M/S.lalitha Jewellery Mart P. Ltd v. The Deputy Commissioner Of Income Tax, Company Circle Ii (4), Chennai

In the High Court of Judicature at Madras Reserved on : 07.7.2017 Delivered on : 11.8.2017 CORAM : THE HONOURABLE MR.JUSTICE NOOTY.RAMAMOHANA RAOANDTHE HONOURABLE MR.JUSTICE M.S.RAMESH TCA Nos. 435 and 436 of 2013and MP.Nos.1 and 1 of 2014 M/s.Lalitha Jewellery Mart P. Ltd.,No.123, Usman Road, Chennai-17. ... Appellant in Both TCAs Vs The Deputy Commissioner of Income Tax, Company Circle II (4), Chennai. ... Respondent in TCA.435 of 2013The Assistant Commissioner of IncomeTax, Company Circle II (4), Chennai. ... Respondent in TCA.436 of 2013 APPEALS under Section 260A of the Income Tax Act againstthe common order dated 15.4.2013 made in ITA.Nos.2180 and1871/MDS/2010 on the file of the Income Tax Appellate Tribunal,‘C’ Bench, Chennai, for the assessment year 2007-08, against theOrder of the Commissioner of Income Tax(Appeals) III inI.T.A.No.598/09-10/A III dated 08.09.2010 and against the Orderof the Assistant Commissioner of Income Tax, dated 31.12.2009 inPAN/GIR No.AAACL 1523A in Assessment year 2007 – 2008. NOOTY.RAMAMOHANA RAO,J COMMON JUDGMENT These appeals under Section 260A of the Income Tax Act,1961 (henceforth called the Act) have been preferred by theassessee challenging the correctness of the common order passed https://hcservices.ecourts.gov.in/hcservices/ by the Income Tax Appellate Tribunal, `C” Bench, Chennai dated15.4.2013 in ITA Nos.2180 and 1871/ MDS/2010. 2. The following substantial questions of law have beenframed while admitting TCA.No.435 of 2013 on 25.2.2014 :"(i) Whether the Appellate Tribunal iscorrect in confirming the assessment ofshare capital contributions as unexplainedcredit/ investment within the scope ofSection 68/69 of the Act in spite of thematerial evidence filed before them and thelowerauthoritiesestablishingclearly/discharging of initial burden/onusstatutorily vested on the appellant companyto provide the source ? (ii) Whether the Appellate Tribunal iscorrect in law in confirming the assessmentof share capital contributions as the incomeof the appellant company even though therewere no materials in their possession of therespondent/Assessing Officer establishingsuch facts apart from mere suspicion as wellas establishing perversity both on facts andin law in rendering their decision ? and 3. The following substantial question of law has been framedwhile admitting TCA.No.436 of 2013 on 25.2.2014 : “Whether the Appellate Tribunal is correctin law in confirming the disallowance ofexpenses incurred on gifts and compliments forthe purposes of business within the scope ofSection 37(1) of the Act for want of furtherevidence even though such evidence wereavailable in the records of the respondentundisputably in view of the impounding orderpassed earlier ?” 4. The assessee is a company carrying on business in goldand manufacture of jewellery and trading. With a view to expandits business by opening branches at several places, theappellant company raised the share capital of Rs.21,96,60,000/- https://hcservices.ecourts.gov.in/hcservices/ from four different investors through account payee cheques orby way of transfer from one bank account or the other to that ofthe assessee. The assessee has reflected the increased sharecapital in its return for the assessment year 2007-08 filed on12.11.2007. The assessment has been picked up for scrutinyunder Section 143(2) of the Act by drawing a notice dated11.9.2008. A survey was also conducted under Section 133A of theAct on 26.2.2009. The scrutiny assessment was completed on31.12.2009. https://hcservices.ecourts.gov.in/hcservices/ from four different investors through account payee cheques orby way of transfer from one bank account or the other to that ofthe assessee. The assessee has reflected the increased sharecapital in its return for the assessment year 2007-08 filed on12.11.2007. The assessment has been picked up for scrutinyunder Section 143(2) of the Act by drawing a notice dated11.9.2008. A survey was also conducted under Section 133A of theAct on 26.2.2009. The scrutiny assessment was completed on31.12.2009. 5. During survey operations, two gold purchase vouchersbearing Nos. 237 and 239 dated 20.2.2007 aggregating toRs.4,90,00,000/- (Rupees four crores and ninety lakhs) have comefor scrutiny and the concerned purchaser Sri.Shahul Hameed wasissued with summons under Section 131 of the Act to appearbefore the Assessing Officer. Sri.Shahul Hameed appearedaccordingly on 7.10.2009 and gave his statement. Though, at thefirst instance, Sri Shahul Hameed denied having purchased orsold any gold to and from the assessee, but, however, later on,he furnished the details of the sources for purchase of the goldfrom the assessee. Rejecting the claim of gold purchases made bySri Shahul Hameed, the Assessing Officer has recorded the saidinflated transactions as the source for capital contributionaggregating to Rs.5.75 Crores by the said Sri.Shahul Hameed. Inso far as the capital contribution made by Sri.Shahul Hameed forpurchase of 35,000 shares of the assessee is concerned, a sum ofRs.5.25 crores has been paid through cheque Nos. 852593, 852594and 852595 drawn at ICICI Bank, T.Nagar on 20.2.2007. Forpurchase of 3333 shares, a sum of Rs.50 lakhs has been remittedthrough cheque No.833026 of the State Bank of India dated20.2.2007. In consideration of this payment, aggregating toRs.5.75 crores, shares were allotted by the assessee on30.3.2007 to the said Sri.Shahul Hameed. 