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Section 68 in The Companies Act, 1956
The Companies Act, 1956
Cit vs D.P. Sandu Bros. Chembur (P) Ltd. on 31 January, 2005
Dy. Cit vs Divya Investment (P) Ltd. on 13 December, 2007
The Income- Tax Act, 1995

Income Tax Appellate Tribunal - Indore
Gagan Industries Pvt. Ltd., ... vs Assessee on 16 July, 2012

1

IN THE INCOME TAX APPELLATE TRIBUNAL

INDORE BENCH, INDORE

BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER

And

SHRI R.C. SHARMA, ACCOUNTANT MEMBER

ITA No.230/Ind/2012

A.Y. 2005-06

Gagan Industries Private Limited

Indore

PAN - AACCG 0691E :: Appellant

Vs

Assistant Commissioner of

Income Tax 5(1), Indore :: Respondent

Appellant by Shri C.P. Rawka

Respondent by Shri R.A. Verma

Date of hearing 12.07.2012

Date of pronouncement 16.07.2012

O R D E R

PER JOGINDER SINGH, judicial member

The assessee is aggrieved by the impugned order dated29th

February, 2012 on the ground that the learned CIT(A) erred in

confirming the addition made on account of share application 2

money received from Optimates Textiles Industries Limited on

account of unexplained income u/s 68 of the Act amounting to

Rs.5 lacs and Rs. 8 lacs from M/s Money Panny Finance Limited.

2. During hearing of this appeal, we have heard Shri C.P.

Rawka, ld. Counsel for the assessee and Shri R.A. Verma, learned

Senior DR. At the outset, the learned Senior DR pointed out

that the impugned issue is covered against the assessee by the

decision of this Bench of the Tribunal in the case of M/s Agrawal

Coal Corporation. This factual matrix was not controverted by

the assessee.

3. We have considered the rival submissions and perused the

material available on record. The facts, in brief, are that the

assessee declared nil income in its return filed on 31st October,

2012. The case was selected for scrutiny, therefore, notices u/s

143(2) and 142(1)(ii) were issued to the assessee to which

assessment proceedings were attended by the assessee. In the

balance sheet, the assessee reflected Rs. 5 lacs to be received as

share application money from M/s Optimate Textiles Limited and

the said company was found involved in rampant share trading

manipulations and was delisted in all stock exchanges. On

perusal of ROC documents and IT returns, the company 3

showed two addresses of Mumbai on which notices u/s 133(6) of

the Act were issued and the same were returned unserved. To

confirm the real status, a commission was issued to the ADIT

(Inv.), Mumbai to verify the genuineness of the company.

Identical report came that the company named M/s Optimate

Textiles Limited does not exist at the given address. Show cause

notices of SEBI's investigating department were issued and the

observation has been duly mentioned from page 2 onwards of the

assessment order. Ultimately it was found by the Assessing

Officer that the ultimate beneficiaries introduced cash in

accounts such as M/s Sahayata Marketing and then transferred

to entities like M/s Optimate Textiles Limited or HCL in the form

of cheque and from there it reached to the ultimate beneficiaries

in the form of share application money or unsecured loans. The

whole process of layering was done only to give this money

laundering activity a colour of genuineness. In the absence of

identity, credit worthiness and genuineness of such transactions,

the share application of Rs. 5 lacs was treated as unexplained

income u/s 68 of the Act. Identical is the situation in the case of

Money Panny Finance Limited as is evident from para 3 (page 4)

onwards of the assessment order. On appeal, the learned CIT(A) 4

affirmed the stand of the learned Assessing Officer. Even before

the learned CIT(A), identical situation remained and the assessee

could not substantiate its claim. The identical issue reached to

the level of the Tribunal of the said companies and it was found

that these companies are fictitious and a circuitous route was

opted by the beneficiaries and these companies were found to be

a device to give the colour of own money as genuine in the form

of issuing cheques. The relevant portion from the order dated

31.10.2011 in the case of M/s Agrawal Coal Corporation P. Ltd.

and others is reproduced hereunder :-

" 2. During hearing of these appeals, we have heard Shri P.M. Chaudhary and Shri Ajay Tulsiyan, the learned counsels for the assessee and S/Shri Keshav Saxena, Shri R.K.Chaudhary, Shri K.K. Singh, learned Commissioners of Income Tax along with Shri Arun Dewan, learned Senior DR. The learned representatives from both the sides contended that the facts and the issue regarding share application money involved in these appeals is identical as the share capital and share premium was alleged to be received from Hindustan Continental Limited and Optimates Textile Industries Limited and other concerns as applicable to the respective appeals.

3. Since the facts are identical, therefore, these appeals can be disposed of by a common and consolidated order. We would like to deal with ITA No. 151/Ind/2009 first. The facts, in brief, are that the assessee is a private limited company engaged in the business of trading in coal. The assessee company, in the year, under consideration, entered in power generation with installation of two wind mills. The assessee declared income of Rs. 83,46,090/- in its return filed for the assessment year 2005-06 on 30.10.2005. During scrutiny proceedings the Assessing Officer noted that Hindustan Continental Limited (in short hereinafter as 'HCL') applied for 40,000 shares of the assessee company on the face value of Rs. 10/- each and premium of Rs.90/- per share. Similarly, Optimates Texiles Industries Limited (in short hereinafter as 5

'OTIL') also applied for 10,000 shares of the same face value and the premium per share. The learned Additional CIT (Assessing Officer), referred to the report of ACIT 5(1), Indore, wherein it was informed that the investigation carried out by him in some other cases also found that HCL and OTIL are not the genuine companies and these merely exist on papers. Such report finds place in the assessment order. This report was confronted to the assessee company, during the assessment proceedings, and after considering the reply the learned Assessing Officer concluded that the alleged share capital, claimed to be applied by these companies, is unexplained, therefore, the same was added to the income of the assessee company. The relevant portion from the assessment order is extracted below :-

" The contention of the assessee is not acceptable. Assessee has relied upon the decision of Hon'ble I.T.A.T., Indore Bench, in case of ACIT vs. Kalani Industries Ltd. the said decision was not acceptable to the department and is being contested before Hon'ble High Court of M.P. assessee has tried to prove genuineness of transaction by furnishing confirmation, copy of bank account and acknowledgement of return. It has also furnished various decision in support of its contentions. But it is evident from the investigation made by ACIT 5(1), Indore that both these company are not existing companies in the real sense. These companies are paper companies only and exist nowhere and were used to give accommodation entries to various parties who want to launder their unaccounted money in the guise of share application or unsecured loan or long term capital gain.

The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the assessee to establish depositor's identity, creditworthiness and genuineness of transaction. Assessee in its written submission stated that company has received share application money of Rs. 40,00,000/- from Hindustan Continental Ltd. 19, Shubh Kamna Apartment, Gul Bazar, Jabalpur. As per the report of the ACIT 5(1), Indore, it is clear that no such company exist at the given address. The creditworthiness of the company has also not been established in view of the fact that there is huge inflow and outflow of fund in the Bank account without any logic. There is huge cash deposit in the Bank account of Hindustan Continental Ltd. maintained UTI Bank Ltd. copy of which is filed by the assessee in support of its contention. The company is not existing in real sense the genuineness of transaction is also doubtful. Since assessee failed established identity, creditworthiness and genuineness of transaction, credit in the 6

account of the assessee on account of share application money from Hindustan Continental Ltd. Rs. 4,00,000/- and share premium amount of Rs. 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income.

Similarly, assessee has tried to establish identity of M/s Optimates Textile Industries Ltd., but it is evident from the report of the ACIT 5(1), Indore that company is also a paper company used to providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecured loans. Since assessee fails to establish identity, creditworthiness and genuineness of the transactions, share application money credited on account of M/s Optimates Textile Industries Ltd. Rs. 1,00,000/- share premium Rs.9,00,000/- is treated unexplained u/s 68 and added back to taxable income. Total addition under this head is Rs. 50,00,000/-"

4. On appeal before the ld. first appellate authority, the Ld. Counsel for assessee preferred written submissions dealing with each finding of the learned Assessing Officer and placed reliance upon certain judicial pronouncements. However, learned Commissioner of Income Tax (Appeals) did not agree with the submissions of the assessee by holding that the assessee has not established the genuineness of credits introduced in the form of share capital and thus confirmed the addition.

5. Before us, the whole thrust of arguments on behalf of the assessee is that all the ingredients of section 68 were fulfilled by the assessee whereas the crux of arguments on behalf of the revenue is that even the identity of these companies was not established by the assessee and these companies merely exists on papers. It was also contended that the notices issued to these parties at the addresses supplied by the Ld. Counsel for assessee returned unserved with the remark that no such companies ever 7

existed at the given addresses. The Inspector was deputed to know the whereabouts of these companies who also reported that no such companies were in existence at the given address. Before coming to any conclusion, we are reproducing hereunder the relevant provisions of section 68 of the Act which deals with cash credits :-

"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."

6. Before us, the Ld. Counsel for assessee submitted in regard to the correctness and validity of the addition made by AO u/s 68 credits in respect of share capital and share premium received from two companies viz M/s Hindustan Continental Ltd (Rs 40 Lacs) & From M/s Optimat Textile Industries Ltd ( Rs 10 Lacs), that the present appeal relates to AY 2005-06 , in respect of which the assessee has filed its return of income on 31/10/05 declaring total income at Rs 83,46,090/- (copy of computation & Acknowledgment of return at Page 1 to 3 of the compilation, copy of Annual return containing Balance Sheet , P& L A/c etc at Page 4 to 23 and Copy of Tax Audit Report at Page 24 to 43 of the compilation). During the course of the scrutiny proceedings, the Ld. Counsel for assessee filed details in respect of increase in share capital vide replies dated 16/10/07 (Page 47 to 49 ) of compilation , reply dated 7/12/07 (Page 50 to 54) , reply dated 17/12/07 (Page 55 to 58) and reply dated 28/12/07(Page 60 to 64) of the compilation along with documents (Page 67 to 96). The Learned AO vide his order of assessment dated 28/12/07, relying upon some report of ACIT 5(1) Indore, in some other cases, report of Inspector, who was deputed to knows the whereabouts of these companies and the report of the postal department that no such companies were existing at the given addresses and came to the conclusion that the identity of these companies, M/s Hindustan Continental Ltd & M/s Optimat Textiles Industries Ltd formerly known as Priyansh Sari Ind Ltd is not established. Relying upon these reports, the Assessing Officer came to the conclusion that the companies are paper companies only, not existing in real sense. The Ld. Counsel for assessee submitted that it is pertinent to note that no independent enquiry has been conducted by Assessing Officer in the case of assessee nor any summons etc was issued by Assessing Officer to the aforesaid companies, thus, no attempt has been made by Assessing Officer on his part to verify the existence and 8

identity of these two companies with reference to voluminous evidence placed on record by the present assessee to prove the identity and capacity of these two companies to invest their money in share capital of assessee company. The Ld. Counsel for assessee has also claimed that the transaction has been carried through banking channels, which prima facie proves the genuineness of the transaction. He submitted that as such the assessee has placed on record the voluminous material towards discharge of its initial burden to prove the identity and capacity of the share holder companies as also the genuineness of the transaction. The Ld. Counsel for assessee invited our attention by claiming that following information and documents discharged its primary burden .

