Income Tax Appellate Tribunal - Indore
Peoples General Hospital Ltd., vs Department Of Income Tax
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.195/Ind/2009
Assessment Year: 2005-06
People's General Hospital Pvt. Ltd.,
6, Malviya Nagar, Bhopal
(PAN - AACCP 0310 R) .....Appellant
V/s.
ACIT-2(1), Bhopal .....Respondent
And,
ITA No.427/Ind/2007
Assessment Year: 2004-05
ACIT-2(1), Bhopal .....Appellant
V/s.
People's General Hospital Pvt. Ltd.,
6, Malviya Nagar, Bhopal
(PAN - AACCP 0310 R) .....Respondent
Assessee by : S/Shri H.P. Verma, Ashish Goyal & Girish Agrawal
Department by : Shri K.K. Singh, CIT DR
ORDER
PER JOGINDER SINGH, JM
The assessee has preferred the appeal against the order of ld. CIT(A)-I, Bhopal, dated 13.3.2009 for the assessment year 2005-06 whereas the 2 Revenue has preferred the appeal against the order of the ld. CIT(A)-1, Bhopal, dated 27.4.2007 for the assessment year 2004-05. In both the years, common grounds have been taken by the revenue and the assessee with regard to the addition of share capital received from M/s Alliance Industries Limited. As common grounds are involved in both the appeals, we have heard the appeals together and now dispose of the same by this consolidated order.
2. The facts, in brief, are that during the year, under consideration, there was increase in the share capital as well as share premium. M/s Alliance Industries Limited, a foreign company, has made the investment in shares of the assessee company in the earlier year and also during the year under consideration. In the assessment year 2001-02 there was addition of Rs.61.92 lacs in share capital account and Rs. 309.60 lacs in share premium account out of this investment by M/s. Aliance Industries Limited was Rs. 464.71 lacs. Under the scrutiny, assessment order was framed u/s 143(3) and the entire investment was accepted by the department. For the assessment year 2002-03 share capital of Rs.
94.78 lacs was introduced along with the share premium of Rs.853.03 lacs out of this investment by M/s. Aliance Industries Limited was Rs.
947.81 las and the return was accepted u/s 143(1) of the Act. In the assessment year 2003-04 similar addition of share capital was there to 3 the tune of Rs.212.75 lacs and share premium of Rs. 19.14 lacs.
However, the Assessing Officer did not accept the share capital introduced by M/s Alliance Industries Limited amounting to Rs. 212.75 lcas and the addition was made. In an appeal filed before the learned Commissioner of Incometax (Appeals), the entire addition in respect of share capital introduced by M/s Alliance Industries Limited was deleted and the order of the learned Commissioner of Incometax (Appeals) was confirmed by the Tribunal by rejecting the revenue's appeal. In the assessment year 2004-05 there was addition of share capital and share premium. In the assessment framed u/s 143(3) there was addition of Rs.1890.11 lacs in respect of share capital received from M/s Alliance Industries Limited. In an appeal filed before the learned Commissioner of Incometax (Appeals), the learned Commissioner of Incometax (Appeals) allowed the appeal of the assessee and the addition was deleted in full. In the assessment year 2005-06 there was addition of share capital of Rs.4250.47 lacs. In the scrutiny assessment framed u/s 143(3) of the Act the Assessing Officer has made the addition of Rs.4250.47 lacs in respect of share capital introduced by M/s Alliance Industries Limited. In an appeal filed before the learned Commissioner of Incometax (Appeals), addition so made by the Assessing Officer was confirmed by the learned Commissioner of Incometax (Appeals). Before 4 us, the revenue is in appeal for the assessment year 2004-05 against deletion of addition on account of share capital from M/s Alliance Industries Limited whereas for the assessment year 2005-06 the assessee is in appeal with respect to the addition confirmed by the learned Commissioner of Incometax (Appeals) for the share capital received from M/s Alliance Industries Limited. It is very pertinent to mention here that the issue with regard to genuineness of share capital introduced by M/s Alliance Industries Limited was fully examined by the Tribunal in ITA No. 57/Ind/2007 vide order dated 28.9.2007 for the assessment year 2003-04, wherein the entire addition made in respect of share capital received from M/s Alliance Industries Limited was held to be not justified. The Tribunal has examined not only the identity of M/s Alliance Industries Limited but also the genuineness of the transaction of introduction of share capital and also credit worthiness of M/s Alliance Industries Limited. After discussing various judicial pronouncements in this regard, it was held that the identity of M/s Alliance Industries Limited is fully established. As the share capital was introduced through banking channel, after examining all the documentary evidence, the Tribunal found that the transaction of share capital was genuine and the share applicant was having credit worthiness to contribute the amount of share capital. Since the 5 transaction of share capital was by the same party i.e. M/s Alliance Industries Limited, which has already been examined in detail by the Tribunal in the assessee's own case for immediately preceding assessment year 2003-04 and the facts and circumstances during the years under consideration, are in pari material, we, respectfully follow the decision of the Tribunal with respect to the identity, genuineness and credit worthiness of M/s Alliance Industries Limited, introducing the share capital during the assessment years 2004-05 and 2005-06 under our consideration.
2.1 As the appeal of the assessee was argued first, therefore, we tend to take up this appeal first for disposal. During hearing of this appeal, we have heard Shri H.P. Verma along with Shri Ashish Goyal & Shri Girish Agrawal, ld.
Counsel for the assessee and Shri K.K. Singh, ld. CIT DR. At the outset, it was claimed by the ld. Counsel for the assessee that the impugned issue is covered by the decision of the Tribunal dated 28.9.2007 (order in ITA No.57/Ind/2007). It was also pointed out that even the Directorate of Enforcement conducted inquiry long back against the assessee and since the assessee did not get any communication thereafter in this regard, it seems that nothing adverse was found against the assessee. A plea was also raised that all the transactions are through banking channel and it is not a case of cash entry. To prove the credit worthiness, a certificate was also filed by the auditor/certified Public accountant M/s Faira & Associates, 21, Hinton Avenue, 6 UK, before the lower authorities, which duly certifies financial capacity of M/s M/s Alliance Industries Limited to invest in the shares of the assessee company. The learned AR further contended that balance-sheet of M/s Alliance Industries Limited as on 30.6.2005 was already procured by the department in the subsequent year assessment proceedings and the same is in their provision but the department has not furnished the copy of the same before the Tribunal. The learned AR was directed to file the same before the Bench. It was submitted that the assessee has proved the onus lay upon it and the assessee is not supposed to prove the source of source. It was for the department to prove otherwise. The sustenance of addition by the ld. first appellate authority was strongly disputed being the amount in the form of share capital/share premium. It was pleaded that the addition of the impugned amount as unexplained credit u/s 68 is quite unjustified. The ld.
Counsel for the assessee further contended that it is a clear departure from the earlier stand and the bank account of the investor was never considered.
It was pleaded that the facts in the present appeal are clearly identical to earlier years except that at the appellate stage, the Assessing Officer brought the bank a/c of the investor company to the notice of the ld. CIT(A). It was also pleaded that keeping in view the principle of judicial discipline, the ld.
first appellate authority is not supposed to criticize the decision of the higher appellate authority, for which reliance was placed upon the decision of the Hon'ble Calcutta High Court in the case of Voest-Alpine Ind. GMBH v. ITO;
7246 ITR 745 (Cal) and of the Hon'ble Supreme Court in the case of Khalid Automobile vs. Union of India (1995) [4 SCC (Suppl.) 653].
3. On the other hand, the learned CIT DR contended that no disrespect has been shown by the learned first appellate authority to the order of the higher forum/Tribunal. The amount involved in the present appeal came from a foreign investor named M/s Alliance Industries Limited, having its registered office at Gibraltar and management head office at Sharjah. It was contended that the assessee never produced the balance sheet of the said company. It was pointed out that it is a well known fact that there is a proliferation of shell companies in the countries known as tax heavens and these companies do not have the means to lend money. The impugned order was defended.
4. We have considered the rival submissions and perused the material available on file. Brief facts are that the assessee is a private limited company incorporated on 25.5.1999 vide registration no. 13543 and is regularly assessed to tax. During the year under consideration the assessee filed the return showing income of Rs. 37,71,314/-. Admittedly, the accounts of the assessee are regularly audited u/s 44AB of the Act as well as under the Companies Act, 1956. The statements like annual returns, share allotment in Form No. 2, audited accounts, etc. were filed before the Registrar of Companies as per the requirements of the Companies Act. One foreign investor namely Alliance Industries Limited having its registered office at Gibraltar and management office at Sharjah, UAE, invested in the share 8 capital of the assessee company. The assessee obtained necessary permission from RBI/other authorities who look after the foreign investment section and after receiving the share money from the foreign investor company, necessary intimation was given to RBI and other relevant authorities. The share capital was received through State Bank of India/Banking channel for which a certificate was issued by SBI to the effect that account of the assessee is credited being the amount of foreign currency remittance, ordered by Alliance Industries Limited. A confirmation to this effect was also obtained from Alliance Industries Limited and was duly submitted before the revenue authorities. A certificate from Standard Chartered Bank evidencing that the money was transferred from current account no. 0257019601 of M/s. Alliance Industries Limited and also a certificate from the auditor M/s. Faria and Associates, 21, Hinton Avenue, Hounslow, Middlesex, TW4 6AP, UK, Registered Accountant, stating financial capacity of the investor company was also filed before the AO. The stand of the revenue is that the creditworthiness/financial capacity of the investor is not proved, consequently, the entire money received as share premium and share allotment of Rs.42,50,47,744/- was added as unexplained credit under section 68 of the Act, which was confirmed by the learned CIT(A) and is under challenge before the Tribunal.
95. The stand of the assessee is that the following documents/information submitted by the assessee company establishes the credit worthiness of the investors :-
1. Certificate dated 30.11.1998 issued by the Notary Public, Gibraltar certifying the documents of the company, M/s Alliance Industries Limited.
2. Certificate from Governor and Commander in Chief of Gibraltar certifying that the documents signed by Mr. E.C. Ellur, the Notary Public are correct.
3. The account of the foreign investor of the assessee is also KYC (Know Your Customer) certified, wherein the bankers of the foreign investors confirmed to assessee's bank that the foreign investor has its accounts with them for over 9 years and there is nothing adverse against them.
4. Certificate issued by Shri Sudhir Chopra, Director M/s Alliance Industries Limited stating the status of the shareholders and the company.
5. During the assessment proceedings, as desired by AO, the address in India of the director of foreign investor M/s Alliance Industries Ltd., were provided which substantiates the bona fides of the investors.
6. Confirmation of Investment during the F.Y. 2004-05 by M/s Alliance Industries Limited
7. Letter dated 19.09.2007 of Faria & Associates, Auditors of the foreign investor of the assessee based in UK who is UK Registered Accountant, confirming that the investment was funded by the trading activities of the company, without the need for the company to seek external funding and which is reflected in the balance sheet of the company, although the document already furnished by the assessee clearly established this aspect also.
8. Letter dated 28.01.2008 of M/s Faria & Associates, Auditors of the investor company certifying that the foreign investor of the assessee had a business turnover of 1055.076 million US Dollars as on 30th June, 2005 as per the confirmation provided against by Faria & Associates, Auditors of the foreign investor of the assessee based in UK which is approximately equivalent to Indian Rupees 5275 crores and on the basis of this 10 information the percentage of investment made by the foreign investor in the assessee company by way of share capital and share premium is only about 0.81%.
9. Copy of certificate from State Bank of India confirming that all the remittances were routed through the account no. 0257019610 of M/s Alliance Industries Limited with Standard Chartered Bank, Dubai.
10. Copy of Certificate issued by Standard Chartered Bank, Sharjah confirming that the investor company M/s Alliance Industries Limited has current account no. 02570196101 with them.
11. Certificate of incorporation of investor company, M/s Alliance Industries Limited
12. Copy of brief company profile of M/s Alliance Industries Limited, UAE.
13. Permission dated 06.02.2004 granted by Government of India, Ministry of Finance, Department of Economics Affairs FIPB Unit regarding application for foreign collaboration (STA Regd. No. FCI 503 dated 01.01.2004)
14. Copy of Form FC-GPR submitted to Reserve Bank of India alongwith certificate issued from State Bank of India, Commercial Branch, Bhopal, regarding Foreign Inward remittance.
15. Copy of share certificates issued by the assessee company in the name of M/s Alliance Industries Limited.
16. Copy of Return of Allotment of Shares in Form No. 2 submitted by the assessee company to Registrar of Companies.
17. Copy of share capital and share premium account.
18. Copy of respective schedule of Reserve Bank of India regarding purchase by person resident outside India of equity shares issued by an Indian Company.
6. We have examined all the above documents and certificate which clearly prove the identity, genuineness and credit worthiness of M/s Alliance Industries Limited. In the light of the above, now the question arises whether the assessee has proved the credit worthiness of the foreign investors and also whether the assessee is to prove the source of source. It is an undisputed fact that during the assessment proceedings itself the assessee 11 vide letter dated 13.9.2007 asked the AO that in case of any doubt about the identity, genuineness and credit worthiness of the investor company, summons u/s 131 may be issued to the investor company for which the assessee agreed to bear the cost of expenses, if any. However, in its wisdom, the learned AO, without issuing any summons u/s 131 to the investor company and also without bringing any adverse material on record, added the entire sum invested as share capital and share premium as unexplained credit u/s 68 of the Act. It is pertinent to mention here that for the assessment year 2003-04 and 2004-05, identical addition was made u/s 68 of the Act for share capital and share premium received in the respective years. However, the learned CIT(A) vide appellate order dated 9.11.2006 (assessment year 2003-04) and dated 27.4.2007 (assessment year 2004-05) deleted the entire addition on the ground that the money received from foreign investors was genuine and all the three ingredients of section 68 i.e. identity, genuineness and credit worthiness of the investor were fully established. However, the order of ld. CIT(A) for the assessment year 2003- 04 was further confirmed by the Tribunal vide order dated 28.9.2007 in ITA No. 57/Ind/07. The factual position of the present assessment as well as assessment years 2001-02 to 2005-06 is summarized as under :-
A.Y. Share Share Share Total Assessment Appeal position Application Capital Premium Investment position 01-02 93,18,602/- 61,92,120 3,09,60,600 4,64,71,322 U/s 143(3) and No appeal investment was accepted by the department 02-03 -- 94,78,180 8,53,03,715 9,47,81,895 U/s 143(1) and No appeal investment was accepted by the 12 department 03-04 -- 2,12,75,050 19,14,75,353 21,27,50,403 U/s 143(3) The appeal was addition for allowed in full by the Rs.21,27,50,403 CIT(A)-I, Bhopal, was made and further the ITAT has upheld the order of the CIT(A) 04-05 -- 1,89,01,120 17,01,10,080/ 18,90,11,200 u/s 143(3) The appeal was
- addition for allowed in full by the Rs.18,90,11,200 CIT(A)-I, Bhopal and was made departmental appeal is pending with the ITAT 05-06 -- 4,25,04,770 38,25,42,930 42,50,47,700 U/s 143(3) The appeal is rejected addition for by the CIT(A)-I, Rs.42,50,47,744 Bhopal and appeal of was made the assessee is pending before ITAT 6.1 The learned first appellate authority in its order has observed that the assessee has not proved the credit worthiness of the investor company and that his predecessor who allowed the appeal, must sit up and insist that the assessee should prove the credit worthiness of investor company. We are of the view that such an approach is not justified because the Tribunal in its order for the assessment year 2003-04 has already considered all the aspects and documentary evidence placed on record and reached to the conclusion that all the three ingredients like identity, genuineness and credit worthiness of M/s Alliance Industries Limited was established beyond doubt. Therefore, the comments of the learned CIT(A) are not in good taste because the judicial discipline should not be discarded at any level. The order of the Tribunal dated 28.9.2007 was already before the ld. CIT(A) when he disposed the appeal vide its order dated 13.3.2009. In such a situation, we are quoting the decision of the Hon'ble jurisdictional High Court in Agrawal Warehousing & Leasing Limited (257 ITR 235) wherein it was held as under :-13
"The orders passed by the Tribunal are binding on all the revenue authorities functioning under the jurisdiction of the Tribunal. The principle of judicial discipline require that the order of the higher authorities should be followed unreservedly by the subordinate authorities........."
6.2 The Hon'ble High Court held that the CIT(A) not only committed judicial impropriety but also erred in law in refusing to follow the order of the Appellate Tribunal. The Members of the Tribunal who decided the appeal upholding the view taken by the CIT(A) also did not observe the due procedure. While coming to the aforesaid conclusion, the Hon'ble Court considered various decisions (as available at page 236 of the order) including the decisions of the Hon'ble Apex Court in the case of Cloth Traders Private Limited (118 ITR 243), Distributors Baroda Private Limited (155 ITR 120) (SC), Kamal Textiles vs. ITO; 189 ITR 339 (M.P.), Pradeep Chandra Parija (254 ITR 99 (SC), Sayaji Iron & Engg. Com. V. CIT; 253 ITR 749 (Guj.), etc. Even otherwise, the rule of consistency has to be followed unless and until any contrary material is brought on record. Our view is supported by the following judgments :-
1. CWT v. Allied Finance Pvt. Ltd.;289 ITR 318(Del)
2. Berger Paints India Ltd. vs. DCIT; 266 ITR 99 (SC)
3. CIT v Neo Polypack Pvt. Ltd.; 245 ITR 492 (Del)
4. CIT v. A.R.J. Security Printers; 264 ITR 276 (Del)
5. UOI v. Kumudini N.Dalal; 249 ITR 219 (SC)
6. UOI vs. Satish Pannalal Shah; 249 ITR 221 (SC)
7. CIT v. Shivsagar Estate; 257 ITR 59 (SC)
8. DCIT v. United Vansapati Ltd.; 275 ITR 124(Chd. ITAT)
9. CIT v. Narendra Dosi; 254 ITR 606
10.Radhaswaomy Satsang v. CIT; 193 ITR 321 (SC)
11. DCIT vs. Mangalam Cements Ltd.; 92 ITD 44 (Jaipur) (TM) 6.3 In the aforesaid cases, on the issue of consistency, the ratio laid down is that the issue considered and decided in a particular manner, when there is no material change in facts, any contrary decision to the 14 earlier is not justified and the Bench of the equal strength is supposed to follow the decision of a coordinate Bench.
6.4 In the case of Mangalam Cements Limited (supra) the Bench held that the decision of a coordinate Bench of the same strength is required to be accepted by the Bench of the same strength, therefore, in the absence of any contrary decision, the decision of the coordinate Bench has to be followed/respected. In the case of CWT v. Allied Finance Private Limited; 289 ITR 318(Del), the Hon'ble Delhi High Court vide order dated 3.2.2005 (Swatantrakumar and Madan B. Lokur; Hon'ble Judges) held as under :-
" that the view taken by the Tribunal in its orders dated May 4, 1998, and May 18, 1998, had remained unchallenged in respect of several assessment years. Subsequent orders which merely followed these two orders had been challenged, without any just cause having been shown for the departure by the revenue. Since the revenue had accepted the two basic orders, the Revenue could not be permitted to randomly challenge a subsequent order in respect of an assessee or in respect of a random assessment year."
6.5 The learned CIT(A) has further commented/suggested that money lending practices/strategies are being followed in tax heaven countries all over the world by using the word "shell companies". Without commenting further, we are of the view that unless and until any concrete material is brought on record, any unwarranted/undesirable observation should be avoided. On 15 judicial discipline, reliance can be placed upon the decision in the case of Voest-Alpine Ind. GmbH 246 ITR 745 (Cal) wherein it was held that the ITO cannot refuse to follow the order of the Tribunal. Even otherwise, the order of the Tribunal has attained finality as no order from any Hon'ble higher Forum reversing the stand of the Tribunal was placed before us. Reliance can also be placed upon the following decisions:
1. CIT v. Ralson Industries Limited; 288 ITR 322 (SC),
2. Cloth Traders (P) Limited v. Addl. CIT vs. 118 ITR 243 (SC),
3. Agrawal Warehousing And Leasing Limited v. CIT; 257 ITR 235 (MP),
4. Kamal Textiles and others v. ITO; 189 ITR 339 (MP),
5. Chunnilal Onkarmal Pvt. Ltd. v. CIT; 224 ITR 233 (MP), and
6. CIT vs. Ralson Industries Limited; 276 ITR 368 (MP).
6.6 The ratio of these judicial pronouncements is that the lower authorities are bound to follow the orders passed by the higher authorities unless and until any contrary facts are available on record. If any party is not satisfied with any order, there is a provision of appeal available on the statute but in any situation, no disrespect should be shown against any higher forum. On the issue of consistency, support can be drawn from the decision of the Hon'ble Delhi High Court in CIT v. A.R.J. Security Printers; 264 ITR 276 (Del),CIT v. Neo Poly Pack (P) Limited; 245 ITR 492, CIT v. Allied Finance P. Ltd.; 289 ITR 318 and the decision of the Hon'ble Apex Court in Berger Paints 16 India Limited v.CIT; 266 ITR 99,Union of India v. Kaumudini Narayan Dalal and others; 249 ITR 219, Union of India v. Satish Pannalal Shah; 249 ITR 221 and CIT v. Shivsagar Estate; 257 ITR 59. Identical ratio was laid down by the Chandigarh Bench of the Tribunal in DCIT vs. United Vanaspati Limited; 275 ITR 124 (AT). The principle laid down in these cases is that though the principle of res judicata is not applicable to income-tax proceedings but still it is very desirable that there should be finality and certainty in all litigations including the litigations arising out of Income-tax Act.
The Hon'ble Apex Court itself in Pravara Sahkari Shakkar Karkhana Limited v.
CIT; 94 ITR 321 (SC) set aside the order of the Hon'ble High Court to call for a reference on the same issue on which the reference was earlier rejected by the High Court and Special Leave Petition was dismissed, notwithstanding the inapplicability of principles of res judicata. The Hon'ble Delhi High Court in Director of Income-tax v. Lovely Bal Shiksha Parishad (266 ITR 349) upheld the order of the Tribunal accepting the claim for exemption u/s 10(22)(as then it was) because the claim had been accepted not only in earlier years but in a later year on the same facts. Identical ratio was laid down in CIT v.
A.R.J. Security Printers (264 ITR 276) (Del), Shri Rajendra Mills Limited v.
Joint CTO (1971) 28 STC 483 (Mad), Senthil Raja Metal v. CTO (1990) 79 STC 38 (Mad), and Union of India v. Kamalakshi Finance Co. Ltd.; AIR 1992 SC
711. 17
7. During hearing of this appeal, the learned counsel for the assessee invited our attention to the language used by the learned CIT(A) to the effect "true facts have not been mentioned in the impugned order especially page 2 para 2.3". The learned counsel through its paper book (page 62 to 74) pointed out that rather necessary details were not noticed by the learned CIT(A) regarding the details wherefrom the money was deposited in the account to the effect that the money is all by transfer and not a cash deposit.
So far as the application of section 68 of the Act is concerned, admittedly the three ingredients i.e. identity, genuineness and credit worthiness have to be proved by the assessee. If the totality of facts is analysed, we are of the opinion that the onus has been duly discharged by the assessee. The learned CIT(A) has mentioned the order in the case of M/s Rathi Finlease Limited (2008) 215 CTR 429 (MP). The salient facts of both the cases are compared as under :
Finlease case Case of the assessee
(i) Furnished copies of only a Furnished all relevant facts
Few share applicants
(ii) Flage Synthetics Ltd., Indore,
An investor Identity, credit worthiness
and genuineness of
transaction was established
(iii) Palasia Leasing & Investment
(P) Ltd., Indore, an investor -do-
(iv) M/s Patni Industries Ltd., Indore
SAME AS (ii) above -do-
(v) (Cash) deposited the day the
18
Cheque was issued for share
application money The deposits are by transfer
entries that could be
verified by the department
but it was not done so for
the reason best known the
department
(vi) Assessee was confronted by The assessee filed reply
The department regarding
The findings. Assessee did
Not explain
7.1 In view of the above, it can be said that the facts in the case of CIT v.
Rathi Finlease Limited are different, therefore, not applicable to the facts of the present appeal. So far as the decision in the case of Sumati Dayal v. CIT (214 ITR 801) (SC) is concerned, it is applicable to both parties, therefore, cannot be used selectively. Similar is the situation in other cases relied upon by the learned CIT(A).
8. The Directorate of Enforcement vide their communication dated 20th August, 2008 addressed to the assessee made certain inquiries and asked the assessee to furnish certain information. This order/inquiry was in terms of section 37 of the provisions of FEMA, 1999 and the assessee was directed to comply with within 15 days. The assessee vide letter dated 3rd September, 2008 furnished the information and till date neither any adverse was communicated to the assessee nor any action was taken.
9. The Tribunal in ITA No. 57/Ind/07 (A.Y. 2003-04) after considering the facts of the case, arguments of both the parties and the legal position in the 19 light of the decisions of the Hon'ble Supreme Court as also of various High Courts, held as under :-
"This appeal by department is directed against the order of CIT(A)-I, Bhopal dated 9.11.2006 for AY 2003-04 on the following ground of appeal:
"On the facts and in the circumstances of the case, the learned CIT(A) has erred in
1. deleting the addition of Rs.21,27,50,400/- made u/s 68 of the Income-tax Act, on account of unexplained cash credit as the assessee had failed to prove the creditworthiness of the creditor beyond doubt asd was rightly disallowed by the Assessing Officer."
2. Later on, vide letter F. No. ACIT- 2(1)/Bhopal/ Appeal/2007-08/1010 dated 23.8.2007 on record, department submitted revised grounds of appeal, which are as under:
"On the facts and in the circumstances of the case, the CIT(A) has erred in
1. deleting the addition of Rs.21,27,50,400/- made u/s 68 of the Income-tax Act, 1961 on account of unexplained cash credit as the assessee had failed to prove the creditworthiness of the creditor beyond doubt and was rightly disallowed by the Assessing Officer.
2. facts in law in admitting fresh evidences in violation Rule 46A of the IT Rule 1962.
3. facts in law in relying upon such fresh evidences without giving sufficient and proper opportunity to AO inquire into such fresh evidences and/or not conducting further inquiries himself before relying on such fresh evidences. "
2 We have heard ld. representatives of both the parties and gone through the material available on record. Ld. 20 DR filed written submission. Ld. counsel for assessee also filed written submission and detailed paper book containing the evidences and details filed before the authorities below.
3 Facts of the case are that return declaring total income Nil (after set-off of b/f loss of Rs.7,18,698/- of earlier year) was furnished on 13.10.2003. Tax audit report u/s 44AB in Form No.3CA and 3CD which is dated 28.6.2003 was also enclosed and furnished with the return. The return was also accompanied the Auditor's report dated 28.6.2003 along with the audited balance sheet and profit and loss account. Computation of total income u/s 115JB showing total tax payable at Rs.3,77,096/- accompanied by the report u/s 115JB was also enclosed with the return. The return was processed u/s 143(1) on AST vide intimation dated 3.1.2.2003 and refund of Rs.24,13,259/- was issued vide cheque No.3461.
3.1 At the assessment stage, the AR of the assessee was asked to prove the financial capacity of the NRI party from whom share money/capital was received by the assessee co. during the year. Accordingly, the AR of the assessee appeared on 13.2.2006 and filed copy of bank statement of IDBI which was placed on record. He however requested for further time to make pending compliance and accordingly, the case was finally adjourned to 28.2.2006. Shri Pateriya, accordingly appeared on 28.2.2006 and filed written reply (with enclosures). Audited accounts etc. produced were examined. However, in view of the AR's further request for a day's short adjournment to file further written submissions, hearing was adjourned to 1.3.2006 for final discussion/examination of the case. The case was finally heard when the AR of the assessee attended on 1.3.2006 and furnished further written letter with enclosures mentioned therein.
3.2 The Assessing Officer observed that the assessee co., which was incorporated on 26.5.1999, is engaged in the business of providing medical services of various kinds 21 at Bhopal. Till 31.3.2001, the co. could start only a small hospital that too in rented premises. The total hospital receipts for the year 2000-01 were less than Rs.28 lakhs. There was no past history/antecedents either of the assessee co. or its promoters, meaning thereby that the intangible asset being goodwill was also Nil. In a place like Bhopal, where Bhopal Memorial Hospital Research Centre is already functioning and catering to the Gas affected people and AIIMS is also coming up which provide medical services at cheaper rate, there did not appear to be any significant scope for establishing any big hospital [more than 1000 beds] in the near future.
3.3 Under such facts and circumstances, Assessing Officer was of the view that it is not believable that any foreign co. will invest Rs.4.64 crores [till 31.3.2001] for acquiring a minority stake of only 7,12,398 shares in the assessee co. whereas the main promoter Shri S.N. Vijayvargiya has acquired 10,09,110 shares for only Rs.1.01 crores. Interestingly, the sum of Rs.1.01 crores invested by Shri S.N. Vijayvargiya was also not his own. As on 31.3.2001, he had taken a loan of Rs.17,76,733/- from Shri Sudhir Chopra[NRI] who is also the director of M/s. Alliance Industries Ltd., Gibraltar. During FY 2000-01, he received NRI gift of Rs.67,68,744/- from the same Shri Sudhir Chopra [NRI] who is also the director of M/s. Alliance Industries Ltd., Gibraltar. Thus, out of the total sum of Rs.1.01 crores invested by Shri S.N. Vijayvargiya, Rs.85.45 lakhs were received from the same Shri Sudhir Chopra [NRI] who is also the director of M/s. Alliance Industries Ltd., Gibraltar.
3.4 The Assessing Officer further observed that during the year under consideration, 21,27,505 shares were allotted to the M/s. Alliance Industries Ltd., Gibraltar [@Rs.10/- per share face value + share premium of Rs.90/- per share] for investment of Rs.21,27,50,500/- whereas Shri S.N. Vijayvargiya had been allotted 7,40,000 shares @Rs.10/- per share face value for investment of Rs.74,00,000/- i.e. without paying any share premium. Further, the share premium was 22 debited and bonus shares were allotted in which Shri S.N. Vijayvargiya got bonus shares worth Rs.8,57,18,850/- whereas M/s. Alliance Industries Ltd. got only bonus shares worth Rs.2,18,15,790/-. Thus, even after paying a nominal amount towards share capital as compared to the M/s. Alliance Industries Ltd., Shri S.N. Vijayvargiya still holds majority shareholding in the co. which speaks for itself.
3.5 The AO further observed that M/s. Alliance Industries Ltd., Gibraltar was stated to be incorporated and registered in Gibraltar on 10.7.1998 and 30.11.1998. Its registered office was stated to be 117, Main Street, Gibraltar and its management head office at Block H-3, SAIF Zone, P.O. Box 7768, Sharjah, UAE. It is a Overseas Body Corporate 100% owned by NRIs Mr. Sudhir Chopra and Mr. Vivek Gulatee.
3.6 During the assessment proceedings, the Assessing Officer observed from the balance sheet as at 31.3.2002 that there was increase in share capital by 13.62 crores as well as increase in assets by about Rs.23 crores during the year as compared to the immediately preceding year. Similarly, from the audited accounts, it was also observed that under the head 'Reserves & Surplus', there was increase in share premium by Rs.8,39,19,713/- during the year as compared to the last year.
3.7 In view of the assessee's background as discussed above, Assessing Officer vide questionnaire/notice u/s 142(1) dated 6.10.2005 asked the assessee, inter alia, to furnish the relevant details of such fund as well as prove the genuineness thereof and also to explain the nature of increase in share premium furnishing all relevant details. As per Assessing Officer, needless to mention that it is a settled law that in respect of cash credits it is incumbent on the assessee to prove and establish the identity of the subscriber and prove their creditworthiness and the genuineness of the transaction. The furnishing of material is not sufficient. The Income-tax authority has a right to 23 pierce the veil and find out the real nature of the transaction. Accordingly, due queries were made by the Assessing Officer in this regard. It is not out of place to mention that as requested by the ARs of the assessee, adjournments were allowed on 21.10.2005 and 16.11.2005 but an incomplete written reply was furnished on 8.12.2005. Further, adjournments were also granted on 27.12.2005 and 12.1.2006. As such, sufficient opportunities were allowed to the assessee and on 13.2.2006, the assessee was specifically asked to prove the financial capacity of the NRI party from whom share money/capital was claimed to have been received by the assessee co. during the year.
3.8 To the queries made in this regard, the assessee filed written reply dated 8.12.2005 as under:
"4. During the year, there was increase in total assets by Rs.22,44,85,505/- in comparison to previous year. Likewise, there was increase of Rs.22,44,85,505/- in Shareholders fund and liabilities in comparison to previous year. The details of increase in shareholders fund is as under:
i) Increase in share capital:
S.N. Vijay 74,00,000/-
Alliance Industries Ltd. 2,12,75,050/-
Ramvilas Vijay
(Bonus shares) 3,500/-
S.N. Vijay (Bonus shares) 8,57,18,850/-
Alliance Industries Ltd.
(Bonus shares) 2,18,15,790/-
Urmila Vijay (Bonus shares) 3,500/-
Megha Vijay (Bonus shares) 3,500/-
Neha Vijay (Bonus shares) 3,500/-
Savitri Vijay (Bonus shares) 3,500/-
I.H. Siddiqui (Bonus shares) 3,500/-
13,62,30,690/-
ii) Increase in share premium 8,39,19,713/-
iii) Increase in deferred tax liability 43,35,102/-
22,44,85,505/-
3.9 The assessee further explained that during the year under consideration, the assessee has received share premium amounting to Rs.6,59,86,650/-, 24 Rs.4,80,34,530/- and Rs.7,74,54,270/- aggregating to Rs.19,14,75,450/- from M/s. Alliance Industries Ltd., Block-H, Room No.3 IGZ, Sharjah, UAE. The copy of share premium account was enclosed as Annexure-5. The details of the share premium is as under:
Opening Balance of the account 12,46,51,057/-
Add: Share premium received during
the year from M/s. Alliance
Industries Ltd. 19,14,75,450/-
31,61,26,507/-
Less: Transferred to Share Capital
A/c for bonus Shares issued 10,75,55,737/-
20,85,70,770/-
3.10 The assessee's further written reply before AO,
dated 28.2.2006 was as under:
"Investment of Rs.21,27,50,403/- in the Company It is submitted that the assessee has received Rs.21,27,50,403/- from M/s. Alliance Industries Ltd., Sharjah, UAE, an NRI Company on various heads as under:
S.No. Particulars Amount
(Rs.)
1 Share Capital 2,12,75,050
2 Share Premium 19,14,75,353
Total (Rs.) 21,27,50,403
You have asked to file details/evidence regarding identity, capacity and genuineness of transaction pertaining to transfer of above funds. In this respect, we are filing the confirmation certificate dated 13.2.2006. It is submitted that the investor is an NRI Company having its Head Office at Gibraltar and Branch at Sharjah, UAE. They have invested the money in the assessee's company through proper channel by seeking permission from Reserve Bank of India and the amount is deposited in State Bank of India, Industrial 25 Finance Branch, Bhopal. In support of our contention we are enclosing herewith the following documents:
i) Certificate of incorporation of investor company. M/s.
Alliance Industries Ltd. which is registered vide Reg. No.65521 dated 10.7.1998 with Registrar of Companies, Gibraltar.
ii) Certificate issued by Shri Sudhir Chopra, Director of M/s. Alliance Industries Ltd. stating the status of the shareholders and the company.
iii) Certificate dated 30.11.1998 issued by the Notary Public, Gibraltar regarding certification of documents of the company, M/s. Alliance Industries Ltd.
iv) Certificate from governor and commander in chief of Gibraltar certifying that the documents signed by Mr. E.C. Ellur, the Notary Public are correct.
v) Copy of Form FC-GPR submitted to RBI on 11.10.2002.
vi) Copy of Form FC-GPR submitted to RBI on 18.6.2002.
vii) Permission dated 6.2.2004 granted by Government of India, Ministry of Finance, Department of Economic, Affairs FIPB Unit regarding application for foreign collaboration (STA Regn. No. FCI 503 dated 1.1.2004).
viii) Certificate issued from State Bank of India, Industrial Finance Branch, Bhopal regarding Foreign Inward Remittance as under:
Sr. Date Amount Equivalent
No. To Indian Rupees
1 4.4.2002 4391668
2 10.4.2002 4324217
3 12.4.2002 5857868
4 17.4.2002 6109517
5 18.4.2002 6103167
6 19.4.2002 6099943
7 26.4.2002 6111916
8 2.5.2002 6108167
9 10.5.2002 6109933
10 15.5.2002 6117541
11 29.5.2002 4891166
12 31.5.2002 4894266
13 14.6.2002 6115766
14 16.7.2002 4872900
26
15 17.7.2002 4870169
16 26.7.2002 4859171
17 26.7.2002 4857671
18 14.8.2002 7276150
19 16.8.2002 7272445
20 23.8.2002 4843173
21 4.9.2002 4837174
22 12.9.2002 4837174
23 13.9.2002 4834675
24 16.1.2003 5983344
25 29.1.2003 5254933
26 31.1.2003 5963347
27 2.2.2003 5957410
28 28.2.2003 5946161
29 13.3.2003 5230736
30 17.3.2003 5233486
31 25.3.2003 5231286
32 27.3.2003 4744038
Sir, from above it is clear that the investment of Rs.21,27,50,403/- made by M/s. Alliance Industries Ltd. in share capital, share premium and share application account are proper and genuine and invested through proper channel i.e. RBI and State Bank of India and thus the identity, genuineness and capacity is clearly established from above documents."
3.11 Considering the aforesaid written replies/submissions, the Assessing Officer observed that the assessee has admittedly received Rs.21,27,50,403/- from M/s. Alliance Industries Ltd., Sharjah, UAE, an NRI Company on various heads as under:
S.No. Particulars Amount
(Rs.)
1 Share Capital 2,12,75,050
2 Share Premium 19,14,75,353
Total (Rs.) 21,27,50,403
27
3.12 On going through the above details furnished
by the assessee, Assessing Officer was of the view that it is clear that although they indicate the identity of the NRI Company and the mode of transfer of money to the assessee but evidently lack in proving creditworthiness of the NRI Company. The transactions shown by the assessee through the banking channels ipso facto do not establish the financial capacity of the NRI Company. Further, it cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Furthermore, the permission received from the RBI by the assessee also does not prove the financial capacity of the assessee. Despite repeated and sufficient opportunities allowed to the assessee as mentioned supra. It has not proved the financial capacity of the aforesaid NRI Company with regard to the above investment of Rs.21,27,50,403/- in share capital/premium during the year. As such, the above investment of Rs.21,27,50,403/- remained to be proved and established as from a genuine source. Under the facts and in circumstances of the assessee's case, provisions of section 68 of the IT Act, 1961 are found clearly attracted and the ratio of the decision in the case of CIT vs. Ruby Traders And Exporters Ltd. [2003] 263 ITR 300 (Cal) is found applicable. While deciding the case, the Hon'ble Court had occasion to refer the following other court decisions:
i) Stellar Investment Ltd., (1991) 192 ITR 287 (Delhi);
ii) Stellar Investment Ltd., (2001) 251 ITR 263 (SC);
iii) Sophia Finance Ltd., (1994) 205 ITR 98 (Delhi) (FB); and
iv) CIT vs. Korlay Trading Co. Ltd., (1998) 232 ITR 820 (Cal).
The Hon'ble Court in the case of CIT vs. Ruby Traders And Exporters Ltd., [2003] 263 ITR 300 (Cal) had observed as under:
"In our view, when section 68 is resorted to, it is incumbent on the assessee to prove and establish the identity of the subscribers, their credit worthiness and 28 the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the Assessing Officer to find out as to whether on these materials the assessee was able to establish the ingredients mentioned above. If the finding is in affirmative, in that event, section 68 cannot be attracted. If the finding is in the negative, then section 68 is definitely applicable. It is now a settled proposition of law that the Assessing Officer can lift the veil and enquire into the real nature of the transaction and enter into those questions ......."
"....... in the decisions in the case of CIT vs. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal), it was held that mere furnishing of Income-tax file numbers are not sufficient. In fact, once these materials have been produced, it is incumbent on the Assessing Officer to enquire into the same. In this case, in respect of shares worth Rs.3,80,000, direction was rightly given to undertake investigation in order to establish the creditworthiness of the subscriber and genuineness of the transaction. But in respect of the rest of the shares worth Rs.19,88,750 except disclosing the list of subscribers nothing has been produced before the authority either for establishing the identity of the subscribers or for proving their creditworthiness and the genuineness of the transaction. Even if such payments are made through bank and by cheques still then in view of the settled propositions of law, the Assessing Officer can enquire into the same and it is the assessee who has to satisfy the Assessing Officer about the genuineness of the same in the manner as discussed above and in Hindusthan Tea Trading Co. Ltd.'s case [2003] 263 ITR 289 (Cal.) on failure to do so, section 68 would visit the assessee with all its consequences......."
3.13 Considering the totality of facts of the case of the assessee and relying on the above case laws, the Assessing Officer found that the genuineness of claimed investment of Rs.21,27,50,403/- towards share capital/premium from M/s. Alliance Industries Ltd., 29 Sharjah, UAE, an NRI Company, in the assessee company during the year has not been proved as the financial capacity of the above NRI Company was not proved/established by the assessee during the course of assessment proceedings despite due opportunity allowed to it. The alleged investment of Rs.21,27,50,403/- was, therefore, treated as unexplained credit u/s 68 of the IT Act, 1961 and added in computation of the total income of the assessee for AY 2003-04. The aforesaid unexplained credit of Rs.21,27,50,403/- was treated as income from undisclosed sources and addition was accordingly made.
4 The above addition was challenged before the ld. CIT(A) and it was submitted on behalf of the assessee that Assessing Officer was not justified in making an addition of Rs.21,27,50,403/- on account of unexplained credit u/s 68 as assessee had duly explained the receipt of amount of Rs.21,27,50,403/-. This amount was received by the assessee from M/s. Alliance Industries Ltd. It was further submitted that assessee is a limited company incorporated on 25.5.1999 vide Registration No.13543. It is regularly assessed to tax since its inception. During the year under consideration, assessee had filed its return showing Nil income after claiming set off of brought forward losses of Rs.7,18,698/-. The accounts of the assessee are regularly subjected to audit u/s 44AB of the Income-tax Act as well as under Companies Act. All the yearly statements viz. annual returns, share allotments in Form No.2, audited accounts etc. were filed before the Registrar of Companies, Gwalior in time as required under Companies Act, 1956.
4.1 Before ld. CIT(A), it was further submitted on behalf of assessee that as in the earlier AYs, this year also one foreign investor namely M/s. Alliance Industries Ltd. a public limited company having its registered office at Gibralter and Management Head Office at Sharjah UAE, which is the existing shareholder of the assessee company, has further 30 invested in share capital of the assessee company. Assessee co. had obtained necessary permission from RBI and other Government agencies that look after foreign investment for issue of share capital and share premium in favour of foreign investor co. After obtaining money from foreign investor company required intimation was given to RBI and other authorities prescribed under the law. All the money was received through proper banking channel and State Bank of India had duly certified that accounts of assessee co. is credited with the amount of foreign currency remittance ordered by M/s. Alliance Industries Ltd. A confirmation to this effect was obtained from M/s. Alliance Industries Ltd. and placed before the Assessing Officer. It was also submitted that all relevant documents with regard to receipt of amounts from M/s. Alliance Industries Ltd. were submitted before the Assessing Officer.
4.2 Before ld. CIT(A), it was further submitted on behalf of the assessee that M/s. Alliance Industries Ltd. as mentioned above is registered at Gibraltar and Management Head Office at Sharjah UAE where it also maintains an account with Standard Chartered Bank at Sharjah, Dubai. He further submitted that from this account of M/s. Alliance Industries Ltd., an amount of Rs.21,27,50,403/- has flown to the credit of the assessee through State Bank of India, Bhopal. It was reiterated that M/s. Alliance Industries Ltd. has maintained account no. 02570196101 with Standard Chartered Bank, at Sharjah, Dubai and from this account, an amount of Rs.21,27,50,403/- was given to the assessee through State Bank of India, Bhopal. It was further submitted argued that State Bank of India, Bhopal which has credited an amount of Rs.21,27,50,403/- to the account of assessee had also certified that it had received this amount from M/s. Alliance Industries Ltd. under debit to the account with Standard Chartered Bank, Sharjah, Dubai.
4.3 Before ld. CIT(A), It was further submitted on behalf of the assessee that assessee also received 31 similar amounts from the same foreign investor i.e. M/s. Alliance Industries Ltd. in the AYs 2001-02 and 2002-03 and the same has been accepted by the Assessing Officer while passing order in the case of the assessee as per details given below:
ASSESSMENT Share Share Capital Share Premium Total Assessment YEAR Application Investment Position 2001-2002 93,18,602/- 61,92,120/- 3,09,60,600/- 4,64,71322/- u/s 143(3) 2002-2003 ---- 94,78,180/- 8,53,03,715/- 9,47,81,895/- u/s 143(3) 4.4 Before ld. CIT(A), it was pleaded on behalf of the assessee that there is no difference at all in the receipt of money from the same share holder this year as was the case in the AYs 2001-02 and 2002-03.
Therefore, Assessing Officer ought to have accepted the amount received from M/s. Alliance Industries Ltd. in this year also as genuine. Taking different stand this year vis-à-vis in earlier AYs on same set of facts, is not justified. Assessing Officer had not given reasons whatsoever for taking different stand this year in respect o f amount received this year from what he had taken earlier while passing order u/s 143(3) in case of assessee itself for the AY 2001-02 wherein a sum of Rs.4,64,71,322/- was received by the assessee from the same co. Similarly, an investment of Rs.9,47,81,895/- was accepted during AY 2002-03 u/s 143(1) from the same investor. It was vehemently argued that facts and circumstances of the investment by foreign investor this year remain the same as these were in the preceding AYs. Therefore, Assessing Officer ought to have consistency in his approach while taking decision with regard to investment made this year also. It was argued that assessment for the AY 2001-02 was passed u/s 143(3) after detailed enquiry and detailed investigation.
4.5 Before ld. CIT(A), it was further submitted on behalf of the assessee that Assessing Officer was satisfied with the identity and genuineness of transactions as is evident from the finding recorded by him in the assessment order. However, Assessing Officer was not 32 satisfied with the credit of the same share holder was not in dispute in immediately preceding two AYs and that is why he accepted deposits in earlier years.
4.6 Before ld. CIT(A), it was further argued on behalf of the assessee that the facts of the case relied upon by the Assessing Officer are distinguishable on facts. Therefore, the rulings of Hon'ble High Courts as quoted and relied upon by the Assessing Officer in the order of assessment while making this addition are not at all relevant and applicable to the facts of the assessee's case. It was further submitted that Assessing Officer had relied upon the decision of Hon'ble Calcutta High Court in case of CIT vs. Korlay Trading Company Ltd. at 232 ITR 820 (Cal.), Hindustan Tea Trading Co. Ltd. vs. CIT reported at (2003) 263 ITR 289 (Cal.) and CIT vs. Ruby Traders & Exporters Ltd. reported at (2003) 263 ITR 300 (Cal.). Assessing Officer also had referred to the other decisions as quoted on page 7. It was further submitted that as a matter of fact, the cases as CIT vs. Stellar Investment Ltd. (1991) 192 ITR 287 (Delhi), CIT vs. Stellar Investment Ltd. (2001) 251 ITR 263 (SC) and CIT vs. Sophia Finance Ltd. (1994) 205 ITR 98 (Del.) (FB) support the case of the assessee rather than of Assessing Officer. As regards facts of cases as mentioned above in case of CIT vs. Korlay Trading Company reported at 237 ITR 820 (Cal.), Hindustan Tea Trading Co. Ltd. vs. CIT reported at (2003) 263 ITR 289 (Cal.) and CIT vs. Ruby Traders & Exporters Ltd. reported at (2003) 263 ITR 300 (Cal.) are clearly distinguishable with the facts of the assessee's case. In case of CIT vs. Ruby Traders & Exporters Ltd. reported at (2003) 263 ITR 300 (Cal.), share application money was received from its directors, promoters as well as from public whereas in case of assessee there is only one share applicant known as M/s. Alliance Industries Ltd. In this case, the Hon'ble Calcutta High Court held that except disclosing the list of subscribers to its capital, assessee company did not produce evidence for establishing the identity of the subscribers or proving their credit worthiness and genuineness of transactions and, therefore, Hon'ble High Court held 33 that addition u/s 68 is justified and in this case the Hon'ble High Court had followed its own judgment in case of Hindustan Tea Trading Company Ltd. vs. CIT reported at (2003) 263 ITR 289 (Cal.), whereas in case of assessee, identity of share applicant and genuineness of transactions are not in dispute. Therefore, the facts of these cases as relied by the Assessing Officer are clearly distinguishable from the facts of the assessee's case. Assessee had provided evidence before the Assessing Officer with regard to identity of the share applicant, which in fact was not disputed by the Assessing Officer. All amounts have been received through banking channels and thus genuineness of transactions was also not doubted by the Assessing Officer. The assessee had furnished sufficient materials before ld. CIT(A) namely:
(i) Certificate of incorporation of investor company, M/s.
Alliance Industries Ltd. which is registered vide registration no. 65521 dated 10.7.98 with Registrar of Companies, Gibraltar.
(ii) Certificate issued by Shri Sudhir Chopra, Director of M/s. Alliance Industries Ltd. stating the status of the shareholders and the company.
(iii) Certificate dated 30.11.1998 issued by the Notary Public, Gibraltar certification of documents of the company, M/s. Alliance Industries Ltd.
(iv) Certificate from Governor and Commander in Chief of Gibraltar certifying that the documents signed by Mr. E.C. Ellur, the Notary Public are correct.
(v) Copy of Form FC-GPR submitted to RBI on 11.10.2002.
(vi) Copy of Form FC-GPR submitted to RBI on 18.6.2002. (Viii) Permission dated 6.2.2004 granted by Government of India, Ministry of Finance, Department of Economics Aggairs FIPB Unit regarding application for foreign collaboration (STA Regd. No. FCI 503 dated 1.1.2004).
(ix) Copy of Form FC-GPR submitted to RBI on 25.4.2003.
(x) Copy of respective Schedule of RBI regarding purchase by a person resident outside India of equity shares issued by an Indian Company.
34(xi) Copy of certificate from M/s. Faria & Associates, 21, H'nton Avenue, Hounslow, Middlesex TW4 6AP, the Chartered Accountants of the lender company M/s.
Alliance Industries Ltd., UAE regarding creditworthiness of the lender company.
(xii) Copy of brief company profile of M/s. Alliance Industries Ltd.
(xiii) Copy of certificate from State Bank of India confirming that all the remittances were routed through the account no. 02570196101 of M/s. Alliance Industries Ltd. with Standard Chartered Bank, Dubai.
(xiv) Copy of certificate issued by Standard Chartered Bank, Sharjah confirming that the investor company M/s. Alliance Industries Ltd. has current account no.02570196101 with them.
(xv) Copy of share certificates issued by the assessee company in the name of M/s. Alliance Industries Ltd. (xvi) Copy of Return of Allotment of Shares in Form No.2 submitted by the assessee company to Registrar of Companies.
(xvii) Copy of letter dated 19.2.2004 of Directorate of Enforcement, Government of India which conducted enquiries regarding investment in share capital made by foreign investment company and details of shares allotted to them.
4.7 For establishing the identity, creditworthiness and genuineness of transactions, assessee had submitted before ld. CIT(A) that amount from foreign investor has come to the assessee co. with proper permission of RBI and FERA. It only means that amount belonging to M/s. Alliance Industries Ltd. have come to the assessee through proper banking channels. It was submitted that the power of Assessing Officer to invoke provisions of section 68 in respect of for probing share application money has not been questioned but no addition is required to justified u/s 68 in case of assessee when it had given sufficient evidence about the identity, genuineness of transactions and creditworthiness since share applicant money from its bank account standing in a foreign country has come to the account of the assessee through bank, there does not remain any 35 doubt about the creditworthiness of the share applicant i.e. M/s. Alliance Industries Ltd. The assessee had relied upon the judgment of Hon'ble Delhi High Court in the case of CIT vs. Stellar Investment Ltd. (1991) 192 ITR 287 (Delhi), wherein the Hon'ble High Court held that "Share capital-Even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances, can the amount of such capital be regarded as undisclosed income of assessee-company-If certain shareholders were bogus and money was provided by some other persons, reopening of assessment of such persons would be sensible-Tribunal, therefore, justified in setting aside revisional order and no question of law arises." The decision of Delhi High Court in this case has been upheld by the Hon'ble Supreme Court in the case of CIT vs. Stellar Investment Ltd. reported at (2001) 251 ITR 263 (SC) wherein the Hon'ble Supreme Court held that "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, and no question of law arose for reference."
4.8 Before ld. CIT(A), the assessee had also relied upon the judgment of Full Bench of Hon'ble Delhi High Court in the case of CIT vs. Sophia Finance Ltd. reported at (1994) 205 ITR 98 (Del.) (FB) in support of his argument that though section 68 can be invoked for probing investment in share capital but where the share holders are genuine, no addition u/s 68 is justified. The decision of Full Bench of Hon'ble Delhi High Court has opined has under: -
"Under section 68 of the Income-tax Act, 1961, the ITO has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of the assessee and it is immaterial as to whether the amount so credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in 36 section 68 indicates that the section is very widely worded and the ITO is not precluded from making an enquiry as to the true nature and source of a sum credited in the account books even it is credited as receipt of share application money. The mere fact that the (assessee) company chooses to show the receipt of the money as capital does not preclude the ITO from going into the question whether this is actually so. Where, therefore, an assessee-company represents that it had 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 ITO would be entitled, an it would indeed be his duty, to enquire 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 ITO 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 ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee.
If the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the company would be regarded as a capital receipt and to that extent the observations in CIT vs. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct."
It was therefore submitted that in case of assessee, Assessing Officer himself had admitted after examination of evidence produced before him that share applicant i.e. M/s. Alliance Industries Ltd. is genuine that being so no addition u/s 68 is justified in case of the assessee. Moreover, assessee had placed sufficient evidence to the effect that money had flown from the account of the foreign investor existing in foreign bank.
37It was further submitted that as per observation of Hon'ble Delhi High Court Full Bench, it becomes clear that if the shareholders are identified and it is established that they have invested money in the purchase of shares then amount received by the company would be recorded as a capital receipt and to that extent the observation in CIT vs. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) are correct.
4.9 Before ld. CIT(A), the assessee has provided the account no. of foreign investor with Standard Chartered Bank at Sharjah, Dubai form which amounts have been received through State Bank of India, Bhopal, from which it was inferred that it was only the amount belonging to M/s. Alliance Industries Ltd. which was utilized for the allotment of shares of the assessee company. Therefore, all the ingredients for treating the deposit u/s 68 as genuine in respect of share application money i.e. identity of the share applicant, its creditworthiness and genuineness of transactions are satisfied, no addition is required to be made as has been done by Assessing Officer.
4.10 Before ld. CIT(A), it was also submitted on behalf of the assessee that prima-facie reasonable explanation cannot be rejected on capricious or arbitrary grounds or on mere suspicion or on imaginary or irrelevant grounds. Assessee furnished reasonable explanation in respect of receipt of amounts, there is no justification for not accepting the same. Reliance was placed on the decision of Hon'ble Orissa High Court in case of Deonani Atha vs. CIT (1978) 112 ITR 837 (Orissa) wherein it was held by the Hon'ble High Court that where assessee's explanation is rejected without making proper enquiry the addition cannot be sustained. Assessee's explanation is to be judicially considered. If the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject the explanation to hold that it was income. The decision of Hon'ble Supreme Court in case of CIT vs. KS Kunchi Knui (1973) 87 ITR 395 (SC) was also referred to in support of argument 38 that explanation furnished by the assessee cannot be arbitrarily rejected. The judgment of Hon'ble Patna High Court in case of Sarojni Credit Corporation vs. CIT (1976) 103 ITR 344 (Patna) was also relied upon in support of argument that assessee cannot be pursued to have special knowledge about the source of source and origin of origin. It was pleaded that assessee had submitted all relevant documents necessary to prove that amount invested by the NRI investor company came from abroad through banking channels and the transactions are genuine.
4.11 Before ld. CIT(A), it was pleaded on behalf of the assessee that Assessing Officer had not placed on record any evidence that amount transferred from Sharjah, Dubai from the account of share applicant is in fact assessee's own income. Assessee has no office or bank at Sharjah, Dubai. Assessing Officer has not placed on record any evidence that assessee had received its own money in the shape of Dollars which was deposited in Sharjah, Dubai Bank in the foreign investor account from where the money floated to the account of the assessee. It was further pleaded that the assessee had sufficiently proved and placed on record evidence that amount transferred from Sharjah, Dubai bank account is that of foreign investor i.e. of M/s. Alliance Industries Ltd. The observation of Hon'ble MP High Court in case of CIT vs. Metachem Industires, 245 ITR 160 (MP) was also relied upon by assessee, wherein the Hon'ble MP High Court opined that "once it is established that amount has been invested by a particular person be he a partner or an individual then the responsibility of the assessee firm is over. The assessee firm cannot ask that persons who makes investment whether the money invested is properly taxed or not. The assessee is only to explain that this investment has been made by the particular individual and its responsibility of the individual to account for the investment made by him if that person owns that entry that the burden of the assessee firm is discharged."
394.12 Before ld. CIT(A), the judgment of ITAT, Indore Bench in ITA No.502/Ind/2003 for the AY 1998-99 in case of Makalsuta Cotton Company Pvt. Ltd. was relied upon on behalf of the assessee, wherein the ITAT observed that "revenue to establish that such investment has com from the assessee company itself." The decision of ITAT, Jodhpur Bench in case of Swagat Synthetics Pvt. Ltd. vs. ITO, (2002) 77 TTJ 987 was also relied upon by assessee in support of argument that Assessing Officer was not justified in making addition of an amount of Rs.21,27,50,403/-. In that case, the ITAT opined "assessee company having established the identities of the share applicants and also proved that money was invested by them, no addition could be made u/s 68 on account of share application money." The decision of ITAT, Lucknow Bench in the case of DCIT vs. Sahara India Financial Corporation Ltd., 81 TTJ 389 was also relied on by assessee wherein ITAT held that "in a case where identity of the shareholder is established and the shareholder confirms that he has invested money in purchase of shares then no further enquiry can be made against the company for the purpose of making addition u/s 68. The addition to be confined only to cases where shareholders are to be found non- existence." It was further submitted that assessee had genuinely accepted the amount of Rs.21,27,50,403/- from M/s. Alliance Industries Ltd., and had allotted the shares to M/s. Alliance Industries Ltd. a public limited company having its registered office at Gibraltar and Management Head Office at Sharjah, UAE. All the money was routed through proper banking channel. Money is transferred directly from the Standard Chartered Bank, Sharjah, Dubai where the share applicant company maintained its account. Thus, identity of the foreign share applicant company is beyond doubt and the genuineness of transactions are clearly established that share applicant company had invested its own money out of its won capital and the investment has been shown in the balance sheet of the investing company. As is evident from the certificate issued by the auditor of the investor company M/s.
40Alliance Industries Ltd., it is clear that the investor company has invested the money out of its own capital and the investment is shown in the balance sheet of the investor company. Thus, creditworthiness of the investor company is also established. Therefore, it was pleaded that Assessing Officer was not at all justified in making addition of Rs. 21,27,50,403/- u/s 68 of the IT Act, 1961.
4.13 Before ld. CIT(A), the assessee also further referred to the decision of Hon'ble Rajasthan High Court in the case of Shree Barkha Synthetics Ltd. vs. ACIT, (2006) 283 ITR 377 (Raj.) in support of his arguments that addition u/s 68 in case of the assessee of an amount of Rs. 21,27,50,403/- received from M/s. Alliance Industries Ltd. is not at all justified. In this case, Hon'ble Rajasthan High Court held that "if the transaction are made through banking channels and once the existence of persons by name in the share applications in whose name the share have been issued is shown, the assessee company cannot be held responsible to prove whether that person himself has invested the said money or some other person had made investment in the name of that person. The burden than shifts on the revenue to establish that such investment has come from the assessee company itself."Before ld. CIT(A), the assessee further relied upon the judgment of ITAT, Indore Bench decided on 15.7.1997 in case of Dyna Trans Lamina Pvt. Ltd., Bhopal vs. ACIT, Circle-I, Bhopal in ITA No.810/Ind/82 wherein the ITAT observed as under: -
"The identity of the above persons to whom the shares were eventually allotted is not, therefore, in doubt. If that be so, the ratio of full bench decision of Delhi High Court in the case of CIT vs. Sofia Finance Ltd., 205 ITR 98 squarely applies to the facts of the assessee's case. In the case, it has been held that unlike cash credit for investment in share capital, the assessee company ks not required to prove credit worthiness of share holders. What is expected of the 41 assessee is only to prove the existence of share-holder and the receipt of money from them. In the instant case, to our mind, the assessee established the existence of share-holders and the receipt of money from them. We, therefore, hold that the assessee had succeeded in explaining the impugned credits and, therefore, the addition u/s 68 is not justified at all."
5 During the course of appellate proceedings before ld. CIT(A), the Assessing Officer was provided a specific opportunity vide CIT(A)'s letter dated 13.7.2006 enclosing therewith certain documents which includes
(i) Copy of certificate from M/s. Faria & Associates, 21, H'nton Avenue, Hounslow, Middlesex TW4 6AP, the CAs of the lender co. M/s. Alliance Industries Ltd., UAE regarding creditworthiness of the lender company. (ii) Copy of brief company profile of M/s. Alliance Industries Ltd., UAE. (iii) Copy of certificate from State Bank of India confirming that all the remittances were routed through the account no. 02570196101 of M/s. Alliance Industries Ltd. with Standard Chartered Bank, Dubai. (iv) Copy of certificate issued by Standard Chartered Bank, Sharjah confirming that the investor company M/s. Alliance Industries Ltd. has current account no. 02570196101 with them. (v) Copy of certificates issued by the assessee co. in the name of M/s. Alliance Industries Ltd. (vi) Copy of Return of Allotment of Shares in Form No.2 submitted by the assessee co. to Registrar of Companies. (vii) Copy of letter dated 19.2.2004 of Directorate of Enforcement, Govt. of India which conduced enquiries regarding investment in share capital made by foreign investment company and details of shares allotted to them, for submission of report. In response, the Assessing Officer submitted his report vide letter dated 3.11.2006 and offered his comments on the fresh documents furnished by the assessee during the course of appellate proceedings before ld. CIT(A). In this report, Assessing Officer defended the addition made by him while passing the assessment order appealed against. Report of the Assessing Officer was required on such documents which were placed before ld. CIT(A) for the first time during the appellate 42 proceedings and it was considered necessary to adjudicate the grounds taken in appeal. While deciding this ground, ld. CIT(A) took due note of such report of the Assessing Officer on these documents.
6 After consideration of the submissions on behalf of the assessee and examination of the material available on record, the ld. CIT(A) deleted the addition of Rs. 21,27,50,403/- made by the Assessing Officer u/s 68 of the IT Act, 1961 on account of unexplained cash credit. Para 5 having findings of ld. CIT(A) is reproduced as under:
"5. I have very carefully considered the detailed submissions of the Ld. counsel as discussed above that Assessing Officer was not justified in making addition of Rs. 21,27,50,403/- on the ground that financial capacity of the NRI company was not proved/established by the appellant for making the investment. I have also very carefully perused the reasons given by the Assessing Officer for justifying his action for making addition of Rs. 21,27,50,403/- u/s 68 of the Income-tax Act, 1961. I have also given due considerations to the report of the Assessing Officer as submitted by him on fresh evidence placed before me during the course of appellate proceedings by the Ld. counsel of the appellant. After due consideration of the matter, I hold that Assessing Officer was not justified in making an addition of Rs. 21,27,50,403/- u/s 68 of the Income-tax Act, 1961 because appellant had fully discharged the burden cast upon it u/s 68 for explaining the deposit/investment receipt from M/s. Alliance Industries Ltd. I find that M/s. Alliance Industries Ltd. is a NRI company having its Registered Office at Gibraltar and Management Head Office at Sharjah, UAE and this fact is not disputed by the Assessing Officer. Therefore, identity of the foreign investor is established beyond any doubt. Appellant had received the deposits from M/s. Alliance Industries Ltd. during FY 2002-2003 through State Bank of India, Commercial Branch, Hoshangabad Road, Bhopal which vide its letter dated 24.5.2006 certified that the deposits have been routed through the account number 02570196101 of M/s. Alliance 43 Industries Ltd. This fact is established from the certificate given by the State Bank of India which is quoted herein below: -
TO WHOM SO EVER IT MAY CONCERN This is to certify that Standard Chartered Bank, Dubai has confirmed that all the remittances sent in favour of M/s. People General Hospital Pvt. Ltd. by M/s. Alliance Industries Ltd. till date (including those in the financial year 01/04/2002 to 31/03/2003) are routed through the account number 02570196101 of M/s. Alliance Industries Ltd. The list of remittances received by M/s. People General Hospital Pvt. Ltd. from M/s. Alliance Industries Ltd. during 01/04/2002 to 31/03/2003 is as under: -
Date USD Amount in
Rupees
4.4.2002 89985.00 4391068.00
10.4.2002 98885.00 4394217.00
12.4.2002 119985.00 5857868.00
17.4.2002 124985.00 6109517.00
18.4.2002 124985.00 6103167.00
19.4.2002 124985.00 6099943.00
26.4.2002 124985.00 6111916.00
2.5.2002 124985.00 6108167.00
10.5.2002 124970.00 6109933.00
15.5.2002 124985.00 6117541.00
29.5.2002 99985.00 4891166.00
31.5.2002 99985.00 4894266.00
14.6.2002 124985.00 6115766.00
16.7.2002 100000.00 4872900.00
17.7.2002 99985.00 4870169.00
26.7.2002 99985.00 4859171.00
26.7.2002 99985.00 4857671.00
14.8.2002 150000.00 7276150.00
16.8.2002 149970.00 7272445.00
23.8.2002 99985.00 4843173.00
4.9.2002 99985.00 4837174.00
12.9.2002 99985.00 4837174.00
13.9.2002 99985.00 4834675.00
03.10.2002 99985.00 4827176.00
44
04.10.2002 99985.00 4827176.00
04.10.2002 99985.00 4827176.00
17.10.2002 99985.00 4829175.00
13.01.2003 125000.00 5984625.00
16.01.2003 124985.00 5983344.00
29.01.2003 109985.00 5254933.00
29.01.2003 109985.00 5254933.00
31.01.2003 124985.00 5963347.00
05.02.2003 124985.00 5957410.00
28.02.2003 124985.00 5957410.00
28.02.2003 124985.00 5957410.00
13.03.2003 109985.00 5230736.00
17.03.2003 109985.00 5233486.00
25.03.2003 109985.00 5231286.00
27.03.2003 99985.00 4744038.00
Since appellate had received amount aggregating to Rs. 21,27,50,403/- from M/s. Alliance Industries Limited through proper banking channel, the transactions are established beyond any doubt.
Faria and Associates, Chartered Certified Accountants had submitted vide their letter dated 11/04/2006 placed before me during the course of appellate proceedings by the Ld. counsel of the appellant, the relevant extract of which are quoted as under: -
"People General Hospital LTd/Alliance Industries Ltd At the request of the directors and shareholders of Alliance Industries Ltd (the company) we write to confirm that the company, trading in commodities, is registered in Gibraltar, with its head office in Sharjah, UAE.
We are the auditors of the company and further confirm that in the period 1 April 2002 to 30 March 2003, the company invested US$4,00,000 in the shares of People General Hospital Ltd., Bhopal, India. These sums of money were all done by bank transfers.45
Further, we confirm that this investment was funded by the trading activities of the company, without the need for the company to seek external funding. This fact, together with the investment is reflected in the company's balance sheet at 30 June 2003.
To our belief, and based on the last set of audited accounts for the year ended on 30 June 2004, the company has a healthy creditworthy net asset position, and is not indebted to any third parties."
I would also like to quote extract from the letter dated 12/03/2006 addressed to M/s. Alliance Industries Limited, P.O. Box 7768, Sharjah, UAE by Standard Chartered Bank as under: -
"Current A/c No. 02-5701961-01 in the name of Alliance Industries Ltd.
This is to certify that Alliance Industries Ltd maintains the above mentioned account with our branch since 14/01/1999 and the account is conducted to our satisfaction as of date.
This certificate is issued at your request and with out any risk or responsibility on the part of the bank or any of its signing officials."
From the above, it is very much clear that amounts aggregating to Rs. 21,27,50,403/- have flowed to the appellant from the current account number 02570196101 of M/s. Alliance Industries Limited at Sharjah through proper banking channel and it is the money of M/s. Alliance Industries Limited that has come to the appellant and M/s. Alliance Industries Limited had the capacity to invest this much of amount with the appellant during the F.Y. 2002-2003. Thus, credit worthiness of M/s. Alliance Industries Limited, also stands established. Since all the ingredients as are required to be satisfied for accepting the deposit as genuine u/s 68 are fulfilled in respect of this 46 investment of Rs. 21,27,50,403/- by M/s. Alliance Industries Limited with the appellant company, in my considered view Assessing Officer was not justified in drawing adverse inference in respect of this amount under reference. Moreover, Assessing Officer had not brought on record any evidence. Otherwise that is to say that Assessing Officer had not established by making enquiry that it was appellant's own money which it has received in the shape of Dollars from the NRI company. Assessing Officer himself has accepted the identity of the share applicant company and also genuineness of transactions in respect of this deposit. I find that Assessing Officer himself had accepted the similar deposits in the earlier AYs 2001-2002 and 2002- 2003 as genuine. In fact assessment order relating to AY 2001-2002 was passed after enquiry u/s 143(3) wherein similar investment from the same NRI company to the tune of Rs.4,64,71,322/- was accepted as genuine and investment of Rs.9,47,81,895/- from the same company was also accepted u/s 143(1) for the AY 2002-2003. Since there is no deviation in the facts of the investment this year vis-à-vis investments made by the same company with the appellant in earlier years as mentioned above, I do not find any justification for not accepting the deposit this year as genuine. Assessing Officer had not given any reason worthwhile for taking different view this year in respect of similar deposit as he had taken while accepting such deposits as genuine in the earlier assessment years. But he had taken the deposit this year as not genuine. I place reliance on the decision of Hon'ble High Court in case of Godavari Corporation Limited Reported at 156 ITR 835 wherein the Hon'ble MP High Court held that "similar cash credit having been accepted as genuine in the earlier year, the same explanation ought to have been accepted in the subsequent year." I also place reliance on the decisions of Hon'ble Bombay High Court in case of H.A. Saha & Company vs. CIT Reported at 30 ITR 618 and also on the observation of Hon'ble Calcutta High Court in case of CIT vs. Hindustan Motors Reported at 92 ITR 619 on this issue.
47I find that ruling of Hon'ble Calcutta High Court given in case of M/s. Hindustan Tea Trading Company Limited vs. CIT and CIT vs. Ruby Traders & Exporters Ltd. cited SUPRA are not applicable to the facts of the appellant's case as the facts of these cases are clearly distinguishable from the facts of the appellant's case. In my considered view, decision of Hon'ble Delhi High Court in case of CIT vs. Sophia Finance Ltd. cited SUPRA is applicable in the case of appellant wherein it had been observed that though section 68 can be invoked for probing investment in share capital, but where the shareholders are genuine, no addition u/s 68 is justified. Under similar circumstances Hon'ble Rajasthan High Court in case of M/s. Barkha Synthetics vs. ACIT Reported at 283 ITR 377 (Raj.) held that no addition u/s 68 is justified in case of share application money where shareholders are genuine. The Hon'ble High Court in that case has observed that "where the share application money is received by the assessee company through banking channel, assessee has only to prove the existence of the persons in whose name share application is received. Additions could not be sustained where the existence of the investor is not doubted and the investment is not shown to have been made by somebody else."
I find it relevant to quote the observation of Hon'ble High Court of M.P. in case of CIT vs. Metachem Industries Reported at (2000) 245 ITR 160 (MP) wherein the Hon'ble High Court held that "once it is established that amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee firm is over. Assessee firm cannot ask that person who makes such investment whether the money invested properly taxed or not. Assessee is only to explain that this investment has been made by the particular individual and it is the responsibility of that individual to account for the investment made by him. If that person owns that entry then the burden of the assessee firm is discharged."
48Accordingly, in view of the decision by the Hon'ble Supreme Court in the case of CIT vs. Stellar Investment Ltd. Reported at (2001) 251 ITR263 (SC), decisions of Hon'ble High Courts in cases CIT vs. Sophia Finance Ltd. Reported at (1994) 205 ITR 98 (Del) (FB), CIT vs. Stellar Investment Ltd. Reported at (1991) 192 ITR 287 (Delhi), CIT vs. Metachem Industries Reported at (2000) 245 ITR 160(MP), Shri Barkha Synthetics Ltd vs. ACIT Reported at (2006) 283 ITR 377 (Raj.), Ashokpal Daga (HUF) vs. CIT Reported at (1996) 220 ITR 452 (MP) and decisions of Ld. ITAT in cases Swagat Synthetics Private Limited vs. ITO Reported at (2002) 77 TTJ 987 (Jodhpur), Dy. CIT vs. Shara India Financial Corporation Limited Reported at (2003) 81 TTJ 389 (Lucknow) and decisions of jurisdictional Ld. ITAT Indore Bench in case of Dyna Trans Lamina Pvt. Ltd. vs. ACIT in ITA No.810/Ind./82 and Makalsuta Cotton Company Pvt. Ltd. vs. ITO in ITA No.502/Ind/2003, I hold that Assessing Officer was not justified in making addition of Rs. 21,27,50,403/-. Thus, this addition being unsustainable in law and on facts is hereby deleted. All these grounds are decided in favour of the appellant."
7 Ld. DR at the outset submitted that before arguing on main ground of appeal on merits, we would like to argue on admission of ground no.2 and 3 of the revised grounds of appeal. Ld. DR submitted that the documents filed before ld. CIT(A), item (serial) No.XI to XVII mentioned hereinbelow were addl. evidence in nature:
(xi) Copy of certificate from M/s. Faria & Associates, 21, H'nton Avenue, Hounslow, Middlesex TW4 6AP, the Chartered Accountants of the lender company M/s.
Alliance Industries Ltd., UAE regarding creditworthiness of the lender company.
(xii) Copy of brief company profile of M/s. Alliance Industries Ltd.49
(xiii) Copy of certificate from State Bank of India confirming that all the remittances were routed through the account no. 02570196101 of M/s. Alliance Industries Ltd. with Standard Chartered Bank, Dubai.
(xiv) Copy of certificate issued by Standard Chartered Bank, Sharjah confirming that the investor company M/s. Alliance Industries Ltd. has current account no.02570196101 with them.
(xv) Copy of share certificates issued by the assessee company in the name of M/s. Alliance Industries Ltd.
(xvi) Copy of Return of Allotment of Shares in Form No.2 submitted by the assessee company to Registrar of Companies.
(xvii) Copy of letter dated 19.2.2004 of Directorate of Enforcement, Government of India which conducted enquiries regarding investment in share capital made by foreign investment company and details of shares allotted to them.
Ld. DR submitted that asseesse at 42 of paper book has mentioned that above documents were filed before ld. CIT(A) in order to strengthen its case which were not filed before the AO. Ld. DR therefore submitted that ld. CIT(A) did not provide sufficient opportunity to the AO to make inquiry and investigation into such evidence and further submitted that ld. CIT(A) has not admitted these evidence at the appellate stage therefore Rule 46-A has been violated in this case. Ld. DR submitted that above addl. grounds have been raised at the earliest opportunity and are based on facts on record and are vital for proper adjudication of issue involved in the appeal. Ld. DR relied upon following decisions and submitted that the same addl. grounds may be admitted being legal in nature:
Decision of Hon'ble Supreme Court in the case of Natioanl Thermal Power Co. 229 ITR 383, decisions of 50 MP High Court in the case of Bhopal Sugar Industrial, 233 ITR 429, and National News Print and Paper Mills Ltd. 223 ITR 688 and order of ITAT, Indore Bench in the case of Rahul Products Ltd., 6 ITJ 273.
Ld. DR further submitted that ld. CIT(A) wrote a letter dated 13.7.2006 to the AO to file a remand report and his comments on the above addl. documents on which AO filed his remand report dated 3.11.96. Ld DR therefore submitted that ld. CIT(A) without giving sufficient opportunity to the AO and without conducting inquiry himself relied upon the addl. evidences and therefore Rule 46-A is violated. Ld. DR therefore submitted that above revised ground nos.2 and 3 may be admitted for hearing.
7 On the other hand, ld. counsel for assessee objected to the submissions of the ld. DR and submitted that assessee is a educational institution and addl. grounds are filed belatedly. Ld. counsel for assessee submitted that assessee filed sufficient evidences before the AO in order to prove that all the three conditions of genuine cash credits are proved. He has submitted that AO has not disputed identity of the NRI company (shareholder) and the transfer of money in the account of assessee. He has submitted that the evidences filed before ld. CIT(A) for the first time were explanatory in nature explaining the earlier evidences filed before the AO therefore those were not practically addl. evidence in nature. Ld. counsel for assessee further submitted that ld. CIT(A) gave sufficient opportunity as per Rule 46-A to the AO and called for the remand report on those documents and all those documents were handed over to the AO in person and the AO also appeared before the ld. CIT(A) at the appellate stage and filed the remand report in which he has virtually not disputed these documents. The AO in the remand report has submitted before ld. CIT(A) that he has plenary powers in disposing of appeal and his powers are coterminous to that of the AO to make the inquiry on the issue involved in the case therefore there are no substance in the ground no.2 and 3. He has submitted 51 that AO did not ask for any time to examine these documents. Ld. counsel for assessee submitted that AO delayed the matter even before the CIT(A) and submitted that since it was a case of amount received on account of share capital therefore assessee discharges initial onus to prove creditworthiness of the shareholder M/s. Alliance Industries Ltd. Ld. counsel for assessee accordingly submitted that there are no merits in these grounds, the same may not be admitted for hearing.
8 We have considered rival submissions and material available on record. It is not in dispute that the assessee filed confirmation from Alliance Industries Ltd. before AO giving the details of amount invested by the NRI Company on account of share capital. The assessee also filed certificate of incorporation of the shareholder (Alliance Industries Ltd.) before the AO explaining the board of directors etc. The details were certified by Notary Public and was also countersigned by Governor and Commander in Chief, Gibraltar. The assessee also file copy of the permission of the Govt. of India regarding foreign collaboration by M/s. Alliance Industries Ltd. along with copies of the returns/forms submitted to RBI for transfer of foreign currency in the accont of the assessee by M/s. Alliance Industries Ltd. The assessee also filed several certificates of State Bank of India, Commercial Branch, Bhopal giving certificate to the assessee that the foreign currency remittances have been credited to the account of the assessee as ordered by M/s. Alliance Industries Ltd. The documents above would explain as to what is the nature of documents filed by assessee for the first time before the ld. CIT(A).
8.1 The ld.DR pointed out the above documents stated to be filed for the first time before the ld. CIT(A) which we deal as under:
1 Certificate of M/s. Faria & Associates explained the incorporation of M/s. Alliance Industries Ltd. and funds 52 transferred by them to the assessee on which assessee has already filed sufficient documents before the AO. 2 Copy of brief profile of M/s. Alliance Industries Ltd. on which assessee has already made submissions before the AO.
3 Certificate of State Bank of India, Commercial Branch, Bhopal giving certificate that M/s. Alliance Industries Ltd. transferred the funds to the assessee on several dates through Standard Chartered Bank, Dubai on which assessee has already submitted several copies of certificates of State Bank of India, Commercial Branch, Bhopal as mentioned above.
4 Copy of certificate of Standard Chartered Bank from where amounts were transferred to the account of the assessee which fact is already explained before the AO and explained in the certificates of SBI, Bhopal. 5 Copy of share certificates issued in the name of M/s.
Alliance Industries Ltd. The AO did not doubt the identity of M/s. Alliance Industries Ltd. and issue of share certificates in its name because the AO only doubted the creditworthiness of NRI company. 6 Copy of return submitted before Registrar of Companies. The same is also not doubted by the AO. 7 Copy of query letter of Directorate of Enforcement conducting inquiries regarding investment in share capital by NRI Company. This is not disputed by the AO.
8.2 The above facts would clearly explain that these are apparently not new evidences and would only clarify the evidences already submitted before the AO. Despite that the ld. CIT(A) gave a reasonable and sufficient opportunity to the AO to examine the above evidences vide his letter dated 13.7.2006 directing the AO to give his report carefully and comprehensively and appeal was adjourned to 31.8.2006. It is also not in dispute that the AO joined the appellate proceedings before the ld. CIT(A) and as per letter of the ld. CIT(A) all these documents were handed over to the AO in person for his comments. However, the AO did not file any report by 31.8.2006 and filed the remand report only on 3.11.2006 and in that remand report also AO 53 has not disputed genuineness of these documents. The AO merely stated that since these documents were not filed before AO therefore same may not be considered at the appellate stage. The AO in para 8 of his remand report submitted that the CIT(A) has plenary and coterminous power to that of the AO therefore he may make requisite inquiry on the issue involved in the case. It would therefore show that despite sufficient opportunity given to the AO at the appellate stage, the AO did not make any proper inquiry on these documents and rather requested the CIT(A) to make inquiry himself. We therefore do not find as to how ld. CIT(A) violated Rule-46A in the matter and how ld. CIT(A) has not given sufficient proper opportunity to the AO to enquire into such fresh evidence. Hon'ble Punjab and Haryana High Court in the recent decision in the case of CIT vs. Kuldeep Industrial Corporation reported in 209 CTR (P & H) 400 (delivered on 4.4.2007) held "AO, who was present at the time of furnishing of addl. evidence before CIT(A) having raised no objection, the opportunity envisaged under Rule-46A stood satisfied."
8.3 In view of the above facts and circumstances of the case noted above, the order of Tribunal in the case of M/s. Rahul Products Ltd. (supra) cannot be given preference. We may also add here that the revenue filed the appeal originally on ground no.1 which was approved by the ld. CIT, Bhopal u/s 253(2) of the IT Act. The above appeal was under consideration and was heard partly on 3.8.2007 and on the request of the ld. DR, the same was adjourned to 7.8.2007. Again on 7.8.2007, the appeal was partly heard and on the request of ld. DR, the appeal was adjourned to 30th August, 2007. The record revealed that revenue department filed revised grounds of appeal in the registry on 24.8.2007 raising three grounds mentioned above. Again the appeal was adjourned on 30.8.2007 on the request of ld. DR. These facts would show that the revenue department through ACIT-2(1) Bhopal without leave of the Tribunal himself filed the revised grounds of appeal on 24.8.2007. These revised grounds 54 are also not approved by ld. CIT, Bhopal u/s 253(2) of the IT Act. We may also note that assessment order in this case was passed by Shri Yogendra Dubey, DCIT- 2(1), Bhopal. The appeal is also filed by Shri Yogendra Dubey, DCIT-2(1), Bhopal on the original grounds of appeal in which the concerned AO did not raise any ground of violation of Rule-46A because AO was given reasonable sufficient opportunity to examine the addl. evidence by the ld. CIT(A). The AO choose not to examine any evidence and also did not dispute genuineness of the documents. Therefore, ground no.2 and 3 were not rightly raised by the concerned AO. However, we find that revised grounds of appeal are filed by Shri Shravan Kumar Meena, ACIT-2(1), Bhopal without any permission or leave of the Tribunal. It would therefore appear that these revised grounds of appeal no.2 and 3 are filed with certain extraneous consideration without knowledge of the CIT, Bhopal and without the leave of the Tribunal. No application is filed seeking leave of the Tribunal to raise addl. grounds of appeal. Rule-11 of Appellate Tribunal Rules provides that the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of the appeal, but the Tribunal, in deciding the appeal shall not be confined to the grounds set forth in the memorandum of the appeal or taken by leave of the Tribunal under this Rule. As noted above, the AO did not seek any leave of the Tribunal in filing revised (addl.) grounds of appeal or for raising new grounds of appeal not raised in the memorandum of appeal originally filed. Therefore, the request of ld. DR is liable to be rejected.
8.4 Considering the above facts and circumstances and that ld. CIT(A) has not violated Rule-46A in the matter and no leave of the Tribunal is sought in filing revised grounds of appeal, we do not find any merit in these grounds of appeal for the purpose of admitting the same for hearing. Since there are no merit in both the ground no.2 and 3 therefore there is no purpose in admitting the same for hearing. The decisions cited by 55 ld. DR are therefore clearly distinguishable on facts noted above. Both these grounds are accordingly not admitted and request of ld. DR is rejected.
9 Now we consider the appeal of the revenue on merits. Ld. DR submitted that assessee has not proved creditworthiness of M/s. Alliance Industries Ltd. because no balance sheet is filed. Ld. DR submitted that shareholder has no knowledge of the business activity of the assessee. Ld. DR submitted that onus on the assessee to establish and prove the identity and existence of the person, genuineness of transaction and their creditworthiness which proposition is also settled by this Bench in the case of ACIT vs. Kalani Industries, 8 ITJ 165. Ld. DR submitted that the capital contribution by the foreign company at a hafty premium without proper justification is not justified and referred to the remand report of the AO filed before ld. CIT(A) in which it was explained that no prudent businessman would buy the shares of minor shareholding and that too when money is coming from Gibraltar. He has submitted that the facts highlighted by the AO raises serious doubts about the genuineness of transaction and in that way there will be greater onus on the assessee to establish creditworthiness of the shareholder making huge capital contribution. The order of ITAT, Delhi Bench, in the case of A-One Housing Complex Ltd., 15 SOT 574 is relied upon. Ld. DR further submitted that the decision in the case of Stellar Investment as confirmed by the Supreme Court is doubted by the full Bench of Delhi High Court in the case of Sophiya Finance Ltd., 205 ITR 98. Ld. DR relied upon following decisions:
"Decision of the M.P. High Court in the case of CIT vs. Dhar Ispat (P) Ltd., 134 Tax Man 747 (180 CTR
491), in which it was held "Sec. 68 is applicable in respect of share application money; however, the question of genuineness of the entries regarding share application money is a question of fact to be decided by the assessee authority on the basis of evidence available on record."56
Decision of Calcutta High Court in the case of CIT vs. Ruby Traders and Exporters Ltd., 263 ITR 300, in which it was held "Except disclosing the list of the subscribers to its capital, assessee-company having produced nothing for establishing the identity of the subscribers or for proving their creditworthiness and the genuineness of the transaction, s. 68 was attracted and addition was justified."
Decision of Calcutta High Court in the case of CIT vs. Kundan Investment Ltd., 263 ITR 626, in which it was held "Out of 82 share holder selected for notice under s. 133(6), 48 share holder did not respond till the assessment was made and this information was communicated to the assessee. It further appears that the assessee did not take any steps either to obtain confirmatory letters from these non- responding subscribers nor had attempted to produce the subscribers nor any to disclose the income-tax file numbers of these subscribers. Neither he had ever applied for issuing any notice/summons under s. 131 nor took any other steps to prove the same. The burden, which was initially discharged by the assessee shifted on the Revenue. This stood discharged by the revenue after the enquiry was made through issuing notice under s. 133(6). When this was so communicated to the assessee, it was incumbent on the assessee to take appropriate steps to substantiate the creditworthiness of the subscribers and prove the genuineness of the transactions. But, it had not done so. Therefore, the finding of the Tribunal with regard to the public issue in respect of these 30 per cent subscribers seems to be perverse. Therefore, the Tribunal's finding with regard to the public issue cannot be accepted. The decision of the CIT (A) with regard thereto is affirmed."
Decision of Calcutta High Court in the case of Bhola Shankar Cold Storage Pvt. Ltd. vs. JCIT, 270 57 ITR 487 in which it was held "The question is a question of establishment of the identity of the subscribers, which, in this case, has since been established. The next point is the creditworthiness of the investors and the last one is with regard to the establishment of the genuineness of the transaction. In the course of deposition, the applicants had stated that their respective annual income was between Rs. 8,000 and Rs. 10,000. They had also disclosed that they had very negligible quantum of agricultural land. Apart from the agricultural land, they did not disclose that they had any other source of income or business." It was concluded that "Opinion formed by AO about non- genuineness of cash credits and creditworthiness of creditors who were small farmers being not perverse on the material on record, no interference was called for."
Ld. DR further submitted that law declared must be speaking and only then it would be binding on the courts. He places reliance upon the decision of Supreme Court in the case of Shalmugavel Nadar vs. State of Tamilnadu, 263 ITR 658 and accordingly submitted that the decision of Supreme Court in the case of Stellar Investment is not binding. Ld. DR submitted that the evidence of record should be thus by applying the test of human probability and relied upon decisions of the Supreme Court in the cases of D.D. More, 82 ITR 540 and Sumati Dayal, 241 ITR 801. Ld. DR further submitted that all the three requirements to prove genuine cash credit are on the assessee and relied upon decision of Karnataka High Court in the case of Vishwanath and Co. reported in 292 ITR 225. Ld. DR submitted that decision of M.P. High Court in the case of Metachem Industries Ltd., 245 ITR 160 cannot be said to be applicable to this case because same is distinguishable on facts and is to be read and understood in the limited context of facts of the case. Ld. DR also relied upon decision of Supreme Court in the case of Mohd. Kale Khan and also submitted that merely because share application money of the same shareholder M/s. Alliance Industries 58 Ltd. is accepted by the AO in the earlier year would not be helpful to the assessee because principle of res- judicata is not applicable to the income-tax proceedings and would not debar the revenue to investigate the issue in the latter year. Ld. DR relied upon decision of Hon'ble Supreme Court in the case of CIT vs. P. Mohan Kala, 291 ITR 278 regarding the two nature and scope of provisions of section 68 of the IT Act. Ld. DR also submitted that decision in the case of Ashok Pal, 220 ITR 452 (MP) is on the direction u/s 256(2). Ld. DR also submitted that the decision of MP High Court in the case of Sumermal Jain, 292 ITR 241 is with regard to genuineness of purchases. Ld. DR lastly submitted that the documents filed by the assessee before the authorities below, copies of which are filed from pages 54 to 71 would only establish the identity of the creditor/shareholder M/s. Alliance Industries Ltd. Ld. DR accordingly submitted that since assessee failed to establish creditworthiness of the shareholder therefore order of the CIT(A) may be reversed and order of the AO may be restored.
10 On the other hand, ld. counsel for assessee reiterated the submissions made before authorities below and submitted that the AO did not dispute the identity and existence of the shareholder M/s. Alliance Industries Ltd. as well as did not dispute the mode of transfer of money from NRI company M/s. Alliance Industries Ltd. to the assessee. He has submitted that AO also did not dispute that the said transaction took place through the banking channel with the permission of the RBI and Govt. of India. Ld. counsel for assessee also submitted that assessee filed detailed evidences and confirmations from the shareholder along with bank certificates from State Bank of India, Bhopal and Standard Chartered Bank to explain the creditworthiness of the shareholder M/s. Alliance Industries Ltd. Ld. Counsel for assessee submitted that AO cannot ask to explain source of the source. He has submitted that AO did not dispute that money was transferred through banking channel from Gibraltar company to the assessee under the RBI permission. He 59 has submitted that the decision of MP High Court in the case of Metachem Industries (supra) is directly applicable to this case. He has also relied upon decision of the full Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra). Ld. counsel for assessee also submitted that in earlier year the assessee received share application money from the same shareholder M/s. Alliance Industries Ltd. which was not doubted by the AO and no addition is made. Ld. counsel for assessee submitted that rule of consistency are applicable to the income-tax proceedings. Ld. counsel for assessee submitted that assessee has discharged initial onus to prove identity of the shareholder, genuineness of transaction and creditworthiness of the shareholder therefore burden stood discharged and AO has not brought any evidence on record to disprove the findings of the ld. CIT(A). Ld. counsel for assessee also relied upon decision of M.P. High Court in the case of Ashok Pal Daga, 220 ITR 452 in which it was held that when the assessee satisfied the AO as to the identity of the third party and also supplies such other evidence which would show that the entry is not fictitious, the initial burden lies on him can be said to be discharged by him. He has also relied upon decision of Patna High Court in the case of Saraogi Credit Corpn., 103 ITR 344 and decision of Gauhati High Court in the case of Nemichand Kothari, 264 ITR 254 and decision of M.P. High Court in the case of Sumer Chandra Jain, 292 ITR 241 in which it was held that when the identity of parties is given, the genuineness or the capacity of the lenders and transaction are not to be discarded on the ground that the assessee had not explained satisfactorily the cash credits in the books of account of the firm and discharged the burden. Ld. counsel for assessee therefore submitted that appeal of revenue has no merits and the same may be dismissed.
11 We have considered rival submissions and material on record. We have bestowed our careful consideration and do not find any justification to interfere in the order of the ld. CIT(A).
6011.1 Full bench of Delhi High Court in the case of CIT vs. Sophia Finance Ltd. 205 ITR 98 held "Under section 68 of the Income-tax Act, 1961, the Income-tax officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of the assessee and it is immaterial as to whether the amount so credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books". Section 68 indicates that the section is very widely worded and the Income tax Officer is not precluded from making and enquiry as to the true nature and source of a sum credited in the account books even if it is credited as receipt of share application money. The mere fact that the (assessee) company choose to show the receipt of the money as capital does not prelude the Income-tax Officer from going into the question whether this is actually so. Where, therefore, an assessee-company represents that it had 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, and it would indeed be his duty, to enquire whether the alleged share holders do in fact exist or not. If the share holders 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.
If the share holders are identified and it is established that they have invested money in the purchase of shares, then the amount received by 61 the company would be regarded as a capital receipt and to that extent the observations in CIT v. Stellar Investment Ltd., [1991] 192 ITR 287 (Delhi), are correct; but the observations in that case to the effect that even if the subscribers to the capital were not genuine "under no circumstance could the amount of share capital be regarded as undisclosed income of the [company]" are not."
M.P. High Court in the case of CIT vs. Dhar Ispat (P) Ltd., 134 Tax Man 747 (180 CTR 491), held "Sec. 68 is applicable in respect of share application money; however, the question of genuineness of the entries regarding share application money is a question of fact to be decided by the assessee authority on the basis of evidence available on record."
Delhi High Court in the case of CIT vs. Stellar Investment Ltd., 192 ITR 287, held "that, even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the company. No question of law arose out of the Tribunal's order."
Hon'ble Supreme Court in the case of CIT vs. Stellar Investment Ltd., 251 ITR 263, held "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."
Delhi High Court in the case of CIT vs. Dolphin Canpack Ltd., 283 ITR 190, held "In its return for the assessment year 1998-99, the assessee claimed to have received share application money of Rs. 62 lakhs. The Assessing Officer rejected the explanation of the assessee and added the amount to the taxable income of the assessee. The Tribunal found that the assessee had furnished 62 complete details to the Assessing Officer regarding the transactions in question, which included confirmation details of bank accounts and the permanent account numbers of the parties in whose favour the share capital was subscribed. The Tribunal also noted that all the payments were received by the assessee by cheques and that the assessee had, in the process, fully discharged the onus that lay upon it for proving the identity of the subscribers and the genuineness of the transactions. On that basis, it deleted the addition made by the authorities below. On appeal to the High Court:
Held, dismissing the appeal, that in the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transactions suffered from any irrationality, no substantial question of law arose from the order of the Tribunal. The deletion of the amount was justified."
Gauhati High Court in the case of CIT vs. Down Town Hospital Pvt. Ltd., 267 ITR 439, held "That regarding amounts received as share application moneys, the Tribunal had given clear finding after appreciation of the material on record that the assessee had filed the details regarding the source of funds of shares and their income tax file nos. before AO. According to the Tribunal the assessee had also submitted before the AO the confirmation from the creditors where full addresses, income tax no. etc. were given. The Tribunal was justified in deleting the addition.
Rajasthan High Court in the case of Shree Barkha Synthetics Ltd. vs. CIT, 283 ITR 377, held "If the transactions are made through banking channels and once the existence of persons by name in the share applications in whose name the shares have been issued is shown, the assessee-company cannot be held responsible to prove whether that person himself has invested the said money or some other 63 person had made investment in the name of that person. The burden then shifts on the Revenue to establish that such investment has come from the assessee-company itself."
Delhi High Court in the case of CIT vs. Dwarkadhish Financial Services,148 Taxman 54, held "The assessee had produced all relevant evidence to establish that the share application money received by the assessee was a result of genuine transaction. It had been noticed even in the impugned order that evidence was produced by the assessee including affidavits, copies of the share application forms, copies of the confirmation from the applicant-companies, copies of board of directors' resolution approving such transactions as well as cheque number, branch and address of the bank through which the investment was made. It was also noticed that the Assessing Officer himself had noticed in his order that the applicant- share holders were income-tax payees. In such circumstances, it could not be presumed that the share holder who was assessed to tax was not in existence. That would tantamount to contradiction in the stand of the department itself."
ITAT, Jodhpur Bench (TM) in the case of Uma Polymers (P) Ltd. vs. DCIT, 124 TTJ 124, held "In respect of share capital money, the assessee- company has to prove only the existence of the person in whose name share application is received and there is no further burden on the assessee to prove whether that person himself has invested the money or some other person has made the investment in his name; distinction between a public company and a private company is not very material for this purpose."
Madhya Pradesh High Court in the case of CIT vs. Metachem Industries, 245 ITR 160, held "Once it is established that the amount has been invested by a particular person, be he a partner or an 64 individual, then the responsibility of the assessee is over. Whether that person is an income-tax payer or not and where he had brought this money from, is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm or the purposes of income-tax."
ITAT Indore Bench in the case of ACIT vs. M/s Vindhya Soya Limited, ITA No. 227/IND/ 2004, held "In the instant case, the CIT (A) in annexure of his order has mentioned details of the share holder, their addresses, holding of agricultural land, permanent account number of some of the share holders, amount of deposit, their occupation and evidence filed in form of confirmation letter, copy of acknowledgement receipt of some of the share holders filing return of income, evidence of agricultural holding, etc. We have also noted that the assessee company has furnished complete details of all the share holders. Therefore, before drawing any conclusion the AO should have issued summons u/s 131 to these share holders to arrive at the truth about the investment made by them. However, no such exercise was carried out by the AO and simply for the reason that the amount was deposited in cash, he held that the credit worthiness of and genuineness of transaction was not proved. The AO has not doubted the identity of the share holders. From the above it appears that the AO made the addition on surmises and conjectures. Therefore, in view of the above facts and circumstances and placing reliance on the decisions discussed (supra), we do not find any infirmity in the order of the CIT (A). Hence, the appeal of the revenue is dismissed."
Delhi High Court in the case of CIT vs. Glocom Impex P. Ltd. , 205 CTR 571, held "Once it was established that the share holder was a genuine 65 person and also creditworthy and that she had the requisite amount for making the investment in question, no addition could be made under s. 68 in the hands of the assessee-company ; Revenue could not go further to find out whether the person from whom the share holder had received money through cheque was also a genuine party and creditworthy."
Hon'ble Gauhati High Court in the case of Nemichand Kothari vs. CIT 264, ITR 254, held "that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him under section 106 o f the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. The failure on the part of the creditors to show that their sub- creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources."
Hon'ble Rajasthan High Court in the case of CIT vs. First Point Finance Ltd. 286 ITR 477, held "that it was not denied that all the share holders/ share applicants were genuinely existing persons. It was also not denied that each of them was an income-66
tax assessee and copies of the return of their income were also place before the Assessing Officer. There was no presumption that the assessee was the benami owner of the investment made by the existing persons. The Tribunal was justified in deleting the addition."
Hon'ble Delhi High Court in the recent decision in the case of CIT vs. Illac Investment Pvt. Ltd. 287 ITR 135, held "The respondent-assessee had for the assessment year 1989-90 disclosed in its return sum of Rs. 4,75,000 received as share application money. The Assessing Officer added the said amount to the taxable income of the assessee under section 68 of the Income-tax Act, 1961, on the ground that the identity of the subscribers had not been established. In an appeal filed by the assessee against the said order, the Commissioner of Income- tax (Appeals) held that the assessee had satisfactorily established identity of the share subscribers. The view taken with the Assessing Officer was, accordingly, reversed. The Income-tax Appellate Tribunal has in a further appeal filed by the Revenue before it placed reliance upon the decision of this court in CIT v. Antarctica Investment P. Ltd. [2003] 262 ITR 493 and CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) [FB] to hold that the respondent assessee had discharged the onus by reference to the material produced to establish the identity of the subscribers. The Tribunal has observed:
"On going through the various orders to which reference has been made by the learned counsel for assessee, it is found that on similar facts the additions made by the Assessing Officer have been deleted. So far as the present case is concerned, the learned Commissioner of Income-Tax (Appeals) has considered the facts and circumstances in detail and has recorded findings of fact. He has also placed reliance on the decision in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) [FB]. 67 The learned Commissioner of Income-tax (Appeals) has also considered the provisions of sections 72,75 and 77 of the Companies Act and has also taken into consideration the details furnished by the assessee before the Assessing Officer including the certificate of incorporation of subscribers, copies of their bank statements and copies of their assessment orders as well as the copies of their audited accounts. The findings recorded by the learned Commissioner of Income-tax (Appeals) are based on a proper appraisal of the material and we do not find any scope to interfere with the same.
Consequently, the order of the learned Commissioner of Income-tax (Appeals) is upheld."
12 It is admitted fact that the assessee filed the confirmation letter from M/s. Alliance Industries Ltd. confirming that it has transferred foreign currency from their bank to the account of the assessee and in the said confirmation all the details of several payments are mentioned. It is also admitted fact that the said NRI Company is registered company and which fact is also proved by the certificate of incorporation of M/s. Alliance Industries Ltd. which is also certified by the Notary Public and is countersigned by the Governor and Commander in Chief of the city of Gibraltar. These certificates are supported by later on by Faria and Associates Chartered Accountants. The identity of the foreign investor M/s. Alliance Industries Ltd. is therefore established beyond doubt. The AO also did not dispute the identity and existence of the shareholder M/s. Alliance Industries Ltd. The AO also did not dispute transfer of money by M/s. Alliance Industries Ltd. to the assessee for the purchase of shares of the assessee company and the amount invested in the assessee company on account of share capital/share premium. The assessee from the certificate of the Govt. of India has established that M/s. Alliance Industries Ltd. invested the money in the business of the assessee after obtaining the permission of the Govt. of India. The forms filed with the RBI would also indicate that the foreign remittances 68 received from M/s. Alliance Industries Ltd. were duly approved by RBI for investment in the shareholding of the assessee company. The assessee also filed several certificates issued time to time by the State Bank of India, Commercial Branch, Bhopal explaining therein that on several dates the foreign remittances were ordered, to be credited to the account of the assessee with State Bank of India, by M/s. Alliance Industries Ltd. The assessee at the appellate stage filed a consolidated certificate issued by State Bank of India, Commercial Branch, Bhopal explaining therein that Standard Chartered Bank, Dubai has confirmed that all the remittances sent in favour of the assessee company by M/s. Alliance Industries Ltd. are routed through the bank account of M/s. Alliance Industries Ltd. The details of payments, date and USD are the same as have been mentioned in the confirmation letter of M/s. Alliance Industries Ltd. filed before the AO and are on the same line on which assessee filed several certificates before the AO. The Standard Chartered Bank also filed certificate confirming the above position and that M/s. Alliance Industries Ltd. maintained bank account with them and the account is conducted to their satisfaction. The AO neither at the assessment stage nor at the appellate stage disputed the genuineness of these documentary evidences and also did not make any meaningful inquiry on such evidences. State Bank of India, Bhopal confirmed the name of M/s. Alliance Industries Ltd. in the certificates who has transferred the USD to the assessee. The entries in the confirmation are therefore confirmed by the State Bank of India, Bhopal also. From the above it is clearly proved by the assessee that the amount in question have come to the assessee company from the bank account of M/s. Alliance Industries Ltd. through proper banking channel and it is the money of M/s. Alliance Industries Ltd. that has come to the assessee and that M/s. Alliance Industries Ltd. had the capacity to invest this much of the amount during the FY relevant to the AY in question. The transfer of foreign currency from the bank account of M/s. Alliance Industries Ltd. clearly proved the creditworthiness of 69 M/s. Alliance Industries Ltd. It is a settled law that the income-tax authority cannot ask the assessee to prove source of the source. All the issue of the shares to M/s. Alliance Industries Ltd. have already been reported by the assessee to the Registrar of Companies. As per submission of ld. counsel for assessee though the Directorate of Enforcement Govt. of India conducted certain inquiries against the assessee under the provisions of foreign exchange management act but no further inquiry has been made into the matter. It would also prove that the money in question flow from M/s. Alliance Industries Ltd. therefore AO was not justified in drawing adverse inference against the assessee. The AO has not brought any evidence on record that the share application money received by assessee from M/s. Alliance Industries Ltd. belong to the assessee or that it was the assessee's own money which it had received in the shape of dollars from the NRI Company. It is therefore not in the nature of income of the assessee because the money received was on account of share capital/share premium. The ld. CIT(A) has given categorical finding in the impugned order that the AO himself had accepted the similar deposits in the earlier AYs 2001-02 and 2002-03 as genuine. He also observed in fact assessee order relating to AY 2001-02 was passed after inquiry u/s 143(3) wherein similar investment from same NRI company M/s. Alliance Industries Ltd. to the tune of Rs.4,64,71,322/- was accepted as genuine and investment of Rs.9,47,81,895/- from the same company was also accepted in subsequent AY 2002-03 u/s 143(1). Ld. counsel for assessee also argued and made the above submission before the Tribunal as considered by ld. CIT(A). During the course of arguments, ld. DR did not dispute the above facts recorded by the ld. CIT(A) in the impugned order and therefore it stands proved that in the earlier years the AO did not dispute the identity of M/s. Alliance Industries Ltd., genuineness of transaction and its creditworthiness in respect of share application money remitted by the above foreign investor. We do not find if there is any deviation of the facts of the investment 70 in respect of the same NRI Company M/s. Alliance Industries Ltd. We may also note that in AY 2001-02, the assessment order u/s 143(3) was passed by the same AO Shri Yogendra Dubey, ACIT-2(1), Bhopal accepting the identical submission of the assessee. Therefore, there was no justification on the part of same AO Shri Yogendra Dubey for not accepting the credits in this year as genuine. Ld. DR submitted that principle of res-judicata is not applicable and AO is competent to make inquiry on the same facts in the subsequent year. Hon'ble M.P. High Court in the case of CIT vs. Godawari Corpn. Ltd., 156 ITR 835 held "With regard to the third point, we would like to say that the question posed before us is not whether the Tribunal has committed an error of law in applying the principles of res-judicate. However, though it is true that the principles of res-judicata do not apply, the rule of consistency does apply. In the instant case, the Department has failed to point out that the circumstances for treating the gain in the transactions for the assessment year 1972-73 as a capital gain were different from those in the assessment years 1962-63 and 1963-64 and, as such, the finding has to be consistent. The Tribunal has, therefore, not committed any error. In this respect, we would like to set out hereinbelow an excerpt from the decision of the Orissa High Court in CIT vs. Belpahar Refractories Ltd. [1981] 128 ITR 610 at pp. 613-614".
Hon'ble Punjab & Haryana High Court in the case of CIT vs. Vikas Chemi Gum India, 276 ITR 32 held "That since the appellant did not challenge the order passed by the Tribunal in relation to the assessment year 1986-87 by which it confirmed the order of the Commissioner(Appeals) deleting the addition made by the AO on account of value of "bardana" used for storing "churi and korma", it could not challenge a similar order passed in relation to the AY 1988-89."
Hon'ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT, 266 ITR 99 held "HIGH COURT-DECISION IN THE CASE OF ONE ASSESSEE-DEPARTMENT ACCEPTING 71 AND NOT CHALLENGING CORRECTNESS-NOT OPEN TO DEPARTMENT TO CHALLENGE IN THE CASE OF OTHER ASSESSEES, WITHOUT JUST CAUSE."
In view of the above facts and decisions noted, we do not find any merit in the submission of ld. DR, the same is therefore rejected. Ld. DR also submitted that balance sheet of M/s. Alliance Industries Ltd. is not filed as is considered relevant in the case of M/s. Kalani Industries Ltd. (supra). We do not agree with the submission of ld. DR because every case has its own facts and the findings are dependant upon the appreciation of the evidence available on record. In the case of present assessee, the entire documentary evidence available on record and the previous history of assessee noted above in respect of the same NRI company M/s. Alliance Industries Ltd. clearly proved the case of the assessee that the share application money received by the assessee is not in the nature of income of the assessee. The assessee also able to prove creditworthiness of M/s. Alliance Industries Ltd. This contention of ld. DR is also rejected. Ld. DR also contended that AO raised serious doubt about the genuineness of transaction because no prudent businessman would make huge investment for getting lesser shareholding in the company. It appears from the above submission from the ld. DR that he himself contradicted his submission because according to his submission for proving genuine credit u/s 68 the assessee shall have to prove identity of creditor, genuineness of transaction and creditworthiness of the creditor which assessee in this case has already proved. What the businessman has taken a decision is entirely dependant upon their business needs which is not open to challenge by the revenue therefore it was not relevant criteria to disbelieve the version of the assessee. Ld. DR also submitted that NRI Company was not knowing much about the assessee before making the huge investment. It appears that ld. DR forgot to note that the same NRI Company had made investment in the assessee company in the earlier years which is not disputed by the AO therefore contentions of the ld.
72DR have no merits and are rejected. The reliance of ld. DR on the order of ITAT, Delhi Bench in the case of A- One Housing Complex Ltd.(supra) is misplaced because ultimately in this case it was held "whether onus of assessee in the case of share capital by public issue is lighter one and therefore such onus would stand discharged if identity of share applicant is established- held-Yes." This case is not applicable in favour of the revenue because the amount is not received from close relative or friend.
12.1 On going through the above documentary evidences on records and the judicial pronouncements referred to above, it is clear neither the AO nor the ld. DR appearing for the revenue have disputed the documentary evidences filed by the assessee before the authorities below. The only point agitated by the AO was creditworthiness of M/s. Alliance Industries Ltd. which is also satisfactorily proved by the assessee. The decision of the full Bench of Delhi High Court in the case of M/s. Sophia Finance Ltd. (supra) holds the field. Hon'ble MP High Court in the case of Dhar Ispat Pvt. Ltd. held that the question of genuineness of entries regarding share application money is a question of fact to be decided on the basis of evidence available on record. The assessee on the basis of evidence available on record has been able to prove creditworthiness of M/s. Alliance Industries Ltd. The ratio of the decisions relied upon by the ld. counsel for assessee and referred to by us in this order are squarely applicable to the facts and circumstances of this case. The assessee through the evidences on record has been able to prove the identity of shareholder, its existence and transfer of money from the bank account of M/s. Alliance Industries Ltd., which fact have not been disputed by the AO. The assessee produced sufficient and reliable material and evidence before the AO to prove that the amount in question have been invested by M/s. Alliance Industries Ltd. The ld. CIT(A) on the basis of the material on record was justified in accepting the contention of the assessee that the share applicant in fact exist. The 73 creditworthiness of the shareholder is also proved because all the payments have been made through banking channel through the account payee cheque which fact could be verified from the respective bank and in fact the respective banks namely SBI, Bhopal and Standard Chartered Bank have certified the same fact. The genuineness of the transaction is not disputed. Considering the totality of facts and circumstances of the case in the light of the material and evidence on record, we are of the view that assessee has discharged the onus lay upon it to prove identity and existence of the shareholder M/s. Alliance Industries Ltd., its creditworthiness and genuineness of transaction. The AO has however not brought any evidence contrary to the evidence filed by assessee. The decisions cited by ld. DR have been considered in the light of facts and circumstances of the case and we are of the opinion that the same could not support the contention of ld. DR. We may also note that Hon'ble Supreme Court in the case of CIT vs. P. Mohan Kala, as relied upon by ld. DR has considered the fact in which the AO held that the gift though apparent were not real and accordingly treated all the amounts of the gift as income of the assessee u/s 68 of the IT Act. The assessee did not contend that even if there explanation was not satisfactory, the amount were not of the nature of income. The ld. CIT(A) confirmed the order and the Tribunal through majority view confirmed the orders of the authorities below. On an appeal, the High Court re-appreciated the evidence and substituted its own finding and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. Hon'ble Supreme Court on such facts "held, reversing the decision of the High Court, that the findings of the AO, the Commissioner (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact."
74However, the facts and circumstances of the appeal before us are clearly distinguishable as noted above. The reliance of ld. DR on the cases referred to above are therefore misplaced.
12.2 Considering the above discussion, we do not find any infirmity in the order of the ld. CIT(A). The appeal of the revenue has no merit and is accordingly dismissed. No other point is argued or pressed.
Order pronounced in the open Court on 28th September, 2007."
10. In the aforesaid order dated 28th September, 2007, the Bench has already considered the facts of the case in detail along with various judicial pronouncements, therefore, the same are not being repeated here for the sake of brevity and may be read as part and parcel of this order being matter of record. Now coming to the observation of the learned Commissioner of Incometax (Appeals) to the effect that the assessee has not filed balance sheet of M/s Alliance Industries Limited, therefore, credit worthiness of the investor company, M/s Alliance Industries Limited, is not proved. We find that before the lower authorities the assessee has furnished certificate of auditor of M/s Alliance Industries Limited confirming that the investment was funded by trading activities of M/s Alliance Industries Limited without the need for the company to seek external funding which is reflected in the balance sheet of the company. One more certificate was also filed 75 by the auditor, M/s Faria & Associate of M/s Alliance Industries Limited to the effect that foreign investor of the assessee has business turnover of Rs.1055.076 million US dollar as on 30th June, 2005 which is approximately equivalent to Indian Rupees 5275 crores and on the basis of this, the percentage of investment made by the foreign investment in the assessee company by way of share capital and share premium works out to be only 0.81%. These certificates by the auditor of M/s Alliance Industries Limited clearly prove the credit worthiness of the investor company. We also find that the main promoter Mr. Sudhir Chopra was examined by the department and his statement was recorded u/s 132(4). Copies of these statements were filed by the learned CIT DR before us. We have carefully gone through these statements and find that the balance sheet of M/s Alliance Industries Limited was obtained by the department from Standard Chartered Bank where the investor company maintained its account. Vide question no. 99 Shri Sudhir Chopra was shown the balance sheet and profit and loss account and other financial reports of M/s Alliance Industries Limited, Gibraltor and he has confirmed the business affairs of M/s Alliance Industries Limited. These financial statements were for the period June, 2004 to June, 2008 which very much falls during the relevant assessment years under our consideration. The 76 department has also shown the return of allotment of shares filed by the company wherein Vivek Gulati was appointed as Company Secretary with 5,40,000 shares and Mr. Chopra as a Chartered Accountant with 3,60,000 shares on 7.4.2000. Shri Sudhir Chopra was also shown balance sheet of M/s Alliance Industries Limited as on 30th June, 2004 wherein tangible assets of USD 5448 and investment of USD 13508174 was shown. In question no. 101 Shri Sudhir Chopra was asked regarding tangible assets. Vide question no. 102 he was asked about stock position of M/s Alliance Industries Limited. Vide question no.
103 the position regarding debtors in the balance sheet was asked for and vide question no. 104 profit and loss account of 2007 was inquired into. Vide question no. 105 profit and loss account of June, 2007 was shown and information was asked regarding the administrative expenses of the company. Vide question no. 106 Alliance F.Z.C. Company lease income paid by Alliance F.Z.C. to M/s Alliance Industries Limited was inquired into. Vide question no. 107 profit and loss account and balance sheet of June, 2008 was inquired into. We also find that the assessee's bank account in the Standard Chartered Bank, Sharjaha, was obtained and detained by the department in the course of assessment for the assessment year 2005-06. The deposits in this account were found to be through transfers. In the appellate 77 order for the assessment year 2005-06 the learned Commissioner of Income-tax (Appeals) writes at page 2 para 2.3 of his order "AO filed a copy of bank account of M/s Alliance Industries Limited at Sharjaha a perusal of which shows that there was no business transaction of the company reflected therein". This bank statement is kept at pages 62 to 74 of the paper book wherein the learned Commissioner of Incometax (Appeals) did not notice the details as to wherefrom the money was deposited in this account. First five pages of paper book 62 to 66 clearly show the source of deposits as from transfer and not by cash deposits. We also find that besides payments to the assessee company, the payments were also made to others. When the deposit in the accounts mentions number of instruments through which the amount was deposited, the learned Commissioner of Incometax (Appeals) could not have doubted the origin of the money but he doubted it without bringing any evidence to support his view. The source of source in this case when the investor is not related with the directors of the assessee company is not the burden on the assessee to prove. In this regard the learned Commissioner of Incometax (Appeals) has wrongly placed reliance on the decision of Banarsi Prasad; 301 ITR 1 and M/s Kortay Trading Company Limited; 232 ITR 820. We find that in the case of Banarsi Prasad (supra) credits were in the names of wife 78 and minor son who were non-earning persons. Therefore, investment was inquired into for satisfactory explanation. Otherwise section 68 does not provide for asking to prove source of source or origin of origin. In the instant case, source of share capital was from M/s Alliance Industries Limited bank account and the source of deposits in the bank account of M/s Alliance Industries Limited was through credit by transfer entries and not by way of cash deposit. Here it is not the responsibility of the assessee company to prove and explain credit in the bank account of M/s Alliance Industries Limited. Another case referred to by the learned Commissioner of Incometax (Appeals) was Korlay Trading Company (supra). In this case, the assessee furnished income tax number and nothing-else. However, in the instant case before us, the investor company has furnished confirmation letters and also bank account through which credit was given. The relevant proposition of law has been laid down by the Hon'ble Supreme Court in the case of M/s Orissa Corporation Private Limited; 159 ITR 78. In this case, the creditors were income tax payers and furnished confirmations and discharged hundies. Notice u/s 131 sent by the department was returned unserved with the remark "left". The Hon'ble Supreme Court held that the assessee has discharged the onus and the department should have persuaded inquiries if so desired by 79 the department. The additions so made were held to be not justified.
In the instant case before us, the department has inquired about the source of the source but nothing adverse was found against the assessee. It is clear from the fact that a letter dated 19.2.2004 was received by the assessee from the directorate of Enforcement and the assessee has replied immediately. Thereafter, nothing in this reference was heard by the assessee. It indicates that nothing adverse was found even by the Director of Enforcement. The department must be knowing this fact but the learned Commissioner of Incometax (Appeals) did not make reference to it. Under such facts and circumstances, the learned Commissioner of Incometax (Appeals) could not have any reason to doubt against the assessee. With regard to the CIT(A)'s objection at page 14 para 6.2 to the effect that "when afforded an opportunity to explain the entries in the account, the appellant did not say a word in defence", we find that it is a call deposit account. The deposits in that account are from investors' regular accounts. The investments with the assessee company are from senders' own accounts. Money was sent from foreign account. It did not arise/accrue as income/deemed to arise or accrued in India.
10.1 After going through the statement of Shri Sudhir Chopra recorded u/s 132(4) which was filed before the Bench by the learned 80 CIT DR, we find that the balance sheet of the years which fall for our consideration were already with the department. We asked the learned counsel for the assessee to place copy of such balance sheet before the Bench also. Since the department has not filed copy of this balance sheet, the learned counsel for the assessee filed copy of balance sheet which is already in the possession of the department and Shri Sudhir Chopra had shown these balance sheets during his interrogation u/s 132(4) of the Act. This audited balance sheet indicates turnover of the assessee company 1,055,076,212 US Dollar for the year ending 2005 and US Dollar 934,411,746 in the year ending 2004. The gross profit for the respective years was US dollar 11,630,956 and US Dollar 9,699,043 for the years 2005 and 2004, respectively. The profit on ordinary activities was shown at US Dollar 12,050,834 and US Dollar 10,273,015 for the years 2005 and 2004, respectively. The fixed assets of the company had been shown at US Dollar 26,507,257 and 13,513,622 US Dollar for the years 2005 and 2004, respectively. The investment of M/s Alliance Industries Limited had been shown at US Dollar 26,500,000 and US Dollar 13,508,174 for the years 2005 and 2004, respectively. Note 5 of the balance sheet gives break up and these investments which are in the shares of M/s Peoples General Hospital Private Limited, Bhopal, which is the 81 assessee company before us. A note has also been given to the effect that M/s Alliance Industries Limited holds 39.62% of the shares in the investment as on 31st March, 2005. The net profit of this company was Indian Rs.3,630,248 and net assets of Indian Rs. 1,004,926,662/-. After going through the certificate filed by the auditor, M/s Faira & Associates before the lower authorities with regard to business worth of M/s Alliance Industries Limited and after going through the documents, as discussed above, we find that M/s Alliance Industries Limited is having sufficient credit worthiness to invest in the shares of the assessee company. Thus, the objection of the learned Commissioner of Incometax (Appeals) to the effect that the assessee has not proved the credit worthiness of M/s Alliance Industries Limited has no substances. It is pertinent to mention here that we are concerned with the credit coming to the account of the assessee on account of share capital. There are various decisions of Delhi High Court and Hon'ble Supreme Court in the cases of Lovely Exports, etc. which clearly provide that in case of share capital, the primary burden on the assessee is to prove the identity and genuineness of the transaction. However, in this case, the assessee has not only proved the identity and genuineness but also the credit worthiness in terms of documents placed on record as discussed hereinabove.
8210.2 In view of these facts, we hold that the learned first appellate authority is not justified in confirming the addition made u/s 68 of the Act especially when the identity, genuineness and credit worthiness of the investor have been proved by the assessee. It is a settled principle of law that the assessee is not supposed to prove the source of source. Even the Hon'ble Delhi High Court in the case of CIT v. Divine Leasing & Finance Limited (2008) 299 ITR 268 (Del) held that the addition of part of share capital u/s 68 of the Act is not justified. The Hon'ble Apex Court in the case of CIT v. Lovely Exports Pvt. Ltd. (2008) 216 CTR (SC) 195 even went to the extent that if the share application money is received by the assessee company even from the alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee company. At any stage, the learned AO has not brought on record any evidence evidencing that own money of the assessee was routed through banking channel. The Department is merely trying to catch a straw in the whirlwind that too without bringing any contrary material on record. Mere allegation cannot take the shape of evidence howsoever strong it may be as the same has to be proved on the judicial scale. Even otherwise no new facts controverting the earlier order of the Tribunal have been brought to our notice. By following the aforequoted decision of the Hon'ble jurisdictional High Court in Agrawal Warehousing & Leasing Limited, we are bound to pay 83 respect to the decision of the coordinate Bench. We, therefore, following the decision of the Tribunal (supra) that too in the case of this assessee itself, hold that the learned CIT(A) was not justified in confirming the addition made by the AO u/s 68 of the Act. In this view of the matter, we set aside the orders of the lower authorities and delete the addition.
10.3 In the result, the appeal of the assessee is allowed.
11. Now, we shall take the appeal of the department (ITA No.427/Ind/2007) wherein only ground raised is under:
"On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs.18,90,11,200/- made by the Assessing Officer u/s 68 of I.T. Act on account of unexplained cash credit, which was rightly added in accordance with the provisions under the Act."
12. Later on, vide letter F.No.ACIT-2(1)/BPL/2008-2009/1010 dated 16th March, 2009 on record, department has preferred additional grounds of appeal, which are as under:
"On the facts and in the circumstances of the case, the ld. CIT(A) erred in: -
1. deleting the additions without giving an opportunity of hearing to Assessing Officer as per mandate of provisions of section 250(2) of I.T. Act.
2. Passing an order in undue haste and hurry resulting in miscarriage of justice as no proper opportunity was given to Assessing Officer.
3. Granting the relief without passing a detailed and well reasoned order as per statutory mandate as per provisions of section 250(6)."84
13. After considering the rival submissions, it is seen that for assessment year 2003-04, the addition made u/s 68 for the money received as share capital was deleted by the ld. CIT(A) vide order dated 9.11.2006 which was challenged before the Tribunal by the department. The Tribunal vide aforesaid order dated 28.9.2007 affirmed the stand of the ld. CIT(A) and dismissed the appeal of the revenue. The ld. CIT(A) followed the decision of assessment year 2003-04 (supra) and decided in favour of the assessee which is under challenge before this Tribunal. The crux of arguments by ld. CIT DR is that the own money was routed through hawala transaction, therefore, it should be added in the hands of the assessee. On the other hand, the ld.
Counsel for the assessee strongly contended that notice dated 20th August, 2008 [No.T-3/1-IND/2008(AKS)] was issued to the assessee by the Directorate of Enforcement wherein certain queries were raised for which our attention was invited to the aforesaid letter which has been made part of the paper book. As per this letter, the Directorate made certain inquiries under the provisions of FEMA 1999 and the order was issued in terms of sec.
37 of the Foreign Exchange Management Act, 1999 r.w.s. 133(6) of the I.T. Act, 1961. Our attention was also invited to the reply of the assessee dated 3.9.2008 which has been made part of the paper book.
14. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. It is seen that the assessee vide aforesaid reply dated 3.9.2008 wherein reference has been made to earlier letter of the assessee dated 9.3.2004 clarified that the funds 85 were received for investment in shares of the company under the automatic route of RBI for the activities covered under "any other sector" in accordance with FEMA Act vide notification no. FEMA 20/2000-RB dated 3.5.2000, as amended from time to time. The assessee furnished the names and addresses of the shareholders (allottees) of the company which are detailed as under:
Sl. Name of the Address Mode of payment
No. Shareholder/ towards
Allottes Subscription
1 Shri Ram Vilas E-3/27 A, Arera Colony, Bhopal - Through Cheque
Vijaywargiya 462016 (MP) India
2 Shri Suresh E-3/27 A, Arera Colony, Bhopal - Through Cheque
Narayan 462016 (MP) India and allotment of
Vijaywargiya shares other than
Cash
3 Smt. Savitri Devi E-3/27 A, Arera Colony, Bhopal - Through Cheque
Vijaywargia 462016 (MP) India
4 Smt. Urmila E-3/27 A, Arera Colony, Bhopal - Through Cheque
Vijaywargia 462016 (MP) India
5 Ms. Megha E-3/27 A, Arera Colony, Bhopal - Through Cheque
Vijaywargia 462016 (MP) India
6 Ms. Neha E-3/27 A, Arera Colony, Bhopal - Through Cheque
Vijaywargia 462016 (MP) India
7 Shri Ishtiaq Hussain 200/2, Shakti Nagar, Habibganj, Bhopal Through Cheque
Siddiqui - 462024 (MP) India
8 M/s. Alliance Regt. Off.: 117, Main Street, Gibraltgar By Telegraphic
Industries Limited Management Head Transfers through
Off: Block H-3, Saif Zone, P.O. Box Normal Banking 7768, Sharjah, UAE Channel The other details filed by the assessee before the Directorate of Enforcement are as under:
A Since 18th October, 2000 till 16th September, 2003, [the date when the OCB's were de-recognized as the 'Class of Investor' in India], the foreign funds were received under the Automatic Route of RBI for the activities covered under "Any Other Sector"
in accordance with the FEMA Act vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. Hence, no permission was required.86
B After 16th September 2003, the Company applied to the Ministry of Finance, Department of Economic Affairs, F.I.P.B. Unit, New Delhi for which the permission was received in the month of February, 2004. Copy of the FIPB approval letter is enclosed herewith as Annexure-2. The FIPB approval was granted subject to the condition that M/s. Alliance Industries Limited, Gibraltar being an incorporated entity and not on the 'Adverse Notice List' of the RBI. RBI gave its clearance on 06-03-2004. The Copy of the same is placed on record.
C However, during the course of continuance of this permission, the Automatic Route of RBI was again opened for the OCB's subject to the approval of Reserve Bank of India vide Circular No. A.P (DIR Series) Circular No.44 dated December 8, 2003. D AS M/s. Peoples General Hospital Ltd. was an unlisted company, hence, SEBI permission was not required. M/s. Peoples General Hospital Ltd. has been converted into Private Limited Company w.e.f. 22nd July, 2004.
E Complete Note & addresses of the Directors of M/s. Alliance Industries Limited are as follows:
Sl. Name of the Director Address No. 1 Shri Sudhir Chopra Block-H, Room 3, International Freezone, Sharjah UAE 2 Shri Vivek S Gulatee Block-H, Room 3, International Freezone, Sharjah UAE F The certificate issued by one of the Director of M/s. Alliance Industries Limited certifying the name of Directors and shareholders of the Company is placed on record as Annexure-4. GSince, the foreign funds were received for investment in shares of the Company, therefore, no Joint Venture agreement was required to be executed.
15. After aforesaid reply of the assessee, no action was taken against the assessee. At this stage, it was contended by the ld. Counsel for the assessee that the proceedings were dropped, presumably on the ground that no action, till today, was taken against the assessee. The additional grounds raised by the revenue are admitted and are disposed of in the following manner:87
15.1 So far as the contention of the ld. CIT DR that the order of the ld. CIT(A) is not sustainable on facts and in law as the Assessing Officer was not given opportunity of hearing as per the provisions of sec. 250(2) of the Act is concerned, we find that the Assessing Officer was heard by the ld. first appellate authority on 22.4.2007, 19.4.2007 and 25.4.2007 against the assessment order framed u/s 143 on 28.12.2006. The assessee is a limited company incorporated on 25.5.1999 vide registration no. 13543 and since its inception is regularly assessed to tax. The assessee company obtained necessary permission from Reserve Bank of India and other govt. authorities who look after the foreign investment and after receiving the share capital and share premium from the foreign investor company, the necessary intimation was given to the RBI and other authorities. All the money was received through proper banking channels and State Bank of India also issued certificate that the account of the assessee was credited being the amount of foreign currency remittance ordered by Alliance Co. Ltd. A confirmation to this effect, obtained from Alliance Co. Ltd. was also submitted before the authorities. All these documents were also submitted before the ld. CIT(A). A certificate from M/s. Faria & Associates, the Chartered Accountants of lender co., UAE, regarding creditworthiness of the lender company and details of remittances which routed through the account numbers of the lender company, etc. was submitted before the Assessing Officer. It is pertinent to mention here that for assessment year 2001-02, the assessment order was passed u/s 143(3) after making detailed inquiry and investigation 88 accepting the investments made by the foreign investors. Likewise in the assessment year 2003-04, money received from the same investor and the consequent addition made u/s 68 of the Act, the appeal of the assessee was allowed by the ld. CIT(A) by deleting the addition by holding that the money received from foreign investor is genuine and all the three ingredients i.e. identity of the investor, genuineness of the transaction and creditworthiness are proved and the assessment order has merged in the appellate order, therefore, at this stage, the contention of the ld. CIT DR that the Assessing Officer was not heard is unjustified.
15.2 The next additional ground raised is that the order passed by the ld. CIT(A) was passed in undue haste resulting into miscarriage of justice. We do not agree with this assertion of the learned CIT DR the order was passed on 27.4.2007 i.e. within less than 20 days of the issue of first hearing notice. On the application filed by the assessee on 9.4.2007, the notice of hearing was issued on 10.4.2007 and the appeal was fixed for hearing for 19.4.2007 and thereafter it was adjourned to 25.4.2007 and finally the order was passed on 27.4.2007. We are of the view that passing of the order within 20 days cannot be said to have been passed in undue haste. It depends upon the efficiency of the adjudicating authority to pass an order and even if the contention of the learned DR is accepted, then one should appreciate the fact of passing of the order within a short span of time. Early disposal of the appeal by the learned CIT(A) should be appreciated in view of the well 89 established principle 'justice delayed is justice denied'. In this view of the matter, the additional ground is rejected.
15.3 The last additional ground raised by the revenue is that relief has been granted without passing a detailed and well reasoned order. As we have discussed in the earlier para that passing of an order depends on the material and the arguments advanced before a particular authority. Admittedly, the order should be reasoned one but we do not find any infirmity in the same, any aggrieved party is free to file an appeal. We, therefore, do not find any merit in this ground which is dismissed.
16. As far as the merit of the appeal is concerned, we have followed the earlier decision of the Tribunal for the assessment year 2003-04 and allowed the appeal of the assessee for the assessment year 2005-06, therefore, being on the same facts, we find no merits in the appeal of the revenue for assessment year 2004-05. The order of the Tribunal for assessment year 2003-04 is still in existence as no contrary decision from Hon'ble Higher Forum was brought to our notice by either side. Even the operation of the order for assessment year 2003-04 has not been stayed by the Hon'ble High Court/Apex Court, therefore, that order is very much in existence. As far as the contention of the Revenue that the department had made inquiries on the possibility of money laundering by the assessee, no evidence in any manner was produced before us evidencing that the assessee was involved in any alleged money laundering activities. The ld. Counsel for the assessee, during hearing, contended that the assessee under Right to Information Act 90 has filed an application to supply the evidence of money laundering, if any. Identical application was claimed to be filed before the ld. CCIT, Bhopal. However, no proof was filed by the department that the assessee was involved in any money laundering. The ld. Counsel for the assessee contended that the Directorate of Enforcement, Govt. of India, New Delhi rather dropped the proceedings against the assessee as nothing illegal was found against the assessee. The assessee vide its submission invited our attention to the application under RTI to the Tax Department and Tax Research, New Delhi letter dated 14.12.2010 to DGIT, Bhopal, letter dated 20.12.2010 etc. [paper book of the assessee]. What it may be, if any contention or allegation is made against the assessee, it is the duty of the party to substantiate the same who is contending or alleging so because negative onus cannot be casted upon the assessee. While reversing the full Bench decision of the Hon'ble Kerla High Court in ITO vs. K.P. Vergees (1973) 90 ITR 49, the Hon'ble Apex Court (131 ITR 597) (SC) held as under:
"It is well settled rule of law that the onus of establishing that the condition of taxability are fulfilled is always on the Revenue and the burden lies on the Revenue to show that there is understatement of the consideration. Moreover, to throw the burden of showing that there is no understatement of the consideration on the assessee would be to cast an almost an impossible burden upon him to establish negative, namely, that he did not receive any consideration beyond that declared by him."
17. In view of the above, mere allegation that the assessee is engaged in money laundering is not enough rather the Revenue is expected to produce the concrete evidence for the same. The issue of money laundering or any 91 other illegal transaction from a foreign territory was investigated by the Directorate of Enforcement as is evident from the notice dated 20.8.2008 issued under Foreign Exchange Management Act and Prevention of Money Laundering Act and nothing was found against the assessee, therefore, the allegation that the assessee is involved in money laundering is unsubstantiated.
18. As far as the main ground of the revenue challenging the deletion of the addition made u/s 68 of the Act on the alleged cash credit is concerned, it is found that the addition of Rs.18,90,11,200/- was made by the Assessing Officer u/s 68 on the ground that the entire amount was remitted by investor company M/s. Alliance Industries Ltd., a public limited company, the amount was invested as share capital after getting necessary approval from RBI and other agencies. There is an uncontroverted finding in the impugned order that all the relevant documents necessary for issue of share capital, identity of shareholders, genuineness of transaction and capacity of the investor is clearly established from the following points:
i) Confirmation letter issued by the investor company M/s.
Alliance Industries Limited, Sharjah, UAE, an NRI company, through its Director Mr. Sudhir Chopra along with the date wise investment made in US Dollar and in Rupees.
ii) Certificate of incorporation of investor company, M/s.
Alliance Industries Limited which is registered vide registration 92 number 65521 dated 10.7.1998 with Registrar of Companies, Gibraltar.
iii) Certificate issued by M/s. Alliance Industries Limited stating the status of the shareholders and the company.
iv) Copy of brief company profile of M/s. Alliance Industries Limited, UAE.
v) Certificate dated 30.11.1998 issued by the Notary Public, Gibraltar certification of documents of the company, M/s Alliance Industries Limited.
vi) Certificate from Governor and Commander in Chief of Gibraltar certifying that the documents signed by Mr. E.C. Ellur, the Notary Public are correct.
vii) Permission dated 6.2.2004 granted by Govt. of India, Ministry of Finance, Department of Economics Affairs FIPB Unit regarding application for foreign collaboration (STA Regd. No. FCI 503 dated 1.1.2004).
viii) Certificate issued from State Bank of India, Industrial Branch, Bhopal regarding Foreign Inward Remittance.
ix) Copy of certificate from State Bank of India confirming that all the remittances were routed through the account no.
02570196101 of M/s Alliance Industries Limited with Standard Chartered Bank, Dubai.
93x) Copy of Certificate issued by Standard Chartered Bank, Sharjah confirming that the investor company M/s Alliance Industries Limited has current account no. 02570196101 with them.
xi) Copy of certificate from M/s. Faria & Associates, 21, H'nton Avenue, Hounslow, Middlesex TW4 6AP, the Chartered Accountants of the lender company M/s. Alliance Industries Limited, UAE regarding creditworthiness of the lender company.
xii) Copy of FC-GROSS PROFIT RATE submitted to Reserve Bank of India on 28.7.2003.
xiii) Copy of FC-GROSS PROFIT RATE submitted to Reserve Bank of India on 24.9.2003.
xiv) Copy of FC-GROSS PROFIT RATE submitted to Reserve Bank of India on 27.2.2004.
xv) Copy of FC-GROSS PROFIT RATE submitted to Reserve Bank of India on 31.3.2004.
xvi) Copy of respective Schedule of Reserve Bank of India regarding purchase by a person resident outside India of equity shares issued by an Indian Company.
xvii) Copy of share certificates issued by the assessee company in the name of M/s. Alliance Industries Limited.
xviii) Copy of return of allotment of shares in Form No.2 submitted by the assessee company to Registrar of Companies.
9419. If the aforesaid uncontroverted facts are kept in juxtaposition with the arguments advanced by the ld. respective counsel, then it can be said that presumption cannot take the shape of evidence, howsoever strong it may be unless and until corroborated with evidence, therefore, the argument of the ld. CIT DR that the assessee was involved in hawala transaction or own money was routed through the investor company remained unsubstantiated. A bare reading of sec. 68 suggests that there has to be credits of amounts in the books maintained by the assessee, that such credit has to be of a sum during the previous year, and that the assessee offers no explanation about the nature and source of such credit found in the books or the explanation offered by the assessee is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression 'the assessee offers no explanation' means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on the record. Application of mind is the sine qua non for forming the opinion as was held by the Hon'ble Apex Court in CIT vs. P. Mohan Kala (2007) 291 ITR 271 (SC). When an amount is credited in business 95 books, it is not an unreasonable inference to draw that it is a receipt of business, if the explanation given by the assessee as to how the amounts came to receive is rejected by the income-tax authorities as untenable. This view is supported by the decision from the Hon'ble Apex Court in Lakhmichand Baijnath vs. CIT (35 ITR 461) (SC). Admittedly, the law is well-
settled that the onus of proving the source of a sum found to have been received by an assessee is on him. A harmonious construction of sec. 106 of Evidence Act and sec. 68 of the IT Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of its creditor but it is not the business of the assessee to find out the source of money of its creditor since these may not be within the special knowledge of the assessee. In the case of share application money even from, alleged shareholders, whose names are given to the Assessing Officer, the Hon'ble Apex Court in CIT vs. Lovely Export P. Ltd., 216 CTR (SC) 195 even went to the extent that such share money cannot be regarded as undisclosed income u/s 68 of the assessee company. Identical ratio was laid down in Shri Barkha Synthetics vs. ACIT (155 Taxman 289) (Raj), CIT vs. Steller Investment Ltd.
(115 Taxman 99) (SC) and CIT vs. Value Capital Services P. Ltd. (307 ITR 334) (Del).
20. It is not the case that the M/s. Alliance Industries Limited is a bogus company rather was duly incorporated as is evident from pages 1 to 7 of the paper book filed on 4.11.2008. For transaction of money, the State Bank of 96 India has duly issued certificate of foreign inward remittance (reference no.1920333563 dated 2.4.2003, 1920333563 dated 2.4.2003, 1920333564 dated 4.4.2003 and other like certificates available on pages from 13 to 43 of the paper book) and further certificate issued by State Bank of India (page 44) which is reproduced hereunder:
"TO WHOM SO EVER IT MAY CONCERN This is to certify that Standard Chartered Bank, Dubai has confirmed that all the remittances sent in favour of M/s. People General Hospital Pvt. Ltd. by M/s. Alliance Industries Limited for the period 1.4.2003 to 31.3.2004 are routed through the account number 02570196101 of M/s. Alliance Industries Limited.
Yours faithfully, Sd/-
Assistant General Manager "
The Standard Chartered Bank (page 46 of the paper book) also issued a certificate to M/s. Alliance Industries Limited which is reproduced hereunder:
"To, Alliance Industries Ltd.
P.O. Box: 7768 Sharjah UAE Dear Sir, Current A/c No: 02-5701961-01 in the name of Alliance Industries Ltd.
This is to certify that Alliance Industries Ltd. maintains the above mentioned account with our branch since 14/01/1999 and the account is conducted to our satisfaction as of date.97
This certificate is issued at your request and without any risk or responsibility on the part of the bank or any of its singing officials.
Assuring you of our best services at all times. Yours faithfully, Sd/-
For Standard Chartered Bank "
20.1 The correctness and the authenticity of the aforesaid documents has not been challenged by the revenue, therefore, at-least these letters clearly prove the existence of M/s. Alliance Industries Limited, Sharjah, UAE and also that the money was remitted through banking channel which is further fortified by the certificate of foreign inward remittance (as discussed supra). M/s. Alliance Industries Limited is also having shares in the assessee hospital as is evident from pages 61 to 64 of the paper book. The assessee is also registered under the Companies Act, 1956 (pages 65 to 71 of the paper book). The assessee, a limited company, incorporated on 25.5.99, vide registration no.13543, since its inception, is regularly assessed to tax. The said foreign investor also invested in earlier years, the details of the same is as under:
A.Y. Share Share Capital Share Premium Total Assessment Position Application Investment 2001-02 9318602 6192120 30960600 46471322 U/s 143(3) 2002-03 ... 9478180 85303715 94781895 U/s 143(1) 2003-04 ... 21275050 191475353 212750403 U/s 143(3) addition for Rs.21,27,50,403/- was made and the appeal was allowed in full by the CIT(A)-I, Bhopal 98 20.2 If the aforesaid table is analysed, it is an admitted fact that for assessment year 2001-02, the assessment was framed u/s 143(3) of the Act after making detailed inquiry and investigation wherein the investment of the foreign investor i.e. M/s. Alliance Industries Limited was accepted and for assessment year 2003-04, the addition of Rs.21,27,50,403/- made u/s 68 of the Act for the money received as share capital from the same investor was deleted by the ld. CIT(A) vide order dated 9.11.2006 and the Tribunal confirmed the deletion of addition made u/s 68 of I.T. Act after deliberations propositions laid down in the judicial pronouncements, and applying the same to the facts and circumstances prevailing in the instant case. Thus the cases relied upon by both sides have been duly considered by the ld. CIT(A) and also by the Tribunal in the respective orders (supra), therefore, which have been reproduced hereinabove. At the same time, these cases have been elaborately discussed at pages 104 to 112 of the paper book [submissions before the ld. CIT(A) - A.Y. 2004-05, order dated 27.4.2007] and majority of them have been further considered by the Tribunal in its order (ITA No.57/Ind/2007 for assessment year 2003-04, order dated 28.9.2007). During hearing, the ld. CIT, DR filed the copy of the statement recorded u/s 132(4) of the I.T. Act (pages 66 to 117 of the paper book of the department) from Shri Sudhir Chopra on 27.7.2009, from which, ld. CIT DR contended that Mr. Chopra was not so financially sound before departure to a foreign country and his statement is very much necessary for consideration in reaching to a particular conclusion. However, the ld.99
Counsel for the assessee strongly contended that firstly this statement was recorded on 27.7.2009, much after passing the impugned order dated 27.4.2007 and also nothing adverse has been recorded.
21. We have perused the statement tendered by Shri Sudhir Chopra (produced by the Revenue in its paper book). It is seen that this statement was started at 1:00 PM on 27.7.2009 and continued to be recorded till 12:05 (AM) on 28.7.2009 (page 73). Again the recording was started and after a break of 10 to 15 minutes, it continued upto 5:00 AM (page 84). Again the statement continued till 10 AM (page 102). The statement was concluded at page 117 on 28.7.2009 but no time of conclusion has been mentioned (at page 117).
22. We have analysed the statement and found that Mr. Chopra is qualified Chartered Accountant. In reply to question no.1, Shri Sudhir Chopra has tendered that he is resident of Sharjah, UAE along with address of Delhi. He has also told that residential telephone numbers of Sharjah, Delhi, Bombay, mobile numbers of India and abroad. In reply to question number 11, it was tendered that he was in Delhi till 1995. Shri Chopra wound up his CA practice in New Delhi and he joined some company in Sharjah (page 76) as the CA practice was not remunerative. Mr. Chopra was also dealing in trading of precious metals (page 81). In reply to question no.59 (page 83), regarding registration of company in Gibraltar, he replied that the company can be got registered with the help of lawyers/attorneys and he specifically mentioned Issac & Victoria (Lawyer firm). In reply to 100 trading in precious metal (question no.42 - page 84), he replied that they were trading in platinum, rhodium, gold, silver and copper etc. and explained the colours of these metals (page 85). In a specific reply to question no.47 (page 86), regarding investment made by him in the assessee hospital, it was replied that the investment was made in share capital. In reply to question nos.48 & 49 (page 86) regarding supply of details and sequence of events, Mr. Chopra specifically tendered that the details will be supplied to the department. In reply to question no.50 (page 87) for preparation of accounts, it was replied that the account for 30.6.2009 is in the process of completion and for 30.6.2008, it was prepared and filed with the Registrar of Companies, Gibraltar. Regarding source of income of Mr. Chopra question no.51 (page 87), he specifically tendered that he was having salary income, profit from the companies, interest income and the remuneration was told to be about Rs.50 lac (1 lac US Dollars) along with House & Car. In reply to question no.52, regarding distribution of profit by M/s. Alliance Industries Limited (page 88), it was replied that the profit was ploughed back into the company. In reply to question no.53, the salary of Shri Suresh Gulati, other director of the company, was also told over USD 1,00,000. In a specific reply to question no.57 (page 89 of the paper book of the department), it was tendered that USD 5,00,000 (about Rs.2,50,00,000/-
) was made in share capital of the assessee company and regarding source about 60% of this amount was from savings and income received. In reply to question no.58 (page 90) regarding board meeting of M/s. Alliance Industries 101 Limited, it was told that the meetings are holding at Sharjah once a month.
The names of six employees were also told along with address of office in Sharjah. The names of various trading firms were also explained vide answer to question no.61 (page 91). Regarding filing of income-tax returns at Sharjah, it was replied vide answer to question no.67 (page 93). In a specific reply to question no.70 regarding details of investment in the assessee company (page 95 of paper book), it was explained that USD 31.5 Million in assessee hospital and 33.5 Million in People's International & Services P. Ltd.
(Total USD 65 Million). In reply to question no.72 & 73 (page 96), it was tendered that the money was invested as the promoters of the assessee group were known to them and gradually the investment increased over the year. Regarding total shares in the assessee company (question no.77), it was explained to be between 47 to 49% i.e. less than 50% of the total share capital of both the companies. Regarding control over of the management vide reply to question no.78 (page 97), it was explained that they have faith in the management of the assessee group. The activities of the assessee group were replied vide answer to question no.79 (page 98). Regarding visit, it was explained that Shri Vivek Gulati visited 2/3 times in the past and the tender of the statement once. In reply to question no.84 (page 100), it was specifically denied that any loan was given to people group and their promoters. The copy of the bank account of M/s. Alliance Industries Limited was shown to the Mr. Chopra who explained that no shares were held by 102 Kavita Oberai and the same were transferred to Shri Vivek Gulati. In reply to question no.104 (page 109), the various amounts were explained as the turnover was claimed to include all the sales of the metals made to various parties like Standard Bank, Vale Inco Europe etc. The booking of certain administrative expenses and other payments made to staff, it was explained as payments to staff as salary (question no.105 - page 110). Regarding the amounts mentioned through question no.106, it was replied that USD 1,500,000 was recovered from AZI Ltd. and the lease income paid by FZC to AZI Ltd. (page 111). In a specific reply to the creditworthiness, it was explained that their investment is secure and profitable and it was asserted that they were having enough money for the investment made in the assessee company (page 115). It is worth mentioning here that the pages mentioned by us are the pages which were specifically brought to our notice by the respective learned counsel during hearing. If the totality of the facts are analysed, nothing contrary has been found suggesting any mala fide on behalf of the tender of the statement. As far as the contention of the ld. CIT DR that before departure, Shri Sudhir Chopra was not financially sound is not a condition rather majority of the persons are going abroad to earn money as comparatively more chances of earning money may be available there.
From the statement, another fact is oozing out that Shri Chopra earned substantial amounts from the trading company dealing in various metals and other kinds of trading etc. What it may be, there is no proof/evidence 103 brought on record by the Revenue either Mr. Chopra was not a man of means or own money of the assessee was routed through M/s. Alliance Industries Limited, therefore, we don't find any merit in the appeal of the revenue because after sustained interrogation, even the director of M/s. Alliance Industries Limited, the investor company, there is nothing to suggest that own money of the assessee company was circulated through the investor company. Even otherwise, no proof was brought to our notice by the revenue to substantiate their claim. As far as the contention of the ld. CIT DR that the appeal may be remanded back to the file of the ld. Assessing Officer, we are not agreeing with this suggestion because neither any new material worth sending for fresh look was brought to our notice nor any fresh evidence was filed before us. As far as the statement of Shri Chopra is concerned, it was recorded by the Officer of the Department itself and it is not the case that any additional evidence was filed by the assessee which is to be scrutinized by the Assessing Officer otherwise there will be no end in reaching to the finality especially when earlier on identical facts, the assessment was framed u/s 143(3) of the Act by the ld. Assessing Officer and two appellate authorities also examined the same and reached to a particular conclusion. Even otherwise, from sustained interrogation/recording of statement by the department (while recording of statement of Shri Sudhir Chopra), nothing contrary was tendered evidencing that either the own money of the assessee was routed through M/s. Alliance 104 Industries Limited or the investor company was having no means at all. So from any angle (as discussed above), there is no merit in the appeal of the revenue.
23. Finally, the appeal of the assessee is allowed and the appeal of the department is dismissed.
Order pronounced in open Court on 31st January, 2011.
Sd/- sd/-
(R.C. SHARMA) (JOGINDER SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 31st January, 2011
Copy to:
Appellant/Respondent/CIT/CIT(A)/DR
D/-