M/S. EXCEL INFRACON PVT. LTD.,NEW DELHI vs. ACIT, HARYANA

ORDER PER SHAMIM YAHYA, AM, This appeal by the assessee is directed against the order of the Ld. CIT(A)-3, Gurgaon, dated 27.01.2015 pertaining to Assessment Year 2006-07.

“1. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that the addition U/s 153A can be made without any incriminating material found and seized as a result of search. 2. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that the Ld. Assessing Officer is empowered U/s 153A of the Income Tax Act, 1961 to disturb the items of regular assessment even without any adverse material found and seized as a result of search. 3.On the facts and in the circumstances of the case as well as in law e Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the addition of share capital & share premium of Rs.3,50,00,000/- made by Ld. Assessing Officer.

4. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that:- a) The onus casted on assessee U/s 68 of the Income Tax Act, 1961 was not discharged. b) The share applicants are non existing and paper companies. c) The appellant has introduced its own unaccounted money in the grab of share capital & share premium.

6. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in capriciously rejecting the assessment order of share applicant and other materials produced before authorities below.”

Sr. Name of the Financial Share Share No. company year ending capital premium introduced introduced 1. Excel Infracon 2006 35,00,00/- 3,15,00,000/- Pvt. Ltd. Total 35,00,000/- 3,15,00,000/-

“3.9. I have gone through the reply of the Assessee and found that the assessee hap not submitted the complete information called for Though the assessee had attempted to prove the identity of the creditor and others as per the provision of Section 68 by citing various judicial pronouncements which are not applicable in the case of assessee company. But the evidences adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities with normal course of human conduct. In all the entries through whom the share application money has been received are: (i) Non- Existent Company or (ii) Paper Companies having no real transactions or (iii) Common directors, common addresses (iv)Before each cheque entry to the assessee company, there is corresponding cheque deposit (v) The profit shown by the investing company are nominal. 3.10. The assessee’s reply has been considered. However, following observations and counter arguments are being made with respect to same point wise:  In the case of assessee company it is not a case of simple share application money. The Rs. 10/- worth of shares were shown applied for at a huge premium by strangers. As a common perception prevailing even in case of listed companies, the price is generally related to the earning per share and such PE ratio is generally 10. Therefore, if the PE ratio is one, the market price will be to the extent of its face value. In the present case it is seen that the companies have no business and no earning at all and therefore there is no way that the companies credentials can command a huge premium for shares of Rs. 10/-. And, neither there was any business plan nor any instance which could affect the profitability of the assessee companies to an extent that it can command a premium many times its face value. a)  Assessee’s plea that it has produced all the documents to prove identity, genuineness and creditworthiness of the all the investors is factually incorrect and it is surprising to note that all these entities that can oblige the assessee by investing in such huge sum are not traceable at their registered office address or the address provided by the assessee.  Then, assessee cannot absolve himself by saying that We have also furnished the bank statements of most of the concerns in order to prove the credibility of the investor because producing bank statement of a part period of a single bank without narrations is not enough. And especially when the bank statement so received has a particular trend i.e. the day share capital is credited to the assessee’s account, there appears a credit entry of similar amount immediately before for the same day or a day or two prior. And there is no regular outstanding credit balance in the bank account. Also the bank statement is showing no narration of the source of such amount received in hands of investor. This clearly points to the chances of accommodation entry transaction done through multiple layering.  Indeed, even the income tax returns filed by the investor company are one of minimal or negligible returned income. So chances of such a investor company having its true potential to invest such a huge share capital including share premium, being paid to another unpopular entity, are really bleak and rather unlikely.  Further the assess’es plea that “Being a private limited concern we are allowed to have the members to the maximum extent of 50 but the company law nowhere says that these members should be known or closely held with each other. The company had never kept any relation with its shareholder’s to prove that their relationship is closer than the arm’s length. The assessee in order to cooperate and comply with your questionnaire had asked the investors to provide their details and whatever the assessee company received from the investor had been submitted to your good self. The assessee had proved its onus and you should have verified the same at the department’s end. "is also not acceptable.  It is strongly contended that assessee’s duty to establish that the amounts received by it (under section 68) are properly sourced, does not cease by merely furnishing the names, address and PAN particulars, or relying on entries in a Registrar of Companies website or a single page of bank statement. One must remember in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis. If the assessee company has access to the share applicant’s PAN particulars, or bank account statement, surely its relationship is closer than arm’s length. Its request to such concerns to participate in income tax proceedings, would, viewed from a pragmatic perspective, be quite strong, because the next possible step for the tax administrators could well be re-opening of such investor’s proceedings. That apart, the concept of “shifting onus” does not mean that once certain facts are provided, the assessee’s duties are over. If on verification, or during proceedings, the AO cannot contact the share applicants, or that the information becomes unverifiable, or there are further doubts in the pursuit of such details, the onus shifts back to the assessee. b)  As most of the vestors ore situated in Delhi not far from Karnal the assessee could have produced their the books of accounts and would have been feasible for the assessee company to present the their worth for all the investors.  Further, it is also surprising to note that many of these entities that can oblige the assessee by investing in such huge sum are not traceable at their registered office address or at the address provided by the assessee nor are cooperating with them in the tax proceedings.  There is no logic why these unrelated far-flung companies of Metro Cities who have no common director or business relation with the promoter group or the assessee in particular, would have invested in lacs and crores in Assessee Company doing no business when there are no returns/dividends given to these investors till date. 3.11 Further, the reply of the assessee is not tenable for following reasons:- a) The Hon’ble Supreme Court, while adjudicating in CIT vs Durga Prasad More 82 ITR 540 (SC) & Sumati Dayal vs CIT 214 ITR 801 (SC), has laid down the proposition that the Courts & Tribunals should see the preponderance of probabilities while considering the evidence furnished by the assessee. In the former case, the hon’ble Apex Court observed that "It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. ” b) Mere submission of documents Et materials is held to be insufficient in the case of Hindustan Tea Trading Co. Vs. CIT 263 ITR 289. c) Various judgements which are in favour of assessee and against the revenue have also been considered before completing this assessment. Indeed, facts of Judgment of Hon’ble Supreme Court in Divine Leasing & Finance Ltd. & Lovely Exports are essentially different inasmuch as in this case the assessee is a Pvt. Company and no member of the public participated. On the other hand in the case of Divine Leasing & Finance Ltd. Et Lovely Exports, the share applications were made by way of public issues. Moreover, in the cited cases, the Hon’ble Supreme Court has not laid down any proposition with regard to the question Et it was a purely a question of fact with which the Apex Court had dealt with & was in agreement with the Hon’ble Court on conclusion of facts. d) Further, Hon’ble Jurisdictional High Court in the case of M/s Power Drugs Ltd. Vs. CIT (P&H) of 2011 in its order dated 14.7.2011, held that addition on account of share application can be made in the hands of company. The hon’ble court in the said case upheld the view taken by Hon’ble ITAT Chandigarh arid held that “Whether an addition is to be made in the hands of the company or individual assessee in such circumstances depends upon the facts of each case. The primary onus lies upon the assessee to establish that the assessee is not liable for addition under Section 68 of the Act as the amount in fact belongs to the persons who had applied and submitted share application money. The assessee having failed to discharge such onus in the present case, the Tribunal had rightly upheld the additions in the hands of the company.” Such view was taken by the Hon’ble High Court after duly considering the judicial pronouncements in the cases of CIT v. Steller Investment Ltd. 251 ITR 263 (SC); Lovely Exports (IP) Ltd. vs. CIT 299 ITR 268; CIT v. New Age Infosys Pvt. Ltd.,Delhi High Court in ITA No. 1469 of 2010 decided on 27.9.2010; CIT v. Winstral Petro Chemicals Pvt. Ltd.,Delhi High Court in ITA No. 592/2010 etc. among others. e) View similar to M/s Power Drugs Ltd. Vs. CIT (P&H) of 2011 in its order dated 14.7.2011 has been upheld by Hon’ble Delhi High Court in the case of CIT Vs Nova Promoters & Finlease (P) Ltd.(Del.) 342 ITR 2012, vide its order dated 15.02.2012 by reversing the findings given by Ld. CIT(A) and the Hon’ble ITAT. It was further held by the Hon’ble High Court that uthe evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct.” f) Hon’ble Delhi High Court in its judgment dated 20.07.2012 in the case of CIT vs. Independent Media Pvt. Ltd. in ITA No.456/2011 held that “We are unable to uphold the view of the Tribunal that it is incumbent upon the Assessing Officer, on the facts and circumstances of the case, to establish with the help of material on record that the share monies had come or emanated from the assessee’s coffers. Section 68 of the Act casts no such burden upon the Assessing Officer.” The Hon’ble High Court further went on to hold that “in the fresh round of proceedings it will be open to the Assessing Officer to make the addition in the hands of the assessee- company in case it appears to him, after complying with the directions of the Tribunal, that the explanation adduced by the assessee with regard to the identity and creditworthiness of the subscriber-companies and the genuineness of the transactions is not acceptable for valid reasons which must be clearly spelt out. He will not, however, be under any duty to further show or establish that the monies emanated from the coffers of the assessee company. To place such a burden on him, an impossible one at that, would be quite contrary to the judgments of the Supreme Court cited above." g) In the case of CIT vs. Frostair (P) Ltd. ITA No. 183/2002, decision dated 24.08.2012, one of the question of law before the Hon’ble Delhi High Court was “whether the ITAT erred on facts and in law in deleting the addition of Rs. 25 Lakhs made by the AO by treating the alleged investment of shareholders as income from undisclosed sources”. Answering this question in favour of Revenue, the Hon’ble High Court held that “ The application of the ratio of every decision by a quasi- judicial body like the ITAT has to be nuanced, and contextual. Thus, while the findings in Divine Leasing, Oasis International or even Lovely Exports might be preceded by a general discussion of the correct approach to be adopted by the AO, in a given case where additions are sought to be made on account of share application moneys not found to be genuine, the basic facts of the case cannot be lost sight of. On a proper application of the ratio in Oasis - and subsequently, the Division Bench ruling in Commissioner Of Income Tax vs. Nova Promoters & Finlease (P) Ltd (ITA 342/2011 decided on 15 February, 2012 by this Court) it is evident that the AO took into account - if we may say so, in exhaustive detail, after a painstaking examination of the records after two or three layers of scrutiny- all the materials and held that the claim that the amounts claimed to be received on account of share applications were not based on genuine transactions. The CIT (A) upheld that order, after calling for a remand report. In these circumstances, the conclusion of the Tribunal, that the assessee had discharged its onus, appears to be based on a superficial understanding of the law, and an uninformed one about the overall facts and circumstances of the case....In view of the above reasons, the questions of law in these appeals are answered in favour of the revenue. The orders of the Assessing Officer are restored. The appeals are to succeed and are therefore allowed.” h) The decision of CIT Vs. Himalaya International Ltd in of 2006, Judgment dated 30th July, 2007 & CIT Vs. Divine Leasing & Finance Ltd. (2007), 158 Taxman 440 (Delhi) is also relevant here. i) In the case of ITO W (6)(3), New Delhi Vs. M/s Mayank; Containers (P) Ltd., the Hon’ble ITAT, Delhi observed that “The AO has further given various observations in respect of each and every entry of these creditors. Hon’ble Delhi High Court and Hon’ble Supreme Court in above judgments were not addressing the issues of systematic racket of hawala operators by way of accommodation entries. They were the cases in normal course without involving a systematic racket.’’ “In our view, Hon’ble Delhi High Court and Hon’ble Supreme Court while rendering judgments in the above cases were not dealing with the case of hawala operators and bogus entry providers. ” j) The finding of facts, the seized documents and findings of the enquiries show that the assessee indulged in a notorious practice of resorting to accommodation entries in order to evade payment of legitimate tax. 3.12 In view of above discussion, it is clearly established that the unaccounted income of the assessee group has been introduced in various group companies by way of share premium/share capital/share application money in various cases. The amount introduced in the books by way of accommodation entries, is to be taxed in the year in which such entries were taken. In view of the above , when it has been established that the share applications money received from various parties in the form of accommodation entries will have to be treated as unexplained cash credits under section 68 of the I T Act.1961.From detail enquiry conducted by the investigation unit Delhi in the case of S.K. Jain and Varinder Jain, Investigation Wing of Chandigarh unit in the case of the assessee company during the course of search and by this office during the assessment proceedings it is concluded that an amount of Rs. 3,50,00,000 which is introduced as share capital/ share application money and share premium are unexplained cash credit u/s 68 Of the I.T. Act 1961 and is added to the returned income of the assessee co and penalty proceedings u/s 271 (1)(c) read with Explanation 5A is also initiated for concealing and furnishing inaccurate particulars of the assessee. In view of the above discussion, the income of the assessee is computed as under:- Net income as declared by the = Rs.Nil. assessee vide his return of income u/s 153(A)(1) Add:- = Rs.3,50,00,000/- i) As discussed in para (3) above Total Taxable Income = Rs.3,50,00,000/-

5. Before the Ld. CIT(A), the assessee raised preliminary objection. The objection was that out of share capital and share premium has been shown without any incriminating material. The Ld. CIT(A) referred to the various decision in this regard. Finally, the Ld. CIT(A) after his elaborate analysis held that while making assessment u/s153A of the Act. The Assessing Officer is not obliged to only utilize incriminating material collected during the search operation in determining the total income of the assessee. That in the case at hand, the Investigation Unit of the Income-tax department, Delhi had launched a search operation on Shri Surendra Kumar Jain group and in that course, came across crucial documents which pertained to several persons/entities including the assessee. These information were shared with the income tax and other Investigation Units. The information contained in the report which was accompanied by copies of the crucial documents found and seized pertaining to the assessee. These were actually utilized by the Assessing Officer in determining the total income of the assessee. Hence, the ld. CIT(A) held that impugned order was valid. On merits, the Ld. CIT(A) confirmed the Assessing Officer’s action by holding as under:

“The fact of the matter is that the Investigation Unit, Delhi in the course of search and post search proceedings, found that SK Jain/Virender Jain were engaged in the business of providing accommodation entries and controlling several paper companies, some of whom also invested in the shares of the assessee company. The Investigation Unit, Chandigarh also conducted search and enquiries into the share capital of the assessee company. The Assessing Officer sought documentary evidences apart from requesting the assessee to produce the investing companies (para 3.7). The assessee filed the documents like PAN, certificate of incorporation/MOA, Annual return filed in ROC, audited accounts, bank particulars, confirmations etc. but the investing companies were not produced for verification before the AO. Before me, the assessee has submitted that the directors of the investing companies were ready to be produced before any authority. This statement tantamount to request for furnishing of additional evidence and for entertaining such request, the assessee has to first prove in what manner his case falls within one of the exceptional situations prescribed under the r.46A. Such is not a case here as not even a separate application has even been made by the assessee. Be that as it may, the AO was clearly not satisfied with the documentary evidences so it belies logic why the assessee did not produce the directors in the course of assessment proceedings so as to allay the nagging doubts in the mind of the AO. I am also of the considered view that when the Investigation Unit (of Delhi and Chandigarh), which are an integral part of the Income tax Department, have enquired and found that the investing companies were not traceable at the known/given addresses then the Assessing Officer need not again shoot of letters/summons as such exercise will be futile and merely academic. In any case the information about the assessee regarding accommodation entries were confronted by the AO, so it was incumbent upon the assessee to take the extra step of proving its claim instead of stopping at mere furnishing of the documents to prove the identity, genuineness of the transaction and creditworthiness of the share applicants, especially when the investors were asked to be produced for verification. To also contend that the assessment of the investor companies stood accepted by the concerned assessing officers does not help either as the assessments have been assessed at NIL in case of those disposed after the search in the premises of SK Jain/Virender Jain for there was no question of making additions even on account of commission in such paper companies as it would be merely a case of raising infructuous demands. In the other cases, the assessments were completed ostensibly in 2008 there by falling in period before the said search operation as is the case of the two investors (Karishma and World Link). On a further perusal of the copies of the share application forms, they are all found to be undated and no signatures/initials even affixed in the folio meant for Office though the date(s) of allotment is mentioned as 31.3.06. It is also an undisputed fact that the assessee is a private limited company. In the case of CIT vs N.R. portfolio (P) Ltd. (2013) 87 DTR 162, the Hon’ble Delhi High Court, inter alia, has held that in the case of a Pvt. Company, the share applicants are known to it since they are issued on private placement or even on request basis. If the assessee has access to the share applicants PAN particulars or bank statements, surely its relationship is closer than arm’s length. The concept of “Shifting onus” does not mean that once certain facts are provided the assessee’s duties are over. If on verification or during proceeding the A.O. cannot contact the share applicants or that the information becomes unverifiable or there are further doubts in the pursuit of such details, the onus shifts back to the assessee. At that stage, if it falters, the consequences may well be an addition u/s 68.

The Hon’ble Delhi High Court in the case of CIT Vs. Nipun Builders & Developers (P) Ltd. (Del) (2013) 82 DTR 145 dated 7th January, 2013 has at paras 7, 8, 9 and 11 held that- 5. We are in agreement with the contention of the Revenue. Under s. 68 the onus is upon the assessee to prove the three ingredients, i.e. identity and creditworthiness of the ersons from whom the monies were taken and the genuineness of the transaction. As to how the onus can be discharged would depend on the facts and circumstances of each case. It is expected of both the sides - the assessee and the assessing authority- to adopt reasonable approach. The assessee here is a private limited company. It cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons know to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share- subscribers and the assessee-company lose touch with each other and become incommunicado. Calls due on the shares have to be paid; if dividends are declared, the warrants have to be sent to the shareholders. It is a continuing relationship, even granting that it may not be of the same degree in which it exists between a debtor and creditor. The share-subscribers in the present case have each invested substantial amounts in the assessee's shares, as the chart at pp. 2-3 of the assessment order would show. Most of them, barring two or three, are themselves private limited companies. It cannot therefore be contended, as was contended before us on behalf of the assessee, that if the summons issued under s. 131 to the subscribing companies at the addresses furnished by the assessee returned unserved, the A.O. is duty bound to enforce their attendance with all the powers vested in him. The unreasonableness of such a general proposition is writ large in the face of the contention. The assessee-company received the share monies; it even says that the communications sent by it at the addresses did not return unserved, yet when the A.O. requested it- that too only after trying to serve the summons unsuccessfully- to produce the principal officer of the subscribing companies, the assessee developed cold feet and said it cannot help if those companies did not appear and that it was for the A.O. to enforce their attendance. It needs to be remembered that the A.O. did not merely stop with issuing summons; he followed it up with a visit by the inspector who confirmed that no such companies functioned from the addresses furnished by the assessee. Let us see the attitude of the assessee towards discharging its onus in such circumstances. It says that the AO may get the addresses from the RoC's website. We do not think that an assessee can take such an unreasonable attitude towards his onus under s. 68, little realizing that when the finding is that the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the A.O. to even hold that the identity of the share-subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the .AO. to go to the website of the Company Law Department/ROC and search for the adaresses of the share -subscribers and then communicate with them for proof of the genuineness of the share subscription. That is the onus of the assessee, not of the AO.

Thus, in respect of Private Limited Companies particularly, the Courts are now holding that merely furnishing names, address, bank statements and PAN particulars or relying on entries in ROC website are not sufficient in discharging the onus cast upon the assessee u/s 68. In this case at hand, besides calling for information, the Assessing Officer specifically asked for production of the investors for verification which was not complied with. Consequently, as held by the Hon'ble Delhi High Court, the conduct of the assessee and the surrounding circumstances were to be seen as to whether assessee be said to have discharged its onus u/s 68. I am of the considered opinion that the same remains undischarged in the case at hand. In view of the elaborate discussion above, I have no hesitation in confirming the addition of Rs.3,50,00,000/- made by the Assessing Officer u/s 68. The assessee fails on these grounds of appeal

8. In the result the appeal of the assessee is dismissed.”

6. As against the above order, the assessee is in appeal before us.

Order pronounced in the open court on 04/08/2022.