EASTERN AND WESTERN DRESSES TRADING PRIVATE LIMITED,NEW DELHI vs. ITO WARD-8(1), NEW DELHI

PER SATBEER SINGH GODARA, JM

This assessee’s appeal for assessment year 2011-12, arises against the Commissioner of Income Tax (Appeals)-3 [in short, the “CIT(A)”], New Delhi’s order dated 05.03.2020 passed in case no.
3/10284/18-19, involving proceedings under section 143(3)/147of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

Case called twice. None appears at the assessee’s behest. It is accordingly proceeded ex-parte.
Assessee by None
Department by Sh. Rajesh Kumar Dhanesta, Sr. DR
Date of hearing
03.07.2025
Date of pronouncement
03.07.2025
2 | P a g e

Allowing the appeal of the revenue the Court held that, The practice of conversion of un-accounted money through cloak of Share
Capital/Premium must be subjected to careful scrutiny especially in private placement of shares. Filing primary evidence is not sufficient-The onus to establish credit worthiness of the investor companies is on the assessee. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee company at high premium of Rs 190 per share even though the face value of the share was Rs 10 per share.
None of the so-called investor companies established the source of funds from which the high share premium was invested. Mere mentioning of the income tax file number of an investor is not sufficient to discharge the onus under S. 68 of the Act. Credit worthiness of the investor companies was not discharged. The Assessee is under legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee (AY. 2009-10)

6,4 Royal Rich Development Pvt. Ltd. v. PCIT (Bom)(HC) Cash credits
Bogus share capital-Shell company -Huge premium- Failure to produce the subscribers and based on the statement of the Director that entire invest was bogus-Addition is held to be justified.[S.132(4)]

Dismissing the appeal of the assessee the Court held that, no rational person with sound mind will invest huge amount in the share subscription of a paper/shell company having no worthwhile business/project in hand at such a huge premium. The onus is on the assessee to prove the genuineness of the transaction as well credit worthiness of the share subscribers. The failure to produce the subscribers and statement of the director that the entire investment is bogus justifies the addition, (ITA No. 438 of 2017, dt.
22.07.2019) (AY.2007-08)

Deletion of addition by the Tribunal is held to be not justified.[
S.133(6)]

addition by the Tribunal is held to be not justified.[ S.133(6)]

Allowing the appeal of the revenue the Court held that; evidence was collected in the course of search proceedings by the Investigation Wing it was found that companies were not carrying on any genuine business activities. Directors of these companies were employees of Mr Tarun Goyal, who were working as peons, receptionists etc. Entries in the books were bogus. Modus operandi in such cases is well known, money is circulated by first depositing cash in the bank account of one such company, and thereupon it is transferred/circulated within the group companies before cheque is issued to the beneficiary. Directors in the course of search proceedings directors have admitted that they have signed the documents as per direction of Mr Tarun Goyal. In response to notice u/s 133(5) details were filed however the respondent-assessee had failed to produce Directors of the companies, though they had filed confirmations, and therefore, were in touch with the respondent- assessee. The respondent-assessee had also failed to produce the details and particulars with regard to issue of shares, notices etc.
to the shareholders of AGM/EGM etc- Accordingly Court held that the transactions are clearly sham and make-believe with excellent paper work to camouflage their bogus nature. The reasoning is contrary to human probabilities. In the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such investment. The Tribunal's order is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. Appeal of the revenue was allowed (ITA No. 49
of 2018, dt. 17.01.2019) (ΑΥY.2008-09)

Allowing the appeal of the revenue, the Tribunal held that the share applicants had very meagre income and did not have creditworthiness for making such huge investments and genuineness of transactions were also not established from documentary evidences. Tribunal also observed that the AO reported that notice under S.133(6) issued to all the ten parties were complied and a statement of the directors as on date, were also recorded and they confirmed the fact of shares applied as 5 | P a g e well as share premium amounts paid. The AO recorded two objections in respect of the documentary evidence was produced by the assessee from the shareholder's bank account it was observed that amount was received by the parties immediately before the amounts was advanced to the assessee. The director of the shareholding companies produced before the AO were directors as on the date and not the directors in the year in which share capital was collected. Addition is held to be justified
(AY.2006-07)

Allowing the appeal of the revenue the Tribunal held that, merely presenting of documents & making payment through bank or appearance by director before the AO & admitting fact of share application made is in itself not sufficient to justify the genuineness of the transaction. It is against human probability that anyone will invest and pay share premium in a company without net worth or future prospectus. All applicants with common address are being controlled remotely by one person. These applicants are all paper companies not having sufficient worth and created for providing entries of share application money or share capital or loans by way of accommodation entries Creditworthiness is not established.
Addition is held to be justified. (Followed PCIT v. NDR Promoters Pvt
Ltd (2019) 410 ITR 379 (Delhi)(HC) & PCIT v. NRA Iron & Steel Pvt
Ltd) 2019) 103 Taxmann.com 48 (SC) followed) (ITA No.
4778/Del/2013, dt. 08.03.2019)(ΑΥ. 2006-07)

Allowing the appeal of the revenue the Tribunal held that, in the case of a Private company, onus is on assessee to prove identity, creditworthiness of subscribers and most importantly genuineness of transactions- Even if AO does not make inquiry, CIT(A) should do so-Relief cannot be given merely on basis of Ration Card, Share
Application forms. Voter ID etc of the subscribers -Matter was set aside to AO to decide according to the law (ITA No. 25/Del/2014, dt. 12.12.2019) (AY.2009-10)

It in this factual backdrop that the assessee has filed the instant appeal before the tribunal.
4. We have given out thoughtful consideration to the assessee’s pleadings all along and the department’s foregoing vehement contentions against and in support of the impugned section 68
addition of unexplained cash credits. The assessee admittedly declared the above share application and premium amount as 8 | P a g e received from four parties, namely, M/s. Ecdoptica Developers Pvt.
Ltd., M/s. Yuvraj Exports Pvt. Ltd., M/s. Shalini Holdings Pvt. Ltd.
and M/s. Twinkle Mercantile and Credit Private Ltd. to the tune of Rs. 30 lakhs each in the relevant previous year. Our attention is invited to the learned Assessing Officer’s assessment discussion dated 25.12.2018 that he had received information from DIT(Investigation) dated 12th March, 2013 that during a search and seizure action on 19.04.2010, various incriminating documents during and post investigation revealed that Sh. Surender Kumar
Jain and Sh. Virender Jain were engaged in the business of providing accommodation entries to a large number of beneficiaries companies including the assessee. He thus set into motion section 148/147 proceedings against the assessee.
5. We further note that from a perusal of the assessment order neither the assessee could plead and prove the genuineness and creditworthiness of its above four investor(s) parties, nor the Assessing Officer could himself verify the same in assessment proceedings. He thus invoked section 68 of the Act in the assessee’s case to treat both the above shares application/premium amount of Rs.1,20,00,000/- as unexplained
9 | P a g e cash credit but also disallowed/added commission expenditure thereupon amounting to Rs.60,000/-; respectively which stand confirmed in the CIT(A)’s detailed discussion.
6. We make it clear that apart from filing voluminous documentary evidences to the above four investor(s) parties including their respective return, confirmations, bank statements, etc.; the assessee has not been able to plead and prove genuineness and creditworthiness of the share application/premium in issue so as to satisfy the rigor of section 68 unexplained cash credits.
Hon’ble apex court landmark decisions in Sumati Dayal Vs. CIT
(1995) 214 ITR 801 (SC), CIT Vs. Durga Prasad More (1971) 82 ITR
540 (SC) and PCIT Vs. NRA Iron & Steel Co. (2019) 412 ITR 161
(SC) have settled the issue in the department’s favour that all such documentary evidences ought to be examined in the light of human probabilities after removing all blinkers and mere filing of documentary evidence in such an instance does not discharge the assessee’s onus of proving genuineness thereof. We draw strong support therefrom to reject the assessee’s instant sole substantive grievance and confirm the impugned twin additions in very terms.
Ordered accordingly.
10 | P a g e

Dated: 3rd July, 2025. RK/-