Uma Polymers (P) Ltd. Vs. Deputy Commissioner of Income Tax - Court Judgment

Excerpt:

.....learned authorised representative has referred to his paper book at pp. 213 to 216 which contain the following facts : (a) that the merits of the case also warrant the deletion of the addition made for the alleged unexplained share capital of rs. 5,01,129 the material available with the ao in respect of the shareholders establish the identity, creditworthiness of the shareholders and genuineness of the transaction. in this respect, it is further submitted that the assessee-company submitted during the course of assessment proceedings the list of shareholders, their gir nos., the particulars of the shareholders where they are assessed to tax, the confirmed copy of account of shareholders showing that most of the transactions are by account payee cheques barring a very few instances, where the share subscription of meagre amount was also received in cash. the ao, during the course of the assessment proceedings, made independent enquiry from the bankers of the shareholders and also obtained bank statement for verification of the transaction. the ao also called upon and perused the assessment records of various shareholders and, therefore, the existence of the shareholders is.....

Judgment:

1. This appeal which pertains to asst. yr. 1989-90 has been filed by the assessee against the order of CIT(A) dt. 2nd Feb., 1994. The assessee-appellant has taken various grounds of appeal. An additional ground of appeal has been raised by, the appellant.

2. The brief facts of this case, giving rise to this appeal are that the assessee-appellant is a private limited company. The company filed returns of income declaring loss of Rs. 8,97,270 on 29th Dec, 1989. The company also filed audit accounts along with the returns. But later on the assessee-company filed revised return of income on 29th Jan., 1991 wherein loss of Rs. 24,28,490 was declared. This loss was increased as the assessee claimed depreciation of Rs. 15,31,220, which, was not claimed in the original return. But the assessee did not stop there and further filed a second revised return on 29th July, 1991 wherein loss of Rs. 20,68,810 was claimed. The appellant reduced this claim of investment allowance from Rs. 7,17,800 to Rs. 5,74,950 and also added back Rs. 2,16,806 under Section 43B of the Act on account of outstanding RFC interest and other liabilities. But the AO did not entertain the second revised return on the basis that it was invalid being beyond limitation available to the assessee for filing the return under Section 139(5) of the IT Act, 1961 (hereinafter referred to as 'the Act'). The learned AO processed the original return filed by the assessee under Section 143(1)(a) of the Act on 19th Nov., 1990 wherein the addition of Rs. 1,37,710 was made through prima facie adjustment.

The first revised return was also processed and additions through prima facie adjustment were made. 3. During the previous year relevant to assessment year under consideration, substantial funds had flown in by way of share capital subscription and cash credits. The learned AO asked the assessee to furnish specific particulars in this regard by issuing questionnaire dt. 29th Jan., 1991. The AO wanted the parties to be produced before him for cross-examination as the learned AO was not satisfied by the details filed by the assessee. The money introduced by way of share capital subscription by the following 10 persons was rejected by the AO : 4. The AO made additions on this count as well as on account of trading additions, against which the assessee went in appeal before the first appellate authority. The CIT(A) sustained the additions on both these counts. Hence, the assessee is in appeal before us by raising mainly these two grounds. But in addition, to regular grounds of appeal taken in Form No. 36, the appellant has also made a prayer for admission of additional ground which is being reproduced below : That the provisions of Section 43B as were in force in the relevant assessment year, did not permit any addition for unpaid interest to Rajasthan Financial Corporation being a State Financial Corporation and the AO, therefore, erred in law in making addition of Rs. 2,15,364 under Section 43B for the relevant assessment year which is liable to be struck down.

5. A copy of the proposed additional ground as raised by the learned Authorised Representative was given to learned Departmental Representative and an opportunity of being heard on this was also given to the Department.

6. First of all, we will deal with additional ground raised by the appellant. We have heard the rival submissions. We are convinced that this additional ground of appeal is a purely legal ground emanating from the facts available on record only. The admission of this ground does not require any further investigation into the facts. This has been fairly conceded by the learned Departmental Representative also.

So this ground, being purely a legal ground, is entertainable and admissible for hearing as per the provisions of Rule 11 of the ITAT Rules. We find support from the famous decision of Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. v. CIT and also the decision of Hon'ble Delhi High Court in the case of Taylor Instrument Co. (India) Ltd. v. CIT (1992) 105 CTR (Del) 5 : (1992) 198 ITR 1 (Del) and National Thermal Power Co. Ltd. v.CIT . So, we admit this additional ground of appeal of the assessee.

7. A perusal of the assessment order reveals that the learned AO added Rs. 2,16,806 after disallowing the same under Section 43B of the Act.

This disallowance has been made as per the second revised return filed by the assessee (para 11 of the assessment order). At the same time, it is also evident from the assessment order from its para 2 that the second revised return filed by the assessee was not accepted by the AO being beyond time. The same has also been discussed in para. 1 of the assessment order.

8. This is also a fact that the assessee did not challenge this disallowance before the CIT(A), presumably on the ground that the assessee enjoined the wrong belief that the provisions of Section 154(1)(b) were attracted in his case. Now, the assessee has raised this additional ground, which we have already accepted in view of the decisions, more particularly, the case of the National Thermal Power Co. Ltd. v. CIT (supra) which is placed on pp. 20 to 23 of paper book filed by the assessee in relation to additional grounds, inter alia.

Having accepted the additional, ground, now we are faced with the fact that the assessee himself added this amount under Section 43B in the second return, but since the same was not acted upon, being invalid, the facts and figures detailed in the said revised return cannot be of any help to any party. But, for a limited purpose, to show the genuineness of the claim of the assessee that it was under a wrong belief that the provisions of Section 43B were attracted, this fact can be considered.

9. Now, we have to see as to whether the provisions of Section 43B which came into effect from 1st April, 1991 vide the Finance Act, 1990 could be invoked at the relevant time or not. The provisions of Section 43B(d) are the relevant provision for our consideration now. We reproduce this for ready reference as under : Section 43B(d)-any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation, or a State Industrial Investment Corporation in accordance with the terms and conditions of the agreement governing such loan or borrowing.

10. This is an undisputed fact that this Clause (d) was inserted by the Finance Act, 1990, w.e.f. 1st April, 1991 only. So it is very clear and evident from the provisions itself that the AO has wrongly applied the, provisions of Section 43B in this case by adding the unpaid interest to Rajasthan Financial Corporation which is a State Financial Corporation and, as such, the AO erred in law by making the addition of Rs. 1,37,710 under Section 143(1)(a) for the relevant assessment year which is required to be struck down. It is the duty of the AO, which is heavily cast on him, by the taxing enactments that the AO has to allow deductions, rebate, etc. if they are admissible as per the provisions of the Act, even if the assessee fails to claim the same. On the other hand, again a heavy duty is cast upon the AO to look into the fact as to whether such allowances, rebates, deductions, etc. are not allowable as per law, even if they are claimed by the assessee. So, the AO has failed in his duty to notice the provisions of the Act during the relevant period of this case and thereby has wrongly applied the provisions of Section 43B and, more particularly, when the AO did not consider the second revised return as valid, but at the same time, he incorporated a certain figure returned by the assessee in the second revised return without even questioning the liability of the assessee in this regard. Consequently, we are of the opinion that when the provisions of Section 43B were not invoked, any additions, under the said provisions, cannot be sustained in the eyes of the law.

Consequently, we delete this addition and accept the additional ground of the assessee.

11. The next issue relates to addition made for unexplained share capital of Rs. 5,01,129. We have heard both the parties and also perused the records and have gone through the paper book and decisions relied before us.

12. The learned Authorised Representative has referred to his paper book at pp. 213 to 216 which contain the following facts : (a) That the merits of the case also warrant the deletion of the addition made for the alleged unexplained share capital of Rs. 5,01,129 The material available with the AO in respect of the shareholders establish the identity, creditworthiness of the shareholders and genuineness of the transaction. In this respect, it is further submitted that the assessee-company submitted during the course of assessment proceedings the list of shareholders, their GIR Nos., the particulars of the shareholders where they are assessed to tax, the confirmed copy of account of shareholders showing that most of the transactions are by account payee cheques barring a very few instances, where the share subscription of meagre amount was also received in cash. The AO, during the course of the assessment proceedings, made independent enquiry from the bankers of the shareholders and also obtained bank statement for verification of the transaction. The AO also called upon and perused the assessment records of various shareholders and, therefore, the existence of the shareholders is proved beyond doubt.

(b) Statement showing the name, address, GIR/PAN No. of the shareholders, amount of share subscription, mode of payment, etc. is submitted and placed at pp. 220 and 221 of paper book. The said statement also contains the reference of the paper book page, at which, the documents submitted in respect of the shareholders, such as balance sheet, copies of computation of total income, copies of intimation and bank statement, etc. are placed. From the perusal of the above statement, it is revealed that out of 10 shareholders, 8 are income-tax assessees and all the 10 shareholders were found to be have maintained bank account, from which the shareholders have provided money to the assessee-company for subscribing the shares.

(c) It is, therefore, submitted that the assessee-company has fully discharged the primary onus, which lay upon it, even if Section 68 is held attracted in the facts and circumstances of the case, since the assessee-company has given the income-tax particulars, name and address of various shareholders and the AO made no enquiry whatsoever and, therefore, in view of the decision of Hon'ble Supreme Court, in the case of CIT v. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC) placed at page Nos.

140 to 145 of the paper book, the addition so made by the AO and confirmed by the CIT(A) is liable to be deleted. It has been held in the case of Addl. CIT v. Bahri Brothers (P) Ltd. that where the transactions are through account payee cheque, the assessee's onus to prove the identity stands discharged as the persons were having bank accounts and they were known not only to bank but were introduced by a third person to the bank.

(d) From the perusal of AO's observation at pp. 4 to 8 of his assessment order dt. 20th March, 1992 in respect of shareholders, it appears that the AO has alleged that since the shareholders were not produced for examination, necessary enquiry as to availability of funds in the hands of shareholders, could not be made. The AO also alleged that entries in the bank accounts of the shareholders preceding to the issuance of cheque in favour of the assessee-company, also could not be verified because the shareholders were not produced for examination. The AO made certain observations in his assessment order on the basis of case records and material made available by the assessee-company in respect of shareholders held without there being any material on record that the credits appearing in the balance sheet of the shareholders are not having any ostensible sources and, therefore, the creditworthiness of the shareholders have not been established. It is also submitted that the AO has not put up the facts as mentioned in the assessment order in respect of the shareholders to the assessee-company, for its rebuttal and explanation and, therefore, the action of the AO is unjustified in view of the decision of Kishinchand Chellaram v. CIT placed at page Nos.

222 to 227 of the paper book. In view of the above discussion, it appears that the AO wanted to know the source of the source which is not justified.

It is further submitted that the explanation/information, as submitted cannot be brushed aside on surmises and conjectures without giving cogent evidence to the effect that all the explanations/information furnished by the assessee is false/forged and the money credited to share capital account represents appellant's own unaccounted income. It is also submitted that the additions cannot be made simply on suspicions or surmises, as the suspicion does not take the place of proof as has been held in the case of Vishnulal Karwa v. ITO (1987) 27 TTJ (Jp) 427.

(e) As regards the production of shareholders, the necessary submissions are in para 2(d) at paper book page Nos. 3 to 5. In these facts and circumstances of the case where the assessee due to lack of time requested the AO to issue the summons under Section 131 to the shareholders and the said specific request was neither acceded to nor rejected, which amounted to improper exercise of the jurisdiction on the part of the AO and the addition so made, is liable to be deleted as has been held in the case of Vijeta Cement (P) Ltd v. Jt. CIT (2001) 25 Tax World 223 (Jp), E.M.C. Works (P) Ltd. v. ITO (1963) 49 ITR 650 (All) and Munnalal Murlidhar v. CIT .

13. On the other hand, the learned Departmental Representative has contested the above submissions of the learned Authorised Representative and has submitted that the assessee has not been able to discharge the onus cast upon him by the provisions of Section 68 of the Act.

14. It is undisputed fact that the identity of the shareholders is established and is not at all disputed by the Department. The Department disputes the other two requirements of Section 68, namely, creditworthiness of the shareholders and genuinity of the transactions in question. The following excerpt from p. 2 para 3 of the assessment order is relevant for establishing that the Department is not doubting the identity of shareholder: The assessee is a closely-held company controlled by one family and, therefore, the assessee's burden to establish the genuineness of funds flown in the guise of share capital subscription and the creditworthiness of the investor is at par with the cash credits.

The assessee did not produce any of the above persons to enable me to investigate into the funds brought in their names. Simply furnishing of GIR No. or assessment particulars is not enough for the reason that none of the above cases are assessed under scrutiny and none is filing balance sheet with the return of income. As such, the evidence placed on record by these persons along with the return of income do not facilitate cross-verification. As their cases have been completed in summary scheme it was right opportunity for the Department to have interview with these persons to find out whether all was well with regard to funds being introduced in their names and sufficient accounted funds were available in their hands. There are even cases where the capital is built up in a bogus manner and returns are filed in the name of benami persons who even do not know what transactions have been done in their names. With this state of affairs and introduction of summary scheme it was the right of the Department to investigate thoroughly as and when the cases are picked up for scrutiny. To have an idea of availability of funds in the hands of the above persons it will be relevant to discuss their affairs in a brief manner on the basis of whatever could be gathered from their case records or the evidence placed on record by the assessee.

15. Before we give any finding on this issue, we would like to observe that the Department has heavily relied on the decision of the Full Bench of the Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. (FB) wherein it was held as under : Provisions of Section 68 are applicable even to share application money and if on enquiry it is found that shareholders do not exist, sum credited may be treated as assessee's income.

16. It is very much clear from this decision relied by the Department itself that when the identity of the shareholder is established, then the Department is not to process any further with regard to finding out the genuineness and creditworthiness of the assessee. Even if we go by this finding of the decision of the Full Bench of the Hon'ble Delhi High Court, the Department has to fail on this issue. But this issue is somewhat ticklish, and we are not to stop here. It is clearly evident that the decision of the Delhi High Court in the case of CIT v. Steller Investment Ltd. (2000) 164 CTR (SC) 287 which is a case of private limited company, the Bench held as under: It is evident that even if it be assumed that 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 person, 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.

17. When this case reached the Hon'ble apex Court, the apex Court confirmed the view taken by the single Bench of the Hon'ble Delhi High Court. But before the Hon'ble Supreme Court decided the Stellei's case (supra), the Full Bench decision in Sophia's case (supra) had already been rendered by the Delhi High Court. This decision, however, was not thus referred to or relied by any of the party before the Hon'ble Supreme Court. There is one view that in the light of the Supreme Court decision, the liability has been settled as regards to the application of share money in such a case is concerned and this has become the law of the land under Article 141 of the Constitution of India. On the other hand there is another view that since this Full Bench of the Delhi High Court is the detailed authority on this subject, and the same was not in issue before the Hon'ble Supreme Court, so the law laid down by the Full Bench of Hon'ble Delhi High Court holds good for that purpose. But in this case although there are various decisions, for and against this proposition, we can avoid this controversy for disposing of this appeal, as it is a clear-cut case of the Department that the assessee has been able to establish identity of the shareholders. So, in any eventuality, by applying the Sophia Finance decision (supra) of the Hon'ble Delhi High Court, the onus cast upon the assessee has been discharged successfully by it.

18. The Jodhpur Bench of Tribunal has also taken a view in the case of ITA No. 155/Ju/2001 for asst. yr. 1997-98 decided on 28th Nov., 2001 [reported as Shree Bharkha Synthetics Ltd. v. Asstt. CIT (2002) 75 TTJ (Jd) 1-Ed. wherein it has been held that the findings of the Steller decision (supra) have been confirmed by the Hon'ble Supreme Court, so these findings are binding on every Co-ordinate Bench of the Tribunal.

In case this Bench wants to distinguish the findings of the Tribunal or the Co-ordinate Bench of Jodhpur itself, the only way out is to refer this issue to a larger Bench. But as we have mentioned above that we are not directly dealing with the controversy in question, so we are safely averting the ensuing dispute. One more related issue has been raised by the Department that even if the assessee can get relief by applying Sophia Finance (supra) and/or Steller's case (supra), the assessee is not entitled for the same on the ground that the assessee-company is not a public limited company to which the abovementioned cases apply, since this assessee-company is a private limited company. The view of the learned Departmental Representative is that there have been cases where the promoters, even in public limited company, have tried to evade payment by introducing their undisclosed income by way of share capital by issuing shares and misusing the provisions of the Act. The learned Departmental Representative has submitted that in such cases, as has been held by various decisions of various Courts including that of the Hon'ble apex Court in such a situation the veil of the corporate body can be pierced so as to find out the true colour of the company, more particularly in tax matters to see as to whether there has been some manoeuvre by the assessee to evade payment of tax and streamlining undisclosed money by applying this methodology. The learned Departmental Representative has also pointed out that various decisions relied by the assessee relate to public limited companies.

19. On the other hand, the learned Authorised Representative has submitted that there is no decision or any provision of law, which differentiates between a private limited company or public limited company for substantiating the view, taken by the learned Departmental Representative. In addition to that, the learned Authorised Representative has also submitted that various decisions relied by the assessee relate to private limited companies only. This is a fact that a company, incorporated under the Companies Act has got its separate legal entity, which is separate from its promoters and shareholders. It is also true that the corporate veil can be pierced as and when such need arises to look into its true state of affairs, be it a private limited company or a public limited company. But, after considering all the material before us we are unable to convince ourselves that the Hon'ble Supreme Court or the Hon'ble High Court have made any difference between a private limited company or public limited company so far as share application money is concerned. There is also no provision in the IT Act, which disentitles a private limited company from the benefits, which are given either by the Sophia decision or Steller decision (supra). As has been rightly pointed out by the learned Departmental Representative that even in case of public limited companies some cases have been detected where the issue of shares issued to general public is found to be bogus. In the same way, shares applied by the shareholders in private limited companies can also be bogus. We definitely agree with this submission of the learned Departmental Representative, but at the same time, we disagree with the learned Departmental Representative insofar as this case of assessee is concerned, because there is no clear-cut finding of the AO that the transactions are bogus. The Sophia Finance case (supra) on which the Department relies, only requires the assessee to establish the identity of the shareholders and the same has been established by the assessee, then in that situation, the Department cannot proceed any further thereafter. Moreover, this is not at all the case of the Department that the assessee-company is a private limited company and as such, the decision of the Sophia Finance (supra) will not be applicable to this case. This Bench cannot make out a new case for or against any party.

We have to decide on the basis of facts and disputed issues only.

20. We have gone through the submissions made by the learned Authorised Representative vide its paper book at p. 213 which we have reproduced above and we are fully convinced that the submissions of the learned Authorised Representative are facts which arise from the assessment order and CIT(A)'s order. In the light of the above, we are convinced that the assessee-company has fully discharged onus which is cast upon it, even in case the provisions of Section 68 are used as touch stone, for the sake of argument. The assessee-company has given income-tax particulars, name and addresses of the various shareholders and the AO did not make any enquiry, whatsoever, in view of the Hon'ble Supreme Court's decision in Orissa Corporation Ltd. (supra) which is placed at pp. 140 to 145 of the paper book, the additions so made by the learned AO and confirmed by the learned CIT(A), is liable to be deleted. We would like to particularly mention that most of the transactions in question are through account payee cheques. So, the onus of identification has been discharged as these persons were having bank accounts and they were not only known to third persons who introduced them to the bank. The assessee had also requested the AO to issue summons to shareholders under the provisions of Section 131 of the Act, but the AO neither accepted this request nor rejected the same. The learned Departmental Representative has submitted that the request was made at the fag end when the limitation for making the assessment order was to expire. But even in such a situation, the AO cannot arbitrarily make additions on this pretext.

21. Finally, we get support from the decision of jurisdictional High Court, that is, High Court of Judicature, Jodhpur, Rajasthan, in the case of CIT v. Shree Barkha Synthetics Ltd., decided on 1st May, 2003 [reported at (2003) 182 CTR (Raj) 175-Ed.], a copy of which has been placed before us. The facts of this case were that the assessee was a private limited company (as is evident from the name of the assessee-company) and was asked by the Department to furnish the explanation about the receipt of capital money on account of share application which was furnished in the shape of details of the identity of the persons who had made such investments. The particulars of the receipt and GIR No. of such persons, who had made such investments in the said companies, registered under the Companies Act, were furnished.

Notices of five companies out of 7 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. Likewise, in the case of individual investors, the assessee filed the addresses, etc., but the Department was not satisfied with the same. The Hon'ble High Court concluded that :CIT v. Orissa Corporation (P) Ltd.'s case (supra), the irresistible conclusion is that the conclusion of the Tribunal that the assessee had discharged his initial burden in respect of six companies and 9 individual investors, which was based on evidence and additions made by the AO were enquired into without pursuing correctness of material placed before it by the assessee. No question of law can be said to be arising in such circumstances in respect of finding arrived at by the Tribunal, which is essentially a finding of fact and does not stand vitiated in law.

In relation to which the Hon'ble High Court has further observed as under : Really speaking, there is no dichotomy between the earlier decision of the Delhi High Court in Steller Investment Ltd.'s case (supra) and later decision of the Delhi High Court in Sophia Finance Ltd. 's case (supra) and the decision rendered by the Tribunal is in consonance with fee principle enunciated by the Supreme Court in Orissa Corporation (P) Ltd. 's case (supra) and other decisions referred to above and its conclusions are reached on appreciation of relevant facts that 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.

22. The Hon'ble Rajasthan High Court applied the ratio of decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (supra), which we have also relied upon and also discussed the decisions of Hon'ble Delhi High Court in the case of CIT v. Sophia Finance (supra) and also the case of Steller Investment Ltd. (supra).

The Hon'ble Rajasthan High Court has taken almost identical reasonings as we have taken in our decision above. This Bench is bound to follow the ratio of the Hon'ble jurisdictional High Court and cannot avoid applicability of the ratio by some pretext or the other.

1. I have carefully perused the order of the learned JM in ITA No.603/Jp/1994 for the asst. yr. 1989-90. I have not been able to persuade myself to agree with the conclusions contained in the proposed order of the learned JM.2. First of all, I shall take up the additional ground. The appellant had made a prayer for admission of the following additional ground : That the provisions of Section 43B as were in force in the relevant assessment year did not permit any addition for unpaid interest to Rajasthan Financial Corporation being a State Financial Corporation and the AO, therefore, erred in law in making addition of Rs. 1,15,364 under Section 43B for the relevant assessment year which is liable to be struck down.

3. The learned Authorised Representative submitted that the AO, while passing the assessment order dt. 20th March, 1992 made an addition of Rs. 2,15,364 under Section 43B of the Act on account of outstanding liability as mentioned in para 14 of his order. It was held that the additional ground being purely a legal ground emanating from the facts available on record the admission of this ground does not require any investigation of facts. The learned Authorised Representative placed reliance on the following judgments : 2. Taylor Instrument Co. (India) Ltd. v. CIT (1992) 105 CTR (Del) 5 : (1992) 198 ITR 1 (Del); and The appellant has not challenged this addition before the learned CIT(A). The additional ground having been considered as purely a legal ground, which does not require investigation into the facts, was entertained in the proposed order as per provisions of Rule 11 of the ITAT Rules. The provisions of Section 43B(d) reads as under : Section 43B(d)-any sum payable by the assessee as interest on any loan or borrowing from any public financial institution (or a State Financial Corporation or a State Industrial Investment Corporation) in accordance with the terms and conditions of the agreement governing such loan or borrowings.

The plea of the appellant is that it is very clear and evident from the provisions itself that the AO has wrongly applied the provisions of Section 43B in this case by adding the unpaid interest to Rajasthan Financial Corporation which is a State Financial Corporation.

4. The brief facts of the case are that the appellant-company in the return of income declared loss of Rs. 8,97,270 on 29th Dec, 1989. Later on, the appellant-company filed revised return of income on 29th Jan., 1991 wherein loss of Rs. 24,28,490 was declared. This loss was increased and the assessee claimed depreciation of Rs. 15,31,220 which was not claimed in the original return. The appellant-company also filed a second revised return on 29th July, 1991 wherein loss of Rs. 20,68,810 was claimed. The appellant-company reduced the claim of investment allowance from Rs. 7,17,800 to Rs. 5,74,950 and also added back Rs. 2,16,806 under Section 43B on account of outstanding RFC interest and other liabilities.

5. After perusal of the facts of the case, I find that in this case the AO had disallowed the deduction claimed under Section 43B of Rs. 2,16,806 on account of interest and other liabilities on the basis of second belated revised return filed by the assessee. The appellant has not taken this ground before the learned CIT(A) and now the appellant had contended that under incorrect interpretations of the provisions of Section 43B(d) the disallowance had been made in the second revised return. However, new the additional ground has been taken before this Bench of Tribunal stating that the provisions of Section 43B(d) came into force w.e.f. 1st April, 1991, relevant for the asst. yr. 1991-92 and not for the assessment year under consideration.

6. On reappraisal of the facts of the case I am of the opinion that it is not the case of the appellant that a particular item of expenditure is allowable under the legal provisions of the IT Act, but, on the other hand, the appellant's case is that the disallowance made by the AO suo motu in the second revised return is not covered by the provisions of Section 43B(d) of the Act as this amendment was not relevant for the assessment year under appeal. In other words, the claim of the appellant which had been put before the Tribunal as additional ground is not purely a legal ground which does not require investigation into the facts of the case. When the appellant has taken the plea before this Bench of Tribunal that this is not covered by Section 43B(d) as already admitted by the appellant before the AO then the appellant should have mentioned and other legal provision under which the appellant was entitled to deduction of Rs. 2,16,806 on account of outstanding interest of RFC and other liabilities. In my considered opinion now deduction is to be considered under Section 36(1)(iii) of the IT Act. Therefore, this additional ground cannot be admitted. It requires investigation into the facts of the case by the AO. Though, the appellant had not specified the section under which the deduction is to be allowed by the AO, even then I am of the considered opinion that this deduction is allowable under Section 36(1)(iii) of the Act after investigation into the facts of the case by the AO, In order to claim deduction of expenditure under Section 36(1)(iii) the following conditions should be satisfied : (iii) It must have been borrowed for the purpose of business and there is no diversion of funds elsewhere.

(iv) It is to be seen whether liability pertains to the year under appeal.

7. The AO is to examine the facts of the case in order to see whether all the above conditions are fulfilled. Clause (d) of Section 43B has been amended with a view to improve the liquidity position of the State financial institutions (State Financial Corporations and State Industrial Investment Corporations). As a result of such amendment, any sum payable by the assessee as interest on any loan or borrowing from a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, shall, also, not be allowed, for and from asst. yr. 1991-92, as deduction in the computation of the profits and gains from business or profession if the sum is not actually paid by the assessee before the due date applicable in his case for furnishing the return of income. The deduction is to be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him whereas the deduction under Section 36(1)(iii) is to be allowed only for the liability which pertained to a particular year. Therefore, the AO is required to investigate into the facts as to whether the liability pertained to the year under appeal and as to whether the liability had been incurred as mentioned under Section 36(1)(iii) of the Act wholly and exclusively for the purpose of business and all the conditions mentioned above are satisfied. The following judgments relied upon by the learned Authorised Representative are of no help to the assessee as in all these judgments the additional grounds were purely legal grounds which did not require investigation into the facts.

8. In the first-mentioned judgment the appellant's claim was based on settled view of law as per the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT .

There were no disputes about the facts. Under these circumstances it was held that the AAC had rightly allowed the assessee to raise additional ground and also granted deduction from the assessee's income. In the second-mentioned judgment of the Hon'ble Delhi High Court the question raised was a purely question of law and no fresh evidence was required to be taken. Therefore, the additional ground was held to be tenable. In the third-mentioned judgment (supra) it was held by the Hon'ble apex Court at pp, 383-385 as under: Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

9. In this case it was held that the Tribunal can allow a new ground to be raised where the Tribunal is only required to consider the question of law arising from the facts which are on record in the assessment proceedings which does not require any investigation into the facts of the case, Therefore, in my opinion this additional ground of the appellant cannot be admitted as it is not a purely legal ground.

10. The next major issue in this case is with regard to the addition made for unexplained share capital of Rs. 5,01,129. It is pertinent to mention that this appeal was heard on 6th Nov., 2002 and subsequently this appeal was released for rehearing on account of mutual consent between the AM and the former JM on the following points : 1. Distinction between public limited company and private limited company.CIT v. Orissa Corporation (P) Ltd. 3. Non-issuance of summons to the shareholders on request of the assessee by the AO impact thereof.

Again reverting to the facts of the case the learned Authorised Representative submitted, that the appellant-company had filed, during the course of the assessment proceedings, particulars of shares, GIR No./assessment particulars where the shareholders are assessed to tax, confirmed copy of accounts of all the shareholders showing the particulars of receipt of share subscription money which was mostly by way of account payee cheques in all the cases and had been duly verified by the AO by making independent inquiries from the concerned bankers of the shareholders. The learned Authorised Representative had relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Orissa Corporation Ltd. (supra). He also relied upon the judgment of the Hon'ble Patna High Court in the case of Addl. CIT v.Bahri Brothers (P) Ltd. when the assessee disclosed the names of the creditors and the names of the banks on which the cheques were drawn, the assessee discharged the primary onus and the assessee not only disclosed the identity of the creditors but also the source of the income. It was also submitted that the additions had been made on suspicion or surmises. The suspicion cannot take the place of proof as held in the case of Vishnulal Karwa v. ITO (1987) 27 TTJ (Jp) 427. The learned Authorised Representative also relied upon the judgments in the case of CIT v. Steller Investment Ltd. , CIT v. Sophia Finance Ltd. (FB), Shivam Synthetics (P) Ltd. v. Asstt. CIT (2002) 76 TTJ (Jd) 164 : (2000) 24 Tax World 397 (Jd), Asstt. CIT v. Singhal Credit Management (P) Ltd. (2001) 25 Tax World 296 (Jp) and Swastik Suitings Ltd. v. Dy.

CIT (2001) 25 Tax World 2733 (Jp) have also been relied upon by the learned JM. It was held that no addition is called for.

11. Distinction between the private and public limited company was also discussed in the proposed order in brief and it was also observed therein that there can be bogus shares in the case of public as well as private limited companies. It v/as also the plea of the appellant that the AO did not accede to the request of the appellant for summoning the shareholders/cash creditors under Section 131 of the Act and this request was neither acceded to nor rejected which amounted to improper exercise of the jurisdiction on the part of the AO. For deletion of the addition the learned Authorised Representative relied on the following judgments :Vijeta Cement (P) Ltd v. Jt. CIT In this case the learned Departmental Representative had contested that the assessee had not been able to discharge the onus cast upon it by the provisions of Section 63 of the Act and had discussed in detail the distinction between the private and public limited company and had contended that the provisions of Section 68 are applicable in the share application money. The ratio of the various judgments relied upon by the learned Authorised Representative are not applicable to the facts of the present case.

12. Ground no. 2 is regarding addition of Rs. 5,01,129 on account of unexplained share capital, The AO has discussed this issue from pp. 2 to 9 of his order. The appellant had shown share application money/share capital in the names of the following persons : Rs. The AO held that the assessee is a closely-held company controlled by one family and, therefore, the assessee's burden to establish the genuineness of funds flown in the guise of share capital subscription and the creditworthiness of the investor is at par with the cash creditors. The appellant did not produce any of the above persons to enable the AO to investigate into the funds brought in their names.

Simply furnishing the GIR No. or assessment particulars is not enough for the reason that none of the above persons are assessed under scrutiny. As such the evidence placed on record by these persons along with the return of income does not facilitate cross-verification.

Copies of the relevant bank accounts were obtained. It was seen in most of the cases that the issue of cheques to the assessee-company was equivalent to the amount deposited in the bank account either through cash or through cheque transfer entry. Therefore, he added the share capital of Rs. 5,01,129 as unexplained cash credit under Section 68 of the Act. The learned CIT(A) at p. 2 of his order concluded that the AO had asked the appellant to establish the identity of the parties from whom the money had been received as share capital to produce the said party for examination. The appellant did not produce the said investors for examination before him. No evidence with regard to the source was also filed, Therefore, the AO was justified in drawing adverse inference that the amount received by the appellant was its income from undisclosed sources and the addition made by the AO for unexplained cash credit introduced in the shape of share application money was confirmed by the learned CIT(A). The learned Authorised Representative submitted that the particulars about the identity and the existence of shareholders in question was duly submitted by the appellant-company during the course of the assessment, proceedings. These included list of shareholders, GIR No., assessment particulars where the shareholders are assessed to tax, etc. The learned Authorised Representative further submitted that AO, for the first time, vide his letter dt. 21st Feb., 1992 asked the assessee-company to produce ail the shareholders on 3rd March, 1992 for cross-examination. The fact is that the above said letter dt. 21st Feb., 1992 was accompanied with the notice under Section 142(1) dt. 25th Feb., 1992 and, therefore, the time allowed by the AO requiring the appellant-company to produce the shareholders was quite inadequate and since looking to the fact that the assessment, for the relevant assessment years was going to be time-barred by 31st March, 1992, the appellant-company on 3rd March, 1992 made a specific prayer to the AO to issue summons to all the shareholders under Section 131 of the IT Act, if the AO wishes to cross-examine them as the necessary particulars of all the shareholders were duly submitted to him by the appellant-company. The AO neither refused nor did he accede to the request of the appellant.

13. The second part of the observation of the AO as contained in para 3 of his assessment order dt. 20th March, 1992 is as under: The assessee is a closely-held company controlled by one family and, therefore, the assessee's burden to establish the genuineness of funds flown in the guise of share capital subscription and the creditworthiness of the investor is at par with cash credits. The assessee did not produce any of the above persons to enable me to investigate into the funds brought, in their names. Simply furnishing of GIR number or assessment particulars is not enough for the reasons that none is filing balance sheet with the return of income. As such the evidences placed on record by these persons along with the return of income do not facilitate cross-verification. As their cases have been completed in summary scheme it was right opportunity for the Department to have interviewed with these persons to find out whether all was well with regard to funds being introduced in their names and that sufficient accounted funds were available in their names.

The learned Authorised Representative relied upon the judgments of the Hon'ble Supreme Court in the case of CIT v. Orissa Corporation Ltd. (supra) and of the Hon'ble Patna High Court in the case of Addl. CIT v.Bahri Bros. (P) Ltd. (supra). The learned JM has also quoted the decision of the Hon'ble Rajasthan High Court in the case of CIT v.Shree Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175.

14. We have perused the facts of the case. The issue to be decided in this case is whether in the case of a private limited company the provisions of Section 68 can be invoked or not. Section 68 of the IT Act reads as follows : Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

This issue was discussed and decided in detail in the case of Cas Card Finance Ltd. v. Asstt. CIT (2003) 78 TTJ (Ahd)(TM) 55. The relevant paras 23 to 27 are reproduced as below : The next question arises for consideration is as to whether Section 68 is applicable in respect of share application money and under what circumstances Section 68 gets attracted in block assessment in respect of the same. The Delhi High Court in the case of Steller Investment (supra) had the occasion to consider as to whether the CIT was justified in invoking Section 263 for bringing to tax the share application money appearing in the balance sheet of the assessee-company on the ground that the AO had failed to make inquiries at the time of original assessment. The Tribunal in that case on facts, held that the CIT was not justified in treating the order of the AO as erroneous insofar as prejudicial to the interest of the Revenue. The Delhi High Court in the aforesaid, case refused to interfere with the decision of the Tribunal. Their Lordships also observed that if the share application money in the case of the company was not genuine, assessment could be made in the hands of those persons who had invested the money in the company.

24. The decision of the Delhi High Court was challenged by the Revenue in the Supreme Court and in the meantime the issue of share capital relating to applicability of Section 68 came for consideration before Delhi High Court (Full Bench) in the case of CIT v. Sophia Finance Ltd. (supra). Their Lordships on facts of the case held as under : It is clear under Section 68 the ITO has jurisdiction to make inquiries with regard to the nature and source of a sum, credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of loan or a sum representing the sale proceeds or even receipt of share application money. The use of the word "any sum found credited in the books in Section 68 indicates that the said section is very widely worded and an ITO is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. If the amount, credited is a capital receipt then it cannot be taxed but it is for the ITO to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital does not preclude the ITO from going into the question whether this is actually so. Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has 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 ITO would be entitled to enquire and it would indeed be his duty to do so, 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 ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Share cannot be used in the name of non-existing persons. The use of the words "may be charged" in Section 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee. Section 68 clearly permits an ITO to make inquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in the books of account can be gone into by the ITO. If shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as capital receipt and to that extent the observations in the case of Steller Investment (supra) are correct, but, if on the other hand the assessee offers no explanation at all or the explanation offered is not satisfactory, then, the provisions of Section 68 may be invoked.

In the latter case Section 68 being a substantive section empowers the ITO to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee CIT v. Steller Investment Ltd (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del) distinguished and explained.

25. Subsequently, their Lordships of the Supreme Court decided the reference of the Revenue in the case of CIT v. Steller Investment Ltd. . Their Lordships of the Supreme Court were pleased to dismiss the reference application of the Revenue by the following order : We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on the facts and no interference was called for.

26. On facts, a question arises as to whether Full Bench decision of the Delhi High Court in the case of Sophia Finance Ltd. (supra) has been overruled by the Supreme Court in the case of CIT v. Steller Investment Ltd. (supra) I have referred to the decision of the Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd: v. CIT and also the decision of the Gujarat High Court in the case of Gujarat State Co-operative Bank Ltd. v. CIT of this order supports the finding that the decision of the Court is to be read in the context in which it has been rendered. Keeping that principle in view, it becomes abundantly clear that the Hon'ble Supreme Court did not overrule the decision of the Delhi High Court in the case of Steller Investment Ltd. (supra). It is noted from the decision of the Supreme Court quoted above that the reference of the Revenue was rejected mainly on the ground that the Tribunal had come to a conclusion on facts in respect of which no interference was called for. The decision of the Delhi High Court in the case of Steller Investment Ltd. (supra) had been explained and distinguished by the Full Bench of the same Court in the case of Sophia Finance Ltd. (supra). There are two possible views from the facts stated above. One possible view is that with the decision of the Supreme Court affirming the earlier decision.

The Full Bench decision of the Delhi High Court in the case of Sophia Finance Ltd. (supra) is neither confirmed nor overruled. The second possible view is that the decision of the Delhi High Court in the case of Steller Investment Ltd. (supra) having been confirmed by the Supreme Court, the said decision of the Delhi High Court has got to be read along with the Full Bench decision of the same High Court explaining that the Full Bench decision of the Delhi High Court in the case of Sophia Finance Ltd. (supra) has not been overruled by the Supreme Court. The decision in the case of Steller Investment Ltd. (supra) having been distinguished and explained by their Lordships of the Delhi High Court in the case of Sophia Finance Ltd. (supra), the said decision has not lost its force with the affirmation of the decision in the case of Steller Investment Ltd. (supra) by the Supreme Court.

27. In Sophia Finance Ltd. (supra), their Lordships of Delhi High Court held that the AO is not precluded from making inquiry as to the true nature and source of entries in the books of account even if the same is credited as receipts of share application money. It was held further that 'if the amount credited as capital receipt, then it cannot be taxed, but it is for the ITO to be satisfied that the true nature of the, receipt is that of the capital. Merely because the company chooses to show the receipt of money as capital does not preclude the ITO from going into the question whether this is actually so'. On careful comparison and reconciliation of the two decision of the Delhi High Court referred to above read with the decision of the Supreme Court in Steller Investment Ltd. (supra), following position emerges : (i) If AO does not enquire about the genuineness of the share application money, the share capital has got to be accepted as capital receipts.

(ii) If, on the other hand, enquiry is made by the ITO regarding share application money and he is not satisfied that the true nature of share application money is of capital receipts, he can invoke Section 68 thereof.

(iii) In the light of the above principles of law, I proceed to consider the issue on the facts of the present appellants.

15. From perusal of the facts of the case before Ahmedabad Bench, we find that the addition made by the AO for unexplained share application money under similar facts and circumstances was confirmed under Section 68 of the Act, after having considered the ratio of the judgments in the case of CIT v. Steller Investment Ltd. (supra) and CIT v. Sophia Finance Ltd. (supra).

16. Besides, I also find that the said decisions in the case of Steller Investment Ltd. (supra) and Sophia Finance Ltd. (supra) were with reference to the Public limited company. The learned Authorised Representative has also relied upon a number of decisions of Tribunal Benches. We find that in none of these judgments distinction between public limited company and private limited company had been considered.

The Companies Act, 1956 provides for a variety of companies that may be prompted and registered under the Act. The two common types of companies which may be registered are By virtue of Section 2(1)(iii). a private company means a company which has a minimum paid-up capital of one rupee or such higher paid-up capital as may be prescribed by its articles : (ii) persons who having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of membership, be treated as single member (c) Prohibits invitation to the public to subscribe for any shares in or debentures of, the company.

(d) Prohibits any invitation or acceptance of deposits from persons other than its members, director or their relatives.

17. In view of the aforesaid definition a private company must, in its articles, incorporate the said restrictions, limitations and prohibitions. Sub-section (3) of Section 27 further endorses this point by stating that a private company limited by shares must have articles containing restrictions, limitations and prohibitions required by Section 3(1)(iii); other private companies must have in its articles the limitations and prohibitions contained in Clause (b) and (d) of Section 3(1)(iii).

18. Restrictions on transferability of shares-Consistent with objective of promoting the company as a closely knit family or friendly affair, a private company has to contain the specific restrictions so as to prevent anybody or everybody acquiring shares of the company by transfer and thereby defeating the very objective or promotion of the company as a private company. This restriction should uniformly apply to all the shareholders of the private company and accordingly the articles usually provide that directors may in their absolute discretion and without assigning any reason therefor decline to register a transfer of any share whether fully paid or partly paid.

A pubic company, as per the Companies (Amendment) Act means a company which : 19. Now we shall discuss the lifting the corporate veil specially in the case of private limited company for protection of Revenue. In Sir Dinshaw Meneckjee Petit, In re AIR 1927 Bom 371 the assessee was a millionaire earning huge income by way of dividend and interest. He formed four private companies and transferred the investments to each of these companies in exchange of their shares. The dividend and interest income received by the company was handed back to Sir Dinshaw as a pretended loan. It was held that the company was formed by the assessee purely and simply as a means of avoiding tax and company was nothing more than assessee himself. It did not do business but was created simply as a legal entity to receive the dividends and interest and to hand them over to the assessee as pretended loans. Similarly, in CIT v. Shri Meenakshi Mills Ltd. AIR 1967 SC 819 where the veil has been for evasion of taxes and duties, the Court upheld the piercing of the veil to look at the real, transaction.

We have mentioned earlier that a private company is prohibited from inviting public to subscribe to its share capital or debentures. It arranges its share capital primarily from friends and relatives. The shares are, therefore, subscribed by a small number of persons who are known to the promoters or are related to them by family members.

Now having drawn distinction between tile private limited company and the public limited company and also having relied upon the order of the Tribunal, Ahmedabad in the case of Cas Card Finance Ltd. v. Asstt. CIT (supra), I hold that in this case of private limited company, the genuineness of share capital of the shareholders is to be examined under Section 68 of the IT Act, 1961.

19.1 The burden of proving the source of a cash credit is on the assessee. It is necessary for the assessee to prove prima facie the transaction which results in a cash credit in his books of account.

Such proof includes proof of the identity of his creditor, the capacity of such creditor to advance the money, and lastly, the genuineness of the transaction as held in Shanker Industries v. CIT and by the Hon'ble Rajasthan High Court in the case of Rajshree Synthetics (P) Ltd. v. CIT . The learned Authorised Representative has relied upon the following two judgments-Addl. CIT v. Bahri Brothers (P) Ltd. and contended that initial onus cast upon the assessee was discharged.

Before looking into the ratio of the judgments of the Hon'ble Courts it is necessary to refer to the facts of the case as narrated by the AO holding that the appellant failed to explain satisfactorily the source of deposit on account of share application money/share capital in the following persons : The persons mentioned at serial Nos. 6 and 7 are not being assessed to tax. The AO held that this is case of closely-held company controlled by one family and, therefore, the assessee's burden to establish the genuineness of funds flows in the guise of share capital subscription and the creditworthiness of the investor is at par with cash credits.

The appellant did not produce any of the above persons to enable the AO to investigate into the funds brought in their names. Simply furnishing of GIR number or assessment particulars is not enough for the reason that none of the above "persons are assessed under scrutiny and none is filing balance sheet with the return of income. As such, the evidence placed on record by these persons along with the returns of income do not facilitate cross-verification. The facts of these cases as mentioned by the AO are as under : (i) Sudhrai Lodha : His case has never been assessed under scrutiny.

The income declared by him in various assessment years is on record : The only source of income shown by him is salary. A copy of his balance sheet as on 31st March, 1989 has been placed by the assessee on record. From this balance sheet it is apparent that the assessee has also invested in shares of the assessee-company in earlier accounting periods and as such his total investment is Rs. 1,00,000 in the assessee-company. The figure mentioned in above table, however, relates only to the period relevant to asst. yr. 1989-90.

From the balance sheet of Sudhraj Lodha I find that there are borrowings to the tune of about Rs. 75,000 from the ladies and minors which do not appear to have any ostensible source of income.

A copy of his bank account was also collected of the relevant period. From this bank account it is seen that for introducing the funds in the assessee-company Sudhraj Lodha deposited cash amount of Rs. 12,000 in his bank account. In respect of other amounts also it is seen that the issue of cheque by him to the assessee-company precedes credit of equivalent amounts in his bank account either through a transfer or through a clearing.

(ii) Shri Palraj Lodha : The affairs of Shri Palraj Lodha are no better. It is seen that the income returned by him is also meagre amounts in the earlier years. For the asst. yrs. 1984-85, 1985-86 and 1986-87 the income shown by him is Rs. 13,747, Rs. 17,720 and Rs. 20,650, respectively. It is also seen that he is not filing any balance sheet with his return of income. The assessee placed on record his balance sheet as on 31st March, 1989 which appears to have been prepared for the first time. From this balance sheet too it is apparent that he has borrowed funds to the tune of Rs. 50,000 from sundry persons who appears to be either not assessed to tax or have no ostensible source of income. The capital built up of Rs. 1,03,730 in his hands could not be scrutinized for want of specific details. A copy of his bank account for the relevant period was gathered independently and seen that the issue of cheque to the assessee-company just precedes a deposit of an equivalent amount in his bank account either through cash or transfer entry. I am, therefore, of the view that he did not have sufficient accounted funds with him to advance funds to the assessee-company or to invest in assessee-company..

(iii) Shri Suparas Raj Lodha : It is seen that investment by him in assessee-company included cash deposit of Rs. 6,000. No evidence indicating source of funds in his hands have been placed by the assessee on record. The assessee's claim that he was assessed to tax is hollow in the sense that from record it is found that he has not filed any return of income after asst. yr. 1985-86. From a copy of his bank account gathered independently it is seen that issuance of cheque by him just precedes deposit of equivalent amount through a transfer entry. The immediate source of funds in his hands could not be investigated as the assessee failed to produce him.

(iv) Shri Sumer Raj Lodha : Out of total investment in his name Rs. 9,800 is deposited in cash. In addition, cash of Rs. 500 is also deposited by him in the bank to issue cheque to the assessee-company. From the copy of his balance sheet filed by the assessee it is seen that substantial borrowings are shown by him from persons having no ostensible source of income. From his copy of bank account gathered independently it is seen that issuance of cheque by him precedes deposit of equivalent amount in the bank either through transfer entry or cash. It is also seen that whereas the assessee claims to have received Rs. 8,000 on 5th Oct., 1988 he had issued cheque of only Rs. 5,000 as is obvious from his bank account. As he was not produced for cross-examination, the availability of accounted funds in his hands to invest in assessee-company could not be investigated further.

(v) Shri Jitendra Raj Lodha : From the case records it is seen that he has not filed any balance sheet, P&L a/c, etc. with his return of income. No such evidence was also placed on record by the assessee to indicate availability of funds in his hands to invest in assessee-company. Out of the total investments by him Rs. 9,000 are deposited in cash directly with the assessee-company and Rs. 8,000 in cash were deposited in his bank account for issue of cheque to the assessee-company. A look at his bank account also reveals that issuance of cheque by him to the assessee-company immediately precedes deposit of equivalent amount through a transfer entry. As he was not produced for cross-examination, the availability of funds in his hands could not be further investigated.

(vi) Shri Virendra Raj Lodha : The assessee filed no details evidencing availability of funds in his hands to invest in assessee-company out of total investment Rs. 9,750 coming out of the cash deposits. The assessee also did not furnish his assessment particulars and as such it is presumed that he is not assessed to tax. The investment by him, therefore, remains unexplained.

(vii) Mrs. Urmila Lodha : The assessee's claim that she was assessed to tax is hollow in the sense that from the records it was found that she did not file any returns of income after asst. yr. 1984-85.

No other evidences have been placed on record by assessee evidencing availability of accounted funds in her hands to invest in the company. From her bank account of the relevant period gathered independently, it is found that in the bank account also include cash to the tune of Rs. 10,000 deposited by. her to issue cheque to the assessee-company. It is also seen that issuance of cheque to the assessee-company just precedes deposit of equivalent amount through a transfer entry in her bank account. Obviously, therefore, the funds introduced in her name remain included unexplained.

(viii) Mrs. Prem Lata Lodha : The assessee's claim that she was assessed to tax is also hollow in the sense that first return in her name was filed for the asst. yr. 1989-90 wherein income of Rs. 19,900 was shown. The capital account filed with the return indicate that capital was built up in her hands slowly, by showing income from stitching and miscellaneous income. In the asst. yr. 1989-90 commission income is also shown in her hands. It is obviously a case of bogus capitalization and it was, therefore, essential to cross-examine her regarding her obstensible income in her hands. It is seen that she deposited cash of Rs. 9,500 with the assessee and in bank account also she deposited Rs. 13,000 in cash to issue cheque to the assessee-company. In respect of balance it is seen that issuance of cheque just precedes the transfer of funds. In view of above, funds introduced in her name remained unexplained.

(ix) Mrs. Nirmala Lodha ; It is seen that she deposited cash of Rs. 8,000 with the assessee-company on 6th July, 1987 and just before issuance of cheque of Rs. 9,000 on 12th Jan., 1988 also she deposited cash in bank. Just before issuance of cheque of Rs. 16,000 to the assessee-company it is seen that there is deposit of equivalent amount in her bank account through a transfer entry. On inquiry it is gathered that she is not on the blue book of Ward-2, Jodhpur as claimed by the assessee. She is a household lady and she apparently does not have any ostensible source of income. She was not produced for cross-examination and, therefore, the matter could not be further investigated and funds introduced in her name remained unexplained.

(x) Mrs. Santa Lodha : As the assessee has not given any assessment particulars it is presumed that she is not assessed to tax. A copy of her balance sheet filed by the assessee-company indicates that she has taken loan from Mrs. Prem Lata Lodha and Mrs. Nirmala Lodha discussed above who too do not have obtensible source of income. It is also seen that cash of Rs. 9,500 was deposited in the company in her name on 3rd July, 1987 and in her bank account also cash of Rs. 8,000 was deposited for issuance of cheque on 12th Jan., 1988. She was not produced for cross-examination and hence it is not possible to ascertain what was immediate source of funds with her to advance the amounts to the assessee-company.CIT v. Orissa Corporation (P) Ltd. (supra) which was a case of asst. yr. 1962-63 it was held that the initial onus cast upon the assessee can be discharged, if the names and addresses and their index nos. are given and even the Department did not pursue the matter further. The facts of this case are different. As per the facts of this case discussed by the AO in his order, two of the persons are not assessed to tax and the remaining persons had filed their IT returns in order to build up capital and who had not been subjected to scrutiny by the Department. Subsequent to the judgment of the apex Court, the system of assessment had been changed from scrutiny to that of summary and in summary assessment mere filing of the income-tax return is enough which are not subjected to scrutiny. The AO has rightly held that filing of mere particulars are not enough for proving creditworthiness. He found that some of the deposits are in cash and even in case where the deposit has been made through cheques it was found from the copy of accounts obtained from the banks of the shareholders that equivalent amount had been deposited through cash or book entry and no explanation for the same had been submitted. It was held in the case of Sreelekha Banerjee v. CIT that mere furnishing of particulars is not enough. It was held in the case of CIT v. Korlay Trading Co. Ltd. that mere filing of IT file number of the creditor was not enough to prove the genuineness of the cash credit. There was no affidavit to this effect by the creditor on record. The creditor should be identified. There should be creditworthiness. The assessee had failed to prove the genuineness of the cash credit. Therefore the finding of the Tribunal that the identity of the person, her creditworthiness and genuineness of the transaction in respect of the cash credit in the name of the creditor had been proved by the assessee was not based on any relevant material and was perverse. The learned Authorised Representative and the learned JM had also relied upon the judgment in the case of Addl. CIT v. Bahri Bros. (P) Ltd. (supra) wherein it was held that when the assessee disclosed the names of the creditors and the names of the banks on which the cheques were drawn, the assessee discharged the primary onus.CIT v. Precision Finance (P) Ltd. of the judgment it was held that the Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to be presumed that the transactions were genuine.

It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proves the identity of the creditors and their creditworthiness. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine.

22. Another fact of this case is regarding the request of the assessee for issuing summons under Section 131 of the Act. In this case the AO had asked the appellant vide his letter dt. 21st Feb., 1992 to produce all the shareholders on 3rd March, 1992 for cross-examination. The learned Authorised Representative submitted that the time allowed by the AO to produce the shareholder was quite inadequate looking to the fact that the assessment for the relevant assessment year was going to be barred by time. Therefore, the appellant could not produce the persons for cross-examination before the AO on account of the fact that the time allowed was short. In order to come out of this net and to scuttle and shirk the inquiry, the appellant-company made a request on 3rd March, 1992 to the AO to issue summons to all the shareholders under Section 131 of the IT Act. Under such circumstances, it was contended that the AO neither acceded to the request of the appellant nor did he reject the request of the appellant. This is a case of a private company and there is close relationship between the directors and the shareholders. This is a closely-held company and. subscriptions were arranged from friends or relatives of the promoters. When the AO asked the appellant to produce these persons for cross-examination without giving any reasons and expressing any difficulty to produce the persons who had close proximity to the promoters/directors, in order to scuttle/shirk inquiry the appellant at the fag end of the relevant time preferred an application to summon the persons under Section 131 of the Act. Besides, the learned Authorised Representative has also contended that the material discussed in the order of the AO regarding the various facts culled out of the assessment record all these persons had not been produced for rebuttal. Under such circumstances, I am of the opinion that this ground of appeal regarding addition for unexplained deposit in share application money/capital should be restored to the file of the AO for allowing an adequate opportunity to the appellant to explain his case before him. For the purpose I rely on the judgment of the Rajasthan High Court in the case of Rajshree Synthetics (P) Ltd. v.CIT and Anr. (supra). The Hon'ble Rajasthan High Court has held as under : Section 68 of the IT Act, 1961, gives a statutory recognition to the principle that cash credits which are not satisfactorily explained, may be assessed as income. This provision empowers the AO to make inquiry regarding the cash credit. If he is satisfied that these entries are not genuine, he has every right to add its amounts as income from other sources. The satisfaction of the AO is the basis for invocation of power under Section 68 and the satisfaction must be derived from the relevant factors on the" basis of proper inquiry. It is well settled that the assessee is required to prove prima facie the transactions, which result in cash credits in his books of account. Such proof includes the proof of identity of his creditor, the capacity of such creditor to advance the money and lastly, the genuineness of the transaction. These things must be proved prima facie by the assessee and only after the assessee had adduced evidence does the onus shift to the Department. Mere filing of confirmatory letters does not discharge the onus that lies on the assessee. Similarly, mere furnishing of particulars is not enough.

One M had deposited through a cheque a sum of Rs. 50,000 with the appellant-company. The said amount was credited in the books of the appellant, On the same day the appellant had paid Rs. 50,000 to M through a cheque. The appellant filed an affidavit dt. 6th March, 1989 of M confirming that she deposited Rs. 50,000 with the appellant and the same was repaid to her. Her IT file number was also mentioned in the affidavit. The assessing authority asked the appellant to produce M. The appellant failed to produce her. The AO issued a notice to the said lady under Section 131 of the IT Act, 1961, but she did not appear. The assessing authority observed that unless the said lady appeared, it was not possible to cross-examine her to know the truth. It was also found that in her letter, she had not mentioned the source from which the said amount was advanced as loan to the assessee-company. In view of this, the assessing authority held that M was not in a capacity to deposit such huge amount and as such treated the sum of Rs. 50,000 as income of the assessee. The finding of the assessing authority had been upheld by the CIT(A). However, the Tribunal was of the view that the matter should go back to the assessing authority for examining M or to verify the relevant facts from the assessment record of the said lady.

23. Therefore, the facts of the case under consideration and that, before the Hon'ble Rajasthan High Court in the case of Rajshree Synthetics (P) Ltd. v. CIT (supra) are similar. For all these reasons I am of the opinion that this matter should go back to the AO for examining the depositor and to verify the relevant facts from the assessment records of these persons.

1. There has been a difference of opinion between the learned AM and the JM of this Bench in question. The following questions are being referred to the Hon'ble President of the Tribunal for nominating a Third Member for deciding the points/questions about which both the Members have different opinions. This reference is being made under the provisions of Section 255(4) of the IT Act, 1961. The points of difference are referred to in the form of questions which are as under: Whether, on the facts and in the circumstances of the present case, the disallowance made by AO under Section 43B of the IT Act, 1961 can be treated as a purely legal ground which can be entertained by the Tribunal as an additional ground for the first time even though the assessee has not raised this ground before the learned CIT(A) The JM is of the opinion that this is a purely legal question and can be entertained by the Tribunal as an additional ground of appeal whereas the learned AM has opined that this is not a purely legal ground and requires farther investigation.

Whether, on the facts and in the circumstances of the present case, the addition made under Section 68 of the IT Act, 1961 regarding an amount of Rs. 5,01,129 on account of unexplained share capital disputed by the assessee should be deleted by deciding on merits or the matter should be restored back to the file of the AO for re-examination and decidingafresh The JM is of the opinion that this can be decided by the Tribunal without restoring it back to the AO as all the facts are on record whereas the learned AM is of the opinion that further investigation is required.

Whether there is a difference in public limited company and private limited company so far as applicability of provisions of Section 68 are concerned The JM is of the opinion that there is no difference so far as the applicability of Section 68 is concerned between the public limited company and private limited company. The learned AM is of the opinion that there is difference, although there are no provisions or decisions, supporting his opinion. However, this is not the case of the Department that the provisions of Section 68 will apply only to public limited companies.

1. In my opinion, the following questions should be referred for adjudication by the third member: 1. Whether additional ground which requires investigation on facts can be admitted, especially when the addition admitted and made does not fall within the ambit of Section 43B of the IT Act, 1961.

2. Whether the addition made under Section 68 can be made for unexplained share application money having regard to the following two points : (a) The judgment in the case of Cas Card Finance Ltd. v. Asstt. CIT (2003) 78 TTJ (Ahd)(TM) 55 paras 23 to 29 of the judgment (b) The distinction between public and private limited company as discussed in the order of the AM at pp. 17 to 20.

1. On account of difference between Hon'ble Members of Jodhpur Bench this matter has been referred to me for consideration and disposal under Section 255(4) of IT Act.

Whether additional ground which requires investigation on facts can be admitted, especially when the addition admitted and made does not fall within the ambit of Section 43B of the IT Act, 1961.

Whether the addition made under Section 68 can be made for unexplained share application money having regard to the following two points.

(a) The judgment in the case of Cas Card Finance Ltd. v. Asstt. CIT (2003) 78 TTJ (Ahd)(TM) 55 paras 23 to 29 of the judgment.

(b) The distinction between public and private limited company as discussed in the order of the AM at pp. 17 to 20.

3. However, in the opinion of learned JM the following 3 questions represent the difference of opinion: 1. Whether, on the facts and in the circumstances of the present case, the disallowance made by AO under Section 43B of the IT Act, 1961 can be treated as a purely legal ground which can be entertained by the Tribunal as an additional ground for the first time even though the assessee has not raised this ground before the learned CIT(A) 2. Whether, on the facts and in the circumstances of the present case, the addition made under Section 68 of the IT Act, 1961 regarding an amount of Rs. 5,01,129 on account of unexplained share capital disputed by the assessee should be deleted by deciding on merits or the matter should be restored back to the file of the AO for re-examination and deciding afresh 3. Whether there is a difference in public limited company and private limited company so far as applicability of provisions of Section 68 are concerned 4. I have carefully considered above questions. I regret that Hon'ble Members do not agree even on the questions which would reflect their difference of opinion and which are required to be referred to the President under Section 255(4) of the IT Act. Time and again I have been requesting my Members not to differ in framing of questions and a simple question covering the controversy should be referred. But my request does not seem to have much effect on the learned Members and unnecessary controversies are created. I am sorry to record my anguish.

In my opinion, the following questions would reflect points of difference between the Members and were required to be referred under Section 255(4) of the IT Act : 1. Whether, on facts and in the circumstances of the case, additional ground raised by the assessee was liable to be admitted and considered by the Tribunal? 2. Whether, on facts and in the circumstances of the case addition of Rs. 5,01,129 made on account of introduction of share capital was required to be deleted or matter required to be remitted to the AO for examining the depositor and to verify the relevant facts from the assessment record of the shareholders? 5. The facts of the case briefly stated are that assessee filed return on 29th Dec, 1989 declaring loss of Rs. 8,97,270. The aforesaid return was revised on 29th Jan., 1991 wherein loss of Rs. 24,28,490 was claimed. The second revised return was filed on 29th July, 1991 declaring loss of Rs. 20,68,810. In the last revised return, the assessee had also added back Rs. 2,16,806 under Section 43B on account of unpaid outstanding interest payable to Rajasthan Financial Corporation (RFC). The last revised return filed by the assessee was held to be invalid by the AO as it was filed beyond the period provided in Section 139(5) of the IT Act. Yet sum of Rs. 2,16,806 surrendered under Section 43B was taken and added in the assessment. The assessee did not challenge above addition in appeal before the CIT(A). However during the course of hearing of appeal before the Tribunal, the assessee raised an additional ground of appeal to the following effect : That the provisions of Section 43B as were in force in the relevant assessment year, did not permit any addition for unpaid interest to Rajasthan Financial Corporation being a State Financial Corporation and the AO, therefore, erred in law in making addition of Rs. 2,15,364 under Section 43B for the relevant assessment year which is liable to be struck down.

5.1 After hearing the parties the learned JM was of the view that claim made in the aforesaid additional ground was purely legal and its disposal did not require further investigation of facts. This position, according to the learned JM, was conceded by the learned Departmental Representative. The learned Member further held that ground was entertainable and admissible under Rule 11 of ITAT Rules. The learned JM further relied upon the decisions of Hon'ble Supreme Court in the case of Jute Corporation of India Ltd v. CIT and in the case of National Thermal Power Co. Ltd. v. CIT and also on the decision of Hon'ble Delhi High Court in the case of Taylor Instrument Co. (India) Ltd. v. CIT (1992) 105 CTR (Del) 5 : (1992) 198 ITR 1 (Del) in support of his view that additional ground of appeal of the assessee should be admitted.

6. After having decided to admit the additional ground of appeal, the learned JM proceeded to consider the said ground. In his view the mere fact that assessee had added back the disputed amount under Section 43B did not make any difference as the AO had treated the second revised return as invalid and further the amount was added back under an erroneous belief that provision of Section 43B(d) of the IT Act was applicable in the relevant period. The learned JM found that interest on loan from public financial institutions (like RFC) not actually paid was to be disallowed under Section 43B(d) of IT Act. However aforesaid Clause (d) was inserted in Section 43B through the Finance Act, 1990 w.e.f. 1st April, 1991. The aforesaid provision was not applicable in the asst. yr. 1989-90 involved before the Tribunal. He accordingly held that unpaid interest to RFC could not be added back under Section 43B of the IT Act. The AO was dutybound to make assessment in accordance with law and therefore, could not make disallowance under a provision which was not at all applicable. The learned JM accordingly directed that addition of Rs. 2,15,364 made by the AO be deleted.

7. The learned AM did not agree with the order proposed by the learned JM. He noted that assessee did not challenge addition made by the AO before the learned CIT(A). In fact the assessee had himself surrendered the amount in the revised return. He further observed that case pleaded as per the additional ground of appeal related to challenge of disallowance of an expenditure. It was not purely a legal claim not requiring investigation of facts. The matter, in the opinion of learned AM, required to be considered under Section 36(1)(iii) of IT Act. The learned AM went on to record that the assessee is required to satisfy that expenditure was incurred for making a claim under the above provision. He also noted certain case laws, which according to him were relevant for determining the question raised in the proposed additional ground of appeal. As question raised, required investigation into facts, the learned AM held that the above-referred additional ground of appeal could not be permitted to be raised. Thus the difference between the Members.

8. The matter has been placed before me under Section 255(4) of the IT Act. I have heard both the parties. The assessee while surrendering the amount in question in the second revised return had stated as under: (i) Interest payable to Rajasthan Financial CorporationAmount provided 2,72,364 9. It is evident from above that interest payable to RFC was added back under Section 43B of the IT Act. No dispute was raised before me nor there is any difference between the learned Members hearing the appeal that Clause (d) to Section 43B was introduced through Finance Act, 1990 applicable w.e.f. 1st April, 1991. The aforesaid provision was not applicable in the asst. yr. 1989-90 which is now under appeal. It is clear that under some legal misconception and as revised return was filed after 1st April, 1991, the amount in question was surrendered and added back in the revised return. However the learned AO did not treat above return as a, valid return as the return was filed after the period prescribed in Section 139(5) of the IT Act was over. The revised return was treated as non est. Yet the amounts surrendered in the aforesaid return was added in the assessment. Therefore it is a case of disallowance of a claim under Section 43B(d) of the Act. Thus a statutory provision introduced subsequently and not applicable was applied in the assessment year and addition of the amount was made. In my considered opinion, facts are crystal clear on record and need no further investigation. The decisions cited by the learned JM in his proposed order are clearly attracted. The disallowance made by the AO in the assessment order, (is) contrary to statutory provision and could not be sustained. Assessment is required to be made in accordance with law and therefore mere fact that assessee had inadvertently surrendered the amount in return was not material. On facts and circumstances of the case learned JM was fully justified in admitting additional ground of appeal and in deleting the addition in dispute. I agree with the order proposed by him on this point.

10. The next point of difference between the learned Members relates to an addition of Rs. 5,01,129 added on account of unexplained share capital. The AO, on scrutiny of accounts found that share capital as under in the name of following persons was introduced in the relevant year : 11. The assessee in support of the genuineness of claim placed confirmations from the shareholders, GIR numbers and income-tax particulars of above shareholders. It was explained that most of the shareholders had advanced money through banking channels. The AO observed that assessee-company was a closely-held company, controlled by one family and, therefore, assessee had burden to establish genuineness of funds and creditworthiness of the investors. Simply furnishing of GIR numbers or assessment particulars was not enough, as cases of these creditors were not shown to be assessed under scrutiny assessments. Cross-verification of claim was not possible as assessment of creditors was done under a summary scheme. The AO observed, "it was right opportunity for the Department to have interview with these persons to find out whether all was well with regard to funds being introduced in their names and that sufficient accounted funds were available in their hands." 12. The AO thereafter discussed each of the creditors' case and held that they did not have sufficient sources to make investment in the company. The assessee had also failed to produce the creditors for the cross-examination of the AO. In the light of discussion available at pp. 4, 5 and 6 of the assessment order, share capital to the extent of Rs. 5,01,129 was treated as bogus and as assessee's income from undisclosed sources and added under Section 68 of the IT Act.

13. The assessee impugned above addition in appeal before the CIT(A) and reiterated the submission advanced before the AO. It was maintained that all the cash credits were genuine as share capital money was advanced through cheques. Alternatively, it was submitted that if any investor was not able to explain source of deposit of share application money, then addition has to be made in the hands of such investor for unexplained investment of the amount.

The learned CIT(A) did not find any force in the submissions advanced on behalf of the assessee. He held that appellant had failed to establish identify of investors as assessee had failed to produce these creditors for examination of the AO. The learned CIT(A), therefore, confirmed the addition.

14. The assessee being aggrieved challenged the addition in appeal before the Tribunal. After hearing both the parties, learned JM was of the view that introduction of share application money was fully established. According to the learned JM, the addition made was unsustainable. In arriving at above conclusion, the learned JM noted as under: (i) That during the course of the assessment proceedings, assessee had submitted list of shareholders, their GIR numbers and particulars of shareholders where they were assessed, filed confirmed copy of account of shareholders, giving details of transactions and also proved that in most of the cases, deposits were made through account payee cheques.

(ii) That the AO during assessment proceedings made independent enquiries from bankers of shareholders and obtained bank statements for verification of transfers. The AO had also perused assessment record of the shareholders and therefore their identity was fully established.

(iii) Balance sheets, copies of computation of total income, copies of intimation, bank statements of 8 out of 10 shareholders were available at pp. 220 and 221 of the paper book.

(iv) The assessee-company fully discharged the primary onus that lay upon it under Section 68 of the IT Act. The AO brought no material to refute the claim of the assessee and, therefore, the credits should have been treated as genuine in the light of decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. 15. As regards objection of the Revenue authorities that shareholders were not produced for examination of the AO, the learned JM held that this objection was not valid, as assessee had requested the AO to issue summons under Section 131 to the shareholders. The aforesaid request was neither acceded to nor rejected by the AO and this was tantamount to improper exercise of jurisdiction. For the above view the learned JM relied upon decision in the case of E.M.C. Works (P) Ltd v. ITO (1963) 49 ITR 650 (All) and in the case of Munnalal Murlidhar v. CIT .

16. The learned JM took into account following observations from the case of CIT v. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : It is evident that even if it be assumed that 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 person, 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.

The learned JM also referred to decision of Hon'ble Rajasthan High Court in the case of CIT v. Shree Bharkha Synthetics Ltd. (2005) 197 CTR (Raj) 432 [sic-(2003) 182 CTR (Raj) 175). Extracts from the aforesaid decisions have been reproduced at p. 16 of the proposed order of the JM.17. The learned AM did not agree with the proposed order of the JM. In his view the matter relating to addition of Rs. 5,01,129 was required to be remitted to the AO for examining the depositors and to verify the relevant facts from assessment records of these persons. The reasoning of the learned AM may be summarized as under: (i) That assessee was a closely-held company controlled by one family and, therefore, assessee's burden to establish genuineness of funds shown in the guise of share capital subscription and the creditworthiness of the investor was at par with cash creditors.

(ii) That as assessee failed to produce the creditors; AO was unable to investigate into the funds brought in their names. Simply furnishing of GIR numbers or assessment particulars was not enough.

There being no evidence of source of deposit, the AO was justified in drawing an adverse inference and treating undisclosed investment as income of the assessee.

The learned AM also noted that request for summoning creditors and for their examination was made to the AO on 3rd March, 1992 (para 12 of the proposed order) but the same was neither refused nor acceded to. The learned AM took into account decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corporation Ltd. (supra), the case of Cas Card Finance Ltd v. Asstt. CIT (supra), CIT v. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB) as also provisions of Section 68 of the IT Act in his proposed order.

The learned AM also considered difference and distinction between public limited company and private limited company. The impact of the distinction visa-vis Section 68 of IT Act is noted by the learned AM as under : 18. Now having drawn distinction between the private limited company and the public limited company and also having relied upon the order of the Tribunal, Ahmedabad Cas Card Finance Ltd. v. Asstt. CIT (2003) 78 TTJ (Ahd)(TM) 55, I hold that in this case of private limited company, the genuineness of share capital by the shareholders is to be examined under Section 68 of the IT Act, 1961.

18. Thereafter, the learned AM considered case of each of the 10 investors and held that assessee's request for summoning investors should have been accepted and AO should have allowed adequate opportunity to the appellant to explain his case. The learned AM accordingly directed that appeal on this ground should be allowed for statistical purposes and matter remitted to the file of AO for examination of witnesses and their assessment records.

In the light of above observations, the point of difference has been referred to me under Section 255(4) of the IT Act as per details noted earlier.

19. I have heard both the parties. The contentions of learned representative were the same as advanced before the regular Bench and recorded in detail in the proposed orders considered above. I may straightaway deal with the position of law on the subject involved before me. It is an agreed position that their Lordship of Supreme Court in the case of CIT v. Steller Investment Ltd. (supra) and Full Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) dealt with the question of introduction of share application money. In Steller Investment Ltd. (supra), their Lordships held as under: It is evident that even 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.

The mere fact that the assessee-company chooses to show the receipt of the money as capital it does not preclude the ITO from going into the question whether this is actually so. Where, therefore, an assessee-company represents that it had issued share on the receipt of share application money, then the amount so received would be credited in the books of account of the company. The ITO would be entitled, to enquire 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 ITO 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.

Their Lordships of Delhi High Court in the case of CIT v. Dolphin Canpack Ltd (ITA No. 99 of 2006) after considering aforesaid two decisions observed as under: There is no dispute with the proposition stated in the above passage. An ITO is indeed entitled to examine the truthfulness of the explanation. In cases where the 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 assessee 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.

Superadded 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 assessee. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transaction suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This appeal accordingly fails and is hereby dismissed.

The jurisdictional High Court has taken same view in the case of Barkha Synthetics Ltd. v. Asstt. CIT (2005) 197 CTR (Raj) 432. Their Lordships have held as under: 11. It is in the light of the aforesaid judgment, the principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channel, he has to prove existence of person in whose name share application is received. Once the existence of investor is proved, it is no further burden of assessee to prove whether that person itself has invested said money or some other person had made investment in the name of that person. The burden then shifts on Revenue to establish that such investment has come from assessee-company itself.

12. Applying the same principle, the real question, therefore, arising in this case is whether the Tribunal reached the finding on the basis of non-existence of Westbury Investors (P) Ltd and Umesh Kumar or has sustained additions on other grounds.

13. On careful perusal of the order of the Tribunal and other material on record, we find that so far existence of both the investors is concerned, the same has not been found against the assessee. In fact, both the additions on account of share application monies received by the assessee were made by the ITO not on the ground of non-existence of the said investors but on other grounds.

Paras 19 and 20 of the decision are also relevant and are reproduced below : 19. Coming to the other addition sustained on account of investment made by Umesh Kumar, the existence of the investor has been accepted even by the ITO since he has responded to the letter issued by the ITO. However, the investor has denied to have made any such investment.

20. This case is governed by Steller's case (supra) on which the Tribunal has relied. Existence of Umesh Kumar has been established as shareholding (is) issued in his name. No effort was made to find out the real investor as to who has made investment in the name of Umesh Kumar. Hence, additions of increase in share capital on account of share application of Umesh Kumar also could not have been sustained.

20. It is evident from above that in respect of share application money from investors, the assessee-company has to prove only the existence of person in whose name share application is received. No further burden is cast on the assessee to prove whether that person himself has invested said money or some other person made investment in his name.

The aforesaid test has been applied by their Lordships on the question of investment made by Umesh Kumar. In spite of his denial of investment, the addition on account of share application money was deleted as his identity was established by the company.

In the present case, the learned representative of the parties have drawn my attention to the evidence placed by the assessee to prove that share application money was genuinely advanced by the shareholders.

Those are contained at pp. 43 to 94 of the paper book. A summary of the evidence on above pages is as under:___________________________________________________________S. Name of Documents submitted Placed atNo. shareholders byassessee/collected paper book by AO page No.1. Sudh Raj Lodha Confirmed copy of 43 to 46 account showing2. Sripal Raj Lodha Confirmed copy of account 49 to 50 showing transaction mostly3. Suparas Raj Lodha Confirmed copy of account 55 to 56 showing transaction mostly4. Sumer Raj Lodha Confirmed copy of account 64 to 64 showing transaction mostly5. Jitendra Raj Confirmed copy of account 71 to 72 Lodha showing transaction mostly6. Virendra Raj Confirmed copy of account 76 Lodha showing transaction7. Smt. Urmila Confirmed copy of account 77 Lodha showing transaction mostly Apart from above and as stated 77 78 to 80 in the assessment order dt.8. Smt. Prem Confirmed copy of account 81 Lata Lodha showing transaction mostly9. Smt. Nirmala Confirmed copy of account 85 to 86 Lodha showing transaction mostly10. Smt. Sarita Confirmed copy of account 90 to 91 Lodha showing transaction mostly Note : The GIR numbers of various above shareholders also appear at page No. 40 of the paper book which may please be referred.

21. It is evident from above that in all the cases, except that of Shri Virendra Raj Lodha, the AO got information about account of the creditors from their respective banks. Photocopies of bank statement of creditors obtained by the AO are available on record. A perusal of aforesaid bank statements clearly shows that apart from making investment with the assessee-company, these creditors made other deposits in their bank accounts and these accounts were regularly maintained. The creditors are also assessed to tax. Thus not only identity of the creditor but even capacity to advance funds has been proved on record. It is very difficult to agree and accept that on account of summary scheme adopted by the Department, and as scrutiny assessment was not made, such assessment of the creditors should be carried in the case of the assessee. Whether, in a given case summary assessment or a regular scrutiny assessment is required to be made, is for the Revenue to decide. Such a choice is not with the assesses submitting return, as required by law. However, it is clear that a person showing substantial income say Rs. 10 lacs and advancing a small loan of Rs. 20,000 cannot be taken to be a non-assessee, and as summary assessment was made in his own case a scrutiny assessment would be made where he has given the loan. In my opinion AO was wrong in becoming AO of the creditors in this case to carry on scrutiny assessments of creditors. Such sort of argument, in my humble opinion, has no legal justification. If the assessee had submitted a return and given detailed particulars of his assessment, like GIR No., etc., the same is entitled to proper weight. Having regard to the information collected by the AO from banks of the creditors, identity of the creditors was fully established, The creditors were also found to be assessed to tax.

Having regard to principle laid down by different Courts and noted above, further investigation of the matter in the present case was not necessary. If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee.

22. The learned AM in his proposed order has observed that Shri Virendra Raj Lodha and Smt. Urmila Lodha were not assessed to tax at all. He had stated that Smt. Urmila Lodha did not submit any return after asst. yr. 1984-85. There is, therefore, some contradiction in the order of learned AM. May be her income after 1984-85 was not taxable and, therefore, on this ground, returns were not submitted by her but she could not be stated to be not assessed to tax. She had invested in share capital through cheques except for a small sum of Rs. 6,000 which was returned to her. She has further filed copy of her bank account with State Bank of Bikaner and Jaipur. There are several entries of credit and debit in her account which had no relation with amount invested with the assessee-company. Therefore, on the material on record, investment made by her could not be rejected as non-genuine.

It is true that Sh. Virendra Raj Lodha has not been shown to be assessed to tax but he had also made majority of investments towards share capital through cheques. Particulars of amounts advanced through cheques are available in his accounts. The AO in this case has not written anything about his bank account. His identity has also not been doubted. Having regard to totality of facts and circumstances and the case law cited supra, I see no justification to remand the case in respect of share application money advanced by Shri Virendra Raj Lodha.

I accept the same as genuine.

Having in mind the case law cited above, I agree with learned JM that there was no scope to make any addition of share application money in the hands of assessee-company.

23. The learned AM in his proposed order has also raised an issue on distinction between public company and a private company. Two types of companies are differently treated under the Companies Act, for various purposes and said distinction is well known. It has also been noted by the learned AM in the impugned order. But as for as share application money is concerned, the matter is required to be determined under Section 68 of the IT Act.' If the identity of the creditor is established, then burden to prove that money advanced by creditor did not belong to him but to somebody else is on the Revenue who has to find the real investor as per principle laid down by their Lordships in the case of Barkha Synthetics Ltd. (supra). In the light of above principle, distinction between a public and a private limited company is not very material, as for as introduction of share capital money is concerned. The' question proposed by the learned AM should be taken to be answered in the above terms.

24. In the light of above discussion, I agree with the view taken by the learned JM on this point and hold that addition on account of share capital money was uncalled for and rightly deleted. There was no need to remit the case back to the AO for examining the depositors and to verify relevant assessment records of the depositors.

25. The matter should now be placed before the regular Bench for disposal in accordance with law.