Income Tax Appellate Tribunal - Delhi
Gold Leaf Capital Corpn. India Ltd. vs Jcit, Spl. Range-37 on 11 January, 2008
ORDER
D.R. Singh, Judicial Member
1. With this order, we shall dispose off the appeal filed by the assessee and Cross Objection filed by the revenue arising from the order of CIT (A), New Delhi, passed in Appeal No. 168/2001-02 dated 20.3.2002 for the sake of convenience.
2. In its appeal, the assessee has taken nine grounds. The Ground Nos. 1 to 8 of the appeal relate to the issue of receipt of share application money amounting to Rs. 1,79,50,000/- pending allotment being treated as unexplained under Section 68 of the Income Tax Act, 1961. Ground No. 9 relates to the issue of charging of interest under Section 234B and 234C of the Income Tax Act, 1961. The learned AR for the assessee conceded before us that charging of interest Under Section 234B and 234C is consequential in nature and shall be reworked according to the appellate order passed by the Tribunal. Whereas, in Cross Objection, the Revenue has raised following ground:
On the facts and in the circumstances of the case and in law the ld. CIT (A) has erred in deleting the disallowance of Rs. 46,07,000/- being share capital on relying the case law of Stellar Investments, 251 ITR 263, whereas the assessee had failed to prove the identity as well as the creditworthiness of the companies/parties who had invested in share capital of the assessee company.
3. Briefly stated, the facts relating to the issue involved in the grounds of appeal of the assessee and that of the Cross Objection are that in this case original assessment under Section 143(3) of the Act was completed on 30.03.1998 on an income of Rs. 2,25,01,415/- as against returned loss of Rs. 55,585/- by making an addition of Rs. 2,25,57,000/- on account of share capital and share application money.
4. On appeal, this order was set-aside by the learned CIT (A) to be framed de-novo vide his order dated 28.12.1998 in Appeal No. 29/98-99. Accordingly, the Assessing Officer in order to comply with the directions of the CIT (A) gave separate opportunity to the assessee company and asked the assessee to furnish various details/information with respect to share capital amount of Rs. 46,07,000/- and share application money pending allotment amounting to Rs. 1,79,50,000/- enumerated in his assessment order.
5. The Assessing Officer after discussing this issue in his assessment order held that inspite of affording various opportunities and in the absence of explanation, the assessee failed to substantiate its claim and, therefore, the Assessing Officer again determined the income of the assessee at Rs. 2,25,01,425/- as originally assessed in the order passed under Section 143(3) of the Act dated 30.03.1998 by making following relevant observations:
Scrutiny of the balance sheet reveals share capital of Rs. 46,07,000/- and share application money of Rs. 1,79,50,000/-, total liability shown as per balance sheet worked out to Rs. 2,25,57,000/-. The assessee company was asked to prove the nature and source of the same. Various opportunities were provided but the assessee failed to prove the nature and source of the liability remains unexplained thereof, accordingly as per discussion made in the body of assessment order, my predecessor has come to the conclusion that the nature and source of the liability remains unexplained. However, before the CIT (A), the assessee has furnished a paper book containing confirmations etc. of the share applicants along with other documents. Before the ld. CIT (A) also the assessee was provided opportunity to prove the capacity of the creditor and prove the genuineness of the transaction as well as to prove the identity of creditor, but it failed to do so. The Hon'ble CIT (A) examined the documents filed, particularly copies of bank account produced by the assesses. He has called for the account opening forms and copy of account of these creditors from the various banks. But it was noticed that all the bank accounts were being operated by the same Director of the company i.e. Shri Sandeep Thapar. This shows that Shri Sandeep Thapar has manipulated the whole affairs and the companies or applicants are non genuine entities, but the returns etc. have been filed or various bank accounts have been opened just to suit its case and to prove the nature and source of substantial investment. However, for example, it may be mentioned that assessee has claimed investment of Rs. 93,50,000/- by M/s Alwar Finlease Pvt. Ltd. and Rs. 1,32,00,000/- by M/s Mehar Capital Finance Pvt. Ltd. but on enquiry these companies were found to be non genuine companies and the bank account of the alleged share applicants was being maintained and manipulated by Shri Sandeep Thapar, who is a Director in this very company. Since the facts and merits of the case have already been discussed in detail in the assessment order and also thrashed out by the CIT (A) who has called for copy of the account opening form and bank account of the alleged creditors which show that the creditors are non genuine and coupled with the fact that assessee company has not cared to comply with the provisions of the notices issued from time to time. It is patently clear that the assessee has no fresh explanation to offer to explain the genuineness of the liability as appearing in the books of accounts.
