TMI Blog2017 (3) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... hlot, Sh Karma Veer Singh etc. that money was invested out of sale of crops, but no evidence in support of sale of crops was filed before either the lower authorities or before us. In case of Sh. Nanu Singh, the copy of ration card available on page 16 of the paper book, shows annual income of the family at ₹ 2000 only and which in our opinion is not sufficient to explain the investment of ₹ 30,000/-by him. Similarly, Sh Harpal Singh has shown investment of ₹ 35000/- in share application money, whereas in the Ration card of Sh. Harpal Singh, annul income of ₹ 9500 has been shown, which is not sufficient to explain his investment . Sh. Deepak Kumar made investment of ₹ 2.5 lakh in the share application money and stated that said investment was out of reward of ₹ 3 lakh from custom and Central excise Department. In support of the creditworthiness of Sh. Deepak Kumar, the assessee has submitted a certificate from office of the customs and Central excise, which is available on page 110 of the assesses paper book. On perusal of the certificate we find that name of Sh Deepak Kumar, is not appearing in the said certificate. No other evidence like copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) erred in law by holding that paid up share capital and share application money cannot exceed authorized share capital, in total ignorance of the provisions of Companies Act, 1956, 4) The learned CIT(A) failed to consider and examine the oral as well as documentary evidences filed and produced by the assessee during the assessment proceedings. 2. The facts in brief are that the assessee, a private limited company, filed its return of income for assessment year 2000-01 on 30.11.2000 declaring total income of ₹ 1,33,220/-. The return was processed u/s 143(1) of the Income-tax Act, 1961 (for short the Act ). The assessment was thereafter reopened u/s 147 of the Act after issuing notice u/s 148 of the Act. During the assessment proceedings u/s 147 of the Act, the assessee company disclosed receipt of ₹ 13,90,000/- as share application money from 29 persons. The Assessing Officer observed that at the residence of Sh. RP Singh, director of the company, a search was conducted by the Central bureau of investigation (CBI) on 12/05/2000 and cash of ₹ 2 Lacs and Indira Vikas Patras (IVP) of ₹ 8, 97, 500/- (purchased during the period fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer by the Tribunal vide order dated 07/07/2009 with following observations: We are of the considered opinion that the parties were required to be examined on their affidavits in view of the facts and circumstances of the case narrated by the Assessing Officer in the assessment order and discussed above in the foregoing paragraphs. We are therefore of the considered opinion that the issue is required to be restored to the file of the A.O. with the direction that he should allow the assessee further opportunity to produce the parties and decided the issue afresh after making such enquiries as are considered necessary by him and giving proper opportunity to the assessee. 2.4 In compliance to the direction of the Tribunal, the Assessing Officer asked the assessee to produce all 29 share applicants for examination. The assessee produced 19 share applicants between 16/12/2010 to 22/12/2010 having share application money of ₹ 10,15,000/-. The assessee produced death certificates in respect of 2 persons. The Assessing Officer summarised the statements of the share applicant in para-7.6 and 7.7 of the assessment order, extract of which, is reproduced as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for remand report. In the remand report the Assessing Officer observed that most of the shareholders were farmers and it was not practically possible for a farmer who earn around ₹ 50,000/- to 60,000 per annum, to invest ₹ 30,000/- out of the total earning in the share capital. He also further observed that in copies of the share certificates filed by the assessee company, there was no mention of name of the company also. The Ld. Commissioner of Income-tax (Appeals) after considering the remand report and submission of the assessee concluded that the financial strength of the persons who allegedly made the investment had not been established and the assessee failed to discharge the primary onus of proving the capacity to make investment in the share application money and to prove the genuineness of the transactions. In support of the finding, the Ld. Commissioner of Income-tax (Appeals) also relied on the following decisions: 1. Indus Valley Promoters Ltd. Vs. Commissioner of Income Tax, (2008) 305 ITR 202 (Delhi) 2. Commissioner of Income Tax Vs. P Mohanakala, 291 ITR 278 (SC) 3. Commissioner of Income Tax Vs. Nova Promoters and Finlease Private Limited, (2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cannot be penalized. Further, he submitted that out of the 19 persons except two persons i.e. Sh. Krishan Kumar ( ₹ 1.00 lakhs) and Sh. Deepak Kumar ( ₹ 2.50 lakhs) all of them invested meager amount of ₹ 30,000 to ₹ 50,000/-. The learned counsel referred to the statement of the persons and submitted that the Assessing Officer has not impeached the statement in the cross examination that those persons were mere name lender and it was assessee s own money. With regard to the identity of the persons, the Ld. counsel submitted that 9 persons were already produced before the Assessing Officer and their identity stands proved. Further in respect of the two persons, death certificate was also produced, which proved their identity. In respect of the remaining eight persons, the assessee furnished their affidavits and requested for issue of summon/commissions, their identity also stand proved. The Ld. counsel further relying on the judgment of the Hon ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. 216 CTR 195(SC) submitted that once the names and addresses of the shareholders are given, even if they are alleged to be bogus, no addition could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute before us is whether the assessee has discharged its onus in terms of requirements of section 68 in respect of each of the persons, who have alleged to have paid money to the assessee company. The Ld. counsel submitted before us that in the present case the assessee submitted name and address of the persons, who according to the assessee invested in share application money, and thus relying on the decision in the case of Lovely Export Private Limited (supra), it has discharged its onus under section 68 of the Act and it is not required to further substantiate the creditworthiness or genuineness of the transaction. Findings of the Hon ble High court in cases cited by the assessee are also extracted as under: (A) CIT Vs. Prayag Hospital Research (Supra) In our considered view, reliance placed by the Tribunal on the said decision in the obtaining factual matrix is totally justified. In the case at hand, the identity of the creditors is known and hence the assessing officer can proceed as has been held in Lovely Exports (P) Ltd. (supra) against such creditors in accordance with law. (B) CIT Vs. J.J. Jindal Infin Pvt. Ltd.(supra) Keeping in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 131 of the Act, in the circumstances the assessee could not do anything further and Tribunal came to the conclusion that the assessee has discharged the burden that lay on him and held that such a conclusion was not unreasonable or perverse or based on no evidence. In subsequent part of paragraph 6, the Hon ble High Court has agreed that above reasoning must apply to cases of large scale subscription of shares of a public company and may not apply to the circumstances where shares were allotted directly to the share applicants. The relevant finding of the Hon ble Court is reproduced as under: 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. Thereafter, in paras - 7 to 10 of the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to prove and establish the identity of the subscriber, their creditworthiness and the genuineness of the transaction and once material to prove these ingredients are produced it is for the AO to find out as to whether, on these material, the assessee has succeeded in establishing the ingredients mentioned above and the AO can lift the veil on enquiry into the real nature of transactions. 10.1 After considering the decisions available in the context of section 68 of the Act, the Hon ble High Court concluded in para 16 of the judgment, the requirement of section 68 as under: 16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of s. 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the 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, share application for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge. Thus, the order of the Tribunal deleting the addition was held not giving rise to any question of law, much less any substantial question of law. 36. It is not only relevant to note the above facts, which distinguish those three cases (supra) from the case before us, but it is also relevant to note the following observations made by this court in the above three cases: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (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. 37. The judgment of this court in the above three cases was carried in appeal to the Supreme Court by the revenue which filed SLP No.11993/2007. The petition for leave to appeal was dismissed by the Supreme Court observing as below: - Delay condoned. Can the amount of share money be regarded as undisclosed income under s.68 of IT Act , 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. Subject to the above, Special Leave Petition is dismissed. 38. The ratio of a decision is to be understood and ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice to express a view to the contrary. 11. In the present case, only one person provided PAN and he also not filed return of income of relevant period and evidence of creditworthiness have not been filed in case of most of the persons. Thus, the ratio of the decision in the case of M/s. Lovely Exports (P) Ltd. cannot be applied. In view of above position of the law, the decision cited by the Ld. counsel to support its contention, are not applicable over the facts of the instant case, which is a private limited company and investment has been shown to be made from relatives and friends of the promoters of the assessee company and in such a case the standard of a public limited company where large-scale subscription to the shares of the company are made by the public, cannot be applied. 12. In the present case, irrespective of the fact whether the money invested in the company was share application money or loan , the assessee is required to prove and establish, the identity of the persons invested, their creditworthiness and the genuineness of the transaction and once the material to prove these ingredients are produced before the Assessing Officer, it is for the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the assessee has submitted before us copy of letters filed before the Assessing Officer, requesting to issue summons to those persons. The evidences filed by the assessee before us in respect of the persons and our observation in respect of those evidences are summarized as under: (i) Sh. Nanu Singh (Rs.40,000/-) : The assessee has submitted a copy of statement on oath dated 16/12/2010, share application form, counterfoil of share certificate , ration card before us, which are available on pages 10 to 17 of the assessee s paper book. On perusal of the ration card, we find that name of the assessee is appearing as head of the family, which confirms the identity of the assessee. His family consists of four major members and one minor member. However, on perusal of the ration card, on page 16 of the paper book, we find that annual income of Sh. Nanu Singh has been mentioned as ₹ 2000 per annum. In our opinion, this documentary evidence cannot establish creditworthiness of the person to make investment of ₹ 40,000 in the assessee company. Further in the copy of affidavit, which is available on page 13 of the paper book, the person has deposed that he paid cash of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 27 to 29 of the paper book. In the statement recorded on 26/02/2004, the person declined to have received the shares however in his statement dated 16/12/2010, he stated that he received 3000 shares. In the affidavit as well as in the statement, the person stated that the money was invested for getting profit in the form of dividend, however for the last 10 years he did not receive any profit from the company. In our opinion, no genuine investor will keep his investment with any person without any return for such a long period. The person was also not aware of the fact that the company was in continues losses. The content of the affidavit of the person is identical to the contents of affidavits given by other persons. (iii) Sh. Karampal Singh (Rs.50,000/-) : The assessee has filed a copy of statement dated 16/12/2010, confirmatory affidavit, share application form, counter of share certificate and voter identity card, which are available on page 31 to 37 of the paper book. The person in the statement recorded on 16/12/2010, which is available on page 31 to 33 of the paper book, stated his source of income as agriculture income and not filed return of income. No evidence i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontents of the affidavit filed by the person are identical with the affidavit of other persons having agriculture income. The person said that he did not know what is mean by the share application money . He said that ₹ 45,000 was invested for profit however no profit was received except 4500 shares. (vi) Sh. Mange Ram Dabas (Rs. 50,000/-): The assessee has submitted a copy of the statement dated 16/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate and voter identity card, which are available on page 56 to 62 of the paper book. The person stated of having paid ₹ 50,000/-in cash to the assessee company. In the affidavit, the person stated that his income is from salary but he has not given any detail of the amount of salary and whether he was assessed to income tax. The person stated that he invests in private companies but detail of investment other than assessee company was not given. The assessee has not filed any evidence in support of creditworthiness of the person. The person also admitted that he did not receive any dividend so far, though the investment was made for getting dividend. In our opinion, in normal circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the statement recorded the person stated his income as ₹ 45,000 per annum from agriculture and animal husbandry in the year 1999. The person admitted that he had not invested in companies and he only paid to ₹ 30,000 in cash to the assessee company out of his agriculture income. He accepted that he did not receive any profit from the investment in the assessee company. The Assessing Officer asked whether the company was in continued loss since 1999-2000, the person replied that the company was going in profit and he would get the profit whenever accounts would be settled. He admitted that though the money was invested for profit but no profit was received. The contents of affidavit of the person filed by the assessee company are identical with the contents of the affidavits of other persons filed by the assessee company. (x) Sh. Ashok Kumar s/o Gajraj Singh( ₹ 30,000/-): The assessee has filed a copy of statement dated 20/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate and voter identity card, which are available on page 82 to 88 of the paper book. In the statement recorded, the person stated that he was an agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suresh Kumar admitted that he was not aware about the shares investments and money was invested for the first time in the assessee company. He stated that he was not aware about the share application money. On being asked by the Assessing Officer about receipt of any profit or dividend from the assessee company, Sh. Ashok Kumar stated that he received ₹ 4000/- in cash from Sh. RP Singh. The assessee company has not confirmed any payment of such amount to Sh. Ashok Kumar. (xiii) Sh. Deepak Kumar (Rs.2,50,000/-): The assessee has filed a copy of statement dated 20/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate, voter identity card and certificate from the Department of Customs and Excise, which are available on page 103 to 110 of the paper book. In the statement recorded, Sh Deepak Kumar, stated that he paid ₹ 2.5 lakh in cash for purchase of shares of the assessee company , out of the ₹ 3 lakh which was received as a reward from the custom and Central excise Department in the year 1997 and lying in the his house for last two years. However on perusal of the certificate issued by the Custom and Central Excise Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from property dealing and agriculture, however in the affidavit and in the share application form, source of income is mentioned as agriculture income. No evidence in support of the source of income or land holding or creditworthiness filed either by Sh. Rajendra Singh or by the assessee. In the statement Sh Rajendra Singh admitted that he was not knowing about the share application money and money was invested for getting profit but no profit was received. (xvii) Sh. Ranvir Singh ( ₹ 35,000/-): The assessee submitted a copy of statement dated 22/12/2010, confirmatory affidavit, share application form, counterfoil of share certificate and voter identity card, which are available on page 129 to 135 of the paper book. In the statement recorded, sh. Ranveer Singh stated of having invested ₹ 35,000/- in cash in the assessee company.. He stated that in 1999 his income was around ₹ 40,000 from agriculture but no evidence in support of agriculture land holding was filed either by Sh Ranvir Singh or by the assessee in support of creditworthiness of Sh. Ranvir Singh. He was also not knowing about the share application money and stated that no profit was received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vit of the person. (xxi) Sh Rajiv Kumar (Rs.40,000/-): The assessee has submitted a copy of statement on oath dated 26/02/2004, confirmatory affidavit, share application form, counterfoil of share certificate and death certificate in respect of Sri Rajiv Kumar, which are as available on page 159 to 163 of the paper book. In the statement recorded , the person stated of giving ₹ 40,000 in cash to Sh. RP Singh. He stated that said money was invested out of sale of sugarcane crops, however no evidence in support of such sale was filed either by the assessee or by Sh. Rajiv Kumar before the Assessing Officer. He also stated that he did not receive any profit or dividend against the said investment. (xxii) Sh Harpal Singh (Rs.35,000/-) : The assessee furnished a copy of confirmatory affidavit, share application form, counterfoil of share certificate, ration card and proof of agriculture land holding in respect of Sri Harpal Singh, which are available on page 164 to 172 of the paper book. The assessee could not produce the said person before the Assessing Officer and requested for issue of summon to him. According to the copy of ration card, which is available on page 167 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oil of share certificate, which are available on page 201 to 203 of the paper book. The person was not produced before the Assessing Officer and the assessee requested for issue of summon to him. (xxix) Sh Roop Ram Singh (Rs.30,000/-): The assessee filed a copy of statement dated 26/02/2004, confirmatory affidavit, share application form, counterfoil of share certificate and voter ID card which are available on page 204 to 209 of the paper book. In the statement the person stated of having given ₹ 30,000 to Shri R.P. Singh expecting some return on the money however neither any shares nor any benefit were received. The person stated that money was invested out of agriculture income; however no evidence of land holding or evidence in support of creditworthiness was filed by the assessee. 16. On perusal of the documents and observations mentioned above in respect of the 29 persons, we find that in support of the identity of these persons, the assessee has submitted copy of either ration card or voter identity card or driving licence etc and out of 29 persons, 19 persons were produced before the Assessing Officer also, thus, the identity of those persons cannot be doubted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 12/05/2000. These IVPs were purchased during the period from 12/07/1999 and 15/07/99 and were not bearing name of any purchaser. It was explained before the CBI, that these IVPs were purchased by the assessee company in cash out of the share application money received from 29 applicants between April, 1999 to August, 1999. In our opinion, in normal circumstances, any company would have deposited the share application money or share capital received , in its bank account and then any investment in IVPs etc would have been made through banking channel as the company was having bank account facilities. (iii) that the interest accrued on the Indira Vikas Patras for the relevant year was not recorded in the books of accounts of the company. In our opinion, that cannot be a coincidence. (iv) that the assessee has claimed to have received share application money of ₹ 13, 90,000 /-in the month of April, 1999 to August , 1999. However, till 20/12/2001, the company was having authorized capital of ₹ 1 lakh only. In our opinion, it is quite abnormal that without having authorized share capital, the company will invite share application money and investor will invest with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of Sumati Dayal 214 ITR 801 has held that genuineness of the transaction is to be considered on the basis of surrounding circumstances and human probabilities. In said case, the assessee shown income from winning horse races and there was difference of opinion among the members of the settlement commission on genuineness of the income from winning horse races. The relevant finding of the Hon ble Supreme Court is reproduced as under: This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities: The Chairman of the Settlement Commission has emphasised that the appellant did posses the winning ticket which was surrendered to the race club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance; because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the race club. The observation by the Chairman of the Settlement Commission that fraudulent sale of winning ticket is not a usual practice but is very much of an unusual practice ignores the prevalent malpracti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n preceding paras, the creditworthiness and genuineness of the transaction are main ingredients of section 68 of the Act, and the assessee has failed in discharging its onus to satisfy the requirement of section 68 of the Act. We also note that the Tribunal in first round of appellate proceedings, restored the issue for examination of the persons only. In these circumstances, we uphold the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute. The grounds No. 1 4 of the appeal are accordingly dismissed. 24. The ground No. 2 and 3 of the appeal were not argued specifically before us. Since we have already upheld the amount of ₹ 13,90,000/- shown to be received by the assessee as share application money as unexplained in terms of section 68 of the Act, the issue whether paid up share capital or share application money cannot exceed authorized share capital as per the provisions of the companies Act, is merely academic and thus both the grounds No. 2 and 3 are dismissed as infructuous. 25. In the result, appeal of the assessee is dismissed. The decision is pronounced in the open court on 10th March, 2017. - - TaxTMI - TMITax - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
