M/S SONI HOSPITALS PVT LTD vs. I T APPELLATE TRIBUNAL JAIPUR

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 12 / 2016 M/S Soni Hospitals Pvt. Ltd., 11, Chetak Marg, Jawahar Lal Nehru Marg, Jaipur through its Managing Director Dr. B.R. Soni son of Shri S.K. Soni, aged 60 years. ----Appellant Versus 1. Income Tax Appellate Tribunal, Jaipur Bench, Jaipur. 2. Commissioner of Income Tax (Appeals)-II, Central Revenue Building, Jaipur. 3. Dy. Commissioner of Income Tax, Circle-5, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.K. Sharma, Sr. Adv. with Ms. Alankrita Sharma, Mr. M.S. Rajpurohit For Respondent(s) : Mr. R.B. Mathur with Mr. K.D. Mathur & Mr. Prateek Kedawat _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 30/10/2017 1. By way of this appeal, the appellant-assessee has challenged the judgment and order of the tribunal whereby tribunal has allowed the appeal preferred by the department and reversing the view taken by CIT(A) and confirming the view taken by the AO. 2. This court while admitting the appeal on 27.9.2016 framed following substantial questions of law:- “1. Whether the finding of the Tribunal that the source of the income of the applicant who had put any share application money i.e. the source of the source should also have been proved by the assessee is incorrect in law.

(2 of 44) [ITA-12/2016] 2. Whether the documents in the form of application formed showing the cheque numbers, name of bank and branch, Income-tax Permanent Account Numbers and addresses of the applicants and in case of companies incorporated, the copy the memorandum and articles of association of the company and names and addresses of the promoter directors as well as copy of the board resolution to show the intention for making share application was in law sufficient to prove the identity of the applicants and constituted sufficient safeguards in the eyes of law and whether the Income Tax Appellate Tribunal despite availability of all these evidences could still make an addition of Rs. 99.00 lacs in the case of the assessee appellant.” 3. The facts of the case are that the appellant is a Private Company and accepted the share applications from different persons. The return shown loss of Rs.2,82,73,070/- was filed on 31.10.2005 which was processed at returned income on 31.3.2006. The case was selected for scrutiny and notice was issued u/s 143(2) and CA of the appellant attended and filed details, produced accounts books and vouchers etc. which were examined by test check and case was discussed with him. 4. Counsel for the appellant contended that the AO while considering the matter has not given opportunity to the appellant inspite of the fact that some of the companies have changed the address in the application which was given prior to the date of assessment order and the same was not considered and the AO has seriously committed error in relying upon the record which was not thoroughly convincing.

(3 of 44) [ITA-12/2016] 4.1 He also relied upon the observations made by the CIT(A) which reads as under:- “Since the complete information about the share applicants, ie. their PAN, address, bank account, existence etc. were in possession of the Department for almost 31 months before making the assessment, the A.O. should have verified the facts and in case of contradiction, he should have brought such facts on record and for rebuttal by the appellant company. By retaining the papers for such a long time, the Department has thus in our considered opinion absolved the assessee from discharging its burden. As regards non attendance of the share applicants before the AO, it is humbly submitted that the AO did not inform the assessee of this fact during assessment proceedings. The fact of non attendance has come to the knowledge through the assessment order only. Even the attendance in our opinion could be desirable only after gathering contradictory evidences because the desired information was in the possession of the AO for almost two and half years. The PAN, address, mode of payment etc. were in possession of the AO. Since the share applicants were existing income tax assesses, their creditworthiness was also beyond doubt as has been held by the Rajasthan High Court in the case of Kamal Motor Company [2003] 131 Taxman 155. The jurisdictional Rajasthan High Court has held in this case that when the cash creditor is an existing income tax assessee, it can not be said that the cash creditor is not a man of means. As regards non service of summons to three limited companies from whom amount of Rs.20,00,000/- was received in aggregate during the year, it was informed by letter dated 3.12.07 to the AO that the parties might have shifted their office to some other place and that the assessee company would provide their latest addresses as soon as it came to its knowledge. In fact, new address of M/S Lexus Infotech Limited (from whom amount of Rs.10,00,00!0/- was received as share application) was informed to the A.O on 28.12.2007 through a letter wherein the new address of the said company was stated as CS- 1, Silver Anklet, Yari Road, Versova, Andheri (W), Mumbai-61. Since the share applicants were limited companies registered under the Companies Act, and the amount was received

(4 of 44) [ITA-12/2016] through banking channels and the companies were existing income tax assessees, their existence was beyond any doubt, it was requested that no adverse inference be drawn. The appellant company has taken services of a Company Secretary to take search report from the office of the Registrar of Companies about the existence of said companies and the copy of the search report is enclosed. As regards bogus entities run by B C Purohit & Co. involved in providing accommodation entries, it is humbly submitted that the limited companies are legal juristic entities and can not be called as bogus by any sort of logic. If any illegal business or activities are being run under their names, then adverse inference could be taken against the persons who are running the companies and not the persons who have done transactions with the said companies. The AO did not bring on record any corroborative evidence to negate the above statements of the CMD of the Company. He simply relied upon the statements of third person while making addition to the returned income. Thus no addition should have been to the returned income of the company in absence of corroborative evidences. Further no evidences in the form of cash receipts are there for making payment of such a huge amount by the appellant company nor the company had such a huge amount in cash with it on the said dates as evidenced from the cash book of the company. The AO did not contradict the entries of cash book as evident from the assessment order itself where not a single word has been mentioned. Thus the AO has erred in making addition simply on the basis of third party statement without bringing any related evidence on record. It is thus apparent from the assessment order that addition has been made on assumptions, presumptions and doubts. It is also submitted that out of the total share application money which was subject matter of addition, amount of Rs.95,50,000/- was received prior to the commencement of the services by the hospital owned by the appellant company i.e 22.10.2004, the date on which the Vice President of India, inaugurated the opening of the hospital and further that Redeemable Preference Shares have been allotted to the share applicants, it is also again submitted that existing income tax assessees, operating bank accounts can not be called as bogus and further that the corporate entities being registered under the Indian Companies Act, 1956 can not

(5 of 44) [ITA-12/2016] be bogus or non existent persons. In the light of decisions of the Apex and other courts, and in view of the facts and lack of corroborative evidences against the appellant company it was therefore requested to delete the addition of Rs.99,00,000/- as undisclosed investment in share application money. 3.1 I have duly considered the submissions of the appellant. I find that in the present case, the appellant had filed the subscription forms from each of the investors. The said subscription form contained complete details, which disclosed not only the identity of the subscribers, but also their complete address along with PAN. Therefore the appellant had been able to discharge its onus in respect of the veracity of the transactions. The AO has alleged that documentary evidences were not filed by the assessee company but in reality, all the primary documents and records were in the custody of the AO as these were impounded on 03.05.2005 when a survey was conducted U/s 133(A) by the Investigation Wing at the premises of the appellant. All these documents were still in the possession of the Department as on date. since the share applicants were limited companies registered under the Companies Act, and the amount was received through banking channels and the companies were existing income tax assessees, their existence was beyond any doubt. It was held by Honourable Delhi Tribunal in the case of Sky properties Pvt LTD vs. ITO (258 ITR AT 098) that there is a difference between an ordinary cash credit and credit by way of share capital. While in the case of ordinary loans, the onus is on the assessee to prove not only the identity of the creditors but also the genuineness and the capacity of the persons to lend, with reference to-share capital for which share have been issued, the onus on the company is very much limited in the light of the law under the Companies Act. In the case of limited companies, the jurisdiction of the Assessing Officer would be limited only to see whether the identity of the shareholders is established. In the instant case out of five shareholders four shareholders were companies incorporated under the Companies Act. They were regularly assessed to tax. They were regularly filing their statements with the Registrar of Companies. All the four companies had huge share capital and their investments in shares of various companies was huge. The

