The Commissioner Of Income Tax-I Chennai v. M/S.gobi Textiles Limited Chennai

In the High Court of Judicature at Madras Dated : 04.09.2007 Coram : The Honourable Mr.Justice K.RAVIRAJA PANDIAN and The Honourable Mrs.Justice CHITRA VENKATARAMAN Tax Case (Appeal) Nos.439 and 440 of 2004 The Commissioner of Income Tax-IChennai. .. Appellant in both the appealsVs M/s.Gobi Textiles LimitedChennai. .. Respondent in both the appeals. TAX CASE (APPEAL) under Section 260A of the Income Tax Act againstthe order of the Income Tax Appellate Tribunal Madras 'A' Bench dated30.04.2003 made in I.T.A.Nos.1638/Mds/2000 and 1176/Mds/02 for theassessment years 1996-97 against the order of the commissioner in IncomeTax (Appeals) XI, Chennai in ITA No.480/2001-2002 dated 7.6.2002 againstthe order of the Joint Commissioner of Income Tax Special Range XI,chennaiin GIR No.10-G dated 12.3.99. For Appellant : Mr.J.Narayanaswami Jr.Standing Cousnel for Income-taxFor Respondent : Mr.V.S.Jayakumar JUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The relevant assessment year is 1996-97. The appeal is filedformulating the following substantial questions of law:-1. Whether on the facts and circumstances of thecase, the burden cast on the assessee by explanation 1Bto Section 271(1)(c) stands discharged by the assesseeproviding basic information without substantiating thesame? 2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the onus ofproving the source for the share application money is notentirely on the assessee, but largely on the assessingofficer? https://hcservices.ecourts.gov.in/hcservices/ 3. Whether in the facts and circumstances of thecase, the assessing officer has to prove that the cashcredit is unexplained or that the explanation given is nottrue, to make an addition under Section 68 of the IncomeTax Act? 2. The necessary facts as culled out from the statement offacts are as follows:- For the assessment year 1996-97, the assessee Company filed itsreturn of income on 29.11.1996 declaring a total loss of Rs.72,21,172/-.The assessment was completed under Section 143(3) of the Income Tax Act on12.9.1999 determining the net loss of Rs.21,56,526/- after considering theunexplained cash credit of Rs.56,47,470/-. 3. While processing the assessment, the assessing officer founda sum of Rs.72.90 lakhs was received in the financial year 1996-97 asshare application money thereby the assessee company's share capital wasincreased to Rs.1,67,88,000/-. Out of Rs.72.90 lakhs received, a sum ofRs.53,88,100/- was claimed to have been received from persons who were notIncome-tax assessees. Hence the assesseee was required to prove thegenuineness of the transactions by producing persons who have depositedmore than Rs.1 lakh. The assessee company produced salary certificates of10 persons and land holding papers of certain properties but not producedany persons. On consideration of the particulars furnished by theassessee, the assessing officer was of the view that except one personothers were not capable of depositing money in cash out of their savings.On that view, the assessing officer treated the share application money ofRs.53,88,100/- as unexplained cash credit under Section 68 of the Income-Tax Act and added the same in the income of the assessee. On appeal, theCommissioner of Income Tax (Appeals) upheld the order of the assessingofficer. 4. While so, in a separate proceedings, the Joint Commissionerof Income Tax initiated penalty proceeding under Section 271(1)(c) forconcealment of income and levied penalty, which was also confirmed by theCommissioner of Income-Tax (Appeals) on appeal. As against the orders ofCommissioner of Income-tax (Appeals) confirming the assessment order aswell as imposition of penalty, two appeals were filed before the Income-tax Appellate Tribunal. The Tribunal on the basis of the materials onrecord held that the assessee had discharged the onus cast upon it byproviding the basic information, and the assessing officer failed todisprove the claim of the assessee as not genuine. By so holding, theTribunal allowed both the appeals. The correctness of the said order isnow put in issue before this Court. 5. We heard the argument of the learned counsel on either sideand perused the materials on record. 6. The ultimate fact finding authority – the Tribunal in itsorder, which is impugned in these appeals, has recorded a clear finding tothe effect that in the instant case, the assessing officer had listed theshare holders and found some of them were retired employees of the bank, https://hcservices.ecourts.gov.in/hcservices/ some of them were working employees of the bank and rest of them wereagriculturists. The assessing officer did not dispute that those personsdid not exist. Though the assessing officer directed the assessee companyto produce the persons, he did not take the minimum pain of issuing noticeto any one of the persons when the details about them were very muchavailable with him. Thus the assessing officer failed in his duty andobligation to disprove the claim of the assessee to the effect that thedepositors were not genuine persons. The Tribunal further recorded afinding that the action of the assessing officer in arriving at aconclusion that the persons with low salary income would not havemobilised the fund was based on wild guess and doubting the capacity ofthe persons on surmises. It further held that the assessing officerfailed to prove that the share holders were not possessing money to paythe share application money. According to the Tribunal, the assesseedischarged the onus cast upon it by providing the basic materials and itwas the assessing officer who failed to prove the contrary. 7. Learned counsel appearing for the revenue relied on a latestdecision of the Supreme Court in the case of COMMISSIONER OF INCOME-TAXVS. P.MOHANAKALA reported in (2007) 291 ITR 278. We have gone throughthe said judgment, wherein the Supreme Court after referring to Section 68of the Income Tax Act has held as follows: 7. Learned counsel appearing for the revenue relied on a latestdecision of the Supreme Court in the case of COMMISSIONER OF INCOME-TAXVS. P.MOHANAKALA reported in (2007) 291 ITR 278. We have gone throughthe said judgment, wherein the Supreme Court after referring to Section 68of the Income Tax Act has held as follows: "The question is what is the true nature and scope ofsection 68 of the Act? When and in what circumstances wouldsection 68 of the Act come into play? A bare reading of section68 suggests that there has to be credit of amounts in the booksmaintained by an assessee; such credit has to be of a sumduring the previous year; and the assessees offer noexplanation about the nature and source of such credit found inthe books; or the explanation offered by the assessees in theopinion of the Assessing Officer is not satisfactory, it isonly then the sum so credited may be charged to income-tax asthe income of the assessees of that previous year. Theexpression "the assessees offer no explanation" means where theassessees offer no proper, reasonable and acceptableexplanation as regards the sums found credited in the booksmaintained by the assessees. It is true the opinion of theAssessing Officer for not accepting the explanation offered bythe assessees as not satisfactory is required to be based onproper appreciation of material and other attendingcircumstances available on record. The opinion of the AssessingOfficer is required to be formed objectively with reference tothe material available on record. Application of mind is thesine qua non for forming the opinion." 8. If the above observation of the Supreme Court is applied tothe facts of the present case, the decision straightly staring at therevenue because the explanation offered by the assessee cannot by anystretch of imagination be considered as unreasonable or not acceptableexplanation as regards the sum credited in the books maintained by the assessee. Further, the opinion of the assessing officer which was requiredto be formed objectively with reference to the material available onrecord was also not formed nor viewed as directed by the Supreme Court inthe above said decision. Above all, the issue is one of factual in natureand the question of law, which is the basic requirement for filing anappeal under Section 260-A of the Income-tax Act is not available. 9. The Division Bench of this Court in the case of COMMISSIONEROF INCOME-TAX, CHENNAI VS. M/S.ELECTRO POLYCHEM LIMITED made in T.C.(A)Nos.782 and 783 of 2007 dated 21.6.2007 had an occasion to consider theissue similar to the issue in the case on hand and rejected the case ofthe Revenue. The relevant portion of the order reads as follows: “3. In Commissioner of Income Tax v. Stellar InvestmentLtd. (192 ITR 287), where the increase in subscribed capital ofthe respondent-Company, accepted by the Income Tax Officer andrejected by the Commissioner on the ground that a detailedinvestigation was required regarding the genuineness ofsubscribers to share capital, as there was a device ofconverting black money by issuing shares, with the help offormation of an investment, which was reversed by the Tribunal,the Delhi High Court held that even if it be assumed that thesubscribers to the increased share capital were not genuine,under no circumstances the amount of share capital could beregarded as undisclosed income of the company. 4. The view taken by the Delhi High Court in Commissionerof Income Tax v. Stellar Investment Ltd. (192 ITR 287) citedsupra, was confirmed by the Apex Court and the same was reportedin 251 ITR 263.” 4. The view taken by the Delhi High Court in Commissionerof Income Tax v. Stellar Investment Ltd. (192 ITR 287) citedsupra, was confirmed by the Apex Court and the same was reportedin 251 ITR 263.” 10. In the case of COMMISSIONER OF INCOME TAX VS. SOPHIAFINANCE LIMITED reported in 205 ITR 908, the Delhi Court has observed thatan enquiry by the assessing officer as to the existence or non-existenceof the shareholder and about their creditworthiness is condition presidentfor treating the cash credit as the income of the company. No such enquirywas conducted by the assessing officer in this case. 11. For the fore-going reasons, and in the light of the law laiddown by Court referred to supra, the quantum appeal is dismissed.Consequently, the appeal against the order of setting aside the impositionof penalty is also dismissed. sd/-Asst.Registrar usk /true copy/ To 1. The Assistant Registrar, Income Tax Appellate Tribunal, III floor,Rajaji Bhavan, Besant Nagar, Chennai-600 034 2. The Commissioner of Income-tax (Appeals)- XI Chennai3.The Joint Commissioner of Income Tax, Special Range-XI Chennai. 4. The Commissioner Income Tax-I, Chennai.+ 1 cc to Mrs.Pushya Sitaraman Advocate SR.NO.55617+ 1 cc to Mr.V.S.Jayakumar Advocate SR.NO.55714GG(CO)R 17.9.07Tax Case (Appeal) No.439 and440 of 2004