TRIJAL ENTERPRISES,BHUBANESWAR vs. ACIT, CIRCLE- 4(1), BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI GEORGE MATHAN, JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.185/CTK/2020 Assessment Year : 2016-17 Trijal Enterprises, Hall No.6, Vs. ACIT, Circle-4(1), Fourth Floor, BMC Bhawani Bhubaneswar Coom. Complex, Saheed Nagar, Bhubaneswar. PAN/GIR No.AAKFT 6687 L (Appellant) .. ( Respondent) Assessee by : Shri P.K.Mishra,CA P.K.Panda, ARs Revenue by : Shri M.K.Gautam, CIT DR Date of Hearing : 15/11/2022 Date of Pronouncement : 15/11/2022 O R D E R Per Bench This is an appeal filed by the assessee against the order of the ld CIT(A)-1, Bhubaneswar dated 22.6.2020 in Appeal No.0366/2018-19 for the assessment year 2016-17.

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whereby, two new partners were brought in namely; M/s. Tribhuvan Tradecom Private Limited with the share capital of Rs.31,35,24,450/- and M/s. Dhanwan Securities Private Limited with the share capital of Rs.6,76,00,000/-. It was the submission that in the course of assessment, the Assessing Officer had questioned the capital introduced by both M/s. Tribhuvan Tradecom Private Limited and M/s. Dhanwan Securities Private Limited. In the course of assessment, the Assessing Officer disbelieved the creditworthiness and genuineness of both M/s. Tribhuvan Tradecom Private Limited and M/s. Dhanwan Securities Private Limited. It was the submission that on appeal before the ld CIT(A), the ld CIT(A) had called for a remand report. After considering the remand report, the ld CIT(A) had accepted the identity, creditworthiness and genuineness of capital introduced by M/s. Dhanwan Securities Private Limited. He had confirmed the addition made u/s.68 of the Act in respect of capital introduced by M/s. Tribhuvan Tradecom Private Limited. Ld AR drew our attention to page 14 of PB, which was a copy of trading and profit and loss account of the assessee for the period 1.11.2015 to 31.3.2016 to show that no business had been conducted by the assessee other than the purchase of gold and gold ornaments. Ld AR further drew our attention to page 24 of PB, which was a copy of the balance sheet of M/s. Tribhuvan Tradecom Private Limited, which showed a Reserves and Surplus of Rs.47,46,67,389/-. This is as against the Reserve and Surplus of Rs.47,45,02,975/- as on 31.3.2015. Ld

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AR further drew our attention to page 31 of paper book, which was Notes on financial statements for the period ended 31.3.2016, wherein, in non- trade investment, the investment with related parties being the investment with the partnership firm Trijal Enterprises has been shown at Rs.31,35,47,308 and investment in gold has been shown at Rs.2,54,50,000/-. Ld AR further drew our attention to page 17 of PB, which was a copy of the return filed by M/s. Tribhuvan Tradecom Private Limited for the assessment year 2016-17. The return has been filed on 30.3.2017. He further drew our attention to page 49 of PB, which was a copy of the intimation issued u/s.143(1) of the Act on the return filed by M/s. Tribhuvan Tradecom Private Limited. The date of intimation is 22.3.2018. He further drew our attention to pages 122 to 123 of PB, which was a print out of the company master data, which showed its asset under charge on a Corporate Guarantee being immovable properties with Punjab & National Housing Finance Ltd., and State Bank of India. The date of creation of the charge being in 2018. In the balance sheet of M/s. Tribhuvan Tradecom Pvt Ltd., under assets, the land has been shown at Rs.10,79,20,150/- in the case of M/s. Tribhuvan Tradecom Private Limited for the year ended 31.3.2016. He further drew our attention to page 74 of PB, which was a copy of confirmation letter from M/s. Tribhuvan Tradecom Private Limited to the Assessing Officer, which was given in response to the notice u/s.133(6) of the Act. It was the submission by ld AR that when all these in respect of

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M/s. Tribhuvan Tradecom Private Limited was produced before the Assessing Officer, the Assessing Officer had called for the information from M/s. Tribhuvan Tradecom Private Limited by invoking his powers u/s.133(6) and the details had been provided to the AO. Subsequently, the Assessing Officer had issued notice u/s.131 to the Director of M/s. Tribhuvan Tradecom Private Limited and his statement was also recorded on 6.12.2018, wherein also, the Director Shri Gopal Krishna Polaki had categorically admitted that M/s Tribhuvan Tradecom Pvt Ltd had invested in the assessee firm as a partner. It was also categorically mentioned that he had become a Director in M/s. Tribhuvan Tradecom Private Limited on 28/7/2015. This is as per the answer to question No.13. It was the submission that M/s. Tribhuvan Tradecom Private Limited had entered into the partnership and brought its capital. It was filing its return of income, so its identity was very much proved. The balance sheet of M/s. Tribhuvan Tradecom Private Limited clearly showed adequate funds even as on 31.3.2015 and, therefore, the creditworthiness of M/s. Tribhuvan Tradecom Private Limited stood proved. The Director of M/s. Tribhuvan Tradecom Private Limited has categorically admitted to have introduced the capital contribution in the assessee firm and same was done through banking channel and this proves the genuineness of the transaction. It was further submitted that the assessee firm having not started its business, the partner’s capital account could not be treated as unexplained cash credit in

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the hands of the assessee. For this proposition, he relied on the decision of the Hon’ble Allahabad High Court in the case of India Rice Mills Vs. CIT, (1996) 218 ITR 508 (All), wherein, it has been categorically held that “whether since all deposits came to be made before assessee-firm started its business, onus was on partners to explain source thereof and if they failed amount could have been added in their hands only and not in hands of the assessee firm”. He further relied on the decision of Hon’ble Madras High Court in the case of Commissioner Of Income-Tax vs Pandian Distributors, 259 ITR 428 (Mad), wherein, it has been categorically held that “deposits made by one partner of assessee firm before it commenced business and treated in its book, as capital contribution of that partner was not cash credits under section 68 which could be referred to as its undisclosed income”. He further relied on the decision of the Hon’ble Allahabad High Court in the case of 221 ITR 239 (All), wherein, it has been held that “whether where deposits had been made by partners on very first day when partnership firm came into existence, onus was on the partners to explain the source of deposits made and if they failed to do so, amount could be added in their hands only and not in the hands of the assessee- firm”. He further placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs Bharat Engineering & Construction Co. (1972) 83 ITR 187 (SC), wherein, the Hon’ble Supreme Court upheld the findings of the Tribunal that though assessee’s explanation in respect of cash credit

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entries found in their accounts was not true, those entries could not represent income or profits of assessee-company as they were all made very soon after company commenced its activities of construction business”. It was the submission that the assessee firm having not commenced its business during the relevant assessment year, the capital contributed by M/s. Tribhuvan Tradecom Private Limited though confirmed by M/s. Tribhuvan Tradecom Private Limited could not be treated as unexplained cash credit in the hands of the assessee. It was the submission that the addition in respect of capital introduced by Dhanwan Securities Pvt Ltd., had been admitted by the ld CIT(A) and the revenue is not in appeal. It was the submission that the addition made by the AO and confirmed by the ld CIT(A) in respect of capital contributed by M/s. Tribhuvan Tradecom Private Limited is liable to be deleted.

“i.) This is an assessee's appeal against the order of Id. CIT(A)-2, Bhubaneswar dated 22.06.2020. The brief facts of the case are that the assessee company is engaged in the business of trading of gold ornaments and bullion. The case for AY 2016-17 was selected under complete scrutiny. Notice U/S.143(2) dated 06.07.2017 was issued to the assessee company. During the year under reference, capital of Rs.31,35,24,450/- was contributed by one company namely Tribhuvan Tradecom Private Limited. The A.O. issued notice u/s. 133(6) to said company at its registered address to confirm the investment and explain the sources of said investment but there was no compliance. In response, only the confirmation from Tribhuvan Tradecom Private Limited was filed. The A.O. was constrained to issue summons u/s.131 of the Act to the director of said company and his statement was recorded on oath on 06.12.2018. The same has been reproduced by the A.O. on pages-5 to 11 of the assessment order. The following facts came to light during the statement of Shri Gopala Krishna Polaki, director of Tribhuvan Tradecom Pvt. Ltd.:

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a) Strangely Shri Gopala Krishna Polaki, director of Tribhuvan Tradecom Private Limited was not able to submit any proof regarding business activities of said partner company. He was not able to explain the names of companies wherein Tribhuvan Tradecom Private Limited had invested in reply to question no.2 2 of his statement. He simply stated that everything was managed by brokers/agents in reply to question no.2 5 of his statement. b) Moreover in spite of such a huge investment, he was not able to produce receipts for rent payments, electricity bills and other evidences (utility bills) in support of business activities in reply to question no.26 of his statement. c) The sources of investment of Rs.31,35,24,450/- were explained to be sale of earlier investments through brokers but neither the names of companies whose shares were sold nor the whereabouts of brokers were submitted to the A.O.in reply to question nos. 19 & 20 of his statement. d) In reply to question no.28 of his statement, Shri Gopala Krishna Polaki admitted that earlier Tribhuvan Tradecom Private limited was NBFC but it was surrendered to RBI as it did not have any business activity. ii.) It was noticed by the A.O. in para-6.16 on page-19 of the assessment order that Tribhuvan Tradecom Private Limited had not filed the returns of income for AYs 2014-15 and 2015-16. iii.) In spite of such a huge investment, Tribhuvan Tradecom Private Limited had shown meager income of Rs. 1,81,250/- for the year under reference i.e. AY 2016-17. The sources of funds of Rs.31,35,24,450/- were not explained by the assessee firm. The A.O. also noticed that former name of Tribhuvan Tradecom Private Limited was Vikruti Mercantile Pvt. Ltd. and it was declared as a shell company by the Kolkata Investigation Wing. One Shri Manoj Kumar was controlling the affairs of Tribhuvan Tradecom Private Limited. In these facts & circumstances, the A.O. had no option but to treat the capital of Rs.31,35,24,450/- as unexplained since the creditworthiness of Tribhuvan Tradecom Private Limited remained unexplained. iv.) The Id. CIT(A)-2, Bhubaneswar vide order dated 22.06.2020 adjudicated the appeal in favour of the department on following grounds: a) The remand report of the A.O. dated 18.05.2020 has been reproduced by the Id. CIT(A) in para-6.3 on page-13 of the appellate order. The A.O. in his remand report has categorically mentioned that during the scrutiny of the assessee company for AY 2017-18, commission u/s.l31(d) was issued to the A.O. of Tribhuvan Tradecom Private Limited to make an enquiry into the business activities of Tribhuvan Tradecom

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Private Limited. However said company was not found by the Jurisdictional A.O. at the given address. b) Tribhuvan Tradecom Private Limited was holding shares worth Rs.48,64,50,000/- of non-listed companies as non-current investments. These shares were sold for Rs.47,67,10,000/-. As seen from page-15 of the appellate order, the A.O. has mentioned the names of 22 companies which purchased shares from Tribhuvan Tradecom Private Limited. Out of 22 companies, there were 20 companies whose names had been struck from the records of ROC as per verification of MCA website done by the A.O. during remand proceedings. The A.O. also mentioned in the remand report that as per Companies Act, 2013, the grounds for strike off were that said companies had not commenced their business activities within a year of its incorporation or it was not pursuing any business activity for preceding two financial years. Thus even these buyer companies were not doing any business activities. Further two buyer companies namely Swarnasiddhi Traders Pvt. Ltd. and Vindhyawasisni Apartment Pvt. Ltd. which had purchased shares worth Rs.25,00,000/- and Rs.3,22,00,000/- respectively from Tribhuvan Tradecom Private Limited were not found on the website of MCA. Thus receipts to the extent of Rs.3,47,00,000/- in the hands of Tribhuvan Tradecom Private Limited have remained unexplained. c) The A.O. also reported to the CIT(A) that Tribhuvan Tradecom Private Limited had invested in the shares of Badrinath Projects Pvt. Ltd. amounting to Rs.3,00,00,000/- but name of said company had been struck off from records of ROC as per verification of MCA website done by the A.O. during remand proceedings as it was not doing any business activities. Similarly Tribhuvan Tradecom Private Limited had invested in the shares of Himalaya Infraproperties Pvt. Ltd. amounting to Rs.4,83,00,000/- but name of said company had been struck off from records of ROC as per verification of MCA website done by the A.O. during remand proceedings as it was not doing any business activities. Further Tribhuvan Tradecom Private Limited had sold shares of Earth Projects Pvt. Ltd. amounting to Rs.7,26,50,000/- but said company could not be found on the website of MCA. Thus receipts to the extent of Rs.7,26,50,000/- in the hands of Tribhuvan Tradecom Private Limited have remained unexplained. d) The A.O. therefore held in the remand report that investments held by Tribhuvan Tradecom Private Limited did not have any value as these non- listed companies were not doing any business activities. Similarly the buyer companies were also not doing any business activities. The A.O. also held that there was no apparent reason to buy the shares of such companies for such a huge amount of Rs.47,67,10,000/- by other paper companies. The self-prepared invoices for sale of shares by Tribhuvan Tradecom Private Limited hardly have any evidentiary value in view of facts & circumstances brought out in preceding paragraphs. It is a settled

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law that mere filing of details of PAN, copies of ITR etc. is insufficient to prove the credit-worthiness of the said partner company and genuineness of the transactions in question. e) Before the transfer of funds to the assessee firm, the earlier investments have been liquidated leading to doubts about the actual creditworthiness of Tribhuvan Tradecom Private Limited. f) The A.O. also pointed out in para-6.21 on page-20 of the assessment order that as per inquiries conducted by the Investigation Wing, Kolkata, the said company namely Tribhuvan Tradecom Pvt. Ltd. was a shell company, controlled by the entry operator i.e. Shri Manoj Kumar. He has admitted to have provided accommodation entries to various beneficiaries in lieu of commission. v.) An analysis of audited accounts of Tribhuvan Tradecom Private Limited for AY 2016-17 gives many indications about the nature and business activities of said partner company. The said company has invested Rs.48,64,50,000/- in the shares of other companies but not a single rupee income by way of dividend was earned by it. There are no employees worth the name and even the office premises are taken on rent. Meager expenses have been claimed against the meager interest income. These are the traits specific to shell companies. vi.) Return of income filed for AY 2016-17 in the case of Tribhuvan Tradecom Private Limited shows declared income of Rs.1,81,250/- (page- 17 of paper book filed by the assessee). As on 31.03.2016, the reserves & surplus show meager profits of Rs.2,22,559/- (page-29 of the paper book filed by the assessee). The share capital is Rs. 1,20,85,000/- however share premium account shows receipts of Rs.47,44,44,830/- up to 31.03.2016. It has shown meager interest income of Rs.5,05,609/- during the year under reference (page-32 of paper book filed by the assessee). The expenses include salary of Rs.l,20,000/-(generally paid to peon in the vicinity of Rs.10,000/- per month). The travelling expenses have been claimed at Rs.40,741/- and general expenses are claimed at Rs.74,840/-. The sundry creditors are shown at Rs.17,429/- (page-24 of the paper book filed by the assessee) which amply proves no business activities are carried out. The major amount of sundry creditors includes audit fees payable of Rs. 10,000/-. The bank statements show sale of earlier investments for introduction of capital but there are no business receipts. The receipts on account of sale of earlier investments are credited on a given day and on the same day, equivalent amount is invested in the assessee firm. Thus there are circulating funds leading to grave doubts about the genuineness of the transactions in question. vii.) The Id. AR of the assessee has over emphasized the fact of mortgage loan availed by said company in subsequent years. It has been alleged that said company has mortgaged its immovable properties in June, 2018 and

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August, 2018 in AY 2019-20. However what was required in the present case was sources of funds for investment in the assessee firm in AY 2016-17 and not the mortgage loan availed in the subsequent years i.e. AY 2019-20. It is not the case of the assessee that funds received by way of mortgage loans have been contributed as capital in the assessee firm. The onus was on the assessee firm to prove the genuineness of the transaction and credit worthiness of the investor company. The mortgage of immovable properties was a later development and not relevant for AY 2016-17. viii.) Subsequently a search & seizure operation had been carried out in the case of M/s. Trijal Enterprises Pvt. Ltd. on 03.04.2019 by the ADIT (Inv.), Unit-2(3), Bhubaneswar. It was informed to the A.O. that later on, the assessee firm was dissolved and all its assets were transferred to M/s. Trijal Enterprises Pvt. Ltd. by slump sale. This factor assumes significance as it showed that how the monies through circuitous route were ultimately transferred to the beneficiaries. ix.) Reliance is placed on the following judgements which have discussed the specific traits of shell companies: a) Hon'ble Delhi ITAT in the case of Anandtex International (P.) Ltd. (137 taxmann.com 146) dated 24.02.2022 wherein during course of assessment proceedings, that assessee claimed that sum of Rs.3.96 crores was invested by its director by taking advance from a company namely Puja Equity Advisors (P.) Ltd. The Assessing Officer noted from documents related to company Puja Equity Advisors (P.) Ltd. as submitted by assessee that amount advanced was not consistent with its return of income. Further, it was seen from bank statements that entries were only circulating in nature. Therefore the Assessing Officer made additions under section 68 on ground that the assessee had failed to comply with requirement of forming satisfaction as to creditworthiness of share applicant or genuineness of transaction. It was further held in para-13 that the Assessing Officer was justified in concluding that assessee routed its own money in books of account through conduit of investor companies. In this regard, the paras-6, 7, 10, 12 and 13 of the order are very relevant for the present case which may kindly be referred to. "6. It was noticed by the authorities below that from the documents relating to the Puja Equity advisors, as produced by the assessee, it was noticed that the amount advanced was not commensurate and consistent with their returned income, the company did not even have an office, the company possess the tangible assets of only Rs. 94, 889/-whereas the company had to press 24 crore worth of investment and loans and advances, the expenditure on staff and salaries was minimal, from the bank statement, the entries

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are only circulating in nature and the company had no investors/traders/debtors. 7. Learned Assessing Officer therefore doubted the transaction and required the production of M/s Puja Equity advisors (P.) Ltd. through its Directors along with its books of accounts, bank statements and the source of loan/advance of Rs. 3.96 crores given to Sh. Suresh Kumar Garg for investing in the assessee. Both the authorities recorded that the ambit of section 68 is wider in case of a closely held company and all the characteristics of the assessee are consistent with those of shell companies operating without or with minimal assets/employees which merely provide accommodation entries and, therefore, inasmuch as the assessee failed to discharge the onus under section 68 of the Act, there is no escape for the assessee from the clutches of section 68 of the act insofar as this amount is concerned. 12. Orders of the authorities below reveal that the assessee has not complied with the requirements of the learned Assessing Officer in the exercise of forming satisfaction as to the creditworthiness of the share applicants or the genuineness of the transaction. Mere paperwork by the assessee does not take the authorities anywhere, when the learned Assessing Officer suspected the existence of the entities in question and insisted that a higher degree of proof is required in that respect. 13. In view of the decisions of the Hon'ble jurisdictional High Court and Hon'ble Supreme Court in the case of NDR Promotors (P.) Ltd. (supra) and the decision of the Apex Court in the case of NRA Iron and Steel (P.) Ltd. (supra) we are of the considered opinion that the action of the learned Assessing Officer was legal and non-production of the persons summoned had rightly led to the inference that the assessee had routed their own money in the books of accounts through the conduit of investor companies. On this premise, we agree with the authorities below and uphold the addition made under section 68 of the Act. Grounds No. 1 to 3 of the assessee's appeal are accordingly dismissed". b) Hon'ble Delhi High Court in the case of CIT vs. Navodaya Castles (P.) Ltd. (50 taxmann.com 110) wherein it was held that Certificate of incorporation, PANs etc. are not sufficient for the purpose of identification of shareholders when there is material to show that the subscriber was a paper company and not a genuine investor. The SLP in this case was dismissed by the Hon'ble Supreme Court (56 taxmann.com 18). c) Hon'ble Supreme Court in the case of Pr. CIT vs. NRA Iron & Steel (P.) Ltd. (103 taxmann.com 48) wherein it was held that merely because the assessee company had filed all primary evidence, it could not be said that onus on assessee to establish creditworthiness of investor companies stood discharged. In this regard, the paras-12, 13 & 14 of the

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order are very relevant for the present case which may kindly be referred to. d) Hon'ble Ahmedabad ITAT in the case of Ayaana Comtrade (P.) Ltd. vs. ITO (104 taxmann.com 66) wherein it was held that 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. 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 or shareholder, creditworthiness of creditors or 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. Similarly, payments received through banking channels would not be sacrosanct and sufficient to believe genuineness of the transaction. The AO can examine the source of such money in the accounts of applicants in order to form a belief that such transaction was not genuine rather an arranged transaction. e) Hon'ble Delhi High Court in the case of CIT vs. Nova Promoters & Finlease (P.) Ltd. (18 taxmann.com 217) wherein it was held in para-29 that the finding that the share application monies have come through account payee cheques is, at best, neutral. The question required a thorough examination and not a superficial examination. The fact that the companies which subscribed to the shares were borne on the file of the ROC is again a neutral fact. Every company incorporated under the Companies Act, 1956 has to comply with statutory formalities. That these companies were complying with such formalities does not add any credibility or evidentiary value. In any case, it does not ipso facto prove that the transactions are genuine. It was held in para-31 that 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. f) Hon'ble Mumbai ITAT in the case of DCIT vs. Leena Power Tech Engineers (P.) Ltd. (130 taxmann.com 341) has held in paras-14, 16, 17, 19, 21, 23 and 24 as under: "14. The next question is whether this entity had the means to enter into this transaction and whether 'the transaction as a whole', to borrow the words of Hon'ble Delhi High Court in Youth Construction's (P.) Ltd. case (supra), could be said to be genuine. When we look at the financial statements of RVPL (Rohini Vyapar Pvt. Ltd.), which are placed before us in the paper-book, we find that the entire share capital of the company is Rs.26 lakhs, and this amount, along with Rs. 975 lakhs received

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on account of share premium, is invested, almost entirely into the share capital of other companies (Rs 614 lakhs) and share application monies in other companies (Rs 378.30 lakhs). The only other entries in the balance sheet are small amounts of Rs.3,03,666 as cash in hand, Rs.58,898 as bank balance, TDS Rs.17,850, advance given Rs.4,00,000 and sundry creditors for expenses at Rs.4,000. Effectively, thus, Rs. 992.30 lakhs of the total funds of Rs. 1001.00 lakhs received by the assessee has been passed to the other companies, which works out to more than 99% of the total funds received. It is also interesting to note that the assessee has not carried out much other activity during the relevant period. The only entry on the credit side of the profit and loss account is interest received amounting to Rs.l,13,356 from the bank. On the expense side, entire expenses add up to Rs.1,28,027 which includes Rs.58,500 on account of Salaries and Bonus and Rs.25,073 on account of bank charges. Not a rupee of expenses on office, telephone or any office equipment of any nature whatsoever. This is difficult to believe that a company handling investments in excess of Rs.10 crores and making such aggressive investments as buying shares for Rs. 3,78,29,600, at huge premium of nine times the face value of shares, in the private limited and wholly unconnected companies like the assessee company-without any management control, will operate in such a modest manner. The RVPL thus has thus primarily acted as a conduit company, raising Rs.1001.00 lakhs at high share premium and siphoning Rs.992 lakhs out of the same to other companies in similar manner by subscribing to shares at high premium, and has no independent business activities on its own. 16. Very interestingly, even when RVPL does not have any revenues, except for a bank interest of Rs.l,13,356, its annual report states, under the head 'operations' of the company, "the performance of the company during the current year was satisfactory" and "however, your directors are hopeful that performance of the company in the coming years will be more satisfactory". What did the directors derive satisfaction from? There were no business operations during the year, unless, of course, routing the monies to other companies, or being a conduit company facilitating financial manoeuvrings, per se is treated as main operations of the company. In any case, it is difficult to understand what business can assessee carry on when it passes on 99% of its capital base in subscribing to shares in the other companies and all these investments are in private limited companies, the investments are with huge premium as much as 900% of the face value, and in none of the companies the investing company has acquired any management participation. 17. There is not even whisper of an idea about who are the persons behind RVPL and other associated companies constituting this complex web of companies, in different tiers, and transferring monies from one company

