2003 (3) TMI 62 - HC - Income Tax

Subscription to share capital - loss in share transaction - promoters quota - public issue - 1. Whether, the findings of the Tribunal leading to the conclusion that the entire share capital of the assessee-company was genuine are based on relevant material or otherwise perverse? - 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the entire addition made on account of income from undisclosed sources? - 3. Whether, the findings of the Tribunal leading to the conclusion that the share loss has been established by the assessee-company to be genuine is based on relevant evidence or otherwise perverse?

Issues Involved:
1. Whether the findings of the Tribunal regarding the genuineness of the entire share capital of the assessee-company are based on relevant material or are perverse.
2. Whether the Tribunal was justified in deleting the entire addition made on account of income from undisclosed sources.
3. Whether the findings of the Tribunal regarding the genuineness of the share loss claimed by the assessee-company are based on relevant evidence or are perverse.

Detailed Analysis:

Loss of Share Transactions (Question No. 3):
The Tribunal found that all relevant documents, such as contract notes, bills, quoted prices, and other materials, were produced by the assessee. The transactions were conducted through cheques, involving reputed companies whose shares were quoted on stock exchanges. The Tribunal concluded that the Commissioner of Income-tax (Appeals) had based his decision on suspicion rather than concrete evidence. The court upheld the Tribunal's findings, stating that the decision was not perverse and that the genuineness of the transactions was established through the provided materials. The court referenced several precedents, including CIT v. Emerald Commercial Ltd., CIT v. Dhawan Investment and Trading Co. Ltd., and CIT v. Currency Investment Co. Ltd., to support its decision. Therefore, question No. 3 was answered in the negative, favoring the assessee.

Share Capital: Public Issue:
The Tribunal found that 70% of the public issue shares were genuine, as 24 out of 82 selected subscribers responded positively, representing 67% of the shares. However, the remaining 30% were deemed suspicious as 48 subscribers, though served, did not respond, and 10 could not be served. The court held that the assessee failed to take necessary steps to prove the creditworthiness and genuineness of these 30% subscribers after being informed by the Assessing Officer. Consequently, the Tribunal's finding regarding the genuineness of these 30% subscribers was considered perverse, and the court affirmed the decision of the Commissioner (Appeals) concerning this portion.

Share Capital: Promoters' Quota:
The Tribunal accepted the entire subscription from the promoters, including those initially disbelieved by the Assessing Officer and partially accepted by the Commissioner (Appeals). The court scrutinized the findings and noted discrepancies in the verification process. It held that mere identity confirmation was insufficient without establishing creditworthiness and the genuineness of transactions. The court found the Tribunal's acceptance of the subscriptions from certain promoters as perverse, especially when proper verification was lacking. The court remanded the cases concerning specific promoters back to the Tribunal for fresh consideration.

Section 68 and Burden of Proof:
The court discussed the principle under Section 68, emphasizing that the initial burden lies on the assessee to prove the identity, creditworthiness, and genuineness of transactions. Once the Revenue scrutinizes and communicates the findings, the onus shifts back to the assessee to provide further proof. The court cited several cases, including CIT v. Orissa Corporation (P) Ltd. and CIT v. Precision Finance (P.) Ltd., to illustrate the legal principles governing such situations.

Remand and Opportunity for Assessee:
The court acknowledged the assessee's reliance on certain legal precedents, which may have influenced its approach. Given the evolving legal interpretations, the court decided to provide the assessee with an opportunity to establish the creditworthiness and genuineness of the disputed transactions. The case was remanded to the Tribunal, directing it to allow the assessee to present additional evidence and for the Assessing Officer to re-examine the materials within specified timeframes.

Conclusion:
The court partially allowed the appeal, remanding the case to the Tribunal for fresh consideration of the 30% public issue and certain promoters' subscriptions. The Tribunal was instructed to reassess these aspects, giving the assessee an opportunity to substantiate its claims, in line with the observations made in the judgment.

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