DCIT CIRCLE-1 vs. RANA PAPERS LTD,

ORDER PER ANADEE NATH MISSHRA, AM [A]. This appeal has been filed by Revenue against the impugned appellate order dated 27.03.2008 passed by Learned Commissioner of Income Tax (Appeals), Muzaffarnagar, [in short, “Ld.CIT(A)”] pertaining to Assessment Year 2002-03, on the following grounds:

“1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law & on facts by deleting the addition of Accommodation entries of Rs. 18,54,625/-, even when 11 months time was given by Assessing Officer for furnishing the evidences. The Hon’ble S.C. has held in 57 ITR 532, 53 ITR 623 that burden to prove nature and source of receipt was on the assessee, which has not been discharged by the assessee in this case.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

2. That the Ld. Commissioner of Income Tax (Appeals) has erred in law by deleting the share capital of Rs. 4,28,50,000/- , and addition made u/s 68. Notices u/s 144 dated 16-10-2007 and 6-11-2007 were served properly on the assessee but no share capital subscriber was produced before Assessing Officer and Ld. CIT(Appeals) ignored this fact, merely filing documents cannot be treated as sufficient evidences to prove genuiness of credit as reported in 140 ITR 151 (All.) and 50 ITR (SC).

3. That the Ld. CIT(A) has erred in law and on facts by deleting the addition of unsecured loans of Rs. 1,18,63,549/-. The Ld. CIT(Appeals) has accepted fresh / additional evidences produced before him and ignored the request of Assessing Officer to examine the same.

4. That order of the Ld. CIT(A) be set aside and that of the A.O. be restored.”

[B]. Vide Assessment Order dated 05.12.2007 passed u/s 148/143(3) of the Income Tax Act, 1961 (in short “the Act”). In this Assessment Order, assessed U/s 143(3) of I.T. Act, on income of Rs. 5,75,52,110 ( rounded off). The relevant portion of the Assessment Order is reproduced as under:-

“ Return of income in original was filed by the assessee company on 31-10-2007 declaring loss at Rs. 2,59,78,987/- which was processed on 15-1-2003 on the returned loss later on notice u/s 148 was issued on 12-12-2006 on the bais of incormation received from Director of Income Tax (Inv.-I), New Delhi through Commissioner of Income Tax Muzaffarnagar that the assessee company had received following accmmodation entries

Beneficiary Bank Value of entry Instrument No. Date of receipt Name of the entry given DD of P&S. B.MZR Rs. 2,00,500/- 146903 21 May, 2001 Shyam Lal DD of SBI. MZN Rs. 2,00,500/- 489663 24 May, 2001 Bansal Trading Co. DD of SBI. MZN Rs. 2,00,500/- 134049 24 May, 2001 Savitri Devi DD of P & SB. MZN Rs. 3,00,750/- 504104 26 May, 2001 Navneet Trading DD of P & SB. MZN Rs. 2,00,500/- 132636 26 May, 2001 Sita Devi DD of SBI. MZN Rs. 2,00,500/- 123564 02 June, 2001 Raj Rani Bansal DD of SBI. MZN Rs. 2,00,500/- 116579 02 June, 2001 Ram Prakash DD of SBI. MZN Rs. 1,50,375/- 144537 02 June, 2001 Shree Ram garg DD of P & SB. MZN Rs. 2,00,500/- 505261 03 July, 2001 Bansal Trading Co. Total Value Rs. 18,54,625/-

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Entry Operator’s Bank Name, Branch A/c No. From Entry given Jai Laxmi Co-operative Bank, Fatehpuri 12382 -Do- 3171 -Do- 11176 -Do- 1811 -Do- 1177 -Do- 12735 -Do- 10157 -Do- 14470 -Do- 3170

In response of notice u/s 148 Counsel of the assessee company filed reply on 05.01.2007 stating as under: 1. That the notice issued is time barred, bad in law and has been issued for no reason. In this ease, the return of income has already been filed on 3 1.10.2002 vide receipt no. 160(photo copy enclosed), 2. In the facts and circumstances the assessee is unable to understand the initiations of proceedings u s 148 147. Therefore, you are requested to please supply the certified copy of reasons as recorded by you on record. However, without prejudice to above, the return of income already filed on 31.10.2002 may please be treated as return of income in compliance of notice issued. Accordingly, assessee company was supplied copy of reasons vide this office Letter AAACR7902B/DCIT, Circle-1/MZN/06-07 dated 25.01.2007 and assessee was required to justify as how the proceedings of insurance of notice is time barred and bad in law as mentioned in the reply filed by the Counsel. Thereafter, notice u/s 143(2) and 142(1) issued alongwith the detailed questionnaire on 30.04.2007 and duly served upon the assessee company on 03.05.2007. The date was fixed for compliance on 07.05.2007 but no compliance was made on the date fixed nor any adjournment was sought. However, a letter dated 23.04.2007 was received on 07.05.2007 from the counsel wherein request was made for supply of reasons and ; adjourned the case sine die. Accordingly, assessee company was intimated that reasons have already been supplied vide letter dated 25.01.2007 and company was again asked to make compliance as per questionnaire dated 30.04.2007 and date was fixed for compliance on 11.06.2007 through notice u/s 142(1) dated 30.05.2007 attached with the reply. Again the compliance was made on the dated fixed nor any adjournment was sought. Hence notice u/s 148/ 143(2) /142(1) was issued on 06.11.2007 as under:

To, The Principal Officer, M/s Rana Papers Ltd., Jansath Raod, Muzaffarnagar,

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Sub: Assessment Proceedings u/s 148/143(3) of I.T. Act, 1961 A.Y. 2002-03 notice u/s 144 of the I.T. Act, 1961- Final opportunity- Regarding.

Please refer to the above, Your attention is invited to wards following notices issued from time to time and have already been served upon you.

1. Notice u/s 148 dt. 12.12.2006 served on 21.12.2006 2. Notice u/s 143(2) issued alongwith notice under section 142(1) and questionnaires and Annexure ‘A’ dt. 30.04.2007 duly served on 03.05.2007 fixing hearing on 07.05.2007. 3. Notice u/s 142(1) dt. 30.05.2007 fixing hearing on 11.06.2007 served on 05.06.2007 and notice u/s 144/142(1) dt. 16.10.2007 fixing 23.10.2007.

No compliance to the above notices except filing reply to the notice u/s 148 stating therein that return of income filed on 31.10.2002 be treated as filed in compliance of notice u/s 148 and asking for supply of reasons which were supplied vide this office letter F.No. AAACR7902B/DCIT/Cirlce-1/MZN/06-07 dated 25.01.2007. Non compliance of notices u/s 142(1) may entail penal action and expart assessment. Since it is an time barring matter and adequate opportunities have already been availed provided to you. You are therefore required to make compliance as per questionnaire dt. 30.04.1007 and to produce complete books of account. Your also required to explained the entires worth Rs. 18,54,625/- received from various persons through Jai Laxmi Co-operative Bank, Fatehpuri, Delhi details of which are given in the reasons supplied to you. The date is fixed for compliance on 14.11.2007. Please note if no compliance is made on the date fixed, assessment shall be framed expart as per provision of section 144 of the I.T. Act, 1961 on the basis of material available on record without further intimation. Notice u/s 142(1) also enclosed.

Sd/- (Dilip Singh) Deputy Commissioner of Income-tax, Circle-1, Muzaffarnagar,

This notice was served through Regd. Post and in response to this notice a reply was received though messenger of the counsel on 15.11.2007 as under- With reference to your notice u/s 142(1) dt. 30.04.2007 and your quarries letter same date and reasons for u/s 148 dated 25.01.2007, it is most respectfully submitted as under: That, the assessee is a private ltd. company enjoying income of manufacturing and kraft paper. In the year under consideration, the assessee Page 4 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. has got same Share Application Money for against which the Shares have been issued to the applicants. In this connection it is further submitted as below:

1. 1. That from the reason recorded u/s 148 it is not clear form the instrument no., whether, the entry belong to the assessee are not hence. some more elaborate and specific documentary evidence, if any, in your passions for u/s 148 available, the same may please be communicated so that proper compliance' reply can be made.

2. The assessee has receipt the money for purchase of shares through account payee demand draft only and the application are identifiable, assessed to tax and created worthy, in support of which the copies of the applications receipt for shares purchases are being filed for your ready reference.

3. It is further requested, that the assessee is filing the complete postal addresses of the applicants for your ready reference and it required the applicants may either be contacted u/s 133(6) or may be summons u/s 131. at the cost of the assessee, so that the real picture of these applicants will come out before the department The copies of Share Application are being enclosed as available with the assessee in support of amount received.

In any circumstances these entries cannot be assessed and considered accommodation entries as purposed because the assessee has already allotted shares to these parties. The assessee also relied on various judgments and staled that in the lasts and circumstances, to kindly dropped the re-assessment proceedings or in the alternative be completed on income returned. No other details information as required by the questionnaire dated 30.04,2007 were o books of accounts were produced. However, reply filed by the assessee company has duly been considered, but assessee’s request that the applicants should be summoned or contacted u/s 133(6). At this stage neither possible nor acceptable as it is an time taking process and assessee company deliberately passed time so that department may not enquire much more. Assessee has adopted delaying tactics and after 11 months this reply has been filed If it was the reply, company should have make this request earlier when notice u/s 148 was served or when assessee was served with a notice u/s 142(1) along with detailed questionnaire on 30- 4-2007 but at that lime assessee company slept over the matter Now company suddenly awaken and tiled these reply on 15-11-2007 when there is no time to make an enquiry. So far as more elaborate or specific documents are concerned, each and every thing has been mentioned in reasons copy of which has already been supplied. It is not understandable what type of clearety company requires. The company has tried to prove genuineness o! transaction on the basis of share applications form and demand draft etc. but merely filing of these documents could not be treated as sufficient evidence to prove genuineness of a credit ,[140 ITR 15I (AIl) 50 ITR (SC)]. Assessee's contention that since transaction was through banking channel, the same proved the genuineness of the transaction cannot not he accepted for the reason that there is no such law. There are large number of Courts decisions wherein this view has been upheld 255 ITR 573, 254 ITR 617, 214 ITR 801 (Sc.) 264 ITR 435 etc. The Calcutta High Court in the case of Bhola Sankar Cold Storage (P) Ltd. vs. JCIT 270 ITR 487 after referring Page 5 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. to various decisions held that where payment by cheque is not sacrosanct as it would not make a non genuine transaction as genuine. The burden to prove nature and sources of the receipt is on the assessee as held by the Hon’ble S.C. in 57 ITR 532 (SC) 53 ITR 623 (SC). In the case of Sumati Dayal vs. CIT 214 ITR 801 the Hon’ble SC has held that the burden or proof is on the assessee to prove that the amount’s credited in accounts do not represent income and the issue of genuineness of such credit I to be considered in the light to human probability and surroundings circumstances. In the instant case surrounding circumstances clearly speaks that assessee company has introduced its unaccounted money through accommodation entries. Therefore, assessee’s contention is not acceptable and accommodation entries of Rs. 18,54,625/- are treated as income from undisclosed sources and added to the income of the assessee company. (Addition Rs. 18,54,625/-) Share Capital In the year under consideration company’s authorized Share Capital has increased from Rs. 4,50,000/- to Rs. 9,05,00,000/-. The Issued, Subscribed and paid up capital in previous year was Rs. 4,08,98,000/- which in the year under consideration has increased to Rs. 8,37,48,000/-. Thus, there is increase of Rs. 4,28,50,000/- in the issued subscribed and paid up capital for which not details, evidences etc. have filed. The company was specifically required to file details of increase in Share Capital that is names, addresses, amount, mode of payment, sources and assessement particulars of the subscribers, confirmation with copies of Share Capital vide query no. 33 of the questionnaire attached with notice u/s 142(1) dated 30.04.2007. Assessee field reply on 3-12-2007 alongwith copy of Form No. 2 filed with ROC in respect of increase in mentioned. Assessee company has also filed copies of Share application and copies of Income Tax Return acknowledgment of I.T. Return could not be treated as sufficient evidence to prove genuineness of a credit. Reliance is also placed on Hon’ble SC decision is placed on 57 ITR 532, 53 ITR 623, 50 ITR , 49 ITR 112 35 ITR 416, 34 ITR 807 (All. S.S. decision). Considering all these facts and legal position the share application money received is treated as unexplained and will be added to the income of the assessee. (Addition Rs. 4,28,50,000) Unsecured Loans As per schedule for attached to balance sheet, company’s unsecured loans in the previous year and in the current year are shown as under- Current Year Previous Year From Directors 786549 180000 Inter-corporate deposits 28393812 17036812 29180361 17216812

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Thus, there is increase in unsecured loans of Rs. 1,19,63,549/- for which no details, evidence etc have been filed. Even names and addresses and amount has not been given attached with the return. Besides, as per annexure ‘I’ attached with Audit Report, the amount of loans taken during the year are shown as under:-

1. Shri Noor Salim Rana Rs. 6,38,675 2. M/s Doaba Rolling Mills (P) Ltd. Rs. 1,69,16,000/- Rs. 1,75,54,675/-

The assessee company was specifically required to file details of inter corporate deposits with confirmed copies of account. Assessee company filed reply on 3-12-2007 enclosing therewith details of unsecured loans as under:- S.No. Name Amount 1. Sh. Noor Saleen Rana Rs. 6,06,549/- 2. M/s Doaba Rolling Mills Ltd. MZN Rs. 51,90,000/- 3. M/s Sanjay Sales Corporation Rs. 10,00,000/- 4. M/s A.P. Enterprises, Chandigarh Rs. 3,00,000/- 5. M/s Bharat Trading Co. Rs. 12,00,000/- 6. M/s Paras Paper Co. Rs. 10,00,000/- 7. M/s Shree Sales Rs. 10,00,000/- 8. M/s Shyam Sunder & Co. Rs. 10,00,000/- 9. M/s Kraft Marketing Rs. 6,66,000/- Total Rs. 1,19,63,549/-

In support or to prove genuineness of these loans assessee has field copies of ledger account of the company duly signed by the company’s authorized signatory wherein date wise debit and credit entries are appearing. Neither these were signed by the loaner/ depositors nor separate confirmation letter or reply explaining sources of deposits/ assessment particular etc. have been given. Merely filing of copies of ledger account cannot be treated as sufficient evidence to prove genuineness of a credit as held by Hon’ble High Court of Allahabad 140 ITR 151 and Hon’ble SC 50 ITR 1. Reliance is also placed on 57 ITR 532, 53 ITR 623, 49 ITR 112, 35 ITR 416, 34 ITR 80(Al. SC. Judgment). In view of these facts unsecured loans of Rs. 1,19,63,549/- treated as unexplained and added to the income of the assessee.

(Addition Rs. 1,19,63,549/-) Income Tax Expenses:-

The assessee had debited income tax expenses at Rs. 58,415/- to the P & L account which is not allowable and same are added to the income of the assessee.

(Addition : Rs. 58,415/-)

Subscription & membership Expenses:-

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Assessee had debited to P&L account at Rs. 30,261/- under the head of subscription & member ship expenses but during the course of assessment proceedings not detailed / evidences has been filed. Therefore, same is added to the income of the assessee.

(Addition Rs. 30,261/-)

It is noticed from computation of income that the assessee company has deducted an amount of Rs. 2,67,74,200/- from the income worked out at Rs. 7,95,262/- and have shown loss at Rs. 2,59,78,987/- which has been carried forwarded to next year. The amount which has been deducted claimed to have been paid on account Finance Charges expenses related to earlier year and paid during the year Rs. 2,31,50,050/- and charges paid during the year but added to the income in 2000-01 Rs. 289,97,100/-. Since no evidence in this regard has been enclosed with the return of income nor filed during the course of assessment proceedings, the same is not allowable. Besides, there is no mention in the Audit Report by the Auditor in this regard. Therefore, no deduction on this account is being allowed. With these remarks the income of the assessee company is computed as under: Net profit as per P&L account Rs. 45,66,713/- Add: Depreciation for separate consideration Rs. 32,54,315/- Rs. 78,21,028/- Added back: 1. Penalty on PF debited to P & L a/c Rs. 22,676/- 2. Excise duty paid related to earlier year Rs. 6,45,131/- 3. P.F. paid delayed Rs. 32,655/-

Add:- 1. Addition as discussed above Rs. 18,54625/- 2. Addition as discussed above Rs. 4,28,50,000/- 3. Addition as discussed above Rs. 1,19,63,549/- 4. Addition as discussed above Rs. 58,415/- 5. Addition as discussed above Rs. 30,261/- Rs. 6,52,78,340/- Less:- Depreciation as per I.T. Rules (-) Rs. 67,40,444/- Rs. 5,85,37,896/- Less:- B Unabsorbed depreciation (-) Rs. 9, 85,783/- Rs. 5,75,52,113/- Rs. 5,75,52,110/- OR Assessed U/s 143(3) of I.T. Act, 1961 on income of Rs. 5,75,52,110/- interest u/s 234B- 14790045 have been charged. Issued notice of demand and challan Notice U/s 271 Page 8 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. (1)(c) has been issued separately as the assessee company has concealed particulars of its income and furnished in accurate parituclars of its income with the meaning of section 271(1)(c) read with explanation 1 of section 271(1)(c) of the I.T. Act. Penalty notice u/s 271(1)(b) are being issued separately for non compliance of notice u/s 142(1) on fixed dated Sd/- (DILIP SINGH) Dy. Commissioner of Income Tax, Circle-1, Muzaffarnagar.“

[C] Assessee preferred appeal before the Ld. CIT(A) against the aforesaid Assessment Order dated 05.12.2007. Vide aforesaid impugned appellate order dated 27.03.2008 the Ld. CIT(A) deleted the additions of Rs. 18,54,625/- (on account of accommodation entries), Rs. 4,28,50,000/- (on account of addition made U/s 68 of I.T.

Act towards share capital) and Rs. 1,18,63,549/- (on account of unsecured loans). The relevant portion of the order of the Ld. CIT(A) is reproduced as under:-

“The appeal has been filed against the order of DCIT, Cirlce- I, Muzaffarnagar passed u/s 143(3)of the Act lor assessment years 2002-03

2. In response to notice, Shri Dinesh Mohan, Advocate attended, filed written submission and argued the appeal.

Later, notices U/s 148 was issued on 12.12.2006 on the basis of information received from Director of Income Lax (lnv.1), New Delhi through Commissioner of Income-tax, Muzaffarnagar that the assessee company had received following accommodation entries:

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. The assessee objected to the 148 proceedings, on the ground that the proceedings were time barred.

3.1 Further, the AO issued notice, a detailed questionnaire in respect of the aforementioned entries. The assessee submitted that these persons were as mentioned above, and the money received was part of share application money. According to the AO, although the assessee gave various details and informations but did not produce these persons. The AO held that the assessee's request that applicants should be summoned or contacted U/s 133(6) was neither possible nor acceptable, as the appellant had used delaying tactics and had filed this reply after 11 months. According to AO, such request should have been made in response to initial questionnaire dated 30.4,2007.

The AO held that the assessee’s effort to prove the genuineness of transactions on the basis of share application forms/demand draft etc. could not be treated as sufficient evidence to prove the genuineness of a credit. The AO relied on 140 ITR 151 (All.) and 50 ITR (SC). The AO further stated that- the assessee’s contention that transactions were through banking channel; could not be accepted for the reason that payment by cheque would not make non genuine transaction as genuine. The AO added Rs. 18,54,625/- treating the same as income from undisclosed sources.

3.2 During the year, the company’s authorized share applicants had increased and correspondingly there was increase of Rs.4,28,56,000/- in the share capital for which the company was specifically required to file details and evidences, The assessee filed copy of form No.2 filing with ROC', which contain names, address and amount of shares allotted. Further, the assessee company also filed copies of share application forms and copies of Income- tax returns acknowledgement of these persons.

However, AO concluded that these were not sufficient evidences to prove the genuineness of credit and added entire share application money of Rs.4,28,50,000/- as unexplained income of the assessee.

3.3 The assessee was required to file details and evidences in respect of increase in unsecured loans to the extent of Rs.19,63,549/-. The assessee filed copies of ledger account of the company signed by the company's authorized signatory but neither these were signed by loaners or depositors nor the said confirmation letter or reply explaining the source of deposits etc. were filed. The AO, therefore, treated these amounts of Rs. 1,19,63,549/- as unexplained and added to the income of the assessee.

3.4 The AO disallowed Rs.58.415/- debited in profit and loss account as Income-tax expenses.

3.5 The AO further disallowed Rs.30,261/- debited under the head subscription membership expenses for which no details/evidences were filed.

4. Written submissions made by the appellant’s counsel during the appellate proceedings are reproduced as under:

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Sir, With reference \n the above, it A most respectfully submitted us under:-

That the assessee is a Private Limited Company carrying business of Manufacturing and Trading of Craft Paper which is a Raw-material for Packaging Industry mainly. The company is using Paper Scrap and Sugar Cane Baggasse and Taut a etc. as a Raw- material for pulping purpose and from that by adding certain chemicals, the Craft Paper is being manufactured. For the year under consideration, the Return of Income has been filed on a Book Profit of Rs. 45,66. 713=89 on which tax has been paid at Rs.4,00,000-00 under MAT. Along with Return of Income, the assessee has filed tax Audited Report as required U/S 44AB, Audited Balance Sheet, Profit & Loss Account and Other details. The assessee Company has maintained the regular and proper books of accounts during the ordinary course of business along with Manufacturing Record such as RG-J and Form IV as required under excise rules. That the assessment for Assessment Year 2001-02. 2003-04 and 2004-05 has also been complete U/S 143(3) under scrutiny, the copies of the assessment order (.ere on records. The Assessing Officer has made the following additions to the income of the assessee while completing the assessment U/S 143(3):-

1. 1. On account of Share Application Money at Rs. 4,23,50,000.00. 2. On account of Unsecured Loans at Rs., 1,19,63,549,00. 3. On Account of Income Tax Expenses at Rs. 58,415.00. 4. On account of Subscription & Member Ship Exp. at Rs. 30,261.00.

That the aforesaid additions and observation are highly arbitrary, unjustified and against the fact of the case.

1. Regarding addition of Rs.4,28,50,OO0.00 on on account of Share Application Money That, in the year under consideration, the assessee has received certain application money from different parties. The assessee appellant company has received the Share Application Money through account payee draft only.. The draft has duly been cleared by clearing house in the bank account of the assessee appellant company. The assessee company has already allotted shares to the Share applicant information of which has duly been remitted to the Registrar of Companies vide Form No. 2, copy of which is being enclosed for your ready Page 12 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. reference. Copy of All Share Holders alongwith Income Tax Return receipt are being enclosed. The assessee applicant company have amply proved identification of Share Holder. genuineness of transactions, his creditworthiness by filing the relevant evidences of the share holder. The assessing officer has not given the copy of evidence as obtained by him nor any opportunity to cross examine them has been allowed.

For invocation of section 68,proper enquiry is needed:- Section 6b empowers the Assessing Officer to make enquiry specifically to be satisfied regarding the cash credit. It he is satisfied that these entries are not genuine he has every right to add these amounts as income from other sources . The satisfaction of the Assessing Officer is the basis of invocation of the powers under section 68 and the satisfaction must be derived from relevant factors on the basis of proper enquiry envisaged under section 68 is an enquiry which is reasonable and just [Khundelwal Construction v. CIT,(1997)227 JTR 900,904( Gauh )]f In the facts of that case ,it has been held that the amount of cash credits could not be included in the total income of the assessee because the enquiry was not properly made.

Amount found credited in the books of a company as receipt of shore application money:- Section 68 is very widely woeded and the Assessing Officer is not precluded from making an enquiry as to the nature and source of a sum credited in the books of account of the assessee-company even if the same is credited as receipt of share application money . Where, therefore ,an assessee-company represents that it has issued shares on receipt of share application money they the amount so received would be entitled to enquire ,and it would indeed be his duty to do so, whether the alleged shareholder do in fact exist or not .If the shareholder exist then, possibly, no further enquiry need he made. But if the Assessing Officer finds that the alleged shareholder do not exist then , in effect fit would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words may he charged' in section 68 clearly indicates that the Assessing Officer would then have the jurisdiction, if the facts so warrant, to treat such a credit to the income of the assessee [CIT v. Sophia Finance Ltd.(1994)205 ITR 98, 104, 104-05(Del-FB)f. In view if this Full Bench decision ,the observations in CFf v. Stellar Investment Ltd.f(1991) 192 ITR 287, 288 (Del)] to the effect that 'even if it be assumed that the subscribes to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee 'cannot be regarded as laying down the correct proposition of law. Also see, CIT v. Active Traders (P)Ltd., (1993)115 CTR (cal)69,72; CIT v. Kwick Travels, SLP (Civil)No. 15056 of 1992: (1993)199 ITR (St.)85-86(Sc) ; CIT v. Prateek Finance & Investment Co. Ltd.,(1995)215 ITR 272 (del).

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. As laid down by the Supreme Court in CIT v. Durga Prasad More 1(1997) 82 ITR 540, 545,547(sc)], apparent must he considered real until it is shown that there are reasons to disbelieve that the apparent is not the real and that the taxing authorities are entitled to look into the s urrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities .

When a question arises as to whether a cash credit appearing in the books of account of an assessee has to be accepted or to be rejected and addition to be made in accordance with section 68, the assessee is required to establish the identity of his creditor, the capacity of the creditor to advance the money and the genuineness of the transaction. If the assessee iestablished the aforesaid three pre- conditions, then it would be for the Department to disprove the same /CIT v. Buishnab Charan Mohanty,(1995)212 ITR 199,201 ( Ori)/. In the facts of that case, the Tribunal was held justified in holding that the transactions appearing in certain names were genuine transactions and the addition made under section 68 was untenable.

In order to establish the fact of the receipt of the cash credit as required under section 68, the assessee must prove three important conditions .namely.) I) the identity of the person, (2) the genuineness of the transaction, and (3) the capability of the person giving the cash credit IJ(dan Timbers v.CIT, (1997)223 ITR 11,17 (Gauh)j

The Assessing Officer’s rejection, not of the explanation of the assessee, but of the explanation regarding the source of income of the depositor, cannot by itself lead to any inference regarding the non- genuine or fictitious character of the intries in the assessee s books of account /Sarogi Credit Corporation b, CIT,(1976) 103 ITR 344, 349-50(Pat)].

There cannot be one general or universal proposition of law which could be the guiding yardstick in matter ,Each case has got to be decided on the facts and circumstances of that case, The surrounding circumstance to be considered must however be objective facts, evidence adduced before the taxing authorities , presumption of facts based on common human experience in life and reasonable conclusions In holding a particulars receipt as income from undisclosed source, the fate of the assessee cannot be decided by the revenue on the basis of surmises, suspicions or probabilities [Northern Bengal Jute Trading Co,Ltd. v, CIT,(1968)70 1TR 407, 415 (Cal)].

Apparent is not real - burden of proof on the department :-In Bedi & Co. Pr. Ltd. v. CIT 1(1983)144 ITR 352 (Karn), Affirmed in, CIT v. Bedi & Co. Pvt.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Ltd.,(1998)230 ITR 580 (SC)/, an amount over Rs. 32 lakhs was shown by the assessee as a loan from a Canadian company. Such loan was evidenced by an agreement. The department treated the same as commission paid by the Canadian company to the assessee. It was held that the burden of showing that the apparent state of affairs was not the real one was very heavy on the department . In the facts of the instant case, apart from circumstances which by themselves could be said to be neutral, there was no other material to doubt the nature of the transaction and to hold that it was income. Every loan granted without security or in regard to which no repayment has been made cannot automatically be termed as a payment either towards commission or as a receipt from business. Without tangible material to suspect that the receipt was by way of commission and without recording such a finding , the conclusion of the Tribunal that the amount was assessable as income was wholly untenable.

An explanation offered by an assessee in relation to a cash credit entry in his books of account can be rejected by the Assessing Officer on cogent grounds. When such grounds are themselves based on no evidence , the question of raising a presumption against the assessee does not arise [Sana Electric Co. v. CIT, (1985)152 ITR 507 (Del)/. Thus, where the I to has accepted the return of the three creditors, it should go to mean that the amounts given by those creditors were also genuine. Therefore, the Tribunal cannot be justified in upholding the addition as the Tribunal did not make any endeavor to give any cogent reason why the income -tax returns file,' by the creditors and accepted by the /TO should be ignored [Jalan Timbers v. CIT (1997)223 ITR 11,17,18 (Gauh)].

But, when an explanation is offered by the assessee regarding the cash credits appearing in his books, if the evidence is shut out and the witnesses produced are not permitted to explain the credit, it will be open to the Tribunal to appraise the evidence as it is and reach its own conclusion which may result in the cash credit being accepted as genuine [CIT vs Ishwar Puss Shurnui ,(1986) 158 ITR 168,169 (Del)].

Explanation offered by the assessee:- An explanation prima facie reasonable cannot be rejected on capricious or arbitrary grounds [R.B.N.J.Naidu v. CIT, (1956) 29 ITR 194 (Nag); Kanpur steel Co. Ltd. v. CIT,(1957)32 ITR 56(All)] or on mere suspicion or on imaginary or irrelevant grounds [Lajwanti Sial v. CIT, (1956)30 ITR 228 (Nag)].

Where an assessee furnishes reasonable explanation , there is no justification for accepting his explanation in part and discarding / in relation to the rest [Chunilul Ticamchand coal Co. Ltd. v. CIT, (1955) 27 ITR 602 (Pat); Mehta Parikh & co. v CIT, (1956) 30 ITR Page 15 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

[D] This present appeal has been filed by Revenue against the aforesaid impugned appellate order dated 27.03.2008 of the Ld. CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short), Paper Books were filed from the assessee’s side containing the following particulars:

1. Copy of Notice U/s 148 dated 12.12.2006 2. Copy of the Reason Recorded by the assessing Officer 3. Copy of List of the Share applicant alongwith there addresses 4. Copy of the FORM No. 2 filed before Registrar of Company alongwith the acknowledgment 5. Copy of Documents filed in respect of M/s Sahil Agencies Pvt. Ltd. a) Copy of the Applicants for Equity Shares

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. b) Copy of the Confirmation alongwith the Board Resolution passed by the Board of the Directors of Sahil Agencies Pvt. Ltd. c) Copy of Acknowledgment of the Return of Income 6. Copy of Documents filed in respect of Shri Ram Garg. a) Copy of the Application of Equity Shares b) Copy of the Return of Income 7. Copy of Documents filed in respect of Smt. Naushaba Begum. a) Copy of the Application of Equity Shares b) Copy of the Return of Income 8. Copy of Documents filed in respect of Shri Zakir Rana. a) Copy of Application of Equity Shares b) Copy of the Return of Income 9. Copy of Documents filed in respect of Smt. Amna Begum a) Copy of the Application of Equity Shares b) Copy of Return of income 10. Copy of Documents filed in respect of Shri Qamruzama Rana a) Copy of the Application of Equity Shares b) Copy of Return of income 11. Copy of Documents filed in respect of Shir Intakab Rana a) Copy of the Application of Equity Shares b) Copy of Return of income 12. Copy of Documents filed in respect of Shri Qadir Rana. a) Copy of the Application of Equity Shares b) Copy of Return of income 13. Copy of Documents filed in respect of Shir Shahnawaz Rana. a) Copy of the Application of Equity Shares b) Copy of Return of income ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. b) Copy of Confirmation c) Copy of the Return of Income 22. Copy of Documents filed in respect of Rabik Exports Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of the Return of Income 23. Copy of Documents filed in respect of Maestro Marketing & Advertising Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of the Return of Income 24. Copy of Documents filed in respect of Webnet Suystmens (India) Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of the Return of Income 25. Copy of Documents filed in respect of KVF Securities Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Intimation U/s 143(1) 26. Copy of Documents filed in respect of Roopin Capital Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of the Return of Income 27. Copy of Document filed in respect of Shashi Sales & Marketing Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Account d) Copy of the Return of Income 28. Copy of Documents filed in respepct of Baweja Exports Pvt. Ltd.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Accounts 29. Copy of Documents filed in respect of ESS Square Travels Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Account 30. Copy of Documents filed in respect t of Saudamini Trading & Investment Co. Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Account 31. Copy of Documents filed in respect of Chemax (India) Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation 32. Copy of Documents filed in respect of Ashian Needless Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation 33. Copy of Documents filed in respect of KVF Securities Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Account 34. Copy of Documents filed in respect of Sparrow Resorts Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Account 35. Copy of Documents filed in respect of Kanodia Pharmaceuticals Pvt. Ltd.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation 36. Copy of Documents filed in respect of Blossom Advertisement Pvt. Ltd. a) Copy of the Application of Equity Shares b) Copy of Confirmation c) Copy of Bank Account 37. Copy of Documents filed in respect of Shri Sanjay Gupta a) Copy of the Application of Equity Shares b) Copy of Returns of Income 38. Copy of Documents filed in respect of Shri Rajesh Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Income 39. Copy of Documents filed in respect of Shri Praveen Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Income 40. Copy of Documents filed in respect of Shri Ashok Kumar. a) Copy of the Application of Equity Shares b) Copy of Intimation U/s 143(1) 41. Copy of Document filed in respect of Shir Hemant Kumar Jain. a) Copy of the Application of Equity Shares b) Copy of Returns of Income 42. Copy of Document filed in respect of Shri Om Prakash. a) Copy of the Application of Equity Shares b) Copy of Returns of Income 43. Copy of Document filed in respect of Shri Prem Prakash Agarwal. a) Copy of the Application of Equity Shares b) Copy of Returns of Income Page 44 of 63 ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. c) Copy of Intimation U/s 143(1) 52. Copy of Document filed in respect of Shri Shyam Lal. a) Copy of the Application of Equity Shares b) Copy of Returns of Income 53. Copy of Document filed in respect of Shri Sunil Kumar Jain. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 54. Copy of Document filed in respect of Shri Om Prakash. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 55. Copy of Document filed in respect of Shri Rajinder Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 56. Copy of Document filed in respect of Shri Murari Lal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 57. Copy of Document filed in respect of Shri Mohinder Gupta. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation U/s 143(1) 58. Copy of Document filed in respect of Shri Krishana Bansal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation U/s 143(1) 59. Copy of Document filed in respect of Shri Babu Lal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes Page 46 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. c) Copy of Intimation U/s 143(1) 60. Copy of Document filed in respect of Shri Ramesh Gupta. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 61. Copy of Document filed in respect of Shri Ram Babu Bansal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 62. Copy of Document filed in respect of Shri Nand Lal Bansal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of assessment Order U/s 143(3) d) Copy of Intimation U/s 143(1) 63. Copy of Document filed in respect of Shri Shri Onkar Mal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 64. Copy of Document filed in respect of Shri Krishna Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation U/s 143(1) 65. Copy of Document filed in respect of Shri Jagmohan Ram. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation U/s 143(1) 66. Copy of Document filed in respect of Smt. Santosh Kumari. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 67. Copy of Document filed in respect of Smt. Rekha Bansal. Page 47 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. a) Copy of the Application of Equity Shares b) Copy of the Intimation 68. Copy of Document filed in respect of Shri Subhash Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 69. Copy of Document filed in respect of Shri Rajesh Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation 70. Copy of Document filed in respect of Shri Dinesh Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 71. Copy of Document filed in respect of Shri Sureh Chand. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation 72. Copy of Document filed in respect of Shri Vikash Goel. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 73. Copy of Document filed in respect of Shri Ashok Gupta. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation 74. Copy of Document filed in respect of Shri Narender Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 75. Copy of Document filed in respect of Shri Madan Singh. Page 48 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation 76. Copy of Document filed in respect of Shri Mukesh Kumar. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 77. Copy of Document filed in respect of Smt. Sunita Gupta. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 78. Copy of Document filed in respect of Shri Beer Singh. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation 79. Copy of Document filed in respect of Shri Lal Chand. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 80. Copy of Document filed in respect of Shri Raj Kumar Agarwal. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes 81. Copy of Document filed in respect of Shri Ram Gupta. a) Copy of the Application of Equity Shares b) Copy of Returns of the Intimations 82. Copy of Document filed in respect of Shri Raja Ram. a) Copy of the Application of Equity Shares b) Copy of Returns of Incomes c) Copy of Intimation ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

[D.1] Perusal of records shows that precedents of Hon’ble Supreme Court of India, in the cases of Commissioner of Income –Tax, Orissa v. Orissa Corporation P. Ltd. 159 ITR 78; Hon’ble Supreme Court of India in the case of Commissioner of Income Tax v. J.K.

Hosiery Factory 159 ITR 85; Hon’ble High Court of Delhi in the case of Commissioner of Income Tax v. Diamond Product Ltd. [2009] 177 TAXMAN 133 (Delhi); Hon’ble High Page 51 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. Court of Punjab & Haryana in the case of Abheshek Industries Ltd. v. Commissioner of Income-tax, Central Circle [2009] 177 Taxman 335 (Punj. & Har.); Co-ordinate Bench of ITAT, Amritsar in the case of A.P. S. Associates (P.) Ltd. v. Assistant Commissioner of Income-tax, Range-III, [2006] 101 ITD 215 (ASR.); Co-ordinate Bench of ITAT, Jodhpur, in the case of Bhilwara Spinners Ltd. v. Commissioner of Income-tax, Udaipur [2006] 101 ITD 237 (JODH.); were also brought to the attention of ITAT. At the time of hearing on 07.11.2019, Revenue was represented by Shri Sanjog Kapoor, the learned Senior Departmental Representative (“Ld. Sr. DR”, for short). However, none was present from the assessee’s side. This is a very old appeal filed in 2008, and hearings first started in this case on 12.11.2008 since then the appeal came up for hearing many times in the past. After several adjournments, on 26.08.2019, the hearing was adjourned to 07.11.2019 as last opportunity to the Ld. Authorized Representative (“Ld.

AR”, for short) of the assessee. In the absence of any representation from assessee’s side on 07.11.2019, at the time of hearing before us, we heard this appeal ex-parte qua the respondent assessee.

[E] We heard the Ld. Sr. DR; who relied upon the order dated 05.12.2007 of the Assessing Officer and the aforesaid impugned order dated 27.03.2008 of the Ld. CIT(A); and submitted written submissions which are reproduced below for ready reference:

“Sub: Written Submission in the above case- reg.

In the above case, it is humbly submitted that the following decisions may Page 52 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. kindly be considered in view of the facts of the above case with regard to addition made u/s 68 of I T.Act in addition to oral arguments:

where Hon’ble Delhi High Court held that where Assessing Officer made additions to assessee's income under section 68 in respect of amount received as share capital from several companies, in view of fact that all of these companies were maintained by one person who was engaged in providing accommodation entries through paper companies and all such companies were located at same address, impugned addition was justified 3. CIT Vs Navodava Castle Pvt Ltd T20141 367 ITR 306 (Del) where Hon’ble Delhi High Court accepted that since the assessee was unable to produce the directors and the principal officers of the six shareholder companies and also that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer had observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions.

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. "20. Now, when we go to the order of the Tribunal in the present case, we notice that the Tribunal has merely reproduced the order of the Commissioner of Income-tax (Appeals) and upheld the deletion of the addition. In fact, they substantially relied upon and quoted the decision of its co-ordinate Bench in the case of MAF Academy P. Ltd., a decision which has been overturned by the Delhi High Court, vide its judgment in CIT v. MAF Academy P. Ltd. [2014] 206 DLT 277 ; [2014] 361 ITR 258 (Delhi)). In the impugned order it is accepted that the assessee was unable to produce directors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions.

Navodava Castle Pvt Ltd Vs CIT ^20151 56 taxmann.com 18 (SC)/[2015] 230 Taxman 268 (SC)) SLP of assessee dismissed by Hon’ble Supreme Court.

Konark Structural Engineering (P.) Ltd. Vs DCIT T20181 90 taxmann.com 56 (Bombay) where Hon’ble Bombay High Court held that where assessee-company received certain amount as share capital from various shareholders, in view of fact that summons served to shareholders under section 131 were unserved with remark that addressees were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, impugned addition made by AO under sec. 68, was to be confirmed

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd.

“12. A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the AO and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. It has further been observed that the report of the investigation wing cannot conclusively prove that the assessee's own monies were brought back in the form of share application money. As noted in the earlier paragraph, it is not the burden of the AO to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the Page 55 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under Section 68. With respect, it appears to us that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case.

8.CIT Vs Nova Promoters & Finlease (P) Ltd (18 taxmann.com 217, 206 Taxman 207, 342 ITR 169. 252 CTR 187) where Hon’ble Delhi High Court held that amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68. It Was held as follows:

41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so-called share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P.) Ltd. (supra).

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. where Hon’ble Delhi High Court held that if AO doubts the documents produced by assessee, the onus shifts on assessee to further substantiate the facts or produce the share applicant in proceeding. It was held as follows:

“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. ”

[E.1] After hearing the Learned Departmental Representative (“Ld. DR”, for short) and after careful perusal of records, we find that in paragraph 9.2.1 of the aforesaid impugned appellate order dated 27.03.2008, the Ld. CIT(A) has observed that information received by the Assessing Officer (“AO”, for short) from Directorate was not processed by the AO, to the extent that it becomes basis of addition; and that the information was “unripe”. The Ld. CIT(A) also further observed that “…..these informations are only starting point and not end in itself. In other words, although the AO has to enquire and undertaken verification proceedings; but he is required to take this inquiry to a logical conclusion as to whether some of these entries may be indicating income out side the tax net. But for that, the AO will have to verify the Page 57 of 63

ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. books of the assessee and then will have to prove that some of these bank instruments, although received by the assessee, have not found part of its accounted books” “….The AO is directed to make further verification, first by calling from the Directorate more precise details about such entries and then to cross cheque from the books and bank accounts of the assessee. The AO can and should also obtain information from the respective banks as to whether and in whose accounts these DDs. Were encashed. The AO can also obtain information directly from the ‘entry giver’, as to in whose favour and for what purpose, these instruments had been issued by them. If only after such purposeful verification, some adverse material, against the assessee, comes to the knowledge of the AO; he can always take remedial measure in the hands of the assessee company.” With this line of reasoning, the Ld. CIT(A) went on to delete the aforesaid addition of Rs. 18,54,625/- on account of accommodation entries.

[E.2] In respect of the addition of Rs. 4,28,50,000/- made under Section 68 of I.T. Act in respect of share capital. The Ld. CIT(A) has observed in para 9.3.1 of the aforesaid impugned appellate order dated 27.03.2008; “….I have no doubt that if is AO’s prerogative to verify the issue more deeply; but for that, he would have to issue letters U/s 133(6) and if required summons U/s 131 of the Act; to enforce their attendance and then to make personal inquiry. If after all this, any adverse finding comes forth; AO would be justified to take remedial action in the hands of the company. In the present case, AO can still make such indepth inquiry, in case he finds it worthwhile. But he would have to take pains to issue notices U/s 131 of the Income- tax Act, 1961, and ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. take further action as mentioned earlier.” With this line of reasoning, the Ld. CIT(A) went on to delete the aforesaid addition of Rs. 4,28,50,000/-.

[E.3] In respect of the aforesaid addition of Rs. 1,19,63,549/- (on account of unsecured loans); perusal of paragraph 10 of the aforesaid impugned appellate order dated 27.03.2008, shows that the Ld. CIT(A) admitted additional evidences and went on to delete the aforesaid addition of Rs. 1,19,63,549/-, on the basis of additional evidences so admitted.

[F] From perusal of the foregoing, we find that as far as aforesaid additions amounting to Rs. 18,54,625/- (subject matter to ground 1 of appeal) and the aforesaid addition of Rs. 4,28,50,000/- (subject matter of ground 2 of this appeal) are concerned; the Ld. CIT(A) was of the view that further inquiry / investigation / verification in these aspects were desirable but, according to the Ld. CIT(A), the AO failed to do this. In fact, in paragraph 9.2.1. of his impugned appellate order dated 27.03.2008, the Ld. CIT(A) even directed the AO to make further verification. Similarly, in paragraph 9.3.1. of the aforesaid impugned appellate order dated 27.03.2008, he commented that the AO would have to issue letters U/s 133(6) and if required summons U/s 131 of I.T. Act.

He went on to state, in paragraph 9.3.1. of his impugned appellate order dated 27.03.2008 that the AO can still make indepth inquiry, in case he finds it worthwhile and that the AO would have to take pains to issue notices Us 131 of the I.T. Act, and ITA No.- 2184/Del/2008 M/s Rana Papers Ltd. take further action. Once Ld. CIT(A) taken the view that further inquiries / investigation / verification are necessary, it is incumbent upon the Ld. CIT(A) to have the necessary inquiries / investigation / verification carried out during the appellate proceedings before him either by himself or by remand to the AO. A perusal of Section 251(1)(a) of I.T. Act shows that in an appeal against an order of assessment, Ld. CIT(A) may confirm, reduce, enhance or annul, the assessment. However, w.e.f. 1.6.2001, as a result of amendment to Income Tax Act, the power of Ld. CIT(A) to set aside an order of assessment has been withdrawn. Therefore, any necessary inquiry / investigation or verification is required to be carried out during pendency of the appellate proceedings before Ld. CIT(A). Further, perusal of Section 250(4) of I.T. Act shows that Ld. CIT(A) has powers, before disposing off any appeal, to make such further inquiry as he thinks fit, or he may direct the Assessing Officer to make further inquiry and report the result of the same to the Ld. CIT(A). It is well settled that powers of Ld. CIT(A) are co- terminus with powers of the Assessing Officer. For this purpose, we may refer to the order of Apex Court decision in CIT vs. Kanpur Coal Syndicate 53 ITR 225 (SC) in which it was held that AAC has plenary powers in disposing off an appeal; that the scope of his power is co-terminus with that of the ITO, and that he can do what the ITO can do and can also direct him to do what he failed to do. In the facts and circumstances of the case, therefore, we are of the view, considering the statutory position as discussed, that it was gross error, on the part of the Ld. CIT(A), having himself been of the view that further inquiries / investigation / verification; to not ensure that such further inquiries / investigation / verification were done during the pendency of appellate proceedings before the Ld. CIT(A); and in accordance with Section 250(4) of I.T. Act. Page 60 of 63