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to another manner in almost a mechanical manner. There is complete opacity so far as the individuals behind this funding and the complex web of companies are concerned. The entities involved in the transactions only provide different layers to the transaction and de facto hide the true investor. Let's not forget that the investments are in private companies, these investments are substantial vis-a-vis the size of the companies, are at huge premiums and without any management participation in the entities in which investments are made. These features are, by any standard, most unusual in real life business situations- and more so, as we will see a little later, when justifications for share premium are absolutely untenable. 18. Buying shares at a huge premium (900% of the face value) in as much as over 10% of the equity capital in nondescript small private limited companies, without a share in management and control, is something extremely unusual unless the investor is very well known or close associate of the company in which investment is being made. As we have noted earlier, the assessee has no clue about the actual beneficial investor in his company, here are tiers after tiers of the companies and there is nothing to show light on the actual owners. As a matter of fact, barring a small investment of Rs.1,00,000 at face value by two Howrah based ladies subscribing to memorandum of association-namely Sangeeta Agarwal and Asha Agarwal, other share capital of the RVPL seems to be issued at huge premium, once again to shell entities which are similarly funded by other shell entities- constituting a different layer of this multilayer transaction, and, as evident from share premium reserve of Rs.975 lakhs as against share capital of Rs.25 lakhs. Once again, the shares are issued at premium that too in a company which has no other activity except for routing the funds to another company, i.e. the assessee, by making investments therein at a huge premium. That defies logic, and such transactions do not take place in the real life world. The assessee-company is stated to be not connected with Rohini Vyapar Pvt Ltd in any manner, and yet the share subscriber had such a faith in the assessee company that it subscribed to the shares at 900% premium. That is something quite unusual. 19. The assessee has sought to justify the same on the basis of discounted cash flow method on the basis of assumption that sale will grow @ 10% p.a., the net profit after tax will be constant at 4.25% and that discounting rate is taken at 15%. A copy of this valuation report is placed before us at pages 37 and 38 of the paper-book. The DCF valuation, at page 38, shows the figure of Rs.1,67,46,057 for the financial year ended 31st March 2010. This figure is arrived at by adding depreciation (Rs.16,96,610) to net profit after tax (Rs.15,04,94,427). Similarly, the net cash flow is computed for the subsequent years. Barring for the immediately succeeding financial period, wherein cash inflow is reduced by Rs.8 crores towards capital investments, no other adjustments are envisaged. That proceeds on the assumption that entire profit and depreciation will result in net positive cash flow, but this

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overlooks the increase in net current assets from Rs.5.36 crore (as on 31-3- 2010) to Rs.22.48 crores (as on 31-3-2011) whereas the cash and bank balances have remained almost the same-at Rs.9.82 lakhs as on 31-3-2011 as against Rs.8.52 lakhs as on 31-3-2010. As against a net profit of Rs.3.11 crore and depreciation of Rs.16.96 lakhs, the net cash inflow is only Rs.1.30 lakhs which is less than 0.4% of the profit plus depreciation. Yet, in the computations of DCF value at page 38 of the paper-book, the net cash flow is taken at Rs. 1,67,46,057 which is overstated, when compared with the actual financial statements, at pages 15-30 of the paper-book before us, by almost 130 times i.e. around 13,000%, and the valuation computations are based on this highly exaggerated figure. It is only elementary that when value of a share is computed under the DCF method, the first variable is 'free cash flow' i.e. FCF and the FCF is arrived at "by reducing capital expenditure from cash flow from operating activities" which is qualitatively different from reducing capital expenditure from 'net profits plus depreciation' because that overlooks additional deployment of funds on account of increased current assets deployment. Any basic book on financial management or reference to academic material freely accessible on internet websites, will not leave anyone in doubt this approach. 21. A plain look at the financial statements and the valuation computations will raise many red flags and must trigger investigations for any reasonable person. While the increase of debtors from Rs.7,01,26,264 (as on 31-3- 2010) to Rs.61,45,13,889 (as on 31-3-2011), by almost 900%, should raise red flags, even the increase in creditors from Rs.6,00,34,819 (as on 31-3- 2010) to Rs.40,69,01,328 (as on 31-3-2011), by almost 800%, is unusual. The turnover figure has gone up in this year from Rs.35.56 crores (as on 31-3-2010) to Rs.90.11 crores (as on 31-3-2011), i.e. by more than 250% which shows unusual spurt in the activity levels in this year. This increase in the activity level is to be taken with a pinch of salt. Any alarming increase in debtors and creditors prima facie point towards circular transactions which are purely on paper, and any unusual level of increase in turnover is to be examined whether is it from isolated transactions or whether this constitutes a lasting increase in the times of come as well. Such figures can only be taken as reliable after proper investigations, and not at the face value without further probe. Yet, in the valuation under DCF method, not only this turnover figure is taken as a base figure, but the valuation also assumes that this figure will further keep on growing by 10% each year, and that despite such an increase, the profit after tax will continue to be at 4.25% on the turnover which is exactly the same as in the financial year ending 31st March 2011. Except for a capital investment of Rs.8 crores in the financial year 2010-11, no increase in investments is provided for. It is also not clear as to on what basis does the valuer come to the conclusion that only additional investment required by the company is Rs.8 crores. By any standard these are very optimistic computations particularly when the shareholder has no control in the company even though its shareholding is 10%. The investment so made, in the usual

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course of business, does not make any sense at all. The share premium, at which the shares are issued, is wholly unrealistic. 23. The explanation for the share premium in the shares of the assessee company does not, for the detailed reasons set out above, meet our approval. As observed by Hon'ble Supreme Court, in the case of NRA Iron & Steel (P.) Ltd. (supra), "The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the assessee", and once his explanation for premium is rejected, for this reason alone, the addition under section 68 is justified. We have several additional reasons to uphold the impugned addition. 24. Undoubtedly, the company investing in the assessee company, i.e. RVPL, itself is owned by some other entities and the actual investors are thus not known in a transparent manner. The assessee does not throw any light beyond submitting the financial statements of the company investing shares. The genuineness of investment is far from established for this reason as well. 33. Learned counsel has contended that the companies from which the assessee has received the share subscription cannot be treated as shell companies or as lacking bonafides as the Government has not notified these companies as shell companies. That's not correct. A shell entity, as we have noted earlier, is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities 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. The two companies investing in the share capital of the assessee clearly fit this description. Given these facts, and given the ground realities of shell companies facilitating such manoeuvrings, the plea of the assessee cannot be accepted. We reject the same".

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g) Hon'ble Delhi ITAT in the case of M. A. Projects (P.) Ltd. vs. DCIT (109 taxmann.com 173) has held in para-4 as under: "4. We have heard the rival parties and have gone through the material placed on record. We find that the assessee has received share application money from one of M/s Indlon Hosiery Pvt. Ltd. A copy of audited accounts for financial year 2010-11 is placed at paper book page 9 to 13. On examination of balance sheet, we observe that the major source of funds of the investor company is reserves and surplus which itself are on account of share premium. The examination of profit & loss account of the investor company reveals that turnover of the assessee was only Rs.8,81,675/- and net profit was only Rs.95,000/-. We further observe from the balance sheet of the investor company that most of the funds are locked up in investment and loans and advances. The funds locked up in investment are Rs.89 lakhs whereas funds locked up in loans and advances are to the extent of Rs.2,56,45,000/-. Turnover of the assessee company is quite low as compared to the funds of the company which clearly demonstrates that the investor company is indulging into sham transactions. Further we find that the investor company has invested in the share capital of the assessee company at a premium of Rs.90 per share. The share application money for a share of Rs.10 has been received by the assessee @ Rs.100 per share. The examination of the audited accounts of the investee company demonstrates that assessee had not carried out any significant activities. The examination of balance sheet of investee company reveals that the funds of the company are in the form of reserves and surplus and share application money and application of funds is in loans and advances. The financials of the investee company does not warrant that it deserves share premium of Rs.90 per share, therefore, all these facts prove that the transactions of share application money is not a genuine transaction. The Hon'ble Apex Court in the case of NRA Iron & Steel (P.) Ltd. (supra) vide its has held that the practice of conversion of unaccounted money through cloak of share capital/premium must be subjected to careful scrutiny especially in private placement of shares. Filing primary evidence is not sufficient and the onus to establish creditworthiness of the investor companies is on the assessee. The Hon'ble Court has held that the assessee is under legal obligation to prove the receipt of share capital/premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee. In the present case, though the assessee has received an amount through banking channel but the analysis of the financial statements of investor company do not warrant any justification for having invested in the investee company at a huge premium of Rs.90 per share, specifically keeping in view the fact that investee company is also not engaged in significant activities. Therefore, in

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view of the facts and circumstances, the appeal of the assessee is dismissed". x.) After the historic judgement of Hon'ble Supreme Court in the case of Pr. CIT vs. NRA Iron & Steel (P.) Ltd. (supra), much water has flown under the bridge and earlier judgements namely Nemi Chand Kothari vs. CIT (264 ITR 254), Metachem Industries (245 ITR 160), CIT vs. ARL Infratech Ltd. (394 ITR 383), CIT vs. Value Capital Services Pvt. Ltd. (307 ITR 334), Lalitha Jewellery Mart Pvt. Ltd. (399 ITR 425), ACIT vs. Adamine Construction (P.) Ltd. (87 taxmann.com 216) and CIT vs. Paradise Inland Shipping Pvt. Ltd. (84 taxmann.com 58) will have no application in the present case where the partner company is a shell company, shown meager income for the year under reference, returned income is low vis-a-vis the quantum of investment, sources of investment are out of sale of earlier investments which are credited on the same day for investment in the assessee company etc. xi.) It is a settled law that if a partner is not able to explain the sources of capital contribution in a firm to the satisfaction of the A.O., then such an amount can be added in the hands of the partnership firm u/s.68 of the Act as per following judgements: a) The Hon'ble Rajasthan High Court in the case of CIT vs. Kishorilal Santoshilal (216 ITR 9) held as under: "In the present case, the provisions of section 69 were not invoked and it was the provisions under section 68 of the Act by which the Income-tax Officer came to the conclusion that the amount credited in the books of the assessee maintained in the previous year was not properly explained and as such it was held that it should be deemed to be the income of the firm. Under section 69, the question of that investment arises where the investment is not recorded in the books of the assessee. Under section 68, the explanation has to be given by the assessee of the credit entry found in the books of the assessee. In the present case, the assessee is the firm and the credit entry is made through the partner's account. The provisions of section 68 would cover even those credit entries which are made directly or indirectly. In the case of any credit entry which is made directly and it is found that the said creditor is not in existence or is incapable of advancing the money to that extent or the explanation of the amount given is not accepted as satisfactory then the result is that the said amount is considered as income of the firm, as income from "undisclosed sources". In the case of a partner, if the entry is made by crediting his account in the books maintained by the firm then the additional explanation could be that it was the income of the partner and not of the firm. Simply because an additional argument could be raised that the money belongs to the partner, it cannot be said that in all cases where any credit entry is made through the account of

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the partner, no addition can be made in the hands of the firm treating it as income from "undisclosed sources". It is undisputed that the burden is on the assessee to explain the entry and to establish that it is a genuine credit entry which is made in the books of the firm. The burden has to be discharged by the assessee. In the assessment proceedings, the Income-tax Officer is supposed to follow the principles of natural justice and when a notice is given to the assessee to explain such an entry, the explanation which has been given has to be taken into consideration. In the present case, the explanation which was given was that it was the personal income of the partner and has been so declared in his return. Neither the partner was produced nor any evidence in support of the contention was produced either at the stage of assessment or even before the appellate authority. The Income-tax Officer therefore came to the ' conclusion that it was the income of the firm because, the contention .* raised by the firm was found absolutely incorrect and no supporting '. evidence was produced. In any way the burden which was on the assessee was not discharged and, therefore, it was treated as "income from undisclosed sources" of the firm. The same position remained before the Commissioner of Income-tax (Appeals) who also came to the same conclusion. The Income-tax Appellate Tribunal without going into the merits quashed the order on the ground that the "income from undisclosed sources" could not have been assessed in the hands of the firm. In order to examine the legality of such a presumption which the Income-tax Appellate Tribunal has raised in this case, let us see that in a case where an addition is made in respect of a credit entry in the account of the partner in the books of the firm for which the partner has no capacity, can it be said that in all cases the Income-tax Officer is bound to consider such credit entry as income in the hands of the partner and not as income of the firm ? The assessee (firm) in order to introduce the concealed income may take shelter in the partner's account, if the view taken by the Tribunal is accepted as in accordance with law. An entry in the books of the firm in the partner's account or in respect of any credit by a third party stands on the same footing and, if the firm is not in a position to establish the genuineness of the credit entry then it can be added as income from "undisclosed sources" in the hands of the firm. In the case of an entry in the books of the firm in the partner's account, it is open to the firm in its assessment proceedings to produce the partner and also to prove the capacity and genuineness of the deposit. It is only when the identity, capacity and genuineness of the credit entry is proved, the item cannot be added as income from "undisclosed sources". The identity in the case of a partner is established and, therefore, the other criteria, i.e., the capacity and genuineness have to be established, b) The Hon'ble Allahabad High Court in the case of Jagmohan Ram Ram Chandra vs. CIT (141 Taxman 574) held in para-12,13 & 21 as under: "12. Thus, where a sum is found in the books of an assessee and the explanation offered by it about the nature and source thereof is not found

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to be satisfactory or no explanation is offered the sum so credited is charged to the income-tax as the income of that assessee for the relevant previous years. Since in the present case the explanation offered by the firm has been disbelieved the provision of section 68 of the Act are fully attracted and, therefore, the amount of Rs. 17,500 had rightly been added. This court in the case of Kapur Bros. (118 ITR 741) has held that if the explanation offered by the firm had been proved or believed then alone the question would arise that the deposit should be considered as belonging to the partners. The firm was required to establish the sources of these deposits. To establish this the firm offered explanations and if they were disbelieved, the result would be that the firm had failed to prove that the money belonged to the partners. It would be a case of failure to establish the bona fides of the ostensible lender or depositor. If the assessee failed to prove even the identity, the revenue is entitled to draw the inference that the amount deposited constituted the income of the assessee-firm. This Court referred to the observation of Untwalia C.J. (as he then was) in the case of Hardwarmal Onkarmal vs. CIT [1976] 102 ITR 779 (Pat.), which is to the following effect: If the credit entry stands in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of the amount of that entry; if the entry stands in the name of the assessee's near relation, in that case also the burden is on him. If the entry, however, stands in the name of a third party then the assessee discharges the burden if he proves to the satisfaction of the Income-tax Officer the identity of the third party and also supplies evidence to show prima facie that the entry is not fictitious. If I may say so, the case in hand falls within the second category. If cash credits are found in the account books of partnership firm in the names of the partners then such cash credits in the names of persons who cannot call themselves as being related to itself but surely are in the names of persons who constitute the firm itself that being so in such case the onus is on the assessee to establish that the partners had actually deposited the money and that the entries were not fictitious." [page 786] 13. In the present case the explanation offered by the firm has been disbelieved. There was no occasion to conclude that the partners were relying on the common money and there was hence no occasion to hold that the deposits should be assessed in the individual assessment of the partners. 21. Thus, from the aforesaid decisions, it is settled that if an entry of cash credits is found in the books of account of a firm, it is for the firm to give explanation regarding identity and source of such deposits and if the explanation is disbelieved then it is be added as an income under section 68 of the Act in the hands of the firm. Similarly, if an assessee, who is a partner in the partnership firm, has made investment which are not recorded in the books of account maintained by him for any source of income and the explanation given by the partner or individual regarding source of deposits is disbelieved then such deposits which is investment

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can be brought to tax as income from undisclosed sources under section 69 of the Act. There is no question of any double taxation. Full effect of the deeming provisions and the presumptions provided under sections 68 and 69 of the Act has to be given. The partnership firm and the partners being treated as separate assessee under the Act, assessment of the income at the hands of different assessees under different provisions of the Act is permissible". c) The Hon'ble Patna High Court in the case of R. A. Himmatsinghka & Co. (88 taxmann.com 692) has held in paras-22, 23 & 24 as under: "22. We have considered the submissions of learned counsels for the parties and the materials on the record. It is evident from a consideration of Section 68 of the Act that the situation as the present one where any amount is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory, in the opinion of the Assessing Officer, then the said amount may be charged to income-tax as the income of the assessee of that previous year. 23. We are concerned with the second part of Section 68 of the Act, because an explanation has been offered by the assessee in the present matter that the sum entered as cash entry to the credit of the account of the partner was derived from the sale of agricultural land by the HUF for the said partner. It is clear that a mere explanation is not sufficient to discharge the onus of the assessee under Section 68 of the Act. The explanation must also be supported by certain documents regarding its genuineness. 24. In the present matter, since the stand taken was that the amounts had been derived from the sale of agricultural land, the sale deed with regard to such sale was asked by the assessing officer and the assessee clearly failed to produce the sale deeds and no other cogent document or evidence could be produced by the assessee to satisfy the assessing officer that the partner of the assessee was in a position to contribute such an amount in cash to the assessee-firm. d) The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Udham Singh & sons (42 taxmann.com 192) has held in para-6, 7, 8, 11 & 12 as under: "6. We have heard counsel for the parties while going through the paper book. 7. By now, there does not remain any dispute that credit of Rs.l lac in the capital account of Sat Pal Singh, partner of the assessee firm was not through a genuine gift, there are following uncontroverted aspects of the issue:

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i.) The donee though had very close relations including his brother-in-law residing in Washington for the last so many years had not received any gift from any of them ever. Donor Harjit Singh is resident of a village in District Hoshiarpur. He is brother of husband of sister of wife of the donee and was living in Kuwait and thus is distant relative of donee. The gift in question was made by donor Harjit Singh vide cheque dated 11.7.1988 from his NRI account which had been opened on 4.6.1987 with huge deposits therein in Central Bank of India, Hoshiarpur. This account was left with only nominal credit balance of Rs.595/- as on 18.7.1989 and entire deposits in this NRI account had been withdrawn by way of cheques issued by the NRI account holder i.e. Donor in this case. ii.) Donor Harjit Singh has very close relations in India but had not made gift to any of his such relatives, iii.) There was no occasion for making this gift. iv.) There was no connection of the donor with the donee except for the distant relationship through wife of the donee. Rs.l lac was a huge amount in 1988. There is no explainable relationship of the gift with the donee; and v.) Though the donor had been coming to India but had not been connected with them and rather had been staying with brother of his father-in-law in Model Town, Phagwara. 8. These circumstances were enough to reach a conclusion that the amount in question in fact was own money of the assessee firm which was introduced by way of gift in the name of partner Sat Pal Singh from a Non-Resident account of Harjit Singh, a distant relation of Sat Pal Singh. 11. Though the Tribunal also came to the conclusion that the gift was not genuine but refused to accept the plea of the revenue for addition of amount of Rs.l lac in income of the assessee firm holding that credit of Rs.l lac was in the capital account of the partner of the assessee firm and thus addition could not be made to the income of the assessee. Having said so, the Tribunal did not go further. The legal position involved clearly did not engage the attention of the Tribunal, deserved from it. It is a conceded fact that partners of the assessee firm had not been maintaining their own books of accounts. Any credit found unexplained and ingenuine thus was to be accounted for in the books of accounts of the assessee firm only and sequelly such credit was to be treated as income of the firm for the year in such ingenuine and unexplained credits were found in its books of accounts. At this stage, for quick reference, provision of Section 68 of the Act is reproduced as below: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in

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the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 12. There is judicial mandate on this count as well in Smt. Shanta Devi vs. CIT [19881 171 ITR 532/37 Taxman 104 (Punj & Har.) wherein it was held that where a partner maintained no books of accounts and a credit entry appeared in the books of the firm in the name of the partner, the amount of the credit entry could not be assessed as income in the hands of the partner treating the books of accounts of the partnership as those of the individual partner and was assessed as income of the firm only". e) The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Deepak Iron & Steel Roiling Mills (20 taxmann.com 456) held in para-9 & 10 as under: "9. The Commissioner of Income-tax (Appeals) and the Tribunal, however, held that even if the gifts to the partners were not genuine, no addition in the hands of the firm could be made. We are of the opinion that the orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal cannot be sustained. 10. The question whether the addition on account of unexplained credit entry in the books of account of the assessee could be made to the income of the firm or the partner, depends on the facts and circumstances of each case. No doubt, a partner under the Act is a separate entity and where there is separate income, the same may not be liable to be taxed in the hands of the firm merely because the credit entry is made in the accounts of the firm. There is no rigid rule that whenever a credit entry is in the capital account of a partner, addition could not be made in the hands of the firm even when the credit entry is, on the face of it, bogus or a device to evade tax. A single factor may not be sufficient to record whether the assessee had employed a colourable device or whether the partner had unexplained income which was credited in the books of account of the assessee. It cannot always be held that merely because the entry in the capital account of the partner was identified as a source of undisclosed income, the firm was immune from being taxed, even where a colourable device was used by the firm by introducing its undisclosed income by way of deposit by a partner". f) The Hon'ble Jammu & Kashmir High Court in the case of CIT vs. Construction Engineers (83 taxmann.com 268) held in para-6 as under: "6. We are afraid that we cannot agree with this proposition because if there is any sum found credited in the books of an assessee and no explanation is forthcoming about the nature and source thereof, or the explanation offered by the assessee is not in the opinion of the Assessing

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Officer satisfactory, a sum so credited would be charged to income tax as the income of the assessee in the relevant previous year. Thus the proposition is very clear that in case, any sum which is found credited in the books of an assessee remains unexplained in the terms provided in Section 68 of the Income Tax Act, 1961, or the explanation is not found to be satisfactory by the Assessing Officer, the said sum can be charged to income tax as income of the assessee. Once it is determined that a sum which is credited to the account of the assessee is unexplained, then Section 68 gets triggered. It is well settled that under Section 68 of the said Act, once a credit in the books of assessee is found to be unexplained, a presumption is drawn against the assessee that the said credit is part of the income of the assessee. Of course, the presumption is rebuttable by the assessee by producing relevant cogent evidence in that behalf other than a bald statement about the nature of source of the credits in question". xii.) The question that the assessee firm would not have earned any income before commencement of business and hence the impugned amount could not be added u/s.68 of the Act, has been answered by the various High Courts and Supreme Court in the favour of the assessee: a) The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sri Baba Rupadas Spinning Mills (P.) Ltd. (41 taxmann.com 143) held that statutory requirement for treating any amount as income of assessee under section 68 is where assessee fails to justify and establish genuineness of entry in its books of account and therefore, question as to whether said amount is introduced prior to commencement of business of company or afterwards is of no significance. The Hon'ble Punjab & Haryana High Court held in para-7, 8 & 9 as under: "7. After hearing learned counsel for the parties, we find that the CIT(A) as well as the Tribunal were in error in adjudicating the issue against the revenue. 8. It would be expedient to reproduce Section 68 of the Act which reads as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 9. A bare reading of the aforesaid provision shows that where the assessee is unable to furnish any explanation in respect of any sum credited in the books of account or furnishes an explanation which it is unable to substantiate, the same is to be included as income of the assessee under Section 68 of the Act. The question whether the amount was

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introduced prior to the commencement of the business of the company or afterwards is of no significance in as much as the aforesaid provision nowhere envisages any such eventuality. The statutory requirement for treating any amount as income of the assessee under Section 68 of the Act is where the assessee fails to justify and establishes the genuineness of the entry in the books of account". It was further held in para-11 that the CIT(A) as well as the Tribunal had not adjudicated the issue on merits and had decided the issue either by holding the same to be inexigible to tax being prior to commencement of the business or that the same was capital in nature and it was not exigible to tax. The matter was accordingly remitted to CIT(A) to adjudicate the issues on merits in accordance with law. b) In the case of CIT vs. Anupam Udyog (15 Taxman 259), on the very first day of commencement of the business, the partners of the assessee firm brought a sum as capital and this amount was credited in the books of the firm on that day. Holding that the evidence in respect of a major portion of these investments was not satisfactory, the ITO added such sums in the assessee's income as income from undisclosed sources. On appeal, the AAC upheld the ITO's order rejecting the assessee's explanation that these capital outlay came from the agricultural income of the partners. On second appeal, the Tribunal found that no definite evidence in support of the source of the agricultural income of the partners had been brought before it. It however, held that as the impugned amount had appeared in the books of firm on the first day of the commencement of its business, the impugned amount could not be treated as the income of the firm. It therefore, deleted the addition. On a reference, the Hon'ble Patna High Court held in paras-6 to 15 as under: "6. It is in this background of admitted facts that we are called upon to record our opinion with regard to the correctness or otherwise of the decision of the Tribunal. 7. Section 68 reads thus : "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." It is now well settled that there was no provision in the 1922 Act, corresponding to this section. The section merely gives statutory recognition to the nature and source of cash credits where they stand in the assessee's account or in the account of a third party. The question of burden of proof cannot be made to depend exclusively upon the fact of a credit entry in the name of the assessee or in the name of a third party. In

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either case, the burden lies upon the assessee to explain the credit entry, though the onus might shift to the ITO under certain circumstances. Where, for instance, the assessee shows that entries regarding cash credits in a third party's account are genuine and the same were in fact received from, the third party as loans or deposits, he has discharged the onus; and in that case it is for the third party to explain the source of the moneys, and they cannot be charged as the assessee's income in the absence of any material to indicate that they belong to the assessee. These principles, which were well recognized by law under the 1922 Act, have not been altered by the introduction and insertion of section 68. Nonetheless, there are two important departures from the law as it stood in the 1922 Act, and that which stands after the insertion of section 68. 8. And they are these: If there are cash credits in the books of a firm in the accounts of the individual partners and it is found as a fact that cash was received by the firm from its partners, then in the absence of any material to indicate that they are the profits of the firm, they cannot be assessed in the hands of the firm, though they may be assessed in the hands of the individual partners. Cash credits in the individual accounts of members of joint family with a third party cannot be assessed as the income of the family unless the department discharges the burden of proof to the contrary. After the lapse of ten years, the assessee should not be placed upon the rack and called upon to explain not merely the origin and source of his capital contribution but the origin of origin and the source of source as well. In this connection, two important features of the new statutory provisions have to be kept in view uppermost. Under the 1922 Act, it was held that if the undisclosed income, e.g., cash credits or high denomination notes encashed, was found to represent secreted profits from the assessee's regular business, the previous year chosen by the assessee as the previous year of the business had ordinarily to be taken as the previous year for such income. On the other hand, if the undisclosed income was found to be from some unknown source other than the regular business of the assessee, the financial year had to be taken as the previous year for such income. Section 68 enacts that if a sum is found credited in the books of an assessee maintained for any previous year (which may be different from the financial year), the cash credits may, in cases where it is assessed as undisclosed income, be treated as the income of the previous year, and the financial year may not be taken as the previous year for such a cash credit even if the undisclosed income is not found to be from the assessee's regular business for which the books are maintained. Although section 68 provides that the previous year for which the books are maintained may be taken as the previous year for assessing the cash credits, it does not further provide that the cash credits should necessarily be deemed to be the profits of the business for which the books are maintained, the cash credits may be assessed either as business profits or as income from other sources.

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Another dispute which had cropped up in various cases was as to whether the amounts found deposited on the very first day of the accounting year could be treated as the secreted income of the assessee of that accounting year. That matter has also been set at rest by section 68. But on the main question the argument advanced on behalf of the assessee before us that the section has not brought about any change in law seems to be correct." (page 783) Thereafter, the law as it stood before insertion of section 68 and as it stood after its being incorporated in the 1961 Act, has also been highlighted. 13. So far as the question of principle is concerned, the other two decisions referred to above, namely, those of the Allahabad High Court and the Calcutta High Court, however, have taken an identical view of the matter. 14. From a perusal of paragraph 4 of the appellate judgment of the Tribunal, it seems that what has weighed with the Tribunal is that: "Here we are dealing with a case where the receipts in question appeared in the books on the first day of the existence of the business. The amounts have been brought in as capital by the partners. The partners have made statement showing that the amounts in question have been brought by them. In these circumstances, it is not possible to hold that the amount in question represented the income of the firm." But before coming to the above conclusion, the Tribunal has held in that very paragraph of the appellate order that: "We have considered the facts of the case and the arguments of the learned representatives of both the sides. Before us, the learned counsel for the assessee has merely reiterated that all the parties had agricultural income from which they had brought these credits. No definite evidence in support of that has been brought before us." How anomalous ? On the one hand, the Tribunal does not seem to be satisfied with regard to the explanation given by the partners that they had invested the so-called capital from out of their agricultural income, and yet in the next breath, the Tribunal goes on to hold that since the partners had owned that these sums had been advanced by them as capital outlay for the formation of the firm, they entered them as cash credits in the previous year. The Tribunal has gone rather more on the basis of surmises that this explanation may be true. Assuming, therefore, that it could be a discharge of onus only, but on the Tribunal's own showing, such an onus had not been discharged. All the same, it is for the firm to explain to the satisfaction of the ITO with regard to the nature and source of the cash credit entries in the books of account of the previous year. The question as to whether the partners' explanation is at all warranted or for that matter, the partners had explained the source of their capital, in our view, shall make little difference in

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law after the insertion of section 68. But this is merely of academic interest as we have already pointed out above that even if the Tribunal has categorically held that the partners' agricultural income from which they had brought these cash credits was not supported by any evidence in support of that which had been brought before the Tribunal, that clinches the issue. or the aforesaid reasons, we are constrained to hold in favour of the me and against the assessee and answer the question of law referred ins in the negative. We, accordingly, hold that on the facts and in the circumstances of the case, the Tribunal was not correct in deleting the above sum of Rs.16,700/- from the assessment of the firm." c) The Hon'ble Supreme Court in the case of Roshan Di Hatti vs. CIT (107 ITR 938 held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source. In view of above facts, it is requested that the order of the A.O. and Id. CIT(A) be confirmed.”