(6 of 44) [ITA-12/2016] audited copy of the accounts were also on record. Looking to these documents, there could not be any dispute about their identity, credit- worthiness as well as genuineness of the transaction. It was held by Honourable Delhi Tribunal in the case of A-One Housing Complex Ltd (299 ITR .AT 327) that the onus on the assessee in the case of share capital by public issue was a lighter one and therefore such onus would stand discharged if the identity of the share applicant was established. there was nothing wrong if confirmations were prepared by the assessee and got signed from the share applicants since the assessee was required to prove only the identity of the share applicant. Even otherwise they had not been found to be false or forged. There was nothing wrong if some of the shareholders had accounts with the same bank. It was not the case of the Revenue that such accounts were bogus or operated by the assessee. lt was also not the case of the Revenue that either of the share applicants was a benami of the assessee. Therefore the reasons given by the Assessing Officer were to be rejected. 3.2 The degree of responsibility of the company to prove the genuineness of amounts received towards share capital has been the subject matter of a number of decisions. The Delhi High Court after a review of the precedents on the subject in Divine Leasing and Finance Ltd. (299 ITR 268) held that section 68 would require both the identity of the depositor and his creditworthiness to be proved. Where a company furnishes the address and permanent account number (PAN), such identity is established. As regards creditworthiness in a matter of subscription to public issue, more may not be expected from the assessee. The burden of proof that is expected as regards creditworthiness has to be decided in the light of the facts of each case. Where the subscriptions were received through banking channels as prescribed under SEBI regulations, the inference that the subscribers lack creditworthiness could not have been lightly drawn without some investigation on the part of the Assessing officer. The addition without such investigation should be treated as based upon mere surmises. The principle that identity is more important in such cases has been reiterated and that even where creditworthiness is not established to the satisfaction of the Assessing officer, it need not

(7 of 44) [ITA-12/2016] be unexplained income of the company, since the legitimate inference is that the income is that of the subscriber as long as the advance of the amount to the company is established and there is nothing to suggest that the amount belonged to the company. If the share application money is received by the assessee- company from alleged bogus shareholders, whose names are given to the Assessing officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. If relevant details of the address

PAN

identity

the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, shares application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing officer for his perusal, all the information contained in the statutory share application documents. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the lncome tax Act. The burden of proof can seldom be discharged to the hilt by the assesse; if the Assessing officer harbours doubts of the legitimacy of any subscription, he empowered, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. In the cited case, the assessee-company had commenced its business of extending finance to industrial enterprise. The total issued, subscribed and paid-up capital in the assessment years 1984-85, 1985-86 and 1986-87 was Rs. 99,80,000 received from directors/promoters and also by way of a public issue. These sums were received through banking channels and complete record were maintained. The Assessing Officer made additions to the income for all the years. In March, 1987, the assessee filed a revised return for the assessment years 1984-85 and 1985-86 taking advantage of the Amnesty Scheme and

(8 of 44) [ITA-12/2016] surrendered Rs. 62,500 and Rs. 1,87,000 in the respective years. In these fresh assessment proceedings, the Assessing Officer issued summons under section 131 of the Income-tax Act and thereafter impounded the shareholders' register, share application forms and share transfer register. The assessee contended that because these materials were in the custody of the Department it was unable to furnish any further details pertaining to the subscribers. The Income tax Appellate Tribunal 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 Contracts (Regulation) Act, 1956, as also the rules and regulations of the Delhi Stock Exchange. Complete details appeared to have been furnished. The Income-tax Appellate Tribunal 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. The addition of Rs. 76,51,650 for the assessment year 1986- 87 deleted by the Commissioner (Appeals) was upheld. On appeal, it was held dismissing the appeals, that the Tribunal had categorically held that the assessee "has discharged its onus of proving the identity of the share subscribers". Had any suspicion still remained in the mind of the Assessing Officer he could have initiated "coercive process" but this course of action had not been adopted. The deletion of the additions was justified. The Honourable Delhi Tribunal in the case of M/s A-one Housing Complex Ltd. Vs ITO (299 ITR (AT) 327) held that the case of where the company was able to get letters of confirmation as proof of identity of the shareholders, and the genuineness of the deposits, it cannot be dismissed merely on the ground that the confirmations were prepared by the assessee and got signed. It was pointed out that there was nothing amiss in such a procedure and that there was no material to justify the inference that the amount received towards share capital was not proved. In the case of CIT vs Value Capital Services Pvt Ltd (307 ITR 334) it was held that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment

(9 of 44) [ITA-12/2016] made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. The Delhi High Court in CIT v. Orbital Communication (P) Ltd. (327 ITR 560), followed the decision of the Supreme Court in CIT v. Lovely Exports (P) Ltd. (319 ITR (St) 5) for the proposition that in the case of share application money, where the persons are identified, is not reasonable to expect the Assessing Officer to establish that the monies belonged to the company without making any enquiries against the shareholders, since there is no presumption that they are bogus shareholders. Normal rule of presumption under section 68 does not go so far as to justify the inference that it is for the company to satisfy the Assessing Officer, that the sources of the shareholders are also established. Once genuineness of share application is manifest from the facts, the remedy for the Revenue, if it entertains any further doubt, is only enquiry with the shareholders. It is unfortunate that additions are being made for share capital contributions routinely and what is more, appeals are filed against the orders of the first appellate authority which are eminently found to be fair as it happened in CIT v, Victor Electrodes Ltd. (329 ITR 271), where the share capital was contributed by four private companies and the assessee obtained and furnished evidence of payment by account payee cheques along with their bank account, resolution of the companies, their Memorandum and Articles and their income-tax particulars. The High Court cited two decisions for its conclusion relating to share capital. The information in this case would not have justified the treatment as unproved cash credits, even if they were not share capital, regarding which the burden should normally shift once the identity of the subscribers is established. On appeal to the Delhi High Court, it was held dismissing the appeal, that it had not been disputed that the share application money was received by the assessee by way of account payee cheques, through normal banking channels. Admittedly, copies of applications for allotment of shares were also provided to the Assessing Officer. It was not the case of the Revenue that the share applications were not signed on behalf of the applicant-companies and were forged documents. It was also not the case of the Revenue that the shares were not actually allotted to the companies. lf the Assessing

(10 of 44) [ITA-12/2016] Officer had any doubt about the identity of the share applicants, he could have summoned the directors of the applicant-companies. No such attempt was, however, made by him. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the identity of the share applicants and the genuineness of the transactions had been established by the assessee. The amount was not assessable under section 68. 3.3 Since the share capital contributions are matched by share certificates, a company cannot ordinarily be expected to satisfy itself as to the source of funds, while issuing shares, so that identification of the source itself should be sufficient in most cases, unless there is prima facie case for the inference that the share capital moneys are out of unaccounted income of the assessee company itself. The issue of providing accommodation entries in the garb of share capital came up for consideration before the Honourable Delhi High Court in the case of CIT Vs Oasis Hospitalities Pvt Ltd (2010-TIOL-69-HC- Del.) The observations Honourable Court are reproduced as under: "The order of the AO would reveal that he had received an information from the Investigation Wing

which

had

made

various enquiries/investigations on the basis of which it was found that these six investors belong to one Mahesh Garg Group who were not carrying on any real busines activity and were rather engaged in the business of providing accommodations entries, They were, thus, entry operators of which the assessee was the beneficiary. According to the AO, the modus operandi involved in such type of activity was like this: an entry operator operates a number of accounts in the same bank/branch or in different branches in the name of companies, firms, proprietary concerns and individuals and for the operation of these bank accounts, filing income tax returns etc., persons ar hired. Most of these persons work on part-time basis and are called upon to sign documents, cheque books, etc. whenever required. Whenever any beneficiary is interested in taking an entry, he would approach the entry operator and handover the cash alongwith commission and take cheques, Demand Draft, Postal order. The cash is deposited by the Entry Operator in a bank account either in his name or in the name of relative/friends or other person hired by him for

