DEPUTY COMMISSIONER OF INCOME TAX VS SUTLEJ AGRO PRODUCTS LTD. -(ITAT)

1. The bunch of above fives appeals at the instance of the Revenue, arise out of a common order dated 29.09.2014 of the ld. CIT(A)-XXXIII, New Delhi for the assessment years 2006-07 to 2010-11 respectively. Since the issue involved and arguments advanced in all these appeals are common, they were heard together and, therefore, the same are being disposed of by this consolidated order for the sake of convenience and brevity. Both the parties agreed that the decision in one appeal shall equally apply to other appeals. The effective grounds raised in appeal for A.Y. 2006-07, which are common in all other appeals, barring the amounts of additions, read as under : Date of Hearing 30.08.2018 Date of Pronouncement 14.09.2018

“1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting addition of Rs.5,85,00,000/- made u/s. 68 of the IT Act on account of unexplained share capital and premium.

2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that on the prevailing facts of the case the onus on the part of the assessee u/s. 68 of the Act stands discharged.”

2. The brief facts common to all these appeals are that the assessee filed returns of income on 24.11.2006, 02.11.2007, 02.09.2008, 15.10.2009 and 14.11.2011 declaring income/loss of Rs. (-) 947/-, Rs. Nil, Rs.1177/-, Rs.1470/- & Rs. 7446/- respectively for the assessment years 2006-07 to 2010-11. A search operation u/s. 132(2) was carried out at Aakriti Hotels Pvt. Ltd., Community Centre, Saket, New Delhi on 22.11.2011. During the search operation, following documents belonging to the assessee were found and seized :

Page Nos. Particulars of documents seized Annx. A- 4 page 50-59 Transfer deed of lease hold rights between M/s. Sir Biotech India Ltd. And Sutlej Agro Products Ltd. For property at Institutional plot No.4, Sector R-04, vide allotment No.INS0326001 situated in greater Noida Distt. Gautam Budh Nagar, U.P. Ann. A, page 60- 66 Transfer deed of lease hold rights between M/s. B.K. Resorts and Sutlej Agro Products Ltd. for property at Institutional plot No.3, Sector R-04, vide allotment No.INS0326026 situated in greater Noida Distt. Gautam Budh Nagar, U.P. for sale consideration of Rs.1,68,64,103, stamp duty paid Rs.52,80,000/-. Annx. A- 9 page 23 Shareholding details of Sutlej Agro Products Ltd. Annx. A- 10, Page 29-30 Trial Balance of Sutlej Agro Products Ltd. From 01.04.2010 to 31.03.2011 for finalization of balance sheet. Annx. A- 10 page 97-98 Extract of Allotment Letter for plot No. 152, Noida received by Sutlej Agro Products Ltd. From Noida Authority.

Out of above documents, the share holding details as per Annx.-A9 page 23 and Trial balance of assessee as per Annx.A10 page 29-30 have been considered by the AO against the assessee. Accordingly, proceedings u/s. 153C of the IT Act were initiated against the assessee by issuing notice dated 26.09.2013, requiring the assessee to file the return of income. In response to this notice u/s. 153C, the assessee filed its return declaring income at Rs.Nil in A.Yrs. 2006-07 & 2007-08 and Rs.1177/-, Rs.1470 & Rs.7446/- respectively for A.Yrs. 2008-09 to Rs.2010- 11 respectively. Subsequently, notices u/s. 143(2) and 142(1) along with questionnaire were issued to the assessee on 09.01.2014 and in response to these notices, the assessee filed requisite details, which were test checked by the Assessing Officer.

2.1. During the assessment proceedings, the Assessing Officer noticed from the audited balance sheets ending on 31.03.2006, 31.03.2007, 31.03.2008, 31.03.2009, 31.03.2010 and 31.03.2011 that during the years under consideration, the assessee had shown to have received share capital including share premium at Rs.5,85,00,000/-, Rs.2,28,00,000/-, Rs.4,58,50,000/-, Rs.2,28,50,000/- and Rs.34,22,00,000/- respectively from various companies, based on Kolkata, Guwahati and Mumbai. The Assessing Officer further noticed that during the years under consideration, the share capital of the assessee- company was substantially increased as compared to preceding years and the assessee had issued substantial volume of equity shares of face value of Rs.10/- at a premium of Rs.190/-. The details of share application money received during the year under consideration from various companies, as mentioned in the orders of the authorities below, are as under :

A.Y. 2006-07: S. No. Name of the Company Share Capital Share Premium Total amount 1 M/s Alavel Finvest (P) Ltd. 2,50,000 47,50,000 50,00,000 2 M/s Jagdishwar Pharmaceutical Works Limited 2,50,000 47,50,000 50,00,000 3 M/s Stocknet International Limited 2,75,000 52,25,000 55,00,000 4 M/s Chrysler Electrical Components (P)Lld. 5,00,000 95,00,000 1,00,00,000 5 M/s Gateway Computers (P) Ltd. 2,00,000 38,00,000 40,00,000 6 M/s Exxcon Electricals (P) Ltd. 4,00,000 76,00,000 80,00,000 7 M/s Venus Overseas Limited 4,00,000 76,00,000 80,00,000 8 M/s Impala Industrial Enterprises Ltd. 2,50,000 47,50,000 50,00,000 9 M/s IVilco Finexim (P) Ltd 2,50,000 47,50,000 50,00,000 10 M/s Esquire Agro Products (P) Ltd. 1,50,000 28,50,000 30,00,000 A.Y. 2007-08: S.N Name of Company Return Income Share Capital Share Premium Total Profit before Tax 1 M/s Alavel Finvest (P) Ltd. 0)1,930 2,50,000 47,50,000 50,00,000 2,070 2. M/s Jagdishwar Pharmaceutical Works Ltd. 15,010 1,00,000 19,00,000 20,00,000 (-)1,42,470 3. M/s Artillegence Bio- Innovations Ltd. 22,850 3,75,000 71,25,000 75,00,000 23,847 4. M/s Ramkrishna Fincap Ltd. 91,845 2,00,000 38,00,000 40,00,000 91,845 5. M/s Bay Inland Finance (P) Ltd. 660 3,25,000 61,75,000 65,00,000 3,655 6. M/s Muktamani Finco Ltd. 2,180 2,50,000 47,50,000 50,00,000 2182 7 M/s Cl if tons Pearson Export & Agencies Ltd. 2,048 4,62,500 87,87,500 92,50,000 2048 8 M/s Online Information Technologies Ltd. 3,985 1,40,000 26,60,000 28,00,000 39,851 9 M/s Ispat Sheet Limited NIL 4,00,000 76,00,000 80,00,000 10,352 10 M/s Shakti Ispat Product (P) Ltd. 1,489 4,25,000 80,75,000 85,00,000 1,489 11 M/s Wilco Finexim (P) Ltd. 1,510 1,90,000 36,10,000 38,00,000 1,512 12 M/s Om Energy Ltd. (-) 5,74,842 2,25,000 42,75,000 45,00,000 14,73,842 13 M/s. Oshin Investments and Finance Pvt. Ltd. 24,496 50,000 9,50,000 10,00,000 25,876

A.Y. 2008-09: S.N Name of Company Share Capital Share Premium Total 1. M/s Alavel Finvest (P) Ltd. 2,50,000 47,50,000 50,00,000 2. M/s Jagdishwar Pharmaceutical Works Ltd. 1,00,000 19,00,000 20,00,000 3. M/s Artillegence Bio-Innovations Ltd. 3,75,000 71,25,000 75,00,000 4. M/s Ramkrishna Fincap Ltd. 2,00,000 38,00,000 40,00,000 5. M/s Bay Inland Finance (P) Ltd. 3,25,000 61,75,000 65,00,000 6. M/s Muktamani Finco Ltd. 2,50,000 47,50,000 50,00,000 7 M/s Cl if tons Pearson Export & Agencies Ltd. 4,62,500 87,87,500 92,50,000 8 M/s Online Information Technologies Ltd. 1,40,000 26,60,000 28,00,000 9 M/s Ispat Sheet Limited 4,00,000 76,00,000 80,00,000 10 M/s Shakti Ispat Product (P) Ltd. 4,25,000 80,75,000 85,00,000 11 M/s Wilco Finexim (P) Ltd. 1,90,000 36,10,000 38,00,000 12 M/s Om Energy Ltd. 2,25,000 42,75,000 45,00,000 13 M/s Oshin Investments and Finance (P) Ltd. 50,000 9,50,000 10,00,000 14 M/s New Outlook Securities Ltd. 40,000 7,60,000 8,00,000 A.Y. 2009-10: S.N Name of Company Share capital Share premium Total 1. M/s Alavel Finvest (P) Ltd. 50,000 9,50,000 10,00,000 2. M/s Logic Infotech Limited 1,87,500 35,62,500 37,50,000 3. M/s Laffan Software Limited 77,500 14,72,500 15,50,000 4. Gateway Computers (P) Ltd., 72,500 13,77,500 14,50,000 5. M/s Novelty Traders Limited 1,30,000 24,70,000 26,00,000 6 M/s Bhaskar Fund Management Limited 47,500 9,02,500 9,50,000 7 M/s Online Information Technologies Ltd. 5,000 95,000 1,00,000 8 M/s Gromore Fund Management Company Limited 72,500 13,77,500 14,50,000 9 M/s Shakti Ispat Product (P) Ltd. 1,00,000 19,00,000 20,00,000 14 M/s. New Outlook Securities Ltd. - 40,000 7,60,000 8,00,000

10 M/s Wilco Finexim (P) Ltd. 1,85,000 35,15,000 37,00,000 11 M/s Oshin Investments and Finance (P) Ltd. 5,00,000 95,00,000 1,00,00,000 A.Y. 2010-11:

S.N Name of Company Share Capital Share premium Total 1. Alavel Finvest (P) Ltd. 4,78,000 2,34,22,000 2,39,00,000 2. M/s Jagdishwar Pharmaceutical Works Ltd. 2,90,000 1,42,10,000 1,45,00,000 3. M/s Logic Infotech Ltd. 7,60,000 3,72,40,000 3,80,00,000 4. M/s Laffan software Ltd. 7,00,000 3,43,00,000 3,50,00,000 5. M/s Kirti Electro System Private Limited. 3,60,000 1, 76,40,000 1,80,00,000 6. M/s New Outlook Securities Ltd. 6,25,000 3,06,25,000 3,12,50,000 7 M/s Gateway Computers (P) Ltd., 5,06,000 2,487,94,000 2,53,00,000 8 M/s Tricon Business (P) Ltd 4,00,000 1,96,00,000 2,00,00,000 9 M/s Cliftons Pearson Export & Agencies Ltd. 5,00,000 2,45,00,000 2,50,00,000 10 M/s Super Finance Ltd. 2,00,000 98,00,000 1,00,00,000 11 M/s Bhaskar Fund Management Limited 25,000 12,25,000 12,50,000 12 M/s Ispat Sheet Limited 3,00,000 1,47,00,000 1,50,00,000 13 M/s Delton Exim (P) Ltd. 4,00,000 1,96,00,000 2,00,00,000 14 M/s Gromore Fund Management Co. Ltd. 5,00,000 2,45,00,000 2,50,00,000 15 M/s Shakti Ispat Products (P) Ltd. 4,00,000 1,96,00,000 2,00,00,000 16 Wilco Finexim (P) Ltd. 4,00,000 1,96,00,000 2,00,00,000

2.2. The assessee, being a private limited company and the amounts of share capital with premium having been received from unlisted private limited companies mostly based Kolkata and Guwahati, the Assessing Officer stated that Kolkata and Guwahati are considered as the hubs of paper companies, indulged in accommodation entries. Therefore, in order to verify the credits, the Assessing Officer issued notices u/s. 133(6) of the IT Act to all the share applicants, from whom the share premium was shown to have been received, requiring them to submit copies of their audit report, audited balance sheets, Profit & Loss account, source of investment made in assessee-company and reason for investment at a huge premium. The assessee was also required to furnish all these details for examination. The notices so issued, however, returned back un-served. The assessee was confronted with this fact and was required to produce all the directors or principal controlling persons of the share applicant companies so as to examine the identity, creditworthiness of the share applicants and genuineness of the transactions. Several opportunities were given. However, in the meantime, the assessee furnished the audit reports, balance sheets, copies of acknowledgment of returns etc. of all the investor companies. Replies to notices u/s. 133(6) were also furnished directly by the investor companies on the request of the assessee. On perusal of evidences so furnished, the Assessing Officer observed that the companies were showing meager profit; that the bank statements show the receipt and transfer of same amount to various parties; that the said companies were not shown to have been engaged in any major business activity; that none of the above companies were showing any positive income; and that assessee, thus, failed to discharge the onus that lay upon him by section 68 of the IT Act. Accordingly, final show cause notice was issued to the assessee to explain as to why the amounts credited in the books of assessee in the form of share capital and premium be not treated as unexplained credits u/s. 68 of the Act ?

2.3. In reply to show cause notice, the assessee submitted that complete details such as names and present addresses of the investor companies, their PANs, bank statements, balance sheets and its annexures were filed before the Assessing Officer to prove their identity and creditworthiness and genuineness of transaction. A request was also made to issue summons u/s. 131 so as to enforce the presence of investor companies. It was stated that all the transactions were made through banking channel, which go to establish the creditworthiness of the share applicants and that there is no evidence on record to establish that the money of the assessee was routed through the share holders. It was, therefore, submitted that the assessee has discharged the statutory onus that lay upon it. The assessee also produced authorized representatives/principal persons of two of the investor companies, whose statements were recorded. They, however, required some time to furnish the share holding patterns and sources of investments, but not granted on the pretext that the assessment was being barred by limitation. The Assessing Officer was not satisfied with the replies of the assessee and after analyzing the modus operandi of accommodation entries being adopted by several companies and relying on various case laws, made additions of following credits appearing in the books of assessee in the form of share capital and share premium, as unexplained credits u/s. 68 of the IT Act :

3. The assessee assailed the assessment orders in appeals before the ld. CIT(A), where it filed detailed submissions, challenging the validity of Asstt. Year Addition u/s. 68 2006-07 5,85,00,000/- 2007-08 2,28,00,000/- 2008-09 4,58,50,000/- 2009-10 2,85,50,000/- 2010-11 34,22,00,000/-

assessments u/s. 153C on various legal aspects as well as the merits of additions. The legal pleas to challenge the validity of assessments were based on non-recording of proper satisfaction note in the case of person searched, seized material having been not handed over by the Assessing Officer of searched person to the Assessing Officer of assessee within the stipulated period of sixty days as contemplated u/s. 132(9A) of the Act and completed assessments having been reopened u/s. 153C without its abatement and without any material found in search being incriminating in nature. The learned CIT(A), after considering detailed submissions of the assessee and going through various case laws, rejected all the pleas of the assessee on validity of assessments and held all the assessments U/s. 153C as legally valid. The assessee has not challenged the decision of ld. CIT(A) on legality of assessments either by way of any appeal or cross-objections. However, on merits of the additions made u/s. 68, the ld. CIT(A) has accepted the contentions of the assessee by relying on several decisions and has deleted the impugned additions vide impugned order observing as under :

4.3 Decision:-

I have considered the assessment order, written submission alongwith paper book and oral arguments of Ld. AR. The main grounds on which the assessing officer has invoked section 68 for addition of impugned share capital can be summarized as under:-

a) During the assessment proceedings, notices issued u/s 133(6) to the impugned shareholders has returned back, and subsequent submissions of details by these shareholders company has been managed by the appellant company & hence cannot be relied.

b) Ld. assessing officer has found that these share investing companies does not declare income which can commensurate to the investment made.

c) The appellant has failed to produce the directors of these share holders company and applied judicial pronouncements of various courts including the case of N.R. Portfolio Pvt. Ltd. cited supra & other decision where it has been held that the assessee being a Pvt. Ltd. company & share are issued to known person & not though public offer, the controlling person of such share holders are within the arm’s length of the assessee and the assessee has to produce such Main arguments of Ld. AR against the addition made u/s 68 are summarized as under:-

a) The appellant has submitted during the assessment proceedings complete documentary evidences inform of share application, Audit report of these share holders, photocopy of share application form, Board’s resolution to investment in appellant’s company, copy of income tax return, copy of return of allotment of shares, copy of bank statement etc. to establish the genuineness of share transaction.

b) During the assessment proceedings, the appellant has filed current address of all these shareholder companies to make fresh correspondences as accepted by the assessing officer also. Such current addresses of these shareholder companies are mentioned in the assessment order by the assessing officer. All these shareholder companies on their letter head bearing new addresses have replied to the assessing officer furnishing all the documents required such as bank statement, audited balance sheet, copy of income tax return etc to substantiate the share investment. In that circumstance, the return of notice u/s 133(6) to these share holders at old address as per share application form or search / post enquiry has no meaning & no evidential value as these companies has changed its address. The Ld. assessing officer’s reliance that these investing companies have declared very meager profit also in no way prove that the transaction are in genuine as all the fund in these investing companies are properly reflected in the balance sheet filed with Income Tax Department. It is normal practice in finance business to borough the fund & invests the same two other.

c) Ld. AR argued that the appellant has discharged its onus by submitting all documentary any evidences in support of genuineness of transaction & identity of shareholders & their capacity to invest. The appellant has provided current address of the investing companies and all these investing companies have submitted all the evidences required by the assessing officer in dependently in response to notice u/s 133(6) in the office of the assessing officer. The Ld. assessing officer has made no enquiry to disprove the evidence filed independently by these companies at the new addresses. Therefore, the assessing officer has not found any error in the submission made by the appellant. In that case, the onus to disprove the details filed by the appellant lied with the assessing officer. In that circumstance, onus was not on the assessee to produce the director of these share applicant companies. The directors & the investing companies are stationed outside Delhi namely in Kolkata, & Guwahati, the appellant has made specific request vide letter in response to assessing officer letter dt. 10.03.2014 to issue commission for the production of these directors at the address. The assessing officer has not issued such commission. Under these circumstances reliance of the assessing officer to discharge onus to produce directors u/s 68 as per various judgment such as N.R. Portfolio Pvt. Ltd. cited supra & other decision are misplaced. In those cases, the assessing officer has given adverse finding on the initial evidences produced by the appellant, then onus shifted back to the assessee. Ld. AR relied on various judicial pronouncements such as stellar finance & other decision cited supra in support of his argument that the appellant has discharged its onus cast upon it u/s 68. Final Decision :-

I have considered all the basis of addition and arguments of Ld. AR. During the assessment proceedings, the appellant has submitted evidences such as share application form, ITR, share certificate, ITR of share investor companies, form no. 2 filed by these share investor companies before Ministry of Corporate Affairs, bank statements and other documents to prove the genuineness of share transactions in the name of share investor companies. All these share investors are company incorporated with under Companies Act. The appellant has given current address of these share holder companies.

The assessing officer has issued notices u/s 133(6) to these share holder companies at the old address mentioned in share application form which have come back unserved because of obvious reason that the current addresses of these companies are different from the earlier address on which notice u/s 133(6) were issued. I have perused the record, the addresses on which notices u/s 133(6) were issued are at old address and not at the current address provided by the appellant & mentioned by the assessing officer in para 2 of the order. Subsequently, all these share holder companies have filed all the required evidences u/s 133(6) before the assessing officer. These details are given on the letter head of the shareholder companies bearing the same address as given by the appellant. The assessing officer has commented that these informations have been furnished in connivance of the appellant. The assessing officer has not issued any notice or made any enquiry on the address provided by the appellant before reaching such conclusion. Declaration of small profit by the share holding companies relied by the assessing officer to prove non genuineness of the transaction is also not convincing as these share investments are reflected in the balance sheet which explains the source, & these balance sheet have been filed with the Income Tax Department.

Ld. assessing officer instead of making enquiry on the current address of shareholder given by the appellant to find identity of such shareholder & documents submitted by the shareholder in response to notice u/s 133(6), asked to produce directors of these shareholder companies. In my view, once the appellant has filed all documents in support of share capital and new address of the share holder companies, onus was lying on the assessing officer to disprove the same. Without disproving these evidences onus will not shift back to the appellant. Under these circumstances, even the decision of Hon’able High Court of Delhi in the case of N.R. Portfolio Pvt. Ltd., will not help the case, as in that case, the assessing officer has made enquiry to disprove apparently the evidences filed by the assessee, then the decision was given that the onus was shifted back on the assessee to produce directors. In present facts & circumstances of the case, the decision relied by the Ld. AR namely the decision of hon’able Supreme Court in the case of Steller Finance Ltd and decision of jurisdictional High Court in the case of Nipuan Auto (P) Ltd cited Supra appears to be more applicable that the appellant has discharged onus cast upon it u/s 68 to prove the share capital. Considering entire facts & circumstances of the case, in my view the appellant has discharged its onus to prove the share capital introduced. Accordingly, I delete the addition made u/s 68 in respect of share capital added for all the assessment years. These grounds of appeal are allowed.”

4. Assailing the impugned order, the ld. Departmental Representative, relied on the assessment orders and submitted that the ld. CIT(A) was not justified in deleting the additions ignoring the findings reached by the ld. Assessing Officer. The notices issued u/s. 133(6) were received back unserved and the assessee failed to produce the directors of the investor companies for examination. The shares of meager face value were issued at high premium and the investor companies were found showing meager profits and not engaged in any major business. The assessee, therefore, failed to prove identity, creditworthiness of the creditors and genuineness of the transactions, as per section 68 of the IT Act. Reliance is placed on the following decisions as mentioned in the written synopsis furnished by the ld. DR:

(i). CIT v. MAF Academy (P) Ltd., 361 ITR 258.

(ii). CIT vs. Navodaya Castle Pvt. Ltd., 367 ITR 306 (del)

(iii). Konark Structural Engineering (P) Ltd. Vs. DCIT, 90 taxmann.com 56 (Bom)

(iv). DRB Exports P. Ltd. Vs. CIT, 93 taxmann.com 490

(v). Prem Castings (P) Ltd. Vs. CIT 88 taxmann.com 189(Alld)

(vi). CIT v. Nipun Builders & Developers (P) Ltd. 350 ITR 407 (Del)

(vii). CIT vs. Nova Promoters & Finleae (P) Ltd., 342 ITR 169 (Del)

(viii). CIT vs. Ultra Modern Exports (P) Ltd., 220 Taxman 165 (Del)

(ix). CIT v. Frostair (P) Ltd., 210 Taxman 221 (Del)

(x). CIT v. NR Portfolio Pvt. Ltd., 263 CTR 456 (Del.) Several other decisions in support of its contention have also been relied by the ld. DR on merits of the additions.

4.1 The ld. DR has also relied on the plethora of decisions as under on the validity of assessments made u/s. 153C of the IT Act :

(i). PCIT v. Sheetal International Pvt. Ltd. (2017-TIOL-1355-HC-DEL-IT)

(ii). PCIT v. Instronics Ltd., 82 taxmann.com 357 (Del)

(iii). Ganpati Fincap Services (P) Ltd. Vs. CIT, 82 taxmann.com 408(Del)

(iv). PCIT vs. Super malls Pvt. Ltd., 76 taxmann.com 267(Del)

(v). PCIT v. M/s. Nau Nidhi Overseas Pvt. Ltd. (ITA 58/2017)

(vi). Kamleshbhai Dharmshibhal Patel vs. CIT 31 taxmann.com 50 (Guj)

(vii). Rajesh Sunderdas Vaswani vs. ACIT, 76 taxmann.com 311(Guj)

(viii). SSP Aviation Ltd. V. DCIT, 20 taxmann.com 214.

(ix) CIT v Classic Enterprises, 35 taxmann.com 244

(x). Savesh Kumr Agarwal v. Union of India, 35 taxmann.com 85.

5. The learned Authorized Representative of the assessee, on the other hand, reiterated the detailed submissions made before the ld. CIT(A) and relied on the findings reached by the ld. CIT(A) in the impugned order and plethora of decisions, as relied by him in its submissions before the first appellate authority. He has also relied on the order of ITAT New Delhi rendered in the case of Priyatam Plaschem Pvt. Ltd. vs. ITO (ITA No. 2534/Del/2018 – A.Y. 2014-15- dated 10.08.2018. Addressing the issue on merits, it was submitted that substantial cogent evidences were laid before the Assessing Officer to prove all the ingredients of section 68 and to discharge the onus that lay on him by this section; that the notices u/s. 133(6) were issued on old addresses of the investor companies as mentioned in the share application forms, but did not bother to issue summons u/s. 131 at the present addresses of the companies furnished by the assessee to enforce their attendance despite earnest request in that regard; that assessee had produced representatives of two of the companies, who were not given time to furnish the details as required by Assessing Officer; that no defect has been pointed out in the documentary evidences submitted before the authorities below. The assessee has also filed a paper book containing 1645 pages. It is submitted that almost all the decisions relied by the AO were distinguishable on facts of the present cases and the ld. DR has not stated anything against the distinguishing features given by the assessee in his written submissions, as reproduced in the impugned order. It was also submitted that meager profit of the share holders is not the sole criterion to determine the creditworthiness of the creditors. He, therefore, submitted that the impugned order does not call for any interference.

6. We have considered the rival submissions and have gone through the entire material available on record and the case laws cited by both the parties. In the factual matrix of the present case, as narrated above, we find that the only dispute which needs adjudication is whether the ld. CIT(A) was justified to delete the additions made u/s. 68 of the Act on merits thereof.

7. Before we proceed to adjudicate upon the issue on merits, we feel it appropriate to mention that as per section 68 of the Act, where any sum is found credited in the books of the assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. A bare perusal of above section makes it clear that the basic precondition for invocation of section 68 is that there should be absence of explanation of assessee as to the source and nature of credit and the dissatisfaction of the Assessing Officer as to the credibility of assessee’s explanation, if furnished by him. The factual matrix of the present case, if examined on the anvil of above section, we find that the assessee, in order to discharge the onus cast by this section, has furnished detailed explanation before the Assessing Officer as to the nature and source of credits, being share application money received from different companies, whose details were also filed before the Assessing Officer. In support of his explanation, the assessee admittedly filed following documentary evidences:

(i). Photocopy of share applications forms dully filled in.

(ii). Certified true copy of Board Resolutions passed by Board of Directors of the respective companies in respect of investment to be made in the shares of the assessee company.

(iii). Photocopy of PAN Cards of all the investor companies.

(iv). Audit reports along with photocopies of final accounts, i.e. balance sheet, Profit & Loss account complete with the schedules of the investing companies.

(v). Photocopy of Memorandum & Article of Association with certificates of incorporation of the said companies.

(vi). Bank account statements of the investing companies.

(vii) Allotment advice issued by the assessee company, giving details of the allotment of shares against the share application money received, indicating Folio No. Certificate number, number of shares allotted, complete with distinctive numbers and amount received against such share allocation.

(viii). Photocopy of ITRs acknowledgement alongwith statement of income of the investing companies.

(ix). Fresh addresses of the investing companies.

(x). Copies of Equity shares Certificates issued to the investors.

(xi). Copy of return of allotment of shares filed by assessee company with ROC in form No. 2 (pursuant to section 75(1) of the Companies Act.

(xii). Copies of MCA21, i.e., company Master Details and company/LLP Master Data of all the investing companies as obtained from the site of Ministry of Corporate Affairs.

8. The Assessing Officer has miserably failed to point out any defects in these documents so as to doubt the explanations of the assessee regarding three ingredients of section 68 nor is there reference of any enquiry conducted by the Assessing Officer as to the authenticity of these documents. Once, all the above documentary evidences are produced, the assessee had discharged the onus cast upon him. Thereafter, it was for the Assessing Officer to examine the same and to probe the matter further, if he nurtures any doubt on the veracity/authenticity of these documents, which is completely lacking in the instant case. In our opinion, in order to disbelieve the documents produced by the assessee, there should be some inquiry and cogent material on record, which too is lacking in the instant case. Hon’ble Gujrat High Court in a recent decision of PCIT vs. D&H Enterprises, (2016) 72 taxmann.com 91 (Gujrat) on such issue held as under :

“7. Thus, from the facts noted hereinabove, it is evident that the assessee had produced all relevant details in its possession, namely, names, permanent account numbers, income tax returns, and bank statements of all the investors. The amounts in question had been received by way of account payee cheques. Having regard to the fact that the permanent account numbers and the income tax returns of all the investors had been furnished by the assessee, the Assessing Officer could have easily verified the same. He, however, placed reliance upon the fact that the summons issued to the parties under section 131 of the Act could not be served and hence, did not accept the genuineness of the transactions. In the opinion of this court, taking into account the concurrent findings of fact recorded by the Commissioner (Appeals) and the Tribunal, it cannot be said that the conclusion arrived at by the Tribunal is, in any manner, contrary to the record or that the same suffers from any legal infirmity so as to give rise to any question of law, much less a substantial question of law warranting interference.”

In such view of the matter, in our considered opinion, the dissatisfaction of the Assessing Officer cannot be sustained only on the basis of suspicion. The ITAT, Delhi Bench in the case of Priyatam Plaschem Pvt. Ltd. vs. ITO in ITA No. 2534/Del/2018 for A.Y. 2014-15 dated 10.08.2018 in para 8 to 11, held as under on identical facts :

“8. We have considered the rival submissions. The A.O. noted that assessee has received share application money/ share premium of Rs.6 crores from the Investor Company M/s. Mekastar Finlease in assessment year under appeal. For verification of the share application money, the A.O. issued notice under section 133(6) of the I.T. Act, to the investor company who have replied the same directly to the A.O, copy of which is filed at page-185 of the paper book in which the investor has confirmed the transaction with the assessee company and to make the aforesaid investment. The reply is supported by copy of the confirmation of accounts, copy of acknowledgment of filing of ITR, balance sheet ending on 31.03.2014, copy of bank statement, copy of NBFC Registered Company with source to make investment in assessee company. Thus, the investor has duly confirmed that it has made investment of Rs.6 crores in assessee company. The assessee filed copy of their CIN No and details of their Directors and Auditors. The balance sheet of the Investor (PB-149) shows that as on 31.03.2014, it has total availability of funds of Rs.300,36,48,781 and name of assessee-company is mentioned at PB-155. The assessee also produced before A.O. copy of the Master Data of ROC of Investor Company, Copy of Confirmation of Accounts, Copy of the Board Resolution of Assessee, Copy of Bank Statement of Investor, Copy of intimation of allotment to investor, Copy of letter to M/s. Anuj & Associates from assessee company in respect of fair market value of shares, Copy of the audited financial statements of the assessee-company, Copy of share valuation report of assessee-company, Copy of Notification for New Circle Rate applicable to NCT of Delhi, Copy of Memorandum from CPWD, Copy of Bank Statement of Investor Company and their minutes etc. These documents on record clearly proved that assessee-company has established the identity of the Investor which is not disputed by the authorities below. The assessee-company also proved the creditworthiness of the Investor and genuineness of the transaction in the matter. The contention of assessee that it has not been directed to produce Director of the Investor Company was supported by the order sheet of the A.O. which have not been disputed by the authorities below. The investor company directly confirmed transactions to the A.O. in response to notice under section 133(6) of the I.T. Act and also established that investor is NBFC Company registered with the Reserve Bank of India. Thus the assessee has satisfied the conditions of Section 68 of the I.T. Act and initial burden upon the assessee have been discharged. The A.O. however, did not accept the contention of assessee because the investor company has received funds from M/s. SKPJ and Bilberry which belongs to S.K. group of companies who have provided accommodation entry. However, law is well settled that assessee may be asked to prove the source of the credit in its books of account but cannot be asked to prove source of the source. The authorities below have also relied upon the assessment orders in the case of S.K. Jain and group and investigation conducted in their cases. However, according to the Learned Counsel for the Assessee, such reports, assessment orders and statements recorded in their cases, have not been confronted to the assessee and same were subjected to cross-examination on behalf of the assessee. There is no finding given on the same in the orders of the authorities below. Therefore, the contention of the assessee cannot be disputed and as such, no adverse view could be taken against the assessee because the same cannot be read in evidence against the assessee. Further, assessee has not taken any amount directly from Shri S.K. Jain and others. The contention of assessee has also not been disputed through any evidence or material on record that the assessee company has owned immovable property which has given on rent and assessee received rental income of Rs.1.09 crores in assessment year under appeal. Therefore, the valuation report of the Government approved valuer was based on the material on record to show that assessee has rightly re-valued the property at its fair market value. Thus, there was no basis to take any adverse view against the assessee. Share Valuation report is filed at page-201 of paper book which is not rebutted through any evidence by Ld. D.R.

9. The Hon’ble jurisdictional Delhi High Court in the case of MOD Creations Pvt. Ltd., vs. ITO (2013) 354 ITR 282 (Del.) (HC) held as under : “Section 68 of the Income-tax Act, 1961, only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactionsas executed between the assessee and its creditors. It is no part of the assessee’s burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the sub-creditors. The Assessing Officer, for the assessment year 2002-03, after perusing the material placed before him and the explanation given by the assessee, came to the conclusion that both the genuineness of the transactions as also the creditworthiness of the creditors, who were directors and shareholders of the assessee, remained unexplained for the reasons that (i) at the point in time when the loans were advanced to the assessee, the creditors did not have sufficient balance to their credit in their respective bank accounts; (ii) cheques were issued from the creditors' bank accounts in favour of the assessee in close proximity to the date when monies were received by the creditors in the form of commission/gifts. De hors these receipts, the creditors would not have had sufficient money to advance to the assessee in the form of loan; (iii) the statement made by one of the directors of the assessee under section 131 showed that he was unaware of some of the aspects related to his earnings and receipt of gifts etc. Therefore, the entries in the books of account of the assessee were in the nature of accommodation entries; (iv) out of five creditors, four creditors did not personally appear before the Assessing Officer in response to the summons issued to them; and (v) the creditors had paid small amounts as tax qua their individual returns and that tax had not been deducted at source in respect of the commission received by them. Consequently, the Assessing Officer added the unexplained credit in the books of account of the assessee to the extent of Rs.8.24 lakhs to its income. The Commissioner (Appeals) reversed the view taken by the Assessing Officer. The Tribunal reversed the view takenby the Commissioner (Appeals). On appeal: Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of no avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their income-tax returns, it could gather the necessary information from the sources to which the information was attributable. No such exercise had been conducted by the Assessing Officer. Both the Assessing Officer and the Tribunal lost track of the fact that they were dealing with the assessment of the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub-creditors (ii) That notices were issued to the sub-creditors on February 24, 2005. The Assessing Officer without giving sufficient time for service of the notices, to be effected, within a period of four days proceeded to frame the assessment order. As a matter of fact the Assessing Officer observed in the assessment order, that the notices had preferred not to reply to the summons issued to them. There was no observation whatsoever as to the date on which the notices were dispatched and thereafter served on the notices. This showed that the Assessing Officer framed the assessment in haste. If he was genuinely interested in establishing the allegations made in the assessment order, that the assessee had routed its own money through the device of creditors and sub-creditors, he ought to have given sufficient time to the notices to produce the relevant material before him. These were aspects which the Tribunal did not examine.”

9.1. The Hon’ble Gujarat High Court in the case of CIT vs. Rohini Builders (2002) 256 ITR 360 (Guj.) (HC) held as under :

“The assessee was a firm engaged in the business of dealings in land. During the assessment year under consideration the assessee had taken loans from various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, GIR numbers/permanent account numbers, etc., of all the depositors. The Assessing Officer however issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee. After considering the evidence, the Assessing Officer made an addition of Rs.12,85,000 to the returned income of the assessee. This was confirmed by the Commissioner of Income-tax (Appeals). On further appeal to the Tribunal the Tribunal held that the phraseology of section 68 of the Income-tax Act, 1961, was clear, that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year", that the un-satisfactiriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/ permanent account numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash depo- sited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs.12,85,000. On appeal to the High Court: Held, that considering the facts and circumstances of the case narrated by the Tribunal and the law explained by it, the appeal was liable to be dismissed.”

9.2. Hon’ble Delhi High Court in the case of CIT vs. Fair Investment Ltd., 357 ITR 146 in which it was held that A.O. did not summon investors and did not make efforts. There is no finding that material disclosed was untrustworthy. The Appellate Authorities rightly deleted the addition.

9.3. Decision of Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd., (2008) 216 CTR 195 in which it was held as under:

“If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.”

9.4. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., &Ors. 361 ITR 220 (Del.) in which it was held as under :

“Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has “created” evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable.”

9.5. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), in which it was held as under :

“The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High Court.

9.6. Decision of jurisdictional High Court in the case of CIT vs. Laxman Industrial Resources Pvt. Ltd., ITA.No.169 of 2017 dated 14th March, 2017, in which it was held as under :

“The CIT(A) took note of the material filed by the assessee and provided opportunity to the AO in Remand proceedings. The AO merely objected to the material furnished but did not undertake any verification. The CIT(A) deleted the addition by relying upon the decision of the Hon’ble Apex Court in the case of Lovely Exports Pvt.Ltd. (supra) and judgement of Delhi High Court in the case of CIT vs Divine Leasing & Finance Ltd. [2008] 299 ITR 268. The ITAT confirmed the opinion of the Ld.CIT(A). Hon’ble High Court in view of the above findings noted that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. The assessee provided details of share applicants i.e. copy of the PAN, Assessment particulars, mode of amount invested through banking channel, copy of resolution and copies of the balance sheet. The AO failed to conduct any scrutiny of the document, the departmental appeal was accordingly dismissed.

9.7. Decision of the Hon’ble Supreme Court in the case of Earth Metal Electric Pvt. Ltd., vs. CIT dated 30th July, 2010 in SLP.No.21073 of 1999, in which it was held as under :

“We have examined the position, we find that the shareholders are genuine parties. They are not bogus and fictitious therefore, the impugned order is set aside.”

9.8. Decision of Hon’ble jurisdictional High Court in the case of Divine Leasing & Finance Ltd., 299 ITR 268, in which it was held as under : “No adverse inference should be drawn if shareholders failed to respond to the notice by A.O.

9.9. Decision of Hon’ble M.P. High Court in the case of CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65, in which it was held as under : “Dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted. CIT v. Lovely Exports P. Ltd. [2009] 319ITR (St.) 5 (SC) applied.”

9.10. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. (i) Dwarakadhish Investment P. Ltd., (ITA.No. 911 of 2010) and (ii) Dwarkadhish Capital P. Ltd., (ITA.No.913 of 2010) (2011) 330 ITR 298 (Del.) (HC), in which it was held as under : “In any matter, the onus of proof is not a static one. Though in section 68 of the Income Tax Act, 1961, the initial burden of proof lies on the assesses yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". The assessee-company was engaged in the business of financing and trading of shares. For the assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition of Rs.71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of share application money from five of its subscribers. Accordingly, the Assessing Officer made an addition of Rs.35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified.”

9.11. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in which it was held as under : “Dismissing the appeal, that it had not been disputed that the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non- existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee.”

9.12. Decision of Hon’ble jurisdictional High Court in the case of CIT vs. Value Capital Services Pvt. Ltd., (2008) 307 ITR 334 (Del.) (HC), in which it was held as under :

“Dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose.”

10. Considering the facts of the case, in the light of material on record and the above decisions, it is clear that assessee produced sufficient documentary evidence before A.O. at the assessment as well as appellate stage to prove ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee. Thus, the A.O. failed to conduct scrutiny of the documents at assessment stage and merely suspected the transactions in question on the irrelevant reasons. The A.O. did not make any enquiry from the Banker of the Investor and Income Tax record of the Investor Company. The valuation report filed by the assessee support explanation of assessee that shares were issued at premium which were below the fair market value per share of Rs.1221/- (PB 204 and 205). The assessee, thus, proved the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter. No material has been produced before us to rebut the explanation of assessee. We, therefore, did not find any justification to sustain the addition. We, accordingly, set aside the orders of the authorities below and delete the addition of Rs.6 crores. There is no material available on record to justify if assessee paid any amount of Rs.12 lakhs as alleged commission to obtain any accommodation entry. Orders of the authorities below were not justified in making addition of Rs.12 lakhs. We, accordingly, set aside the orders of the authorities below and delete the addition of Rs.12 lakhs. 11. In the result, both these grounds of appeals of assessee are allowed.” ITAT, Delhi Bench-F in Prinku Landfin (P) Ltd. vs.ITO, (2018) taxmann.com 120 (Delhi – Trib) vide order dated 02.02.2018, in the identical facts and circumstances, has also decided the issue in favour of he assessee. The Head-Notes of this decision read as under : Section 68 of the Income-tax Act, 1961 - Cash credits (Share application money) - Assessment year 2008-09 - During search conducted upon premises of one, STG, it was found that assessee-company had received share application money from several shareholders - To prove identity and creditworthiness of applicants and genuineness of transactions, assessee furnished copies of their certificates of incorporation, copy of ITR, bank statements, balance sheet and payment details - However, Assessing Officer added amount of share application money to income of assessee on grounds that share applicants had never appeared before Assessing Officer - It was noted that assessee produced all replies filed by these investors in response to inquiry notice issued to them under section 133(6) before Assessing Officer in which these investors had confirmed making investments in assessee company - A request of assessee to Assessing Officer to issue summons against said investors under section 131 for their production at assessment stage was not considered and Assessing Officer passed assessment order on next day - Whether since assessee at assessment stage had produced sufficient evidences before Assessing Officer so as to discharge its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transactions, impugned additions under section 68 were unjustified - Held, yes [Paras 5,5.2,5.9] [In favour of assessee]

9. The Assessing Officer has laid much emphasis on the non-service of notices u/s. 133(6) of the Act, but it has nowhere been objected by the ld. DR that these notices were sent at old addresses and not on the new Addresses of the investor companies admittedly submitted by the assessee. Moreover, the Assessing Officer is vested with ample powers to enforce and compel the appearance of the creditors by issuing summons u/s. 131, but the Assessing Officer did not exercise such powers despite the request made by the assessee in this behalf. Not only this, on the efforts made by the assessee, the share holders have also filed all the required evidences and details on their letter heads before the Assessing Officer, which are commented to have been filed with collusion of assessee. We, however, do not find any plausible reason to treat it as connivance of assessee with the investor companies. In presence of these facts on record, in our considered opinion, the dissatisfaction of Assessing Officer on this count has rightly been discarded by the ld. CIT(A).

10. It is not disputed that all the share applicants are companies registered under the companies Act, they are income-tax assessees and have reflected the impugned share investments in their respective balance sheets furnished before the Assessing Officer. It is also an undisputed fact that the share application money was obtained through account payee cheques of the investing companies and were credited to the bank account of assessee. The Assessing Officer observed from the bank statements that some parallel entries of deposits before issue of cheques were found. In this context, it significant to note that Assessing Officer himself made bank enquiries regarding the investor companies and even the source of source upto the fourth layer was found through banking channel and those entities have been disclosing these entries in their balance sheets filed with the department. Therefore, in our considered opinion, this fact and low profit declared by the investor companies, would not be a reasonable basis to treat the credit entries as fictitious or accommodation entries. In fact, some nexus must be established between the deposits in the bank accounts of investor companies and the income of the assessee and no such nexus having been established, the additions made on this count have rightly been deleted by the ld. CIT(A) after considering the submissions of the assessee and following some case laws as relied by him in his order. Moreover, we are in agreement with the contention of the assessee that income/losses declared by the investor companies is not a sole criterion to examine the creditworthiness of the shareholders. We have gone through the paper book filed by the assessee and found that in most of the cases, the investor companies had sufficient share holders funds, so as to cover the investments made with the assessee company and the AO has failed to enquire into such facts before doubting the creditworthiness of the share holders. For this view, we stand fortified by recent decision of Hon’ble jurisdictional High Court in the case of CIT v. Vrindavan Farms (P) Ltd., 2015(11) TMI 279 dated 12 August 2015, where, the Hon’ble court has held as under :

“3. The ITAT has in the impugned order noticed that in the present case the Revenue has not doubted the identity of the share applicant. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the AO by the assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificate of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been rightly commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the creditworthiness of the share holders.” Similar view has been taken by Hon’ble jurisdictional High Court in another decision in the case of PCIT vs. M/s. Goodview Trading Pvt. Ltd. dated 21 November, 2016 reported in 2016 (12) TMI 617 – Delhi High Court, observing as under :

8. It is quite evident from the CIT(A)’s reasoning in paragraph 4.3, that the materials clearly pointed to the share applicants’ possessing substantial means to invest in the assessee’s company. The AO seized certain material to say that minimal or insubstantial amounts was paid as tax by such share applicants and did not carry out a deeper analysis or rather chose to ignore it. In these circumstances, the inferences drawn by the CIT(A) are not only factual but facially accurate.”

11. The satisfaction of the Assessing Officer as to the credibility of explanation of assessee is the basis of invocation of provisions of section 68. However, such satisfaction must not be illusory or imaginary but must have been derived from relevant facts and evidences and on the basis of proper enquiry and material before him. In view of aforesaid facts and plethora of evidences submitted by the assessee, on which no reasonable doubts have been created by the AO, the onus that lay on the assessee under section 68, stands completely discharged on the part of the assessee.

12. Adverting to the decisions relied by the ld. DR, we observe that none of the case laws, are found applicable to the present cases due to disparity in the facts and circumstances of the case. In the case of CIT vs. MAF Academy (Supra), the share issued at high premium were shown to have purchased back at a loss. No such situation of buy back of share is existing in the present cases. In the case of Navodaya Castle (supra) the information collected by the Assessing Officer from the bank showed genuine concerns about the identity, creditworthiness of share holders as well as genuineness of transactions whereas in the instant case, no such fact was collected by the Assessing Officer in the bank enquiry or any other inquiry, to doubt the identity, creditworthiness of the share holders, particularly when cogent evidences were placed by the assessee and enquiry whatsoever made through notices u/s. 133(6) was at old addresses of the share holders. In the case of Konark Structural Engineering (supra), summons u/s. 131 issued could not be served, whereas in the instant cases, no summons u/s. 131(1) were issued despite request of the assessee and furnishing current addresses of the share holders. Hon’ble Allahabad High Court in the case of Munnalal Murlidhar vs. CIT, 79 ITR 540 (All.), held that the AO should assist the assessee by exercising powers to enable the assessee to produce evidence. In absence of same, the assessment would vitiate. Hon’ble M.P. High Court in the case of CIT vs. Ramesh Chand Shukla (MAIT No. 71 of 2003 decided on 01.04.2005 held, “it is now well settled that where the assessee requests the Assessing Officer to issue summons, to enforce attendance on the creditors to establish the genuineness and capacity of the creditor, it is duty of the Assessing Officer to enforce attendance of creditors by issuing summons. If the Assessing Officer does not chose to issue summons and examine the creditors, he cannot subsequently treat the loans standing in the name of such creditors as non-genuine nor add the amount thereof to the assessee’s income.” Since in this case, the AO has not even considered the request of assessee to issue summons u/s. 131 to the investors/share holders, therefore, no adverse inference can be drawn against the assessee and the AO cannot treat the genuine credits as non-genuine for the default committed by himself. The ld. CIT(A), therefore, on proper appreciation of facts and material on record rightly deleted the addition. Similarly, in the case of DRB Exports (supra) relied by the DR, the addresses of most of the purported share holders were found identical and they could not be traced out despite summons u/s.

131. No such situation is there in the present cases. In Prem Castings (P) Ltd. (supra), the identity of the investors who were close friends and business associates of assessee was never established whereas in the present case, in presence of extensive documents, no finger can be raised on the identity of investors. The distinguishing features in CIT vs. Nipun Builders (supra) have been well considered by the ld. CIT(A) in the impugned order and the decision in the case of N.R. Portfolio has also been distinguished by the ld. CIT(A) in the facts of the circumstances of the present cases against which nothing is uttered by the ld. DR. Similar is the position with respect to other decisions relied by the ld. DR, which have been cited without going into the factual matrix of the present cases.

13. Apart from the above, the ld. DR has also relied on further ten decisions of various High Courts before us for the proposition that the proceedings u/s. 153C cannot be invalidated on the technicalities of satisfaction note of the Assessing Officer, if the Assessing Officer of person searched and the Assessing Officer of third party is the same or on the basis of incriminating nature of documents seized. Here, it is significant to note that this issue nowhere exists in the present appeals. Rather the issue raised by assessee before the ld. CIT(A) on validity of assessment proceedings or notice u/s. 153C already stood decided by the ld. CIT(A) against the assessee in the impugned order and the same has not been challenged by the assessee, as noted above. Therefore, the decisions relied by the ld. DR on this issue are totally misconceived, being not relevant to the context/issue involved, and do not render any help to the Revenue.

14. In view of what has been discussed above, we find no infirmity in the order of the ld. CIT(A), which is based on cogent reasons and the propositions of law laid down by Hon’ble Courts in various decisions. Accordingly, the appeals of the Revenue are found devoid of merits and deserve to fail.

15. In the result, all the appeals of the Revenue are dismissed.

Order pronounced in the open court on 14th September, 2018

Sd/- Sd/-

(Bhavnesh Saini) (L.P. Sahu)

Judicial member Accountant Member