ACIT, CHENNAI V. M/s. Swift Mail Communication Ltd., CHENNAI

ITA 2153/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5090 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-05-2011
• Assessment Year: 1995-1996
• Appeal Filed On: 22-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: T N SEETHARAMAN; R K V SUNDAR
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 2153/MDS/2010 ASSESSMENT YEAR : 1995-96 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI 600 034. (APPELLANT) V. M/S SWIFT MAIL COMMUNICATION LTD., 4E, CENTURY PLAZA, NO.560-562, ANNA SALAI, CHENNAI 600 018. PAN : AAACS5510H (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI T.N. S EETHARAMAN & SHRI R.K.V. SUNDAR O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, IT IS AGGRIEV ED THAT THE CIT(APPEALS) DELETED AN ADDITION OF ` 33,77,000/- MADE BY THE A.O. THE A.O. HAD CONSIDERED SHARE APPLICATION MONEY REC EIVED BY THE ASSESSEE AS UNDISCLOSED INCOME FOR A REASON THAT TH E ALLEGED I.T.A. NO. 2153/MDS/10 2 SHAREHOLDERS EITHER DID NOT EXIST OR COULD NOT BE F OUND IN THE ADDRESSES FURNISHED BY THE ASSESSEE. 2. ASSESSEE HAD FILED ITS ORIGINAL RETURN FOR THE I MPUGNED ASSESSMENT YEAR WHICH WAS PROCESSED UNDER SECTION 1 43(1) OF INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . PURSUANT TO CERTAIN DIRECTIONS OF THE CIT(APPEALS) IN AN APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 1995-96, THE ASSESSMEN T FOR THE IMPUGNED ASSESSMENT YEAR WAS REOPENED BY NOTICE UND ER SECTION 148 OF THE ACT. WHILE COMPLETING THE RE-ASSESSMENT , THERE WAS AN ADDITION OF ` 77,00,000/- UNDER SECTION 68 OF THE ACT, IN RESPEC T OF SHARE APPLICATION MONEY. ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS) WHO GAVE A RELIEF OF ` 43,30,000/- AND SUSTAINED THE ADDITION OF ` 33,70,000/-. THE SHARE APPLICATION MONEY RECEIVED FROM M/S IOCEE EXPORT LTD., CHENNAI AND RELATIVES AND DI RECTORS WERE ACCEPTED. BUT, ` 33,70,000/- SHOWED BY THE ASSESSEE AS RECEIVED FROM PUBLIC WAS SUSTAINED FOR ADDITION UNDER SECTIO N 68 OF THE ACT. ASSESSEE MOVED IN APPEAL BEFORE THIS TRIBUNAL AGAIN ST SUSTAINED PART OF ADDITION. ARGUMENT OF THE DEPARTMENT WAS THAT D ECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. SOPHIA FINAN CE LTD. (205 ITR I.T.A. NO. 2153/MDS/10 3 98) CLEARLY APPLIED. THE TRIBUNAL HELD IN PARAS 6 AND 7 OF ITS ORDER DATED 16 TH MARCH, 2007 IN I.T.A. NO. 315/MDS/2005 APPEARING I N PAGE NOS.4 TO 7 OF THE PAPER-BOOK AS UNDER:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THIS ISSUE IS SIMILAR TO ONE CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. SOPHIA FINANCE LTD. (205 ITR 98). THE ONLY DIFFERENCE IS THAT THE ASSESSEE BEFORE US IS A PRIVATE LIMITED COMPANY. SINCE IT IS A PRIVATE LIMITED COMPANY, THE BURDEN ON THIS ASSESSEE IS MORE TO PROVE THE GENUINENESS OF THE TRANSACTION. IT IS THE DUTY OF THE ASSESSEE TO SATISFY THE ASSESSING OFFICER THAT THE T RUE NATURE OF RECEIPT IS THAT OF CAPITAL. MERELY BECAUSE THE C OMPANY HAS CHOSEN TO SHOW THE RECEIPT OF THE MONEY AS CAPITAL, IT DOES NOT PRECLUDE THE ASSESSING OFFICER FROM GOING INTO THE QUESTION WHETHER THIS IS ACTUALLY SO. SEC.68 WOULD CLEARLY EM POWER HIM TO DO SO. WHERE, THEREFORE, THE ASSESSEE REPRESENTS T HAT IT HAS ISSUED SHARES ON THE RECEIPT OF SHARE APPLICATION M ONEY