"In cases where AO remains silent, does not conduct any inquiry, and merely on the basis of certain details submitted by the assessee draws an inference in such cases, he cannot simply doubt the stand of the assessee."

1. Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-1, Ahmedabad dated 30.11.2016 passed for the Asstt.Year 2012-13.

2. Assessee has taken two grounds of appeal viz. (a) the ld.CIT(A) has erred in confirming the addition of Rs.2,29,28,000/- which was added by the AO with aid of section 68 (of Income Tax Act, 1961) by treating the share application money received by the assessee as unexplained credit, and (b) the ld.CIT(A) has erred in confirming the disallowance of Rs.30,887/- under section 14A (of Income Tax Act, 1961).

3. Brief facts of the case are that the assessee has filed its return of income on 30.9.2012 declaring total income at NIL. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) (of Income Tax Act, 1961) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has received share application money of Rs.3,87,72,000/-. The ld.AO has called the assessee to submit identity of the creditors, capacity of creditors to advance money, and show genuineness of the transaction. According to the AO, the assessee has submitted partial information. Thereafter, the ld.AO has made reference to large number of decisions viz. Rajshree Synthetics P.Ltd. Vs. CIT, 176 CTR 300 (Raj), ITO Vs. Diza Holdings P.Ltd., 173 CTR 45 (Ker), CIT Vs. N.R. Portfolio P.Ltd., 263 CTR 456 (Del), and ultimately made addition of Rs.3,87,72,000/-.

4. Dissatisfied with the addition the assessee carried the matter in appeal before the ld.CIT(A). It has filed an application for additional evidence, which was allowed by the ld.CIT(A). In paragraph-2.3 on page no.13 of the impugned order, the ld.CIT(A) has observed that the assessee was prevented by sufficient reasons, and therefore, in the interest of justice, additional evidence was admitted. He sent those evidences to the file of the AO for verification and necessary inquiry related to the assessee. The ld.CIT(A) has observed in para 2.4 that the ld.AO has submitted his remand report vide letter No.DJSBPL/2016-17 dated 3.5.2016. The ld.CIT(A) has reproduced the remand report on page nos.13 to 15 of the impugned order. The ld.CIT(A) was not satisfied with the remand report submitted by the AO. He appraised the AO that it appears that you have collected the accounts and bank statements of the above share applicants for verifying the payments made by them towards share application money. But you have not given finding whether the above details are sufficient to prove the genuineness, capacity of the above parties for subscribing shares. The finding recorded was given on page no.18, which reads as under:

“ 2. From the above, it is seen that all the accounts and bank statements of the above parties have been collected to verify the payments made by them towards share application money. But you have not given your finding whether the above details are sufficient to prove the genuineness, capacity of the above parties for subscribing share application money in the appellant case. You are requested to go through the same once again and after verification and enquiry, submit your comments about the veracity after the above share application money regarding the above parties. ”

5. In response to the above letter, the ld.AO has submitted a fresh remand report which has been reproduced by the ld.CIT(A) on page nos.18 and 19. The ld.CIT(A) thereafter recorded a finding that only a sum of Rs.2,29,28,000/- has been received during the year, and rest is the opening balance, which could not be added in this assessment year. Accordingly, the addition to the extent of Rs.2,29,28,000/- has been confirmed.

6. While impugning orders of the Revenue authorities, the ld.counsel for the assessee submitted that the assessee has filed confirmation, bank statements, copy of income tax returns qua two share applicants, i.e. Maars Software International Ltd., Shri Anilkumar Champalal Jain, All three share applicants have responded to the query raised by the AO under section 133(6) (of Income Tax Act, 1961). Thus, according to the assessee, it has discharged onus put upon it by virtue of section 68 (of Income Tax Act, 1961). It is the AO who failed to conduct any investigation. He pointed out that only circumstances narrated by the AO in the remand report reproduced by the ld.CIT(A) on page no.18 and 19 of the impugned orders that these share applicants have shown meager income, and therefore, their credit-worthiness is doubtful. According to the ld.counsel for the assessee, the return of income shown by a party cannot be a criterion to judge his credit-worthiness. Even in the case of loss making company, there could be assets and the liabilities, which could authorise such particular company to apply for share of another company. The AO has not considered any such circumstances. He has just drawn an inference from the income-tax returns, and held that these share applicants were not having capacity to subscribe shares of the assessee's company. He further contended that as far as Shri Anilkumar Champalal Jain is concerned, he is proprietor of M/s.Anil Enterprise, and he is brother of one of the directors hence, his identity is never in dispute. For buttressing his contention, he made reference to the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Ranchhod Jivabhai Nakhava, 208 TAXMAN 35. He also relied upon judgment of Hon'ble Gujarat High Court in the case of Associated Transrail Structure Ltd. Vs. ACIT, 397 ITR 573 (Guj) as well as judgment of Hon'ble Supreme Court in the case of CIT Vs. Orissa corporation Ltd., 159 ITR 78. He filed written submissions, and in his written submissions he further relied upon the decision of Hon'ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure P.Ltd., 394 ITR 680 (Bom), and Shri Shree Giriraj Ferromet P.Ltd. Vs. ITO (ITA No.3697/Mum/2017) dated 12.10.2018 (ITAT, Mum. ). He further submitted that recently, Hon'ble Bombay High Court while dealing in the case of Pr.CIT Vs. M/s.Ami Industries (India) P.Ltd., has considered decision of Hon'ble Supreme Court in the case of Pr.CIT Vs. NRA Iron & Steel P.Ltd., reported in Income Tax Appeal No.1231 of 2017.

7. On the other hand, the ld.DR relied upon finding of the ld.CIT(A) wherein the ld.CIT(A) has reproduced the remand report of the AO on page nos.18 and 19 of the impugned order. He further contended that this type of issue was considered by ‘ SMC' Bench of ITAT in the case of Pavankumar M. Sanghvi Vs. ITO vide ITA No.2447/Ahd/2016 order dated 17.5.2017. The Tribunal has expounded as to how one has to find out genuineness of a share applicants as well as genuineness of its transaction. He relied upon this order, and submitted that it has been upheld even by the Hon'ble High Court.

8. We have duly considered rival contentions and gone through the record carefully. before we embark upon an inquiry on the facts of the present appeal, in order to find out whether the share capital and share premium money received by the assessee during the year is required to be treated as its unexplained credit and deserves to be added under section 68 (of Income Tax Act, 1961). We deem it appropriate to bear in mind certain basic principles/tests propounded in various authoritative pronouncements of the Hon'ble High Courts and Hon'ble Supreme Court. It is also pertinent to observe that both the sides have made reference to a large number of decisions. We do not deem it necessary to recite and recapitulate them because that would make this order repetitive and bulky. We take cognizance of some of them. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the accounts of the assessee, then role of section 68 (of Income Tax Act, 1961) would come. It is pertinent to take note of this section. It reads as under:

“ Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the officer, satisfactory the sum so credited may be charged to income tax as the income of the assessee of that previous year. ”

9. A perusal of the section would indicate that basically this section contemplates three conditions required to be fulfilled by an assessee. In other words, the assessee is required to give explanation which will exhibit nature of transaction and also explain the source of such credit. The explanation should be to the satisfaction of the AO. In order to give such type of explanation which could satisfy the AO, the assessee should fulfill three ingredients viz. (a) identity of the share applicants, (b) genuineness of the transaction, and (c) credit-worthiness of share applicants. As far as construction of section 68 (of Income Tax Act, 1961) and to understand its meaning is concerned, there is no much difficulty. Difficulty arises when we apply the conditions formulated in this section on the given facts and circumstances. In other words, it has been propounded in various decisions that section 68 (of Income Tax Act, 1961) contemplates that there should be a credit of amounts in the books of an assessee maintained by the assessee, (b) such amount has to be a sum received during the previous year, (c) the assessee offers no explanation about the nature and source of such credit found in the books, or (d) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The Hon'ble Delhi High Court in the case of CIT v. Novadaya Castles (P.) Ltd. 367 ITR 306 has considered a large number of decisions including the decision of Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad [1971] 82 ITR 540 (SC). According to the Hon'ble Delhi High Court basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish identity of the share-holder and bank account from which payment was made. The fact that payment was received through bank channels, filed necessary affidavit of the shareholders or confirmations of the directors of the shareholder company. But thereafter no further inquiry was made by the AO. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances.

10. Let us take into consideration observations made by the Hon'ble Delhi High Court in the case of Softline Creations P.Ltd. (supra) while taking note of judgment of Hon'ble Delhi High court in the case of CIT Vs. Fair Finvest Ltd., 357 ITR 146 (Delhi). Hon'ble Delhi High Court made following observations:

“ ....... This court has considered the concurrent order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of permanent account numbers, to highlight the identity of the share applicants, as well as produced the affidavits of the directors. Furthermore, the bank details of the share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their creditworthiness; The Assessing Officer chose to proceed no further but merely added the amounts because of the absence of the directors to physically present themselves before him.

The Income-tax Appellate Tribunal has relied upon a decision of this court in CIT v. fair Finvest Ltd. [2013] 357ITR 146 (Delhi), where in somewhat similar circumstances, it was stated as follows (page 152)

"This court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income-tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the directors, Form 2 filed with the Registrar of Companies by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced mate-rial. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 (of Income Tax Act, 1961) summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of section 68 (of Income Tax Act, 1961).

Having regard to the entirety of facts and circumstances, the court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra) ”

11. We also deem it appropriate to take note of some of observations of the Hon'ble Delhi High Court from the decision of Fair Finvest Ltd. (supra). The Hon'ble Court has noticed proposition laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Victor Electrodes Ltd., 329 ITR 271 (Delhi) regarding non-production of share applicants before the AO. The following observations are worth to note:

...In this connection the observation of the jurisdictional High Court in case of Dwarkadhish Investment (Supra) are quite relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person. Further in the case of CIT vs. Victor Electrodes Ltd. 329 ITR 271 it has been held that there is no legal obligation on the assessee to produce some Director or other representative of the Director or other representative of the applicant companies before the A.O. Therefore failure on part of the assessee to produce the Directors of the share applicant companies could not by itself have justified the additions made by the AO particularly when the seven share applicant companies through their present Directors have now again filed fresh affidavits confirming the application and allotment of shares with respect to the total amount of Rs.45 Lacs. It is observed that no attempt was made by the AO to summon the Directors of the share applicant companies. Moreover, it is settled law that the assessee need not prove the "source of source". Accordingly it was incumbent upon the department to have enforced attendance of Shri Mahesh Garg or the erstwhile Directors of the share applicant companies and confronted them with the evidences & affidavits relied upon by the appellant and thereupon given opportunity to the assessee to cross examine these applicants. ”

12. At this stage, we deem it appropriate to take note of finding of the ITAT, ‘ SMC' Bench in the case of Pavankumar M. Sanghvi (supra). The relevant discussion is available at para-8 of that order, it reads as under:

“ 8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the I.T.A. No.2447/Ahd/2016 Assessment years: 2007-08 financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities.

13. In order to complete the method requires to be adopted or the approach requires to be taken by an adjudicator in such type of litigation, we are also deem it appropriate to take note of the decision of Hon'ble Bombay high Court rendered in ITA No.1231 of 2017 in the case of Pr.CIT Vs. Ami Industries (India) Ltd. In this case, there were three share applicants, who are Kolkatta based companies, and had paid Rs.34 crores as share application money. The AO has directed the investigation wing of Kolkatta to make an inquiry about these companies. It is noticed from the paragraph 20 of the judgment that investigation wing reported about the existence of those companies. The ld.AO did not give much credence to the report, but recorded a finding that these companies have disclosed very meager income in their returns of income, and therefore doubted their credit-worthiness. The AO accordingly treated the alleged share application money as bogus, and made addition. Matter went to the ld.CIT(A) who deleted the addition, and thereafter the said order met approval of the Tribunal. Dissatisfied with the order of the Tribunal, Department went to the Hon'ble High Court, and relied upon the judgment of Hon'ble Supreme Court in the case of Pr.CIT Vs. NRA Iron & Steel P.Ltd. (supra). Hon'ble High Court while taking cognizance of this judgment has propounded the following principles culled from this judgment. It reads as under:

“ 11. The principles which emerge where sums of money are credited as Share Capital/Premium are :

i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.

ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor /subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.

iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.

In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 (of Income Tax Act, 1961). ”

14. Thereafter, Hon'ble High Court has observed that the assessee has produced four documents viz;

a) PAN number of the companies;

b) Copies of Income Tax return filed by these three companies for assessment year 2010-11;

c) Confirmation Letter in respect of share application money paid by them; and

d) Copy of Bank Statement through which cheques were issued

15. Hon'ble High Court ultimately upheld order of the Tribunal by observing as under:

“ 21. From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source.

22. In NRA Iron & Steel (P) Ltd (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either non-existent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case.

21. Therefore, on a thorough consideration of the matter, we are of the view that the first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of the creditors, genuineness of the transactions and credit-worthiness of the creditors which finding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below.

22. Under these circumstances, we find no error or infirmity in the view taken by the Tribunal. No question of law, much less any substantial question of law, arises from the order of the Tribunal. Consequently, the appeal is dismissed. However, there shall be no order as to cost.

16. Hon'ble Court was of the view that in the case of Pr.CIT Vs. NRA Iron & Steel P.Ltd. (supra) the AO has made investigation and detailed inquiry including survey of investor company. On the basis of field report, it revealed to him that shareholders were either non-existent or lacked credit-worthiness. In other words, on one hand cases where the AO has conducted an inquiry and disproved whatever submitted by the assessee, and in other case, the AO simply assumed existence of such facts. All Hon'ble High Courts are unanimous in their approach that where AO remained silent, did not conduct any inquiry, and merely on the basis of certain details submitted by the assessee draw an inference in such cases, he cannot simply doubt the stand of the assessee.

17. In the light of the above, let us examine the facts of the present case. The facts are being contained in the second remand report submitted by the AO vide letter dated 10.10.2016. This report has been reproduced by the ld.CIT(A) on page no.18 and 19 of the impugned order. It reads as under:

“ 2.7. The A.O. has submitted the Remand Report vide his letter No. Wd- 1(1)(4)/remand report/DJ Stock/2016-17 dated 10/10/2016 before CIT(A)-1, which is reproduced as under:

a) In this connection, it is hereby submitted that the date of notice u/s 133(6) (of Income Tax Act, 1961) is 15.03.201. Further, I submit my comments in respect of each person who have made payment against share application money regarding creditworthiness and genuineness of the transaction:-

(i) Ski High Financial Services Ltd. Mumbai The above party has filed confirmation in respect of payment made of Rs.1,10,00,000/- and also confirmed vide letter dated 25/03/2016 that the payments were made towards the share application money for the allotment of shares of M/s D. J Stock Broking Pvt. Ltd. Copy of share application forms and details allotment etc. have been furnished. However, the copy of income tax return has not been furnished. Further Bank statement furnished reflects only three entries from the 13/07/2011 to 14/07/2011 In which payments withdrawn are reflected. Since the applicant has not furnished the copy of income tax return and complete bank accounts, the credit worthiness of the applicant are not proved.

(iii) Maars Software International Ltd Chennai. The above party has filed confirmation in respect of payment made of Rs. 2,05,70,000/- and also confirmed vide letter dated 24/03/2016 that the payments were made towards the share application money for the allotment of shares of M/s D. J Stock Broking Pvt. Ltd. Copy of share application forms and details allotment etc. have been furnished. It is also stated that out of above share application money Rs. 70 lakhs were paid by M/s Anil Enterprise to M/s D J Stock Broking Pvt. Ltd as per the its instruction. The copy of instruction letter has also been attached. The copy of income tax return along with Balance sheet has been furnished. However, on verification of return of income it is seen that there was loss of Rs. 7,36,567/-. Further copy of bank statement reflecting the transactions have not been furnished. Therefore, the credit worthiness of the applicant is not proved.

(iii) Shri Anil Kumar Jain. (Prop of M/s Anil Enterprise) The above party has filed confirmation in respect of payment made of Rs.70,00,000/- on behalf of Maars Software International Ltd and also submitted allotted share where not allotted by the company and share application money were returned back to him during the accounting year 2012-13.The copy of bank statement and copy of acknowledgement of returns of income have been filed. However, on verification of return of income it is seen that income of Rs. 1,84,617/- has been shown only. Further, credit entries reflected in the bank statement prior to make payment to M/s D J Stock Broking Pvt. Ltd are not verifiable. Therefore, the credit worthiness of the applicant is not proved.

b) In view of the above, the credit worthiness of the above persons who have made investment towards the share application money in respect of shares of D.J. Stock Broking Pvt. Ltd is not proved. It is therefore, requested to kindly sustain the addition made to the extent of Rs.2,29,28,000/- out of the total addition of Rs.3,87,72,000/-Considering the opening balance and amount repaid during the year as mentioned in para 6.1. of remand report submitted on 03/05/2016.

18. The stand of the AO is that, complete bank statement was not submitted in the case of Ski High Financial Services Ltd. Similarly, with regard to Maars Softwares all details were submitted, but copy of bank statement reflecting this transaction has not been submitted. With regard to Shri Anil Kumar copy of acknowledgment of return, and bank statements were submitted, but he has shown only income of Rs.1,84,617/-. Thus, according to him, their credit-worthiness is doubtful. To our mind, these are not evidence based on which he can draw such inference. As per section 68 (of Income Tax Act, 1961), identity of the share applicants has been demonstrated by the assessee. All the applicants have responded to the questionnaire of the ld.AO, and submitted details. The AO thereafter did not conduct further inquiry. It is pertinent to note that out of total addition of Rs.2,28,19,000/-, Rs.70,00,000/- representing qua M/s.Maars Software International, and Rs.48,19,000/- qua Anilkumar Champalal Jain. A perusal of the remand report would indicate that as far as Maars Software International Ltd. is concerned, the AO has observed that this company has made a payment of Rs.2,05,70,000/-. Out of that, Rs.70.00 lakhs was paid by M/s.Anil Enterprise, which is a proprietorship concern of Shri Anilkumar Champalal Jain. Shri Anilkumar has filed confirmation in respect of payment of Rs.70 lakhs on behalf of Maars Software, and thereafter submitted that for this amount, shares were not allotted, but money was returned during the accounting year 2012-13. Now, the ld.counsel submitted that this Anilkumar is brother of one of the directors, though this fact was not unearthed by the AO in his remand report. The AO nowhere discussed about the genuineness of the balance payment of Maars software i.e. Rs.2,05,70,000/- minus Rs.70,00,000/-. It might have been received in earlier years, and could be part of the total payment considered by the AO. It suggests that he has not conducted any inquiry about both these concerns. When the assessee has been alleging that Rs.70.00 lakhs received during this period from Maars Software has been returned to the contributor i.e. Anil Enterprises, who had paid it on behalf of the Maars Software, he simply doubted it, the AO should have conducted more inquiries.

19. As far as payment received from Ski High Financial Services is concerned, though according to the AO, the assessee did not file copy of return, and complete bank statement, but assessee has disclosed PAN of this concern. In the paper book, the assessee has filed copy of the return also, under a certificate that it is not sure, whether this copy was filed before the AO or not, but it has been alleged that this document has been obtained from the Income Tax Department. Grievance of the AO is that this concern has shown a meager income, and did not submit complete bank statement. The bank statement submitted by the assessee is for a limited period showing transaction received by it. The document was submitted by the assessee in order to demonstrate that it has received money through account payee cheques. PAN details were submitted in order to demonstrate that this assessee is assessable to tax, and it proves its identity. That concern, responded to the notice received under section 133(6) (of Income Tax Act, 1961). The AO, thereafter did not conduct any inquiry. We deem it appropriate to mention that investigation wing of the department is able to unearth details of various accommodation entry providers mainly Kolkatta based companies, but the AO nowhere observed that these concerns were ever engaged in providing accommodation entries, and this fact came to notice of the Department through its investigation wing. Thus, if he has any doubt, he should have called for further information from the share applicants. He should have asked the assessee to produce directors of share applicant companies or Shri Anil Kumar who is brother of one of the directors. The AO could have issued summons under section 131 (of Income Tax Act, 1961). But instead of conducting any inquiry, he just draw certain inference for disbelieving the documents produced by the assessee or received by him in response to his notice under section 133(6) (of Income Tax Act, 1961). It is also pertinent to observe that quantum of income mentioned in the return of income cannot be criteria to judge credit-worthiness of share applicants. In the case of M/s.Ami Industries (India) P.Ltd.(supra), Hon'ble Bombay High Court has also considered this aspect. In that case also, existence of share applicants was not in doubt. Only doubt raised by the AO was that they have declared very meager income in their returns of income. Therefore, he doubted their credit-worthiness. This conclusion did not meet approval of the ld.CIT(A), ITAT or the Hon'ble High Court. Therefore, in view of the above discussion, we are of the view that since the AO failed to conduct inquiry even on the second remand report called for by the ld.CIT(A), his conclusion are without any supporting evidence. In view of the above discussion, we allow this ground of appeal, and delete the impugned addition.

20. As far as disallowance under section 14A (of Income Tax Act, 1961) is concerned, the ld.counsel for the assessee did not press this ground of appeal on account of smallness of the amount involved in it. He was of the view that disallowance of Rs.30,887/- was made on account of administrative expenses for earning tax free income. Since it is a small administrative expenses considered by the Revenue authorities, therefore, the assessee did not wish to press this ground of appeal. It is dismissed.

21. In the result, appeal of the assessee is partly allowed.

Order pronounced in the Court on 3 March, 2020 at Ahmedabad.

Sd/- Sd/-

(T.S. KAPOOR)

ACCOUNTANT MEMBER

(RAJPAL YADAV)

VICE-PRESIDENT