(11 of 44) [ITA-12/2016] the purposes of opening the bank account. After the deposit of cash when there is sufficient balance, the Entry Operator issues Demand Draft, Postal orders, cheques in the name of beneficiary. Most of these concerns/individuals also have obtained PAN from the Department and are filing income tax returns, but what is shown in the return is not actual state of affairs." "The assessees filed copies of PAN, acknowledgement of filing income lax returns of the companies, their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called Directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the assessee by producing PAN number, bank account, copies of income tax returns of the share applicants, etc. We also find that the Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such Entry operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to, cross- examine the persons whose statements were recorded by the Investigating wing. As regards discrepancies found by the AO in the bank statement, suffice is to mention that the bank statements that were filed by the assessee were provided by the shareholders and were computer printed on the bank stationery. The same were filed by the assessee during the assessment proceedings without any suspicion of their being incorrect. During the assessment proceedings, the assessee was never confronted by the AO that there are discrepancies between the bank statements filed and the statements directly called by the AO. However, even after considering the alleged discrepancies, it does not follow that the amount of share capital was the undisclosed income of the assessee. Even the correct Bank statements as claimed by the

(12 of 44) [ITA-12/2016] AO reveal that the assessee has received cheques from the shareholders. In this backdrop, the following observations of this Court in the case of Commissioner of Income Tax vs. K.C Fibres Ltd. (187 Taxman 53) are reproduced: It is strange that when the Assessing officer is questioning the bona fides of M/s Diamond Protein Ltd. for collecting money to subscribe to the share to the capital of the assessee, but it is the assessee who is fastened with the liability. The Assessing officer did not question M/s Diamond Protein Ltd. in this behalf. Insofar as Assessing Company is concerned, it is not disputed that money was paid to its towards the aforesaid share application money, by means of cheques. It is not for the Assessing Company to probe as to the source from where M/s Diamond Protein Ltd. collected the aforesaid money. It was for the Assessing Officer, in these circumstances to inquire into the affairs of M/s Diamond Protein Ltd. which is an independent company inasmuch as no finding is arrived at by the Assessing Officer that the two companies are umbrella companies or have any relationship with each other." 3.4 As regards addition of Rs 20,00,000/- made on account of subscription from 3 corporate entities, the appellant filed certain additional evidences. The AO had alleged that notices issued to M/s Labh Tronics Overseas Pvt. Ltd. and M/S Shash Sales & Marketing Pvt. Ltd. were returned by the postal authority with the remarks 'no such person/firm in this location'. On the other hand, the search report of the Company Secretary clearly indicated that the above named companies were registered on 28.12.1997 and 15.03.1993 respectively. It was stated that the companies namely M/s Labh Tronics Overseas Private Limited and M/s Shashi Sales and Marketing Private Limited might have shilled to some other place in the meantime. The appellant company subsequently received information about the present address of the above named two companies, which was A- 4/181, Sector No 17, Rohini, New Delhi 110085. According to the financial statements of both the companies for the year ended 31.03.2006, the said companies had enough credit worthiness to make investment in the share capital of the appellant company. In this regard, the appellant submitted following additional evidences:

(13 of 44) [ITA-12/2016] i) Copy of the financial statements of both the companies for the year ending 31.03.2008 which proved beyond doubt that the said companies had sufficient resources to invest in the share capital of the appellant company. ii) M/S Labh Tronics overseas Pvt Ltd. and M/s Shashi Sales & Marketing Pvt Ltd. had now shifted to A-4/181, Sector No.17, Rohini, New Delhi 110085. iii) Photocopies of the Balance sheets of both the companies as on 31.03.2006 and the Profit & Loss Account for the year ending 31.03.2006 alongwith copies of respective ITR-V for the A.Y.2006-07 iv) Photocopy of the Balance Sheet as on 31.03.2008 and the Profit & Loss Account for the year ending 31.03.2008 of M/S Lexus Infotech Ltd along with photocopy of acknowledgement of Return (now known as Traingular Infocom Ltd) alongwith copy of PAN Card thereof. These additional evidences were forwarded to the ACIT, Circle-5, Jaipur vide my letter dated 4.2.11 for examination. The remand report was due by 15.2.11 However till date, the AO has not bothered to submit the remand report. Moreover, it is obvious that the AO has failed to make further inquiries as desired from her. In these circumstances, I have no alternative but to decide the matter on the basis of evidences filed by the appellant. Nothing adverse is noticed in the documents filed by the appellant. Accordingly, I direct the AO to delete the addition of Rs 99,00,000/-. This ground of appeal is allowed.” 4.2 He contended that CIT(A) while considering the Supreme Court judgment rightly held in favour of the assessee. 4.3 He has taken us to the observations made by the tribunal which reads as under:- “4. He further argued that Hon'ble Supreme Court decision in the case of M/s Lovely Export (supra) is longer law of the land as various High Court including Hon'ble Delhi High Court in the case of CIT vs. Empire Builtech P. Ltd., 366 ITR

(14 of 44) [ITA-12/2016] 110 wherein the Supreme Court decision in case of M/s Lovely Exports(supra) has been considered in respect of notice under scetion 133 (6) issued to 11 investors. The investors had not submitted any confirmation and reporting for less income than amount invested. The assessee had not discharge its burden, the addition u/s 68 held justified.” 4.4 He contended that without considering the material which has been considered by the CIT(A), the tribunal has summarily reversed the finding of CIT(A) and contended that the tribunal ought to have considered the finding and confirmed the observations made by the CIT(A). 4.5 He has relied upon the following decisions:- In Commissioner of Income Tax vs. NR Portfolio Pvt. Ltd., (2014) 264CTR(Del)258, it was held as under:- 17. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. The word "identity" as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according to us is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge

(15 of 44) [ITA-12/2016] the onus, even when payment is through bank account. 18. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any share- dividend or interest to the said entry operators/subscribers. The profit motive normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and

material

facts

for

ascertaining creditworthiness and genuineness of the transactions. In Commissioner of Income Tax-II vs. MAF Academy P. Ltd. [2014] 361ITR258(Delhi), it was held as under:- 23. Recently in the case of Commissioner of Income Tax Vs. NR Portfolio Pvt. Ltd. (Income Tax Appeal No. 1018 Of 2011 And 1019 OF 2011) vide Judgment dated 22.11.13 we have held as under: 14. When an assessee does not produce evidence or tries to avoid appearance before the Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing officer is denied advantage of the contention or factual assertion by the assessee before him. In case an assessee deliberately and intentionally fails to produce evidence before the Assessing Officer with the desire to prevent inquiry or investigation, an adverse view should be taken. We shall now come to the merits and the findings recorded by the Commissioner (Appeals), which as noted above, have been

(16 of 44) [ITA-12/2016] simply affirmed by the tribunal without verifying or referring to the facts. 17. The Commissioner (Appeals) thereafter proceeded on the basis that even if the subscribers to the share capital were not genuine, the amount received cannot be regarded as undisclosed income of the respondent-assessee. Reference was made to the decision of the Delhi High Court in Lovely Exports Private Limited and Divine Leasing and Finance Limited (supra). Reference was made to some decision of the tribunal. It would be here relevant to highlight and note what was recorded by the Assessing Officer in the assessment order. The Assessing Officer has mentioned that the subscribers belonged to Mahesh Garg group of entry operators, which included 51 companies/persons, who were operating more than 100 bank accounts in different banks/branches. Their modus operandi was to provide accommodation entries to different persons/beneficiaries. Reference was made to the bank statements of the entry operators that showed substantial deposit of cash in the bank accounts and subsequent issue of cheques to the beneficiaries. This was the only activity of these companies/persons. The said companies/persons were not carrying on any other business activity i.e., manufacturing or trading activity. The assessment order has quoted and referred to the bank account statements in support of the said assertion and finding. The Assessing Officer has mentioned that the respondent-assessee was a private limited company, closely held and there should be proximate relationship between the promoter directors and the shareholders. Closely held companies usually receive share capital subscriptions from friends, relatives and not from unrelated/unknown third parties/general public. There was no relationship or connection between the subscribers and the respondent- assessee, for subscribers to become investors. Assessment order records that to establish identity and availability of funds, it was necessary to have at least some idea if not complete details of the actual business undertaken and engaged in by the respondent- assessee and explained how and why these unrelated and unconnected third parties decided to become investors in the absence of public issue or advertisement.

(17 of 44) [ITA-12/2016] 18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. The word "identity" as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according to us is the correct and true legal position as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through bank account. 19. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any share- dividend or interest to the said entry operators/subscribers. The profit motive was normal in case of investment entirely was absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions.

(18 of 44) [ITA-12/2016] 23. The contention that the Revenue must have evidence to show circulation of money from the assessee to the third party is fallacious and has been repeatedly rejected, even when Section 68 of the Act was not in the statute. In A. Govindarajulu Mudaliar v. CIT : (1958) 34 ITR 807, Supreme Court observed that it was not the duty of the Revenue to adduce evidence to show from what source, income was derived and why it should be treated as concealed income. The assessee must prove satisfactorily the source and nature of cash received during the accounting year. Similarly observations were made in CIT vs. M. Ganapathi Mudaliar : (1964) 53 ITR 623 (SC), inter alia holding that it was not necessary for the Revenue to locate the exact source. This principle was reiterated in CIT vs. Devi Prasad Vishwanath Prasad : (1969) 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia vs. CIT : (1980) 126 ITR 48, a Division Bench of Delhi High Court has observed:- It is well known that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by step in order to plug loopholes and in order to place certain situations beyond doubt even though there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of s. 68 in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the ITO, not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of a relevant previous year. Section 68 was inserted in the I.T. Act, 1961, only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions. 24. We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty which an assessee may be faced with when asked to establish unimpeachable credit worthiness of the share subscribers. But this

(19 of 44) [ITA-12/2016] aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of 'source of source' or 'origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the

nature

and

character

the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate ill gotten and unrecorded money. Without being oblivious to the/constraints of the assessee, an objective and fair approach/determination is required. Thus no assessee should be harassed and harried but any dishonest façade and smokescreens which masquerade as pretence should be exposed and not accepted. 25. In Lovely Exports (supra), a Division Bench examined two earlier decisions of this court in CIT vs. Steller Investment Ltd. : (1991) 192 ITR 287 (Delhi) and CIT vs. Sophia finance Ltd. : (1994)205 ITR 98 (FB) (Delhi). The decision in Steller Investment's case (supra) was affirmed by the Supreme court but by observing that the conclusion was on the facts and no interference was called for. Lovely Exports (supra) was a case of public limited company where shares were subscribed by public and it was accordingly observed:- This reasoning must apply a fortiori to large scale subscriptions to the shares of a public Company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/assessee or to creditors of the assessee. This is why this court has adopted a very strict approach to the burden

(20 of 44) [ITA-12/2016] being laid almost entirely on an assessee which receives a gift. 26. Thereafter reference was made to Full Bench decision in the case of Sophia Finance Ltd.'s case (supra) wherein it has been observed that if the shareholders exists then, "possibly", no further enquiry need to be made and that the Full Bench had not reflected upon the question of whether the burden of proof rested entirely on the assessee and at which point this burden justifiably shifted to the assessing officer. The Full Bench has observed that they were not deciding as to on whom and to what extent was the onus to show that the amount credited in the books of accounts was share capital and when the onus was discharged, was not decided. The standard of proof might be rigorous and stringent and was dependent upon nature of the transaction and where there was evidence that the source of investment cannot be manipulated, it was material. Similarly, it was observed that assessee could scarcely be heard to say that he did not know the particulars of a donor in case of a gift. It was held:- There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenues's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to

(21 of 44) [ITA-12/2016] his suspicions and treat the subscribed capital as the undisclosed income of the Company. Once material to prove these ingredients are produced it is for the Assessing Officer to find out as to whether, on these materials, the assessed has succeeded in establishing the ingredients mentioned above. The Assessing Officer lift the veil' and enquire into the real nature of the transaction. C.I.T. v. Ruby Traders and Exporters Ltd.: : (2003) 263 ITR 300(Cal), C.I.T. v. Nivedan Vanijya Niyojan Ltd. : (2003) 263 ITR 623 (Cal) and C.I.T. v. Kundan Investment Ltd.: (2003)263ITR626(Cal.) are the other three. 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 assessee 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 assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (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. 27. The decision in the case of Lovely Exports (supra) was considered in CIT vs. Nova Promoters and Finlease (P) Ltd. (supra) and it was elucidated:- 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,

(22 of 44) [ITA-12/2016] 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. 28. In Nova Promoters & Finlease(supra), it was held that in view of the link between the entry providers and incriminating evidence, mere filing

(23 of 44) [ITA-12/2016] of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. 29. In Nipun Builders and Developers (2013) : 350 ITR 407 (Del), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer to enforce share holders attendance. Some cases might require or justify visit by the Inspector

ascertain

whether

the shareholders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the

(24 of 44) [ITA-12/2016] assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation

but

genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. 24. We have in the NR PORTFOLIO CASE (SUPRA) held that when an Assessee does not produce evidence or tries to avoid appearance before the assessing officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the assessing officer is denied advantage of the contention or factual assertion by the Assessee before him. In case an Assessee deliberately and intentionally fails to produce evidence before the assessing officer with the desire to prevent inquiry or investigation, an adverse inference should be drawn. The said case, i.e., N.R. PORTFOLIO PRIVATE LIMITED (SUPRA), was also one of the cases where accommodation entries were being provided by Mahesh Garg Group of entry providers as in the present case. It has been noticed in that case that the modus operandi used by the entry providers for providing accommodation

entry

different persons/beneficiaries was very similar to the one in the present case. It has been further noticed that the bank statements of the entry operators showed substantial deposit of cash in the bank accounts and subsequent issuance of cheques to the beneficiaries. The entry providers were not carrying on any business activity but the only activity was for providing entries. It has been held that a private limited company is a closely held company having proximate relationship between promoters and shareholders and usually in closely held companies, share capital subscription is from friends, relatives and not from unrelated/unknown third parties/general public. In Commissioner of Income Tax vs. P. Mohanakala, [2017] 291ITR 278(SC), it was held as under:-

(25 of 44) [ITA-12/2016] 15. The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessees; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. 16. In Sumati Dayal Vs. Commissioner o Income Tax, Bangalore [1995 Supp.(2) SCC 453) this Court held: "In all cases in which a receipt is sought to be taxed income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, "the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. IN such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature." (emphasis supplied)

(26 of 44) [ITA-12/2016] 17.In that case the amount was credited in the capital account in the books and the assessee offered her explanation about the said receipt being her winnings from horse races. The explanation was not accepted. There was no dispute that the amount was received by the assessee from various race Clubs on the basis of winning tickets presented by her. This Court based on the material available on record found that an inference about such a purchase has to be drawn on the basis of the circumstances available on record inasmuch as no direct evidence about such purchase be rarely available. This Court accordingly upheld the majority opinion of the Settlement Commission based on surrounding circumstances and applying the test of human probabilities. This authoritative pronouncement in our considered opinion is the complete answer to reject the submissions made by the learned senior counsel on behalf of the respondents. 23. It is true that even after rejecting the explanation given by the assessees if found unacceptable, the crucial aspect whether on the facts and circumstances of the case it should be inferred the sums credited in the books of the assessees constituted income of the previous year must receive the consideration of the authorities provided the assessees rebut the evidence and the inference drawn to reject the explanation offered as unsatisfactory. We are required to notice that Section 68 of the Act itself provides, where any sum is found credited in the books of the assessees for any previous year the same may be charged to income tax as the income of the assessees of the previous year if the explanation offered by the assessees about the nature and source of such sums found credited in the books of the assessees is in the opinion of the Assessing Officer not satisfactory. Such opinion found itself constitutes a prima facie evidence against the assessees, viz., the receipt of money, and if the assessees fail to rebut the said evidence the same can be used against the assessees by holding that it was a receipt of an income nature. In the case in hand the authorities concurrently found the explanation offered by the assessees unacceptable. The authorities upheld the opinion formed by the Assessing Officer that the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation is not acceptable the material and

(27 of 44) [ITA-12/2016] attending circumstances available on record do not justify the sum found credited in the books to be treated as a receipt of an income nature. The burden in this regard was on the assessees. No such attempt has been made before any authority. All the decisions cited and referred to hereinabove are required to be appreciated and understood in the light of the law declared by this Court in Sumati Dayal (supra). 24. Whether the High Court was justified in interfering with the concurrent finding of fact arrived at by all the authorities including the Tribunal? The Assessing Officer found that all the so-called gifts came from Ariavan Thotan and Suprotoman. The assessees did not declare that they are the alias of Sampathkumar. It is only an afterthought they have come forward with the said plea. The Assessing Officer also found that the gifts were not real in nature. Various surroundings circumstances have been relied upon by the Assessing Officer to reject the explanation offered by the assessees. The Commissioner of Appeals confirmed the findings and conclusion drawn by the Assessing Officer. The Tribunal speaking though its Senior Vice President concurred with the findings of fact. The findings in our considered opinion are based on the material available on record and not on any conjectures and surmises. They are not imaginary as sought to be contended. In Commissioner of Income Tax vs. Lovely Exports (P) Ltd., (2010) 14 SCC 761, it was held as under:- 2. Can the amount of share money be regarded as undisclosed income under Section 68 of Income Tax 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 assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. In CIT vs. M/s Creative World telefilms LTd., ITA 2182/2009, it was held as under:- The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the Apex Court in the case of CIT V/s. Lovely Exports (P) Ltd. reported in [2008] 216 CTR 195

(28 of 44) [ITA-12/2016] (SC) wherein the Apex Court observed that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their 2 PA / GIR number and had also given the cheque number, name of the bank. It was expected on the part of the assessing officer to make proper investigation and reach the shareholders. The assessing officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the assessing officer ought to have found out their details through PAN cards, Bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the assessing officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limini with no order as to costs. 5. Mr. Sharma, counsel for the appellant has taken us to the issue of Rs.20 lacs where the AO has added Rs.20 lacs and CIT(A) has deleted that item. 6. The observations made by the AO reads as under:- “4. Apart from above the assessee had raised share application money from various parties which included the following concerns:- 1. Shashi Sales & Marketing Pvt. Ltd. RZ-41A, Mohan nagar, pankh Road, New Delhi. Rs.5,00,000/- 2. Lexus Infotech Limited 9, Roxana Building, M.K. Road,

(29 of 44) [ITA-12/2016] Church Gate, Mumbai. Rs.10,00,000/- 3. Labh Tronics Pvt. Ltd., RZ-41A, Mohan Nagar, Pankh Road, New Delhi. Rs.5,00,000/- Rs.20,00,000/- The assessee was requested to prove the genuineness of the above said share application money of Rs.20,00,000/- also. The reply of the assessee was same which was for share application money of Rs.79,00,000/- as discussed above. To find out the genuineness of the said share application money of Rs.20 Lakhs notices u/s 133(6) were sent to the above mentioned parties on 05.11.2007 which were received back with the postal remarks ‘no such parties exist at the given address’. Under these circumstances the assessee vide order-sheet entry dated 23.11.2007 was requested to produce the aforesaid parties for examination. But the assessee vide order sheet entry dated 27.12.2007 showed its inability to produce any of the said 3 parties. However, through its letter dated 26.12.2007 the assessee stated that the amounts were received through banking channel and the companies are registered with ROC and the companies are genuine entities. Since the assessee has failed to satisfactorily prove the genuineness of the transactions of above share application money of Rs.20 Lakhs also, therefore, this will also be treated to have been invested out of undisclosed income of the assessee itself as accommodation entries. 7. He contended that the tribunal has wrongly reversed the finding regarding Rs.20 lacs observing as under:- 3.3. As regards addition of Rs. 20,00,000/- made on account of subscription from three corporate entities, the assessee filed certain additional evidences before the ld. CIT (A). The notice issued by the AO in the case of M/s. Labh Tronics Overseas Pvt. Ltd. and M/s. Shashi Sales & Marketing Pvt. Ltd. were returned by Postal Authorities with the remarks “ no such person/firm in this location”. The ld. CIT (A) further held that on the other hand the Search Report of the Company Secretary clearly indicated that the above named companies were registered on 28.12.1997 and 15.03.1993 respectively. It was stated by the assessee before him that both the companies might

(30 of 44) [ITA-12/2016] have shifted their business premises. The appellant company subsequently received information about the present address of both the companies which was A- 4/181, Sector No. 17, Rohini, New Delhi 110 085. Accordingly to financial statements of both the companies for the year ended 31.03.2006, the said companies had enough creditworthiness to make investment in the share capital of the appellant company. The assessee submitted following additional evidences before the ld. CIT (A):- (1) Copy of the financial statements of both the companies for the year ending 31.03.2008 which proved beyond doubt that the said companies had sufficient resources to invest in the share capital of the appellant company. (2) M/s. Labh Tronics Overseas Pvt. Ltd. and M/s.Shashi Sales & Marketing Pvt. Ltd. had now shifted to A-4/181, Sector No. 17, Rohini, New Delhi 110 085. (3) Photocopies of the Balance Sheets of both the companies as on 31.03.2006 along with copies of respective ITR-V for the A.Y. 2006-07. (4) Photocopy of the Balance Sheet as on 31.03.2008 and the Profit & Loss Account for the year ending 31.03.2008 of M/s. Lexus Infotech Ltd. along with photocopy of acknowledgement of Return (now known as Traingular Infocom Ltd.) along with copy of PAN Card thereof. These additional evidences were forwarded to ACIT, Circle-5, Jaipur vide letter dated 04.02.2011 for examination. The remand report was due by 15.02.2011. However, till passing of the order by ld. CIT (A), the AO had not submitted the remand report. The ld. CIT (A) concluded that ld. AO had failed to make further enquiry as desired from him. In absence of remand report, the ld.CIT (A) decided the appeal on the basis of evidences filed by assessee and concluded that nothing adverse was narrated in the documents filed by the assessee. Accordingly he directed the AO to delete the addition of Rs. 99,00,000/-. 8. Mr. Mathur, counsel appearing for the department has pointed out that while considering the matter, the AO has observed as under:-

(31 of 44) [ITA-12/2016] 3. In the case of M/s Soni Hospital Ltd., entries were taken during the financial year 2004-05 relevant to the assessmentyear 2005-06 mostly from the bogus companies operated by the impugned entry operators. These entries are in the form of share application money which have been received from the following such companies etc. Of B.C. Purohit Group:- S. No. Name

the Comapny Cr. Amount 1. Anupriya Transformers

(P) Ltd., 17A Sujan Vihar

Nandpuri, Jaipur. 5,00,000 2. Anushree Finlease (P) Ltd., M-15, New Market, Khasa Kothi Circle, Jaipur. 5,00,000 3. Arpan Agro (P) Ltd., 49 Patel Nagar, Ajmer Road, Jaipur. 3,00,000 4. Art Line Finvest (P) Ltd., M-15, New Market, Khasa Kothi Circle, Jaipur. 3,00,000 5. Bachpan

Credit Capital (P) Ltd., M- 15, New Market, Khasa

Kothi Circle, Jaipur. 3,50,000 6. Bengal Fintrade CO. (P) Ltd., 48 Patel Nagar, Ajmer Road, Jaipur 2,00,000 7. Bequeen Textiles (P) Ltd., 17A, Sujan Vihar,

Nandpuri, Jaipur 5,00,000 8. Bhavika

Credit Capital (P) Ltd., M- 15 New Market, Khasa Kothi Circle, Jaipur. 5,00,000 9. Ganpati

Film Producers (P) Ltd., G-103,

Kamal Apartment,

Bani 5,00,000

(32 of 44) [ITA-12/2016] Park, Jaipur. 10. Great Easters Movies (P) Ltd., 48 Patel Nagar, Ajmer Road, Jaipur. 3,00,000 11. Jaytara Movies (P) Ltd., 48, Patel Nagar, Ajmer Road, Jaipur. 2,00,000 12. K.K. Petrochem (P) Ltd., A-94, Nandpuri, Hawa Sadak, Jaipur. 8,00,000 13. Kotputli Investment (P)

Ltd.,

S-64, Agarsen

Tower, Vidhyadhar Nagar, Jaipur. 11,50,000 14. Padam Bearing India Ltd., F-105, Time Square, Vidhyadhar Nagar, Jaipur. 5,00,000 15. Ram

Prasad Acharya, 28 Nehru Nagar, Jaipur. 2,00,000 16. Sushila Capfin (P) Ltd.,

M-9,

New Market, Khasa Kothi Circle, Jaipur. 6,50,000 17. Govind Ram, 71 Baba Ahrish Chandra Marg, Jaipur. 1,50,000 18. Mahendra

Kumar Bissa, 4 Patel Nagar, Ajmer Road, Jaipur. 1,50,000 19. Om

Prakash Agarwal,

3/757 Malviya

Nagar, Jaipur. 1,50,000 Total 79,00,000 3.3 However, the assessee did not file any documentary evidences regarding the genuineness of the share application money and also did not file their confirmations or copies of their bank statements and also did not produce them for examination. Regarding the production of the said parties the assessee stated that request has been made to them and they have assured that they will

(33 of 44) [ITA-12/2016] attend before the A.O. themselves, but nobody attended in this regard. 9. He further invited our attention to the observations made by AO which reads as under:- bu lkjh dEifu;ksa ds Bank Accounts ls fofHkUu ikfVZ;ksa dks tks entries nh xbZ gS ;g mudh detail gS rFkk buesa 5]00]000@& dks 5]000-00 rFkk blh izdkj 3]00]000@& dks 3]000-00 fy[kk x;k gS rFkk ckdh Entries Hkh blh izdkj gSA bu i`"Bksa ij fy[kh xbZ Detail ds vuqlkj lksuh gkWfLiVy] t;iqj ftls bu i`"Bksa ij lksuh gkfLiVy] fy[kk gS] ujs’k dqekj 'kkfiax lsUVj] dksVk ftls bues NKMK fy[kk gS] fodzekfnR; dkyksukbtlZ izk- fy- t;iqj ftls fodzekfnR; fy[kk gS ,oa vU; dks tSls Royal Shelter Pvt. Ltd. Jaipur dks ‘Entries’ Jh ckypUn iqjksfgr dh mijksDr dEifu;ksa ds Bank Account ls udn :i;k izkIr djds pSd dkV dj nh xbZ gS ftldk blds fooj.k gSA tSls 27-09-2004 dks 5]00]000@& lksuh gkWfLiVy] t;iqj ls udn izkIr gq, rFkk 28-09-2004 dks 5]00]000@& :- dk pSd dkV dj mls Entry ns nh xbZ Jh ckypUn iqjksfgr dh dEiuh Bhavika Credit Capital Pvt. Ltd. lsA blh izdkj lksuh gkWfLiVy] t;iqj ls 21-09-2004 dks 6]00]000@& udn izkIr gq;s rFkk 22-09-2004 dks lksuh gkWfLiVy] t;iqj dks 3]00]000@& & 3]00]000@& dks nks Entries Jh ckypUn iqjksfgr dh nks dEifu;ksa Artline Finvest Pvt. Ltd. ,oe Arpan Agro Pvt. Ltd. ls nh xbZA bu i`"Bksa ij ckbZ vkSj ikfVZ;ksa ls cash izkIr gksuk rFkk nk;ha vkSj Jh ckypUn iqjksfgr dh dEifu;ka }kjk Entries nsus dk fooj.k gSaA tks mu ikfVZ;ksa dks nh xbZA i`"B &18 ij NKMK dh dqN Entries Reverse gksus dk fooj.k Hkh fy[kk x;k gSA 10. He contended that the statements were recorded where the assessee was confronted on certain questions which reads as under:- iz- 16 Ñi;k crk;s dh bl daiuh esa bUosLVesaV izkIr djus rFkk [kjhn vkfn ls lacaf/kr fu.kZ; dksu ysrk gS\ mRrj& ;s lkjs fu.kZ; eSa gh ysrk gw¡A iz- 17 Ñi;k crk;s dh D;k vki fuEu daifu;ksa ds uke ls vFkok muls lEcaf/kr O;fDr;ksa ls ifjfpr gS\ 1- vuqfiz;k VªkaLQkeZy izk- fy- 2. Bequeen taxtiles ltd. 3. K.K. Petrocem Pvt. Ltd. 4. Kotputli Investment Pvt. Ltd. 5. Krishna Investment & Securities 6. Padam Bearing India Pvt. Ltd. 7. Sushila Cofin Pvt. Ltd. mRrj& esus bu daifu;ksa ns ckjs esa uk dHkh lquk gs uk gh eSa buls lEcaf/kr fdlh Hkh O;fDr;ksa ls ifjfpr gw¡A

(34 of 44) [ITA-12/2016] iz- 18& Ñi;k crk;s dh D;k vki fuEu daifu;ksa ds uke ls vFkok muls lEcaf/kr O;fDr;ksa ls ifjfpr gS\ 1. Anushree finlease pvt. Ltd. 2. Arpan Agro pvt. Ltd. 3. Artline finvest pvt. Ltd. 4. B.D. Finvest pvt. Ltd. 5. Bashpan Credit & capital 6. Bahvika credit capital pvt. Ltd. 7. Bengal Fine trade Co. pvt. Ltd. 8. Ganpati film Producers pvt. Ltd. 9. Ganpati software Co. 10. Great Eastern Movies 11. Jaitara Movies 12. Mahaveer trading Co. 13. Mahavir Industries 14. Mahaveer fincon Pvt. Ltd. 15. Rattangarh finlease pvt. Ltd. 16. Thar finance pvt. Ltd. 17. Vyas lefin pvt. Ltd. mRrj& esus bu daifu;ksa ds ckjs esa uk dHkh lquk gs uk gh eSa bu daifu;ksa ls lEcaf/kr fdlh Hkh O;fDr ls ifjfpr gw¡A iz-19& eSa vkidks ;g crkuk pkgw¡xk dh vkids mDr vLirky dks lapkfyr djus okyh d- lksuh gkWfLiVy izka- fy- ds fofr; o"kZ 2004&05 ds [kkrksa esa tks dh daI;wVj ij miyC/k gs ns[kus ij ;g ik;k x;k gS fd :-50 yk[k ds 'ks;j ,Iyhds’ku euh ftu daifu;ksa ls ysuk crk;k x;k gS muesa ls vusd ogh gS ftudh ckcr vHkh vkils Åij iwNk x;k gS pw¡fd eS- lksuh gkWfLiVy izk-fy- ds ekeyksa esa vafre fu.kZ; vkids n~okjk gh fy;k tkrk gS blfy, Ñi;k crk;s dh ;g fdl izdkj laHko gS fd vkidks bu d- ds ckjs esa irk gh ugha\ mRrj& tslk dh esus igys dgk gs fd 'ks;j ,Iyhds’ku euh ftu daifu;ksa ;k O;fDr;ksa ls eS- lksuh gkWfLiVYl izk-fy- esa vk;k eSa muls lEcaf/kr fdlh O;fDr ls dHkh ugha feyk esjs fe=ks ;k ifjfpr pkVsZM vdkmaVsaV us bl lEcU/k esa lykg nh esus vius finance lfPrvksa ds yksxks ls ftues dh nhid dsnkor] pkVsZV vdkmaVsUV] vkdk’k rksryk gs dgk dh os bu daifu;ksa dh 'ks;j ,Iyhds’kUl Hkyh Hkkafr ns[k ys eq>s crk;k x;k fd ;s lHkh daifu;k vk;dj foHkkx esa jftLVMZ gS vkSj budks PAN feys gq;s gS blhfy, fcuk vf/kd iwNrkN ds buls 'ks;j ,Iyhds’ku euh ds :i esa psd ys fy,A ;g lgh gS fd vkius ftu d- ds ckjs esa eq>ls iwNk muds gh dqN daifu;ksa ls 'ks;j ,Iyhds’ku euh gekjh daiuh esa izkIr gqbZ fdUrq eq>s bu daifu;ksa ds uke ;kn ugha jgs blfy, eSa vkidks ugha crk ldkA

(35 of 44) [ITA-12/2016] 11. He also relied upon the observations of the tribunal which reads as under:- “4.1. He further argued that Hon’ble Gujarat High Court in case of Blessing Construction vs. ITO, (2013) 214 Taxman 645 (Guj.) had confirmed the addition u/s 68 which was challenged before Hon’ble Supreme Court and the Hon’ble Supreme Court has confirmed the order dated 13.09.2013 by rejecting SLP No. 29503 of 2013. The Hon’ble Gujarat High Court held that there was sufficient evidence in case of all the depositors, their bank accounts contained meagre balance shortly before sizeable amount of Rs. 1,00,000/- and upward were given to the assessee through such account. In such bank accounts, cash amounts were credited and immediately entire amount were withdrawn through issuance of such cheque in favour of the assessee. Nowhere their capacity to raise such amount for drawing cheque of sizable amounts was established. In short, therefore, the very enuineness of transaction was not established. 4.2. In case of CIT vs. T.S. Krishna & Co. Ltd., 315 ITR 163, the Hon’ble Delhi High Court has held that burden of prove is on the assessee to prove genuineness of the transaction, creditworthiness of creditor, identityof the creditor. The addition made by the AO under section 68 is justified. 4.3. The Hon’ble Delhi High Court in case of CIT vs. Youth Construction Pvt. Ltd. (2013) 357 ITR 97 (Del.) has confirmed the share capital under section 68 on the ground of creditworthiness and genuineness has not been proved by the assessee, wherein Lovely Export (supra) decision had been followed by the Hon’ble Delhi High Court. The ld. D/R further has drawn our attention on recent decision of Hon’ble Supreme Court in the case of N. Tarika Property Invest (P) Ltd. vs. CIT, (2014) 51 . Ltd. Taxmann.com 387 (SC) and argued that identical issue decided by the Hon’ble Supreme Court recently in the above case wherein share application money was subscribed through bank account cheque before depositing cash in respect to shareholders bank account. Therefore, AO was justified in making the addition on account of share application money under section 68 of the IT Act. It is further held by the Hon’ble Supreme Court that PAN blindly cannot be accepted as a proof for identity of individuals as it is generally issued without ascertaining the active nature of business activities. Therefore, the ld. D/R requested to reverse the order of ld. CIT (A).

(36 of 44) [ITA-12/2016] 4.4. At the out set, the ld. A/R reiterated the arguments as made before ld. CIT (A). The AO had not made addition indicating any particular section of I.T. Act. The assessment revealed that the addition of Rs. 99,00,000/- was purported to have been made for share application money received from 19 corporate entities and 3 individuals treating them as bogus. The ld. A/R argued that this issue is covered by the Hon’ble Supreme Court decision in the case of CIT vs. Steller Investment Ltd., 251 ITR 263 and CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195). He further relied on Hon’ble Jurisdictional High Court decision in the case of Shree Barkha Synthetics Ltd. vs. ACIT, 283 ITR 377 wherein Hon’ble Supreme Court decision in case of CIT vs. Steller Investment Ltd.(supra) had been followed by the Hon’ble High Court. The ITAT, Jaipur Bench in the case of Modi Air Product (P) Ltd. vs. ACIT, 31 Tax World 41) has also followed the decision of Hon’ble Supreme Court in the case of CIT vs. Steller Investment Ltd. (supra). He further relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Gangour Investment Ltd. dated 30.1.2009, wherein similar additions on account of share capital was disallowed by the AO under section 68 but Hon’ble Delhi High Court has allowed the appeal on the ground that assesee has filed subscription forms to prove the identity and addresses of the applicant, PAN. The assessee has been able to discharge its onus in respect of veracity of the transactions. He further relied on the decision of Hon’ble ITAT Chandigarh Bench in case of ITO vs. Dr. R.L. Narang (2008) 174 Taxman 96 merely referring the statement of third party and addition made under section 68. The assessee had received share application money through banking channel which proved that applicant is existed and is a living person because an account was opened by the bank as per the Reserve Bank of India norms. It was further argued that Hon’ble Jurisdictional High Court in the case of CIT vs. Supertech Diamond Tools Pvt. Ltd. (2015) 229 Taxman 62 (Raj.)(HC) wherein addition made under section 68 on the basis of Third Party statement made behind the back of the assessee and no opportunity of being heard or cross examining Third Party was provided to the assessee and confirmed the order of the lower authorities for deleting the addition. Further, Hon’ble Allahabad High Court in case of CIT vs. Vacmet Packaging (India) Pvt. Ltd.,(2014) 367 ITR 217 (All.) held that assessee had filed documentary evidence consisting of share application forms, copies of bank accounts of the share applicants, copies of the income-tax returns of the share allottees, balance sheets and copies of share allotment certificates and of the Board’s Resolution of the share applicants, and

(37 of 44) [ITA-12/2016] on that basis the Hon’ble High Court held that variation of the transaction had been established by calling the documents and assessee has discharged its onus establishing the identity, creditworthiness and genuineness of the transaction. Therefore, he requested to uphold the order of ld. CIT (A). 5. We have heard rival contentions and perused the material on record. There was a search on M/s. B.C. Purohit & Co. on 12.04.2005 and detailed investigation was made by the Department on the basis of evidence collected. During the course of search, it was found that assessee was providing entries in form of gift, loans, share application money, share investment and long term capital gain in shares not only to the assessee but other cases also. On the basis of this search, the assessee was also covered under section 133A of the IT Act in survey proceedings on 03.05.2005 to confront these evidences. As per Annexure-A3 seized from residence of Shri Bal Chand Purohit situated at G-1/103, Kamal Apartments, Bani Park, Jaipur during the course of search revealed that there was an entry of cheque and cash received from various parties. There are number of companies on page 20 of this Annexure- A3 and on page 21 there were details of entries provided with amount. The name of the assessee company also figured on these pages and the modus operandi admitted by Shri Kripa Shankar Sharma in his statement recorded on 12.04.2005 that cash was received from the entry receiver parties and cheques were issued through various companies opened by Shri Bal Chand Purohit Group. He categorically admitted on 21.09.2004 that he received Rs 6,00,000/- in cash from M/s. Soni Hospital and on 22.09.2004 two entries of Rs. 3,00,000/- each were given to M/s. Soni Hospital which were routed through M/s Artline Finvest Pvt. Ltd. and M/s. Arpan Agro Pvt. Ltd. Similar other details were also found in seized material. The companies were managed by Shri Kripa Shankar Sharma for providing accommodation entries and he was getting commission by providing accommodation entries. It is further found fact that Shri Sunil Verma, a peon, has been shown as Director in number of companies who had also admitted on 26.04.2005 that these companies did not have any business but providing entries by receiving cash from the beneficiaries and after depositing in the bank account of these companies, cheques are issued to the beneficiaries. Some of the companies' addresses were found on vacant plots. This group not only providing accommodation entries to the assessee but other persons also. The AO issued notices under Section 133(6) of the IT Act for verification but notices were

(38 of 44) [ITA-12/2016] received back with postal remarks" no such party exists at the given address", in case of share capital of Rs. 20,00,000/-. The ld CIT (A) followed the Hon'ble Supreme Court decision in case of M/s. Lovely Exports (Supra). But recently Hon'ble Bombay High Court in the case of M/s. Major Metals Ltd. vs. UOI, (2013) 359 ITR 450 (Bom.) by following Supreme Court decision in the case of Lovely Exports, 319 ITR 5 (SC) has held that creditworthiness and financial standing of the cash creditor is to be proved by the appellant under section 68 of the Act. The Hon'ble Gujarat High Court decision in the case of Blessing construction (supra) which has been confirmed by Hon'ble Supreme Court in SLP vide order dated 13.09.2013, wherein the creditworthiness in case of cash creditor is to be proved by the assessee. Recenty Hon'ble Delhi High Court in case of CIT vs. T.S. Krishna Kumar & Co. Ltd., 370 ITR 163 has held that under Section 68 the identity, genuineness and creditworthiness of the cash creditor is to be proved by the appellant. Repaying the loan through account payee cheque is not a conclusive evidence. The case law referred by the ld D/R of Hon'ble Supreme Court in case of N. Tarika Property Invest (P) Ltd. (supra) is squarely applicable in case of assessee. Now, after considering the Hon'ble Supreme Court decision in case of Lovely Exports (supra), we have come to the conclusion that in case of share capital, the creditworthiness along with genuineness of transaction, identity of person is also required to be proved by the assessee. Accordingly we reverse the order of ld. CIT (A). “ 12. He relied upon the following decisions:- In Commissioner of Income Tax Delhi-V vs. M/s. N.R.

Portfolio

Pvt.

Ltd.

(2012) (2013)263CTR(Del)456 it was held as under:- 6. In the present case, the assessee claimed that it received ` 35 lakhs from seven share applicants. Its assessment was reopened. The assessee did not attend the reassessment proceedings, and suffered an adverse order. On its moving an appeal, the Commissioner sought a remand report. The remand report, an exhaustive 41 page document, discusses threadbare the opportunities granted to the assessee, to establish the identity and creditworthiness of the share applicants. The report highlights, among other facts, the following salient features:

(39 of 44) [ITA-12/2016] (1) Share applications were received on 18.2.2004 but the shares were sent to the parties only on 15.6.2004; (2) The share applicants did not attend the proceedings despite summons under Section 131; most of the notices were received unserved; (3) The assessee, which was a stock broker, did not show any transactions in that activity, but was receiving dividends. However, it did not declare any dividend, to its investors. Its financial condition was such that there was no need to infuse fresh share capital; (4) The assessee's bank accounts showed large amounts of cash debits and credit entries. 7. This court is conscious of a view taken in some of the previous decisions that the assessee cannot be faulted if the share applicants do not respond to summons, and that the state or revenue authorities have the wherewithal to compel anyone to attend legal proceedings. However, that is merely one aspect. An assessee's duty to establish that the amounts which the AO proposes to add back, under Section 68 are properly sourced, does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website. One must remember that 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 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 reopening 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. At that stage, if it falters, the consequence may well be an addition under Section 68. This court recollects the robustness with which the issue was dealt

(40 of 44) [ITA-12/2016] with, in A. Govindarajulu Mudaliar v. CIT, : (1958) 34 ITR 807, in the following terms:- Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income- tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs. Having regard to the totality of facts and circumstances, particularly the remand report, which was not considered by the Commissioner (Appeals) and the ITAT in its proper perspective, this Court is of the opinion that the question of law requires to be answered in favour of the revenue, and against the assessee. The appeal is therefore, allowed, but without any order as to costs. 13. He contended that the matter is required to be considered on the facts of the case.

(41 of 44) [ITA-12/2016] 14. Mr. Mathur has also relied upon Section 3 of the Companies Act which reads as under:- (iii) " private company" means a company which, by its arti- cles,- (a) restricts the right to transfer its shares, if any; (b) limits the number of its members to fifty not including- (i) persons who are in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company: Provided that where two or more persons hold one or more shares, in a company jointly, they shall, for the purposes of this definition, be treated as a single member; 15. He contended that all applications which were filed within the knowledge of the assessee- Managing Director who while examining the questions no.16, 17 and 18 and finding which are given are required to be viewed very seriously. 16. We have heard counsel for the parties. 17. Before proceeding with the matter, it will not be out of place to mention that the matter was argued at length and we have examined the matter in detail. 18. Mainly the matter is based on facts and statement recorded of one Sh. Kripa Shankar Sharma who is connected with one of the firm which was alleged to have been dealing with the entry business in the name of M/s. D.C. Purohit and Company and the

(42 of 44) [ITA-12/2016] statement recorded by him could not have been relied upon and the assessee has contended that he is not knowing the man and thereafter the AO has proceeded on the basis of other evidence which was available and more particularly the statement which was on record namely the statement of Managing Director of the assessee pvt. Ltd. company which are recorded on 3.5.2005 and which is part of the record. We have gone through that record also. 19. It is true that in view of law declared by the Supreme Court in Lovely Export (supra), it is duty of the department and assessee is not duty bound to explain how the investment is made by investor. But in the peculiar facts where the company is private entity, a share application was not a public issue rather it was private application and statements which are recorded hereinabove in answer to question no.16, 17 & 18 raises a serious doubt about the genuineness of the transactions. While applying the law declared by the Supreme Court, the authority has to be very slow in giving benefit to the assessee because it now become a trend that all parties are taking advantage of the judgment of the Supreme Court without considering the facts of the case and are trying mis-interpret the judgment. 20. In our considered opinion, when the mere law declared by the Supreme Court is to be read plainly, no party should be allowed to take advantage of any nature which has come on record more particularly share applications of Rs.99 lacs which has come on record and the Managing Director as discussed above answered to questions that raises a serious doubt.

(43 of 44) [ITA-12/2016] 20.1 In our considered opinion, the answer to question by Managing Director that “I do not know that Company or nobody is known of the company” raises a serious doubt. 20.2 It is true that the Supreme Court has stated that it is not for the assessee company but merely production of PAN and everything is not sufficient when the statement of one of the person who was expert on the giving entries has specifically stated that the entries are given only on furnishing the cash by the persons whose names are given, the matter is required to be considered on facts very seriously. When the persons are taking a huge amount by way of investment only for the purpose of investing a huge amount in a hospital, the Managing Director being a professional ought not to have answer like this. But it seems that he has been advised to do so and he has put himself into trouble. 20.3 In our considered opinion, while considering the case, the tribunal has not committed any error in reversing the finding on the issue of application of Rs.79 lacs entries as reproduced by AO in para no.3 which we have reproduced above. However regarding application of Rs.20 lacs looking to the evidence on record, it seems that the tribunal has committed seriously error in reversing the finding of CIT(A) to that extent, the appeal of the assessee is required to be allowed. 20.4 We make it clear that the amount of Rs.5,97,059/- which has been deleted u/s 40a (ia), as no appeal was preferred by department in that view of the matter even if the tribunal has

(44 of 44) [ITA-12/2016] considered the matter, since it was not subject matter of appeal is required to be deleted. 20.5 In that view of the matter, the issues are answered partly in favour of the assessee and partly in favour of department. 21. The appeal is partly allowed to the aforesaid extent. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Bmg 32.