TaxTMI 
TaxTMI 
2005 (3) TMI 397
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.... 3. Briefly stated the facts are that during the previous year relevant to assessment year under consideration, the assessee received share application money from several applicants amounting to Rs. 53 lakhs. The AO issued letters calling for information under s. 133(6) of the IT Act, 1961, to the share applicants. The information called for were as under: (i) The amount invested in the shares of the assessee-company during the financial year 1995-96 along with details of sources thereto; (ii) Particulars of income-tax assessment along with copies of acknowledgement for latest IT return filed; (iii) Copies of the balance sheet as on 31st March, 1996, along with schedule thereto. 4. In most of the cases, the letters sent were received back with the remarks that no such firm exists at the given address. The assessee-company was therefore informed of this fact. The assessee was also informed that the address of the companies except M/s Confluence Leasing and Credits Ltd., were either incomplete or did not have any office at the given address. The assessee-company was asked to furnish the necessary evidence to prove the genuineness of the investment made ....
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....t no such company exists at the given address. However, information filed on behalf of the company by the assessee-company revealed that investment in share as per balance sheet as on 31st March, 1996, showed total investment of Rs. 2.5 lakhs whereas the company invested Rs. 5 lakhs. In this case also the pay order of Rs. 5 lakhs was got made from the account of M/s M.G. Investment by depositing cash on the same date. (iii) M/s Lorence Distributors (P) Ltd. (LDPL): The investment made by this company was Rs. 5 lakhs vide pay order No. 014562 dt. 11th Nov., 1995. In this case too, pay order was got made from account of M/s M.G. Investment by depositing the cash on the same date. (iv) M/s Confluence Leasing & Credits Ltd. (CLCL): This company made investment of Rs. 5 lakhs vide demand draft No. 00826 dt. 12th Nov., 1995, which was got made from the Bank of India, Bank Street, Karol Bagh, New Delhi. Information under s. 133(6) was called for. However, the same remained uncomplied with. A summon under s. 131 was issued for furnishing the information as asked for vide letter seeking information under s. 133(6) of the IT Act, 1961. The reply was receiv....
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....tment of Rs. 5 lakhs by way of banker's cheque No. 025204 dt. 14th Nov, 1995, drawn on Vaish Co-operative Bank Ltd., Karol Bagh, New Delhi. Like, other cases, information under s. 133(6) of the Act was asked for which remained uncomplied with. The balance sheet of the said company revealed that this investment and the enquiry conducted through ADI, Rohtak, confirmed this fact. A perusal of the bank account reflected a cash deposit of Rs. 5 1akhs on 14th Nov., 1995. (ix) V.V. Consultants (P) Ltd.: Like in the case of ATL, this company had made investment of Rs. 5 lakhs by way of banker cheque No. 025205 dt. 14th Nov., 1995, drawn on the same bank The balance sheet of the company reflected investment of Rs. 6.83 lakhs as on 31st March, 1995 and Rs. 6.25 lakhs as on 31st March, 1996, but it was not clear as to whether the company had invested Rs. 5 lakhs in this year or not. The enquiry conducted through ADI, Rohtak, revealed that the genuineness of both the companies were doubtful. However, the AO had not denied the possession of bank statement of both the companies. (x) M/s Blue Home Co. (P) Ltd. (BHBL): This company made investment of Rs. 5 l....
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....uce further any books of account or documents to explain the policy regarding account and recording of transaction of the investor companies due to which discrepancies had been noted in the annual accounts of the investing companies. 6. As regards the identity of the investors, it was submitted that copy of their assessment order and copy of the acknowledgement of returns had already been filed. Thus this was sufficient enough to reveal the identity of the investors, which would prove their existence as they were assessees of the Department and the Department had jurisdiction over them. For any further clarification, the Department has ample powers to proceed under s. 133 with the ROC and have knowledge as regards to their directors, their addresses and the existence of the companies, etc. 7. In respect to the genuineness of the transaction, it was submitted that all the payments had been received by crossed bankers cheques/pay order or drafts. Fresh affidavits as well as confirmation from shareholders had also been filed. 8. Regarding creditworthiness, it was submitted that the assessee-company was not required to prove the source of source as has been held in the case of....
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.... been received. The details of applicants have been given to the AO vide submission dt. 18th March, 1998, from which it could be noted that the details given include the following: (i) Name of the applicant (ii) Address (iii) GIR Number and the Ward details (iv) Acknowledgement of filing of IT return (v) Balance sheet as at31st March, 1995 (vi) Copies of share application forms (vii) Copies of share allotment letters (viii) Assessment orders wherever available (ix) Form No. 32 filed with ROC showing their directors wherever available. (x) Form No. 18 filed with the ROC by the applicant companies showing their registered offices. 10. The Authorised Representative has further submitted that by providing all the above details, the assessee-company has fulfilled its obligation of proving the existence of these companies as also their complete whereabouts available with it and furnished details of investors as provided to the assessee by the investors were also submitted to the AO to show the creditworthiness of the investors. It has further mentioned that all the details about the investors wer....
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....l for the assessee has further submitted that the AO seems to be under misconception that these preference shares are not part of share capital or under this misconception, has erroneously concluded that the decision of Delhi High Court in Sophia Finance Ltd. is not applicable to the assessee's case. The learned counsel for the assessee has further submitted that from all the material placed on record by the assessee, there is no doubt that the assessee has fulfilled its onus of establishing the source of share capital. It is not for the assessee to enquire into the source of the source of the investor. If the Department feels that it has sufficient material to justify further enquiry into the source of the investor, it has all liberty to do so. Any shortcoming on the part of the investor cannot be a case for regarding the capital receipt to treat it as the income of the assessee in the present case. He has further argued that all the parties, which are private limited companies, have confirmed that they have applied for these shares. Private limited companies are registered with the ROC and their existence is never in doubt. The relevant addresses and the income-tax assessment....
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....s the assessee failed to establish the principle ingredients of s. 68 of the IT Act, 1961. According to s. 68, onus is on the assessee to establish the identity of the creditors (subscribers of the shares), to prove their creditworthiness and the genuineness of the transaction. 17. He has further submitted that mere furnishing of income-tax file, i.e., GIR number is not sufficient to discharge the burden. The learned Departmental Representative while relying upon the decision of Calcutta High Court in the case of Hindusthan Tea Trading Co. Ltd. vs. CIT (2003) 182 CTR (Cal) 585 : (2003) 263 ITR 289 (Cal), CIT vs. Ruby Traders & Exporters Ltd. (2003) 182 CTR (Cal) 596 : (2003) 263 ITR 300 (Cal) and CIT vs. Nivedan Vanijya Niyojan Ltd. (2003) 182 CTR (Cal) 605 : (2003) 263 ITR 623 (Cal) has argued that the ratio decided in the Steller Investment Co. is no more good law as it was overruled by the Full Bench decision in the case of CIT vs. Sophia Finance Ltd. He has further pointed out that it has been held by the Calcutta High Court in the above named cases, and that though the SLP against the decision of Steller Investment has been dismissed by the apex Court as reported in CIT vs.....
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....the investment and have filed affidavit to this effect. The details of documents filed before the lower authorities as extracted in the said Annexure would establish the identity of each of the investor companies. Since the amount has been deposited by banking channel, their creditworthiness could not be doubted in view of the decision in Sophia Finance Co. case. Therefore, no addition is called for in the hands of the assessee. As regards the discrepancy pointed out in the accounts of the investor company are concerned, the learned counsel for the assessee has submitted that for such discrepancy the assessee cannot be held responsible inasmuch as the assessee-company furnished the copy of accounts of the said companies as were provided by them. Reliance has been made upon the decision in the case of CIT vs. Sophia Finance Co. Asstt. CIT vs. Anima Investment Co. (P) Ltd. (2000) 68 TTJ (Del)(TM) 1 : (2000) 73 ITD 125 (Del)(TM), L.N. Bradley India Ltd. vs. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del), CIT vs. Steller Investment Co. and CIT vs. Steller Investment and CIT vs. Achal Investment Ltd. (2004) 187 CTR (Del) 475 : (2004) 268 ITR 211 (Del). 20. We have heard the par....
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....ns who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself." The Department filed Special Leave Petition before the Hon'ble Supreme Court against this order of the Delhi High Court and the SLP was dismissed vide order dt. 20th July, 2000[CIT vs. Steller Investment] by holding as under: "We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to the conclusion on the facts and no interference is called for." It may however be mentioned that the Hon'ble Calcutta High Court in the case of Hindusthan Tea Trading Co. and Nivedan Vanijya Niyojan Ltd. has held that the decision in CIT vs. Steller Investments Ltd. is no longer good law in view of the decision in CIT vs. Sophia Finance Ltd. In CIT vs. Steller Investment, the Supreme Court had not entered into the question involved nor decided the ratio laid down. It has plainly held that it was a question of fact. The Supreme Court had not laid down any pr....
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....the capacity of the persons to lend. With reference to share capital for which shares have been issued, the onus on the company is very much limited in the light of the law under the Companies Act. The Full Bench decision, referred to above, makes it clear that in the case of limited companies the jurisdiction of the AO would be limited to see whether the identity of the shareholders is established and whether they exist or not. Once the identity is established, then, as the Full Bench felt, possibly no further enquiries need to be made. This conclusion was arrived at by the Hon'ble High Court apparently due to the reason that when limited companies, especially public limited companies, invite subscriptions it is neither legally possible nor practicable for such companies to insist upon the sources of share subscriptions being made known to the company. Even regarding the proof of the existence and identity of the shareholders, the public limited companies can only provide the AO with the information contained in the statutory share applications/documents/registers maintained by the companie. In this connection, it is worthwhile to appreciate the following comprehensive law lai....