Income Tax Appellate Tribunal - Ahmedabad
Ankush Finstock Ltd., vs Department Of Income Tax on 28 March, 2012
FIT FOR PUBLICATION
Sd/- Sd/-
(AM) (JM)
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ 'सी
सी'
सी अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" C " BENCH, AHMEDABAD
सव[ौी मुकुल कुमार ौावत, Ûयाियक सदःय एवं ौी टȣ.आर.मीणा, लेखा सदःय के सम¢ ।
BEFORE SHRI MUKUL Kr.SHRAWAT, JUDICIAL MEMBER AND
SHRI T.R. MEENA, ACCOUNTANT MEMBER
1.ITA No.1989/AHD/2003 - A.Y. 1996-97
2.ITA No.2688/AHD/2005 - A.Y. 1996-97
1. The ITO Vs. 1.Ankush Finstock Limited
Ahmedabad B-12, Sulabh Flats
Wd-1(2), Naranpura
Ahmedabad Mirambica School
Ahmedabad
2. The Dy.CIT(OSD) 2.M/s.Ankush Finstock Ltd.
Range-1 6/A/12, Municipal Staff
Ahmedabad Quarters
B/h. Lal Bungalow
Ahmedabad
PAN/GIR No. : AACFA 7182 R
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri S.K. Gupta, CIT-D.R.
Respondent by: Shri Tushar Hemani
सुनवाई कȧ तारȣख/
/ Date of Hearing : 28/3/2012
घोषणा कȧ तारȣख /Date of Pronouncement : 30/03/12
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
These two appeals have been filed by the Revenue arising from the orders of ld.CIT(A)-V, Ahmedabad respectively dated 27/10/2005 and 03/02/2003 for A.Y. 1996-97. One appeal is in respect of quantum addition and the other one is in respect of ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -2- concealment penalty. We shall first take up the appeal related to the quantum addition.
2. From the side of the Revenue, an additional ground has been raised, verbatim reproduced below:
"(i) The Ld. CIT(A) erred in law and on facts in entertaining the appeal of the assessee as there was delay in filing the appeal of about 6 years. The assessee's plea is incorrect since the assessee company had cash and bank balance of Rs.1,05,09,173/- as on 31.03.1996."
2.1. In respect of the admission of the additional ground, parties have been heard.
3. From the side of the Revenue, ld.DR Mr.S.K.Gupta has informed that the impugned appeal has been filed by the assessee belatedly before the first appellate authority. Ld.DR has informed that an assessment order was passed on 15/04/1999. This appeal was filed on 23/06/2005. The delay was about six years. A condonation for the said delay was moved before the ld.CIT(A). The delay was condoned and the appeal was admitted for hearing by the first appellate authority. Since the admission of the appeal which was filed beyond the prescribed limit was the very root of the matter, therefore, this additional ground should be admitted and considered. Relied the case law on National Thermal Power Co.vs. CIT (229 ITR 383).
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -3- 3.1. On the other hand, from the side of the respondent-assessee ld.AR Mr.Tushar Hemani appeared and objected the admission of this additional ground of the Revenue. He has informed that the Revenue has filed the appeal in the year-2005 and thereafter on number of occasions in last few years this appeal was posted for hearing. In the past, Revenue has never thought it proper to file an additional ground and now almost after the lapse of four years filing this additional ground. According to him, Revenue has not placed on record any cogent reason for delay in filing this additional ground. He has also argued that the issue of condonation of delay could not be said to be the root of the matter because it has no connection with the quantum addition involved in their appeal.
4. On hearing the submissions, prima-facie we are of the view that no prejudice should be caused to the respondent-assessee if we admit this additional ground and thereupon decide as per law. As per our understanding of law, which we have formed on the basis of several precedents cited on this subject, the Tribunal is under a statutory obligation to entertain an additional ground no matter at what stage it was moved provided that on the question of admission both the parties are duly heard and also provided that the issue raised as per the additional ground goes to the root of the cause.
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -4- Rather, in one of the precedent, it was commented that refusal to entertain a legal ground could be regarded as an improper exercise of discretion. However, before the admission of an additional ground, it is necessary to satisfy that the connected facts in respect of the issue raised in the additional ground have borne out of the record of the case. In this regard, we may like to refer Rule 11 of Income Tax Appellate Tribunal Rules, 1963 which says that the Tribunal shall not rest its decision on any other ground unless the party who may be effected thereby has had a sufficient opportunity of being heard on that ground. This Rule further says that in deciding an appeal the Tribunal shall not be confined to the grounds set forth in the Memorandum of Appeal. Further, it is also expected to examine before admission that the issue raised in an additional ground was in fact the subject matter of first appeal. On hearing both the sides, we have noticed that sufficient material has been placed from the side of the Revenue in support of the admission of additional ground. By placing reliance on National Thermal Power Co.(supra), we, therefore, admit the same and hereinbelow decide as per law.
5. At the outset, we deem it proper to decide the issue of condonation of delay as granted by ld.CIT(A). Facts as narrated by the ld.DR Mr.S.K.Gupta were that the assessment u/s.143(3) of the IT Act was made on 16/03/1999. A return of income was filed on 30/11/1996 disclosing an income of Rs.31,39,650/-, as against that ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -5- assessment was framed on the income of Rs.2,72,07,340/-. Ld.DR has informed that the admitted factual position was that the assessee has not deposited the self-assessment tax. Due to the said default, though an appeal was filed by the assessee against that assessment order, but that appeal of the assessee was dismissed by ld.CIT(A)-V, Ahmedabad vide an order dated 21.12.99. That appeal was treated as non est and noted as to be "filed" by the CIT(A). A copy of the order has been placed before us. The assessee thereafter has filed an appeal before the Tribunal and that appeal was withdrawn by the assessee vide ITAT Ahmedabad Bench "A" in ITA No.631/Ahd/2000 for A.Y. 1996-97 titled as Ankush Finstock Ltd. vs. Jt.CIT, order dated 11/11/2005. The main contention is that when an appeal was pending before the Respected ITAT meanwhile how an another appeal was filed before ld.CIT(A). ld.DR has informed that the impugned order of ld.CIT(A), now under appeal is dated 27/10/2005, however, the order of the Tribunal is dated 11/11/2005. Meaning thereby that the assessee has infringed the law by simultaneously filing two appeals for the same assessment year. His next plank of argument was that there was no sufficient cause for filing a belated appeal. The assessee was defaulter of non-payment of self-assessment tax as prescribed u/s.140A of the I.T.Act. ld.DR has pleaded that the assessee had sufficient funds as on 31/03/1996 which were to the extent of 1.05 crores therefore it was difficult to accept that due to paucity of funds the taxes could ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -6- not be paid. He has vehemently contested that the CIT(A) has unduly accepted this plea of insufficiency of funds and thereupon condone the delay.
5.1. From the side of the respondent-assessee, Mr.Tushar Hemani argued that there was no two appeals were pending at the same time. According to him, rather it was a technical mistake which was committed due to wrong advice. As soon as the correct position of law was found; the mistake committed earlier was rectified by withdrawing the appeal from the Tribunal. In this connection, Mr.Tushar Hemani has placed reliance on a judgement of ITAT Mumbai pronounced in the case of ITO vs. Sai Krupa Construction Co. reported as [2007]13 SOT 459 (Mum.) wherein as per Head Note it was held as under, only relevant portion reproduced below:-
"1. Section 249 of the Income-tax Act, 1961 - Commissioner (Appeals) - Form of appeal and limitation - Assessment years 1996-97 to 1999-2000 - Whether if an appeal is filed beyond time-limit but after payment of taxes as stipulated in section 249(4), it cannot be said that requirements of section 249(4) are not complied with - Held, yes - Commissioner (Appeals) dismissed appeals filed by assessee on ground that assessee had not paid taxes due on returned income and, therefore, appeals were not maintainable by virtue of section 249(4)(a) - Subsequently, assessee, after payment of taxes due, filed fresh appeals and also sought condonation of delay in filing appeals within time - Commissioner (Appeals) condoned delay and admitted appeal, as according to him there was sufficient cause for delay in filing appeals - Where order of ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -7- Commissioner (Appeals) did not suffer from any legal infirmity.
5.2. In respect of the insufficiency of funds, ld.AR has explained that the position of funds were duly considered by the ld.CIT(A) and thereafter a conscious decision was taken to condone the delay when the taxes were paid. Ld.AR has drawn our attention on certain facts that a return u/s.139 of the Act was filed on 30/11/1996 and an income of Rs.31,39,650/- was declared. The tax liability on the said declared income was at Rs.14,44,239/-. Against the said tax liability a TDS of Rs.3,47,830/- was deducted. The assessee could not pay the balance amount of tax at that time owing to severe financial crunch due to collapse of stock market. The assessment was completed u/s.143(3) of the Act on 16/03/1999 and thereupon the assessee has filed an appeal before CIT(A) on 15/04/1999. Ld.AR has agreed that indeed there was a default of non-payment of self-assessment tax u/s.140A of the Act, but later on after realizing the error the same was rectified by making a payment of huge amount. There was a severe financial problem and the break-up of the financial position was duly explained to ld.CIT(A) and for ready reference, he has drawn our attention on the following chart:-
Financial Available Other Total current Profits/ position as cash and receivables assets (Losses) on bank balances (1) (2) (3) (2)+(3) =(4) (5) 31.03.1999 25452 767276 792728 (495784) 31.03.2000 35302 1424730 1460032 45862 ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -8- 31.03.2001 44304 717222 761526 (351301) 31.03.2002 98775 971490 1070265 (172091) 31.03.2003 30227 237878 265709 (273384) 31.03.2004 21931 439835 461766 (501302) 31.03.2005 609203 14248612 14857815 19098866
6. Having heard the submissions of both the sides, we are of the considered view that a litigant must not be thrown out of the litigation at the very threshold without providing an opportunity of hearing. Particularly in this case, we have noticed that the assessee was vigilant about his right of appeal and, therefore, knocking one door or the other and seeking for justice. It is not the case that no appeal at all was filed earlier. The first appeal was filed very much in time but it was treated as non-est due to non-payment of tax. A second appeal was filed after making the payment of taxes, stated to be a sum of Rs.3,47,830/- as T.D.S. and Rs.10,96,409/- as self assessment tax thus totalling to Rs.14,44,239/- i.e.admitted tax liability. Meanwhile, against the first appeal, the assessee had gone before Tribunal, however, that appeal was withdrawn in the month of November-2005 because by that time the assessee obtained the impugned order of CIT(A) Ahmedabad which was dated 27/10/2005, the impugned appellate order now under appeal before us. On account of these facts, it is not logical to conclude that the assessee was negligent or irresponsible, therefore, did not entitled for any discretion or sympathy. On the contrary, in such ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97 -9- circumstances, the Hon'ble superior courts have taken a view favouring such a defaulter.
7. Following a Landmark decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. MST Katiji and others 167 ITR-471 (SC) wherein certain guidelines have been laid down such as that refusing to condone the delay can result in a meritorious case being thrown out at the very threshhold and therefore, the cause of justice could be defeated. The Hon"ble Court has also said that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Also placing reliance on Audo Centre vs. State of U.P. and Others 278 ITR 291 (All) and Voltas Limited 241 ITR 471 (AP). We hereby affirm the finding of Ld. CIT(Appeals) that the appellant legally deserves condonation of delay.
8. Further, in the case of Rajendrakumar Maneklal Sheth reported at 213 ITR 715 (Guj.), it was held that if the first appellate authority had held that the liquidity crunch was a reasonable cause, then ordinarily such discretionary power should not be disturbed. We may also like to add that section 249(3) of the Act prescribes that CIT(A) may admit an appeal after the expiration of the said period if he satisfied that the appellant had sufficient cause for not presenting the appeal within the prescribed period. There is an ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 10 -
another sub-section in that Chapter prescribing the conditions for the admission of an appeal. As per section 249(4) of the Act no appeal before CIT(A) should be admitted unless at the time of filing of the appeal, where a return has been filed by the assessee, tax due on the income returned has been paid. In this sub-section, there is a clause (b) which is in respect of a condition where no return at all has been filed by the assessee. A Proviso underneath the section also prescribes that the cases falling under the said clause(b), ld.CIT(A) can grant exemption from the operation of the said clause. An inference can be drawn on combined reading of both the sub- clauses of sub-section(4) of section 249 that in case of default of non-payment of tax an appeal is not to be admitted, but on removal of the defect of non-payment of tax an appeal deserves to be admitted and in one of the condition the assessee can be granted exemption by ld.CIT(A). An another aspect has also been discussed before us that on one hand sub-section(3) of section 249 pertains to those appellants who have filed the return and paid the tax but belatedly filed an appeal. On the other hand, sub-section(4) of section 249 pertains to those appellants who have defaulted in payment of tax or did not file the return. Since the present appellant is in the category of sub-section (4), therefore, we are of the considered view that ld.CIT(A) was judicially correct in condoning the delay. This objection of the Revenue is therefore dismissed.
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 11 -
8.1. Even the other plank of argument of Ld.DR Mr.Gupta is duly dealt with by ITAT Mumbai in the case of ITO vs. Saikrupa Construction Co. 13 SOT 459 (Mum.), wherein an appeal was dismissed on the ground of non-payment of tax due but subsequently a fresh appeal was filed belatedly after making the payment of taxes and that appeal was admitted after condoning the delay. The Respected Co-ordinate Bench has held that the only requirement of section 249(4) is payment of tax due on returned income. There is no time limit is prescribed for payment of such taxes. If an appeal has been filed after making of payment, it cannot be said that the requirement of section 249(4) has not been complied with. Following this decision, we hereby uphold the view of Ld.CIT(A) and reject this ground of the Revenue.
9. Main ground is in respect of the quantum addition of the Revenue which reads as under:-
The Learned CIT(Appeals) has erred in law and on facts of the case in directing to delete the unexplained share capital under promoter's quota u/s.68 of Rs.2,19,64,000/-.
10. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the IT Act dated 16/03/1999 were that the assessee-company was an investment and finance company. It was noted by the AO that a public issue was brought out during the year.
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 12 -
It has also been noted that prior to the public issue, there was allotment of shares under "promoter's quota". Shares under "promoter's quota" were 3918400 in number for a value of Rs.3,91,84,000/-. The AO has enquired about the persons who have invested in promoter's quota. Out of the total amount of investment under the promoter's quota, it was found by the AO that a sum of Rs.1,68,25,000/- was acceptable and in this regard the AO has commented as follows:-
"2.3. In spite of repeated apportunities given to produce the above, the assessee company was able to furnish confirmation letter for share application money alongwith PAN/Assessing Officer in respect of the following parties only:
Name Amount
Samir P.Shah Rs. 18,20,000
50,000
Bharat M.Shah Rs.1, 46,05,000
... Bharat Shah Rs. 3,50,000
-------------------
Rs.1,68,25,000"
============
10.1. For rest of the amount, show-cause was issued as to why the same be not treated as unexplained cash credit in terms of section 68 of I.T. Act. The AO has quoted Sophia Finance Ltd. 205 ITR 98(Del). In view of AO, the confirmation letters and the application forms furnished by the assessee in respect of those investors was not complete. According to him, addresses were not properly filled and in some of the cases signatures were not proper.ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005
ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 13 -
He has also commented that though it was claimed that all the amount was received in cheque but the details of the bank accounts were not furnished. Finally, a sum of Rs.2,19,64,000/- was held as unexplained credit in the form of share application money and taxed by invoking the provisions of section 68 of I.T. Act. The said addition was challenged before ld.CIT(A).
11. After detailed discussion, ld.CIT(A) has decided the issue in assessee's favour vide following paragraph:-
"4.2. I have carefully considered the findings given in the assessment order, documentary evidences produced in the course of assessment as well as in the course of penalty proceedings and also before the CIT(A) in an appeal against the order passed u/s.271(1)(c). I have also considered the findings of my predecessor given in the appellate order passed in the case of the appellant while dealing with the issue of levy of penalty u/s.271(1)(c) in Appeal No.CIT (A)-V/JC (A) SR-1/83/2000-01 dtd. 03/02/2003. I find that in the course of assessment, appellant had furnished all the relevant information to the Assessing Officer such as copies of the share applications, bank statements, Form No.2 being return of allotment filed with the Registrar of Companies indicating number of shares allotted, names and address of the respective share holders and confirmatory letters, etc. I also find that the auditors of the company have also certified the correctness of the share capital not only in the normal audits conducted under the Companies Act and the Income-tax Act but had also certified for the purpose of issue of prospectus for the purpose of public issue for which they could be booked both under the civil law as well as under the criminal law if any disclosure made therein is found incorrect. I also find that the correctness of the issue of share capital was further vetted by the Registrar of Companies, Merchant Bankers appointed for the public issue, SEBI as well as ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 14 -
the Stock Exchanges before permitting the appellant to proceed with the public issue and none of the authorities have doubted genuineness of the share capital or the existence of the share holders either before the public issue or thereafter. No complaint has been made against the company for falsification in the issue of the share capital till date. I also find that in absence of any corroborative evidence of non existence of the shareholders in the hands of the Assessing Officer ratio of the Hon'ble High Court in the case of Sohphia Finance Ltd. cannot be applied against the appellant. I also find that decisions relied upon by the applicant in the course of appellate proceedings are squarely applicable to the facts of the case as Assessing Officer has not exercised his powers u/s.131 or u/s.133(6) inspite of availability of the relevant information such names and addresses of the shareholders in the Form No.2 and also the bank statement of the appellant indicating credit of cheques through clearing. I also find that my predecessor while dealing with the appeal for levy of penalty u/s.271(1)(c) had observed in para 3.3 as below:
"I have gone through the penalty order passed by the Assessing Officer and after giving a careful consideration to the facts of the case and submissions putforth, before me alongwith decisions of different courts cited on the point by the Authorised Representative. I find that during the course of assessment proceeding copies of share application of all the applicants and copies of Form No.2 (Returns of allotment) were filed before the Assessing Officer by the appellant. It is also seen that share application money in all the cases was paid by the account payee cheuqes and bank statement of the appellant company was also filed. In such circumstances and an availability of such material, Assessing Officer could have resorted to some material investigation and on that basis he could come to some clear conclusion but this course has not been adopted by the Assessing Officer. The Assessing Officer made only a general remark that all the application forms filed by the appellant before him did not contain complete details and based on that he made the addition on adhoc basis u/s.68 of Income-tax Act without referring to specific cases of the shareholders, treating the amount representing the share application money as undisclosed......."ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005
ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 15 -
In view of the above stated facts, I have no hesitation in deleting the addition made on account of unexplained share capital u/s.68. The appellant therefore gets relief of Rs.2,19,64,000/-."
12. Now the Revenue is in appeal.
13. Ld.DR. Mr. S.K. Gupta has contested that as per the provisions of section 68 of the Act, it was necessary for the assessee to place on record the complete address and names of the investors, relevant information about their identity, genuineness of the transaction and the creditworthiness of the investors. He has argued that though the AO had made attempts by granting sufficient opportunity to the assessee but due to incomplete information the impugned addition was made. He has also argued that the assessee should have been in possession of the relevant information because the shares were allotted out of the promoter's quota. Under this quota, generally the known persons, friends or relatives were granted shares. It was not difficult for the assessee to furnish the requisite information to the AO. Ld.DR has also drawn our attention on some of the confirmations which were placed in the compilation to demonstrate that some of them have invested substantial amount but did not having the PAN of the Revenue Department. In some of the cases, though the investment has exceeded Rs.1 lac but it was stated in the confirmation letter that they have applied for PAN. Apart from the case laws cited by ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 16 -
A.O., he has placed reliance on Amtrac Automotive India (P) Ltd. vs. ACIT 02 ITR 649 (Trib.)[Del.], wherein Lovely Exports 299 ITR 260 (Del.) has been referred and then it was held that where assessee except producing papers could not prove existence or availability of respective share applicants, then addition of share application money was justified.
14. From the side of the respondent, ld.AR Mr.Tushar Hemani appeare1d and informed that the full details of addresses, cheque numbers, amount invested their respective bank details were very much before the A.O. He has also pleaded that those very details were also furnished to an another Authority, i.e. R.O.C. alongwith the details of number of equity shares allotted. Now through a consolidated chart, ld.AR has demonstrated the names, addresses, number of shares allotted, amount received, details of cheque number, etc. have been furnished. He has also informed that subsequent to the allotment of the said shares the assessee had come out with a public issue and then also made the complete disclosure. At that time also, the Auditors' report and prospectus was duly veted by the Registrar of Companies. Certain other authorities, such as, Merchant Banks, SEBI, Stock Exchange authorities where the shares were listed, etc. have not raised any ojection. In support, case laws cited are Lovely Exports Pvt.Ltd. 216 ITR 195 (SC) and Modern Cements Ltd. (ITA No.2506/Ahd/2006 dated 30/06/2011).
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 17 -
15. Heard both sides at length. In the compilation, Form No.2, i.e. share application filed before Registrar of Companies, has been placed on record. The compilation is also consisted relevant bank statements through which the amount was collected and deposited. The assessee has also furnished addresses of all the investors. In the light of those evidences, we have to discuss few case laws pronounced on this issue. The decisions are: (i) CIT vs. Lovely Exports Pvt.Ltd. reported at 6 DTR 308 (SC):: 216 CTR (SC)195,
(ii) CIT vs. Stellar Investment Ltd. reported at 251 ITR 263(SC),
(iii) CIT vs. Steller Investment 192 ITR 287(Del.), (iv) CIT vs. Sophia Finance Ltd. 205 ITR 98 [Delhi](F.B.), CIT vs. Oasis Hospitalities P.Ltd. reported at [2001] 333 ITR 19 (Del). In the case of Steller Investment 192 ITR 287 (Delhi), it was held that, quote "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." unquote. The issue was limited before the Hon'ble Court because the Income Tax Officer has accepted the increase in the subscribed capital, which was subject to review by the ld.Commissioner u/s.263 who has held that the AO did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white while issuing shares with the help of formation of an investment company. The commissioner further held that the AO did not make enquiries with regard to the genuineness of the ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 18 -
subscribers of the share capital. Even in that case, the Hon'ble Court has made an observation, quote "If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself."unquote. The difficulty in the aforecited precedent was that though the share applications were on record but some of the investors were not available at the addresses given, hence, in respect of few investors it was not possible for the Revenue to assess their investment in their respective hands. On the other hand, in the case before us, there was no such difficulty because all the requisite information about the share allottees was very much available to the A.O., hence if he has chosen not to investigate those persons, then merely on presumption, the assessee could not be treated in default.
16. Next, Full Bench of Delhi High Court was constituted and vide an order dated 27/08/1993 in the case of CIT vs. Sophia Finance Ltd. 205 ITR 98(Del.)[FB], the aforecited decision of CIT vs. Stellar Investment Ltd.(supra) was reversed. There was a petition before the Hon'ble Delhi High Court u/s.256(2) which has been referred to the Full Bench because the correctness of the observations in the judgment of a Division Bench in the case of CIT vs. Stellar Investment Ltd. 192 ITR 287 was doubted. The crux of this decision of the Full Bench was that 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 observation in Stellar ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 19 -
Investment Ltd.(supra) was held as correct. The Hon'ble Full Bench has further said that if the subscribers to the capital were not genuine, then under no circumstances the amount of share capital be regarded as disclosed income of the company. It was a case of a limited company in the business of stocks and financing. By invoking the provisions of section 263 the Commissioner has arrived at the conclusion that there was lack of enquiry by the ITO. It was held that it was the duty of the ITO to enquire into the genuineness of the shareholders and directed to enquire whether the so-called shareholders were actually in existence or not. The Tribunal has found that the company had filed a large number of enclosures alongwith its return including the list of shareholders, forms containing the full addresses as well as the allotment letters before the ITO. The Tribunal came to the conclusion that the company was incorporated and the money was received immediately on incorporation would show that even u/s.68 no assessment could be made in the hands of the company. Relevant observation is worth reproduction:
"It is neither necessary nor desirable to give examples to indicate under what circumstance section 68 of the Act can or cannot be invoked. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the Income- tax Officer. In the case of Stellar Investment Ltd.[1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
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Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If 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 capital receipt and to that extent the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of section 68 may be invoked. In the latter case section 68, being a substantive section, empowers the Income-tax Officer to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee."
The Hon'ble Full Bench has also made clear that it was not their intention to decide as to what extent the onus is when an amount is credited in the books of account in share capital and when does that onus stand discharged because that will depend on the facts of each case. Thus Full Bench decision has made clear that if the assessee offers no explanation or the explanation offered is not satisfactory, then section 68 has to be invoked, being a substantive section and empowers the ITO to treat such amount as the income of the assessee, liable to be taxed in the previous year in which the entry is made in the book of account. Since in the said cited appeal, facts have revealed that no explanation was offered and the notices could not be served then the provisions of section 68 were invoked to assess the impugned amount in the hands of the assessee.
16.1 Thereafter, the aforesaid decision of Stellar Investment Ltd. has reached before the Hon'ble Supreme Court and vide an order dated 20/07/2000 titled as CIT vs. Stellar Investment Ltd. 251 ITR 263(SC) the ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
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question as referred by the Revenue was not admitted and held that the Tribunal came to the conclusion on facts hence no interference was called for.
16.2. From the side of the assessee, a decision of Hon'ble Supreme Court in the case of Lovely Exports Pvt.Ltd. 216 CTR 195 dated 11/01/2008 is cited. In this case the SLP of the Revenue Department was dismissed, but an important observation was made that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Relevant portion reproduced below:-
"ORDER - BY THE COURT:-
Delay condoned.
2. Can the amount of share money be regarded as undisclosed income under s.68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law.
Hence, we find no infirmity with the impugned judgement.
3. Subject to the above, Special Leave Petition is dismissed."
17. Rather, in a latest decision of Hon'ble Delhi High Court pronounced in the case of CIT vs. Oasis Hospitalities P.Ltd. reported at [2001]333 ITR 19 (Del.), the Hon'ble court has held as under:
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
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" The initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove (i) the identity of the share- holder, (ii) the genuineness of the transaction, and (c) the creditworthiness of the shareholders. In case the investor/shareholder is an individual, some documents will have to be filed or the shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. When the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholders register, share application forms, share transfer register, etc. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion.
The Assessing Officer noticed that the assessee had received share application money of Rs. 3 lakhs each from six private limited companies during the year relevant to the assessment year 2004-05. Notice under section 148 was issued in respect of the assessment year 2003-04 and reassessment done. The Assessing Officer made addition of Rs. 18 lakhs to the income of the assessee on protective basis in the assessment year 2004-
05. On appeal :
_Held,_ dismissing the appeal, that the assessee had filed copies of PAN, acknowledgment of filing income-tax returns of the companies, their bank accounts statements for the relevant period but had not produced the directors of the companies. The addition made by the Assessing Officer could not be sustained as the primary onus was discharged by the assessee. The Assessing Officer had not investigated whether the modus operandi by the entry operator discussed by the Investigation Wing existed in the case or not. Even the bank statements as claimed by the Assessing Officer revealed that the assessee had received cheques from the shareholders.
The assessee received Rs. 99.18 lakhs on account of share application money. It filed confirmations from 30 parties. Notices issued were returned unserved on 22 out of 30 parties and the remaining 8 parties did not respond. The Inspector made local inquiries which revealed that the parties did not exist at the given addresses. On enquiries from the bank, the Assessing ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
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Officer found various discrepancies between the statement sent by the bank and the statement procured by the assessee. The Assessing Officer confronted the entire material to the assessee and allowed various opportunities but the assessee did not produce a single party. Therefore, the Assessing Officer made an addition of Rs. 99.18 lakhs on account of unexplained share capital under section 68. Similarly, the Assessing Officer also made addition of Rs. 3.10 lakhs on account of unexplained credit under section 68. The Commissioner (Appeals) deleted the addition. This was confirmed by the Tribunal. On appeal :
_Held,_ dismissing the appeal, that the addition was rightly deleted by the Commissioner (Appeals) and the Tribunal. Requisite documents were f- urnished showing the existence of the shareholders from accounts and even their income-tax details. From bank accounts of these shareholders, it was found that they had deposited certain cash and the source thereof was questionable. The Assessing Officer should have made further probe which he failed to do. Moreover, the remedy with the Department lay in reopening the case of the investors and the addition could not be made in the hands of the assessee.
_Held,_also, that in so far as the statements of the persons who were produced were concerned, they were gone into and analysed by the three authorities below on the basis of which finding of fact was arrived at that neither their identity was established nor their capacity to invest this kind of money was proved. They were all agriculturists and had not produced a single document to support their version. The assessee had not been able to discharge the onus and the addition was rightly made. This was a case where the assessee could not discharge the onus but it could not be said that it was the case of concealment of income. The Tribunal rightly deleted the penalty. "
17.1. The salient feature of these decisions are that the assessee has to discharge the primary onus by placing on record the basic information about the investors. This initial burden can be said to be discharged if the names and addresses of the investors are placed on record. Further, initial burden can also be said to be discharged if the mode of payment is also placed on record. The initial burden or the primary onus can also be said to be discharged if the genuineness of the transaction, i.e. share applications are also placed on record. As far as the facts of the present appeal is concerned, it is evident that all those basic information were ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005 ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
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very much on record. Compilation placed before us contains a summary chart narrating the dates of allotment, names of the share- holders, their addresses, number of shares allotted, confirmation status, etc. It is also vehemently contested that since all the payments have been received through cheques, therefore, the primary burden to establish the source of money has duly been discharged by the assessee. Once all those documents were produced, then it can be safely held that the requisite primary onus, as casted upon an assessee, has been discharged. Thereafter, it is for the AO to scrutinize those details. The Hon'ble Courts, as cited hereinabove, have suggested that if the AO had made certain enquiries and nurtures any doubt about the creditworthiness of those investors, then he is free to take appropriate action in their respective hands. However, it is necessary that to probe further there must be basic information in possession of the AO. Those basic information can be said to be the correct addresses of the investors, so that further action can be taken against them. For this legal proposition, we place reliance on ITAT "C" Bench decision of Modern Cement Industries (ITA No.2506/Ahd/2006 - A.Y. 1992-93 & ITA No.1673/Ahd/2007, 404/Ahd/2008, a consolidated order dated 30/06/2011, one of us, i.e. J.M. in the signatory) following the above cited decisions, we hereby affirm the legal as also factual finding of Ld.CIT(A) and dismiss the ground of the Revenue.
18. In the result, Revenue's appeal, i.e. ITA No.2688/Ahd/2005 is dismissed.
ITA Nos.1989/Ahd/2003 & ITA No.2688/Ahd/2005ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
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(B) ITA No.1989/Ahd/2003
19. In this appeal, Revenue has challenged the deletion of penalty levied u/s.271(1)(c) of Rs.1,02,12,690/-.
20. While deleting the penalty, ld.CIT(A) has mentioned the appellant company had furnished the share application forms during the assessment proceedings and the AO had not pointed out that those share-holders were not genuine. According to ld.CIT(A), the addition was made in a very casual manner. In the said order, it was also commented that AO had even not brought any material on record to establish that cash creditors were not genuine and that the money had belonged to the Directors or the assessee-company which was routed as a shareholders' application money. In addition to these observations, now the issue of addition u/s.68 of the Act, is settled in favour of the assessee, therefore, no more res integra. We therefore hold that the penalty was rightly deleted. This ground of the Revenue is dismissed.
21. In the result, both the appeals of the Revenue are dismissed.
Sd/- Sd/-
(टȣ.आर.मीणा) (मुकुल कुमार ौावत)
लेखा सदःय Ûयाियक सदःय
( T.R. MEENA ) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 30/ 03 /2012
टȣ.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS
ITA Nos.1989/Ahd/2003 &
ITA No.2688/Ahd/2005
ITO/Dy.CIT vs. Ankush Finstock Ltd.
Asst.Year - 1996-97
- 26 -
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation.......................
2. Date on which the typed draft is placed before the Dictating Member .................. Other Member.....................
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S.........30.3.12
6. Date on which the file goes to the Bench Clerk..................... 30.3.12
7. Date on which the file goes to the Head Clerk..................................
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................