High Court Of Madras
CIT vs. Gobi Textiles Ltd.
Section 68
Asst. Year 1996-97
K. Raviraja Pandian & Mrs. Chitra Venkataraman, JJ.
Tax Case (Appeal) Nos. 439 & 440 of 2004
4th September, 2007
Counsel Appeared :
J. Narayanaswami, for the Appellant : V.S. Jayakumar, for the Respondent
JUDGMENT
K. RAVIRAJA PANDIAN, J. :
The relevant assessment year is 1996-97. The appeal is filed formulating the following substantial questions of law:
“1. Whether on the facts and circumstances of the case, the burden cast on the assessee by Expln. 1(B) to s. 271(1)(c) stands discharged by the assessee providing basic information without substantiating the same ?
Whether in the facts and circumstances of the case, the Tribunal was right in holding that the onus of proving the source for the share application money is not entirely on the assessee, but largely on the AO ?
Whether in the facts and circumstances of the case, the AO has to prove that the cash credit is unexplained or that the explanation given is not true, to make an addition under s. 68 of the IT Act ?”
2. The necessary facts as culled out from the statement of facts are as follows :
For the asst. yr. 1996-97, the assessee company filed its return of income on 29th Nov., 1996 declaring a total loss of Rs. 72,21,172. The assessment was completed under s. 143(3) of the IT Act on 12th Sept., 1999 determining the net loss of Rs. 21,56,526 after considering the unexplained cash credit of Rs. 56,47,470.
3. While processing the assessment, the AO found a sum of Rs. 72.90 lakhs was received in the financial year 1996-97 as share application money thereby the assessee company’s share capital was increased to Rs. 1,67,88,000. Out of Rs. 72.90 lakhs received, a sum of Rs. 53,88,100 was claimed to have been received from persons who were not income-tax assessees. Hence the assessee was required to prove the genuineness of the transactions by producing persons who have deposited more than Rs. 1 lakh. The assessee company produced salary certificates of 10 persons and land holding papers of certain properties but not produced any persons. On consideration of the particulars furnished by the assessee, the AO was of the view that except one person others were not capable of depositing money in cash out of their savings. On that view, the AO treated the share application money of Rs. 53,88,100 as unexplained cash credit under s. 68 of the IT Act and added the same in the income of the assessee. On appeal, the CIT(A) upheld the order of the AO. While so, in a separate proceeding, the Jt. CIT initiated penalty proceeding under s. 271(1)(c) for concealment of income and levied penalty, which was also confirmed by the CIT(A) on appeal. As against the orders of CIT(A) confirming the assessment order as well as imposition of penalty, two appeals were filed before the Tribunal. The Tribunal on the basis of the materials on record held that the assessee had discharged the onus cast upon it by providing the basic information, and the AO failed to disprove the claim of the assessee as not genuine. By so holding, the Tribunal allowed both the appeals. The correctness of the said order is now put in issue before this Court.
We heard the argument of the learned counsel on either side and perused the materials on record. The ultimate fact finding authority—the Tribunal in its order, which is impugned in these appeals, has recorded a clear finding to the effect that in the instant case, the AO had listed the shareholders and found some of them were retired employees of the bank, some of them were working employees of the bank and rest of them were agriculturists. The AO did not dispute that those persons did not exist. Though the AO directed the assessee company to produce the persons, he did not take the minimum pain of issuing notice to any one of the persons when the details about them were very much available with him. Thus the AO failed in his duty and obligation to disprove the claim of the assessee to the effect that the depositors were not genuine persons. The Tribunal further recorded a finding that the action of the AO in arriving at a conclusion that the persons with low salary income would not have mobilised the fund was based on wild guess and doubting the capacity of the persons on surmises. It further held that the AO failed to prove that the shareholders were not possessing money to pay the share application money. According to the Tribunal, the assessee discharged the onus cast upon it by providing the basic materials and it was the AO who failed to prove the contrary. Learned counsel appearing for the Revenue relied on a latest decision of the Supreme Court in the case of CIT vs. P. Mohanakala (2007) 210 CTR (SC) 20 : (2007) 291 ITR 278 (SC). We have gone through the said judgment, wherein the Supreme Court after referring to s. 68 of the IT Act has held as follows : “The question is what is the true nature and scope of s. 68 of the Act ? When and in what circumstances would s. 68 of the Act come into play ? A bare reading of s. 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the AO is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year.
The expression ‘the assessees offer no explanation’ means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the AO for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.” If the above observation of the Supreme Court is applied to the facts of the present case, the decision straightly staring at the Revenue because the explanation offered by the assessee cannot by any stretch of imagination be considered as unreasonable or not acceptable explanation as regards the sum credited in the books maintained by the assessee. Further, the opinion of the AO which was required to be formed objectively with reference to the material available on record was also not formed nor viewed as directed by the Supreme Court in the abovesaid decision. Above all, the issue is one of factual in nature and the question of law, which is the basic requirement for filing an appeal under s. 260A of the IT Act is not available. The Division Bench of this Court in the case of CIT vs. Electro Polychem Ltd. made in Tax Case (Appeal) Nos. 782 and 783 of 2007 dt. 21st June, 2007 [reported at (2008) 9 DTR (Mad) 51—Ed.] had an occasion to consider the issue similar to the issue in the case on hand and rejected the case of the Revenue. The relevant portion of the order reads as follows :
3. In CIT vs. Stellar Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del), where the increase in subscribed capital of the respondent company, accepted by the ITO and rejected by the CIT on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares, with the help of formation of an investment, which was reversed by the Tribunal, the Delhi High Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company.
4. The view taken by the Delhi High Court in CIT vs. Stellar Investment Ltd. cited supra, was confirmed by the apex Court and the same was reported in CIT vs. Stellar Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC).” In the case of CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB), the Delhi Court has observed that an enquiry by the AO as to the existence or nonexistence of the shareholder and about their creditworthiness is condition president (sic-precedent) for treating the cash credit as the income of the company. No such enquiry was conducted by the AO in this case. For the foregoing reasons, and in the light of the law laid down by Court referred to supra, the quantum appeal is dismissed. Consequently, the appeal against the order of setting aside the imposition of penalty is also dismissed.
[Citation : 294 ITR 663]
