ACIT, CIRCLE- 26(2), NEW DELHI vs. VISHAL GOLD & PRECIOUS STONES PVT. LTD., NEW DELHI

PER SANJAY AWASTHI, ACCOUNTANT MEMBER:

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. Sir/Madam, Sub:-Condonation of Delay in filing second Appeal in the case of M/s Vishal Gold & Precious Stones Pvt. Ltd., PAN: AABCV8836H, for AY 2010-11 in ITA No.5243/Del/2017 – reg. Ref: Sr. DR/ITAT/G-Bench/2023-24/131 dated 26/09/23. In this regard, it is submitted that the date of limitation for filing second appeal was on 26/06/2017 (from the date of the order dated 31.03.2016 of Ld. CIT(A) in appeal No. 268/14-15 was received in this office on 27/04/2017). On account of introduction of e-assessment and unavoidable administrative reasons i.e. non-availability of dealing official, it was delayed to file appeal before Hon'ble ITAT. The appeal was filed on 11.08.2017). Next date fixed for hearing on 13.12.2023. 2. It is, therefore, most respectfully prayed that the Hon'ble Tribunal may graciously be pleased to condone the delay of filing of appeal (for the period from 27.06.2017 to 10.08.2017) against the order of Ld. CIT(A) dated 31.03.2017 in Appeal No. 268/14-15. In this case the assessment order was passed by the AO u/s 143(3) of the Income Tax Act on 26.03.2013. 3. It is respectfully submitted that the Hon'ble Tribunal may be pleased to condone the aforesaid delay considering the genuine difficulties which were beyond the control of the Appellant herein and not deliberate or intentional. Yours Sincerely, Sd/- (Pravin Agrawal) Asstt. Commissioner of Income Tax, Circle 25(1), New Delhi”

1.1 Considering the contents of the petition, this appeal is taken up for adjudication after condoning the said delay.

i. Share application/share premium amounting to Rs.21,37,50,000/-; ii. Alleged commission income paid for arranging accommodation entries, amounting to Rs.74,81,250/-; 2

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. iii. Addition on account of sundry creditors, amounting to Rs.43,29,950; iv. Enhancement of GP, amounting to Rs.3 crores (Rs.3,00,00,000/-).

2.1 The aggrieved assessee approached the Ld. CIT(A) where he substantially succeeded. At first appellate stage it is seen that the Ld. CIT(A) relied on the case of Lovely Exports/Divine Leasing and Finance Limited reported in 299 ITR 268 (SC) to grant substantial relief (except an amount of Rs.85 lakhs which was confirmed) on the addition made on account of alleged bogus share subscription/premium. The Ld. CIT(A) also deleted the alleged commission paid for arranging accommodation entries on the ground that the AO had no evidence for the same. The Ld. CIT(A) also deleted the addition on account of sundry creditors on the basis of a finding that such amounts represented trade creditors and thus, were beyond doubt. Lastly, the GP estimated has been deleted on the ground that no specific discrepancy in the book results were pointed out by the Ld. AO.

2.2 The Revenue is aggrieved with this order and has approached the ITAT with the following revised grounds as under: -

“1. The impugned order of the Ld. CIT(A) is bad in law as well as on facts of the case. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.20,52,50,000/- on account of share application money/share premium Rs.74,81,250/- on account of commission expenses ignoring the fact that the assessee failed to prove the genuineness and creditworthiness of the entities subscribing to share application money (including premium) during the assessment proceedings.

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.43,29,950/- on account of sundry creditors ignoring the fact that the creditworthiness, identity and the genuineness of the transactions would be proven separately for the different assessment years. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.3,00,00,000/- on account of G.P./N.P. Ratio ignoring the facts of the survey report findings wherein the same clearly mentions the GP/NP ratio of around 20% and highlights the discrepancies in stock and expenses. 5. The Appellant craves for reserving the right to amend, modify, alter, add or forego any of the Ground(s) of Appeal at any time before or during the hearing of this appeal.” 3. Before us the Ld. DR extensively relied on the findings of Ld. AO and pointed out that in the case of the assessee a survey operation was carried out u/s 133A of the Act and during the course of such survey blank share transfer forms, and other documents of allegedly doubtful provenance, of some companies were found. Such documents found, along with other related documents, raised a suspicion that the share premium/investment was bogus. The Ld. DR pointed out that on page 2 of the AO’s order it is mentioned that the assessee was confronted with the blank signed papers found in his possession but no satisfactory reply was submitted before the Ld. AO in explanation of the same. It was averred by the Ld. DR that on 20.12.2010 the assessee submitted a copy of FIR indicating a theft at his premises due to which certain relevant documents were purportedly missing. The Ld. DR pointed out that the Ld. AO has taken pains to indicate that the allegation of theft was merely to avoid furnishing the requisite documents before the Ld. AO. The ld. DR also referred to pages 3 to 8 of the Ld. AO where there was considerable evidence to show that

