Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2005 (11) TMI AT This

  • Login
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

2005 (11) TMI 197 - AT - Income Tax

Issues Involved:
1. Legitimacy of Share Capital
2. Genuineness of Shareholders
3. Procedural Compliance under Section 158BC
4. Presumption under Section 132(4A)
5. Application of Judicial Precedents
6. Burden of Proof

Detailed Analysis:

1. Legitimacy of Share Capital:
The primary issue was whether the share capital amounting to Rs. 21,63,070 credited in the books of the appellant company could be treated as undisclosed income under Section 68 of the Income Tax Act. The appellant company argued that the share capital was raised through account payee cheques and was duly recorded in the regular books of account. The Assessing Officer (AO) doubted the genuineness of the share capital, as blank signed share transfer forms, sale bills, receipts, and affidavits were found during a search at the premises of Shri Alok Agarwal, a chartered accountant.

2. Genuineness of Shareholders:
The AO issued summons under Section 131 to various shareholders, who confirmed their investments through affidavits, providing proof of their residences, copies of IT returns, personal balance sheets, and bank passbooks. Despite these confirmations, the AO was not convinced about the genuineness of the transactions, as the share certificates were found with Shri Alok Agarwal instead of the shareholders. The AO concluded that the onus to prove the genuineness of the share investments was not discharged by the appellant, thus treating the share capital as unexplained and adding it as undisclosed income.

3. Procedural Compliance under Section 158BC:
The proceedings were initiated under Section 158BD read with Section 158BC of the Act. The AO treated the share capital as non-genuine based on the documents found during the search. The Tribunal noted that similar additions under identical facts and circumstances had been deleted in other cases arising from the same search, such as Real Overseas (P) Ltd., Makhani & Tyagi (P) Ltd., and others. The Tribunal found that the share capital was genuine and could not be treated as undisclosed income in the block period.

4. Presumption under Section 132(4A):
The Tribunal observed that the presumption under Section 132(4A) was in favor of the appellant. The documents found and seized did not reveal any investment outside the books by the appellant. The circumstances under which the share certificates were lying with Shri Alok Agarwal were explained, and no infirmity was found in the appellant's explanation. The AO did not reject the explanation, and the investment in shares was held by the shareholders as their own investment, duly disclosed in their individual IT returns.

5. Application of Judicial Precedents:
The Tribunal relied on various judicial pronouncements, including the decisions in CIT vs. Steller Investment Ltd., CIT vs. Sophia Finance Ltd., and CIT vs. Orissa Corporation (P) Ltd., to conclude that the identity and capacity of the shareholders were established, and the onus to prove the genuineness of the transactions was discharged by the appellant. The Tribunal noted that the AO did not bring any positive material to controvert the correctness of the documents submitted by the shareholders.

6. Burden of Proof:
The Tribunal emphasized that once the initial onus was discharged by the appellant, the burden lay upon the Revenue to verify and examine the correctness of the material before making any addition. The AO's reliance on the judgments in CIT vs. Durga Prasad More and Sumati Dayal vs. CIT was deemed misplaced, as the appellant had discharged its onus. The Tribunal held that the AO should have enforced the presence of the shareholders if he wanted to examine them further, rather than closing the enquiry and asking the appellant to produce them.

Conclusion:
The Tribunal concluded that the addition of Rs. 21,63,070 as undisclosed income was not sustainable, as the appellant had proved the genuineness of the share capital through affidavits, bank passbooks, and other documents. The Tribunal deleted the addition, holding that the AO's action was based on mere suspicion without any positive material evidence. The appeal was partly allowed in favor of the appellant.

 

 

 

 

Quick Updates:Latest Updates