Appeal details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 0484 (ITAT-AGRA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 year(s) 2 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
16-05-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
14-06-2013
Assessment Year
2004-2005
Appeal Filed On
27-02-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 79/AGRA/2012 ASSTT. YEAR : 2004-05 M/S. GARG PRESERVATION (P) LTD., VS. A.C.I.T., 4(1), AGRA. D-522, KAMLA NAGAR, AGRA. (PAN: AACCG 0391 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH, ADVOCATE RESPONDENT BY : SHRI HOTI LAL, JR. D.R. DATE OF HEARING : 14.06.2013 DATE OF PRONOUNCEMENT OF ORDER : 21.06.2013 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)-II, AGRA DATED 11.10.11 FOR THE ASSESSMENT YEAR 2004-05 . 2. THIS APPEAL WAS EARLIER DISMISSED IN DEFAULT VID E ORDER DATED 11.10.12. THE ASSESSEE MOVED M.A. NO. 02/2013, EXPLAINING THE REA SONS FOR NON-APPEARANCE ON THE DATE OF HEARING. THE M.A. OF THE ASSESSEE WAS A LLOWED VIDE ORDER DATED 17.05.2013 AND THE APPEAL OF THE ASSESSEE WAS RESTO RED. ITA NO. 79/AGRA/2012 2 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD. 4. THE ASSESSEE ON GROUND NO. 1 TO 3 CHALLENGED THE ADDITION OF RS.14,65,000/- U/S. 68 OF THE IT ACT. THE ASSESSEE IS A COMPANY AN D DERIVES INCOME FROM COLD STORAGE. THE ASSESSEE-COMPANY WAS INCORPORATED W.E. F. 19.09.2002. THE AO FOUND THAT THE ENTIRE ACTIVITIES, SUCH AS RECEIPTS OF SHA RE APPLICATION MONEY, LOANS, CONSTRUCTION OF BUILDING ETC. WERE DONE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE F ILED RETURN OF INCOME ON 30.10.2004 DECLARING LOSS OF RS.12,80,284/-. ACCORD ING TO THE AO, THE ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY FROM 30 AGRICU LTURISTS, THE DETAILS OF THE SAME ARE NOTED AT PAGE 2 OF THE ASSESSMENT ORDER AM OUNTING TO RS.14,65,000/-. FURTHER AS PER AO, THE ASSESSEE COULD NOT PROVE THE IDENTITY AND CREDITWORTHINESS OF THESE AGRICULTURIST AND ACCORDINGLY BY INVOKING PROVISIONS OF SECTION 68, ADDITION OF RS.14,65,000/- WAS MADE. THE ASSESSEE C HALLENGED ADDITION BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT THE ASSESSEE I S A NEW COMPANY AND RECEIVED SHARE APPLICATION MONEY. THEREFORE, COULD NOT BE SA ID TO HAVE ANY INCOME FROM UNDISCLOSED SOURCE. THE ASSESSEE COMPANY WAS INCORP ORATED ON 19.09.2002 WITH THE OBJECTS TO CARRY ON THE BUSINESS OF COLD STORAG E. THE CONSTRUCTION OF THE COLD STORAGE STARTED DURING THE FINANCIAL YEAR 2003-04 A ND IT WAS COMPLETED BY THE END OF FEB. 2004 AND STARTED FUNCTIONING THEREAFTER ONL Y. THEREFORE, THE COMPANY WAS ITA NO. 79/AGRA/2012 3 NOT HAVING ANY EXISTING SOURCE OF INCOME DURING THE RELEVANT ASSESSMENT YEAR. THE AMOUNT IN QUESTION WAS RECEIVED BY THE ASSESSEE FRO M VARIOUS PERSONS AS SHARE APPLICATION MONEY AND SHARES WERE ALSO ALLOTTED TO THEM BY THE ASSESSEE COMPANY. SAME IS ALSO EVIDENT FROM FORM NO. 2 FILED WITH THE REGISTRAR OF COMPANIES. COPIES OF SHARE APPLICATIONS, PROOF OF IDENTITY, PR OOF OF CREDITWORTHINESS LIKE DOCUMENTS OF LAND HOLDING TO ESTABLISH AGRICULTURAL INCOME AND INCOME CERTIFICATES WERE FILED. FURTHER THE AFFIDAVITS OF THE SHARE APP LICANTS WERE ALSO SUBMITTED. THE AMOUNTS WERE PROVIDED BY THE SHARE HOLDERS OUT OF T HEIR OWN SOURCES AND THEY ALSO SUBMITTED THEIR AFFIDAVITS TO THE COMPANY TO THAT E FFECT. THE ASSESSEE RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF SOF IA FINANCE LTD., 205 ITR 98 ON THE PROPOSITION THAT IF SHARE HOLDERS EXIST THEN PO SSIBLY NO FURTHER ENQUIRY INDEED BE MADE. THE ASSESSEE ALSO RELIED UPON THE SIMILAR DECISION OF DELHI HIGH COURT IN THE CASE OF STELLER INVESTMENTS, 192 ITR 267, WHICH HAS BEEN CONFIRMED BY THE HONBLE SUPREME COURT IN 115 TAXMAN 99. IT WAS SUBM ITTED THAT THE DOCUMENTS FILED ON RECORD CLEARLY PROVE IDENTITY OF THE SHARE APPLICANTS, THEIR CREDITWORTHINESS AND ALSO FILED ADDITIONAL EVIDENCES BEFORE THE LD. CIT(A) TO SUPPORT THE ABOVE CONTENTIONS ALSO WHICH HAVE BEEN ADMITTED BY THE LD . CIT(A) FOR HEARING. THE LD. CIT(A), THEREFORE, FOUND THAT THE ASSESSEE HAS FILE D COPIES OF SHARE APPLICATIONS, COPIES OF KHASRA AND KHATONI ETC. OF LAND HOLDINGS OF SHARE HOLDERS AND IN CERTAIN CASES, COPIES OF RATION CARDS AND IN SOME OTHER CAS ES CERTIFICATES FROM TEHSILDAR WITH REGARD TO PROOF OF INCOME. THE GIST OF EACH A ND EVERY SHARE APPLICANT IN DETAIL ITA NO. 79/AGRA/2012 4 IS MENTIONED AT PAGE 5 TO 10 OF THE APPELLATE ORDER SUPPORTED BY EVIDENCE. HOWEVER, THE LD. CIT(A) DID NOT ACCEPT THE CREDITWO RTHINESS OF THE SHARE HOLDERS AND GENUINENESS OF THE TRANSACTIONS AND DISMISSED T HIS GROUND OF APPEAL OF THE ASSESSEE. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FILED A CHART OF EACH AND EVE RY SHARE APPLICANT TO SUPPORT THAT THE AMOUNTS WERE EITHER RECEIVED THROUGH DRAFT OR T HROUGH CASH AND THE ASSESSEE DISCLOSED COMPLETE NAME AND ADDRESS OF SHARE APPLIC ANTS BEFORE THE AUTHORITIES BELOW WHICH ARE SUPPORTED BY SHARE APPLICATION FORM S, DECLARATION, IDENTITY PROOF, AFFIDAVIT, KHASRA, KHATONI OF LAND HOLDING AND INCO ME CERTIFICATES, COPIES OF WHICH ARE FILED IN THE PAPER BOOK. IN SOME CASES, COPIES OF IDENTITY CARD, DRIVING LICENSE AND OTHER EVIDENCES HAVE BEEN FILED TO PROVE THE ID ENTITY OF THE SHARE APPLICANTS. HE HAS SUBMITTED THAT SAME INFORMATION WAS ALSO SUP PLIED TO THE REGISTRAR OF COMPANIES (COPIES FILED AT PAGE 158 OF THE PAPER BO OK). HE HAS SUBMITTED THAT SAME SHARE HOLDERS ALSO STORED THEIR POTATOES IN TH E COLD STORAGE OF THE ASSESSEE. HE HAS SUBMITTED THAT THE SHARE APPLICATION MONEY WAS RECEIVED PRIOR TO COMMENCEMENT OF ACTUAL BUSINESS AND IT IS THE FIRST YEAR OF BUSINESS OF ASSESSEE. CONSTRUCTION OF THE COLD STORAGE WAS COMPLETED IN F EB. 2004 AND MAJORITY OF THE SHARE APPLICATION MONEY WAS RECEIVED PRIOR TO COMME NCEMENT OF BUSINESS. THEREFORE, THE SAME COULD NOT BE TREATED AS UNDISCL OSED MONEY OF THE ASSESSEE. HE ITA NO. 79/AGRA/2012 5 HAS, THEREFORE, SUBMITTED THAT THE ASSESSEE HAD DIS CHARGED THE ONUS TO PROVE IDENTITY OF THE SHARE APPLICANTS AND THEIR CREDITWO RTHINESS AND GENUINENESS OF THE TRANSACTIONS. ONCE THE ASSESSEE PROVED THE EXISTENC E OF THE SHARE HOLDERS, NO ADDITION COULD BE MADE IN THE CASE OF ASSESSEE. IN SUPPORT OF HIS SUBMISSIONS, HE HAS RELIED UPON THE FOLLOWING DECISIONS : (I). ORDER OF ITAT, AGRA BENCH IN THE CASE OF DCIT VS. M/S. SURAJMAL COLD STORAGE(P) LTD. (ITA NO. 345/AGRA/2009) DATED 09.08.12. (II). DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORT (P) LTD., 216 CTR (SC) 195. (III). DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAYA SECURITIES LTD. VS. CIT, 166 TAXMAN 7. (IV). DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGINEERING & CONSTRUCTION CO., 83 ITR 187. (V). DECISION OF HONBLE ALLAHABAD HIGH COURT IN TH E CASE OF CIT VS. JAISWAL GRAINS STORE, 271 ITR 136. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDER S OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE FILED COMPLETE DETAILS OF SHAR E APPLICANTS BEFORE THE AUTHORITIES BELOW WITH THEIR COMPLETE ADDRESS. IT I S NOT IN DISPUTE THAT THE ASSESSEE FILED SHARE APPLICATION FORMS, DECLARATION AND AFFI DAVITS OF ALL THE SHARE APPLICANTS BEFORE THE AUTHORITIES BELOW SUPPORTED BY VARIOUS D OCUMENTS, PROOF OF IDENTITY OF ITA NO. 79/AGRA/2012 6 SHARE HOLDERS. THE ASSESSEE ALSO FILED COPY OF KHAS RA AND KHATONI OF LAND HOLDING BY THE SHARE HOLDERS ALONG WITH COPIES OF RATION CA RD, DRIVING LICENSE, IDENTITY CARD AND IN SOME CASES EVEN THE CERTIFICATE OF INCOME IS SUED BY TEHSILDAR HAVE BEEN FILED. THESE DOCUMENTS ON RECORD CLEARLY PROVE THAT ALL THE SHARE APPLICANTS WERE AGRICULTURISTS AND WERE HOLDING AGRICULTURAL LAND A ND EARNED INCOME THERE FROM. THE LIST OF SHARE APPLICANTS WAS FILED BEFORE THE R EGISTRAR OF COMPANIES. IT WOULD, THEREFORE, PROVE THAT ALL THE SHARE HOLDERS EXIST A ND THEY HAVE CONFIRMED MAKING INVESTMENT IN THE ASSESSEE COMPANY. IT IS ALSO NOT IN DISPUTE THAT IT WAS FIRST YEAR OF BUSINESS OF ASSESSEE BECAUSE IT WAS INCORPORATED ON 19.09.2002. IT IS ALSO NOT IN DISPUTE THAT CONSTRUCTION OF THE COLD STORAGE WAS C OMPLETED BY THE END OF FEB. 2004 AND THEREAFTER, THE ASSESSEE STARTED FUNCTIONI NG AS COLD STORAGE. THE ASSESSEE FILED DETAILS OF THE AMOUNT RECEIVED FROM ALL THE S HARE HOLDERS AND IT WOULD PROVE THAT MAJORITY OF THE SHARE APPLICATION MONEY WAS RE CEIVED PRIOR TO COMMENCEMENT OF BUSINESS BY THE ASSESSEE. THEREFORE, SAME COULD NOT BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. ITAT, AGRA BENCH IN THE CAS E OF DCIT VS. SURAJMAL COLD STORAGE (P) LTD. (SUPRA) HELD AS UNDER :- 23. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PARTIES AND RECORDS PERUSED. THE CRUX OF THE MATTER TO EXAMINE IN THE CASE UNDER CONSIDERATION WHETHER UNDER THE FACTS AND CIRCUMSTA NCES THE CIT(A) IS CORRECT IN DELETING THE ADDITION ON ACCOUNT OF CASH CREDIT AND SHARE APPLICATION MONEY MADE BY THE A.O. UNDER SECTION 68 OF THE ACT. SECTION 68 OF THE ACT EMPOWERS THE A.O. TO TREAT AN Y SUM FOUND CREDITED IN HE BOOKS OF ACCOUNT OF THE ASSESSEE FOR ANY PREVIOUS YEAR, ITA NO. 79/AGRA/2012 7 IF THE ASSESSEE FAILS TO OFFER AN EXPLANATION ABOUT THE NATURE AND SOURCES OF SUCH FUND OR IF THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT, IN THE OPINION OF THE AO, SATISFACTORY, AS INC OME FROM UNDISCLOSED SOURCES AND CHARGE THE SAME TO TAX AS I NCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THE POWER OF THE A .O. UNDER SECTION 68 IS NOT AN ABSOLUTE ONE. IT IS SUBJECT TO HIS SA TISFACTION WHERE AN EXPLANATION IS OFFERED. THE POWER IS ABSOLUTE WHER E THE ASSESSEE OFFERS NO EXPLANATION. THE SATISFACTION WITH REGAR D TO THE EXPLANATION IS IN EFFECT AN IN-BUILT SAFEGUARD IN SECTION 68 PR OTECTING THE INTEREST OF THE ASSESSEE. IT PROVIDES FOR AN OPPORTUNITY TO TH E ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE FUND. ONCE IT IS EXPL AINED, IT IS INCUMBENT ON THE A.O. TO CONSIDER THE SAME AND FORM AN OPINION WHETHER THE EXPLANATION IS SATISFACTORY OR NOT. IF THE CONCLUSION IS ADVERSE WHOLLY OR IN PART TO THE INTEREST OF THE AS SESSEE, IT IS INCUMBENT ON THE A.O. TO INTIMATE OR INFORM THE CONCLUSION AR RIVED AT TO THE ASSESSEE. WHEN SUCH INFORMATION OR INTIMATION IS R ECEIVED BY THE ASSESSEE, THE ONUS SHIFTS ON THE ASSESSEE. HE MAY FURNISH FURTHER EXPLANATION OR INFORMATION TO SUPPORT ITS CONTENTIO N. IF FURTHER INFORMATION OR MATERIALS ARE FURNISHED, THE A.O. IS BOUND TO EXAMINE THE SAME AND FORM HIS FINAL OPINION AND PASS AN APP ROPRIATE ORDER. AS STATED ABOVE THAT SECTION 68 SUGGESTS THAT THERE HA S TO BE CREDIT OF AMOUNTS IN THE BOOKS MAINTAINED BY THE ASSESSEE, TH AT SUCH CREDIT HAS TO BE OF A SUM DURING THE PREVIOUS YEAR, AND THAT T HE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH CRE DIT FOUND IN THE BOOKS OR THE EXPLANATION OFFERED BY THE ASSESSEE, I N THE OPINION OF THE ASSESSING OFFICER, IS NOT SATISFACTORY. IT IS ONLY THEN THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THE EXPRESSION THE ASSESSE E OFFERS NO EXPLANATION MEANS WHERE THE ASSESSEE OFFERS NO PRO PER, REASONABLE AND ACCEPTABLE EXPLANATION AS REGARDS THE SUMS FOUN D CREDITED IN THE BOOKS MAINTAINED BY THE ASSESSEE. IT IS TRUE THAT T HE OPINION OF THE A.O. FOR NOT ACCEPTING THE EXPLANATION OFFERED BY T HE ASSESSEE AS NOT SATISFACTORY IS REQUIRED TO BE BASED ON PROPER APPR ECIATION OF MATERIAL AND OTHER ATTENDING CIRCUMSTANCES AVAILABLE ON RECO RD. THE OPINION OF THE A.O. IS REQUIRED TO BE FORMED OBJECTIVELY WITH REFERENCE TO THE MATERIAL AVAILABLE ON RECORD. APPLICATION OF MIND IS THE SINE QUA NON FOR FORMING THE OPINION. 24. AS REGARDS THE BURDEN OF PROOF, IT IS SETTLED P OSITION OF LAW IN RESPECT OF CASH CREDIT THAT THE BURDEN IS ON THE AS SESSEE TO EXPLAIN THE ITA NO. 79/AGRA/2012 8 THREE INGREDIENTS NAMELY, IDENTITY, CREDITWORTHINES S & GENUINENESS OF THE TRANSACTION. 25. WITH THE ABOVE BACKGROUND OF GENERAL DISCUSSION IN RESPECT OF SECTION 68 OF THE ACT, NOW WE COME TO HAVE DISCUSSI ON REGARDING SECTION 68 OF THE ACT AND SHARE APPLICATION MONEY. WHERE THE MATTER CONCERNS MONEY RECEIPTS BY WAY OF SHARE APPLICATION FROM INVESTORS, THE ASSESSEE HAS TO PROVE THE EXISTENCE OF THE PERS ON IN WHOSE NAME THE SHARE APPLICATION IS RECEIVED. ONCE THE EXISTE NCE OF THE INVESTOR IS PROVED, IT IS NOT FURTHER THE BURDEN OF THE ASSESSE E TO PROVE WHETHER THAT PERSON ITSELF HAS INVESTED THE SAID MONEY OR S OME OTHER PERSON HAS MADE INVESTMENT IN THE NAME OF THAT PERSON. TH E BURDEN THEN SHIFTS ON TO THE REVENUE TO ESTABLISH THAT SUCH INV ESTMENT HAS COME FROM THE ASSESSEE-COMPANY ITSELF. ONCE THE RECEIPT OF THE CONFIRMATION LETTER FROM THE CREDITOR IS PROVED AND THE IDENTITY AND THE EXISTENCE OF THE INVESTOR HAS NOT BEEN DISPUTED, NO ADDITION ON ACCOUNT OF SHARE APPLICATION MONEY IN THE NAME OF SUCH INVE STOR CAN BE MADE IN THE ASSESSEES HANDS. 26. THE IDENTITY OF THE SHAREHOLDER CAN BE PROVED B Y EITHER PRODUCING THE PERSON BEFORE THE A.O. OR BY WAY OF D OCUMENTS, REGISTERED ADDRESS, PAN ETC. THE GENUINENESS OF TH E TRANSACTION CAN BE SHOWN FROM THE FACT THAT THE MONEY HAS BEEN RECE IVED FROM THE SHARE HOLDER. IF THE MONEY IS RECEIVED BY CHEQUE A ND IS TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS, THE GENUINENESS OF TRANSACTION WOULD BE PROVED UNLESS OTHERWISE MATERI AL FOUND. OTHER DOCUMENTS SHOWING THE GENUINENESS OF TRANSACTION CO ULD BE THE COPIES OF THE SHAREHOLDERS REGISTER, SHARE APPLICATION FOR MS, SHARE TRANSFER REGISTER, ETC. THE CREDITWORTHINESS OF THE CREDITO R/SUBSCRIBER CAN BE PROVED BY PRODUCING THE BANK STATEMENT OF THE CREDI TORS/SUBSCRIBERS SHOWING THAT IT HAD SUFFICIENT BALANCE IN ITS ACCOU NTS TO ENABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. ONCE THESE DOCUMEN TS ARE PRODUCED, THE ASSESSEE WOULD HAVE SATISFACTORILY DISCHARGED T HE ONUS CAST UPON HIM. THE A.O. CAN DISCREDIT THE DOCUMENTS PRODUCED BY THE ASSESSEE WITH COGENT REASONS AND MATERIALS BUT NOT ON THE RE ALM OF SUSPICION. IN THIS REGARD, WE WOULD LIKE TO REFER SOME JUDICIA L PRONOUNCEMENTS WHICH ARE AS UNDER :- 27. HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE O F CIT VS. LANCO INDUSTRIES LTD., 242 ITR 357(A.P.) OBSERVED T HAT HOW MERELY BY REASON OF UNSATISFACTORY EXPLANATION RELATING TO THE SOURCE OF ITA NO. 79/AGRA/2012 9 INVESTMENT BY THE SHAREHOLDERS, THE MONEY INVESTED ON SHARES SHOULD BE TREATED AS INCOME OF THE ASSESSEE. IF THE OSTEN SIBLE SHAREHOLDERS FAILED TO EXPLAIN THE MEANS OF INVESTMENT, THAT SHO ULD HAVE BEEN TREATED AS UNEXPLAINED INCOME IN THEIR HANDS. IN O RDER TO ADD IT TO THE INCOME OF THE ASSESSEE THERE MUST BE A FURTHER FIND ING THAT IN FACT THE SHAREHOLDERS WERE MERE NAME-LENDERS AND THE MONEY A LLEGEDLY INVESTED BY THEM REALLY BELONGED TO THE DIRECTORS O F THE ASSESSEE- COMPANY. IN THE ABSENCE OF A FINDING THAT THE PERS ONS TO WHOM THE SHARE CERTIFICATES WERE ISSUED ON RECEIPT OF CONSID ERATION AS PER THE BOOK ENTRIES WERE IN FACT DUMMIES OR STOOGES OF THE DIRECTORS OF THE ASSESSEE-COMPANY, THE SAME CANNOT BE TREATED AS UNA CCOUNTED INCOME OF THE ASSESSEE. THERE WAS NO SUCH FINDING BY THE ASSESSING AUTHORITY. 28. HONBLE KARNATAKA HIGH COURT IN THE CASE OF TAM TAM PEDDA GURUVA REDDY VS. JCIT (ASSESSMENTS) & ANOTHER, 291 ITR 44 (KARN) HELD AS UNDER :- (HEADNOTE PAGE 45) HELD, ALLOWING THE APPEAL, (I) THAT THE AFFIDAVIT FILED BY R SHOWED THAT HE HAD INCOME FROM AGRICULTURE AND FROM BUSINESS AND THAT HE HAD TWO FIXED DEPOSITS WHICH HAD MATURED DU RING THE SAID PERIOD. THEREFORE, THE SOURCE OF INCOME HAD BEEN C LEARLY SPELT OUT AND THIS CREDIT COULD NOT BE TREATED AS UNEXPLAINED CREDIT IN TERMS OF SECTION 68. THE FINDING OF THE AUTHORITY THAT THE SAID AMOUNT WAS UNEXPLAINED INCOME COULD NOT BE ACCEPTED. 29. THE HONBLE PATNA HIGH COURT IN THE CASE OF SAR OGI CREDIT CORPORATION VS. CIT, 103 ITR 344 (PAT.) HELD AS UND ER :- (HEADNOTE PAGE NOS.344, 345 & 346) IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1962-63, THERE WERE CREDIT ENTRIES IN THE NAME OF Z FOR RS.12,000 AND IN THE NAME OF R FO R RS.8,000. BOTH Z AND R GAVE STATEMENTS BEFORE THE INCOME TAX OFFIC ER THAT THEY HAD DEPOSITED THE AMOUNTS WITH THE ASSESSEE. THE INCOM E TAX OFFICER DID NOT ACCEPT THOSE STATEMENTS AND ADDED A SUM OF RS.2 0,000 AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCES. ON APPEA L, THE APPELLATE ASSISTANT COMMISSIONER DELETED THE ADDITION. ON FU RTHER APPEAL, THE APPELLATE TRIBUNAL HELD THAT THE DEPOSITS BY Z AND R REMAINED UNEXPLAINED, THAT THE MERE ADMISSION OF THE DEPOSIT ORS COULD NOT LEAD TO THE CONCLUSION THAT THEY WERE IN A POSITION TO A DVANCE THE MONEYS TO THE ASSESSEE AND, SINCE THE ASSESSEE COULD NOT P ROVE THAT THE DEPOSITORS WERE IN A POSITION TO MAKE THE DEPOSITS TO THE EXTENT THEY STOOD IN THE BOOKS, THE ONUS THAT LAY ON THE ASSESS EE UNDER SECTION 68 OF THE INCOME TAX ACT, 12961, HAD NOT BEEN DISCHARG ED. THE TRIBUNAL ITA NO. 79/AGRA/2012 10 ALSO FOUND THAT AS THE DEPOSITORS WERE DOING SOME B USINESS AND LATER FILED INCOME TAX RETURNS, IT WOULD BE FAIR AND REAS ONABLE TO ALLOW A SUM OF RS.5,000/- AS EFFECTIVELY EXPLAINED BUT THE REMAINING RS.15,000 SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. ON A REFERENCE AT THE INSTANCE OF THE ASSESSEE: HELD, THAT IF THE CREDIT ENTRY IN THE BOOKS OF THE ASSESSEE STANDS IN THE NAME OF THE ASSESSEE OR THE ASSESSEES WIFE AND CHILDREN, OR IN THE NAME OF ANY OTHER CLOSE RELATION OR AN EMPLOYEE OF THE ASSESSEE, THE BURDEN LIES ON THE ASSESSEE TO EXPLAIN SATISFAC TORILY THE NATURE AND SOURCE OF THE ENTRY. BUT IF THE ENTRY DOES NOT STA ND IN THE NAME OF ANY SUCH PERSON HAVING A CLOSE RELATION OR CONNECTION W ITH THE ASSESSEE, BUT IN THE NAME OF AN INDEPENDENT PARTY, THE BURDEN WILL STILL LIE ON HIM TO ESTABLISH THE IDENTITY OF THAT PARTY AND TO SATISFY THE INCOME TAX OFFICER THAT THE ENTRY IS REAL AND NOT FICTITIOUS. ONCE THE IDENTITY OF THE THIRD PARTY IS ESTABLISHED BEFORE THE INCOME TAX OF FICER AND OTHER SUCH EVIDENCE ARE PRIMA FACIE PLACED BEFORE HIM POI NTING TO THE FACT THAT THE ENTRY IS NOT FICTITIOUS, THE INITIAL BURDE N LYING ON THE ASSESSEE CAN BE SAID TO HAVE BEEN DULY DISCHARGED BY HIM. I T WILL NOT, THEREFORE, BE FOR THE ASSESSEE TO EXPLAIN FURTHER A S TO HOW OR IN WHAT CIRCUMSTANCES THE THIRD PARTY OBTAINED THE MONEY OR HOW OR WHY HE CAME TO MAKE AN ADVANCE OF THE MONEY AS A LOAN TO T HE ASSESSEE. ONCE SUCH IDENTITY IS ESTABLISHED AND THE CREDITORS , AS IN THE PRESENT CASE, HAVE PLEDGED THEIR OATH THAT THEY HAVE ADVANC ED THE AMOUNTS IN QUESTION TO THE ASSESSEE, THE BURDEN IMMEDIATELY SH IFTS ON TO THE DEPARTMENT TO SHOW AS TO WHY THE ASSESSEES CASE CO ULD NOT BE ACCEPTED AND AS TO WHY IT MUST BE HELD THAT THE ENT RY, THOUGH PURPORTING TO BE IN THE NAME OF A THIRD PARTY, STIL L REPRESENTED THE INCOME OF THE ASSESSEE FROM A SUPPRESSED SOURCE. A ND, IN ORDER TO ARRIVE AT SUCH A CONCLUSION, EVEN THE DEPARTMENT HA S TO BE IN POSSESSION OF SUFFICIENT AND ADEQUATE MATERIALS. THE INCOME TAX OFFICERS REJECTION, NOT OF THE EXPL ANATION OF THE ASSESSEE, BUT OF THE EXPLANATION REGARDING THE SOUR CE OF INCOME OF THE DEPOSITORS, COULD NOT BY ITSELF LEAD TO ANY INFEREN CE REGARDING THE NON- GENUINE OR FICTITIOUS CHARACTER OF THE ENTRIES IN T HE ASSESSEES BOOKS OF ACCOUNT. THE APPELLATE ASSISTANT COMMISSIONER CLEA RLY POINTED OUT THAT THE FINDINGS RECORDED BY THE INCOME TAX OFFICE R WERE NOT POSITIVE FINDINGS. ITA NO. 79/AGRA/2012 11 FURTHER, THE TRIBUNAL HAD PARTLY ACCEPTED THE SOURC E TO THE EXTENT OF RS.5,000 AND PARTLY REJECTED IT TO THE EX TENT OF RS.15,000. HAVING ACCEPTED THE GENUINENESS OF THE ENTRIES IN T HE BOOKS OF ACCOUNT, HAVING ACCEPTED THE EXPLANATION OFFERED BY THE THIRD PARTIES WITH REGARD TO THEIR SOURCES OF MONEY IN PART AT LE AST, THERE WAS NO MATERIAL FOR THE TRIBUNAL TO HOLD THAT THE ASSESSEE HAD NOT DISCHARGED THE ONUS ON HIM AND THE FINDING TO THAT EFFECT MUST BE HELD TO BE WITHOUT ANY EVIDENCE AND, HENCE, WHOLLY ILLEGAL AND THE CONCLUSIONS DRAWN PERVERSE. THEREFORE, THE ASSESSEE HAD DISCHARGED THE ONUS WIT HIN THE MEANING OF SECTION 68 OF THE ACT FOR THE CASH CREDI TS AND THE APPELLATE TRIBUNAL WAS NOT JUSTIFIED IN MAINTAINING THE ADDIT ION OF RS.15,000 AS THE ASSESSEES INCOME FROM UNDISCLOSED SOURCES. 30. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. (1) DIVINE LEASING & FINANCE LIMITED (2) GENERAL EXPORTS & CRE DITS LIMITED & (3) LOVELY EXPORTS PVT. LTD, 299 ITR 268 (DELHI) HE LD AS UNDER :- (PAGE NOS. 275 TO 276) WE FIND IT INDEED REMARKABLE THAT THE ATTENTION OF THE SOPHIA FINANCE THE FULL BENCH HAD NOT BEEN DRAWN TO THE DE CISION OF THE SUPREME COURT IN CIT V. ORISSA CORPORATION P. LTD. [1986] 159 IR 78, WHICH IF CITED WOULD REALLY HAVE LEFT NO ALTERN ATIVE TO THE FULL BENCH BUT TO ARRIVE AT THE CONCLUSION IT DID. THE BOOKS OF ACCOUNT OF THE ASSESSEE CONTAINED THREE CASH CREDITS AGGREGATI NG RS.1,50,000 ALLEGEDLY RECEIVED AS LOANS FROM THREE INDIVIDUAL C REDITORS UNDER HUNDIS. LETTERS OF CONFIRMATION AS WELL AS THE DIS CHARGED HUNDIS WERE PRODUCED; BUT NOTICES/SUMMONS SENT TO HEM REMAINED UNNERVED BECAUSE THEY HAD REPORTEDLY LEFT THAT ADDRESS. T HE VIEW OF THE TRIBUNAL WAS THAT MERELY BECAUSE THE ASSESSEE COULD NOT PRODUCE THESE THERE PARTIES, THERE WAS NEVERTHELESS NO JUST IFICATION TO DRAW AN ADVERSE INFERENCE. THIS APPROACH AS ACCORDED APPRO VAL BY THE SUPREME COURT IN THESE WORDS (PAGE 84) : IN THIS CASE, THE ASSESSEE HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME TAX ASSESSEES. THEI R INDEX NUMBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE, APAR T FROM ISSUING NOTICES UNDER SECTION 131 AT THE INSTANCE OF THE AS SESSEE, DID NOT PURSUE THE MATTER FURTHER. THE REVENUE DID NOT EXA MINE THE SOURCE OF ITA NO. 79/AGRA/2012 12 INCOME OF THE SAID ALLEGED CREDITORS TO FIND OUT WH ETHER THEY WERE CREDITWORTHY OR WERE SUCH WHO COULD ADVANCE THE ALL EGED LOANS. THERE WAS NO EFFORT MADE TO PURSUE THE SO-CALLED AL LEGED CREDITORS. IN THOSE CIRCUMSTANCES, THE ASSESSEE COULD NOT DO ANYT HING FURTHER. IN THE PREMISES, IF THE TRIBUNAL CAME TO THE CONCLUSIO N THAT THE ASSESSEE HAS DISCHARGED THE BURDEN THAT LAY ON HIM, THEN IT COULD NOT BE SAID THAT SUCH A CONCLUSION WAS UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE. IF THE CONCLUSION IS BASED ON SOME EVIDE NCE ON WHICH A CONCLUSION COULD BE ARRIVED AT, NO QUESTION OF LAW AS SUCH ARISES. (PAGE NO.276) SUMATI DAYAL V. CIT [1995] 214 ITR 801 (SC) A SUCC INCT YET COMPLETE PRCIS ON THE ESSENTIALS OF INCOME TAX LIA BILITY CAN BE DISCERNED FROM THESE WORDS (HEADNOTE): IN ALL CAS ES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES ON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXING PR OVISION AND IF THE RECEIPT IS IN THE NATURE OF INCOME, THE BURDEN OF P ROVING THAT IT IS NOT TAXABLE BECAUSE IT FALLS WITHIN THE EXEMPTION PROVI DED BY THE ACT LIES UPON THE ASSESSEE. THIS DECISION IS ADEQUATE AUTH ORITY FOR THE PROPOSITION THAT BY VIRTUE OF SECTION 68 OF THE INC OME TAX ACT THE ASSESSEE IS OBLIGED TO ESTABLISH THAT AMOUNTS CREDI TED IN THE ACCOUNTS DO NOT REPRESENT ITS INCOME; IN THAT CASE THE ASSES SEES VERSION THAT SHE HAD WON THEM THROUGH BETTING ON HORSE RACING IN TWO CONSECUTIVE YEARS DID NOT ATTRACT CREDIBILITY. (PAGE NOS.279 TO 283) THE CALCUTTA HIGH COURT HAS HELD IN CIT V. PRECISI ON FINANCE P. LTD. [1994] 208 ITR 465 THAT IT IS NOT SUFFICIEN T FOR AN ASSESSEE TO DISCLOSE THAT CREDITS IN THEIR BOOKS HAD BEEN RECEI VED THROUGH BANKING CHANNELS; THE IDENTITY AS WELL AS THE CREDITWORTHIN ESS OF THE CREDITOR MUST NEVERTHELESS BE PROVED. IN SAJAN DASS AND SON S V. CIT [2003] 264 ITR 435 (DELHI) THE DIVISION BENCH WAS NOT CONV INCED THAT MERELY BECAUSE MONEYS COULD BE IDENTIFIED AND TRACE D THROUGH BANKING CHANNELS THE GENUINENESS OF THE GIFT IN QUE STION STOOD ESTABLISHED. THIS IS OBVIOUSLY BECAUSE AN ASSESSEE CAN SCARCELY BE HEARD TO SAY THAT HE DOES NOT KNOW ALL PARTICULARS PERTAINING TO THE DONOR. THEREAFTER, THE SAME DIALECTIC LED THE BENC H TO ARRIVE AT THE OPPOSITE CONCLUSION IN CIT V. R.S. SIBAL [2004] 269 ITR 429 (DELHI). IN CIT V. MAKHNI AND TYAGI P. LTD. [2004] 267 ITR 4 33, THIS COURT HAS NOT GIVEN ITS IMPRIMATUR TO THE INACTION OF THE ASSESSING OFFICER IN DOING NOTHING FURTHER AFTER THE ISSUANCE OF SUMMONS UNDER SECTION ITA NO. 79/AGRA/2012 13 131 OF THE INCOME TAX ACT. IT DID NOT CONDONE THE ASSESSING OFFICER, FAILING TO ISSUE COERCIVE PROCESS, AND IN THIS MANN ER ATTEMPTING INCORRECTLY TO SHIFT THE BURDEN ON THE ASSESSEE TO ESTABLISH THE LEGITIMACY OF THE TRANSACTION. IN CIT V. ANTARTICA INVESTMENT P. LTD. [2003] 262 ITR 493 (DELHI), THE COURT WAS SATISFIED THAT NO INTERFERENCE WAS JUSTIFIED SINCE THE ASSESSEE HAD P RODUCED THE SHARE APPLICATION FORMS ALONG WITH CONFIRMATION LETTERS A ND COPIES OF THEIR ACCOUNTS, COPIES OF THEIR BANK ACCOUNTS OF CHEQUE P AYMENTS AND THEIR AUDITORS REPORT. THE ASSESSING OFFICERS CONCLUSI ON THAT THE GENUINENESS OF THE TRANSACTION HAD NOT BEEN MADE GO OD WAS NOT UPHELD. THIS CONCLUSION WAS REACHED DESPITE THE FA CT THAT NOTICES RECEIVED BY ONE OF THE COMMON DIRECTORS OF THE TWO SUBSCRIBING COMPANIES HAD BEEN IGNORED AND NO INFORMATION WAS F ORTHCOMING FROM THE LATTER. HOWEVER, THE UNDER SECRETARY (LAN D REVENUE, GOVERNMENT OF SIKKIM, GANGTOK) HAD STATED THAT BOTH THE SUBSCRIBING COMPANIES WERE INCORPORATED IN SIKKIM AND THEIR ADD RESSES WERE DISCLOSED IN THE RETURN OF ALLOTMENTS; THE SUBSCRIB ERS THUS STOOD IDENTIFIED. THEIR FINANCIAL STANDING OR CAPACITY W AS NOT INVESTIGATED BY THE COURT. THE DECISION IN CIT V. ACHAL INVESTM ENT LTD. [2004] 268 ITR 211(DELHI) IS ALSO ON THE SAME LINES. THERE CANNOT BE TWO OPINIONS ON THE ASPECT THAT THE PERNICIOUS PRACTICE OF CONVERSION OF UNACCOUNTED MONEY THROUGH THE MASQUERADE OR CHANNEL OF INVESTMENT IN THE SHARE CAPITAL OF A COMPANY MUST BE FIRMLY EXCORIATED BY THE REVENUE. EQUALLY, WHERE T HE PREPONDERANCE OF EVIDENCE INDICATES ABSENCE OF CULPABILITY AND CO MPLEXITY OF THE ASSESSEE IT SHOULD NOT BE HARASSED BY THE REVENUES INSISTENCE THAT IT SHOULD PROVE THE NEGATIVE. IN THE CASE OF A PUBLIC ISSUE, THE COMPANY CONCERNED CANNOT BE EXPECTED TO KNOW EVERY DETAIL P ERTAINING TO THE IDENTITY AS WELL AS FINANCIAL WORTH OF EACH OF ITS SUBSCRIBERS. THE COMPANY MUST, HOWEVER, MAINTAIN AND MAKE AVAILABLE TO THE ASSESSING OFFICER FOR HIS PERUSAL, ALL THE INFORMAT ION CONTAINED IN THE STATUTORY SHARE APPLICATION DOCUMENTS. IN THE CASE OF PRIVATE PLACEMENT THE LEGAL REGIME WOULD NOT BE THE SAME. A DELICATE BALANCE MUST BE MAINTAINED WHILE WALKING THE TIGHTROPE OF S ECTIONS 68 & 69 OF THE INCOME TAX ACT. THE BURDEN OF PROOF CAN SELDOM BE DISCHARGED TO THE HILT BY THE ASSESSEE; IF THE ASSESSING OFFICER HARBOURS DOUBTS OF THE LEGITIMACY OF ANY SUBSCRIPTION HE IS EMPOWERED, NAY DUTY-BOUND, TO CARRY OUT THOROUGH INVESTIGATIONS. BUT IF THE ASSE SSING OFFICER FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS, HE CANNOT OB DURATELY ADHERE TO ITA NO. 79/AGRA/2012 14 HIS SUSPICIONS AND TREAT THE SUBSCRIBED CAPITAL AS THE UNDISCLOSED INCOME OF THE COMPANY. IN CIT V. S. KAMARAJA PANDIAN [1984] 150 ITR 703, T HE MADRAS HIGH COURT TOOK THE VIEW THAT IT IS FOR THE ASSESSEE TO INITIALLY PROVE THE GENUINENESS OF THE LOAN, AND