TaxTMI 
TaxTMI 
2006 (2) TMI 240
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....s. 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. The ld. Assessing Officer asked the assessee to f....
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....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)(b) were attracted in his case. Now, the assessee has raised this additional ground, which we have already accepted in view of the deci....
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....e 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 deletion of the addition made for the alleged unexplained share capital of Rs. 5,01,129. The material available with the Assessing Officer in respect of the shar....
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....hrough 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 being any material on record that the credits appearing in the balance sheet of the shareholders are not having any ostensible sources and therefore, the creditworthiness of the sh....
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....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 being introduced in their names and sufficient accounted funds were available in their hands. There are even cases where the capital is built up in a bogus manner and returns are filed in the name of ben....
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....le 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, for and against this proposition, we can avoid this controversy for disposing of this appeal, as it is a clear-cut case of the department that the assessee has been able to establish identity of the shareholders. So, in an....
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....ompany, 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 public is found to be bogus. In the same way, shares applied by the shareholders in Private Limited Companies can also be bogus. We definitely agree with this submission of the ld. DR, but at the same time, we disagree with the ld....
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....pport 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 to pursue the enquiry thereafter. Likewise, in the case of individual investors, the assessee filed the addresses etc., but the department was not satisfied with the same. The Hon'ble High Court concluded that: "Applying the ....
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.... 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 Ltd. v. CIT [1991] 187 ITR 688 (SC). 2. Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1 (Delhi); and 3. National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). 4. The appellant has not challenged this addition before the ld. CIT(A). The additional grou....
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....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 account of outstanding interest of RFC and other liabilities. In my considered opinion now deduction is to be considered under section 36(1)(iii) of the Income-tax Act. Therefore, this additional ground cannot be admitted. It requires investigation into the facts of the case by the Assessing Officer. Though....
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....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 question of law and no fresh evidence was required to be taken. Therefore, the additional ground was held to be tenable. In the third mentioned judgment it was held by the Hon'ble Apex Court at pages 383-385 as under:- "Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only requi....
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....ut 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 private and public Ltd. Company was also discussed in the proposed order in brief and it was also observed therein that there can be bogus shares in the case of public as well as private limited companies. It was also the plea of the appellant that the Assessing Officer did not accede to the request of the appellant for summoning the shareholders/cash creditors under section 131 of the Act and th....
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....hrough 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 unexplained cash credit introduced in the shape of share application money was confirmed by the ld. CIT(A). The ld. AR submitted that the particulars about the identity and the existence of shareholders in question was duly submitted by the appellant-company during the course of the assessment proceedings. These included list of shareholders, GIR No., assessment particulars where the shareholders are assessed to tax, etc. The ld. AR further submitted that Assessing Officer, for....
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....ase. 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.) (TM) 55. The relevant paras 23 to 27 are reproduced as below:- "The next question arises for consideration is as to whether section 68 is applicable in respect of share application money and under what circumstances section 68 gets attracted in block assessment in respect of the same. The Delhi High Court in the case of Steller investment had the occasion to consider as to whether the CIT was justified in invoking section 263 for bringing to tax the share application money appearing in the balanc....
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....nds 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 the assessee regarding the nature and the source of the credit in the books of account can be gone into by the ITO. If 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 capital receipt and to that extent the observations in the case of Steller Investment are correct, but, if on the other hand the assessee offers no explanation at all or the explanation offered is not satisfactory, then, the provisions of se....
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.... 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 Steller Investment Ltd. by the Supreme Court. 27. In Sophia Finance Ltd., Their Lordships of Delhi High Court held that the Assessing Officer is not precluded from making inquiry as to the true nature and source of entries in the books of account even if the same is credited as receipts of share application money. It was held further that "if the amount credited as capital receipt, then it cannot be taxed, but it is for the ITO to be satisfied that the true nature of the receipt is that of the capital. Merely because the company chooses ....
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.... 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 company limited by shares must have articles containing restrictions, limitations and prohibitions required by section 3(1)(iii) other private companies must have in its articles the limitations and prohibitions contained in clauses (b) and (d) of section 3(1)(iii). 23. Restrictions on transferability of shares-consistent with objective of promoting the company as a closely knit family or friendly affair, a private company has to contain the specific restrictions so as to prevent anybody or everybody acquiring shares of the company by transfer and thereby defeating the very objective or promotion of the company as a private company. This res....
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....n 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; and and contended that initial onus cast upon the assessee was discharged. Before looking into the ratio of the judgments of the Hon'ble Courts it is necessary to refer to the facts of the case as narrated by the Assessing Officer holding that the appellant failed to explain satisfactorily the source of deposit on account of share application money/share capital in the following persons:- Name Amount 1. Mr. Sudhraj Lodha 42,400 2. Mr. Shripal Raj Lodha 57,000 3. Mr. Suparas Raj Lodha 46,364 4. Mr. Sumer Raj Lodha 67,800 5. Mr. Jitendra Raj Lodha 64,400 6. Mr. Virendra Raj Lodha 59,758 7. Mrs.Urmila Lodha 41,000 8. Mrs.Prem Lata Lodha 3....
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.... 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 his balance sheet as on 31-3-1989 which appears to have been prepared for the first time. From this balance sheet too it is apparent that he has borrowed funds to the tune of Rs. 50,000 from sundry persons who appear to be either not assessed to tax or have no ostensible source of income. The capital built up of Rs. 1,03,730 in his hands could not be scrutinized for want of specific details. A copy of his bank account for the relevant period was gathered independently and seen that the issue of cheque to the assessee-company just precedes a deposit of an equivalent amount in his bank account either through cash or transfer entry. I am, therefore, of the view that he did not have sufficient accounted funds with him to advance funds to the assessee-company or to invest in assessee-company. (iii) Sh....
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....bility 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 she was assessed to tax is hollow in the sense that from the records it was found that she did not file any returns of income after assessment year 1984-85. No other evidences have been placed on record by assessee evidencing availability of accounted funds in her hands to invest in the company. From her bank account of the relevant period gathered independently, it is found that in the bank account also include cash to the tune of Rs. 10,000 was deposited by her to issue cheque to the assessee-company. It is also seen that issuance of cheque to the assessee-company just precedes deposit of equivalent amount through a transfer entry in her bank account. Obviously, therefore, the funds introduced in her name remain unexplained. (viii) Mrs. Prem Lata Lodha: The assessee's claim that she was assessed to tax is also hollow in th....
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....sessee 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 filed their income-tax returns in order to build up capital and who had not been subjected to scrutiny by the department. Subsequent to the Judgment of the Apex Court, the system of assessment had been changed from scrutiny to that of summary and in summary assessment mere filing of the income-tax return is enough which are not subjected to scrutiny. The Assessing Officer has rightly held that filing of mere particulars are not enough for proving creditworthiness. He found that some of the deposits are in cash and even in case where the deposit has been made through cheques it was found from the copy of accounts obtained from the banks of the shareholders that equivalent amount had been deposited through cash or book entry and no explanation for the same had been submitted. It was held in the case of Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) that me....
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....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 reject the request of the appellant. This is a case of a private Co. and there is close relationship between the Directors and the shareholders. This is a closely held company and subscriptions were arranged from friends or relatives of the promoters. When the Assessing Officer asked the appellant to produce these persons for cross examination without giving any reasons and expressing any difficulty to produce the persons who had close proximity to the Promotors/directors, in order to scuttle/shirk inquiry the appellant at the fag end of the relevant time preferred an application to summon the persons under section 131 of the Act. Besides, the ld. AR has also contended that the material discussed in the order of the Assessing Officer regarding the various facts culled out of the assessment record all these persons had not been produced for rebuttal. Under ....
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....ine 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 as income of the assessee. The finding of the assessing authority had been upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal was of the view that the matter should go back to the assessing authority for examining M or to verify the relevant facts from the assessment record of the said lady." 34. Therefore, the facts of the case under consideration and that before the Hon'ble Rajasthan High Court in the case of Rajshree Synthetics (P.) Ltd. are similar. For all these reasons I am of the opinion that this matter should go back to the Assessing Officer for examining the depositor and to verify the relevant facts from the assessment records of these persons. 35. In these results, the appeal is allowed for statistical purposes. REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 Hariom Maratha, J.M. 1. There has been a difference of opinion betw....
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....uestions 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 section 43B of the Income-tax Act, 1961. 2. Whether the addition made under section 68 can be made for unexplained share application money having regard to the following two points: (a) The judgment in the case of Cos Card Finance Ltd. v. Asstt. CIT [2003] 78 TTJ (Ahd.)(TM) 55 paras 23 to 29 of the judgment. (b) The distinction between public and private Ltd. Co. as discussed in the order of the AM at pgs. 17 to 20. THIRD MEMBER ORDER Vimal Gandhi, President. 1. On account of difference between Hon'ble Members of Jodhpur Bench this matter has been referred to me for consideration and disposal under section 255(4) of Income-tax Act. 2. Learned Accountant Member have proposed the following two questions:- "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 section 43B of the Income-tax Act, 1961. 2. Whether the addition made ....
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....hare capital was required to be deleted or matter required to be remitted to the Assessing Officer for examining the depositor and to verify the relevant facts from the assessment record of the shareholders? 5. The facts of the case briefly stated are that assessee filed return on 29-12-1989 declaring loss of Rs. 8,97,270. The aforesaid return was revised on 29-1-1991 wherein loss of Rs. 24,28,490 was claimed. The second revised return was filed on 29-7-1991 declaring loss of Rs. 20,68,810. In the last revised return, the assessee had also added back Rs. 2,16,806 under section 43B on account of unpaid outstanding interest payable to Rajasthan Financial Corporation (RFC). The last revised return filed by the assessee was held to be invalid by the Assessing Officer as it was filed beyond the period provided in section 139(5) of the Income-tax Act. Yet sum of Rs. 2,16,806 surrendered under section 43B was taken and added in the assessment. The assessee did not challenge above addition in appeal before the CIT(A). However during the course of hearing of appeal before the Tribunal, the assessee raised an additional ground of appeal to the following effect:- "That the provisions of se....
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.... make disallowance under a provision which was not at all applicable. The learned Judicial Member accordingly directed that addition of Rs. 2,15,364 made by the Assessing Officer be deleted. 7. The learned AM did not agree with the order proposed by the learned Judicial Member. He noted that assessee did not challenge addition made by the Assessing Officer before the learned CIT(A). In fact the assessee had himself surrendered the amount in the revised return. He further observed that case pleaded as per the additional ground of appeal related to challenge of disallowance of an expenditure. It was not purely a legal claim not requiring investigation of facts. The matter, in the opinion of ld. Accountant Member, required to be considered under section 36(1)(iii) of Income-tax Act. The learned Accountant Member went on to record that the assessee is required to satisfy that expenditure was incurred for making a claim under the above provision. He also noted certain case laws, which according to c him were relevant for determining the question raised in the proposed additional ground of appeal. As question raised, required investigation into facts, the learned Accountant Member held ....
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....th the order proposed by him on this point. 10. The next point of difference between the learned Members relates to an addition of Rs. 5,01,129 added on account of unexplained share capital. The Assessing Officer, on scrutiny of accounts found that share capital as under in the name of following persons was introduced in the relevant year: 1. Mr. Sudhraj Lodha 42,400 2. Mr. Shripal Raj Lodha 57,000 3. Mr. Suparas Raj Lodha 46,364 4. Mr. Sumer Raj Lodha 67,800 5. Mr. Jitendra Raj Lodha 64,400 6. Mr. Virendra Raj Lodha 59,758 7. Mrs. Urmila Lodha 41,000 8. Mrs. Prem Lata Lodha 39,500 9. Mrs. Nirmala Lodha 33,264 10. Mrs. Sarita Lodha 49,643 11. The assessee in support of the genuineness of claim placed confirmations from the shareholders, GIR Nos. and Income-tax particulars of above shareholders. It was explained that most of the shareholders had advanced money through banking channels. The Assessing Officer observed that assessee-company was a closely held company, controlled by one family and, therefore, assessee had burden to establish genuineness of funds and creditworthiness of the investors. Simply furnishing of GIR Nos. or assessment particulars....
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....nt of shareholders, giving detail of transactions and also proved that in most of the cases, deposits were made through account-payee cheques. (ii) That the Assessing Officer during assessment proceedings made independent enquiries from bankers of shareholders and obtained bank statements for verification of transfers. The Assessing Officer had also perused assessment record of the shareholders and therefore, their identity was fully established. (iii) Balance sheets, copies of computation of total income, copies of intimation, bank statements of 8 out of 10 shareholders were available at pages 220 and 221 of the paper book. (iv) The assessee-company fully discharged the primary onus that lay upon it under section 68 of the Income-tax Act. The Assessing Officer brought no material to refute the claim of the assessee and, therefore, the credits should have been treated as genuine in the light of decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78. 15. As regards objection of the revenue authorities that shareholders were not produced for examination of the Assessing Officer, the learned Judicial Member held that this objection....
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....rs was not enough. There being no evidence of source of deposit, the Assessing Officer was justified in drawing an adverse inference and treating undisclosed investment as income of the assessee. 18. The learned Accountant Member also noted that request for summoning creditors and for their examination was made to the Assessing Officer on 3-3-1992 but the same was neither refused nor acceded to. The learned Accountant Member took into account decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd [1986] 159 ITR 78, the case of Cas Card Finance Ltd v. Asstt. CIT [2003] 78 TTJ (Ahd.)(TM) 55, CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi)(FB) as also provisions of section 68 of the Income-tax Act in his proposed order. 19. The learned Accountant Member also considered difference and distinction between Public Limited Company and Private Limited Company. The impact of the distinction vis-a-vis section 68 of Income-tax Act is noted by the learned Accountant Member as under: "18. 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 2003 78 TTJ 5....
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....essee-company represents that it had issued share 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, and it would indeed be his duty to enquire 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. Shares cannot be issued in the name of non-existing persons." Their Lordships of Delhi High Court in the case of CIT v. Dolphin Canpack Ltd. [IT Appeal No. 99 of 2006] after considering aforesaid two decisions observed as under: "There is no dispute with the proposition stated in the above passage. An Income-tax Officer is indeed entitled to examine the truthfulness of the explanation. In cases where the credit entry relates to the issue of share capital, the Income-tax Officer is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the sa....
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....on are also relevant and are reproduced below: "19. Coming to the other addition sustained on account of investment made by Umesh Kumar, the existence of the investor has been accepted even by the ITO since he has responded to the letter issued by the ITO. However, the investor has denied to have made any such investment. 20. This case is governed by Steller's case on which the Tribunal has relied. Existence of Umesh Kumar has been established as shareholding (is) issued in his name. No effort was made to find out the real investor as to who has made investment in the name of Umesh Kumar. Hence, additions of increase in share capital on account of share application of Umesh Kumar also could not have been sustained." 22. It is evident from above that in respect of share application money from investors, the assessee-company has to prove only the existence of person in whose name share application is received. No further burden is cast on the assessee to prove whether that person himself has invested said money or some other person made investment in his name. The aforesaid test has been applied by Their Lordships on the question of investment made by Umesh Kumar. In spite o....
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....tly through account- payee cheques, Assessment particulars i.e., GIR No., address, computation of total income for assessment year 1989-90, copy of intimation dated 19-11-1990 for assessment year 1989-90. 71 to 72 Apart from above & as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 73 to 75 6. Virendra Raj Lodha Confirmed copy of account showing transaction mostly through account-payee cheques. 76 7. Smt. Urmila Lodha Confirmed copy of account showing transaction mostly through account- payee cheques, assessment particulars i.e., GIR No. 77 Apart from above & as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 78 to 80 8. Smt. Prem Lata Lodha Confirmed copy of account showing transaction mostly through account- payee cheques, assessment particulars i.e., GIR No. 81 Apart from above & as stated in the assessment order dated 20-3-1992, the Assessing Officer collected independently the bank statement from the bankers. 82 to 84 9. Smt. Nirmala Lodha Conf....
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....the assessee had submitted a return and given detailed particulars of his assessment, like GIR No. etc., the same is entitled to proper weight. Having regard to the information collected by the Assessing Officer from banks of the creditors, identity of the creditors was fully established. The creditors were also found to be assessed to tax. Having regard to principle laid down by different Courts and noted above, further investigation of the matter in the present case was not necessary. If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee. 22. The learned Accountant Member in his proposed order has observed that Shri Virendra Raj Lodha and Smt. Urmila Lodha were not assessed to tax at all. He had stated that Smt. Urmila Lodha did not submit any return after assessment year 1984-85. There is, therefore, some contradiction in the order of learned Accountant Member. May be her income after 1984-85 was not taxable and, therefore, on this ground, returns were not submitted by her but she could not be stated to be not assessed to tax. She had investe....