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TMI Blog2006 (11) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter upheld by the ITAT. A.Y. Amount received by way of share capital by the assessee company Addition made and, deleted by learned CIT (A) and, deletion upheld by learned ITAT 1984-85 10,23,000/- 9,53,500/- 1985-86 13,05,350/- 13,05,350/- 1986-87 76,51,650/- 76,51,650/- Total 99,80,000/- 99,10,500/- 2. In March, 1987 the Assessee filed a revised Return forAssessment Year 1984-85 and Assessment Year 1985-86 by taking advantage of the Amnesty Scheme and surrendered Rs.62,500/- and Rs.1,87,000/- in the respective years. In these fresh assessment proceedings the AO issued summons under Section 131 of the Income Tax Act and thereafter impounded the Shareholder's Register, Share Application Forms and Share Transfer Register. The Assessee has contended that because these materials were in the custody of the Department the former was unable to furnish any further details pertaining to the subscribers. 3. Reliance has been placed on behalf of the Assessee on Commissioner of Income-Tax vs. Stellar Investment Ltd., [1991] 192 ITR 287 (Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-Tax vs. Stellar Investment Ltd., [2001] 251 ITR 263 (SC) in these brief words - "We have read the question which the High Court answered against the Revenue. We are in agreement with the High 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." 5. In Stellar Investment the Division Bench had observed firstly, that no question of law had arisen before it; secondly, that if some bogus shareholders had been detected their assessment could justifiably be re-opened; and thirdly that the amount of increased share capital could not be assessed in the hands of the company. The later two aspects undeniably possess the character of question of fact. Reference to Section 68 of the Income Tax Act (hereafter referred to as the "IT Act") is conspicuous by its absence. The Stellar Investment ratio cannot be stretched to the extent that it partakes as a reflection on Section 68, when the enquiry pertained only to Section 263. In Mysore State Road Transport Corporation vs. Mysore Road Transport Appellate Tribunal, AIR 1974 SC 1940, the Supreme Court had referred to an essay by Professor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the appellant had proposed in the Appeal. In other words, Stellar Investment would have to be restricted to the facts that had occurred strictly in those Appeals and no further. We are in respectful agreement with the understanding of the Division Bench in Commissioner of Income Tax vs. Dolphin Canpack Ltd.,[2006] 283 ITR 190 (Delhi); [2006] 204 CTR (Delhi) 50 as articulated in this sentence - " In Steller Investment's Ltd.[1991] 192ITR 287 (Delhi) case (supra) the issue which the Revenue proposed to raise, related to the propriety of the Tribunal taking resort to s.263 in the case by ignoring the material fact that the AO had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of whom were found to be students and housewives." Rejection of an Appeal under Section 260A is similar to the dismissal in limine by the Supreme Court of Special Leave Petition. This is also the view of the Calcutta High Court. Authority for the proposition is available in Municipal Corporation of Delhi vs. Gurnam Kaur, AIR 1989 SC 38 and more recently in Director of Settlements, A.P. vs. M.R. Appara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." 8. This reasoning must apply a fortiori to large scale subscriptions to the shares of a public Company where the latter may have no material other than the application Forms and Bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/Assessee or to Creditors of the Assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. 9. Sumati Dayal v. CIT-Bangalore [1995] 214 ITR 801 (SC) a succinct yet complete precis on the essentials of income-tax liability can be discerned from these w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lyzed in the former Order. Therefore, for a detailed discussion on Section 68 one should first turn to Gee Vee Enterprises vs. Additional CIT, [1975] 99 ITR 375 (Del) and thence finally to the decision of the Full Bench of this Court in Sophia Finance.[1994] 205 ITR 98. 11. In Gee Vee Enterprises [1975] 99 ITR 375 (Delhi)the Division Bench had in the context of a challenge to the maintainability of the Writ Petition on the grounds of the availability of an alternative remedy laid down situations which would justify the invocation of Article 226 of the Constitution. The Bench had also opined that the "intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case". It was further observed that the AO is both an adjudicator as well as an investigator, and it is his duty to ascertain the truth of the facts stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than holding that the only responsibility on the assessee is to identify the subscriber; or that the AO was not required to delve into the creditworthiness of the subscriber; or that the AO need not be satisfied about the genuineness of the transaction. 13. Before applying the law to the facts of the present case, we should reflect on the manner in which the Division Bench dealt with the factual matrix in Dolphin Canpack.[2006] 283 ITR 190 (Delhi). It observed that where a "credit entry relates to the issue of share capital, the ITO is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the AO in the present case. In the course of the said inquiry, the assessee had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the IT Department. Super added 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld. This conclusion was reached despite the fact that notices received by one of the common Directors of the two subscribing companies had been ignored and no information was forthcoming from the latter. However, the Under Secretary (Land Revenue, Government of Sikkim, Gangtok) had stated that both the subscribing companies were incorporated in Sikkim and their addresses were disclosed in the return of allotments; the subscribers thus stood identified. Their financial standing or capacity was not investigated by the Court. The decision in Commissioner of Income-Tax vs. Achal Investment Ltd., [2004] 268 ITR 211 (Del) is also on the same lines. 15. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay on the assessee. Different Division Benches of the same High Court have opined that the assessee must prove (a) the identity, (b) the capacity of the creditors to advance money, (c)the genuineness of the transaction. (See Shankar Industries vs. Commissioner of Income-Tax, Central, Calcutta, [1978] 114 ITR 689 (Cal); C.Kant and Co. vs. Commissioner of Income-Tax, West Bengal-III, [1980] 126 ITR 63 (Cal) and Commissioner of Income-Tax vs. United Commercial and Industrial Co. Ltd., [1991] 187 ITR 596 (Cal).) In C.I.T. vs. Korlay Trading Co. Ltd., [1998] 232 ITR 820 (Cal), certain shares purchased through a broker were lost. The Assessee furnished the name of the broker, as also the date of the sale, amount of purchase money and sale money. The broker was found not to have maintained regular accounts. However, the Court refused to draw an inference adverse to the Assessee's interests. Instead the Calcutta High Court observed that the ITO ought to have investigated the matter more thoroughly to controvert the claim of the assessee, and concurred with the conclusion of the Tribunal that the latter had discharged the initial burden that lay on it. The High Court set aside the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. 19. For a complete understanding of the concept of 'burden of proof'' attention should be drawn to decisions delivered in the context of penalty proceeding under Section 271 of the Income Tax Act. CIT, West Bengal vs. Anwar Ali [1970] 76 ITR 696 was decided by the Apex Court holding that, if there is no evidence on record except the explanation of the assessee, which explanation has been found to be false, it still does not follow that the receipt constitutes taxable income. This decision was followed by the Apex Court in Anantharam Veerasinghaiah and Co. vs. Commissioner of Income-Tax, A.P., [1980] 123 ITR 457 opining that the "mere falsity of the explanation given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that the Assessee was a Public Limited Company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of the Securities Contract Regulation Act, 1956 as also the Rules and Regulations of the Delhi Stock Exchange. Complete details appear to have been furnished. The ITAT has further recorded that the AO had not brought any positive material or evidence which would indicate that the shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital represented the company's own income from undisclosed sources. By the same Orders dated 4.9.2003 the addition of Rs.76,51,650/- for the Assessment Year 1986-87 deleted by the CIT (A), was upheld. 22. In connection with Assessment Year 1985-86 the ITAT has extracted portions of the Orders of the CIT (A) and we must assume that it did so to adopt that reasoning. The ITAT has not articulated its own reasoning in respect of Ground No1 before it viz. deletion of the addition of Rs.13,05,450/-on account of unexplained shares subscription; whilst it has done so with regard to the other ground viz. deletion of addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the identity of the shareholders had been established on the strength of Steller Investment, which approach may not be entirely correct in the light of the discussion above. We have already concluded that this merely shifts the burden of proving the illegal or illegitimate nature of the transaction onto the Department. The investigations carried out by the AO in Calcutta cannot be relied upon by the AO Bulandsharar consequent on those proceedings being found to be without jurisdiction. While rejecting the assault of the Revenue on this aspect the ITAT has cogently noted that the share capital issued to the original shareholders in the AY 1984-85, which had been cancelled by the AO Calcutta, was found to be valid by the jurisdictional AO at Bulandshashar. But we hasten to clarify that the statement of law made by the ITAT to the effect that in case of share capital no additions could be made if it is established that the shareholders exist is not completely correct, and has not been so enunciated by this Court in Sophia Finance.[1994] 205 ITR 98 (Delhi) 24. It has been contended on behalf of the Revenue that the Rights Issue could not have been subscribed to by the aforeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee. In the case of CIT Vs. Makhni and tyagi (P) Ltd. reported in 267 ITR 433(Del), the jurisdictional High Court has held that when the documentary evidence was placed on record to prove the identity of all the shareholders including their PAN/GIR numbers and filing of other documentary evidence in the form of ration card etc. which had neither been controverted nor disapproved by the AO, no interference was called for. The Tribunal was justified in deleting the addition. The AO proceeded to make the impugned addition on the ground that in some case some summons issued were returned unserved and in some case summons though served but there was no compliance. In this connection, it may be mentioned that in the case of CIT Vs. Orissa Corpn., 159 ITR 78, the Hon'ble Court has held that when the assessee borrows the loan and if an assessee gives names and address of the creditors, who are assessed to tax and full particulars is furnished then the assessee has discharged the duty. If the Revenue merely issues summons u/s 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Additio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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