High Court Of Calcutta
CIT vs. Ruby Traders & Exporters Ltd.
Sections 68, Art. 141
D.K. Seth & R.N. Sinha, JJ.
IT Ref. No. 78 of 1995
12th March, 2003
Counsel Appeared
None, for the Petitioner : D.K. Deb & Md. Nizamuddin, for the Revenue
ORDER
D.K. Seth, J. :
In this case, the AO has disbelieved the genuineness of the subscription received by the assessee from its directors and promoters as well as from the public. On appeal, the CIT(A) had found that proper investigation was not made in respect thereof. Therefore, the matter was remanded to the AO for enquiring the matter afresh on the ground that the earlier enquiry was made in hot haste. On remand, in course of the enquiry, opportunity was given to the assessee. It was found that the income-tax file numbers of the promoters and directors were disclosed and all those payments were made by cheques except a sum of Rs. 20,000 subscribed in cash by one Amarnath Gupta, who is not an income-tax assessee. The rest Rs. 19,88,750 was subscribed by general public. Despite successive opportunity being given, nothing was disclosed about the identity of the subscribers except furnishing a list of subscribers. Therefore, on appeal, the CIT(A) had again remanded the case in respect of shares worth Rs. 3,80,000 for investigation of the income-tax files for ascertaining their creditworthiness and genuineness of the transaction. Whereas CIT(A) had disallowed Rs. 19,88,750 under s. 68 of the IT Act 1961 (Act) on the basis of the finding of facts arrived at by him relying on the materials produced. On appeal, the Tribunal had held that since these were paid by cheques, therefore, this could not have been disallowed. The learned Tribunal had also observed that this was the position in law.
Identical question was involved in Hindusthan Tea Trading Co. vs. CIT (IT Ref. No. 20 of 1996, disposed of on 11th and 12th March, 2003, by this Bench) [reported at (2003) 182 CTR (Cal) 585— Ed.]. All these questions as to the extent of the burden lying on the assessee and its extent of discharge and the duties and the responsibilities of the AO were discussed in detail. Various case laws were also discussed. In course of argument in this case, Mr. Deb had relied on various decisions namely, CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287: (2001) 251 ITR 263 (SC); CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB) and Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC). Relying on these decisions, he contended that in such a case, the IT authority had every right to apply s. 68 of the IT Act. In our view, when s. 68 is resorted to, it is incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the AO to find out as to whether on these materials the assessee was able to establish the ingredients mentioned above. If the finding is in the affirmative, in that event, s. 68 cannot be attracted. If the finding is in the negative, then s. 68 is definitely applicable. It is now a settled proposition of law that the AO can lift the veil and enquire into the real nature of the transaction and enter into those questions. The finding that is arrived at may be a finding of fact, which may be a pure question of fact. It might be a question of inference drawn from the finding of fact, which is a question of law. These are dependent on the facts of each case. Therefore, we are required to examine the facts of this case in order to apply the ratio decidendi in this case as contended by Mr. Deb. Mr. Deb has also contended that the decision in Steller Investment (supra), the SLP against which was dismissed by the Hon’ble Supreme Court, is not a decision binding upon the High Courts under Art. 141 of the Constitution of India. Since, according to him, the Supreme Court had not applied its mind to the ratio and had not discussed the question involved having regard to the law.
Having regard to the order dismissing the SLP, we find that it was purely on a question of fact the Supreme Court did not interfere. That such a decision has no binding effect under Art. 141 of the Constitution would be apparent from the decisions in Municipal Corporation of Delhi vs. Gurnam Kaur AIR 1989 SC 38 (para 11); Gangadharan vs. Janardan Mallar AIR 1996 SC 2124 (para 9); Director of Settlement vs. M.R. Appa Rao 2002 (4) SCC 638 at p. 650, para 7, relied upon by Mr. Deb. In these decisions, it was held that the decision by the apex Court dismissing the SLP without entering into the merits of the case would not he binding under Art. 141. If the SLP is dismissed by non-speaking order, it does not lay down any law. Art. 141 is not applicable on a statement of fact and matters other than law. We have already found that the dismissal of the SLP by the Supreme Court in Steller Investment (supra) has no binding effect under Art. 141 and as such the Full Bench decision in Sophia Finance Ltd. (supra) overruling CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del) is not a judgment per incuriam.
7. Therefore, having regard to the decision in law and the decision cited, the question remains open to be decided according to the settled principle of law. Mr. Deb has also relied on a decision in CIT vs. Korlay Trading Co. Ltd. (1999) 152 CTR (Cal) 17 : (1998) 232 ITR 820 (Cal). In the said decision, it was held that mere furnishing of income-tax file numbers are not sufficient. In fact, once these materials have been produced, it is incumbent on the AO to enquire into the same. In this case, in respect of shares worth Rs. 3,80,000, direction was rightly given to undertake investigation in order to establish the creditworthiness of the subscriber and genuineness of the transaction. But in respect of the rest of the shares worth Rs. 19,88,750 except disclosing the list of subscribers nothing has been produced before the authority either for establishing the identity of the subscribers or for proving their creditworthiness and the genuineness of the transaction. Even if such payments are made through bank and by cheques still then in view of the settled proposition of law, the AO can enquire into the same and it is the assessee who has to satisfy the AO about the genuineness of the same in the manner as discussed above and in Hindusthan Tea Trading Co. (supra). On failure to do so, s. 68 would visit the assessee with all its consequences. The finding of the learned Tribunal does not seem to be supported by law. On the other hand, it is wholly contrary to the settled principle of law. We may beneficially refer to the observation made by the learned Tribunal in order to emphasize the drawback in the said finding in clear terms. “After examining the facts, the contents from the paper book, the relevant evidence regarding the collection of share capital from the general public, the provisions of s. 68 of the IT Act, 1961, and the case law cited on behalf of the appellant, company firstly we are unable to hold that the collection of share-capital can be treated as cash credits. Secondly, it is beyond doubt that the appellant has collected the share capital from the public issue and accounted for the same. We are unable to accept that the promoters and directors invested their own money in the names of others. In view of the judgment of the Supreme Court in CIT vs. Bharat Engineering & Construction Co. 1972 CTR (SC) 247 : (1972) 83 ITR 187 (SC) and the decision of the Bombay Bench of the Tribunal in ITO vs. Shri Krishan Chand (1991) 38 ITD 552 (Bom) and Delhi Bench of the Tribunal in Standary Cylinders (P) Ltd. vs. ITO (1988) 24 ITD 504 (Del) we are not inclined to agree with the view held by the AO as well as by the CIT(A) in this respect. These entire evidence and the case law lead us to arrive at a conclusion that the share capital collected by the appellant-company cannot be treated as cash credits under s. 68 of the IT Act and no addition or disallowance of the same can be made.”
8. Having regard to the proposition of law as discussed by us in Hindusthan Tea Trading Co. (IT Ref. No. 20 of 1996) (supra) and the facts and circumstances as discussed hereinbefore, the reasons given by the learned Tribunal appears to be contrary to the settled principles of law. As such we are unable to persuade ourselves to agree with the same. We, therefore, answer question No. 1 in the affirmative in favour of the Revenue and question No. 2 in the negative against the assessee. The Reference is hereby thus disposed of.
R.N. SINHA, J. : I agree.
[Citation : 263 ITR 300]
