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The Income Tax Officer Ward 1 (1) New Delhi Vs. AASl (India) Properties In Infrastructure Private Limited 4 A/10, Old Rajinder Nagar New Delhi
July, 16th 2019

Referred Sections:
Section 147
Section 148 of the I.T. Act
Section 131 of the income tax act
Section 68 of the income tax act
Section 143 (3) of the income tax act
Section 133 (6) of the act

Referred Cases / Judgments:
Commissioner of income tax vs NRA iron and steel Co Ltd [2019] 103 taxmann.com 48 (SC)/[2019] 262 Taxman 74 (SC)/[2019] 412 ITR 161 (SC).
CIT vs. Steller Investment Ltd., (1991) 192 ITR 287 (Del.)
CIT vs. Steller Investment Ltd., (2001) 251 ITR 263 (SC).
CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195

 

                    INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH "A": NEW DELHI
         BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER
                                 AND
            SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

                             ITA NO 6460/DEL/2015
                                  A Y: 2006-07

         The Income Tax Officer         VS        AASl (India) Properties In
               Ward 1 (1)                        Infrastructure Private Limited
               New Delhi                          4 A/10, Old Rajinder Nagar
                                                            New Delhi
                                                       PAN AAFCA2494A
               (Appellant)                                (Respondent)


     Appellant by                            Shri PV Gupta
                                             Senior departmental representative
     Respondent by:                          None
     Date of Hearing                         12/06/2019
     Date of pronouncement                   15/07/2019



PER PRASHANT MAHARISHI, ACCOUNTANT MEMBER:-

1.       Learned Income Tax Officer Ward 1 (1), New Delhi (the learned AO ) has
         preferred this appeal against the order of The Commissioner Of Income Tax
         (Appeals)- IV, New Delhi dated 14/11/2014 raising following grounds of
         appeal:-
         "On the facts and circumstances of the case the learned CIT ­ A has erred
         in
           i.          deleting the addition of INR 7,000,000 made by the learned
                       assessing officer u/s 68 representing unexplained share capital
                       by ignoring the fact that in some case, the alleged shareholders
                       premises were found locked and in some cases summons could
                       not be served remain on complied
           ii.         deleting the addition of INR 1 22500/­ made by the AO
                       representing commission that was claimed to be paid thereon
                       to the entry operator
2.       Brief facts of the case shows that assessee is a company who filed its return
         of income for assessment year 2006 ­ 07 and 29/11/2006 declaring income
         of loss of INR 19801/-
3.       A search and survey operation u/s 132 /133A of the income tax act, 1961
         was conducted by the investigation wing of Department, Delhi on

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         19/4/2010 at the residential and business premises of Sri Surendra Jain
         and his brother Virendra Jain. Various incriminating documents were
         seized and impounded. During the post-search and survey operation,
         revenue impounded documents and enquiries conducted by the revenue,
         it was revealed that Sri SK Jain and Shri VK Jain        are engaged in the
         business of providing accommodation entries by making payment in the
         form of various instruments through banking channel in lieu of cash to a
         large number of beneficiary companies through more than 100 paper and
         dummy companies, entities controlled by and operated by them through
         various persons by appointing them as directors/partner/proprietors et
         cetera apart from nominating them as authorised signatories for
         maintaining the bank accounts of these entities. However, in fact all these
         persons act only as stooges of Mr. SK Jain and Shri VK Jain. The learned
         assessing officer has discussed in first two pages of his assessment order
         with respect to the result of the search and seizure operation carried on by
         the revenue.
4.       In case of the assessee, it was found that assessee has obtained 14
         accommodation entries of INR 500,000 each from nine different companies
         through UTI Bank, Bank of India, Kotak Bank, ABN bank etc during the
         period 14/12/2005       to 28/02/2006 where the name of the agent was
         found to be Mr. Satish Goel. Thus, it was apparent that Assessee Company
         was found to be one of the beneficiaries who have obtained the
         accommodation entry.
5.       Therefore, the proceedings under section 147 read with section 148 were
         initiated. The assessee was issued notice u/s 148 of the income tax act on
         28/3/2013. The assessee responded vide letter dated 30/4/2013 stating
         that original return filed by it on 29/11/2006 may be considered as the
         return of income filed in response to the notice for reopening of the
         assessment. Consequently, the reassessment proceedings begin and the
         assessee was provided with the copies of the reasons recorded 02/05/2013.
         Subsequently the notice u/s 142 (1) and 143 (2) was also issued. Despite
         repeated opportunities, none appeared for many opportunities granted by
         the AO. Subsequently on 9/1/2014, the authorised representative of the
         assessee appeared and raised objection against the reopening proceedings
         under section 147 of the income tax act. Such objections were disposed of
         by the learned assessing officer on 5/2/2014.
6.       Subsequently the assessee was also given several opportunities to prove the
         onus of the shareholders who invested INR 7,000,000 in the above
         company. The assessee merely filed the list of the company with name and
         address from who share application money has been received.              The
         assessing officer issued notice u/s 133 (6) of the act by speed post, replies
         were received through speed post from eight companies. On examination of
         the reply, it created a doubt in the mind of the learned assessing officer


2|Page
         that all the speed post been received from the one post office and therefore
         all these persons do not exist but somebody else is operating on behalf of
         them and these are the dummy entities. Therefore, the learned assessing
         officer asked assessee to produce the principal officers of the alleged
         company      who has given share application money and premium to the
         assessee.      The learned authorised representative despite many
         opportunities did not produce any of the creditors or shareholders. In view
         of this, the learned assessing officer deputed the inspector to issue
         summons u/s 131 on the 4 companies personally and to other parties
         through registered post. The Inspector submitted a report that these
         companies do not exist at the addresses given by the assessee and the
         premises are locked. In case of the parties to whom the summonses were
         sent t through post, no reply was received. The learned assessing officer
         further examined the details furnished in response to notice u/s 133 (6) of
         the income tax act and found that these persons are not doing any
         business and the turnover is very nominal and on examination of the
         bank account it is found that these accounts have been used for rotating
         the transactions only. Further, once again the summonses were issued to
         the principal officers of those companies under section 131 of the income
         tax act on 26/3/2014. However, no reply was received from them. The
         assessee was also asked to produce the principal officer of these companies
         in order to verify the identity, creditworthiness, and genuineness of those
         transactions entered into by the share applicants. However, the assessee
         also did not produce them. In view of this the learned assessing officer
         reached at the conclusion that the above entities               are merely
         accommodation entries provided by Mr. SK Jain and identity,
         creditworthiness and genuineness of those transactions are not proved by
         the assessee. In view of this after detailed discussion of facts and
         considering the provisions of section 68 of the income tax act along with
         various judicial precedents of several high courts and honourable Supreme
         Court, he made the addition of INR 7,000,000 as unexplained cash credit
         under section 68 of the income tax act. He further held that during the
         course of enquiries conducted by the investigation wing of the department
         it was found that most of the entry operators are charging commission at
         the rate of 1.75 percentage for giving accommodation entry and therefore he
         further made an addition of INR 1 22500/­ towards the unexplained
         expenditure on commission. Accordingly he determined the taxable
         income of the assessee at INR 7102199/­ against the returned loss of INR
         19801/­ as per order passed u/s 147 read with section 143 (3) of the
         income tax act on 28/3/2014.
7.       Assessee aggrieved with the order of the learned assessing officer preferred
         an appeal before the learned CIT ­ A, who passed an order dated
         14/11/2014. The assessee objected the proceedings u/s 148 of the income


3|Page
         tax act before the learned CIT ­ A and on this ground the learned CIT ­ A
         upheld the order of the learned assessing officer holding that the reopening
         of the proceedings is valid. On the ground number 4 ­ 7, with respect to
         the addition of INR 7,000,000 under section 68 of the income tax act, the
         learned CIT ­ A deleted the above addition as per para number 5.1 of the
         order. He held that as the assessing officer has received the replies from
         various shareholders and the learned assessing officer has made the
         addition only on the suspicion. He further held that the contention of the
         AO that subsequent notice u/s 131 were not responded to by the
         shareholder and that the appellant failed to produce the share holders
         cannot be a ground for making the addition. He further held that in the
         case of the appellant the notices u/s 133 (6) issued by the learned
         assessing officer to those shareholders were served on them and they filed
         their replies directly to the AO confirming the investment in the appellant
         company. He further held that several decision of the honourable Delhi
         High Court cited by the learned assessing officer does not apply in the case
         of the assessee. Accordingly, he deleted the addition of INR 7,000,000
         under section 68 of the income tax act and consequent unexplained
         expenditure of INR 1 22500/­ made because of commission was deleted.
         Therefore, the learned assessing officer aggrieved with the order of the
         learned CIT ­ capital has preferred an appeal before us raising the above
         grounds of appeal.
8.       It is important to note that this appeal has been listed for hearing 5 times
         before the scheduled hearing on 12/06/2019. On all the occasion, none
         appeared on behalf of the assessee. The notices were also issued on many
         times through registered post and in the end through revenue. Therefore,
         it is apparent that assessee does not want to get himself represented in this
         case before the coordinate bench.
9.       The learned departmental representative vehemently submitted that that it
         is a clear-cut case of bogus share capital introduced by the assessee
         through Mr. SK Jain and VK Jain. The issue is squarely covered by the
         decision of the honourable Delhi High Court in case of NDR promoters and
         of the honourable Supreme Court in case of NRA steel and Iron Limited. He
         further submitted the gist of host of the cases decided by the honourable
         Delhi High Court wherein on identical facts and circumstances the addition
         u/s 68 was upheld. He therefore submitted that in this case the addition
         deserves to be upheld and the order of the learned CIT ­ A deserves to be
         vacated and the order of the learned assessing officer may be restored.
10.      We have carefully considered the contention and perused the orders of the
         lower authorities. In the present, case apparently assessee obtained share
         capital from nine different companies through 14 transactions of INR
         500,000 each between December 2005 to February 2006 through Mr.
         satish Goel through accommodation entry provider Shri SK Jain and VK







4|Page
         Jain. The information was received during the course of search and seizure
         proceedings where the name of the assessee and the complete details of the
         whole transaction were found. It is apparent that had these companies
         through whom the assessee has obtained share application money, were
         not belonging to, or operated by Mr. SK Jain of VK Jain then this
         information would not have been unearthed from the premises of Sri VK
         Jain and Shri SK Jain. Therefore, the case of the assessee was reopened
         and assessee was asked to produce the relevant information to prove the
         identity, creditworthiness, and genuineness of the transaction of the above
         share capital. Assessee submitted name and address of share applicants,
         confirmation of share applicants, certificate of incorporation and
         memorandum and articles of Association of the companies, copies of
         income tax return acknowledgement of the shareholders, copies of the bank
         statement of the shareholders reflecting the investments made in appellant
         company and copies of audited statement of the accounts of investor
         companies duly reflecting the investment made by them in the share capital
         of the company. The assessee also filed the list before the assessing officer.
         Therefore the AO issued notices u/s 133 (6) of the act seeking certain
         information from those companies, undoubtedly, these information was
         received by the assessing officer from these companies, however, it was
         found to be a suspicious response from these companies. Therefore, the
         assessee was asked to produce the principal officers of these companies.
         The assessing officer issued summons u/s 131 of the income tax act
         through inspector who found that the premises of the some of the
         companies are locked. Summons issued under section 131 of the act
         through post was never replied. The AO analyzed the information received
         under section 133 (6) of the act from the shareholders, and found that
         these are merely the paper companies, does not have any substance,
         turnover, income. The bank statements of those companies received u/s
         133 (6) of the act also did not inspire any confidence as according to AO
         they were merely transactions of accommodation entries only. In view of
         this, the addition was made u/s 68 of the income tax act. Apparently, in
         this case the assessee failed to discharge its onus u/s 68 of proving the
         identity, creditworthiness of the depositors, share applicants and the
         genuineness of the transactions. Therefore, the assessee has failed in his
         duty to discharged initial onus cast upon him. In spite of that, the learned
         assessing officer made the detailed enquiry by issuing summons u/s 131 of
         the act and by issuing the enquiry letters under section 133 (6) of the
         income tax act. The enquiry made by the learned assessing officer u/s 133
         (6) of the income tax act was thwarted by the assessee by not producing the
         principal officers of these companies before the assessing officer.
         Apparently in this case the assessing officer could not have done anything
         more than what he has done.


5|Page
11.      The learned CIT ­ A has deleted the above addition merely on the basis of
         the information submitted by the assessee, in the form of complete name
         and address of share applicants, confirmation of share applicants,
         certificate of incorporation and memorandum and articles of Association of
         the companies, copies of income tax return acknowledgement of the
         shareholders, copies of the bank statement of the shareholders reflecting
         the investments made in appellant company, copies of audited statement of
         the accounts of investor companies duly reflecting the investment made by
         them in the share capital of the company. The learned CIT ­ A did not give
         any answer to the nonexistence of the above creditors, shareholders at the
         given address as well as non-production of the directors of these companies
         before the assessing officer to verify the creditworthiness of those
         companies. There is no whisper in the order of the learned CIT ­ A about
         genuineness of the transactions. He has merely considered the submission
         made by the assessee that all these companies are having huge net worth.
         He failed to understand the basic issue that if these companies have such a
         huge net worth, why are they running away from the income tax
         department and not proving before the assessing officer that yes , they
         have money and given by them to the above company. The learned CIT ­
         A also failed to appreciate that how is it possible to comprehend that the
         companies with such a huge net worth, but their offices are locked and
         there is no response of the summons issued u/s 131 of the income tax act.
         Further, there is no whisper in the order of the learned CIT ­ A that how he
         is satisfied that the transaction is genuine when the details of the
         accommodation entries provided by Mr. SK Jain and VK Jain were found
         from their premises showing that assessee is beneficiaries of the
         accommodation entries. He also failed to comprehend the basic fact that in
         case of accommodation entries all the documents produced by the assessee
         before the assessing officer and before him were bound to be there. AO
         disbelieved them and conducted the necessary enquiries. However, the
         learned CIT ­ A has believed them without rebutting the findings of the
         learned AO, that these companies do not exist and they do not have any
         business. Further, the learned CIT ­ A also failed to comprehend that
         response to notice u/s 133 (6) was received from the one post office, which
         is a regular feature in case of accommodation entry operators whenever the
         confirmations are asked for. There is no whisper in the order of the learned
         CIT ­ A respect to the bank account of these parties where the learned
         assessing officer has observed that these are only the accommodation
         entries rooted through these accounts. The learned CIT ­ A has also held
         that that the replies have been received from the various shareholders as it
         has been sent by them from the same office and around the same time is at
         best the suspicion of the assessing officer and he further went ahead and
         said that it is not the case of the AO that replies were sent by the appellant.


6|Page
         The learned CIT ­ A failed to comprehend that the learned assessing officer
         has stated in many words that the reply received by him under section 133
         (6) of the income tax act from the share applicants are not in order. It is
         neither the duty of the assessing officer to enquire that who sent this
         confirmations. In addition, apparently in this case it is the assessee in
         connivance with the accommodation entry operator who sent this
         confirmations under section 133 (6) of the act when the report of the
         inspector categorically says that they do not exist at the given address. The
         learned CIT ­ A further conveniently held that the order of the honourable
         Delhi High Court in case of Nipun builders and developers private limited
         does not apply to the facts of the case as in that particular case it was
         found that no such companies exist by the Post authorities. Apparently, in
         this case it is the report of the inspector himself that said that no such
         companies are existing thereon at the addresses given.              Therefore,
         according to us the learned CIT ­ A distinguished the decision of the
         honourable Delhi High Court on flimsy ground, which is not acceptable.
12.      The learned departmental representative has heavily relied on the decision
         of the honourable Supreme Court in case of Commissioner of income tax vs
         NRA iron and steel Co Ltd [2019] 103 taxmann.com 48 (SC)/[2019] 262
         Taxman 74 (SC)/[2019] 412 ITR 161 (SC). It is interesting to note the
         history of the above decision of the honourable Supreme Court. The earlier
         the matter reached the coordinate bench in ITA No. 3611/Del./2014
         (C.O.No.263/Del./2015) Oct 16, 2017 (2017) 51 CCH 0790 Del Trib and the
         whole issue has been dealt with by recording the following facts in
         paragraph number 2-4 of the order of the coordinate bench as under :-

             " 2. Briefly the facts of the case are that A.O. issued notice under
             section 148 of the I.T. Act after recording the reasons for reopening.
             The assessee submitted before A.O. that return already filed may be
             treated as return having been filed in response to notice under section
             148 of the I.T. Act. The A.O. issued detailed questionnaire on the above
             issue of share capital and the assessee filed necessary details and
             clarifications before A.O. time to time. The assessee filed objections to
             the reopening of the assessment under section 148 of the I.T. Act,
             which was rejected on 13th August, 2012. The assessee submitted
             before A.O. that it has raised money aggregating to Rs.17.60 crores
             through share capital/share premium during the assessment year
             under appeal from various parties which are Mumbai based companies,
             Kolkata based companies and Gauhati based companies. The details of
             which are noted at pages 2 and 3 of the assessment order. It was
             submitted that assessee has already filed copies of the confirmations,
             income tax return acknowledgments and bank accounts in respect of
             these companies, duly establishing the identity, genuineness and
             source of transaction regarding share capital and share premium. The
             entire share capital/ application money has been received by the
             assessee-company through normal banking channels by account payee

7|Page
         cheques/demand drafts. Furthermore, the said confirmations also
         clearly reveal the source of funds, particulars of bank accounts through
         which payment have been received and income tax particulars which go
         to establish their identity and creditworthiness. It was therefore,
         submitted that there were no cause exists to make a recourse to the
         provisions of Section 68 of the I.T. Act, 1961. In the instant case, there
         is no material on record to prove or even remotely suggest that the
         share application money received actually emanate from the assessee-
         company. The share application money was received from independent
         legally incorporated Companies through banking channels. The initial
         onus upon assessee has thus been discharged. The assessee relied
         upon the decision of the Delhi High Court in the case of CIT vs. Steller
         Investment Ltd., (1991) 192 ITR 287 (Del.) in which it was held that any
         increased capital is not assessable in the hands of the assessee which
         has been confirmed by the Hon'ble Supreme Court in the case of CIT
         vs. Steller Investment Ltd., (2001) 251 ITR 263 (SC). The assessee also
         relied upon the decision of the Hon'ble Supreme Court in the case of
         CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195 in which it was held
         that "if the share application money is received by the assessee -
         company from alleged bogus share holders whose names are given to
         the A.O, then the Department is free to proceed to reopen their
         individual assessments in accordance with law". The assessee relied
         upon several decisions in support of the contention. The A.O. however,
         did not accept the contention of the assessee on the basis of the
         enquiries conducted by him. It was found that existence of investment
         companies and genuineness of the transactions has not been proved.
         The A.O. noted that as regards Mumbai based Companies, some
         notices were served and some could not be served and no reply have
         been received from them. In respect of Kolkata based Companies, they
         have filed their reply through Dak counter confirming the transaction
         with the assessee, but copy of the bank account has not been enclosed.
         In respect of Guwahati based company, it was noted that this company
         do not exist at the address. Therefore, it was held that assessee failed
         to prove the genuineness of the transaction and accordingly, addition of
         Rs.17.60 crores was made in the hands of the assessee.

         3. The assessee challenged the reopening of the assessment as well as
         addition on merits before Ld. CIT(A). The detailed contention of the
         assessee as regards reopening of the assessment has been noted in the
         impugned order. However, the Ld. CIT(A), confirmed the reopening of
         the assessment and dismissed this ground of appeal of assessee,
         particularly, when he has allowed the relief to the assessee on merit.
         Therefore, no detailed reasoning have been given because it was found
         that the issue is left with academic discussion only.

         4. The assessee as regards the addition, on merit, reiterated the same
         submissions before Ld. CIT(A) and it was submitted that A.O. made the
         addition arbitrarily and unjustifiably. The assessee produced all the
         relevant documents before A.O. which have not been doubted. The
         assessee filed confirmations of all the share applicants, copy of their

8|Page
         income tax returns, bank accounts and copy of annual accounts.
         Therefore, no adverse inference has been drawn against the assessee.
         The Ld. CIT(A) on going through the documents and material on record,
         deleted the entire addition of Rs.17.60 crores and allowed the appeal of
         assessee. His findings in paras 3.3 to 3.5 of the impugned order are
         reproduced as under :

                   "3.3. I have considered the rival claims. The fact that appellant
                   filed the requisite documents before the AO is undisputed.
                   Thus, the appellant had discharged its primary onus of
                   establishing the identity of the share holders / applicant ire
                   source of the money. The only reason for the revenue to cause
                   further verification was the report relating to survey conducted
                   at the premises of the appellant which forms part of the
                   satisfaction recorded for reopening the assessment
                   proceedings. From the said report it transpires that the
                   business premises of the appellant actually belonged to M/s
                   Bhushan Steel Ltd. and several other companies were having
                   their registered offices in the same premises. This led to the
                   suspicion that these companies were paper companies. During
                   further verification of the identity of the shareholders in
                   Mumbai, some summons were served but parties did not
                   respond. In Guwahati, both parties were not found at the given
                   address. In Kolkata, all 11 parties responded by post but no
                   one appeared.

                   3.4. There is no law that more than one company cannot have
                   its registered office at one address. There is no law that
                   companies cannot change their registered office. Several
                   companies can have the same registered office. Businesses
                   raise capital and such capital is rotated in economy for
                   increasing production and trade and for making more efficient
                   use of capital. Companies change hands, sometimes in quick
                   succession. This is the normal formation of capital in any open
                   economy and the process of capital formation cannot be taken
                   to be representing only unaccounted funds or impeded. All the
                   companies having registered office at that premises
                   undisputedly belonged to Bhushan Group. The sources of
                   capital introduced in these companies were established during
                   the respective assessment proceedings, including in the case
                   of this appellant company. No evidence was found during the
                   search to indicate introduction of unaccounted cash / funds in
                   the form of share capital in these companies. Therefore, the
                   conclusion based on the facts relied upon by the revenue that
                   the share capital introduced in the companies belonging to
                   Bhushan Group, including the appellant company, are
                   unexplained, is at best premature.




9|Page
                            3.5. In the above facts and circumstances of the matter, and in
                            view of the case laws relied upon by the Ld. AR, the addition
                            made cannot be legally sustained and is deleted. This ground
                            of appeal is allowed."

13.            Thereafter after recording the arguments of the both the parties the
               coordinate bench decided the whole issue as under:-

                   "19. It may be noted here that investor companies have confirmed
                   making investments in assessee-company who were having sufficient
                   net worth to make investment in assessee-company. Assessee filed I.T.
                   returns, PAN, Bank Statements of investor Company to prove they are
                   existing assessees of Department and are genuine parties. No efforts
                   are made by A.O. for production of investors at assessment stage.
                   Therefore, the assessee has been able to prove identity of the share
                   applicants, their creditworthiness and genuineness of the transactions
                   in the matter. The Ld. CIT(A), on examination of the material on
                   record, further found that the only reason for the Revenue to goes for
                   further verification was the report relating to survey conducted at the
                   premises of the assessee- company which forms part of satisfaction
                   recorded for reopening of the assessment proceedings. From the said
                   report, Ld. CIT(A) found that the business premises of the
                   assessee actually belong to M/s. Bhushan Steel Ltd., and several
                   other Companies having their Registered Offices at the same
                   address. This created a suspicion in the mind of the Revenue. The
                   Ld. CIT(A) therefore, rightly noted that there is no law that more than
                   one Company cannot have its Registered Office at one address. The
                   Companies could have change their address later on. It is also an
                   admitted fact that source of the capital investment companies were
                   established during their respective assessment proceedings including
                   in the case of the present assessee-company as per the findings of the
                   Ld. CIT(A). Ld. CIT(A) also found that no evidence was found during
                   the course of survey to indicate introduction of unaccounted
                   cash/funds in the form of share capital in these companies. These
                   findings of fact recorded by the Ld. CIT(A) have not been rebutted
                   through any evidence or material on record. No evidence has been
                   brought on record that money so invested in assessee-company
                   came from coffers of assessee-company. All objections of A.O. have
                   been considered by Ld. CIT(A) and various case law referred to above
                   support the findings of Ld. CIT(A) that addition has been correctly
                   deleted.

                   20. The Ld. D.R. relied upon the decision of various Hon'ble High
                   Courts and Delhi High Court referred to above. In these cases, the gist
                   of the findings are that the assessee failed either to prove the identity
                   or capacity of the subscriber companies or that the amount was
                   received as accommodation entries. However, the assessee- company,
                   in the present case, has been able to prove the identity of the
                   investors, creditworthiness and genuineness of the transaction in the

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                   matter. Therefore, Ld. CIT(A) on proper appreciation of evidence and
                   material on record, correctly deleted the addition of Rs.17.60 crores.
                   The Departmental appeal fails and is accordingly, dismissed.

                   21. In the result, appeal of the Revenue is dismissed."


14.            When the matter reached the honourable Delhi High Court, it decided the
               whole    issues    in    IT    APPEAL     NO.     244      OF     2018
               FEBRUARY 26, 2018 as under holding that:-




                  "The AO for AY 2008-09 re-opened assessment under section 147
                  based upon the information received, pursuant to search conducted
                  in the premises of third party. The AO sought to rely upon the
                  reports received from companies situated in Mumbai, Kolkata and
                  Guwahati. The additions were made based upon these reports. The
                  CIT(A) directed that a sum of Rs. 17.6 crores brought to tax under
                  Section 68 was not justified. Upon appeal, CIT(A) was of the opinion
                  that the AO did not conduct any sufficient enquiry and given the
                  material that had been placed on record by assessee, the
                  genuineness of the creditors as well as the transactions had been
                  prima facie disclosed which amounted to discharge of onus upon it.
                  The ITAT rejected the revenue's objections.




                  The Court notices that CIT(A) in this case quite correctly had
                  examined the entirety of the facts and concluded, as follows :




                  "3.3 I have considered the rival claims. The fact that appellant filed
                  the requisite documents before the AO is undisputed. Thus, the
                  appellant had discharged its primary onus of establishing the
                  identity of the share holders /applicant ire source of the money. The
                  only reason for revenue to cause further verification was the report
                  relating to survey conducted at the premises of the appellant which
                  forms part of the satisfaction recorded for reopening the assessment
                  proceedings. From the said report it transpires that the business
                  premises of the appellant actually belonged to M/s Bhushan Steel
                  Ltd. and several other companies were having their registered offices
                  in the same premises. This led to the suspicion that these companies
                  were paper companies. During further verification of the identity of
                  the shareholders in Mumbai, some summons were served but parties
                  did not respond. In Guwahati, both parties were not found at the

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                  given address. In Kolkata, all 11 parties responded by post but no
                  one appeared.




                  3.4. There is no law that more than one company cannot have its
                  registered of me at one address. There is no law that companies
                  cannot change their registered office. Several companies can have
                  the same registered office. Businesses raise capital and such capital
                  is rotated in economy for increasing is the normal formation of
                  capital in any open economy and the process of capital formation
                  cannot be taken to be representing only unaccounted finds or
                  impeded. All the companies having registered office at that premises
                  undisputedly belonged to Bhushan Group. The sources of capital
                  introduced in these - companies were established during the
                  respective assessment proceedings, including in the case of this
                  appellant company. No evidence was found during the search to
                  indicate introduction of unaccounted cash/finds in the form of share
                  capital in these companies. Therefore, the conclusion based on the
                  facts relied upon by the revenue that the share capital introduced in
                  the companies belonging to Bhushan Group, including the appellant
                  company, are unexplained, is at best premature.




                  3.5. In the above facts and circumstances of the matter, and in view
                  of the case laws relied upon by the Ld. AR, the addition made cannot
                  be legally sustained and is deleted. This ground of appeal is allowed.
                  "




                  This Court is of the opinion that the issues urged are on facts and
                  the lower appellate authorities have taken sufficient care to
                  consider the relevant circumstances including the extract of the
                  chart with respect to the amounts received from each creditor.
                  No substantial question of law arises. The appeal is consequently
                  dismissed."


15.            When the matter reached before the honourable Supreme Court of India, it
               was held that:-

               "8.1. The issue which arises for determination is whether the Respondent
               / Assessee had discharged the primary onus to establish the genuineness
               of the transaction required under Section 68 of the said Act. Section 68 of
               the I.T. Act (prior to the Finance Act, 2012) read as follows:


12 | P a g e
                  "68. Cash credits- Where any sum is found credited in the book 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"

                                                                          (emphasis supplied)

               The use of the words "any sum found credited in the books" in Section 68
               of the Act indicates that the section is widely worded, and includes
               investments made by the introduction of share capital or share premium.

               8.2. As per settled law, the initial onus is on the Assessee to establish by
               cogent evidence the genuineness of the transaction, and credit-worthiness
               of the investors under Section 68 of the Act. The assessee is expected to
               establish to the satisfaction of the Assessing Officer, CIT v. Precision
               Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) 15 :

                       · Proof of Identity of the creditors;

                       · Capacity of creditors to advance money; and

                       · Genuineness of transaction

               This Court in the land mark case of Kale Khan Mohammad
               Hanif v. CIT, [1963] 50 ITR 1 (SC), and, Roshan Di Hatti v. CIT, [1977] 107
               ITR (SC), laid down that the onus of proving the source of a sum of money
               found to have been received by an assessee, is on the assessee. Once the
               assessee has submitted the documents relating to identity, genuineness of
               the transaction, and credit-worthiness, then the AO must conduct an
               inquiry, and call for more details before invoking Section 68. If the
               Assessee is not able to provide a satisfactory explanation of the nature and
               source, of the investments made, it is open to the Revenue to hold that it is
               the income of the assesse, and there would be no further burden on the
               revenue to show that the income is from any particular source.

               8.3. With respect to the issue of genuineness of transaction, it is for the
               assessee to prove by cogent and credible evidence, that the investments
               made in share capital are genuine borrowings, since the facts are
               exclusively within the assessee's knowledge.

               The Delhi High Court in CIT v. Oasis Hospitalities Pvt. Ltd., 333 ITR 119
               (Delhi)(2011), held that :

                  "The initial onus is upon the assessee to establish three things necessary
                  to obviate the mischief of Section 68. Those are: (i) identity of the
                  investors; (ii) their creditworthiness/investments; and (iii) genuineness of







13 | P a g e
                  the transaction. Only when these three ingredients are established prima
                  facie, the department is required to undertake further exercise."

               It has been held that merely proving the identity of the investors does not
               discharge the onus of the assessee, if the capacity or credit-worthiness has
               not been established.

               In Shankar Ghosh v. ITO, [1985] 23 TTJ (Cal.), the assessee failed to prove
               the financial capacity of the person from whom he had allegedly taken the
               loan. The loan amount was rightly held to be the assessee's own
               undisclosed income.

               8.4. Reliance was also placed on the decision of CIT v. Kamdhenu Steel &
               Alloys Limited and Other, (2012) 206 Taxaman 254 (Delhi), wherein the
               Court that :

                       "38. Even in that instant case, it is projected by the Revenue that
                the Directorate of Income Tax (Investigation) had purportedly found such a
                racket of floating bogus companies with sole purpose of lending entries.
                But, it is unfortunate that all this exercise if going in vain as few more
                steps which should have been taken by the Revenue in order to find out
                causal connection between the case deposited in the bank accounts of the
                applicant banks and the assessee were not taken. It is necessary to link
                the assessee with the source when that link is missing, it is difficult to
                fasten the assessee with such a liability."

               9. The Judgments cited hold that the Assessing Officer ought to conduct
               an independent enquiry to verify the genuineness of the credit entries.

               In the present case, the Assessing Officer made an independent and
               detailed enquiry, including survey of the so- called investor companies
               from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the
               parties, the source of funds invested, and the genuineness of the
               transactions. The field reports revealed that the share-holders were either
               non-existent, or lacked credit-worthiness.

               10. On the issue of unexplained credit entries /share capital, we have
               examined the following judgments :

                       i. In Sumati Dayal v. CIT, [1995] 214 ITR 801 (SC), this Court held
                       that :

                       "if the explanation offered by the assessee about the nature and
                       source thereof is, in the opinion of the Assessing Officer, not
                       satisfactory, there is prima facie evidence against the assessee,
                       vis., the receipt of money, and if he fails to rebut the same, the said
                       evidence being unrebutted can be used against him by holding that
                       it is a receipt of an income nature. While considering the explanation


14 | P a g e
               of the assessee,       the    department    cannot,    however,    act
               unreasonably"

               ii. In CIT v. P. Mohankala, 291 ITR 278, this Court held that:

               "A bare reading of section 68 of the Income-tax Act, 1961, suggests
               that (i) there has to be credit of amounts in the books maintained by
               the assessee ; (ii) such credit has to be a sum of money during the
               previous year ; and (iii) either (a) the assessee offers no explanation
               about the nature and source of such credits found in the books or (b)
               the explanation offered by the assessee, in the opinion of the
               Assessing Officer, is not satisfactory. It is only then that the sum so
               credited may be charged to Income-tax as the income of the
               assessee of that previous year. The expression "the assessee offers
               no explanation" means the assessee offers no proper, reasonable
               and acceptable explanation as regards the sums found credited in
               the books maintained by the assessee.

               The burden is on the assessee to take the plea that, even if the
               explanation is not acceptable, the material and attending
               circumstances available on record do not justify the sum found
               credited in the books being treated as a receipt of income nature. "

               (emphasis supplied)

               iii. The Delhi High Court in a recent judgment delivered in PR.CIT -
               6, New Delhi v. NDR Promoters Pvt. Ltd., 410 ITR 379, upheld the
               additions made by the Assessing Officer on account of introducing
               bogus share capital into the assessee company on the facts of the
               case.

               iv. The Courts have held that in the case of cash credit entries, it
               is necessary for the assessee to prove not only the identity of the
               creditors, but also the capacity of the creditors to advance money,
               and establish the genuineness of the transactions. The initial onus
               of proof lies on the assessee. This Court in Roshan Di
               Hatti v. CIT, (1992) 2 SCC 378, held that if the assessee fails to
               discharge the onus by producing cogent evidence and explanation,
               the AO would be justified in making the additions back into the
               income of the assessee.

               v. The Guwahati High Court in Nemi Chand Kothari v. CIT, [2003]
               264 ITR 254 (Gau.), held that merely because a transaction takes
               place by cheque is not sufficient to discharge the burden. The
               assessee has to prove the identity of the creditors and
               genuineness of the transaction. :

               "It cannot be said that a transaction, which takes place by way of
               cheque, is invariably sacrosanct. Once the assessee has proved the

15 | P a g e
                      identity of his creditors, the genuineness of the transactions which
                      he had with his creditors, and the creditworthiness of his creditors
                      vis-a-vis the transactions which he had with the creditors, his
                      burden stands discharged and the burden then shifts to the
                      revenue to show that though covered by cheques, the amounts in
                      question, actually belonged to, or was owned by the assessee
                      himself"

                      (emphasis supplied)

                      vi. In a recent judgment the Delhi High Court, CIT v. N.R. Portfolio
                      (P.) Ltd.[2014] 42 taxmann.com 339/222 Taxman 157 (Mag.)
                      (Delhi) 21, held that the credit-worthiness or genuineness of a
                      transaction regarding share application money depends on
                      whether the two parties are related or known to each other, or
                      mode by which parties approached each other, whether the
                      transaction is entered into through written documentation to
                      protect investment, whether the investor was an angel investor,
                      the quantum of money invested, credit-worthiness of the recipient,
                      object and purpose for which payment/investment was made, etc.
                      The incorporation of a company, and payment by banking
                      channel, etc. cannot in all cases tantamount to satisfactory
                      discharge of onus.

                      vii. Other cases where the issue of share application money
                      received by an assessee was examined in the context of Section 68
                      are CIT v. Divine Leasing & Financing Ltd., (2007) 158 Taxman
                      440, and CIT v. Value Capital Service (P.) Ltd., [2008]307 ITR 334.

               11. The principles which emerge where sums of money are credited as
               Share Capital/Premium are :

                    i. The assessee is under a legal obligation to prove the genuineness
                    of the transaction, the identity of the creditors, and credit-worthiness
                    of the investors who should have the financial capacity to make the
                    investment in question, to the satisfaction of the AO, so as to
                    discharge the primary onus.

                    ii. The Assessing Officer is duty bound to investigate the credit-
                    worthiness of the creditor/ subscriber, verify the identity of the
                    subscribers, and ascertain whether the transaction is genuine, or
                    these are bogus entries of name-lenders.

                    iii. If the enquiries and investigations reveal that the identity of the
                    creditors to be dubious or doubtful, or lack credit-worthiness, then
                    the genuineness of the transaction would not be established.

               In such a case, the assessee would not have discharged the primary onus
               contemplated by Section 68 of the Act.

16 | P a g e
               12. In the present case, the A.O. had conducted detailed enquiry which
               revealed that :

                    i. There was no material on record to prove, or even remotely
                    suggest, that the share application money was received from
                    independent legal entities. The survey revealed that some of the
                    investor companies were non-existent, and had no office at the
                    address mentioned by the assessee.

                    For example:

                    a. The companies Hema Trading Co. Pvt. Ltd. and Eternity Multi
                    Trade Pvt. Ltd. at Mumbai, were found to be non-existent at the
                    address given, and the premises was owned by some other person.

                    b. The companies at Kolkatta did not appear before the A.O., nor did
                    they produce their bank statements to substantiate the source of the
                    funds from which the alleged investments were made.

                    c. The two companies at Guwahati viz. Ispat Sheet Ltd. and Novelty
                    Traders Ltd., were found to be non-existent at the address provided.

                    The genuineness of the transaction was found to be completely
                    doubtful.

                    ii. The enquiries revealed that the investor companies had filed
                    returns for a negligible taxable income, which would show that the
                    investors did not have the financial capacity to invest funds ranging
                    between Rs. 90,00,000 to Rs. 95,00,000 in the Assessment Year
                    2009-10, for purchase of shares at such a high premium.

                    For example:

                    Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income of
                    Rs. 9,744/- for A.Y. 2009-10, but had purchased Shares worth Rs,
                    90,00,000 in the Assessee Company.

                    Similarly Warner Multimedia Ltd. - Kolkatta filed a NIL return, but
                    had purchased Shares worth Rs. 95,00,000 in the Assessee
                    Company - Respondent.

                    Another example is of Ganga Builders Ltd. - Kolkatta which had filed
                    a return for Rs. 5,850 but invested in shares to the tune of Rs.
                    90,00,000 in the Assessee Company - Respondent, etc.

                    iii. There was no explanation whatsoever offered as to why the
                    investor companies had applied for shares of the Assessee Company
                    at a high premium of Rs. 190 per share, even though the face value
                    of the share was Rs. 10/- per share.

17 | P a g e
                    iv. Furthermore, none of the so-called investor companies
                    established the source of funds from which the high share premium
                    was invested.

                    v. The mere mention of the income tax file number of an investor was
                    not sufficient to discharge the onus under Section 68 of the Act.

               13. The lower appellate authorities appear to have ignored the
               detailed findings of the AO from the field enquiry and investigations
               carried out by his office. The authorities below have erroneously held
               that merely because the Respondent Company - Assessee had filed all
               the primary evidence, the onus on the Assessee stood discharged.

               The lower appellate authorities failed to appreciate that the investor
               companies which had filed income tax returns with a meagre or nil
               income had to explain how they had invested such huge sums of
               money in the Assesse Company - Respondent. Clearly the onus to
               establish the credit worthiness of the investor companies was not
               discharged. The entire transaction seemed bogus, and lacked
               credibility.

               The Court/Authorities below did not even advert to the field enquiry
               conducted by the AO which revealed that in several cases the investor
               companies were found to be non-existent, and the onus to establish
               the identity of the investor companies, was not discharged by the
               assessee.

               14. The practice of conversion of un-accounted money through the
               cloak of Share Capital/Premium must be subjected to careful
               scrutiny. This would be particularly so in the case of private
               placement of shares, where a higher onus is required to be placed on
               the Assessee since the information is within the personal knowledge
               of the Assessee. The Assessee is under a legal obligation to prove the
               receipt of share capital/premium to the satisfaction of the AO, failure of
               which, would justify addition of the said amount to the income of the
               Assessee.

               15. On the facts of the present case, clearly the Assessee Company -
               Respondent failed to discharge the onus required under Section 68 of the
               Act, the Assessing Officer was justified in adding back the amounts to the
               Assessee's income.

               16. The Appeal filed by the Appellant - Revenue is allowed. In the aforesaid
               facts and circumstances, and the law laid down above, the judgment of the
               High Court, the ITAT, and the CIT are hereby set-aside. The Order passed
               by the AO is restored




18 | P a g e
16.            In the present case also, we find that the learned assessing officer has
               made enquiry by issuing letter under section 133 (6) of the act and which
               were found to be replied created suspicion in the mind of the AO. Further,
               the directors were not produced by the assessee. In response to summons
               u/s 131 on the companies, no replies were received. There is no indication
               that how these companies have managed to invest in the appellant
               company, which is a private limited company where there is no dividend,
               issued or there is any likelihood of substantial investment return to these
               companies. Further, it is conclusively found that information of the
               investment by the shareholders was unearthed during the course of search
               on Shri SK Jain. The assessee being private limited company should be in
               the know of things of the investors when they have made such a huge
               investment in the assessee company. The learned CIT ­ A has not even
               looked at the fact that what the assessee company is doing and what is the
               reason that nine companies operated by one person, comes together, and
               invest Rs. 70,00,000/- in the assessee company as share capital, in short
               span of time, which does not have any chance of return or earning huge
               dividend. All these facts considered in one compass clearly show that the
               identity of the creditors, creditworthiness of those creditors and
               genuineness of the transaction is just a make-believe story. In the result,
               we hold that the learned assessing officer is correct in making an addition
               u/s 68 of the income tax act of INR 7,000,000/- representing unexplained
               share capital and consequent addition of INR 1 22500/­ of the commission
               thereon. Accordingly we reverse the order of the learned CIT ­ A and allow
               ground number 1 and 2 of the appeal of the learned AO.
17.            In the result, appeal of the learned assessing officer is allowed.
               Order pronounced in the open court on 15/07 /2019.


             -Sd/-                                             -Sd/-
       (SUDHANSHU SRIVASTAVA )                             (PRASHANT MAHARISHI)
       JUDICIAL MEMBER                                      ACCOUNTANT MEMBER

Dated: 15/07/2019
A K Keot

Copy forwarded to

1.      Applicant
2.      Respondent
3.      CIT
4.      CIT (A)
5.      DR:ITAT
                                                                 ASSISTANT REGISTRAR
                                                                   ITAT, New Delhi

19 | P a g e

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