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. the so called investors in the assessee company were either not traceable at the given addresses or there was no compliance to notices issued to such entities. It was argued by the Ld. DR that the Ld. AO conducted enquiries at his own level and has listed out the names of 53 entities on pages 18 to 20 of his order (it is seen that some names have been repeated but the transactions shown against such duplicate names are different). The Ld. DR pointed out that in all the 53 instances either there was no reply from any of these entities or there were discrepancies in the amount claimed by the assessee and the amount confirmed by the party against whom such amount was shown by the assessee. The Ld. DR made detailed submissions before this Bench regarding the non-confirmation from the alleged share applicants and also pointed out that a substantial number of them had either not responded at all, or the letters had come back undelivered. The Ld. DR read out a finding of fact by the Ld. AO from page 23 of his order as under: -

“Share application money was received by the assessee from other parties on dates mentioned in the above table. Shares are alleged to have been issued to these parties @ 190/- and during a short span of period there was a sudden change, that these parties were compelled to sell out their shares at Rs.10/- per share only and there was no buyer of these shares other than the company’s own persons” The Ld. DR also stated that the main plank use by the Ld. CIT(A) was to rely on the case of Lovely Exports (supra) to grant relief, whereas the Ld. AO had himself distinguished the facts of that case by following the case of Oasis Hospitalities Pvt. Ltd. reported in 198 Taxman 247 (Del). Our attention was drawn to the discussion on pages 22 & 25 of the Ld. AO’s

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. order in this regard. The Ld. DR concluded his argument on this issue by stating that in most of the cases the identity of the share subscribers was itself not proved and in all the cases, invariably, the genuineness of the transaction and creditworthiness of the share applicants was also certainly not proved. It was the submission that on facts alone the dubious nature of the transactions was duly established by the Ld. AO and the Ld. CIT(A) had disregarded the extensive fact-finding recorded in the Ld. AO’s order and had simply relied on case laws which did not address the peculiar facts of the present case.

3.1 Regarding the addition on account of commission presumed to have been paid it was pointed out that there is a finding given on pages 31 to 32 of the Ld. AO’s order through which it has been stated that accommodation entry providers normally charge 3.5% commission on the value of the transaction. The Ld. DR supported this finding as against the deletion of the amount in question by the Ld. CIT(A).

3.2 Regarding the addition on account of unverified sundry creditors the Ld. DR read out the finding given by the Ld. AO at page 32 of his order. It was pointed out that the four sundry creditors subjected to verification either failed the test of genuineness of the transaction or even identity (in this regard the case of APJ Exports at Sl. No.2 was specifically highlighted).

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. 3.3 Regarding the addition on account of enhancing the GP rate from 6.31% to 18.35%, the Ld. DR relied on the finding given on pages 32 to 33 of the Ld. AO’s order.

4.1 Regarding the alleged commission payment added, it was the submission that the Ld. AO went by surmises and conjectures in presuming that some amount was paid as commission for arranging allegedly bogus

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. credit entries. The ld. AR relied on the findings given in the impugned order in this regard.

4.2 Regarding the addition on account of sundry creditors it was stated by the Ld. AR that genuine trade creditors have been added as doubtful creditors and there was a clear finding in the impugned order regarding their veracity.

4.3 Regarding the addition on account of enhanced GP it was stated that the Ld. CIT(A) has given a clear finding of fact in para 6 & 6.1 as to how such an addition is not tenable at all.