"Names and addresses of the share holders along with details of their PAN furnished along with reply dated 7/12/07.

A list of fresh share capital received during the year along with names and address of the share holders and PAN again given along with reply dated 17/12/07 on demand from AO . Copies of Board resolution and share application Forms of all share holders including the above two companies also filed along with the reply."

The Ld. Counsel for assessee submitted that various documents for above two companies were filed before the Assessing Officer to prove the identity, capacity and genuineness of the transactions but the Assessing Officer has brushed aside the same and merely relying upon the report of another authorities held that the companies in question are paper companies and not existing in real sense and has made the aforesaid addition u/s 68 of the IT Act, without application of mind.

7. So far as the legal position in respect of applicability of section 68 to the credits in respect of share application money/ share capital credits towards share application money/ share capital is concerned, the Ld. Counsel for assessee submitted that it has taken different turns. He submitted that various decisions have two aspects i.e. (i) Regarding applicability of section 68 to such credits and (ii) If section 68 is applicable, then the extent of burden on assessee.

8. Regarding applicability of section 68 to such credits, the Ld. Counsel for assessee relied upon the following decisions :-

1. Stellar Investment; 192 ITR 287 (Del)

2. Sophia Finance Limited; 205 ITR 98 (Del)

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3. CIT V. Lovely Exports Pvt. Ltd.; 216 CTR (SC) 195

Inviting our attention to the aforesaid judgments, the Learned Counsel for assessee submitted that a combined reading of all the above decisions viz the decision of Delhi High Court , which has been affirmed by Supreme Court in the case of Stellar Investment, read with the later decision of Supreme Court in case of Lovely Exports shows that even if such amounts are received by such assessee company from the alleged bogus share holders, no addition u/s 68 can be made in the hands of the company. It was canvassed that the Hon'ble Delhi High Court has held that if the assessments of the persons who are alleged to have really advanced money is sought to be reopened, that would have some sense but the amount of increased capital cannot be added in the hands of the company itself .

9. The Ld. Counsel for assessee further submitted that the law laid down by the Supreme Court is binding on all courts, Tribunals and authorities under Article 141 of the Constitution of India and no addition can be made in respect of the amount invested by the aforesaid two companies. It was further submitted that even if it is assumed without admitting that the said share holder companies are non existing companies, no addition could be made in respect of the amounts invested by the aforesaid two companies. He invited our attention to the decision of Supreme Court in CIT Vs Stellar Investment Co Ltd (supra) being on dismissal of Civil Appeal arising out of the decision of Delhi High Court, which constitutes affirmation of the decision and amounts to the declaration of law. It was canvassed that similarly the order of the Hon'ble Supreme Court, dismissing the SLP in the case of Lovely Exports Pvt Ltd (supra), also has a binding effect for which reliance was placed upon following decisions :-

1. Kunhayammed & Others vs State of Kerala & Another reported in 245 ITR 360 where their Lordships' have held that if the order refusing special leave to appeal is a speaking order i.e it gives reason for refusing the grant of leave , then the order has two implications. Firstly , the statement of law contained in the order is declaration of law by Supreme Court within the meaning of Article 141 which will obviously be binding on all courts and Tribunals in India and certainly the parties thereto . Secondly other then declaration of law , whatever is stated in the order are findings recorded by Supreme Court which would be binding on the parties and the courts, Tribunal or authorities whose orders was under challenge .

2. S Shanmugavel Nadar vs State of Tamilnadu reported in 263 ITR 658 . Their Lordships' have held that a summary dismissal by Supreme Court without laying 10

down any law is not a declaration of law envisaged under article 141 but when reasons are given, the decision of the Supreme Court would be binding on all courts within the territory of India

3. Snowcem India Ltd vs DCIT reported 313 ITR 170(Bom)

where their Lordships' have held that once the appeal against the judgment of the High Court is dismissed , it can be said that the decision of the High Court has been affirmed by the Supreme Court

10. The Ld. Counsel for assessee, submitted that in view of the legal position settled by the Hon'ble Supreme Court against the judgment of Delhi High Court in the case of Stellar Investment (supra) and dismissal of SLP against judgment of Delhi High Court in case of Lovely Exports (P) Ltd (supra), the proposition of law that even if it is assumed that some of the share holders are bogus, no addition can be made u/s 68 of the Act in the hands of assessee company, which is binding on all Courts including this Tribunal. He, therefore, submitted that assuming without admitting that as held by AO the above two companies viz Hindustan Continental Ltd and Optimat Textiles Industries Ltd are considered as non-existent companies, in that event also, no addition u/s 68 could be made in the hands of the assessee company, for which further reliance was placed on the decision of Delhi High Court in the case of CIT Vs Aanchal Investment Co Ltd reported in 268 ITR211 wherein Delhi High Court has applied decision in the case of Stellar Investment and on that basis upheld the order of Tribunal.

11. The Ld. Counsel for assessee further submitted that recently the Hon'ble Delhi High Court applied the decision of Lovely Exports (supra) in the cases of CIT Vs Jagat Diagnostics Pvt Ltd., CIT Vs HLT Finance Pvt. Ltd. and CIT Vs Meritons Tower Pvt Ltd.(unreported) which shows that even the Delhi High Court is treating the decision of Supreme Court as binding precedent and not following the Full Bench decision in case of Sophia Finance (supra). He further invited our attention to the following decisions applying the principle laid down by the Hon'ble Supreme Court in the case of Lovely Exports (supra) :-

(I) ACIT vs Vekateshwar Ispat Pvt Ltd reported in (2010) 14 ITJ 83 (Chhatisgarh).

(ii) ACIT vs Hitkarni Prakashan Ltd reported in (2010) 14 ITJ 689 (I.T.A.T., Jabalpur).

(iii) ACIT Vs M/s Shri kela Prakashan Pvt Ltd reported in (2010) 14 ITJ 539 (I.T.A.T., Indore)

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12. So far as application of section 68 of the Act is concerned, the Ld. Counsel for assessee on the issue of burden of the assessee, submitted that assuming without admitting that the view expressed by the Full Bench of Delhi High Court in case of Sophia Finance Ltd (supra) still holds good and the provisions of section 68 are applicable to the credits in respect of share application money/ share capital , all that is required to be done is that the assessee is required to prove the existence of the share holders because as held by the Full Bench of the Delhi High Court, if the share holders exists then, possibly no further enquiry needs to be made. He, therefore, submitted that as to the existence of the share holders, of course, the assessee is required to place the primary evidence and discharge the primary burden, for which reliance was placed on the following decisions .

1. "CIT Vs Divine Leasing & Financing Ltd reported in 158 Taxmann 440 (Del), wherein their Lordships' have held that a distillation of the precedents yields following propositions of law in the context of section 68. The assessee has to prima facie prove -(i) the identity of the creditor/ subscriber (ii) the Genuineness of the transaction ,viz, whether it has been transmitted through banking or other indisputable channels (iii) the credit worthiness or financial strength of the creditor/subscriber (iv) if relevant details of address or PAN Identity are furnished to the department along with the copies of share holder register, share application Form , share transfer register etc , it would constitute acceptable proof or acceptable explanation by assessee . Further ,(i) the department would not be justified in drawing an adverse inference only because the creditor / subscriber fails or neglect to respond the notices (ii) the onus would not stand discharge if the creditor / subscriber denies or repudiate the transaction set up by assessee nor should the AO take such repudiation on face value and construe it , without more evidence against the assessee (iii) The AO is duty bound to investigate the credit worthiness of the creditor / subscriber , the genuineness of the transaction and veracity of the repudiation . In that case , their Lordships' upheld the order of Tribunal holding that the AO had not brought any positive material or evidence to indicate that the share holders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources ."

2. CIT Vs Dwarkadhish Investment (P) Ltd reported in 167 Taxmann 321 (Del)

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3. CIT Vs Dwarkadhish Financial Services reported in 148 Taxmann 54 , where it was held that in view of the evidence to establish that identity of share holders such as affidavits , copies of the share application forms, confirmation from applicant companies copies of Board resolution, details of cheque Nos., branch and address of the branch through which the investments are made along with the fact that share holders are tax payers, it was held that it could not be presumed that the share holders, who are assessed to tax, are not in existence .

4. CIT Vs Gangor Investment Ltd reported in 179 Taxmann , wherein the High Court held that the assessee had filed subscription Form for each of investors. The said subscription Form contained details, which set out not only the identity of subscriber, but also gave information with respect to their addresses as well as PANs . During scrutiny AO had also asked for and was supplied with a copy of statement of bank account of the subscriber.The payments were made by cheques. In view of this the court held that no addition could be made u/s 68 because assessee has discharged the onus in respect of veracity of the transactions .

5. CIT Vs KC Fibers Ltd reported in 187 Taxmann 53 ( Del), wherein it is held that no material is brought by AO to hold that share holders companies are umbrella company or have any relation with each other and the amount cannot be regarded as undisclosed income of the recipient assessee company. It also held that it is not for the assessee company to probe as to the source . It was for AO to enquire into the affairs of the investor company Their Lordships' have applied the ratio of the decision in case of Lovely Exports Pvt Ltd (supra) .

6. CIT Vs Dolphine Canpack Ltd 283 ITR 190 ( Del) ---- share application money - Tribunal while observing details including confirmation details of bank account, PAN of subscriber and that payments made by cheque - justified in deleting addition u/s 68. Although the Lordships' applied decision in Sophia Finance Ltd , they came to the conclusion that the scope is limited to examining the existence of share holders and since the assessee has furnished sufficient material to discharge the onus , deletion of addition was correct .

7. CIT vs Down Town Hospitals Pvt Ltd reported in 267 ITR 489 (Gauhati) held that the assessee filed details regarding source of funds of the party and their IT File Numbers etc - no addition u/s 68 is permissible where share holders are identified and it is established that they had invested the money in purchase of shares . (Page 127 to 131 of judgment compilation).

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8. CIT Vs ILLAC Investment Pvt Ltd reported in 287 ITR 135 held that assessee satisfactorily established identity of share holders, the addition u/s 68 rightly deleted - no substantial question of law arises ( Page 146 & 147 of judgment compilation) .

9. DCIT Vs Rohini Builders reported in 256 ITR 360 - assessee furnished addresses of all creditors along with GIR No / PAN as well as confirmations along with copies of assessment orders in case of individual creditors wherever available and copies of returns filed by creditors in other cases . All loans received and repaid by account payee cheques rightly deleted . ( Page No 116&117 of Judgment compilation)

10. CIT VS shri Barkha Synthetics Ltd reported in 270 ITR 477 (Raj) --- assessee discharged its initial burden in respect of six out of seven companies but revenue failed to discharge its burden as it did not hold any enquiry into genuineness, addition rightly deleted . ( Page No 107 to 115 of judgment compilation)

11. Shree Barkha Synthetic Ltd. vs ACIT reported in 283 ITR 377 (Raj.) the principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channels, the assessee has to prove the existence of the person in whose name share application is received . Once the existence of the investor is proved, it is no further burden of the assessee to prove whether that person himself invested the money or some other person made investment in the name of that person . The burden then shifts to the revenue to establish that such investment has come from assessee company itself. ( decision in case of CIT VS shri Barkha Synthetics Ltd (supra) followed).

12. Without prejudice to above contention based on Lovely Export's case, the Ld. Counsel for assessee submitted that an analysis of all the above judgments thus goes to show that even if the principle laid down by the Hon'ble Delhi High Court in Sophia's case (supra) is held as applicable even then the assessee's burden is restricted to establishing the existence of shareholders and once that is established , the assessee is not required to prove anything further.

13. The Ld. Counsel for assessee submitted that as per the principle laid down in the case of Sophia (supra) the assessee has discharged the onus lay upon it. It was, therefore, submitted by the Ld. Counsel for assessee that even if the principle laid down in the case of Sophia Finance Ltd (supra) is to be applied then even in such case also, the assessee is only required to prove the existence of the share holders and the fact that the money has been invested by share holding company and not by the assessee company. It was 14

submitted that since various documents were submitted by the assessee, primary burden which lay upon the assessee, has been discharged. It was strongly contended that the Tribunal in the case of Kalani Industries Limited (2007) 8 ITJ 165 has accepted the existence and identity of these companies, apart from the question of discharge of primary onus and shifting of burden to the department, which has miserably failed to discharge its onus. He further submitted that there is another fact that both these companies viz M/s Hindustan Continental Ltd. & M/s Optimat Textiles Industries Ltd have been held to be existing companies on the basis of the similar evidence by the earlier Bench of this Tribunal. It was also submitted that the decision of the higher Forums has to be followed for which reliance was placed upon the following decisions :-

1. Kamalakshi Finance Corporation Ltd; 55 ELT 433

2. M/s Agrawal Warehousing & Leasing Ltd reported in 257 ITR 235 (MP)

3. Dunlop India Ltd. reported in 154 ITR 172(SC)

14. The Ld. Counsel for assessee asserted that in view of above judgment in case of ACIT vs Kalani Industries Ltd (supra), the identity and existence of both the companies cannot be disputed. As to the investment of the money, he submitted that there is no material to show that the said money has flown from the assessee company. He further submitted that it is well established principle of law that once the transaction has taken place through banking channels, the genuineness of transaction cannot be disputed. He submitted that it is also well established proposition of law that the assessee is not required to prove source of a source. He, therefore, submitted that in this view of the matter, the addition made by the AO is clearly unsustainable in law on all counts .

15. As regards the question of discharge of assessee's burden in regard to section 68, the Ld. Counsel for assessee submitted that even on general principles, it is well established that the assessee has only the primary burden to prove identity, capacity and genuineness. In this regard he placed reliance on the following decisions .

1.Sarogi Credit Corporation vs CIT reported in 103 ITR 344 . The assessee has only the primary burden to prove the identity of creditor and placed material pointing out that the entry is not fictitious . It is not for the assessee to explain further as to how and in what circumstances the third party obtained money or how or why he came to made an advance as loan to the assessee .

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2.Additional Commissioner Vs Bahari Brothers Pvt Ltd 154 ITR 244

3 Ashok Lal daga vs CIT reported in 220 ITR 452 (MP).

4.CIT vs Real time marketing Pvt Ltd 306 ITR 35 (Del)

5.CIT VS Meta Chem Industries reported in 245 ITR 160

6.Nemichand Kothari Vs CIT 264 ITR 254 (Gauhati)

7.PK Sethi Vs CIT 286 ITR 318 ( Gauhati)

8.CIT VS Barjatiya Children Trust 225 ITR 640

9.CIT vs Laul Transport Corporation 180 Taxmann 185 (P&H)

10.Aravalii Trading Co Vs ITO 187 Taxmann 338 (Raj) . The Ld. Counsel for assessee further submitted that the learned CIT has merely put the seal of approval without appreciating the legal position in regard to the credits for share application money/share capital. He canvassed that it is important to note that inspite of referring to the evidence placed on record by the assessee in discharge of its burden to prove the identity and existence of the company, the Learned CIT instead of applying and following the decision of this ITAT in the case of Kalani Industries Ltd (supra) has tried to find faults with the system of registration of companies, issuing PAN or about the opening of bank account etc . He submitted that the approach of the CIT (A) to say the least appears to be perverse in the matter. As to the duty of the AO to make enquiries by pursuing the matter and by making independent enquiries, the Ld. Counsel for assessee relied upon the decision of Supreme Court in the case of CIT Vs Orissa Corporation Pvt Ltd reported in 159 ITR 78, wherein their Lordships have held that when it is in the knowledge of the revenue that the creditors are Income Tax assessees, their Index Numbers are in the file of revenue, no addition could be made. The Ld. Counsel for assessee contended that the department apart from issuing notices u/s 131 of the Act, did not pursue the matter further and no effort was made to pursue the alleged creditors. He further submitted that the AO has made no effort on his part to even issue the summons u/s 131 to the aforesaid companies nor any proper enquires have been made from Registrar of companies to find out all details about the companies in question. The Ld. Counsel for assessee pointed out that these companies are incorporated and registered under the Companies Act, 1956 and the Registrar of Companies is a statutory 16

authority possessing details of companies. All registered companies are required to make statutory compliance and file periodic returns etc under Companies Act before the Registrar. Reliance is also placed on the decision of Gauhati High Court in the case of Khandelwal construction vs CIT reported in 227 ITR 900, wherein it has been held that section 68 empowers the AO to make enquiry regarding cash credits. If he is satisfied that entries are not genuine he has every right to add this in Income from other Sources. The satisfaction of the AO is the basis of invocation of powers u/s 68 and the satisfaction must be derived from relevant factors on the basis of proper enquiry . The enquiry must be just and reasonable. The Ld. Counsel for assessee contended that the enquiry was not properly made and on the basis of such enquiry the AO could not come to the conclusion that the creditors were fictitious. He submitted that in the instant case also, the AO has failed to make proper enquiries or rather has not at all made enquiries himself as such, the finding and conclusion about non existence of the companies cannot be sustained and has to be treated as without proper material/ evidence. The AO has failed to discharge the onus to disprove the identity , capacity and genuineness. The Ld. Counsel for assessee placed reliance on the following decisions :-

1. ITAT Delhi -Aquatech International case- (2008)119TTJ(Delhi)

2. ITAT Delhi - ITO Vs Nova Promoters & Fin Lease Pvt Ltd -(2010)44 DTR 1.

16. Before us, the Ld. Counsel for assessee vehemently argued that even otherwise as held by the ITAT, Indore Bench in the case of Kalani Industries Ltd (supra), a Limited company duly incorporated and registered under the Companies Act cannot be said to be an nonexistent company in view of the legal position that the company is a juristic person having separate existence apart from its members under the law. The company has its legal birth under the law on its incorporation and the company's existence can come to end only by its legal death in accordance with the provisions of Companies Act i.e by liquidation under the Company Law, which takes place only through High Court. In this respect the Ld. Counsel for assessee referred to the provisions of sections 13 & 17 of the Indian Companies Act, which deal with requirements with respect to Memorandum and Article of Association, change of Memorandum, change of registered office etc., section 21 of the Companies Act prescribing procedures for change of name. He further submitted that it would also be useful to refer to section 34 regarding effect of registration of Memorandum according to which on registration of Memorandum, the Registrar is required to certify that company is incorporated. Sub section (2) provides that 17

on and from date of incorporation the subscribers of Memorandum and other persons, as may from time to time the members of the company, shall be a 'body corporate' having perpetual succession and common seal. Similarly sections 72 , 73 & 75 etc. which deal with the procedure for application, allotment of share etc. also throw light on the corporate existence of the company. It was submitted that even the provision regarding appointment and change of auditors etc throw light on the corporate existence of the company under the law. He submitted that in the light of these statutory provisions under the Companies Act governing the affairs of company right from its incorporation till winding up it is difficult to conceive an idea that a company duly incorporated under the Act can be said to be a nonexistent company.

17. Regarding the correctness of Ad-hoc Disallowance out of Telephone expenses, the learned Counsel for assessee relied upon the submissions made before the CIT(A) and submitted that the disallowance is arbitrary and unreasonable and ought to have been deleted by CIT(A).

18. So far as certain documents relating to some companies filed by the revenue are concerned, it was contended by the Ld. Counsel for assessee that the share holder companies are paper companies. The Ld. Counsel for assessee objected to the same on the ground that the revenue is trying to rely on certain facts which are totally new and not borne out from record. The said facts do not find place either in the order of AO or the CIT(A). So far as the documents filed by the revenue in Paper Books Page No 21 to 125, it was submitted that by the Ld. Counsel for assessee that these papers/documents, not being part of record, should not be taken into consideration and the same deserve to be summarily rejected. He submitted that even otherwise the facts and the documents sought to be relied upon by the respondents do not have any bearing on the issue involved in the present case.

19. On the other hand, the learned CIT DR strongly defended the impugned orders by submitting that onus is on the assessee at least to establish the identity of share applicants. The notices/ commission sent at 4 places, namely, Indore, Mandsaur, Jabalpur and Mumbai were found to be non-existing, consequently, it was contended that these are merely paper companies claimed to have given huge sums of credit in the form of share capital or loans to large number of assessees and then disappeared in thin air after providing accommodation entries. It was strongly contended by the learned CIT DR that neither correct addresses of creditors were given by the assessee nor the creditors were produced before the Assessing Officer for examination and the assessment proceedings were completely stalled as the facts of such 18

transactions can either be explained by the assessee or the creditors who knows entire basis of such credits. Reliance was placed upon the decision in Kale Khan Mohd. Hanif (1963) 50 ITR 1 (SC). Our attention was invited to the paper book dated 4.5.2010 by specifically pointing out that huge cash was deposited in number of bank accounts, namely, Sahayata Marketing, Yash Associate, G.R. Investment and V.S. Traders, etc. from where the amounts were transferred to creditors account and from there to the assessee. It was strongly asserted that unaccounted cash was flown back in the accounts of the assessee and the source of such cash remained unexplained as the parties in whose accounts the cash was introduced were found non-existent because even summons could not be served upon them at their known addresses. Reliance was placed upon the decision of Sumati Dayal; 214 ITR 801 (SC). A plea was also raised that the onus/burden still remained fastened to the assessee for which reliance was placed on the decision in the case of Nivendan Vanijya Niyojay Limited; 182 CTR (Cal) 605 and Hindustan Tea Trading Company; 182 CTR (Cal) 585. The decision in the case of M/s Rathi Finlease (2008) 215 CTR (MP) 429 was time and again reiterated by the learned CIT DR along with the decision in Sophia Finance Limited; 205 ITR 98 (Del) (FB); CIT vs. Precision Finance Private Ltd.; 208 ITR 465 (Cal) and Stellar Investment; 251 ITR 263 (SC).

20. Mr. Saxena, the learned CIT DR strongly contended that when the language used in the statutory provisions is clear, the Court is not empowered to read anything into a statutory provision which is plain and unambiguous for which reliance was placed upon the decision in Prakash Nath Khanna; 266 ITR 1 (SC), Keshajiv Raoji & Company; 183 ITR 1 (SC) and Smt. Tarulata Shyam; 108 ITR 345 (SC). It was further contended that the decision in the case of M/s Stellar Investment Limited (supra) is merely a dismissal of appeal simplicitor and not a declaration of law and hence it is not a binding precedence as held in the case of M/s Hindustan Tea Trading Company; 263 ITR 289 (Cal) and S. Shyamughvel Nadar; 263 ITR 658 (SC). A strong plea was raised by the learned CIT DR that the decision in the case of M/s Lovely Exports Private Limited is not applicable to the facts of the present appeals as the Hon'ble Delhi High Court has clearly differentiated cases of share capital of private limited company from public limited company. It was also submitted that in the decision of Lovely Exports Private Limited the Hon'ble Apex Court merely dismissed SLP and it is no longer a speaking order as it is neither expression of judicial view nor a binding precedent for which reliance was placed upon the decision in CIT v Shri Manju Natheshwara Packing Products and Camphor Works; 231 ITR 53 (SC), late Nawab Sir Mir Osman Ali Khan; 162 ITR 888 (SC), CIT v. Quality (Pat); 224 ITR 77. A strong plea was 19

also raised by the learned CIT DR that many High Courts have distinguished the decision in Lovely Exports Private Limited because it was merely dismissal of SLP for which our attention was invited to the decision in CIT v. Oasis Hospitalities Private Limited (2011) 333 ITR 119 (Del). Reliance was also placed upon the decision in M/s STL Extrusion Pvt. Ltd.; 333 ITR 269 (MP). It was submitted that the decision in Rathi Finlease Limited (supra) is a binding precedent for which reliance was placed in Geoffrey Manners & Company Limited; 221 ITR 695, Taylor Instrument Company Limited; 232 ITR 771 (Del); Mohanlal Kansal; 114 ITR 583 (P&H); Jorhant Group Limited; 289 ITR 422 (Gau); Vrajlal Manilal & Company; 127 ITR 512 (MP).

21. We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee (M/s Agrawal Coal Corporation Private Limited) is a private limited company engaged in the trading business. In the year under consideration the company entered in the field of power generation with installation of two wind mills and declared income of Rs.83,46,090/- in its return filed on 30.10.2005 for assessment year 2005-06. The case was selected for scrutiny. The learned Assessing Officer, during the assessment proceedings, noted that M/s Hindustan Continental Limited, applied for 40,000 shares of the assessee company of the countenance value of Rs.10/- each at a premium of Rs.90/- per share. Similarly, Optimates Textile Industries Limited also applied for 10,000 shares of the assessee company of the same value and premium per share. The learned Additional CIT, Indore (Assessing Officer), has referred the report of ACIT 5(1), Indore, wherein it was found that on the basis of investigation carried out by him in some other cases, M/s Hindustan Continental Limited and Optimates Textiles Limited are not the genuine companies. The report of ACIT 5(1) has been reproduced in the assessment order. This report was confronted to the assessee company by the Assessing Officer, during the assessment proceedings, and after considering the reply of the assessee company it was held that the share capital claimed to be applied by these companies is unexplained, therefore, the same was added to the income of the assessee company. The relevant extract from the assessment order is extracted hereunder :-

" The contention of the assessee is not acceptable. Assessee has relied upon the decision of Hon'ble I.T.A.T., Indore Bench, in case of ACIT vs. Kalani Industries Ltd. the said decision was not acceptable to the department and is being contested before Hon'ble High Court of M.P. assessee has tried to prove genuineness of transaction by furnishing confirmation, copy of bank account and acknowledgement of return. It has also furnished various decision in support of its contentions. But it is evident from the 20

investigation made by ACIT 5(1), Indore that both these company are not existing companies in the real sense. These companies are paper companies only and exist nowhere and were used to give accommodation entries to various parties who want to launder their unaccounted money in the guise of share application or unsecured loan or long term capital gain.

The assessee is a closely held Pvt. Ltd. Company in which public is not substantially interested. Thus as per section 68 onus was upon the assessee to establish depositor's identity, creditworthiness and genuineness of transaction. Assessee in its written submission stated that company has received share application money of Rs. 40,00,000/- from Hindustan Continental Ltd. 19, Shubh Kamna Apartment, Gul Bazar, Jabalpur. As per the report of the ACIT 5(1), Indore, it is clear that no such company exist at the given address. The creditworthiness of the company has also not been established in view of the fact that there is huge inflow and outflow of fund in the Bank account without any logic. There is huge cash deposit in the Bank account of Hindustan Continental Ltd. maintained UTI Bank Ltd. copy of which is filed by the assessee in support of its contention. The company is not existing in real sense the genuineness of transaction is also doubtful. Since assessee failed established identity, creditworthiness and genuineness of transaction, credit in the account of the assessee on account of share application money from Hindustan Continental Ltd. Rs. 4,00,000/- and share premium amount of Rs. 36,00,000/- are being treated as unexplained credit u/s 68 and added back to taxable income.

Similarly, assessee has tried to establish identity of M/s Optimates Textile Industries Ltd., but it is evident from the report of the ACIT 5(1), Indore that company is also a paper company used to providing accommodation entries only. Enquiries revealed that no such company exists at the address as provided by the assessee. ACIT 5(1), Indore reported that the Assistant Director of Income Tax investigation IX(3), Mumbai had confirmed in his report that M/s Optimates Textile Industries Ltd. does not exist at the given address and seems to be bogus. Assessee has given the address of the company as to Dev Karan Mension IInd floor 63B princes estate Mumbai whereas the Bank account of the company has been mentioned in Indore in which the address of the company was given as 13, South Hati Pala, Indore. This company is also not existing in real sense and only accommodation entries are being given to the beneficiaries in the form of share application money or unsecured loans. Since assessee fails to establish identity, creditworthiness and genuineness of the transactions, share application money credited on account of M/s Optimates Textile Industries Ltd. Rs. 1,00,000/- share premium Rs.9,00,000/- is 21

treated unexplained u/s 68 and added back to taxable income. Total addition under this head is Rs. 50,00,000/-"

22. The above finding was confronted to the assessee during appellate proceedings against which the assessee preferred written submissions. During the first appellate stage as well as before us, the Ld. Counsel for assessee has challenged the finding of ACIT on the ground that the said company is a listed company on stock exchange and the Assessing Officer was in knowledge and possession of the income tax return of the company. Our attention was invited to the details of "capital work in progress" and licence capacity of HCL Limited by arguing that the existence and credit worthiness of HCL is established since it is having share capital of Rs. 8.09 crores. During hearing before us, the Ld. Counsel for assessee Mr. Choudhary, invited our attention to deposit of cash in bank account of M/s Sahayata Marketing and transfer thereof through account payee cheque to the bank account of M/s Sunil Shares Stocks Private Limited and thereafter to the ultimate beneficiary. It was submitted that the transactions of cash transfer and deposition of cash has nothing to do with the assessee. A strong plea was raised by the Ld. Counsel for assessee that identity of share applicants is established which was strongly denied by the learned CIT DR. At this stage, a query was raised by the Bench as to whether the assessee is in a position to produce before this Bench any of the Directors or the employees of these companies ? The Ld. Counsel for assessee conveniently contended that the assessee cannot be put to adverse burden meaning thereby that the assessee was not in a position to produce such persons. The Bench again contended that in view of the above reply of the Ld. Counsel for assessee, an adverse view may be taken against the assessee. The Ld. Counsel for assessee remained mum and nothing was canvassed against the query raised by the Bench.

23. The notices issued u/s 133(6) of the Act to M/s HCL Limited and M/s Optimates Textiles Industries Limited could not be served as these companies were found non-existent at the addresses supplied to the department by the assessee. Thereafter, commission was issued to ADIT(Inv.) Unit-IX-3, Mumbai, to verify the existence/genuineness of these companies, who also reported that the said companies did not exist at the given addresses. The whole issue for adjudication is whether the identity of these companies was established ? During hearing, the Ld. Counsel for assessee claimed that identity of both these companies has been established as both these companies were registered with Registrar of Companies and their income tax returns were filed and both are having PANs/bank accounts. We are not agreeing with this 22

proposition because at the time of registration, these companies may be existing either on papers or in real sense but thereafter were specifically found non-existent as the summons/ notices issued were returned back unserved and the commission issued with this purpose also found that these companies were non- existent. At the same time, none of the certificates, claimed to be issued by various authorities, does not establish the identity of the share applicants as the certificates were issued without physically verifying the existence of applicants, such as income tax department receives returns of income or documents without verification of existence of the persons filing the returns/documents. PAN is also allotted to the applicants on the basis of applications without verifying the existence of applicants at the address given in the application. Likewise, Registrar of companies also register a company without physical verification of the existence of the applicant company. There is a specific finding that on verification by the ACIT in the case of M/s Sahayata Marketing Company neither the operators of the accounts were available at the addresses given to the bank nor the introducer. Therefore, the assessee cannot claim to have established the identity of both these companies on the basis of some documents. Leave it apart, as mentioned above, the Ld. Counsel for assessee, in reply to a specific query regarding production of any of the directors or the employees of the share applicants before the Bench, the assessee did not comply with the directions of the Bench, therefore, to this limited extent, we are of the view that these share applicants are non-existent and their identity is not proved. It is pertinent to mention here that there is a difference between a private and public limited company as in a private limited company, the public at large is not subscribing the shares as the shares are allotted to close relatives, friends and other known persons who are having faith in the subscribing company on personal relations whereas there is an invitation to the public at large by a public limited company and not necessarily having personal relations and in that case, the individual relations are normally found to be non-existent. In view of these facts, the share applicants are known to the assessee company, being private limited company, and there should be no difficulty to produce them or their representative to enable the Assessing Officer to verify the identity, genuineness of the capital claimed to be subscribed by them, therefore, the assessee cannot claim ignorance about these companies. Unless the assessee is able to establish identity of the companies who have subscribed in their share capital, how the department will proceed against these companies in terms of the verdict of the Hon'ble Supreme Court in the case of Lovely Exports (supra). Any addition in the hands of such subscribing companies is only possible when the assessee is able to establish identity of 23

these companies which the assessee has grossly failed not only before the Assessing Officer but also before learned Commissioner of Income Tax (Appeals) and the Tribunal. Under these facts and circumstances, there is no question of apply the proposition of law as suggested by the Ld. Counsel for assessee.

24. On the issue of discharge of onus/burden, the assertion of the Ld. Counsel for the assessee is that the onus shifted to the department when copy of share application form, PAN, name and addresses and ROC registration, etc. were filed by the assessee. We are not agreeing with the submission of the assessee in view of the fact that at the addresses (4 places) given to the department, these companies were found to be non-existent. Even the Inspector was deputed to verify the addresses who also reported that these companies were not available at the given addresses. It is not possible that the companies making huge investment in the form of share application are not found at the given addresses. There is a possibility that there may be a change of address but till the stage of the Tribunal, not to talk of the Assessing Officer or the learned Commissioner of Income Tax (Appeals), no such address was furnished by the assessee, therefore, we are of the considered opinion that the onus was not discharged as the assessee neither furnished the correct addresses nor the creditors were produced rather the assessee tried to stall the assessment proceedings by giving misleading facts and incorrect addresses. Even as per preponderance of probabilities, all facts go against the assessee and the ratio laid down by the Hon'ble Apex Court in the case of Sumati Dayal (214 ITR 801) goes against the assessee. Hon'ble Calcutta High Court in the case of Nivendan Vanijya Niyojay Limited (supra) (page 14) held as under :-

" After the initial onus was discharged by assessee, the Income Tax authorities have made enquiries and had communicated the result of the enquiry to the assessee and required the assessee to produce the subscribers who provided such credit, in order to establish its case. But the assessee did not do so. On this basis addition made by the A.O. u/s 68 of I.T. Act was confirmed."

Identically, the Hon'ble Calcutta High Court in the case of Hindustan Tea Trading Company Limited; 182 CTR 585 at page 23 (para 21) where the identity of 12 persons who were not found at the addresses it was held that identity is not established. On the issue of onus, it was held that "principle regarding onus is laid down u/s 68 whereby once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion. When such conclusion is communicated to assessee, onus shifts on 24

the assessee. Likewise, Hon'ble jurisdictional High Court in the case of M/s Rathi Finlease Limited; 215 CTR 429 at page 28 when company is not found at the given address against the summons issued by the Assessing Officer observed as under -

"The assessee tried to explain the genuineness of the credit on the basis of letters of confirmations. It could not be explained as to how the transaction was materialised when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. The assessee failed to discharge the burden with regard to the credit in its books and the existence of the creditors to indicate the genuineness of the transaction."

The Full Bench of Hon'ble Delhi High Court in the case of M/s Sophia Finance Limited; 205 ITR 98 observed as under :-

"The ITO would be entitled to engage and it would indeed be his duty to do so whether the alleged shareholders do in fact exist or not. If the shareholders exist then possibly no further enquiry need to be made. But if the ITO finds that the share holders do not exist, then in effect it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of words "may be charged"in section 68 clearly indicates that the ITO would then have the jurisdiction if the facts so warrants to treat such credit to be the income of the assessee."

The Hon'ble Calcutta High Court in Precision Finance Private Limited; 208 ITR 465 held that inquiry of ITO revealed that either the assessee was not traceable or there was no such file and accordinbgly the first ingredient as to the identity of the creditors has not been established. If the identity of the creditor has not been established, consequently, the question of establishment of the genuineness of the transaction or the credit worthiness of the creditors did not and could not arise. During hearing reliance was placed upon the decision in the case of Stellar Investment Limited; 251 ITR 263 (SC) wherein the issue was subscription of share capital of a public limited company whereas in the present apepals, private limited companies are involved, therefore, there is a material difference between the two as discussed earlier, the shares of private limited companies are generally given to applicants known to the directors whereas in a public limited company the applicants are unknown to the directors. It is pertinent to mention that while coming to a particular conclusion, the Full Bench of Delhi High Court in the case of Sophia Finance Limited (supra) duly considered the case of Stellar Investment Limited. Even in the case of M/s 25

Lovely Exports Private Limited (supra) the Hon'ble'ble Delhi HighCourt in para 4 observed as under :-

"Reference to section 68 of the IT Act is conspicuous by its absence, the Stellar Investment Limited ratio cannot be stressed to the extent that it partakes as a reflection on section 68, when the inquiry pertained only to section 263."

25. In view of the facts narrated above and the judicial pronouncements discussed hereinabove, it can be said that the assessee did not discharge the onus cast upon it by the provisions of the Act. We tend to reproduce section 68 of the Act :-

"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."

If the aforesaid provision of the Act is analysed, it speaks about cash credits and the sum found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation is not found satisfactory by the Assessing Officer then the same may be charged to tax as the income of the assessee. In the present appeal, at any stage the assessee did not file any explanation regarding the identity of the share applicants, therefore, the onus was not discharged by the assessee. A bare reading of section 68 suggest that there has to be credits of amounts in the books maintained by the assessee that such credit has to be of a sum during the previous year and the assessee offers no explanation about the nature and source of such credit or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income tax as income of the assessee of that previous year. We are aware that the opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. In the present appeals, the Assessing Officer was never satisfied and the notices/summons issued to the subscribing companies, were found to be fictitious or non-existent, therefore, one fact oozing out that the assessee has not fulfilled the requirement of section 68. A close reading of section 68 makes it clear that in case of section 68 there should be credit entry in the books of account. This is a fundamental difference between these two provisions. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him where the nature and source of a receipt whether it be of money or other 26

property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source for which we are supported by the decision of the Hon'ble Apex Court in Roshan Di Hatti vs. CIT; 107 ITR 938 and Kale Khan Mohd. Hanif vs. CIT; 50 ITR 1 (SC). It is for the assessee to prove that even if cash credit represents income it is income from a source which has already been taxed for which we are supported by the decision in CIT v. Deviprasad Vishwanathprasad; 72 ITR 194 (SC). The Hon'ble Apex in the case of Sumati Dayal vs. CIT; 214 ITR 801 clearly held that if the explanation of the assessee is unsatisfactory, the amount can be treated as income of the assessee. There are contrary decision like Addl. CIT v. Bahri Brothers; 154 ITR 244 (Pat) holding that identity of creditors is not relevant for cheque transactions but at the same time it is not sacrosanct as was held in Nemichand Kothari vs. CIT; 264 ITR 254 (Gau). In the case of Shri Barkha Synthetics Limited vs. ACIT; 155 Taxman 289 the Hon'ble Rajasthan High Court held that where the matter concerns money receipts by way of share application from the investors through banking channel, the assessee has to prove the existence of the person in whose name the share application is received. Once the existence of the investor is proved, it is not further the burden of the assessee to prove whether that person itself has invested the money or some other person has made investment in the name of that person. The burden then shifts to the revenue to establish that such investment has come from the assessee company itself.

26. Once the receipt of the confirmation letter from the creditor is proved and the identity and existence of the investor has not been disputed, no addition on account of share application money in the name of such investor can be made in the hands of the assessee. In the case of CIT v. Divine Leasing & Finance; 158 Taxman 440 (Del), the Hon'ble Court clearly held that in case of public issue the company concerned cannot be expected to know every detail pertaining to identity as well as financial worth of each of its subscribers. The company must however maintain and make available to the Assessing Officer for his perusal all the information contained in the share application documents. The Hon'ble Court clearly held that in case of private placement, the legal regime would not be same. A delicate balance must be maintained while walking the tight rope of section 68 and 69. The burden of proof can seldom be discharged to the hilt by the assessee. However, if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered rather duty bound to carry out investigations. The assessee merely wants to take shelter of the decision of the Hon'ble Apex Court in the case of Lovely Exports 27

Private Limited wherein it was held that even the share applicants are bogus, it cannot be added in the hands of the assessee. In that case the Tribunal clearly noted that the assessee was a public limited company and subscriptions were received from public at large through banking channel and the shares were allotted in consonance with the provisions of the securities contract (Regulation) Act, 1956 as also the rules and regulations of Delhi Stock Exchange and in para 12 the Hon'ble Delhi High Court has clearly differentiated the cases of share capital of private limited company from public limited company by saying "in the case of private placement, the legal regime will not be the same". Therefore, the facts of that case are not applicable to the case of the assessee as it is a private limited company or closely held company. Besides this, in case of M/s Lovely Exports Limited (in para 23), the Hon'ble Delhi High Court noted that the Assessing Officer has neither controverted nor disproved the material filed by the assessee. However, in the present case, the Assessing Officer after making inquiry disapproved the very first information regarding identity of such creditors as they were found non- existent at all the given addresses. So far as the argument of the learned CIT DR that dismissal of SLP in the case of Lovely Export, where there is no merger of order, is not an expression of judicial view nor a binding precedent. We are not going into this controversy because the facts of the present appeals are distinguishable from the facts of Lovely Exports Private Limited. Hon'ble Delhi High Court in a latter decision in CIT v. Oasis Hospitalities Private Limited (2011) 333 ITR 119 held as under :-

" We are of the view that ratio laid down in Steller Investment Ltd. (2001) 251 ITR 263 is applicable only in those cases where the assessee is a limited company and the shares were quoted in the stock exchange. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited company, the presumption is very strong against the assessee that subscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the issue is subscribed by its closely connected person, the onus is upon the assessee to prove the identity of the subscribers and their creditworthiness."

27. There is another perception to look into the decision of the Hon'ble Apex Court in the case of Lovely Exports Private Limited wherein the Hon'ble Apex Court held that if the share application money is received by the assessee from alleged bogus share holders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessment in accordance with law, but it cannot be regarded as undisclosed income of the assessee company." In our view, first of all, the 28

alleged bogus share holders should be in existence, only then the department may be in a position to reopen their individual assessment. However, in the present appeals, the share applicants/share subscribers are no more in existence meaning thereby their identity is not proved, therefore, how the department can proceed to reopen their individual assessments.

28. The Hon'ble Madhya Pradesh High Court affirmed the decision of M/s Rathi Finlease Limited (supra) in the case of M/s STL Extrusion Private Limited (2011) 333 ITR 269, relied upon by both the sides before us. We find that the facts in STL Extrusion are materially different from both the assessees, namely, M/s Agrawal Coal Corporation as well as from M/s Rathi Finlease Limited. In the case of M/s STL Extrusion on receipt of confirmation of share applicants, except observing discrepancies in confirmation, the Assessing Officer neither asked anything from the assessee nor made any inquiry to arrive at the conclusion that share applicants were bogus. However, in the present appeal, detailed inquiries were made, notices received unserved, commission also returned empty handed as the share subscribing companies were found non- existent. In that situation, the Hon'ble High Court concluded that once existence of an investor/share holder is proved, onus shifts to the revenue to establish that either the share applicants are bogus or impugned money belongs to the assessee itself. The contrary finding in these cases were confronted to the assessee by the Assessing Officer but the assessee in spite of sufficient opportunity provided, failed to prove the existence of such share applicants companies as the correct addresses were not provided to the Assessing Officer and even the Directors or any of the employees or books of account were not produced. Therefore, the only conclusion arrived at by the Hon'ble jurisdictional High Court in the case of M/s Rathi Finlease Limited that the assessee failed to discharge burden with regard to credits in its books and the existence of its creditors, consequently, addition u/s 68 was sustained. This decision is squarely applicable to the facts of the present appeals because identity of share applicant itself was not proved. The principle laid down in the case of M/s Rathi Finlease Limited was recently affirmed by Hon'ble jurisdictional High Court in the case of STL Extrusions, it has become binding precedent on the Tribunal especially when the decision of the Hon'ble Apex Court in the case of Lovely Exports was very much available. Hon'ble jurisdictional High Court while coming to a particular conclusion followed the decision of the Hon'ble Karnataka High Court in CIT v. ASK Brothers Limited (2011) 333 ITR 333 and duly considered the decision from the Hon'ble Apex Court in CIT v. Lovely Exports Private Limited and Steller Investment Limited (supra). In another latest decision in CIT v. Oasis Hospitalities Private Limited, UP Bone 29

Mills India Limited and Vijay Power Generators Limited, etc. (2011) 333 ITR 119 (Del), identically held that identity and credit worthiness of share applicants was not proved, therefore, the addition u/s 68 of the Act was justified. While coming to the aforesaid decision the Hon'ble Delhi High Court considered the following decisions :-

1. Bhola Shankar Cold Storage P. Ltd. v. JCIT; (2004)270 ITR 487 (Cal (Para 40)

2. CIT v. AKJ Granites P. Ltd. (2008) 301 ITR 298 (Raj) (para 18)

3. CIT v. Arunananda Textiles P. Ltd. (2011) 333 ITR 116 (Karn) (para 17)

4. CIT v. ASK Brothers Ltd. (2011) 333 ITR 111 (Karn)

5. CIT vs. Creative World Telefilms Ltd. (2011) 333 ITR 100 (Bom)

6. CIT vs. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del)

7. CIT v. Dolphin Canpack Ltd. (2006) 283 ITR 190 (Delhi)

8. CIT v. K.C. Fibers Ltd. (2011) 332 ITR 481 (Delhi)

9. CIT v. Lovely Exports P. Ltd. (2009) 319 ITR (St.) 5 (HC)

10.CIT v. Mohankala (P) (2007) 291 ITR 278 (SC)

11.CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del)

12.CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del)

13.CIT V. Steller Investment Ltd. (2001) 251 ITR 263 (S.C.)

14.CIT v. Value Capital Services P. Ltd. (2008) 307 ITR 334 (Del)

15. Madhuri Investment Pvt. Ltd. v. ACIT(ITA No. 110 of 2004 dated 18.2.2006 (Karn.)

16. Shree Barkha Synthetics Ltd. vs. ACIT; (2006) 283 ITR 377 (Raj.)

29. As per the provisions of section 68 of the Act, in case the assessee has not been able to give satisfactory explanation in respect of nature and source of any sum or if in the opinion of the Assessing Officer such explanation is not satisfactory, the Assessing Officer may treat the same as undisclosed income and add it to the income of the assessee meaning thereby the assessee is required to give satisfactory explanation about the nature and source of such sums found credited in the books of account. What kind of proof is 30

to be furnished by the assessee is a question. It has come up for discussion in various judgments rendered by various Hon'ble Courts including Hon'ble Supreme Court and High Courts. The law discussed by the Hon'ble Court in the case of CIT v. Divine Leasing & Finance Limited (2008) 299 ITR 268 is also an important decision to quote. A delicate balance has to be maintained. The Hon'ble Delhi High Court in CIT v. Dolphin Canpack Ltd.; 283 ITR 190 quoted at page 193 the following observations :-

"....credit entry relates to the issue of share capital, the Incometax Officer is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the permanent account numbers issued by the Incometax Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessee."

The Hon'ble High Court took note of many other judgments of many other High Courts and on analysis of those judgments, formulated the following propositions which emerge as under (Divine Leasing & Finance Limited; 299 ITR page 282 (Del) :-

"In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income Tax Act. The assessee has to prima facie prove -

The identity of the creditor/subscriber

The genuineness of the transaction, namely, whether it has been transmitted through banking or other undisputable channels

The credit worthiness or financial strength of the creditor/subscriber

If relevant details of address or PAN, identity of the creditor/subscriber are furnished to the department along with copies of the share holders' register, share application forms, share transfer registers, etc. it would constitute acceptable proof or acceptable explanation by the assessee. The department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices

The onus would not stand discharged if the

creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee and

31

The Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation."

30. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its burden, the assessee is required to prove - The identity of the share holder

The genuine of transaction

The credit worthiness of the share holder

During hearing, Shri R.K. Chaudhary and Shri K.K. Singh the learned Commissioners of Income Tax contended that Hindustan Continent Pvt. Ltd.; Agrawal Road Carriers Pvt. Ltd. and Suni Shares and Stock Limited (inter-connected with each other), are paper concerns. These companies provided accommodation entry to various parties of Indore, Bhopal, Gwalior, Nagpur, Surat, Mumbai, Ahmedabad, Vadodara, and in various other cities through their bank accounts maintained AXIS Bank, Indore, during the period 1.4.2002 to 31.3.2005. The modus operandi operated was that the accommodation entries would first pay the cash which was deposited in bank accounts maintained in the name of M/s Yash Associates, M/s G.R. Investments, M/s V.S. Traders, Path Pradarshak Finvest Pvt. Ltd., M.S. Ribeka Garg and Bhanuraj Singh Ranawat, etc. maintained in the same bank branch (in due course old accounts were closed and new accounts in the name of new concerns were opened). Thereafter, the amount was transferred in any of the account of Hindustan Continental Private Limited, Agrawal Road Carriers Private Limited and Sunil Shares & Stock Limited. It was submitted that on certain occasion there is inter-transfer of funds amongst the three companies, then the cheques were issued to desiring parties in the garb of loan or share capital. Not only that, the shares of Hindustan Continental were claimed to be traded by Sunil Shares & Stock Limited, M/s Jai Share Fin Limited and others through manipulation giving rise to artificial height so as to enable certain parties to re-introduce their black money as huge capital gain. It was claimed that in those case also the cash was deposited first in certain account and thereafter the funds were transferred to the share brokers involved in the manipulation and then ultimately to the accounts of the party concerned as sale proceeds of shares. It was also submitted that SEBI has even penalised Hindustan Continental Private Limited and Sunil Shares & Stock Private Limited. This assertion of the learned Commissioner of Income Tax was not controverted by the assessee but merely argued that the money was transacted through banking channel and in view of the 32

decision in the case of Lovely exports their individual accounts can be reopened. However, as mentioned earlier, the existence of these share subscribers/share applicants was not found existent, therefore, where is the question of reopening their individual assessments. Transaction enquiry was also made (pages 1 to 104) of the paper book filed on 4.5.2010. Pages 108 to 125 of the paper book dated 4.5.2010 contains the adjudication order u/s 151 of the securities and exchange board of India Act read with rule 5(1) of the SEBI (procedure for holding inquiry and imposing penalties by the adjudicating Officer). Rules 1995 against Optimates Textiles Industries Limited (formerly known as Priyansh Saree Industries Limited). Vide para 17 of the order (page 125) it has been held that Sunil Shares & Stocks Private Limited failed to provide necessary information to the investigating authority of SEBI and penalty of Rs. 2 lacs was imposed in terms of provisions of section 15A(a) of SEBI Act, 1992 for failure to provide necessary information to SEBI.

31. The Hon'ble Apex Court in the case of Vijay Kumar Talwar v. CIT (2011) 330 ITR 1 (S.C.) on the issue u/s 68 read with section 260A decided in favour of the revenue . Identical ratio was laid down by the Hon'ble Supreme Court in case of CIT v. Biju Patnaik; 160 ITR 674.

32. So far as the contention of the Ld. Counsel for assessee to the effect that the issue is squarely covered by the decision of the coordinate Bench in the case of Kalani Industries is concerned, we do not find any substance in the same in view of the fact that the addition made in the cases before us was after passing of the order by the Tribunal and the inquiry conducted by the Department thereafter. The enquiry so conducted by the Department after the relevant assessment years involved in the case of Kalani Industry, it was found that neither the share applicants were found existing at the address given by the assessee nor at different addresses supplied by the assessee to the Assessing Officer during the course of assessment proceedings. AS the facts of subsequent year are different, the decision arrived at by the Tribunal in assessment year 2003-04 cannot be applied to the assessment years 2005-06 & 2006-07, facts of which are materially different.

33. The contention of the Ld. Counsel for assessee that in view of the decision of the Hon'ble Supreme Court in the case of Lovely Exports, the issue is covered in favour of the assessee, as per our considered view, the case of Lovely Exports (supra) will be applicable only after the identity of the share applicant is established. Since in the instant appeals before us, the identity itself has not been established, there is no justification to apply the ratio laid down by the Hon'ble Supreme Court in the case of Lovely Exports (supra).

33

34. The Hon'ble jurisdictional High Court in the case of Rathi Finlease (supra) has clearly laid down the proposition with respect to circumstances wherein the identity is established in case the share applicants are companies. It was held that even filing of confirmation of share applicants by the assessee will not serve the purpose of establishing the identity insofar as the inquiry conducted by the Assessing Officer and the letter issued by the Assessing Officer were returned unserved by the postal department with the remark that the addressees are not existing at the given addresses which clearly establishes that either the share applicants are non-existent or if exist, then merely exist on papers and not in real sense, therefore, their identity is not proved. With all respect, within the territorial jurisdiction of Madhya Pradesh, we are bound to follow the proposition of law laid down by the Hon'ble jurisdictional High Court, which was further confirmed by Hon'ble High Court in the case of STL Extrusion (supra), after considering the proposition laid down in the case of Lovely Export (supra), the facts of which are pari materia especially when the facts of the instant appeals before us are identical to the facts wherein the Hon'ble High Court has decided in favour of the Revenue whereas the facts in the case of Lovely Exports are distinguishable, as discussed above.

35. So far as the contention of the ld. Counsel for the assessee that the company can only be wound up by the order of the Hon'ble High Court and death of the company is known to the process of law and also that the company is still available on the website of the Company Law Board is concerned, we are not agreeing with this proposition of the assessee because here it is not a case of winding process rather it is a case of admissibility of claim of the assessee u/s 68 of the Act. Since the share applicants'/share subscribers' identity is not proved, therefore, the assessee cannot be permitted to take shelter of technicalities. Even otherwise, website existence on the Company Law Board is not a sole proof that in fact the share applicants are in existence especially when right from the assessment stage to the stage of the Tribunal (three stages) the assessee did not prove the identity of the share applicants. Technicalities also help those who are with clean hands. However, we are in agreement with the argument of the assessee that the winding up powers of a company lies with the Hon'ble High Court but this issue is not before us, therefore, we are refraining ourselves to comment further. It was fairly accepted by the ld. Counsel for the assessee that in the present appeals merely the assessee filed certain documents which did not prove the identity but did not produce the share applicants/subscribers. At the same time, the learned CIT DR time and again is harping that the share applicants are merely paper companies. Therefore, from 34

this angle also, we are not convinced with the argument of the assessee. With regard to the contention of ld. AR that copy of the inquiry conducted by the Assessing Officer was furnished to the assessee only one day prior to the completion of assessment, we found that the assessee has got full opportunity to substantiate its claim and negate the report before the ld. CIT(A) but the assessee grossly failed to rebut the report regarding non-establishment of identity of share applicants. The ld. CIT(A) has got co-terminus powers to do what the Assessing Officer has failed to do. Proceedigns before ld. CIT(A) is also extension of assessment proceedings in addition to the appellate proceedings. However, inspite of full opportunity the assessee failed to rebut the contents of the report which indicated that no shareholders exist in the name of the companies so provided by the assessee. Even though, the report relied by the Assessing Officer was in respect of another assessee but the fact remains that the inquiry was in the case of same share subscribers i.e. M/s. Hindustan Continental Ltd. & M/s. Optimates Textiles Ind. Ltd. Under these circumstances, the inquiry conducted in respect of M/s. Hindustan Continental Ltd. & M/s. Optimates Textiles Ind. Ltd. which are common applicants in the case of all the assessees before us, could not be said to be a relevant and not concerning to the assessee in the instant cases.

36. Even if the cases relied upon by the ld. Counsel for the assessee, as mentioned/cited/discussed in the preceding paras of this order like Divine Leasing & Finance Limited, Dwarkadheesh Investment Private Limited, Gangor Investment Limited, K.C. Fibres Limited, Dolphin Canpack Limited, Shree Barkha Synthetics (Raj.), Down Town Hospitals Private Limited, ILLAC Investments Private Limited, Rohini Builders and Shree Barkha Synthetics (Raj.) (supra) are considered, the Hon'ble Courts have clearly held that at least the assessee has to pove the identity/existence of the person in whose names share applications are received meaning thereby the burden lies on the assessee is to establish the identity/existence of such share holdings and once it is established, the assessee is not required to prove anything further. Therefore, these judicial pronouncements are in favour of the revenue and may not help the assessee because the assessee has not proved the identity of such share applicants.

37. The contention of the Ld. Counsel for assessee to the effect that the decision of Rathi Finlease by the jurisdictional High Court was rendered much prior to the decision of the Supreme Court in the case of Lovely Exports (supra) therefore, the proposition laid down by the jurisdictional High Court in Rathi Finlease cannot be applied after the decision of the Hon'ble Supreme Court in the case of Lovely Exports, have no legs to stand insofar as the jurisdictional High Court in the case of STL Extrusion wherein case of Lovely 35

Export was relied on, duly approved its previous proposition laid down in case of Rathi Finlease. He further submitted that jurisdictional High Court in the case of ACIT vs. Shree Kela Prakashan Private Limited affirmed the decision of the Tribunal reported at (2010) 14 ITJ 539 dated 8.10.2009, therefore, the later decision has to be followed. As per our considered view, the contention of the Ld. Counsel for assessee is wholly misplaced insofar as decision of Hon'ble Supreme Court in the case of Lovely Exports (supra) itself presupposes the establishment of identity as a pre-condition for not making addition in the hands of the assessee company. In the case of Shri Kela Prakashan Private Limited, the Tribunal has given a categorical finding that the assessee has proved the identity of the subscribers. therefore, no addition was warranted in the hands of the assessee. However, in the instant case before us, the identity of the subscribers has not been established as per our discussion detailed hereinabove. This finding of the Tribunal was affirmed by the Hon'ble High Court and, therefore, the appeal filed by the revenue was dismissed, whereas in the present appeal the matter was investigated by the Assessing Officer and even the Inspector of the department who was directed by the Assessing Officer to know the whereabouts reported that the share subscribing companies are non-existent and the addressees given of four places were also found to be fictitious. The summons/notices issued by the department were also returned unserved by the postal department with the remark that no such companies are existing at the given addresses, therefore, in the present appeals, the identity of share holders was not proved at any stage, consequently, the decision in the case of Shri Kela Prakashan Private Limited is not applicable being on different findings, therefore, may not help the assessee. Likewise, the Hon'ble Karnatka High Court in the case of CIT vs. Arunananda Textiles Private Limited (2011) 333 ITR 116 dealt with identical issue and that too after considering the decision in the case of Lovely Exports Private Limited and Steller Investment Limited. The Hon'ble Court held as under :-

"It is not for the assessee to place material before the Assessing Officer in regard to the credit worthiness of the share holders. If the assessee has given the addresses of the share holders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee to establish but it is for the department to inquire with the investors about their capacity to invest the amount in the shares".

If the aforesaid conclusion is analysed, one fact is clear that the identity of the share holders has to be proved by the assessee. 36

However, in the present appeals the identity itself is in dispute, therefore, the aforesaid decision clearly supports the case of the revenue.

38. Likewise in the case of CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) the shareholders admitted the payment of amount for shares to be allotted. In these circumstances, Hon'ble Court held that the amounts of share capital cannot be added in the assessee's hands. However, in the present appeals, the share applicants itself are non-existent, consequently, there is no question of admitting by the share holders regarding money invested by them and then shares allotted to them. This judicial pronouncement also goes against the assessee. Hon'ble Delhi High Court in a later decision in Vijay Power Generators Limited v. Director of Income Tax and others (ITA No. 514 of 2007) (2011) 333 ITR 119 (Del) at page 136 the appeal was admitted on the following question of law :-

" Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has erred in law in sustaining the addition of Rs. 25,23,500/- on account of receipt of share application money ?

37. The facts leading to the admission of the aforesaid question were as follows :-

The assessee in the income tax return for the assessment year 1997-98 had shown receipts in the form of share money subscribed of 15 per cent to whom the shares were later on allocated. Total money on this account received by the assessee was Rs. 25,23,500. The investment in these shares was ranging from Rs. 1 lakh toRs. 2.5 lakhs. In order to verify the genuineness of these transactions, the Assessing Officer issued summons to these parties which were received back either with the remarks "incomplete address" or "in spite of best efforts the address not found" or "not met" or "no such person" or "not found", etc. The Assessing Officer thereafter asked the assessee to produce these persons who had introduced the share capital in the company. The assessee was also asked to furnish cheque numbers/draft numbers for payment of share application money along with the names of the drawee bank and branch of the bank. However, no details were furnished despite various opportunities. The assessee could not even identify the entries in the bank account regarding the receipts of the share application money nor could he produce the relevant ledger for verifying the receipts, according to the Assessing Officer. Ultimately, the assessee produced five persons whose statements were recorded. The assessee did not cross examine these persons. They did not furnish any proof of their identity in the form of ration 37

card, election card or passport despite request by the Assessing Officer. The Assessing Officer after analysing the statements of these persons observed that these five persons were small agriculturists and had no means to make investment in the company."

38. In these circumstances, the entire receipt of Rs.25,23,500/- in respect of these five persons was treated as unexplained investment and made the addition u/s 68 of the Act.

39. The learned Commissioner re-examined the entire issue analysing the evidence in the light of the judgment in the case of Steller Investment Limited and Sophia Finance Limited (supra) and ultimately confirmed the addition. On further appeal, the Tribunal affirmed the decision of learned Commissioner of Income Tax (Appeals) in the following manner :-

"15. Having carefully examined the material available on record and the orders of the lower authorities, we find that shares were not quoted on the stock exchange and it was subscribed by the persons who were known to the assessee but during the course of hearing despite various opportunities the assessee could not produce them for verification nor was any evidence filed with regard to their financial status. Out of 15 subscribers, 5 subscribers were produced before the Assessing Officer and during the course of the examination it was admitted that they were small agriculturists and were cultivating the agricultural land after taking it on lease from other agriculturists. No evidence regarding the agricultural holdings were produced before the Assessing Officer nor have they filed any evidence with regard to their financial soundness whereas the investment in shares were made between Rs. 1 lakh to Rs. 2.5 lakhs. Copy of the statement are (sic. Is) placed on record and from its perusal one would find that all these 5 persons are of ordinary status and they have no means to invest a huge sum in shares with the assessee.

