The Judgment of the Court was delivered by

Rajesh Balia, J.:— Heard learned counsel for the appellant. Learned counsel for the appellant urges that in this appeal against the order of the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur, dated November 28, 2001, the following two substantial questions of law arise for consideration:

“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in deleting the addition of Rs. 21.76 lakhs on account of unexplained share application money by relying on the judgment of the hon'ble Supreme Court which is distinguishable in the facts of the case?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in deleting the addition of unsecured loan and interest paid thereon without discussing the issue on merits of the material and evidence available?”

2. The first question relates to that part of the order of the Tribunal by which it has deleted the addition made on account of unexplained cash credit in respect of money received as share application on expansion of share capital to the extent of Rs. 21.76 lakhs. For contending that the aforesaid contention is a question of law, learned counsel for the appellant relies on the decision of the Delhi High Court in Commissioner Of Income-Tax, N. Delhi… v. Sophia Finance Ltd…., [1994] 205 ITR 98 [FB].

3. The Tribunal has relied on another decision of the Delhi High Court in Commissioner Of Income-Tax v. Stellar Investment Ltd., [1991] 192 ITR 287 as affirmed by the Supreme Court in the case of CIT v. Steller Investment Ltd., [2001] 251 ITR 263 and also on the decision of the Delhi High Court in Sophia Finance Ltd.'s case, [1994] 205 ITR 98 [FB] on which reliance has been placed by learned counsel for the appellant also.

4. Having considered the contentions of learned counsel for the appellant and perused the order of the Tribunal and other material placed before us, we are of the opinion that no question of law arises on account of deleting the addition made by the assessing authority on account of unexplained receipt of share application by the assessee for which section 68 of the Income-tax Act, 1961, has been invoked.

5. The Tribunal has noticed the break-up of share application money, which has been added by the Assessing Officer in the taxable income of the assessee as unexplained cash credits, by invoking section 68 of the Income-tax Act, 1961, as under:

Status of parties No. of parties Amount involved Public limited companies 4 8,80,000 Private limited companies 3 6,00,000 Individuals 10 8,96,000 Total 17 23,76,000

6. In this connection, the finding of the Tribunal is that six out of seven companies from which the share application money has been received are found to be genuinely existing and no enquiry has been conducted in respect of the source of share application money received from them at the time of making of the investment in the company. The assessee has discharged its initial burden and the Revenue has failed to discharge its burden as it did not hold any enquiry into the genuineness of those transactions. However, it found that existence of Westbury Investors (Pvt.) Ltd. was not established by the assessee and in respect of alleged investment made by Westbury Investors (Pvt.) Ltd., the initial burden has not been discharged by the assessee. About the individual investors the finding of the Tribunal is that nine out of ten individual investors have confirmed the fact of making investments in the shares of the assessee-company and that they are income-tax assessees and the mode of receipt has been through banking channel. The identity of nine out of ten individual investors excluding Mr. Umesh Kumar has been established and about the genuineness of the transaction of the share of the assessee-company no further enquiry was directed by the Assessing Officer. As regards Umesh Kumar, the Tribunal found that the assessee has failed to explain the said investment made by Umesh Kumar and to that extent the additions were retained amongst investment by individual investors. Likewise, additions made in respect of investment alleged to have been made by Westbury Investors (Pvt.) Ltd. were also sustained for the same reason.

7. The finding of the Tribunal in this regard can be best known by reproducing the order of the Tribunal in that regard:

“In the instant case analysing the fact situation in its entirety we find that as regards the seven corporate investors, the return of notices unserved is not very material for the reasons that the addresses of five of them had changed and the assessee did furnish their changed addresses along with their confirmations but the Assessing Officer thereafter took no further steps/efforts to pursue/effect the service of notice on them and make enquiry. The changed new addresses have been given in the paper book and the pages of the same have also been detailed on page 13 of the assessee's written submission furnished before us. One party, namely, M/s. Good Earth Organics (I) Ltd., Bombay, has gone into liquidation. Again, the notice sent to M/s. Vijay Chem-Pharma Ltd. returned with the postal endorsement ‘shifted’ which obviously shows that the party existed at that address sometime. The GIR No./PAN of six corporate investors except M/s. Westbury Investrade (P.) Ltd. were furnished by the assessee and these companies had confirmed the investment in shares of the appellant. In that view of the matter, considering all the facts and circumstances of the case, we find the identity of the above six corporate investors to have been established and also that they did invest in the shares of the assessee-company. The genuineness of the transactions in respect of these six corporate investors cannot, therefore, be doubted. However, neither GIR No./PAN nor confirmation of the seventh corporate investor M/s. Westbury Investrade (P.) Ltd. was furnished by the assessee, so the primary onus lying on the assessee in respect of the same cannot be treated to have been discharged. Accordingly, its identity as also the genuineness of transaction pertaining to this party cannot be held to have been established.

As regards ten individual investors, they did respond to the notice issued to them under section 133(6) and nine out of ten confirmed the fact of making investment by them in the shares of the assessee-com-pany. The mode of payment was banking channel. As such, considering all the facts and circumstances of the case as also the legal position emanating from the judicial pronouncements discussed above, we find that the identity of nine out of the above ten individual investors (excluding Sh. Umesh Kumar Bansal) has been established and also the genuineness of the transactions of investment by them in the shares of the assessee-company. However, as regards Sh. Umesh Kumar, no doubt, the share application is stated to have been signed by him as also the cheque to have been signed by him yet for the reason that he has denied the fact of investment in the assessee-company in the letter sent in response to a notice the transaction of investment by him in the shares of the assessee-company to be treated as having not been proved and the primary onus lying on the assessee as having not been discharged. No doubt there may have been several reasons for subsequent denial on his part as has been contended by the learned authorised representative of the assessee, yet the assessee having not brought on record any further cogent evidence/material explaining his subsequent denial and convincingly corroborating investment by him the transaction pertaining to him cannot be held as acceptable or genuine.

In view of our discussion/finding, we hold that the investments, i.e, the deposit of share application money by M/s. Westbury Investrade (P.) Ltd. (Rs. 2,00,000) and Sh. Umesh Kumar Bansal (Rs. 1,00,000) to have not been explained/established and so the addition in respect of these two parties is found to have been rightly made. However, as regards the remaining fifteen parties the investment of Rs. 20,76,000 by them in aggregate is found to have been satisfactorily explained/established and so the addition in respect of them is uncalled for and not justified, which we delete accordingly.”

8. In this connection, we may notice that the Tribunal has referred to the decision of the Supreme Court in Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd.., [1986] 159 ITR 78. It was a case in which the assessee has given names and addresses of the alleged creditors.

9. In the aforesaid decision of Orissa Corporation P. Ltd., [1986] 159 ITR 78 (SC), the three amounts were shown to have been received by way of loans from three individual creditors of Calcutta under hundis. By way of explanation, the respondent produced before the Income-tax Officer the letters of confirmation and the discharged hundis and gave particulars of those creditors, who were assessees and whose general index numbers were with the Department. Since the respondent, after making attempts, could not produce the parties, the Income-tax Officer, on its request issued summons under section 131 of the Income-tax Act, 1961, to the creditors, which however were returned unserved with the remark “left”. For want of production of those persons, the amounts credited in the books of account as loan from the said persons were treated as unexplained income and the same were added to the assessee's total taxable income.

10. The Tribunal had found that because the respondent could not produce the parties, it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the respondent and that the Revenue was not justified in drawing the adverse inference and adding the amounts of the cash credits to the income of the assessee. Consequently, addition of such amount as unexplained cash credit was deleted; and also deleted the imposition of penalty in that regard.

11. The application for making a reference of the like question, as before us, was rejected by the Tribunal as well as the High Court.

12. On further appeal before the Supreme Court, the Revenue pressed into service that in matters governed under section 68, the onus is on the assessee to explain the receipt of such amount by him and by not appreciating that legal position, deletion of the amount by the Tribunal gave rise to a question of law.

13. Rejecting the contention of the Revenue, the court said (page 84):

“In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”

14. The facts of the present case are somewhat similar. Like the assessee having been asked to furnish explanation about the receipt of capital money on account of share application has furnished the details of the identity of persons who had made such investments. The particulars of the receipt and GIR number of the persons, who had made such investments in the matter of companies registered under the Companies Act, were furnished. Notices of five companies out of seven companies were received unserved with the remark of the postal department that they have shifted their addresses. But, no attempt was made by the Department to pursue the enquiry thereafter, notwithstanding the remark about shifting of addresses prima facie established genuineness of such companies as existing persons. It has come on record that another company did exist and was under liquidation, the existence of which at relevant time could not be doubted. One company whose particulars were not furnished by the assessee and the notices have been returned unserved, in respect of that company, the Tribunal found that the share application amount invested by the said company, namely; M/s. Westbury Investors (Pvt.) Ltd. was not explained satisfactorily and sustained the additions of Rs. 2 lakhs made on account of share application money alleged to be invested by the said Westbury Investors (Pvt.) Ltd. Co. Likewise, in the case of individual investors, the Tribunal has reached the finding noticed by us above.

15. Applying the principle enunciated by the Supreme Court, in Orissa Corporation P. Ltd., [1986] 159 ITR 78, the irresistible conclusion is that the conclusion of the Tribunal that the assessee had discharged his initial burden in respect of six companies and nine individual investors, which was based on evidence and additions made by the Assessing Officer were enquired into without pursuing the correctness of the material placed before it by the assessee. No question of law can be said to be arising in such circumstances in respect of the finding arrived at by the Tribunal, which is essentially a finding of fact and does not stand vitiated in law.

16. Commissioner Of Income-Tax v. Stellar Investment Ltd., [1991] 192 ITR 287 (Delhi) was also a case relating to additions sought to be made by the Revenue on account of unexplained share application money received from the investors when the company had increased its subscribed capital. The Income-tax Officer assessed the company and accepted the increase in share capital duly explained.

17. However, the Commissioner of Income-tax opined that increase in capital had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The order of the Income-tax Commissioner was reversed by the Tribunal. The Revenue sought to raise it as a question of law for justifying the action of invoking of the provisions of section 263 of the Income-tax Act, 1961, by the Commissioner of Income-tax, on the ground that the Assessing Officer has failed to discharge his duty regarding investigation with regard to the genuineness of the shareholders. The Delhi High Court rejected the contention and held that in these circumstances no question of law arises. It said (page 288):

“It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.”

18. The aforesaid decision has been affirmed on appeal by the Supreme Court in the case of CIT v. Steller Investment Ltd., [2001] 251 ITR 263.

19. To somewhat same conclusion the Bench of the Calcutta High Court reached in Commissioner Of Income-Tax v. Korlay Trading Co. Ltd., [1998] 232 ITR 820. It was a case in which for the assessment year 1984-85, the assessee has claimed loss of Rs. 1,50,520 on account of purchase and sale of 4,000 shares of a company through a broker. The Income-tax Officer summoned the broker and the broker asked for time to produce its books of account and when the broker failed to produce the books, the Income-tax Officer disallowed the claim of loss. Having failed before the Commissioner of Income-tax (Appeals), on appeal before the Tribunal, the Tribunal found that the assessee furnished the name of the company, number of shares purchased, date of sale, amount of purchase money, amount of sale money and that being so, the assessee has discharged its initial burden that lay on it and, therefore, the amount cannot be added merely on the ground that the broker whose identity was established had not maintained books of account. In such event the transaction could not be doubted for no fault of the assessee.

20. The Revenue sought to raise the like question as in the present case whether the transaction relating to the assessee's share loss was proved and whether such finding is based on no material or is perverse. The Bench answered the question and found that the assessee had discharged its initial burden that lay on it and, therefore, it cannot be said that such a conclusion of the Tribunal was unreasonable and perverse based on no evidence. Once the assessee has discharged its initial burden, no investigation or proper steps have been taken by the Income-tax Officer to bring on record materials to controvert the claim of the assessee. The claim of the assessee could not be denied merely on the ground that the broker through whom the transaction was made had failed to produce his books of account. It was not the case of the Revenue that the assessee had not maintained books of account. Following the said conclusion, the reference application was answered in favour of the assessee and against the Revenue.

21. Since in the context of the aforesaid decisions, the facts of the present case are that the Tribunal has reached its conclusion about the non-inclusion of alleged share application money in the assessee's income founded on material before it, which discharged the initial burden of the assessee and further enquiry has not been pursued by the Revenue. In these circumstances, it cannot be said that any substantial questions of law arises for consideration in this appeal.

22. The decision relied on by learned counsel for the appellant in the case of Commissioner Of Income-Tax, N. Delhi… v. Sophia Finance Ltd…., [1994] 205 ITR 98 (Delhi) [FB] also does not help the case of the Revenue. A Full Bench decision of the Delhi High Court said in that case (headnote):

“The mere fact that the (assessee) company chooses to show the receipt of the money as capital does not preclude the Income-tax Officer from going into the question whether this is actually so. Where, therefore, an assessee-company represents that it had issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The Income-tax Officer would be entitled, and it would indeed be his duty, to enquire whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons.”

23. It is apparent that the Full Bench drew the distinction between investment made by persons whose existence have been shown and in which existence has not been established. We have noticed above that the Tribunal has found that six out of seven companies and nine out of ten individual investors in share application money of the company have been shown to exist. Thus, the initial burden has been discharged by the assessee. But, no further enquiry having been held by the Assessing Officer to find the genuineness of material by those existing investors, it cannot be made a subject-matter of addition in the income of the assessee as unexplained cash credits to the extent such material has come on record. We may notice that in the judgment of the Full Bench of the Delhi High Court also, it has been reiterated that where the existence of investors cannot be doubted so far as the investment in share capital by them is concerned, no further enquiry can be made.

24. Really speaking there is no dichotomy between the earlier decision of the Delhi High Court in Stellar Investment Ltd.'s case, [1991] 192 ITR 287 and the later decision of the Delhi High Court in Sophia Finance Ltd.’s case, [1994] 205 ITR 98 [FB] and the decision rendered by the Tribunal is in consonance with the principle enunciated by the Supreme Court in Orissa Corporation (P.) Ltd.'s case, [1986] 159 ITR 78 and other decisions referred to above and its conclusions are reached on appreciation of relevant facts that the initial burden has been discharged by the assessee and thereafter, the Revenue has failed to discharge its burden to controvert the claim of the assessee.

25. Accordingly, the first question suggested by the appellant cannot be said to be arising as a substantial question of law. It remains as a question of fact. In arriving at such conclusion nothing has been pointed out, which may vitiate it to give rise to a question of law. Coming to the second question also we are of the opinion that it is not a substantial question of law. The finding of the Tribunal in this connection has been recorded as under:

“Ground No. 2 disputes the addition of Rs. 4,18,815 under section 68 on account of alleged unexplained cash credits in the name of six persons and the amount of Rs. 53,845 being interest thereon. The same are detailed as under:

(i) Sh. Ram Pal Chaplot 50,000 3,400 (ii) Sh. Ratan Pal Daga 35,000 6,300 (iii) Sh. Sampat Pal Daga 50,000 4,845 (iv) Sh. Komal Jain 30,000 4,800 (v) Mamta Devi 1,00,000 17,250 (vi) Kedar Mal Baheti 1,00,000 17,250

As regards the cash creditor Sh. Ram Pal Chaplot, it is revealed from the record that the allegations/objection for non-acceptance of cash credit in respect of him has been that he is not an assessee, was not produced before the Assessing Officer and that his bank pass book was not produced and the immediate source of issuing the cheque to the company is cash deposit. In this regard the contention of the learned authorised representative of the assessee has been that because of injuries due to accident, this creditor could not be produced. His medical prescription was furnished and his son, Sh. Daulat Ram Chaplot was produced whose statement was also recorded wherein he has stated the reason of inability of his father to come before the Assessing Officer and also confirmed giving unsecured loan to the assessee. He also stated the source of amount so given to be annual agricultural income of his father being at Rs. 50,000 to Rs. 60,000 for nine-ten bighas of agricultural land in respect of which khasra report was also furnished by way of evidence. It has also been contended that the household expenditure was being contributed by the son and not by the father as stated by the son in his statement. It has also been contended that the copy of bank statement of the creditor was, however, furnished before the Commissioner of Income-tax (Appeals) which shows that there are regular deposits in the account as the party deposits his savings in the bank account.

As regards the creditor, Sh. Ratan Pal Daga, the allegation of the authorities below have been that the creditor is not an assessee, he was not produced and that the confirmation did not contain evidence regarding source. In this regard, the contention of the learned authorised repre-sentative of the assessee has been that Sh. Ratan Pal Daga was working as a partner in the firm, M/s. Daga Brothers, Bhilwara, from which he derived his income from adarth business in the firm. He separated himself from the firm about five years back and received his share of capital, profit, and other interest from the firm. It has been the contention that after separation, he used to advance interest bearing loans in the market to known persons and, thus, he was earning income from interest. It has also been contended that loan by the assessee has been received through account payee cheque and subsequently paid off along with interest through account payee cheque and the party confirmed the fact of this loan transactions.”

26. A perusal of the aforesaid finding goes to show that the deletion has been made on appreciation of evidence, which was on record. Finding that there was existence of investors and their confirmation has been obtained, were found to be satisfactory. All these conclusions are conclusions of fact based on material on record and, therefore, cannot be said to be perverse so as to give rise to a question of law, which may be required to be considered in this appeal under section 260A of the Income-tax Act.

27. Accordingly, the appeal fails and is hereby dismissed.