ROCKLINE PROJECTS LTD., Ahmedabad V. THE INCOME TAX OFFICER. WARD-5(3), Ahmedabad

ITA 3189/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63243 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-09-2012
• Assessment Year: 1996-1997
• Appeal Filed On: 10-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D P GUPTA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit; Bogus Share capital; Question of law; Corroborative evidences; Capital receipt
• Section: 68; 148

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , .'# $ ,%& % ' BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER 1. ./ I.T.A.NO.3189/AHD/2008 - # ) # ) # ) # )/ // / A.Y. 1996-97 2. ./ I.T.A.NO.3256/AHD/2008 - # ) # ) # ) # )/ // / A.Y. 1996-97 1. ROCKLINE PROJECTS PVT.LTD. B/14/15, SWAGAT COMPLEX PUSHPAKUNJ MANINAGAR AHMEDABAD 2. INCOME TAX OFFICER WARD-5(3), AHMEDABAD # # # # / VS. 1. INCOME TAX OFFICER WARD-5(3), AHMEDABAD 2. ROCKLINE PROJECTS PVT.LTD. AHMEDABAD * %& ./+, ./ PAN/GIR NO. : AABCR9294H ( *- / // / APPELLANTS ) .. ( ./*- / RESPONDENTS ) ASSESSEE BY : SHRI S.N.SOPARKAR, SR.ADV REVENUE BY : SHRI D.P.GUPTA CIT-DR #0 1 & / / / / DATE OF HEARING : 25/09/2012 2') 1 & / DATE OF PRONOUNCEMENT : 14/12/12 %3 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE ARE CROSS-APPEALS ARISING FROM THE ORDER O F THE LD.CIT(A)- XI, AHMEDABAD DATED 29.7.2008 PASSED FOR A.Y. 1996- 97. THE ISSUE INVOLVED IN BOTH THESE CROSS-APPEALS IS IN RESPECT OF AN ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 68 OF I.T.ACT IN RESPECT OF SHARE APPLICATION MONEY. RESPECTIVE GROUNDS RAISED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE REPEATED HEREUNDER:- ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 2 - 2. ASSESSEES GROUND 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD.AO IN ADDING A SUM OF RS.2,06,80,0 00/- BEING THE SHARE APPLICATION MONEY TO THE INCOME OF THE APPELL ANT U/S.68 OF THE ACT. 2.1. REVENUES GROUND 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON ACCOUNT OF CASH CREDIT U/S.68 OF THE I.T. ACT OF RS.14,00,0 00/-. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 254 DATED 21.9.2007 WERE T HAT INITIALLY AN ORDER U/S.143(3) WAS MADE ON 25.3.99 AND THE TOTAL INCOME WAS DETERMINED AT RS.2,39,81,049/-. IN THAT ORDER, IT WAS NOTICED B Y THE AO THAT THE ASSESSEE HAD MADE A PUBLIC ISSUE OF SHARES OF RS.2. 75 CRORES. IT WAS ALSO NOTED BY THE AO THAT THE ASSESSEE HAD BROUGHT IN RS .23,20,000 AS PROMOTERS CONTRIBUTION AND BALANCE RS.2,51,80,000/ - WAS ISSUE. CERTAIN ENQUIRIES WERE MADE AND LETTERS WERE ISSUED U/S.133 (6) OF IT ACT. IT WAS ALLEGED THAT ONLY PART COMPLIANCE WAS MADE IN RESPE CT OF SOME OF THE INVESTORS, HENCE AN ADDITION OF RS.2,06,80,000/- WA S MADE WHICH WAS ALLEGED TO BE SUBSCRIBED BY 374 PERSONS. AGAINST T HAT ORDER, ASSESSEE WENT IN APPEAL AND IN THE FIRST ROUND OF APPEAL, LD .CIT(A) HAD PARTLY ALLOWED THE APPEAL VIDE AN ORDER DATED 28.8.2003. IN THE SAID ORDER, CIT(A) HAD ALLOWED CERTAIN ISSUES IN FAVOUR OF THE ASSESSEE, HOWEVER, SET ASIDE THE CASE IN RESPECT OF SOME OF THE ISSUES. T HE ISSUES WHICH WERE DECIDED IN FAVOUR OF THE ASSESSEE WERE SHORT-LISTED AS UNDER:- ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 3 - I. ADDITION OF RS.14 LAKHS AS UNEXPLAINED CASH CRE DITS BEING AGGREGATE AMOUNT OF SHARE APPLICATION MONEY FROM 28 DIFFERENT APPLICANTS. II. ADDITION OF RS.2,06,80,000/- AS UNEXPLAINED CAS H CREDITS BEING AGGREGATE AMOUNT OF SHARE APPLICATION MONEY R ECEIVED FROM 374 DIFFERENT APPLICANTS. 3.1. AGAINST THAT ORDER, THE REVENUE DEPARTMENT WEN T IN APPEAL BEFORE ITAT BENCH B AHMEDABAD AND VIDE AN ORDER DATED 23 .8.2006 (ITA NO.393/AHD/2000 A.Y. 1996-97) SET ASIDE THE ORDE R OF THE CIT(A) AND REMITTED THE ISSUE BACK TO THE FILE OF THE AO. IN ORDER TO RE-ADJUDICATE, BOTH THE ABOVE ADDITIONS I.E. AN ADDITION OF RS.14 LACS TAXED AS UNEXPLAINED CASH CREDIT AND AN ADDITION OF RS.2,06, 80,000/- BEING SHARE APPLICATION MONEY; THE AO HAS ISSUED NOTICES AND AS KED THE ASSESSEE TO PRODUCE THE PROMOTERS, AS WELL AS THE REMAINING SHA REHOLDERS. IN THIS SECOND ROUND OF ASSESSMENT, THE MAIN ALLEGATION OF THE AO IS THAT THE OPPORTUNITIES WERE GRANTED BUT THE ASSESSEE COULD N OT PRODUCE THE PROMOTERS OR THE SHAREHOLDERS. THE AO HAS THEREF ORE SUMMARIZED THAT SINCE THE IDENTITY, GENUINENESS AND CREDITWORTHINES S OF THE PROMOTERS COULD NOT BE PROVED, THEREFORE PLACING RELIANCE ON ROSHAN DI HATTI VS. CIT [1977] 107 ITR 938 (SC), KALE KHAN MOHAMMAD H ANIF VS. CIT [1963] 50 ITR 01 (SC), CIT VS. M.GANAPATHI MUDALIAR [1964]53 ITR 623 (SC) AND A.GOVINDARAJULU MUDALIAR [1958]34 ITR 807 (SC) A TOTAL ADDITION U/S.68 OF RS.2,20,80,000/- WAS MADE. ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 4 - 4. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE T HE FIRST APPELLATE AUTHORITY. 