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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI N.K. BILLAIYA & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 26.12.2012 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2007-08.
The Revenue in this appeal has agitated the action of the Ld. CIT(A) in deleting the addition of Rs.50 lakhs made by the Assessing Officer (hereinafter referred to as the AO) under section 68 of the Act on account of bogus share application money.
The brief facts of the case are that during the assessment proceedings the AO noted that the assessee had repaid certain loan amounts to M/s. Madhavpura Mercantile Co-operative Bank Ltd. Certain investigations were done by the Department to verify the source of funds which were utilized for 2 M/s. Saimangal Investrade Ltd. repayment of the loan amount. During the course of such investigation certain statements of the some of the directors of the companies were recorded who had invested money in the assessee company in the preference shares. The said directors in their statements stated that they had received cash and issued cheque for preference share application to the assessee company. On the basis of that said statements, the AO made the impugned additions. Being aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).
The Ld. CIT(A) noted that similar type of additions were made in the assessee’s group companies namely Gibs Computers Ltd. for A.Y. 2005-06 and 2006-07, Chat Computers Ltd. and Netscape Software Ltd. and the matter was travelled to the Tribunal. The Tribunal having noted the facts and circumstances of the case has deleted the additions so made by the AO under section 68 of the Act observing that the entire share application money was received through account payee cheque/draft and that the share application money was found in the bank account of the investing companies and further that the statements recorded during the course of investigation without any corroborative evidence had no evidentiary value. The Ld. CIT(A) therefore relying upon the decision of the Tribunal in the case of Gibs Computers Ltd. & Others vide order dated 25.01.12 deleted the additions so made by the AO. Being aggrieved by the above action of the Ld. CIT(A), the Revenue has come in appeal before us.
We have heard the rival contentions and have also gone through the records. The Ld. D.R. has relied upon the findings of the AO whereas the Ld. A.R. of the assessee has relied upon the findings of the Ld. CIT(A).
6. We have considered the rival submissions. The Ld. A.R. of the assessee has stated that all the evidences relating to the transaction in question were furnished by the assessee. The details of the amount received, share application forms, resolution, memorandum of association, acknowledgement
3 M/s. Saimangal Investrade Ltd. of returns of income, annual accounts, net worth, balance sheet, bank statements as well as confirmations of various shareholders or the persons making the share application to whom shares were yet to be allotted were furnished. He has further relied upon the decision of the Tribunal in the own case of the assessee for immediate earlier Assessment Year 2006-07 wherein the Tribunal vide order dated 20.12.13 passed in ITA No.3924/M/09 in the identical fact and circumstances has deleted the additions. The relevant findings of the Tribunal for the sake of convenience are reproduced as under: “4. The addition made by the AO u/s 68 treating the amount received on allotment of preference shares as unexplained cash credit was challenged by the assessee in the appeal filed before the ld. CIT(A). It was submitted on behalf of the assessee before the ld. CIT(A) that it had furnished all the relevant details with regard to share application money received from the concerned applicants which were sufficient to establish their identity and creditworthiness as well as genuineness of the relevant transactions. It was submitted that the AO however ignored this evidence and made the addition u/s 68 treating the amount of preference share capital as unexplained cash credit relying on the statement of the directors of the investing companies without giving copies of the said statement to the assessee. It was also submitted that the said statements even otherwise could not be relied upon as there was huge similarity therein despite the fact that different directors were examined at different times. It was contended that this fact alone was sufficient to establish that the said statements were kept ready by the department and only the signatures of the concerned directors were obtained. It was also submitted that no independently enquiry was made by the AO and addition u/s 68 was made solely relying on the report of the ADIT, Kolkata. It was contended that even the opportunity of cross examination of the share applicants was not afforded to the assessee. The ld. CIT(A) did not find merit in these submissions made by the assessee and confirmed the addition made by the AO u/s 68 mainly following his appellate order passed in the case M/s Chat Computer Pvt. Ltd, another group concern wherein a similar issue was decided by him against the assessee involving identical facts and circumstances . Aggrieved by the order of the ld. CIT(A) confirming the addition made by the AO u/s 68, the assessee has raised this issue in the present appeal.
5. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the addition made by the AO u/s 68 was confirmed by the ld.CIT(A) relying on his appellate order passed in the case of M/s Chat Computers pvt. Ltd. involving a similar issue. As submitted by the ld. Counsel for the assessee, the order passed by the ld. CIT(A) in the case of Chat Computers Pvt. Ltd. was also the subject matter of appeal before the Tribunal and the Tribunal vide its order dated 22/07/2011passed in has reversed the same and deleted the similar addition made by the AO u/s 68 and confirmed by the ld.CIT(A). A copy of the said order is placed on record before us and perusal of same shows that a similar issue involving identical facts and circumstances has been
6. It is evident from the assessment order that the Assessing Officer has not conducted any independent enquiry during the assessment proceedings; but simply relied upon the report of the ADIT(Inv), Unit 1, Kolkata as well as the statements of the directors of various Kolkata based companies, who have paid the application money. The said investigation by the ADIT(Inv) Unit 1, Kolkata was not carried out during the assessment proceedings; therefore, the said investigation was neither the inquiry carried out during the assessment proceedings nor part of the assessment proceedings. It is clear that the scrutiny assessment commenced after about one year from the alleged investigation was over. The Assessing Officer has heavily relied upon the investigation report and proceedings and specifically on the point that the assessee was given opportunity to cross examine the directors of the investing companies, who paid the application money and further, the assessee was also asked by the Assessing Officer to produce the directors, whose statements were recorded by the investigation unit 1, Kolkata for cross examination of them. 6.1 In para 4.5 and 4.6, the Assessing Officer has recorded the reasons for forming the view that the assessee was given several opportunities to cross examine the directors of the investing companies as under: "4.5 As per the statements of the Directors of various Kolkata based companies and the other persons, it is clear that the assessee had given cash to so called companies which in turn issued back to assessee cheques/demand draft of equivalent amount. This fact was stated on oath by the directors of the said companies. However, director of the assessee Shri Kiriti Kumar N Parekh denied to have paid any cash to these parties in his statement before ADIT(Inv) Unit IX(2), Mumbai. In his statement he stated his intention to cross examine the aforesaid directors to prove his stand. DDIT(Inv) Unit 1(2) Kolkata has given several opportunities to the assessee to cross examine the aforesaid directors at its Kolkata office. In spite of repeated opportunities given to the assessee, the said cross examination could not take place as the assessee sought adjournment every time. Thereafter, the assessee stated that 'he would exercise his right of cross examine at the time of assessment.
4.6 A letter dated 16.9.2008 was issued by this office to the Managing Director of the company giving him opportunity to cross examine the share4 applicants and was asked to file confirmation of the said share applicants on 30th Sept, 2008. However, no one appeared on 30th Sept 200. It is pertinent to mention here that assessee was given several opportunities by the DDIT(Inv) Unit I(2) Kolkata to cross examine the said directors of Kolkata based companies to prove the genuineness of his stand which he has recorded to the ADIT(Inv), Unit IX(2) Mumbai. But, instead, assessee has sought adjournment every time and thereafter, stated that he
5 M/s. Saimangal Investrade Ltd. will exercise his right of cross examination at the time of assessment. This clearly shows the intention of the assessee to stall the time. Moreover, the onus of proving genuineness of the transaction lies on the assessee, which the assessee has tried to shift on the Assessing Officer's shoulder.
6.2 Since the investigation proceedings were not part of the assessment proceedings in the case of the assessee and even the investigation was not either u/s 132 or u/s 133 of the I T Act. It seems that investigation by the ADIT(Inv) Unit 1, Kolkata is preliminary investigation only to verify the suspicion of any concealment of income. The Assessing Officer, during the course of assessment proceedings asked the assessee to produce the said directors for cross examination. It is evident from the letter of the Assessing Officer dated 01.10.2008 as well as dated 16.9.2008 that the Assessing Officer did not summon these directors to be present in the office of the Assessing Officer for the purpose of cross examination by the assessee; but on the contrary, the assessee was asked to produce these directors for cross examination purpose. This is a gross violation of principles of natural justice when the Assessing Officer asked the assessee to produce the directors for availing opportunity of cross examination. The Assessing Officer relied upon the statement of the directors of the investing company recorded during the investigation proceedings by the ADIT(Inv) Unit 1, Kolkata. Instead of ensuring the presence of these persons for giving opportunity to the assessee to cross examine, the Assessing Officer asked the assessee to produce them, which in our considered opinion is an absolute unjust and opposite to the rule of law and what procedure demands. Therefore, there is a total denial of opportunity to the assessee to cross examine the persons, whose statements are used against the assessee.
6.3 Further, when the director of the assessee categorically denied, during the investigation, the allegation of giving cash to those investing companies then the onus is on the revenue to prove that the application money received by the assessee is assesse's own money routed through those applicants companies. There is no evidence or material brought on record by the Assessing Officer, except the un-cross examined statements of the third party, to show any movement of cash routed back to the assessee in form of application money in the alleged allotment of cumulative preferential shares. Rather, it is undisputed fact that the application money was received through account payee cheque/bank draft given by the investing companies from their respective bank account. It is also an accepted fact that source of the application money was found in the bank account of the investing companies deposited through account payee cheques; therefore, no cash transaction was found by the Assessing Officer in the bank account of the investing companies.
6 M/s. Saimangal Investrade Ltd. 6.4 The Assessing Officer doubted the movement of cash from the assessee as being passing through various levels and reached to the assessee company. However, no finding has been given to the effect as to how the alleged cash/money of the assessee company routed through various levels finally reached to the assessee. Not an iota of evidence or material has been brought on record to show even, prima facie that the said amount representing application money moved from the assessee and reached to the assessee. Rather, documentary evidence on record exhibits different facts i.e. as per books of account of the assessee as well as those of investing companies together with the return of income, board resolution go to prove that the said application money was paid by the investing company to the assessee against allotments of the preferential shares. The Investing companies have shown the said amount as investment in their books of account. The money routed through banking channels and through account payee cheques/bank draft, undisputed given by the parties. Even, the source of the application money was found in the bank account of the investing companies not by any cash deposit; but through account payee cheques. Therefore, when all the documentary evidence contradicts the statements of the directors recorded by the investigation unit of the department then such statements alone cannot be taken as the basis much less a good or proper basis for any addition.
6.5 It is settled proposition of law that the statement recorded during the course of investigation without corroborative evidence has no evidentiary value. It is pertinent to mention that the statements recorded in this case are not under search or survey or assessment proceedings therefore the same cannot be used against the assesse without following the due process of corroboration and cross examination. Even otherwise, the statement without cross examination and corroborative evidence cannot be used against the assessee.
6.6 As pointed out by the ld AR of the assessee the credibility of the statements is also not free from doubt as it appears that all the statements are prepared by the department in an identical fashion and manner before those were got signed on different dates. It is apparent that certain identical mistakes are appearing in those statements allegedly recorded on different dates. For example Questionno.4:- Does you company has transaction with the following companies? If so, give details and nature of such transaction:
This mistake "Does you" is appearing in question No. 4, of all the statements, which shows that questionnaire was already prepared and answers were already written in the same manner as it is evident from the answer to question no.6 as under:
7 M/s. Saimangal Investrade Ltd. Question No. 6 Do you have to say anything else? Ans: I have gone through the above statement and the same has been recorded correctly and without any fabrication. The above statement gas been given by me without the use of any force, coercion or threat.
The mistake in the answer no. 6 is also identical in all the statements recorded on different dates. Since the statements were recorded by the investigation team of ADIT(Inv) Unit 1, Kolkata and not during the proceedings before any Court of law;therefore, all these facts suggest and indicate to believe that the same are not recorded as a verbatim of what the concerned person stated; but obtained by the department in a mechanical manner. However, without going into validity of the statements when all other records, material and documentary evidences contradict and nullify the statements then the reliance placed by the Assessing Officer on such statement is highly unjustified and improper.
7 Even otherwise, in the case of the Ashwani Gupta (supra), the Hon'ble Delhi High Court has taken a note of the finding of the Tribunal in para 2 as under:"2. The Tribunal has confirmed the order passed by the CIT(A) which held the entire addition made by the Assessing Officer to be invalid and had deleted the same. The CIT(A) had clearly held that the Assessing Officer had passed the assessment order in violation of the principles of natural justice in as much as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to cross- examine one Mr. Manoj Aggarwal on the basis of whose statement the said addition was made. The CIT(A) also held that the entire addition deserved to be deleted, particularly so, because the transactions also stood duly reflected in his regular returns."
7.1 The Hon'ble High Court has held that once there is violation of principles of natural justice by not providing seized material to the assessee as well as cross examination of the persons on whose statements, the Assessing Officer relied upon, amounts to denial of opportunity and would be fatal to the proceedings. The Hon'ble Delhi High Court has observed in para 7 as under:
"7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice in as much as seized material is not provided to an assessee nor is cross- examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. Following the approach adopted by us in SMC Share Brokers Ltd. (supra), we see no reason to interfere with the 8 Similarly, in the latest decision, the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), after considering all the relevant decisions on the issue including the decision of the Hon'ble Supreme Court in the case of Lovely Exports P Ltd (supra), decision of the Full Bench of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd reported in 205 ITR 98 (Del)(FB) and the decision in the case of Divine Leasing & Finance Ltd (supra) has observed in paras 11 to 16 as under:
"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) the identity of shareholder ; (b) the genuineness of transaction ; and (c) the 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 Assessing Officer 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.
The 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 of that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be copies of the shareholders register, share application forms, share transfer register, etc.
14 As far as creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditor/subscriber 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 discharged the onus cast upon him. Thereafter, it is for the Assessing Officer 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 have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion.
9 M/s. Saimangal Investrade Ltd. 15. At this stage, we would like to refer to the judgment of the Bombay High Court in the case of CIT v. Creative World Telefilms Ltd. (in I. T. A. No. 2182 of 2009 decided on October 12, 2009) [2011] 333 ITR 100. 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 Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement `not traceable'. In our considered view, the Assessing Officer 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 particulars were given by the assessee to the Assessing Officer. 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 limine with no order as to costs.
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 Assessing Officer and it is on him to reach the shareholders and the Assessing Officer cannot burden the assessee merely on the ground that summons issues to the investors were returned back with the endorsement "not traceable". The same view is taken by the Karnataka High Court in Madhuri Investments Pvt. Ltd. v. Asst. CIT (in I. T. A. No. 110 of 2004, decided on February 18, 2006). In this case also, some of the 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 :
"
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 genuineness 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 changed their residence or the notices sent by the Assessing Officer have 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."
8.1 The Hon'bl High Court further discussed the issue in paras 20 to 24 as under:
10 M/s. Saimangal Investrade Ltd. " 20 The observations of the Supreme Court in the case of Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (SC) go to suggest that the Department is free to proceed to reopen the individual assessments in the case of alleged bogus shareholders in accordance with law and, thus, not remediless. It is, thus, for the Assessing Officer 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 the initial burden on the assessee would be somewhat heavy in case the assessee is a private 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 v. P. Mohanakala [2007] 291 ITR 278. In that case, the assessee 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 Assessing Officer 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 section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner of Income-tax (Appeals). On appeal, the High Court re-appreciated 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, conjecture and suspicion. On appeal tothe Supreme Court, the court while reversing the decision of the High Court held that the findings of the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as 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 section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of section 68 of the Act suggests that (i) there has to be credit of amounts in the books
11 M/s. Saimangal Investrade Ltd. 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 Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged toincome-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 Assessing Officer 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 Assessing Officer 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, 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 ofCIT v. Value Capital Services P. Ltd. [2008] 307 ITR 334. The court in that case held that the additional burden was on the Department to show that even if share applicants 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 section 68 of the Act.
It is also of relevance to point out that in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) where the increase in subscribed capital of the respondent-company accepted by the Income-tax Officer and rejected by the Commissioner of Income-tax 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
Having taken note of the legal position in detail, we now proceed to decide each appeal on the application of the aforesaid principles. I. T. A. No. 2093 of 2010 and I. T. A. No. 2095 of 2010"
9 It is clear from the decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra) that once the assessee filed copy of PAN, Acknowledgement coy of the return of income of the investing companies, their bank accounts statements for the relevant period; then even the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc. 10 In the case in hand, there is no dispute about the identity of the applicant companies, who had paid the application money and the source of the application money was also found in the respective bank accounts of the investing companies and there was no trace of cash deposit in the bank accounts of the investing companies, then, the action of the Assessing Officer under influenced of the report of the investigation wing without giving opportunity to the assessee for cross examination of the persons, is not sustainable.
11 The Assessing Officer has raised some doubts and suspicion about the movement of the money through various levels but could not establish any direct or indirect link of the said outward movement from the assessee and then again received by the assessee in the form of application money. Even the revenue has failed to bring anything on record to show movement of the alleged cash from the assessee.
12 The Hon'ble Delhi High Court, in the case of Oasis Hospitalities P Ltd (supra) in para 33 and 34 has observed as under:
"33 The Tribunal while confirming the aforesaid view of the Commissioner of Income- tax (Appeals) has summarized the discussion as under:
"9. We have carefully considered the rival submissions in the light of the material placed before us. The necessary details were filed by the assessee with the Assessing Officer to show the identity of the person who had applied for the shares. The shares also been allotted to respective persons in respect of which intimation was given to the Registrar of Companies and necessary evidence has also been placed on record in the paper book which found place at pages 23 and 24 of the paper book. The assessee also had placed on record the 13 M/s. Saimangal Investrade Ltd. evidence as well as copy of income-tax returns of the share applicants. Keeping in view all these evidence it cannot be held that the assessee did not establish the identity of the share applicants. If it is so, then the law as pronounced by the hon'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 is clear that if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but the same cannot be regarded as undisclosed income of the assessee. In this view of the situation, we find no infirmity in the order of the Commissioner of Income-tax (Appeals) vide which addition made on account of share application money has been deleted."
Having regard to the decisions noted above, we are of the view that the addition was rightly deleted by the Commissioner of Income-tax (Appeals) and the Tribunal. Requisite documents were furnished showing the existence of the shareholders from bank accounts and even their income-tax details. From bank accounts of these shareholder, it was found that they had deposed certain cash and source thereof was questionable. The Assessing Officer should have made further probe which he failed to do. Moreover, the remedy of the Department lies in reopening the case of these investors and the addition cannot be made in the hands of the assessee."
Thus in view of the above observation of Hon'ble High Court when requite document were produced and available with the AO to establish that no cash was deposited in the bank accounts of the investing companies then without further probe to prove contrary the addition in the hand of the assessee cannot be made.
13 There is no quarrel on the aspect that so far as it is possible the consistency of the view has to be maintained; however, in the case of the assessee, the Tribunal, for the AY 2005-06 has not formed any opinion or given any finding on this issue; but remanded the same to the file of the Assessing Officer for fresh adjudication.
13.1 Before us, the ld AR of the assessee has forcibly urged that in view of the decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra) as well as the decision of the Hon'ble Gujarat High Court in the case of Rajeh Babubhai Damania (supra), the issue may be decided on merits on the basis of the material available on record.
14 M/s. Saimangal Investrade Ltd.
It is to be noted that it is not the case of any additional evidence or fresh material produced by any of the parties before us which requires examination or investigation to verify the correctness of the new facts first time brought before us. The case of the revenue is that the cash moved from the assessee routed though various leveland then reached to the assessee in the form of share application money. The stand of the revenue is not in consonance with the statements of the directors of the investing companies which is the basis of the investigation report as well as addition by the AO. In their statements the directors stated to have received cash from assessee for investing in the preferential share of the assessee company, whereas, this fact was not found to be correct from the record and the revenue also took a stand that the cash was not directly given to the investing companies but routed through various levels. When it was found by the investigating unit as well as recorded by the AO that the fund in the bank account of the investing companies was deposited through a/c payee cheques than it is apparent that the statements of the directors are in total contradiction of the facts emerged from the record as well as stand of the revenue. Hence the said statements do not support the case of the revenue and the reliance place by the AO on such statements is highly misplaced and improper. When the stand of the revenue is in total contraction of the material on record then then in view of the latest decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), we are of the considered opinion that the issue can be decided on merit and need not to be remand to the record of the AO because at the time of the order for the AY 2005-06, the coordinate Bench of the Tribunal was not having the benefit of the decision of the Hon'ble Delhi High Court in the case cited supra. Further in view of the decision of hon'ble Gujrat High Court in case of Rajeh Babubhai Damania (supra), we see no reason for giving the A.O. any further innings to fill up the lacunas or lapses in the assessment which would cause a great injustice to the assessee.
In view of the above discussion and the facts and circumstances of the case, the share application money cannot be treated as income of the assessee company until and unless it is proved beyond doubt that the assessee's own money has come back through some closely related applicant. Once the identity of the applicant is disclosed and found as correct then, even if the said transaction is suspected by the revenue authorities, the same cannot be treated as income of the assessee company which is a public limited company. Accordingly, we delete the addition made
15 M/s. Saimangal Investrade Ltd. by the Assessing Officer and confirmed by the CIT(A) on this account. However, we may clarify that our findings on the issue are based on particular facts of this assessment year and therefore, would not affect the respective rights of the parties for the other assessment years.
6. As the issue involved in the present case as well as all the material facts relevant thereto are similar to that of Chat Computers Pvt. Ltd. (supra), we respectfully follow the order of the Tribunal passed in that case and delete the addition made by the AO and confirmed by the ld.CIT(A) on account of amount received on allotment of preference share u/s 68. Ground no.1 of the assessee's appeal is accordingly allowed.”