S.H.A.M.K. INTERNATIONAL P. LTD, MUMBAI V. ITO 9(3)(1), MUMBAI

ITA 6397/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55047 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 06-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: PARESH VAKHARIA
• Keywords: Income from undisclosed sources; Source of fund; Onus to prove
• Section: 133(6); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI R.S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 6397/MUM/2010 ASSESSMENT YEAR: 2007-08 S.H.A.M.K. INTERNATIONAL PVT. LTD., . APPELLANT SUIT 101, GOLDEN WALLS, 18 TH ROAD, KHAR(WEST) MUMBAI - 400 052. (PAN AABCM9688A) VS. INCOME-TAX OFFICER, RESPONDENT WARD 9(3)(1), AAYAKAR BHAVAN MUMBAI. APPELLANT BY : MR. PARESH VAKHARIA RESPONDENT BY : MR. B. JAYA KUMAR DATE OF HEARING : 18/07/2011 DATE OF PRONOUNCEMENT: 30/08/2011 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 20, MUMBAI, PASSED ON 29/07/2010 FOR THE AS SESSMENT YEAR 2007-08. 2. THE GROUND RAISED IN THIS APPEAL IS IN RESPECT O F CONFIRMATION OF ADDITION OF RS. 7,90,34,000/- U/S 68 OF THE ACT, ON ACCOUNT OF SHARE APPLICATION MONEY. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FILED ITS RETURN OF INCOME ELECTRONICALLY SHOWING TOTAL INCOM E OF RS. 71,63,990/- ON 15/11/07. THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, A NOTICE U/S 143(2) WAS ISSUED ON 29/9/2 008, AGAINST WHICH THE ASSESSEE ATTENDED FROM TIME TO TIME AND F URNISHED THE ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 2 DETAILS AS REQUIRED. DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAD RECEIVED SUBSTANTIAL AMOUNTS OF CAPITAL CONTRIB UTION FROM MR. MAESH MAHTANI AND HIS WIFE MRS. ROSHINI MAHTANI OF RS. 3,95,17,000/- EACH, TOTALING TO RS. 7,90,34,000/-. THE DETAILS OF THE SAID AMOUNT RECEIVED ON VARIOUS DATES WERE MENTIONE D BY THE AO IN HIS ORDER AT PAGE 2 OF HIS ORDER. THE ASSESSEE HAD FURNISHED CONFIRMATIONS OF MR. MAHESH MAHTANI AND MRS. ROSHIN I MAHTANI, WHO ARE ASSESSED WITH ITO 4(1), INTERNTAIONAL TAXATION WARD AND THEIR RESPECTIVE PANS ARE AFBPM6025M AND AAHPM5830F. THE CONTENTS OF THE CONFIRMATION LETTER DATED 10/10/09 JOINTLY SIGN ED BY THEM WERE EXTRACTED BY THE AO AT PAGES 3,4, & 5 OF HIS ORDER. COPIES OF THE RETURNS OF INCOME OF MR. MAHESH AND MRS. ROSHINI MA HTANI FOR ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 WERE FILED BY THE ASSESSEE ALONG WITH COPY OF THEIR CAPITAL ACCOUNT. FROM THE SAID RETURNS OF INCOME, THE AO FOUND THAT NEITHER MR. MA HESH MAHTANI NOR MRS. ROSHINI MAHTANI HAD THE FINANCIAL CAPACITY TO ADVANCE HUGE SOMES OF RS. 3,95,17,00/- EACH BY WAY OF CAPITAL CO NTRIBUTION AS CLAIMED BY THE ASSESSEE. THE AO NOTED THAT THE CAPI TAL ACCOUNT OF MRS. ROSHINI MAHTANI FOR PREVIOUS YEAR RELEVANT TO AY 2007-08 SHOWS, TO THE CREDIT OF HER CAPITAL ACCOUNT, TRANSFERS TOT ALING RS. 7,11,28,120/- FROM NRE ACCOUNTS. SIMILARLY, THE CAP ITAL ACCOUNT OF MR. MAHESH MAHTANI FOR PREVIOUS YEAR RELEVANT TO AY 2007-08, SHOWS, TO THE CREDIT OF HIS CAPITAL ACCOUNT, TRANSFERS TOT ALING RS. 5,93,20,815/-. THE AO WAS OF THE VIEW THAT THESE AM OUNTS HAD BEEN SHOWN IN THE CREDIT OF THE RESPECTIVE CAPITAL ACCOU NTS, ESTABLISH THAT THESE TWO INDIVIDUALS HAD CLAIMED TO BECOME THE OWN ERS OF THE AFORESAID RESPECTIVE AMOUNTS. THE AO HELD THAT BY V IRTUE OF SECTION 56(1)9VI) OF IT ACT, REMITTANCES RECEIVED BY MR. MA HESH MAHTANI AND MRS. ROSHINI MAHTANI ARE ASSESSABLE AS INCOME FROM OTHER SOURCES RESPECTIVELY IN THE HANDS OF MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI. HOWEVER, PERUSAL OF COPY OF THEIR RESPECTI VE RETURNS FILED FOR AY 2007-08 SHOWS THAT THESE AMOUNTS HAVE NOT BEEN O FFERED FOR ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 3 TAXATION. IN THIS CONNECTION, THE AR OF THE ASSESSE E VIDE ORDER SHEET DATED 12/10/09 STATED AS UNDER:- IN RESPECT OF RS. 5,93,20,815/- CREDITED IN CAPITAL A/C AS PER BALANCE SHEET OF MR. MAHESH MAHTANI AND RS. 7,11,28 ,120/- CREDITED IN CAPITAL A/C AS PER BALANCE SHEET OF MRS . ROSHINI, IT IS EXPLAINED THAT THESE REMITTANCES HAVE NOT BEEN SHOW N AS INCOME IN THEIR RESPECTIVE CASES. THESE PERSONS HAVE NOT M AINTAINED BALANCE SHEET OF THEIR TOTAL ASSETS AND LIABILITIES SO FAR. BUT THEY MAINTAIN BALANCE SHEET OF ASSETS AND LIABILITIES IN INDIA WHICH ALONE IS FILED WITH THEIR RETURN OF INCOME FROM YEA R TO YEAR. CONSEQUENTLY, SOURCE OF THE AFORESAID AMOUNTS OF RS . 5,93,20,815/- AND RS. 7,11,28,120/- HAS NOT BEEN PA RT OF OR REFLECTED IN THEIR RESPECTIVE BALANCE SHEETS OR BOO KS OF ACCOUNT AT ANY POINT OF TIME, AS THESE ARE REMITTANCES FROM OU T OF INDIA. IT IS NOT POSSIBLE FOR ASSESSEE TO FURNISH ANY EXPLANATIO N REGARDING SOURCE OF OR MANNER OF ACQUISITION OF ASSETS THROUG H WHICH FINDS FOR REMITTANCES OF RS. 5,93,20,815/- AND RS. 7,11,2 8,120/0 AS AFORESAID IS CLAIMED. 4. THE AO OBSERVED THAT THE CASE OF THE ASSESSEE AS WELL AS OF MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI CENTERS ON THEIR CLAIM THAT SOURCE OF FUNDS FOR MAKING CAPITAL CONTRIBUTIO N IN THE ASSESSEE COMPANY WAS TRANSFER FROM COMPANIES IN WHICH MR. MA HESH MAHTANI AND MRS. ROSHINI MAHTANI WERE DIRECTORS, AND PROCEE DS OF FIXED DEPOSITS. HOWEVER, THERE ARE SEVERAL ISSUES IN THIS STORY. WHAT IS THE PROOF THAT THESE COMPANIES DO EXIST IN REALITY ? WH AT IS THE PROOF OF FINANCIAL CAPACITY OF THESE COMPANIES ? WHAT IS THE OCCASION FOR THESE COMPANIES TO REMIT MONEY IN FAVOUR OF MR. MAHESH MA HTANI AND MRS. ROSHINI MAHTANI IN A MANNER THAT MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI BECOME THE ABSOLUTE OWNERS OF THE F UNDS REMITTED BY THESE COMPANIES WHO OWNED THE FIXED DEPOSITS ? WH AT IS THE PROOF OF FINANCIAL CAPACITY OF THE PERSONS OWNING THE FIXED DEPOSITS ? WHAT IS THE OCCASION FOR SUCH PERSONS TO REMIT MONEY IN FAV OUR OF THE ABSOLUTE OWNERS OF THE FUNDS REMITTED BY THESE COMP ANIES ?. THE AO, FURTHER, OBSERVED THAT THERE COULD BE MANY OTHER RE LEVANT QUESTIONS WHICH NEED NOT BE ENUMERATED HERE. SUFFICE HERE TO SAY THAT THE ASSESSEE, BY NOT PRODUCING MR. MAHESH MAHTANI AND M RS. ROSHINI MAHTANI BEFORE HIM TO GIVE EVIDENCE AND NOT PRESENT ING THEMSELVES ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 4 BEFORE HIM, THE EXPLANATIONS FURNISHED BY THEM TO B E LIABLE TO BE OUT- RIGHTLY REJECTED. FINALLY, THE AO NOTED THE FOLLOWI NG FACTS:- A. THE RETURNS OF INCOME AND ENCLOSURES THERETO FIL ED BY MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI SHOW NO IND ICATION OF THEIR ASSOCIATION WITH COMPANIES IN UAE WHETHER AS SHAREHOLDER OR AS DIRECTOR. B. THE RETURNS OF INCOME AND ENCLOSURES THERETO FIL ED BY MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI SHOW NO IND ICATION OF ANY FIXED DEPOSITS OWNED BY THEM IN UAE. C. THE RETURNS OF INCOME FILED BY MR. MAHESH MAHTAN I AND MRS. ROSHINI MAHTANI DO NOT OFFER REMITTANCES CREDITED I N THEIR RESPECTIVE CAPITAL ACCOUNTS AS INCOME U/S 56(1)(VI) OF IT ACT. D. MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI ARE NOT ASSESSED TO TAX IN ANY COUNTRY OTHER THAN IN INDIA, AND THEREFORE, DO NOT HAVE ANY LEGITIMATE CLAIM FOR OWNERSHIP OF R ESOURCES OTHER THAN THOSE DISCLOSED IN RETURNS FILED IN INDIA. E. AS PER RETURNS FILED BY MR. MAHESH MAHTANI AND M RS. ROSHINI MAHTANI IN INDIA, THEIR FINANCIAL CAPACITY IS INSUF FICIENT FOR THE CLAIM OF HUGE AMOUNTS CLAIMED TO HAVE BEEN CONTRIBU TED BY THEM TOWARDS CAPITAL IN THE ASSESSEE COMPANY. 5. IN VIEW OF THE ABOVE FINDINGS, THE AO HELD THAT THE GENUINENESS OF ASSESSEES CLAIM THAT AMOUNTS OF RS. 3,95,17,00 0/- EACH WERE RECEIVED FROM MR. MAHESH MAHTANI AND MRS. ROSHINI M AHTANI RESPECTIVELY, TOTALING TO RS. 7,90,34,000/-, REMAIN S UNPROVED. IT IS OBVIOUS THAT NEITHER THE GENUINENESS OF TRANSACTION S NOR THE CAPACITY OF MR. MAHESH MAHTANI AND MRS. ROSHINI MAHTANI HAD BEEN PROVED BY THE ASSESSEE. AS THE ASSESSEE HAD BEEN UNABLE TO DI SCHARGE THE ONUS AND BURDEN PLACED UPON THE ASSESSEE U/S 68 OF THE A CT, THE TRANSACTIONS ARE HIT BY SECTION 68 OF THE ACT. ACCO RDINGLY, THE AO MADE THE ADDITION OF RS. 7,90,34,000/- U/S 68 OF TH E ACT. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT I T RECEIVED THE IMPUGNED SUM FROM THE TWO SHAREHOLDERS OUT OF WHICH 60,00,000 WAS REFUNDED TO THEM AS NO SHARES WERE ALLOTTED IN RESP ECT OF THAT. IT WAS ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 5 FURTHER SUBMITTED THAT THOUGH THE INCREASE IN THE S HARE CAPITAL WAS OF RS. 7,30,34,000/- THE AO MADE ADDITIONS OF RS. 7,90 ,34,000 INCLUSIVE OF THE AFORESAID REFUNDED AMOUNT. THE TWO SHAREHOLD ERS ARE NON- RESIDENTS INDIANS ASSESSED IN RESPECT OF PASSIVE IN COME IN INDIA. THEY HAVE SETTLED IN UAE FOR FIFTEEN YEARS AND HAVE ACTI VE BUSINESS IN THAT JURISDICTION. THE INCOME EARNED IN UAE IS WITHOUT B USINESS CONNECTION IN INDIA AND, THEREFORE, THE PARTICULARS OF THOSE INCOMES ARE NOT REQUIRED TO BE INCORPORATED IN THE ACCOUNTS MAINTAINED IN INDIA. THEY ARE REGULARLY ASSESSED IN INDIA AND THE IR INDIVIDUAL BALANCE SHEET FOR THE AY 2007-08 REFLECTS THEIR ASS ETS IN INDIA WHICH INTER-ALIA INCLUDED THEIR INVESTMENTS IN THE SHARES OF THE ASSESSEE COMPANY. THE ASESSSEE SUBMITTED BEFORE THE CIT(A) I N SUPPORT OF IMPUGNED DEPOSITS, I) CONFIRMATIONS OF THE SHAREHOL DERS ALONG WITH THEIR PAN, II) DETAILS OF BANK ACCOUNTS IN UAE FROM WHICH MONEY WERE TRANSFERRED TO NRE ACCOUNT IN INDIA, III) DETAILS O F THE NRE ACCOUNT WITH HDFC BANK AND THE SARSWAT BANK FROM WHICH THE CHEQUES WERE ISSUED TO IT FOR ALLOTMENT OF THE SHARES, AND IV) S OURCES OF THE SOURCE WERE ALSO EXPLAINED BY FURNISHING CONFIRMATION LETT ERS OF THE COMPANIES IN UAE AND THEIR RELATED BANK ACCOUNT STA TEMENTS. IT WAS SUBMITTED THAT THE SHAREHOLDERS RESPONDED TO THE SU MMONS ISSUED BY THE AO BY GIVING REPLIES BUT EXPRESSED THEIR INABIL ITY TO BE PERSONALLY PRESENT. THE ASSESSEE CONTENDED THAT THE ADDITIONS MADE BY THE AO WERE COMPLETELY UNJUSTIFIED AS PER LAW AND IN THE F ACTS OF THE CASE. FOR THIS CONTENTION, THE ASSESSEE RELIED UPON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS , 216 CTR 195 WHEREIN IT WAS HELD THAT EVEN IF THE SHARE APPLICAT ION MONEY WAS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES WERE GIVEN TO THE AO, THEN THE DEPARTME NT WAS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. RELYING ON SEVERAL DECISIONS OF VARIOUS HIGH C OURTS, THE ASSESSEE SUBMITTED THAT IT HAS BEEN LAID DOWN THAT MONIES RE CEIVED IN RESPECT OF SHARE CAPITAL OF THE COMPANY IS NOT LIABLE TO BE INCLUDED AS INCOME IN THE HANDS OF THE COMPANY UNDER SECTION 68 OF THE ACT AND IF THERE ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 6 WAS ANY DOUBT ABOUT THE GENUINENESS OF THE SOURCES OF INCOME OF THE SHAREHOLDERS THEN THE DEPARTMENT WAS FREE TO MAKE I NQUIRY IN THE ASSESSMENT OF THE SHAREHOLDERS BUT ADDITIONS CANNOT BE MADE IN THE HANDS OF THE ASSESSEE COMPANY. AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE ADDITION MAD E BY THE AO BY OBSERVING AS UNDER:- 2.5.7.IN THE INSTANT CASE THE APPELLANT IS A PRIVATE LTD. COMPANY AND THERE WAS NO PUBLIC ISSUE OF EQUI TY SHARES AS IN THE CASE OF LOVELY EXPORTS LTD. BEFORE THE APEX COURT. FURTHER, THE DEPARTMENT WAS AWARE OF THE ACTUAL PERSONS BEHI ND THE BOGUS SHAREHOLDERS. HERE THE ALLEGED SHAREHOLDERS E XIST AND THEY ARE CLAIMED TO HAVE SUBSCRIBED TO PREFERENCE SHARES UNLIKE EQUITY SHARES ON A PUBLIC ISSUE. HONBLE DELHI HIGH COURT WHOSE ORDER WAS UPHELD IN THE CASE OF LOVELY EXPORTS (SUPRA) HA STENED TO CLARIFY THAT IT CANNOT BE TRUE THAT IN CASE OF SHAR E CAPITAL NO ADDITIONS COULD BE MADE IF IT IS ESTABLISHED THAT T HE SHAREHOLDERS EXIST. IT MADE A DISTINCTION BETWEEN A PUBLIC ISSUE AND SHARES OF A PRIVATE LTD. COMPANY. A CAREFUL PERUSAL OF THE DE CISION OF THE HIGH COURT REVEALS THAT THE REASONING OF THE APEX C OURT APPLIES TO LARGE-SCALE SUBSCRIPTIONS TO THE SHARES OF A PUBLIC COMPANY WHERE THE LATTER MAY HAVE NO MATERIAL OTHER THAN TH E APPLICATION FORMS AND BANK TRANSACTION DETAILS TO GIVE SOME IND ICATION OF THE IDENTITY OF THESE SUBSCRIBERS. IT MAY NOT APPLY IN CIRCUMSTANCES WHERE THE SHARES ARE ALLOTTED DIRECTLY BY THE COMPA NY TO A CHOSEN FEW. THE HC HELD THAT THE AI IS DUTY BOUND T O INVESTIGATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER, TH E GENUINENESS OF THE TRANSACTION AND THE VERACITY OF THE REPUDIAT ION. 2.5.8 AS SAID BEFORE IN ORDER TO ENABLE THE AO TO I NVESTIGATE THE CREDITWORTHINESS OF THE MAHTANIS, I SPECIFICALLY AS KED THE APPELLANT WHETHER IT WOULD PRODUCE THE TWO SHAREHOL DERS FOR EVIDENCE BEFORE THE AO. THE APPELLANT EXPRESSED ITS INABILITY TO DO SO. THIS IS A VERY SERIOUS BREACH ON THE PART OF THE APPELLANT AND GOES TO THE ROOT OF THE CLAIM WHETHER THE ALLEG ED TWO SHAREHOLDERS ARE PARTY TO THE TRANSACTIONS. UNLIKE THE CASE OF THE LOVELY EXPORTS IT IS NOT A CASE OF A PUBLIC LIMITED COMPANY WHICH HAD RECEIVED SUBSCRIPTIONS TO THE PUBLIC ISSUE THRO UGH BANKING CHANNELS AND THE SHARES WERE ALLOTTED IN CONSONANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACT (REGULATION) ACT, 1956 AS ALSO THE RULES AND REGULATIONS OF THE DELHI STOCK E XCHANGE. THE AO HAS BROUGHT ON RECORD THE POOR FINANCIAL CAPAC ITY OF THE MAHTANIS BASED ON THE RETURNS OF INCOME FILED IN IN DIA. THEY HAVE SPECIFICALLY DENIED IN THEIR JOINT LETTER DATED 10/ 10/09 THAT THEY HAD GLOBAL INCOME OR GLOBAL BALANCE SHEET. IN THE A BSENCE OF GLOBAL INCOME THE CAPACITY OF THE MAHTANIS TO ADVAN CE SUCH HUGE SUMS IS HIGHLY UNACCEPTABLE. IT IS CLEAR FROM THE D ECISIONS IN THE CASES OF P MOHAN KALA (SUPRA) AND SUMATI DAYAL (SUP RA) THAT IT IS ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 7 NOT ENOUGH THAT IF A SUM IS RECEIVED THROUGH NORMAL BANKING CHANNELS OR EVEN THROUGH NRE A/C IT WAS LIABLE TO B E ACCEPTED AS GENUINE AND NOT LIABLE TO BE ASSESSED UNDER SECTION 68 OF THE ACT. IN THE INSTANT CASE THE BURDEN OF PROOF CAST ON THE APPELLANT U/S 68 OF THE ACT HAS NOT BEEN DISCHARGED AND THE INGRE DIENTS FOR INVOKING SECTION 68 OF THE ACT ARE PRESENT. THE AP PELLANT COMPANY HAS BEEN IN EXISTENCE SINCE 1996-97 AND THI S IS ENOUGH TO HOLD THAT THIS PART OF THE SHARE CAPITAL REPRESE NTED THE APPELLANTS OWN INCOME FROM UNDISCLOSED SOURCES. TH E APPELLANT HAD CONTENDED THAT A SUM OF RS. 60,00,000/- HAD BEE N REFUNDED OUT OF THE TOTAL DEPOSITS OF S. 7,90,34,000/- AND T HERE WAS OVER ASSESSMENT TO THAT EXTENT. I DO NOT AGREE AS HERE I S THE CASE OF GENUINENESS OF THE ENTIRE SUM OF RS. 7,90,34,000/- AND NOT A PART THEREOF. I, THEREFORE, CONFIRM THE ENTIRE ADDI TION MADE OF RS. 7,90,34,000/-. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE COMPANY RECEIVED AN AMOUNT OF RS. 7,90,34, 000/- FROM THE SHAREHOLDERS, NAMELY, MR. MAHESH MAHTANI AND HIS WI FE MRS. ROSHINI MAHTANI OF RS. 3,95,17,000/- EACH. IT IS SUBMITTED THAT THE SUM OF RS. 60,00,000/- BEING THE AMOUNT IN RESPECT OF WHIC H NO SHARES WERE ALLOTTED WERE REFUNDED TO THE SAID SHAREHOLDERS. IT IS POINTED OUT THAT ALTHOUGH THE SHARE CAPITAL IS RS. 73.34 LAKHS, THE AO MADE ADDITION OF RS. 790.34 LAKHS, WHICH IS INCLUSIVE OF THE SUM OF RS. 60.00 LAKHS REFUNDED. IT IS SUBMITTED THAT THE SHAREHOLDERS ARE NON-RESIDENTS INDIANS ASSESSED IN INDIA IN RESPECT OF PASSIVE INC OME IN INDIA AND FOR THE LAST 15 YEARS THEY HAVE SETTLED IN UAE AND HAVE ACTIVE BUSINESS IN THAT JURISDICTION. IT IS POINTED OUT THAT THE INCOM E EARNED IN UAE IS WITHOUT BUSINESS CONNECTION IN INDIA AND THEREFORE THE PARTICULARS OF THOSE INCOMES ARE NOT REQUIRED TO BE INCORPORATED I N THE ACCOUNTS MAINTAINED IN INDIA. IT IS FURTHER SUBMITTED THAT T HE SHAREHOLDERS ARE REGULARLY ASSESSED TO TAX IN INDIA AND THEY HAVE FI LED TAX RETURNS REGULARLY ALONG WITH CAPITAL ACCOUNT AND BALANCE SH EET AND THEIR INDIVIDUAL BALANCE SHEET FOR AY 2007-08 REFLECTS TH EIR ASSETS IN INDIA, WHICH INTER-ALIA INCLUDES THEIR INVESTMENTS IN THE SHARES OF THE ASSESSEE COMPANY. THE LEARNED COUNSEL SUBMITTED THA T THE ASSESSEE ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 8 HAS FILED ALL THE DOCUMENTS/INFORMATION BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HOWEVER, THE REVE NUE AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE SAME AND MADE ADD ITION U/S 68, WHICH IS NOT PROPER. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE AO ISSUED SUMMONS TO THE SAID SHAREHOLDERS AT THEIR INDIAN ADDRESS TO PERSONALLY PRESENT AND GIVE EVIDENCE, BU T THE SHAREHOLDERS EXPRESSED THEIR INABILITY TO PERSONALLY PRESENT FOR THE REASONS STATED IN THEIR LETTER DATED 02/06/10. IN SUPPORT OF THE C ASE OF THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPO N THE FOLLOWING PRECEDENTS:- 1. BHAV SHAKTI STEEL MINES (P) LTD. VS. CIT, [2010] 320 ITR 619 (DEL.) WHEREIN IT WAS HELD THAT THAT SINCE THE CIT( A) HAS NOT ONLY FOUND THAT THE IDENTITY OF EACH OF THE SHAREHOLDERS STOOD ESTABLISHED, BUT HAS ALSO EXAMINED THE FACT THAT EA CH OF THEM WERE INCOME-TAX ASSESSES AND HAD DISCLOSED THE SHAR E APPLICATION MONEY IN THEIR ACCOUNTS WHICH WERE DULY REFLECTED IN THEIR IT RETURNS AS WELL AS IN THEIR BALANCE SHEETS , THE TRIBUNAL WAS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THE CIT(A) HAD NOT CONSIDERED THE MATTER IN THE RIGHT PERSPECT IVE. 2. CIT VS. SAMIR BIO-TECH (P) LTD., [2009] 17 DTR ( DEL.) 224 WHEREIN IT WAS HELD THAT IDENTITY OF SUBSCRIBERS, G ENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF SUBSCRIBERS TO SHARES BEING ESTABLISHED, TRIBUNAL WAS JUSTIFIED IN DELETI NG ADDITION U/S 68. 3. ACIT VS, VENKATESHWAR ISPAT (P) LTD., [2009] 319 ITR 393 (CHHATTISGARH) WHEREIN IT WAS HELD THAT SHAREHOLDER S INVESTMENT WAS CONFIRMED DURING THE SUBSEQUENT YEAR AND DEPART MENT BEING FREE TO PROCEED AGAINST INDIVIDUAL ASSESSMENT S OF SHAREHOLDERS, ADDITION WAS NOT CALLED FOR IN THE HA NDS OF ASSESSEE COMPANY. 4. CIT VS. GP INTERNATIONAL LTD., [2010] 33 DTR 163 (P&H) WHEREIN IT WAS HELD THAT THE AO HAVING NOT DOUBTED THE IDENTITY OF THE PERSONS FROM WHOM THE ASSESSEE COMPANY HAS S HOWN ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 9 RECEIPT OF SHARE APPLICATION MONEY, IMPUGNED TRANSA CTIONS CANNOT BE TREATED AS NON-GENUINE MERELY BECAUSE SOM E OF THE APPLICANTS DID NOT RESPOND TO THE NOTICE ISSUED BY THE AO U/S 133(6) AND, THEREFORE, ADDITION WAS NOT SUSTAINABLE . 5. CIT VS. ORISSA CORPORATION (P) LTD., [1986] 159 ITR 78 (SC) WHEREIN IT WAS HELD THAT THE ASSESSEE HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN THE K NOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME-TAX ASS ESSES. THEIR INDEX NUMBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE, APART FROM ISSUING NOTICES U/S 131 AT THE INSTANCE OF THE ASSESSEE, DID NOT PURSUE THE MATTER FURTHER. THE RE VENUE DID NOT EXAMINE THE SOURCE OF INCOME OF THE SAID ALLEGE D CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY OR WERE SUC H WHO COULD ADVANCE THE ALLEGED LOANS. THERE WAS NO EFFORT MADE TO PURSUE THE SO-CALLED ALLEGED CREDITORS. IN THOSE CIRCUMSTA NCES, THE ASSESSEE COULD NOT DO ANYTHING FURTHER. IN THE PREM ISES, IF THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSEE H AS DISCHARGED THE BURDEN THAT LAY ON HIM, THEN IT COUL D NOT BE SAID THAT SUCH A CONCLUSION WAS UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE. 9. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ASSESSEE HAS FAILED TO PRODUCE THE PARTIES, NAMELY MR. MAHES H MAHTANI AND HIS WIFE MS. ROSHINI MAHTANI, FROM WHOM THE SHARE APPL ICATION WAS RECEIVED. HE FURTHER SUBMITTED THAT THE CIT(A) HAS CONSIDERED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F LOVELY EXPORTS (SUPRA) AND DISTINGUISHED THE SAME ON THE GROUND TH AT THE ASSESSEE IS A PRIVATE LTD. COMPANY WHEREAS THE ASSESSEE IN THE CASE OF LOVELY EXPORTS (SUPRA) WAS A PUBLIC LTD. COMPANY, THEREFOR E, THE SAID CASE RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO TH E FACTS OF THE ASSESSEES CASE. THE LEARNED DR RELYING ON THE DEC ISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. OASIS HOSPI TALITIES P. LTD. [2011] 333 ITR 119 (DELHI) SUBMITTED THAT CREDIT-WO RTHINESS HAS TO BE ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 10 PROVED BY THE ASSESSEE. HE POINTED OUT THAT THE HON BLE DELHI HIGH COURT HAS CONSIDERED IN THE SAID CASE, THE CASE OF CIT V. DIVINE LEASING AND FINANCE LTD. [2008] 299 ITR 268 WHEREIN IT WAS OBSERVED THAT IN THE CASE OF A PUBLIC ISSUE, THE COMPANY CONCERNE D CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDE NTITY AS WELL AS FINANCIAL WORTH OF EACH OF ITS SUBSCRIBERS. ON THE BASIS OF THE ABOVE OBSERVATION, HE SUBMITTED THAT IN CASE OF PVT. LTD. COMPANY LIKE ASSESSEE, IDENTITY, FINANCIAL WORTH OF EACH OF ITS SUBSCRIBERS MUST BE SATISFIED BEFORE THE AO. WITH THE ABOVE STRENGTH OF THE OBSERVATION, HE SUBMITTED THAT THE CASE OF LOVELY EXPORTS (SUPRA), ON WHICH RELIANCE PLACED BY THE ASSESSEE, HAS NO APPLICATION TO THE A SSESSEES CASE. HE FURTHER OBSERVED THAT IN CASE OF LOVELY EXPORTS, TH E HONBLE SUPREME COURT OBSERVED THAT THE DEPARTMENT IS FREE TO PROCE ED TO REOPEN INDIVIDUAL ASSESSMENTS IN CASE OF ALLEGED BOGUS SHA REHOLDERS IN ACCORDANCE WITH LAW AND, THUS, NOT REMEDILESS. IT I S, THUS, FOR THE AO TO MAKE FURTHER INQUIRIES WITH REGARD TO THE STATUS OF THESE PARTIES TO BRING ON RECORD ANY ADVERSE FINDINGS REGARDING THEI R CREDITWORTHINESS. THIS WOULD BE MORE SO WHERE THE ASSESSEE IS A PUBLI C LTD. COMPANY AND HAS ISSUED THE SHARE CAPITAL TO THE PUBLIC AT L ARGE, AS IN SUCH CASES THE COMPANY CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDENTITY AND THE FINANCIAL WORTH OF THE SUBS CRIBERS. FURTHER, THE INITIAL BURDEN ON THE ASSESSEE WOULD BE SOMEWHAT HE AVY IN CASE THE ASSESSEE IS A PVT. LTD COMPANY WHERE THE SHAREHOLDE RS ARE FAMILY FRIENDS/CLOSE ACQUAINTANCES, ETD. IT IS BECAUSE OF THE REASON THAT IN SUCH CIRCUMSTANCE, THE ASSESSEE CANNOT FEIGN IGNOR ANCE ABOUT THE STATUS OF THE PARTIES. THE LEARNED DR, IN VIEW OF T HE SAID SUBMISSIONS, PLEADED THAT THE ORDER OF THE CIT(A) MAY BE UPHELD. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W AS WELL AS DECISIONS CITED. THE ASSESSEE HAS RECEIVED CAPITAL CONTRIBUTION FROM MR. MAHESH MAHTANI AND HIS WIFE MRS. ROSHINI MAHTAN I OF RS. 3,95,17,000/- EACH, TOTALING RS. 7,90,34,000/-. ALL THE DETAILS IN ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 11 RESPECT OF THE SAID AMOUNTS WERE FURNISHED BEFORE T HE AO AND THE PAN NOS. IN RRESPECT OF THE SAID PARTIES WERE ALSO FURN ISHED BEFORE THE AO. RETURNS OF INCOME PERTAINING TO THE SAID PARTIES FO R THE AY 2005-06, 2006-07 & 2007-08 WERE ALSO SUBMITTED BEFORE THE AO . THE MAIN GRIEVANCE OF THE AO WAS THAT IN RESPECT TO NOTICE U /S 133(6), THE ASSESSEE HAS NOT PRODUCED THE PARTIES BEFORE HIM. I N SO FAR AS THE SOURCES OF THE INCOME ARE CONCERNED, THE AO WAS OF THE VIEW THAT THEIR ASSOCIATION WITH THE COMPANIES IN UAE AS SHAR EHOLDERS OR AS A DIRECTORS ARE NOT CLEAR AND THE SHARE MONEY RECEIVE D FROM THE SAID PARTIES CAPACITY IS NOT CLEAR WHETHER THEY HAVE DE POSITS IN UAE OR NOT. THE SAID PARTIES ARE NOT ASSESSED TO TAX ANYWH ERE EXCEPT IN INDIA. AS PER THE RETURNS OF INCOME, THEIR FINANCIA L CAPACITY IS INSUFFICIENT FOR THE CLAIM OF HUGE AMOUNTS CLAIMED TO HAVE BEEN CONTRIBUTED BY THEM TOWARDS CAPITAL IN THE ASSESSEE COMPANY. IN VIEW OF THE ABOVE FINDINGS, THE AO CAME TO THE CONC LUSION THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS LIES ON HIM U/ S 68, THEREFORE, THE AO BY INVOKING THE SECTION 68 MADE THE ADDITION OF THE SAID CAPITAL CONTRIBUTION RECEIVED FROM THE SAID PARTIES . THE CIT(A) CONFIRMED THE ORDER OF THE AO ON THE GROUND THAT TH E ASSESSEE HAS FAILED TO PRODUCE THE PARTIES BEFORE THE AO AND THE CASE RELIED UPON BY THE ASSESSEE LOVELY EXPORTS (SUPRA) HAS NO APPLI CATION TO THE ASSESSEES CASE AS THE ASSESSSEE BEING A PVT. LTD. COMPANY. WE FIND THAT THE IDENTITY OF THE PARTIES WAS NOT DISPUTED B Y THE AUTHORITIES BELOW AND THE SHARE MONEY RECEIVED THROUGH BANKING CHANNELS AND THEIR RESPECTIVE BANK ADDRESSES AND OTHER DETAILS W ERE SUBMITTED. THE RETURNS OF INCOME OF THE PARTIES FROM AY 2005-06 TO 2007-08 WERE FILED AND THE SOURCE OF THE INCOME WAS ALSO EXPLAIN ED VIDE PAGE 14 OF THE PAPER BOOK. IN OUR CONSIDERED OPINION, THE ASSE SSEE HAS DISCHARGED THE ONUS LIES ON HIM, THEREFORE, THE AUT HORITIES BELOW HAVE NOT JUSTIFIED IN MAKING THE ADDITION INVOKING SECTI ON 68 OF THE ACT, BY HOLDING THAT THE ASSESSEE FAILED TO FULFIL THE COND ITIONS U/S 68, SUCH AS, TO PROVE THE IDENTITY OF THE PARTIES, CREDITWOR THINESS OF THE PARTIES AND GENUINENESS OF THE TRANSACTIONS. AS FAR AS THE CREDITWORTHINESS IS ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 12 CONCERNED, THE ASSESSEE HAS GIVEN ALL THE DETAILS O F THE SOURCES OF THE PARTIES AT PAGES 14 & 15 OF THE ASSESSEES PAPER BO OK, WHICH ESTABLISHED THAT THE PARTIES ARE DIRECTORS OF VARIO US COMPANIES IN UAE. IN CASE THE AO IS IN ABOUT THE GENUINENESS OF THE TRANSACTIONS OF THE PARTIES, HE HAS EVERY RIGHT TO INVESTIGATE/E NQUIRY ON THE SHAREHOLDERS TO BRING THE FACTS ON RECORD, HOWEVER, NO SUCH ENQUIRY WAS MADE BY THE AO, BUT, SIMPLY DOUBTED THE IDENTIT Y OF THE PARTIES, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION S. IN OUR CONSIDERED VIEW, THE AO HAS NOT JUSTIFIED IN MAKING ADDITION U/S 68 WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE, WHICH SUPPORT THE CASE OF THE ASSE SSEE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE ADDITION OF RS. 7,90,34,000/- MADE BY THE AO U/S 68 ON ACCOUNT OF SHARE APPLICATI ON MONEY. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS A LLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (R.S. SYAL) (V. D URGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH AUGUST, 2011 KV ITA NO. 6397/M/2010 M/S SHAMK INTERNATIONAL PVT. LTD. 13 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.