Stryton Exim India P.Ltd, New Delhi V. ITO, Ward-24(2), New Delhi

ITA 5982/DEL/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5272 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 17-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TEWARI
• Keywords: Unexplained cash credit; Bogus Share capital; Gift; Business income; Depreciation; Share purchase agreement; Principle of natural justice; Source of fund; Application of stay; Additional evidence; Question of law; Fair market value; Corroborative evidences; Avoidance of tax; Valuation report; Assessment record; Onus to prove
• Section: 143(3); 142(1); 56(2); 133(6); 131; 68

Judgement Text

1 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH FRIDAY : NEW DELHI BEFORE SHRI KULDIP SINGH , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SA NO. 665/DEL/2018 (IN ITA NO. 5982/DEL/2018) (ASSESSMENT YEAR: 2014 - 15 ) STRYTON EXIM INDIA PVT LTD, C/O. R KHARE & ASSOCIATES, 7/6, SARVAPRIYA VIHAR, NEW DELHI PAN: AAICS0797B VS. ITO, WARD - 24(2), NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 5982/DEL/2018 (ASSESSMENT YEAR: 2014 - 15) STRYTON EXIM INDIA PVT LTD, C/O. R KHARE & ASSOCIATES, 7/6, SARVAPRIYA VIHAR, NEW DELHI PAN: AAICS0797B VS. ITO, WARD - 24(2), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAHUL KHARE, ADV REVENUE BY: SHRI K TEWARI, SR. DR DATE OF HEARING 28/09 / 2018 DATE OF PRONOUNCEMENT 2 3 / 10 / 2018 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS STAY PETITION IS FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2014 - 15 REQUESTING FOR STAY OF DEMAND OF RS. 9 , 02 , 42 , 930/ - IN ITA NO. 5982/DEL/2018 FOR ASSESSMENT YEAR 2014 - 15. 2. THE BRIEF FACTS OF THE CASE SHOWS THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY , FILED ITS RETURN OF INCOME ON 25.09.2014 DECLARING LOSS OF RS. 3 , 53 , 777/ - . DURING THE YEAR, THE ASSESSEE HAS RAISED SHARE CAPI TAL /PREMIUM OF RS. 20 CRORES FROM SEVEN DIFFERENT COMPANIES, WHICH WAS HELD BY THE LD AO AS UNEXPLAINED CASH CREDIT OF THE ASSESSEE, AND ADDITION WAS MADE. CONSEQUENTLY, INCOME WAS ASSESSED AT RS. 19 , 96 , 46 ,233/ - AND ADDITIONS OF 2 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 RS. 19.90 CRORES WAS ALSO MADE WITH RESPECT TO THE ADDITION OF SHARE PREMIUM ON CAPITAL ON PROTECTIVE BASIS U/S 56(2)(VIIB) OF THE ACT. 3. BEFORE US, CLAIM OF THE ASSESSEE IS THAT THE FIRST ADDITION OF RS. 20 CRORES CANNOT BE MADE AS COMPLETE INFORMATI ON WAS AND ASSESSEE HAS DISCHARGED ITS ONUS U/S 68 OF THE ACT. THE LD AR TOOK US THROUGH VARIOUS EVIDENCES FILED TO SHOW THAT THE ASSESSEE HAS COMPLETELY DISCHARGED ITS ONUS . HE ALSO REFERRED TO SEVERAL JUDICIAL PRECEDENTS TO SHOW THAT MERELY NON - PRODUCT ION OF DIRECTOR OF INVESTOR COMPANY CANNOT RESULT IN ADDITION U/S 68 OF THE ACT . HE ALSO HASTENED TO ADD THAT ASSESSEE AT ANYTIME READY TO PRODUCE THE DIRECTORS OF THE INVESTOR COMPANY FOR VERIFICATION OF THEM BY THE LD AO ON THE DOCUMENTS SUBMITTED BY THE ASSESSEE. 4. WITH RESPECT TO TAXABILITY U/S 56(2)(VIIB) OF THE ACT, HE SUBMITTED THAT SAME IS BASED ON THE VALUATION REPORT OF CHARTERED ACCOUNTANT FOR SHARE ISSUE PRICE IN ACCORDANCE WITH LAW. SUCH VALUATION ALSO DOES NOT EXCEED THE FAIR MARKET VALU E OF SUCH SHARES; THEREFORE, THERE IS NO INCIDENCE OF TAXATION. HE SUBMITTED THAT VALUATION REPORT IS SUBMITTED WHICH IS DISCOUNTED CASH FLOW METHOD , ONE OF THE ACCEPTABLE METHOD U/IT RULES 1962 . IN VIEW OF THIS, HE SUBMITTED THAT ON BOTH THE COUNTS THE AMOUNT OF TAX DEMAND COULD NOT BE SUSTAINED. HE FURTHER STATED THAT THE LD CIT(A) HAS DISREGARDED THE SUBMISSION OF THE ASSESSEE. HE FURTHER REFERRED TO PARA 5.1 OF THE ORDER OF THE LD CIT(A) WHERE THE COMPLETE DET AILS ARE MENTIONED. HE SUBMITTED THAT MERELY BECAUSE ONLY ONE PAGE BANK STATEMENT WAS PROVIDED WITH RESPECT TO THE SHARE VALUATION , LD CIT(A) DID NOT ADMIT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE , DOUBTED THE DISCOUNTED CASH FLOW PROFITABILITY MERELY ON THE BASIS OF SOME DISCLAIMER IN THE RECORD. HE FURTHER SUBMITTED THAT NOT ADMITTING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BY LD CIT (A) HAS RESULTED IN GRAVE INJURY TO THE PROCESS OF NATURAL JUSTICE. HE THEREFORE, SUBMITTED IT IS BEYOND THE POWERS OF LD CIT ( A) TO CONFIRM THE ABOVE ADDITION. HE THEREFORE, SUBMITTED THAT BALANCE OF CONVENIENCE LIES IN FAVOUR OF THE ASSESSEE. HE THEREFORE, SUBMITTED THE FULL DEMAND IS OUTSTANDING IN THE HANDS OF THE ASSESSEE DESERVES TO BE STA Y ED. 5. THE LD DR VEHEMENTLY OBJECTED TO THE STAY APPLICATION AND SUBMITTED THAT THERE IS NO REASON TO GRANT THE STAY . HE EXTENSIVELY RE FERRED TO THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT ASSESSEE HAS FAILED TO PRODUCE 3 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 THE DIRECTORS OF THE INVESTOR COMPANY AND THEREFORE WHOLE ADDITION HAS BEEN MADE U/S 68 F THE ACT. HE SUBMITTED THAT DIRECTORS OF INVESTOR COMPANIES SHOULD HAVE BEEN EXAMINED BY THE LD AO TO VERIFY THE GENUINENESS OF THE TRANSACTION OF SUBSCRIPTION O F SHARE CAPITAL BY ALL THESE COMPANIES OF THE ASSESSEE COMPANY. HE SUBMITTED THAT THE LOWER AUTHORI TIES HAVE GIVEN DETAILED REASONS WHICH ARE NOT AT ALL IN DISPUTE STAY CANNOT BE GRANTED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE O RDERS OF THE LOWER AUTHORITIES. ON THE APPRE CIATION OF THE FINDINGS OF THE LOWER AUTHORITIES, WE ARE NOT INCLINED TO GRANT STAY OF DEMAND TO THE ASSESSEE . FURTHER, AT THE REQUEST OF BOTH THE PARTIES WE HEARD THE MAIN APPEAL, AS BOTH THE PARTIES ARE READY F OR THE SAME. IN VIEW OF THIS , STAY APPLICATION FILED BY THE ASSESSEE IS DISMISSED AND APPEAL IS TAKEN UP FOR HEARING. 7. THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) DATED 06.08.2018, WHEREIN, ADDITION OF RS. 20 CRORES U/S 68 OF THE ACT HAS BEEN MADE ON ACCOUNT OF ALLOTMENT MADE O F SHARE BY THE ASSESSEE. THE LD CIT(A) FURTHER CONFIRMED THE ADDITION OF RS. 19.90 CRORES U/S 56(2)(VIIB) ON PROTECTIVE BASIS. THESE ARE THE ONLY TWO ISSUES IN THE APPEAL. 8. BRIEF FACTS OF THE CASE SHOWS THAT THE ASSESSEE IS A COMPANY WHO FILED ITS RETURN OF INCOME AS STATED ABOVE AND THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY FOR VERIFICATION OF LARGE SHARE PREMIUM RECEIVED DURING THE YEAR AND LOW INCOME IN PURSUANCE TO HIGH LOANS AND ADVANCE S AND INVESTMENT IN SHARES. 9. DURING THE COURSE OF HEARING THE LD AO NOTED THAT THE ASSESSEE HAS ISSUED SHARE CAPITAL OF RS. 20 CRORES IN THE NAME OF 7 COMPANIES. THEREFORE, THE ASSESSEE WAS ASKED TO FURNISH CERTAIN DETAILS ABOUT TH E IDENTITY AND CREDITWORTHINESS OF THE SHAREHOLDERS AND THE GENUINENESS OF THE TRANSACTION S . THE LD AO DISCUSSED THE ISSUE VIDE HIS ORDER AS UNDER: - THE ASSESSES FILED ITS RETURN DIGITALLY ON 25.09.2014 DECLARING A LOSS OFF 3,53,777/ - . THE CASE WAS SELECT ED FOR SCRUTINY FOR THE VERIFICATION OF LARGE SHARE CAPITAL/PREMIUM RAISED BY THE ASSESSEE DURING THE YEAR, WHICH IS REPRODUCED AS UNDER: - LARGE SHARE PREMIUM RECEIVED DURING THE YEAR. LOW INCOME IN COMPARISON TO HIGH LOANS/ADVANCES/INVESTMENT IN SH ARES. 4 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 2. ACCORDINGLY NOTICE U/S 143(2) DATED 28.08.2015 WAS ISSUED AND SERVED UPON THE ASSESSEE COMPANY SELECTING THE CASE OF SCRUTINY. THEREAFTER, VARIOUS NOTICE WERE ISSUED 10 THE ASSESSEE FROM TIME TO TIME AND IN COMPLIANCE THERETO AR OF THE ASSESSEE HAS FIL ED DETAILS FROM TIME TO TIME 3. IN THE COURSE OF VERIFICATION OF THE REASONS FOR SELECTION OF THIS CASE, IT WAS NOTICED THAT THE ASSESSEE COMPANY HAS RAISED SHARE CAPITAL/PREMIUM OF RS. 20,00,00,000/ - FROM THE FOLLOWING COMPANIES: - S. NO. NAME AMOUNT 1 M/S. ASPIRE SALES PVT. LTD. 2,50,00,000 / - 2 M/S. ANKITA ENTERPRISES PVT. LTD. 6,40,00,000 / - 3 M/S. WENS INDUSTRIES LTD. 3,60,00,00 0/ - 4 M/S. AIRSON MERCANTILE PVT LTD 2,25,00 O/ - 5. M/S. MAKAMASHI ENTERPRISES LTD. 2,25,00,30/ - 6. M/S. MORAL SALES PVT. LTD. 2,00,00,300/ - 7. M/S. DASHING INDUSTRIES PVT. LTD. 1,00,00,30 0 / - TOTAL 20,00,00 ,00 0/ - VIDE NOTICE 142 (1) DATED 02.08.2016 AND 07.11.2016 AS WELL AS 02.12.2016 THE ASSESSEE WAS ASKED TO FURNISH DETAILS TO EXPLAIN THE SOURCE WITH JUSTIFICATION OF SHARE CAPITAL/PREMIUM OF RS. 20,00,00,000/ - RECEIVED DURING THE YEAR. INCOMPLIANCE OF THE ABOVE - MENTIONED NOTICES AND FOLLOW UP HEARING VIDE ORDER SHEET ENTRIES, THE AR OF TIRE ASSESSEE HAS FILED SOME DETAILS OF SAKE OF COMPLIANCE. THE DETAILS FILED BY THE AR AND OBTAINED FROM THE SO - CALLED SHAREHOLDER WERE EXAMINED AND ABSTRACT THEREOF ARE DEPICTED AS UNDER: - S. NO NAME OF THE PARTY RETURNED INCOME FOR A.Y. 2013 - 14 RETURNED INCOME FOR A.Y. 2014 - 15 ASSETS CLAIMED BY THE ASSESSEE (IN CRORES) 1 M/S. DASHING INDUSTRIES PVT. LTD. 2,84,838/ - 1,20 , 024/ - 2.58 2 M/S. WENS INDUSTRIES LTD. 22,73,670/ - 24,69,039/ - 19.28 J M/S. AIRSON MERCANTILE PVT. LTD. 9,12,420/ - 2,88,957/ - 10.03 5 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 4 M/S. MAKAMASHI ENTERPRISES LTD. 4,46,710/ - 3,85,480/ - 5.68 5 M/S. ANKITA ENTERPRISES PVT. LTD. 1,93,070/ - 13,49,859/ - 57.60 6 M/S. MORAL SALES PVT. LTD. 3,85,970/ - 1,37,414/ - 5.00 7 M/S. ASPIRE SALES PVT. LTD. 1,55,125 2.5 AFTER ANALYSIS OF ABOVE ABSTRACT, KEEPING IN VIEW THE MEASURE TO INCOME OF SO CALLED SHARE HOLDER COMPANIES IN A Y. 2013 - 14 & 2014 - 15 AS WELL AS FICTITIOUS ASSET (CLAIMED TO BE NET WORTH), IT CAN BE EASILY CONCLUDED THAT THE ASSESSEE COMPANY GENUINENESS OF INVESTMENT AS SHARE CAPITAL IS BEYOND THEIR CREDITWORTHINESS. IN CONTINUATION OF EXAMINATION OF CREDITWORTHINESS OF SHARE HOLDERS COMPANY SINGL E PAGE BANK ACCOUNTS STATEMENTS WERE EXAMINED THOROUGHLY AND NOTICED THAT EITHER EXACT OR APPROXIMATE AMOUNT IS BEING DEPOSITED ON SAME DAY OF REMITTANCE IN ASSESSEES ACCOUNT OR ONE DAY BEFORE THE REMITTANCE AND THE SIMILAR PRACTICES HAS BEEN ADOPTED IN A LL SEVEN BANK ACCOUNTS. IN ADDITION TO THE MEASURE AND NEGLIGIBLE INCOME OF THE ASSESSEE, THE CLAIMED NET WORTH OF THESE SHARE SUBSCRIBERS COMPANIES WAS VERIFIED / RECONCILED WITH THE NATURE OF CURRENT AND NON - CURRENT ASSETS/INVESTMENT SHOWN IN RELEVANT SC HEDULE OF THE FINANCIAL STATEMENT/BALANCE SHEET OF THESE COMPANIES AND FOUND THAT THE NET WORTH WITH EVIDENCE. BECAUSE WHATEVER ASSET/INVESTMENT REFLECTED IN THE BALANCE SHEET OF THESE SHARE SUBSCRIBER COMPANIES WERE INVESTMENT IN UNLISTED SHARES AT HUGE P REMIUM IN RELEASED/ GROUP COMPANIES WHICH ARE EXPEDITING THE ACCOMMODATION ENTRY AFFAIRS AS HAPPENED IN THE ASSESSEES CASE. THESE SHARE SUBSCRIBER COMPANIES ARE DOING NO BUSINESS BUT TO MAKING INVESTMENT & DOING SO - CALLED - SHARE TRADING BUSINESS WITH PRIVA TE LIMITED RELATED COMPANIES. AS SUCH, NET WORTH SHOWN TO THE AR WAS FOUND FICTITIOUS AND MEANT FOR REPORTING PURPOSE ONLY. RELEVANT TRANSACTION/ENTRIES IN THE ACCOUNTS OF SOME SHAREHOLDER COMPANIES ARE REPRODUCED NOT FOR THE SAKE OF BREVITY BUT FOR THE PURPOSE TO INDICATE SIPHONING OF MONEY OF THE ASSESSEE IN THE FORM OF SHARE CAPITAL/PREMIUM IN THE BOOKS OF ASSESSEE ITSELF S.NO. NAME OF THE SHAREHOLDER COMPANY ACCOUNT NO. NAME OF THE BANK/BRANCH 1. M/S. DASHING INDUSTRIES PVT. LTD. 4184002100026967 PUNJAB NATIONAL BANK TRANSACTIO N ON DATE TXN ID DESCRIPTION CR/D R AMNU IT BALANCE 6 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 SD1109696666 18.02.201 4 M6I2224 CASH CR 800903 807021 18.02 2014 S92616935 RTGSSDI 1 12721469 RT RESEARCH LTD DR 800X)3 7021 18.02.201 4 S92616935 CHARGES FOR RTGS CUSTOMER PAYMENT SD1112721469 DR 61 6960 19.02.201 4 M3 3909 CASH CR 450003 456960 19.02.201 4 M275725 BY 21 - 27009 HARUN T RADERS CR 449303 906260 19.02.201 4 M9475I959 RTGS SD1112881965 RT RESEARCH LTD DR 899703 6560 19.02.201 4 S94751959 CHARGES FOR RTGS CUSTOMER PAYMENT SDI112881965 DR 56 I 6504 24.02.201 4 S6168545 CASH HAND CHARGE 2 - 18.02.2014 DR 600 5904 24.02.201 4 S6170541 CASH HAND CHARGE 2 - 18.02,2014 DR 250 ! 5654 04.03.201 4 S24228418 CHEQUE BOOK CHARGES DR 150 5504 13.03.201 4 S48284287 BY INST 746052 CT01 L - L DAY LAT CR 500003 505504 13.03.201 4 S48284287 BY INST 746054 CTOL 1 - 1 DAY LAT CR 200003 1 705504 14.03.201 4 S50774880 RTGS 00000001125 168863 WON DER P CR 10000)0 S ; 1705504 20.03.201 4 S62960884 RTGS 05860500000 103 SURYA BOARD CR 99481 30 1001720 4 20.03.201 4 S63090170 RTGS SDI 118763248 STR YTON EX IN INDIA PVT. LTD DR 10000000 17204 20.03.201 4 S63090170 CHARGES FOR RTGS CUSTOMERS PAYMENT SD1118763248 DR 56 17148 S. NO. NAME OF THE SHARE HOLDER COMPANY ACCOUNT NO. NAME OF THE BANK/BRANCH M'S. DASHING INDUSTRIES PVT LTD. 4L84002I00026842 PUNJAB NATIONAL BANK TRANSACTION ON DATE TXN ID DESCRIPTION CR/DR V MOUNT BALANCE 24.03.2014 I S70818293 - RTGS 50140031000981 ASPIRE SALE CR 4000000 4017663 24.03.2014 S70822830 RTGS 50141131000981 ASPIRE SALE CR 2500000 6517663 24.03.2014 S70824597 RTGS S014I131000981 ASPIRE SALE CR 3500000 10017663 24.03.2014 S71082790 RTGS SD1119397209 STR YTON EXIM INDIA PVT LTD DR 5000000 5017663 24.03.2014 S71082790 CHARGES FOR RTGS CUSTOMERS PAYMENT SD 11193972009 DR 51 5017602 7 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 24.03.2014 S71088863 RTGS SD1119398027 STR YTON EXIM INDIA PVT LTD DR 5000000 17602 24.03.2014 S71088863 CHARGES FOR RTGS CUSTOMERS PAYMENT SD 1119398027 DR 51 17541 31.03.2014 ML 68550 KAMSON 150300 CR 500000 517541 IT IS PERTINENT TO MENTION HERE THAT A SINGLE PAGE OF BANK ACCOUNT STATEMENT HAS BEEN GIVEN BY THE ASSESSEE AS WELL AS BY THE SHAREHOLDER COMPANIES. HOWEVER, SCRUTINY OF ENTRIES ESTABLISHED THE PAUCITY OF FUNDS IN THESE SHARE SUBSCRIBER COMPANIES AS DETAILED IN INSTANCES ABOVE. BESIDES, THE ABOVE ALL SEVEN - SHARE HOLDER COMPANIES ARE MAINTAINING ACCOUNTS WITH THE SAME BANK I.E. PUNJAB NATI ONAL BANK AND THE VERY SAME BRANCH ALSO. THE PURPOSE OF MAINTENANCE OF ACCOUNT ALL THE SHAREHOLDERS IN THE SAME BANK/BRANCH HAVE FOUND TO BE ESTABLISHED AFTER PERUSAL OF TRANSACTIONS DATE. THE ESTABLISHED FACT IS THAT ALL THE ACCOUNTS ARE MAINTAINED IN TH E SAME BANK/BRANCH IN ORDER TO EXPEDITE THE AFFAIRS OF SIPHONING THE ASSESSEE MONEY THROUGH BANKING CHANNELS IN THE NAME OF SO - CALLED SHAREHOLDERS BY SINGLE PERSON OR GROUP OF PERSONS PROVIDING COLOR OF TRANSACTIONS OF BEING VIDE NOTICE DATED 07. 11.2016 & 02.12.2016 AND ORDER SHEET ENTRY DATED 2 0/ 12 / 2016 THE ASSESSEE WAS REQUIRED TO FURNISH THE FOLLOWING - 'IN CASE OF FRESH SHARE APPLICATION MONEY/SHARE CAPITAL/SHARE PREMIUM RECEIVED DURING THE YEAR, PLEASE GIVE THEIR NAMES AND PRESENT POSTAL ADDRESSES OF THE PARTIES FROM WHOM THE SAME HAVE BEEN RECEIVED DURING THE YEAR. IN ORDER TO PROVE THEIR IDENTITY, THEIR CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS , PLEASE FILE (I) CONFIRMATIONS AS ON DALE AND THEIR CONFIRMATIONS MUST CONTAIN THEIR BANK AC COUNT NUMBERS AND NAME OF BANK BRANCH FROM WHICH THEY HAVE GIVEN THE SAID AMOUNT, (II) THEIR I.T. PARTICULARS/PAN AND WARD/CIRCLES WHERE ASSESSED TO TAX, ( II I) COPY OF THEIR AUDITED BALANCE - SHEET AND F & L ACCOUNT AMOUNT (IV) COPY OF THEIR ITR AND COMPUTATION OF INCOME AND (V) COMPLETE BANK STATEMENT FROM WHICH THE SAID AMOUNT HAS BEEN GIVEN. ALSO STATE AS TO WHY PROVISION OF SECTION 56(2)(VIIB)OF THE AC' ARE NOT APPLICABLE WITH DOCUMENTARY EVIDENCES, AFTER GOING THROUGH THE DETAILS SUBMITTED BY THE ASSESSEE & THE BANK STATEMENTS IT WAS NOTED THAT THE FOLLOWING FACTS WERE COMMON TO ALL SHARE APPLICANTS: A) NONE OF THE BALANCE SHEETS, HAD DETAILS OF INVESTMENTS B) NONE OF THE BANK STATEMENTS HAD ENOUGH FUNDS TO GIVE TO THE ASSESSEE AS SHARE APPLI CATION MONEY. THE FUNDS WERE RECEIVED EITHER ON THE SAME DAY OR A DAY BEFORE FROM SOME OTHER CONCERN C) IN SOME CASES THE BANK STATEMENTS OF SOURCES OF SHARE APPLICANTS WERE ALSO REQUISITIONED AND THESE BANK STATEMENTS REFLECTED SAME STATE OF AFFAIRS I.E. THE BANK STATEMENT US HAD ENOUGH FUNDS TO GIVE TO THE ASSESSE AS SHARE APPLICATION MONEY. 8 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 THE FUNDS WERE RECEIVED EITHER ON THE SAME DAY OR A DAY BEFORE FROM SOME OTHER CONCERN. D) THEIR ITRS & PROFIT LOSS ACCOUNT DID NOT REFLECT ON THEIR CREDITWORTHINES S TO SUPPORT SUCH INVESTMENT E) THE TOTAL COMBINED INCOME OF ALL APPLICANTS IS MUCH LESS THAN THE INVESTMENT OF ANY ONE OF THEM F) THE ENTITIES DID NOT HAVE ASSETS TO JUSTIFY ANY BUSINESS ACTIVITY G) THE ASSESSEE DID NOT SUBSTANTIATE THE SOURCE OF MONEY R ECEIVED IN ANY OF THESE SHARE APPLICANTS NOR DID THE FINANCIALS OF THESE APPLICANTS SUBSTANTIATE THERE CREDITWORTHINESS. 4, THE ASSESSEE IS A PRIVATE LTD COMPANY SO IT CANNOT GO FOR ANY PUBLIC ISSUE OF SHARES. THEREFORE, ALL THE SHARE APPLICANTS IN THE CO MPANY MUST HAVE HAD BEEN PERSONS KNOWN TO THE DIRECTORS/PRINCIPAL OFFICER OF THE ASSESSEE COMPANY. IN VIEW OF THIS, THE AR VIDE NOTE SHEET DATED 07.11.2016 - . 21.111.2016 (ORDER SHEET) & 02.12.2016 WAS REQUESTED; A) TO PROVIDE THE DETAILS OF SOURCE OF MONE Y RECEIVED IN INVESTING ENTITIES ALONGWITH DOCUMENTARY EVIDENCE B) TO PRODUCE THE DIRECTORS OF THE ENTITIES FROM WHOM IT HAD RECEIVED SNAP; APPLICATION MONEY, ALONG WITH THEIR DETAILS AS ASKED VIDE NOTICE U/S 133(6) OF THE ACT. 5. INSTEAD OF PRODUCING SUCH PERSONS AND THE DIRECTORS OF ASSESSEE COMPANY - THE ASSESSEE HAS TRIED TO DISCHARGE ITS ONUS U/S 68 OF THE ACT BY SUBMITTING THE ACKNOWLEDGEMENT OF ITR, BALANCE SHEET & PART BANK STATEMENTS OF SUCH PERSONS. HOWEVER, THE REPLIES RECEIVED FROM THEM RAISE D MORE QUESTIONS THAN ANSWERS ON ACCOUNT OF THE FOLLOWING: * A) THE BALANCE SHEETS WERE INCOMPLETE IN THAT NO SCHEDULES WERE FOUND ATTACHED WHICH SHOWED THE DETAILS OF THE NON - CURRENT INVESTMENTS, WHICH IS MANDATORY AS PER ICAI GUIDELINES. B) THERE ARE N O SIGNIFICANT TRANSACTIONS/REVENUE FROM BUSINESS OPERATIONS IN THE P/L ACCOUNTS OF SUCH APPLICANTS. C) THEIR ITR SHOW NEGLIGIBLE INCOME FROM THEIR OWN OPERATIONS. D) AS DESCRIBED EARLIER, ALL OF THE DEPOSITS BY CHEQUES/TRANSFERS ARE IMMEDIATELY FOLLOWED BY DEBITS/TRANSFERS/WITHDRAWALS OF SAME AMOUNTS IN FAVOUR OF ASSESSEE, LEAVING A NEGLIGIBLE BALANCE AT THE END OF EACH CYCLE. THEREFORE, THERE IS NO CORRESPONDENCE BETWEEN THE ELEMENTS OF THE BALANCE SHEET AND THE CREDITS/DEBITS FOUND ROUTED THROUGH THE BANK ACCOUNT. E) THE ASSESSEE DID NOT DO ANYTHING EXTRAORDINARY WITH THE MONEY RECEIVED, IT JUST INVESTED THE SAME IN COAL MINES AT USA. THIS COULD HAVE BEEN DONE BY THE APPLICANTS THEMSELVES, WHY DID THEY FOREGO THE INHERENT EARNING CAPACITY OF MONEY BY PAYIN G SO HUGE PREMIUM FOR RS. 1,990/ - . 8. IN VIEW OF THE ABOVE FACTS, THE ONUS TOTALLY LAY ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS & CREDITWORTHINESS OF THE SHARE APPLICANT 9 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 ENTITIES. THE AR HAD BEEN REQUESTED TO PRODUCE THE SHARE APPLICA NTS. BUT NONE OF THE DIRECTORS WERE PRODUCED. 9. FOR THE SAKE OF DISCUSSION, EVEN IF IT IS PRES UMED THAT THE ASSESSEE DID NOT HA VE CONTROL OVER ITS SHARE HOLDERS, IN THAT CASE ALSO OPPORTUNITY HAD BEEN GIVEN TO THE ASSESSEE TO PRODUCE THE DIRECTORS OF THE SUBSCRIBER COMPANY SO THAT THEY CAN BE EXAMINED ON OATH BECAUSE THEY WOULD BE HAVING FIRST HAND KNOWLEDGE AND WOULD BE ABLE TO PROVIDE INFORMATION ON : A) HOW & WHEN DID THEY MEET THE ASSESSEE COMPANY, B) WHY DID THE SHARE APPLICANTS AGREE TO INVEST I N ASSESSEE COMPANY C) WHY DID APPLICANTS AGREE TO INVEST HUGE AMOUNT WHEREAS ASSESSEE COMPANY IS RUNNING IN LOSS. D) OTHER ACTS & CIRCUMSTANCES ASSOCIATED WITH THE WHOLE TRANSACTION. THE VARIOUS OPPORTUNITIES PROVIDED TO THE ASSESSEE THROUGH AR TO PRODUC E THE DIRECTORS OF ITS COMPANY ARE AS UNDER: VIDE SHOW CAUSE NOTICE DATED 07.11.2016 ; IN REPLY TO NOTICES ISSUED U/S 153(G), ALL THE SEVEN SHARE HOLDER COMPANIES HAS FILED THEIR REPLIES ALONG WITH COPY OF ITR BUT COULD NOT FILE THE COPY OF BANK ACCOUNT S TATEMENT TO REEVALUATE THE BANK STATEMENT FURNISHED BY YOU EARLIER AND AS SUCH THE CREDITWORTHINESS OF ALL SHARE HOLDER COMPANIES REMAINED UNEXPLAINED AS YET. THEREFORE, YOU ARE REQUESTED TO EXPENDITURE THE PERSONAL DEPOSITION OF THE DIRECTORS OF THE AFORE SAID COMPANIES ALONG WITH DETAILS REQUISITIONED BY THE NOTICE U/S 133(6) ISSUED FROM THIS OFFICE EARLIER. THE A L L 7 DIRECTORS MAY BE PRODUCED ON 22.11.2016 OR ON THE DATE CONVENIENT FOR YOUR AS WELL AS DIRECTORS WHICH PRIOR INTIMATION TO THE UNDERSIGNED. VIDE ORDER SHEET ENTRY DATED 20.11.2016. VIDE FINAL SHOW CAUSE NOTICE DATE! 0 2. 1 2.2016: PLEASE REFER TO SHOW CAUSE NOTICE DATED 07,11.2016, VIDE WHICH YOU ARE REQUESTED AS FOLLOWS: 'IN REPLY TO NOTICES ISSUED U/S 133(6), ALL THE SEVEN SHARE HOLDER COMPANIES HAS FILED THEIR REPLIES ALONG WITH COPY OF ITR BUT COULD NOT FILED THE COPY OF BONK ACCOUNT STATEMENT TO REEVALUATE THE BANK STATEMENT FURNISHED BY YOU EARLIER AND AS SUCH THE CREDITWORTHINESS OF ALL SHARE HOLDER COMPANIES REMAINED UNEXPLAINED AS YET. THEREFORE, YOU ARE REQUESTED TO EXPENDITURE THE PERSONAL DEPOSITION OF THE DIRECTORS OF THE AFORESAID 1 COMPANIES ALONG WITH DETAILS REQUISITIONED BY THE NOTICE U/S 133(6) ISSUED FROM THIS OFFICE EARLIER. THE ALL 7 DIRECTORS MAY BE PRODUCED ON 22.11. 