1
\nREPORTABLE
\nIN THE SUPREME COURT OF INDIA
\nCIVIL APPELLATE JURISDICTION
\nCIVIL APPEAL NO. OF 2019
\n(Arising out of SLP (Civil) No. 29855 of 2018)
\nPrincipal Commissioner of
\nIncome Tax (Central) – 1 \u2026Appellant
\nVersus
\nNRA Iron & Steel Pvt. Ltd. \u2026Respondent<\/p>\n
J U D G M E N T<\/p>\n
INDU MALHOTRA, J.<\/p>\n
Leave granted.<\/p>\n
1. The present appeal arises out of the Judgment and Order
\ndated 26.02.2018 passed by a division bench of the Delhi High
\nCourt in Income Tax Appeal No. 244 of 2018. The Revenue
\nhas challenged the judgment of the High Court by way of the
\npresent Appeal.<\/p>\n
2. The issue which arises for consideration is that in a case
\nwhere Share Capital\/Premium is credited in the books of
\naccount of the Assessee company, the onus of proof is on the
\n2
\nassessee to establish by cogent and reliable evidence of the
\nidentity of the investor companies, the credit-worthiness of the
\ninvestors, and genuineness of the transaction, to the
\nsatisfaction of the Assessing Officer.<\/p>\n
3. The facts of the case, briefly stated are as under :<\/p>\n
3.1. The instant case pertains to the Assessment Year of
\n2009\u201310, for which the Respondent Company \u2013 Assessee
\nhad filed the original Return of Income on 29.9.2009
\ndeclaring a total income of Rs.7,01,870.
\nA Notice was issued u\/S. 148 of the Act to re-open the
\nassessment on 13.04.2012 for the reasons recorded therein.<\/p>\n
3.2. The Assessee filed submissions on 23.04.2012 to the
\nNotice u\/S. 148, and objections on 30.04.2012. The
\nobjections were rejected on 13.08.2012. A Show Cause
\nNotice was issued on 13.01.2014. The Assessee filed
\ndetailed Written Submissions on 22.01.2014.<\/p>\n
3.3. The Assessee Company in its Return showed that
\nmoney aggregating to Rs. 17,60,00,000\/- had been received
\nthrough Share Capital\/Premium during the Financial Year
\n2009-10 from the following companies situated at Mumbai,
\nKolkatta, and Guwahati:
\n3<\/p>\n
S. No. \tName of the shareholder \tAmount
\n(A)Mumbai Based Companies
\n1. \tClifton Securities Pvt. Ltd. \t95,00,000
\n2. \tLexus Infotech Ltd. \t95,00,000
\n3. \tNicco Securities Pvt. Ltd. \t95,00,000
\n4. \tReal Gold Trading Company Pvt. Ltd. \t90,00,000
\n5. \tHema Trading Company Pvt. Ltd. \t95,00,000
\n6. \tEternity Multi-trade Pvt. Ltd. \t90,00,000
\n(B)Kolkata Based Companies
\n1. \tNeha Cassettes Pvt. Ltd. \t90,00,000
\n2. \tWarner Multimedia Ltd. \t95,00,000
\n3. \tGopikar Supply Pvt. Ltd. \t90,00,000
\n4. \tGanga Builders Ltd. \t90,00,000
\n5. \tGromore Fund Management Co. Ltd. \t95,00,000
\n6. \tBayanwala Brothers Pvt. Ltd. \t95,00,000
\n7. \tSuper Finance Ltd. \t90,00,000
\n8. \tShivalaxmi Export Ltd. \t95,00,000
\n9. \tNatraj Vinimay Pvt. Ltd. \t95,00,000
\n10. \tNeelkanth Commodities Pvt. Ltd. \t95,00,000
\n11. \tProminent Vyapaar Pvt. Ltd. \t95,00,000
\n(C) Guwahati based companies
\n1. \tIspat Sheets Ltd. \t90,00,000
\n2. \tNovelty Traders Ltd. \t90,00,000
\nTotal Amount \t17,60,00,000\t<\/p>\n
It is pertinent to mention that the shares had a face value
\nof Rs. 10 per share, were subscribed by the investor
\ncompanies at Rs. 190 per share.<\/p>\n
3.4. The issue before the Assessing Officer (hereinafter
\nreferred to as \u201cAO\u201d) was whether the amount of Rs.
\n17,60,00,000\/-allegedly raised by the Respondent through
\nshare capital\/premium were genuine transactions or not.
\n3.5. The Respondent Company \u2013 Assessee was called upon
\nto furnish details of the amounts received, and provide
\nevidence to establish the identity of the investor companies,
\n4
\ncredit-worthiness of the creditors, and genuineness of the
\ntransaction.<\/p>\n
The AO issued a detailed questionnaire to the Assessee to
\nprovide information with respect to the amount of Rs.
\n17,60,00,000 shown to have been received as Share
\nCapital\/Premium from various legal entities.
\nThe AO gave various opportunities to the A.R. of the
\nAssessee to attend the proceedings, and file necessary
\nclarification on the queries raised.<\/p>\n
3.6. The Assessee inter alia submitted that the entire Share
\nCapital had been received by the Assessee through normal
\nbanking channels by account payee cheques\/demand
\ndrafts, and produced documents such as income tax return
\nacknowledgments to establish the identity and genuineness
\nof the transaction. It was submitted that, there was no
\ncause to take recourse to Section 68 of the Act, and that the
\nonus on the Assessee Company stood fully discharged.<\/p>\n
3.7. The AO had issued summons to the representatives of
\nthe investor companies. Despite the summons having been
\nserved, nobody appeared on behalf of any of the investor
\ncompanies. The Department only received submissions
\n5
\nthrough dak, which created a doubt about the identity of
\nthe investor companies.<\/p>\n
3.8. The AO independently got field enquiries conducted
\nwith respect to the identity and credit-worthiness of the
\ninvestor companies, and to examine the genuineness of the
\ntransaction. Enquiries were made at Mumbai, Kolkatta,
\nand Guwahati where these Companies were stated to be
\nsituated.
\nThe result of the enquiry is summarised by the A.O. in
\nhis Order as under :
\nS. No. \tName of
\nInvestor
\nCompany\tAO\u2019s Enquiries \tAmounts
\ninvested &
\nTax returns
\nfiled
\n1. \tClifton
\nSecurities
\nPvt. Ltd.-
\nMumbai\tNotice Served on 29.11.2011 at
\nthe given address but no reply
\nreceived till date.\t95,00,000
\n2. \tLexus
\nInfotech
\nLtd.-
\nMumbai\tNotice Served on 19.11.2011 at
\nthe given address but no reply
\nreceived till date.\t95,00,000
\n3. \tNicco
\nSecurities
\nPvt. Ltd. \u2013
\nMumbai\tNotice Served on 29.11.2011 at
\nthe given address but no reply
\nreceived till date.\t95,00,000
\n4 \tReal Gold
\nTrading Co.
\nPvt. Ltd.-
\nMumbai\tAddress incorrect. The correct
\naddress is 2ndflorr, Big Three
\nBuilding where office found
\nclosed bearing the name Hema
\nTrading Co.\t90,00,000
\n5. \tHema
\nTrading Co.
\nPvt. Ltd.-
\nMumbai\tNotice could not be served as
\nRespondent-Assessee not
\navailable at the address given.
\nThe premises is owned by some\t95,00,000<\/p>\n
6
\nother person.
\n6. \tEternity
\nMulti Trade
\nPvt. Ltd.-
\nMumbai\tNotice could not be served as
\nRespondent-Assessee not
\navailable at the address given.
\nThe premises is owned by some
\nother person.\t90,00,000
\n7. \tNehaCasset
\nes Pvt. Ltd.-
\nKolkatta\tA submission on 15.12.2011
\nthrough dak was received
\nwherein it was submitted, that
\nthe company had applied for
\n45,000 equity shares of Rs. 10\/-
\nof NRA Iron and Steel Pvt. Ltd.
\neach at a premium of Rs. 190\/-
\neach. The Company had not
\ngiven any reason for paying
\nsuch a high premium.
\n(45,00,000\/- Ch. No. 039302 dt.
\n21.10.2008 & Rs. 45,00,000\/-
\nCh. No. 039315 dt. 21.10.2008
\ndrawn on Axis Bank.
\nThe Company had shown a
\ntotal income of Rs. 9,744\/- in
\nreturn for A.Y. 2009-10\tRs. 90,00,000
\ninvested on
\n21.10.2008
\nReturned
\nincome Rs.
\n9744
\n8. \tWarner
\nMultimedia
\nLtd.
\nKolkatta\tA submission on 15.12.2011
\nthrough dak was received
\nwherein it was submitted, that
\nthe company had applied for
\n47,500 equity shares of Rs. 10\/-
\nof NRA Iron and Steel Pvt. Ltd.
\neach at a premium of Rs. 190\/-
\neach. The Company had not
\ngiven any reason for paying
\nsuch a high premium.
\n(50,00,000\/- Ch. No. 000084 dt.
\n21.10.2008 & Rs. 45,00,000\/-
\nCh. No. 000083 dt. 21.10.2008
\ndrawn on Kotak Mahindra
\nBank.
\nThe Company had shown Nil
\nincome for A.Y. 2009-10.\tRs. 95,00,000
\ninvested on
\n21.10.2008
\nReturned
\nincome Rs.
\nNil
\n9. \tGopikar
\nSupply Pvt.
\nLtd.
\nKolkatta\tA submission on 15.12.2011
\nthrough dak was received
\nwherein it was submitted, that
\nthe company had applied for
\n45,000 equity shares of Rs. 10\/-
\nof NRA Iron and Steel Pvt. Ltd.
\neach at a premium of Rs. 190\/-
\neach. The Company had not\tRs. 90,00,000
\ninvested on
\n21.10.2008
\nReturn
\nincome
\nRs.28,387<\/p>\n
7
\ngiven any reason for paying
\nsuch a high premium.
\n(50,00,000\/- Ch. No. 000040 dt.
\n21.10.2008 & Rs. 40,00,000\/-
\nCh. No. 000039 dt. 21.10.2008
\ndrawn on Kotak Mahindra
\nBank.
\nThe Company had shown
\nincome of Rs. 28,387\/- for A.Y.
\n2009-10.
\n10. \tGanga
\nBuilders
\nLtd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for shares
\nof NRA Iron and Steel Pvt.Ltd.<\/p>\n
However, they had not specified
\nhow many shares, and at what
\npremium they had purchased.
\nThe Company had not enclosed
\ntheir Bank Statement showing
\nthe source of fund for share
\napplication money. (50,00,000\/-
\nCh. No. 000001 dt. 24.10.2008
\n& Rs. 40,00,000\/- Ch. No.
\n000002 dt. 24.10.2008 drawn
\non Kotak Mahindra Bank.
\nThe Company had shown
\nincome of Rs. 5,850\/- for A.Y.
\n2009-10\tRs. 90,00,000
\ninvested on
\n21.10.2008
\nReturn
\nincome
\nRs.5850
\n11. \tGromore
\nFund
\nManagemen
\nt Ltd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for 47,500
\nequity shares of Rs. 10\/- of NRA
\nIron and Steel Pvt. Ltd. each at
\na premium of Rs. 190\/- each.
\nThe Company had not given any
\nreason for paying such a high
\npremium.<\/p>\n
The Company had shown
\nincome of Rs. 14,130\/- for A.Y.
\n2009-10\tRs. 95,00,000
\ninvested on
\n24.10.2008
\nReturn
\nincome
\nRs.14130
\n12. \tBayanwala
\nBrothers
\nPvt. Ltd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for 47,500
\nequity shares of Rs. 10\/- of NRA
\nIron and Steel Pvt. Ltd. each at
\na premium of Rs. 190\/- each.
\nThe Company had not given any
\nreason for paying such a high
\npremium. (50,00,000\/- Ch. No.
\n000020 dt. 06.11.2008 & Rs.
\n45,00,000\/- Ch. No. 000021 dt.
\n06.11.2008 drawn on Kotak
\nMahindra Bank\tRs. 95,00,000
\ninvested on
\n6.11.2008
\nReturn
\nincome Rs.
\n10626<\/p>\n
8
\nThe Company had shown
\nincome of Rs. 10,626\/- for A.Y.
\n2009-10<\/p>\n
13. \tSuper
\nFinance Ltd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for shares
\nof NRA Iron and Steel Pvt. Ltd.
\nHowever, they had not specified
\nhow many shares, and at what
\npremium they had purchased.
\nThe Company had not enclosed
\ntheir Bank Statement showing
\nthe source of fund for share
\napplication money. (50,00,000\/-
\nCh. No. 069123 dt. 17.11.2008
\n& Rs. 40,00,000\/- Ch. No.
\n069124 dt. 17.11.2008 drawn
\non Deutsche bank.
\nThe Company had shown
\nincome of Rs. 10,730\/- for A.Y.
\n2009-10\tRs. 90,00,000
\ninvested on
\n17.11.2008
\nReturn
\nincome Rs.
\n10730<\/p>\n
14. \tShivlaxmi
\nExport Ltd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for 47,500
\nequity shares of Rs. 10\/- of NRA
\nIron and Steel Pvt. Ltd. each at
\na premium of Rs. 190\/- each.
\nThe Company had not given any
\nreason for paying such a high
\npremium. (50,00,000\/- Ch. No.
\n121824 dt. 18.11.2008 & Rs.
\n45,00,000\/- Ch. No. 121825 dt.
\n18.11.2008 drawn on Deutsche
\nBank.<\/p>\n
The Company had shown
\nincome of Rs. 10,480\/- for A.Y.
\n2009-10\tRs. 95,00,000
\ninvested on
\n18.11.2008
\nReturn
\nincome
\nRs.10480
\n15 \tNatraj
\nVinimay Pvt.
\nLtd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for 41,500
\nequity shares of Rs. 10\/- of NRA
\nIron and Steel Pvt. Ltd. each at
\na premium of Rs. 190\/- each.
\nThe Company had not given any
\nreason for paying such a high
\npremium. (50,00,000\/- Ch. No.
\n000098 dt. 19.11.2008 & Rs.
\n45,00,000\/- Ch. No. 000009 dt.
\n19.11.2008 drawn on Kotak
\nMahindra Bank.
\nThe Company had shown
\nincome of Rs. 42,083\/- for A.Y.
\n2009-10\tRs. 95,00,000
\ninvested on
\n19.11.2008
\nReturn
\nincome
\nRs.42083<\/p>\n
9
\n16 \tNeelkanth
\nCommoditie
\ns Pvt. Ltd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for 47,500
\nequity shares of Rs. 10\/- of NRA
\nIron and Steel Pvt. Ltd. each at
\na premium of Rs. 190\/- each.
\nThe Company had not given any
\nreason for paying such a high
\npremium. (50,00,000\/- Ch. No.
\n209681 dt. 5.12.2008 & Rs.
\n45,00,000\/- Ch. No. 209677 dt.
\n5.12.2008 drawn on Centurion
\nBank of Punjab
\nRs. 95 lakhs invested on
\n5.12.2008
\nBy 2 cheques
\nThe Company had shown
\nincome of Rs. 9,470\/- for A.Y.
\n2009-10\t95,00,000
\nReturn
\nincome
\nRs.9420
\n17 \tProminent
\nVyappar
\nPvt. Ltd.
\nKolkatta\tIt was submitted, that the
\ncompany had applied for 47,500
\nequity shares of Rs. 10\/- of NRA
\nIron and Steel Pvt. Ltd. each at
\na premium of Rs. 190\/- each.
\nThe Company had not given any
\nreason for paying such a high
\npremium. (50,00,000\/- Ch. No.
\n205185 dt. 5.12.2008 & Rs.
\n45,00,000\/- Ch. No. 205189 dt.
\n5.12.2008 drawn on HDFC
\n(Centurion Bank of Punjab)
\nThe Company had shown
\nincome of Rs. 10,307\/- for A.Y.
\n2009-10\tRs. 95,00,000
\ninvested on
\n5.12.2008
\nBy 2 cheques
\nReturn
\nincome
\nRs.10307
\nTOTAL \t17,60,00,000\t\t<\/p>\n
The AO recorded that the enquiries at Mumbai revealed
\nthat out of the four companies at Mumbai, two companies
\nwere found to be non-existent at the address furnished.
\nWith respect to the Kolkata companies, the response
\ncame through dak only. However, nobody appeared, nor did
\nthey produce their bank statements to substantiate the
\n10
\nsource of the funds from which the alleged investments were
\nmade.
\nWith respect to the Guwahati companies \u2013 Ispat Sheet
\nLtd. and Novelty Traders Ltd., enquiries revealed that they
\nwere non-existent at the given address.<\/p>\n
3.9. On the basis of the detailed enquiries conducted, the A.O.
\nheld that the Assessee had failed to prove the existence of
\nthe identity of the investor companies and genuineness of
\nthe transaction.
\nThe A.O. found that :
\ni. None of the investor-companies which had invested
\namounts ranging between Rs. 90,00,000 and Rs.
\n95,00,000 as share capital in the Respondent
\nCompany \u2013 Assessee during the A.Y. 2009-10, could
\njustify making investment at such a high premium of
\nRs. 190 for each share, when the face value of the
\nshares was only Rs. 10;
\nii. Some of the investor companies were found to be nonexistent;
\niii.Almost none of the companies produced the bank
\nstatements to establish the source of funds for making
\nsuch a huge investment in the shares, even though
\n11
\nthey were declaring a very meagre income in their
\nreturns;
\niv.None of the investor-companies appeared before the
\nA.O., but merely sent a written response through dak.
\nThe AO held that the Assessee had failed to discharge the
\nonus by cogent evidence either of the credit worthiness of
\nthe so-called investor-companies, or genuineness of the
\ntransaction.<\/p>\n
As a consequence, the amount of Rs. 17,60,00,000\/- was
\nadded back to the total income of the Assessee for the
\nassessment year in question.<\/p>\n
4. The Respondent Company \u2013 Assessee filed an Appeal before
\nthe Commissioner of Income Tax (Appeals)-I, New Delhi.
\nReliance was placed on the decision of the Delhi High Court in
\nCIT v. Lovely Exports Pvt. Ltd1. wherein it was held that :<\/p>\n
\u201cIn the case of a company the following are
\nthe propositions of law under section 68. The
\nassessee has to prima facie prove (1) the
\nidentity of the creditor\/subscriber; (2) the
\ngenuineness of the transaction, namely,
\nwhether it has been transmitted through
\nbanking or other indisputable cannels; (3) the
\ncreditworthiness or financial strength of the
\ncreditor\/subscriber; (4) if relevant details of
\nthe address of PAN indetity of the
\ncreditor\/subscriber alongwith copies of the
\n1 (2008) 299 ITR 268 (Delhi)
\n12
\nshareholders \tregister, \tshare \tapplication
\nforms, share transfer register, etc, it would
\nconstitute \tacceptable proof or acceptable
\nexplanation by the assessee; (5) the
\nDepartment would not be justified in drawing
\nan adverse inference only because the
\ncreditor\/subscriber fails or neglects to
\nrespond to its notice; The Assessing Officer is
\nduty bound to investigate the
\ncreditworthiness of the creditor\/subscriber
\nthe genuineness of the transaction and the
\nveracity of the repudiation.\u201d The SLP filed
\nagainst the judgment was dismissed.\u201d<\/p>\n
The Commissioner of Income Tax (Appeals)-I, New Delhi vide
\nOrder dated 11.04.2014 deleted the addition made by the A.O.
\non the ground that the Respondent had filed confirmations
\nfrom the investor companies, their Income Tax Return,
\nacknowledgments with PAN numbers, copies of their bank
\naccount to show that the entire amount had been paid
\nthrough normal banking channels, and hence discharged the
\ninitial onus under Section 68 of the Act, for establishing the
\ncredibility and identity of the shareholders.<\/p>\n
5. The Revenue filed an Appeal before the Income Tax Appellate
\nTribunal (hereinafter referred to as \u201cITAT\u201d). The ITAT dismissed
\nthe appeal, and confirmed the order of the CIT(A) vide Order
\ndated 16.10.2017 on the ground that the Assessee had
\ndischarged their primary onus to establish the identity and
\n13
\ncredit-worthiness of the investors, especially when the investor
\ncompanies had filed their returns and were being assessed.<\/p>\n
6. The Revenue filed an Appeal bearing I.T.A. No. 244\/2018 u\/S.
\n260A of the Act before the Delhi High Court to challenge the
\norder of the Tribunal. The Respondent Company \u2013 Assessee
\ndid not appear before the High Court. Hence, the matter
\nproceeded ex-parte. The High Court dismissed the Appeal filed
\nby the Revenue vide the Impugned Order dated 26.02.2018,
\nand affirmed the decision of the Tribunal on the ground that
\nthe issues raised before it, were urged on facts, and the lower
\nappellate authorities had taken sufficient care to consider the
\nrelevant circumstances. Hence no substantial question of law
\narose for their consideration.<\/p>\n
7. Aggrieved by the Order passed by the High Court, the Revenue
\nfiled the present S.L.P. (C) No. 29855\/2018 before this Court.
\nThis Court issued Notice on 12.11.2018 returnable in six
\nweeks. After service was effected on the Respondent Company
\n\u2013 Assessee, the matter was listed on 02.01.2019. However,
\nnone appeared on behalf of the Respondent Company \u2013
\nAssessee. Consequently, the matter was adjourned for two
\nweeks, and posted on 18.01.2019, when it was ordered that in
\n14
\ncase the Respondent Company \u2013 Assessee chooses not to enter
\nappearance, the matter would be disposed of ex-parte.
\nThe matter was thereafter listed again on 23.01.2019, when
\nthe following Order was passed:<\/p>\n
\u201cNotice was issued in the matter on
\n12.11.2018, Office report dated 22.12.2018
\nindicated that notice was served upon the
\nsole Respondent but none had entered
\nappearance.<\/p>\n
By order dated 02.01.2019, last opportunity
\nwas given to the Respondent and it was
\nindicated that if the Respondent chose not to
\nenter appearance, the matter would be
\ndisposed of ex-parte. Even then none has
\nentered appearance.<\/p>\n
Having gone through the matter, we give one
\nmore opportunity to the Respondent to enter
\nappearance and make submissions with
\nrespect to the merits of the matter. If the
\nRespondent still chooses not to appear, the
\nmatter shall definitely be decided ex-parte.\u201d
\nThe Respondent Company \u2013 Assessee however remained
\nunrepresented even on the subsequent dates i.e. on
\n31.01.2019 and 05.02.2019. The matter was finally heard on
\n05.02.2019, when judgment was reserved.<\/p>\n
8. We have heard the Ld. Counsel for the Revenue, and examined
\nthe material on record.<\/p>\n
8.1.The issue which arises for determination is whether the
\nRespondent \/ Assessee had discharged the primary onus to
\n15
\nestablish the genuineness of the transaction required under
\nSection 68 of the said Act.
\nSection 68 of the I.T. Act (prior to the Finance Act, 2012)
\nread as follows:<\/p>\n
\u201c68. Cash credits- Where any sum is found
\ncredited in the book of an Assessee
\nmaintained for any previous year, and the
\nAssessee offers no explanation about the
\nnature and source thereof or the explanation
\noffered by him is not, in the opinion of the
\nAssessing Officer, satisfactory, the sum so
\ncredited may be charged to income-tax as the
\nincome of the Assessee of that previous year\u201d
\n(emphasis supplied)<\/p>\n
The use of the words \u201cany sum found credited in the
\nbooks\u201d in Section 68 of the Act indicates that the section is
\nwidely worded, and includes investments made by the
\nintroduction of share capital or share premium.<\/p>\n
8.2.As per settled law, the initial onus is on the Assessee to
\nestablish by cogent evidence the genuineness of the
\ntransaction, and credit-worthiness of the investors under
\nSection 68 of the Act.
\nThe assessee is expected to establish to the satisfaction of
\nthe Assessing Officer2 :<\/p>\n
\u2022 Proof of Identity of the creditors;
\n2 CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal)
\n16
\n\u2022 Capacity of creditors to advance money; and
\n\u2022 Genuineness of transaction<\/p>\n
This Court in the land mark case of Kale Khan
\nMohammad Hanif v. CIT3 and, Roshan Di Hatti v. CIT4 laid
\ndown that the onus of proving the source of a sum of money
\nfound to have been received by an assessee, is on the
\nassessee. Once the assessee has submitted the documents
\nrelating to identity, genuineness of the transaction, and
\ncredit-worthiness, then the AO must conduct an inquiry,
\nand call for more details before invoking Section 68. If the
\nAssessee is not able to provide a satisfactory explanation of
\nthe nature and source, of the investments made, it is open
\nto the Revenue to hold that it is the income of the assesse,
\nand there would be no further burden on the revenue to
\nshow that the income is from any particular source.<\/p>\n
8.3. With respect to the issue of genuineness of transaction, it is
\nfor the assessee to prove by cogent and credible evidence,
\nthat the investments made in share capital are genuine
\nborrowings, since the facts are exclusively within the
\nassessee\u2019s knowledge.
\n3 [1963] 50 ITR 1 (SC)
\n4 [1977] 107 ITR (SC)
\n17<\/p>\n
The Delhi High Court in CIT v. Oasis Hospitalities Pvt.
\nLtd.5, held that :<\/p>\n
\u201cThe initial onus is upon the assessee to
\nestablish three things necessary to obviate
\nthe mischief of Section 68. Those are: (i)
\nidentity of the investors; (ii) their
\ncreditworthiness\/investments; and (iii)
\ngenuineness of the transaction. Only when
\nthese three ingredients are established prima
\nfacie, the department is required to
\nundertake further exercise.\u201d<\/p>\n
It has been held that merely proving the identity of the
\ninvestors does not discharge the onus of the assessee, if the
\ncapacity or credit-worthiness has not been established.<\/p>\n
In Shankar Ghosh v. ITO6, the assessee failed to prove the
\nfinancial capacity of the person from whom he had allegedly
\ntaken the loan. The loan amount was rightly held to be the
\nassessee\u2019s own undisclosed income.
\n8.4. Reliance was also placed on the decision of CIT v.
\nKamdhenu Steel & Alloys Limited and Other7 wherein the
\nCourt that :
\n5 333 ITR 119 (Delhi)(2011)
\n6 [1985] 23 TTJ (Cal.)
\n7 (2012) 206 Taxaman 254 (Delhi)
\n18<\/p>\n
\u201c38. Even in that instant case, it is projected
\nby the Revenue that the Directorate of Income
\nTax (Investigation) had purportedly found
\nsuch a racket of floating bogus companies
\nwith sole purpose of lending entries. But, it is
\nunfortunate that all this exercise if going in
\nvain as few more steps which should have
\nbeen taken by the Revenue in order to find
\nout causal connection between the case
\ndeposited in the bank accounts of the
\napplicant banks and the assessee were not
\ntaken. It is necessary to link the assessee
\nwith the source when that link is missing, it
\nis difficult to fasten the assessee with such a
\nliability.\u201d<\/p>\n
9. The Judgments cited hold that the Assessing Officer ought to
\nconduct an independent enquiry to verify the genuineness of
\nthe credit entries.
\nIn the present case, the Assessing Officer made an
\nindependent and detailed enquiry, including survey of the socalled investor companies from Mumbai, Kolkata and
\nGuwahati to verify the credit-worthiness of the parties, the
\nsource of funds invested, and the genuineness of the
\ntransactions. The field reports revealed that the share-holders
\nwere either non-existent, or lacked credit-worthiness.
\n10. On the issue of unexplained credit entries \/share capital, we
\nhave examined the following judgments :
\n19<\/p>\n
i. In Sumati Dayal v. CIT8 this Court held that :
\n\u201cif the explanation offered by the
\nassessee about the nature and source
\nthereof is, in the opinion of the
\nAssessing Officer, not satisfactory, there
\nis prima facie evidence against the
\nassessee, vis., the receipt of money, and
\nif he fails to rebut the same, the said
\nevidence being unrebutted can be used
\nagainst him by holding that it is a
\nreceipt of an income nature. While
\nconsidering the explanation of the
\nassessee, the department cannot,
\nhowever, act unreasonably\u201d<\/p>\n
ii. In CIT v. P. Mohankala9 this Court held that:<\/p>\n
\u201cA bare reading of section 68 of the Incometax Act, 1961, suggests that (i) there has to
\nbe credit of amounts in the books maintained
\nby the assessee ; (ii) such credit has to be a
\nsum of money during the previous year ; and
\n(iii) either (a) the assessee offers no
\nexplanation about the nature and source of
\nsuch credits found in the books or (b) the
\nexplanation offered by the assessee, in the
\nopinion of the Assessing Officer, is not
\nsatisfactory. It is only then that the sum so
\ncredited may be charged to Income-tax as the
\nincome of the assessee of that previous year.<\/p>\n
The expression \u201cthe assessee offers no
\nexplanation\u201d means the assessee offers no
\nproper, reasonable and acceptable
\nexplanation as regards the sums found
\ncredited in the books maintained by the
\nassessee.
\n8 [1995] 214 ITR 801 (SC)
\n9 291 ITR 278
\n20<\/p>\n
The burden is on the assessee to take the
\nplea that, even if the explanation is not
\nacceptable, the material and attending
\ncircumstances available on record do not
\njustify the sum found credited in the books
\nbeing treated as a receipt of income nature.\u201d
\n(emphasis supplied)<\/p>\n
iii.The Delhi High Court in a recent judgment delivered in
\nPR.CIT -6, New Delhi v. NDR Promoters Pvt. Ltd.10
\nupheld the additions made by the Assessing Officer on
\naccount of introducing bogus share capital into the
\nassessee company on the facts of the case.<\/p>\n
iv.The Courts have held that in the case of cash credit
\nentries, it is necessary for the assessee to prove not
\nonly the identity of the creditors, but also the capacity
\nof the creditors to advance money, and establish the
\ngenuineness of the transactions. The initial onus of
\nproof lies on the assessee. This Court in Roshan Di
\nHatti v. CIT11, held that if the assessee fails to
\ndischarge the onus by producing cogent evidence and
\nexplanation, the AO would be justified in making the
\nadditions back into the income of the assessee.
\n10 410 ITR 379
\n11 (1992) 2 SCC 378
\n21
\nv. The Guwahati High Court in Nemi Chand Kothari v.
\nCIT12 held that merely because a transaction takes
\nplace by cheque is not sufficient to discharge the
\nburden. The assessee has to prove the identity of the
\ncreditors and genuineness of the transaction. :
\n\u201cIt cannot be said that a transaction,
\nwhich takes place by way of cheque, is
\ninvariably sacrosanct. Once the
\nassessee has proved the identity of his
\ncreditors, the genuineness of the
\ntransactions which he had with his
\ncreditors, and the creditworthiness of
\nhis creditors vis-a-vis the transactions
\nwhich he had with the creditors, his
\nburden stands discharged and the
\nburden then shifts to the revenue to
\nshow that though covered by cheques,
\nthe amounts in question, actually
\nbelonged to, or was owned by the
\nassessee himself\u201d
\n(emphasis supplied)<\/p>\n
vi.In a recent judgment the Delhi High Court13 held that
\nthe credit-worthiness or genuineness of a transaction
\nregarding share application money depends on
\nwhether the two parties are related or known to each
\nother, or mode by which parties approached each
\nother, whether the transaction is entered into through
\n12 [2003] 264 ITR 254 (Gau.)
\n13 CIT v. N.R. Portfolio (P.) Ltd.[2014] 42 taxmann.com 339\/222 Taxman 157 (Mag.) (Delhi)
\n22
\nwritten documentation to protect investment, whether
\nthe investor was an angel investor, the quantum of
\nmoney invested, credit-worthiness of the recipient,
\nobject and purpose for which payment\/investment was
\nmade, etc. The incorporation of a company, and
\npayment by banking channel, etc. cannot in all cases
\ntantamount to satisfactory discharge of onus.
\nvii. Other cases where the issue of share application
\nmoney received by an assessee was examined in the
\ncontext of Section 68 are CIT v. Divine Leasing &
\nFinancing Ltd.14, and CIT v. Value Capital Service (P.)
\nLtd.15<\/p>\n
11. The principles which emerge where sums of money are
\ncredited as Share Capital\/Premium are :
\ni. The assessee is under a legal obligation to prove the
\ngenuineness of the transaction, the identity of the
\ncreditors, and credit-worthiness of the investors who
\nshould have the financial capacity to make the
\ninvestment in question, to the satisfaction of the AO,
\nso as to discharge the primary onus.
\n14 (2007) 158 Taxman 440
\n15 [2008]307 ITR 334
\n23
\nii. The Assessing Officer is duty bound to investigate the
\ncredit-worthiness of the creditor\/ subscriber, verify the
\nidentity of the subscribers, and ascertain whether the
\ntransaction is genuine, or these are bogus entries of
\nname-lenders.
\niii.If the enquiries and investigations reveal that the
\nidentity of the creditors to be dubious or doubtful, or
\nlack credit-worthiness, then the genuineness of the
\ntransaction would not be established.
\nIn such a case, the assessee would not have
\ndischarged the primary onus contemplated by Section
\n68 of the Act.<\/p>\n
12. In the present case, the A.O. had conducted detailed enquiry
\nwhich revealed that :
\ni. There was no material on record to prove, or even
\nremotely suggest, that the share application money
\nwas received from independent legal entities. The
\nsurvey revealed that some of the investor companies
\nwere non-existent, and had no office at the address
\nmentioned by the assessee.
\nFor example:
\n24
\na. The companies Hema Trading Co. Pvt. Ltd. and
\nEternity Multi Trade Pvt. Ltd. at Mumbai, were
\nfound to be non-existent at the address given, and
\nthe premises was owned by some other person.
\nb. The companies at Kolkatta did not appear before the
\nA.O., nor did they produce their bank statements to
\nsubstantiate the source of the funds from which the
\nalleged investments were made.<\/p>\n
c. The two companies at Guwahati viz. Ispat Sheet Ltd.
\nand Novelty Traders Ltd., were found to be nonexistent at the address provided.
\nThe genuineness of the transaction was found to be
\ncompletely doubtful.<\/p>\n
ii. The enquiries revealed that the investor companies
\nhad filed returns for a negligible taxable income, which
\nwould show that the investors did not have the
\nfinancial capacity to invest funds ranging between Rs.
\n90,00,000 to Rs. 95,00,000 in the Assessment Year
\n2009-10, for purchase of shares at such a high
\npremium.
\nFor example:
\n25
\nNeha Cassetes Pvt. Ltd. – Kolkatta had disclosed a
\ntaxable income of Rs. 9,744\/- for A.Y. 2009-10, but
\nhad purchased Shares worth Rs, 90,00,000 in the
\nAssessee Company.
\nSimilarly Warner Multimedia Ltd. \u2013 Kolkatta filed a
\nNIL return, but had purchased Shares worth Rs.
\n95,00,000 in the Assessee Company \u2013 Respondent.
\nAnother example is of Ganga Builders Ltd. \u2013
\nKolkatta which had filed a return for Rs. 5,850 but
\ninvested in shares to the tune of Rs. 90,00,000 in the
\nAssessee Company \u2013 Respondent, etc.<\/p>\n
iii.There was no explanation whatsoever offered as to why
\nthe investor companies had applied for shares of the
\nAssessee Company at a high premium of Rs. 190 per
\nshare, even though the face value of the share was Rs.
\n10\/- per share.<\/p>\n
iv.Furthermore, none of the so-called investor companies
\nestablished the source of funds from which the high
\nshare premium was invested.<\/p>\n
v. The mere mention of the income tax file number of an
\ninvestor was not sufficient to discharge the onus under
\nSection 68 of the Act.
\n26<\/p>\n
13. The lower appellate authorities appear to have ignored the
\ndetailed findings of the AO from the field enquiry and
\ninvestigations carried out by his office. The authorities below
\nhave erroneously held that merely because the Respondent
\nCompany \u2013 Assessee had filed all the primary evidence, the
\nonus on the Assessee stood discharged.
\nThe lower appellate authorities failed to appreciate that the
\ninvestor companies which had filed income tax returns with a
\nmeagre or nil income had to explain how they had invested
\nsuch huge sums of money in the Assesse Company –
\nRespondent. Clearly the onus to establish the credit
\nworthiness of the investor companies was not discharged. The
\nentire transaction seemed bogus, and lacked credibility.
\nThe Court\/Authorities below did not even advert to the field
\nenquiry conducted by the AO which revealed that in several
\ncases the investor companies were found to be non-existent,
\nand the onus to establish the identity of the investor
\ncompanies, was not discharged by the assessee.<\/p>\n
14. The practice of conversion of un-accounted money through the
\ncloak of Share Capital\/Premium must be subjected to careful
\nscrutiny. This would be particularly so in the case of private
\nplacement of shares, where a higher onus is required to be
\n27
\nplaced on the Assessee since the information is within the
\npersonal knowledge of the Assessee. The Assessee is under a
\nlegal obligation to prove the receipt of share capital\/premium
\nto the satisfaction of the AO, failure of which, would justify
\naddition of the said amount to the income of the Assessee.<\/p>\n
15. On the facts of the present case, clearly the Assessee Company
\n– Respondent failed to discharge the onus required under
\nSection 68 of the Act, the Assessing Officer was justified in
\nadding back the amounts to the Assessee\u2019s income.
\n16. The Appeal filed by the Appellant \u2013 Revenue is allowed. In the
\naforesaid facts and circumstances, and the law laid down
\nabove, the judgment of the High Court, the ITAT, and the CIT
\nare hereby set-aside. The Order passed by the AO is restored.
\nPending applications, if any are disposed of.
\nOrdered accordingly.
\n\u2026………………………J.
\n(UDAY UMESH LALIT)
\n\u2026…\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026J.
\n(INDU MALHOTRA)
\nNew Delhi,
\nMarch 5, 2019.
\n28<\/p>\n","protected":false},"excerpt":{"rendered":"
The practice of conversion of un-accounted money through the cloak of Share Capital\/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. 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.<\/p>\n