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TMI Blog2012 (11) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. The Tribunal failed to keep in mind these aspects of the matter and has chosen to dispose of the appeal on the limited question of the identity of the shareholders. The present case is one where there is enough material in the possession of the Assessing Officer which warrants explanation from the assessee regarding the nature and source of the share application monies - matter remitted back to ITAT for fresh decision - decided against the assessee - ITA No. 497/2010 - - - Dated:- 8-11-2012 - MR. S. RAVINDRA BHAT MR. R.V. EASWAR JJ. Appellant: Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Advocate Respondent: Mr. Somnath Shukla, Advocate R.V. EASWAR, J.: This is an appeal filed by the Revenue and it pertains to the assessment year 2000-01. It is directed against the order of the Income Tax Appellate Tribunal dated 17th April, 2009 in ITA No.398/Del/2006. 2. The Revenue has proposed the following questions as substantial questions of law arising under Section 260A of the Income Tax Act, 1961( Act , for short). 2.1 Whether learned ITAT e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1,20,00,000/- 2. M/s Precision Agencies Pvt. Ltd. 30,00,000/- 3. M/s. S. N. Electricals Pvt. Ltd. 15,00,000/- Total 1,65,00,000/- The Assessing Officer accepted the clarification and proceeded to examine whether the provisions of Section 68 were attracted to the aforesaid amounts. In order to verify the nature and source of the amount of Rs.1,65,000/-, in terms of Section 68, he called upon the assessee to produce the directors of the three companies on 26th December, 2007. This direction was not complied with and the assessee informed the Assessing Officer that summons may be issued to enforce the personal attendance of the directors at its cost. The Assessing Officer took the view that since under Section 68 it was for the assessee to establish the genuineness of the monies received as share application monies, it was the duty of the assessee to produce the persons who allegedly gave the money and since the assessee failed to do so, the identity of the companies, their creditworthiness and genuineness of the transaction did not stand established. It would appear, however, that the bank statements of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or his objections and a remand report. The precise contents of the remand report have not been discussed in any detail in the order of the CIT(Appeals), though there is a reference to the same in paragraph 3.3. of his order. After considering the assessee s submissions, the remand report of the Assessing Officer and the rejoinder to the same by the assessee, the CIT(Appeals) held as follows:- 1) All the transactions regarding the receipt of Rs.1.65 crores were routed through banking channels and there was no cash transaction. 2) Precision Agencies Pvt. Ltd. and S.N. Electricals Pvt. Ltd. took the money from M/s Express Securities Pvt. Ltd., which is a member of the Bombay Stock Exchange and registered with SEBI. 3) In the statement recorded from Pradeep Kr. Jindal, he has not mentioned the name of the assessee-company as one of the beneficiaries of the accommodation entries allegedly carried on by him and in the absence of such a categorical statement, no reliance can be placed on it. The statement may be true in respect of other companies but not in respect of the assessee-company. 4) Moreover one A.K. Kaul, the present director of Precision Agencies Pvt. Ltd. appeared bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er had contended that the share subscribers were assessed to tax and since their identity stood established, no addition can be made in the hands of the assessee, having regard to the judgment of the Supreme Court cited above. 8. The Tribunal referred to the judgment of the Supreme Court in CIT vs. Stellar Investment Ltd (2001) 251 ITR 263 (SC) and the judgments of the Delhi High Court in Commissioner of Income Tax vs. Sophia Finance Ltd. (1994) 205 ITR 98 and CIT vs. Lovely Export (Supra) and thereafter in paragraph 11 noted that the share applicants confirmed having made the investment in the assessee company along with other documents such as income tax returns etc. and thus their identity stood established. Having recorded this finding, the Tribunal proceeded to apply the judgment of the Supreme Court in Lovely Export (supra) and held that the only remedy of the department was to reopen the assessment of the individual shareholders in accordance with law but the share application monies cannot be regarded as undisclosed income of the assessee company. With this solitary observation/finding, the appeal of the Revenue was dismissed. We find it difficult to uphold the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicants to produce the directors before the Assessing Officer, all taken cumulatively, should have excited suspicion in the mind of the Tribunal necessitating a deeper probe into the matter. The Tribunal, however, has chosen to rest its decision on the sole fact that the share applicants had established there identity by filing confirmation letters and copies of their income tax returns. This is hardly sufficient for the purpose of discharging the creditworthiness of the share applicants and the genuineness of the transactions. There can be no dispute that Section 68 applies equally to share application monies received by an assessee and, therefore, the burden is on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. It involves three ingredients, namely, the proof regarding identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. The Tribunal failed to keep in mind these aspects of the matter and has chosen to dispose of the appeal on the limited question of the identity of the shareholders. A Division Bench of this Court in the case of CIT vs. Nova Promote ..... X X X X Extracts X X X X X X X X Extracts X X X X
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