THAT THE ONU S SHIFTS TO THE DEPARTMENT ONLY AFTER THE ASSESSEE HAS PRIMA FACIE SUBSTANTIATED THIS FACT. IN THAT CASE, ONE OF THE CREDITORS HAD DENIE D THE TRANSACTION. THE PATNA HIGH COURT IN ADDL. CIT V. HANUMAN AGARWA L [1985] 151 ITR 150 WAS FACED WITH THE AVAILABILITY OF A CONFIR MATORY LETTER FILED BY THE ASSESSEE IN WHOSE BOOKS OF ACCOUNT A CREDIT WAS FOUND. GIR NUMBER OF THE CREDITOR WAS SUPPLIED, AND IT APPEARS THAT HE HAD CONFESSED THAT THIS TRANSACTION WAS NOT GENUINE. T HE HIGH COURT DID NOT ACT ON THE CONFESSION SINCE IT HAD NOT BEEN MAD E AVAILABLE TO THE ASSESSEE. THE BENCH OBSERVED THAT SINCE THE CORREC T NAME AND ADDRESS, AND THE GIR NUMBER OF THE CREDITOR HAD BEE N SUPPLIED BY THE ASSESSEE THE INITIAL ONUS UNDER SECTION 68 OF THE I NCOME TAX ACT HAD BEEN COMPLETELY DISCHARGED BY THE ASSESSEE. IT C OULD NOT BE SANGUINE TO CONCEIVE OF A POSSIBILITY OF A GENUINE CONTRIBUTOR ABANDONING HIS INVESTMENT FOR DIVERSE REASONS. THA T WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE IS AUTOMATICALL Y GUILTY OF ATTEMPT OF CONVERTING ITS INCOME INTO CAPITAL. IN BHARATI P. LTD. V. CIT [1978] 111 ITR 951 (CAL) WHERE NOTICES TO THESE ALLEGED CREDITORS HAD COME BACK UN SERVED, THE DIVISION BENCH AFFIRMED THAT THE MERE FILING OF CON FIRMATORY LETTERS BY THE ASSESSEE DID NOT DISCHARGE THE ONUS THAT LAY ON THE ASSESSEE. DIFFERENT DIVISION BENCHES OF THE SAME HIGH COURT H AVE OPINED THAT THE ASSESSEE MUST APPROVE (A) THE IDENTITY, (B) THE CAPACITY OF THE CREDITORS TO ADVANCE MONEY, (C) THE GENUINENESS OF THE TRANSACTION. (SEE SHANKAR INDUSTRIES V. CIT [1978] 114 ITR 689 ( CAL), C. KANT AND CO V. CIT [1980] 126 ITR 63 (CAL) AND CIT V. UN ITED COMMERCIAL AND INDUSTRIAL CO. P. LTD. [1991] 187 IT R 596 (CAL.). IN CIT V. KORLAY TRADING CO. LTD. [1998] 232 ITR 820 ( CAL), CERTAIN SHARES PURCHASED THROUGH A BROKER WERE LOST. THE A SSESSEE FURNISHED THE NAME OF THE BROKER, AS ALSO THE DATE OF THE SAL E, AMOUNT OF PURCHASE MONEY AND SALE MONEY. THE BROKER WAS FOUN D NOT TO HAVE MAINTAINED REGULAR ACCOUNTS. HOWEVER, THE COURT RE FUSED TO DRAW AN INFERENCE ADVERSE TO THE ASSESSEES INTERESTS. INS TEAD THE CALCUTTA HIGH COURT OBSERVED THAT THE INCOME TAX OFFICER OUG HT TO HAVE INVESTIGATED THE MATTER MORE THOROUGHLY TO CONTROVE RT THE CLAIM OF THE ITA NO. 79/AGRA/2012 15 ASSESSEE, AND CONCURRED WITH THE CONCLUSION OF THE TRIBUNAL THAT THE LATTER HAD DISCHARGED THE INITIAL BURDEN THAT LAY O N IT. THE HIGH COURT SET ASIDE THE DECISION OF THE TRIBUNAL WHICH HAD RE VERSED THE FINDINGS OF THE INCOME TAX OFFICER AS WELL AS THE COMMISSION ER OF INCOME TAX (APPEALS) SINCE THE ASSESSEE HAD SUPPLIED THE INCOM E TAX FILE NUMBER OF THE CREDITOR BEFORE IT. THE HIGH COURT NOTED TH AT THE MERE FILING OF THE INCOME TAX NUMBER WAS NOT SUFFICIENT TO ESTABLI SH THE IDENTITY AND CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. ALTHOUGH ORISSA CORPORATION [1986] 159 ITR 78 (SC) WAS REFERRED TO THE DECISION OF THE FULL BENCH OF THIS COURT IN SOP HIA FINANCE [1994] 205 ITR 98 WAS NOT EVEN CITED. KORLAY TRADING [199 8] 232 ITR 820 (CAL.) AS WELL AS SOPHIA FINANCE [1994] 205 ITR 98 (DELHI) WAS APPLIED BY THE SAME DIVISION BENCH OF THE CALCUTTA HIGH COURT IN FOUR DECISIONS DELIVERED IN MARCH 2003. IN HINDUST HAN TEA TRADING CO. LTD. V. CIT [2003] 263 ITR 289, THE BENCH OPINE D THAT IN THE CASE OF A SUBSCRIPTION TO THE SHARE CAPITAL OF A COMPANY , IF SECTION 68 OF THE INCOME TAX ACT IS TO BE RESORTED TO, IT IS NECESSAR Y FOR THE ASSESSEE TO PROVE AND ESTABLISH THE IDENTITY OF THE SUBSCRIBER, THEIR CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSA CTION. ONCE MATERIAL TO PROVE THESE INGREDIENTS ARE PRODUCED IT IS FOR THE ASSESSING OFFICER TO FIND OUT AS TO WHETHER, ON THE SE MATERIALS, THE ASSESSEE HAS SUCCEEDED IN ESTABLISHING THE INGREDIE NTS MENTIONED ABOVE. THE ASSESSING OFFICER CAN LIFT THE VEIL A ND ENQUIRE INTO THE REAL NATURE OF THE TRANSACTION. CIT V. RUBY TRADER S AND EXPORTERS LTD. [2003] 263 ITR 300 (CAL), CIT V. NIVEDAN VANIY A NIYOJAN LTD. [2003] 263 ITR 623 (CAL) AND CIT V. KUNDAN INVESTME NT LTD. [2003] 263 ITR 626 (CAL) ARE THE OTHER THREE. IN THIS ANALYSIS, A DISTILLATION OF THE PRECEDENTS YIELDS THE FOLLOWING PROPOSITIONS OF LAW IN THE CONTEXT OF SEC TION 68 OF THE INCOME TAX ACT. THE ASSESSEE HAS TO PRIMA FACIE PR OVE (1) THE IDENTITY OF THE CREDITOR/SUBSCRIBER; (2) THE GENUIN ENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTE D THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; (3) THE CREDITWORTH INESS OF FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER; (4) IF RELEVAN T DETAILS OF THE ADDRESS OR PAN IDENTITY OF THE CREDITOR/SUBSCRIBER ARE FURNISHED TO THE DEPARTMENT ALONG WITH COPIES OF THE SHAREHOLDERS RE GISTER, SHARE APPLICATION FORMS, SHARE TRANSFER REGISTER, ETC., I T WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE A SSESSEE. (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADV ERSE INFERENCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAILS OR NEGLE CTS TO RESPOND TO ITS ITA NO. 79/AGRA/2012 16 NOTICES; (6) THE ONUS WOULD NOT STAND DISCHARGED IF THE CREDITOR/SUBSCRIBER DENIES OR REPUDIATES THE TRANSA CTION SET UP BY THE ASSESSEE NOR SHOULD THE ASSESSING OFFICER TAKE SUCH REPUDIATION AT FACE VALUE AND CONSTRUE IT, WITHOUT MORE, AGAINST T HE ASSESSEE; AND (7) THE ASSESSING OFFICER IS DUTY-BOUND TO INVESTIGATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER THE GENUINENESS OF THE T RANSACTION AND THE VERACITY OF THE REPUDIATION. FOR A COMPLETE UNDERSTAND OF THE CONCEPT OF BURDEN OF PROOF ATTENTION SHOULD BE DRAWN TO THE DECISIONS DELIVERE D IN THE CONTEXT OF PENALTY PROCEEDINGS UNDER SECTION 271 OF THE INCOME TAX ACT. CIT V. ANWAR ALI [1970] 76 ITR 696 WAS DECIDED BY THE APEX COURT HOLDING THAT, IF THERE IS NO EVIDENCE ON RECORD EXCEPT THE EXPLANATION OF THE ASSESSEE, WHICH EXPLANATION HAS BEEN FOUND TO BE FA LSE, IT STILL DOES NOT FOLLOW THAT THE RECEIPT CONSTITUTES TAXABLE INC OME. THIS DECISION WAS FOLLOWED BY THE APEX COURT IN ANANTHARAM VEERAS INGHAIAH AND CO. V. CIT [1980] 123 ITR 457 OPINING THAT THE (HEA DNOTE) MERE FALSITY OF THE EXPLANATION GIVEN BY THE ASSESSEE IS INSUFFICIENT WITHOUT THERE BEING, IN ADDITION, COGENT MATERIAL OR EVIDEN CE FROM WHICH THE NECESSARY CONCLUSION ATTRACTING A PENALTY COULD BE DRAWN. HOWEVER, AS HAS BEEN NOTED IN ADDL. CIT V. JEEVAN L AL SAH [1994] 205 ITR 244 (SC); [1995] SUPP. (4) SCC 247 AMENDMEN TS WERE INCORPORATED BY THE FINANCE ACT, 1964, INTO SECTION 271 WHICH HAD DELETED THE WORD DELIBERATELY IN ITS SUB-SECTION (1)(C), THEREBY SHIFTING THE ONUS OF PROOF ONTO THE ASSESSEE, RENDE RING ANWAR ALI [1970] 76 ITR 696 (SC) INEFFECTUAL. NEVERTHELESS, IN CIT V. MUSSADILAL RAM BHAROSE [1987] 165 ITR 14 IT HAS BEE N ENUNCIATED