RIDDHI PROMOTERS PVT.LTD vs. COMMISSIONER OF INCOME TAX-7,

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capital. Therefore, in the case of private limited company where funds are arranged through personal contacts of directors, giving it a color of share application money/ share capital was within the reach of the assessee company. It is beyond doubt to say that sham transaction is given color to introduce their own money as such type of transaction are purely arrangements between the two known entities.” 3. The Tribunal rejected the appeal preferred against the order of the CIT (Appeals). Learned counsel for the assessee contends that given the CIT (Appeals)’s order which expressly recognized that the sum of Rs.24 lakhs in fact emanated from the directors of the share applicants, it could not be said that requirement of Section 68 of the Act is not discharged. He relied upon the decision of Supreme Court in CIT vs. Bharat Engineering and Construction 83 ITR 187, especially the following observations: 2. The assessee-company is an engineering construction company. It commenced business in May, 1943. In their account books, there are several cash credit entries in the first year of its business. We are concerned with only five of those cash credit entries. On June 1, 1943, there is a cash credit entry of Rs. 1,00,000. On July 6, 1943, there is a cash credit entry of Rs. 50,000. On August 30, 1943, there is a cash credit entry of Rs. 50,000. On December 2, 1943, there is a cash credit entry of Rs. 15,000 and on March 15, 1944, there is a cash credit entry of Rs. 35,000. These cash credit entries total up to Rs. 2,50,000. The Income-tax Officer called upon the assessee to explain those cash credit entries. The explanation given by the assessee was found to be false by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal. But, all the same, the Tribunal felt that these cash credit entries could not represent the income or profits of the assessee-company as they were all made very soon after the 2015:DHC:3003-DB

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company commenced its activities. In our opinion, though the order of the Tribunal is not happily worded, its finding appears to be that in the very nature of things the assessee could not have earned such a huge amount as profits very soon after it commenced its activities. A construction company takes time to earn profits. It could not have earned a profit of Rs. 1,00,000 within a few days, after the commencement of its business. Hence, it is reasonable to assume that those cash credit entries are capital receipts though for one reason or other the assessee had not come out with the true story as regards the person from whom it got those amounts. It is true that in the absence of satisfactory explanation from the assessee the Income-tax Officer may assume that cash credit entries in its books represent income from undisclosed sources. But what inference should be drawn from the facts proved is a question of fact and the Tribunal's finding on that question is final. 4. Learned counsel also relied upon CIT vs. P.K.Noorjahan 237 ITR 570 and submitted that besides, four High Courts’ decision apply the ruling in Bharat Engineering (supra). 5. As to the statutory requirement of Section 68 of the Income Tax Act, the Supreme Court in Lovely Exports 216 ITR 195 stated as follows: “Can the amount of share money be regarded as undisclosed income under Section 68 of Income Tax 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 assessing officer, 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.” 6. It is not sufficient that the identity of the share applicant or the 2015:DHC:3003-DB

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creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of Section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee’s reliance upon the CIT (Appeals) order to contend that the sources of the funds were in essence as Directors, is in this context of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. It is not sufficient for the assessee to just raise such contentions on the basis of certain observations of the CIT (Appeals) in this regard. The creditworthiness of the share applicants had to be seen in the context of the assertion made by them or the materials presented before the AO at the relevant time. The materials on record disclosed that some information from at least two individuals indicated that the money had not been given by them. In view of the fact that concurrently the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. The appeal is accordingly dismissed.

S. RAVINDRA BHAT, J

R.K.GAUBA, J MARCH 27, 2015 mr 2015:DHC:3003-DB

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2015:DHC:3003-DB