Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income Tax vs Antarctica Investment (P) Ltd. on 9 May, 2002
Equivalent citations: (2003)78TTJ(DELHI)257
ORDER
1. The appeal has been directed by the Revenue against the order of the CIT(A) dt. 22nd Dec., 1995, pertaining to asst. yr. 1992-93. The Revenue has raised the following ground of appeal :
"On the facts and in the circumstances of the case and in law learned CIT(A) was not justified in treating the share application money as explained even though the major share investing companies were non-existing".
2. Briefly the facts of the case are that the assessee is an investment company engaged in purchase and sale of shares and advancing money to industrial and other corporate bodies. During the course of assessment proceedings, the AO noted that the following share application money has been received by the assessee :
(i) M/s National Commercial (P) Ltd. Rs. 89,50,000
(ii) Nobru Commercial (P) Ltd. Rs. 45,00,000
3. In order to verify the genuineness of shares application money, the assessee was asked to produce Shri Ajay Gupta, the Delhi based director of both the companies. The assessee was also asked to furnish evidence for the source of the above two companies from whom the share application money was received, nature of business done by them, the assessment of income by their respective ITOs and also to establish as to whether 1 per cent of the taxes have been paid to Sikkim Government for transferring the money outside Sikkim. In reply, the assessee stated that the share application money had been received through banks whose names and addresses along with bank statements and final accounts were also furnished. The assessee also stated that the confirmation from both the companies had been filed. As the assessee has discharged its initial burden, the ball was in the court of the AO to make further investigation. The AO considered the submissions of the assessee. He observed that. Shri Ajay Gupta who was the director of both the companies had not been produced. He also observed that the so-called both companies did not exist at the given address during the inspection visit by the AO. The confirmation filed by the assessee did not give IT assessment particulars of the said parties. The AO also observed that Shri Ajay Kumar Gupta, the director was reportedly aged 25 years and stayed with his maternal uncle and was not admissible for service of summons. He also observed that during the course of search earlier, the account books of these two companies were found at the premises of the CA at Delhi. The AO, therefore, held that the identity and creditworthiness of both the companies from whom the alleged share application money has been received has not been proved. He, therefore, added the entire sum to the income of the assessee under Section 68 of the Act. For this purposes, the AO also relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. (1993) 70 Taxman 69 (Del).
4. On appeal, the CIT(A) deleted the addition by observing that the existence of both the companies was established. They have their bank accounts from where the amount has been advanced to the assessee. In order to prove the identity and creditworthiness of the two companies, the following documents were also furnished ;
(i) Confirmation letters from both the companies.
(ii) Copies of the accounts of the two companies as found in the appellant's books.
(iii) Copies of the memorandum and article of association of both the companies.
(iv) Copies of the bank accounts of the two companies from where the funds had flown.
(v) Certified true copies of the auditor's report and the final accounts of the two companies as on 31st March, 1992."
5. The CIT(A) also observed that entire transaction was through bank channels. The date, cheque number and the amount of withdrawal was also mentioned by the CIT(A) on p. 11 of his order. The CIT(A) had also observed that apart from having advanced the share application money to the assessee, both the companies have invested huge funds with other companies which in proportion to the amount received by the assessee was much substantial. While relying on the decision of Hon'ble Delhi High Court in the case of Sophia Finance Ltd (supra), the CIT(A) held that the identity of both the companies have been established and genuineness of the transaction has also been established. He, therefore, deleted the addition made by the AO against which the Revenue is in appeal before us.
6. While learned Departmental Representative supported the order of the AO, the learned counsel supported the order of the CIT(A).
7. We have considered the rival submissions. Before going into the merit of the case, we may mention that initially issue of taxability of share application money came up for consideration before the Hon'ble Delhi High Court in the case of CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 (Del). The Hon'ble Court held that per se no addition to the income of the company could be made on account of shares application money received by it. The Department did not accept the decision of the Hon'ble Delhi High Court and filed SLP before the Hon'ble Supreme Court. In the meantime, the issue was reconsidered by the Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra). The Hon'ble High Court held that in case the identity of the shareholder was established, perhaps no further investigation about creditworthiness of the shareholders was required. While doing so, the Hon'ble Court did not lay down any norms for deciding the extent of onus of proof of the amounts credited. However, the Hon'ble Court also observed that if the identity of the shareholder is not established then the addition could be made under Section 68 of the Act because the shares could not be issued to a non-existing person,
8. Now the decision of the Hon'ble Supreme Court in the case of CIT v. Stellar Investment Ltd. filed by the Revenue has been pronounced. The Hon'ble Supreme Court in the case reported in upheld the findings of the Hon'ble Delhi High Court reported in (1991) 192 ITR 287 (Del) (supra). The effect of such decision is. that per se no addition to the income of the companies could be made on account of share application money received by them.
