Cit v. Nr Portfolio Pvt Ltd

SANJIV KHANNA, J. For detailed order see ITA 1018/2011, Commissioner ofIncome Tax VsNR Portfolio Pvt. Ltd. pronounced today. NOVEMBER22"^ 2013 NA —. (SANJIV KHANNA) JUDGE 'Ojud , — (SANJEEV SACHDEVA) JUDGE * IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NO. 1018/2011 I Reservedon: 14^''August,2013 o/o Date ofDecisiom ; ^^'^ovember,2013 COMMISSIONER OF INCOME TAX Appellant Through Mr. SanjeevSabharwal,Sr. StandingCounsel. versus NR PORTFOLIO PVT LTD. Respondent Through Dr. Rakesh Gupta and Mr. Rishabh Kapoor, Advocates. + TNCOME TAX APPEAL NO. 1019/2011 COMMISSIONEROF INCOMETAX Appellant Through Mr. SanjeevSabharwal,Sr. StandingCounsel. versus NR PORTFOLIO PVT LTD. Respondent Through Dr. Rakesh Gupta and Mr. RishabhKapoor, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIVKHANNA HON'BLEMR. JUSTICESANJEEVSACHDEVA

SANJIV KHANNA, J. Thesetwo appealsby the Revenuerelateto a common assessee i.e., N.R. Portfolio Pvt. Ltd. and the questions raised relating to assessmentyears2002-03and 2003-04are similar. Theypertainto the additions made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 (Act, for short) of Rs.1,2,34,100/- and Page 1of24 Rs.75,60,200/- for the assessment years 2002-03 and 2003-04 on account of share apphcation money.

¶2The contention of the Revenue is that the Income Tax Appellate Tribunal(tribunal)has dealtwith the issue superficiallyand has failed to notice the money laundering indulged into and the clandestine mamier in which unaccounted and black money had been brought into books by this dubiousmethod. It is contendedthat the decisioninthe case of CIT Vs. Lovely Exports Ltd. 299 ITR 268 (Del) is being misunderstood and misinteipreted resulting in a spate of matters wherein assessees have adopted this surreptitious method to convert unaccounted for money into share application money.

¶3Revenuehas relieduponthe decisionofthis Courtinthe case of CIT V5. Nova Promoters and Finlease (F) Ltd. [2012] 342 ITR 169

(Del).

¶4By order dated 13"' August, 2013, the following substantial questionoflaw was framedin the two appeals:- "Whether the Income Tax Appellate Tribunal was right in deleting the additions of Rs.63,80,100/-and Rs.75,60,200/-in respect of Assessment Years 2002-03 and 2003-04 under Section 68 of the Income Tax Act, 1961 and whether the decision of the Tribunal is perverse?"

¶5The respondent-assesseeis a private limited company and for the assessmentyears 2002-03 and 2003-04had filed returnsdeclaring income of Rs.11,566/-and 18,720/-,respectively. These returnswere processed under Section 143(1) of the Act. Subsequently, reassessmentproceedingswere initiatedunder Section 147/148of the Act on the basis ofinformationreceivedfrom the InvestigationWing thatthe assesseewas one ofthe beneficiaries,who had procuredshare Page2of 24 \ application money from entry providers. Assessment proceedings under Section 147/148 of the Act in the two years were initiatedby (V issue of notices on 28'*' November, 2006. The notices were received back unserved and subsequentlywere served by affixture at the last known address i.e., the address given in the returns. .The assessee, however,did not appearin responseto the saidnotices. The Assessing Officerthereuponon 8^'' October,2007 issuedshow causenoticeunder Section 144 read with Section 147 of the Act, which was sent through SpeedPost, but was returnedunservedwiththe remark"no such firm".. Respondent-assesseeagain was served through affixture on 25"' October,2007. On examiningthe returnfor the assessmentyear 2004-05, it was noticedthat M/s PrakashK. PrakashCharteredAccountants had certified the accounts of the respondent-assessee. Office of M/s Prakash K. Prakash Chartered Accountants was contacted and thereuponthey filed their power of attorney on 1®' November,2007. The said Chartered Accountants also filed a letter that the respondent company had not received any notice and had been regularly filing their returns mentioningthe correct address and after that there was change in address,the same was informed. Along with this letter,no detail of new address was filed. They had not mentioned the present/currentaddress.

¶6Anothershow causenoticewas issuedand sent at the lastlaiown address of the respondent-assesseeand the address of the Chartered Accountants fixing the hearing on 4^'' December, 2007. The letter referredto the notice under Section 147/148 of the Act, show cause noticeunder Section144 dated 8^'' October,2007 and the fact that the reasonscouldbe providedonly afterreturnofincomewas filedbut yet in the interest of justice and for the purpose of proceedingsit was Page3of24 statedthat as per informationavailable,the share capitalwas received during the years from the persons who had been identifiedas entry operators. Thus,the respondent-assesseehad receivedaccommodation entries which were likely to be hit under Section 68 as unexplained cash credit. Details and manner in which entries were made in the books of accountand the clandestinemannerof circulation,was stated in detail in the show cause notice.

¶7On 4"" December,2007, no one appearedat the time of hearing. Subsequently,a request for adjournment was received by way of courierfrom M/s PrakashK. PrakashCharteredAccountantsand they, were allowed time up to lO'''^ December, 2007, but on the said date also, no one appeared and no written request was received. Accordingly,ex-parteor best judgmentassessmentorders both dated December, 2007 were passed for the two assessmentyears.We shall be refeiTing to the details/contentsof the assessment orders subsequently.

¶8The respondent-assessee, however, preferred appeals and substantiallysucceededon meritsbeforethe CommissionerofIncome Tax (Appeals) but did not succeed in their challenge to reopening under Section 147/148 of the Act or on the question of service of notice.

¶9Two cross appeals were preferred before the tribunal by the Revenueand the respondent-assesseefor the two assessmentyears but the same have been dismissed by the impugned order dated 29"' October, 2010. The reasoning given by the tribunal is that the respondent-assesseehad furnishedPermanentAccountNumber(PAN) of the share applicants except with regard to the share capital of Rs.4,50,000/-and before the Commissioner(Appeals), the assessee Page4of24 had also submittedvarious details and documentsto establishidentity ^ of the investors/shareapplicants. The impugnedorder in paragraph6 refers to and quotes several paragraphsfrom the order passed by the Commissioner(Appeals)and inparagraph7 refersto the observations made by the Commissioner(Appeals). Thereafter,in paragraph8 it is recorded that the tribunal had gone through various reasons and principleson which Commissioner(Appeals)had deletedthe addition. Commissioner(Appeals)had given a findingthat verificationofPAN was made and found to be coiTect except with regard to the share applicationmoney of Rs.4,50,000/-and, therefore,in the light of the judgments of Delhi High Court in CIT v. Lovely Exports Private X^i/.[2008]299 ITR268, WinstralPetrochemicalsPvt. Ltd. [2011] 330 ITR 603 and CIT Vs. Dwarkadhish Investment (P) Ltd. [2011] -330 ITR 298 and other cases,' addition was not justified and not in accordance with law.

¶10Cross objectionsfiled by the assesseewere not pressed and in paragraph20 ofthe impugnedorderit is specificallyrecordedthatthe validityofnoticeunderSection148 was not arguedby the respondent-assesseeand it was fairly acceptedthat the assessee'sappeals had no merit. The tribunalthereafterheldthatthey had gonethroughthe order ofthe Commissioner(Appeals)and the findingsrecordedon the said issue were right. At this stage, we would like to reproduce the findingsrecordedby the Commissioner(Appeals)on this.issue:- "3.6.2 Similar is the positionwith regard to service of show-cause notice for completing the impugned assessmentu/s 144 ofthe Act as it is an establishedfact that in absenceof any intimationwith regardto change ofregisteredofficeaddressfrom the appellantcompany, the assessing officer has left with very little option except getting the same served tln'ough affixture. It is beyond doubt that the assessing officer took pains to locate the authorized representative M/s Pralcash K. Page5of24 -rrr Prakash, CAs and served show-cause notice on them ^ meaningtherebythatthe appellantwas fullyin Imownof 1 \^ the things that the assessmentproceedingsare going on and it is requiredto file informationwith regard to the variouspointsonthe basis whichthe case was reopened u/s 147/148 of the Act. It is matter of record that after the authorized AR could be located by the assessing officer,the AR filed a letter dated 'nil' along with POA dated 1-11-2007 but still the appellant chose not to intimate the address to the assessing officer except vaguelystatingthat the Departmenthave been informed about the change of address from time to time. In these circumstances, I do not see any justification on the part of the appellantto either raise the issue of non-service of notices or improperprocedureof substitutedservice and accordingly,I hold thatthe impugnedassessmentis in order. The contentions of the appellant company that the impugnedassessmenthas been framed without looking into the contentionsof the appellanthas also not found favour with me as despite laiowing fully well that the assessment shall be time barred as on 31-12-2007, the AR chose to sent the details thi'ough post which were receivedbythe assessingofficeron 18-12-2007whereas the impugnedorderus passedon 17-12-2008.Otherwise too, duringthe presentproceedings,the assessingofficer submitteda remandreportwhereinthe appellanthas not been given an opportunityto put forth its view points and on whichrejoinderhas also been filed which means that the principleof naturaljusticehas been adheredto and hence contention of the Ld. AR needs rejection."

¶11Other findings recordedby the Commissioner(Appeals)refers to the remand report which was called from the Assessing Officer statingthatnoticeunderSection148 was sent at the lastloiownaddress i.e., F-280, New Rajinder Nagar, New Delhi, which was also mentionedin the returnofincome,but was receivedunservedwith the remark"no such assessee",but subsequentlyserved through affixture at A-46, Mohan Co-op. IndustrialEstate,MathuraRoad, New Delhi, the address which was shown in the return of income for the assessmentyear 2004-05. The AssessingOfficerin the remandreport Page6of24 has mentioned that the assessee's registered office was located at A-46, MohanCo-op.IndustrialEstate,MathuraRoad, New Delhi onthe date of affixtureof notice. Subsequently,on 18"' April, 2007, they shifted theirregisteredofficeto A-15,B-1 Extension,MohanCo-op.Industrial Estate, Mathura Road, New Delhi. We have already quoted the obsei-vationof the Assessing Officer after M/s Prakash K. Prakash CharteredAccountantswere served and they in their letter dated 1®*^ November, 2007 had not ftimished the new address, though the respondent-assesseehave stated that they had shiftedtheir registered office address from A-46, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi to A-15, B-1 Extension,Mohan Co-op. Industrial Estate,MathuraRoad, New Delhi. The respondent-assesseehad also stated that they had "misplaced" the intimation filed with the departmenton change of address. The Commissioner(Appeals)has recordeda finding that the respondent-assesseehad wrongly claimed that they had informedthe departmentabout changeoftheirregistered officeaddress,as not even a singleintimationwas presentedbeforethe Assessing Officer or him.

¶12The contentionof the Ld. AR for the appellant,that they had intimated change of address to Registrar of Companies, and the Assessing Officer should have ascertainedthe said address, it was rightlyobservedcouldnot cut any ice in the facts ofthe presentcase. It was the obligationand responsibilityof the respondeiat-assesseeto intimatechange ofaddress to the AssessingOfficeras no letuinwith the new address was famishedor even filed. Further,the conductof the respondent,whenthey did not givethe latestaddressin spiteofthe fact that M/s PrakashK. Prakash,CharteredAccountantswere served and informedaboutthe proceedings,speaksfor itself. Theirconductin Page7of24 not responding and appearing before tlie Assessing Officer was adversely commentedupon by the Commissioner(Appeals) and the said findinghas not been disturbedby the tribunal. However,this fact and the conductofthe respondentbeforethe AssessingOfficerwas not noticedand given adequatereferencewhile dealingwiththe question of deletion of addition on merits.

¶13The AssessingOfficeris both an investigatorand an adjudicator. When a fact is allegedand stated before the AssessingOfficerby an assessee,he must and should examine and verify, when in doubt or when the assertionis debatable. Normally a factual assertionmade shouldbe acceptedby the AssessingOfficerunlessforjustificationand reasonsthe assessingofficerfeels that he needs/requireS'a deeper and detailed verification of the facts alleged. The assessee in such circumstances should cooperate and furnish papers, details and particulars.This may entail issue of noticesto third partiesto fiirmsh and supply informationor confirm facts or even attend as witnesses. The Assessing Officer can also refer to incriminatingmaterial or evidence availablewith him and call upon the assessee to file their response.We cannotlay downor stateageneralor universalprocedure or method which should be adopted by the assessing officer when verificationoffacts is required.The manner and mode of conducting assessmentproceedingshas to be leftto the discretionofthe assessing officer, and the same should be just, fair and should not cause any harassmentto the assesseeor thirdpersonsfrom whom confirmationor verificationis required. The verificationand investigationshould be done with the least amountof intrusion,inconvenienceor harassment especiallyto thirdparties,who may have enteredintotransactionswith the assessee. The ultimate finding of the assessing officer should Page8of24 . reflectdue applicationof mind on the relevantfacts and the decision should take into considerationthe entire material, which is germane and which shouldnot be ignoredand excludethat which is irrelevant. Certain facts or aspects may be neutral and should be noted. These should not be ignored but they cannot become the bedrock or substratumof the conclusion. The provisionsof EvidenceAct are not applicable,but the assessingofficer being a quasi judicial authority, musttake care and cautionto ensurethatthe decisionis reasonableand satisfies the canons of equity, fairness and justice. The evidence should be impartially and objectively analyzed to ensure that the adversefindingsagainstthe assesseewhenrecordedare adequatelyand duly supported by material and evidence and can withstand the challenge in appellate proceedings. Principle of preponderanceof probabilitiesapphes. What is stated and the said standard, equally apply to the Tribunal and indeed this Court. The reasoning and the grounds given in any decisionor pronouncementwhile dealing with the contentionsand issues should reflect applicationof mind on the relevant aspects.

¶14When an assessee does not produce evidenceor tries to avoid appearance before the Assessing Officer, it necessarily creates difficultiesand preventsascertainmentoftrue and correctfacts as the Assessing officer is denied advantage of the contention or factual assertionby the assesseebeforehim. In case an assesseedeliberately and intentionally fails to produce evidence before the Assessing Officerwith the desire to preventinquiryor investigation,an adverse view should be takehr We shall now come to the merits and the findings recorded by the Commissioner(Appeals), which as noted above, have been simplyaffirmedby the tribunalwithoutverifyingor Page9of24 refeiTing to the facts.

¶15In the presentcase,the undisputedpositionis thatthe respondent had received share apphcation money of Rs.68,30,100/- and Rs.75,60,200/- in the Assessment Years 2002-03 and 2003-04 respectively. For the AssessmentYear 2002-03,the AssessingOfficer had taken the share application money received in the year as Rs.1,20,34,100/-,which included Rs.32,80,000/-and Rs.19,24,000/- relatedto previousyears or was the openingshare capital. As noted above, additionofRs.4,50,000/-has been sustainedin the Assessment Year 2002-03. Thus, the Commissioner(Appeals) and the tribunal have deletedadditionsofRs.63,80,100/-and Rs.75,60,200/-in the two assessment years. Before the Commissioner (Appeals), the respondent-assesseehad furnishedname ofthe share applicantswhich mostlyconsistedof companies. It was accordinglysubmittedthat the respondenthad beenableto establishidentityofthe shareholders,their creditworthiness and also genuineness of the transaction as the payments were received through banldng channels. Thus, the respondenthad dischargedthe primaryonus andtherewas no evidence or material to show that unaccountedfor money was recycled and introduced in the books as share application money. The Commissioner (Appeals) has recorded that verification of PAN numbers was done in the present case and was found to be correct exceptin the case ofTechnochemAssociatesPrivateLimitedand M/s Yogesh Gupta from whom share applicationmoney of Rs.1,50,000/- •eachwas raisedbut no PAN detailswere fiirnished. RegardingGanga Infm Private Limited, PAN number furnished was found to be incon-ectand accordinglyadditionofRs.l,50,000/-was justified. With regard to others, the Commissioner(Appeals) has recordedthat the assessing officer had not affected inquiries to bring on record and PagelOof24, establishthat the other parties had given accommodationentries and the money, i.e., the share application money was assessee's own undisclosed income. It was further recorded that the respondent had not been providedan opportunityto cross-examinethe so-calledentry providersand the assessingofficersimplyrelieduponthe investigation reports/informationprovided by the Information Wing of the Department.

¶16The aforesaid finding of the Commissioner(Appeals), which have been affirmed by the tribunal, ignores the finding of the AssessingOfficerthatthe Assesseehad failedto attendthe assessment proceedings,explainand put forward their stand and stance. To this extent,there is contradictionin the orderpassedby the Commissioner (Appeals),whichwas ignoredand not takennote ofby thetribunal.

¶17The Commissioner(Appeals)thereafterproceededon the basis that even if the subscribersto the share capital were not genuine,the amount received cannot be regarded as undisclosedincome of the respondent-assessee.Referencewas made to the decisionofthe Delhi HighCourtin LovelyExportsPrivateLimitedandDivineLeasingand FinanceLimited(supra). Referencewas made to some decisionofthe tribunal. .It would be here relevantto highlightand note what was recorded by the Assessing Officer in the assessment order. The Assessing Officer has mentioned that the subscribers belonged to MaheshGarg group of entry operators,whichincluded51 companies/ persons,who were operatingmore than 100 bank accountsin different banks/branches.Theirmodusoperandiwas to provideaccommodation entriesto differentpersons/beneficiaries.Referencewas made to the bank statementsofthe entry operatorsthat showed substantialdeposit of cash in the banlc accounts and subsequentissue of cheques to the ITANos.1018/2011&1019/2011 ^ beneficiaries. This was the only activity of these companies/persons. The said companies/personswere not canyingon any other business JO/ activityi.e., manufacturingor tradingactivity. The assessmentorder has quoted and refen-edto the banlc accountstatementsin supportof the said assertionand finding. The AssessingOfficerhas mentioned that the respondent-assesseewas a private limited company, closely held and there shouldbe proximaterelationshipbetweenthe promoter directorsand the shareholders.Closelyheld companiesusuallyreceive share capital subscriptions from friends, relatives and not from unrelated/ unloiown third parties/ general public. There was no relationshipor connectionbetweenthe subscribersand the respondent-assessee, for subscribers to become investors. Assessment order records that to establish identity and availabilityof funds, it was necessaryto have at least some idea if not complete details of the actual businessundertakenand engagedin by the respondent-assessee and explainedhow and why these um^elated and unconnectedthird parties decidedto become investorsin the absenceof public issue or advertisement.

¶18In the remand report, the Assessing Officer referred to the provisionsof Section68 ofthe Act and their applicability. The word "identity"as defined,it was observedmeantthe conditionor fact ofa person or thing being that specified unique person or thing. The identificationofthe personwouldincludethe place of work, the staff, the factthat it was actuallycarryingon businessand recognitionofthe saidcompanyin the eyes ofpublic. MerelyproducingPAN numberor assessmentparticularsdid not establishthe identityofthe person. The actual and true identityof the person or a companywas the business undertakenby them. This,accordingto us is the correctand true legal ITANos.1018/2011&1019/2011 Pagel2of24 position, as identity, creditworthinessand genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verificationof the identity or ascertaining activenature of businessactivity. PAN is a numberwhich is allotted and helps the Revenuekeep track ofthe transactions.PAN number is relevant but cannot be blindly and without consideringsurrounding circumstancestreated as sufficientto dischargethe onus, even when paymentis throughbankaccount.

¶19On the question of creditworthinessand genuineness,it was highlightedthat the money no doubt was receivedthrough banlang channels, but did not reflect actual genuine business activity. The share subscribersdid not have their own profitmaking apparatusand were not involvedin business activity. They merely rotated money, which was comingthroughthe bank accounts,which means deposits by way of cash and issue of cheques. The bank accounts,theiefore, did not reflect their creditworthinessor even genuineness of the transaction. The beneficiaries,includingthe respondent-assessee,did not give any share-dividend or interest to the said entry operators/subscribers.The profitmotivenormalin case ofinvestment, was entirely absent. In the present case, no profit or dividend was declaredon the shares. Any person,who would investmoney or give loan would certainlyseek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthinessand genuinenessofthe transactions.

¶20Vicky Chaurasia,additionaldirectorofthe respondentcompany was askedto appearbeforethe AssessingOfficerpursuantto the letter by the Commissioner(Appeals)directingthe AssessingOfficerto go Page 13 of24 through the submissions and submit a report after carrying out necessaryinquiries. He was aslcedto produceboolcs of accounts and evidence in support. By letter dated October, 2009, the respondent-assesseewas aslced to furnish details/information.These included details of dividendpaid to the shareholdersand to show and establish creditworthinessof the parties. Statement of Vicky Chaurasia recordedunder Section 131 of the Act dated 5^'' November,2009 has been placed on record by the respondentin ITA No. 1019/2011. He has stated that he along with Sandeep Chaurasiahad been directorsof the company since June, 2003 and the company was engaged in investment and finance, but he could not give details of the subscribed share capital of Rs.2 crores as it was stated that this was before he became the director. He could not also give details of how share capitalgot subscribedin a privatelimitedcompany. Specificquesfion was put to him regarding verificationof the shareholders as the summons issued to them had by and large remained uncomplied for want of correct addresses. In response, he had stated that the company had suppliedaddressesof shareholdersas per share applicationfoims and in the absence of dividend or any form of return on the investment, the company was not in a positionto call the subsciibeisfoi cioss-examination. The companyhad not receivedany letter for change of address etc. Viclcy Chaurasia stated that according to him the subscribers,who were allottedshares,continuedand had not ceasedto be shareholders. With regard to the past directors,he had statedthat •they had resignedand he was not in apositionto producethe same. In the remandreport,itwas specificallymentionedthatbooksofaccounts were neitherproducedon 5^^ November,2009 nor duringthe courseof remand proceedings. Page Hof24

¶21The Assessing Officer had issued notices by speed post to 31 parties as per addresses given by the respondent-assesseerequiring themto appearfor personaldeposition,producebooksofaccountswith complete vouchers and bills and statementof banlc accounts for tlie relevantperiod. In respect of 22 parties, the notice summons were receivedback with postalremarks"No such firm/company/person"or a few "Left without address" and a veiy few "Reftised to accept". Remaining 9 parties neither attended and filed any applicationfor adjoummentsnor filed details. Thus,itwas observedthatthe identities had been only provedon paper, i.e., in form ofneutraldocumentslike PAN number, ITR, Registrarof Companiesregistration,but without full details as to the actual business activities undertaken by these companies,the reasonwhy these companieshad made investmentin a privatelimitedcompanyetc. This coupledwiththe fact thattherewas cashdepositsin theirbankaccountsand withdrawalswerehighlighted.

¶22In the rejoinderfiled to the remandreport, it was statedthat the share applicantswere requiredto appearin personon 17^'' November, 2008 in responseto summonsunder Section 131 dated 23"' October, 2009. Subsequently,fresh summons dated 30* October, 2009 were issuedrequiringcomplianceby 7* November,2009, but the Assessing Officer had sent the remand report on 6"' November, 2009 without waitingfor complianceof summons. The said submissionis without merit, as we notice that the order of the Commissioner(Appeals) is dated October,2010, i.e., much after'thedate 17"^ November,2009 and 7"' November,2009. Awrong year was mentionedin the earlier summonsdated 23''' October,2009. It was only a typographicalerror and a response or reply from the shareholder would have been sufficient.- Further, in the case of 22 parties, the summons were ITANos. 1018/2011& 1019/2011 receivedbackundelivered/unserved. f^

¶23Tlie contention that the Revenue must have evidence to sliow circulationof money from the assesseeto the third party is fallacious and has beenrepeatedlyrejected,even when Section68 ofthe 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 satisfactorilythe source and nature of cash received during the accounting year. Similarly observationsweie made in CIT vs. M. GanapathiMudaliar [1964] 53 ITR 623 (SC), interaliaholdingthatitwas notnecessaiyfor the Revenueto locatethe exact source. This principlewas reiteratedin CIT V5.- Devi Prasad VishwanathPrasad [1969] 72 ITR 194 (SC), whereinthe contention thatthe AssessingOfficershouldindicatethe sourceofincomebefore itwas taxable,was describedas an incorrectlegalposition. Thus when there is an unexplainedcash credit,it is open to the AssessingOfficer to holdthat it was incomeofthe assesseeand no furtherburdenlies on him to showthe source. In YaduHari.Dalmiavs. CIT[1980] 126 ITR 48, aDivisionBenchofDelhiHighCourthas observed:- "It is well known that the whole catena of sections startingfrom s. 68 have been introducedinto the taxing enactmentsstep by step inorderto plug loopholesand in order to place certain situations beyond doubt even thoughtherewerejudicialdecisionscoveringsomeofthe aspects.For example,even long priorto the introduction of s. 68 in the statute book, courts had held that where any amounts were foimd credited in the books of the assesseeinthe previousyear and the assesseeofferedno explanationabout the nature and source thereofor the explanationofferedwas, in the opinionof the ITp, not satisfactory,the sums so credited could be charged to mcome-tax as mcome of the assessee^ of a relevant previous year. Section 68 was inserted in the I.T. Act, 16 of24 1961, only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions." I

¶24We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possibledifficultywhich an assesseemay be faced with when asked to establish unimpeachable creditworthiness of the share subscribers. But this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investorsor normal public issues. Doctrineof 'sourceof source' or 'origin of origin' camiot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutorypostulatesetc. However,when thereis suiTOundingevidence and materialmanifestingand revealinginvolvementof the assesseein the "transaction" and that it was not entirely an arm's length transaction, resoil or reliance to the said doctrine may be counter productiveand contraryto equity and justice. The doctrineis not an eldritchor a camouflageto circulateill gottenand unrecordedmoney. Withoutbeingobliviousto the constraintsofthe assessee,an objective and fair approach/determinationis required. Thus, no assesseeshould be harassed and harried but any dishonest fa9ade and smokescreens whichmasqueradeas pretenceshouldbe exposedand not accepted.

¶25hiLovelyExports(supra),aDivisionBenchexaminedtwo earlier decisions of this com-t in CIT vs. Steller Investment Ltd. [1991] 192 Page 17of24 ITR 287 (Delhi) and CIT vs. Sophiafinance Ltd. [1994] 205 ITR 98

(FB) (Delhi). The decisionin StellerInvestment'scase (supra) was affirmedby the Supreme court but, by observingthat the conclusion was on the facts and no interference was called for. Lovely Exports (supra) was a case of public limited company where shares were subscribedbypublicand itwas accordinglyobserved:- "This reasoning must apply a fortiori to large scale subscriptionsto the shares of a public Company where the lattermay have no materialotherthan the application forms and banlc transaction details to give some indication of the identity of these subscribers. It may not apply in circumstanceswhere the shares are allotted directly by the Company/assesseeor to creditorsof the assessee.This is why this court has adopteda very strict approachto the burden being laid almost entirely on an assessee which receives a gift."

¶26Thereafterreference was made to Full Bench decision in the case of Sophia Finance Ltd/s case (supra) wherein it has been observedthat if the shareholdersexists then, "possibly",no farther enquiry needs to be made and that the Full Bench had not reflected uponthe questionofwhetherthe burdenofproofrestedentirelyon the assessee and at which point this burden justifiably shifted to the assessing officer. The Full Bench has obsei-vedthat they were not decidingas to on whom and to what extentwas the onus to show that the amount creditedin the books of accounts was share capital and whenthe onus was discharged,was not decided.The standardofpioof mightbe rigorousand stringentand was dependentupon natureofthe transactionand wheretherewas evidencethatthe sourceofinvestment cannotbe manipulated,it was material. Similarly,it was observedthat assessee could scarcely be heard to say that he did not laiow the particularsofadonorin caseofagift. It was held:- Pagel8of24- "There camiot be two opinions on the aspect that the perniciouspracticeof conversionof unaccountedmoney ttooughthe masqueradeor channel of investmentin the share capital,ofa companymust be firmly excoriatedby the Revenue., Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenues's insistence that it should prove the negative. In the case of a public issue, the Company concerned camiotbe expectedto laioweverydetailpertainingto the identity as well as financial worth of, each of its subscribers.The Companymust, however, maintainand make available to the Assessing Officer for his perusal, all, the information contained in the statutory share applicationdocuments.In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of SectionM and69 of the IncomeTax Act. The burden of proof can seldom be' dischai-gedto the hih by the assessee;if the AO harboursdoubts of the legitimacyof any subscriptionhe is empowered, nay duty-bound,to carry out thorough investigations.But if the Assessing Officer fails to unearth any wrong or illegal dealings, he camiot obduratelyadhere to his suspicionsand treat the subscribed capital as the imdisclosed income of the Company ^ xxxx Once material to prove these ingredients are producedit is for the AssessingOfficerto find out as to whether, on these materials,the assessedhas succeeded in establishingthe ingredients mentioned above. The AssessingOfficerTift the veil' and enquire into the real nature of the transaction. C.I.T. v. Ruby Traders and Exporters Ltd. ; [2003]263ITR300(Cal) , C.I.T. V. NivedanVanijyaNiyojanLtd. [2003]263ITR623(Cal) and C.I.T. v. Kundan Investment Ltd. [2003]263ITR626(Cal.)are the othertln-ee. In this analysis, a distillationof the precedents yieldsthe followingpropositionsof law in the contextof SectionM ofthe IT Act. The assesseehas to primafacie prove (1) the identityof the creditor/subscriber;(2) the genuinenessof the transaction,namely, whether it has been tiansmittedthi'ough banking or other indisputable chamiels;(3) the creditworthinessor financialstrengthof the creditor/subscriber.(4) If' relevant details of the address or PAN identity of the creditor/subscriberai-e fiirnished to the Department along with copies of the ITANos. 1018/2011Sc 1019/2011 ^"8® 19of24 Shai-eholdersRegister, Share Application Forms,,Share Transfer Register etc., it would constitute acceptable proofor acceptableexplanationby the assessed. (5) The Departmentwould not be justifiedin drawingan adverse inference only because the creditor/subscriberfails or neglectsto respondto its notices;(6) the onus wouldnot stand discharged if the creditor/subscriberdenies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the ^ assessee;and (7) The AssessingOfficeris duty-boundto investigate the creditworthiness of the creditor/ subscriber the genuineness of the transaction and the veracity of the repudiation."

¶27The decision in the case of Lovely Exports (supra) was considered in CIT vs. Nova Promoters and Finlease (P) Ltd. (supra) and it was elucidated:- "38. The ratio of a decision is to be understood and appreciatedin the backgroundofthe facts ofthat case. So understood, it will be seen that where the complete particularsofthe shareapplicantssuch as theirnames and addresses, income tax file numbers, . their creditworthiness, share application forms and share holders'register,sharetransferregisteretc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no materialin his possessionto show that those particulars are false and camiot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicantsin accordancewith law. We are afraidthat we cannot apply the ratio to a case;-such as the presentone, where the AssessingOfficeris in possessionof material that discreditsand impeachestheparticularsfurnishedby •' the assessee and also estabhshes the link between self-confessed "accommodation entry providers", whose businessit is to help assesseesbring into their books of accounttheir unaccountedmoniestluough the.medium of share subscription, and the assessee. The ratio is inapplicableto a case, again such as the present one, where the involvement of the assessee in such modus operandi is cleaiiy indicated by valid material made available to the Assessing Officer as a resuh of investigationscarriedout by the revenue authoritiesinto . the activities of such "entry providers". The existence Page20of24 with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the. ratio. In our understanding,the ratio is attractedto a case where it is a simple questionof whether the assessee has discharged the burden placed upon him under sec,68 to prove and establish the identity and creditwoithiness of the share applicantand the genuinenessofthe transaction.In such a case, the AssessingOfficercamiotsit backwith folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of tmth and justice to express a view to the contrary."

¶28In Nova Promoters & Finlease (supra),it was held that in view of the linlc between the entry providers and incriminatingevidence, mere filing of PAN number, aclmowledgementof income tax returns ofthe entryprovider,bankaccountstatementsetc. was not sufficientto discharge the onus.

¶29In CIT V. Nipun BuildersandDevelopers[2013] 350 ITR 407

(Del) , this principlehas been reiteratedholdingthat the assesseeand the AssessingOfficerhave to adopt a reasonableapproachand when the initialonus on the assesseewould stand dischargeddependsupon facts and circumstancesof each case. In case of private limited companies, generally persons Imown to directors or shareholders, directly of indirectly,buy or subscribeto shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies,dividends,warrantsetc. have to be sent and the relationshipis/wasa continuingone. In such cases,theiefore, the assesseecannotsimplyfurnishdetailsand remainquiet even when summons issued to shareholdersunder Section 131 return unserved P&ge2] of24

¶0and uncomplied. This approachwould be uni-easonableas a general propositionas the assesseecannotpleadthatthey had receivedmoney, but could do nothing more and it was for the assessing officer to enforce share holders attendance. Some cases might require or justify visitby the hispectorto ascertainwhetherthe 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 Registrarof Companies'website or search for the addressesof shareholdersand communicatewith them. Similarly,creditworthiness was not provedby mere issue ofa cheque or by furnishinga copy of statement of banlc account. Circumstancesmight require that there should be some evidence of positive nature to show that the said subscribershad made a genuine investment,acted as angel investors, after due dihgence or for personal reasons. Thus, finding or a conclusionmust be practicable,pragmaticand might in a given case take into account that the assessee might find it difficult to unimpeachablyestablishcreditworthinessofthe shareholders.

¶30What we perceiveand regard as correctpositionof law is-that the court or tribunal should be convinced about the identity, creditworthinessand genuinenessofthe transaction.The onus to prove thethreefactumis onthe assesseeas the facts are withinthe assessees knowledge.Mere productionofincorporationdetails,PAN Nos. or the fact thatthirdpersonsor companyhad filed incometax detailsin case of aprivatelimitedcompanymay not be sufficientwhen surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentafion but genuineness, creditworthiness,identity are deeper and obtrusive. Companies no doubt are artificialor juristic persons but they are soulless and are . Page22of24 dependentupon the individualsbehindthem who run and manage the said companies.It is the persons behind the company who take the decisions, controls and manage them.

¶31The respondentherein is a Private Limited Company. It is not the case of the respondentthat the Directors or persons behind the companies making the investment in their shares were related or Icnown to them. It is highly implausiblethat an unlmown person had madesubstantialinvestmentin a privatelimitedcompanyto thetune of Rs.63,80,100/- and Rs.75,60,200/-in two consecutive assessmentyears 2002-03 and 2003-04 respectivelywithout adequatelyprotectingthe investment and ensuring appropriate returns. Other than the share applicationforms, no other agreement between the respondent and third companieshad been placed on record. The persons behindthese companieswere not producedby the respondent.On the other hand respondentadopted prevaricateand non-cooperationattitude before the Assessing Officer once they came to Imow about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthinessor genuineness of the transaction is not established by merely showing that the transaction was through banldng channels or by account payee instrument.It may, as in the presentcase requiredentail a deeperscrutiny.It would be incorrectto state that the onus to prove the genuinenessof the transactionand creditworthiness of the creditor stands discharged in all cases if payment is made through banldng channels. Whether or not onus is . dischargeddependsupon facts ofeach case. It dependson whetherthe two partiesare relatedor Imownto each;the manneror mode by which the partiesapproachedeach other,whetherthe transactionwas enteied ITANos. 1018/2011& 1019/2011 Page23of24 -1 into thi'oughwrittendocumentationto protecttlie investment,whether the investor professes and was an angel investor, the quantum of money, creditworthinessof tlie recipient,the object and purpose for whiclipayment/investmentwas made etc. Thesefacts are basicallyand primarilyin laiowledgeofthe assesseeand it is difficultfor revenueto prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamountto satisfactorydischargeof onus. The facts of the present case noticed above speak and are obvious. What is unmistakably visible and apparent,cannot be spun-edby formal but unreliablepale evidenceignoringthe patentand whatis plainand writ large.

¶32In view of the aforesaiddiscussionthe substantialquestion of law framed in the two appeals is answered in favour of Appellant-Revenue and against the Respondent-assessee. The appeal is accordinglyallowed to the extent indicatedabove. The Appellantis also entitled to costs which is assessed at Rs.20,000/- . NOVEMBER, 2013 NA/kkb (SANJIV KHANNA) JUDGE (SANJEEVSACHDEVA) JUDGE Page 24 of24

f r Reservedon: 14^''August,2013 % Date of Decision : 22"^* November,2013 b * IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NO. 1019/2011 COMMISSIONER OF INCOME TAX Appellant Through Mr. Sanjeev Sabharwal, Sr. Standing Counsel. versus NR PORTFOLIO PVT LTD. Respondent Through Dr. Rakesh Gupta and Mr. RishabhKapoor, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE SANJEEV SACHDEVA