Ito v. Rakam Money Matters P. Ltd., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

I.T.A No. 2821.Del./2011, (Assessment Year: 2003-04)

Advocates

Assessee by Shri Ved Jain, CA
Revenue by Shri Manoj Kumar Chopra, Senior DR

Judges

B.C Meena, A.M
C.M Garg, J.M

Acts

SECTION 68 INCOME TAX ACT 1961
u/s. 148 of the Income-tax Act, 1961
Section 68 of Act, 1961.8.

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Smart Summary

Factual and Procedural Background

This appeal arises from an order of the CIT (Appeals)-XVIII, New Delhi dated 18.03.2011 for the Assessment Year 2003-2004. The assessee originally filed a return on 02.11.2003 declaring income of Rs. 5,64,556/-. The case was reopened by notice under section 148 of the Income-tax Act, 1961 dated 19.02.2010 based on information from the Investigation Wing alleging receipt of accommodation entries in the form of share application money.

The Assessing Officer (AO) recorded that the assessee had received share application money from several companies identified in the Investigation Wing's report and, after noting that the assessee failed to produce the directors of those companies when asked, treated the receipts as unexplained credit and made additions under section 68 (the AO ultimately held that share application money of Rs. 85 lakh was to be treated as income under section 68; in several places the contested addition appears as Rs. 60,00,000/-).

The assessee appealed to the CIT(A), who deleted the addition of Rs. 60,00,000/- after finding that the assessee had filed supporting documents (share application forms, bank statements, ITRs, PAN copies, affidavits, ROC details showing companies as "active", etc.) and that the AO had relied on Investigation Wing material recorded at the back of the assessee without giving opportunity for cross-examination or conducting adequate inquiry. The Revenue appealed against the CIT(A)'s order to the tribunal.

Legal Issues Presented

Whether the CIT(A) was justified in deleting the addition of Rs. 60,00,000/- relating to share application money, particularly in view of the Supreme Court decision in Commissioner of Income Tax v. Lovely Exports and related High Court decisions relied upon by the CIT(A).
Whether deletion was correct when the assessee failed to produce the directors of the investing companies despite directions, thereby allegedly failing to establish the genuineness and identity of the investors.
Whether the CIT(A) was correct in holding that the assessee satisfied the onus to prove identity and genuineness of investors/share applicants, despite the AO's findings to the contrary.

Arguments of the Parties

Appellant (Revenue)'s Arguments

The CIT(A) erred in deleting the addition of Rs. 60,00,000/- relying on Lovely Exports and other decisions when the facts of this case are distinguishable.
The AO had information from the Investigation Wing indicating accommodation entries and the assessee failed to produce the directors of the investing companies despite specific directions; non-production pointed to lack of genuineness and identity of the investors.

Respondent (Assessee)'s Arguments

The assessee produced voluminous material in support of the receipts: share application forms, PAN details, affidavits of directors of investor companies, ITR copies, confirmations, bank statements, Form 18/32 filings, balance sheets, certificates of incorporation and ROC master data showing companies as "active".
The AO did not investigate the bank account transactions of the investor companies nor cross-verify the documents with their respective assessing officers; the AO relied only on the Investigation Wing's statements recorded at the back of the assessee and did not allow cross-examination.
Summons issued to directors were served but they did not attend; after non-attendance, the AO did not pursue further inquiries to verify non-attendance or to trace the shareholders; the CIT(A) properly examined the evidence and was justified in deleting the addition.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court in This Case
R.B Mittal v. Commissioner Of Income Tax, Visakhapatnam, 246 ITR 283 (AP)	The rule of audi alteram partem in an enquiry u/s. 68: the assessee must be given a fair and reasonable hearing to discharge the burden cast under section 68.	The tribunal relied on this principle to criticize the AO's reliance on Investigation Wing material recorded at the back of the assessee without offering opportunity for cross-examination and without conducting proper inquiry.
CIT v. Orissa Corporation Pvt. Ltd., 158 ITR 78 (SC)	Once the assessee discharges initial onus to prove genuineness and identity in cash-credit matters, the burden shifts to the AO to disprove the claim by bringing new material.	Applied to hold that the assessee had discharged initial onus by producing documents and that AO failed to bring material to disprove the claim, so addition could not be sustained.
Deputy Commissioner Of Income-Tax v. Rohini Builders, 256 ITR 360 (Guj.)	Same proposition as Orissa Corporation: initial onus on assessee, thereafter onus shifts to AO to disprove by new material.	Used to support tribunal's conclusion that AO did not discharge the burden to disprove the assessee's evidence.
CIT v. Bedi & Co. P. Ltd., (1998) 230 ITR 580 (SC)	Where prima-facie inference favors assessee's explanation as probable, onus shifts to revenue; explanation cannot be rejected on mere surmises.	Cited to reinforce that the AO's rejection based on surmises and Investigation Wing statements was insufficient to sustain addition.
Khandelwal Constructions v. CIT, (1997) 227 ITR 900 (Gau.)	Satisfaction of the AO necessary to invoke section 68 must be derived from relevant factors based on proper, reasonable and just inquiry.	Invoked to show the AO failed to undertake reasonable inquiry and therefore his satisfaction under section 68 was not properly formed.
R.B Shreeram Durga Prasad, 176 ITR 169 (SC) (and 125 ITR 713 (SC))	Mandatory that AO confront the assessee with material collected at the back of the assessee; opportunity for cross-examination of third-party statements must be given.	Cited to criticize AO's reliance on Investigation Wing statements recorded without offering cross-examination and thereby treating that material as unreliable.
Jindal Vegetable (Delhi HC order) and Laxman Bhai Patel (Gujarat HC order)	Similar proposition that statements recorded at the back of the assessee require confrontation/cross-examination; material collected clandestinely cannot be the basis for additions.	Used to support the tribunal's view that AO's procedure was improper in relying on investigation statements without adequate procedural safeguards.
N.P Garodia (P & H HC order dated 13.01.2009) and Brij Pal Sharma (P & H HC order dated 17.02.2009)	Where assessee provides identity/details and requests AO to issue summons under section 131, it is the AO's duty to issue such summons; failing which addition may be deleted. Mere non-production of lender/shareholder cannot automatically warrant addition under section 68.	Applied to hold that the AO should have pursued summons and further enquiry; mere non-attendance did not justify rejecting documentary evidence produced by the assessee.
Commissioner Of Income-Tax v. Metachem Industries, (2000) 245 ITR 160 (MP)	When credit is shown from a person other than the assessee, assessee need not further show that it came from an accounted source of the lender so long as advance and capacity to advance are established.	Referred to support the position that the assessee's production of documents showing receipt and investor capacity sufficed unless AO disproved same.
S. Hastimal v. Commissioner Of Income-Tax, Madras, (1963) 49 ITR 273	After lapse of time (a decade), an assessee should not be called upon to explain origin of origin or source of source of a capital contribution.	Noted to caution against excessively onerous proof requirements on the assessee to trace antecedent sources beyond the direct investor.
Commissioner Of Income Tax v. Lovely Exports Pvt. Ltd., (2008) 216 CTR 195 (SC)	If share application money is received from alleged bogus shareholders whose identity is produced, the department can proceed against such shareholders and, if required, reopen their individual assessments; doctrine limits invoking section 68 against recipient company when details are furnished.	The tribunal relied on Lovely Exports to hold that once assessee furnishes investor details and prima facie material, the proper course for Revenue is to pursue the alleged shareholders individually rather than to disallow receipts in the hands of the recipient without proper inquiry; AO failed to do meaningful enquiry.
CIT v. Steller Investment Ltd., (1991) 192 ITR 287 (Del.), (2000) 251 ITR 287 (SC)	Listed among authorities that support the principle that receipt from purported shareholders, where identity is furnished, should be investigated through the shareholders as necessary.	Seen as corroborative precedent aligning with Lovely Exports and relied upon to support deletions when AO fails to properly investigate.
Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd., 205 ITR 98 (Del.) (FB)	Similar supporting authority to the effect that Revenue may proceed against shareholders but cannot lightly disallow receipts where identity and documentary proof are produced.	Referred to as part of the jurisprudential matrix underpinning the tribunal's reliance on Lovely Exports.
CIT v. Divine Leasing & Finance Ltd.; CIT (Kolkata) v. Shipra Retailers (P.) Ltd.; CIT v. Pondy Metal & Rolling Mills (P.) Ltd.; CIT v. General Exports Ltd. (various SLP/HC matters)	Grouped as decisions following or consistent with Lovely Exports showing that where identity is produced, Revenue should pursue shareholders rather than automatically invoking section 68 against recipient companies.	Grouped by the tribunal as authorities supporting the approach that AO must make meaningful enquiries and that simple reliance on investigation reports is insufficient to sustain additions.
CIT v. Creative World Telifilms Ltd. (Mumbai HC order dated 12.10.2009 in ITA(L) no. 2182 of 2009)	Applied Lovely Exports: where assessee provides names/addresses, PAN, cheque/bank details, the AO ought to have used available means to reach the shareholders; mere issuance of summons which returned 'not tenable' was insufficient and the AO should have furthered investigation.	Cited by the tribunal as a closely analogous authority where an appeal was dismissed in limine because AO did not properly investigate despite assessees furnishing particulars; used to support deletion here.
ACIT v. Venkateshwar Ispat Pvt. Ltd., (2009) 319 ITR 393 (Chhattisgarh HC)	Similar decision endorsing the approach in Lovely Exports.	Referred to as another High Court decision consistent with the principle that Revenue must investigate shareholders rather than automatically making additions.
CIT v. Dwarkadhish Investment Pvt. Ltd. and Dwarkadhish Capital Pvt. Ltd. (Delhi HC, order dated 02.08.2010)	Doctrine of merger and application of Lovely Exports: once assessee furnishes PAN or assessment number and shows money in books by account payee cheque/draft, the onus shifts to Revenue; Revenue has the resources to trace persons and assessee need not prove "source of source".	Used to show that the jurisdictional High Court supports the principle that assessees meeting the initial burden entitle Revenue to pursue shareholders rather than disallow in the recipient's hands.
CIT v. Green Tech Tower Builders Pvt. Ltd.; Commissioner Of Income Tax v. Ultratech Finance & Investment Ltd. (Delhi HC orders dated 12.08.2010)	Recent Delhi High Court orders following Lovely Exports and Dwarkadhish, dismissing departmental appeals in limine where the facts fit that ratio.	Cited to demonstrate the consistent approach of the jurisdictional High Court relied upon by the CIT(A) and tribunal.
KK Modi v. KN Modi, (1998) 3 SCC 573	Relitigation of the same issue previously decided amounts to an abuse of the process of the court; courts should guard against re-agitation of already decided issues.	Referred to by the cited High Court orders as a rationale for dismissing repetitious appeals; the tribunal referenced related High Court reasoning in the matrix of authorities supporting the CIT(A).'s approach.
Commissioner Of Income Tax v. Fair Finvest Ltd. (Delhi HC no. 232/2012 dated 22-11-2012)	Where assessee adduces documents for share application monies, AO must make meaningful enquiry if relying on investigation reports; mere reliance without enquiry is improper. The ratio of Lovely Exports applies depending on facts; AO may reject on tenable grounds after examination.	Relied upon by the tribunal to emphasise that AO must conduct meaningful enquiry and cannot base additions solely on an investigation report when the assessee has produced evidence.
Nova Promoters & Finlease (P.) Ltd. (referenced)	Example where a link between the assessee and alleged hawala operators was shown and AO's reliance on investigation succeeded.	Cited by the tribunal (via Fair Finvest summary) to note that Lovely Exports' ratio is not universally applicable if AO can establish a tangible link to entry operators; here the AO did not establish such a link.

