M/s. Amtrac Automotive India Pvt. Ltd, New Delhi V. ACIT, New Delhi

ITA 2920/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2360 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 17-06-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Keywords: Unexplained cash credit; Gift; Question of law; Assessment record; Capital receipt; Onus to prove
• Section: 143(2); 208; 192; 131; 69; 6; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMEBR AND SHRI DEEPAK R SHAH, ACCOUNTANT MEMBER ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 M/S. AMTRAC AUTOMOTIVE INDIA PVT. LTD. A-20, NARAINA INDUSTRIAL AREA, PHASE-1, NEW DELHI. VS. ACIT, CIRCLE 1 (1), C.R. BUILDING, IP ESATE, NEW DELHI. . (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI MANISH GUPTA, DR ORDER PER DEEPAK R SHAH, ACCOUNTANT MEMBER THE ASSESSEE HAS PRIMARILY RAISED TWO GROUNDS 1) THE NOTICE U/S 143(2) IS NOT ADDRESSED TO THE PRINCIPAL OFFICER BUT I S ADDRESSED IN THE NAME OF COMPANY ITSELF. 2) THE ADDITION OF RS. 1,50,00, 0 00/- MADE U/S 68 ON ACCOUNT OF AMOUNT RECEIVED BY WAY OF SHARE CAPITAL IS NOT SUST AINABLE. 2. ORIGINALLY THIS APPEAL WAS FIXED FOR HEARING ON 7.9.2009. ON THAT DAY THE COUNSEL FOR ASSESSEE FILED A PAPER BOOK AND SOUGHT TIME. ACCORDINGLY THE MATTER WAS ADJOURNED ON 9.9.2009. ON 9.9.2009 NONE APPEARE D ON BEHALF OF ASSESSEE. ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 2 THEREFORE WITH THE HELP OF LD. DR WE HAVE GONE THRO UGH THE ORDERS OF THE AUTHORITY BELOW AS ALSO THE PAPER BOOK. WE NOW DISP OSE OFF THE APPEAL ON MERITS. 3. THE ASSESSEE COMPANY IS ENGAGED IN SHARE TRADING IN THE YEAR UNDER CONSIDERATION. IN THE COURSE OF SCRUTINY, THE ASSES SING OFFICER NOTED THAT THE APPELLANT HAS INTRODUCED FRESH SHARE CAPITAL TO THE TUNE OF RS. 15,00,000/- AT A SHARE PREMIUM OF RS. 1,35,00,000/-. THE DETAILS OF PERSONS WHO ARE STATED TO HAVE DEPOSITED SHARE APPLICATION MONEY AND TO WHOM SHARES WERE ALLOTTED ARE AS UNDER :- SL. NO . NAME AMOUNT 1. M/S. ACTIVE AGENCIES PVT. LTD. RS. 10,00,000/- 2. M/S. FUNTIME TRAVELS PVT. LTD. RS. 10,00,000/- 3. M/S. WINSOME PORTFOLIO PVT. LTD. RS. 10,00,00 0/- 4. M/S. AKG PORTFOLIO PVT. LTD. RS. 10,00,000/- 5. SPRING MEDICARE PVT. LTD. RS. 10,00,000/- 6. M/S. S.J. HOSIERY PVT. LTD. RS. 10,00,000/- 7. M/S. SONY FINANCIAL SERVICES LTD. RS. 10,00,0 00/- 8. M/S. RABICON ASSOCIATES PVT. LTD. RS. 10,00,0 00/- 9. M/S. RAPCHIC FOODS PVT. LTD. RS. 10,00,000/- 10 .M/S. NEEL KANT SHARES PVT. LTD. RS. 10,00,00 0/- 11. M/S. WARSI OVERSEAS PVT. LTD. RS. 10,00,000/ - 12. M/S. SUNIT OVERSEAS PVT. LTD. RS. 10,00,000/ - 13. M/S. MILAP AUTOMOTIVE PVT. LTD. RS. 10,00,00 0/- 14. M/S. Q-TECH SYSTEMS INDIA PVT LTD. RS. 10,00, 000/- 15. M/S. PUSHPANJALI CAPS PVT. LTD. RS. 10,00,00 0/- 2.1 THE AO ASKED THE APPELLANT TO FURNISH DETAILS O F SUCH SHARE HOLDERS MENTIONING THEIR IDENTITY, GENUINENESS OF TRANSACTI ON AND CREDIT-WORTHINESS. APPELLANT PRODUCED CONFIRMATION OF DEPOSIT FROM DIR ECTORS OF THE RESPECTIVE COMPANY, COPIES OF INCOME TAX RETURN FILED AND COPI ES OF BANK STATEMENT REFLECTING THE ABOVE TRANSACTIONS. IN ORDER TO VERI FY THE ENTIRE TRANSACTIONS IN THE ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 3 LIGHT OF GENUINENESS AND CREDITWORTHINESS, HE ISSUE D SUMMONS U/S 131 OF THE ACT TO ALL THE ABOVE 15 PERSONS. THEY WERE ASKED TO PRO DUCE THE COPIES OF RETURN FOR AY. 2005-06 AND THEIR LEDGER ACCOUNTS FROM WHICH TH E SOURCE OF ABOVE SHARE APPLICATION MONEY COULD HAVE BEEN VERIFIED. ALL THE ABOVE SUMMONS WERE RETURNED UNSERVED WITH THE COMMENTS FROM THE POSTAL AUTHORITIES AS NO SUCH PERSON IN THE ABOVE ADDRESS. THE AO ACCORDINGLY BR OUGHT THIS FACT TO THE NOTICE OF THE COUNSEL OF THE ASSESSEE VIDE ORDER SHEET ENT RY DATED 18.12.2007 AND HE WAS GIVEN AN OPPORTUNITY TO PRODUCE THE FUNCTIONAL DIRECTORS OF THE ABOVE COMPANIES FOR VERIFICATION. AS MENTIONED IN THE ASS ESSMENT ORDER, AFTER CERTAIN ADJOURNMENTS, A LETTER WAS FINALLY FILED FROM THE A PPELLANT MENTIONING THAT IT IS NO IN TOUCH OF THE ABOVE SHARE HOLDERS AND THEIR PRESE NT WHEREABOUTS ARE NOT KNOWN TO IT. THE APPELLANT, HOWEVER, RELYING UPON THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SOPHIA FINANCE LTD. IN WHICH THE POWERS OF THE ASSESSING OFFICER WAS NOT PRECLUDED FROM MAKING ENQ UIRIES IN SHARE APPLICATION MONEY, SUBMITTED THAT NO ADDITION CAN BE MADE. 2.1.1 THE AO HOWEVER WAS NOT CONVINCED WITH THE SUB MISSION OF THE APPELLANT. HE OBSERVED THAT THAT IT WAS ONLY IN THE COURSE OF ENQUIRY THAT HE TRIED TO EXAMINE THE ABOVE SHARE APPLICANTS. SINCE THE SUMMONS ISSUE D TO SUCH PERSONS REMAINED UNSERVED, IT BECAME THE DUTY OF THE APPELL ANT EITHER TO PRODUCE THEM FOR VERIFICATION OR TO STATE THEIR CORRECT ADDRESSE S. IT APPEARS TO BE HIGHLY IMPROPER THAT IN A PRIVATE LTD. COMPANY, THE ASSESS EE IS NOT IN A POSITION TO STATE THE EXACT WHEREABOUTS OR FAIL TO PRODUCE THE PERSON S WHO COLLECTIVELY HOLD MORE THAN 25% OF ITS TOTAL SHARE HOLDING. HE ALSO OBSER VED THAT MERE FILING OF ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 4 CONFIRMATION LETTERS DO NOT ABSOLVE THE APPELLANT F ROM ITS ONUS TO PROVE THE CREDIT ENTRIES REFLECTED IN ITS BOOKS OF ACCOUNTS AS HAS B EEN HELD BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. UNITED COMMERCIAL & INDUSTRIAL CO. (P) LTD. [1991] 187 ITR 596. HE FURTHER OBSERVED THAT THE FA CTS THAT THE AMOUNT WERE PAID BY ACCOUNT PAYEE CHEQUES DO NOT MAKE IT SATISFACTOR Y AS HELD IN CIT VS. PRECISION FINANCE PVT. LTD. 208 ITR 465 (CAL.). EVE N INCOME TAX FILE PARTICULARS, WHERE THE SHARE HOLDER IS ASSESSED TO TAX IS NOT SU FFICIENT AS FOUND IN CIT VS. KORLAY TRADING CO. LTD. 232 ITR 820 (CAL.) 2.1.2 THE AO ALSO REFERRED THE ENQUIRY INITIATED BY INVESTIGATION WING OF THE DEPARTMENT IN AUGUST 2003 WHICH CULMINATED INTO DET ECTION OF MANY ENTRY OPERATORS WHO ARE OPERATING NUMBER OF ACCOUNTS IN T HE SAME BANK/BRANCH OR IN DIFFERENT BRANCHES, IN THE NAMES OF COMPANIES, FIRM S, PROPRIETARY CONCERNS AND INDIVIDUALS. FOR THE OPERATIONS OF THESE BANK ACCOU NTS, FILING INCOME TAX RETURNS ETC. PERSONS ARE HIRED. LIKE ANY OTHER BUSINESS IT DOES REQUIRES MANPOWER ACCORDING TO THE SCALE OF OPERATION. EXCEPT FOR TWO OR THREE PERSONS WHO ARE REQUIRED REGULARLY TO VISIT BANKS AND DO OTHER SPAD E WORK LIKE COLLECTION OF CASH ETC., MOST OF THE OTHER PERSONS INVOLVED ARE ON PAR T TIME BASIS. THE PART TIME EMPLOYEES ARE CALLED AS AND WHEN REQUIRED TO SIGN D OCUMENTS, CHEQUE BOOKS ETC. SOME OF THE ENTRY OPERATORS HAVE ALSO ROPED IN THEIR OWN RELATIVES FOR OPERATION OF ENTRY ACCOUNTS AND FILING THE INCOME T AX RETURNS. INTERESTINGLY MOST OF THESE CONCERNS / INDIVIDUALS HAVE OBTAINED PAN F ROM THE DEPARTMENT AND ARE FILING RETURNS AS WELL. WHAT IS SHOWN IN THE RETURN S IS NOT THE ACTUAL STATE OF AFFAIRS. FOR EXAMPLE WITH ONE PAN SEVERAL BANK ACCO UNTS ARE SIMULTANEOUSLY ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 5 OPERATED AND ONLY ONE ACCOUNT MIGHT BE SHOWN FOR TH E PURPOSE OF AUDIT AND FILING INCOME TAX RETURNS. THE ENTRY OPERATORS PROVIDE ENT RY IN THE GARB OF SHARE APPLICATION MONEY, GIFTS, LOANS ETC. THROUGH THESE ACCOUNTS, IN LIEU OF CASH, TO ANY PERSON WHO IS HAVING UNACCOUNTED MONEY. 2.1.2.1 THE AO OBSERVED THAT SOME OF THE COMPANIES SHOW ABOVE BY THE APPELLANT AS ITS SHARE HOLDERS WERE FOUND TO HAVE S TATED BEFORE INVESTIGATION WING THAT THEY WERE MERE NAME LENDER FOR ADVANCING MONEY. TO QUOTE SOME OF THEM, SHRI RAJESH BANSAL, DIRECTOR OF M/S. RUBICON ASSOCIATES PVT. LTD., SHRI MAHESH GARG, DIRECTOR OF M/S. S.J. HOSIERY PVT. LTD . ETC. HAVE CATEGORICALLY STATED BEFORE THE INVESTIGATION WING, IN THEIR STAT EMENT TAKEN ON OATH, THAT THEY USED TO TAKE THE AMOUNT IN CASH AND GIVE ENTRIES TO DIFFERENT CONCERNS AS GIFT, LOAN OR SHARE APPLICATION MONEY. ACCORDING TO AO, T O ENQUIRE INTO THIS ASPECT ALSO, THE APPELLANT WAS ASKED TO PRODUCE THE FUNCTI ONAL DIRECTORS OF SUCH SHARE HOLDERS. 2.1.3. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, TH E ASSESSING OFFICER CONCLUDED THAT THE CREDIT IN THE NAME OF THESE SHAREHOLDERS A RE NOT GENUINE AND REPRESENTS UNEXPLAINED CASH CREDITS. ACCORDINGLY HE MADE ADDIT ION OF RS. 1.50 LAKHS TO THE RETURNED INCOME. 4. BEFORE LD. CIT (A) THE ASSESSEE RAISED THE SAME GROUNDS AS NOW RAISED BEFORE US. AS REGARDS ISSUANCE OF NOTICE U/S 143 (2) LD. CIT (A) HELD THAT THE NOTICE IS ADDRESSED IN THE NAME OF COMPANY DIRECTLY . THE NOTICE WAS RECEIVED BY THE APPELLANTS AND HAS ALSO COMPLIED WITH THE SAME NOTICE. THE IN VIEW OF ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 6 SECTION 292B THE OBJECTION IS TO BE REJECTED. AS RE GARDS MERIT OF ADDITION LD. CIT (A) HELD 2.3.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE AP PELLANT VERY CAREFULLY. I HAVE ALSO GONE THROUGH THE CASE LAWS ON WHICH APPEL LANT HAS RELIED UPON. SOME OF THEM WHICH ARE MOST RELEVANT ARE DISCUSSED HERE AS UNDER :- 2.3.2.1 IN THE CASE OF CIT VS. STELLAR INVESTMENT 192 287 (DEL) HONBLE DELHI HIGH COURT HAS OBSERVED AS UNDER :- IT IS EVIDENT THAT EVEN IF IT BE ASSUMED THAT THE SUBSCRIBERS TO THE INCREASED SHARE CAPITAL WERE NOT GENUINE, NEVERTHEL ESS, UNDER NO CIRCUMSTANCES, CAN THE AMOUNT OF SHARE CAPITAL BE R EGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE. IT MAY BE THAT THERE ARE SOME BOGUS SHAREHOLDERS IN WHOSE NAMES SHARES HAD BEEN I SSUED AND THE MONEY MAY HAVE BEEN PROVIDED BY SOME OTHER PERS ONS. IF THE ASSESSMENT OF THE PERSONS WHO ARE ALLEGED TO HAVE R EALLY ADVANCED THE MONEY IS SOUGHT TO BE REOPENED, THAT, WOULD HAVE MA DE SOME SENSE BUT WE FAIL TO UNDERSTAND AS TO HOW THIS AMOUNT OF INCR EASED SHARE CAPITAL CAN BE ASSESSED IN THE HANDS OF THE COMPANY ITSELF. IN OUR OPINION, NO QUESTION OF LAW ARISES AND THE PETITION IS, THEREFO RE, DISMISSED. THE HONBLE APEX COURT HAS DISMISSED THE APPEAL OF REVENUE AGAINST THIS ORDER SUMMARILY [251 ITR 263 (SC)] BY MAKING FOLLOWING OBSERVATIONS : WE HAVE READ THE QUESTION WHICH THE HIGH COURT ANS WERED AGAINST THE REVENUE. WE ARE IN AGREEMENT WITH THE HIGH COURT. P LAINLY, THE TRIBUNAL CAME TO A CONCLUSION ON FACTS AND NO INTERFERENCE I S CALLED FOR. THE APPEAL IS DISMISSED. NO ORDER AS TO COSTS. 2.3.2.2 ON A CAREFUL PERUSAL OF THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF STELLAR INVESTMENT LTD. IT WI LL BE NOTICED THAT HONBLE HIGH COURT HAS OBSERVED THAT IN A CASE SOME BOGUS S HAREHOLDERS ARE FOUND IN WHOSE NAMES SHARES HAVE BEEN ISSUED BUT TH E MONEY HAD BEEN PROVIDED BY SOME OTHER PERSONS THEN THE ADDITION CANNOT BE MADE IN THE HANDS OF THE COMPANY RECEIVING THE SHARES SUBSCRIPT ION. IN THE INSTANT CASE APPARENTLY SOME OF THE SHAREHOLDERS ARE BOGUS AS HAS BEEN ADMITTED BY THEM IN THE COURSE OF ENQUIRY CONDUCTED BY INVESTIGATION WING (AS MENTIONED IN PARA 2.1.2 ABOVE) AND THEY HA VE ALSO STATED THAT THEY ARE ONLY ENTRY PROVIDER AND THE RECIPIENT COMP ANIES THEMSELVES IN LIEU OF CASH HAD OBTAINED ENTRIES. THUS IT IS NOT S OMEBODY ELSES MONEY IN THE NAME OF BOGUS SHAREHOLDER IS INTRODUCED IN THE COMPANY AS SHARE CAPITAL BUT THE MONEY OF THE APPELLANT ITSELF APPEA RS TO HAVE BEEN ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 7 INTRODUCED. THUS THE FACTS AND CIRCUMSTANCES OF TH E PRESENT CASE ARE DIFFERENT THAN THAT OF THE FACTS OF THE STELLAR INV ESTMENT LTD. 2.3.2.3. AS REGARDS DECISION OF HONBLE SUPREME COU RT IN THE CASE OF CIT ORISSA VS. ORISSA CORPORATION LTD. 159 IR 78 ( SC) THE FACTS WERE AS UNDER :- THE BOOKS OF ACCOUNTS OF THE ASSESSEE CONTAINED TH REE CASH CREDITS AGGREGATING RS. 1,50,000/- ALLEGEDLY RECEIV ED AS LOANS FROM THREE INDIVIDUAL CREDITORS UNDER HUNDIS. LETTERS OF CONFI RMATION AS WELL AS THE DISCHARGED HUNDIS WERE PRODUCED ; BUT NOTICES/SUMMO NS SENT TO THEM REMAINED UNSERVED BECAUSE THEY HAD REPORTEDLY LEFT THAT ADDRESS. THE VIEW OF THE TRIBUNAL WAS THAT MERELY BECAUSE THE AS SESSEE COULD NOT PRODUCE THESE THREE PARTIES, THERE WAS NEVERTHELESS NO JURISDICTION TO DRAW AN ADVERSE INFERENCE. THIS APPROACH AS ACCORDED APP ROVAL BY THE SUPREME COURT IN THESE WORDS IN THIS CASE, THE ASSESSEE HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN THE KNOWLEDGE OF T HE REVENUE THAT THE SAID CREDITORS WERE INCOME-TAX ASSESSEES. THEIR INDEX NU MBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE, APART FROM ISSUING NOT ICES UNDER SECTION 131 AT THE INSTANCE OF THE ASSESSEE, DID NOT PURSUE THE MATTER FURTHER. THE REVENUE DID NOT EXAMINE THE SOURCE OF INCOME OF THE SAID ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTH Y R WERE SUCH WHO COULD ADVANCE THE ALLEGED LOANS. THERE WAS NO EFFORT MADE TO PURSUE THE SO- CALLED ALLEGED CREDITORS. IN THOSE CIRCUMSTANCES, T HE ASSESSEE COULD NOT DO ANYTHING FURTHER. IN THE PREMISES, IF THE TRIBUN AL CAME TO THE CONCLUSION THAT THE ASSESSEE HAS DISCHARGED THE BURDEN THAT LA Y ON HIM, THEN IT COULD NOT BE SAID THAT SUCH A CONCLUSION WAS UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE. IF THE CONCLUSION IS BASED ON SOME EVIDENCE ON WHICH A CONCLUSION COULD BE ARRIVED AT, NO QUESTION OF LAW AS SUCH ARISES. 2.3.2.4. IF WE PERUSE CAREFULLY THE ABOVE DECISION, IT WILL BE NOTICED THAT HONBLE SUPREME COURT HAS OBSERVED THAT : (1) THERE WAS NO EFFORT MADE TO PURSUE THE MATTER F URTHER EXCEPT ISSUING SUMMOSN U/S 131. (2) THE REVENUE DID NOT EXAMINE THE SOURCE OF INCOM E OF THE SAID ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CRE DITWORTHY OR WERE SUCH WHO COULD ADVANCE THE ALLEGED LOANS. IN THE INSTANT CASE HOWEVER FACTS ARE SLIGHTLY DIFF ERENT AS SUMMONS WERE ISSUED WHICH RETURNED UN-SERVED WITH THE REMARKS N O SUCH PERSON IN THE ABOVE ADDRESS AS AGAINST IN THAT CASE WHERE SUMMON S WERE RETURNED UN- SERVED WITH THE REMARK LEFT THAT ADDRESS. THERE I S HUGE DIFFERENCE ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 8 BETWEEN THE OBSERVATION LEFT AND OBSERVATION NO SUCH PERSON IN THE ABOVE ADDRESS . FURTHER THIS FACT OF NON SERVICE OF SUMMON WAS B ROUGHT TO THE NOTICE OF APPELLANT ALSO BY THE AO AND AO HA S GIVEN OPPORTUNITY TO THE APPELLANT TO PRODUCE THE FUNCTIONAL DIRECTORS O F THE ABOVE COMPANIES FOR VERIFICATION. THIS COULD NOT BE DONE BY THE APP ELLANT AS ACCORDING TO IT THE APPELLANT COMPANY IS NOT IN TOUCH WITH THESE SH AREHOLDERS. IN THE CIRCUMSTANCES THE AO COULD NOT HAVE DONE ANYTHING M ORE ESPECIALLY IN THE BACKGROUND OF THE FACT THAT SOME OF THEM HAD AL READY BEEN ENQUIRED BY INVESTIGATION WING AND THEY HAD STATED THAT THEY ARE ONLY ENTRY PROVIDER AND THEY HAVE GIVEN ENTRIES IN LIEU OF CASH TO ANY PERSON WHO HAS APPROACHED THEM. THUS IT CANNOT BE SAID THAT REVENU E HAS NOT PURSUED THE MATTER ANY FURTHER EXCEPT ISSUING SUMMONS AND D ID NOT EXAMINE THE SOURCE OF INCOME OF THESE SHARE SUBSCRIBERS TO FIND OUT WHETHER THEY WERE CREDITWORTHY OR WERE SUCH WHO COULD SUBSCRIBE TO SU CH HUGE MONEY TOWARDS SHARE APPLICATION IN THE APPELLANT COMPANY . THUS THE FACTS OF THE PRESENT CASE AGAIN ARE DIFFERENT AS COMPARED TO THE FACTS OF THE CASE IN CIT ORISSA VS. ORISSA CORPORATION LTD. (SUPRA). 2.3.2.5. THE HONBLE DELHI HIGH COURT WHILE DECIDIN G THE APPEALS BY CONSOLIDATED ORDER IN THE CASES OF CIT VS. DIVINE L EASING AND FINANCE LTD., CIT V. GENERAL EXPORTS & CREDITS LTD. AND CIT VS. LOVELY EXPORTS (PVT.) LTD. IN ITA NO. 53/2005, 56/2005, 305/2006, 880/2006, 953/2006, DECIDED ON NOVEMBER 16, 2006, ON THE ABOVE OBSERVAT ION OF HONBLE SUPREME COURT HAS GIVEN A VERY SIGNIFICANT FINDING WHICH IS REPRODUCED HEREIN BELOW : THIS REASONING MUST APPLY A FORTIORI TO LARGE SCAL E SUBSCRIPTIONS TO THE SHARES OF A PUBLIC COMPANY WHE RE THE LATTER MAY HAVE NO MATERIAL OTHER THAN THE APPLICATION FORMS A ND BANK TRANSACTION DETAILS TO GIVE SOME INDICATION OF THE IDENTITY OF THESE SUBSCRIBERS. IT MAY NOT APPLY IN CIRCUMSTANCES WHER E THE SHARES ARE ALLOTTED DIRECTLY BY THE COMPANY/ASSESSEE OR TO CRE DITORS OF THE ASSESSEE. THIS IS WHY THIS COURT HAS ADOPTED A VERY STRICT APPROACH TO THE BURDEN BEING LAID ALMOST ENTIRELY ON AN ASSE SSEE WHICH RECEIVES A GIFT. IN THE SAME ORDER HONBLE DELHI HIGH COURT HAS AGAI N GIVEN FOLLOWING OBSERVATION WHICH IS VERY RELEVANT AND THEREFORE RE PRODUCED AS UNDER :- THERE CANNOT BE TWO OPINIONS ON THE ASPECT THAT TH E PERNICIOUS PRACTICE OF CONVERSION OF UNACCOUNTED MONEY THROUGH THE MASQUERADE OF CHANNEL OF INVESTMENT IN THE SHARE CAPITAL OF A COM PANY MUST BE FIRMLY EXCORIATED BY THE REVENUE. EQUALLY, WHERE THE PREPO NDERANCE OF EVIDENCE INDICATES ABSENCE OF CULPABILITY AND COMPL EXITY OF THE ASSESSEE IT SHOULD NOT BE HARASSED BY THE REVENUES INSISTEN CE THAT IT SHOULD PROVE THE NEGATIVE. IN THE CASE OF PUBLIC ISSUE, THE COMP ANY CONCERNED CANNOT ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 9 BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDENTITY AS WELL AS FINANCIAL WORTH OF EACH OF ITS SUBSCRIBERS. THE COM PANY MUST, HOWEVER, MAINTAIN AND MAKE AVAILABLE TO THE AO FOR HIS PERUS AL, ALL THE INFORMATION CONTAINED IN THE STATUTORY SHARE APPLICATION DOCUME NTS. IN THE CASE OF PRIVATE PLACEMENT THE LEGAL REGIME WOULD NOT BE THE SAME. A DELICATE BALANCE MUST BE MAINTAINED WHILE WALKING THE TIGHTR OPE OF SECTION 68 AND 69 OF THE IT ACT. THE BURDEN OF PROOF CAN SELDOM BE DISCHARGED TO THE HILT BY THE ASSESSEE. IF THE AO HARBOURS DOUBTS OF THE L EGITIMACY OF ANY SUBSCRIPTION HE IS EMPOWERED, NAY DUTY-BOUND, TO CA RRY OUT THOROUGH INVESTIGATIONS. BUT IF THE AO FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS, HE CANNOT OBDURATELY ADHERE TO HIS SUSPICIONS AND T REAT THE SUBSCRIBED CAPITAL AS THE UNDISCLOSED INCOME OF THE COMPANY. 2.3..2.6 THE FACTS OF THE PRESENT CASE WHEN ANALYSE D IN THE LIGHT OF THIS OBSERVATION IT WILL BE SEEN THAT THE INSTANT C ASE IS NOT A CASE OF PUBLIC ISSUE OF SHARES. RATHER IT IS A CASE OF PRIVATE PLA CEMENT. THEREFORE IN LIGHT OF THE OBSERVATION OF HONBLE DELHI HIGH COURT THE LEGAL REGIMENT WILL BE DIFFERENT AS COMPARED TO THE PUBLIC ISSUE. WHEREAS IN THE CASE OF PUBLIC ISSUE, THE COMPANY CONCERNED CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDENTITY AS WELL AS FINANCIAL WOR TH OF EACH OF ITS SUBSCRIBERS BUT SAME CAN NOT BE SAID IN THE CASE OF PRIVATE PLACEMENT. AS PER THE OBSERVATION OF HONBLE HIGH COURT, A VERY STRICT APPROACH TO THE BURDEN HAS TO BE ADOPTED AND THE SAME IS LAID ALMOS T ENTIRELY ON THE ASSESSEE WHICH RECEIVES THE SHARE SUBSCRIPTION. IT IS, HIGHLY IMPROBABLE IN THE CASE OF THE APPELLANT THAT IT IS NOT KNOWING THE LATEST ADDRESS OF ALL THESE SHAREHOLDERS AND IS NOT IN TOUCH WITH THEM FR OM WHOM SUCH A HUGE AMOUNT HAS BEEN RECEIVED AS SHARE APPLICATION MONEY WITH A HU GE PREMIUM ESPECIALLY WHEN ALL THESE SHAREHOLDERS TAKE N TOGETHER HOLD MORE THAN 25% OF SHARES. IN A CASE OF PUBLIC ISSUE IT CA N BE SAID THAT APPELLANT HAS DISCHARGED THE ONUS THE MOMENT IT HAS FURNISHED THE PAN OF SHAREHOLDERS, SHAREHOLDER REGISTER, SHARE APPLICATI ON FORM, SHARE TRANSFER REGISTER ETC. BUT IN THE CASE OF PRIVATE PLACEMENT IT HAS TO SATISFY THE AO ABOUT THE GENUINENESS OF THE TRANSACTION WHICH IN T HE INSTANT CASE IS HIGHLY DOUBTFUL AS SOME OF THE APPLICANTS DURING CO URSE OF INVESTIGATION BY INVESTIGATION WING HAD CONFESSED OF HAVING PROVIDED ENTRY ONLY. THUS THE AO HAS REACHED A DEAD END OF THE ENQUIRY AND THE ON US HAS SHIFTED ON THE APPELLANT TO PRODUCE THE PERSONS FOR VERIFICATI ON. 2.3.2.7. THE DECISION OF HONBLE DELLHI HIGH COURT IN THE CAE OF LOVELY EXPORT PER SE, IS REPRODUCED AS UNDER :- ITA NO. 953/2006 THE ITAT HAS DISMISSED THE REVENUE APPEAL AND THUS THERE ARE CONCURRENT FINDINGS PERTAINING TO THE FACTUAL MATRI X. THE FOLLOWING ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 10 PARAGRAPH FROM THE IMPUGNED DECISION ADEQUATELY ENC APSULATE THE NECESSARY DETAILS : THUS, THE QUESTION IS WHETHER IN THE PRESENT CASE, THE AO HAD MATERIAL TO CONCLUDE THAT THE SHARE APPLICANTS IN QUESTIONS DID NOT EXIST. IT IS SEEN THAT THE ASSESSEE COMPANY HAS FURNISHED THE NECESSARY DE TAILS SUCH AS PAN NO. / INCOME-TAX WARD NO. /RATION CARD OF THE SHARE APPLICANTS AND SOME OF THEM ARE ASSESSED TO TAX. THE SHARE APPLICATION MONEY HAS BEEN RECEIVED THROUGH BANKING CHANNEL. IN SOME CASE, THE CONFIRMATIONS / AFFIDAVITS OF SHARE APPLICANTS CONTAINING THE ABOVE DETAIL WERE ALSO FILED. IT IS SEEN THAT THE AO DID NOT CARRY OUT ANY INQUIRY I NTO THE INCOME TAX RECORD OF THE PERSONS WHO HAVE GIVEN THE PAN NO. / WARD NO . IN ORDER TO ASCERTAIN THE NON-EXISTENCE OF THE SHARE APPLICANTS IN QUESTION. THE AO HAS NEITHER CONTROVERTED NOR DISAPPROVED THE MATERI AL FILED BY THE ASSESSEE. IN THE CASE OF CIT V. MAKHANI & TYAGI (P) LTD. REPORTED IN 267 ITR 433 (DEL), THE JURISDICTIONAL HIGH COURT HAS HE LD THAT WHEN THE DOCUMENTARY EVIDENCE WAS PLACED ON RECORD TO PROVE THE IDENTITY OF ALL THE SHAREHOLDERS INCLUDING THEIR PAN/GIR NUMBERS AND FI LING OF OTHER DOCUMENTARY EVIDENCE IN THE FORM OF RATION CARD ETC . WHICH HAD NEITHER BEEN CONTROVERTED NOR DISAPPROVED BY THE AO NO INTE RFERENCE WAS CALLED FOR. THE TRIBUNAL WAS JUSTIFIED IN DELEING THE ADDI TION. THE AO PROCEEDED TO MAKE THE IMPUGNED ADDITION ON THE GROUND THAT IN SOME CASE SOME SUMMONS ISSUED WERE RETURNED UNSERVED AND IN SOME C ASE SUMMON THOUGH SERVED BUT THERE WAS NO COMPLIANCE . IN THIS CONNECTION, IT MAY BE MENTIONED THAT IN THE CASE OF CIT V. ORISSA CORPN. 159 ITR 78, THE HONBLE COURT HAS HELD THAT WHEN THE ASSESSEE BORRO WS THE LOAN AND IF AN ASSESSEE GIVES NAMES AND ADDRESS OF THE CREDITORS. WHO ARE ASSESSED TO TAX AND FULL PARTICULARS IS FURNISHED THEN THE ASSE SSEE HAS DISCHARGED IN THE DUTY. IF THE REVENUE MERELY ISSUES SUMMONS U/S 131 AND DOES NOT PURSUE THE MATTER FURTHER, THE ASSESSEE DOES NOT BE COME RESPONSIBLE FOR THE SAME EVEN IF THE CREDITORS DO NOT APPEAR. ADDIT ION CANNOT BE MADE U/S 68. NO QUESTION OF LAW, FAR LESS ANY SUBSTANTIAL QUESTI ON OF LAW ARISES FOR OUR CONSIDERATION. WE MAY HOWEVER BRIEFLY REFLECT UPON A SUBMISSION MADE BY LEARNED COUNSEL FOR THE RESPONDENT TO THE EFFECT TH AT THAT ASSESSEE HAD, BY ITS LETTER DATED MARCH 8, 1999 REQUESTED THE AO TO EXAMINE THE ASSESSMENT RECORDS OF THE SHARE APPLICANTS WHOSE GR NOS. HAD BEEN SUPPLIED. IT IS NOT CONTROVERTED THAT ACTION WAS NO T TAKEN BY THE AO, BUT IT HAS JUSTIFIABLY BEEN CONTENDED THAT THIS INACTION W AS DUE TO PAUCITY OF TIME LEFT AT THAT STAGE SINCE THE ASSESSMENT HAD TO BE F RAMED BY MARCH 31, 1999. IT HAS BEEN POINTED OUT THAT SEVERAL ADJOURN MENTS HAD BEEN GRANTED BY THE ASSESSMENT OFFICER ON THE ASKING OF THE ASSESSEE. THE TIMING OF THE ASSESSEES SAID LETTER IS MOST SUSPEC T. GENERALLY SPEAKING, IT IS INCUMBENT ON THE AO TO MANAGE HIS SCHEDULE, WHIL E GRANTING ADJOURNMENTS, IN SUCH A MANNER THAT HE DOES NOT RUN OUT OF TIME FOR DISCHARGING THE DUTIES CAST ON HIM BY THE STATUTE. IN THE PRESENT CASE THE ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 11 DETAILS HAD BEEN FURNISHED TO THE AO MUCH BEFORE MA RCH 1999 BUT HE FAILED TO REACT TO THE SHIFTING OF THE BURDEN TO IN VESTIGATE INTO THE CREDITWORTHINESS OF THE SHARE APPLICANTS. THEREFORE , THE APPEAL IS DISMISSED. 2.3.2.8. FROM PERUSAL OF ABOVE DECISION AGAIN IT IS NOTICED THAT HONBLE HIGH COURT HAS ALLOWED THE APPEAL ON THE GR OUND THAT AO DID NOT CARRY OUT ANY INQUIRY INTO THE INCOME TAX RECORD OF THE PERSONS WHO HAVE GIVEN THE PAN NO. /WARD NO. IN ORDER TO ASCERTAIN T HE NON-EXISTENCE OF THE SHARE APPLICANTS IN QUESTION. THE AO HAS NEITHE R CONTROVERTED NOR DISAPPROVED THE MATERIAL FILED BY THE ASSESSEE. HOW EVER, THE FACTS AS MENTIONED EARLIER IN THE INSTANT CASE ARE DIFFERENT AS THE AO HAS ISSUED SUMMONS WHICH RETURNED UNSERVED WITH THE REMARKS NO SUCH PERSON IN THE ABOVE ADDRESS . THE APPELLANT HAS ALSO FAILED TO PRODUCE THESE PERSONS. SOME OF THE SHAREHOLDERS ARE APPARENTLY EN TRY PROVIDER TO THE RECIPIENT AS WAS SATED BY THEM BEFORE INVESTIGATION WING. THUS IT CANNOT BE SAID THAT AO HAS NOT CARRIED OUT ENQUIRIES EXCEP T ISSUING SUMMONS. THUS AGAIN THE FACTS OF THE PRESENT CASE ARE DIFFER ENT. 2.3.2.9. WHAT I WANT TO EMPHASIZE BY MENTIONING THE SE FACTS THAT IT IS NOT STRAIGHT CASE OF APPLICABILITY OF DECISION OF V ARIOUS COURTS ON WHICH APPELLANT HAS RELIED UPON. THE FACTS ARE DIFFERENT AND THEREFORE THE CASE HAS ALSO TO BE DEALT WITH DIFFERENTLY. IT IS TRUE T HAT AO IS NOT ABLE TO ESTABLISH THAT THE ENTIRE AMOUNT RECEIVED AS SHARES SUBSCRIPTION FROM THESE PARTIES ARE THE OWN MONEY OF THE APPELLANT IT SELF. BUT HE HAS REACHED A DEAD END OF THE ENQUIRY AND THE BURDEN HA S SHIFTED ON THE APPELLANT. IF WE SEE THE FACTS OF THE CASE IN THE L IGHT OF GUIDELINES GIVEN BY HONBLE DELHI HIGH COURT IN THE CASE OF LOVELY EXPO RTS (SUPRA), THEN IT WILL BE NOTICED THAT THE APPELLANT HAS GIVEN THE IDENTIT Y OF SUBSCRIBERS BUT GENUINENESS OF TRANSACTION IS NOT ESTABLISHED. EVEN IT CANNOT BE SAID THAT IDENTITY HAS BEEN ESTABLISHED WHEN LETTER ADDRESSED HAS RETURNED UNSERVED. ACCORDINGLY I HOLD THAT STRAIGHTWAY THE A PPELLANT CANNOT BE ALLOWED RELIEF AS FURTHER INVESTIGATION IS REQUIRED REGARDING THE GENUINENESS OF THE TRANSACTION AND ALSO THE CREDITW ORTHINESS OF THE CREDITOR / SUBSCRIBER. 2.3.2.10. ACCORDINGLY DURING APPELLATE PROCEEDINGS, I MYSELF HAD GIVEN AN OPPORTUNITY VIDE ORDER SHEET ENTRY DATED 15.1.09 TO LD. AR OF THE APPELLANT SHRI SANJAY KUMAR TO SUBMIT AS TO WHETHER HE IS IN A POSITION TO PRODUCE ALL THE PARTIES BEFORE ME FOR THE EXAMINATI ON OR NOT. IT WAS VERY CLEARLY TOLD TO HIM THAT IF THE APPELLANT IS NOT AB LE TO PRODUCE THEM THEN IT CANNOT BE SAID THAT IDENTITY IS ESTABLISHED AND IN SUCH SITUATION THE ADDITION WILL BE UPHELD. SHRI SANJAY KUMAR STATED A S EVIDENCED BY ORDER SHEET ENTRY THAT HE WILL BE ABLE TO STATE ANYTHING IN THIS REGARD BY 9.2.09. ACCORDINGLY THE APPEAL WAS REFIXED FOR HEARING ON 9 .2.09. NEITHER ON 9.2.09 ANYBODY APPEARED NOR ANY ADJOURNMENT SOUGHT. ACTUALLY TILL DATE ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 12 ALSO NOBODY APPEARED WITH OFFER TO PRODUCE THESE SH AREHOLDERS. IN THE CIRCUMSTANCES I HOLD THAT IDENTITY OF THESE SHARES SUBSCRIBERS ITSELF IS NOT ESTABLISHED, THE GENUINENESS OF TRANSACTION IS ALRE ADY SUSPECT AND SO THE CREDITWORTHINESS COULD NOT BE ESTABLISHED. IN THE C IRCUMSTANCES I HAVE NO OPTION BUT TO UPHOLD THE ADDITION MADE BY THE AO AN D REJECT THE SUBMISSION OF THE APPELLANT. 5. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AND THE GROUNDS RAISED BEFORE US AS WELL AS THE PAPER BOOK FILED. AS REGAR DS OBJECTION TO THE NOTICE ISSUED IN THE NAME OF ASSESSEE, WE FIND THAT AS PER SECTION 282 (1) A NOTICE UNDER THIS ACT MAY BE SERVED ON THE PERSON THEREIN NAMED EITHER BY POST OR AS IF IT WERE A SUMMONS ISSUED BY COURT UNDER THE CODE OF CIVIL PROCEDURE 1908. THE NOTICE CAN ALSO ADDRESSED IN THE NAME OF COMPANY TO THE PRINCIPAL OFFICER THEREOF. THEREFORE THE NOTICE CAN BE SERVED IN THE NAME OF A COMPANY EITHER ON THE COMPANY ITSELF OR ON THE PRINCIPAL OFFICER THER EOF. THERE IS NO DENYING FACT THAT THE NOTICE WAS SERVED ON THE COMPANY ITSELF. T HEREFORE, THE SAME IS WITHIN THE PROVISION OF SECTION 282 (1) OF THE ACT AND HEN CE VALID. ACCORDINGLY GROUND NO. 1 IS TO BE DISMISSED. 6. AS REGARDS GROUND NO. 2, WE FIND THAT THE ASSESS EE HAS STATED TO HAVE RECEIVED FRESH SHARE CAPITAL TO THE TUNE OF RS. 15 LACS AND SHARE PREMIUM OF RS. 1,00,35,000/- I.E. A SHARE OF FACE VALUE OF RS. 10/ - EACH ISSUED AT A PREMIUM OF RS. 90/- TOTALLING TO RS. 100/-. WHEN THE AO ASKED THE APPELLANT TO FURNISH THE DETAILS THE ASSESSEE PRODUCED SHARE APPLICATION FOR MS AND OTHER DETAILS LIKE BANK STATEMENT, COPY OF ACKNOWLEDGMENT OF RETURN ET C. HOWEVER WHEN THE AO CONDUCTED INQUIRY AT THE STATED ADDRESS, SUMMONS WE RE RECEIVED BACK UNSERVED WITH THE POSTAL REMARK NO SUCH PERSON IN THE ABOVE ADDRESS. THIS FACT WAS ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 13 BROUGHT TO THE NOTICE OF ASSESSEE ALSO. THEREAFTER THE ASSESSEE EXCEPT PRODUCING THE PAPERS COULD NOT PROVE EXISTENCE OR A VAILABILITY OF THE RESPECTIVE SHARE APPLICANTS. WHEN THE IDENTITY OF THE PERSON I S REQUIRED TO BE PROVED SO AS TO EXAMINE WHETHER IN FACT THEY HAVE APPLIED FOR AL LOTMENT OF SHARES, THE EXISTENCE ITSELF IS NOT PROVED. THE EXISTENCE OF A PERSON IS NOT MERELY ON PAPER. PARTICULARLY WHEN THE AO REQUIRED THE ASSESSEE TO P RODUCE THE SHARE APPLICANTS AND PARTICULARLY WHEN AT THE STATED ADDRESS THE SHA RE APPLICANTS DO NOT FOUND TO BE EXISTING, IT CANNOT BE SAID THAT THE AMOUNT RECE IVED BY ASSESSEE IS PROVED TO BE TOWARDS SHARE CAPITAL. THE TRANSACTION CANNOT BE PROVED MERELY ON PAPER. NEITHER BEFORE AO NOR BEFORE LD. CIT (A) THE ASSESS EE COULD MAKE THE SHARE APPLICANTS AVAILABLE. THEREFORE WHEN THE IDENTITY O F THE PERSON ITSELF IS NOT PROVED, THE AMOUNT RECEIVED BY ASSESSEE CANNOT BE C ONSIDERED TO BE GENUINELY RECEIVED. 6.1. IT IS ALSO TO BE NOTED THAT THE ASSESSEE COMPA NY IS STATED TO HAVE ISSUED SHARES AT PREMIUM 9 TIMES ITS FACE VALUE. THE ASSES SEE IS A PRIVATE LIMITED COMPANY. IT HAS NOT ISSUED PROSPECTUS FOR ISSUE OF SHARES NOR UNDER THE COMPANIES ACT 1956, IT CAN INVITE THE PUBLIC TO APP LY FOR AND ALLOT THE SHARES. THE COMPANY IS PROHIBITED FROM MAKING ANY INVITATIO N FOR ALLOTMENT OF SHARES. HOW THE PREMIUM WAS FIXED IS NOT FORTH COMING. LO OKING TO THE BALANCE SHEET OR PAST HISTORY OF ASSESSEE, THE ASSESSEE COMPANY HAS NEVER DECLARED DIVIDEND IN THE PAST. THE COMPANY HAS NO BUSINESS PLANS WHICH C AN RAISE ITS PROFITABILITY IN THE NEAR FUTURE. THE INCOME DECLARED BY THE ASSESSE E IS ONLY BY WAY OF SHORT TERM CAPITAL GAIN AND THE ASSESSEE DO NOT SEEM TO H AVE CARRIED ON ANY BUSINESS. ITA NO.2920/DEL/09 ASSTT. YEAR 2005-06 14 IN SUCH CIRCUMSTANCES THE SHARE PREMIUM IS NOT FOUN D TO BE JUSTIFIED BY ANY OF THE ACT ON THE PART OF ASSESSEE. THESE FACTS ARE RE VEALING MORE THAN THE APPARENT SHOWN ON THE PAPER. ALL THESE FACTS PUT TO GETHER REVEAL THAT NEITHER THE IDENTITY OF THE SHARE APPLICANTS ARE PROVED NOR JUS TIFICATION FOR SHARE PREMIUM HAS BEEN PROVED. IN SUCH CIRCUMSTANCES THE COURT CA NNOT PUT BLINKER ON THE EYE AND LOOK ONLY AT THE PAPERS PRESENTED BEFORE IT. TH ERE IS SOMETHING MORE THAN THAT MEETS THE EYE. AS RIGHTLY CONTENDED BY LD. DR IN SUCH SITUATION THE OBSERVATION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. DURGA PRASAD MORE 82 ITR 540 AND IN THE CASE OF SUMATI DAYAL VS . CIT 214 ITR 801 ARE APT FOR APPLICATION. WE THEREFORE DO NOT FIND ANY REASO N TO HOLD THAT THE SHARE CAPITAL RECEIPTS BY ASSESSEE WERE FROM PERSONS WHOSE IDENTI TY IS ESTABLISHED AND THE AMOUNT IS GENUINELY RECEIVED TOWARDS SHARE CAPITAL. 7. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.12.2009. [I.P. BANSAL] [DEEPAK R SHAH] JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA DATED : COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, D EPUTY REGISTRAR, ITAT