Case Law Details

Case Name : DCIT Vs M/s. Soni Hospital Pvt. Ltd. (ITAT Jaipur)
Appeal Number : ITA No. 588/JP/2011
Date of Judgement/Order : 11/08/2015
Related Assessment Year :
Courts : All ITAT (4430) ITAT Jaipur (73)

Brief of the case:

In the case of DCIT Vs. M/s. Soni Hospital Pvt. Ltd. Jaipur bench of ITAT have held that that in case of share capital, the creditworthiness along with genuineness of transaction, identity of person is also required to be proved by the assessee. ITAT considered the decision of Hon’ble SC in the case of M/s Lovely Exports and found that assessee was required to prove the identity, genuineness and creditworthiness.

Facts of the case:

  • Assessee is running a hospital and files its return of loss of Rs. 2,82,73,070/- on 31.10.2005.
  • There was a search on M/s. B.C. Purohit & Co. on 12.04.2005 and detailed investigation was made by the Department on the basis of evidence collected.
  • On the basis of this search, the assessee was also covered under section 133A of the IT Act in survey proceedings on 03.05.2005 to confront these evidences.
  • The AO observed that during the course of investigation being conducted by the Investigation Wing it was noticed that some entries from the bogus entities being run by these racketeers had gone to Soni Hospital Ltd., Jaipur.
  • In order to verify these entries and confront this party about the non-genuineness of these entries a limited purpose survey was conducted u/s 133A at the office premises of hospital with the authorization issued by the Addl. DIT, Jaipur.
  • The AO further observed that during the course of survey operation it was found that share application money was shown as received by this company from certain entities being operated by M/s. B.C. Purohit & Co. Group.
  • The MD of the assessee company was confronted with the findings of non-genuineness of these parties from whom loans were shown in the books of accounts of his company.
  • However, MD did not accept that the transactions relating to receipt of share application money are not genuine.
  • As a result of the evidences gathered during the search operation and the investigations conducted subsequently it was found that in the guise of tax consultation the owners and employees of his group were running a big racket of providing accommodation entries of gifts, loans, share application money, share investment and long term capital gains in shares.
  • The AO observed that the assessee had taken entries during the financial year 2004-05 relevant to the assessment year 2005-06 mostly from the bogus companies operated by the impugned entry operators.
  • AO found entries of Rs. 79,00,000/- are in the form of share application money which have been received from M/s. B.C. Purohit Group.
  • Assessee was asked to produce the relevant parties for examination.
  • AO concluded that it has been clearly established that the companies and individuals in whose names the assessee had shown share application money of Rs. 79,00,000/- were engaged in providing accommodation entries.
  • The assessee had also obtained accommodation entries and had not received any genuine share application money and had thus introduced its own undisclosed income in the account books, which was added to the income of the assessee.
  • AO further found that assessee had raised share application money of Rs. 20,00,000/- from various parties.
  • The assessee was failed to satisfy the AO to prove the genuineness of the transaction of share application money of Rs. 20,00,000/- so AO treated this money to have been invested out of undisclosed income of the assessee itself as accommodation entries.
  • The assessee submitted copy of financial statements, copies of balance sheets, PAN, and P&L A/c of the companies as additional evidences before the CIT (A).
  • Remand report was sought by CIT (A) but AO didn’t submit remand report.

Contention of the assessee:

  • There is no basis for treating the amount received from the said parties as bogus as the amount was received from the said parties through banking channel.
  • All the parties are income tax assessees and PANs have been allotted to them after having their identity and addresses.
  • All of them are maintaining bank accounts and no bank account can be opened without any introducer.
  • All these facts established that the parties are genuine and so the amount contributed as share capital is also genuine.
  • The assessee had received share application money through banking channel which proved that applicant is existed and is a living person because an account was opened by the bank as per the Reserve Bank of India norms.
  • It was further argued that Hon’ble Rajasthan High Court in the case of CIT vs. Supertech Diamond Tools Pvt. Ltd. (2015) 229 Taxman 62 (Raj.)(HC) wherein addition made under section 68 on the basis of Third Party statement made behind the back of the assessee and no opportunity of being heard or cross examining Third Party was provided to the assessee and confirmed the order of the lower authorities for deleting the addition.
  • Hon’ble Allahabad High Court in case of CIT vs. Vacmet Packaging (India) Pvt. Ltd., (2014) 367 ITR 217 (All.) held that assessee had filed documentary evidence consisting of share application forms, copies of bank accounts of the share applicants, copies of the income-tax returns of the share allottees, balance sheets and copies of share allotment certificates and of the Board’s Resolution of the share applicants, and on that basis the Hon’ble High Court held that variation of the transaction had been established by calling the documents and assessee has discharged its onus establishing the identity, creditworthiness and genuineness of the transaction.

Contention of revenue:

  • The assessee had not filed any evidence regarding genuineness of share application money and also not filed confirmations or copies of their bank statements and also not produced them for examination of the persons.
  • Statements of various persons were recorded during search which indicates that the assessee had obtained only accommodation entries and not any genuine share application money.
  • The company has accepted the share application money through entries of operators who provided the fund in the guise of share application money.
  • It is evident from the investigation made by the Department as well as notice issued by the AO for production of these parties that it can easily be concluded that money received through share application money by the assessee is undisclosed income of the assessee.
  • The investors had not submitted any confirmation and reporting for less income than amount invested.
  • In case of CIT vs. T.S. Krishna & Co. Ltd., 315 ITR 163, the Hon’ble Delhi High Court has held that burden of prove is on the assessee to prove genuineness of the transaction, creditworthiness of creditor, identity of the creditor.
  • The Hon’ble Delhi High Court in case of CIT vs. Youth Construction Pvt. Ltd. (2013) 357 ITR 97 (Del.) has confirmed the share capital under section 68 on the ground of creditworthiness and genuineness has not been proved by the assessee.
  • It is further held by the Hon’ble Supreme Court in the case of N. Tarika Property Invest (P) Ltd. vs. CIT, (2014) 51 Taxmann.com 387 (SC) that PAN blindly cannot be accepted as a proof for identity of individuals as it is generally issued without ascertaining the active nature of business activities.

Held by CIT (A):

  • CIT (A) concluded that AO had failed to make further enquiry as desired from him. In absence of remand report, the CIT (A) decided the appeal on the basis of evidences filed by assessee and concluded that nothing adverse was narrated in the documents filed by the assessee.
  • CIT (A) Allowed appeal of assessee in the light of decision of Hon’ble Delhi Tribunal in the case of A-One Housing Complex Ltd. (299 ITR AT 327) that the onus on the assessee in the case of share capital by public issue was a lighter one and therefore such onus would stand discharged if the identity of the share applicant was established.
  • There was nothing wrong if confirmations were prepared by the assessee and got signed from the share applicants since the assessee was required to prove only the identity of the share applicant.
  • There was nothing wrong if some of the shareholders had accounts with the same bank. It was not the case of the Revenue that such accounts were bogus or operated by the assessee.

Held by ITAT:

  • As per Annexure-A3 seized during the course of search revealed that there was an entry of cheque and cash received from various parties. There are number of companies on page 20 of this Annexure-A3 and on page 21 there were details of entries provided with amount.
  • The name of the assessee company also figured on these pages and the modus operandi admitted by Shri Kripa Shankar Sharma in his statement recorded on 12.04.2005 that cash was received from the entry receiver parties and cheques were issued through various companies opened by Shri Bal Chand Purohit Group.
  • It is further found fact that Shri Sunil Verma, a peon, has been shown as Director in number of companies who had also admitted on 26.04.2005 that these companies did not have any business but providing entries by receiving cash from the beneficiaries and after depositing in the bank account of these companies, cheques are issued to the beneficiaries.
  • Some of the companies’ addresses were found on vacant plots.
  • The AO issued notices under section 133(6) of the IT Act for verification but notices were received back with postal remarks “ no such party exists at the given address”, in case of share capital of Rs. 20,00,000/-.
  • The CIT (A) followed the Hon’ble Supreme Court decision in case of M/s. Lovely Exports. But recently Hon’ble Bombay High Court in the case of M/s. Major Metals Ltd. Vs. UOI, (2013) 359 ITR 450 (Bom.) by following Supreme Court decision in the case of Lovely Exports, 319 ITR 5 (SC) has held that creditworthiness and financial standing of the cash creditor is to be proved by the appellant under section 68 of the Act.
  • Recently Hon’ble Delhi High Court in case of CIT vs. T.S. Krishna Kumar & Co. Ltd., 370 ITR 163 has held that under section 68 the identity, genuineness and creditworthiness of the cash creditor is to be proved by the appellant.
  • In case of share capital, the creditworthiness along with genuineness of transaction, identity of person is also required to be proved by the assessee, which remained disproved in this case.
  • Hence appeal of the revenue allowed.
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Category : Income Tax (25503)
Type : Judiciary (10254)
Tags : ITAT Judgments (4610) Jagjeet Singh (141) Section 68 (173)

0 responses to “In case of share capital identity, genuineness and creditworthiness of the cash creditor is to be proved by assessee”

  1. shirish b. kale says:

    Very fruitful judgement

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