HIGH COURT OF
Commissioner of Income-tax
v.
Gobi Textiles Ltd.
K. RAVIRAJA PANDIAN AND MRS. CHITRA VENKATARAMAN, JJ.
TAX CASE (APPEALS) NOS. 439 AND 440 OF 2004
September 4, 2007
Section 68 of the Income-tax Act, 1961 - Cash credits -
Assessment year 1996-97 - While processing assessment, Assessing Officer
noticed that assessee company had received certain amount as share application
money - As regards genuineness of transactions, assessee produced salary
certificates of some of creditors and land holding papers of certain properties
but did not produce any of persons - Assessing Officer listed creditors/shareholders
and found that some of them were retired/working employees of bank and rest
were agriculturists - Assessing Officer, though not disputing existence of
those persons, did not issue notice to any one of them to disprove claim of
assessee and concluded that said persons were not capable of depositing share
application money - Thus, he treated the said sum as income of assessee under
section 68 - Whether by providing basic information in respect of creditors,
assessee discharged its onus cast upon him and it was Assessing Officer who was
to prove to contrary - Held, yes - Whether in absence of any enquiry conducted
by Assessing Officer as to creditworthiness of creditors, even when all details
about them were available before him, Assessing Officer was not justified in
making impugned addition - Held, yes
FACTS
While processing the assessment for the assessment year 1996-97, the
Assessing Officer found that the assessee company had received certain amount as
share application money. Out of the sum so received, a sum of Rs. 53,88,100 was
claimed to have been received from persons who were not the income-tax assessees,
hence, the Assessing Officer required the assessee to prove the genuineness of
the transactions by producing persons who have deposited more than Rs. 1 lakh. The assessee produced salary certificates of
some of the persons and land holding papers of certain properties but did not
produce any persons. On consideration of the said particulars, the Assessing
Officer was of the view that except one person others were not capable of
depositing money in cash out of their savings and, hence he treated the share
application money as unexplained cash credit under section 68 and added it to
the income of the assessee. On appeal, the Commissioner (Appeals) upheld the
order of the Assessing Officer. In a separate proceedings, the Joint
Commissioner initiated penalty proceedings under section 271(1)(c) and imposed
penalty on the assessee. On appeal, the Tribunal held that the assessee had
discharged the onus cast upon it by producing the basic information in respect
of the creditors and the Assessing Officer failed to disprove the claim of the
assessee as not genuine. Thus, the
Tribunal deleted the addition made by the Assessing Officer and also set aside
the impugned penalty.
On revenue’s appeal:
HELD
The ultimate fact finding authority - the Tribunal, in its order, had recorded a clear finding to the effect that in the instant case, the
Assessing Officer had listed the shareholders and found some of them were retired employees of the bank, some of
them were working employees of the
bank and rest of them were agriculturists. The Assessing Officer did not dispute that those persons did
not exist.
Though the
Assessing Officer directed the assessee to produce the persons, he did not take the minimum pain of issuing notice to any
one of the persons when the details about them were very much available with him. Thus, the Assessing Officer failed in his duty and obligation to
disprove the claim of the assessee to the effect that the
depositors were not genuine persons. The Tribunal further recorded a finding
that the action of the Assessing Officer in arriving at a
conclusion that the persons with low salary income would
not have mobilised the fund was based on wild guess and doubting the capacity of the persons on surmises. It further held
that the Assessing Officer failed to prove
that the shareholders were not possessing money
to pay the share application money. According to the Tribunal, the assessee discharged the onus cast upon it by providing the basic materials and it was the Assessing Officer who failed to prove the contrary. [
The explanation
offered by the assessee could not by any
stretch of imagination be considered
as unreasonable or not acceptable explanation as regards the sum credited in the books maintained by the
assessee. Further, the opinion of the
Assessing Officer which was required to be formed objectively with reference to the material available on record was
also not formed nor viewed as directed
by the Supreme Court in the case of CIT
v. P. Mahankala [2007] 291 ITR 278,
161 Taxman 169. . Above all, the issue was one of factual in nature and
the question of law, which was the
basic requirement for filing an appeal under section 260A, was not available. [
In the case of
CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 [1993] 70 Taxman 69 (FB), the
Delhi High Court has observed that an enquiry by the Assessing Officer as to the
existence or non-existence of the shareholder and about their creditworthiness was condition precedent for
treating the cash credit as the
income of the company. No such enquiry was conducted by the Assessing Officer
in the instant case. [
For the said reasons
the quantum appeal was to be dismissed.
Consequently, the appeal against the
order of setting aside the imposition of penalty was also to be dismissed. [