Income Tax Appellate Tribunal - Lucknow
Sumak Powercap Ltd. vs Asstt. Cit on 31 October, 2002
Equivalent citations: (2004)90TTJ(LUCK)420
ORDER
P.N. Parashar, J.M.:
These two appeals have been filed by the same assessee against two different orders of learned Commissioner (Appeals) for assessment years 1996-97 and 1997-98.
2. The learned Commissioner (Appeals) has passed main order for assessment year 1996-97, which is dated 5-2-1999. He has followed this order in the next assessment year. Since the issues involved in these appeals are similar and further since similar grounds have been taken by the assessee, for the sake of convenience, these two appeals are being decided together by this order.
3. Shri S.K. Garg, advocate, has appeared on behalf of the assessee in these two appeals, whereas, Shri Prasenjit Singh, Senior Departmental Representative represented the department. ITA No. 511/Alld/1999 : Ground Nos. 1.1 to 1.5 and ground No. 2.
4. These grounds are directed against the sustenance of addition at Rs. 3,40,000 made by the assessing officer under section 68 of the Income Tax Act, 1961.
5. The assessee- company had received a sum of Rs. 4,85,000 on account of share application money. The assessing officer directed the assessee to file the affidavits of the applicants and also to establish their capacity. The assessee produced Smt. Raman Mishra, who had invested a sum of Rs. 20,000. She was cross-examined by the assessing officer. The assessee also produced Smt. Man Kumari and Shri S.N. Mishra. The other share applicants could not be produced by it. On examination, the assessing officer found that the identity, capacity as well as genuineness of the transactions was not established. He, therefore, treated the credits as unexplained and made an addition of Rs. 3.40 lakhs under section 68 of Income Tax Act, 1961. The learned Commissioner (Appeals) has given the details of these creditors (share applicant) and amount of credit, etc., in the table which is incorporated in para 2.1 of his order is as under :
S. No. Alame of the creditor (share applicant) Amount of credit (Rs.) Amount added under section 68 of the Act by the AO (Rs.)
1.
Smt. Raman Misra 20,000 20,000
2. Ms. Geeta Sunam 85,000 85,000
3. Ms. Amrita Katiyar 85,000 85,000
4. Ms. Asha Devi 20,000 20,000
5. Ms. Saria Sharma 20,000 20,000
6. Sri Rakesh Shiva 20,000 20,000
7. Smt. Man Kumari 10,000 10,000
8. Sri Kanhaiyalal Dubey 10,000 10,000
9. Sri Deepak Kumar Dubey 10,000 10,000
10. Sri Mithilesh Dubey 10,000 10,000
11. Ms. Anju Dubey 10,000 10,000
12. Sri Manoj Kumar Dubey 10,000 10,000
13. Sri Ram Narain Pandey 10,000 10,000
14. Ms. Sudha Pandey 10,000 10,000
15. Ms. Kamla Pandey 10,000 10,000 Total 3,40,000 3,40,000
6. In para 2.2 of his order, he has also noted the details regarding each creditor and the version/explanation of the assessee. Thereafter, the learned Commissioner (Appeals) has proceeded to consider various decisions relevant to the issue relating to unexplained credits including the decision of Full Bench of Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del)(17B). He has also considered the case of individual creditors and after examining the relevant material and also the circumstantial evidence in relation to each creditor, he has confirmed the addition of Rs. 3.40 lakhs made by the assessing officer under section 68 of the Act in respect of share application subscription in the names of 15 persons appearing in the table reproduced above.
7. Before us, the learned counsel for the assessee, Shri S.K. Garg, FCA, submitted that the learned first appellate authority has not properly examined the matter. He also pointed out that after the decision of the learned first appellate authority, there have been some developments on account of subsequent decisions of Hon'ble Supreme Court of India. In this regard, he made specific reference to the following decisions :
(i) CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC)
(ii) CIT v. Steller Investment Ltd. (2000) 164 CTR 287 (SC)
(iii) Dy. CIT v. Rohim Builders (2002) 256 ITR 360 (Guj)
(iv) CIT v. Rohini Builders (2002) 254 ITR (SC) 275
8. He also made reference to the following decisions :
(I) CIT v. Smt. P.K. Noorjahan (1980) 123 ITR 3 (Ker).
(II) CIT v. Sharnshuddin Manzoor Haque (1988) 172 ITR 696 (All)
9. The main arguments of the learned counsel for the assessee were as follows :
9.1 That the identity of the creditors was established by the assessee by filing their confirmatory letters and affidavits, and by filing details of income tax returns, etc. 9.2 That the assessee- company had shown the receipt of the share application money, from them and also furnished the details before the Registrar of Companies.
9.3 That the assessee has discharged the primary burden which lay upon it by proving the identity, etc. of the creditors, receipt of payments and, therefore, the department was not justified in requiring the assessee further to prove the capacity of the investors and genuiness of their transactions.
9.4 It is not the case of the department that unexplained investment was made by the company out of its own funds and, therefore, addition cannot be made in the hands of the company, even if the source of the' creditor was not properly explained.
10. In support of these arguments, the learned counsel for the assessee also placed specific reliance on the various decisions of the Tribunal, which are as under :
(1) Smt Krishna Devi Cold Storage v. CIT (ITA No. 609/Alld/1986. Order dated 29-10-1999 of Tribunal, Allahabad Bench.) (2) Incane Constn. Co. Ltd. v. Assistant Commissioner (ITA No. 629/Alld/1993, Order of Allahabad Tribunal dated 26-2-1997.) (3) CIT v. Incane Constn. Co. Ltd. (R.A. No. 172/Alld/1997 in order dated 8-6-1998.) (4) Merit Development & Constn. (P) Ltd. v. Assistant Commissioner (ITA No. 1183/Alld/1994 - Lucknow - order of Tribunal, Allahabad Bench dated 19-9-1998.)
11. On the other hand, the learned Senior Departmental Representative, Shri Prasenjit Singh, submitted that the learned Commissioner (Appeals) was justified in sustaining the addition. He placed reliance on the order of the learned Commissioner (Appeals). The learned Senior Departmental Representative further submitted that if conduct of the assessee, circumstances relating to the transactions of credit entries are considered properly, then the truth shall come to surface. According to him, requisite conditions have to be established by the assessee for proving the credits appearing in its books of accounts. The learned Senior Departmental Representative also made reference to the following decisions :
(a) Shreelekha Banerjee & Ors. v. CIT (1963) 49 ITR 112 (SC)
(b) Sumati Dayal v. CIT (1995) 214 ITR 801 (SC)
(c) V.M. Salgaocar & Bros. (P) Ltd. v. CIT (2002) 243 ITR 383 (SC)
(d) CIT v. Korlay Trading Co. (1998) 232 ITR 820 (Cal)
(e) CIT v. Turner Morrison & Co. Ltd. (1978) 114 ITR 629 (Cal)
(g) Bharti (P) Ltd. v. CIT (1978) 111 ITR 951 (Cal)
(h) Manak Chandra Laxman Das v. CIT (1983) 140 ITR 151 (All).
12. The learned counsel for the assessee further made submissions in reply to the arguments of the learned Senior Departmental Representative and placed reliance on certain other decisions in support of his arguments.
13. We have carefully considered the facts and circumstances relating to this matter, the material to which our attention was invited and the rival submissions including the case law referred to by the parties, before us.
14. The learned Commissioner (Appeals) has considered the relevant case law in detail as is evident on perusal of paras 2.4 to 2.10. In para 2.2, he has recorded his conclusion on the basis of the case law discussed by him in earlier paragraphs. We consider it proper to reproduce para No. 2.10 of his order, which is as under :
"2.10 It seems that while it may be unreasonable to ask the company to find out and report about the source of the funds of a shareholder (whose identity has been established), especially in a public issue, in cases where the assessing officer suspects that there was a collusion between the company and the share applicant or the shareholder was a Benamidar of the company, the assessee cannot take the plea that no inquiry is permissible. In such situations it can be argued that the concept of the identity of the share applicant, as a genuine investor (which has a nexus with his financial capacity and possession of disposable funds/income) is intertwined with his identity as a person. While this does not mean that the assessee-company can be required to police its share applicants and be accountable for all their economic activities and tax obligations, it can be called upon to establish the identity of the share applicant/shareholder as a genuine investor and to produce shareholders before the assessing officer when asked to do so. Also, while it seems that in view of the Delhi High Court's decision in the case of Sophia Finance Ltd. (supra), the assessee cannot be called upon to produce bank record, financial status and income-tax record of the shareholders, this does not preclude the assessing officer from making inquiries in the matter, collect any evidence for the purpose of application of section 68 and draw any inference adverse to the assessee if the inquires made or evidence collected by him show that the share applicants were not genuine investors or were Benamidars of the appellant-company. Also, if the company fails to produce a share applicant before the assessing officer and attempts to preempt the process of inquiries and investigations, the assessing officer will be free to draw inferences against the assessee. "
15. A perusal of the above paragraph shows that the learned Commissioner has explained a concept of "identity of share applicant" by postulating that identity of the share applicant as a genuine investor, has to be proved, because it has a nexus with his financial capacity and possession of disposable funds, and is intertwined with his identity as a person. If this notion is accepted, then the assessee will be required to prove the genuineness of the investor, including his capacity to invest. It may be pointed out that in none of the cases referred to by the learned Commissioner (Appeals), the test of proving the identity of a shareholder as a genuine investor has been laid down.
16. In the case of CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del), the Hon'ble High Court of Delhi went to the extent of observing that even if the subscriber to the capital was not genuine, under "no circumstance, could the amount of share capital be regarded as undisclosed income of the company." This decision of Hon'ble Delhi High Court has been subsequently upheld by the Hon'ble Supreme Court of India in the case of CIT v. Steller Investment Ltd. (supra). The Hon'ble Supreme Court of India has concluded as under :
'Even if the subscribers to the increased share capital of assessee- company were not genuine, the amount could not be regarded as undisclosed income of the assessee-company; Tribunal having cancelled Commissioners order under section 263 whereby the assessment was set aside on the ground that assessing officer had accepted the genuineness of share capital without making enquiries, no question of law arises. "
The order of the court dismissing the appeal of the revenue is as under :
"We have read the question which the High Court answered against the revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs."
17. In view of the decision in the case of the Hon'ble Supreme Court of India in the case of V.M. Salgaocar & Bros. (P) Ltd. v. CIT (supra), if appeal is dismissed by Hon'ble Supreme Court of India against the judgment of High Court in limine, the judgment appealed against stands confirmed. The Hon'ble Supreme Court of India in the case of Salgaocar (supra), has observed as under :
"When an appeal is dismissed by the Supreme Court by a non-speaking order, the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case, the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of Article 133 of the Constitution."
18. In view of the above observation of the Hon'ble Supreme Court of India, the decision of Hon'ble Delhi High Court in the case of Steller Investment (supra), stands merged with the order of the Hon'ble Supreme Court of India and in view of that decision, the test laid down by the Hon'ble Delhi High Court in Steller's case (supra) stands approved by the Hon'ble Supreme Court of India, and in view of the legal position emerging from the decision of the Hon'ble Supreme Court of India, the concept of proof of identity of shareholder as a genuine investor cannot be upheld as a legally sound test.
19. In the case of Sophia Finance (supra) also, the Full Bench of Hon'ble Delhi High Court has observed that if the shareholder exists, then possibly no further inquiry need be made. This is clear from the following portion of the Hon'ble court :
"If the amount credited is a capital receipt then it cannot be taxed but it is for the Income Tax Officer to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital, it does not preclude the Income Tax Officer from going into the question whether this is actually so. Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The Income Tax Officer would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But, if the Income Tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words "may be charged" in section 68 clearly indicates that the Income Tax Officer would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee.
20. Thus, the identity of the shareholders can definitely be enquired and has to be proved and if the shareholder is found non-existing then the Income Tax Officer can treat such a credit to be the income of the assessee. If a further test of ascertaining the identity of shareholder as genuine investor, i.e., as a capable investor is applied, then necessarily the scope of inquiry will be extended to know the source of investment in the hands of the shareholder. Thus, if the assessee is required to prove the genuineness of the investor in terms of his capacity, then such an assessee will be under an obligation to prove the source of the source, which is not the requirement of law even according to the case of Sophia Finance Ltd. (supra). In this regard, we may quote the relevant observations of the Hon'ble Court, which are as follows :
"If the shareholders are identitied and it is established that they have invested moneys in purchase of shares, then the amount received by the company would be regarded as capital receipt and to that extent the observation in the case of Steller Investmeent (supra) are correct."
21. In view of the above observations also, there is concurrence in the two decisions of the Hon'ble High Court on the requisite conditions which are :
(i) That the shareholder is identified; and.
(ii) That the shareholder has invested money in the purchase of shares.
22. If the abovementioned two requirements are satisfied, then no further inquiry should be made. Thus, in a case where identity of the shareholder is established and further shareholder confirms that he has invested money in the purchase of shares, then no further inquiry can be made against the company for the purposes of making addition under section 68 of the Income Tax Act, 1961, but in case after the above test is satisfied, an additional test of proving shareholder as a genuine investor is applied, then his capacity to invest has also to be examined, which test will not be in consonance even with the test laid down in the decision of Full Bench of Hon'ble Delhi High Court in the case of Sophia Finance (supra).
23. In the case of CIT v. Smt. P.K. Noorjahan (supra), the Hon'ble Supreme Court of India has affirmed the decision of Hon'ble Kerala High Court. In that case, the issue related to investments made by the assessee, a Muslim lady aged 20 years, in the purchase of land, which was not found recorded in the books of accounts. The explanation of the assessee as to the source of the purchase money for the investment was not found to be satisfactory by the assessing officer, who made addition under section 69. The Appellate Assistant Commissioner concurred with the findings of the assessing officer. The Tribunal found the explanation about the nature and source of purchase money unsatisfactory, but it was of the opinion that although the explanation was liable to be rejected, but section 69 of the Income Tax Act, 1961, conferred only the discretion upon the Income Tax Officer to deal with the investment as income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as latter's explanation happened to be rejected. On reference to the Hon'ble High Court, the view taken by the Tribunal was affirmed. On further appeal, the Hon'ble Supreme Court of India upheld the decision of Hon'ble High Court and observed as under :
"Held, dismissing the appeal, that in the instant case, the Tribunal had held that the discretion had not been properly exercised by the Income Tax Officer and the Appellate Assistant Commissioner taking into account the circumstances in which the assessee was placed and the Tribunal had found that the investments could not be treated as income of the assessee. The High Court had agreed with the said view of the Tribunal. There was no error in the finding recorded by the Tribunal. Section 69 could not be invoked in respect of the investments of the assessee."
24. Although the decision of Hon'ble Supreme Court of India is in relation to section 69, but on the same analogy, it can be said with reference to the section 68 that the word "may" cannot be taken as "shall" and, thus, the Income Tax Officer is not obliged to make addition in every case where the explanation offered by the assessee in respect of capacity of investor is not found to be satisfactory. The discretion has to be exercised keeping in view the facts and circumstances of the particular case.
25. In the case of Dy. CIT v. Rohini Builders (supra), the assessee-firm had taken loans from various parties and during the assessment proceedings, it furnished the loan confirmation giving full address, GIR/Permanent Account Numbers, etc., of all the depositors. After making inquiry, the assessing officer doubted genuineness of the loans taken by the assessee and made an addition of Rs. 12,85,000 to the returned income of the assessee. The Commissioner (Appeals) confirmed it. On further appeal, the Tribunal held that phraseology of section 68 of the Income Tax Act, 1961, was clear that the legislature has laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged to the income as the income of the assessee of previous year but the legislative mandate is not in the terms of the word "shall be charged to income as the income of the assessee of that previous year". It was also held that unsatisfactoriness of the explanation does not mean and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial burden which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR Numbers/Permanent Account Numbers and copies of assessment orders, wherever readily available; that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques, drawn from bank accounts of the creditors. It was further observed by the Tribunal that the assessee was not expected to prove the genuineness of the cash deposit in the bank of those creditors, because under law an assessee can be asked to prove the source of creditors in its books of accounts, but not the source of the source. On this basis, the addition of Rs. 12,85,000 was deleted by the Tribunal. The Hon'ble High Court dismissed the appeal against the order of the Tribunal. The Special Leave Petition filed by the revenue against the judgment of Gujarat High Court reported in (2002) 254 ITR (St) 275, was dismissed. Thus, the view of the Tribunal was upheld upto the stage of Hon'ble Supreme Court of India.
In view of the above decision also, the assessee cannot be required to prove the source of the source and if the test of proving the identity of the shareholder as a genuine investor is applied, then the burden shall be cast upon the assessee to prove the source of the source, which is not the intention of the legislature so far as section 68 is concerned.
26. In the case of CIT v. Kwick Travels (1993) 199 ITR (St) 85, the Hon'ble Supreme Court of India dismissed a Special Leave Petition by the department to appeal against the order of Hon'ble Delhi High Court, rejecting a reference application on the question, whether the onus cast on the assessee under section 68 of the Income Tax Act, 1961, extended to proving the source of funds, which resulted in cash credits. In that case, the assessee-company had increased its share capital, which it claimed, was paid for in cash. The Income Tax Officer held that the identity of persons, who had acquired the shares as well as their creditworthiness were not established and treated the value of the shares as income from undisclosed sources of the assessee. The Commissioner (Appeals) reduced the amount of such income and the Tribunal affirmed his order. Reference applications were rejected by the Tribunal and the Hon'ble High Court.
27. The Hon'ble Patna High Court has also considered the issue in the case of Saraogi Credit Corporation v. CIT (1976) 103 ITR 344 (Pat). The relevant observations of the Hon'ble High Court are reproduced below :
"Once the identity of the third party is established before the Income Tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as 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 the assessee. Once such identity is established and the creditors as in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's explanation could not be accepted and as to why it must be held that the entity, though purporting to be in the name of a third party, still represented the source. And, in order to arrive at such a conclusion, even the department has to be in possession of sufficient and adequate materials."
11 The Hon'ble Patna High Court has further observed as under :
"The Income Tax Officer's rejection, not of the explanation of the assessee, but of the explanation regarding the source of income of the depositors, could not by itself lead to any inference regarding non-genuine or fictitious character of the entries in the assessee's books of account."
28. The issue relating to onus of the assessee for proving the genuineness of the deposits under section 68 also came before this Bench of Tribunal in the case of Krishna Avtar, M/s. Krishna Agencies (ITA No. 6289/Del/1994 and ITA No. 6256/Del/1994). These appeals were decided by us following the decision of the Hon'ble Patna High Court referred to above and the other decisions.
29. In the cases referred to in para 10 of this order, the Tribunal, Allahabad Benches, have also taken a similar view.
30. The Hon'ble Allahabad High Court has also considered the issue in the case of Manak Chandra Laxman Das v. CIT (supra). In that case, the following observations were made by the Hon'ble court :
"Held, (i) that a mere confirmation letter from the alleged creditor could not be treated as sufficient evidence to prove the genuineness of the loan and the Tribunal was not swayed by any irrelevant consideration in arriving at its finding. Further, the assessee itself foreclosed any further enquiry in the matter by agreeing to the decision of the question on the basis of the material already on record before the Tribunal."
31. In that case, it was held that mere confirmatory letter form the creditor could not be sufficient evidence to prove the genuineness of the loan. But such observation has been made after taking into consideration the fact that Income Tax Officer had relied upon same confessions made by the creditor in which they had disowned the advances of loans. In view of such contradiction and discrepancy coming on account of confessional statements of the creditors, the confirmatory letters were not found sufficient to prove the genuineness of the creditors. In that case, the assessee had also foreclosed any further inquiry in the matter by agreeing to the decision on this question on the basis of material already on record. Thus, this decision of Hon'ble High Court of Allahabad is distinguishable on facts.
32. The decisions relied upon by the learned Senior Departmental Representative are not applicable to the facts of this case. In the case of Shreelekha Banerjee & Ors. v. CIT (supra), the books of account of the assessee showed the receipt of a sums of conversion of high denomination notes tendered for conversions by the assessee himself. Under these circumstances, it was held that it was necessary for the assessee to establish, if asked, what the source of that money was and to prove that it did not wear the nature of income. It was also held that the department can ask the assessee to produce the books of account or other documents or evidence pertinent to explanation if one is furnished, and examine the evidence and the explanation. It was also held that if the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it was income. Thus, on facts, this decision is not applicable to the instant case.
33. In the case of Sumati Dayal v. CIT (supra), the issue related to the cash deposits under section 68. It was held in that case that in all cases, in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is well within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable, because it falls within the exemption provided by the Act lies upon the assessee. In that case also, after the following the decision of Shreelekha Banerjee (supra), it was held that while considering the explanation of the assessee, the department cannot act unreasonably. In our considered opinion, this decision is also not helpful to the department.
34. Likewise, other decisions on which reliance has been placed by the learned Senior Departmental Representative are also not relevant and applicable to decide the issue involved in the present appeal.
35. In view of the above decisions, the following legal proposition may be derived :
1. In the case of a company having,credited the amount on receipt of share subscription money, section 68 of the Income Tax Act, 1961, empowers the Income Tax Officer to make inquiry about the identity of the creditors and genuineness of the credits.
2. So far as the assessee is concerned, the burden is upon it or him to prove the identity of the creditors or shareholders as the case may be.
3. The assessee is also to prove that the sums credited against the creditors have been invested by them and the payments have been received by it.
4. The assessee cannot be required to prove the sources of the investment made by the creditors or shareholders as the case may be.
5. In case the capacity of the shareholder or investor is found doubtful, then necessary action may be taken against them by making a proper inquiry, but not against the assessee- company.
In other words, no addition can be made under section 68 against the assessee on account of credits appearing in his or its account merely on the ground that he or it could not explain the capacity of the investor or source of the source.
36. In the light of the above proposition, we proceed to examine the credit in the present case.
37. In the case of Smt. Raman Misra, the assessee had produced her and she admitted that she had deposited the money in question for share application. She was also income-tax assessee. Her confirmation letter, copy of the income tax return, etc., were also filed before the assessing officer. The learned Commissioner (Appeals) has made the following observations in regard to this shareholder :
"2.12 There are indeed some factors that go in favour of the appellant- assessee insofar this share capital subscription of Rs. 20,000 (by Smt. Raman Misra) is concerned. First, she filed an IT return for the assessment year 1996-97. Secondly, she appeared before the assessing officer and her identity as a person has appeared before the assessing officer and her identity as a person has been established, and is, in any case, not doubted by the assessing officer ..........."
However, he has proceeded further and has made certain observations, which are based on his appreciation of circumstances and on the basis of these circumstances, he has inferred that her identity as genuine investor has not been established.
In our considered view, after identity of the shareholder was proved and further she had confirmed the investment and thus the burden, which lay upon the assessee, stood discharged, In case her capacity to make investment was found to be doubtful, addition, if any, could have been made in her own case, because she was herself an income-tax assessee and had filed income tax return for the assessment year 1996-97, though it was a belated return. We are, therefore, unable to approve the view taken by the learned Commissioner (Appeals).
38. Smt. Man Kumari, who made investment of Rs. 10,000 for purchasing shares was also assessed to income-tax. She had filed affidavit and confirmatory letter. Thus, her identity was proved. Further, she had also confirmed the investment made by her, The assessing officer did not summon her and the affidavit remained uncontroverted. The learned Commissioner (Appeals) has doubted her status as a genuine investor by taking into consideration the circumstance that she was a domestic servant in the household of the director of the assesseecompany and she was an illiterate person. In our view, such considerations are not relevant for rejecting the evidence adduced by the assessee.
39. So far as Smt. Geeta Sunam, Smt.Amrita Katiyar, Ms. Asha Devi, Ms. Sarla Sharma and Sri Rakesh Shiva are concerned, all these investors were income-tax assessees. Smt. Geeta Suman, who made investment of Rs. 85,000 was also produced on 12-2-1998, but she was not examined. All these five persons filed confirmatory letters and also copies of intimation under section 143(1)(a) of Income Tax Act, 1961, for assessment year 1995-96. The assessing officer as well as the learned Commissioner (Appeals) have doubted their genuineness on the ground that the details of account for previous year relevant to assessment year 1995-96, were filed by them and these details did not contain any records of the investment with the appellant- company. The learned Commissioner (Appeals) has also observed that the assessee seems to have made an attempt to preempt the investigation taken up by the assessing officer and misled him. This observation has been made on the ground that although the assessee undertook to produce these persons and gave an assurance but did not produce them, when asked to do so by the assessing officer. In the case of these investors also, the identity of the investors has not been doubted. Further, they have also confirmed the investments made by them. They were also assessed to income-tax. The only reason that the assessee did not produce them despite assurance given by it cannot be a sufficient ground for drawing adverse inference. The assessing officer had sufficient plenary powers to summon them if the assessee had failed to produce them. He could have also directed such investors to show the relevant books of account pertaining to assessment year under consideration, but inaction on the part of the assessing officer and non-exercise of powers available to him under the Act cannot be a sufficient ground to treat the credits as non-genuine. In fact, the assessee had discharged the burden, which lay upon it and it was for the assessing officer to make further inquiry. Even on the basis of such inquiry, if their capacity was found doubtful, then addition could have been made in their cases as they were income-tax assessees.
40. Thus, the reasons assigned by the learned Commissioner (Appeals) for making addition on account of credits appearing in their names are not found to be sufficient and valid,
41. So far as persons referred to at serial Nos. 8 to 15 in the table reproduced above, namely,
8. Sri Kanhaiyalal Dubey
9. Sri Deepak Kumar Dubey
10. Sri Mithilesh Dubey
11. Ms. Anju Dubey
12. Sri Manol Kumar Dubey
13. Sri Ram Narain Pandey
14. Ms. Sudha Pandey
15. Ms. Kamla Pandey are concerned, the learned Commissioner (Appeals) has confirmed the addition by observing as under :
"2.16. The persons referred to at serial Nos. 8 to 15 of Table 1 are reported to be agriculturists. The assessing officer has found some discrepancy in the information about the age of Shri Deepak Kumar recorded in certain documents filed before him. While the appellant has, in the course of the appeal proceedings, tried to explain this discrepancy, no reliable material for the assertion made was furnished. These persons were also not produced before the assessing officer. Also, on an appraisal of the material available on record, it seems to me that identities of these persons (referred to at Sl. Nos. (8) to (15) of Table 1) as genuine investors have not been established. Under these circumstances, the addition aggregating to Rs. 80,000 in respect of the share application money appearing in the names of these persons (persons referred to at Sl. Nos. (8) to (15)) is confirmed. "
42. It may be pointed out that these persons had shown the source of investment from agricultural income. Their affidavits were also filed. Copies of the documents showing agricultural holdings in their names were also filed before the assessing officer, Since they were agriculturists and were deriving income from agriculture, they were not required to file income-tax returns. The learned Commissioner (Appeals) has pointed out some discrepancy in the age of Shri Deepak Kumar, but it has been explained that in the revenue records, his age at the stage of mutation of his name as was noted and in the affidavit, his age as given at the time of swearing in, was mentioned. Thus, in our view, the departmental authorities were not justified in doubting the genuineness of these creditors. In their case also, the assessing officer was not prevented from exercising the statutory powers available to him for making further enquiries and the only fact that they were not produced by the assessee, cannot be a sufficient ground to draw an adverse inference against the assessee.
43. In view of the above, it is found that the identity of these investors was also proved by the assessee and further it was proved that the assessee had received money on account of investment made by them. The investors have confirmed the investment also.
44. In addition to the above, the learned counsel for the assessee has further pointed out that it is not established that the shareholders made investment by using the funds of the company and, therefore, since it is not proved that the company's money was invested in the form of shares subscription, no addition can be made in the hands of the company. He also pointed out that in case it was found that some directors have made the investment, then the addition could have been made in the case of such directors. The learned counsel further pointed out that the public documents relating to company show that shares were allotted to these shareholders and they still continue to be the shareholders. These arguments of the learned counsel for the assessee are found to be forceful, because it has not been brought on record that the invested money came back to the directors or the company in any form, i.e., resale of shares or otherwise. In the totality of the circumstances and in view of the above, the transactions relating to the credits have not been proved to be non-genuine or sham and the shareholders have also not been found to be non-genuine or persons not in existence. Thus, in our view, the assessee had discharged the burden which lay upon it and, therefore, the addition made by the assessing officer and as sustained by the learned Commissioner (Appeals) to the tune of Rs. 3,40,000 cannot be upheld by us, and the same is deleted. Consequently, grounds Nos. 1.1 to 1.5 and ground No. 2 are allowed in favour of the assessee.
Grounds Nos. 3, 4 & 5:
45. These grounds are directed against the sustenance of addition of Rs. 15,215 on account of deposit by Shri S.N. Mishra and addition of Rs. 14,939 on account of deposit by Smt. Asha Devi.
46. The learned Commissioner (Appeals) has considered these credits in paras 3.1 to 3.3 and has confirmed the addition made by the assessing officer.
47. Before us, Shri Garg, learned counsel, submitted that the assessee was not required to prove the source of source. In support of his arguments, he placed reliance on the following decisions :
(i) Nanak Chandra Laxman Das v. CIT (supra)
(ii) Shankar Industries v. CIT (1978) 114 ITR 689 (Cal) He submitted that since there is no dispute about the identity of the depositor and prima facie the deposit was found to be genuine, the creditworthiness of the assessee should not have been doubted.
48. After going through the record, we find that after considering the source of income of Shri S.N. Mishra and his failure to furnish any reliable material about his capacity to make, investment his capacity was doubted. However, his identity has not been disputed. After considering the petty nature of amount being Rs. 15,225 and other relevant circumstances, we are unable to uphold the view taken by the learned Commissioner (Appeals).
49. So far as Smt. Asha Devi is concerned, she was an income-tax assessee and has also filed income tax return for assessment year 1995-96 showing total income of Rs. 36,000. In her case also, the creditworthiness and genuineness of the transaction have been doubted. After taking into consideration the facts that she is an income tax assessee and had confirmed the deposit, we are of the view that no addition can be made in the case of the assessee under section 68. Hence, these additions are also deleted.
50. Grounds 3, 4 and 5 are allowed in favour of the assessee.
Ground No. 651. This ground is directed against the sustenance of addition of Rs. 14,394, which represented the actual payment of bonus. The learned Commissioner (Appeals) has made this addition by observing as under :
"4.4 A statement purporting to be the amount of bonus paid to various employees, filed along with the return of income for the assessment year 1995-96 shows the date of payment of bonus as 28-10-1996. The total amount of bonus shown as paid in this statement is Rs. 56,587. The appellant's submission is that the amount of Rs. 14,394, which was disallowed by the assessing officer is comprised in this aggregate amount of Rs. 56,587. The fact that the liability to pay this amount was incurred not in the previous year relevant to the assessment year 1996-97 but in an earlier previous year is obvious from the auditor's comments at S. No. 9(b) of the tax audit report filed by the appellant-assessee. This is available in the assessment records maintained by the assessing officer. It, therefore, follows that the said amount of Rs. 14,394 was not paid by the appellant in the previous year relevant to the assessment year 1996-97. Therefore, in view of the provisions of section 43B of the Act, the amount in question was not allowable as a deduction in the assessment year 1996-97. The benefit of the extended time-limit for payment under the first proviso to section 43B of the Act is available only in cases where the payment is made by the assessee on or before the due date applicable in his case for furnishing the return of income under section 139(1) of the Act in respect of the previous year in which the liability to pay such sum was incurred. In other words, the benefit of the extended time-limit under the first proviso to section 43B is available only in respect of the previous year in which the liability to pay the sum in question was incurred. In this case the liability to pay the sum in question was not incurred in the previous year relevant to the assessment year 1996-97. It was incurred in an earlier year. Therefore, the appellant cannot get the benefit of the first proviso to section 43B of the Act in the assessment year 1996-97 in respect of the payment made after the end of the previous year relevant to the assessment year 1996-97. I, therefore, confirm this disallowance of Rs. 14,394, though on a reasoning different from the one taken by the assessing officer. This disallowance of Rs. 14,394 is, therefore, confirmed. "
52. The learned counsel for the assessee submitted before us that initially provision of Rs. 42,193 was made and against this actual payment of Rs. 56,587 was made by the assessee on 28-10-1996. The payment was made prior to the due date for filing of the return by the company. It was also submitted that the payments so made pertained to the liability of the assessee and, therefore, the assessee was justified in claiming deduction. In our view, therefore, the contention of the learned counsel for the assessee deserves to be accepted. We hold that the learned Commissioner (Appeals) was not justified in sustaining the disallowance. This ground is also allowed in favour of the assessee.
53. Ground No. 7 is of general nature which does not require any specific adjudication.
54. In the result, the appeal is allowed, ITA No. 627/Alld/2000.
55. In this appeal, the assessee has taken several grounds to challenge the sustenance of additions aggregating to Rs. 4,08,200 made on account of investment made by the shareholders.
56. The learned Commissioner (Appeals) has confirmed the addition by following his order for assessment year 1996-97.
57. Since the investors are virtually the same and further since the facts and circumstances relating to this assessment year are similar to assessment year 1996-97, adopting the same reasons, which we have advanced while deciding the issue in favour of the assessee while deciding ground Nos. 1 and 2 in ITA No. 511/Alld/1999, we reverse the findings of the learned Commissioner (Appeals) and delete the addition sustained by him. Hence, the addition of Rs. 4,08,200 stands deleted.
58. In the result, this appeal is also allowed.