Case Law Details
Brief Facts:
The facts of the case in brief are that the assessee filed e-return of Income on 28.11.2006 declaring nil income which was processed u/s 143(1) of the Income Tax Act, 1961(hereinafter referred to as the Act) and thereafter the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had raised share capital including share premium amounting to Rs. 10,00,000/- from Shri Vinod Kumar and Rs. 6,50,000/- from Shri Jasbir Singh.
The AO asked the assessee to furnish the confirmation and the sources of investment made by the above mentioned two share holders. He also asked to produce the aforesaid persons to verify the veracity of the transactions. In response the assessee produced both the persons on 5.12.2008. The AO observed that Shri Jasbir Singh was was able to substantiate his sources of investment from sale proceeds of agricultural land but Shri Vinod Kumar could not do so. The AO further observed that the statement of Shri Vinod Kumar was also recorded in which he explained that he made the investment out of his past savings from agricultural activities and out of refund of cash loan given to Shri Jasbir Singh alias Pappu. Shri Vinod Kumar in his statement also stated that he owned approximately 40 bighas of land, however, papers were not available with him since those were mortgaged in was connection with a tractor loan. The AO observed that Shri Vinod Kumar could not explain the exigency under which he had to apply for bank loan specially when a sum of Rs. 10,00,000/- in cash was available with him. He further observed that copy of the Khasra Khatoni of agricultural land at Village Nathupur the names mentioned were Shri Sardare, Shri Tare and Shri Umed Singh as owner of agricultural land and the name of Shri Vinod Kumar was not amongst the co-owners of the land. The AO pointed out that the assessee produced an agreement on the blank paper which revealed that Shri Jasbir Singh of Village Nathupur had refunded and an old cash loan to Shri Vinod Kumar, however, he did not find merit in the submission of the assessee and added Rs. 10,00,000/- to its income by considering the same as unexplained credits u/s 68 of the Act.
Assessee Contention :
The assessee submitted that he produced following evidences before the AO to prove the identity and creditworthiness of Shri Vinod Kumar :-
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Also read the judgments in the case of CIT vs Kamdhenu Steel & Alloys Ltd & Others (2012) 248 CTR 33 (Delhi) / 206 Taxman 254 (Delhi) land mark judgments considering the all previous judgments on the issue relating to addition made by Ld AO under section 68 of the Income Tax Act on account of unexplained share application money the hon’ble court decided in issue in favour of the assessee. Refer relevant para of the order (the last para referred is more important for study and interpretation):
“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 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 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.
27. With this background, we now pick up one of the appeals, the outcome whereof would determine the fate of all these appeals.
ITA No.972 of 2009
28. 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 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.
(ii) Many companies did not exist at the addresses furnished. The registered letters sent to them had been received back undelivered.
(iii) There were reports of the Inspectors (Income Tax) that many parties were not genuine assessees and were not in existence.
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42. However, in the facts and circumstances of these cases, it would be difficult to give such an opportunity to the Revenue. There are number of reasons for denying this course of action which are mentioned below:
(i) It is not a case where some procedural defect or irregularity had crept in the order of the AO. Had
that been the situation, and the additions made by the AO were deleted because of such infirmity, viz., violation of principle of natural justice, the Court could have given a chance to the AO to proceed afresh curing such procedural irregularity. One example of such a case would be when statement of a witness is relied upon, but opportunity to cross-examine is not afforded to the assessee.
(ii) On the contrary, it is a case where the AO(s) did not collect the required evidence which they were supposed to do. To put it otherwise, once the assessee had discharged their onus and the burden shifted on the AO(s), they could not come out with any cogent evidence to make the additions. No doubt, as indicate by us above, the AO(s) could have embark upon further inquiry. If that is not done and the AO(s) did not care to discharge the onus which was laid down, for this “negligence” on the part of the AO(s), he cannot be provided with “fresh innings”.
(iii) The order of the AO(s) had merged in the order of the CIT(A) and in some of the cases before us and before the CIT(A), the assessees had succeeded.
(iv) This Court is acting as appellate Court and has to act within the limitations provided under Section 26A of the Act. The appeals can be entertained only on substantial questions of law. In the process, this Court is to examine as to whether the order of the Tribunal is correct and any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority, on the basis of available record. When the matter is to be examined from this angle, there is no reason or scope to remit the case back to the AO(s) once it is found that on the basis of material on record, the order of the Tribunal is justified. Even the Tribunal acts purely as an appellate authority. In that capacity, the Tribunal has to see whether the assessment framed by the AO, all for that matter, orders of the CIT(A) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same if not the addition has to be deleted. At that stage, the tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to.”