Delhi H.C : All applicants had given confirmation of advancing money, and assessee had proved identity and creditworthiness of applicants

High Court Of Delhi

CIT vs. VLS Foods (P.) Ltd.

Assessment Year : 2001-02

Section : 68

A.K. Sikri And M.L. Mehta, JJ.

IT Appeal Nos. 1150 Of 2009 And 596 Of 2010

July 25, 2011


1. In the return filed by the respondent/assessee in respect of assessment year 2001-02, the Assessing Officer found that the assessee had received fresh share application/money of Rs. 31,66,000/- and loan of Rs. 2,25,000/- during the year. The Assessing Officer took the view that the assessee could not prove the identity of some of the creditors and creditworthiness of the share applicant as well as creditors and genuineness of the transactions and made the additions of Rs. 28,15,000/-. Likewise, Rs. 2,25,000/- which was given by Mr. G.L. Sharma, father of the Managing Director of the company, the Assessing Officer took the view that the creditworthiness of Mr. G.L. Sharma was not proved and thus made additions of Rs. 2,25,2000/- as well on account on unexplained cash credit under Section 68 of the Income-Tax Act. In fact Mr. G.L. Sharma had also subscribed to the share capital in the sum of Rs. 12,50,000/- which was part of the addition made by the Assessing Officer insofar as share application money is concerned. The appeal of the assessee was Bartly allowed. The CIT (A) sustained the addition to the extent of Rs. 19,85,000 in respect of share application money reducing the same from Rs. 28,15,000/-. The CIT (A) also confirmed the addition of Rs. 2,25,000/-. Both the Revenue as well as the assessee had filed the appeals. The Tribunal has dismissed the appeal of the Revenue but allowed the appeal of the assessee. Insofar as appeal of the assessee is concerned, the additions primarily made on account of the share applications money contributed by Mr. G.L. Sharma, the Tribunal, after analyzing the evidence on record and explanation submitted by the assessee had accepted the contention of the assessee that Mr. G.L. Sharma was a person of means and subscribed to the share capital and had sufficient means to cash credit of Rs. 2,25,000/-. The findings of the Tribunal in this respect are as under:-

“We have duly considered the rival contentions and gone through the records carefully. The contention of the assessee is that this is the first year of the company and before commencement of commercial production, the shares application money has been received by it. Apart from this assessee has prove the identity of the share applicant Shri G.L. Sharma. It has also proved the genuineness of the transaction. The only objection of the revenue emerges out from the record is that Shri G.L. Sharma has no known course of income, therefore, this amount should be added as unexplained cash credit in the hands of the assessee. In our opinion, the assessee has no unexplained money which could have been routed through Shri GL Sharma. It has received the share application money prior to the commencement of the commercial production. Apart from the above assessee has produced a document alleged to be will of Shri GL Sharma. It exhibits the distribution of property amongst the worth family members. He has agricultural land in the past and house which means that he is a man of means and he distributed lots of assets among the beneficiaries on account of natural relationship. His creditworthiness in a way cannot be doubted. Therefore, we delete the addition of Rs. 12,50,000/- confirmed by the CIT (Appeals).”

2. Even with regard to other share applicants, the ITAT has held that the assessee has been able to prove the identity of the applicants and their creditworthiness which is clear from the following:-

“As far as the other share applicants’ money are concerned, the assessee has proved the identity of the applicant. Mode of receipt of the money and also raised the plea that these amounts have also been received prior to the commencement of the commercial production. A sum of Rs. 1,65,000/- is appearing in the name of Shri Jitender Kumar Sharma. He submitted that this investment was made on receipt of money from Shri GL Sharma. The addition has been made on the ground that creditworthiness of Shri G.L. Sharma has been doubted. How he could have given loan to Shri Jitender Sharma. Since we have deleted the addition appearing against the name of Shri GL Sharma on same logic this addition is also not sustainable. More particularly, the identity of share applicant has not been doubted. In that situation, the decision of Hon’ble Delhi High Court in the case of Sophia Finance Ltd. 205 ITR 98 is applicable on the facts and circumstances of the case. As far as cash credits appearing in the name of six persons noted at page 6 of the present order is concerned, we are of the view that the first amount of Rs. 1,50,000/- is relatable to Shri GL Sharma basis of his will and we have already deleted an addition of Rs. 12,50,000/- therefore, adopting similar yard stick, this addition is also deleted. With regard to the other cash credits are concerned, all the creditors have given confirmation of advancing money, they have filed their affidavits deposing therein that money has been given to the assessee. These are the small amounts varying in between Rs. 5,000/- to Rs. 20,000/-the creditors have confirmed the transaction. The Assessing Officer has doubted about their creditworthiness only. We find that amounts are very small and even a deposit of Rs. 5000/- and Rs. 20,000/- can be expected from the saving of labour. Therefore, taking into consideration all the facts and circumstances, are of the view that assessee has explained the source of share application money received by it as well as the alleged unexplained credit. We allow the ground of appeal raised by the assessee and delete the addition of Rs. 19.85 lacs and Rs. 2.25 lacs made by the Assessing Officer.”

3. These are pure findings of facts. No question of law arises. These appeals are accordingly dismissed.

[Citation : 341 ITR 570]

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