PUJA SYNTHETICS PVT. LTD.,JAIPUR vs. PCIT, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; ikWy jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 440/JP/2017 fu/kZkj.k o"kZ@Assessment Years : 2009-10 Puja Synthetics Pvt. Ltd. cuke Principle Commissioner of C/o Chir Amrit Legal LLP, 6th Vs. Income Tax (Central), Floor, Unique Destination, Opp. Rajasthan Times of India, Tonk Road, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACP8449D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Prakul Khurana (Adv.) jktLo dh vksj ls@ Revenue by : Smt. Roli Agarwal (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 12/12/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 09/03/2018 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. Pr. CIT (Central), Rajasthan dated 31.03.2017 for Assessment Year 2009-10 wherein the assessee has taken the following grounds of appeal:- “1. Under the facts and circumstances of the case and in law, the order dated 31.03.2017 passed by the ld. PCIT (Central), Rajasthan under section 263 of the Income Tax Act, 1961, setting

2 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan aside the assessment order dated 02.06.2014 is perverse, arbitrary and bad in law. 2. Under the facts and circumstances of the case and in law, the ld. PCIT (Central), Rajasthan has erred in holding order dated 02.06.2014 was erroneous and prejudicial to the interest of revenue. 3. Under the facts & circumstances of the case and in law, the ld. PCIT (Central, Rajasthan has erred in holding that enquiries regarding genuineness, identity and creditworthiness of the investors were not made during the assessment proceedings by the ld. AO.”

3 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan Mumbai. On receipt of this information, a proposal was submitted by the Assessing Officer to the ld. Pr. CIT along with relevant records for review of the assessment order passed earlier by him. 3. On receipt of the proposal from the Assessing officer and the relevant records, ld. Pr CIT noted that during search and seizure action conducted by the DIT (Investigation) Mumbai, it was revealed that Shri Praveen Kumar Jain and other persons of his group have been indulging in providing accommodation entries to the desiring persons in the form of share application money, share premium, loans, sales/ purchase transaction entries etc. It was also noted by the ld. Pr. CIT that the said facts of providing accommodation entries was admitted by Shri Praveen Kumar Jain in his statement recorded on oath u/s 132(4) of the Act wherein he also revealed the modus-operandi adopted by him in providing such accommodation entries through various concerns of his group. The ld. Pr. CIT also observed that the assessee company has also received two such accommodation entries of Rs. 6,50,000/- and Rs. 8,50,000/- as share application money at face value of Rs. 10/- and premium of Rs. 30 per for 37,500 shares totalling to Rs. 15 lacs from M/s Alka Diamond Industries Ltd., reported to be of Shri Praveen Kumar Jain an entry operator. The ld. Pr. CIT was therefore of a prima facie view that the assessment completed on 20.06.2014 by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue for the reason that the claim of the assessee company with regard to alleged receipt of share capital along with share premium shown to have been received from M/s Alka Diamond Industries Ltd. has been accepted by the Assessing Officer without conducting proper enquiries. Accordingly, the ld. Pr. CIT proposed to initiate proceedings

4 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan u/s 263 of the Act and a show cause notice was issued to the assessee company to respond as to why the assessment order so passed by the Assessing Officer on 02.06.2014 should not be set aside with the direction to make afresh assessment, after conducting the proper enquiries as warranted under the facts and circumstances of the case. 4. In response to the show cause notice, the assessee vide its submission dated 24.03.2017 submitted that the ld. AO vide letter dated 28.03.2014 has asked the assessee to furnish the details of the transaction carried out with M/s Alka Diamond Industries Ltd. and in response, the assessee vide letter dated 21.04.2014 submitted all the details/information required by ld. AO for verifying the genuineness of the transaction and the ld. AO also made further enquiries on the details/information submitted by the assessee. It was submitted that the said issue has already been dealt with by the Assessing Officer in detail during the assessment proceedings, and the assessment order has been passed after making proper enquiries and verification and after due consideration of the reply/submission of the assessee company. It was further submitted by the assessee company that where the assessment order was passed by the AO taking the view in the light of relevant law as applicable, a different view being taken by ld Pr. CIT on the same issue cannot be a basis to invoke provisions of section 263 of the Act. It was further submitted that third party statement of Shri Praveen Kumar Jain cannot be used against the assessee without allowing assessee an opportunity of cross examination. It was further submitted that M/s Alka Diamond Industries Ltd. is not controlled and managed by Shri Praveen Kumar Jain as per the details of the directors available on the MCA Website. It was further

5 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan submitted that the assessee has duly discharged the burden cast upon it u/s 68 of the Act as far as question of veracity of claim regarding share application money and premium is concerned during the course of assessment proceedings. 5. The ld. Pr. CIT considered the written submission filed by the assessee company and the material available on record and held that submission of the assessee company is not tenable. The ld. Pr. CIT observed that the sum and substance of the assessee’s submission is that the proper enquiries were conducted by the Assessing Officer before finalization of the assessment. Secondly, he observed that the assessee has contended that statement of Shri Praveen Kumar Jain cannot be used against the company without giving the assessee company an opportunity of cross examination. 6. The ld. Pr. CIT referred to the provisions of section 263 as amended with effect from 01.06.2015 as well as the CBDT circular No. 19/2015 dated 27.11.2015 and stated that with the amendment in the Act with effect from 01.06.2015, it is now clear if the ld. Pr. CIT forms an opinion on the basis of material available on record that the order has been passed by the Assessing Officer without making such enquiries or verification which should have been made under the facts and circumstances of that particular case, then the ld. Pr. CIT is well within his right to invoke provisions of section 263 and either cancel the assessment order with the direction to make a fresh assessment or modify the assessment order. It was held by the ld Pr. CIT that if adequate material existence on record for the ld Pr. CIT to form an opinion as aforesaid, the review of the order invoking the provisions of section 263 would be justified and perfectly in accordance with law.

6 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 7. In the above legal background, the ld. Pr CIT thereafter observed that besides Alka Diamond Industries Ltd., further examination of the records revealed various instances of the receipt of share capital with huge premium from several other companies whose credentials also appeared to be doubtful and questionable. Accordingly, another opportunity was given to the assessee to show-cause and in absence of any reply/explanation on behalf of the assessee company, he proceeded to examine the details in respect of each of the 7 companies wherefrom the share capital with the huge premium has been received by the assessee company totalling to Rs. 2.35 Crores. 8. It was observed by the ld. Pr. CIT that no independent enquiries have been conducted by the Assessing Officer to verify the genuineness of the transactions, creditworthiness as well as identity and existence of the alleged investors relating to alleged receipt of share capital along with huge premium. It was further observed by the ld. Pr. CIT that certain confirmation/affidavits etc. have been filed by the assessee company during the assessment proceedings before the Assessing Officer and perusal of these documents, it is seen that most of these documents prima facie revealed that none of the alleged investors company has been carrying on any business activities, none of them has been earning any significant income and most of them are shown to have been registered at the residential addresses. It was further observed that in most of the confirmations, the identity of the signatory to the confirmation has not been revealed and no indication under communication has been given about the nature of business activities or source of income of the alleged investors companies. It was accordingly observed by the ld. Pr. CIT that under such circumstances,

7 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan it was imperative for the Assessing Officer to carry out appropriate enquiries to establish the genuineness of the transactions, the identity and existence of the alleged investors company at the given addresses, identity of the directors/ Pr. Officers of such companies also their credit worthiness which could substantiate the genuineness of financial resources for making such huge investments as are shown to have been made by them. It was held by him that failure of the Assessing Officer to carry out such enquiries certainly makes the assessment order erroneous as well as prejudicial to the interest of the revenue. Thereafter in para 9.2 of his order, the ld. Pr. CIT has examined and highlighted specific discrepancies in respect of each of 7 companies and has observed that the most of these companies have bank account in the same bank that is Axis Bank and in most of the cases, the credits have been receipt in the bank accounts from M/s Shriti Enterprises and thereafter the funds are shown to have been transferred to the assessee company. It was held by him that the same appears to be the common feature in almost all the alleged investors company which appeared to be unrelated. However on the basis of analysis of transactions which seems to be part of the same syndicate. These unusual features themselves put a question mark on the genuineness of such companies. It was further observed by the Pr. CIT that: “9.3 The serious discrepancies and unusual features as pointed out in Para 9.2 above in respect of the alleged investor companies and most importantly, lack of adequate resources to make such huge investments as are shown to have been made by them, made it imperative for any Assessing Officer to have carried out appropriate enquiries in order to verify the

8 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan genuineness of the transactions, creditworthiness as well as identity and existence of the alleged investors relating to alleged receipt of Share Capital along with huge Premium from the above-referred companies. However, despite the case of the assessee company being a search case and despite glaring discrepancies in the documents furnished by the assessee company before him, the Assessing Officer failed to carry out necessary inquiries or verification which should have been made by him under the facts & circumstances of the case thereby making the assessment order passed by him erroneous as well as prejudicial to the interest of revenue. 9.4 As has been amply demonstrated on the basis of incontrovertible facts available on record, as discussed in the foregoing paragraphs, it is clear that in the case of the assessee company no enquiries or verification as were necessary and which ought to have been made by the Assessing Officer were made by him before passing the assessment order on 02.06.2014, wherein the returned income was accepted by him as assessed income. Thus, it is established that the assessment order passed by the Assessing Officer on 02.06.2014 is erroneous and due to such erroneous order, apparently, unaccounted funds introduced by the assessee company in its books of accounts in the guise of share capital with huge premium were accepted as genuine, thereby making the assessment order prejudicial to the interest of revenue as well.” 9. The ld. Pr. CIT also referred to the decision of Hon’ble Supreme Court in Malabar Industrial Company Ltd. vs. CIT 243 ITR 83 (SC)

9 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan wherein it was held that if the AO had passed the order without application of mind and accepted the assessee without any enquiry as been done in the instance case, the exercise of the jurisdiction by the Pr. CIT u/s 263 is justified. The ld. Pr. CIT has also referred to the decision of Hon’ble Supreme Court in case of Rampyari Devi Sarogi vs. CIT[1998] 67 ITR 84 (SC), Smt. Tara Devi Aggarwal vs. CIT [1973] 88 ITR-323 (SC), and Special Bench decision in case of M/s Rajalakshmi Mills Ltd. vs. ITO (ITA No. 1074/Mds/1987 dated 24.04.2009) and held that invocation of provisions u/s 263 in the instance case is perfectly in order and in accordance with jurisprudence so laid down by the judgment of Hon’ble Supreme Court and other authorities. 10. Regarding third party statement of Shri Praveen Kumar Jain, it was held by the ld Pr. CIT that the same is not the sole basis for invocation of provisions of section 263 of the Act and where the said statement is used during the course of set-aside proceedings against the assessee company, the Assessing Officer will provide an opportunity to the assessee to either cross examine Shri Praveen Kumar Jain or to produce necessary evidence to rebut or disapprove claim made by Shri Praveen Kumar Jain. The assessment order was accordingly cancelled with the direction to make afresh assessment after conducting proper enquiries with regard to genuineness of the share capital and share premium shown to receive from the 7 alleged investors companies as also to examine all other issues having implications on the taxable income of the assessee after giving adequate opportunity to the assessee company. 11. Against the said order, the assessee company is in appeal before us. The ld AR took us through the findings of the ld Pr CIT and has

10 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan reiterated the contentions so advanced before the ld. Pr. CIT. The ld. AR further submitted that an assessment order cannot be termed as erroneous unless it can be shown to be an order which is not in accordance with law. It was submitted that if the Assessing Officer in accordance with law makes certain assessment, the same cannot be termed as erroneous merely because the order should have been more elaborate according to the ld. Pr. CIT. In support, reliance was placed on the decision of Hon’ble Delhi High Court in case of Nabha Investments (P.) Ltd. vs. Union of India [2000] 112 taxman 465 (Delhi), J.P. Srivastava & Sons (Kanpur) Ltd. vs. CIT [1978] 111 ITR 326 (All.) and CIT vs. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.). It was further submitted that ld. Pr. CIT has not appreciated the distinction between lack of enquiry and inadequate enquiry. It was submitted that in the present case, the AO collected necessary details, examined the same and then finalized and assessment. It was accordingly submitted that it is not a case of lack of enquiry by the Assessing Officer. It was further submitted that the ld. Pr. CIT before passing the order u/s 263 should determine whether or not the Assessing Officer has applied his mind before completing the assessment proceedings and in the present case, the Assessing Officer has applied his mind in depth while passing the assessment order and in support, reliance was placed on the decision of Hon’ble Delhi High Court in case CIT vs. Sun Auto 189 taxmann 436 and other Tribunal decisions. It was further contended that the ld. Pr. CIT has stated in his order that the necessary enquiry was not made by the Assessing Officer before the passing the impugned assessment order. In this regard, it was submitted that if any enquiry which was necessary/important in the eyes of law of the ld. Pr. CIT was not made by the ld. Assessing Officer, then why such kind of

11 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan initiation was not taken by the ld. Pr. CIT to conduct such necessary enquiries by invoking his inherent powers before under the Act. It was submitted that in the instant case, the ld. Pr. CIT has only directed the Assessing Officer to make afresh assessment without himself enquiry which is not justified in the eyes of law. In support, reliance was placed on the decision of Hon’ble Delhi High Court in case of DIT vs. Jyoti Foundation [2013] 357 ITR 388 (Delhi) and ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi). It was further submitted that a view taken by the ld Pr CIT which is different from the view taken by the Assessing Officer cannot be the basis for invoking provisions of section 263 of the Act. It was further submitted that it is not known to the assessee as to whether statement of Shri Praveen Kumar Jain have been retracted by him or not and what is fate of the proceedings initiated by department against him and accordingly it was submitted that the same cannot be used against the assessee company for initiating the proceedings u/s 263 of the Act. It was further submitted that the ld. AO vide its order dated 28.03.2014 has asked the appellant to furnish the details of the transactions carried out with M/s Alka Diamond Industries Ltd. and in response, the assessee vide letter dated 21.04.2014 has submitted all the necessary details/ information as required by the AO. It was accordingly submitted that the allegation that the assessment was completed without making any enquiries during the assessment proceedings was not correct. It was further submitted that the ld. Pr. CIT has not disputed that no enquiry was made by the AO rather moot contention of the ld. Pr. CIT is that detailed enquiry was not made by the AO which is not justified in view of the decisions in case Nabha Investments (P.) Ltd. and Gabriel India Ltd. referred supra. Further regarding the allegation of the Pr. CIT that

12 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan no independent enquiries have been carried out by AO, it was submitted that notice has been issued u/s 136 to one of the investors company M/s Anchor Dealers Pvt. Ltd. on 12.05.2014 which shows that independent enquiries have been made by the Assessing Officer during the assessment proceedings. 12. It was further submitted by the ld AR that if the ld. Pr. CIT was of the view that necessary enquiries as made by the AO are not sufficient, he could have also made independent enquiries with such investors and in support, reliance was placed on the decision of Hon’ble Delhi High Court in case of ld. Pr. CIT vs. Delhi Airport Metro Express Pvt. Ltd., ITA No. 705/2017. Further reference was drawn to the decision of Co- ordinate Bench in case of Narayan Tatu Rane vs. ITO, Ward 27(1), Mumbai [2016] 70 taxmann.com 227 for the proposition that if the requisite enquiries have been made by the AO then such amended explanation to section 263 has no relevance. The ld. AR also referred to the decision of Co-ordinate Bench of the Tribunal in case of M/s Amira Pure Foods Pvt. Ltd. vs. The Pr. CIT dated 29.11.2017. It was accordingly submitted that the impugned order passed by ld. Pr. CIT deserve to be set aside and the appeal of the assessee may be allowed. 13. The ld. DR again took us through the findings of the ld Pr CIT and submitted that the ld Pr CIT has passed a detailed and speaking order highlighting the material available on record which prima facie show that the assessee company has taken the accommodation entries which was not available at the time assessment was completed. Further, the ld DR submitted that there was complete lack of enquiry by the Assessing officer where the AO has merely taken the assessee’s submissions on record and without following the basic procedure to

13 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan examine the documents and explanation so furnished and to carry out further verification to determine the identity and creditworthiness of the investor companies and the genuineness of the transaction. The ld DR further submitted that it is not a case that the ld Pr CIT has merely directed the AO for a fresh assessment rather he has examined in detail each and every transaction relating to seven investor companies and has highlighted the failure of basic test of determining the overall genuineness of these transactions and drawn our attention to Para 9.2 of the ld Pr CIT order. The ld DR further relied on the decision of Hon’ble Supreme Court in case of Daniel Merchants Pvt. Ltd. vs. ITO dated 29th Nov, 2017 wherein it was held that the law laid down in Subhlakshmi Vanijya Pvt ltd vs CIT reported in 155 ITD 171 (Kol) and Rajmandir Estates Pvt. Ltd. vs. Pr. CIT, Kolkata-III reported in 386 ITR 162 (Kol.) that CIT is entitled to revise the assessment order u/s 263 on the ground that AO did not make any proper enquiry while accepting the explanation assessee in so far as receipt of share application money is concerned cannot be interfered with. 14. We have heard the rival contentions and purused the material available on record. In the facts and circumstances of the case, the issues that arise for consideration are whether it is a case of lack of enquiry or a lack of adequate and proper enquiry on the part of the Assessing officer. Secondly, if it’s a case of inadequate enquiry, whether inadequate enquiry conducted by the AO empowers the ld Pr. CIT to invoke his revisionary jurisdiction under section 263 of the Act.

14 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan share and share premium @ Rs 30 per share from seven entities totaling to Rs 2.35 Crores during the year and issue of equivalent shares by the assessee company to these seven entities. From a tax point of view, once the Assessing officer is ceased of the matter that such transactions have taken place during the financial year as apparent from the face of the financial statements and there has been an increase in the share capital and also receipt of share premium thrice the face value of the shares, the assessee should be asked to explain the nature and source of such credit appearing in its books of accounts of the assessee and submit the requisite information/documentation/explanation in support thereof. The AO should thereafter examine whether the explanation so offered by the assessee establishes the three ingredients i.e. identity and creditworthiness of the investor company and genuineness of the transactions. What therefore has to be examined by the AO is whether the assessee company has discharged the initial onus placed on it under section 68 in terms of identity and creditworthiness of these investor companies and the genuineness of the transaction. In this regard, the contention of the ld AR is that the same has been duly discharged in the instant case. In this regard, it would be relevant to refer to the various legal authorities on the subject wherein the concepts of identity, creditworthiness, genuineness of the transaction have been examined and how the assessee can demonstrate the same through verifiable documentation and what steps the Assessing officer should take to verify the same. A large catena of the legal authorities (including the ones quoted by the ld AR) have been analysed by us (speaking through one of us) in exhaustive detail in case of ACIT Circle-1, Jaipur vs. Bright Metals Pvt. Ltd. Jaipur (ITA No.702/JP/14 dated

15 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 24.02.2017) and it would therefore be relevant to refer the same as under:

“3. In order to appreciate the rival contentions, we refer to various legal authorities on the subject which has been brought to our notice by both the parties. 3.1 In case of Navodaya Castle (P) Ltd (supra) which is a case of a private limited company, it is noted that the SLP has been rejected by the Hon’ble Supreme Court holding that the Court do not see any merit in the SLP against the order of Hon’ble Delhi High Court. In this case, the Hon’ble Delhi High Court has referred to catena of earlier decisions such as case of CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169, CIT v. N.R. Portfolio (P.) Ltd. [2014] 222 Taxman 157, CIT v. Sophia Finance Ltd. [1994] 205 ITR 98(Delhi) (FB), CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268, CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and CIT v. Nipun Builders & Developers [2013] 350 ITR 407 and has held as under: “12. The main submission of the learned counsel for the assessee is that once the assessee had been able to show that the shareholder companies were duly incorporated by the Registrar of Companies, their identity stood established, genuineness of the transactions stood established as payments were made through accounts payee cheques/bank account; and mere deposit of cash in the bank accounts prior to issue of cheque/pay orders etc. would only raise suspicion and, it was for the Assessing Officer to conduct further investigation, but it did not follow that the money belonged to the

16 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan assessee and was their unaccounted money, which had been channelized.

17 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan

18 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.

19 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan respondent-assessee, but with an order of remit to the tribunal to decide the whole issue afresh. One of the reasons, why we have remitted the matter is that the cross objections of the respondent- assessee questioning notice under Section 147/148 were dismissed as infructous and even if we decide the issue on merits in favour of the Revenue, the cross objections would got revived and require adjudication. The appeal is accordingly disposed of.”

3.2 We now refer to another leading case of Lovely Exports (P) Ltd. (supra) which has been considered and referred in Navodaya Castle case (supra) and which has also been quoted by the ld AR in support of its contention. It was a case of public limited company where shares were subscribed by public and the facts thereof have been set out in the judgment of Hon’ble Delhi High Court reported as Divine Leasing & Finance Ltd.[2008] 299 ITR 268. The petition for leave to appeal against this order was dismissed by the Hon’ble Supreme Court observing “We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.” In that case, the Hon’ble Delhi High Court has held as under: “6. We find it indeed remarkable that the attention of the Sophia Finance Full Bench had not been drawn to the decision of the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78, which if cited would really have left no alternative to the Full Bench but to arrive at the conclusion it did. The books of account

20 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan of the assessee contained three cash credits aggregating Rs. 1,50,000 allegedly received as loans from three individual creditors under hundis. Letters of confirmation as well as the discharged hundis were produced; but notices/summons sent to them remained unserved because they had reportedly ‘left’ that address. The view of the Tribunal was that merely because the assessee could not produce these three parties, there was nevertheless no justification to draw an adverse inference. This approach as accorded approval by the Supreme Court in these words : "In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a

21 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan conclusion could be arrived at, no question of law as such arises." (p. 84) 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 being laid almost entirely on an assessee which receives a gift.

22 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan income-tax assessees, the failure of the creditors to respond to the Department’s notices would not justify an adverse inference being drawn against the assessees. The Court also kept in perspective the fact that the documentation had also been produced by the assessee. It is obvious that the Supreme Court considered that in these circumstances the onus of proof had been discharged by the assessee. It is also palpable that the Supreme Court was of the further opinion that the Department had not discharged the burden of proof that had shifted to it, since it did nothing more than issue notices under section 131 of the Income-tax Act. Therefore, the Department ought to have made efforts to pursue these notices/creditors to determine their creditworthiness. These observations sound the death-knell for the contentions raised on behalf of the Department in the present batch of appeals. 13. 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 Revenue’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

23 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer 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 his suspicions and treat the subscribed capital as the undisclosed income of the Company. 16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/sub-scriber; (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 assessee. (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

24 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan and construe it, without more, against the assessee. (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.”

“38. The ratio of a decision (in case of Lovely Exports) has to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus

25 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 39. The case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC) exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in CIT v. Dolphin Canpack [2006] 283 ITR 190 , CIT v. Makhni & Tyagi (P.) Ltd. [2004] 267 ITR 433 / 136 Taxman 641 , CIT v. Antartica Investment (P.) Ltd. [2003] 262 ITR 493 / 133 Taxman 605 and CIT v . Achal Investment Ltd. [2004] 268 ITR 211/ 136 Taxman 335 . 16. We now refer to the decision of the Hon’ble Delhi High Court in case of Commissioner of Income-tax v. N.R. Portfolio (P.) Ltd [2014] 222 Taxman 157 which is again a case of a private limited company and which has been followed in case of Navodaya Castles(supra). In this case, the Hon’ble Delhi High Court has held as under:

26 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan “18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. 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 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 29. In CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), 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,

27 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 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 to 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 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.” 31. The respondent herein is a Private Limited Company. It is not the case of the respondent that the Directors or persons behind the companies making the investment in their shares were related or known to them. It is highly implausible that an

28 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan unknown person had made substantial investment in a private limited company to the tune of Rs.63,80,100/- and Rs.75,60,200/- in two consecutive assessment years 2002-03 and 2003-04 respectively without adequately protecting the investment and ensuring appropriate returns. Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation attitude before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. The facts of the present case noticed above speak and are obvious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large.” 17. We now refer to the decision in case of CIT vs. Shree Barkha Synthetics Ltd. (supra) wherein the Hon’ble Rajasthan High Court has held as under (head notes):

29 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan “The assessee having been asked to furnish explanation about the receipt of capital money on account of share application, had furnished the details of the identity of persons who had made such investments. The particulars of the receipt and GIR number of the persons, who had made such investments in the matter of companies registered under the Companies Act, 1956, were furnished. Notices of 5 companies out of 7 companies were received unserved with the remark of the postal department that they had shifted their addresses. But no attempt was made by the department to pursue the enquiry thereafter which, notwithstanding the remark about shifting of addresses, prima facie established genuineness of such companies as existing persons. It had come on record that another company did exist and was under liquidation, the existence of which at relevant time could not be doubted. Likewise, in the case of individual investors, the Tribunal had reached the finding that their identities had been established by the assessee. [Para 10]

Applying the principle enunciated by the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80F, the irresistible conclusion was that the conclusion of the Tribunal that the assessee had discharged his initial burden in respect of 6 companies and 9 individual investors, was based on evidence and additions made by the Assessing Officer were enquired into without pursuing correctness of material placed before it by the assessee. No question of law could be said to be arising in such circumstances in respect of finding arrived at by the Tribunal,

30 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan which was essentially a finding of fact and did not stand vitiated in law. [Para 11]”

31 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan “The further inquiry envisaged under section 250(4) is generally by calling what is known as 'remand report'. The purpose of this enabling clause is essentially to ensure that the matter of assessment reaches finality with all the requisite facts found. The assessment proceedings reopened on the basis of preliminary satisfaction that some part of the income has escaped assessment, particularly when some unexplained credit entries have come to the notice (as in section 68), cannot conclude, save and except by reaching satisfaction on the touchstone of the three tests mentioned earlier; viz. the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the Assessing Officer to start inquiring into the affairs of the third party. [Para 39]

The Commissioner (Appeals) and consequently the Tribunal were right to the extent of their conclusion that the assessee had come up with some proof of identity of some of the entries in question.

32 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan But, from this inference, or from the fact that the transactions were through banking channels, it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established. [Para 41] The Assessing Officer here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But the Commissioner (Appeals), having noticed want of proper inquiry, cannot close the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of the Tribunal, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under section 148 issued by the Assessing Officer, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a 'further inquiry' in exercise of the power under section 250(4). This approach not having been adopted, the impugned order of the Tribunal, and consequently that of the Commissioner (Appeals), cannot be approved or upheld. [Para 42]”

33 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan “In Lovely Exports (supra), the Supreme Court emphasized that the initial burden is upon the assessee to show as to the genuineness of the identity of the individuals or entities which seek to subscribe to the share capital. In the instant case, the Assessing Officer in his order, has produced the tabular statement describing the number of shares subscribed by the investors, the amounts paid by them, the individuals who paid the amount towards share capital and the gross income reported by each of such investors to the revenue. A look at that chart would show that the investors had, by and large, reported amounts far less as compared to the sums invested by them towards share capital. Furthermore, the Assessing Officer had, during the course of assessment, issued notices under section 133(6) to the investors - 28 of them responded; 2 did not receive the notice and 9 of them received the notices and responded but did not submit any confirmation. [Para 7] Having regard to the circumstances, particularly, the fact that these investors not only did not submit confirmation but had concededly reported far less income than the amounts invested, the assessee could not, under the circumstances, be said to have discharged the burden which was upon it. It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the Assessing Officer to afford any reasonable explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the revenue having discharged the onus if at all

34 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan which fell upon it. The assessee in this case was incorporated barely few months before the commencement of the assessment year, and there is no further information, or anything to indicate why its mark up of the share premium thousand fold in respect of the shares which were of the face value of Rs. 10 lakhs was justified. [Para 8]”

35 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan assessment proceedings. The information that assessee furnishes would have to be credible and at the same time verifiable. In this case, 5 share applicants could not be served as the notices were returned unserved. In the backdrop of this circumstance, the assessee's ability to secure documents such as income tax returns of the share applicants as well as bank account particulars would itself give rise to a circumstance which the AO in this case proceeded to draw inferences from. Having regard to the totality of the facts, i.e., that the assessee commenced its business and immediately sought to infuse share capital at a premium ranging between Rs. 90-190 per share and was able to garner a colossal amount of Rs. 4.34 Crores, this Court is of the opinion that the CIT (Appeals) and the ITAT fell into error in holding that AO could not have added back the said amount under Section 68. The question of law consequently is answered in favour of the Revenue and against the assessee.”

36 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan on record establishing that the money shown to have received as share application money, was as a matter of fact, unaccounted money belonging to the assessee company, the finding arrived at by the AO, which is based on suspicion, has rightly been held not sustainable in the eyes of law. Suffice it to say that the finding arrived at by the CIT(A), affirmed by the ITAT, which remains a finding of fact, cannot be said to be capricious or perverse.”

37 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 24. After going through the various legal authorities as narrated above, the legal proposition that emerges in the context of section 68 is as under:

24.1 Where any sum is found credited in the books maintained by the assessee, Section 68 requires that the assessee should offer an explanation about the nature and source of such sum found credited in its books of accounts to the satisfaction of the Assessing officer. In absence of explanation, or in the event of explanation being not found satisfactory, the sum so credited would be included in the income of the assessee.

24.2 The primary requirements, which should be satisfied cumulatively by the assessee in such cases is identification of the shareholder, creditworthiness of shareholder and the genuineness of the transaction.

24.3 The explanation offered and material submitted by the assessee in support of its explanation should be wholesome, credible and verifiable. These three requirements thereafter have to be tested by the Assessing officer not superficially but in depth having regard to the human probabilities and normal course of human conduct. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on it would shift leaving it to the Assessing Officer to start inquiring into the affairs of the third party.

24.4 Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three requirements, it is

38 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan nonetheless legitimate expectation of the process that he would bring in sufficient proof, which is credible and at the same time verifiable, so as to discharge the initial burden placed on him. Whether initial onus stands discharged would depend upon facts and circumstances of each case.

24.5 The degree of burden of proof on the assessee will vary from assessee to assessee. In case of private limited companies where shares are allotted through private placement to persons generally known to directors or shareholders, directly or indirectly, burden of proof is on higher pedestal as compared to public limited companies where the large scale subscription are offered through public issue and shares are subscribed by general public. In case of private limited companies, the Courts have laid down a strict approach in terms of satisfying such burden of proof.

24.6 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 money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on

39 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan the genuineness of the transaction and creditworthiness of the shareholder. It would be also incorrect to universally state that an inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves.

24.7 Unlike the case of private limited companies, in the case of public limited company which has gone for a public issue and got share subscriptions from prospective shareholders across the length and breadth of the country, the legal regime may not be the same. In such cases, 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, bank transactions details and other related KYC documents submitted along with the share application.

24.8 The word "identity" means 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 certificate of incorporation, PAN number or assessment particulars did not establish the identity of the person. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature

40 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan of business activity. The actual and true identity of the person or a company was the business undertaken by them. Further, these documents have their limitation and cannot be relied upon blindly when there are surrounding circumstances to show that the subscriber was a paper company and not a genuine investor.

24.9 In respect of the genuineness of the transaction and creditworthiness of the shareholder, it would be incorrect to state that the onus to prove the same stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each other; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation and due diligence to protect the investment and the pay back on such investment, whether the investor professes and was an angel investor, the object and purpose (profit motive) behind the investment and whether any dividend declared and distributed in the past or not. Whether share subscribers have their own profit making apparatus and were involved in any tangible business activity or were they merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. Creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of a cheque or by furnishing a copy of statement of bank account of share subscriber, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment.

41 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 24.10 The entire evidence available on record has to be considered and a reasonable approach has to be adopted. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction.

24.11 Where the assessee has discharged the initial 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, the burden of proof shifts on the Assessing officer. 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. If the Assessing Officer harbours any 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 or has no material in his possession, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.”

42 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan power of the ld CIT u/s 263 of the Act. The head notes of the said decision reads as under: “Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company? ■ As per section 68 where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. This section has received the attention of the Supreme Court and almost all the High Courts in numerous cases. It has been almost unanimously held that the burden under this section is discharged by the assessee only when the assessee proves three things to the satisfaction of the Assessing Officer, viz., identity of the creditor, capacity of the creditor and genuineness of the transaction. Onus under section 68 can be said to have been discharged only when the assessee proves identity and capacity of the creditor along with the genuineness of transaction to the satisfaction of the Assessing Officer. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the Assessing Officer can lawfully make addition.[Para 13.b.] ■ In case of a closely held company where the shares are issued to the family members or close friends/relatives, the burden of proof rests on the company to properly explain the identity and capacity of shareholders along with the genuineness of the transactions. Ex consequenti, the argument of the assessee that he was not obliged to explain the genuineness of share capital after having furnished preliminary details about the shareholders etc., is not capable of acceptance and hence rejected. In all cases, where the assessee fails to cumulatively prove to the satisfaction of the Assessing Officer, the identity and capacity of the shareholders along with the genuineness of the transactions there can be no escape from section 68.[Para 13.t.]

43 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1-4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective? ■ As per this proviso where any share capital etc. is credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the Assessing Officer. The essence of this amendment is that a closely held company is required to satisfy the Assessing Officer about the share capital etc. issued by it, in the absence of which, an addition under section 68 can be made in the hands of the company. If the amendment is accepted to be prospective, then it would mean precluding the Assessing Officer from examining the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition under section 68 notwithstanding the same being non-genuine. In the oppugnation, if the amendment is held to be retrospective, then it would mean that the Assessing Officer would have all the powers to examine the genuineness of share capital and share premium received by the assessee company on the touchstone of section 68. If the assessee fails to satisfy him on the identity and capacity of the subscribers and genuineness of transactions, then addition will be called for under section 68. [Para 13.w.] ■ It is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the

44 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum explaining the provision of the Finance Bill etc. [Para 13.x.] ■ Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively. The border line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. [Para 13aa] ■ On adverting to the language of section 68, it transpires that it refers

45 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan to 'any sum credited' in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision. Thus, it would extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to 'any sum credited', there can be no reason to restrict its application only to 'loans' and not to 'share capital'. The burden of proof under section 68 can be no different in respect of issue of share capital by closely held companies vis-à-vis loans or gifts. The High Court in CIT v. Maithan International [2015] 375 ITR 123/231 Taxman 381/56 taxmann.com 283 (Cal.), CIT v. Active Traders (P.) Ltd.[1995] 214 ITR 583/[1993] 69 Taxman 281 (Cal.), Mimec (India) (P.) Ltd. v. Dy. CIT[2013] 353 ITR 284/216 Taxman 157 (Mag.)/35 taxmann.com 319 (Cal.) and CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623/130 Taxman 153 (Cal.)a has specifically held that the three ingredients, viz, identity and capacity of creditor and genuineness of transaction are required to be satisfied even in case of issue of share capital by a closely held company. It shows that the intention of the legislature, as interpreted by the High Court, is always to cast duty on the assessee to prove the satisfaction of the three ingredients in case of transaction of issue of share capital by a closely held company in the same way as is in the case of transaction of loans. [Para 13. ab] ■ A careful perusal of the first para of the Memorandum brings out that the onus of satisfactorily explaining issue of share capital with premium etc. by a closely held company is on the company. Next para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus

46 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan of proof to be placed on the company. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the Assessing Officer and it was only with the aim of setting to naught certain contrary judgments which 'created doubts' about the onus of proof by holding that there was no requirement on the company to prove the share capital etc. and as such no addition could be made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. [Para 13.ad.] ■ Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the assessee being devoid of any merit, are hereby jettisoned. [Para 13.ae.] ■ Thus, the contention of the assessee that since the Assessing Officer of the assessee-company is not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 with effect from assessment year 2013-14 and hence the Commissioner by means of impugned order under section 263 could not have directed the Assessing Officer to do so, is unsustainable. [Para 13.ak.] Validity of orders passed under section 263 Whether the enquiry conducted by the Assessing Officer in such cases can be as a proper enquiry? ■ Though the Assessing Officer issued notices under section 133(6) but it failed to comprehend the rationale or logic behind issuing shares at such a high premium, nor to examine any of the directors of the

47 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan companies which were subscribers to share capital. It is highly improbable for any person having sound mind to purchase at arm's length the shares of a private limited company, hardly having any worth, with face value of Rs.10 at a premium of Rs.190. This mere fact should have been cornerstone for the Assessing Officer to embark upon further enquiry to unearth the truth. The genuineness of transactions of issue of share at such hefty premium in this background of the matter was under dark cloud and it skipped the attention of the Assessing Officer. [Para 17.c.] ■ Upon analysis of the business model of the assessee it was noted that shareholder companies of one company become investee companies of other companies and in turn, such later company, whose shares are purchased, further invest in the shares of other companies, so on and so forth. This is a striking example of circulation of capital from one company to another and the rotation is continuing in all the companies under consideration. It cannot be a sheer coincidence that hundreds of companies brought into existence, having link with each other and none of them doing any worthwhile business activity, come together to issue shares at such a huge premium. At best, this argument could have been taken into consideration if these companies had issued shares to its related companies at premium and invested the proceeds in some other business activity and not purchasing the shares of other related companies through such a circular route. This shows that the transactions of issuing shares at a premium to related companies and then purchasing the shares of other related companies at a huge market price and none of the companies has any worthwhile business activity, when considered on an overall basis, is nothing but a smokescreen. [Para 17.f.] ■ There remains no doubt whatsoever that in the given circumstances, the Assessing Officer conducted half-baked enquiry ignoring vital aspects which were required to be examined. If a company recently incorporated without carrying out any worthwhile business activity issues shares with face value of Rs.10 at a premium of Rs.190, the immediate concern of the Assessing Officer ought to have been to find

48 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan out as to whether the receipt of such a premium was justified and whether the parameters of section 68 stood complied with. In the instant case, the Assessing Officer merely issued notices under section 133(6) to some of the shareholders whose replies, indicating that they overtly purchased the shares at Rs.200 each, were kept on record. Putting a lid at the matter at that stage only, the Assessing Officer did not consider it prudent to examine such shareholders as to their capacity and genuineness of the transactions. Confronted with such peculiar and hair-raising circumstances, the Assessing Officer should have got alerted and dug the matter deep for unearthing the reality of the transaction. Unfortunately, nothing of this sort was done by him. It is a perfect citation for a complete non-application of mind by the Assessing Officer and of passing the assessment order in undue haste. [Para 17.h.] ■ Thus, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the Assessing Officer's is exceedingly inadequate and hence fall in the category of 'no enquiry' conducted by the Assessing Officer, what to talk of charactering it as an 'inadequate enquiry'. The highly inadequate enquiry conducted by the Assessing Officer resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. [Para 17.i.] Whether Commissioner can set aside the assessment order and direct the Assessing Officer to conduct a thorough enquiry, thereby interfering with the jurisdiction of the Assessing Officer conferred on him in terms of sections 142(1) and 143(2) of the Act? ■ A careful perusal of the provisions of section 142(1)/143(2) unveils that it is the prerogative of the Assessing Officer to require the information 'on such points or matters' as he may require. Ordinarily it is not possible for the Assessing Officer to inquire into each and every entry recorded in the books of account of the assessee. He has to exercise his acumen in extracting out the relevant points or matters on which he wants to concentrate. But, what is important in this regard is

49 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan that the operation of section 142(1)/143(2) comes to an end when an assessment is completed after examining such point or matters which the Assessing Officer feels to inquire before finalizing the assessment. It is only thereafter that the revisional powers of the Commissioner under section 263 can come into play for ascertaining if the Assessing Officer examined all the relevant points, which ought to have been examined. If the Commissioner, on examination of records of assessment, comes to the conclusion that the Assessing Officer failed to enquire into certain other relevant aspects which, in fact, necessitated thorough investigation, then he has all the power to revise the assessment order. In the instant case, the assessment already stands finalized and now the Commissioner is examining whether the Assessing Officer properly examined the facts of the case. In such circumstances, it is impermissible to have a recourse to the provisions of sections 142(1) and 143(2) for demolishing the order under section 263. [Para 18.b.] Whether inadequate inquiry conducted by the Assessing Officer empowers the Commissioner to revise the assessment order? ■ It is imperative for the Assessing Officer to conduct enquiry to satisfy himself about the genuineness of transactions. Scope of the term 'enquiry' can be diverse in different circumstances. There cannot be straight jacket formula to positively conclude as to conducting or non-conducting of 'enquiry' by the Assessing Officer. It depends on the facts and circumstances of each case. Where the facts are just ordinary and prima facie there is nothing untoward the recorded transaction, in such circumstances, the obtaining of the documents and the application of mind thereon, without a further outside enquiry, may mean that the Assessing Officer did conduct enquiry, leaving the question open as to whether it was a proper or an improper enquiry. But, where the factual scenario of a case prima facie indicates abnormalities and cry for looking deep into it, then a mere collection of documents cannot be held as conducting enquiry, leave aside, adequate or inadequate. In such later cases, only when the Assessing Officer, after

50 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan collection of the initial documents, embarks upon further investigation, that it can be said that he initiated enquiry. Where the facts of a particular transaction cry hoarse about its non-genuineness and even a casual look at such facts, prima facie, divulges foul play, then the alarm bell must ring in the mind of the Assessing Officer for making further examination. Collection of papers on record in such circumstances cannot be construed as conducting a proper enquiry. If in such circumstances, the Assessing Officer simply gathers documents and keeps them on record, then such nominal enquiry falls within the overall category of 'no enquiry' because of the inaction on the part of the Assessing Officer to read a writing on the wall. [Para 19.a.] ■ Thus, the instant case is a glaring example of not making relevant enquiry, which amounts to 'no enquiry' and hence it becomes a case of non-application of mind by the Assessing Officer. [Para 19.e.] Whether the order of the Commissioner was based on irrelevant consideration and was he supposed to point out specifically where the Assessing Officer went wrong in not properly examining the issue of share capital? ■ Where the Assessing Officer has made proper enquiry and still comes to a wrong conclusion, which renders the assessment order erroneous and prejudicial to the interest of the revenue, it becomes the duty of the Commissioner to expressly point out where the Assessing Officer went wrong on merits. But in a case, where no enquiry has been conducted at all or the so- called enquiry conducted by the Assessing Officer is as good as no enquiry, as is the case under consideration, in such circumstances, the Commissioner simply needs to point out those relevant aspects of assessment, which the Assessing Officer lost sight of, but were required to be properly probed. There can be no way for the Commissioner to tell erroneous approach of the Assessing Officer on merits in such circumstances because the view of the Assessing Officer on

51 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan merits is not available. Requiring the Commissioner to indicate where the Assessing Officer went wrong on merits in the cases of no enquiry cases, is like requiring an impossible thing to be done. It is axiomatic that the law does not require an impossible to be complied with. In the instant case the extent of enquiry conducted by the Assessing Officer, being as good as no enquiry, is sufficient in itself to empower the Commissioner for invoking his jurisdiction under section 263. Under such circumstances, no impossible burden can be cast on the Commissioner to show the positive leakage of income in concrete terms, when he has simply set aside the assessment order and restored this aspect of the assessment to the file of the Assessing Officer for making a proper enquiry and then deciding. [Para 20.g.] If the Assessing Officer has taken a possible view, can still the revision be ordered? ■ Where the Assessing Officer fails to conduct an enquiry or proper enquiry, which is called for in the given circumstances, the Commissioner is empowered to set aside the assessment order by treating it as erroneous and prejudicial to the interests of the revenue. In such circumstances, the Assessing Officer can't be said to have taken a possible view and it is not further required on the part of the Commissioner to expressly show where the assessment order went wrong. The very fact that no enquiry was conducted or no proper enquiry was conducted in the required circumstances, is sufficient in itself to invoke the provisions of section 263. [Para 21.g.]”

52 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan genuineness of the transaction. In this regard, during the course of hearing, the ld AR has drawn our reference to notice issued by the AO u/s 142(1) and as part of that, a standard questionnaire dated 28.03.2014 containing 25 odd questions, where the AO has asked the assessee company to furnish the name and address of the applicants/persons who have subscribed to shares during the year in prescribed format along with confirmations indicating their name and address, PAN, their ledger accounts and relevant bank statements. In response, the ld AR took us through the documents submitted for one of the investor companies namely, Alka Diamonds Industries Ltd as part of the assessee company’s submission dated 21.04.2014 wherein the assessee has submitted the details in the prescribed format specifying no. of shares issued, amount paid along with copy of confirmation, ledger account, bank statements and financial statements of the Alka Diamonds Industries. It was submitted by the ld AR that on similar basis, the documents of the other investor companies have been submitted before the AO. We however find that there is nothing further on record which has been brought to our notice as to the steps/actions taken by the AO to verify these documents except a solitary notice issued under section 133(6) to one of the investor companies namely, M/s Anchor Dealers Pvt Ltd. Now, if we look at the examination carried by the ld PCIT and discrepancy so noticed by him regarding these very documents so submitted by the assessee company, the picture that clearly emerges is that of glaring concern and discrepancies raising a question mark on the genuineness of these transactions. And the AO has merely kept these documents on record and closed his eyes and has put a lid at these matters and did not consider it prudent to examine such shareholders as to their capacity and genuineness of the

53 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan transactions. Here, we refer to the concerns and discrepancies so noticed by the ld PCIT in Para 9.2 of the impunged order in respect of transactions pertaining to each of these investor companies, with which we totally agree and which are as reproduced below: “9.2 As mentioned in Para 6.1 the assessee company has shown to have received Share Capital with huge premium from the following companies during the year: Amount in Rs. S. No. Name of the No. of Amount Amount of Total alleged investor shared shown to Premium amount (M/s) shown to have been shown to shown to have been received for have been have been issued shares received received 1. Alka Diamond 37500 37500 1125000 1500000 Industries Ltd. 2. Kinescope India 10000 100000 900000 1000000 Pvt. Ltd. 3. Naman Equipment 22000 220000 1980000 2200000 & Construction (India) Pvt. Ltd. (Mewar Equipment Pvt. Ltd.) 4. Valplast Ltd. 28000 280000 2520000 2800000 5. Trendy Knit Wear 26500 265000 2385000 2650000 Ltd. 6. Mangal Murti 33500 335000 3015000 3350000 Infrareal Pvt Ltd. (Convenient Housing Finance Ltd.)

54 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 7. Anchor Dealer Pvt. 100000 1000000 9000000 10000000 Ltd. Total 257500 2237500 20925000 23500000

During the course of assessment proceedings, certain confirmations purportedly issued by authorized signatories/Directors of above-referred alleged investor companies and copies of some other related documents were furnished by the assessee company, which are available on record. On perusal of these documents it is observed as under: a. Alka Diamond Industries Ltd.: Various documents such as confirmation, share application form, etc. are signed by someone as Director at one place and as Authorized Signatory at other place, but nowhere name of the said person is mentioned. Nowhere in the documents, the nature of business of the company has been indicated. The gross total income of the company for AY 2007-08 is shown as Rs. 55,190/- which is ample indication of lack of creditworthiness of the company. b. Kinescope (India) Pvt. Ltd: The company is shown to have been registered at an address, ie. 2/11, Ishwari Mension, Datta Mandir Road, Near Sangeeta Theatre, Malad (East) Mumbai, which appears to be a residential address. None of the documents filed by the said company bear the name of any of the Directors. Share application form does not bear any date. In the bank account of the company, the address of the company is shown as 60-B, Rajat Jayanti Complex, SCH No. 54, Vijay Nagar, Indore. The returned income of the company for AY 2007-08 is Rs. NIL. Obviously the company does not have the creditworthiness to make investment of Rs. 10,00,000/- shown to have been made in its

55 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan name in the books of the assessee company in the form of Share Capital/ huge Premium. c. Naman Equipment & Constructions (India) Pvt Ltd (Mewar Equipment Pvt Ltd): The company is shown to have been registered at residential address, i.e., Flat No. 11, 1st Floor, Yashwant, 5-341, Western Express Highway, Bandra (East), Mumbai. The affidavit purportedly filed by the company was sworn before a Notary in Indore. The affidavit has not been sworn by any Director of the company. It is purported to have been signed by an Authorised Signatory. However, no Authority by Board of Directors of the company is attached. In the same document, which is purportedly a confirmation, the address of the same branch of the Axis Bank from where cheques for investment of Rs. 22,00,000/- are shown to have been issued, is shown at two places, one in Indore and the other in Mumbai. How can the same Branch exist at two places? In the bank account, the address of Indore is given. Nowhere in the documents nature of business of the company is given. d. Volplast Ltd: The registered office of the company appears to be a residential address at 5/856, Kamla Apartments, 2nd Floor, Ghia Sheri Mahidha Pura, Surat. Nowhere on the documents, name of the Director is mentioned. In the bank account, the address of the company is mentioned as Room No. 9, Zaveri Building, Ground Floor, Charni Road, Mumbai. Most of the transactions are round-figures indicating the use of the account merely for routing of funds. Income as per return for AY 2007-08 is NIL. Obviously, the creditworthiness of the company to make investment of 28,00,000/- in Share Capital with huge Premium in the assessee company appears to be doubtful.

56 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan e Trendy Knit Wear Ltd: The address of the company at A-401, Pranay Nagar Cooperative Housing Society, Vajira Naka, Boriwali (West), Mumbai appears to be a residential apartment. Nowhere in the documents, the name of the Director is mentioned. As per statement of bank account, the address of the company is shown as 7- 150/B (826), Dharam Karam Road, Ameer Pet, Hyderabad. Income as per return for AY 2008-09 is Z NIL. Obviously, the creditworthiness of the company to make investment of 26,50,000/- in Share Capital with huge Premium in the assessee company appears to be doubtful. f Mangal Murti Infrareal Pvt ltd (Convenient Housing Finance Ltd.): The company is shown to have been registered at residential address, i.e., Flat No. G-1, 24 Kalpana Lok, Indore. The affidavit purportedly filed by the company was sworn before a Notary in Indore. The affidavit has not been sworn by any Director of the company. It is purported to have been signed by an Authorised Signatory. However, no Authority by Board of Directors of the company is attached. In the same document, which is purportedly a confirmation, the address of the same branch of the Axis Bank from where cheques for investment of Z 33,50,000/- are shown to have been issued, is shown at two places, one in Indore and the other in Mumbai. How can the same Branch exist at two places? In the bank account, the address of Indore is given. Nowhere in the documents nature of business of the company is given. Income as per return for AY 2008-09 is 1,99,613/-. Obviously, the creditworthiness of the company to make investment of 33,50,000/- in Share Capital with huge Premium in the assessee company appears to be doubtful. g. Anchor Dealer Pvt Ltd: The address of the company is shown as 36, Ganesh Chandra Colony, 4th Floor, Kolkata. As per statement of bank

57 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan account, the address of the company is shown as 30, Subhash Nagar, Ward No. 44, Bhilwara, Rajasthan. The assessee company is also based in Bhilwara. Income as per return for AY 2009-10 is Rs 746/- only. Obviously, the creditworthiness of the company to make investment of 1,00,00,000/- in Share Capital with huge Premium in the assessee company appears to be doubtful. Perusal of documents of most of the above-referred companies filed before the Assessing Officers reveal that most of these companies have bank accounts in the same bank, i.e., Axis Bank and in most of the cases the credits have been received in the bank accounts from M/s Shriti Enterprises and, thereafter, the funds are shown to have been transferred to the assessee company. This is found to be common feature in almost all the alleged investor companies which on the face of it appear to be unrelated. However, on the basis of analysis of transactions which seem to be part of the same syndicate. These unusual features themselves put a question mark on the genuineness of such companies.” 18. In light of above discussions and in the entirety of facts and circumstances of the case, we find that it is clearly a case whether the AO has failed to examine the basic and fundamental requirements to determine the identity, creditworthiness and genuineness of these transactions. If the AO has carried out the verifications of the documents as has been done by the ld PCIT, it would have surely put him on guard and prompted him to carry out further independent examination of these investor companies and there would not have been an occasion for the latter to invoke his revisionary jurisdiction. However, we find that the AO has failed to adhere to the basic standard operating procedures of examining such transactions especially in light

58 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan of glaring concerns so noticed and the assessment so completed is therefore clearly without due application of mind. Here, we refer to a recent communication issued by the CBDT dated 10.1.2018 wherein the CBDT has reiterated the standard operating procedure for examining the transactions in the context of section 68 of the Act. To our mind, the said communication doesn’t lay down any new standard operating procedure rather it emphasise and basically bring out a well down procedure for examination of transactions in context of section 68 of the Act and which should be followed by the Assessing officers and duly monitored and supervised by the Higher authorities. The said communication is reproduced as under: 46/151/2017-A&PAC-1 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes

Dated :10.01.2018

All Pr. Chief Commissioners of Income Tax Chief Commissioners of Income Tax-Central All Directors General of Income Tax (Inv.) Chief Commissioners of Income Tax-International Tax The Chief Commissioner of Income Tax-Exemptions

Madam/Sir,

Subject:- Standard Procedure for applying provisions of section 68 of Income tax Act,1961 —reg.

59 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan Assessing Officers should follow the sequence as noted below for applying provisions of section 68 of the Act:

Step 1: Whether there is credit of a sum during the year in the books of accounts maintained by the taxpayer.

Step 2: If yes, the assessee should be asked to explain the nature and source of such credit appearing in the books of accounts of the assessee.

Step 3: If the assessee offers no explanation, the sum so credited may be charged to income-tax as the income of the assessee at that previous year.

Step 4: If the assessee furnishes an explanation, the AO should examine whether the explanation so offered establishes the three ingredients i.e. identity of the creditor, creditworthiness of the creditor and genuineness of the transactions.

Step 5: Whether explanation of the assessee is reliable or acceptable? If yes, no further action is required and the sum so credited may not be charged to income tax.

Step 6: If the explanation so offered by the assessee is not acceptable or reliable, the AO should give a detailed reasoning in the assessment order for not accepting the same.

Step 7: The reasons for not accepting the explanation of the assessee should be communicated to the assessee.

60 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan Step 8: The order passed by the AO should be speaking one bringing on record all the facts, explanation furnished by the assessee in respect of nature and source of the credit in its books of accounts and reasons for not accepting the explanation of the assessee. Relevant case laws should be relied upon wherever possible.

The above questions are not exhaustive but illustrative and the questions and sequence may vary depending upon facts of each case.

The above procedure be brought to the notice of all officers working under your jurisdiction for compliance.

Sunita Verma Director (A&PAC) CBDT, Delhi

61 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan legal principles as has been reiterated by the Higher authorities and Courts from time to time, it is ordinarily expected that the AO should give due cognisance to such legal principles while examining a particular transaction and carry out necessary enquiries and verification. Where the AO shuts his eyes and the ld PCIT discovers the glaring discrepancies leading to non-satisfaction of cardinal test of identity, creditworthiness and genuineness of the transactions during the course of his examination of records, we donot think there is any infirmity or illegality in him exercising his revisionary jurisdiction u/s 263 of the Act. It is not a case where the Pr. CIT has set-aside the assessment rather he has examined these transactions and has carried out broad analysis of the documentation so submitted by the assessee company and has come to a conclusion, that the AO has failed to carry out adequate enquiries which he should have conducted especially in light of glaring discrepancies in the documentation so submitted by the assessee company which raises a question mark on the genuineness of the whole transactions and also in light of information received from Directorate of Income Tax (Investigation), Mumbai that the assessee company has taken accommodation entries from Praveen Jain, an entry operator.

“In all these cases, we find that the Commissioner of Income Tax had passed an order under section 263 of the Income tax Act, 1961 with the observations that the Assessing officer did not make any proper enquiry while making the assessment and accepting the explanation of the

62 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan assessee(s) in so far as receipt of share application money is concerned. On that basis, the Commissioner of Income tax had, after setting aside the order of the Assessing officer, simply directed the Assessing officer to carry thorough and detailed enquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court.”

In the result, the appeal filed by the assessee is dismissed.

Order pronounced in the open Court on 09/03/2018.

Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 09/03/2018 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

63 ITA No. 440/JP/2017 Puja Synthetics Pvt. Ltd., Jaipur vs. Pr. CIT (Central), Rajasthan 1. vihykFkhZ@The Appellant- Puja Synthetics Pvt. Ltd., Tonk Road, Jaipur izR;FkhZ@ The Respondent- Pr. CIT (Central), Rajasthan 2. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. xkMZ QkbZy@ Guard File { ITA No. 440/JP/2017} 6. vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत