,j ; lt , : ili IN THE HIGH COURT OF DELHI AT NEW DELHI I ,l ITAI itlo.9',72 of 2OO9t ITA No.L324 of 2OO8, ITA No.29 of ?OL,O, ITA No.1228 of 2O1O, ITA No.1229 of 2O1O, ITI\ No.!.23O joT Z-OrO, ITA No.L71O1aOLO| ITA No.8 of 2011, ITAiNo,339 of ?OLL,ITA No.613 of ZOLL and ITA No.725 of 20Lt i 'I ,l II,t litl ITA|No.972l2OO9 o/o 1) -) .dih 2) tlilti lr Commissioner of Income Tax -II, Cenfral Rqvenue Building, New Delhi VERSUS & Alloys Ltd. i Gupta Citi jShelters Ltd. i , VERSUS I 1r..' Commissioner of Income Tax, New Delhi VERSUS rf / I I 'i I 3) ITA!No.29l2O1O rlr Commissi6ner of Income Tax I Vijay Foils, P. Ltd. 4). rTAi No.1?28 /2O1O rlrl Infomediary India Pvt, Ltd. ' | 'l i. VERSUS Cornmissioner of Income Tax 5) ITAINo.122912O10 rl ll Info'mediary India Pvt. Ltd. ;l ITA Nos.1324/2008) ?9/20L0, I228/20L0, 7229/20Lo, 6L3 / 20 Lt, 7 26 / 20 ILttof 20 09 Reserved on: 25th November, 2077 Pronounced on: 23'd December, 2077 . . . Appellant . . .Respondent . . Appellant . . .Respondent . . . Appellant . . .Respondent . . . Appellant . . .Respondent . . . Appellant 1230/20t0, 8/20LL, 339/201L, ' Pagelof3 It Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified la 6) rrAr No.123f) / 2fJ1.0 VERSUS .Respondent . Appellant . . .Respondent . . . Appellant .Respondent . . Appellant ..Respondent . . Appellant .Respondent . Appellant t .Respondent L23O/2OLO, 8/2OLL, 339/2OLL, ' Page2of3 t-/t 7) B) s) .l,a { .i;t r228/20LO, 1229/2010, I I Cornmissioner of Income Tax-III II . . . Appellant I VERSUS ,i Sham Mohan Pvt. Ltd. . . .Respondent t' Couhsel fot the Assessee - Mr. Ajay Vohra with Ms. Kavita jha ind Mri. Somnath Shukla, Advocates.. Dr. Rakesh Gupta with Ms. Rani Kiyala & Ms. Poonam Ahuja, Advocates' Mr. Salil Kapoor with Mr. Sanat Kapoor, Mr. Ankit Gupta and Mr. Vikas Jain, Advocates. Mr. Chandrq Shekahar with Mr. Manoj Agrawal and Ms. Meghna De, Advocates. Mr. S.K. Arora with Mr. Bharat Arora, Advocates. Mr. G.S. Aggarwal with Mr. Prakash Kumar, Advocates. ,i Counsel for the Revenue Mr. Kiran Babu, Sr. ilr I Rash,mi Chopra, Sr. Standing Counsel, Mr. N.P. Sahni, Sr. Sanjeev Sabharwal, Sr. Standing Counsei, Mr. Sanjeev Counsel, Mr. Kamal Sawhney, Sr. Standing Counsel. CORAM :; HON'BLETTHE ACTING CHIEF JUSTICE HON'BLE;MR. JUSTICE M.L. MEHTA I A.K. SIK+I (Aclinq chief Justice) Standing Counsel, Ms. Standing Counsel, Mr. Rajpal, Sr. Standing \4 { 1. For,orders, see ITA No.972 of 2009. i I 20l"t 't: lr I ITA Nos.132a/2OA8; Z9/2o7O, 6L3/2OL1, 726/2OLL of 2009 ,l I 23; , ,-, ff@,1s'r , +)-\J-->t---- ACTING CHIEF JUSTICE A^<-,J^' zr' (M.L. fienrny JUDGE L23O/20LO, 8/2OLL, 339/2OLr, Page 3 of 3 t1 t228/2OrO, L229/2010, r IN TI{E HIGH COUR.T OF DELhII AT R{EW DEI-HI I'll'A Flo,9 72 of 2OO9, ITA h{o. L324 of 2OO8, ITA l\1o.29 of 2OLO, i[TA No.1228 of 2O10/ ITA No.L229 of' 2010, ITA No.L230 of 2O1O, ITA No.tr 71,O/2O1,O, ITA No.E of ?ALL. ITA No.339 of 2OLL( ITA No.613 of 2OtL ancl ITA No.726 of 2O1"! ,' Reserved on: 2Srh November, 2077 Pronounced on: 23'd Dql:qnhgr, 2077 ITA No.972l2OO9 Cornmissiorre:r of Income Tax -II, Central Revenue Building, New Delhi VERSUS Kamdhenu Steel & Alloys Ltd. I'rA ruo.rS24l2OOE Gupta Citi Shelters Ltd. VERSUS Ccmmissioner of Income Tax, New Delhi ITA lr{o=29|,?ALO Commissioner of Income Tax \/ERSUS Vijay Foils P. Ltd. ITA F|o.L228/2O1O Infomediary India Pvt. Ltd. VERSUS . . . Appellant . Respondent . . Appellant ,.Respondent . . Appellant . Respondent . . . Appellant t3 \ o/o 1) \T -ii ao 2) 3) 4) ITA No,972 of 2009 Page 1 of 58 Commissioner of .Income Tax 5) trTA No'1229/2o1o InfomediarY India Pvt' Ltd' VERSUS , aommissioner of Income Tax ' 'Respondent 6) ITA No'123o/2o1o Infomediary India Pvt. Ltd. VERSUS Commissioner of Income Tax 7) ITA No.171o12oLo . ..1J. CIT VERSUS lH Finvest Pvt. Ltd. B) ITA No.8/2o11 CIT VERSUS North Delhi Construction . & Investment Pvt. Ltd. ' 9) ITI\ No'339/2O11 , \' CIT . . . Appellant . . .Respondent . . . Appellant , . .Respondent . . Appellant ..Respondent . . . Appellant VERSUS Laxman Industrial Resources Ltd ' 'Respondent , 10) XTA No.6L3/2o11 'tqt/ . . .Respondent . . . Appellant ITA No.972 of 2009 Page 2 of 58 7-a JBA Enterprises (Pvt,) Ltd ' ' Appellant VERSUS Income Ta>< Officer, Ward 4(I), New Delhi '' ' 'Respondent 11) IlfA No.726l2o11 Commissioner of Income Tax-III ' ' ' Appellant VERSUS Sham Mohan Pvt. Ltd counsel for theAssessee - Mr. Ajay Vohra with Ms.KavitaJhaandMr.SomnathShuk|a,Advocates' Dr. Rakesh Gupta with Ms. Rani Kiyala & Ms.'Poonam Ahuja, Advocates' t Mr. Salil Kapoor with Mr. sanat Kapoor, Mr. Ankit Gupta and Mr. Vikas Jain, Advocates. Mr. Chandra Shekahar with Mr. Manoj Agrawal and Ms. Meghna De' Advocates. Mr. S.K' Arora with Mr. Bharat Arora, Advocates' Mr. C.S. Aggarwal with Mr. Prakash Kumar, Advocates' counsel for the Revenue - Mr. Kiran Babu, sr' standing 'counse|,Ms.RashmiChopra,Sr'StandingCounse|,M.