BY THE SUPREME COURT THAT THOUGH THE EXPLANATION SH IFTS THE BURDEN TO THE ASSESSEE TO SHOW ABSENCE OF FRAUD, THIS ONUS IS A REBUTTABLE ONE. THE BURDEN IS NOT DISCHARGED BY THE ASSESSEE TENDER ING AN INCREDIBLE OR FANTASTIC EXPLANATION; AND VERY EXPLANATION DOES NOT HAVE TO BE ACCEPTED. IN OUR OPINION, IT IS FOR PARLIAMENT TO INTRODUCE LEGISLATION IF THE DUTY PRESENTLY RESTING ON THE DEPARTMENT IS THOUGHT TO BE TOO ONEROUS. WE OUGHT NOT TO TWIST THE LANGUAGE OF A S TATUTE TO REMOVE THE BURDEN OF PROOF ALTOGETHER FROM THE DEPARTMENT EVEN THOUGH IT HAS THE NECESSARY WHEREWITHAL TO DISCHARGE IT. THE MALAISE CAN ALSO BE ARRESTED IF UNCLAIMED SHARE SUBSCRIPTIONS ARE TA KEN OVER BY THE STATE AND/OR IF THE ASSESSEE CONCERNED IS PRECLUDED FROM DISTRIBUTING DIVIDENDS, BONUS SHARES, ETC., AGAINST SUCH SHARE S UBSCRIPTIONS UNLESS THEY ARE DULY CLAIMED BY THE ORIGINAL SUBSCRIBERS W ITHIN A PRESCRIBED PERIOD, PERHAPS NOT EXCEEDING THREE YEARS. THEREAF TER, THE SHARES ITA NO. 79/AGRA/2012 17 COULD AUTOMATICALLY STAND TRANSFERRED TO THE STATE ON THE PRINCIPLE OF ESCHEAT. FOR THESE EVENTS TO HAPPEN, REQUISITE AME NDMENTS TO THE INCOME TAX ACT MAY BE REQUIRED. 31. THE ABOVE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. (1) DIVINE LEASING & FINANCE LIMITED (2) GENERA L EXPORTS & CREDITS LIMITED & (3) LOVELY EXPORTS PVT. LTD, 299 ITR 268 (DELHI) CONFIRMED BY THE APEX COURT AS UNDER :- (319 ITR (STATUTES) PAGE NOS.5 & 6) SHARE APPLICATION MONEYS RECEIVED BY COMPANY 11-1-2008: THEIR LORDSHIPS S.H. KAPADIA AND B. SUDERSHAN REDDY JJ. DISMISSED THE DEPARTMENTS SPEC IAL LEAVE PETITION AGAINST THE JUDGEMENT DATED NOVEMBER 16, 2 006 OF THE DELHI HIGH COURT IN I.T.A. NO.953 OF 2006 REPORTED IN 299 ITR 268, WHEREBY THE HIGH COURT AFFIRMED THE DELETION BY THE TRIBUNAL OF ADDITIONS MADE ON ACCOUNT OF SUMS RECEIVED FROM DIR ECTORS OF PROMOTERS AND ALSO BY WAY OF A PUBLIC ISSUE. THE C OURT WHILE DISMISSING THE SPECIAL LEAVE PETITION HELD AS FOLLO WS:- CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDIS CLOSED INCOME UNDER SECTION 68 OF THE INCOME TAX ACT, 1961 ? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE -COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN T O THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HEN CE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGEMENT: CIT V. LOVE LY EXPORTS P. LTD. : S.L.P. (CIVIL) NO.1153 OF 2008. 32. ANOTHER ASPECT OF THE MATTER IS WHETHER ADDITIO N UNDER SECTION 68 OF THE ACT CAN BE MADE BEFORE START OF BUSINESS BY THE ASSESSEE. IN THIS REGARD, WE WOULD LIKE TO REFER THE FOLLOWING J UDGEMENTS :- 33. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS . BHARAT ENGINEERING & CONSTRUCTION CO., 83 ITR 187 (SC) HEL D AS UNDER :- (PAGE NOS.188 & 189) THE ASSESSEE-COMPANY IS AN ENGINEERING CONSTRUCTIO N COMPANY. IT COMMENCED BUSINESS IN MAY, 1943. IN T HEIR ACCOUNT ITA NO. 79/AGRA/2012 18 BOOKS, THERE ARE SEVERAL CASH CREDIT ENTRIES IN THE FIRST YEAR OF ITS BUSINESS. WE ARE CONCERNED WITH ONLY FIVE OF THOSE CASH CREDIT ENTRIES. ON 1 ST JUNE, 1943, THERE IS A CASH CREDIT ENTRY OF RS.1,0 0,000. ON 6 TH JULY, 1943, THERE IS A CASH CREDIT ENTRY OF RS.50, 000. ON 30 TH AUG, 1943, THERE IS A CASH CREDIT ENTRY OF RS.50,00 0. ON 2 ND DEC., 1943, THERE IS A CASH CREDIT ENTRY OF RS.15,000 AND ON 15 TH MARCH, 1944, THERE IS A CASH CREDIT ENTRY OF RS.35,000. T HESE CASH CREDIT ENTRIES TOTAL UP TO RS.2,50,000. THE ITO CALLED UP ON THE ASSESSEE TO EXPLAIN THOSE CASH CREDIT ENTRIES. THE EXPLANATION GIVEN BY THE ASSESSEE WAS FOUND TO BE FALSE BY THE ITO, THE AAC AND THE TRIBUNAL. BUT, ALL THE SAME, THE TRIBUNAL FELT THAT THESE CAS H CREDIT ENTRIES COULD NOT REPRESENT THE INCOME OR PROFITS OF THE ASSESSEE -COMPANY AS THEY WERE ALL MADE VERY SOON AFTER THE COMPANY COMMENCED ITS ACTIVITIES. IN OUR OPINION, THOUGH THE ORDER OF THE TRIBUNAL IS NOT HAPPILY WORDED, ITS FINDING APPEARS TO BE THAT IN THE VERY NATURE OF THINGS THE ASSESSEE COULD NOT HAVE EARNED SUCH A HUGE AMOUNT A S PROFITS VERY SOON AFTER IT COMMENCED ITS ACTIVITIES. A CONSTRUC TION COMPANY TAKES TIME TO EARN PROFITS. IT COULD NOT HAVE EARNED PRO FIT OF RS.1,00,000 WITHIN A FEW DAYS, AFTER THE COMMENCEMENT OF ITS BU SINESS. HENCE, IT IS REASONABLE TO ASSUME THAT THOSE CASH CREDIT ENTR IES ARE CAPITAL RECEIPTS THOUGH FOR ONE REASON OR OTHER THE ASSESSE E HAD NOT COME OUT WITH THE TRUE STORY AS REGARDS THE PERSON FROM WHOM IT GOT THOSE AMOUNTS. IT IS TRUE THAT IN THE ABSENCE OF SATISFA CTORY EXPLANATION FROM THE ASSESSEE THE ITO MAY ASSUME THAT CASH CRED IT ENTRIES IN ITS BOOKS REPRESENT INCOME FROM UNDISCLOSED SOURCES. B UT WHAT INFERENCE SHOULD BE DRAWN FROM THE FACTS PROVED IS A QUESTION OF FACT AND THE TRIBUNALS FINDING ON THAT QUESTION IS FINAL. 34. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF INDIA RICE MILLS VS. CIT, 218 ITR 508 (ALL.) HELD AS UNDER :- (HEADNOTE PAGE NOS. 508 & 509) THE ASSESSEE-FIRM WHICH WAS CONSTITUTED ON AUGUST 12, 1977, BECAME OPERATIVE FROM FEBRUARY 2, 1978. DURING THE PERIOD FROM 1977 TO FEBRUARY, 1978 TEN PARTNERS OF THE FIRM MAD E CAPITAL CONTRIBUTIONS, TOTALING RS.1,43,000. SINCE THIS WA S CREDITED IN THE BOOKS OF THE FIRM THE FIRM WAS CALLED UPON BY THE A SSESSING AUTHORITY TO EXPLAIN THE SOURCE OF THE DEPOSIT. ALL THE PART NERS HAD FILED RETURNS AFTER THE CLOSE OF THE ACCOUNTING YEAR OF THE FIRM AND THEY HAD NOT FILED ANY RETURNS IN EARLIER YEARS. THEREFORE, THE ASSES SING AUTHORITY HELD THAT THE AMOUNT REPRESENTED THE INCOME OF THE ASSES SEE-FIRM FROM UNDISCLOSED SOURCES. ON APPEAL, THE COMMISSIONER O F INCOME TAX ITA NO. 79/AGRA/2012 19 (APPEALS) HELD THAT AS THE DEPOSITS WERE MADE BY TH E PARTNERS BEFORE THE FIRM STARTED ITS BUSINESS, THE SAME COULD NOT B E TAKEN TO BE THE INCOME OF THE FIRM FROM UNDISCLOSED SOURCES. THE T RIBUNAL HELD THAT AS THE AMOUNT WAS CREDITED IN THE BOOKS OF THE ASSE SSEE-FIRM, IT WAS FOR THE ASSESSEE-FIRM TO EXPLAIN THE SOURCES OF DEP OSITS. ON A REFERENCE : HELD, THAT ALL THE DEPOSITS CAME TO BE MADE DURING THE ACCOUNTING YEAR IN THE BOOKS OF THE ASSESSEE-FIRM B EFORE IT STARTED ITS BUSINESS AND THE DEPOSITS REPRESENTED THE CAPITAL C ONTRIBUTION OF THE PARTNERS. IT WAS FOR THE PARTNERS TO EXPLAIN THE S OURCE OF DEPOSITS AND IF THEY FAILED TO DISCHARGE THE ONUS THEN SUCH DEPO SITS COULD BE ADDED IN THE HANDS OF THE PARTNERS ONLY. THESE DEPOSITS COULD IN NO CASE BE THE INCOME OF THE ASSESSEE-FIRM BECAUSE THE FIRM ST ARTED ITS BUSINESS AFTER THE CREDITS HAD BEEN MADE IN ITS BOOKS. 