TMI Blog2002 (10) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... ey. The AO directed the assessee to file the affidavits of the applicants and also to establish their capacity. The assessee produced Smt. Raman Mishra, who had invested a sum of Rs. 20,000. She was cross-examined by the AO. The assessee also produced Smt. Man Kumari and Shri S.N. Mishra. The other share applicants could not be produced by it. On examination, the AO found that the identity, capacity as well as genuineness of the transactions was not established. He, therefore, treated the credits as unexplained and made an addition of Rs. 3.40 lakhs under s. 68 of IT Act, 1961. The learned CIT(A) has given the details of these creditors (share applicant) and amount of credit, etc., in the table which is incorporated in para 2.1 of his order is as under: S. No. Name of the creditor (share applicant) Amount of credit (Rs.) Amount added under s. 68 of the Act by the AO (Rs.) 1. Smt. Raman Misra 20,000 20,000 2. Ms. Geeta Sunam 85,000 85,000 3. Ms. Amrita Katiyar 85,000 85,000 4. Ms. Asha Devi 20,000 20,000 5. Ms. Saria Sharma 20,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1988) 172 ITR 696 (All) 9. The main arguments of the learned counsel for the assessee were as follows: 9.1 That the identity of the creditors was established by the assessee by filing their confirmatory letters and affidavits, and by filing details of IT returns, etc. 9.2 That the assessee-company had shown the receipt of the share application money, from them and also furnished the details before the Registrar of Companies. 9.3 That the assessee has discharged the primary burden which lay upon it by proving the identity, etc. of the creditors, receipt of payments and, therefore, the Department was not justified in requiring the assessee further to prove the capacity of the investors and genuiness of their transactions. 9.4 It is not the case of the Department that unexplained investment was made by the company out of its own funds and, therefore, addition cannot be made in the hands of the company, even if the source of the creditor was not properly explained. 10. In support of these arguments, the learned counsel for the assessee also placed specific reliance on the various decisions of the Tribunal, which are as under: (1) Smt. Krishna Devi Cold Storage vs. CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his order, which is as under: "2.10 It seems that while it may be unreasonable to ask the company to find out and report about the source of the funds of a shareholder (whose identity has been established), especially in a public issue, in cases where the AO suspects that there was a collusion between the company and the share applicant or the shareholder was a Bbenamidar of the company, the assessee cannot take the plea that no inquiry is permissible. In such situations it can be argued that the concept of the identity of the share applicant, as a genuine investor (which has a nexus with his financial capacity and possession of disposable funds/income) is intertwined with his identity as a person. While this does not mean that the assessee-company can be required to police its share applicants and be accountable for all their economic activities and tax obligations, it can be called upon to establish the identity of the share applicant/shareholder as a genuine investor and to produce shareholders before the AO when asked to do so. Also, while it seems that in view of the Delhi High Court's decision in the case of Sophia Finance Ltd., the assessee cannot be called upon to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs." 17. In view of the decision in the case of the Hon'ble Supreme Court of India in the case of V.M. Salgaocar Bros. (P) Ltd. vs. CIT, if appeal is dismissed by Hon'ble Supreme Court of India against the judgment of High Court in limine, the judgment appealed against stands confirmed. The Hon'ble Supreme Court of India in the case of Salgaocar, has observed as under : "When an appeal is dismissed by the Supreme Court by a non-speaking order, the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case, the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under cl. (3) of Art. 133 of the Constitution." 18. In view of the above observation of the Hon'ble Supreme Court of India, the decision of Hon'ble Delhi High Court in the case of Steller Investment, stands merged with the order of the Hon'ble Supreme Court of India and in view of that decision, the test laid down by the Hon'ble Delhi High Court in Steller's case stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Ltd. In this regard, we may quote the relevant observations of the Hon'ble Court, which are as follows: "If the shareholders are identified and it is established that they have invested moneys in purchase of shares, then the amount received by the company would be regarded as capital receipt and to that extent the observation in the case of Steller Investment are correct." 21. In view of the above observations also, there is concurrence in the two decisions of the Hon'ble High Court on the requisite conditions which are: (i) That the shareholder is identified; and. (ii) That the shareholder has invested money in the purchase of shares. 22. If the abovementioned two requirements are satisfied, then no further inquiry should be made. Thus, in a case where identity of the shareholder is established and further shareholder confirms that he has invested money in the purchase of shares, then no further inquiry can be made against the company for the purposes of making addition under s. 68 of the IT Act, 1961, but in case after the above test is satisfied, an additional test of proving shareholder as a genuine investor is applied, then his capacity to invest has also to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. CIT vs. Rohini Builders, the assessee-firm had taken loans from various parties and during the assessment proceedings, it furnished the loan confirmation giving full address, GIR/Permanent Account Numbers, etc., of all the depositors. After making inquiry, the AO doubted genuineness of the loans taken by the assessee and made an addition of Rs. 12,85,000 to the returned income of the assessee. The CIT(A) confirmed it. On further appeal, the Tribunal held that phraseology of s. 68 of the IT Act, 1961,was clear that the legislature has laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged to the income as the income of the assessee of previous year but the legislative mandate is not in the terms of the word "shall be charged to income as the income of the assessee of that previous year". It was also held that unsatisfactoriness of the explanation does not mean 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 burden which lay on it in terms of s. 68 by proving the identity of the creditors by giving their complete ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble High Court are reproduced below: "Once the identity of the third party is established before the ITO and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors as in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the Department to show as to why the assessee's explanation could not be accepted and as to why it must be held that the entity, though purporting to be in the name of a third party, still represented the source. And, in order to arrive at such a conclusion, even the Department has to be in possession of sufficient and adequate materials." 11. The Hon'ble Patna High Court has further observed as under: "The ITO's rejection, not of the explanation of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f high denomination notes tendered for conversions by the assessee himself. Under these circumstances, it was held that it was necessary for the assessee to establish, if asked, what the source of that money was and to prove that it did not wear the nature of income. It was also held that the Department can ask the assessee to produce the books of account or other documents or evidence pertinent to explanation if one is furnished, and examine the evidence and the explanation. It was also held that if the explanation shows that the receipt was not of an income nature, the Department cannot act unreasonably and reject that explanation to hold that it was income. Thus, on facts, this decision is not applicable to the instant case. 33. In the case of Sumati Dayal vs. CIT, the issue related to the cash deposits under s. 68. It was held in that case that in all cases, in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is well within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable, because it falls within the exemption provided by the Act lies upon the assessee. In that cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO and her identity as a person has been established, and is, in any case, not doubted by the AO........." However, he has proceeded further and has made certain observations, which are based on his appreciation of circumstances and on the basis of these circumstances, he has inferred that her identity as genuine investor has not been established. In our considered view, after identity of the shareholder was proved and further she had confirmed the investment and thus the burden, which lay upon the assessee, stood discharged. In case her capacity to make investment was found to be doubtful, addition, if any, could have been made in her own case, because she was herself an income-tax assessee and had filed IT return for the asst. yr. 1996-97, though it was a belated return. We are, therefore, unable to approve the view taken by the learned CIT(A). 38. Smt. Man Kumari, who made investment of Rs. 10,000 for purchasing shares was also assessed to income-tax. She had filed affidavit and confirmatory letter. Thus, her identity was proved. Further, she had also confirmed the investment made by her. The AO did not summon her and the affidavit remained uncontroverted. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) for making addition on account of credits appearing in their names are not found to be sufficient and valid. 41. So far as persons referred to at serial Nos. 8 to 15 in the table reproduced above, namely, 8. Sri Kanhaiyalal Dubey 9. Sri Deepak Kumar Dubey 10. Sri Mithilesh Dubey 11. Ms. Anju Dubey 12. Sri Manoj Kumar Dubey 13. Sri Ram Narain Pandey 14. Ms. Sudha Pandey 15. Ms. Kamla Pandey are concerned, the learned CIT(A) has confirmed the addition by observing as under : "2.16. The persons referred to at serial Nos. 8 to 15 of Table 1 are reported to be agriculturists. The AO has found some discrepancy in the information about the age of Shri Deepak Kumar recorded in certain documents filed before him. While the appellant has, in the course of the appeal proceedings, tried to explain this discrepancy, no reliable material for the assertion made was furnished. These persons were also not produced before the AO. Also, on an appraisal of the material available on record, it seems to me that identities of these persons [referred to at Sl. Nos. (8) to (15) of Table 1] as genuine investors have not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or the company in any form, i.e., re-sale of shares or otherwise. In the totality of the circumstances and in view of the above, the transactions relating to the credits have not been proved to be non-genuine or sham and the shareholders have also not been found to be non-genuine or persons not in existence. Thus, in our view, the assessee had discharged the burden which lay upon it and, therefore, the addition made by the AO and as sustained by the learned CIT(A) to the tune of Rs. 3,40,000 cannot be upheld by us, and the same is deleted. Consequently, grounds Nos. 1.1 to 1.5 and ground No. 2 are allowed in favour of the assessee. Grounds Nos. 3, 4 5: 45. These grounds are directed against the sustenance of addition of Rs. 15,215 on account of deposit by Shri S.N. Mishra and addition of Rs. 14,939 on account of deposit by Smt. Asha Devi. 46. The learned CIT(A) has considered these credits in paras 3.1 to 3.3 and has confirmed the addition made by the AO. 47. Before us, Shri Garg, learned counsel, submitted that the assessee was not required to prove the source of source. In support of his arguments, he placed reliance on the following decisions: (i) Nanak Chandra Lax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 43B of the Act, the amount in question was not allowable as a deduction in the asst. yr. 1996-97. The benefit of the extended time-limit for payment under the first proviso to s. 43B of the Act is available only in cases where the payment is made by the assessee on or before the due date applicable in his case for furnishing the return of income under s. 139(1) of the Act in respect of the previous year in which the liability to pay such sum was incurred. In other words, the benefit of the extended time-limit under the first proviso to s. 43B is available only in respect of the previous year in which the liability to pay the sum in question was incurred. In this case the liability to pay the sum in question was not incurred in the previous year relevant to the asst. yr. 1996-97. It was incurred in an earlier year. Therefore, the appellant cannot get the benefit of the first proviso to s. 43B of the Act in the asst. yr. 1996-97 in respect of the payment made after the end of the previous year relevant to the asst. yr. 1996-97. I, therefore, confirm this disallowance of Rs. 14,394, though on a reasoning different from the one taken by the AO. This disallowance of Rs. 14,394 is, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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