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TMI Blog2024 (12) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... rst substantial question of law whether the learned Tribunal erred in law in holding that the assessee had discharged its burden of substantiation of the identity, creditworthiness and genuineness of the transaction involving receipt of share application money being essentially a question of fact is not a substantial question of law. Second substantial question of law that whether the learned Tribunal was justified in deleting the addition u/s 68 of IT Act of share application money received from M/s. Shantidham Marketing Pvt. Ltd and M/s. Orchid Finlease Pvt. Ltd. is also essentially a question of fact and is not a substantial question of law. Both the Appellate Authority and the Second Appellate Tribunal has recorded findings in respect of the genuineness of the transaction in question and the creditworthiness of the shareholders concerned based on evidences and materials placed by the assessee and hence, such finding once recorded by both the authorities on the basis of evidence, the same is not liable to be interfered with by the Third Appellate Court, unless an error of law as contemplated under Section 260A of the IT Act is made out. No question framed by this Court involves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Appellate Tribunal, Guwahati Bench (hereinafter referred to as the Second Appellate Tribunal ). The learned Second Appellate Tribunal by order dated 10.12.2021 dismissed the aforesaid appeal of the Appellate Authority. Accordingly, the present third appeal is being preferred by the Appellants. 4. Mr. S.C. Keyal, learned Standing Counsel for the appellants submits that the impugned order of the Second Appellate Tribunal is totally erroneous. He further submits that the respondent/assessee has not been able to establish the source of source as regards the transaction in question and as such, the order of the Assessing Authority under Section 68 of the IT Act is valid and ought not to have been interfered with by both the Appellate Authorities. He further submits that under Section 68 of the IT Act, the obligation stands with the assessee to explain the source of source and hence, in the present case, since the assessee has not been able to explain the source of source as regards the transaction in question, the Assessing Officer has rightly added the sum to be charged to income tax as the income of the respondent/assessee for the assessing year in question. He further relies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at the outset to refer to Section 260A of the IT Act under which the present appeal has been filed, which reads as hereunder:- 260A. Appeal to High Court. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal [before the date of establishment of the National Tax Tribunal], if the High Court is satisfied that the case involves a substantial question of law. (2) The [Principal Chief Commissioner or Chief Commissioner] or the [Principal Commissioner or Commissioner] or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (b) [***] (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve involves a substantial question of law or not. The Apex Court in the case of Hero Vinoth (Minor) vs. Seshammal, reported in (2006) 5 SCC 545 has held in paragraphs Nos. 21 24 as hereunder:- 21. The phrase substantial question law , as occurring in the amended Section 100 of the CPC is not defined in the Code. The word substantial, as qualifying question of law , means - of having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contradistinction with technical, of no substance or consequence, or academic merely. However, it is clear that the legislature has chosen not to qualify the scope of substantial question of law by suffixing the words of general importance as has been done in many other provisions such as Section 109 of the Code or Article 133(1)(a) of the Constitution. The substantial question of law on which a second appeal shall be heard need not necessarily be a substantial question of law of general importance. In Guran Ditta v. T. Ram Ditta (AIR 1928 PC 172), the phrase `substantial question of law as it was employed in the last clause of the then existing Section 100 CPC (since omitted by the Amendment Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To be a question of law involving in the case there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. (See : Santosh Hazari v. Purushottam Tiwari (deceased) by Lrs. [(2001) 3 SCC 179]. 24. The principles relating to Section 100 CPC, relevant for this case, may be summerised thus:- (i) An inference of fact from the recitals or contents of a document is a question of fact. But the legal effect of the terms of a document is a question of law. Construction of a document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had discharged its burden of substantiation of the identity, creditworthiness and genuineness of the transactions involving receipt of share application money, it appears that the same is essentially a question of fact. 13. It appears that the Appellate Authority, in the appeal filed by the respondent/assessee before the Commissioner of Income Tax (Appeals) Guwahati, by order dated 18.03.2020 after examining the information and documents furnished by the share holders i.e., M/s. Orchid Finlease Pvt. Ltd. and M/s. Shantidham Marketing Pvt. Ltd. held that both the share holders were genuine and that the identity, creditworthiness and genuineness of the two share holders were established and therefore deleted the impugned addition made in the assessment year in question. 14. It further appears that the Second Appellate Tribunal has also examined the explanation and materials produced by the respondent assessee and has held that no fresh credit has been received by the respondent/assessee in the financial year in question and that unsecured loan has been converted into equity capital by way of journal entry. Accordingly, the Second Appellate Tribunal has held that the Appellate Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of the assessee. For this, let us now into the relevant facts of each investor/s which invested money in the company in the form of share capital along with share premium. -- -- -- (I) Orchid Finlease Pvt. Ltd. (AY 2017-18- Rs. 1.75,54,848) (i) We note from pages 1057-1144 of the paper book, the details of M/s. Orchid Finlease Pvt Ltd are set out. Perusal of the reply furnished by this shareholder in response to the notice issued u/s 133(6) of the Act, shows that the shareholder is a registered non banking finance company (NBFC) holding certificate of registration No. B.08.00108, having PAN AABCG9438Q and CIN: U65929AS 1996PTC004898, which regularly filed its return of income and is assessed under the jurisdiction of ITO Ward 3(1), Guwahati. It is noted that this shareholder had actually advanced loan to the assessee of Rs.2,55,00,000/- in the earlier FY 2015-16 pursuant to a loan cum share purchase agreement dated 11-01-2016. Copy of the said agreement and board resolution approving the same is found placed at Pages 1065 to 1069 of the paperbook. We further note that the said company has provided detailed break-up of loans advanced along with the bank statement evidencing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g source of source of funds to the extent of Rs.1,95,50,000/- was payments received from M/s Darkwell Dealers Pvt. Ltd. It is noted that the AO chose to believe this source of source to the extent of Rs. 19,95,152/- and disbelieved sum of Rs.1,75,54,848/-. We find that no reasons were given by the AO for believing some sums and disbelieving some sums in relation to the same source of source of funds. Even the Ld. CIT, DR was unable to throw light on this apparent irrational action of the AO. In such a scenario, when the A.O is found to be satisfied with the source of source to the extent of Rs.19,95,152/- paid by them, his action of not accepting the balance sum of Rs. 1,75,54,848/- cannot be countenanced. (iv) Perusal of alleged cash trail prepared by the AO in relation to M/s Orchid FinleasePvt Ltd, shows that it was the source of source of M/s Darkwell Dealers Pvt. Ltd. where cash deposits in the account of the payers to the extent of Rs.97,67,000/- were found. Hence, going by this chart, suspicion, if any, gets raised qua the source of source of M/s Darkwell Dealers Pvt. Ltd and not the assessee. There was no evidence whatsoever brought on record by the AO to show that the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO for believing some sums are correct and disbelieving some part of share transactions from the same shareholder, particularly when similar documentation in as much as even the explanation regarding source of source of funds were furnished by the shareholder in the same manner as sought for by the AO under the cover of the same letter furnished in response to AO's notice u/s 133(6) of the Act. The AO has instead made a bald assertion that some of the source of source of funds remained unexplained without giving any cogent basis or reasoning whatsoever. When confronted with this fact, even the Ld. CIT, DR was unable to explain this irrational action of the AO. In such a scenario, when the A.O is found to be satisfied with the identity, creditworthiness and genuineness of the shareholder by his action of accepting the share application of Rs.22.68,50,814/- paid by them, his action of not accepting the balance sum of Rs.32,94,00,000/-, is held to be un tenable/un-reasonable/irrational being arbitrary. (iii) From the audited financial statements furnished, which are found placed at Pages 1180 to 1195 of the paperbook, it is noted that the company was having sufficient own funds i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook. Having perused the same, we find that the assessee had furnished relevant evidences in support of the source of source of funds and that even the AO was unable to point out any defect nor any falsity or infirmity in the documents submitted before him. (v) It is also noted that this shareholder was also subjected to income-tax scrutiny u/s 143(3) of the Act in AY 2017-18. Perusal of the assessment order, copy of which is at Pages 1265-1266 of paper book, shows that the AO of the shareholder did not draw any adverse inference regarding the source of investments made by the shareholder in the assessee company. In the circumstances when the source of funds of the investor had been accepted to be genuine by the AO of the investor, we hold that the AO, in the present case, was unjustified in holding that the source of source of funds remained unexplained. Having regard to the aforesaid facts, we find that not only did the assessee discharge its onus of establishing the identity, creditworthiness and genuineness of the transaction but even the source of source of funds was explained. 11.14 In light of the above, we now proceed to examine whether the decision of the Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was in light of the above conspectus of facts that it was held by the Hon'ble Apex Court, that the Assessee-Company failed to discharge the onus required under Section 68 of the Act. However in the case on hand, we find that, the assessee and all the shareholders had discharged the onus casted upon them under the provisions of Section 68 of the Act which has been elaborated in the preceding paragraph. 16. Reading the aforesaid paragraphs of the impugned Second Appellate Tribunal s order, it is manifestly apparent that the decision of the Second Appellate Tribunal is based on evidence. This Tribunal while exercising jurisdiction under section 260A of the IT Act, cannot reappreciate the evidences on record. It is trite law that the Second Appellate Court under Section 100 of CPC shall not disturb the concurrent findings of the Trial Court and the First Appellate Court unless and until the same is totally perverse. The provisions of section 100 of CPC being applicable in the case of appeal under Section 260A of the IT Act, the Third Appellate Court, i.e. this Court shall not interfere such finding of facts recorded by the First Appellate Tribunal. 17. Reference is made to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Apex Court in the case of Hamida others (supra). Paragraph No. 6 is reproduced hereunder for ready reference:- The High Court has upset the finding of fact recorded by the first appellate court, taking a different view merely on reappreciation of evidence in the absence of valid and acceptable reasons to say that the findings recorded by the first appellate court could not be sustained, either they being perverse or unreasonable or could not be supported by any evidence. The High Court neither framed a substantial question of law nor is any such question indicated in the impugned judgment as required under Section 100 of the Code of Civil Procedure. The approach of the High Court, in our view, is clearly and manifestly erroneous and unsustainable in law. Para 10 of the impugned judgment reads: The appellate court although has decided the issue of personal necessity but from the judgment it appears that the appellate court has not decided this issue in its correct perspective. Since the trial court has not recorded any finding on the issue of personal necessity, the finding recorded by the appellate court cannot be said to be a concurrent finding of fact. I am, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and genuineness of the explanation provided by the assessee. Paragraph 9 of the aforesaid judgment is reproduced hereunder for ready reference: - 9. In effect, the question whether a particular entry in the account book is genuine or not, or whether the assessee is able to show its source is a question of fact, In other words, it only involves appreciation of evidence tendered by the assessee pursuant to a query made by the Revenue. It is for the Assessing Officer to accept the explanation offered or not. No doubt, the first appellate court as also the second appellate court are also empowered to examine the factual background of the issue with a view to examine whether the explanation offered is reliable, adequate or/and proper. But that exercise, the High Court in its third appellate jurisdiction cannot do it by virtue of the specific language employed in section 260A of the Act. 21. Reference is also made to the decision of the Division Bench of the High Court of Madhya Pradesh in the case of Commissioner of Income Tax (supra). Paragraphs 6, 7 8 of the aforesaid judgment are reproduced hereunder for ready reference: - 6. A mere perusal of the aforesaid paragraph would indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by means of cheques, on which too much emphasis is laid by the appellate authorities, is not sufficient to prove the genuineness of the transaction. She would urge that despite summons issued under section 131 of the Act Ajay Gupta, a common director of both the subscribing companies, did not appear before the Assessing Officer with the result that the Assessing Officer could not elicit further information with regard to the transactions in question. It is thus, pleaded that the Tribunal having ignored the relevant factors germane to the determination of question of genuineness of the transactions, its finding, based on irrelevant material, is perverse and, therefore, a substantial question of law does arise from the impugned order. 8. We do not agree. Admittedly, the aforenoted finding of the Tribunal is factual. Therefore, the only question for consideration is whether the said finding could be said to be without any evidence or material or is it contrary to the evidence on record or there is no direct nexus between the conclusion of fact and the primary fact upon which that conclusion is based. It is only under any one of these circumstances, a finding of fact may be interfere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, a Special Leave Petition was filed by the department before the Apex Court which is reported in 2023 452 ITR (St.) 412, wherein the Apex Court was pleased to dismiss the Special Leave Petition. 26. In view of the above, we are of the unhesitant view that the Third Appellate Court under Section 260A of the IT Act cannot decide an appeal which does not involve any substantial question of law and shall also not go into factual finding of facts recorded by the Second Appellate Tribunal unless and until the same is based on no evidence. However, if the decision of the Second Appellate Tribunal is based on evidence, this Court while exercising the jurisdiction of the Third Appellate Court shall not weigh the sufficiency and adequacy of such evidence. 27. In the present case, the decision of the Second Appellate Tribunal being based on evidence, the same cannot be therefore said to be perverse. It is evident that the Second Appellate Tribunal has specifically held that the genuineness and creditworthiness of the transaction in question has been fully established by the assessee respondent. In our opinion, the aforesaid finding being a finding of fact, this Court cannot upset such fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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