Case Law Details

Case Name : Saanika Industries Pvt. Ltd. Vs. ACIT (ITAT Ahmedabad)
Appeal Number : ITA No. 207/Ahd/2016
Date of Judgement/Order : 02/03/2017
Related Assessment Year : 2011-12
Courts : All ITAT (4079) ITAT Ahmedabad (312)

M/s Cap Vanijya (P) Ltd. is admittedly a shell/paper company as the director and the controlling person has accepted. As regards Cap Vanijya (P) Ltd. we find that undoubtedly assessee has submitted necessary evidences and details at the primary stage but the Revenue came with a counter to disprove the evidences of assessee with the help of report of Dy. Director of Income-Tax (Inv), Kolkata as well as the statement on oath u/s 131 of the Act of the Director of Cap Vanijya (P) Ltd. and the controlling person Mr. Manoharlal Bangalia clearly accepting this company as a paper/shell company.

Revenue is believed to prove that the activities undertaken by the alleged company are not meeting commercial prudence and the working of this company is merely to provide accommodation entries. Against the counter evidence of the Department proving the company to be a paper company, assessee miserably failed to bring any strong evidence to justify its plea of genuineness and creditworthiness of the alleged cash credit of Rs.18,00,000/-. We are, therefore, of the firm view that ld. Commissioner of Income Tax(A) has rightly confirmed the addition u/s 68 of the Act of Rs.1 8,00,000/- received as share capital and premium from Cap Vanijya (P) Ltd. which is a shell/paper company.

NO ADDITION ON MERE INDICATION ABOUT SOMETHING HAPPENING ABNORMAL 

In the given case the alleged two companies which have responded to the Department’s notices, all details have been filed then it was on the part of Revenue to further deeply examine the modus operandi of the companies with the help of investigation. In the given case the report of Investigation Wing, Kolkata, heavily relied on by the Revenue authorities is having no mention of the alleged two companies. Undoubtedly to a great extent the picture evolving out of the financial statements of the alleged two companies gives an indication about something happening abnormal in their working but that merely cannot be basis to doubt the genuineness and creditworthiness because in various investment companies also one can find that there are no fixed assets and investments are regularly made in other companies. Duty is heavily casted on the Revenue in such type of cases where the burden of proving has been shifted by the assessee to the Revenue by way of furnishing all requisite documents and evidences. It is on the Revenue to further dig out some material information including the statements of persons at helm of affairs of such companies. When the Assessing Officer while confirming the addition has merely taken the information of Cap Vanijya (P) Ltd. being shell/paper company and by comparing the financial patter has confirmed the addition but nowhere any further investigation was carried out even when necessary details were available with him.

RELEVANT EXTRACT OF THE ITAT ORDER

6. We have heard the rival contentions and perused the record placed before us and also gone through the judgments/decisions quoted by both the parties. Though several grounds have been raised but the only issue involved in this appeal revolves round the alleged unexplained cash credit of Rs.61 lacs added to the income of the assessee u/s 68 of the Act by ld. Assessing Officer and duly confirmed by ld. Commissioner of Income Tax(A). We observe that during the course of assessment proceedings ld. Assessing Officer wanted to verify the identity, genuineness and creditworthiness of the following three parties which have subscribed to the assessee’s share capital:-

Sr. No. Name & Address of Shareholders PAN Amount of share capital Share Premium ,
1 Newjet Trexim Pvt. Ltd. 27, 5th Floor, Brabourne Road, Kolkata-700001. AAACN8738P 300000 1500000
2 Cap Van ijya Pvt. Ltd. 1 4-C, 4th Floor, Maharshi Devendra Road, Kolkata-700007. AABCC3989 30000 150000
3 Sadashukh Dealers Pvt. Ltd. 6-A, Raja Subodh Malik Squire, Kolkata-18 AAKCS9420P 500000 200000

We further observe that ld. Assessing Officer took note of the statements recorded by DDIT (inv) Wing of Kolkata in the case of Mr. Anjani Banka, director of Cap Vanijya (P) Ltd. and Manoharlal Nangalia wherein Mr. Anjani Banka admitted that Cap Vanijya (P) Ltd. and other companies are under the control and management of Manoharlal Nangalia who has further confirmed that Cap Vanijya (P) Ltd. is a paper/shell company engaged in providing accommodation entries of share capital/premium. We further observe that ld. Assessing Officer on examination of the financial statement of alleged three companies prepared charts showing fixed assets, interest income/turnover, accumulated profits and share capital/premium which is summarized below :-

(1) Sadasukh Dealers Pvt. Ltd.

Assessment Year Fixed Assets as on 31st March Interest Income/ Turnover Accumulated profit Share capital & premium
2010-11 NIL 9,14,868 2,423 2,42,50,000
2011-12 NIL 13,07,459 3,004 2,42,50,000

(2) Newlet Trexim Pvt. Ltd. (NTPL)

Assessment Year Fixed Assets as on
31st March
Interest Income/ Turnover Accumulated profit Share capital & premium
2010-11 NIL 17,86,754 (-)1 ,1 0,918 32,32,20,000
2011-12 NIL 15,20,035 (-)1,07,199 32,32,20,000

(3) Cap Vaniiva Pvt. Ltd. CVPL

Assessment Year Fixed Assets as on 31st March Interest Income/ Turnover Accumulated profit Share capital & premium
2010-11 NIL 19,43,641 21,367 36,86,51,200
2011-12 NIL 17,00,594 25,117 36,86,51,200

Ld. Assessing Officer on the basis of above three charts observed that there is a common working style of the alleged three companies which were having NIL fixed assets and meager accumulated profits. It was also observed from the balance sheets and schedules thereto that huge investments have been made in the share capital of various companies and the bank statements of these companies are conspicuously replete with deposits and withdrawals of same amounts in a short span of one or two days which shows that these companies are just acting as a conduit of funds with no real business.

6.1 We further observe that ld. Authorised Representative has repeatedly asserted the fact that assessee company which is having a huge turnover of Rs.189.98 crores as against Rs.116.19 crores in the immediately preceding year and regular manufacturing activities are being carried out. Share capital/premium received during the year has been utilized for the business purposes including purchase of machinery. The share capital/premium received during the year apart from the alleged three companies have also come from other share holders relates to directors and some amount of premium have been paid by them and this fact is not disputed by the Revenue. Ld. Authorised Representative has also submitted that all evidences in support of identity, creditworthiness and genuineness which a prudent businessman can collect within his limited power which includes addresses, Permanent Account Number, confirmation letters, bank statement and audited balance sheet and profit and loss account and no error has been found in this regard. Further it is not possible for the assessee to know about the source of source and such powers are with the Revenue authorities to make the investigation. However, we also observe that ld. Authorised Representative was unable to file any documentary evidence to show that there was a communication between the company officers and the alleged three companies which can prove any connection between them and also the intention to invest in the assessee company. Ld. Authorised Representative also could not reply that why company based in Kolkata can invest all the way in a company in Gujarat without having any previous business connection.

7. We observe that both the ld. Representatives have referred and relied on various judgments/decision dealing with the issues of unexplained cash credit u/s 68 of the Act as well as reopening of assessment proceedings u/s 147 of the Act which in nutshell gives the view that merely furnishing of PAN, income-tax returns and confirmation may not be sufficient evidence to prove the genuineness and creditworthiness of the person and one more step is required from either side to substantiate their plea. At this juncture we find it pertinent to observe the finding given by the Co-ordinate Bench in the case of ACIT vs. Nakoda Fashion (P) Ltd. in ITA No.1716/Ahd/2012 wherein quite similar issue has been adjudicated and the Co-ordinate Bench has held as follows :-

“7. We have heard the rival contentions and perused the material placed before us and gone through the judgments, decisions cited by both the parties. The solitary grievance of the Revenue is against the order of ld. CIT(A) deleting the addition of Rs.3.5 crores made u/s 68 of the Act towards share capital and share premium. We find that during the year under appeal Rs.70 lacs each was contributed by following 5 parties totaling to Rs.3.5 crores towards share capital and share premium by way of subscribing one lacs equity shares having face value of Rs.10/- each and premium of Rs.60/-:-

1. Green Star Financial Service Pvt. Ltd. Rs. 70,00,000/-
2. Archer Financial Service Pvt. Ltd. Rs. 70,00,000/-
3. Suraj Corporate Service Pvt. Ltd. Rs. 70,00,000/-
4. Fly High Exports Pvt. Ltd. Rs. 70,00,000/-
5. Oasis Cine Communications Ltd. Rs. 70,00,000/-

8. We further observe that total amount of Rs.3.5 crores was received through account payee cheques. During the course of assessment proceedings itself in order to prove the identity, creditworthiness and genuineness of the transactions, assessee has filed PAN, copies of income-tax returns for Asst. Year 2009-10, confirmation regarding share purchases along with proof of payments through cheques, copies of bank accounts and audited balance sheets for Asst. Year 2009-10. We further find that summon was served u/s 131 to the following three parties based at Ahmedabad :-

(3) Green Star Financial Service Pvt. Ltd., Ahmedabad.

(4) Archer Financial Service Pvt. Ltd., Ahmedabad.

(5) Suraj Corporate Service Pvt. Ltd., Ahmedabad.

9. It was alleged by assessee that summons u/s 131 were not received by Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. As far as personal attendance of the director of Suraj Corporate Service Pvt. Ltd., authorized representative on behalf of the company appeared and again filed documents which were already filed by the assessee and submitted that he took leave on behalf of the director for attending in personal due to illness of director’s father. We further find that Assessing Officer came across the statement of Mr. Jitendra Jain, one of the directors of Sura] Corporate Service Pvt. Ltd., Ahmedabad recorded by DDIT(Inv) on 21.9.2010, in case of another investigation, in the case of M/s B. R. Metals and Alloy (Gu]arat) Ld., wherein it was stated by Mr. Jitendra Jain that the said company, Sura] Corporate Services Pvt. Ltd. provides accommodation entries to the companies which gives cash to the said entities and the same was routed through various other paper entries and finally from the bank account of Sura] Corporate Services Pvt. Ltd. the same was introduced in the form of share application money.

10. Relevant extract of statement recorded on 21.09.2010- in the form of Questions & Answers in respect of Shri Jitendra Jain by DDIT(Inv), Ahmedabad, are as follows :-

Q. 22. In which companies you are the director within last 6 years ? Pl. explain.

Ans:22 I am the director within last 6 years in the following companies –

1. Surat Corporate Services Pvt. Ltd.

2. Grin BPO Services Pvt. Ltd.

3. Siddhi Vinayak Fincap Ltd.

4. Shel]a Finlease Pvt. Ltd.

5. Radhe Finservice Pvt. Ltd.

6. Tirupati Shelters Ltd.

7. Honest Business Deal Pvt. Ltd.

Q. 24. How much transactions of Sura] Corporate Services Pvt. Ltd. and Grin BPO Services with B. R. Metals and explain the nature of transaction ?

Ans :24 During the F. ‘.2008-09 from Sura] Corporate Services Pvt. Ltd. the company invested Rs. 1 crores with B. R. Metals vide a/c No.2 13090 of PNB as share capital and Grin BPO Pvt. Ltd. has invested 1 crores 85 lacs in F. ‘.2008-09 through bank account no.2 13373 of PNB as share capital.

Q. 25 What are the sources of above investment ?

Ans: 25 The transactions are nearly accommodation entries whereby cash was received from B. R. Metals and Alloy (Gujarat ) Ltd. which was then routed through a few bank a/cs of paper concerns and ultimately the money was invested in B.R. Metals & Alloys (Gujarat) Pvt. Ltd. through PNB by Suraj Corporate Services Pvt. Ltd. and Grin BPO Pvt. Ltd. as share capital and had received commission of 0.25% for making this arrangement.

11. We further find from going through the bank statement of one of the impugned party Fly High Exports Pvt. Ltd., Kolkata placed at pages 21 & 22 of CIT(A)’s order that a large volume of transaction totaling in crores of rupees have passed through their bank account during the year but when we turn to the profits and loss account, there is a meager interest income of Rs.9,77,080/- and similarly in case of Oasis Cine Communication Ltd., Kolkata against bank transaction in crores of rupees there is sales turnover of Rs.348500/- and net profit before tax at Rs.1289.56 which shows that the transactions which happened through the bank account are not having any impact on the profit and loss account.

12. Similarly in the case of Suraj Corporate Services Pvt. Ltd. when we refer to the bank statement placed on pages 14 & 15 of CIT(A)’s order, we find that transactions worth crores of rupees have moved through bank balances at various points of time are more than Rs.50 lacs whereas a meager amount of interest has been shown at 18,903/-. Similar type of financial datas are depicted in other two impugned parties namely – Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. having common address. From observing these documents it seems that huge volume of transactions are in the form of debit and credit of cheques and are of typical nature of paper companies engaged in providing accommodation entries.

13. Further we observe that Co-ordinate Bench, Kolkata in the case of Subhlakshmi Vanijya(P) Ltd. vs. CIT (2015) 60 taxmann.com60 (Kolkata –Trib) came across issue relating to unexplained cash credit u/s 68 of the Act wherein share capital was received from companies having very meager income and low financial capacity to invest huge amounts in other companies”share capital wherein the Co-ordinate Bench has held as under :-

HELD

Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company?

  • As per section 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. This section has received the attention of the Supreme Court and almost all the High Courts in numerous cases. It has been almost unanimously held that the burden under this section is discharged by the assessee only when the assessee proves three things to the satisfaction of the Assessing Officer, , identity of the creditor, capacity of the creditor and genuineness of the transactions. Onus under section 68 can be said to have been discharged only when the assessee proves identity and capacity of the creditor along with the genuineness of transaction to the satisfaction of the Assessing Officer. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the Assessing Officer can lawfully make addition.[Para 13.b.]
  • In case of a closely held company where the shares are issued to the family members or close friends/relatives, the burden of proof rests on the company to properly explain the identity and capacity of shareholders along with the genuineness of the transactions. Ex consequent^ the argument of the assessee that he was not obliged to explain the genuineness of share capital after having furnished preliminary details about the shareholders etc., is not capable of acceptance and hence reje ?%d. In all cases, where the assessee fails to cumulatively prove to the satisfaction of the Assessing Officer, the identity and capacity of the shareholders along with the genuineness of the transactions there can be no escape from section 68.[Para 13.t]

Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1 -4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective?

  • As per this proviso where any share capital etc. is credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the Assessing Officer. The essence of this amendment is that a closely held company is required to satisfy the Assessing Officer about the share capital etc. issued by it, in the absence of which, an addition under section 68 can be made in the hands of the company. If the amendment is accepted to be prospective, then it would mean precluding the Assessing Officer from examining the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition under section 68 notwithstanding the same being non-genuine. In the oppugnation, if the amendment is held to be retrospective, then it would mean that the Assessing Officer would have all the powers to examine the genuineness of share capital and share premium received by the assessee company on the touchstone of section 68. If the assessee fails to satisfy him on the identity and capacity of the subscribers and genuineness of) transactions, then addition will be called for under section 68. [Para 13.w.]
  • It is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the feet that such amendment to the substantive provision has been given prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the1date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum explaining the provision of the Finance Bill etc. [Para 13.x.]
  • Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the feet that the amendment has been given effect prospectively. The border line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. [Para 13aa]

On adverting to the language of section 68, it transpires that it refers to ‘any sum credited’ in the books of an assessee maintained for any previous year. The expression ‘any sum credited’ has not been specifically defined in the provision Thus, it would extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to ‘any sum credited’, there can be no reason to restrict its application only to ‘loans’ and not to ‘share capital1. The burden of proof under section 68 can be no different in respect of issue of share capital by closely held companies vis-a-vis loans or gifts. The High Court in CIT v. Maithan International [2015] 375 ITR 123/231 Taxman  381/56 taxmann.com 283 (Cal.). CITv. Active Traders (P.) Ltd. Ј19951214 ITR 583/[1993] 69 Taxman 281 (Call Mimec (India) (P.) Ltd, v. Dy. C1T[2Q\3] 353 ITR 284/216 Taxman 157 (Mag.)/35 taxmann.com 319 (Cal.) and CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623/1 30 Taxman 153 (Cal.)a has specifically held that the three ingredients, viz, identity and capacity of creditor and genuineness of transaction are required to be satisfied even in case of issue of share capital by a closely held company. It shows that the intention of the legislature, as interpreted by the High Court, is always to cast duty on the assessee to prove the satisfaction of the three ingredients in case of transaction of issue of share capital by a closely held company in the same way as is in the case of transaction of loans. [Para 13. ab]

A careful perusal of the first para of the Memorandum brings out that the onus of satisfactorily explaining issue of share capital with premium etc. by a closely held company is on the company. Next para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the Assessing Officer and it was only with the aim of setting to naught certain contrary judgments which ‘created doubts’ about the onus of proof by holding that there was no requirement on the company to prove the share capital etc. and as such no addition could be made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. [Para 13. ad.]

Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the assessee being devoid of any merit, are hereby jettisoned. [Para 13. ae.]

Thus, the contention of the assessee that since the Assessing Officer of the assessee-company is not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 with effect from assessment year 2013-14 and hence the Commissioner by means of impugned order under section 263 could not have directed the Assessing Officer to do so, is unsustainable. [Para 13.ak.]

14. We further observe that in the case of CIT vs. N. Tarika Properties Investment in ITA No.2080 of 2010 Hon. Delhi High Court vide its judgment dated 28.11.2013 has held as under :-

31. We are of the considered opinion that the Assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. The surrounding circumstances and inquiries made by the Assessing Officer were significant but the said finding though not disturbed have been ignored. Further the Tribunal has failed to take holistic view and has relied upon neutral and general evidence without noticing other evidence, which are :-

a) The Respondent – Assessee is a private limited company.

b) The subscribers were unknown persons, not related or friends.

c) The subscribers bank account statements furnished were forged and fabricated.

d) There were corresponding cash deposits in the bank accounts before issue of share application cheques.

e) The subscriber companies it has been shown were carrying on effective and day to day business or were angle investors.

f) The subscribers did not bother and ensure protection of their investment.

32. In view of the above, we are of the view that the Assessee has not discharged the onus satisfactorily and the additions made by the Assessing Officer was justified and sustainable and the order of the Tribunal ignoring and nor dealing with the factual findings recorded by the assessing officer is perverse .

33. The substantial question of law is thus answered in favour of the Appellant/Revenue and against the Respondent/Assessee. The appeal is accordingly allowed with costs that are assessed at Rs. 2O,000/-.

15. Further we observe that in the case of Sumati Dayal vs. CIT 1995 AIR 2109, Hon. Supreme Court held as under :-

5. It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provi- sion and if a receipt is in the nature of income, the burden ofproving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See :Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. (See : Sreelekha Banerfee (supra) atp. 120)

16. Further we observe that in the case of CIT vs. Maithan International (2015) 56 com283 (Calcutta), Hon. Calcutta High Court has held as under :-

Held –

  • When payment by cheque did not establish the creditworthiness of the lender mere examination the pass bOOK or the bank statement or me letter of confirmation or the balance sheet of the lender was not enough.

The inspector appointed by the Assessing Officer did not go beyond the aforesaid documents. Therefore, it cannot be disputed that the view formed by the Commissioner that in none of the reports, he has commented upon the issue of creditworthiness ;.e. whether these parses had sufficient means to advance such huge loans, is not without basis.

  • It is well establishes that credits allegedly based on loan from parties, who are. not possessed of sufficient means cannot be accepted as genuine. The Assessing Officer was required to make proper investigation to determine whether the money was really lent by the third party or it has come out of the resources of the assessee himself. Thus the Assessing Officer has failed to apply his mind to all aspects of the case is self-evident. Such non-application of mind constituted passing of an erroneous order which is also prejudicial to the interest of revenue. [Para 11]

I In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the bank pass book, profit and loss account and balance sheet of the creditors is not enough. When the requisite enquiry was not made, the order is bound to be erroneous and prejudicial to the interest of the revenue. The Tribunal proceeded on the theory that it was not a case of no enquiry; that no doubt is true, but that is not enough, if the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind. [Para 12]

  • The power under section 263 can be exercised where the order of the Assessing Officer is erroneous and prejudicial to the interest of the When an order is erroneous, then the order is also deficient and in order to remedy the situation, power under section 263 has been given. Therefore, the view that the power could not have been exercised to allow the Assessing Officer to make up the deficiency is altogether an incorrect impression of the law. [Para 16]
  • It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial, orders. Where the relevant enquiry was not undertaken as in this case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. .[Para 19]
  • In view of above, the order of the Tribunal is set aside.

17. Hon’ble Apex Court in the case of Navodaya Castle (P) Ltd vs CIT reported in (2015) 56 com18 (SC) has held that mere filing of certificate of incorporation, PAN were not sufficient for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor.

18. Examining the facts in the light of above judgments and decisions we observe that assessee is a private limited company which is not open to public and, therefore, if it requires to increase its capital base or invite investment in the share capital along with premium which in this case is Rs.60/- over the face value of Rs. 10/- then it has to approach within its friends and relatives for the In the given case Rs. 70 lacs each has been given by the impugned 5 parties to the private limited company i.e. the assessee. Any prudent person who intends to invest in a company with a motive of gaining from the said investment, looking to the quantum of share capital and premium invested by these 5 parties which is of a substantial percentage of the total share capital of the company it is surprising to note that none of them was able to appear before the Assessing Authority nor the assessee was able to bring any of them in person to prove the genuineness of transaction and creditworthiness of the investor towards share capital and share premium given these impugned 5 parties. More so we find that out of the 5 parties three parties are within Ahmedabad and so is the assessee. It is not simple to believe that none of them could have been made to appear before the Assessing Officer to prove the transaction. This non-attendance of the equity share holders makes the situation little grimy which further gets suspicious when the financial statements are gone through. It has been uniform situation in all the 5 parties that transactions totaling in crores are routed through bank accounts, huge reserve and surplus is appearing in the balance sheet along equal amount of investment; but when the profits and loss account is looked into it seems complete dry as interest against investment running in crores the income shown is few thousand and so is the total turnover. Adding more to this in the statement given by one of the directors of Suraj Corporate Services Pvt. Ltd. it has been clearly accepted that Suraj Corporate Services Pvt. Ltd. is an accommodation entry provider and just a paper company. This modus operandi of accommodation entry provider cannot get itself covered under the shadow of PAN, income-tax return, audited financial statement and proof of transactions by account payee cheques. One has to go ahead to rethink why such company is incorporated. In normal course a business entity is incorporated to earn profits and capital is contributed for doing the same but when the capital investment or reserve and surplus created is just used to invest in other companies without having any return and the gross turnover of the company is not having any direct connection with the voluminous bank transaction then such companies end up into a paper company.

19. From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case before us we observe that assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily called upon the The investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. If this has been the situation, then there would have been no doubt on the genuineness of the transactions. On the contrary in the instant case assessee completely fails to prove the same.

20. It is well settled that in order to discharge the onus the assessee must prove the following :-

i. The identity of the cash creditor;

ii. Capacity of the cash creditor to advance money towards capital.

iii. Genuineness of the transaction.

If the assessee has adduced evidences to establish the prima facie, the aforesaid onus shifts to the Department. However, mere furnishing of particulars or the mere fact of payment by account payee cheque or the mere submission of confirmation letter by the share applicant is by itself, not enough to shift the onus to the Department although these facts may, along with other facts be relevant in establishing the genuineness of the transaction. As held by Hon. Supreme Court in the case of CIT vs. N. Tarika Properties Investment (2014) 51 taxmann.com 387(SC) that “PAN cannot be treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of application without actual de facto clarification of identity or ascertainment of activities, nature of business activity and are just as to facilitate the Revenue to keep track of transactions and thus PAN cannot be blindly and without consideration of surrounding circumstances treated as sufficient disclosing the identity of individual”.

21. We further observe that Hon. Delhi High Court in the case of CIT V Empire Builtech P Ltd 361 ITR 258 (Del), has held that when assessee does not produce evidence or tries to avoid the appearance before the Assessing authority it necessarily creates difficulties and prevents ascertainment of the truth and correct facts as the Assessing Officer is denied the advantage of the attendance or factual assertion by the assessee before him. If an assessee deliberately and intentionally fails to produce evidence before the Assessing Officer with the desire to prevent enquiry or investigation an adverse opinion should be drawn. The assessee had not discharged the initial onus to establish the identity, creditworthiness of the share applicants and the genuineness of the transactions. The additions made by the Assessing Officer were justified and sustainable.

22. We are, therefore, of the view that in the given facts and circumstances of the case and respectfully following the judgments of Hon. Supreme Court, High Court and the decision of Co-ordinate Bench as discussed above, we are of the confirmed view that assessee has been able to just prove the identity of the company but unable to prove the genuineness & creditworthiness of the impugned 5 parties. In the result, the sum of Rs.3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the ld. Assessing Officer. We set aside the order of ld. CIT(A) and restore that of the Assessing Officer. In the result ground no. (i) of Revenue is allowed.

 7.1 On going through the above decision of Co-ordinate Bench which has referred and relied on various judgments of Hon. Supreme Court, Hon. High Courts and Tribunal’s decisions and examining the facts of the case in the light of the above, we find that one common event is with regard to the report of investigation of the Department and the statement on oath of the director of one of the alleged companies admitting it to be a paper company. In the case of assessee out of the alleged three companies M/s Cap Vanijya (P) Ltd. is admittedly a shell/paper company as the director and the controlling person has accepted. As far as other two companies are concerned there is no such report of the investigation wing to prove them to be paper companies. We will, therefore, proceed further by segregating the alleged three companies into two parts wherein in the first part we will discuss about Cap Vanijya (P) Ltd. and the second part remaining Newjet Trexim (P) Ltd. and Sadasukh Dealers (P) Ltd.

8. As regards Cap Vanijya (P) Ltd. we find that undoubtedly assessee has submitted necessary evidences and details at the primary stage but the Revenue came with a counter to disprove the evidences of assessee with the help of report of Dy. Director of Income-Tax (Inv), Kolkata as well as the statement on oath u/s 131 of the Act of the Director of Cap Vanijya (P) Ltd. and the controlling person Mr. Manoharlal Bangalia clearly accepting this company as a paper/shell company. Revenue is believed to prove that the activities undertaken by the alleged company are not meeting commercial prudence and the working of this company is merely to provide accommodation entries. Against the counter evidence of the Department proving the company to be a paper company, assessee miserably failed to bring any strong evidence to justify its plea of genuineness and creditworthiness of the alleged cash credit of Rs.18,00,000/-. We are, therefore, of the firm view that ld. Commissioner of Income Tax(A) has rightly confirmed the addition u/s 68 of the Act of Rs.1 8,00,000/- received as share capital and premium from Cap Vanijya (P) Ltd. which is a shell/paper company.

9. As regards remaining two companies namely Newjet Trexim (P) Ltd. and Sadasukh Dealers (P) Ltd. we observe that both these companies have replied to the notice u/s 133(6) of the Act and assessee has furnished all necessary details which include income-tax returns, audited balance sheets, bank statements and confirmations of accounts. We also observe that in the case of these two companies there is no negative report of the Investigation Wing of the Income-tax Department and also in the statement of Manohar Lal Nangalia there is no reference of these two companies. However, Revenue have made a guess work on the basis of the financial datas of these two companies and comparing it with that of Cap Vanijya (P) Ltd. and have taken a similar view which seems to be merely a guess work without having a concrete base or evidence. It is well established fact that each assessee is having its distinct identity and its own course of working. Unless the companies are working in the same group or a under a common director it merely cannot be inferred by comparing the finance of the paper company that the alleged two companies are also paper companies. In the given case the alleged two companies which have responded to the Department’s notices, all details have been filed then it was on the part of Revenue to further deeply examine the modus operandi of the companies with the help of investigation. In the given case the report of Investigation Wing, Kolkata, heavily relied on by the Revenue authorities is having no mention of the alleged two companies. Undoubtedly to a great extent the picture evolving out of the financial statements of the alleged two companies gives an indication about something happening abnormal in their working but that merely cannot be basis to doubt the genuineness and creditworthiness because in various investment companies also one can find that there are no fixed assets and investments are regularly made in other companies. Duty is heavily casted on the Revenue in such type of cases where the burden of proving has been shifted by the assessee to the Revenue by way of furnishing all requisite documents and evidences. It is on the Revenue to further dig out some material information including the statements of persons at helm of affairs of such companies. When the Assessing Officer while confirming the addition has merely taken the information of Cap Vanijya (P) Ltd. being shell/paper company and by comparing the financial patter has confirmed the addition but nowhere any further investigation was carried out even when necessary details were available with him.

10. We. therefore, in the given facts and circumstances and totality of facts of the case and our discussion made above, are of the view that the issue relating to share capital/premium received from Netjet Trexim (P) Ltd. and Sadasukh Dealers (P) Ltd. of Rs.18,00,000/- and Rs.25,00,000/- respectively needs to be remitted back to the file of Assessing Officer for making further investigation with the help of well equipped Govt. machinery and the power to make commission to the counter part in the city where the alleged companies are existing so as to substantiate its plea that the alleged two companies are paper companies and also to find out the actual modus operandi of these companies qua investments in share capitals of other companies qua their business operation qua the income earned during the year. Needless to mention that assessee will have a proper opportunity of being heard for putting forth its arguments and submissions against the information collected by the Revenue authorities. We accordingly partly allow assessee’s appeal for statistical purposes.

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