5. BEFORE LD.CIT(A) THE ASSESSEE HAS GIVEN SUBMISSI ONS, RELEVANT PORTION REPRODUCED BELOW:- THAT THE COMPANY CAME IN THE PUBLIC ISSUE MARKET A ND IN THE CASE OF PUBLIC ISSUE IS CONCERNED, THE PROMOTERS HAVE TO FU LFILL THEIR QUOTA OF 40% OF THE PUBLIC ISSUE AND THEN AND THEN ONLY SEBI WILL GIVE PERMISSION FOR THE PUBLIC ISSUE. IN ORDER TO COMPL ETE THE PROMOTERS QUOTA OF 40% THE COMPANY HAS TO ISSUE CIRCULAR TO T HE KNOWN PERSONS WHO CAN OFFER THE ISSUE BY CIRCULATING THEM AS A PR IVATE AND CONFIDENTIAL. THESE PROMOTERS ARE HAVING SPECIAL R ESPONSIBILITY THAT THE SHARES ARE NOT TRANSFERRED WITHIN THE STATUTORY TIM E LIMIT. THUS THE PROMOTERS ARE THE FOUNDERS OF THE COMPANY AND WITHO UT THEIR CONTRIBUTION THE COMPANY CANNOT COME INTO PUBLIC IS SUE WITHOUT FULFILLING THE PROMOTERS QUOTA. THE LEARNED I.T.O. HAS ADDED A SUM OF RS.22080000/- OUT OF THE PROMOTERS QUOTA OF ___ SHARES AS UNEXPLAINED CASH C REDIT U/S.68 OF I.T.ACT. THE LEARNED I.T.O. HAS MISUNDERSTOOD THE CONCEPT OF CASH CREDIT AND THE SHARE APPLICATION MONEY. THERE IS L ARGE DIFFERENCE BETWEEN CASH CREDIT AND SHARE APPLICATION MONEY. THE APPLICANT COMPANY HAS PRODUCED ALL THE RELEVANT EVIDENCES I.E. SHARE APPLICATION FORM DULY SIGNED BY THE SHARE-HOL DERS WITH THEIR ADDRESSES AND THERE IS NO PROVISION TO WRITE PAN NO . OR GIR NO. FOR WHICH EVEN THERE IS NO SPECIFIC COLUMN HAS BEEN PRO VIDED IN THIS RESPECT. THEREFORE, THE OBSERVATION OF THE LEARNED I.T.O. THAT NO PAN NO. OR GIR NO. HAS BEEN WRITTEN. HOWEVER, LATER ON HE HIMSELF AGREED AND ACCEPTED THAT NO SUCH COLUMN HAS BEEN PROVIDED IN THIS RESPECT AND THE SHARE-HOLDERS CAN BE IDENTIFIED BY THE SHARE AP PLICATION MONEY. 3) THE MERE FACT THAT THE ASSESSEE WAS UNABLE TO P RODUCE 25 SHAREHOLDERS WHOSE NAMES ARE MENTIONED IN THE ASSES SMENT ORDER WOULD NOT NECESSARILY LEAD TO A CONCLUSION THAT THE SHARE CAPITAL AMOUNT RECEIVED FROM THEM BY THE ASSESSEE REPRESENT ED UNDISCLOSED ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 5 - INCOME OF THE ASSESSEE. SENCORP INDIA LTD. VS. ASS T.CIT (1993) 44 ITD 652 (CAL.TRIB.). 4) EVEN IT WAS ASSUMED THAT THE SUBSCRIBERS TO T HE SHARE CAPITAL ARE NOT GENUINE, UNDER NO CIRCUMSTANCES THE AMOUNT OF S HARE CAPITAL COULD BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE C OMPANY CIT VS. PRATEEK FINANCE & INVESTMENT CO.LTD. (1995) 215 ITR 272 (DELHI). THE A.O. HAS SOUGHT TO RELY UPON AN OBSERVATION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. SOPHIA FINANCE CO. (20 5 ITR 98). THE EXTRACT FROM THE SAID DECISION QUOTED BY THE A.O. O NLY RAISES THE ISSUE AS REGARDS THE APPLICABILITY OF SECTION 68 OF THE A CT. ON THIS, THERE IS NO CONTROVERSY. HOWEVER, IN THIS VERY DECISION, THE H IGH COURT HAS DECIDED AS TO WHAT IS THE OBLIGATION OF THE COMPANY TO PROVE GENUINENESS OF THE TRANSACTION. 5.1. THE LD.CIT(A) HAS FORWARDED THE ASSESSEES REP LY TO THE AO AND CALLED FOR A REMAND REPORT. IN COMPLIANCE, THE AO HAD SUBMITTED THE REMAND REPORT WHICH WAS ALSO REPRODUCED BY THE LD.C IT(A) IN THE IMPUGNED ORDER. IT WAS NOTED THAT THE NON-COMPLI ANCE WAS IN RESPECT OF NON-PRODUCTION OF CERTAIN PERSONS, HENCE IT WAS ALL EGED THAT THE IDENTITY, GENUINENESS AND CREDITWORTHINESS WAS NOT ESTABLISHE D. THAT COPY OF THE REMAND REPORT WAS FORWARDED TO THE ASSESSEE FOR COU NTER-COMMENTS. IN COMPLIANCE, ASSESSEE HAS INFORMED THAT THE REVENUE DEPARTMENT HAD GIVEN INSUFFICIENT TIME TO PRODUCE MORE THAN 442 PE RSONS BEFORE THE AO. IT WAS REITERATED THAT THE PUBLIC ISSUE WAS MADE BY THE ASSESSEE AND THE AMOUNTS WERE RECEIVED EITHER IN CASH OR BY CHEQUE, HOWEVER THOSE APPLICATIONS WERE DULY SIGNED BY THE SHAREHOLDERS. THE PHOTOCOPY OF THE SHARE APPLICATIONS WERE FURNISHED, HOWEVER THE AO H AD REFUSED TO ACCEPT THOSE SHARE APPLICATION. AN ANOTHER REPLY HAS ALSO BEEN FURNISHED ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 6 - THROUGH WHICH IT WAS INFORMED THAT IN RESPECT OF TH E CHIEF PROMOTERS THE ASSESSEE HAS FURNISHED THE INCOME TAX RETURNS, THEI R PANS AND THE RESPECTIVE SHARE AMOUNT INVESTED BY THEM. THE ASSE SSEE HAS ALSO FURNISHED THE AFFIDAVITS OF THE PROMOTERS. THE AO HAD OBSERVED THAT THE AFFIDAVITS HAVE MERELY STATED THE SOURCE OF INCOME OF THE SHAREHOLDERS BUT THAT WAS NOT BACKED BY ANY SUPPORTING EVIDENCE. THE ASSESSEES PLEA WAS THAT THE AFFIDAVITS WERE DULY ATTESTED BY PUBLI C NOTARY. AT THAT POINT OF TIME, THE ASSESSEE HAS ALSO DRAWN ATTENTION OF T HE PREVIOUS ORDER OF THE LD.CIT(A) DATED 16.11.1999, WHEREIN THE THEN CIT(A) HAD MADE AN OBSERVATION AS UNDER:- IN THE APPEAL AGAINST THIS ADDITION, THE LEARNED C .I.T. VIDE HIS ORDER DATED 16/11/99 IN APPEAL NO.CIT(A-1)/715/73/99-2000 HAS HELD THAT I ENTIRELY AGREE THAT THE MANNER IN WHICH THE ADDITIO N HAS BEEN MADE IT CANNOT BE SUSTAINED. I ALSO AGREE THAT HAVING ESTA BLISHED IDENTITY OF THE SUBSCRIBERS THROUGH THEIR OWN AFFIDAVITS THE APPELL ANT HAS DISCHARGED HIS ONUS OF ESTABLISHING THE IDENTITY. THE ASSESS ING OFFICERS CASE WOULD HAVE BEEN JUSTIFIED IF ANY OF THE 28 CASES WH ERE THE APPELLANT HAS SUBMITTED THE AFFIDAVITS OF THE PERSONS COULD BE NE GLECTED BY ANY OF THE SPOT ENQUIRY. THERE CANNOT BE ANY ADVERSE PRESUMPT ION NO MATTER HOW STRONG THE SUSPICION OR PRESUMPTIONS. 5.2. IT WAS ALSO INFORMED DURING THE APPELLATE PROC EEDINGS THAT IN RESPECT OF THE ADDITION OF RS.2,06,80,000/-, IT WAS HELD THAT 28 AFFIDAVITS WERE FILED BY THE ASSESSEE AND THOSE WERE DULY CONS IDERED, AND ACCORDINGLY, RELIEF WAS GRANTED. HAVING VERIFIED T HOSE SUBMISSIONS, THE LD.CIT(A) IN THE SECOND ROUND OF APPEAL, THE IMPUGN ED ORDER NOW BEFORE US, HAS HELD THAT APPELLANT SHOULD HAVE FURNISHED A LL THE NECESSARY DETAILS OF THE PROMOTERS AND SHAREHOLDERS. ACCORDING TO LD .CIT(A), THE ASSESSEE ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 7 - SHOULD HAVE AVAILED THE OPPORTUNITIES GRANTED TO EX PLAIN THE SOURCE OF INVESTMENT. HE HAS ACKNOWLEDGED THAT THE ASSESSEE HAD PRODUCED AFFIDAVITS OF THE PROMOTERS WHO HAVE CONTRIBUTED RS .14 LACS UNDER THE PROMOTERS QUOTA. THEREFORE, THE LD.CIT(A) HAS P LACED RELIANCE ON STELLER INVESTMENT LTD. 251 ITR 263 (SC) AND DELETE D THE ADDITION OF RS.14 LACS. HOWEVER, IN RESPECT OF SHARE APPLICATI ON MONEY SUBSCRIBED BY A LARGE NUMBER OF SHAREHOLDERS AMOUNTING TO RS.2 ,06,80,000/- THE ADDITION WAS CONFIRMED. AGAINST THE PART RELIEF, NOW BOTH THE SIDES ARE BEFORE US. 6. WE SHALL FIRST TAKE UP THE REVENUES APPEAL AND IN THIS REGARD, THE CIT-DR MR.D.P.GUPTA HAS OBJECTED THE RELIEF PRIMARI LY ON THE GROUND THAT MERE AFFIDAVITS HAVE BEEN FILED BUT THE ASSESS EE HAD FAILED TO PROVE THE SOURCE OF INVESTMENT, THEREFORE THE RELIEF WAS WRONGLY GRANTED. ON THE OTHER HAND, LD.AR HAS STRONGLY PLACED RELIANCE ON THE FACTUAL AS WELL AS LEGAL FINDINGS OF LD.CIT(A). 7. BOTH THE SIDES HAVE BEEN HEARD. THE COMPILATION FILED IS CAREFULLY PERUSED. THE ASSESSEE-COMPANY IS STATED TO BE A DE VELOPER AND A CONTRACTOR. IN RESPECT OF THE AMOUNT IN DISPUTE O F RS.14 LACS; TAXED IN THE HANDS OF THE ASSESSEE BY INVOKING THE PROVISION S OF SECTION 68 OF IT ACT; A RELIEF WAS GRANTED BY LD.CIT(A) WHICH IS NOW CHALLENGED BY THE REVENUE DEPARTMENT, WE HAVE NOTED THAT THE RESPECTE D COORDINATE BENCH B AHMEDABAD IN THE ORDER DATED 23.08.2006( SUPRA) HAS NOTED THAT IN RESPECT OF EIGHT CHIEF PROMOTERS THE ASSESS EE HAS FILED THEIR ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 8 - INCOME-TAX RETURNS ALONG WITH PANS, THEREFORE THEIR INVESTMENT OF RS.23,20,000/- PERTAINING TO 2,30,200 SHARE WAS ACC EPTED BY THE AO. HOWEVER, IN RESPECT OF OTHER 28 PROMOTERS, A SUM O F RS.14 LACS WAS ADDED IN THE TOTAL INCOME OF THE ASSESSEE DUE TO T HE PRIMARY REASON THAT THEIR CREDITWORTHINESS COULD NOT BE PROVED. IN T HE FIRST ROUND, THE LD.CIT(A) HAS NOTED THAT THE AFFIDAVITS OF SAID 28 PROMOTERS WAS FURNISHED BY THE ASSESSEE THEREFORE IT WAS HELD THA T THE PRIMARY ONUS WAS DISCHARGED BY THE ASSESSEE BY ESTABLISHING THEIR ID ENTITY. ALTHOUGH A RELIEF WAS GRANTED BY LD.CIT(A), BUT IN THE FIRST R OUND OF APPEAL THE TRIBUNAL HAD THOUGHT IT PROPER TO RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR ENABLING THE AO TO EXAMINE THE PROMOTERS - S HAREHOLDERS. NOW AGAIN IN THE SECOND ROUND OF APPEAL, LD.CIT(A) HAS EXAMINED THOSE VERY FACTS AND THEREUPON ARRIVED AT THE CONCLUSION THAT THE PRIMARY ONUS WAS DISCHARGED BY THE ASSESSEE BY FILING THE AFFIDAVITS OF THOSE PROMOTERS ALONG WITH REQUISITE DETAILS, THEREFORE FOLLOWING T HE DECISION OF STELLER INVESTMENT LTD.(SUPRA) THE ADDITION WAS DELETED. WE HAVE EXAMINED THE REQUISITE DETAILS AND THE REMAND REPORT, AS PLACED IN THE COMPILATION. WE HAVE NOTED THAT THE REVENUE HAD ATTEMPTED TO SHIFT THE ONUS ON THE ASSESSEE TO PRODUCE THESE PROMOTERS ALTHOUGH THE AS SESSEE HAS INFORMED THAT THOSE PROMOTERS WERE SUBJECT TO TAX THEREFORE THE INFORMATION IN RESPECT OF THEIR IDENTITY, SOURCE OF INVESTMENT AND CREDITWORTHINESS WAS IN THE POSSESSION OF THE REVENUE DEPARTMENT. IN SUCH TYPE OF CASES, THE ONUS KEEPS ON SHIFTING FROM ASSESSEE TO REVENUE AND ALSO FROM REVENUE TO ASSESSEE. IT IS OPEN TO THE AO TO ENQUIRE INTO THE IDENTITY OF THE SHAREHOLDERS AND THEIR CREDITWORTHINESS. THE REVEN UE AUTHORITIES HAVE ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 9 - ALL THE POWERS TO FIND OUT THE EXISTENCE OF THE SHA REHOLDERS SPECIALLY IN A SITUATION WHERE THE PANS ARE INFORMED BY THE ASSESS EE. WE ARE GOING TO REFER HEREINBELOW SOME OF THE DECISIONS OF THE HON BLE COURTS PRONOUNCED IN RESPECT OF THIS ISSUE, HOWEVER THE CR UX OF THESE DECISIONS IS THAT IF THE SHAREHOLDERS ARE IDENTIFIED AND IT W AS ALSO ESTABLISHED THAT THEY HAVE INVESTED IN THE PURCHASE OF SHARES, THEN THE AMOUNT RECEIVED BY THE ASSESSEE-COMPANY WOULD BE REGARDED AS THE CAPI TAL RECEIPT. WE MAY LIKE TO REFER THE HONBLE SUPREME COURT DECISIO N IN THE CASE OF CIT VS. STELLER INVESTMENT LTD. 251 ITR 263(SC) WHEREIN THE HEAD NOTES OF THE COMMENTARY IS AS UNDER:- FROM THE DECISION OF THE HIGH COURT (SEE [1991] 19 2 ITR 287) DECLINING TO CALL FOR A REFERENCE FROM THE DECISION OF THE APPELLATE TRIBUNAL THAT THE INCREASE IN SUBSCRIBED CAPITAL OF THE RESPONDENT- COMPANY COULD NOT BE A DEVICE OF CONVERTING BLACK M ONEY INTO WHITE WITH THE HELP OF FORMATION OF AN INVESTMENT C OMPANY, ON THE GROUND THAT, EVEN IF IT BE ASSUMED THAT THE SUBSCRI BERS TO THE INCREASED CAPITAL WERE NOT GENUINE, UNDER NO CIRCUM STANCES COULD THE AMOUNT OF SHARE CAPITAL BE REGARDED AS UNDISCLO SED INCOME, AN APPEAL WAS TAKEN BY THE DEPARTMENT TO THE SUPREME C OURT. THE SUPREME COURT DISMISSED THE APPEAL HOLDING THAT THE TRIBUNAL HAD COME TO A CONCLUSION ON FACTS AND NO INTERFERENCE W AS CALLED FOR. DECISION OF THE DELHI HIGH COURT IN CIT VS. STELLAR INVESMTNET LTD. [1991] 192 ITR 287 AFFIRMED. 8. IN THE RESULT, WE THEREFORE HOLD THAT THERE WAS NO LEGAL FALLACY IN THE RELIEF GRANTED BY THE LD.CIT(A). THIS GROUND OF THE REVENUE IS THEREFORE DISMISSED. 9. AS A RESULT, REVENUES APPEAL STANDS DISMISSED ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 10 - 10. NOW, WE SHALL TAKE UP THE LEGALLY AS ALSO FACTU ALLY CONNECTED GROUND OF THE ASSESSEE. 10.1. UNDISPUTEDLY, THE ASSESSEE-COMPANY HAD MADE A PUBLIC ISSUE OF RS.2.55 CRORES. AS MANY AS 460 INVESTORS WERE STAT ED TO HAVE APPLIED FOR THE ALLOTMENT OF SHARES. AN AMOUNT OF RS.2,51,80, 000/- WAS SUBSCRIBED BY THEM AS A SHARE-CAPITAL. IN THE FIRST ROUND OF ASSESSMENT PROCEEDINGS, THE AO HAD ISSUED LETTERS U/S.133(6) O F THE ACT TO 86 PROMOTERS FOR TEST-CHECK. OUT OF THE LIST OF 86 PR OMOTERS, THE AO HAS RECEIVED CONFIRMATIONS IN RESPECT OF 58 CASES. I N RESPECT OF REST OF THE 28 CASES, LETTERS COULD NOT BE SERVED. HOWEVER, FR OM THE SIDE OF THE ASSESSEE, AFFIDAVITS OF THOSE 28 PERSONS HAVE BEEN FURNISHED. THE AO WANTED THE ASSESSEE TO PRODUCE THE PROMOTERS OR THE SHAREHOLDERS. ON THE OTHER HAND, THE ASSESSEE INSISTED UPON THAT THE AFF IDAVITS HAVE BEEN FILED AND THE INVESTIGATION COULD HAVE BEEN DONE BY THE A O AS PER LAW. SO THE BASIC DISPUTE APPEARED TO BE WAS THAT OUT OF THE TW O RIVAL PARTIES WHO HAS DISCHARGED THE ONUS. IN THE FIRST ROUND OF APPEAL , LD.CIT(A) VIDE ORDER DATED 16 TH NOVEMBER, 1999 HAS HELD AS UNDER:- WHILE FRAMING THE ASSESSMENT, AFTER HAVING SENT 86 LETTERS TO PROMOTERS ON TEST CHECK BASIS AS DISCUSSED IN GROUN D NO.2 ABOVE, THE ASSESSING OFFICER HELD THAT NO CONFIRMATION HAD BEEN FILED FOR THE REMAINING 374 PROMOTERS AND THE APPELLANT WAS U NABLE TO PROVE THEIR IDENTITY OR CREDITWORTHINESS. THE ASSE SSING OFFICER FURTHER HELD THAT ALL APPLICATIONS WERE ONCE AGAIN MADE FOR RS.50 OR 55,000 IN CASH IN SPITE OF THE AVAILABILITY OF T HE BANKING SERVICES. FURTHER, NONE OF THESE 374 PROMOTERS HAD MADE DEPOSITS IN THE BANK INDIVIDUALLY. IT WAS THE APPELLANT WHO ON ITS OWN MADE ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 11 - THESE DEPOSITS IN LUMPSUM AMOUNTS IN BANK ACCOUNT I N CASH. IN VIEW OF THESE CIRCUMSTANCES, THE ASSESSING OFFICER PROCEEDED TO ADD THE ENTIRE AMOUNT OF RS.2,06,80,000/- SUBSCRIBED BY THE 374 PERSONS AS UNEXPLAINED CASH CREDITS. 13. IN APPEAL BEFORE ME, IT WAS SUBMITTED BY THE APPELLANTS REPRESENTATIVE THAT THE ASSESSING OFFICER NEVER ASK ED FOR ANY DETAILS IN REGARD TO THESE 374 PERSONS. THE DETAILS CALLED FOR BY HIM WERE ONLY IN RESPECT OF PERSONS WHO HAD SUBSCRIBED ABOVE RS.20,000/- AND ACCORDINGLY ONLY THAT DETAIL WAS FURNISHED. 14. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANTS REPRESENTATION. IN MY VIEW WHAT THE ASSESSING OFFI CER HAS TRIED TO DO IS TO EXTRAPOLATE HIS FINDINGS FROM THE 28 CASES TO THESE 374. BUT HERE ALSO IN VIEW OF THE FACT THAT THE FACTS ON RECORD DID NOT JUSTIFY ANY ADVERSE FINDING IN RELATION TO THE 28 C ASES AS HAS BEEN DISCUSSED ABOVE, NO ADVERSE CONCLUSION COULD BE EXT RAPOLATED TO THESE 374 PERSONS EITHER. THIS ADDITION, THEREFORE , IS CLEARLY UNSUSTAINABLE AND IS ACCORDINGLY DELETED. 10.2. AS WE HAVE DISCUSSED HEREINABOVE, THE RESPECT ED COORDINATE BENCH HAS RESTORED THIS ISSUE AS WELL BACK TO THE A SSESSMENT STAGE TO ENABLE THE AO TO EXAMINE THE INVESTORS. IT IS TRUE THAT ONLY 86 LETTERS WERE ISSUED BY THE AO AND NOT TO ALL THE APPLICANTS . IT IS ALSO TRUE THAT OUT OF 86 AS MANY AS 58 APPLICANTS HAVE RESPONDED. BUT THE NUMBER OF INVESTORS WERE 460 AND THE AO HAS NOT EXAMINED ALL OF THEM BUT SIMPLY EXTRAPOLATED THE FINDINGS WHICH WAS HELD BY HIM IN RESPECT OF 28 CASES. IT IS WORTH TO POINT OUT, AS MADE BY LD.CIT(A), THA T EVEN IN RESPECT OF THOSE 28 INVESTORS THERE WAS NO ADVERSE FINDING REC ORDED BY THE A.O. THAT THEY WERE NOT GENUINE. THE ONLY CRYPTIC OBSERVATIO N OF THE A.O. WAS THAT MERE FILING OF AFFIDAVIT WAS NOT SUFFICIENT. AS AG AINST THAT, THE ASSESSEE ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 12 - HAS PLACED ON RECORD THE LIST OF ALL THE SHAREHOLDE RS GIVING INFORMATION ABOUT THE APPLICATION NUMBER, FOLIO NUMBER, NAMES A ND ADDRESSES AND THE NUMBER OF EQUITY SHARES ALLOTTED TO THEM. THE ASSESSEE HAS ALSO FURNISHED THE SHARE APPLICATION MONEY OF EACH SHARE HOLDER AND VEHEMENTLY CONTESTED THAT THE INVESTORS WERE GENUIN E SINCE THEIR IDENTITY HAS BEEN PROVED BY PLACING THE REQUISITE DETAILS OF ALL THESE PERSONS. IT WAS STRONGLY CONTESTED THAT THEIR APPLICATION FORMS WERE APPLIED INDIVIDUALLY BY THOSE INVESTORS AND THOSE INVESTORS COULD HAVE BEEN DIRECTLY EXAMINED BY THE AO. 10.3 BEFORE WE EXAMINE THE LEGAL ASPECT OF THIS IS SUE, IT IS PERTINENT TO MENTION THAT WHILE PERUSING THE ORDER OF LD.CIT(A), WE HAVE FURTHER NOTED CERTAIN DISCREPANCIES IN RESPECT OF THE IMPUG NED ADDITION MADE IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAD FURNIS HED A WRITTEN SUBMISSION BEFORE LD.CIT(A), RELEVANT PORTION ALREA DY REPRODUCED HEREINABOVE AND THAT WRITTEN SUBMISSION WAS FORWARD ED TO AO TO SUBMIT A REMAND REPORT. IN THE REMAND REPORT, THE AO HAS NOT DISPUTED CERTAIN FACTS, SUCH AS FURNISHING OF SHARE APPLICAT IONS, DETAILS OF THE SHARE- APPLICANTS WITH THEIR ADDRESSES, FURNISHING OF PANS /GIR IN RESPECT OF PROMOTERS, FURNISHING OF AFFIDAVITS OF SOME OF THE APPLICANTS. IN THE REMAND REPORT, THE AO HAS MAINLY INFORMED THE NOTIC ES OF HEARING ISSUED TO THE ASSESSEE. HOWEVER, IN THIS REGARD, T HE ASSESSEES ALLEGATION WAS THAT INSUFFICIENT OPPORTUNITIES WAS GRANTED BY THE AO. RATHER, IN ONE OF THE OCCASION, THE ALLEGATION OF THE ASSESSEE WAS THAT THE DATE OF HEARING WAS FIXED ON 21.09.2007 BUT THE NOTICE WAS SERVED O N 22.9.2007. BE ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 13 - THAT AS IT WAS; THE REMAND REPORT WAS NOT SPECIFIC BUT GENERAL IN NATURE. THE ASSESSEE HAS REITERATED THAT ONLY 10 DAYS TIME WAS GRANTED AND THE QUESTION OF CALLING 442 PERSONS IN A SHORT PERIOD W AS NOT HUMANLY POSSIBLE. THE ASSESSEE WANTED TO HAVE MORE TIME AN D ALSO WANTED TO KNOW THE PERSONS WHO HAVE ALREADY ATTENDED THE ENQU IRY CONDUCTED BY THE AO. AT ONE PLACE, THE ASSESSEE HAS ALLEGED THA T THE HEARING WAS GRANTED TO THE ASSESSEE BY THE AO ON 22.08.2007 AND ON THAT DATE OF HEARING THE ASSESSEE HAS TRIED TO FURNISH THE XEROX COPY OF ALL THE SHARE APPLICATIONS BUT THE AO HAD REFUSED TO ACCEPT ALL T HOSE EVIDENCES. IT IS WORTH TO MENTION THAT AT THE ORIGINAL STAGE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE HAD ALREADY FURNISHED THE PHOTOCOPIES OF T HE SHARE-APPLICATION- FORMS WITH REQUISITE INFORMATION IN THE YEAR 1999 BUT ON THE PART OF THE AO, NO EFFORT WAS MADE TO CONDUCT THE ENQUIRY. MO RE THAN SUFFICIENT TIME WAS AVAILABLE TO THE REVENUE DEPARTMENT BUT CO ULD NOT BE UTILIZED TO GATHER EVIDENCES/INFORMATION IN SUPPORT OF THE A LLEGATION OF BOGUS SHARE APPLICANTS. IN THE FIRST ROUND OF APPEAL, EVEN LD.CIT(A) HAS GRANTED THE RELIEF BECAUSE OF THE REASON THAT THE A O HAD CONDUCTED THE INQUIRY IN RESPECT OF 86 PERSONS OUT OF WHICH 58 AP PLICANTS HAVE RESPONDED. THEREFORE, THE CIT(A) HAS GIVEN A FIND ING THAT IT WAS NOT PROPER ON THE PART OF THE AO TO EXTRAPOLATE HIS CON CLUSION, THAT TOO ON PRESUMPTION IN RESPECT OF REST OF THE APPLICANTS. IF THE AO WANTED TO ESTABLISH THAT THE SHARE APPLICANTS WERE ALLEGEDLY BOGUS IN NATURE, THEN IT WAS EXPECTED FROM HIM TO UNDERTAKE THE DUE EFFORTS BY MAKING REQUISITE ENQUIRIES. RATHER, THE AOS ORDER NOW IN QUESTIO N APPEARS TO BE LACKADAISICAL IN THIS REGARD. THE PICK AND CHOOSE POLICY FOR ISSUING ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 14 - SUMMONS TO FEW PERSONS CANNOT BE APPRECIATED. IF T HE ASSESSEE IS FILING THE BASIC INFORMATION, THEN THE AO SHOULD HAVE ESTA BLISHED THAT THE SHARE APPLICANTS WERE BOGUS PERSONS. A HALF-HEARTED ENQU IRY WAS MADE, HOWEVER THROUGH THAT ENQUIRY, THE REVENUE HAS NOT E STABLISHED THE IMPUGNED ALLEGATION. THE LD.CIT(A) HAS ALSO PASSED A CRYPTIC ORDER PRIMARILY ON THE GROUND THAT THE ASSESSEE SHOULD HA VE TAKEN DUE CARE TO FURNISH ALL THE NECESSARY DETAILS OF THE PROMOTERS AND SHAREHOLDERS. ON THE CONTRARY, THE BASIC INFORMATION WAS ALREADY ON RECORD. AT THAT POINT OF TIME, THERE WAS A DECISION OF STELLER INVESTMENT 251 ITR 263 AND, THEREFORE, IN THE LIGHT OF SAID PRECEDENT, THE LD.C IT(A) HAS TAKEN A VIEW IN FAVOUR OF THE REVENUE. HOWEVER, NOW A LOT OF WATE R HAD ALREADY UNDERGONE THE BRIDGE AND THE LAW IN THIS REGARD HAS NOW BEEN WELL ESTABLISHED BY SEVERAL PRECEDENTS, GOING TO BE DISC USSED HEREUNDER. 10.4. THE LEGAL ASPECT OF THIS ISSUE HAS ALSO TO BE EXAMINED AT LENGTH BECAUSE OF THE EXISTENCE OF SEVERAL CASE LAWS IN TH IS REGARD. WE HAVE EXAMINED THE LEGAL ASPECT AT LENGTH IN A LATEST DEC ISION OF MODERN CEMENT INDUSTRIES LTD. ORDER PRONOUNCED ON 30/06/2 011 (ITA NOS.2506/AHD/2006, 1673/AHD/2007 & 404/AHD/2008),WH EREIN VIDE PARA-6 ONWARDS WE HAVE CONSIDERED THE RELEVANT CASE LAWS AND, THEREAFTER, TAKEN A VIEW IN ASSESSEES FAVOUR AS UN DER:- 6.1. A DECISION OF HONBLE DELHI HIGH COURT PRONOUNCED ON 16/04/1991 IN THE CASE OF CIT VS. STELLAR INVESTMENT LTD. 192 ITR 287(DEL.) HAS HELD THAT, EVEN IF IT BE ASSUMED THAT THE SUBSCRIBERS TO THE I NCREASED SHARE CAPITAL WERE NOT GENUINE, UNDER NO CIRCUMSTANCES COULD THE AMOUN T OF SHARE CAPITAL BE REGARDED AS UNDISCLOSED INCOME OF THE COMPANY. NO QUESTION OF LAW AROSE OUT ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 15 - OF THE TRIBUNALS ORDER. THE ISSUE WAS LIMITED BEF ORE THE HONBLE COURT BECAUSE THE INCOME TAX OFFICER HAS ACCEPTED THE INC REASE IN THE SUBSCRIBED CAPITAL, WHICH WAS SUBJECT TO REVIEW BY THE LD.COMM ISSIONER U/S.263 WHO HAS HELD THAT THE AO DID NOT CARRY OUT A DETAILED INVES TIGATION INASMUCH AS THERE HAD BEEN A DEVICE OF CONVERTING BLACK MONEY INTO WH ITE WHILE ISSUING SHARES WITH THE HELP OF FORMATION OF AN INVESTMENT COMPANY . THE COMMISSIONER FURTHER HELD THAT THE AO DID NOT MAKE ENQUIRIES WIT H REGARD TO THE GENUINENESS OF THE SUBSCRIBERS OF THE SHARE CAPITAL. EVEN IN T HAT CASE, THE HONBLE COURT HAS MADE AN OBSERVATION, QUOTE IF THE ASSESSMENT O F THE PERSONS WHO ARE ALLEGED TO HAVE REALLY ADVANCED THE MONEY IS SOUGHT TO BE REOPENED, THAT WOULD HAVE MADE SOME SENSE BUT WE FAIL TO UNDERSTAN D AS TO HOW THIS AMOUNT OF INCREASED SHARE CAPITAL CAN BE ASSESSED IN THE H ANDS OF THE COMPANY ITSELF.UNQUOTE. THE DIFFICULTY IN THE PRESENT AP PEAL IS THAT THOUGH THE SHARE APPLICATIONS WERE ON RECORD BUT SOME OF THE INVESTO RS WERE NOT AVAILABLE AT THE ADDRESSES GIVEN. HENCE, IN RESPECT OF FEW INVE STORS IT WAS NOT POSSIBLE FOR THE REVENUE TO ASSESS THEIR INVESTMENT IN THEIR RES PECTIVE HANDS. 6.2. A FULL BENCH OF DELHI HIGH COURT WAS CONSTITUTED AND VIDE AN ORDER DATED 27/08/1993 IN THE CASE OF CIT VS. SOPHIA FINA NCE LTD. 205 ITR 98(DEL.)[FB], THE AFORECITED DECISION OF CIT VS. ST ELLAR INVESTMENT LTD.(SUPRA) WAS REVERSED. THERE WAS A PETITION BEFORE THE HON BLE DELHI HIGH COURT U/S.256(2) WHICH HAS BEEN REFERRED TO THE FULL BENC H BECAUSE THE CORRECTNESS OF THE OBSERVATIONS IN THE JUDGMENT OF A DIVISION B ENCH IN THE CASE OF CIT VS. STELLAR INVESTMENT LTD. 192 ITR 287 WAS DOUBTED. THE CRUX OF THIS DECISION OF THE FULL BENCH WAS THAT IF THE SHAREHOLDERS ARE IDE NTIFIED AND IT IS ESTABLISHED THAT THEY HAVE INVESTED MONEY IN THE PURCHASE OF SH ARES, THEN THE AMOUNT RECEIVED BY THE COMPANY WOULD BE REGARDED AS A CAPI TAL RECEIPT AND TO THAT EXTENT THE OBSERVATION IN STELLAR INVESTMENT LTD.(S UPRA) WAS HELD AS CORRECT. THE HONBLE FULL BENCH HAS FURTHER SAID THAT IF THE SUBSCRIBERS TO THE CAPITAL WERE NOT GENUINE, THEN UNDER NO CIRCUMSTANCES THE AMOUNT OF SHARE CAPITAL BE REGARDED AS DISCLOSED INCOME OF THE COMPANY. IT WA S A CASE OF A LIMITED COMPANY IN THE BUSINESS OF STOCKS AND FINANCING. BY INVOKING THE PROVISIONS OF SECTION 263 THE COMMISSIONER HAS ARRIVED AT THE CONCLUSION THAT THERE WAS LACK OF ENQUIRY BY THE ITO. IT WAS HELD THAT IT WA S THE DUTY OF THE ITO TO ENQUIRE INTO THE GENUINENESS OF THE SHAREHOLDERS AN D DIRECTED TO ENQUIRE WHETHER THE SO-CALLED SHAREHOLDERS WERE ACTUALLY IN EXISTENCE OR NOT. THE TRIBUNAL HAS FOUND THAT THE COMPANY HAD FILED A LAR GE NUMBER OF ENCLOSURES ALONGWITH ITS RETURN INCLUDING THE LIST OF SHAREHOL DERS, FORMS CONTAINING THE FULL ADDRESSES AS WELL AS THE ALLOTMENT LETTERS BEFORE T HE ITO. THE TRIBUNAL CAME TO THE CONCLUSION THAT THE COMPANY WAS INCORPORATED AND THE MONEY WAS ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 16 - RECEIVED IMMEDIATELY ON INCORPORATION WOULD SHOW TH AT EVEN U/S.68 NO ASSESSMENT COULD BE MADE IN THE HANDS OF THE COMPAN Y. RELEVANT OBSERVATION IS WORTH REPRODUCTION: IT IS NEITHER NECESSARY NOR DESIRABLE TO GIVE EXA MPLES TO INDICATE UNDER WHAT CIRCUMSTANCE SECTION 68 OF THE ACT CAN O R CANNOT BE INVOKED. WHAT IS CLEAR, HOWEVER, IS THAT SECTION 68 CLEARLY PERMITS AN INCOME-TAX OFFICER TO MAKE ENQUIRIES 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 SOU RCE INDICATED BY THE ASSESSEE. IN OTHER WORDS, THE TRUTHFULNESS OF THE A SSERTION OF THE ASSESSEE REGARDING THE NATURE AND THE SOURCE OF THE CREDIT I N ITS BOOKS OF ACCOUNT CAN BE GONE INTO BY THE INCOME-TAX OFFICER. IN THE CASE OF STELLAR INVESTMENT LTD.[1991] 192 ITR 287 (DELHI), THE INCO ME-TAX OFFICER HAD ACCEPTED THE INCREASED SUBSCRIBED SHARE CAPITAL. SE CTION 68 OF THE ACT WAS NOT REFERRED TO AND THE OBSERVATIONS IN THE SAI D JUDGMENT CANNOT MEAN THAT THE INCOME-TAX OFFICER CANNOT OR SHOULD N OT GO INTO THE QUESTION AS TO WHETHER THE ALLEGED SHAREHOLDERS ACT UALLY EXISTED OR NOT. IF SHAREHOLDERS ARE IDENTIFIED AND IT IS ESTABLISHE D THAT THEY HAVE INVESTED MONEY IN THE PURCHASE OF SHARES THEN THE A MOUNT RECEIVED BY THE COMPANY WOULD BE REGARDED AS CAPITAL RECEIPT AN D TO THAT EXTENT THE OBSERVATIONS IN THE CASE OF STELLAR INVESTMENT LTD. [1991] 192 ITR 287 (DELHI), ARE CORRECT BUT IF, ON THE OTHER HAND, THE ASSESSEE OFFERS NO EXPLANATION AT ALL OR THE EXPLANATION OFFERED IS NO T SATISFACTORY THEN, THE PROVISIONS OF SECTION 68 MAY BE INVOKED. IN THE LAT TER CASE SECTION 68, BEING A SUBSTANTIVE SECTION, EMPOWERS THE INCOME-TA X OFFICER TO TREAT SUCH A SUM AS INCOME OF THE ASSESSEE WHICH IS LIABL E TO BE TAXED IN THE PREVIOUS YEAR IN WHICH THE ENTRY IS MADE IN THE BOO KS OF ACCOUNT OF THE ASSESSEE. THE HONBLE FULL BENCH HAS ALSO MADE CLEAR THAT IT WAS NOT THEIR INTENTION TO DECIDE AS TO WHAT EXTENT THE ONUS IS W HEN AN AMOUNT IS CREDITED IN THE BOOKS OF ACCOUNT IN SHARE CAPITAL AND WHEN DOES THAT ONUS STAND DISCHARGED BECAUSE THAT WILL DEPEND ON THE FACTS OF EACH CASE. THUS FULL BENCH DECISION HAS MADE CLEAR THAT IF THE ASSESSEE OFFERS NO EXPLANATION OR THE EXPLANATION OFFERED IS NOT SATISFACTORY, THEN SECTI ON 68 HAS TO BE INVOKED, BEING A SUBSTANTIVE SECTION AND EMPOWERS THE ITO TO TREAT SUCH AMOUNT AS THE INCOME OF THE ASSESSEE, LIABLE TO BE TAXED IN THE P REVIOUS YEAR IN WHICH THE ENTRY IS MADE IN THE BOOK OF ACCOUNT. SINCE IN THE PRESENT APPEAL, FACTS HAVE REVEALED THAT NO EXPLANATION WAS OFFERED AND THE NO TICES COULD NOT BE SERVED ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 17 - THEN THE PROVISIONS OF SECTION 68 WERE INVOKED TO A SSESS THE IMPUGNED AMOUNT IN THE HANDS OF THE ASSESSEE. 6.3. THEREAFTER, THE AFORESAID DECISION OF STELLAR INVE STMENT LTD. HAS REACHED BEFORE THE HONBLE SUPREME COURT AND VIDE A N ORDER DATED 20/07/2000 TITLED AS CIT VS. STELLAR INVESTMENT LTD . 251 ITR 263(SC) THE QUESTION AS REFERRED BY THE REVENUE WAS NOT ADMITTE D AND HELD THAT THE TRIBUNAL CAME TO THE CONCLUSION ON FACTS HENCE NO I NTERFERENCE WAS CALLED FOR. 6.4. FROM THE SIDE OF THE ASSESSEE, A DECISION OF HONB LE SUPREME COURT IN THE CASE OF LOVELY EXPORTS PVT.LTD . 216 CTR 195 DATED 11/01/2008 IS CITED. IN THIS CASE THE SLP OF THE REVENUE DEPA RTMENT WAS DISMISSED, BUT AN IMPORTANT OBSERVATION WAS MADE T HAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE-COMPA NY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN A CCORDANCE WITH LAW. . 7. IN A LATEST DECISION OF HONBLE DELHI HIGH COURT PRON OUNCED IN THE CASE OF CIT VS. OASIS HOSPITALITIES P.LTD. RE PORTED AT [2001]333 ITR 19 (DEL.), THE HONBLE COURT HAS HELD AS UNDER: THE INITIAL BURDEN IS UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE. I N ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQUIRED TO PROVE (I) THE IDENTITY OF THE SHARE-HOLDER, (II) THE GENUINENESS OF THE TRANSACTION, AND (C) THE CREDITW ORTHINESS OF THE SHAREHOLDERS. IN CASE THE INVESTOR/SHAREHOLDER IS AN INDIVIDUAL, SOM E DOCUMENTS WILL HAVE TO BE FILED OR THE SHAREHOLDER WILL HAVE TO BE PRODUCED BEFORE THE ASSESSING OFFICER TO PROVE HIS IDENTITY. IF THE CREDITOR/SUBSCRIBER IS A COMPANY, THEN THE DETAILS IN THE FORM OF REGISTERED ADDRESS OR PAN IDENTITY, ETC., CAN BE FU RNISHED. WHEN THE MONEY IS RECEIVED BY CHEQUE AND IS TRANSMITTED THROUGH BANKI NG OR OTHER INDISPUTABLE CHANNELS, THE GENUINENESS OF THE TRANSACTION WOULD BE PROVED. OTHER DOCUMENTS SHOWING THE GENUINENESS OF THE TRANSACTION COULD BE COPIES OF THE SHAREHOLDERS REGISTER, SHARE APPLICATION FORMS, SHARE TRANSFER R EGISTER, ETC. AS FAR AS THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDI TOR/SUBSCRIBER IS CONCERNED, THAT CAN BE PROVED BY PRODUCING THE BANK STATEMENT OF THE CR EDITORS/SUBSCRIBERS SHOWING THAT IT HAD SUFFICIENT BALANCE IN ITS ACCOUNTS TO ENABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. ONCE THESE DOCUMENTS ARE PRODUCED, THE ASSESSEE WOU LD HAVE SATISFACTORILY DISCHARGED THE ONUS CAST UPON HIM. THEREAFTER, IT I S FOR THE ASSESSING OFFICER TO SCRUTINISE THE SAME AND IN CASE HE NURTURES ANY DOU BT ABOUT THE VERACITY OF THESE DOCUMENTS, TO PROBE THE MATTER FURTHER. HOWEVER, TO DISCREDIT THE DOCUMENTS PRODUCED BY THE ASSESSEE ON THE ASPECTS, THERE HAVE TO BE SOME COGENT REASONS AND MATERIALS FOR THE ASSESSING OFFICER AND HE CANN OT GO INTO THE REALM OF SUSPICION. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY OF RS.3 LAKHS EACH FROM SIX PRIVATE LIMITED C OMPANIES DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2004-05. NOTICE UNDER SECTIO N 148 WAS ISSUED IN RESPECT OF ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 18 - THE ASSESSMENT YEAR 2003-04 AND REASSESSMENT DONE. THE ASSESSING OFFICER MADE ADDITION OF RS.18 LAKHS TO THE INCOME OF THE ASSESS EE ON PROTECTIVE BASIS IN THE ASSESSMENT YEAR 2004-05. ON APPEAL : HELD,_ DISMISSING THE APPEAL, THAT THE ASSESSEE HAD FILED COPIES OF PAN, ACKNOWLEDGMENT OF FILING INCOME-TAX RETURNS OF THE COMPANIES, THEIR BANK ACCOUNTS STATEMENTS FOR THE RELEVANT PERIOD BUT HAD NOT PROD UCED THE DIRECTORS OF THE COMPANIES. THE ADDITION MADE BY THE ASSESSING OFFIC ER COULD NOT BE SUSTAINED AS THE PRIMARY ONUS WAS DISCHARGED BY THE ASSESSEE. TH E ASSESSING OFFICER HAD NOT INVESTIGATED WHETHER THE MODUS OPERANDI BY THE ENTR Y OPERATOR DISCUSSED BY THE INVESTIGATION WING EXISTED IN THE CASE OR NOT. EVEN THE BANK STATEMENTS AS CLAIMED BY THE ASSESSING OFFICER REVEALED THAT THE ASSESSEE HAD RECEIVED CHEQUES FROM THE SHAREHOLDERS. THE ASSESSEE RECEIVED RS.99.18 LAKHS ON ACCOUNT OF SHARE APPLICATION MONEY. IT FILED CONFIRMATIONS FROM 30 PARTIES. NOTICES ISSUED WERE RETURNED UNSERVED ON 22 OUT OF 30 PARTIES AND THE REMAINING 8 PARTIES DID NOT R ESPOND. THE INSPECTOR MADE LOCAL INQUIRIES WHICH REVEALED THAT THE PARTIES DID NOT E XIST AT THE GIVEN ADDRESSES. ON ENQUIRIES FROM THE BANK, THE ASSESSING OFFICER FOUN D VARIOUS DISCREPANCIES BETWEEN THE STATEMENT SENT BY THE BANK AND THE STATEMENT PR OCURED BY THE ASSESSEE. THE ASSESSING OFFICER CONFRONTED THE ENTIRE MATERIAL TO THE ASSESSEE AND ALLOWED VARIOUS OPPORTUNITIES BUT THE ASSESSEE DID NOT PRODUCE A SI NGLE PARTY. THEREFORE, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 99.18 LAK HS ON ACCOUNT OF UNEXPLAINED SHARE CAPITAL UNDER SECTION 68. SIMILARLY, THE ASSE SSING OFFICER ALSO MADE ADDITION OF RS. 3.10 LAKHS ON ACCOUNT OF UNEXPLAINED CREDIT UND ER SECTION 68. THE COMMISSIONER (APPEALS) DELETED THE ADDITION. THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL : HELD, DISMISSING THE APPEAL, THAT THE ADDITION WAS RIGHTLY DELETED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. REQUISITE DOCUMENTS WERE F-URNISHED SHOWING THE EXISTENCE OF THE SHAREHOLDERS FROM ACCO UNTS AND EVEN THEIR INCOME-TAX DETAILS. FROM BANK ACCOUNTS OF THESE SHAREHOLDERS, IT WAS FOUND THAT THEY HAD DEPOSITED CERTAIN CASH AND THE SOURCE THEREOF WAS Q UESTIONABLE. THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER PROBE WHICH HE FAI LED TO DO. MOREOVER, THE REMEDY WITH THE DEPARTMENT LAY IN REOPENING THE CAS E OF THE INVESTORS AND THE ADDITION COULD NOT BE MADE IN THE HANDS OF THE ASSE SSEE. _HELD,_ALSO, THAT IN SO FAR AS THE STATEMENTS OF TH E PERSONS WHO WERE PRODUCED WERE CONCERNED, THEY WERE GONE INTO AND ANALYSED BY THE THREE AUTHORITIES BELOW ON THE BASIS OF WHICH FINDING OF FACT WAS ARRIVED AT THAT NEITHER THEIR IDENTITY WAS ESTABLISHED NOR THEIR CAPACITY TO INVEST THIS KIND OF MONEY WAS PROVED. THEY WERE ALL AGRICULTURISTS AND HAD NOT PRODUCED A SINGLE DOCUMENT TO SUPPORT T HEIR VERSION. THE ASSESSEE HAD NOT BEEN ABLE TO DISCHARGE THE ONUS AND THE ADDITIO N WAS RIGHTLY MADE. THIS WAS A CASE WHERE THE ASSESSEE COULD NOT DISCHARGE THE ONU S BUT IT COULD NOT BE SAID THAT IT WAS THE CASE OF CONCEALMENT OF INCOME. THE TRIBUNAL RIGHTLY DELETED THE PENALTY. 