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TMI Blog2005 (4) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the directions issued by the Hon ble Tribunal vide its order dated 4-2-2003 and as such in absence of no enquiry having been conducted by the Assessing Officer either at the fresh assessment stage or while sending report before the CIT(A), the addition made was wholly arbitrary and unsustainable. 3. That the Ld. CIT(A) has erred in relying upon and denying statement of the persons who invested share application money and ignoring their handwritten statement and other evidence furnished by the assessee before him, which too remained undisputed by the Assessing Officer. 4. That the Ld. CIT(A) has erred in confirming the interest charged by the Assessing Officer under sections 234A and 234B holding the same to be mandatory." 2. Briefly the facts are that the assessment in this case was originally completed on 23-2-2001 by making addition of Rs. 15 lakhs in the share capital of the company. The assessment stood set aside by the order of the Tribunal in ITA No. 3545/Delhi/2002, dated 4-2-2003 by observing "it appears that the various details submitted by the assessee were not taken on record by the Assessing Officer which proved the identity and creditworthiness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment from all the above creditors/shareholders were received through account-payee cheques drawn on their respective bank accounts for which necessary details were also furnished. The Ld. CIT(A) sought remand report from the assessing authority who objected to admission of additional evidence by stating as under : "The Assessing Officer also issued notices under section 133(6) to all the investors who had denied for investment before the then Assessing Officer. As directed by the Hon ble ITAT to examine the documents filed by the persons, and after examining the documents for Rs. 8 lakhs allowed out of Rs. 15 lakhs. The Assessing Officer did not think fit to re-examine the persons who had already denied their investments stated vide their letters. The copies of these letters are attached herewith for your kind perusal. From the perusal of these letters, it is clearly apparent that the assessee has manipulated its own money through these poor people who even did not know the whereabout of assessee-company. Since those alleged investors had given their earlier denial letters, voluntarily, therefore, their contention regarding duress etc. is not correct." 6. The Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings. That statement was taken behind the back of the assessee. Without taking on record the documents which proved the identity and creditworthiness of various shareholders and as the statements were recorded wothout providing any opportunity to the assessee to cross examine such persons, the decision based on such statements stood set aside. After the Tribunal has set aside the original assessment order the assessing authority did nothing to examine the facts deposed in the affidavit filed before the Assessing Officer. Even after the Ld. CIT(A) took a decision for admission of additional evidence, the Ld. assessing authority did not examine any of such seven shareholders, though complete particulars of payment made by such shareholders through normal banking channel from their respective accounts were also processed. All these persons were also assessed to income tax and necessary evidence had been filed in the shape of additional evidence. There were affidavits confirming the investment with the assessee and confirmation for holding of shares with the company by these persons were also filed. All these persons had also given certificates/letters written in their own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the Ld. CIT(A) has grossly erred in sustaining the addition without discharging the burden that lay upon the revenue. The addition so made therefore needs to be deleted. 8. On the other hand the ld. DR placed strong reliance on the decision of authorities below. It was contended that once the seven shareholders had denied of making any investment with the assessee, no useful purpose could be served by examining those persons again pursuant to affidavit filed by them. In response to the direction of the Tribunal the assessment record was also produced. It shows that no fresh notice or summons were issued to these seven shareholders after the assessment was set aside by the Tribunal vide its order dated 4-2-2003. However, the Ld. DR maintains that these persons had deposited the amount in their bank account just before the encashment of cheque towards share application money. As such the creditworthiness of the seven shareholders has not been proved. The Ld. CIT(A) therefore cannot be said to have erred in confirming the addition under section 68 of the Act. 9. We have heard the parties with reference to material on record and precedents referred. It is admitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial evidence in his possession to justify the finding that creditworthiness of such seven persons has not been proved. They had also given letter written in their own hand writing retracting the statement which was taken under duress by the assessing authority. There was affidavit of these seven persons confirming the investment made by them from their explained sources inter alia giving complete particulars of cheque, bank account on which such cheques were drawn and the assessment particulars also had been given. This constituted a material evidence furnished by the appellant to discharge the burden that lay upon him. Both the Ld. assessing authority and the Ld. CIT(A) did nothing for holding that affidavits and hand written statement retracting earlier statements are of no help to the appellant. The approach taken by the authorities below is therefore legally not tenable as the statement given in original assessment and relied by the ld. CIT(A) for sustaining the addition in itself did not constitute any material evidence particularly when such a statement was recorded behind the back of the assessee and the same was not produced before it so that the assessee could contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the bank had received a telegraphic transfer from Madras. In a copy of this letter forwarded to the ITO, there was an endorsement referring to a summon issued by the ITO which was also not disclosed to the assessee. Relying on these letters, the addition of a sum of Rs. 1,07,350 was made as undisclosed income of the assessee for the reasons that the assessee could not show that the amount did not belong to it. The Tribunal as well as the High Court confirmed the addition. On appeal, the Supreme Court reversed the decision of the High Court by holding that the two letters did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs. 1,07,350 was remitted by the assessee from Madras and if these two letters were eliminated, there was no material evidence at all which could support its findings. The statement of the Manager in those letters were based on some information and in the absence of any evidence, which could not be taken that he must have been coordinated with Madras office so as to have personal knowledge of the fact. The department ought to have called upon the manager to produce docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards share application money entertained suspicion and thus proceeded to hold that the capacity is not proved. The Hon ble Patna High Court in the case of Addl. CIT v. Hanuman Agarwal [1985] 151 ITR 150 has held that when the transaction was through banking channel, the identity and genuineness of the transaction falls into oblivion. In this case, the Ld. CIT(A) himself admits that identity of the creditors has been established. The amounts so received by the appellant are by way of cheques. The assessee, therefore, must be taken to have proved that creditor had creditworthiness particularly when they were assessed to income tax. This view finds support from the judgment of Gauhati High Court in the case of Nemi Chand Kothari v. CIT [2003] 264 ITR 254 strongly relied upon by the assessee s counsel. Even the Jurisdictional High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) (FB) has 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 company would be regarded as capital receipts and to that extent the observations in CIT v. Steller Invest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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