THEN THE AMOUNT SO RECEIVED WOULD BE CREDITED IN THE BOOKS O F ACCOUNT OF THE COMPANY. THE ASSESSING OFFICER WOULD BE ENTITLE D TO ENQUIRE AND IT WOULD INDEED BE HIS DUTY TO DO SO WHETHER THE ALLEGED SHAREHOLDERS DO IN FACT EXIST OR NOT. IF THE SHARE HOLDERS EXIST THEN, POSSIBLY, NO FURTHER ENQUIRY NEED BE MADE. BUT IF THE ASSESSING OFFICER FINDS THAT THE ALLEGED SHAREHOLDE RS DO NOT EXIST THEN, IN EFFECT IT WOULD MEAN THAT THERE IS N O VALID ISSUANCE OF SHARE CAPITAL. SHARES CANNOT BE ISSUED IN THE N AME OF NON- EXISTING PERSONS. THESE OF THE WORDS MAY BE CHARGE D IN SEC.68 CLEARLY INDICATES THAT THE ASSESSING OFFICER WOULD T HEN HAVE THE JURISDICTION, IF THE FACTS SO WARRANT, TO TREAT SUC H A CREDIT TO BE THE INCOME OF THE COMPANY. 7. IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO FURNISH LATEST ADDRESS OF THE SHARE APPLICANTS INCLUDING TH E PAN NUMBER. THOUGH THE ASSESSING OFFICER HAS IMPOUNDED THE SHAR E I.T.A. NO. 2153/MDS/10 4 APPLICATIONS AND IS IN POSSESSION OF FULL ADDRESS O F THE SHARE APPLICANTS, HE HAS NOT CARRIED OUT DETAILED INVESTI GATION BY ISSUE OF SUMMONS TO THE ALLEGED SHAREHOLDERS. THE ASSESS ING OFFICER TREATED THE ALLEGED SHARE APPLICATION MONEY AS UNEXP LAINED INVESTMENT WITHOUT MAKING PROPER ENQUIRY. THIS IS N OT PROPER. HE SHOULD HAVE SUMMONED THE PARTIES OR HE SHOULD HA VE REQUIRED THE ASSESSEE TO PRODUCE THESE PARTIES, WHICH HE HAS NOT DONE. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AS SESSING OFFICER WITH A DIRECTION TO DO THE ABOVE EXERCISE A ND DECIDE THE MATTER IN ACCORDANCE WITH LAW AFTER AFFORDING OPPOR TUNITY OF HEARING TO THE ASSESSEE. 3. IN PURSUANCE OF DIRECTIONS OF THE CIT(APPEALS), THE LD. A.O. TOOK UP THE CASE AGAIN AND IN THE SECOND ROUND OF PROCEE DINGS, ASSESSEE FILED A LETTER STATING THE ADDRESS OF THE ORIGINAL SHARE APPLICANTS AS APPEARING IN ITS RECORD, HAD ALREADY BEEN FILED. A S PER THE ASSESSEE, SUCH SHARE APPLICANTS HAD TRANSFERRED THEIR RESPECT IVE SHARES TO VARIOUS PERSONS IN THE YEAR 1998-99 AND SUCH TRANSF EREES HAD SUBSEQUENTLY TRANSFERRED THEIR SHARE TO OTHER PERSO NS WHO WERE RELATIVES OF THE EXISTING SHAREHOLDERS. RELIANCE W AS PLACED BY THE ASSESSEE ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. ELECTRO POLYCHEM LTD. (294 ITR 661) AND ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V . LOVELY EXPORTS (PVT.) LTD. (261 CTR 195). HOWEVER, THE A.O. WAS N OT IMPRESSED. ACCORDING TO HIM, ASSESSEE NEVER GAVE THE CORRECT A DDRESS OF THE I.T.A. NO. 2153/MDS/10 5 PERSONS AND THIS HAD PREVENTED THE ASSESSING OFFICE R FROM ISSUING SUMMONS. THEREFORE, AS PER THE A.O., ASSESSEE HAD FAILED TO ABIDE BY THE DIRECTIONS GIVEN BY THE TRIBUNAL. FOR THE R ELIANCE PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF L OVELY EXPORTS (PVT.) LTD. (SUPRA), THE VIEW OF THE A.O. WAS THAT THE SHAREHOLDERS WERE NOT BOGUS IN ASSESSEES CASE, SINCE THE SHARES WERE SUBSEQUENTLY TRANSFERRED. HE WAS THUS OF THE OPINI ON THAT THE ASSESSEE COULD NOT PROVE WITH EVIDENCE THE RECEIPT OF ` 33,70,000/- AS SHARE APPLICATION MONEY AND HELD THAT THE SAID S UM WAS INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE ACT. 4. ASSESSEE ONCE AGAIN FILED AN APPEAL BEFORE CIT(A PPEALS) AND WHILE RELYING ON THE SAME DECISIONS AS CITED BEFORE THE A.O., IT ALSO SUBMITTED THAT IT WOULD NOT BE POSSIBLE TO EXPLAIN AFTER LAPSE OF A DECADE THE ORIGIN OF THE ORIGIN AND SOURCE OF THE S OURCE OF THE SHARE APPLICANTS. FOR THIS PROPOSITION, RELIANCE WAS PLA CED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF S. HASTIMAL V. CIT (1963) 49 ITR 273 (MAD). THE LD. CIT(APPEALS) WAS OF THE OPINION THAT THE DECISION OF HON'BLE APEX COURT IN THE CASE OF LOVELY EXPORTS (PVT.) LTD. (SUPRA) AS WELL AS THE DECISION OF HON' BLE JURISDICTIONAL I.T.A. NO. 2153/MDS/10 6 HIGH COURT IN THE CASE OF ELECTRO POLYCHEM LTD. (SU PRA) WERE IN FAVOUR OF ASSESSEE. ACCORDING TO HIM, SHARE APPLIC ATION MONEY COULD NOT BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSE E BUT HAD TO BE ASSESSED ONLY IN THE HANDS OF THE INDIVIDUALS CONCE RNED EVEN IF THE SHARE APPLICANTS WERE BOGUS OR NOT GENUINE. HE, TH EREFORE, DELETED THE ADDITION OF ` 33,70,000/-. 5. NOW BEFORE US, THE LEARNED D.R., STRONGLY ASSAIL ING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT OUT OF 52 SHAREHOL DERS TO WHOM THE LETTERS WERE ADDRESSED WITH REGARD TO SUM OF ` 33,70,000/-, 28 WERE RETURNED, WHEREAS, 22 SHAREHOLDERS DID NOT RESPOND. ACCORDING TO HIM, TWO PERSONS DENIED HOLDING OF ANY SHARES. THE REFORE, ACCORDING TO HIM, ASSESSEE HAD MISERABLY FAILED TO PROVE THE EXISTENCE OF THE SHAREHOLDERS ITSELF. LEARNED D.R. FURTHER ARGUED T HAT ASSESSEE ALSO COULD NOT DISCHARGE THE ONUS CAST ON IT BY THE DIRE CTIONS OF THIS TRIBUNAL IN THE FIRST ROUND AND COULD NOT EVEN FURN ISH THE CORRECT ADDRESSES. ACCORDING TO LEARNED D.R., DECISION OF HON'BLE APEX COURT IN THE CASE OF LOVELY EXPORTS (PVT.) LTD. (SU PRA) AS ALSO THAT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF EL ECTRO POLYCHEM LTD. (SUPRA) WOULD APPLY ONLY IF THE SHARE APPLICANTS AN D SHAREHOLDERS I.T.A. NO. 2153/MDS/10 7 EXISTED AND WHERE THEIR VERY EXISTENCE WAS NOT PROV ED, ADDITION COULD BE MADE IN THE HANDS OF THE COMPANY UNDER SECTION 6 8 OF THE ACT. 6. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT THER E WAS A CLEAR FINDING BY THE A.O. THAT NONE OF THE SHAREHOLDERS W ERE BOGUS. WHEN NONE OF THE SHAREHOLDERS WERE BOGUS, ACCORDING TO H IM, THERE COULD BE NO ADDITION. RELYING ON THE DECISION IN THE CAS E OF LOVELY EXPORTS (PVT.) LTD. (SUPRA) OF THE HON'BLE APEX COURT, LEAR NED A.R. SUBMITTED THAT EVEN WHEN THE SHAREHOLDERS WERE FOUND TO BE BO GUS, AN ADDITION OF INCOME IN THE HANDS OF A COMPANY COULD NOT BE MA DE. HENCE, ACCORDING TO HIM, WHEN THE SHAREHOLDERS WERE NEVER FOUND TO BE BOGUS, SUCH AN ADDITION WOULD ALL THE MORE BE NOT P OSSIBLE. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CASE OF THE REVENUE IS THAT OUT OF TOTAL 52 SHAREHO LDERS, LETTERS ADDRESSED TO 28 WERE RETURNED BY THE POSTAL AUTHORI TIES AND LETTERS ADDRESSED TO 22 SHAREHOLDERS DID NOT EVOKE ANY RESP ONSE AND 2 OF THE ALLEGED SHAREHOLDERS DENIED HOLDING ANY SHARES. THEREFORE, AS PER THE REVENUE, AN ADDITION COULD BE MADE UNDER SE CTION 68 OF THE ACT IN RESPECT OF SHARE APPLICATION MONEY SHOWN AGA INST SUCH I.T.A. NO. 2153/MDS/10 8 PERSONS WHICH INCIDENTALLY TOTALLED TO ` 33,70,000/-. IN THIS RESPECT, IT IS VERY PERTINENT TO REPRODUCE THE DECISION OF HON' BLE APEX COURT IN THE CASE OF LOVELY EXPORTS (PVT.) LTD. (SUPRA). NO DOUBT, THIS DECISION CAME IN A SPECIAL LEAVE PETITION. BUT, HON'BLE APE X COURT WHILE DISMISSING THE LEAVE PETITION, STATED AS UNDER IN P ARA 2 OF ITS ORDER - W E FIND THAT NO MERIT IN THE SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MON EY IS RECEIVED BY THE ASSESSEE-COMPANY FROM THE ALLEGED BOG US SHAREHOLDERS WHOSE NAMES ARE GIVEN TO THE A.O., THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THE INDIVID UAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY IN THE IMPUGNED JUDGEMENT. 8. WHEN AN SLP IS DISMISSED, WITH REASONS MENTIONED FOR DISMISSAL, IT BECOMES A BINDING PRECEDENT FOR ALL C OURTS OF THE LAND AND THIS IN OUR OPINION IS A SETTLED POSITION OF LA W. IN THE CASE BEFORE HON'BLE APEX COURT, THERE WAS ONLY AN ALLEGATION TH AT THE SHAREHOLDERS WERE BOGUS. IT CANNOT BE INTERPRETED TO SAY THAT EVEN WHERE THE SHAREHOLDERS WERE BOGUS, AN ASSESSING OFF ICER HAS TO PROCEED AGAINST SUCH SHAREHOLDERS. NO DOUBT, THERE COULD NOT BE ANY EFFECTIVE PROCEEDINGS AGAINST BOGUS PERSONS. T HERE CANNOT BE ANY QUESTION OF FRAMING AN ASSESSMENT ON ANY NON EX ISTING PERSONS. HOWEVER, WHEN THE ADDRESSES ARE GIVEN TO THE DEPART MENT, THE I.T.A. NO. 2153/MDS/10 9 DEPARTMENT CAN PROCEED TO REOPEN THE INDIVIDUAL ASS ESSMENTS OF SUCH SHAREHOLDERS, BUT, CAN NEVER MAKE ADDITION UND ER SECTION 68 OF THE ACT IN THE HANDS OF A COMPANY WITH REGARD TO SH ARE APPLICATION MONEY. SO, THE QUESTION HERE IS WHETHER THE ASSESS EE HAD GIVEN THE NAMES AND ADDRESSES SO THAT THE A.O. COULD PROCEED TO REOPEN THE INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. THE ORDER OF THE CIT(APPEALS) ITSELF MENTIONS THAT THE SHARE APPLICA TIONS WERE IMPOUNDED BY THE ASSESSING OFFICER. THERE IS NO DI SPUTE THAT THE SHARE APPLICATIONS HAD IN IT THE ADDRESSES OF THE A PPLICANTS. NO DOUBT, ASSESSEE FAILED TO FURNISH THE LATEST ADDRES S AND FOR THIS, ITS REASON WAS THAT THE ORIGINAL SHAREHOLDERS HAD TRANS FERRED THEIR SHARES AS EARLY AS 1998-99 AND SUCH TRANSFERORS AGAIN TRAN SFERRED THEIR SHARES IN 1999-2000. NO DOUBT, IN THE FIRST ROUND OF PROCEEDINGS BEFORE THIS TRIBUNAL, THERE WAS A CLEAR CONCLUSION THAT SECTION 68 OF THE ACT EMPOWERED THE A.O. TO MAKE AN ADDITION IN T HE HANDS OF A COMPANY IN RESPECT OF MONIES SHOWN AS RECEIPT OF CA PITAL WHEN SOURCE WAS NOT SUBSTANTIATED. BUT, NEVERTHELESS, A T THE TIME WHEN THE APPEAL WAS DECIDED BY THE TRIBUNAL, THE DECISIO N OF HON'BLE APEX COURT IN THE CASE OF LOVELY EXPORTS (PVT.) LTD. (SU PRA) NOR THAT OF I.T.A. NO. 2153/MDS/10 10 HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF EL ECTRO POLYCHEM LTD. (SUPRA) WERE AVAILABLE. HERE IT WAS AN ADMITTED PO SITION VIDE PARA 6 OF THE ASSESSMENT ORDER THAT THE SHAREHOLDERS DID E XIST AND THE SHAREHOLDERS WERE NOT BOGUS. NO EFFORT WAS MADE BY REVENUE TO SUMMON THE TRANSFEREES OF SUCH SHARES TO ASCERTAIN THE ADDRESSES OF THE SHAREHOLDERS AND TO EXAMINE THE GENUINENESS OF THE TRANSACTION. THIS BEING THE SITUATION, SUCH AMOUNT COULD NEVER B E CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE ACT. LD. CIT(APPEALS) TOOK A CORRECT VIEW IN THIS REGARD AND NO INTERFERENCE IS CALLED FOR. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 20 TH MAY, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 20 TH MAY, 2011. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34 / CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE