Madhya Pradesh H.C : once the identity and source of the subscribers of the share is established no addition can be made under section 68 of the Income-tax Act

High Court Of Madhya Pradesh, Indore Bench

CIT-II, Indore Vs. Stl Extrusion (P) Ltd.

Assessment Year : 2000-01 and 2002-03

Section : 68

Shantanu Kemkar And S.K. Seth, JJ.

IT Appeal No. 65 Of 2010

October 25, 2010

ORDER

1. Heard on the question of admission.

This is an appeal under section 260A of the Income-tax Act, 1961 challenging the order dated 10-5-2010 passed by Income-tax Appellate Tribunal, Indore Bench (for short Tribunal) in IT (SS)A.No. 259/Indore/2008 and 260/ Indore/2008 bearing assessment years 2000-01 and 2002-03.

2. Brief facts necessary for disposal of this appeal are that on the basis of search and seizure operation carried out under section 132(1) the respondent was served with a notice under section 153(c) read with section 153A of the Income-tax Act on 24-5-2004. The assessee filed its return of income declaring total income as Rs. Nil. The case was picked up for scrutiny and notice under section 143 of the Act was served upon the assessee. The respondent/assessee appeared before the Assessing Officer. The Assessing Officer on consideration of the contention raised by the assessee in respect of Share Application Money received by the assessee during the relevant year found that the assessees had received Share Application Money from few persons who are not assessed to income-tax and PAN was not mentioned. The Assessing Officer disbelieved the affidavits filed by the said persons observing that the signatures made on the same page of the deponents differs.

3. Aggrieved the respondent filed an appeal before the Commissioner of Income-tax (Appeals), Indore. The Commissioner vide order dated 18-9-2008 dismissed the appeal filed by the respondent.

4. The said order was challenged by the respondent before the Tribunal, the Tribunal by the impugned order dated 10-5-2010 allowed the appeal of the respondent by observing thus :—

“3. We have considered the rival submissions of ld. Representatives of both sides and perused the material available in record. Ground No. 1 is general in nature, therefore, requires no deliberation from our side. For ground No. 2 the brief facts are that the assessee-company is engaged in the business of manufacturing and trading of PVC rigid pipes, originally filed its return of loss of Rs. 22,91,022 on 30-11-2000. A search under section 132 was carried out at the premises of the assessee company on 8-10-2003. Consequent to search, a notice under section 153C read with section 153A was served upon the assessee on 3-6-2004 to which the assessee again filed the return of loss i.e., Rs. 22,91,022 as originally filed. During assessment proceedings the assessee was asked about the details of increase in share capital of the assessee to which the assessee filed a list containing nine shareholders from whom the share capital of Rs. 1,59,300 and Rs. 15,31,200 was received. The assessee also filed confirmation from the subscribers through duly notarized affidavit containing the details like name, address, age, source of income, annual income, date of purchase of application of share tendered, number of shares purchased along with the amount given by subscribers. On receipt of these confirmations, neither anything was asked from the assessee nor any inquiry was made. The addition of Rs. 1,59,300 was made by the Assessing Officer by observing as under :

On perusal of submission made by the assessee in respect of share application money received by the assessee during the year. It is seen that in respect of the following persons the assessee has received share application money in cash. These persons are not assessed to income-tax and PAN are not mentioned. On perusal of affidavits filed, it is seen that all the affidavits are in the handwriting of one person. It is also noticed that even on the same page the signatures of deponent differs. It is quite unlikely that when a person applying huge amounts such as Rs. 5,00,000 are more is not assessed to tax. Hence considering the above, the names of the persons are not genuine and it is the unexplained money of the assessee, which is introduced by the assessee-company under the name of share application money. These persons appear to be dumy persons and hence the entire amount of the share application money is considered as Bogus share application money. The assessee-company has not proved the genuineness of such person and also not proved their capacity to apply for such huge amount. These are dumy and the assessee company has introduced its own money as share application money.

4. On appeal, the ld. appellate authority by following the decision of the Hon’ble jurisdictional High Court in the case of CIT v. Rathi Finlease Ltd. 215 CTR (MP) 429 to the effect that onus is on the assessee to establish the genuineness of the credits, affirmed the stand of the Assessing Officer which is under challenge before the Tribunal. We have found that the impugned addition under section 68 of the Act has been made by the learned Assessing Officer by suspecting that the share application money is bogus without appreciating the fact and been the contents of the affidavit have not been disapproved. Thus undisputed fact is that the assessee has proved the identity of the subscribers, with the help of affidavits which were not found to be bogus or false. An affidavit is not a mere piece or paper rather it carries its authenticity as the contents of the same are duly sworn before a Magistrate, or a Notary Public/Oath Commissioner, as the case may be. During signing of these affidavits, the deponent appears before the person before whom they are sworn and their signatures are duly taken on the register maintained by such Notary Public. If the Assessing Office was apprehensive on the authenticity of such affidavit, nothing prevented him to cross examine the deponents and to verify the contents of such affidavit but that was not done in the present appears. Therefore, in view of a decision of the Hon’ble Apex Court in the case of Mehta Parikh & Co. v. CIT (supra), these affidavits become un-challengeable. The ratio laid down by the Hon’ble Delhi High Court in the case of CIT v. Shiv Prasad Agrawal ( 306 ITR 324) (relevant page 326) further fortifies our view. As far as the reliance of the revenue upon the decision from Hon’ble jurisdictional High Court in the case of Rathi Finlease Ltd. (supra) to the extent that the assessee has to establish the genuineness of the credits, we are in full agreement with the argument but in the present appeal the assessee has duly established the identity, source of the credits. Even it is not the case that the shares have been issued to non-existing persons. Broadly we are of the view that once the identity and source of the subscribers is established for making share application, no addition can be made under section 68 of the Act because even the Hon’ble Apex Court in the case of CIT v. Lovely Exports (P.) Ltd. 216 CTR (SC) 195 even stepped ahead by concluding as under :—

If the share application money is received by the assessee-company from alleged bogus shareholders whose names are given to the Assessing Officer then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee-company.

Our view if further fortified by the decision of the Hon’ble Delhi High Court in CIT v. Divine Leasing & Finance Ltd. General Exports & Credit Ltd., and Lovely Exports (P.) Ltd. [2008] 299 ITR 268 wherein it was held that it is the duty of the Assessing Officer to investigate the credit-worthiness of the shareholders and in view of the finding that the assessee proved genuineness of shareholders no addition can be made under section 68 of the Act. In the present appeal, since the assessee has discharged its onus by proving the identity of subscribers and even otherwise had any suspicion still remained in his mind, nothing prevented him to initiate action as per the provisions of the Act. The existence of subscribers to share application is not in doubt as the assessee duly furnished their names, age, address, date of filing the application, number of shares for which respective applications were made, amount given and the source of income of the applicant. In view of these facts, we are of the considered opinion that there is no justification for making the impugned addition because once the existence of the investor/share subscribers is proved, onus shifts on the revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee-company itself. Once the confirmation letters are filed, no addition can be made on account of share application money in the hands of the company. Our view finds support from the decision in Shri Barkha Synthetics Ltd. v. ACIT 155 Taxman 289 (Raj.). The case like CIT v. G.P. International Ltd. 229 CTR (Punj. & Har.) 86, CIT v. Steller Investment Ltd. 192 ITR 287 and Sophia Finance Ltd. 205 ITR 98 (Delhi) supports the case of the assessee.

4. As far as charging of interest under section 243B is concerned, it is argued to be consequential in nature. We have found that no specific section has been mentioned for charging of interest and merely it has been mentioned that charge interest if any, as per law. However, since the issue of share application has been decided in favour of the assessee and the addition made under section 68 of the Act has been deleted, therefore, charging of interest is consequential in nature meaning thereby that it is not leviable/chargeable.”

5. Shri R.L. Jain, learned Senior counsel for the appellant argued that the Tribunal has committed error in not considering the law laid down by this Court in the case of CIT v. Rathi Finlease Ltd. [IT Appeal No. 63 of 2004, dated 11-10-2007] in which it has been laid down that onus is on the assessee to establish the genuineness of the credits. He also argued that no opportunity was available to the appellant to controvert the affidavits.

6. Having considered the contention of the appellant we find that the Tribunal has taken note of judgment of this Court in the case of Rathi Finlease Ltd. (supra) as also the various judgments of the Supreme Court as well as Delhi High Court and has held that though it is the duty of the assessee to establish the genuineness of the credits but in the present case the assessee has duly established the identity and source of credits. The Tribunal has also held that once the identity and source of the subscribers of the share is established no addition can be made under section 68 of the Income-tax Act. The assessee having duly furnished the names, age, address, date of filing the application of share, number of shares of each subscriber there was no justification for the Assessing Officer for making the impugned addition because once the existence of the investors/share subscribers is proved, onus shift on the revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee itself. We also find that after filing of the affidavits of the said subscriber the appellant at no stage of the proceedings sought any opportunity to rebut the said affidavits.

7. Having regard to the aforesaid in our considered view no question of law much less substantial question of law arises in this appeal. Accordingly, the appeal fails and is hereby dismissed.

[Citation : 333 ITR 269]

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