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. Annexure 'A' of the impugned order, regarding the transactions leading to accretion of the share capital of the assessee company, we cannot ignore the fact that independent enquiries made by the Ld. AO cast genuine doubt on the existence of the share subscribers in most cases and in other cases there is a reasonable doubt about the genuineness of the transaction itself. In the light of these facts, we may discuss the law as it has evolved through judicial pronouncements beginning from the time of the Hon’ble Calcutta High Court’s judgment in the case of Shankar Industries reported in 114 ITR 689 (Cal). It was through this case law that the three principles required to prove a cash credit where first put forth as: Identity of the creditor; Capacity of such creditor to advance money; and Genuineness of the transaction. This case law has been relied on by the Hon’ble Supreme Court in a number of judgments and therefore this case law has the strength of a Supreme Court judgement. Considerable strength is also drawn from the case of PCIT vs. NRA Iron & Steel (P.) Ltd. reported in [2019] 412 ITR 161 (SC) in which share application money was approved for action u/s 68 of the Act even where the share applicants had filed confirmations and attempted to show that the transactions had taken place through normal banking channels, etc. This case law is not only a later judgement but also the facts of Lovely Exports have been dealt with. The Hon'ble Apex Court has dealt with the issue from a legal perspective and some of the passages deserve to be extracted for reference: “This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid 9

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. [Para 8.2] With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. [Para 8.3] The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9] The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by section 68. [Para 11] In the instant case, the Assessing Officer had conducted detailed enquiry which revealed that: i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. non-existent, and had no office at the address mentioned by the assessee. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90 lakhs to Rs. 95 lakhs in the assessment year 2009-10, for purchase of shares at such a high premium. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10 per share. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under section 68. [Para 12] The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee. [Para 14] On the facts of the present case, clearly the assessee company - respondent failed to discharge the onus required under section 68, the Assessing Officer was justified in adding back the amounts to the assessee's income. [Para 15]” ………………………… In the case of Nova Promoters & Finlease (P) Ltd. [342 ITR 169 (Del)], a judgement penned by Hon’ble Justice R. V. Easwar, the following excerpts are relevant since the case of Lovely Exports (supra) has been distinguished and other relevant case laws have been lucidly referred to:

“32. Since strong reliance was placed by the assessee on the order of the Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) [Emphasis added] it would be necessary to examine the facts of that case and the ratio laid down therein in order to decide the applicability of that case to the one before us. It would also be necessary to examine the string of decisions of this court on the question of applicability of section 68 of the Act to monies received as share capital. [Emphasis added]

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. 33. The facts of Lovely Exports (P) Ltd. (supra) have been set out in the judgment of this court in that case, reported as Divine Leasing & Finance Ltd. (supra) Lovely Exports (P.) Ltd. (supra). In that case, the share capital subscription was received through banking channels and complete records were maintained by Divine Leasing & Finance Ltd. The Assessing Officer issued summons u/s. 131 and thereafter impounded the shareholders' register, share application forms and share transfer register. It was contended by the assessee in that case that because of the action of the Assessing Officer, it was not able to furnish any details about the share subscribers. The Tribunal found that the allotment of shares was made as per the relevant rules of the Securities Contracts (Regulation) Act, 1956 as well as those of the Delhi Stock Exchange. No evidence had been brought on record by the Assessing Officer to indicate that the shareholders were either benamidars of the assessee-company or fictitious or that the share application monies were the unaccounted income of the assessee- company. The Tribunal accordingly held that the onus that lay on the assessee under sec. 68 stood discharged. 34. In respect of the other assessee, namely, General Exports & Credits Ltd., the monies were received by the said company on issue of rights shares to five companies pursuant to the renunciation of rights by several individual shareholders. A search had been conducted on the premises of the assessee, but those renunciation forms were not found with the assessee. As in the case of Divine Leasing & Finance Ltd., the five companies were registered in Sikkim at the same address. They all filed replies to the department asking for further time to provide the details of their investments. They had also filed returns of income under the Sikkim Taxation Manual and had subscribed to the shares through banking channels. Moreover, the investigations carried out into those companies by the income-tax department at Calcutta and the adverse findings therein had been struck down as being without jurisdiction in appeals filed by those companies and therefore the Assessing Officer having jurisdiction over General Exports and Credits Ltd. in Bulandshahar could not rely upon them. In these circumstances, the Tribunal had deleted the addition made u/s. 68 on the ground that the identity of the shareholders had been proved. This court did not approve of the ground on which the Tribunal had cancelled the addition and observed that the judgment of the Full Bench of this court in CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 /[1993] 70 Taxman 69 could not be understood to have enunciated that once the identity of the shareholders is proved there can be no addition in the hands of the company which received the share monies. The court however refused to attach any importance to the violation of the provisions of the Companies Act, 1956 in the matter of renunciation of the right to subscribe to the shares and held that it was a matter of concern only of the appropriate authority under that Act. Accordingly, the ultimate decision of the Tribunal cancelling the addition was upheld. 35. The facts of Lovely Exports (P.) Ltd., (supra) as noted by this court, are these. The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records 12

