Commissioner Of Income Tax vs Victor Electodes Ltd
2010 Latest Caselaw 2527 Del

             THE HIGH COURT OF DELHI AT NEW DELHI
%                                    Judgment delivered on: 12.05.2010

+            ITA 586/2010

COMMISSIONER OF INCOME TAX                                 ... Appellant

                                     - versus -

VICTOR ELECTODES LTD                                     ... Respondent

Advocates who appeared in this case:

For the Appellant       : Mr Sanjeev Sabharwal
For the Respondent      : Mr Salil Aggarwal
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may be allowed to see the judgment ? No

2. To be referred to the Reporter or not ? No

3. Whether the judgment should be reported in Digest ? No

V.K. JAIN, J (ORAL)

1. This appeal is directed against the order of Income

Tax Appellate Tribunal, whereby the appeal filed by the

Revenue, being ITA No.2173/Del/2008 against the order of the

Commissioner of Income Tax (Appeals) in respect of the

Assessment Year 2002-03 was dismissed.

2. The Assessee company filed return of income tax

declaring total income of Rs.8,67,334/- for the Assessment

Year 2002-03. The assessment, initially framed under Section

143(3) of Income Tax Act (hereinafter referred to as 'the Act'),

was re-opened by issuing notice under Section 148 of the Act.

During the course of assessment, it was noticed by the

Assessing Officer that the assessee had received Share

Application Money, amounting to Rs.27 lakhs from four

private limited companies. On being called upon to prove the

genuineness of the receipts, the assessee furnished documents

such as Share Application Money, copies of resolution by the

Board of Directors of the applicant companies, as well as the

bank statements, Memorandums & Articles of Association and

Income Tax Return of these companies. The applicant could

not produce the parties before the Assessing Officer. He

accordingly added the Share Application Money as

unexplained cash credit under Section 68 of the Act.

3. The Commissioner of Income Tax (Appeals), however,

was of the view that since all the applicants were assessed to

income tax and the investments made by them was reflected

in their respective balance sheets, the genuineness of the

payment made by them to the assessee company had prima

facie been proved. He noted that the Assessing Officer did not

make any enquiry from the concerned parties nor did he

examine their assessment record. He, therefore, deleted the

addition made by the Assessing Officer.

4. The Income Tax Appellate Tribunal was of the view

that the assessee had discharged the onus that was placed

upon it and as non-production of the parties could not be a

ground for making the addition, when the assessee had

produced corroborative evidence in support of its claim.

5. The issue involved in this appeal came up for

consideration before this Court in CIT vs. Divine Lasing &

Finance Ltd. 299 ITR 268. After reviewing the case law on the

subject, this Court was of the view that in the context of

Section 68 of the Income Tax Act, the assessee has to prima

facie establish (1) the identity of the creditor/subscriber; (2)

the genuineness of the transaction, namely, whether it has

been transmitted through banking or other indisputable

channels; and (3) the creditworthiness or financial strength of

the creditor/subscriber. It was observed that (a) if relevant

details of the address or PAN identity of the

creditor/subscriber are furnished to the Department along

with copies of the shareholders register, share application

forms, share transfer register, etc., it would constitute

acceptable proof or acceptable explanation by the assessee;

(b) the Department would not be justified in drawing an

adverse inference only because the creditor/subscriber fails or

neglects to respond to its notices; (c) the onus would not stand

discharged if the creditor/subscriber denies or repudiates the

transaction set up by the assessee nor should the Assessing

Officer take such repudiation at face value and construe it,

without anything more, against the assessee and the

Assessing Officer is duty-bound to investigate the

creditworthiness of the creditor/subscriber the genuineness of

the transaction and the veracity of the repudiation.

6. The Special Leave Petition filed by the Revenue

against the above-referred decision of this Court was

dismissed by the Supreme Court vide its decision reported

vide 2008 (216) CTR 195 which inter alia reads as under:

"Can the amount of share money be regarded as undisclosed income under Section 68 of IT Act, 1961? We find no in Special Leave Petition for the simple reason that if the share application money is received by the assessee-

company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, no infirmity is found with the impugned judgment.

7. It has not been disputed before us that the share

application money was received by the assessee company by

way of account payee cheques, through normal banking

channels. It is not the case of the Revenue that the payment

of Share Application Money was not made from the bank

account of the applicant companies. Admittedly, copies of

application for allotment of share were also provided to the

Assessing Officer. It is not the case of the Revenue that the

share applications were not signed on behalf of the applicant

companies and were forged documents. It is also not the case

of the Revenue that the shares were not actually allotted to the

companies.

8. The assessee filed copies of resolution passed by the

Board of Directors of applicant companies, besides their bank

statements and Income Tax Returns. The addresses of the

applicant companies are recorded in these documents. It is

not the case of the Revenue that the copies of Board

Resolutions, Income Tax Returns and Bank Statements were

not genuine documents. The Assessing Officer did not make

any verification in this regard either from the internal record of

the Department or from the concerned banks. If he so

wanted, he could have called for the Income Tax Returns of

the share applicants to ascertain whether the investment

made in the assessee company was reflected in their Balance

Sheets or not. Nothing prevented the Assessing Officer from

summoning the record of the banks on which cheques issued

by the applicant companies were drawn. No such course was,

however, adopted by him.

9. There was no legal obligation on the assessee to

produce some Director or other representative of the applicant

companies before the Assessing Officer. Therefore, failure of

assessee to produce them could not, by itself, have justified

the additions made by the Assessing Officer, when the

assessee had furnished documents, on the basis of which, the

Assessing Officer, if he so wanted, could have summoned them

for verification. No attempt was made by the Assessing

Officer to summon the Directors of the applicant companies.

The addresses of these companies must be available on the

share applications, Memorandum and Articles of Association

and their Income Tax Returns. If the Assessing Officer had

any doubt about identity of the share applicants, he could

have summoned the Directors of the applicant companies. No

such attempt was, however, made by him. Therefore, the

Commissioner of Income Tax(Appeals) and the Income Tax

Appellate Tribunal, in our view were justified in holding that

the identity of share applicants and the genuineness of the

transactions had been established by the assessee.

For the reasons given in the preceding paragraphs,

no substantial question of law arises for our consideration.

The appeal is dismissed.

(V.K. JAIN) JUDGE

(BADAR DURREZ AHMED) JUDGE MAY 12, 2010 BG