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TMI Blog2003 (3) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the appellate order of the Commissioner of Income-tax (Appeals) by which the Commissioner of Income-tax (Appeals) had confirmed the addition of Rs. 8,70,387 under section 68 of the Income-tax Act by holding that the creditworthiness of the individual shareholders and consequently the genuineness of the investment recorded in the books of the company in their names remained unestablished and the Assessing Officer was therefore justified in coming to the conclusion that the alleged subscriptions represented the appellant company's income of the year from some concealed sources?" In this case, it is alleged by the assessee that these shares were floated and subscriptions were invited from the public through advertisement in the newspapers and the whole paraphernalia of subscription for shares was undergone in accordance with law. These subscriptions were dealt with through nationalised banks and the receipts were received by cheques. However, the Assessing Officer and the Commissioner (Appeals) and the learned Tribunal had treated part of the receipts to the extent of Rs. 8,70,387 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o scope for proving their creditworthiness or the genuineness of the transaction. The finding is based on the materials placed before the authority concerned. The findings are finding of facts. It does not appear to be perverse. This court sitting in reference under section 256 is not entitled to go into the question of fact. Therefore, this reference should be answered in favour of the Revenue and against the assessee. The law, by now, has since been crystallised through various decisions of different High Courts and the apex court. Many such decisions have been referred to by the respective counsel for the parties. We shall be referring to those decisions at the appropriate stage. The principle, deciphered from the various decisions cited, may be enumerated as hereafter. Section 68 of the Income-tax Act, 1961, empowers the Assessing Officer to treat any sum found credited in the books of account of the assessee for any previous year, if the assessee fails to offer explanation about the nature and sources of such fund or if the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, as income from undisclosed sources and charge the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof. For the purpose of scrutinising the materials, it may utilise its powers to seek attendance of any witness or disclosure of any information in exercise of its power under section 131. It may seek information from other sources in exercise of its power under section 133. Once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion on the basis of such materials. If the conclusion is adverse wholly or in part to the interest of the assessee, it is incumbent on the Assessing Officer to intimate or inform the conclusion arrived at to the assessee. When such information or intimation is received by the assessee, the onus shifts on the assessee. It may furnish further explanation or information to support its contention. If further information or materials are furnished, the Assessing Officer is bound to examine the same and form his final opinion and pass an appropriate order. Such opinion is also subject to examination by the Commissioner (Appeals) or the learned Tribunal and if it involves a question of law, it is also subject to scrutiny by the High Court under section 256. Findings of fact, may also form the basis of a que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sophia Finance Ltd.'s case [1994] 205 ITR 98 (Delhi) [FB] is no longer good law. In CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC) relied on by Mr. Pal, it was held that if the explanation shows that the receipt was not an income in nature, the Department could not act unreasonably and reject the explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot merely reject a good explanation unreasonably. In the said case, it was further held that the assessee had given the names and addresses of the alleged creditors, who were income-tax assessees: "Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing the said amount in the hands of different assessee. Assessment in the hands of one will not preclude the Department from assessing the same in the hands of another if the other conditions are fulfilled. Mr. Agarwal, on the other hand, had, relied on the decision in A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC). In the said decision, it was held that it is not necessary for the Department to adduce evidence to show from which sources the income was derived and as to why it should be treated as undisclosed income. To us, the question seems to be simple. If the assessee fails to prove satisfactorily the source and nature of certain amount of cash received through the accounting year, the Income-tax Officer is entitled to draw an inference that the receipts are of an assessable nature. Therefore, the burden of proving the source of such income is on the assessee. In Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC), it was held that particular income, derived from a particular source, can be decided only on the basis of the materials and on the facts available in the case whether the entry in the books of account of the business is an income of that business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding nor was it its intention to decide as to whose and to what extent is the onus to show that the amount credited in the books of account is share capital and when does that onus stand discharged. This depends on the facts of each case. Therefore, if the conclusion is arrived at without making necessary and appropriate enquiries with regard to the share capital raised by the company to that extent the order passed by the Income-tax Officer was erroneous. In CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465 (Cal), relied on by Mr. Agarwal, it was held that it is for the assessee to prove the identity of the creditors, their creditworthiness and genuineness of the transactions. Mere furnishing of particulars is not enough. It was further found on enquiry by the Income-tax Officer that the assessee was not traceable and there was no such file. Therefore, the first ingredient as to the identity was not established. Similar view was taken in CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal), cited by Mr. Agarwal. The creditors should be identified. There should be creditworthiness. There should be genuineness of the transaction. The furnishing of income-tax file numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and prove their creditworthiness and the genuineness of the transaction. The furnishing of material is not sufficient. The income-tax authority has a right to pierce the veil and find out the real nature of the transaction. But once sufficient material is produced and explanation is given, the onus is discharged and shifted on the Revenue. Having regard to the materials, it might ask for further materials from the assessee or it might come to a conclusion on the materials so produced as it might in law arrive at. Once the materials are there, it is incumbent on the assessing authority to enquire into the same. It cannot overlook one or the other materials nor can it undertake a half-hearted enquiry. When looking at the facts, the court has every right to scrutinise the situation and find out as to whether enquiry was made reasonably with the prudence of a reasonable man. If after such enquiry having regard to the materials, the officer had come to a conclusion then it would be a finding of fact, unless it is shown that the inference drawn on the basis of the proved fact was perverse. But if some of the materials are not considered or it is stopped there and does not undertake a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction is not required to be gone into and on percentage basis the authority is entitled to proceed on the basis thereof. But so far as the rest are concerned, when the income-tax file numbers were given, the income-tax authority ought to have enquired into the same. It is further contended that except the subscriber of 1,000 shares, the income-tax file numbers relating to the rest of the subscribers were furnished. The authority was free to disbelieve these 1,000 shares to be genuine transaction. But when the income-tax file numbers were disclosed, even though despite service of notices, the 14 persons failed to respond, it was incumbent on the income-tax authority to ascertain from the income-tax file numbers whether the files were in existence and on the basis of such files the identity of the shareholders could be established or not and their creditworthiness and genuineness of the transaction could be proved. Until such enquiry was made, it cannot be said that the income-tax authority had acted upon the materials so disclosed. The onus may not be discharged simply on production of the materials but, at the same time, once the materials were produced by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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