DCIT, CIRCLE-13(1), NEW DELHI vs. JANPATH VENTURES PVT.LTD., NEW DELHI

4.1 It was submitted by the assessee before the CIT(A) that except the share applicant namely Mrs. Arshpreet Singh Khangura, the other share applicants namely, Mr. Arvinder Singh Salariya and Mr. Sukhbir Singh are Non- Resident Indians (NRI) and the money has been remitted through proper banking channel. It was thereafter pointed out that Mrs. Khangura is an existing shareholder of the company since past several years and therefore, her identity cannot be doubted. The genuineness of the transaction as well as creditworthiness is evidenced from her bank statement whereby it can be seen that she has received Rs.2,31,00,000/- from various sources during the year in aggregate. A sum of Rs.1,73,74,810/- was received from her husband and Rs.11,50,000/- recd. from Majestic Hotels Ltd. as recoupment of money advanced to such party in the earlier years. Funds so received from Husband and Hotel were utilised to infuse money in the assessee-company as share application money. Hence the share application money has been sourced out of such receipts. The creditworthiness of the Applicant Mrs. Khangura is thus supportable by facts on record. The assessee also contended before the CIT(A) that genuineness of transactions is supported by money received through regular banking channels. In respect of share application money received from other Non resident Shareholders, the money received is evidenced by Foreign Inward Remittances Certificate (FRC) issued by Bank. It was further contended that all the shareholders of the company are high net worth individuals with established creditworthiness.

4.2 The assessee filed certain additional evidences in terms of Rule 46A of the Income Tax Rules, 1962 such as PAN of the shareholders, confirmation letter from the shareholders towards infusion of money, confirmation from spouse who transferred money to Mrs. Arshpreet Singh Khangura which was in turn stated to be invested by her in the form of share application money with the assessee co. The CIT(A) called for remand report/ comment from the AO on the additional evidences filed before him by the Assessee. The AO vide letter dated 17.05.2019 furnished a report as reproduced in paragraph 5.6 of the appellate order passed under Section 250 of the Act. As per the remand report, the AO broadly objected to the admission of the additional evidences by the CIT(A) owing to repeated non compliances before the AO. Without prejudice such objections on admission of additional evidences, the AO in a very brief and cryptic or summary report also asserted that even if such additional evidences are taken on record, provisions of Section 68 are still attracted as the assessee has failed to discharge onus placed on it towards identity of applicants, genuineness of transactions and creditworthiness of parties are not fulfilled and a mere production of PAN or a formal letter of confirmation of transaction by so called applicants do not establish the creditworthiness and genuineness of transaction per se. A reference was made to the judgments rendered in the case of CIT vs. Globus Securities and Finance Pvt. Ltd. reported in (2014) 264 CTR 481 (Del) and CIT vs. NR Portfolio Pvt. Ltd., (2014) 64 CTR 258 (Del) to challenge the nature and source of impugned receipts.

4.3 As pointed out in paragraph 5.7 of the impugned order of the CIT(A), the remand report of the AO was sent to the assessee for its comment. The communication of the CIT(A) to Assessee however remained unresponded. The CIT(A) accordingly proceeded to adjudicate the issue on the basis of material available on record.

4.4 The CIT(A) found merit in the case built by the assessee towards the identity, creditworthiness of the share applicants as well as genuineness of the transaction. The CIT(A) accordingly reversed the additions made by the AO under Section 68 of the Act for which the findings rendered are noted hereunder:

6.1 I have gone through the assessment order, submissions by the appellant, documents brought on record, case laws relied upon, additional evidence and the report of AO.

7. In ground no. 1, the appellant has challenged that the AO has travelled beyond jurisdiction to the mandate of limited scrutiny. It is stated, as reproduced earlier that the AO has made certain enquiries, which was not warranted, looking to the limited mandate in limited scrutiny. 7.1 In this regard, it is observed that this case has been initiated for limited scrutiny with the following reasons:- * Share application money received, whereas no allotment was made; * Low income in comparison of loan, advance and expenses. 7.2 It is further observed that the addition has been made for unexplained share application money, received during the year amounting to Rs. 12,61,40,820/-. Therefore, the addition made in the assessment order is with reference to the mandate of limited scrutiny and it cannot be stated that AO has made enquiries or asked anything which is beyond the Scope. Further, the issue to examine low income requires the examination of books of appellant and also check various details, therefore, there is no prohibition for AO not to ask for various details, including books of accounts. 7.3 Further, these assessment proceedings cannot be held void-ab-initio, because certain details have been asked by the AO. In this case, it is apparent that nothing has been asked to go beyond the scope of limited scrutiny nor anything specific has been brought on record. Therefore, looking to the additions made and the reasons for limited scrutiny, there is no force in the arguments of appellant and accordingly this ground of appeal

is dismissed.

8. Ground nos. 2 to 8 relates to the merits of the addition. It is contended by the appellant, as reproduced earlier that these funds for share application has been received from the existing shareholders. Out of the 3 such applicants, 2 are nonresident, whereas one Mrs. Arshpreet Singh Khangura is Indian. It has been stated by the appellant that in the past also they had provided share application money, which was examined by the AO and no adverse inference made. The appellant stated to have provided various details to establish the identity, creditworthiness of such investors and genuineness of transactions.

8.1 With regard to Mrs. Arshpreet Singh Khangura, the appellant provided her confirmation, details of the source of her funds which is received from her husband and the total credit in her bank account is much higher than the investment made for the year under consideration. Her PAN, bank account and other details have been provided and also her source of receipt of such fund has been shown to establish the creditworthiness. All the funds received and paid are through banking channels and being existing shareholder, the identity and genuineness of transaction is also stated to have been established. 8.2 With regard to other two investors, it is contended by the appellant that they are the existing shareholders and NRI, funds have been received through banking channels and the clearance through FIRC. It is also stated that form 3CEB is not applicable in the case of appellant as there is no foreign transaction but only receipt of capital for enhancement of shares. Their confirmations have been provided. It is also stated that as per proviso to section 68, inserted with effect from 01.04.2013, there is no need to establish the source of source in the case of non resident persons. Further, it is stated that the money has been received and invested through genuine sources. 8.3 Apart from various submissions on merits, it is also stated by the appellant that no reasonable opportunity has been given to produce the non resident shareholders. It has been shown that notice has been issued on 29.12.2017 to the appellant with a final show cause and to produce the person from whom share application money has been received, by 30.12.2017 at 4 pm. Therefore, it is contended that this notice has been received through email and it was not possible to present the NRI share investors within 21 hours, though other details have already been provided. Therefore, no reasonable opportunity was provided. 8.4 It is also contended that this notice was issued on 29.12.2017 for production of investors on 30.12.2017, whereas the assessment order was already passed on 29.12.2017. Therefore, the natural justice and adequate time was not provided. 8.5 On going through the details and the submission, it is observed that all the 3 investors are not new but the old shareholders, who have further invested in the appellant company. The appellant has provided PAN, bank account of Arshpreet Khangura, confirmation of all, details of share application money received through banking channels and other documents to justify the creditworthiness and genuineness. In the case of foreign remittance, the applicants are NRI's and hence essential as only share capital has been subscribed. The appellant has provided FIRC certificate regarding receipt through bank and no doubt raised by the AO. 8.6 It is further seen that AO has not made any enquiries either through banking channels or third party investigation, nor any summons have been issued to ensure the appearance of investors. This is also not a case where any report of Investigation Wing has been received nor any information received from any other source to have any doubt/evidences to believe that these share application money are not genuine in nature or provided through any bogus entry operator. No further enquiries have also been made through FTD or other competent authority to examine the genuineness of funds received from foreign country, whereas the appellant has provided all details including FIRC to substantiate its claim. 8.7 It is also observed that show cause notice has been issued on 29.12.2017 to produce the investors on 30.12.2017, whereas the order have already been passed on 29.12.2017, thereby denying opportunity to the appellant and not adhering to the principle of natural justice. The case law relied upon by the appellant have also been gone through and in the light of the judgments, especially in the case of Lovely Exports, Rasia Technology Centre Pvt. Ltd., Himachal Fibers Ltd. and other cases, the AO could not established that these receipts are non-genuine cash credit within the meaning of provisions of section 68 of the Act. 8.8 Therefore, looking to the facts and circumstances of this case, where the appellant has discharged its duty to establish identity, creditworthiness of the investors and genuineness of transactions and no cogent evidence brought on record by AO to establish otherwise nor any fruitful enquiries made nor it is a case of any bogus entry provider, unearthed through investigation etc. and no proper opportunity has been provided to the appellant as order has been passed before the time given for compliance and in view of the various judicial pronouncements and looking to the discussions in the foregoing paragraphs, it is held that these additions are not called for and deserves to be deleted. The AO is directed to delete this addition accordingly. These grounds of appeal are allowed.

9. In ground no. 9, the appellant has raised the objection regarding set of losses with the taxable income as per the additions made in the assessment order. Since the additions made in the assessment order is directed to be deleted, therefore, this ground of appeal has become infructuous and dismissed for statistical purposes.

10. In result, the appeal is partly allowed.”

5. The Revenue has challenged the order of the CIT(A) granting relief to the assessee before the Tribunal.

The gist of contentions raised orally and in writing are that (a) The CIT(A) has 6.1 clearly proceeded on misconception of facts and law while discharging the assessee from onus of proof; (b) the CIT(A) failed to appreciate that AO had given sufficient opportunity to the assessee to discharge onus placed upon the assessee under Section 68 of the Act. The assessee failed to provide even elementary documents such as bank statements and confirmation and allowed the opportunity so provided, to lapse. The CIT(A) has not recorded any reason on admission of additional evidences; (c) Mere production of bank statement of the applicants and a formal confirmation thereof filed before CIT(A) by way of additional evidence can not be regarded as sufficient proof to discharge the onus under Section 68 of the Act. The assessee is expected to explain the nature and source of each transaction under question. The explanations towards motive and purpose of making such large investments in a low income yielding company and without any cogent asset base, would give rise to a strong suspicion of clandestine nature of such transactions. The AO unsuccessfully tried to seek assessee to present the applicants to gather understanding on the reasons for making such large investment. The CIT(A) could not have ignored such inaction of the assessee and reject the efforts of the AO and sit back with folded hands. The co-terminus powers enabled the CIT(A) to put enquiries in motion instead of finding lacunae in the order of the AO; (d) The CIT(A) accepted the version of the assessee based on few documents such as bank statements, confirmation, inward remittance cert. which are not per se demonstrative of real intention and boanfides. The Assessee has failed to adduce evidences and furnish explanations in the course of assessment proceedings. The AO categorically noted that basic documents such as Income tax returns, bank statements and statement of affairs of the investors were not produced. The capacity of investors are thus not known. The share application money has not been translated into share allotment either. It is not known as when the allotment was made and whether the money was simply returned. The motive of making such large scale investments in a one lakh paid up capital company is also a relevant factor which is not known. The pattern of money transfer as per the bank statement now placed before tribunal is also peculiar. The money has been transferred in odd amounts in multiple tranches which is uncharacteristic of transfer towards share application even if such transfer is momentarily assumed to be genuine. The CIT(A) failed to take note of the fact that neither the shares have been allotted against such large amount received nor the money has been returned. The CIT(A) ought to have made enquiry on such crucial aspect while the matter was at the first appellate stage even if some shortcoming were felt by the CIT(A) in the matter of manner of inquiry by the Assessing Officer. The CIT(A) could not have shun the co-terminus responsibility of statutory nature in this regard; (e) The balance-sheet of the assessee placed in the paper book also does not inspire any confidence about its capacity to attract such large funds for which terms are also not known. It is also not known as to what type of shares were to be allotted against such application money. The paid up share capital of the assessee company is a meagre 1 lakh whereas the share application money pending allotment at the end of the FY 2014-15 is shown to be Rs. 2.57 crore. Similar outstanding of Rs. 1.31 crore is shown in the previous F.Y. 2013-14. Similarly, Long Term borrowings of Rs.95 lakh remains outstanding and carried forward from the preceding assessment year. As against such large scale receipts and inflow of money, the tangible asset is meagre 1.86 lakh and the substantial money of Rs.1.47 crore is shown to be invested in the unquoted equity shares of its sister company. A staggering amount of Rs.5.56 crore is shown to have been advanced and classified as long term advances without any visible earning thereon. Such typical state of affairs of the company called for the attention of any reasonable person instructed in law. As reported, the assessee has hardly earned any income during the year in proportion to the investments and advances. The total receipt against such large investments stands at meagre 18.80 lakh. Why a person would risk such large money into such a company with obscure potential, is a pertinent question relevant to determine the genuineness of transaction. The relevant facts were not placed before the AO. The CIT(A) has also not examined any of such factors and simply found lacunae in the assessment order without any perceptible opportunity to the AO; (f) The remand report is primarily on the point of admission of the additional evidences. The AO has red flagged the admission of such evidence. The AO has hardly provided any worthwhile comment on merits. No outcome of fresh enquiry on evidences supplied is available before CIT(A). The AO has clearly stated that the identity, creditworthiness and genuineness of the transaction are not supportable of facts. In the circumstances, the AO ought to have been given opportunity to seek justifications from the applicants and offer his comments. Despite any lack of response from the assessee, the CIT(A) has adjudicated the issue in favour of the assessee on flimsy grounds such as FRC Certificate towards receipt of money, the applicants being existing shareholders, the money was sourced from her husband etc. Nothing turns of FRC certificates which merely certifies inward remittance. FCGPR document is not placed to show the nature of investment coming to India regulated by FEMA provisions. The CIT(A) apparently acted in undue haste and accepted the version of the assessee without adopting due process of law and without taking into account glaring pattern while transfer of money.

6.2 The ld. CIT-DR, in short, submitted that the financial statement of the assessee is highly loopsided and do not show any justifiable reason for making large investments. Besides, the share application money pending allotment has been already utilized by the recipient Assessee co. towards investment in unquoted equity shares in breach of provisions of Companies Act. The money pending allotment could not have been utilized for such purpose. It is not known as to when the share application money is converted into equity shares and at what terms. While reversing the action of the Assessing Officer, these pertinent enquiries were necessary in exercise of co-terminus powers to appreciate the genuineness of the transaction. Furthermore, the share applicant, Mrs. Arshpreet Singh Khangura is stated to have been made application of Rs.1.85 crore which is sourced out of funds of the husband. The ROI of the share applicant is not known nor of other shareholders. It is again questionable as to why any person will make such investments by taking loan from husband.

6.3 The ld. CIT-DR thus assailed the order of the CIT(A) in not making any independent enquiry either himself or through AO and proceeded with the adjudication in haste without seeking further remand report necessary for determining the issue towards genuineness of transaction and creditworthiness of the parties.

7.1 We straightaway find that certain additional evidences were filed before the CIT(A), A remand report thereon was sought from the AO. The remand report received by the CIT(A) from the AO reads as under:

“In this regard, it is submitted that the AO has made addition u/s 68 of the IT Act. The addition was made on account of unexplained share application money credited in the books of account of M/s. Janpath Venture Pvt. Ltd. for the AY 2015-16. The assessee has filed an appeal before your honour contesting the above additions and has filed a letter for admission of additional evidence under Rule 46A of Income Tax Rules, 1962. The application for admission of additional evidence should not be admitted as per the discussion in following paras:- Rule 46A of Income Tax Rules, 1962 provides certain exceptions in which the additional evidence may be produced by the appellant assessee. The text of Rule 46A is appended here under for your kind reference- ...(a) Where the Assessing Officer has refused to admit evidence which ought to have been admitted ; or (b) Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon the produce by the Assessing Officer; or (c) Where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or (d) Where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.

Further, an assessee cannot adduce additional evidence as a matter of right. Rule 46A merely enables admittance of evidence subject to fulfillment of its pre-conditions. The assessee, in the instant case does not fall under any of the exceptions mentioned under Rule 46A. As the assessee has not brought to light what prevented him to produce the "relevant documents" during the course of assessment proceedings u/s 143(3) of the IT Act. Further, multiple opportunities were being provided to the assessee to represent his case and to file the requisite documents in support of his claims/contentions. The mere fact that the evidence sought to be produced is vital/important does not constitute sufficient cause to allow its admission at the appellate stage. It is for the party seeking to adduce additional evidence to come within the four comers of rule 46A. the onus is on the person seeking to adduce additional evidence to specifically prove the circumstances enabling him to do so.

The facts and the circumstances of the case on which additions were made are widely elaborated by the assessing officer in assessment order u/s 143(3) dated 29.12.2017 multiple questionnaires vide notice u/s. 142(1) of the IT Act were sent to the assessee asking him to submit the relevant documents during the assessment proceedings. The details of the questionnaire sent is entailed as below: -

Sr. No. Notice u/s. Date on which notice was issued 1. 142(1) of the IT Act 12.04.2016 2. 142(1) of the IT Act 07.07.2017 3. 142(1) of the IT Act 19.07.219 4. Reminder to Notice u/s. 142(1) of the IT Act 23.08.2017 5. 142(1) of the IT Act 19.12.2017

The authorized representative of the assessee attended the office of the AO from time to time. Vide note-sheet entry dated 07.09.2017 the AR of the assessee was asked to file the details of share application money, loan, advances and expenses. In response, the AR of the assessee filed only part reply vide reply dated 28.09.2017. Again, vide note-sheet entry dated 16.10.2017, assessee was asked to submit all the details the AR of the with all relevant documents to share application money, loans and investment. In response, the AR again filed only part reply vide latter dated opportunities, 27.10.2017. As regards share application money, despite multiple full details along with the proper supporting documents/evidences, were not provided by the assessee during the assessment proceedings. Therefore, vide note- sheet entry dated 28.12.2018, the AO has recorded his satisfaction that the creditworthiness of non-resident persons from whom the share application money has been received as an investor who is also director in the company has not been proved. In view of the above, the contention of the assessee in the present appeal that all the relevant documents to substantiate the identity and creditworthiness of the investors had been submitted, cannot be accepted.

Without prejudice to the above and without admitting anything, it is further submitted before your honour that even if the documents filed in the form of additional evidence are taken on record, the prerequisite of sec. 68 of IT Act are not fulfilled i.e. identity, credit worthiness, genuineness of the transactions. As mere production of PAN, formal letter of confirmation of transaction do not establish the creditworthiness and genuineness of the transaction. Your kind attention in this regard is attracted to the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs. Globus Securities and Finance Pvt. Ltd. reported at 264 CTR 481 wherein the Hon'ble High Court relying upon the decision of CIT vs. N.R. Portfolio Pvt. Ltd. reported at 64 CTR 258 observed that " the identification of the person would include the place of work staff, the fact that it was actually carrying on business and recognition of said person. Merely producing of PAN or assessment particulars did not establish the identity of the persons.". Hence, by the observing the merit of the case and additional evidences filed assessee, the Ld. CIT(A) is requested to reject all the contentions of the assessee and uphold the additions made by the AO in original assessment order in favour of revenue. This may be treated as remand report in the above said case."

7.2 On perusal of the report, it is ostensible that the AO has not seriously commented upon the evidences supplied to it but has reiterated that onus towards identity, genuineness of transaction and creditworthiness of parties have not been discharged at all. The additional evidences are in the form of PAN card of the shareholder and confirmation towards transfer of money by way of share application money to the assessee-company.

7.3 When read concurrently, the AO in its assessment order has categorically stated that the assessee has neither issued shares against such huge share application money received nor returned the money to the share applicants. No bank statement of the investors or their statement of affairs were presented either. The AO thus has alleged that the assessee has failed to establish the creditworthiness of the resident applicant. The return of income of Mrs. Khangura was not available on record. A mere bank statement of husband of Mrs. Khanguru would not per se justify the bona fides of the transactions. As contended on behalf of the revenue and also noticed by us, the financial statement of the assessee-company is quite loop-sided. The money received by way of share application money in the earlier year as well as in this year has been routed in unquoted investment without allotment against such share application receipts. The Assessee is expected the answer on such vital aspects. No enquiry thereon has been made.

7.4 It is a settled position of law that mere transfer of money through banking channel do not vouch for genuineness of the parties per se. The standard of proof varies from case to case. The existing share capital is a meagre Rs. 1 lakh. A company of such miniscule capital has attracted such large share application money. The CIT(A) has ignored the need for any meaningful inquiry into vital aspects and merrily accepted the version of the assessee. The CIT(A) has also accepted the version of the Assessee towards submission of bank statements without confronting such facts to the AO.

7.5 In our view, a proper opportunity to the AO to conduct enquiries was also not given in the circumstances. The order of the CIT(A) grossly suffers from vice of transgressions of principles of natural justice and therefore, requires to be recalled and set aside. In our view, the CIT(A) has decided the issue perfunctorily without looking into vital aspects and proceeded to grant relief merely on the ground that the share applicants are existing shareholders who have further invested the money and primarily relied upon FRC certificate towards transfer of money by the non resident. The FRC Certificate do not per se vouch for genuineness of transaction. It is only an evidence of transfer of money. Significantly, the money has been transferred in tranches and in odd amounts by the NRI at different intervals as noted below.

S. No. Arvinder Singh Sariya Amount (in INR) Mode of transaction Date of transaction 1. 22 April 2014 39,77,036 Bank transfer 1,48,44,000 Bank transfer 2. 02 September 2014 3. 30 September 2014 79,70,400 Bank transfer 1,11,09,237 Bank transfer 4. 30 March 2015

S. No. Sukhbir Singh Amount (in INR) Mode of transaction Date of transaction 1. 02 September 2014 1,47,35,077 Bank transfer 69,74,100 Bank transfer 2. 30 September 2014 2,00,000 Bank transfer 3. 02 December 2014 1,06,74,757 Bank transfer 4. 30 March 2015 5. 31 March 2015 3,71,31,408 Bank transfer 7.6 An enquiry was called for about the nature of such transfer to the Assessee co. and the income declared by such parties. The capacity of applicants are not known. No fruitful enquiry has been carried out indeed. The purpose of inward remittance declared before RBI is not available. The declaration of investment under automatic route in India is also not enquired.

7.7 It is indeed the duty of the AO as well as that of CIT(A) to make necessary enquiry. It is indeed the sacrosanct obligation of the first appellate authority to have ensured that the effective enquiry was carried out particularly in the face of the objections of the AO challenging the bona fides of the large money received in the form of share application. The CIT(A), in our considered view, could not have summarily accepted the submissions of the assessee and outrightly discard the case of the AO without making requisite enquiry. The AO has categorically observed that creditworthiness of the share applicant was not proved at all. Despite such observations, the CIT(A) has merely found fault with the order of the AO without looking into the vital aspects such as the circumstances for granting heavy amounts by the applicants to a company having meagre capital and subdued income, allotment thereof in the subsequent years if any, capacity of the applicants and circumstances for making investment. We therefore find apparent fallacy in the action of the CIT(A). The order of the CIT(A) on the issue involved therefore clearly warrants set aside and proper re- examination thereof is called for. Without reiterating the points raised in the preceeding paras, We set aside the order of the CIT(A) on the subject matter of appeal and restore the matter back to the file of the CIT(A) for de novo adjudication in accordance with law after making or causing proper enquiry as may be considered expedient.