ITO, NEW DELHI vs. M/S. SOHAIL FINANCIALS LTD., NEW DELHI

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the revenue against the order of the ld CIT(A)-XII, New Delhi dated 24.08.2011 for the Assessment Year 2008-09, raising following effective two grounds of appeal:- “1. The ld CIT(A) erred in law and on facts in deleting the addition of Rs. 19400000/- made by the AO u/s 68 of the IT Act without appreciating that the fact of the instant case are clearly distinguishable from those of Lovely Export (P) Ltd.

2. The ld CIT(A) erred in law and on facts on deleting the addition of Rs. 97000/- made by the AO on account of Page | 1 commission paid on accommodation entries from undisclosed sources.”

2. The brief facts of the case is that the assessee is a company who filed its return of income on 09.08.2008 declaring income of Rs. 703204/-. During assessment proceeding, it was found that the assessee has issued share capital with premium of Rs. 1.94 crores to 8 companies. The share applicant companies are found to be operated by one of the accommodation entry provider Mr. Tarun Goyal, Shri Pramod Kumar and Harpreet Singh. The Investigation Wing on 15.09.20018 conducted search u/s 132 of the Act at the office premises of Shri Tarun Goyal, Chartered Accountant. The statement of Shri Tarun Goyal and Ms. Ritu Saxena was recorded on oath on 02.12.2008. The assessee has issued share capital of Rs. 38.80 lakhs at a share premium of Rs. 155.20 lakhs totaling to Rs. 1.94 crores to these companies. The ld AO issued notices to the assessee but it was not complied. Therefore, the ld AO issued show cause notice to the assessee to explain why the addition of Rs. 1.94 crores should not be made in the hands of the assessee, as the assessee has not produced any details of share capital with respect to identity, and creditworthiness of investors and Genuineness of the transaction. The ld AO also asked to produce individuals/ directors of these companies along with respective documents. The assessee did not comply firstly. However, the part details were furnished along with an affidavit on stamp paper of Rs. 10 signed by the Directors of the respective companies. Various judicial precedents were also cited so to state that addition could not be made. As the assessee did not produce the Directors of the share applicants , ld AO issued summons u/s 131 of the Act on 12.11.2010. None of the investors complied with Summons. AO issued another show cause notice on 16.11.2010 referring to various statements and search carried out at the premises of Shri Tarun Goyal, Chartered Accountant. The ld AO further stated that the signature of Tarun Goyal, Shri Pramod Kumar, Harpreet Singh and Ritu Saxsena on the affidavits submitted by the assessee, did not match with the signatures of those persons on the statement recorded by the investigation wing on oath. It was further stated that the affidavits were also executed on stamp paper purchased on 13.03.2007 but those stamp papers were used on 28.10.2010 after a gap of almost 3 ½ years. It was further stated that one Notarized Officers on 28.10.2010 also signs all these affidavits. The ld AO further informed that Shri Tarun Goyal, a chartered accountant, is an accommodation entry provider and is not doing any real business. It was further mentioned that Shri Pramod Kumar, is a peon, Shri Harprit Singh is accountant and Ms. Ritu Saxsena is the receptionist of Shri Tarun Goyal. They are the directors of these companies. The ld AO further noted that in the statement of Shri Tarun Goyal all these persons were found to be accomplice of Shri Tarun Goyal in providing accommodation entries in the form of share capital and in various other forms. Assessee did not respond to this notice also and summons was not complied. Therefore, the ld AO also issued another show cause notice on 15.11.2010 repeating the same fact and asking the assessee to produce those persons. The assessee did not respond to any of the notices and thereafter the ld AO made an addition of Rs. 1.94 crores u/s 68 of the Act as the assessee failed to produce relevant evidence with respect to identity, creditworthiness, and genuineness of the transactions.

3. The ld AO dealt with the whole issue as under:-

“Thereafter notices u/s 143(2) & 142(1) dt. 20/07/2010 & 30/09/2010 were issued. There was no compliance to these notices. As the assessee had not submitted the requisite details and produced the books of A/cs upto 15/10/2010, vide notices u/s 143(2) & 142(1) and show-cause dated 15/10/2010 to assessee was asked to show cause as to why the share capital and share premium raised amounting to Rs. 1,94,00,000/-, may not be added to the income. The Page 4 of 77 assessee had shown addition to share capital at Rs. 38,80,000/- and share premium at Rs. 1,55,20,000/-, totaling to Rs. Rs. 1,94,00,000/-. As no details of share capital raised during the year with evidences in support of identity, genuineness of transaction and creditworthiness of the parties, had been submitted, the assessee was asked to produce ail the individuals and the directors / principal officers of the companies/ firms alongwith ail the documents and to prove their identity, creditworthiness and genuineness of the transactions. The assessee was also told that in case they are not able to substantiate their claim, the amount received as share application will be treated as undisclosed income, being unexplained .cash creeds u/s 68 of the Income-tax Act, 1961 and the share capital raised amounting to Rs. 1,94,00.000/- would be added to the income. Notices u/s 143(2) S. 142(1)' fixing the case for 21/10/2010 were also enclosed. There was no compliance on 21/10/2010. On 10/11/2010, Shri Amitoj Aneja, CA & AR, of the assessee attended and filed fresh POA alongwith part details vide letter dt. 10/11/20101 The assessee company is engaged in the business of Investment and Finance. The assessee filed the details of share capital addition on 10/11/2010 vide letter dated 10/11/2010 along with the affidavits on stamp papers of Rs. 10/- dated 28/10/2010, signed by the Directors of the respective companies. The assessee vide submissions dt. 10/11/2010, has relied on the judgments of Hon'ble SC In case of CIT vs Lovely Exports (P) Ltd (2008) 6 DTR (SC) 308 and the jurisdictional HC in CIT vs Dwarkadhish Investment (P) Ltd (2008) 2 DTR (Del) 7 (107 TAXMANN 321) & CIT vs Winstral Petrochemicals (P) Ltd (2010) 233 CTR (Del) 392. In the case of CIT v. Divine Leasing & Finance Ltd. [20071 158 Taxman 440 (Delhi), it has been held that 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 Page 5 of 77 Assessing Officer for his perusal' all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69. 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 carryout 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. A distillation of the precedents yields the following propositions of law in the context of section 68 : The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the 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 Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. The Hon'ble Delhi High Court in the case of CIT vs Dwarkadhish Investment (P) Ltd (2008) 2 DTR (Del) 7 (167 TAXMANN 321), has followed the ratio of the case of CIT v. Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Delhi) The present case of the assessee cov. is differentiable from the case of CIT Vs. Lovely Exports Pvt. Ltd.. CIT vs Dwarkadhish Investment (P) Ltd (2008) 2 DTR (Dei) 7 (167 TAXMANN 321) and CIT v. Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Delhi) cited above, as in the present Page 6 of 77 case of case assessee coy, it has given cash to receive the accommodation entries by way of cheque, in the form share application money, as admitted by Sh. Tarun Goval and his associates in his statement recorded by the Investigation Wing. In the case of Lovely Exports (P) Ltd. 216 CTR 195(SC), CIT vs Dwarkadhish Investment (P) Ltd (2008) 2 DTR (Del) 7 (167 TAXMANN 321) and CIT v. Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Delhi), the shareholders had not denied the fact that they had contributed to the share capital of the company. In the case of the assessee company, the shareholders have admitted the fact that they are mere name lenders and the actual money belongs to the appellant. The appellant is a private limited company and not a public limited company. In the case of private limited company, it is the company which approached the parties to subscribe to its share capital. Unlikely in the case of public limited company, where there is an offer to the general public to subscribe and the company is nto aware of the whereabouts of the share holders. In a private to subscribe and the company is not aware of the whereabouts of the share holders. In a priate Limited company, the directors of the companies personally have a close contract with the share holders. According to section 3 of the Evidence Act, a fact is said to be proved when, after considering the matters before it the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that its exists. Section 114 of the Evidence Act provides that the court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case. The aforesaid provisions are nothing but recognition of broad principles of common law governing the issue under consideration. In the case of Gordhandas Hargovandas & Another Vs CIT (126 ITR 560) (Bom.) the Hon'ble High Court observed as under:- Though in isolation each piece of evidence may appear to be of little weight, on an overall appreciation it would be Page 7 of 77 permissible to consider their cumulative effect and decide one way or the other. In the case of M/s Gold Leaf Capital Corporation India Pvt. Ltd. Vs. JCIT, the Hon'ble ITAT, New Delhi vide order dated J. 1/01/2008 in ITAT No. 237(del)/2002 for Asstt. Year 1995- 96 observed as under with regard to-genuineness of transactions u/s 68. "On going through the decision in the case of Divine Leasing & Finance (Supra) and other relevant case law it is clear that the degree of onus would depend upon the facts of each case and no standard degree of proof can be applied generally to all cases, irrespective of the nature of receipts because in the case of share investment for public placements the degree of proof mav be light but in the case of private placement if may be stringent, the reason being a public issue cannot be made by a Private Limited Company. However with requisite permission the share capital can be received through private placement normally to known persons / companies. Similar would be the position when the shares are allotted by a Public Company on private placement basis". From the above facts it emerges that the person who had subscribed to the share capital are only name lenders. In the case of private placement of shares the onus on the company is much more than in the case of loan creditors. As for in the case of a loan the company is at least under an obligation to return back the loan, but in the case of a private placement of shares, the subscriber parts with his money permanently thus the share subscriber has to be in constant touch with company. The alleged share holders have stated under oath in the statement recorded u/s 131 that their companies were providing accommodation entries. When the alleged shareholders have denied subscribing to share capital, neither the identity not the creditworthiness of the share holders can be said to have been established in this case. Therefore, the ratio of the judgement in the cases of CIT Vs. Lovely Exports Pvt. Ltd.. CIT vs Dwarkadhish Investment (P) Ltd (2008) 2 DTR (Del) 7 (167 TAXMANN 321) and CIT v.

Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Delhi), is not applicable in the case of the assessee cov. Thereafter, summons u/s 131 dated 12/11/2010 were issued to the parties as mentioned at S.no. 1 to 8 below requiring the persons who had signed the affidavits on 28/10/2010. on stamp papers of Rs. 10/-. as mentioned in the table below, to attend this office personally on 23/11/2010 with the following: 1) Statement of account of M/s Sohail Financials Ltd., for the period 01/04/2007 to 31/03/2008 (pertaining to AY 2008-09). 2) Personal identification and Nature of transactions with M/s Sohail Financials Ltd. 3) Your signatures duly verified by your bank and your original Photo Identification Card. 4) The assessee company M/s Sohail Financials Ltd., has submitted affidavit(s) dated 28/10/2010, duly signed by you in your capacity as director of the company. You are requested to confirm whether these affidavits were signed by you on 28/10/2010. 5) PAN and Circle/Ward, where assessed to tax, alongwith the Photocopy of Acknowledgement of the Income-tax Return filed alongwith the Balance Sheet & Profit & Loss account with relevant schedules for AY 2008-09, reflecting the above transactions / investments. 6) Photocopy of your bank statement for the period 01/04/2007 to 31/03/2008 (pertainina to AY 2008- 09). 7) In case the above investment was made in cash the evidence regarding the source of cash and copy of the Cash Book is required to be produced. Another show-cause dated 16/11 /2C1G was issued to the assessee. whereby assessee company was again asked to show cause as to why the share capital & share premium raised amounting to Rs. 1,94,0,000/-, may not be added to the income. This show cause alongwith the notices u/s 143(2) & 142(1) dt. 16/11/2010 were sent by Speed Post Page 9 of 77 and were also received by Sh. Amitoi Aneia. CA & AR of the assessee on 19/11/2010 by signing, on both the show cause and the notices. The following show cause dated 16/11/2010, was issued to the assessee company: “Vide the show cause dt. 15/10/2010 you were required to produce all the individuals and the directors / principal officers of the companies / firms, alongwith all the documents and to prove their identity, creditworthiness and genuineness of the transactions. The details filed by you on 10/11/2010 show that you have received the share capital and share premium amounting to Rs. 1,94,00,000/- from the following parties:

S. Name Address Affidavit Signed Share Shares Total (Rs.) by No. Capital Premium 1 M/S Tejasvi 13/34, W.E.A IVth Tarun 4,80,000 19,20,000 24,00,000 Investment Pvt. Ltd. Floor Karol Bagh New Goyal Delhi-110005 2 M/s Campari Fiscal 13/34, W.E.A IVth Pramod 4,80,000 19,20,000 24,00,000 Services Pvt. Ltd. Floor Karol Bagh New Kumar Delhi-110005 3 M/s Thar steels Pvt. 203, Dhaka Chambers Tarun 4,60,000 18,40,000 23,00,000 Ltd. 2069/39. Naiwala Goyal Karol Bagh New Delhi- 110005 4 M/s Sai Baba Fin 13/34, W.E.A. IVth Pramod 1,60,000 6,40,000 8,00,000 vest f Pvt. Ltd. floor Main Arya Samaj Kumar Road Karol Bagh New Delhi-110005 5 M/s Bhavani 13/34, W.E.A. IVth Ritu 4,00,000 1,60,000 2,00,000 Portfolio Pvt. Ltd. floor Main Arya Samaj Saxena Road Karol Bagh New Delhi-110005 6 M/s Rishabh Shoes- 13/34, W.E.A. IVth Pramod 4,00,000 1,60,000 2,00,000 Private Ltd. floor Main Arya Samaj Kumar Road Karol Bagh New Delhi-110005 7 M/s Taurus Iron & 13/34, W.E.A. IVth Tarun 6,00,000 24,00,000 30,00,000 Steel Co. Pvt. Ltd. floor Main Arya Samaj Goyal Road Karol Bagh New Delhi-110005 8 M/s DU Securities 203, Dhaka Chambers Harpreet 9,00,000 36,00,000 45,00,000 (P) Ltd. 2069/39. Naiwala Singh Karo1 Bagh New TOTAL 38,80,000155,20,000 194,00,000 Delhi-110005 Page 10 of 77 A search u/s 132 of the Income-Tax Act, 1961 was conducted at the office premises of Shri Tarun Goya/, Chartered Accountant at 13/34, WEA, Arya Samaj Road, Karol Bagh, New Delhi by the Investigation Wing on 15/09/2008. The statements of Sh. Tarun Govai. Sh. Parmoa Kumar and Sh. Hamreet Singh were recorded on oath during the search operations on 15/09/2008 and the statement of Ritu Saxena was recorded on oath on 02/12/2008. Vide letter dated 10/11/2010, you have also furnished the affidavits on stamp papers of Rs. 10/- signed & notarized on 28/10/2010, signed by the Directors of the respective companies as mentioned in the table above. The perusal of these affidavits reveals the following: I) That the signatures of Sh. Tarun Goyal, Sh. Parmod Kumar, Sh. Harpreet Singh and Ritu Saxena on these affidavits dated 28/10/2010 do not match with the signatures of the above persons on the statements recorded on oath during and after the search operations by the Investigation Wing. II) The perusal of the above affidavits reveals the following: S No. Name N ; Stamp paper Date of Name of the Address of Vendor Name of the Regd No No. purchase of Vendor who Notary Public Stamp sold the who attested papers paper the Affidavits on 28/10/10 1 M/S Tejasvi Investment Pvt. DELHI 10AA 25/05/200 S. P. L. No. 325 Tis Sudha Shankar 28/06 Ltd. 221205 7 Srivastava Hazari Court, Delhi Ap Mishra by GNC M/S Tejasvi InvestmentPvt. DELHI 16AA 26/02/200 - do - - do - - do - - dc - Ltd. 895227 8 2 M/s Campari Fiscal Services DELHI 16AA 23/02/200 - do - - do - - do - - do - Pvt. Ltd. 798485 8 M/s Campari Fiscal DELHI 09AA 22/03/200 - do - - do - - do - - do - Services Pvt. Ltd. 126790 7 3 M/s Thar steels Pvt. Ltd. DELHI 14AA 04/01/200 - do - - do - - do - - do - 639143 8 iM/s Thar steels Pvt. Ltd. DELHI 10AA 16/06/200 - do -. - do - - do - - do - 566633 7 4. !M/s Sai Baba Finvest ! Pvt. DELHI 12 AA 04/10/200 - do - - do - - do - - do - Ltd. 768857 7 M/s Bhavani Portfolio Pvt. DELHI 12AA 10/09/200 - do - - do - - do - - do - Ltd. 106157 7 6. M/s Rishabh Shoes Private DELHI 09AA 08/05/2007 - do - - do - - do - - do - Page 11 of 77 Ltd. 943132 7. M/s taurus Iron & Steel 7 Co. DELHI 12AA 03/10/2007 - do - - do - - do - - do - Pvt. Ltd. 750343 DU Securities (P) R Ltd. DELHI18AA 3/04/2008 - do - - do - - do - - do - 117016 8. DU Securities (P) Ltd DELHI08AA 13/03/ 2007 - do - - do - - do - - do - 962277 It is strange that though the stamp papers were purchased as long as back as 13/03/2007, the same were signed on 28/10/2010 i.e. after a gap of almost three and a half years. All The affidavits were attested/notarized by Sudha Shankar Mishra on 28/10/2010.

1. During the course of search it was established that Sh. Tarun Goyal had floated many companies for the purpose of providing accommodation entries. .

In case you wish to appear in person or make a written submission or have anything else to state' you may do so on that date. Notices u/s 143(2) & 142(1) fixing the case for 23/11/2010 are enclosed. " On 23/11/2010, neither any reply was submitted nor any adjournment was sought and nobody attended this office in response to summons u/s 131. There was also no compliance by the assessee company on this date in response to notices u/s 143(2) & 142MT dt. 16/11/2010. Thereafter another show cause, alongwith notices u/s 143(2') & 142(1) dated 25/11/2010, was issued to the assessee company, by Speed Post, which is reproduced below: " Please refer to this office notices u/s 143(2) & 142(1) of the I.T. Act, 1961, for AY 2008-2009 dt. 16/11/2010 and the show 'cause dt. 16/11/2010. Vide this show cause dt 16/11/2010 you were required to produce all the individuals and the directors / principal officers of the companies / firms, alongwith all the documents and to prove their identity, creditworthiness and genuineness of the transactions. Even earlier, vide this office notices u/s 143(2) & 142(1) of the I.T. Act, 1961, for AY 2008-2009 dt. 15/10/2010 and the show cause dt. 15/10/2010, you were required to produce all the individuals and the directors / principal officers of the companies / firms, alongwith all the documents and to prove their identity, creditworthiness and genuineness of the transactions. The details filed by you on 10/11/2010 show that you have received the share capital and share premium amounting to Rs. 1,94,00,000/- from the following parties: Name Address Total (Rs.)

Affidavit Share Shares Signed by to. Capital Premium 4,80,000 19,20,000 24,00,000 1 13/34, W.E.A IVth Floor M/S Tejasvi Karol Bagh New Delhi- Tarun Investment Pvt. Ltd. 110005 Goyal 4,80,000 19,20,000 24,00,000 2 13/34, W.E.A IVth Floor M/s Campari Fiscal Karol Bagh New Delhi- Pramod Services Pvt. Ltd. 110005 Kumar 3 4,60,000 18,40,000 23,00,000 203, Dhaka Chambers M/s Thar steels Pvt. 2069/39, Naiwala Karol Tarun Ltd. Bagh New Delhi-110005 Goyal 4 6,40,000 1,60,000 8,00,000 13/34, W.E.A. IVth floor M/s Sai Baba Fin vest Main Arya Samaj Road Karol Pramod Pvt. Ltd. Bag'j New Delhi-110005 Kumar 5 4,00,000 1,60,000 2,00,000 13/34, W.E.A. IVth floor M/s Bhavani Portfolio Main Arya Samaj Road Karol Ritu Pvt. Ltd. Bagj New Delhi-110005 Saxena 4,00,000 6 1,60,000 2,00,000 13/34, W. E. A. IVth floor M/s Rishabh Shoes Main Arya Samaj Road Karol Pramod Private Ltd. Bagj New Delhi-110005 Kumar ~7 24,00,000 30,00,000 / 6,00,000 13/34, W.E.A. IVth floor M/s Taurus Iron & Main Arya Samaj Road Karol Tarun Steel Co. Pvt. Ltd. Bagj New Delhi-110005 Goyal 9,00,000 36,00,000 45,00,000 8 203, Dhaka Chambers M/s DU Securities (P) 2069/39, Naiwala Karol Harpreet Ltd. Bagh New Delhi-110005 Singh Vide this show cause dt 16/11/2010, you were told that: "The contents of the above show cause dt. 16/11/2010 were again reproduced in this show cause". However, till date, you have neither produced any of the above directors nor any written submission has been received till date. This office had issued summons u/s 131, by Speed Post to all the above companies at the addresses mentioned in the affidavits filed by you. The following summons u/s 131, issued to the companies at S.no. 3 & 8, have been received back Unserved with the Remarks "Left without address." S Name PAN: Address Affidavit signed No. by 3. M/s. Thar Steels Pvt. Ltd AABCT5923D 203, Dhaka Chambers 2069/ 39, Tarun Goyal Naiwala Karol Bagh, New Delhi 8. M/s. DU Securities (P) Ltd AACCD0002E 203, Dhaka Chambers 2069/ 39, Harpreet Singh Naiwala Karol Bagh, New Delhi There has been no compliance to the other summons u/s 131, issued to the companies mentioned at S.no. 1, 2, 4, 5, 6 & 7, which have not been received back unserved. In view of the above, you are required to produce all the individuals and the directors / principal officers of the companies / firms, alongwith all the documents to prove their Page 15 of 77 identity, creditworthiness and genuineness of the transactions. In case the you are not able to substantiate your claim, the amount received as share application will be treated as your undisclosed income, being unexplained cash credits u/s 68 of the Income-tax Act, 1961 and the share capital raised by you amounting to Rs. 1,94,00,000/- would be added to your income. In case you wish to appear in person or make a written submission or have anything else to state, you may do so on that date. Notices u/s 143(2) & 14271) fixing the case for 30/11/2010 are enclosed. On 30/41/2010 an adjournment application was received and the case was adjourned to 03/12/2010. However, on 03/12/2010, the assessee once again failed to respond. There has been no compliance till date. The perusal of the above shows the following: A search u/s 132 of the Income-Tax Act,1961 was conducted at the office premises of Shri Tarun Goyal, Chartered Accountant at 13/34', WEA, Arya Samaj Road, Karo! Bagh, New Delhi by the Investigation Wing on 15/09/2008.

1. The signatures of Sh. Tarun Goyal, Sh. Parmod Kumar, Sh. Harpreet Singh and Ritu Saxena on these affidavits signed and notarized on 28/10/2010 and submitted in this office on 10/11/2010, do not match with their signatures on their statements recorded on oath during and after the search operations by the Investigation Wing of the Income Tax Department.

2. It is strange that though the stamp papers were purchased as long back as 13/03/2007, the same were signed on 28/10/2010 i.e. after a gap of almost three and a half years.

4. In response to summons u/s 131. dt. 16/11/2010. neither anv reply was submitted nor any adjournment was sought and nobody attended this office on 23/11/2010.

5. The assessee challenged the same before the ld CIT(A), who dealt with the above issue as under:-

“Ground No. 1, 4. 5 and 6 I have considered the facts stated above by the assessee as well as perused the assessment order by the Assessing Officer. The appellant received the share application money to the extent of Rs. 1,94,00,000/- from different legal entities. Their confirmation letters, copies of share application forms, the registration No. and date of incorporation of applicant companies, their PAN with assessing officer’s detail, appellant company bank account ., detail of "share allotment in Form 2 submitted to the ROC have been furnished by him. Since the identity and existence of the share applicants are proved, the share application money/share capital have been routed through banking channel, and the shares have also Page 20 of 77 been allotted to them, the said share applications money share capital have been routed through banking channel, and the shares have also been allotted to them, the said share application money amounting Rs. 1940000/- cannot be taxed in the hands of the company on the basis of law postulated by various courts below:- Hindustan Link & Resins Ltd. Vs Deputy Commissioner of Income Tax (HC) (Guj.) (2011) 60 DTR 18 it is held that:- “...Income - Cash credit - Share application money — None of the authorities have recorded any findings to the effect that the identity of the depositors had not been established by the assesee - Case of the Revenue is that the assessee has failed to explain the source of such cash as well as creditworthiness of the depositors -Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of asessee company - However, under no circumstances, can the amount of share capital be regarded as the undisclosed income of the assessee. ” Commissioner of Income Tax-lV Vs M/s Dwarkadhish Capital (P) Ltd. Delhi High Court IT A No. 911/2010 In any matter, the onus of proof is not a static one. Though in section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share application by either furnishing their PAN number or Income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the/ onus of proof would shift to the Revenue. Just because the creditors/share application cobjd not be found at the address given, it would not give the Revenue the 'right to invoke section 68. one must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need to to prove the source of source.

We also find that in the case of the respondent assessee itself, a Division Bench of this Court in Commissioner of Income Tax Vs Dwarikadhish Investment (P) Ltd. (2008) 176 Taxman 321 (Delhi) had dealt with a similar issue with regard to the assessment year 1997-98. The Page 21 of 77 relevant portion of the order passed by the Division Bench in the said judgement is reproduced hereinbelow:- “3 The Assessing Officer required the assessee to furnish details and documents. The assessee produced copies of sale and purchase bills of the share brokers through whom the transactions took place and photocopies of confirmations of persons who had contributed the fresh share application money. The assessee furnished the PAN(GIR) numbers of the application, the details of the cheque number and dates. The assesses contended that letters sent to the shareholders had not been responded to.

1. The Assessing Officer required the asessee to furnish bank statement to substantiate the money availability with the assessee and also to prove the genuineness of the transactions. This not having been done, the Assessing Officer got enquiries made through on Income Tax Inspector who found that none of the application were found to exist at the address given in the confirmations. However, the report of the Income Tax Inspector was furnished to the assessee on 22nd February 2000 and the assessment order was passed on the very next day, that is 23rd February 2000 giving the assesses no time to respond.

2. Before the C1T(A) the assesses furnished additional evidence, copies of which were sent by the CIT(A) to the Assessing Officer for comments. Despite reminders, no response was received from the Assessing Officer by the C1T(A) on the additional evidence. The C1T(A) then admitted the additional evidence. After examining the entire record, the CIT(A) deleted the addition on account of the unexplained share application money for 3. In the appeal by the Revenue, the Tribunal found that the facts of the case were no different from those in the case of the group company of the present assessee namely M/s Dwarikadhish Financial Services. In the said case the Tribunal had deleted the addition made by the Assessing Officer on account of unexplained share application money. The said decision was upheld by this Court in its order in CIT Vs Dwarkadhish Financial Services {2005} 148 Taxman 54.

4. That apart, the Tribunal again examined the documents giving the details of each of the application. It noted that? The above documents were available on the file of the AO? Page 22 of 77 Accordingly it dismissed the Revenue’s appeals. Learned counsel for the revenue sought to distinguish this Courts decision in the case of the group of the assessee on 'the ground that the facts there were different. However, we find, that the findings of the C1T(A) as extracted hereinabove are sufficient to show that the additions made by the Assessing Officer were not justified. The reasoning and conclusions arrived at concurrently by the C1T(A) and the Tribunal suffer from no perversity and are consistent with the law as explained by this court in Commissioner of Income Tax Vs Divine Leasing and Finance Ltd. (ITA No. 53/2005 decided on 16lh November, 2006) reported in (2007) 207 CTR (Dei) 38 and in particular para 16 which reads thus: “In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the I T Act. The assessee has to prima facie prove (1) the identity of the creditors/subscriber; (2) the genuineness of the transaction, namely whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength ofthe creditors/ 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, shared 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 creditors/subscriber fails or neglects to respond to its notices; (6)the onus would not stand discharged if the creditors/subscriber denies or repudiates the transaction set up. by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee; (7) the assessing Officer is duty-bound to investigate the creditworthiness of the creditors/subscriber the genuineness of the transaction and the veracity of the repudiation.” 9 We are of the view that no substantial question of law arises in these appeals accordingly, these appeals are dismissed.” 10 We are also informed that a Special Leave Petition against the aforesaid Division Bench judgement in the case of the respondent assessee has been dismissed by the Supreme Page 23 of 77 Court. Accordingly, we are of the opinion that no question of law arises in the present cases as the matter is fully covered by the judgement of the Supreme Court in Lovely Exports (P) Ltd. (supra) as well as Division Bench judgement of this Court in the case of the responded assessee itself. Commissioner of Income Tax Vs Lovely Exports (P) Ltd (2008) 216 CTR 195 : (2008) 6 DTR (SC) 303 Income cash credit-share application money if the share application money is received by the assessee company from alleged bogus shareholders, whose names are great the AO, then the Department is free to proceed to reopen their individual be regarded as undisclosed income of Commissioner of Income Tax Vs Value Capital Services (P) Ltd. (2009) 221 CTR (Del) 511 : (2008) 307 ITR 334 “Income-cash credit-share application money-CIT(A) accepted the existence of the application - it is very difficult for the assessee to show the creditworthiness of strangers-Revenue has not sjiown that the application did not have the means to make the investment and that such investment actually emanated from the coffers of the assessee company - Addition rightly deleted by the Tribunal - "No substantial question of law arises." With regard to the addition of Rs 97,000/- on account of commission which was disallowed is also being deleted as 1 have held that the share capital of Rs 1,94,00,000/- cannot be taxed in the hands of company. Hence total addition of Rs 1,94,97,000/- is deleted.” [underline supplied by us} 6. The main reason for deleting the addition was that the assessee has filed confirmation letters, copies of the share application form, registration no and date of incorporation of the applicant companies with their PAN and bank account no of the appellant company, details of share allotment in form No. 2 submitted to ROC. Therefore, the ld CIT (A) held that since the identity and existence of the share applicants are true the share application money and the share capital have been routed through banking channel an amount of Rs. 1.94 crores cannot be added in the hands of the assessee. The ld AO aggrieved with the order of the ld CIT (A) has preferred an appeal before us.

“In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to addition made u/s 68 of I.T.Act:

1.

54. In view of the above, we are of the view that the Assessee has not discharged the onus Page 25 of 77 satisfactorily and the additions made by the Assessing Officer were justified and sustainable ”

2. CIT Vs Navodava Castle Pvt Ltd f20141 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. "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 !TR 35% (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.

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 bad aiso 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).

13. In view of the above reasons, the questions of law in these appeals are answered in favour of the revenue. The orders of the Assessing Officer are restored. The appeals are to succeed and are therefore allowed. 9 CIT Vs N R Portfolio Pvt Ltd r20131 29 taxmann.com 291 (DelhiVr2013l 214 Taxman 408 (Delhi)/r20131 263 CTR 456 (Delhi) 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. 10 CIT Vs Empire Builtech (P.) Ltd (366 ITR 110) where Hon’ble Delhi High Court held that u/s 68 it is not sufficient for ssessee to merely disclose address and identities of shareholders; it has to show genuineness of such individuals or entitles. 11 CIT Vs Focus Exports (P.) Ltd (51 taxmann.com 46 (Delhi)/r20151 228 Taxman 88) where Hon’ble Delhi High Court held that where in respect of share application money, assessee failed to provide complete address and PAN of certain share applicants whereas in case of some of share applicants, there were transactions of deposits and immediate Page 31 of 77 withdrawals of money from bank, impugned addition made under section 68 was to be confirmed 10 PCIT Vs Bikram Singh HTA No.55/20171 (Delhi) where Hon’ble Delhi High Court held that even if a transaction of loan is made through cheque, it cannot be presumed to be genuine in the absence of any agreement, security and interest payment. Mere submission of PAN Card of creditor does not establish the authenticity of a huge loan transaction particularly when the ITR does not inspire such confidence. Mere submission of ID proof and the fact that the loan transactions were through the banking channel, does not establish the genuineness of transactions. Loan entries are generally masked to pump in black money into banking channels and such practices continue to plague Indian economy 11 Rick Lunsford Trade & Investment Ltd Vs CIT T20161 385 ITR 399 (Cal) (The assessee did not produce books of account or bank accounts or shareholders’ register Eight out of fifty six persons from shareholders’ list provided by assessee denied subscription. Remaining notices returned with endorsement ’’not known”. Hon’ble Calcutta High Court held that unexplained share application money was rightly treated as assessee’s income 12 Rick Lunsford Trade & Investment Ltd Vs CIT r2016- TIQL-207-SC-IT1 (Supreme Court) where Hon’ble Supreme Court dismissed SLP upholding that it is open to the Revenue Department to make addition on account of alleged share capital u/s 68, where the assessee company has failed to show genuineness of its shareholders.”

“14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. It is in this context, the Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) had observed— "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to Page 40 of 77 show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." e. Sanctity of the transaction entered in to by cheque Now a days it is naïve to believe that the transactions entered in to through banking channel proves identity, creditworthiness, and genuineness of the transactions. The many reason are that in cash assessee could not have accepted such a huge amount. Necessarily accommodation entries are an exercise of introducing unaccounted money in to the books of accounts of the assessee without payment of taxes and therefore to give it a colour of genuinity the transactions are entered through banking channel. The accommodation entries are only with the object of camouflaging unaccounted money as tax paid and genuine money. One of the ways to do this is routing them in the books of accounts of the assessee through cheque.

Therefore, by very nature generally accommodation entries are introduced in the books by banking channels. f. Bank statement of appellant Bank statement of appellant company will shows the banking transactions entered in to by the company. That is not the dispute at all the money has been deposited in the bank account of the assessee company therefore naturally such entries would be shown in those bank account. However, the question is to whom this money belongs to, whether such person is credit worthy of depositing such sum and whether the depositing such sum is a genuine transfer of funds as share capital. The bank statement of the appellant does not prove it. Further, the bank statements of the shareholder applicants are not furnished. g. Non deposit of cash in the bank accounts of the shareholders Certain times it is said that there is no deposit of cash in the bank account of the depositor shareholders prior to issue of cheques of share capital to the assessee company and further transactions are through banking channel, addition cannot be made u/s 68 of the act. There is no law shown to us that transactions entered in to by the Page 42 of 77 banking channel are genuine. No such provision was found by us in The Income Tax Act too. Equally, we also could not find any provision of the law either under the Income Tax Act or under any other law that when the cash is deposited in the bank account of depositors shareholders the transactions become non genuine. Both the propositions cannot be looked in to isolation but should be seen coupled with other circumstances of the whole transactions. It is also equally important that cash is routed through many bank accounts by the entry operators to build the bank balance in the parties and then brought in to the banking transactions in the books of the depositor companies. Therefore generally the cash is never deposited in the bank account of the shell companies but are routed through various other accounts . Shell companies also credit the bank balance by selling of investments in other beneficiary companies to another shell company and generate bank balance through banking channel in their bank accounts. Therefore it is necessary to prove genuineness of the transactions, sources of the money in the bank account of the depositor with the business of the investors of the shareholder companies. Apparently, in this case assessee failed to prove it.

13. The Ld CIT (A) has not provided any answer in order that despite the following findings of the ld AO how the issue of share capital to non descript bogus companies operated by accommodation entry provider Mr. Tarun Goyal is a genuine transaction:- a. The signatures of Sh. Tarun Goyal, Sh. Parmod Kumar, Sh. Harpreet Singh and Ritu Saxena on these affidavits signed and notarized on 28/10/2010 and submitted in this office on 10/11/2010, do not match with their signatures on their statements recorded on oath during and after the search operations by the Investigation Wing of the Income Tax Department. Therfore strong doubt was cast on the affidavits itself by ld AO. Assessee failed to show any material on that aspects. b. It is strange that though the stamp papers were purchased as long back as 13/03/2007, the same were signed on 28/10/2010 i.e. after a gap of almost three and a half years. No explanation was provided by the assessee. c. All the affidavits were attested/notarized by Sudha Shankar Mishra on 28/10/2010, i.e. all the directors presented themselves before the Notary Public, Sudha Shankar Mishra on 28/10/2010, for signing the affidavits. d. During the course of search it was established that Sh. Tarun Goyal had floated many companies for the purpose of providing accommodation entries. e. All the companies floated by Sh. Tarun Goyal are not carrying out any genuine activity and are merely being used to provide accommodation entries. Hence, all the companies of Sh. Tarun Goyal are 'bogus'. f. Further no evidences could be placed that how the assessee company invited these shareholders to make an investments in assessee company without any substances. No evidences led before lower authorities about any business case/ justification for that. No subsequent returns or appreciation in the share value of the assessee company was shown to us. It is simply a façade to introduce unaccounted money in the garb of share capital.

13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. Page 47 of 77 The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct.

“26. In the light of the above facts, the evidentiary value of the affidavits is open to serious doubts. The Indore Bench of the Madhya Pradesh High Court in the case of Smt. Gunwantibai Ratilal v. CIT [1984] 146 ITR 140 (MP) explained the judgment of the Supreme Court in the case of Mehta Parikh and Co. v. CIT [1956] 30 ITR 181 (SC) and held that the said decision cannot be considered to have laid down the proposition that Page 49 of 77 unless the deponents of the affidavits are cross-examined, the affidavits cannot be rejected. It was explained that the decision of the Supreme Court lays down "that if there is no material whatsoever on record for doubting the veracity of the statements made in the affidavits and if the deponents have also not been subjected to cross-examination for bringing out the validity of their statements, then the Tribunal would not be justified in doubting the correctness of the statement made by the deponents in the affidavits." Thus, the affidavits need not be accepted as reliable when there is enough material on record to doubt the veracity of the transaction. In such a case it cannot be said that the affidavits can be rejected only after cross examination. In the present case, there is enough material on record to negate the claim of the genuineness of the transactions and in the light of over-whelming material, the plea that the Assessing Officer should not have rejected the affidavits without cross-examination of the deponents has no force. The said exercise has resulted in complete miscarriage of justice.”

“32. The Tribunal also erred in law in holding that the Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee. In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC) this argument advanced by the assessee was rejected by the Supreme Court. Venkatarama Aiyar J., speaking for the court, observed as under (at page 810) :

Now, the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Depart ment to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of Page 52 of 77 such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case, the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put for ward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly open to the Income- tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the Page No : 0193 inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs.

(emphasis supplied) Page 53 of 77 Section 68 recognizes the aforesaid legal position. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court in the judgment cited above. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers, explaining their modus operandi to help the assessee's having unaccounted monies convert the same into accounted monies affords sufficient material on the basis of which the Assessing Officer can be said to have discharged the duty. The statements refer to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a consideration in the form of commission. As already pointed out, the names of several companies which figured in the statements given by the above persons to the Investigation Wing also figured as share applicants subscribing to the shares of the assessee-company. These constitute materials upon which one could reasonably come to the conclusion that the monies emanated from the coffers of the assessee-company. The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view the material that was relied upon by the Assessing Officer. The Commissioner of Income-tax (Appeals) also fell into the same error. If such material had been kept in view, the Tribunal could not have failed to draw the appropriate inference.”

“39. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, Income-tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register, etc., are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under section 68 and the remedy open to the Revenue is to go after the share applicants in accordance with law. We are afraid Page 55 of 77 that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the Revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan— a smokescreen—conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under section 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.”

[Underline supplied by us} The facts of the case before us are more or less similar to the issue decided by Hon High court. 21. The ld CIT (A) has rest her decision solely based on the Decision of Lovely exports P Ltd (Supra). The hon. High court in 367 ITR 306 has considered the above h decision and held as under :-

“16. In the said case, the Division Bench had also examined the decision of the Supreme Court in Lovely Exports (P.) Ltd. (supra) and other cases in which the assessee had succeeded. It was noticed that in the case of Lovely Exports (P.) Ltd. affidavits/confirmations of shareholders were filed and income tax record numbers of the shareholders were made available, but the Assessing Officer, who had sufficient time, failed to carry out inquiry and examination. reference was made to the observations in Divine Leasing (supra) to the effect that there cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment as share capital must be firmly excoriated by the Revenue, but when there is preponderance of evidence to show absence of culpability, the assessee should not be harassed by the Revenue. A delicate balance must be maintained between the two interests. In Divine Leasing (supra), the following proposition was elucidated:— "In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified Page 58 of 77 in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty- bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation."

18. Lovely Exports (P.) Ltd. (supra) was also considered and distinguished in N.R. Portfolio (P.) Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT v. Nipun Builders and Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), wherein it has been held that a reasonable approach has to be adopted and whether initial onus stands discharged would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or Page 59 of 77 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 creditor. It would be also incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves. 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.

“28. We are unable to lay hands on any of the decisions of Hon'ble jurisdictional High Court which is contrary to the Page 62 of 77 approach so adopted in this judicial precedent. Let us, in this light, revert to the facts of the case before us. The assessee before us is a private limited company, which is, by law, prohibited from offering its securities for subscription by general public. It cannot, therefore, be really open to the assessee to say that we have no clue about who the subscribers to the share capital are; these cannot be rank outsiders or walk in subscribers- as perhaps in the cases of public limited companies. Yet, all that the company has to offer, to establish genuineness of transactions of subscribing to the shares, are the bank statements. The assessee is not able to produce the brains behind these companies and the documents with respect to the their financials either. As for the other documents, these documents have to be there for issuance of share capital anyway- genuine subscription or not so genuine subscription. Genuineness of a transaction cannot be demonstrated on the basis of these documents. The assessee has not been able to produce the principal officers of these entities, but then, given the way the facts about these entities have unfolded, the reasons for the limitations of the assessee are not difficult to seek. As per decisions of this Tribunal filed by the assessee on his own, these entities, as indeed other entities in Tarun Goyal group, were never involved in any genuine business anyway and were only in the business of providing accommodation entries. The shell entities, like these two entities before us, have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much a Member of this specialized Tribunal, cannot be oblivious of these ground realities. It would, therefore, not really be appropriate for us to be swayed by the documents like PAN cards, board resolutions passed by these entities, copies of distinctive share certificates, copies of letter from these two entities confirming the fact of share subscriptions and extracts from the minutes of meeting of the directors. As for the bank statements of these companies, as rightly pointed out by the learned Departmental Representative, these statements show the lack of genuineness. So far as Mahanivesh's bank statement with IDBI Bank is concerned, what is filed before us is the page containing entries from 1st June 2004 to 30th June 2004. On 1st June, this bank statement shows a credit balance of Rs 46,681. On 1st June, there is a credit of Rs 60,000 and the immediately following day, there is a withdrwal of Rs 50,000. On 8th June, there is a credit of Rs 10,00,000, and on the same day a debit of the same amount is also made. On 11th June, there are credits of Rs 20,00,000 and on the same day a debit of Rs 20,00,000 is given showing payment to the assessee. On 22nd June, there are credits of Rs 19,97,995 and, on the same day, another debit of Rs 20,00,000 is made showing payment to some other company. On 25th June and 28th June, it is the same story again though the amounts or debits and credits are Rs 15,00,0000 and Rs 10,00,000 respectively. As regards the other bank account of Geefcee in ABN Amro Bank is concerned, the situation is no better. On 3rd June, i.e. opening day of this bank statement, there is a credit balance of Rs 5,742.32. On June 9, there are deposits of Rs 20,10,000 and, on the same day, a payment of Rs 20,15,000 is made leaving a balance of less than Rs 1,000. On 11th June, there are deposits of Rs 10,00,000 and on the same day, there is a payment of Rs 10,00,000. On 16th June again, it is the same story but the amount is now Rs 20,00,000. On other dates in the ABN Amro Bank statement, as given to us, is the same story. What do we conclude from these statements? The overnight balance in the bank accounts are of small amounts and the payments made from these accounts are almost at the time of making payment are transferred from other sources, for which no explanation is available. This is typical of a situation in which the bank accounts are used as a conduit to launder the ill gotten money. It is impossible for even a layman, leave aside Members of this specialized Tribunal, to come to the conclusion that these transactions represent bonafide investment transactions. It is also important to note that there is nothing else about the genuine business activities, even if any, of the investor companies, about the backdrop of the promotors about the relationship these people had with the companies, and we are to take the call on genuineness only on the basis of these two bank statements for a limited period. We are unable to come to a positive conclusion about the bonafides of the investors on the basis of these bank statement, and quite to the contrary to the claim made by the assessee, these statements show lack of bonafides. Hon'ble Supreme Court has, in the case of Durga Prasad More (supra), observed that "human minds may differ as to the reliability of a piece of evidence but in that sphere the decision of the final fact finding authority is made conclusive by law". This faith in the Tribunal by Hon'ble Courts above makes the job of the Tribunal even more onerous and demanding and, in our considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on. We may also add that the phenomenon of shell entities being subjected to deep scrutiny by tax and enforcement officials is rather recent, and that, till recently, little was known, outside the underbelly of financial world, about modus operendi of shell entities. There were, therefore, not many questions raised about genuineness of transactions in respect of shell entities. That is not the case any longer. Just because these issues were not raised in the past does not mean that these issues cannot be raised now as well, and, to that extent, the earlier judicial precedents cannot have blanket application in the current situation as well. As Hon'ble Supreme Court has observed in the case in Mumbai Kamgar Sabha v. Abdulbahi Faizullabhai AIR 1976 SC 1455 "It is trite, going by Anglophonic principles that a ruling of a superior court is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark". Genuineness of transactions thus cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually non- existent. As the things stand now, genuineness of transactions is to be examined in the light of the prevailing ground realities, and that is precisely what we have done. We are of the considered view that there is nothing to establish genuineness of the share subscription transactions on the facts of this case. The assessee does not know anything about these companies or these persons. The assessee has no documents about their financial activities or their balance sheets. The assessee is a private limited company and these entities could not have therefore been rank outsiders like walk in investors and yet the assessee does not throw enough light on these entities. A lot of emphasis is placed on bank transactions, on PAN cards and on board resolutions but all these factors have to be present in the cases of shell companies involved in money laundering as well. Nothing, therefore, turned on these documents so far as genuineness aspect is concerned. It is also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. In the case of CIT v. United Commercial and Industrial Co (P.) Ltd [1991] 187 ITR 596/56 Taxman 304 (Cal) , Hon'ble Calcutta High Court has held that "it was necessary for the assessee to prove prima facie the identity of creditors, the capacity of such creditors and lastly the genuineness of transactions". Similarly, in the case of CIT v. Precision Finance (P.) Ltd [1994] 208 ITR 465/[1995] 82 Taxman 31 (Cal), it was observed that "it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions". There is thus no escape from proving genuineness of a transaction. The assessee has failed to do so. We, therefore, confirm the addition in respect of alleged share subscriptions received from these two companies- namely Mahanivesh and Geefcee. As regards the addition in respect of commission, we have seen that there is a categorical finding that these entities were arranging the accommodation entries on the basis of 2.5% commission. We, therefore, confirm this addition as well.

It is further held that:-