2016 OR ON THE DATE CONVENIENT FOR YOUR AS WELL AS DIRECTORS WHICH PRIOR INTIMATION UNDERSIGNED'. ON 22.11.2016, YOUR AR APPEARED BUT F AILED TO FURNISH ANY DETAILS/EXPLANATION AS WELL AS FAILED TO PRODUCE ALL 7 DIRECTORS, AS REQUIRED BY THE ABOVE SHOW CAUS E. HOWEVER, IN THE INTEREST OF NATURAL JUSTICE, YOU ARE AFFORDED ANOTHER OPPORTUNITY TO FURNISH THE ABOVE REQUISITE DETAILS BY 07.12.2016, FAILING WHICH 10 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 IT SHALL BE PRESUMED THAT YOU HAVE NOTHING TO SUBMIT IN THE MATTER AND THE CASE SHALL BE COMPLETED ON M ERITS. VIDE SHOW CAUSE NOTICE DATED 20.12.2016: PLEASE REFER TO SHOW CAUSE NOTICE DATED 07.11.2016 TO PRODUCE DIRECTORS OF ALL SEVEN SHARE SUBSCRIBER COMPANIES WITH RELEVANT DOCUMENTS TO PROVE GENUINENESS OF TRANSACTION AND THEIR CREDITWORTHINESS. BUT YOU FAILED TO PRODUCE THEM ON 22.11.2016. ON 22.11.2016, THE AR OF THE COMPANY APPEARED AND ATTENDED PROCEEDING EXCEPT PRODUCING THE DIRECTORS. ON THE SAME DAY, YOUR AR WAS AGAIN DIETED TO PRODUCE ALL THE DIRECTORS OF SHARE SUBSCRIBER COMPANIES WITH SIMILAR DE TAILS. CASE FIXED LOT 25.11.2016. ON 25.11.2016, NONE ATTENDED, THEN A SHOW CAUSE NOTICE DATED 02.122016 WAS ISSUED FOR THE SAME PURPOSE FIXING FOR 07.12.2016. THE AR/ APPEARED, FILE SOME DETAILS, BUT DID NOT PRODUCE THE DIRECTORS OF THE SHARE SUBSCRIBER C OMPANIES. CASE ADJOURNED VIDE ORDER SHEET ENTRY DATED 07.12.2016 FOR 09.12.2016 BUT NONE ATTENDED BUT APPEARED ON 14.12.2116 AND AGAIN FILED SOME DETAILS BUT DID NOT PROVE IDENTITY, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF SHARE SUBSCRIBERS TILL DATE. AS SUCH, ONUS TO PROVE GENUINENESS OF TRANSACTION AS WELL AS: CREDITWORTHINESS OF YOUR COMPANY TO ISSUE SHARE AT SUCH A HIGH PREMIUM REMAINS ON COMPANY. THEREFORE, YOU ARE ALLOWED A FINAL OPPORTUNITY TO PROVE GENUINENESS OF TRANSACTION AND WORTH OF VALUATION OF SHARE OF YOUR COMPANY AT SUCH A HUGE PRICE ON DATE OF VALUATION BY PRODUCING THE DIRECTORS OF SHARE SUBSCRIBERS COMPANY WITH FOLLOWING DOCUMENTS/DETAILS: 1. COPY OF ACCOUNT FOR THE YEAR, 3 YEARS PRIOR & 2 YEARS LATER, COMPUTATION OF INCOME, TA X AUDIT REPORT, PAN CARD. 2. COPY OF RELEVANT DOCUMENTS/FORM IN WHICH INTIMATION REGARDING THE PURCHASE OF SHARE IS SENT TO THE ROC. 3. COPY OF RESOLUTION OF THE BOARD/AGM OF THE COMPANY AUTHORIZING THE COMPANY TO PURCHASE SHARES OF THE ASSESSEE COMPANY. 4 . SOURCE OF FUNDS AVAILABLE TO PURCHASE THE SHARE OF THE COMPANY ALONG WITH DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE CREDITWORTHINESS OF THE SOURCE. 5. THE LATEST BANK ACCOUNT OF THE COMPANY AS WELL AS THE BANK ACCOUNT FROM WHICH PAYMENT MADE FOR PURCHASE OF SHARES. 6. COPY OF CONTRACT NOTE FOR PURCHASE OF SHARES OF THE COMPANY, COPY OF SHARE DELIVERY NOTE ALONG WITH SHARE PURCHASE REGISTER. 7. EXPLANATION IN RESPECT OF PURCHASE OF SHARES AT SUCH A HUGE PREMIUM OF THE COMPANY WHOSE ASSET IS SO LITTLE AND NO MAJOR PROJECT IN ITS HAND. 8. ALSO FURNISH NOTES ON BUSINESS WISDOM OF THE DIRECTOR TO INVEST SUCH A HUGE AMOUNT IN PREMIUM OUT OF SUCH A MEAGER INCOME/ ASSET OF SHARE SUBSCRIBER COMPANY. 9. COPY OF SHARE PURCHASE REGISTER ALONG WITH VALUATION REPORT OF T HESE SHARES AS ON DATE. 11 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 10. PRODUCE BOOKS OF ACCOUNT AND OTHER RELEVANT DETAILS TO JUSTIFY TIRE VALUATION OF SHARE OF YOUR COMPANY AT SUCH A HUGE PREMIUM EARNING SHARE ON THE DATE OF VALUATION. PLEASE NOTE THAT IN CASE OF FAILURE TO PRODUCE THE DIRECTORS OF SHARE SUBSCRIBER COMPANIES AND FURNISH REQUISITE DETAILS/EVIDENCE TO JUSTIFY SUCH A HUGE VALUATION OF SHARES @ 2000 OF PREMIUM SHALL MADE U/S 56(2)(VIIB) OF H; ACT AND ORDER SHALL BE PASSED ACCORDINGLY. CASE ADJOURNED TO 26.12.2016 FOR THIS PURPOSE. THE AR OF THE ASSESSEE APPEARED ON 26.12.2016 BUT HE NEITHER PRODUCED EVEN A SINGLE DIRECTOR OF SHARE SUBSCRIBER COMPANY AS REQUISITIONED VIDE NOTICE DATED 10 12.2016 NOR FILED ANY SUBSTANTIAL EVIDENCE TO DISCHARGE THE ONUS ON THE COMPANY TO PROVE ID ENTRY, C REDITWORTHINESS AND GENUINENESS OF TRANSACTION IN RESPECT OF CREDIT IN ITS BOOKS OF ACCOUNTS. 9. IT HAS BEEN JUDICIALLY ESTABLISHED THAT THE PRIMARY ONUS IS ON THE ASSESSEE TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTIONS IN RESPECT OF CREDITS IN ITS BOOKS, OF ACCOUNT. THE LAW DOES NOT PRESCRIBE ANY QUANTITATIVE TEST TO FIND OU T WHETHER THE ONUS IN A PARTICULAR CASE HAS BEEN DISCHARGED OR NOT. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN SOME CASES, THE ONUS MAY BE HEAVY WHEREAS, IN OTHERS, IT MAY BE, NOMINAL. THERE IS NOTHING RIGID ABOUT IT. IN THE ABOVE BACKD ROP THE ASSESSEE WAS REQUIRED TO PRODUCE THE PERSON ALONG WITH THEIR BOOKS OF ACCOUNT TO VERIFY ITS CLAIM OF GENUINENESS ESPECIALLY IN VIEW OF THE TACT THAT THE ASSESSEE IS PRIVATE LIMITED COMPANY. THE ASSESSEE FAILED TO DISCHARGE ITS ONUS. IN SUCH SCENARI O IT WOULD NOT BE SUFFICIENT TO BRING PAN, BANK STATEMENT, COPY OF RETURN AND CONFIRMATION ETC FROM THE SAID PARTY. BUT THE SOURCE AND NATURE OF TRANSACTION; NEED TO BE PROVED. THE ASSESSEE HAS MISERABLY FAILED TO DO SO. THE BENEFICIARY ASSESSEE IS ENJOYIN G THE BENEFIT OF APPLICANTS MONEY AND SUCH APPLICANTS DO NOT HAVE CONTROL OVER AFFAIRS OF THE ASSESSEE COMPANY IN SPITE OF HAVING MAJOR SHARE IN THE CAPITAL. THE PROFIT MOTIVE IN THE ENTIRE TRANSACTIONS IS CONSPICUOUSLY ABSENT. ANY PERSON WHO WOULD INVEST HIS OWN MONEY WOULD CERTAINLY SEEK RETURN IN ANY FORM. THE INHERENT CAPACITY OF MONEY TO EARN IS FORGONE WITHOUT ANY CONSIDERATION. THESE FACTS CLEARLY SHOW THAT THE TRANSACTION IS NOT GENUINE. QUESTION REMAINS WHOSE MONEY IS IT WHICH IS ROUTED THROUGH SU CH ACCOUNTS - OBVIOUSLY OF THE PERSON WHICH IS GETTING BENEFITS OF SUCH MONEY WITHOUT HAVING ANY LIABILITY AGAINST IT. 10. THE ASSESSEE COMPANY IS PRIVATE LIMITED COMPANY. IN THE CASE OF SUCH COMPANIES, THERE IS CLOSE AND PROXIMATE RELATIONSHIP BETWEEN TH E PROMOTERS/DIRECTORS AND THE SHAREHOLDERS. THE CLOSELY HELD COMPANIES ARE PERMITTED TO ACCEPT THE SUBSCRIPTIONS OF SHARE CAPITAL OR DEPOSITS ONLY FROM THE GENERAL FRIENDS OR RELATIVES OF THE PROMOTERS/DIRECTORS AND SUCH COMPANIES ARE NOT ALLOWED TO ACCEPT SUBSCRIPTIONS; OR DEPOSITS FROM THE GENERAL PUBLIC. AS SUCH, THERE SHOULD HAVE BEEN HO DIFFICULTY ON THE PART OF THE ASSESSEE TO PRODUCE SOMEBODY FROM THE SAID ENTITY, HAD THE WHOLE APPARATUS NOT BEEN MERELY A CONDUIT TO PLOUGH BACK THE UNACCOUNTED MONEY OF THE ASSESSEE - COMPANY IN THE GARB OF SHARE APPLICATION MONEY. EVEN IF THE WORK SETUP IS PRESUMED TO BE CORRECT, FOR THE SAKE OF ARGUMENT, IT IS NECESSARY TO EXAMINE AS TO HOW THE INVESTOR CAME TO KNOW OF THE REQUIREMENTS OF FUNDS BY THE 12 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 ASSESSEE - COMPAN Y IN THE ABSENCE OF A PUBLIC ISSUE OR ANY ADVERTISEMENT BY THE ASSESSEE - COMPANY. FOR ACCEPTING THE IDENTITY AND THE AVAILABILITY OF FUNDS IN ITS HANDS OF THE ENTITY IN ITS OWN CAPACITY, IT IS NECESSARY TO HAVE AT LEAST SOME IDEA, IF NOT COMPLETE DETAILS, O F THE ACTUAL BUSINESS IN WHICH IT IS IT IS SAID TO BE ENGAGED. 11. THE ASSESSEE HAD BEEN ACCORDED ENOUGH OPPORTUNITY TO LEAD BY POSITIVE EVIDENCE TO PROVE THE CREDITWORTHINESS & GENUINENESS OF THE TRANSACTIONS IT IS EVIDENT FROM THE ABOVE; DISCUSSION THAT THE ASSESSEE COULD NOT REBUT THE ABOVE DISCUSSED EVIDENCE & NEITHER COULD IT PRODUCE THE PRINCIPAL OFFICERS OF ANY OF THE ENTITIES, WITH THE BOOKS OF ACCOUNT, SO THAT THEY COULD BE EXAMINED FOR THE GENUINENESS & CREDITWORTHINESS OF THE TRANSACTION. THIS I S DESPITE THE FACT THAT THESE PERSONS ARE STILL ALLEGED SHARE HOLDERS OF THE ASSESSEE COMPANY. 12. RECENTLY HONBLE DELHI HIGH COURT IN CASE OF SANRAJ ENGINEERING P LTD ITA 79/2016 HAS OBSERVED THAT ONUS OF ASSESSEE U/S 68 IS NOT DISCHARGED MERELY BY SUBM ITTING ITR, BALANCE SHEET & BANK STATEMENTS ESPECIALLY WHEN THE BANK STATEMENTS FROM WHICH MONIES ARE RECEIVED GIVE RISE TO FURTHER QUESTIONS REGARDING THE CREDITWORTHINESS OF LENDERS. IN SUCH CIRCUMSTANCES, APART FROM THE INGREDIENTS TO PROVE GENUINE CASH CREDIT, SOMETHING MORE IS REQUIRED TO BE DEMONSTRATED TO JUSTIFY SUCH RECEIPTS. AS LAID DOWN BY THE COURTS THAT THE APPARENT MUST BE CONSIDERED THE REAL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT THE REAL AND THAT THE TAX ING AUTHORITIES ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY AND THE MATTER HAS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. IT IS APT TO NOTE THAN A MAN MAY LIE BUT THE CIRCUMSTANCES DO NOT'. NO METERS A RE AVAILABLE FOR EXAMINING THE TRUTH AND CORRECTNESS OF STATEMENT MADE BUT THE SURROUNDING CIRCUMSTANCES AND THE RELEVANT FACT WILL THROW LIGHT ON THE GENUINENESS OR OTHERWISE OF ANY TRANSACTION. IN SUCH CIRCUMSTANCES WHEN THE SOURCE OF MONEY LANDING IN AC COUNT, OF THE ASSESSEE HAS NOT BEEN JUSTIFIED, THE FACULTIES OF HUMAN RATIONALITIES INFER THAT IT IS NOTHING BUT ASSESSCE'S OWN MONEY ESP. WHEN THE ASSESSEE IS UTILIZING IT FREELY WITHOUT HAVING ANY LIABILITY TO REPAY THE SAME. AT (HE END, IT IS VERY CLEAR THAT THE PERSON WHO OWNED THE UNACCOUNTED MONEY IS REAPING THE BENEFIT OF THE SAME AFTER HAVING UTILIZED THE SERVICES OF THE SAID ENTRY OPERATOR WHO ACT IN FORM OF PHYSICALLY NON - EXISTENT PAPER ENTITIES AND HELP IN LAUNDERING OF THE MONEY. SECTION 68 HAS TO BE PROVED ON FACTS, THEREFORE DEMONSTRATION BY ASSESSEE IN SUCH REBUTTAL PRESUPPOSES NOT RELYING UPON VARIOUS DECISIONS OR ORDERS BUT DEMONSTRATE BY WAY OF FACTS OF PRODUCING SUCH PERSONS. PRODUCTION OF SUCH PERSONS WAS A FARFETCHED REQUIREMENT, THE ASS ESSEE DID NOT EVEN GIVE A JUSTIFICATION FOR NON - PRODUCTION OF SUCH ENTITIES. THUS IT IS A CASE OF CLEAR HUMAN INGENUINITY WITH THE CLEAR AND CONTUMACIOUS INTENTION TO DEFRAUD THE REVENUE. AMENDMENT HAS BEEN MADE TO SEC 68 BY FINANCE ACT 2012 W.E.F AY 2013 - 14 WHICH UNDER CONSIDERATION. THE PROVISION NOW READS AS: 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 13 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 OFFER ED BY HIM IS NOT, IN THE OPINION OF THE (ASSESSING] OFFICER, SATISFACTORY, THE SUM SO CREDITED RAY; BE CHARGED TO INCOME - TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED), AND THE SUM SO CREDITED CONSISTS OF SHARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, ANY EXPLANATION OFFERED BY SUCH ASSESSEE - COMPANY SHALL BE DEEMED TO BE NOT SATIS FACTORY, UNLESS (A) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS AN EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED AND (B) SUCH EXPLANATION IN THE OPINION OF THE ASSESSING OFF ICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IF THE PERSON, IN WHOSE NAME THE SUM REFERRED TO THEREIN IS RECORDED, IS A VENTURE CAPITAL FUND OR A VENTURE CAPITAL COMPANY AS REFER RED TO IN CLAUSE (23FB) OF SECTION 10.] THE CRUX OF AMENDMENT IS THAT THE CLOSELY HELD COMPANY RECEIVING SHARE APPLICATION MONEY/SHARE CAPITAL/SHARE PREMIUM/ANY SUCH AMOUNT HAS TO PROVE THE SOURCE OF FUNDS IN THE HANDS OF SHAREHOLDER/PERSON GIVING THE SHAR E APPLICATION MONEY/SHARE CAPITAL/SHARE PREMIUM/ANY SUCH AMOUNT. THE FINANCE ACT, 2012 HAS PLACED MORE ONEROUS ONUS OF PROOF O TIE CLOSELY HELD COMPANY RECEIVING THE SHARE APPLICATION MONEY/SHARE CAPITAL/ SHARE PREMIUM ANY SUCH AMOUNT HAS TO PROVE THAT SU CH MONEY WHICH IS INVESTED IN THE COMPANY BELONGS TO THE PERSON WHO HAS GIVEN THE MONEY TO THE COMPANY. OTHERWISE, THE MONEY SO RECEIVED SHALL BE TAXABLE IN HANDS OF COMPANY AS UNEXPLAINED CASH CREDIT UNDER SECTION 68. 13. IN VIEW OF THE ABOVE, THE ASSESSE E HAS FAILED TO DISCHARGE ITS ONUS OF THE CREDITWORTHINESS OF CONCERNED PARTY, AND GENUINENESS OF TRANSACTIONS IN TERMS OF PROVISIONS OF SEC 68 OF THE ACT. THE AMOUNT OF RS. 20,00,00,000/ - RECEIVED FROM THE SHARE APPLICANTS WHOSE CREDITWORTHINESS IS NOT PR OVED IS COVERED WITHIN THE MISCHIEF OF SECTION 68 OF THE IT ACT. THEREFORE, THE SAME IS HELD TO BE THE INCOME OF THE ASSESSEE U/S 68 OF THE ACT. THEREFORE, THE SAME IS HELD TO BE THE INCOME OF THE ASSESSEE U/S 68 OF THE INCOME TAX ACT, 1961. CONSIDERING TH E FACTS DISCUSSED ABOVE. IT IS EVIDENT THAT ASSESSEE HAS FAILED TO DISCLOSE TRUE PARTICULARS OF ITS INCOME THEREFORE PENALTY U/S 27(1)(C) READS WITH EXPLN 1 OF THE PROVISION IS BEING INITIATED SEPARATELY. 10. THE ASSESSEE CHALLENGED THE SAME BEFORE THE LD CIT(A) WHO CONSIDERED THE WHOLE ISSUE AS UNDER: - 3.2 IN VIEW OF THE ABOVE, AO MADE THE ADDITION OF RS. 20,00,00,000/ - AS UNEXPLAINED CASH CREDIT U/S 68 OF THE IT ACT ON SUBSTANTIVE BASIS 14 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 AND RS.19 , 90 , 0 0, 000/ - AS PER PROVISIONS OF SECTION 56(2)(VIIB) ON PROTECTIVE BASIS IN CASE ADDITION U/S 68 IS NOT UPHELD BY APPELLATE AUTHORITIES. CONSEQUENTLY, THE INCOME OF ASSESSEE WAS DETERMINED AT RS. 19,96,46,220/ - AGAINST THE LOSS OF RS. 3,53,777/ - AS DISCLOSED IN THE RETURN OF INCOME. 4. AGGRIEVED WITH' THE AFORESAID ASSESSMENT BY AO, ASSESSEE IS IN PRESENT APPEAL. THE GROUNDS OF APPEAL TAKEN BY HIM ARE AS UNDER: - 1. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 20 CRORE ON ACCOUNT OF SH ARE APPLICATION MONEY ON ILLEGAL AND UNTENABLE GROUNDS. HENCE, THE ADDITION, AS SUCH, MUST BE DELETED. 2. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN MAKING OF AN ASSESSMENT U/S 143(3) WITHOUT SERVING MANDATORY NOTICE U/S 143(2) ON THE ASSESSEE; HENCE THE ASSESSMENT IS BAD AND MAY BE QUASHED. 3. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN MAKING OF WARRANTED DEEMED ADDITION OF RS. 19,90,00,000/ - ON ACCOUNT OF SHARE PREMIUM BASED ON UNTENABLE AND ILLEGAL GROUND; HENCE THE ADDITION AS SUCH MAY BE DELETED. 4 . THE LD. AO HAS ERRED IN LAW AND ON FACTS IN ASSESSING THE CASE AS A COMPLETED SCRUTINY AS AGAINST LIMITED SCRUTINY PRESCRIBED, HENCE THE WHOLE ASSESSMENT AS SUCH IS BAD AND MAY BE QUASHED. 5. THE APPELLANT CRAVES LEAVE TO ADD, SUBSTITUTE OR MODIFY ANY GROUNDS OF APPEAL ON OR BEFORE DATE OF HEARING.' 5. THE FIRST GROUND TAKEN BY APPELLANT PERTAINS TO THE ADDITION OF RS. 20 , 0 0, 00 , 000/ - U/S 68 OF IT ACT ON ACCOUNT OF SHARE APPLICATION/PREMIUM MONEY RECEIVED BY ASSESSEE DURING THE YEAR. 5.1 IN SUPPORT OF A FORESAID GROUND, APPELLANT HAS SUBMITTED AS UNDER: - APPELLANT CONTENTION THE APPELLANT SUBMITS AS FOLLOWS: 1. THE COMPANY WAS INCORPORATED AS ON 19.03.2004. THE RETURN WAS FILED ON 25.09.2014 DECLARING AN INCOME OF RS.NIL. 2 DURING THE YEAR UNDER CONSIDER ATION, THERE WAS INVESTMENT BY CERTAIN COMPANIES IN THE APPELLANT WHOSE NAME IS GIVE ABOVE, IN WHOSE RESPECT; FURTHER DETAIL IS GIVEN AS BELOW. FURTHER, THE FOLLOWING EVIDENCES IN SUPPORT OF INVESTMENT IN THE COMPANY WERE FILED BY THE APPELLANT: - COPY OF B OARD RESOLUTION OF INVESTOR COMPANY 15 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 COPY OF ITR WITH COMPLETE AUDITED FINANCE STATEMENT FOR THE RELEVANT A.Y. PAN NO. ' RELEVANT PART OF BANK STATEMENT OF INVESTOR COMPANY, COPY OF CONFIRMATION FROM THE INVESTOR COMPANY COMPANY DETAILS DOWNLOADED FROM WEBSITE OF MCA SHOWING THEM AS ACTIVE COMPANY COPY OF SHARE CERTIFICATE EVIDENCING THE ALLOTMENT OF SHARE COPY OF ALLOTMENT LETTER CONFIRMING THE ALLOTMENT - FORM 2 OF ROC COPY OF ALLOTMENT RETURN - PAS 3 OF ROC SOURCE OF SOURCE WAS ALSO FILED DURING ASSESSMEN T PROCEEDING AS CONFIRMED IN THE ASSESSMENT ORDER. IN SPITE OF PROVIDING ALL THE ABOVE INFORMATION AND DOCUMENTATION, THE LD AO HAS MADE AN ADDITION OF RS. 20 CRORES UNDER SECTION 68 ON CERTAIN GROUNDS AS STATED ABOVE, REPLY OF WHICH IS AS BELOW. EITHER EX ACT OR APPROPRIATE SAME AMOUNT IS BEING DEPOSITED ON THE SAME DAY OF REMITTANCE IN ASSESSES'S ACCOUNT OR ONE DAY BEFORE REMITTANCE THERE IS NO WHERE PROVIDED IN THE INCOME TAX ACT THAT THERE' NEED TO BE A GOOD BALANCE EVERY TIME IN ACCOUNT BEFORE ISSUING A NY CHEQUE OR THAT THERE SHOULD ALWAYS BE A GOOD BALANCE IN CURRENT ACCOUNT. IN THE CASE OF A RUNNING BUSINESS, THERE IS GENERALLY CHEQUE KEEP ON COMING AND GOING OUT LEAVING SMALL BUSINESSES AND THERE IS NO ECONOMIC RETURN ON THE BALANCE LYING IN THE CURRE NT ACCOUNT OF THE COMPANY. THIS ISSUE WAS ALSO PUT UP BEFORE THE HONORABLE BHC IN THE CASE OF CIT VS ORCHID INDUSTRIES LTD, INCOME TAX APPEAL NO. 1433 OF 2014 BUT THE COURT IN VIEW OF VOLUMINOUS RECORDS PRODUCED IN SUPPORT OF CASE UPHELD DELETION OF ADDITION OF SHARE APPLICATION MONEY UNDER SECTION 68 OF THE INCOME TAX INVESTMENT BY SHARE SUBSCRIBER COMP ANY IN UNLISTED SHARE AT HUGE PREMIUM IN RELATED/GROUP COMPANY WHICH ARE EXPEDITING ACCOMMODATION ENTRY AFFAIRS AS HAPPENED IN ASSESSES CASE FIRST OF ALL, THERE IS NO REASON AS ALLEGED TO BE AN ACCOMMODATION ENTRY BY THE LD AO, THIS IS OUT OF GENERAL PERCE PTION THAT HE HAS JUMPED TO THIS CONCLUSION WITHOUT THERE BEING ANY RECORD AVAILABLE WITH HIM. EVEN THIS IS NOT A CASE OF ANY INFORMATION FROM INVESTIGATION UNIT OR ANY OTHER SOURCE. WITH REGARD TO HUGE PREMIUM, THIS IS SUBMITTED THAT THIS IS AN IDEA OR GO OD. BUSINESS OPPORTUNITY THAT FETCH PREMIUM IN THE MARKET. HERE, THE INVESTMENT IN USA WHICH IS CONSIDERED AS THE BEST ECONOMY IN THE WORLD D THAT TOO IN THE BUSINESS OF COAL 16 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 MINES IS SUFFICIENT TO FETCH GOOD OR HUGE PREMIUM FRO I N THE MARKET. FURTHER, AG AIN THIS IS A PURELY BUSINESS DECISION OF THE INVESTOR COMPANY THAT WHETHER HE WANTS TO INVEST AT PREMIUMS OR NOT IN THE APPELLANT COMPANY. ALL 7 SHARE, HOLDER COMPANY ARE HAVING ACCOUNT IN THE SAME BANK WITH SAME BRANCH ONLY IF ALL THE SHAREHOLDERS COINCI DENTLY HAVE ACCOUNTS IN THE SAME BANK THEN IT DOES NOT PROVE THAT THIS COULD NOT LEAD TO ANY INFERENCE OTHERWISE. IN FACT, SIMILAR KIND OF OBJECTION IN THE CASE OF WINSTRAL PETROCHEMICALS (P.) LTD. [2011] 330 ITR 603 / 10 TAXMANN.COM 137 (DELHI) THAT ALL I HE SHAREHOLDERS ARE HAVING THE SAME ADDRESS. IN THAT CASE, HONORABLE DHC HAS HELD THAT THE COMMON ADDRESS OF SHAREHOLDERS WAS NOT A VALID BASIS TO DISREGARD THE CLAIM OF THE ASSESSEE. ITR AND PROFIT AND LOSS ACCOUNT DO NOT REFLECT THEIR CREDITWORTHINESS OR NO SIGNIFICANT REVENUE FROM BUSINESS OPERATION OR ITR SHOWS NEGLIGIBLE INCOME ITR AND BALANCE SHEET REFLECT THE STATUS OF A YEAR WHETHER THERE IS A PROFIT OR LOSS IN THAT YEAR AND HOW MUCH IT IS. IT DOES NOT REFLECT THE CREDITWORTHINESS OF THE COMPANY. T HIS IS BALANCE SHEET OF THE COMPANY WHICH REFLECTS THE CREDITWORTHINESS OF THE COMPANY.. IN THE CASE UNDER CONSIDERATION, YOUR HONOR WILL APPRECIATE THAT THE CREDITWORTHINESS 0F THE COMPANY IS QUITE SOUND AND IS PROVED. FURTHER WITH REGARD TO NIL INCOME OR INSIGNIFICANT INCOME, WE WILL SUBMIT MAT LD AC LAC ROT SEEN THE RETURN OF INVESTOR COMPANY PROPERLY. /IS YOUR HONOR WILI OBSERVE FROM THE TABLE ANNEXED THAT THERE IS A PROFIT DECLARED FROM 1.20 LACS TO 24 LACS AND TAX PAID IS FROM 37 THOUSAND TO 7.62 LACS . HERE, SIMILAR FACTS WERE THERE IN THE JUDGMENT OF HONORABLE DHC IN THE CASE OF VIRNDAVAN FARMS PVT LTD AS UNDER: - CIT VS. VRINDAVAN FARMS (P) LTD (DELHI HIGH COURT), ITA 71/2015 THE REVENUE HAS NOT DOUBTED THE IDENTITY OF THE SHARE APPLICANTS. THE SOLE B ASIS FOR THE REVENUE TO DOUBT THEIR CREDITWORTHINESS WAS THE LOW INCOME AS REFLECTED IN THEIR INCOME TAX RETURNS. THE ENTIRE - DETAILS OF THE SHARE APPLICANTS WERE MADE AVAILABLE TO THE AO BY THE ASSESSEE. THIS INCLUDED THEIR PAN NUMBERS, CONFIRMATIONS, THE IR BANK STATEMENTS, THEIR BALANCE SHEETS AND PROFIT AND LOSS ACCOUNTS AND THE CERTIFICATES OF INCORPORATION ETC. IT WAS OBSE RVED BY THE ITAT THAT THE AO HAD NOT UNDERTAKEN ANY INVESTIGATION OF IHE VERACITY OF THE ABOVE DOCUMENTS SUBMITTED TO HIM. IT HAS B EEN RIGHTLY COMMENTED BY THE ITAT THAT WITHOUT DOUBTING THE DOCUMENTS, THE AO COMPLETED THE ASSESSMENT ONLY ON THE PRESUMPTION THAT LOW RETURN OF 17 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 INCOME WAS SUFFICIENT TO DOUBT THE CREDIT WORTHINESS OF THE SHARE HOLDERS. HENCE, THE CLAIM OF THE AO THAT THE RE IS MEAGER OR NO INCOME IS INCORRECT AND NOT TENABLE. TOTAL COMBINED INCOME OF ALL APPLICANTS IS MUCH LESS THAN THE INVESTMENT OF ANY ONE OF THEM THERE IS NO LAW THAT INCOME SHOULD BE EQUIVALENT TO INVESTMENT. THERE IS A DIFFERENCE BETWEEN CAPITAL AND INCOME AND CAPITAL IS SUM TOTAL OF MONEY INVESTED BY SFTARTNN'DER, LOAN AND PROFIT EARNED OVER PERIOD OF TIME. INVESTMENT - PF ANY CONCERN IS GENERALLY OUT OF INVESTOR FUND AND PROFIT EARNED OVER A PERIOD OF TIME, LOAN AND SOME TIMES OUT OF ROTATION OF BUS INESS. HENCE, THIS ISSUE IS NOT RELEVANT. THE ASSESSES DIDN'T SUBSTANTIATE SOURCE OF MONEY RECEIVED IN ANY OF THEIR SHARE APPLICANT NOR THE FINANCIAL OF THESE APPLICANT SUBSTANTIATE THEIR CREDITWORTHINESS. THIS IS A GENERAL COMMENT BEING MADE BY THE LD AO WITHOUT REFERENCE TO ANY SPECIFIC MATERIAL WHICH LEAD TO SUCH BELIEF. THE ASSESSEE IN ORDER TO SUBSTANTIATE HIS CLAIM HAS SUBMITTED WHOLE LOTS OF DOCUMENTS AS STATED ABOVE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. EVEN THE HANK STATEMENT OF SUBSCRIBER OF THE CAPITAL IN INVESTOR COMPANY WERE FILED, BEFORE THE LD AO. WHICH IS CONFIRMED BY THE LD AO IN THE ASSESSMENT ORDER:(EMPHASIS SUPPLIED) HENCE, THIS POINT IS NOT RELEVANT. DETAILS OF NON CURRENT INVESTMENT ARE NOT ATTACHED AS MANDATORY AS PER ICAI GUID ELINES AFTER THE COMPANIES ACT, 2013, THE BALANCE SHEETS ARE PREPARED AS PER THE COMPANY ACT, AND HENCE IT IS PREPARED ACCORDINGLY. THE INVESTMENT HAS BEEN DONE AS PER THE AS - 13. INVESTMENT IN USA COMPANY CAN BE DONE DIRECTLY AND NOT REQUIRED TO BE MADE TH ROUGH ASSESSEE THERE ARE VARIOUS PERSON WHO INVEST IN MUTUAL FUND AND MUTUAL FUND ENTITY IN TURN INVESTMENT IN SHARES. NOW THE QUESTION IS WHY THEY DO NOT INVEST IN SHARES DIRECTLY; WHY THEY SHARES THEIR PROFIT WITH MUTUAL FUND. THE SUBJECT MATTER OF BUSIN ESS CONDUCTING IN USA OR INVESTMENT IN USA, BOTH BUSINESS SCENARIO COULD NOT BE TAKEN AT PAR. THIS IS SUBMITTED THAT EVERY PERSON CANNOT OPEN COMPANY IN USA AND ENTER INTO AGREEMENT OVER THERE FOR INVESTMENT IN COAL MINES. THIS IS SOME PEOPLE WHO CONCEIVE SUCH IDEA AND IMPLEMENT THEM,. 18 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 THIS ISSUE IS AT ALL NOT RELEVANT. SHARE HOLDERS WERE NOT PRODUCED IN THIS REGARD, IT IS SUBMITTED THAT ALL THE INVESTMENT WERE MADE BY CHEQUE AND AUDITED FINANCIAL STATEMENT OF THE COMPANY WERE PRODUCED BEFORE THE LD AO. FUR THER, ALL THE NOTICES ISSUED UNDER SECT ION 133(6) OF THE INCOME TAX ACT WERE RESPONDED BACK. HENCE, THE IDENTITY, GENUINENESS AND CREDITWORTHINESS SHOULD NOT BE DOUBTED. WITH REGARD TO PRODUCTION OF SHAREHOLDERS, THE HONORABLE SC IN THE CASE OF CIT VS. ORISSA CORPORATION (P) LTD (1986)159 ITR 78(SC) SC HELD THAT ONCE THE THAT THE ASSESSEE GAVE THE NAMES AND ADDRESSES OF THE CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME TAX ASSESSEE. THEIR INDEX NUMBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE, APART FROM ISSUING NOTICES UNDER SECTION 131 OF THE ACT AT THE INSTANCES OF THE ASSESSEE, DID NOT PURSUE THE MATTER FURTHER THE REVENUE DID NOT EXAMINE THE SOURCE OF THE INCOME OF THE SAID ALLEGED CREDITORS TO FIND OUT WH ETHER THEY WERE CREDITWORTHY OR WHETHER THEY COULD ADVANCE THE ALLEGED LOANS. THERE WAS NO EFFORT MADE TO PURSUE THE SO CALLED ALLEGED CREDITORS.. IN THOSE CIRCUMSTANCES, THE ASSESSEE COULD NOT DO ANYTHING FURTHER. IN THE CIRCUMSTANCES, THE TRIBUNAL CAME T O THE CONCLUSION THAT THE ASSESSEE HAD DISCHARGED THE BURDEN THAT LAY ON HIM. THE COURT UPHELD THE TRIBUNAL VERDICT HOLDING THAT ITS CONCLUSION WAS NOT UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE, SINCE THE CONCLUSION IS BASED ON SOME EVIDENCE ON WHIC H A CONCLUSION COULD BE DRAWN, IT WAS HELD THAT NO ADDITION IS WARRANTED IN THIS CASE. FURTHER, WE MAY SUBMIT AS FOLLOWS: 1 THERE IS NO INFORMATION OR REPORT WITH THE LD AO FROM ANY SOURCE THAT THERE IS ANY ACCOMMODATION ENTRY TO THE ASSESSEE. 2 FURTHER, THERE IS NO EVIDENCE WITH THE REVENUE THAT THIS IS ASSESSES'S MONEY WHICH HAS BEEN ROUNDED UP IN THE FORM OF SHARE APPLICATION MONEY UK ASSESSES COMPANY. 3 THERE WAS NO MATERIAL TO CONCLUDE THAT INVESTOR COMPANIES WERE PAPER COMPANIES THEY HAVE BEEN REGULA RLY ASSESSED TO TAX & PAID GOOD AMOUNT OF TAX. 4 THE ASSESSES HAD DISCHARGED PRIMARILY ONUS TO PROVE THE IDENTITY GENUINENESS & CREDITWORTHINESS OF SAID SHAREHOLDERS. 19 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 5 ALL THE NOTICES SENT UNDER SECTION 133(6) TO THE INVESTOR COMPANY SERVED AND REPLY RECEIVED AS STATED IN THE ASSESSMENT ORDER ALSO. AS THE ADDITION IS UNDER SECTION 68, SO IT IS NECESSARY TO UNDERSTAND AND ANALYSIS THE SECTION IN RESPECT OF SHARE APPLICAT ION MONEY LAW CONCERN SECTION 68 OF THE ACT DELHI HIGH COURT IN THE CASE OF FIVE VISION PROMOTERS PVT LTD ANALYZED THIS AND HELD THAT BEFORE PROCEEDING TO DISCUSS THE ABOVE SUBMISSIONS, A BRIEF RECAPITULATION OF THE LEGAL POSITION AS REGARDS SECTION 68 OF THE ACT IS NECESSARY. UNDER SECTION 68 OF THE ACT, THE AO HAS JURISDICTION TO UNDERTAKE ENQUIRIES WITH REGARD TO THE AMOUNT CREDITED IN THE BOOKS OF THE ACCOUNTS OF AN ASSESSEE. THIS COULD BE ANY SUM WHETHER IN THE FORM OF SALE PROCEEDS OR RECEIPT OF SHAR E CAPITAL MONEY. FIRST, THE AO IS TO ENQUIRE WHETHER THE ALLEGED SHAREHOLDERS IN FACT EXIST OR NOT. THE TRUTHFULNESS OF THE ASSERTION BY THE ASSESSEE REGARDING THE NATURE AND THE SOURCE OF THE CREDIT IN ITS BOOKS OF ACCOUNTS CAN BE EXAMINED BY THE AO. WHER E THE IDENTITY OF THE SHAREHOLDERS STANDS ESTABLISHED AND IT IS SHOWN THAT THEY HAD IN FACT INVESTED MONEY IN THE PURCHASE OF THE ASSESSEE'S SHARES, THEN - THE AMOUNT RECEIVED WOULD BE REGARDED AS CAPITAL. WHERE THE ASSESSEE OFFERS NO EXPLANATION AT ALL O R THE EXPLANATION OFFERED IS UNSATISFACTORY, THE PROVISION OF SECTION 68 MAY BE INVOKED. THAT THE ASSESSEE UNDER CONSIDERATION BY PRODUCING LOTS OF EVIDENCE AS STATED ABOVE HAS PROVED THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION.(EMPHA SIS SUPPLIED) LEGAL PRECEDENCE THAT THE APPELLANT FURTHER, IN SUPPORT OF HIS CONTENTION, PLACES RELIANCE ON THE FOLLOWING JUDGMENTS: - CIT VS. VALUE CAPITAL SERVICES LT D. (2008) 307 ITR 334 (DEL.) - H 'ON'BLE DELHI HIGH COURT HAS HELD AS UNDER: - 5: WHILE SET TING ASIDE THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS); THE TRIBUNAL RELIED UPON TWO DECISIONS OF THIS COURT, NAMELY CIT V. STELLAR INVESTMENT LTD. [1991 ] 192 ITR 287 AND A FULL BENCH DECISION IN CIT V. SOPHIA FINANCE LTD [1994] 205 ITR 98. SEVE RAL OTHER DECISIONS HAVE BEEN RENDERED BY THIS COURT FOLLOWING THE ABOVE TWO DECISIONS THE PRINCIPLE THAT HAS BEEN LAID DOWN BY THE VARIOUS DECISIONS RENDERED BY THIS COURT FROM TIME TO TIME IS THAT IF THE EXISTENCE OF THE APPLICANT IS PROVED, NORMALLY NO FURTHER INQUIRY IS NECESSARY. 6. LEARNED COUNSEL FOR THE REVENUE SUBMITS THAT THE CREDITWORTHINESS OF THE APPLICANTS CAN NEVERTHELESS BE EXAMINED BY THE ASSESSING OFFICER. IT IS QUITE OBVIOUS THAT IS VERY DIFFICULT FOR THE ASSESSEE TO SHOW THE CREDITWORT HINESS OF STRANGERS. IF THE 20 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 REVENUE HAS ANY DOUBT WITH REGARD TO THEIR ABILITY TO MAKE W - E INVESTMENT. THEIR RETURNS MAY BE REOPENED BY THE DEPARTMENT: 7. IN ANY CASE WHAT IS CLINCHING IS THE ADDITIONAL BURDEN ON THE REVENUE. IT MUST SHOW THAT EVEN IF T HE APPLICANT DOES NOT HAVE THE MEANS TO MAKE THE INVESTMENT, THE INVESTMENT MADE BY THE APPLICANT ACTUALLY EMANATED FROM THE COFFERS OF THE ASSESSEE SO AS TO ENABLE IT TO BE TREATED AS THE UNDISCLOSED INCOME OF THE ASSESSEE. THIS HAS NOT BEEN DONE IN SO FA R AS THE PRESENT CASE IS CONCERNED AND THAT HAS BEEN NOTED BY THE TRIBUNAL ALSO. 8. UNDER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE TRIBUNAL HAS NOT COMMITTED ANY ERROR IN DELETING .THE ADDITION. 9. NO SUBSTANTIAL QUESTION OF LAW ARISES ' BHAV SHAKTI STEEL MINES (P) LTD. V. CIT (2009) 179 TAXMAN 25. WHEREIN THE HON BLE DELHI HIGH COURT HAS OBSERVED AS UNDER: - .. 'IN ANY EVENT WE ALSO ARE ALSO NOTE THAT THE SUPREME COURT IN THE CASE OF CIT V. LOVELY EXPORT (P) LTD. [2008] 216 CTR PAGE 195 CONSIDERED THE QUESTION AS TO WHETHER THE SHARE APPLICATION MONEY CAN BE REGARDED AS UNDISCLOSED INCOME UNDER SECTION 68 OF THE INCOME TAX ACT, 1961. THE SUPREME COURT DISMISSING THE SLP OBSERVED THAT IF THE SHARE MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED B OGUS SHAREHOLDERS WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO ASSESS THEM INDIVIDUALLY IN ACCORDANCE WITH LAW. THE SUPREME COURT DID NOT FIND ANY INFIRMITY WITH THE IMPUGNED JUDGMENT OF THE HIGH COURT WHICH WAS A COMMON ORDER ALONG WITH THE DECISION IN CIT V, DIVINE LEASING & FINANCE LTD. [2008) 299 ITR 268 (DELHI). SINCE THE COMMISSIONER OF INCOME - TAX (A) HAS NOT ONLY FOUND THAT THE IDENTITY OF EACH OF THE SHAREHOLDERS .STOOD ESTABLISHED, BUT HAS ALSO EXAMINED THE FACT THAT EACH OF THEM WERE INCOME - LAX ASSESSEES AND HAD DISCLOSED THE SHAPE APPLICATION MONEY IN THEIR ACCOUNTS WHICH WERE DULY REFLECTED IN THEIR INCOME - TAX RETURN AS WELL AS IN THEIR BALANCE SHEETS. IN THESE CIRCUMSTANCES WE SEE MERIT IN WHAT THE L EARNED COUNSEL FOR THE APPELLANT HAS SUBMITTED AND WE FEEL THAT THE TRIBUNAL WAS UNJUSTIFIED INCOMING TO THE CONCLUSION THAT THE CIT(A) HAD NOT CONSIDERED THE MATTER IN THE RIGHT PERSPECTIVE. CONSEQUENTLY, WE DECIDE THE QUESTION IN FAVOR OF THE ASSESSEE AN D SET ASIDE THE ORDER PASSED BY THE TRIBUNAL.' PCIT VS LAXMAN INDUSTRIAL RESOURCES LTD, ITA 169/2017, C.M. APPL. 7385/2017, DHC THIS COURT NOTICES THAT THE ASSESSEE HAD PROVIDED SEVERAL DOCUMENTS THAT COULD HA VE SHOWED LIGHT INTO WHETHER TRULY THE TRANSA CTIONS WERE GENUINE. IT WAS NOT A CASE WHERE THE SHARE APPLICANTS ARE MERELY PROVIDED CONFIRMATION LETTERS. THEY HAD PROVIDED THEIR PARTICULARS, PAN 21 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 DETAILS, ASSESSMENT PARTICULARS, MODE OF PAYMENT FOR SHARE APPLICATION MONEY, I.E. THROUGH BANKS, BANK STAT EMENTS, CHEQUE NUMBERS IN QUESTION, COPIES OF MINUTES OF RESOLUTIONS AUTHORIZING THE APPLICATIONS, COPIES OF BALANCE SHEETS, PROFIT AND LOSS ACCOUNTS FOR THE YEAR UNDER CONSIDERATION AND EVEN BANK STATEMENTS SHOWING THE SOURCE OF PAYMENTS MADE BY THE COMPA NIES TO THE ASSESSEE AS WELL AS THEIR MASTER DEBT WITH ROC PARTICULARS. IN THE PRESENT CASE THE ASSESSEE CAN BE SAID TO HAVE DISCHARGED ITS ONUS UNDER SECTION 68 OF THE ACT. THE APPELLANT HAS GIVEN ALL THE NECESSARY DETAILS IN ORDER TO ESTABLISH THE IDENTI TY OF THE SHARE APPLICANTS. AFTER CONSIDERING THE ENTIRE MATERIAL PLACED ON RECORD, IT IS FAIR TO CONCLUDE THAT THE SHARE - APPLICANTS WERE EXISTING PARTIES AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS, IT IS ALSO OBSERVED THAT THE ASSESSING OFFICER C OULD NOT POINT OUT ANY DISCREPANCY IN THE EVIDENCES RELIED UPON BY THE ASSESSEE, HE HAS NEITHER BROUGHT OUT ANY DIRECT OR INFERENTIAL EVIDENCE TO CONTRADICT THE CONTENTION OF THE ASSESSEE. THOUGH, THE SHARE - APPLICANTS COULD NOT BE EXAMINED BY THE AO, SINCE THEY WERE EXISTING ON THE FILE OF THE INCOME TAX DEPARTMENT AND THEIR INCOME - TAX DETAILS WERE MADE AVAILABLE TO THE AO, IT WAS EQUALLY THE DUTY OF THE AO TO HAVE TAKEN STEPS TO VERIFY THEIR ASSESSMENT RECORDS AND IF NECESSARY TO - ALSO, HAVE THEM EXAMINED BY THE RESPECTIVE AOS HAVING JURISDICTION OVER THEM (SHARE - APPLICANTS), WHICH HAS NOT BEEN DONE BY HIM. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE STATED ABOVE, IT IS HELD THAT THE ADDITION OF RS. 70,00,000/ - CANNOT BE SUSTAINED AND ACCORDINGLY, THE SA ME IS DIRECTED TO BE DELETED CIT VS OASIS HOSPITALITIES (PVT.) LTD., 333 ITR 119 DHC IN A BATCH OF CASES, THE COURT HAD TO CONSIDER WHETHER THE ADDITION MADE BY THE AO U/S 68 ON ACCOUNT OF UNEXPLAINED SHARE APPLICATION MONEY WAS JUSTIFIED. AFTER A COMPREHE NSIVE REVIEW OF ALL THE IMPORTANT CASES ON S. 68, THE FOLLOWING PRINCIPLES WERE LAID DOWN: (I) S. 68 PROVIDES THAT IF THE ASSESSEE IS NOT ABLE TO GIVE SATISFACTORY EXPLANATION AS TO THE 'NATURE AND SOURCE' OF A SUM FOUND CREDITED IN HIS BOOKS, THE SUM MAY BE TREATED AS THE 'UNDISCLOSED INCOME' OF THE ASSESSEE. THE INITIAL BURDEN IS ON THE ASSESSEE TO EXPLAIN THE 'NATURE AND SOURCE' OF THE CREDIT AND TO DO SO, THE ASSESSEE IS. REQUIRED TO PROVE (A) IDENTITY OF THE SHAREHOLDER; (B) GENUINENESS OF TRANSACTION; AND (C) CREDIT WORTHINESS OF SHAREHOLDERS; (A) THE IDENTITY OF THE SHAREHOLDER CAN BE PROVED BY BEFORE THE AO OR BY WAY OF DOCUMENTS, REGISTERED ADDRESS, PAN ETC; 22 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 (B) THE GENUINENESS OF THE TRANSACTION CAN BE SHOWN FROM THE FACT THAT THE MONEY HAS: BEEN RECEIVED FROM THE SHAREHOLDER. IF THE MONEY IS RECEIVED BY CHEQUE AND IS TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS, THE GENUINENESS OF TRANSACTION WOULD BE PROVED. OTHER DOCUMENTS SHOWING THE GENUINENESS OF TRANSACTION COULD BE THE ESPIES OF THE SHAREHOLDERS REGISTER, SHARE APPLICATION FORMS, SHARE TRANSFER REGISTER, ETC. (C) THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/ SUBSCRIBER CAN BE PROVED BY PRODUCING THE BANK STATEMENT OF THE CREDITORS/SUBSCRIBERS SHOWING THAT IT HAD SUFFICIENT BALANCE IN ITS ACCOUNTS TO ENABLE/ IT TO SUBSCRIBE TO THE SHARE CAPITAL. ONCE THESE DOCUMENTS ARE PRODUCED, THE ASSESSEE WOULD HAVE SATISFACTORILY DISCHARGE THE ONUS CAST UPON HIM. THE AO CAN DISCREDIT THE DOCUMENTS PRODUCED BY THE ASSESSEE WITH COGENT REASONS AND MATERIALS BUT NOT ON THE REALM OF SUSPICION; (II) IF THE ASSESSEE HAS PRO DUCED DOCUMENTS LIKE PAN CARD, BANK ACCOUNT DETAILS OR DETAILS FROM THE BANKERS THE ONUS SHIFTS UPON THE AO AND IT IS FOR HIM TO REACH THE SHAREHOLDERS AND THE AO CANNOT BURDEN THE ASSESSEE MERELY ON THE AROUND THAT SUMMONS ISSUED TO THE INVESTORS WERE RET URNED BACK WHICH THE ENDORSEMENT 'NOT TRACEABLE'; (III) THE INITIAL BURDEN ON AN ASSESSEE WHICH IS A PVT LTD COMPANY IS SOMEWHAT HEAVY BECAUSE THE SHAREHOLDERS ARE FAMILY FRIENDS/CLOSE ACQUAINTANCES ETC AND THE ASSESSEE CANNOT FEIGN IGNORANCE ABOUT THE STATUS OF THESE PARTIES; (V) THERE IS AN ADDITIONAL BURDEN ON THE DEPARTMENT TO SHOW THAT EVEN IF SHARE APPLICANTS DID NOT HAVE THE MEANS TO MAKE INVESTMENT, THE INVESTMENT MADE BY THEM ACTUALLY EMANATED FROM THE COFFERS PF THE ASSESSEE SO AS TO ENABLE IT TO BE TREATED AS THE UNDISCLOSED INCOME OF THE ASSESSEE. IN THE ABSENCE OF SUCH FINDING, ADDITION CANNOT BE MADE U/S 68 IN THE HANDS THE ASSESSEE. (VI) THE DEPARTMENT IS FREE TO REOPEN THE INDIVIDUAL ASSESSMENT IN CASE OF ALLEGED BOGUS SHAREHOLDERS IN ACCORDANCE WITH LAW AND, THUS, NOT REMEDY - LESS. CIT VS FIVE VISION PROMOTERS PVT.LTD, DHC, 380 ITR 289 (DELHI) COMING TO THE CORE ISSUE CONCERNING THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE INVESTOR COMPANIES, IT IS SEEN THAT AS FAR AS THE TAB LE I INVESTORS WERE CONCERNED, ONLY 9 WERE SEARCHED AND IN THEIR CASES, THE ITAT ON A VERY DETAILED EXAMINATION WAS SATISFIED THAT THEY NOT ONLY EXISTED, BUT THAT THE ASSESSEE HAD DISCHARGED THE PRIMARY ONUS OF PROVING THEIR 23 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 CREDITWORTHINESS AND GENUINENES S. THEY HAD RESPONDED TO THE SUMMONS ISSUED TO THEM. THE MERE FACT THAT SOME OF THE INVESTORS HAVE A COMMON ADDRESS IS NOT A VALID - BASIS TO DOUBT THEIR IDENTITY OR GENUINENESS. ALSO, THE FACT THAT THE SHARES OF THE ASSESSEE WERE SUBSEQUENTLY SOLD AT A REDU CED PRICE INDEED NOT GERMANE TO THE QUESTION OF THE GENUINENESS OF THE INVESTMENT IN THE SHARE CAPITAL OF THE ASSESSEE. THE QUESTION OF AVOIDANCE OF TAX THEREBY MAY HAVE TO BE EXAMINED IN THE HANDS OF THE PERSON PURCHASING THE SHARES. RELIANCE IS FURTHER P LACED ON THE FOLLOWING JUDGMENTS: - 1 THE SUPREME COURT IN CIT V. LOVELY EXPORTS (P) LTD. [2008] 216 CTR 195, 2 CIT V. DIVINE LEASING & FINANCE LTD. (DECISION DATED 21ST JANUARY 2008 OF THE SUPREME COURT IN SPECIAL LEAVE TO APPEAL (CIVIL) (CC) 375 OF 2008 ) 3 DECISIONS DATED 17TH SEPTEMBER 2012 OF THE SUPREME COURT M CIT V. KAMUHENU STEEL & ALLOYS LTD. [SLP (CIVIL) CC 15640 OF 2012)]. IN ALL THE ABOVE - THREE DECISIONS THE SUPREME COURT HAD AFFIRMED THE CORRESPONDING DECISIONS OF THIS COURT INCLUDING 4 CIT V. DIVINE LEASING & FINANCE LTD. [2008] 299 ITR 268/[2007] 158 TAXMAN 440. 5 CIT V. SOPHIA FINANCE LTD. [1994] 205 ITR .98/[1993] 70 TAXMAN 69 (FB). PRAYER IN VIEW OF THE ABOVE FACTS, LAW AND LEGAL PRECEDENTS, IT IS PRAYED TO DELETE THE ADDITION UNDER SECTION 68 OF THE INCOME TAX ACT, 1961.' 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE, BASIS OF ADDITION MADE BY AO AND SUBMISSIONS OF THE APPELLANT . AS IT IS CLEAR FROM THE ASSESSMENT ORDER THAT ASSESSMENT PROCEEDINGS WERE UNDERTAKEN BY AO ON THE GROUND OR SELECTING THE CASE FOR SCRUTINY FOR VERIFICATION OF LARGE SHARE CAPITAL OR PREMIUM RECEIVED DURING THE YEAR AND IN COMPARISON TO THAT, LOW/NOMINAL INCOME DISCLOSED IN THE RETURN. IT WAS ALSO CLEAR FROM THE STATE OF AFFAIRS OF APPELLANT THAT DISPROPORTIONA TELY HIGH PREMIUM I.E. RS. 19,90,00,00,000/ - AGAINST THE FACE VALUE OF RS. 10,00,000/ - OF ONE LAKH SHARES, WAS SHOWN AS RECEIVED ON THE BASIS OF PERFORMANCE OF APPELLANT COMPANY DECLARING LOSS OF RS 3,53,777/ - DURING THE YEAR. THUS, IT WAS EVIDENT AND JUST IFIA BLE ON THE PART OF AO TO EXAMINE THE GENUINENESS AND CREDITWORTHINESS OF COMPANIES WHO HAD INVESTED IN THE SHARES OF APPELLANT COMPANY AT THE COST OF SUCH A HIGH PREMIUM. THE EFFORTS WERE MADE BY AO TO EXAMINE THE 24 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 EXISTENCE OF THE SHARE APPLICANT COMPA NIES BY ASKING THE APPELLANT TO PRODUCE THEIR DIRECTORS AND ALSO TO SUBMIT THE RELEVANT DETAILS AND EVIDENCE AS ASKED BY HIM VIDE NOTICES ISSUED U/S 133(6) OF THE IT ACT. HOWEVER, DESPITE OF GIVING SEVERAL OPPORTUNITIES AND SHOW CAUSE NOTICES BY AO, APPELL ANT FAILED TO PRODUCE ANY OF THE DIRECTORS OF THE AFORESAID COMPANIES AND THUS THERE WAS NOBODY TO REPRESENT THE SHARE APPLICANT COMPANIES TO ESTABLISH THEIR IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTIONS. IT HAS TO MENTION HERE THAT THE APPELL ANT COMPANY, WHICH HAS TAKEN THE ENTRIES OF SHARE APPLICATION MONEY/PREMIUM OF THE AFORESAID AMOUNTS FROM SHARE APPLICANTS, IS A PRIVATE LIMITED COMPANY DIFFERENT FROM THE PUBLIC LIMITED COMPANIES WHEREIN PUBLIC ARE SUBSTANTIALLY INTERESTED AND WHERE THE S HARE APPLICATION MONEY COMES OUT WITH AN INITIAL PUBLIC OFFERS AND WHEREIN SHARES ARE LISTED ON STOCK EXCHANGE AND ARE WIDELY TRADED. IN SUCH CASES, IT IS VERY DIFFICULT FOR THE COMPAN Y TO KNOW O F THEM CLOSELY AND HAVE NO CONTROL/MECHANISM TO VERIFY THE CR EDITWORTHINESS AND THE BURDEN OF PROOF IN SUCH CASE IS DIFFICULT. BUT THERE IS ANOTHER CLASS OF COMPANIES WHICH ARE CLOSELY HELD AND IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND WHICH ARE MOSTLY FAMILY CONTROLLED CLOSELY HELD COMPANIES, AND THEY RA ISE THEIR SHARE CAPITAL AND LOANS FROM THEIR FAMILY MEMBERS, RELATIVES AND FRIENDS AND IN THESE COMPANIES SINCE SHARE CAPITAL AND LOANS ARE RECEIVED FROM THE CLOSE KNIT CIRCLES WHO ARE MOSTLY KNOWN TO THE COMPANIES/PROMOTERS, THE ONUS REQUIRED U/S 68 OF TH E ACT IS VERY HEAVY TO PROVE THE CAPACITY OF THE SHARE HOLDERS AND LENDERS AND GENUINENESS OF THE TRANSACTIONS TO SATISFY CUMULATIVELY THE INGREDIENTS OF SECTION 68 OF THE ACT TO THE SATISFACTION OF THE AO, OTHERWISE HE SHALL BE FREE TO PROCEED AGAINST THE ASSESSEE COMPANY AND MAKE ADDITION U /S 68 OF THE ACT AS UNEXPLAINED CASH CREDIT. 5.3 NOW, IN THE LIGHT OF ABOVE, IT HAS TO BE SEEN, AS DISCUSSED ABOVE, TO WHAT EXTENT, APPELLANT HAS BEEN ABLE TO SATISFY ALL THREE CONDITIONS, I.E., IDENTITY OF CREDITOR, CR EDITWORTHINESS AND GENUINENESS OF TRANSACTIONS IN ITS CASE. SO FAR AS THE WORD 'IDENTITY' IS CONCERNED, HONBLE JURISDICTIONAL HIGH COURT IN THE CASE N.R. PORTFOLIO PVT. LTD., [2014] 2 ITR - OL 68, HAS DEFINED THAT 'THE IDENTIFICATION OF THE PERSON WOULD INC LUDE THE PLACE OF WORK, THE STAFF, THE FACT THAT IT WAS ACTUALLY CARRYING ON BUSINESS AND RECOGNITION OF THE SAID COMPANY IN THE EYES OF PUBLIC. MERELY PRODUCING PAN OR ASSESSMENT PARTICULARS DID NOT ESTABLISH THE IDENTIT Y OF THE PERSON. THE ACTUAL AND THE TRUE IDENTITY OR THE PERSON A COMPANY WAS THE BUSINESS UNDERTAKEN BY THEM.' IN THE CASE OF APPELLANT, APPELLANT HAS FAILED TO ESTABLISH THE IDENTITY OF SHARE APPLICANT COMPANIES AS DESPITE OF SEVERAL OPPORTUNITIES GIVEN BY AO, THE APPELLANT COULD NOT FIL E ANY SUCH EVIDENCE IN RESPECT OF SHARE APPLICANT COMPANIES THAT THEY ACTUALLY EXIST. THE AO HAD SPECIFICALLY ASKED THE APPELLANT ON 07.11.2016, 22.11.2016, & 02.12.2016 TO PRODUCE THE DOCTORS OF THE 25 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 AFORESAID COMPANIES TO EXAMINE THEIR IDENTITY, CREDITWOR THINESS AND GENUINENESS OF TRANSACTIONS BUT EVERY TIME, APPELLANT FAILED TO PRODUCE ANY OF THE DIRECTORS. IT ALSO FAILED TO SUBMIT THE RELEVANT DETAILS SUCH AS COPY OF ACCOUNTS FOR PRECEDING/SUBSEQUENT YEARS, THEIR TAX AUDIT REPORT, RESOLUTION OF THE BOARD MEETINGS , COMPLETE BANK STATEMENTS, DETAILS RELATED TO INVESTMENT IN SHARES, ETC. IN SUCH SITUATION ONLY, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. YOUTH CONSTRUCTION PVT. LTD., 357 ITR 197 AND CIT VS. NIPUN BUILDERS AND DEVELOPERS PVT. LTD., 350 ITR 407, HAS HELD THAT ONUS IS ON ASSESSEE TO PROVE THE IDENTITY OF SHARE APPLICANTS, FAILING WHICH IT HAS TO BE CONCLUDED THAT THE ASSESSEE COMPANY HAS INTRODUCED ITS OWN MONEY THROUGH NON - EXISTING COMPANIES USING THE BANKING CHANNELS IN THE SHAPE OF HARE APPLICATION MONEY. IN VIEW OF THIS, IT IS CLEAR THAT THE APPELLANT FAILED TO ESTABLISH THE IDENTITY OF SHARE APPLICANTS IN ITS CASE. THUS, THE FIRST CONDITION AS STIPULATED IN SECTION 68 OF THE ACT IS NOT SATISFIED. 5.4 AS REGARDS THE OTHER CONDITIO NS, I.E., CREDITWORTHINESS AND GENUINENESS, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE N.R. PORTFOLIO PVT. LTD. (SUPRA) HAS HELD THAT THE BANK ACCOUNTS DO NOT REFLECT THE CREDITWORTHINESS OR EVEN GENUINENESS OF THE TRANSACTION. THE BENEFICIARIES, INCLUD ING THE RESPONDENT - ASSESSEE, DID NOT GIVE ANY SHARE DIVIDEND OR INTEREST TO THE SAID ENTRY, OPERATORS/SUBSCRIBERS. THE PROFIT MOTIVE IS NORMAL IN CASE OF INVESTMENT, WHICH SHOULD REFLECT FROM ACCOUNTS. IN THE PRESENT CASE, NO PROFIT OR DIVIDEND WAS DECLARE D ON THE SHARES DURING THE YEAR, RATHER, LOSS OF RS. 3,53,777/ - HAS BEEN DECLARED. IT IS ON RECORD THAT THOUGH THE APPELLANT COMPANY WAS INCORPORATED ON 19.03.2004 BUT NO BUSINESS ACTIVITY WERE CARRIED OUT BY IT TILL THE RAISING OF SHARE PREMIUM IN THE YEA R UNDER CONSIDERATION. EVEN IN THE SUBSEQUENT THREE YEARS ALSO, NO PROFIT OR DIVIDEND WAS DECLARED BY APPELLANT. ANY PERSON, WHO WOULD INVEST MONEY OR GIVE LOAN WOULD CERTAINLY SEEK RETURN OR INCOME AS CONSIDERATION. THESE FACTS ARE NOT ADVERTED TO AND AS NOTICED BELOW ARE TRUE AND CORRECT. THEY ARE UNDOUBTEDLY RELEVANT AND MATERIAL FACTS FOR ASCERTAINING THE CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTIONS. IT IS FURTHER HELD BY HON'BLE COURT IN THE ABOVE CASE THAT 'MERE PRODUCTION OF INCORPORATION DETAILS, PANS OR HE FACT THAT THIRD PERSONS OR COMPANY HAD FILED INCOME TAX DETAILS IN CASE OF A PRIVATE LIMITED COMPANY MAY NOT BE SUFFICIENT WHEN SURROUNDING AND ATTENDING FACTS PREDICATE A COVER UP. THESE FACTS INDICATE AND REFLECT PROPER PAPER WORK O R DOCUMENTATION BUT GENUINENESS, CREDITWORTHINESS, ARE DEEPER AND OBTRUSIVE. COMPANIES NO DOUBT ARE ARTIFICIAL OR JURISTIC PERSON BUT THEY ARE SOULLESS AND ARE DEPENDENT UPON THE INDIVIDUALS BEHIND THEM TO RUN THEM AND MANAGE THEM. IT IS THE PERSONS BEHIND THE COMPANY WHO TAKE THE DECISION, CONTROL AND MANAGE THEM.' IN THE CASE OF APPELLANT COMPANY ALSO, THOUGH THE SOULLESS JURISTIC ENTITY IS EXISTENT ON PAPER BUT THE INDIVIDUALS, RUNNING AND MANAGING, THEM ARE FOUND NON - EXISTING AS THE APPELLANT COMPANY CO ULD NOT 26 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 GIVE A SINGLE DETAIL ABOUT THE EXISTENCE OR LOCATION OF THE SHARE APPLICANT COMPANIES. SINCE THE CREDITORS ARE NON - EXISTING, THEIR CREDITWORTHINESS IS ALSO NOT ESTABLISHED. DURING THE ASSESSMENT PROCEEDINGS ALSO, APPELLANT COULD NOT PROVE WITH THE DOCUMENTARY EVIDENCE THAT THE CREDITOR COMPANIES ARE HAVING SUFFICIENT BALANCE FOR INVESTING IN SHARE APPLICATION OF THE APPELLANT COMPANY. THUS, THE CREDITWORTHINESS OF THE AFORESAID SHARE APPLICANT COMPANIES HAS NOT BEEN PROVED HEREIN IN THE CASE OF THE APPELLANT. SIMILARLY, THE GENUINENESS OF TRANSACTIONS IN THE CASE OF CREDITORS HAS ALSO NOT BEEN PROVED AS THE AO HAS CLEARLY MENTIONED THAT THE APPELLANT COULD FURNISH ONE PAGE BANK STATEMENTS ONLY AND THAT THOSE STATEMENT ALSO SHOW THAT THE MONEY INVESTE D AS SHARE/PREMIUM HAS BEEN DEPOSITED ON THE SAME DAY OR ONE DAY PRIOR IN THE ACCOUNTS OF SHARE APPLICANT COMPANIES WHICH COULD NOT BE JUSTIFIED BY APPELLANT. THUS, THE ONUS CAST UPON BY THE PROVISIONS OF THE 68 OF THE ACT HAS NOT BEEN DISCHARGED BY APPELL ANT TO TREAT THE SHARE APPLICATION/PREMIUM AS GENUINE. 5.5 THUS, THE APPELLANT COMPANY FAILED TO DISCHARGE THE INITIAL BURDEN OF ESTABLISHMENT THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTION IN THE CASE ON ITS SHARE APPLICANTS/ CREDITORS. IN VIEW OF ABOVE DISCUSSION, IT CAN BE SEEN THAT NONE OF THE CONDITIONS AS PER SECTION 68 OF THE ACT ARE SATISFIED, THEREFORE, THE ADDITION ON ACCOUNT OF UNEXPLAINED SHARE APPLICATION MONEY WAS LIABLE TO BE MADE IN THE HANDS OF THE APPELLANT COMPANY. 5.6 IN ADDITION, AS MENTIONED BY AO, THE CASE OF APPELLANT IS COVERED BY THE 1ST PROVISO OF SECTION 68 ALSO. AS PER THIS PROVISO, IN THE CASE OF A COMPANY, IF THE SUMS SO CREDITED CONSIST OF SHARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, THE EXPLANATION ORDERED BY SUCH COMPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS (A) THE PERSON, JAPING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS AN EXPLANATION ABOUT THE NATUR E AND SOURCE OF SUCH SUMS SO CREDITED; AND (B) SUCH EXPLANATION IN THE OPINION OF ASSESSING OFFICER HAS BEEN FOUND TO BE SATISFACTORY. IN THE CASE OF APPELLANT, IT HAS FAILED TO EXPLAIN THE NATURE AND SOURCE OF SUMS CREDITED TO ITS BOOKS OF ACCOUNT IN THE NAMES OF SHARE APPLICANT COMPANIES, THEREFORE, HAS BEEN HELD THAT THE SAID SUMS ARE UNEXPLAINED, AS PER THE MAIN PROVISIONS OF SECTION 68 OF THE ACT. THE APPELLANT COULD NOT PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTIONS IN THE CASE O F ITS OWN CREDITORS, LEAVE ALONE PROVING THE NATURE AND SOURCE OF THE FUNDS RECEIVED BY ITS CREDITOR COMPANIES AS PER THE 1ST PROVISO OF SECTION 68 OF THE ACT. NOT A SINGLE DETAILS, DOCUMENT OR EVIDENCE COULD BE PRODUCED/FILED BY APPELLANT OR THE SAID CRED ITOR COMPANIES EXPLAINING THE NATURE AND SOURCE OF THE FUNDS BY ESTABLISHING THE IDENTITY AND CREDITWORTHINESS OF THE SAID CREDITOR COMPANIES DURING THE ASSESSMENT PROCEEDINGS. ONUS, WAS ON THE SAID CREDITOR 27 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 COMPANIES TO EXPLAIN THE NATURE AND SOURCE OF TH EIR FUNDS BY REPRESENTING THEMSELVES BEFORE THE AO WITH THE SUPPORTING DOCUMENTARY EVIDENCE TO PROVE THEIR IDENTITY AND CREDITWORTHINESS AND ALSO THE GENUINENESS OF TRANSACTIONS. BUT THE SAME HAS NOT BEEN DONE EITHER BY APPELLANT OR THE SAID CREDITOR COMPA NIES. DURING THE APPELLATE PROCEEDINGS, SOME DETAILS RELATED TO THESE SHARE APPLICANT COMPANIES HAVE BEEN FILED TO ESTABLISH THEIR GENUINENESS BUT THAT IS BY THE APPELLANT, NOT BY THE CREDITOR COMPANIES WHEREAS THE PROVISO CLEARLY MANDATES THAT THE EXPLANA TION OR DETAILS OR EVIDENCE HAS TO BE OFFERED BY SUCH CREDITOR COMPANY. THUS NEITHER DURING ASSESSMENT PROCEEDINGS NOR APPELLATE PROCEEDINGS, THESE SHARE APPLICANT COMPANIES COULD SATISFY THE CONDITIONS AS PER PROVISO TO SECTION 68 OF IT ACT. 5.7 IN SUCH S ITUATION, THE APPELLANT HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT BY THE SUBSTANTIVE PROVISIONS OF SECTION 68 OF THE ACT OR ITS PROVISO. THUS THE APPELLANT HAS FAILED ON BOTH THE COUNTS. IN VIEW OF THIS, I HOLD THAT THE AO WAS JUSTIFIED IN TREATING THE AFORESAID SUM OF RS.20,00,00,000/ - AS UNEXPLAINED CASH CREDITS U/S 68 OF THE ACT IN THE HANDS OF APPELLANT. I, THEREFORE, CONFIRM THE ADDITIONS MADE BY HIM AND DISMISS THE GROUND TAKEN BY APPELLANT. 11. THE LD AR SUBMITTED T HAT THE ASSESSEE HAS SUBMITTED CO PY OF THE BOARD RESOLUTION , ITR, AUDITED FINANCIAL STATEMENT, PAN, BANK STATEMENT, CONFIRMATION, COMPANY MASTER DATA, ALLOTMENT LETTER AND ALLOTMENT RETURN OF SHARE CAPITAL . HE FURTHER STATED THAT SOURCE OF SOURCE WAS ALSO FILED DURING THE ASSESSMENT PROCE EDINGS. HE SUBMITTED THAT BASED ON THIS INFORMATION THE ASSESSEE HAS DISCHARGED INITIAL ONUS CAST UPON HIM. MERELY BECAUSE THE RETURNS OF INCOME OF THE COMPANY ARE LESS , IT CANNOT BE SAID THAT THE CREDITWORTHINESS OF THOSE INVESTOR IS NOT PROVED. HE FURTHE R SUBMITTED THAT ENTIRETY OF THOSE COMPANIES SHOWS AND DETAILS OF BANK STATEMENT WERE PRODUCED. HE FURTHER STATED THAT MERELY BECAUSE THE ASSESSEE FAILED TO PRODUCE THE DIRECTORS OF THE COMPANIES THE ADDITION S CANNOT BE MADE. 12. THOUGH HE ARGUED VEHEMENTLY THAT WHEN THE COMPLETE DETAILS ARE AVAILABLE OF INVESTORS BEFORE LD AO, IT IS NOT NECESSARY TO PRODUCE THE SHARE HOLDERS DIRECTORS AND STATED THAT EVEN OTHERWISE MERE NON PRODUCTION OF THOSE SHAREHOLDER CANNOT RESULT I N ADDITION U/S 68 OF THE ACT WHEN COMPLETE DETAILS WERE FILED. HE FURTHER SUBMITTED AND PROMISED THAT THE ASSESSEE IS READY TO PRODUCE THE DIRECTORS OF THE COMPANY. HE FURTHER ARGUED THAT THE LD AO SHOULD HAVE ISSUED SUMMONS U/S 131 OF THE ACT TO 28 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 THE D IRECTORS OF THE INVESTOR COMPANIES IN CASE IF HE WISHES TO MAKE SUCH A HUGE ADDITION FOR ONLY THAT REASON . HE FURTHER SUBMITTED THAT NO INDEPENDENT ENQUIRY HAS BEEN MADE BY THE LD AO. HE FURTHER STATED THAT IN REPLY NOTICE U/S 133(6) OF THE 7 SHAREHOLDERS HAVE FILED THEIR REPLIES WITH THE RETURN OF INCOME. HE FURTHER SUBMITTED THAT THE LD AO HAS WRONGLY FOLLOWED THE DECISION OF HON'BLE DELHI HIGH COURT IN SANR A J E NGINEERING PVT. LTD ITA 69/ 2 0 16 WHEREIN, THE OTHER DECISIONS CITED WERE NOT CONSIDERED. HE FUR THER REFERRED TO THE PROVISION OF SECTION 68 OF THE ACT AND PROVISO THERE TO AND STATED THAT THE ASSESSEE HAS FURNISHED PROPER EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH CREDIT , HOWEVER, THE LD AO HAS REJECTED ALL THE EVIDENCES SUBMITTED BY ASSESSEE FOR THE SOLE REASON THAT ASSESSEE HAS NOT PRODUCED THE DIRECTORS OF THE INVESTOR COMPANIES . HE FURTHER REITERATED HIS STATEMENT THAT THE ASSESSEE IS READY TO PRODUCE THE DIRECTORS OF THE INVESTING COMPANIES BEFORE THE LD AO FOR HIS EXAMINATION. HE SUBMITTED THAT BEFORE THE LD AO ASSESSEE HAS FAILED FOR THE REASON THAT ASSESSEE WAS UNDER THE BELIEF THAT WHEN THE ADEQUATE DOCUMENTS ARE PRODUCED THE LD AO WILL ACCEPT THEM. THE FINAL NOTICES ISSUED BY THE LD AO WAS VERY LATE AND THEREFORE THERE W AS NO OCCASION TO PRODUCE THEM. 13. THE LD DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LD AO AND THE LD CIT(A) HAS STATED THAT THE ASSESSEE HAS FAILED TO DISCHARGE INITIAL ONUS CAST UPON IT AND THEREFORE, THE ADDITION HAS RIGHTLY BEEN MADE. HE FURTHER SUBMITTED THAT AS ASSESSEE HAS MERELY PRODUCED THE DOCUMENTS BUT NOT THE INVESTORS DIRECTORS , THEREFORE NOT ALL THESE PAPERS HAD ANY CREDENTIAL. HE SUBMITTED THAT COMPANYS ONLY ACT THROUGH THE DIRECTORS , UNLESS THEY ARE EXAMINED WITH RESPECT TO THOSE PAPERS AN D EXPLAIN SOURCES OF THEIR FUNDS INVESTED IN ASSESSEE COMPANY , THE ADDITION HAS BEEN MADE CORRECTLY. 14. THE LD AR VEHEMENTLY SUBMITTED THAT THOUGH IT IS NOT NECESSARY TO PRODUCE THE DIRECTORS OF THE ASSESSEE COMPANY AND LD AO COULD HAVE ISSUED SUMMONS TO TH EM WHEN THE COMPLETE DETAILS ARE FURNISHED, BUT IN ANY CASE ASSESSEE IS READY TO PRODUCE THE DIRECTORS OF THE INVESTORS COMPANY. HE SUBMITTED THAT SHOW CAUSE NOTICE WAS ISSUED ON 20/12/2016 MENTIONED AT PAGE NO 7 OF ASSESSMENT ORDER GIVING THE DATE OF HEARING ON 26/12/ 2016 AND ASSESSMENT ORDER WAS PASSED ON 30 - 12 - 2016 . THEREFORE, ADEQUATE OPPORTUNITY WAS ALSO NOT PROVIDED. HE SUBMITTED THAT EVEN THE LD CIT (A) DID 29 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 NOT REMAND THE MATTER TO THE LD AO TO EXAMINE THE DIRECTORS OF THE INVESTOR COMPANIES. H E REITERATED HIS OFFER TO PRODUCE THE DIRECTORS OF THE INVESTOR COMPANY. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. BRIEFLY STATED THE ISSUE IS THAT ASSESSEE HAS ISSUED SHARE CAPITAL TO SEVEN COMPANI ES AMOUNTING TO RS 20 CRORES OF FACE VALUE OF RS 10 LAKHS AND SHARE PREMIUM OF RS 19.90 CRORES. ASSESSEE ON QUESTIONED SUBMITTED ALL THE REQUISITE DETAILS IN THE FORM OF BALANCE SHEETS, INCOME TAX RETURNS, PAN, BANK STATEMENT OF THE INVESTOR COMPANIES ETC. IT ALSO SUBMITTED THE SHARE APPLICATIONS FORMS AND RETURN OF ALLOTMENT OF SHARES. THE LD AO ISSUED INQUIRY LETTER TO COMPANIES U/S 133 (6) OF THE ACT WHICH WERE ALSO REPLIED TO. THE LD AO BASED N THE BANK STATEMENTS FOUND THAT THE RETURNED INCOME OF THE COMPANIES IS NOT COMMENSURATION WITH THE AMOUNT OF INVESTMENTS MADE IN THE ASSESSEE COMPANY AND ALSO THE BANK STATEMENTS FURNISHED BY THE ASSESSEE I ONLY A ONE PAGER STATEMENT WHICH SHOWS THAT PRIOR TO TRANSFER OF MONEYS AS SHARE CAPITAL WITH THE ASSESSEE, RTGS ( REAL TIME GROSS SETTLEMENTS) FUNDS RECEIVED FROM OTHER ACCOUNTS. THEREFORE ACCORDING TO LD AO SOURCE OF SOURCES OF FUNDS ARE NOT PROVED . LD AO WAS ALSO OF THE VIEW THAT WHEN THE BANK ACCOUN TS OF ALL THE INVESTORS ARE IN SAME BRANCH OF THE BANK, THERE IS SOME DOUBT. SO THE LD AO ASKED ASSESSEE TO PRODUCE THE DIRECTORS OF THE COMPANY. ASSESSEE REQUESTED LD AO TO ISSUE SUMMONS U/S 131 OF THE ACT. THE FINAL SHOW CAUSE NOTICE WAS ISSUED BY THE DL AO ON 20/12/2016 AND ASSESSEE WAS ASKED TO PRODUCE THE DIRECTORS BY 26/12/2016. NATURALLY, ASSESSEE REITERATED THE SAME DOCUMENTARY EVIDENCE FURNISHED BY THE ASSESSEE BUT DID NOT PRODUCE THE DIRECTORS O F THE INVESTORS COMPANIES. THE LD AO MADE THE ADDITION U/S 68 OF THE ACT. THE LD CIT (A ) ALSO CONFIRMED THE ADDITION HOLDING THAT THE COMPANIES ACT THROUGH THEIR DIRECTORS AND PAPER DOCUMENTS DOES NOT HAVE MUCH RELEVANCE UNLESS THE DIRECTORS OF THE INVESTOR COMPANIES WERE PRODUCED BEFORE AO . CI T (A ) FURTHER HELD THAT IN SUCH AN EVENT EVEN THE IDENTITY, CREDITWORTHINESS AND GENUINE NE SS OF THE TRANSACTION IS NOT PROVED. THEREFORE, ASSESSEE IS IN APPEAL BEFORE US . ON CAREFUL ANALYSIS OF THE ORDERS OF THE LOWER AUTHORITIES, IT IS APPARENT THAT A SSESSEE HAS SUBMITTED RELEVANT DOCUMENTS BEFORE THE LD AO BUT GRIEVANCE OF THE LD AO AND THE LD 30 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 CIT (A) IS THAT ASSESSEE HAS FAILED TO PRODUCE THE DIRECTORS OF THE INVESTOR COMPANIES. IT IS ALSO FACTS THAT WHEN THE SHARE CAPITAL IS ISSUED BY THE ASSESSEE COMPANY TO THE OTHER COMPANIES AT A PREMIUM, TO VERIFY THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION, IF THE DIRECTORS ARE PRODUCED WHO CAN BE EXAMINED ON THE DOCUMENTS SUBMITTED BY THE ASSESSEE, IT WILL TEST WHETHER THE ASSESSEE HAS DISCHARGED ITS INITIAL ONUS OR NOT. FURTHER, AS ASSESSEE IS A PRIVATE LIMITED COMPANY, IT IS PROPER FOR LD AO TO PRESUME THAT ASSESSEE HAS THE CLOSE NEXUS WITH THE SHAREHOLDERS, THEREFORE THEY CAN BE PRODUCED BEFORE THE LD AO. SO FAR AS THE ISSUE OF THE OPPORTUNITY TO THE ASSESSEE IS CONCERNED THE LD AO ISSUED SHOW CAUSE NOTICE ON 20/12/2016 ASKING ASSESSEE TO PRODUCE THE DIRECTORS ON 26/12/2016 AND P ASSED THE ASSESSMENT ORDER ON 30/1 2/2016. THEREFORE IT IS ALSO APPARENT THAT ASSESSEE DID NOT GET PROPER OPPORTUNITY OF PRODUCING THE DIRECTORS OF THE INVESTORS COMPANY BEFORE THE ASSESSING OFFICER. THE LEARNED AUTHORISED REPRESENTATIVE REPEATEDLY STATED THAT ASSESSEE DID NOT GET PROPER OP PORTUNITIES OF PRODUCING THE DIRECTORS BEFORE THE LD. ASSESSING OFFICER AND THEREFORE NOW CASE OF THE ASSESSING OFFICER IS THAT NON PRODUCTION OF THE DIRECTORS OF THE INVESTOR COMPANIES HAVE MADE ALL THE EVIDENCE PRODUCED BY THE ASSESSEE REDUNDANT, HE RE PEATEDLY OFFERED TO PRODUCE THE DIRECTORS OF THE INVESTOR COMPANIES. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO STATED THAT IF THE ASSESSEE PRODUCES THE DIRECTORS BEFORE THE ASSESSING OFFICER AND IF THOSE PERSONS ARE EXAMINED WITH RESPECT TO THE EVIDENCE SU BMITTED BY THE ASSESSEE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE LORD ASSESSING OFFICER. WE ALSO ARE OF THE OPINION THAT ASSESSEE HAS SUBMITTED ENOUGH EVIDENCES TO PROVE THEIR IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS. FURTHER I F ASSESSEE PRODUCE S THE DIRECTORS OF THE INVESTOR COMPANIES BEFORE THE LORD ASSESSING OFFICER AND THEY ARE EXAMINED BY LD . ASSESSING OFFICER, IT WILL CONCLUSIVELY DECIDE THE WHOLE ISSUE. ACCORDINGLY, ON THE REQUEST OF BOTH THE PARTIES, WE SET ASIDE THE FIR ST ISSUE COVERING GROUND NUMBER ONE OF THE APPEAL BACK TO THE FILE OF THE LEARNED AO WITH A DIRECTION TO THE ASSESSEE TO PRODUCE THE DIRECTORS OF THE INVESTOR COMPANIES FOR EXAMINATION BEFORE THE ASSESSING OFFICER. THE AO IS ALSO DIRECTED TO EXAMINE THEM O N THE BASIS OF DOCUMENTS SUBMITTED BY THE 31 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 ASSESSEE. ACCORDINGLY, GROUND NUMBER ONE OF THE APPEAL OF ASSESSEE IS ALLOWED WITH ABOVE DIRECTION. 16. GROUND NO. 2 IS WITH RESPECT TO THE ADDITION U/S 56(2)(VIIB) OF THE ACT ON PROTECTIVE BASIS BY THE LD AO . AS THE ASSESSEE HAS RECEIVED SHARE CAPITAL OF RS. 20 CRORES OF THE F ACE VALUE OF RS. 10 EACH AT A PREMIUM OF RS. 1990 PER SHARE THEREFORE, THE LD AO HELD THAT THE PROVISION OF SECTION 5 6(2)(VIIB) OF THE ACT ARE ATTRACTED. HE FURTHER MADE THE ADDITION OF RS. 19.90 CRORES OF SHARE PREMIUM U/S 56(2)(VIIB) OF THE ACT HOLDING VIDE PARA NO. 2 OF HIS ORDER AS UNDER: - 2. ADDITION OF SHARE CAPITAL SECTION 56('2)(VIIB) OF THE ACT IN THE COURSE EXAMINATION OF GENUINENESS OF SHARE CAPITAL AND PREMIUM OF 20,00,00,000/ - IN TERMS OF SECTION 68 OF THE ACT AS DISCUSSED IN PRECEDING PAGES IN DETAILS, IT HAS BEEN ESTABLISHED THAT THE ASSESSEE COMPANY HAS BEEN ABLE TO SIPHONE ITS OWN MONEY THROUGH BANKS ACCOUNTS OF SEVEN SO - CALLED SHARE SUBSCRIBERS AT 199 TIME ABOVE FACE VALUE OF ITS SHARE AND THE ASSESSEE COMPANY IS A PRIVATE LIMITED WHERE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED RECEIVES IN ANY PREVIOUS YEAR FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES. IN SUCH A CASE IF THE CONSIDERATION RECEIVED FOR ISSUE OF SHARE AS EXCEEDS THE FAIR MARKET VALUE OF SHARE SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE GENUINENESS OF TRANSACTION OF RS. 19,90,00,000/ - NEEDS TO BE EXAMINED ON THE PARAMETERS OF NEW AMENDMENT TO SECTION 56(2) I.E. 56(2)(VIIB) APPLICABLE FROM THE A.Y. 2014 - 15. AS PER AUDITED BALANCE SHEET THESE SHARE WERE ISSUED TO FOLLOWING SHARE HOLDERS WITH DETAILS MENTIONED AGAINST THEIR NAME. S. NO. NAME NO. OF SHARE S FACE VALUE OF SHA RE AMOUNT OF PREMIUM PER SHARE TOTAL AN OF PREMIUM RECEIVED FACE VALUE 01. M/S. APIRE SALES PVT. LTD. 12500 10 1990 25 00000 125000 02. M/S. ANKITA ENTERPRISES PVT. LTD. 32000 10 1990 64 000000 320000 03. M/S. WENS INDUSTRIES LTD. 1800 0 10 1990 36001000 180000 04. M/S. AIRSON MERCANTILE PVT. LTD. 1125 0 10 1990 2250100 0 112500 05. M/S. MAKAMASHI ENTERPRISES LTD. 1125 0 10 1990 2250100 0 112500 06. M/S. MORAL SALES PVT. LTD. 1000 0 10 1990 2000100 0 100000 07. M/S. DASHING INDUSTRIES PVT. LTD. 5000 10 1990 10000000 50000 32 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 TOTAL 19,90,00,00,00 0 20,03,0 O,0 00 1000,000 THE AR OF THE ASSESSEE ASKED VIDE NOTICE U/S 142(1) DATED 02.08.2016 AND OTHER NOTICES TO SUBMIT DETAILS OF THE SHARE HOLDERS WITH NAME, PAN, ADDRESS AND DATE OF RECEIPTS. JUSTIFY THIS IN VIEW OF SECTION OF 68 OF THE ACT. SUBMIT DETAIL IN AS PER BELOW: NAME AND ADDRESS OF (HE SHARE HOLDER I PAN FACE VALUE OF EACH SHARE PREMIUM ON EACH SHARE NO. OF SHARES ALLOTTED FATAL VALUE W ALLOTTE D AMOUNT R ECEIVE D 1 2 3 4 5 6 7 ALSO FURNISH (I) B ANK STATEMENT OF THE COMPANY WHICH SHARES CAPITAL AND PREMIUM WERE RECEIVED, (II) IN THE CASE WHERE SHAREHOLDERS ARE COMPANIES PROVIDE DETAIL OF DIRECTORS OF ALL SUCH COMPANIES WITH THEIR NAME, PAN, ADDRESS; (III) THE PROOF OF IDENTITY AND CREDITWORTHINESS THE SHAREHOLDERS AS WELL AS THE PROOF OF GENUINENESS OF TRANSACTION IN RESPECT OF FRESH CREDIT OF THE SHARE CAPITAL/PREMIUM ACCOUNT; (IV) THE WORKING AND QUANTUM OF BOOK VALUE OF SHARES AND JUSTIFICATION FOR THE QUANTUM OF PREMIUM; (V) VALUATION REPORT' OF THE SHARE PRICE . VIDE REPLY DATED 02.09.20L6 , THE ASSESSEE HAS SUBMITTED THE DETAIL OF SHARE CAPITAL ISSUED AND DETAIL OF SHARE PREMIUM CHARGED. IN ITS REPLY DATED 07.12.2016 THE ASSESSEE HAS SUBMITTED WORKING OF CASH FLOW ETC. FURTHER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO SUBMIT THE VALUATION REPORT FOR SHARE PRICE DETERMINATION AND BASIS OF ISSUANCE OF THE SHARE. VIDE REPLY DATED 07.12.2016 THE ASSESSEE HAS SUBMITTED FEW PAGES OF THE VALUATION REPORT. THE REPORT WHICH WAS SU BMITTED BY THE ASSESSEE WITHOUT ANY ANNEXURE, EXHIBITS AS REFERRED IN THE REPORT. VIDE NOTE SHEET ENTRY DATED 07.12.2016 THE ASSESSEE WAS ASKED THE FOLLOWINGS: - 'THE ASSESSEE HAS RECEIVED SHARE PREMIUM OF RS. 19,90,00,000/ - AND SHARE CAPITAL OF RS. 10,00,0 00/. THE ASSESSEE HAD SUBMITTED THE DETAIL WITH NAME, PAN, ADDRESS AND DATE OF RECEIPTS'. 33 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 'VIDE SHOW CAUSE NOTICE DATED 20.12.2016 'THE. ASSESSEE WAS ASKED TO FILE THE DETAIL INCLUDING THE WORKING AND QUANTUM OF BOOK VALUE OF SHARES AND JUSTIFICATION FOR T HE QUANTUM OF PREMIUM AND VALUATION REPORT OF THE SHARE PRICE '. VIDE REPLY DATED 26.12.2016 THE ASSESSEE FI L ED NOTHING MATERIAL IN SUPPORT OF VALUATION REPORT. ANNEXURE AND EXHIBIT WERE PART OF THE REPORT BUT NO T SUBMITTED BY THE ASSESSEE. SECTION 56(2)(V IIB) WHICH IS APPLICABLE FROM THIS YEAR HAD SPECIFIED THAT THE VALUATION OF THE UNACCOUNTED SHARES HAS TO BE DONE AS PER 11 U/ 11 UA OF INCOME TAX RULES NOTIFIED WHERE IN SHARE PRICE METHOD HAS BEEN GIVEN. THE ASSESSEE FAILED TO ESTABLISH THE HOW SUCH REQUIR EMENT OF THE SECTION AND RULES WERE SATISFIED. THE ASSESSEE HAS REPORTED LOSS OF RS 3 , 53,377/ - DURING THE YEAR. DISCOUNTED CAS H FLOW IS ALWAYS DEPENDED ON CURRENT CASH F LOW W OF REVENUE WHICH IS LOSS AS PER P&L ACCOUNT. IN THIS CONNECTION THE ASSESSEE IS REQUIRED TO SHOW CAUSE AS TO WHY SHARE PREMIUM OF RS. 19,90,00,000/ - SHOUT A NOT HE ADDED BACK TO THE INCOME OF THE ASSESSEE U/S 56(2) (VIIB) OF THE ACT READ WITH RULE 11UA (2)(B) OF THE INCOME TAX RULES: - VIDE REPLY DATED 07.12.2016 THE ASSESSEE HAS SUBMI TTED THAT SHARE PREMIUM WAS RECEIVED BY THE ASSESSEE BASED ON THE CASH FLOW DONE BY THE ASSESSEE. THE REPORT FRONT' C.A. WAS TAKEN BY THE ASSESSEE. THE ASSESSEE HAS SUBMITTED ITS VERY SUMMARIZED WORKING OF THE VALUATION REPORT. HOWEVER, IT IS WORTHWHILE TO NOTE THAT THE REPORT FILED BY THE ASSESSEE ALSO DOES NOT CONTAINED DATE OF VALUATION WHERE AS THE ISSUE OF THE SHARES WERE AT DIFFERENT DATES DURING THE FINANCIAL YEAR. DATE OF INVESTMENT/ALLOTMENT HAS BEEN REPRODUCED UNDER THE HEAD DATE WISE AND PARTY WI SE DATA AT PRECEDING PAGE. THE REPORT WHICH WAS SUBMITTED BY THE ASSESSEE WITHOUT ANY ANNEXURES, EXHIBITS AS REFERRED IN THE REPORT. BEFORE DISCUSSING THE SUBMISSIONS OF THE ASSESSEE AND MY OBSERVATIONS ON IT, IT IS REQUIRED TO UNDERSTAND THE RELEVANT PROV ISION IN RESPECT OF SECTION 56(2)(VIIB) OF THE ACT SECTION 56(2) PROVIDES FOR THE SPECIFIC CATEGORY OF INCOMES THAT SHALL BE CHARGEABLE TO INCOME - TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. IT WAS INSERTED A NEW CLAUSE IN SECTION 56(2). THE NEW CLAUSE IS APPLICABLE WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES. IN SUCH A CASE IF THE CONSIDERATION RECEIVED FOR I SSUE OF SHARES EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. FURTHER, IT IS ALSO IMPOR TANT TO PROVIDE THE COMPANY AN 34 ITA NO 5982 DEL 2018 AY 2014 15 STRTON EXIM P LTD ALONGWITH STAY 665 DEL 2018 OPPORTUNITY TO SUBSTANTIATE ITS CLAIM REGARDING THE FAIR MARKET VALUE. THIS AMENDMENT HAS TAKEN PLACE EFFECT FROM 1ST APRIL, 2013 AND W I LL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2013 - 14 AND SUBSEQUENT ASSESSM ENT YEARS. SECTION 56 (2)(VIIB) RELEVANT TO ASSESSMENT YEAR (AY) 2013 - 14] IS GIVEN BELOW: '(VIIB) WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY C ONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHA RES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE O F SHARES IS RECEIVED - (I) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND OR (II) BY A COMPANY FROM A CLASS OR CLASSES OF PERSONS AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE: - (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE THE VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED; OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY IN THE, SATISFACTION OF THE ASSESSING OF FICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES OF ITS ASSETS INCLUDING INTANGIBLE ASSETS BEING GOODWILL, KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE WHICHEVER IS HI GHER. (B) 'VENTURE CAPITAL COMPANY. VENTURE CAPITAL FUND' AND 'VENTURE CAPI TAL UNDERTAKING' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN CLAUSE (A), CLAUSE, (B) AND CLAUSE (C) OF EXPLANATION 1 TO CLAUSE (23FB) OF SECTION 10; VIDE NOTIFICAT ION NO. 52/2012 [F.N