Chennai v. Mrs.manish D.jain (Huf), Chennai-79

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM ANDTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.223 of 2020 (heard through video conferencing) The Commissioner of Income Tax, Chennai. ...Appellant/RespondentVs Mrs.Manish D.Jain (HUF),Chennai-79...Respondent/Petitioner APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 04.9.2019 made in ITA.No.2982/Chny/2019on the file of the Income Tax Appellate Tribunal, Madras ‘C’Bench for the assessment year 2012-13. and against order of the Commissioner of Income Tax(Appeals) V, Chennai – 34 dated 07/08/2018 in ITA.No.217/(IT(A)-5/2017-18 and against the order of the Income Tax Officer, NonCorporate Ward 5 (3), Chennai 06 dated 17/11/2017 inPAN.No.AAJHM6100N. This appeal, filed by the appellant – Revenue underSection 260A of the Income Tax Act, 1961 (for short, the Act) isdirected against the order dated 04.9.2019 passed by the IncomeTax Appellate Tribunal, Chennai ‘C’ SMC Bench (for brevity, theTribunal) in ITA.No.2982/ Chny/2018 for the assessment year2012-13. 2. We have elaborately heard Mr.T.Ravikumar, learnedSenior Standing Counsel appearing for the appellant – Revenue.Though the respondent is served and her name printed in thecause list, none appears for the respondent despite severalopportunities. Hence, the matter is finally heard on merits. 3. The appeal has been admitted on 20.8.2020 on thefollowing substantial questions of law : “i. Whether on the facts and in the https://hcservices.ecourts.gov.in/hcservices/ circumstances of the case, the Tribunal wasright in setting aside the well reasonedorder passed by the Assessing officer forre-examination,especiallywhentheassessing Officer had duly examined thematter while passing the assessment order?ii. Whether on the facts and in thecircumstances of the case, the Tribunal wasright in remitting the issue back to thefile of the Assessing Officer by quoting thedecision in the case of Kanhaiyal and Sons(HUF) in ITA No.1849/Chny/2014 Sunil KumarLalwani and that Aashesh Kumar Lalwaniwherein the onus has been shifted to therevenue with a direction that the AssessingOfficer is to bring on record the role ofthe assessee in promoting the company andthe relation of the assessee if any withthat of the promotors and role of inflatingof prices etc which exercise had alreadybeen done by the AO and the SEBI? iii. Is not the finding of the Tribunalperverse especially when the decision of theTribunal is contrary to the time testedprincipal that the person who asserts a facthas to discharge the initial burden castupon him to show that the said facts aretrue and only thereafter the burden wouldshift to the department?” 4. The assessee, who is an Hindu undivided family (HUF),filed the return of income for the assessment year underconsideration namely 2012-13 admitting a total income ofRs.4,79,590/- and it was processed under Section 143(1) of theAct. Subsequently, the case was reopened under Section 147 ofthe Act by issuance of a notice dated 02.12.2016 under Section148 of the Act. The reason for reopening was based on aninformation received relating to bogus long term capital gainsclaim in a scrip of M/s.Bakra Pratisthan Limited trade. TheAssessing Officer noted that the assessee, during the financialyear 2011-12 relevant to the assessment year 2012-13, sold thescrips amounting to Rs.15,86,250/- and claimed exemption underSection 10(38) of the Act. 5. The assessee did not respond to the notice issued underSection 148 of the Act. Therefore, the assessee was informed bycommunication dated 04.8.2017 that the entire sale proceeds ofshares of M/s.Bakra Pratisthan Limited to the tune ofRs.15,86,250/- were treated as the income of the assesseeand would be assessed under the head 'income from other 5. The assessee did not respond to the notice issued underSection 148 of the Act. Therefore, the assessee was informed bycommunication dated 04.8.2017 that the entire sale proceeds ofshares of M/s.Bakra Pratisthan Limited to the tune ofRs.15,86,250/- were treated as the income of the assesseeand would be assessed under the head 'income from other sources'. The assessee was given one more opportunity to filetheir written submissions by 16.8.2017. 6. The assessee responded to this notice and filed thewritten submissions on 04.9.2017 along with a copy of ITR-V. Thetotal income admitted was Rs.4,79,590/- and the assessee soughtreasons for reopening. The reasons were furnished to theassessee by a communication dated 05.9.2017 and thereafter, thenotice under Section 143(2) of the Act and the notice underSection 142(1) of the Act, both dated 08.9.2017, were issued. 7. The assessee appeared before the Assessing Officer,furnished details and stated that they had purchased 450 sharesof M/s.Dhanlabh Merchandise Limited, which was later merged withM/s.Bakra Pratisthan Limited and the said 450 shares originallyheld by the assessee were converted into 4500 shares. Theassessee purchased 450 shares of M/s.Dhanlabh MerchandiseLimited at the rate of Rs.200/- per share for a totalconsideration of Rs.90,000/-. The assessee furnished a copy ofthe transaction report from M/s.Motilal Oswal Securities statingthat it was a documentary proof to indicate purchase of shares,which were later converted into the shares of M/s.BakraPratisthan Limited on 28.12.2011. 8. The Assessing Officer, after going through thestatements of the bank accounts highlighting the transactionsmade towards purchase of shares, found that the closing balanceas on 02.3.2010 was Rs.5,607/- and that on 03.3.2010, there wasa credit entry of Rs.90,000/- and a debit entry of Rs.90,000/-.The bank was called upon to explain the nature of transactionand the bank informed that it was a manual cheque, which waspassed for clearing on the same day by a Calcutta company. Thiswas found to be wholly impossible by the Assessing Officer.Hence, a communication dated 28.9.2017 was sent to M/s.ExcellantBarter Private Limited calling for details under Section 133(6)of the Income Tax Act. However, the said communication returnedwith the postal acknowledgment 'not known'. The authorizedrepresentative of the assessee could not furnish any documentaryevidence with respect to the sale of shares and he onlyfurnished the copy of the bank account wherein on 03.1.2012, theamount of Rs.9,50,714/- was credited into the bank, which wasdescribed as 'RTGS-IN-WFIX-FIT' securities. 9. Thus, the Assessing Officer concluded that the purchaseof 450 shares was a sham transaction and that the assessee couldnot discharge the onus cast upon her to prove the genuineness ofthe transaction by producing documentary evidence. The AssessingOfficer held that in respect of payments made for the purchaseof shares, they did not relate to the transaction and that nodistinctive numbers were indicated in the sale bill dated https://hcservices.ecourts.gov.in/hcservices/ 25.1.2010 issued by M/s.Excellent Batters Private Limited. Theassessee did not provide the name of the applicant. 10. Thus, the Assessing Officer concluded that thetransaction was not genuine and that the claim made underSection 10(38) of the Act towards sale proceeds could not beentertained. Further, the Assessing Officer took note of theinvestigation conducted by the Department at Calcutta as to howthe stock prices raised more than 500-1000 times. The AssessingOfficer considered the modus operandi followed by the assesseeand found the entire claim made by the assessee to be bogusafter rejecting the explanation offered by the assessee. https://hcservices.ecourts.gov.in/hcservices/ 25.1.2010 issued by M/s.Excellent Batters Private Limited. Theassessee did not provide the name of the applicant. 10. Thus, the Assessing Officer concluded that thetransaction was not genuine and that the claim made underSection 10(38) of the Act towards sale proceeds could not beentertained. Further, the Assessing Officer took note of theinvestigation conducted by the Department at Calcutta as to howthe stock prices raised more than 500-1000 times. The AssessingOfficer considered the modus operandi followed by the assesseeand found the entire claim made by the assessee to be bogusafter rejecting the explanation offered by the assessee. 11. As against the assessment order, the assessee preferredan appeal before the Commissioner of Income Tax (Appeals)-5,Chennai-34 [for short, the CIT(A)] and it was dismissed by orderdated 07.8.2018. Aggrieved by that, the assessee preferredfurther appeal before the Tribunal, which allowed the same bythe impugned order by remanding the matter to the AssessingOfficer to re-examine the issue regarding deduction underSection 10(38) of the Act. This order of remand was passed basedupon an order of the Tribunal in the case of Kanhaiyalal & Sons(HUF) Vs. ITO [ITA.No.1849/Chny/2018 dated 06.2.2019]. TheRevenue is before us challenging the said order passed by theTribunal as being perverse. 12. The first and foremost aspect to be considered is as towhether the Tribunal was justified in remanding the matter tothe Assessing Officer for a fresh consideration of the claimmade by the assessee under Section 10(38) of the Act. 13. There is no dispute with regard to the power of theTribunal to remand while exercising its jurisdiction underSection 254 of the Act. The Hon'ble Supreme Court, in the caseof Hukumchand Mills Ltd. Vs. CIT [reported in (1967) 63 ITR 232]held that the Tribunal had power to remand the matter back tothe Income Tax Officer. This decision was followed by theHon'ble Supreme Court in the case of Martin Burn Ltd. Vs. CIT[reported in (1993) 68 Taxmann 346]. 14. The question is as to when the power of remand can beexercised. For this proposition, it would be beneficial to referto the decision of this Court in the case of Cholamandalam MSGeneral Insurance Co. Vs. Royal Sundaram Alliance GeneralInsurance Co. Ltd. [reported in (2013) 357 ITR 597] wherein theDivision Bench held as follows : “17. In the background of thejurisdiction of the Tribunal as a factfinding authority, we feel that the Tribunalshouldhaveactedwithgreater circumspectiontoorderaremandparticularly when the Revenue itself doesnot dispute that the materials were allthose that were considered by the AssessingOfficer. Remand is not a power to beexercised in a routine manner and should beused sparingly as an exception only when thefacts warranted such course of action. Wefeel that the Tribunal should have arrivedat its own conclusion on facts after dueconsideration of the materials before itwhich were no different from which wasplaced before the authorities below. Hence,we have no hesitation in setting aside theorder passed by the Tribunal in remandingthe matter back to the Income Tax AppellateTribunal on the admitted fact that no freshmaterials were placed before the Tribunalnecessitating remand.” circumspectiontoorderaremandparticularly when the Revenue itself doesnot dispute that the materials were allthose that were considered by the AssessingOfficer. Remand is not a power to beexercised in a routine manner and should beused sparingly as an exception only when thefacts warranted such course of action. Wefeel that the Tribunal should have arrivedat its own conclusion on facts after dueconsideration of the materials before itwhich were no different from which wasplaced before the authorities below. Hence,we have no hesitation in setting aside theorder passed by the Tribunal in remandingthe matter back to the Income Tax AppellateTribunal on the admitted fact that no freshmaterials were placed before the Tribunalnecessitating remand.” 15. Thus, we are required toconsider the issue as to whether theTribunal was justified in remanding thematter to the Assessing Officer toreconsider the issue regarding the claimmade by the assessee under Section 10(38) ofthe Act. On a reading of the order passed bythe Tribunal, we find that the Tribunal didnot interfere with the factual findingsrecorded by the Assessing Officer and theCIT(A) with regard to the transaction doneby the assessee. Thus, unless and until theTribunal found an error in the approach ofthe Assessing Officer or the CIT(A) and onlyafter interfering with such a finding, theTribunal could have exercised its power ofremand. Even in such circumstances, theTribunal was required to record reasons asto why the matter should be remanded and asto why the Tribunal could not decide thefactual issue on the available material. 16. We find from the order passed by the CIT(A) that theassessee raised a vague contention that a thirty party statementwas relied upon by the Assessing Officer without affording anopportunity to the assessee to confront the same and thedecision was taken against the assessee. Unfortunately, theTribunal did not examine as to whether such a contention raisedbefore the CIT(A) was rightly decided or not. Further, from thegrounds raised by the assessee before the CIT(A), we find that they had not disputed the factual position, which had beenbrought out by the Assessing Officer in his order. Before theTribunal also, we find that the assessee did not dispute thefactual finding recorded by the CIT(A) in his order dated07.8.2018. Thus, we have no hesitation to hold that the order ofremand passed by the Tribunal was wholly unjustified, devoid ofreasons and unsustainable in law. 17. Moving to the findings rendered by the AssessingOfficer and the CIT(A) with regard to the nature of transactiondone by the assessee, we find that there was absolutely nojustification on the part of the Tribunal to interfere with thefacts recorded by both the Lower Authorities. The gist of themodus operandi done by the assessee as could be culled from theorder of assessment as well as the order of the CIT(A) is asfollows : 17. Moving to the findings rendered by the AssessingOfficer and the CIT(A) with regard to the nature of transactiondone by the assessee, we find that there was absolutely nojustification on the part of the Tribunal to interfere with thefacts recorded by both the Lower Authorities. The gist of themodus operandi done by the assessee as could be culled from theorder of assessment as well as the order of the CIT(A) is asfollows : “The assessee had purchased 450 sharesof Dhanalabh Mercantile Limited which latermerged with M/s.Bakra Prathisthan Ltd andthe said 450 shares originally held by theassessee were converted into 4500 shares.All the purchases were made through offmarket ie. after closing of share marketsand the assessee had never heard of the nameof the scrip before. The amount ofinvestments was very meager in some casesand huge profits were made by the assesseeon the sale of unknown company shares. Thename of the person and his details were notknown to the assessee and the assessee wasnot able to produce the person before theAssessing Officer from whom the said shareswere said to have been purchased. Theletters sent to the address of the sellerwere all returned unserved and details ofthe Company were also not known to theassessee. The share certificate issued tothe seller from whom the assessee hadpurchased and the certificates issued to theseller would be a month or so before thealleged sales to the assessee. The evidencewas typed date of transfer on the back sideof the share certificates and the bill forpurchasing this scrip was shown as a proofand the date of bill would be the prior tothe date of share certificate itselfallotting the shares to the seller. In manycases, implying that the shares were sold tothe assessee, even before the receipt ofshare certificate by the seller. The shares were demated just before the sale of sharesto the assessee , who was having noexperience in share trading. The Security Exchange Bureau of India(SEBI) had blacklisted nearly 14 brokers fortheir alleged involvement in manipulatingthe market prices and rigging the marketsfor jacking up the share prices. The IncomeTax Department Investigation Wing which hadconducteddetailedinvestigationhadunearthed shell companies which specializedin manipulating the market prices of theshares of certain listed company on thestock exchange by a group of persons workingas a syndicate for the purpose of providingentries of tax exempt, bogus long termcapital gains to large number ofbeneficiaries in lieu of unaccounted cashconverting black money into white withoutpayment of tax. The profit made from the sale of scripwas multiple time the cost of the shares andsale price was not supported by thefinancial status of the company. Thecompanies had shown very meager profits andwere mostly loss making companies withnegative earning per shares. These unknowncompanies never declared dividends and theDirector’s report did not show any projectsor major events done in the operation of thecompany that would attract investors totrade in the scrip. Same set of brokerages would be seenselling and buying the shares and the saleprices were increased with every trade andtrading was done by the same of brokers andalso the buyers who were not assessed to taxand had not filed return of income but havepurchased large amount of shares. Even thosepersons who had filed the return of incomehad declared low income and all buyers wouldhave made losses on account of trading inscrip. Statements recorded from brokers/operators had admitted using shell companieswho were the buyers trading in shares justto jack up the prices and to keep the volumeof trade going so as not to come under thescanner of the SEBI. The buyers of theshares from the beneficiaries were found to https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ have common directors and common address andthe shares were sold by the members of samefamily and same surname and same address orfrom the same town. Once the operatorsstarted rigging the prices of the sharesthrough circular trading and increase theprice of the shares with the help of brokersand bogus clients and arrived at optimumamount over a period of time. Once a periodof one year was over (for claimingexemption) under long term capital gainsunder Section 10(38) the Operator asked thebeneficiary to deliver the unaccounted cash.Once the unaccounted cash was delivered bythe beneficiary, then the same was routed bythe operator to the books of variouspapers/bogus companies which ultimatelybought the shares belonging to thebeneficiary at a very high price and thesepaper companies avoided direct cash trail.Thereafter the operator used to instruct thebeneficiary to sell the shares with aparticular lot on a particular day and time. In the present assessee’s case, theassessee has originally purchased 450 sharesof face value of Rs.10/- each at Rs.200/-per share amounting to Rs.90,000/- ofDhanlabh Mercantile Ltd, Offline on15.1.2010 from M/s.Excellent Barter Ltd,Calcutta. The said company was subsequentlymerged with M/s.Bakra Prathisthan Ltd and4500 shares of M/s.Bakra Prathisthan Ltd.,were allotted to assessee at Rs.10/- pershare. The assessee sold 4500 shares ofM/s.Baktra Prathisthan Limited on 03.01.2012for Rs.15,83,623/-, which had acquired forRs 90,000/-. The assessee had not furnishedany documentary evidence to prove thegenuineness of the transaction in respect ofpurchase and sale of shares. The assesseehad not discharged the onus cast upon him toprove the genuineness of the transactions.The assessee had entered into engineeredtransaction to generate artificial long termcapital gains and the Explanation offered bythe assessee regarding the credit ofRs.15,86,250/- in its book was found to beunsatisfactory and therefore, the AssessingOfficer held the same as unexplained cashcredit which was added to the total income of the assessee as per the provisions ofSection 68 of the Act and assessed under thehead Income from other sources.” 18. The above facts have been culled out by the AssessingOfficer as well as the CIT(A). If such is the case, it is notknown as to whether there was any justification on the part ofthe Tribunal to interfere with the order and that too, byremanding the matter for a fresh consideration. 19. In the decision in the case of Sumati Dayal Vs. CIT[reported in (1995) 214 ITR 0801], the Hon'ble Supreme Court,while considering the aspect regarding burden of proof relatingto cash credits, pointed out as follows : “4. It is no doubt true that in allcases in which a receipt is sought to betaxed as income, the burden lies on theDepartment to prove that it is within thetaxing provision and if a receipt is in thenature of income, the burden of proving thatit is not taxable because it falls withinexemption provided by the Act lies upon theassessee. [See : Parimisetti Seetharamamma(supra) at P. 536. But, in view of Section68 of the Act, where any sum is foundcredited in the books of the assessee forany previous year the same may be charged toincome tax as the income of the assessee ofthat previous year if the explanationoffered by the assessee about the nature andsource thereof is, in the opinion of theAssessing Officer, not satisfactory. In sucha case there is, prima facie, evidenceagainst the assessee, viz., the receipt ofmoney, and if he fails to rebut, the saidevidence being un-rebutted, can be usedagainst him by holding that it was a receiptof an income nature. While considering theexplanation of the assessee the Departmentcannot, however, act unreasonably. (See:Sreelekha Banerjee (supra) at p. 120).” 20. The decision of the Hon'ble Supreme Court in the caseof Sumati Dayal was followed in the decision of the High Courtof Delhi in the case of Sanjay Kaul Vs. PCIT [reported in (2020)119 Taxmann.com 470] wherein it was held that where the assesseewas not a regular investor in shares and had only invested inhigh risk stocks of obscure companies with no business activityor asset, which were identified as penny stocks, the AssessingOfficer had correctly concluded that the assessee had entered into a pre-arranged sham transaction so as to convertunaccounted money into accounted money in guise of capital lossand therefore, the alleged short term capital loss was rightlydisallowed. 21. A similar view was taken in the decision of the HighCourt of Bombay in the case of Sanjay Bimalchand Jain Vs. PCIT-1, Nagpur [reported in (2018) 89 Taxmann.com 196]. In that case,the assessee purchased shares of two penny stock companies for alower amount and within a year, sold such shares at a higheramount. The assessee had not tendered cogent evidence to explainas to why shares in an unknown company had jumped to such ahigher amount in no time and also failed to provide details ofpersons, who purchased the said shares and the transaction washeld to be an attempt to hedge the undisclosed income as longterm capital gain. 22. In the decision in the case of Suman Poddar Vs. ITO[reported in (2019) 112 Taxmann.com 329], the Delhi High Courtupheld the order of the Tribunal, which held that the sharetransactions were bogus because the company, whose shares wereallegedly purchased, was a penny stock. This decision wasaffirmed by the Hon'ble Supreme Court in the decision reportedin (2019) 112 Taxmann.com 330. 23. In the decision of the Hon'ble Supreme Court in thecase of PCIT, Central Vs. NRA Iron & Steel Private Limited[reported in (2019) 412 ITR 0161], the issue, which fell forconsideration was as to whether in a case where sharecapital/premium was credited in the books of accounts of theassessee company, the onus of proof was on the assessee toestablish by cogent and reliable evidence after identity of theinvestor companies, the credit worthiness of the investors andgenuineness of transactions to the satisfaction of the AssessingOfficer. While answering the issue, the Hon'ble Supreme Court,after referring to its decisions in the case of Sumati Dayal andCIT Vs. P.Mohankala [reported in (2007) 291 ITR 0278], held asfollows: “8.2. As per settled law, the initialonus is on the assessee to establish bycogent evidence the genuineness of thetransaction, and credit-worthiness of theinvestors under Section 68 of the Act. Theassessee is expected to establish to thesatisfaction of the Assessing Officer [CITVs. Precision Finance Pvt. Ltd. (1994) 208ITR 465 (Cal.) :• Proof of Identity of the creditors• Capacity of creditors to advancemoney; and • Genuineness of transaction. This Court in the land mark caseof Kale Khan Mohammad Hanif v. CIT [(1963)50 ITR 1 (SC)] and Roshan Di Hatti v. CIT[(1977) 107 ITR (SC) 938] laid down that theonus of proving the source of a sum of moneyfound to have been received by an assessee,is on the assessee. Once the assessee hassubmitted the documents relating toidentity, genuineness of the transaction andcredit-worthiness, then the AO must conductan inquiry, and call for more details beforeinvoking Section 68. If the assessee is notable to provide a satisfactory explanationof the nature and source of the investmentsmade, it is open to the Revenue to hold thatit is the income of the assessee and therewould be no further burden on the Revenue toshow that the income is from any particularsource. 8.3. With respect to the issue ofgenuineness of transaction, it is for theassessee to prove by cogent and credibleevidence that the investments made in sharecapital are genuine borrowings, since thefacts are exclusively within the assessee’sknowledge. The Delhi High Court in CIT v. OasisHospitalities Pvt. Ltd. [333 ITR 119 (Delhi)(2011)], held that : “The initial onus is upon the assesseeto establish three things necessary toobviate the mischief of Section 68. Thoseare: (i) identity of the investors; (ii)their creditworthiness/ investments; and(iii) genuineness of the transaction. Onlywhen these three ingredients are establishedprima facie, the department is required toundertake further exercise.” It has been held that merely provingthe identity of the investors does notdischarge the onus of the assessee, if thecapacity or credit-worthiness has not beenestablished. In Shankar Ghosh v. ITO [(1985) 23 TTJ(Cal.) 20], the assessee failed to prove thefinancial capacity of the person from whomhe had allegedly taken the loan. The loanamount was rightly held to be the assessee’sown undisclosed income. 8.4. Reliance was also placed on thedecision of CIT v. Kamdhenu Steel & AlloysLimited and Others [(2012) 206 Taxman 254(Delhi)] wherein the Court that : “38. Even in that instant case, it isprojected by the Revenue that theDirectorate of Income Tax (Investigation)had purportedly found such a racket offloating bogus companies with sole purposeof lending entries. But, it is unfortunatethat all this exercise if going in vain asfew more steps which should have been takenby the Revenue in order to find out causalconnection between the case deposited in thebank accounts of the applicant banks and theassessee were not taken. It is necessary tolink the assessee with the source when thatlink is missing, it is difficult to fastenthe assessee with such a liability........10. On the issue of unexplained creditentries/share capital, we have examined thefollowing judgments : i. In Sumati Dayal v. CIT [(1995) 214ITR 801 (SC), this Court held that : “if the explanation offered by theassessee about the nature and source thereofis, in the opinion of the Assessing Officer,not satisfactory, there is prima facieevidence against the assessee, vis., thereceipt of money, and if he fails to rebutthe same, the said evidence being unrebuttedcan be used against him by holding that itis a receipt of an income nature. Whileconsidering the explanation of the assessee,the department cannot, however, actunreasonably”.ii. In CIT v. P. Mohankala [291 ITR278], this Court held that: “A bare reading of Section 68 of theIncome- tax Act, 1961, suggests that (i)there has to be credit of amounts in thebooks maintained by the assessee; (ii) suchcredit has to be a sum of money during theprevious year ; and (iii) either (a) theassessee offers no explanation about thenature and source of such credits found inthe books or (b) the explanation offered by the assessee, in the opinion of theAssessing Officer, is not satisfactory. Itis only then that the sum so credited may becharged to Income-tax as the income of theassessee of that previous year. Theexpression“theassesseeoffersnoexplanation” means the assessee offers noproper,reasonableandacceptableexplanation as regards the sums foundcredited in the books maintained by theassessee. The burden is on the assessee to takethe plea that, even if the explanation isnot acceptable, the material and attendingcircumstances available on record do notjustify the sum found credited in the booksbeing treated as a receipt of income nature.” (emphasis supplied) the assessee, in the opinion of theAssessing Officer, is not satisfactory. Itis only then that the sum so credited may becharged to Income-tax as the income of theassessee of that previous year. Theexpression“theassesseeoffersnoexplanation” means the assessee offers noproper,reasonableandacceptableexplanation as regards the sums foundcredited in the books maintained by theassessee. The burden is on the assessee to takethe plea that, even if the explanation isnot acceptable, the material and attendingcircumstances available on record do notjustify the sum found credited in the booksbeing treated as a receipt of income nature.” (emphasis supplied) iii. The Delhi High Court in a recentjudgment delivered in PR.CIT -6, New Delhiv. NDR Promoters Pvt. Ltd. (410 ITR 379)upheld the additions made by the AssessingOfficer on account of introducing bogusshare capital into the assessee company onthe facts of the case. iv. The Courts have held that in thecase of cash credit entries, it is necessaryfor the assessee to prove not only theidentity of the creditors, but also thecapacity of the creditors to advance moneyand establish the genuineness of thetransactions. The initial onus of proof lieson the assessee. This Court in Roshan DiHatti v. CIT [(1992) 2 SCC 378], held thatif the assessee fails to discharge the onusbyproducingcogentevidenceandexplanation, the AO would be justified inmaking the additions back into the income ofthe assessee. v. The Guwahati High Court in NemiChand Kothari v. CIT [(2003) 264 ITR 254(Gau.)] held that merely because atransaction takes place by cheque is notsufficient to discharge the burden. Theassessee has to prove the identity of thecreditorsandgenuinenessofthetransaction. : “It cannot be said that a transaction,which takes place by way of cheque, isinvariably sacrosanct. Once the assessee hasproved the identity of his creditors, thegenuineness of the transactions which he hadwith his creditors, and the creditworthinessof his creditors vis-a-vis the transactionswhich he had with the creditors, his burdenstands discharged and the burden then shiftsto the revenue to show that though coveredby cheques, the amounts in question,actually belonged to, or was owned by theassessee himself.” (emphasis supplied) vi. In a recent judgment the Delhi HighCourt in CIT Vs. N.R.Portfolio (P) Ltd.[(2014) 42 Taxmann.com 339/222 Taxman 157(Mag.) (Delhi) 21] held that the credit-worthiness or genuineness of a transactionregarding share application money depends onwhether the two parties are related or knownto each other, or mode by which partiesapproachedeachother,whetherthetransaction is entered into through writtendocumentation to protect investment, whetherthe investor was an angel investor, thequantum of money invested, credit-worthinessof the recipient, object and purpose forwhich payment/investment was made, etc. Theincorporation of a company, and payment bybanking channel, etc. cannot in all casestantamount to satisfactory discharge ofonus. vii. Other cases where the issue ofshare application money received by anassessee was examined in the contextof Section 68 are CIT v. Divine Leasing &Financing Ltd. [(2007) 158 Taxman 440]and CIT v. Value Capital Service (P.) Ltd.[(2008) 307 ITR 334].11. The principles which emerge wheresums of money are credited as ShareCapital/Premium are :i. The assessee is under a legalobligation to prove the genuineness of thetransaction, the identity of the creditors,and credit-worthiness of the investors whoshould have the financial capacity to makethe investment in question, to the satisfaction of the AO, so as to dischargethe primary onus. satisfaction of the AO, so as to dischargethe primary onus. ii. The Assessing Officer is duty boundto investigate the credit-worthiness of thecreditor/subscriber, verify the identity ofthe subscribers and ascertain whether thetransaction is genuine, or these are bogusentries of name-lenders. iii.Iftheenquiriesandinvestigations reveal that the identity ofthe creditors to be dubious or doubtful, orlack credit-worthiness, then the genuinenessof the transaction would not be established.In such a case, the assessee would nothavedischargedtheprimaryonuscontemplated by Section 68 of the Act.......13. The lower appellate authoritiesappear to have ignored the detailed findingsof the AO from the field enquiry andinvestigations carried out by his office.The authorities below have erroneously heldthat merely because the Respondent Company –assessee had filed all the primary evidence,the onus on the assessee stood discharged. The lower appellate authorities failedto appreciate that the investor companieswhich had filed income tax returns with ameagre or nil income had to explain how theyhad invested such huge sums of money in theassessee Company - Respondent. Clearly theonus to establish the credit worthiness ofthe investor companies was not discharged.The entire transaction seemed bogus, andlacked credibility. The Court/Authorities below did noteven advert to the field enquiry conductedby the AO which revealed that in severalcases the investor companies were found tobe non-existent, and the onus to establishthe identity of the investor companies, wasnot discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of ShareCapital/Premium must be subjected to carefulscrutiny. This would be particularly so inthe case of private placement of shares, where a higher onus is required to be placedon the assessee since the information iswithin the personal knowledge of theassessee. The assessee is under a legalobligation to prove the receipt of sharecapital/premium to the satisfaction of theAO, failure of which, would justify additionof the said amount to the income of theassessee.” 24. Bearing the principles laid down in the decision of theHon'ble Supreme Court in the case of NRA Iron & Steel PrivateLtd., in mind, if we examine the order passed by the AssessingOfficer, we find that a detailed enquiry had been conducted bythe Assessing Officer after affording an opportunity to theassessee. The assessee availed the opportunity through writtensubmissions. The assessee was represented by an authorizedrepresentative and thereafter a finding had been rendered. Thesaid finding was tested for its correctness by the CIT(A), whoapproved the same by order dated 07.8.2018. 25. We refer to the following factual findings rendered bythe CIT(A) while dismissing the appeal filed by the assessee :“2.1. .......In response to notices,the AR of the assessee Shri Omprakash Jain,B.Com, FCA of Om Jain & Associates,Chartered Accountants appeared and filed thedetails of purchase of 450 shares ofM/s.Dhanlabh Merchandise Limited, later itwas merged with M/s.Bakra Pratisthan Limitedand 450 shares converted into 4500 shares.In this connection, the AR furnished thecopy of sale bill dated 15.1.2010 ofM/s.Excellent Barter Private Limited ofShaym Nagar WB 743127 wherein it is noticedthat the assessee has purchased 450 sharesof Dhanlabh Merchandise Limited @ Rs.200each per share for a consideration ofRs.90,000/-. But the bill does not containany distinctive numbers and it was stated'as per Demat form'. The AR of the assesseealso furnished the copy of transactionreport from Motilal Oswal Securities asdocumentary evidence for purchase of theseshares and later converted into M/s.BakraPratisthan Limited on 28.12.2011...... 2.2........On the perusal of the same,it is noticed that the closing balance as on 2.2........On the perusal of the same,it is noticed that the closing balance as on 02.3.2010 was Rs.5,607/-. On 03.3.2010,there was a credit entry of Rs.90,000/- anda debit entry with narration 'manual chg'Rs.90,000/-. As per the narration of thebankers, it is manual cheque only and thesame was passed in clearing on the same dayby Calcutta base company. It is not at allpossible. .... 2.3. As it was held by the assessee theshares of M/s.Dhanlabh Merchandise Limitedwas purchased from M/s.Excellent Barter Pvt.Ltd. Of Shaym Nagar WB 743127, acommunication dated 28.9.2017 was sent toM/s.Excellent Batter Private Limited callingfor the following details under Section 133(6) of the I.T. Act 1961. By the examinationof the details and the same was returnedunserved by the postal authorities withremarks 'not known'.......Besides the above, the AR of theassessee has not furnished any documentaryevidences with respect to the sale of sharesof M/s.Bakra Pratisthan Limited. Instead, hefurnished the bank account copy wherein on03.1.2012, an amount of Rs.9,50,714/- wascredited in the bank with description 'RTGS-IN-WFIX-FIT SECURITIES'. Considering theabove fact, it is concluded as under : 2.4. The purchase of 450 shares ofM/s.Dhanlabh Merchandise Limited is itself asham transaction for the following reasons :1. Based on the details filed by the ARof the assessee and the address was providedthe assessee the communication sent by thisoffice to M/s.Excellent Batters PrivateLimited. 2. The postal remarks is 'not known'only. The postal authorities did not mentionthat the person left or something else. Theword 'not known' means that the addressitself bogus or incorrect one. 3. Accordingly, it is established thatthere is no such person in that addresshaving name M/s.Excellent Batters PrivateLimited.4. It is onus on the part of theassessee to prove the genuineness of thetransaction. 5. It is also noticed that thedocumentary evidence filed by the assesseetowards payment made for purchase of sharesalso not related to this transaction. 6. In the absence of the distinctivenos., in the sale bill dated 25.1.2010 ofM/s.Excellent Batters Pvt. Ltd., and hence,it is not known that to whom the shares wereoriginally allotted and how the same wassubsequently transferred to the assessee forthat there is no documentary evidenceproduced. The assessee HUF not furnished thecopy of name transfer application also. 7. It is also noticed from the AR ofthe assessee's submission dated 15.11.2017that M/s.Excellent Batters P. Ltd., is ashareholder of M/s.Dhanlabh MerchandiseLtd., but there is no documentary evidencewas filed by him. 8. As the assessee HUF itself hasstated that the HUF is doing commoditiestrading, why off market transaction forpurchase of shares not reported to BSE.Considering the above fact findings, itis established that the purchase of 450shares of M/s.Dhanlabh Merchandise Limitedfrom M/s. Excellent Barter Private Limitedby the assessee is itself a shamtransaction. Accordingly, the documentaryevidence furnished by the assessee towardspurchase of shares of 4500 M/s.BakraPratisthan Limited is not a genuine one andhence, the claim of exemption under Section10(38) towards selling of the same is notentertained..... the light of the findings made in thepreceding paragraphs. ...... 7.3.......However, in the presentappeal, the appellant purchased the sharesof M/s.Bakra Pratisthan Limited in offmarket. During the course of the hearing on24.7.2018, the AR admitted that the assesseepurchased the shares of M/s.DhanlabMerchandise Limited in off market...... the light of the findings made in thepreceding paragraphs. ...... 7.3.......However, in the presentappeal, the appellant purchased the sharesof M/s.Bakra Pratisthan Limited in offmarket. During the course of the hearing on24.7.2018, the AR admitted that the assesseepurchased the shares of M/s.DhanlabMerchandise Limited in off market...... 7.4. These shares were purchasedthrough off market and not through StockExchange. The notice under Section 133(6) dated28.9.2017 sent by the Assessing Officer toM/s.Excellent Barter Private Limited fromwhich the assessee had purchased the sharesof M/s.Dhanlab Merchandise Limited wasreturned unserved with remark 'not known'. Moreover, the assessee did not bringany other material on record to establishthe genuineness of the purchase of shares.M/s.Bakra Pratisthan Limited did notpay dividend or did not issue bonus sharesduring the period of holding of these sharesby the assessee corresponding to theincrease in the price of the share ofM/s.Bakra Pratisthan Limited. During thisperiod, there has been no corporateannouncement by M/s.Bakra Pratisthan Limitedwhich suggests that the company isundertaking any substantial developmentactivity.The above facts were not disputed bythe appellant. These facts clearly establish that theshare prices of M/s.Bakra Pratisthan Limitedwere artificially hiked. ..... 7.6. In the present case also, theshares were purchased through off market andnot through Stock Exchange and selling rateswere artificially hiked later on.” 26. The above findings will clearly show that not only theAssessing Officer, but also the CIT(A) examined the modusoperandi of the assessee and held that the shares were purchasedthrough off market and not through Stock Exchange and that theselling rates were artificially hiked later on. The above https://hcservices.ecourts.gov.in/hcservices/ findings have not been set aside by the Tribunal and there is noreason for the Tribunal to remand the matter to the AssessingOfficer for a fresh consideration. it was held that where all the evidence had been produced andthe CIT(A), after full investigation of the evidence andexamination of the accounts, had given a definite finding on thequestion in issue, the Tribunal's order of remand was held to beinvalid. 29. Further, in the recent decision of the Hon'ble DivisionBench of this Court in the case of Tharakumari Vs. ITO[TCA.No.128 of 2019 dated 11.2.2019], the appeal filed by theassessee in a case relating to penny stock was dismissed afternoting the factual findings rendered by the Assessing Officer,the CIT(A) and the Tribunal. Thus, for all the above reasons, wehold that the order passed by the Tribunal calls forinterference. 30. In the result, the above tax case appeal is allowed, https://hcservices.ecourts.gov.in/hcservices/ the impugned order passed by the Tribunal is set aside and thesubstantial questions of law framed are answered in favour ofthe Revenue and against the assessee. Consequently, the orderpassed by the CIT(A) stands restored. //True Copy// Sd/- Assistant Registrar Sub Assistant Registrar To1.The Income Tax Appellate Tribunal, Madras ‘C’ Bench. 2.The Commissioner of Income Tax (Appeals) – V, Chennai 34.3.The Income Tax Officer, Non Corporate Ward 5 (3), Chennai.+1cc to Mr.T.Ravikumar, Advocate, S.R.No. 41621RS T.C.A.No.223 of 2020AJS(CO)GN(06/01/2021)