6. Similarly, in the case of Sri.Prakash Chand Jain, whohas also been allotted shares by the assessee company, thesources of the said individual for contributing to the sharecapital of the assessee company have been explained. Sri.PrakashChand Jain was allotted 33333 shares for Rs.5 crores, whereasHeritage Creations, Nehru Palace, New Delhi was allotted 65333shares for Rs.9,80,00,000/- (Rupees nine crores and eighty lakhsonly). Another individual Smt.Savitri of Royapet, Chennai wasallotted 9440 shares for Rs.1,41,60,000/- (Rupees one croreforty one lakhs and sixty thousand only). 7. The Assessing Officer has held that though monies wererouted through banking channels, the explanation offered by theassessee company is not acceptable, as the said explanation wasnot convincing and satisfactory. In so far as the saidSri.Shahul Hameed is concerned, the Assessing Officer has noticed that the said individual initially purchased goldthrough one of his firms and later on, sold the gold again tothe assessee company and thereafter, the sale proceeds were paidover for acquiring the shares. This sort of cycling and re-cycling of funds does not carry any conviction and hence, theaddition to the share capital has been treated as `income’ inthe hands of the assessee. 7. The Assessing Officer has held that though monies wererouted through banking channels, the explanation offered by theassessee company is not acceptable, as the said explanation wasnot convincing and satisfactory. In so far as the saidSri.Shahul Hameed is concerned, the Assessing Officer has noticed that the said individual initially purchased goldthrough one of his firms and later on, sold the gold again tothe assessee company and thereafter, the sale proceeds were paidover for acquiring the shares. This sort of cycling and re-cycling of funds does not carry any conviction and hence, theaddition to the share capital has been treated as `income’ inthe hands of the assessee. 8. The assessee carried the matter in appeal before theCommissioner of Income Tax (Appeals) [henceforth called the CIT(Appeals)]. The CIT (Appeals) has found that all the investorshave been identified and that the transactions have been carriedon through banking channels. Therefore, the CIT (Appeals) hadarrived at a conclusion that the assessee had discharged theonus cast on it under Section 68 of the Act and that they hadreceived the money from those persons, against which payment,respective shares were allotted and hence, it may not be theconcern of the Assessing Officer to find out as to why theinvestors have chosen to invest in the assessee company. Hence,the CIT (Appeals) has deleted the addition of the amountaggregating to Rs.21,96,60,000/- (Rupees twenty one croresninety six lakhs and sixty thousand only) contributed by thefour individual members towards the share capital of the companyfrom computation of income of the assessee. 9. Aggrieved by this decision of the CIT (Appeals), theRevenue preferred the second appeal before the Income TaxAppellate Tribunal. 10. While making the assessment order, a further sum ofRs.10,45,913/- (Rupees ten lakhs forty five thousand ninehundred and thirteen only) was added towards income bydisallowing the expenditure said to have been incurred by theassessee in buying the compliments and gift articles to bepresented to it's customers. The Assessing Officer hasdisallowed the claim, as no evidence to support the purchase ofsuch gift articles has been brought before it. The CIT (Appeals)has also held that the assessee has not produced any evidence tosupport the claim of expenditure for the gift articles andhence, he did not find any error in the order of the AssessingOfficer disallowing the said expenditure and then adding it tothe income of the assessee. To this extent of denial of theexpenditure incurred towards purchase of gift articles to bepresented to the customers, the other appeal has been preferredby the assessee before the Income Tax Appellate Tribunal. 11. Both the appeals have been heard by the Income TaxAppellate Tribunal and by the common impugned order dated15.4.2013, the Tribunal allowed the appeal of the Revenue anddismissed the appeal of the assessee. It was urged before the 11. Both the appeals have been heard by the Income TaxAppellate Tribunal and by the common impugned order dated15.4.2013, the Tribunal allowed the appeal of the Revenue anddismissed the appeal of the assessee. It was urged before the Tribunal that by a methodical cycling and re-cycling, the fundshave been brought in to show as if contribution was made to theshare capital of the assessee company whereas truth of it beingthat this is the actual income of the assessee, which is soughtto be camouflaged by devising the scheme of contribution to thecapital. It was urged, for instance, that M/s.Heritage CreationsPrivate Limited invested a substantial amount for purchasing theshares of the assessee company. But, the said M/s.HeritageCreations Private Limited immediately sold the shares to anotherconcern viz., M/s.AK Exports. M/s.AK Exports is owned by theManaging Director of the assesee company. The sale of shares ofthe assessee company to M/s.AK Exports has resulted in a hugeloss of Rs. 8.82 Crores to M/s.Heritage Creations PrivateLimited and the business sense in incurring such a huge loss ina short span of time remained unexplained and hence, thetransactions are all 'make believe management practices', ratherthan being cases of genuine transactions of investment. 12. The principal contention of the assessee in answerthereto was that two of the investors are from Delhi and theofficers of the Income Tax Department at Delhi made necessaryenquiries about them and no adverse report has been made by theIncome Tax Department at Delhi against those two investors.Since all investments are made through the banking channels, theassessee has discharged the onus that was lying on it forpurposes of proving the sources of its sources. When once thesource of its sources has been explained, it is no concern ofthe assessee company to go further and establish the genuinenessor the credit worthiness of the sources of the assessee. Inother words, when once the investors of the assessee company aretraced out and the monies have been shown to have been receivedby the assessee through banking channels from them and thosesources have identified their respective sources and they werealso investigated for a while by the Department, but havingfound no adverse material against them, cannot now disallow thesaid investment received by the assessee on one ground or theother. According to the learned counsel for the appellant,assessee is only required to explain the sources of investmentand when once that gets established, it is for the Department toproceed against the investors in case those investors have notproperly explained their own resources for investing in theassessee company. It was further urged that it is not theconcern of the assessee company to find out as to why theinvestors have chosen to invest in the assessee company. It isalso equally not the concern of the Department as to why afabulous amount of premium has been paid for acquiring theshares of face value of Rs.10/-, in as much as the valuation ofthe shares of the assessee compay is altogether a differentmatter and the Income tax Department has no regulatory controlin that regard. 13. Before proceeding further, it is only appropriate tonotice the contents of Section 68 of the Act. It reads as under :“68. Where any sum is found credited inthe books of an assessee maintained for anyprevious year, and the assessee offers noexplanation about the nature and sourcethereof or the explanation offered by him isnot, in the opinion of the AssessingOfficer, satisfactory, the sum so creditedmay be charged to income-tax as the incomeof the assessee of that previous year :Provided that where the assessee is acompany (not being a company in which thepublic are substantially interested), andthe sum so credited consists of shareapplication money, share capital, sharepremium or any such amount by whatever namecalled, any explanation offered by suchassessee-company shall be deemed to be notsatisfactory, unless—(a) the person, being a resident inwhose name such credit is recorded in thebooks of such company also offers anexplanation about the nature and source ofsuch sum so credited; and(b) such explanation in the opinion ofthe Assessing Officer aforesaid has beenfound to be satisfactory:Provided further that nothing containedin the first proviso shall apply if theperson, in whose name the sum referred totherein is recorded, is a venture capitalfund or a venture capital company asreferred to in Clause (23FB) of Section 10.” 14. It is clear from the above provision that burden,initially, is cast upon the assessee to offer an explanationabout the nature and source of the money found credited in itsbooks of account and if that explanation is not satisfactory inthe opinion of the Assessing Officer, the sum so credited becharged as the income for the previous year. Similarly, if theassessee is a company and the sum is credited, consisting ofshare application money or share capital or share premium or anysuch amount, the assessee is required to offer satisfactoryexplanation about the nature and source of the sum credited toits book of account. 15. To understand the rationale behind this provision, it isonly apt to refer to the judgment of the Supreme Court renderedin the case of Commissioner of Income Tax (Central), Calcutta v https://hcservices.ecourts.gov.in/hcservices/ Daulat Ram Rawatmull [reported in (1973) Vol.87 ITR 349], it hasbeen set out therein as under: “Before dealing with the facts of thiscase, we may advert to the principles whichshould govern the decisions of the court insuch like cases. Findings on questions ofpure fact arrived at by the Tribunal are notto be disturbed by the High Court on areference unless it appears that there wasno evidence before the Tribunal upon whichthey, as reasonable men, could come to theconclusion to which they have come; and thisis so, even though the High Court would onthe evidence have come to a conclusionentirely different from that of theTribunal. In other words, such a finding canbe reviewed only on the ground that there isno evidence to support it or that it isperverse. Further, when a conclusion hasbeen reached on an appreciation of a numberof facts, whether that is sound or not mustbe determined, not by considering the weightto be attached to each single fact inisolation, but by assessing the cumulativeeffect of all the facts in their setting asa whole [Sree Meenakshi Mills Ltd. Vs.Commissioner of Income-Tax [1957] 31 ITR28 : [1956] SCR 691 (SC)]." 16. When a Court of fact acts on material partly relevantand partly irrelevant, it is impossible to say to what extentthe mind of the Court was affected by the irrelevant materialused by it in arriving at its finding. Such a finding isvitiated because of the use of inadmissible material and therebyan issue of law arises. Likewise, if the Court of fact bases itsdecision partly on conjectures, surmises and suspicions andpartly on evidence, in such a situation, an issue of law arises[Dhirajlal Girdharilal Vs. CIT [1954] 26 ITR 736 (SC)]. TheCourt went on to hold that a person can still be held to be theowner of a sum of money even though the explanation furnished byhim regarding the source of that money is found to be notcorrect. Thus, the explanation regarding the source of moneyfurnished by the person was not satisfactory does notautomatically lead to a conclusion that that the money does notbelong to that particular person, but belongs to the otherautomatically. 17. More importantly, the Supreme Court, in Daulat Ram, haslaid down the following principle, which has a direct bearingupon the controversy at issue and it reads as under: https://hcservices.ecourts.gov.in/hcservices/ have been involved was not proved. That wasonly a suspicion of the Revenue.” 19. It would also be appropriate to notice the observationof the Supreme Court in the case of Orissa Corporation P.Ltd.,at page 83, as under : "In Sreelekha Banerjee Vs. CIT [1963]49 ITR 112, this Court held that if therewas an entry in the account books of theassessee which showed the receipt of a sumon conversion of high denomination notestendered for conversion by the assessseehimself, it is necessary for the assessee toestablish, if asked, what the source of thatmoney was and to prove that it was notincome. The Department was not at that stagerequired to prove anything. It could ask theassessee to produce any books of account orother documents or evidence pertinent to theexplanation if one was furnished and examinethe evidence and the explanation. If theexplanation showed that the receipt was notof an income nature, the Department couldnot act unreasonably and reject thatexplanation to hold that it was income. If,however, the evidence was unconvincing, thensuch rejection could be made. The Departmentcannot by merely rejecting a goodexplanation unreasonably, convert good proofinto no proof." 20. Again in the case of Sumati Dayal Vs. CIT [reported in214 ITR 801], at page 805, the Supreme Court has clearlyexplained the point of approach to be followed both by theassessee and the Department, in the context of Section 68 of theAct, in the following words : "It is no doubt true that in all cases,in which, a receipt is sought to be taxed asincome, the burden lies upon the Departmentto prove that it is within the taxingprovision and if a receipt is in the natureof income, the burden of proving that it isnot taxable because it falls within anexemption provided by the Act lies upon theassessee [Parimisetti Seetharamamma [1965]57 ITR 532 at page 536]. But, in view ofSection 68 of the Act, where any sum isfound credited in the books of the assesseefor any previous year, the same may becharged to income tax as the income of the assessee of that previous year if theexplanation offered by the assessee aboutthe nature and source thereof is, in theopinion of the Assessing Officer, notsatisfactory. In such a case there is,prima facie, evidence against the assesseeviz. the receipt of money and if he fails torebut it, the said evidence beingunrebutted, can be used against him byholding that it was a receipt of an incomenature. While considering the explanation ofthe assessee, the Department cannot,however,actunreasonably[SreelekhaBanerjee's case (1963) 49 ITR (SC) 112 atpage 120]." assessee of that previous year if theexplanation offered by the assessee aboutthe nature and source thereof is, in theopinion of the Assessing Officer, notsatisfactory. In such a case there is,prima facie, evidence against the assesseeviz. the receipt of money and if he fails torebut it, the said evidence beingunrebutted, can be used against him byholding that it was a receipt of an incomenature. While considering the explanation ofthe assessee, the Department cannot,however,actunreasonably[SreelekhaBanerjee's case (1963) 49 ITR (SC) 112 atpage 120]." 21. A Division Bench of the Delhi High Court in the case ofCIT Vs. Stellar Investment Ltd., [reported in 192 ITR 2870, haspointed out the approach to be adopted in this type of matters,as under : "It is evident that even if it beassumed that the subscribers to theincreased share capital were not genuine,nevertheless, under no circumstances, canthe amount of share capital be regarded asundisclosed income of the assessee. It maybe that there are some bogus shareholders inwhose names shares had been issued and themoney may have been provided by some otherpersons. If the assessment of the personswho are alleged to have really advanced themoney is sought to be reopened, that wouldhave made some sense but we fail tounderstand as to how this amount ofincreased share capital can be assessed inthe hands of the company itself." 22. The above view on the point of approach to the subjecthas been approved by the Supreme Court in CIT Vs. StellarInvestment Ltd., on 20.7.2000, in Civil Appeal No.7968 of 1996. 23. Applying the legal principles noticed supra, let usexamine as to how the issue has been handled by the AssessingOfficer at the first instance. The Assessing Officer disallowedthe investments made towards the share capital of the assessee.As was noticed supra, three individuals and one company claimedto have made contributions to the capital. Each of theseinvestments has been faulted by the Assessing Officer. TheAssessing Officer has essentially based his findings on certaininformation gathered during survey. During the said survey operations, two purchase vouchers bearing Nos.237 and 239 werefound and voucher No.237 relates to purchase of gold jewelleryfor an amount of Rs.1,72,30,572/- and voucher No.239 relates topurchase of fine gold worth Rs.3,17,69,428/-. Both the vouchers,put together, accounted for a sum of Rs.4.90 Crores. 24. The name of the seller was noted as M/s.Sun LandProperties Private Limited. Hence, the statement of the ManagingDirector of the said company was obtained for the ostensiblepurpose of verifying the genuineness of the purchases made bythe assessee. Sri.Shahul Hameed, the Managing Director of thesaid company, appears to have categorically rejected that heever had any purchase or sale transaction with the assesseeeither in bullion or in old gold jewellery. 25. Thereafter, the Managing Director of the assesseecompany has been confronted with that rejection of transactionby the Managing Director of M/s.Sun Land Properties and theManaging Director of the assessee company has confirmed thepurchases made by the assessee and he, in turn, rejected thestatement of Sri.Shahul Hameed as to why he has been denying thesale made by him in spite of the vouchers containing his (ShahulHameed) signature as proof of sale of gold by him to theassessee company. 25. Thereafter, the Managing Director of the assesseecompany has been confronted with that rejection of transactionby the Managing Director of M/s.Sun Land Properties and theManaging Director of the assessee company has confirmed thepurchases made by the assessee and he, in turn, rejected thestatement of Sri.Shahul Hameed as to why he has been denying thesale made by him in spite of the vouchers containing his (ShahulHameed) signature as proof of sale of gold by him to theassessee company. 26. It is worthy to notice that in the profit and lossaccount, the assessee company has debited a sum ofRs.5,11,04,113/- towards purchase of old gold jewellery.Further, for verifying the apparent contradictions, summons wereissued to Sri.Shahul Hameed on 15.9.2009, in response to which,he appeared on 07.10.2009. A sworn statement was taken from him.He clearly stated that earlier they had purchased gold jewelleryand fine gold from the assessee and they were again sold in thesame year for a short term gain. When he was specificallyconfronted with regard to purchase vouchers bearing Nos.237 and239 dated 20.2.2007, Sri.Shahul Hameed had categorically statedthat M/s.Sun Land Properties Private Limited purchased and soldthe jewellery and bullion from and to the assessee during thatperiod. He was also asked to furnish necessary details. He alsofurnished all the details relating to the purchase of gold byM/s.AK Exports and the assessee company. 27. The Assessing Officer then asked the said Sri.ShahulHameed to produce his accounts and he also produced his sourcesof payments, as they (M/s.Sun Land) received substantial sumsof money from various contracting parties of theirs between18.7.2007 and 04.10.2007. Thereafter, the Assessing Officerassigned the following reasons for not believing the statementof Sri.Shahul Hameed : “By going through the above details,anyone can understand that the submission bySri.Shahul Hameed does not rescue the casedue to firstly not producing any of the aboveparties from whom the money was received byhim and further even if for the sake ofargument we accept that the receipt wasthere, the question still remains that howthe money received during the period18.7.2007 and 01.10.2007 can be used for thepurchase of standard gold and new jewelleryduring 18.11.2006 to 20.2.2007, which was atleast five months prior to the date of thealleged receipts.” 28. The Assessing Officer, in spite of tracing the investorof the assessee and in spite of the said source of the assesseeexplaining its own sources, which run to several crores ofrupees, prefers to reject it on the ground that Sri.ShahulHameed has not produced the parties, who paid his firm monies.It is a clear perverse view. It is plainly unthinkable that theassessee should have secured the presence of the contractingparties of its investors. The assessee, being a businessenterprise, can trust the credit worthiness of its investors andnot unduly worry as to whether the investor has been properlymaintaining its books of accounts and is managing its affairsprudently. It is all the more so, when the assessee receives themoney through approved Banking channel. It is clear that theAssessing Officer is indulging in surmises and conjectures. Itis plainly obvious that the Assessing Officer has concentratedall his energies to discredit the credit worthiness of the saidSri.Shahul Hameed. More importantly, the Assessing Officer hasglossed over the fact that Sri Shahul Hameed invested a sum ofRs.5.75 Crores, whereas the Vourchers 237 and 239 cover a sum ofRs.4.9 Crores only. The difference in between the two is noless significant amount, running to Rs.85.00 lakhs. Similarly,when it came to the investment made by Sri.Prakash Chand Jain,this is what has been set out by the Assessing Officer inparagraphs 2.8.3 and 2.8.4 : “In the meantime, based on surveyinformation, further enquiries were donethrough the office of the AdditionalDirector of Investigation, New Delhi withrespect to the alleged investment in thecase of Sri.Prakash Chand Jain in theassessee company. The enquiry revealed thatin response to the summons issued by O/O ITO(Inv.) Unit III, Delhi, on behalf of him,one Sri.K.V.S.Gupta, FCA appeared with powerof authorization and gave the following information. Through the enquiries, it wasgathered that Sri.Prakash Chand Jain is anon resident Indian stationed in Dubai,engaged in the business of jewellery in thename and style of M/s.Al Mowaiji JewellersLLC in Dubai. He is being assessed in Indiafor his income earned in India to tax withITO, Ward 19(2) and New Delhi. He had filedreturn to the Department for the assessmentyears 2007-08 and 2008-09 declaring taxableincome of Rs.1,84,730/- and Rs.3,97,680/-respectively. However, the payment for theinvestment was shown to have been made fromDubai by withdrawing the amount in the bankaccount of AL Mowaiji Jewellers LLC withStandard Chartered Bank, Deira Branch, Dubaivide bank draft No. DDD219070321009 dated21.3.2007 favouring M/s.Lalitha JewelleryMart Private Limited.Except the only information availableon record that one Sri.Prakash Chand Jainhas applied for the shares in the assesseecompany and got allotted with the shares,nothing is available to prove further.” By the above observation of the Assessing Officer, it is clearthat he is looking for proof of resources of the investors ofthe assessee and such proof is beyond the realm of possibilityof production by the assessee. The Assessing Officer hasadopted a totally unreasonable attitude and was actingunreasonably. That was exactly what was frowned upon by theSupreme Court in Sreelekha Banerjea's case, (1963) 49 ITR (SC)112. 29. When it came to M/s.Heritage Creations Private Limited,in paragraph 2.9.2, it has been noted as under : “During the survey in the statementrecorded, the CMD of the assessee companystated that the investment was actually madeby one Sri.Sanjay, who was said to be hisfriend, through the company M/s.HeritageCreations Private Limited, Delhi. In themeantime, based on the survey information,further enquiries were done through theoffice of the Additional Director ofInvestigation, New Delhi with respect to theinvestment in the case of M/s.HeritageCreations Private Limited in the assesseecompany. The enquiry revealed that inresponse to the summons issued by O/O ITO (Inv.), Unit III, Delhi, nobody has appearedto the office, however, a reply letter wasfiled in the above mentioned office. Through the enquiry it was gatheredthat the company has shown a major portionof income by job work and minor portion ofit by sale and purchase of assets andinvestments. The company operates a bankaccount with Centurion Bank of Punjab, NehruPlace, New Delhi with the accountNo.12CA11101371. As per the informationfiled by the company, it has been shown thatit has invested in the shares of theassessee company during March 2007 to anextent of Rs.9,80,00,000/- with the premium.As an explanation to the source, it hasshown the advances received in respect ofIMT/Manesar Project from ITC Limited videMOU/agreement dated 23.8.2007, for which,the company had furnished copies of the bankaccount, MOU, etc. Further, as per thesubmission, it was also in receipt of shareapplication money from AEZ Infratech PrivateLimited during the financial year 2006-07.As per the submissions, the following werethe receipts from ITC Ltd to the party : DateCh.No.Amount Bank8.2.20079535861,51,00,000HDFC Bank19.3.20079550199,74,00,000HDFC Bank19.3.20079550181,00,00,000HDFC Bank19.3.20079550172,00,00,000HDFC Bank19.3.200795501625,00,000HDFC BankTotal14,50,00,000HDFCBank” Even when the investor of the assessee demonstrated itsresources, the Assessing Officer still has suspicion. 30. When it came to the investment made by Smt.Savithri, itwas explained by the assessee company that her husbandSri.M.S.Kandasamy was a Director of the assessee company tillhis death and therefore, the legal heirs of M.S.Kandasamy agreed https://hcservices.ecourts.gov.in/hcservices/ and instructed the assessee company that the amounts due toSri.Kandasamy may be paid to their mother Smt.K.Savithri andthat they have no objection for any such payment made to her.That was the reason why a sum of Rs.65,61,374/- was claimed asdue and payable to Sri.Kandasamy by the date of his death on1.8.2005. It is Smt.Savithri, who favoured allotment of sharesinstead and accordingly applied for allotment of 4,374 shares.She also applied for the balance of 5,166 shares duly makingpayment through cheques drawn at ICICI Bank, T.Nagar. 31. Thus, the assessee company has completely explained thesources of investments received by it. It has also disclosed theidentity of such investors. The Assessing Officer traced out andreached all the four investors of the assessee. He also foundas a fact that all the payments have been received throughbanking channels. Hence, the burden cast on the assessee stooddischarged. But yet, the Assessing Officer disallowed and addedthe amount to income of the assessee. In this context, it is aptto take note of the crisply worded order of the Supreme Court inthe case of CIT Vs. Lovely Exports (P) Ltd. [reported in (2008)216 CTR 195 (SC)], which runs as follows : “Can the amount of share money beregarded as undisclosed income under Section68 of IT Act, 1961 ? We find no merit inthis special leave petition for the simplereason that if the share application moneyis received by the assessee company fromalleged bogus shareholders, whose names aregiven to the Assessing Officer, then theDepartment is free to proceed to reopentheir individual assessments in accordancewith law.”That is the precise reason as to why the Appellate Commissioner– CIT (Appeals) allowed the appeal of the assessee. 32. Now, let us examine the order passed by the Tribunal. Inparagraph 26, the Tribunal declined to give credence to thepayments received by the assessee through banking channels inthe following words : “It is true that all the transactionsdoubted by the Assessing Officer were madethrough banking channels. This is the anchorof the arguments advanced by the assesseebefore the lower authorities. We also doagree that making payment of money throughcheques, demand drafts and bank transfers,is one of the ingredients to prove thegenuineness of the payment. But, at the sametime, we have to be cautious to the factthat such transactions made through banks do notconclusivelyprovethatthosetransactions have been entered in the sameway explained by an assessee. The fact thata payment has been made by cheque or draftby itself does not conclusively prove thatthe person making such payment had enoughresources in his hands to make such payment.It is always possible to transact throughbanking channels and still manipulate theoriginal character of the amount as to whomit belonged and how it was earned.Therefore, we cannot decide this appeal onlyon the ground that the payments objected inthis case have been effected through bankingchannels.” notconclusivelyprovethatthosetransactions have been entered in the sameway explained by an assessee. The fact thata payment has been made by cheque or draftby itself does not conclusively prove thatthe person making such payment had enoughresources in his hands to make such payment.It is always possible to transact throughbanking channels and still manipulate theoriginal character of the amount as to whomit belonged and how it was earned.Therefore, we cannot decide this appeal onlyon the ground that the payments objected inthis case have been effected through bankingchannels.” 33. In paragraph 27, the Tribunal proceeded to examine theabsence of commercial wisdom of the investors in purchasing theshares of the assessee company for two fold reasons. The firstone was that the Managing Director and his wife hold 98.5% ofthe share capital of the assessee company and consequently, itis a completely family held concern. Therefore, the investorswill not be able to gain any control over the affairs of theassessee company, by their investment. The second is that thereis no reason set forth as to why the assessee company’s sharesshould be picked up at a higher premium of Rs.1,490/-. Thereason assigned by the Tribunal in the concluding part ofparagraph 27 reads thus :“They are all business people.Therefore, the decision of those businesspeople to invest in the share capital of theassessee company by paying such a hugepremium needs to be reasonably demonstratedbeforetheAssessingOfficer.Theexplanation offered by the assessee is notconvincing at all.” 34. In paragraph 28, it went into the dynamics of thefinancial capacity of Sri.Shahul Hameed to invest in theassessee company and it has arrived at a finding that at thetime when Sri.Shahul Hameed purchased jewellery and gold, fundsare not available with him. It concluded their enquiry inparagraph 30 in the following terms :“It is very difficult to accept thecontentions of Sri.Shahul Hameed as genuinewhen we go through the long journey ofexercise carried out by him to raise funds,thereaftertopurchase gold,againthereafter to sell the gold and then investin the shares, etc. The explanation offered by the assessee is very incredible. It isnot at all convincing.” 35. When it came to the investments made by Smt.Savithri,the finding of the Tribunal is to the following effect :“Here also the flow of fund is verycircular. It first goes from the books ofthe assessee company, and then it comes tothe assessee company through the medium ofSmt.Savithri. We are of the view thatSmt.Savithri might be a convenient namelender in the whole exercise carried out bythe assessee company. It is also to be seenthat she did not appear before the AssessingOfficer.” 36. When it came to Sri.Prakash Chand Jain, the issue isconcluded in paragraph 32 in the following words :“Except the address provided in thepaper, there was nothing available beforethe Assessing Officer to verify thegenuineness of the investments made by theso called parties. It is stated thatShri.Prakash Chand Jain is big businessmanin Dubai. Of course the money came throughhis bank account. But, there is no othercommunication from him.” 37. In the case of M/s.Heritage Creations Private Limited,the issue is concluded on the strength and basis that the sharesof the assessee company have been sold within a year to M/s.AKExports, which is the proprietary concern of the ManagingDirector of the assessee company and in that process, sustaineda loss of Rs.8.82 Crores and hence, the Tribunal concluded theissue holding that the Assessing Officer has rightly held thatthe amounts brought in by the assessee company into its sharecapital and share premium accounts are unexplained and they haveto be treated as income of the assessee company and accordinglyreversed the order of the CIT (Appeals). 37. In the case of M/s.Heritage Creations Private Limited,the issue is concluded on the strength and basis that the sharesof the assessee company have been sold within a year to M/s.AKExports, which is the proprietary concern of the ManagingDirector of the assessee company and in that process, sustaineda loss of Rs.8.82 Crores and hence, the Tribunal concluded theissue holding that the Assessing Officer has rightly held thatthe amounts brought in by the assessee company into its sharecapital and share premium accounts are unexplained and they haveto be treated as income of the assessee company and accordinglyreversed the order of the CIT (Appeals). 38. The Tribunal has also rejected the appeal preferred bythe assessee with regard to rejection of expenditure incurred byit for purchase of gifts and compliments to be given tocustomers. Though for a company of having turnover of Rs.150Crores the expenditure incurred towards purchase of gifts andcompliments amounting to Rs.10,45,913/- is a reasonable amount,but on the ground that the vouchers have not been producedbefore the Assessing Officer, the expenditure in that regard wasdisallowed. 39. The assessee pointed out that the vouchers are impoundedby the Assessing Officer and hence, they were prevented fromproducing the same before the Assessing Officer. The Tribunalnoted that the assessee was not without any remedy and that theycould have secured copies of the vouchers, which are impoundedby the Assessing Officer and thus, the assessee could haveestablished the genuineness of the expenditure incurred. Thisconcurrent finding of fact could not have been challengedwithout producing any reasonably acceptable evidence thatexpenditure claimed was truly incurred. The fact that theassessee has reported a turnover of Rs.150.00 crores is no proofof the actual expenditure it claimed to have indulged in buyingarticles of gifts or complimentaries. 40. We agree that if the assessee is in a position toproduce copies of vouchers for the expenditure incurred by ittowards purchase of gifts and compliments, the failure toproduce evidence in support of the expenditure is a justifiablereason for the Assessing Officer to disallow the expenditureclaim. 41. However, the main theme, upon which, the AssessingOfficer as well as the Tribunal proceeded to discredit theinvestors of the assessee is completely erroneous. They are bothlooking for proof beyond doubt. They are proceeding on anelement of suspicion that the amounts of investments are reallythose of the assessee, which have been ploughed back by theassessee, whereas the settled principle of law is that anyamount of suspicion, however strong it might be as well, is nosubstitute for proof. Suspicion is not sufficient enough to leadto a conclusion that the investments received by the assesseecompany are all manipulated receipts and on that basis, recordeda finding that the explanation of the assessee is notsatisfactory. 42. On the other hand, the legal principle enunciated by theSupreme Court, as noticed supra by us, is that so long as theproof and identity of the investor and the payment received fromhim is through a doubtless channel like that of a bankingchannel, the receipt in the hands of the assessee towards sharecapital or share premium does not change its colour. The moneyso invested in the assessee company would still be the moneyavailable and belonging to the investors. The consistentprinciple followed is that the investors’ sources and creditworthiness cannot be explained by the assessee. If theDepartment has a doubt about the genuineness of the investorscapacity, it is open to it to proceed against those investors.Without taking such a course of action, the Assessing Officerand the Tribunal are proceeding on conjectures that the assesseehas, in fact, ploughed back the money. The very approach of the Assessing Officer and the Tribunal are completely opposed tosettled legal principles enunciated and they have arrived atconclusions contrary to the legal principles on the subject.Further, they are finding fault with the assessee for thealleged failure of it's investors in proving beyond doubt thatthey have the capacity to invest at the moment they did in theassessee company. That is clearly a perverse view, as theassessing officer is not expected to perform a nearimpossibility. The assessee cannot call upon its investors todisclose all such business transactions thay carried on in theimmediate past and as to how much they made from theirrespective business enterprises. The assessee cannot also callupon its investors to prove their good business sense ininvesting in the assessee company, as such investors cannot gainany controlling stake. 43. In the result, the questions of law framed in TCA.No.435of 2013 are answered in favour of the assessee and against theRevenue. Hence, TCA.No.435 of 2013 is allowed. Consequently,MP.No.1 of 2014 is closed.44. The question of law framed inTCA.No.436 of 2013 is answered in favour of the Revenue andagainst the assessee. Hence, it is dismissed with costs.Consequently, MP.No.1 of 2014 is also dismissed. 45. It is seen that on 25.2.2014, vide orders passed inMP.Nos.1 and 1 of 2014, it was recorded that a sum of Rs.4crores was already remitted by the appellant company. In view ofthe common judgment rendered in these appeals, the said sum ofRs.4 Crores be adjusted towards a