Mobile View
Main Search Advanced Search Disclaimer
Cites 29 docs - [View All]
The Companies Act, 1956
Section 68 in The Income- Tax Act, 1995
The Income- Tax Act, 1995
Section 153A in The Companies Act, 1956
Dy. Cit vs Divya Investment (P) Ltd. on 13 December, 2007

User Queries
View the actual judgment from court
Income Tax Appellate Tribunal - Agra
Vacmet Packagings, Agra vs Department Of Income Tax on 22 November, 2012

IN THE INCOME TAX APPELLATE TRIBUNAL,

AGRA BENCH, AGRA

BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER

ITA No. 405 & 406/Agra/2012

Asstt. Year : 2007-08 & 2008-09

A.C.I.T., Central Circle, vs. Vacmet Packagings (India) Pvt. Ltd., Agra. Anant Plaza, IInd Floor, Civil Lines, Agra (PAN : AACCV 5120 B)

ITA No. 404/Agra/2012

Asstt. Year : 2006-07

A.C.I.T., Central Circle, vs. Vacmet Finance and Investments Ltd. Agra. Civil Lines, Church Road, Agra. (PAN : AACCV 0905 C)

(Appellant) (Respondent)

Appellant by : Shri Waseem Arshad, Sr. D.R. Respondent by : Shri Pankaj Gargh, Advocate

Date of hearing : 22.11.2012 Date of pronouncement of order : 14.12.2012

ORDER

Per Bhavnesh Saini, J.M.:

This order shall dispose of all the appeals filed by the Revenue against

different orders of ld. CIT(A)-II, Agra. Same issues are involved in all these

departmental appeals and the parties mainly argued in ITA No. 405 &

406/Agra/2012 and stated that the issue is identical in ITA No. 404/Agra/2012.

Therefore, the order in the cases, in which both the parties argued, may be 2 ITA No. 404, 406 & 404/Agra/2012

followed in other case. We, therefore, take up ITA No. 405 & 406/Agra/2012 for

the purpose of disposal of all the departmental appeals.

2. We have heard the ld. Representatives of both the parties at length, perused

the findings of the authorities below and considered the material available on

record.

ITA No. 405/Agra/2012 (Assessment year : 2007-08) : ITA No. 406/Agra/2012 (Assessment year : 2008-09) :

3. Both the departmental appeals are filed against the common order of ld.

CIT(A)-II, Agra dated 15.05.2012 for the assessment years 2007-08 and 2008-09,

challenging the deletion of addition of Rs.8,50,00,000/- and Rs.5,00,00,000/-

respectively made on account of unexplained cash credits u/s. 68 of the IT Act.

4. The AO has made following additions in assessment year 2007-08 and 2008-

09 on account of share application money received from following companies

holding them to be non-genuine :

S.No. Name of company who Name of company Period Amount have given entry who have taken entry (A.Y.)

1. M/s. KMC Portfolio (P) M/s. Vacmet 2007-08 Rs.8.5 crore Ltd. Delhi Packaging (India)Pvt. Ltd., Agra

2. M/s. Ganpati Fincap M/s. Vacmet 2008-09 Rs.5 crore Services (P) Ltd., Delhi Packaging (India)Pvt.

Ltd., Agra

3 ITA No. 404, 406 & 404/Agra/2012

5. Briefly stated, the facts of the case are that a search & seizure operation was

conducted by the Department on the assessee on 26th of March, 2010. Also

relevant to mention here is that a survey was conducted at the premises of one Shri

Aseem Gupta, CA on 26th of March, 2010 at Delhi. During the course of statement

recorded during survey, Shri Aseem Gupta stated that he was involved in providing

bogus accommodation entries in the guise of share application money, purchase /

expenditure by issuing the cheques after obtaining equivalent cash in favour of the

beneficiaries. In his statement recorded on 26th of March, 2010 during the course

of survey, Shri Aseem Gupta described his modus operandi in answer to question

no.18 as under:

"Ans: Suppose there is a company (A), which is having cash of 10 lac(Rs.) and want to convert this cash in white money. The company A then approaches its CAs who are known to me and ask me to further arrange for share application money of Rs.10 lac(Rs.). The CA of the company generally get the commission of 0.50 paisa in 100 rupees. I further get a commission of 0.25 paisa in 100 rupees. I know several companies whose a/cs are audited by me and their directors are known to me. I in turn approaches these companies and their directors for arranging share application money. These companies further get the commission of 0.25 paisa in 100 rupees. The cash of 10 lac rupees is deposited in the bank a/cs of these companies which are giving accommodation entries. Some times the cash is already lying in the bank account of company providing accommodation entries and some time cheques are arrange through other sources about which I do not have much knowledge. In lieu of that the company giving accommodation entries just say cheque of Rs.10 lac to company which needs accommodation entries.

4 ITA No. 404, 406 & 404/Agra/2012

5.1 As per AO, Shri Aseem Gupta in his statement dated 22nd of April 2010

recorded by the ADIT(Intelligence)-III, New Delhi when he was confronted

annexure No.20 impounded during the course of survey on 26th of March, 2010

with regard to the notings made on this page stated as under:

"Ans: These entries pertain to Vacmet Packaging (India) Pvt. Ltd. having office address at Anant Plaza, II Floor, 4/117-2A, Civil Lines, Church Road, Agra 282002. The expression '10+90' means shares of face value Rs.10 per share having share premium at Rs.90 per share. In the first entry 332711- 15/2/05-5000000, 332711 refers to the cheque no. of my company either KMC Portfolio Pvt. Ltd. or Ganpati Fincap Services Pvt. Ltd., 15/02/05 refers to the date of cheque and 5000000 refers to the amount of share application money given to Vacmet Packaging (India) Pvt. Ltd. for 50000 shares of face value Rs.10 per share having share premium at Rs.90 per share. On this page there are entries totaling Rs.500,00,000 (Five crores) i.e. my companies either KMC Portfolio Pvt. Ltd. or Ganpati Fincap Services Pvt. Ltd. have given share application money of Rs.5 crores to Vacmet Packaging (India) Pvt. Ltd. for 5 lakh shares of face value of Rs.10 per share having share premium at Rs.90 per share. The Modus Operandi is that one of the Directors of Vacmet Packagings (India) Pvt. Ltd. one Mr. Agarwal approached me to arrange some share application money into his company i.e. Vacmet Packaging (India) Pvt. Ltd. in lieu of certain commission that I would earn for arranging share application money in his company some cash and cheques were given to me and this cash and cheques were deposited by me in accounts held in the name of ABM Traders or Surya Enterprises and then this money was transferred into companies managed and controlled by me i.e. either KMC Portfolio Pvt. Ltd. or Ganpati Fincap Services Pvt. Ltd. and from KMC Portfolio Pvt. Ltd. / Ganpati Fincap Services Pvt. Ltd. the money was introduced in the books of account of Vacmet Packaging (India) Pvt.Ltd. in form of share application money. The transaction pertain to financial year 2004-05 and more specifically February 2005 and March, 2005. Along with this I gave the following documents to Mr. Agarwal, Director of Vacmet Packaging (India) Pvt. Ltd.:

i. Resolution for investment in the company in form of share application money.

5 ITA No. 404, 406 & 404/Agra/2012

ii. Confirmation regarding the subscription to share capital in the company and in this case Vacmet Packaging (India) Pvt. Ltd. iii. Share application form

iv. Transfer deed."

Thus, the AO concluded that as Shri Aseem Gupta had admitted that he was

indulging in providing accommodation entries and he also furnished the names of

all the beneficiaries, has made the addition on account of share capital received

from the following persons :

S.N Name of company who Name of company who Period Amount of have given entry have taken entry (A.Y.) accommodation entry

1. M/s.KMC Portfolio (P) M/s.Vacmet Packaging 2007-08 Rs.8.5 crore Ltd. Delhi (India) Pvt. Ltd., Agra

2. M/s.Ganpati Fincap M/s.Vacmet Packaging 2008-09 Rs.5 crore Services (P) Ltd., Delhi (India) Pvt. Ltd., Agra

5.2 The AO has also observed that statement of one of the directors of the

appellant company Shri D.C. Agarwal was recorded on 21st of December, 2011

and he was not even able to explain whether the company was maintaining the

statutory records required as per law and as per AO he was also not aware of the

minute book of the company, details of AGM minutes and name of major

shareholders. The AO has further noted that on examination of copy of bank

accounts, it is seen that opening balance was very nominal before the amount

deposited in the accounts and deposited amount was withdrawn within the same

day or within very short period. As per the AO, the assessee was also not aware of 6 ITA No. 404, 406 & 404/Agra/2012

the financial capacity of the company who subscribed for the shares. Thus, the AO

by relying on the statement of Shri Aseem Gupta and the appraisal report wherein,

as per the AO, it has been concluded that the amount of Rs.8.5 crore and Rs.5 crore

claimed to have been received during the period relevant to A.Y. 2007-08 and A.Y.

2008-09 respectively in the guise of share application money were only

accommodation entries and accordingly he made the addition of Rs.8.5 crore and

Rs.5 crore in A.Y. 2007-08 and A.Y. 2008-09 respectively. The AO also relied on

the contents of the black diary which was confronted to Shri Aseem Gupta during

the course of statement on 22nd of April 2010 by ADIT (Intelligence)-III, New

Delhi and wherein he has stated that all these entries pertain to M/s.Vacmet

Packaging (India) Pvt. Ltd. It was further elaborated by him that 50,000 shares of

face value of Rs.10 per share were sold at a premium of Rs.90 per share.

6. The addition was challenged before the ld. CIT(A) and during the course of

appeal proceedings, the ld. Counsel for the assessee filed his written submissions

on 29.03.2012. The written submissions filed by the assessee were given to the

AO for his comments. The AO was also directed to confront the assessee the

contents of the black diary on which reliance has been placed in the assessment

order. Also on the same day as it was contended by the ld. Counsel for the

assessee that copy of statement of Shri Aseem Gupta on which reliance had been 7 ITA No. 404, 406 & 404/Agra/2012

placed by the AO has not been provided to the assessee, the AO was directed to

provide the same to the assessee. The AO was further directed that if the assessee

comes out with the plea that opportunity of cross examination of Shri Aseem

Gupta should be allowed to it then the same should be provided to the assessee as

the assessee even during the assessment stage had been pressing for cross

examination of Shri Aseem Gupta. As the submissions made by the ld. AR for

both the years are identical except the amounts and names of the companies differ

from where the share application money has been received, thus, to avoid

duplication, submissions made for the assessment year 2007-08 representing as to

what the assessee has to say in support of the grounds of appeal for both the years

are reproduced in appellate order as under:

"4.1 That Share Application Money of Rs. 8,50,00,000/- received during the assessment year 2007- from M/s KMC Portfolio (P) Ltd, Delhi has been added by the Assessing Officer u/s 68 of the Act treating the increase in share capital as unexplained investment for the reasons as mentioned in the Assessment Order.

4.2 That on perusal of the Assessment Order it seems that the Assessing Officer has made the addition mainly for the following reasons:-

i) On the basis of the statement of the person named Shri Aseem Gupta CA during the course of survey proceedings carried out in his office u/s 133A of the Act.

ii) Black Dairy found and impounded from the office of Shri Aseem Gupta CA

8 ITA No. 404, 406 & 404/Agra/2012

iii) Assessee failed to prove the credit evidence and the genuineness of the company from whom the amount has been received as Share Application Money.

4.3 That to overcome with the observation of the Assessing Officer it is very important to bring the facts of the case before your goodself, the queries made by the Assessing Officer, the submission and the documents placed before the Assessing Officer during the course of assessment proceedings u/s 153A of the Act.

i) The first notice u/s 142(1) of the Act dated 18.07.2011 in the name of M/s Vacmet India Ltd was received, copy enclosed, vide which query at S. No. 12 the appellant company was asked to furnish the details of share capital received during the year. In the same notice vide query at. S. No. 20 & 21 the assessee was asked about the relationship with Shri Aseem Gupta CA. After dropping of the proceedings in the name of M/s Vacmet India Ltd for Assessment Year 2004-05 to 2009-10 another notice u/s 142(1) of the Act dated 02.11.2011 was issued in the name of assessee company having almost the similar queries.

ii) In response to these notices written submission dated 16.11.2011 was filed giving the details of increase in share capital received during the year alongwith confirmation from the subscriber companies. Copy enclosed. In this submission for the query made by Assessing Officer as regards relationship with Shri Aseem Gupta CA it was submitted vide Para 20 -21 of the submission:-

"The assessee company has neither any relationship with the person nor any transactions with person namely Shri Aseem Kumar Gupta, Chartered Accountant who is said by your goodself to be the partner of M/s Agarwal Vishwanath & Associates . The assessee company does not know any such firm named in the questionnaire as 'M/s Agarwal Vishwanath & Associates'. Directors of assessee company do not know Shri Aseem Kumar Gupta, Chartered Accountant and question of any meeting with this person does not arise".

9 ITA No. 404, 406 & 404/Agra/2012

iii) That immediately after filing the written submission dated 16.11.2011 another written submission dated 23.11.2011 was filed suo-moto in continuation of the earlier submission giving therein the detail of the document received from the subscriber companies. Copy of the following details/documents were filed before the Assessing Officer:-

a) Confirmatory letter giving the details of number of shares applied, details of bank account from where the cheques were issued, the amount paid towards share application and the PAN to prove the identity.

b) Copy of the Board Resolution of the share applicants.

c) Copies of share application forms received from the share applicants.

d) Photostate copies of the relevant pages of the bank statements from where the cheques were issued to prove the genuineness of the transaction.

e) Photostate copies of the audited balance sheets of the applicant companies to prove their credit worthiness by way of proving their net worth.

f) Photocopies of the share certificates issued by the assessee company to the share applicants.

The above named company is regularly assessed to tax and all the transactions are through banking channel.

Copy of the same are again enclosed for ready reference.

iv) It is important to mention here that these documents were filed before the Assessing Officer though the same were not specifically asked for at any point of time between the issue of first notice u/s 142(1) of the Act dated 18.07.2011 till 23.11.2011

10 ITA No. 404, 406 & 404/Agra/2012

v) It is also important to mention here that while concluding the written reply dated 23.11.2011 it was specifically submitted that by filing all the documents, the onus lying on the assessee company stands fully discharged. Specific request was also made that if any further information/document/explanation/paper was still required kindly let the assessee company know so the same can be filed.

4.4 That number of cases of the assessee company and its Directors were in the course of assessment u/s 153A of the Act and in the month of November and December 2011 the authorize representative of the assessee company attended almost daily the office of the Assessing Officer. After filing the written submission dated 23.11.2011 no further query was made by the Assessing Officer as regards the increase in share capital.

4.5 That vide order sheet entry dated 13.12.2011 the assessee company was asked to furnish certain queries in respect to share applicant namely M/s Ganpati Fincap Services (P) Ltd for Rs. 5,00,00,000/- received as share capital in A.Y. 2008-09 and M/s KMC Portfolio (P) Ltd for Rs. 8,50,00,000/- received as share capital in A.Y. 2007-08 to establish/substantiate the genuineness of these credits with reference to credible supporting evidence. The assessee company was further required to furnish the following by 19.12.2011 :-

a) Complete details of the directors / key persons of these two companies subscribing the share capital of the assessee company........................

b) To explain as to how the share application forms were received along with supporting evidence....

c) Statutory records - Register of Shareholders, Minute Books of the AGM of the assessee company along with details in respect of the persons who represented these investing companies d) Clarification whether Shri Rajan Gupta CA, Shri Rajesh Gupta CA, Shri Sunil Kansal CA and Shri S. K. Jain CA were known to the assessee company ................

4.6 That in response to order sheet entry dated 13.12.2011 a detailed written submission was filed on 19.12.2011 making submission on the details as required vide order sheet entry dated 11 ITA No. 404, 406 & 404/Agra/2012

13.12.2011 covering all the aspects with regard to the document filed from time to time. In addition to the documents already filed, following paper/documents were also filed vide written submission dated 19.12.2011:-

i) Copy of Share Application account of the assessee company.

ii) Copy of Share Capital Account of the assessee company. iii) Copy of returns of allotment (Form No. 2) filed by the assessee company in terms of the provisions of the Companies, Act 1956 alongwith the list of allottees.

4.7 In this reply, specific submissions were made to prove the basic ingredients of section 68 of the Act namely identity / existence of the depositors, their creditworthyness and capacity and genuineness of the transaction. Even, the attention of the Assessing Officer was also drawn towards the case law decided by the Apex Court in the case of CIT vs. Lovely Exports Pvt. Ltd. reported in (2008) 216 CTR 195.

4.8 That while concluding the written submission dated 19.12.2011 the assessee company vide para 10 pointed out before the Assessing Officer that no incriminating document was either found or impounded or seized during the course of search and seizure operations conducted at the business and residential premises of the assessee company and its directors in respect of increase in share capital. Simultaneously, specific request was again made to confront the adverse material, if any, in the possession of Assessing Officer so as to enable the assessee company to rebut the same. It was also requested that in case the Assessing Officer is in possession of any statement of any other person, the same may kindly be confronted allowing an opportunity of cross examining the said person / witness. All these requests were made in view of the principle of natural justice.

4.9 That vide order sheet entry dated 13.12.2011 apart from the detail as required by the Assessing Officer, the assessee company was asked to produce the Director of the assessee company namely Shri Dinesh Chand Agarwal for examination on 19.12.2011. On 19.12.2011 vide order sheet entry Shri Dinesh Chand Agarwal was required to be produced for statement on 21.12.2011 on which date 12 ITA No. 404, 406 & 404/Agra/2012

Shri Dinesh Chand Agarwal attended the office of the Assessing Officer and his statement was recorded on oath. Copy of statement recorded is enclosed. On perusal of the statement your goodself will find that when it was asked regarding Shri Aseem Gupta CA it was specifically stated by Shri Dinesh Chand Agarwal that enquiries with regard to some Mr. Aseem Gupta are being made time and again not only in this statement but also on earlier occasions and therefore, Assessing Officer was specifically requested to produce Shri Aseem Gupta for my cross examination in case he has given any wrong information in respect of me or my companies in any manner whatsoever.

4.10 That written submission dated 27.12.2011 was also submitted before Assessing Officer and as per his verbal directions the same was filed in Dak on 29.12.2011 which has been taken by the Assessing Officer on record as per order sheet entry dated 29.12.2011 which is before the completion of assessment.

4.11 That the Assessing Officer brushing aside the document filed from time to time and rejecting the appellant's submission made the addition of the amount of Rs. 8,50,00,000/- received from M/s KMC Portfolio (P) Ltd as share capital u/s 68 of the Act treating the same to be unexplained investment.

4.12 Further submission before your honour:-

i) That the assessment of sister concern of the appellant company namely M/s Vacmet Finance & Investment Ltd for A.Y. 2006-07 was completed u/s 143(3) of the Act. In that year also M/s Vacmet Finance & Investment Ltd received share capital from M/s KMC Portfolio Services (P) Ltd amounting to Rs. 3,10,00,000/- During the course of regular scrutiny assessment proceedings detailed enquiry/investigation was made by the Assessing Officer, Circle 4(1), Agra as regards the share capital received from M/s KMC Portfolio Services (P) Ltd. During the course of assessment proceedings, the documents, to discharge the onus which lay upon the assessee, in the form of confirmation, balance sheet, copy of acknowledgment of the income tax return, bank statement etc. were filed. The Assessing Officer further made direct and independent enquiry by sending 13 ITA No. 404, 406 & 404/Agra/2012

notice u/s 133(6) of the Act to the subscriber company calling for the information. The said notice was duly responded by the subscriber company by sending the required information. The Assessing Officer further issued summon u/s 131 of the Act to the subscriber company for the personal attendance of the Director. The Director of the subscriber company appeared before the Assessing Officer alongwith the books of account and his statement on oath was recorded in which he admitted to have invested in the shares of Vacmet Finance & Investment Ltd. In his statement he also stated the reason for making investment in shares. The transactions was duly got verified by the Assessing Officer as the Director filed copy of Ledger Account of Vacmet Finance & Investment Ltd as appearing in their books of accounts. After making all these enquires the Assessing Officer being satisfied with the identity, genuineness of the transaction and the creditworthiness, accepted the share capital as genuine/explained. The personal attendance of the Director was noted by the Assessing Officer in the order sheet. Copy of the same is enclosed which was obtained after inspection of the assessment file.

ii) That since the share capital received from M/s KMC Portfolio (P) Ltd has already been accepted in the case of sister concern M/s Vacmet Finance & Investment Ltd in scrutiny assessment for A.Y. 2006-07 therefore there is no reason for any departure from such acceptance in the absence of any contrary evidence on record.

iii) That in the present case also during the course of assessment proceedings u/s 153A of the Act, the Assessing Officer made direct and independent enquiry from M/s KMC Portfolio (P) Ltd by issue of notice u/s 133(6) of the Act which have been duly responded by the subscriber company and the required details/documents in the form of confirmation giving the details of cheque number, amount and the name of the bank on which the cheque was drawn, share received confirmation, bank statement, copy of share certificates, income tax return, balance sheet were directly sent to the Assessing Officer . Copy of the same are enclosed for ready reference of your goodself. The same has been obtained on inspection of the assessment file on 21.03.2012.

(IV) Re: Statement of Aseem Gupta [C.A.]

14 ITA No. 404, 406 & 404/Agra/2012

On perusal of the Assessment Order it seems that the addition has been made by the Assessing Officer simply relying on the statement of Mr. Aseem Gupta CA forwarded to the Assessing Officer by the Department carried out survey. In this regard the appellant wish to submit as under:-

a) That on enquiry from the subscriber company M/s KMC Portfolio (P) Ltd it has been informed that the person named Mr. Aseem Gupta has never been the Director of the said company.

b) That on inspection of the assessment file, the important fact which come in the knowledge of the assessee company is that during the course of assessment proceedings the Assessing Officer issued notice u/s 133(6) of the Act to Shri Aseem Gupta in response to which he sent his submission stating that "I have not done any share transaction as regards purchase and sale during the caption assessment year with the company M/s Vacmet Packaging (India) Pvt. Ltd". Copy of the notice and of letter dated 29.11.2011 sent by Shri Aseem Gupta is enclosed for reference.

c) That during the course of search proceedings statement on oath of the managing Director Shri Dinesh Chand Agarwal was recorded by the officers of search team in which it was asked that whether you know Mr. Aseem Gupta CA or not. In reply Shri D.C. Agarwal clearly stated that he does not know any person named Mr. Aseem Gupta. Again in the very first notice issued u/s 142(1) of the Act, as mentioned above, vide query at S. No. 20-21 it was asked "What is your relation with Shri Aseem Gupta CA and partner of M/s Agarwal Vishwanath & Associates. In response to the same it was submitted :-

"The assessee company has neither any relationship with the person nor any transactions with person namely Shri Aseem Kumar Gupta, Chartered Accountant who is said by your goodself to be the partner of M/s Agarwal Vishwanath & Associates . The assessee company does not know any such firm named in the questionnaire as 'M/s Agarwal Vishwanath & Associates'. Directors of assessee company do not know Shri Aseem Kumar Gupta, Chartered Accountant and question of any meeting with this person does not arise". 15 ITA No. 404, 406 & 404/Agra/2012

d) After that the assessee company was neither asked anything about Shri Aseem Gupta nor the assessee company was required to produce nor any such statement which has been reproduced by the Assessing Officer in the Assessment Order has ever been shown or confronted with the assessee company.

e) Lastly at the time when the statement of Shri D.C. Agarwal was recorded by the Assessing Officer on 21.12.2011 it was again asked whether you know Mr. Aseem Gupta. In reply Shri D.C. Agarwal specifically stated that he does not know Mr. Aseem Gupta and the specific request was made that I am again and again saying that I do not know the person named Mr. Aseem Gupta and if the said person has given any wrong information/statement to the Department as regards my companies then the said person may kindly be called upon and I may be allowed opportunity to cross examine him.

f) It is very surprising that even after the submission dated 19.12.2011 vide which specific request was made that if there is any adverse or contrary evidence against us in your possession then kindly provide us the copy of the same in case of documentary evidence so that we can rebut the same and an opportunity to cross examine may also be provided in view of natural justice in the case of personal statement of any person against the facts submitted by us and further in the statement of Shri Dinesh Chand Agarwal recorded on 21.12.2011 the Assessing Officer was again requested to provide opportunity of cross examination, even then the Assessing Office has neither shown any statement on which he has relied nor the assessee has been allowed opportunity to cross examine.

g) That even after repeated request the Assessing Officer has neither confronted the assessee with the statement, as mentioned in the Assessment Order, of Shri Aseem Gupta nor the Assessing Officer has allowed opportunity of cross examination. It is the prime duty of the Assessing Officer to allow not only the cross examination of the witness but also confront the assessee with the adverse material, if any, before reaching to any adverse conclusion. In law the Assessing Officer has vide power to enforce the attendance of the witness for cross examination. Hon'ble Allahabad High Court judgment in the case of Nathu Ram Prem Chand vs. CIT 49 ITR 561 has held "No inference can be drawn against an assessee merely because the 16 ITA No. 404, 406 & 404/Agra/2012

assessee had taken a dasti summons for production of a witness and had not produced him. It is the duty of the Income-tax Officer to enforce the attendance of the witness if his evidence is material, in exercise of his powers u/s37(1) of the Income Tax Act read with Order Xvl, rule IO of the Civil Procedure Code".

h) That it is an accepted position of law that whenever the revenue proposed to rely on a material found from the third party, which is adverse to the assessee, the principal of natural justice requires to confront the same to the assessee. Infact in the absence of cross examination the veracity of the statement made by 3rd party comes in doubt and could not be said to be sacrosanct so as to clinch the issue against the assessee.

i) Hon'ble Apex Court in the case of Union of India vs. T.R. Verma reported in AIR 1957 (SC) 882 has held "When the assessing officer recorded a statement behind the back of the assessee, it was his duty to have allowed the assessee to cross examine such a witness. Statement of person cannot be used against the assessee, it was not for the assessee to demand cross examination but was for the AO to allow cross examination if the statement of the witness were to be made the basis of addition."

j) As regards the addition in the absence of cross examination the appellant further rely on the following judgments:-

i) Hon'ble Supreme Court in the case of Mehta Parikh & Co. vs. CIT reported in 30 ITR 181 has held that cross examination of the deponent filing affidavit is a primary requisite condition and in the absence of the some adverse inference can be drawn.

ii) Allahabad High Court in the case of L. Sohan Lal Gupta vs. CIT reported in 33 ITR 786

"After the assessee had filed the affidavit, he was neither cross examined on that point, nor was he called upon to produce any documentary evidence. Consequently, the assessee was entitled to assume that the income tax authorities were satisfied with the affidavit as sufficient proof on this point. If it was not to be accepted as a sufficient proof either by the Income Tax Officer or by the Appellate Asstt. Commissioner of Income Tax or by the Income Tax Appellate 17 ITA No. 404, 406 & 404/Agra/2012

Tribunal, the assessee should have been called upon to produce documentary evidence, or, at least he should have been cross examined to find out how far his assertions in the affidavit were correct".

iii) Hon'ble ITAT Delhi Bench in the case of CIT vs. Pradeep Kumar Gupta reported in 207 CTR 115 (Del)

"Reassessment - Validity - Reopening on the basis of third party's statements - Assessees showing agricultural income - Deposition by A that he was involvedin bogus transaction with the assessees and provided 'accomodation entries' in the form of agricultural receipts - Same would constitute reason to believe that income chargeable to tax had escaped assessment - However it was mandatory for the Revenue to produce A for cross examination by the assessee on their specific demand in this regard - AO must first discharge the burden of showing that income has escaped assessment - Opportunity to cross examine A denied to the assessee - Reopening of assessment not therefore valid".

iv) Hon'ble ITAT Delhi Bench in the case of Yamuna Synthetic (P) Ltd vs. DCIT reported in 91 TTJ 69 has held "Addition u/s 68 of the Act made on the basis of statement of 'k', Director of creditor SPL, to the effect that the impugned loan was an accommodation entry - Said statement of 'k' not confronted to the assessee and not subjected to cross examination - Invalid - Addition liable to be deleted". In the present case it has also been held that "It is also noteworthy that even at the time when the AO recorded the statement of the assessee's Director with regard to the impugned transaction nothing was put to the assessee of any material contrary to what was being canvassed by the assessee. Therefore, the entire edifice built by the revenue to view the transaction as suspect is not on the basis of a credible evidence. It is in the realm of possibilities that the statement made by K (Director of SPL) was a self -serving statement and the same has not been subjected to any cross - examination. The department has not led any evidence or amterial which would lend support to the averments made by K".

k) That as mentioned in foregoing paras above though Mr. Aseem Gupta is neither the Director nor has any interest in the subscriber company, tt is not understandable that why and under what circumstances he has made such a statement as claimed by the 18 ITA No. 404, 406 & 404/Agra/2012

Department though not shown to the assessee. Under the fact and circumstances and the accepted legal position as mentioned above though the statement of Mr. Aseem Gupta cannot be made basis of addition yet even in the cases where the creditor, though Mr. Aseem Gupta is not creditor, turns hostile then also the addition cannot be made solely on the basis of the statement ignoring the document filed by the assessee and the onus being discharged.

Hon'ble ITAT Jaipur Bench in the case of Sohan Lal Jain vs. ITO reported in 59 CTR 17 has held "Merely because creditor turns hostile, the story of the assessee setting up a cash credit should not be disbelieved - Assessing authority under the circumstances required to go deeper into the matter and call the creditors by issuing notice u/s 131 and find out truth if the assessee produces collateral evidence to show the circumstances under which creditors had resiled - Fact that onus to prove genuineness of cash credit is on the assessee does not mean that the assessee is required to win over false witness if he can show that creditors had resiled".

(V) Re: Black Dairy

i) The Assessing Officer in the Assessment order at page 2 has mentioned about a black dairy said to have been found and impounded from the office of Shri Aseem Gupta which has also been made one of the ground by the Assessing Officer to made addition u/s 68 of the Act.

ii) As regards the black dairy, Mr. Aseem Gupta in his so called statement, though never confronted to the assessee, which has been reproduced by the Assessing Officer in the Assessment Order, he has clearly stated that:-

'The transaction pertain to F.Y. 2004-05 and more specifically February 2005 and March 2005' which does not relates to the year under consideration. Thus even the transactions as said to have been noted in the black dairy has no relevancy at all and cannot be made basis of addition for the following reasons:-

a) The transactions as noted in the so called black dairy were neither shown to the assessee nor copy of the same was provided, nor the assessee was ever confronted with the same though specifically asked again and again that if there is any adverse material or evidence against us is in your possession then kindly provide us the 19 ITA No. 404, 406 & 404/Agra/2012

copy of the same in case of documentary evidence so that we can rebut the same.

b) That as per the statement of Mr. Aseem Gupta as reproduced by the Assessing Officer at Page 2 of the Assessment Order, the transaction as noted in the black dairy pertaining to F.Y. 2004-05 are from the company either M/s KMC Portfolio (P) Ltd or M/s Ganpati Fincap Services (P) Ltd. Neither any share capital from M/s KMC Portfolio (P) Ltd and M/s Ganpati Fincap Services (P) Ltd has been received in F.Y. 2004-05 nor any such addition has been made by the Assessing Officer in F.Y. 2004-05 relevant to Assessment Year 2005-

06.

c) That transaction as claimed to have been noted relates to F.Y. 2004-05 and hence on this ground also, though not admitted, no addition can be made in A.Y. 2007-08 and A.Y. 2008-09. vi) That under the facts and circumstances of the case, as mentioned above, submission and document filed time to time, alongwith the statement and information given by the Director of the subscriber company in response to the direct and independent enquiry made by the Assessing Officer, confirms and establish the facts of investment made by the subscriber company in the share capital of the assessee company.

vii) That the documents as mentioned above conclusively proves that the subscriber company is existing company with established identity, have capacity and creditworthiness to make the investment and the investment made by them are genuine. The same is being further elaborately submitted as under:-

Existence and establish identity

The identity of the subscriber company is undisputed and cannot be questioned since it is existing company duly registered with Registrar of Companies, having valid permanent account number and submitted their financial statements regularly and assessed to tax. Further, the independent identity is also substantiated from the fact that the directors of the subscriber company responded to the direct independent enquiry made by the Department. Moreover, the subscriber company Bank Account and numerous transactions appearing therein with different parties is also evidence of the independent identity and existence.

Credit worthiness and capacity

The credit worthiness and capacity of the subscriber company can also not be doubted. It is evident from their Balance Sheets that the 20 ITA No. 404, 406 & 404/Agra/2012

subscriber company is company with sound net worth and huge reserves. Also, the amount received from the subscriber company is through regular banking channels, details of which were filed by the assessee company and also directly by the subscriber company which shows a number of transactions with various parties Genuineness

The subscriber company has confirmed their investment in the share capital of the assessee company. Their confirmation alongwith other document which proves the genuineness of a transaction were filed by the assessee company and were also sent by them to the Assessing Officer on direct and independent enquiry. Genuineness is also proved from the fact that the shares were allotted and the share certificate were issued which the subscriber company has also confirmed. Copy of share certificate sent by them are on record of Assessing Officer. Further the high net worth of subscriber company substantiated the genuineness of the transactions. viii) Considering all these facts and submission as mentioned above the assessee company fully discharged his onus as required u/s 68 of the Act.

ix) It is settled position of law that where a matter concerns receipts by way of share application from investor, the assessee has to prove the existence of the persons from whom the share application is received. Once the existence is proved it is not further the burden of the assessee to prove whether that person itself has invested the money or some other person has made the investment or anything else, though in the case of assessee company the document filed and the information/document received from subscriber company on direct enquiry and there being no direct adverse material, the creditworthiness and genuineness of the share application money received is also proved though under law not required. x) In support of the submission as mentioned above the assessee company wish to place reliance on the following judgments:-

• Commissioner of Income Tax vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195

If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount 21 ITA No. 404, 406 & 404/Agra/2012

of share money cannot be regarded as undisclosed income u/s 68 of the assessee company.

• CIT v. Stellar Investment Ltd. (1991)192 ITR 287(Delhi) Where the increase in subscribed capital of the respondent-company, accepted by the Income Tax Officer and rejected by the Commissioner on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares, with the help of formation of an investment, which was reversed by the Tribunal, the Delhi High Court held that even if it is to be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company.

The Order of the High Court is affirmed by the Hon'ble Apex court reported in 164 CTR 287.

• Commissioner of Income Tax vs Electro Polychem Ltd. reported at (2008) 217 CTR (Mad) 371

While dismissing the appeal of the revenue the Hon'ble High Court referred to the case of CIT v. Stellar Investment Ltd. (1991)192 ITR 287(Delhi) where the increase in subscribed capital of the respondent-company, accepted by the Income Tax Officer and rejected by the Commissioner on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares, with the help of formation of an investment, which was reversed by the Tribunal, the Delhi High Court held that even if it is to be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company.

• Commissioner of Income Tax vs First Point Finance Pvt. Ltd. reported at (2006) 286 ITR 477 (Raj)

Tribunal having found that the subscribers are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded, the amount of share capital/share application money could not be treated as unexplained cash credits and no addition could be made under s. 68. 22 ITA No. 404, 406 & 404/Agra/2012

• Barkha Synthetics Ltd. vs. Asstt. CIT 197 CTR (Raj) 432. Share applications are made by number of persons, may be in their own names or benami, but the fact that share applications received from different places accompanied with share application money on this only ground no presumption can be drawn that same belong to the assessee. Further the same cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown from assessee's own money.

• Commissioner of Income Tax vs Divine Leasing and Finance Ltd. (2008) 299 ITR 268 (Del)

There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of ss. 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound, to carryout thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company.

• Hon'ble Gauhati High Court in the case of CIT vs. Down Town Hospitals (P) Ltd reported in 267 ITR 439 has held "That regarding amounts received as share application moneys, the Tribunal had given a clear finding after appreciation of the materials on record that the assessee had filed the details regarding the source 23 ITA No. 404, 406 & 404/Agra/2012

of funds of the parties and their income tax file numbers before the AO. According to the Tribunal, the assessee had also submitted before the AO the confirmations from the creditors where full addresses income tax file numbers, etc, were given. The Tribunal was justified in deleting the addition of the sums from the income of the assessee"

• "Hon'ble Allahabad High Court in the case of M/s Jaya Securituies Ltd. Vs. CIT-II, Kanpur reported in 166 Taxmann Page 7, the head note of the judgment as under:

"Whether an addition u/s 68 can be made in respect of investment made by different persons in share capital of assessee company, limited by shares, whether public or private - Held no"

• Hon'ble ITAT Jodhpur Bench (Third Member) in the case of Uma Polymers (P) Ltd vs. DCIT Spl Range reported in (2006) 100 ITD Page 1, the head note of the judgment as under:

"Whether distinction between a public and a private limited company is not very material, as far as introduction of share capital money is concerned - Held yes - Whether in respect of share application money received from subscribers, assessee company has to prove only existence of person in whose name share application is received - held yes - Whether if identity of creditor is established, then burden to prove that money advanced by creditor did not belong to him but to somebody else is on revenue who has to find real subscriber and, if any share holder is found to have made unexplained investment, then addition of such investment is required to be made in hands of share holder and not in account of assessee - Held yes, Whether where assessee company had received share application money through banking channels and it had submitted detailed list of share holder, their GIR No. and Income Tax particulars and their bank statement, identity of share holders was fully established and. Therefore, no addition could be made in assessee's hands under section 68 on account of share application money - held yes".

• Hon'ble ITAT Agra Bench in the case of M/s Jai Hospitals & Research Centre (P) Ltd, Agra (ITA No. 160/A/2004) has held "Thus it becomes evidently clear that if the company establishes the identity of share applicants and that they have invested in shares, no such money can be added in company's hand u/s 68 as its undisclosed 24 ITA No. 404, 406 & 404/Agra/2012

income. In the given case the assessee company has established the identity and the investment by them in shares. In view of the above settled legal position, there is merits in the submission of the Ld. A.R. that since all the share holders have been identified on record by the assessee company, no addition on account of unexplained share capital can be made in the hands of the assessee company"

This order of Hon'ble ITAT Agra Bench has been affirmed by Hon'ble Allahabad High court.

xi) In the present case the assessee company has fully discharged the onus by not only proving/establishing the identity of the subscriber company but has also proved beyond doubt the creditworthiness and genuineness of the subscriber company and the amount received as share capital. It is a settled position of law that in case of cash credit u/s 68 of the Act the assessee is not required to prove the source of the source of deposit. Though in the present case the amount received as share application money is through banking channels and the earlier deposit in the bank account of the subscriber company is through clearing not cash.

xii) There are various judicial pronouncement in which it has been held that to discharge the onus as required in section 68 of the Act the assessee is not required to prove the source of the source. Reliance is placed on the following judgments:-

• Hon'ble Rajasthan High Court in the case of Aaravali Trading Co. vs. ITO reported in 8 DTR page 199, the headnote of the judgment as under:-

"Income - Cash credit - Burden of proof - Once the existence of the creditors is proved and such persons own the credit which are found in the books of the assessee, the assessee's onus stands discharged and the latter is not further required o prove the source from which the creditors could have acquired the money deposited with him either in terms of s. 68 or on general principle - Merely because the depositor's explanation about the sources of money was not accepetable to the A.O., it cannot be presumed that the depsoits made by the creditors is money belonging to assessee itself - If the creditor's explanation about the source of deposit is not found to be acceptable, the investment owned by such persons may be subjected to 25 ITA No. 404, 406 & 404/Agra/2012

proceeding for inclusion of the amounts as their income from undisclosed sources, or if they are found benami, the real owner can be brought to tax - In the absence of anything to establish that the sources of creditor's deposit flew from the assessee, the cash credit cannot be treated as unexplained income of the assessee"

• Hon'ble Supreme Court in the case of CIT vs. Daulat Ram Rawat Mull reported in 87 ITR 349 has held "The fact that B had not been able to give a satisfactory explanation regarding the source of Rs. 5,00,000/- would not be decisive even a matter as to whether B was or was not the owner of that amount. A person could still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money was found to be not correct".

• Hon'ble Gujarat High Court in the case of DCIT vs. Rohini Builders reported in 256 ITR 360 (Guj) has held "The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/Permanent Account Number and the copies of Assessment Order where ever readily available, that it had also proved the capacity of the creditors by showing that the amount were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not accepted to prove the genuineness of the cash deposited in the bank account of those creditors because under law the assessee can be asked to prove the source of credits in its books of accounts but not the source of the source.

SLP filed by the Department in the case of Rohini Builders has been dismissed (254 ITR [statute] 275)

• Hon'ble Gauhati High Court in the case of Nemi Chand Kothari vs. CIT and Another reported in 264 ITR 254 that "It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditors has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan 26 ITA No. 404, 406 & 404/Agra/2012

and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep it in the bank, the said amount cannot be treated as income of the assessee from undisclosed sources".

• Hon'ble Madhya Pradesh High Court in the case of CIT vs. Metachem Industries reported in 245 ITR 160 has held "Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income tax payer or not and where he had brought this money from, is not the responsibility of the firm"

• Hon'ble Patna High Court in the case of Sarogi Credit Corporation vs. CIT (1976) 103 ITR 344 has held "It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors, as in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case could not be accepted".

• Hon'ble ITAT Agra Bench in the case of Subhash Dall Mill vs. ACIT reported in 257 ITR 115 has held "The source of the source of the assessee's credit cannot be inquired by the Department". xiii) That in the Assessment Order the Assessing Officer has mentioned that in the so called statement Mr. Aseem Gupta has also stated the modus operandi that initially the cash is being received which is being deposited in the bank account opened in the name of M/s ABM Traders and M/s Surya Enterprises from where the money is routed in the bank account of the subscriber company and the amount received as share capital is infact the appellant's own money. In this regard the appellant respectfully submit:-

a) That during search at the business premises of the assessee and at the residential premises of the Director not a single paper/document or anything else was found for which inference can be drawn that the amount received as share capital was infact the appellant's own undisclosed and unexplained money routed through 27 ITA No. 404, 406 & 404/Agra/2012

the bank account of the concerns as mentioned in the Assessment Order.

b) That neither any material/document/paper was found during search indicating any undisclosed income of the assessee company nor in the assessment framed u/s 153A of the Act the Assessing Officer has held so. Declared business results has been accepted by the Assessing Officer hence it cannot be presumed that there is any other source of undisclosed income.

c) It is the duty of the Department to bring proper evidence on record to prove that it is the appellant's own money which has been routed in the form of share capital. In the present case the Assessing Officer has not discharged his burden but on the contrary has solely relied on the so called statement of Mr. Aseem Gupta which as per the facts and submission mentioned above is wrong, without any adverse material to hold so, not relates to relevant assessment year and in the absence of cross examination cannot be relied upon.

d) Hon'ble Supreme Court in the case of Kishin Chand Chella Ram vs. CIT (1980) 125 ITR 713 (S.C.) has observed that burden is on the Department to prove that the money belonged to the assessee by bringing proper evidence on record and the assessee could not be expected to call the concerned person in evidence to help the Department to discharge the burden that lay upon it.

e) Hon'ble Bombay High Court in the case of Smt. Panna Devi Chowdhary (1994) 208 ITR 849 (Bom.) has held that "Income-- Income from undisclosed sources--Burden of Proof--Receipt of amount--Burden of proving that receipt constituted income of assessee is on the revenue".

xiv) Though the order pronounced by the Apex Court happens to be the law of land and binding on all the authorities functioning in India still it is trite law that the order passed by the Jurisdictional Tribunal / High Courts are binding on all the tax authorities functioning under the jurisdiction of Tribunal / High Courts. In this regard, your goodself kind attention is drawn towards the following case laws wherein binding nature of the orders of the Tribunal / High Courts has been discussed: -

28 ITA No. 404, 406 & 404/Agra/2012

'K.N. Agarwal vs. CIT (1999) 100 CTR (All) 170: (1991) 189 ITR 769 (All)'

"Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts in a quasi -judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore it merely on the ground that the Tribunal's order is the subject matter of revision in the High Court or that the High Court's decision is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial indiscipline, which is not called for even in such cases. It would lead to a chaotic situation."

'Agrawal Warehousing and Leasing Ltd. Vs. CIT (2002) 257 ITR 235 (MP)'

"The orders passed by the Tribunal are binding on all the Revenue authorities functioning under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities shall be followed unreservedly by the sub- ordinate authorities."

'Union of India vs. Kamalakshi Finance Corporation Ltd., AIR 1992 SC 711; [1991] 55 ELT 433 (SC) emphasized (Page 712 of AIR 1992 SC)'

"It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the Department--in itself an objectionable phrase--and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, 29 ITA No. 404, 406 & 404/Agra/2012

the result will only be undue harassment to assessees and chaos in administration of tax laws."

xv) During the course of assessment proceedings all credible evidences were furnished before the Assessing Officer establishing the case of the assessee on merits. However, till the conclusion of the assessment proceedings the Assessing Officer has not been able to discredit any of the evidences brought on record. Addition has been made without any iota of evidences discrediting the evidence furnished by the assessee.

To Sum up the submission and the issue before your goodself:- i) Addition made without confronting with the statement, mentioned referred and relied in the Assessment Order and without allowing opportunity of cross examination is bad on facts and in law. ii) Addition has been made merely on the so called satisfaction of the Department.

iii) Addition being based on, as mentioned in the Assessment Order, some black dairy, the transaction noted therein which also as per Assessment Order does not pertain to the year under consideration.

iv) Evidences/documents brought on record were sufficient enough to discharge the burden that lay upon the assessee in terms of deeming provision of section 68 of the Act. On the basis of such evidence the courts throughout the country as well as Hon'ble Apex Court in plethora of cases has held accordingly as referred above. v) No addition is called for as not only the identity of the subscriber company is fully proved on the basis of evidence brought on record but the creditworthiness and genuineness is also proved though not required in the case where the assessee has to discharge the onus u/s 68 of the Act in the case of receipt of share capital. It is requested that the appeal may kindly be allowed as submitted above and as claimed in grounds of appeal."

6.1 The remand reports of the AO on the submissions made the by ld. AR for

both the years are identical except the names of the shareholders and the amounts.

Thus, to avoid duplication remand report pertaining to A.Y. 2007-08 is only being

reproduced here as under:

30 ITA No. 404, 406 & 404/Agra/2012

"Para 4 - Addition of Rs.8,50,00,000 made u/s.68 of the Act.

It is submitted that the addition of Rs.8,50,00,000 received as share application money during the year was rightly made in the hands of the assessee company as the assessee was not able to prove the genuineness and creditworthiness of M/s.KMC Portfolio Pvt. Ltd., Delhi.

During the course of survey proceedings in the office premises of Shri Aseem Gupta, CA a black diary was found the impounded. As per your kind directions a copy of black diary impounded from the office of Shri Aseem Gupta, Delhi and statement of Shri Aseem Gupta Delhi recorded during the course of survey proceedings u/s.133A of the I.T.Act, 1961 were obtained. A copy of the same was handed over to the assessee for confrontation. The assessee has submitted vide his reply dated 16.04.2012 that during the assessment proceedings u/s.153A these were not provided to him inspite of repeated requests. It may be submitted that at the time assessment proceedings Shri Aseem Gupta Delhi was summoned for confrontation with the assessee but due to shortage of time and involvement of Shri Aseem Gupta in time barring assessments at Delhi he could not come to Agra for confrontation. Now the assessee has pointed out the shortcomings in the statement of Shri Aseem Gupta and has again requested to provide opportunity of cross examination of Shri Aseem Gupta. As directed by your honour summons u/s.131(1) of the Act was issued to Shri Aseem gupta CA fixing the date for confrontation on 30.04.2012 at 11AM but again he did not attended and has sent a written submissions dated 27.04.2012 (copy enclosed) stating as under:

'In this regard it is submitted that as per the best of memory undersigned has not made any transaction during A.Y. 2004-05 to 2010-11 with any Vacmet Groups, Agra or other means he has no knowledge about the said groups. Further if your goodself possessed any specific information, which indicates my connection with the above groups, may kindly be provided to the undersigned, so that compliance thereof may be made to your office for early disposal of the proceedings if any pending before your goodself. Further undersigned is the practicing Chartered Accountant and possibility of any transaction with 31 ITA No. 404, 406 & 404/Agra/2012

the above groups by my any client cannot be ruled out. However, it is again sure and confirm that I have not done any transaction directly with the above groups during A.Y. 2004-05 to 2010-11. Hence, without exact details of transaction undersigned is unable to submit any information and also ther is no use to appear before your goodself without any documents, as your summons is also not contained any specific list of documents required for disposal of the above proceedings. In the light of above submission you are requested to kindly take into consideration the above submission place the same on record, either withdraw the summons issued against me or provide me the detail / documents possessed by your goodself indicating the transaction done by me with the above groups during A.Y. 2004-05 to 2010-11.'

From the above submissions Shri Aseem Gupta CA at Delhi, it appears that he is avoiding appearance in this office for confrontation as during his statement at Delhi he has stated that he has provided entry of share application money to the Vacmet Group and now has shown his ignorance."

6.2 In the rejoinder to the remand report, the assessee further submitted as

under:

"1.1 The Assessing Officer in the remand report at page 1 last para has mentioned that the addition has been rightly made as the assessee was not able to prove the genuineness and creditworthiness of the companies from whom share capital has been received.

1.2 In this regard it is submitted that detailed submission has already been filed before your goodself vide written submission dated 29.03.2012 from which it is conclusively proved that the assessee fully discharge his onus of proving the genuineness and creditworthiness which cast upon the assessee as per the provisions of section 68 of the Act.

32 ITA No. 404, 406 & 404/Agra/2012

1.3 Assessee company once again wish to invite your goodself kind attention to the document filed before the Assessing Officer, the enquiries made by the Assessing Officer and the submission made, though the same has already been filed in the written submission dated 29.03.2012 filed before your goodself:-

i) Kindly refer Page 7 of written submission para 4.3 (iii) ii) Kindly refer Page 8 of written submission para 4.5 iii) Kindly refer Page 9 of written submission para 4.6, 4.7 and 4.8 iv) Kindly refer Page 10 of written submission para 4.12

2. Re: Black Dairy

2.1 As per the direction of your gooself, copy of one page of black dairy and copy of three statement of Mr. Assem Gupta has been given by the Assessing Officer though the same were not provided during the course of assessment proceedings u/s 153A of the Act inspite of repeated request made several times.

2.2 That before making the submission on the statement of Shri Aseem Gupta and on the page given from black dairy, as per the Assessing Officer, we would like to draw your goodself kind attention to the important facts:-

i) That right from the date of search till the assessment is completed the assessee on being asked repeatedly either by the search officer or by the Assessing Officer submitted that the assessee company or its Directors has neither any relationship with Shri Aseem Gupta nor the Director of the companies even know who is Shri Aseem Gupta nor there are any transaction either of the assessee company or of its Directors with this person named Shri Aseem Gupta.

ii) That vide written submission dated 19.12.2011filed before the Assessing Officer specific request was made that if there is any adverse or contrary evidence against the assessee company in the possession of the Assessing Officer then kindly provide us the copy of the same in case of documentary evidence so that we can rebut the same and an opportunity to cross examine may also be provided in view of natural justice 33 ITA No. 404, 406 & 404/Agra/2012

in the case of personal statement of any person against the facts submitted by us.

iii) Further Shri Dinesh Chand Agarwal Managing Director of the assessee company in his statement recorded by the Assessing Officer during the course of assessment proceedings u/s 153A of the Act on 21.12.2011 clearly stated that he does not know Shri Aseem Gupta nor he/or assessee company has any transaction with Shri Aseem Gupta and further specific request was made to provide opportunity of cross examination of Shri Aseem Gupta.

iv) That before the completion of assessment u/s 153A of the Act the Assessing Officer neither provided the statement of Shri Aseem Gupta and the so called Black Dairy nor opportunity of cross examination was allowed which clearly violates the principle of natural justice as the addition in the Assessment Order is entirely based on the statement of Shri Aseem Gupta and the so called Black Dairy ignoring the facts of the case and the document filed before your goodself. It is not out of place but rather important to mention here that before making addition u/s 68 of the Act, no show cause notice was given by the Assessing Officer either in the order sheet or by way of separate notice as regards the Assessing Officer intention of making addition. Thus no opportunity was provided to the assessee company.

2.3 Copy of three statements of Shri Aseem Gupta has been provided. Two statement are dated 26.03.2010, one recorded at 9:15 A.M, place not mentioned where this statement has been recorded. Another statement dated 26.03.2010 recorded at 2D, DDA Flats, Gulabi Bagh, New Delhi. This statement is typed statement whereas the statement recorded by the officer of the Department is always hand written. Third statement is dated 22.04.2010 recorded by the ADIT, Intelligence Wing, New Delhi at his office is also typed statement. On perusal of this statement which is taken after one month by the Intelligence Wing it seems that the statement has been recorded forcefully for admission by Shri Aseem Gupta to have provided accommodation entry to M/s Vacmet Packaging (India) Pvt. Ltd. to justify the search action in the case of the assessee company as during 34 ITA No. 404, 406 & 404/Agra/2012

the course of search at the premises of assessee company or its Directors no incriminating material was found from which any adverse opinion can be drawn.

In the statement dated 26.03.2010 recorded at 9:15A.M a) Shri Aseem Gupta at Page 9 has stated that I am Director in certain companies, the names of the companies has been mentioned in the statement in which one of the company name is M/s Ganpati Fincap Services (P) Ltd. The assessee company during the course of assessment proceedings asked the present Director of M/s Ganpati Fincap Services (P) Ltd. (Investor Company) about Shri Aseem Gupta. They informed that the person of the name Shri Aseem Gupta has never been the Director of M/s Ganpati Fincap Services (P) Ltd since its incorporation.

b) No where in this statement the name of M/s Vacmet Packagings (India) Pvt. Ltd and M/s Vacmet Finance & Investment Ltd has been mentioned.

c) Thus this statement is not at all relevant to the facts of the case of the assessee company and no adverse inference can be drawn from this statement.

Re: Statement dated 26.03.2010 recorded at Survey proceedings u/s 133A of the Act.

--------------------------------------------------------------------------------- a) Nothing adverse against the assessee can be drawn from this statement as no where in this statement name of M/s Vacmet Packagings (India) Pvt. Ltd and M/s Vacmet Finance & Investment Ltd is mentioned.

Re: Statement recorded on 22.04.2010

a) In this statement Shri Aseem Gupta has stated that entry totaling Rs. 5 Crore has been given by my companies either M/s KMC Portfolio (P) Ltd or M/s Ganpati Fincap Services (P) Ltd, the details of which are given in the separate sheet provided to the assessee.

b) On perusal of statement of Shri Aseem Gupta in reply to the notings mentioned in the separate sheet it is very much clear that the said statement is wrong, not applicable to the facts of the assessee's 35 ITA No. 404, 406 & 404/Agra/2012

case and the question arises, for the following reasons, that under why and what circumstances he has given such statement.

i) Shri Aseem Gupta who has stated, as per the Department to have provided accommodation entry to the assessee company is not the Director of the companies named M/s KMC Portfolio (P) Ltd or Ganpati Fincap Services (P) Ltd then how and why he has stated the word " my companies".

ii) He is not sure that from which company the amount has been given on the dates as mentioned on the separate sheet as in his statement he has stated either from M/s KMC Portfolio (P) Ltd or M/s Ganpati Fincap Services (P) Ltd.

iii) On the dates mentioned in the separate sheet no amount has been received by the assessee company either from M/s KMC Portfolio (P) Ltd or from M/s Ganpati Fincap Services (P) Ltd as has been stated by Shri Aseem Gupta.

Thus this statement is wrong and no adverse inference can be drawn on this statement.

iv) That on inspection of the file it is seen that your goodself during the course of assessment proceedings u/s 153A of the Act issue notice u/s 133(6) of the Act to Shri Aseem Gupta in response to which he sent his submission stating that "I have not done any share transaction as regards purchase and sale during the caption assessment year with the company M/s Vacmet Packaging (India) Pvt. Ltd".

2.4 That in the remand report at page 2 the Assessing Officer has reproduced the contents of the letter dated 27.04.2012 sent by Shri Aseem Gupta directly to the Assessing Officer. On perusal of the same it will be seen that again vide said letter he has denied having made any transaction with Vacmet Group during A.Y. 2004-05 to 2010- 2011. That considering the overall facts of the case as submitted above and as submitted vide written submission dated 29.03.2012 and his subsequent denial of having any transaction with Vacmet Group, the statement of Mr. Aseem Gupta recorded earlier neither be relied upon nor any adverse inference can be drawn.

36 ITA No. 404, 406 & 404/Agra/2012

2.5 That without prejudice to the submission made vide earlier written submission dated 29.03.2012 and as mentioned above it is further submitted that on the page given from the black dairy, as per the Assessing Officer, the transaction noted does not relates to the year under consideration. The Assessing Officer during the course of hearing before your goodself has conceded this fact that the transaction as noted in the impugned page relates to F.Y. 2004-05 and the addition in the year under consideration has been solely made on the basis of this page from the black dairy."

6.3 The ld. CIT(A), considering the submissions of the assessee in the light of

the material on record deleted both the additions in both the assessment years and

allowed the appeals of the assessee. The findings of the ld. CIT(A) in the appellate

order in para 3.4 are reproduced as under :

"3.4 I have gone through the assessment orders, submissions made by the ld. AR, remand report of the AO and the counter comments of the ld. AR on the remand reports of the AO. To prove the genuineness of the amounts received on account of allotment of shares to the following companies i.e. (i) M/s.KMC Portfolio Ltd. - Rs.8,50,00,000 for A.Y. 2007-08 and (ii) M/s.Ganpati Fincap Services (P) Ltd., Delhi - Rs.5 crore for A.Y. 2008-09 the assessee had filed the following documents in support of its claim during the assessment proceedings :

(i) Share application forms

(ii) Copies of bank account of share applicants

(iii) copies of I.T. returns of the share allottees alongwith the balance sheets.

(iv) copies of share allotment certificates

(v) copies of Board resolution of the share applicants

It is well settled postion of law that initial burden lies on the assessee to explain the nature and source of the share application 37 ITA No. 404, 406 & 404/Agra/2012

money received by the assessee. It is also well settled that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. The initial onus of proving these ingredients which lies on the assessee is not static. Once the assessee proves the identity of the share applicants furnishing their PANs and copies of bank accounts and shows the genuineness of the transaction by showing that money in the banks is by account payee cheques or by draft etc. then the onus to prove the transaction as non-genuine will shift to the department. In the appellant's case no discrepancy has been pointed out by the AO in the documents submitted by the assessee neither in the assessment order nor in the remand report submitted during the appellate proceedings. The AO has heavily relied on the statement of Shri Aseem Gupta made by him on 22.04.2010 before ADI(Intelligence)-III, New Delhi wherein he had stated when confronted with Annexure No.20(Black Diary) that these entries pertain to M/s.Vacmet Packaging (India) Pvt. Ltd. But, during the assessment proceedings the AO sent a notice to Shri Aseem Gupta u/s.133(6) of the Act in response to which Shri Aseem Gupta sent a reply dated 29.11.2011 stating as under:

"This has reference to your notice dated 18.11.2011 received on 28.11.2011 in connection with the captioned subject wherein your goodself has asked certain information with regard to the purchase/allotment of shares with Vacmet Packaging India Pvt. Ltd. for A.Y. 2004-05 till 2010-11.

In this regard, I would like to submit that I have not done any share transactions as regards purchase and sale during the captioned assessment yers with the company M/s.Vacmet Packaging India Pvt. Ltd., and hence no copy of account is available as such.

Hope the above clarifies the querry raised by your goodself vide the said notice. Please let me know in case any other information is required in this behalf."

The noting made on Annexure A-20 (Black Diary) are reproduced as under:

38 ITA No. 404, 406 & 404/Agra/2012

"Vacmet Packaging (India) Pvt. Ltd.

Anant Plaza, IInd Floor

4/117-2A, Civil Lines,

Church Road, Agra - 282002

10 + 90

332711 - 15.02.05 - 50,00,000

332701 - 15.02.05 - 50,00,000

332710 - 11.02.05 - 50,00,000

332724 - 18.02.05 - 25,00,000

75 - - - 25,00,000

203350 - 22.02.05 - 50,00,000

332712 - 22.02.05 - 50,00,000

332726 - 25.02.05 - 25,00,000

332713 - 3.3.05 - 50,00,000

332732 - 07.03.05 - 50,00,000

332714 - 11.03.05 - 50,00,000

332738 - 14.03.05 - 25,00,000

5,00,00,000"

From the above, it is clear that these entries relate to A.Y. 2005-06 and not to the years under consideration i.e. A.Y. 2007-08 & 2008-09. During the assessment proceedings u/s.153A the AO had issued notices u/s.133(6) to both these companies i.e. M/s.KMC Portfolio (P) Ltd. and M/s.Ganpati Fincap Services (P) Ltd. and in response to which both these companies had confirmed the investments made by them and they also filed share receipt confirmation, bank statement of the relevant period, income-tax return acknowledgement and balance sheet. But, the AO has chosen to keep silent and has offered no comments pointing out any defects / lacunae in the evidences / documents filed by the appellant or by the investors in the shares. Nothing comes out from the reading of the assessment orders or from the remand reports of the AO that anything incriminating was found during the search of the assessee's premises. There is not even a whisper to that effect in the assessment orders. Shri D.C. Aggarwal director of the company had along been denying in his statement recorded during the search as well as before the AO that he had not known Shri Aseem Gupta and had no dealings with him. The AO has relied on the entries made in the black diary (Annexure -20), the contents of which as already stated pertain to 39 ITA No. 404, 406 & 404/Agra/2012

assessment year 2005-06. As the assessee was not confronted with the statement of Shri Aseem Gupta, keeping in view the principles of natural justice, the AO was directed to give a copy of statement of Shri Aseem Gupta to the appellant and if it wanted to cross examine Shri Aseem Gupta as was demanded before the AO also during the assessment proceedings the same should be allowed. Accordingly, the AO obtained the photocopy of the black diary and statement of Shri Aseem Gupta from ACIT, Central Circle-9, New Delhi that goes to show that at the time of assessment the AO was not in possession of photocopies of black diary as well as statement of Shri Aseem Gupta. The AO issued summons u/s.131 to Shri Aseem Gupta for providing opportunity of cross examination to the appellant. In response to the summons issued Shri Aseem Gupta wrote a letter dated 27.04.2012 stating as under:

'In this regard it is submitted that as per the best of memory undersigned has not made any transaction during A.Y. 2004-05 to 2010-11 with any Vacmet Groups, Agra or other means he has no knowledge about the said groups. Further if your goodself possessed any specific information, which indicates my connection with the above groups, may kindly be provided to the undersigned, so that compliance thereof may be made to your office for early disposal of the proceedings if any pending before your goodself. Further undersigned is the practicing Chartered Accountant and possibility of any transaction with the above groups by my any client cannot be ruled out. However, it is again sure and confirm that I have not done any transaction directly with the above groups during A.Y. 2004-05 to 2010-11. Hence, without exact details of transaction undersigned is unable to submit any information and also there is no use to appear before your goodself without any documents, as your summons is also not contained any specific list of documents required for disposal of the above proceedings. In the light of above submission you are requested to kindly take into consideration the above submission place the same on record, either withdraw the summons issued against me or provide me the detail / documents possessed by your goodself indicating the transaction done by me with the above groups during A.Y. 2004-05 to 2010-11.'

40 ITA No. 404, 406 & 404/Agra/2012

Thus, it will be seen that Shri Aseem Gupta has contradicted his own statement dated 22.04.2010 by stating that he has not entered into any transaction with the assessee. The assessee could also not be provided with the opportunity of cross-examining Shri Aseem Gupta. In the case of Kishanchand Chellaram vs. CIT (125 ITR 137 ) Mad (1) it has been held that though the proceedings before the I.T. authorities are not governed by the strict rules of evidence, however, before the I.T. authoritites could rely upon a piece of evidence, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross - examine the person with reference to statement made by him. As the appellant has not been given the opportunity to cross-examine Shri Aseem Gupta who is department's witness coupled with the fact that he has contradicted his own statement dated 22.04.2010 atleast on two occasions as stated above, therefore, the statement made on 22.04.2010 looses its evidenciary value and cannot be used against the appellant for making the addition. Now coming to the pertinent question as to what kind of proof is required to be submitted by the assessee to discharge its onus to prove the genuineness of credits as appearing in its books of accounts, the Hon'ble Delhi High Court in the case of Divine Leasing & Finance Ltd. 207 CTR (Del.) 38 held as under:-

"15. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessed it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the AO for his perusal, all the informations contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tight-rope of ss.68 and 69 of the I.T. Act. The burden of proof 41 ITA No. 404, 406 & 404/Agra/2012

can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough

investigations. But, if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company."

In the case of CIT vs. Sophia Finance Ltd. 113 CTR (Del.) FB 472, the Hon'ble Delhi High Court held that if the explanation preferred by the assessee is found not to be satisfactory, further enquiries can be made by the AO himself, both in regard to the nature and the source of the sum credited by the assessee in its books of accounts, since the wording of section 68 is very wide. The Full Bench also opined that if the shareholders exist then, possibly no further enquiry need be made. The hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. 216 CTR (SC) 195 while dealing with the issue of share capital, though in brief held as under:

"2. Can the amount of share money be regarded as

undisclosed income under s.68 of I.T. Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned

judgement...................."

Now coming to the question as to when the assessee has discharged its initial burden when the ball again can be thrown into assessee's court demanding the assessee to give some more proofs, as the documents produced earlier by the assessee either become suspect or are rendered insufficient in view of the material produced by the AO rebutting the assessee's documentary evidence. In this regard, a useful reference can be made to the case of CIT vs. Kundan Investment Ltd. 182 CTR (Cal.) 608 wherein the Hon'ble Calcutta High Court observed as under:

42 ITA No. 404, 406 & 404/Agra/2012

".................... Under s.68, the ITO is empowered to lift the veil of corporate identity and find out as to whether the apparent is real. It is the assessee on whom the onus lies. Unless sufficient materials are produced, the onus does not shift on the Revenue. But once the materials are scrutinized and the result of the scrutiny is communicated to the assessee, the onus shifts from the Revenue to the assessee. Then the assessee has to take appropriate steps for proving its case. Unless there are sufficient materials after such communication, produced by the assessee, the ITO can do no further."

With this legal position again adverting to the facts of the case, it is a fact that the share applicants are companies incorporated under the Indian Companies Act. As these are incorporated under the Companies Act, atleast on paper their identity is established. However, it is a matter of record that both these companies i.e. M/s.KMC Portfolio (P) Ltd. (A.Y. 2007-08)and M/s.Ganpati Fincap Services (P) Ltd. have confirmed having subscribed the shares in response to notice issued by the AO during the assessment proceedings u/s.153A. It is also uncontroverted fact that these companies have PANs and are filing their I.T. returns. The appellant which has received share application money has produced documents in the form of share applicant forms, share allotment letter, IT returns, copies of bank accounts through which the funds were transferred. Thus, the assessee has discharged its onus. No discrepancy has been pointed out by the AO at any stage with regard to documents / proof submitted by the assessee to prove its case. Thus, the onus never shifted back to the assessee. As regards the statement of Shri Aseem Gupta dated 22.04.2010 wherein he had indicted M/s.Vacmet Packaging (India) Ltd. of having received accommodation entries, I have already held that it has no evidenciary value. As far as contents of Annexure A-20 (black diary) are concerned they don't pertain to the assessment years under consideration as is clear from the notings which have been reproduced above that these pertain to A.Y. 2005-06 and the same cannot be made the basis for making additions in A.Yrs. 2007-08 and 2008-09. Thus keeping in view the facts of the case and the legal position as discussed above, I hold that the AO was not right in making the additions and the same are deleted."

43 ITA No. 404, 406 & 404/Agra/2012

7. The ld. DR relied upon the order of the AO and referred to the statement of

Shri Aseem Gupta, Chartered Accountant recorded by the Revenue authorities,

copies of which are filed in paper book to show that Shri Aseem Gupta, C.A.

admitted that he controlled the management of the Companies from where

accommodation entries have been given. PB-254 is the copy of the seized black

diary, which has pointed out the modus operandi by referring to 10 + 90. Though

Shri Aseem Gupta denied having entered into the transaction in his personal

capacity, but the entire statement would reveal that the modus operandi is to

provide accommodation entries. The Statement of Shri D.C. Agarwal (MD of the

assessee) was also recorded but he was not aware of various functioning of the

AGM and maintenance of records and Board's Resolution etc. The ld. DR referred

to the balance sheet from ITA No. 404/Agra/2012 to show that there was a

negative balance sheet and the profit was meager though the share premium was

Rs.3.36 lacs in earlier year, but nothing is clarified as to why M/s. KMC Portfolio

(P) Ltd. made investment in shares in a sum of Rs.8.50 crores. He has submitted

that these companies in question were giving cheques only or funds from other

companies. Their financing capacity is not explained and since the assessee is the

beneficiary, therefore, the addition was rightly made in the case of the assessee.

The ld. DR relied upon the decision of Hon'ble Delhi High Court in the case of

CIT vs. Nova Promoters and Finlease Pvt. Ltd., 342 ITR 169, in which the findings 44 ITA No. 404, 406 & 404/Agra/2012

of the Tribunal were based on irrelevant material or had been entered ignoring

relevant material. Therefore, on consideration of the material on record, the order

of the Tribunal in deleting the addition on account of share capital was set aside

and the departmental appeal was allowed. The ld. DR submitted that even if diary

was obtained at the appellate stage, but this was not the sole basis for making

addition against the assessee. Similarly, the statement of Shri Aseem Gupta was

though obtained at the appellate stage, but again the addition is not made solely on

his statement, but on the basis of incriminating material on record and on

examination of the appraisal report. The additions were made because both the

companies are entry providing companies only as per appraisal report and their

balance sheet only shows that they were companies on papers. After search, lot of

material came to the notice of the department. So even if in the earlier year in the

case of sister concern, the order was passed u/s. 143(3) is not enough to delete the

addition. The statement of Shri DC Agarwal did not provide relevant statutory

records, would lead to inference that relevant material was not produced before the

AO to discharge the onus to prove genuine transaction of share application money

u/s. 68 of the IT Act.

8. On the other hand, the ld. Counsel for the assessee reiterated the submissions

made before the authorities below, copies of which are filed in the paper book. He 45 ITA No. 404, 406 & 404/Agra/2012

has also relied upon all the decisions cited before the ld. CIT(A), copies of which

are also filed in the paper book. He has referred to PB-254, which is copy of seized

diary to show that no other material was found during the course of search and all

the entries contained in the diary pertain prior to March, 2005. Therefore, the same

would fall in assessment year 2005-06 and did not pertain anything to assessment

years under appeals. Therefore, the diary is not relevant to the matter in issue. PB-

224 is the order sheet dated 29.03.2012 of the office of CIT(A) in which the

CIT(A) directed the AO to confront the contents of black diary to the assessee

along with statement of Shri Aseem Gupta and also directed to provide right of

cross examination to the assessee, but no cross examination was allowed to the

statement of Shri Aseem Gupta. PB-215 is the remand report of the AO dated

01.05.2012, in which he has explained that the diary and statement of Shri Aseem

Gupta have been obtained now, which have been handed over to the assessee for

confrontation. It was proved that the AO obtained the black diary and statement of

Shri Aseem Gupta only in the remand proceedings so the same could not be read in

evidence against the assessee at the assessment stage. The AO passed the regular

assessment order u/s. 143(3) in the case of the same assessee in preceding

assessment year 2005-06 on dated 30.12.2011, but did not make any addition of

any unexplained share capital against the assessee. Therefore, the seized diary and

statement of Shri Aseem Gupta would not be relevant to the matter in issue. He has 46 ITA No. 404, 406 & 404/Agra/2012

further submitted that there was no share capital from both these companies in

assessment year 2005-06 would also prove that the contents of the diary were

fabricated. PB-229 is the order sheet of AO dated 19.12.2011 where the AO has

verified all the facts of share capital and thereafter did not provide any opportunity

to the assessee. Therefore, the addition is unjustified. PB-219 is the explanation of

the assessee before the ld. CIT(A), in which it was explained that the name of the

assessee has not been mentioned in the statement of Shri Aseem Gupta. Therefore,

none of the statements are relevant to the matter in issue under appeals. He has

submitted that the AO asked the explanation about the relationship of assessee with

Shri Aseem Gupta, which was denied. The detailed reply was filed before the ld.

CIT(A) on the matter in issue from PB-7 onwards to satisfy that the addition is

unjustified. Since no right to cross examination has been given to the statement of

Aseem Gupta, therefore, it could not be read in evidence against the assessee. PB-

195 is the order sheet dated 14.12.2008 in the case of sister concern, M/s. Vacmet

Finance and Investments Co., Agra (in ITA No. 404/Agra/2012) and in their

assessment for the assessment year 2006-07, the AO did not make similar addition

vide order u/s. 143(3) dated 29.12.2008. He has submitted that the facts are same

in the case of M/s. Ganpati Fincap Services Pvt. Ltd., in which share application

forms are filed in PB-75 to 88, bank statement (PB-89 to 93), PB-95 is share

certificates, PB-97 to 98 are the replies of the assessee. PB-99 is confirmation by 47 ITA No. 404, 406 & 404/Agra/2012

share applicant and PB-100 to 103 are share application forms. PB-125 to 128 are

the details furnished before the Registrar of Companies. PB-152 is the notice of the

AO to the share applicants u/s. 133(6), which was duly replied and transaction was

confirmed directly to the AO and all confirmations, copy of bank account and

share certificates were filed to prove the genuineness of the share application

money. Similar confirmations were made in the case of M/s. KMC Portfolio Ltd.

u/s. 133(6) directly to the AO along with all the documents. He has, therefore,

submitted that the ld. CIT(A) on proper appreciation of facts and material on

record rightly deleted the addition.

9. We have considered the rival submissions, gone through the material on

record. The assessee had filed all the documentary evidences before the AO in

order to prove the genuine share application money, i.e., share application forms,

copies of bank accounts of share applicants, copies of IT returns of share allottees

along with their balance sheets, copies of share allotment certificates and copies of

Board's Resolution of share applicants. Thus, the assessee proved the identity of

the share applicants, which is supported by the copies of PAN as well as

registration with the Registrar of Companies. The financial capacity is proved by

filing the copies of bank accounts from where the share application money was

transferred through banking channel to the assessee. The genuineness of the 48 ITA No. 404, 406 & 404/Agra/2012

transaction has been established by filing the entire documents to the satisfaction

of the AO and further the transactions have been confirmed by both the companies

by filing their replies before the AO to the notices u/s. 133(6) of the IT Act. The

AO has not pointed out any discrepancy in the documents filed by the assessee and

the replies filed by the companies directly to the AO u/s. 133(6) of the IT Act.

9.1 The department heavily relied upon the statement of Shri Aseem Gupta,

C.A. in which in initial statement, he has not named the assessee and later on it

came on record that his statement was never brought on record of the AO at the

assessment stage, which was obtained by the AO as per the directions of the ld.

CIT(A) at the appellate stage. Therefore, when his statement was not before the

AO at assessment stage, there was no reason to rely upon the same statement

against the assessee for making the huge addition. Further, it is established on

record that when the statement of Shri Aseem Gupta was obtained at the appellate

stage by the AO in the remand proceedings, Shri Aseem Gupta was never

produced before the AO for cross examination on behalf of the assessee.

Therefore, his statement cannot be read in evidence against the assessee unless the

assessee had been given opportunity to cross examine Shri Aseem Gupta. The AO

also called explanation of Shri Aseem Gupta u/s. 133(6) and Shri Aseem Gupta

filed his reply directly before the AO and denied to have executed any share 49 ITA No. 404, 406 & 404/Agra/2012

transaction between the assessee and the share applicant companies. Therefore, it

could not be treated as having any evidentiary value against the assessee for

making the addition. Similarly, annexure A-20 (black diary) was not before the AO

at the assessment stage which was also obtained by the AO at the remand

proceedings, copy of which is filed in the paper book to indicate that the

transaction recorded therein pertained to February and March, 2005, which is

relevant to the assessment year 2005-06 only. The assessee in his written

submissions categorically submitted that even in assessment year 2005-06, no

share capital has been received from M/s. KMC Port Folio Pvt. Ltd. and M/s.

Ganpati Fincap Services Pvt. Ltd., nor any such addition has been made by the AO

against the assessee of the amount mentioned in the diary even in regular

assessment u/s. 143(3)/153A of the IT Act dated 30.12.2011 for assessment year

2005-06. Therefore, the diary is not relevant to the assessment year under appeals,

i.e., 2007-08 and 2008-09. It is also established on record that during the

assessment proceedings, the AO issued notice u/s. 133(6) to both these companies

and both the companies directly confirmed the transaction with the assessee in

their reply filed before the AO, which is supported by their confirmations, bank

statements, Income-tax Returns and the balance sheets. No other incriminating

material are found in search against the assessee. Merely because Shri DC Agarwal

could not provide relevant information in his statement, would not be a ground to 50 ITA No. 404, 406 & 404/Agra/2012

make addition against the assessee regarding AGM and other procedures of the

assessee company. Further, in the case of sister concern M/s. Vacmet Finance and

Investment Ltd., the AO passed order u/s. 143(3) on dated 29.12.2008 for the

assessment year 2006-07 in which the share application money of M/s. KMC

Portfolio Pvt. Ltd. have been accepted by the AO after due verification of the facts.

Therefore, similar addition could not be made against the assessee. Considering the

entire material on record in the light of findings of authorities below, we find that

the assessee has been able to prove that both the share applicants are companies

incorporated under the Indian Companies Act and both are also assessed to tax.

Therefore, their identity is not in dispute. They have filed their bank accounts and

balance sheets where all the transactions have been recorded and were also

reported to the Registrar of Companies. There were sufficient bank balances

available in their bank accounts and both these companies confirmed the

transactions with the assessee directly to the AO u/s. 133(6) of the IT Act. The

assessee also produced on record that these companies filed applications for

allotment of shares and ultimately, the shares of the assessee were also allotted to

them on making investment in shares. Therefore, evidence and material on record

clearly prove the identity of both the share applicant companies, their

creditworthiness and genuineness of transactions in the matter. All the decisions

cited by the ld. Counsel for the assessee before the ld. CIT(A) clearly support the 51 ITA No. 404, 406 & 404/Agra/2012

findings of ld. CIT(A) in deleting the addition. The ld. CIT(A) was, therefore,

justified in relying upon the decision of Hon'ble Delhi High Court in the case of

Divine Leasing and Finance Ltd. (supra) and Sophia Finance Ltd. (supra) and the

judgment of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd.

(supra). The ld. Counsel for the assessee during the course of arguments also relied

upon the order of ITAT, Agra Bench in the group cases of M/s. LDK Shares and

Securities Pvt. Ltd. etc. in ITA No. 355/Agra/2010 etc. vide order dated

20.10.2011 where on the basis of overwhelming evidences as have been furnished

in the case of present assessee, the departmental appeals were dismissed. Copy of

the order is placed on record. It is also stated that the said decision of the Tribunal

has been confirmed by the Hon'ble Allahabad High Court in group cases of ITA

No. 487/Agra/2012 vide order dated 05.04.2012. Copy of the judgment of Hon'ble

High Court is also placed on record. In view of the above facts in the light of

judgments cited before the ld. CIT(A) and the judgment of Hon'ble jurisdictional

High Court above, we do not find any infirmity in the order of the ld. CIT(A) in

deleting the addition in both the assessment years under appeals. The facts in the

case of Nova Promoters and Finlease Pvt. Ltd. (supra) relied upon by the ld. DR

are clearly distinguishable. In the present case before us, the ld. CIT(A) had

considered all the relevant material before arriving at the just decision in the

matter. Therefore, the findings of the ld. CIT(A) cannot be faulted with. In view of 52 ITA No. 404, 406 & 404/Agra/2012

the above discussion, we do not find any merit in the departmental appeals. The

same are, accordingly, dismissed. In the result, ITA No. 405 & 406/Agra/2012 are

dismissed.

ITA No. 404/Agra/2012 (Assessment year : 2006-07):

10. This appeal by the Revenue is directed against the order of ld. CIT(A)-II,

Agra dated 11.05.2012 for the assessment year 2006-07, challenging the deletion

of addition of Rs.11 crores made on account of unexplained cash credits u/s. 68 of

the IT Act.

11. Both the parties stated that the issue is same as is considered in ITA Nos.

405 & 406/Agra/2012 above. The facts of the case, submissions of the parties and

findings of the ld. CIT(A) are same as have already been considered in the case of

M/s. Vacmet Packagings (India) Pvt. Ltd. (supra). In this case also, on the same

day search and survey operation was carried out. The statement of Shri Aseem

Gupta, CA was recorded. Similar black diary was impounded. The AO on the same

basis concluded that since Shri Aseem Gupta, CA had admitted that he was

indulged in providing accommodation entries and he also furnished the names of

all the beneficiaries and accordingly, the AO made the addition on account of share

capital received from the following persons :

53 ITA No. 404, 406 & 404/Agra/2012

S.No. Name of company who Name of company Period Amount of have given entry who have taken entry (A.Y.) accommodation entry

1. M/s.Moderate Credit M/s.Vacmet Finance 2006-07 Rs.6 crore Corporation Ltd., Delhi & Investments Ltd.,

Agra

2. M/s.Rav Net Solutions M/s.Vacmet Finance 2006-07 Rs.2 crore (P) Ltd., Delhi & Investments Ltd.,

Agra

3. M/s.KMC Portfolio (P) M/s.Vacmet Finance 2006-07 Rs.3.10 crore Ltd., Delhi & Investments Ltd.,

Agra

The assessee made similar written submissions, which is incorporated in the

appellate order and the ld. CIT(A) giving same reasons for decision deleted the

addition. The ld. CIT(A) as far as the contents of Annexure A-20 (black diary) are

concerned, found that they do not pertain to the assessee and accordingly, appeal of

the assessee was allowed.

12. Both the parties stated that since the issue is same as has been considered in

the case of M/s. Vacmet Packagings (India) Pvt. Ltd. (supra), therefore, findings in

that case may be followed. The ld. Counsel for the assessee referred to all the

documents in the paper book in respect of the three companies in support of the

contention that the share application money was genuine. The same documents

filed in the paper book are application forms for issue of shares, share certificates, 54 ITA No. 404, 406 & 404/Agra/2012

acknowledgement of returns, balance sheets, bank statements, confirmations of

share applicant companies, Board's Resolution and information given to the

Registrar of Companies and further all the companies who have applied for share

certificates were given notice u/s. 133(6), which were responded to by all the three

companies and they filed their replies before the AO along with their

confirmations, bank statements, share applications, share certificates and balance

sheets and have confirmed giving amount to the assessee through banking channel

for issue of share capital. The ld. DR in addition to the arguments already made

also referred to the bank statement to show that sometimes cheques were returned

because time did not match and thereafter cheques were issued to the assessee

company. The ld. DR also relied upon 26 Taxman.com 235. Apart from the above

submissions on merits, the ld. Counsel for the assessee also submitted that in the

assessment year under appeal 2006-07, the AO made the assessment u/s. 153A of

the IT Act on 30.12.2011 because the search was conducted on 26.03.2010 and on

the identical issue prior to assessment order passed u/s. 153A of the IT Act, the AO

scrutinized original return of the assessee for the same assessment year 2006-07

and passed the regular assessment order u/s. 143(3) on dated 29.12.2008 and after

making due enquiries with regard to share capital amount, accepted the claim of

the assessee. In support of his contention, he has referred to PB-69, which is the

statement of Shri R.K. Raj of M/s. Rav Net Solutions Pvt. Ltd., Delhi, recorded by 55 ITA No. 404, 406 & 404/Agra/2012

the AO at the original assessment stage on 14.12.2008, in which he has confirmed

of making investment of Rs.2.00 crores in the assessee company out of their own

sources through banking channel. He has also referred to the statement of Shri

Sanjay Varshney, Director of Moderate Credit Corporation Ltd. which was also

recorded on 14.12.2008 by the AO at the original assessment stage in which he has

confirmed of investing Rs.6.00 crores in the assessee-company for issue of shares

out of their own source and confirmed giving the amount to the assessee, copy of

which is filed at page 83 of the paper book. The ld. Counsel for the assessee,

therefore, submitted that since the issue of share capital has already been

considered and decided on merit by the AO in the regular proceedings u/s. 143(3)

on 29.12.2008 prior to search in question, therefore, the similar addition should not

have been made in the case of the assessee in the proceedings u/s. 153A of the IT

Act.

13. We have considered the rival submissions and the material on record and do

not find any justification to interfere with the findings of the ld. CIT(A) in deleting

the addition under challenge. On examination of facts and evidence on record, we

find that the issue is same as is considered in the case of M/s. Vacmet Packagings

(India) Pvt. Ltd. (supra), in which we have dismissed the departmental appeals in

ITO Nos. 405 & 406/Agra/2012. Since the issue is identical, which is also admitted 56 ITA No. 404, 406 & 404/Agra/2012

by both the parties, therefore, by following the reasons for decision in the case of

M/s. Vacmet Packagings (India) Pvt. Ltd. (supra), we dismiss the departmental

appeal.

13.1 Apart from the above issue on merit, we find interesting point raised by the

ld. Counsel for the assessee in this case that this issue is already dealt with by the

AO in proceedings u/s. 143(3) in the same assessment year prior to conduct of the

search. The ld. CIT(A) also held that the diary in question did not pertain to the

assessee. Therefore, no incriminating material is left against the assessee for

consideration. Statement of Aseem Gupta could not be considered to be relevant

because the assessee was not given any opportunity of being heard at the

assessment stage. The ld. Counsel for the assessee in support of his contention that

the similar issue of share capital has been considered by the AO prior to search in

the regular assessment order dated 29.12.2008 in the case of same assessee in the

same assessment year is supported by the statement recorded of Shri R.K. Raj of

M/s. Rav Net Solutions Pvt. Ltd. Delhi and Shri Sanjay Varshney of M/s.

Moderate Credit Corporation Ltd. Delhi on 14.12.2008. Copies of their statements

recorded at the original assessment stage are filed in the paper book. It would,

therefore, clearly establish that prior to search, similar issue was considered on

merits in the regular assessment proceedings u/s. 143(3) and the AO accepted the 57 ITA No. 404, 406 & 404/Agra/2012

returned income of the assessee vide order dated 29.12.2008 u/s. 143(3). Except

black diary, which was also recovered from Shri Aseem Gupta, no other

incriminating material was found against the assessee. According to the ld. CIT(A)

said diary did not pertain to the assessee. Section 153A of the Act provides as

under :

"153A. (1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall--

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate :

58 ITA No. 404, 406 & 404/Agra/2012

Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.]

(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner:

Provided that such revival shall cease to have effect, if such order of annulment is set aside.]

Explanation.--For the removal of doubts, it is hereby declared that,--

(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;

(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.

13.2. ITAT, Mumbai Special Bench in the case of All Cargo Global Logistics Ltd.

vs. DY. CIT 137 ITD 287 (SB) considered the following two questions :

"1. Whether, on the facts and in law, the scope of assessment u/s. 153A encompasses additions, not based on any incriminating material found during the course of search" ?

59 ITA No. 404, 406 & 404/Agra/2012

2. Whether, on the facts and in the circumstances of the case, the ld. CIT(Appeals) was justified in upholding the disallowance of deduction u/s. 80-IA(4) of the Act, on merits ?"

The Special Bench in para 53, held as under :

"The question now is - what is the scope of assessment or reassessment of total income u/s. 153A(1)(b) and the first proviso ? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results :-

(a) insofar as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s. 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO,

(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search."

Ultimately, the Special Bench answered the question as under :

"Thus, the question raised before the Special Bench No.1 is answered as under :

60 ITA No. 404, 406 & 404/Agra/2012

(a). In assessment that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 153A for which assessments shall be made for each of the six assessment years separately;

(b) In other cases, in addition to the income that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - books of account, other documents, found in the course of search but not produced in the course of original assessment, and undisclosed income or property discovered in the course of search."

The above decision of Special Bench squarely applies in favour of the assessee

because in the case of the assessee in the same assessment year under appeal 2006-

07, prior to search, the regular assessment order was passed on 29.12.2008 u/s.

143(3) and on the similar issue, the AO after conducting due enquiries and

recording the statement of two concerned persons of the share applicants, accepted

the claim of the assessee of genuine share capital invested by the three companies.

Therefore, no assessment or reassessment proceedings for the block period were

pending on the date of initiation of search and as such those assessments could not

be treated to have abated. Since the issue is already considered in the regular

assessment prior to the search on the basis of books of account and no

incriminating material was found during the course of search, therefore, on the

issue of share capital, no addition could be made against the assessee as per 61 ITA No. 404, 406 & 404/Agra/2012

decision of Special Bench in the case of All Cargo Global Logistics Ltd. vs.

DCIT(supra). Following the decision of Special Bench also, we do not find any

justification to interfere with the order of the ld. CIT(A) in deleting the addition. In

the result, the departmental appeal in ITA No. 404/Agra/2012 fails and is

dismissed.

14. In the result, all the departmental appeals are dismissed.

Order pronounced in the open court.

Sd/- Sd/- (A.L. GEHLOT) (BHAVNESH SAINI) Accountant Member Judicial Member

*aks/-

Copy of the order forwarded to :

1. Appellant

2. Respondent

3. CIT(A), concerned By order

4. CIT, concerned

5. DR, ITAT, Agra

6. Guard file Sr. Private Secretary

True copy