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law. 36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases: ---- We may also note that a reference was made by this court to several authorities, including at least seven judgments of this court on the question of applicability of section 68 to share application monies, and the position was pithily summed up as follows at page 282 (of 299 ITR): "In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by the revenue which filed SLP No. 11993/2007. The petition for leave to appeal was dismissed by the Supreme Court observing as below: - “Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. Subject to the above, Special Leave Petition is dismissed." 38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 39. The case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC) exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in CIT v. Dolphin Canpack [2006] 283 ITR 190 , CIT v. Makhni & Tyagi (P.) Ltd. [2004] 267 ITR 433 / 136 Taxman 641 , CIT v. Antartica Investment (P.) Ltd. [2003] 262 ITR 493 / 133 Taxman 605 and CIT v Achal Investment Ltd. [2004] 268 ITR 211/ 136 Taxman 335 . To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed "accommodation entry providers. …………………….” In the case of Jaguar Buildcon (P.) Ltd. [481 ITR 477 (Del)], the following is relevant:

This Court in the landmark case of Kale Khan Mohd. Hanif v. CIT [Kale Khan Mohd. Hanif v. CIT, (1963) 50 ITR 1] and, Roshan Di Hatti v. CIT [Roshan Di Hatti v. CIT, (1977) 2 SCC 378 1977 SCC (Tax) 292 (1977) 107 ITR 938] laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the Revenue to show that the income is from any particular source.

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. 9.4. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. 9.5. The Delhi High Court in CIT v. Oasis Hospitalities (P) Ltd. [CIT v. Oasis Hospitalities (P) Ltd., 2011 SCC OnLine Del 506: (2011) 333 ITR 119], held that: (SCC OnLine Del para 43) "43..... the initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68 of the Act. These are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise....." 9.6. It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or creditworthiness has not been established. In Shankar Ghosh v. CIT [Shankar Ghosh v. CIT, 1985 Tax Pub (DT) 1012: (1985) 13 ITD 440 (1985) 23 TTJ 20], the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The loan amount was rightly held to be the assessee's own undisclosed income. XXX XXX XXX 12. On the issue of unexplained credit entries/share capital, we have examined the following judgments: 12.1. In Sumati Dayal v. CIT [Sumati Dayal v. CIT, 1995 Supp (2) SCC 453 (1995) 214 ITR 801] this Court held that: (SCC p. 456, para 4) "4. 66 if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory, there is prima facie evidence against the assessee viz. the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably." 12.2. In CIT v. P. Mohanakala [CIT v. P. Mohanakala, (2007) 6 SCC 21: (2007) 291 ITR 278] this Court held that: (SCC p. 28, paras 16, 19 & 25: ITR pp. 278-79) ………. 12.3. The Delhi High Court in a recent judgment delivered in CIT v. NDR Promoters (P) Ltd. [CIT v. NDR Promoters (P) Ltd., 2019 SCC OnLine Del 6599: (2019) 410 ITR 379] upheld the additions made by the assessing officer on account of introducing bogus share capital into the assessee company on the facts of the case. 12.4. The Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions. The initial onus of proof lies on the assessee. This Court in Roshan Di Hatti v. CIT [Roshan Di Hatti v. CIT, (1977) 2 SCC 378: 1977 SCC (Tax) 292 (1977) 107 ITR 938], held that if the assessee fails to discharge the onus by producing cogent

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. evidence and explanation, the AO would be justified in making the additions back into the income of the assessee. 12.5. The Guwahati High Court in Nemi Chand Kothari v. CIT [Nemi Chand Kothari v. CIT, 2003 SCC OnLine Gau 248 (2003) 264 ITR 254] held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction: (SCC OnLine Gau para 19) It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-à-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the Revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself……. 12.6. In a recent judgment the Delhi High Court [CIT v. N.R. Portfolio (P) Ltd., 2013 SCC OnLine Del 6466 : (2014) 42 Taxman.com 339: 222 Taxman 157] held that the creditworthiness or genuineness of a transaction regarding share application money depends on whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, creditworthiness of the recipient, object and purpose for which payment/investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. 12.7. Other cases where the issue of share application money received by an assessee was examined in the context of Section 68 are CIT v. Divine Leasing & Finance Ltd. [CIT v. Divine Leasing & Finance Ltd., 2006 SCC OnLine Del 1624 (2008) 299 ITR 268 : (2007) 158 Taxman 440] and CIT v. Value Capital Services (P) Ltd. [CIT v. Value Capital Services (P) Ltd., 2008 SCC OnLine Del 1474 (2008) 307 ITR 334] 13. The principles which emerge where sums of money are credited as share capital/premium are: [Emphasis added] 13.1. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. 13.2. The assessing officer is duty-bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. 13.3. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case,

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 12. As is manifest from the aforesaid principles which came to be elucidated, the mere identity of the investor or a creditor does not result in the onus of proof being discharged. The assessee is additionally obliged to establish the creditworthiness and genuineness of the transaction and thus prove that the entities making the payment had the capacity and the means. The Tribunal has thus, in our considered opinion, clearly failed to bear the aforesaid aspects in consideration. We, consequently, find ourselves unable to sustain the order impugned. ………………….. In the case of Nipun Builders & Developers (P.) Ltd [350 ITR 407 (Del)], we need to consider the following, especially in the case of a private limited company, as in the present matter: -

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. 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 u/s. 68, little realising 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 AO 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 addresses 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. [Emphasis added] 8. So far as the creditworthiness of the share subscribers is concerned, the contention of the assessee before us is that it was proved by the bank statements of those subscribers submitted before the AO. The AO has not referred to them in the assessment order but it is not in dispute that the copies of the bank statements were furnished before him. Even assuming that the bank statements were filed before the AO, that by itself may not be sufficient to prove the creditworthiness without any explanation for the deposits in the accounts and their source. The usual argument in all such cases, including the present case, is that it is not for the assessee to prove the source of source and origin of origin of the receipts. We are alive to the difficulty that may be faced by an assessee to unimpeachably establish the creditworthiness of the share subscribers but at the same time we are of the opinion that mere furnishing of the copies of the bank accounts of the subscribers is not sufficient to prove their creditworthiness. There must be, in our opinion, some positive evidence to show the nature and source of the resources of the share subscriber himself and therefore it is necessary for him to come before the AO and confirm his sources from which he subscribed to the capital. In the present case the assessee did not produce the principal officer of the companies who subscribed to the shares; it merely filed a letter at the "dak" counter of the AO, stating that the communications sent by it to the share subscribers have not come back unserved. This is not compliance with the direction of the AO who had issued notice to the assessee to produce the principal officers of the subscribing companies. As is well known, in the case of private limited companies, it cannot be denied that there is a continuing contact and relationship with the shareholders and if the assessee was serious enough to establish its case, it ought to have produced the principal officers of the subscribing companies before the AO so that they can explain the sources from which the share subscription was made. That would also have taken care of the difficulty of the assessee in proving the creditworthiness of the subscriber companies. It was, therefore, in the assessee's own interest to have actively participated and cooperated in the assessment proceedings and complied with the direction of the AO to produce the principal officers of the subscribing companies. Instead, the assessee took an adamant, if we may use that expression, attitude and failed to comply with the direction of the AO; not only that, it challenged the AO's finding that the summons sent to the companies came back unserved with the remark "no such company", which was also

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. supported by the report of the inspector who made a visit to the addresses. The assessee thus took a very extreme stand which was in our opinion not justified; certainly it did nothing worthwhile to discharge the onus to prove the creditworthiness of the subscribing companies. ………………… In the case of RDS Project Ltd. [421 ITR 624 (Del)], the following is relevant, again from the perspective of a closely held company:

“19. As would be evident from a perusal of the Table (supra) for the assessment year 1984-85 the assessee had filed a return declaring a loss of Rs. 25,090 and consequent upon the addition of Rs. 9,53,500 made under section 68 the assessment was made on this sum. The ITAT noted that the assessee was a Public Limited Company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of the Securities Contract Regulation Act, 1956 as also the Rules & Regulations of the Delhi Stock Exchange. Complete details appear to have been furnished. The ITAT has further recorded that the Assessing Officer had not brought any positive material or evidence which would indicate that the shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital represented the company’s own income from undisclosed sources. By the same Orders dated 4-9-2003 the addition of Rs. 76,51,650 for the assessment year 1986-87 deleted by the CIT(A), was upheld.”

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. The distinction between a publicly held company and a closely held one, for the purposes of considering the application of section 68 of the Act, has also been lucidly laid out in the case of Nipun Builders & Developers (P.) Ltd (supra), especially in the highlighted para 7 extracted supra. We hasten to add that the other unverifiable aspects of the share subscribers in the matter before us is being read in conjunction with the fact of a privately held company as against a public limited company.

Considering the discussion above and the well-established judicial precedents it deserves to be held that the share capital introduction amounting to Rs.21,37,50,000/- seen in this case cannot escape the rigors of Section 68 of the Act, more so because neither the identity (in most cases), nor the creditworthiness of the share subscribers has been conclusively proved by the assessee. Also, merely filing documents, as mentioned in Annexure 1 of the impugned order, would not conclusively discharge the onus cast on the assessee, as a detailed discussion on the judicial precedents above would reveal. Thus, to recapitulate the facts leading to this finding, it may be mentioned that right from the time of survey operation, the assessee has not been able to plausibly prove the bonafides of intention behind the possession of blank signed documents, the identity of most share subscribers and their capacity to advance such monies to the assessee for subscribing to the shares. To this extent, the Ld. AO’s findings are upheld and the findings of Ld. CIT(A) are not approved. 21

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. 5.1 Regarding the issue of commission, we find force in the argument of the Ld. AR that the Ld. AO has simply presumed that there would be an outgoing with respect to some commission on account of bogus accommodation entries. Additions made on surmises and conjectures cannot be approved and thus, the assessee deserves relief on the addition of Rs.74,81,250/-.

5.2 Regarding the addition on account of sundry creditors it is felt that the assessee needs to prove the bonafides of this transaction once again before the Ld. AO so that the alleged mismatch and other doubts about such transactions are conclusively settled one way or another. Accordingly, we set aside the finding in the impugned order regarding this addition and remand this issue back to the file of Ld. AO for fresh enquiry and consequential assessment.

5.3 Regarding the addition by estimating GP at 18.35% it is seen that the assessee had disclosed a GP of 6.31%. However, considering the deficiency pointed out by the Ld. AO on pages 32 to 33 of his order and considering the totality of facts and circumstances of the case, we deem it fit that a GP estimation of 7% for the entire year would meet the ends of justice. The Ld. AO is directed to re-compute the GP on the basis of this prescription and reduce the addition made by him suitably.

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. Order pronounced in the open court on 17.06.2026

Sd/- Sd/- (MAHAVIR SINGH) (SANJAY AWASTHI) VICE PRESIDENT ACCOUNTANT MEMBER

Dated: 17.06.2026 *Kavita Arora, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI

ITA No.5243/Del/2017 VISHAL GOLD & PRECIOUS STONES PVT. LTD. Sr. No. Particulars Date 1 Date of dictation of Tribunal Order 12.06.2026 2 Date on which typed draft Tribunal Order is placed before the 15.06.2026 Dictation Member 3 Date on which typed draft Tribunal Order is placed before the 17.06.2026 other Member (in the case of DB) 4 Date on which the approved draft Tribunal Order comes to the 17.06.2026 Sr. P.S. /P.S. 5 Date on which the fair Tribunal Order is placed before the 17.06.2026 Dictating Member for sign 6 Date on which the fair Order is placed before the other Member 17.06.2026 for sign (in the case of DB) 7 Date on which the signed order comes back to the Sr. P.S. /P.S 17.06.2026 for uploading on ITAT website 8 Date of uploading, if not, reason for not uploading 17.06.2026 9 Date on which the file goes to the Bench Clerk 17.06.2026 10 Date on which order goes for xerox 11 Date on which the file goes for endorsement 12 Date on which the file goes to the Superintendent/O.S. for checking 13 Date on which the file goes to the Assistant Registrar for signature on the order 14 Date on which the file goes to dispatch section for dispatch the Tribunal Order 15 Date of dispatch of order 16 Date on which file goes to Record Room after dispatch the order