M/S Shreenath Heritage Liquor Pvt. Ltd. , G 1/110 Riico Area,Jhunjhunu v. Pr Commissioner Of Income Tax, Central Circle 3, Central ,Revenue Building Department Of Income Tax, Statue, Circle C-Scheme, Jaipur Rajasthan

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 143/2018 M/s Shreenath Heritage Liquor Pvt. Ltd. , G 1/110 Riico Area,Jhunjhunu 333001 ----Appellant Versus Pr Commissioner Of Income Tax, Central Circle 3, Central ,Revenue Building Department Of Income Tax, Statue, Circle C-Scheme, Jaipur Rajasthan ----Respondent For Appellant(s) : Mr. S.L. Poddar for Mr. N.L. Agarwal For Respondent(s): HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 25/07/2018 Judgment 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal filed by the assessee. 2.Counsel for the appellant has framed the following questions of law:- i) Whether the ld. ITAT was justified under lawwhile passing of the impugned order dated18.12.2017 without applying its mind and bymerely reproducing the contents of order passed inits own earlier judgment in ITAT No. 702/JP/2014titled ACT Circle I, Jaiur vs. Bright Metals IndianPvt. Ltd. Jaipur dated 24.02.2017 and simplyrecording that the assessee company being aprivate limited company the burden of proof onhigher pedestal ignoring the law laid down byHon’ble Apex Court in various cases referred in theimpugned order itself particularly at page 9 & 11 ofthe impugned order? ii) Whether the ld. ITAT was justified under lawwhile confirming the findings of the authoritiesbelow it by ignoring the fact that the assessee-company has furnished the detail particulars of thebank accounts, passport, PAN card, addresses andearnings by the shareholder-cum-Director who hadinvested money in the assessee-company,particularly when the investment was madethrough banking channel? iii) Whether the ld. ITAT was justified under lawwhile confirming the findings of ld. CIT(A) and theld. AO wherein the ld. AO for treating theinvestment of share money by Sh. Jagjit Singh whois British NRI as unproven? iv) Whether the ld. ITAT was justified under lawwhile sustaining the additions made by ld. CIT(A)in the hands of the Assessee-Company u/s 68 ofthe IT Act, 1961 by merely recording that theburden of proof if on higher pedestal on theassessee-company as compare to public limitedcompanies in terms of creditworthiness andgenuineness of the transaction without analysingthe fact of the higher burden?” 3.Counsel for the appellant contended that the Tribunal and allthe authorities have committed serious error in dismissing theappeal inasmuch as the provisions of Section 68 were insertedwith effect from 1[st] April, 2013 whereas the assessment orderrelates to the year 2011-12. 4.Counsel for the appellant has taken us to the order ofTribunal wherein it has been observed as under:- “11. Now, coming to various legal authorities onthe subject which have been quoted by the ld ARin support of his contentions, the same haverecently been analysed by us (speaking throughone of us) in exhaustive detail in case of ACITCircle-1, Jaipur vs. Bright Metals Pvt. Ltd. Jaipur(ITA No.702/JP/14) dated 24.02.2017 as under:- “3. In order to appreciate the rival contentions,we refer to various legal authorities on the subjectwhich has been brought to our notice by both theparties. 4.Counsel for the appellant has taken us to the order ofTribunal wherein it has been observed as under:- “11. Now, coming to various legal authorities onthe subject which have been quoted by the ld ARin support of his contentions, the same haverecently been analysed by us (speaking throughone of us) in exhaustive detail in case of ACITCircle-1, Jaipur vs. Bright Metals Pvt. Ltd. Jaipur(ITA No.702/JP/14) dated 24.02.2017 as under:- “3. In order to appreciate the rival contentions,we refer to various legal authorities on the subjectwhich has been brought to our notice by both theparties. 3.1 In case of Navodaya Castle (P) Ltd (supra)which is a case of a private limited company, it isnoted that the SLP has been rejected by theHon’ble Supreme Court holding that the Court donot see any merit in the SLP against the order ofHon’ble Delhi High Court. In this case, the Hon’bleDelhi High Court has referred to catena of earlierdecisions such as case of CIT v. Nova Promoters &Finlease (P.) Ltd. [2012] 342 ITR 169, CIT v. N.R.Portfolio (P.) Ltd. [2014] 222 Taxman 157, CIT v.Sophia Finance Ltd. [1994] 205 ITR 98(Delhi)(FB), CIT v. Divine Leasing & Finance Ltd. [2008]299 ITR 268, CIT v. Durga Prasad More [1971] 82ITR 540 (SC) and CIT v. Nipun Builders &Developers [2013] 350 ITR 407 and has held asunder: “12. The main submission of the learned counselfor the assessee is that once the assessee hadbeen able to show that the shareholdercompanies were duly incorporated by theRegistrar of Companies, their identity stoodestablished, genuineness of the transactions stoodestablished as payments were made throughaccounts payee cheques/bank account; and meredeposit of cash in the bank accounts prior to issueof cheque/pay orders etc. would only raisesuspicion and, it was for the Assessing Officer toconduct further investigation, but it did not followthat the money belonged to the assessee and wastheir unaccounted money, which had beenchannelized. 13. As we perceive, there are two sets ofjudgments and cases, but these judgments andcases proceed on their own facts. In one set ofcases, the assessee produced necessarydocuments/evidence to show and establishidentity of the shareholders, bank account fromwhich payment was made, the fact that paymentswere received thorough banking channels, filednecessary affidavits of the shareholders orconfirmations of the directors of the shareholdercompanies, but thereafter no further inquirieswere conducted. The second set of cases arethose where there was evidence and material toshow that the shareholder company was only apaper company having no source of income, buthad made substantial and huge investments inthe form of share application money. Theassessing officer has referred to the bankstatement, financial position of the recipient andbeneficiaryassesseeandsurroundingcircumstances. The primary requirements, whichshould be satisfied in such cases is, identificationof the creditors/shareholder, creditworthiness ofcreditors/shareholder and genuineness of the transaction. These three requirements have to betested not superficially but in depth having regardto the human probabilities and normal course ofhuman conduct. 14. Certificate of incorporation, PAN etc. arerelevant for purchase of identification, but havetheir limitation when there is evidence andmaterial to show that the subscriber was a papercompany and not a genuine investor. transaction. These three requirements have to betested not superficially but in depth having regardto the human probabilities and normal course ofhuman conduct. 14. Certificate of incorporation, PAN etc. arerelevant for purchase of identification, but havetheir limitation when there is evidence andmaterial to show that the subscriber was a papercompany and not a genuine investor. 18. Lovely Exports (P.) Ltd. (supra) was alsoconsidered and distinguished in N.R. Portfolio (P.)Ltd. (supra) and it was held that the entireevidence available on record has to beconsidered, after relying upon CIT v. NipunBuilders and Developers [2013] 350 ITR 407/214Taxman 429/30 taxmann.com 292 (Delhi),wherein it has been held that a reasonableapproach has to be adopted and whether initialonus stands discharged would depend upon factsand circumstances of each case. In case of privatelimited companies, generally persons known todirectors or shareholders, directly or indirectly,buy or subscribe to shares. Upon receipt ofmoney, the share subscribers do not lose touchand become incommunicado. Call money,dividends, warrants, etc. have to be sent and therelationship remains a continuing one. Therefore,an assessee cannot simply furnish some detailsand remain quiet when summons issued toshareholders remain un-served and uncomplied.As a general proposition, it would be improper touniversally hold that the assessee cannot pleadthat they had received money, but could donothing more and it was for the Assessing Officerto enforce shareholders' attendance in spite of thefact that the shareholders were missing and notavailable. Their reluctance and hiding may reflecton the genuineness of the transaction andcreditworthiness of the creditor. It would be alsoincorrect to universally state that an Inspectormustbesenttoverifytheshareholders/subscribersat the availableaddresses, though this might be required in somecases. Similarly, it would be incorrect to state thatthe Assessing Officer should ascertain and getaddresses from the Registrar of Companies'website or search for the addresses ofshareholders themselves. Creditworthiness is notproved by showing issue and receipt of a chequeor by furnishing a copy of statement of bankaccount, when circumstances requires that thereshould be some more evidence of positive natureto show that the subscribers had made genuineinvestment or had, acted as angel investors afterdue diligence or for personal reasons. The final conclusion must be pragmatic and practical, whichtakes into account holistic view of the entireevidence including the difficulties, which theassessee may face to unimpeachably establishcreditworthiness of the shareholders. 20. Now, when we go to the order of the tribunalin the present case, we notice that the tribunalhas merely reproduced the order of theCommissioner of Income Tax (Appeals) andupheld the deletion of the addition. In fact, theysubstantially relied upon and quoted the decisionof its coordinate bench in the case of MAFAcademy (P.) Ltd., (supra) a decision which hasbeen overturned by the Delhi High Court vide itsjudgment in MAF Academy (P.) Ltd (supra). In theimpugned order it is accepted that the assesseewas unable to produce directors and principalofficers of the six shareholder companies and alsothe fact that as per the information and detailscollected by the Assessing Officer from theconcerned bank, the Assessing Officer hasobserved that there were genuine concerns aboutidentity, creditworthiness of shareholders as wellas genuineness of the transactions. 21. In view of the aforesaid discussion, we feelthat the matter requires an order of remit to thetribunal for fresh adjudication keeping in view theaforesaid case law. The question of law is,therefore, answered in favour of the Revenue andagainst the respondent-assessee, but with anorder of remit to the tribunal to decide the wholeissue afresh. One of the reasons, why we haveremitted the matter is that the cross objections ofthe respondentassessee questioning notice underSection 147/148 were dismissed as infructous andeven if we decide the issue on merits in favour ofthe Revenue, the cross objections would gotrevived and require adjudication. The appeal isaccordingly disposed of.” 3.2 We now refer to another leading case ofLovely Exports (P) Ltd. (supra) which has beenconsidered and referred in Navodaya Castle case(supra) and which has also been quoted by the ldAR in support of its contention. It was a case ofpublic limited company where shares weresubscribed by public and the facts thereof havebeen set out in the judgment of Hon’ble DelhiHigh Court reported as Divine Leasing & FinanceLtd.[2008] 299 ITR 268. The petition for leave toappeal against this order was dismissed by theHon’ble Supreme Court observing “We find nomerit in this Special Leave Petition for the simplereason that if the share application money isreceived by the assessee company from allegedbogus shareholders, whose names are given to the AO, then the Department is free to proceed toreopen their individual assessments in accordancewith law. Hence, we find no infirmity with theimpugned judgment.” In that case, the Hon’bleDelhi High Court has held as under:- “6. We find it indeed remarkable that theattention of the Sophia Finance Full Bench hadnot been drawn to the decision of the SupremeCourt in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159ITR 78, which if cited would really have left noalternative to the Full Bench but to arrive at theconclusion it did. The books of account of theassessee contained three cash credits aggregatingRs. 1,50,000 allegedly received as loans fromthree individual creditors under hundis. Letters ofconfirmation as well as the discharged hundiswere produced; but notices/summons sent tothem remained unserved because they hadreportedly ‘left’ that address. The view of theTribunal was that merely because the assesseecould not produce these three parties, there wasnevertheless no justification to draw an adverseinference. This approach as accorded approval bythe Supreme Court in these words : "In this case, the assessee had given the namesand addresses of the alleged creditors. It was inthe knowledge of the revenue that the saidcreditors were income-tax assessees. Their indexnumbers were in the file of the revenue. Therevenue, apart from issuing notices under section131 at the instance of the assessee, did notpursue the matter further. The revenue did notexamine the source of income of the said allegedcreditors to find out whether they werecreditworthy or were such who could advance thealleged loans. There was no effort made to pursuethe so-called alleged creditors. In thosecircumstances, the assessee could not doanything further. In the premises, if the Tribunalcame to the conclusion that the assessee hasdischarged the burden that lay on him, then itcould not be said that such a conclusion wasunreasonable or perverse or based on noevidence. If the conclusion is based on someevidence on which a conclusion could be arrivedat, no question of law as such arises." (p. 84) This reasoning must apply a fortiori to large scalesubscriptions to the shares of a public companywhere the latter may have no material other thanthe application Forms and Bank transaction detailsto give some indication of the identity of thesesubscribers. It may not apply in circumstances This reasoning must apply a fortiori to large scalesubscriptions to the shares of a public companywhere the latter may have no material other thanthe application Forms and Bank transaction detailsto give some indication of the identity of thesesubscribers. It may not apply in circumstances where the shares are allotted directly by thecompany/assessee or to creditors of the assessee.This is why this Court has adopted a very strictapproach to the burden being laid almost entirelyon an assessee which receives a gift. 7.Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) asuccinct yet complete precis on the essentials ofincome-tax liability can be discerned from thesewords - "In all cases in which a receipt is soughtto be taxed as income, the burden lies on theDepartment to prove that it is within the taxingprovision and if the receipt is in the nature ofincome, the burden of proving that it is nottaxable because it falls within the exemptionprovided by the Act lies upon the assessee." Thisdecision is adequate authority for the propositionthat by virtue of section 68 of the Income-tax Actthe assessee is obliged to establish that amountscredited in the accounts do not represent itsincome; in that case the assessee’s version thatshe had won them through betting on horseracing in two consecutive years did not attractcredibility. The Apex Court had followed its earlierdecision, namely, Orissa Corpn. (P.) Ltd.’s case(supra) wherein it had held that since theassessee had given the names and addresses ofthe creditors, all of whom were income-taxassessees, the failure of the creditors to respondto the Department’s notices would not justify anadverse inference being drawn against theassessees. The Court also kept in perspective thefact that the documentation had also beenproduced by the assessee. It is obvious that theSupreme Court considered that in thesecircumstances the onus of proof had beendischarged by the assessee. It is also palpablethat the Supreme Court was of the further opinionthat the Department had not discharged theburden of proof that had shifted to it, since it didnothing more than issue notices under section131 of the Income-tax Act. Therefore, theDepartment ought to have made efforts to pursuethese notices/creditors to determine theircreditworthiness. These observations sound thedeath-knell for the contentions raised on behalf ofthe Department in the present batch of appeals. 13. There cannot be two opinions on the aspectthat the pernicious practice of conversion ofunaccounted money through the masquerade orchannel of investment in the share capital of acompany must be firmly excoriated by therevenue. Equally, where the preponderance ofevidence indicates absence of culpability and complexity of the assessee it should not beharassed by the Revenue’s insistence that itshould prove the negative. In the case of a publicissue, the Company concerned cannot beexpected to know every detail pertaining to theidentity as well as financial worth of each of itssubscribers. The Company must, however,maintain and make available to the AssessingOfficer for his perusal, all the informationcontained in the statutory share applicationdocuments. In the case of private placement thelegal regime would not be the same. A delicatebalance must be maintained while walking thetightrope of sections 68 and 69 of the IT Act. Theburden of proof can seldom be discharged to thehilt by the assessee; if the Assessing Officerharbours doubts of the legitimacy of anysubscription he is empowered, nay duty-bound, tocarry out thorough investigations. But if theAssessing Officer fails to unearth any wrong orillegal dealings, he cannot obdurately adhere tohis suspicions and treat the subscribed capital asthe undisclosed income of the Company. 16. In this analysis, a distillation of theprecedents yields the following propositions of lawin the context of section 68 of the Income-taxAct. The assessee has to prima facie prove (1) theidentity of the creditor/sub-scriber; (2) thegenuineness of the transaction, namely: whetherit has been transmitted through banking or otherindisputable channels; (3) the creditworthiness orfinancial strength of the creditor/subscriber; (4) Ifrelevant details of the address or PAN identity ofthe creditor/subscriber are furnished to theDepartment along with copies of the ShareholdersRegister, Share Application Forms, Share TransferRegister etc. it would constitute acceptable proofor acceptable explanation by the assessee. (5)The Department would not be justified in drawingan adverse inference only because thecreditor/subscriber fails or neglects to respond toits notices; (6) the onus would not standdischarged if the creditor/subscriber denies orrepudiates the transaction set up by the assesseenor should the Assessing Officer take suchrepudiation at face value andconstrue it, withoutmore, against the assessee. (7) The AssessingOfficer is duty-bound to investigate thecreditworthiness of the creditor/subscriber thegenuineness of the transaction and the veracity ofthe repudiation.” 3.4 We now refer to the decision of the Hon’bleDelhi High Court in case of Commissioner of Income-tax v. Nova Promoters & Finlease (P) Ltd.[2012] 342 ITR 169 (Delhi), which is again a caseof a private limited company and which has beenfollowed in case of Navodaya Castles(supra). Inthis case, the Hon’ble Delhi High Court has heldas under:- “38. The ratio of a decision (in case of LovelyExports) has to be understood and appreciated inthe background of the facts of that case. Sounderstood, it will be seen that where thecomplete particulars of the share applicants suchas their names and addresses, income tax filenumbers, their creditworthiness, share applicationforms and share holders' register, share transferregister etc. are furnished to the Assessing Officerand the Assessing Officer has not conducted anyenquiry into the same or has no material in hispossession to show that those particulars arefalse and cannot be acted upon, then no additioncan be made in the hands of the company undersec. 68 and the remedy open to the revenue is togo after the share applicants in accordance withlaw. We are afraid that we cannot apply the ratioto a case, such as the present one, where theAssessing Officer is in possession of material thatdiscredits and impeaches the particulars furnishedby the assessee and also establishes the linkbetween self-confessed "accommodation entryproviders", whose business it is to help assesseesbring into their books of account theirunaccounted monies through the medium ofshare subscription, and the assessee. The ratio isinapplicable to a case, again such as the presentone, where the involvement of the assessee insuch modus operandi is clearly indicated by validmaterial made available to the Assessing Officeras a result of investigations carried out by therevenue authorities into the activities of such"entry providers". The existence with theAssessing Officer of material showing that theshare subscriptions were collected as part of apre-meditated plan - a smokescreen - conceivedand executed with the connivance or involvementof the assessee excludes the applicability of theratio. In our understanding, the ratio is attractedto a case where it is a simple question of whetherthe assessee has discharged the burden placedupon him under sec. 68 to prove and establish theidentity and creditworthiness of the shareapplicant and the genuineness of the transaction.In such a case, the Assessing Officer cannot sitback with folded hands till the assessee exhaustsall the evidence or material in his possession andthen come forward to merely reject the same,without carrying out any verification or enquiry into the material placed before him. The casebefore us does not fall under this category and itwould be a travesty of truth and justice to expressa view to the contrary. 39. The case of CIT v. Orissa Corporation (P.) Ltd.[1986] 159 ITR 78/25 Taxman 80 (SC)exemplifies the category of cases where no actionis taken by the Assessing Officer to verify orconduct an enquiry into the particulars about thecreditors furnished by the assessee, includingtheir income-tax file numbers. In the samecategory fall cases decided by this court in CIT v.Dolphin Canpack [2006] 283 ITR 190 , CIT v.Makhni & Tyagi (P.) Ltd. [2004] 267 ITR 433 / 136Taxman 641 , CIT v. Antartica Investment (P.)Ltd. [2003] 262 ITR 493 / 133 Taxman 605 andCIT v . Achal Investment Ltd. [2004] 268 ITR211/ 136 Taxman 335 . 3.5 We now refer to the decision of the Hon’bleDelhi High Court in case of Commissioner ofIncome-tax v. N.R. Portfolio (P.) Ltd [2014] 222Taxman 157 which is again a case of a privatelimited company and which has been followed incase of Navodaya Castles(supra). In this case, theHon’ble Delhi High Court has held as under: “18. In the remand report, the Assessing Officerreferred to the provisions of Section 68 of the Actand their applicability. This according to us is thecorrect and true legal position, as identity,creditworthiness and genuineness have to beestablished. PAN numbers are allotted on thebasis of applications without actual de factoverification of the identity or ascertaining activenature of business activity. PAN is a number whichis allotted and helps the Revenue keep track ofthe transactions. PAN number is relevant butcannot be blindly and without consideringsurrounding circumstances treated as sufficient todischarge the onus, even when payment isthrough bank account. 19. On the question of creditworthiness andgenuineness, it was highlighted that the moneyno doubt was received through banking channels,but did not reflect actual genuine businessactivity. The share subscribers did not have theirown profit making apparatus and were notinvolved in business activity. They merely rotatedmoney, which was coming through the bankaccounts, which means deposits by way of cashand issue of cheques. The bank accounts,therefore, did not reflect their creditworthiness oreven genuineness of the transaction. Thebeneficiaries, including the respondent-assessee, did not give any share-dividend or interest to thesaid entry operators/subscribers. The profitmotive normal in case of investment, was entirelyabsent. In the present case, no profit or dividendwas declared on the shares. Any person, whowould invest money or give loan would certainlyseek return or income as consideration. Thesefacts are not adverted to and as noticed below aretrue and correct. They are undoubtedly relevantandmaterialfactsforascertainingcreditworthiness and genuineness of thetransactions did not give any share-dividend or interest to thesaid entry operators/subscribers. The profitmotive normal in case of investment, was entirelyabsent. In the present case, no profit or dividendwas declared on the shares. Any person, whowould invest money or give loan would certainlyseek return or income as consideration. Thesefacts are not adverted to and as noticed below aretrue and correct. They are undoubtedly relevantandmaterialfactsforascertainingcreditworthiness and genuineness of thetransactions 29. In CIT v. Nipun Builders & Developers (P.) Ltd.[2013] 350 ITR 407/214 Taxman 429/30taxmann.com 292 (Delhi), this principle has beenreiterated holding that the assessee and theAssessing Officer have to adopt a reasonableapproach and when the initial onus on theassessee would stand discharged depends uponfacts and circumstances of each case. In case ofprivate limited companies, generally personsknown to directors or shareholders, directly orindirectly, buy or subscribe to shares. Uponreceipt of money, the share subscribers do notlose touch and become incommunicado. Callmonies, dividends, warrants etc. have to be sentand the relationship is/was a continuing one. Insuch cases, therefore, the assessee cannot simplyfurnish details and remain quiet even whensummons issued to shareholders under Section131 return unserved and uncomplied. Thisapproach would be unreasonable as a generalproposition as the assessee cannot plead thatthey had received money, but could do nothingmore and it was for the assessing officer toenforce share holders attendance. Some casesmight require or justify visit by the Inspector toascertain whether the shareholders/subscriberswere functioning or available at the addresses,but it would be incorrect to state that theassessing officer should get the addresses fromRegistrar of Companies' website or search for theaddresses of shareholders and communicate withthem. Similarly, creditworthiness was not provedby mere issue of a cheque or by furnishing a copyof statement of bank account. Circumstancesmight require that there should be some evidenceof positive nature to show that the saidsubscribers had made a genuine investment,acted as angel investors, after due diligence or forpersonal reasons. Thus, finding or a conclusionmust be practicable, pragmatic and might in agiven case take into account that the assesseemight find it difficult to unimpeachably establishcreditworthiness of the shareholders. 30. What we perceive and regard as correctposition of law is that the court or tribunal shouldbe convinced about the identity, creditworthinessand genuineness of the transaction. The onus toprove the three factum is on the assessee as thefacts are within the assessee's knowledge. Mereproduction of incorporation details, PAN Nos. orthe fact that third persons or company had filedincome tax details in case of a private limitedcompany may not be sufficient when surroundingand attending facts predicate a cover up. Thesefacts indicate and reflect proper paper work ordocumentation but genuineness, creditworthiness,identity are deeper and obtrusive. Companies nodoubt are artificial or juristic persons but they aresoulless and are dependent upon the individualsbehind them who run and manage the saidcompanies. It is the persons behind the companywho take the decisions, controls and managethem.” 31. The respondent herein is a Private LimitedCompany. It is not the case of the respondentthat the Directors or persons behind thecompanies making the investment in their shareswere related or known to them. It is highlyimplausible that an unknown person had madesubstantial investment in a private limitedcompany to the tune of Rs.63,80,100/- andRs.75,60,200/- in two consecutive assessmentyears 2002-03 and 2003-04 respectively withoutadequately protecting the investment andensuring appropriate returns. Other than theshare application forms, no other agreementbetween the respondent and third companies hadbeen placed on record. The persons behind thesecompanies were not produced by the respondent.On the other hand respondent adoptedprevaricate and non- cooperation attitude beforethe Assessing Officer once they came to knowabout the directed enquiry and the investigationbeing made. Evasive and transient approachbefore the Assessing Officer is limpid andperspicuous. Identity, creditworthiness orgenuineness of the transaction is not establishedby merely showing that the transaction wasthrough banking channels or by account payeeinstrument. It may, as in the present caserequired entail a deeper scrutiny. It would beincorrect to state that the onus to prove thegenuinenessofthetransactionandcreditworthiness of the creditor stands dischargedin all cases if payment is made through bankingchannels. Whether or not onus is dischargeddepends upon facts of each case. It depends onwhether the two parties are related or known to each; the manner or mode by which the partiesapproached each other, whether the transactionwas entered into through written documentationto protect the investment, whether the investorprofesses and was an angel investor, the quantumof money, creditworthiness of the recipient, theobject and purpose for which payment/investmentwas made etc. These facts are basically andprimarily in knowledge of the assessee and it isdifficult for revenue to prove and establish thenegative. Certificate of incorporation of company,payment by banking channel, etc. cannot in allcases tantamount to satisfactory discharge ofonus. The facts of the present case noticed abovespeak and are obvious. What is unmistakablyvisible and apparent, cannot be spurred by formalbut unreliable pale evidence ignoring the patentand what is plain and writ large.” 3.6 We now refer to the decision in case of CITvs. Shree Barkha Synthetics Ltd. (supra) whereinthe Hon’ble Rajasthan High Court has held asunder (head notes): 3.6 We now refer to the decision in case of CITvs. Shree Barkha Synthetics Ltd. (supra) whereinthe Hon’ble Rajasthan High Court has held asunder (head notes): “The assessee having been asked to furnishexplanation about the receipt of capital money onaccount of share application, had furnished thedetails of the identity of persons who had madesuch investments. The particulars of the receiptand GIR number of the persons, who had madesuch investments in the matter of companiesregistered under the Companies Act, 1956, werefurnished. Notices of 5 companies out of 7companies were received unserved with theremark of the postal department that they hadshifted their addresses. But no attempt was madeby the department to pursue the enquirythereafter which, notwithstanding the remarkabout shifting of addresses, prima facieestablished genuineness of such companies asexisting persons. It had come on record thatanother company did exist and was underliquidation, the existence of which at relevanttime could not be doubted. Likewise, in the caseof individual investors, the Tribunal had reachedthe finding that their identities had beenestablished by the assessee. [Para 10] Applyingthe principle enunciated by the Supreme Court inCIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR78/25 Taxman 80F, the irresistible conclusion wasthat the conclusion of the Tribunal that theassessee had discharged his initial burden inrespect of 6 companies and 9 individual investors,was based on evidence and additions made by theAssessing Officer were enquired into withoutpursuing correctness of material placed before it by the assessee. No question of law could be saidto be arising in such circumstances in respect offinding arrived at by the Tribunal, which wasessentially a finding of fact and did not standvitiated in law. [Para 11]” 3.7 In case of Riddhi Promoters (P) Ltd (supra),the Hon’ble Delhi High Court held as under: “6. It is not sufficient that the identity of theshare applicant or the creditor should beestablished for the assessee to discharge theinitial onus, which is upon the assessee. Underthe requirement of section 68, the assessee hasto further satisfy the revenue as to thegenuineness of the transaction and thecreditworthiness of the share applicant or theindividual who is advancing amounts. Theassessee's reliance upon the order of theCommissioner (Appeals) to contend that thesources of the funds were in essence as directors,is, in this context, of no avail. The assessee hascontended that it was incorporated just before theend of the financial year. However, the assesseehad to necessarily show that the amount which itindicated as borrowed from the six applicants infact belonged to them. The creditworthiness ofthe share applicants had to be seen in the contextof the assertion made by them or the materialspresented before the Assessing Officer at therelevant time. The materials on record disclosedthat some information from at least twoindividuals indicated that the money had not beengiven by them. The appeal is accordinglydismissed.” 3.8 In the case of Jansampark Advertising &Marketing (P) Ltd (supra), the Hon’ble Delhi HighCourt has held as under (Head Notes): 3.8 In the case of Jansampark Advertising &Marketing (P) Ltd (supra), the Hon’ble Delhi HighCourt has held as under (Head Notes): “The further inquiry envisaged under section250(4) is generally by calling what is known as'remand report'. The purpose of this enablingclause is essentially to ensure that the matter ofassessment reaches finality with all the requisitefacts found. The assessment proceedingsreopened on the basis of preliminary satisfactionthat some part of the income has escapedassessment, particularly when some unexplainedcredit entries have come to the notice (as insection 68), cannot conclude, save and except byreaching satisfaction on the touchstone of thethree tests mentioned earlier; viz. the identity ofthe third party making the payment, itscreditworthiness and genuineness of the transaction. Whilst it is true that the assesseecannot be called upon to adduce conclusive proofon all these three questions, it is nonethelesslegitimate expectation of the process that hewould bring in some proof so as to discharge theinitial burden placed on him. Since section 68itself declares that the credited sum would haveto be included in the income of the assessee inthe absence of explanation, or in the event ofexplanation being not satisfactory, it naturallyfollows that the material submitted by theassessee with his explanation must itself bewholesome or not untrue. It is only when theexplanation and the material offered by theassessee at this stage passes this muster that theinitial onus placed on him would shift leaving it tothe Assessing Officer to start inquiring into theaffairs of the third party. [Para 39] The Commissioner (Appeals) and consequentlythe Tribunal were right to the extent of theirconclusion that the assessee had come up withsome proof of identity of some of the entries inquestion. But, from this inference, or from thefact that the transactions were through bankingchannels, it does not necessarily follow thatsatisfaction as to the creditworthiness of theparties or the genuineness of the transactions inquestion would also have been established. [Para41] The Assessing Officer here may have failed todischarge his obligation to conduct a properinquiry to take the matter to logical conclusion.But the Commissioner (Appeals), having noticedwant of proper inquiry, cannot close the chaptersimply by allowing the appeal and deleting theadditions made. It was also the obligation of thefirst appellate authority, as indeed of the Tribunal,to have ensured that effective inquiry was carriedout, particularly in the face of the allegations ofthe revenue that the account statements reveal auniform pattern of cash deposits of equal amountsin the respective accounts preceding thetransactions in question. This necessitated adetailed scrutiny of the material submitted by theassessee in response to the notice under section148 issued by the Assessing Officer, as also thematerial submitted at the stage of appeals, ifdeemed proper by way of making or causing to bemade a 'further inquiry' in exercise of the powerunder section 250(4). This approach not havingbeen adopted, the impugned order of theTribunal, and consequently that of theCommissioner (Appeals), cannot be approved orupheld. [Para 42]” 3.10 In the case of Empire Buildtech (P) Ltd(supra), the Hon’ble Delhi High Court has held asunder (Head Notes): 3.10 In the case of Empire Buildtech (P) Ltd(supra), the Hon’ble Delhi High Court has held asunder (Head Notes): “In Lovely Exports (supra), the Supreme Courtemphasized that the initial burden is upon theassessee to show as to the genuineness of theidentity of the individuals or entities which seek tosubscribe to the share capital. In the instant case,the Assessing Officer in his order, has producedthe tabular statement describing the number ofshares subscribed by the investors, the amountspaid by them, the individuals who paid theamount towards share capital and the grossincome reported by each of such investors to therevenue. A look at that chart would show that theinvestors had, by and large, reported amounts farless as compared to the sums invested by themtowards share capital. Furthermore, the AssessingOfficer had, during the course of assessment,issued notices under section 133(6) to theinvestors - 28 of them responded; 2 did notreceive the notice and 9 of them received thenotices and responded but did not submit anyconfirmation. [Para 7] Having regard to thecircumstances, particularly, the fact that theseinvestors not only did not submit confirmation buthad concededly reported far less income than theamounts invested, the assessee could not, underthe circumstances, be said to have discharged theburden which was upon it. It is not sufficient forthe assessee to merely disclose the addresses oridentities of the individuals concerned. The otherway of looking at the matter is that having giventhe addresses, the inability of the noticees whoare approached by the Assessing Officer to affordany reasonable explanation as to how they gotthe amounts given the nature of their incomewhich was disproportionally less than what theysubscribed as share capital would also amount tothe revenue having discharged the onus if at allwhich fell upon it. The assessee in this case wasincorporated barely few months before thecommencement of the assessment year, andthere is no further information, or anything toindicate why its mark up of the share premiumthousand fold in respect of the shares which wereof the face value of Rs. 10 lakhs was justified.[Para 8]” 3.11 In the case of Ultra Modern Export(P) Ltd(supra), the Hon’ble Delhi High Court has held asunder: 3.11 In the case of Ultra Modern Export(P) Ltd(supra), the Hon’ble Delhi High Court has held asunder: “9. As noticed previously, the CIT (A) was of theopinion that the assessee had discharged thebasic onus which was cast upon it afterconsidering the ruling in Lovely Exports (P.) Ltd.'scase (supra). The material and the records in thiscase show that notice issued to the 5 of the shareapplicants were returned unserved. Theparticulars of returns made available by theassessee and taken into consideration inparagraph 3.4 by the AO in this case would showthat the said parties/applicants had disclosed verymeager income. The AO also noticed that beforeissuing cheques to the assessee, huge amountswere transferred in the accounts of said shareapplicants. This discussion itself would reveal thateven though the share applicants could not beaccessed through notices, the assessee was in aposition to obtain documents from them. Whilethere can be no doubt that in Lovely Exports (P.)Ltd. (supra), the Court indicated the rule of"shifting onus" i.e. the responsibility of theRevenue to prove that Section 68 could beinvoked once the basic burden stood dischargedby furnishing relevant and material particulars, atthe same time, that judgment cannot be said tolimit the inferences that can be logically andlegitimately drawn by the Revenue in the naturalcourse of assessment proceedings. Theinformation that assessee furnishes would have tobe credible and at the same time verifiable. Inthis case, 5 share applicants could not be servedas the notices were returned unserved. In thebackdrop of this circumstance, the assessee'sability to secure documents such as income taxreturns of the share applicants as well as bankaccount particulars would itself give rise to acircumstance which the AO in this case proceededto draw inferences from. Having regard to thetotality of the facts, i.e., that the assesseecommenced its business and immediately soughtto infuse share capital at a premium rangingbetween Rs. 90-190 per share and was able togarner a colossal amount of Rs. 4.34 Crores, thisCourt is of the opinion that the CIT (Appeals) andthe ITAT fell into error in holding that AO couldnot have added back the said amount underSection 68. The question of law consequently isanswered in favour of the Revenue and againstthe assessee.” 3.12 In case of M/s Shubh Mines Pvt Ltd, theHon’ble Rajasthan High Court has held as under: “(7) A bare perusal of the assessment orderreveals that the AO has made the addition onsuspicion which is based on the statements of third party Shri Asseem Kumar Gupta, admittedly,recorded in the back of the assessee. It has comeon record that the share application money of Rs.50,00,000/- was received from Moderate CreditCorporation ltd., a listed company. It is notdisputed before this court that the investmentmade was received by account payee cheque andthe same was refunded by an account payeecheque when the company dropped its project. Inthe considered opinion of this court, in absence ofany cogent evidence on record establishing thatthe money shown to have received as shareapplication money, was as a matter of fact,unaccounted money belonging to the assesseecompany, the finding arrived at by the AO, whichis based on suspicion, has rightly been held notsustainable in the eyes of law. Suffice it to saythat the finding arrived at by the CIT(A), affirmedby the ITAT, which remains a finding of fact,cannot be said to be capricious or perverse.” 3.13 In case of Softline Creations Pvt Ltd 387 ITR636 (Del), the Hon’ble Delhi High Court has heldas under: 3.13 In case of Softline Creations Pvt Ltd 387 ITR636 (Del), the Hon’ble Delhi High Court has heldas under: “(4) This court has considered the concurrentorder of the CIT(A) as well as the ITAT. Both theseauthorities primarily went by the fact that theassessee had provided sufficient indication by wayof PAN numbers, to highlight the identity of theshare applicants, as well as produced theaffidavits of Directors. Furthermore, the bankdetails of share applicants too had been provided.In the circumstances, it was held that theassessee had established the identity of the shareapplicants, the genuineness of transactions andtheir credit-worthiness. The AO chose to proceedno further but merely added the amounts becauseof the absence of the Directors physically presentthems