COMMISSIONER OF INCOME TAX-1 vs. BELGIUM GLASS & GERAMICS (P) LTD

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TAXAP/442/2011HC GujaratGJHC24025251201113 June 2012Author: HONOURABLE MR. JUSTICE VIJAY MANOHAR SAHAI,HONOURABLE MR. JUSTICE N.V.ANJARIA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT's order was proper and justified. The Tribunal had taken the view that once the applicants admitted to having made the payment of share application money, no further inquiry into their creditworthiness and the genuineness of the transactions was necessary for the assessee company. This view was based on various judicial pronouncements, particularly the Supreme Court's decision in CIT vs. Lovely Exports Pvt. Ltd. The Supreme Court had observed that if share application money was received from alleged bogus shareholders whose names were provided to the AO, the Department was free to reopen their individual assessments. In the present case, the assessee had furnished the names of the 15 persons and produced 7/12 extracts showing they held agricultural land. Therefore, the High Court found no substantial question of law arising and dismissed the appeal.

What were the facts?

The Revenue has filed an appeal under Section 260A of the Income Tax Act, 1961, challenging an order of the Income Tax Appellate Tribunal (ITAT) dated August 6, 2010. The dispute pertains to Assessment Year 2003-04, concerning an addition of Rs. 20,48,500 made by the Assessing Officer (AO). The assessee, Belgium Glass & Ceramics (P) Ltd., had treated this amount as share application money received from 15 individuals identified as agriculturists. The AO made the addition, holding that the assessee failed to establish the identity, capacity, and genuineness of these creditors, and only two individuals appeared before him. The Commissioner (Appeals) upheld the AO's decision, but the ITAT reversed it.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition made under Section 68 of the Act without appreciating that the assessee failed to discharge the onus of establishing the identity of the creditors, their capacity to advance money, and the genuineness of the transaction? Assessee's Contentions: The judgment does not record any specific contentions made by the assessee before the High Court. However, the ITAT's decision, which was upheld by the High Court, indicates that the assessee argued that once the applicants admitted to making the payment, no further inquiry into creditworthiness and genuineness was necessary. The ITAT relied on judicial pronouncements, including the Supreme Court's decision in CIT vs. Lovely Exports Pvt. Ltd. Revenue's Contentions: The Revenue argued that the Tribunal erred in deleting the addition under Section 68 because the assessee failed to discharge its primary onus of proving the identity, capacity, and genuineness of the share applicants.

Which sections of the Income-tax Act were involved?

Section 260A,Section 68

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
TAXAP/442/2011 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 442 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the  judgment?     2 To be referred to the Reporter or not?     3 Whether their Lordships wish  to see the  fair copy of the  judgment?     4 Whether this case involves a substantial question of law as to  the interpretation of the constitution of India, 1950 or any  order made thereunder?     5 Whether it is to be circulated to the civil judge?     ========================================================= COMMISSIONER OF INCOME TAX-1 Versus BELGIUM GLASS & GERAMICS (P) LTD ========================================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 13/06/2012

ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE N.V. ANJARIA)

1.

The Revenue has preferred the present appeal under section 260A of the Income Tax Act, 1961 (for sake of brevity, hereinafter referred to

TAXAP/442/2011 2/4 JUDGMENT as ‘the Act’) to challenge the order dated 06.08.2010 of the Income Tax Appellate   Tribunal   Ahmedabad   Bench   in   ITA   No.552/Ahd/2008,   by proposing the following question formulated in the memorandum of appeal as substantial question of law. ““ Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the   addition   made   under   section   68   of   the   Act without   appreciating   that   with   respect   the   sum credited to the books of the assessee company as share   application   money,   they   had   failed   to discharge   the   onus   of   establishing   the   prime conditions of identity of the creditors, the capacity of such creditor to advance the money and lastly, the genuineness of the transaction?”

2.

We   have   heard   learned   advocate   Ms.   Mauna   Bhatt   for   the appellant.   We  have   also  gone   through   the   impugned  order  and  the relevant material on record.

3.

The issue involved relates to the addition of Rs.20,48,500/­ made by the Assessing Officer in the income of the assessee company in its returned   income   for   the   Assessment   Year   2003­04. The   assessee company, engaged in business of manufacturing of glass frit and glazed mixture, accounted the aforesaid amount in its return of income as share application money received from 15 different persons, who were shown to   be   the   agriculturists.   The   Assessing   Officer   held  a   view   that   the assessee   had   failed   to   furnish   the   confirmation   of   identity   of   those persons  from  whom  the  share application  money  was  received,  and further that only two of them had remained present before him. As in his

TAXAP/442/2011 3/4 JUDGMENT view the only evidence produced by the assessee being revenue record in the nature of 7/12 extracts to show the holding of the agricultural lands by those persons, was not sufficient material, he invoked provisions of section 68 of the Act to order the addition of the amount treating it as income of the assessee chargeable to income­tax.

3.

1 The Commissioner (Appeals) dismissed the appeal of the assessee holding that the assessee had not discharged its burden to prove the identity of the share applicants. The assessee filed appeal before the Income Tax Appellate Tribunal who took a contrary view and accepted the ground of the assessee allowing the appeal in that regard, which is the order impugned here.

4.

On consideration of facts and the order of the Tribunal, it is seen that   while   reversing   the   order   of   the   Commissioner   (Appeals),   the Tribunal took view that once the applicants admit to have made the payment of share application money, no further inquiry was necessary into the creditworthiness and genuineness of the transactions in case of the assessee company. It took such view on the basis of various judicial pronouncements   of   the   High   Courts   in   which   the   issue   of   share application money was considered, and mainly relied on the decision of the apex court in CIT Vs. Lovely Exports Pvt. Ltd. [(2010) 14 SCC 761].

4.

1 In the facts of the case, it is not disputed that the assessee had

TAXAP/442/2011 4/4 JUDGMENT furnished to the Assessing Officer the names of 15 persons from whom the   share   application   money   was   received.   The   assessee   had   also produced in respect of each of them the copies of revenue record in form of 7/12 extracts showing that they were holders of agricultural land. In Lovely Exports (supra), the Supreme Court considered the issue of share application money regarded as undisclosed income under section 68 of the Act and observed that if share application money was received by assessee­company from the alleged bogus share holders, whose names were given to the Assessing Officer, then the Department was free to proceed to reopen their individual assessments in accordance with law. In   that   light,   the   impugned   order   of   the   Tribunal   was   proper   and justified, and it could not be said that it committed any error in passing the order.

5.

In   the   above   view,   no   substantial   question   of   law   arises   for consideration   of   this   court   in   the   present   tax   appeal.   The   appeal, therefore, cannot be entertained and is accordingly dismissed. [V. M. SAHAI, J.] [N. V. ANJARIA, J.] Amit

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