The Tax Publishers2012 TaxPub(DT) 1644 (Del-HC) : (2014) 361 ITR 0222 : (2012) 248 CTR 0033 : (2012) 206 TAXMAN 0254 : (2012) 068 DTR 0038

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Burden of proof--While scrutinizing this case, the assessing officer found that the balance-sheet revealed that during the period relevant to the year under assessment, the assessee had received share application money from various applicants. The assessee filed details of all the share applicants and the amounts received along with their confirmation and copies of the bank accounts of such investors from as many as 32 share applicants. All these applicants were private limited companies. The assessing officer was of the opinion that the creditors were not genuine parties and were only entry providers. He referred to the report dt. 2-3-2006 of the Directorate of Income-tax (Investigation), New Delhi in this behalf. He issued detailed questionnaire on 09-11-2006 wherein he also gave specific reasons in respect of each of the applicant which was replied by the assessee. The assessing officer was not convinced with this explanation. He was of the view that though contentions appeared good theoretically, but the assessee had miserably failed to discharge burden, in the background of the facts on record, in totality. He, therefore, made addition under section 68 on account of unexplained share application money. The Commissioner (Appeals) upheld the order of the assessing officer, however, the Tribunal deleted the addition. Held: As assessee had furnished identity and creditworthiness of shareholders and genuineness of transaction by producing confirmation of share applicant, registration of applicant companies, payment by banking channel, etc., it could not be said that assessee had not discharged the initial burden of proof. Therefore, revenue cannot invoke section 68 merely on the ground that some of share applicants could not be found at address given.

Initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. The manner in which such a burden is to be discharged has been explained in various judgments and noted above. At the same time, it is also well established principle of law that in any matter, the onus brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either furnishing Permanent Account Numbers or copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the assessee. [Para 3] It is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmation from the share applicants; bank accounts details; shown payment through account payee cheques, etc. with these documents, it can be said that the assessee has discharged its initial onus. With the registration of the companies, its identity stands established, the applicant companies were having bank accounts, it had made the payment through account payee cheques. [Para 12] No doubt, what the assessing officer observed may make him suspicious about such companies, either their existence, which may be only on papers and/or genuineness of the transactions. When he found that investing companies are not available at given addresses or that the issuance of the cheque representing share application money or preceded by the deposit of cash in the bank account of these investment companies. [Para 13] The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove source of the money. It is the submission of the assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. According to this court the assessee appears to be correct on this aspect. Something more which was necessary and required to be done by the assessing officer was not done. The assessing officer failed to carry his suspicious to logical conclusion by further investigation. After the registered letters sent to the investing company had been received back undelivered, the assessing officer presumed that these companies did not exist at the given address. No doubt, if the companies are not existing, i.e., they have only paper existence, one can draw the conclusion that the assessee had not been able to disclose the source of amount received and presumption under section 68 for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non-existence. [Para 14] The assessing officer did not bother to find out from the office of the Registrar of Companies the address of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps, it may have been one factor. In support of the conclusion which the assessing officer wanted to arrive at, that by itself cannot be treated as the conclusive factor. As pointed out above, these applicant companies have PAN and assessed income tax. No effort was made to examine as to whether these companies were filing the income tax return and if they were filing the same, then what kind of returns these companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the assessing officer. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction assessing officer wanted to go. Likewise, when the bank statements were filed, the assessing officer could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the assessing officer to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and or companies were also bogus and were treated for namesake. [Para 15] Even in the instant case, it is projected by the revenue that the Directorate (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. [Para 17] A delicate balance has to be maintained while walking on the tight rope of sections 68 and 69. On the one hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessees herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. [Para 18] Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has 'created' evidence, the revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under section 68 and 69. [Para 19] During the arguments, court had posed these queries. Counsel appearing for the Revenue understood the limitation of their case. For this reason, a fervent plea was made that this case be remitted back to the assessing officers to enable him to make further investigation. [Para 20] However, in the facts and circumstances of these cases, it would be difficult to give such an opportunity to the Revenue. There are number of reasons for denying this course of action which are mentioned below: (i) It is not a case where some procedural defect or irregularity had crept in the order of the assessing officer. Had that been the situation, and the additions made by the assessing officer were deleted because of such infirmity, viz., violation of principle of natural justice, the Court could have given a chance to the assessing officer to proceed afresh curing such procedural irregularity. One example of such a case would be when statement of a witness is relied upon, but opportunity to cross-examine is not afforded to the assessee. (ii) On the contrary, it is a case where the assessing officer(s) did not collect the required evidence which they were supposed to do. To put it otherwise, once the assessee had discharged their onus and the burden shifted on the assessing officer(s), they could not come out with any cogent evidence to make the additions. No doubt, as indicate above, the assessing officer(s) could have embark upon further inquiry. If that is not done and the assessing officer(s) did not care to discharge the onus which was laid down, for this 'negligence' on the part of the assessing officer(s), he cannot be provided with 'fresh innings'. (iii) The order of the assessing officer(s) had merged in the order of the Commissioner (Appeals) and in some of the cases and before the Commissioner (Appeals), the assessees had succeeded. (iv) This Court is acting as appellate court and has to act within the limitations provided under section 26A of the Act. The appeals can be entertained only on substantial questions of law. In the process, this Court is to examine as to whether the order of the Tribunal is correct and any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority, on the basis of available record. When the matter is to be examined from this angle, there is no reason or scope to remit the case back to the assessing officer(s) once it is found that on the basis of material on record, the order of the Tribunal is justified. Even the Tribunal acts purely as an appellate authority. In that capacity, the Tribunal has to see whether the assessment framed by the assessing officer, all for that matter, orders of the Commissioner (Appeals) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same, if not, the addition has to be deleted. At that stage, the Tribunal would not order further inquiry. It is to be kept in mind that the assessing officer is prosecutor as well as adjudicator and it is for the assessing officer to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to. [Para 21] In the facts of these cases, where the appeals relate to the assessment years, which are of 7-8 years old or even more and going by the nature of evidence which is required, it may not be apposite to make such an order. [Para 22]

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