TaxTMI 
TaxTMI 
2010 (3) TMI 900
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....nvolved in this appeal and as have revealed from the records are that the assessee had furnished its return of income for the assessment year 2003-04 on 19-11-2003 disclosing an income of Rs. 5,24,379. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had shown to have received share capital totalling to Rs. 44,65,000 from the shareholders as detailed below: Name of shareholder Amount inducted (Rs.) I. M/s. Tarkeshwar Singh (HUF) 18,67,000 II. Sri Bharat Singh 14,37,000 III. Sri Rajiv Ranjan Singh 6,00,000 IV. Sri Manish Kumar Singh 2,88,000 V. Sri Uday Pratap Singh 2,73,000 3. When the assessee was called upon to explain the sources of investment 3 towards share capital by the aforesaid person, the assessee had explained the sources of shareholders-wise deposit as under : "3.2 The assessee submitted the following explanation regarding the sources of the above investments : I. Tarkeshwar Singh HUF Date Amount Source of investment 6-4-2002 4,90,000 Cash deposited in sale Rs. 5,00,000 out of sale of agricultural produce. 22-6-2002 1,00,000 Cash deposited in sale Rs. 1,00,000 out of....
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.... 2,88,000 V. Sri Uday Pratap Singh Date Amount Source of investment 29-10-2002 73,000 Cash deposited in account Rs. 1,23,000 out of sale of agricultural produce. 31-3-2003 2,00,000 Transfer from bank account of Navganga distributors C/2 Manna Singh Lane, North S. K. Puri, Patna, assessed with ITO ward 5 (3), Patna". 4. The Assessing Officer thereafter deputed the inspector for making certain enquiries, who submitted his report on March 25, 2006, which reads as under : "To Deputy Commissioner of Income-tax, Circle 2, Patna. As directed by you to make an enquiry in the case of Gyan Ganga Distributors Private Limited for the assessment year 2003-04,1 visited Shree Durga Roller Flour Mills Pvt. Ltd., Tekuna Farm, Gaya on March 22, 2006. Neither the director nor any officer was available. Enquiry from the munshi Shri Narayan Prasad, looking after production, present at the mill has been made. He said Bhanu Prasad is the owner of the mill. He did not know anybody named Ajay Agarwal. Enquiry from the labourers present in the vicinity and the munshi revealed that wheat mostly comes from Sasaram, Kochas, Chanduali, Dehri, etc. On enquiry whet....
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....the Munshi revealed . . .'. In this connection, we humbly submit that the inspector has enquired from munshi only about the owner of the mill and not on any other, matter. We request you to kindly refer affidavit filed by munshi before your honour on next date, i.e., March 23, 2006 (inspection was made on March 22, 2006) that the inspector has enquired about name of the owner. In that affidavit Sri Narayan Prasad has clearly affirmed that on any other matter he has denied to answer as 'Jarurat Nahi Samajhi'. He has also given his intention to answer any question of the authority. Therefore it is crystal clear that subsequent reporting of the inspector is based upon the discussion with labourers only. 5. The report further says that 'wheat mostly comes from Sasa- ram, Kochas, Chanduali, Dehri, etc.' The word 'etc.' clearly establishes the fact that the names given are not conclusive and final. There may be other stations also from where wheat comes. 6. Enquiry that wheat is purchased from 'Buxar' is not relevant in our context as we have never claimed as such. Our village 'Bagen' comes into block 'Brahmpur', which is in the district of 'Bhojpur', commonly known as 'Brahmpur-Bagen....
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....6 without having any child, after his death his widow Smt. Ragunath Pyari is living with us at Patna. Another uncle Sri Ram Singh had retired from service in 1987 and has no good health. He has also no male child. His two daughters were married in the year 1956 and 1975. Late Janardan Singh had added about 74 decimal lands for agriculture. Thus total ancestral land available for agriculture comes to about 46 acre. After the death of my father same scenario is continued and being elder Sri Tarkeshwar Singh became the karta of the HUF with 46 acre ancestral agricultural land, (Annexure-1 : Copy of all relevant papers showing 46 acre agricultural land) During April 1996, agricultural lands were also taken on fixed lease rent under two agreements. First agreement was entered into with Sri Amlendu Sekhar, son of Bahadur Singh for 15 acre of agricultural land. Another agreement for 9 acre 70 decimal agricultural land from Sri Ajay Kumar Singh, son of late Sri Krishna Singh. Both are residents of village Bagen. Lands under both the agreements are situated in the village Bagen itself. Thus additional agricultural land of 24 acre 70 decimal are also available with Tarkeshwar Singh HUF for....
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....ed by the assessee, I hold that the assessees has failed to establish the genuineness of agricultural income claimed in the hands of Tarkeshwar Singh HUF to the extent claimed, and thus, failed to explain the sources of the investment in share capital to the extent of Rs. 40,06,362 claimed to be made out of the sale of agricultural produce to M/s. Shree Durga Roller Flour Mills Pvt. Ltd. As held above, the extent of agricultural income available to him is not sufficient to meet the personal and household expenses of Sri Tarkeshwar Singh and members of his HUF, and, therefore, not available for investment in share capital of the assessee-company." 8. Interest under sections 234B and 234C was also charged. 9. The assessee went in appeal before the Commissioner of Income-tax (Appeals) and made the submissions, which have been recorded by the Commissioner of Income-tax (Appeals) at pages 5 and 6 of his order and are in the following terms : "... the appellant had submitted that all the transactions have been done through cheques, drafts and all the persons have independently confirmed their investments in the assessee company and, therefore, no adverse view could be taken in the cas....
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....os., the statement of purchase director and affidavit of the director of the purchaser of the produce. It was further submitted that there is no finding by the Assessing Officer that the amount deposited in the bank accounts of the shareholders actually belongs to the assessee-company. It was submitted that the exercise done by the Assessing Officer, viz., HUF or other status, availability of land, produce, income, etc., are required to be done in case of assessment of the concerned HUF or individual assessee. The authorised representative for the appellant placed reliance on the cases of CIT v. Sachdeva Steel Rolling Mills [2002] 254 ITR 168 (Punj. & Har.); 173 CTR 431, CIT v. Heeralal Chaganlal [2002] 257 ITR 281 (Raj.), CIT v. Rohini Builders [2002] 256 ITR 360 (Guj) wherein it was held that if the creditor is an assessee and payment is by cheque, the taxpayer's burden is fully discharged. The authorised representative further relied on the case of Nek Chandra v. Asstt. CIT 274 ITR 525) (Raj.) (sic) wherein it has been held that if there is a deposit in bank and then advanced to the assessee, it does not mean that the deposit was made by the assessee. It was also submitted that ....
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.... sale of wheat to the flour mill at Gaya has been taken for the first time during the present assessment proceedings and no such plea was ever made either during assessment proceedings before the Assessing Officer or during appellate proceedings before the Commissioner of Income-tax (Appeals) for the assessment year 2001-02 even though transactions with Durga Flour Mills was claimed for the last 4 to 5 years. It is further noticed that the yield of vegetables as claimed by the assessee is without my official documentary basis and there is no evidence regarding cultivation and sale of vegetables and paddy. More so, no evidence of purchase of fertilizers or insecticides was furnished which is strange considering the quantum of wheat and paddy claimed to be grown. I fully agree with the Assessing Officer that considering the judicial decisions in the cases of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) [FB], Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289 and Saraogi Credit Corporation v. CIT [1976] 103 ITR 344 (Patna), the appellant cannot draw any strength from the judicial decisions relied upon by it. In the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (....
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....wer authorities cannot be sustained. It is not in dispute that the shareholders, namely Shri Tarkeshwar Singh, HUF, Shri Bharat Singh, Shri Udai Pratap Singh and Shri Bijay Pratap Singh are existing assessees and directors/shareholders in the company. It is a case of increase in share capital. These persons have further made investment in the company and have claimed that it is coming out of agricultural operations of Shri Tarkeshwar Singh, HUF. In support of their claim, evidences of agricultural holdings have been filed which is not in dispute. Some evidences for carrying out agricultural operations are also filed. Though the extent of agricultural income claimed by them cannot be proved on the basis of evidences furnished by them but the facts remained that Shri Bharat Singh and Shri Tarkeshwar Singh, HUF have clearly admitted, to have made investment in share application money though out of agricultural income. But the return of agricultural income was filed with the Income-tax Officer which was accepted by the Department and, no action has been taken to cancel such assessments for verifying as to whether there was actually any agricultural income or agricultural income to the ....
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....lly discharged the onus that lay upon it for proving the identity of subscriber and the genuineness of the transactions. On that basis, it deleted the addition made by the authorities below. The hon'ble High Court held the deletion as justified and have said that no substantial question of law arises. 2. Shree Barkha Synthetics Ltd. v. Asst. CIT [2006] 283 ITR 377 (Raj.); [2005] 197 CTR 432. If the transactions are made through banking channels and once the existence of persons by name in the share applications in whose name the shares have been issued is shown, the assessee-company cannot be held responsible to prove whether that person himself has invested the said money or some other person had made investment in the name of that person. The burden then shifts on the Revenue to establish that such investment has come from the assessee-company itself. The order of the Tribunal deleting the addition was affirmed. 3. CIT v. Dwarkadhish Financial Services. The Assessing Officer made addition in respect of share application money received by the assessee. The Assessing Officer has himself noticed that the shareholders are income-tax assessees and as such it could not be presumed th....
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....the civil appeal expressing in agreement with the reasoning given by the Delhi High Court, it would amount to confirmation of the principles laid down by the Delhi High Court. The hon'ble High Court, held that in view of the settled legal position, the Tribunal was, therefore, not justified in remanding the matter to the Assessing Officer for further enquiries and ought to have decided the appeal on the merits. 8. The Income-tax Appellate Tribunal, Patna Bench judgment unreported in Asst. CIT v. Naba Metal P. Ltd. I.T.A. No. 336/Pat/2005, assessment year 2002-03 order dated April 13, 2007. Dismissing the Departmental appeal relying on the Third Member judgment of the hon'ble Jodhpur Bench in the case of Uma Polymers (P.) Ltd. v. Deputy CIT [2006] 284 ITR (AT) 1 (Jodh) ; [2006] 100 ITD 1 . 9. CIT v. Divine Leasing and Finance Ltd. [2008] 299 ITR 268 (Delhi). The Tribunal has recorded, that the Assessing Officer has not brought any positive material or evidence which would indicate that the shareholders were : (a) benamidars, or (b) fictitious persons, or (c) that any part of the share capital represented the company's own income from undisclosed sources. Further, the Tribunal had ....
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.... Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under section 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the Income-tax Officer under section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case." 54. The word 'may' used in section 68 provides discretion to the Assessing Officer. In general the word, 'may' is an auxiliary verb clarifying the meaning of another verb by expressing an ability, contingency, possibility or probability. When used in a statute in its ordinary sense the word is permissive and not mandatory. But where certain conditions are ....
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....le Sushil Kumar Jha, J : Where an assessee gives the correct name, address and GIR number of the creditor, he has discharged his onus to prove the genuineness of credits in his accounts and unless a notice in due form under section 131 of the Act is issued by the Revenue authority to test the genuineness of the transaction or the capacity of the creditor to pay, the amounts cannot be assessed in the hands of the assessee.' "57. The hon'ble Delhi High Court in CIT v. Divine Leasing and Finance Ltd. [2008] 299 ITR 268 held as under (headnote) : In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber ; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explana....
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....e identity of the share applicant was established. 60. In CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 , I.T.A. No. 348 of 2008 decided on April 25, 2008 by the hon'ble Delhi High Court held that in case of a public limited company, iden tity of shareholders is sufficient for the purpose of discharging its initial onus. In this regard we refer to the judgment, in that case as under (page 335) : "The Revenue is aggrieved by an order dated June 13, 2007 passed by the Income-tax Appellate Tribunal, Delhi Bench 'C', New Delhi (the Tribunal) in I.T.A. No. 229/Delhi/2005 relevant for the assessment year 2001-02. The assessee had received an amount of Rs. 51 lakhs as share application mdney from 33 persons. The Assessing Officer required the assessee to produce all these persons. It appears that some of them did appear. The Assessing Officer accepted the explanation and the statement given by three of these persons but found that the Response from the others was either not available or was inadequate. On this basis, the Assessing Officer added an amount of Rs. 46 lakhs pertaining to 30 of the persons to the income to the assessee . . . Learned counsel for the Revenue su....
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....that person himself has invested the said money or some other person made the investment in his name. 63. In Shree Barkha Synthetics Ltd. v. Asst. CIT [2006] 283 ITR 377 , the hon'ble Rajasthan High Court held as under (headnote) : 'If the transactions are made through banking channels and once the existence of person by name in the share applications in whose name the shares have been issued is shown, the assessee-company cannot be held responsible to prove whether that person himself has invested the said money or some other person had made investment in the name of that person. The burden then shifts on the Revenue to establish that such investment has come from the asses-see-company itself. Held, that the Assessing Officer himself referred to the confirmation letter received from W. Thus, the finding of the Tribunal was contrary to record. Once the confirmation letter was received and the identity of the existence of the investor had not been disputed, the increase in share capital on account of share application of W could not have been sustained. Existence of U had been established as shares were issued in his name. No effort was made to find out the real investor who had ....
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....e additions in respect of the share application money under section 68 of the Income-tax Act, 1961, on the finding that the assessee had brought the undisclosed income by way of share applications in fictitious names and passed orders accordingly. On appeal by the assessee, the Commissioner (Appeals) deleted the addition made by the Assessing Officer for the assessment year 1998-99 and upheld the addition made for the assessment year 1999-2000. On further appeals by the assessee and the Revenue, the Tribunal allowed the appeal of the assessee and dismissed the appeal of the Revenue. On appeals : Held, dismissing the appeals, that even if it was assumed that the subscribers to the increased share capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the company.' 67. Similar view was held by the hon'ble Rajasthan High Court in CIT v. AKJ Granites (P.) Ltd. [2008] 301 ITR 298 (headnote) : '(ii)That share applications were made by a number of persons in their own names or benami, but from the fact that share applications received from different places accompanied by share application money, no presumption could be dr....