TMI Blog2006 (2) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Tribunal. He accordingly held that unpaid interest to Rajasthan Financial Corporation (RFC) could not be added back u/s 43B of the Income-tax Act. The Assessing Officer was duty bound to make assessment in accordance with law and therefore, could not make disallowance under a provision which was not at all applicable. Accordingly directed that addition made by the Assessing Officer be deleted. The learned AM did not agree with the order proposed by the learned Judicial Member. He noted that assessee did not challenge addition made by the Assessing Officer before the learned CIT(A). In fact the assessee had himself surrendered the amount in the revised return. He further observed that case pleaded as per the additional ground of appeal related to challenge of disallowance of an expenditure. It was not purely a legal claim not requiring investigation of facts. The matter, in the opinion of ld. Accountant Member, required to be considered u/s 36(1)(iii) of Income-tax Act. Addition - learned Accountant Member did not agree with the proposed order of the Judicial Member. In his view the matter relating to addition was required to be remitted to the Assessing Officer for examinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true that Sh. Virendra Raj Lodha has not been shown to be assessed to tax but he had also made majority of investments F towards share capital through cheques. Particulars of amounts advanced through cheques are available in his accounts. The Assessing Officer in this case has not written anything about his bank account. His identity has also not been doubted. Thus, I see no justification to remand the case in respect of share application money advanced by Shri Virendra Raj Lodha. I accept the same as genuine. Hence, I agree with learned Judicial Member that there was no scope to make any addition of share application money in the hands of assessee-company. The ld Accountant Member in his proposed order has also raised an issue on distinction between public company and a private company. Two types of companies are differently treated under the Companies Act, for various purposes and said distinction is well-known. It has also been noted by the learned Accountant Member in the impugned order. But as far as share application money is concerned, the matter is required to be determined under section 68 of the Income-tax Act. If the identity of the creditor is established, then burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was invalid being beyond limitation available to the assessee for filing the return under section 139(5) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act')- The ld. Assessing Officer processed the original return filed by the assessee under section 143(1)(a) of the Act on 19-11-1990 wherein the addition of Rs. 1,37,710 was made through prima facie adjustment. The first revised return was also processed and additions through prima facie adjustment were made. 3. During the previous year relevant to assessment year under consideration substantial funds had flown in by way of share capital subscription and cash credits. The ld. Assessing Officer asked the assessee to furnish specific particulars in this regard by issuing questionnaire dated 29-1-1991. The Assessing Officer wanted the parties to be produced before him for cross examination as the ld. Assessing Officer was not satisfied by the details filed by the assessee. The money introduced by way of share capital subscription in the following 10 persons was rejected by the Assessing Officer:- Name Amount 1. Mr. Sudhraj Lodha 42,400 2. Mr. Shripal Raj Lodha 57,000 3. Mr. Suparas Raj Lodha 46,364 4. Mr. Sumer R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee [para 11] of the assessment order. At the same time, it is also evident from the assessment order from its para 2 that the second revised return filed by the assessee was not accepted by the Assessing Officer being beyond time. The same has also been discussed in para 1 of the assessment order. 8. This is also a fact that the assessee did not challenge this disallowance before the CIT(A), presumably on the ground that the assessee enjoined the wrong belief that the provisions of section 154(1)(b) were attracted in his case. Now, the assessee has raised this additional ground, which we have already accepted in view of the decisions, more particularly, the case of the National Thermal Power Co. Ltd. which is placed on pp. 20 to 23 of PB filed by the assessee in relation to additional grounds, inter alia. Having accepted the additional ground, now we are faced with the fact that the assessee himself added this amount under section 43B in the second return, but since the same was not acted upon, being invalid, the facts and figures detailed in the said revised return cannot be of any help to any party. But, for a limited purpose, to show the genuineness of the claim of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the eyes of the law. Consequently, we delete this addition and accept the additional ground of the assessee. 11. The next issue relates to addition made for unexplained share capital of Rs. 5,01,129. We have heard both the parties and also perused the records and have gone through the PB and decisions relied before us. 12. The ld. AR has referred to his PB at pgs. 213 to 216 which contain the following facts: (a) That the merits of the case also warrant the deletion of the addition made for the alleged unexplained share capital of Rs. 5,01,129. The material available with the Assessing Officer in respect of the shareholders establish the identity, creditworthiness of the shareholders and genuineness of the transaction. In this respect, it is further submitted that the assessee-company submitted during the course of assessment proceedings the list of shareholders, their GIR Nos., the particulars of the shareholders where they are assessed to tax, the confirmed copy of account of shareholders showing that most of the transactions are by account-payee cheques barring a very few instances, where the share subscription of meagre amount was also received in cash. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer also alleged that entries in the bank account of the shareholders preceding to the issuance of cheque in favour of the assessee-company, also could not be verified because the shareholders were not produced for examination. The Assessing Officer made certain observations in his assessment order on the basis of case records and material made available by the assessee-company in respect of shareholders held without there being any material on record that the credits appearing in the balance sheet of the shareholders are not having any ostensible sources and therefore, the creditworthiness of the shareholders have not been established. It is also submitted that the Assessing Officer has not put up the facts as mentioned in the assessment order in respect of the shareholders to the assessee-company, for its rebuttal and explanation and, therefore, the action of the Assessing Officer is unjustified in view of the decision of Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC) placed at page Nos. 222 to 227 of the PB. In view of the above discussion, it appears that the Assessing Officer wanted to know the source of the source which is not justified. It is further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cases are assessed under scrutiny and none is filing balance sheet with the return of income. As such, the evidence placed on record by these persons along with the return of income do not facilitate cross verification. As their cases have been completed in summary scheme it was right opportunity for the department to have interview with these persons to find out whether all was well with regard to funds being introduced in their names and sufficient accounted funds were available in their hands. There are even cases where the capital is built up in a bogus manner and returns are filed in the name of benami persons who even do not know what transactions have been done in their names. With this state of affairs and introduction of summary scheme it was the right of the department to investigate thoroughly as and when the cases are picked up for scrutiny. To have an idea of availability of funds in the hands of the above persons it will be relevant to discuss their affairs in a brief manner on the basis of whatever could be gathered from their case records or the evidence placed on record by the assessee. 15. Before we give any finding on this issue, we would like to observe that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution of India. On the other hand, there is another view that since this Full Bench of the Delhi High Court is the detailed authority on this subject, and the same was not in issue before the Hon'ble Supreme Court, so the law laid down by the Full Bench of Hon'ble Delhi High Court holds good for that purpose. But in this case although there are various decisions, for and against this proposition, we can avoid this controversy for disposing of this appeal, as it is a clear-cut case of the department that the assessee has been able to establish identity of the shareholders. So, in any eventuality, by applying the Sophia Finance decision of the Hon'ble Delhi High Court, the onus cast upon the assessee has been discharged successfully by it. 18. The Jodhpur Bench of ITAT has also taken a view in the case of ITA No. 155/JU/2001 for assessment year 1997-98 decided on 28-11-2001 wherein it has been held that the findings of the Steller decision have been confirmed by the Hon'ble Supreme Court, so these findings are binding on every co-ordinate Bench of the Tribunal. In case this Bench wants to distinguish the findings of the Tribunal or the co-ordinate Bench of Jodhpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also no provision in the Income-tax Act, which disentitles a Private Ltd. Co. from the benefits, which are given either by the Sophia Finance Ltd.'s decision or Steller Investment Ltd.'s decision. As has been rightly pointed out by the ld. DR that even in case of Public Ltd. Companies some cases have been detected where the issue of shares issued to general public is found to be bogus. In the same way, shares applied by the shareholders in Private Limited Companies can also be bogus. We definitely agree with this submission of the ld. DR, but at the same time, we disagree with the ld. DR so far as this case of assessee is concerned, because when there is no clear-cut finding of the Assessing Officer that the transactions are bogus. The Sophia Finance Ltd's case on which the department relies, only requires the assessee to establish the identity of the shareholders and the same has been established by the assessee, then in that situation, the department cannot proceed any further thereafter. Moreover, this is not at all the case of the department that the assessee-company is a private limited company and as such, the decision of the Sophia Finance Ltd. will not be appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estments. The particulars of the receipt and GIR No. of such persons, who had made such investments in the said companies, registered under the Companies Act, were furnished. Notices of five companies out of 7 companies were received unserved with the remark of the postal department that they have shifted their addresses. But no attempt was made by the department to pursue the enquiry thereafter. Likewise, in the case of individual investors, the assessee filed the addresses etc., but the department was not satisfied with the same. The Hon'ble High Court concluded that: Applying the principle enunciated by the Supreme Court in Orissa Corporation Pvt. Ltd.'s case, the irresistible conclusion is that the conclusion of the Tribunal that the assessee had discharged his initial burden in respect of six companies and 9 individual investors, which was based on evidence and additions made by the Assessing Officer were enquired into without pursuing correctness of material place before it by the assessee. No question of law can be said to be arising in such circumstances in respect of finding arrived at by the Tribunal, which is essentially a finding of fact and does not stand vitia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned in para 14 of his order. It was held that the additional ground being purely a legal ground emanating from the facts available on record the admission of this ground does not require any investigation of facts. The ld. AR placed reliance on the following judgments: 1. Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 (SC). 2. Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1 (Delhi); and 3. National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). 4. The appellant has not challenged this addition before the ld. CIT(A). The additional ground having been considered as purely a legal ground, which does not require investigation into the facts, was entertained in the proposed order as per provisions of Rule 11 of the I.T.A.T. Rules. The provisions of section 43B(d) reads as under:- Section 43B(d) - any sum payable by the assessee as interest on any loan or borrowing from any public financial institution [or a State Financial Corporation or a State Industrial Investment Corporation] in accordance with the terms and conditions of the agreement governing such loan or borrowings. 5. The plea of the appellant is that it is very clear and evident from the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT that this is not covered by section 43B(d) as already admitted by the appellant before the Assessing Officer then the appellant should have mentioned and other legal provision under which the appellant was entitled to deduction of Rs. 2,16,806 on account of outstanding interest of RFC and other liabilities. In my considered opinion now deduction is to be considered under section 36(1)(iii) of the Income-tax Act. Therefore, this additional ground cannot be admitted. It requires investigation into the facts of the case by the Assessing Officer. Though, the appellant had not specified the section under which the deduction is to be allowed by the Assessing Officer, even then I am of the considered opinion that this deduction is allowable under section 36(1)(iii) of the Act after investigation into the facts of the case by the Assessing Officer. In order to claim deduction of expenditure under section 36(1)(iii) the following conditions should be satisfied:- (i) Money must have been borrowed by the assessee. (ii) It must have been borrowed for the purpose of the business. (iii) It must have been borrowed for the purpose of business and there is no diversion of funds elsewhere. (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aise additional ground and also granted deduction from the assessee's income. In the second mentioned judgment of the Hon'ble Delhi High Court the question raised was a purely question of law and no fresh evidence was required to be taken. Therefore, the additional ground was held to be tenable. In the third mentioned judgment it was held by the Hon'ble Apex Court at pages 383-385 as under:- Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 11. In this case it was held that the Tribunal can allow a new ground to be raised where the Tribunal is only required to consider the question of law arising from the facts which are on record in the assessment proceedings which does not require any investigation into the facts of the case. Therefore, in my opinion this additional ground of the appellant cannot be ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) have also been relied upon by the ld. Judicial Member. It was held that no addition is called for. 13. Distinction between the private and public Ltd. Company was also discussed in the proposed order in brief and it was also observed therein that there can be bogus shares in the case of public as well as private limited companies. It was also the plea of the appellant that the Assessing Officer did not accede to the request of the appellant for summoning the shareholders/cash creditors under section 131 of the Act and this request was neither acceded to nor rejected which amounted to improper exercise of the jurisdiction on the part of the Assessing Officer. For deletion of the addition the ld. AR relied on the following judgments:- 1. Vijeta Cements (P.) Ltd. v. Jt. CIT (2001) 25 TW 223 (Jp.) 2. E.M.C. (Works) (P.) Ltd v. ITO [1963] 49 ITR 650 (All.) 3. Munnalal Murlidhar v. CIT [1971] 79 ITR 540 (All). In this case the ld. DR had contested that the assessee had not been able to discharge the onus cast upon it by the provisions of section 68 of the Act and had discussed in detail the distinction between the private and public limited company and had contended that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained cash credit introduced in the shape of share application money was confirmed by the ld. CIT(A). The ld. AR submitted that the particulars about the identity and the existence of shareholders in question was duly submitted by the appellant-company during the course of the assessment proceedings. These included list of shareholders, GIR No., assessment particulars where the shareholders are assessed to tax, etc. The ld. AR further submitted that Assessing Officer, for the first time, vide his letter dated 21-2-1992 asked the assessee-company to produce all the shareholders on 3-3-1992 for cross examination. The fact is that the abovesaid letter dated 21-2-1992 was accompanied with the notice under section 142(1) dated 25-2-1992 and, therefore, the time allowed by the Assessing Officer requiring the appellant-company to produce the shareholders was quite inadequate and since looking to the fact that the assessment for the relevant assessment years was going to be time-barred by 31-3-1992, the appellant-company on 3-3-1992 made a specific prayer to the Assessing Officer to issue summons to all the shareholders under section 131 of the Income-tax Act, if the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 27 are reproduced as below:- The next question arises for consideration is as to whether section 68 is applicable in respect of share application money and under what circumstances section 68 gets attracted in block assessment in respect of the same. The Delhi High Court in the case of Steller investment had the occasion to consider as to whether the CIT was justified in invoking section 263 for bringing to tax the share application money appearing in the balance sheet of the assessee-company on the ground that the Assessing Officer had failed to make inquiries at the time of original assessment. The Tribunal in that case on facts, held that the CIT was not justified in treating the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the revenue. The Delhi High Court in the aforesaid case refused to interfere with the decision of the Tribunal. Their Lordships also observed that if the share application money in the case of the company was not genuine, assessment could be made in the hands of those persons who had invested the money in the company. 24. The decision of the Delhi High Court was challenged by the revenue in the Supreme Court and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account can be gone into by the ITO. If shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as capital receipt and to that extent the observations in the case of Steller Investment are correct, but, if on the other hand the assessee offers no explanation at all or the explanation offered is not satisfactory, then, the provisions of section 68 may be invoked. In the latter case section 68 being a substantive section empowers the ITO to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee in CIT v. Steller Investment Ltd. [1991] 99 CTR (Del.) 40: 192 ITR 287 (Del.) distinguished and explained. 25. Subsequently, Their Lordships of the Supreme Court decided the reference of the revenue in the case of CIT v. Steller Investment Ltd. (2002) 164 CTR (SC) 287 (2001) 251 Their Lordships of the Supreme Court were pleased to dismiss the reference application of the revenue by the following order: We have read the question which the High Court answered against the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court held that the Assessing Officer is not precluded from making inquiry as to the true nature and source of entries in the books of account even if the same is credited as receipts of share application money. It was held further that if the amount credited as capital receipt, then it cannot be taxed, but it is for the ITO to be satisfied that the true nature of the receipt is that of the capital. Merely because the company chooses to f show the receipt of money as capital does not preclude the ITO from going into the question whether this is actually so . On careful comparison and reconciliation of the two decisions of the Delhi High Court referred to above read with the decision of the Supreme Court in Steller Investment Ltd., following position emerges: (i) If Assessing Officer does not enquire about the genuineness of the share application money, the share capital has got to be accepted as capital receipts. (ii) If, on the other hand, enquiry is made by the ITO regarding share application money and he is not satisfied that the true nature of share application money is of capital receipts, he can invoke section 68 thereof. (iii) In the light of the above principles of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and (d) of section 3(1)(iii). 23. Restrictions on transferability of shares-consistent with objective of promoting the company as a closely knit family or friendly affair, a private company has to contain the specific restrictions so as to prevent anybody or everybody acquiring shares of the company by transfer and thereby defeating the very objective or promotion of the company as a private company. This restriction should uniformally apply to all the shareholders of the private company and accordingly, the articles usually provide that directors may in their absolute discretion and without assigning any reason therefore decline to register a transfer of any share whether fully paid or partly paid. 24 Definition of a public company: Section 3(1)(iii) 25. A pubic company, as per the Companies (Amendment) Act means a company which: (a) is not a private company. 26. Now we shall discuss the lifting the corporate veil specially in the case of private limited company for protection of revenue. In Sir Dinshaw Meneckjee Petit, In re AIR 1927 Bom. 371 the assessee was a millionaire earning huge income by way of dividend and interest. He formed four private companies and transferred the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfactorily the source of deposit on account of share application money/share capital in the following persons:- Name Amount 1. Mr. Sudhraj Lodha 42,400 2. Mr. Shripal Raj Lodha 57,000 3. Mr. Suparas Raj Lodha 46,364 4. Mr. Sumer Raj Lodha 67,800 5. Mr. Jitendra Raj Lodha 64,400 6. Mr. Virendra Raj Lodha 59,758 7. Mrs.Urmila Lodha 41,000 8. Mrs.Prem Lata Lodha 39,500 9. Mrs.Nirmala Lodha 33,264 10. Mrs. Sarita Lodha 49,643 Total 5,01,129 30. The persons mentioned at serial Nos. 6 and 7 are not being q assessed to tax. The Assessing Officer held that this is case of closely held company controlled by one family and, therefore, the assessee's burden to establish the genuineness of funds flown in the guise of share capital subscription and the creditworthiness of the investor is at par with cash credits. The appellant did not produce any of the above persons to enable the Assessing Officer to investigate into the funds brought in their names. Simply furnishing of GIR No. or assessment particulars is not enough for the reason that none of the above persons are assessed under scrutiny and none is filing balance sheet with the return of income. As such the evidence placed on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the issue of cheque to the assessee-company just precedes a deposit of an equivalent amount in his bank account either through cash or transfer entry. I am, therefore, of the view that he did not have sufficient accounted funds with him to advance funds to the assessee-company or to invest in assessee-company. (iii) Shri Suparas Raj Lodha: It is seen that investment by him in assessee-company included cash deposit of Rs. 6,000. No evidence indicating source of funds in his hands have been placed by the assessee on record. The assessee's claim that he was assessed to tax is hollow in the sense that from record it is found that he has not filed any return of income after assessment year 1985-86. From a copy of his bank account gathered independently it is seen that issuance of cheque by him just precedes deposit of equivalent amount through a transfer entry. The immediate source of funds in his hands could not be investigated as the assessee failed to produce him. (iv) Shri Sumer Raj Lodha: Out of total investment in his name Rs. 9,800 is deposited in cash. In addition, cash of Rs. 500 is also deposited by him in the bank to issue cheque to the assessee-company. From the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that issuance of cheque to the assessee-company just precedes deposit of equivalent amount through a transfer entry in her bank account. Obviously, therefore, the funds introduced in her name remain unexplained. (viii) Mrs. Prem Lata Lodha: The assessee's claim that she was assessed to tax is also hollow in the sense that first return in her name was filed for the assessment year 1989-90 wherein income of Rs. 19,900 was shown. The capital account filed with the return indicate that capital was built up in her hands slowly, by showing income from stitching and miscellaneous income. In the assessment year 1989-90 commission income is also shown in her hands. It is obviously a case of bogus capitalization and it was, therefore, essential to cross examine her regarding her ostensible income in her hands. It is seen that she deposited cash of Rs. 9,500 with the assessee and in bank account also she deposited Rs. 13,000 in cash to issue cheque to the assessee-company. In respect of balance it is seen that issuance of cheque just precedes the transfer of funds. In view of above funds introduced in her name remained unexplained. (ix) Mrs. Nirmala Lodha: It is seen that she deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made through cheques it was found from the copy of accounts obtained from the banks of the shareholders that equivalent amount had been deposited through cash or book entry and no explanation for the same had been submitted. It was held in the case of Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) that mere furnishing of particular is not enough. It was held in the case of CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.) that mere filing of Income-tax file No. of the creditor was not enough to prove the genuineness of the cash credit. There was no affidavit to this effect by the creditor on record. The creditor should be identified. There should be creditworthiness. The assessee had failed to prove the genuineness of the cash credit. Therefore the finding of the Tribunal that the identity of the person, her creditworthiness and genuineness of the transaction in respect of the cash credit in the name of the creditor had been proved by the assessee was not based on any relevant material and was perverse. The ld. AR and the ld. Judicial Member had also relied upon the judgment in the case of Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 (Pat.), wherein it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime preferred an application to summon the persons under section 131 of the Act. Besides, the ld. AR has also contended that the material discussed in the order of the Assessing Officer regarding the various facts culled out of the assessment record all these persons had not been produced for rebuttal. Under such circumstances, I am of the opinion that this ground of appeal regarding addition for unexplained deposit in share application money/capital should be restored to the file of the Assessing Officer for allowing an adequate opportunity to the appellant to explain his case before him. For the purpose I rely on the judgment of the Rajasthan High Court in the case of Rajshree Synthetics (P.) Ltd. v. CIT [2002] 256 ITR 331. The Hon'ble Rajasthan High Court has held as under:- Section 68 of the Income-tax Act, 1961, gives a statutory recognition to the principle that cash credits which are not satisfactorily explained, may be assessed as income. This provision empowers the Assessing Officer to make inquiry regarding the cash credit. If he is satisfied that these entries are not genuine, he has every right to add its amounts as income from other sources. The satisfaction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer for examining the depositor and to verify the relevant facts from the assessment records of these persons. 35. In these results, the appeal is allowed for statistical purposes. REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 Hariom Maratha, J.M. 1. There has been a difference of opinion between the ld. A.M. and the J.M. of this Bench in question. The following questions are being referred to the Hon'ble President of the Income-tax Appellate Tribunal for nominating a Third Member for deciding the points/questions about which both the members have different opinions. This reference is being made under the provisions of section 255(4) of the Income-tax Act, 1961. The points of difference are referred to in the form of questions which are as under:- Question No. 1 Whether on the facts and in the circumstances of the present case, the disallowance made by Assessing Officer under section 43B of the Income-tax Act, 1961 can be treated as a purely legal ground which can be entertained by the Tribunal as an additional ground for the first time even though the assessee has not raised this ground before the ld. CIT(A)? The J.M. is of the opinion that this is a purely legal question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing two questions:- 1. Whether additional ground which requires investigation on facts can be admitted, especially when the addition admitted and made does not fall within the ambit of section 43B of the Income-tax Act, 1961. 2. Whether the addition made under section 68 can be made for unexplained share application money having regard to the following two points. (a) The judgment in the case of Cas Card Finance Ltd. v. Asstt. CIT [2003] 78 TTJ (Ahd.)(TM) 55 paras 23 to 29 of the judgment. (b) The distinction between public and private Ltd. Co. as discussed in the order of the AM at pages 17 to 20. 3. However, in the opinion of learned Judicial Member the following 3 questions represent the difference of opinion:- 1. Whether on the facts and in the circumstances of the present case, the disallowance made by Assessing Officer under section 43B of the Income-tax Act, 1961 can be treated as a purely legal ground which can be entertained by the Tribunal as an additional ground for the first time even though the assessee has not raised this ground before the ld. CIT(A)? 2. Whether on the facts and in the circumstances of the present case, the addition made under section 68 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not challenge above addition in appeal before the CIT(A). However during the course of hearing of appeal before the Tribunal, the assessee raised an additional ground of appeal to the following effect:- That the provisions of section 43B as were in force in the relevant assessment year, did not permit any addition for unpaid interest to Rajasthan Financial Corporation being a State Financial Corporation and the Assessing Officer, therefore, erred in law in making addition of Rs. 2,15,364 under section 43B for the relevant assessment year which is liable to be struck down. 5.1 After hearing the parties the ld. Judicial Member was of the view that claim made in the aforesaid additional ground was purely legal and its disposal did not require further investigation of facts. This position, according to the learned Judicial Member, was conceded by the learned Departmental Representative. The learned Member further held that ground was entertainable and admissible under Rule 11 of Income-tax Appellate Tribunal Rules. The learned Judicial Member further relied upon the decisions of Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain case laws, which according to c him were relevant for determining the question raised in the proposed additional ground of appeal. As question raised, required investigation into facts, the learned Accountant Member held that the above referred additional ground of appeal could not be permitted to be raised. Thus, the difference between the Members. 8. The matter has been placed before me under section 255(4) of the Income-tax Act. I have heard both the parties. The assessee while surrendering the amount in question in the second revised return had stated as under:- Add. (Less) Disallowance under section 43 'B' (i) Interest payable to Rajasthan Financial Corporation Amount provided 2,72,364 Less: Paid up to 31-12-1989 57,000 2,15,364 9. It is evident from above that interest payable to Rajasthan Financial Corporation (RFC) was added back under section 43B of the Income-tax Act. No dispute was raised before me nor there is any difference between the learned Members hearing the appeal that clause (d) to section 43B was introduced through Finance Act, 1990 applicable with effect from 1-4-1991. The aforesaid provision was not applicable in the assessment year 1989-90 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, assessee had burden to establish genuineness of funds and creditworthiness of the investors. Simply furnishing of GIR Nos. or assessment particulars was not enough, as cases of these creditors were not shown to be assessed under scrutiny assessments. Cross verification of claim was not possible as assessment of creditors was done under a summary scheme. The Assessing Officer observed, it was right opportunity for the Department to have interview with these persons to find out whether all was well with regard to funds being introduced in their names and that sufficient accounted funds were available in their hands . 12. The Assessing Officer thereafter discussed each of the creditors' and held that they did not have sufficient sources to make investment in the company. The assessee had also failed to produce the creditors for the cross-examination of the Assessing Officer. In the light of discussion available at pages 4, 5 6 of the assessment order, share capital to the extent of Rs. 5,01,129 was treated as bogus and as assessee's income from undisclosed sources and added under section 68 of the Income-tax Act. 13. The assessee impugned above addition in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue authorities that shareholders were not produced for examination of the Assessing Officer, the learned Judicial Member held that this objection was not valid, as assessee had requested the Assessing Officer to issue summons under section 131 to the shareholders. The aforesaid request was neither acceded to nor rejected by the Assessing Officer and this tantamounted to improper exercise of jurisdiction. For the above view, the learned Judicial Member relied upon decision in the case of EMC (Works) (P.) Ltd. v. ITO [1963] 49 ITR 650 (All.) and on the case of Munnalal Murlidhar v. CIT [1971] 79 ITR 540 (All). 16. The learned Judicial Member took into account, following observations from the case of CIT v. Steller Investment Ltd. [2001] 251 ITR 263 (SC) It is evident that even if it be assumed that subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the person, who are alleged to have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private limited company and the public limited company and also having relied upon the order of the ITAT, Ahmedabad TM 2003 78 TTJ 55, I hold that in this case of private limited company, the genuineness of share capital by the shareholders is to be examined under section 68 of the Income-tax Act, 1961. 20. Thereafter, the learned Accountant Member considered case of each of the 10 investors and held that assessee's request for summoning investors should have been accepted and Assessing Officer should have allowed adequate opportunity to the appellant to explain his case. The learned Accountant Member accordingly directed that appeal on this ground should be allowed for statistical purposes and matter remitted to the file of Assessing Officer for examination of witnesses and their assessment records. In the light of above observations, the point of difference has been referred to me under section 255(4) of the Income-tax Act as per details noted earlier. 21. I have heard both the parties. The contentions of learned representative were the same as advanced before the regular bench and recorded in detail in the proposed orders considered above. I may straightaway deal with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the Permanent Account Numbers issued by the Income-tax Department. Superadded to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessee. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transaction suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This appeal according fails and is hereby dismissed. The jurisdictional High Court has taken same view in the case of Barkha Synthetics Ltd. v. Asstt. CIT [2005] 197 CTR (Raj.) 432. Their Lordships have held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been applied by Their Lordships on the question of investment made by Umesh Kumar. In spite of his denial of investment, the addition on account of share application money was deleted as his identity was established by the company. 23. In the present case, the learned representative of the parties have drawn my attention to the evidence placed by the assessee to prove that share application money was genuinely advanced by the shareholders. Those are contained at pages 43 to 94 of the paper book. A summary of the evidence on above pages is as under: S. No. Name of Shareholders Documents submitted by assessee/ collected by Assessing Officer Placed at paperbook page No. 1. Sudh Raj Lodha Confirmed copy of account showing transaction mostly through account-payee cheques, Assessment particulars i.e, GIR No. and address, computation of total income, copy of intimation dated 5-12-1990 for assessment year 1989-90. Balance sheet as at 31-3-1988. 43 to 46 Apart from above as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 47 to 48 2. Sripal Raj Lodha Confirmed copy of account showing transaction mostly th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment particulars i.e., GIR No., copy of intimation dated 12-3-1991 showing GIR No. and address. 85 to 86 Apart from above as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 87 to 89 10. Smt. Sarita Lodha Confirmed copy of account showing transaction mostly through account- payee cheques and balance sheet. 90 to 91 Apart from above as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 92 to 94 Note: The GIR No. of various above shareholders also appear at Page No. 40 of the Paper Book which may please be referred. 21. It is evident from above that in all the cases, except that of Shri Virendra Raj Lodha, the Assessing Officer got information about account of the creditors from their respective banks. Photo copies of bank statement of creditors obtained by the Assessing Officer are available on record. A perusal of aforesaid bank statements clearly show that apart from making investment with the assessee-company, these creditors made other deposits in their bank accounts and these accounts were regularly maintained. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r bank account with State Bank of Bikaner and Jaipur. There are several entries of credit and debit in her account which had no relation with amount invested with the assessee-company. Therefore, on the material on record, investment made by her could not be rejected as non-genuine. It is true that Sh. Virendra Raj Lodha has not been shown to be assessed to tax but he had also made majority of investments F towards share capital through cheques. Particulars of amounts advanced through cheques are available in his accounts. The Assessing Officer in this case has not written anything about his bank account. His identity has also not been doubted. Having regard to totality of facts and circumstances and the case law cited supra, I see no justification to remand the case in respect of share application money advanced by Shri Virendra Raj Lodha. I accept the same as genuine. Having in mind the case law cited above, I agree with learned Judicial Member that there was no scope to make any addition of share application money in the hands of assessee-company. 23. The learned Accountant Member in his proposed order has also raised an issue on distinction between public company and a private ..... X X X X Extracts X X X X X X X X Extracts X X X X
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