This is an appeal filed by the assessee against the order of the Commissioner (Appeals) dated 21-3-2003 for the assessment year 1994-95, in the matter of order passed under Section 143(3)/254 of the Income Tax Act, 1961 wherein following grounds have been raised by the assessee: 1. That the assessment order as well as appellate order is wrong, illegal and against the facts of the case, hence not sustainable under law.
2. That the appellant had taken 13 grounds for appeal but the learned Commissioner (Appeals) is wrong and unjustified in passing the assessment order without considering the merits of the case and without deciding each of the grounds independently, which is contrary to the spirit and mandatory directions of Hon'ble ITAT, Delhi vide ITAT order dated 25-10-2002 in this case in ITA No. 3842/Del./96, which are revenue-produced as under: 4. In view of the aforesaid, we do not feel obliged to go into the merits of the case but in, being fair to both the parties, we set aside the orders passed by the Commissioner (Appeals) restoring the appeal back to his file for a decision de novo on merits taking into account the fact of the case and the decision cited. In the view that we have taken, we do not find it necessary to decide each of the ground independently." 3. That the learned Commissioner (Appeals) is wrong and unjustified in passing appellate order, which is not a speaking order, disregarding the mandatory provisions of (a) Section 250(6) of Income Tax Act, 1961 and (b) order XVI, Rule 31 of the code of civil Procedure and wrongly confirming the additions of Rs. 11,75,000 under Section 68 without considering the following facts/ documents /rulings of higher courts, which are the essence of the whole submission, filed by the appellant in support of his submission that the provisions of Section 68 are not applicable.
2. Rival contentions have been heard and record perused. The facts in brief are that the original assessment in this case was completed at an income of Rs. 11,75,520 after considering the sum of Rs. 11,75,000 as income charged to tax on protective basis. This assessment was set aside by Commissioner (Appeals), New Delhi. The assessing officer mentions that in the fresh assessment proceedings the case was fixed a number of times. Only once Shri V.K. Gupta, Director of the company appeared. He did not file any details. In subsequent hearings neither any person appeared nor any details were filed and the assessment was being completed on the basis of information available on record. The assessing officer further mentions that a search was conducted on the business and residential premises of certain persons and the appellant-company was one of them. The seized documents constituted of pass-books for a number of bank accounts opened in the name of a large number of persons. Blank share transfer forms signed in advance, pay in slips for cash deposits etc. It was found that an amount of Rs. 11,75,000 was credited in the bank account of the company which was said to have been received by the company from shareholders as share application money. The learned assessing officer says that assessee has not filed any information or reply to the query raised about the nature and source of various deposits, despite clear cut directions given by the Commissioner (Appeals)-IX, New Delhi that the assessee will furnish all information required to identify the real owner. The assessing officer says that in the absence of any information being provided by the assessee no conclusion regarding the real owner can be made and the sum of Rs. 11,75,000 which is credited in the books of account by the assessee has to be explained by the assessee. Since the assessee failed to do so, provisions of Section 68 of the Income Tax Act, 1961 apply and the 'Share application money shown to have been received by the assessee company is deemed to be the income of the assessee-company for the previous year. The assessing officer has also discussed the assessee's earlier assertion before the Commissioner (Appeals), New Delhi that money belonged to third parties. The learned assessing officer says that it is for the assessee to prove as to whom this money really belonged and since the assessee has not done so that sum in question has necessarily to be taxed in the assessee's hands only. This amount of Rs. 11,75,000 has, therefore, been added as income from undisclosed sources.
3. By the impugned order, the Commissioner (Appeals) confirmed the action of the assessing officer by observing as under: I have gone through the assessment order and considered the submission of the appellant. In this appeal, the appellant has raised legal issue that no addition under Section 68 can be made in the case of the company in respect of the share application money received by the appellant in view of Hon'ble Supreme Court's decision in the case of CIT v.Staller Investment Ltd. (2001) 251 ITR 263 (SC). Therefore, before taking up the appeal on merits, I am deciding the above issue. No doubt, the Hon'ble Supreme Court has affirmed the decision of Delhi High Court (192 ITR 287) in thecaseof CIT v. Staller Investment Ltd., however, I find that Hon'ble Supreme Court has not overruled the Full Bench decision of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. I further find that Hon'ble Delhi High Court in the case of Staller Investment Ltd. did not consider the provisions of Section 68 and therefore, the appellant's authorized representative is incorrect in saying that the provisions of Section 68 cannot apply in view of decision in CIT v. Staller Investment Ltd. On the contrary, I find that Delhi High Court in subsequent decision in the case of CIT v. Sophia Finance Ltd. has stated that provisions of Section 68 are applicable in the case of company which has taken share application money and they have overruled their observation that even in the case of non-genuine shareholders, no addition can be made in the hands of the company. In view of above, it cannot be said that Hon'ble Supreme Court has overruled Full bench decision in the case of CIT v. Sophia Finance Ltd. and I find that the decision of that case is applicable in this case. In view of above, the appellant's above submission that in view of Supreme Court's decision in Staller Investment Ltd., no addition should be made of share application money has got no force and accordingly the same is rejected. In view of above, Section 68 is applicable.
Now I am considering the appeal on merits and I find that the appellant had not identified the persons to whom the deposits of Rs. 11,75,000 belongs, therefore, the assessing officer was correct that the provisions of Section 68 are applicable and the assessing officer was correct in making the addition of Rs. 11,75,000 under Section 68 of the Income Tax Act." 4. Aggrieved by the above order of the Commissioner (Appeals), the asscssee is in further appeal before us.
5. It was contended by the learned AR Mr. V.K. Mittal, CA that that copies of Form No. 2 dated 8-2-1983 in respect of allotment of 4,970 equity shares of Rs. 100 each, fully paid up and Form No. 2 dated 1-9-1983 in respect of allotment of 6,000 equity shares of Rs. 100 each fully paid up were filed before the lower authorities. All legal formalities regarding allotment of aforesaid equity shares under the provisions of the Companies Act, 1956 have been duly complied with by the appellant by filing necessary documents with the Registrar of Companies, UP, Kanpur. Both these documents contain complete names and addresses of the share applicants to whom shares have been allotted. It is for the Income-tax department to verify them as per directions contained in appellate order dated 25-7-1992 as per provisions of Income Tax Act, 1961. But the learned assessing officer has not issued notices to the shareholders to verify the genuineness of share application money. He further submitted that the assessment order passed by the learned assessing officer and appellate order passed by the Commissioner (Appeals) are contrary to the guidelines laid down in the case law of CIT v. L. G. Ramamurthi , 462-63 in which Hon'ble Madras High Court has held that no Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the identical facts. He also drew our attention to various judgments of High Court and Tribunal in support of his contentions stated hereinabove as well as before the lower authorities.
6. On the other hand, Senior Departmental Representative Shri Rattan Singh submitted that the Assistant Commissioner in her order passed on 21-2-1995 made addition of Rs. 11,75,000 under Section 68 of the Act, on the basis that identity of the persons from whom funds were received was not proved. He further submitted that the assessee was required to explain the nature and source of various deposits in its bank account amounting to Rs. 11,75,000. It was stated that in spite of the directions of the Commissioner (Appeals) while setting aside the above issue, the assessee had not filed any information or relied on the query despite clear cut directions given by the Commissioner (Appeals) that assessee will furnish information required to identify the real owner. Learned Departmental Representative Shri Rattan Singh drawn our attention to the order of the assessing officer where the assessing officer has observed that in the absence of any information, being provided by the assessee, no conclusion regarding real owner of these deposits could be made. Therefore, sum Of Rs. 11,75,000 credited in the books of account maintained by the assessee was to be added as income of the assessee under Section 68 of the Act.
7. We have considered the rival contentions carefully gone through the orders of the authorities below and also deliberated on the case laws cited by the lower authorities in their respective orders, and referred by the learned AR and DR during the course of hearing before us. From the record, we found that a search was conducted at the premises of various members of a group which can be said to be consisting of persons like Sh. S.K. Garg, Shri M.M. Mighlani etc. This group had floated a number of companies and the assessee was one such company.
Shri V.K. Gupta become the director of the company. In the original assessment proceedings the amount of Rs. 11,75,000 was added to the assessee's income on protective basis on the ground that the sum reflected the bogus capital credited by the group under the banner of the assessee-company. The assessing officer stated that the money would be considered on substantive basis in the assessment of various concerns with whom such fund appear to be invested. In appeal, the Commissioner (Appeals) referred to the discussion made by him in detail while deciding the case of companies controlled by Shri S.K. Garg. He directed that the assessing officer to give finding regarding the real owner of the income, of the owner of the investment as also regarding the person who are the substantive owners of the income as well as investment. This direction was given in by the context of the fact that the addition of Rs. 11,75,000 was in assessing officer on protective basis. The reasoning of the learned Commissioner (Appeals) was that unless a substantive finding is given, a protective finding is not possible. In the fresh assessment proceedings, the assessee company did not file a single piece of evidence to support its claim that the money represented the genuine share application money. Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. held that credits on account of share money is also covered by Section 68 of the Income Tax Act, and the same can be investigated by the assessing officer. In case an assessee fails to satisfactorily explain those credits, the provisions of Section 68 would apply. In the present case, in the original assessment as well as in the fresh assessments repeated opportunities have been given to the assessee to produce evidence in support of the claim that this money genuinely represented share application money. There is a complete failure on this front on the part of the assessee. What further clinches the case is the admission of the assessee through its director Shri V.K. Gupta that the money is either of the shareholders or of the companies in which this money was subsequently invested. This is a clear-cut admission that the assessee-company is resiling from its claim that the money is a genuine shareholders' money.
8. As per our considered view as and when Section 68 is resorted to, it is incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the assessing officer to put out as to whether on these materials the assessee was able to establish the ingredients mentioned above. if the finding is in the affirmative, in that event, Section 68 cannot be attracted. If the finding is in the negative, then Section 68 is definitely applicable.
9. In the instant case, undisputedly nothing has been produced before the authority either for establishing the identity of the subscribers or for providing their creditworthiness and the genuineness of the transaction. Even if such payments are made through bank and by cheques still then in view of the settled proposition of law, the assessing officer can enquire into the same and it is the assessee who has to satisfy the assessing officer about the genuineness of the same in the manner as discussed above. On failure to do so, Section 68 would visit the assessee with all its consequences. Section 68 empowers the assessing officer to treat any sum found credited in the books of account of the assessee for any previous year, if the assessee fails to offer explanation about the nature and sources of such fund or if explanation offered by the assessee is not, in the opinion of the assessing officer, satisfactory, as income from undisclosed sources and charges the same to tax as income of the assessee of that previous year. Thus the power of the assessing officer under Section 68 is not an absolute one. It is subject to its satisfaction where explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to explanation is in effect an inbuilt safeguard in Section 68 protecting the interest of the assessee. It provides for an opportunity to the assessee to explain the nature and source of the fund. Once it is explained, it is incumbent upon the assessing officer to consider the same and form an opinion whether the explanation is satisfactory or not. The expression used in the section clearly lays the burden on the assessee to explain the nature and source of the fund. Unless explanation is offered, the assessing officer is free to treat the fund as income of the assessee from undisclosed sources chargeable to tax. Once explanation is offered, the assessing officer is bound to consider the same. Such consideration is guided by sound principle of law. The opinion so formed must be reasonable and based on materials and shall not be perverse. The extent of the power of the assessing officer while considering the materials produced by the assessee is very wide. The assessing officer is empowered to lift the corporate veil and examine the real nature of the transaction. In the process, it may exercise its power of examining the materials. It may require the assessee to produce further materials if so required. It may seek information from other sources on the basis of the material produced. In the process of enquiry, the assessee has all the right of hearing. The assessee has also a right to challenge the conclusion arrived at on the basis of the enquiry made. The assessee may point out the perversity in the finding.
It may question the validity of the process undertaken. It may point out that a particular material was not considered. It may also point out that the enquiry made was not reasqnable or was half-heartedly done. The process of enquiry is such that the assessee has to offer the explanation and produce the material in support of such explanation and then it can do no further. The onus then shifts on the revenue to scrutinize the materials and form an opinion on the basis thereof. For the purposes of scrutinizing the materials, it may utilize its powers to seek attendance of any witness or disclosure of any information in exercise of its power under Section 131. It may seek information from other sources in exercise of its power under Section 133. Once a reasonable enquiry is made, then the assessing officer can do no further except arriving at a conclusion on the basis of such materials.
If the conclusion is adverse wholly or in part of the interest of the assessee, it is incumbent on the assessing officer to intimate or inform the conclusion arrived at to the assessee. When such information or intimation is received by the assessee, the onus shifts on the assessee. He may furnish further explanation or information to support its contention. If further information or materials are furnished, the assessing officer is bound to examine the same and form its final opinion and pass an appropriate order. Such opinion is also subject to examination by the Commissioner (Appeals) or the Tribunal and if it involves a question of law, it is also subject to scrutiny by the High Court. Finding of facts may also form a basis of a question of law if the inference drawn from the facts found are not in consonance with the legal principles or the findings are perverse. In such a case the High Court may interfere.
10. Our above view is also supported by the decision of Hon'ble Calcutta High Court in case of CIT v. Ruby Traders & Exporters Ltd. and Hindusthan Tea Trading Co. Ltd. v. CIT considering the decision of Delhi High Court in the case of CIT v.Sophia Finance Ltd. and the decision of the Hon'ble Supreme Court in the case of CIT v. Steller Investment Ltd. .
11. In view of the above discussion, we are inclined to agree with the contention of the learned DR Mr. Rattan Singh that in view of incriminating documents found during course of search ' Section 68 was correctly resorted to and it was incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the assessing officer to put out as to whether on these materials the assessee was able to establish the ingredients mentioned above. If the finding is in the affirmative, in that event, Section 68 cannot be attracted. If the finding is in the negative, the Section 68 is definitely applicable.