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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘A’ MUMBAI
Before: Shri Joginder Singh, & Shri Rajesh Kumar
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 02/08/2011 of the Ld. First Appellate Authority, Mumbai, 2 M/s K.B. J. Jewellery Pvt. Ltd. confirming the addition of Rs.78 lakh on account of share application money received by the assessee and treated as unexplained cash credit u/s 68 of the Income Tax Act, 1961 (hereinafter the Act).
During hearing of this appeal, Shri Hari Raheja, ld. counsel for the assessee, explained that confirmations were filed by the assessee and has no direct relation with Swan Securities, the Directors are not common, the reserves are to the tune of Rs.1.46 crores besides share capital of Rs.30.57 lakhs. The profit was declared at Rs.58.76 lakhs and source of the same is duly explained. The payment were claimed to be through cheque. It was asserted that summons sent to share applicants were served upon them, therefore, the identity is proved. Reliance was placed upon the decision in the case of CIT vs Kamdhenu Steel & Alloys Ltd. & Ors. (2014) 361 ITR 220 (Del.) and CIT vs Devine Leasing and Finance Ltd. 299 ITR 268(Del.). On the other hand, Shri A. Ramachandran, ld. DR, defended the addition made by the Assessing Officer by contending that identity of the share applicant was not proved by the assessee. 2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that from the balance sheet of the assessee company, it was noticed that the assessee has issued Rs.1,50,000/- fully paid up shares of Rs.100 each, thereby taking the paid up capital of the assessee from Rs.60 lakh to Rs.1,50,00,000/-. The ld. Assessing Officer asked the assessee to furnish the details of share application money received from applicants 3 M/s K.B. J. Jewellery Pvt. Ltd.
along with their names address, PAN and copy of bank statements. As is evident from para 3.2 of the assessment order, the assessee vide letter dated 25/11/2010 submitted the details of share applicant along with details like name, address, PAN, copy of account and bank statements of the share subscribers. It was noted by the Assessing Officer that in each case, invariably, an equal amount of cheque were issued. It was further observed that the money for the share application was received by the five parties (mentioned in para 3.2 of the assessment order) from M/s Swan Securities immediately prior to cheque issued to the assessee for subscription of share capital. In order to verify the genuineness of the transaction, summons u/s 131 were issued to the share applicants and to appear with the details before the Assessing Officer. The stand of the Revenue is that none of the applicants replied to the summons. The ld. Assessing Officer treated the amount of Rs.78 lakh (Rs.90,00,000- Rs.12,00,000/-) as unexplained cash credit within the meaning of section 68 and added to the total income of the assessee. 2.2. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the stand taken in the assessment order was affirmed. Now the assessee is in appeal before this Tribunal. 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts discussed 4 M/s K.B. J. Jewellery Pvt. Ltd. hereinabove, as per the provision of 68 of the Act, the assessee has to prove the identity of the share applicant, genuineness of the credit and source thereof. The first and foremost requirement of section 68 of the Act is that the assessee has to prove that the share applicants are existing. In the assessment order, it has been clearly mentioned that pursuant to the summons issued u/s 131 of the Act, nobody attended the proceedings. Meaning thereby, the summons were not returned unserved by the postal authorities, therefore, it can be said that such summons were duly received by the share applicants and they exist. The Hon'ble Delhi High Court in CIT vs Devine Leasing and Finance Ltd.(supra) held that burden of proof can seldom be discharged to the hilt by the assessee. If the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, duty bound to carry out thorough investigation and if the Assessing Officer fails to unearth any wrong or illegal dealing, he cannot obdurately adhere is to suspicion and treat the subscribed capital as undisclosed income of the company. If the relevant details of address and identity of subscribers are furnished to the Department along with the copies of the share holder register, share application forms, etc. it would constitute proof or explanation by the assessee and thus the Department would not be justified in drawing an adverse inference only because the creditor/subscribers fails or neglects to respond its notices. This decision supports the case of the assessee. The relevant portion from the aforesaid order from Hon'ble Delhi High Court in the case of CIT vs 5 M/s K.B. J. Jewellery Pvt. Ltd. Devine Leasing & Finance Ltd. order dated 16/11/2006 is reproduced hereunder for ready reference:-
“ 4. 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 v. Mysore Road Transport Appellate Tribunal , the Supreme Court had referred to an essay by Professor A.L. Goodhart for the proposition that the ratio decideni of a case is determined by taking into account the facts treated by the Judge deciding the case as being material, and that his decision is based thereon. Mention should immediately be made of the view prevailing in the Gujarat High Court expressed in Nirma Industries Ltd. v. Deputy Commissioner of Income Tax (2006) 202 CTR 198 (Guj), to the effect that the dismissal of an Appeal under Section 260A of the IT Act implies that the order of ITAT on the issue stands merged in the Order of the High Court, and for all intents and purposes it is the decision of the High Court which is operative and which is capable of being given effect to. Indeed, this precedent contains a comprehensive and erudite discussion on the question of merger of assailed judgments/orders into the decision of the Appellate Court, and with humility, we commend its careful reading. The views of the Supreme Court have been assimilated from a plethora of precedents on this aspect of the law. What should not be lost sight of is the reality that the ITAT actively considers disputes pertaining to the facts as well as to the interpretation of the law. When the High Court dismisses an Appeal filed under Section 260A of the Act it does not ignore the factual matrix pertaining to the particular assessed; and it also does not interpret the law in abstraction or in its generality. If the High Court considers it necessary to speak broadly on the law it invariably frames a substantial question of law and thereafter decides it by a judgment in contradistinction to an order. The question before the Bench in Nirma Industries was whether the ITAT could assume a question being open to discussion despite the fact that the High Court had declined to admit the Appeal on that question in respect of that assessed, for a previous assessment years. We are in the agreement with the Bench 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 6 M/s K.B. J. Jewellery Pvt. Ltd. litigating parties. We are unable to concur with the argument of Mr.Aggarwal, learned Counsel for the assessed that the dismissal of an Appeal underSection 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 v. Dolphin Canpack Ltd. (2006) 204 CTR (Delhi) 50 as articulated in this sentence - In Steller Investment's 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 liming 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 v. Gurnam Kaur and more recently in Director of Settlements, A.P. v. M.R. Apparao . The Full Bench of the Patna High Court in Smt. Tej Kumar v. Commissioner of Income Tax (2001) 247 ITR 210 has pithily made a distinction between the dismissal in liming of an SLP and the dismissal of a regular civil appeal by a non-speaking order. The view was that in the former it would not be possible to extract any expression on the legal position on the part of the Court.
5. This analysis, however, does not lead to the consequence that the conundrum indirectly covered by Stellar Investment remains unresolved. A perusal of the opinion of the Full Bench inCommissioner of Income Tax v. Sophia Finance Ltd. makes it conclusively clear that this aspect of the law is no longer res integra. It should always be borne in mind that Division Benches cannot choose to navigate through waters which have already been voyaged, mapped and channeled by larger Benches.
6. We find it indeed remarkable that the attention of the Sophia Finance Full Bench had not been drawn to the decision of the Supreme Court in C.I.T. Orissa v. Orissa Corporation Pvt. Ltd. (, which if cited would really have left no alternative to the Full Bench but to arrive at the conclusion it did. The Books of Accounts of the assessed contained three cash credits aggregating Rs.1,50,000/- allegedly received as loans from three individual creditors under Hundis. Letters of confirmation as well as the discharged hundis were produced; but notices/summons sent to them remained unserved because they had reportedly `left that address. The view of the Tribunal was that merely because the assessed could not produce these three parties, there was 7 M/s K.B. J. Jewellery Pvt. Ltd. nevertheless no justification to draw an adverse inference. This approach as accorded approval by the Supreme Court in these words:
In this case, the assessed had given the names and addresses of the alleged 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 assessed, 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 assessed could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessed 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.
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/assessed or to Creditors of the assessed. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessed which receives a gift.
Sumati Dayal v. CIT-Bangalore a succinct yet complete precis on the essentials of income-tax liability can be discerned from these words - In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessed. This decision is adequate authority for the proposition that by virtue of Section 68 of the IT Act the assessed is obliged to establish that amounts credited in the accounts do not represent its income; in that case the assessed's version that she had won them through betting on horse racing in two consecutive years did not attract credibility. The Apex Court had followed its earlier decision, namely, Orissa Corporation wherein it had held that since the assessed had given the names and addresses of the creditors, all of whom were income-tax assesses, the failure of the creditors to respond to the Department's notices would not justify an adverse inference being drawn against the assesses. The Court also kept in 8 M/s K.B. J. Jewellery Pvt. Ltd. perspective the fact that the documentation had also been produced by the assessed. It is obvious that the Supreme Court considered that in these circumstances the onus of proof had been discharged by the assessed. It is also palpable that the Supreme Court was of the further opinion that the Department had not discharged the burden of proof that had shifted to it, since it did nothing more than issue notices under Section 131 of the IT Act. Therefore, the Department ought to have made efforts to pursue these notices/creditors to determine their creditworthiness. These observations sound the death-knell for the contentions raised on behalf of the Department in the present batch of Appeals.
Justice B.N. Kirpal (as the learned Chief Justice of India then was) had authored the Order/Judgment both in Stellar Investment and in Sophia Finance. 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 v. Additional CIT and thence finally to the decision of the Full Bench of this Court in Sophia Finance.
In Gee Vee Enterprises 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 assessed 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 the Return if such an exercise is `provoked, or becomes `prudent. The Bench held that Section 263 which deals with the Revision of orders prejudicial to the revenue by the Commissioner comes into operation wherever the AO fails to make such an inquiry, because it renders the order of the AO erroneous. It seems to us that if this duty pervades the normal functioning of the AO, it becomes acute and essential in the special circumstances surrounding Section 68 of the IT Act.
9 M/s K.B. J. Jewellery Pvt. Ltd.
Returning to Sophia Finance, the Full Bench which was now presided over by B.N.Kirpal, J. (as the Chief Justice of India then was) had enunciated that Section 68 reposes in the Income-tax Officer or AO the jurisdiction to inquire from the assessed the nature and source of the sum found credited in its Books of Accounts. If the explanation proffered by the assessed is found not to be satisfactory, further enquiries can be made by the Income-tax Officer himself, both in regard to the nature and the source of the sum credited by the assessed in its Books of Accounts, since the wording of Section 68 is very wide. The Full Bench opined that - If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons.... If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if the assessed offers no explanation at all or the explanation offered is not satisfactory then, the provisions of Section 68 may be invoked. It will at once become obvious that the Court had not reflected upon the question of whether the burden of proof rested entirely on the assessed, 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 assessed 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.
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. 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 assessed 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 assessed. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken 10 M/s K.B. J. Jewellery Pvt. Ltd. by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transactions suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This appeal accordingly fails and is hereby dismissed. It seems clear to us that where moneys have been received in cash or even Demand Drafts, the standard of proof would be much more rigorous and stringent than where the transaction is by cheque where the date and source of the investment cannot be manipulated.
12. The Calcutta High Court has held in CIT v. Precision Finance Pvt. Ltd. that it is not sufficient for an assessed to disclose that credits in their Books had been received through Banking channels; the identity as well as the creditworthiness of the creditor must nevertheless be proved.In Sajan Das and Sons v. Commissioner of Income-Tax (2003) 264 ITR 435 (Del) the Division Bench was not convinced that merely because moneys could be identified and traced through banking channels the genuineness of the Gift in question stood established. This is obviously because an assessed can scarcely be heard to say that he does not know all particulars pertaining to the donor. Thereafter, the same dialectic lead the Bench to arrive at the opposite conclusion inCommissioner of Income-Tax v. R.S. Sibal (2003) 269 ITR 429 (Del). In C.I.T. v. Makhani & Tyagi (P) Ltd. this Court has not given its imprimatur to the inaction of the AO in doing nothing further after the issuance of summons under Section 131 of the Income-Tax Act. It did not condone the AO, failing to issue coercive process, and in this manner attempting incorrectly to shift the burden on the assessed to establish the ligitimacy of the transaction. In Commissioner of Income-Tax v. Antarctica Investment Pvt. Ltd. (2002) 262 ITR 493 (Del) the Court was satisfied that no interference was justified since the assessed 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 v. Achal Investment Ltd. (2004) 268 ITR 211 (Del) is also on the same lines.
11 M/s K.B. J. Jewellery Pvt. Ltd.
13. 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 assessed it should not be harassed by the Revenues 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 identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.
14. In Commissioner of Income-Tax v. S. Kamaraja Pandian , the Madras High Court took the view that it is for the assessed to initially prove the genuineness of the loan, and that the onus shifts to the Department only after the assessed has prima facie substantiated this fact. In that case one of the creditors had denied the transaction. The Patna High Court in Additional Commissioner of Income-Tax, Bihar v. Hanuman Agarwal was faced with the availability of a confirmatory letter filed by the assessed in whose books of account a credit was found. GIR number of the creditor was supplied, and it appears that he had confessed that this transaction was not genuine. The High Court did not act on the confession since it had not been made available to the assessed. The Bench observed that since the correct name and address, and the GIR number of the creditor had been supplied by the assessed the initial onus under Section 68of the Income Tax Act had been completely discharged by the assessed. It would not be sanguine to conceive of a possibility of a genuine contributor abandoning his investment for diverse reasons. That would not lead to the conclusion that the assessed is automatically guilty of attempt of converting its income into capital.
15. In Bharati Pvt. Ltd. v. Commissioner of Income-Tax, West Bengal-I, Calcutta where notices to these alleged creditors had come back unserved, the Division Bench affirmed that the mere filing of confirmatory letters by the assessed did not discharge the onus that lay on the assessed. Different Division Benches of the 12 M/s K.B. J. Jewellery Pvt. Ltd. same High Court have opined that the assessed must prove (a) the identity, (b) the capacity of the creditors to advance money, (c) the genuineness of the transaction. (See Shankar Industries v. Commissioner of Income-Tax, Central, Calcutta C.Kant & Co. v. Commissioner of Income-Tax, West Bengal-III and Commissioner of Income-Tax v. United Commercial and Industrial Co. Ltd. . In C.I.T. v. Korlay Trading Co. Ltd. , certain shares purchased through a broker were lost. The assessed 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 assesseds interests. Instead the Calcutta High Court observed that the ITO ought to have investigated the matter more thoroughly to controvert the claim of the assessed, 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 decision of the Tribunal which had reversed the findings of the ITO as well as the CIT (Appeals) since the assessed had supplied the income tax file number of the creditor before it. The High Court noted that the mere filing of the income tax number was not sufficient to establish the identity and creditworthiness of the creditor and genuineness of the transaction. Although Orissa Corporation was referred to the decision of the Full Bench of this Court in Sophia Finance was not even cited. Korlay Trading as well as Sophia Finance was applied by the same Division Bench of the Calcutta High Court in four decisions delivered in March 2003.In Hindusthan Tea Trading Co. Ltd. v. C.I.T. , the Bench opined that in the case of a subscription to the share capital of a company, if Section 68 of the Income Tax Act is to be resorted to, it is necessary for the assessed to prove and establish the identity of the subscriber, their creditworthiness and the genuineness of the `transaction. Once material to prove these ingredients are produced it is for the AO to find out as to whether, on these materials, the assessed has succeeded in establishing the ingredients mentioned above. The AO can `lift the veil and enquire into the real nature of the transaction. C.I.T. v. Ruby Traders and Exporters Ltd. , C.I.T. v. Nivedan Vanijya Niyojan Ltd. and C.I.T. v. Kundan Investment Ltd. are the other three.
In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed 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, Shared Application Forms, Share Transfer Register etc. it would 13 M/s K.B. J. Jewellery Pvt. Ltd. constitute acceptable proof or acceptable explanation by the assessed. (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 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.
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 v. Anwar Ali [1970] 76 ITR 697 was decided by the Apex Court holding that, if there is no evidence on record except the explanation of the assessed, 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 & Co. v. Commissioner of Income- Tax, A.P. opining that the mere falsity of the explanation given by the assessed is insufficient without there being, in addition, cogent material or evidence from which the necessary conclusion attracting a penalty can be drawn. However, as has been noted in CIT v. Jeevan Lal Sah 1995 Supp (4) SCC 247 amendments were incorporated by Finance Act, 1964, intoSection 271 which had deleted the word deliberately in its Sub-section 1(c), thereby shifting the onus of proof onto the assessed, rendering Anwar Ali ineffectual. Nevertheless, in CIT v. Mussadilal Ram Bharose it has been enunciated by the Supreme Court that though the Explanation shifts the burden to the assessed to show absence of fraud, this onus is a rebuttable one. The burden is not discharged by the assessed tendering an incredible or fantastic explanation; and every explanation does not have to be accepted. In our opinion, it is for Parliament to introduce legislation if the duty presently resting on the Department is thought to be too onerous. We ought not to twist the language of a statute to remove the burden of proof altogether from the Department even though it has the necessary wherewithal to discharge it. The malaise can also be arrested if unclaimed share subscriptions are taken over by the State and/or if the assessed concerned is precluded from distributing dividends, bonus shares etc. against such share subscriptions unless they are duly claimed by the original subscribers within a prescribed period, perhaps not exceedings three years. Thereafter the shares could automatically stand transferred to the State on the principle of escheat. For these events to happen, requisite amendments to the IT Act may be required.
14 M/s K.B. J. Jewellery Pvt. Ltd.
We shall now turn our attention to the facts and details of the present Appeals. The Appeal of the Revenue in respect of Assessment Years 1984-1985 and 1986-87 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.
As would be evident from a perusal of the Table (supra) for the Assessment Year 1984-85 the assessed 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 assessed 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 & 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.
20. 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 of Rs.9,95,000/- made on account of unexplained loans. The ITAT has categorically held that the assessed has discharged its onus of proving the identity of the share subscribers. Had any suspicion still remained in the mind of the AO he could have initiated 'coercive process' but this course of action has not been adopted. In view of the concurrent finding pertaining to the factual matrix we find no merit in these Appeals which we accordingly dismiss.
21. In respect of this assessed namely, General Exports & Credits Ltd., the ITAT has reversed the decision of the CIT(A) on the subject with which we are presently concerned. It is trite that the decision of the ITAT should not be interfered with by the High Court unless it finds it perverse and totally unacceptable. This is especially so with regard to the factual aspects of any Appeal where there are 15 M/s K.B. J. Jewellery Pvt. Ltd. concurrent conclusions of the lower Authorities. The assessed as well as the Revenue had assailed the Order dated 22-2-2002 of the CIT(A) pertaining to the Assessment Year 1989-90. We are presently concerned with the dispute raised by the Revenue relating to the deletion of the addition of Rs.1,00,18,500/ made by the AO under Section 68 of the I.T.Act. The AO had noticed that the assessed had received these amounts towards share capital and share application money on account of issue of rights shares to five companies pursuant perforce to the renunciation of rights shares by several individual share holders. At the time of the Search conducted of the assessed the requisite Renunciation Forms were not found. As in the case of Divine Leasing & Finance Ltd., these five companies were registered in Sikkim and remarkably at the same address, namely, Dorjee Building, Nam Nang Road, Gangtok. All of them had replied to the Department asking for further 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 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.
22. It has been contended on behalf of the Revenue that the Rights Issue could not have been subscribed to by the aforementioned five Companies sans renunciation by the original shareholders. It has also be argued, and with merit, that the ITAT had not articulated the premise for arriving at the conclusion that the renunciation had taken place in a legal manner. We have also noticed that the Rights Issue were picked up only in 1989-1990. These factors are not relevant in these proceedings, even if there have been 16 M/s K.B. J. Jewellery Pvt. Ltd. transgressions to the Companies Act. Support for this approach can be found from The Coco-Cola Export Corporation v. Income Tax Officer . The Apex Court observed that - If any remittance of foreign exchange had been made in excess of the prescribed limit from January 1, 1969, that will be for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, cannot be a ground for the Income-tax Officer to assume jurisdiction to start reassessment proceedings either under Section 147(a) or 147(b) of the Act on the ground that that will be 'in consequence of information' in his possession in the shape of these two letters. The analogy commends application to these proceedings also. In these circumstances we find no scope for interference under Section 260A of the IT Act. This appeal is accordingly dismissed. There shall be no order as to costs.
The ITAT has dismissed the Revenue Appeal and thus there are concurrent findings pertaining to the factual matrix. The following paragraph from the impugned decision adequately encapsulates the necessary details:
Thus, the question is whether in the present case, the AO had material to conclude that the share applicants in questions did not exist. It is seen that the assessed company has furnished the necessary details such as PAN No./Income-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 controverter nor disapproved the material filed by the assessed. In the case of CIT v. Makhni & 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 controverter 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 v. Orissa Corporation 159 ITR 78, the Honble Court has held that when the assessed borrows the loan and if an assessed gives names and 17 M/s K.B. J. Jewellery Pvt. Ltd. address of the creditors, who are assessed to tax and full particulars is furnished then the assessed has discharged the duty. If the Revenue merely issues summons Under Section 131 and does not pursue the matter further, the assessed does not become responsible for the same even if the creditors do not appear. Addition cannot be made under Section 68. No question of law, far less any substantial question of law arises for our consideration. We may however briefly reflect upon a submission made by learned Counsel for the Respondent to the effect that the assessed had, by its letter dated March 8, 1999 requested the AO to examine the Assessment Records of the share applicants whose GR Nos. had been supplied. It is not controverter that action was not taken by the AO, but it has justifiably been contended that this inaction was due to paucity of time left at that stage since the assessment had to be framed by March 31, 1999. It has been pointed out that several adjournments had been granted by the Assessment Officer on the asking of the assessed. The timing of the assesseds said letter is most suspect. Generally speaking, it is incumbent on the AO to manage his schedule, while granting adjournments, in such a manner that he does not run out of time for discharging the duties cast on him by the statute. In the present case the details had been furnished to the AO much before March 1999 but he failed to react to the shifting of the burden to investigate into the creditworthiness of the share applicants. Therefore, the Appeal is dismissed.”
2.4. In a later decision dated 23/12/2011, the Hon'ble Delhi High Court in CIT vs Kamdhenu Steel & Alloys Ltd.(supra), has considered various judicial pronouncements including CIT vs Lovely Exports Pvt. Ltd. (2008) 216 CTR (SC) 195 and CIT vs Steller Investment Ltd. (2001) 251 ITR 263 (SC) and held as under:- “The issue relating to the additions made by the AO under s. 68 of the IT Act, 1961 (hereinafter referred to as 'the Act') on account of unexplained share application money is becoming mercurial and mercurial by the day. Though plethora of case law is available deciding various facets of this issue and the principles which are to be applied have almost been crystallized and pumped up by the series of decisions of the apex Court and various High Courts, the 18 M/s K.B. J. Jewellery Pvt. Ltd. issue keeps bouncing back with new dimensions and intricacies. In all these appeals, we are again confronted with the additions which were made by the AO under s. 68 of the Act. All these appeals, which pertain to different assessees, are filed by the Revenue as the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') has deleted the additions made by the AO.
2. Before we embark upon the discussion on factual aspects, in the appeals, which prompted the AOs to make the additions, it would be appropriate to revisit the legal position as enunciated in various judgments interpreting the provisions of s. 68/69 of the Act. We may record that this very Bench had the occasion to deal with another batch of appeals touching upon this very issue, which culminated into judgment dt. 31st Jan., 2011 with lead case entitled CIT vs. Oasis Hospitalities (P) Ltd. (2011) 238 CTR (Del) 402 : (2011) 51 DTR (Del) 74 : (2011) 333 ITR 119 (Del). As catena of judgments were taken note of and the ratio culled out therein after undertaking in-depth analysis, we are of the view that our purpose can be served by borrowing liberally from the said judgment to state the legal position. Some more cases which have been decided thereafter or cited before us now, but not taken note of in the said judgment would be added thereafter. Operative portion of that judgment reads as under : "2. Sec. 68 of the Act deals with unexplained incomes and is couched in the following language : TAXPUNDIT.ORG ‘Sec. 68 Cash credits.—Where any sum is found credited in the books of an assessee maintained for any previous year, and assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, 19 M/s K.B. J. Jewellery Pvt. Ltd.
satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.’ 3.As per the provisions of this section, in case the assessee has not been able to give satisfactory explanation in respect of certain expenditure or where any sum is found credited in the books of accounts, the AO can treat the same as undisclosed income and add to the income of the assessee. The assessee is required to give satisfactory explanation about the "nature and source" of such sum found credited in the books of accounts. 4.It is a common knowledge that insofar as the companies incorporated under the Indian Companies Act are concerned, whether private limited company or public limited companies, they raise their capital through shares, though the manner of raising the share capital in the private limited companies, on the one hand and public limited companies on the other hand, would be different. In the case of private limited companies, normally, the shares are subscribed by family members or persons known/close to the promoters. Public limited companies, on the other hand, generally raise public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in case of public limited companies, the share capital is issued in a close circuit.
When the companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and thus give share application money. These amounts received from such shareholders would, naturally, be the sums credited in the books of account of the assessee. If the AO doubts the genuineness of the investors, who had purportedly subscribed to the share capital, the AO may ask the assessee to explain the nature 20 M/s K.B. J. Jewellery Pvt. Ltd.
and source of those sums received by the assessee on account of share capital. It is in this scenario, the question arises about the genuineness of transactions. The plain language of s. 68 of the Act suggests that when the assessee is to give satisfactory explanation, burden of proof is on the assessee to provide nature and source of those receipts.
What kind of proof is to be furnished by the assessee, is the question. It has come up for discussion in various judgments rendered by this Court, other Courts as well as the Supreme Court. The law was discussed by a Division Bench of this Court in the case of CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38 : (2008) 299 ITR 268 (Del). Since the entire gamut of case law as on that date was visited in the said judgment, we may initiate our discussion by taking note of this case. In this case, the Court highlighted the menace of conversion of unaccounted money through the masquerade or such channels of investment in the share capital of a company and thus stressed upon the duty of the Revenue to firmly curb the same. It was also observed that, in the process, the innocent assessee should not be unnecessary harassed. A delicate balance must be maintained. It was, thus, stressed : ‘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 assessed 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 identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the AO for his perusal, all the informations contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while 21 M/s K.B. J. Jewellery Pvt. Ltd.
walking the tight-rope of ss. 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But, if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company.’ 7. Taking note of the earlier judgment of Full Bench of this Court in the case of CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB), the Court observed that the Full Bench had enunciated that s. 68 reposes in the ITO or AO the jurisdiction to inquire from the assessee the nature and source of the sum found credited in its books of accounts. If the explanation preferred by the assessee is found not to be satisfactory, further enquiries can be made by the ITO himself, both in regard to the nature and the source of the sum credited by the assessee in its books of accounts, since the wording of s. 68 is very wide. The Full Bench opined that if the shareholders exist then, possibly, no further enquiry need be made. But if the ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the names of non- existing persons. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of s. 68 may be invoked.
8. The Court also referred to the earlier Division Bench judgment in the case of CIT vs. Dolphin Canpack Ltd. (2006) 204 22 M/s K.B. J. Jewellery Pvt. Ltd.
CTR (Del) 50 : (2006) 283 ITR 190 (Del) and quoted the following observation : ‘. . . 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 PANs 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.’ 9. The Court took note of many other judgments of different High Courts and on the analysis of those judgments formulated the following propositions, which emerged as under : ‘18. 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 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 AO is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.’ 10. By this common judgment, the Division Bench decided these appeals of which one appeal related to Lovely Exports (P) Ltd. (supra). Against the said judgment, Special Leave Petition was preferred, which was dismissed by the Supreme Court vide order dt. 11th Jan., 2008 and is reported as CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. The Court while dismissing the 23 M/s K.B. J. Jewellery Pvt. Ltd.
SLP recorded some reasons as well albeit in brief, which are as under : ‘2. 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………….’ 11. It is clear from the above that the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove : (a) Identity of shareholder; (b) Genuineness of transaction; and (c) Creditworthiness of shareholders.
In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the AO to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc. can be furnished.
Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers from that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be the copies of the shareholders register, share application forms, share transfer register, etc.
24 M/s K.B. J. Jewellery Pvt. Ltd.
As far as creditworthiness or financial strength of the credit/subscriber is concerned that can be proved by producing the bank statements of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharge the onus cast upon him. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion.
At this stage, we would like to refer to the judgment of the Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. (in IT Appeal No. 2182 of 2009, decided on 12th Oct., 2009). The relevant portion of this order is reproduced below : ‘In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and 25 M/s K.B. J. Jewellery Pvt. Ltd.
particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limini with no order as to costs. (Emphasis, italicized in print, supplied)’ 16. The Court thus clearly held that once documents like PAN card, bank account details or details from the bankers were given by the assessee, onus shifts upon the AO and it is on him to reach the shareholders and the AO cannot burden the assessee merely on the ground that summons issues to the investors were returned back with the endorsement 'not traceable'. Same view is taken by the Karnataka High Court in Madhuri Investments (P) Ltd. vs. Asstt. CIT (in IT Appeal No. 110 of 2004, decided on 18th Feb., 2006). In this case also, some of share applicants did not appear and notices sent to them were returned with remarks 'with no such person'. Addition was made on that basis which was turned down by the High Court in the following words : ‘6. Having heard the learned counsel for the parties, we notice that whenever a company invites applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genuinenity of the applicants before allotting the shares. If for any reason the address given in the application were to be incorrect or for any reason if the said applicants have changes their residence or the notices sent by the AO has not been received by such applicants, the assessee company cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the Revenue only relying upon the statement of Sri Anil Raj Mehta, a chartered accountant.’ 17. However, in CIT vs. Arunananda Textiles (P) Ltd. (in IT Appeal No. 1515 of 2005, decided on 2nd March, 2010), the Karnataka High Court went to the extent of observing that it was not for the 26 M/s K.B. J. Jewellery Pvt. Ltd. assessee to place material before the AO in regard to creditworthiness of the shareholders. Once the company had given the addresses of the shareholders and their identity was not in dispute, it was for the AO to make further inquiry. It was borne by the following discussion in the said judgment : ‘6. The questions raised in this appeal are squarely covered by several judgments of the Supreme Court and also the judgment of this Court passed in ASK Brothers Ltd. vs. CIT, wherein this Court following the judgments of the Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 and also n the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC) has ruled that it is not for the assessee to place material before the AO in regard to creditworthiness of the shareholders. If the company has given the addresses of the shareholders and their identity is not in dispute, where they were capable of investing, the AO shall investigate. It is not for the assessee company to establish but it is for the Department to enquire with the investor about their capacity to invest the amount in the shares. Therefore, we are of the view that the substantial questions of law framed in this appeal are to be answered against the Revenue and in favour of the assessee. Accordingly, this appeal is dismissed.’ 18. Rajasthan High Court had an occasion to deal with the submission of the Revenue predicated on Benami transactions in the case of CIT vs. AKJ Granites (P) Ltd. (2007) 212 CTR (Raj) 25 : (2008) 301 ITR 298 (Raj) and the arguments were dealt with in the following manner : ‘3. So far as question No. 1 is concerned, it is stated by learned counsel for the appellant that the issue embedded in the said question has already been decided by this Court and governed by the ratio laid down in Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432. It has been pointed out that share applications are made by number of persons, may be in their own names or Benami, but the fact that share applications were received from different places accompanied with share application money, no presumption can be drawn that same belong to the assessee and 27 M/s K.B. J. Jewellery Pvt. Ltd. cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown from asssessee's own money. In coming to this conclusion, the Court relied on CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40, which has since been affirmed by the Supreme Court in CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287. In view thereof, this question need not be decided again.’ 19. This very aspect came up for consideration before different Courts on number of occasions and was dealt with in favour of the assessee.
The observations of the Supreme Court in the case of Lovely Exports (supra) go to suggest that the Department is free to proceed to reopen the individual assessment in case of alleged bogus shareholders in accordance with law and, thus, not remediless. It is, thus, for the AO to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further initial burden on the assessee would be somewhat heavy in case the assessee is a privarte limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties.
We may also usefully refer to the judgment of the Supreme Court in the case of CIT vs. P. Mohanakala (2007) 210 CTR (SC) 20 : (2007) 291 ITR 278 (SC). In that case, the assessees had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The AO held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying s. 68 of the Act. The assessee did not contend that even if their explanation was not 28 M/s K.B. J. Jewellery Pvt. Ltd.
satisfactory the amounts were not of the nature of income. The CIT(A) confirmed the assessment. On further appeal, there was a difference of opinion between the two Memb rs of the Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the AO and the CIT(A). On appeal, the High Court reappreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjectures and suspicion. On appeal to the Supreme Court, the Court while reversing the decision of the High Court held that the findings of the AO, CIT(A) and the Tribunal were based on the material on record and not on any conjectures and surmises hat the money came by way of bank cheques and was paid through the process of banking transaction is not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in s. 68 of the Act was explained by the Supreme Court by assessing that a bare reading of s. 68 of the Act suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged o income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, 29 M/s K.B. J. Jewellery Pvt. Ltd. prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.
We would like to refer to another judgment of the Division Bench of this Court in the case of CIT vs. Value Capital Services (P) Ltd. (2009) 221 CTR (Del) 511 : (2008) 307 ITR 334 (Del). The Court in that case held that the additional burden was on the Department to show that even if share application did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee under s. 68 of the Act.
23. It is also of relevance to point out that in CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC) where the increase in subscribed capital of the respondent company accepted by the ITO and rejected by the CIT(A) on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares with the help of formation of an investment which was reversed by the Tribunal, this Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This view was confirmed by the apex Court in CIT vs. Steller Investment Ltd. (supra)." [Para Nos. 2 to 23 above are quoted from the judgment in the case of CIT vs. Oasis Hospitalities Ltd. (supra), hence next para No. in this decision should be para No. 3 but it is marked as para No. 24—Ed.] 30 M/s K.B. J. Jewellery Pvt. Ltd.
It is, thus, clear that initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders The manner in which such a burden is to be discharged has been explained in various judgments and noted by us above. At the same time, it is also well established principle of law that in any matter, the onus brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either furnishing PANs or copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the assessee [sic-Revenue] The question which assumes importance at this stage is as to what the Revenue is supposed to do to dislodge the initial burden discharged by the assessee and to throw the ball again in the assessee's court demanding the assessee to give some more proofs, as the documents produced earlier by the assessee either become suspect or are rendered insufficient in view of the material produced by the Department rebutting the assessee's documentary evidence. This is the aspect which has to be gone into in all these cases. Before that, we would like to refer to the observations of some Courts touching the core issue relating to discharge of burden. (A) In CIT vs. Rathi Finlease Ltd (2008) 215 CTR (MP) 429 the Court held as under : "17. ……Sec. 68 of the Act enjoined the assessee to offer an explanation about the nature and source of the sum found credited in his books and if the explanation was not satisfactory, the amount can be credited and charged to income-tax as income of the assessee. Since the assessee, though tried to explain the genuineness of the credit on the basis of letters of confirmation, it could not be explained as to how the transaction was materialized when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. It was for the assessee to discharge this burden…………"
31 M/s K.B. J. Jewellery Pvt. Ltd. (B) Calcutta High Court in CIT vs. Kundan Investment Ltd. (2003) 182 CTR (Cal) 608 : (2003) 263 ITR 626 (Cal) held as under : "……….Under s. 68, the ITO is empowered to lift the veil of corporate identity and find out as to whether the apparent is real. It is the assessee on whom the onus lies. Unless sufficient materials are produced, the onus does not shift on the Revenue. But once the materials are scrutinized and the result of the scrutiny is communicated to the assessee, the onus shifts from the Revenue to the assessee. Then the assessee has to take appropriate steps for proving its case. Unless there are sufficient materials after such communication, produced by the assessee, the ITO can do no further." (C) This Court in CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB), dealt with the issue as under : "………..As we read s. 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the ITO has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the ITO to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the ITO may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere namelender or not. Be that as it may, it is clear that the ITO has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in s. 68 indicates that the said section is very widely worded and an ITO is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. ……..On the basis of the language used under s. 68 and the various decisions of different High Courts and the apex Court, the only conclusion which could be arrived at is : (i) that there is no distinction between the cash credit entry existing in the books of the firm whether it is of a partner or of a third party, (ii) that the burden to prove the identity, capacity and genuineness has to be on the assessee, (iii) if the cash credit is not satisfactorily explained the ITO is justified to treat it as Income from 'undisclosed sources', (iv) the 32 M/s K.B. J. Jewellery Pvt. Ltd. firm has to esta lish that the amount was actually given by the lender, (v) the genuineness and regularity in the maintenance of the account have to be taken into consideration by the taxing authorities, (vi) if the explanation is not supported by any documentary or other evidence, then the deeming fiction credited by s. 68 can be invoked. In these circumstances, we are of the view that simply because the amount is credited in the books of the firm in the partner's capital account it cannot be said that it is not the undisclosed income of the firm and in all cases it has to be assessed as an undisclosed income of the partner alone. In these circumstances, we are of the view that the Tribunal was not justified in holding that the cash credits of Rs. 11,502 in the account of Shri Kishorilal, one of the partners, could not be assessed in the hands of the firm and in deleting the same. Since the matter was not considered by the Tribunal on the merits, the Tribunal would be free to hear the arguments of both the parties and decide afresh in view of the observations made above. Accordingly, the reference is answered in favour of the Revenue and against the assessee." (D) CIT vs. Korlay Trading Co. Ltd. (1999) 152 CTR (Cal) 17 : (1998) 232 ITR 820 (Cal) was cited by the Revenue to press the following : "……….There should be a genuine transaction. The income-tax file number has been given but that is not enough to prove the genuineness of the cash credit. Admittedly, there is no affidavit to this effect, by the creditor, on record. Considering these facts, we find that the finding of the Tribunal in this regard is perverse. The assessee has failed to prove the genuineness of the cash credit…… "
Following dicta of the apex Court judgment in Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) was heavily relied upon by the Revenue : "It is no doubt true that in all cases in which a receipt is sought to be taxed as Income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. [See Parimisetti Seetharamamma vs. CIT (1965) 57 ITR 532 (SC) at p. 536]. But, in view of s. 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz. the receipt of 33 M/s K.B. J. Jewellery Pvt. Ltd.
money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. …………..This raises the question whether the apparent can be considered as the real. As laid down by this Court the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities……. This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities………….." (Emphasis, italicised in print, supplied) 26. With this discourse on the legal position, we advert to the cases at hand. In these appeals, there is a common thread which runs through all these cases insofar as nature of transaction is concerned. As would be seen when we discuss the facts of this case, the share applicants are all companies incorporated under the Ind an Companies Act, either public limited or private limited companies. Since these companies are incorporated under the provisions of Indian Companies Act, their identity, at least on papers, is established. Here, they are assessed to income-tax as well. These companies have PANs and are filing regular IT returns. The assessee companies which have received share application money from such applicants have produced documents in the form of PANs, IT returns copies of the bank accounts through which the funds were transferred by way of credit entries, deposits in the accounts of such applicants, etc. by furnishing such kinds of proofs/documents, the assessees have been able to discharge their initial burden. Notwithstanding the same, as per the AO(s), the applicants were bogus companies which were only paper companies and there is no real existence. In certain cases, it was also found that just before issuing the cheques by the 34 M/s K.B. J. Jewellery Pvt. Ltd. applicants towards share applicant money, cash was deposited in their bank accounts. Except in IT Appeal No. 726 of 2011, in other cases, the AOs also relied upon the investigation report of Director of IT (Inv), the details whereof would be mentioned at the appropriate stage. From the aforesaid and some other aspects peculiar to each case, the AO(s) was of the opinion that the assessees had not discharged the burden.
With this background, we now pick up one of the appeals, the outcome whereof would determine the fate of all these appeals. IT Appeal No. 972 of 2009 28. In the case of this assessee, we are concerned with the asst. yr. 2004-05. While scrutinizing this case, the AO found that the balance sheet revealed that during the period relevant to the year under assessment, the assessee had received share application money of Rs. 2.74 crores from various applicants. The assessee filed details of all the share applicants and the amounts received along with their confirmation and copies of the bank accounts of such investors from as many as 32 share applicants. All these applicants were private limited companies. The AO was of the opinion that the creditors were not genuine parties and were only entry providers. He referred to the report dt. 2nd March, 2006 of the Directorate of IT (Inv.), Unit-V, New Delhi in this behalf. He issued detailed questionnaire on 9th Nov., 2006 wherein he also gave specific reasons in respect of each of the applicant which was of the following nature : (i) In the bank accounts of the various share applicants, they had deposited cash for specific purpose for applying for shares in addition to providing entry to the assessee, the same modus was adopted in the other cases as well.
35 M/s K.B. J. Jewellery Pvt. Ltd. (ii) Many companies did not exist at the addresses furnished. The registered letters sent to them had been received back undelivered. (iii) There were reports of the Inspectors (IT) that many parties were not genuine assessees and were not in existence.
The assessee had given reply to the said questionnaire in which it had summed the position as under : "1. All the share applicants are existing assessees. 2.These companies are registered with the RoC. 3.The share applicants have filed their respective confirmations. 4.The companies are genuine existing shareholders. 5.The investments have been made by them by account payee cheques. 6.AO's remarks that the share applicants are "entry providers" have no basis. 7.The assessee company is not accountable for the share applicants depositing cash in their accounts before investing by cheques. 8.AO's remarks "not a genuine taxpayer" are of the Department and the share applicant in which the assessee has no role to play. 9.The assessee has no means to produce the shareholders physically. 10.The postal remarks on the communications to the share applicants were not made available to the assessee company. 11.The report of the Directorate is one sided. 12.The proposal of the AO to t eat the credits received as share application money runs contrary in law to the judgment of the Hon'ble Supreme Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287."
The AO was not convinced with this explanation. He was of the view that though contentions appeared good theoretically, but the assessee had miserably failed to discharge burden, in the background of the facts on record, in totality. He maintained that the companies were bogus, as they were not found at the existing address and the cash was also deposited by these companies just before issuing the cheques. The fact that the assessee had showed its inability to produce them was also viewed against the assessee. The AO relied upon the report of the Directorate of the IT (Inv.) which had concluded that all these companies were bogus 36 M/s K.B. J. Jewellery Pvt. Ltd.
companies floated by one Mr. Mahesh Garg, who was master behind it, with intent to provide entries. He inter alia observed : "The assessee company has complied with elementary requirements by filing confirmations from the share applicants with their PANs and copies of bank accounts through which the funds were transferred by way of credit entries. In most of the cases in which the assessee company filed bank statements of the share applicants, the deposits in the accounts of such applicants were shown to have been received by way of transfer of funds to them but when such statements were requisitioned directly from the banks under s. 133(6) of the IT Act, it was discovered that cash had been deposited in the accounts of the share applicants before being transferred to the account of the assessee company. This anomaly is almost universal except in a few cases where transfer entries have been rotated. In certain other cases both cash has been deposited and entries rotated. The claim of the assessee that he was unaware of this state of affairs is much too difficult to digest. In the light of this fact, other contentions of the assessee company in its representation dt. 17th Nov., 2006 become redundant. The claim of the assessee company of its inability to produce the shareholders physically is hollow because no such shareholder exists to be physically present for any deposition."
We have taken note of the aforesaid assessment order in detail as the entire argument of the learned counsel for the Revenue was backed by and based upon the reasons given by the learned AO(s). In support thereof, Mr. N.P. Sahni, learned counsel for the Revenue, also furnished 'brief note' on accommodation entries' as prepared by the Directorate of IT (Inv.), the gist whereof is noted above as recorded in the orders of the AO. In the light of the aforesaid, Mr. Sahni referred to the judgments on onus which have also been taken note of above by us.
Before we deal with the same, let us find out the raison d'eter behind the orders of the Tribunal in deleting the addition, as CIT(A) had confirmed the orders of the AO agreeing with his reasons. The order of the Tribunal is very brief and appeal was allowed following the judgment of the apex Court in the case of CIT vs Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR 37 M/s K.B. J. Jewellery Pvt. Ltd.
(SC) 308 and CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38 : (2008) 299 ITR 268 (Del) of this Court. The entire discussion can be traced in para 3 of the impugned order : "3. We have considered the rival submission. A perusal of the order of the Hon'ble Supreme Court in the case of Divine Leasing & Finance Ltd. (supra), referred to supra, is in regard to SLP filed by the Revenue against the order of Hon'ble jurisdictional High Court and the Hon'ble Supreme Court has specifically with a speaking order dismissed the SLP. The Hon'ble Supreme Court in the various decisions referred to by the learned Authorised Representative has categorically held that the addition in regard to the share capita cannot be treated as the undisclosed income of the assessee if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO. Further, the Hon'ble Supreme Court has categorically held that the Revenue is free to proceed to reopen the individual assessment of such alleged bogus shar holders. The decision of the Hon'ble jurisdictional High Court in the case of Value Capital Services Ltd. has also categorically held that there is additional burden on the Revenue to show that even if the applicant does not have the means to investment but the investment made by the appellant should be shown to have emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. It is noticed that the Revenue has not been able to specifically show that the investments had emanated from the coffers of the assessee in this case. In these circumstances, respectfully following the decision of the Hon'ble jurisdictional High Court as also Hon'ble Supreme Court referred to supra the addition made by the AO and as confirmed by the learned CIT(A) in regard to the alleged bogus shareholders represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. However, respectfully following the decision of the Hon'ble Court referred to supra, it is directed that the Department is free to proceed to reopen the individual assessment of such alleged bogus shareholders. The direction is being given under s. 151(1) r/w s. 153(3) of the IT Act."
What does follow from the aforesaid ? It is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmations from the share applicants; bank accounts details; shown payments through account payee cheques, etc. As stated by us in the beginning, with these documents, it can be said that the assessee has discharged 38 M/s K.B. J. Jewellery Pvt. Ltd.
its initial onus. With the registration of the companies, its identity stands established, the applicant companies were having bank accounts, it had made the payment through account payee cheques.
No doubt, what the AO observed may make him suspicious about such companies, either their existence, which may be only on papers and/or genuineness of the transactions, when he found that investing companies are not available at given addresses or that the issuance of the cheque representing share application money or preceded by the deposit of cash in the bank account of these investment companies.
The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove source of the money. It is the submission of the assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. According to us, the assessee appears to be correct on this aspect. We feel that something more which was necessary and required to be done by the AO was not done. The AO failed to carry his suspicious to logical conclusion by further investigation. After the registered letters sent to the investing company had been received back undelivered, the AO presumed that these companies did not exist at the given address. No doubt, if the companies are not 39 M/s K.B. J. Jewellery Pvt. Ltd.
existing, i.e., they have only paper existence, one can draw the conclusion that he assessee had not been able to disclose the source of amount received and presumption under s. 68 of the Act for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non- existence.
The AO did not bother to find out from the office of the Registrar of Companies the addresses of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the AO wanted to arrive at, that by itself cannot be treated as the conclusive factor. As pointed out above, these applicant companies have PANs and assessed income tax No effort was made to examine as to whether these companies were filing the IT returns and if they were filing the same, then what kind of returns these companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction AO wanted to go. Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which 40 M/s K.B. J. Jewellery Pvt. Ltd. were allegedly bogus and/or companies were also bogus and were treated for namesake. We say so with more emphasis because of the reason that normally such kind of presumption against the assessee cannot be made as per the law laid down in various judgments noted above. Just because of the creditors/share applicants could not be found at the address given it would not give the Revenue a right to invoke s. 68 of the Act without any additional material to support such a move. We are reminding ourselves of the following remarks of a Division Bench of this Court in its decision dt. 2nd Aug., 2010 in the case of CIT vs. Dwarkadhish Investment (P) Ltd. (IT Appeal No. 911 of 2010) [reported at (2010) 45 DTR (Del) 281 : (2011) 239 CTR (Del) 478—Ed.] in the following words : "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s.
One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source'. (Emphasis, italicized in print, supplied)
We are conscious of the malice of such kind of pernicious practice which is prevalent. In CIT vs. Divine Leasing & Finance Ltd. (supra), this Court had eloquently highlighted the same in the following manner : "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 identity as well as financial worth of each of its subscribers. The company must, however, maintain and made available to the AO for his perusal, all the 41 M/s K.B. J. Jewellery Pvt. Ltd. information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tight-rope of ss. 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company." (Emphasis, italicised in print, supplied) 38. Even in the instant case, it is projected by the Revenue that the Directorate of IT (Inv.) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. Bu it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks (sic companies) and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 39. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of ss. 68 and 69 of the Act. On the on hand, one doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in question has indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessees 42 M/s K.B. J. Jewellery Pvt. Ltd.
herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscriber to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholder in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding.
In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under ss. 68 and 69 of the Act.” 2.5. If the ratio laid down in the aforesaid cases is kept in juxtaposition with the facts of the case, the Hon'ble High Court in the case of CIT vs Kamdhenu Steel and Alloys Ltd. & Ors. Vide order dated 23/12/2011 (2014) 361 ITR 220 (Del.) concluded as under:- “Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter, in case such 43 M/s K.B. J. Jewellery Pvt. Ltd.
evidence is to be discarded or it is proved that it has “created” evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under section 68; Assessing Officer failed to carry his suspicion to logical conclusion by further investigation and therefore addition under section 68 was not sustainable.” 2.6. While coming to aforesaid conclusion, the Hon'ble High Court duly considered the decision in Sarthak Securities Company Pvt. Ltd. vs Income Tax Officer (2010) 236 CTR (Del.) 362, CIT vs S.F.I.L Stock Broking Ltd. (2010) 233 CTR (Del.) 69 and Signature Hotels Pvt. Ltd. vs Income Tax Officer (2011) 60 DTR 30 (Del.). The following cases were also considered by Hon'ble High Court:- i. Addl. CIT vs. Bahri Brothers (P) Ltd. (1984) 42 CTR (Pat) 66: (1985) 154 ITR 244 (Pat) ii. CIT vs. Genesis Commet (P) Ltd. iii. CIT vs. Korlay Trading Co. Ltd. (1999) 152 CTR (Cal) 17: (1998) 232 ITR 820 (Cal) iv. CIT vs. Kundan Investment Ltd. (2003) 182 CTR (Cal) 608: (2003) 263 ITR 626 (Cal) v. CIT vs. Mather & Platt (India) Ltd. (1987) 62 CTR (Cal) 231 : (1987) 168 ITR 493 (Cal) vi. CIT vs. Oasis Hospitalities (P) Ltd. (2011) 238 CTR (Del) 402: (2011) 51 DTR (Del) 74: (2011) 333 ITR 119 (Del) vii. CIT vs. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138: (1986) 159 ITR 78 (SC) viii. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30: (2007) 291 ITR 500 (SC) ix. CIT vs. Rathi Finlease Ltd. (2008) 215 CTR (MP) 429 x. CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB) xi. Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 214 ITR 801 (SC)
44 M/s K.B. J. Jewellery Pvt. Ltd. 2.7. If the aforesaid judicial pronouncements are analyzed with the facts of the present appeal, we find that the ld. Assessing Officer has disbelieved the genuineness of the subscription received by the assessee as share application money, more specifically when the assessee provided the list of share subscribers, their PAN, source of the funds, therefore, mere suspicion is not enough to sustain the addition u/s 68 of the Act. Summons were issued to shares subscribers by the Assessing Officer and the same were not returned back, meaning thereby, the same were served upon them. The ld. Assessing Officer if was still apprehensive nothing prevented him to take the legal recourse available with him. The assessee also filed confirmation from share subscribers. The bank accounts of share subscribers were produced which establishes their identity. The existence of share holders is not in doubt, their identity is established and they invested the money in purchase of shares. The onus cast upon the assessee has been established, therefore, following the aforesaid judicial pronouncements from Hon'ble higher forum, in our view, addition cannot be sustained. The decision from the Hon'ble High Court is binding upon the Tribunal. The annual report of Swan Securities Pvt. Ltd. was also produced before the Revenue authorities and also before this Tribunal, containing the Director’s report, auditor’s report, balance sheet as on 31/03/2008, profit & loss account for the year ending 31/03/2008, etc. which has not been disproved by the Assessing Officer. The Assessing Officer has not unearthed any wrong or illegal dealing, therefore, he cannot obdurately 45 M/s K.B. J. Jewellery Pvt. Ltd. adhere to his suspicion and treat the subscribed capital as undisclosed income of the assessee. Our view is fortified by the decision from Hon'ble Delhi High Court in CIT vs Devine Leasing & Finance ltd. (2008) 299 ITR 268 (Del.); (2007) 158 taxman 440. The relevant details of the subscribers were furnished by the assessee, thus, it would constitute acceptable proof or explanation by the assessee. The Department would not be justified in drawing and adverse inference only because the creditor/subscribers fails or neglect to respond to its notices, as was held by Hon'ble Delhi High Court in the aforesaid case. Respectfully following the decision from Hon'ble Delhi High Court, the factual matrix of the appeal, the addition made u/s 68 of the Act is directed to be deleted. Finally, the appeal of the assessee is allowed. This order was pronounced in the open court in the presence of the ld. representatives from both sides at the conclusion of the hearing on 28/07/2016.