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Cash credits: Share-application money - Confirmations from applicants
April, 07th 2008

CIT vs Dwarikadhish Investment (P) Ltd.
Citation 167 Taxman 321
Cash credits: Share-application money - Confirmations from applicants
The assessee had received certain sums as share-application money from various subscribers. Their confirmations, PAN (GIR) were filed. The money was received through cheques. The AO on enquiries received a report from the Inspector that the said applicants were not found at the addresses given in their confirmations. The said report of the Inspector was given to the assessee on 22 February 2000 and assessment was found on the very next day i.e. 23 February 2000. Thus no opportunity was given to give a response to the Inspector's report. Before, the CIT (Appeals), the assessee also filed additional evidence as affidavits from applicants with complete addresses. Most of the applicants were companies. No addition as unexplained cash credits could be made.

High Court of Delhi

CIT vs Dwarikadhish Investment (P) Ltd.

Income-Tax Appeal Nos. 5 and 8 of 2007

Madan B. Lokur and S. Muralidhar, JJ

30 October 2007

Prem Lata Bansal for the Appellant
Kavita Jha for the Respondent


1. In these appeals under section 260A of the Income-tax Act, 1961 ('the Act'), the revenue is aggrieved by the order dated 7-4-2006 passed by the Income-tax Appellate Tribunal ('Tribunal') in ITA Nos. 2549/Del./2002 and 2550/Del./2002 relevant for the assessment year 1997-98.

2. Both the assessee companies are engaged in the business of financing and trading in shares. For the assessment year in question, the assessees declared a loss but were assessed at a positive income after making additions on account of unexplained share application money to the extent of Rs. 17.35 lakh in respect of the assessee-company in ITA No. 2549 of 2002 and Rs. 36.22 lakhs in respect of the assessee-company in ITA No. 2550 of 2002.

3. The Assessing Officer required the assessees to furnish details and documents. The assessees produced copies of sale and purchase bills of the share brokers through whom the transactions took place and photocopies of confirmations of persons who had contributed the fresh share application money. The assessees furnished the PAN (GIR) numbers of the applicants, the details of the cheque numbers and dates. The assessees contended that letters sent to the shareholders had not been responded to.

4. The Assessing Officer required the assessee to furnish bank statement to substantiate the money availability with the assessee and also to prove the genuineness of the transactions. This not having been done, the Assessing Officer got enquiries made through an Income-tax Inspector who found that none of the applicants were found to exist at the address given in the confirmations. However, the report of the Income-tax Inspector was furnished to the assessees on 22-2-2000 and the assessment order was passed on the very next day, that is, 23-2-2000 giving the assessees no time to respond.

5. Before the CIT(A) the assessees furnished additional evidence, copies of which were sent by the CIT(A) to the Assessing Officer for comments. Despite reminders, no response was received from the Assessing Officer by the CIT(A) on the additional evidence. The CIT(A) then admitted the additional evidence. After examining the entire record, the CIT(A) deleted the addition on account of the unexplained share application money for the following reasons:

"(i) The applicants concerned were identified.

(ii) The applicants confirmed the payment of monies to the appellant for purpose of shares.

(iii) The transactions in question were by cheques.

(iv) The affidavits of the subscribers were filed indicating their full address, details of deposits made with the appellant and the source wherefrom money was obtained to make the deposits. Copies of Bank a/cs were furnished. These affidavits were notarized. There was no ground for disbelieving the contents of the affidavits.

(v) If the Assessing Officer entertained any doubts regarding genuineness of the credits in respect of share application money, he could have issued summons to the subscribers or could have asked the assessee to produce them. This was not done.

(vi) Most of the subscribers were companies incorporated with the Registrar of Companies. Proper enquiries would have revealed the true facts of the case. The appellant cannot be faulted if there was no time to give them an opportunity to rebut the Inspector's report made at the back of the appellant.

(vii) The deposit were not of an order that could not be believed."

6. In the appeal by the revenue, the Tribunal found that the facts of the case were not different from those in the case of the group company of the present assessee namely M/s. Dwarikadhish Financial Services. In the said case the Tribunal had deleted the addition made by the Assessing Officer on account of unexplained share application money. The said decision was upheld by this Court in its order in CIT v. Dwarkadhish Financial Services [2005] 148 Taxman 54.

7. That apart, the Tribunal again examined the documents giving the details of each of the applicants. It noted that "the above documents were available on the file of the Assessing Officer." Accordingly it dismissed the revenue's appeals.

8. Learned counsel for the revenue sought to distinguish this Court's decision in the case of the group company of the assessees, on the ground that the facts there were different. However, we find that the findings of the CIT(A) as extracted hereinabove are sufficient to show that the additions made by the Assessing Officer were not justified. The reasoning and conclusions arrived at concurrently by the CIT(A) and the Tribunal suffer from no perversity and are consistent with the law as explained by this Court in CIT v. Divine Leasing and Finance Ltd. [2007] 158 Taxman 440 (Delhi) which reads thus :

"In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove:

(1) the identity of the creditor/subscriber;

(2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels;

(3) the creditworthiness or financial strength of the creditor/subscriber;

(4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the assessee;

(5) The department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices;

(6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee;

(7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." (p. 453)

9. We are of the view that no substantial question of law arises in these appeals. Accordingly, these appeals are dismissed.

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