Commissionerof Income Taxappellantthroughmr. Sanjeev Sabharwal, Sr. Standing Counsel v. Nr Portfolio Pvt Ltd.respondentthroughdr.rakeshguptaandmr.rishabhkapoor,Advocates

fr $~ *IN THE HIGHCOURTOF DELHIAT NEW DELHI +INCOME TAX APPEAL NO. 1019/2011 Reservedon: 14^''August,2013%Date of Decision :22"^* November,2013 COMMISSIONEROF INCOME TAXAppellantThroughMr. Sanjeev Sabharwal, Sr. Standing Counsel. versus NR PORTFOLIO PVT LTD.RespondentThroughDr.RakeshGuptaandMr.RishabhKapoor,Advocates. CORAM:HON'BLE MR. JUSTICE SANJIV KHANNAHON'BLE MR. JUSTICE SANJEEV SACHDEVA SANJIV KHANNA, J. For detailed order see ITA 1018/2011, Commissioner ofIncome Tax VsNR Portfolio Pvt. Ltd. pronounced today. —. (SANJIV KHANNA)JUDGE 'Ojud ,—(SANJEEV SACHDEVA)JUDGE NOVEMBER22"^ 2013 NA b *IN THE HIGH COURT OF DELHI AT NEW DELHI+INCOME TAX APPEAL NO. 1018/2011 I Reservedon: 14^''August,2013 o/oDate ofDecisiom ; ^^'^ovember,2013 COMMISSIONER OF INCOME TAXThroughMr. SanjeevSabharwal,Sr. StandingCounsel. Appellant versus NR PORTFOLIO PVT LTD.RespondentThroughDr. Rakesh Gupta and Mr. Rishabh Kapoor,Advocates. +TNCOME TAX APPEAL NO. 1019/2011 COMMISSIONEROF INCOMETAXThroughMr. SanjeevSabharwal,Sr. StandingCounsel. Appellant versus NR PORTFOLIO PVT LTD.RespondentThroughDr. Rakesh Gupta and Mr. RishabhKapoor,Advocates. CORAM: HON'BLE MR. JUSTICE SANJIVKHANNAHON'BLEMR. JUSTICESANJEEVSACHDEVA SANJIV KHANNA, J. Thesetwo appealsby the Revenuerelateto a common assesseei.e., N.R. Portfolio Pvt. Ltd. and the questions raised relating toassessmentyears2002-03and 2003-04are similar. Theypertainto theadditions made by the Assessing Officer under Section 68 of theIncome Tax Act, 1961 (Act, for short) of Rs.1,2,34,100/- and ITANos. 1018/2011&1019/2011 Rs.75,60,200/- for the assessment years 2002-03 and 2003-04 onaccount of share apphcation money. 2.The contention of the Revenue is that the Income Tax AppellateTribunal(tribunal)has dealtwith the issue superficiallyand has failedto notice the into and the clandestine money laundering indulgedmamier in which unaccounted and black money had been brought intobooks by this dubiousmethod. It is contendedthat the decisioninthecase of CIT Vs. Lovely Exports Ltd. 299 ITR 268 (Del) is beingmisunderstood and misinteipreted resulting in a spate of matterswherein assessees have adopted this surreptitious method to convertunaccounted for money into share application money. 3.Revenuehas reliedthe decisionofthis Courtinthe case ofuponCIT V5. Nova Promoters and Finlease (F) Ltd. [2012] 342 ITR 169 (Del). 4.By order dated 13"' August, 2013, the following substantialquestionoflaw was framedin the two appeals:- "Whether the Income Tax Appellate TribunalwasintheadditionsofrightdeletingRs.63,80,100/-and Rs.75,60,200/-in respect ofAssessment Years 2002-03 and 2003-04 underSection 68 of the Income Tax Act, 1961 andwhether the decision of the Tribunal is perverse?" 5.The respondent-assesseeis a private limited company and forthe assessment 2002-03 and 2003-04had filed returnsyearsdeclaringincome of Rs.11,566/-and 18,720/-,respectively. These returnswereprocessed under Section 143(1) of the Act.Subsequently,reassessmentproceedingswere initiatedunder Section 147/148of theAct on the basis ofinformationreceivedfrom the InvestigationWingthatthe assesseewas one ofthe beneficiaries,who had procuredshareITANos. 1018/2011&1019/2011Page2of 24 "Whether the Income Tax Appellate TribunalwasintheadditionsofrightdeletingRs.63,80,100/-and Rs.75,60,200/-in respect ofAssessment Years 2002-03 and 2003-04 underSection 68 of the Income Tax Act, 1961 andwhether the decision of the Tribunal is perverse?" 5.The respondent-assesseeis a private limited company and forthe assessment 2002-03 and 2003-04had filed returnsyearsdeclaringincome of Rs.11,566/-and 18,720/-,respectively. These returnswereprocessed under Section 143(1) of the Act.Subsequently,reassessmentproceedingswere initiatedunder Section 147/148of theAct on the basis ofinformationreceivedfrom the InvestigationWingthatthe assesseewas one ofthe beneficiaries,who had procuredshareITANos. 1018/2011&1019/2011Page2of 24 application money from entry providers. Assessment proceedingsunder Section 147/148 of the Act in the two years were initiatedbyissue of notices on 28'*' November, 2006. The notices were receivedback unserved and subsequentlywere served by affixture at the lastknown address i.e., the address given in the returns. .The assessee,however,did not appearin responseto the saidnotices. The AssessingOfficerthereuponon 8^'' October,2007 issuedshow causenoticeunderSection 144 read with Section 147 of the Act, which was sent throughSpeedPost, but was returnedunservedwiththe remark"no such firm"..Respondent-assesseeagain was served through affixture on 25"'October,2007. On examiningthe returnfor the assessmentyear 2004-05, it was noticedthat M/s PrakashK. PrakashCharteredAccountantshad certified the accounts of the respondent-assessee. Office of M/sPrakash K. Prakash Chartered Accountants was contacted andthereuponthey filed their power of attorney on 1®' November,2007.The said Chartered Accountants also filed a letter that the respondent had not received notice and had beencompany any regularly filing correct address and after that there wastheir returns mentioningthechange in address,the same was informed. Along with this letter,nodetail of new address was filed. had not mentioned the Theypresent/currentaddress. 6.Anothershow causenoticewas issuedand sent at the lastlaiownaddress of the respondent-assesseeand the address of the CharteredAccountants fixing the hearing on 4^'' December, 2007. The letterreferredto the notice under Section 147/148 of the Act, show causenoticeunder Section144 dated 8^'' October,2007 and the fact that thereasonscouldbe afterreturnofincomewas filedbut providedonly yetin the interest of justice and for the purpose of proceedingsit was statedthat as per informationavailable,the share capitalwas received the from the who had been identifiedasduring years persons entryoperators. Thus,the respondent-assesseehad receivedaccommodationentries which were likely to be hit under Section 68 as unexplainedcash credit. Details and manner in which entries were made in thebooks of accountand the clandestinemannerof circulation,was statedin detail in the show cause notice. 7.On 4"" December,2007, no one appearedat the time of hearing.Subsequently,a request for adjournment was received by way ofcourierfrom M/s PrakashK. PrakashCharteredAccountantsand they,were allowed time up to lO'''^ December, 2007, but on the said datealso, no one appeared and no written request was received.Accordingly,ex-parteor best judgmentassessmentorders both datedDecember, 2007 were passed for the two assessmentyears.Weshall be refeiTing to the details/contentsof the assessment orderssubsequently. 8.The respondent-assessee, however, preferred appeals andsubstantiallysucceededon meritsbeforethe CommissionerofIncomeTax (Appeals) but did not succeed in their challenge to reopeningunder Section 147/148 of the Act or on the question of service ofnotice. 7.On 4"" December,2007, no one appearedat the time of hearing.Subsequently,a request for adjournment was received by way ofcourierfrom M/s PrakashK. PrakashCharteredAccountantsand they,were allowed time up to lO'''^ December, 2007, but on the said datealso, no one appeared and no written request was received.Accordingly,ex-parteor best judgmentassessmentorders both datedDecember, 2007 were passed for the two assessmentyears.Weshall be refeiTing to the details/contentsof the assessment orderssubsequently. 8.The respondent-assessee, however, preferred appeals andsubstantiallysucceededon meritsbeforethe CommissionerofIncomeTax (Appeals) but did not succeed in their challenge to reopeningunder Section 147/148 of the Act or on the question of service ofnotice. 9.Two cross appeals were preferred before the tribunal by theRevenueand the respondent-assesseefor the two assessmentyears butthe same have been dismissed by the impugned order dated 29"'October, 2010.The reasoning given by the tribunal is that therespondent-assesseehad furnishedPermanentAccountNumber(PAN)of the share applicants except with regard to the share capital ofRs.4,50,000/-and before the Commissioner(Appeals), the assesseeITANos. 1018/2011&1019/2011Page4of24 had also submittedvarious details and documentsto establishidentityof the investors/shareapplicants. The impugnedorder in paragraph6refers to and quotes several paragraphsfrom the order passed by theCommissioner(Appeals)and inparagraph7 refersto the observationsmade by the Commissioner(Appeals). Thereafter,in paragraph8 it isrecorded that the tribunal had gone through various reasons andprincipleson which Commissioner(Appeals)had deletedthe addition.Commissioner(Appeals)had given a findingthat verificationofPANwas made and found to be coiTect except with regard to the shareapplicationmoney of Rs.4,50,000/-and, therefore,in the light of thejudgments of Delhi High Court in CIT v. Lovely Exports PrivateX^i/.[2008]299 ITR268, WinstralPetrochemicalsPvt. Ltd. [2011] 330ITR 603 and CIT Vs. Dwarkadhish Investment (P) Ltd. [2011] -330ITR 298 and other cases,' addition was not justified and not inaccordance with law. 10.Crossfiled the assesseewere not and in objections by pressedparagraph20 ofthe impugnedorderit is specificallyrecordedthattheofnoticeunderSection148 was not thevalidity arguedby respondent-assesseeand it wasthat the assessee's had no fairly acceptedappealsmerit. The tribunalthereafterheldthatthey had gonethroughthe orderofthe Commissioner(Appeals)and the findingsrecordedon the saidissue were right.At this stage, we would like to reproduce thefindingsrecordedby the Commissioner(Appeals)on this.issue:- "3.6.2 Similar is the positionwith regard to service ofshow- cause notice for completing the impugnedassessmentu/s 144 ofthe Act as it is an establishedfactthat in absenceof any intimationwith regardto changeofregisteredofficeaddressfrom the appellantcompany,the assessing officer has left with very little optionexcept getting the same served tln'ough affixture. It isbeyond doubt that the assessing officer took pains tolocate the authorized representative M/s Pralcash K. Page5of24 Prakash, CAs and served show- cause notice on themmeaningtherebythatthe appellantwas fullyin Imownofthe things that the assessmentproceedingsare going onand it is requiredto file informationwith regard to thevariouspointsonthe basis whichthe case was reopenedu/s 147/148 of the Act. It is matter of record that afterthe authorizedAR could be located by the assessingofficer,the AR filed a letter dated 'nil' along with POAdated 1-11-2007 but still the appellant chose not tointimatethe address to the assessingofficer exceptvaguelystatingthat the Departmenthave been informedabout the change of address from time to time. In thesecircumstances, I do not see any justification on the partof the appellantto either raise the issue of non- serviceof notices or improperprocedureof substitutedserviceand accordingly,I hold thatthe impugnedassessmentisin order. The contentions of the appellant company that theimpugnedassessmenthas been framed without lookinginto the contentionsof the appellanthas also not foundfavour with me as despite laiowing fully well that theassessment shall be time barred as on 31-12-2007, theAR chose to sent the details thi'ough post which werereceivedbythe assessingofficeron 18-12-2007whereasthe impugnedorderus passedon 17-12-2008.Otherwisetoo, duringthe presentproceedings,the assessingofficersubmitteda remandreportwhereinthe appellanthas notbeen given an opportunityto put forth its view pointsand on whichrejoinderhas also been filed which meansthat the principleof naturaljusticehas been adheredtoand hence contention of the Ld. AR needs rejection." 11.Other findings recordedby the Commissioner(Appeals)refersto the remand report which was called from the Assessing OfficerstatingthatnoticeunderSection148 was sent at the lastloiownaddressi.e., F-280, New Rajinder Nagar, New Delhi, which was alsomentionedin the returnofincome,but was receivedunservedwith theremark"no such assessee",but subsequentlyserved through affixtureat A-46, Mohan Co-op. IndustrialEstate,MathuraRoad, New Delhi,the address which was shown in the return of income for theassessmentyear 2004-05. The AssessingOfficerin the remandreport ITANos. 1018/2011&1019/2011 Page6of24 has mentioned that the assessee's registered office was located at A-46,MohanCo-op.IndustrialEstate,MathuraRoad, New Delhi onthe dateof affixtureof notice. Subsequently,on 18"' April, 2007, they shiftedtheirregisteredofficeto A-15,B-1 Extension,MohanCo-op.IndustrialEstate, Mathura Road, New Delhi.We have already quoted theobsei-vationof the Assessing Officer after M/s Prakash K. PrakashCharteredAccountantswere served and they in their letter dated 1®*^November, 2007 had not ftimished the new address, though therespondent-assesseehave stated that they had shiftedtheir registeredoffice address from A-46, Mohan Co-op. Industrial Estate, MathuraRoad, New Delhi to A-15, B-1 Extension,Mohan Co-op. IndustrialEstate,MathuraRoad, New Delhi. The respondent-assesseehad alsostated that they had "misplaced" the intimation filed with thedepartmenton change of address. The Commissioner(Appeals)hasrecordeda finding that the respondent-assesseehad wrongly claimedthat they had informedthe departmentabout changeoftheirregisteredofficeaddress,as not even a singleintimationwas presentedbeforetheAssessing Officer or him. 12.The contentionof the Ld. AR for the appellant,that they hadintimated change of address to Registrar of Companies, and theAssessing Officer should have ascertainedthe said address, it wasrightlyobservedcouldnot cut any ice in the facts ofthe presentcase.It was theandof theassesseeto obligation responsibility respondeiat-intimatechange ofaddress to the AssessingOfficeras no letuinwiththe new address was famishedor even filed. Further,the conductofthe respondent,whenthey did not givethe latestaddressin spiteofthefact that M/s PrakashK. Prakash,CharteredAccountantswere servedand informedaboutthe proceedings,speaksfor itself. Theirconductin ITANos. 1018/2011&1019/2011 Page7of24 not and before tlie Officer was responding appearing Assessing commented the Commissioner and theadverselyupon by(Appeals)said findinghas not been disturbedby the tribunal. However,this factand the conductofthebeforetheOfficerwas not respondent Assessingnoticedand given adequatereferencewhile dealingwiththe questionof deletion of addition on merits. ITANos. 1018/2011&1019/2011 Page7of24 not and before tlie Officer was responding appearing Assessing commented the Commissioner and theadverselyupon by(Appeals)said findinghas not been disturbedby the tribunal. However,this factand the conductofthebeforetheOfficerwas not respondent Assessingnoticedand given adequatereferencewhile dealingwiththe questionof deletion of addition on merits. 13. The AssessingOfficeris both an investigatorand an adjudicator.When a fact is allegedand stated before the AssessingOfficerby anassessee,he must and should examine and verify, when in doubt orwhen the assertionis debatable. Normally a factual assertionmadeshouldbe acceptedby the AssessingOfficerunlessforjustificationandreasonsthe assessingofficerfeels that he needs/requireS'a deeper anddetailed verification of the facts alleged.The assessee in suchcircumstances should cooperate and furnish papers, details andparticulars.This may entail issue of noticesto third partiesto fiirmshand supply informationor confirm facts or even attend as witnesses.The Assessing Officer can also refer to incriminatingmaterial orevidence availablewith him and call the assessee to file their uponWe cannot downor stateaor universalresponse.laygeneralprocedureor method which should be adopted by the assessing officer whenverificationoffacts is required.The manner and mode of conductingassessmentproceedingshas to be leftto the discretionofthe assessingofficer, and the same should be just, fair and should not cause anyharassmentto the assesseeor thirdfrom whom confirmationorpersonsverificationis required. The verificationand investigationshould bedone with the least amountof intrusion,inconvenienceor harassmentespeciallyto thirdparties,who may have enteredintotransactionswiththe assessee. The ultimate of the officer should finding assessing ITANos. 1018/2011&1019/2011 Page8of24 . reflectdue applicationof mind on the relevantfacts and the decisionshould take into considerationthe entire material, which is germaneand which shouldnot be ignoredand excludethat which is irrelevant.Certain facts or aspects may be neutral and should be noted. Theseshould not be but cannot become the bedrock or ignored theysubstratumof the conclusion. The provisionsof EvidenceAct are notbut theofficer aapplicable, assessing being quasi judicial authority,musttake care and cautionto ensurethatthe decisionis reasonableandsatisfies the canons of equity, fairness and justice. The evidenceshould be impartially and objectively analyzed to ensure that theadversefindingsagainstthe assesseewhenrecordedare adequatelyandduly supported by material and evidence and can withstand thechallenge in appellate proceedings. Principle of preponderanceofprobabilitiesapphes. What is stated and the said standard, equallyapply to the Tribunal and indeed this Court. The reasoning and thegrounds given in any decisionor pronouncementwhile dealing withthe contentionsand issues should reflect applicationof mind on therelevant aspects. 14.When an assessee does not produce evidenceor tries to avoidappearance before the Assessing Officer, it necessarily createsdifficultiesand preventsascertainmentoftrue and correctfacts as theAssessing officer is denied advantage of the contention or factualassertionby the assesseebeforehim. In case an assesseedeliberatelyand intentionally fails to produce evidence before the AssessingOfficerwith the desire to preventinquiryor investigation,an adverseview should be takehr We shall now come to the merits and thefindings recorded by the Commissioner(Appeals), which as notedabove, have been simplyaffirmedby the tribunalwithoutverifyingor ITANos. 1018/2011&1019/2011 Page9of24 refeiTing to the facts. 14.When an assessee does not produce evidenceor tries to avoidappearance before the Assessing Officer, it necessarily createsdifficultiesand preventsascertainmentoftrue and correctfacts as theAssessing officer is denied advantage of the contention or factualassertionby the assesseebeforehim. In case an assesseedeliberatelyand intentionally fails to produce evidence before the AssessingOfficerwith the desire to preventinquiryor investigation,an adverseview should be takehr We shall now come to the merits and thefindings recorded by the Commissioner(Appeals), which as notedabove, have been simplyaffirmedby the tribunalwithoutverifyingor ITANos. 1018/2011&1019/2011 Page9of24 refeiTing to the facts. 15.In the presentcase,the undisputedpositionis thatthe respondenthad received share apphcation money of Rs.68,30,100/- andRs.75,60,200/-in the Assessment Years 2002-03 and 2003-04respectively. For the AssessmentYear 2002-03,the AssessingOfficerhad taken the share application money received in the year asRs.1,20,34,100/-,which included Rs.32,80,000/-and Rs.19,24,000/-relatedto or was theshare As noted previousyears opening capital.above, additionofRs.4,50,000/-has been sustainedin the AssessmentYear 2002-03. Thus, the Commissioner(Appeals) and the tribunalhave deletedadditionsofRs.63,80,100/-and Rs.75,60,200/-in the twoassessment years.Before the Commissioner (Appeals), therespondent-assesseehad furnishedname ofthe share applicantswhichconsistedof It wassubmittedthat themostly companies. accordinglyrespondenthad beenableto establishidentityofthe shareholders,theircreditworthiness and also genuineness of the transaction as thepayments were received through banldng channels.Thus, therespondenthad dischargedthe primaryonus andtherewas no evidenceor material to show that unaccountedfor money was recycled andintroduced in the books as share application money.TheCommissioner (Appeals) has recorded that verification of PANnumbers was done in the present case and was found to be correctexceptin the case ofTechnochemAssociatesPrivateLimitedand M/sYogesh Gupta from whom share applicationmoney of Rs.1,50,000/-•eachwas raisedbut no PAN detailswere fiirnished. RegardingGangaInfm Private Limited, PAN number furnished was found to beincon-ectand accordinglyadditionofRs.l,50,000/-was justified. Withregard to others, the Commissioner(Appeals) has recordedthat theassessing officer had not affected inquiries to bring on record andITANos. 1018/2011&1019/2011PagelOof24, establishthat the other parties had given accommodationentries andthe money, i.e., the share application money was assessee's ownundisclosed income. It was further recorded that the respondent hadnot been providedan opportunityto cross-examinethe so-calledentryprovidersand the assessingofficersimplyrelieduponthe investigationreports/informationprovided by the Information Wing of theDepartment. 16.The aforesaid finding of the Commissioner(Appeals), whichhave been affirmed by the tribunal, ignores the finding of theAssessingOfficerthatthe Assesseehad failedto attendthe assessmentproceedings,explainand put forward their stand and stance. To thisextent,there is contradictionin the orderpassedby the Commissionerwhichwasand not takennote of thetribunal.(Appeals), ignoredby establishthat the other parties had given accommodationentries andthe money, i.e., the share application money was assessee's ownundisclosed income. It was further recorded that the respondent hadnot been providedan opportunityto cross-examinethe so-calledentryprovidersand the assessingofficersimplyrelieduponthe investigationreports/informationprovided by the Information Wing of theDepartment. 16.The aforesaid finding of the Commissioner(Appeals), whichhave been affirmed by the tribunal, ignores the finding of theAssessingOfficerthatthe Assesseehad failedto attendthe assessmentproceedings,explainand put forward their stand and stance. To thisextent,there is contradictionin the orderpassedby the Commissionerwhichwasand not takennote of thetribunal.(Appeals), ignoredby 17.The Commissioner(Appeals)thereafterproceededon the basisthat even if the subscribersto the share were notthe capital genuine,amount received cannot be regarded as undisclosedincome of theReferencewas made to the decisionofthe Delhirespondent-assessee.HighCourtin LovelyExportsPrivateLimitedandDivineLeasingandFinanceLimited Referencewas made to some decisionofthe(supra).tribunal. .It would be here relevanttoand note what was highlightrecorded by the Assessing Officer in the assessment order.TheAssessing Officer has mentioned that the subscribers belonged toMaheshGarg group of entry operators,whichincluded51 companies/who weremore than 100 bank accountsin differentpersons, operatingbanks/branches.Theirmoduswas toaccommodationoperandi provideentriesto differentReferencewas made to thepersons/beneficiaries.bank statementsofthe entry operatorsthat showed substantialdepositof cash in the banlc accounts and subsequentissue of cheques to the ITANos.1018/2011&1019/2011 ^ beneficiaries. This was the only activity of these companies/persons.The said companies/personswere not canyingon any other business JO/activityi.e., manufacturingor tradingactivity. The assessmentorderhas quoted and refen-edto the banlc accountstatementsin supportofthe said assertionand finding. The AssessingOfficerhas mentionedthat thewas a limited respondent-assessee private company, closelyheld and there shouldbe proximaterelationshipbetweenthe promoterdirectorsand the shareholders.Closelyheld companiesusuallyreceiveshare capital subscriptions from friends, relatives and not fromunrelated/ unloiown third There was no parties/ general public.relationshipor connectionbetweenthe subscribersand the respondent-assessee, for subscribers to become investors.Assessment orderrecords that to establish identity and availabilityof funds, it wasnecessaryto have at least some idea if not complete details of theactual businessundertakenand engagedin by the respondent-assesseeand explainedhow and why these um^elated and unconnectedthirdparties decidedto become investorsin the absenceof public issue oradvertisement. 18.In the remand report, the Assessing Officer referred to theprovisionsof Section68 ofthe Act and their applicability. The word"identity"as defined,it was observedmeantthe conditionor fact ofa or that or Theperson thing being specified unique person thing.identificationofthe personwouldincludethe place of work, the staff,the factthat it wason businessandofthe actuallycarrying recognitionsaidcompanyin the eyes ofpublic. MerelyproducingPAN numberorassessmentparticularsdid not establishthe identityofthe person. Theactual and true identityof the person or a companywas the businessundertakenby them. This,accordingto us is the correctand true legal ITANos.1018/2011&1019/2011 Pagel2of24 position, as identity, creditworthinessand genuineness have to beestablished. PAN numbers are allotted on the basis of applicationswithout actual de facto verificationof the identity or ascertainingactivenature of businessactivity. PAN is a numberwhich is allottedand helps the Revenuekeep track ofthe transactions.PAN number isrelevant but cannot be blindly and without consideringsurroundingcircumstancestreated as sufficientto dischargethe onus, even whenpaymentis throughbankaccount. ITANos.1018/2011&1019/2011 Pagel2of24 position, as identity, creditworthinessand genuineness have to beestablished. PAN numbers are allotted on the basis of applicationswithout actual de facto verificationof the identity or ascertainingactivenature of businessactivity. PAN is a numberwhich is allottedand helps the Revenuekeep track ofthe transactions.PAN number isrelevant but cannot be blindly and without consideringsurroundingcircumstancestreated as sufficientto dischargethe onus, even whenpaymentis throughbankaccount. 19.On the question of creditworthinessand genuineness,it washighlightedthat the money no doubt was receivedthrough banlangchannels, but did not reflect actual genuine business activity. Theshare subscribersdid not have their ownand profitmaking apparatuswere not involvedin business activity. They merely rotated money,which was comingthroughthe bank accounts,which means depositsby way of cash and issue of cheques. The bank accounts,theiefore,did not reflect their creditworthinessor even of the genuinenesstransaction. The beneficiaries,includingthe respondent-assessee,didnot give any share-dividend or interest tothesaid entryoperators/subscribers.The profitmotivenormalin case ofinvestment,was entirely absent. In the present case, no profit or dividend wasdeclaredon the shares.who would invest or Any person,money giveloan would certainlyseek return or income as consideration. Thesefacts are not adverted to and as noticed below are true and correct.They are undoubtedly relevant and material facts for ascertainingcreditworthinessand genuinenessofthe transactions. 20.Vicky Chaurasia,additionaldirectorofthe respondentcompanywas askedtobeforetheOfficerto the letter appear Assessingpursuantby the Commissioner(Appeals)directingthe AssessingOfficerto go ITANos. 1018/2011&1019/2011 Page 13 of24 through the submissions and submit a report after carrying out He was aslcedtoboolcs of accounts andnecessaryinquiries. produceevidence in support.By letter datedOctober, 2009, therespondent-assesseewas aslced to furnish details/information.Theseincluded details of dividendpaid to the shareholdersand to show andestablish creditworthinessof the parties. Statement of Vicky Chaurasiarecordedunder Section 131 of the Act dated 5^'' November,2009 hasbeen placed on record by the respondentin ITA No. 1019/2011. Hehas stated that he along with Sandeep Chaurasiahad been directorsofthe company since June, 2003 and the company was engaged ininvestment and finance, but he could not give details of the subscribedshare of Rs.2 crores as it was stated that this was before he capitalbecame the director.He could not also give details of how sharecapitalgot subscribedin a privatelimitedcompany. Specificquesfionwas put to him regarding verificationof the shareholders as thesummons issued to them had by and large remained uncomplied forwant of correct addresses. In response, he had stated that the companyhad suppliedaddressesof shareholdersas per share applicationfoimsand in the absence of dividend or any form of return on the investment,the was not in ato call the subsciibeisfoi cioss- company positionexamination. Thehad not received letter for of companyany changeaddress etc.Viclcy Chaurasia stated that according to him thesubscribers,who were allottedshares,continuedand had not ceasedtobe shareholders. With regard to the past directors,he had statedthat• hadand he was not in atothe same. Inthey resignedposition producethe remandreport,itwas specificallymentionedthatbooksofaccountswere neitherproducedon 5^^ November,2009 nor duringthe courseofremand proceedings. ITANos. 1018/2011&1019/2011 Page Hof24 ITANos. 1018/2011&1019/2011 Page Hof24 21.The Assessing Officer had issued notices by speed post to 31parties as per addresses given by the respondent-assesseerequiringthemtoforbooksofaccountswith appear personaldeposition,producecomplete vouchers and bills and statementof banlc accounts for tlierelevant In of 22 the notice summons wereperiod. respect parties,receivedback with postalremarks"No such firm/company/person"ora few "Left without address" and a veiy few "Reftised to accept".Remaining 9 parties neither attended and filed any applicationforadjoummentsnor filed details. Thus,itwas observedthatthe identitieshad been only provedon paper, i.e., in form ofneutraldocumentslikePAN number, ITR, Registrarof Companiesregistration,but withoutfull details as to the actual business activities undertaken by thesecompanies,the reasonwhy these companieshad made investmentin alimitedetc. Thiswiththe fact thattherewasprivatecompany coupledcashin theirbankaccountsand withdrawalsweredepositshighlighted. 22.In the rejoinderfiled to the remandreport, it was statedthat theshare applicantswere requiredto appearin personon 17^'' November,2008 in responseto summonsunder Section 131 dated 23"' October,2009. Subsequently,fresh summons dated 30* October, 2009 wereissuedrequiringcomplianceby 7* November,2009, but the AssessingOfficer had sent the remand report on 6"' November, 2009 withoutwaitingfor complianceof summons. The said submissionis withoutmerit, as we notice that the order of the Commissioner(Appeals) isdatedOctober,2010, i.e., much after'thedate 17"^ November,2009and 7"' November,2009. Awrong year was mentionedin the earliersummonsdated 23''' October,2009. It was only a typographicalerrorand a or from the shareholder would have been response reply-sufficient. Further, in the case of 22 parties, the summons were ITANos. 1018/2011& 1019/2011 receivedbackundelivered/unserved. 23.Tlie contention that the Revenue must have evidence to sliowcirculationof from the assesseeto the third is fallacious money partyand has beeneven when Section68 ofthe Act wasrepeatedlyrejected,not in the statute. In A. Govindarajulu Mudaliar v. CIT [1958] 34ITR 807, Supreme Court observed that it was not the duty of theRevenue to adduce evidence to show from what source, income wasderived and why it should be treated as concealed income.Theassessee mustthe source and nature of cash prove satisfactorilyreceived during the accounting year.Similarly observationsweiemade in CIT vs. M. GanapathiMudaliar [1964] 53 ITR 623 (SC),interaliaholdingthatitwas notnecessaiyfor the Revenueto locatetheexact source. This principlewas reiteratedin CIT V5.- Devi PrasadVishwanathPrasad [1969] 72 ITR 194 (SC), whereinthe contentionthatthe AssessingOfficershouldindicatethe sourceofincomebeforeitwas taxable,was describedas an incorrectlegalposition. Thus whenthere is an unexplainedcash credit,it is open to the AssessingOfficerto holdthat it was incomeofthe assesseeand no furtherburdenlies onhim to showthe source. In YaduHari.Dalmiavs. CIT[1980] 126 ITR 48, aDivisionBenchofDelhiHighCourthas observed:- "It is well known that the whole catena of sectionsstartingfrom s. 68 have been introducedinto the taxingenactmentsstep by step inorderto plug loopholesand inorder to place certain situations beyond doubt eventhereweredecisionssomeofthethoughjudicialcoveringaspects.For example,even long priorto the introductionof s. 68 in the statute book, courts had held that whereany amounts were foimd credited in the books of theassesseeinthe and the assesseeofferedno previousyearexplanationabout the nature and source thereofor theexplanationofferedwas, in the opinionof the ITp, notsatisfactory,the sums so credited could be charged tomcome-tax as mcome of the assessee^ of a relevantprevious year. Section 68 was inserted in the I.T. Act, I 48, aDivisionBenchofDelhiHighCourthas observed:- "It is well known that the whole catena of sectionsstartingfrom s. 68 have been introducedinto the taxingenactmentsstep by step inorderto plug loopholesand inorder to place certain situations beyond doubt eventhereweredecisionssomeofthethoughjudicialcoveringaspects.For example,even long priorto the introductionof s. 68 in the statute book, courts had held that whereany amounts were foimd credited in the books of theassesseeinthe and the assesseeofferedno previousyearexplanationabout the nature and source thereofor theexplanationofferedwas, in the opinionof the ITp, notsatisfactory,the sums so credited could be charged tomcome-tax as mcome of the assessee^ of a relevantprevious year. Section 68 was inserted in the I.T. Act, I 24.We are conscious of the doctrine of 'source of source' or 'originof origin' and also possibledifficultywhich an assesseemay be facedwith when asked to establish unimpeachable creditworthiness of theshare subscribers. But this aspect has to be decided on factual matrixof each case and strict or stringent test may not be applied to armslength angel investorsor normal public issues. Doctrineof 'sourceofsource' or 'origin of origin' camiot be applied universally, withoutreference to the factual matrix and facts of each case. The said test incase of normal business transactions may be light and not vigorous.The said doctrine is applied when there is evidence to show thatassessee may not be aware, could not have knowledge or wasunconcerned as to the source of money paid or belonging to the thirdparty.This may be due to the nature and character of thecommercial/businesstransaction relationship between the parties,statutorypostulatesetc. However,when thereis suiTOundingevidenceand materialmanifestingand revealinginvolvementof the assesseeinthe "transaction"and that it was not entirely an arm'slengthtransaction, resoil or reliance to the said doctrine may be counterandto and The doctrineis not anproductive contrary equity justice.eldritchor a camouflageto circulateill gottenand unrecordedmoney.Withoutbeingobliviousto the constraintsofthe assessee,an objectiveand fair approach/determinationis required. Thus, no assesseeshouldbe harassed and harried but any dishonest fa9ade and smokescreenswhichmasqueradeas pretenceshouldbe exposedand not accepted.of origin' and also possibledifficultywhich an assesseemay be facedwith when asked to establish unimpeachable creditworthiness of theshare subscribers. But this aspect has to be decided on factual matrixof each case and strict or stringent test may not be applied to armslength angel investorsor normal public issues. Doctrineof 'sourceofsource' or 'origin of origin' camiot be applied universally, withoutreference to the factual matrix and facts of each case. The said test incase of normal business transactions may be light and not vigorous.The said doctrine is applied when there is evidence to show thatassessee may not be aware, could not have knowledge or wasunconcerned as to the source of money paid or belonging to the thirdparty.This may be due to the nature and character of thecommercial/businesstransaction relationship between the parties,statutorypostulatesetc. However,when thereis suiTOundingevidenceand materialmanifestingand revealinginvolvementof the assesseeinthe "transaction"and that it was not entirely an arm'slengthtransaction, resoil or reliance to the said doctrine may be counterandto and The doctrineis not anproductive contrary equity justice.eldritchor a camouflageto circulateill gottenand unrecordedmoney.Withoutbeingobliviousto the constraintsofthe assessee,an objectiveand fair approach/determinationis required. Thus, no assesseeshouldbe harassed and harried but any dishonest fa9ade and smokescreenswhichmasqueradeas pretenceshouldbe exposedand not accepted. 25. hiLovelyExports(supra),aDivisionBenchexaminedtwo earlierdecisions of this com-t in CIT vs. Steller Investment Ltd. [1991] 192 ITANos. 1018/2011&1019/2011 Page 17of24 25. hiLovelyExports(supra),aDivisionBenchexaminedtwo earlierdecisions of this com-t in CIT vs. Steller Investment Ltd. [1991] 192 ITANos. 1018/2011&1019/2011 Page 17of24 ITR 287 (Delhi) and CIT vs. Sophiafinance Ltd. [1994] 205 ITR 98(FB) (Delhi). The decisionin StellerInvestment'scase (supra) wasaffirmedby the Supreme court but, by observingthat the conclusionwas on the facts and no interference was called for. Lovely Exports was a case of limited where shares were(supra) public companysubscribedbypublicand itwas accordinglyobserved:- "This reasoning must apply a fortiori to large scalesubscriptionsto the shares of a public Company wherethe lattermay have no materialotherthan the applicationformsandbanlc transactiondetailstogivesomeindication of the identity of these subscribers. It may notapply in circumstanceswhere the shares are allotteddirectly by the Company/assesseeor to creditorsof theassessee.This is why this court has adopteda very strictto the burden laid almost on anapproach being entirelyassessee which receives a gift." 26.Thereafterreference was made to Full Bench decision in thecase of Sophia Finance Ltd/s case (supra) wherein it has beenobservedthat if the shareholdersexists then, "possibly",no fartherenquiry needs to be made and that the Full Bench had not reflectedtheofwhetherthe burdenofrestedon theupon questionproofentirelyassessee and at which point this burden justifiably shifted to the officer. The Full Bench has obsei-vedthat were notassessing theydecidingas to on whom and to what extentwas the onus to show thatthe amount creditedin the books of accounts was share and capitalwhenthe onus waswas not decided.The standardofoof discharged,pibeandand was natureofthemight rigorous stringent dependentupontransactionand wheretherewas evidencethatthe sourceofinvestmentcannotbe manipulated,it was material. Similarly,it was observedthatassessee could scarcely be heard to say that he did not laiow theofadonorin caseofa It was held:-particularsgift. ITANos. 1018/2011&1019/2011 Pagel8of24- "There camiot be two opinions on the aspect that theperniciouspracticeof conversionof unaccountedmoneyttooughthe masqueradeor channel of investmentin theshare capital,ofa companymust be firmly excoriatedbythe Revenue., Equally, where the preponderance ofevidence indicates absence of culpability and complexityof theassessee it should not be harassed by theRevenues's insistence that it should prove the negative.In the case of a public issue, the Company concernedcamiotbe expectedto laioweverydetailpertainingto theidentity as well as financial worth of, each of itssubscribers.The Companymust, however, maintainandmake available to the Assessing Officer for his perusal,all, the information contained in the statutory shareapplicationdocuments.In the case of private placementthe legal regime would not be the same. A delicatebalance must be maintained while walking the tightropeof SectionM and69 of the IncomeTax Act. The burdenof proof can seldom be' dischai-gedto the hih by theassessee;if the AO harboursdoubts of the legitimacyofany subscriptionhe is empowered, nay duty-bound,tocarry out thorough investigations.But if the AssessingOfficer fails to unearth any wrong or illegal dealings, hecamiot obduratelyadhere to his suspicionsand treat thesubscribed capital as the imdisclosed income of theCompany^ xxxx Once material to prove these ingredients areproducedit is for the AssessingOfficerto find out as towhether, on these materials,the assessedhas succeededin establishingthe ingredients mentioned above. TheAssessingOfficerTift the veil' and enquire into the realnature of the transaction. C.I.T. v. Ruby Traders andExportersLtd. ;[2003]263ITR300(Cal) ,C.I.T.V. NivedanVanijyaNiyojanLtd. [2003]263ITR623(Cal)andC.I.T.v. KundanInvestmentLtd.[2003]263ITR626(Cal.)are the othertln-ee. xxxx Once material to prove these ingredients areproducedit is for the AssessingOfficerto find out as towhether, on these materials,the assessedhas succeededin establishingthe ingredients mentioned above. TheAssessingOfficerTift the veil' and enquire into the realnature of the transaction. C.I.T. v. Ruby Traders andExportersLtd. ;[2003]263ITR300(Cal) ,C.I.T.V. NivedanVanijyaNiyojanLtd. [2003]263ITR623(Cal)andC.I.T.v. KundanInvestmentLtd.[2003]263ITR626(Cal.)are the othertln-ee. In this analysis, a distillationof the precedentsyieldsthe followingpropositionsof law in the contextofSectionM ofthe IT Act. The assesseehas to primafacieprove (1) the identityof the creditor/subscriber;(2) thegenuinenessof the transaction,namely, whether it hasbeen tiansmittedthi'ough banking or other indisputablechamiels;(3) the creditworthinessor financialstrengthofthe creditor/subscriber.(4) If' relevant details of theaddress or PAN identity of the creditor/subscriberai-efiirnished to the Department along with copies of the Shai-eholdersRegister, Share Application Forms,,ShareTransfer Register etc., it would constitute acceptableproofor acceptableexplanationby the assessed. (5) TheDepartmentwould not be justifiedin drawingan adverseinference only because the creditor/subscriberfails orneglectsto respondto its notices;(6) the onus wouldnotstand discharged if the creditor/subscriberdenies orrepudiates the transaction set up by the assessee norshould the Assessing Officer take such repudiation atface value and construe it, without more, against theassessee;and (7) The AssessingOfficeris duty-boundtoinvestigate thecreditworthiness ofthecreditor/subscriber the genuineness of the transaction and theveracity of the repudiation." 27.The decision in the case of Lovely Exports (supra) wasconsidered in CIT vs. Nova Promoters and Finlease (P) Ltd. (supra)and it was elucidated:- "38. The ratio of a decision is to be understood andappreciatedin the backgroundofthe facts ofthat case. Sounderstood, it will be seen that where the completeparticularsofthe shareapplicantssuch as theirnames andaddresses,incometaxfilenumbers, . theircreditworthiness, share application forms and shareholders'register,sharetransferregisteretc. are furnishedto the Assessing Officer and the Assessing Officer hasnot conducted any enquiry into the same or has nomaterialin his possessionto show that those particularsare false and camiot be acted upon, then no addition canbe made in the hands of the company under sec.68 andthe remedy open to the revenue is to go after the shareapplicantsin accordancewith law. We are afraidthat wecannot apply the ratio to a case;-such as the presentone,where the AssessingOfficeris in possessionof materialthat discreditsand impeachestheparticularsfurnishedbythe assessee and also estabhshes the link between self-confessed"accommodationentryproviders",whosebusinessit is to help assesseesbring into their books ofaccounttheir unaccountedmoniestluough the.medium ofshare subscription, and the assessee. The ratio isinapplicableto a case, again such as the present one,where the involvement of the assessee in such modusoperandi is cleaiiy indicated by valid material madeavailable to the Assessing Officer as a resuh ofinvestigationscarriedout by the revenue authoritiesinto. the activities of such "entry providers". The existence •' Page20of24 ^ •' Page20of24 ^ with the Assessing Officer of material showing that theshare subscriptions were collected as part of a premeditated plan -a smokescreen -conceived andexecuted with the connivance or involvement of theassessee excludes the applicability of the. ratio. In ourunderstanding,the ratio is attractedto a case where it is asimple questionof whether the assessee has dischargedthe burden placed upon him under sec,68 to prove andestablish the identity and creditwoithiness of the shareapplicantand the genuinenessofthe transaction.In sucha case, the AssessingOfficercamiotsit backwith foldedhands till the assessee exhausts all the evidence ormaterial in his possession and then come forward tomerely reject the same, without carrying out anyverification or enquiry into the material placed beforehim. The case before us does not fall under this categoryand it would be a travesty of tmth and justice to express aview to the contrary." 28.In Nova Promoters & Finlease (supra),it was held that in viewof the linlc between the entry providers and incriminatingevidence,mere filing of PAN number, aclmowledgementof income tax returnsofthebankaccountstatementsetc. was not sufficientto entryprovider,discharge the onus. 29.In CIT V. Nipun BuildersandDevelopers[2013] 350 ITR 407(Del) , this principlehas been reiteratedholdingthat the assesseeandthe AssessingOfficerhave to adopt a reasonableapproachand whenthe initialonus on the assesseewould stand dischargeddependsuponfacts and circumstancesof each case.In case of limited privatecompanies, generally persons Imown to directors or shareholders,directly of indirectly,buy or subscribeto shares. Upon receipt of the share subscribers do not lose touch and becomemoney,incomm