7.1. THE SALIENT FEATURE OF THIS JUDGEMENT AND THE OTHER JUDGEMENTS AS CITED HEREINABOVE ARE THAT THE INITIAL BURDEN AND THE PRI MARY ONUS IS UPON THE ASSESSEE TO ESTABLISH THE SOURCE OF SHARE APPLICATI ON MONEY RECEIVED. IN ORDER TO DISCHARGE THIS BURDEN, IT IS REQUIRED TO P LACE ON RECORD THE IDENTITY OF THE SHARE HOLDERS AND THE DETAILS OF THE TRANSACTI ON. IN THIS REGARD, ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 19 - PROVISIONS OF SECTION 68 ARE TO BE FOLLOWED. ONCE THOSE DOCUMENTS ARE PRODUCED, THEN IT CAN BE SAID THAT THE REQUISITE PR IMARY ONUS AS CASTED UPON AN ASSESSEE HAS BEEN DISCHARGED. THEREAFTER, IT IS FOR THE AO TO SCRUTINIZE THOSE DETAILS. THE COURTS HAVE SUGGESTED THAT IF THE A O HAD MADE CERTAIN ENQUIRIES AND NURTURES ANY DOUBT ABOUT THE CREDITWORTHINESS O F THOSE INVESTORS, THEN HE IS FREE TO TAKE APPROPRIATE ACTION IN THEIR RESPECT IVE HANDS. HOWEVER, IT IS NECESSARY THAT TO PROBE FURTHER THERE MUST BE BASI C INFORMATION IN POSSESSION OF THE AO. THOSE BASIC INFORMATION CAN BE SAID TO BE THE CORRECT ADDRESSES OF THE INVESTORS, SO THAT FURTHER ACTION CAN BE TAKEN AGAINST THEM. MEANING THEREBY SUCH INVESTORS SHOULD HAVE RESPONDED THE NO TICES ISSUED TO THEM AND ATLEAST HAVE FURNISHED THEIR RESPECTIVE CONFIRMATIO N LETTERS. IF AT LEAST THAT INFORMATION IS WITH THE REVENUE DEPARTMENT, THEN TH E REVENUE DEPARTMENT IS IN A POSITION TO FOLLOW THE VERDICT OF THE HONBLE COURTS THAT APPROPRIATE ACTION CAN BE TAKEN BY THE REVENUE DEPARTMENT AGAIN ST THOSE VERY INVESTORS. KEEPING THESE GUIDELINES AND THE LAW LAID DOWN BY T HE HONBLE COURTS, WE HAVE TO EXAMINE THE NATURE OF COMPLIANCE EITHER MAD E BY THE ASSESSEE OR THOSE INVESTORS DURING ASSESSMENT PROCEEDINGS. 10.5. THEREFORE, FINALLY WE HAVE TO CONCLUDE THAT T HE ISSUE AS RAKED-UP BY THE REVENUE DEPARTMENT IN RESPECT OF THIS ASSESS EE-COMPANY NOW STOOD SQUARELY COVERED BY A DECISION OF HONBLE SUP REME COURT PRONOUNCED IN THE CASE OF CIT VS. LOVELY EXPORTS PV T.LTD. 216 CTR 195(SC) :: 6 DTR 308(SC), WHEREIN IT WAS HELD TH AT, QUOTE CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED IN COME UNDER SECTION 68 OF IT ACT, 1961 ? WE FIND NO MERIT IN THIS SPEC IAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MON EY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, W HOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PRO CEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HEN CE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT. UNQUOTE. ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 20 - 10.6. FROM THE SIDE OF THE ASSESSEE, AN ANOTHER DECISION OF THE RESPECTED COORDINATE BENCH D AHMEDABAD PRONOUNCED IN THE CASE OF SAIYED PAPER MILLS LTD. VS. ASST.CIT IN ITA NOS.154 4 AND 1545/AHD/2007 FOR A.Y. 1993-94 DATED 30/04/2010, H AS ALSO BEEN RELIED UPON; IN WHICH A VIEW WAS EXPRESSED IN FAVOUR OF THE ASSESSEE FOLLOWING FULL BENCH DECISION OF HONBLE DELHI HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. SOPHIA FINANCE CO. 205 ITR 9 8 (DEL)[FB] AND CONCLUDED THAT WHERE THE CONFIRMATIONS OF SHAREHOLD ERS IN RESPECT OF SHARE CAPITAL INTRODUCED PLACED ON RECORD, THEREFOR E IN THE ABSENCE OF ANY CONTRARY MATERIAL, IT WAS NOT JUSTIFIED TO INVOKE T HE PROVISIONS OF SECTION 68 TO TAX IN THE HANDS OF THE ASSESSEE. 10.7. IN A CIRCUMSTANCE, WHEN THE ASSESSEE HAS FURNISHED THE BASIC INFORMATION AS REQUIRED UNDER LAW AND THE AO HAS EI THER NOT INVESTIGATED OR FAILED TO DISCREDIT THE ASSESSEES EVIDENCE, THE N THE QUESTION OF BOGUS APPLICANTS HAVE BEEN DEALT WITH BY FEW COURTS IN SU CH MANNER THAT THE AO WAS UNDER OBLIGATION TO MAKE PROPER INVESTIGATIO N AND REACH THE SHAREHOLDERS TO CONFIRM THEIR CREDIBILITY BUT IN TH E ABSENCE OF SUCH AN EFFORT ADDITION CANNOT BE MADE, CITATION IS CIT VS. CREATIVE WORLD TELEFILMS LTD. 333 ITR 100(BOM.). LIKEWISE, IN TH E CASE OF CIT VS. ARUNANADA TEXTILES LTD. 333 ITR 116(KARN.), THE HON BLE COURT HAS EXPRESSED THAT THE DEPARTMENT IS TO INVESTIGATE AND PROVE THAT THE INVESTORS DID NOT HAVE THE CAPACITY TO INVEST THE A MOUNT IN SHARES. WE THEREFORE CONCLUDE THAT THE FACTS OF THIS CASE ARE QUITE PECULIAR BECAUSE IN THE FIRST ROUND OF APPEAL, THE LD.CIT(A) HAD GIVEN A VERDICT IN ASSESSEES ITA NO.3189/AHD/2008 (BY ASSES SEE) ITA NO.3256/AHD/2008 (BY REVENUE) ROCKLINE PROJECTS PVT.LTD. VS. ITO ASST.YEAR 1996-97 - 21 - FAVOUR, HOWEVER THE MATTER WAS RESTORED BACK, SO TH AT THE REVENUE SHOULD BE GIVEN A FAIR CHANCE BUT EVEN AFTER GRANTING SUFF ICIENT TIME THE REVENUE HAS NOT DISCHARGED ITS ONUS. MERE ALLEGATION IS NO T SUFFICE; SINCE A SUSPICION HOWSOEVER STRONG OUGHT TO HAVE CREDIBLE E VIDENCE. THEREFORE; RESPECTFULLY FOLLOWING THESE PRECEDENTS, WE HEREBY HOLD THAT THE ASSESSEE IS NOT LIABLE TO BE TAXED ON THE IMPUGNED AMOUNT U NDER THE CIRCUMSTANCES AS DISCUSSED HEREINABOVE. IN THE RE SULT, THIS GROUND OF THE ASSESSEE IS HEREBY ALLOWED. 11. AS A RESULT, REVENUES APPEAL IS DISMISSED, W HEREAS ASSESSEES APPEAL IS ALLOWED. SD/- SD/- ( .'# $ ) ( ) %& ( A. MOHAN ALANKAMONY ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIA L MEMBER AHMEDABAD; DATED 14/ 12 /2012 4..#, .#../ T.C. NAIR, SR. PS %3 1 .5 6%5) %3 1 .5 6%5) %3 1 .5 6%5) %3 1 .5 6%5)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT 3. 7 / CONCERNED CIT 4. 7() / THE CIT(A)-XI, AHMEDABAD 5. 5:; .# , , / DR, ITAT, AHMEDABAD 6. ; <0 / GUARD FILE. %3# %3# %3# %3# / BY ORDER, /5 . //TRUE COPY// = == =/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD