FOREVER FLOURISHING FIN & INV. PVT LTD,MUMBAI vs. DCIT-CC-3(4), MUMBAI, MUMBAI

PER OM PRAKASH KANT, AM

These two appeals by the assessee are directed against two separate orders dated 25.07.2019 and 24.07.2019 for assessment year 2012-13 and 2013-14 respectively, passed by the Ld. Commissioner of Income-tax (Appeals)-51, Mumbai [in short ‘the Ld. CIT(A)’]. Being identical issue in dispute, permeating from same set of facts and circumstances, involved in these appeals, same

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were heard together and disposed off by way of this consolidated were heard together and disposed off by way of this consolidated were heard together and disposed off by way of this consolidated order for convenience. order for convenience.

A. Validity of Assessment Validity of Assessment

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preliminary enquiry and has to form his independent enquiry and has to form his independent opinion of income escaping assessment whic opinion of income escaping assessment which facts are h facts are totally missing in the appellant's case. totally missing in the appellant's case. 2. The CIT(A) in justifying the validity of assumption of The CIT(A) in justifying the validity of assumption of The CIT(A) in justifying the validity of assumption of jurisdiction u/s 147 of the Act did not appreciate that the jurisdiction u/s 147 of the Act did not appreciate that the jurisdiction u/s 147 of the Act did not appreciate that the information received by the AO was vague and the crucial information received by the AO was vague and the crucial information received by the AO was vague and the crucial link between the information link between the information made available and the made available and the formation of belief was absent in as much nowhere in the formation of belief was absent in as much nowhere in the formation of belief was absent in as much nowhere in the reasons recorded as well as in the order disposing of reasons recorded as well as in the order disposing of reasons recorded as well as in the order disposing of objections to the reasons recorded the AO has listed out objections to the reasons recorded the AO has listed out objections to the reasons recorded the AO has listed out name of the companies from whom Rs.10.50 crs. were name of the companies from whom Rs.10.50 crs. were name of the companies from whom Rs.10.50 crs. were received by t received by the appellant towards share capital and he appellant towards share capital and premium which were alleged to be bogus and in any event, premium which were alleged to be bogus and in any event, premium which were alleged to be bogus and in any event, the CIT(A) could not have improved upon from what has the CIT(A) could not have improved upon from what has the CIT(A) could not have improved upon from what has already been stated in the reasons recorded. already been stated in the reasons recorded. 3. The CIT(A) erred in holding that the assessment made The CIT(A) erred in holding that the assessment made The CIT(A) erred in holding that the assessment made was in accordance with law even if no opportunity was n accordance with law even if no opportunity was n accordance with law even if no opportunity was given to the appellant to cross examine the persons whose given to the appellant to cross examine the persons whose given to the appellant to cross examine the persons whose statements were heavily relied upon in drawing the adverse statements were heavily relied upon in drawing the adverse statements were heavily relied upon in drawing the adverse inference in the light of the fact that no corroborative inference in the light of the fact that no corroborative inference in the light of the fact that no corroborative evidence was brought on record to evidence was brought on record to support the said support the said statements and he did not appreciate that giving of statements and he did not appreciate that giving of statements and he did not appreciate that giving of opportunity to cross opportunity to cross-examine was highly imperative on the examine was highly imperative on the facts and circumstances and non facts and circumstances and non-giving thereof has violated giving thereof has violated the principles of natural justice which has rendered the the principles of natural justice which has rendered the the principles of natural justice which has rendered the assessment assessment as null and void. B. Merits 74. The CIT(A) erred in confirming the addition u/s 68 of the 74. The CIT(A) erred in confirming the addition u/s 68 of the 74. The CIT(A) erred in confirming the addition u/s 68 of the Act of Rs.105000000/ Act of Rs.105000000/ - in respect of share capital and in respect of share capital and securities premium. securities premium. 4.1. In confirming the addition as above, the CIT(A) erred in 4.1. In confirming the addition as above, the CIT(A) erred in 4.1. In confirming the addition as above, the CIT(A) erred in a. not appreciating that the not appreciating that the primary onus which lay on the primary onus which lay on the appellant stood fully discharged and the same shifted to appellant stood fully discharged and the same shifted to appellant stood fully discharged and the same shifted to the AO who neither dislodged the material and evidence the AO who neither dislodged the material and evidence the AO who neither dislodged the material and evidence placed on record nor made any independent enquiry, placed on record nor made any independent enquiry, placed on record nor made any independent enquiry, b. not appreciating that, the AO merely relied upon the b. not appreciating that, the AO merely relied upon the b. not appreciating that, the AO merely relied upon the statements of alleged entry providers and / or dummy ents of alleged entry providers and / or dummy ents of alleged entry providers and / or dummy directors without bringing any corroborative material in directors without bringing any corroborative material in directors without bringing any corroborative material in

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support of the same and in any event, the statements of support of the same and in any event, the statements of support of the same and in any event, the statements of alleged entry providers alleged entry providers were recorded by other officers of were recorded by other officers of the Dept. in the enquiries unconnecte the Dept. in the enquiries unconnected with the appellant, d with the appellant, C. relying upon various judicial pronouncements which are C. relying upon various judicial pronouncements which are C. relying upon various judicial pronouncements which are distinguishable on facts and by distinguishable on facts and by-passing the decisions of the passing the decisions of the jurisdictional high court as well as persuasive decisions of jurisdictional high court as well as persuasive decisions of jurisdictional high court as well as persuasive decisions of other high courts relied upon by the appellant which a other high courts relied upon by the appellant which a other high courts relied upon by the appellant which are on identical facts, facts, d. not appreciating that no addition can be made us 68 of d. not appreciating that no addition can be made us 68 of d. not appreciating that no addition can be made us 68 of the Act in respect of share capital if the identities of the the Act in respect of share capital if the identities of the the Act in respect of share capital if the identities of the share applicants were established, and share applicants were established, and e. holding that the AO has observed that the alleged bogus e. holding that the AO has observed that the alleged bogus e. holding that the AO has observed that the alleged bogus shareholders hav shareholders have within a short span of time sold the e within a short span of time sold the shares of the appellant to entities of the appellant group at shares of the appellant to entities of the appellant group at shares of the appellant to entities of the appellant group at face value and thereby incurred huge losses, a fact not face value and thereby incurred huge losses, a fact not face value and thereby incurred huge losses, a fact not borne out from the record. borne out from the record. 5. Without prejudice to the above, the CIT(A) did not 5. Without prejudice to the above, the CIT(A) did not 5. Without prejudice to the above, the CIT(A) did not appreciate that in appreciate that in drawing the inference that the appellant drawing the inference that the appellant is an entry provider, then consistent with his said stand, no is an entry provider, then consistent with his said stand, no is an entry provider, then consistent with his said stand, no addition could have been made in the hands of the addition could have been made in the hands of the addition could have been made in the hands of the appellant. 6. The CIT(A) erred in not appreciating that if the financials 6. The CIT(A) erred in not appreciating that if the financials 6. The CIT(A) erred in not appreciating that if the financials of the appellant did not jus of the appellant did not justify receiving of share capital at tify receiving of share capital at a huge premium and the financials of the companies who a huge premium and the financials of the companies who a huge premium and the financials of the companies who have invested in share capital of the appellant also did not have invested in share capital of the appellant also did not have invested in share capital of the appellant also did not justify receiving of share capital at a huge premium then no justify receiving of share capital at a huge premium then no justify receiving of share capital at a huge premium then no addition could have been made in the hands o addition could have been made in the hands o addition could have been made in the hands of the appellant and the same, if at all, was required to be made appellant and the same, if at all, was required to be made appellant and the same, if at all, was required to be made in the hands of Mahavir Group of cases who have availed in the hands of Mahavir Group of cases who have availed in the hands of Mahavir Group of cases who have availed loans from the appellant in as much as the genesis of notice loans from the appellant in as much as the genesis of notice loans from the appellant in as much as the genesis of notice u/s 148 of the Act on the appellant was the search action u/s 148 of the Act on the appellant was the search action u/s 148 of the Act on the appellant was the search action on the said grou on the said group to verify huge loans taken by them p to verify huge loans taken by them including from the appellant. including from the appellant. Your appellant, therefore, submits that the order under Your appellant, therefore, submits that the order under Your appellant, therefore, submits that the order under appeal be quashed and in the alternative addition made be appeal be quashed and in the alternative addition made be appeal be quashed and in the alternative addition made be directed to be deleted. directed to be deleted.

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2.1 The grounds raised in ITA No. 6120/Mu The grounds raised in ITA No. 6120/Mu The grounds raised in ITA No. 6120/Mum/2019 are reproduced as under: reproduced as under:

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is an entry provider, then consistent with his said stand no entry provider, then consistent with his said stand no entry provider, then consistent with his said stand no addition could have been made in the hands of the addition could have been made in the hands of the addition could have been made in the hands of the appellant. 3. On perusal of the grounds raised in these two appeals, we find On perusal of the grounds raised in these two appeals, we find On perusal of the grounds raised in these two appeals, we find that on merit grounds raised in both the appeals are identical that on merit grounds raised in both the appeals are identical that on merit grounds raised in both the appeals are identical except the difference of amount involved. The ground challenging difference of amount involved. The ground challenging difference of amount involved. The ground challenging validity of the reassessment has only been raised in assessment validity of the reassessment has only been raised in assessment validity of the reassessment has only been raised in assessment year 2012-13. As far as merit of the additions is concerned s far as merit of the additions is concerned s far as merit of the additions is concerned, before us, the Ld. Counsel argued appeal for assessment year 2013 the Ld. Counsel argued appeal for assessment year 2013 the Ld. Counsel argued appeal for assessment year 2013-14 and requested for following those arguments ested for following those arguments in the assessment year in the assessment year 2012-13 also. The grounds challenging validity have been argued . The grounds challenging validity have been argued in . The grounds challenging validity have been argued AY 2012-13 and grounds on merit have been stated to be covered and grounds on merit have been stated to be covered and grounds on merit have been stated to be covered by the arguments for assessment year 2013 by the arguments for assessment year 2013-14. In view of the 14. In view of the submission of the parties in assessment year 2012 sion of the parties in assessment year 2012-13, we are sion of the parties in assessment year 2012 adjudicating adjudicating adjudicating the the the grounds grounds grounds challenging challenging challenging the the the validity validity validity of of of the the the reassessment and as far as merit is concerned, we are adjudicating reassessment and as far as merit is concerned, we are adjudicating reassessment and as far as merit is concerned, we are adjudicating on the grounds of the assessment year 2013 the grounds of the assessment year 2013-14 and 14 and said finding shall be followed in assessment year 2012 wed in assessment year 2012-13. The Validity of the Reassessment in Assessment Year 2012-13 The Validity of the Reassessment in Assessment Year 2012 The Validity of the Reassessment in Assessment Year 2012 4. Briefly stated facts of the case are that the assessee filed its Briefly stated facts of the case are that the assessee filed its Briefly stated facts of the case are that the assessee filed its return of income for the assessment year consideration on return of income for the assessment year consideration on return of income for the assessment year consideration on 29.09.2012 declaring total income of 29.09.2012 declaring total income of Rs.5,12,240/-. A search action . A search action u/s 132 of the Income u/s 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried tax Act, 1961 (in short ‘the Act’) was carried out by the Investigation Wing of the Income out by the Investigation Wing of the Income-tax Department, in tax Department, in “Mahavir Group” of cases including M/s Mahavir Road, & of cases including M/s Mahavir Road, & of cases including M/s Mahavir Road, &

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Infrastructure P. Ltd. i.e. Flagship C Infrastructure P. Ltd. i.e. Flagship Company of Mahavir Group. ompany of Mahavir Group. During search, it was observed that it was observed that “Mahavir Group Mahavir Group” of Companies received unsecured loan from the assessee company, t loan from the assessee company, therefore, the loan from the assessee company, t assessee company was covered under survey proceedings u/s 133A assessee company was covered under survey proceedings u/s 133A assessee company was covered under survey proceedings u/s 133A of the Act on 21.11.2013. During survey action it was observed that 21.11.2013. During survey action it was observed that 21.11.2013. During survey action it was observed that assessee issued shares at huge premium to various issued shares at huge premium to various share applicant issued shares at huge premium to various companies. The Investigation Wing was of the opinion that share companies. The Investigation Wing was of the opinion that share companies. The Investigation Wing was of the opinion that share premium received by the assessee was without any basis and huge premium received by the assessee was without any basis and huge premium received by the assessee was without any basis and huge premium was not justified considering the investments of the was not justified considering the investments of the was not justified considering the investments of the assessee. The Investigation Wing further carried out inquiries about assessee. The Investigation Wing further carried out inquiries about assessee. The Investigation Wing further carried out inquiries about the share holders who invested in the the share holders who invested in the company. The Investigation he Investigation Wing observed that the shareholder companies of the assessee the shareholder companies of the assessee the shareholder companies of the assessee were not available at their their stated address. It was further t was further noticed by the Investigation wing that wing that 15 shareholder companies of the assessee, of the assessee, were concerns of “Shri Deepak Patwari Shri Deepak Patwari” and “Sh Devesh Upadhyay Devesh Upadhyay”, both entry operators both entry operators, who had floated more than 100 compan floated more than 100 companies with dummy director with sole purpose of providing accommodation with dummy director with sole purpose of providing accommodation with dummy director with sole purpose of providing accommodation entries to the various beneficiaries. The Investigation Wing referred entries to the various beneficiaries. The Investigation Wing referred entries to the various beneficiaries. The Investigation Wing referred to statement of “Shri Deepak Patwari Shri Deepak Patwari” recorded on oath u/s 132(4) recorded on oath u/s 132(4) on 14.11.2011 and subsequent statement u/s 131 on 01.02.2012 on 14.11.2011 and subsequent statement u/s 131 on 0 on 14.11.2011 and subsequent statement u/s 131 on 0 and 27.07.2013. In those statements, Shri Deepak Patwari had n those statements, Shri Deepak Patwari had n those statements, Shri Deepak Patwari had identified the alleged alleged dummy director of those concerns. The investigation wing also recorded statement of the alleged dummy investigation wing also recorded statement of the alleged dummy investigation wing also recorded statement of the alleged dummy directors. The Investigation Wing supplied the material con The Investigation Wing supplied the material con The Investigation Wing supplied the material containing statements of relevant persons to statements of relevant persons to the Assessing Officer, who the Assessing Officer, who, after

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recording reasons to believe ecording reasons to believe that income escaped assessment that income escaped assessment, issued a notice u/s 148 of the A issued a notice u/s 148 of the Act on 01.02.2016. The assessee in ct on 01.02.2016. The assessee in response, requested requested to treat original return of incom original return of income filed on 29.09.2012 as being filed in response to notice u/s 148 of the Act. 29.09.2012 as being filed in response to notice u/s 148 of the Act. 29.09.2012 as being filed in response to notice u/s 148 of the Act. After providing opportunity of being heard, the Assessing Officer After providing opportunity of being heard, the Assessing Officer After providing opportunity of being heard, the Assessing Officer completed the reassessment proceedings u/s 147 r.w.s. 143(3) of completed the reassessment proceedings u/s 147 r.w.s. 143(3) of completed the reassessment proceedings u/s 147 r.w.s. 143(3) of the Act on 30.06.2017, wherein the Act on 30.06.2017, wherein, he added the share capital along are capital along with share premium received from 15 shareholders during the year with share premium received from 15 shareholders during the year with share premium received from 15 shareholders during the year under consideration amounting to Rs.10,50,00,000/- in terms of under consideration amounting to Rs.10,50,00,000/ under consideration amounting to Rs.10,50,00,000/ section 68 of the Act. On further appeal, the Ld. CIT(A) rejected the section 68 of the Act. On further appeal, the Ld. CIT(A) rejected the section 68 of the Act. On further appeal, the Ld. CIT(A) rejected the grounds challenging validity of the reas grounds challenging validity of the reassessment as well as upheld sessment as well as upheld the addition made u/s 68 of the Act on merit. the addition made u/s 68 of the Act on merit. 5. Before us, the Ld. Counsel of the assessee challenging the Before us, the Ld. Counsel of the assessee challenging the Before us, the Ld. Counsel of the assessee challenging the validity of the reassessment referred to Ground No. 1(i) and validity of the reassessment referred to Ground No. 1(i) validity of the reassessment referred to Ground No. 1(i) submitted that in the case original assessment proceedings submitted that in the case original assessment proceedings submitted that in the case original assessment proceedings pursuant to notice u/s 143(2) of the Act dated 23.09.2013 were pursuant to notice u/s 143(2) of the Act dated 23.09.2013 were pursuant to notice u/s 143(2) of the Act dated 23.09.2013 were initiated and same same continued, therefore in the process of therefore in the process of continuance of scrutiny proceedings u/s 143(3) of the Act, the continuance of scrutiny proceedings u/s 143(3) of the Act, the continuance of scrutiny proceedings u/s 143(3) of the Act, the Assessing Officer is not justified in issuing notice u/s 148 of the Act Assessing Officer is not justified in issuing notice u/s 148 of the Act Assessing Officer is not justified in issuing notice u/s 148 of the Act for reopening of the assessment. for reopening of the assessment. 5.1 In support of ground, the Ld. Counsel relied on the de In support of ground, the Ld. Counsel relied on the de In support of ground, the Ld. Counsel relied on the decision in the case of Bangalore Bench of the ITAT in the case of M/s VVD the case of Bangalore Bench of the ITAT in the case of the case of Bangalore Bench of the ITAT in the case of Construction Pvt. Ltd. v. DCIT ITA Nos. 3384 & 3388/Bang/2018 Construction Pvt. Ltd. v. DCIT ITA Nos. 3384 & 3388/Bang/2018 Construction Pvt. Ltd. v. DCIT ITA Nos. 3384 & 3388/Bang/2018 dated 22.03.2021 and decision of Hon’ble Bombay High Court in dated 22.03.2021 and decision of Hon’ble Bombay High Court in dated 22.03.2021 and decision of Hon’ble Bombay High Court in

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the case of Jainam Investments (439 ITR 154), Hon’ble Delhi Jainam Investments (439 ITR 154), Hon’ble Delhi High Jainam Investments (439 ITR 154), Hon’ble Delhi Court in the case of Es Advertising (Mauritius) S.N.C. ET Court in the case of Es Advertising (Mauritius) S.N.C. ET Court in the case of Es Advertising (Mauritius) S.N.C. ET Compagnie 437 ITR 1. Compagnie 437 ITR 1. 6. On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) referred to the report of the Assessing Officer dated 04.02.202, a referred to the report of the Assessing Officer dated 04.02.202 referred to the report of the Assessing Officer dated 04.02.202 copy of which was filed during the course copy of which was filed during the course of the hearing and of the hearing and submitted that the Assessing Officer on verification in Income-tax submitted that the Assessing Officer on verification in Income submitted that the Assessing Officer on verification in Income Department system ( on server) ( on server) found that proceedings u/s 143(3) found that proceedings u/s 143(3) of the Act were already dropped by the of the Act were already dropped by the then Assessing Officer. then Assessing Officer. Thereafter assessment was reopened on 05 hereafter assessment was reopened on 05.01.2016 by the .01.2016 by the Assessing Officer, however same was also dropped due to notice however same was also dropped due to notice however same was also dropped due to notice issued sans approval from the Competent Authority and thereafter sans approval from the Competent Authority and thereafter sans approval from the Competent Authority and thereafter again Assessing Officer recorded the reasons to again Assessing Officer recorded the reasons to believe believe and issued notice u/s 148 of the Act in respect of curre notice u/s 148 of the Act in respect of current reassessment nt reassessment proceedings. The Ld. Counsel of the assessee did not dispute the proceedings. The Ld. Counsel of the assessee did not dispute the proceedings. The Ld. Counsel of the assessee did not dispute the report of the current Assessing Officer. In the circumstances, the report of the current Assessing Officer. In the circumstances, the report of the current Assessing Officer. In the circumstances, the allegation of the Ld. Counsel of the assessee allegation of the Ld. Counsel of the assessee of issue of notice u/s issue of notice u/s 148 for present reassessment present reassessment proceedings, during the continuance during the continuance of the scrutiny proceedings u/s 143(3) of the Act of the scrutiny proceedings u/s 143(3) of the Act, are without any are without any basis or supporting documents. Thus the ratio of the decisions basis or supporting documents. Thus the ratio of the decisions basis or supporting documents. Thus the ratio of the decisions relied upon by the Ld. Counsel of the assessee cannot be applied relied upon by the Ld. Counsel of the assessee cannot be applied relied upon by the Ld. Counsel of the assessee cannot be applied over the facts of the assessee and over the facts of the assessee and accordingly the ground No. 1(i) of accordingly the ground No. 1(i) of the appeal is dismissed. the appeal is dismissed.

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and has to be form his independent opinion of income escaping and has to be form his independent opinion of income escaping and has to be form his independent opinion of income escaping assessment. Due to fai assessment. Due to failure on the part of the Assessing Officer lure on the part of the Assessing Officer for doing so, the reassessment proceedings are therefore valid. , the reassessment proceedings are therefore valid. , the reassessment proceedings are therefore valid. 8.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that the prior to 01.04.2021 there was no provision under the Act for .2021 there was no provision under the Act for .2021 there was no provision under the Act for making inquiry before issue of notice u/s 148 of the Act. The making inquiry before issue of notice u/s 148 of the Act. making inquiry before issue of notice u/s 148 of the Act. provision for conducting inquiry prior to issue of notice has been provision for conducting inquiry prior to issue of notice has been provision for conducting inquiry prior to issue of notice has been introduced w.e.f. 1/4/2021 by way of inserting new section i.e. introduced w.e.f. 1/4/2021 by way of inserting new section i.e. introduced w.e.f. 1/4/2021 by way of inserting new section i.e. 148A of the Act. Under the provisions during relevant period, the Under the provisions during relevant period, the Under the provisions during relevant period, the Assessing Officer was required to only form reasonable belief on the Assessing Officer was required to only form reasonable belief on the Assessing Officer was required to only form reasonable belief on the basis of a reasonable material and sufficiency or correctness of the basis of a reasonable material and sufficiency or correctness of the basis of a reasonable material and sufficiency or correctness of the material was not required material was not required to be examined at that stage of issue of stage of issue of notice u/s 148 of the Act. In absence of any specific provision of notice u/s 148 of the Act. In absence of any specific provision of notice u/s 148 of the Act. In absence of any specific provision of making inquiry prior to issue of notice u/s 148 of the Act, it was making inquiry prior to issue of notice u/s 148 of the Act making inquiry prior to issue of notice u/s 148 of the Act not mandatory for the Assessing Officer for making preliminary not mandatory for the Assessing Officer for making preliminary not mandatory for the Assessing Officer for making preliminary inquiry before issue of notice u/s 148 o inquiry before issue of notice u/s 148 of the Act. Accordingly the f the Act. Accordingly the ground No. 1(iii) raised by the assessee is dismissed. ground No. 1(iii) raised by the assessee is dismissed. ground No. 1(iii) raised by the assessee is dismissed. 9. In ground No. 2, the assessee has challenged the validity of In ground No. 2, the assessee has challenged the validity of In ground No. 2, the assessee has challenged the validity of the issue of the issue of notice u/s 148 of the Act on the ground the issue of the issue of notice u/s 148 of the Act on the ground the issue of the issue of notice u/s 148 of the Act on the ground that reasons recorded are vague and crucial that reasons recorded are vague and crucial link between the link between the information made available and information made available and reasons recorded was absent. It was contended that was contended that in the reasons recorded, the Assessing Officer the Assessing Officer

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has not listed name of has not listed name of companies from whom share premium was share premium was received. 9.1 We have heard rival submission of We have heard rival submission of the parties with reference the parties with reference to the ground. In our opinion reason to the ground. In our opinion reasons have been recorded on the have been recorded on the basis of specific information, information, firstly, information found during the found during the course of the search in the case of course of the search in the case of ‘Mahavir Group Mahavir Group’ of cases, secondly, information gathered dur information gathered during survey proceedings in the survey proceedings in the case of the assessee case of the assessee, thirdly, information gathered , information gathered by the Investigation Wing in respect of shareholders, t Wing in respect of shareholders, the information being he information being from one of the creditable source and linked with the reasons m one of the creditable source and linked with the reasons m one of the creditable source and linked with the reasons recorded in the case of the assessee recorded in the case of the assessee, we don’t find any infirmity in , we don’t find any infirmity in rejecting contentions of the assessee by the Ld CIT(A). There is no rejecting contentions of the assessee by the Ld CIT(A). There is no rejecting contentions of the assessee by the Ld CIT(A). There is no particular format is specified statutorily for recoding reasons, thus, particular format is specified statutorily for recoding reasons, thus, particular format is specified statutorily for recoding reasons, thus, it is not material to record names of the shareholders specifically in it is not material to record names of the shareholders specifically in it is not material to record names of the shareholders specifically in the reasons recorded and reassessment can’t vitiate for that reason. ecorded and reassessment can’t vitiate for that reason. ecorded and reassessment can’t vitiate for that reason. 10. In next ground, the , the assessee has challenged the validity of the assessee has challenged the validity of the reassessment proceedings on the ground that no cross-examination reassessment proceedings on the ground that no cross reassessment proceedings on the ground that no cross of the persons whose statements have been relied in drawing of the persons whose statements have been relied in of the persons whose statements have been relied in adverse inference were provided to the assessee and also no e inference were provided to the assessee and also no e inference were provided to the assessee and also no corroborative evidence corroborative evidence were brought on record to support brought on record to support those statements. According to the Ld. Counsel, due to lack of . According to the Ld. Counsel, due to lack of . According to the Ld. Counsel, due to lack of opportunity for cross opportunity for cross-examination, the Assessing Officer has examination, the Assessing Officer has violated of the principle of natural justice and which has rendered iple of natural justice and which has rendered iple of natural justice and which has rendered the assessment as null and void. the assessment as null and void.

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10.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. In our dispute and perused the relevant material on record. In our dispute and perused the relevant material on record. In our opinion, this is an issue in dispute which has b opinion, this is an issue in dispute which has been examined while een examined while deciding on merit of addition and initiation of the proceedings u/s deciding on merit of addition and initiation of the proceedings u/s deciding on merit of addition and initiation of the proceedings u/s 147 cannot be quashed merely for the reason that during the 147 cannot be quashed merely for the reason that during the 147 cannot be quashed merely for the reason that during the course of the reassessment proceedings, the assessee has not been course of the reassessment proceedings, the assessee has not been course of the reassessment proceedings, the assessee has not been provided opportunity for cross provided opportunity for cross-examining the persons whose e persons whose statement have been related by the Assessing Officer and this issue statement have been related by the Assessing Officer and this issue statement have been related by the Assessing Officer and this issue shall be adjudicated while deciding the merit of the addition. shall be adjudicated while deciding the merit of the addition. shall be adjudicated while deciding the merit of the addition. Accordingly, the ground Accordingly, the grounds challenging validity of the reassessment of challenging validity of the reassessment of the assessee is dismissed. the assessee is dismissed.

Adjudication of Addition on Merit Addition on Merit:

Original Details of Shareholders to whom shares were first allotted Details of Shareholders to whom shares were first allotted Share Holder Date of Nos Nos of of Face Total Amount Premium/ Total Total Grand Total allotment Shares Shares value/shar Received (FV) Share Premium Premium (FV+Premiu allotted allotted e Received Received m) Adopt 30/03/2013 4100 4100 100 410000 875 3587500 3587500 3997500 Developers 875 Assemble 30/03/2013 6650 6650 100 665000 5818750 5818750 6483750 Construction Pvt. Ltd. 875 Barbie 30/03/2013 7175 7175 100 717500 6278125 6278125 6995625 Tradelink Pvt. Ltd. 875 Binapani 30/03/2013 4600 4600 100 460000 4025000 4025000 4485000

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Merchanddise Pvt. Ltd. 875 Blossom 30/03/2013 7175 7175 100 717500 6278125 6278125 6995625 Dealcom Pvt. Ltd. 875 Comfort 30/03/2013 4100 4100 100 410000 35875000 35875000 3997500 Dealtrade Pvt. Ltd. 875 Evernew 30/03/2013 14850 14850 100 1485000 12993750 12993750 14478750 Conclave Pvt. Ltd. 875 Faster Trade 30/03/2013 2526 2526 100 2526000 2240000 2240000 2496000 Venture Pvt. Ltd. 875 Gayatri 30/03/2013 5100 5100 100 510000 4462500 4462500 4972500 Dealtrade Pvt. Ltd. 875 Intimate 30/03/2013 3575 3575 100 357500 3128125 3128125 3485625 Buildcon Pvt. Ltd. 875 Positive 30/03/2013 9025 9025 100 9025000 7896875 7896875 8799375 Devcon Pvt. Ltd. 875 Sraboni Sales 30/03/2013 1525 1525 100 152500 1334375 1334375 1486875 Pvt. Ltd. 875 Variety 30/03/2013 4100 4100 100 410000 1334375 1334375 1486875 Trade-Link Pvt. Ltd. 875 Visible 30/03/2013 4100 4100 100 410000 3587500 3587500 3997500 Realestate 875 Wonder 30/03/2013 17925 17925 100 1792500 15684375 15684375 17476875 Procon Pvt. Ltd. Total 93985 93985 9398500 82236875 82236875 9,16,35,375 11.1 In response to the query by the Assessing Officer for justifying In response to the query by the Assessing Officer for justifying In response to the query by the Assessing Officer for justifying the genuineness of the share capital the genuineness of the share capital/premium, the assessee filed /premium, the assessee filed name, address and PAN of the shareholders along with confirmation PAN of the shareholders along with confirmation PAN of the shareholders along with confirmation from them. The assessee also filed balance sheet he assessee also filed balance sheet of share he assessee also filed balance sheet holders/subscribers, their holders/subscribers, their bank statement and acknowledgement of bank statement and acknowledgement of the income tax return filed. the income tax return filed. But according to the Assessing Officer, But according to the Assessing Officer, the share premium charged from the share subscriber/shareholder the share premium charged from the share subscriber/shareholder the share premium charged from the share subscriber/shareholder was excessive looking to the valuation of the as was excessive looking to the valuation of the assessee company. sessee company. The referred, firstly, to statement of accountant of the Assessing Officer referred, ccountant of the assessee company recorded on 21.11.2013 recorded on 21.11.2013 (during (during the course of survey action) u/s 131 of the Act wherein u/s 131 of the Act wherein, he submitted that he submitted that

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assessee company was planning to start a n assessee company was planning to start a new business i.e. ew business i.e. construction and land development and for which the investors had construction and land development and for which the investors had construction and land development and for which the investors had invested their money in the assessee company invested their money in the assessee company but but he could not justify the quantum of share premium. He stated that the amount justify the quantum of share premium. He stated that the amount justify the quantum of share premium. He stated that the amount received by way of share premium was further ut received by way of share premium was further utilized for shares ilized for shares and securities and giving loans and advances. and securities and giving loans and advances. Secondly Secondly, the ld AO referred to statement referred to statement of the director of the assessee company of the director of the assessee company, Shri Krishan Kumar, which Kumar, which was recorded 03.12.2013 before the ACIT of was recorded 03.12.2013 before the ACIT of the Investigation Kalyan, Thane the Investigation Kalyan, Thane, wherein he was asked to explain he was asked to explain genuineness of the share premium transactions genuineness of the share premium transactions of the assessee of the assessee company however, he requested for further time for filing relevant , he requested for further time for filing relevant , he requested for further time for filing relevant details but ultimately ultimately no such details were filed before the no such details were filed before the Investigation Wing. Thirdly Thirdly, The Assessing Officer has g Officer has relied on the statement of Shri Deepak statement of Shri Deepak Patwari, wherein he stated that wherein he stated that shareholder companies shareholder companies, who invested in assessee invested in assessee, were dummy companies floated by him engaging dummy directors. The said companies floated by him engaging dummy directors. companies floated by him engaging dummy directors. statement of Shri Deepak Patwari was recorded u/s 132 of the Act statement of Shri Deepak Patwari was recorded u/s 1 statement of Shri Deepak Patwari was recorded u/s 1 on 14.11.2011 and subsequently u/s 131 on 01.02.2012 and on 14.11.2011 and subsequently u/s 131 on 01.02.2012 and on 14.11.2011 and subsequently u/s 131 on 01.02.2012 and 22.07.2013 by the Investigation Wing, Kolkata. The Assessing 22.07.2013 by the Investigation Wing, Kolkata. The Assessing 22.07.2013 by the Investigation Wing, Kolkata. The Assessing Officer relying on the statement of Officer relying on the statement of sh Deepak Patwari and dummy Deepak Patwari and dummy directors including Shri Guha, Shri Ajay Kumar Thakkar etc. that directors including Shri Guha, Shri Ajay Kumar Thakkar etc. that directors including Shri Guha, Shri Ajay Kumar Thakkar etc. that the assessee had obtained accommodation entry of share capital. the assessee had obtained accommodation entry of share capital. the assessee had obtained accommodation entry of share capital. The Assessing Officer has extensively The Assessing Officer has extensively referred to the statement of referred to the statement of those persons from para 11.2 to 14 se persons from para 11.2 to 14 ( on page 7 to 64 page 7 to 64 )of the impugned order. The Assessing Officer concluded his finding in impugned order. The Assessing Officer concluded his finding in impugned order. The Assessing Officer concluded his finding in

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para 19 of the assessment order. For ready reference said para 19 of the assessment order. For ready reference said para 19 of the assessment order. For ready reference said conclusion is reproduced as under: conclusion is reproduced as under:

“19. For the following reasons, the inevitable finding of fact is 19. For the following reasons, the inevitable finding of fact is 19. For the following reasons, the inevitable finding of fact is that the issue of shares is not genuine and therefore the issue of shares is not genuine and therefore the issue of shares is not genuine and therefore the share capital issued by the company needs to be taxed share capital issued by the company needs to be taxed share capital issued by the company needs to be taxed under Section 68 of the Act under Section 68 of the Act - a premium of Rs. 875 per share on a face value of Rs. 100 a premium of Rs. 875 per share on a face value of Rs. 100 a premium of Rs. 875 per share on a face value of Rs. 100 was alleged to have been paid by various companies in the was alleged to have been paid by various companies in the was alleged to have been paid by various companies in the case of an unlisted private company with a level of assets f an unlisted private company with a level of assets f an unlisted private company with a level of assets and earnings per share as displayed by the assessee. No and earnings per share as displayed by the assessee. No and earnings per share as displayed by the assessee. No dividends have ever been declared by the company. For dividends have ever been declared by the company. For dividends have ever been declared by the company. For Assessment Year 2012 Assessment Year 2012-13 the company had a profit of 13 the company had a profit of Rs.5,47,964 on a capital employed of Rs. Rs.5,47,964 on a capital employed of Rs. 15,30,84,461 15,30,84,461 (Share capital Rs. 1,54,40,000 + (Share capital Rs. 1,54,40,000 + Share Premium Rs. Share Premium Rs. 13,76,44,461) i.e. the return on capital was 0.35% as against 13,76,44,461) i.e. the return on capital was 0.35% as against 13,76,44,461) i.e. the return on capital was 0.35% as against which share premium of Rs. 8,22,36,875 was collected. which share premium of Rs. 8,22,36,875 was collected. which share premium of Rs. 8,22,36,875 was collected. Neither the past performance of the company nor its Neither the past performance of the company nor its Neither the past performance of the company nor its present earnings justify present earnings justify the amount of premium the amount of premium which has been charged; has been charged; which company? (ii) even the most reputed companies do not command such a even the most reputed companies do not command such a even the most reputed companies do not command such a high premium on their share value when their return on high premium on their share value when their return on high premium on their share value when their return on capital employed is 0.35% per annum. It is incomprehensible capital employed is 0.35% per annum. It is incomprehensible capital employed is 0.35% per annum. It is incomprehensible as to why any person as to why any person will invest in the shares of a company will invest in the shares of a company which is earning just 0.35% per annum; which is earning just 0.35% per annum; the assessee has not furnished any details as to how not furnished any details as to how (iii) the assessee has and on what basis the share premium amount was and on what basis the share premium amount was and on what basis the share premium amount was fixed; (iv) if the value of the premium was worked out on the basis if the value of the premium was worked out on the basis if the value of the premium was worked out on the basis of the advice of financial consultants and advisors the the advice of financial consultants and advisors the the advice of financial consultants and advisors the assessee would have certainly furnished the details about assessee would have certainly furnished the details about assessee would have certainly furnished the details about such consultants and advisors; such consultants and advisors; (v) there are no indicators as to the date on which the pricing there are no indicators as to the date on which the pricing there are no indicators as to the date on which the pricing was arrived at; was arrived at; (vi) the net worth as disclosed by the net worth as disclosed by the balance sheet, the the balance sheet, the potential earnings as disclosed by earnings per share or potential earnings as disclosed by earnings per share or potential earnings as disclosed by earnings per share or

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even the vague protestations of future prospects would not even the vague protestations of future prospects would not even the vague protestations of future prospects would not justify a high premium of Rs. 875/ justify a high premium of Rs. 875/- per share. If such a high per share. If such a high figure was fixed in consultation with experts or finan figure was fixed in consultation with experts or finan figure was fixed in consultation with experts or financial institutions, it is inconceivable as to why the assessee was institutions, it is inconceivable as to why the assessee was institutions, it is inconceivable as to why the assessee was unable to provide even the barest of details of such unable to provide even the barest of details of such unable to provide even the barest of details of such consultation; consultation; (vii) the only inference that could be drawn was that no such the only inference that could be drawn was that no such the only inference that could be drawn was that no such consultation took place, the rate of premium was fixed the rate of premium was fixed consultation took place, unilaterally by the assessee without any reference erally by the assessee without any reference erally by the assessee without any reference point to past records, present earnings or future point to past records, present earnings or future point to past records, present earnings or future prospects. The object was not to attract genuine investors . The object was not to attract genuine investors . The object was not to attract genuine investors by pegging the premium at a realistic level but to bring in by pegging the premium at a realistic level but to bring in by pegging the premium at a realistic level but to bring in large amounts of unaccounted funds in the large amounts of unaccounted funds in the guise of share guise of share premium; (viii) It is not known as to why any of the existing ) It is not known as to why any of the existing ) It is not known as to why any of the existing shareholders / directors did not subscribe shareholders / directors did not subscribe to the shares to the shares issued by the assessee company and whether the issue was issued by the assessee company and whether the issue was issued by the assessee company and whether the issue was made on rights basis and whether all the compliances of the made on rights basis and whether all the compliances of the made on rights basis and whether all the compliances of the provisions of Companies Act were done; sions of Companies Act were done; (ix) the Minutes of Meetings of the Board of Director and of the Minutes of Meetings of the Board of Director and of the Minutes of Meetings of the Board of Director and of the Members were called for the Members were called for but have not been furnished; but have not been furnished; (x) it is not clear as to how the assessee company it is not clear as to how the assessee company it is not clear as to how the assessee company approached these subscribers in Kolkata when it is approached these subscribers in Kolkata when it is approached these subscribers in Kolkata when it is stated that these companies are not related to the assessee that these companies are not related to the assessee that these companies are not related to the assessee company; (xi) the confirmations from the shareholders are in the same the confirmations from the shareholders are in the same the confirmations from the shareholders are in the same format with not a single word being different in any of the format with not a single word being different in any of the format with not a single word being different in any of the confirmations and surprisingly date being missing from each confirmations and surprisingly date being missing from each confirmations and surprisingly date being missing from each of the confirmations; confirmations; (xii) copies of bank statements of the shareholders which copies of bank statements of the shareholders which copies of bank statements of the shareholders which have been furnished show that they have received the funds have been furnished show that they have received the funds have been furnished show that they have received the funds on the same date on which the cheque issued by them to the on the same date on which the cheque issued by them to the on the same date on which the cheque issued by them to the assessee company was presented to their bankers; assessee company was presented to their bankers; assessee company was presented to their bankers; (xiii) though c though called for however the assessee company has alled for however the assessee company has not furnished the details called for vide the aforementioned not furnished the details called for vide the aforementioned not furnished the details called for vide the aforementioned questionnaire issued vide notice dated 14 questionnaire issued vide notice dated 14-03-2016. 2016.

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(xiv) the companies which have subscribed to shares of the companies which have subscribed to shares of the companies which have subscribed to shares of the assessee company have subsequently transfe the assessee company have subsequently transfe the assessee company have subsequently transferred the shares of the assessee company to its promoters / the shares of the assessee company to its promoters / the shares of the assessee company to its promoters / group warp concerns group warp concerns so that the control of the assessee so that the control of the assessee company comes back to its promoters. The transfer of shares company comes back to its promoters. The transfer of shares company comes back to its promoters. The transfer of shares is at a loss of about 90% and these companies have not even is at a loss of about 90% and these companies have not even is at a loss of about 90% and these companies have not even reflected this loss i reflected this loss in their tax returns; (xv) the directors of the companies which have invested in the the directors of the companies which have invested in the the directors of the companies which have invested in the capital of the assessee company were not able to answer the capital of the assessee company were not able to answer the capital of the assessee company were not able to answer the questions as to what was the basis of their deciding to invest questions as to what was the basis of their deciding to invest questions as to what was the basis of their deciding to invest in the share capital of the assessee company; in the share capital of the assessee company;” 11.3 The Assessing Officer after making The Assessing Officer after making factual observation factual observations as above, relied on various decisions of the Hon’ble Courts and , relied on various decisions of the Hon’ble Courts and , relied on various decisions of the Hon’ble Courts and concluded that the amount of Rs.93,98,500/ concluded that the amount of Rs.93,98,500/- received received as share capital and Rs.8,22,36,875/ capital and Rs.8,22,36,875/- towards share premium totaling to towards share premium totaling to Rs.9,16,35,375/- was unexplained cash credit in terms of section as unexplained cash credit in terms of section as unexplained cash credit in terms of section 68 of the Act. The relevant finding of the Assessing Officer is 68 of the Act. The relevant finding of the Assessing Officer is 68 of the Act. The relevant finding of the Assessing Officer is reproduced as under: reproduced as under:

“20. The fact that the share application monies have come 20. The fact that the share application monies have come 20. The fact that the share application monies have come through account payce cheques is, at best, neutral. The through account payce cheques is, at best, neutral. The through account payce cheques is, at best, neutral. The question requires a thorough examination and not a question requires a thorough examination and not a question requires a thorough examination and not a superticial examination. It anything, in the light of the superticial examination. It anything, in the light of the superticial examination. It anything, in the light of the material gathered by the investigation wing about the modus material gathered by the investigation wing about the modus material gathered by the investigation wing about the modus operandi followed by the entry providers, the fact that the operandi followed by the entry providers, the fact that the operandi followed by the entry providers, the fact that the money was sent through bank money was sent through banking channels loses all force. ing channels loses all force. The modus operandi involves receipt by the entry providers The modus operandi involves receipt by the entry providers The modus operandi involves receipt by the entry providers of equivalent amount of cash from the assessee. The fact that of equivalent amount of cash from the assessee. The fact that of equivalent amount of cash from the assessee. The fact that the companies which subscribed to the shares were borne on the companies which subscribed to the shares were borne on the companies which subscribed to the shares were borne on the file of the ROC is again a neutral fact. E the file of the ROC is again a neutral fact. Every company very company incorporated under the Companies Act, 1956 has to comply incorporated under the Companies Act, 1956 has to comply incorporated under the Companies Act, 1956 has to comply with statutory formalities. That these companies were with statutory formalities. That these companies were with statutory formalities. That these companies were complying with such formalities does not add any credibility complying with such formalities does not add any credibility complying with such formalities does not add any credibility or evidentiary value. In any case, it does not ipso facto prove or evidentiary value. In any case, it does not ipso facto prove or evidentiary value. In any case, it does not ipso facto prove that the transactions are genuine Investigation by the e transactions are genuine Investigation by the e transactions are genuine Investigation by the Investigation Wing has revealed that hundreds of companies Investigation Wing has revealed that hundreds of companies Investigation Wing has revealed that hundreds of companies

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are floated and acquired, this is even corroborated by the are floated and acquired, this is even corroborated by the are floated and acquired, this is even corroborated by the facts recorded in several decisions of the Courts and facts recorded in several decisions of the Courts and facts recorded in several decisions of the Courts and Triounals some or which are Triounals some or which are - CIT v. Focus Exports Pvt. Ltd. (Del HC)(ITA No. 218/2012; Focus Exports Pvt. Ltd. (Del HC)(ITA No. 218/2012; Focus Exports Pvt. Ltd. (Del HC)(ITA No. 218/2012; order dated 16.9.2014); order dated 16.9.2014); CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 18 CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 18 CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 18 taxmann.com 217 (Delhi HC); taxmann.com 217 (Delhi HC); Gagan Gagan Gagan Industries Industries Industries Private Private Private Ltd. Ltd. Ltd. V. V. V. ACIT ACIT ACIT (ITA (ITA (ITA No. No. No. 230/Ind/2012; AY 2005 230/Ind/2012; AY 2005-06; Order dated 16.7.2012)(Ind 06; Order dated 16.7.2012)(Indore Tribunal) Balaji Coal Private Limited v. DCIT (ITA No. 366/Ind/2012; Balaji Coal Private Limited v. DCIT (ITA No. 366/Ind/2012; Balaji Coal Private Limited v. DCIT (ITA No. 366/Ind/2012; AY 2007-08; Order dated 30.4.2013)(Indore Tribunal); 08; Order dated 30.4.2013)(Indore Tribunal); 08; Order dated 30.4.2013)(Indore Tribunal); Shri Jai Shiv Shankar Traders Pvt. Ltd. V. ITO (ITA No. Shri Jai Shiv Shankar Traders Pvt. Ltd. V. ITO (ITA No. Shri Jai Shiv Shankar Traders Pvt. Ltd. V. ITO (ITA No. 1068/Del/2013; AY 2008 1068/Del/2013; AY 2008-09; Order dated 18.2.2015)(Delhi Order dated 18.2.2015)(Delhi 'G' Bench); Shree Astha Vinayak Traders Pvt. Ltd. v. ITO (ITA No. Astha Vinayak Traders Pvt. Ltd. v. ITO (ITA No. Astha Vinayak Traders Pvt. Ltd. v. ITO (ITA No. 1069/Del/2013; AY 2008 1069/Del/2013; AY 2008-09; Order dated 18.2.2015)(Delhi Order dated 18.2.2015)(Delhi 'G' Bench); 21. Compliance with statutory norms and requirements is Compliance with statutory norms and requirements is Compliance with statutory norms and requirements is only one aspect, out in the only one aspect, out in the present case bona fide and present case bona fide and genuineness genuineness of of the the transacti transactions ons is is the the issue. issue. The The genuineness of the transaction critically hinges on the truth genuineness of the transaction critically hinges on the truth genuineness of the transaction critically hinges on the truth and veracity of the claim made by the assessee. The and veracity of the claim made by the assessee. The and veracity of the claim made by the assessee. The assessee was provided copy of relevant extracts of was provided copy of relevant extracts of was provided copy of relevant extracts of Statements u/s 131 of the I.T. Act, 1961 of aforementioned Statements u/s 131 of the I.T. Act, 1961 of aforementioned Statements u/s 131 of the I.T. Act, 1961 of aforementioned Kolkata based Companies on 18 based Companies on 18-03-2016 22. The Hon'ble Delhi High Court has in the case of CIT v. 22. The Hon'ble Delhi High Court has in the case of CIT v. 22. The Hon'ble Delhi High Court has in the case of CIT v. Nova Promoters & Finlease (P.) Nova Promoters & Finlease (P.) Ltd. (2012] 18 taxmann.com Ltd. (2012] 18 taxmann.com 217 (Delhi) observed as follows 217 (Delhi) observed as follows - "The Tribunal also erred in law in holding that the "The Tribunal also erred in law in holding that the "The Tribunal also erred in law in holding that the Assessing Officer ought Assessing Officer ought to have proved that the monies to have proved that the monies emanated from the coffers of the emanated from the coffers of the assessee assessee-company and came back as share capital. Section 68 permits and came back as share capital. Section 68 permits and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the the Assessing Officer to add the credit appearing in the the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no books of account of the assessee if the latter offers no books of account of the assessee if the latter offers no

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explanati explanation regarding the nature and source of the on regarding the nature and source of the credit or the explanation offered is not satisfactory. It credit or the explanation offered is not satisfactory. It credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from places no duty upon him to point to the source from places no duty upon him to point to the source from which the money was received by the assessee. The which the money was received by the assessee. The which the money was received by the assessee. The view taken by the Tribunal on the duty cast on the view taken by the Tribunal on the duty cast on the view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law. essing Officer by section 68 is contrary to the law. essing Officer by section 68 is contrary to the law. Even if one were to hold, albeit erroneously and Even if one were to hold, albeit erroneously and Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated without being aware of the legal position adumbrated without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show above, that the Assessing Officer is bound to show above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the that the source of the unaccounted monies was the that the source of the unaccounted monies was the coffers of the coffers of the assessee , in the facts of the present case assessee , in the facts of the present case such proof has been brought out by the Assessing such proof has been brought out by the such proof has been brought out by the Officer. The statements of 'M' and 'R', the entry Officer. The statements of 'M' and 'R', the entry Officer. The statements of 'M' and 'R', the entry providers, explaining their modus operandi to help providers, explaining their modus operandi to help providers, explaining their modus operandi to help assessee's having unaccounted monies convert the assessee's having unaccounted monies convert th assessee's having unaccounted monies convert th same into accounted monies affords sufficient material same into accounted monies affords sufficient material same into accounted monies affords sufficient material on the basis of which the Assessing Officer can be on the basis of which the Assessing Officer can be on the basis of which the Assessing Officer can be said to hove discharged the duty. The statements refer said to hove discharged the duty. The statements refer said to hove discharged the duty. The statements refer to the practice of taking cash and issuing cheques in to the practice of taking cash and issuing cheques in to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a the guise of subscription to share capi the guise of subscription to share capi consideration in the form of commission. As already consideration in the form of commission. As already consideration in the form of commission. As already pointed out, names of several companies which figured pointed out, names of several companies which figured pointed out, names of several companies which figured in the statements given by the above persons to the in the statements given by the above persons to the in the statements given by the above persons to the investigation wing also figured as share. applicants investigation wing also figured as share. applicants investigation wing also figured as share. applicants subscribing to the shares of the a subscribing to the shares of the assessee ssessee-company. These constitute These constitute materials upon which one could materials upon which one could reasonably come to the reasonably come to the conclusion that the monies conclusion that the monies emanated from the coffers of the assessee-company. emanated from the coffers of the assessee emanated from the coffers of the assessee The Tribunal, apart from adopting an erroneous legal The Tribunal, apart from adopting an erroneous legal The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view approach, also failed to keep in view the material that the material that was relied upon by the Assessing Officer. The was relied upon by the Assessing Officer. The was relied upon by the Assessing Officer. The Commissioner (Appeals) also fell into the same error. If Commissioner (Appeals) also fell into the same error. If Commissioner (Appeals) also fell into the same error. If such material had been kept in view, the Tribunal such material had been kept in view, the Tribunal such material had been kept in view, the Tribunal could not have failed to draw the appropriate could not have failed to draw the appropriate could not have failed to draw the appropriate inference. (Para 31] inference. (Para 31] Where the complet Where the complete particulars of the share applicants e particulars of the share applicants such as their names and addresses, income tax file such as their names and addresses, income tax file such as their names and addresses, income tax file numbers, their creditworthiness, share application numbers, their creditworthiness, share application numbers, their creditworthiness, share application forms and share holders' register, share transfer forms and share holders' register, share transfer forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and register etc. are furnished to the Assessing Officer and register etc. are furnished to the Assessing Officer and the Asses the Assessing Officer has not conducted any enquiry sing Officer has not conducted any enquiry into the same or has no material in his possession to into the same or has no material in his possession to into the same or has no material in his possession to

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show that those particulars are false and cannot be show that those particulars are false and cannot be show that those particulars are false and cannot be acted upon, then no addition can be made in the acted upon, then no addition can be made in the acted upon, then no addition can be made in the hands of the company under section 68 and the hands of the company under section 68 and the hands of the company under section 68 and the remedy open t remedy open to the revenue is to go after the share o the revenue is to go after the share applicants in accordance with law. However, the Court applicants in accordance with law. However, the Court applicants in accordance with law. However, the Court cannot apply the ratio to a case, such as the present cannot apply the ratio to a case, such as the present cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of one, where the Assessing Officer is in possession of one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars material that discredits and impeaches the particulars material that discredits and impeaches the particulars furnished by the assessee and also establishes the urnished by the assessee and also establishes the urnished by the assessee and also establishes the link between self link between self-confessed 'accommodation entry confessed 'accommodation entry providers', whose business it is to help assessees providers', whose business it is to help assessees providers', whose business it is to help assessees bring into their books of account their unaccounted bring into their books of account their unaccounted bring into their books of account their unaccounted monies through the medium of share subscription, and monies through the medium of share subscription, and monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again he assessee. The ratio is inapplicable to a case, again he assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the such as the present one, where the involvement of the such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated assessee in such modus operandi is clearly indicated assessee in such modus operandi is clearly indicated by valid material made available to the Assessing by valid material made available to the Assessing by valid material made available to the Assessing Officer as a result of investigations carri Officer as a result of investigations carried out by the ed out by the revenue authorities into the activities of such 'entry revenue authorities into the activities of such 'entry revenue authorities into the activities of such 'entry providers'. The existence with the Assessing Officer of providers'. The existence with the Assessing Officer of providers'. The existence with the Assessing Officer of material showing that the share subscriptions were material showing that the share subscriptions were material showing that the share subscriptions were collected as part of a premeditated plan - a collected as part of a premeditated plan collected as part of a premeditated plan smokescreen • conceived and execute smokescreen • conceived and executed with the d with the connivance or involvement of the assessee excludes connivance or involvement of the assessee excludes connivance or involvement of the assessee excludes the applicability of the ratio. The ratio is attracted to a the applicability of the ratio. The ratio is attracted to a the applicability of the ratio. The ratio is attracted to a case where it is a simple question of whether the case where it is a simple question of whether the case where it is a simple question of whether the assessee has discharged the burden placed upon him assessee has discharged the burden placed upon him assessee has discharged the burden placed upon him under section 68 to prove and est under section 68 to prove and establish the identity ablish the identity and creditworthiness of the share applicant and the and creditworthiness of the share applicant and the and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the genuineness of the transaction. In such a case, the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till Assessing Officer cannot sit back with folded hands till Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in the assessee exhausts all the evidence or material in the assessee exhausts all the evidence or material in his possession and th his possession and then come forward to merely reject en come forward to merely reject the same, without carrying out any verification or the same, without carrying out any verification or the same, without carrying out any verification or enquiry into the material placed before him. The enquiry into the material placed before him. The enquiry into the material placed before him. The instant case does not fall under this category and it instant case does not fall under this category and it instant case does not fall under this category and it would be a trovesty of truth and justice to express a would be a trovesty of truth and justice to express a would be a trovesty of truth and justice to express a view to the con view to the contrary. [Para 38] 23. In the instant case, not only does the material show the 23. In the instant case, not only does the material show the 23. In the instant case, not only does the material show the link between the entry providers and the assessee link between the entry providers and the assessee link between the entry providers and the assessee-company, but the same has also been provided to the assessee in but the same has also been provided to the assessee in but the same has also been provided to the assessee in compliance with the rules of natural justice. Out of the list of compliance with the rules of natural justice. Out of the list of compliance with the rules of natural justice. Out of the list of

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companies whose names figured in the information given by companies whose names figured in the information given by companies whose names figured in the information given by them to the investigation wing. 12 companies had provided them to the investigation wing. 12 companies had provided them to the investigation wing. 12 companies had provided the so-called "share subscription monies' to the assessee. called "share subscription monies' to the assessee. called "share subscription monies' to the assessee. There was, thus, specific involvement of the assessee There was, thus, specific involvement of the assessee There was, thus, specific involvement of the assessee- company in the modus opera company in the modus operandi followed by Mr. Patwari. ndi followed by Mr. Patwari. 24. Reliance is being placed upon the law laid down by the 24. Reliance is being placed upon the law laid down by the 24. Reliance is being placed upon the law laid down by the Supreme Court in Sumati Dayal Supreme Court in Sumati Dayal V. CIT [1995) 214 ITR 801 / V. CIT [1995) 214 ITR 801 / 80 Taxman 89 (SC) in applying the test of human 80 Taxman 89 (SC) in applying the test of human 80 Taxman 89 (SC) in applying the test of human probabilities. probabilities. Section 68 of the Income Tax Act provides that Section 68 of the Income Tax Act provides that where any sum is found credited in the books of an assessee where any sum is found credited in the books of an assessee where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no maintained for any previous year, and the assessee offers no maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation about the nature and source thereof or the explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the explanation offered by him is not, in the opinion of the explanation offered by him is not, in the opinion of the Assessing Officer, sati Assessing Officer, satisfactory, the sum so credited may be sfactory, the sum so credited may be charged to income tax as the income of the assessee of that charged to income tax as the income of the assessee of that charged to income tax as the income of the assessee of that previous year. The Supreme Court held as follows: previous year. The Supreme Court held as follows: previous year. The Supreme Court held as follows: "It is no doubt true that in all cases in which a receipt "It is no doubt true that in all cases in which a receipt "It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the is sought to be taxed as income, the burden lies on is sought to be taxed as income, the burden lies on Department to prove that it is within the taxing Department to prove that it is within the taxing Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the provision and if a receipt is in the nature of income, the provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls burden of proving that it is not taxable because it falls burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the within exemption provided by the Act lies upon the within exemption provided by the Act lies upon the assessee. [See : Parimisetti Seeth assessee. [See : Parimisetti Seetharamamma [1965) 57 aramamma [1965) 57 IT 532 at page 536). But, in view of Section 68 of the IT 532 at page 536). But, in view of Section 68 of the IT 532 at page 536). But, in view of Section 68 of the Act, where any sum is found credited in the books of Act, where any sum is found credited in the books of Act, where any sum is found credited in the books of the assessee for any previous year, the same may be the assessee for any previous year, the same may be the assessee for any previous year, the same may be charged to income charged to income-tax as the income of the assessee of tax as the income of the assessee of that previous year if that previous year if the explanation offered by the the explanation offered by the assessee about the nature and source thereof is, in the assessee about the nature and source thereof is, in the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In opinion of the Assessing Officer, not satisfactory. In opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the such a case there is, prima facie, evidence against the such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to assessee, viz., the receipt of money, and if he fails to assessee, viz., the receipt of money, and if he fails to rebut it, the said evidence being unrebutted, can be ebut it, the said evidence being unrebutted, can be ebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an used against him by holding that it was a receipt of an used against him by holding that it was a receipt of an income nature. While considering the explanation of income nature. While considering the explanation of income nature. While considering the explanation of the assessee the Department cannot, however, act the assessee the Department cannot, however, act the assessee the Department cannot, however, act unreasonably. unreasonably. 25. It has been contended that an 25. It has been contended that an addition within the addition within the meaning of Section 68 would not be justified in law in its meaning of Section 68 would not be justified in law in its meaning of Section 68 would not be justified in law in its hands even if the share application money was received from hands even if the share application money was received from hands even if the share application money was received from

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bogus share holders. It was submitted that the companies bogus share holders. It was submitted that the companies bogus share holders. It was submitted that the companies were duly identified being income tax assessees whose were duly identified being income tax assessees whose were duly identified being income tax assessees whose PANs were also furnished. Consequently, relying on the were also furnished. Consequently, relying on the were also furnished. Consequently, relying on the decision of the Delhi High Court in the case of CIT v. Lovely decision of the Delhi High Court in the case of CIT v. Lovely decision of the Delhi High Court in the case of CIT v. Lovely Exports (P.) Ltd. (2008] 299 IT 268/(2007] 158 Taxman 440 Exports (P.) Ltd. (2008] 299 IT 268/(2007] 158 Taxman 440 Exports (P.) Ltd. (2008] 299 IT 268/(2007] 158 Taxman 440 (Delhi) and the order rendered by the Supreme Court in a (Delhi) and the order rendered by the Supreme Court in a (Delhi) and the order rendered by the Supreme Court in a Special Leave Petition arisin Special Leave Petition arising therefrom, it was urged that g therefrom, it was urged that recourse to the provisions of Section 68 was not in order. recourse to the provisions of Section 68 was not in order. recourse to the provisions of Section 68 was not in order. Now, in order to Now, in order to appreciate the submission it would be appreciate the submission it would be necessary to consider the Judgment of the Delhi High Court necessary to consider the Judgment of the Delhi High Court necessary to consider the Judgment of the Delhi High Court in Lovely Exports (P.) Ltd. (supra). The Division Be in Lovely Exports (P.) Ltd. (supra). The Division Be in Lovely Exports (P.) Ltd. (supra). The Division Bench of the Delhi High Court dealt with a batch of appeals relating to Delhi High Court dealt with a batch of appeals relating to Delhi High Court dealt with a batch of appeals relating to three assessees. In the case of Lovely Exports (P.) Ltd. three assessees. In the case of Lovely Exports (P.) Ltd. three assessees. In the case of Lovely Exports (P.) Ltd. (Supra) the Assessing Officer had proceeded to make an (Supra) the Assessing Officer had proceeded to make an (Supra) the Assessing Officer had proceeded to make an addition on the ground that the share applicants in question addition on the ground that the share applicants in question addition on the ground that the share applicants in question did not exist did not exist. The assessee had furnished necessary details . The assessee had furnished necessary details such as the PAN of the share applicants. The share money such as the PAN of the share applicants. The share money such as the PAN of the share applicants. The share money had been received through banking channels. The Assessing had been received through banking channels. The Assessing had been received through banking channels. The Assessing Officer made an addition only on the ground that some of the Officer made an addition only on the ground that some of the Officer made an addition only on the ground that some of the summons which were issued to the summons which were issued to the applicants were returned applicants were returned unserved, whereas in the case of others the summons unserved, whereas in the case of others the summons unserved, whereas in the case of others the summons though served, had not been complied with. Now it is in this though served, had not been complied with. Now it is in this though served, had not been complied with. Now it is in this background that the Division Bench of the Delhi High Court background that the Division Bench of the Delhi High Court background that the Division Bench of the Delhi High Court noted that the Assessing Officer did not carry out any noted that the Assessing Officer did not carry out any noted that the Assessing Officer did not carry out any enquiry into the income tax record of the persons who had iry into the income tax record of the persons who had iry into the income tax record of the persons who had furnished the details in order to ascertain the status of the furnished the details in order to ascertain the status of the furnished the details in order to ascertain the status of the share applicants. Significantly, the judgment of the Delhi share applicants. Significantly, the judgment of the Delhi share applicants. Significantly, the judgment of the Delhi High Court makes a distinction between a case where High Court makes a distinction between a case where High Court makes a distinction between a case where shares are allotted in the co shares are allotted in the course of a large scale subscription urse of a large scale subscription to the shares of a public company on the one hand and a to the shares of a public company on the one hand and a to the shares of a public company on the one hand and a case of private placement on the other. In the case of case of private placement on the other. In the case of case of private placement on the other. In the case of allotment of shares of a public company, the company may allotment of shares of a public company, the company may allotment of shares of a public company, the company may have no material other than the application forms and have no material other than the application forms and have no material other than the application forms and the bank transaction details to furnish some indication of the bank transaction details to furnish some indication of the bank transaction details to furnish some indication of the identity of the subscribers. This distinction between a public identity of the subscribers. This distinction between a public identity of the subscribers. This distinction between a public issue of share capital and private placement has been made issue of share capital and private placement has been made issue of share capital and private placement has been made out in the following observations of the Delhi High Court: out in the following observations of the Delhi High Court: out in the following observations of the Delhi High Court: "15. There "15. There cannot be two opinions on the aspect that cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted the pernicious practice of conversion of unaccounted the pernicious practice of conversion of unaccounted money through the masquerade or channel of money through the masquerade or channel of money through the masquerade or channel of investment in the share capital of a company must be investment in the share capital of a company must be investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the firmly excoriated by the Revenue. Equally, where the firmly excoriated by the Revenue. Equally, where the

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preponderanc preponderance of evidence indicates absence of e of evidence indicates absence of culpability and complexity (sic) of the assessee it culpability and complexity (sic) of the assessee it culpability and complexity (sic) of the assessee it should not be harassed by the Revenue's insistence should not be harassed by the Revenue's insistence should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a that it should prove the negative. In the case of a that it should prove the negative. In the case of a public issue, the Company concerned cannot be public issue, the Company concerned cannot be public issue, the Company concerned cannot be expected to know eve expected to know every detail pertaining to the identity ry detail pertaining to the identity as well as financial worth of each of its subscribers. as well as financial worth of each of its subscribers. as well as financial worth of each of its subscribers. The Company must, however, maintain and make The Company must, however, maintain and make The Company must, however, maintain and make available to the Assessing Officer for his perusal, all available to the Assessing Officer for his perusal, all available to the Assessing Officer for his perusal, all the information contained in the statutory share the information contained in the statutory share the information contained in the statutory share application application documents. do In In the the case case of of private private placement the legal regime would not be the same. A placement the legal regime would not be the same. placement the legal regime would not be the same. delicate balance must be maintained while walking delicate balance must be maintained while walking delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the Income Tax the tightrope of Sections 68 and 69 of the Income Tax the tightrope of Sections 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to Act. The burden of proof can seldom be discharged to Act. The burden of proof can seldom be discharged to the hilt by the the hilt by the assessee; if the Assessing Officer assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription harbours doubts of the legitimacy of any subscription harbours doubts of the legitimacy of any subscription he is empowered, nay duty he is empowered, nay duty-bound, to carry out bound, to carry out thorough investigations. But if the Assessing Officer thorough investigations. But if the Assessing Officer thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he fails to unearth any wrong or illegal dealings, he fails to unearth any wrong or illegal dealings, he cannot obdurate cannot obdurately adhere to his suspicions and treat ly adhere to his suspicions and treat the subscribed capital as the undisclosed income of the subscribed capital as the undisclosed income of the subscribed capital as the undisclosed income of the Company." (Emphasis supplied). the Company." (Emphasis supplied). 26. It is this decision of the Delhi High Court against which a 26. It is this decision of the Delhi High Court against which a 26. It is this decision of the Delhi High Court against which a Special Leave Petition before A.%. 20135 4 Special Leave Petition before A.%. 20135 4 the Supreme the Supreme Court came Court came to be dismissed on 11 January 2008. In CIT v. to be dismissed on 11 January 2008. In CIT v. Lovely Exports (P.) Ltd. Lovely Exports (P.) Ltd. [2008) 6 DTR 308 (SC) while [2008) 6 DTR 308 (SC) while dismissing the Special Leave Petition the Supreme Court dismissing the Special Leave Petition the Supreme Court dismissing the Special Leave Petition the Supreme Court observed that if the share application money was received observed that if the share application money was received observed that if the share application money was received by the assessee from allegedly bogus share by the assessee from allegedly bogus share holders whose holders whose names were given to the Assessing Officer, the department names were given to the Assessing Officer, the department names were given to the Assessing Officer, the department was free to proceed to reopen their individual assessments in was free to proceed to reopen their individual assessments in was free to proceed to reopen their individual assessments in accordance with law. On this ground, the Supreme Court accordance with law. On this ground, the Supreme Court accordance with law. On this ground, the Supreme Court while dismissing the Special Leave Petition found no infirmity while dismissing the Special Leave Petition found no infirmity while dismissing the Special Leave Petition found no infirmity in the judgment of the Delhi High Court. The principle which he judgment of the Delhi High Court. The principle which he judgment of the Delhi High Court. The principle which was emphasised by the Delhi High Court in the case of was emphasised by the Delhi High Court in the case of was emphasised by the Delhi High Court in the case of Lovely Exports was followed by another Division Bench in Lovely Exports was followed by another Division Bench in Lovely Exports was followed by another Division Bench in CIT v. Value Capital Services (P.) Ltd. CIT v. Value Capital Services (P.) Ltd. (2008) 307 ITR 334 (2008) 307 ITR 334 (Delhi). In CIT v. Oasis Hosp (Delhi). In CIT v. Oasis Hospitalities (P.) Ltd. (2011) 331 ITR italities (P.) Ltd. (2011) 331 ITR 119/ 198 Taxman 247/9 taxmann.com 179 (Delhi), a 119/ 198 Taxman 247/9 taxmann.com 179 (Delhi), a 119/ 198 Taxman 247/9 taxmann.com 179 (Delhi), a Division Bench of the Delhi High Court observed that the Division Bench of the Delhi High Court observed that the Division Bench of the Delhi High Court observed that the initial burden must be upon the assessee to explain the initial burden must be upon the assessee to explain the initial burden must be upon the assessee to explain the

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nature and source of the share application money received. nature and source of the share application money received. nature and source of the share application money received. In order to discharge this burden, the assessee is required to In order to discharge this burden, the assessee is required to In order to discharge this burden, the assessee is required to prove: (a) Identity of shareholder; (b) Genuineness of prove: (a) Identity of shareholder; (b) Genuineness of prove: (a) Identity of shareholder; (b) Genuineness of transaction; and (c) Credit worthiness of shareholders. As far transaction; and (c) Credit worthiness of shareholders. As far transaction; and (c) Credit worthiness of shareholders. As far as the creditworthiness of the subscriber is concerned, that as the creditworthiness of the subscriber is concerned, that as the creditworthiness of the subscriber is concerned, that can be proved can be proved by producing a bank statement of the by producing a bank statement of the subscriber showing that it has sufficient balance in its subscriber showing that it has sufficient balance in its subscriber showing that it has sufficient balance in its account to enable it to subscribe to the share capital. The account to enable it to subscribe to the share capital. The account to enable it to subscribe to the share capital. The Delhi High Court held that once the initial burden has been Delhi High Court held that once the initial burden has been Delhi High Court held that once the initial burden has been discharged, the observations of the Suprem discharged, the observations of the Supreme Court in the e Court in the case of Lovely Exports (P.) Ltd. (supra) would suggest that case of Lovely Exports (P.) Ltd. (supra) would suggest that case of Lovely Exports (P.) Ltd. (supra) would suggest that the Department is free to proceed to reopen the individual the Department is free to proceed to reopen the individual the Department is free to proceed to reopen the individual assessments in the case of alleged bogus shareholders in assessments in the case of alleged bogus shareholders in assessments in the case of alleged bogus shareholders in accordance with law and is not remediless. This would be accordance with law and is not remediless. This would be accordance with law and is not remediless. This would be more so when the assessee is a public limited company and when the assessee is a public limited company and when the assessee is a public limited company and has issued share capital to the public at large as in such has issued share capital to the public at large as in such has issued share capital to the public at large as in such cases the company cannot be expected to know every detail cases the company cannot be expected to know every detail cases the company cannot be expected to know every detail pertaining to the identity and financial worth of the pertaining to the identity and financial worth of the pertaining to the identity and financial worth of the subscriber. However, the initial bu subscriber. However, the initial burden on the assessee rden on the assessee would be some what heavy in case the assessee is a private would be some what heavy in case the assessee is a private would be some what heavy in case the assessee is a private limited company where the shareholders are closely related limited company where the shareholders are closely related limited company where the shareholders are closely related because in such a case the assessee cannot feign ignorance because in such a case the assessee cannot feign ignorance because in such a case the assessee cannot feign ignorance about the status of the parties. The judgment of a Divisio about the status of the parties. The judgment of a Divisio about the status of the parties. The judgment of a Division Bench of this Court in CIT v. Creative World Telefilms Ltd. Bench of this Court in CIT v. Creative World Telefilms Ltd. Bench of this Court in CIT v. Creative World Telefilms Ltd. [2011] 203 Taxman 36 (Mag.)/ 333 [2011] 203 Taxman 36 (Mag.)/ 333 IT 100 / 15 taxmann.com IT 100 / 15 taxmann.com 183 (Bom.) is along the same lines. 183 (Bom.) is along the same lines. 27. In the present case considering all the material on record 27. In the present case considering all the material on record 27. In the present case considering all the material on record including the material which had a bea including the material which had a bearing on the credit ring on the credit worthiness and financial standing of the alleged subscribing worthiness and financial standing of the alleged subscribing worthiness and financial standing of the alleged subscribing companies to the share capital of the petitioner. None of the companies to the share capital of the petitioner. None of the companies to the share capital of the petitioner. None of the companies was held to have a financial standing or credit companies was held to have a financial standing or credit companies was held to have a financial standing or credit worthiness which would justify making of such a large worthiness which would justify making of such a large worthiness which would justify making of such a large investment of the magnitude it has made at a premium of Rs. vestment of the magnitude it has made at a premium of Rs. vestment of the magnitude it has made at a premium of Rs. 875/- per share. The allotment of shares, it must be noted, per share. The allotment of shares, it must be noted, per share. The allotment of shares, it must be noted, has taken place in pursuance of a private placement. The has taken place in pursuance of a private placement. The has taken place in pursuance of a private placement. The principles which have been applied in relation particularly to principles which have been applied in relation particularly to principles which have been applied in relation particularly to the public subscri the public subscription of shares of a public limited company ption of shares of a public limited company can obviously have no application to the facts of a case such can obviously have no application to the facts of a case such can obviously have no application to the facts of a case such as the present. as the present. 28. Before leaving this aspect of the matter, it would be Before leaving this aspect of the matter, it would be Before leaving this aspect of the matter, it would be relevant to advert to two decisions of the Supreme Court, the relevant to advert to two decisions of the Supreme Court, the relevant to advert to two decisions of the Supreme Court, the

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first being in first being in CIT V. P. Mohanakala (2007) 161 Taxman 169 CIT V. P. Mohanakala (2007) 161 Taxman 169 / 291 /TR 278 (SC). While considering the scope of Section / 291 /TR 278 (SC). While considering the scope of Section / 291 /TR 278 (SC). While considering the scope of Section 68, the Supreme Court observed as follows: 68, the Supreme Court observed as follows: "15.. When and in what circumstances Section 68 of "15.. When and in what circumstances Section 68 of "15.. When and in what circumstances Section 68 of the Act would come into play? That a bare reading of the Act would come into play? That a bare reading of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of n 68 suggests that there has to be credit of n 68 suggests that there has to be credit of amounts in the books maintained by an assessee; amounts in the books maintained by an assessee; amounts in the books maintained by an assessee; such credit has to be of a sum during the previous such credit has to be of a sum during the previous such credit has to be of a sum during the previous year; and the assessees offer no explanation about the year; and the assessees offer no explanation about the year; and the assessees offer no explanation about the nature and source of such credit found in the books; or nature and source of such credit found in the books; or nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion he explanation offered by the assessees in the opinion he explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory. It is only of the Assessing Officer is not satisfactory. It is only of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income- then the sum so credited may be charged to income then the sum so credited may be charged to income tax as the income of the assessees of that previous tax as the income of the assessees of that previous tax as the income of the assessees of that previous year. year. year. The The The expression expression expression "the "the "the assessees assessees assessees offer offer offer no explanation" means where the assessees offer no explanation" means where the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as proper, reasonable and acceptable explanation as proper, reasonable and acceptable explanation as regards the sums found credited in the books regards the sums found credited in the books regards the sums found credited in the books maintained by the assessees. It is true the opinion of maintained by the assessees. It is true the opinion of maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation the Assessing Officer for not accepting the explanation the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is offered by the assessees as not satisfactory is offered by the assessees as not satisfactory is required to be based on proper appreciation of material required to be based on proper appreciation of material required to be based on proper appreciation of material and other attending circumstances available on record. and other attending circumstances available on record. and other attending circumstances available on record. The opinion of the Assessing Officer is required to be The opinion of the Assessing Officer is required to be The opinion of the Assessing Officer is required to be formed objectively with reference to the material formed objectively with reference to the m formed objectively with reference to the m available on record. Application of mind is the sine qua available on record. Application of mind is the sine qua available on record. Application of mind is the sine qua non for forming the opinion." non for forming the opinion." 29. The Supreme Court noted, following the earlier decision 29. The Supreme Court noted, following the earlier decision 29. The Supreme Court noted, following the earlier decision in CIT v. Orissa Corpn. (P.) Ltd. in CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78/25 [1986) 159 ITR 78/25 Taxman 80 (SC) that where the conclusion of th Taxman 80 (SC) that where the conclusion of th Taxman 80 (SC) that where the conclusion of the Tribunal was not unreasonable or perverse or based on no evidence, was not unreasonable or perverse or based on no evidence, was not unreasonable or perverse or based on no evidence, no question of law as such would arise for consideration. The no question of law as such would arise for consideration. The no question of law as such would arise for consideration. The Court further observed thus: Court further observed thus: "25. ... The doubtful nature of the transaction and the ... The doubtful nature of the transaction and the ... The doubtful nature of the transaction and the manner manner in which the sums were found cred in which the sums were found credited in the books of accounts maintained by the assessee have books of accounts maintained by the assessee have books of accounts maintained by the assessee have been duly taken into consideration by the authorities been duly taken into consideration by the authorities been duly taken into consideration by the authorities below. The transactions though apparent were held to below. The transactions though apparent were held to below. The transactions though apparent were held to be not real one. May be the money came by way of be not real one. May be the money came by way of be not real one. May be the money came by way of

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bank cheques and paid through the proc bank cheques and paid through the process of banking ess of banking transaction but that itself is of no consequence. transaction but that itself is of no consequence. transaction but that itself is of no consequence. 30. In view of the discussion above, there is no doubt that 30. In view of the discussion above, there is no doubt that 30. In view of the discussion above, there is no doubt that the amounts received by the assessee company towards the amounts received by the assessee company towards the amounts received by the assessee company towards share share share capital capital capital and and and share share share premium premium premium are are are not not not genuine genuine genuine transactions. The assessee did transactions. The assessee did not file any detail to not file any detail to substantiate the genuineness of share capital received with substantiate the genuineness of share capital received with substantiate the genuineness of share capital received with premium. The entire amount of Rs. 93,98,500 received premium. The entire amount of Rs. 93,98,500 received premium. The entire amount of Rs. 93,98,500 received towards share capital and also the towards share capital and also the amount of Rs. amount of Rs. 8,22,36,875 towards share premium is added to the total 8,22,36,875 towards share premium is added to the total 8,22,36,875 towards share premium is added to the total income of the income of the assessee u/s 68 of the Act. Thus, a sum of Rs. assessee u/s 68 of the Act. Thus, a sum of Rs. 9,16,35,375 (Rs. 93,98,500 + Rs. 8,22,36,875) is added w/s 9,16,35,375 (Rs. 93,98,500 + Rs. 8,22,36,875) is added w/s 9,16,35,375 (Rs. 93,98,500 + Rs. 8,22,36,875) is added w/s 68 of the Act. Penalty proceedings u/s 271(1)(c) are initiated 68 of the Act. Penalty proceedings u/s 271(1)(c) are initiated 68 of the Act. Penalty proceedings u/s 271(1)(c) are initiated for furnishing inaccurate particulars of income thereby for furnishing inaccurate particulars of income thereby for furnishing inaccurate particulars of income thereby leading to concealment of incom leading to concealment of income.” 11.4 On further appeal, the Ld. CIT(A) analyze On further appeal, the Ld. CIT(A) analyzed the facts of the case the facts of the case issue of section 68 of in the light of the judicial precedents on the in the light of the judicial precedents on the issue of section 68 of the Act. The Ld. CIT(A) in para 5.4 made observation e Ld. CIT(A) in para 5.4 made observation e Ld. CIT(A) in para 5.4 made observations in respect of assessee’s share subscriber subscribers/shareholders as under: as under:

i. The taxable incomes shown by the share applicant The taxable incomes shown by the share applicant The taxable incomes shown by the share applicant companies are very meagre. companies are very meagre. ii. Though Though Though the the the financials financials financials of of of the the the share share share applicant applicant applicant companies are extremely weak, still, they have companies are extremely weak, still, they have companies are extremely weak, still, they have managed to receive huge share premium in the range managed to receive huge share premium in the range managed to receive huge share premium in the range of Rs. 30 crores to Rs. 48 of Rs. 30 crores to Rs. 48.2 crores. iii. The entire funds at the disposal of the share applicant The entire funds at the disposal of the share applicant The entire funds at the disposal of the share applicant companies companies companies have have have been been been deployed deployed deployed for for for making making making investments and/or advancing loans & advances. investments and/or advancing loans & advances. investments and/or advancing loans & advances. iv. There are no fixed assets shown in the form of There are no fixed assets shown in the form of There are no fixed assets shown in the form of building, plant & "machinery, computers etc. building, plant & "machinery, computers etc. building, plant & "machinery, computers etc. v. The admini The administrative, expenses shown by these share strative, expenses shown by these share applicant companies are nominal. applicant companies are nominal. 11.5 Before the Ld. CIT(A), the assessee mainly raised following Before the Ld. CIT(A), the assessee mainly raised following Before the Ld. CIT(A), the assessee mainly raised following contentions which are reproduced by the Ld. CIT(A) in para 5.5 of contentions which are reproduced by the Ld. CIT(A) in para 5.5 of contentions which are reproduced by the Ld. CIT(A) in para 5.5 of

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the impugned order for ready reference said contentions are the impugned order for ready reference said contenti the impugned order for ready reference said contenti reproduced as under: reproduced as under:

“The assessee in the appellate proceedings has broadly The assessee in the appellate proceedings has broadly The assessee in the appellate proceedings has broadly raised the following contentions in its written submissions : raised the following contentions in its written submissions : raised the following contentions in its written submissions :- (i) It had discharged its onus by submitting full details of It had discharged its onus by submitting full details of It had discharged its onus by submitting full details of the said share applicants in the form of name, the said share applicants in the form of name, the said share applicants in the form of name, address, address, address, PAN, PAN, PAN, bank bank bank statement, statement, statement, balance balance balance sheet, sheet, sheet, confirmations etc. and thus, it had duly discharged its confirmations etc. and thus, it had duly discharged its confirmations etc. and thus, it had duly discharged its primary primary primary onus onus onus of of of proving proving proving the the the identity identity identity and and and creditworthiness creditworthiness creditworthiness of of of the the the share share share appliants appliants appliants and and and genuineness of the transactions. genuineness of the transactions. (ii) It was not allowed to cross It was not allowed to cross-examine Shri Deepak hri Deepak Patwari, Shri Patwari, Shri Devesh Upadhyay and their dummy Devesh Upadhyay and their dummy directors, on the basis of whose statements, an directors, on the basis of whose statements, an directors, on the basis of whose statements, an adverse inference was drawn by the AO. adverse inference was drawn by the AO. (iii) The onus was on the AO to demonstrate that the funds The onus was on the AO to demonstrate that the funds The onus was on the AO to demonstrate that the funds introduced by way of alleged accommodation entries introduced by way of alleged accommodation entries introduced by way of alleged accommodation entries of share of share capital at a huge premium had emanated capital at a huge premium had emanated from the coffers of the assessee. from the coffers of the assessee.” 11.6 The Ld. CIT(A) referred to the decision of the Hon’ble Delhi The Ld. CIT(A) referred to the decision of the Hon’ble Delhi The Ld. CIT(A) referred to the decision of the Hon’ble Delhi High Court in the case of Nova Prom High Court in the case of Nova Promoters Pvt. Ltd. (supra) and then oters Pvt. Ltd. (supra) and then analyzed financials of the each of the sharehol analyzed financials of the each of the shareholders. T . The Ld. CIT(A) again relied on the statement of the directors of shareholder again relied on the statement of the directors of again relied on the statement of the directors of companies and Shri Deepak Patwari. Shri Deepak Patwari. The Ld. CIT(A) in para 5.9 he Ld. CIT(A) in para 5.9 of impugned order held that the assessee failed to discharge its onus held that the assessee failed to discharge its onus held that the assessee failed to discharge its onus in respect of share capital and share pre in respect of share capital and share premium introduced mium introduced, observing as under:

“5.9 From the aforesaid discussion, it can be observed that the 5.9 From the aforesaid discussion, it can be observed that the 5.9 From the aforesaid discussion, it can be observed that the AO was in possession of incriminating material seized as AO was in possession of incriminating material seized as AO was in possession of incriminating material seized as well as incriminating statements recorded during the well as incriminating statements recorded during the well as incriminating statements recorded during the search conducted on Shri Deepak Patwari and Devesh search conducted on Shri Deepak Patwari and Devesh search conducted on Shri Deepak Patwari and Devesh Upadhyay, Entry operators, statements recorded during Upadhyay, Entry operators, statements recorded during Upadhyay, Entry operators, statements recorded during the survey conducted on the assessee grou the survey conducted on the assessee grou the survey conducted on the assessee group and the

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subsequent investigations carried out on the alleged 15 subsequent investigations carried out on the alleged 15 subsequent investigations carried out on the alleged 15 bogus share applicant companies based at Kolkata. bogus share applicant companies based at Kolkata. bogus share applicant companies based at Kolkata. From these investigations carried out, it was clear that the assessee these investigations carried out, it was clear that the assessee these investigations carried out, it was clear that the assessee and other entities of its group had availed of accommodation and other entities of its group had availed of accommodation and other entities of its group had availed of accommodation entries from the said 15 share applicant companies, who were rom the said 15 share applicant companies, who were rom the said 15 share applicant companies, who were connected with the entry operators, Shri Deepak Patwari. In connected with the entry operators, Shri Deepak Patwari. In connected with the entry operators, Shri Deepak Patwari. In statements recorded, Shri Deepak Patwari had identified the statements recorded, Shri Deepak Patwari had identified the statements recorded, Shri Deepak Patwari had identified the dummy directors of his dummy concerns to be J Rao, Birja dummy directors of his dummy concerns to be J Rao, Birja dummy directors of his dummy concerns to be J Rao, Birja Kumar Sharma, Girija Kumar Kumar Sharma, Girija Kumar Sharma, Amit Agarwal, Baikunth Sharma, Amit Agarwal, Baikunth Nath Pandey, Radhe Shyam Sharma, Dibakar Mahato, Manoj Nath Pandey, Radhe Shyam Sharma, Dibakar Mahato, Manoj Nath Pandey, Radhe Shyam Sharma, Dibakar Mahato, Manoj Kumar Singh, G. Vinod Kumar, Jaydeep Singh, Kamala Kanta Kumar Singh, G. Vinod Kumar, Jaydeep Singh, Kamala Kanta Kumar Singh, G. Vinod Kumar, Jaydeep Singh, Kamala Kanta Bhuiyan, Akash Shrivastava, Aarti Panda, Suraj Kumar Panda, Bhuiyan, Akash Shrivastava, Aarti Panda, Suraj Kumar Panda, Bhuiyan, Akash Shrivastava, Aarti Panda, Suraj Kumar Panda, Krishna Jaiswal, Biplab Guha, Navin Kumar Singh, Gopa Krishna Jaiswal, Biplab Guha, Navin Kumar Singh, Gopa Krishna Jaiswal, Biplab Guha, Navin Kumar Singh, Gopal Sonkar, Avnish Singh, Jasminder Singh, Chittranjan Bhuiyan, Sonkar, Avnish Singh, Jasminder Singh, Chittranjan Bhuiyan, Sonkar, Avnish Singh, Jasminder Singh, Chittranjan Bhuiyan, etc.: It was found by the AO that the directors of the said 15 etc.: It was found by the AO that the directors of the said 15 etc.: It was found by the AO that the directors of the said 15 share holder companies are out of the dummy directors listed share holder companies are out of the dummy directors listed share holder companies are out of the dummy directors listed by Shri Deepak. Patwari in his statements recorded. Thus, by Shri Deepak. Patwari in his statements recorded. Thus, by Shri Deepak. Patwari in his statements recorded. Thus, there was a there was a direct link established between the assessee and direct link established between the assessee and the said 15. share applicant companies which were not the said 15. share applicant companies which were not the said 15. share applicant companies which were not carrying out any genuine business but solely engaged in but solely engaged in carrying out any genuine business providing accommodation entries and therefore, the onus providing accommodation entries and therefore, the onus providing accommodation entries and therefore, the onus cast upon the assessee was of a higher de cast upon the assessee was of a higher de cast upon the assessee was of a higher degree which cannot be said to have been discharged by only cannot be said to have been discharged by only cannot be said to have been discharged by only submitting name, address, PAN, Annual Report, bank submitting name, address, PAN, Annual Report, bank submitting name, address, PAN, Annual Report, bank statement etc statement etc.. The onus could have been discharged by .. The onus could have been discharged by producing before the AO the share applicants as its witness producing before the AO the share applicants as its witness producing before the AO the share applicants as its witness alongwith their books of account alongwith their books of accounts and supporting evidences etc. s and supporting evidences etc. or atleast providing their latest addresses. However, it is or atleast providing their latest addresses. However, it is or atleast providing their latest addresses. However, it is observed that though most of the observed that though most of the said 15 share applicants said 15 share applicants were found to be not existing at the stated addresses, the were found to be not existing at the stated addresses, the were found to be not existing at the stated addresses, the assessee did not even provide their latest addr assessee did not even provide their latest addr assessee did not even provide their latest addresses to the AO. Therefore, the assessee has clearly failed in Therefore, the assessee has clearly failed in Therefore, the assessee has clearly failed in discharging its onus of proving the genuineness of the discharging its onus of proving the genuineness of the discharging its onus of proving the genuineness of the transactions entered into with the said 15 share applicants of transactions entered into with the said 15 share applicants of transactions entered into with the said 15 share applicants of introduction of funds in the form of share capital at a huge introduction of funds in the form of share capital at a huge introduction of funds in the form of share capital at a huge premium.” 11.7 The Ld. CIT(A) also rejected the contention of the assessee The Ld. CIT(A) also rejected the contention of the assessee The Ld. CIT(A) also rejected the contention of the assessee seeking cross-examination examination, observing as under:

“5.10 The assessee further contends that it was not allowed to The assessee further contends that it was not allowed to The assessee further contends that it was not allowed to cross-examine Shri eepak Patwari, entry operator as well as examine Shri eepak Patwari, entry operator as well as examine Shri eepak Patwari, entry operator as well as

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the dummy directors, whos the dummy directors, whose statements were relied upon by e statements were relied upon by the A to draw adverse inference. Therefore, it was contended the A to draw adverse inference. Therefore, it was contended the A to draw adverse inference. Therefore, it was contended by the assessee that the principles of natural justice have been by the assessee that the principles of natural justice have been by the assessee that the principles of natural justice have been violated and accordingly the assessment order is vitiated. It is violated and accordingly the assessment order is vitiated. It is violated and accordingly the assessment order is vitiated. It is observed that there is no disput observed that there is no dispute that the said 15 alleged share e that the said 15 alleged share applicant companies were not found at the stated addresses applicant companies were not found at the stated addresses applicant companies were not found at the stated addresses and the assessee could not provide their latest addresses. and the assessee could not provide their latest addresses. and the assessee could not provide their latest addresses. It is also a fact that the said share capital at a premium was fact that the said share capital at a premium was fact that the said share capital at a premium was received by way of private placement and t received by way of private placement and therefore, it is herefore, it is surprising that the said 15 alleged share applicant companies surprising that the said 15 alleged share applicant companies surprising that the said 15 alleged share applicant companies who are based at Kolkata and are not at all related to the who are based at Kolkata and are not at all related to the who are based at Kolkata and are not at all related to the assessee group have subscribed. assessee group have subscribed. Further, in statements Further, in statements recorded, Shri Deepak Patwari had recorded, Shri Deepak Patwari had identified the dummy identified the dummy directors of his dummy concerns to be J Rao, Birja Kumar of his dummy concerns to be J Rao, Birja Kumar of his dummy concerns to be J Rao, Birja Kumar Sharma, Girija Kumar Sharma, Amit Agarwal, Baikunth Nath, Sharma, Girija Kumar Sharma, Amit Agarwal, Baikunth Nath, Sharma, Girija Kumar Sharma, Amit Agarwal, Baikunth Nath, Pandey, Radhe. Shyam Sharma, Dibakar Mahato, Manoj Pandey, Radhe. Shyam Sharma, Dibakar Mahato, Manoj Pandey, Radhe. Shyam Sharma, Dibakar Mahato, Manoj Kumar Singh, G Vinod Kumar, Jaydeep Singh, Kamala Kanta Kumar Singh, G Vinod Kumar, Jaydeep Singh, Kamala Kanta Kumar Singh, G Vinod Kumar, Jaydeep Singh, Kamala Kanta Bhuiyan, Akash Shrivastava, Aarti Panda, Su Bhuiyan, Akash Shrivastava, Aarti Panda, Suraj Kumar Panda, raj Kumar Panda, Krishna Jaiswal, Biplab Guha, Navin Kumar Singh, Gopal Krishna Jaiswal, Biplab Guha, Navin Kumar Singh, Gopal Krishna Jaiswal, Biplab Guha, Navin Kumar Singh, Gopal Sonkar, Avnish: Singh, Jasminder Singh, Chittranjan Bhuiyan, Sonkar, Avnish: Singh, Jasminder Singh, Chittranjan Bhuiyan, Sonkar, Avnish: Singh, Jasminder Singh, Chittranjan Bhuiyan, etc. It was found by the AO that the directors of the said 15 etc. It was found by the AO that the directors of the said 15 etc. It was found by the AO that the directors of the said 15 share holder companies are out of the dummy directors listed share holder companies are out of the dummy directors listed share holder companies are out of the dummy directors listed by Shri Deepak Patwari in his statements recorded. Moreover, by Shri Deepak Patwari in his statements recorded. Moreover, by Shri Deepak Patwari in his statements recorded. Moreover, from the discussion in the preceding paras, it is apparent that from the discussion in the preceding paras, it is apparent that from the discussion in the preceding paras, it is apparent that the primary onus of proving the genuineness of the transactions the primary onus of proving the genuineness of the transactions the primary onus of proving the genuineness of the transactions of receipt of share capital at a premium from the said 15 of receipt of share capital at a premium from the said 15 of receipt of share capital at a premium from the said 15 companies has clearly not been discharged. An opportunity to has clearly not been discharged. An opportunity to has clearly not been discharged. An opportunity to cross-examine is not an absolute. right. It is to be provided only examine is not an absolute. right. It is to be provided only examine is not an absolute. right. It is to be provided only once the basic onus cast upon the assessee is discharged. In once the basic onus cast upon the assessee is discharged. In once the basic onus cast upon the assessee is discharged. In the instant case, the basic onus to prove the genuineness of the the instant case, the basic onus to prove the genuineness of the the instant case, the basic onus to prove the genuineness of the transaction by producing the alleged 15 share applicants or by producing the alleged 15 share applicants or atleast providing their latest addresses has clearly not been atleast providing their latest addresses has clearly not been atleast providing their latest addresses has clearly not been discharged by the assessee. In view of the factual scenario, the discharged by the assessee. In view of the factual scenario, the discharged by the assessee. In view of the factual scenario, the assessee cannot insist on being granted an opportunity to assessee cannot insist on being granted an opportunity to assessee cannot insist on being granted an opportunity to cross. examine the all cross. examine the alleged hawala/bogus suppliers and on eged hawala/bogus suppliers and on being provided the evidences relied upon by the AO. being provided the evidences relied upon by the AO. being provided the evidences relied upon by the AO.” 11.8 The Ld. CIT(A) he Ld. CIT(A) for the first time , relied on statement of Shri relied on statement of Shri Rakesh Sahewal, Accountant of the assessee group Accountant of the assessee group Accountant of the assessee group recorded on 13/06/2014 and statement of sh Devesh 13/06/2014 and statement of sh Devesh Upadhyay dated Upadhyay dated

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30/12/2014. The relevant observation of ld CIT(A) is reproduced as 30/12/2014. The relevant observation of ld CIT(A) is reproduced as 30/12/2014. The relevant observation of ld CIT(A) is reproduced as under:

“5.14 It is also noted that search action was simultaneously 5.14 It is also noted that search action was simultaneously 5.14 It is also noted that search action was simultaneously conducted on the Assesseee Group along with the search conducted on the Assesseee Group along with the search conducted on the Assesseee Group along with the search action on R K Kedia group of cases on 1306 2044. action on R K Kedia group of cases on 1306 2044. action on R K Kedia group of cases on 1306 2044. Kishan kinadara is tie nain person of the Assessee Group, In course kinadara is tie nain person of the Assessee Group, In course kinadara is tie nain person of the Assessee Group, In course NO of the search action, the residential premises of Rakesh NO of the search action, the residential premises of Rakesh NO of the search action, the residential premises of Rakesh Sahewal, accountant of the Assessee Group was also covered. Sahewal, accountant of the Assessee Group was also covered. Sahewal, accountant of the Assessee Group was also covered. In the statement recorded of Rakesh and he works under his In the statement recorded of Rakesh and he works under his In the statement recorded of Rakesh and he works under his instructions. It was also admitted that the assessee and a ons. It was also admitted that the assessee and a ons. It was also admitted that the assessee and a number of other entities of the group controlled by Krishan number of other entities of the group controlled by Krishan number of other entities of the group controlled by Krishan Khadaria are engaged in receiving as well as providing Khadaria are engaged in receiving as well as providing Khadaria are engaged in receiving as well as providing accommodation entries of share application, loan etc. It was accommodation entries of share application, loan etc. It was accommodation entries of share application, loan etc. It was also explained that the cheque also explained that the cheque investment by the investors in investment by the investors in share application, loan, etc is returned back by them in cash share application, loan, etc is returned back by them in cash share application, loan, etc is returned back by them in cash and similarly the investments made by them by way of and similarly the investments made by them by way of and similarly the investments made by them by way of cheque is received back in cash from the investees. cheque is received back in cash from the investees. cheque is received back in cash from the investees. Moreover, as noted earlier, even Shri Devesh Upadhyay in as noted earlier, even Shri Devesh Upadhyay in his statement his statement on oath recorded on 30.12.2014 has admitted to be in the on oath recorded on 30.12.2014 has admitted to be in the on oath recorded on 30.12.2014 has admitted to be in the dubious business of providing accommodation entries and has dubious business of providing accommodation entries and has dubious business of providing accommodation entries and has also listed out some of his controlled concerns through dummy also listed out some of his controlled concerns through dummy also listed out some of his controlled concerns through dummy directors. The concern listed out includes M/s Barbie directors. The concern listed out includes M/s Barbie directors. The concern listed out includes M/s Barbie Tradelink Pvt. Pvt. Ltd., Ms Blossom Dealcom Pvt. Ltd. and M/s Ltd., Ms Blossom Dealcom Pvt. Ltd. and M/s Comfort Dealtrade Pvt. Ltd.. The relevant portion of the Comfort Dealtrade Pvt. Ltd.. The relevant portion of the Comfort Dealtrade Pvt. Ltd.. The relevant portion of the statement on oath of Shri Devesh Upadhyay is reproduced as statement on oath of Shri Devesh Upadhyay is reproduced as statement on oath of Shri Devesh Upadhyay is reproduced as under: Q.3 • Kindly state in brief about your sources of income. Q.3 • Kindly state in brief about your sources of income. Q.3 • Kindly state in brief about your sources of income. Ans. My main business Ans. My main business activity is that of an accommodation activity is that of an accommodation entry provider. and main source of my income is from entry provider. and main source of my income is from entry provider. and main source of my income is from commission commission commission earned earned earned by by by providing providing providing various various various types types types of of of accommodation accommodation accommodation entries entries entries through through through various various various "jama, "jama, "jama, khare companies" under my control. A companies" under my control. A small portion of my income small portion of my income also comes from financial and Tax consultancy.. I run my s from financial and Tax consultancy.. I run my s from financial and Tax consultancy.. I run my business from my office located at P 39, Prince Street, business from my office located at P 39, Prince Street, business from my office located at P 39, Prince Street, Kolkata-13. Q. 4. Please state as to what do you mean by "accommodation Q. 4. Please state as to what do you mean by "accommodation Q. 4. Please state as to what do you mean by "accommodation entry", "entry operator", entry", "entry operator",

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"jama "jama "jama kharchi kharchi kharchi companies" companies" companies" and and and "nature "nature "nature of of of various various various accommodation entries"? odation entries"? Ans. The above terminology is used frequently in the business The above terminology is used frequently in the business The above terminology is used frequently in the business of accommodation entries. Accommodation entry is a financial of accommodation entries. Accommodation entry is a financial of accommodation entries. Accommodation entry is a financial transaction between two parties where one party enters the transaction between two parties where one party enters the transaction between two parties where one party enters the financial transaction in its books for accommodating the financial transaction in its books for accommodating the financial transaction in its books for accommodating the other party. Here one party provides book entry of influx of funds to Here one party provides book entry of influx of funds to Here one party provides book entry of influx of funds to the other party (beneficiary) in a manner that this other party the other party (beneficiary) in a manner that this other party the other party (beneficiary) in a manner that this other party doesn't have to pay any tax on such influx of funds. For this, doesn't have to pay any tax on such influx of funds. For this, doesn't have to pay any tax on such influx of funds. For this, such influx of funds in the books of beneficiary is done i such influx of funds in the books of beneficiary is done i such influx of funds in the books of beneficiary is done in the form of either some liability, which is never repaid by the form of either some liability, which is never repaid by the form of either some liability, which is never repaid by the beneficiary or in the form of some tax exempt income. These beneficiary or in the form of some tax exempt income. These beneficiary or in the form of some tax exempt income. These transactions are accommodated in lieu of cash of equal transactions are accommodated in lieu of cash of equal transactions are accommodated in lieu of cash of equal amount taken from the beneficiary. The entry operator earns amount taken from the beneficiary. The entry operator earns amount taken from the beneficiary. The entry operator earns some commission some commission charged over and above this amount of charged over and above this amount of accommodation entry, generally at certain fixed percentage for accommodation entry, generally at certain fixed percentage for accommodation entry, generally at certain fixed percentage for giving such accommodation entry. The purpose of such giving such accommodation entry. The purpose of such giving such accommodation entry. The purpose of such transactions is to accommodate one party (the beneficiary) by transactions is to accommodate one party (the beneficiary) by transactions is to accommodate one party (the beneficiary) by influx of money in its books through th influx of money in its books through the other party, who e other party, who takes cash in unaccounted manner from such beneficiary. takes cash in unaccounted manner from such beneficiary. takes cash in unaccounted manner from such beneficiary. An entry operator is a person who is in the business of giving An entry operator is a person who is in the business of giving An entry operator is a person who is in the business of giving such accommodation entries in lieu of cash after charging such accommodation entries in lieu of cash after charging such accommodation entries in lieu of cash after charging certain percentage of commission in cash. certain percentage of commission in cash. Jama kharchi compa Jama kharchi companies refer to the companies under the nies refer to the companies under the control of accommodation entry operator, and from the books control of accommodation entry operator, and from the books control of accommodation entry operator, and from the books of these companies, funds are transferred, in one form or the of these companies, funds are transferred, in one form or the of these companies, funds are transferred, in one form or the other, to the books of the beneficiary. There is no actual other, to the books of the beneficiary. There is no actual other, to the books of the beneficiary. There is no actual business activity in these companies business activity in these companies and funds (to be and funds (to be transferred to beneficiary) in the books and bank accounts of transferred to beneficiary) in the books and bank accounts of transferred to beneficiary) in the books and bank accounts of these companies are brought by a complex rotation of funds these companies are brought by a complex rotation of funds these companies are brought by a complex rotation of funds through the accounts of various other entities under the control through the accounts of various other entities under the control through the accounts of various other entities under the control of accommodation entry provider. of accommodation entry provider. Various types of acc Various types of accommodation entries are given in the ommodation entries are given in the business of accommodation entries to different beneficiaries. business of accommodation entries to different beneficiaries. business of accommodation entries to different beneficiaries. Some of these accommodation entries used in our parlance are Some of these accommodation entries used in our parlance are Some of these accommodation entries used in our parlance are Long Term/ Short Term Entry, One time Share Premium Entry, Long Term/ Short Term Entry, One time Share Premium Entry, Long Term/ Short Term Entry, One time Share Premium Entry, Unsecured Loan Entry etc. Unsecured Loan Entry etc.

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Q. 7. Kindly. furnish names of your such companies which are . furnish names of your such companies which are . furnish names of your such companies which are used for routing and providing accommodation entries to used for routing and providing accommodation entries to used for routing and providing accommodation entries to beneficiaries. beneficiaries. Ans. I don't remember all my such companies at present. Ans. I don't remember all my such companies at present. Ans. I don't remember all my such companies at present. However, some of these However, some of these companies are as follows: companies are as follows: "a). M/s Albino Overseas "a). M/s Albino Overseas Private Limited. b) M/s Amanat Suppliers Private Limited b) M/s Amanat Suppliers Private Limited c) M/s Anjali Suppliers Private Limited c) M/s Anjali Suppliers Private Limited d) M/s Barbie Tradelink Private Limited d) M/s Barbie Tradelink Private Limited c) M/s Beagle Vyapaar Private Limited c) M/s Beagle Vyapaar Private Limited f: M/s Blossom Dealcom Private Limited f: M/s Blossom Dealcom Private Limited 8) MIs Camellia Vinimay Private Limited 8) MIs Camellia Vinimay Private Limited h) M/s Chaturbhuj Marketing Private Limited M/s Chaturbhuj Marketing Private Limited ¡) M/s Comfort Dealcom Private Limited ¡) M/s Comfort Dealcom Private Limited j) 'MIs Comfort Dealtrade Private Limited j) 'MIs Comfort Dealtrade Private Limited k) M/s Devatma Distributors Private Limited k) M/s Devatma Distributors Private Limited 1) M/s Eash Vyapaar Private Limited 1) M/s Eash Vyapaar Private Limited m) Ms Eden Vyapaar Private Limited m) Ms Eden Vyapaar Private Limited n) M/s Ekta. Trade n) M/s Ekta. Tradecom Private Limited. "o) M/s Gallant Commosales Private Limited "o) M/s Gallant Commosales Private Limited "P) M/s Graceful Tie "P) M/s Graceful Tie-Up Private Limited q) M/s Hemlata Vinimay Private Limited ) M/s Hemlata Vinimay Private Limited r) M/s Inova Commotrade Private Limited ) M/s Inova Commotrade Private Limited s) M/s Kansabati Tradecom Private Limited s) M/s Kansabati Tradecom Private Limited t) . MIs Kapeeshwar. Vintrade ) . MIs Kapeeshwar. Vintrade Private Limited u) MIs Lavender Exim Private Limited u) MIs Lavender Exim Private Limited v). MIs Mahamani Tradelink Private Limited v). MIs Mahamani Tradelink Private Limited”

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11.9 Thereafter, relying on the various decisions cited relying on the various decisions cited relying on the various decisions cited, the Ld. CIT(A) upheld the addition made u/s 68 of the Act. addition made u/s 68 of the Act. 12. Before us the learned counsel of the a Before us the learned counsel of the assessee submitted that ssessee submitted that the order of the Ld. CIT(A) is perverse on facts and decision has the order of the Ld. CIT(A) is perverse on facts and decision has the order of the Ld. CIT(A) is perverse on facts and decision has been arrived upon by him applying the ratio of the various decision been arrived upon by him applying the ratio of the various decision been arrived upon by him applying the ratio of the various decision on those wrong facts cited by him. He submitted that firstly, the on those wrong facts cited by him. He submitted that on those wrong facts cited by him. He submitted that Ld. CIT(A) has mentioned wrongly Ld. CIT(A) has mentioned wrongly that 15 share applicants were not that 15 share applicants were not found at their stated addressed by the Assessing Officer and the found at their stated addressed by the Assessing Officer and the found at their stated addressed by the Assessing Officer and the assessee did not provide their latest addresses. According to him, assessee did not provide their latest addresses. According to him, assessee did not provide their latest addresses. According to him, the assessee supplied confirmation name address and PAN details the assessee supplied confirmation name address and PAN details the assessee supplied confirmation name address and PAN details of the shareholders, but t of the shareholders, but the Assessing Officer at any point of time he Assessing Officer at any point of time during assessment proceeding neither issued any notice under during assessment proceeding neither issued any notice under during assessment proceeding neither issued any notice under section 133(6) of the Act or notice under section 131 of the Act or section 133(6) of the Act or notice under section 131 of the Act or section 133(6) of the Act or notice under section 131 of the Act or carried out for verification of identity of those shareholders, there’s carried out for verification of identity of those shareholders, there’s carried out for verification of identity of those shareholders, there’s the contention of the Assessing Officer that those 15 shareholders n of the Assessing Officer that those 15 shareholders n of the Assessing Officer that those 15 shareholders were not founded their stated address is factually incorrect. The were not founded their stated address is factually incorrect. The were not founded their stated address is factually incorrect. The fact noted by the ld CIT noted by the ld CIT(A) that the assessee did not provide their the assessee did not provide their latest addressed is also incorrect and based on the presumption. latest addressed is also incorrect and based on the presumption. latest addressed is also incorrect and based on the presumption. The learned counsel asked the learned DR to support the said The learned counsel asked the learned DR to support the said The learned counsel asked the learned DR to support the said convention by way of documentary evidence, but no such evidence convention by way of documentary evidence, but no such evidence convention by way of documentary evidence, but no such evidence was filed by the learned DR was filed by the learned DR. The learned counsel mentioned that he learned counsel mentioned that when the investigation wing already recorded the statements of the when the investigation wing already recorded the statements of the when the investigation wing already recorded the statements of the director of shareholder companies, then identity of those companies director of shareholder companies, then identity of those companies director of shareholder companies, then identity of those companies stands verified. Secondly Secondly, the learned counsel submitted that all , the learned counsel submitted that all

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investor companies ar investor companies are engaged in investment activity and having e engaged in investment activity and having net-worth for investment in shares of the assessee company. He worth for investment in shares of the assessee company. He worth for investment in shares of the assessee company. He submitted that being a submitted that being an investment company, there was not any investment company, there was not any unusual in accepting the money and further investment into the unusual in accepting the money and further investment into the unusual in accepting the money and further investment into the assessee company and no assessee company and no adverse inference can be drawn by way of adverse inference can be drawn by way of that observation. Thirdly Thirdly, the learned counsel submitted that , the learned counsel submitted that addition has been made purely based on the statement of third addition has been made purely based on the statement of third addition has been made purely based on the statement of third parties mainly sh Deepak Patwari and directors of the Shareholder parties mainly sh Deepak Patwari and directors of the Shareholder parties mainly sh Deepak Patwari and directors of the Shareholder companies, but neither th companies, but neither the statement nor cross-examinations of examinations of those persons have been provided to the assessee. He submitted those persons have been provided to the assessee. He those persons have been provided to the assessee. He that since addition are that since addition are based solely on the statement of those based solely on the statement of those persons and therefore it is sine persons and therefore it is sine qui non to provide their cross non to provide their cross examination. Failure on the examination. Failure on the part of the Assessing Officer, being part of the Assessing Officer, being in the nature of violation of the principle of natural justice, addition violation of the principle of natural justice, addition violation of the principle of natural justice, addition needs to be deleted. Fourthly Fourthly, without prejudice, he submitted that , without prejudice, he submitted that the statement of Sri Deepak Patwari relied upon by the Assessing the statement of Sri Deepak Patwari relied upon by the Assessing the statement of Sri Deepak Patwari relied upon by the Assessing Officer are for the period prior to serve in the case of the assessee or the period prior to serve in the case of the assessee or the period prior to serve in the case of the assessee and in his statement statement, he has nowhere stated that accommodation , he has nowhere stated that accommodation entries of share capital /premium have been provided to the entries of share capital /premium have been provided to the entries of share capital /premium have been provided to the assessee. The extract of statement of directors of the share holding The extract of statement of directors of the share holding The extract of statement of directors of the share holding companies reproduced by the assessing officer shows that es reproduced by the assessing officer shows that es reproduced by the assessing officer shows that statements are identically worded where they expressed ignorance statements are identically worded where they expressed ignorance statements are identically worded where they expressed ignorance about activities of shareholding companies but all of them have said about activities of shareholding companies but all of them have said about activities of shareholding companies but all of them have said stated of being engaged in accommodation entries, thus statements stated of being engaged in accommodation entries, thus statements stated of being engaged in accommodation entries, thus statements are either tutored or given under duress or coercion and thus need ther tutored or given under duress or coercion and thus need ther tutored or given under duress or coercion and thus need

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independent cross examination. independent cross examination. Further the statement of Rakesh Further the statement of Rakesh Sahwal and Devesh Upadhyay referred Sahwal and Devesh Upadhyay referred by the ld CIT(A) in impugned the ld CIT(A) in impugned order are in relation to the search dated 13/06/2014 i.e. are in relation to the search dated 13/06/2014 i.e. are in relation to the search dated 13/06/2014 i.e. subsequent to survey nt to survey in the case of assessee. The said statements The said statements have been referred without confronting the same to assessee. The ld have been referred without confronting the same to assessee. have been referred without confronting the same to assessee. CIT(A) based on their statement CIT(A) based on their statements has inferred that assessee was has inferred that assessee was also an accommodation entry provider. In that case no addition of also an accommodation entry provider. In that case no addition of also an accommodation entry provider. In that case no addition of section 68 is warranted in the case of the assessee and only section 68 is warranted in the case of the assessee and only section 68 is warranted in the case of the assessee and only addition for earning commission is liable. Thus there are addition for earning commission is liable. Thus there are addition for earning commission is liable. Thus there are contradictions in finding contradictions in finding of ld CIT(A). Further, in support of claim . Further, in support of claim that there is violation of principles of natural justice for not that there is violation of principles of natural justice for not that there is violation of principles of natural justice for not providing cross examination, the ld Counsel relied on viding cross examination, the ld Counsel relied on decision viding cross examination, the ld Counsel relied on dated 2/09/2015 of Hon’ble supreme Court in the case of Andman dated 2/09/2015 of Hon’ble supreme Court in the case of dated 2/09/2015 of Hon’ble supreme Court in the case of Timber Industries Vs CCE, Kolkatta in Civil Appeal No. 4228 of Industries Vs CCE, Kolkatta in Civil Appeal No. 4228 of Industries Vs CCE, Kolkatta in Civil Appeal No. 4228 of 2006. 13. We have heard rival submission of the parties on the issue We have heard rival submission of the parties on the issue We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that assessee received share capital and share premium from 15 assessee received share capital and share premium from 15 assessee received share capital and share premium from 15 subscribers. The Assessing Officer was in possession of the he Assessing Officer was in possession of the he Assessing Officer was in possession of the information gathered during the course of search action on the information gathered during the course of search action on the information gathered during the course of search action on the Mahavir Group of cases r Group of cases, survey action on the case of the assessee action on the case of the assessee and information gathered by the Investigation Wing Kalyan in post and information gathered by the Investigation Wing Kalyan in post and information gathered by the Investigation Wing Kalyan in post survey proceedings carried out survey proceedings carried out at Kolkata. The Ld. Assessing Officer Kolkata. The Ld. Assessing Officer based on this information asked the assessee to justify the based on this information asked the assessee to justify the based on this information asked the assessee to justify the

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genuineness of the share capital and share premium received enuineness of the share capital and share premium received. The enuineness of the share capital and share premium received assessee in support of its claim filed the details of name, address, assessee in support of its claim filed the details of name, address, assessee in support of its claim filed the details of name, address, confirmation, bank bank bank statement, statement, statement, balance balance balance sheet, sheet, sheet, income-tax acknowledgement of statement of those investors etc. However, the acknowledgement of statement of those investors etc. However, the acknowledgement of statement of those investors etc. However, the Assessing Officer did not carry out ssessing Officer did not carry out any physical verification of the physical verification of the share subscribers by way of issue of notic share subscribers by way of issue of notice u/s 133(6) or 131 of the e u/s 133(6) or 131 of the Act. The Assessing Officer merely he Assessing Officer merely relied on the information which on the information which was gathered by the Investigation Wing and no independent was gathered by the Investigation Wing and no indepen was gathered by the Investigation Wing and no indepen verification of said information has been carried out by the information has been carried out by the Assessing Officer. Further, we observe that though the Ld. CIT(A) Assessing Officer. Further, we observe that though the Ld. CIT(A) Assessing Officer. Further, we observe that though the Ld. CIT(A) has mentioned that the Assessing Officer asked the assessee to has mentioned that the Assessing Officer asked the assessee to has mentioned that the Assessing Officer asked the assessee to provide new address of the share subscribers provide new address of the share subscribers, however during however during the course of the hearing before us when the Ld. DR was asked to course of the hearing before us when the Ld. DR was asked to course of the hearing before us when the Ld. DR was asked to produce any letter or query raised by the Assessing Officer seeking produce any letter or query raised by the Assessing Officer seeking produce any letter or query raised by the Assessing Officer seeking new address from the assessee new address from the assessee, but he could not support the he could not support the finding of the Ld. CIT(A) by way of any documentary evidence, thus finding of the Ld. CIT(A) by way of any documentary evidence finding of the Ld. CIT(A) by way of any documentary evidence it is clear that order of the Ld. CIT(A) is factually perverse as far as it is clear that order of the Ld. CIT(A) is factually perverse as far as it is clear that order of the Ld. CIT(A) is factually perverse as far as fact of seeking new address from the assessee. Further, the Ld. fact of seeking new address from the assessee. Further, the Ld. fact of seeking new address from the assessee. Further, the Ld. Counsel of the assessee referred to the Paper Book page number Counsel of the assessee referred to the Paper Book page Counsel of the assessee referred to the Paper Book page 124 to 125 and submitted that the assessee sought co and submitted that the assessee sought copy of the and submitted that the assessee sought co material/statements which have been material/statements which have been relied upon by the Assessing upon by the Assessing Officer. However, according to the assessee Officer. However, according to the assessee only extract of their only extract of their statement was provided in pen drive at the fag end of assessment statement was provided in pen drive at the fag end of assessment statement was provided in pen drive at the fag end of assessment proceedings and no no complete statements were provided. The relevant part of letter of letter of assessee is reproduced as under: of assessee is reproduced as under:

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“Kindly refer to the meeting which our CA Shri Ajay Daga Kindly refer to the meeting which our CA Shri Ajay Daga Kindly refer to the meeting which our CA Shri Ajay Daga had with your goodself yesterday whereat the relevant had with your goodself yesterday whereat the relevant had with your goodself yesterday whereat the relevant extract of statements of Shri Deepak Patwari and his so extract of statements of Shri Deepak Patwari and his so extract of statements of Shri Deepak Patwari and his so called dummy called dummy directors were furnished by you in the pen directors were furnished by you in the pen- drive for our comments. drive for our comments. At the outset it is submitted with all the emphasis at our At the outset it is submitted with all the emphasis at our At the outset it is submitted with all the emphasis at our command that you have given the above extract of the command that you have given the above extract of the command that you have given the above extract of the statements at the fag end of this month by which time the statements at the fag end of this month by which time the statements at the fag end of this month by which time the assessment is to be assessment is to be finalised, the same is totally against finalised, the same is totally against the settled principle of law of affording a reasonable time the settled principle of law of affording a reasonable time the settled principle of law of affording a reasonable time to the assessee for rebutting such statements. In the to the assessee for rebutting such statements. In the to the assessee for rebutting such statements. In the circumstances, it is not only difficult but impossible to give circumstances, it is not only difficult but impossible to give circumstances, it is not only difficult but impossible to give adequate response to the same within th adequate response to the same within the short time e short time available. However, with a view to co However, with a view to co-operating with the Dept. we operating with the Dept. we have examined the statements have examined the statements superficially having regard superficially having regard to almost no time available to us and our observations on to almost no time available to us and our observations on to almost no time available to us and our observations on the same are as under: the same are as under: i. We have not received any share applicat We have not received any share application money ion money from from from the the the companies companies companies listed listed listed in in in the the the statement statement statement dt22.7.13 of Shri Deepak Patwart averred to be the dt22.7.13 of Shri Deepak Patwart averred to be the dt22.7.13 of Shri Deepak Patwart averred to be the companies companies controlled by him. Thus on this limited controlled by him. Thus on this limited issue alone the said statement of Shri Patwari has issue alone the said statement of Shri Patwari has issue alone the said statement of Shri Patwari has no relevance and, therefore, no further comments no relevance and, therefore, no further comments no relevance and, therefore, no further comments are necessary. e necessary. ii. Even the statements of so called employees / Even the statements of so called employees / Even the statements of so called employees / dummy directors of Shri Patwari dummy directors of Shri Patwari furnished to us furnished to us have no relevance at all as their names do not have no relevance at all as their names do not have no relevance at all as their names do not appear in the name of persons listed out in the appear in the name of persons listed out in the appear in the name of persons listed out in the statement of Shri Patwari as his employees/dummy statement of Shri Patwari as his employees/dummy statement of Shri Patwari as his employees/dummy directors. The said statements also cannot be used ors. The said statements also cannot be used ors. The said statements also cannot be used against us. against us. iii. Even otherwise on going through the statements of Even otherwise on going through the statements of Even otherwise on going through the statements of so called dummy directors so called dummy directors strangely it emerges that strangely it emerges that most of the said persons are puny persons, were not most of the said persons are puny persons, were not most of the said persons are puny persons, were not in employment since last two to three years w employment since last two to three years w employment since last two to three years with M/s. M/s. M/s. Deepak Deepak Deepak Patwari, Patwari, Patwari, have have have no no no educational educational educational background, and the answers to each of the background, and the answers to each of the background, and the answers to each of the questions raised are stereotyped which is quiet questions raised are stereotyped which is quiet questions raised are stereotyped which is quiet impossible of different persons giving exactly the impossible of different persons giving exactly the impossible of different persons giving exactly the same answers implying thereby that either the same answers implying thereby that either the same answers implying thereby that either the

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answers answers were were put put in in their the ir mouth mouth or or the the investigation. officer recorded the answer and made investigation. officer recorded the answer and made investigation. officer recorded the answer and made them sign. Such statements cannot have any them sign. Such statements cannot have any them sign. Such statements cannot have any evidentiary value. evidentiary value. iv. Moreover no information has been brought on record Moreover no information has been brought on record Moreover no information has been brought on record as to the treatment of the as to the treatment of the said statements in the said statements in the assessments of Shri Deepa assessments of Shri Deepak Patwari and /or the k Patwari and /or the companies controlled by him. companies controlled by him. v. In any event if you are relying upon the statements In any event if you are relying upon the statements In any event if you are relying upon the statements of these persons, then they constitute Deptt's of these persons, then they constitute Deptt's of these persons, then they constitute Deptt's witness and we hereby request you to allow us to witness and we hereby request you to allow us to witness and we hereby request you to allow us to cross examine them to ascertain the veracity of their cross examine them to ascertain the veracity of their cross examine them to ascertain the veracity of their statements. Unless that is done please note that in tements. Unless that is done please note that in tements. Unless that is done please note that in law the Dept, cannot draw adverse inference law the Dept, cannot draw adverse inference law the Dept, cannot draw adverse inference against us. against us.” 13.1 Thus, the Assessing Officer for making addition the Assessing Officer for making addition the Assessing Officer for making addition has merely relied on the statement relied on the statements of third party i.e. Director of the subscriber of third party i.e. Director of the subscriber companies and another person claimed to being an entry provider another person claimed to being an entry provider another person claimed to being an entry provider but no cross-examination of those persons have been provided to examination of those persons have been provided to examination of those persons have been provided to the assessee.

13.2 In our opinion, cross In our opinion, cross-examination of the witnesses is one of examination of the witnesses is one of the essential ingredients of the principle of natural justice and in the essential ingredients of the principle of natural justice the essential ingredients of the principle of natural justice absence of which the oral evidence absence of which the oral evidences given by the persons cannot be given by the persons cannot be utilized against the assessee. utilized against the assessee. The Assessing Officer cannot gather The Assessing Officer cannot gather material or evidence at the back of the assessee and use it material or evidence at the back of the assessee and use it material or evidence at the back of the assessee and use it unilaterally. Evidence has to be tested on cross examination. unilaterally. Evidence has to be tested on cross examination. unilaterally. Evidence has to be tested on cross examination. Failure to afford opportunity to the assessee to cross-examine a Failure to afford opportunity to the assessee to cross Failure to afford opportunity to the assessee to cross third party whose evidence is sou third party whose evidence is sought to be utilised would make the ght to be utilised would make the assessment void as held in the cases of Kishinchand Chellaram v. assessment void as held in the cases of Kishinchand Chellaram v. assessment void as held in the cases of Kishinchand Chellaram v. CIT (1980) 4 Taxman 29 (SC), Sona Electric Co. v. CIT (1984) 19 CIT (1980) 4 Taxman 29 (SC), Sona Electric Co. v. CIT (1984) 19 CIT (1980) 4 Taxman 29 (SC), Sona Electric Co. v. CIT (1984) 19

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Taxman 160 (Delhi), Nathu Ram Prem Taxman 160 (Delhi), Nathu Ram Prem Chand v. CIT (1963) 49 ITR Chand v. CIT (1963) 49 ITR 561(All). In case of CIT v. Ash In case of CIT v. Ashwani Gupta (2010) 322 ITR 396 (Del (2010) 322 ITR 396 (Del), the Delhi High Court while dealing with the issue of not providing the Delhi High Court while dealing with the issue of not providing the Delhi High Court while dealing with the issue of not providing the opportunity to cross examine the witnesses has held that once the opportunity to cross examine the witnesses has held that once the opportunity to cross examine the witnesses has held that once there is a violation of principles of natural justice inasmuch as there is a violation of principles of natural justice inasmuch as there is a violation of principles of natural justice inasmuch as seized material is n seized material is not provided to the assessee nor is cross ot provided to the assessee nor is cross examination of the person on whose statement the AO relied upon, examination of the person on whose statement the AO relied upon, examination of the person on whose statement the AO relied upon, granted, then, such deficiencies would amount to denial of granted, then, such deficiencies would amount to denial of granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proceedings. opportunity and consequently would be fatal to the proceedings. opportunity and consequently would be fatal to the proceedings.

13.3 Before us, the Ld. C Before us, the Ld. Counsel of the assessee has relied on the ounsel of the assessee has relied on the decision of the Hon’ble Supreme Court in the case of Andaman decision of the Hon’ble Supreme Court in the case of Andaman decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) Industries (supra) and submitted that in absence of cross and submitted that in absence of cross- examination of third parties examination of third parties, no addition can be sustained. no addition can be sustained. The relevant part of the deci relevant part of the decision in the case of Andman Timber sion in the case of Andman Timber Industries (supra) is reproduced as under: Industries (supra) is reproduced as under:

“We have heard Mr. Kavin Gulati, learned senior counsel We have heard Mr. Kavin Gulati, learned senior counsel We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, appearing for the assessee, and Mr. K. Radhakrishnan, appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. learned senior counsel who appeared for the Revenue. learned senior counsel who appeared for the Revenue. According to us, According to us, not allowing the assessee to cross not allowing the assessee to cross- examine the witnesses by the Adjudicating Authority examine the witnesses by the Adjudicating Authority examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the though the statements of those witnesses were made the though the statements of those witnesses were made the basis of the impugned order is a serious flaw which basis of the impugned order is a serious flaw which basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to makes the order nullity inasmuch as it amounted to makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which of principles of natural justice because of which of principles of natural justice because of which the assessee was adversely affected. It is to be borne in the assessee was adversely affected. It is to be borne in the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon mind that the order of the Commissioner was based upon mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even the statements given by the aforesaid two witnesses. Even the statements given by the aforesaid two witnesses. Even when the assessee disputed the corr when the assessee disputed the correctness of the ectness of the statements and wanted to cross statements and wanted to cross-examine, the Adjudicating examine, the Adjudicating

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Authority did not grant this opportunity to the assessee. It Authority did not grant this opportunity to the assessee. It Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order would be pertinent to note that in the impugned order would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically passed by the Adjudicating Authority he has specifically passed by the Adjudicating Authority he has specifically mentioned th mentioned that such an opportunity was sought by the at such an opportunity was sought by the assessee. However, no such opportunity was granted and assessee. However, no such opportunity was granted and assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the the aforesaid plea is not even dealt with by the the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is Adjudicating Authority. As far as the Tribunal is Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally concerned, we find that rejection of this plea is totally concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross enable. The Tribunal has simply stated that cross- enable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out examination of the said dealers could not have brought out examination of the said dealers could not have brought out any material which would not be in possession of the any material which would not be in possession of the any material which would not be in possession of the appellant themselves to explain as to why their ex appellant themselves to explain as to why their ex appellant themselves to explain as to why their ex-factory prices remain static. It was not fo prices remain static. It was not for the Tribunal to have r the Tribunal to have guess work as to for what purposes the appellant wanted guess work as to for what purposes the appellant wanted guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the examine those dealers and what extraction the examine those dealers and what extraction the appellant wanted from them. appellant wanted from them. 13.4 We find that the sole basis of the addition in the case of the We find that the sole basis of the addition in the case of the We find that the sole basis of the addition in the case of the assessee is the statement assessee is the statements of Shri Deepak Patwari and directors of of Shri Deepak Patwari and directors of the shareholder companies. We may like to mention here that the the shareholder companies. We may like to mention here that the the shareholder companies. We may like to mention here that the statement of Shri Deepak Patwari referred by the Assessing Officer statement of Shri Deepak Patwari referred by the Assessing Officer statement of Shri Deepak Patwari referred by the Assessing Officer pertains to the period prior to the survey carried out in the case of pertains to the period prior to the survey carried out in the case of pertains to the period prior to the survey carried out in the case of the assessee. Shri Deepak Patwari has mentioned that Shri Deepak Patwari has mentioned that those Shri Deepak Patwari has mentioned that companies who have companies who have invested in the assessee were operated by him invested in the assessee were operated by him through dummy director. But he has not stated that the share dummy director. But he has not stated that the share dummy director. But he has not stated that the share capital invested in the assessee company was capital invested in the assessee company was in the in the nature of accommodation entry. Si accommodation entry. Since, the Assessing Officer has merely relied nce, the Assessing Officer has merely relied on the statement of Shri Deepak Patwari and the directors of the on the statement of Shri Deepak Patwari and the directors of the on the statement of Shri Deepak Patwari and the directors of the shareholder companies without any other corroborative material or shareholder companies without any other corroborative material shareholder companies without any other corroborative material any independent inquiry inquiry carried out by the AO at his own and no t his own and no cross examination of those persons have been provided , which n of those persons have been provided , which n of those persons have been provided , which being in violation of principle of natural justice, t being in violation of principle of natural justice, therefore, we herefore, we set

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aside the order of ld CIT(A) on merit and delete the addition . The aside the order of ld CIT(A) on merit and delete the addition . aside the order of ld CIT(A) on merit and delete the addition . grounds of the assessee challenging the merit of the additions are grounds of the assessee challenging the merit of the additions are grounds of the assessee challenging the merit of the additions are accordingly allowed for AY 2013 for AY 2013-14. The facts and circumstance in The facts and circumstance in AY 2012-13 being identical, the ground on merit of addition are 13 being identical, the ground on merit of addition are 13 being identical, the ground on merit of addition are allowed for AY 2012-13 also. 13 also. 14. In the result, appeal for the assessment year 2012 In the result, appeal for the assessment year 2012 In the result, appeal for the assessment year 2012-13 is partly allowed whereas appeal for ass allowed whereas appeal for assessment year 2013-14 is allowed 14 is allowed.

Order pronounced in the open Court nounced in the open Court on 31 31/07/2023. Sd/ Sd/- Sd/- Sd/ (KAVITHA RAJAGOPAL KAVITHA RAJAGOPAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 31/07/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai