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

* IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No.972 of 2009, ITA No.1324 of 2008, ITA No.29 of 2010, ITA' No.1228 of 2010, ITA No.1229 of 2010, ITA No.1230 of 2010, ITA No.1710/2010, ITA No.8 of 2011, ITA No.339 of 2011, ITA No.613 of 2011 and ITA No.726 of 2011 Reserved on: 25th November, 2011 % Pronounced on: 23rd December, 2011 1) ITA' No.972/2009 Commissioner of Income Tax -II, Central Revenue Building, New Delhi ... Appellant VERSUS Kamdhenu Steel & Alloys Ltd. ... Respondent 2) ITA No.1324/2008 Gupta Citi Shelters Ltd. . . Appellant VERSUS Commissioner of Income Tax, New Delhi ... Respondent 3) ITA No.29[2010 Commissioner of Income Tax ... Appellant VERSUS Vijay Foils P. Ltd. ... Respondent 4) ITA No.1228[2010 Infomediary India Pvt. Ltd. ... Appellant VERSUS Commissioner of Income Tax ... Respondent 5) ITA No.1229[2010 Infomediary India Pvt. Ltd. ... Appellant ITA Nos.1324/2008, 29/2010, 1228/2010, 1229/2010, 1230/2010, 8/2011, 339/2011, 613/2011, 726/2011 of 2009 Page 1 of 3 . Appellant Commissioner of Income Tax-III VERSUS Sham Mohan Pvt. Ltd. .Respondent Counsel for the Assessee -Mr. Ajay Vohra with Jha and Mr. Somnath Shukla, Advocates. Ms. Kavita 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 Mr. Kiran Babu, Sr. Standing Counsel, Ms. Rashmi Chopr~, Sr. Standing Counsel, Mr. N.P. Sahni, Sr. Standing Counsel, Mr. Sanjeev Sabharwal, Sr. Standing Counsei, Mr. Sanjeev Rajpal, Sr. Standing Counsel, Mr. Kamal Sawhney, Sr. Standing Counsel. CORAM:-HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE M.L. MEHTA A.K. SIKRI CAoting Chief Justice) 1. For orders, see ITA No.972 of 2009. ~- ACTING CHIEF JUSTICE DECEMBER 23, 2011 pmc ~~ JUDGE ITA Nos.1324/2008, 29/2010, 1228/2010, 1229/2010, 1230/2010, 8/2011, 339/2011, 613/2011, 726/2011 of 2009 Page 3 of 3 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No.972 of 2009, ITA No.1324 of 2008, ITA No.29 of 2010, ITA No.1228 of 2010, ITA No.1229 of 2010, ITA No.123Q of 2010, ITA No.1710/2010, ITA No.8 of 2011, ITA No.339 of 2011, ITA No.613 of 2011 and ITA No.726 of 2011 Reserved on: 25th November, 2011 % Pronounced on: 23rd December, 2011 1) ITA No.972/2009 Commissioner of Income Tax -II, Central Revenue Building, New Delhi .. Appellant VERSUS Kamdhenu Steel & Alloys Ltd. . .. Respondent 2) ITA No.1324/2008 Gupta Citi Shelters Ltd. . .. Appellant VERSUS Commlssioner of Income Tax, New Delhi ... Respondent J) ITA No.29/2010 Commissioner of Income Tax ... Appellunt VERSUS Vijay Foils P. Ltd. . .. Respondent 4) ITA No.1228/2010 Infomediary India Pvt. Ltd. . .. Appellant VERSUS ITA No.972 of 2009 Page 1 of 58 t ?< JBA Enterprises (Pvt.) Ltd. VERSUS Income Tax Officer, Ward 4(1), New Delhi ... Respondent 11) ITA No.726/2011 ... Appellant Commissioner of Income Tax-III VERSUS .. Respondent Sham Mohan Pvt. Ltd Counsel for the 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 Mr. Kiran Babu, Sr. Standing Counsel, Ms. Rashmi Chopra, Sr. Standing Counsel, Mr. N.P. Sahni, Sr. Standing Counsel, Mr. Sanjeev Sabharwal, Sr. Standing Counsel, Mr. Sanjeev Rajpal, Sr. Standing Counsel, Mr. Kamal Sawhney, Sr. Standing Counsel. CORAM:-HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE M.L. MEHTA A.K. SIKRI (Acting Chief Justice) 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 Counsel, Ms. Rashmi Chopra, Sr. Standing Counsel, Mr. N.P. Sahni, Sr. Standing Counsel, Mr. Sanjeev Sabharwal, Sr. Standing Counsel, Mr. Sanjeev Rajpal, Sr. Standing Counsel, Mr. Kamal Sawhney, Sr. Standing Counsel. CORAM:-HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE M.L. MEHTA A.K. SIKRI (Acting Chief Justice) 1. The issue relating to the additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on account of 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 crystallized and pumped up by the series of decisions of the 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. 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 31.1.2011 with lead case entitled CIT Vs. Oasis Hospitalities, (2011) 333 ITR 119. As catena of judgments were taken note of and the ratio culled out ITA No.972 of 2009 • therein after undertaking in-depth analysis, we are of the view that our purpose can be served by borrowing liberally from the said judgment 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 under: "2. Section 68 of the Act deals with unexplained incomes 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 income-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 exp2nditure or where any sum is found credited in the books of accounts, the AO can treat the same as undisclosed income and add to the income of the assessee. The assessee is required to give satisfactory explanation about the "nature and source" 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 limited companies on the other hand, would be different. 3. As per the provisions of this Section, in case the assessee has not been able to give satisfactory explanation in respect of certain exp2nditure or where any sum is found credited in the books of accounts, the AO can treat the same as undisclosed income and add to the income of the assessee. The assessee is required to give satisfactory explanation about the "nature and source" 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 limited companies on the other hand, would be different. In the case of private limited companies, normally, the shares are subscribed by family members or persons known/close to the promoters. Public limited companies, on the other hand, generally raise public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in case of public limited companies, the share capital is issued in a close circuit. 5. When the companies incorporated under the Companies Act raise their capital through shares, various 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 subscribed to the share capital, the AO may ask 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 Section 68 of the Act suggests that when the assessee is to give satisfactory explanation, burden of proof is on the assessee 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 law was discussed by a Division Bench of this Court in the case of Commissioner of Income Tax Vs. Divine Leasing and Finance Ltd. [299 ITR 268]. Since the entire gamut of case 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 pern1c1ous practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and "15. There cannot be two opinions on the aspect that the pern1c1ous practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessed it should not be harassed by the Revenue's insistence that it should prove 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 AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement 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 Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions 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. [(1994) 205 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 source 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 exist 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 shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if the assessed offers no Explanation at all or the Explanation offered is not satisfactory then, the provisions of Section 68 may be invoked. 8. The Court also referred to the earlier Division Bench judgment in the case of Commissioner of Income Tax Vs. Dolphin Canpack Ltd. [{2006) 283 ITR 190] 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 AO in the present case. In the course of the said inquiry, the assessed had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the IT Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material 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: 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 the precedents 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 PAN identity of the creditor/subscriber are furnished to the Department 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 discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face .. • value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 10. By this common judgment, the Division Bench decided these appeals of which one appeal related to Lovely Exports P. Ltd.. Against the said judgment, Special 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 CTR 195 (SC)]. The Court while dismissing the SLP recorded some reasons as well albeit 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? We find no merit in this Special Leave Petition for the simple reason that if the share 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 proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment ............. " 11. It is clear from the above that the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove: (a) Identity of shareholder; (b) Genuineness of transaction; and (c) Credit worthiness of shareholders. 12. 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 AO to prove his identity. If the credito:jsubscriber is a company, then the details in the form of registered address or PAN identity, 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 Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be the copies of the shareholders register, share application forms, share transfer register, etc. 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 Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be the copies of the shareholders register, share application 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 showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharge the onus cast upon him. Thereafter, it is for the AO 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 the documents produced by the assessee on the aforesaid aspects, there has to be sonie cogent reasons and materials for the AO and he cannot go into the realm of suspicion. 15. At this stage, we would like to refer to the judgment of the Bombay High Court in the case of CIT Vs. M/s Creative World Telefilms Ltd. (in ITA No.2182 of 2009 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 Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN 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. In the result, the appeal is dismissed in limini with no order as to costs. (emphasis 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 Officer and it is on him to reach the shareholders 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 is taken by the Karnataka High Court in Madhuri Investments Pvt. Ltd. Vs. ACIT (in ITA No.llO of 2004, decided on 18.02.2006). In this case also, some of share applicants did not appear and notices sent to them were returned witb 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 applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genuinenity of the applicants before allotting the shares. If for any reason the address given in the application were to be incorrect or for any reason if 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." "6. Having heard the learned counsel for the parties, we notice that whenever a company invites applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genuinenity of the applicants before allotting the shares. If for any reason the address given in the application were to be incorrect or for any reason if 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." 17. However, in Commissioner of Income Tax Vs. Arunananda Textiles Pvt. Ltd. (in ITA 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 company had given the addresses of the shareholders and their identity was not in dispute, it was for the Assessing Officer to make further inqLiry. 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 Exports (P) Ltd. reported in (20089) 216 CTR (SC 195) and also in the case of Commissioner of Income Tax Vs. Steller Investment Ltd. reported in (2001) 251 ITR 263 (SC) has ruled that it not for the assessee to place material before the Assessing Officer in regard to creditworthiness of the shareholders. If the company has given the addresses of the shareholders and their identity is not in dispute, where they were capable of investing, the assessing officer shall investigate. It is 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 favour of the assessee. Accordingly, this appeal is dismissed." 18. Rajasthan High Court had an occasion to deal with the submission of the Revenue predicated on Benami transactions in the case of Commissioner of Income Tax Vs. A/0 Granites (P) Ltd. reported as 301 ITR 298 (Raj.) and the arguments were dealt with in the following manner: "3. So far as question No. 1 is concerned, it is stated by learned counsel for the appellant that the issue embedded in the said question has already been decided by this Court and governed by the ratio laid down in Barkha Synthetics Ltd. Vs. Asst. CIT (2005) 197 CTR (Raj.) 432. It has been pointed out that share applications are made by number of persons, may be in their own names or 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 cannot be assessee in his hands as his undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown from asssessee's own money. In coming to this conclusion, the Court relied on CIT Vs. Steller Investment Ltd. (1991) 99 CTR (Del.) 40, which has since been affirmed by the Supreme Court in CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287. In view thereof, this question need not be decided again." 19. This very aspect came up for consideration before different Courts on number of occasion and was dealt with in favour of the assessee. CIT Vs. Steller Investment Ltd. (1991) 99 CTR (Del.) 40, which has since been affirmed by the Supreme Court in CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287. In view thereof, this question need not be decided again." 19. This very aspect came up for consideration before different Courts on number of occasion and was dealt with in favour of the assessee. 20. The observations of the Supreme Court in the case of Lovely Exports (supra) go to suggest that the Department is free to proceed to reopen the individual assessment in case of alleged bogus shareholders in accordance with law and, thus, not remediless. It is, thus, for the AO to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be moreso where the assessee is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further initial burden on the assessee would be somewhat heavy in case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties. 21. We may also usefully refer to the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. P. Mohanakala [(2007) 291 ITR 278 (SC)]. In. that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The AO held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying Section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The CIT (A) confirmed the assessment. On further appeal, there was a difference of op1n1on between the two Members of the Appellate Tribunal and the matter was referred to the Vice • • President who concurred with the findings and conclusions of the AO and the CIT (A). On appeal, the High Court re-appreciated the evidence and substituted its own findings 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 the sums found credited in the books maintained by the assessee. The opinion of the AO 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 ncn for forming the op1mon. 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 assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income 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 receipt of income nature. 22. We would like to refer to another judgment of the Division Bench of this Court in the case of Commissioner of Income Tax Vs. Value Capital Services P. Ltd. [(2008) 307 ITR 334 (Delhi)]. The Court in that case held that the additional burden was on the Department to show that even if share application did not have the means 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 not be made in the income of the assessee under Section 68 of the Act. 23. It is also of relevance to point out that in Commissioner of Income Tax Vs. Stellar Investment Ltd. [(1991) ITR 287 (Del.)] where the increase in subscribed capital of the respondent company accepted by the ITRO 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, this 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. This view was confirmed by the Apex Court in CIT Vs. Stellar Investment Ltd. [(2001) 251 ITR 263 (SC)]." 24. It is, thus, clear that initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. The manner in which such a burden is to be discharged has been explained in various judgments and noted by us above. At the same ITA No.972 of 2009 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 bank 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) CIT Vs. Rathi Finlease Ltd., 215 CTR 167 (M.P.) the Court held as under :- ITA No.972 of 2009 Page 16 of 58 "17 ....... S.68 of the Act enjoined the assessee to offer an explanation 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 explain the genuineness of the credit on the basis of letters of confirmation, it could not be explained as to how the transaction was materialized when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. It was for the assessee to discharge this burden ............ " B) Calcutta High Court in CIT vs. Ku.ndan Investment Ltd., 263 ITR 626 (Cal.) held as under:- " .......... Under Section 68, the Income-tax Officer is empowered to lift the veil of corporate identity 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 materials are scrutinized and the result of the scrutiny is communicated to the assessee, the onus shifts from the Revenue to the 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 in Commissioner of Income Tax vs. Sophia Finance Limited, 205 ITR 98 (Del) dealt with the issue as under :- " ........... As we read Section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is C) This Court in Commissioner of Income Tax vs. Sophia Finance Limited, 205 ITR 98 (Del) dealt with the issue as under :- " ........... As we read Section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name lender or not. Be that as it may, it is clear that 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 an assessee and it would be immaterial as to whether the amount so credited is . given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in section 68 indicates that the said section is very widely worded and an Income tax officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. xxxx xxxx xxxx xxxx .............. On the basis of the language used under Section 68 and the various decisions of different High Courts and the Apex Court, the only conclusion which could be arrived at is: (i)that there is no distinction between the cash credit entry existing in the books of the firm whether it is of a partner or of a third party, (ii) that the burden to prove the identity, capacity and genuineness has to be on the assessee, (iii) if the cash credit is not satisfactorily explained the Income Tax Officer is justified to treat it as Income from "undisclosed sources", (iv) the firm has to establish that the amount was actually given by the lender, (v) the genuineness and regularity in the maintenance of the account has to be taken into consideration by the taxing authorities, (vi) if the explanation is not supported by any documentary or other evidence, then the deeming fiction credited by Section 68 can be invoked. In these circumstances, we are of the view that simply because the amount is credited in the books· of the firm ·in the partner's capital account it cannot be said that it is not the undisclosed income of the firm and in all cases it has to be assessed as an undisclosed income of the partner alone. In these circumstances, we are of the view that the Tribunal was not justified in holding that the cash credits of Rs.11,502 in the account of Shri Kishorilal, one of the partners, could not be assessed in the hands of the firm and in deleting the same. Since the matter was not considered by the Tribunal on the merits, the Tribunal would be free to hear the arguments of both the parties and decide afresh in view of the observations made above. Accordingly, the reference is answered in favour of the Revenue and against the assessee." D) CIT vs. Korlay Trading Co. Ltd., 232 ITR 820 (Cal) was cited by the Revenue to press the following:- " .......... There should be a genuine transaction. The income tax file number has been given but that is not enough to prove the genuineness of the cash credit. Admittedly, there is no affidavit to this effect, by the creditor, on record. Considering these facts, we find that the finding of the Tribunal in this regard is perverse. The assessee has failed to prove the genuineness of the cash credit. ..... " D) CIT vs. Korlay Trading Co. Ltd., 232 ITR 820 (Cal) was cited by the Revenue to press the following:- " .......... There should be a genuine transaction. The income tax file number has been given but that is not enough to prove the genuineness of the cash credit. Admittedly, there is no affidavit to this effect, by the creditor, on record. Considering these facts, we find that the finding of the Tribunal in this regard is perverse. The assessee has failed to prove the genuineness of the cash credit. ..... " 25. Following dicta of the Apex Court judgment in Sumati Dayal vs. CIT, 214 ITR 801 (SC) was heavily relied upon by the Revenue:- "It is no doubt true that in all cases in whi::h a receipt is sought to be taxed as Income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the ~TA No.972 of 2009 Page 19 of 58 I nature of income, the burden of proving that it is not taxable because it falls within the exemption provided· by the Act lies upon the assessee. (See Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz. the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cann.Jt, however, act unreasonably. xxxx xxxx xxxx xxxx .............. This raises the question whether the apparent can be considered as the real. As laid down by this Court the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities ...... . xxxx xxxx xxxx xxxx This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities .............. " (Emphasis supplied) 26. With this discourse on the legal position, we advert to the cases at hand. In these appeals, there is a common thread which runs through all these cases insofar as nature of ITA No.972 of 2009 Page 20 of 58 of 58 58 • transaction is concerned. As would be seen when we discuss the facts of this case, the share applicants are all companies incorporated under the Indian Companies Act, either public limited or private limited companies. Since these companies are incorporated under the provisions of Indian Companies Act, their identity, at least on papers, is established. Here, they are assessed to income tax as well. These companies have PAN numbers and are filing regular income tax returns. The assessee companies which have received share applicant money from such applicants have produced documents in the form of PAN, income tax returns, copies of the bank accounts through which the funds were transferred by way of credit entries, deposits in the accounts of such applicants, etc. by furnishing such kinds of proofs/documents, the assessees have been able to discharge their initial burden. Notwithstanding the same, as per the AO(s), the applicants were bogus companies which were only paper companies and there is no real existence. In certain cases, it was also found that just before issuing the cheques by the applicants towards share applicant money, cash was deposited in their bank accounts. Except in ITA No. 726/2011, in other cases, the AOs also relied upon 27. 27. the investigation report of Director of Income Tax (Investigation), the details whereof would be mentioned at the appropriate stage. From the aforesaid and some other aspects peculiar to each case, the AO(s) was of the opinion that the assessees had not discharged the burden. With this background, we now pick up one of the appeals, the outcome whereof would determine the fate of all these appeals. 28. • ITA No.972 of 2009 In the case of this assessee, we are concerned with the Assessment Year 2004-05. While scrutinizing this case, the AO found that the balance-sheet revealed that during the period relevant to the year under assessment, the assessee had received share application money of ~2. 74 Crores from various applicants. The assessee filed details of all the share applicants and the · amounts received along with their confirmation and copies of the bank accounts of such investors from as many as 32 share applicants. All these applicants were private limited companies. The AO was of the opinion that the creditors were not genuine parties and were only entry providers. He referred to the report dated ITA No.972 of 2009 Page 22 of 58 02.3.2006 of the Directorate of Income Tax (Investigation), Unit-V, New Delhi in this behalf. He issued detailed questionnaire on 09.11.2006 wherein he also gave specific reasons in respect of each of the applicant which was of the following nature: (i) In the bank account of the various share applicants, they had deposited cash for specific purpose for applying for share in addition to providing entry to the assessee, the same modus was adopted in the other cases as well. applicants, they had deposited cash for specific purpose for applying for share in addition to provid