TMI Blog2002 (8) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee as unexplained and added the same to the income of the assessee under section 68 of the Act. On appeal, it was contended before the Commissioner of Income-tax (Appeals) that a sum of Rs. 2 lakhs each was received as capital from the following parties : Sl. No. Name Amount (Rs.) 1. Hanumandas Hariprasad, Prop. Hariprasad Sanjeev Kumar (HUF) 2,00,000 2. Anant Hi-Tech Pvt. Ltd. 2,00,000 3. Raghav Hi-Tech Pvt. Ltd. 2,00,000 4. By-pass Properties Pvt. Ltd. 2,00,000 5. Kanchan Enterprises Pvt. Ltd. 2,00,000 All the subscribers were identifiable. Four of these were limited companies registered with the Registrar of Companies and one was a Hindu undivided family. All the five subscribers were income-tax payees and have made the payments by account-payee cheques. Their full particulars, their complete addresses and their income-tax file numbers were also furnished before the Assessing Officer. It was stated that the assessee has proved the identity and credit-worthiness of the shareholders and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction, in the case of share capital, the assessee has to prove the identity of the shareholders. The High Court had held that they were not laying down any parameter on this issue but if the identity of the shareholders was established, perhaps, there was no need of making further investigation into the credit-worthiness of the shareholders or genuineness of the transaction. It was stated that in view of the decision of jurisdictional High Court, the onus was on the assessee to prove the identity of the shareholders. Learned counsel stated that there cannot be any dispute about the identity of the shareholders as out of five shareholders, four shareholders were the companies incorporated under the Companies Act. These companies have huge share capital and huge investment. The fifth shareholder was a Hindu undivided family who had also huge share capital and huge investment. Moreover, all the five shareholders were being assessed to tax regularly. It was also stated that the notices under section 133(6) issued by the Assessing Officer were duly served on them as none of these notices came back unserved. This also shows that all the shareholders were identifiable. Thus, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar, HUF. This concern is regularly assessed to tax and during the year under consideration, its net profit itself was more than Rs. 48 lakhs. Its share capital was Rs. 50 lakhs and investment in the shares was more than Rs. 9 crores. Looking to this investment, the investment with the assessee-company at Rs. 2 lakhs was insignificant. The audited balance-sheet/profit and loss account is also on record and the relevant pages are 67 and 70 of the paper book. On the basis of these evidences, learned counsel stated that the assessee has even discharged its onus of proving the identity and credit-worthiness of the shareholders as well as genuineness of the transaction. The addition sustained by the Commissioner of Income-tax (Appeals) was, therefore, unwarranted. On the other hand, learned Departmental Representative supported the order of the Commissioner of Income-tax (Appeals). We have considered the rival submissions. Before examining the facts of the case, it will be necessary to appreciate the law relating to the assessment of shares subscription as income under section 68 of the Income-tax Act, 1961 : (i) Initially a Division Bench of the Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder exists then possibly no further enquiry need be made, but if the Assessing Officer finds that the alleged shareholders do not exist, then in effect, it would mean that there is no valid issue of shares and in such a case the Assessing Officer has jurisdiction, if the facts so warrant, to treat such credit to be the income of the assessee. With these observations, the Full Bench directed that a question of law did arise out of the order of the Income-tax Appellate Tribunal in that case and directed the same to be referred to them for final deci sion. (iv) It is, however, of high importance to note that the Full Bench did not lay down the norms for deciding the extent of onus of proof of the amount credited. In the words of the court ( [1994] 205 ITR 98, 105 (Delhi) [FB]) : We make it clear that we are not deciding, nor is it our intention to decide as to on whom and to what extent is the onus to show that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend on the facts of each case. (v) This significant observation of the court clearly points out that there is a subtle distinction between an ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person. It is worthwhile noting that these provisions were introduced in the Companies Act with effect from 1965, based on the recommendations of the Bose Commission. The Commission had adverted to a case where shares to the extent of Rs. 16,00,000 in a public company were applied for on behalf of nonexisting shareholders. The Commission itself took note of the fact that benami shareholding and shareholding in the names of fictitious or non-existing persons was common. The Commission, therefore, felt that this practice should be severely dealt with and, accordingly, applying for shares in fictitious names was made a punishable offence under the Act. It has to be carefully noted that the company as such is not visited with any adverse legal consequences or is deemed to commit any offence but it is only the person who makes the application in fictitious name or otherwise induces a company to allot a share in fictitious name who is made punishable with imprisonment. (vii) According to section 72 of the Companies Act, no allotment can be made without an application in writing and, the company can call for only certain limited information from the shareholders for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the identity and credit-worthiness of the Hindu undivided family stands established and the genuineness of the transaction also stands established. Under these circumstances, we hold that the addition sustained by the Commissioner of Income-tax (Appeals) is not justified and the same is deleted. As regards learned counsel s reliance on the decision of the Supreme Court in the case of Steller Investments Ltd. [2001] 251 ITR 263, we feel that the reliance on this case was misplaced. In the case of Steller Investments Ltd. [2001] 251 ITR 263 (SC), it was the public issue at large. It was under these circumstances that the court took the view that it was not possible for the company to verify the identity of the shareholders. But the case before us is the case of a private limited company where the shareholders are known to the assesseecompany. Under the circumstances, reliance on the decision of the Supreme Court in the case of Steller Investments Ltd. [2001] 251 ITR 263 is misplaced. But as we have deleted the addition on other grounds, the grounds of appeal directed by the assessee are allowed. In the result, the appeal filed by the assessee is allowed. - - TaxTMI - TMIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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