6. Aggrieved with the order of the Assessing Officer, the assessee filed an appeal before the CIT (A) and contended before him that the Assessing Officer was not justified in making any addition on this account. It was pointed out that out of Rs. 2,25,50,000/-, a sum of Rs. 46,07,000/- has been allotted as share capital. It was submitted that the assessee has fully discharged the onus under Section 68 of the Act by proving the identity of the applicants. The learned AR argued that the assessee cannot be punished for the failure of the Assessing Officer to examine all the facts. Further, it was submitted as under:
It is alleged by the Ld. DCIT on reference from earlier assessment order that summons under Section 131 to two shareholder companies were not served at original address, however, non service of summons was never denied at the second address which was furnished later on. This fact is explicit even from the assessment order, where Ld. DCIT has never mentioned non-service of summons. It is only he or his predecessor did not pursue the matter further. The assessee is not supposed to do anything beyond furnishing address and income tax reference numbers.
7. The appellant company was given an opportunity by the undersigned to explain in detail the role of Shri Sandeep Thapar in all the three companies so that the true sidle of affairs can be established. In response to this querry, the Ld. AR filed letter dt. 19.3.2002, in which inter-alia it has been submitted as under:
We now further put forward, the detailed flow of funds as per Annexure A, B & C. As per Annexure A, Rs. 93,50 lakhs was transferred from one of the group companies i.e. Thapar Milk Products Ltd., and it got transferred to other group of companies alongwith Gold Leaf Capital Corporation (India) Ltd., with ultimately money going back again to Thapar Milk Products Ltd. This entire transaction took place between 2.1.95 to 7.1.95.
Similar flow of fund has been depicted in Annexure B & C from the same company i.e. M/s Thapar Milk Products Ltd. From these flow of funds it is very clear that all the funds were essentially belonging to M/s Thapar Milk Products Ltd., which is duly assessed at Company Ward 3(2), New Delhi.
Hence, the same money which has already been assessed and authenticated to belong M/s. Thapar Milks Products Ltd., cannot be assessed in the hands of the petitioner company, only on the grounds that one Mr. Sandeep Thapar was signatory in their companies i.e. Gold Leaf Capital Corporation (India) Ltd., Alwar Finlease (P) Ltd., and Meehar Capital & Finance (P) Ltd.
8. After considering the submissions, the learned CIT(A) allowed a part of relief to the assessee by simply confirming the addition of Rs. 1,79,50,000/- and deleting the balance addition made by the Assessing Officer as under:
I have carefully considered the matter. It is very clear that the onus under Section 68 of proving the genuineness of the transaction, the creditworthiness of the creditor and the actual identity of the creditor has not been discharged by the assessee company. The CIT (A)-I, comments given in his order dt. 28.12.98, which have been reproduced above, clearly show that the true state of affairs had to be established after analyzing the inter-company transactions and the antecedents of these persons involved, including Sh. Sandeep Thapar. On one pretext or the other, the assessee has avoided meeting these requirements in the assessment proceedings and also before the undersigned. Therefore, I have no hesitation in holding that the onus under Section 68 of the Income-tax Act in respect of the share application money pending allotment of Rs. 1,79,50,000/- has not been discharged by the assessee in this case. As regards the share capital which has been allotted of Rs. 46,07,000/-, no addition can be made in the hands of the appellant company keeping in view the Hon'ble Supreme Court decision in the case of Stellar Investments- 251-ITR 263. However, ratio of this decision is not applicable to share application money against which shares have not been allotted. The Ld. AR has confirmed that till date no shares have been allotted against the share application money of Rs. 1,79,50,000/-. Accordingly, keeping in view the above, the addition of Rs. 1,79,50,000/- is confirmed. The appellant company is entitled to a relief of Rs. 46,07,000/-, as discussed above.
9. We have considered the rival submissions of both the parties, perused the records and carefully gone through the orders of the tax authorities below.
10. There is no dispute to the settled legal position that in respect of the cash credits appearing in the books of the assessee the onus is on the assessee to prove the identity and creditworthiness of the creditors as well as the genuineness of the transaction. If the onus is not discharged by the assessee then such cash credit may be assessed as deemed income of the assessee under Section 68 of the Act. Further, the application of Section 68 of the Act is not restricted to receipts by way of loans or deposits but is applicable to any receipt appearing in the books of the assessee, irrespective of its nature. In this regard reference can be made to the full bench decision of Hon'ble Delhi High Court in the case of Sofia Finance Ltd., 205 ITR 98 (Del) and Division bench decision in the case of Dolphin Can Pack Ltd., 204 CTR 50 (Del) wherein their Lordships held that provisions of Section 68 of the Act were applicable to the share capital receipts.
11. We may like to mention that after the decision of the Hon'ble Delhi High Court in the case of Devine Leasing & Finance Ltd., 204 CTR 38 (Del), nothing is left for the Tribunal to analyze and decide whether in a given case onus on the assessee can be said to be discharged and when it is said not to have been discharged and the importance of inquiry to be conducted by the Assessing Officer in a case of investment in the share capital of a company in the case of Private Limited Company/Private Placement to probe the identity, creditworthiness and the genuineness of the transaction because in this case (supra) their Lordships have arrived at the conclusion by critically analyzing all the earlier decisions in this regard delivered by the High Court, including the decision in the case of Sofia Finance (supra). The relevant portions of the decision in the case of Devine Leasing & Finance Ltd. (supra) are reproduced herein under:
14. On appeal this Court held that:
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 the preponderance of evidence indicates absence of culpability and complexity of the Assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of public issue, the company concerned cannot be expected to know every details pertaining 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 information 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 Section 68 and 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 Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company.
Further, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the Income Tax Act. The Assessee has to prima facie prove (1) the identity of the creditor/ subscriber; (2) the genuineness of the transaction, namely: whether it has been transmitted through banking or other indisputable channels; (3) the credit worthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address of PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notice; (6) the onus would not stand discharged if the creditor/subscriber denied or repudiated the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; (7) the Assessing Officer is duty-bound to investigate the credit worthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.
12. On going through the decision in the case of Devine Leasing & Finance (Supra) and other relevant case law it is clear that the degree of onus would depend upon the facts of each case and no standard degree of proof can be applied generally to all cases, irrespective of the nature of receipts because in the case of share investments for public placements the degree of proof may be light but in the case of private placement it may be stringent, the reason being a public issue cannot be made by a Private Limited Company. However with requisite permission the share capital can be received through private placement normally to known persons/companies. Similar would be the position when the shares are allotted by a Public Limited Company on private placement basis.
13. With this understanding of law regarding additions made under Section 68 of the Act, as laid down through various case law, we now proceed to determine the issue under consideration before us arising from the orders of the tax authorities below i.e. the genuineness of the share capital/share application money introduced by the assessee during the assessment year 1995-96, under consideration. Before proceeding further, it is important to understand the back ground of the case as well as the role played by the assessee in providing cooperation to the Assessing Officer in completion of original assessment and the set-aside assessment, as well as, the role played by the assessee during the 1st and 2nd innings of the appellate proceedings before the CIT (A).
14. Now, on examining the original assessment order, we find that the Assessing Officer issued the 1st notice under Section 142(1) of the Act on 28.01.1997 to the assessee. The same was responded to by the assessee. The Assessing Officer asked the assessee to provide necessary information and details, as detailed in the orders of the Assessing Officer. From 04.02.1997 till the completion of original assessment dated 30.03.1998 numerous adjournments as sought for by the assessee were provided for furnishing the necessary information and details called for by the Assessing Officer. On the asking of the assessee the notice under Section 131 were also issued to the Director of the investing companies at the addresses provided by the assessee when the Assessing Officer failed to serve the same at the address originally provided by the assessee. In compliance thereof the accountants of those investing companies appeared before the Assessing Officer and sought adjournment for 27.03.1998 on the ground that the necessary documents since pertained to Financial Year 1994-95 and the CA was out of town the same could not be produced without him.
15. In these circumstances, the assessee for one reason or the other failed to furnish the details required regarding the share capital and share application money to the Assessinq Officer. As a result in the first round of the assessment, on account of sheer non-cooperation on the part of the assessee by projecting the investment companies to be unapproachable, the assessee showed incapacity in providing and filing the copies of bank accounts as well as the copies of the final accounts of both the investment companies. Whereas, the investing companies at the end of the assessment proceedings sought time for producing the details called for by the Assessing Officer by 27.03.1998 when the assessment would have become barred on 31.03.1998 and, therefore, the Assessing Officer was left with no choice but to complete the assessment in the absence of the details asked by him. As a result, the assessee completely succeeded in its attempt for providing the information which suited it but thwarted the attempt of the Assessing Officer in examining/establishing with cogent evidence the creditworthiness of the investing companies and the genuineness of the transaction involved in the investment of share capital of the assessee because the Assessing Officer was compelled to simply draw adverse inference against the assessee on account of the non-cooperation, though, of course, which he rightly and legally did so.
16. This is part of the story upto the completion of the initial assessment by which we have simply tried to reveal the conduct and role played by the assessee.
17. Before the CIT (A) during the 1st inning of the appellate proceedings we find that the assessee furnished for the first time the bank statement of the assessee company, copies of the returns filed by the share holder companies and confirmations etc.
18. The CIT (A) thereafter also collected some vital information regarding the investing companies, obtained copies of their bank accounts, bank account opening documents and then directed the Assessing Officer to frame the assessment de novo by making following observation:
Quite interesting, one person, Sandeep Thapar, figures in the account opening forms of all the three companies figuring here. The investing companies have one more person listed as a Director. The antecedents of these persons are to be verified and their exact role determined. The inter-company transactions have to be closely analyzed to arrive at the true state of affairs. For this purpose, I set-aside the case to the file of the Assessing Officer and he may collect any information required from my record.
19. From the order of the CIT (A), it is evident that by sending the matter to the Assessing Officer, he laid emphasis that in the 2nd inning the Assessing Officer should thoroughly investigate the matter for examining the genuineness of the transaction and the creditworthiness and identity of the investing companies because the major investments in the share capital of the assessee i.e. to the extent of almost 90%, belonged to these two investing companies, namely M/s Alwar Finlease Pvt. Ltd. and M/s Mehar Capital & Finance Pvt. Ltd., having same address, which also had one common Director, Shri Vikas Puri and the other Director being Mr. Vishal Puri and Mr. Virender Puri, respectively, in each company. Other significant fact which came to light from the order of the CIT (A) is that the assessee did not produce the information called by the Assessing Officer during the period of one year in which the assessment proceedings were completed but produced part of that information before the CIT (A) during the appellate proceedings within a period of almost three months during which the appellate proceedings were completed by the CIT(A). Again clearly revealing the non-cooperative attitude of the assessee before the Assessing Officer during the initial assessment proceedings further showing the attitude of the assessee that had the assessee been genuinely interested in cooperating the assessee could have produced the information before the Assessing Officer too.
20. Again, in the 2nd inning of the proceedings, in compliance with the directions of CIT (A) , the Assessing Officer asked the assessee to first give the brief history regarding the business activity of the assessee company, names and addresses of the shareholders, break up of their share holding, their GIR and PAN Number if they are assessed to tax, nature and source of share capital, share application money, pending allotment, current liabilities, list of share holders and their complete addresses from which the investments have been received, mode of receipt of payment if received through bank the number of the cheques/drafts, to prove the identity and capacity of creditors/shareholders/share applicants alongwith documentary evidence in support thereof and, lastly, to prove the genuineness of transaction.
21. The assessee except insisting that the earlier replies in response to the query of the Assessing Officer furnished by the assessee alongwith other details would cover all the present queries and information called by the Assessing Officer in the 2nd innings of the assessment did not furnish any other details called for by < the Assessing Officer and the books of accounts called for by the Assessing Officer. The assessee also did not produce its Director, Shri Sandeep Thapar, who figured in all the account opening forms of the assessee company and the other two investing companies, though directed to do so by the CIT (A) for helping in investing the genuineness of the transaction and capacity of the creditors/share holders/share applicants were also not produced before the Assessing Officer even during he 2nd inning of the set-aside assessment proceedings. As a result the Assessing Officer was again compelled to draw adverse inference against the assessee in holding that the genuineness of the transaction and the capacity of the creditors/investors were not proved by the assessee on account of non furnishing of any fresh explanation by the assessee to prove the same.
22. The above facts reveal the genuine attempt on the part of the Assessing Officer to allow opportunity to the assessee to prove the genuineness of the transaction and the capacity of the creditors/shareholders/share applicants was again frustrated by the assessee.
23. Our above observation gets further strengthened when we examined the appellate order of the CIT (A) now under consideration before us as well as when we look towards the attempt of the assessee wherein by referring to certain documents not filed before the Assessing Officer the assessee tried to de novo establish the identity and creditworthiness of the creditors/shareholders/share applicants as well as the genuineness of the transaction. It is a stage wherein we are required to pause and rethink and arrive at a conclusion whether at this stage whether we can look into all those facts/documents afresh and whether we at an appellate stage are well equipped to investigate and verify all those documents which were not available with the Assessing Officer for the purpose for which the CIT (A) in the first round of appellate proceedings set-aside the matter to the Assessing Officer to do the same.
24. Undisputedly, from the index of documents filed before the CIT (A) now placed at Page 101 of the Paper Book, it is clear that the assessee filed for the first time before the CIT (A) the documents like copy of computation of income for assessment year 1995-96, copy of audit report alongwith Balance Sheet, P&L Account etc. copy of return filed by shareholder companies, copy of certificate of incorporation, audit report alongwith Balance Sheet, P&L Account etc. in the case of investors M/s Alwar Finlease Pvt. Ltd. and M/s Mehar Capital & Finance Pvt. Ltd., copy of statement of Oriental Bank of Commerce in the case of assessee company, as well as, in the case of shareholder companies and copies of confirmation from investing companies M/s Alwar Finlease Pvt. Ltd. and M/s Mehar Capital & Finance Pvt. Ltd. Similarly, flow of funds chart starting from Thapar Milk Product Ltd. back to Thapar Milk Product Ltd., as shown at Pages 116 to 118 of Paper Book filed before the Tribunal, indicating investments was filed for the first time before the CIT (A). These facts get further confirmed from the order of the CIT (A) indicating the filing of these documents by the assessee during the course of appellate proceedings before the CIT (A).
25. All this is again indicative of the fact that in fact the assessee from day one of initiation of initial assessment proceedings was in a position to exercise control on the investing companies and still it withheld all the necessary information called for by the Assessing Officer, which could enable the Assessing Officer to test the genuineness of the transaction and creditworthiness of the investing companies by verifying the genuineness of the claims made by the assessee before the CIT (A) on the basis of those documents which the assessee filed for the first time before the CIT (A) during the 2nd inning of the appellate proceedings.
26. Thus, it stands established that in fact the assessee produced only the information/documents/person for recording statement called for by the Assessing Officer which suited the interest of the assessee and intentionally withheld that information which did not suit the interest of the assessee. Even Shri Sandeep Thappar, Director, as directed by the CIT (A) in the 1st appellate order to be examined by the Assessing Officer for testing the genuineness of the transaction was never produced by the assessee before the Assessing Officer, though his active involvement in the affairs of assessee company as well as the investing companies cannot be ruled out from the facts appearing on record and also in view of the finding recorded by the CIT (A) in the first appellate order.
27. We would like to mention that the 2nd appellate authority does not have ways and means available by which it could assume the role of Assessing Officer, as an investigating officer, for coming to a conclusion regarding creditworthiness of the two investing companies/creditors who gave money to these investing companies for investment by verifying those documents filed by the assessee which are relevant for this purpose, more so, when at no stage the Director, Shri Sandeep Thappar, was made available by the assessee for examination by the tax authorities below. It would be appropriate to further mention that even if on the basis of the documents filed on record by the assessee for the first time before the CIT (A) we may arrive at a conclusion favourable to the assessee with respect to the identity and creditworthiness of the investor but the importance of the third ingredient i.e. the genuineness of the transaction also cannot be undermined, in the absence of proving the same the identity and creditworthiness of the investor, even if established by the assessee, would become meaningless and the receipt on account of investments as share capital/share application money in the books of the assessee would be deemed to be the income of the assessee under Section 68 of the Act and the addition could be made accordingly. The importance of the genuineness of transaction has been laid down by the jurisdictional High Court in the case of Divine Leasing (supra) wherein their Lordships observed in following words the importance of genuineness of transaction in the case of private placement:
In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tight rope of Sections 68 and 69 of the I.T. Act. The burden of proof can seldom be discharged to the hilt by the assessee, if the Assessing Officer harbours doubts of legitimacy of any subscription he is empowered, nay duty-bound to carryout thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings be cannot obdurately adhere to his suspicious and treat the subscribed capital as undisclosed income of the company.
28. It is here where the assessee played significant role by putting hurdles by not providing the details/documents called for by the Assessing Officer as well as did not produce the Director, Shri Sandeep Thappar, for examination so that the Assessing Officer was enabled to unearth any wrong or illegal dealings before arriving at any conclusion regarding legitimacy of the investments made by the investing companies.
29. Similarly, though in a case of gift transactions, the importance and significance of genuineness of transaction was again laid down by the Hon'ble Delhi High Court in the case of Rajeev Tandon, 294 ITR 488, and the Apex Court in the case of T. Mohan Kala 291 ITR 278 (SC), and by the Tribunal in the case of Rajeev Tandon, 294 ITR 219 (AT).
30. The Tribunal in the case of Rajiv Tandon v. ACIT 294 ITR (AT) 219 (Del) after considering the entire case law on the subject, including the decision of the Apex Court in the case of CIT v. Durga Prasad Moore , and Sumati Dayal v. CIT 214 ITR 801, regarding the genuineness of the gift observed that the taxing authorities were entitled to look into the surrounding circumstances and the aspect of human probabilities to find out the real and factual position. Further, also considering the decision of Delhi High Court in the case of Sajjan Dass & Sons v. CIT 264 ITR 435, wherein the Court took the view that not only must the assessee establish the identity of the donor and his capacity to make the gift, but he must also establish that the amount received by him was in fact a gift, the Tribunal held that the genuineness of the gift transaction cannot be determined without looking into the aspect of human probabilities, relationships of donor and donee, the occasion for making gift and existence of reciprocity, if any. In case the assessee fails to establish any one of the facts the amounts received by the assessee can be treated as the assessee's income from undisclosed sources representing assessees own money, introduced in the garb of a gift received by the assessee. Thereafter, the Tribunal treated the gifts as non-genuine.
31. Their Lordships of Hon'ble Delhi High Court affirming the above decision (supra) of the Tribunal in Rajiv Tandon v. ACIT 294 ITR 488 (Del) held that the two donors had absolutely no connection with the assessee and they made gifts to the assessee only because he needed money to buy a house and they wanted to help him. This was not only quite unusual but also quite unnatural. It was incredible that a complete stranger would want to gift lakhs of rupees to a person only because that person wanted the amount for purchasing a house. The taxing authorities were entitled to look into the surrounding circumstances, which they did, and come to the conclusion that the gifts could not be said to be genuine. The reason offered by the assessee did not appear to be reasonable, much less acceptable. Therefore, there was no error in the view taken by the Tribunal.
32. Similarly, their Lordships of Apex Court in the case of CIT v. P. Mohanakala , had an occasion to decide the following question relating to gifts:
Whether in the facts and circumstances, the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum of Rs. 15,62,500 received by way of gifts through normal banking channels was not genuine and that it was liable to be assessed under Section 68 of the Income-tax Act, 1961?
33. In this case, the Assessing Officer in his order while taking into consideration the statements of the donor and donee and other material on record as well as considering all probabilities came to a conclusion that the gifts though apparent were not real and accordingly treated all those amounts credited in the books of the assessee as the income of the assessee. On appeal the CIT (A) also considering the preponderance of probabilities, the common course of human beings points to the contrary upheld the order of the Assessing Officer and rejected the story of the assessee regarding the genuineness of the gifts. On second appeal the Tribunal concurred with the findings of the tax authorities below after re-appreciating the entire material available on record. The Apex Court while upholding the concurrent findings of facts recorded by the authorities below observed and concluded that these were based on proper appreciation of facts and the material available on record and the surrounding circumstances, the doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real ones. May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence.
34. From the ratio of decision of Apex Court in the case of P. Mohanakala (supra), it is clear that even the Apex Court impliedly approved the view taken by the Tribunal in the case of Rajiv Tandon (supra) as well as by the Jurisdictional High Court while affirming the above decision (supra) of the Tribunal because the Tribunal while deciding the case of Rajiv Tandon (supra) have held that the genuineness of the gift transaction cannot be determined without looking into the aspect of human probabilities, surrounding circumstances such as relationships of donor and donee, the occasion for making the gift and existence of reciprocity, if any, and in case the assessee fails to establish any one of these factors the gift transaction is non-genuine and the amounts received by the assessee can be treated as the assessee's income from undisclosed sources representing assessee's own money, introduced in the garb of a gift received by the assessee. Further, their Lordships while upholding the order of the Tribunal in the case of Rajiv Tandon {supra) have also held that the tax authorities below while considering the genuineness of the gift transactions were entitled to look into the surrounding circumstances, which they did and came to the conclusions that the gifts could not be said to be genuine and, therefore, there was no error in the view taken by the Tribunal.
35. In view of our detailed discussion hereinabove, we have come to a conclusion that in the instant case the assessee intentionally did not produce Shri Sandeep Thappar, the Director, before the Assessing Officer, as directed by the CIT (A) in the appellate order of the 1st inning of the proceedings so that true state of affairs of inter company transactions i.e. between the assessee company and the investing companies could be investigated by the Assessing Officer for coming to a conclusion regarding the genuineness of the transactions and creditworthiness of the investors. Again for this very purpose the assessee also intentionally did not produce the documents and provide information called for by the Assessing Officer either during initial assessment proceedings or during the 2nd inning of assessment proceedings in compliance with the order of the CIT (A) though he produced that very information first time before the CIT (A) in the second inning of the appellate proceedings and thus thwarted the attempt of the Assessing Officer to examine and investigate the creditworthiness of the investors/creditors and the genuineness of the transaction. In these circumstances now two courses are available with the Tribunal first to draw adverse inference against the assessee and hold that the assessee failed in establishing the creditworthiness and genuineness of the transactions and consequently uphold the order of the Assessing Officer, the second course would be keeping in view the gravity of quantum of amounts involved in the instant case of the assessee and assuming that if the matter is restored to the Assessing Officer and the Assessing Officer after through enquiry and investigation comes to a conclusion that the transaction was genuine and creditworthiness of the investors/creditors too is established then adopting the 1st course would be against the rule of imparting natural justice to the assessee.
36. Keeping in view the entire facts and circumstances in our opinion in order to meet the ends of justice it would be fair and reasonable to set-aside the orders of tax authorities below on the issues under consideration before us and restore the matter to the file of Assessing Officer to re-decide the issue afresh after considering the documents filed on record by the assessee. It is also enjoined upon the assessee that it will cooperate with the Assessing Officer in completion of the assessment within a period of three months from the date of receipt of the notice from the Assessing Officer and shall without delay produce all information/material/person/ Shri Sandeep Thappar, Director called by the Assessing Officer in facilitating for completing the assessment as per the observations made herein above in this order. Accordingly, orders of tax authorities below under consideration before us are set-aside and the issue is restored to the file of the Assessing Officer for compliance.
37. Consequently, the grounds of appeal taken by the assessee and the grounds taken in the Cross Objection by the Revenue are allowed for statistical purposes.
38. In the result, the appeal of the assessee and the Cross Objection filed by the Revenue stand allowed for statistical purposes.
Order pronounced in the open Court on 11.01.2008.