ITO 12(3)(3), MUMBAI vs. LUCAS MEYER INDUSTRIES, MUMBAI

3 ITA 3645/Mum/2017

Accordingly, made addition towards share capital received from companies u/s 68 of the Income-tax Act, 1961. The relevant findings of the AO are as follows:-

“Conclusion ; From the foregoing discussion, following uncontreverted and undisputed facts emanate are summarized as under: - 1) Assessee Company is a closely held private limited company, 2) Directors or ihe persons of the investors are not related to the Assessee. 3) Assessee has not produced any responsible person from investor Companies for examination during the course of the assessment proceeding. 4) From the Bank Statement of the investors companies, layering of the transactions is found and proved by the search party. 5) Tiiere is no-communication on record placed either by the subscribing company or the assessee to demonstrate as to how the whole transaction was conceptualized, discussed and concluded. 6} There is no basis or justification for the premium given by either the assessee or the subscribing companies. 7) Investments received in the guise of Share capital are out of cash circulated and layered in the Praveen Kumar Jain Group companies.

6 ITA 3645/Mum/2017

8) It is highly implausible that unknown persons will make huge investments in a company with no known history of past profit or any hidden assets or without any techno-feasibility study of projected/possible return on their investment. 9} Almost the entire sums credited in the A/c of investor companies are instantly being transferred to some other concerns/ accounts. 10) There is no genuine business being carried out by any of the group concerns of companies associated with Praveen Kumar Jain. 11) Closely held companies usually receive share capital subscriptions from friends, relatives and not from unrelated/ unknown third parties/ general public. In this case, there is no relationship or connection between the investors and the assesses. 12) Merely producing PAN number or balance sheet etc. of investing company, do not establish the identity of the person. The actual and true identity of the person or a company is the business undertaken by them In the present case no business activity is being earned out either by the assessee or by the investing companies except for providing the accommodation entries of various types in lieu of cash. 13) Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through ranking channels or by 'account payee instrument. In the present case, three of the investor companies are belonging to Praveen Kumar Jain group of companies. In the case of other companies, the assessee company did not produce any of the parties 23.2 For invoking the provisions of Sec 68 in any case, we need to examine the 'nature' and 'source' of the credits in the assessee's Books. In the present case, particularly in view of the detailed discussions of the circumstantial facts of the case in preceding paragraphs and case laws it stands established beyond doubt that the explanation offered by the assessee has failed to justify and substantiate the 'nature and source' of the transaction. The transaction also fails on the test of genuineness because the assessee has failed to establish that the investing companies were genuine investors. Investing companies have been used by the assessee for introduction of capital into Assessee Company and the whole transaction in the garb of Share Application Money is only a colourable device used by assessee to make the transaction appear genuine. 23.3 During the year under consideration the assessee has received an amount of Rs. 4,05,00,000 including Rs. 80,00,000 from companies operated by P.K. In other words the money was credited in its books of account in the F.Y. 20G7-0& (A V. 2008-2009). The assessee is not aware of addresses of its investors companies or its directors and has not keep any track of them. It seems that the assessee has never met the investors or never cared to send its annual reports to its investors including memos of board meetings and corporate decisions, if these investor parties were genuine to the smallest extent the assessee would have proper addresses in its records. But this is not a case. Further assessee had not issued any dividend to the investors till date Moreover, the investor companies are also not worried about their investment- It is not out of bound to say that th/s is a very big amount It is beyond understanding as to how the investors can be so careless about their investment unless and until the money is not belonging to them. The assessee has not discharged its onus of producing the investors, which are its own witnesses, before the undersigned. Further, there is no hidden assets such as patent/trademark etc with the assessee to enhance its share value. 23.4. In view of the nature of transaction and also after considering the submission on record, I hold that the transaction with the above mentioned

7 ITA 3645/Mum/2017 parties remain unproved. Therefore, the sum of-Rs. 4,05.00,0007- found credited in the Books of the Assessee during the year under consideration, in the guise of share capital fro;" the Shri Praveen Kumar Jain Group of companies, and other parties is assessed as unexplained cash credit u/s. 68 of the Income Tax Act, 1961 and it is added to its Total Income, As the assessee has filed inaccurate particulars of income, penalty proceedings are initiated separately under section 271(1)(c) of the Income-tax Act 1961.”

The sum and substance of arguments of the assessee before the Ld.CIT(A) are that the AO has relied upon third party statement without allowing the assessee of cross examination to confront the parties from whom statement has been recorded in violation of principles of natural justice. Therefore, the addition made by the AO on the basis of statement of third party without

8 ITA 3645/Mum/2017 allowing cross examination is in violation of principles of natural justice; consequently, the addition could not be sustained. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of Kishanchand Chellaram vs CIT (1980) 125 ITR 730 (SC). Insofar as addition towards share capital received from companies controlled and managed by Shri Pravinkumar Jain, the assessee submitted that it has filed complete details of identity and also proved genuineness of transactions and creditworthiness of the parties.

The assessee has filed financial statements of creditors alongwith bank statements. The share capital has been subscribed through proper banking channel. The assessee has also substantiated issue of shares at a premium.

Therefore, the AO was erred in disregarding evidences filed by the assessee to come to the conclusion that the assessee has failed to discharge its initial onus of proving the identity and genuineness of transactions.

6. The Ld.CIT(A), after considering submissions of the assessee and also by relying upon certain judicial precedents, including the decision of Hon’ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd reported in 261 CTR 295 (SC) held that the assessee has discharged the onus cast upon u/s 68 of the Act, by filing various details including confirmations from the parties, PAN, bank statement, financial statements, share application form and board resolution.

Once the assessee has filed necessary details in order to prove identity and 9 ITA 3645/Mum/2017 genuineness of transactions, merely on the basis of statement of third party, no addition could be made in respect of share capital received from the companies. The Ld.CIT(A) further observed that once the assessee has filed necessary evidence to prove identity of the parties, then the department is free to proceed to reopen the assessment of creditors in accordance with law, but sum received from the parties cannot be regarded as income of the assessee u/s 68 of the Act. The relevant findings of the Ld.CIT(A) are as under:-

“5.4 I have gone through the assessment order and submissions made in this regard. It is noted that the Assessing Officer doubted the share capital and treated the same as unexplained cash credit u/s 68 of the Income Tax Act, 1961. 5.5 It is noted that the A.O. has held that the appellant has introduced income from undisclosed sources brought under the garb of share capital of Rs.4,05,00,000/- and hence this amount of issue of the share capital was assessed as income of the appellant u/s 68 of the Act. The A.O. had concluded that based on the test of human probabilities it is clear that the entire transaction is a pre-structured transaction and a colorable device used by the assessee company to introduce undisclosed income under the garb of share capital and share capital. The AR has contended that the A.O. had missed the crucial fact that the share applicant company is regularly doing the business and has filed its tax returns on regular basis. The taxes are paid by it on the income so earned. In the light of observations of the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd, reported in 216 CTR 295, the onus on the appellant has been duty discharged. The peculiar facts of the case may have caused suspicion in the mind of the A.O. but there is no evidence or other material to hold that the appellant had routed its own money. 5.6 On an analysis of the facts on records, it is seen that the share capital of ? 4,05,00,000/- has come from share subscribers. It is noted that the share applicants are existing and have confirmed that they had contributed to the share capital of the assessee company. The next aspect is creditworthiness. The assessee has filed copy of PAN card, bank statement, Balance sheet and P&L account, Share Application Form, Board Resolution of Assessee Company empowering the applicants to invest in the assessee company. It emerges out from the record that the applicants have duly recorded the investments in their books of accounts. Thus, the share applicants had demonstrated these balance in their balance sheets in the shape of investment as well loan and advances. The next issue is about the genuineness of the transaction. The assessee has produced the details of bank account. The share capital has been issued through baking channel.

10 ITA 3645/Mum/2017

There is no cash transaction which could compel oneself to assume that the transactions were not genuine. The onus cast upon the assessee under Section 68 of the Act is to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Exports (P) Ltd., 216 CTR 295. Whilst, the A.O. acted legitimately in Jnto the matter, the inferences drawn by him were not justified at all in circumstances of the case. Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue here was whether the amount invested by the share applicant was from legitimate sources. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis is on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is peculiar in the present case is when the assessment was being completed the A.O. has not made much investigation except issuing of notice u/s 133 (6) which could not be served on the share applicant to file confirmation balance sheets and Bank details which would have established that the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants were not apparent. It has been submitted that these details called for by the A.O. were duly filled by the appellant but it failed to produce the share applicant company before the A.O.. Even otherwise, the details of share applicants' particulars were available with the A.O. in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the A.O. did not consider it worthwhile to make any further enquiry but based his order on the high value of the share capital and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. There is no finding to the effect as to how the alleged unaccounted cash/money of the assessee company was routed through various levels and it finally reached to the assessee. There is no evidence or material on record to show that the said amount representing share capital moved from the assessee and reached to the assessee. The assessee company has received the money through banking channels and the share applicants had shown the said amount as investment in their books of account. The money routed through banking channels and through account payee cheques/bank draft, undisputed given by the party. Even, the source of the capital was found in the bank account of the share plicants not by any cash deposit; but through account payee cheques. Therefore, all these documentary evidence are considered there appears not much basis addition. It is seen that in the latest decision, the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (2011) 333 ITR 119 Del, after considering all the relevant decisions on the issue including the decision of the Hon'ble Supreme Court in the case of Lovely Exports P Ltd (supra), decision of the Full Bench of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd reported in 205 ITR 98 (Del)(FB) and the decision in the case of Divine Leasing & Finance Ltd (supra) has observed as under: "It is clear from the above that the initial burden is upon the assessee to explain the nature and source of the share capital received by the assessee. In order to discharge this burden, the assessee is required to prove: (a) the identity of shareholder; (b) the genuineness of transaction ; and (c) the credit worth in ess of shareholders.

11 ITA 3645/Mum/2017

"In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholder. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs." The Hon'ble Bombay High court thus clearly held that once documents like PAN card, bank account details or details from the bankers were given by the assessee, onus shifts upon the Assessing Officer and it is on him to reach the shareholders to ascertain the true facts. It is, thus, for the Assessing Officer to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further the initial burden on the assessee would be somewhat heavy in case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties. 5.8 The judgment of the Supreme Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278 is also relevant on the facts of the case. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the ctive accounts of the assessees by negotiations

12 ITA 3645/Mum/2017 through bank in India. The indicated that the donor was to receive suitable compensation from the s. The Assessing Officer held that the gifts though apparent were not real rdingly treated all those amounts which were credited in the books of t of the assessee, as their income applying section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner of Income-tax (Appeals). On appeal, the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the court while reversing the decision of the High Court held that the findings of the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of section 68 of the Act suggests that (i) there has to be credit of amounts in the books Ltd. maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books, or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is e sine qua non for forming the opinion. In cases where the explanation offered by essee about the nature and source of the sums found credited in the books tisfactory there is, prima facie, evidence against the assessee, viz., the f money. The burden is on the assessee to rebut the same, and, if he fails it, it can be held against the assessee that it was a receipt of an income . The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.

13 ITA 3645/Mum/2017 5.9 It is also of relevance to point out that in CIT v. Stellar Investment Ltd, [1991] 192 ITR 287 (Delhi) where the increase in subscribed capital of the respondent-company accepted by the Income-tax Officer and rejected by the Commissioner of Income-tax on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares with the help of formation of an investment which was reversed by the Tribunal, the Delhi High Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, .under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This view was confirmed by the apex court in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. In view of this legal position, the present appeal is to be decided. It is clear from the decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd. 2011 333 ITR 119 (Del.), that once the assessee filed copy of PAN, Acknowledgement copy of the return of income of the investing company, their bank accounts statements for the relevant period; then even if the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc.. In the instant case, there is no dispute about the identity of the applicant company, who had paid the capital and the source of the capital was also found in the respective bank accounts of the investing company and there was no trace of cash deposit in the bank accounts of the investing company, then, the action of the Assessing Officer due to the premium on shares without making further detailed enquiry to establish that the provisions of section 68 of the Income Tax Act were attracted in the present case is [[cult to sustain in appeal. The Assessing Officer has made addition on some ind suspicion but has not established any direct or indirect link of own money flowing out and then again received by the assessee in the lhare capital and premium. The assessee had placed on record the well as copy of income-tax returns of the share applicants. Keeping in 'all these evidence it cannot be held that the assessee did not establish the identity of the share applicants. This view is also supported by the recent decision of the Income Tax Appellate Tribunal - Hyderabad BENCHES "B" in the case of Komal Agrotech Pvt.Ltd., Hyd, ... vs Ito, Ward-2(l), Hyderabad, ... on 25 November, 2016 ITA.No.437/Hyd/2016 Assessment Years 2007-2008, where in similar facts it was held that: "9.1. A plain reading of the assessment order demonstrate that the A.O. merely went by the investigation done by the Office of D.G.I (Investigation), Mumbai. No enquiries or investigation was carried out. No evidence to controvert the claims of the assessee was brought on record by the A.O. Even the statement of Mr.Praveen Kumar was supplied. Nothing is on record about the result if investigations done by DGIT (Inv.), Mumbai. The papers filed by the assessee do demonstrate, the identity, credit worthiness and genuineness of the transaction. The addition is made merely on surmises and conjectures. 9.2. In view of the above discussion, we hold that the addition made under section 68 of the Act is in bad in law. In the result, reopening of the assessment is quashed and the addition is also deleted on merits.

14 ITA 3645/Mum/2017

"In fact, in Nova Promoters and Finlease (P) Ltd. (supra) itself this Court has observed, in the context of Lovely Exports (P) Ltd. (supra), as under: - 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 sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and caches the particulars furnished by the assessee and also establishes the link between pnfessed "accommodation entry providers", whose business it is to help assessees into their books of account their unaccounted monies through the medium of share tription, and the assessee. The ratio is inapplicable to a case, again such as the present ne, where the involvement of the assessee in such modus operand! is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. As can be seen from the above extract, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer sits back with folded hands" till the assessee exhausts al! the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the assessing officer, after noting the facts, merely rejected the same. This would be apparent from the observations of the assessing officer in the assessment order to the following effect:- "Investigation made by the Investigation Wing of the Department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs. 1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs. 55,50,000/- and not Rs. 1,11,50,0007- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs. 55,50,000/-. The assessee has further tried to explain the source of this amount of Rs. 55,50,000/- by furnishing copies of share applilication money, balance sheet, etc. of the parties mentioned above and asserted that the ;stion of addition in the income of the assessee does not arise. This explanation of the fssessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the Department. As such entries of Rs. 55,50,0007- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since r am satisfied that the assessee has furnished

15 ITA 3645/Mum/2017 inaccurate particulars of its income, penalty proceedings under section 271(l){c) are being initiated separately." The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in tine with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under section 68 of the Act. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law. The appeal is dismissed." 5.11 In view of the legal position emanating from legal precedents and the observations of Hon'ble Delhi High Court, in the case of Gangeshwari Metal P. Ltd. as discussed above it is noted that when requisite documents such as PAN, Bank accounts, Balance Sheet etc. were available with the A.O., to establish that no cash transactions were involved in the bank accounts of the investing company then without further probe to prove contrary the addition u/s 68 in the hand of the assessee cannot be made. Further in the case of H. R. Mehta vs. ACIT [387 ITR 561 (Bombay)] it was held that the assessee is bound to be provided with the material used against him apart from being permitted to cross examine the deponents. The denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment order and renders it vulnerable. On a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. In view of this discussion on the facts of the case and having d to the decisions of courts and judicial precedents as noted above, the made by the A.O. of the share capital of ? 4,05,00,QOO/- under section he Income Act 1961 cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed.”

7. Aggrieved by the order of Ld.CIT(A), the revenue is in appeal before us.

8. The Ld.DR submitted that the Ld.CIT(A) erred in deleting addition made by the AO towards share capital received from certain companies controlled and managed by Shri Pravinkumar Jain without appreciating the fact that the AO has discussed the modus operandi of Shri Pravinkumar Jain and also linked facts gathered during the course of search in the case of Shri Pravinkumar Jain to the credits found in the books of account of the assessee to come to the 16 ITA 3645/Mum/2017 conclusion that the assessee is one of the beneficiaries of accommodation entries of share capital provided by companies belonging to Shri Pravinkumar Jain. The Ld.DR further submitted that mere furnishing certificate of incorporation, PAN, etc are not sufficient for purpose of identification of shareholder when there is material to show that shareholder was a shell company and not a genuine investor. The Ld.DR further submitted that where assessee received unsecured loans, but could not produce lenders for verification and these lenders were found to be shell companies, said loan transaction could not be said to be genuine merely because assessee filed loan confirmations, copies of ledger account and other supporting evidence to justify transactions at fag end of assessment proceedings. The AO has brought out all these facts in his assessment order, but the Ld.CIT(A) has failed to appreciate the facts in right perspective, therefore the addition made by the AO should be sustained. In this regard, he relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs Navodaya Castles Pvt Ltd (2014) 367 ITR 306 (Del) and also the decision of Hon’ble Supreme Court in the case of Pawankumar M Sanghvi vs ITO (2018) 258 taxman 160 (Del).

9. The Ld.AR for the assessee, on the other hand, strongly supporting the order of the Ld.CIT(A) submitted that the assessee has discharged its onus by filing various documents including identity of the creditors and also proved by 17 ITA 3645/Mum/2017 genuineness of transactions and creditworthiness of the parties by filing their bank statements and financial statements. The AO has disregarded all evinces merely for the reason that share capital has been received through certain companies belonging to Shri Pravinkumar Jain on the basis of his admission before the Investigation Wing at the time of search in his case. The Ld.AR further submitted that the AO has not provided an opportunity to the assessee to go through the statement recorded from Shri Pravinkumar Jain and also not given an option to cross examine the parties. It is a settled position of law that when any addition is made on the basis of third party information, it is the duty of the AO to confront those statements / information to the assessee for its rebuttal. In absence of any option given to the assessee to cross examine the parties, no addition could be made, otherwise, it would amount to violation of principles of natural justice. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of CIT vs Kishanchand Chellaram (supra).

The Ld.AR further submitted that in respect of addition made towards share capital, the assessee has filed enormous details including confirmation from the parties, their bank statements, financial statements and PAN. The assessee has also justified issue of shares at a premium. Once the identity has been proved by filing necessary documents, then the AO is free to call the parties but the amount received from the said parties could not be regarded as 18 ITA 3645/Mum/2017 income of the assessee u/s 68 of the Income-tax Act, 1961. In this regard, he relied upon the following judicial precedents:-

2 M/s Reliance Corporation to 1071 /Mum/2017

3. Komal Agrotech p Ltd. Hyderabad ITA.No 437/Hyd/2016

4. Orchid Industries Pvt.Ltd.ITA No 1433/2014

11 "Shodiman Investments P Ltd (2018) 93 Taxmann.com 153 (Bombay)

10. We have heard both the parties, perused material available on record and also gone through the orders of authorities below. The AO has made addition towards share capital received from certain companies on the basis of information received from DGIT (Inv), which was further suppoted by search conducted in the case of Shri Pravinkumar Jain and his associates, where Shri Pravinkumar Jain had admitted in his statement recorded u/s 132(4) of the I.T.

Act, 1961 that he was providing accommodation entries to various

19 ITA 3645/Mum/2017 beneficiaries. The AO has brought out various facts in his assessment order and also the modus operandi of Shri Pravinkumar Jain to come to the conclusion that share capital received from companies belonging to Shri Pravinkumar Jain is bogus in nature and assessee failed to prove the identity, genuineness of transactions and creditworthiness of the parties. The AO has disbelieved documents filed by the assessee mainly for the reason that the creditors did not appear before the AO when notices u/s 133(6) were not served calling for various details, whereas the assessee could able to file confirmations from the parties alongwith their details. Therefore, he came to the conclusion that when the parties were available to the assessee, how they could not receive notices served by the department and not respond by filing necessary details. Therefore, he opined that the genuineness of transaction was doubtful and accordingly disregarded all evidences filed by the assessee in respect of identity of the parties. Similarly, the AO has doubted genuineness of transactions on the basis of facts gathered during the course of search conducted in the case of Shri Pravinkumar Jain coupled with further enquiries conducted during the course of assessment proceedings. The AO has also doubted creditworthiness of the parties on the basis of financial statements filed by the assessee. As per the AO, none of the companies have sufficient source of income to explain share capital given to the assessee company and 20 ITA 3645/Mum/2017 the companies have disclosed meagre or Nil profit for the relevant financial years. Though, the amount has been transferred through proper banking channel, but on perusal of bank statement of parties it was noticed that there are only few debits and credits on each day without any balance in the bank account. Therefore, he came to the conclusion that mere furnishing certain documents including confirmation and bank statement and also payment through banking channel is not sufficient for purpose of identification of shareholder when there is material to show that shareholder was a paper company and not a genuine investor. We find that the AO has given various reasons to disbelieve documents furnished by the assessee. We also note that although the assesseee argued that sufficient opportunity was not given by the AO and also decided the issue behind the back of the assessee without giving an option to cross examine the person, who gave the statement, but on perusal of details filed by the assessee, it is abundantly clear that the assessee has not discharged his onus when the AO has called upon the assessee to produce the parties in person for cross examination. The question of cross examination and furnishing statement would arise only when the assessee has complied with the requirement of producing the parties when the AO has called upon the assessee to produce the parties in person. In this case, the assessee has neither produced the parties in person nor filed any proof for 21 ITA 3645/Mum/2017 asking for evidence collected from third party and also cross examination of the parties. Under these facts, we are unable to accept the arguments of the assessee that the AO has violated principles of natural justice and also made addition behind the back of the assessee without giving any opportunity of cross examination. But, at the same time, it is also very clear that the assessee has filed complete details of share capital received from the parties including confirmation from the party alongwith their financial statements. Generally, once the basic evidence including the confirmation has been filed before the AO, then it is as good as the assessee has discharged its onus of identifying the creditor, but in the peculiar circumstances of this case, it cannot be accepted because the department has brought out clear facts of modus operandi of Shri Pravinkumar Jain and also established fact that the assessee is one of the beneficiaries of accommodation entries of share capital provided by Shri Pravinkumar Jain. Therefore, we are of the considered view that it is very difficult to accept the arguments of the assessee that the addition has been made without providing an opportunity of cross examination to the assessee.

However, in order to give one more opportunity to the assessee to meet the ends of natural justice, we deem it appropriate to set aside the issue to the file of the AO to give an option to the assessee to produce the parties in person before the AO and also to avail the opportunity of cross examination of the 22 ITA 3645/Mum/2017 parties. Hence, we set aside the issue to the file of the AO and direct the AO to reconsider the issue in the light of the arguments of the assessee that the assessee is willing to cross examine the parties and also in the light of statement given during the course of search in the case of Shri Pravinkumar Jain.

Order pronounced in the open court on 24-05-2019.