ITO, NEW DELHI vs. M/S. GODFATHER FINVEST & LEASING PVT. LTD, NEW DELHI

Revenue by :Sh.Trasnthen, Sr. DR Assessee by: Sh. U.S. Aggarwal, Adv Date of Hearing 23/12/2015 Date of pronouncement 22 /02/2016 O R D E R PER PRASHANT MAHARISHI, A. M. This appeal is preferred by the revenue against the order of learned 1. Commissioner of Income-tax (Appeals)-XV, New Delhi dated 04.06.2009 for the Assessment Year 2006-07 raising following grounds of appeal:- “1. On the facts and circumstance of the case the CIT(A) has erred in deleting the addition of Rs.66.25 lacs on account of unexplained share capital, share application money and share premium received by the assessee during the year.

2. On the facts and circumstances of the case the CIT(A) erred in deleting the addition of Rs.66.25 lacs made u/s 68 of the IT Act ignoring the fact that assessee had failed to prove creditworthiness and genuineness of the transaction thereby not discharging the onus cost on its by law.” Brief facts of the case are that the appellant is a private limited company 2. derived its income from interest , dividend and capital gains. It filed its return of income on 20th March 2007 declaring income of Rs.9050/-. During the year the assessee has issued share capital of Rs.15 lacs, share application money of Rs.1.25 lacs and fresh share premium of Rs.50 lacs. Contributor to this amount were 27 persons. The ld AO during the assessment proceedings asked the assessee to prove the identity, creditworthiness and genuineness of the transaction. In response to that the assessee submitted certain details. Based on these details the ld AO issued notice u/s 133(6) to the bankers of some of the share applicant as the AO was of the view that credit by way of Page 2 of 8 transfer entries in the bank account of depositors equal to the amount of money being invested in the assessee company. It was found that cash is deposited in somebody else account and that person was giving credit entry to various depositors who in nturn were depositing the sum in the banck account of the assessee company. AO was of the view that as the similar pattern is available in case other share holders and depositors assessee is channellising its unaccounted money as the share application money and share premium. Therefore he made the addition of Rs.66.25 lac to the income of the appellant. The assessee carried the matter before the learned Commissioner of Income- 3. tax (Appeals) who in turn deleted the addition stating that the assessee has proved the entity, creditworthiness and genuineness of the transaction and assessee has discharged its onus, no addition can be made in the hands of the assessee. Therefore the revenue is in appeal. The ld DR relied on the order of the AO and the ld AR relied on the order of 4. learned Commissioner of Income-tax (Appeals) wherein in Para 2.1 full details are made available.

5. We have carefully considered the rival contentions. According to provision of section 68 it is primary onus of the assessee to prove identity, creditworthiness and genuineness of the transaction. In this case the assessee has submitted extensive details about each of the creditors and despite that addition has been made u/s 68 of the Act. The ld learned Commissioner of Income-tax (Appeals) dealt with this issue at Para 2.1 to 2.3 as under:- 2.14 I have considered the submissions of the appellant, the finding of the AO and the facts on record. Now, the supporting before the AO (confirmations, Permanent Account No. details, cheque & bank details for remittances, copy of Income Tax returns for all shareholders, address proof in the shape of ration card/ voter I card for all shareholders. fresh affidavits for 20 shareholders, copy of bank statements/ pass books, appellant's own bank statement, return of allotment of share capital (Form No.5) filed with Registrar of Companies ) in respect of the share applicant shareholder indicate the following against each one of them :

S.No. Name and address PAN Amount 250000/- 1. Subash Chand Jain, 486/158, ABKPJ72020L K, Opp Railway Reservation Counter, Datiganj Rita Jain, ACWPJ6677N 250000 2.

Page 3 of 8 40, Tibbia College, Karol Bagh, N. Delhi Ram Prasad AFXPP8328Q 2500000 3. E-259, Krishna Vihar, Delhi Ram Kishan AJXPK3781A 30,0000 4. B-4/118, Sector-7, Rohini, N. Delhi ACWPJ8310L Nitin Jain 250000 5. 1655/35, Naiwala, KarolBagh, N. Delhi . Rocky Jain ACWPJ8310L 250000 6. 527, Mantoia, Paharganj, N. Delhi Milap Chand Jain 200000 7. AAIPJ6994L 527, Mantoia, Paharganj N. Delhi 300000 Mukesh Kurnar 8. AGZPK93B1M 74, Gyan Park. Gali No.-5, Chander Nagar,, N. Delhi 350000 Shashi Jain 9. AAEPJ1122C 527, Mantoia, Paharganj, N. Delhi RamSingh 200000 10. ALXPS7321Q 2124, Khobiwara, Kinari Bazar, Delhi Anni Chopra 200000 11 ADXPC5152D B-4/34, Sector-7, Rohini, N. Delhi Rakesh Jain 200000 12. ACWPJ6675Q 2/57637 Block No.-5, Dev Nagar, Karct Bagh, N. Delhi Pawan Kumar 250000 13. AGCPK0255H 1655/35, Naiwala, Karol Bagh, N. Delhi Anil Kumar 250000 14. AGCPK0256E 6636/6, Block No.-9, Dev Nagar, Karol Bagh, N. Delhi 225000 Parveen Jain 15. ACVVPJ6676P 40, Tibbia College, Karol Bagh, N. Delhi Renu Kapcor 275000 16. AHAPK3312J 460, Mantola. Paharganj, N. Delhi- Kulbhushan Kapoor 225000 17 AHNPK8821F 460, Mantola, Pahargenj, N. Delhi Shushila Devi 250000 18. ADVPD1751D 4G, Hostel Nurses Qrts.. . New Rohtak Road,.Karol Bagh Datta Ram Jain 250000 19. ACWPJB225G 40, Hostel Nurses, Qrts, Page 4 of 8 New Rohtak Road, Karol Bagh, New Delhi Kaushalya Devi 275000 20 AESPD7638D B-4/34, Secor-7, Rohini, N. Delhi Vijender Gupta, 250000 21 AEAPG0272N 6, Pusa Road, Karol Bagh, New Delhi Anita Chopra 250000 ABWPC4702G 22. 3-4/34. Sector-7, Rohini, N. Delhi 225000 Dilip Sharma 23. APCPS5959M 239, GheeMandi, Paharganj, N. Delhi 225000 Rajesh Kumar Chopra B-4/34, 24. ABWPC4687N Sector-7, Rohini, N. Delhi 275000 Rajinder Singh 25. APAPS5961H B-4/34, Sector-7, Rohini, N. Delhi Rakesh Jain 275000 26 ACWPJ6675Q 2/5763, Block No.-S, Dev Nagar, Karoi Bagh, N. Delhi 2,2 As can be seen, each of the share applicant is an income tax assessee , has an identifiable address, and the money transmitted to the appellant through banking channels, has been substantiated either through signed confirmations, and in 20 of the 26 cases, through affidavits. The AO's misgiving leading to Ms refusal to accept any of the share application money as genuinely sourced, broadly is 6 fold :  the appellant on being informed to present bank statements of a group of share applicants . proceeded to correct its earlier confirmations and admitted that there was an error in giving bank details of those concerns.  Most of the share applicants are men of little means with declared income of Rs 1 lac to Rs 1.25 lac.  One share applicant by the name of Renu Kapoor denied outright in the statement recorded on 24-11-2008 that she had any transaction with the appellant,  Mukesh Kumar, Rajinder Singh, Rocky jain, Rita Jain and Dattaram Jain , share applicants , could not be served notices u/s 133(6), as they were not found to be residing at the addresses, as per information provided by the appellant,  Enquiry on the bank accounts of share applicants in some cases revealed that cash has been introduced in those accounts before a cheque could be drawn by way of share application money in favor of the appellant. That Banke Bihari Securities' bank account shows cash receipt of Rs 4.50lac, Rs 2.50lac, Rs 3,50 lacs , which have been used to finance investments of Siddarth Jain, Rocky Jain and Sh.asi Jain with the appellant. Similarly, the account, of Shivshakti Enterprises shows cash introduction of Rs 3.50 lac, which has been used to fund investments of Shashi Jain, Milap Jain and Nitin Jain. According to the Page 5 of 8 AO, the appellant has channelized its unaccounted income through the modality of share capital  There was failure to produce all the share applicants and their complete bank statements, 2.3 My finding on each of the AO's argument is as under : (a) The view that the appellant prevaricated and in a way made to amend its earlier information of some aspects of share applicants i.e bank details, only because of on going enquiry initiated by the AO needs to be contrasted against facts on record, As per the AO , he requisitioned the complete bank statements of Ram Prasad, Nitin Jain, Ram Singh, Anil Kumar , and Rajendra Singh , and in response there to, according to the AO, the appellant submitted that there was error in giving bank details of "all the above share applicants " and fresh set of confirmations .was filed. Records show AO that name of the bank branch was typed wrongly in cases of Kaushalya Devi, Vijender Gupta, Anita Chopra, Rajesh Kumar Chopra, and Rajinder Singh ", and corrected confirmation by giving the right name of the bank branch was being filed. In 4 of the 5 share applicants as can be seen; the AO's requisition and the appellant's amended information did not have any co relation , in as much as the appellant all on his own tendered the information without being goaded into doing so by the AO. Secondly, the AO has not pointed out to the manner, whereby the corrected version of confirmation did not reflect the correct particulars of the originator of money, the of transmission of money, the actual destination of the money transmitted. Viewed totally against facts on record no adverse inference could have been drawn against the appellant solely on the premise that it tendered corrected information on remitting banks in course of assessment proceedings. (b) The AO's views that the share applicants are men of insubstantial means and could not have invested with the appellant since having income in the range of Rs 1 lac to Rs 1 .25 lac go against his own narration in the assessment order. 14 of the 26 share applicants are seen to have income in excess of Rs 1.25 lacs and 22 of the 26 share applicants have income in excess of Rs 1 lac. The AO's generalization on a partial view of the share applicant's income in their individual hands cannot therefore be a basis for an adverse inference against the appellant , more so when the AO does not bring in evidences to substantiate in what manner the income in the hands of the share applicant was insufficient to explain investments made with the appellant. (c) The denial by Renu Kapoor of any transaction with the appellant has been contested by the appellant on 2 fronts; First, the AO could not have put a figure of her investment at Rs JL95Jac , since her investment was Rs.2.75 lac. Second, the appellant was not allowed to exercise its right to cross examine the witness As regards the first limb of the appellant's arguments, the facts on record indicate that Renu Kapoor of 460, Mantola, Paharganj, New Delhi bearing PAN AHAPK 3312 J 1iasinvWed~Rs 2.75 lac through DD No 975989 dated 19-12-2005 drawn on PN8, Sector 5, Rohini, New Delhi. The investment being Rs 2,75 lacs only and no more, the AO could not have questioned her about an investment size of Rs 4.95^lac. The second limb of the appellant's argument concerning lack of opportunity to cross examine the witness is part, of the appellant's, dear submission vide letter dated 8- l2-20p8mentior»'ng inter alia a request to be provided with the statement, of Renu Kapoor and leave to cross examine the witness . This was Page 6 of 8 in response to order-sheet noting dated 25-11-2008, which runs as under : ' Present. Sh Sanjay Gupta, CA. He has filed his POA. He has been confronted with the statement of Mrs Rents Kapoor,whose statement was recorded denying any dealing with the assessee co. ' The order sheet notings do not reveal that any such statement of Renu Kapoor was made available to the appettant, The appellant's further request to allow cross examination of the witness has also not been acceded. In a way, the statement of Renu Kapoor on the basis of a figure of investment douDle the size of her actual investment has been employed against the appellant without releasing the copy her statement or affording an opportunity to cross examine the witness. It is trite law that cross-examination is germane to due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. The assessee must be supplied with the contents of ail such evidences, both oral and documentary, so that he can prepare to meet the case against hint. This necessarily also postulates t.hut he should cross examine the witness. CIT v. Eastern Commercial Enterprises [1994] 210 TO 103 (Cal) in M. Pirai Choodi v. ITO [2008] 302 ITR 40 the Modras, High Court quashed the assessment proceedings holding that in spite of documentary evidences furnished to substantiate the agricultural income, the AO had overlooked it and refused to admit the agricultural income merely based on statement alleged to have been obtained from the village administrator behind the back of the assesses. Similar is the ratio in Tirupati Builders v. ITO [2003] 126 Taxman 54 (Rajkot) (Mag.). Alluding to the decisions supra, I hold that the AO could not have taken an adverse view on the entire set of share applicants, when the AO has not made available the copy of the statement of the lone share applicant ( who denied to have made the investment } to the appellant or even allowed the appellant an opportunity to cross examine the said share applicant. (d) The fact that certain share applicants were not found at the addresses given by the appellant, and the appellant failed to produce all the share applicants before the AO have been held against the appellant. Law on this has been established per Divine Leasing and Finance Ltd (ITA No 53/2005, 56/2005,305/2.006) Delhi High Court's order dated 16-11-2006 as under : “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 credit worthiness or financial strength of the creditor/subscriber (4) if relevant details of the address or PAH identity of the creditor/ subscriber are furnished to the Department along with copies of Share holders register, share application forms, share transfer registers.etc ,. ft would constitute acceptable proof or acceptable explanation of the assessee (5) the Department would not be justified in drawing an adverse inference only because the creditor/ subscriber fails to 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 AO take such repudiation at face value and construe it, without more, against the assessee {7} toe Assessing Officer is duty bound to investigate the credit worthiness of the creditor/ subscriber , the genuineness of the transaction and the veracity of the repudiation ." The ratio that merely because summons issued to the share applicants could not be served or that they failed to appear before the AO is not a valid ground to regard the share application money as appellant's unexplained income has also been rendered in CiT vs U.M.Shah 90 !TR Page 7 of 8 396{Bom ), Rohini Builders vs DC1T 117 Taxman 25 (Mag ), Jagdarnba Construction Co vs ITO 3 SOT 670 (Jodhpur ). Alluding to the decisions supra, since the appellant has tendered evidences relating to PAN, confirmations of remittance ^affidavits certifying the transmission of share application money, copies of income tax returns of share applicants, I hold that the AO could not have invoked the provisions of section 68 in respect of the share application money obtained by the appellant. (e) The AO on enquiry at the bank accounts of the share applicants has found linkage between some of the share applicants and some third parties, namely, Banke Bihari Securities, and Shivshakti Enterprises, According to the AO, cash has been introduced in bank accounts of these 2 concerns where from cheques have been drawn in favour of the share applicants, and in turn the share applicants have drawn DD favoring the appellant. Now, the fact remains that there is no evidence to link the appellant, with either Banke Bihari Securities or Shivshakti Enterprises and there is nothing on record or established that the appellant was instrumental in depositing cash in the bank accounts of those 2 concerns or that the appellant was the owner of the cash so introduced. As far as the appellant is concerned, it is twice removed from the 2 third parties L As held in Nemi Chand Kothari Vs CIT 264 ITR 254 (Gauhati), CIT Vs Diamond products Ltd (2009) 21 DTR (Del ) 9 and Orient Trading Co Ltd Vs CIT 49 ITR 723 (Bom ), the appellant is not expected to prove the genuineness of the cash deposited in the bank accounts of third parties, and that the appellant is not obliged to adduce evidence of source of source of any credit. Any view therefore supposing an inference that the appellant is to be assessed in respect of share application money holding it as unexplained credit on the premise that cash has been introduced in the bank accounts of third parties and used to part finance investment of share applicants, is untenable hence. (f) in any case, the Issue involved in this appeal is directly covered by the decision of the Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. reported in (2008) 216 CTR 195(SC) , operative part of that order being : " Income-Cash credit-Share application money-lf the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company," In similar set of facts, Delhi High Court in the case of CIT Vs Value Capital Services Ltd (ITA No 348/2008 dated 25/04/2008 ) has held as under: " In any case, what is clinching is the additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the Assessee so as to enable it to be treated as the undisclosed income of the Assessee. This has not been shown insofar as the present case is concerned and that has been noted by the Tribunal also. Under the circumstances, we are of the view that the Tribunal has not committed any error in deleting the addition. " Similar are the views of the Supreme Court in CIT Vs Shipra Realtors (SLP Ho CC 451 / 2008 ), CIT VS Pondy Metal and Rolling Milts P Ltd (SLP No