The Commissioner Of Income Taxcentral Circlesalem v. Victory Spinning Mills Ltd.uppupalayamsankari Main Roadthiruchengodenamakkal Districtpan: Aabcv7533K

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.8.2014 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARAND THE HON'BLE MR.JUSTICE G.M.AKBAR ALI T.C.(A).Nos.309 to 311 of 2014 The Commissioner of Income TaxCentral CircleSalem. .. Appellant in all appeals Vs. Victory Spinning Mills Ltd.UppupalayamSankari Main RoadThiruchengodeNamakkal DistrictPAN: AABCV7533K .. Respondent in TC(A) No.309/2014 R.Thangavelu P.S.Sundaram .. Respondent in TC(A) No.310/2014.. Respondent in TC(A) No.311/2014 PRAYER: Appeals under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal Chennai 'B' Bench, dated 16.9.2011 made in ITA No.2098/Mds/2010, ITA.No.1110/Mds/2010 and ITA.No.1111/Mds/2010 respectively for the assessment year 2004-2005. For Appellant :Mr.M.SwaminathanSenior Standing Counsel (2) J U D G M E N T (Delivered by R.SUDHAKAR, J.) These appeals are filed by the Revenue challenging the order of the Income Tax Appellate Tribunal Chennai 'B' Bench, dated 16.9.2011 made inITANo.2098/Mds/2010,ITA.No.1110/Mds/2010and ITA.No.1111/Mds/2010 respectively for the assessment year 2004-2005, raising the following substantial questions of law: “(i) Whether on the facts and circumstances of the case, the Income Tax Tribunal was right in applying the ratio of the decision of the Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd, 216 CTR 195 and the decision of the Delhi High Court in the case of CIT v. Value Capital Services Pvt. Ltd. 307 ITR 334, which is distinguishable from the present case? (ii) Whether on the facts and circumstances of the case, the Income Tax Tribunal was right in deleting the additions made by the Assessing Officer when the assessee has not discharged the onus, but merely provided the names, when the evidence available on record reveals that genuineness of the transactions is in doubt?” 2.1. The brief facts of the case are as under: The respondent in T.C.(A) No.309 of 2014 is a spinning mill. The respondents in T.C.(A) Nos.310 and 311 of 2014 are the Managing Directors of the said Spinning Mill. 2.2. There was a search and seizure action in the case of the assessees in T.C.(A) Nos.310 and 311 of 2014, namely, the Managing Directors of the Spinning Mill. A survey under Section 133A of the Income Tax Act (for brevity, “the Act”) was conducted in the case of the assessee in T.C.(A) No.309 of 2014, namely the Spinning Mill. In the course of the survey operation, certain irregularities were noticed regarding investments in shares. In the course of the search in the case of the assessee in T.C.(A) No.310 of 2014, a list of 84 persons captioned as “Directors Share Holders” was seized. Similarly, in the case of the assessee in T.C.(A) No.311 of 2014, a list of 13 persons was seized. 2.3. The Assessing Officer opined that the transactions in shares are not genuine and the creditworthiness of the shareholders is doubtful and, therefore, treated the amount of Rs.2,28,72,625/- (in T.C.(A) No.309 of 2014), Rs.1,44,87,000/- (in T.C.(A) No.310 of 2014) and Rs.83,85,625/- (in T.C.(A) No.311 of 2014) as unexplained cash credit under Section 68 of the Act in the hands of the company as protective assessment and in the hands of the managing directors as substantive assessment. 2.4. Assailing the said order passed by the Assessing Officer, the assessees appealed to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), placing reliance on a decision of the Supreme Court in Commissioner of Income Tax v. Lovely Exports (p) Ltd., [2008] 216 CTR 195 (SC) and a decision of the Delhi High Court in Commissioner of Income Tax v. Value Capital Services Pvt. Ltd., 221 CTR 511 allowed the appeals filed by the assessees. 2.5. Aggrieved by the said order, the Revenue filed appeals before 2.4. Assailing the said order passed by the Assessing Officer, the assessees appealed to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), placing reliance on a decision of the Supreme Court in Commissioner of Income Tax v. Lovely Exports (p) Ltd., [2008] 216 CTR 195 (SC) and a decision of the Delhi High Court in Commissioner of Income Tax v. Value Capital Services Pvt. Ltd., 221 CTR 511 allowed the appeals filed by the assessees. 2.5. Aggrieved by the said order, the Revenue filed appeals before the Tribunal. The Tribunal dismissed the appeals holding that the share application money cannot be treated as unexplained income of the Spinning Mill and the Revenue is free to proceed against the alleged bogus share applicants in accordance with law; and since the share applicants are the same and they have confirmed the transaction of share application, it cannot be treated as unexplained investment of the managing directors of the Spinning Mill. 2.6. Challenging the said order passed by the Tribunal, the present appeals are filed on substantial questions of law, referred to supra. 3. We have heard the learned Senior Standing Counsel appearing for the appellant and perused the orders passed by the Tribunal and the authorities below. 4. Before adverting to the merits of the case, it would be relevant to refer to Section 68 of the Act, which reads as under: “Section 68. Cash credits.-Where any sum is found credited in the books of an assessee maintained for any previous year, and the 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.” 5. A bare reading of Section 68 of the Act makes it clear that in a case where any sum is found credited in the books of account and the assessee has not given satisfactory explanation in respect of the same, the Assessing Officer can treat the same as undisclosed income and add it to the income of the assessee. All that the said provision contemplates is that the assessee has to give satisfactory explanation about the “nature and source” of such sum found credited in the books of account. 6. From the facts as enumerated above, we are of the view that the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, applies on all fours to the present case, in view of the fact that out of 181 share applicants, 129 share applicants had appeared when summons were issued and they have accepted their investment. That apart, the names and identity of the share applicants is also available on record. When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income in the hands of the Spinning Mill. 7. Furthermore, as per the decision of the Delhi High Court in Value Capital Services P. Ltd. case, referred supra, the burden is on the Department to show that the investment made by the share applicants 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 case on hand, the department except making a vague statement that the managing directors have advanced monies to the alleged share applicants, did not substantiate the same with concrete evidence. Such finding based on a priori considerations cannot be a ground to make addition towards unexplained cash credit. Therefore, the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted. Moreover, since the share applicants in all these cases are one and the same and they have confirmed the transactions, it cannot be treated as the unexplained investment of the managing directors of the company and on that score, no addition can be made in the hands of the managing directors. 8. That apart, a reading of the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, makes it clear that the department has a right to reopen the individual assessment, if the allegation of bogus shareholding is proved. The Commissioner of Income Tax (Appeals) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessees have explained in no uncertain terms the nature and source of the income. We find no reason to differ with the said findings of the Commissioner of Income Tax (Appeals) and the Tribunal, based on facts. 9. The above said view is fortified by an earlier decision rendered by us in the Commissioner of Income Tax v. Pranav Foundations Ltd. (T.C.(A) No.262 of 2014, dated 12.8.2014). For the foregoing reasons, we find no substantial question of law arising for consideration in these appeals and accordingly, these appeals are dismissed. No costs. Consequently, M.P.No.1 of 2014 (2 Petitions) are dismissed. Index:YesInternet:Yessasi (R.S.J.) (G.M.A.J.)22.8.2014 To: 1. The Assistant Registrar,Income Tax Appellate TribunalChennai Bench "B", Chennai.Income Tax Appellate TribunalChennai Bench "B", Chennai. 2. The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax (Appeals) Salem. 4. The Assistant Commissioner of Income Tax Central Circle, Salem. Central Circle, Salem. (9) R.SUDHAKAR,J.and G.M.AKBAR ALI,J. (sasi) T.C.(A).Nos.309 to 311 of 2014