|.N.|'Sahni,Sr. standing counsel, Mr. sanjeev sabharwal, sr' standing counsel, Mr' " sanieev-Raipal, sr. standing counsel, Mr. Kamal sawhney, sr' standing Counsel. CORAM :- I{ON'BLE THE ACTIIVG CI-{IEF JTJSTICE I.ION,BLE MR. JUSTICE M.I.' MEI'ITA A.K.'SIKRI (Actinq Chief Justice) 'J 1. The issue relating to the additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961- (hereinafter referred to as 'the Act') on account ol' unexplained share application money is becoming mercurial ITA No.972 of 2009 Page 3 of 58 ^t and mercurial by the day. Though plethora of case law is available deciding various facets of this issue and the principles which are to be applied have almost been crystallized and pumped up by the series of decisions of the Apex Court and various High courts, the issue keeps bouncing back with new dimensions and intricacies' In all these appeals, we are again confronted with the additions which were made by the Ao under section 68 of the Act. All these appeals, which pertain to different assessees, are filed by the Revenue as the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') has deleted the additions made by the Assessing Officer' 2. Before we embark upon the discussion on factual aspects, in the appeals, which prompted the Aos to make the additions, it would be appropriate to revisit the legal position as enunciated in various judgments interpreting the provisions of Section 68/69 of the Act. we may record that this very Bench had the occasion to deal with another batch of appeals touching upon this very issue, which culminated into judgment dated 31.1.2OLt with lead case entitled crl ws. oasis hiospitalities, (2011) 333 ITR 119, As catena of' judgments were taken note of and the ratio culled out: ITA No.972 of 2009 Page 4 of 58 ?' 9J, :l therein after undertaking in-depth analysis, we are"of the view that our purpose can be served by borrowing liberally from the said ludgment to state the legal position. Some more cases which have been decided thereafter or cited before us now, but not taken note of in the said judgment would be added thereafter. operative portion of that judgment reads as underi .2.Section68oftheActdeaIswithunexpIained incomes and is couched in the following language: "Section 68 CASH CREDITS. Where any sum is found credited in the books of an assessee maintained for any previous year' and assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to incbme-tax as the income of the assessee of , that Previous Year." 3. As per the provisions of this Section, in case the assessee has not been able to give satisfactory explanation in respect of certain expenditure or where any sum is found credited in the books of accounts, the AO can treat the same as undisclosed income and add to the ihcome of the assessee. The assessee is required to give satisfactory explanation about the "nature and iource" of such sum found credited in the books of accounts. 4. It is a common knowledge that insofar as the companies incorporated under the Indian companies Act are concerned, whether private limited or public limited companies, they raise their capital through shares, though the manner of raising the share capital in the private limited companies on the one hand and public ii1nitud companies on the other hand, would be different' ITA No.972 of 2009 Page 5 of 58 \.J x3 .t-> In the case of private limited companies, normally' the shares are subscribed by fam.ily members or persons known/close to the promoters' Public limited companies' on the other hand, generilly raise public issue inviting genera|pub|icat|argeforsubscriptionoftheseshares. Vet, it is also possible that in case of public limited companies, the share capital is issued in a close circuit' 5. When the companies incorporated under the companies Act raise their capital through shares, various persons would apply for shares and thus give share application money' These amounts received from such shareholders would, naturally, be the sums credited in the books of account of the assessee. if the Ao doubts the genuineness of the investors, who had purportedly Iubscribed to the share capital, the Ao may asl< the assessee to explain the nature and source of those sums received by the assessee on account of share capital. It is in this scenario, the question arises about the genuineness of transactions. The plain language of 5ection 68 of the Act suggests that when the assessee is to give satisfactory explanation, burden of proof is on the urrltte" to provide nature and source of those receipts' 6. What kind of proof is to be furnished by the assessee, is the question. It has come up for discussion in various judgments rendered by this Court, other Courts as well as the supreme court. The larnr was discussed by a Division Bench of this Court in the case of comrnissioner of Income Tax Vs. Divine LeasinE and FinanceLtd'|2ggITR268].Sincetheentiregamutof case law as on that date was visited in the said judgment, we may initiate our discussion by taking note of this case. In this case, the Court highlighted the menace of conversion of unaccounted money through the masquerade or such channels of investment in the share capital of a company and thus stressed upon the duty of the Revenue to firmly curb the same' It was also observed that, in the process, the innocent assessee should not be unnecessary harassed. A delicate balance must be maintained' It was, thus, stressed: "15. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and "-l ITA No.972 of 2009 Page 6 of 58 complexity of the assessed it should not be 'huru'rred'bytheRevenue'sinsiste'rrcethatitshould prove the negative. In the case of a public issue' the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its' subscribers' The Company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents' In the case of private piacement the legal regime would not be the same' A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the IT Ac[. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of 9ny subscription he is empowered, nay duty-bound' to carry out thorough investigations' But if the AO fails to unearth any wrong or illegal dealings' he cannot obdurately adhere to his suspicio ns and treat the subscribed capital as the undisclosed income of the ComPanY." 7. Taking note of the earlier judgment of Full Bench of this Court in the case of Commissioner of Income Tax Vs. Sophia Finance Ltd. [(L994)'2O5 ITR' 98], the court observed that the Full Bench had enunciated that Section 68 reposes in the Income-tax Officer or AO the jurisdiction to inquire from the assessed the nature and ,orr." of the sum found credited in its Books of Accounts' If the Explanation preferred by the assessed is found not to be satisfactory, further enquiries can be made by the Income-tax Officer himself, both in regard to the nature and the source of the sum credited by the assessed in its Books of Accounts, since the wording of Section 68 is very wide. The Full Bench opined that if the shareholders exiit 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' if the shareholciers are identified and it is established that they have invested money in the purchase of shares then theamountreceivedbythecompanywouIdberegarded as a capital receipt but if the assessed offers no Expla nation at all or the Explanation' offered is not satisfactory then, the provisions of Section 68 may be invoked. ).Y .t /t a Il'A No.972 of 2009 Page 7 of 58 2t B.TheCourtaIsoreferredtotheear|ierDivision Bench judgment in the case of Commissioner of Income Tax Vs. Dolphin Canpack l-td' l(2A06) 283 ITR 19OI and quoted the following observation: ". credit entry relates to the issue of share capital, the ITO is also entitled to examine whether the alleged shareholders do in fact exist or not' Such an inquiry was conducted by the AO in the present case' In the course of the said inquiry, the asSessed had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the IT Department' Super added to all this was the fact that the amount received by the company was all by way of cheques' This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessed'" 