BHAGWATI CONCAST PVT.LTD.,BHIWADI vs. ITO, ALWAR

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. 33/JP/2015 fu/kZkj.k o"kZ@Assessment Years : 2005-06 Shree Bhagwati Concast Pvt. cuke ITO Ward Vs. Ltd., Bhiwadi 2(3), Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCS8987C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Rajeev Sogani & Shivangi Samdhani (CA) jktLo dh vksj ls@ Revenue by : Ajay Malik (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 25/01/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 16/02/2018 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-22, Alwar dated 20.10.2014 for Assessment Year 2005-06 wherein the assessee has taken the following grounds of appeal:

“1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in making addition of Rs. 81,84,399/- under section 68 of the IT. Act, 1961 in connection with the share capital money received from various share holders. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the

2 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar facts of the case. Relief may please be granted by deleting the said addition of Rs. 81,84,399/-. 2. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of the ld. AO in making disallowance of Rs. 5,52,719/- on account of payment made to RSEB. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 5,52,719/-. 3. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in rejecting the books of accounts by invoking the provisions of section of 145(3) of I.T. Act, 1961 and making trading addition of Rs. 30,62,100/- by applying a G.P. rate of 1.84% on the estimated turnover of Rs. 4.50 crores. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by accepting the book results and deleting the said trading addition of Rs. 30,62,100/-.”

3 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar of allotment was filed with the Registrar of the Company. It was further submitted that as these shareholders have subsequently transferred their shareholding to other third persons, the assessee is finding it difficult to obtain their confirmation. The confirmation of the present shareholders who have bought the shares from the shareholders in respect of which, the impunged transactions are under consideration, were however furnished with their complete address, PAN and designation of the Assessing Officer. It was further submitted that any further information as may be required, the same may be obtained directly from the share holders or from their concerned Assessing Officer. 3. The submissions of the assessee was however not found acceptable by the Assessing Officer. As per the Assessing Officer, even though the assessee furnished details of share capital and share premium, it has not furnished the confirmation and other details with regard to investment made in share capital and premium receipts from nine specified persons amounting to Rs. 81,84,399/-. It was further held by the AO that it is necessary for the assessee to prove prima facie the transaction which resulted in share application and share premium by submitting proof which includes proof of the identity, capacity of the creditor or their share holder and lastly, the genuineness of the transaction. It was stated by the AO that merely establishing the identity of the creditor or the transaction have been routed through bank instruments is not enough. It was accordingly held by AO that assessee has not complied with the legal obligation to explain the source of share application money and the premium and even the confirmations have not been furnished and the amount was accordingly

4 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar treated as unexplained and added to the income of the assessee u/s 68 of the Act. 4. During the course of appellate proceedings before the ld. CIT(A), the assessee reiterated its submission made before the Assessing Officer and submitted additional evidence in the form of confirmations from the shareholders which have since been obtained by the assessee company. A remand report from the AO was called by the ld CIT(A). The AO in his remand report stated that the additional evidence so furnished by the assessee in respect of 9 persons by way of confirmation letter do not contain any date on them. Hence the additional evidence so submitted by the assessee may not be relied upon. In his rejoinder, the assessee submitted that the confirmation letters states clearly cheque no. and the date of cheque cleared from the respective shares holder’s bank account, therefore, it cannot be said that assessee has not mentioned the dates in the confirmation. It was submitted that merely because the date of signing on conformation is not mentioned, the same does not affect the genuineness of the transactions. 5. The ld. CIT(A) after considering the remand report and the rejoinder filed by the assessee observed that none of the share holders have discharged their respective obligation and the assessee has furnished scanty details after period of 5-6 years and the AO was handicapped on account of few details available with regard to the share holders. Accordingly, the AO was again asked to provide another opportunity to the assessee and also to make further detailed enquiries in the matter and submit a fresh remand report. The AO, thereafter, in his subsequent remand report stated that letters calling for information

5 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar u/s 133(6) were issued to all the 9 share applicants at the address given and available as per PAN records, through speed post on 07.08.2014. No information was received from any of the shareholders except from Sh. Devender Grover who has stated in this letter that no investment was made in the assessee company during the FY 2004-05. It was accordingly stated by the AO in his remand report that the assessee has not shown any interest in respect of its appeal and even one of the share applicants has refused about his investment made in the company. Accordingly, the addition made by the AO was correct and the same should be sustained. In its rejoinder, the assessee submitted that the AO made the addition u/s 68 only for want of confirmation and the said confirmations have since been filed during the appellate proceedings. It was submitted that copy of the share certificates indicating that the shares have since been transferrd by these nine persons were also filed and the address of the new shares holders were also supplied to the AO during the course of assessment proceedings. It was accordingly submitted that these prove the genuineness and the identity of the transaction. Regarding the confirmation from the original share applicants, the same have now been submitted and the assessee thereby has discharged the primary onus placed on it. Regarding the notices issued u/s 133(6), it was submitted that even though no compliance have been made. However, the said notices have not been returned back by the postal authority. Hence no fault can be cast on the assessee in terms of not supplying the correct address. Regarding refusal by one of the share holder Sh. Devendra Grover, it was submitted that assessee has not been supplied copy of notice issued u/s 133(6) and in absence of the same, it cannot be held again the assessee. It was further submitted that a copy of the

6 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar share certificates allotted to Sh. Devender Grover is enclosed and it was also submitted that the shares have since been transferred to Mrs Ranjana Malhotra. Therefore, the refusal of Sh. Devender Grover is not right that he has not invested in the share capital of the assessee company. It was submitted that the AO has not brought on record any contrary evidence to the confirmation so filed by the assessee. 6. The ld CIT(A) confirmed the addition so made by the AO and his relevant findings are reproduced as under:- “4.9 Having considered the material placed on record, I find that in this case the appellate proceedings have been fixed a number of times in the last about six years and only a few scanty details were filed to substantiate the sources of funds. Despite providing a number of opportunities to the appellant no evidence in the form of copy of bank account of the appellant, copy of their ITR filed, proof of identity of the share applicant in the form of voter card/passport etc. could be filed. The appellant was given another opportunity before the AO in the course of remand proceedings to produce the share applicants but the result remained the same. The appellant has rather justified the furnishing of few details to substantiate its contentions. 4.10 On examination of record, I find that no detail could be filed by the appellant to substantiate the identity of the applicant, creditworthiness of the share applicants and genuineness of the transactions. The AO has issued notices on the addresses furnished by the appellant but no one attended the proceedings or furnished any evidence. In fact out of all the share applicants only one applicant responded back and he also denied having made any investment in the

7 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar shares of the company. The appellant on being confronted with the remand report has made only bald statements and could not furnish any evidence to prove its contentions. Therefore, in the absence of any evidence to substantiate, I hold that AO was justified in invoking the provisions of section 68 of the IT Act. Accordingly, I confirm the addition of Rs. 81,84,399 made by the AO under this head.” 7. During the course of hearing, ld. AR submitted that during the year under consideration the assessee Company issued shares and received a total sum of Rs. 1,81,84,399 on account of share capital as well as share premium. 7.1 In the assessment proceedings, in order to substantiate the aforesaid receipts, the assessee Company submitted the list of share holders as on the year end having complete details of their name, address and PAN. It was also submitted that the shares were allotted as per the norms of Companies Act, 1956 and the entire payment was received through account payee bank instruments. 7.2 Out of the total no. of shareholders, confirmations in respect of 55% (details of which are tabulated below) of the share application money received during the year, could be filed before the ld. AO. Share Capital in respect of these share holders was found genuine and was accepted by the ld. AO. However, confirmations in respect of remaining shareholders (9 in number) could not be submitted during the assessment proceedings. For this sole reason, of non submission of confirmations, ld. AO added the amount pertaining to these shareholders aggregating to Rs. 81,84,399 (out of total sum of Rs. 1,81,84,399) u/s 68 of the IT Act, 1961.

8 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 7.3 Before ld. CIT(A), during appellate proceedings, remaining confirmations were filed as additional evidences which were also accepted by ld. CIT(A). Thus, the reason of addition by the ld. AO was mitigated before the ld. CIT(A). However, unfortunately, ld. CIT(A) confirmed the addition for all together different reason of non- appearance of these shareholders. It is submitted that even in respect of 55% of the share application money received, in respect of which no addition was made by ld. AO, the shareholders did not appear before him during the assessment proceedings. The contradictory stand taken by ld. CIT(A) deserves to be quashed. Share Securities Total Particulars Capital Premium Total Capital Issued during 33,01,600 1,48,82,799 1,81,84,399 the year Fresh issue accepted by ld. 20,00,000 80,00,000 1,00,00,000 AO % of fresh issue accepted by 55% ld. AO Fresh issue not accepted by 13,01,600 68,82,799 81,84,399 ld. AO % of fresh issue not 45% accepted by ld. AO

7.4 It is submitted that section 68 of the IT Act, 1961 has been amended w.e.f. 01.04.2013. Prior to amendment the only onus

9 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar contained in section 68 was proving the identity, genuineness and creditworthiness of the entities from whom share application money was received. The present case of the assessee Company falls in the pre-amendment period and, therefore, placing on record name, address, PAN, confirmations and providing that the money was received through banking channel will lead to sufficient compliance with regard to section 68. Thus, addition made and confirmed is bad in law. Reliance is placed on the decision of Hon’ble High Court of Bombay in the case of CIT-1 v. M/s Gagandeep Infrastructure Pvt. Ltd wherein it was held that the amendment in section 68 is prospective and not retrospective. Relevant extract has been set out for ready reference: “...(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential

10 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd.,(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit. (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law.” 7.5 Applying the ratio as laid down above, under the law, the assessee Company was not required to know the source of source and, thus, the onus required u/s 68 got duly discharged. Delivery of notices issued by ld. AO during remand proceedings u/s 133(6) to all the 9 parties further adds to the fact that identity stands established. 7.6 Attention is drawn on the table below, from which it is evident that the assessee has discharged its onus with regard to section 68 in

11 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar establishing identity, creditworthiness and genuineness of the share applicants. Name of Address PAN Confirmation Delivery Reply Mode PB Party of to of notice 133(6) receipt u/s 133(6) Aravali  -   - Bank 3 Enterprises Bank Hari Om     - 8 Trading Ravi Trading     - Bank 9- 10 Bank Tauraus     - 13- International 15 Asha Iron     - Bank 16- Trading Co. 17 Arun Bansal  -   - Bank 11 Devendra  -    Bank 12 Kumar Grover Sadhna     - Bank 6-7 Garg

12 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar Youdhvir     - Bank 4-5 Chouhan

7.7 Ld. CIT(A) erred in observing that no details could be filed by the appellant to substantiate the identity, creditworthiness and genuineness. In this regard it is submitted that from the perusal of table above it is evident that assessee Company has completely discharged its onus. 7.8 Reliance is placed on the following judicial pronouncements:  CIT v. ARL Infratech Ltd. [2017] 934 ITR 383 (Rajasthan)  Peoples General Hospital Ltd. [2013] 356 ITR 65 (Madhya Pradesh)  Arunananda Textile P. Ltd. (2011) 33 ITR 0116 (Kar.)  CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC)  CIT vs. Stellar Investment Ltd. 251 ITR 463 (SC)  CIT vs. Sophia Finance Ltd. 205 ITR 98 (Delhi)  Barkha Synthetics Ltd. vs. ACIT [2006] 283 ITR 377 (Rajasthan)  CIT vs. Morani Automotives (P.) Ltd. [2014] 45 taxmann. com 473 (Raj.) 7.9 Ld. CIT(A) erred in confirming the addition on the basis of non appearance of the share applicants. In this regard it is submitted that it cannot have any adverse inference. It is a settled legal proposition that when the assessee has provided complete details of the parties and

13 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar notices u/s 133(6) have been delivered to them, non appearance in the office of ld. AO cannot mean non action on the part of the assessee. Reliance is placed on the decision of Hon’ble Supreme Court in the case of CIT vs. Orissa Corpn (P) Ltd [1986] 25 TAXMAN 80F (SC). 7.10 Ld. CIT(A) further confirmed the addition on observing that only one applicant responded back and he also denied having made any investment in the shares of the assessee Company. In this regard it is submitted that Mr. Devendra Grover, who denied to have made any investment, was the share holder of the assessee Company. This fact is evident from the Share Certificate which clearly shows that Mr. Davendra Kumar Grover was issued 5000 shares on 31st August, 2004. During the remand proceedings it was requested by the assessee Company to provide the copy of notice issue u/s 133(6) so as to gather what led Mr. Devendra Kumar Grover to refuse. Ld. AO was duty bound to allow cross examination of Mr. Devendra Kumar Grover whose statement was used against the assessee Company because it is a pragmatic requirement of fair play in action. Reliance is placed on the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries, CIVIL APPEAL NO. 4228 OF 2006, dated 2nd Sept 2015, wherein it was held that where opportunity for cross examination is not given, it is violation of principles of natural justice. Relevant extract is set out here for the sake of convenience:

“..that - not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of

14 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar principles of natural justice because of which the assessee was adversely affected…”. 7.11 Without prejudice to above it is submitted the inspite of making a specific request for the copy of the notice as well as reply of Mr. Devendra Kumar Grover, the same was not provided to the assessee Company. In such a situation it shall be apt to hold that Mr. Devendra Kumar never denied.

7.12 Without agreeing, it is submitted that even if Mr. Devendra Kumar Grover denied, it cannot be assumed that the other share applicants also have not made any investment.

7.13 It is submitted that the lower authorities have not brought on record any evidence to prove that the share applicants were bogus. Further, there is no allegation that the share applicants belong to accommodation entry provider racket. Nowhere the ld. AO has suggested that the money received as share application money had actually flown from the assessee Company. In absence of such a finding, no addition can be made to the income of the appellant Company merely on suspicion. Ld. AO at best could have assessed such amount in the hands of the Share Applicants. Reliance is placed on the decision of Hon’ble Rajasthan High Court in the case of PCIT vs. Shubh Mines Pvt. Ltd. – Appeal No 96/15. “…In the considered opinion of this court, in absence of any cogent evidence 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

15 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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…”

7.14 It is submitted that the transactions are absolutely in accordance with the procedure laid down in the law and fully evidenced. No defects have been pointed out in these. Therefore, these transactions must be accepted as genuine. We rely on the ratio laid down by the Hon’ble Supreme Court in the case of Daulat Ram Rawatmull (1973) 87 ITR 349 (SC), wherein it was held that the onus of proving that the apparent was not real was on the party who claimed it to be so.

7.15 Attention is drawn towards the judgment of Hon’ble Rajasthan High Court in the case of CIT-I v. Pooja Agarwal ITA 385/20 wherein it was held that no addition can be made if the following conditions are satisfied:  The payments and receipts are through banking channel.  There is no trail which could substantiate that the cash has flown back to the assessee.  The transactions is supported by documents appear to be genuine transaction.

7.16 Without prejudice to above it is submitted that ld. AO rejected the books of account of the assessee Company and the said rejection is also affirmed by ld. CIT(A). It is settled legal proposition that once books are rejected no disallowance is permissible under the law by referring the same set of rejected books of account. Hence, the disallowance made is

16 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar bad in law. Reliance is placed on the following judicial pronouncements. Relevant extracts have been set out here for the sake of convenience:  CIT vs. G.K. Contractor [2009] 19 DTR 305 (Raj)  Nardev Kumar Gupta [2013] 142 ITD 303 (Jaipur - Trib.)  Cosmopolitan Trading Corporation (ITA No. 298/JP/2013) In view of the above the assessee Company discharged its onus and since nothing contrary has been brought on record by the Id. AO, transactions should be accepted as genuine and entire addition deserves to be deleted by allowing this ground of appeal. 8. The ld DR is heard who has vehemently argued the matter and relied upon the findings of the lower authorities.

17 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar No.702/JP/14) dated 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

18 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar assessee and was their unaccounted money, which had been channelized.

19 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar

20 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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.

21 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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

22 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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

23 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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.

24 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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

25 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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 and construe it, without more, against the assessee. (7) The

26 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.”

3.4 We now refer to the decision of the Hon’ble Delhi High Court in case of Commissioner of Income-tax v. Nova Promoters & Finlease (P) Ltd. [2012] 342 ITR 169 (Delhi), 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:

“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 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

27 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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 . 3.5 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:

“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

28 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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, 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

29 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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 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

30 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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.” 3.6 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): “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

31 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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, which was essentially a finding of fact and did not stand vitiated in law. [Para 11]”

32 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 3.7 In case of Riddhi Promoters (P) Ltd (supra), the Hon’ble Delhi High Court held as under: “6. It is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee's reliance upon the order of the Commissioner (Appeals) to contend that the sources of the funds were in essence as directors, is, in this context, of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. The creditworthiness of the share applicants had to be seen in the context of the assertion made by them or the materials presented before the Assessing Officer at the relevant time. The materials on record disclosed that some information from at least two individuals indicated that the money had not been given by them. The appeal is accordingly dismissed.”

3.8 In the case of Jansampark Advertising & Marketing (P) Ltd (supra), the Hon’ble Delhi High Court has held as under (Head Notes): “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

33 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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. 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

34 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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]”

3.10 In the case of Empire Buildtech (P) Ltd (supra), the Hon’ble Delhi High Court has held as under (Head Notes): “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

35 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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 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

36 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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]”

3.11 In the case of Ultra Modern Export(P) Ltd (supra), the Hon’ble Delhi High Court has held as under: “9. As noticed previously, the CIT (A) was of the opinion that the assessee had discharged the basic onus which was cast upon it after considering the ruling in Lovely Exports (P.) Ltd.'s case (supra). The material and the records in this case show that notice issued to the 5 of the share applicants were returned unserved. The particulars of returns made available by the assessee and taken into consideration in paragraph 3.4 by the AO in this case would show that the said parties/applicants had disclosed very meager income. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. This discussion itself would reveal that even though the share applicants could not be accessed through notices, the assessee was in a position to obtain documents from them. While there can be no doubt that in Lovely Exports (P.) Ltd. (supra), the Court indicated the rule of "shifting onus" i.e. the responsibility of the Revenue to prove that Section 68 could be invoked once the basic burden stood discharged by furnishing relevant and material particulars, at the same time, that judgment cannot be said to limit the inferences that can be logically and legitimately drawn by the Revenue in the natural course of 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

37 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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.”

3.12 In case of M/s Shubh Mines Pvt Ltd, the Hon’ble Rajasthan High Court has held as under: “(7) A bare perusal of the assessment order reveals that the AO has made the addition on suspicion which is based on the statements of third party Shri Asseem Kumar Gupta, admittedly, recorded in the back of the assessee. It has come on record that the share application money of Rs. 50,00,000/- was received from Moderate Credit Corporation ltd., a listed company. It is not disputed before this court that the investment made was received by account payee cheque and the same was refunded by an account payee cheque when the company dropped its project. In the considered opinion of this court, in absence of any cogent evidence 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

38 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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.”

3.13 In case of Softline Creations Pvt Ltd 387 ITR 636 (Del), the Hon’ble Delhi High Court has held as under: “(4) This court has considered the concurrent order of the CIT(A) as well as the ITAT. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of PAN numbers, to highlight the identity of the share applicants, as well as produced the affidavits of Directors. Furthermore, the bank details of share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their credit-worthiness. The AO chose to proceed no further but merely added the amounts because of the absence of the Directors physically present themselves before him. 6 We are of the opinion that no question of law arises, having regard to the concurrent findings of fact. The assessee has, in our opinion, complied with the law spelt out by the Supreme Court in CIT vs. Lovely Exports Pvt. Ltd. 216 CTR (SC) 195. The appeal is meritless and is consequently dismissed.”

39 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 4.1 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.

4.2 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.

4.3 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.

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

40 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar stands discharged would depend upon facts and circumstances of each case.

4.5 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.

4.6 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 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

41 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 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.

4.7 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.

4.8 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 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

42 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar there are surrounding circumstances to show that the subscriber was a paper company and not a genuine investor.

4.9 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.

4.10 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

43 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction.

4.11 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.”

44 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar company, the burden of proof is clearly on higher pedestal as compared to public limited company. It is not in dispute that the assessee company has submitted the particulars of the shareholders in terms of their name and address, number of shares allotted and amounting received towards the share capital and share premium. It is also a fact that these persons are initial subscribers to the share capital of the assessee company and the shares have been issued by the assessee company and the necessary filings have been made with the Registrar of Companies. It is also a fact that the said shares have since been transferred to the third persons. The confirmation from the said shareholders as well the new shareholders who have bought these shares are on record. The name and address of these shareholders are on record and notices issued by the AO u/s 133(6) at the said addresses though remain unanswered have not been returned by the postal authorities undelivered. Therefore, identity of the shareholders and genuineness of issuance of share capital by the assessee company is established in the present case. At the same time, we find it very unusual that investment in shares of the assessee company having face value of Rs 10 per share have been made at a premium which varies between Rs 15 to Rs 151 in individual cases during the same financial year. For instance, Taurus International has been issued 34000 shares at a face value of Rs 10 each carrying a premium of Rs 15 per share and Youdhivir Chouhan has been issued 14000 shares at a face value of Rs 10 each carrying a premium of Rs 151 per share. The same clearly raises an apprehension on the overall genuineness of these and other similar related share transactions during the year under consideration. The genuineness of the transaction is not just limited to issuance of share capital rather it is coupled and necessarily has to be understood

45 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar and read alongwith receipt and payment of share application money which is commensurate with the value of the shares being issued and allotted to and subscribed by the prospective shareholders. Why would a prospective shareholder invest in a company at a premium of Rs 151 per share when another shareholder is investing at a premium of Rs 15 only and that too, during the same financial year. What is the valuation methodology and justification for such premium variation, terms of issue and the payback which has been agreed and acted upon? These are some of the questions which remain unanswered. Atleast the assessee company should have come foreward and answered these questions by itself and for which it doesn’t have to depend upon the shareholders to establish the genuineness of these transactions.

46 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar shareholding to third persons and are not cooperating with the assessee company and sharing further information. The question is what is the course of action available with the AO in such cases when the fact of shareholding has been transferred to third persons has not been disputed by the Revenue. In our view, in such cases, where the AO has the necessary information in form of name, address and their PAN details, he should reach out to these shareholders directly as well as to the jurisdictional AO to seek the necessary information/documentation. In the instant case, the assessee company has furnished the name and address of all these shareholders for all nine persons and PAN detail in respect of six out of nine persons to the AO. Further, we note that during the appellate proceedings, the ld CIT(A) has called for a remand report from the AO and the latter has been specifically asked by the ld CIT(A) to conduct detail enquiries and submit its remand report not once but twice during the appellate proceedings. All that the AO has done is that he has issued the letters seeking confirmation from these persons under section 133(6) of the Act. It is true that except one person, rest all persons have not responded to 133(6) notice, however, the assessee cannot be held responsible for non-response by these persons especially where the notices have not been returned undelivered by the postal authorities and the fact that these are no existing shareholders in the assessee company. In such circumstances, the question is what has stopped the AO in writing a similar communication to his counterparts who have atleast 6 persons within their jurisdiction and sought their reply regarding disclosure of such investment in their return of income and source of such investment as may be apparent from their respective tax filings. However, we find that there is nothing on record to this effect. In our view, giving the

47 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar peculiar facts of the present case where the shareholders have since transferred their shareholding to third persons and were not cooperating with the assessee company in sharing further details as so claimed during the assessment and appellate proceedings, the AO should have taken the necessary steps in reaching out to his counterparts who have these six persons within their jurisdiction to seek the necessary information. 15. Now, coming to the contentions of the ld AR. The ld AR has submitted that during the year under consideration, the assessee company has issued shares and received a total sum of Rs. 1,81,84,399 on account of share capital as well as share premium. In the assessment proceedings, in order to substantiate the aforesaid receipts, the assessee Company has submitted the list of share holders as on the year end having complete details of their name, address and PAN and fact that the entire payment was received through account payee bank instruments. It was submitted that out of the total no. of shareholders, confirmations in respect of 55% of the share application money received during the year, could be filed before the ld. AO and the share capital in respect of these share holders was found genuine and was accepted by the ld. AO. However, confirmations in respect of remaining nine shareholders could not be submitted during the assessment proceedings and during the appellate proceedings, said remaining confirmations were filed as additional evidences which were also accepted by ld. CIT(A). In light of the same, it was submitted that for this sole reason of non submission of confirmations, the ld. AO added the amount pertaining to these shareholders aggregating to Rs.

48 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 81,84,399 and before the ld. CIT(A), the same was mitigated by filing the said confirmations. 16. We have given a careful consideration to the aforesaid contentions so raised by the AO. Firstly, it is not clear atleast from the reading of the assessment order and any other material on record that the AO has accepted the share application money in respect of 55% of the share transaction on the basis of confirmation obtained from the shareholders and filed during the assessment proceedings. There is no discussion regarding confirmation being filed by these shareholders representing 55% of the share transaction in the assessment order. Notwithstanding the same, nothing has been brought to our notice which demonstrates that these confirmations were filed by the assessee company and accepted by AO during the course of assessment proceedings. Further, we donot agree with the contentions of the ld AR that the addition has been made by the AO merely for want of confirmation from these nine persons. As we have noted above, the AO has stated clearly in his findings that even though the assessee has furnished details of share capital and share premium, it has not furnished the confirmation and other details with regard to investment made in share capital and premium receipts from nine specified persons amounting to Rs. 81,84,399/-. It was further held by the AO that it is necessary for the assessee to prove prima facie the transaction which resulted in share application and share premium by submitting proof which includes proof of the identity, capacity of the creditor or their share holder and lastly, the genuineness of the transaction. It was stated by the AO that merely establishing the identity of the creditor or the transaction have been routed through bank instruments is not

49 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar enough. It was accordingly held by AO that assessee has not complied with the legal obligation to explain the source of share application money and the premium and even the confirmations have not been furnished and the amount was accordingly treated as unexplained and added to the income of the assessee u/s 68 of the Act. 17. Another contention so raised by the ld AR is that the ld. CIT(A) confirmed the addition for all together different reason of non- appearance of these shareholders. It was submitted that even in respect of 55% of the share application money received, in respect of which no addition was made by ld. AO, the shareholders did not appear before him during the assessment proceedings and the contradictory stand taken by ld. CIT(A) deserves to be quashed. We are unable to accede to the said contention so raised by the ld AR in view of the following findings of the ld CIT(A) which are self explanatory and reproduced below for better appreciation: “4.9 Having considered the material placed on record, I find that in this case the appellate proceedings have been fixed a number of times in the last about six years and only a few scanty details were filed to substantiate the sources of funds. Despite providing a number of opportunities to the appellant no evidence in the form of copy of bank account of the appellant, copy of their ITR filed, proof of identity of the share applicant in the form of voter card/passport etc. could be filed. The appellant was given another opportunity before the AO in the course of remand proceedings to produce the share applicants but the result remained the same. The appellant has rather justified the furnishing of few details to substantiate its contentions.

50 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar 4.10 On examination of record, I find that no detail could be filed by the appellant to substantiate the identity of the applicant, creditworthiness of the share applicants and genuineness of the transactions. The AO has issued notices on the addresses furnished by the appellant but no one attended the proceedings or furnished any evidence. In fact out of all the share applicants only one applicant responded back and he also denied having made any investment in the shares of the company. The appellant on being confronted with the remand report has made only bald statements and could not furnish any evidence to prove its contentions. Therefore, in the absence of any evidence to substantiate, I hold that AO was justified in invoking the provisions of section 68 of the IT Act. Accordingly, I confirm the addition of Rs. 81,84,399 made by the AO under this head.” 18. In light of above discussions and in the entirety of facts and circumstances of the case, we deem it appropriate to set aside the matter to the file of the AO to examine the same afresh taking into consideration the above discussions. In the result, ground of assessee’s appeal is allowed for statistical purposes.

51 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar relates to preceding year and the same was disallowed and added to the income of the assessee. 20. Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A) and submitted that the assessee paid the same amount to RSEB as settlement against demand of previous year. It was submitted that demand was paid during the year under consideration and the same was accordingly claimed in the year of payment and settlement. The ld. CIT(A) held that in absence of any evidence being placed on record either before the AO or in the course of appellate proceedings, the expenses for the prior period cannot be claimed as deduction against the income of the current year. Accordingly he confirmed the disallowance so made by Assessing Officer. 21. Before us, the ld. AR reiterated the submission made before the ld. CIT(A). Without prejudice, it was also submitted that since books of accounts are rejected, no further disallowance can be made by placing reliance on the same set of books of accounts. 22. We have heard the rival contentions and purused the material available on record. Given that the payment has been made on 1.4.2004, the AO came to a conclusion that the payment pertains to an expenditure which pertains to the previous year and thus not found allowable. The ld AR contention is that the assessee paid the same amount to RSEB as settlement against demand of previous year and since the same was paid during the year under consideration, it was claimed in the year of payment and settlement. There is no dispute that the year in which the liability has crystallized, the assessee shall be eligible to claim the same. However, from the material available on

52 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar record, it is not clear whether the assessee has claimed the same in the earlier years to which the said payment originally belongs and whether the same was allowed for tax purposes. If it was already claimed and allowed in the earlier years, the AO is right in disallowing the same. Where it was not claimed and not allowed in the earlier years, the assessee shall be eligible to claim the same in the year under consideration. The matter is accordingly set-aside to the file of the AO to examine the said aspect of the matter and decide the same afresh. In the result, the ground is allowed for statistical purposes. 23. Regarding Ground No. 3 of the assessee’s appeal, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that assessee company has declared sales of Rs. 4,34,02,675/- on which gross loss of Rs. 22,34,097/- has been claimed. It was further observed by the AO that the assessee has declared sale price of Rs. 18821/- per ton as against cost price of Rs. 31,235/- per ton. It was further observed by the AO that there was fluctuatation in the power consumption vis-a-vis production of finished goods in different months wherein the assessee has shown consumption of power which ranges from 827 to 2293 units per ton. In absence of proper records with regard to the manufacturing and trading activities and in absence of any satisfactory explanation furnished by the assessee regarding the reasons for loss claimed and the difference between the cost price and sale price of finished goods and the fluctuation in consumption of electricity vis-a-vis production of finished goods, the AO rejected the books of accounts u/s 145(3) of the Act. The AO estimated sales of Rs. 4.50 crore and G.P rate was estimated at 1.84 % relying on the case of M/s Seth Alloys Pvt. Ltd., Bhiwadi and

53 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar trading addition of Rs. 40,62,100/- was made to the total income of the assessee. 24. Being aggrieved, the assessee carried the matter in appeal and submitted that not a single transaction of sales or purchases was found out of the books. It was further submitted that AO was not justified in taking the GP rate of 1.84% as declared by M/s Seth Alloys Pvt. Ltd., without giving a show cause notice. It was further submitted that it was not a comparable case as this company was an established unit and assessee’s business was closed for full previous year and for the year under consideration, it was run for part of the year with discontinuity in the production activity from time to time. The ld. CIT(A) stated that the appellant has failed to furnish any evidence in the course of appellate proceedings to contradict the findings given by the AO and no evidence has been filed in the form of purchases vouchers or expenses vouchers to justify the claim. Accordingly he upheld the rejection of books of accounts u/s 145(3) of the Act and the addition of Rs. 30,62,100/- made by the AO was confirmed. Now the assessee is in appeal before us. 25. During the course of hearing, the matter regarding rejection of books of accounts was not pressed. Hence, the ground of the assessee to this extent is dismissed as not pressed. 26. Regarding estimating of gross profit rate, the ld AR reiterated the written submissions which are reproduced as under: “3.1 It is submitted that after rejection of books of accounts, the only remedy available in law with the ld. AO is best judgment u/s 144. The provisions of section 144 of the Act provide for making the best

54 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar judgment after taking into account all the material which the AO has gathered. In making a best judgment, the AO must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. Therefore, the AO must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances and it must be honest guess work. In making best judgment assessment, the AO does not possess arbitrary powers to assess at any figure, he likes. He must be guided by rules of justice, equity and good conscience. A best judgment assessment is not a punitive assessment. 3.2 It is submitted that ld. AO is duty bound to provide assessee the opportunity to rebut the material or working on the basis of which the estimation for enhancing the returned income of the assessee was made. In the present case, ld. AO has straight away applied the GP rate of M/s Seth Alloys Pvt. Ltd. Bhiwadi. The reason provided by ld. AO was just that it has the same business than that of the assessee. Ld. AO did not provide the basic details of M/s Seth Alloys Pvt. Ltd to allow opportunity of rebuttal, by the assessee Company on the point whether the cases was comparable or not. Therefore, ld. AO frustrated the provisions of law by not providing the opportunity of rebuttal and by making arbitrary estimate by vaguely holding that the declared results are not reasonable. Ld. AO without disclosing the basis for arriving at the conclusion or providing any opportunity to rebut made the trading addition which is bad in law. In support, reliance is placed on the following judgments:  Dhakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC)

55 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar  S. Sarbhaiah Setty & Sons v. CIT [1967] 64 ITR 175 (AP)” 27. The ld DR has vehemently argued the matter and relied upon the order of the lower authorities.

56 ITA No. 33/JP/2015 Shree Bhagwati Concast Pvt. Ltd., Bhiwadi vs. ITO, Alwar In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 16/02/2018.

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:- 16/02/2018 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant-Shree Bhagwati Concast Pvt. Ltd., Bhiwadi 1. 2. izR;FkhZ@ The Respondent- ITO Ward 2(3), Alwar 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. 6. xkMZ QkbZy@ Guard File { ITA No. 33/JP/2015} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत