Gujarat H.C : The Tribunal was right in law in restoring the order of the Assessing Officer and confirming the addition under section 69 of the Income-tax Act

High Court Of Gujarat

Gopal Iron And Steel Co. (Guj) Ltd. Vs. ITO

Akil Kureshi & Biren Vaishnav, JJ.

Tax Appeal No. 650 Of 2017 With Tax Appeal No. 651 Of 2017

Section 69, 68

Asst. Year 1996-1997

12th September, 2017

Counsel appeared:

VIJAY S RANJAN for the Assessee.: for the Revenue


1. The original order of assessment passed by the Assessing Officer dated 23.3.1999 is taken on record.

2. These appeals involve similar questions in similar background involving the same assessee. We may notice facts from Tax Appeal No.650/2017.

3. The appeal is filed by Gopal Iron and Steel Co. Ltd., the assessee, to challenge the judgment of ITAT dated 7.3.2017 raising the following question for our consideration :

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in restoring the order of the Assessing Officer and confirming the addition under section 69 of the Income-tax Act, 1961?

4. The appeal concerns the assessment year 1996-1997. The assessee company had filed return of income declaring a loss of Rs.9,919/-. The return was taken in scrutiny by the Assessing Officer who passed the order of assessment determining the total income of the assessee at Rs.46.92 lakhs (rounded off) making addition of the same sum under section 68 of the Income Tax Act (“the Act” fort short) on account of unexplained cash credit in the form of share application money. The assessee carried the matter in appeal. After one round of remand, the Assessing Officer passed a fresh order reiterating the same position, upon which, once again the issue travelled before the higher authorities and thereafter, is before us in the present Tax Appeal.

5. The material on record would show that the Assessing Officer during the scrutiny assessment proceedings had noticed several infirmities in the allotment of shares of the company. He confronted the assessee with such material and called upon the assessee to supply confirmation from the share applicant, their PAN, source of money received in share applications etc. The Assessing Officer noted that the assessee filed ITR acknowledgment of 18 parties which constituted share capital of Rs.60,43,000/-. For the remaining parties, confirmation of 26 parties involving share capital of Rs.16,82,900/-were filed without any details like identity, genuineness and credit worthiness of the share capital. The confirmation of such 26 parties were filed in common format. Regarding remaining 145 parties, involving share capital of Rs.30,10,000/-, no confirmations or any other details were provided. The Assessing Officer processed the information on record and made the following observations :

“From the various applications submitted by the assessee company, the bankwise details were prepared and it was surprised to note that demand drafts of the various applicants are having same date, same bank & branch and serially numbered. The bank wise summary of various such demand drafts are as under :

i) Cheques drawn on the Gujarat State Co.op bank ltd., Ahmedabad

State Bank of India

Bank of Baroda

Enquiries were conducted with the Surendra Nagar Dist Coop Bank Ltd Wadhwan City Branch regarding 32 applicants photocopies of slips of demand drafts were called for. On verification of the photocopies it is seen that :

i) The demand drafts are taken by cash payments by various parties in the name of assessee company.

ii) 20 demand drafts were not signed by the applicant where as writing in the applications is of one person.

iii) 12 application slips are signed by the applicants who have applied for the shares, but the signature of the applicant in the bank slip defers with the signature in the application form. However, out of 12, 8 slips are signed by one person named Rameshbhai. Photocopies of these 12 share application forms and bank slipls for DD are enclosed annexed to the order.

iv) In all the 32 applications, break up of cash is not given which indicates that one person has handed over total amount to the banker for taking drafts in different names.

v) All the demand drafts are issued by Wadhwan city Bracnh of SNR Dist Co. Op Bank Ltd whereas the applicants are living in different places like Kherwa, Patdi, Nana Ankleshwar, Dhudhapura, Hirapur, Wadhwan city, etc. and all have approached to the same bank on a specific date at the same time to get demand drafts in favour of assessee company for share application. This facts can also be viewed from the demand drafts serielly issued.

Considering the above facts, modus operandi of the assessee company, share capital of rs.10735900 is divided into following three parts to arrive at a conclusion that whether the assessee company has proved genuineness of the transactions or not.

a) 18 applicants applied for share capital of Rs.6043000 for which confirmations and PA Nos are filed along with ITR acknowledgment are considered as genuine and correct.

b) Confirmations of 26 parties of share capital of Rs.1682900 are filed in common format without any corroborative evidences to prove genuineness and credit worthiness from which source applicant has made application.

c) 145 applicants for share capital of Rs.3010000 no confirmation and source of fund and details regarding source of funds are filed.

In this regard from the enquiry with banks, it is clear that demand drafts are purchased in the various name and applications are made.

As the assessee company has not proved identity, credit worthiness and satisfactory explanations regarding nature and source of credit, therefore as decided by the Delhi High Court in case of CIT vs. Sophia Finance Ltd (19940 205 ITR 98;

“Under section section 68 of the Income-tax Act, 1961, the Income tax officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of the assessee and it is immaterial as to whether the amount so credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. The use of words “any sum found credited in the books” in section 68 indicates that the section is very widely worded and the Income Tax officer is not precluded from making any enquiry as to the true nature and source of a sum credited in the account books even if it is credited as receipt of share application money. There mere fact that the (assessee) company chooses to show the receipt of the money as capital does not preclude the income tax officer from going into the question whether this is actually so. Where, therefore, an assessee company represents that it had issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company.”

Further assessee has not proved ingredients as decided by Calcutta High Court in the case of CIT vs. Precision Finance Pvt. Ltd (1994) 208 ITR 465.”

Therefore, it is clear that assessee has not discharged its onus to prove that share capital is genuine and correct.

Subject to the above discussion, the unexplained credit in the form of share capital of Rs.4692900 (1682900 + 3010000) are held as income chargeable to tax in the hands of the assessee company u/s. 68 of the IT Act during the year under consideration.”

6. Matter then travelled before the CIT (Appeals) and thereafter, before the Tribunal. The Tribunal by the impugned order confirmed the view of the Assessing Officer.

From the above discussion, it can be seen that the entire issue is based on appreciation of evidence and material on record. The Assessing Officer having given detailed reasons which were confirmed by the Tribunal, we do not see any question of law arising. The Assessing Officer noticed that payment of identical amount of Rs.25,000/-was made to as many as 32 parties through demand drafts issued by the same bank i.e. the Gujarat State Co.Op Bank Ltd., Ahmedabad. In majority of such share applicants, the demand drafts were issued on 5.5.1995 with demand draft numbers which were sequential and in continuous order. He also noted that such demand drafts were obtained by payment of cash. 20 of such demand drafts were not signed by the applicant. The writing in the applications was by one single person. In some of the cases, signature of the applicants in the bank slip differ with the application in the share application form. Many of the bank slips were signed by one person. Apparently, cash for 32 applicants was handed over by one person of the entire amount. The demand drafts were issued by Wadhwan city branch of the bank whereas the applicants were living at different places such as Kherwa, Patdi, Nana Ankleshwar, etc.

Learned counsel for the appellant however, relied on decision of Supreme Court in case of Commissioner of Income-tax v. Lovely Export(Private) Limited reported in 216 CTR 195. Such judgment however, cannot be applied in a case where the genuineness of the investors in under serious doubt and Revenue after giving reasonable opportunity to the assessee and on the basis of materials collected, has come to the conclusion that the investors were not genuine which finding the Tribunal has confirmed. The Tribunal being a final fact finding authority, no question of law arises.

Tax Appeals are dismissed.

[Citation : 407 ITR 433]