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TMI Blog2005 (3) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... e of investor companies is a cause to make enquiry in their cases. Further, the fact that all the share applications were received by the assessee before the commencement of the business, has not been disputed by the Revenue. In Bharat Engineering Construction Co. [ 1971 (9) TMI 14 - SUPREME COURT] , the assessee was an engineering construction company, which commenced its business in May, 1943 but there were several cash credit entries in the first year of its business amounting to Rs. 2.5 lakhs The assessee was called upon to explain such credit entries. The explanation of the assessee did not find favour with the AO, the CIT(A) nor the Tribunal. However, the Tribunal deleted the addition by taking the plea that such cash credit entries could not represent the income or profit of the assessee as they were all made very soon after the company commenced its activities. In this manner, the Tribunal took the view that in the very nature of things the assessee could not have earned such huge amount of profit very soon after it commenced its activities. The apex Court, in the above background inferred that it was reasonable to assume that such credit entries were capital receipts altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment made by the shareholders. The AO deputed the inspector for making necessary enquiries in connection with the investments made by the said companies. The AO narrated the detailed facts and result of enquiry made in respect of each of the investor companies, which is as under: (i) M/s Lorence Computers (P) Ltd. (LCPL): This company invested a sum of Rs. 5 lakhs by means of pay order No. 014561 dt. 11th Nov., 1995, made from Bank of India, Ashok Vihar, New Delhi. The information called for under s. 133(6) of the Act vide letter dt. 10th Dec., 1997, was received back. Therefore, the AO deputed the inspector to serve the letter. The inspector in his report submitted that no such company exists at the given address. During the assessment proceedings, the copy of balance sheet of the said company as on 31st March, 1996, was furnished by the assessee. The AO perused the balance sheet and found that the total investment made by the company as on 31st March, 1996, was Rs. 2 lakhs and the total assets and liabilities were Rs. 2,12,922 whereas, the investment made by the said company was Rs. 5 lakhs which was not appearing in the balance sheet. The AO, therefore, issued summon under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yr. 1995-96 was filed but no acknowledgement for filing return for asst. yr. 1996-97 or any further return was filed. A bank statement was also filed for the period 1st Nov., 1995 to 11th Nov., 1995, in which there was deposit of Rs. 5 lakhs on 11th Nov., 1995, by way of transfer and another deposit of Rs. 2.33 lakhs on 12th Oct., 1995, by way of transfer were shown. On receipt of this information, information was called from the Bank of India, Bank Street, Karol Bagh, New Delhi, who sent the copy of bank statement for the period 1st Nov., 1995 to 18th Nov., 1995. On perusal of the said bank account, it (sic) cash on 12th Nov., 1995. (v) M/s Dyna Builders Contractors (P) Ltd. (DBCL): This company made an investment of Rs. 5 lakhs vide pay order No. 647559 dt. 14th Nov., 1995, drawn on Allahabad Bank, Scindia House, New Delhi. Here too, the AO stated that the amount was deposited on 14th Nov., 1995, by way of transfer from another account. From the information filed, it was noted that this amount had been transferred from another account of M/s X Ray Films Advertisement (P) Ltd., Onkar Nagar, New Delhi. (vi) M/s Chitransh Software Marketing Ltd. (CSML): This company made an investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a different address. The statement of the bank account revealed a deposit of Rs. 5 lakhs on the day on which the pay order was made. In this case also bank furnished the information that the banker cheque for Rs. 5 lakhs was issued by debiting the account of M/s Trango Ferro Alloy (P) Ltd. and copy of their bank account was also furnished. In order to verify the source of deposit of Rs. 5.25 lakhs by M/s TF Ltd. a summon under s. 131 of the Act was sent on the address given in the bank account and the same was received back with the postal remarks that on this given address nothing could be ascertained about this company. (xi) M/s Archies Consultants (P) Ltd.: This company also made an investment of Rs. 5 lakhs by way of pay order No. 049334 drawn on State Bank of Patiala, Karol bagh, New Delhi. The inspector reported that no such company at the given address and even the letter sent by registered post could not be served. The bank account of this company also revealed cash deposit before the date of investment. 5. During the course of assessment proceedings, the Authorised Representative of the assessee-company was asked to certify all the. photocopies and documents, which were f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB). Therefore, it was submitted to accept the share capital received by the assessee-company. The AO after having considered the facts and circumstances of the case made the impugned addition by observing that the onus to prove the identity, creditworthiness and capacity of the creditor to advance and also the genuineness of transaction which lay upon the assessee, as held by the Calcutta High Court in the case of Shankar Industries vs. CIT (1978) 114 ITR 689 (Cal), has not been discharged. Hon'ble Supreme Court in their decision in Suman Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) held that where any sum is found credited in the books of account of the assessee from the previous year, it may be charged to tax as the income of the assessee of the previous year if the explanation offered by the assessee about the nature and source thereto is not satisfactory. While holding the same, the AO made specific observation with regard to the investors as under: (a) Balance sheet of LCL, FLFL, LDPL, CLCL and BBFL do not reflect the investments made; (b) Bank statements filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders exist and they have invested in the share capital of the assessee-company. The assessee had led substantial evidence before the AO and established all these grounds. However, if there was any further enquiry to be made, the Department had sufficient right to make such enquiries without effecting the interest of the assessee who has received these amounts as share capital from these parties through normal banking channel. He has further pointed out that in the case of CIT vs. Sophia Finance Ltd. it has been held 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 assessee-company would be regarded as a capital receipt. As regards remarks of the AO that neither the shares have been allotted nor the application money has been refunded to the investors by 31st March, 1997, the learned counsel for the assessee has pointed out that the factual position that shares were allotted to all the applicants before 31st March, 1997, and the allotment letters were given to the AO. The balance sheet of the assessee-company as on 31st March, 1997, would reflect this fact. As regards the obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the balance sheet, the learned counsel for the assessee has submitted that none of the creditors or shareholders of the assessee-company are interested in any of the investor company or have any management control. The assessee has provided all the available documents such as confirmation proof of appointment of directors their Form 32 and also the account filed by the investor companies. Thus, it has been urged that the addition made by the AO is not legally sustainable. In support thereof, reliance has been made on the decision in the case of Pragati Construction CO. vs. ITO (1997) 60 ITD 201 (Del), CIT vs. Daulatram Rawatmull, Girdhari Nannelal vs. Sales-tax Commissioner (1977) 109 ITR 726 (MP), CIT vs. Orissa Corporation (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC) and CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del). 14. The learned CIT(A) after having considered the submissions and the case law relied upon, has deleted the impugned addition by observing thus: In CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del) it has been held that even if it be assumed that the subscribers to the increased share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned addition. He has further relied upon the order passed by the AO. 18. On the other hand, the learned counsel for the assessee has submitted that all the share application money has been received by the assessee-company prior to the commence of its business. Therefore, it cannot be assumed by any stretch of imagination that the assessee-company had unexplained income of Rs. 53 lakhs, which has been introduced in the form of share application money. Therefore, to treat the share application money received in the year as unexplained income of the assessee is not legally correct. Reliance in this regard has been made to the following cases: (i) CIT vs. Bharat Engineering Construction Co. 1972 CTR (SC) 247 : (1972) 83 ITR 187 (SC) (ii) CIT vs. Jaiswal Motor Finance (1983) 37 CTR (All) 217 : (1983) 141 ITR 706 (All) (iii) CIT vs. Jaiswal Grain Store (2004) 191 CTR (All) 187 (iv) Roshan Di Hatti vs. CIT 1977 CTR (SC) 200 : (1977) 107 ITR 938 (SC) (v) Asstt. CIT vs. Shree Baba Rupa Das ITA No. 1543/Del/1998, dt. 31st Jan., 2002, 'C' Bench Tribunal, New Delhi. He has further submitted that in the case of CIT vs. Sophia Finance Ltd. it has been held that if the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the investment of share application money with the assessee-company. The documents filed on behalf of the investor companies were found to have certain discrepancies and the said documents were refused to be certified by the Authorised Representative of the assessee-company. Therefore they were treated as bogus. Further in some cases the bank draft/pay order was got made from the account of other concerns where about equivalent amount was deposited in cash and in some cases the investment had been made out of funds got transferred from other companies who had made cash deposits on the same date on which it was transferred to the investor company account. However perusal of the record shows that the investor companies are incorporated under the Companies Act. They are assessed to tax and holding GIR number. The copies of acknowledgement of filing IT return for 1996-97/1997-98/1995-96 of these companies are placed on record. Their confirmations/affidavits of making investment in the share of the assessee-company are also available on record. The share application form and letter of allotment of shares are available on record. Thus, identity of these investments companies and their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC) in the case of CIT vs. Achal Investment Ltd., wherein it has been held: Held , that the Tribunal had allowed the appeal of the assessee following its judgment in Steller Investment Ltd., which on a reference was confirmed by the Division Bench and, on appeal, the Supreme Court had agreed with the High Court, therefore, no question of law arose from the order of the Tribunal. 21. Thus, we are of the view that the observation of Calcutta High Court made in the above named cases has lost even the persuasive value as we are bound by the recent decision of jurisdictional High Court. In the case of L.N. Bradley India Ltd. vs. CIT, it has been held thus: Of course in the case CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 :(1994) 205 ITR 98 (Del)(FB), the Full Bench of the Hon'ble High Court has not laid down any norms for deciding the extent of onus of proof of the amounts credited. The Hon'ble Full Bench has observed as under: 'We make it clear that we are not deciding, nor it is our intention to decide as to on whom and to what extent is the onus to whom that an amount credited in the books of account is sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that entry, though purporting to be in the name of third party, still represented the income of the assessee from suppressed sources. However, in the instant case there is no material to show that share application was of the assessee-company. The fact that some of the investor companies got the pay order made from the account of M/s M.G. Investments but the same has not been reflected as loan in their respective balance sheet, is matter for enquiry in the hands of the said investor companies and not in the case of the assessee-company. Hence, similarly, the discrepancies found in the account of some of investor companies is a cause to make enquiry in their cases. Further, the fact that all the share applications were received by the assessee before the commencement of the business, has not been disputed by the Revenue. In Bharat Engineering Construction Co., the assessee was an engineering construction company, which commenced its business in May, 1943 but there were several cash credit entries in the first year of its business amounting to Rs. 2.5 lakhs The assessee was called upon to explain such credit entries. The explanation of the assessee did not find favour with the AO, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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