ORDER
1. This appeal of the Revenue is directed against the order dt. 30th Nov., 1999, passed by CIT(A), New Delhi, for asst. yr. 1996-97.
2. The grounds of appeal are as under :
On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 53 lakhs made under Section 68 on account of share application money credited in the books of the assessee despite the fact :
(i) That letters sent by the AO were received back with the remarks of the postal authorities that no such firms existed at the given address as pointed out in para 3.4 of the assessment order.
(ii) That the AO has recorded categorical finding that copies of balance sheet of M/s LCL, FLFL, LDPL, CLCL and BBFL do not reflect the investment made by them.
3. Briefly stated the facts are that during the previous year relevant to assessment year under consideration, the assessee received share application money from several applicants amounting to Rs. 53 lakhs. The AO issued letters calling for information under Section 133(6) of the IT Act, 1961, to the share applicants. The information called for were as under:
(i) The amount invested in the shares of the assessee-company during the financial year 1995-96 along with details of sources thereto;
(ii) Particulars of income-tax assessment along with copies of acknowledgement for latest IT return filed;
(iii) Copies of the balance sheet as on 31st March, 1996, along with schedule thereto.
4. In most of the cases, the letters sent were received back with the remarks that no such firm exists at the given address. The assessee-company was therefore informed of this fact. The assessee was also informed that the address of the companies except M/s Confluence Leasing and Credits Ltd., were either incomplete or did not have any office at the given address. The assessee-company was asked to furnish the necessary evidence to prove the genuineness of the investment made by the shareholders. The AO deputed the inspector for making necessary enquiries in connection with the investments made by the said companies. The AO narrated the detailed facts and result of enquiry made in respect of each of the investor companies, which is as under :
(i) M/s Lorence Computers (P) Ltd. (LCPL) :
This company invested a sum of Rs. 5 lakhs by means of pay order No. 014561 dt. 11th Nov., 1995, made from Bank of India, Ashok Vihar, New Delhi. The information called for under Section 133(6) of the Act vide letter dt. 10th Dec, 1997, was received back. Therefore, the AO deputed the inspector to serve the letter. The inspector in his report submitted that no such company exists at the given address. During the assessment proceedings, the copy of balance sheet of the said company as on 31st March, 1996, was furnished by the assessee. The AO perused the balance sheet and found that the total investment made by the company as on 31st March, 1996, was Rs. 2 lakhs and the total assets and liabilities were Rs. 2,12,922 whereas, the investment made by the said company was Rs. 5 lakhs which was not appearing in the balance sheet. The AO, therefore, issued summon under Section 131 to the branch manager, Bank of India, Ashok Vihar, New Delhi, asking for certain information. The bank accordingly furnished the same. On perusal of the information furnished by the bank, it was noted that the pay order was got made from the bank account of M/s M.G. Investments, B-4/71, Lorence Road, New Delhi-35, by debiting current account No. 239. It was further noted from the bank statement that cash amounting to Rs. 10 lakhs, Rs. 2.04 lakhs and Rs. 5 lakhs were deposited on 11th Nov., 1995, and out of these cash deposits, the pay order of Rs. 5 lakhs was got made. An enquiry with regard to the source of cash deposits made by M/s M.G. Investment remained unanswered. The Authorised Representative of the assessee-company was made aware of these facts and his opinion was sought. However, in the opinion of the AO, the investment remained unexplained.
(ii) M/s Flucky Leasing & Finance Co. (P) Ltd. (FPL) :
This company made an investment of Rs. 5 lakhs, vide pay order No. 014575 dt. 12th Nov., 1995, from the same bank account as in the case of LCPL. In this case also information was called for under Section 133(6). It was noted from the inspector’s report that no such company exists at the given address. However, information filed on behalf of the company by the assessee-company revealed that investment in share as per balance sheet as on 31st March, 1996, showed total investment of Rs. 2.5 lakhs whereas the company invested Rs. 5 lakhs. In this case also the pay order of Rs. 5 lakhs was got made from the account of M/s M.G. Investment by depositing cash on the same date.
(iii) M/s Lorence Distributors (P) Ltd. (LDPL) :
The investment made by this company was Rs. 5 lakhs vide pay order No. 014562 dt. 11th Nov., 1995. In this case too, pay order was got made from account of M/s M.G. Investment by depositing the cash on the same date.
(iv) M/s Confluence Leasing & Credits Ltd. (CLCL) :
This company made investment of Rs. 5 lakhs vide demand draft No. 00826 dt. 12th Nov., 1995, which was got made from the Bank of India, Bank Street, Karol Bagh, New Delhi. Information under Section 133(6) was called for. However, the same remained uncomplied with. A summon under Section 131 was issued for furnishing the information as asked for vide letter seeking information under Section 133(6) of the IT Act, 1961. The reply was received in which the acknowledgement for filing the return for asst. yr. 1995-96 was filed but no acknowledgement for filing return for asst. yr. 1996-97 or any further return was filed. A bank statement was also filed for the period 1st Nov., 1995 to 11th Nov., 1995, in which there was deposit of Rs. 5 lakhs on 11th Nov., 1995, by way of transfer and another deposit of Rs. 2.33 lakhs on 12th Oct., 1995, by way of transfer were shown. On receipt of this information, information was called from the Bank of India, Bank Street, Karol Bagh, New Delhi, who sent the copy of bank statement for the period 1st Nov., 1995 to 18th Nov., 1995. On perusal of the said bank account, it (sic) cash on 12th Nov., 1995.
(v) M/s Dyna Builders & Contractors (P) Ltd. (DBCL) :
This company made an investment of Rs. 5 lakhs vide pay order No. 647559 dt. 14th Nov., 1995, drawn on Allahabad Bank, Scindia House, New Delhi. Here too, the AO stated that the amount was deposited on 14th Nov., 1995, by way of transfer from another account. From the information filed, it was noted that this amount had been transferred from another account of M/s X Ray Films & Advertisement (P) Ltd., Onkar Nagar, New Delhi.
(vi) M/s Chitransh Software & Marketing Ltd. (CSML) :
This company made an investment of Rs. 4 lakhs by way of banker’s cheque No. 647558 dt. 18th Dec, 1995 drawn on Allahabad Bank, Scindia House, New Delhi. The information collected revealed that deposit was made on 14th Nov., 1995, by way of transfer from another account bearing No. 303720. As in other cases, this deposit of Rs. 4 lakhs was by way of transfer from account No. 303720 of M/s X Ray Films & Advertisements (P) Ltd. There was a cash deposit of Rs. 8 lakhs on 14th Nov., 1995, in this account. Summons sent to this party remained unanswered.
(vii) M/s Bania Builders & Finance (P) Ltd. (BBFL) :
This company made an investment of Rs. 5 lakhs vide pay order No. 014531 dt. 8th Nov., 1995, drawn on Bank of India, Ashok Vihar, New Delhi. The information collected by the AO revealed that this pay order was got made by debiting the bank account of M/s M.G. Investments, in which, there was a cash deposit on the date approximate to 11th Nov., 1995. The summons issued under Section 131 remained uncomplied with.
(viii) Active Trading Co. Ltd. (ATGL) :
This company made an investment of Rs. 5 lakhs by way of banker’s cheque No. 025204 dt. 14th Nov., 1995, drawn on Vaish Co-operative Bank Ltd., Karol Bagh, New Delhi. Like-other cases, information under Section 133(6) of the Act was asked for which remained uncomplied with. The balance sheet of the said company revealed that this investment and the enquiry conducted through ADI, Rohtak, confirmed this fact. A perusal of the bank account reflected a cash deposit of Rs. 5 lakhs on 14th Nov., 1995.
(ix) V.V. Consultants (P) Ltd. :
Like in the case of ATL, this company had made investment of Rs. 5 lakhs by way of banker cheque No. 025205 dt. 14th Nov., 1995, drawn on the same bank. The balance sheet of the company reflected investment of Rs. 6.83 lakhs as on 31st March, 1995 and Rs. 6.25 lakhs as on 31st March, 1996, but it was not clear as to whether the company had invested Rs. 5 lakhs in this year or not. The enquiry conducted through ADI, Rohtak, revealed that the genuineness of both the companies were doubtful. However, the AO had not denied the possession of bank statement of both the companies.
(x) M/s Blue Home Co. (P) Ltd. (BHBL) :
This company made investment of Rs. 5 lakhs by way of pay order No. 35029 dt. 13th Nov., 1995, drawn on State Bank of Bikaner and Jaipur, Karol Bagh, New Delhi. The inspector reported that existence of this company was at a different address. The statement of the bank account revealed a deposit of Rs. 5 lakhs on the day on which the pay order was made. In this case also bank furnished the information that the banker cheque for Rs. 5 lakhs was issued by debiting the account of M/s Trango Ferro Alloy (P) Ltd. and copy of their bank account was also furnished. In order to verify the source of deposit of Rs. 5.25 lakhs by M/s TF Ltd. a summon under Section 131 of the Act was sent on the address given in the bank account and the same was received back with the postal remarks that on this given address nothing could be ascertained about this company.
(xi) M/s Archies Consultants (P) Ltd. :
This company also made an investment of Rs. 5 lakhs by way of pay order No. 049334 drawn on State Bank of Patiala, Karol bagh, New Delhi. The inspector reported that no such company at the given address and even the letter sent by registered post could not be served. The bank account of this company also revealed cash deposit before the date of investment.
5. During the course of assessment proceedings, the Authorised Representative of the assessee-company was asked to certify all the ¦ photocopies and documents, which were furnished on behalf of the respective investor companies. However, he refused to certify the same on the ground that whatever documents/details were handed over by the various investors, which the assessee-company had collected as asked for by the Department (from) time-to-time, had been submitted. The Authorised Representative of the assessee-company further submitted that none of the directors of the assessee-company had any control or any interest or power over the investor company nor they were shareholders of the investor companies. The assessee-company had no deemed interest in the companies and in their management in any manner. It was further submitted that the assessee-company had provided the documents whichever asked by the Department such as confirmed address of the companies and affidavits confirming the investments. The investor companies were assessed to tax and all the particulars regarding their investment had been filed. Hence the assessee-company was unable to produce further any books of account or documents to explain the policy regarding account and recording of transaction of the investor companies due to which discrepancies had been noted in the annual accounts of the investing companies.
6. As regards the identity of the investors, it was submitted that copy of their assessment order and copy of the acknowledgement of returns had already been filed. Thus this was sufficient enough to reveal the identity of the investors, which would prove their existence as they were assessees of the Department and the Department had jurisdiction over them. For any further clarification, the Department has ample powers to proceed under Section 133 with the ROC and have knowledge as regards to their directors, their addresses and the existence of the companies, etc.
7. In respect to the genuineness of the transaction, it was submitted that all the payments had been received by crossed bankers cheques/pay order or drafts. Fresh affidavits as well as confirmation from shareholders had also been filed.
8. Regarding creditworthiness, it was submitted that the assessee-company was not required to prove the source of source as has been held in the case of CIT v. Daulatram Rawatmull . It was further argued that applicability of Section 68 of the Act to the share capital was very limited as had been held in as the case of CIT v. Sophia Finance Ltd. (FB). Therefore, it was submitted to accept the share capital received by the assessee-company. The AO after having considered the facts and circumstances of the case made the impugned addition by observing that the onus to prove the identity, credit worthiness and capacity of the creditor to advance and also the genuineness of transaction which lay upon the assessee, as held by the Calcutta High Court in the case of Shankar Industries v. CIT , has not been discharged. Hon’ble Supreme Court in their decision in Sumati Dayal v. CIT held that where any sum is found credited in the books of account of the assessee from the previous year, it may be charged to tax as the income of the assessee of the previous year if the explanation offered by the assessee about the nature and source thereto is not satisfactory. While holding the same, the AO made specific observation with regard to the investors as under :
(a) Balance sheet of LCL, FLFL, LDPL, CLCL and BBFL do not reflect the investments made;
(b) Bank statements filed by the assessee-company in the case of investor companies CLCL, ATCL, BVCL, BHBL and ACL were false documents.
(c) The assessee-company/its Authorised Representative had refused to certify the photocopies of the documents filed by the investor companies.
(d) The investor companies LCL, FLFL, LDFL, CLCL and BBFL had got pay orders made from bank accounts of M/s MG Investments where cash deposits were made before the investment.
(e) In the case of ATCL, BBCL and ADI, Investigation, Rohtak, had doubted the genuineness of the concerns as no return for asst. yr. 1996-97 had been filed.
9. On appeal before the CIT(A), the Authorised Representative of the assessee-company has submitted that the shares were issued to 11 applicants aggregating Rs. 53 lakhs during the financial year 1996-97. In various submissions made by the learned counsel for the assessee, he has provided full details of each of the applicants from whom share application money have been received. The details of applicants have been given to the AO vide submission dt. 18th March, 1998, from which it could be noted that the details given include the following :
(i) Name of the applicant
(ii) Address
(iii) GIR Number and the Ward details
(iv) Acknowledgement of filing of IT return
(v) Balance sheet as at 31st March, 1995
(vi) Copies of share application forms
(vii) Copies of share allotment letters
(viii) Assessment orders wherever available
(ix) Form No. 32 filed with ROC showing their directors wherever available.
(x) Form No. 18 filed with the ROC by the applicant companies showing their registered offices.
10. The Authorised Representative has further submitted that by providing all the above details, the assessee-company has fulfilled its obligation of proving the existence of these companies as also their complete whereabouts available with it and furnished details of investors as provided to the assessee by the investors were also submitted to the AO to show the creditworthiness of the investors. It has further mentioned that all the details about the investors were provided to the AO as were received from them and the assessee has neither the ability nor the authority to verify the authenticity or otherwise of the information provided by the investors.
11. The Authorised Representative has further submitted that the principles laid down in the various rulings, the assessee-company has to establish that the shareholders exist and they have invested in the share capital of the assessee-company. The assessee had led substantial evidence before the AO and established all these grounds. However, if there was any further enquiry to be made, the Department had sufficient right to make such enquiries without effecting the interest of the assessee who has received these amounts as share capital from these parties through normal banking channel. He has further pointed out that in the case of CIT v. Sophia Finance Ltd. (supra) it has been held that if the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the assessee-company would be regarded as a capital receipt. As regards remarks of the AO that neither the shares have been allotted nor the application money has been refunded to the investors by 31st March, 1997, the learned counsel for the assessee has pointed out that the factual position that shares were allotted to all the applicants before 31st March, 1997, and the allotment letters were given to the AO. The balance sheet of the assessee-company as on 31st March, 1997, would reflect this fact. As regards the observation of the AO that the share application money was utilised for issuance of non-cumulative redeemable preference shares for which necessary permission of ROC was obtained only in financial year 1996-97, the learned counsel for the assessee has stated that the said statements were full of factual errors which have been made to bring the amount received by the assessee into the ambit of Section 68 of the Act. On the one hand the AO agreed that these preference shares have been issued whereas on the other hand, he noted that no shares have been issued. Under the Companies. Act, the share capital consists of the amount received for all kinds of shares and it is for the company to decide for which category of shares are to be issued/ allotted. However, all the categories of shares fall under the head “share capital”.
12. The learned counsel for the assessee has further submitted that the AO seems to be under misconception that these preference shares are not part of share capital or under this misconception, has erroneously concluded that the decision of Delhi High Court in Sophia Finance Ltd. (supra) is not applicable to the assessee’s case. The learned counsel for the assessee has further submitted that from all the material placed on record by the assessee, there is no doubt that the assessee has fulfilled its onus of establishing the source of share capital. It is not for the assessee to enquire into the source of the source of the investor. If the Department feels that it has sufficient material to justify further enquiry into the source of the investor, it has all liberty to do so. Any shortcoming on the part of the investor cannot be a case for regarding the capital receipt to treat it as the income of the assessee in the present case. He has further argued that all the parties, which are private limited companies, have confirmed that they have applied for these shares. Private limited companies are registered with the ROC and their existence is never in doubt. The relevant addresses and the income-tax assessment particulars have also been submitted to the AO. This clearly shows that all the applicant companies have been identified, their existence has been proved beyond doubt and it has been established that they have invested money in the purchase of shares.
13. As regards the discrepancy pointed out by the AO in the amounts invested by the investors when compared with the balance sheet, the learned counsel for the assessee has submitted that none of the creditors or shareholders of the assessee-company are interested in any of the investor company or have any management control. The assessee has provided all the available documents such as confirmation proof of appointment of directors their Form 32 and also the account filed by the investor companies. Thus, it has been urged that the addition made by the AO is not legally sustainable. In support thereof, reliance has been made on the decision in the case of Pragati Construction Co. v. ITO (1997) 60 LTD 201 (Del), CIT v. Daulatram Rawatmull (supra), Girdhari Nannelal v. Sales-tax Commissioner , CIT v. Orissa Corporation and CIT v. Steller Investment Ltd. .
14. The learned CIT(A) after having considered the submissions and the case law relied upon, has deleted the impugned addition by observing thus :
In CIT v. Steller Investment Ltd. it has been held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the company. The judgment further lays down the principle for deciding these issues ….It may be mentioned 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.
15. Being aggrieved, the Revenue has preferred the present appeal before the Tribunal.
16. The learned Departmental Representative has submitted that the impugned addition has been made as the assessee failed to establish the principle ingredients of Section 68 of the IT Act, 1961. According to Section 68, onus is on the assessee to establish the identity of the creditors (subscribers of the shares), to prove their creditworthiness and the genuineness of the transaction.
17. He has further submitted that mere furnishing of income-tax file, i.e., GIR number is not sufficient to. discharge the burden. The learned Departmental Representative while relying upon the decision of Calcutta High Court in the case of Hindusthan Tea Trading Co. Ltd. v. CIT , CIT v. Ruby Traders & Exporters Ltd. and CIT v. Nivedan Vanijya Niyojan Ltd. has argued that the ratio decided in the Steller Investment Co. (supra) is no more good law as it was overruled by the Full Bench decision in the case of CIT v. Sophia Finance Ltd. (supra). He has further pointed out that it has been held by the Calcutta High Court in the above named cases, and that though the SLP against the decision of Steller Investment (supra) has been dismissed by the apex Court as reported in CIT v. Steller Investment Ltd. but the said dismissal of Special Leave Petition is not a ratio decendi biding under Article 141 of the Constitution. Thus, he has argued that since the assessee has failed to establish the identity and creditworthiness of the investor companies and the genuineness of the transactions, the AO was justified to make the impugned addition. He has further relied upon the order passed by the AO.
18. On the other hand, the learned counsel for the assessee has submitted that all the share application money has been received by the assessee-company prior to the commence of its business. Therefore, it cannot be assumed by any stretch of imagination that the assessee-company had unexplained income of Rs. 53 lakhs, which has been introduced in the form of share application money. Therefore, to treat the share application money received in the year as unexplained income of the assessee is not legally correct. Reliance in this regard has been made to the following cases :
(i) CIT v. Bharat Engineering & Construction Co.
(ii) CIT v. Jaiswal Motor Finance
(iii) CIT v. Jaiswal Grain Store
(iv) Roshan Di Hatti v. CIT
(v) Asstt. CIT v. Shree Baba Rupa Das ITA No. 1543/Del/1998, dt. 31st Jan., 2002, ‘C Bench Tribunal, New Delhi.
He has further submitted that in the case of CIT v. Sophia Finance Ltd. (supra) it has been held that if the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the assessee-company would be regarded as a capital receipt and to that extent the observations in CIT v. Steller Investment Ltd. (supra) are correct; but the observation in that case to the effect that even if the subscriber to the capital were not genuine “under no circumstances could the amount of share capital be regarded as undisclosed income of the company” are not (correct).
19. The learned counsel for the assessee has further submitted that Annex. A to the impugned order would show that each of the investor companies were assessed to tax and their GIR number are duly furnished to the AO. The investor company had confirmed the investment and have filed affidavit to this effect. The details of documents filed before the lower authorities as extracted in the said Annexure would establish the identity of each of the investor companies. Since the amount has been deposited by banking channel, their creditworthiness could not be doubted in view of the decision in Sophia Finance Co. case (supra). Therefore, no addition is called for in the hands of the assessee. As regards the discrepancy pointed out in the accounts of the investor company are concerned, the learned counsel for the assessee has submitted that for such discrepancy the assessee cannot be held responsible inasmuch as the assessee-company furnished the copy of accounts of the said companies as were provided by them. Reliance has been made upon the decision in the case of CIT v. Sophia Finance’ Co. (supra), Asstt. CIT v. Anima Investment Co. (P) Ltd. (2000) 68 TTJ (Del)(TM) 1 : (2000) 73 ITD 125 (Del)(TM), L.N. Bradley India Ltd. v. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del), CIT v. Steller Investment Co. (supra) and CIT v. Steller Investment (supra) and CIT v. Achal Investment Ltd. (2004) 268 ITR 211 (Del).
20. We have heard the parties and perused the materials and the case law to which our attention was drawn during the course of hearing. The AO had made the impugned addition as according to him the investor companies do not exist as the information called for under Section 133(6) of the Act returned unserved by postal authorities and the report of the inspector found that no such firms existed at the given addresses. Balance sheets of some investor companies had not reflected the investment of share application money” with the assessee-company. The documents filed on behalf of the investor companies were found to have certain discrepancies and the said documents were refused to be certified by the Authorised Representative of the assessee-company. Therefore they were treated as bogus. Further in some cases the bank draft/pay order was got made from the account of other concerns where about equivalent amount was deposited in cash and in some cases the investment had been made out of funds got transferred from other companies who had made cash deposits on the same date on which it was transferred to the investor company account. However perusal of the record shows that the investor companies are incorporated under the Companies Act. They are assessed to tax and holding GIR number. The copies of acknowledgement of filing IT return for 1996-97/1997-98/1995-96 of these companies are placed on record. Their confirmations/affidavits of making investment in the share of the assessee-company are also available on record. The share application form and letter of allotment of shares are available on record. Thus, identity of these investments companies and their existence cannot be doubted. The Hon’ble Delhi High Court in the case of Steller Investment (supra) had held that the share capital of a limited company cannot be brought to tax as unexplained cash credit on the same footing as a spurious loan can possibly be assessed. The observation of the Hon’ble High Court are 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 mentioned 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 Department filed Special Leave Petition before the Hon’ble Supreme Court against this order of the Delhi High Court and the SLP was dismissed vide order dt. 20th July, 2000 [CIT v. Steller Investment (supra)] by holding as under :
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 the conclusion on the facts and no interference is called for.
It may however be mentioned that the Hon’ble Calcutta High Court in the case of Hindusthan Tea Trading Co. (supra) and Nivedan Vanijya Niyojan Ltd. (supra) has held that the decision in CIT v. Steller Investments Ltd. (supra) is no longer good law in view of the decision in CIT v. Sophia Finance Ltd. (supra). In CIT v. Steller Investment (supra), the Supreme Court had not entered into the question involved nor decided the ratio laid down. It has plainly held that it was a question of fact. The Supreme Court had not laid down any proposition with regard to the question. It was purely a question of facts. A decision becomes binding as a precedent only when the Court decides a particular question of law or lays down the ratio through conscious adjudication. Agreement with the finding of fact without adverting to the ratio laid down does not create a precedent.
In this connection, it is relevant to mention that the jurisdictional High Court of Delhi has recently followed the decision of Steller Investment (supra) and (supra) in the case of CIT v. Achal Investment Ltd. (supra), wherein it has been held :
Held, that the Tribunal had allowed the appeal of the assessee following its judgment in Steller Investment Ltd., which on a reference was confirmed by the Division Bench and, on appeal, the Supreme Court had agreed with the High Court, therefore, no question of law arose from the order of the Tribunal.
21. Thus, we are of the view that the observation of Calcutta High Court made in the above named cases has lost even the persuasive value as we are bound by the recent decision of jurisdictional High Court. In the case of L.N. Bradley India Ltd. v. CIT (supra), it has been held thus :
Of course in the case CIT v. Sophia Finance Ltd. (FB), the Full Bench of the Hon’ble High Court has not laid down any norms for deciding the extent of onus of proof of the amounts credited. The Hon’ble Full Bench has observed as under :
We make it clear that we are not deciding, nor it is our intention to decide as to on whom and to what extent is the onus to whom that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend upon on the facts of each case.
This significant observation of the Court clearly points out that there is a subtle distinction between an ordinary cash credit and a credit by way of share capital. Apparently, the Court had in its mind the comprehensive law contained in the Companies Act, 1956, on the acceptance of share application money and allotment of shares in consideration therefore. While in the case of ordinary loans obtained, there are overwhelming judicial decisions to say that the onus is on the .assessee to prove not only the identity of the creditor, but also to prove the genuineness and the capacity of the persons to lend. With reference to share capital for which shares have been issued, the onus on the company is very much limited in the light of the law under the Companies Act. The Full Bench decision, referred to above, makes it clear that in the case of limited companies the jurisdiction of the AO would be limited to see whether the identity of the shareholders is established and whether they exist or not. Once the identity is established, then, as the Full Bench felt, possibly no further enquiries need to be made. This conclusion was arrived at by the Hon’ble High Court apparently due to the reason that when limited companies, especially public limited companies, invite subscriptions it is neither legally possible nor practicable for such companies to insist upon the sources of share subscriptions being made known to the company. Even regarding the proof of the existence and identity of the shareholders, the public limited companies can only provide the AO with the information contained in the statutory share applications/documents/registers maintained by the companies. In this connection, it is worthwhile to appreciate the following comprehensive law laid down under the Companies Act, 1956, regarding the issue and allotment of shares by companies.
22. Further the assessee is not required to explain the source of source as has been held in the case Sarogi Credit Corporation v. CIT . In the said case it has been held that once the identity is established and the creditor pledged with oath that they have advanced the amount in question to the assessee, the burden shifts to the Department to show as to why it must be held that entry, though purporting to be in the name of third party, still represented the income of the assessee from suppressed sources. However, in the instant case there is no material to show that share application was of the assessee-company. The fact that some of the investor companies got the pay order made from the account of M/s M.G. Investments but the same has not been reflected as loan in their respective balance sheet, is matter for enquiry in the hands of the said investor companies and not in the case of the assessee-company. Hence, similarly, the discrepancies found in the account of some of investor companies is a cause to make enquiry in their cases. Further, the fact that all the share applications were received by the assessee before the commencement of the business, has not been disputed by the Revenue. In Bharat Engineering & Construction Co. (supra), the assessee was an engineering construction company, which commenced its business in May, 1943 but there were several cash credit entries in the first year of its business amounting to Rs. 2.5 lakhs. The assessee was called upon to explain such credit entries. The explanation of the assessee did not find favour with the AO, the CIT(A) nor the Tribunal. However, the Tribunal deleted the addition by taking the plea that such cash credit entries could not represent the income or profit of the assessee as they were all made very soon after the company commenced its activities. In this manner, the Tribunal took the view that in the very nature of things the assessee could not have earned such huge amount of profit very soon after it commenced its activities. The apex Court, in the above background inferred that it was reasonable to assume that such credit entries were capital receipts although for one reason or another, the assessee had not come out with the true story as regards the persons from whom such amounts were received. The apex Court approved the finding of the Tribunal.
23. In the case of Shree Baba Rupa Das (supra), the Tribunal after having considered the decision in the case of Bharat Engineering & Construction Co. (supra), Nitesh Rolling Mills (P) Ltd. v. C1T and CIT v. Smt. P.K. Noorjehan has, inter alia, held thus :
Although as a legal proposition, the rigors of the Section 68 do apply to each and every credit entry in the books of account to be maintained but the explanation of the assessee has to be considered depending on the facts and circumstances of each case in their entirety. Where sources for the credits have been identified by the assessee, however, the satisfaction is not proved by such persons, the attendant circumstances namely the absence of any commercial activity is a factor which cannot be said to be de hors while exercising the discretion of making an addition in terms of Section 68. Therefore, in the instant case, we find that there is no denying the facts that certain amounts have been received by the assessee as share capital or as loan credits before the start of its commercial operations and in that light, the CIT(A) has rightly concluded the issue.
24. In view of what has been discussed in the foregoing paras, we see no reason to interfere with the impugned order. Hence, the same is upheld.
25. In the result, the appeal of the Revenue is dismissed.