THE APPEAL, ACCORDINGLY THIS GROUND IS DISMISSED. 8. NO OTHER PLEA OR ARGUMENT HAS BEEN RAISED BEFOR E US. 9. IN THE RESULT, APPEAL IS DISMISSE D. SD/- SD/- (C.M. GARG) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. INCOME-TAX OFFICER,WARD-8(1),NEW DELHI 3. CIT CONCERNED 4. CIT(A)-XI, NEW DELHI 5. DR, ITAT,G BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT