TaxTMI 
TaxTMI 
TaxTMI 
2010 (6) TMI 787
X X X X Extracts X X X X
X X X X Extracts X X X X
....., were found and seized under section 153C. Notice was issued on 9-10-2006 and served on the assessee and directed to file the return under section 142(1)(i). The assessee filed return of income on 31-3-2006. The assessee claimed net loss of Rs. 9,362 on a sale after setting-off of depreciation of current year amounting to Rs. 39,641 and shown the liability on professional tax at Rs. 2,500 in the balance sheet. Since there was no challan enclosed for payment of the liability claimed, the claim of the assessee was rejected. 4. While verifying the balance-sheet of the assessee-company share subscription from four different companies as noted below was found and explanation was sought for : (a) M/s. Transeem Commercial (P.) Ltd. Rs. 5,00,000 (b) M/s. Rajath Commercial Pvt. Ltd. Rs. 10,00,000 (c) M/s. Vikash Viniyog (P.) Ltd., Howrah Rs. 5,00,000 (d) M/s. Nihal Fiscal Service (P.) Ltd. Rs. 5,00,000 5. Not satisfied with the explanation of the assessee, the learned Assessing Officer treated the amount as income of the assessee-company under section 68 of the Income-tax Act. In the case of M/s. Rajath Commercial (P.) Ltd., before making the addition, a letter was i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n shares. 9. The additional evidences produced were forwarded to Assessing Officer for comments and objections if any. The Assessing Officer objected to the admission of additional evidences for the reason that he had given sufficient opportunities to produce evidences which, was not complied with. Rejoinder was called for from the assessee. The assessee reiterated the submission that the Assessing Officer was not correct in reporting that several opportunities were given to the assessee at assessment stage and reiterated that only one opportunity was given to the assessee and this was sought to establish on the basis of the order sheet entry in the case of Dolphine Marbles (P.) Ltd. 10. On the basis of the above, the learned CIT(A) came to the conclusion that Assessing Officer had never directed the assessee to produce any evidences to prove the genuineness of subscribing the companies nor had he expressed any doubt regarding the genuineness of shareholding of these companies prior to treating of share capital as unexplained under section 68. He also aggrieved by the assessee with the report of the ADIT was not concerned before using it against the assessee. Since, assessee was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Dolphine Marbles (P.) Ltd., which was filed along with the return showing the share application money. Page 53 is the letter from Transeem Commercial (P.) Ltd., confirming the application for the equity shares numbering 1250 in M/s. Dolphine Marbles (P.) Ltd. and also confirmation with regard to the payment, which was before the Assessing Officer. Page 63 is the copy of the balance sheet of the company for the year ending 31-3-2005 and page 63 is the details of stock-in-trade wherein specifically given the details of M/s. Dolphine Marbles (P.) Ltd., the number of share 1250 for Rs. 5 lakhs. Page 62 is the balance sheet abstract and companies general business profile, which is audited. Page 56 is the certificate of incorporation issued by the Registrar of Companies, West Bengal. Page No. 64 is the letter issued by M/s. Rajath Commercial (P.) Ltd. with regard to application of shares of 2500 and the details of payment. Page 65 is the letter for issuance of shares by the assessee. Page 66 is the return acknowledgement by the revenue authorities, 68 is the certificate of incorporation issued by the Registrar of Companies, 69 is a schedule of share capital for the period ended 31-3-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e details were not forthcoming ipso facto coming to the conclusion that the application and allotment of shares is false. 15. Under the circumstances, we are of the view that there is no material before us to disturb the order of the learned first appellate authority. The appeal by the revenue on this ground fails. 16. The second ground is against the order of the learned CIT(A) deleting the addition of Rs. 5 lakhs made on substantive basis on account of explanation of share application money from one company. 17. Coming to impugned amount of Rs. 4 lakhs, this was treated as assessee's unexplained investment in the company routed by way of share application money. During the search, as mentioned above, cash amounting to Rs. 49,11,000 was found in the residential premises of Shri Vishwanath Gupta, which was explained as 20 per cent withdrawal from other banks share application money, on which, the finding of the CIT(A) had been confirmed. Regarding this 5 lakhs, assessee explained that this was also a part of share application money. In the absence of any clinching evidence to the contrary there is no reason to interfere with the order of learned first appellate authority. Hence....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of Rs. 5 lakh was made as per Demand Draft dated 20-8-2004. (iv) A copy of letter addressed to the Assessing Officer by M/s. Transeem Commercial (P.) Ltd., was also filed. It was claimed that the aforestated Transeem Commercial (P.) Ltd., had applied for the shares of the assessee-company at a premium of Rs. 300 per share. (v) Confirmation letter dated nil from Rajath Commercial (P.) Ltd., was also filed according to which they had applied for 2,500 equity shares of assessee-company of Rs. 100 each at a premium of Rs. 300 per share. (vi) The assessee also filed copy of computer generated ledger account in support of the claim of aforestated share application money. 4. The Assessing Officer observed that : (a) the letter of M/s. Transeem Commercial (P.) Ltd., was addressed to him but instead of filing the original letter, the assessee only submitted a photocopy of the aforestated letter, and the basis of fixing the premium was not known as no evidence was filed in that regard; (b) the aforestated confirmation letters were not in the letter heads of the companies and assessee had filed only the photocopies but the original letters were not filed; (c) no other detail re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ails of filing of income-tax returns of aforestated companies, along with capital account and balance sheet for the relevant period and the earlier years to prove the availability of funds with them. 10. In view of inquiries discussed above and in view of the fact that the relevant details were not filed by the assessee before the Assessing Officer, the Assessing Officer held that burden of proof to establish the financial capacity of the investors was not discharged by the assessee. 11. According to the Assessing Officer : (a) It was held in the cases of Shankar Industries v. CIT ((1978)) 114 ITR 689 (Cal.) and C. Kant & Co. v. CIT ((1980)) 126 ITR 63 1 (Cal.) that establishing the identity of the creditor was not enough. (b) It was held in the cases of Bharat (P.) Ltd. v. CIT ((1978)) 111 ITR 951 (Cal.); CIT v. W.J. Walker & Co. ((1979)) 117 ITR 690 (Cal.) that mere filing of confirmatory letters was not sufficient to discharge the onus placed on the assessee. (c) It was also held in the cases of Shankar Industries (supra), CIT v. Baishnab Charan Mohanty ((1995)) 212 ITR 1991 (Orissa) and CIT v. Precision Finance (P.) Ltd. ((1994)) 208 ITR 465 2 that it was necessary for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant order sheet, which is reproduced below : Dolphine Marbles (P.) Ltd., Katni05-06 10-10-2006 Shri Vishwanath Pd. Gupta with Shri Lokesh Sethi, Accountant attended and produced books of a/c and filed submission which has been kept on record, Case for 6/11 Sd/- 10/10 (iii) it was clear from the order sheet entry reproduced above that the Assessing Officer neither expressed any doubt nor raised any query regarding the Kolkata based companies during the assessment proceedings in the case of the assessee-company. (iv) the Assessing Officer never directed the assessee to file the copies of returns, capital accounts and balance sheets for the relevant period or the earlier years of the Kolkata based companies, who had invested in the shares of the assessee-company. (v) the report of the ADIT (Inv.), Kolkata, relied upon by the Assessing Officer in the assessment order was never made available to the assessee before finalisation of the assessment and could not therefore be considered as admissible evidence. 14. The ld. Counsel of the assessee submitted application under rule 46A of the Income-tax Rules, 1962, before the ld. CIT(A) for admission of the following docu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Once department has accepted the return of income of the sub- scribing companies, and the name of the appellant along with extent of shareholding is clearly depicted in the balance sheet of these companies, the matter ends there. The shareholding has to be accepted as genuine. For this reason, the additions of Rs. 20,00,000 on protective basis and Rs. 5,00,000 on actual basis stand deleted." 17. The ld. Vice-President has proposed to dismisses the appeal of revenue on this issue on the basis of additional evidence filed by the assessee before the ld. CIT(A), for the reasons that : (i) the companies were registered with the Registrar of the Companies, (ii) the share application and allotment of shares of the assessee company was reflected in their returns, (iii) as per Schedule III for investment in shares it appeared that these companies had applied for the shares of other companies also, (iv) the fact that these companies had applied for shares of assessee and other such companies was before the concerned authorities and could not be denied, and (v) merely because the details were not filed in the case of certain companies when the enquiries were conducted by the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perused the order sheet entries in the case of Shri Vishwanath Prasad Gupta, in whose case the issue regarding share capital of Rs. 25 lakh has been discussed in detail in the assessment order dated 26-12-2006 while making the addition of Rs. 20 lakh under consideration on substantive basis. 20. It is also seen that the Assessing Officer has finalised the assessment order in the case of the assessee Shri Vishwanath Prasad Gupta for assessment year 2005-06 on the same date i.e., 26-12-2006, which is subject-matter of ITA No. 221/Jab./2008, heard by us on 25-2-2009, along with this appeal of the assessee-company. It is observed that the assessment proceedings in the case of Shri Vishwanath Gupta were initiated by issuing notices under section 143(2) and 142(1) of the Income-tax Act requiring him to produce documents in compliance of the notices. A query letter was also issued in the case of Vishwanath Prasad Gupta (supra) on 3-3-2006. It was also very clear that the cash of Rs. 49,11,000 out of which Rs. 45,00,000 was seized, was among other things, a subject-matter of enquiry and the protective addition of Rs. 20 lakh out of the total share capital of Rs. 25 lakh credited in the bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of registration with the Registrar of Companies; (ii) acknowledgements of filing the respective returns of income; and (iii) the balance sheets etc. could have been readily available with the parities and the assessee had no justifiable reason for not fling the same before the Assessing Officer. There was no reason that the assessee should have waited till the hearing of appeal before the ld. CIT(A) to file the same. 24. The ld. CIT(A) also ignored that the ABN-AMRO Bank, Kolkata had informed the Assessing Officer that the DD of Rs. 5 lakh claimed to have been sent to the assessee by M/s. Nihal Fiscal Service (P.) Ltd., was never issued by the aforestated bank. 25. It is also observed that since the protective addition of Rs. 20 lakh was made in the case of the assessee and substantive addition was made in the case of Vishwanath Prasad Gupta (supra), the ld. CIT(A) should have decided both the appeals together in view of decisions in the cases of CIT v. Surendra Gulabchand Modi ((1983)) 140 ITR 517 (Guj.) and K.P. Varkey v. Dy. CIT ((2008)) 304 ITR 133 (Ker.), so as to take a decision in protective assessment in conformity with the substantive assessment. However, despite ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The [Deputy Commissioner (Appeals)] - [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer) under clause (a) of sub-section (1) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtion of which is reproduced below : "The rule requires the Appellate Assistant Commissioner to record his reasons for admitting the additional evidence and also allow to the Income-tax Officer an opportunity of examining the evidence or document or cross-examine the witness produced by the appellant and also to produce new evidence on his side in rebuttal of the additional evidence produced by the appellant." [Emphasis supplied] 31. Thus, the decision of the ld. CIT(A) to admit the new evidence and to allow the appeal of the assessee on the basis thereof without giving proper opportunity to the Assessing Officer cannot be sustained. The ld. CIT(A) was also not correct in ignoring the evidence gathered by the Assessing Officer on the basis of enquiries conducted by the ADIT (Inv.), Kolkata because the lapse, if any, in giving opportunity to the Assessing Officer on the evidence so gathered, as per provisions of section 142(3) of the Income-tax Act, should have been corrected by the first appellate authority and he should have confronted the assessee with the evidence discussed above, in view of decisions in the following cases : (i) CIT v. McMillan & Co. ((1958)) 33 ITR 182 (S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....34. In view of the provisions of section 46A, CBDT circular and case laws discussed above, with due respect, I do not agree with the view of the ld. V.P. in per para 14 of his proposed order, which is reproduced below : "that there is no material to disturb the order of the first appellate authority it is true that some of the evidences were not before the Assessing Officer. That alone is not sufficient to remand that matter back to the file of Assessing Officer." 35. However, in all fairness looking to the totality of facts and circumstances of the case, I am of the considered opinion that in view of the failure of the ld. CIT(A) to comply with the provisions of rule 46A(3) of the Income-tax Rules, the issue is restored to the file of the Assessing Officer with the direction that he should decide the issue afresh after examining the additional evidence filed by the assessee before the ld. CIT(A) giving proper opportunity to the assessee. The Assessing Officer should also give proper opportunity to the assessee on the claim of the assessee that the Assessing Officer has failed to give it proper opportunity on the evidence gathered as a result of enquiries made by the ADIT (Inv.)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue is to be restored to Assessing Officer for fresh consideration as opined by the learned AM?" We, accordingly, forward the records of the appeal mentioned above to the President of the Tribunal. THIRD MEMBER ORDER Per H.L. Karwa (Vice President) (As a Third Member) The following points of difference have been referred to me under section 255(4) of the Income-tax Act, 1961 ('the Act') : "(i) Whether, on the facts and in the circumstances of the case, the learned Vice President is correct in confirming the order of the learned Commissioner of Income-tax (Appeals) holding he has not failed to comply with the provisions of rule 46A of the Income-tax Rules or the issue is to be restored to the Assessing Officer as opined by the learned AM? (ii) Whether, on the facts and in the circumstances of the case, the learned Vice President is correct in confirming the order of the Commissioner of Income-tax (Appeals) of the addition of Rs. 20,00,000 made by the Assessing Officer on protective basis on account of unexplained share application money from three companies or the issue is to be restored to Assessing Officer for fresh consideration, as opined by the learned Accountant Member?....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stava, Advocate, Learned Counsel for the assessee supported the orders of the ld. CIT(A) and the ld. V.P. He further submitted that the assessee-company had received share application money of Rs. 25 lakhs from the following four companies : (i) M/s. Transeem Commercial Pvt. Ltd., 23A, NS Road, 1st Floor, Room No. 217A, Kolkata 23-7-2004 5,00,000 (ii) M/s. Rajath Commercial Pvt. Ltd., 14/2, Old China Bazar Street, Kolkata 30-7-2004 31-7-2004 10,00,000 (iii) M/s. Nihal Fiscal Services Pvt. Ltd., 13 KB, Sarangiblock, 303 Kolkata 20-8-2004 5,00,000 (iv) M/s. Vikas Viniyog Pvt. Ltd., 11 Rajnikant Rai Choudhary Lane, Kolkata 14-7-2004 5,00,000 The above share application money was received by bank draft and confirmation letters were given in the course of the hearing. He further submitted that during the course of hearing, the Assessing Officer never raised any query about these companies. He did not express any doubt. He did not ask the assessee to file any evidence to prove genuineness of these companies. No query was given either by letter or by order sheet. The company, therefore, believed that confirmatory letters are sufficient and no more information is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted the same. He further pointed out that the report of the ADIT (Inv.), Kolkata is not an admissible evidence as it was never confronted to the assessee before utilizing the same in making assessment of income of the assessee. He, therefore, submitted that in view of the additional evidence submitted by the assessee before the ld. CIT(A), the ld. CIT(A) has correctly deleted the addition of Rs. 25 lakhs and the order of the ld. CIT(A) has been rightly confirmed by the ld. V.P. Shri A.P. Shrivastava, ld. Counsel for the assessee submitted that the decision of the Hon'ble jurisdictional High Court in the case of Rathi Finlease (supra) relied upon by the ld. D.R. is distinguishable on facts. In that case, the assessee failed to prove the genuineness of the transaction. However, in the instant case, the assessee has proved the nature and source of the sum found credited in the books and the explanation offered by the assessee was satisfactory and therefore, the said decision is not applicable to the facts of the present case. He further relied on the following decisions : 1. Bhav Shakti Steel Mines (P.) Ltd. v. CIT ((2010)) 320 ITR 6191 (Delhi) 2. CIT v. Lovely Exports (P.) Ltd. [....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 68. It is apparent from record that in the case of Dolphine Marbles, the assessment was completed in only one hearing where the assessee was not asked to furnish any information. Therefore, the assessee was prevented by reasonable cause from furnishing the additional evidence. One of the condition prescribed in rule 46A is that the ld. CIT(A) should record the reasons for admission of additional evidence. In the instant case, vide para 9 of the order, the ld. CIT(A) has recorded the reasons for admission of additional evidence. As per rule 46A(3), the ld. CIT(A) has also given the opportunity to the Assessing Officer to state the objections, if any, to admission of additional evidence. It is true that the Assessing Officer, vide letter dated 28-1-2008, mentioned that he has objections to admission of the additional evidence stating that the assessee was given several opportunities to produce necessary evidence in support of its claim. However, the Assessing Officer has not stated anything about the veracity of additional evidence filed by the assessee before the ld. CIT(A). In my opinion, it was the duty of the Assessing Officer to state about the credibility of additional ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the same is available at page 54 of the assessee's Paper Book filed before the Tribunal). (iii) Letter by Kolkata company to assessee-company requesting issue of 1250 equity shares along with draft of Rs. 5 lakhs. (A copy of the same is available at page 55 of the assessee's Paper Book filed before the Tribunal). (iv) Certificate of incorporation of company issued by Registrar of Companies, West Bengal. (A copy of the same is available at page 56 of the assessee's Paper Book before the Tribunal). (v) Balance Sheet of the company for the year ending 31-3-2005 wherein investment of Rs. 5 lakhs in M/s. Dolphine Marbles (P.) Ltd., is claimed to have been made. This balance sheet was filed along with return of income and audit report. (A copy of the same is available at pages 57-63 of the assessee's Paper Book filed before the Tribunal). 7.1 The assessee also submitted the following details before the ld. CIT(A) in respect of Rajath Commercial (P.) Ltd., Kolkata : (i) Letter addressed by Rajath Commercial (P.) Ltd., Kolkata to ACIT, Katni confirming that Kolkata Company applied for 2,500 equity shares in Dolphin Marbles (P.) Ltd., and deposited Rs. 5,00,000 vide DD No. 6364....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e company for the year ending 31-3-2005 wherein investment of Rs. 5 lakhs in M/s. Dolphin Marbles (P.) Ltd., is claimed to have been made. This balance sheet was filed along with return of income and audit report. (A copy of the same is available at pages 76 to 82 of the assessee's Paper Book filed before the Tribunal). 7.3 The assessee has also submitted the following details before the ld. CIT(A) in respect of Vikas Viniyog Private Ltd., Kolkata : (i) Letter addressed by Vikas Viniyog Private Ltd., Kolkata to ACIT, Katni confirming that Kolkata Company applied for 1250 equity shares worth Rs. 5,00,000 in Dolphin Marble (P.) Ltd., vide DD No. (sic) dated 14-8-2004 drawn on, (sic) Kolkata. (A copy of the same is available at page 83 of the assessee's Paper Book filed before the Tribunal). (ii) Copy of acknowledgement of return of income showing address of company and PAN. (A copy of the same is available at page 84 of the assessee's Paper Book filed before the Tribunal). (iii) Letter by Kolkata company to assessee-company requesting issue of equity shares along with draft of Rs. 5 lakhs. (A copy of the same is available at page 85 of the assessee's Paper Book filed before th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and came to a conclusion of fact that the identity and creditworthiness of the shareholders and the genuineness of the transactions stood established. Therefore, the finding returned by the Tribunal to the contrary cannot be accepted as it is contrary to the record. In any event, we also note that the Supreme Court in the case of CIT v. Lovely Exports (P.) Ltd. ((2009)) 319 ITR (St.) 5/((2008)) 216 CTR 195 , considered the question as to whether the share application money can be regarded as undisclosed income under section 68 of the Income-tax Act, 1961. The Supreme Court dismissing the SLP observed that if the share money is received by the assessee-company from alleged bogus shareholders whose names are given to the Assessing Officer, then the Department is free to assess them individually, in accordance with law. The Supreme Court did not find any infirmity with the impugned judgment of the High Court which was a common order along with the decision reported in CIT v. Divine Leasing & Finance Ltd. ((2008)) 299 ITR 268 (Delhi). Since the Commissioner of Income-tax (Appeals) has not only found that the identity of each of the shareholders stood established, but has also examined....