9. However, it appears that the said decision of the Hon'ble Supreme Court in the case of Stellar Investment Ltd. (supra) and the decision of the Hon'ble High Court in the case of Sophia Finance Ltd. (supra), was with reference to the public limited company. In the case of public limited company, the number of shareholders are very big and the shareholders itself volunteer for making investment by way of share application money. But in the case of private limited company, the position was not so. In the case of a private limited company, the shareholders are very small in number and mostly they are known persons. Looking to the size of shares applications, perhaps, the observations of the Hon'ble Supreme Court in the case of Stellar Investment Ltd. (supra), and the Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra), would not be applicable. However, we find that while deciding the appeal, the CIT(A) has considered this aspect. While quoting various provisions of the Companies Act regarding receipt of share application money, the allotment of the shares, the CIT(A) has examined the identity of both the share applicants, their creditwothiness and genuineness of the transaction. He has observed that confirmation letters from both the companies have been furnished. The copies of their accounts in the assessee's book have also been furnished. The copies of the memorandum and articles of association of both the companies have been furnished. The copies of the bank account of both the companies have been furnished. Even the certified copies of the auditor's report of both the companies as on 31st March, 1992, has also been furnished. All these documents clearly indicates that both the companies were identifiable. Their identity, therefore, cannot be in doubt. We also find that National Commercial (P) Ltd. was incorporated in Gangtok, Sikkim on 29th March, 1989, vide letter issued by under secretary. (Land Revenue, Government of Sikkim, Gangtok dt. 29th March, 1989. The address of the company as found in the returns of allotment filed in persuance of Section 75(1) of the Companies Act discloses the address at Sikkim. This company had a bank account in Dena Bank, Daryaganj Branch, New Delhi having A/c No. 4/099. As on 1st April, 1991, the opening credit balance of the company in that account was Rs. 13,04,494.33 and the closing balance as on 31st March, 1992 was Rs. 10,48,657.33 the perusal of the monthly bank statement of this account reveals that there have been numerous transactions of deposits and withdrawals of which the investment in the assessee-company was only a few. The details of such investments have been mentioned by the CIT(A) on p. 11 of his order.
10. A perusal of the audited final accounts of this company shows that its authorised share capital was Rs. 10.50 crores as on 31st March, 1992, as against the issued, subscribed and paid-up capital of Rs. 9,06,47,700. The assets side of the balance-sheet shows the share application money in different companies to the tune of Rs. 5.90 crores out of which the investment in the assessee-company was Rs. 89.50 lacs. In the balance-sheet, various facts have been mentioned about its liability and assets. Under these circumstances, the identity and creditworthiness of M/s National Commercial (P) Ltd. cannot be doubted.
11. Similarly, the other share applicant Norbu Commercial (P). Ltd. was registered in Sikkim vide Government of Sikkim letter dt. 29th March, 1989. The main object of this company as per memorandum of association was acquiring shares, stocks, debentures, etc. The address of the company was specified in the return of allotment in persuance of s, 75(1) of the Companies Act. It has maintained the bank A/c No. 4/098 with Dena Bank, Daryaganj Br. New Delhi. The opening balance in this account as on 1st April, 1991, was Rs. 39,809.49 and the closing stock as on 31st March, 1992, was Rs. 8,601.67. The perusal of this bank account shows that there were more than 250 transactions of deposits and withdrawals of large amounts of which the transactions with the assessee-company were only 4. The date, the cheque number and the amount paid to the assessee-company has been mentioned by the CIT(A) on p. 50 of his order. Its issued, subscribed and paid-up share capital amounted to Rs. 6,50,32,000. The share application money lying with other companies amounted to Rs. 6,22,50,000. The balance-sheet also reveals various sundry creditors and debtors. The transaction from the bank account of such magnitude clearly proves the creditworthiness of the said company, Entire transactions have taken place through the banking channels and, therefore, the genuineness of the transactions cannot be doubted.
12. The only reasoning given by the AO for disallowing the claim of the assessee appears to be the non-existence of the company at the given address when the AO visited the place for inspection. The other reasons appear to be the non-appearance of the director. There may be various reasons for non-existence of the company when the AO visited the spot but the transaction of such a high magnitude cannot be in air. The company was registered with the Government of Sikkim as the letter of the Sikkim Government. Quite possible that the company continued to be registered in Sikkim and the entile transactions were carried on from Delhi. The bank account was in Delhi, the address of the director was mentioned and even address of those companies in Delhi have been mentioned in the bank account. Thus, merely because at the time of inspection by the AO, the companies were not found in Sikkim cannot be a ground for holding that the share application money received by the assessee was not genuine. Similarly Ajay Gupta did not appear before the AO though the summons under Section 131 were served on him. This is evident from the following observations made by the AO on p. 2 of his order;
"For the verification of these advances against the share application money a summon was issued to Mr. Ajay Gupta who is Delhi based director at his local address to present on 20th Jan., 1995. On 20th Jan., 1995, Shri Dinesh Gupta, CA attended on behalf of Sh. Ajay Gupta and sought adjournment for 23rd Jan., 1995, but on this date i.e. on 23rd Jan., 1995, there was no compliance from the side of Sh. Ajay Gutpa:"
13. The above observations of the AO clearly prove that the summons under Section 131 was served on the director and in compliance to such summons, somebody had appeared on behalf of the director. Thus, the director of those companies cannot be said to be non-existent, Considering these facts and also the observations made by Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra), we hold that the assessee has discharged its onus of providing the identity and creditworthiness of both the creditors as well as the genuineness of the transactions. The CIT(A) has rightly appreciated these facts and deleted the addition made by the AO. While upholding his finding, we dismiss the ground of appeal raised by the Revenue.
14. In the result, the appeal filed by the Revenue stands dismissed.