TMI Blog2006 (11) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... aid up capital in the Assessment Year's 1984-85, 1985-86 and 1986-87 was Rs.99,80,000/- received from Directors/Promoters and also by way of a public issue. These sums were received through banking channels and complete records were maintained. The Assessing Officer ( 'AO' for short) made the following additions which came to be deleted/reversed by the CIT (A), whose decision was thereafter 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 imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. In our opinion, no question of law arises and the petition is, therefore, dismissed." 4. This Order was unsuccessfully carried in Appeal by the Revenue and was summarily dismissed by the Apex Court in 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Gujarat High Court that the rejection of the Appeal on certain grounds would operate as res judicata, but in our understanding it would operate between the litigating parties. We are unable to concur with the argument of Mr.Aggarwal, learned counsel for the Assessee that the dismissal of an Appeal under Section 260A constitutes an expression of a judicial view on the questions of law 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] 192 ITR 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assesses. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Finance .[1994] 205 ITR 98(Delhi) Justice Kirpal's extraordinary experience as the Advocate for the Revenue spanning two decades, and the platitude of precedents established by him in this realm of law may be paralleled only by his Lordship D.K. Jain and in this respect their Judgments can be viewed as exceptional and incomparable. In the latter Judgment it has been specifically recorded that Section 68 and its implications had not been analyzed 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 Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirely on the assessee, and at which point, if any, this burden could justifiably be shifted to the Assessing Officer. The Full Bench in fact clarified that they were ?not deciding as to 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." It has been argued, but without substance, that the Full bench did not go further 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction. In Commissioner of Income-Tax vs. Antarctica Investment Pvt. Ltd ., [2003] 262 ITR 493 (Del) the Court was satisfied that no interference was justified since the Assessee had produced the Share Application Forms along with confirmation letters and copies of their Accounts, copies of their Bank Accounts of cheque payments and their Auditor's Report. The Assessing Officer's conclusion that the genuineness of the transaction had not been made good was not upheld. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine contributor abandoning his investment for diverse reasons. That would not lead to the conclusion that the assessee is automatically guilty of attempt of converting its income into capital. 17. In Bharati Pvt. Ltd. vs. Commissioner of Income-Tax, West Bengal-I, Calcutta [1978] 111 ITR 951 (Cal) where notices to these alleged creditors had come back unserved, the Division Bench affirmed that the mere filing of confirmatory letters by the assessee did not discharge the onus that 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 als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 986-87 was rejected on 4-9-2003 by the ITAT Bench comprising Shri R.M.Mehta and Shri Ram Bahadur . With regard to the in between Assessment Year 1985-1986 another Bench comprising Shri H.L.Karwa and Shri B.R.Jain dismissed the Revenue's appeal on 12.8.2005. 21. As would be evident from a perusal of the Table(supra) for the Assessment Year 1984-85 the Assessee had filed a Return declaring a loss of Rs.25,090/- and consequent upon the addition of Rs.9,53,500/- made under Section 68 the assessment was made on this sum. The ITAT noted 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 Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time to provide details. The CIT (A) has noted that (a) the stridently adverse findings of the AO at Calcutta had been struck down in Appeal; (b) Notices under Section 143(6) of the IT Act sent to the five Companies were replied to by them; (c) these Companies were duly incorporated under the Sikkimese Companies Act; (d) Assessment of these Companies had been framed under the Sikkimese Taxation Manual; (e) their share subscriptions or capital were received through Banking channels. The CIT(A) deleted the addition for the reason that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Ward No./ration card of the share applicants and some of them are assessed to tax. The share application money has been received through banking channel. In some case, the confirmations/affidavits of share applicants containing the above detail were also filed. It is seen that the AO did not carry out any inquiry into the income tax record of the persons who have given the PAN No./Ward No. in order to ascertain the non-existence of the share applicants in question. The AO has neither controverted nor disapproved the material 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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