Pr. Commissioner of Income Tax -6, New Delhi v. NDR Promoters Pvt. Ltd.

(v) Share application form with complete list of shareholders, old and new.

(vi) Annual return filed before the Registrar of Companies.

(vii) Copy of Form No.2 i.e., return of allotment filed before the Registrar of Companies.

(viii) Affidavits of Directors of the shareholder companies along with PAN details, copy of PAN cards, Board Resolutions, confirmations from the parties, share application forms, bank account statements of the shareholder companies, Memorandum and Articles of Association, confirmation of receipt of shares from M/s Bhawani Portfolio and CIN details of M/s Bhavani Portfolio.

8. The Assessing Officer made an addition of Rs.1,51,50,000/- as unexplained cash after referring to the factual matrix including failure to produce Directors of the shareholder companies so that they could be examined on oath. He observed that no prudent businessman would invest in the shares of the respondent-assessee at five times the face value of shares. There was sufficient evidence to indicate and infer that beneficiaries i.e. the respondent-assessee had introduced income from undisclosed sources into their business in the garb of share capital/share premium.

9. The addition was deleted by the Commissioner of Income Tax (Appeals) on the ground that the respondent-assessee had been able to establish identity, creditworthiness of the shareholders and genuineness of the transactions in terms of several decisions of this Court including CIT Vs. Oasis Hospitalities Pvt. Ltd. decided on 31st January, 2011. He held that once documents like PAN or bank account details were given, then the onus had shifted on the Assessing Officer and it was up to him to reach the shareholders. This burden could not be passed on to the assessee, merely on the ground that the summons issued to the shareholders were returned. Assessing Officer had issued notice Section 133 (6) of the Act and in response had received replies confirming the investment. The shareholder companies were incorporated and had invested money through banking channels, which was reflected in the books. Investment was proved by the bank statements that disclosed sufficient balance before cheques were issued. Accordingly, the three requirements i.e. identity of the investor, creditworthiness of the investors and genuineness of the transactions were satisfied.

10. Appeal preferred by the Revenue against the said deletion has been dismissed by the impugned order passed by the Tribunal, which records as under:-

11. Issue of bogus share capital in the form of accommodation entries has been subject matter of several decisions of this Court and we would like to refer to decision in Commissioner of Income Tax Vs. Navodaya Castles Pvt. Ltd. [2014] 367 ITR 306, wherein the earlier judgments were classified into two separate categories observing as under:-

15. Summarizing the legal position in Nova Promoters and Finlease (P) Ltd.(supra), and highlighting the legal effect of section 68 of the Act, the Division Bench has held as under:- “32. The tribunal also erred in law in holding Assessing Officer ought to have proved that the monies emanated from the coffers of the assesseecompany and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee. In A. Govindarajulu Mudaliar v CIT, (1958) 34 ITR 807, this argument advanced by the assessee was rejected by the Supreme Court. Venkatarama Iyer, J., speaking for the court observed as under (@ page 810): - “Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs.” (emphasis supplied) Section 68 recognizes the aforesaid legal position. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court in the judgment cited above. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers, explaining their modus operandi to help assessee‟s having unaccounted monies convert the same into accounted monies affords sufficient material on the basis of which the Assessing Officer can be said to have discharged the duty. The statements refer to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a consideration in the form of commission. As already pointed out, names of several companies which figured in the statements given by the above persons to the investigation wing also figured as share-applicants subscribing to the shares of the assessee-company. These constitute materials upon which one could reasonably come to the conclusion that the monies emanated from the coffers of the assesseecompany. The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view the material that was relied upon by the Assessing Officer. The CIT (Appeals) also fell into the same error. If such material had been kept in view, the Tribunal could not have failed to draw the appropriate inference.”

12. The present case would clearly fall in the category where the Assessing Officer had not kept quiet and had made inquiries and queried the respondent-assessee to examine the issue of genuineness of the transactions. The Tribunal unfortunately did not examine the said aspect and has ignored the following factual position:- (a) The shareholder companies, 5 in number, were all located at a common address i.e. 13/34, WEA, Fourth Floor, Main Arya Samaj Road, Karol Bagh, New Delhi. (b) The total investment made by these companies was Rs.1,51,00,000/-, which was a substantial amount.

(c) Evidence and material on bogus transactions found during the course of search of Tarun Goyal. Evidence and material that the companies were providing accommodation entries to beneficiaries was not considered.

(d) The findings recorded as mentioned in the assessment order, which read as under:-

13. In view of the aforesaid factual position, we have no hesitation in holding that the transactions in question were clearly sham and make-believe with excellent paper work to camouflage their bogus nature. Accordingly, the order passed by the Tribunal is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. The reasoning given is contrary to human probabilities, for in the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such investment.

14. Accordingly, the appeal is allowed. The substantial question of law framed above is accordingly answered in favour of the appellant-revenue and against the respondent–assessee. There would be no order as to costs.

(SANJIV KHANNA) JUDGE (ANUP JAIRAM BHAMBHANI)

JUDGE JANUARY 17th, 2019 NA/ssn