TaxTMI 
TaxTMI 
2006 (2) TMI 240
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed as the assessee claimed depreciation of Rs. 15,31,220, which was not claimed in the original return. But the assessee did not stop there and further filed a second revised p return on 29-7-1991 wherein loss of Rs. 20,68,810 was claimed. The appellant reduced this claim of investment allowance from Rs. 7,17,800 to Rs. 5,74,950 and also added back Rs. 2,16,806 under section 43B of the Act on account of outstanding RFC interest and other liabilities. But the Assessing Officer did not entertain the second revised return on the basis that it was invalid being beyond limitation available to the assessee for filing the return under section 139(5) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act')- The ld. Assessing Officer processed the original return filed by the assessee under section 143(1)(a) of the Act on 19-11-1990 wherein the addition of Rs. 1,37,710 was made through prima facie adjustment. The first revised return was also processed and additions through prima facie adjustment were made. 3. During the previous year relevant to assessment year under consideration substantial funds had flown in by way of share capital subscription and cash credits. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aring as per the provisions of Rule 11 of the I.T.A.T. Rules. We find support from the famous decision of Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 and also the decision of Hon'ble Delhi High Court in the case of Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1 and National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). So, we admit this additional ground of appeal of the assessee. 7. A perusal of the assessment order reveals that the ld. Assessing Officer added Rs. 2,16,806 after disallowing the same under section 43B of the Act. This disallowance has been made as per the second revised return filed by the assessee [para 11] of the assessment order. At the same time, it is also evident from the assessment order from its para 2 that the second revised return filed by the assessee was not accepted by the Assessing Officer being beyond time. The same has also been discussed in para 1 of the assessment order. 8. This is also a fact that the assessee did not challenge this disallowance before the CIT(A), presumably on the ground that the assessee enjoined the wrong belief that the provisions of section 154(1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deductions, etc. are not allowable as per law, even if they are claimed by the assessee. So, the Assessing Officer has failed in his duty to notice the provisions of the Act during the relevant period of this case and thereby has wrongly applied the provisions of section 43B and, more particularly, when the Assessing Officer did not consider the second revised return as valid, but at the same time, he incorporated a certain figure returned by the assessee in the second revised return without even questioning the liability of the assessee in this regard. Consequently, we are of the opinion that when the provisions of section 43B were not invoked, any additions, under the said provisions, cannot be sustained in the eyes of the law. Consequently, we delete this addition and accept the additional ground of the assessee. 11. The next issue relates to addition made for unexplained share capital of Rs. 5,01,129. We have heard both the parties and also perused the records and have gone through the PB and decisions relied before us. 12. The ld. AR has referred to his PB at pgs. 213 to 216 which contain the following facts: (a) That the merits of the case also warrant the del....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nfirmed by the CIT(A) is liable to be deleted. It has been held in the case of Addl CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 (Pat.) that where the transactions are through account-payee cheque, the assessee's onus to prove the identity stands discharged as the persons were having bank account and they were known not only to bank but were introduced by a third person to the bank. (d) From the perusals of Assessing Officer's observation at pgs. 4 to 8 of his assessment order dated 20-3-1992 in respect of shareholders, it appears that the Assessing Officer has alleged that since the shareholders were not produced for examination, necessary enquiry as to availability of funds in the hands of shareholders, could not be made. The Assessing Officer also alleged that entries in the bank account of the shareholders preceding to the issuance of cheque in favour of the assessee-company, also could not be verified because the shareholders were not produced for examination. The Assessing Officer made certain observations in his assessment order on the basis of case records and material made available by the assessee-company in respect of shareholders held without there b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther two requirements of section 68, namely, creditworthiness of the shareholders and genuinity of the transactions in question. The following excerpt from page 2 para 3 of the assessment order is relevant for establishing that the department is not doubting the identity of shareholder. "The assessee is a closely held company controlled by one family and, therefore, the assessee's burden to establish the genuineness of funds flown in the guise of share capital subscription and the creditworthiness of the investor is at par with the cash credits. The assessee did not produce any of the above persons to enable me to investigate into the funds brought in their names. Simply furnishing of GIR No. or assessment particulars is not enough for the reason that none of the above cases are assessed under scrutiny and none is filing balance sheet with the return of income. As such, the evidence placed on record by these persons along with the return of income do not facilitate cross verification. As their cases have been completed in summary scheme it was right opportunity for the department to have interview with these persons to find out whether all was well with regard to funds....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o understand as to how this amount of increased share capital can be assessed in the hands of the company itself." 17. When this case reached the Hon'ble Apex Court, the Apex Court confirmed the view taken by the Single Bench of the Hon'ble Delhi High Court. But before the Hon'ble Supreme Court decided the Steller Investment Ltd.'s case, the Full Bench decision in Sophia Finance Ltd.'s case had already been rendered by the Delhi High Court. This decision, however, was not thus referred to or relied by any of the party before the Hon'ble Supreme Court. There is one view that in the light of the Supreme Court decision, the liability has been settled as regards to the application of share money in such a case is concerned and this has become the law of the land under article 141 of the Constitution of India. On the other hand, there is another view that since this Full Bench of the Delhi High Court is the detailed authority on this subject, and the same was not in issue before the Hon'ble Supreme Court, so the law laid down by the Full Bench of Hon'ble Delhi High Court holds good for that purpose. But in this case although there are various decisions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lic limited company for substantiating the view taken by the ld. DR. In addition to that, the ld. AR has also submitted that various decisions relied by the assessee relate to Private Ltd. Companies only. This is a fact that a Company, incorporated under the Companies Act has got its separate legal entity, which is separate from its promoters and shareholders. It is also true that the corporate veil can be pierced as and when such need arises to look into its true state of affairs, be it a private limited company or a public limited company. But, after considering all the material before us we are unable to convince ourselves that the Hon'ble Supreme Court or the Hon'ble High Court have made any difference between a Private Ltd. Co. or public limited Co. so far as share application money is concerned. There is also no provision in the Income-tax Act, which disentitles a Private Ltd. Co. from the benefits, which are given either by the Sophia Finance Ltd.'s decision or Steller Investment Ltd.'s decision. As has been rightly pointed out by the ld. DR that even in case of Public Ltd. Companies some cases have been detected where the issue of shares issued to general pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the request was made at the fag end when the limitation for making the assessment order was to expire. But even in such a situation, the Assessing Officer cannot arbitrarily make additions on this pretext. 21. Finally, we get support from the decision of Jurisdictional High Court, that is, High Court of Judicature, Jodhpur, Rajasthan, in the case of Bharkha Synthetics Ltd v. Asstt. CIT (2005) 197 CTR (Raj.) 432 decided on 1-5-2003, a copy of which has been placed before us. The facts of this case were that the assessee was a private limited company (as is evident from the name of the assessee-company) and was asked by the department to furnish the explanation about the receipt of capital money on account of share application which was furnished in the shape of details of the identity of the persons who had made such investments. The particulars of the receipt and GIR No. of such persons, who had made such investments in the said companies, registered under the Companies Act, were furnished. Notices of five companies out of 7 companies were received unserved with the remark of the postal department that they have shifted their addresses. But no attempt was made by the department....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment year 1989-90. I have not been able to persuade myself to agree with the conclusions contained in the proposed order of the ld. Judicial Member. 2. First of all, I shall take up the additional ground. The appellant had made a prayer for admission of the following additional ground:- "That the provisions of section 43B as were in force in the relevant assessment year did not permit any addition for unpaid interest to Rajasthan Financial Corporation being a State Financial Corporation and the Assessing Officer, therefore, erred in law in making addition of Rs. 1,15,364 under section 43B for the relevant assessment year which is liable to be struck down." 3. The ld. AR submitted that the Assessing Officer, while passing the assessment order dated 20-3-1992 made an addition of Rs. 2,15,364 under section 43B of the Act on account of outstanding liability as mentioned in para 14 of his order. It was held that the additional ground being purely a legal ground emanating from the facts available on record the admission of this ground does not require any investigation of facts. The ld. AR placed reliance on the following judgments: 1. Jute Corpn. of India L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before this Bench of ITAT stating that the provisions of section 43B(d) came into force with effect from 1-4-1991, relevant for the assessment year 1991-92 and not for the assessment year under consideration. 8. On reappraisal of the facts of the case I am of the opinion that it is not the case of the appellant that a particular item of expenditure is allowable under the legal provisions of the Income-tax Act, but, on the other hand, the appellant's case is that the disallowance made by the Assessing Officer suo moto in the second revised return is not covered by the provisions of section 43B(d) of the Act as this amendment was not relevant for the assessment year under appeal. In other words, the claim of the appellant which had been put before the ITAT as additional ground is not purely a legal ground which does not require investigation into the facts of the case. When the appellant has taken the plea before this Bench of ITAT that this is not covered by section 43B(d) as already admitted by the appellant before the Assessing Officer then the appellant should have mentioned and other legal provision under which the appellant was entitled to deduction of Rs. 2,16,806 on ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l and as to whether the liability had been incurred as mentioned under section 36(1)(iii) of the Act wholly and exclusively for the purpose of business and all the conditions mentioned above are satisfied. The following judgments relied upon by the ld. AR are of no help to the assessee as in all these judgments the additional grounds were purely legal grounds which did not require investigation into the facts. 1. Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 (SC) 2. Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1 (Delhi) 3. National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). 10. In the first mentioned judgment the appellant's claim was based on settled view of law as per the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. There were no disputes about the facts. Under these circumstances it was held that the Appellate Assistant Commissioner had rightly allowed the assessee to raise additional ground and also granted deduction from the assessee's income. In the second mentioned judgment of the Hon'ble Delhi High Court the question raised was a purely ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Corpn. Ltd. [1986] 159 ITR 78. He also relied upon the judgment of the Hon'ble Patna High Court in the case of Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 when the assessee disclosed the names of the creditors and the names of the banks on which the cheques were drawn, the assessee discharged the primary onus and the assessee not only disclosed the identity of the creditors but also the source of the income. It was also submitted that the additions had been made on suspicion or surmises. The suspicion cannot take the place of proof as held in the case of Vishnulal Karwa v. ITO [1987] 27 TTJ (Jp.) 427. The ld. AR also relied upon the judgments in the case of CIT v. Steller Investment Ltd. [2001] 251 ITR 2634 (SC), CIT v. Sophia Finance Ltd [1994] 205 ITR 985 (Delhi) (FB), Shivam Synthetics (P.) Ltd. v. ACIT [2000] 205 ITR 98 (Delhi) (sic), Shivam Synthetics (P.) Ltd. v. Asstt. CIT [2000] 24 TW 397 (Jd.), Asstt. CIT v. Singhal Credit Management (P.) Ltd. (2001) 25 TW 296 (Jp.) and Swastik Suitings Ltd. v. Dy. CIT (2001) 25 TW 2733 (Jp.) have also been relied upon by the ld. Judicial Member. It was held that no addition is called for. 13. Distinction between the priv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly furnishing the GIR No. or assessment particulars is not enough for reason that none of the above persons are assessed under scrutiny. As such the evidence placed on record by these persons along with the return of income does not facilitate cross verification. Copies of the relevant bank accounts were obtained. It was seen in most of the cases that the issue of cheques to the assessee-company was equivalent to the amount deposited in the bank account either through cash or through cheque transfer entry. Therefore, he added the share capital of Rs. 5,01,129 as unexplained cash credit under section 68 of the Act. The ld. CIT(A) at page 2 of his order concluded that the Assessing Officer had asked the appellant to establish the identity of the parties from whom the money had been received as share capital to produce the said party for examination. The appellant did not produce the said investors for examination before him. No evidence with regard to the source was also filed. Therefore, the Assessing Officer was justified in drawing adverse inference that the amount received by the appellant was its income from undisclosed sources and the addition made by the Assessing Officer for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....well with regard to funds being introduced in their names and that sufficient accounted funds were available in their names." The ld. AR relied upon the judgments of the Hon'ble Supreme Court in the case of Orissa Corpn. (P.) Ltd. and of the Hon'ble Patna High Court in the case of Bahri Bros. (P.) Ltd. The ld. Judicial Member has also quoted the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Bharkha Synthetics Ltd. 17. We have perused the facts of the case. The issue to be decided in this case is whether in the case of a private limited company the provisions of section 68 can be invoked or not. Section 68 of the Income-tax Act reads as follows:- "Whether any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactorily, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year." 18. This issue was discussed and decided in detail in the case of Cas Card Finance Ltd. v. Asstt. CIT [2003] 78 TTJ (Ahd.)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oing into the question whether this is actually so. Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The ITO would be entitled to enquire and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. 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. Share cannot be used in the name of non-existing persons". The use of the words "may be charged" in section 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee. Section 68 clearly permits an ITO to make inquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on on facts in respect of which no interference was called for. The decision of the Delhi High Court in the case of Steller Investment Ltd. had been explained and distinguished by the Full Bench of the same court in the case of Sophia Finance Ltd. There are two possible views from the facts stated above. One possible view is that with the decision of the Supreme Court affirming the earlier decision. The full Bench decision of the Delhi High Court in the case of Sophia Finance Ltd. is neither confirmed nor overruled. The second possible view is that the decision of the Delhi High Court in the case of Steller Investment Ltd. having been confirmed by the Supreme Court. The said decision of the Delhi High Court has got to be read along with the full Bench decision of the same High Court explaining that the Full Bench decision of the Delhi High Court in the case of Sophia Finance Ltd. has not been overruled by the Supreme Court. The decision in the case of Steller Investment Ltd. having been distinguished and explained by Their Lordships of the Delhi High Court in the case of Sophia Finance Ltd. The said decision has not lost its force with the affirmation of the decision in the case of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 2(1)(iii) a private company means a company which has a minimum paid up capital of one rupee or such higher paid-up capital as may be prescribed by its articles: (a) restricts the right to transfer its shares, if any; (b) limits the number of its members to 50 not including:- (i) persons who are in the employment of the company; and (ii) persons who having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of membership, be treated as single member (c) Prohibits invitation to the public to subscribe for any shares in or debentures of, the company (d) Prohibits any invitation or acceptance of deposits from persons other than its members, director or their relatives. 22. In view of the aforesaid definition a private company must, in its articles, incorporate the said restrictions, limitations and prohibitions. Sub-section (3) of section 27 further endorses this point by stating that a private compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of persons who are known to the promoters or are related to them by family members. 28. Now having drawn distinction between the private limited company and the public limited company and also having relied upon the order of the ITAT, Ahmedabad (TM) in the case of Cos Card Finance Ltd v. Asstt. CIT [2003] 78 TTJ (Ahd.) (TM) 55 I hold that in this case of private limited company, the genuineness of share capital of the shareholders is to be examined under section 68 of the Income-tax Act, 1961. 29. The burden of proving the source of a cash credit is on the assessee. It is necessary for the assessee to prove prima facie the transaction which results in a cash credit in his book/books of account. Such proof includes proof of the identity of his creditor, the capacity of such creditor to advance the money, and lastly, the genuineness of the transaction as held in Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.) and by the Hon'ble Rajasthan High Court in the case of Rajshree Synthetics (P.) Ltd. v. CIT [2002] 256 ITR 331. The ld. AR has relied upon the following two judgments- 1. Orissa Corpn. (P.) Ltd.'s case 2. Bahri Bros. (P.) Ltd.'s case; an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 1,00,000 in the assessee-company. The figure mentioned in above table, however, relates only to the period relevant to assessment year 1989-90. From the balance sheet of Sudhraj Lodha I find that there are borrowings to the tune of about Rs. 75,000 from the ladies and minors which do not appear to have any ostensible source of income. A copy of his bank account was also collected of the relevant period. From this bank account it is seen that for introducing the funds in the assessee-company, Sh. Sudhraj Lodha deposited cash amount of Rs. 12,000 in his bank account. In respect of other amounts also it is seen that the issue of cheque by him to the assessee-company precedes credit of equivalent amounts in his bank account either through a transfer or through a clearing. (ii) Shri Palraj Lodha : The affairs of Shri Palraj Lodha are no better. It is seen that the income returned by him is also meagre amounts in the earlier years. For the assessment years 1984-85, 1985-86 and 1986-87 the income shown by him is Rs. 13,747, Rs. 17,720 and Rs. 20,650 respectively. It is also seen that he is not filing any balance sheet with his return of income. The assessee placed on record hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the case records it is seen that he has not filed any balance sheet, P&L account, etc. with his return of income. No such evidence was also placed on record by the assessee to indicate availability of funds in his hands to invest in assessee-company. Out of the total investments by him Rs. 9,000 are deposited in cash directly with the assessee-company and Rs. 8,000 in cash were deposited in his bank account for issue of cheque to the assessee-company. A look at his bank account also reveal that issuance of cheque by him to the assessee-company immediately precedes deposit of equivalent amount through a transfer entry. As he was not produced for cross examination, the availability of funds in his hands could not be further investigated. (vi) Shri Virendra Raj Lodha: The assessee filed no details evidencing availability of funds in his hands to invest in assessee-company out of total investment Rs. 9,750 coming out of the cash deposits. The assessee also did not furnish his assessment particulars and as such it is presumed that he is not assessed to tax. The investment by him, therefore, remains unexplained. (vii) Mrs. Urmila Lodha: The assessee's claim that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed unexplained. (x) Mrs. Sarita Lodha: As the assessee has not given any assessment particulars it is presumed that she is not assessed to tax. A copy of her balance sheet filed by the assessee-company indicate that she has taken loan from Mrs. Prem Lata Lodha and Mrs. Nirmala Lodha discussed above who too do not have obtensible source of income. It is also seen that cash of Rs. 9,500 was deposited in the company in her name on 3-7-1987 and in her bank account also cash of Rs. 8,000 was deposited for issuance of cheque on 12-1-1988. She was not produced for cross examination and hence it is not possible to ascertain what was immediate source of funds with her to advance the amounts to the assessee-company. 31. In the case of Orissa Corpn. (P.) Ltd. which was a case of assessment year 1962-63 it was held that the initial onus cast upon the assessee can be discharged, if the names and addresses and their index Nos. are given and even the department did not pursue the matter further. The facts of this case are different. As per the facts of this case discussed by the Assessing Officer in his order two of the persons are not assessed to tax and the remaining persons had fil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee proves the identity of the creditors and their creditworthiness. Mere payment by account-payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. 33. Another fact of this case is regarding the request of the assessee for issuing summons under section 131 of the Act. In this case the Assessing Officer had asked the appellant vide his letter dated 21-2-1992 to produce all the shareholders on 3-3-1992 for cross examination. The ld. AR submitted that the time allowed by the Assessing Officer to produce the shareholder was quite inadequate looking to the fact that the assessment for the relevant assessment year was going to be barred by time. Therefore, the appellant could not produce the persons for cross examination before the Assessing Officer on account of the fact that the time allowed was short. In order to come out of this net and to scuttle and shirk the inquiry, the appellant-company made a request on 3-3-1992 to the Assessing Officer to issue summons to all the shareholders under section 131 of the Income-tax Act. Under such circumstances, it was contended that the Assessing Officer neither acceded to the request of the appellant nor did he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irmatory letters does not discharge the onus that lies on the assessee. Similarly, mere furnishing of particulars is not enough. One M had deposited through a cheque a sum of Rs. 50,000 with the appellant-company. The said amount was credited in the books of the appellant. On the same day the appellant had paid Rs. 50,000 to M through a cheque. The appellant filed an affidavit dated 6-3-1989 of M confirming that she deposited Rs. 50,000 with the appellant and the same was repaid to her. Her income-tax file No. was also mentioned in the affidavit. The assessing authority ask the appellant to produce M. The appellant failed to produce her. The Assessing Officer issued a notice to the said lady under section 131 of the Income-tax Act, 1961, but she did not appear. The assessing authority observed that unless the said lady appeared, it was not possible to cross examine her to know the truth. It was also found that in her letter, she had not mentioned the source from which the said amount was advanced as loan to the assessee-company. In view of this, the assessing authority held that M was not in a capacity to deposit such huge amount and as such treated the sum of Rs. 50,000 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion E and deciding afresh?" The J.M. is of the opinion that this can be decided by the Tribunal without restoring it back to the Assessing Officer as all the facts are on record whereas the ld. A.M. is of the opinion that further investigation is required. Question No. 3 "Whether there is a difference in Public Limited Company and Private Limited Company so far as applicability of provisions of section 68 are concerned?" The J.M. is of the opinion that there is no difference so far as the applicability of section 68 is concerned between the Public Limited Company and Private Limited Company. The ld. AM is of the opinion that there is difference, although there are no provisions or decisions, supporting his opinion. However, this is not the case of the department that the provisions of section 68 will apply only to Public Limited Companies. B.L. Khatri, Accountant Member.- 1. In my opinion, the following questions should be referred for adjudication by the Third Member: 1. Whether additional ground which requires investigation on facts can be admitted, especially when the addition admitted and made does not fall within the ambit of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of section 68 are concerned?" 4. I have carefully considered above questions. I regret that Hon'ble Members do not agree even on the questions which would reflect their difference of opinion and which are required to be referred to the President under section 255(4) of the Income-tax Act. Time and again I have been requesting my Members not to differ in framing of questions and a simple question covering the controversy should be referred. But my request does not seem to have much effect on the learned Members and unnecessary controversies are created. I am sorry to record my anguish. In my opinion, the following questions would reflect points of difference between the Members and were required to be referred under section 255(4) of the Income-tax Act. 1. Whether on facts and in the circumstances of the case additional ground raised by the assessee was liable to be admitted and considered by the Tribunal? 2. Whether on facts and in the circumstances of the case addition of Rs. 5,01,129 made on account of introduction of share capital was required to be deleted or matter required to be remitted to the Assessing Officer for examining the depositor and to ver....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal, the learned Judicial Member proceeded to consider the said ground. In his view the mere fact that assessee had added back the disputed amount under section 43B did not make any difference as the Assessing Officer had treated the second revised return as invalid and further the amount was added back under an erroneous belief that provision of section 43B(d) of the Income-tax Act was applicable in the relevant period. The learned Judicial Member found that interest on loan from public financial institutions (like RFC) not actually paid was to be disallowed under section 43B(d) of Income-tax Act. However aforesaid clause (d) was inserted in section 43B through the Finance Act, 1990 with effect from 1-4-1991. The aforesaid provision was not applicable in the assessment year 1989-90 involved before the Tribunal. He accordingly held that unpaid interest to Rajasthan Financial Corporation (RFC) could not be added back under section 43B of the Income-tax Act. The Assessing Officer was duty bound to make assessment in accordance with law and therefore, could not make disallowance under a provision which was not at all applicable. The learned Judicial Member accordingly directed that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was filed after the period prescribed in section 139(5) of the Income-tax-Act was over. The revised return was treated as non est. Yet the amounts surrendered in the aforesaid return was added in the assessment. Therefore, it is a case of disallowance of a claim under section 43B(d) of the Act. Thus a statutory provision introduced subsequently and not applicable was applied in the assessment year and addition of the amount was made. In my considered opinion, facts are crystal clear on record and need no further investigation. The decisions cited by the learned Judicial Member in his proposed order are clearly attracted the disallowance made by the Assessing Officer in the Assessment Order, contrary to statutory provision and could not be sustained. Assessment is required to be made in accordance with law and therefore, mere fact that assessee had inadvertently surrendered the amount in return was not material. On facts and circumstances of the case, learned Judicial Member was fully justified in admitting additional ground of appeal and in deleting the addition in dispute. I agree with the order proposed by him on this point. 10. The next point of difference between the learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... through cheques. Alternatively, it was submitted that if any investor was not able to explain source of deposit of share application money, then addition has to be made in the hands of such investor for unexplained investment of the amount. The learned CIT (Appeals) did not find any force in the submissions advanced on behalf of the assessee. He held that appellant had failed to establish identity of investors as assessee had failed to produce these creditors for examination of the Assessing Officer The learned CIT (Appeals), therefore, confirmed the addition. 14. The assessee being aggrieved challenged the addition in appeal before the Appellate Tribunal. After hearing both the parties, learned Judicial Member was of the view that introduction of share application money was fully established. According to the learned Judicial Member, the addition made was unsustainable. In arriving at above conclusion, the learned Judicial Member noted as under: (i) That during the course of the assessment proceedings, assessee had submitted list of shareholders, their GIR Nos. and particulars of shareholders where they were assessed, filed confirmed copy of account of shareholders, g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncreased share capital can be assessed in the hands of the company itself." The learned Judicial Member also referred to decision of Hon'ble Rajasthan High Court in the case of Bharkha Synthetics Ltd. v. Asstt. CIT [2005] 197 CTR (Raj.) 432. Extracts from the aforesaid decisions have been reproduced at page 16 of the proposed order of the Judicial Member. 17. The learned Accountant Member did not agree with the proposed order of the Judicial Member. In his view the matter relating to addition of Rs. 5,01,129 was required to be remitted to the Assessing Officer for examining the depositors and to verify the relevant facts from assessment records of these persons. The reasoning of the learned Accountant Member may be summarized as under: (i) That assessee was a closely held company controlled by one family and, therefore, assessee's burden to establish genuineness of funds shown in the guise of share capital subscription and the creditworthiness of the investor was at par with cash creditors. (ii) That as assessee failed to produce the creditors; Assessing Officer was unable to investigate into the funds brought in their names. Simply furnishing of GIR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ir Lordships of Supreme Court in the case of CIT v. Steller Investment Ltd. [2001] 251 ITR 263 and Full Bench of Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 983 dealt with the question of introduction of share application money. In Steller Investment Ltd.'s case, Their Lordships held as under: "It is evident that even it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons 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." In Sophia Finance Ltd.'s case, Their Lordships held as under: "The mere fact that the assessee-company chooses to how the receipt of the money as capital does not preclude the ITO from going into the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e aforesaid judgment, the principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channel, he has to prove existence of person in whose name share application is received. Once the existence of investor is proved, it is no further burden of assessee to prove whether that person itself has invested said money or some other person had made investment in the name of that person. The burden then shifts on Revenue to establish that such investment has come from assessee-company itself. 12. Applying the same principle, the real question, therefore, arising in this case is whether the Tribunal reached the finding on the basis of non-existence of Westbury Investors (P.) Ltd. and Umesh Kumar or has sustained additions on other grounds. 13. On careful perusal of the order of the Tribunal and other material on record, we find that so far existence of both the investors is concerned, the same has not been found against the assessee. In fact, both the additions on account of share application monies received by the assessee were made by the ITO not on the groun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sripal Raj Lodha Confirmed copy of account showing transaction mostly through account- payee cheques, assessment particulars i.e., GIR No. Balance sheet as at 31-3-1989. 49 to 50 Apart from above & as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 51 to 54 3. Suparas Raj Lodha Confirmed copy of account showing transaction mostly through account- payee cheques, computation of total income for assessment year 1988-89 showing the complete address, GIR No. not allotted. 55 to 56 Apart from above & as stated in the assessment order dated 20-3-1992, the Assessing Officer Collected independently the bank statement from the bankers. 57 to 60 4. Sumer Raj Lodha Confirmed copy of account showing transaction mostly through account- payee cheques, Assessment particulars i.e., GIR No., address, computation of total income for assessment year 1989-90, copy of intimation dated 20-11-1990 for assessment year 1989-90, Balance sheet as at 31-3-1990. 61 to 64 Apart from above & as stated in the assessment order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer got information about account of the creditors from their respective banks. Photo copies of bank statement of creditors obtained by the Assessing Officer are available on record. A perusal of aforesaid bank statements clearly show that apart from making investment with the assessee-company, these creditors made other deposits in their bank accounts and these accounts were regularly maintained. The creditors are also assessed to tax. Thus not only identity of the creditor but even capacity to advance funds has been proved on record. It is very difficult to agree and accept that on account of summary scheme adopted by the Department, and as scrutiny assessment was not made such assessment of the creditors should be carried in the case of the assessee. Whether, in a given case summary assessment or a regular scrutiny assessment is required to be made, is for the revenue to decide. Such a choice is not with the assessee submitting return, as required by law. However, it is clear that a person showing substantial income say Rs. 10 lakhs and advancing a small loan of Rs. 20,000 cannot be taken to be a non-assessee, and as summary assessment was made in his own case, a scrutiny as....