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sworn statement recorded from Sri Gopal Krishna Polaki being the director of M/s Tribhuban Tradecom Pvt. Ltd. and the director of M/s Dhawan Securities Pvt. Ltd.. It was the submission that the said Sri Gopal Krishna Polaki, when questioned about the business of M/s Tribhuban Tradecom Pvt. Ltd., had mentioned that it is an investment company from its date of incorporation and it makes investment in other companies. In reply to question No.17, the director has confirmed that he had introduced capital amounting to Rs.31,35,24,450/- in M/s Tribhuban Tradecom Pvt. Ltd.. When the said director was questioned about the source of the funds of M/s Tribhuban Tradecom Pvt. Ltd., the said director mentioned that it was the sale of investment in other entities in the form of shares. He was unable to clarify as to who was involved in the sale of shares. He did not know even the name of the brokers, who had dealt with the sale of shares. No commission had been paid. It was the submission that after said statement having been recorded, when the AO had examined the source of the funds of M/s Tribhuban Tradecom Pvt. Ltd., it was noticed that the source was by the sale of shares to 20 companies. Out of the said 20 companies, two of the companies were not found and the remaining companies had their names struck off from the Registrar of Companies. It was the submission that this clearly showed that M/s Tribhuban Tradecom Pvt. Ltd. was only a paper company and the funds introduced in the form of partner’s capital by M/s Tribhuban Tradecom Pvt. Ltd. was nothing but unexplained cash credit

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of the assessee firm. It was submitted that these details have been brought out in the remand report filed by the AO to the ld. CIT(A), which is shown at page 25 of the assessee’s paper book. It was further submitted that M/s Tribhuban Tradecom Pvt. Ltd. had shown a meagre income of Rs.1,81,250/- , which was shown at page 17 of the paper book being the return filed by M/s Tribhuban Tradecom Pvt. Ltd.. It was the submission that a company having such low income declaration could never have introduced such huge capital in the partnership firm. He placed reliance on the decision of Hon’ble Supreme Court in the case of Roshan Di Hatti, reported in [1977] 107 ITR 938(SC) to submit that, now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. It was also submitted by the ld. CIT-DR that the Hon’ble Supreme Court in the said case has further held that, to put it differently, where the nature and source of a receipt whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source.

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Rs.47,45,02,975/-. This is supported by a non-current investment of Rs.48,64,50,000/- which during the year ending on 31.03.2016 had reduced to Rs.34,87,37,308/-. The non-current investment as on 31.03.2015 is in equity shares. The non-current investment for the year ending on 31.03.2016 has shifted from the shares to the investments in the partnership firm being the assessee, and investment in gold. A perusal of the classification to the asset in the balance sheet shows that the land worth of Rs.10,79,20,150/- is also coming during the year ended on 31.03.2016. The investment in the equity of other entities has reduced to Rs.97,40,000/-. The bank balance have also gone up in the balance sheet of M/s Tribhuban Tradecom Pvt. Ltd for the year ending on 31.03.2016. M/s Tribhuban Tradecom Pvt. Ltd was earlier known as Vikruti Mercantile Pvt. Ltd. The said company had filed its return of income for the assessment year 2011-2012 and the assessment u/s.143(3) of the Act had also been completed on 28.01.2014 and the AO recognised that the assessee company was incorporated on 15.02.2011. During the relevant financial year the authorised capital of the company was raised to Rs.1,21,00,000/-, issued, subscribed and paid-up of capital was Rs.1,20,85,000/- with the share premium of Rs.47,46,15,000/- as surplus. Thus, the reserves and surplus as shown in its balance sheet as on 31.03.2016 is nothing but the carry forward from the assessment year 2011-2012. The fact that M/s Tribhuban Tradecom Pvt. Ltd originally known as Vikruti Mercantile Pvt. Ltd.

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had filed its return and assessment u/s.143(3) has been done for the assessment year 2011-2012 clearly proved the identity of M/s Tribhuban Tradecom Pvt. Ltd. 9. Coming to the issue of creditworthiness, the assessment order for the assessment year 2011-2012 itself clearly shows reserves and surplus of Rs.47,46,15,000/- and its investment in shares in other companies as on 31.03.2015 has been sold during the relevant assessment year being year ending 31.03.2016 and funds brought into the bank accounts. A perusal of the remand report filed by the AO at page 125 of the paper book filed by the assessee shows that the AO has examined the purchase of shares from M/s Tribhuban Tradecom Pvt. Ltd. The AO in his remand report disbelieved the purchase on the ground that their name have been struck off from the Registrar of Companies or that the company is not found. Obviously the bank account of M/s Tribhuban Tradecom Pvt. Ltd was produced before the AO. There is no cash entry. In respect of the shares sold by M/s Tribhuban Tradecom Pvt. Ltd, the same have also come only through banking channels, just because the purchaser names have been struck off from the Registrar of Companies does not prove that the companies do not exist. The fact that their bank accounts exist clearly shows that they must be having certificate of incorporation and PAN, without which no bank would open bank account and that too accounts which deal with of so much funds. The sale consideration of the shares sold by M/s Tribhuban Tradecom Pvt. Ltd

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having done through banking channels, have entered the bank accounts and the accounts of M/s Tribhuban Tradecom Pvt. Ltd and the same funds have been moved from the accounts and bank accounts of M/s Tribhuban Tradecom Pvt. Ltd. to the assessee’s account in the form of share capital clearly shows the creditworthiness and genuineness of the transaction. 10. We are further carried by the fact that in the assessment proceedings the director of M/s Tribhuban Tradecom Pvt. Ltd, Sri Gopal Krishna Polaki has also categorically admitted that M/s Tribhuban Tradecom Pvt. Ltd has invested in the capital of the assessee partnership firm. A perusal of the assessment order shows that the AO has been carried away by the presumption that M/s Tribhuban Tradecom Pvt. Ltd was only a paper entity, but the balance sheet of M/s Tribhuban Tradecom Pvt. Ltd as on 31.03.2016 clearly shows that it is not a paper entity, insofar as it is having four bank accounts, substantial cash is also available in the bank accounts, it is owning immovable properties worth more than Rs.10 crores, it is also holding gold worth more than Rs.2 crores in the form of 10kg gold. A perusal of the bank account of M/s Tribhuban Tradecom Pvt. Ltd for the period 31.10.2015 to 04.04.2016 clearly shows substantial cash balance also. There are no cash deposits in the bank accounts of M/s Tribhuban Tradecom Pvt. Ltd. This being so, we are of the view that the addition made by the AO and confirmed by the ld. CIT(A) was in fact capital contribution by M/s Tribhuban Tradecom Pvt. Ltd as its capitals in the assessee’s firm is

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not the unexplained cash credit of the assessee firm but is the capital contribution of M/s Tribhuban Tradecom Pvt. Ltd., Thus, the addition as made by the AO and confirmed by the ld. CIT(A) stands deleted. 11. The decision relied on by the ld. CIT(A) in the case of Roshan Di Hatti (supra), in fact, is in support of the assessee, insofar as the assessee has been able to show the nature and the source of the receipt of money being the share capital introduced by M/s Tribhuban Tradecom Pvt. Ltd. The decision in the case of Sri Baba Rupadas Spinning Mills (P.) Ltd. (supra) does not apply, insofar as in that case the assessee therein was unable to establish the identity, creditworthiness and genuineness of the transaction whereas in the impugned appeal the assessee has been able to substantially proved the identity, creditworthiness and the genuineness of the transaction of the introduction of share capital by M/s Tribhuban Tradecom Pvt. Ltd in the assessee’s firm. This is further supported by the investigation done by the AO in respect of the source of M/s Tribhuban Tradecom Pvt. Ltd which showed that the funds have come through banking channels to the account of M/s Tribhuban Tradecom Pvt. Ltd. Coming to the decision of the Hon’ble Patna High Court in the case of Anupam Udyog (supra), relied on by the ld. CIT-DR, we found that in that case there was absence of assessee’s explanation in respect of cash credit and that led to the addition. In the impugned assessee’s case, the assessee has given explanation and is

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supported with its evidence. This being so, we are of the view that the addition is not called for. 12. In the result, appeal of the assessee is allowed. Order dictated and pronounced in the open court on 15/11/2022.

Sd/- Sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 15/11/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : Trijal Enterprises, Hall No.6, Fourth Floor, BMC Bhawani Coom. Complex, Saheed Nagar, Bhubaneswar The Respondent: ACIT, Circle-4(1), 2. Bhubaneswar 3. The CIT(A)-2, Bhubaneswar 4. Pr.CIT-2, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order

Sr.Pvt.secretary ITAT, Cuttack

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