Court's Reasoning and Analysis

The tribunal's analysis proceeded in the following logical steps strictly as set out in the opinion:

Review of evidence produced by the assessee: The tribunal noted that the assessee had filed share application forms, PAN details, affidavits of the directors of the investor companies, copies of income-tax returns, confirmations, bank statements, Form 18 and Form 32 filings, balance sheets, certificates of incorporation and ROC master data showing the investor companies as "active".
Assessment of the AO's investigative steps: The tribunal observed that the AO had relied primarily on an Investigation Wing report and statements recorded by the Investigation Wing (i.e., material recorded at the back of the assessee) without either confronting the assessee with that material or allowing cross-examination of the third parties whose statements were relied upon.
On the summons issued by AO: Although the AO issued summons to the directors of the shareholder companies, those directors did not attend; the tribunal emphasized that the AO did not take further steps to pursue the matter to a logical conclusion (for example, making field enquiries, verifying service returns, or using the PAN/bank details to trace shareholders), nor did the AO return summons as unserved.
Application of settled legal principles and precedents: The tribunal applied authorities which establish (a) the audi alteram partem requirement in section 68 enquiries; (b) that the initial onus lies on the assessee to prove identity/genuineness, but once that onus is discharged, the burden shifts to the AO to bring material disproving the claim; (c) that statements recorded at the back of the assessee require opportunity for confrontation/cross-examination; and (d) the Supreme Court's position in Lovely Exports that where an assessee furnishes the identity of shareholders, the Revenue can proceed against such shareholders rather than automatically invoking section 68 against the recipient company without adequate enquiry.
Evaluation of AO's failure to disprove: The tribunal concluded that the AO did not bring any valid material on record to discredit the documents and explanations furnished by the assessee; the AO did not cite or discuss relevant portions of Investigation Wing statements to establish collusion nor did he cross-verify documents with other authorities or conducting further inquiries.
Conclusion based on facts and authorities: Given the evidence produced by the assessee and the AO's failure to conduct meaningful inquiry or produce independent material to disprove the claim, the tribunal held that the CIT(A) was justified in deleting the addition.

Holding and Implications

Holding: The appeal of the Revenue is dismissed. The tribunal upheld the CIT(A)'s deletion of the addition (the impugned addition of Rs. 60,00,000/- treated as unexplained credit under section 68 was deleted).

Implications:

Direct effect on the parties: The deletion of the addition stands and the Revenue's appeal against that deletion has failed; the assessee's claim that the share application receipts were genuine and documented was accepted for the purposes of this appeal.
Broader precedent: The opinion relies extensively on established authorities (including Lovely Exports and subsequent High Court decisions) to reaffirm established principles on the burden of proof under section 68, the need for meaningful inquiry by the AO, and the requirement to confront the assessee with material taken at the back. The opinion does not purport to create a new legal principle; rather, it applies settled law to the facts and emphasizes that no addition can be sustained where the AO fails to bring material to disprove evidence produced by the assessee.

Note: This summary is drawn exclusively from the text of the provided opinion and does not add or infer facts beyond those contained in the opinion.

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Ito v. Rakam Money Matters P. Ltd.

B.C Meena, A.M:— This appeal filed by the Revenue emanates from the order of the CIT (Appeals)-XVIII, New Delhi dated 18.03.2011 for the Assessment Year 2003-2004.

2. Original return of income was submitted on 02.11.2003 declaring income at Rs. 5,64,556/-. The case was reopened by issuing notice u/s. 148 of the Income-tax Act, 1961 dated 19.02.2010 This reopening was based on the information received from Investigation Wing with regard to share application money received by assessee. The relevant portion of Assessing Officer's order read as under:—

“It was noticed from the list of entries that the assessee Rakam Money Matters (P.) Ltd. has taken the following accommodation entry from the following person as per details hereunder:—

Amount Instrument No. Date Name of entry provider Name of Bank Name of Branch A/c No. 500750 697367 30-Jul-02 Chanakya Finvest P. Ltd. CORPN KB 3675 500750 26-Sep-02 Royal Credits P. Ltd. SBP DG 50078

Further it was also noticed during the assessment proceedings that the assessee had also received share application money from Team Plus Securities Ltd. MPN Fincap Pvt. Ltd. Neelkant Shares P. Ltd. Ashian Needles P. Ltd. Paras Fincap P. Ltd. and KVF Securities P. Ltd. who are also mentioned in the said report as entry providers.

In order to prove the genuineness of the credit of Rs. 60 lacs as share application money, the assessee was vide order sheet entry dated 15/12/2010 asked to produce the Directors of the above mentioned companies from which share application money has been received. The assessee filed reply dated 22/12/2010 and nobody was produced.

The assessee in support of the share capital of Rs. 60,00,000/-, vide letter dated 22.12.2010 filed copy of ITRs Share application forms etc. and affidavit of the Directors of these companies. Summons were issued to the Directors of these companies for 28.12.2010 However none attended.

Although the receipts of share application money of Rs. 60 Lacs was through banking channels, this fact by itself is not sufficient to proof the genuineness of the persons who gave the share application money or their creditworthiness. A perusal of the bank account of the above mentioned companies reveal as well as prove that they are mere conduits utilized by the entry operators for providing bogus accommodation entries to interested parties. The balances in their bank accounts are very low on a given date after which substantial amounts are deposited either by cheques or by cash to increase the balance but invariable within a day or two the same is withdrawn or transferred to some other account bringing the balance down. The process is repeated over and over again many times although the P & L A/c of the assessee reveals no business activity worthy of mention.

It is further seen from the table give above that in respect of all the above mentioned share applicants, no interest has been charged on loans and advances and also no interest has been received by these companies. The Directors of these companies do not put in any work. It is not possible that these companies work for no gain/income. These share applicants in this case do not have any source of income of the stature that would enable them to give large amounts of share application money as has been given by them to the assessee company. The onus to prove their creditworthiness squarely lay on the assessee but it has totally failed to discharge the onus cast on it. In these circumstances there is no alternative left than to draw an adverse inference regarding the creditworthiness of the four share applicants.

The assessee company was vide order sheet entry dated 15.12.2010 asked to produce the Directors of the companies from which the share application money has been received. The assessee has not produced them and hence has not discharged its onus to prove the genuineness of the share applicants.

Hence I hold that the share application money received of Rs. 85 Lakh from Team Plus Securities Ltd. MPN Fincap Pvt. Ltd. Neelkant Shares P. Ltd. Ashian Needles P. Ltd. Paras Fincap P. Ltd. KVF Securities P. Ltd. as income of the assessee u/s. 68 of IT Act.”

2.1 The CIT(A) has deleted the addition by holding as under:—

“5.1 I have carefully considered the reassessment order and the submissions made by the ld. AR on the above issue. It is argued by the ld. AR that the impugned share application money of Rs. 60,00,000/- had been received from 8 companies, viz. Team Plus Securities Ltd. (Rs. 500000/-), Chanakya Finvest Pvt. Ltd. (Rs. 500000/-), MPN Fincap Pvt. Ltd. (Rs. 1150000/-), Neelkant Shares P. Ltd. (Rs. 350000/-), Ashian Needles P. Ltd. (Rs. 1000000/-), Paras Fincap P. Ltd. (Rs. 1000000/-), Royal Credit Pvt. Ltd. (Rs. 500000/-) and KVF Securities P. Ltd. (Rs. 1000000/-). All the above amounts have been paid by account payee cheques. The appellant had filed copies of confirmation I affidavit from the said companies confirming the payment of the above amount as share application money, copies of bank statements, copies of Income-tax returns, copy of PAN cards, copies of Demand drafts, Balance Sheets, copy of Certificates of Incorporation and Memorandum and Articles of Association, copy of ROC details showing the status of the companies as “active”, copy of share application forms etc. of the respective investor companies before the AO in support of its claim. It is argued by the Id. AR that the appellant has discharged its initial onus with regard to the above transactions. It is argued that the addition has been made by the AO merely on the basis of information received from the Investigation Wing which was at the back of the appellant and due to non-production of the Directors of the above companies. Further, it is argued that opportunity of cross examination was not provided to the appellant. It is also argued that even in the event of the investor companies being bogus, as alleged, no addition can be made u/s. 68 in the hands of the appellant company. The Id. AR has accordingly argued that the said addition of Rs. 60,00,000/- u/s. 68 made by the AO in the hands of the appellant company is illegal. The ld. AR has relied upon a plethora of case laws in support of his claim. On careful consideration of the matter, I find that the above contention of the ld. AR cannot be rejected on merit. The AO has also not been able to bring on record any valid material evidence to disprove the claim of the appellant in this regard.

5.2 Further, I find that the established legal position on the subject under consideration as adopted in a large number of case laws is as follows:—

5.2.1 As held in the case of R.B Mittal v. Commissioner Of Income Tax, Visakhapatnam, 246 ITR 283 (AP) in an enquiry u/s. 68, the rule of audi alteram parterm has to be observed and the assessee must be given a fair and reasonable hearing to discharge the burden cast on him u/s. 68 of the Act.

5.2.2 Further, it is settled law that in the matter of cash credit, the initial onus lies on the assessee to prove the genuineness of the transaction alongwith the identity of the lender/investor and his creditworthiness. Having done so, the appellant in the instant case has discharged the onus cast upon it. Beyond this, for the charge of unexplained cash credit to stick, the onus lies on the AO to disprove the claim of the assessee by establishing that the evidence filed by the assessee was false and by bringing new material on record and failure to do so would vitiate the addition made on this count. Reference in this regard can be made the decisions in the case of CIT v. Orissa Corporation Pvt. Ltd., 158 ITR 78 (SC) and Deputy Commissioner Of Income-Tax v. Rohini Builders, 256 ITR 360 (Guj.). It was also held in the case of CIT v. Bedi & Co. P. Ltd., (1998) 230 ITR 580 (SC) that where prima-facie the inference on facts is that the assessee's explanation is probable, the onus will shift to the revenue to disprove it and the assessee's explanation in such case cannot be rejected on mere surmises. Further, it was held in Khandelwal Constructions v. CIT, (1997) 227 ITR 900 (Gau.) that since the satisfaction of the AO is the basis for invocation of the powers u/s. 68, such satisfaction must be derived from relevant factors on the basis of proper inquiry by the AO and such inquiry must be reasonable and just.

5.2.3 It is also settled law that it is mandatory for the AO to confront the assessee with any material collected by the AO at the back of the assessee and in case of statement of third party recorded at the back of the assessee, opportunity of cross examination has to be offered to the assessee, failing which the said material/statement etc. will be rendered on unreliable and additions made on the basis of such material/statement etc. shall be rendered illegal. Reference in this regard can be made to the decisions in the case of R.B Shreeram Durga Prasad, 176 ITR 169 (SC), 125 ITR 713 (SC), Jindal Vegetable (order of Hon'ble Delhi High Court in ITA no. 428 of 2007, 174 Taxmann 440 (Raj.) and Laxman Bhai Patel (order of Hon'ble Gujarat High Court dated 22.07.2008 in ITR no. 41/1997).

5.2.4 Further, in the case of N.P Garodia (order dated 13.01.2009 of Hon'ble P & H High Court in ITA no. 808 of 2008) and in the case of Brij Pal Sharma (order dated 17.02.2009 in ITA no. 685 of 2008 of Hon'ble P & H High Court) it’ was held that where the assessee provides identity and details pertaining to the lenders/creditors and is unable to produce them and requests the AO to issue summons u/s. 131 for their attendance, it is the duty of the AO to issue such summons, failing which the addition would get deleted. It is also held in CIT v. Orissa Corporation Pvt. Ltd., 158 ITR 78 (SC) and Anis Ahmed, 297 ITR 441 (SC) that mere non-production of the lender/shareholder cannot be a ground for making addition u/s. 68.

5.2.5 Similarly as held in the case of Commissioner Of Income-Tax v. Metachem Industries, (2000) 245 ITR 160 (MP) where a credit is shown to have come from a person other than the assessee, there is no further responsibility of the assessee to show that it has come from accounted source of the lender, as long as the fact that he had made the advance and was capable of making the advance are established. It was held by the Hon'ble Madras High Court in S. Hastimal v. Commissioner Of Income-Tax, Madras., (1963) 49 ITR 273 that after a lapse of decade, the assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution, but also the origin of origin and source of the source.

5.2.6 Further, I find that the Apex Court in Commissioner Of Income Tax v. Lovely Exports Private Limited ., (2008) 216 CTR 195 held that the even if the share application money received by the appellant company is from alleged bogus shareholder, whose identity is produced by the appellant company, the revenue can always proceed against such shareholders and if necessary reopen their individual assessment. Similar decision is also taken in the case of CIT v. Steller Investment Ltd., (1991) 192 ITR 287 (Del.), (2000) 251 ITR 287 (SC), Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd ., 205 ITR 98 (Del.) (FB), CIT v. Divine Leasing & Finance Ltd. (SLP no. CC 375/2008 arising out of ITA no. 53/2005 of the High Court of Delhi), CIT (Kolkata) v. Shipra Retailers (P.) Ltd. (SLP no. CC 451/2008 arising out of ITA no. 576/2004 of the High Court of Calcutta), CIT v. Pondy Metal & Rolling Mills (P.) Ltd. (SLP no. CC 12860/2007 arising out of ITA no. 788/2006 of the High Court of Delhi) and CIT v. General Exports Ltd. (SLP no. 21349/2007 arising out of ITA no. 880/2006 of the High Court of Delhi). Following the aforesaid decision of the Apex Court in Commissioner Of Income Tax v. Lovely Exports Private Limited . (supra), the Hon'ble Mumbai High Court in the recent judgement in the case of CIT v. Creative World Telifilms Ltd. (order dated 12.10.2009 in ITA(L) no. 2182 of 2009) has held as under:

“The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgement of the Apex Court in the case of Commissioner Of Income Tax v. Lovely Exports Private Limited . reported in (2008) 216 CTR 195 (SC) wherein the Apex Court observed that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee has given the details of name and address of the shareholders, their PANIGIR number and had also given the cheque number, name of the bank. It was expected on the part of the assessing officer to make proper investigation and reach the shareholders. The assessing officer did nothing except issuing summons which was ultimately returned back with an endorsement ‘not tenable’. In our considered view, the assessing officer ought to have found out their details through PAN Card, Bank Account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the assessing officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in liminni with no order as to costs.”

Similar decision has also been taken by the Hon'ble Chhattisgath High Court in ACIT v. Venkateshwar Ispat Pvt. Ltd., (2009) 319 ITR 393.

5.2.7 Further, the Hon'ble Delhi High Court relying on the judgement of the Apex Court in Lovely Exports Pvt. Ltd. (supra) has dismissed the department's appeals in limine vide its recent orders in the case of CIT v. Dwarkadhish Investment Pvt. Ltd. and Dwarkadhish Capital Pvt. Ltd. (ITA nos. 911/2010 and 913/2010 order dated 02.08.2010), CIT v. Green Tech Tower Builders Pvt. Ltd. (ITA no. 1113/2010 order dated 12.08.2010) and Commissioner Of Income Tax v. Ultratech Finance & Investment Ltd. no. 1122/2010 order dated 12.08.2010). In the case of Dwarkadhish Investment Pvt. Ltd. and Dwarakdhish Capital Pvt. Ltd. (supra) the Hon'ble jurisdictional High Court vide its common order dated 02.08.2010 has inter alia observed as under:

“7. Consequently, the doctrine of merger would apply and the judgment of the Supreme Court in Lovely Exports (P.) Ltd. (supra) would cover the field with regard to interpretation of Section 68 of Act, 1961.

8. In any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given. It would not give the Revenue the right to invoke Section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the “source of source”.

