Commissioner Of Income Tax-Iii v. Sham Mohan Pvt. Ltd

IN THE HIGH COURT OF DELHI AT NEW DELHIITA No.972 ol 2OO9t ITA No.1324 of 2OO8, ITA No.29 of?OLO, ITA No,1228 of 2O1O, ITA No.1229 of 2O1O, ITANo.123O of 2O1O, ITA No.17LO/2OLO, ITA No.8 of 2OLL,ITA No.339 of ?OLL. ITA No.613 of ZOLL and ITA No.726 of2011Reserved on: 25th November, 2077o/oPronounced on: 23'd December, 20771)ITA No.972l2OO9Commissioner of Income Tax -II,Central Revenue Building,New DelhiAppellantVERSUSKamdhenu Steel & Alloys Ltd..Respondent2)ITA No.1324l2OO8Gupta Citi Shelters Ltd.AppellantVERSUSCommissioner of Income Tax, New Delhi.Respondent3)ITA No.29l2O1OCommissioner of Income Tax. AppellantVERSUSVijay Foils P. Ltd..Respondent,4),ITA No.1228l2O1OInfomediary India Pvt. Ltd.. . . AppellantVERSUSCommissioner of Income Tax. . .Respondents)ITA No.1229l2O1OInfomediary India Pvt. Ltd.. . . AppellantITA Nos.132412008, 29/20t0, 7228/20L0, L229/20L0,L230/20LO, 8/20Lt, 339/201t,6L3/20LL, 726/20LI of 2009Page 1 of 3 Signature Not Verified t } t Commissioner of Income Tax-III VERSUS . . .Respondent Sham Mohan Pvt. Ltd. Counsel forthe Assessee - Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Somnath Shukla, Advocates. Dr. Rakesh Gupta with Ms. Rani Kiyala & Ms. Poonam Ahuja, Advocates.Mr. Salil Kapoor with Mr. Sanat Kapoor, Mr. Ankit Gupta and Mr. Vikas Jain,Advocates. Mr. Chandra Shekahar with Mr. Manoj Agrawal and Ms. Meghna De, Advocates. Mr. S.K. Arora with Mr. Bharat Arora, Advocates. Mr. C.S. Aggarwal with Mr. Prakash Kumar, Advocates. Counsel for the Revenue - for the Revenue - the Revenue - Revenue - - Counsel for the Revenue - for the Revenue - the Revenue - Revenue - - Mr. Kiran Babu, Sr. Standing Counsel, Ms.Rashmi Chopra, Sr. Standing Counsel, Mr. N.P. Sahni, Sr. Standing Counsel, Mr.Sanjeev Sabharwal, Sr. Standing Counsei, Mr. Sanjeev Rajpal, Sr. StandingCounsel, Mr. Kamal Sawhney, Sr. Standing Counsel. CORAM :-HON'BLE THE ACTING CHIEF JUSTICEHON'BLE MR. JUSTICE M.L. MEHTA A.K. SIKRI (Actinq Chief Justice) 1. For orders, see ITA No.972 of 2009. ffifr ACTING CHIEF JUSTICE 6r-^<Pn,z/ (M.L. rienra;JUDGE DECEMBER 23, 2011 pmc ITA Nos.1324/2008, 29/2010, I228/20L0, 1229/2010, 7230/2070, 8/20II, 339/20L7,6L3/2:0LL, 726/20Lt of 2009 Page 3 of 3 IN TI{E HIGH COUR.T OF DELhII AT R{EW DEI-HII'll'A Flo,9 72 of 2OO9, ITA h{o. L324 of 2OO8, ITA l\1o.29of 2OLO, i[TA No.1228 of 2O10/ ITA No.L229 of' 2010,ITA No.L230 of 2O1O, ITA No.tr 71,O/2O1,O, ITA No.E of?ALL. ITA No.339 of 2OLL( ITA No.613 of 2OtL anclITA No.726 of 2O1"! ,'Reserved on: 2Srh November, 2077o/oPronounced on: 23'd Dql:qnhgr, 20771)ITA No.972l2OO9Cornmissiorre:r of Income Tax -II,Central Revenue Building,New Delhi. . . AppellantVERSUSKamdhenu Steel & Alloys Ltd.. Respondent2)I'rA ruo.rS24l2OOE\TGupta Citi Shelters Ltd.. . AppellantVERSUSCcmmissioner of Income Tax, New Delhi,.Respondent3)ITA lr{o=29|,?ALOCommissioner of Income Tax. . Appellant\/ERSUSVijay Foils P. Ltd.. Respondent-ii4)ITA F|o.L228/2O1OaoInfomediary India Pvt. Ltd.. . . AppellantVERSUSITA No,972 of 2009Page 1 of 58 r JBA Enterprises [(Pvt,) ][Ltd ] VERSUS Income Ta>< Officer,Ward 4(I), New Delhi '' ' 'Respondent 11) IlfA No.726l2o11 Commissioner of [Income ][Tax-III ] ' ' ' [Appellant] VERSUS Sham Mohan Pvt. [Ltd] Mr. Ajay Vohra [with] counsel for theAssessee [- ]Ms.KavitaJhaandMr.SomnathShuk|a,Advocates' Dr. Rakesh Gupta [with ][Ms. Rani ][Kiyala & ][Ms.'Poonam ][Ahuja, Advocates']Mr. Salil Kapoor with [Mr. ][sanat ][Kapoor, ][Mr. ][Ankit ][Gupta and ][Mr. ][Vikas]Jain, Advocates. t Mr. Chandra Shekahar [with ][Mr. ][Manoj Agrawal ][and ][Ms. ][Meghna ][De']Advocates. Mr. S.K' Arora with [Mr. Bharat Arora, Advocates']Mr. C.S. Aggarwal [with ][Mr. ][Prakash ][Kumar, Advocates'] counsel for the Revenue [- ]Mr. Kiran Babu, sr' [standing]'counse|,Ms.RashmiChopra,Sr'StandingCounse|,M.|.N.|'Sahni,Sr.standing counsel, [Mr. ][sanjeev sabharwal, ][sr' ][standing counsel, ][Mr']" sanieev-Raipal, sr. [standing counsel, ][Mr. Kamal ][sawhney, ][sr' ][standing]Counsel. VERSUS Sham Mohan Pvt. [Ltd] Mr. Ajay Vohra [with] counsel for theAssessee [- ]Ms.KavitaJhaandMr.SomnathShuk|a,Advocates' Dr. Rakesh Gupta [with ][Ms. Rani ][Kiyala & ][Ms.'Poonam ][Ahuja, Advocates']Mr. Salil Kapoor with [Mr. ][sanat ][Kapoor, ][Mr. ][Ankit ][Gupta and ][Mr. ][Vikas]Jain, Advocates. t Mr. Chandra Shekahar [with ][Mr. ][Manoj Agrawal ][and ][Ms. ][Meghna ][De']Advocates. Mr. S.K' Arora with [Mr. Bharat Arora, Advocates']Mr. C.S. Aggarwal [with ][Mr. ][Prakash ][Kumar, Advocates'] counsel for the Revenue [- ]Mr. Kiran Babu, sr' [standing]'counse|,Ms.RashmiChopra,Sr'StandingCounse|,M.|.N.|'Sahni,Sr.standing counsel, [Mr. ][sanjeev sabharwal, ][sr' ][standing counsel, ][Mr']" sanieev-Raipal, sr. [standing counsel, ][Mr. Kamal ][sawhney, ][sr' ][standing]Counsel. " CORAM :-I{ON'BLE THE ACTIIVG [CI-{IEF ] I.ION,BLE MR. JUSTICE [M.I.' ][MEI'ITA] A.K.'SIKRI [(Actinq ]Chief [Justice)] 'J The issue relating [to the ][additions made ][by the ][Assessing]Officer (AO) under Section [68 ][of the ][Income ][Tax ][Act, ][1961-] 1. (hereinafter referred to as 'the [Act') ][on ][account ][ol'] unexplained share [application money ][is ][becoming ][mercurial] ?' and mercurial by [the ][day. ][Though ][plethora ][of ][case ][law ][is]available deciding [various facets ][of ][this ][issue ][and ][the]principles which are to be [applied ][have ][almost ][been]and [pumped ][up ][by ][the ][series ][of ][decisions ][of ][the]crystallized Apex Court and various [High ][courts, ][the ][issue ][keeps]bouncing back with [new dimensions ][and ][intricacies' ][In ][all]these appeals, we [are ][again ][confronted ][with ][the ][additions]which were made [by ][the ][Ao ][under section 68 of the ][Act. ][All]these appeals, which [pertain ][to ][different ][assessees, ][are ][filed]by the Revenue as [the ][Income ][Tax ][Appellate ][Tribunal](hereinafter referred to as ['the ][Tribunal') has ][deleted ][the]additions made by [the ][Assessing ][Officer'] 2. Before we embark [upon ][the ][discussion on ][factual ][aspects, ][in]the appeals, which [prompted ][the ][Aos ][to ][make ][the ][additions,]it would be appropriate [to ][revisit ][the ][legal ][position ][as]enunciated in various [judgments interpreting ][the ][provisions]of Section 68/69 of the Act. [we ][may ][record ][that ][this ][very]Bench had the occasion [to ][deal ][with ][another batch ][of]appeals touching upon [this very ][issue, ][which culminated ][into]judgment dated 31.1.2OLt with lead case [entitled ][crl ][ws.]oasis hiospitalities, [(2011) ][333 ] [119, ][As ][catena ][of']judgments were taken note of and the [ratio ][culled ][out:] Page 4 of 58 ITA No.972 of 2009 ^t :l \.J therein after [undertaking in-depth analysis, ][we are"of ][the]view that our [purpose can be served ][by ][borrowing ][liberally]from the said ludgment [to ][state ][the ][legal ][position. ][Some]more cases which [have been ][decided ][thereafter ][or ][cited]before us now, [but ][not ][taken ][note ][of ][in the ][said judgment]would be added thereafter. [operative portion ][of ][that] judgment reads as underi .2.Section68oftheActdeaIswithunexpIainedincomes and is [couched ][in ][the following ][language:] "Section 68 CASH CREDITS. Where any sum [is found credited ][in ][the ][books ][of ][an]assessee maintained [for ][any ][previous ][year' ][and]assessee offers [no ][explanation ][about ][the ][nature]and source thereof [or the ][explanation ][offered ][by]him is not, in the [opinion ][of ][the ][Assessing ][Officer,]satisfactory, the sum [so ][credited ][may be ][charged]to incbme-tax as the [income ][of ][the ][assessee ][of], that Previous Year." judgment reads as underi .2.Section68oftheActdeaIswithunexpIainedincomes and is [couched ][in ][the following ][language:] "Section 68 CASH CREDITS. Where any sum [is found credited ][in ][the ][books ][of ][an]assessee maintained [for ][any ][previous ][year' ][and]assessee offers [no ][explanation ][about ][the ][nature]and source thereof [or the ][explanation ][offered ][by]him is not, in the [opinion ][of ][the ][Assessing ][Officer,]satisfactory, the sum [so ][credited ][may be ][charged]to incbme-tax as the [income ][of ][the ][assessee ][of], that Previous Year." 3. As per the [provisions ][of this ][Section, ][in ][case ][the]assessee has not [been ][able ][to ][give ][satisfactory]explanation in respect of [certain expenditure ][or ][where]found [credited ][in ][the ][books ][of ][accounts, ][the]any sum is AO can treat the [same ][as ][undisclosed income ][and ][add to]the ihcome of the assessee. [The ][assessee ][is ][required ][to]give satisfactory explanation about [the ]["nature ][and]iource" of such sum [found credited ][in ][the ][books ][of]accounts. 4. It is a common [knowledge ][that ][insofar ][as ][the]companies incorporated [under ][the ][Indian ][companies ][Act]are concerned, whether [private limited ][or ][public ][limited]companies, they raise their [capital ][through ][shares,]though the manner of [raising ][the ][share ][capital ][in ][the]private limited companies on [the ][one ][hand ][and ][public]ii1nitud companies [on ][the other ][hand, would be different'] .t-> "-l In the case of [private limited ][companies, ][normally' ][the]shares are [subscribed ][by ][fam.ily members ][or ][persons]known/close to [the ][promoters' ][Public ][limited ][companies']on the other hand, [generilly ][raise public issue ][inviting]genera|pub|icat|argeforsubscriptionoftheseshares.Vet, it is also [possible ][that ][in ][case ][of ][public ][limited]the [share ][capital is ][issued ][in ][a ][close ][circuit']companies, 5. When the companies [incorporated ][under ][the]Act [raise ][their ][capital through shares, ][various]companies persons would apply for [shares ][and ][thus give ][share]application money' [These ][amounts received ][from ][such]shareholders would, [naturally, ][be ][the ][sums credited in ][the]books of account [of the assessee. ][if ][the ][Ao ][doubts ][the]genuineness of the investors, [who had ][purportedly]Iubscribed to [the ][share ][capital, ][the ][Ao ][may ][asl< ][the]assessee to explain [the ][nature and ][source ][of ][those ][sums]received by the [assessee ][on ][account ][of ][share ][capital. ][It]is in this scenario, [the ][question ][arises ][about ][the]genuineness of transactions. [The plain ][language ][of]5ection 68 of the [Act ][suggests ][that ][when ][the ][assessee ][is]to give satisfactory [explanation, ][burden ][of ][proof is ][on the]urrltte" to [provide nature and source of ][those ][receipts'] 6. What kind of [proof ]is [to ][be ][furnished ][by ][the]assessee, is the [question. ][It ][has ][come up ][for ][discussion]in various [judgments ][rendered by ][this Court, other ][Courts]as well as the supreme [court. ][The ][larnr ][was discussed ][by]a Division Bench [of this ][Court ][in the ][case ][of]comrnissioner of Income [Tax ][Vs. ][Divine ][LeasinE ][and]FinanceLtd'|2ggITR268].Sincetheentiregamutofcase law as on that [date ][was ][visited ][in ][the ][said ][judgment,]we may initiate [our ][discussion ][by ][taking ][note ][of ][this ][case.]In this case, the [Court ][highlighted ][the ][menace ][of]conversion of [unaccounted ][money through ][the]masquerade or such [channels ][of ][investment ][in ][the ][share]capital of a company [and ][thus ][stressed upon ][the duty ][of]the Revenue to firmly [curb ][the ][same' It ][was ][also]observed that, in [the ][process, ][the ][innocent ][assessee]should not be [unnecessary ][harassed. A ][delicate ][balance]must be maintained' [It ][was, ][thus, ][stressed:] "15. There cannot [be ][two ][opinions ][on ][the ][aspect]that the [pernicious ][practice ][of ][conversion ][of]unaccounted money [through ][the ][masquerade ][or]channel of investment [in ][the ][share capital ][of ][a]must be [firmly ][excoriated ][by ][the]company Revenue. Equally, [where ][the ][preponderance ][of]evidence indicates [absence ][of ][culpability ][and] Page 6 of [58] .t /t a of [the ][assessed ][it ][should ][not ][be]complexity 'huru'rred'bytheRevenue'sinsiste'rrcethatitshouldprove the negative. [In ][the ][case ][of ][a ][public ][issue']the Company [concerned ][cannot ][be ][expected ][to]know every [detail ][pertaining ][to ][the identity ][as ][well]as financial worth [of ][each ][of ][its' subscribers' ][The]Company must, [however, ][maintain ][and ][make]available to the [for ][his ][perusal, ][all ][the]information [contained ][in the ][statutory ][share]documents' [In ][the ][case ][of ][private]application piacement the legal [regime ][would not ][be ][the ][same']A delicate balance [must ][be ][maintained ][while]walking the tightrope [of ][Section ][68 ][and ][69 of ][the]IT Ac[. The [burden ][of ][proof ][can ][seldom ][be]to [the hilt ][by ][the ][assessed; ][if ][the ] discharged harbours doubts [of the ][legitimacy ][of ][9ny]subscription [he ][is ][empowered, nay ][duty-bound' ][to]carry out thorough [investigations' ][But ][if ][the ] fails to unearth [any ][wrong ][or ][illegal dealings' ][he]cannot obdurately [adhere ][to ][his ][suspicio ][ns ][and]treat the subscribed [capital ][as ][the ][undisclosed]income of the [ComPanY."] 7. Taking note [of ][the ][earlier ][judgment ][of ][Full ][Bench ][of]this Court in the [case ][of Commissioner ][of Income ][Tax]Vs. Sophia Finance [Ltd. ][(L994)'2O5 [ITR' ][98], ][the]court observed [that the ][Full ][Bench ][had enunciated that]Section 68 reposes [in ][the ][Income-tax ][Officer ][or ][AO the]jurisdiction to inquire from the [assessed ][the ][nature ][and],orr." of the [sum found credited ][in ][its ][Books ][of ][Accounts']If the Explanation [preferred by ][the ][assessed ][is found ][not]to be satisfactory, [further ][enquiries can ][be ][made ][by ][the]Income-tax Officer [himself, ][both ][in ][regard ][to the ][nature]and the source [of ][the ][sum ][credited ][by ][the ][assessed ][in ][its]Books of Accounts, [since ][the ][wording ][of ][Section ][68 ][is]very wide. The [Full ][Bench ][opined ][that ][if ][the ][shareholders]exiit then, [possibly, ][no ][further ][enquiry ][need. ][be ][made']But if the Income-tax [officer ][finds ][that the ][alleged]shareholders do [not exist then, ][in ][effect, ][it ][would ][mean]that there is [no ][valid ][issuance ][of ][share capital. ][shares]cannot be issued [in ][the ][name ][of ][non-existing persons' ][if]the shareholciers [are ][identified ][and ][it ][is ][established ][that]they have invested [money ][in ][the ][purchase ][of ][shares ][then]theamountreceivedbythecompanywouIdberegardedas a capital receipt [but ][if ][the ][assessed ][offers ][no]Expla nation at all [or ][the ][Explanation' ][offered ][is ][not]satisfactory then, [the ][provisions ][of ][Section ][68 ][may ][be]invoked. ).Y .- B.TheCourtaIsoreferredtotheear|ierDivisionBench [judgment ]in [the ][case ][of ][Commissioner ][of]Income Tax Vs. [Dolphin ][Canpack ][l-td' ]l(2A06) [283]ITR 19OI and [quoted the ][following ][observation:] ).Y .- B.TheCourtaIsoreferredtotheear|ierDivisionBench [judgment ]in [the ][case ][of ][Commissioner ][of]Income Tax Vs. [Dolphin ][Canpack ][l-td' ]l(2A06) [283]ITR 19OI and [quoted the ][following ][observation:] ". credit entry relates [to ][the ][issue ][of ][share]capital, the ITO is [also ][entitled ][to ][examine whether]the alleged shareholders [do ][in ][fact ][exist ][or ][not']Such an inquiry [was ][conducted ][by ][the ] [in ][the]present case' In the course [of the ][said inquiry, ][the]asSessed had [disclosed ][to ][the ] [not ][only ][the]names and the [particulars ][of ][the ][subscribers ][of ][the]shares but also their [bank accounts ][and ][the ] issued by the IT [Department' ][Super added ][to ][all]this was the fact [that the ][amount received ][by ][the]all [by ][way ][of ][cheques' ][This ][material]company was was, in the opinion [of ][the ][Tribunal, sufficient ][to]discharge the onus that [lay ][upon ][the ][assessed'"] 9. The Court took note [of ][many other judgments ][of]different High courts [and ][on the ][analysis ][of ][those]judgments formulated the following [propositions, ][which]emerged as under: ' *18. In this analysis, a distillation of theprecedents yields the following [propositions ][of ][law]in the context of [Section ][68 of ][the IT ][Act' ][The]assessed has to [prima ][facie ][prove ][(1) ][the ][identity]of the creditor/subscriber; [(2) ][the ][genuineness ][of]the transaction, namely, [whether ][it ][has ][been]transmitted through [banking ][or ][other ][indisputable]channels; (3) the [creditworthiness ][or ][financial]strength of the creditor/subScriber' [(4) ][If ][relevant]details of the address or [identity ][of ][the]creditor/subscriber are [furnished ][to ]theDepartment along with [copies ][of the ][Shareholders]Register, Shared [Application Forms, Share Transfer]Register etc' it [would ][constitute ][acceptable proof ][or]acceptable Explanation [by ][the ][assessed' ][(5) ][The]Department would not be [justified ][in ][drawing ][an]adverse inference only [because ][the]creditor/subscriber fails [or ][neglects ][to ][respond ][to]its notices; (6) the [onus ][would ][not ][stand]if the creditor/subscriber [denies ][or]discharged repudiates the transaction [set ][up ][by ][the ][assessed]nor should the AO take [such repudidtion ][at ][face] 2t I value and [construe ][it/ ][without more, ][against ][the]assessed' [(7) ][The ][Assessing ][Officer ][is ][duty-bound]to investigite [the ][creditworthiness ][of ][the]creditor/subscribqr [the ][genuineness ][of ][the]transaction [and ][the ][veracity ][of ][the ][repudiation'"] I I10. By this [common ][judgment, ][the ][Division ][Bench]decided these [appeals ][of ][which ][one ][appeal related ][to]Lovely. Exports [P. ][Ltd.. ][Against ][the ][said ][judgment']Specijl Leave [Petition ][was ][preferred, ][which ][was]dismissed by the [Supreme ][Court ][vide ][orders ][dated]11.01.2008 and [is ][reported ][as ][Commissioner ][of]Income Tax [Vs. ][Lovely ][Exports ][(P) ][Ltd' ][[216 ] igS (SC)1. [The Court ][while ][dismissing ][the ] [recorded]some reasons [as ][well atbeit in ][brief, ][which is as under:] '2. Can the amount [of ][share money be ][regarded]as undisclosed [income ][under ][s'68 of IT Act, ][1961?]WefindnomeritinthisSpecial'LeavePetitionforthe simple reason [that ][if ][the ][bhare ][application]money is received [by ][the ][assessee ][company ][from]alleged bogus shareholders, [whose ][names ][are]given to the AO, then [the ][Department ][is ][free ][to][roceed [to ][reopen ][their'individual ][assessments ][in]accordancewith|aw.Hence,wefindnoinfirmitywith the impugned [judgment' ]""""""" 11. It is clear [from the ][above ][that ][the ][initial ][burden ][is]upon the assessee [to ][bxplain ][the ][nature and source ][of ][the],huru application [money ][received ][by ][the ][assessee' ][In]order to discharge [this ][burden, ][the ][assessee ][is ][required]to prcve: (a) IdentitY of shareholder; (b) Genuineness [of ]transaction; [and] 11. It is clear [from the ][above ][that ][the ][initial ][burden ][is]upon the assessee [to ][bxplain ][the ][nature and source ][of ][the],huru application [money ][received ][by ][the ][assessee' ][In]order to discharge [this ][burden, ][the ][assessee ][is ][required]to prcve: (a) IdentitY of shareholder; (b) Genuineness [of ]transaction; [and] (c) Credit worthiness [of shareholders'] L2. In case [the ][investor/shareholder ][is ][an ][individual,]some documents [will ][have ][to ][be filed ][or ][the ][said]shareholder will [have ][to ][be ][produced ]'before [the ] [to]prove his identity. If [the ][creditor/subscriber ][is ][a]then the [details ][in ][the ][form ][of ][registered]company, address or PAN irJentity, [etc' ][can ][be furnished'] 13. Genuineness [of the ][transaction ][is to ][be]demonstrated by [showing ][that ][the ][assessee ][had, ][in ][fact']received money [from ][the. ][said ][shareholder ][and ][it ][came]from the coffers [from ][that ][very shareholder. ][The ][Division] ITA No.972 of 2009 Bench held that [when ][the ][money ][is ][received ][by ][cheque]and is transmitted [through banking ][or ][other ][indispuiable]channels, [genuineness ][of ][transaction ][would ][be ][proved']other documents [showing ][the ][genuineness ][of ][transaction]couldbethecopiesoftheshareholdersregister,shareapplication forms, [share ][transfer register, ][etc'] 14. As far [as ][creditworthiness ][or ][financial strength ][of]the credit/subscriber [is ][concerned, ][that ][can be proved ][by]producing the bank statement [of ][the ][creditors/subscribers]it [had sufficient ][balance ][in its ][accounts to]showingltrut enable it to [subscribe ][to the ][share ][capital, ][This ][judgment]further holds that [once ][these ][documents ][are ][produced,]the assessee [would ][hqve ][satisfactorily ][discharge ][the ][onus]cast upon him. [Thereafter, ][it ][is ][for ][the ] [to ][scrutinize]the same and in [case ][he ][nurtures ][any doubt ][about.the]veracity of these [documents ][to ][probe ][the ][matter ][further.]However, to discredit [tlre ][documents ][produced. ][by ][the]assessee on the [aforesaid aspects, ][there ][has ][to ][be ][some]cogent reasons [and ][materials ][for ][the ] [and he ][cannot]go into the realm of'susPicion' 15, At this [stage, ][we ][would ][lilce ][to ][refer ][to ][the]judgment of the Bombay High Court [in ][the ][case ][of ] Vs'-M/sCreativeWorldTelefitmsLtd.(inITANo.21B2of ZO0g decided on [12.10.2009). ][The relevant portion of]this order is [reProduced below:] "In the case in [hand, ][it ][is ][not ][disputed ][that ][the]assessee had [given ][the ][details ][of ][name ][and]address of the [shareholder, ][their ][PA/GIR number]and had also [given ][the ][cheque ][number, ][name of]the bank. It [was ][expected ][on ][the ][part ][of ][the]Assessingofficer.tomakeproperinvestigationandreach the shareholders. [The ][Assessing ][Officer]did nothinE except [issuing ][surnmons ][whicfr]were uttimately returned [back with ][an]endorsement 'not [traceable'. ]In ou!'considered view, [the ][Assesslng ][Offlcer ][ought]to have found out [their ][details ][throug!'r ] cards, bank [account ][details ][or ][from ][their]bankers so as to [reach ][the ][shareholders ][since]all the relevant material [details ][and]particulars were given by the [assessee ][to ][the]Assessing Officer. [In ][the ][above ][circumstances,]the view taken by [the ][Tribunal cannot ][be ][faulted']No substantial [question ][of ][law ][is ][involved ][in ][the]appeal. i:d oa In the result, the [appeal ][is ][dismissed ][in ][limini ][with]no order as to [costs'] (ernphasis suPPlied)" i:d oa In the result, the [appeal ][is ][dismissed ][in ][limini ][with]no order as to [costs'] (ernphasis suPPlied)" 16. The Court [thus. ][clearly held ][that ][once ][documents]like PAN Card, [bank ][account ][details ][or ][details ][from ][the]bankers were [given ][by ][the ][assessee' ][onus ][shifts ][upon the]Assessing Off]cer [and ][it is on ][him ][to ][reach ][the]sharehollers [and ][the ][Assessing ][Officer ][cannot ][burden the]assessee merely [on ][the ][ground ][that ][summons ][issues to]the investors were [returned ][back ][with ][the ][endorsement]'not traceable'. [Same ][view i3 taken ][by ][the ][Karnataka]High Court in Madhuri [Investments ][Pvt' ][Ltd' ][Vs' ][ACtrT]1in-ffnNo.110of2OO4,decidedon1B'02'2006)'Inthiscase also, some [of ][share applicants ][did not ][appear ][and]notices sent to them [were returned ][with ][remarks ]['with ][no]such person,. [Addition was ][made ][on ][that ][basis ][which ][was]turned down by the [High ][Court in ][the following ][words:] '6. Having heard the [learned counsel ][for ][the]' parties, we notice that [whenever a company invites]app|icationsforal|otmentofsharesfromdifferentthere [is ][no ][procedure ][contemplated ][to]applicants, find out the [genuineness ][of ][the ][address ][or ][the]genuinenity of the applicants [before ][allotting ][the]ihat"s. If for any [reasori ][tfre ][address ][given ][in ][the]to [be ][incorrect or ][for ][any ][reason ][if]application were the said applicants [have ][changes ][their ][residence ][or]the notices sent [by ][the ][assessing ][officer ][has ][not]been received by [such ][applicants, ][the ][assessee]company cannot [be ][blamed. ][Therefore, we are of]the view that the [Tribunal ][was ][not ][justified ][in]allowing the appeal [of ][the ][revenue ][only ][relying]upon the statement [of ][Sri Anil ][Raj ][Mehta, ][a]Chartered Accountant." t7.' However, in [Commissioner ][of ][Incorme ][Tax ][Vs']Arunananda Textiles [itvt' ][Ltd. ][(in ] [No'1515 ][of]2005, decided on 02.03.2010), [the ][Karnataka ][High ][Court]went to the extent [of ][observing ][that ][it ][was ][not ][for ][the]assessee to [place ][material ][before ][the ][Assessing ][officer ][in]regard to creditworthiness [of ][the shareholders. ][once ][the]companyhadgiventheaddressesoftheshareho|dersand their identity [was ][not ][in ][dispute, ][it ][was ][for ][the]Assessing officer [to ][make ][further ][inquiry. ][It ][was ][borne]by the following [discussion ][in ][the ][said ][judgment:] '6. The [question ]raised [in ][this ][appeal ][are]squarely covered by [several ][judgments ][of ][the] Supreme Court [and also the ][judgment ][of ][this ][Court]passed in ASK Brothers [Ltd' ][Vs' ][Commissioner]of Income Tax, [wherein ][this ][Court following ][the]judgments of the Supreme [Court ][in ][the ][case ][of]Commissioner [of ][Income ][Tax ][Vs' ][Lovely]Ltd. [reported ][in ][(20089) 216 ] [(SC]Exports [(P) ]19i) and also [in ][the ][case ][of ][Commissioner ][of]Income Tax [Vs. ][Steller ][Investment ][Ltd']' reported in (2001) 25I [263 ][(SC) has ruled ][that]it not for [the ][assessee ][to ][place ][material ][before the]Assessing [Officer ][in ][regard ][to ][cieditworthiness of]the shareholders' [If ][the ][company ][has given ][the]addressesoftheshareholdersandtheiridentityisnot in dispute, [where ][they ][were ][capable ][of]-investing,theassessingofficersha||.investigate'Itis not for the [assessee ][company ][to ][establish ][but ][it]is for.the department [to ][enquire ][with the ][investor]about their capacity [to ][invest ][the ][amount ][in ][the]shares. Therefore, [we ][are ][of the ][view ][that ][the]substantial [questions ][of ][law framed ][in ][this ][appeal]are to be answered [against ][the ][revenue ][and ][In]favouroftheassessee.Accordingly,thisappeaIisdismissed." 18. Rajasthan [High ][Court ][had ][an ][occasion ][to ][deal ][with]the submission of [the ][Revenue ][predicated ][on ][Benami]transactions in [the ][case ][of ][Cammissioner ][of ][Income]Tax Vs, AKJ Granites [(F) Ltd. ][reported ][as 301 ] [298](Raj.)andtheargumentsweredea|twithinthefol|owingmannerl *3. *3. So far as [question ][No' ][1 is ][concerned, ][it ][is]stated by learned [counsel ][for ][the appellant ][that ][the]issue embedded [in ][tlre ][said ][question ][has ][already]been decided [by ][this ][Court ][and ][governed ][by ][the]ratio laid down in [tsarkha Synthetics ][Ltd' ][Vs']Asst. CIT [(2OO5) ][197 ] [(Rai') ][432' It ][has]been [pointed ]out [that ][share applications ][are ][made]by number of [persons, ][may ][bb ][in ][their ][own ][names]oi benami, but [the ][fact ][that ][share ][applications]received from different [places accompanied ][with]share application [money, ][no ][presumption ][can ][be]drawn that same [belong ][to ][the ][assessee ][and]cannotbeassesseeinhishandsashisundisc|osedincomeun|essSomenexusisestab|ishedthatshareapplication money [for.augmenting ][the ][investment]in business has [flown from ][asssessee's ][own ][money']In coming to [this ][conclusion, ][the ][Court relied ][on] o CIT Vs. Steller Investment Ltd. (7997) 99 CTR(Del.) 4O, which has since been affirmed by theSupreme Court in CIT vs, Steller InvestmentI-td. (2OOO) 764 CTR 6A) 287. In view thereof,this question need not be decided again." 19. This very aspect came up for consideration beforedifferent Courts on number of occasion and was dealtwith in favour of the assessee. 20. The observations of the Supreme Court in the caseof Lovely Exports (supra) go. to suggest that theDepartment is free to proceed to reopen the individualassessment in case of alleged bogus .shareholders inaccordance with law and, thus, not renrediless. It is,thus, for the AO to make further inquiries with regard tothe status of these parties to bring on record any advei-sefindings regarding'their creditworthiness. This would bemoreso where the assessee is a public limited companyand has issued the share capital to the public at large, asin such cases the company cannot be expected to knowevery detail pertaining to the identity and the financialworth of the subscribers. Furiher initial burden on theassessee would be somewhat heavy in case the assesseeis a private limited company where the shareholders arefamily friends/close acquaintances, etc. It is because ofthe reason that in such circumstance, the assesseecannot feign ignorance about the status of these parties. 2L We may also usefully refer to the judgment of theSupreme Court in the case of Commissioner of IncomeTax Ys. P. Mohanakala [(ZOO7) 29r. ITR 2ZB (SA)I.in that case, the assessee had received foreign gifts fromone common donor. The payments were made to themby instruments issued by l'oreign banks and credited tothe respective accounts of the assessees by negotiationsthrough bank in India. The evidence indicated that thedonor was to receive suitable' compensation from theassessees. The AO held that the gifts though apparentwere not real and accordingly treated all those amountswhich were credited in the books of account of theassessee, as their income applying Section 68 of the Act.The assessee did not contend that even if theirexplanation was not satisfactory the amounts were not ofthe nature of income. The CIT (A) confirmed theassessment. On further appeal, there was a difference ofopinion between the two Members of the AppellateTribunal and the matter was referred to the Vice ..1 ..1 president who concurred with the findings and conclusions of the AO and [the ] [(A)' ][On ][appeal, ][the ][High Court re-]the [evidence ahd ][substituted ][its ][own ][findings]appreciated and came to the [conclusion ][that ][the ][reasons assigned ][by]the Tribunal were [in ][the ][realm ][of ][surmises, ][conjecture]and suspicion. [On ][appeal ][to ][the ][Supreme ][Court,.the]court while reversing [the ][decision ][of ][the ][High ][court ][held]that the findings [of the ][Ao, ][cIT ][(A) ][and the ][Tribunal ][were]based on the [material ][on ][record ][and ][not ][on ][any]conjectures [and ][surmises. ][That ][the ][money came ][by ][way]of bank cheques [and ][was paid through ][the ][process of]banking transaction [as ][not by itself ][of ][any ][consequence']The High court [misdirected ][itself ][and erred ][in ][disturbing]the concurrent [findings ][of ][fact. ][While ][doing so, ][the ][legal]position contained in [Section ][68 ][of the ][Act ][was ][explained]by the supreme court [by ][assessing ][that ][a ][bare reading ][of]Section 68 of the [Act ][suggests ][that ][(i) ][there ][has ][to ][be]credit of amounts in [the ][books ][maintained ][by ][the]assessee; (ii) such [credit ][has ][to ][be ][a ][sum ][of ][money]during the [previous ][year; ][and ][(iii) ][either (a) the ][assessee]offers no explanation [about ][the ][nature ][and source ][of ][such]credits found in the [books ][or (b) ][the ][explanation ][offered]by the assessee, in [the ][opinion ][of ][the ][AO, ][is ][not]satisfactory. It [is only ][then ][that the ][sum so ][credited ][may]be charged to income [tax ][as ][the ][income ][of ][the ][assessee]of that [previous ][year. ][The ][expression ]["the ][assessee]offers no explanation" [means ][the ][assessee ][offers ][no]proper, reasonable and [acceptable ][explanation as ][regards]th" tr-t found [credited ][in the ][books maintained ][by ][the]assessee. The opinion [of ][the ] [for ][not ][accepting ][the]explanation offered [by ][the ][assessee ][as ][not ][satisfactory ][is]required to be [based ][on ][proper appreciation ][of ][material]and other attending [circumstances ][available ][on ][the]record. The opinion [of ][the ][Ao is ][required ][to ][be ][formed]objectively with reference [to ][the ][material ][on ][record.]Application of mind [is ][the sine qua ][non for ][forming ][the]opinion. In cases where [the ][explanation ][offered ][by ][the]assessee about the nature [and ][source ][of the ][sums ][found]credited in the books is [not ][satisfactory ][there is, ][prima]facie, evidence against [the ][assessee, ][viz', ][the ][receipt ][of]money. The burden [is ][on ][the ][dssessee ][to ][rebut ][the]ru.", and, if he fails [to ][rebut ][it, it ][can be held ][against]the assessee that it [was ][a ][receipt ][of ][an ][i.ncome ][nature.]The burden is on the [assessee ][to ][take ][the ][plea ][that ][even]if the explanation is [not ][acceptable, ][the ][material ][and]attending circumstances [available ][on ][record ][do ][not ][justify]the sum found credited [in ][the ][books being ][treated as ][a]receiot of income nature' 22'Wewou|d|iketorefertoanotherjudgmentoftheDivisionBenchofthisCourtinthecaseofCommissioner.oflncomeTaxVs,ValueCapitalservicesP'Ltd'I(2oo8)3o7ITR'334(De|hi)].TheCourtinthatcaseheld that the [additional ][burderl was ][on ][the ][Department to]showthatevenifshareapp|icationdidnothavethemeans to make [investment, ][the ][investment ][made ][by]them actually [emanated ][from the ][coffers ][of the ][assessee]so as to enable [it to ][be ][treated ][as ][the ][undisclosed ][income]of the assessee. [In ][the ][absence ][of ][such ][findings, ][addition]could nbt be [made ][in the ][income ][of the ][assessee ][under]Section 68 [of ][the ][Act'] 22'Wewou|d|iketorefertoanotherjudgmentoftheDivisionBenchofthisCourtinthecaseofCommissioner.oflncomeTaxVs,ValueCapitalservicesP'Ltd'I(2oo8)3o7ITR'334(De|hi)].TheCourtinthatcaseheld that the [additional ][burderl was ][on ][the ][Department to]showthatevenifshareapp|icationdidnothavethemeans to make [investment, ][the ][investment ][made ][by]them actually [emanated ][from the ][coffers ][of the ][assessee]so as to enable [it to ][be ][treated ][as ][the ][undisclosed ][income]of the assessee. [In ][the ][absence ][of ][such ][findings, ][addition]could nbt be [made ][in the ][income ][of the ][assessee ][under]Section 68 [of ][the ][Act'] 23, It is' a|so of [re|evance ][to ][point ][out that ][in]CommissioneroftrncomeTaxVs.Ste//arlnvestmentLtd.t(1991)ITR287(De|')]wheretheincreaseinsubsciited capital [of the ][respondent company ][accepted]bythelTRoandrejectedbytheClTonthegroundthatadetailed investigation [was ][required regarding ][the]genuinenessofsubscriberstosharecapita|,astherewasadeviceofconvertingb|ackmoneybyissuingshareswiththehe|pofformationofaninvestmentwhichWasreu"rs"d by [the ][Tribunal, this ][Court held ][that ][even ][if ][it ][be]assumed tt"'ut the [subscribers ][to ][the ][increased ][share]capitalwerenotgenuine,undernocircumstancestheamount of share cJpital [could be regarded ][as ][undisclosed]incomeofthecompany.ThisviewwasconfirmedbytheApexCourtinCITVs'Sfel/arlnvestmentLtd.[(2oo1)2s1 rTR 263 [(SC)1."] 24. It is, thus, clear [that ][initial ][burden lies ][on ][the ][assessee to]explain the nature [and ][source ][of ][the ][share ][application]received [by ][the ][assessee. ][It ][is ][also clear ][that ][the]money . assessee has to satisfactorily [establish ][the ][identity ][of ][the]lshareholders, the [genuineness ][of ][the ][transaction ][and ][the]creditworthiness [of ][the ][sharehol'ders' The ][manner ][in ][which]such a burden is to be [discharged ][has ][been explained ][in]vario.us [judgments ][and ][noted]byus above. At the [same] Page 15 of 58 ITA No.972 of 2009 jz- t" I time, it is also [well ][established principle ][of ][law ][that ][in ][any]matter, the [onus brought ][is ][not a static ][one. ][Though ][initial]burden is upon [the ][assessee, ][once ][he ][proves ][the ][identity ][of]credits/share application [by ][either ][furnishing ][Permanent]Account Numbers [or ][copies ][of ][bqnk ][accounts ][and ][shows ][the]genuineness of the transaction [by ][showing money ][in ][the]banks is by [account payee ][cheques ][or ][by draft, ][etc., ][then]the onus to [prove ][the ][same would ][shift ][to.the ][assessee. ][The]question which assumes importance [at,,this ][stage is ][to ][what]the Revenue is [supposed ][to ][do ][to ][dislodge ][the initial ][burden]discharged by the [assessee ][and ][to ][throw ][the ][ball ][again ][in]the assessee's [court ][demanding ][the ][assessee ][to ][give ][some]more proofs, as the [documents produced ][earlier ][by ][the]assessee either [become suspect ][or ][are ][rendered ][insufficient]in view of the material [produced ][by the ][Department]rebutting the assessee's [documentary ][evidence' ][This is ][the]aspect which has to [be gone ][into ][in ][all these ][cases. ][Before]that, we would like to [refer ][to ][the ][observations ][of ][some]courts touching the core [issue ].relating [to ][discharge ][of]burden. A) CllT Vs.R.athi Finlease Ltd', [215 ][CTR. ][167 ][(M.P')]the Court heldas under :- Page 15 of 58 iTA No.972 of 2009 \t I A) CllT Vs.R.athi Finlease Ltd', [215 ][CTR. ][167 ][(M.P')]the Court heldas under :- Page 15 of 58 iTA No.972 of 2009 \t I '17. .....'S'68 [of the ][Act ][enjoined ][the ][assessee to]offer a'n'lxpianatiiln [about ][the ][nature ][and source of]the sum [found ][credited ][in ][his ][books ][and ][if ][the]explanation [was ][not ][satisfactory' ][the ][amount ][can]be credited [and ][charged ][to ][income-tax ][as ][income]of the assessee' [Since ][the ][assessee' ][though ][tried]to exptuin [the ][genuineness ][of ][the ][credit ][on ][the]basis ii l"ti"tt [if ][confirmation' ][it ][could ][not ][he]explainea [as ][to ][how ][the ][transaction ][was]-"a.,iuiited [when ][the ][companies ][w:re ][not ][in]existence [and ][the ][amount ][was paid ][by ][cheque]onfy *-thu [date on which ][the ][amount ][was ][credited]totheaccountofthecompany.Itwasfortheassessee [to ][discharge ][this ][burden"""""""] ' ' . B)'Calcutta [High Court ][in ] [vs' ][Kundan ][Investrnent] Ltd., 263 [626 ][(Cal') ][held ][as ][under:-] "..........Under [Section ][68, ][tire ][Income-tax ][Officer]is empowered [to lift ][the veil ][of ][corporate]ldentity and [find ][out. ][as to ][whether ][the]apparent [is real. ][it ][is ][the ][assessee ][on ][whom ][the]onus lies' [Unless ][sufficient materials ][are ][produced']the onus [does ][not shift ][on ][the ][Revenue' But once]the materiaNs [are ][scrutiurized and ][the ][resullt ][of]the scrutiny [is commurlicated ][to the ][assessee']the onus [shifts frorn ][the ][Revenue ][to ][tlre]assessee. Then [the ][assessee ][has ][to ][take]appropriate [steps ][for ][proving ][its ][case' ][Unless ][there]are sufficient [materials ][after ][such ][communication']produced by [the ][assessee, ][the ][Income-tax ][Officer]can do no [further"']C) This Court [ln]Con'lmissioner [of ][trncome.. ][Tax ][vs']Sophia Flnance [Limited, ][2O5 ][trTR' ][98 ][(De[) ][dealt ][with ][tlre] issue as under [:-] "...........As we [read ][Section ][68 ][it ][appears ][that]*hunuu"r a [sum is ][found credited ][in ][the ][books of]accountoftheassesseethen,irrespective.o.f'th.ecolour or [the ][nature ][of the ][sum ][received which ][is] U issue as under [:-] "...........As we [read ][Section ][68 ][it ][appears ][that]*hunuu"r a [sum is ][found credited ][in ][the ][books of]accountoftheassesseethen,irrespective.o.f'th.ecolour or [the ][nature ][of the ][sum ][received which ][is] U sought to be given by the assessee, the Income taxOfficer has the jurisdiction to enquire from theassessee the nature and source of the said amount.When an explanation in regard thereto is given bythe assessee, then it is for the Income tax Officerto be satisfied whether the said explanation isthe assessee, then it is for the Income tax Officerto be satisfied whether the said explanation iscorrect or not. It is in this regard that enquiriesare usually made in order to find out as towl'rether, firstly, the persons fronr whommoney is alleged to have btien neceivedare usually made in order to find out as towl'rether, firstly, the persons fronr whommoney is alleged to have btien neceivedactually existed or not. Secondly, dependingupon the facts of each case, the Inconre taxupon the facts of each case, the Inconre taxOfficer may even be justified in trying toascertain the source of the depositor,assuming he is identified, in order todetermine whether that depositor !s a rnerename lender or not. Be that as.it ffiay, it is'clear that the f ncome tax Officer hasclear that the f ncome tax Officer hasjurisdiction to make enquiries with negard tothe nature and source of a sum credited in thebooks of account of an assessee and it would beimmaterial as to whether the amount so credited isthe nature and source of a sum credited in thebooks of account of an assessee and it would beimmaterial as to whether the amount so credited isgiven the colour of a loan or a sum representingthe sale proceeds or even receipt of shareapplication money. The use of the words [.,any ]sumfound credited in the books,, in section 68 indicatesthat the said section is very widely worded and anIncome tax officer is not precluded from making anenquiry as to the true nature and source thereofeven if the same is credited as receipt of shareapplication money.the sale proceeds or even receipt of shareapplication money. The use of the words [.,any ]sumfound credited in the books,, in section 68 indicatesthat the said section is very widely worded and anIncome tax officer is not precluded from making anenquiry as to the true nature and source thereofeven if the same is credited as receipt of shareapplication money. XXXX XXXX XXXX XXXX .On the basis of the language used underSection 68 and the various decisions of drfferentHigh Courts and the Apex Court, the onlyconclusion which could be arrived at is: (i)thatthere is no distinction between the cash creditentry existing in the books of tne firm whether it isof a partner or of a third party, (ii) that the burdento prove the identity, capacity and genuineness hasto be on the assessee, (iii) if the cash credit is notsatisfactorily explained the Income Tax Officer isjustified to treat it'as Income from ',undisclosedsources", (iv) the firm has io establish that theamount was actually given by the lender, (v) thegenuineness and regularity in the maintenance ofthe account has to be taken into consideration by v XXXX XXXX XXXX XXXX .On the basis of the language used underSection 68 and the various decisions of drfferentHigh Courts and the Apex Court, the onlyconclusion which could be arrived at is: (i)thatthere is no distinction between the cash creditentry existing in the books of tne firm whether it isof a partner or of a third party, (ii) that the burdento prove the identity, capacity and genuineness hasto be on the assessee, (iii) if the cash credit is notsatisfactorily explained the Income Tax Officer isjustified to treat it'as Income from ',undisclosedsources", (iv) the firm has io establish that theamount was actually given by the lender, (v) thegenuineness and regularity in the maintenance ofthe account has to be taken into consideration by v the taxing authorities, 1ui; if the explanation is notsupported by any documentary or other evidence,then the deeming fiction credited by section 68 canbe invoked. In these circumstances, we are of theview that simply because the amount is credited inthe books- of the firm in the partner,s capitalaccount it cannot be said that it is not theundiscrosed income of the firm and in ail cases ithas to be assessed as an undiscrosed income of thepartner alone. In these circumstances, we are ofthe view that the Tribunal was not justified in- hording that the cash credits of Rs. nisaz in theaccount of Shri Kishorilal, one of the partners,courd not be assessed in the hands of the firm andin deleting the same. since the matter was notconsidered by the Tribu nal on the merits, theTribunal would be free to hear the arguments ofboth the parties and decide afresh in iiew of theobservations made above. Accordingly, thereference is answered in favour of the Revenue andagainst the assessee.', D) crr vs. Korlay Trading co. Ltd., 232 rrR s2o (cai) was cited by the Revenue to press the following:_ "..........There should be a Eenuine transaction.The income tax file nurnber has been givenbut that is not enough to pnove thegenuineness of the cash cnedit. [-Admittedly,]there is no affidavit to this effect, by the creditor,on record. Cohsidering these facts, we find that thefinding of the Tribunal in this regard is perverse.The assessee has failed to prove the genuinenessof the cash credit,..... [.] ?5' [Following ][dicta ][of ][the ][Apex ][court judgment ]in surnaffII I Dayal vs' crr, 2r4 rrR gor (sc) was heaviry reried upon by the Revenue:_ "It receipt is no is doubt sought true that to be in taxed all cases as Income, in which theaburden lies upon the Department to prove that it iswithin the taxing provision and if a receipt is in the ITA No.972 of 2009 lr.. nature of income, [the ][burden ][of ][oroving ][that ][it ][is]not taxable [because ][it ][falls within ][the ][exemption]the Act [lies ][upon ][the ][asses