Case Law Details
CA Isha Seth
Relevant Sections:
Section 68. 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 :
Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.
Section 69.Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
Brief Facts:
1. The assessee company was assessed for the assessment year under consideration for the first time in the Assessment year 2000-2001, in which the Assessing Officer added a sum of Rs. 1,06,90,000/- on account of share application money received by a company in which public is not substantially interested.
2. On appeal, the Hon’ble Income Tax Appellate Tribunal referred the matter back to the Assessing officer on the grounds that an opportunity of being heard is to be provided to the assessee company as well as with the directions that the Assessing Officer should have made further enquiry and should have ascertained the details of the shareholders in whose name the assessee company had shown the share capital.
3. As per ITAT Order remanding the case back to the Assessing Officer, it further held that it was viable and proper and duty on the part of the assessee company to give identity and the details of the shareholders who have deposited the share application money on invitation only. The assessee shall under obligation furnish or adduce or producer reliable and cogent evidences or materials in support of the credit of amount byway of share application money.
AO’s Observations &Order after remanding back by ITAT
1. The Assessing Officer observed that there were 40 share applicants to whom summons were issued under section 131 of the Income Tax Act, 1961 out of which, only two share applicants were found at the address provided by the assessee company.On being asked, the assessee company failed to establish the genuineness of the transactions.
2. The two persons whose addresses were found to be correct were drivers by occupation and accepted vide written statements that they had no relation with the company at all and nor did they know the company by any reasons. Further they had no income tax files. On being asked, the assessee could not explain the same but raised only some technical defects.
3. The AO, on matching the handwriting, was of the opinion that all share applications were actually filled up by two persons only. Furthermore, the cheques appeared to have been issued from one cheque book itself, on examination of the series of cheque numbers.
4. The Assessing Officer thus concluded that “there is no existence of these share applicants who jointly provided the entire share application money of Rs.1,06,90,000/-.” Thus, the A.O. invoked the provisions of section 68 of the Income Tax Act, 1961 thereby making the addition of the aforementioned sum.
CIT (Appeals) Order
CIT(Appeals) also upheld the order passed by the Assessing Officer.
Question of Law
“Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal is correct in deleting addition of Rs.1,06,94,471/- under section 68 of the Income Tax Act, 1961, in the light of the decision of the Hon’ble Calcutta High Court in case of Hindustan Tea Trading Co. Ltd. vs. CIT 263 ITR 289, as the assessee could not prove the identity and creditworthiness of the alleged share subscribers and the genuineness of the share subscriptions ?”[RELEVANT EXTRACT FROM HIGH COURT ORDER]
ITAT Order
1. The fact that the Settlement Commission has rejected the application filed by Sh. K.P. Kedia has not been disputed by the Department Representative as a consequence of which the identity & genuineness of the share capital of the assessee companies has been proved beyond doubt.
2. It has been clearly established that the funds belonging to Sri K.P. Kedia have gone to the beneficiary companies through the medium of Annexure-1 companies. Thus, the sustenance of the additions in assessee companies’ hands would amount to double additions.
3. The issue in case of Hindustan Tea Trading Co. Ltd.’s case (supra) by Calcutta High Court was quite different and thus, the decision therein cannot be applied in the instant case.
4. In the instant case, the the department has added back the total share capital of 117 companies floated by Sri K.P.Kedia including the share capital of the assessee companies, in the hands of Sri K.P.Kedia which has reached finality by way of rejection of petition filed before the Settlement Commission.
5. As the amount has been added to the income of Sri K.P. Kedia, the same cannot be added again in the hands of the assessee companies, as it would amount to double additions.
Assessee’s Contentions:
a) The Assessing Officer vide order u/s 143(3)/158BC(c) of the Act dated 28.03.2001 assessed the income of Sri K.P. Kedia for the block period 1988 to 1999 at a huge sum of Rs. 100,47,45,780/-. In this addition, the paid up capital of 117 companies was already taken into account. On appeal, CIT(Appeals) deleted the additions for 117 companies.
b) Revenue has filed the appeal challenging the CIT (Appeals)’ order before ITAT on the ground that Ld. CIT(A)-VI, Kol had erred in deleting the addition of Rs.73,04,75,000/- under the head of paid up capital of 117 companies.
c) The same share capital which is a subject matter of addition u/s 68 of the Act is also sought to be added to the income of Sri K.P. Kedia in the appeal pending before ITAT.
Revenue’s Contentions:
a) The Revenue relied upon Allahabad High Court’s decision in case of Jagmohan Ram Ram Chandra vs. CIT [2005] 274 ITR 405 wherein the deletion made by the ITAT were considered to be justified in the light of similar facts and circumstances.
Calcutta High Court’s Judgment:
a) The assumption that the funds belonging to Sri. K.P. Kedia had gone to the beneficiary companies, including the assessee company would not prove the identity of the shareholders or their creditworthiness or transactions’ genuineness. The assessee company is under obligation to prove these three things.
b) A transaction resulting in contribution of a sum of Rs.1,06,90,000/-, allegedly contributed by 40 applicants cannot be said to have been proved genuine just because Sri. K.P. Kediais said to have provided the funds. Furthermore, it leads to a negative answer to the questions determining identity of shareholders, creditworthiness and genuineness.
c) If K.P.Kedia has, in fact, provided any fund which is not accounted for in his Books of Accounts then it would attract addition to his income under section 69 of the I.T.Act. The addition to the income of Sri K.P.Kediadoes not, in the least, diminish the liability of the assessee company under section 68. These are two different causes of action leading to addition against the income of twodifferent persons. There is as such no question of any double taxation.
d) The Learned Tribunal has mixed up the matters and failed to notice that as per Settlement Commission order, Sri K.P. Kedia filed his income tax return reflection undisclosed income of Rs. 7.10 crores under compulsion.
e) The addition in this case under Section 68 has nothing to dowith any investment claimed or admitted to have been made by K. P. Kedia outside hisbooks of accounts. In case that is found to have been done, that would attract additionunder Section 69 against Shri K. P. Kedia. The addition in the case of the assessee is onaccount of the sum found credited in its books of accounts maintained for the previousyear in respect whereof the assessee failed to offer any explanation and the Assessing Officer for justified reasons added the amount of Rs.1,06,90,000/- to the income of the assessee.
f) Neither does this amount to double addition, nor to a resultant double taxation.
g) Thus, the appeal of the Revenue is allowed.
