Transnational Growth Fund Ltd. vs Income Tax Officer, Ward-16(3), New Delhi

“5.20.1

Coming to the present case, I find that the appellant is trying to establish the identity mainly from the following: i) PAN, ii) Incorporation Certificate, iii) Affidavit filed by the Director during course of assessment proceedings, iv) reply tendered in response to notice u/s 133(6) issued by the AO v) and statement of the Director recorded during remand proceedings.

5.20.2

The sanctity of the above stated documents is belied from the following:

i)

As discussed above, Sh. Surendra Kumar Jain and his brother Sh. Virendra Kumar Jain were involved in the activities (in form of the business) of providing accommodation entries to various companies, through numerous non-descript companies, promoted and. managed by them. As a result of search and post-search investigation, the Revenue came to a finding to that effect. All such companies did not have any actual activities and they provided accommodation entries in the form of share capital, share application money, unsecured loan etc., through' a series of transactions passing through several layers of companies. During the course of search, incriminating documents were found and seized/impounded from the premises of Sh. Virendra Kumar Jain and Sh. Surendra Kumar Jain. At the premises of Jain Brothers documents related to beneficiaries in the form of papers and Hard Discs were also found, establishing the fact that the)/ were engaged in the business of providing accommodation entries at a large scale.

ii) The fact that Jain brother were found in possession of cheque books and other vital documents, including their passwords to file ITRs belies the theory of proving identity by documents like PAN, Certificate of Incorporation, Status at ROC or filing of Rol or even having an assessment order (which does not directly makes AO to deal with the question of identity of such company).

iii) The specific references mentioned above, show that all the above said seven (share subscriber) companies from whom this purported share capital has been received by the appellant have been used as conduits for providing accommodation entries.

iv) in fact, as discussed above, during the appellate proceedings before the Hon’ble ITAT, Delhi in ITA Nos.6991 to 6997/Del/2014 for A.Y.s 2005-06 to 2011- 12 (Shri Virender Kumar Jain) and ITA Nos.6998 to 7004/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Surender Kumar Jain), the Authorised Representative (of S/Sh Virendra Kumar Jain and Surendra Kumar Jain) has taken a stand that their cases are to be treated at par with the cases of accommodation entry operators- Sh S K Gupta and Sh Tarun Goyal. The Hon’ble ITAT also accepted this stand. In spite of specific show cause notice vide letter dated 15.12.2017, Appellant did not show any cause as to why this position should not be accepted.

v)

In spite of specific opportunities, mentioned as under, the appellant did not produce (the then) Directors of the above said seven (share subscriber) companies from whom share application/share premium money has been received:

a)

Vide letter dated 30.11.2017, the appellant was asked to produce these persons on 06.12.2017.

b)

Vide hearing dated 12.06.2017, the appellant was asked to produce these persons on 15.12.2017. During the said hearing (on 06.12.2007), the AR of the appellant assured that these persons would be produced on the next dated of hearing i.e. 15.12.2017.

c)

Vide letter dated 15.06.2017, the appellant was asked to produce these persons on 19.12.2017. This date of hearing, incidentally was same as asked by the appellant’s letter dated 15.12.2017.

vi) The confirmations of account filed during assessment proceedings and/ vide replies filed u/s 133(6), are not having original signatures (these are photocopies) except in case of M/s S.R. Cable Pvt. Ltd. The confirmations in form of certificate filed during assessment proceedings and/ vide replies filed u/s 133(6), are not having original signatures (these are photocopies) except in case of i) M/s S.R. Cable Pvt. Ltd. and ii) M/s Krishma Industries Ltd.

vii) In addition to the fact that the confirmations filed during assessment proceedings and also vide replies filed u/s 133(6), are not having original signatures {these are photocopies except in the cases as mentioned above}, in all these cases, the signatures(or photocopies of signatures) show that these are signed by someone else (other than a Director as per Rol or annual accounts). In the following cases, the confirmation has been purportedly signed by the Director, however, these signatures do not match with the signatures of the same Directors as per signatures on the ITR-V.

ix) All the seven affidavits of the Directors of these companies filed before AO, were of the same style and are identically worded. Two of these affidavits(in case of M/s Karishma Industries Pvt. Ltd. and M/s Nandal Finance and Leasing Ltd.) were unsigned but notarized. Regarding affidavit dated 09.12.2011 is of Sh. Chhagan Lal Sharma (in case fo Nandal Finance ^Leasing Pvt. Ltd.),as stated earlier, this affidavit is not signed but notarised.’Moreover, the affidavit claims that Sh. Chhagan Lal Sharma was Director on 09.12.2011,however, as per details filed during appellate proceedings in October, 2012, there were three Directors namely, Savesh Pal Singh (from 07.04.2012), ii) Mamta (from 07.04.2012), and iü) Jyoti Jain(from 01.05.2010).Regarding affidavit dated 09.12.2011 of Sh. Prem Kumar Mahato (in case of S.R. Cables Pvt. Ltd), as per details filed during appellate proceedings in October, 2012, there were four Directors namely, Yogesh Mittal, ii) Veena Devi Mittal, iii) Ritesh Mittal, and iv) Sweta Mittal. All of these four Directors have been appointed on 30.09.2011. This means that Sh. Prem Kumar Mahato was not a Direction the date of giving affidavit. However, he has clearly stated (in the affidavit) Director of M/s S.R. Cables Pvt. Ltd. on the said date.

x)

Original of the share application forms and the accompanying resolutions were not produced. However, the photocopies of the share application forms show that all the share application forms are having same style{ e.g. i) name of the appellant company has been written in bold letters, ii) after the address of the appellant company, there is a line made by = signs, and iii) name of the applicant company has been written in bold letters, to list a few}.The photocopies of the resolutions accompanying share application forms show that all the resolutions are having the same 5tyle{ e.g. i) name of the Director who ¡s authorized to purchase/sale shares has been written in bold letters, and ii) the Director is empowered to execute power of attorney in respect of said shares as he thinks fit.}. In case of M/s Aasheesh Capital Services Pvt. Ltd. and M/s Aquiss Pvt. Ltd., although, the . authorized Director is male, however, the resolution empowers him to execute, power of attorney in respect of said shares as she thinks fit.

xi) Neither,’ any activities were found to have been actually carried out at the official addresses of these companies, nor any employee of these companies was found present at these addresses, nor any books of accounts or vouchers were found at these addresses. On the contrary, cheque books and pass books were found and seized from the residential premise of Jain Brothers {at 22/1, New Rajender Nagar, New Delhi}. Further, Acknowledgement of filing of Returns of these companies, User Ids and password of all companies required for e-filing of their returns, Bank A/c Opening & Closing letters, Authorization letters for attending the assessment proceedings, books of account in tally format as well as in the format required for filing a return, were found in the possession of Jain Brothers. Also, Jain Brothers were found to have provided their mobile nos. in Bank A/c opening forms where option of mobile banking was required.

5.21

The statement recorded during remand proceedings will have to be discarded because, as stated earlier, the same have been recorded without any reference of vital findings (mentioned above) in the light of material found and seized or otherwise noticed during the search/ survey operations at residence of Jain Brothers and connected premises and also during post search enquiries. Moreover, some of these statements are of the persons who were not Directors at the time of extending the above stated money in form of share application/ share premium. Most importantly, these people were not produced before undersigned in spite of sufficient opportunities afforded during the present appellate proceedings.

5.22

In view of the above discussion, in my humble opinion, the appellant has failed to discharge the onus to prove the identities of these seven corporate parties.

5.23

The appellant is trying to establish the creditworthiness mainly from the annual accounts and the statement of the Directors recorded during remand proceedings.

5.24

The sanctity of the above stated documents is belied from the following:

i)

As discussed above, Sh. Surendra. Kumar Jain and his brother Sh. Virendra Kumar Jain were involved in the activities (in form of the business) of providing accommodation entries to various companies, through numerous non-descript companies, promoted and managed by them. As a result of search and post-search investigation, the Revenue came to a finding to that effect. All such companies did not have any actual activities and they provided accommodation entries in the form of share capital, share application money, unsecured loan etc., through a series of transactions passing through several layers of companies. During the course of search, incriminating documents were found and seized/impounded from the premises of Sh. Virendra Kumar Jain and Sh. Surendra Kumar Jain. At the premises of Jain Brothers documents related to beneficiaries in the form of papers and Hard Discs were also found, establishing the fact that they were engaged in the business of providing accommodation entries at a large scale.

ii) The fact that Jain brother were found in possession of cheque books and other vital documents, including their passwords to file ITRs belies the theory of proving identity by documents like PAN, Certificate of Incorporation, Status at ROC or filing of Rol or even having an assessment order (which does not directly makes AO to deal with the question of identity of such company).

iii) The specific references mentioned above, show that all the above said seven (share subscriber) companies from whom this purported share capital has been received by the appellant have been used as conduits for providing accommodation entries.

iv) In fact’as discussed above, during the appellate proceedings before the Hon'ble ITAT, Delhi in ITA Nos.6991 to 6997/Del/2014 for A.Y.s 2005-06 to 2011- 12 (Shri Virender Kumar Jain) and ITA Nos.6998 to 7004/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Surender Kumar Jain), the Authorised Representative ( of S/Sh Virendra Kumar Jain and Surendra Kumar Jain) has taken a stand that their cases are to be treated at par with the cases of accommodation entry operators-Sh S K Gupta and Sh Tarun Goyal. The Hon’ble ITAT also accepted this stand. In spite of specific show cause notice vide letter dated 15.1z.z0 i/, Appellant did not show any cause as to why this position should not be accepted.

v)

In spite of specific opportunities, mentioned as under, the appellant did not produce (the then) Directors of the above said seven (share subscriber) companies from whom share application/share premium money has been received:

a)

Vide letter dated 30.11.2017, the appellant was asked to produce these persons on 06.12.2017.

b)

Vide hearing dated112.06.2017, the appellant was asked to produce the.se persons on 15.12.2017. During the said hearing (on 06.12.2007), the AR of the appellant assured that these persons would be produced on the next dated of hearing i.e. 15.12.2017.

c)

. Vidé letter dated 15.06.2017, the appellant was asked to produce these persons on 19.12.2017. This date of hearing, incidentally was same as asked by the appellant’s letter dated 15.12.2017.

vi) The confirmations of account filed during assessment proceedings and/ vide replies filed u/s 133(6), are not having original signatures (these are photocopies) except in case of IV/s S.R. Cable Pvt. Ltd. The confirmations in form of certificate filed during assessment proceedings and/ vide replies filed u/s 133(6), are not having original signatures (these are photocopies) except in case of i) M/s S.R. Cable Pvt. Ltd. and ii) M/s Krishma Industries Ltd.

vii) In addition to the fact that the confirmations filed during assessment proceedings and also vide replies filed u/s 133(6), are not having original signatures {these are photocopiés except in the cases as mentioned above}, in all these cases, the signatures (or photocopies of signatures) show that these are signed by someone else (other than a Director as per Rol or annual accounts). In the following cases, the confirmation has been purportedly signed by the Director, however, these signatures do not match with the signatures of the same Directors as per signatures on the ITR-V.

viii) The signatures on the letter of acceptance of share allotment are not matching with the signatures of the same Directors on photocopies of the ITR-V/ the annual accounts of these companies, as follows.

ix) All the seven affidavits of the Directors of these companies filed before AO, were of the same style and are identically worded. Two of these affidavits (in case of M/s Karishma Industries Pvt. Ltd. and M/s Nandal Finance and Leasing Ltd.) were unsigned but notarized. Regarding affidavit dated 09.12.2011 is of Sh. Chhagan Lal Sharma (in case of Nandal Finance & Leasing Pvt. Ltd.), as stated earlier, this affidavit is not signed but notarized. Moreover, the affidavit claims that Sh. Chhagan Lal Sharma was Director on 09.12.2011, however, as per details filed during appellate proceedings in October, 2012, there were three Directors namely, Savesh Pal Singh (from 07.04.2012), ii) Mamta (from 07.04.2012), and iii) Jyoti Jain (from 01.05.2010). Regarding affidavit dated 09.12.2011 of Sh. Prem Kumar Mahato (in case of S.R. Cables Pvt. Ltd), as per details filed during appellate proceedings in October, 2012, there were four Directors namely, Yogesh Mittal, ii) Veena Devi Mittal, iii) Ritesh Mittal, and iv) Sweta Mittal. All of these four Directors have been appointed on 30.09.2011. This means that Sh. Prem Kumar Mahato was not a Director on the date of giving affidavit. However, he has clearly stated (in the affidavit) that he is a Director of M/s S.R. Cables Pvt. Ltd. on the said date.

x)

Original of the share application forms and the accompanying resolutions were not produced. However, the photocopies of the share application forms show that all the share application forms are having same style{ e.g. i) name of the appellant company has been written in bold letters, ii) after the address of the appellant company, there is a line made by = signs, and. iii) name of the applicant company has been written in bold letter's, to list a few}. The photocopies of the resolutions accompanying share application forms show that all the resolution? are having the same style{ e.g. i) name of the Director who is authorized to purchase/sale shares has been written in bold letters, and ii) the Director is empowered to execute power of attorney in respect of said shares as he thinks fit.}. In case of M/s Aasheesh Capital Services Pvt. Ltd. and M/s Aquiss Pvt. Ltd., although, the authorized Director is male, however, the resolution empowers him to execute power of attorney in respect of said shares as she thinks fit.

xi) Neither, any activities were found to have been actually carried out at the official addresses of these companies, nor any employee of these companies was found present at these addresses, nor any books of accounts or vouchers were found at these addresses. On the contrary, cheque books and pass books were found and seized from the residential premise of Jain Brothers {at 22/1, New Rajender Nagar, New Delhi}. Further, Acknowledgement of filing of Returns of these companies, User Ids and password of all companies required for e-filing of their returns, Bank A/c Opening & Closing letters, Authorization letters for attending the assessment proceedings, books of account in tally format as well as in the format required for filing a return, wefe found in the possession of Jain Brothers; Also, Jain Brothers were found to have provided their mobile nos. in Bank A/c opening forms where option of mobile banking was required.

xii) The income of these seven companies (who have been claimed to have subscribed to the shares of the appellant company) are tabulated as under. It can be seen that the income is meager to justify the creditworthiness of these companies to extend the kind money under consideration.

xiii) The' Directors’ salary paid in these seven companies (who have been claimed to have subscribed to shares of the appellant company) are tabulated as under. It may be seen that this meager expense on Directors’ salary does not justify the Creditworthiness of these companies to extend the kind money under consideration.

xiv) The Staffs salary paid in these seven companies (who have been claimed to have subscribed to shares of the appellant company) are tabulated as under. It may be seen that this meager expense on Staff’s salary does not justify the creditworthiness of these companies to extend the kind money under consideration.

xv) The Office rent paid in these seven companies (who have been claimed to have subscribed to shares of the appellant company) are tabulated as under. It may be seen that this meager expense on office rent does not justify the creditworthiness of these companies to extend the kind money under consideration.

xvi) It can be seen from the above table that these companies do not have any capacity to pay the purported amounts.

xvii) A perusal of the bank statements produced shows that these are typical statements of accommodation entry providers. The amount comes from somewhere and immediately or in an interval of day or two, it goes out. The material seized. From the residence of Jain Brothers also indicate that these balances are created in order to provide accommodation entries. In any case, creditworthiness is much more than the papers like balance sheet. It is the trust of a third party to extend credit to a party in the market. The investigation made by the revenue has gathered ample evidences to show that no person in the market would extend any credit to these seven (share subscriber) companies.

5.25

The statement recorded during remand proceedings will have to be discarded because, as stated earlier, the same have been recorded without any reference of vital findings (mentioned above) in the light of material found and seized or otherwise noticed during the search/survey operations at residence of Jain Brothers and connected premises and also during post search enquiries. Moreover, some of these statements are of the. persons who were not Directors at the time of extending the above stated money in form of share application/ share premium. Most importantly, these persons were not produced before undersigned in spite of sufficient opportunities afforded during the present appellate proceedings.

5.26

in view of the above discussion, I have no hesitation to hold that the appellant failed to discharge the onus to prove creditworthiness of these seven parties.

5.27

The appellant is trying to establish the genuineness mainly from the confirmation, bank statements and the statement of the Directors recorded during remand proceedings.

5.28

The sanctity of the above stated documents is belied from the following:

i)

As discussed above, Sh. Surendra Kumar Jain and his brother Sh. Virendra Kumar Jain were involved in the activities (in form of the business) of providing accommodation entries to various companies, through numerous non-descript companies, promoted and managed by them. As a result of search and post-search investigation, the Revenue came to a finding to that effect. All such companies did not have any actual activities and they provided accommodation entries in the form of share capital, share application money, unsecured loan etc., through a series of transactions passing through several layers of companies. During the course of search, incriminating documents were found and seized/impounded from the premises of Sh. Virendra Kumar Jain and Sh. Surendra Kumar Jain. At the premises of Jain Brothers documents related to the beneficiaries in the form of papers and Hard Discs were also found, establishing fact that they were engaged in the business of providing accommodation entries at a large scale.

ii) The fact that Jain brother were found in possession of cheque books and other vital documents, including their passwords to file ITRs belies the theory of proving identity by documents like PAN, Certificate of Incorporation, Status at ROC or filing of Roi or even having an assessment order (which does not directly makes AO to deal with the question of identity of such company).

iii) The specific references, mentioned above, show that all the above said seven (share subscriber) companies from whom this purported share capital has been received by the appellant have been used as conduits for providing accommodation entries.

iv) in fact, as discussed above, during the appellate proceedings before the Hon'ble ITAT, Delhi in ITA Nos.6991 to 6997/Del/2014 for A.Y.s 2005-06 to 2011- 12 (Shri Virender Kumar Jain) and ITA Nos.6998 to 7004/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Surender Kumar Jain), the Authorised Representative ( of S/Sh Virendra Kumar Jain and Surendra Kumar Jain) has taken a stand that their cases are to be treated at par with the cases of accommodation entry operators-Sh S K Gupta and Sh Tarun Goyal. The Hon’ble ITAT also accepted this stand. In spite of specific show cause notice vide letter dated 15.12.2017, Appellant did not show any cause as to why this position should not be accepted.

v)

In spite of specific opportunities, mentioned as under, the appellant did not produce (the then) Directors of the above said seven (share subscriber) companies from whom share application/share premium money has been received:

a)

Vide letter dated 30.11.2017, the appellant was asked to produce these persons on 06.12.2017.

b)

Vide hearing dated 12.06.2017, the appellant was asked to produce these persons on 15.12.2017. During the said hearing (on 06.12.2007), the AR of the appellant assured that these persons would be produced on the next dated of hearing i.e. 15.12.2017.

c)

Vide letter dated 15.06.2017, the appellant was asked to produce these persons on 19.12.2017. This date of hearing, incidentally was same as asked by the appellant’s letter dated 15.12.2017.

vi) The confirmations of account filed during assessment-proceedings and/ vide replies filed u/s 133(6), are not having original signatures (these are photocopies) except in case of M/s S.R. Cable Pvt. Ltd. The confirmations in form of certificate filed during assessment proceedings and/ vide replies filed u/s 133(6), are not having original signatures (these are photocopies) except in case of i) M/s S.R. Cable Pvt. Ltd. and ii) M/s Krishma Industries Ltd. vii) In addition to the fact that ^he confirmations filed during assessment proceedings and also vide replies i filed u/s 133(6), are not having original signatures {these are photocopies except in the cases as mentioned above}, in all these cases, the signatures (or photocopies of signatures) show that these are signed by someone else (other than a Director as per Rol or annual accounts). In the following cases, the confirmation has been purportedly signed by the Director, however, these signatures do not match with the signatures of the same Directors as per signatures on the ITR-V.

viii) The signatures on the letter of acceptance of share allotment are not matching with the signatures of the same Directors on photocopies of the ITR-VZ the annual accounts of these companies, as follows.

ix) All the seven affidavits of the Directors of these companies filed before AO, were of the same style and are identically worded. Two of these affidavits (in case of M/s Karishma industries Pvt. Ltd. and M/s Nandal Finance and Leasing Ltd.) were unsigned but notarized. Regarding affidavit dated 09.12.2011 is of Sh. Chhagan Lal Sharma (in case fo Nandal Finance &Leasing Pvt. Ltd.), as stated earlier, this affidavit is no't signed but notarised. Moreover, the affidavit claims that Sh. Chhagan Lal Sharma was Director on 09.12.2011,however,

as per details filed during appellate proceedings in October, 2012, there were three Directors namely, Savesh Pal Singh (from 07.04.2012), ii) Mamta (from 07.04.2012), and iii) Jyoti Jain(from. 01.05.2010). Regarding affidavit dated 09.12.2011 of Sh. Prem Kumar Mahato (in case of S.R. Cables Pvt. Ltd), as per details filed during appellate proceedings in October, 2012, there were four Directors namely, Yogesh Mittal, ii) Veena Devi Mittal, iii) Ritesh Mittal, and iv) Sweta Mittal. All of these four Directors have been appointed on 30.09.2011. This means that Sh. Prem Kumar Mahato was not a Director on the date of giving affidavit However, he has clearly stated (in the affidavit) that he is a Director of M/s S.R. Cables Pvt. Ltd. on the said date.

x)

Original of the share application forms and the accompanying resolutions were not produced. However, the photocopies of the shar^ application forms show that all the share application forms are having same style{ e.g. i) name of the appellant company has been written in bold letters, ii) after the address of the appellant company, there is a line made by. = signs, and iii) name of the applicant company has been written in bold letters, to list ‘ a few}. The photocopies of the resolutions accompanying share .application forms show that all the resolutions are having the same style{ e.g. i) name of the Director who is authorized to purchase/sale shares has been written in bold letters, and ii) the Director is empowered to execute power of attorney in respect of said shares as he thinks fit.}. In case of M/s Aasheesh Capital Services Pvt. Ltd. and M/s Aquiss Pvt. Ltd., although, the authorized Director is male, however, the resolution empowers him to execute power of attorney in respect of said shares as she thinks fit

xi) Neither, any activities were found to have been actually carried out at the official addresses of these companies, nor any employee of these companies was found present at these addresses, nor any books of accounts or vouchers were found at these addresses. On the contrary, cheque books and pass books were found and seized from the residential premise of Jain Brothers {at 22/1, New Rajender Nagar, New Delhi}. Further, Acknowledgement of filing of Returns of these companies, User Ids and password of all companies required for e-filing of their returns, Bank A/c Opening & Closing letters, Authorization letters for attending the assessment proceedings, books of account in tally format as well as in the format required for filing a return, were found in the possession of Jain Brothers. Also, Jain Brothers were found to have provided their mobile nos. in Bank A/c opening forms where option of mobile banking was required .

xii) The income of these seven companies (who have been claimed to have subscribed to the shares of the appellant company) are tabulated as under. It can be seen that the income is meager to justify the creditworthiness of these companies to extend the kind money under consideration.

"18.

Examining the facts in the fight of above judgments and decisions we observe that assessee is a private limited company which is not open to pub fie and, therefore, if it requires to increase its capital base to invite investment in the share capital along with premium which in this case is Rs. 60/- over the face value of Rs. 10/- then it has to approach within its friends and relatives for the investment. In the given case Rs. 70 lacs each has been given by the impugned 5parties to the private limited company i.e. the assessee. Any prudent person who intends to invest in a company with a motive of gaining from the said investment, looking to the quantum of share capita! and premium invested by these 5 parties which is of a substantial percentage of the total share capital of the company it is surprising to note that none of them was ab/e to appear before the Assessing Authority nor the assessee was ab/e to bring any of them in person to prove the genuineness of transaction and creditworthiness of the investor towards share capita/ and share premium given these impugned 5parties. More so we find that out of the 5parties three parties are within Ahmedabad and so is the assessee. It is not simple to be/ieve that none of them could, have been made to appear before the Assessing Officer to prove the transaction. This non- attendance of the equity shareholders makes the situation little grimy which further gets suspicious when the financial statements are gone through. It has been uniform situation in all the 5parties that transactions totaling in crores are routed through bank accounts, huge reserve and surplus is appearing in the balance sheet along equal amount of investment; but when, the profits and loss account is looked into it seems complete dry as interest against investment running in crores the income shown is few. thousand and so is the total turnover. Adding mope -to this in the statement given by one of the directors of Suraj Corporate Services Pvt, Ltd. it has been clearly accepted that Suraj Corporate Services Pvt. Ltd. is an accommodation entry provider. and just a paper company. This modus operandi of accommodation entry provider cannot get itself covered under the shadow of PAN, income-tax return, audited financial statement and proof of transactions by account payee cheques. One has to go ahead to rethink why such company is incorporated. In normal course a business entity ¡is incorporated to earn profits and capital is contributed for doing the same but when the capital investment or reserve and surplus created is just used to invest in other companies without having any return and the gross turnover of the company is not having any direct connection with the voluminous bank transaction then such companies end up into a paper company.

19.

From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case before us we observe that assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new shareholders who have been allotted a substantial portion of equity shares, he would have easily called upon the investors. The investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. If this has been the situation, then there would have been no doubt on the genuineness of the transactions. On the contrary in the instant case assessee completely fails to prove the same.

20.

It is well settled that in order to discharge the onus the assessee must prove the following:-

i.

The identity of the cash creditor;

ii.

Capacity of the cash creditor to advance money towards capital.

iii.

Genuineness of the transaction. ' ' .

If the assessee has adduced evidences to establish the prima facie, the aforesaid onus shifts to the department. However, mere furnishing of particulars or the mere fact of payment by account payee cheque or the mere submission of confirmation fetter by the share applicant is by itself, not enough to shift the onus to the Department although these facts may, along with other facts be relevant in establishing the genuineness of the transaction. As held by Hon. Supreme Court in the case of SIT vs. N. Tan'ka Properties Investment (2014) SI taxmann.com 387(50) that "PAN cannot be. treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of application without actual de facto clarification of identity or ascertainment of activities, , nature of business activity and are just as to facilitate the Revenue to keep track of transactions and thus PAN cannot be blindly and without consideration of surrounding circumstances treated as sufficient disclosing the identity of individual".

21.

We further observe that Hon. Delhi High Court in the case of CIT V Empire Builtech P Ltd 361ITR 258 (Del), has he Id that whan assessee does not produce evidence or tries to avoid the appearance before the Assessing authority it necessarily creates difficulties and prevents ascertainment of the truth and correct facts as the Assessing Officer is denied the advantage of the attendance or factual assertion by the assessee before him. If an assessee deliberately and intentionally fails to produce evidence before the Assessing Officer with the desire to prevent enquiry or investigation an adverse opinion shou/d be drawn. The assessee had not discharged the initial onus to establish the identity, creditworthiness of the share applicants and the genuineness of the transactions. The additions made by the Assessing Officer were justified and sustainable.

22.

We are, therefore, of the view that in the given facts and circumstances of the case and respectfully following the judgments of Hon. Supreme Court, High Court and the decision of Co-ordinate Bench as discussed above, we are of the confirmed view that assessee has been ab/e to just prove the identity of the company but unable to prove the genuineness <4 creditworthiness of the impugned 5parties. Tn the result, the sum of Rs.3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the Id. Assessing Officer. We set aside the order of id. CIT(A) and restore that of the Assessing Officer. In the result ground no.(i) of Revenue is allowed."

"The AO is also directed to ITA No.6991 to 7004/De//2014 take into consideration the principles laid down by the Jurisdictional High ¿hurt and the Tribunal in various cases and dispose off the case by applying these principles some which we extract in this order for ready reference. The Delhi Bench of ITAT in the case of Tarun Goyal (supra) at para 23 and 24 has held as follows:-

"23.

The AO shall after examine the evidence submitted by the assessee, consider all the cases together and;

a)

restrict the addition u/s 68 to only the peak unexplained credit in each case after elimination circular transaction.

b)

To eliminate taxation of the same amount multiple times, due 'to the chain transactions which resulted due to layering indulged by the assessee.

c)

Consider the material on record and the precedence available on the issue and determine the percentage of commission, which the assessees would hâve earned and bring the same to tax.

24.

Before parting we make it dear that the burden of proof lay on the assessee. It is for the assessee to demonstrate the chain of transaction, the layering indulged by him, the calculation of peak unexplained credit etc. and to prove each credit in the books of each assessee. In the result ad these appeals are set aside to the file of the AO for fresh adjudication in accordance with law. "

"17.

Thus, there is an order of the Settlement Commission as well as the Additional Commissioner of Income Tax under Section 144A holding that Shri S.K. Gupta was providing accommodation entries, he used various companies as conduit for providing the accommodation entries, cash was received through mediators from the persons who wanted to avail the accommodation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail tile accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts. Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as we// as of Additional CIT under Sect/on 144A, we have no hesitation to hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore, we delete the addition made under Section 68 in the case of a// the nine companies, which are admittedly conduit companies of Shri S.K. Gupta."

18.

The Hon'ble Delhi High Court in the case of Vijay Conductors India Pvt. Ltd. in ITA No.683/2015 vide judgment dated 29.9.2015 upheld this order in the case of M/s Vijay Conductors India Pvt. Ltd. and others in the following words:-

"The common issue in all the appeals issues concerns the additions made under Section 68 of the Income Tax Act Act") which was directed to be deleted by the ITAT reffered to the order dated 28th December 2010 of the Settlement Commission which records inter alia that Mr. Gupta was an entry provider and that in his case only the amount of premium /commission received by him after reducing expenses incurred would be his additional income. The Assessing Officer (AO)gave effect to the order of the Settlement Commission and determined the income of Mr. S.K. Gupta without making any addition for unexplained cash credit. During the course of assessment Proceedings of the intermediary companies, including the Respondent Assessee, the AO sought directions from the Additional Commissioner of Income Tax under Section 144-A. The Additional CIT passed an order in which after discussing the facts he inter alia directed that it would be in the best interest of the Revenue to tax these transactions in the hands of beneficiaries and Mr. S.K. Gupta "without making any additions on this account in the hands of conduit entities". The said orders of the Settlement Commission or of the Additional CIT were binding on the AO. It is not in dispute that the Respondent Assessees are the conduit entities and not the beneficiaries. Consequently, the order of the ITA T deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity."

13.

The A O is directed to follow the propositions laid down in these case laws. "

"9.

A bare reading of Section 63 of the. Act suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be a sum during the previous year and if the assessee offers no explanation about the nature and source of such credit or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year. The expression no explanation is offered' or 'the explanation offered is not satisfactory' puts an onus on the assessee to offer a lucid, reasonable and acceptable explanation before the Assessing Officer and thereupon the Assessing Officer should form an opinion accepting or rejecting the explanation based upon appreciation of facts/materials and other attending circumstances. Section 68 of the Act was examined in A. Govindarajulu Mudaliar v. CIT. [1958] 34 ITR 807 (SC) observing that there were ample authorities for the proposition that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during an accounting year, the Assessing Officer is entitled to draw inference that the receipts are of an assessable nature. Whether explanation should be accepted or not is not to be examined factually but having regard to test of human probabilities and normal course of conduct. Reference can be made to CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), CIT v. Daulat Ram Rawatmull, (19731 87 ITR 349 (SC) and other cases referred to in CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). In these cases, it has been observed that what is apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Caution must be exercised on self-serving statements made in the documents as they are easy to make and rely upon in case an assessee wants to evade taxes. Proof is required and the assessing authorities should not put blinkers while looking at the documents before them. Surrounding circumstances are equally important."

"mere furnishing of the bank statements of share subscribers without any explanations for the deposits in the accounts may not meet the requirements of section 68. It may be necessary to know the business activities of the share subscribers in order to ascertain whether they are financially sound and are able to purchase shares for substantial amounts and if they have borrowed money for making the investment, whether they were capable of repaying them having regard to the nature of their business, volume of the business etc. it is for this purpose that it is necessary for the assessee, in appropriate cases, where the facts and surrounding circumstances justified, to seek the assistance of the principal officer of the subscribing companies and present them before the AO so that he will be in a position to explain in detail the source from which the thus shares were subscribed. A curious aspect of the matter which cannot be lost sight of is that the record reveals the assessee's ability to procure the share applicants bank statement. This speaks volume about its conduct and belies the arguments about its inability to ensure the presence of such company's Principal Officers."

"29.

In CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 350 ITR 407 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adapt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and became incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer iv enforce share holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the shareholders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders.

30 What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos, or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial er juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them."

23.

The contention that the Revenue must have evidence to show circulation of money from the assessee to the third party is fallacious and has been repeatedly rejected, even when Section 68 of the Act was not in the statute. In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, Supreme Court observed that it was not the duty of the Revenue to adduce evidence to show from what source, income was derived and why it should be treated as concealed income. The assessee must prove satisfactorily the source and nature of cash received during the accounting year. Similarly observations were made in CIT vs. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC), inter alia helding that it was not necessary for the Revenue to locate the exact source. This principle was reiterated in CIT vs. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia vs. CIT [1980] 126 ITR 48, a Division Bench of Delhi High Court has observed:-

"It is well known that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by step in order to plug loopholes and in order to place certain situations beyond doubt even though there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of s. 68 in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the ITO, not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of a relevant previous year. Section 68 was inserted in the I.T. Act, 1961, only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions."

7.12.3

It is also noted that assessment order in case of Surnedra Kumar Jain (A.Y. 2005-06) clearly mentions in para 45 that the Investigation Wing issued show cause notices contronting contents of Annexures-A1 to A163 as early as on 29.03.2011 and vide para 46 it is mentioined that Assessing Officer also issued show casuse notices dated 08.02.2013 and 04.03.2013 confronting contents of Annexures-A1 to A163 to Jain Brothers. Therefore, Jain Brothers are in possession of the entire seized material. In any case, the Jain Brothers are in possession of the assessment orders in their case where relevant pages have been reproduced. Also, 98 pages of these Annexures were sent alongwith letter dated 15.12.2017 and it was further mentioned that further material would be shown at the time of next hearing. Along with the letter dated 15.12.2017, this office also sent a list of companies having 197 entries. It was stated that this list contains names of the companies controlled by Jain Brothers. Certainly, the company is run by the Directors and the Directors of the appellant company being Sh. Surendra Kumar Jain and his wife Smt. Priti Jain are in knowledge of contents of these seized documents. Since, the appellant/ its AR chose not to attend the hearing, it cannot take shelter that it was not confronted with the material used in this appellate order.

7.13

In view of the above discussion, this ground (no. 2) is dismissed and the addition made by the AO with regard to unexplained credit of Rs. 111.60 crore is upheld.

8.1

Vide ground no. 3, the appellant has stated that the AO has grossly erred in alleging that notices u/s 133(6) and summons u/s 131 were received back which is otherwise duly served and complied by shareholders.

8.2

The relevant portion of the assessment order is reproduced as under:

"3.

During the year the assessee has received money on account of allotment of shares to the tune of Rs.18,60,30,000/- and share premium money of Rs.93,01,50,000/-totaling Rs.111,61,80,000/-where asked to submit names and addresses of persons from whom this money was received. It was submitted vide letter dated 04/11/2011 that a sum of Rs.111.60 crores was received from the following seven parties. The rest of Rs.1.80 lacs was received from the two Directors Sh.S.K.Jain and Smt. Priti Jain.

1.

M/s S. R. Cables Pvt. Ltd 3,00,00,000

2.

M/s Aashish capital Services Pvt.Ltd. 28,95,00,000

3.

M/s Aquiss Pvt.Ltd. 19,20,00,000

4.

M/s Sunny cast and forge Pvt.Ltd. 12,39,00,000

5.

M/s Karishma Inds. Itd. 20,10,00,000

6.

M/s Vrindavan Capital Services Pvt.Ltd. 5,97,00,000

7.

M/s Nandlal Finance & Leasing Pvt. Ltd. 21,99,00,000

Total 111,60,00,000

3.1

It was explained that 1,86,03,000 shares @ Rs.10 were allotted during the year on which a sum 50/- per share was received as share premium.

4.

The assessee was asked to prove the identity, creditability of these parties as also the genuineness of transactions carried out as receipt of share capital and share premium money from these parties. The assessee has filed confirmation from these parties along with copy of their MOA and their Bank Statements etc. along with copies of their Income-tax returns.

5.

Summons u/s 131 were issued to the Director of the seven corporate share application from whom the share application money along with share premium was allegedly received to determine and fineness of the transaction carried out by the assessee. These summans were received assessee has submitted affidavitstas per detalls below) from seven persons vide letter dated 09.12.2011.

Name of the company Name of the Deponent

1.

M/SS.R. Cables Pvt. Ltd. Sh.Prem Kumar Mahato, Director

2.

Ws Alibeesh Capital Services Pvt. Ltd Sh. Brijesh Singhal, Director

3.

M/s & piss Pvt. Ltd. Sh. Lalit Kumar Mittal, Director

4.

M/s Sunny Cast & Forge Pvt. Ltd. Sh. Prem Kumar Malhotra Director

5.

M/s Vrindavan Capital Services Pvt. Ltd. Sh. Vikas Verma Director 6. M/s Karishma Inds. Pvt.Ltd. Sh. Naresh Kumar Gupta, Director 7. M/s Nandlal Financial & Leasing Pvt.Ltd. Sh. Chhaggan Lal Sharma, Director

5.1

The language of affidavit in all the seven cases is common and most interestingly the Affidavit at S.No.6 & 7 above have not been signed by the Deponent even though, these are attested by the Notary public. The Authenticity of all these affidavits is belied by the fact that these were got attested from the Notary public prior to the signature of the Deponent on these affidavits. In fact, the affidavit losses its value if it is not properly sworn before the Oath Commission or a Notary Public.

6.

In view of the above facts the A.R. of the assessee was required to produce the Directors of the corporate share holder (to whom shares were allotted during the year and from whom share premium was allegedly received) for examination on oath so that the genuineness of these transactions could be verified. The case was adjourned to 23.12.2011.

7.

On this date, Sh. S. K. Jain, Director of the assessee company appeared and filed written submissions which have been kept on record. The Directors of the shareholders companies were a Non-Banking Financial Corporation. It has shown a sum of Rs.99,11,93,336/- under the head loans and advances. Out of these a sum of Rs.60 crores have been paid to two companies as Share Application money. The purpose of examining the Directors of three Corporate Shares holder was to locate as to what was the big purpose in investing this huge amount without any return on such investment. No normal and prudent person shall invest its hard-earned money in a non-earning proposition. Those directors were also to be asked as to why and for what purpose, they agreed to pay premium of Rs.50/-per share, as there were hardly investment of the assessee company and as per the Accountancy Principles the value per share could not be that much. But those directors were not produced to avoid answering these Inconvenient questions.

From the discussion above, it is held that the credit in the books of the assessee by wav of share allotment money and share premium amounting to all to Rs. 111.66 crores is not satisfactorily explained and is treated as assessee company's income u/s 68 of the I.T. Act, 1961. (Addition Rs.111.60 Crores)”

9.1

Vide ground nos. 4(a) and 4(b), the appellant has contested the addition of Rs. 31,32,566/- made by the AO vide para 10 of the assessment order.

9.2

The relevant portion of the assessment order is reproduced as under:

"10.

The assessee is an NBFC and its only source of income is from interest on loan and advanced. However, the assessee has credited only a sum of Rs.21,94,341/- as receipts of interest. However, on a perusal of various advances made it is revealed the assessee company has advanced a sum of Rs.39,11,54,842/- to various parties between Jan.2009 to March, 2009. However, some of these advances are in February also. Interest @12% p.a. is calculated on Rs.38,84,60,501/- (i.е., 39,11,54,842 Rs.2694341) for one ad one half month which works out to Rs.58,26,907/-. Since the assessee has already credited a sum of Rs.26,94,341/- the rest of the amount of Rs.31,32,566/- is being brought to tax as its income which has not been recorded in books."

9.3

The contension of the appellant is two fold. Firstly, it is contesting that interest should be calculated based on number of days in the F.Y. for which a particular loan was outstanding. Secondly, the appellant says that action of the AO in adopting rate of interest @ 12% is arbitrary.

9.4

Vide written submission, the AR stated that the assessee has granted loan of Rs. 39,11,54,842/-. The Maximum loans were given in the month of March 2009. The assessee calculated the interest on the basis of actual date of disbursal to 31st March 2009, on daily basis and credited the actual interest due amounting to Rs. 6,94,341/- in profit & loss Account. The rate of interest varies from party to party and it ranges between 6% to 12% per annum depending on the term of loan, tenure, creditworthiness of debtors etc. The AR further contested that the Books of Account of the appellant was produced before the Assessing Officer during the assessment proceedings it was test checked and found to be maintained in normal course of business.

9.5

I have perused the assessment order as well as order sheet in the assessment folder(a copy enclosed as Annexure-2 to this order), there is no mention of production or checking of books of accounts. It is noticed that the order sheet entry dated 20.12.2011 says as under,

"20.12.2011 Sh. S.K. Jain, Director appeared and filed the requisite details. Asked to explain why the share application money of Rs.111,61,80,000/- raised during the year be not treated as unexplained u/s 68 of the I. T. Act 1961 as the summons remained unserved in most of the cases. Moreover, directors could not beproduced u/s 131 of I. T. Act 1961 for statement.

2)

Please explain why the interest @ 12% (Twelve Percent) should not be charged on the loans granted in absence of loan agreement. Case adjourned to 23/12/2011."

9.6

The entry on order sheet dated 23.12.2011 says, "Sh. S.K. Jain, Director appeared and filed the requisite reply. The case discussed". (There is no further hearing because the next entry is of passing of the order (dated 27.12.2011)). Α perusal of assessment record shows that in response to the query dated 20.12.2011 (as per above stated order sheet entry), a list(a copy enclosed as per Annexure-3to this order) of loans and advances of Rs. 99,11,93,336.85/- has been provided. This list contains only the (closing as on 31.03.2009) amounts of loans and advances which have been extended to each party but it does not contain ledger accounts (of the parties to whom loans and advances have been extended). During the appellate proceedings, the appellant has said that the actual interest due was amounting to Rs. 6,94,341/-whereas the AO has stated that the appellant has credited a sum of Rs. 26,94,341/- to the P&L account (which I find as correct as per the copy of P&L account for the F.Y. 2001-09 submitted by the appellant during the assessment proceedings). Therefore, it can be seen that the appellant is not coming out with correct facts and trying to place the representation based upon incorrect averments.

9.7

Regarding, rate of interest, there is no doubt that it would depend upon terms and condition of the loans extended. However, it is for the appellant to produce such material. The appellant has not produced any evidence that such material was produced before the AO. I find that as per page 62 of Annexure-A1 seized from the residence of Jain Brothers (reproduced above), the rate of interest is @18% per annum between M/s Pooja Finlease Ltd. and the appellant. Therefore, I find no material or reason to interfere in the action of the AO. These grounds (nos. 4(a) and 4(b)) are therefore, dismissed.

1 10. Vide ground no. 5, the appellant has objected to charging of interest u/s 234B of the Income Tax Act, 1961. During the course appellate proceedings no specific submissions were made regarding this ground. Also, the AR did not make any oral arguments regarding this issue. I find that this is consequential issue. Therefore, this ground (no. 5) is dismissed.

11.

Vide ground no. 6, the appellant has objected to initiating the penalty proceeding u/s 271(1)(c) of the Income Tax Act, 1961. During the course appellate proceedings, no specific submissions were made regarding this ground. Also, the AR did not make any oral arguments regarding this issue. The assessment order contains satisfaction of the AO regarding initiation of penalty which is a preliminary stage. The penalty proceedings are separate proceedings and the appellant would get full opportunity to represent its case. At this stage the ground is besides the points and also premature. Therefore, this ground (no. 6) is dismissed.”