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Commissioner Of Income-Tax v. Samir Bio-Tech P. Ltd.
Factual and Procedural Background
The Revenue challenged the order dated March 23, 2007, passed by the Income-tax Appellate Tribunal (ITAT) in I.T.A No. 4213.Del/2001 relating to the assessment year 1997-98. The assessee company had received share application money totaling Rs. 20,50,000 from five parties. The Assessing Officer made an addition of this amount under section 68 of the Income-tax Act, 1961, which was confirmed by the Commissioner of Income-tax (Appeals). The assessee appealed to the Tribunal, which reversed the addition, finding that the assessee had discharged the onus of proving the identity, genuineness, and creditworthiness of the subscribers. The Revenue then filed the present appeal against the Tribunal's order.
Legal Issues Presented
- Whether the assessee had discharged the onus under section 68 of the Income-tax Act by proving the identity, genuineness of the transactions, and creditworthiness of the share subscribers?
- Whether the Income-tax Officer was justified in making an addition under section 68 based on the share application money received by the assessee company?
- Whether adverse inference could be drawn against the assessee due to the initial non-response of the subscribers to departmental summons?
Arguments of the Parties
Appellant's Arguments
- Reliance on the Full Bench decision in Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd. [1994] 205 ITR 98, contending that the Income-tax Officer has jurisdiction to inquire into the nature and source of the share application money.
- Submission that enquiries are justified to verify the existence of the persons from whom money is received and to ascertain whether they are mere name lenders.
Respondent's Arguments (as upheld by the Tribunal)
- The assessee had proven the identity of the subscribers through bank accounts and account payee cheques.
- The creditworthiness of the subscribers was established as they had taken loans from others and their balance-sheets were audited and accepted in their individual assessments.
- The genuineness of the transactions was supported by documentary evidence including tax returns and confirmations from the subscribers.
- The Tribunal relied on the decision in CIT v. Divine Leasing and Finance Ltd. [2008] 299 ITR 268, which sets out the criteria for discharging the onus under section 68.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Divine Leasing and Finance Ltd., [2008] 299 ITR 268 | Criteria under section 68 for discharging the onus: identity of creditor, genuineness of transaction through banking channels, and creditworthiness of creditor. | The Tribunal applied this precedent to hold that the assessee had discharged the onus and deleted the addition. |
| Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd., [1994] 205 ITR 98 | Jurisdiction of Income-tax Officer to inquire into the nature and source of share application money and verify existence of the depositors. | The Court found this precedent did not warrant overturning the Tribunal's decision as the identity and creditworthiness were established. |
| Commissioner Of Income Tax v. Lovely Exports Private Limited, [2009] 319 ITR (St.) 5 (SC); 216 CTR 195 (SC) | Validation of the approach that if share application money is received from alleged bogus shareholders, the Department can reopen individual assessments. | The Supreme Court dismissed the special leave petition, supporting the Tribunal's reliance on Divine Leasing and Finance Ltd. |
Court's Reasoning and Analysis
The court examined the facts and concluded that the assessee had established the identity of the subscribers, the genuineness of the transactions through account payee cheques, and the creditworthiness of the subscribers as evidenced by their audited balance-sheets and tax returns. The court relied heavily on the precedent set in CIT v. Divine Leasing and Finance Ltd., which outlines the burden on the assessee under section 68. The court rejected the appellant's reliance on the Sophia Finance Ltd. decision as the facts here showed the subscribers were genuine and had complied with tax requirements. The court also noted the Supreme Court's dismissal of a related special leave petition in Lovely Exports Private Limited, which affirmed the correctness of the Tribunal's approach. Consequently, no adverse inference could be drawn simply because the subscribers initially did not respond to summons, especially when they later provided confirmations.
Holding and Implications
The appeal is dismissed.
The court upheld the Tribunal's order deleting the addition under section 68, confirming that the assessee had discharged the burden of proof regarding the identity, genuineness, and creditworthiness of the share application money subscribers. The decision directly affects the parties by affirming the non-inclusion of the share application money as income in the assessment year 1997-98. The opinion does not establish any new precedent beyond applying established principles from prior judgments.
Badar Durrez Ahmed, J.:— The Revenue is aggrieved by the order dated March 23, 2007, passed by the Income-tax Appellate Tribunal in I.T.A No. 4213.Del/2001 pertaining to the assessment year 1997-98.
2. The assessee was before the Tribunal in appeal against the order passed by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) whereby an addition of Rs. 20,50,000 had been made under section 68 of the Income-tax Act, 1961
(hereinafter referred to as the “said Act”).
3. The addition had been made on account of the share application money received by the assessee company from the following parties:
Sr. No. Name Amount in rupees 1. M/s. Sukhshanti Holding Pvt. Ltd. 7,00,000 2. M/s. Sumesh Financiers Pvt. Ltd. 5,50,000 (Director Shri R.P Barodia) 3. M/s. S.K Chemicals (Prop. Kamal Singh Dugar) 3,00,000 4. M/s. Cosmos Holding (India) Pvt. Ltd. 4,00,000 5. M/s. Yamunotri Financial Pvt. Ltd. 1,00,000 Total 20,50,000
4. The Tribunal reversed the findings of the authorities below and deleted the addition. The Tribunal examined the facts of the case and concluded that the assessee had discharged the onus of establishing the identity of each of the subscribers. All of them had bank accounts and had issued account payee cheques to the assessee in respect of the application for shares. With regard to the creditworthiness of each of the parties, the Tribunal found that they had all taken loans from certain other persons and that those loans had not been construed in their individual assessments as not being genuine. The parties had shown the said amounts as investment in shares in the assessee company in their balance-sheets. Each of the parties were separately assessed and the balance-sheets submitted by them were audited by statutory auditors. In these circumstances, the Tribunal concluded as a finding of fact that it cannot be said that the assessee had not proved the creditworthiness of the said subscribers and the genuineness of their share contributions.
5. The Tribunal also placed reliance on the decision of this court in the case of CIT v. Divine Leasing and Finance Ltd., [2008] 299 ITR 268 wherein this court, after analysing the provisions of section 68 of the said Act, concluded that the assessee has to, prima facie, prove (page 282):
(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.
6. It was also held that:
(1) 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;
(2) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices;
(3) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee;
(4) the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of any repudiation.
7. In the present case, we find that the identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the subscribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from paragraph 7 of the impugned order. It is in these circumstances that the Tribunal, following the decision of this court in Divine Leasing and Finance Ltd., [2008] 299 ITR 268, deleted the addition made by the authorities below.
8. Mr. Jolly, who appears on behalf of the appellant, sought to place reliance on the Full Bench decision of this court in the case of Commissioner Of Income-Tax, N. Delhi… v. Sophia Finance Ltd…., [1994] 205 ITR 98 to contend that the Income-tax Officer would have jurisdiction to enquire from the assessee with regard to the nature and source of the share application money. In Sophia Finance Ltd., [1994] 205 ITR 98 it was observed that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not and, secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is mere name lender or not. In the present case, however, we find that there is nothing in the decision in Sophia Finance Ltd., [1994] 205 ITR 98 which would enable us to take a contrary view than the view taken by the Tribunal. This is so because the identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance-sheets and have also filed returns before the income-tax authorities. We may also take note of the decision of the Supreme Court in the case of Commissioner Of Income Tax v. Lovely Exports Private Limited., [2009] 319 ITR (St.) 5 (SC); 216 CTR 195 (SC) wherein the Supreme Court by a short order dismissed the special leave petition arising out of a matter connected with Divine Leasing and Finance Ltd., [2008] 299 ITR 268. The Supreme Court passed the following order:
“Can the amount of share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961? We find no merit in this 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 Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.”
9. In view of the foregoing discussion, the decision of the Tribunal cannot be faulted. The appeal is dismissed.
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