Gujarat H.C : Whether from the facts and circumstances of the case the assessee discharged the onus as per the provisions of s. 68 of the IT Act for the cash credits ?

High Court Of Gujarat

CIT vs. Ujala Dyeing And Printing Mills (P) Ltd.

Section 68

Asst. Year 2002-03

K.A. Puj & Bankim N. Mehta, JJ.

Tax Appeal No. 375 of 2008

30th July, 2008

Counsel Appeared :

Mrs. Mauna M. Bhati & Manish R. Bhatt, for the Appellant : None, for the Respondent

JUDGMENT

K.A. Puj, J. :

Heard Mrs. Mauna M. Bhatt, learned standing counsel appearing for the Revenue.

2. The Revenue has filed this tax appeal under s. 260A of the IT Act, 1961 (“the Act” for short) for the asst. yr. 2002-03 proposing to formulate the following substantial questions of law for the determination and consideration of this Court :

“(A) Whether from the facts and circumstances of the case the assessee discharged the onus as per the provisions of s. 68 of the IT Act for the cash credits ?

(B) Whether on the facts and circumstances of the case the Tribunal was justified in law to delete the addition on account of cash credits of Rs. 50,00,000 under s. 68 of the IT Act without considering the evidence on record and on the basis of incorrect interpretation and application of law ?”

3. The brief facts giving rise to the present appeal are that the return of income was filed by the assessee on 31st Oct., 2002, declaring total income of Rs. 3,00,210. The assessment under s. 143 (3) of the Act was completed on 30th March, 2005, determining the total income of Rs. 54,47,370 including additions made on account of unexplained cash credit of Rs. 50,00,000 and 1/5th of motor car depreciation and the tax payable was worked out at Rs. 24,65,711. During the course of assessment proceedings, it was noticed by the AO that the company had received a sum of Rs. 50,00,000 from five parties on account of share application money. There was no due compliance from these creditors to the notices issued under s. 133(6) of the Act. However, at the end of assessment proceedings, all these five parties filed their confirmations along with their bank statements. An inquiry was also conducted by the AO. At the end of inquiry, the AO passed an order and made addition of Rs. 50,00,000 under s. 68 of the Act.

Being aggrieved by the said order of the AO, an appeal was filed before the CIT(A)-II, Ahmedabad, who had confirmed the said additions.

Being further aggrieved by the order of the CIT(A), the assessee took up the matter before the Tribunal and the Tribunal has deleted the additions of Rs. 50 lakhs.

In the above factual background, the present tax appeal is filed by the Revenue. Mrs. Mauna Bhatt, learned standing counsel for the Revenue, has sub- mitted that both the AO as well as the learned CIT(A) considered the facts and circumstances of the case and the addition of Rs. 50 lakhs made by the AO on account of cash credit under s. 68 of the Act was upheld by the CIT(A). She has further submitted that, while reversing the finding given by the AO and the CIT(A), the Tribunal has not considered the relevant issues and without dealing with those findings straightaway deleted the additions. She has, therefore, submitted that the same is contrary to the law laid down by this Court in the case of Ramesh Chandra M. Luthra vs. Asst. CIT (2002) 176 CTR (Guj) 39 : (2002) 257 ITR 460 (Guj). She has further submitted that creditworthiness of the five companies was not established and, hence, additions were wrongly deleted by the Tribunal. She has, therefore, submitted that the substantial question of law arises out of the order of the Tribunal.

We have considered the submissions made by the learned standing counsel for the Revenue and we have also perused the orders passed by the authorities. It is pertinent to note that right from the assessment stage, all relevant details were furnished by the assessee in pursuance of the inquiry conducted by the AO with regard to cash credit of Rs. 50 lakhs. The AO had inquired about the share application money and the following documents were submitted during the course of assessment proceedings :

(i) Confirmation of all five share applicant-companies;

(ii) Permanent account number (PAN);

(iii) Resolution passed by all the five applicants for investment in M/s Ujala Dyeing and Printing Mills (P) Ltd. (iv) Details of D. D. through which amounts were invested;

(v) Acknowledgment of return of income held by all the five share applicant-companies for the asst. yr. 2002-03;

(vi) Duly audited balance-sheet of all the five share applicant-companies for the financial year 2001-02 along with the audit report.

11. On making independent inquiry by the AO by issuing notice under s. 133(6) to all the five share applicant- companies, the following further details were supplied by them; (a) Covering letter in reply to the said notice by speed post; (b) Explanation of the sources from which investments were made by the respective companies; (c) Copy of the bank statement showing the aforesaid transaction.

12. The following facts are apparent on record to establish the creditworthiness of the share applicant-companies;

(i) All the applicant-companies are 9 to 10 years old companies as can be verified from the date of incorporation written on the return of income;

(ii) All the share applicant-companies are having authorized and paid up share capital ranging from 50 lakhs to 65 lakhs;

(iii) All the share applicant companies are non-banking finance companies registered with the RBI to carry on the business of non-banking financial institution;

(iv) All the companies have substantial investments ranging from Rs. 65.10 lakhs to Rs. 96.16 lakhs in other companies;

(v) Annexures of investment shows the name of M/s Ujala Dyeing & Printing Mills (P) Ltd. in whose share capital those companies have made investment;

(vi) All the applicant-companies are assessed to tax and assessment order has been received by them for the relevant asst. yr. 2002-03.

13. On the basis of the aforesaid details, the AO has accepted the proof of identity of the companies, which had made share application in the assessee-company. The AO has also accepted that all the companies were having regular bank accounts from which DDs for share application money were issued. However, the AO has not found the creditworthiness of the five companies and on that count, additions were made. Even while appreciating the evidence, the learned CIT(A) has observed in his order that the AO has made intensive inquiry to unearth the assessee’s own money coming in the form of share application money from such companies which do not have source. He has further observed that the three ingredients, namely : (1) identity of the creditor; (2) his creditworthiness; and (3) genuineness of the transactions, are not fulfilled. He had, therefore, confirmed the additions made by the AO. On these very materials, the Tribunal has come to a finding that the assessee has clearly discharged its onus of proving identity of parties, genuineness of transaction and creditworthiness of share applications in as much as evidently their returns of income, assessment orders, balance-sheets showing investment, explanation regarding how they raised funds have been submitted before the lower authorities. The Tribunal has also found that the adverse inference drawn by the AO is misplaced as their expectations from the assessee travelled beyond the ingredients of onus as prescribed by s. 68 of the Act. After giving this factual finding, the Tribunal has referred to the decision of this Court in the case of CIT vs. Pragati Co-operative Bank Ltd. (2005) 197 CTR (Guj) 505 : (2005) 278 ITR 170 (Guj) and held that the AO has gone beyond the same on assumption and also observed that though all assessments were finalized, the AO has doubted certain sale of shares made by these parties.

14. From the aforesaid facts, we are of the view that the Tribunal has con-sidered each and every finding recorded by the AO as well as the CIT(A), Ahmedabad and it cannot be said that the points raised before the AO as well as the first appellate authority were not dealt with by the Tribunal. Hence, reliance placed on the decision of this Court in the case of Ramesh Chandra M. Luthra vs. Asstt. CIT (2002) 176 CTR (Guj) 39 : (2002) 257 ITR 460 (Guj) by the learned standing counsel for the Revenue is uncalled for. Since the Tribunal has recorded findings of fact and after appreciation of the evidence has come to the correct conclusion, we are of the view that no substantial question of law arises out of the order of the Tribunal. We, therefore, dismiss the appeal.

[Citation : 328 ITR 437]