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TMI Blog2013 (12) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... YARAGHAVAN, JJ. For the Appellant: Sri M.H. Naik For the Respondent: Sri K.C. Devadas Order PER CHANDRA POOJARI, AM: The order of the Bench was delivered by Chandra Poojari (Accountant Member).-This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)V, Hyderabad, dated November 14, 2011 for the assessment year 2006-07. 2. The grievance of the Revenue in this appeal is with regard to deletion of addition made under section 68 of the Act towards share application money received by the assessee. 3. Brief facts of the issue are that the assessee-company is engaged in the business of manufacture of cement. Since the assessee had not filed return of income for the assessment year under consideration, a notice under section 148 of the Act was issued. In response, the assessee filed return of income admitting nil income. The Assessing Officer specifically asked the assessee to submit the confirmation in respect of share capital introduced and other information. In the absence of full compliance from the assessee, the Assessing Officer completed the assessment under section 144 of the Act by making an addition of Rs. 3,60,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny was wound up and the Company Law Board appointed a management committee to manage the affairs. It was further stated by the assessee that it had discharged its onus completely during the assessment proceedings by providing all relevant documentation including copies of bank accounts, copies of disputes, permanent account numbers and complete names and addresses of the promoters including those from whom it was not possible to collect letters of confirmation. It was stated that the identity, creditworthiness and the genuineness of the transactions were duly explained during the assessment proceedings. Due to the disputes, it was not possible for them to go to the other promoters and collect their letters of confirmation although all other details including the copies of bank accounts reflecting the transactions were provided. 6. On appeal, the Commissioner of Income-tax (Appeals) deleted the addition observing that the assessee has not commenced the business and there was no way to earn such a huge amount outside the books of account and introduced it through share capital in its books of account. According to the Commissioner of Income-tax (Appeals), the assessee discharged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [2008] 307 ITR 265 (Guj), wherein the credits appeared in the books are of a predecessor entity. The assessee was incorporated later. When the assessee came into existence the business of the predecessor entity was transferred as a going concern to the assessee-company and all assets and liabilities of the previous entity were takenover by the assessee-company. The credits in the books were deemed income of the predecessor entity and not of the assessee-company prior to its incorporation, as the assessee-company did not exist. An agreement to obtain a loan can happen only after its incorporation. The honourable High Court held that the appropriation of the income earned by the predecessor entity itself was subject to tax. An outstanding liability is not a fresh credit on the date of incorporation. The contention of the Revenue was that this was the first previous year after incorporation and hence the only assessment year in which the credits could be considered for examination was rejected because the Tribunal had found as a matter of fact that there were no fresh credits as on February 2, 1985. 11. The authorised representative further relied on the judgment of the Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all and the provisions of section 68 of the Income-tax Act, 1961, were not attracted. The honourable High Court held that the finding recorded by the Tribunal on the basis of the material was a pure finding of fact and did not call for any interference by the court. 14. The authorised representative relied on the judgment of the Madras High Court in the case of CIT v. Electro Polychem Ltd. [2007] 294 ITR 661 (Mad) wherein it was held that share application money in fictitious names was not to be treated as undisclosed income of company. It was held that even if subscribers to increased capital were not genuine, share capital cannot be regarded as undisclosed income of the assessee-company. 15. The learned authorised representative relied on the judgment of the Delhi High Court in the case of CIT v. Value Capital Services P. Ltd. [2008] 307 ITR 334 (Delhi) the assessee received share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. The Assessing Officer found that explanation and the statements were accepted by only three persons and the response from the others was either not available or was inadequate. He added an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, the assessee had not even commenced business and there was no way it could have earned such a huge amount outside the books and introduce it through share capital in its books. Moreover, the assessee had discharged its onus of providing information on the identity, the creditworthiness and genuineness of the transactions. Therefore, the addition made by the Assessing Officer cannot be sustained and is not justified. 20. We have heard both parties and perused the material on record. In this case the Commissioner of Income-tax (Appeals) deleted the addition on the reason that the company is in inception stage and it would not have earned this amount of income from unexplained sources. In our opinion, the reasons advanced by the Commissioner of Income-tax (Appeals) for deletion of the addition made under section 68 are not correct. The decision in the case of CIT v. Bharat Engineering and Construction Co. [1972] 83 ITR 187 (SC) is a case under the Indian Income-tax Act, 1922. It was held in that case that a large amount of cash appearing on the very first day of the accounting year was not assessable in that year as it was not possible for the assessee to make such a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce no interference is called for. The order of the honourable Delhi High Court was affirmed mainly on account of the fact that the conclusions arrived at by the Tribunal were based on the facts. However, what were the facts which weighed in the mind of the Appellate Tribunal to come to the conclusion were not mentioned either by the Delhi High Court or by the honourable Supreme Court. Suffice to say that the Supreme Court dismissed the civil appeal of the Revenue on the ground that no question of law arises because the conclusions were based on facts. Thus, it cannot be said that the honourable Supreme Court has decided the legal issue as to whether section 68 is applicable in respect of capital contributions. It is interesting to notice that the decision of the honourable Delhi High Court was explained by the Full Bench of honourable Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) [FB] and observed at page 105 as under : In the case of CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application money has been received through banking channel. In some case, the confirmations/affidavits of share applicants containing the above detail were also filed. It is seen that the Assessing Officer did not carry out any inquiry into the income-tax record of the persons who have given the permanent account number/ward number in order to ascertain the non-existence of the share applicants in question. The Assessing Officer has neither controverted nor disapproved the material filed by the assessee. In the case of CIT v. Makhni and Tyagi P. Ltd. reported in [2004] 267 ITR 433 (Delhi), the jurisdictional High Court has held that when the documentary evidence was placed on record to prove the identity of all the shareholders including their permanent account number/GIR numbers and filing of other documentary evidence in the form of ration card, etc., which had neither been controverted nor disapproved by the Assessing Officer no interference was called for. The Tribunal was justified in deleting the addition. The Assessing Officer proceeded to make the impugned addition on the ground that in some case some summons issued were returned unserved and in some case summon though ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant case are different as the Assessing Officer has issued summons which returned unserved with the remarks 'no such person in the above address'. The appellant has also failed to produce these persons. Some of the shareholders are apparently entry providers to the recipient as was stated by them before the investigation wing. Thus it cannot be said that the Assessing Officer has not carried out enquiries except issuing summons. Thus again the facts of the present case are different." 22. Coming to the facts of the present case it is not a straight case of applicability of the decisions of various courts on which the assessee/Commissioner of Income-tax (Appeals) relied on. The facts are different and, therefore, the case has to be dealt with differently. It is true that the Assessing Officer is not able to establish that the entire amount received as share subscription is the own money of the assessee-company. But he has reached a dead end/enquiry and the burden has shifted on to the assessee. If we see the facts of the case in the light of the judgment of the Delhi High Court in the case of Lovely Exports P. Ltd. [2008] 299 ITR 268 (Delhi), then it will be noticed that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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