10. We are also informed that a Special Leave Petition against the aforesaid Division Bench judgment in the case of the respondent-assessee has been dismissed by the Supreme Court. Accordingly, we are of the opinion that no question of law arises in the present cases as the matter is fully covered by the judgment of the Supreme Court in Lovely Exports (P.) Ltd. (supra) as well as the Division Bench judgment of this Court in the case of the respondent-assessee itself.

11. Consequently, we are of the view that the present appeals amount to relitigation. The Supreme Court in KK Modi v. KN. Modi, (1998) 3 SCC 573 has held, “It is an abuse of the process of the court and contrary to justice and public policy for a party to relitigate the same issue which has already been tried and decided earlier against him. The reagitation mayor may not be barred as res judicata. But if the same issue is sought to be re agitated, it also amounts to an abuse of the process of the court…..”

12. Though we were initially inclined to impose costs yet we are of the opinion that ends of justice would be met by giving a direction to the Revenue to be more careful before filing appeals in a routine manner. In our view, appeal should not be filed in matters where either no question of law arises or the issue of law is a settled one. We give this direction because the “judicial capital in terms of manpower and resources is extremely limited.

13. Registry is directed to communicate copies of this order to all the Chief Commissioners of Income Tax in Delhi for necessary action. With the aforesaid direction, the present appeals are dismissed in limine but without any order as to costs.”

3. Now, revenue is in appeal by taking the following revised grounds of appeal which read as under:—

“1. That on the facts and circumstances of the case and in law whether the ld. CIT(A) was justified in the eyes of law in passing the impugned order deleting the addition of Rs. 60,00,000/- in the light of the Hon'ble Supreme Court decision in the case of CIT v. Lovely Exports (216 CTR 195 (SC) and High Court decision in the case of CIT v. Dwarkashish Capital P. Ltd. when the facts of this case are distinguishable from the above case.

2. That on the facts and circumstances of the case and in law whether the Ld. CIT(A) was justified in deleting the addition when the assessee company has not been able to produce any of the director of the concerned parties who had made share application money inspite of the specific directions to produce all the parties. The assessee being a closely held company inspite of providing many opportunities could not produce any party for cross objection. Therefore, the genuineness and the identity of all the five parties could not be said to be established.

3. That on the facts and circumstances of the case and in law whether the Ld. CIT(A) is legally justified in observation that the assessee company has satisfied the onus of proving the identity of all the investors/share applicants, overlooking the clear finding of that fact that the assessee company has failed to discharge the onus resting on it by not producing all the five investors/share applications, so that their identity could be established.

4. That the appellant craves to be allowed to add any fresh ground of appeal and/or deleted or amend any of the grounds of appeal.”

4. The only issue arising in the grounds of appeal is deletion of the addition of Rs. 60,00,000/- made by the CIT(A) on account of the share capital received by the assessee-company during the year under consideration.

5. Notice under section 148 of the Act was issued on the basis of the information received from the Investigation Wing that the assessee company has received accommodation entries by way of share application money from the following companies:—

(i) Chanakya Finvest Pvt. Ltd. Rs. 5,00,750 (ii) Royal Credits P. Ltd. Rs. 5,00,750

6. The Assessing Officer during the course of the assessment noticed that the assessee has also received share application money from following companies as well:—

(i) Team Plus Securities Ltd. Rs. 5,00,000 (ii) MPN Fincap Pvt. Ltd. Rs. 11,50,000 (iii) Neelkant Shares P. Ltd. Rs. 3,50,000 (iv) Ashian Needles P. Ltd. Rs. 10,00,000 (v) Pars Fincap P. Ltd. Rs. 10,00,000 (v) KVF Securities P. Ltd. Rs. 10,00,000

7. The AO asked the assessee company to prove the genuineness of the share application money received by it.

8. In response thereto the assessee company filed details in the form of share application form, PAN card details, affidavits of the directors of the shareholder companies, copy of income tax return, confirmation, bank statement, copy of Form 18, copy of Form 32 of Companies, Copy of balance sheet of shareholders, certificate of incorporation and also copy of master data as available on the site of Ministry Corporate Affairs, etc. The AO did not get satisfied with the explanation of the assessee and added the entire amount of Rs. 60 lacs as unexplained credit under section 68 of the Income-tax Act, 1961.

9. Aggrieved by the order of the AO the assessee carried the matter in appeal before the CIT(A). The CIT(A) deleted the addition by holding that assessee company has filed all the necessary details which include copies of share application form, copies of bank statements, copies of income tax returns copies of PAN cards, balance sheet, copy of Certificate of Incorporation and Memorandum of Articles of Association of the companies. The CIT(A) noticed that the status of these companies is ‘active’ on the ROC Website. The CIT(A) also noted that the opportunity of cross examination was not provided to the appellant in respect of the allegation of the Investigation Wing. The CIT(A) on the basis of the above facts and by relying upon the various judgments held that assessee has discharged its onus and deleted the addition.

10. Before us, it was contended by the Ld. DR that CIT(A) was not justified in deleting the addition keeping in view the fact that there was information received from the Investigation Wing and assessee has failed to produce the directors of the companies who have made investments in the assessee company.

11. Against this, the Ld. AR submitted that the assessee company has furnished all the details. No infirmity has been pointed out except making casual observation that the balances in their bank accounts are very low. It was argued that the AO has not even investigated the transactions in the bank account of the shareholder companies. He could have easily verified the source of credit in the bank accounts of these companies. No efforts have been made to verify the status of these companies in the income tax record despite the assessee submitting copy of the income tax returns as well as assessment orders in some cases.

12. As regards the existence of these companies it was submitted that the AO has issued summons to the directors of these companies and these have been duly served as is evident from the assessment order where the only allegation is that none of the directors attended in response to the summons issued by the AO. The AO having issued the summons it was for him to take the same to the logical conclusion. No field enquiry was made by the AO so as to demonstrate that these companies are not in existence. As against this, the assessee company has provided all the best possible evidences. The observations made by the AO are very casual and it clearly shows that he has completed the assessment with a preconceived notion by indulging into surmises and conjecture. The AO being an adjudicating officer is supposed to examine all the materials and carry out the investigation to the logical end. In the present case, as is evident from the assessment order, he has not even looked at the statement of the person on the basis of which allegation is being levied against the assessee company. Despite the assessee filing voluminous documents supporting its contention in respect of each of the shareholder, the Assessing Officer has made no effort to examine these documents and made even cross verification from the concerned Assessing Officer of these shareholder companies. He has made sweeping remarks in the assessment order on its own. It was contended that the CIT(A) has examined all these issues and was justified in deleting the above said addition.

13. We have heard both the parties. The only issue here is the addition of Rs. 60 lacs made by the Assessing Officer as unexplained credit on account of the share application money. On going through the facts of the case, we notice that assessee has filed the relevant details which it could have filed in support of its contention of having received the share application money from each of these shareholder companies.

14. The Assessing Officer has issued summons to the directors of these shareholder companies. In response there to, the directors have not attended. Assessing Officer has not conducted any further inquiry for non-attendance of the persons. Non-attendance on issuing summons itself, cannot be a ground for rejecting all the relevant documents furnished by the assessee company. Summons issued by Assessing Officer have not been received back as unserved. Therefore, it cannot be said that these companies were not in existence at the given addresses. The documents filed with the Registrar of Companies show that these companies were active during the relevant period. Assessing Officer has not verified any of the relevant documents submitted by Assessing Officer for discharging onus u/s. 68 of the Act. We also note that the Assessing Officer has not referred nor discussed about the so-called alleged statement of entry providers against the assessee company. It is also not known whether assessee's name figured in that statement. The contention of the assessee has been rejected without examination and verification of the documents submitted by the assessee. The information received by him from the Investigation department has been made the basis of addition without any further investigation in this regard. Even the process of examination of the directors by issue of summons has not been taken to the logical end as after the failure of the directors to attend in response to the summons issued to them no further steps were taken. The Assessing Officer could have done cross verification about the status of these companies with the respective Assessing Officer of these shareholder companies.

15. In the case of Commissioner Of Income Tax Iv v. Fair Finvest Ltd. no. 232/2012 dated 2211-2012, the jurisdictional Delhi High Court has held as under:—

“6. This Court has considered the submissions of the parties. In this case the discussion by the CIT (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.

7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). 8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawalaoperators; such a link was shown to be present in the case of Nova Promoters & Finlease (P.) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. No substantial question of law arises. The appeal is accordingly dismissed.”

16. In the present case, as noted above, the AO has not been able to bring on record any valid material or evidence to discredit the evidences and the explanation given by the assessee company. The only evidence which has been referred by the AO is statement of third parties recorded by the Investigation Wing. Admittedly these statements were not recorded by the AO but were recorded by the Investigation Wing at the back of the assessee. The AO has not even referred to the relevant portion of such statement so as to establish the collusive arrangement the assessee company had with these persons.

17. Accordingly we are of the view that the CIT(A) was justified in deleting the addition made by the AO.

18. In the result, the appeal of the revenue stands dismissed.

Ito v. Rakam Money Matters P. Ltd.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (Revenue)'s Arguments

Respondent (Assessee)'s Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ito v. Rakam Money Matters P. Ltd.

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