35. IN THE LIGHT OF ABOVE DISCUSSIONS, IF WE CONSID ER THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT THE ASSESSEE HAS DISCHARGED THE BURDEN IN RESPECT OF SHARE APPLICATION MONEY BY FUR NISHING COMPLETE DETAILS IN THE FORM OF SHARE CERTIFICATE, AFFIDAVIT , KHASRA KHATAUNI, KISAN BAHI, KCC LEDGER ACCOUNT, BANK ACCOUNTS AND O THERS. THE ASSESSEE HAS FILED A CHART IN WHICH DETAILS WERE FU RNISHED ALONG WITH RELEVANT PAGE NOS. OF PAPER BOOK OF EACH AND EVERY PARTY. THE CIT(A) BEFORE DELETING THE ADDITION INCORPORATED DE TAILED CHART OF THE EVIDENCE FILED BY THE ASSESSEE WHICH HE HAS REPRODU CED AT PAGE NOS.3 TO 5 OF HIS ORDER. IN THE LIGHT OF THE LAW LAID DO WN BY THE APEX COURT IN THE CASE OF LOVELY EXPORTS, (319 ITR (STATUTES) PAGE NOS.5 & 6), WE FIND THAT THE CIT(A) HAS RIGHTLY DELETED THE ADD ITION OF RS.79,22,000/- ON ACCOUNT OF SHARE APPLICATION MONE Y RECEIVED BY THE ASSESSEE. THE CIT(A) ALSO TOOK CARE OF REVENUE BY GIVING DIRECTIONS THAT THE DEPOSITS ARE LIABLE TO BE EXAMINED AND ANY CONCLUSION, AS TO WHETHER SUCH FUNDS ARE EXPLAINED OR UNEXPLAINED, AR E LIABLE TO BE DRAWN IN THEIR RESPECTIVE CASES. IN RESPECT OF LOA N OF RS.25,51,000/-, WE FIND THAT THE ASSESSEE HAS ALSO DISCHARGED ITS B URDEN CAST UNDER SECTION 68 OF THE ACT. WE NOTICE THAT SOME OF THE LOANS WERE GIVEN BY THE SAME PERSONS WHO HAD APPLIED FOR SHARE APPLICAT ION MONEY. WHEN THE ASSESSEE HAS DISCHARGED HIS BURDEN IN RESPECT O F SHARE APPLICATION MONEY AND FURNISHED SUFFICIENT MATERIAL, UNDER THE CIRCUMSTANCES, IT CANNOT BE HELD THAT THE SHARE APPLICATION MONEY WAS GENUINE TRANSACTION AND LOAN TRANSACTION WAS BOGUS. IT IS P ERTINENT TO MENTION THAT INSPITE OF DETAILS FURNISHED BY THE ASSESSEE, THE A.O. DID NOT ITA NO. 79/AGRA/2012 20 EXAMINE ANY OF THE CREDITORS BEFORE REJECTING THE A SSESSEES CONTENTION AND DOCUMENTS FURNISHED. THE A.O. EXAMINED TWO PER SONS WHEREIN THEY CONFIRMED THAT THEY HAD APPLIED FOR THE SHARES OF THE COMPANY AND SHARE APPLICATION AMOUNT WAS GIVEN BY THEM. UN DER THE FACTS AND CIRCUMSTANCES, WHEN THE ASSESSEE DISCHARGED ITS BUR DEN BY FURNISHING NECESSARY EVIDENCE AND MATERIAL IN RESPECT OF IDENT ITY, CREDITWORTHINESS AND GENUINENESS AND THERE IS NO CO NTRARY MATERIAL TO THE FINDING OF THE CIT(A) ON RECORD OR NEITHER HAS BEEN POINTED OUT AT THE TIME OF HEARING. WE ARE, THEREFORE, INCLINED T O UPHOLD THE ORDER OF CIT(A). 36. APART FROM THE FACT THAT THE ASSESSEE HAS DISCH ARGED THE BURDEN CAST UNDER SECTION 68 OF THE ACT, WE NOTICE THAT TH E ASSESSEE COMPANY INCORPORATED W.E.F. 03.06.2003, THEREFORE, IN THE L IGHT OF JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGINEERING & CONSTRUCTION CO., 83 ITR 187 (SC), THE ADDITION IS NOT WARRANTED. 6.1 HONBLE SUPREME COURT IN THE CASE OF CIT VS. LO VELY EXPORTS (P) LTD. (SUPRA) HELD AS UNDER : IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE A SSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAME S ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO R EOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMP ANY. 6.2 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAY A SECURITIES LTD. VS. CIT(SUPRA) HELD AS UNDER : SECTION 68 OF THE INCOME-TAX ACT, 1961 CASH CREDI TS ASSESSMENT YEARS 1996-97 AND 1997-98 WHETHER ANY ADDITION UNDER SECTION 68 CAN BE MADE IN RESPECT OF INVESTMENT MAD E BY DIFFERENT PERSONS IN SHARE CAPITAL OF ASSESSEE-COMPANY, LIMIT ED BY SHARES, WHETHER PUBLIC OR PRIVATE HELD, NO. ITA NO. 79/AGRA/2012 21 6.3 HONBLE SUPREME COURT IN THE CASE OF CIT VS. BH ARAT ENGINEERING AND CONSTRUCTION CO. (SUPRA) HELD AS UNDER :- THOUGH THE ORDER OF THE TRIBUNAL IS NOT HAPPILY WO RDED, ITS FINDING APPEARS TO BE THAT IN THE VERY NATURE OF TH INGS THE ASSESSEE COULD NOT HAVE EARNED SUCH A HUGE AMOUNT AS PROFITS VERY SOON AFTER IT COMMENCED ITS ACTIVITIES. A CONSTRUCTION COMPANY TA KES TIME TO EARN PROFITS. IT COULD NOT HAVE EARNED A PROFITS OF RS.1 ,00,000 WITHIN A FEW DAYS, AFTER THE COMMENCEMENT OF ITS BUSINESS. HENCE , IT IS REASONABLE TO ASSUME THAT THOSE CASH CREDIT ENTRIES ARE CAPITA L RECEIPTS THOUGH FOR ONE REASON OR OTHER THE ASSESSEE HAD NOT COME OUT W ITH THE TRUE STORY AS REGARDS THE PERSON FROM WHOM IT GOT THOSE AMOUNT S. IT IS TRUE THAT IN THE ABSENCE OF SATISFACTORY EXPLANATION FROM THE ASSESSEE THE ITO MAY ASSUME THAT CASH CREDIT ENTRIES IN ITS BOOKS RE PRESENT INCOME FROM UNDISCLOSED SOURCES. BUT WHAT INFERENCE SHOULD BE DRAWN FROM THE FACTS PROVED IS A QUESTION OF FACT AND THE TRIB UNALS FINDING ON THAT QUESTION IS FINAL. JUDGMENT AND ORDER DT. 12 TH JAN., 1968 OF THE ALLAHABAD HIGH COURT IN IT REF. APPLN. NO. 151 OF 1 964 AFFIRMED. 6.4 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAISWAL GRAINS STORE (SUPRA) HELD AS UNDER : THE ASSESSEE RAN A STORE IN THE NAME OF J. DURING T HE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1976 -77, THE INCOME- TAX OFFICER NOTICED THAT THE THREE PARTNERS INVESTE D RS.5,000 EACH ON AUGUST 1, 1975, THE FIRST DAY OF THE ACCOUNTING PER IOD RELEVANT TO THE ASSESSMENT YEAR IN QUESTION. THE INCOME-TAX OFFICER ADDED THE ENTIRE AMOUNT OF RS.15,000 AS INCOME FROM UNDISCLOSED SOUR CES. THE TRIBUNAL DELETED THE ADDITION. ON A REFERENCE : HELD, THAT THE DEPOSIT OF RS.5,000 BY EACH OF THE PARTNER S WAS MADE ON THE FIRST DAY OF THE START OF THE ASSESSEE S BUSINESS. ON THE FIRST DAY OF THE BUSINESS, IT COULD NOT BE ASSUMED THAT THE ASSESSEE, WHICH WAS A FIRM, THOUGH ASSESSED IN THE STATUS OF AN ASSOCIATION OF PERSONS HAD UNEXPLAINED INCOME OF RS.15,000. THE AD DITION HAD BEEN RIGHTLY DELETED. ITA NO. 79/AGRA/2012 22 7. CONSIDERING THE FACTS OF THE CASE, EVIDENCES AVA ILABLE ON RECORD AND IN THE LIGHT OF ABOVE DECISIONS, IT IS CLEAR THAT THE ASSE SSEE HAD DISCHARGED BURDEN IN RESPECT OF GENUINE RECEIPT OF SHARE APPLICATION MON EY BY FURNISHING COMPLETE DETAILS IN THE FORM OF SHARE APPLICATIONS, DECLARAT ION, AFFIDAVIT, KHASRA, KHATONI, INCOME CERTIFICATES AND IDENTITY PROOFS AND OTHERS. IT IS ALSO NOT IN DISPUTE THAT SHARES WERE ACTUALLY ALLOTTED TO ALL THE SHARE HOLD ERS AND DETAILS OF THE SAME HAVE BEEN FURNISHED BEFORE THE REGISTRAR OF COMPANIES. I N THE LIGHT OF THE ABOVE DECISIONS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS PROVED THE EXISTENCE OF SHARE HOLDERS AND THEIR CREDITWORTHINESS. IT IS ALSO NOT IN DISPUTE THAT MAJORITY OF SHARE APPLICATION MONEY WAS RECEIVED PRIOR TO ACTUAL COMM ENCEMENT OF BUSINESS BY THE ASSESSEE. THEREFORE, THE SAME COULD NOT BE HELD TO BE UNDISCLOSED INCOME OF THE ASSESSEE U/S. 68 OF THE IT ACT IN THE LIGHT OF JUDG MENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGINEERING & CONSTRUCTI ON CO. (SUPRA). IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION FOR THE AUT HORITIES BELOW TO HAVE MADE ADDITION AGAINST THE ASSESSEE. WE ACCORDINGLY SET A SIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.14,65,000/- IN THE RESULT, GROUND NO. 1 TO 3 OF APPEAL OF THE ASSESSEE ARE ALLOWED. 8. ON GROUND NO. 4 & 5, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF RS.2,53,124/- OUT OF DEPRECIATION ON PLANT AND MACH INERY. THE AO WHILE ALLOWING DEPRECIATION HAS REDUCED THE VALUE OF SUBSIDY OUT OF THE COST OF PLANTS AND ITA NO. 79/AGRA/2012 23 MACHINERY AND THUS, MADE DISALLOWANCE OF RS.2,53,12 4/- FROM THE DEPRECIATION. ACCORDING TO THE AO, THE ASSESSEE HAS RECEIVED SUBS IDY TO THE EXTENT OF RS.20,25,000/- FROM NABARD WHICH HAS NOT BEEN REDUC ED FROM THE COST OF PLANT AND MACHINERY WHICH WAS SHOWN AS SUBSIDY RECEIVED B Y THE ASSESSEE IN THE CAPITAL ACCOUNT. THEREFORE, THE AO ALLOWED DEPRECIATION TO THE ASSESSEE AFTER REDUCING THE SUBSIDY FROM THE COST OF PLANT AND MACHINERY. IT WA S SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE COMPANY IS RUNNING A MULTI CHAMBER COLD STORAGE FACILITY WITH TWO CHAMBERS FOR PRESERVATION OF POTATOES AT A GRA. THE COLD STORAGE WAS CONSTRUCTED AND INSTALLED DURING THE YEAR ITSELF. T HE ASSESSEE HAD RECEIVED ADVANCE INSTALLMENT OF CAPITAL SUBSIDY AMOUNTING TO RS.20,2 5,000/- FROM NABARD, WHICH WAS DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE. THE BANKER OF THE ASSESSEE COMPANY HAS RECEIVED ADVANCE INSTALLMENT O F BACK ENDED CAPITAL SUBSIDY OF RS.20,25,000/- FROM NATIONAL BANK FOR AGRICULTUR E AND RURAL DEVELOPMENT UNDER THE CAPITAL INVESTMENT SUBSIDY SCHEME FOR CONSTRUCTION/EXTENSION/MODERNIZATION OF COLD STORAG E FOR HORTICULTURE PRODUCE. THE SUBSIDY IS ADMISSIBLE TO THE BORROWER UNDER THE SCH EME WILL BE KEPT IN SUBSIDY RESERVE ACCOUNT BORROWER-WISE IN THE BOOKS OF ACC OUNT OF THE FINANCING BANKS. THE ADJUSTMENT OF SUBSIDY FROM BANK TERM LOAN WILL BE ON THE PATTERN OF BACK ENDED SUBSIDY. AS THE SUBSIDY IS NOT AVAILABLE AT THE DISPOSAL OF THE ASSESSEE AND EVEN IT WAS NOT ADJUSTED BY BANK FROM THE TERM LOAN ACCOUNT AS PER TERMS OF THE SCHEME, THEREFORE, THE ADVANCE INSTALLMENT OF SUBSI DY WAS NOT A FINAL AMOUNT UNTIL ITA NO. 79/AGRA/2012 24 THE COMPLETION OF PROJECT. THEREFORE, THIS SUBSIDY WAS NOT FINAL AMOUNT OR A DETERMINED VALUE FOR ANY PURPOSE. AS PER THIS SCHEM E, THE ASSESSEE IS ELIGIBLE FOR SUBSIDY @ 25% OF THE TOTAL PROJECT COST. THEREFORE, NO DEDUCTION IS JUSTIFIED. THE ASSESSEE RELIED UPON THE DECISION OF THE SUPREME CO URT IN THE CASE OF ITO VS. P.J. CHEMICALS LTD AND OTHERS, 210 ITR 830. IT WAS SUBMI TTED THAT THE FINAL AMOUNT ON THE SUBSIDY IS DETERMINED ONLY ON THE COMPLETION OF PROJECT AND FURTHER SUBSIDY WAS NOT RELATED TO THE PLANTS AND MACHINERY ONLY. T HEREFORE, THE ADDITION WAS UNJUSTIFIED. THE LD. CIT(A), HOWEVER, DID NOT ACCEP T THE CONTENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE BY FOLLOWI NG THE DEFINITION OF ACTUAL COST AS PER SECTION 43(1) OF THE IT ACT. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS SHOWN THE AMOUNT OF SUBSIDY IN LIABILITY AND ASSET OF THE BALANCE SHEET (PB-5) BECAUSE THE SUBSIDY AMOUNT UNDER THE SCHEME WAS NOT RECEIVED BY THE ASSESSEE. IT IS AVAILABLE TO THE BANK ONLY AND NO TERM LOAN IS ALLOWED ON THE SAME. THEREFORE, THE AS SESSEE CANNOT USE THIS AMOUNT OF SUBSIDY. NO INTEREST IS ALSO ALLOWABLE TO THE AS SESSEE (PB-252). THEREFORE, HE HAS SUBMITTED THAT DISALLOWANCE IS UNJUSTIFIED. HOW EVER, HE COULD NOT EXPLAIN AS TO IN WHICH YEAR THE FINAL AMOUNT WAS DETERMINED ON TH E COMPLETION OF PROJECT. HE HAS RELIED UPON THE DECISION OF THE SUPREME COURT I N THE CASE OF P.J. CHEMICALS LTD. (SUPRA) AND ORDER OF ITAT, AGRA BENCH IN THE C ASE OF DCIT VS. SMT. CHARI ITA NO. 79/AGRA/2012 25 AGARWAL IN ITA NO. 236/AGRA/2010. ON THE OTHER HAND , THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL ON RECORD AND FIND THAT THE MATTER REQUIRES RECONSIDERATION AT TH E LEVEL OF THE AO. THE ASSESSEE HAS SPECIFICALLY PLEADED BEFORE THE AUTHORITIES BEL OW THAT THE ASSESSEE COMPANY IS RUNNING MULTI CHAMBER COLD STORAGE FACILITY AT AGRA AND COLD STORAGE WAS CONSTRUCTED DURING THE YEAR ITSELF. THE ASSESSEE HA D RECEIVED ADVANCE INSTALLMENT OF CAPITAL SUBSIDY FROM NABARD, WHICH WAS DULY ACCO UNTED FOR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE BECAUSE THE BANKER OF THE A SSESSEE COMPANY HAS RECEIVED ADVANCE INSTALLMENT OF BACK ENDED CAPITAL SUBSIDY F ROM NABARD UNDER THE CAPITAL SCHEME SUBSIDY SCHEME FOR CONSTRUCTION OF C OLD STORAGE. THE ASSESSEE ALSO EXPLAINED THAT SUBSIDY IS ADMISSIBLE TO THE BORROWE R UNDER THE SCHEME WILL BE KEPT IN SUBSIDY RESERVE ACCOUNT BORROWER-WISE IN THE B OOKS OF ACCOUNTS OF THE FINANCING BANKS. THE ADJUSTMENT OF SUBSIDY FROM BAN K TERM LOAN WILL BE ON THE PATTERN OF BACK ENDED SUBSIDY. THE SUBSIDY IS NOT A VAILABLE AT THE DISPOSAL OF THE ASSESSEE AND EVEN IT IS NOT ADJUSTED BY THE BANK FR OM TERM LOAN ACCOUNT AS PER TERMS OF THE SCHEME. THE ADVANCE INSTALLMENT OF SUB SIDY WAS NOT FINAL AMOUNT UNTIL COMPLETION OF PROJECT. THEREFORE, THIS SUBSID Y WAS NOT FINAL AMOUNT OR A DETERMINED VALUE FOR ANY PURPOSE. THE SUBSIDY WAS N OT RELATED TO ANY SPECIFIC ASSET, RATHER IT WAS RELATED TO TOTAL COST OF THE P ROJECT. IT WOULD, THEREFORE, PROVE THAT ITA NO. 79/AGRA/2012 26 THE ASSESSEE HAS NOT ACTUALLY RECEIVED THE SUBSIDY IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE IN THE BALANCE SHEET HAS GIVEN TREATME NT TO THE SUBSIDY BOTH IN LIABILITY AND THE ASSET. IT IS AVAILABLE TO THE BAN K AND NO TERM LOAN OR INTEREST IS ALLOWABLE. SINCE IT WAS CLAIMED THAT IT WAS A ADVAN CE INSTALLMENT OF CAPITAL SUBSIDY, IT WAS NOT A FINAL AMOUNT UNTIL COMPLETION OF THE PROJECT, THEREFORE, SUCH FACTS OF COMPLETION OF PROJECT AND AVAILABILITY OF SUBSIDY ON ACCRUAL METHOD AS AVAILABILITY OF SUBSIDY TO THE ASSESSEE ON FINAL DE TERMINATION OF THE COST OF PROJECT, SHOULD HAVE BEEN CONSIDERED BY THE AUTHORITIES BELO W IN PROPER PERSPECTIVE. THE ASSESSEE BEFORE US HAS NOT GIVEN COMPLETE FACTS AS WHEN THE SUBSIDY WOULD ACCRUE/RECEIVED BY THE ASSESSEE ON COMPLETION OF PR OJECT. THEREFORE, NEITHER THE AO NOR THE ASSESSEE HAVE BROUGHT COMPLETE FACTS ON RECORD FOR DETERMINATION OF ISSUE INVOLVED ON THIS GROUND. THEREFORE, IT IS NEC ESSARY THAT THE AO SHOULD VERIFY THE SCHEME IN QUESTION AND SHOULD ALSO VERIFY WHETH ER THE SUBSIDY IS DEPENDENT UPON THE DETERMINATION OF FINAL AMOUNT ON COMPLETIO N OF PROJECT AND AS TO WHEN SUCH COMPLETION IS DONE IN THIS CASE. THEREFORE, AC CRUAL OF SUBSIDY IN FAVOUR OF THE ASSESSEE IS A NECESSARY INGREDIENT TO BE DETERMINED BY THE AO ACCORDING TO THE SCHEME. IN THE ABSENCE OF COMPLETE DETAILS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF AO WITH THE DIRECTION TO RE- DECIDE THIS ISSUE IN ACCORDANCE WITH LAW BY GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE MAY CITE THE SA ME DECISIONS BEFORE THE AO AS HAVE BEEN CITED BEFORE US FOR THE PURPOSE OF DETERM INATION OF THE ISSUE ONCE FOR ALL. ITA NO. 79/AGRA/2012 27 IN THE RESULT, GROUNDS NO. 4 & 5 OF THE APPEAL OF T HE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY
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