M/s. Royal Rich Developers Pvt. Ltd. Vs DCIT (ITAT Mumbai)
We are of the considered view that the onus is on the assessee company to bring on record the cogent evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction which in the instant case the assessee is not able to prove the same as per the facts emerging from the records and material before us as set out above and in our considered view in the instant case the transactions were nominal rather than real . The creditworthiness of the shareholders is not proved because they did not had their own money as every cheque/draft issued in favour of the assessee is preceded by deposit of cash/cheque in the bank account of the shareholder and these share holders are merely name lenders. The genuineness of the transactions is also not proved as to how such a huge sum of money got invested by the share subscribers and that too at a huge premium when the company was merely a paper/shell company having no business/project worth in its hand. The shareholders could not be interrogated by the AO which was essential to unearth the truth as the assessee did not produced the shareholders nor they appeared before the AO in response to summons issued u/s 131 of the Act. The Directors namely Mr. Vinod K Faria and Mr Suresh V. Faria of the assessee company have admitted in their statement recorded on oath u/s 132(4)/131 of the Act that these share subscription was bogus and were merely accommodation entries. The blank transfer forms and receipts from the shareholders were found during survey with respect to transfer of these shares from shareholders to the persons to be nominated by the promoters, all the share application forms were filled in the same handwriting, there was no serial numbers in share application form, the acknowledgment of receipt of share application forms were not given to the share subscribers by the assessee and these are not usual conduct of the carrying on of business . Under these circumstances keeping in view of cumulative reasons and summation of our discussions as set out above, we are of the considered view that the Revenue has rightly made the addition of Rs.1.60 crores received as share subscription as unexplained cash credit u/s. 68 of the Act which we sustained and we do not found any infirmity in the orders of the learned CIT(A) which we sustain/upheld. We order accordingly.
Read High Court Judgment- Bogus Share Capital- Onus is on assessee to prove genuineness of transaction
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals filed by the assessee company for the assessment years 2006-07 and 2007-08 are directed against two separate appellate orders of the learned Commissioner of Income Tax (Appeals)- 40, Mumbai (Hereinafter called “the CIT(A)”) both dated 24th February, 2014, the appellate proceedings before the learned CIT(A) arising from the two separate assessment orders dated 14.12.2009 and 18.12.2009 respectively passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) read with Section 147 of the Income Tax Act,1961 (Hereinafter called “the Act”) and Section 143(3) of the Act respectively.
2. The following common grounds of appeal (only change in the figures) are raised by the assessee in both these appeals in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1. The learned C.I.T. (A) has erred in upholding the addition of Rs. 1,60,00,000/- (for A.Y. 2006-07) and Rs. 3,75,00,000/- (for A.Y. 2007-08) on account of alleged bogus share subscription, as unexplained cash credit u/s. 68 of the Income Tax Act, 1961.
Your appellant respectfully submits that on facts and in law the addition of Rs. 1,60,00,000/- (for A.Y. 2006-07) and Rs. 3,75,00,000/-(for A.Y. 2007-08) is unjustified and should therefore be deleted.”
3. First we shall take up the assessee’s appeal in ITA No. 1835/Mum/2014 for the assessment year 2006-07. The brief facts in this case are that the assessee company belongs to Shri Vinod Faria/Milan Dalal group of cases. A search and seizure action u/s 132 (1) of the Act was carried out on 30th May, 2008 at the office and residential premises of Shri Vinod Faria, Director and the key person of the group were covered. The premises of the assessee company at Mahavir Annexe, 345, Kalbadevi Road, Mumbai was also covered u/s 133A of the Act on 30th May, 2008. During the course of survey action at the office of the assessee various incriminating documents containing share application forms, blank transfer forms and blank receipts for repurchase of the allotted shares , copies of bank pass book of share subscribers where cash has been deposited etc. were found and impounded. The assessee company was incorporated on 17th March, 2006 and the Directors were Shri Vinod K. Faria, Shri Suresh K. Faria and Shri Parag Amarshi Nisar. The assessee company had issued 4 lacs equity sharers in financial year 2005-06 and 9,37,500 shares in financial year 2006-07. The shares of the face value of Rs. 10/- per share had been issued at a premium of Rs. 30/- per share. Thus an amount of Rs. 1.60 crores was credited as share subscription in the financial year 2005-06 and Rs. 3.75 crores in the financial year 2006-07 .The details of the incriminating documents found and impounded during the survey action are as under:-
“Annexure A-1 Pages 1 to 216 impounded from R. No.47. 2nd Floor. Bhupen Chamber, Dalal Street, Fort, Mumbai -1.
This file contains the documents such as acknowledgement of the return filed, copy of the bank passbook, blank transfer forms and blank stamped receipts given by the share subscribers of the assessee company. The share subscription credited in the books of accounts of the assessee in the names of the various persons is mere accommodation entries obtained by payment of the equivalent amount of cash + other charges and hence the same is bogus in nature. The documentary evidence in this file confirms the findings.
3. Annexure A-2 containing Pages 1 to 104
This file contains the copies of share application forms and undated letter from the share subscriber of the assessee in respect of share subscription credited in the books of accounts of the assessee during the F.Yrs. 2005-06 and 2006-07. It was observed that all the share application forms are filled in with common handwriting, all the share applicants have merely signed the application form, no application number is given in any of the applications, the acknowledgement due to be issued to the share subscribers has not been issued at all and the request letter addressed to the Board of Directors of the assessee company has also not been dated. These facts evidence show that the accommodation entries in the guise of share subscription have been stage managed and this fact has also been admitted by the Director of the assessee company, Mr Vinod Faria in his statement u/s 132(4) dated 31-05-2008. Besides the above two impounded loose Annexures, Annexure A-3 ( pages 1 to 212) also contains the similar nature of incriminating documents showing the clear-cut evidence that the assessee company has introduced bogus share subscription in the names of various parties which are nothing but mere accommodation entries.”
The case was reopened u/s 147 of the Act as the Revenue had reasons to believe that the income has escaped assessment to the tune of Rs. 1.60 crores. The reasons for reopening of the assessment were recorded and notice u/s 148 of the Act was issued on 4th September, 2009 and served upon the assessee. The Copy of the reasons recorded was provided to the assessee.The assessee requested that the original return filed u/s 139(1) of Act be treated as return of income filed in pursuance of notice u/s 148 of the Act. The Copies of the statements recorded of Shri Parag A. Nisar, Shri Suresh V. Faria and Shri Vinod K. Faria, the Directors of the assessee company were also provided by the AO to the assessee company. The A.O. also referred to the proceedings u/s 133A of the Act and also during the recording of statement u/s 131 of the Act whereby the Directors of the assessee were confronted with all the impounded material and questions were asked based upon the incriminating papers. In the statement recorded of Shri Parag A. Nisar, Director on 18-06-2008 whereby he has submitted that he has not rendered any services to the assessee and he has been paid salary only for signing the documents of the assessee. He stated that Shri Vinod K. Faria looked after all the affairs of the assessee company and the books of accounts are maintained by Mr Viren Mehta at his office.
As per the AO, the statement recorded of Mr Suresh V. Faria , the other Director of the assessee recorded on 18-06-2008 also evidences that Sh Suresh V. Faria also did not participated in the day to day business activities of the assessee company. The said Suresh V Faria also confessed in reply to question no. 13 in the statement recorded that the share subscriptions are only accommodation entries. On being asked about who managed the cash for obtaining the accommodation entries in guise of share subscriptions, Sh Suresh V. Faria replied that he does not know anything and that all the affairs are looked after by Mr. Vinod K Faria.
The A.O. observed that the whole and sole key person of the business activities of the assessee is Sh Vinod K Faria . The statement of Shri Vinod K. Faria were recorded u/s 131/132(4) of the Act on various dates in which he admitted that the share subscription for the assessee was bogus and they were mere accommodation entries and his confession regarding the accommodation entries of share subscription is clear from the following answer to the question No. 23 in his statement recorded on 31st May, 2008 u/s. 132(4) of the Act:-
“Q. 23 I am drawing your attention to the documents No. A-l to A-4 impounded during the course of survey u/s 133A at Room No. 47, 2nd, Floor, Bhupen Chambers ,Fort, Mumbai 400 001. These files contain the blank receipts obtained from the shareholders of this company and blank transfer forms. There is no evidence of share certificates sent to any of them. These facts indicate that the share subscription of Rs. 5.50 crore is nothing but book entries obtained from various persons against cash payments. What do you have to comment about these observations?
Ans. Your presumption is correct. I am unable to furnish my further comments thereon.
While Shri Vinod K. Faria in reply to question No. 32 replied as under:-
“Ans. Searches and surveys have been carried out at our group offices as well as at the residences of myself and my brother, Mr. Mahesh Faria and my associates, Mr. Milan Dalal. During the course of search/survey, I have been given to understand that various incriminating evidence has been found evidencing the investment in the immovable and movable properties by me and other entities. We may also not be in a position to prove the genuineness of the share capital subscribed by M/s Royal Rich Developers Pvt. Ltd to the satisfaction of the Department.
Considering these facts, I, as an authorized representative of all these entities, declare an income of Rs. 10.00 crore as additional income over and above to the regular income recorded in the’ books of accounts. Details of entity and assessment year-wise breakup of the income offered to tax will be furnished separately after going through the seized records and other details from our books of accounts.”
The A.O. allowed for inspection of the impounded loose papers to the assessee and copies of the impounded material was also furnished to the assessee. The contention of the assessee was that loose papers were not found in the premises of the assessee was rejected on the ground that the loose papers were found in the business premises of the main group of concerns where all the Directors were doing their business activities.
The A.O. observed that two Directors of the assessee in their statement recorded had denied having knowledge of the affairs of the assessee and they were merely signing the documents as an when called upon to sign the same by Shri Vinod K Faria who was the main and Key Director of the assessee and was in charge of all the activities including financial affairs of the assessee. Sh Vinod K Faria has admitted in his statement recorded u/s. 132(4) of the Act on 30th May,2008 that the share subscription was bogus and were mere accommodation entries. Further, Shri Suresh V. Faria, another Director in his statement recorded u/s 131 of the Act in reply to question No. 13 has confirmed that the share subscription were bogus and they were mere accommodation entries. Another Director Shri Parag A. Nisar in his statement recorded on 18th June, 2008 u/s 131 of the Act admitted that all the day-to-day business activities were done by Shri Vinod K. Faria and he was not aware of the nature of the business of the assessee. The assessee did not gave any replies to the documents impounded on the grounds that they were not impounded from the premises of the assessee.
Thus, the A.O. made addition of Rs.1.60 crores as unexplained cash credit u/s 68 of the Act on the grounds that the assessee has introduced bogus share subscription of Rs.1.60 crores in its books of accounts which the assessee could not explain either during the survey or post survey enquiries. The main Director of the assessee Sh. Vinod K Faria has ultimately confessed that the share subscription is mere accommodation entries , and accordingly additions of Rs.1.60 crores were made by the AO to the income of the assessee as unexplained cash credit u/s 68 of the Act, vide assessment order dated 14-12-2009 u/s. 143(3) read with Section 147 of the Act .
4. Aggrieved by the assessment order dated 14-12-2009 passed by the A.O. u/s. 143(3) read with Section 147 of the Act, the assessee filed its first appeal before the ld. CIT(A).
5. Before the ld. CIT(A) the assessee submitted that the independent enquiry be made with each shareholder to find out the truth about the genuineness of the share transaction. The assessee contended that the assessee may be given opportunity to produce the shareholders before the A.O. in person, for examination. The ld. CIT(A) forwarded the submissions of the assessee to the A.O. for his remand report. In the said forwarding letter by the learned CIT(A) to the AO , it was mentioned that during the assessment proceedings similar request was made by the assessee to the A.O. for conducting independent enquiries with the shareholders to ascertain the genuineness or otherwise of the share subscription but the A.O. has not acceded to the request , and also it is contended by the assessee that the sufficient time was not given by the AO to the assessee to produce the lenders. In the remand report submitted by the A.O. to learned CIT(A), it was contended by the AO that reasonable opportunity were given to the assessee in remand proceedings, wherein show cause notices were issued on 10thJuly 2013 and 11th September, 2013 to the assessee, wherein the assessee in reply contended that the assessee is a Private Limited Company registered with the Registrar of Companies ,Maharashtra on 17-03-2006 and the main object of the company is to carry on the business to construct, develop, buy, sell , to act as commission agent and contractor in land, building, house, industrial gala, sheds and real estate. It was also submitted that the assessee has not started its business activities till 31st March, 2006. It was submitted that it is inconceivable as to how the assessee could have earned some unaccounted income when the company came into existence only on 17th March, 2006 and the assessee had not started its business. It was submitted that the assessee has issued shares at premium of Rs. 30/- per share and the face value of the shares is Rs. 10 /- per share and the reserve and surplus of Rs. 1.20 crores is appearing in the Balance Sheet which is the said share premium. The assessee submitted that as far as the assessee is concerned, the share subscription transaction is genuine and the assessee is not able to comment whether Mr Vinod K Faria or anyone else had provided unaccounted funds to the shareholders for them to subscribe to the share capital of the assessee company. The assessee relied upon various decisions of the Hon’ble Courts and Tribunal which are listed in the appellate order dated 24-02-2014 of the ld. CIT(A) appearing in page 5 & 6 of his appellate order and contended that it is not possible for the assessee to earn such huge amount within a short time of 15 days i.e. from 17-03-2006(date of incorporation) to 31-03-2006(end of previous year relevant to the instant assessment year under appeal) . It was submitted by the assessee that complete name, address and PAN of each subscriber who had subscribed to the equity capital of the company during the relevant previous year was furnished and requested the AO that independent enquiry may be made with the shareholders in order to determine genuineness of the transactions. The assessee submitted that the assessee company was incorporated on 17th March, 2006 and furnished the bank statement for the period 21st March to 31st March 2006 .
The A.O. observed that the assessee was incorporated on 17-03-2006 which means that there are only 15 days in the previous year 2005-06 relevant to assessment year 2006-07 wherein the assessee company was in existence. The assessee has submitted its bank statement from 21-03-2006 to 31-03-2006 . There were no business activities carried out by the assessee company during this period except deposit of cheques from shareholders. It was observed by the A.O. that the assessee had issued 4 lacs equity shares in financial year 2005-06 and the face value of the shares Rs. 10/- per share while the shares had been issued at a premium of Rs. 30/- per share and the assessee credited an amount of Rs. 1.60 crores as share subscription.
During the remand proceedings, assessee was asked by the AO to produce all shareholders for verification of the genuineness of the transaction and show cause notices were issued by the AO to the assessee on 10th September, 2013 asking assessee to produce shareholders between the period of 18.9.2013 to 25.9.2013 along with all relevant documents such as bank statement, copy of return of income, copies of details of allotment of share certificate with allotment letters, capital account and balance sheet. But the assessee failed to produce the shareholders on the stipulated time period from 18-09-2013 to 25-09-2013 and submitted that it will take some more time to co-ordinate and produce the shareholders before the A.O. as large number of shareholders are to be contacted. It was further submitted that the assessee’s CA was busy with tax audit preparation for which the last date of filing the tax-audit report was 30-09-2013. As per the request of the assessee, further time was given by the AO to the assessee to produce shareholders on 11th October, 2013 whereby this time also the assessee could not produce the shareholders even till 24-10-2013 , and only on 25-10-2013 the assessee filed some details of the shareholders in tapal. Since the assessee failed to produce the shareholders with the relevant details, Summons u/s 131 of the Act were issued by the AO to the shareholders requesting them to attend personally before the AO on 11-11-2013 and submit the following details :
1. Personal attendance is compulsory.
2. Explanation on their nature of business and address of business premises.
3. Source of income for purchase of shares of the assessee company and date of purchase of shares.
4. The copy of bank passbook/statement with making of payment made for purchase of shares.
5. The copies of Balance Sheet from the financial year in which loan advance and copy of Balance Sheet for the assessment year 2006-07 and 2007-08.
6. Xerox copies of share certificate issued by the assessee.
7. Copy of acknowledgment of return of income filed with the computation of income for assessment year 2006-07 and 2007-08.
8. The note explaining that how they have purchased shares of newly incorporated company at a premium of Rs. 30 per shares as against the face value of share of Rs.10 per share.
The hearing which was fixed for 11th November, 2013 shareholders to attend and submit details, none of the shareholder appeared before the AO and no details were filed. In the month of December, 2013 some shareholders filed reply , the details are as under:-
