By the Bench
The assessee has raised the following grounds in this appeal :
1. “The learned Commissioner (Appeals) has erred in law and facts in confirming the addition of Rs. 69,000 being the amount of investment by Smt. Manju Devi Ajmera, as unexplained cash credit. Under the facts and circumstances of the case, he ought to have deleted the addition made by the Assistant Commissioner.
2. The learned Commissioner (Appeals) has erred in law and facts in confirming the addition of Rs. 49,000 being the amount of investment by Shri Prahlad Rai Ajmera, as unexplained cash credit. Under the facts and circumstances of the case, he ought to have deleted the addition made by the Assistant Commissioner.”
2. Shri Mahendra Gargieya, the learned counsel appeared on behalf of the assessee. He submitted that both the persons, namely, Smt. Manju Devi Ajmera and Shri Prahlad Rai Ajmera are existing income-tax assessees. Their statements were recorded by the assessing officer. Both of them have confirmed the fact that they gave the amount as shown in the books of account partly for acquiring shares and balance amount was lying as a deposit with the company. The assessing officer has treated the entire amount as unexplained cash credit on the ground that both of them are in service and their salary income is very meagre; equivalent amount was deposited by them in cash before giving cheque to the appellant-company. The returns of income were filed by them under the Amnesty Scheme. Immunity under the Voluntary Disclosure Scheme is available only to the declarants and not to the company or firm, where those declarants have made their deposits. The learned counsel submitted that the loan/share money was given to the appellant-company by cheque with a view to avoid contravention of the relevant provisions of law and, therefore, it was necessary to deposit the cash realised from old depositors in bank and then given the amount to the appellant-company cheque. The creditors have duly confirmed the fact of giving the amounts in question. They have explained the sources of their income. The appellant-company has, therefore, discharged the burden of proving the aforesaid cash credits.
3. Shri Gargieya further submitted that out of Rs. 69,000 given by Smt. Manju Devi, she has acquired shares worth Rs. 40,000 in the appellant-company. Likewise, out of total amount of Rs. 49,000 given by Shri Prahlad Rai Ajmera, shares of Rs. 49,000 have been allotted to him by the appellant-company, so far as the share capital given by these two depositors are concerned, the burden of the appellant-company is very light in view of the Full Bench Judgment in the case of CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) and also the decision of the Tribunal Meera Engg. & Commercial Co. (P) Ltd. v. Assistant Commissioner (1997) 58 TTJ (Jab) 527. Once the appellant-company proves the identity of the shareholders and the shareholders confirm the fact of having given the money for allotment of shares, the burden which lies on the company stands discharged. Shri Gargieya also submitted that the company started trial production on 1-7-1987. It was impossible for the company to earn any such undisclosed income in the year under consideration. The impossibility of company’s capacity to generate any black income in the year under consideration also supports the assessee’s prayer for deletion of this addition. He placed reliance on the judgment of the Hon’ble Supreme Court in CIT v. Gurbux Rai Harbux Rai (1972) 83 ITR 86 (SC) to support its contention. He, therefore, submitted that the entire addition should be deleted.
4. The learned Departmental Representative strongly relied upon the elaborate reasons given in the assessment order as well as in the order of the Commissioner (Appeals). Shri Jangid argued that both the depositors are husband and wife and they are in service doing petty job. It is impossible for both of them to save such a substantial amount for giving by way of deposit or share money to the appellant-company. The returns filed by both the depositors under the Voluntary Disclosure Scheme are cases of bogus capital formation. The immunity under VDS is available only to the declarant and not the company, where the amounts have been deposited. The burden clearly lies on the appellant-company to not only prove their identity but also to prove their capacity, which on the facts and the circumstances of the present case, has not been proved. The judgment of Hon’ble Full Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) is not applicable to the present case as it is a case of private company and not a public company as in that case. Shri Jangid thus strongly supported the order of the Commissioner (Appeals).
5. We have carefully considered the submissions made by the learned representatives of the parties and have perused the orders of the learned department authorities.
6. Smt. Manju Devi Ajmera gave a total sum of Rs. 69,000 to the appellant-company in different dates. In assessment year 1987-88, she had given a sum of Rs. 20,000 to the appellant as is apparent from her balance-sheet as on 31-3-1987, placed at page 7 of the paper book. In assessment year 1988-89, the total amount given to the assessee was Rs. 69,845 which consisted of two items. Rs. 40,000 represent investment in shares of that company and balance Rs. 29,845 has been shown as loan to the appellant-company. It is not in dispute that most of the amounts were given by her by cheque. The assessing officer has observed that soon before giving cheque to the company the equivalent amount was deposited by Smt. Manju Devi in her bank account out of which cheque was given. This circumstance may justify a suspicion and may constitute a warning to the assessing officer for conducting further probe and detailed investigation, but this by itself cannot justify addition in the hands of the appellant-company. The assessing officer in the assessment order has observed that the balance-sheet of Smt. Manju Devi for the assessment years:-1983-84 to 1985-86 shows that the amounts of loans given by her were shown as loan to “relatives and associates” and to “villagers and farmers”. There is no break-up and description of relatives, associates, villagers and farmers. The assessing officer further observed that the situation changed in assessment year 1987-88 when she is shown to have invested Rs. 20,000 in Shivam Synthetics (P) Ltd., balance-sheet of this year is radically different from the balance-sheet of earlier three years. The relatives and farmers disappeared and M/s Shivam Synthetics (P) Ltd. and its sister concerns M/s Balaji Traders and M/s Shri Kishan Mohan Lal and Shrinath Textiles Mills appeared. It is beyond comprehension as to why the assessing officer did not ask the assessee to furnish exact list of debtors as on 31-3-1984, 31-3-1985 and 31-3-1986. He could have obtained the list of those debtors pertaining to earlier three years with complete addresses of those debtors and could interrogate them with a view to find out whether Smt. Manju Devi really owned any such capital in assessment years 1983-84, 1984-85 and 1986-87. The assessing officer made. presumptions on the basis of the aforesaid circumstances. He should have conducted further investigation and arrived at a firm conclusion that this was a case of bogus capital formation and Smt. Manju Devi did not, in fact, own any such capital as shown in her income-tax return for assessment years 1984-85 to 1988-89. In the statement of Smt. Manju Devi, recorded by the assessing officer on 23-3-1989, the lady gave name of some of the debtors. In reply to question No. 3, she stated that her income was kept invested as loan with various relatives such as Rampal, Chechani, Badanvads, Sh. Bansilal Kankani, Shri Sohan Lal Ajmera and also to her father Shri Sobha Ram. The assessing officer could summon those debtors and ascertain the truth and correctness of the statement apart from confirming the fact that she gave Rs. 69,000 to the appellant-company, also explained the sources of her income. She is a graduate and working as a teacher in a recognised school. Apart from this, she derives income from tuition and activities of knitting and sewing, etc. She is an existing income-tax assessee. The assessment made in her case have neither been reopened nor revised under section 263. As regards contribution of amount as share money, the Hon’ble Full Bench of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. (supra), has held that when an assessee-company represents that it had issued shares on the receipt of share application money, then the amounts so received would be credited in the books of account of the company. The Income Tax Officer would be entitled and it would indeed by his duty to enquire whether the alleged shareholders exist, then possibly no further enquiry need be made. But if the Income Tax Officer finds that the alleged shareholders do not exist then, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The Hon’ble High Court has further held that if the shareholders are identified and it is established that they have invested money in purchase of shares, then the amount received by the company would be regarded as capital receipt. The aforesaid observations of the Hon’ble Delhi High Court clearly indicate that the burden of the appellant-company in relation to share-application money is much lighter. Once the identity of the shareholder is established and they accept the fact of investment made in shares of that company, ordinarily the burden which lies on the said company will stand discharged.
7. The fact relating to amount given by Shri Prahlad Rai was also similar. The amount was given by cheques. He also filed returns under the Amnesty Scheme. The basis of addition made by the assessing officer is also similar. The assessments made in the case of Shri Prahlad Rai have also not been reopened or revised. He had confirmed the fact of having made the investment with the appellant-company in the statement recorded by the assessing officer.
8. On a careful consideration of the entire relevant facts, we are of the considered opinion that the addition of Rs. 69,000 and Rs. 49,000 made by way of unexplained cash credit in the names of Manju Devi Ajmera and Shri Prahlad Rai Ajmera cannot be sustained. The assessing officer is, therefore, directed to delete the same.
In the result the appeal is allowed.