16. So far as the legal position and the judgment of the apex court in the case of Steller Investment Ltd. (2001) 251 ITR 263 is concerned, we are of the view that the ratio laid down in Steller Investment Ltd. (2001) 251 ITR 263 is applicable only in those cases where the assessee is a limited company and the shares were quoted in the stock exchange. Once the shares are quoted in the stock exchange and the subscription is open to public at large, the assessee cannot have control over the subscription and also cannot make a verification of the subscribers as subscription can be done by any person. But whenever the issue is subscribed without quoting it on the stock exchange by a limited or private limited 38

company the presumption is very strong against the assessee that subscription is available only to the closely connected persons of the assessee. Once the inference is against the assessee that the issue is subscribed by its closely connected persons, the onus is upon the assessee to prove the identity (sic. Identification) of the subscribers and their credit worthiness. Their Lordships of the Hon'ble Calcutta High Court in the case of Bhola Shankar Cold Storage P. Ltd. v. Joint CIT (2004) 270 ITR 487 have examined the judgment of the apex court in the case of Steller Investment Ltd. and that of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd (1994) 205 ITR 98 and have held that in the case of Steller Investment Ltd. the ratio laid down by the Full Bench of the Delhi High Court was not overruled and it still holds the field. Whenever the issue was subscribed by closely connected persons of the assessee and the assessee has failed to prove the identity and creditworthiness the addition under section 68 can be made in the hands of the assessee. In the instant case, the assessee could not place any evidence on record to prove the identity and the creditworthiness of the so-called subscribers and the Assessing Officer was justified in treating this investment as unexplained and made the addition under section 68 of the Income Tax Act. We, therefore, find no infirmity in the order of the learned Commissioner of Income Tax (Appeals). Accordingly, we confirm the same."

Xxx xxx

Xxx xxx

42. We have considered these submissions in so far as the statements of the persons who are produced are concerned, they are gone into and analysed by the three authorities below on the basis of which finding of fact is arrived at that neither their identity is established nor their capacity to invest this kind of money is proved. They are all agriculturists and had not produced a single document to support their version. This is a finding of fact and there is no reason to interfere with the same. Learned counsel for the revenue had drawn our attention to view all these statements. One Mr. Sukh Lal Singh in his statement had stated that he had purchased the shares of Rs. 1,90,000. Out of the share money, he had paid Rs. 70,000 out of his own source and Rs. 1,20,000 was received by him from his friends and was paid in many instalments. Likewise one Mr. Vijay Kumar who also purportedly purchased the shares of Rs. 1.90 lakhs stated that the payments were made by him in cash in many instalments. He also stated that he personally 39

knew the directors of the company and had very old relation with him.

On the basis of such statement without an iota of documentary evidence to support, we are of the opinion that the findings of the authorities below cannot be treated as perverse. It is on proper analysis of the statements of these persons which were recorded by the Assessing Officer. When we keep in mind the principle of law laid down in the ratio in the aforesaid decisions and apply the same to the facts of this case, it is difficult to find fault with the approach of the Tribunal. We have to keep in mind that the ratio in a decision cannot be applied in each case. The facts and circumstances of each case are to be weighed and examined as to whether a particular ratio decided in a particular casae could be applied. As noted above, the initial onus is upon thye assessee to establish three things necessary to obviate the mischief of section 68 of theAct. These are : (i) the identity of investors; (ii) their creditworthiness/investments, and (iii) the genuineness of the transaction. Only when these three ingredients are established prima facie it is only then the department is required to undertake further exercise as discussed above. In the instant casae, no such documents are filed and no steps taken by the assessee which could establish the aforesaid three ingredients.

Additional evidence in the form of bank statement, etc. is given but the assessee has not done anything to prove these bank accounts. On this evidence produced by the assessee remand report was called for and the Assessing Officer in his remand report dated December 23, 2003 submitted as under :-

" None of the 6 alleged shareholders produced any documents in support of their identity. The fact was intimated to the assessee vide order sheet entries dated June 13, 2002 and March 17, 2003 . They are not assessed to tax. They have not produced any documentary evidence showing that they are capable of saving/investing any amount at all. If the persons producved are not carrying relevant documents to establish their identity, creditworthiness at the time of recording of the statements and furnishing photo copy of some documents after a gap of substantial period, it is not possible to verify its correctness unless the concerned persons are produced with necessary documentary evidence (in original) in support of their identity and creditworthiness.

The assessee has not even furnished basic requirements of share capital i.e. cheque number, date, amount(s), details of drawee bank, etc. The assessee's bank account was also not produced. 40

Hence, the assessee's claim regarding investment by the shareholders remained unverifiable. No comments can now be offered at this stage without necessary verification. Proof of identity produced at a later stage cannot be verified in the absence of concerned person's original documents."

45. The order of the Commissioner of Income tax (Appeals) clearly demonstrates that this remand report was sent to the assessee who had submitted his reply dated February 10, 2004 which is even reproduced in the order and thereafter the learned Commissioner of Income Tax (Appeals) discussed the same in the light of certain decisions cited before him and came to the conclusion that the assessee had not given satisfactory evidence to discharge the onus. It had merely given names of the parties without anything more. That would not be sufficient compliance. Even the bank statement of the assessee which was submitted has not been proved.

46. For all these reasons, we are of the view that the assessee had not been able to discharge the onus probandi and addition was rightly made. We, therefore, answer the question in the negative and dismiss this appeal of the assessee."

40. If the aforesaid conclusion drawn by the Hon'ble High Court is kept in juxtaposition with the facts of the present appeal, one fact is clearly oozing out that the assessee has not discharged its onus to the satisfaction of the Assessing Officer and even did not prove the identity of the share applicants. Merely giving the names of such share applicants is not enough especially when these applicants were found non-existent, therefore, this judicial pronouncement clearly goes against the assessee. It is pertinent to mention here that while coming to the aforesaid conclusion the Hon'ble Court also discussed the decisions like AKJ Granites Private Limited; 301 ITR 291 (Raj), CIT v. Arunalanda Textiles Pvt. Ltd. (2011) 333 ITR 116 (Karn.) (para 17) order dated 2nd March, 2010, CIT v. ASK Brothers (2011) 333 ITR 111 (Karn.) order dated 18th February, 2010 . In both these cases, the Hon'ble Karnataka High Court has duly discussed the decision in Lovely Exports Pvt. Ltd. and Steller Investment Ltd. (supra) meaning thereby that both these decisions were rendered after the pronouncements of decisions from Hon'ble Apex Court in Lovely Exports Private Limited (supra). As discussed in other paras of this order, so far as the decision in the case of M/s STL Extrusion vs. DCIT (2010) 15 ITJ 872 (I.T.A.T., Indore) is concerned, that decision was rendered by the Bench on the facts that since the assessee proved the identity of the investors, therefore, it was held that no addition can be made in the hands of the assessee company whereas in the present appeals, the existence/identity of share subscribers was not proved, 41

consequently, these judicial pronouncements rather helps the revenue and not the assessee.

41. Even otherwise, if the ratio laid down by the Hon'ble Apex Court in the case of Lovely Exports Private Limited, while dismissing the Special Leave Petition, it is clear that the initial burden is upon the assessee to prove the identity of share subscribers and once the identity is proved, in case of bogus investment, addition can be made in their individual capacity and not in the case of the company. However, in the present appeals even the identity of such share holders is not proved as we have discussed above, therefore, the initial onus has not been discharged by the assessee especially when the assessee was confronted with the finding of the commission (Inspector), summons/notices returned unserved and the addresses given by the assessee itself that too at four places were found to be fictitious. The assessee has not given satisfactory evidence to discharge the onus. It has merely given the names of fictitious parties and in our humble opinion this is not a sufficient compliance, therefore, the decision from Hon'ble Supreme Court in the case of Lovely Exports may not help the assessee. In a later decision dated 25th October, 2010 the Hon'ble jurisdictional High Court in the case of CIT v. STL Extrusion (P) Limited; (2011) 17 ITJ 648 (MP) even considered various decisions including the off-quoted decision of Divine Leasing & Finance Limited, Rathi Finlease Limited, Steller Investment Limited and of course Lovely Exports Private Limited wherein the assessee filed list of all subscribers and gave affidavits of all subscribers in the form of confirmations and in that situation the Hon'ble Court held that the assessee is required to establish the identity and source of credits and further held that if the confirmation is given, no addition could be made against the assessee whereas in the case of the assessee the share applicants were found to be non- existent, therefore, this judicial pronouncement from the Hon'ble jurisdictional High Court clearly goes against the assessee."

4. If the totality of facts mentioned in the assessment order,

impugned order, conclusion drawn in the order of the Tribunal in

the case of M/s Agrawal Coal Corporation Private Limited and the

assertion made by the respective learned counsel are kept in

juxtaposition and analysed, we find that the Optimates Textiles

Industries Limited (previously known as Priyansh Saree 42

Industries) and Money Penny Finance Limited as non-existent

companies, therefore, their identity is even in dispute. The

transaction made with the non-existent entity cannot be said to

be genuine rather a circuitous method has been devised by the

assessee itself to enroute its own money through these

camouflage routes, therefore, the benefit of the decision in the

case of Lovely Exports Private Limited (216 CTR 195) (SC) cannot

be extended to the assessee. The Tribunal while concluding in

the case of M/s Agrawal Coal Corporation Limited (supra) has

already deliberated upon various decisions from the Hon'ble High

Courts as well as from the Hon'ble Apex Court. Identical is the

situation with respect to unexplained income of Rs. 11 lacs

claimed to be received as share application money from Pramila

Investment & Finance Limited. The Assessing Officer found

considerable amounts of cash transaction with respect to this

company. Inspite of sufficient opportunities and summons

issued u/s 131 of the Act to Pramila Investment & finance

Limited, the identity and credit worthiness was not established.

This company never cooperated in the assessment proceedings.

It is not the case that no opportunity was provided to the claimed

share applicant. Right from the assessment stage, first appellate 43

stage and even before the Tribunal, no effort was made by the

assessee to prove the required ingredients of section 68 of the

Act, therefore, we find no infirmity in the stand of the CIT(A). It is

affirmed.

Finally, the appeal of the assessee is having no merit,

therefore, dismissed.

This order was pronounced in the open Court in the

presence of ld. Representatives from both sides at the conclusion

of the hearing on 12th July, 2012.

Sd sd

(R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 16th July, 2012

Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-121313

44