9. The Court took note of many other judgments of different High courts and on the analysis of those judgments formulated the following propositions, which emerged as under: ' *18. In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act' The assessed has to prima facie prove (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; (3) the creditworthiness or financial strength of the creditor/subScriber' (4) 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, Shared Application Forms, Share Transfer Register etc' it would constitute acceptable proof or acceptable Explanation by the assessed' (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudidtion at face Page 8 of 58 .- ITA No.972 of 2009 value and construe it/ without more, against the assessed' (7) The Assessing Officer is duty-bound to investigite the creditworthiness of the creditor/subscribqr the genuineness of the transaction and the veracity of the repudiation'" I 10. By this common judgment, the Division Bench decided these appeals of which one appeal related to Lovely. Exports P. Ltd.. Against the said judgment' Specijl Leave Petition was preferred, which was dismissed by the Supreme Court vide orders dated 11.01.2008 and is reported as Commissioner of Income Tax Vs. Lovely Exports (P) Ltd' [216 CTR igS (SC)1. The Court while dismissing the SLP recorded some reasons as well atbeit in brief, which is as under: '2. Can the amount of share money be regarded as undisclosed income under s'68 of IT Act, 1961? WefindnomeritinthisSpecial'LeavePetitionfor the simple reason that if the bhare 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 [roceed to reopen their'individual assessments in accordancewith|aw.Hence,wefindnoinfirmity with the impugned judgment' """"""" 11. It is clear from the above that the initial burden is upon the assessee to bxplain the nature and source of the ,huru application money received by the assessee' In order to discharge this burden, the assessee is required to prcve: (a) IdentitY of shareholder; (b) Genuineness of transaction; and (c) Credit worthiness of shareholders' L2. In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced 'before the AO to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN irJentity, etc' can be furnished' 13. Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact' received money from the. said shareholder and it came from the coffers from that very shareholder. The Division )e I ITA No.972 of 2009 Page 9 of 58 Bench held that when the money is received by cheque and is transmitted through banking or other indispuiable channels, genuineness of transaction would be proved' other documents showing the genuineness of transaction couldbethecopiesoftheshareholdersregister,share application forms, share transfer register, etc' 14. As far as creditworthiness or financial strength of the credit/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showingltrut it had sufficient balance in its accounts to enable it to subscribe to the share capital, This judgment further holds that once these documents are produced, the assessee would hqve satisfactorily discharge the onus cast upon him. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about.the veracity of these documents to probe the matter further. However, to discredit tlre documents produced. by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of'susPicion' 15, At this stage, we would lilce to refer to the judgment of the Bombay High Court in the case of CIT Vs'-M/sCreativeWorldTelefitmsLtd.(inITANo.21B2 of ZO0g decided on 12.10.2009). The relevant portion of this order is reProduced below: "In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessingofficer.tomakeproperinvestigationand reach the shareholders. The Assessing Officer did nothinE except issuing surnmons whicfr were uttimately returned back with an endorsement 'not traceable'. In ou!' considered view, the Assesslng Offlcer ought to have found out their details throug!'r FAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted' No substantial question of law is involved in the appeal. Page 10 of 58 >l ITA No.972 of 2009 In the result, the appeal is dismissed in limini with no order as to costs' (ernphasis suPPlied)" 16. The Court thus. clearly held that once documents like PAN Card, bank account details or details from the bankers were given by the assessee' onus shifts upon the Assessing Off]cer and it is on him to reach the sharehollers and the Assessing Officer cannot burden the assessee merely on the ground that summons issues to the investors were returned back with the endorsement 'not traceable'. Same view i3 taken by the Karnataka High Court in Madhuri Investments Pvt' Ltd' Vs' ACtrT 1in-ffnNo.110of2OO4,decidedon1B'02'2006)'Inthis case also, some of share applicants did not appear and notices sent to them were returned with remarks 'with no such person,. Addition was made on that basis which was turned down by the High Court in the following words: '6. Having heard the learned counsel for the ' parties, we notice that whenever a company invites app|icationsforal|otmentofsharesfromdifferent applicants, there is no procedure contemplated to find out the genuineness of the address or the genuinenity of the applicants before allotting the ihat"s. If for any reasori tfre address given in the application were to be incorrect or for any reason if the said applicants have changes their residence or the notices sent by the assessing officer has not been received by such applicants, the assessee company cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the revenue only relying upon the statement of Sri Anil Raj Mehta, a Chartered Accountant." t7.' However, in Commissioner of Incorme Tax Vs' Arunananda Textiles itvt' Ltd. (in ITA No'1515 of 2005, decided on 02.03.2010), the Karnataka High Court went to the extent of observing that it was not for the assessee to place material before the Assessing officer in regard to creditworthiness of the shareholders. once the companyhadgiventheaddressesoftheshareho|ders and their identity was not in dispute, it was for the Assessing officer to make further inquiry. It was borne by the following discussion in the said judgment: '6. The question raised in this appeal are squarely covered by several judgments of the 2_Q i:d oa ITA No.972 of 2009 Page 11 of 58 Supreme Court and also the judgment of this Court passed in ASK Brothers Ltd' Vs' Commissioner of Income Tax, wherein this Court following the judgments of the Supreme Court in the case of Commissioner of Income Tax Vs' Lovely Exports (P) Ltd. reported in (20089) 216 CTR (SC 19i) and also in the case of Commissioner of Income Tax Vs. Steller Investment Ltd' ' reported in (2001) 25I ITR 263 (SC) has ruled that it not for the assessee to place material before the Assessing Officer in regard to cieditworthiness of the shareholders' If the company has given the addressesoftheshareholdersandtheiridentityis not in dispute, where they were capable of -investing,theassessingofficersha||.investigate'It is not for the assessee company to establish but it is for.the department to enquire with the investor about their capacity to invest the amount in the shares. Therefore, we are of the view that the substantial questions of law framed in this appeal are to be answered against the revenue and In favouroftheassessee.Accordingly,thisappeaIis dismissed." 18. Rajasthan High Court had an occasion to deal with the submission of the Revenue predicated on Benami transactions in the case of Cammissioner of Income Tax Vs, AKJ Granites (F) Ltd. reported as 301 ITR 298 (Raj.)andtheargumentsweredea|twithinthefol|owing mannerl *3. So far as question No' 1 is concerned, it is stated by learned counsel for the appellant that the issue embedded in tlre said question has already been decided by this Court and governed by the ratio laid down in tsarkha Synthetics Ltd' Vs' Asst. CIT (2OO5) 197 CTR (Rai') 432' It has been pointed out that share applications are made by number of persons, may bb in their own names oi benami, but the fact that share applications received from different places accompanied with share application money, no presumption can be drawn that same belong to the assessee and cannotbeassesseeinhishandsashisundisc|osed incomeun|essSomenexusisestab|ishedthatshare application money for.augmenting the investment in business has flown from asssessee's own money' In coming to this conclusion, the Court relied on 2_7 -9 ITA No.972 of 2009 Page 12 of 58 o CIT Vs. Steller Investment Ltd. (7997) 99 CTR (Del.) 4O, which has since been affirmed by the Supreme Court in